diff options
Diffstat (limited to 'old/51298-0.txt')
| -rw-r--r-- | old/51298-0.txt | 17293 |
1 files changed, 0 insertions, 17293 deletions
diff --git a/old/51298-0.txt b/old/51298-0.txt deleted file mode 100644 index b0c5cc3..0000000 --- a/old/51298-0.txt +++ /dev/null @@ -1,17293 +0,0 @@ -The Project Gutenberg EBook of ASCE 1190 The Valuation of Public Service -Corporation Property, by Henry Earle Riggs - -This eBook is for the use of anyone anywhere in the United States and most -other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms of -the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll have -to check the laws of the country where you are located before using this ebook. - -Title: ASCE 1190 The Valuation of Public Service Corporation Property - Transactions of the American Society of Civil Engineers, - vol. LXXII, June, 1911 - -Author: Henry Earle Riggs - -Release Date: February 24, 2016 [EBook #51298] - -Language: English - -Character set encoding: UTF-8 - -*** START OF THIS PROJECT GUTENBERG EBOOK VALUATION--PUBLIC SERVICE CORP. PROPERTY *** - - - - -Produced by Richard Tonsing, Juliet Sutherland and the -Online Distributed Proofreading Team at http://www.pgdp.net - - - - - - - AMERICAN SOCIETY OF CIVIL ENGINEERS - INSTITUTED 1852 - - TRANSACTIONS - - - - - Paper No. 1190 - THE VALUATION OF PUBLIC SERVICE CORPORATION PROPERTY.[1] - - - BY HENRY EARLE RIGGS, M. AM. SOC. C. E. - - WITH DISCUSSION BY MESSRS. F. LAVIS, CHARLES H. HIGGINS, S. D. - NEWTON, WILLIAM V. POLLEYS, C. P. HOWARD, J. E. WILLOUGHBY, - HENRY C. ADAMS, CARL C. WITT, R. A. THOMPSON, CHARLES H. - LEDLIE, WILLIAM G. RAYMOND, W. H. WILLIAMS, P. E. GREEN, E. - KUICHLING, RICHARD T. DANA, GEORGE T. HAMMOND, LEONARD - METCALF, CHARLES HANSEL, J. MARTIN SCHREIBER, CLINTON S. - BURNS, HALBERT P. GILLETTE, ARTHUR L. ADAMS, C. D. PURDON, - A. MORDECAI, W. B. RUGGLES, AND HENRY EARLE RIGGS. - - - - - INTRODUCTORY. - - -The industrial and economic development of the past two decades has -opened many new lines of special work in the Profession of Engineering, -none of which is more difficult and complicated or of greater ultimate -value to the public at large than that of the appraisal or valuation of -the property owned and operated by public service corporations; and none -of the fields of engineering specialization requires greater care or -calls for more skill, experience, integrity, or sound judgment. - -The individual engineer, or commission of engineers, entering upon an -appraisal of large magnitude, particularly one including properties of -more than one company, will find conditions varying in every one, and -each property presenting new, complex, and confusing elements of value -to pass upon and determine. - -Prior to 1900 there had been few calls on engineers for large -appraisals, and the literature descriptive of engineering effort along -this line was practically nothing. Since 1900 many extensive appraisals -have been undertaken by States, by railroad and banking corporations, -and by cities; certain well-defined lines of practice have been -developed; many differing opinions as to certain methods and principles -have been brought out; and enough has been added to the printed -literature to enable one to compare methods of work and to fix with -reasonable certainty upon some as correct, and to discard others as -improper. - -There are so many complex factors entering into the problem of -valuation, so many widely different plans have been presented, and there -are so many thinking men who have opposed and do honestly and sincerely -oppose any form of valuation, that a most thorough study of the subject -should be made. It should be examined from all angles, and every -possibility of danger from legislation regarding it should be weighed -with utmost care. - -The question of railroad valuation, involving as it does the largest -industry of the nation, naturally takes first place in such a -discussion, but so many of the general principles of railroad valuation -are applicable to the appraisement of corporate property, so many -arguments have been advanced by engineers and others, and so many -judgments of the Courts have been rendered in connection with -water-works and gas-works valuations, that it is not desirable to limit -this discussion wholly to the problem of railroad valuations. - -The reasons for requiring that valuations be made may be broadly divided -into two general classes: - -_First.—As a Matter of Public Interest._—The public, and particularly -the investing public, requires valuations in order to guard against -unworthy and dishonest corporation securities, to be assured that -corporations are bearing their legitimate and proper share of the burden -of taxation, and to furnish a proper basis for fixing equitable and just -rates for the services rendered by the corporation. - -Under this class would come all appraisals made for information to be -used as a basis for legislation relative to: - - (_a_) _Taxation of Corporations._—Such were the valuations in - Michigan and Wisconsin. - - (_b_) _Rate Regulation._—This was the reason which prompted the - work in Minnesota and Nebraska. - - (_c_) _Limitation of Capitalization._—The regulation of issue of - stocks and bonds was the purpose of the Texas valuation. - - (_d_) _Fixing a Price for Sale._—Many of the water-works and - electric light valuations were made in order to determine a - fair price to be paid for the property at the expiration of - the franchise. - - (_e_) _The General Information of the Public._—To be used in - connection with the fixing of terms for franchise renewals, - etc., etc. - -_Second.—As a Matter of Corporation Necessity or Expediency._—Valuations -are made in order to guide large investors, to secure a safe and -up-to-date basis on which to negotiate a sale, a purchase, or a -reorganization of the property, or a consolidation with other like -properties, and to secure justice to honestly administered corporations. - -The great majority of appraisals under this head have been in accordance -with some other methods than those adopted in the State valuations. It -is not intended in this paper to engage in any argument as to the -various purposes of appraisals, or even to urge the necessity or -desirability of a general appraisal of properties. An absolutely -accurate and correct statement of the cost of reproduction of all the -physical properties of the railroads of the country, a correct statement -of the actual capital needed to reproduce these properties as they -exist, and, along with this, a statement of the actual physical -depreciation, would be a document of vital interest. - -This paper is confined to a discussion of the methods which should be -used in arriving at a correct figure of cost of reproduction and -depreciation—it does not take up questions involving the propriety of -those figures when reached. The propriety or legality of using such -figures as a basis for an assessed valuation, as a basis for rate-making -(rate-making being an art in itself involving complications as great as -those encountered in valuation), or any arguments as to the justice or -injustice of legislation restricting issues of stocks or bonds, will be -conceded no place in this paper. It is assumed that all these questions -would have been taken up and a satisfactory answer reached before a -valuation could have been ordered. - -The different elements of value in property, the relations of this -property to the public, the method of determining the worth of these -elements of value which have been adopted in the past by men engaged on -valuation work, a comparison of these methods, a discussion of the -objections that have been made to them, and a presentation, not only of -the writer's views as to proper methods, but those in which he disagrees -with usages adopted by others—these define the scope of this paper. - -No matter what particular end is to be served by a valuation, the -commission engaged upon it will be asked to furnish a fair value, -perhaps with reasonable limitations in the instructions, perhaps with a -general and indefinite instruction to find the value. They will -encounter, among other difficulties: - -_First._—The fact that human machines are not exact duplicates, and that -allowance must be made for a large measure of error, on account of the -personal equation of the men engaged on the work, as individual errors -of judgment are frequent on any work of magnitude. This personal element -must be corrected by uniformity of method, by constant checking, and, as -far as possible, by subordination of personality to system. - -_Second._—The fact that human selfishness is a dominant quality—the -railroad manager who opposes methods which he believes will increase -values in an appraisal for taxation, or who, on the other hand, uses -every possible argument to increase values if the work be as a basis for -rate-making or for restriction of bond issues, or the State official who -is desirous of using original cost on a valuation to be used for -rate-making in order to keep the valuation down to a minimum, and the -politician who depends on an unenlightened public opinion to create -sufficient outcry to influence the work to his advantage—are all -actuated by a perfectly human wish to attain ends which seem to them -desirable, and are but typical of men who will endeavor to influence -every appraisal. - -In view of these considerations, it is a question whether results are -not frequently affected by the knowledge of their intended use, and -whether a system which will entirely remove such causes of error can be -applied to the work. - -If an engineer, or a commission of engineers, is directed to examine a -certain property and report the true cost of reproduction, depreciation, -or present value, taking into account all facts connected therewith, the -final figures should not differ, whether the report is to be used as a -basis for reorganization, sale to another corporation, or is to be used -by a State legislature as a basis for formulating a rate bill, or as a -basis for a value for taxation. The result secured is a necessary -preliminary on which depends the accuracy, fairness, and justice of the -other work which is to follow. This is an engineering work, a statement -of certain physical property, the estimated cost of reproducing it new, -less the estimated depreciation, and, beyond the differences due to -personal judgment, these figures may not vary. - -The word "value" is in common use, and yet, in the minds of many people, -its exact meaning is vague. It is true that the "value" of a property is -an unstable figure, subject to fluctuations due to natural or artificial -causes, and that a material change in value may occur suddenly, but the -"value" of any given property on any given date is, or should be, from -an engineering standpoint, a definite sum which may not be varied or -changed to suit the whim or will of the people for whom the work is -done. - -In all the subsequent discussion of values and methods of obtaining -values, it is assumed that, unless specifically limited to a -determination of cost of reproduction and depreciation, a valuation -commission should be governed by the following rules: - -_1._—No account may be taken of the purpose for which the resultant -figure of value is to be used; and the result should not vary, no matter -what that purpose may be. - -_2._—The resultant figure should be the honest judgment of the men -composing the commission, as to the actual cost of reproduction, present -physical value, or "fair value," and should be ascertained by a -systematic and scientific method which takes into account all the facts -concerning the property, its physical value, its strategic location, its -operating revenues and expenses, and its franchises, rights, -competition, opposition, and all other tangible or intangible elements -which would affect values. The method of valuation should be such as to -minimize or entirely eliminate all differences due to errors of personal -judgment. - -_3._—All properties being appraised are considered as operating -properties. One which is dead, inert, and not in use, cannot be -considered as coming under such a discussion as this, and such -properties are not treated in this paper. The term "going concern" is -not used in connection with the physical property, any element of value -implied by the term, over and above the "overhead charges," being -treated as an intangible or non-physical element of value. - -In stating this position, the writer is aware that it is a difficult -matter indeed to get away from the fact that some specific -purpose—taxation, for example—is the definite end in view in every -valuation, and that, instinctively, men engaged on the appraisal will -find themselves modifying their figures to meet some real or fancied -condition which they conceive might arise, or to prevent some injustice -which they believe might be done. Every subordinate employee needs to be -watched, every man in charge must watch himself, or he will find himself -unwittingly, almost instinctively, coloring his results by some old -prejudice of his early years of employment, or some loyalty to his own -ideas of governmental or economic policy. The writer has noted this in -every appraisal on which he has been engaged, and calls particular -attention to it as the first difficulty which must be overcome in the -organization of the force for a large appraisal. - -In the following pages all complications which might arise from the -purpose of the appraisement are considered as eliminated, and the -possibility of erroneous conclusions being reached by reason of the -personal factor (while recognized as being ever present) will not be -specially emphasized. - ------ - -Footnote 1: - - Presented at the meeting of January 4th, 1911. - - - - - THE RELATION OF PUBLIC SERVICE, OR QUASI-PUBLIC CORPORATIONS, - TO THE PEOPLE. - - -In reference to questions of value, the engineering commission must -hear, consider, and reconcile arguments advanced by adverse and often -hostile interests. On the one side stand the corporations, with large -financial interests involved, often with an excessive amount of stock -and bonds issued on the property, the existence of which issues the -corporation wishes to justify, and, whether properly capitalized or not, -the management being imbued with the perfectly human desire to defend -corporate interests from attack of any kind; on the other side is public -opinion, often unreasonable, often misinformed, and frequently -prejudiced. - -It appears necessary, therefore, to consider briefly the relation which -these interests bear to one another, to study the causes which have led -to mutual misunderstandings, and to note the proper relations which -should, if possible, be established and maintained between the people -and those corporations organized to perform certain of the functions of -the State. - -A public service or quasi-public corporation is a corporation which is -operating under the terms of rights, grants, or franchises given by the -public, either to this particular corporation direct or granted by -statute to a class of corporations. - -The property of the corporation is used to render certain services to -the public, with the expectation of financial gain. - -It is not material whether the grant be a franchise permitting a -water-works company to use the streets and alleys of a city for its -mains, and the service be the pumping of water for domestic service and -fire protection, or whether the grant be the statutory rights of -corporate existence and eminent domain, and the service rendered be the -transportation of freight and passengers; the general principle is the -same; the company has secured from the people certain rights which -enable it to do business, and the people are directly benefited by the -services rendered by the company. The increased comfort of living makes -for the growth of the city; the increased transportation facilities -build and develop the country traversed by the railroad; and this growth -and development, not only operate to the advantage of the people, but -also to that of the company in the way of increased business and -increased revenues. - -The capital required to build and develop these properties was furnished -in the hope of, and with the expectation of, a proper financial reward. -It has frequently happened that such properties have been built years in -advance of sufficient development to support the enterprise, built, in -fact, without expectation of immediate returns, and long periods of time -have often elapsed before any profit has been secured. - -It has also frequently happened that corporations have been aided to a -very large extent by public funds, by the voting of aid bonds, by the -donation of large tracts of land, by payment for certain service at such -rates as would largely relieve the company from loss in operation, by -the remission of taxes, or by the direct donation of funds. - -The company is clearly entitled to earn a reasonable profit on the -actual capital invested, in addition to the legitimate cost of -operation, payment of taxes, and sinking funds to cover depreciation and -obsolescence. - -The public is clearly entitled to good service at the lowest rates that -will permit the company to earn its reasonable profit and expenses. -Increases in tonnage, population, and consequent net earnings of the -corporation should entitle the public to a benefit in reduced charges -for service, when the increased earning is of a permanent character. - -The general tendency of the Courts has been to treat a franchise as a -contract, and to be governed closely by the language and evident intent -of the makers, but to safeguard the rights of the public to the fullest -extent consistent with justice. - -A franchise requires specific performance of specific acts. Nothing will -be assumed or implied. The Courts recognize that the investors are -entitled to reasonable returns, and that the public is entitled to fair -rates. - -In the case of Los Angeles Water Company _vs._ City of Los Angeles (103 -U. S., 711), the United States Courts held that at the expiration of a -30-year franchise, which provided that the city was to pay for the value -of all improvements, when the city failed to agree upon, tender, or pay -such value, so long as the company complied with the terms of the -contract, and until the city terminated it by making or tendering -payment, the passage of an ordinance by the city fixing rates was void. - -In the case of Weatherly _vs._ Capital City Water Company (Ala. 22 So., -140), the Alabama Courts held that the acceptance of a franchise -involved a grave responsibility, and that the company could not stop -furnishing water and fire protection, even if the work was done at a -loss. - -In the case of Myer _vs._ Brown (65 Cal., 589), the Court said: - -"It is well occasionally to recall the fact that there is no more reason -to permit a municipal government to repudiate its obligations entered -into for value, than to permit an individual to do so. Good faith and -fair dealing should be exacted of one equally with the other." - -Judge Brewer, in the Kansas City Water-Works case (62 Fed. Rep., 853), -said: - -"All contracts involving property rights and obligations, between -municipalities and individuals, must be presumed to be based upon and to -recognize the ordinary laws of business transactions." - -In 1903 the Maine Supreme Court issued a set of instructions to -appraisers appointed to fix values of certain properties. The Court set -forth its views as follows: - -"Summarized, these elemental principles are, the right of the company to -derive a fair income based upon the fair value of the property at the -time it is being used for the public, taking into account the cost of -maintenance and depreciation and the current operating expenses, and the -right of the public to demand that the rates shall be no higher than the -services are worth to them, not in the aggregate, but as individuals." - -The Supreme Court of the United States has again and again given its -views, which may be summarized as follows: - -"It cannot be said that a corporation is entitled, as of right, without -reference to the interests of the public, to realize a given per cent. -upon its capital stock. When a question arises whether the legislature -has exceeded its constitutional powers in prescribing rates to be -charged by a corporation controlling a public highway, stockholders are -not the only persons whose rights and interests are to be considered. -The rights of the public are not to be ignored. - - * * * * * - -"The public cannot properly be subjected to unreasonable rates in order -simply that stockholders may earn dividends. The legislature has the -authority in every case, where its power has not been restrained by -contract, to proceed upon the ground that the public may not rightfully -be required to submit to unreasonable exactions for the use of a public -highway established and maintained under legislative authority." (164 U. -S., 578.) - -"It is not to be inferred that the power of limitation or regulation is -itself without limit. This power to regulate is not a power to destroy, -and limitation is not the equivalent of confiscation. Under pretense of -regulating fares and freights the State cannot require a railroad -corporation to carry persons or property without reward, neither can it -do that which in law amounts to the taking of private property for -public use without just compensation. * * *" (116 U. S., 307.) - -In the case of Smyth _vs._ Ames (169 U. S., 466), the Court said: - -"If a railroad corporation has bonded its property for an amount that -exceeds its fair value, or if its capitalization is largely fictitious, -it may not impose upon the public the burden of such increased rates as -may be required for the purpose of realizing profits upon such excessive -valuation or fictitious capitalizations; and the apparent value of the -property and franchises used by the corporations, as represented by its -stocks, bonds and obligations, is not alone to be considered when -determining the rates that may reasonably be charged. * * * - -"We hold, however, that the basis of all calculations as to the -reasonableness of rates to be charged by a corporation maintaining a -highway under legislative sanction must be the fair value of the -property being used by it for the convenience of the public. - - * * * * * - -"What the company is entitled to ask is a fair return upon the value of -that which it employs for the public convenience. On the other hand, -what the public is entitled to demand is that no more be exacted from it -for the use of a public highway than the services rendered by it are -reasonably worth." - -The relations between the corporations and the public that they serve -have been clearly defined by the Courts, as the foregoing quotations -show. - -That the mutual relations existing between the management of the -corporations and the public are far from what they should be, there can -be no doubt. On the one hand, the great mass of the voting public is -uninformed as to actual revenues, disbursements, and operations of the -corporations, as to whether their income is unreasonably large, or -whether they are struggling to exist. The sums of money involved in the -dealings of the corporations are so stupendous in comparison with the -amounts used in an ordinary private business—even in one of considerable -magnitude—that the majority of the public cannot comprehend them. The -published statistics are in such form that only the careful student of -affairs can understand or analyze them, and but few of the public -officials who receive them are able to read the reports of the -properties and comprehend them. As a consequence, the corporation, as a -political issue, has been the subject of jest, gibe, and cartoon; there -has not been an intelligent public discussion of available reports and -statistics, and it may be said that, generally, the mass of the public -has come to class all corporations as grasping, overbearing, and unjust, -and to consider them all as exceedingly prosperous. This has been taken -advantage of by politicians for their own selfish ends, and has led to -sundry legislation, some of which has been unreasonable and unjust to -the corporations, and much of which is aimed at real abuses that never -ought to have existed. - -The reasonableness of a rate depends, not alone on the amount of capital -invested, but on the volume of traffic, the density of population, the -actual cost of service, and many other elements. Rate legislation has -been attempted without full investigation. Acts have been passed -compelling the establishment of stations and terminals, the improvement -of roadway and structures, the purchase of new equipment, the -installation of safety appliances and block signals, and many other -requirements have been made, some (but by no means all) of which are -unreasonable and burdensome. Nearly one-half the States of the Union -have by law required a 2-cent, or 2½-cent, passenger fare, regardless of -density of population, amount of traffic, or other considerations which -might render such rates unreasonable. The regulation of the carriers, by -legislature, by railroad commissions, by State officials, and by Courts, -the addition of burdens of expense, and the cutting off of revenue, all -give considerable ground for the opposition of the carriers to anything -that looks like hostile legislation, and compels the student of affairs -to admit that there is justice in the claim of the managements, that -there is grave danger, not only of seriously crippling many roads, but -of so impairing the credit of the railroads as a class that it will be -increasingly difficult to secure capital to provide for the necessary -extensions and development of the transportation facilities of the -country. - -On the other hand, perfect frankness compels the admission that the -state of public opinion which compelled the passage of these laws has -been caused largely by the corporation officials themselves. There is -probably no more loyal body of men in America to-day than the officials -and employees of railroads. Their loyalty, however, is all to "our -company." They enter its service as boys or young men; they grow up to -the full strength of manhood working for its good; they take little or -no part in public affairs; they have no time for the study of public -questions. Their friends are almost exclusively among their own -associates in the service of the road, and their development is along -the lines of their own special work in the service. As a body of honest, -honorable, and worthy men, absolutely loyal to their employers, they -have few equals; but it is doubtful if any equal number of men, of equal -intelligence, have as limited a knowledge of the fundamental truths of -government, or knowledge so colored by bias. It is also doubtful whether -any equal number of men have in their ranks so few who bear an active -part in the duties and activities of citizenship, or who exercise large -influence on their neighbors. - -While the foregoing statement is believed to be absolutely true, it will -not do to pass over the notable exceptions. Such men as James J. Hill, -F. Am. Soc. C. E., M. E. Ingalls, and others of the higher officials, -who have taken an active part in public affairs, have had commanding -influence. Theirs has been the sound policy, as the property in their -hands has not suffered. The short-sighted policy which, in December, -1909, induced the management of one road to compel all its employees -holding municipal offices to resign, is bound to react and create -hostile feeling on the part of the public. - -The entire trend of a training in railway service is to fill a man with -prejudice against all things that undertake to regulate or control the -corporations, and often goes so far as to enable him to do, willingly -and as a matter of right, things which with a broader view of the -interest of the whole community he would not agree with at all. The -result of this intensive training is that the railway service has in it -thousands of men who become impatient with any effort to regulate or -control; who permit their irritation to show; and who, by their own -attitude, create unnecessary hostility. F. A. Delano, M. Am. Soc. C. E., -President of the Wabash, in an address[2] at Hannibal, Mo., on March -25th, 1909, said: - -"In ordinary manufacturing or commercial undertakings, every man has his -own notions about the conduct of his business, and does not want to be -interfered with, or dictated to by people who know less about his -business than he does himself. Now, while it may be argued in the case -of public service corporations that the people who have put their money -into these enterprises, have done it with their eyes open and with full -knowledge that they were subject to governmental regulation and control, -there is nothing in that argument which makes public interference any -more palatable to the man or group of men who are interfered with." - -This address well expresses the spirit of the railway managers and -employees toward all forms of investigation, and the complete lack of -understanding, on the part of these managers, of the legal and moral -relations which they bear to the communities which they serve. It is -extremely unfortunate that railway and corporation people have not taken -the public fully into their confidence, and fully and freely given out -correct information as to the operation and depreciation of their -properties; also, it is unfortunate that, when a corporation official -does feel a grievance, he permits himself to make a partisan speech, or -write an unwise article for publication. Much hostility is traceable to -foolish, undiplomatic sayings or writings of corporation managers (which -are often but half quoted), or to equally foolish speeches or newspaper -editorials in opposition to the corporations, which are taken seriously -by the managers. Whatever may be the cause, there is a regrettable -hostility, and, on the part of the corporation officials, there is an -apparent unwillingness to admit right motives to anyone advancing -theories regarding corporate regulation and control, due largely to the -training and atmosphere surrounding the corporate service. - -The public has a large bill of particulars, one of which is the -promotion of wildcat companies, such, for instance, as the "New York and -Chicago Air Line" project which, only a year or so ago, drew from -$2,000,000 to $3,000,000 from the people in a limited territory. These -people were "investing" in railway stocks. A Federal control of the -issue of stocks and bonds would have prevented this and hundreds of like -swindles. Any move to secure such a law has always been opposed by the -management of large and legitimately operated corporations, under the -impression that they are about to be persecuted, and, naturally, the -victim classes these corporations with the alleged one that secured his -money. - -The issue of stocks and bonds far in excess of any possible cost or -value of railroad, street railroad, and other properties, and the making -of large personal fortunes by the promoters, are matters of such -frequent occurrence that it is difficult, indeed, to dismiss them with a -mere denial. There is hardly a community of any size which has not had -its example of "consolidation," "combine," or "merger," which has -resulted in the issue of excessive securities; and there is hardly a -citizen of any intelligence who has not either seen or had experience -with some form of corporation promotion carried on strictly within the -law, but which, nevertheless, in plain language, was a swindle. These, -to say nothing of some gigantic deals involving millions, will sooner or -later compel some form of regulation of the issues of stocks and bonds. -In the last analysis, it is the money of the people, the hundreds of -thousands of small investors, depositors in banks, and owners of life -insurance, whose money goes into corporation securities, and, until the -officers of the great railroads co-operate in securing such forms of -control of stock and bond issues as will make impossible the purely -speculative "wildcat" corporations, and thus safeguard minor -corporations, as to furnish at least reasonable security to those whose -money is invested, all forms of corporation security must be under -suspicion with the public, and the agitation for control must continue. - -It is not, as Mr. Delano says, a case of put your money in with your -eyes wide open; it is an effort on the part of the people to safeguard -this form of corporate security in such a way that it can be treated as -any other form of sound investment. It should not be necessary to -require that all investors in corporate securities be financial experts. -It is the writer's opinion, based on his observation and professional -practice, that the railroads are not generally open to charges of -over-capitalization. While there are flagrant instances, the chief -culprits are among other classes of corporations. If such be the fact, -it would seem that the interests of the great railway corporations would -be in no wise jeopardized by sane and reasonable control. - -The theory of taxation is that every one shall bear his proportionate -burden of the cost of maintaining the government. - -Regardless of any opinions that may be held as to the propriety of the -methods adopted in the Interstate Commerce Commission's commercial -valuation of railroad properties, it will be conceded that the results -gave a set of figures for all the States of the Union, secured by a -uniform method of computation and distribution. Table 1, which is a -compilation from Tables 1 to 11 of Bulletin 21, shows clearly why, in -certain States, corporate taxation is a live issue, and if (as suggested -by Mr. Williams in his article, elsewhere referred to) amendment of the -Constitutions of some of the States is necessary, it is safe to assume -that the condition of inequality shown by this table is such as to -compel these changes. - -It is needless to cite further instances; enough has been said to -indicate: - - _First._—That the corporations and the public have such intimate - business relations that a blow at either must necessarily - injure the other seriously; - - _Second._—That the Courts have defined quite clearly the legal - relation existing between the two interests; - - _Third._—That there is lacking a proper spirit of mutual - confidence, and the two interests at the present time are - generally hostile; - - _Fourth._—That there have been errors and abuses on the part of - both corporations and public; and - - _Fifth._—That capital invested in corporations is, and should - be, the money of the people, and should be safeguarded so as - to prevent its loss by manipulation, and insure a fair - return. - - TABLE 1.—COMPARISON OF ASSESSED VALUATION AND COMMERCIAL - VALUE OF RAILWAY PROPERTIES. - - ═══════════════╤══════════╤══════════════╤═════════════════╤═══════════ - State or │ Miles of │ Commercial │ VALUATION FOR │ Ratio of - territory. │ single │ value: June │ ASSESSMENT. │assessed to - │ track. │ 30th, 1904. │ │commercial - │ │ │ │valuation: - │ │ │ │Percentage. - ───────────────┼──────────┼──────────────┼─────┬───────────┼─────────── - │ │ │Year.│ Amount.│ - ───────────────┼──────────┼──────────────┼─────┼───────────┼─────────── - Alabama │ 4,669.35│ $150,211,000│ 1905│$53,926,026│ 35.9 - Arkansas │ 4,126.44│ 124,626,000│ 1904│ 34,709,623│ 27.8 - California │ 6,262.54│ 350,694,000│ 1904│ 92,378,550│ 26.3 - Colorado │ 4,976.24│ 198,261,000│ 1903│ 49,492,135│ 25.0 - Connecticut │ 1,017.72│ 105,369,000│ 1904│120,493,648│ 114.4 - Florida │ 3,555.84│ 80,467,000│ 1904│ 21,817,478│ 27.1 - Georgia │ 6,304.72│ 156,603,000│ 1903│ 63,105,810│ 40.3 - Idaho │ 1,461.53│ 91,877,000│ 1904│ 10,115,378│ 11.0 - Illinois │ 11,622.74│ 805,057,000│ 1904│425,709,055│ 63.8 - Indiana │ 6,917.85│ 375,541,000│ 1904│165,863,367│ 44.2 - Iowa │ 9,859.23│ 344,847,000│ 1904│ 57,535,160│ 16.7 - Kansas │ 8,811.43│ 356,356,000│ 1904│ 60,093,534│ 16.9 - Kentucky │ 3,253.00│ 155,772,000│ 1904│ 77,658,040│ 49.9 - Louisiana │ 3,898.74│ 123,401,000│ 1904│ 29,044,195│ 28.9 - Michigan │ 8,660.29│ 277,597,000│ 1904│196,795,000│ 70.9 - Minnesota │ 7,811.04│ 466,734,000│ │ │ - Mississippi │ 3,480.25│ 107,884,000│ 1902│ 29,847,640│ 27.7 - Missouri │ 7,711.05│ 309,768,000│ 1903│ 97,916,869│ 31.6 - Montana │ 3,267.10│ 196,209,000│ 1904│ 36,759,827│ 18.7 - Nebraska │ 5,820.88│ 263,170,000│ 1904│ 46,082,853│ 18.5 - Nevada │ 986.56│ 43,745,000│ 1904│ 13,778,049│ 31.5 - New Hampshire │ 1,275.97│ 79,786,000│ 1904│ 22,625,000│ 28.3 - New Jersey │ 2,277.85│ 333,568,000│ 1904│231,655,525│ 69.5 - New York │ 8,297.29│ 898,222,000│ 1903│229,582,064│ 25.6 - North Carolina │ 4,075.00│ 113,146,000│ 1904│ 69,480,974│ 61.4 - North Dakota │ 3,190.77│ 689,797,000│ 1904│133,858,945│ 19.4 - Oklahoma │ 2,611.03│ 78,668,000│ 1905│ 11,936,317│ 15.2 - Pennsylvania │ 11,023.24│ 1,420,680,000│ │ │ - Rhode Island │ 211.89│ 25,719,000│ 1904│ 15,832,003│ 61.6 - South Carolina │ 3,175.28│ 75,500,000│ 1903│ 29,467,716│ 39.0 - South Dakota │ 3,047.14│ 49,646,000│ 1904│ 14,354,930│ 28.9 - Tennessee │ 3,480.83│ 131,166,000│ 1903│ 58,536,566│ 46.6 - Texas │ 11,848.03│ 237,718,000│ 1904│ 95,209,785│ 40.0 - Utah │ 1,779.69│ 90,325,000│ 1904│ 20,682,461│ 22.9 - Vermont │ 1,063.25│ 37,311,000│ 1902│ 27,344,020│ 73.3 - Virginia │ 3,932.33│ 211,315,000│ 1904│ 63,269,623│ 37.7 - West Virginia │ 2,836.83│ 201,799,000│ 1904│ 28,771,358│ 14.2 - Washington │ 3,355.83│ 182,837,000│ 1904│ 26,066,949│ 14.3 - Wisconsin │ 7,048.76│ 284,510,000│ 1904│218,024,900│ 76.6 - Wyoming │ 1,247.70│ 100,307,000│ 1904│ 7,498,232│ 7.5 - Arizona │ 1,751.35│ 68,356,000│ 1904│ 6,667,349│ 9.7 - District of │ 32.00│ 5,578,000│ 1904│ 2,486,024│ 44.6 - Columbia │ │ │ │ │ - New Mexico │ 2,504.66│ 8,640,000│ 1904│ 8,511,538│ 9.9 - ───────────────┼──────────┼──────────────┼─────┼───────────┼─────────── - Total, U.S.A. │213,932.13│11,244,852,000│ │ │ - ═══════════════╧══════════╧══════════════╧═════╧═══════════╧═══════════ - -In concluding this subject, it may not be amiss to quote the language of -the Supreme Court in the Knoxville Water Case (212 U. S., 1), as -follows: - -"Regulation of public service corporations, which perform their duties -under conditions of necessary monopoly, will occur with greater and -greater frequency as time goes on. It is a delicate and dangerous -function, and ought to be exercised with a keen sense of justice on the -part of the regulating body, met by a frank disclosure on the part of -the company to be regulated. The Courts ought not to bear the whole -burden of saving property from confiscation, though they will not be -found wanting when the proof is clear. - -"The legislatures and subordinate bodies to whom the legislative power -has been delegated ought to do their part. Our social system rests -largely upon the sanctity of private property, and that State or -community which seeks to invade it will soon discover the error, in the -disaster that follows. The slight gain to the consumer, which he would -obtain from a reduction in the rates charged by Public Service -Corporations, is as nothing compared with his share in the ruin which -would be brought about by denying to private property its just reward, -thus unsettling values and destroying confidence. On the other hand, the -companies to be regulated will find it to their lasting interest to -furnish freely the information upon which a just regulation can be -based." - ------ - -Footnote 2: - - _Railroad Age Gazette_, April 16th, 1909, p. 857. - - - - - EXPLANATION OF TERMS. - - -In order that there may be no doubt as to the exact meaning of the terms -used throughout this paper, a few definitions or explanations are -submitted: - -_Appraisal, or Valuation._—These words are used interchangeably, and -refer to the engineering work of determining the present worth of both -physical and intangible properties of corporations. - -_Cost of Reproduction._—This expression refers to the estimate of cost -of reproducing the physical properties as they exist on the date of the -appraisal, all elements entering into the cost being considered as new -and not affected by the elements of depreciation or obsolescence. - -_Cost, or Original Cost._—These terms refer to the actual amount of -money paid for the property, either when it was originally constructed, -or in its condition at the time of appraisal, the latter case being the -original cost plus the cost of additions and betterments, less -abandoned, replaced, or worn-out property. This figure ought to be -represented by the "book cost," but it is not often that "book cost" and -"actual cost" are the same. - -_Present Value, or Present Physical Value.[3]_—These terms are used in -describing the physical property as reproduced after it is affected by -all elements of depreciation or appreciation. The use of the word -"value" in this expression is unfortunate, as it may lead to some -confusion. It must be kept clearly in mind that, where this term is -used, it refers only to physical property as depreciated, and is in no -case intended to refer to the final or "fair value" of the property. - -_Non-physical, or Intangible, Value._—These terms are used to represent -those elements, entering into the final worth of the property as a -business concern, which arise out of the operation of the property and -are not attachable to the physical property. - -All the foregoing terms have to do with the determination of the -elements which enter into the final value. - -What is "value"? In defining the exact meaning of this term, as applied -to the property of a public service corporation, many elements must be -taken into account. Standard authorities give many definitions of -"value," none of which appears to meet fully the requirements of the -term as used herein. Before considering the elements which enter into -the value of corporation property, or attempting to determine the -methods to be used in fixing proper figures of worth for each of these -elements, it is proper and necessary to obtain a clear definition of -"value," the thing sought to be ascertained by the inquiry. - -The term, "commercial value," has been considered in place of "value," -but is not used because it is held to be more properly applicable to the -selling or exchanging value of fractional interests in the property, and -the methods of computing the commercial value of securities which are in -common use cannot be adopted in an engineering valuation. The Standard -Dictionary definition of "commercial value" is: - -"The source of commercial value, according to different schools of -economists, is (1) the degree of want felt for a commodity as shown in -the relation of supply and demand, (2) the amount of labor embodied in -it, or (3) the cost of reproduction. Practically, commercial value is -that for which a thing can be sold or exchanged at a given time and -place." - -The definition given by Professor Adams is: - -"The estimate placed upon the worth of a property, regarded as a -business proposition." - -Both these definitions are in a measure involved, and the writer -considers that the term, "Commercial Value," is too narrow and -restricted to be properly used. - -As a definition of that estimate of worth which an engineering -commission should report as the result of a complete appraisal, the -writer submits the following: - -The value of a property is its estimated worth at a given time, measured -in money, taking into account all the elements which add to its -usefulness or desirability as a business or profit-earning proposition. - -There are two classes of elements entering into the final value: - -_(1) The "Physical Property" Element of Value._—This consists of those -things which are visible and tangible, capable of being inventoried, -their cost of reproduction determined, their depreciation measured, and -without which the property would be unable to produce the commodity on -the sale of which income depends. This physical property is considered -as an operating entity, and not as collateral of inert and partly -worn-out equipment, and, being so considered, carries, as part of the -physical value, those costs and charges which are an inseparable part of -the cost of construction but do not appear in the inventory of the -completed property. - -_(2) The "Non-Physical" or "Intangible" Elements of Value._—These are -those things which, added to or taken from the worth of the physical -property, make up the value, and include whatever accrues to the -property by reason of its operation, or by reason of grants, contract -rights, competition, or location, which at the time of appraisal affect -favorably or unfavorably the worth of the property. - -The worth of the physical property is primarily that on which the value -of the whole property rests. - -While it is clear that the worth of the physical property, being the -cost of reproduction less depreciation, is not necessarily the value of -the property, it is equally clear that the physical worth must bear some -very definite relation to value, and the writer is strongly of the -conviction that this relation is such that "value" cannot be ascertained -without a determination of physical worth. The physical property element -represents the investment on which a fair return is to be earned, and in -most cases an appraisal is necessary for the determination of the amount -of money actually invested. As illustration of the fact that "physical -value" and "value" are not the same, the case of two railroads actually -existing and in operation between two cities in Michigan may be cited. - -Road "A" occupies a narrow valley through high and abrupt hills. Its -alignment is fair for hilly country; its maximum grade is 1 per cent. It -has a number of bridges, all short and low. Its cost of reproduction -might reasonably be placed at $28,000 per mile. A mining town at one end -ships a heavy tonnage down grade to a lake port at the other. - -Road "B" was constructed several years later, and, being barred from the -only valley, built a line across the hills, involving heavy grading, -very long and high steel trestles, a longer line, maximum grades of 2%, -and a heavy climb from the mining town to the summit before starting to -drop to the lake. The cost of construction was more than double that of -Line "A," and the tonnage which can be hauled in either direction is but -a small fraction of that which can be hauled with the same power by Road -"A." A reasonable figure for cost of reproduction may be given as -$60,000 per mile.[4] - -Here is clearly a case where the older, less expensively built road has -a value as an earning proposition far in excess of that of the new road. -The rate on commodities does not affect the relative difference. A -higher rate, while permitting Road "B" to live, greatly adds to the -value of Road "A," while the latter can operate at a profit on rates -which would not permit Road "B" to pay expenses. - -This example indicates the existence of non-physical values, not only -positive in the case of Road "A," but also negative as to Road "B." - -Many properties have been built in the United States, representing large -investments of capital, which are not, and some of which can never be, -profitable business investments. In all such the physical valuation will -exceed the final value where the property is considered as an operating -concern, and a negative factor to cover improper location, uneconomical -design, ill-advised investment, or whatever the trouble may be, should -be applied. - -The physical property is that which enables the corporation to do -business. Without physical property it could not produce the commodity -which it sells. The amount of money actually invested in acquiring that -physical property represents the measure of capital on which it is -morally entitled to earn interest and profit; and, in the stage of -promoting and financing the enterprise, all hope of earnings is based on -the amount of money required to construct the property. These -considerations lead the writer to contend that the true method of -valuing a corporate property is first to determine the cost of -reproduction of the property and its depreciation, and modify this -figure by any applicable positive or negative non-physical elements of -value. - ------ - -Footnote 3: - - The term "present value," as used in this paper, should not be - confounded with its use by bankers or accountants, or with the present - worth of a sum of money due at some future time. - -Footnote 4: - - In this case, traffic as to Line "B" is limited, and as it is feasible - to double-track Line "A" at less cost than Line "B," no advantage can - be assigned to Line "B" on account of development of future business. - - - - - THE MICHIGAN STATE APPRAISALS. - - - Organization. - -The State Legislature of Michigan, at the session of 1899, passed an act -creating a Board of State Tax Commissioners and outlining and -prescribing their duties. This act authorized the board to "inquire into -and ascertain the value of the property of corporations paying specific -taxes under any of the laws of this State." - -The object of this valuation was to determine the rate at which the -corporations were paying taxes, to the end that necessary laws should be -passed so that all taxable properties in the State might be taxed -uniformly. - -On September 1st, 1900, the Board of Tax Commissioners appointed -Professor Mortimer E. Cooley Appraiser of Properties. Immediately -thereafter the general organization was mapped out along the following -lines of division of labor and responsibility: - -_1.—Administration._—All matters of general policy in regard to the -conduct of the work, all matters relating to negotiations and -conferences with officials of corporations, all transactions with the -State Tax Commission, the Governor, or the Board of State Auditors, and -the entire direction of all relations with the public through newspapers -and other channels, were retained by the appraiser, who was the final -arbiter on all matters referred to him regarding the details of the -work. - -_2.—Civil Engineering._—The appraisal of all property which in the -course of construction would fall under the supervision of the civil -engineering department of a road, including land, roadway, bridges, and -structures, was in charge of the writer. - -_3.—Mechanical Engineering._—The appraisal of all motive power, rolling -stock, and property which in the course of construction would fall under -the supervision of the mechanical engineer, including power and electric -plants, shop tools and machinery, water stations, etc., was in charge of -Mr. Theodore H. Hinchman, Jr., of Detroit, Mich. - -In the matter of the final assembling of figures, computation of -percentage values, and compilation of final results, Mr. Hinchman and -the writer worked together with joint general supervision. - -_4.—Telegraphs._—The inspection and appraisal of all telegraph -properties was under charge of Mr. William S. Conant, of Detroit, Mich. - -_5.—Telephones._—The appraisal of all telephone properties was directed -by Mr. William J. Rice, of New York. - -_6.—Vessel Properties._—All vessels belonging to companies whose -property was involved by the appraisal were inspected and appraised by -Herbert C. Sadler, Professor of Naval Architecture and Marine -Engineering at the University of Michigan. - -In the following narrative, no special mention is made of the work -executed under the direction of Messrs. Conant, Rice, and Sadler, -because they really had charge of independent appraisals which were -conducted on lines similar to those adopted in the railroad appraisal, -and their methods were not different from those of the latter; hence any -description of their work would be in a large measure repetition. This -omission is in no wise to be construed as any reflection on the -importance or high character of their work. - -The organization as just outlined, while necessarily touching and -overlapping at points, was generally defined so clearly that there was -no duplication of work. Each head of department was responsible for the -work of his special division, and directed the laying out and execution -of the work done by his men. - -The first task, after deciding on the general organization, was to -determine the general methods to be adopted and the manner of getting -the necessary detailed information. The magnitude of the work was -appalling. There were seventy-eight different incorporated companies, -owning some 10,000 miles of railroad, scattered over 54,000 sq. miles of -territory. In addition, there were a number of small unincorporated -railroads, telegraph, telephone, plank road, and other corporations, -many of which had no records, no complete inventory, and no department -organized so that the information could be readily secured. It was -determined: - - (1) To make or secure a complete detailed inventory of every - piece or parcel of property belonging to each company; - - (2) To examine each separate thing, place on it an estimate of - cost of reproduction and depreciation; - - (3) To prepare, as a basis for the final figure of value, - an estimate of the present value, being the cost of - reproduction less the depreciation. - -Having determined on a detailed physical inventory and appraisal, the -next step was to outline the work so as to secure absolute uniformity. -The difficulties which confronted the appraiser at this period were -many, chief among which were: - -(a) _Lack of Complete Understanding on the Part of the State -Officials._—The Governor and Board of Tax Commissioners rendered every -possible assistance, but the Board of State Auditors was not at first -fully committed to the work, and the uncertainty as to whether or not -bills would be paid, delayed seriously the employment of men and the -full commencement of work for 3 or 4 weeks after the first organization -was made. - -(b) _The Attitude of the Railroad Corporation Managers._—While this was -not actively hostile, it was a serious cause of delay, as they could not -foresee what effect the work might have on the interests in their -charge, and, while not refusing access to their records, they delayed -and held back information; in fact, a long time elapsed before all the -companies opened their records to the appraiser and his staff. - -(c) _The Confused Condition of the Records._ Many small corporations had -absolutely nothing in the way of records of buildings, bridges, land, or -other properties. Others had very complete records in certain -departments and very imperfect ones in others; still others had records -which had every appearance of being complete, but they were not -up-to-date. - -Facing an appraisal of this magnitude, with a time limit of only 4 -months for the entire work, with delays at the outset which seriously -hampered the organization for 2 or 3 weeks, the appraiser was compelled -to occupy this time in preparing the blank forms to be used on the work, -and in conducting correspondence with the men who were to make up the -working force, investigating their references, etc. - -The blank forms, Figs. 1 to 10, were the result of a series of -conferences between the members of the staff. By this time it was quite -evident that no great amount of help could be hoped for from the -corporations. Had it been possible to secure access to the records of -such railroad companies as the Michigan Central or the Lake Shore and -Michigan Southern before the final drafts of the forms were prepared, -the writer believes that several might have been simplified and many -improvements could have been made. However, this was not possible, and -the forms were prepared and printed before access to any railroad office -had been granted. - -[Illustration: FIG. 1.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.9 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad ALIGNMENT AND PROFILE IN _________________│ - │Date ______ MICHIGAN _Field Inspector_│ - - ╒══════════╤═════════════════════════════════════════════════ - │DIVISIONS │ ALIGNMENT - │ OF ROAD │ - ├─────┬────┼──────┬──────┬─────────┬───────┬─────────┬─────── - │FROM │ TO │Length│Number│Aggregate│Number │ Total │What is - │ │ │Miles │ of │Length of│ of │Curvature│Degree - │ │ │ │Curves│ Curved │Curves │ over 3 │ of - │ │ │ │ │ Line │over 3 │ Degrees │Maximum - │ │ │ │ │ Miles │Degrees│ │Curves - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ├─────┼────┼──────┼──────┼─────────┼───────┼─────────┼─────── - │ │ │ │ │ │ │ │ - ├─────┼────┼──────┼──────┼─────────┼───────┼─────────┼─────── - │ │ │ │ │ │ │ │ - - ╤════════════════════════════════════════════════╕ - │ PROFILE │ - │ │ - ┼─────────┬───────┬────────┬──────┬──────┬───────┤ - │Aggregate│Sum of │ Sum of │Number│Number│What is│ - │Length of│Ascents│Descents│ of │ of │ rate │ - │ Level │ Feet │ Feet │Miles │Miles │ Your │ - │ Grades │ │ │Grade │Grade │Maximum│ - │ │ │ │ 0.4% │ Over │Grades │ - │ │ │ │to 1% │ 1% │ and │ - │ │ │ │ │ │ what │ - │ │ │ │ │ │ their │ - │ │ │ │ │ │length │ - │ │ │ │ │ │ Miles │ - ┼─────────┼───────┼────────┼──────┼──────┼───────┤ - │ │ │ │ │ │ │ - ┼─────────┼───────┼────────┼──────┼──────┼───────┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.4 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad RIGHT OF WAY AND REAL ESTATE _________________│ - │Date ______ _Field Inspector_│ - │IN FILLING OUT STATEMENT KINDLY SEPARATE LANDS AND RIGHT OF WAY BY │ - │COUNTIES AS FAR AS POSSIBLE │ - - ╒══════╤════════╤═══════════════════════════════════╤═══════╤═══════ - │COUNTY│Trackage│ WIDTH OF RIGHT OF WAY IN FEET │ Total │ Total - │ │ Right │ │Acreage│Acreage - │ │ only │ │ of │ Lands - │ │ Miles │ │ Right │ own'd - │ │ │ │of Way │ by - │ │ │ │ │Company - │ │ │ │ │ other - │ │ │ │ │ than - │ │ │ │ │ Right - │ │ │ │ │of Way - ├──────┼────────┼─────┬─────┬─────┬─────┬─────┬─────┼───────┼─────── - │ │ │Less │40 to│60 to│70 to│ 100 │Over │ │ - │ │ │than │ 60 │ 70 │ 99 │Miles│ 100 │ │ - │ │ │ 40 │Miles│Miles│Miles│ │Miles│ │ - │ │ │Miles│ │ │ │ │ │ │ - ├──────┼────────┼─────┼─────┼─────┼─────┼─────┼─────┼───────┼─────── - │ │ │ │ │ │ │ │ │ │ - ├──────┼────────┼─────┼─────┼─────┼─────┼─────┼─────┼───────┼─────── - │ │ │ │ │ │ │ │ │ │ - - ╤══════╤═╕ - │TOTAL │ │ - │ REAL │ │ - │ESTATE│ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼──────┼─┤ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼──────┼─┤ - │ │ │ - ┼──────┼─┤ - │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.8 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad MILEAGE, RAIL AND TIES _________________│ - │Date ______ _Field Inspector_│ - - ╒════════╤══════╤══════╤══════╤══════╤═════╤═════╤═════╤═════╤═════ - │ │Total │Total │ Yard │Double│Rail │Rail │Rail │Rail │Rail - │ │Length│Number│Tracks│Track │ 40 │40 to│40 to│60 to│70 to - │ │Miles │ of │Miles │Miles │lbs. │ 49 │ 49 │ 69 │ 79 - │ │ │ Side │ │ │ per │lbs. │lbs. │lbs. │lbs. - │ │ │Tracks│ │ │yard │ per │ per │ per │ per - │ │ │ or │ │ │Miles│yard │yard │yard │yard - │ │ │Spurs │ │ │ │Miles│Miles│Miles│Miles - ├─────┬──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── - │Main │to│ │ │ │ │ │ │ │ │ - │Track│ │ │ │ │ │ │ │ │ │ - │from │ │ │ │ │ │ │ │ │ │ - ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── - │ " │" │ │ │ │ │ │ │ │ │ - │ " │ │ │ │ │ │ │ │ │ │ - │ " │ │ │ │ │ │ │ │ │ │ - ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - - ╤═════╤═════╤═════╤══════╤══════════╤══════════╤══════════╕ - │Rail │Rail │Rail │Number│Percentage│Percentage│Percentage│ - │80 to│90 to│over │ of │ of Oak │of Hemlock│ of other │ - │ 89 │ 100 │ 100 │ Ties │ Ties │ Ties │ Ties │ - │lbs. │lbs. │lbs. │ per │ │ │ │ - │ per │ per │ per │ mile │ │ │ │ - │yard │yard │yard │ │ │ │ │ - │Miles│Miles│Miles│ │ │ │ │ - ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ │ - ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ │ - -[Illustration: FIG. 2.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.18 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad INTERLOCKING PLANTS IN MICHIGAN _________________│ - │Date ______ _Field Inspector_│ - │Include all Electric Crossings having full Interlockers. │ - - ╒═╤════════╤════════╤═══════╤═════╤════════════╤═══════════════════ - │ │LOCATION│Crossing│ Style │Wheel│Connections,│Number of Levers or - │ │ │ with │ of │ or │ Pipe or │ Wheels - │ │ │ │Machine│Lever│ Cable │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────────┼────────┼───────┼─────┼────────────┼───────┬─────┬───── - │ │ │ │ │ │ │Working│Space│Total - ├─┼────────┼────────┼───────┼─────┼────────────┼───────┼─────┼───── - │ │ │ │ │ │ │ │ │ - ├─┼────────┼────────┼───────┼─────┼────────────┼───────┼─────┼───── - │ │ │ │ │ │ │ │ │ - - ╤═══════╤═══════╤══════════╤═══════════╤═╕ - │By Whom│ Date │Proportion│Proportion │ │ - │Erected│Put in │ of Cost │ of │ │ - │ │Service│ Paid by │Maintenance│ │ - │ │ │ this Co. │ Paid by │ │ - │ │ │ │ this Co. │ │ - ┼───────┼───────┼──────────┼───────────┼─┤ - │ │ │ │ │ │ - ┼───────┼───────┼──────────┼───────────┼─┤ - │ │ │ │ │ │ - ┼───────┼───────┼──────────┼───────────┼─┤ - │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.8 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad STATEMENT OF CROSSING _________________│ - │Date ______ PROTECTION IN MICHIGAN _Field Inspector_│ - - ╒═╤═════════╤═══════════╤═════════╤═════════╤═════════╤═════════ - │ │DIVISIONS│ Total │ Number │ Number │ Total │ Total - │ │ OF ROAD │ Number │ Grade │ Grade │Number of│Number of - │ │ │Unprotected│Crossings│Crossings│ Highway │ Highway - │ │ │ Grade │Protected│Protected│ Under │ Over - │ │ │ Crossings │by Alarm │by Gates │Crossings│Crossings - │ │ │ │ Bells │ What │ │ - │ │ │ │ What │Device is│ │ - │ │ │ │Device is│ Used │ │ - │ │ │ │ Used │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── - │ │ From │ To │ │ │ │ - ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── - │ │ │ │ │ │ │ - ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── - │ │ │ │ │ │ │ - - ╤═══════════╤═════════╤═════════╤════════════╕ - │ Total │Number of│Number of│ What │ - │ Number of │Electric │Electric │ Proportion │ - │Unprotected│ Railway │ Railway │ do You Pay │ - │ Electric │Crossings│Crossings│ of │ - │ Railway │Protected│Protected│Installation│ - │ Crossings │ by │ by │ or │ - │ │Derailer │Derailer │Maintenance │ - │ │ without │ with │of Electric │ - │ │ Signals │ Signals │ Railway │ - │ │on Steam │on Steam │ Crossings │ - │ │ R.R. │ R.R. │ │ - ┼───────────┼─────────┼─────────┼────────────┤ - │ │ │ │ │ - ┼───────────┼─────────┼─────────┼────────────┤ - │ │ │ │ │ - ┼───────────┼─────────┼─────────┼────────────┤ - │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.1 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad ENGINE HOUSES AND TURN TABLES _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤═════════╤════════════════════════════════════════ - │ │LOCATION │ ENGINE HOUSES - ├─┼─────────┼─────────┬──────┬────┬──────────┬─────┬─ - │ │ │ Kind of │ No. │No. │ Pit │When │ - │ │ │Structure│Stalls│Pits│Dimensions│Built│ - │ │ │ │ │ │ Feet │ │ - ├─┼─────────┼─────────┼──────┼────┼──────────┼─────┼─ - │ │ │ │ │ │ │ │ - ├─┼─────────┼─────────┼──────┼────┼──────────┼─────┼─ - │ │ │ │ │ │ │ │ - - ╤═══════════════════════════════════════╕ - │ TURN TABLES │ - ┼──────┬─────┬──────────┬───────┬─────┬─┤ - │Length│KIND │Foundation│CURBING│When │ │ - │ Feet │ OF │ │ │Built│ │ - │ │TABLE│ │ │ │ │ - ┼──────┼─────┼──────────┼───────┼─────┼─┤ - │ │ │ │ │ │ │ - ┼──────┼─────┼──────────┼───────┼─────┼─┤ - │ │ │ │ │ │ │ - -[Illustration: FIG. 3.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.2 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad FIELD INSPECTION REPORT │ - │Date ______ │ - │_Between ______ and ______ Miles ______ Number of Tracks ______ Ties,│ - │C. to C. _______ │ - │_Highest schedule passenger train ______ miles per hour, │ - │Freight ______ miles per hour, ______ Inspector_ │ - - ╒═╤════╤══════════════════════╤══════════════╤════════════════ - │ │MILE│ GRADE │ TIES │ RAIL - ├─┼────┼───────┬──────────────┼────┬─────────┼──────┬───────── - │ │ │Yardage│Classification│Kind│Condition│Weight│Condition - ├─┼────┼───────┼──────────────┼────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ │ - ├─┼────┼───────┼──────────────┼────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ │ - - ╤══════════════╤══════════════╤═════════════════════╤════════════════ - │ BALLAST │ FENCE │ FROGS AND SWITCHES │ CROSSINGS - ┼────┬─────────┼────┬─────────┼──────┬────┬─────────┼──────┬───────── - │Kind│Condition│Kind│Condition│Number│Kind│Condition│Number│Condition - ┼────┼─────────┼────┼─────────┼──────┼────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ │ │ - ┼────┼─────────┼────┼─────────┼──────┼────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ │ │ - - ╤════════╤═════════╤═══════╕ - │DRAINAGE│ALIGNMENT│REMARKS│ - ┼────────┼─────────┼───────┤ - │ │ │ │ - ┼────────┼─────────┼───────┤ - │ │ │ │ - ┼────────┼─────────┼───────┤ - │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.7 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad BRIDGES _________________│ - │Date ______ _Field Inspector_│ - │Include all wooden, steel or combination trusses, all girders and I │ - │beams spans - if solid floor and ballast please so state. │ - - ╒═╤══════╤════════╤══════╤══════════════════════════════════════════ - │ │ │ │ │ FOUNDATION - ├─┼──────┼────────┼──────┼─────────┬─────────┬─────┬─────────┬────── - │ │Bridge│LOCATION│ NAME │Frame or │Stone or │PIERS│ Approx. │Number - │ │Number│ │ OF │ Pile │Concrete │ │ Cu. Ft. │of Ft. - │ │ │ │STREAM│Abutments│Abutments│ │ Masonry │Bridge - │ │ │ │ │ │ │ │Piers and│ Seat - │ │ │ │ │ │ │ │Abutments│ to - │ │ │ │ │ │ │ │ │Water - ├─┼──────┼────────┼──────┼─────────┼─────────┼─────┼─────────┼────── - │ │ │ │ │ │ │ │ │ - ├─┼──────┼────────┼──────┼─────────┼─────────┼─────┼─────────┼────── - │ │ │ │ │ │ │ │ │ - - ╤═════════════════════════════════════════════════════════════════ - │ SUPERSTRUCTURE - ┼──────┬────┬──────┬─────────────┬──────┬─────────┬─────┬───────── - │Number│KIND│Length│Specification│ No. │No., Size│Size │ How - │ of │ │out to│ for Loading │Panels│and Kind │ and │Supported - │Spans │ │ out │ Required │ │Stringers│Kind │ - │ │ │ │ │ │ │ of │ - │ │ │ │ │ │ │Beams│ - │ │ │ │ │ │ │ │ - ┼──────┼────┼──────┼─────────────┼──────┼─────────┼─────┼───────── - │ │ │ │ │ │ │ │ - ┼──────┼────┼──────┼─────────────┼──────┼─────────┼─────┼───────── - │ │ │ │ │ │ │ │ - - ═════╤═════╕ - │ │ - ┬────┼─────┤ - │Size│Date │ - │ of │Built│ - │Ties│ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┼─────┤ - │ │ │ - ┼────┼─────┤ - │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.17 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad DRAW BRIDGES _________________│ - │Date ______ _Field Inspector_│ - │In this table furnish data as to draw span and pivot piers only - │ - │other spans in other bridge record. │ - - ╒═╤══════╤════════╤══════╤════════╤════════════════════════════ - │ │Bridge│LOCATION│ Name │Date of │ FOUNDATION - │ │ No. │ │ of │Erection│ - │ │ │ │Stream│ │ - ├─┼──────┼────────┼──────┼────────┼────────┬────┬───────┬────── - │ │ │ │ │ │Material│Size│Approx.│Height - │ │ │ │ │ │ │ │ Cubic │Above - │ │ │ │ │ │ │ │ Feet │Water - │ │ │ │ │ │ │ │Masonry│ - │ │ │ │ │ │ │ │ │ - ├─┼──────┼────────┼──────┼────────┼────────┼────┼───────┼────── - │ │ │ │ │ │ │ │ │ - ├─┼──────┼────────┼──────┼────────┼────────┼────┼───────┼────── - │ │ │ │ │ │ │ │ │ - - ═════════╤══════════════════════════════════════════════════╤═╕ - │ SUPERSTRUCTURE │ │ - │ │ │ - │ │ │ - ┬────────┼──────┬────┬────────┬─────────────┬────────┬──────┼─┤ - │Approx. │Length│Kind│Material│SPECIFICATION│ What │ Kind │ │ - │ Depth │ Draw │ of │ │ FOR LOADING │kind of │ of │ │ - │Footings│ │Span│ │ │ Power │ Turn │ │ - │ Below │ │ │ │ │used for│Tables│ │ - │ Water │ │ │ │ │swinging│ │ │ - ┼────────┼──────┼────┼────────┼─────────────┼────────┼──────┼─┤ - │ │ │ │ │ │ │ │ │ - ┼────────┼──────┼────┼────────┼─────────────┼────────┼──────┼─┤ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 4.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.10 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad CULVERTS _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤════════╤════════╤════════╤════════╤═════════════╤═════════════ - │ │DIVISION│ Total │ Total │ Total │ 18 in. or │24 inch Iron - │ │ │ Number │ Number │ Number │smaller Iron │ Pipe - │ │ │ Stone │ Wooden │ Wooden │ Pipe │ - │ │ │ Box │ Box │ Open │ │ - │ │ │Culverts│Culverts│Culverts│ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────┬───┼────────┼────────┼────────┼─────┬───────┼─────┬─────── - │ │From│To │ │ │ │ No. │Approx.│ No. │Approx. - │ │ │ │ │ │ │ of │ No. │ of │ No. - │ │ │ │ │ │ │Lines│Feet of│Lines│Feet of - │ │ │ │ │ │ │ │ Pipe │ │ Pipe - ├─┼────┼───┼────────┼────────┼────────┼─────┼───────┼─────┼─────── - │ │ │ │ │ │ │ │ │ │ - ├─┼────┼───┼────────┼────────┼────────┼─────┼───────┼─────┼─────── - │ │ │ │ │ │ │ │ │ │ - - ╤═════════════╤═════════════╤═════════════╤═════════════ - │30 inch Iron │36 inch Iron │48 inch Iron │60 inch Iron - │ Pipe │ Pipe │ Pipe │ Pipe - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼─────┬───────┼─────┬───────┼─────┬───────┼─────┬─────── - │ No. │Approx.│ No. │Approx.│ No. │Approx.│ No. │Approx. - │ of │ No. │ of │ No. │ of │ No. │ of │ No. - │Lines│Feet of│Lines│Feet of│Lines│Feet of│Lines│Feet of - │ │ Pipe │ │ Pipe │ │ Pipe │ │ Pipe - ┼─────┼───────┼─────┼───────┼─────┼───────┼─────┼─────── - │ │ │ │ │ │ │ │ - ┼─────┼───────┼─────┼───────┼─────┼───────┼─────┼─────── - │ │ │ │ │ │ │ │ - - ╤══════════════════╤════════╤════════╤══════╤═══════╤═╕ - │Iron Pipe Over 60 │ Total │ Total │Total │ Total │ │ - │ inch │ No. │ No. │ No. │ No. │ │ - │ │ Sewer │ Sewer │ Pit │Surface│ │ - │ │ Pipe │ Pipe │Cattle│Cattle │ │ - │ │Culverts│Culverts│Guards│Guards │ │ - │ │under 24│24 inch │ │ │ │ - │ │ inch │and over│ │ │ │ - ┼─────┬────┬───────┼────────┼────────┼──────┼───────┼─┤ - │ No. │Size│Approx.│ │ │ │ │ │ - │ of │ │ No. │ │ │ │ │ │ - │Lines│ │Feet of│ │ │ │ │ │ - │ │ │ Pipe │ │ │ │ │ │ - ┼─────┼────┼───────┼────────┼────────┼──────┼───────┼─┤ - │ │ │ │ │ │ │ │ │ - ┼─────┼────┼───────┼────────┼────────┼──────┼───────┼─┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.11 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad ARCHES _________________│ - │Date ______ _Field Inspector_│ - - ╒═══════╤═════════╤═════════╤═════════╤═════════╤═════════╤═════════ - │ │ Bridge │LOCATION │ STREAM │ Date │Length of│Length of - │ │ No. │ │ │ Built │ Span │ Arch in - │ │ │ │ │ │ │Feet Face - │ │ │ │ │ │ │ to Face - ├───────┼─────────┼─────────┼─────────┼─────────┼─────────┼───────── - │ THIS │ │ │ │ │ │ - │ SPACE │ │ │ │ │ │ - │ FOR │ │ │ │ │ │ - │BINDING│ │ │ │ │ │ - ├───────┼─────────┼─────────┼─────────┼─────────┼─────────┼───────── - │ │ │ │ │ │ │ - - ╤═════════╤═════════╤═════════╤═════════╤═╕ - │ Height │ Approx. │ KIND OF │ KIND OF │ │ - │ Feet │No. Cubic│ ARCH │MATERIAL │ │ - │ │ Feet │ │ │ │ - │ │ Masonry │ │ │ │ - ┼─────────┼─────────┼─────────┼─────────┼─┤ - │ │ │ │ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ┼─────────┼─────────┼─────────┼─────────┼─┤ - │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.29 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad CAR FERRY TERMINALS _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤════════════════════════════════════════════════════════════════ - │ │ GENERAL DESCRIPTION - ├─┼─────┬─────┬────┬────────┬─────┬────┬──────┬──────────┬───────── - │ │Items│Owner│Used│Location│Date │Type│ No. │Dimensions│ Struc. - │ │ │ │ by │ │Built│ │Tracks│ │ Steel - │ │ │ │ │ │ │ │ │ │Iron and - │ │ │ │ │ │ │ │ │ │ Mech. - │ │ │ │ │ │ │ │ │ │furnished - │ │ │ │ │ │ │ │ │ │ by - ├─┼─────┼─────┼────┼────────┼─────┼────┼──────┼──────────┼───────── - │ │ │ │ │ │ │ │ │ │ - ├─┼─────┼─────┼────┼────────┼─────┼────┼──────┼──────────┼───────── - │ │ │ │ │ │ │ │ │ │ - ├─┼─────┼─────┼────┼────────┼─────┼────┼──────┼──────────┼───────── - │ │ │ │ │ │ │ │ │ │ - - ╤═════════════════════════════════════╤═════════════╤═══════╕ - │ QUANTITIES │ VALUES │REMARKS│ - ┼──────┬──────┬─────┬──────┬──────────┼─────────┬───┼───────┤ - │ Iron │Bolts │Piles│Lumber│Excavation│Estimated│ │ │ - │ and │ and │lin. │ feet │ Fill, │ Cost │ │ │ - │Steel │Nails │feet │ b.m. │ Dredging │ │ │ │ - │Pounds│Pounds│Kind │ Kind │ Cu. Yds. │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─────┼──────┼──────────┼─────────┼─┬─┼───────┤ - │ │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─────┼──────┼──────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─────┼──────┼──────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 5.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.20 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad COAL CHUTES _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤════════╤═══════╤═══════╤═══════════╤════════╤═══════╤════════ - │ │LOCATION│Length │Kind of│Foundations│Size of │Number │Capacity - │ │ │ of │Trestle│ │Building│ of │ of - │ │ │Trestle│ │ │ │Pockets│Pockets - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ├─┼────────┼───────┼───────┼───────────┼────────┼───────┼──────── - │ │ │ │ │ │ │ │ - ├─┼────────┼───────┼───────┼───────────┼────────┼───────┼──────── - │ │ │ │ │ │ │ │ - - ╤═════╤═══════╤═════════╤═╕ - │Date │Name of│ If │ │ - │Built│Builder│Hoisting │ │ - │ │ │ or │ │ - │ │ │Conveying│ │ - │ │ │ Machine │ │ - │ │ │ in use, │ │ - │ │ │ State │ │ - │ │ │What Kind│ │ - ┼─────┼───────┼─────────┼─┤ - │ │ │ │ │ - ┼─────┼───────┼─────────┼─┤ - │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.19 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad WATER STATIONS _________________│ - │Date ______ _Field Inspector_│ - │State whether Power is Steam, Gasoline, Wind, Gravity, or Hydraulic │ - │Ram. │ - - ╒═╤════════╤══════╤═══════════╤═══════════╤═════════════════ - │ │LOCATION│Source│ PUMP │ BOILER │ PUMP HOUSE - │ │ │ of │ │ │ - │ │ │Water │ │ │ - │ │ │Supply│ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ├─┼────────┼──────┼────┬────┬─┼────┬────┬─┼────┬────┬─┬───── - │ │ │ │Kind│Size│ │Kind│Size│ │Kind│Size│ │Date - │ │ │ │ │ │ │ │ │ │ │ │ │Built - ├─┼────────┼──────┼────┼────┼─┼────┼────┼─┼────┼────┼─┼───── - │ │ │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼────┼────┼─┼────┼────┼─┼────┼────┼─┼───── - │ │ │ │ │ │ │ │ │ │ │ │ │ - - ╤═══════════════════════════════╤═════════╤═╕ - │ TANK │ Length │ │ - │ │and Size │ │ - │ │ of │ │ - │ │ Suction │ │ - │ │ and │ │ - │ │Discharge│ │ - ┼────┬────────┬───────────┬─────┼─────────┼─┤ - │Size│Capacity│Foundations│Date │ │ │ - │ │Gallons │ │Built│ │ │ - ┼────┼────────┼───────────┼─────┼─────────┼─┤ - │ │ │ │ │ │ │ - ┼────┼────────┼───────────┼─────┼─────────┼─┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.28 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad ORE DOCKS _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤══════════════════════════════════════════════════════════════ - │ │ GENERAL DESCRIPTION - ├─┼────┬─────┬────────┬─────┬────┬─────────────────────────────── - │ │ITEM│Owned│Location│Date │Type│ DIMENSIONS - │ │ │ and │ │Built│ │ - │ │ │Used │ │ │ │ - │ │ │ by │ │ │ │ - ├─┼────┼─────┼────────┼─────┼────┼─────┬────┬────────┬─────┬───── - │ │ │ │ │ │ │ No. │Cap.│ Hgt. │Hgt. │Width - │ │ │ │ │ │ │Pkts.│Tons│Water to│Water│ - │ │ │ │ │ │ │ │ │C.L.Hge.│ to │ - │ │ │ │ │ │ │ │ │ │Dock │ - ├─┼────┼─────┼────────┼─────┼────┼─────┼────┼────────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - ├─┼────┼─────┼────────┼─────┼────┼─────┼────┼────────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - - ═══════╤════════════════════════════╤═════════════╤═══════╕ - │ QUANTITIES │ VALUES │REMARKS│ - ───────┼──────┬─────┬──────┬────────┼─────────┬───┼───────┤ - │Rods, │Piles│Lumber│Fill and│Estimated│ │ │ - │Bolts,│Lin. │ Feet │Dredging│ Cost │ │ │ - │Iron, │Feet │ B.M. │ │ │ │ │ - │Pounds│Kind │ Kind │ │ │ │ │ - ┬──────┼──────┼─────┼──────┼────────┼─────────┼─┬─┼───────┤ - │L'gth │ │ │ │ │ │ │ │ │ - │ of │ │ │ │ │ │ │ │ │ - │Chutes│ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─────┼──────┼────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─────┼──────┼────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 6.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.15 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad STOCK YARDS _________________│ - │Date ______ _Field Inspector_│ - - ╒════════╤══════╤═══════╤══════════╤════╤══════════════╤════╤════╤════╕ - │LOCATION│Number│Size of│ Date of │ │ WELLS │ │ │ │ - │ │ of │ Yards │Completion│ │ │ │ │ │ - │ │ Pens │ Feet │ │ │ │ │ │ │ - ├────────┼──────┼───────┼──────────┼────┼─────┬────────┼────┼────┼────┤ - │ │ │ │ │ │Depth│Diameter│ │ │ │ - │ │ │ │ │ │Feet │ │ │ │ │ - ├────────┼──────┼───────┼──────────┼────┼─────┼────────┼────┼────┼────┤ - │ │ │ │ │ │ │ │ │ │ │ - ├────────┼──────┼───────┼──────────┼────┼─────┼────────┼────┼────┼────┤ - │ │ │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.14 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad TRACK AND STOCK SCALES _________________│ - │Date ______ _Field Inspector_│ - - ╒════════╤═══════╤═════════╤═══════╤══════╤══════╤══════╤══════╤══════╕ - │LOCATION│NAME OF│Capacity │Length │ Date │ │ │ │ │ - │ │SCALES │ Tons │ │Built │ │ │ │ │ - ├────────┼───────┼─────────┼───────┼──────┼──────┼──────┼──────┼──────┤ - │ │ │ │ │ │ │ │ │ │ - ├────────┼───────┼─────────┼───────┼──────┼──────┼──────┼──────┼──────┤ - │ │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 7.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R.13 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad STATEMENT OF MISCELLANEOUS _________________│ - │Date ______ BUILDINGS _Field Inspector_│ - │Include in this report all shops, warehouses, car houses, watchmen's │ - │shanties, flagmen's buildings, elevators, general office buildings │ - │and all other structures not specifically asked for in other reports.│ - - ╒════════╤═══════════╤═══════╤═════════════╤══════════╤═══════╤═══════╕ - │LOCATION│DESCRIPTION│ SIZE │ Kind of │ Date of │ │ │ - │ │OF BUILDING│ │Bldg., Brick,│Completion│ │ │ - │ │ │ │ Stone or │ │ │ │ - │ │ │ │ Frame │ │ │ │ - ├────────┼───────────┼───────┼─────────────┼──────────┼───────┼───────┤ - │ │ │ │ │ │ │ │ - ├────────┼───────────┼───────┼─────────────┼──────────┼───────┼───────┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.12 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad STATION BUILDINGS _________________│ - │Date ______ _Field Inspector_│ - - ╒══════════╤═══════════╤══════════╤═════════════╤══════════╤══════════╕ - │ LOCATION │DESCRIPTION│ SIZE │ Kind of │ Date of │ │ - │ STATIONS │OF BUILDING│ │Bldg., Brick,│Completion│ │ - │ │ │ │ Stone or │ │ │ - │ │ │ │ Frame │ │ │ - ├──────────┼───────────┼──────────┼─────────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ - ├──────────┼───────────┼──────────┼─────────────┼──────────┼──────────┤ - │ │ │ │ │ │ │ - -[Illustration: FIG. 8.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │ THIS SPACE FOR BINDING │ - ├─────────────────────────────────────────────────────────────────────┤ - │MICHIGAN RAILROAD T. C. Form R.R.22 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad REAL ESTATE _________________│ - │Date ______ NOT USED FOR RAILROAD PURPOSES _Field Inspector_│ - - ╒═══════════════════╤════════════╤══════════════╤═════════════════════╕ - │ LOCATION │DESCRIPTION │Assessed Value│ TOTAL TAXES │ - ├───────┬───────────┼────────────┼──────────────┼──────────┬──────────┤ - │COUNTY │ASSESSMENT │ │ │ AMOUNT │ AMOUNT │ - │ │ DISTRICT │ │ │ │ PAID │ - ├───────┼───────────┼────────────┼──────────────┼──────┬───┼──────┬───┤ - │ │ │ │ │ │ │ │ │ - ├───────┼───────────┼────────────┼──────────────┼──────┼───┼──────┼───┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │ THIS SPACE FOR BINDING │ - ├─────────────────────────────────────────────────────────────────────┤ - │MICHIGAN RAILROAD T. C. Form R.R.23 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad MISCELLANEOUS EQUIPMENT _________________│ - │Date ______ ROLLING STOCK _Field Inspector_│ - - ╒════════╤═════╤══════╤═══════════╤════════╤═══════╤═════════╤════════╕ - │Location│ No. │ Name │Description│Capacity│ Date │Cost When│Remarks │ - │ │ │ │ │ │ Built │ New │ │ - ├────────┼─────┼──────┼───────────┼────────┼───────┼─────────┼────────┤ - │ │ │ │ │ │ │ │ │ - ├────────┼─────┼──────┼───────────┼────────┼───────┼─────────┼────────┤ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 9.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │ THIS SPACE FOR BINDING │ - ├─────────────────────────────────────────────────────────────────────┤ - │MICHIGAN RAILROAD T. C. Form R.R.24 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad SHOP MACHINERY AND TOOLS _________________│ - │Date ______ _Field Inspector_│ - - ╒═════════════╤════════╤════════════╤═══════╤═══════════════╤═════════╕ - │ Description │ Maker │ Date Built │ Size │ Cost When New │ Remarks │ - ├─────────────┼────────┼────────────┼───────┼───────────────┼─────────┤ - │ │ │ │ │ │ │ - ├─────────────┼────────┼────────────┼───────┼───────────────┼─────────┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.25 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad STEAM SHOVELS, DREDGES, PILE _________________│ - │Date ______ DRIVERS _Field Inspector_│ - - ╒══╤═══════╤═════════╤══════╤═════════╤═══════╤═════╤════════╤════════╕ - │ │MAKE OF│PROPERTY │ Date │ Size of │ Shop │Cost │Present │REMARKS │ - │ │SHOVEL │ OF │Built │ Dipper │Number │When │Value % │ │ - │ │ │ │ │Cu. Yds. │ │ New │ of New │ │ - ├──┼───────┼─────────┼──────┼─────────┼───────┼─────┼────────┼────────┤ - │ │ │ │ │ │ │ │ │ │ - ├──┼───────┼─────────┼──────┼─────────┼───────┼─────┼────────┼────────┤ - │ │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T. C. Form R.R.26 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad DOCKS AND WHARVES _________________│ - │Date ______ _Field Inspector_│ - - ╒═╤═══════════════════════════════════════════════ - │ │ GENERAL DESCRIPTION - ├─┼─────┬─────┬────┬────────┬─────┬────┬────────── - │ │ITEMS│Owner│Used│Location│Date │Type│Dimensions - │ │ │ │ by │ │Built│ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ├─┼─────┼─────┼────┼────────┼─────┼────┼────────── - │ │ │ │ │ │ │ │ - ├─┼─────┼─────┼────┼────────┼─────┼────┼────────── - │ │ │ │ │ │ │ │ - ├─┼─────┼─────┼────┼────────┼─────┼────┼────────── - │ │ │ │ │ │ │ │ - - ╤═══════════════════════════════╤═════════════╤═══════╕ - │ QUANTITIES │ VALUES │REMARKS│ - ┼──────┬─────┬──────┬───────────┼─────────┬───┼───────┤ - │Rods, │Piles│Lumber│Excavation │Estimated│ │ │ - │Bolts,│Lin. │ Feet │ Fill │ Cost │ │ │ - │Nails,│Feet │ B.M. │ Dredging, │ │ │ │ - │ etc. │Kind │ Kind │ Cu. Yds. │ │ │ │ - │Pounds│ │ │ │ │ │ │ - ┼──────┼─────┼──────┼───────────┼─────────┼─┬─┼───────┤ - │ │ │ │ │ │ │ │ │ - ┼──────┼─────┼──────┼───────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ - ┼──────┼─────┼──────┼───────────┼─────────┼─┼─┼───────┤ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 10.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R. 21 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad CLASSIFICATION OF FREIGHT CARS _________________│ - │Date ______ _Field Inspector_│ - │NOTE:—Under remarks specify whether box cars are ventilated, stock │ - │cars are single or double deck, gondolas are plain, hopper or drop │ - │bottom; also any other special features. │ - - ╒═╤═══════╤════════╤════════╤══════╤════════════════════════════ - │ │GROUPS │ Class, │Capacity│Total │ DIMENSIONS OF CAR BODY - │ │ BY │ as │in lbs. │weight│ - │ │NUMBERS│ Stock, │ │of car│ - │ │ │Gondola,│ │ and │ - │ │ │ Flat, │ │trucks│ - │ │ │ etc. │ │ in │ - │ │ │ │ │ lbs. │ - ├─┼───────┼────────┼────────┼──────┼───────┬──────────────────── - │ │ │ │ │ │Outside│ Inside - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼───────┼────────┼────────┼──────┼───────┼──────┬──────┬────── - │ │ │ │ │ │Length │Length│Width │Height - │ │ │ │ │ │ over │ │ │ - │ │ │ │ │ │ end │ │ │ - │ │ │ │ │ │ sills │ │ │ - ├─┼───────┼────────┼────────┼──────┼───────┼──────┼──────┼────── - │1│No. │ │ │ │ │ │ │ - │ │to No. │ │ │ │ │ │ │ - ├─┼───────┼────────┼────────┼──────┼───────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - ├─┼───────┼────────┼────────┼──────┼───────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - - ╤══════════════╤═════════╤════════════════════════╤═══════╤════════ - │Superstructure│ Under │ TRUCKS │Brakes,│Coupler, - │ wood, steel, │ frame │ │Manual,│ Kind - │ or composite │ wood, │ │or air │ - │ │steel, or│ │ and │ - │ │composite│ │ sand │ - │ │ │ │ │ - │ │ │ │ │ - ┼──────────────┼─────────┼────┬───────┬───────────┼───────┼──────── - │ │ │Kind│Size of│ Bolsters, │ │ - │ │ │ │journal│ wood or │ │ - │ │ │ │ │ steel │ │ - ┼──────────────┼─────────┼────┼───────┼────┬──────┼───────┼──────── - │ │ │ │ │Body│Trucks│ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼──────────────┼─────────┼────┼───────┼────┼──────┼───────┼──────── - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼──────────────┼─────────┼────┼───────┼────┼──────┼───────┼──────── - │ │ │ │ │ │ │ │ - ┼──────────────┼─────────┼────┼───────┼────┼──────┼───────┼──────── - │ │ │ │ │ │ │ │ - - ╤═════╤═══════╤════════╤═══════╕ - │Date │Number │Cost of │REMARKS│ - │built│ In │each car│ │ - │ │service│complete│ │ - │ │ │when new│ │ - │ │ │ │ │ - │ │ │ │ │ - │ │ │ │ │ - ┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ - │ │ │ │ │ - │ │ │ │ │ - ┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ - │ │ │ │ │ - │ │ │ │ │ - │ │ │ │ │ - ┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ - │ │ │ │ │ - ┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ - ┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R. 27 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad PASSENGER EQUIPMENT _________________│ - │Division ______ _Field Inspector_│ - │Date ______ │ - - ╒═╤══════╤════════╤═════════╤══════════════════════════════════════ - │ │NUMBER│ Class │DIMENSION│ TRUCKS - │ │ │Coach 1,│ INSIDE │ - │ │ │ 2, 3, │ │ - │ │ │ Mail │ │ - │ │ │Express,│ │ - │ │ │ Comb. │ │ - ├─┼──────┼────────┼─────────┼─────────────┬─────────────────┬────── - │ │ │ │ │ WHEELS │ SPRINGS │Frame, - │ │ │ │ │ │ │Wood, - │ │ │ │ │ │ │Steel - │ │ │ │ │ │ │ or - │ │ │ │ │ │ │Comb. - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼──────┼────────┼─────────┼───┬────┬────┼───────┬─────────┼────── - │ │ │ │ │No.│Size│Kind│Roleter│Equalizer│ - │ │ │ │ │ │ │ │ Size │ Size │ - │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ├─┼──────┼────────┼─────────┼───┼────┼────┼───────┼─────────┼────── - │ │ │ │ │ │ │ │ │ │ - ├─┼──────┼────────┼─────────┼───┼────┼────┼───────┼─────────┼────── - │ │ │ │ │ │ │ │ │ │ - - ╤═════════════════════════════════════════════════════════════ - │ INTERIOR - │ - │ - │ - │ - │ - ┼──────┬──────┬────────┬───────┬────────┬────────────┬──────── - │FINISH│ Head │ SEATS │Lights,│ Closet │ SASH │Curtains - │ │lining│ │number │ and │ │ or - │ │Wood, │ │ and │Lavatory│ │ Blinds - │ │Steel │ │ Kind │ │ │ - │ │ or │ │ │ │ │ - │ │Canvas│ │ │ │ │ - │ │Comb. │ │ │ │ │ - ┼──────┼──────┼───┬────┼───────┼────────┼──────┬─────┼──────── - │ │ │No.│Kind│ │ │Double│Glass│ - │ │ │ │ │ │ │ or │Plate│ - │ │ │ │ │ │ │Single│or D.│ - │ │ │ │ │ │ │ │ S. │ - ┼──────┼──────┼───┼────┼───────┼────────┼──────┼─────┼──────── - │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼───┼────┼───────┼────────┼──────┼─────┼──────── - │ │ │ │ │ │ │ │ │ - - ═══════════╤═════════════════════════╤══════╤════════╤═════╤═══════ - │ PLATFORM │Heat, │BUILDERS│Date │Number - │ │Direct│ │Built│now in - │ │Steam │ │ │Service - │ │ or │ │ │ - │ │Heater│ │ │ - │ │ │ │ │ - ┬──────────┼─────┬───────────┬───────┼──────┼────────┼─────┼─────── - │Decoration│Steel│ Vestibule │Coupler│ │ │ │ - │ │ or │Ventilator,│or Hook│ │ │ │ - │ │Wood │ Wide or │ │ │ │ │ - │ │ │ Narrow │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼──────────┼─────┼───────────┼───────┼──────┼────────┼─────┼─────── - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼──────────┼─────┼───────────┼───────┼──────┼────────┼─────┼─────── - │ │ │ │ │ │ │ │ - ┼──────────┼─────┼───────────┼───────┼──────┼────────┼─────┼─────── - │ │ │ │ │ │ │ │ - - ╤════╤═══════╕ - │Cost│REMARKS│ - │when│ │ - │new │ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┼───────┤ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┼───────┤ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┼───────┤ - │ │ │ - ┼────┼───────┤ - │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │MICHIGAN RAILROAD T.C. Form R.R. 5 __________________│ - │APPRAISAL _Office Inspector_│ - │______ Railroad LOCOMOTIVES _________________│ - │Division ______ _Field Inspector_│ - │Date ______ │ - │NOTE:-Cost when new should include original cost of engine and tender│ - │plus original cost of all accessories, as brakes, bell ringer, │ - │sander, water scoop etc. added when engine was purchased. │ - - ╒═╤══════════╤═══════╤══════╤═══════╤════════╤═════════════╤══════ - │ │ PLACE OF │No. of │ Type │Builder│Size of │ Weight │Pass., - │ │INSPECTION│Engines│ of │ and │Cylinder│ without │ Frt. - │ │ │ │Engine│ Class │ │Tender, lbs. │ or - │ │ │ │ │ │ │ │Switch - │ │ │ │ │ │ │ │ P.F. - │ │ │ │ │ │ │ │or S. - ├─┼──────────┼───────┼──────┼───────┼────────┼───────┬─────┼────── - │ │ │ │ │ │ │Working│Empty│ - │ │ │ │ │ │ │ Order │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼──────────┼───────┼──────┼───────┼────────┼───────┼─────┼────── - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼──────────┼───────┼──────┼───────┼────────┼───────┼─────┼────── - │1│ │ │ │ │ │ │ │ - ├─┼──────────┼───────┼──────┼───────┼────────┼───────┼─────┼────── - │2│ │ │ │ │ │ │ │ - ├─┼──────────┼───────┼──────┼───────┼────────┼───────┼─────┼────── - │ │ │ │ │ │ │ │ │ - - ╤═════════╤═════════╤══════════════════════════════╤═════════ - │When New │ Last │ Coupled Drivers │ Kind of - │ │ Heavy │ │Headlight - │ │ Repairs │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼────┬────┼────┬────┼──────┬───────────┬───────────┼───────── - │Date│Cost│Date│Cost│Number│ Centres │ Tires │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼────┼────┼────┼────┼──────┼─────┬─────┼─────┬─────┼───────── - │ │ │ │ │ │Diam.│Steel│Diam.│Maker│ - │ │ │ │ │ │ │ or │ │ │ - │ │ │ │ │ │ │iron │ │ │ - ┼────┼────┼────┼────┼──────┼─────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - ┼────┼────┼────┼────┼──────┼─────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - ┼────┼────┼────┼────┼──────┼─────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - - ╤═══════════════════════════════════════╤══════╤══════ - │ BOILER │ Bell │Sander - │ │Ringer│ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┬──────┬─────┬────┬─────────┬──────┼──────┼────── - │Kind│Steam │Total│G.S.│Last New │Steam │ │ - │ │Press.│H.S. │Sq. │ Boiler │Heater│ │ - │ │Built │ Sq. │Ft. │ │ │ │ - │ │ For │ Ft. │ │ │ │ │ - ┼────┼──────┼─────┼────┼────┬────┼──────┼──────┼────── - │ │ │ │ │Date│Cost│ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼────┼──────┼─────┼────┼────┼────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - ┼────┼──────┼─────┼────┼────┼────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - ┼────┼──────┼─────┼────┼────┼────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - - ╤═════════════════╤══════════════════════════╤═══════╕ - │ BRAKE │ TENDER │REMARKS│ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼────┬─────┬──────┼───────┬─────┬──────┬─────┼───────┤ - │Size│Kind │Train │ Water │Coal,│Weight│Water│ │ - │ of │ of │Signal│Gallons│Tons │Empty │Scoop│ │ - │Pump│Brake│ │ │ │ lbs. │ │ │ - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼──────┼───────┼─────┼──────┼─────┼───────┤ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼──────┼───────┼─────┼──────┼─────┼───────┤ - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼──────┼───────┼─────┼──────┼─────┼───────┤ - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼──────┼───────┼─────┼──────┼─────┼───────┤ - │ │ │ │ │ │ │ │ │ - -That a few changes were made in 1904 was to have been expected; that -these forms were almost in their entirety made a basis for the similar -work of the Wisconsin appraiser, some three years later, was in the -nature of a high compliment and goes far toward answering the criticisms -of this part of the work, generally to the effect that the forms call -for much more information than could possibly be used, and that they -show lack of care in arrangement. - -It may be said here, properly, that the uncertainty as to the final -attitude of the companies made it essential that the appraiser prepare, -if need be, to make his inventory by personal inspection in the field. -Indeed, this was done in the case of several roads, and, while most of -the companies finally accorded every courtesy, either giving the -appraiser access to their records, or furnishing the information -desired, it is not probable that the shortness of the time limit would -have enabled the appraiser to secure any sort of result had a modified -plan been adopted. - -The law provided no requirement that the companies should furnish any -information. In order to secure the data, it would have been necessary -to employ a large number of men, and this would have been such a serious -expense to the companies that refusal to comply would probably have -followed such a request. Many of the companies had no men in their -service able to prepare the required data; and, finally, eight or ten -men after having worked in the files of companies owning reasonably full -records, were much better able to take off the desired data -intelligently from the records of other companies than men unfamiliar -with the needs of the appraiser and with no prior experience. Then, too, -the work secured was that of one body of technical men, all experienced -in different phases of railway work, and thus was uniform and -consistent. Had seventy-five or eighty different men or sets of men -prepared these inventories, there would certainly have been a great -variation in their worth and reliability. - -It must be kept clearly in mind that lack of time was the main feature -which kept the appraiser from considering any such plan of co-operation -with the railroads as was adopted later in Wisconsin and Minnesota, and -that no distrust of the railroads, or lack of desire to co-operate, had -anything to do with the appraiser's decision to use the method which was -adopted. - -Shortly after the preparation of the blanks, access was granted to the -records of the Ann Arbor Railroad, and almost immediately thereafter -several other companies opened their files to the appraiser; the State -Board of Auditors determined to pay the bills, as approved by the -appraiser; and the initial difficulties were so far removed that it was -possible to carry out, without any further delays, the plan of -organization which had been perfected. - -The personnel of the staff was considered to be of the greatest -importance, and, in the selection of men, the requirements desired were: -experience in the construction and operation of railroads, thorough -technical training, high standing in the Profession, as shown by -membership in the American Societies of Civil or Mechanical Engineers, -or of other Societies of high standing, and high moral character. -Politics, residence in the State, or local influence, had absolutely no -weight in the selection of any of the men. In a number of cases men were -secured who had for some years occupied the position of Chief Engineer -of important lines. In a very large number of cases men who were engaged -on this work have since its completion held the position of Chief or -Principal Assistant Engineer of important railroads, and practically all -of them returned to railway service. Dozens of these men are well known, -and their work deserves that full credit should be given to each, but it -is impossible to do so within the limits of this paper. - -The minor positions, such as assistants in the field and in the -computing and compiling rooms, were assigned to younger men, generally -with some railroad experience, and in many cases they were graduates of -technical schools, Cornell, Yale, Rensselaer, Michigan, Ohio State, and -other schools having representatives. - -The writer believes that no more harmonious or loyal organization was -ever gathered together before, or has been since. Men who had held Chief -Engineer-ships trudged miles in the wilds of Michigan on foot, -inspecting and inventorying property, and came into the office and -worked long hours at the computing tables with the utmost cheerfulness -and _camaraderie_. There was complete harmony, absolute loyalty, and as -perfect a spirit of unselfish devotion to the work as the writer has -ever seen in any organization. - -The fact that such a staff of engineers, of wide experience in railroad -construction and maintenance, had been assembled, made it feasible to -carry out a plan of the appraiser which proved to be of great value. At -frequent intervals, during the progress of the work, conferences were -held which were attended by all the heads of departments and by many of -the older and more experienced engineers. Matters of policy, details, -general principles, and rules and methods for conducting the appraisal, -were fully discussed, and stenographic records were made of the -discussion and conclusions. These conferences covered practically every -question that arose; they were of such a nature as to draw out the -opinions of the men fully and freely; and their effect was to eliminate -the error due to individual judgment, and harmonize and unify the -methods and results of the appraisal. - -Special emphasis has been laid on the organization of the staff, because -the criticism has been made that this work was lacking in care, was -hurriedly done, and was unreliable. The work must be judged by its -results, but the criticism that it did not receive proper care is -absolutely unjustified in fact. The men engaged were of the highest type -of experienced, technically educated, and highly qualified engineers; -they entered the work unreservedly, and gave the best there was in them. -The Michigan appraisal was not a one-man job; it was the work of many -men, and all are entitled to credit. - -That some men in an organization such as this, gathered from all over -the United States, should prove to be lacking, and should fail to hold -their place with their fellows, was to have been expected. That the -number of such men should not exceed half a dozen was remarkable. In -fact, almost every such case was found when the first notes were -returned to the office, and in only two or three instances was it -necessary to send a second man to do work which had been once covered. -In several cases men were sent over certain sections which had been -inspected by some one else, with a view of getting an idea of the -personal judgment of the different men, but in such cases the results -were astonishingly close, and created the greatest confidence in the -figures of depreciation which were being received. - -Looking back on this work, after the lapse of 10 years, after having -fully reviewed it twice, and examined all records, after having heard -the men engaged on it testify in court, and knowing the record of these -men since the completion of the work, the writer believes himself fully -justified in stating that, no matter what opinion may be held as to the -accuracy, reliability, or value of the result, no charge of -carelessness, neglect, undue haste, or lack of consideration can be -sustained as against the staff. - -To strengthen the work further, to eliminate the element of personal -error, to guard against the danger of dulled perceptions due to constant -application to the work, and to forestall, if possible, every point of -objection to methods, a Board of Review was chosen by Appraiser Cooley -to whom were referred: - - (_a_) The methods of inventory and valuation, as determined by - the staff; - - (_b_) All points on which special discussion or difference of - opinion were noted in the working conferences; - - (_c_) Questions as to elements of value in the physical property - which were in themselves not tangible or capable of - inventory; and finally, - - (_d_) The results of the whole work. - -The members of this board were chosen on account of pre-eminent standing -in the Profession, and on account of experience and prominence in -railway engineering. The board was composed of four men, as follows: - -Chairman, Octave Chanute, Past-President, Am. Soc. C. E., former -Consulting Engineer, Atchison, Topeka, and Santa Fe Railway, but at the -time not engaged in active railway work. - -George W. Vaughn, M. Am. Soc. C. E., Engineer in charge of Track -Elevation in Chicago. - -Charles E. Greene, M. Am. Soc. C. E., Dean of the School of Engineering, -University of Michigan. - -Charles Hansel, M. Am. Soc. C. E., former Engineer, Wabash Railroad, -former Chief Engineer, Illinois Railway and Warehouse Commission, and at -that time General Manager of the National Switch and Signal Company. - -These gentlemen were not engaged in any detailed work on the appraisal; -they came to the work for one week each month with minds entirely clear -of all confusion raised by issues of detail, and were thus enabled to -pass as a court upon all matters laid before them. Their association was -of inestimable value in giving confidence to the members of the staff. -The many years of railway service of Messrs. Chanute and Vaughn, and -their unquestioned ability in that special field of engineering, gave -the stamp of finality to points decided by them. The special knowledge -of Mr. Hansel in the field of signal engineering, and his known ability -as an expert in organization and administration, were of the greatest -value. The service of Professor Greene was that of the analyst and -logician; his clear and judicial mind enabled him to formulate the final -arguments in many cases under consideration. - -The writer wishes to make it perfectly clear that he has not attempted -to minimize the work of Professor Cooley by stating the exact relation -of the many engineers on the staff to this work, but to bring out and -emphasize the fact that no one man, or no two or three men, were -responsible for any single part, but that the whole represents the best -efforts of sixty or seventy experienced men working to secure a fair, -honest, unprejudiced, engineering estimate along such lines as would -eliminate, as far as possible, all errors of individual judgment. - -It has never been claimed for the work that it was perfect, or that it -was entirely free from errors. It has been and is claimed for it that it -probably represents as close and conservative an estimate of cost of -reproduction and depreciation as it would be possible for any set of men -to make under the conditions then existing. - -Professor Cooley was in constant touch with the work, knew its every -detail, passed upon and approved every rule and order, presided at every -conference, and nothing more than his activity, optimism, and constant -watchful care and tireless energy kept the force at work day and night -and brought about the prompt completion of the details. His recognized -high standing, his remarkable ability as an executive and organizer, and -his powers of diplomacy, more than anything else, brought about the -final acquiescence of the railroad managers and kept up the confidence -of the State authorities; his personality pervades the entire work. -After giving all due credit to the staff, and they were entitled to much -credit, the real honor must go to Professor Cooley. It was his -conception, his plan, and the brunt of the battle was his. - - - Office and Field Methods. - -The preliminaries of the organization having been completed, and the -forms prepared, a portion of the working force was brought on the -ground, and the work was actively commenced. It was subdivided into four -parts: - - (_1_) Office inspection, or inventory; - - (_2_) Field inspection; - - (_3_) Computation; - - (_4_) Compilation for the permanent record. - -The men chosen as field inspectors were old and experienced railroad -engineers. As far as possible, they were assigned for a short period to -office inspection, then they were sent into the field, after which they -worked at the computation of values; so that each man was engaged on -many different phases of the work, and handled the notes of many of his -fellows, and no one man made up one complete appraisal, except as -specially noted. - -_Making the Inventories._—Office inspection, or the preparation of -inventories, was assigned to parties usually of one or two experienced -men with from two to four younger engineers as assistants in the -computing-room. These men went to the general offices of the railroad -companies and made a complete examination of maps, profiles, bridge and -building records, records of motive power, rolling stock, etc. In short, -they prepared, as far as it was possible to do so, a complete inventory -of every building, structure, or piece of property owned by the road; -they took off complete abstracts of real estate and right-of-way -records; they noted principal yards and terminals, and secured maps of -such as were most complex, or furnished lists of such maps and records -as were most essential for the field men, and they made as complete a -report as possible of the corporate history of the road and the general -condition of its engineering records. No effort whatever was made to -examine or audit the financial books of any company, or to secure from -such books any data as to cost of property; the work was entirely -limited to the listing of physical property. - -Most of the railroad companies co-operated, and gave access to their -records; one or two filled in the forms; a number had practically no -records, and only one or two companies withheld information. Requests -for blue prints of large yards and terminals, and of plans of standard -structures were generally granted cheerfully, and, although there was no -such spirit of co-operation as was shown later by the Wisconsin roads, -much labor was saved by the data furnished. - -The result of the office inspection was the filing of inventories, which -were generally quite complete, the securing of maps and plans, the -gathering of data as to prevailing prices of labor and material, and the -securing of some very valuable cost data as to special structures and -classes of structures. All inventories were made up for roads, or for -divisions of roads, with each class of property listed separately, for -example, station buildings, interlocking plants, bridges, etc., so that, -if necessary, any special class of inspection might be assigned to one -man, while to others could be assigned the remainder of the work on that -particular road or division. - -_Office Inspection as a Check on Field Work._—The office inspection -furnished many valuable data for checking the judgment of the field men. -For example, the number of cubic yards of excavation and embankment on -probably the greater part of the mileage had to be secured by the field -inspectors, either because the records had not been kept or the changes -of line and grade had been so extensive as to destroy their reliability. -Every field inspector, therefore, made his own estimate of the yardage -of pay earth. The office inspection reports, however, gave reliable data -(from profiles or original contract estimate files) of the actual -yardage on possibly 2000 or 3000 miles of line, so widely scattered that -it constituted a check on the work of a majority of the field men. - -This work of office inspection disclosed the following points, which -will be practically common to all large valuation jobs: - - (_a_) There was no uniformity of method in the keeping of - records of permanent way and structures; - - (_b_) There was a vast amount of carelessness in keeping records - up to date, even on the larger roads; - - (_c_) The smaller roads, not only had little or nothing in the - way of records, but had in many cases no department with - employees qualified to make or keep such records; - - (_d_) The purchase of new equipment, the construction of new - buildings and bridges, and the destruction, sale, or removal - of old property, create a condition of continuous change - which is seldom recorded by either operating or accounting - officials, and makes book inventories derived from the roads - of very doubtful value for use in an appraisal. - -_Field Inspection._—The decision had been reached, after careful -discussion, not to permit the field inspectors to place a money value on -any structure, but to examine it, make a full description of it in all -particulars, and assign to it a percentage which should represent the -present value, or the depreciation from a similar new structure rated at -100 per cent. - -The field inspectors were furnished with the records of the office -inspection covering the district assigned. They were given notebooks, -tape lines, and various blanks for reporting progress and recording -original estimates in the field. Provision was made for inspection by -the field men, either by the use of hand-cars, gasoline inspection cars, -or velocipede cars, although, with one or two of the roads, no -satisfactory arrangement could be made, and the men were compelled to go -on foot. A careful inspection of every structure was made. If any -correction to the office inspection record was necessary, it was made; -if the structure was new, it was carefully measured and described, and -everything noted which would be of service in estimating its value. -Side-tracks were measured, and the weight and type of rail noted. All -culverts and bridges were examined, described, and their condition -noted. Estimates were made of excavation and embankment, clearing and -grubbing, etc. (based on the standing timber at the time of the -examination), and careful estimates were made of classifications of -material. The records of the field inspector generally contained only -the description and the percentage, but, occasionally, when apparently -valuable information as to cost of any particular structure was -available it was noted, as was special information of local matters -affecting the value of any part of the work. - -It was the plan (carried out with but few exceptions) to complete the -record with the field inspector so that from his notes a full and -accurate descriptive inventory might be made. There were a few -exceptions to the general method of field inspection work as outlined, -which were: - -_Special Work on the Chicago and Northwestern Railway._—The Chicago and -Northwestern Railway had no records of any sort, all construction papers -having been destroyed by fire. This company organized and placed in the -field four complete engineering parties, each under one of its own -engineers, and with each party was sent one field inspector. The line -was carefully surveyed and cross-sectioned, and complete records of -every building and structure were made, side-tracks were measured, and -data taken for rail and ballast charts, etc. All work was done in the -presence of the field inspector, and he was given copies of all notes. -He placed his own percentage of depreciation on everything. The -estimates, made up independently by the Chicago and Northwestern -engineers and the appraisal staff, using in the latter case the same -unit prices as applied elsewhere in the Upper Peninsula, varied less -than 2 per cent. - -_Special Valuations._—Certain special structures, such as ore docks and -ore and coal handling machinery, were of such a character as to require -expert appraisal. These were examined in the field, appraised, and -valued by G. H. Hutchinson, M. Am. Soc. C. E., whose special training -and experience in such work had qualified him perhaps better than any -other man. Interlocking and signaling plants were specially appraised by -the late Elliot F. Moore, who for 10 years had been Engineer of the -Michigan Railroad Commission, and whose intimate personal knowledge of -almost every plant in the State specially qualified him for this work. - -Some of the bridges were of such a character as to require expert -knowledge, and this inspection was assigned to William Dunbar Jenkins, -M. Am. Soc. C. E., a man of ripe experience and sound judgment. The -larger and more elaborate station buildings were examined and appraised, -and values finally placed by Mr. F. G. Susemihl, Chief Architect of the -Michigan Central System, whose special work in railway buildings made -him thoroughly familiar with these values. - -Work equipment and special equipment were appraised by Mr. G. L. Lewis, -who had been connected with the Marion Steam Shovel Company for many -years. - -Except for these special assignments, all the field inspection was -handled in accordance with the appraiser's plan. - -As stated previously, in only two or three cases was it necessary to -re-inspect, and, while several sections were intentionally gone over a -second time, without letting the field inspector know who had done the -work previously, or what his percentages had been, the result of all -these checks was to justify the figures in the earlier inspection and to -strengthen confidence in the work. - -The field inspection of the Mechanical Department involved examining and -placing a percentage value on each locomotive, passenger car, and piece -of special equipment, and on all shop machinery. Inasmuch as several -points of special interest are involved in this inspection, it will be -discussed at more length in the section of the paper relating to the -methods of work of the Mechanical Department. - -_Computation._—After the completion of the field inspection, all notes -were placed in the hands of the computing force. This organization -consisted of two classes of men, engineers brought in from field -inspection, and younger engineers. All computations were made -independently by two men, and all work was checked carefully. - -Every man in the computing room was furnished a large bound blank-book, -in which he was required to make all his notes and computations, no -figures of any sort being made on loose paper. The name of each man was -placed on his notebook, and each set of field and office inspection -notes worked upon by him was signed with his initials. It was easy to -trace the work of every man, and in the subsequent trial of the Tax -Cases, every man in the service returned, and, not only testified as to -his office and field inspection, but was able to turn to and identify -all the computations made by him, and produce his original figures and -memoranda. - -Very soon it became evident that such a volume of reports, notebooks, -memoranda, maps, plans, pamphlets, and other data was being accumulated -that, unless a special system was developed for filing and handling in -the office, the confusion would be serious and costly. - -_Filing in Office._—The system of filing and record keeping had the -merit of being simple and inexpensive. There was borne in mind, in -devising this plan, the necessity of keeping all papers connected with -one division of any road together, the need for reducing to a minimum -the labor of filing and indexing, the constant use of papers, and their -frequent withdrawal from the files, making it necessary that they could -be at once located when they were not in the files. - -The vault in the appraisers' office was arranged so that large manilla -envelopes, each of sufficient size to hold all the reports, notes, maps, -etc., of each road or division, could be filed vertically. Each road was -given a number; if there were several divisions, each division was given -a letter, as "15-_A_," "15-_B_," etc., and each division was filed -separately. - -Every report, book, map, or other paper was stamped with its road or -division number and letter, and given a sheet number. In this manner -every paper was identified, and could be at once placed. A record was -kept in a book, describing every paper filed in each envelope. - -In issuing papers for work, the entire file was taken and kept together -at all times. - -One man had charge of the filing and recording, and no one else was -permitted to enter the vault. When a file was withdrawn, a receipt was -taken, and was put in the place of this file; and when the papers were -restored to the vault the receipt was destroyed. - -The system proved adequate, and was much less cumbersome than a more -elaborate system of card indexing of separate papers could possibly have -been. - -The net result of office and field inspection had been an inventory -based on the railroad records, checked by a man in the field, with a -percentage representing the field inspector's judgment as to -depreciation, together with a considerable number of special data as to -original cost, etc. It was now necessary to place figures of estimated -cost of reproduction and depreciation in terms of money. - -The State of Michigan is made up of two peninsulas, widely separated, -with radically different conditions prevailing as to certain items of -the cost of construction. - -_Computation Tables._—This appraisal involved seventy-eight incorporated -and forty-seven unincorporated railroads. It was necessary to adopt such -a system as would apply uniform methods and prices to all like property. -Accordingly, the field inspectors were assembled, and, after conference, -it was determined to prepare a set of tables, covering all classes of -railway construction, material, and structures, values being computed -for 100% value, and for each 10% depreciation. These tables covered -different weights, sizes, and types of structures and material, and were -all computed on the basis of the agreed estimated cost. - -_Unit Prices._—The unit prices were the result of a most careful study -and discussion. For many items, such as clearing, grubbing, earthwork, -masonry, etc., the price was fixed by agreement during the discussion at -a figure which represented the fair average cost of this particular item -during the 5-year period preceding the appraisal. - -For rails and rail structures, an average price was secured from market -quotations for a period of 10 years, a price was determined as the value -of scrap, and the percentage of depreciation was applied to the wearing -value of the rail. The unit price was $28; the agreed scrap value was -$12, leaving $16 as the wearing value of the rail. If an inspector -reported rail at 90%, or at 30%, this percentage was taken from the $16 -wearing value and to this was added the scrap value. The tables were -arranged so that, for any weight of rail and any percentage, the cost of -reproduction and the present value could be taken from the tables in -dollars per mile. The same was true of bolts, spikes, angle-bars, -fish-plates, and frogs and switches. - -In the case of material such as ties, where no scrap value could be -attached, the percentage was applied directly to the first cost. - -In the case of bridges, the tables gave weights per foot and per span -for various lengths, types of structures, and loadings, and only the -cost of reproduction was estimated. - -Estimated costs per cubic foot were deduced for buildings of various -standard railroad types and per square foot for depot platforms. These -figures were obtained by reducing to this basis the cost of a large -number of buildings of known cost, by comparison with data obtained from -railroad companies and from a number of engineers who had kept such -records, and by consultation with architects. These building tables did -not apply to the more elaborate and costly structures, all of which were -appraised specially. - -Ballasting, track laying, and surfacing were divided into three and four -classes, in order to cover the different general types of railroads, and -prices per mile were fixed. On Upper Peninsula roads ballasting was -estimated at a higher price than on Lower Peninsula roads, while ties -and timber construction were estimated at a lower figure. - -In addition to these prices, secured by averaging several years' -quotations, or by agreement of experienced construction engineers, many -valuable figures were obtained from manufacturers of locomotives, cars, -mechanical equipment, and bridges; and in several cases access was given -to the mechanical cost data of the larger roads. Specifications for -locomotives, cars, and shop tools were sent out to builders with a -request that they give average prices for a period of years. - -From all this mass of data the unit prices for the valuation were -determined. For locomotives, values were plotted for engines of -different weights, in order to establish a curve, and curves -representing deterioration, scrap value, and major repairs were also -plotted, so as to ascertain diagrammatically the value of an engine of -given weight and stated condition. - -The tables and diagrams proved of incalculable benefit in reducing the -work, and in securing that absolute uniformity of method necessary to -give the appraisal standing. - -It may not be amiss to state here that in such a work no set of unit -prices could possibly be adopted which would not work some apparent -injustice. A number of Michigan lumber roads were of the cheapest -possible type of construction, and any unit price applied to ties or -timber, which would be at all reasonable for such roads as the Michigan -Central, Grand Rapids and Indiana, Pere Marquette, and others, would be -far in excess of the actual money paid out by these little roads. A few -individual instances of such apparent discrepancy were cause of -complaint and criticism, but, on analysis, very generally, these did not -appear to be anything but a disagreement with book values, in which ties -cut off the right of way were treated as having no cost; or in some -similar item certain local conditions may have made the first cost so -low as to amount to a donation of property. Conceding the propriety of -the objections, the reason for making the appraisal was to furnish -information on which the legislature might determine whether the State -should go from a specific to an ad valorem basis, and in view of this -purpose the objections became unimportant, as they applied to but a few -miles of road. - -_Classification._—All work of computation was classified in strict -accordance with the Interstate Commerce Commission's classification of -construction accounts, to which were added one or two classifications -not recognized by that Commission, and final summaries were returned on -sheets similar to those illustrated by Figs. 1 to 10. - -In computing, the staff made use of all data of every nature which was -before them, checked the judgment of the field inspector wherever any -reliable data were furnished, took into account age, special notes, or -costs, and, in case of any serious discrepancy in his percentage, -reported to the head of the department for either a re-inspection or for -a conference with the appraiser and inspector. In this department every -possible safeguard was thrown around the work to insure its absolute -mathematical correctness, and to guard against errors in the personal -equation. - -_Compilation._—After the calculations were checked and completed they -passed to the compilers, who arranged and classified them, and prepared -the form of the final report. This consisted of a detailed list of every -piece of property and every structure, with a short description and -specification, and a statement of estimated cost of reproduction and -present value. The division is made by roads, by divisions of roads, and -by counties. This was done after the completion of all other work, and -the disbanding of the organization, a small force being retained by the -State to compile and put in permanent form all the papers of the -appraisal. This work was done under the direction of Messrs. James -Walker and O. C. Le Suer in consultation with Professor Cooley. - -The final compilations were typewritten on large sheets and bound, and -constitute the final record of the physical valuation. After the -completion of the 1900 appraisal, all papers connected with the work of -the computing office were arranged in proper order and bound. - - - Special Problems of the Mechanical Department. - -The Civil Engineering section dealt wholly with fixed property located -entirely within the State; and the work offered no special difficulties -in the way of assignment of values. It is true that, when the question -of terminal values was under discussion, the Wisconsin and Michigan -Railroad offered a very pretty example, in that the revenue-producing -half of its mileage lay in Michigan, while its shops, yards, docks, and -car ferries, comprising the great bulk of its physical property, were in -Wisconsin. This instance merely emphasized the fact that no State -valuation of an interstate property can settle finally and definitely -all the questions that arise. - -_Assignment of Value to States._—The Mechanical Department was compelled -to handle the valuation of moving property, and to assign values as -between the States on such a basis as would be fair to all parties. The -Courts have been inclined to view the distribution of values between -territorial units on the track-mileage basis as being a fair one. The -study of the problem in Michigan indicates that while this method, -perhaps, is just in most cases, it will not hold in all. Assignment was -made upon several bases, as follows: - - (_a_) Main-line mileage; - - (_b_) Total track-mileage; - - (_c_) Car- and locomotive-mileage of equipment operating in - Michigan; - - (_d_) Car- and locomotive-mileage, entire equipment; - - (_e_) Freight-car mileage of the entire system. - -The results secured by these different methods show, in many cases, very -little difference; all are close, and no injustice is worked by any -method, while, in other cases, the figures are widely divergent. - -The Lake Shore and Michigan Southern Railway owns a high-class main line -between Chicago and Buffalo, and for part of the way there are two lines -several miles apart; the entire line is double-tracked, and there is -much third track. None of this line is located in Michigan, except some -80 miles of single-track main line of the Michigan Division between -Toledo and Elkhart. The company, however, has several hundred miles of -branch line in Michigan, which comprises most of the branch-line mileage -of its system. These lines, generally, are far inferior to its main -line. - -Any apportionment of its equipment between States on the basis of either -line-mileage, total track-mileage, or locomotive- and equipment-mileage -of total equipment will result in the assignment to Michigan of a value -far in excess of a proper or fair amount. An apportionment of locomotive -and passenger-car equipment on the basis of equipment-mileage or -equipment operating in the State, and for freight cars on the basis of -car-mileage of total equipment, was found to be most fair. - -In making the assignment of values, this study was made for all -interstate roads, and such basis used as was apparently most fair in -each case, the department making a special effort not to assign to -Michigan undue values or those which could not be sustained. - -_Freight Car Inspection._—One of the most perplexing problems which was -faced by the Mechanical Department was the proper and satisfactory -inspection and valuation of freight equipment. The freight cars owned by -the companies were scattered over the United States and Canada, and the -inspection of any considerable percentage of those owned by any company -was, of course, an impossibility. The fact that these cars had been -purchased in series, so that there were considerable numbers in a group, -all of the same age, and built according to the same specifications, -made possible a valuation by groups. The acceptance, however, of any -arbitrary percentage of depreciation by years, or the acceptance of the -rules of depreciation of the Master Car Builders Association, without -making independent investigation with a view of establishing the -correctness of the rule, appeared to be unwise. - -The several companies submitted carefully prepared statements of -equipment. These statements were compared with the equipment register -and the reports to the Commissioner of Railroads. The prices used were -those of the rules of interchange of the Master Car Builders Association -wherever applicable. - -Prices were furnished by the leading manufacturers, and in many cases -were secured from the books of the railroad company. - -In order to determine the condition of the equipment, the inspectors of -the department personally examined 32,000 freight cars in Michigan and -adjoining States. Their reports were separated, classified, and analyzed -by groups, with the result that the inspection fully confirmed and -justified the use of the rule for depreciation of the Master Car -Builders Association, which was therefore applied. In the 1902 appraisal -this rule was accepted without any inspection or further study of the -problem. - -The criticism of this part of the work by the appraiser of the State of -Washington is wholly unjustified, as the work was necessary in order to -qualify in Court and defend the rule adopted, and the actual cost of the -work was small. - -_Locomotives._—The inventory of locomotive equipment was secured from -the companies, and checked against reports and the equipment register. -Personal inspection was made of every locomotive in the State, then a -complete description was prepared, and the percentage of depreciation -assigned. Curves of depreciation had been computed and plotted, and the -figures of the inspectors were compared carefully with the curve in -order to eliminate possible errors. - -_Vessels._—Professor Sadler's appraisal of vessels involved a personal -examination of every vessel. This survey included: - - (_a_) The hull of the vessel and general equipment; - - (_b_) The machinery and boilers. - -An independent estimate of the cost of reproduction and depreciation was -made, and, wherever possible, this was checked by comparison with the -detailed original cost. In case of material difference, various -shipbuilders were consulted, and independent estimates of cost were -secured. In every case these latter estimates were confirmatory of the -estimated cost of reproduction, which figures were used throughout the -appraisal. - - - Overhead Charges. - -There are certain expenses connected inseparably with the construction -of any public work, which, on the completion of that work, are not -capable of physical identification, but which, nevertheless, belong to -and must be a part of the cost of the physical property. These expenses -are legitimate; and, as long as the property is operated, a very large -part, if not all, of the entire expense remains in the present value of -the property as a "going concern." - -Appraiser Cooley and his staff took up the discussion of these items and -disposed of those which were carried into the valuation by the placing -of a percentage. These items are: - - _Engineering._—This covered all the cost of preliminary and - location surveys, design, and supervision of construction of - the work, and all expenses connected therewith. This was - covered by a charge of 4% of the cost of reproducing the - permanent way and structure, but not the equipment. - - _Legal Expense._—This item is inseparable from the construction - work, and was fixed at one-half of 1% of the cost of the - same items as affected by the engineering charge. - - _Organization Expense._—This covered the cost of promotion, - financing, and general supervision of construction, together - with general office expense. These items were covered by an - application of 1½% of the cost of the above items. - - _Interest._—This item is intended to cover interest on money - during the period of construction. The length of time taken - to build would, of course, be variable. It was assumed that - 3% on the entire cost of construction and equipment would be - conservative, and this figure was used. - - _Discount on Bonds._—This was not included, for the reason that - it was considered, not as a proper capital charge, but - rather as an adjustment of the interest rate to the existing - market condition, and as chargeable to interest account and - not capital. - -The discussion among members of the staff indicated such a wide range of -opinion as to the proper percentages to apply, that the final -determination of the rates was passed upon by the Board of Review. There -can be no question as to the propriety of these items as proper elements -in the first cost of construction of a new railroad. On the theory that -the cost of reproduction of the physical property should include every -item of expense which would enter into the cost of reproducing the -property as it existed on the date of the appraisal, they are proper -terms to include in the appraisal. As to whether the fixed rates were -high enough in every case, is an open question. - -_The Charge of Ten Per Cent. for Contingencies._—Perhaps no single -feature of the Michigan appraisal of physical property has been so -generally criticised as the charge of 10% of the entire estimated cost, -including all the percentage charges, to cover "contingencies." - -At the time the first appraisal was made, the writer was not at all -satisfied that such an item, in such amount, should be included. The -reasons advanced were so strong that it was done, and the writer's -subsequent work has fully convinced him that it was proper and -justifiable, because: - - (_a_) The conditions under which this particular inventory and - appraisal were made, as to time and lack of co-operation of - the companies, made it practically certain that some items - of value were missed in the appraisal, such as station and - miscellaneous equipment, frogs, switches, track structures, - buildings owned by the companies and occupied by others, - etc. - - (_b_) That there were many and large elements of physical cost - not ascertainable by a physical inspection, such as deep - foundations, many thousands of yards of earth in swamps and - sink holes (a very general condition of roads in the - Southern Peninsula), concealed classification due to growth - of grass or washing of banks, and many other cases of work - actually done, invisible after a lapse of years. The writer - knows of many such instances on property which was in his - charge many years ago; in several cases there were - expenditures of from 0,000 to $50,000 which are now entirely - invisible to an engineer passing over the line. - - (_c_) The failure on the part of railroad companies to keep - anything like a complete history of construction operations, - and the changes of operating officials from year to year, - cause the loss of record of practically all the expense due - to extra hazard and risk which the construction engineer - provides for by his "contingencies." - - (_d_) The inclusion in operating expense, every year, of sums - which are properly construction, and which, if added to unit - prices of construction work, would cause the cry that such - unit prices were too high. For instance, the appraisal - estimate on earth was 17 cents per cu. yd., with no - allowance for overhaul. Very much of the grade in the State - had actual costs far in excess of this figure, and - practically every road spends a large sum annually for the - first four or five years, which is charged to operation but - is in reality a part of the cost of completing the roadbed. - - (_e_) No account was taken of appreciation of any of the - elements entering into a road. There is no doubt that - roadbed, for example, does appreciate, due to ballasting and - track work. These items go far toward accounting for the - contingencies item on an old road such as the Michigan - Central. - - (_f_) There is a considerable amount of cost, which cannot be - taken out of capital, where facilities are abandoned or line - or grade changed. These changes are common to all growing - roads; they are due to the demands for greater traffic; they - are necessary to the welfare of the community served; they - are often made at points where no charge of defective design - will apply. They might be termed expenses due to the - development of the State, and, in the development of the - railroad business, they were absolutely necessary for its - present standard of efficiency. They are incapable of exact - and definite determination, and must of necessity be - included as contingent expenses. - -In the case of a new road, where the exact cost is ascertainable, the -records have been fully kept, the original plans are on file, and the -history is fresh in the minds of the officials, it will be readily -admitted that a charge for contingencies in large amount would not be -justifiable; but, in the case of the Michigan Central Railroad, a line -more than 50 years old, which has changed, rebuilt, and added largely to -its property; in the case of the Pere Marquette Railroad, made up of the -union of a dozen lesser properties, without any complete history; in the -case of dozens of little lines, without maps, profiles, or records, some -such allowance is fully justified and proper. - -The experience of the writer, in the years that have passed since these -appraisals, leads him to the opinion that the difficulty of estimating -values on an old property are such that in many cases an appraiser might -add, with perfect propriety, even more than 10% for the contingency -item. - -In computing overhead charges, no allowance was made for working -capital, and no addition to the physical valuation was made to cover any -such element as "going concern" value. - - - Right-of-Way Values. - -Land values were the subject of a great deal of discussion during the -appraisal of 1900, but subsequent investigations as to actual railroad -purchases resulted in quite radical changes in some of the figures in -the later valuations. In view of the fact that many criticisms of these -values have been made by railway attorneys, special emphasis is here -given to the subject. The conclusions reached in Michigan in 1902 agree -so closely with the conclusions of Taylor in Wisconsin and Morgan in -Minnesota that it is thought advisable to give a rather full account of -the methods used in both appraisals, and the line of reasoning which -brought about the changes made in 1902. - -The 1900 appraisals methods were as follows: Work in Detroit, Grand -Rapids, Saginaw, Bay City, and some other large cities was assigned to -special appraisers, who visited the cities, examined critically all the -property, conferred with leading real estate men and experts in values, -and placed an estimate per acre or per square foot. This part of the -work was done with great care, and was substantially unchanged in the -later appraisals. - -In all other land valuations, in cities and villages, and country right -of way, a personal examination was out of the question without making a -very large and expensive addition to the staff, as the field engineers -generally were not familiar with realty values, and could not take the -time to make the large number of inquiries. The appraiser did not see -his way clear to organize a special department, therefore the matter was -turned over to a sub-department of the Civil Engineering Section, the -work of which may be briefly outlined, as follows: - -Lands were classified as: - - (_1_) Farm land, - - (_2_) Barren land, - - (_3_) Villages having a population of less than 500, - - (_4_) Villages from 500 to 3,000, - - (_5_) Cities having less than 10,000, - - (_6_) Cities having more than 10,000. - -The percentage of waste land was fixed as a result of interviews with -roadmasters, superintendents, and other officials and employees of the -roads, by reports from field inspectors and others. - -Letters of inquiry were sent to real estate men and bankers in every -county in the State (some 500 being communicated with), as to land -values in the town or county of each. The responses, which were numerous -and indicated considerable care in preparation, were classified, and on -these data, supplemented by as much personal inspection as it was -possible for a few men to give in a limited time, the values of the -various classes of land were determined by a system of averages. The -naked land values were then taken, and to them were added, as follows: - -South of a line east and west through Saginaw, 125% plus a fixed charge -varying from $8.50 per acre downward was added to the so-called naked -land values for farm land. No waste land values were considered in this -district. North of this east and west line: Farm land, 100% and a fixed -charge of $3 per acre and upward; waste land, 200% plus a fixed charge -of $3 per acre; for all village lands, 125% plus $8.50, fixed charge; -for all city lands, 100% plus $8.50, fixed charge. - -The fixed charges were intended to cover the expense of acquiring -abstracts, recording deeds, etc. Slightly different figures were made -for the Upper Peninsula. - -The result of this work was a set of very low figures in many counties, -the average price per acre hardly reaching the going price of improved -farm lands. There was so little time to review these figures after they -were in shape that they were used in 1900, although the appraiser was -convinced that they were generally too low. - -In the appraisal of 1902 a very careful study of real estate values was -made. The offices of Registers of Deeds in ten or twelve counties were -visited, a careful abstract of all railway transfers for a period of 10 -years was taken off, the acreage determined, the average price per acre -for different classes of land computed, and then a very careful study of -transfers of adjacent improved and unimproved lands was made. As a -result, material increases were made in the farm land values, waste land -values were eliminated, the 1900 valuation, made by special appraisers -in large cities, was practically unchanged, while very radical changes -in the way of equalization of values of lands in villages and small -cities were made. - -Inasmuch as the 1902 valuation was at issue in the Courts, the writer -believes he is justified in discussing at some length the deduction of -the staff on the conclusion of the 1902 preliminary studies, which led -to the final adoption of the new figures. - -One would fall into error if country values for farm purposes were -conflicted with country values for railroad purposes. There is, -undoubtedly, a close relationship between the two classes of values; -this the writer has endeavored to discover, and it is indicated in -Tables 2 to 6. The use to which land is put can and does change its -value. Farm land in a certain township may be worth $50 per acre for -farming, but the discovery of oil would affect values, as far as oil -purposes are concerned. The presence of a vein of coal would give a -distinct value for mining purposes. Farm prices would not govern values -for any special use, such as oil drilling, mining, or railroad -operation. - -In the case of city business property, farm prices cannot be applied, as -the use to which the land is put and the buildings placed on it give it -a greatly increased earning power, and hence increased value. Thus, with -a railroad right of way, the continuity of the strip of land, the -severance of lands crossed by it, the greater earning power it derives -from the construction placed on it, in short, the uses to which it is -put, give it a value far in excess of adjoining lands. An excellent -proof of this is found in the fact that many thousands of miles of right -of way have been bought by promoters and either sold to a company, which -built the lines, or used in financing the road. In no case has the -selling price been based on farm values. - -It is not contended that railroad land values do not bear a direct -relation to land values for other purposes, as those things which tend -to increase general values usually make the construction of a railroad -profitable, and the better and more fully developed the country, the -greater is the need for transportation facilities and the higher the -prices of land for all purposes. This is shown in the figures submitted -herewith. - -For purposes of appraisal, therefore, in 1902 the average value, as -derived from the 1900 appraisal, was taken, and, by comparison with -actual purchases, an attempt was made to ascertain the relation existing -between the appraisal figures of 1900 and the usual purchase price for -railroad properties, as determined by actual transfers. In making these -figures the appraiser was forced to the following conclusions: - - (_1_) That the naked land value is not a proper one to use in - country lands, but that the going value of country lands - with all improvements should be used as a basis for - computing the added increment due to railway use; - - (_2_) That a classification of farm land and waste land should - not be made, except as a basis for arriving at the relative - differences in quality of land in different sections of a - county; - - (_3_) That the added value for railroad purposes is due to the - three elements: - - (_a_) Continuity, - - (_b_) Severance or damages, - - (_c_) Changed earning power, - - all of which the farmer or owner has cognizance of in making - his price; - - (_4_) That in making up land values, account should be taken of: - - (_a_) The cost of acquiring the land, or expense, - - (_b_) The cost of the land itself. - -The reasons are: - -_I_.—In making a price on a 40-acre farm, the owner does not make two -prices, one on land and one on improvements. He arrives at a flat price -per acre for the entire farm, and usually asks more per acre for a part -than the whole. A man who valued his land at $100 per acre, with -improvements, would hardly sell 5 acres from a corner of his land, even -for residence purposes, at naked land prices. - -The 1900 appraisal was based on naked land prices, as estimated by a -number of citizens of each county, and this flat rate was used in making -figures for the so-called "Market Value of Right-of-Way." It is fair to -assume that a railroad company can purchase large tracts of land for -gravel pits, or a narrow strip adjoining and widening its existing right -of way, at about market prices, as the elements of severance, abutting -damages, etc., are absent. Prices for this class of land ought to be, -and usually are, lower than those paid for a new right of way. - - TABLE 2.—COUNTRY LAND.—ADDITIONAL STRIP FOR WIDENING RIGHT - OF WAY, GRAVEL PITS, ETC. - - ═════════╤════════════════════════════════════════╤══════════╤═════════ - County. │ Description: Road and purpose. │ Average │ Average - │ │per acre, │per acre, - │ │ 1900 │transfer. - │ │appraisal.│ - ─────────┼────────────────────────────────────────┼──────────┼───────── - Jackson │Michigan Central. Widening right of way │ $84.47│ $156.08 - Kalamazoo│Michigan Central. Additional right of │ 89.41│ 140.00 - │ way near Augusta │ │ - Kalamazoo│Grand Trunk Western. Additional strip │ 94.59│ 120.50 - │ for double tracking │ │ - Cass │Michigan Central. Gravel pit │ 84.97│ 94.15 - Cass │Grand Trunk Western. Additional strip │ 71.79│ 203.53 - │ for double-tracking │ │ - Berrien │Michigan Central. Additional right of │ 109.40│ 113.66 - │ way │ │ - Washtenaw│Michigan Central. Additional right of │ 49.35│ 130.68 - │ way │ │ - Washtenaw│Ann Arbor. Additional right of way │ 88.60│ 116.12 - Ionia │Pere Marquette. Gravel pit │ 77.50│ 125.00 - ═════════╧════════════════════════════════════════╧══════════╧═════════ - - Actual purchases are averaged from recent transfers, and represent - consideration paid owners, but not cost of acquiring. - - The 1900 appraisal averages show country land after fixed charges - and percentages are added. - - The tables given herewith are summarized from a very large mass of - information introduced as evidence in a suit of Michigan Central - Railroad _et al._ _vs._ Powers (The Michigan Tax Cases), and are - selected as average examples of conditions throughout the Southern - Peninsula. - -It is evident from the figures in Table 2 that no such naked land values -as those used in 1900 were considered by the farmers in placing values -on their lands, as the sales covered in that table do not involve any -large element of damages. All transfers are of a strip a rod or more in -width adjoining an existing right of way. - -_II._—It is true that in some sections of Michigan there are large -tracts of barren or low-priced land. In 1900 barren land prices were -used, and were much lower than farm land; in the poorer parts of the -State large percentages of barren land were used. This fact brought the -average per acre of country land, as applied in the appraisal, very low -in many of the counties, and justified the appraiser in using the -average country price of 1900 as the base price for a re-valuation. -Generally, the 1900 appraisal averages for country lands were fair -indices of the difference in actual value in different parts of the -State. - -In the 1900 appraisal, the Michigan Central was credited with having, in -Jackson County, 309.1 acres of farm land (naked value, $38, average rate -$93.30), and 34.35 acres of barren land at $5 per acre. The field -inspectors reported that part of the district between Parma and Albion, -in the vicinity of Bath Mills, was waste or barren land. The Jackson and -Battle Creek Traction Company parallels and adjoins the Michigan Central -Railroad right of way from Parma to Bath Mills. An investigation of -records of deeds showed that they bought 25.02 acres of land in this -district at $65.79 per acre, and that the average price of all their -land in the county was $239.52 per acre. - -While there was a marked difference in the rates of different grades of -country land, no one would be justified in putting any land south of a -line drawn from Saginaw to Muskegon at prices as low as $2 to $10 per -acre. An average based on the 1900 classification of lands would -probably eliminate all waste land classifications, without doing any -injustice. - - TABLE 3.—AVERAGE VALUES PER ACRE OF COUNTRY LANDS, OF THE 1900 - APPRAISAL, OF THE JACKSON, LANSING AND SAGINAW RAILROAD, AFTER - ALL THE PERCENTAGES AND FIXED CHARGES WERE ADDED. - - ════════════╤═══════ - County. │Price. - ────────────┼─────── - Jackson │ $75.71 - Ingham │ 74.90 - Clinton │ 42.38 - Shiawassee │ 67.18 - Saginaw │ 40.80 - Bay │ 38.69 - Arenac │ 32.47 - Ogemaw │ 8.69 - Roscommon │ 10.74 - Crawford │ 8.41 - Otsego │ 15.62 - Montmorency │ 12.38 - Cheboygan │ 17.13 - ════════════╧═══════ - -Table 3 illustrates quite clearly the extremely low figures applied in -many counties in the 1900 appraisal, and also represents quite well the -relative difference in value in the different counties. - -That the 1900 rate varies about as the purchase price, is shown by the -fact that the Pere Marquette Railroad built a line in Montcalm County, -buying 155.3 acres at an average price of $135.19 per acre, while the -1900 appraisal showed an average of $29 on the 918 acres appraised. The -purchase price was 4.66 times the 1900 appraisal. - -In Calhoun County, the Grand Trunk Railroad bought 63.2 acres at $491.13 -per acre, while the 1900 appraisal was $61.44 on all the country land in -the county, or only one-eighth of the actual purchase price. - -_III._—There can be no doubt that a railroad right of way costs much -more than an equal acreage of farm lands. The writer has always been -inclined to hold the view that an ordinary right of way through good -farming country would cost from two to three times farm prices, no -matter how much care is used in the acquisition of the land. In recent -years the price of right of way has been greatly increased. The Newton -and Northwestern Railroad right of way, in Iowa, cost $267 per acre, on -a line 80 miles long. This is nearly all country land, about 1 mile in -the outskirts of Boone (population 12,000), and about ½ mile in Newton -(population 6,500), being the only city land to increase the average. -The Rock Island System and the Chicago Great Western paid higher country -prices in the same territory. This line is in such country as Southern -Michigan, and land is held at from $65 to $100 per acre. - -The Toledo Urban and Interurban right of way, in Lucas County, Ohio, was -bought by the writer in 1901 at an average net price of $329.21 per -acre. The average assessed valuation is $55 per acre. The going value of -farm lands will range from $100 to $225; probably a fair average is $135 -per acre. The prices paid by Michigan railroads are fully sustained by -these personal experiences. - -The figures in Table 4 show that the actual average price paid for new -right of way is greater than the average of the 1900 appraisal, after -the 125% and fixed charges are added, by from 230 to 726 per cent. - -The argument that a change of line costs more than a new line is not -sustained by Table 4. In Jackson County, the Michigan Central Railroad -changed its line at an average cost of $165.67 per acre. The Jackson and -Battle Creek, a new line, parallel with and adjoining the Michigan -Central, paid $239.53; the Jackson and Suburban, a new electric line, -paid $293.34, and the "Ypsi-Ann" Electric paid $393.74. All the new -lines in Monroe County are higher than any changes of line in similar -country. The Ann Arbor change in Washtenaw County, located by the -writer, is at one point 3 miles from the old right of way, and only at -the two ends of the 7-mile line does it run on farms owned by parties -crossed by the old road; therefore, to all intents and purposes, it is a -new line. - -The naked land values used in 1900, being clearly too low, were of no -use and were dropped. The so-called market price of right of way as -given in 1900 was misleading. - - TABLE 4.—COMPARISON OF COUNTRY LAND VALUES. - -The actual purchases are averaged from recent transfers, and represent -consideration paid to land owners, but not the cost of acquiring. - -The 1900 appraisal averages show all country land after fixed charges -and percentages were added, per rule of 1900. - - ═════════╤═══════════════════╤══════════╤═══════════════════╤═════════ - County. │ Railroad. │ 1900 │ Railroad. │ Actual - │ │Appraisal,│ │transfer, - │ │ average │ │ average - │ │per acre. │ │per acre. - ─────────┼───────────────────┼──────────┼───────────────────┼───────── - Jackson │Michigan Central. │ $71.36│Michigan Central │ $165.67 - │Air Line │ │Air Line. New Line │ - │Michigan Central. │ 88.47│Jackson and Battle │ 239.53 - │ │ │Creek. Average │ - │ │ │entire county │ - │Michigan Central. │ 5.00│Jackson and Battle │ 65.79 - │Waste land │ │Creek. Wasteland │ - │Michigan Central. │ 93.30│Jackson and Battle │ 298.51 - │First-class farm │ │Creek. First-class │ - │ │ │farm │ - │Jackson, Lansing │ 75.72│Jackson and │ 293.34 - │and Saginaw. │ │Suburban. │ - │Average country │ │ │ - │values │ │ │ - │ │ │Detroit, Ypsilanti │ 393.74 - │ │ │and Ann Arbor │ - Monroe │Flint and Pere │ 93.30│Flint and Pere │ 215.21 - │Marquette. │ │Marquette. Monroe │ - │ │ │to Toledo │ - │Michigan Central. │ 93.30│Toledo and Monroe. │ 461.13 - │ │ │Electric │ - │Lake Shore and │ 93.30│Detroit and Toledo │ 214.38 - │Michigan Southern. │ │Shore Line. (Duffy)│ - │ │ │Detroit and Toledo │ 262.49 - │ │ │Shore Line. (Burt) │ - Kalamazoo│Michigan Central. │ 89.41│Michigan Central. │ 236.22 - │ │ │Kalamazoo to │ - │ │ │Mattawan │ - Van Buren│Michigan Central. │ 66.54│Michigan Central. │ 196.00 - │ │ │Kalamazoo to │ - │ │ │Mattawan │ - Cass │Michigan Central. │ 84.97│Michigan Central. │ 260.61 - │ │ │Cut-off near │ - │ │ │Pokagon │ - │Michigan Central. │ 10.00│Michigan Central. │ 60.00 - │Wasteland │ │Waste on cut-off │ - Genesee │Grand Trunk │ 98.10│Grand Trunk │ 337.56 - │Western. │ │Western. Improved │ - │ │ │line │ - Genesee │Pere Marquette. │ 80.81│Flint and Pere │ 234.00 - │ │ │Marquette. Change │ - │ │ │of line │ - Montcalm │Pere Marquette. │ 29.00│Pere Marquette- │ 135.81 - │ │ │Greenville-Stanton.│ - Calhoun │Grand Trunk │ 61.44│Grand Trunk │ 491.13 - │Western. │ │Western. Change of │ - │ │ │line west of Battle│ - │ │ │Creek │ - Calhoun │Michigan Central. │ 74.38│Jackson and Battle │ 218.74 - │ │ │Creek. Electric │ - Tuscoia │Michigan Central. │ 60.75│Michigan Central. │ 73.04 - │ │ │Caro-Owendale │ - St. Clair│Pere Marquette. │ 43.18│Rapid. │ 287.05 - │ │ │Anchorville-Marine │ - │ │ │City │ - Washtenaw│Ann Arbor. │ 38.60│Ann Arbor. Change │ 285.50 - │ │ │of line near Ann │ - │ │ │Arbor │ - Ionia │Pere Marquette. │ 77.50│Pere Marquette. │ 112.30 - │ │ │Lowell-Belding │ - Manistee │Ann Arbor. │ 25.40│Ann Arbor. Change │ 47.33 - │ │ │line near Harlan │ - Osceola │Pere Marquette. │ 40.03│Pere Marquette. │ 57.93 - │ │ │Change line near │ - │ │ │Evart │ - ═════════╧═══════════════════╧══════════╧═══════════════════╧═════════ - -Having shown that there is an increase in cost of railroad over farm -land, the question arises: Is it legitimate? If it is a proper item of -cost, has it a place in the present value column? - -In building a new railroad, engineers prepare their estimates of cost, -including grading, rail and fastenings, ties, bridges, and, among other -items, right of way. Their clients provide funds to build the line, and -furnish, among other items, cash for the right of way. The right-of-way -account in no wise differs from that of any other item of physical cost. -The right of way, with all its hold-ups, items for damages, court costs, -legal expenses, bills for personal services and expenses in securing it, -abstracts and recording of deeds, is just as much an element of physical -cost as the rails. The cost of acquiring the right of way is as proper -an element as charges for inspecting the rails, freight charges on them, -the loading and unloading, or any other charges that enter into the cost -of rails delivered to the track-laying contractor. - -Should the cost of reproduction of right of way be carried to the -present value column? Clearly, yes. If a road is unfortunate enough to -buy its rails when they are at a price of $60 per ton, the full price is -charged to capital account; and when the line is sold to some large -corporation, no reduction is made, even though the price of rails be -much less at the time, but the selling price is based on the -construction account as a whole. - -The same is true of the right of way. In no case which has come under -the writer's notice has a new company, or a set of promoters disposing -of a new line or a new right of way, ever consented to deal except on -the basis of construction account, plus promoters' profit. The cost of a -right of way is increased on account of continuity. A farmer is -justified in increasing his price per acre by reason of the fact that -the road must have a continuous line, regardless of how it affects the -individual. He must rearrange his fields, replant his orchard, change -his fences, ditches, and tile lines, and re-adjust his entire property -to accommodate the necessity of the road. He must also take into account -severance or damages. He is compelled to cross the line at an -inconvenient place, open and close two gates in every lane or at every -crossing, drive his cattle back and forth to water, haul his produce -over a short heavy grade across the track, and he must not interfere -with the railroad. He is in constant danger of loss of property from -fire or from accident, and he is in personal danger every time he passes -from his own land on one side of the railroad to his own land on the -other side. Every one who has bought right of way knows these arguments, -and is aware that the farmer knows them and charges extra on account of -them. - -The law provides that, in condemnation, the jury shall take into account -two elements, the value of the land, and damages. The railroad pays -them, and very promptly charges the entire cost to the right-of-way -account. No one will question the propriety of the farmer taking them -into account in fixing his price. The value of continuity to the -railroad can hardly be measured in dollars and cents. - -A fair illustration of continuity may be found in coal lands. A promoter -will secure option on a large acreage. As long as his holdings are -disconnected and widely separated they are of no more value than -adjoining lands, but let him close options on a large block of land all -in one body, and immediately he can add from 100 to 200% to the value of -his land for mining purposes. This added percentage is due to -continuity. - -The conditions surrounding the purchase of railway lands in Michigan -have changed materially in the past few years. In a new country, without -means of transportation, land values are low, and, in order to open new -markets, land owners can afford to donate the right of way. Undoubtedly, -a very large percentage of the total right of way on the older lines was -either donated or bought at very low prices. As a community grows and -develops, acquires new industries, and receives new improvements, -property values increase; and, along with a general appreciation of -other values, those of railroad property must increase. It would -certainly be true that the present value of the site of the Majestic -Building, in Detroit, is not the same as it was in 1850; the argument -that its actual cost in 1850 was, say, $200, would not be any -justification for such a value to-day. Equally is it true that the value -of property owned by the Michigan Central Railroad is not to be measured -by the price paid for it 50 years ago. The greater business, and the -larger income derived from that business, make the Detroit of to-day a -much more valuable terminal for the road than the Detroit of 50 years -ago. - -The same argument will apply to any city which has grown up after the -construction of railroads. The original right of way was farm land and -may have been a donation, but the change from farm to city certainly -increases the value of the railroad land just in proportion as the -surrounding land increases. - -The same reasoning is properly applicable to lands which decrease in -value. Where a railroad buys right of way to gain access to valuable -timber lands, and, after the removal of the timber, the land is too poor -to support a population, the present value should depreciate in the same -ratio as the surrounding land, and immediately on its abandonment as a -right of way it would cease to have a railroad value. - -In an appraisal, it appears to be fair to base the cost of reproduction -on the cost of building a new line on the location of the road under -appraisal, all other means of transportation remaining as they are -to-day, so as to secure as nearly as possible the conditions that would -be encountered by a new company building a new line on this location. - -The argument was made in 1900, and reiterated frequently, that railroad -companies secure many donations. It may safely be said that, in a -developed country, such as in the south half of the Lower Peninsula, the -donations are of little account. Few donations were found in an -examination of records of deeds covering 10 years; and in some cases the -conditions were so burdensome that it may be said that the gift land was -the most expensive. A condition for a cattle-pass costing from $400 to -$600, a side-track costing from $1 to $1.50 per ft., and other like -specifications are found; and in many deeds where a liberal -consideration is named conditions which add greatly to the cost are not -infrequent. - -The recent new lines in Southern Michigan secured but few donations, -although all considerations of $1 and other good and valuable -considerations were classed as donations unless the contrary was -susceptible of proof. In the case of the Ann Arbor Railroad, in -Washtenaw County, the $1 consideration represents a higher price than -the average, this being known by the writer, as he bought it. The same -is true of the Detroit and Toledo Shore Line, in Monroe County. In -making an appraisal, no deductions should be made for donations, if -there are any, as the fact that land is donated does not indicate -absence of value; nor should an addition be made to the appraisal value -on account of the fact that a road has been held up and compelled to pay -exorbitant prices in certain localities. - -In some counties the base values of land in villages and small towns -were given at ridiculously low prices in 1900; some are as low as from -$50 to $100 per acre in towns of from 1,000 to 3,000 population. When -one stops to consider that a lot 4 by 8 rods contains ⅕ acre, and that -such lots in a town of considerable size range from $50 to $300 each, it -is readily seen that from $250 to $1,500 per acre are not excessive -figures. The figures for an adjoining county were often very high, and -village values were put up to substantially full value. The result of -adding percentages in 1900 was to magnify discrepancies, and little -villages of from 200 to 500 population in one county were appraised at a -higher rate than towns of from 2,000 to 5,000 in the next. - -In 1902 the appraiser undertook to equalize all such discrepancies, and -found that no hard-and-fast rule would apply. A comparison of village -values, as determined by actual purchase, with the 1900 appraisal, is -given in Table 5. - -The 1900 appraisal for city lands, outside of Detroit and Grand Rapids, -was generally very conservative or low. In some cases the figures were -extremely low. - - TABLE 5.—AVERAGE PRICE PER ACRE FOR VILLAGE LAND. - -Actual purchases are averaged from recent transfers. The 1900 appraisal -averages are averages of prices as applied after all percentages and -fixed charges are added. - - ══════════╤════════════════════╤════════════╤════════════╤════════════ - County. │ Name of road. │ Name of │ Appraisal, │ Actual - │ │ village. │ 1900. │ transfer. - │ │ │Average per │Average per - │ │ │ acre. │ acre. - ──────────┼────────────────────┼────────────┼────────────┼──────────── - Jackson │Michigan Central │Parma │ $177.25│ $1,166.65 - Van Buren │Michigan Central │Mattawan │ 571.00│ 2,439.04 - Tuscola │Michigan Central │Caro │ 571.00│ 733.42 - Oakland │Pere Marquette │Clyde │ 346.00│ 333.00 - Oakland │Pere Marquette │Milford │ 571.00│ 1,136.37 - Genesee │Pere Marquette │Grand Blanc │ 121.00│ 327.87 - Kent │Pere Marquette │Lowell │ 571.00│ 1,552.26 - Ionia │Pere Marquette │Belding │ 1,000.00│ 967.77 - Washtenaw │Michigan Central │Dexter │ 571.00│ 718.75 - Washtenaw │Michigan Central │Delphi │ 233.50│ 2,383.34 - Cass │Grand Trunk Western │Cassopolis │ 458.50│ 1,600.00 - Cass │Grand Trunk Western │Edwardsburg │ 222.25│ 466.67 - ══════════╧════════════════════╧════════════╧════════════╧════════════ - -The conclusion reached by the appraiser in 1902 was that, for railroad -purposes, right of way is worth what it costs to produce it. It would be -just as consistent to claim that a railroad has a misfortune in having a -river to cross, and that no value should be placed on the bridge which -spans it, as to claim that right of way, which costs three times -farm-land values, should not be valued at a higher figure than farm -land. - - TABLE 6.—COMPARISON OF VALUATION FIGURES WITH ACTUAL - CONSIDERATIONS—COMPARISON OF IMMEDIATELY ADJOINING PROPERTIES, - GRAND RAPIDS, MICHIGAN. - - The prices are per square foot or per acre. - - ═══════════════════════════╤═════════╤═══════════╤═══════════╤═════════ - Location. │ Size of │ Michigan │ Pere │ Actual - │ lots. │ Central │ Marquette │transfer. - │ │appraisal. │appraisal. │ - ───────────────────────────┼─────────┼───────────┼───────────┼───────── - │ ft. deep│per sq. ft.│per sq. ft.│ - Fulton to Island Street │50 by 100│ │ $2.00│ $1.40 - Island to Oakes Street │50 by 100│ │ 2.00│ 1.22 - Oakes to Cherry Street │ │ │ 2.00│ 1.33 - Cherry Street Frontage │130 deep │ $1.23│ 1.23│ - Cherry to Williams Street │50 by 130│ │ │ 1.55 - Williams Street Frontage │130 deep │ 0.92│ 0.54│ - Williams to Bartlett Street│ │ │ │ 0.76 - Bartlett Street Frontage │130 deep │ 0.77│ 0.46│ - Bartlett to Goodrich Street│ │ │ │ 0.625 - Goodrich Street Frontage │130 deep │ 0.62│ 0.38│ - Goodrich Street to │ │ │ │ 0.395 - Wealthy Avenue │ │ │ │ - Prescott to First Street │ │ 0.25│ │ 0.54 - First to Second Street │ │ 0.25│ │ 0.16 - │ │ per acre.│ per acre.│ - Land on Hall Street │ │ 1,500│ 1,359│ 3.75 - North side of Hall Street │ │ │ 1,000│per acre. - Hall to Stevens Street │ │ 1,500│ 800│ 1,351.11 - On Crofton Street │ │ 400│ │ 400.00 - ═══════════════════════════╧═════════╧═══════════╧═══════════╧═════════ - -The problem of an appraiser is to determine, with the best evidence at -hand, what land is fairly worth for railroad purposes at the time of -appraisal. He must take into account the railway-purpose increment, if -he is consistent in his appraisal. - - - Non-Physical Values. - -The foregoing narrative account of the general field and office handling -of the Michigan appraisal of physical property, while not touching on -matters of principle of valuation, except as to land values, is -submitted as describing briefly the machinery of the appraisal. A number -of very important issues were raised which have to do with the theory of -valuation. These are worthy of discussion at length, in the subsequent -consideration of the method of determination of a fair value, but are -not here referred to. Within any short limits it is impossible to give a -comprehensive description in detail of all the work of the Michigan -appraisal. Several articles descriptive of this work have been written, -giving quite full extracts from the various sets of rules which were -promulgated, and describing some phases of the work in much more detail -than is here attempted. - -The physical valuation, as represented by two figures—the cost of -reproduction of the physical property, and its present value—was -submitted to the Board of State Tax Commissioners as the work of -Professor Cooley, and in most of the literature descriptive of it, it -has been termed the "Cooley Appraisal." - -After the completion of Professor Cooley's work, his figures were -submitted to Professor Henry C. Adams, who had been making a study of -the income accounts of the various companies, and to whom had been -assigned the duty of determining the non-physical or franchise values of -the properties. - -Professor Adams has described[5] very fully the plan adopted for this -work, and this plan has been commented on so fully that any lengthy -description is deemed unnecessary. It appears to be perfectly proper, -however, to correct certain misstatements regarding this work. - -When it was first determined to make the appraisal, Professor Cooley—not -Professor Adams—was requested to take charge. The assignment to -Professor Adams of the non-physical valuation was made after the -physical valuation was well under way. - -The use of a negative or subtractive non-physical value was considered, -and advised by Professor Adams. The work was not undertaken with a view -of "increasing the assessments," but to put the Tax Commission in -possession of a figure which would represent the business value of the -property as well as the physical value. - -Professor Adams held that the non-physical element of value was not a -simple commercial element, but included: - - {to be a corporation, - The franchise {to use public property, - - The possession of traffic not exposed to competition, - - The possession of traffic through connections, - - The benefit of economies due to density of traffic, - - The value due to organization and vitality of industries served. - -He also held that, as nothing visible or tangible gave support to this -value, it must be determined on the basis of information secured from -the income accounts of the company. - -Without going into any complete description of Professor Adams' method, -it may be said that he made an analysis of the income accounts, and, -after providing for operating expenses and taxes, he deducted, as an -annuity properly chargeable to capital, a certain percentage of the -appraised value of the physical properties. Any remainder was -capitalized to give the true value of the immaterial element, or the -business value. - -In the rates of capitalization and annuity used in 1902, there were -certain changes, making them differ from those used in 1900, and -certain changes in the detail of analysis of income accounts and -methods of determining the rates of interest which are entirely -immaterial to the present narrative. The work was of great importance -as being the first exposition of this method of obtaining non-physical -values. It was a fair, logical, and business-like attempt to determine -those elements which give a well-designed, economically-built, or -advantageously-located property a greater value as a money-earning -concern than the actual capital invested, or than the actual value -remaining in its physical property. - -It will be seen that, in the case of a property in which the surplus -earnings depend on excessive rates for service, it will fail as a method -of determining a value for use as a basis of rate-making; and it fails, -in the form in which it was used in 1900 and 1902, to bring out those -negative or subtractive elements which may be determined from the income -accounts, in the case of properties which do not earn a fair return on -the investment. This, however, was due to the fact that the taxation -laws of Michigan made no provision for any reduction of value because -property was idle or non-productive, and any such deduction in the case -of corporation property would place it on a different basis from other -property. Professor Adams and his associates, therefore, applied only -positive values, where any such were found, although advocating the use -of negative values. - -The writer has seen no criticism of Professor Adams' work which is not -apparently incited by, either the direct interest of corporations in -lowering valuations for taxation, or by an effort to confuse the subject -of valuation so as to discredit the work in the eyes of taxing -authorities. Any person competent to discuss the matter, who has given -Professor Adams' method careful thought, will be forced to the -conclusion that this was a long step in the direction of the final -solution of these important and perplexing elements of value. - - - History and Results of the Michigan Appraisal. - -Based on the valuation of 1900, the Board of State Tax Commissioners was -enabled to comply with the statute in reporting to the Legislature. New -laws were passed, sundry suits were brought, and, finally, the case of -the Michigan Central Railroad _vs._ Perry F. Powers, Auditor-General, -and a number of other cases in behalf of other roads, were brought to -trial before the United States Court for the Western District of -Michigan. - -This Michigan Central case was a suit to restrain the collection of -taxes based on the new assessment, the railroads claiming that their -property was assessed at full value, while general properties of the -State were assessed at a considerably lower percentage than full value. -This suit was essentially a valuation of the railroad properties as of -April, 1902. This work was done along the same line as the former -valuation, by a portion of the same staff. The old work was brought down -to date, and certain special studies were made, which resulted in a -change of right-of-way valuation, as has been related. - -In the trial of the case of Michigan Central Railroad _vs._ Powers, the -two valuations were fully testified to by all the men engaged, and the -record relative to the appraisal fills several volumes. - -Subsequently, in 1906, Professor Cooley was engaged by the -Attorney-General, and, re-assembling the staff, brought the work down to -date as of April, 1906. - -There has been no permanent force engaged on the work in Michigan, and -the re-appraisals have only been made as actual necessity demanded. - -_Market Value of Stocks and Bonds._—During the progress of the appraisal -of 1900 an independent force of men was engaged in studying the market -values of stocks and bonds of Michigan roads with a view to securing -information on every possible line that would aid the appraiser in -reaching proper conclusions, or enable him to check his figures. These -figures were used only as a check, and no report of the details of this -work was submitted. - -_Error in Published Reports as to Michigan Work._—In several articles -descriptive of the Michigan work, one quite serious misstatement of fact -has inadvertently been made. The writer is not quite sure how or where -the wrong impression originated, but it has been noted in several -articles and editorials. - -Substantially, all accounts are similar to that of Professor Taylor,[6] -which is: - -"In looking over the notes and results of the work done in Michigan, it -was noticed that Mr. Cooley's engineers, car-men and other experts went -over the property of each railway company and enumerated and valued the -same, and then the railway company generally had its own men perform the -same work in order to check up the appraisal made by the State -authorities. Thus, this expensive work was unnecessarily duplicated." - -Undoubtedly this statement was made in good faith, and has gained -currency by not having been corrected, but it is not the fact. - -The Chicago and Northwestern Railway took immediate steps to make -surveys and secure data, as has been described, and made a complete -appraisal, using the Michigan forms. The result of this appraisal was: - - Chicago and Northwestern, present value $8,551,530 - State appraisal, present value 8,281,090 - -In this case the railroad had no records, and the work was of value to -them, not only as a check on the work of the State, but also as giving -them complete records of permanent way. It was not done independently -of, and after, the State work, but was organized so that the field work -of both railroad company and State was done at the same time. - -No other complete work of valuation was done by the railroad companies. -During the trial of the cases, no contrary or different valuations were -set up. No special attack was made on the work, except to select here -and there some specific example of a building which was appraised at a -higher figure than cost, perhaps half a dozen in all, and to introduce -expert evidence, particularly on land and right-of-way values. Aside -from the money expended on the litigation, there were no expenditures by -the roads in checking up the work. On the contrary, a number of -managers, at their own expense, had typewritten copies of the final -report as to their own lines made, in order to file in their records. - -It is a fact that only one of the seventy-eight roads made a complete -appraisal, covering 387.8 miles of main line, and none of the other -roads or mileage went to any considerable expense. - -_The Cost of the Work._—No complete statement of the total cost of the -work of valuation in Michigan has ever been issued as a public document. -The cost of the work, including salaries of appraiser, engineers, -assistants, clerks, all expenses of the Board of Review, all expenses -connected with Professor Adams' non-physical appraisal, also all office -rent, stationery, supplies, telegraph, telephone, and railroad expenses, -printing and binding—in short every dollar chargeable to the Michigan -railroad appraisal of 1900—footed up to $70,604.21. - -The exact mileage of roads in the State was: - - Main track 7,082.35 miles. - Second track 164.83 " - Branches 730.92 " - Spurs and sidings 2,904.70 " - _________ ______ - Total 10,882.80 miles. - Average cost per main-line mile $9.97 - " " " total-track " 6.50 - -The exact figures of cost of the subsequent work of appraisal, or the -costs of the litigation, are not available to the writer. In a general -way, it may be said that the cost to the State of the railroad tax cases -was not far from $75,000, and that the expenses of the second and third -appraisals were less than $50,000, so that, to date, the entire cost to -the State of Michigan is less than $200,000 for the three appraisals and -the litigation growing out of them. - -Some information as to details of costs may not be out of place. All -employees were paid a salary and required to provide their own -subsistence. Salaries ranged from $250 to $500 per month for experienced -men, from $125 to $250 for men with only a few years of experience, and -from $75 to $125 for assistants and clerks. - -All traveling expenses (except hotel and subsistence) were paid, the -State issuing mileage books to all employees, and receiving a complete -check on the movements of every man through the mileage bureau. The -telegraph and long-distance telephone were used almost exclusively in -communication between the office and the men in the field, all bills -being paid by the State. All expenses of inspection by hand-car, -velocipede-car, etc., were paid by the State, except as the roadmasters -made trips with the inspectors. - -The unvarying policy of the appraiser was to reimburse the companies for -all extra expenses incurred on account of the work, and to accept no -transportation or favors from any company. - - TABLE 7.—GRAND SUMMARY OF RAILROAD APPRAISAL OF 1900 AS TO - SEVENTY-EIGHT INCORPORATED RAILROADS. - - PHYSICAL APPRAISAL. - - ════╤══════════════════════════════════════╤═════════════╤═════════════ - Item│ Subject. │ Cost of │ Present - No. │ │reproduction.│ value. - ────┼──────────────────────────────────────┼─────────────┼───────────── - 1│Engineering, 4% on items 2 to 25, │ $5,386,772│ $5,386,772 - │ inclusive, and on item 33 │ │ - 2│Right of way and station grounds │ 27,745,313│ 27,745,313 - 3│Real estate │ 863,337│ 863,337 - 4│Grading │ 21,699,995│ 21,693,024 - 5│Tunnels │ 1,148,070│ 1,093,445 - 6│Bridges, trestles, and culverts │ 8,027,119│ 6,337,819 - 7│Ties (cross- and switch-ties) │ 11,139,924│ 6,148,748 - 8│Rails │ 28,703,012│ 21,865,994 - 9│Track fastenings │ 3,845,030│ 2,987,982 - 10│Frogs, switches, and crossings │ 1,469,781│ 1,040,120 - 11│Ballast │ 3,723,558│ 3,723,558 - 12│Track laying and surfacing │ 6,555,638│ 6,400,972 - 13│Fencing │ 2,763,595│ 1,627,790 - 14│Crossings, cattle guards, and signs │ 607,542│ 428,474 - 15│Interlocking and signal apparatus │ 501,883│ 448,686 - 16│Telegraph (30) telephones │ 258,985│ 134,797 - 17│Station buildings and fixtures │ 4,108,736│ 3,111,103 - 18│Shops, round-houses, and turn-tables │ 2,157,228│ 1,467,569 - 19│Shop machinery and tools │ 1,107,910│ 882,634 - 20│Water stations │ 725,670│ 522,135 - 21│Fuel stations │ 303,289│ 201,461 - 22│Grain elevators │ 1,336,794│ 1,609,043 - 23│Warehouses │ 258,646│ 183,910 - 24│Docks and wharfs │ 5,531,919│ 3,831,934 - 25│Miscellaneous structures │ 1,234,345│ 856,253 - 26│Locomotives │ 9,021,517│ 5,092,053 - 27│Passenger equipment │ 3,197,473│ 2,277,271 - 28│Freight equipment │ 19,734,240│ 13,690,587 - 29│Miscellaneous equipment │ 702,940│ 423,689 - 31│Ferries and steamships │ 1,725,000│ 1,095,500 - 32│Electric plants │ 93,061│ 89,898 - 33│Terminals. Included in Items 1 to 32 │ │ - 34│Legal expenses, 0.5% on items 2 to 25,│ 673,349│ 673,349 - │ inclusive, and on item 33 │ │ - 35│Interest, 3% on items 1 to 34, │ 5,290,549│ 5,290,549 - │ inclusive │ │ - 36│Miscellaneous│Organization, 1.5% on │ 2,645,277│ 2,645,277 - │ expenses │ items 1 to 34, │ │ - │ │ inclusive │ │ - │ │Contingencies, 10% on │ 18,428,759│ 15,127,110 - │ │ items 1 to 34, │ │ - │ │ inclusive │ │ - ────┼─────────────┴────────────────────────┼─────────────┼───────────── - │TOTAL COST OF CONSTRUCTION AND │ $202,716,262│ $166,398,156 - │ EQUIPMENT. │ │ - │ │ │ - 37│Stores and supplies │ 1,474,829│ 1,474,829 - │Average per main-line mile │ 28,263│ 23,495 - │ " " total-track mile │ 18,627│ 15,290 - │ │ │ - │TOTAL VALUE OF NON-PHYSICAL ELEMENT │ │ 35,814,043 - │ (H. C. ADAMS) │ │ - ════╧══════════════════════════════════════╧═════════════╧═════════════ - -_The Result of the Michigan Work._—Any undertaking must be judged by its -results. The Attorney-General's report for 1906, on pages 21 and 23, -states: - -"These cases are among the most important in the history of the State. -They constitute the last step in subjecting railroad property in -Michigan to taxation on the same basis and at the same rate as other -property is taxed, and secure practical uniformity and equality of -taxation between railroad and other property. - -"As a result of these cases the various railroad corporations paid in -taxes $4,787,478.15, and as penalty thereon $1,158,321.18, a total -amount of $5,945,799.43 for the years 1902, 1903 and 1904. The 1905 tax -being paid soon after the decision of the Supreme Court, nothing was -paid under the former law (specific tax on earnings) and, of course, -there was no penalty on the 1905 taxes as they were paid before May 1, -1906." - -In short, the roads are paying to the State of Michigan an average of -$1,595,826.05 more per year than they paid under the old law, and to -date the State has received about $10,750,000 more from taxes than it -would have received under the old specific tax law. - -Railroad development in Michigan has received no appreciable check, and -notwithstanding a 2-cent fare and the bearing of an equal burden of -taxation, the properties are maintained, and improvements, -double-tracking and betterment of general standards fully keep pace with -similar work in other States. - -Of course, it must be recognized that other forces besides the appraisal -helped to bring this about. The appraisal of 1900 furnished the -information. Public opinion compelled the passage of the needed laws, -and the magnificent legal work of Attorneys-General Blair and Bird, -Congressman Townsend, and Judge Knappen, and their associates, loyally -supported by Professors Cooley and Adams and the appraisal staff, were -all factors in securing the decision of the Supreme Court of the United -States. - ------ - -Footnote 5: - - Bulletin 21, U. S. Bureau of the Census, p. 78. - -Footnote 6: - - Bulletin 21, U. S. Bureau of the Census. - - - - - RAILROAD APPRAISAL OF THE STATE OF TEXAS. - - -_Authority for the Work._—In 1893 the Legislature of Texas enacted what -is known as the Stock and Bond Law, which was designed to control and -limit the total amount of stocks and bonds that may be issued on any -railroad property to the "reasonable value of said railroad property." -This law further provides that: - -"It shall be the duty of the Railroad Commission to ascertain, and in -writing report to the Secretary of State, the value of each railroad in -this State including all its franchises, appurtenances and property." - -The work of valuation in Texas antedates that in Michigan, and offers -some interesting opportunities for comparison of methods under somewhat -similar conditions, as far as the existing roads were concerned. The -work being in the hands of a permanent commission with very broad -powers, it has been possible to secure from recently built roads very -full and specific data as to construction, but with these later -valuations and with the current work of the department, this paper will -not deal. - -The Commission of Texas interpreted the law to mean the estimated cost -of reproducing or duplicating the properties at the date of valuation, -allowing current market prices for all material and fair valuations on -all real property. - -_Method of Physical Appraisal._—The Commission duly appointed engineers -to make these valuations. The railroads of the State were unfavorably -disposed toward the work, and were inclined to withhold information. - -The Texas staff encountered the difficulty due to destruction or loss of -construction records, maps, and profiles. They had for their guidance -only the profiles, filed under a prior law, and were thus compelled to -depend wholly on original field work to secure their data. From a paper -by R. A. Thompson, M. Am. Soc. C. E.,[7] the following description is -taken: - -"They [the engineers] with the profiles ... in hand, made a detailed -inspection of the railroads on the ground. The quantities of excavation -and embankment, where the actual quantities could not be obtained, were -estimated approximately from the profiles, using the center heights of -the cross-sections. The classification of the materials in excavation -was determined by inspection. Where original plans and estimates of cost -of the bridges, buildings and structures of all kinds could not be -obtained from the records of the railroads, their value was estimated -from measurements taken on the ground. The extent and acreage of the -right of way, the depot and terminal grounds, were determined by actual -measurement, or from maps furnished by railroads, or from city and -county tax records. - -"After an examination of a railroad had been made by the engineers of -the Commission, its valuation was prepared on estimate sheets. Upon -sheets marked Estimate Sheet A ... were recorded the values of the right -of way and depot grounds, roadbed, track, bridges, structures and way -building for each mile, the value of ten miles being recorded on each -sheet.... On these sheets space was provided for the units and prices, -and columns for carrying out the values for each mile and the totals. - -"The value of all rolling stock and equipment, and the value of such -properties as were properly applicable and chargeable to the entire -railroad, were recorded on a separate estimate sheet, only one sheet -being used for a railroad." - -It thus appears that the general methods of securing the data and making -the field examination were quite similar to those adopted on the -Michigan work. The classification of items on the sheets is rather more -full than on the Michigan summary sheets, but apparently not so -completely in detail as the final compilation of work. In general, -however, the physical items included are complete in both cases. The -form in which the results are finally put up is radically different. - -The following points of variations from the practices of the Michigan -appraisal are noted: - - (_a_) The unit prices were current market prices. - - (_b_) The value applied to right of way and real estate used for - railway purposes was in accordance with the current market - value of other property immediately adjoining, disregarding - donations or property acquired at less than value. - - (_c_) No deduction was made on account of depreciation, as it - was considered that all structures must be maintained in - first-class, serviceable value, and renewed when necessary, - and no allowance was made for appreciation of roadbed. - - (_d_) No allowance was made for franchise values of any kind, - except track rights in streets. - - (_e_) No allowance was made for contingencies, except as made in - prices or quantities. - -Their practice was in accord with the Michigan appraisal, in allowing -from 5 to 6% to cover legal and engineering expenses and -superintendence, and from 5 to 6% to cover interest during construction. - -_The Result of the Texas Work._—The object sought in Texas was to secure -a capitalization in harmony with the actual investment in the physical -property; in short, to "squeeze out water." - -Of course, all stock and bond issues outstanding in 1894 are still in -existence, except as a few roads have been sold out or re-organized. No -new issues of stock or bonds may be made on roads in excess of the -valuation. Consequently, new roads are limited to issues of bonds not -far from $15,000 per mile. The effect is shown by Table 8, from the -Railroad Commission's Report. - - TABLE 8.—MILES OF RAILWAY IN OPERATION IN TEXAS, 1894 TO 1908, - WITH OUTSTANDING STOCKS AND BONDS. - - ═══════╤═══════════════╤═══════════════╤═══════════════╤═══════════════ - On June│ Miles of │ Stocks │ Bonds │Total stock and - 30th. │ railway in │ outstanding, │ outstanding, │ bonds - │ operation. │ per mile. │ per mile. │ outstanding, - │ │ │ │ per mile. - ───────┼───────────────┼───────────────┼───────────────┼─────────────── - 1894│ 9,154│ $15,076│ $25,726│ $40,802 - 1895│ 9,291│ 14,874│ 25,420│ 40,294 - 1896│ 9,437│ 14,647│ 25,302│ 39,949 - 1897│ 9,484│ 14,320│ 24,793│ 39,113 - 1898│ 9,540│ 14,205│ 24,036│ 38,241 - 1899│ 9,702│ 13,997│ 23,562│ 37,559 - 1900│ 9,867│ 13,724│ 23,202│ 36,926 - 1901│ 10,154│ 12,922│ 22,649│ 35,571 - 1902│ 10,617│ 12,388│ 21,779│ 34,167 - 1903│ 11,029│ 11,971│ 21,464│ 33,435 - 1904│ 11,495│ │ │ 32,400 - 1905│ 11,662│ │ │ 33,418 - 1906│ 12,056│ │ │ 32,886 - 1907│ 12,577│ │ │ 32,142 - 1908│ 12,830│ │ │ 32,305 - ═══════╧═══════════════╧═══════════════╧═══════════════╧═══════════════ - - Total reduction, up to 1903, of stock per mile $3,105 - " " " " " " bonds " " 4,262 - ───────────────────────────────────────────────────── - Total stock and bonds $7,367 - -E. L. Corthell, M. Am. Soc. C. E., speaking of results secured by the -Texas law, says[8]: - -"The law, and generally its just operation, has cured many unmitigated -and notorious evils. Not only has the public in Texas been benefited, -but also the investor in railroad securities from the outside of the -State. The people of Texas now have just and uniform rates of -transportation, and the investor knows what he is purchasing, and may be -reasonably sure of a return on his investment." - -Mr. Thompson says[9]: - -"Another significant fact is that only a short time before the Stock and -Bond Law became effective about 39% of the railroads in Texas were in -the hands of receivers. To-day there is not a mile, of the 11,300 miles -in Texas, in the hands of receivers, and, with a few unimportant -exceptions, no railroad has been in the hands of receivers since the law -went into effect. The fact is that there has been no piece of -legislation, in this or any other State of the Union during the past -decade, which has been so fruitful of results and beneficent in its -action, alike to the railroads and the people." - ------ - -Footnote 7: - - _Transactions._ Am. Soc. C. E., Vol. LII. p. 328. - -Footnote 8: - - _Transactions._ Am. Soc. C. E., Vol. LII. p. 346. - -Footnote 9: - - _Ibid._, p. 364. - - - - - RAILROAD APPRAISAL OF THE STATE OF WISCONSIN. - - -The State of Wisconsin made a valuation of railroad properties of the -State as of June 30th, 1903, the work being under the direction of W. D. -Taylor, M. Am. Soc. C. E. The plan adopted, the methods of work, and the -general result of independent studies conducted by Professor Taylor have -been described so fully in various technical papers and reports -elsewhere listed, that a very brief statement of points of difference -between the Michigan and Wisconsin works appears to be all that is -necessary here. - -Professor Taylor associated with him for consultation Professor Cooley, -of Michigan, made a careful study of methods used in earlier appraisals, -used the Michigan blank forms as a basis for the preparation of his own, -and thoroughly outlined his general plan and the scope of the -information desired before actually organizing his staff or commencing -work. - -In connection with the earlier stages of the work, conferences were held -with the officials of the principal railways of the State, and developed -a thorough understanding and plans for co-operation between the -appraiser and the roads. As a result of these conferences, each large -railway company of the State, acting through its heads of departments, -made an inventory and appraisal of its own property in the State, using -therefor the forms and blanks prepared by the appraiser. At the same -time, the appraiser organized a considerably smaller force than was used -in Michigan, made his own office and field inspection, and secured data -to complete the appraisal on the small roads, in which their own -engineering or operating departments were not organized so as to do the -work according to plan. - -The work turned out by the large roads was then checked by this force, -the various points in which they were out of harmony were checked and -unified, a number of hearings were held, certain portions of the work -were checked over by the appraisers' men, sundry changes in quantity and -price were made, and finally, when the work was compiled and put in -shape for presentation, the appraiser had reason to believe that he had -secured a result which was reasonably free from error, and one in which -the railroads had co-operated to such an extent that no charge of -prejudice or unfairness would lie. - -It is noted that the average cost of reproduction and the present value -per mile in Wisconsin are higher than in Michigan, which is probably as -it should be, as Michigan has a less mileage of high-class main trunk -line road than Wisconsin. - -In general, the two appraisals were very similar. The determination of -unit prices, the placing of depreciation, the apportionment of -locomotives, freight, and passenger equipment, and other rolling stock, -the use of the Interstate Commerce Commission's construction -classification, the application of percentage values for engineering, -interest during construction, administration, legal expenses, and -contingencies (this latter fixed at 5.5%), all were along lines similar -to those developed in Michigan. - -The work of the Wisconsin appraisal was carried on at the same time as -the second Michigan appraisal. The investigations made by Mr. Van Ranst -Pond and the writer, as to the actual sale prices of right of way, fully -discussed heretofore, were conducted at the same time as Professor -Taylor's work in Wisconsin was being done, and neither party had any -knowledge of the work of the other. The prior discussion relative to -this phase of the Michigan valuation is practically a revision of a -memorandum submitted by the writer to the Attorney-General in January, -1904. The tables are abstracted from much more extensive ones which, -supported by the evidence of Registers of Deeds of some ten counties of -Michigan, are part of the record of evidence in Michigan Central -Railroad _vs._ Powers. It is, therefore, not only of great interest, but -great value, as supporting Professor Cooley's right-of-way valuations, -to note the following extract[10] from Professor Taylor's discussion of -the paper by Mr. R. A. Thompson on the Texas railroad valuations: - -"In the Wisconsin appraisal, the method followed for valuing the right -of way and terminal lands was about as given below. Parts of the right -of way of some of the larger systems are estimated at higher ratios than -this, but in such cases the roads themselves fixed the right-of-way -value. - -"The market value for other purposes of the right of way and terminal -lands was judged to be the same as that of contiguous property. - -"In farming lands, small towns, and suburban and residence property, the -right-of-way value was taken to be 250% of the market value for other -purposes. - -"In city property, the right-of-way value was taken to be 133% of the -market value for other purposes, where the land was owned in strips of -100 ft. width or less, and 110% of the market value for other purposes, -where the land was owned in blocks, or in widths greater than 100 ft." - -No effort whatever was made in the Wisconsin valuation to determine any -non-physical or intangible values, the report covering only cost of -reproduction and present value of the physical properties. - -The Wisconsin work is noteworthy as the first appraisal in which the -hearty co-operation of the railroads was secured from the outset. In -Michigan the roads at the inception viewed the work with distrust, but -by the completion were in hearty sympathy with the efforts of the -appraiser to use just and honorable methods, and the managements -extended every courtesy in the way of access to records for verification -purposes. - ------ - -Footnote 10: - - _Transactions_, Am Soc. C. E., Vol. LII. p. 359. - - - - - THE MINNESOTA STATE RAILWAY APPRAISAL. - - -The valuation of railway properties in the State of Minnesota was -undertaken with a view to establishing a basis for rate-making. The work -was in charge of Mr. Dwight C. Morgan, Engineer of the Railroad and -Warehouse Commission of the State, whose full and complete report is a -very valuable addition to the literature of valuation practice. This -work was undertaken after the completion of that in Michigan and -Wisconsin, and advantage was taken of the experiences of the appraisers -in these two States. The Wisconsin plan of co-operation with the -railroads was adopted, and each company scheduled and appraised its own -lines. - -The "cost of reproduction," and "present value of physical properties" -were the two sets of figures shown in the final results. - -Unit prices were fixed on the basis of current prices in 1905, in -preference to an average of 5 or 10 years. - -Apportionment of locomotives and rolling stock was made on an engine- -and car-mileage basis. The organization of an office force was -undertaken, and special study was made of the subjects of unit prices -and the various local conditions surrounding the different properties, -checking of quantities of earthwork, rails, etc., and preparing to -harmonize and unify the estimates as they should be received from the -railroads. - -The greatest difference between this work and that in the other States -was the fact that the field inspection, instead of being made by many -men, was made by Appraiser Morgan, accompanied by two assistants, -inspection being made in a special train, which was paid for by the -State. - -The detailed reports of the railroad companies were completed and in the -hands of the appraiser, maps and profiles of the road were prepared and -available, the train was run at slow speed, and many stops were made for -examination of bridges, culverts, and structures. About 100 miles per -day were covered, but this did not include the larger terminals of St. -Paul, Minneapolis, and Duluth, which were given many days. - -In the preparation of final summaries, percentage values were placed as -follows: - - Engineering, superintendence, and legal 4½ per cent. - - Contingencies 5 " " - - Interest, time of construction varying according to 4 " " - mileage from 1 to 8 years - -In addition to these three items, the item of "adaptation and -solidification of roadbed" was given a large place, being, for all the -roads of the State, $11,743,007.15. This feature was novel to this class -of valuation, and it is to be regretted that, in his report, the -appraiser did not narrate more fully the detailed methods by which he -arrived at his resultant figure. - -_Land Valuation._—The vexed question of a proper value to give to lands -owned by a railway company, was treated by Appraiser Morgan in a -different way than it had been in Wisconsin or Michigan. A number of -special agents were appointed, who made an exhaustive study of the -transfers and assessed values throughout the State. The discussion of -this subject in Mr. Morgan's report is exhaustive, and of great -interest. The conclusions are quoted. It is regretted that the -discussion of methods of valuation can only be given in brief form. - -"Careful and full consideration of all information made available for -establishing the value of the right of way owned and used by the railway -companies for railway purposes, led to the conclusion that in the state -at large exclusive of the three terminals of St. Paul, Minneapolis and -Duluth, a multiple of three (3) applied to the true value or normal -value of lands, as obtained from the transfers, would in general satisfy -the conditions. - -"During the period referred to, the railway companies paid for the -property acquired by them, over and above its normal value, an amount -sufficient to justify the use of the following multiples: St. Paul, one -and three-fourths (1¾); Minneapolis, one and three-fifths (1⅗), and -Duluth, one and one-fourth (1¼), which when applied to the normal value -of the lands as established from contiguous and surrounding property, -formed the basis for measuring the cost of reproducing the existing -terminals of the railway companies." - -In the final compilation of results, two sets of schedules were -rendered: - - (_a_) Those which gave the land values with added increment, - - (_b_) Those which omitted the increment. - -The cost of the engineering work was about $70,000; this covered 7,596.4 -miles of main track, 427.4 miles of second track, and 2,414 miles of -side-track, or a total of 10,437.8 miles of all tracks. As yet there has -been no decision by the Courts on the Minnesota rate cases. - -_Forms Used in the Compilation of Information._—The forms used in the -Michigan appraisal have been described and fully illustrated. They were -all printed on 8½ by 11-in. sheets. - -The Wisconsin appraisal used the Michigan forms as a basis, twenty of -them being practically identical with the corresponding Michigan forms. -The forms shown by Figs. 11 to 21 are materially different from those -used in Michigan. - -The forms used in Minnesota in 1906 were based on those of Michigan and -Wisconsin, and were printed on 14 by 18½-in. sheets. They were remodeled -and elaborated to such an extent, however, that the writer believes -himself justified in submitting reproductions of the entire set, as -representing the most complete form for inventory yet used on any of the -State appraisals. - -The appraiser in Nebraska in 1909, and Mr. Hansel in New Jersey in 1910, -have both returned to the 8½ by 11-in. sheets, and, while both clearly -followed earlier precedent in general, both have modified the details to -suit the requirements in their respective States. - - - - - THE WASHINGTON STATE APPRAISAL. - - -The State of Washington, through its Railroad Commissioners, made an -appraisal of railroad properties within its borders, the work being -under the direction of Halbert P. Gillette, M. Am. Soc. C. E. - -[Illustration: FIG. 11.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 1 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ ROADBED REPORT _________________│ - │ _Field Inspector_│ - │Between __ and __ PART I Date ______ 190__│ - - ╒════════╤════════╤═════════════════╤═════════════════════ - │LOCATION│ ACRES │TOTAL EXCAVATION │ TIES - │ │ │ AND EMBANKMENT │ - ├────────┼────────┼─────┬─────┬─────┼──────┬────┬───────── - │ │Clearing│Earth│Loose│Solid│Number│Kind│Condition - │ │ and │ cu. │Rock │Rock │ │ │ - │ │Grubbing│yds. │ cu. │ cu. │ │ │ - │ │ │ │yds. │yds. │ │ │ - │ │ │ │ │ │ │ │ - ├────────┼────────┼─────┼─────┼─────┼──────┼────┼───────── - │ │ │ │ │ │ │ │ - ├────────┼────────┼─────┼─────┼─────┼──────┼────┼───────── - │ │ │ │ │ │ │ │ - - ╤════════════════╤═══════════════════════╕ - │ BALLAST │ RAILS │ - │ │ │ - ┼──────┬─────────┼──────┬──────┬─────────┤ - │ Kind │Condition│Length│Weight│Condition│ - │ and │ │ of │ │ │ - │Amount│ │Single│ │ │ - │ │ │Track │ │ │ - │ │ │in ft.│ │ │ - ┼──────┼─────────┼──────┼──────┼─────────┤ - │ │ │ │ │ │ - ┼──────┼─────────┼──────┼──────┼─────────┤ - │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 2 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ ROADBED REPORT _________________│ - │ _Field Inspector_│ - │Between __ and __ PART II Date ______ 190__│ - - ╒════════╤═════════════════════╤═══════════════════════ - │LOCATION│TIE PLATES AND BRACES│ FASTENINGS - ├────────┼──────┬────┬─────────┼──────┬──────┬───────── - │ │Number│Kind│Condition│Number│Weight│Condition - │ │ │ │ │ │ per │ - │ │ │ │ │ │ foot │ - ├────────┼──────┼────┼─────────┼──────┼──────┼───────── - │ │ │ │ │ │ │ - ├────────┼──────┼────┼─────────┼──────┼──────┼───────── - │ │ │ │ │ │ │ - - ╤═════════════════════╤═══════════════════════╕ - │ FROGS AND SWITCHES │ R.R. CROSSINGS │ - ┼──────┬────┬─────────┼──────┬──────┬─────────┤ - │Number│Kind│Condition│Number│ Rail │Condition│ - │ │ │ │ │Weight│ │ - │ │ │ │ │ │ │ - ┼──────┼────┼─────────┼──────┼──────┼─────────┤ - │ │ │ │ │ │ │ - ┼──────┼────┼─────────┼──────┼──────┼─────────┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 6 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ SIGNAL APPARATUS _________________│ - │ _Field Inspector_│ - │Between __ and __ Date ______ 190__│ - - ╒════╤═══════════╤══════════════╤═══════════╤═══════╤════════════╤════╕ - │ │ LOCATION │ NAME AND │ No. Miles │ Cost │ Condition │ │ - │ │ │ DESCRIPTION │Single Line│ New │ Per Cent │ │ - ├────┼───────────┼──────────────┼───────────┼───────┼────────────┼────┤ - │ │ │ │ │ │ │ │ - ├────┼───────────┼──────────────┼───────────┼───────┼────────────┼────┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 8 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ MISCELLANEOUS _________________│ - │ _Field Inspector_│ - │Between __ and __ ROADWAY ITEMS Date ______ 190__│ - - ╒═══╤════════╤═══════════════════╤═════════╤═════════════════════╤════╕ - │ │LOCATION│Sets Section Tools,│Condition│ CROSSING PROTECTION │ │ - │ │ │ Hand Cars, etc. │Per Cent │ │ │ - ├───┼────────┼───────────────────┼─────────┼────┬──────┬─────────┼────┤ - │ │ │ │ │Kind│Amount│Condition│ │ - │ │ │ │ │ │ │Per Cent │ │ - ├───┼────────┼───────────────────┼─────────┼────┼──────┼─────────┼────┤ - │ │ │ │ │ │ │ │ │ - ├───┼────────┼───────────────────┼─────────┼────┼──────┼─────────┼────┤ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 12.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 9 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ TELEGRAPH, INSTRUMENTS AND _________________│ - │ STATION EQUIPMENT _Field Inspector_│ - │Between __ and __ Date ______ 190__│ - - ╒═╤═════╤═══════╤════╤═════════╤════════════════╤═════════╤════╤═ - │ │OWNER│ LINE │KEYS│SOUNDINGS│ RELAYS │Repeaters│Cut │ - │ │ │BETWEEN│ │ │ │ │Outs│ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼─────┼───────┼────┼─────────┼───────┬───┬────┼─────────┼────┼─ - │ │ │ │ │ │Western│Box│Key │ │ │ - │ │ │ │ │ │ Union │ │ on │ │ │ - │ │ │ │ │ │ │ │base│ │ │ - ├─┼─────┼───────┼────┼─────────┼───────┼───┼────┼─────────┼────┼─ - │ │ │ │ │ │ │ │ │ │ │ - ├─┼─────┼───────┼────┼─────────┼───────┼───┼────┼─────────┼────┼─ - │ │ │ │ │ │ │ │ │ │ │ - - - ╤═══════════════╤═══════╤═══════╤═════════╤═════════╤═╕ - │ SWITCH BOARDS │Number │Make of│ Length │Condition│ │ - │ │ of │Battery│Telegraph│Per Cent │ │ - │ │Battery│ │ or │ │ │ - │ │ Cells │ │Telephone│ │ │ - │ │ │ │ Lines │ │ │ - ┼──────┬──────┬─┼───────┼───────┼─────────┼─────────┼─┤ - │Number│Number│ │ │ │ │ │ │ - │ of │ of │ │ │ │ │ │ │ - │Straps│Boards│ │ │ │ │ │ │ - ┼──────┼──────┼─┼───────┼───────┼─────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ - ┼──────┼──────┼─┼───────┼───────┼─────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 38 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ FENCES, CATTLE GUARDS AND _________________│ - │ HIGHWAY CROSSINGS _Field Inspector_│ - │Between __ and __ Date ______ 190__│ - - ╒═╤════════╤══════╤═══════╤═════╤═════╤═════╤═════╤═════════╤══════ - │ │LOCATION│ Wire │Length │ No. │Size │ No. │Size │Condition│ Kind - │ │ │ or │ of │Posts│ of │Plank│ of │Per Cent │ of - │ │ │Wooden│ Fence │ Per │Posts│ or │Plank│ │Cattle - │ │ │Fence │(Single│Mile │ │Wire │ or │ │Guard - │ │ │ │ Line) │ │ │ Per │Wire │ │ - │ │ │ │ │ │ │Mile │ │ │ - ├─┼────────┼──────┼───────┼─────┼─────┼─────┼─────┼─────────┼────── - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼───────┼─────┼─────┼─────┼─────┼─────────┼────── - │ │ │ │ │ │ │ │ │ │ - - ╤═════════╤════════╤═════════╕ - │Condition│Ft. B.M.│Condition│ - │Per Cent │Crossing│Per Cent │ - │ │ Plank │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼─────────┼────────┼─────────┤ - │ │ │ │ - ┼─────────┼────────┼─────────┤ - │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │WISCONSIN RAILROAD W.B.A. Form 42 __________________│ - │APPRAISAL OF 190__ _Office Inspector_│ - │Name of Road ____ TIMBER TRESTLES AND OPENINGS _________________│ - │ _Field Inspector_│ - │Between __ and __ Date ______ 190__│ - - ╒═╤════════╤════════════════════╤═══════╤═════╤═══════════╤═════════╤═╕ - │ │LOCATION│ DESCRIPTION │Average│ No. │ Average │Condition│ │ - │ │ │ Total Length; Pile │Height │Piles│Penetration│Per Cent │ │ - │ │ │ or Frame; Number │ Top │ Per │ of Piles │ │ │ - │ │ │ Stringers; B.M. │Ground │Bent │ │ │ │ - │ │ │ Framing; Per Lin. │To Base│ │ │ │ │ - │ │ │ Ft., Etc. │ Rail │ │ │ │ │ - ├─┼────────┼────────────────────┼───────┼─────┼───────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼────────────────────┼───────┼─────┼───────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 13.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 21 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ DOCKS AND WHARVES │ - │ With or Without Coal or Ore Handling Equipment │ - - ╒═╤═════════════════════════════════════════════════════════════════ - │ │ DOCKS AND WHARVES - │ │ - │ │ - ├─┼────────┬────┬──────────┬──────┬───────┬────────┬───────┬──────── - │ │LOCATION│Item│Dimensions│Piles │Framing│Platform│Masonry│Concrete - │ │ │ │ │Lineal│ B.M. │ B.M. │ Cubic │ Cubic - │ │ │ │ │ Feet │ Feet │ Feet │ Yards │ Yards - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼────┼──────────┼──────┼───────┼────────┼───────┼──────── - │ │ │ │ │ │ │ │ │ - ├─┼────────┼────┼──────────┼──────┼───────┼────────┼───────┼──────── - │ │ │ │ │ │ │ │ │ - - ══════════════════════╤══════════════════════════════════════════════ - │ SUPERSTRUCTURE FOR HANDLING COAL OR ORE - │ - │ - ┬───────┬───┬─────────┼────┬──────────┬──────┬───────┬────────┬────── - │Filling│Age│Condition│Type│Dimensions│Timber│Number │Capacity│Number - │ Cubic │ │Per Cent │ │ │ B.M. │ of │ of │ of - │ Yards │ │ │ │ │ Feet │Pockets│Pockets │Hoists - │ Earth │ │ │ │ │ │ │ │ - │ Stone │ │ │ │ │ │ │ │ - ┼───────┼───┼─────────┼────┼──────────┼──────┼───────┼────────┼────── - │ │ │ │ │ │ │ │ │ - ┼───────┼───┼─────────┼────┼──────────┼──────┼───────┼────────┼────── - │ │ │ │ │ │ │ │ │ - - ════╤════════════╤═════════╤═╕ - │ COMPLETE │ Average │ │ - │ PLANT │Condition│ │ - │ │Per Cent │ │ - ┬───┼────────────┼─────────┼─┤ - │Age│ Cost of │ │ │ - │ │Reproduction│ │ │ - │ │ │ │ │ - │ │ │ │ │ - │ │ │ │ │ - ┼───┼────────────┼─────────┼─┤ - │ │ │ │ │ - ┼───┼────────────┼─────────┼─┤ - │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 22 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ INTERLOCKING PLANTS │ - - ╒═╤════════╤═══════╤═════╤═════════════════════╤═══════ - │ │LOCATION│Name of│When │ TOWER HOUSE │Kind of - │ │ │Railway│Built│ │Machine - │ │ │Crossed│ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ├─┼────────┼───────┼─────┼────┬──────────┬─────┼─────── - │ │ │ │ │Kind│Dimensions│Cond.│ - │ │ │ │ │ │ │ Per │ - │ │ │ │ │ │ │ Ct. │ - ├─┼────────┼───────┼─────┼────┼──────────┼─────┼─────── - │ │ │ │ │ │ │ │ - ├─┼────────┼───────┼─────┼────┼──────────┼─────┼─────── - │ │ │ │ │ │ │ │ - - ╤════════════════╤════════════════════════╤════════════╤══════════ - │NUMBER OF LEVERS│KIND OF CONNECTION PIPE │Foundations,│ SIGNAL - │ │ OR WIRE TO │ Wood or │ POSTS - │ │ │ Concrete │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼────┬─────┬─────┼───────┬────────┬───────┼────────────┼────┬───── - │Work│Spare│Total│Derails│Switches│Signals│ │High│Dwarf - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼─────┼───────┼────────┼───────┼────────────┼────┼───── - │ │ │ │ │ │ │ │ │ - ┼────┼─────┼─────┼───────┼────────┼───────┼────────────┼────┼───── - │ │ │ │ │ │ │ │ │ - - ╤════════════════════════╤════════╤═════════╤════════════╤═══════════ - │ NUMBER OF FUNCTIONS │ELECTRIC│ Average │Per Cent of │Per Cent of - │ OPERATED │CIRCUIT │Condition│Construction│Maintenance - │ │ FOR │Per Cent │Cost Paid By│ Cost Paid - │ │ │ │This Company│ By This - │ │ │ │ │ Company - │ │ │ │ │ - ┼───────┬────────┬───────┼──┬──┬──┼─────────┼────────────┼─────────── - │Derails│Switches│Signals│ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼───────┼────────┼───────┼──┼──┼──┼─────────┼────────────┼─────────── - │ │ │ │ │ │ │ │ │ - ┼───────┼────────┼───────┼──┼──┼──┼─────────┼────────────┼─────────── - │ │ │ │ │ │ │ │ │ - - ╤═════════╤════════════╤═╕ - │Per Cent │ Cost of │ │ - │ of │Reproduction│ │ - │Operating│ │ │ - │Cost Paid│ │ │ - │ By This │ │ │ - │ Company │ │ │ - ┼─────────┼────────────┼─┤ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼─────────┼────────────┼─┤ - │ │ │ │ - ┼─────────┼────────────┼─┤ - │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 23 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ SIGNAL APPARATUS │ - - ╒════════╤════════════════════════════════════════════════════════ - │LOCATION│ TRAIN ORDER AND MANUAL BLOCK SIGNALS OPERATED IN - │ │ CONJUNCTION WITH THE TELEGRAPH - ├────────┼──────┬────────────┬─────────┬─────────┬─────────┬────── - │ │ Type │Manufactured│ Number │Condition│Miles of │ Type - │ │ of │ by │Installed│Per Cent │ Single │ of - │ │Signal│ │ │ │ Line │Signal - │ │ │ │ │ │Protected│ - ├────────┼──────┼────────────┼─────────┼─────────┼─────────┼────── - │ │ │ │ │ │ │ - ├────────┼──────┼────────────┼─────────┼─────────┼─────────┼────── - │ │ │ │ │ │ │ - - ╤═════════════════════════════════════════════════════════════════════ - │ AUTOMATIC BLOCK SIGNALS - │ - ┼────────────┬─────────┬──────────┬────────┬─────────┬─────────┬────── - │Manufactured│ Number │ Number │Circuit │Miles of │Condition│ Type - │ by │Installed│ Switch │Track or│ Single │Per Cent │ of - │ │ │Indicators│ Wire │ Line │ │Signal - │ │ │ │ │Protected│ │ - ┼────────────┼─────────┼──────────┼────────┼─────────┼─────────┼────── - │ │ │ │ │ │ │ - ┼────────────┼─────────┼──────────┼────────┼─────────┼─────────┼────── - │ │ │ │ │ │ │ - - ╤════════════════════════════ - │ DISTANT SWITCH SIGNALS - │ - ┼─────────┬─────────┬──────── - │ Number │Condition│Location - │Installed│Per Cent │ - │ │ │ - │ │ │ - ┼─────────┼─────────┼──────── - │ │ │ - ┼─────────┼─────────┼──────── - │ │ │ - - - ╤════════════════════════════════════════╤═╕ - │ ELECTRIC BELLS FOR HIGHWAY CROSSING │ │ - │ PROTECTION │ │ - ┼────────────┬─────────┬───────┬─────────┼─┤ - │Manufactured│ Number │Circuit│Condition│ │ - │ by │Installed│ Track │Per Cent │ │ - │ │ │or Wire│ │ │ - │ │ │ │ │ │ - ┼────────────┼─────────┼───────┼─────────┼─┤ - │ │ │ │ │ │ - ┼────────────┼─────────┼───────┼─────────┼─┤ - │ │ │ │ │ │ - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 24 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ TELEGRAPH, TELEPHONE LINES │ - │ & APPURTENANCES │ - │ _In Case Lines are not Owned, Only Show Such Equipment as Actually │ - │ Belongs to the Railroad Company Office Compiler_ │ - - ╒═╤════════╤═════╤═══════════════════════════════════════════════ - │ │LOCATION│OWNER│ - ├─┼────────┼─────┼──────┬──────┬──────┬─────┬──────┬──────┬────── - │ │ │ │Number│Number│Number│Kind │Number│Number│Number - │ │ │ │ │ │ of │ of │ of │ of │ of - │ │ │ │ │ │Miles │Poles│Wires │ Wire │ Keys - │ │ │ │ │ │ │ per │Strung│ │ - │ │ │ │ │ │ │Mile │ │ │ - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼─────┼──────┼──────┼──────┼─────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼─────┼──────┼──────┼──────┼─────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ │ - - ══════════════════════════════════════════════════════════════════ - GENERAL DESCRIPTION - ┬────────┬──────┬────────┬────────────┬───────┬──────┬──────────── - │ Number │Number│ Number │ Number of │Kind of│Number│ Cost of - │ of │ of │ and │ Telephone │Battery│ of │Reproduction - │Sounders│Relays│Capacity│Transmitters│ │Cells │ - │ │ │ of │ and │ │ │ - │ │ │ Switch │ Receivers │ │ │ - │ │ │ Boards │ │ │ │ - ┼────────┼──────┼────────┼────────────┼───────┼──────┼──────────── - │ │ │ │ │ │ │ - ┼────────┼──────┼────────┼────────────┼───────┼──────┼──────────── - │ │ │ │ │ │ │ - - ══════════╤═══════╕ - │REMARKS│ - ┬─────────┼───────┤ - │Condition│ │ - │Per Cent │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼─────────┼───────┤ - │ │ │ - ┼─────────┼───────┤ - │ │ │ - -[Illustration: FIG. 14.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 25 _________________│ - │Company __________ _Field Inspector_│ - │Locomotives in Service MINNESOTA RAILROAD & _________________│ - │in Minnesota WAREHOUSE COMMISSION _Office Compiler_│ - │______ Total Number RAILROAD APPRAISAL OF 1906 │ - │ LOCOMOTIVES │ - - ╒═╤═══════╤════════════════════════════════════════════════════════ - │ │Name of│ - │ │Builder│ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ├─┼───────┼──────┬─────┬────────┬───────┬──────────┬──────┬──────── - │ │ │Engine│Class│ Simple │Service│Dimensions│Diam. │Working - │ │ │Number│ │ or │ │ of │ of │Pressure - │ │ │ │ │Compound│ │Cylinders │Boiler│ - │ │ │ │ │ │ │ │ │ - ├─┼───────┼──────┼─────┼────────┼───────┼──────────┼──────┼──────── - │ │ │ │ │ │ │ │ │ - ├─┼───────┼──────┼─────┼────────┼───────┼──────────┼──────┼──────── - │ │ │ │ │ │ │ │ │ - ├─┼───────┼──────┼─────┼────────┼───────┼──────────┼──────┼──────── - │ │ │ │ │ │ │ │ │ - - ═══════════════════════════════════════════════════════════════════ - ENGINES - - - - - - ┬─────────┬───────┬────────┬──────┬────────┬─────────┬─────┬─────── - │ Driving │Weight │ Weight │Weight│Hauling │ Brake │When │ When - │ Wheels │ on │ on │ on │Capacity│Equipment│Built│ Given - │ │Driving│Trailing│Truck │ │ │ │General - │ │Wheels │ Wheels │ │ │ │ │Repairs - ┼───┬─────┼───────┼────────┼──────┼────────┼─────────┼─────┼─────── - │No.│Diam.│ │ │ │ │ │ │ - ┼───┼─────┼───────┼────────┼──────┼────────┼─────────┼─────┼─────── - │ │ │ │ │ │ │ │ │ - ┼───┼─────┼───────┼────────┼──────┼────────┼─────────┼─────┼─────── - │ │ │ │ │ │ │ │ │ - - ╤═════════════════╤══════╤════════════╤═════════╤═╕ - │ TENDER │Total │ Cost of │Condition│ │ - │ │Weight│Reproduction│Per Cent │ │ - │ │Engine│ │ │ │ - │ │ & │ │ │ │ - │ │Tender│ │ │ │ - │ │Loaded│ │ │ │ - ┼────────┬────────┼──────┼────────────┼─────────┼─┤ - │ Water │ Coal │ │ │ │ │ - │Capacity│Capacity│ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ┼────────┼────────┼──────┼────────────┼─────────┼─┤ - │ │ │ │ │ │ │ - ┼────────┼────────┼──────┼────────────┼─────────┼─┤ - │ │ │ │ │ │ │ - ┼────────┼────────┼──────┼────────────┼─────────┼─┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 26 _________________│ - │Company __________ _Field Inspector_│ - │Passenger Equipment on MINNESOTA RAILROAD & _________________│ - │System ______ Cars WAREHOUSE COMMISSION _Office Compiler_│ - │Passenger Equipment RAILROAD APPRAISAL OF 1906 │ - │Assigned to Minnesota │ - │______ Cars │ - │Passenger Car Mileage, PASSENGER EQUIPMENT │ - │System ______ Miles │ - │Passenger Car Mileage, │ - │Minnesota ______ Miles │ - - ╒═╤══════╤═════════╤═════╤══════════╤═════════╤═══════╤══════╤════ - │ │Serial│ Kind of │Class│Dimensions│Design of│Kind of│Number│Kind - │ │Number│Equipment│ │ │Vestibule│Coupler│ of │ of - │ │ │ │ │ │ │ │Seats │Heat - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼──────┼─────────┼─────┼──────────┼─────────┼───────┼──────┼──── - │ │ │ │ │ │ │ │ │ - ├─┼──────┼─────────┼─────┼──────────┼─────────┼───────┼──────┼──── - │ │ │ │ │ │ │ │ │ - - ╤═════╤══════╤═════════╤═══════╤═════╤═══════╤════════════╤═════════ - │Kind │Trucks│ Brake │Name of│When │ Total │ Cost of │Condition - │ of │Number│Equipment│Builder│Built│Number │Reproduction│Per Cent - │Light│ of │ │ │ │of Cars│ │ - │ │Wheels│ │ │ │Now in │ │ - │ │ │ │ │ │Service│ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼─────┼──────┼─────────┼───────┼─────┼───────┼────────────┼───────── - │ │ │ │ │ │ │ │ - ┼─────┼──────┼─────────┼───────┼─────┼───────┼────────────┼───────── - │ │ │ │ │ │ │ │ - - ╤═════════╕ - │ Give │ - │Number of│ - │Cars Each│ - │ Series │ - │Assigned │ - │ to │ - │Minnesota│ - ┼─────────┤ - │ │ - ┼─────────┤ - │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 27 _________________│ - │Company __________ _Field Inspector_│ - │Freight Car Mileage, MINNESOTA RAILROAD & _________________│ - │System ______ Miles WAREHOUSE COMMISSION _Office Compiler_│ - │Freight Car Mileage, RAILROAD APPRAISAL OF 1906 │ - │Minnesota ______ Miles │ - │ FREIGHT CAR EQUIPMENT │ - │ Include Cabooses in this Statement. │ - - ╒═╤═══════╤═════════╤═════╤══════════╤════════╤════════╤════════ - │ │Serial │Class of │Sills│Dimensions│Capacity│Kind of │Size of - │ │Numbers│Equipment│ and │ │ │Couplers│Journals - │ │ │ │Body │ │ │ │ - │ │ │ │Steel│ │ │ │ - │ │ │ │ or │ │ │ │ - │ │ │ │Wood │ │ │ │ - ├─┼───────┼─────────┼─────┼──────────┼────────┼────────┼──────── - │ │ │ │ │ │ │ │ - ├─┼───────┼─────────┼─────┼──────────┼────────┼────────┼──────── - │ │ │ │ │ │ │ │ - - ╤═════════╤═══════╤═════╤═══════╤════════════╤═════════╤═══════╕ - │ Brake │Name of│When │Number │ Cost of │Condition│REMARKS│ - │Equipment│Builder│Built│of Cars│Reproduction│Per Cent │ │ - │ │ │ │Now in │ │ │ │ - │ │ │ │Service│ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼─────────┼───────┼─────┼───────┼────────────┼─────────┼───────┤ - │ │ │ │ │ │ │ │ - ┼─────────┼───────┼─────┼───────┼────────────┼─────────┼───────┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 28 _________________│ - │Company __________ _Field Inspector_│ - │ MINNESOTA RAILROAD & _________________│ - │ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ MISCELLANEOUS EQUIPMENT │ - │ Include Snow Plows, Flangers, Steam Shovels, Pile Drivers, Derrick │ - │ Cars, Dredges, and all Special Equipment, Located or used in │ - │ Minnesota. │ - - ╒═══╤═════════╤════════════╤════════╤════╤═════════════╤══════════╤═══╕ - │ │LOCATION │DESCRIPTION │Name of │Age │ Cost of │Condition │ │ - │ │ │ │Builder │ │Reproduction │ Per Cent │ │ - │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 15.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 14 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ STATION BUILDINGS AND │ - │ FIXTURES │ - │ Including Station Equipment and Platforms │ - - ╒═╤════════╤═════════════════════════════════════════════ - │ │LOCATION│ BUILDING - ├─┼────────┼────────┬──────────┬───┬───────────┬───────── - │ │ │Material│Dimensions│Age│ General │Condition - │ │ │ │ │ │Description│Per Cent - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────────┼────────┼──────────┼───┼───────────┼───────── - │ │ │ │ │ │ │ - ├─┼────────┼────────┼──────────┼───┼───────────┼───────── - │ │ │ │ │ │ │ - - ╤═════════════════╤═══════════════════════════════════════════════╤═╕ - │ EQUIPMENT │ PLATFORMS │ │ - ┼───────┬─────────┼──────┬───────┬────────┬──────┬──────┬─────────┼─┤ - │Office │Condition│ Wood │Cinders│Concrete│Brick │Square│Condition│ │ - │ and │Per Cent │Square│Square │ Square │Square│ Ft. │Per Cent │ │ - │Waiting│ │ Ft. │ Ft. │ Ft. │ Ft. │ │ │ │ - │ Room │ │ │ │ │ │ │ │ │ - │ Items │ │ │ │ │ │ │ │ │ - ┼───────┼─────────┼──────┼───────┼────────┼──────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ │ - ┼───────┼─────────┼──────┼───────┼────────┼──────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 15 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ MISCELLANEOUS BUILDINGS │ - │ Including General Office Buildings, Warehouses, Elevators, and all │ - │ Other Buildings Not Specifically Called for in Blank Forms │ - - ╒════╤════════╤═══════════════════════════════════════════════╤═══════╕ - │ │LOCATION│ GENERAL DESCRIPTION │REMARKS│ - ├────┼────────┼────────┬──────────┬────┬────────────┬─────────┼───────┤ - │ │ │Material│Dimensions│Age │ Cost of │Condition│ │ - │ │ │ │ │ │Reproduction│Per Cent │ │ - ├────┼────────┼────────┼──────────┼────┼────────────┼─────────┼───────┤ - │ │ │ │ │ │ │ │ │ - ├────┼────────┼────────┼──────────┼────┼────────────┼─────────┼───────┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 16 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ ENGINE HOUSES AND │ - │ TURNTABLES │ - - ╒═╤════════╤════════════════════════════════════════════════════ - │ │LOCATION│ ENGINE HOUSES - ├─┼────────┼─────────────────────────┬─────┬──────┬──────┬────── - │ │ │ MATERIAL OF │ No. │Depth │Number│ - │ │ │ │ of │ of │ of │ - │ │ │ │Fire │Stalls│Stalls│ - │ │ │ │Walls│ │ │ - ├─┼────────┼───────────┬─────┬───────┼─────┼──────┼──────┼────── - │ │ │Foundations│Walls│Framing│ │ │ │Number - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼───────────┼─────┼───────┼─────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - ├─┼────────┼───────────┼─────┼───────┼─────┼──────┼──────┼────── - │ │ │ │ │ │ │ │ │ - - ════════════════════════════════════════════════ - - ────────────────────┬─────────┬────────┬──────── - PITS │ HEATING │ SMOKE │ Age of - │ │ JACKS │Building - │ │ │ - │ │ │ - ┬────────┬──────────┼─────┬───┼────┬───┼──────── - │Material│Dimensions│Steam│Hot│Kind│No.│ - │ │ │ │Air│ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ┼────────┼──────────┼─────┼───┼────┼───┼──────── - │ │ │ │ │ │ │ - ┼────────┼──────────┼─────┼───┼────┼───┼──────── - │ │ │ │ │ │ │ - - ╤══════════════════════════════════════════════════════════ - │ TURNTABLES - ┼─────────┬─────┬──────┬─────┬─────────────┬─────────┬───── - │Condition│Type │Length│Built│ Loading │ Turning │ Age - │Per Cent │ of │ Feet │ By │Specification│Apparatus│ of - │ │Table│ │ │ Tons │ │Table - │ │ │ │ │ │ │ - ┼─────────┼─────┼──────┼─────┼─────────────┼─────────┼───── - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ┼─────────┼─────┼──────┼─────┼─────────────┼─────────┼───── - │ │ │ │ │ │ │ - ┼─────────┼─────┼──────┼─────┼─────────────┼─────────┼───── - │ │ │ │ │ │ │ - - ╤════════════════════════════════════════════════╕ - │ TURNTABLE PITS │ - ┼─────────┬──────────┬──────────┬──────┬─────────┤ - │Condition│ Center │ CURBING │ End │Condition│ - │Per Cent │Foundation│ │Pacing│Per Cent │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ┼─────────┼──────────┼────┬─────┼──────┼─────────┤ - │ │ │Kind│Cubic│ │ │ - │ │ │ │ Yds │ │ │ - │ │ │ │B.M. │ │ │ - │ │ │ │Feet │ │ │ - ┼─────────┼──────────┼────┼─────┼──────┼─────────┤ - │ │ │ │ │ │ │ - ┼─────────┼──────────┼────┼─────┼──────┼─────────┤ - │ │ │ │ │ │ │ - -[Illustration: FIG. 16.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 17 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ CINDER PITS AND TRACK │ - │ SCALES │ - - ╒═╤════════╤═════════════════════════════════════════════╤════════ - │ │LOCATION│ CINDER PITS AND HOISTS │ - ├─┼────────┼────────┬──────────┬───┬───────────┬─────────┼──────── - │ │ │Material│Dimensions│Age│ Pneumatic │Condition│LOCATION - │ │ │ of Pit │ │ │ or Power │Per Cent │ - │ │ │ │ │ │ Hoists. │ │ - │ │ │ │ │ │ General │ │ - │ │ │ │ │ │Description│ │ - ├─┼────────┼────────┼──────────┼───┼───────────┼─────────┼──────── - │ │ │ │ │ │ │ │ - ├─┼────────┼────────┼──────────┼───┼───────────┼─────────┼──────── - │ │ │ │ │ │ │ │ - - ══════════════════════════════════════════════════════╤═══════╕ - TRACK SCALES │REMARKS│ - ┬────────────┬──────────┬──────────┬────────┬─────────┼───────┤ - │ Name of │Materials │Dimensions│Capacity│Condition│ │ - │Manufacturer│ of │ │ Tons │Per Cent │ │ - │ │Production│ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ┼────────────┼──────────┼──────────┼────────┼─────────┼───────┤ - │ │ │ │ │ │ │ - ┼────────────┼──────────┼──────────┼────────┼─────────┼───────┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 10 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │Length of Main Line FENCES CATTLE GUARDS AND │ - │Roadway ______ Miles SIGNS │ - │______ │ - - ╒═╤════════╤════════════════════════════════════════════════════════ - │ │LOCATION│ RIGHT OF WAY FENCES - ├─┼────────┼────────────────────────────┬─────────────────────────── - │ │ │ WOOD FENCE │ WIRE FENCE - ├─┼────────┼──────┬─────┬─────┬─────────┼─────┬─────┬─────┬───────── - │ │ │ No. │ No. │ No. │Condition│ No. │ No. │ No. │Condition - │ │ │Boards│Posts│Miles│Per Cent │Wires│Posts│Miles│Per Cent - │ │ │ Per │ Per │ Per │ │ Per │ Per │ Per │ - │ │ │Panel │Mile │Line │ │Panel│Mile │Line │ - │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼─────┼─────┼─────────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼─────┼─────┼─────────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼─────┼─────┼─────────┼─────┼─────┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ - - ╤═════════════════════════════╤═════════════════════════════════ - │ SNOW FENCES │ CATTLE GUARDS - ┼─────────────────────────────┼─────────────────────┬─────────── - │ TEMPORARY & PERMANENT │ WOOD │ IRON - ┼──────┬─────┬──────┬─────────┼────┬──────┬─────────┼────┬────── - │Length│B.M. │Total │Condition│Kind│Number│Condition│Kind│Number - │ Per │ Ft. │Length│Per Cent │ │ │Per Cent │ │ - │Panel │ Per │ in │ │ │ │ │ │ - │ │Panel│Linear│ │ │ │ │ │ - │ │ │ Feet │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼──────┼─────┼──────┼─────────┼────┼──────┼─────────┼────┼────── - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼──────┼─────┼──────┼─────────┼────┼──────┼─────────┼────┼────── - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼──────┼─────┼──────┼─────────┼────┼──────┼─────────┼────┼────── - │ │ │ │ │ │ │ │ │ - - ══════════╤════════════════════════╤══════════════════════════╤═╕ - │ HIGHWAY CROSSINGS │ MISCELLANEOUS │ │ - ──────────┼────────────────────────┼──────────────────────────┼─┤ - │ PLANKING USED │ ROADWAY SIGHTS │ │ - ┬─────────┼────────┬─────┬─────────┼─────────┬──────┬─────────┼─┤ - │Condition│ Number │Total│Condition│ Kind │Number│Condition│ │ - │Per Cent │ of │B.M. │Per Cent │ │ │Per Cent │ │ - │ │Crossing│ Ft. │ │ │ │ │ │ - │ │ │Used │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼─────────┼────────┼─────┼─────────┼─────────┼──────┼─────────┼─┤ - │ │ │ │ │Mile │ │ │ │ - │ │ │ │ │Posts │ │ │ │ - ┼─────────┼────────┼─────┼─────────┼─────────┼──────┼─────────┼─┤ - │ │ │ │ │Whistling│ │ │ │ - │ │ │ │ │Posts │ │ │ │ - ┼─────────┼────────┼─────┼─────────┼─────────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 1 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │Length of Main Line LANDS FOR RIGHT OF WAY, │ - │Roadway ______ Miles YARDS AND TERMINALS │ - │______ │ - │Separate by Counties, and for Incorporated Cities, Villages and Towns│ - │Show Joint Right of Way Separately and Indicate Division of Ownership│ - - ╒═╤════════╤══════╤════════════╤═════════════════════════════╤═════ - │ │LOCATION│ Name │ Name of │ WIDTH OF RIGHT OF WAY │Total - │ │ │ of │Incorporated│ │Acres - │ │ │County│ City, │ │Right - │ │ │ │ Village or │ │ of - │ │ │ │ Town │ │ Way - │ │ │ │ │ │ - ├─┼────────┼──────┼────────────┼─────┬─────┬─────┬─────┬─────┼───── - │ │ │ │ │FEET │FEET │FEET │FEET │FEET │ - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼────────────┼─────┼─────┼─────┼─────┼─────┼───── - │ │ │ │ │Miles│Miles│Miles│Miles│Miles│ - ├─┼────────┼──────┼────────────┼─────┼─────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼────────────┼─────┼─────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ - - ╤═══════╤═══════╤══════════════╤═══════╤════════╤═══════╕ - │Average│Average│LANDS FOR YARD│Average│Average │REMARKS│ - │Market │ Right │AND TERMINALS │Market │ Value │ │ - │ Value │of Way │ │ Value │ for │ │ - │ Per │ Value │ │ Value │Railway │ │ - │ Acre │ Per │ │ Per │Purposes│ │ - │ │ Acre │ │ Acre │Per Acre│ │ - ┼───────┼───────┼────────┬─────┼───────┼────────┼───────┤ - │ │ │LOCATION│Total│ │ │ │ - │ │ │ │Acres│ │ │ │ - ┼───────┼───────┼────────┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ │ │ │ - ┼───────┼───────┼────────┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ │ │ │ - ┼───────┼───────┼────────┼─────┼───────┼────────┼───────┤ - │ │ │ │ │ │ │ │ - -[Illustration: FIG. 17.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 18 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ STEAM & ELECTRIC POWER │ - │ PLANTS-GAS PLANTS │ - │ Include all Shafting, Belting, Motors, Etc., Operated from Central │ - │ Plant │ - - ╒═╤════════╤═════╤════════════════════════════════════════════ - │ │LOCATION│Kind │ GENERAL DESCRIPTION - │ │ │ of │ - │ │ │Plant│ - ├─┼────────┼─────┼──────────────────────────────────────────── - │ │ │ │ POWER BUILDING - │ │ │ │ - ├─┼────────┼─────┼────────┬──────────┬───┬──────────┬───────── - │ │ │ │Material│Dimensions│Age│ Cost of │Condition - │ │ │ │ │ │ │Production│Per Cent - ├─┼────────┼─────┼────────┼──────────┼───┼──────────┼───────── - │ │ │ │ │ │ │ │ - ├─┼────────┼─────┼────────┼──────────┼───┼──────────┼───────── - │ │ │ │ │ │ │ │ - - ═══════════════════════════════╤═╕ - │ │ - │ │ - │ │ - ┬─────────┬──────────┬─────────┼─┤ - │ POWER │ Cost of │Condition│ │ - │EQUIPMENT│Production│Per Cent │ │ - ┼─────────┼──────────┼─────────┼─┤ - │ │ │ │ │ - │ │ │ │ │ - ┼─────────┼──────────┼─────────┼─┤ - │ │ │ │ │ - ┼─────────┼──────────┼─────────┼─┤ - │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 19 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ GENERAL REPAIR SHOPS │ - - ╒═╤════════╤════════════════════════════════════════════════════ - │ │LOCATION│ MOTIVE POWER AND REPAIR SHOP - ├─┼────────┼──────────┬───────────────────────┬─────┬─────────── - │ │ │Dimensions│ MATERIAL USED FOR │ Age │ General - │ │ │ │ │Years│Description - │ │ │ │ │ │ and - │ │ │ │ │ │ Purposes - │ │ │ │ │ │ for Which - │ │ │ │ │ │ Each - │ │ │ │ │ │Building is - │ │ │ │ │ │ Used - ├─┼────────┼──────────┼───────────┬─────┬─────┼─────┼─────────── - │ │ │ │Foundations│Walls│Frame│ │ - ├─┼────────┼──────────┼───────────┼─────┼─────┼─────┼─────────── - │ │ │ │ │ │ │ │ - ├─┼────────┼──────────┼───────────┼─────┼─────┼─────┼─────────── - │ │ │ │ │ │ │ │ - - ═══════════════════════╤═╕ - │ │ - ┬────────────┬─────────┼─┤ - │ Cost of │Condition│ │ - │Reproduction│Per Cent │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼────────────┼─────────┼─┤ - │ │ │ │ - ┼────────────┼─────────┼─┤ - │ │ │ │ - ┼────────────┼─────────┼─┤ - │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 20 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ SHOP MACHINERY AND TOOLS │ - │ Separate by Buildings in Which They are Located │ - │Shafting, Belting, Motors, Etc., to be Included on Form No. 18 Power │ - │ Plants │ - - ╒═══╤═══════════════════════════════════════════════════════╤═════════╕ - │ │ MACHINES WITH ACCOMPANYING TOOLS │ REMARKS │ - ├───┼──────────┬────────┬──────┬───────────────┬────────────┼─────────┤ - │ │ Name of │Name of │ Age │ Cost of │ Condition │ │ - │ │ Machine │ Maker │ │ Reproduction │ Per Cent │ │ - ├───┼──────────┼────────┼──────┼───────────────┼────────────┼─────────┤ - │ │ │ │ │ │ │ │ - ├───┼──────────┼────────┼──────┼───────────────┼────────────┼─────────┤ - │ │ │ │ │ │ │ │ - -[Illustration: FIG. 18.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 7 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ PILE BRIDGES AND TIMBER │ - │ TRESTLES │ - │Include Timber Overhead Highway Bridges Erected at Expense of Railway│ - │ Company │ - - ╒═╤════════╤════════════════════════════╤═════════════════════ - │ │LOCATION│ GENERAL DESCRIPTION │ PILES - │ │ │ │ - │ │ │ │ - │ │ │ │ - ├─┼────────┼──────┬──────┬───────┬──────┼──────┬──────┬─────── - │ │ │Bridge│Total │Average│Number│ Kind │Number│ Total - │ │ │Number│Length│Height │ of │ of │ of │Lineal - │ │ │ │ │ │Bents │Timber│Piles │ Feet - │ │ │ │ │ │ │ │ Per │Pilling - │ │ │ │ │ │ │ │ Bent │ - ├─┼────────┼──────┼──────┼───────┼──────┼──────┼──────┼─────── - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────┼───────┼──────┼──────┼──────┼─────── - │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────┼───────┼──────┼──────┼──────┼─────── - │ │ │ │ │ │ │ │ │ - - ╤════════════════════════╤═══════════════════════════ - │ CAPS │ FRAMED BENTS - │ │ - │ │ - │ │ - ┼──────┬──────────┬──────┼──────┬──────────┬───────── - │ Kind │Dimensions│Number│ Kind │Dimensions│B.M. Feet - │ of │ │ of │ of │ │Including - │Timber│ │ Caps │Timber│ │Sills and - │ │ │ │ │ │ Caps - │ │ │ │ │ │ - ┼──────┼──────────┼──────┼──────┼──────────┼───────── - │ │ │ │ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ┼──────┼──────────┼──────┼──────┼──────────┼───────── - │ │ │ │ │ │ - ┼──────┼──────────┼──────┼──────┼──────────┼───────── - │ │ │ │ │ │ - - ╤═══════════════════════════════════════════════ - │ SUPERSTRUCTURE FOR PILE OR FRAMED - │ - │ - │ - ┼──────────────────────┬──────────────────────── - │ STRINGERS │ TIES - │ │ - │ │ - │ │ - │ │ - ┼──────┬──────────┬────┼──────┬──────────┬────── - │ Kind │Dimensions│No. │ Kind │Dimensions│Number - │ of │ │Per │ of │ │ of - │Timber│ │Span│Timber│ │ Ties - ┼──────┼──────────┼────┼──────┼──────────┼────── - │ │ │ │ │ │ - ┼──────┼──────────┼────┼──────┼──────────┼────── - │ │ │ │ │ │ - - ═════════════════════════╤═════════╤═╕ - BENTS │Structure│ │ - │ Average │ │ - │Condition│ │ - │Per Cent │ │ - ┬────────────────────────┼─────────┼─┤ - │ GUARD RAILS │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼──────┬──────────┬──────┼─────────┼─┤ - │ Kind │Dimensions│Lineal│ │ │ - │ of │ │ Feet │ │ │ - │Timber│ │ │ │ │ - ┼──────┼──────────┼──────┼─────────┼─┤ - │ │ │ │ │ │ - ┼──────┼──────────┼──────┼─────────┼─┤ - │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 8 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ CULVERTS │ - │ Include all Arch, Box, Cast Iron or Vitrified Pipe Culverts │ - - ╒═╤════════╤═══════╤══════╤════════╤══════════╤═══════════╤════════ - │ │LOCATION│Culvert│Design│Material│Dimensions│ MASONRY │Concrete - │ │ │Number │ │ │ │ │ Cubic - │ │ │ │ │ │ │ │ Yards - ├─┼────────┼───────┼──────┼────────┼──────────┼─────┬─────┼──────── - │ │ │ │ │ │ │Class│Cubic│ - │ │ │ │ │ │ │ │Yards│ - ├─┼────────┼───────┼──────┼────────┼──────────┼─────┼─────┼──────── - │ │ │ │ │ │ │ │ │ - ├─┼────────┼───────┼──────┼────────┼──────────┼─────┼─────┼──────── - │ │ │ │ │ │ │ │ │ - - ╤══════════════╤══════╤═══╤═════════╤═══════╕ - │ PAVING │Timber│Age│Condition│REMARKS│ - │ │ B.M. │ │Per Cent │ │ - │ │ Feet │ │ │ │ - ┼────────┬─────┼──────┼───┼─────────┼───────┤ - │Material│Cubic│ │ │ │ │ - │ │Yards│ │ │ │ │ - ┼────────┼─────┼──────┼───┼─────────┼───────┤ - │ │ │ │ │ │ │ - ┼────────┼─────┼──────┼───┼─────────┼───────┤ - │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 9 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ TRACK AND BRIDGE TOOLS │ - - ╒═╤════════╤═════════════════════════════════════════ - │ │LOCATION│ TRACK TOOLS ASSIGNED TO SECTIONS - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ├─┼────────┼───────┬────────────────┬──────────────── - │ │ │Number │ HAND CARS │ TOOLS - │ │ │ of │ │ - │ │ │Section│ │ - ├─┼────────┼───────┼──────┬─────────┼──────┬───────── - │ │ │ │Number│Condition│Number│Condition - │ │ │ │ │Per Cent │ of │Per Cent - │ │ │ │ │ │ Sets │ - ├─┼────────┼───────┼──────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ - ├─┼────────┼───────┼──────┼─────────┼──────┼───────── - │ │ │ │ │ │ │ - - ╤══════════════════════════════════════════╤══════════════════════════╕ - │ BRIDGE TOOLS ASSIGNED REGULAR CREWS │NOTE:- │ - │ │In Space Below, List Kind │ - │ │and Number of Tools in use│ - │ │by Average Section and │ - │ │Bridge Crew, Covering │ - │ │General Track and Bridge │ - │ │Work │ - ┼────────┬────────────────┬────────────────┼──────────────────────────┤ - │LOCATION│ HAND CARS │ TOOLS │ │ - │ │ │ │ │ - │ │ │ │ │ - ┼────────┼──────┬─────────┼──────┬─────────┼──────────────────────────┤ - │ │Number│Condition│Number│Condition│ │ - │ │ │Per Cent │ of │Per Cent │ │ - │ │ │ │ Sets │ │ │ - ┼────────┼──────┼─────────┼──────┼─────────┼──────────────────────────┤ - │ │ │ │ │ │ │ - ┼────────┼──────┼─────────┼──────┼─────────┼──────────────────────────┤ - │ │ │ │ │ │ │ - -[Illustration: FIG. 19.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 11 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ STOCK YARDS AND │ - │ APPURTENANCES │ - - ╒═╤════════╤═════════════════════════════════════════════════ - │ │LOCATION│ YARDS - ├─┼────────┼──────┬──────────┬──────┬──────────┬───┬───────── - │ │ │Number│Dimensions│Number│Sheds and │Age│Condition - │ │ │ of │ │ of │Dimensions│ │Per Cent - │ │ │ Pens │ │Gates │ │ │ - │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────────┼──────┼──────────┼───┼───────── - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────────┼──────┼──────────┼───┼───────── - │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────────┼──────┼──────────┼───┼───────── - │ │ │ │ │ │ │ │ - - ════════════╤═════════════════════════════════════════════ - │ WATER SUPPLY AND POWER - ┬───────────┼──────────────┬───────────┬─────┬──────────── - │ PAVING │ WELLS │Other Means│Pumps│ WIND MILLS - │ │ │ of Supply │ │ - │ │ │ and │ │ - │ │ │Description│ │ - ┼────┬──────┼────────┬─────┼───────────┼─────┼─────┬────── - │Kind│Square│Diameter│Depth│ │ │Size │Tower, - │ │ Feet │ │ │ │ │Wheel│ Kind - │ │ │ │ │ │ │ │ and - │ │ │ │ │ │ │ │Height - ┼────┼──────┼────────┼─────┼───────────┼─────┼─────┼────── - │ │ │ │ │ │ │ │ - ┼────┼──────┼────────┼─────┼───────────┼─────┼─────┼────── - │ │ │ │ │ │ │ │ - - ══════════════════╤══════════════════════════════╤═╕ - │ STOCK SCALES │ │ - ┬───────────┬─────┼────┬────────┬──────────┬─────┼─┤ - │Other Power│Cond.│Kind│Capacity│Dimensions│Cond.│ │ - │ Used, and │ Per │ │ Tons │ of │ Per │ │ - │Description│Cent │ │ │ Platform │Cent │ │ - │ │ │ │ │ │ │ │ - ┼───────────┼─────┼────┼────────┼──────────┼─────┼─┤ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼───────────┼─────┼────┼────────┼──────────┼─────┼─┤ - │ │ │ │ │ │ │ │ - ┼───────────┼─────┼────┼────────┼──────────┼─────┼─┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 12 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ WATER STATIONS │ - - ╒═╤════════╤════════╤═══════════════════════════════════ - │ │LOCATION│ Source │ PUMP HOUSE - │ │ │ Supply │ - │ │ │If Well,│ - │ │ │ Give │ - │ │ │Diameter│ - │ │ │ and │ - │ │ │ Depth │ - ├─┼────────┼────────┼────────┬──────────┬─────┬───────── - │ │ │ │Material│Dimensions│ Age │Condition - │ │ │ │ │ │Years│Per Cent - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────────┼────────┼────────┼──────────┼─────┼───────── - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────────┼────────┼────────┼──────────┼─────┼───────── - │ │ │ │ │ │ │ - ├─┼────────┼────────┼────────┼──────────┼─────┼───────── - │ │ │ │ │ │ │ - - ╤═══════════════════════════════════════════════════════════════════ - │ POWER - │ - │ - │ - │ - │ - │ - ┼───────────────────────────┬───────────────┬─────────────────────── - │ BOILERS │ GAS ENGINES │ WIND MILLS - │ │ │ - │ │ │ - │ │ │ - ┼──────────┬──────────┬─────┼────┬────┬─────┼────┬──────┬─────┬───── - │Horizontal│Dimensions│Cond.│Kind│H.P.│Cond.│Kind│Tower,│Diam.│Cond. - │ Vertical │ │ Per │ │ │ Per │ │ Kind │Wheel│ Per - │ │ │ Ct. │ │ │ Ct. │ │ and │ │ Ct. - │ │ │ │ │ │ │ │Height│ │ - ┼──────────┼──────────┼─────┼────┼────┼─────┼────┼──────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ - ┼──────────┼──────────┼─────┼────┼────┼─────┼────┼──────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ - - ╤═══════════════════════════════════════════════════════ - │ PUMPS - │ - │ - │ - │ - │ - │ - ┼────┬────────┬─────────┬────────────┬────────────────── - │Kind│Diameter│Condition│SUCTION PIPE│ DISCHARGE PIPE - │ │ of │Per Cent │ │ - │ │Cylinder│ │ │ - │ │ │ │ │ - ┼────┼────────┼─────────┼─────┬──────┼─────┬──────┬───── - │ │ │ │Diam.│Length│Diam.│Length│Cond. - │ │ │ │ │ │ │ │ Per - │ │ │ │ │ │ │ │ Ct. - │ │ │ │ │ │ │ │ - ┼────┼────────┼─────────┼─────┼──────┼─────┼──────┼───── - │ │ │ │ │ │ │ │ - ┼────┼────────┼─────────┼─────┼──────┼─────┼──────┼───── - │ │ │ │ │ │ │ │ - - ╤══════════════════════════════════ - │ WATER TANKS - │ - │ - │ - │ - │ - │ - ┼────────┬────────┬──────┬───────── - │Diameter│Capacity│Tower,│Condition - │ │ Gal. │ Kind │Per Cent - │ │ │ and │ - │ │ │Height│ - ┼────────┼────────┼──────┼───────── - │ │ │ │ - │ │ │ │ - │ │ │ │ - │ │ │ │ - ┼────────┼────────┼──────┼───────── - │ │ │ │ - ┼────────┼────────┼──────┼───────── - │ │ │ │ - - ╤════════════════════════════════════════╤═╕ - │ WATER CRANES │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - │ │ │ - ┼────┬──────┬─────────┬──────────────────┼─┤ - │Kind│Diam. │Condition│ SUPPLY PIPE │ │ - │ │Column│Per Cent │ │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ┼────┼──────┼─────────┼─────┬──────┬─────┼─┤ - │ │ │ │Diam.│Length│Cond.│ │ - │ │ │ │ │ │ Per │ │ - │ │ │ │ │ │ Ct. │ │ - │ │ │ │ │ │ │ │ - ┼────┼──────┼─────────┼─────┼──────┼─────┼─┤ - │ │ │ │ │ │ │ │ - ┼────┼──────┼─────────┼─────┼──────┼─────┼─┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 13 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ COAL STATIONS │ - - ╒═╤════════╤═════╤═══════════════════════════════════════════════ - │ │LOCATION│Type │ GENERAL DESCRIPTION OF BUILDING - │ │ │Chute│ - │ │ │ or │ - │ │ │Crane│ - ├─┼────────┼─────┼──────────┬──────────┬───────┬────────┬──────── - │ │ │ │ Kind of │Dimensions│Number │ Total │ Age of - │ │ │ │Foundation│ of │ of │Capacity│Building - │ │ │ │ │ Building │Pockets│ Tons │ - ├─┼────────┼─────┼──────────┼──────────┼───────┼────────┼──────── - │ │ │ │ │ │ │ │ - ├─┼────────┼─────┼──────────┼──────────┼───────┼────────┼──────── - │ │ │ │ │ │ │ │ - - ══════════╤═══════════════════════╤═════════════════════╤═╕ - │ APPROACH │ SPECIAL APPLIANCES │ │ - │ │ FOR HOISTING AND │ │ - │ │ CONVEYING │ │ - │ │ │ │ - ┬─────────┼──────┬──────┬─────────┼───────────┬─────────┼─┤ - │Condition│Design│Length│Condition│ General │Condition│ │ - │Per Cent │ │ │Per Cent │Description│Per Cent │ │ - │ │ │ │ │ │ │ │ - ┼─────────┼──────┼──────┼─────────┼───────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ - ┼─────────┼──────┼──────┼─────────┼───────────┼─────────┼─┤ - │ │ │ │ │ │ │ │ - -[Illustration: FIG. 20.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 1A _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ RAILWAY TERMINAL PROPERTY │ - - ╒═╤════════╤═══════╤═══════════╤═════╤════════════╤═════════════╤═════╕ - │ │TERMINAL│SECTION│DESCRIPTION│TOTAL│ Average │Average Right│TOTAL│ - │ │ MAP │ NO. │OF PROPERTY│ACRES│Market Value│of Way Value │VALUE│ - │ │ │ │ OWNED │OWNED│ Per Acre │ Per Acre │ │ - ├─┼────────┼───────┼───────────┼─────┼────────────┼─────────────┼─────┤ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼───────┼───────────┼─────┼────────────┼─────────────┼─────┤ - │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 2 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ ROADWAY REPORT │ - │ In Recording Information, Show Main Tracks Separate from Passing, │ - │ Side, and Industry Tracks: │ - │ Show Joint Tracks Separately, and Indicate Division of Ownership. │ - │ The above does not apply to Grading or Protection except for Joint │ - │ Tracks. │ - - ╒═╤════════╤════════╤═════════════════════════════╤════════════════ - │ │LOCATION│ Acres │ GRADING—CUBIC YARDS—PAY │ PROTECTION - │ │ │Clearing│ QUANTITIES │ - │ │ │ and │ │ - │ │ │Grubbing│ │ - ├─┼────────┼────────┼─────────────────┬───────────┼────┬─────────── - │ │ │ │ EXCAVATION │EMBANKMENT │Rip │ RETAINING - │ │ │ │ │ │Rap │ - │ │ │ │ │ │Cu. │ - │ │ │ │ │ │Yds.│ - ├─┼────────┼────────┼─────┬─────┬─────┼─────┬─────┼────┼────┬────── - │ │ │ │Earth│Loose│Solid│Earth│Loose│ │Dry │Mortar - │ │ │ │ │Rock │Rock │ │Rock │ │Wall│ Wall - │ │ │ │ │ │ │ │ │ │Cu. │ Cu. - │ │ │ │ │ │ │ │ │ │Yds.│ Yds. - ├─┼────────┼────────┼─────┼─────┼─────┼─────┼─────┼────┼────┼────── - │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼────────┼─────┼─────┼─────┼─────┼─────┼────┼────┼────── - │ │ │ │ │ │ │ │ │ │ │ - - ═════════╤═════════════════════════════════════════════ - │ CROSS TIES - │ - │ - │ - ─────────┼──────────┬──────┬──────┬───────┬──────┬───── - WALLS │Dimensions│ Oak │Cedar │Hemlock│Other │Cond. - │ │ │ │ │Kinds │ Per - │ │ │ │ │ │Cent - │ │ │ │ │ │ - ┬────────┼──────────┼──────┼──────┼───────┼──────┼───── - │Concrete│ │Number│Number│Number │Number│ - │Wall Cu.│ │ │ │ │ │ - │ Yds. │ │ │ │ │ │ - │ │ │ │ │ │ │ - ┼────────┼──────────┼──────┼──────┼───────┼──────┼───── - │ │ │ │ │ │ │ - ┼────────┼──────────┼──────┼──────┼───────┼──────┼───── - │ │ │ │ │ │ │ - - ╤═════════════════════════════════╤═╕ - │ SWITCH TIES (Including Head │ │ - │ Blocks) │ │ - │ │ │ - │ │ │ - ┼────┬──────────────────────┬─────┼─┤ - │B.M.│ Number of Sets │Cond.│ │ - │Feet│ │ Per │ │ - │Per │ │Cent │ │ - │Set │ │ │ │ - ┼────┼───┬────┬───────┬─────┼─────┼─┤ - │ │Oak│Pine│Hemlock│Other│ │ │ - │ │ │ │ │Kinds│ │ │ - │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ - ┼────┼───┼────┼───────┼─────┼─────┼─┤ - │ │ │ │ │ │ │ │ - ┼────┼───┼────┼───────┼─────┼─────┼─┤ - │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 3 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ ROADWAY REPORT │ - │ In Recording Information, Show Main Tracks Separate from Passing, │ - │ Side, and Industry Tracks. │ - │ Show Joint Tracks Separately, and Indicate Division of Ownership │ - - ╒═╤═══════════════════════════════════════════════ - │ │ BALLAST - ├─┼────────┬─────┬────────┬─────┬───────┬───────── - │ │LOCATION│Miles│Kind of │Width│Average│Condition - │ │ │ │Material│ at │ Depth │per Cent - │ │ │ │ │Crown│ Per │ - │ │ │ │ │ │ Under │ - │ │ │ │ │ │ Tie │ - ├─┼────────┼─────┼────────┼─────┼───────┼───────── - │ │ │ │ │ │ │ - ├─┼────────┼─────┼────────┼─────┼───────┼───────── - │ │ │ │ │ │ │ - - ╤═══════════════════════════════════════════════════════╤═════╕ - │ RAILS (Insert Weight of Rail per Yard) │ │ - ┼────────┬───────┬─────┬────────┬─────┬─────┬─────┬─────┼─────┤ - │LOCATION│Time to│ New │Relaying│ Wt. │Cond.│ Wt. │Cond.│ │ - │ │Replace│When │ Rails │Track│ Per │Track│ Per │ │ - │ │ Years │Laid │ Miles │Miles│Cent │Miles│Cent │ │ - │ │ │Miles│ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ┼────────┼───────┼─────┼────────┼─────┼─────┼─────┼─────┼─────┤ - │ │ │ │ │ │ │ │ │ │ - ┼────────┼───────┼─────┼────────┼─────┼─────┼─────┼─────┼─────┤ - │ │ │ │ │ │ │ │ │ │ - -[Illustration: FIG. 21.] - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 4 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │Length of Main Line ROADWAY REPORT │ - │Roadway ______ Miles │ - │Length of Passing Side, │ - │and Industry Tracks │ - │______ Miles │ - │ In Recording Information, Show Main Tracks Separate from Passing, │ - │ Side, and Industry Tracks; │ - │ Show Joint Tracks Separately, and Indicate Division of Ownership. │ - - ╒═╤════════╤══════╤══════════════════════════════════════════════════ - │ │LOCATION│Weight│ - │ │ │ Of │ - │ │ │ Rail │ - ├─┼────────┼──────┼────────────────────────┬──────┬────────────────── - │ │ │ │ ANGLE BARS │Weight│ FISH PLATES - │ │ │ │ │ Of │ - │ │ │ │ │ Rail │ - ├─┼────────┼──────┼─────┬──────┬─────┬─────┼──────┼─────┬──────┬───── - │ │ │ │ No. │Weight│ No │Cond.│ │ No. │Weight│ No - │ │ │ │ Of │ Per │Bolts│ Per │ │ Of │ Per │Bolts - │ │ │ │Pairs│ Pair │ Per │Cent │ │Pairs│ Pair │ Per - │ │ │ │ │ │Joint│ │ │ │ │Joint - │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼─────┼──────┼─────┼─────┼──────┼─────┼──────┼───── - │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼─────┼──────┼─────┼─────┼──────┼─────┼──────┼───── - │ │ │ │ │ │ │ │ │ │ │ - - ═════════════════════════════════════════════════════════════════ - TRACK FASTENINGS - - - ──────┬───────────────┬──────────────────────────┬─────────────── - │ BOLTS │ NUT LOCKS │ SPIKES - │ │ │ - │ │ │ - ┬─────┼────┬────┬─────┼────┬────┬───┬──────┬─────┼────┬────┬───── - │Cond.│Size│No. │Cond.│Kind│Size│No.│Weight│Cond.│Size│No. │Cond. - │ Per │ │Kegs│ Per │ │ │ │ Per │ Per │ │Kegs│ Per - │Cent │ │200 │Cent │ │ │ │ 1000 │Cent │ │200 │Cent - │ │ │Lbs.│ │ │ │ │ │ │ │Lbs.│ - │ │ │Used│ │ │ │ │ │ │ │Used│ - ┼─────┼────┼────┼─────┼────┼────┼───┼──────┼─────┼────┼────┼───── - │ │ │ │ │ │ │ │ │ │ │ │ - ┼─────┼────┼────┼─────┼────┼────┼───┼──────┼─────┼────┼────┼───── - │ │ │ │ │ │ │ │ │ │ │ │ - - ════════════════════════════════════════════╤═╕ - │ │ - │ │ - │ │ - ┬─────────────────────┬─────────────────────┼─┤ - │ TIE PLATES │ RAIL BRACES │ │ - │ │ │ │ - │ │ │ │ - ┼────┬───┬──────┬─────┼────┬───┬──────┬─────┼─┤ - │Kind│No.│Weight│Cond.│Kind│No.│Weight│Cond.│ │ - │ │ │ Each │ Per │ │ │ Each │ Per │ │ - │ │ │ │Cent │ │ │ │Cent │ │ - │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ - ┼────┼───┼──────┼─────┼────┼───┼──────┼─────┼─┤ - │ │ │ │ │ │ │ │ │ │ - ┼────┼───┼──────┼─────┼────┼───┼──────┼─────┼─┤ - │ │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 5 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │Length of Main Line ROADWAY REPORT │ - │Roadway ______ Miles │ - │Length of Passing Side, │ - │and Industry Tracks │ - │______ Miles │ - │ In Recording Information, Show Main Tracks Separate from Passing, │ - │ Side, and Industry Tracks; │ - │ Show Joint Tracks Separately, and Indicate Division of Ownership. │ - - ╒═╤════════╤══════════════╤══════════════╤══════════════╤════════ - │ │LOCATION│SPLIT SWITCHES│STUB SWITCHES │SWITCH STANDS │ SWITCH - ├─┼────────┼──────────────┼──────────────┼────┬───┬─────┼────┬─── - │ │ │ Complete │ Complete │Kind│No.│Cond.│Kind│No. - │ │ │ Including │ Including │ │ │ Per │ │ - │ │ │Connecting Rod│Connecting Rod│ │ │Cent │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ├─┼────────┼────┬───┬─────┼────┬───┬─────┼────┼───┼─────┼────┼─── - │ │ │Wt. │No.│Cond.│Wt. │No.│Cond.│ │ │ │ │ - │ │ │Rail│ │ Per │Rail│ │ Per │ │ │ │ │ - │ │ │ │ │Cent │ │ │Cent │ │ │ │ │ - ├─┼────────┼────┼───┼─────┼────┼───┼─────┼────┼───┼─────┼────┼─── - │ │ │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼────┼───┼─────┼────┼───┼─────┼────┼───┼─────┼────┼─── - │ │ │ │ │ │ │ │ │ │ │ │ │ - - ══════╤════════════════════════════╤════════════════════════════ - LAMPS │ RIGID FROGS │ SPRING RAIL FROGS - ┬─────┼────┬───────┬─────┬─────────┼────┬───────┬─────┬───────── - │Cond.│Wt. │Length │Total│Condition│Wt. │Length │Total│Condition - │ Per │Rail│in Feet│ No. │Per Cent │Rail│in Feet│ No. │Per Cent - │Cent │ │ │ of │ │ │ │ of │ - │ │ │ │Each │ │ │ │Each │ - │ │ │ │Kind │ │ │ │Kind │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼─────┼────┼─┬─┬─┬─┼─────┼─────────┼────┼─┬─┬─┬─┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ - ┼─────┼────┼─┼─┼─┼─┼─────┼─────────┼────┼─┼─┼─┼─┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ - ┼─────┼────┼─┼─┼─┼─┼─────┼─────────┼────┼─┼─┼─┼─┼─────┼───────── - │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ - - ╤═══════════════════════════╤══════════════════════════════════╤═╕ - │ GUARD RAILS │ RAILROAD CROSSINGS │ │ - ┼────┬──────┬─────┬─────────┼────┬───────┬────┬──────┬─────────┼─┤ - │Wt. │Length│Total│Condition│Wt. │Name of│Per │ Per │Condition│ │ - │Rail│ in │ No. │Per Cent │Rail│Railway│Cent│ Cent │Per Cent │ │ - │ │ Feet │ of │ │ │Crossed│Cost│Maint.│ │ │ - │ │ │Pairs│ │ │ │Paid│ Paid │ │ │ - │ │ │ │ │ │ │ by │ by │ │ │ - │ │ │ │ │ │ │This│ This │ │ │ - │ │ │ │ │ │ │Co. │ Co. │ │ │ - ┼────┼───┬──┼─────┼─────────┼────┼───────┼────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ │ │ │ - ┼────┼───┼──┼─────┼─────────┼────┼───────┼────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ │ │ │ - ┼────┼───┼──┼─────┼─────────┼────┼───────┼────┼──────┼─────────┼─┤ - │ │ │ │ │ │ │ │ │ │ │ │ - - ┌─────────────────────────────────────────────────────────────────────┐ - │Name of Operating Form 5 _________________│ - │Company __________ _Field Inspector_│ - │Section Number ______ MINNESOTA RAILROAD & _________________│ - │From ______ To ______ WAREHOUSE COMMISSION _Office Compiler_│ - │ RAILROAD APPRAISAL OF 1906 │ - │ BRIDGES │ - │ Truss, Plate Girder, I Beam and Draw Span. │ - │ Indicate Power Used For Operating Draw Spans. │ - - ╒═╤════════╤══════╤═════════════════════════════════════════════════ - │ │LOCATION│Bridge│ SUB-STRUCTURE - │ │ │Number│ - ├─┼────────┼──────┼─────────────┬───────────┬───────────┬─────────── - │ │ │ │ PILES │ FRAMED │ MASONRY │ CONCRETE - │ │ │ │ │ TIMBER │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────┬──────┼──────┬────┼─────┬─────┼─────┬───── - │ │ │ │ Kind │Total │ Kind │B.M.│Cubic│Cubic│Cubic│Cubic - │ │ │ │ of │Lineal│ of │Feet│Yards│Yards│Yards│Yards - │ │ │ │Timber│ Feet │Timber│ │ │ │ │ - ├─┼────────┼──────┼──────┼──────┼──────┼────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - ├─┼────────┼──────┼──────┼──────┼──────┼────┼─────┼─────┼─────┼───── - │ │ │ │ │ │ │ │ │ │ │ - - ══════════════════════╤═══════════════════════════════════════════════ - │ - │ - ┬─────────┬───┬───────┼─────┬───────┬──────┬───────────────┬──────┬─── - │ Average │Age│Average│ No. │ Total │Design│Specifications │Total │Age - │Height of│ │ Cond. │ of │Length │ of │ For Live Load │Weight│ - │Piers and│ │ Per │Spans│ of │Bridge│ │ of │ - │Abutments│ │ Cent │ │Bridge │ │ │Steel │ - │ │ │ │ │ │ │ │ in │ - │ │ │ │ │ │ │ │Bridge│ - ┼─────────┼───┼───────┼─────┼───────┼──────┼───────────────┼──────┼─── - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - │ │ │ │ │ │ │ │ │ - ┼─────────┼───┼───────┼─────┼───────┼──────┼───────────────┼──────┼─── - │ │ │ │ │ │ │ │ │ - ┼─────────┼───┼───────┼─────┼───────┼──────┼───────────────┼──────┼─── - │ │ │ │ │ │ │ │ │ - - ══════════════════════════════════════════════════════════════╤═╕ - SUPERSTRUCTURE │ │ - │ │ - ┬─────┬──────────────────────┬────────────────────────┬───────┼─┤ - │Cond.│ BRIDGE TIES │ GUARD RAILS │Average│ │ - │ Per │ │ │ Cond. │ │ - │Cent │ │ │ Per │ │ - │ │ │ │ Cent │ │ - │ │ │ │ │ │ - │ │ │ │ │ │ - ┼─────┼──────┬────┬──────────┼──────┬──────────┬──────┼───────┼─┤ - │ │ Kind │No. │Dimensions│ Kind │Dimensions│Lineal│ │ │ - │ │ of │ of │ │ of │ │ Feet │ │ │ - │ │Timber│Ties│ │Timber│ │ │ │ │ - ┼─────┼──────┼────┼──────────┼──────┼──────────┼──────┼───────┼─┤ - │ │ │ │ │ │ │ │ │ │ - ┼─────┼──────┼────┼──────────┼──────┼──────────┼──────┼───────┼─┤ - │ │ │ │ │ │ │ │ │ │ - -From Mr. Gillette's report,[11] supplemented by information furnished by -Henry L. Gray, Assoc. M. Am. Soc. C. E., Engineer of the Railroad -Commission of Washington, the following general statement as to methods -is gleaned: - -The plan involved, not only a determination of cost of reproduction and -present value, but also original cost. - -The appraiser was unable to adopt the methods followed in Wisconsin and -Minnesota, in so far as they accepted the inventory of the railroads, -but made his own examinations of records. The railroads of the State -denied that they had any information whatever that would be of value to -the Commission. - -The records of the Engineering Department were examined. The records of -the Accounting Department were analyzed, various annual reports were -examined and a corporate history of the road prepared. - -Special forms for securing information were not prepared, and no rules, -or definite order of procedure to be used for all roads alike, were -adopted. - -It is somewhat difficult to determine from the appraiser's report just -what part of it covers actual work done, and what part is theory -developed from the work, but presumably maps were prepared and profiles -secured which represented the original conditions of construction. - -The field inspection was made on hand-cars or on foot, each field -inspector being furnished with the plans, profiles, etc. - -The same conditions existed in Washington as elsewhere, that is, certain -records were not kept up, and were found to be inaccurate and -unreliable, and, as a result, the appraiser reported the condition to be -such as "to cause much unnecessary work subsequently in checking." - -A percentage of depreciation was not placed in the field, but was -determined by "mortality tables," or by ascertaining the probable years -of structure life, then determining from the age of the particular -structure under consideration its percentage of depreciation, a method -by no means new. It is not stated that any attempt was made to compare -these tables with the rules of the Master Car Builders Association for -valuing equipment, and no field inspection of equipment was made. The -prevailing prices of materials formed the basis for estimating the cost -of reproduction. - -The value of motive power and rolling stock was apportioned among the -States on the basis of engine- and car-mileage. - -The land values were fixed by the Railroad Commission sitting as a -court; real estate men from the large cities, real estate experts -brought by the railway companies, and others testified; and, based on -this testimony, the value was determined by the Commission in the same -manner as in a condemnation case. Three right-of-way experts, all of -whom had had experience in purchasing right of way for roads, were in -the regular employ of the Commission, and details as to present values -were referred to them. - -The chief point of difference between this work and that of the other -States apparently was the effort to ascertain first cost of the -properties plus additions. This was done by an examination of the -accounts of the railway companies. - -The result of the Washington work, as far as rate-making is concerned, -is indeterminate, as the United States Courts have held that the -Commission may not fix freight rates. The Supreme Court of the State has -held that they could. The Supreme Court has also held that the Tax -Commission should accept the findings of the Railroad Commission for the -purpose of taxation, with the result, as stated by Mr. Gray, that more -than $1,250,000 more was received last year than during any prior year -from railroad taxes. - -The report of the Washington appraiser differs widely from that for -other States in that it is diffuse and does not present the methods -clearly and systematically; it is difficult, indeed, to trace what was -actually done. The writer is loath to criticize, but this report is such -as to suggest comment on a number of points. - -_1._—Throughout the report very great stress is laid on the cost of -making the appraisal. Such an undertaking as an appraisal of corporation -property should be done thoroughly or left alone. It matters not whether -the work of Professor Cooley or Professor Taylor cost $5 a mile or $50 a -mile, if a dependable result was secured. It does not appear to be good -taste either to criticize costs of work in other States, or compare the -costs in Wisconsin and Michigan with the costs in Washington. - -_2._—A number of criticisms, amounting almost to reflections, are made -on the methods elsewhere. The appraiser says: - -"Speaking for myself, I found the precedents established by Texas, -Michigan, and Wisconsin of little value either in deciding the methods -to be pursued in making the appraisals or in estimating the probable -cost of appraisal.... - -"In estimating present or depreciated values of structures, rolling -stock, etc., both Michigan and Wisconsin had sent experts into the field -to estimate the percentage of present value to each unit. In this manner -40,000 freight cars were inspected in Michigan and their 'present value' -estimated. To me this seemed to be not only a useless procedure but very -erroneous.... - -"The appraisals heretofore made in other states have been based almost -entirely upon field surveys and inspection, no attempt having been made -to secure the necessary data from the engineering and accounting records -of the railways. Why? The answer is found in the purpose of the -appraisal." - -Such sentences, and others which, by inference if not by name, reflect -on work executed by men of high professional standing, are hardly in -good taste, even if true, in a report to a railroad commission of -another State. Whether or not he found little of value, the appraiser's -general line of procedure was not radically different from that followed -in Michigan and Wisconsin in getting all available data first from the -companies, then in making a field inspection before fixing values. If -misled by erroneous profiles, he went into an error needlessly, as it -was fully known in Michigan that records were in the condition described -before any field work was begun. - -The inspection of freight cars in Michigan was not to "estimate present -value" but to determine at first hand whether the Master Car Builders -rules for valuation were safe to use, and to back up their use in Court. - -The third paragraph quoted is a misstatement, due clearly to a -misapprehension of what really was done. - -_3._—The spirit of suspicion of railroad men's motives is an unfortunate -one to carry into a railroad appraisal, much less into a report. - -_4._—The writer fully realizes the magnitude of the task before the -appraiser who is asked to determine first cost plus improvements or -betterments. - -Hardly a trunk line road exists to-day that has not grown up from a -small beginning, changed its line, reduced its grades, added safety -devices, changed the type of its bridges and buildings, increased the -weight of its rails, put in service much heavier equipment, in fact, -completely changed everything, except, perhaps, the original right of -way. - -The task of securing from old accounting department records an accurate -statement of cost is—and the writer says it with the confidence born of -experience—an impossibility. It is a job of such magnitude as to be -practically prohibitive. The different systems of accounting, the -different policies of the management, as to charging betterments to -capital or operating expense, to say nothing of the countless errors -that creep into the distribution of accounts, place such an undertaking -among the labors of a modern Hercules, and, to one who has been engaged -even in the task of trying to ascertain what one year's accounting on a -large road may do in concealing betterments under the guise of operating -expense, it would appear that a result that could be sworn to as correct -was impossible of attainment along the lines suggested in this report. - -The general question of the propriety of the use of mortality tables is -discussed elsewhere in this paper. - -This document, as an addition to the literature of the subject of -valuation of properties, is disappointing, for if there were original -and valuable methods they are not explicitly described. - -The cost of making the appraisal was about $13 per mile of line. - ------ - -Footnote 11: - - _Engineering-Contracting._ - - - - - THE VALUATION OF TRACTION PROPERTIES IN CHICAGO. - - -During 1906 a complete valuation of the property and franchises of the -surface roads of Chicago was made under the direction of a Commission -consisting of Bion J. Arnold, M. Am. Soc. C. E., and Messrs. Mortimer E. -Cooley, and A. B. du Pont. The report of this valuation was published in -the form of a pamphlet which is now practically out of print, as all -extra copies were long ago exhausted. - -The instructions of this Commission from the Chicago City Council were: - -"To consider the detailed inventories and estimates of value to be -submitted by the Street Railway Companies, to investigate the same and -to ascertain whether the values thus listed were reasonable, fair and -just." - -Detailed inventories and estimates of value were submitted by the roads, -and, from time to time during the progress of the work, additions or -corrections to these schedules were made. - -Reports showing income, operating expense, and traffic statistics were -made, and such detailed statements as were called for from time to time -were furnished. - -The Commission organized its force for valuation work by using the -office and field organization of the Arnold Company under the direct -charge of George Weston, M. Am. Soc. C. E., for the major part of the -work, and retained Messrs. Theodore H. Hinchman, Jr., C. V. Conover, and -the writer to give special study to certain features of the appraisal. -In the determination of franchise values, Professor Henry C. Adams was -retained in consultation by the Commission. - -In arriving at the value of the physical properties, a complete field -examination was made, depreciation determined, cost of reproduction -estimated, and in general, the work was carried on along lines quite -similar to those of the railway appraisals heretofore described in -detail. - -Several very interesting and unique problems were presented, some of -which were as follows: - -"Upon what basis shall the cable properties of the companies be -estimated—(_a_) as operating cable systems, or (_b_) as obsolete systems -having no value except so far as the physical property can be utilized -in the conversion of the cable lines into electric?" - -In the final conclusions of the Commission, part of the cable lines were -treated in one way, and part in the other. - -"What allowance, if any, shall be made for the pavements laid by the -companies on their right of way?" - -The discussion of this topic, together with the opinions of counsel as -to the legal status, is of interest. The Commission did not consider the -value of paving as constituting any part of the physical property, the -value of which must be supported out of earnings. The present value of -the pavement was estimated and reported without specific recommendation -as to whether an allowance should be made. - -The valuation of real estate was left in the hands of real estate -experts familiar with values in Chicago, each piece of property being -personally examined and valued, and the representatives of the roads -given such hearings as they desired. - -In computing the value of physical properties, an allowance of 10% was -made to cover the following items: - -"_1.—Legal Expenses_—including those incurred in securing right of way -and frontage consents. - -"_2.—Interest or carrying charge_ for the money expended during the -construction period and up to the time the property goes into operation. - -"_3.—Brokerage_—or the expense of securing the necessary moneys. - -"_4.—Contingencies_—to cover incomplete inventories, unforeseen -difficulties of construction, and any and all other items of expense -which cannot be foreseen." - -The only novel feature in this list is Item 3, which was not included -specifically in any of the railroad valuations made by States and -heretofore described. - -The franchise and intangible property valuation, amounting to some -$9,000,000, or about one-fifth of the total, was a very important phase -of the work, and the Commission gave up a large part of the report to -its discussion. - -The difficulties in this part of the work are described as threefold: - -"_First._—The difficulty of determining what are the exact legal rights -of the companies in any given street or part of street, in absence of a -direct and final judicial decision as to these rights; - -"_Second._—The difficulty in estimating the value of a line of street -railways, consisting of several parts, where each of these parts is -operated under a different tenure due to the character of the ordinances -or franchises, respectively; and - -"_Third._—The difficulties arising from the absence of exact information -as to the receipts and expenditures on the several parts of a single -line covered by franchises of different length and character." - -The Commission, having arrived at such an adjustment of the difficulties -as appeared just, determined the value of franchises in the following -manner: - -It was assumed that the gross earnings on the different parts or routes -of each system were in proportion to the car-mileage. - -The system was divided into routes, and the car-mileage was determined -for each route; then this information was compiled so as to show the -car-mileage, and consequently the gross earnings, apportionable to each -franchise. - -The next step was to determine, in the same manner, the proportion of -operating expenses assignable to each franchise, the operating expense -being assumed to be uniform with gross earnings. A study of the -conditions in Chicago resulted in a determination upon 70% as a fair -proportion for operating expenses, taxes, and maintenance. - -Next, the amount of capital investment to be supported out of earnings -was computed by estimating the cost of reproduction of track and -overhead lines under each franchise and apportioning the cost of land, -power-houses, barns, cars, tools, and stores in proportion to -car-mileage. - -In determining earnings for the unexpired years of franchise life, it -was assumed that the earnings would increase in accordance with the law -laid down by Mr. Arnold in 1902. - -The last step was to find the value of the net earnings of future years, -after deducting the sum required to support the invested capital. The -rate chosen was 5% compound interest. The sum of the different present -values thus found was the value of the franchise sought. - -Two other points arising in connection with franchise values were: - -"Where, on a street, franchises covering part of the street have -expired, and others remain in force, the contention of the city is that -the expired franchise is valueless because traffic under it can be -stopped; that of the company is that it still has value, as traffic can -be routed over other streets where franchises have not expired." - -This was set aside on the ground that the value of any particular -portion of a street, or of a franchise, remains the same as long as the -system is considered as an entirety. - -The second point was as to the value of traffic agreements; but this -complicated problem was also dismissed on the theory that when two -systems are considered as co-operating, the value of individual parts of -either system remains the same regardless of their ownership. - -The values of their properties, fixed by the companies, included paving. -The total figures reached in this valuation were: - - Companies' valuation, including paving, $73,555,675 - Commission's " " " 50,994,782 - Commission's " excluding " 46,652,747 - -This work affords many interesting problems, and is perhaps the largest -valuation for determining a price for the purchase of property that had -been made to date. - - - - - THE COMMERCIAL VALUATION OF RAILWAY OPERATING PROPERTY OF THE - DEPARTMENT OF COMMERCE AND LABOR. - - -In 1902 the permanent Census Office was established, and the Director -was authorized to collect statistics relative to public indebtedness, -valuation, taxation, and expenditures. The Bureau of the Census -co-operated with the Department of Commerce and Labor in the preparation -of the appraisal of the commercial valuation of railway properties of -the country. - -The report of this work, issued as Bulletin 21 of the Bureau of the -Census, is the most interesting and valuable exposition of the subject -of railway valuations yet published, as it includes not only the report -of this particular work, together with the results, tabulated by States, -but appendices describing and discussing the work in States and foreign -countries, and the work of valuation by railway men. - -The results are of prime interest, as they show the valuation of all -railway property in all the States, based on uniform methods of -appraisal and distribution, which enables a comparison to be made with -work done by the States. - -The method adopted in this work was so radically different from that of -the various State appraisals as to make a detailed description a matter -of interest, and it is to be regretted that it cannot be included. The -method is really a capitalization of net earnings. - -Owing to the nature of the inquiry, namely, to determine what part of -the wealth of the nation is devoted to railway transportation, it was -obligatory on the appraisers to adopt a method which would disclose as -nearly as possible the true market value. - -Certain restrictions and limitations on the term, "value," and on the -use of the resultant figures of the appraisal, are suggested by -Professor Adams, as follows: - -"The valuation submitted in this report may be properly defined as the -commercial value of property used by railways in connection with the -business of transportation. By 'commercial value' is meant the estimate -placed upon the worth of property regarded as a business proposition. -This must, of course, be the market estimate and not the arbitrary -estimate of a public official. The two fundamental considerations by -which the market is influenced in placing a value upon property when -bought or sold, are the expectation of income arising from the use of -the property, and the strategic significance of the property. These two -considerations are made the basis of the valuation of railway property -submitted in this report. The material made use of in this valuation is, -first, the operating and financial accounts of the railways; second, -inter-railway contracts and agreements; and, third, the published -records of the stock market. - -"This is no place to enter upon a discussion of the nature and -classification of different kinds of value, but a word of caution may be -allowed in order to guard against an unwarranted use of the figures here -submitted. The commercial valuation of railway property, in so far as it -depends on income arising from the sale of transportation, is the -result, among other things, of an established schedule of freight and -passenger rates, from which it follows that such a valuation cannot be -used for determining the reasonableness or unreasonableness of the rates -in question. The solution of the rate problem demands a separate -valuation of the physical property. - -"Again, in so far as the Government is precluded by its political -character from following commercial rules in the sale of any service -which it renders, a commercial valuation which assumes that property is -administered under the rules of private rather than public financiering, -might differ from the valuation of the same property regarded as a -public property. The purpose of this remark is to preclude a discussion -of the problem of the Government purchase of railways on the basis of -the values submitted in this report. It would of course be necessary to -modify these values by considerations of public utility, in order to -determine a public purchase price. - -"Whether or not the commercial valuation here submitted can be used as -the basis of assessing railway properties for the purpose of taxation -depends entirely upon the taxing laws of the state for which the -question is asked. If these laws confine the appraisal of railway -property to its physical elements, the values here submitted would, in -the case of prosperous roads, exceed an appraisal for the purpose of -taxation. If, on the other hand, it is the purpose of the taxing law to -appraise railway property at its true cash value, unusual or abnormal -conditions being excluded, it may be that the commercial valuation of -operating property submitted in this report fairly measures its -appraisal for the purpose of taxation." - -The methods are explained in the most minute detail by a series of -papers in the Bulletin. - -The work of Professor Adams and his associates is of great practical -value in that it shows the discrepancy in the taxation laws of the -different States as relating to railroad properties, and in that it -gives a set of values determined by a uniform method, which, within -reasonable limits, furnishes a check on the work of the State -appraisals. - -This method, of course, cannot be used for purposes of rate-making, or -of bond or stock restrictive legislation, but the general uniformity of -its results with those of State appraisals, and the radical differences -noted in the case of values for taxation in other States, lead very -properly to the inference that a value determined by this method is very -close to the truth. - - - - - THE EXTENT OF APPRAISAL PRACTICE. - - -There have been many appraisals of property besides those reviewed in -the foregoing pages. Several excellent contributions to valuation -literature, as a result of the numerous water-works appraisals, are -mentioned in the Appendix. - -New Jersey and Nebraska have had railway appraisals in progress during -1909-10. At the time of writing, neither appraisal has gone far enough -to add any points of interest to the subject, except as the appraisers -in these two States discuss the subject and bring out new points. - -Valuations of street railway property have been made in several cities, -Cleveland, Ohio, Detroit, and Milwaukee being the most recent. - -The Cleveland and Milwaukee hearings have produced large records, and -have tended to determine finally certain principles of valuation. -Several valuations have also been made for corporations, among which may -be mentioned that of The Toledo Railways and Light Company, by Messrs. -Ford, Bacon, and Davis, and that for the New York, New Haven, and -Hartford Railway, under the direction of John F. Stevens, M. Am. Soc. C. -E. - -This latter valuation offers some very interesting points, and, in view -of Mr. Stevens' standing as a railroad engineer, the adoption by him of -methods of inventory and field inspection would go far toward fixing a -precedent which would be acceptable to the railroads. It is to be -regretted that the interests of the road are such that it is not deemed -wise by its President to discuss even the principles of this work at -present. - -In connection with the recent appraisal made by the City of Detroit, The -Detroit United Railway made an independent examination and appraisal of -its own property, with the double purpose of furnishing an inventory to -the city and of checking the work of the staff employed by the city. -This work for the railroad was done by officials and employees of the -company, under the personal direction of Mr. R. B. Rifenberick. It is -noteworthy for the completeness of its inventory, which goes into the -most minute detail, and for the excellence of the maps and drawings -which accompany it and show, not only every standard type of track, -rail, and all buildings and machinery, but every piece of track and -overhead special work on the entire system. This appraisal includes a -most complete and exhaustive study of average unit costs. Inasmuch as -this work is likely to be fully reviewed in the Courts in the near -future, any further description would hardly be proper. It is not too -much to say, however, that it probably stands as the most complete in -every detail, as to inventory and records, of all American appraisals up -to this date. - -During the summer of 1910 the Railway Commission of Michigan ordered an -appraisal of certain large electric-power properties of the State. This -work was done by Professor Mortimer E. Cooley, assisted by Mr. Henry C. -Anderson and the writer. This appraisal, involving certain comparatively -new corporations, made it possible to obtain a fairly definite solution -of some of the problems relative to overhead charges. - -It is evident that the demand for valuation work of a high character -will increase, and that it will come, not only from States and cities, -but from corporations. Much of the work done in the past has not been -described in the publications of scientific societies; much very -valuable work has secured only partial notice through reports of -litigation; and it is undoubtedly true that the most complete and full -discussions of the principles of valuation have been in the form of -expert evidence before the Courts, and are buried in the mass of -unprinted records of testimony. - - - - - REVIEW OF SOME METHODS OF VALUATION, AND SOME OF THE CRITICISMS - ON THE MICHIGAN APPRAISAL. - - -Much of the available literature on the subject of valuations is in the -form of papers descriptive of water-works appraisals and arbitrations, -many of which have been made, and a few of which have been the subject -of valuable papers and discussions before learned societies. - -Before the American Water-Works Association, D. W. Mead and J. W. -Alvord, Members, Am. Soc. C. E., have presented papers[12] which have -been quite fully discussed. The chief point of interest in these papers -is the treatment of the intangible element termed "going value." Mr. -Alvord advances the argument that, after the determination of physical -present value, there should be added, to determine the fair value, two -non-physical elements: the "going" or "business" value, and the -franchise value. The first element is defined as that special value -which is: - -"Built up ... by the energy, perseverance and solicitation of the -officers in charge, as distinct from the inert plant itself, ... - - * * * * * - -"The element of 'going value' has been before described as the element -of growth in the plant irrespective of its physical condition. It is -comparable somewhat to that indefinable quality known in other lines of -business as 'Good Will'. Nevertheless it is something more than good -will in water works business, as it represents what might be more aptly -described as 'connected good will', that is to say, the acquisition of -customers who have invested considerable sums in actually connecting -their premises with the plant of the company, and provided appliances -for the use of the water which it can deliver." - -The method advocated by Mr. Alvord as the most rational one for -computing this value is described as follows: - -"It is assumed that a new plant will be constructed, the inception of -which is coincident with the data of arbitration. Such new plant is to -be of an equal capacity with the older plant under consideration, and a -due allowance of time in which to construct this new plant, and the -necessary capital to be invested in it from time to time is estimated. -At the completion of this new imaginary plant, it is assumed that it -commences to obtain business in that community from those who are not -previously accustomed to the free use of public water, except in a -general way; that it is to require the business ability and consequent -increase in number of customers which the earlier and older plant went -through within the early years of its existence. An assumption of the -amount of business thus created for each year for a period of years in -advance is carefully computed and estimated by the board of arbitration. -The losses of interest upon capital invested are duly fixed, as well as -the first absence and later addition of revenue from hydrant rentals, -and a table is prepared showing each year, the total business developed -and the total losses, if any. After this is completed a forecast is made -of the business of the older works for the same period of time in the -future that it takes the business of the new works to equal the business -of the old works. If the business of the old works is found to be a -growing one it will be a longer period that the new works will require -to overtake it than will be the case if the business of the older works -is stationary or decreasing. In general, the differences which might be -called the debits and credits of this new imaginary plant and the debits -and credits of the older working plant are reduced to their present -worth at the time of appraisement, and an estimate is made up which will -adequately represent the financial advantage which the old works -(already fully equipped and in running order and having a large number -of profitable customers) will have over the new works, where everything -must be built and customers secured. - -"It is necessary in making this supposititious estimate of the new plant -to consider it in no way a competitor of the older works; there is not -supposed to be competition between the new and the old, but it is left -to the experience of the board of arbitration to consider how long it -would take the new company to build new works, and build up business for -the new works, until they have overtaken the business of the old company -should it continue to occupy the same territory." - -Mr. Alvord's description of his method has been quoted fully, as it is -an interesting one and has been often used. It is open to the very -decided objection that it is purely theoretical, a rational method of -computation, perhaps, but based on assumption throughout. It may be said -to be a method which is within the field of pure speculation. Mr. -Alvord, himself, says that where experience in financial matters and the -financial management of water-works is not brought into the valuation, -there is usually to be found guesses of the wildest character. Professor -Mead, in discussing Mr. Alvord's method and agreeing that it is -consistent and logical, says: - -"The method is by no means an exact one, and must necessarily lead to a -very great divergence in opinions as to the 'going value,' in accordance -with the assumptions on which it is based.... Its very logic is an -element of danger, for if clearly presented from a biased standpoint to -one previously unacquainted with its application, and if accepted -without careful analyses it may lead to very unjust conclusions. If -used, however, carefully and conscientiously with the desire to do -justice to all concerned, it is a valuable method of estimating going -value, and the only logical one with which the speaker is familiar." - -In addition to the element of going or business value, Mr. Alvord -considers the franchise value, and presents two methods for its -determination: - -_First._—The physical value, depreciation, and going value are entirely -neglected, and the entire valuation is fixed on the basis of its earning -power throughout the remaining life of the franchise and its probable -sale value. - -The probable net revenue for each year of franchise life must be -estimated and capitalized at a sum, which, if put at interest, would pay -such yearly revenue and extinguish itself at the end of the franchise -period. To this must be added the physical value of the plant at the end -of the franchise period. - -_Second._—The cost of reproduction, depreciation, and present physical -value are ascertained, and the going value computed. Then it is -determined whether or not the net revenue is paying interest on a -capitalized value greater than that indicated by the sum of the physical -and business values. If such capitalized figure is less than this -combined value, there is, of course, no franchise value; if it is more, -there is a franchise value which should be determined by estimating, for -the remaining years of the franchise, the excess income over and above -that necessary to cancel all obligations (including interest on the -physical and business values), and the reduction of these several sums -to a basis of present worth. - -A number of other articles and papers are listed in the Appendix. Many -of these are of great value and are well worth careful perusal, but they -offer no definite plan of valuation. Inasmuch as the general principles -involved in the valuation of a water-works plant and a railroad plant -are similar, it is advisable, in any exhaustive study of the subject, to -review the articles descriptive of water-works valuation, and it is a -matter of regret that greater consideration cannot be here given to some -of the points raised by such engineers as George H. Benzenberg, -Past-President, Am. Soc. C. E., Kenneth Allen, Arthur L. Adams, Emil -Kuichling, Members, Am. Soc. C. E., and others in their various papers -and discussions of this subject. - -The _Railway Age_, the _Railroad Gazette_, the _Railroad Age Gazette_, -and the _Railway Age Gazette_ contain many editorials and articles on -the valuation of railroad properties. These are written mainly from the -standpoint of the railway official, and present many matters of interest -which are worthy of study prior to undertaking a large appraisal. One -series of articles in the _Railway Age Gazette_[13] is a most masterly -argument, and it is to be regretted that the author has not disclosed -his identity. - -The Michigan valuation has been discussed in two papers by Mr. Charles -Hansel, whose connection with the work, as a member of the Board of -Review, gave him probably a more intimate knowledge of it than any one -else, not connected with the actual working organization, who has -undertaken to review the work. His first paper, published in 1901,[14] -entitled, "What is the Value of a Railroad for Purposes of Taxation?" is -a discussion of the work of Professors Cooley and Adams, written while -the subject was fresh in his mind. His second paper, an able argument -for a Government valuation, appeared in the _North American Review_ in -1907. The one point to which special attention is drawn is Mr. Hansel's -astonishing misconception of Professor Adams' plan of work. This -misleading statement appears in the first paper and is reiterated in the -second. It is of such a character that to pass it unchallenged would be -doing great injustice to Professor Adams. He states Professor Adams' -plan as follows: Capitalize net earnings and add to the present value of -the physical appraisal as found by Professor Cooley. - -"The result would be that in case the present value per mile as -determined by Professor Cooley is found to be $15,000, and the net -earnings by Professor Adams are found to be $1,000, this capitalized at -5 per cent. would equal $20,000, and added to the present value would -make $35,000, which would be the sum upon which taxes were to be levied. -In other words, if the company actually earns $1,000 it increases its -value for purposes of taxation 20 times that amount. If, however, -instead of having a net earning of $1,000 it spends that sum in -improving the property, it has only increased its taxable property by -$1,000." - -This statement is not only inaccurate, but involves the other error of -assuming that the appraisal figure was to be used for taxation. It was -not. It was merely information to aid the legislature in framing new -taxation laws. The chief error, however, is in assuming that Professor -Adams added the value of the property, as determined by a capitalization -of net earnings (which _per se_ is a well-recognized method of -valuation), to the value of the physical property. This error probably -is due to the flood of criticism which at the time was aimed at any form -of non-physical valuation. - -Professor Adams finds the net earning in Mr. Hansel's example to be -$1,000 per mile. From this, in the method actually used, he deducts an -annuity for the support of invested capital, which he assumes to be the -present value found by Professor Cooley. In the example given by Mr. -Hansel he would deduct 4% on $15,000, or $600 per mile, leaving $400 per -mile as surplus, or the earnings due to non-physical elements of value. -This, capitalized at 5%, would give $8,000 per mile, which, added to -Professor Cooley's figure of Present Value, would make $23,000 per mile, -instead of $35,000, as stated by Mr. Hansel. - -The most recent criticism of the Michigan valuation work was in an -address[15] before the New York Traffic Club in January, 1909, by Mr. W. -H. Williams, Third Vice-President of the Delaware and Hudson Company. -This address is devoted to an attack, not only on the work of the -Michigan appraisal, but on Professor Adams' work and on the propriety of -valuation work being undertaken for any reason. The arguments advanced -in this address are such that a discussion of them becomes almost -necessary in any complete review of the Michigan work, and it contains -so many statements which are erroneous that it would hardly be -permissible to pass them without comment. The manifest impatience with -all forms of governmental interference with corporations, which so often -characterizes the utterances of prominent railway officials, appears in -this paper to a marked degree. After stating that the present agitation -for a physical valuation appears to be the result of a misconception, on -the part of the Interstate Commerce Commission, of Section 20 of the Act -to Regulate Commerce, and quoting Professor Adams' suggestion of an -inquiry, he says: - -"Subsequently, the desire of Governor Pingree to find a means of -increasing railway taxation in Michigan gave Professor Adams an -opportunity to experiment with his project within the limits of that -State." - -This is a direct imputation of an improper motive, not only to Governor -Pingree, but to Professor Adams. As stated elsewhere, the investigation -was to determine whether the railroads were paying taxes on the same -basis of valuation as other property in the State—an absolutely proper -proceeding. Professor Adams was associated with the Michigan appraisal, -but had no connection whatever with the "physical valuation," to which -such objection is taken, and his appointment was made after the work of -physical valuation had been fully outlined and was well under way. - -The opening statement is followed by a brief _résumé_ of the -recommendations of the Interstate Commerce Commission and President -Roosevelt, and of bills introduced in Congress, also by quotations from -Bulletin 21, describing the methods of valuation used in Michigan and a -showing that practically a similar basis was used in other States. Mr. -Williams then summarizes his objections to the Michigan work: - -"(1) No allowance is made for discount on securities sold. - -"Discount is a partial capitalization of the commercial risk had in -making the investment, and it increases or decreases in proportion to -the probability of the earning power of money under existing conditions. -Not only is this practice justified by long-established commercial -usage, but also by judicial determination." - -The correctness of this position cannot be conceded on any grounds of -economics or accountancy. It is answered conclusively in an article,[16] -elsewhere referred to, as follows: - -"There is considerable diversity of opinion as regards the proper -treatment of discount on securities sold. There is a distinction between -bonds, representing corporate indebtedness and having a definite -limitation as to the time of their redemption, and share capital, -representing ownership and which as a rule is irredeemable. In relation -to the former there can be but one tenable view. If a company can market -its 50-year 4 per cent. bonds at 90 per cent. of par, it means that the -company's credit is on a 4½ per cent. basis; that it could market a like -security paying 4½ per cent. at par. If it elects to issue at the lower -rate it is merely sacrificing principal for the sake of a reduction in -the annual interest charge; in other words, it is pre-paying interest -which would accrue during the life of the issue. If $10,000,000 par -value were issued at 90 per cent., the discount would amount to -$1,000,000, and the saving in interest to $50,000 per year, or -$2,500,000 in 50 years. Obviously the company cannot claim the privilege -of capitalizing the discount, while thereby availing itself of the -reduction in interest. If such a course were legitimate in the case of a -5 or 10 per cent. discount, it would be equally so if the discount were -50 or 75 per cent., when the absurdity of the proposition would be -perfectly apparent. The somewhat general practice of prorating the -discount, as a charge against revenues, over the term of the -obligation's existence is sound; but this should be done, not in equal -installments, but on the basis of the appreciated value of the bond as -it approaches par at maturity. There is no apparent objection to -charging discount of this nature in a lump sum against an accumulated -surplus. The capitalization of discount on stocks, involving as it does -the introduction of fictitious values in capital assets, is wholly -indefensible." - -The writer has failed to note any particular "judicial determination" -which approves of the charge of any such item to capital account. - -"(2) The interest during construction (3 per cent.) is less than a fair -and reasonable return on the investment." - -The amount actually paid out for interest on money used during the -period of construction will vary, of course, depending on the time of -construction and the way in which payments on construction materials are -made. On the basis of a rate of 6% per annum and construction lasting -one year, only a very small portion of the construction cost will pay -6%, while the great items of rails, buildings, motive power, and -equipment will be put into the work from 90 days to 10 months after the -commencement of work, and will actually bear but little interest. In the -Michigan appraisal the assumption was made that all work must be -replaced in one year, and that on long roads partial operation would -commence as various sections of the line were completed; and 3% was -agreed on as a fair average, perhaps having in mind Governor Pingree's -"desire to increase railway taxation." Some assumption must be made. -This one, that long roads, covering several years of construction work, -are in Michigan put in partial operation as soon as built, is not -unreasonable. Such an assumption clearly would not be proper in the case -of long lines crossing mountains, or involving such a class of -construction as to make it impossible to complete the property short of -two or three years; and, in any such cases, the interest charge should -be made sufficient to cover. - -"(3) No allowance is made for working capital with which to carry on the -business." - -All the appraisals of physical property have been made on the basis of -securing a figure representing the cost of reconstructing the property -in the condition in which it existed on the date of the appraisal, -including only items properly chargeable to capital, cost of road, and -equipment. This is not such an item. The writer is of the opinion, -however, that it is a proper one to determine and include in any report. - -"(4) No allowance is made for wear and tear of material during the -period of construction. Assuming eight years to be the life of a tie, -and three years the period of construction, a substantial percentage of -the period of usefulness is over before the road is in operation. The -use of the rails before the track is put in proper line and surface -hastens the time when they must be removed." - -This deterioration is a necessary incident to any construction work. It -has not been customary or usual to take account of it. To add to the -amount capitalized on account of this item would be manifestly improper. -The only way in which this could be cared for would be in an adjustment -of the depreciation reserve when raised to cover that which takes place -during the construction period. This reserve, later in the address, is -objected to by Mr. Williams as improper accounting: - -"(5) No allowance has been made for impact and adaptation. After the -line is placed in operation, each fill will sink 1 ft. for every 10 ft. -of height. The slope of cuts must be increased to prevent landslides and -washouts. The ballast will pound into the roadbed, necessitating -additional ballast to secure a standard cross-section." - -Part of this objection is covered by the item, "Appreciation of -Roadbed," discussed elsewhere. This, perhaps, is a proper item, but a -comparatively small one. One of the examples cited is clearly -maintenance. This objection is largely covered in the Michigan work by -the contingency item. - -"(6) A uniform price for earthwork was used, thus ignoring the varying -character of soil and length of haul." - -This is erroneous. On the Michigan appraisal prices were used for earth, -loose rock, and solid rock. There is practically no classification in -the Southern Peninsula of Michigan, or, in fact, on 90% of the mileage -of the State. The price used was not much out of the way when considered -as a fair average for the territory. The same was apparently true of -other appraisals. It would not be a proper figure to use in an estimate -based on 1909 prices, which are materially greater than those obtaining -in 1890-1900. - -"(7) A uniform price list for all materials was used, thus ignoring the -source of supply and cost of delivery to point of use." - -This, again, is not true. Differences were made between the Upper and -Lower Peninsulas; and an exhaustive study was made of rates to different -sections. It is believed that the prices adopted took all these points -fully into consideration. It is true that no effort was made to use -different unit prices as between counties, but, in a number of cases, -differences in prices were made for different sections of the State, -where either local conditions as to production of materials, or traffic -rates, seemed to warrant. - -"(8) No allowance was made for interference with work on account of -labor troubles, condition of the weather, etc., which would vary -materially in the different counties of the same state." - -True. Nor is such allowance ever made in actual construction, beyond the -contingency item. Such items are a frequent source of annoyance, delay, -and sometimes of expense, but an expense difficult to separate and set -up, and clearly belonging to contingencies. - -"(9) No allowance is made for carrying charges until such time as the -road was placed on a revenue basis." - -True; and such item is not a part of a physical appraisal. - -The foregoing nine points are classed as "among other things" open to -criticism. The next two quoted paragraphs are introduced to indicate the -"other things" as they appear. These are mainly non-physical or -intangible elements of value, which, under the method of Professor -Adams, are treated _en bloc_, and which, from their nature, it would be -impossible to set out and value separately; therefore, no effort is made -to answer them point by point, further than to say in general that, if -there is any value attaching to these items, it was presumed to have -been disclosed by the method of Professor Adams, and to suggest further -that had Professors Cooley and Adams had such an advocate of intangible -values ten years ago, their labors would have been lightened, as all -arguments by railway officials at that time were against the use of any -such elements of value in an appraisal. - -"No consideration has been given to the leasehold interests.... -Therefore it will be seen there remains to be determined many questions -vitally affecting the value of the property without regard to its value -as a 'going concern.' - -"There should be no difference in the basis of arriving at the value, as -a 'going concern,' of the property of a railway and any industrial -establishment, nor should there be any difference in the basis of -valuation for taxation [exactly what Governor Pingree maintained] or -other purposes. There is common to both the value due to location, good -will, etc." - -While the remainder of the address in question contains no specific -criticisms of methods of valuation, it does go into a discussion of -sundry legal decisions; and conclusions are drawn quite at variance with -those set forth elsewhere in this paper. The thing most noticeable in -the entire address is the lack of a proper spirit of fairness, an -apparent inability to state fully and fairly the position of the men -whose views are being opposed, and an undue emphasis in quoting some -public official whose views coincide for the time being with the -theories which are being advocated. The fact that Mr. Williams quotes -from an address of Hon. Robert H. Shields, President of the Michigan Tax -Commission, a statement criticising the work of Professors Cooley and -Adams, illustrates the latter point. - -The statement is made again and again that the Michigan work was a -physical valuation; that no attempt was made to secure a "fair value" -(the language of the Courts), and that the value as a going concern was -not attempted to be given. In no case is the statement made that -Professor Cooley had charge of the physical valuation in Michigan, and -that Professor Adams took this physical valuation, and, under his -method, treated it as one element, and with it and other data derived -from a study of the reports and earnings of the company, undertook to -determine a "non-physical," "intangible," "franchise," or "going -concern" value, which included all tangible elements, and which, added -to the physical value, was assumed by Professor Adams to give the true -value. Had such a statement been fairly made, no possible objection -could be raised to the making of any number of points against the -correctness of the methods used by Professor Adams. - -"Certainly it cannot be denied that a road between New York and Chicago, -950 miles in length, passing through a manufacturing district, is of -greater value than a road 1,200 miles in length, between the same -cities, but passing through a hilly and undeveloped territory a portion -of the distance, and through a farming section for a greater portion of -the remaining distance; yet the advocates of a physical valuation would -have us believe that there is no difference in the value of the two if -they can be reproduced to-day at the same cost." - -This statement is entirely unfair to every man who has been in -responsible charge of valuation work in recent years in the United -States. No theory has ever been favored by any honest-thinking advocate -of a valuation. In the first place, no interstate valuations have ever -been made, and no parallel case to the one assumed is to be found, -except for very short sections of roads, a very marked instance having -been referred to elsewhere in this paper. Such a condition as assumed -would be reflected in the earnings of the companies to such an extent as -to cause the non-physical element of Professor Adams as used in Michigan -to correct largely or wholly the inequality and inaccuracy of the -physical valuation; such at least was the theory, and, if carried to its -logical end by the use of negative non-physical values, such would be -the result. - -The final arguments of Mr. Williams' address are devoted to an attack on -the plan outlined by the Interstate Commerce Commission for valuation, -and on some of the accounting methods of the Commission—points not -proper to be discussed in this paper—but it is difficult indeed to read -them without noting the apparently studied misrepresentation of the real -attitude of Professor Adams and the Commission, and the evident object -of the entire address to create a wrong impression regarding what has -been done, and a prejudice against the men who have been engaged on -State appraisal work and those who advocate the appraisal of properties -as a proper step in the way of securing such information as will enable -an intelligent consideration of the great corporation problems that must -be solved. - ------ - -Footnote 12: - - _Proceedings_, Am. Water-Works Assoc., 1902. - -Footnote 13: - - Commencing with the issue of January 22d, 1909. - -Footnote 14: - - The _Railroad Gazette_, April 19th, 1901, Vol. XXXIII. No. 16. p. 271. - -Footnote 15: - - _Railroad Age Gazette_, April 2d, 1909, p. 761. - -Footnote 16: - - _Railroad Age Gazette_, January 29th, 1909, p. 219. - - - - - THE DETERMINATION OF ELEMENTS OF VALUE AND METHODS OF - VALUATION BY THE COURTS. - - -The preceding narrative of methods of appraisal work logically leads up -to the question: Will these methods that have been adopted in various -appraisal undertakings stand the test of the Courts? After all, the -final seal of approval must be stamped on a method by the highest Courts -before it can be said to be a definitely fixed and determined principle -for general use in valuation. - -In a careful perusal of many papers on this subject, quotations from -judicial decisions will be noted which are literally correct as far as -they go, but which are incomplete and often very misleading; and often -such incomplete quotations are presented as to convey an entirely wrong -impression of the full decision. In order that no such charge may lie -against this paper, the quotations given are full enough to indicate -clearly the intent of the Court, even at the expense of undue length. - -An examination of all Federal and Supreme Court cases which bear on the -subject of property valuation has been made, and quotations at length -from some of the older cases, establishing precedent, together with -citations to more recent decisions, are submitted. It is believed that -the points of principle and method, in so far as they have been -determined by the highest Courts, are quite fully set forth. - -A study of the complete methods of the railroad valuation in Michigan, -in connection with these decisions, discloses the fact that they comply -with the requirements of the earlier cases, that all matters affecting -value be taken into consideration, and that in the more recent decisions -the detailed methods adopted in the Cooley physical appraisal have been -sustained as to very many points. In no case have any of such methods -been unfavorably criticized, and, while at this date the Supreme Court -has not squarely passed on the propriety of any method for securing -non-physical or intangible values, it has fully sustained the general -position of Professor Adams in several important points. In addition to -the complete examination of Federal cases, certain very interesting and -valuable State cases have been examined, and some of them are quoted. - -These cases involve both matters of taxation and rate-making. They cover -railroads, water-works, gas-works, and other classes of public service -corporations, and clearly demonstrate the fact that any analysis of the -subject of property valuations must include all classes of corporations. -Rate-making and taxation in themselves are entirely separate and -distinct from valuation, which is a necessary preliminary step in either -undertaking. For this reason all references which are not of special -interest in the valuation part of the problem are omitted. - -The case of Smyth _vs._ Ames (169 U. S., 466) was an action to question -the constitutionality of a statute of Nebraska establishing rates. It is -of great interest, and, based on the ruling of the Court in this case, -the appraiser in Washington and the appraisers in Nebraska have -undertaken to secure first cost as an element of value. The decision -holds that: - - (1) A railroad corporation is a person within the meaning of the - fourteenth amendment. - - (2) A State enactment establishing rates that will not admit the - carrier to earn such compensation as would be just to it and - to the public, would deprive such carrier of its property - and would be repugnant to the fourteenth amendment. - - (3) Rates established by a State cannot be so conclusively - determined by the legislature that they cannot become the - subject of judicial inquiry. - -The reasonableness of rates prescribed by a State for intra-state -business must be determined without reference to the interstate business -done by the carrier or the profits derived from that business. - -This paper is not concerned with the question of rates, which is -discussed at length in this decision. It is, however, of special -interest to note what the Court says in regard to the relation of the -corporations to the people, and to elements of value. - - "A railroad is a public highway, and none the less so because - constructed and maintained through the agency of a corporation - deriving its existence and powers from the State. Such a corporation - was created for public purposes. It performs a function of the - State. Its authority to exercise the right of eminent domain and to - charge tolls was given primarily for the benefit of the public. It - is under governmental control, though such control must be exercised - with due regard to the constitutional guaranties for the protection - of its property.... It cannot therefore be admitted that a railroad - corporation maintaining a highway under the authority of the State - may fix its rates with a view solely to its own interests and ignore - the rights of the public. But the rights of the public would be - ignored if rates for the transportation of persons or property on a - railroad are exacted without reference to the fair value of the - property used for the public, or the fair value of the services - rendered, but in order simply that the corporation may meet - operating expenses, pay the interest on its obligations, and declare - a dividend to stockholders. - - "If a railroad corporation has bonded its property for an amount - that exceeds its fair value, or if its capitalization is largely - fictitious, it may not impose upon the public the burden of such - increased rates as may be required for the purpose of realizing - profits upon such excessive valuation or fictitious capitalization, - and the apparent value of the property and franchises used by a - corporation, as represented by its stocks, bonds, and obligations, - is not alone to be considered when determining the rates that may - reasonably be charged." - -(The Court here quotes 164 U. S., 578, Covington and Lexington Turnpike -_vs._ Sanford.) - - "A corporation maintaining a public highway, although it owns the - property it employs for accomplishing public objects, must be held - to have accepted its rights, privileges, and franchises subject to - the condition that the government creating it, or the government - within whose limits it conducts its business, may by legislation - protect the people against unreasonable charges for the services - rendered by it. It cannot be assumed that any railroad corporation, - accepting franchises, rights, and privileges at the hands of the - public, ever supposed that it acquired, or that it was intended to - grant to it, the power to construct and maintain a public highway - simply for its benefit, without regard to the rights of the public. - But it is equally true that the corporation performing such public - services, and the people interested in its financial affairs have - rights that may not be invaded by legislative enactment in disregard - of the fundamental guaranty for the protection of property. The - corporation may not be required to use its property for the benefit - of the public without receiving just compensation for the services - rendered by it. How such compensation may be ascertained, and what - are the necessary elements in such inquiry, will always be an - embarrassing question. - - "We hold, however, that the basis of all calculations as to the - reasonableness of rates to be charged by a corporation maintaining a - highway under legislative sanction must be the fair value of the - property being used by it for the convenience of the public. And in - order to ascertain that value the original cost of construction, the - amount expended in permanent improvements, the amount and market - value of its bonds and stocks, the present as compared with the - original cost of construction, the probable earning capacity of the - property under particular rates established by the statute, the sum - required to meet operating expenses, are all matters for - consideration, and are to be given such weight as may be just and - right in each case. We do not say that there may not be other - matters to be regarded in estimating the value of the property. What - the company is entitled to ask is a fair return upon the value of - that which it employs for the public convenience. On the other hand, - what the public is entitled to demand is that no more be exacted - from it for the use of a public highway than the services rendered - by it are reasonably worth." - -The body of this decision is quoted at length to show: - - First. That the Court reiterates the relation of the people to - the corporation, as defined by Covington and Lexington - Turnpike Road _vs._ Sanford (164 U. S., 578) and by Stone - _vs._ Farmers' Loan and Trust Company (116 U. S., 307). - - Second. That the basis for computing a fair rate is the fair - value of the property, which must be arrived at by a - computation or series of computations taking into account - many different factors. - - Third. That while the Court mentions certain things that may - serve as indices of value, which are to be taken into - account and given due weight, the Court does not outline or - define any method of arriving at a value, but does recognize - it as an embarrassing question. - - Fourth. That no such stress has been laid by the Court on - original cost as has been construed by some appraisers. - -The principles enunciated in Smyth _vs._ Ames are reiterated by the -Court in San Diego Land Company _vs._ National City (174 U. S., 739), -with the further ruling: - - "The contention of the appellant in the present case is that, in - ascertaining what are just rates, the Court should take into - consideration the cost of its plant; the cost per annum of operating - the plant, including interest paid on money borrowed and reasonably - necessary to be used in constructing the same; the annual - depreciation of the plant from natural causes resulting from its - use; and a fair profit to the Company over and above such charges - for its services in supplying the water to consumers, either by way - of interest on the money it has expended for the public use, or upon - some other fair and equitable basis. Undoubtedly, all these matters - ought to be taken into consideration and such weight given them, - when rates are being fixed, as under all the circumstances will be - just to the company and to the public. The basis of calculation - suggested by the appellant is, however, defective in not requiring - the real value of the property and the fair value in themselves of - the services rendered to be taken into consideration. What the - company is entitled to demand, in order that it may have just - compensation, is a fair return upon the reasonable value of the - property at the time it is being used for the public. The property - may have cost more than it ought to have cost, and its outstanding - bonds for money borrowed, and which went into the plant, may be in - excess of the real value of the property. So that it cannot be said - that the amount of such bonds should in every case control the - question of rates, although it may be an element in the inquiry as - to what is, all the circumstances considered, just to both the - company and the public." - -In the case of Columbus Southern Railway _vs._ Wright (151 U. S., 479), -the Court quotes approvingly from Franklin Company _vs._ Railroad (12 -Lea (Tenn.), 521-537-538-539), and shows that the doctrine quoted had -already been enunciated by the Supreme Court in the State Railroad Tax -Cases (92 U. S., 575-607). The Court quotes as follows: - - "The property of a railroad company for purposes of taxation - consists of its realty, its local personalty, its rolling stock, its - choses in action, and its franchises. The franchise is a privilege - conferred by the charter of incorporation, namely the right to - exercise all the powers granted in the mode prescribed for the - purpose of profit. It is a unit not confined to any one county in - which it may be exercised. - - * * * * * - - "Obviously, after ascertaining the value of the entire franchise in - the State as a unit, no more approximate or just division of this - value can be made for purposes of taxation than to allot it among - the counties through which the track runs in proportion of the - entire length of track in the county to the entire length of track - in the State.... - - "The roadway itself of a railroad depends for its value upon the - traffic of the company and not merely upon the narrow strip of land - appropriated for the use of the road, and the bars and cross-ties - thereon. The value of a roadway at any given time is not the - original cost, nor, _a fortiori_, its ultimate cost after years of - expenditure in repairs and improvements. On the other hand, its - value cannot be determined by ascertaining the value of the land - included in the roadway assessed at the market price of adjacent - lands, and adding the value of the cross-ties, rails, and spikes. - The value of land depends largely upon the use to which it is put - and the character of the improvements upon it." - -The mileage basis of apportionment is sustained in the following and -other cases: - - State Railroad Tax Cases 92 U. S., 608 - - Delaware Railroad Tax Case 18 Wall., 206 - - Erie Railway _vs._ Pennsylvania 21 Wall., 492 - - Western Union Telegraph Company _vs._ Mass 125 U. S., 530 - - Pullman Palace Car Company _vs._ Pennsylvania 141 U. S., 18 - - Maine _vs._ Grand Trunk Railway 142 U. S., 217 - - Pittsburg, Cincinnati, Chicago, and St. Louis Railway 154 U. S., 430 - _vs._ Backus - -Therefore this basis of division of values between territorial units -appears to be well established by precedent. This is in a measure -unfortunate, as certain classes of property cannot be apportioned -equitably in this way, unless the value of a railroad be determined, and -then that value allocated between different territorial units in -proportion to mileage, without any regard to the location of any -structure or series of structures in any State or county, the -track-mileage basis must be looked upon as a method of apportionment -which is subject to modification or which will lead to error. - -In an Indiana tax case, Cleveland, Cincinnati, Chicago, and St. Louis -Railway _vs._ Backus (154 U. S., 444), the late Justice Brewer, of the -Supreme Court, in handing down the judgment, said: - - "The true value of a line of railroad is something more than an - aggregation of the values of the separate parts of it, operated - separately. It is the aggregate of those values plus that arising - from a connected operation of the whole, and each part of the road - contributes not merely the value arising from its independent - operation, but its mileage proportion of that flowing from a - continuous and connected operation of the whole.... The value of - property results from the use to which it is put, and varies with - the profitableness of that use, past, present and prospective, - actual and anticipated. There is no pecuniary value outside that - which results from such use.... - - "In the nature of things it is practically impossible, at least in - respect to railroad property, to divide its value and determine how - much is caused by one use to which it is put and how much by - another. Take the case before us, it is impossible to disintegrate - the value of that portion of the road within the State of Indiana - and determine how much of that value springs from its use in doing - interstate business and how much from its use in doing business - wholly within the State. An attempt to do so would be entering upon - a mere field of uncertainty and speculation." - -In the Michigan cases, the principal one being Michigan Central Railroad -_vs._ Powers (201 U. S., 245), the question of method of valuation was -not passed on by the Courts for the reason that, after the evidence was -in, and during the argument, counsel for the railroad admitted that the -Cooley valuation was as correct a figure as it was possible to secure -under then existing conditions, methods and rates of taxation being the -issue. - -It is thus seen that the Supreme Court of the United States was not, in -any of the earlier cases, required to pass squarely on the propriety of -any method of arriving at a "fair value," and consequently had not, -prior to 1909, defined any hard-and-fast rules of procedure in -determining such value. The Circuit Courts have passed on kindred -questions in a few cases, among which San Diego Land and Town Company -_vs._ National City (74 Fed., 83), and San Diego Land and Town Company -_vs._ Jasper (110 Fed., 714) hold as above, and cite most of the cases -referred to. In the latter case the Court says: - - "The actual value of such property obviously depends upon a variety - of considerations—among them the actual and prospective number of - consumers—and is no more unchangeable than the value of any other - kind of property." - -As an illustration, there is cited the effect of a year's drouth on an -irrigation plant as temporarily affecting the value of property. - -In the case of Cotting _vs._ Kansas City Stock Yards (82 Fed., 839) the -Circuit Court touches on one very interesting argument, in the light of -some of the methods of valuation advocated by railway managers and some -of the criticisms of recent valuation work. - - "Different methods of estimating the value of property may properly - be employed when it is valued for different purposes. When a - valuation is placed on property which has become affected by a - public use, for the purpose of ascertaining whether the maximum rate - of compensation fixed by law for its use is reasonable or otherwise, - it is obvious that the income derived therefrom by the owner before - it was subjected to legislative control cannot always be accepted as - a proper test of value because the compensation which the owner - charged for its use may have been excessive and unreasonable. Again, - when property has been capitalized by issuing stock, neither the - market value nor the par value of the stock can be accepted in all - cases as a proper criterion of value, because the stock may not - represent the money actually invested, and furthermore because the - property may have been capitalized mainly with reference to its - income producing capacity, on the assumption that it is ordinary - private property which the owner may use as he thinks proper without - being subject to legislative control. On the other hand, however, - when property is valued for the purpose last stated, it is clear - that the owner thereof is entitled to the benefit of any - appreciation in value above the original cost and the cost of - improvements, which is due to what may be termed natural causes. If - improvements made in the vicinity of the property, the growth of - city or town where it is located, the building of railroads, the - development of the surrounding country and other like causes, give - property an increased value, the owner cannot be deprived of such - income by legislative action which prevents him from realizing an - income commensurate with the enhanced value of his property." - -The language of the late Judge Brewer, sitting as one of the circuit -judges in the case of National Water-Works Company _vs._ Kansas City (62 -Fed., 853), is definite as to the necessity of taking into account some -elements of intangible value, and is here quoted as giving the views of -this eminent jurist: - - "The difficult question, however, still remains; and that is, what - is the 'fair and equitable value,' which by the statute and - ordinance the city is to pay for the water-works? * * * We are not - satisfied that either method, by itself, will show that which under - all the circumstances can be adjudged the 'fair and equitable - value.' - - "Capitalization of earnings will not, because that implies - continuance of earnings, and a continuance of earnings rests upon a - franchise to operate the water-works. The original cost of - construction cannot control, for original cost and present value are - not equivalent terms. Nor would the mere cost of reproducing the - water-works plant be a fair test, because that does not take into - account the value which flows from the established connections - between the pipes and buildings of the city. * * * A complete system - of water-works, such as the company has, without a single connection - between the pipes in the streets and the buildings of the city would - be a property of much less value than the system connected as it is - with so many buildings and earning, in consequence thereof, the - money which it does earn. The fact that it is a system in operation, - not only with a capacity to supply the city but actually supplying - many buildings, in the city—not only with a capacity to earn but - actually earning—make it true that the 'fair and equitable value' is - something in excess of the cost of reproduction." - -The foregoing authorities cover practically all the older cases in the -Federal Courts. These cases have been examined, and such of the subject -matter has been quoted as would show the conclusions of the Courts as to -what constitute the various elements of true value. The latest Federal -decision bearing on the subject, and in many ways the most replete with -argument, is the case of Consolidated Gas Company _vs._ City of New York -(157 Fed., p. 849), which was decided in December, 1907. - -In this case the valuation was determined by the master: - - 1.—A valuation of tangible assets, consisting of real estate, - plant, mains, services, meters and miscellaneous equipment, - and the property of subsidiary companies, the whole - aggregating $63,357,000. Of this an allowance of $3,616,000 - was made by the master for working capital, and this entire - amount was treated as tangible property. - - 2.—Finally, an intangible value of 0,000,000 was assigned by him - to the franchise and good will. - -Objections were raised, as follows: - - (_A_) Land values represent no original investment by the - Company, do not indicate land especially appropriate for the - manufacture of gas, and increase the apparent assets without - increasing the earning power. - - (_B_) The values of physical property are not original cost, but - are cost of reproduction less depreciation. - - (_C_) Some of the property cost more than new articles of the - same kind at the time of inquiry. Some are of designs not - now favored by the scientific and manufacturing world. - -The disputed questions involved, as far as tangible property is -concerned, were: - - 1.—Whether the values ascribed to the several enumerated items - are based on competent and persuasive evidence. - - 2.—Whether the method of valuation pursued by the master is in - accordance with law. - - 3.—Whether the items of property are "employed" (in the legal - signification of the word) in the production of gas. - -The first, a question of fact, is found affirmatively, and the evidence -was found to be competent. - -The second question is one of law, and, quoting from the cases cited in -this paper, the Court holds as follows: - - "This method of valuation correct * * * upon reason it seems clear - that in solving this equation the plus and minus quantities should - be equally considered and appreciation and depreciation treated - alike.... The value of the investment of any manufacturer, in plant, - factory, or goods, or all three, is what his possessions would sell - for upon a fair transfer from a willing vendor to a willing buyer, - and it can make no difference that such a value is affected by the - efforts of himself or others, by whim or fashion, or (what is really - the same thing) by the advance of land values in the opinion of the - buying public. It is equally immaterial that such value is affected - by difficulties of reproduction. If it be true that a pipe line - under the New York of 1907 is worth more than was a pipe line under - the city of 1827, then the owner thereof owns that value, and that - such advance arose wholly or partly from difficulties of duplication - created by the city itself is a matter of no moment. Indeed, the - causes of either appreciation or depreciation are alike unimportant - if the fact of value be conceded or proved; but that ultimate - inquiry is oftentimes so difficult that original cost, and reasons - for changes in value, become legitimate subjects of investigation as - checks upon expert estimates, or bookkeeping, inaccurate and perhaps - intentionally misleading. * * * - - "The so-called money value of real or personal property is but a - conveniently short method of expressing present potential - usefulness, and 'investment' becomes meaningless if construed to - mean what the thing invested in cost generations ago. Property, - whether real or personal, is only valuable when useful. Its - usefulness commonly depends on the business purposes to which it is - or may be applied. Such business is a living thing, and may flourish - or wither, appreciate or depreciate; but, whatever happens, its - present usefulness, expressed in financial terms, must be its value. - * * * It is not to be inferred that any American government intended - when granting a franchise, not only to regulate the business - transacted thereunder, and reasonably to limit the profits thereof, - but to prevent the valuation of purely private property in the - ordinary economic manner, and the property now under consideration - is as much private property as are the belongings of any private - citizen. Nor can it be inferred that such government intended to - deny the application of economic laws to valuation of increments - earned or unearned, while insisting on the usual results thereof in - the case of equally unearned and possibly unmerited depreciation. - - "I think the method of valuation applied by the report to land, - plant, mains, services, and meters lawful. To 'working capital, Coke - and Coal Company, and Astoria' the above considerations are not - applicable, and these items will be treated separately." - -The Court's review of the third question raises no points of special -interest as to valuation. - -The question as to amount of "working capital" is taken up, and that -term is defined as: - - "The amount of cash necessary for the safe and convenient - transaction of a business, having regard to the owner's ordinary - outstandings both payable and receivable, the ordinary condition of - his stock, or supplies in hand, the natural risk of his business, - and the condition of his credit; and unless these matters, and - perhaps others, be looked into, no comparison can be drawn between - one business and another, or even between those of the same general - nature." - -In this instance it is of interest to note that the Court reduced the -"working capital" from $3,616,000 to $1,616,000. - -Perhaps the most novel and interesting part of this decision is that -dealing with the intangible elements of value. The master was unable to -separate the two elements, good will and franchise value, but gave their -combined value. - - "From the testimony I think it apparent that what is here meant by - good will is the organization of complainant, long established, and - doubtless well manned and equipped. Such organization is clearly of - value, because without it neither tangible nor intangible property - can be profitably managed. Yet the organization itself is but a - method of utilizing that which is invested, it is really dependent - for its existence and continuance upon the franchise, without which - there can be no useful organization. Tangible property has a certain - value entirely apart from franchise or right to continue business, - but good will in the sense of the organization for the business of - furnishing gas, can have no existence whatever apart or detached - from the franchise conferring the necessary privilege. Would any one - think of capitalizing good will of this kind and distributing its - assumed value in the shape of new shares among stockholders new or - old? I think the most ingenious financier could not imagine such a - proceeding, and, if this good will be not property capable of such - capitalization and distribution, I do not think it property capable - of capitalization as against the State. - - "Finally, this claim of good will seems to forget that for many - years the price and distribution of complainant's gas has been - regulated by law. A citizen is entitled to have a clean street - before his house because he pays taxes, _inter alia_, for that - purpose. He is much more plainly entitled to have complainant's gas - in his house because the company must give it to him if he pays for - it. I think it apparent that the conceivable good will of a gas - company in this city is about equal to that of the street-cleaning - department of the municipal government." - -Is a public service corporation entitled to add the value of its -franchise to the assets from which a fair return may lawfully be -demanded? This question is taken up and discussed exhaustively by the -Court (157 Fed., 872 to 879), and while it is clear in reading his -judgment that he does not believe it sound doctrine to invest a -franchise with value, yet, after citing a large number of cases, he -reaches the conclusion that he is "compelled" to consider franchises, -not only as property, but as productive and inherently valuable -property, and to add their value, if ascertainable, to complainant's -capital account before declaring the rate of return. - -This case went to the Supreme Court of the United States, where, under -the title Willcox _vs._ Consolidated Gas Company (212 U. S., 19), -citation is made to many cases in connection with the matter of -franchise value. The decision of the Court is: - - "The value of real estate and plant is to a considerable extent a - matter of opinion, and the same may be said of personal estate when - not based upon the actual cost of material and construction. - Deterioration of the value of the plant, mains, and pipes is also to - some extent based upon opinion. All these matters make questions of - value somewhat uncertain." - -The Supreme Court permitted the tangible values found by the lower Court -to stand. It concurred with the lower Court in that it was not a case -for a valuation of good will. It concurred with the lower Court in -holding that the company was entitled to the benefit of any increase in -tangible values, and that such increases should appear in the appraisal. -It did not agree with the Court in the increase of franchise value above -that which was capitalized in 1884, with the consent of the State of New -York, and reduced the franchise value figure to $7,781,000. On this -basis, the estimated return, under the new rate on the valuation of -$55,612,435, was 5½%, which rate, in view of all the circumstances, is -held to be not confiscatory and to be a not unreasonable return on the -investment. The franchise value, as commented on in these cases, is -referred to at considerable length in the following pages. - -On January 4th, 1909, the case of Knoxville _vs._ Water Company (212 U. -S., 1) was decided. This, in some respects, is of greater value to the -engineer than any others cited, in its determination of methods. In this -the appraisement of the tangible property was made in minute detail, the -sum of $10,000 was added for "organization, promotion, etc.," and -$60,000 for "going concern." - - "The latter sum we understand to be an expression of the added value - of the plant as a whole over the sum of the values of its component - parts, which is attached to it because it is in active and - successful operation and earning a return. We express no opinion as - to the propriety of these two items in the valuation of the plant - for the purpose for which it was valued in this case, but leave that - question to be considered when it necessarily arises. We assume - without deciding, that these items were properly added in this case. - This valuation was determined by the master by ascertaining what it - would cost to reproduce the existing plant as a new plant. The cost - of reproduction is one way of ascertaining the present value of a - plant like that of a water company, but that test would lead to - obviously incorrect results if the cost of reproduction is not - diminished by the depreciation which has come from age and use.... - The cost of reproduction is not always a fair measure of the present - value of a plant which has been in use for many years. The items - composing the plant depreciate in value from year to year in a - varying degree. Some pieces of property, like real estate for - instance, depreciate not at all, and sometimes, on the other hand, - appreciate. But the reservoirs, the mains, the service pipes, - structures upon real estate, stand-pipes, pumps, boilers, meters, - tools, and appliances of every kind begin to depreciate with more or - less rapidity from the moment of their first use. It is not easy to - fix at any given time the amount of depreciation of a plant whose - component parts are of different ages with different expectations of - life. But it is clear that some substantial allowance for - depreciation ought to have been made in this case. - - "The company's original case was based upon an elaborate analysis of - the cost of construction. To arrive at the present value of the - plant large deductions were made on account of the depreciation. - This depreciation was divided into complete depreciation and - incomplete depreciation. The complete depreciation represented that - part of the original plant which through destruction or obsolescence - had actually perished as useful property. The incomplete - depreciation represented the impairment in value of the parts of the - plant which remained in existence and were continued in use. It was - urgently contended that in fixing upon the value of the plant upon - which the company was entitled to earn a reasonable return, the - amounts of complete and incomplete depreciation should be added to - the present value of the surviving parts. The Court refused to - approve this method, and we think properly refused. A water plant - with all its additions begins to depreciate in value from the moment - of its use. Before coming to the question of profit at all the - company is entitled to earn a sufficient sum annually to provide not - only for current repairs but for making good the depreciation and - replacing the parts of the property when they come to the end of - their life. The company is not bound to see its property gradually - waste, without making provision out of earnings for its replacement. - It is entitled to see that from earnings the value of the property - invested is kept unimpaired, so that at the end of any given term of - years the original investment remains as it was at the beginning. It - is not only the right of the company to make such a provision but it - is its duty to its bond and stockholders, and, in the case of a - public service corporation at least, its plain duty to the public. - If a different course were pursued the only method of providing for - replacement of property which has ceased to be useful would be the - investment of new capital and the issue of new bonds or stock.... - If, however, a company fails to perform this plain duty and to exact - sufficient returns to keep the investment unimpaired, whether this - is the result of unwarranted dividends upon over issues of - securities, or of omission to exact proper prices for the output, - the fault is its own. When, therefore, a public regulation of its - prices comes under question, the true value of the property then - employed for the purpose of earning a return cannot be enhanced by a - consideration of the errors of the management which have been - committed in the past." - -The Court holds that there was error in only considering the operations -of the company for a period of one year, and that this should have -extended to enough time to remove danger of abnormal business conditions -and observe the effects of certain ordinances. - -The decision of the Supreme Court, in the Omaha Water-Works case, -decided on May 31st, 1910 (_Supreme Court Reporter_, July 1st, 1910), is -of general interest in its discussion of the procedure of appraisers in -making a water-works appraisal, and in the distinction drawn between -appraisals and arbitrations; but it does not touch on appraisal methods -or elements of value, except to discuss "going values." The language of -Judge Lurton on this point is as follows: - - "The option to purchase excluded any value on account of unexpired - franchise, but it did not limit the value to the bare bones of the - plant, its physical properties, such as its lands, its machinery, - its water-pipes or settling reservoirs, nor to what it would take to - reproduce each of its physical features. The value, in equity and - justice, must include whatever is contributed by the fact of the - connection of the items making a complete and operating plant. - - "The difference between a dead plant and a live one is a real value, - and is independent of any franchise to go on, or any mere good will - as between such a plant and its customers. That kind of good will, - as suggested in Willcox _vs._ Consolidated Gas Company (212 U. S., - 19), is of little or no commercial value when the business is, as - here, a natural monopoly, with which the customer must deal, whether - he will or not. That there is a difference between even the cost of - duplication, less depreciation, of the elements making up the water - company plant and the commercial value of the business as a going - concern is evident. Such an allowance was upheld in National Water - Works Company _vs._ Kansas City (62 Fed., 853), where the opinion - was by Mr. Justice Brewer. [This decision is quoted in the foregoing - pages.] We can add nothing to the reasoning of the learned Justice, - and shall not try to. That case has been approved and followed in - Gloucester Water Supply Company _vs._ Gloucester (179 Mass., 365, - and 60 N. E., 977), and Norwich Gas and Electric Company _vs._ - Norwich (76 Conn., 565). No such question was considered in - Knoxville Water Company (212 U. S., 1) or in Willcox _vs._ - Consolidated Gas Company (212 U. S., 19). Both cases were rate cases - and did not concern the ascertainment of value under contracts of - sale." - -The writer does not read into the language of this decision an approval -of a separate element of value to be called "going concern value" or -"going value" in addition to other non-physical values, but rather a -recognition of the fact that certain non-physical elements of value, by -whatever name they may be called, must be taken into account in arriving -at the fair and equitable final figure of value of a live and operating -concern for the purpose of carrying out a contract of sale. - -It appears to be doubtful whether the Court can be construed as -approving such an element of value in rate cases. - -It thus appears that the United States Courts have laid down a few -rules, which may be regarded as fixed and definite and must be followed, -but that many important questions have not yet been decided. The value -to be determined must be a "fair value" of the property being used for -the convenience of the public. The par value of stocks and bonds may not -alone be considered (although it may be considered), the market value of -stocks and bonds, original cost plus cost of additions, the probable -earning capacity, the cost of reproduction, depreciation, appreciation, -all these, and any others that will throw light on the "fair value" must -be taken into account and given the weight to which they are entitled. -Any fictitious book values due to over-issues of stock and bonds are to -be given no weight, but the appraisal must give the fair value, in the -light of all the facts, of the property in actual use at the time of the -appraisal. - -There are several decisions of the State Supreme Courts which discuss -these subjects, but an examination of a number of these gives -practically nothing more, in the way of definite conclusions as to -method, than has been cited. Perhaps the most complete and painstaking -consideration of appraisal problems by any Court was that given by Judge -Savage of the Supreme Court of Maine (97 Maine, 185, and 99 Maine, 371). -These were neither rate cases nor taxation cases, but proceedings under -statute to require from the Court instructions to a board of appraisers -appointed to value the plants. In the later or Brunswick case, Judge -Savage elucidates a number of points left not altogether clear in the -Waterville case. The Brunswick decision contains some interesting views -on "going value," and the Court's remarks on the general difficulties in -making rules for an appraisement are exactly to the point: - - "There are many difficulties, if not dangers, in attempting to - formulate rules which are to be applied to facts not yet - ascertained. While it may be easy enough to state rules in the - abstract, it is much more satisfactory in an opinion of the court, - to express them in terms which are applicable to the facts in the - precise case in hand.... It must be always understood that our - answers to these questions are intended to be given only in the most - general and comprehensive terms, which may, or may not, be found to - be fitted to the facts which may subsequently be developed. No other - course would be wise or safe.... A public service property may or - may not have a value independent of the amount of rates, which for - the time being may be changed. A public service company may, under - some circumstances, be required to perform its services at rates - prohibitive of a fair return to its stockholders, considering their - property as an investment merely.... - - "Now, what is the property which the district has taken by power of - eminent domain? In the first place it is a structure, pure and - simple, consisting of pipes, pumps, engines, land rights, and water - rights. As a structure, it has value independent of any use, or - right to use, where it is, a value probably much less than it cost, - unless it can be used where it is, that is, unless there is a right - to use it. Nevertheless, it has value as a structure. But, more than - this, it is a structure in actual use, a use remunerative to some - extent. It has customers, it is actually engaged in business, it is - a going concern. The value of the structure is enhanced by the fact - that it is used in, and in fact is essential to, a going concern - business. We speak sometimes of a going concern value as if it is, - or could be, separate and distinct from structure value—so much for - structure and so much for going concern. But this is not an accurate - statement. The going concern part of it has no existence except as a - characteristic of the structure. If no structure, no going concern. - If a structure in use, it is a structure whose value is affected by - the fact that it is in use. There is only one value. It is the value - of the structure as being used. That is all there is of it." - -The Court then argues that, as the structure is being used under -authority and by virtue of franchises, it is more valuable. The -franchise, however, is limited; other and competing franchises may be -granted; a franchise may exist entirely independent of a structure. He -holds that the structure is more valuable with the franchise. - - "It is a structure in actual use, and with a right on the part of - the owner to use it and to charge reasonable rates to customers for - services rendered. It is threefold in discussion but it is single in - substance." - -This case is largely taken up with a discussion of the reasonableness of -rates which furnish a basis for the estimate of value. There is no -specific attempt to describe methods of procedure. That is left to the -appraisers. These two Maine Cases, together with a valuable paper[17] -thereon by Leonard Metcalf, M. Am. Soc. C. E., constitute an extremely -valuable addition to the literature of appraisements. - -It is clear, from a study of all the cases referred to in this paper, -that the Courts have laid down a line of precedent which is equitable -and just, that the interests of both public and corporations will be -safeguarded, and that the likelihood of any unfair or improper -valuations passing the scrutiny of the Supreme Court is but remote. - ------ - -Footnote 17: - - _Transactions_, Am. Soc. C. E., Vol. LXIV, p. 1. - - - - - PHYSICAL VALUES AND METHODS FOR THEIR DETERMINATION. - - -All the foregoing narrative of methods adopted in recent valuations, -review of judicial opinions, and comment on the expressed opinions of -various engineers and railway officials, is presented as being proper -and necessary to support the contention that the Michigan valuation, -while not the first appraisal work, was the first valuation work of -large magnitude undertaken by any State; that it was a work which -established many precedents; and that the complete discussion of methods -and principles in connection with and following this appraisal has given -it probably a greater general value than any similar undertaking. The -Wisconsin work, which immediately followed that of Michigan, was along -lines similar to those of the Michigan physical valuation, and carried -the work forward, adding to and strengthening certain of its features. -Without any impropriety, it may be claimed that these two appraisals -have laid down the general lines on which this class of engineering -effort will be largely directed in the future. - -It is desirable, in closing this paper, to indicate such general methods -of procedure in valuation practice as may be said to have been -thoroughly established by precedent, and to present such argument as -will support the contention that such methods are proper. - -The fact has been emphasized, again and again, by every writer on the -subject, that problems of this class are not capable of exact -mathematical solution; that, no matter how much care may be exercised in -the execution of the work, the result is tempered by the personal -judgment of the men engaged on it, and that only when it is executed by -men of experience, sound judgment, and high moral worth can it have a -definite, final, and just result. - -This feature of appraisal work cannot be too strongly emphasized. The -value of the work depends on the character of the men doing it, their -experience in design, construction, and operation of properties, and -their absolute fairness and freedom from prejudice. - -That there will be many large valuations undertaken in the near future, -there appears to be no doubt. These valuations will be made as a -necessary preliminary to three classes of corporate control: -rate-making, taxation, and the regulation of capitalization. - -The Courts hold that the value must be "the fair value of the property -used for the public," and that the corporation: - - "may not impose upon the public the burden of such increased rates - as may be required for the purpose of realizing profits upon [such] - excessive valuation or fictitious capitalization." (Smyth _vs._ - Ames.) - -This language is repeated, again and again, so that it is clear that any -valuation, to be sustained by the Courts, should: - -_1._—Be based on a careful study and analysis of all the information -applicable to the case in hand; and - -_2._—That it must separate the various elements so that every step of -the work may be reviewed and supported. - -Public interest demands that, in any valuation, certain figures shall -appear which shall show the amount of _bona fide_ capital actually -existing in the property at the date of appraisal. - -The fact that a given amount of money was invested in building a -railroad in 1880, and that certain other sums were spent for additions -in subsequent years, does not necessarily indicate that these amounts of -capital will still be found in the property in 1910. - -The removal of timber from surrounding lands, the destruction of -industries and the removal of tracks leading thereto, the destruction of -equipment and facilities, the depreciation in value of adjacent -property, along with wear and tear, and obsolescence, have gone to -effect the destruction or loss of capital on many Michigan railroads. -The case in 212 U. S., 1, clearly directs that the valuation must not -take into account this destroyed capital, but must return a "fair value -of the property as it is." - -On the other hand, the amount of money actually spent in producing a -given property in the past may be far below the present value. The -appreciation of value of lands by reason of development of cities and -growth of industries, the increase in cost of the materials entering its -construction, and many other causes, may lead to an appreciation of the -value of the property, and this appreciation should appear in the -valuation and the company be entitled to the benefit of it. It is in the -nature of an increase of the investment, and should appear as capital. - -It is clear that there are two classes of elements of value in the final -value of a public service property: those which are physical, and those -which are intangible. There are various of the physical elements of -value which are not material or susceptible of inventory, but which, -nevertheless, attach themselves to the physical property, are capable of -determination, within reasonable limits of certainty, and should be -taken into account and computed as physical property. - -In the subsequent discussion of physical and intangible values, it is -attempted to differentiate between such elements as should attach to the -physical value, or capital remaining in the plant, and the purely -intangible or franchise values. - -It is contended by the writer: - -That the Physical Value, or present value of the physical property, -should fairly represent the actual capital invested in the property at -the date of appraisal; that it should be made up of the sum of the -various elements which constitute the cost of reproducing the property -together with any appreciation which may have been added to any of them, -less all depreciation. - -That the Non-Physical Value is the difference between the "fair value" -as defined by the Courts, or the reasonable value of the property as a -business or producing property, and the physical value, or actual -present worth; and that the only proper method for determining such -values involves a study of income accounts. - -This Non-Physical Value may be: positive, or a value in excess of the -physical property, or negative, or less than the physical value. In the -case of a property having a negative intangible value, a deduction -should be made from the physical value. - -It is further contended that, in making the physical appraisal, the -purpose of the appraisal should not be permitted to modify the figures. -The resultant figure should be the same, whether it is to be used as a -basis for assessment, rate-making, or limitation of capitalization. It -should be an engineering estimate of the amount of _bona fide_ capital -still remaining in the property, or of the complete cost of reproduction -under existing conditions, less depreciation. This figure is definite, -within reasonable limits, and it cannot be conceded that it is -permissible to vary it, submitting one result as a physical value for -taxation, and another and different result as a present physical -valuation for rate-making. - -There may be some question as to the propriety of using non-physical -values for certain ultimate ends; in fact, the Supreme Court, in the -Omaha and Knoxville water cases, clearly indicates that they must not be -used for certain purposes; but, in any case, to furnish information, -this element of value should be determined, and, as in the case of -physical values, it should be an unchangeable figure[18] and should -represent the difference between the worth of the actual physical -property and the final business value of the property considered as an -earning proposition. - -It is not necessary to go minutely into detail as to the various steps -to be taken in making the appraisal of physical property. Each appraisal -will offer some problems peculiar to itself, and no general set of rules -can be laid down which will be applicable to all cases. It is deemed -sufficient to call attention to general matters of major importance and -to refer to some points which have not been mentioned in the preceding -narrative, omitting argument in the case of such as have there been -fully discussed. - -The distinction should be kept in mind that any element of value which -belongs to the property by reason of its physical existence is classed -as an element of physical value. The property is considered as an -operating property in the sense that it is reproduced complete, ready to -operate; and any expense, or any element of value needed to complete it, -is an element of the physical value, but any value arising as a result -of surplus earning power, any good-will value, going-concern value, or -value due to established business, strategic location, favorable traffic -arrangements, etc., should be considered as intangible values. - -The valuation of physical property is naturally divided into four parts: - - I. —The preliminary study, - - II. —The field inspection, - - III. —The computation, - - IV. —The preparation of the final figure. - - - I.—The Preliminary Study. - -The preliminary steps should include a general examination of the -property, a study of its corporate history, an examination of its -records, maps and profiles, and the preparation of an inventory of its -property. - -The work in Wisconsin and Minnesota was done in co-operation with the -railroad companies, who prepared (generally, but not in every case) -their own inventories on forms adopted by the appraiser. In Michigan, -all this information was secured by the appraiser. There can certainly -be no valid objection to the use of information compiled by the -companies, whose familiarity with their own records and property would -enable them to supply lists which under all ordinary conditions would be -more complete and up-to-date than if made up by men having no special -knowledge of the property. - -The chief difficulty encountered in making an inventory from recorded -data lies in the fact that very few sets of records are corrected to -date, and many additions and erasures will of necessity have to be made -in the field. - -In making a field inspection, it is of great assistance to be able to -refer to maps of large yards, to profiles, to standard plans, and to -drawings of the principal structures, so that the investigation of -office records should include a careful examination of the maps of -principal terminals, with a view to securing such as will simplify the -field inspection. The investigation should be extended to cover a study, -not only of the engineering office data, but also statistical data to be -derived from the records of the auditor, superintendent, and -superintendent of motive power, and should cover earnings, operating -expenses, car and locomotive mileage, and such other data as will -facilitate the distribution of such elements of value as are not -localized, together with such other statistics as will furnish a -thorough knowledge of the property and its operations. - -It has been claimed by the appraiser in Washington—and the view is also -held by the Commissioner of Railroads in Nebraska—that original cost is -essential, in view of the Supreme Court's decision, particularly in -Smyth _vs._ Ames. The writer cannot accept the correctness of this -position. It would appear that the language of the Court should be -construed to mean that original cost, where ascertainable, is a proper -matter to take into account, along with many other things; but it can -hardly be considered mandatory. - -In the case of a property only recently built, in which the records are -complete and the engineering and construction files are available, it -may not be specially difficult to determine cost, but in the case of any -of the large railway systems of the United States, which are made up of -the consolidation of many different roads, some of them built many years -ago, some of them having gone through many changes of management, -reorganization, and earlier consolidation, it is practically impossible -to secure either the old financial books or the old construction -records, and without these complete records it would appear to be an -utter impossibility to secure the primary cost. Primary cost is but the -first step. The work of building up, by securing the amount of additions -and betterments that have been made from year to year, is one of -appalling magnitude and of utter uncertainty and conjecture. Keeping in -mind that, prior to July 1st, 1907, the railroad companies of the -country did not have a system of uniform accounting, and that additions -to property were charged to operating expenses to the extent of hundreds -of millions of dollars; that policies were different on different roads, -and under different managements of the same road, and that the -accounting methods were determined by the policy of the road or -management; and the further fact that the distribution of ordinary -railroad accounts may be extremely reliable on one road and abounding -with errors on another; it will be seen that any attempt to depend on -the auditor's office for anything approximating a complete statement of -cost would lead into a maze of figures which would be confusing, -unreliable, and incapable of proof. - -Therefore, it is the writer's conclusion that, beyond such figures on -recent construction, or records of cost of such special structures as -are matters of particular record, it is not advisable to attempt to -secure complete data as to the cost to date of a railroad. In the -Michigan appraisal, original cost was secured in the case of many -structures, notably the Port Huron Tunnel, and it is by no means argued -that original cost should not be considered, or investigated, but it is -held that such an undertaking as to secure, from the financial books of -the company, an accurate or reliable statement of construction cost, -plus additions and betterments, less property destroyed, of the Michigan -Central Railroad, for example, would be absolutely an impossibility, -particularly if the work was to be undertaken, as in the Washington -appraisal, by men who were utter strangers to the property. The -admission of the appraiser of Washington, that, except for a few gaps, -the information was complete, is fatal, as the gaps must needs be filled -by estimates, and it would appear to be better to depend on estimated -figures throughout than to use what purported to be actual costs on part -and estimates on the remainder. - -If original cost is essential, it is hard to get away from accepting the -book values of the companies, as these, objectionable as they may be, -from the viewpoint of the public, are just as apt to be as near the -actual truth as any statement made up by strangers from an examination -of old records covering many years of operation. - - - II.—The Field Inspection. - -The field inspection, to be of the greatest value, should be made by -civil or mechanical engineers of long experience, preferably by men who -have had charge of their respective departments on railroads of -considerable extent, or of properties similar to that under -investigation. The writer is of the opinion that in this particular -phase of the work, the practice adopted in the Michigan appraisal was -considerably in advance of more recent valuations. Each particular -structure or piece of equipment should be examined and its condition -noted; special features should be fully described and careful record -made of everything that would tend to affect the value. The argument has -been often made that the fixing of a percentage of depreciation by a man -in the field is purely arbitrary and amounts to nothing but a guess. In -the computing office it is often necessary to check the field figure of -depreciation by the use of tables of fixed annual depreciation, but it -must be borne in mind that mortality tables of any form are based on a -system of averages. The actual depreciation on rail, for instance, -varies greatly; the conditions of traffic, curvature, gradient, rolling -stock, and various local conditions tend to shorten or lengthen the -life, so that the personal opinion of an experienced man on the ground -is likely to be much more nearly correct than the arbitrary application -of a rule of averages. - -The writer has inspected station buildings more than 50 years old, and -their condition and adaptability for the service required of them would -give them a very high percentage; he is also familiar with buildings -less than 10 years old, which, by reason of changed traffic conditions -and consequent shifting of business, have become obsolete and have been -permitted to depreciate so rapidly that any table average would give too -high a result. - -In the case of a water-works inspection, so much of the value is -included in the system of distribution mains, a form of property which -is inaccessible, that much more dependence must be placed on a figure -based on age; but there, also, as full investigation as possible should -be made, in order to determine to what extent tuberculation or -electrolysis has affected the pipes. - -A general inspection (made in Minnesota by the appraiser with two -assistants) would appear to be an excellent thing as a review of the -whole work, but whether such an inspection would be sufficiently -thorough to base thereon a set of final values, would appear to be -doubtful. - -The inspection in the field, in addition to the placing of a percentage -for depreciation, should involve a complete check of the inventory, a -correction of all errors, due to the construction of new property or the -destruction or removal of old, and a compilation of all information -required for a complete, correct, and intelligent appraisal of the -physical property by the computing office. Every appraisal is different, -and every property offers new problems and diverse conditions. These -must be met, and therefore the field inspector must call particular -attention to all matters specially affecting the values of the property -he is inspecting. - -It is impossible to anticipate all these conditions in advance, although -the use of carefully prepared blanks and the standardizing of the form -in which the data are gathered greatly simplify the work, not only in -the office, but in the field. - - - III. The Computation. - -On the completion of the field work, with all the preliminary data in -the office, the computation must proceed, and with this part of the work -there are many questions which must be taken up, considered, and -definitely answered. - -The classification and arrangement of the information as to the property -to be valued, the costs and prices of the various materials entering -into construction, the making and checking of such tables as may be -required for estimating, the computing, checking, filing, indexing, and -the various other routine details of work need not be referred to -specially, as they must be worked out for each appraisal. The matters of -principle that will be met are more important, and, while it would be -impossible to mention all that may come up, it may not be amiss to refer -to a few. - -(_a_) In making an appraisal of several properties, to what extent shall -these properties be grouped or classified? - -(_b_) What unit prices shall be assigned in the estimates of cost of -reproduction, and how shall they be determined? - -(_c_) How shall right-of-way and real estate values be ascertained? -Shall such elements as appreciation, or any increments due to the -purpose for which the land is used, be treated as physical or -non-physical values? - -(_d_) What method shall be finally adopted in determining depreciation? -What elements shall depreciation be made to cover? - -(_e_) What elements of cost or appreciation shall be treated as parts of -the physical property although not capable of inventory, and what shall -be treated as non-physical? - -(_f_) Is an allowance for contingencies a proper item to include in an -appraisal? - -(_g_) What weight shall be given the matters of adaptability, proper or -improper design, and the economics of location? - -(_h_) How shall the values of such property as locomotives, cars, etc., -be geographically assigned? - -(_i_) What is the effect upon values of large terminals? - -(_j_) Should an allowance be made by reason of rapid development of the -art? - -These are not by any means all the perplexing questions that arise; each -valuation offers some that are special, but these cover the more -important points. - -(_a_) _Classification of Properties._—In making an appraisal involving -the properties of a large number of companies, such for instance as any -of the State railroad appraisals, it becomes evident that there are -certain properties which are small, badly run down, and either built to -serve a very limited trade or located in a territory which has not -developed, and that such properties cannot be compared equitably with -the large trunk-line roads, or even with smaller roads in a good -territory and doing a good business. Several such properties exist in -Michigan in a district which was originally a lumber-producing country, -and at the time they were built local conditions were such that prices -of timber and labor were far below any cost that it would be reasonable -to assume to-day. Whether taxation or rate-making be the ultimate end of -the work, it is certain that these carriers are entitled to some -classification which will separate them from the more prosperous roads. -Many of these roads would not be built to-day under any circumstances, -yet their maintenance and continued operation is absolutely essential to -the people of the district served by them. - -Whether this classification should be undertaken at the time of making -the appraisal of physical property, and an attempt be made to classify -unit prices, or whether this should be taken up in connection with the -intangible values, and solved, as far as the valuation is concerned, by -the adoption of such a method as will affect these physical values by a -subtractive or negative non-physical value, or whether the entire matter -should be left for the subsequent work of rate-making or assessment, is -one which must be determined at the outset of the physical valuation. It -may not be left without determination, as the question will be raised in -all probability in the form of an attack on the valuation, if it is not -considered and a conclusion reached. - -It is the writer's opinion that the application of an intangible -subtractive value is the proper solution, except in the case of roads -which would not to-day be rebuilt. In fixing a uniform price for -identically the same labor or material, whether on a small -poverty-stricken road or a main trunk line, no serious injustice is -done, provided the price fixed is one which, from a strictly engineering -standpoint, is a reasonable figure for cost of reproduction. The -differences in class are due, not to special differences in cost of -physical property, but rather to differences in earning ability on -account of good or poor territory served, efficient or inefficient -management, or other reasons not connected with the physical structure; -hence such differences are reflected in the earnings, and are clearly -elements to be adjusted in the non-physical valuation. - -(_b_) _Unit Values._—The general reliability of the appraisal rests very -largely on the reasonableness and fairness of the various prices which -are applied to the different parts of the property in making the -estimate of cost of reproduction. These unit prices should be determined -before any actual figures are made. They should be made up from the most -complete data available, and, before being tabulated, should be -carefully reviewed by all the experienced men engaged on the appraisal, -in order that no figure which is either too high or too low may be used. - -As a basis, the average of either 5 or 10 years should be used in -preference to current prices on all such material and equipment as is -fairly stable. Rail, and all forms of rail structures, machinery, -locomotives, cars, etc., can be reduced to such a unit that averages can -be secured which will eliminate the error due to a period of extreme -high or low prices. - -In the case of such materials as lumber and ties, the price of which has -been steadily rising, due to the growing scarcity of the material, a -price based upon a long average is unfair to the corporation, and it -would appear to be proper to use current prices. There can be no -hard-and-fast rule which will be applicable to all appraisals. The unit -prices must be such reasonable figures as can be sustained in Court. -Their adoption should not be final until every possible test of their -accuracy and reasonableness has been made. When they have been adopted, -and such modification made as may be fair for certain territory, on -account of local conditions, transportation facilities, or other -consideration which may affect them, the adopted figures should be -applied to all property alike. The use of different unit figures for -different roads in the same territory is highly undesirable, and should -be avoided. - -(_c_) _Right of Way and Real Estate._—The valuation work which has been -accomplished during the past decade, and the study of values for -taxation and rate-making, have brought into prominence the perplexing -features of land values as applied to corporation property. It is -comparatively simple to fix within very close limits the reproduction -cost of tracks, bridges, locomotives, or any of the other elements of -physical structure. Not so with the land. A few years' development may -change farm land right of way into city right of way, surrounded by -factories, or it may change desirable residential property adjacent to a -road into slums. - -In view of the clear language of the Court in 82 Fed., 839, and 157 -Fed., 849, it is evident that any valuation which does not take into -account the appreciation or depreciation of land values cannot be -sustained. There can be no serious objection to the doctrine that the -property of a corporation generally increases or decreases in value in -the same proportion as adjacent property, and it must therefore be -admitted that a value based on the sale value of adjacent lands is a -reasonable one and must stand. This reasoning, of course, will be -subject to exceptions, in the case of terminal properties, docks and -water-front properties, and right of way in large cities, but it is -believed to be sound when applied to right of way in the country and in -small towns and cities. - -The next question to be determined is whether the increment of value due -to the use of the land is a proper one. It would appear that in the use -of land for water-works, gas-works, street-car barns, or other isolated -tracts of land used for corporation purposes, this increment would be -much less than in the case of a steam or interurban railroad, the -holdings of which form a continuous and unbroken strip; and, in the case -of street railroads, water-works, and like properties, it would be -indeed difficult to compute and afterward sustain any considerable -increment. - -In the case of railway properties, however, it is quite evident that the -following facts can be sustained: The actual cost of property purchased -for railway purposes will range from two and one-half to five times the -selling price of similar and adjacent property used for other purposes. -While the actual percentage will vary somewhat, as between land in -cities and in the country, and as between fully settled districts well -served by roads and sparsely populated regions, yet the difference is -very marked, and is capable of determination by an examination of the -public records. - -This difference can be determined either by a comparison of railway -purchases and other transfers, as was done in the later studies in -Michigan and in Wisconsin, or by extending the investigation to include -assessed valuations, and using the averages, as was done in the work of -Mr. Morgan in Minnesota. - -In establishing figures for use in a valuation, it would appear to be -better to base them on an analysis of actual transfers than to undertake -to fix values by any methods of examination and personal appraisal. -Enough instances of the wide divergence of expert opinion have been -cited to show conclusively that such a method, applied to the thousands -of acres of a large corporation, may lead to serious error. - -A single attorney or real estate man who has had experience in -abstracting and conveyancing, and who has bought some right of way, can -examine the records of an average county the largest city in which has a -population of 20,000 or less, abstract all railway transfers for 5 -years, locate them on the maps, secure data as to actual selling prices -of near-by lands, and, in a comparatively short time, be in position to -furnish figures which will establish the relation between sales for -railway and other purposes in that county. The work that half a dozen -such men could do in 90 days would go very far toward establishing with -a fair degree of definiteness the value of the railway purpose increment -for the majority of counties in any average State. Of course, such an -investigation in the large cities is a matter of much greater labor, and -would require sufficient time to make complete examinations, probably -necessitating a special force for such city work. - -On every appraisal, the question has been asked, should this railway -purpose increment be added to the value of the property? Clearly, yes. - -The Supreme Court quotes approvingly from the Tennessee Court, as -follows (151 U. S., 479): - - "The value of the land depends largely upon the use to which it is - put and the character of the improvements upon it." - -This is stated again and again. It must be remembered that, for railroad -uses, the strip must be continuous; that it must be located so as to -permit curves and grades which conform to the requirements of the road; -that, no matter what damages may accrue to adjacent property, the road -must take its strip; that its use is entirely changed and is a structure -placed on it which is capable of vastly greater earnings than the -property produced before—all these elements add to the cost of the -property when it is acquired for railway purposes, and in the same -measure to its value under its new use. - -In a new country, where transportation facilities are limited and land -cheap, this added increment may be little or nothing, but in a thickly -settled State, with many railroads, this element will increase with a -good degree of uniformity; while, in terminals, the price rises to -almost inconceivable figures. It is capable of being determined, and is -clearly an element in the cost of reproduction. The writer holds to the -view that it is properly to be placed with the physical values, and that -it should not be considered as an intangible element of value. - -(_d_) _Depreciation._—Thus far, this discussion has not dealt at length -with the subject of depreciation, and it is not considered essential to -the purposes of this paper that it be done. The State appraisals have -raised a question as to the propriety of using mortality or life tables -as compared with personal inspection and the placing of a percentage -based on individual judgment. Either method is subject to error. It is -certainly desirable to secure the opinion of the man who inspects a -bridge, or building, or locomotive, as to its physical condition. It may -be desirable to use the check secured by the fact that the age of the -building is known and also the average life of structures of its class. - -The result of the Michigan inspection of rolling stock was to sustain -fully the rules for valuation issued by the Master Car Builders -Association; and clearly, it is not only proper, but extremely -desirable, to apply tables to such equipment as freight cars, which are -scattered all over the United States, for it would be absolutely -impossible to inspect completely those of any road or system. On the -other hand, the life of steel rails cannot be determined by any simple -table, because the number of car movements, the weight of motive power, -the speed of trains, the location (on curves or on heavy grades), and -many other conditions affect their life. This also pertains to -buildings, locomotives, and other equipment. The character of service -rendered, the nature and extent of repairs, and the way in which they -have been maintained, add to or take away from any life assigned by -tables, so as to render them valueless in many individual instances. - -In placing depreciation, allowance should be made, not only for wear and -tear due to use, and decay due to the elements, but also to cover that -which is due to obsolescence, or the fact that the facility is of an -antiquated or inefficient type, and has been superseded in general use -by more efficient and economical devices; this may be called commercial -depreciation, as distinguished from physical depreciation. The method to -be used in placing depreciation is clearly one of the important things -that must be determined by each set of appraisers, and, while the writer -believes that the use of expectancy tables would greatly facilitate the -work in many cases, the data on which to found a complete set of tables -and to support them and justify their use are often lacking; therefore, -any use of tables should be safeguarded in every possible manner, and -personal inspection of fixed property should always be made. - -(_e_) _Immaterial Elements of Physical Property._—There are certain -expenses, inseparable from the construction of any public works, which -are a necessary and proper part of the cost, and are arranged for in the -original financing, but are not capable of identification after the -completion of construction work. These expenses are: - - (1) Organization, - - (2) Legal expenses, - - (3) Engineering, - - (4) Administration, - - (5) General expense. - -(1) Organization.—This includes the cost of the original organization of -the company, the cost of securing the charter and franchises, arranging -the financial plan, and securing the funds for construction. - -The latter item is intended to include all salaries and expenses of -officials in soliciting and negotiating for funds, the services of -trustees, and all other proper expenses which are usual and unavoidable -in the process of exploiting a projected enterprise and interesting -capital therein. Discount on bonds is not included, and any allowances -for "premium," or "bonus," or other cash payment to any party for -services in securing funds, which are in excess of legitimate expenses, -should receive scant consideration at the hands of appraisers. - -(2) Legal Expense.—This is for attorneys and all legal expenses, costs, -and fees in the organization and during the construction of the -property. - -(3) Engineering.—This includes reconnaissance, preliminary and location -surveys, supervision of construction, and design and superintendence of -special structures. The cost of engineering on some of the more -difficult properties becomes a very large sum; on certain small lines it -may be comparatively small; and in some cases no engineers have been -employed at all; but the items of cost covered by this charge have in -every case been expended, even if done under the direction of some -superintendent. - -(4) Administration.—This comprises the cost of the management during -construction—the direction of the enterprise. - -(5) General Expense.—This is the cost of the general office organization -during the construction period, also numerous minor expenses, not -distributable. - -It is not possible to build any public service plant without incurring -all these expenses to a greater or less degree. They are essential -elements of cost, and must go into the value of the plant when -completed. It can hardly be argued that cost, which in a large property -runs into thousands or hundreds of thousands of dollars, has no value at -the commencement of operation, nor does it appear that the value is -subject to depreciation as long as the property is an operating plant. -The writer holds the view that the line between physical and -non-physical elements of value should be drawn as follows: - -Any value which attaches to the property by reason of any money expended -during the construction is part of the physical property values; while -any value due to the operation of the property which is in excess of the -physical value is a non-physical or intangible element. If the -correctness of this position be conceded, then all the foregoing items -are charges against the physical property, and, as long as it is an -operating property, these items of value remain part of the physical -property, and the writer contends that they should not be considered as -affected by depreciation, as long as the property is a going concern. - -Different engineers have included in the appraisal other items which are -of a somewhat different nature, and some of which are open to argument; -among these are "interest during construction." This item is clearly an -allowable one, but serious differences of opinion develop as to a proper -amount to allow in making an appraisal. - -The corporate history of the Ann Arbor Railroad, in Michigan, shows that -it was built in sections of from 25 to 30 miles, and that each section -was put into operation as soon as built, so that, while the actual -period of construction of the complete property extended over 15 years, -no section was under construction much more than one year. This is -typical of much of the railroad building of the past, and on such a -property the interest charge would be comparatively small. - -A proper charge in such a case would clearly not be sufficient in the -case of a road several hundred miles in length, through mountains, with -tunnels, heavy bridges, and other structures which would extend the -actual construction over periods of from 3 to 5 or 6 years, and this is -particularly true where the road is a main line or artery, and where -local traffic is of minor importance. - -The computation of the interest charge is complicated by the fact that -interest begins to run as the bonds are taken up, and but a small part -of the construction money draws interest during the whole period. - -The practice in the State appraisals has been to fix a uniform -percentage for all properties. This has had in its favor the argument -that it was conservative valuation where taxation is the ultimate end, -as the amount was less than one year's interest in every case. It would -appear to be more correct to use the corporate history of each company, -determine the actual construction periods, and use a rate based on the -actual time in each case. This can be fixed with a fair degree of -accuracy, and a reasonable percentage determined, to equalize the -varying periods of time on which the interest runs on different parts of -construction. - -Discount.—Discount on bonds is claimed by certain railroad men as a -proper item for consideration. As has been argued elsewhere, this is not -a proper charge against capital. It is an adjustment of the interest -rate to the market, or an advance payment of interest; and, in the -writer's opinion, should under no consideration be allowed. - -Working Capital.—Working capital is another item claimed and conceded in -some valuations. It is not a part of the "cost of construction." The -money provided for working capital at the outset is not a permanent -investment, but is rather a temporary loan paid back out of earnings. -The writer fails to perceive any possible argument in favor of adding -such an item to the permanent value of the property. In making an -appraisal, after the physical value is determined, it is usual to set up -a statement of stores, supplies, fuel, and cash on hand, and working -capital is certainly shown by the current balance sheet, in the form of -cash or accounts receivable. It would appear to have no place in a -physical appraisal. Although the items of cash, stores, and supplies -were shown in the Michigan appraisal, they did not appear as part of the -physical value, nor were they taken into account in computing intangible -value, but, being taxable property, they were reported separately. - -(_f_) _Contingencies._—The use of a percentage for contingencies in the -appraisal in Michigan was bitterly contested by the railroads as -improper and excessive. In Michigan 10% was used, in Wisconsin 5½%, and -in Minnesota 5 per cent. - -Subsequent work in Michigan has demonstrated that the use of as high a -figure as 10% was fully justified; and the probability is that the -latest Michigan appraisal did not eliminate omissions, inaccuracies of -description, and excess cost of construction due to difficulties, to -such an extent as to justify much reduction in the percentage. - -In making an appraisal, the percentage to be applied to cover -contingencies is a proper matter for consideration, and in some cases -conditions might well be such that even a smaller allowance than that -fixed in Minnesota would be proper, but such cases would doubtless be -the exception. The writer believes it to be proper practice to add -liberally for the contingency item. The strongest argument against it is -that it is incapable of being described and located definitely, and is -difficult of exact proof. Therefore it has been claimed that it partakes -of the nature of a non-physical element, and that if there be any value -over and above the physical property value, it will appear with other -non-physical elements reflected in the earnings, and may be properly -included in the intangible value if such exists. This argument does not -appeal to the writer as being final, and he would advocate the use of -such a percentage of physical values as appears proper in each appraisal -to cover the error due to the extreme difficulty of securing an exact -inventory and construction history of the properties. - -(_g_) _Design._—Among the matters which were considered in the Michigan -work was that of adaptability, or the economical questions of location, -design, and construction. It is possible that in some properties, such -as water, gas or electric companies, the efficiency of the plant may be -very greatly affected by faulty design, uneconomical arrangement, -improper construction, and to such an extent that any cost of -reproduction, less any ordinary depreciation, would be greatly in error -without further allowance. This may also be true of railroads. Excessive -curvature and gradients greatly decrease the tonnage hauled by a given -power, without decreasing the cost per train-mile. - -It is extremely difficult to treat this as a physical element. It is -impossible to reduce it to terms of dollars and cents by any usual or -customary methods. It is impossible to separate it from any one of half -a dozen other items that may be brought up. It opens the door to endless -speculation as to what might or might not take place under somewhat -different conditions. For these reasons, it was treated in the Michigan -appraisal as a non-physical element of value and dismissed from all -consideration in the physical appraisal. This was clearly proper, and -the subject is only referred to here for the purpose of making clear -that it was fully studied and a definite conclusion reached. - -Adaptation.—In the sense that this term is used by Mr. Williams and Mr. -Morgan, the appreciation or solidification of roadbed was considered in -the Michigan work, but given no place in the appraisal. This is a very -proper item to consider, but it would appear to be better to include it -directly with the roadbed item in the physical appraisal as appreciation -or solidification. There can be no reasonable objection to adding to the -contract prices for grading, ballasting, etc., a reasonable amount to -cover, not so much the seasoning and settling of the new roadbed, as the -actual money disbursed in work on this new roadbed during the first 3 or -4 years of operation in order to bring it up to the proper operating -condition. A very considerable part of the money spent on "maintenance -of track" for the first few years after a new line is built is in -reality deferred construction cost. - -(_h_) _Apportionment of Values._—The apportionment of values of -locomotives, cars, miscellaneous equipment, shops, and those other parts -of the cost which are not susceptible of separation from the operation -of the property as a whole, is an interesting and at times a perplexing -problem. While the Courts have viewed as equitable the distribution of -values between territorial units when made on a track-mileage basis, it -is hardly likely that a Court would look with favor on an appraiser -appointed by Michigan giving any consideration to values of bridges, -track, or buildings in Ohio. Thus far, every State appraiser has -concerned himself only with the fixed physical property in his own -State, together with his proportionate share of the floating property. -The methods that may be considered are track-mileage, car-mileage, -locomotive-mileage, and train-mileage. - -The method finally used must be such as will give the fairest result for -the property under consideration. In some cases one or more of these -methods will give a fair value, while in other cases the same system -would be most unjust. - -(_i_) _Terminals._—There is no one feature of the entire problem so big -with possibilities, and so far from solution, as that of terminal -property values and their proper assignment. The property must be -considered as an operating unit. Its value must be made up of the values -of the parts or elements plus an added value that comes from the -operation of the whole. The problem would be simplified if what were -sought were the value of a certain railroad, but, as it has been -presented up to this time, the problem is: what is the value of that -part of this railroad in Michigan? or Wisconsin? or Minnesota? A fairly -satisfactory solution of many of the value questions has been obtained, -but nothing in the way of a solution of the terminal question. A road -owns 300 miles of line in Michigan and 7 miles in Ohio. That 7 miles -includes its largest terminal; its principal connections are there; it -has a fine property, and is in the capacity of landlord to several other -roads. What part of that terminal value, if any, is assignable to the -State of Michigan? Decidedly, it would not be proper to appraise the -entire property as a unit and assign to Ohio only the proportion that 7 -miles bears to the whole length; it is equally unfair to appraise it as -a Michigan property down to the State line, and add nothing to the value -by reason of the terminal. - -The influence on the value of the property, of the ownership of -terminals in such cities as Chicago, New York, Jersey City, Hoboken, -Pittsburg, Detroit, St. Louis, Kansas City, and other large centers of -population is tremendous, yet a very large part of the railroad mileage -entering those cities belongs to roads which have their largest mileage -outside the State in which the terminal is located. - -There can be no doubt that the influence of a large terminal affects in -a measure the value of every mile of line owned by the company; that -this influence is greatest on the principal and direct lines, and less -as more remote parts of the system are reached. As yet, no plan has been -suggested for determining what this value is or for apportioning it. - -The final solution in Michigan was to treat terminal properties within -the State exactly as other property was treated, and to assume that, if -there was any value assignable to Michigan by reason of outside -terminals, it would appear as a non-physical value through the earnings. - -When all the phases of this question are considered—the enormous land -values, the value due to possession of deep-water terminals, the effect -on the business of the entire property by reason of the ownership of -such properties as those, for instance, in New York City, Jersey City, -and Hoboken—it is evident that no appraisal which has yet been made has -established any rule of valuation which may be considered proper for -terminals. - -It is to be hoped that the work now in progress in New Jersey may be so -well supported by the State that it will be possible for the appraisal -board to make an exhaustive study of this subject and reach definite -conclusions as to the real extent, manner of computation, and proper -method of distribution of these values. - -(_j_) _Development of the Art._—Is any value assignable to property on -account of expenditures by reason of the rapid development of the art? -This question seems not to have been squarely asked or answered in -connection with any of the past appraisals. - -Every piece of material and every facility purchased by a company is -bought with a definite expectation that it will have a certain life, -that during that term of life it will add sufficiently to the earnings -to provide a fund for its replacement and earn a profit. No matter -whether or not such a reserve is created on the books, this is the -theory, and, under it, accident may wipe out certain new property, other -property will outlive its expectation and maintain the average life of -the entire group of facilities. - -There are countless cases where this will not hold. The rapid -development of large cities has compelled electric lines to extend -largely. The demands of the people for more frequent and more rapid -service, and more modern and larger equipment, have greatly shortened -the term of life of power-plant equipment and cars. The rapid -development in the art of electricity, the congestion of traffic in -streets of cities, the enormous increase of train movements, and the use -elsewhere of newer types of cars, have compelled the abandonment of -millions of dollars' worth of property and the investment of other -millions in new and improved facilities to provide for the increased -movements of traffic and increased safety to the public. These changes -are not due to the fact that the original installation was defective, -but to the demands of the public for frequent, safe, and speedy service, -demands which are perfectly reasonable. The query is: should a -corporation which complies with public demands be compelled to lose -capital invested in facilities which have not yet paid for themselves; -and which, under a continuance of conditions which existed when they -were installed, or any that might then have been anticipated, would -normally have a useful life of several more years, and which were -abandoned, not by reason of being worn out or unfit for service, but -purely because facilities of a more modern type were called for? - -To answer this affirmatively increases the hazard of investment greatly -in the large centers of population. To answer it affirmatively in some -cases might amount to confiscation of property. The writer inclines to -the view that, as far as appraisal is concerned, the value due to the -remaining life of the abandoned facility, where such abandonment was in -response to legal requirement, and where no element of corporate -necessity due to increased efficiency or economy of the new facility -enters into the computation, should be added to the value of the -facility replacing it. Any consideration that is given such claims by an -appraiser must be most careful, as the inference to be drawn from the -decision of the Court in the Knoxville Water Case (212 U. S., 1) is that -such elements of value will receive scant consideration unless most -fully supported. - -If the policy of the management of any public service company is to keep -up with the demands of modern civilization, it would appear that such -policy should not be discouraged, and, in computing the value of the -property, some provision ought to be devised for covering such values as -remain in serviceable property at the time of its abandonment in -response to public demand; or else the rates for service should be -increased sufficiently to compensate the corporation for losses of this -nature on the ground that it constitutes an element of extra hazard. - -These and like subjects in connection with the appraisal must be taken -up during the period of computation and settled. The computing office -organization and methods call for no special comment, except to -emphasize the need of experienced men, the use of every possible check -on the accuracy of the work, and the prime necessity of keeping all -notes in such manner that they can be identified and used to -re-establish every step taken in the course of the appraisal. - - - IV.—The Preparation of the Final Figure. - -The final form of the work is, of course, so much a matter of personal -judgment that even a suggestion may appear to be useless. The use of -such a classification as will conform approximately, if not exactly, -with that adopted by the Interstate Commerce Commission is more -desirable now than it was 10 years ago, as all the roads in the country -are using this classification in their accounts, and the more nearly -uniform the work of various State appraisals, the better the results -will be. - ------ - -Footnote 18: - - Unchangeable only for the period under consideration and as regards - the purpose of the appraisal. This value varies from year to year, - depending on business conditions and on earnings of the company. - - - - - NON-PHYSICAL VALUES AND METHODS FOR THEIR DETERMINATION. - - -In the published articles treating on the subject of valuation, much -stress is laid on the intangible or non-physical elements of value. They -have been termed "going concern values," "business values," "good will -values," "franchise values," as well as "non-physical" and "intangible" -values. - -So much of the argument of many writers has been taken up with this -phase of the question that it is impracticable to recapitulate the -various arguments in support of giving these elements a place in the -appraisal. - -The writer cannot agree with those who would place any of these elements -of value in the physical appraisal. - -Value is given to a property, either by reason of the fact that it is an -instrument for earning profit, or that it does earn profit or gives -promise of profit. The actual investment of capital in a new plant is -made with the expectation of earnings. It is not reasonable to attach as -physical value, to such a plant, any value in excess of the actual -investment. Nor does it appear to be any more reasonable, in the case of -an old plant, to assign arbitrary and fictitious values over and above -the actual investment remaining in the plant, unless such values are -justified and supported by actual earnings in excess of such a rate of -interest on the money invested, as it would earn if invested in some -non-hazardous security, and—carrying out the clearly-expressed idea of -the Courts—such intangible value can only accrue when the rates charged -for the service are fair and proper. - -The capitalist seeking investment bases his ideas of value on: - - (_a_) The market price of stocks and bonds, an estimate of worth - based primarily on actual earnings of the property, but - affected to some extent by outside conditions; or - - (_b_) On the capitalized net income, or actual earnings, of the - property; or, - - (_c_) In the case of a new property, on an estimate of what the - probable earning capacity of the property will be, where the - business is more fully developed. - -Methods (_a_) and (_b_) ignore cost of construction, or present -investment in physical property, and base a value on past performances. -Method (_c_) is based purely on hypothetical earnings, but the only real -measure of value in this instance is the actual amount of capital that -has been invested. - -No appraiser would be justified in placing a "going concern" value, in -excess of original cost, on a new property, nor would he be justified in -placing such a value on a property 3 years old, or 10 years old, unless -the net earnings were such as to indicate that the property had a -business or commercial value in excess of the physical property value. - -It would seem reasonable to say that this difference between the -physical value and the value based on earnings represents the "good -will," "established business," or "going value," and all the other -non-physical elements of value. - -To take a specific example: it would be impossible to separate the -different elements of intangible value of the Michigan Central Railroad, -and say that a certain sum of money represented "good will," another sum -"established business," still another sum the "franchise value," and -still another sum the "going concern." - -The "going concern value" of the Michigan Central Railroad is exactly -analogous to the going concern value of the hypothetical water-works -cited by Mr. Alvord. Instead of having water pipes connected with -buildings along the mains, and considerable sums invested in appliances -for using the water, there are manufacturing plants located along the -railroad, connected with it by side-tracks built by the industry, and -depending on the transportation facilities of the road for their -connections with their customers, the very life of the manufacturing -plant dependent on its connection with the road. This is "connected good -will" of the same kind as described by Mr. Alvord. Yet, to fix a value -on it by the method described by him involves going into the realm of -conjecture and speculation to a degree that could never be sustained. - -Difficulties as great would be encountered in an effort to separate and -set up any other elements which go to make up the intangible value, and -any figure thus determined would be absolutely incapable of proof. - -The Courts say that the value must be the "fair value of the property -being used," all the conditions being taken into account (169 U. S., -466). - -It can be readily seen that the physical present value is not -always—indeed, is not often—the "fair value." The "fair value" may be -more, or less, than the present value of the physical property. It would -seem to be reasonable to interpret the Court's meaning of the term "fair -value" to be the value as a business or commercial property, taking into -account the actual investment existing in the property, together with -any favorable conditions which would enable it to earn, on rates which -were fair and reasonable to the consumer, an income in excess of a usual -rate of interest on the actual investment, or any unfavorable ones which -under the same rates would reduce its earnings to less than usual -interest. If such an interpretation be allowable, it would appear to be -correct practice to use a "fair value" made up of two elements: a -physical value, representing the investment, and a non-physical value, -representing all the elements which affect that investment to give it -favorable or unfavorable financial returns. Is it not, then, proper to -conclude that the non-physical or intangible value, composed of all -these various elements of value, can only be determined absolutely by a -study of the earnings and operating expenses? Is not this clearly what -the Court had in mind in the Nebraska Rate Case? - -Much of the argument on the subject of "going" values and other kindred -elements of value consists of statements of theory and generalities, and -may be said to be merely argument to support the theory that there is an -intangible element of value. If work of valuation is to be of any real -benefit, must it not give a definite result? Must not this result be -based on absolute facts? - -In securing the present value of any physical property the fixed and -certain facts are: - - The inventory of property owned.—This is absolute. - - The cost of reproduction of the different elements.—This is - capable of determination within very close limits. - - The depreciation.—This is in a measure a matter of judgment, - based on the experience, not only of the engineers making - the appraisal, but of the entire scientific world; and, if - properly made and properly checked, there should be no very - wide divergencies in results. - - The items of general expense.—These, based on available - statistics, must be estimated. The exact determination of - these items will be made comparatively easy as statistics - based on the uniform classification of accounts become - available. - -It is believed that the physical values, when secured along the lines -suggested, are definite enough to be accepted as a fair estimate of the -amount of capital actually invested in the property, and that, if a -sufficiently large force of men experienced in the construction, -operation, and financial management of the kind of property under -investigation is engaged on the work, the element of uncertainty due to -errors of personal judgment can be largely eliminated. - -The next question to be determined is whether there is, at the time of -the appraisal, any non-physical value, and, if so, to select a method -for computing it that will give a result that can be definitely -supported as to the particular property under investigation. A study of -the income accounts of the property being valued should be made. If the -property is not earning a sufficient sum to pay its operating expenses, -and taxes, and to set aside a fund to cover depreciation and -obsolescence, there is clearly no intangible value of any sort to be -added to the physical value. If, however, after all these charges are -taken care of, there is a net earning which is large enough to pay 4 or -5% on the physical property and still leave a surplus, is it not -perfectly reasonable and proper to hold that this surplus represents -earnings on all intangible elements of value? - -The contention that all the different elements of non-physical value -merge into one intangible value, not capable of separation, will -doubtless be objected to by many engineers and corporation managers. - -Among the elements adding value to property have been described: - -_1.—"Going Concern" Value._—Professor Mead defines this as the value due -to the fact that a plant has consumers actually utilizing its product, -and that it is in actual and successful operation and has its business -developed. This value is the worth of the plant in excess of a similar -plant without connections, and constitutes an asset in the consideration -of its physical value. Mr. Alvord has used the term "connected good -will" as applicable to this element of value. - -The writer does not concede that "going concern" is a proper element to -consider in the physical value, as it does not represent any part of the -cost chargeable to capital, and the physical valuation should be -confined to the determination of capital invested. - -It has already been argued that to the physical property as inventoried -should be added proper figures to cover organization, legal expense, -administration, engineering, and contingencies. All these items are in -the nature of additions on account of the fact that the property is a -"going concern." It is maintained that these costs should carry to the -present value column as values, for the reason that all these services -rendered in connection with the creation of the property remain, -unimpaired in value, as long as the property is operated. When, however, -a property ceases to be operated, and is abandoned and dismantled, not -only do all these elements absolutely disappear, but also all increments -of value by reason of the special use of the property are wiped out, and -there exist only a lot of partly worn out and partly obsolete machinery -and equipment, salable at scrap values, buildings constructed for a -purpose which renders them unfit for other use, and land partly salable -at going prices and much that will not sell at all. - -As long as a gas-works, a water-works, or a railroad is in operation and -earning, it is a "going concern," and all increments which attach to its -physical property as a whole continue to exist, even if the physical -value of the property is greater than a fair value. That fair value can -be determined and reached by means of a negative non-physical value. - -In view of these things, it would seem to be highly improper to add to -physical value anything more for "going concern." In the final report of -U. S. Judge R. W. Tayler, Arbitrator in the Cleveland Street Railway -matter, in December, 1909, the following language supports the above -contention: - - "I allow nothing for going value, except in so far as that is the - result of the necessary expenditure of money in building the road, - acquiring its land, power-houses, and equipment, and putting them - into successful operation. The expenditures for these purposes are, - and necessarily must be, included in the valuation of the physical - property." - -_2.—Developed Business._—It is perfectly clear that the "fair value" of -a property must take into account the established business of the -concern. This really is covered by the "going concern values," as -defined by Messrs. Mead and Alvord. The only manner in which this can be -determined intelligently is by an analysis of income accounts. - -_3.—Cost of Handling Business._—A railroad with heavy grades, bad -curves, poor equipment, or unskilful management is not nearly as -valuable a property as one having good line and grades, and far-sighted, -economical, and skilful management, and which handles its business at a -lower cost per unit. - -In such cases the differences in location and management are bound to -show in the earnings, adding to the physical value of one property and -possibly taking from the value as shown by the physical appraisal in the -case of another. - -_4.—Good Will and Established Organization._—These are valuable assets. -It is difficult, indeed, to attach exact weight to these elements of -value, except as they are shown in the intangible value indicated by the -earnings. In most cases of public service companies, as is argued -elsewhere, it is doubtful if such elements are entitled to any place in -a public valuation. - -_5.—Franchise Values._—These cover various specific items arising out of -the ownership of special franchises, or, out of the general rights -granted by law to corporations. - -All these elements of value have been presented, and have been supported -by able arguments. No one has offered a method of separating them. While -there is universal recognition of their existence, in the case of many -properties, they are supported by nothing visible or tangible. They are -practically inseparable, one from another. They are not always present, -and the application of any such arbitrary rule as that suggested by Mr. -Alvord would make it possible to place values which were purely -fictitious. Therefore, it follows that, if they are to be considered at -all, they must be treated as parts of one intangible value, and that -value must be derived from a study of the income account of the -property. - -There are other points to be noted as reasons why no such elements of -value may attach to the physical property. - -Any value of an old and well-established property in excess of a fair -return on its physical property (in other words, any intangible value) -must be limited and restricted, when used for rate-making purposes, by -the value to the consumer of the services rendered. The Courts hold so -squarely that the rates charged for services must not be more than the -particular service is worth, and that the Company may exact a fair -return on property actually being used, that it is not conceivable that -any valuation which attempts to attach fictitious elements of value to -physical property can be sustained. - -This argument is not intended as an attempt to show that intangible -values are improper and that where they exist rates should be lowered. -It is contended that the determination of rates that will be just and -fair to all competing companies involves other consideration than the -valuation of either physical or intangible properties, and that when all -these rate-making problems are properly solved, there will remain large -intangible values on the well-designed plants. It is further contended -that the work of valuation should separate the tangible and intangible -elements, so that the further work of rate-making or assessment may not -be complicated by improper elements which are included among the items -of the physical properties. - -In consideration of franchise value, the history of the corporation -should be investigated with a view to determine what part the public -played in the creation of the property. - -The granting of aid bonds, of public lands, and of aid money to -railroads, the giving of encouragement to water-works companies by the -payment of excessive hydrant rentals, are illustrations of the fostering -and development of public service utilities by the public to such an -extent as to justify in a large measure the claim that in many cases the -allowance of an intangible value is improper as against the public. - -A further consideration in the matter of intangible values is the fact -that they all partake more or less of the nature of "good will," and the -question very properly arises, in the case of a purchase by the public, -or of a rate-making valuation: "Should the public be compelled to pay -for its own good will?" In the case of such a corporation as a -street-railway company in a large city, any value arising from a surplus -of earnings is due to the franchise, established business, or going -value, or good will of the citizens of that city. This element of value -frequently sustains an excessive bond indebtedness. At the expiration of -the franchise period the citizens of that city consider a purchase, and -are asked to pay, among other things, for their own good will. In view -of the attitude of the Federal Courts in the Consolidated Gas Case, and -the language of the lower Court in disallowing the item of "good will," -which judgment was sustained by the Supreme Court, it is very evident -that any attempt to fix arbitrarily a value on such an item in an -appraisal is not likely to be supported successfully. The grounds named -by the Court are: - - Tangible property has a value apart from any franchise or good - will value. - - The franchise, conferring the privilege to be a corporation, to - use public property, to be free from competition, and to - enjoy many other privileges, has some value apart from - tangible property. - - Good will can have no existence as apart from or detached from - the franchise conferring the necessary privilege. Such good - will (by itself) is not capable of being capitalized and - distributed among stockholders. - - Citizens are entitled to have gas (or water) because they - pay for it, exactly as they are entitled to have clean - streets (and, in the same way, police protection or fire - protection), because they pay taxes among other things - for that. - -The Court, therefore, finds that there is no good will value in -connection with the gas business in the City of New York, although it is -said, elsewhere in the finding, that it is the best, most favorably -located, and most prosperous business of its kind in the country. - -Judge Tayler, in the Cleveland Railway arbitration, says: - - "I allow nothing for good will. A street railway company which has a - monopoly, and especially if it has a franchise value remaining, can - have no good will value." - -Judge Lurton, in the Omaha Water-Works Case, says: - - "That kind of good will, as suggested in Willcox _vs._ Consolidated - Gas Co., is of little or no commercial value when the business is, - as here, a natural monopoly with which he must deal, whether he will - or no." - -In connection with a consideration of franchise values, the following -points are raised by the Federal Court in the Consolidated Gas Cases -(157 Fed., 872-879): - - "Should a corporation have a right to demand an income return, - separable from any return upon its tangible property, from its right - to place gas mains in the public streets and maintain them for its - private profit, a right which it did not buy from city or state or - pay therefor any legal valuable consideration? The Court thinks not, - because 'Return can be expected only from investment, and he that - invests must part with something in the act of investing.' Does any - company invest its franchise in its business? It does not part with - its franchise in the same way it parted with money or money's worth - in acquiring or creating mains or plants. The investment of property - was made, not in the franchise, but under the franchise, and on the - faith thereof. The franchise is but a part of the power or - sovereignty, allotted to a private person for the benefit of all, - and only incidentally given for private emoluments. - - "What is the value of a franchise to perform a certain service, - under which no money is invested and no service yet performed? What - is it worth apart from performance under it? - - "Unless it can be seen to possess inherent value entirely apart from - the earning capacity of the subsequent investment or from the actual - earnings resulting from such investment, the value asserted or - claimed is but a duplication of that derived from the use of the - tangible property when so invested. - - "The concepts of the nature and value of franchises are seen dimly - and confusedly because of the failure to distinguish between - productive and non-productive property. Land, money, chattels may by - industry and intelligence be made productive without a franchise; - but no excellence in these desirable qualities can ultimately render - a franchise productive without the use of money, chattels, and land - in connection therewith, and when the juncture is made the earning - capacity of the real and personal property, plus the franchise and - plus intelligence and industry, is really no greater than it would - be without the franchise, for the franchise has added no producing - power to the realty or personalty; it has but authorized their - employment in a particular way and protected the owners while so - employing them." - -The Court emphasized the fact that the particular way in which they are -used is in performing a function of the State—in doing a service for the -public which the public might do equally well for itself, in the -following language: - - "I can imagine no more than three ways in which the value of a - franchise can be stated. It is valuable: (1) because it authorizes - the gainful use of private property in a particular manner; (2) - because once obtained it is often difficult or impossible to get - another like it; (3) because it may be used to injure or hinder - another enterprise, although itself conferring or securing nothing - of value. - - "The third method of statement has been accurately, though - colloquially, described as a 'nuisance value,' and is so obviously - illegitimate as to require no discussion. The second method of - statement, when carefully considered, asserts that because the - sovereign has deemed it advisable to entrust a public work to one - citizen or a body of citizens such quasi monopolistic grant confers - the right to charge for the service more than would be just or - lawful were the occupation open to all. Nor does it change the truth - of the last statement that the difficulty of procuring franchises - produces, and long has produced, a traffic in them. On every private - sale of franchise property, the price paid is so much money lost to - the public by official incompetence or worse, and such sale can - confer on the vendee no right to compel the consumer to repay him a - price that should have been paid to the State. For these reasons, I - believe that on principle a franchise should be held to have no - value except that arising from its use as a shield to protect those - investing their property on the faith thereof, and that, it renders - fruitful, it possesses no more economic value for the investor than - does an actual shield possess fighting value, apart from the soldier - who bears it." - -It will not do to leave this decision without calling attention to the -fact that the foregoing quotations are but argument advanced by the -Court, and that he found a franchise value, following the reasoning of -the Supreme Court in cases cited heretofore, and other cases, and upon -the doctrine that: - - "Private citizens may acquire vested property rights through a - series of even erroneous decisions; rights so firmly vested that it - becomes unconstitutional for the court which persisted in error - suddenly to rectify its mistakes to the detriment of those who had - securely rested upon the decisions sought to be invalidated." - -After citing numerous cases, and considering methods of valuing -franchises, the Court says: - - "I think it obvious, as I have endeavored heretofore to point out, - that either for the purpose of condemnation or regulation the value - of a franchise depends wholly upon what is earned under it and I - believe the best way of finding out how much a franchise, separately - considered, is worth, is to ascertain what those persons desirous of - continuing operation under it consider it to be worth. In a - corporation whose stock is freely bought and sold, such value is - measured by the success attending the sale of stock based entirely - upon capitalization of the franchise; yet the value of stock issued - only in consideration of the franchise is obviously dependent on - earnings after the stock based on tangible property has received a - satisfactory dividend * * * yet it will always be true that, unless - the whole net return, compared with the value of tangibles, is above - a satisfactory return on tangible investment alone, the addition of - stock issued for franchise will be regarded as 'water,' and detract - from the value of the entire issue, and I think this conclusive - proof that value on a franchise depends wholly on what actual - investment can earn." - -In this particular instance stock to the amount of $7,781,000 had been -issued in 1884 and divided among stockholders without any consideration, -which stock represented the company's own valuation of its franchise at -that date. The Court, in fixing a value, held that it would be proper to -increase it proportionately to the increase in tangible property; this -he did, fixing the franchise value at more than $12,000,000. The Supreme -Court of the United States, in disposing of this, says (212 U. S., 47): - - "But although the state ought for these reasons [applicable to this - case—not general], to be bound to recognize the value agreed upon in - 1884 as part of the property upon which a reasonable return can be - demanded, we do not think an increase in that valuation ought to be - allowed upon the theory suggested by the Court below. Because the - amount of gas supplied has increased to the extent stated, and the - other and tangible property of the corporations has increased so - largely in value, is not, as it seems to us, any reason for - attributing a like proportional increase in the value of the - franchises. Real estate may have increased in value very largely, as - also the personal property, without any necessary increase in the - value of the franchises. Its past value was founded upon the - opportunity of obtaining these enormous and excessive returns upon - the property of the company, without legislative interference with - the price for the supply of gas, but that immunity for the future - was, of course, uncertain, and the moment it ceased and the - legislature reduced the earnings to a reasonable sum, the great - value of the franchises would be at once and unfavorably affected, - but how much so it is not possible for us to see. The value would - most certainly not increase." - -The Court did not concur in the increase of the franchise value, and, in -dismissing this subject, says: - - "What has been said herein regarding the value of the franchises in - this case has been necessarily founded upon its own peculiar facts, - and the decision can form no precedent in regard to the valuation of - franchises generally where the facts are not similar to those in the - case before us." - -It appears, then, from this, the latest case, that: - -_1._—The view of the lower Court that a franchise or intangible value is -not separable, and that if there be a value it must be determined from -the earnings, is concurred in by the Supreme Court. - -_2._—That the arbitrary increase of franchise value, by the lower Court, -proportional to the normal increase of the physical property, is not -concurred in. - -_3._—Inferentially, it appears that the acquiescence of the State in the -franchise value of 1884 is the main reason for permitting that value to -stand, and it would seem to follow, from the reasoning of the Court, -that it is very questionable whether any franchise or intangible value -based on excessive rates should be allowed to stand. - -Another view of franchise values, as stated by George H. Benzenberg, -Past-President, Am. Soc. C. E., in discussing water-works franchises, is -as follows: - - "Some contend that a franchise is simply and purely a privilege - given by the municipality to a water company to utilize the streets - for the purpose of laying a system of pipes through which it may - distribute and deliver water. It is not a license to do business, - but a privilege to use public streets, alleys, and grounds. * * * If - that interpretation is the proper one, the value of the franchise, - if the property is to be purchased by a municipality, is - comparatively nothing. If the property is to be purchased by another - company, it represents all of the great value that such franchise - possesses to the original holder, together with all the privilege it - confers; but in the event it is purchased by the city, it is - dispossessed of that certain element of value, and I think for that - reason it is stipulated in many of the ordinances that no value - shall be placed on the franchise by appraisers." - -In the paragraph just quoted, it is evident that the term "franchise" is -used in a restricted sense, and refers to the ordinance or contract from -a municipal corporation granting the right to operate on specific terms, -rather than the broad use of the word as indicating all rights derived -from general laws or special contracts or grants. The point, however, is -applicable to the case of any corporation occupying public ground. - -It is believed that enough argument has been adduced to show that any -attempt to give separate value to the different elements that enter into -the intangible value of a property is a very risky proceeding on the -part of appraisers, and to support further the contention that, as a -business proposition, the value of any property depends on its earnings; -that the franchise simply protects the owners of the property in their -enjoyment of those earnings; that the value of the franchise merges in -the "fair value" of the property, and that the franchise can have no -special value of itself unless the earnings of the property are in -excess of a usual and fair rate on the actual investment. In case there -are surplus earnings, they measure and determine not only the value of -the franchise, but also the value of all other non-physical elements. If -this be true, any readjustment of rates, any restriction of operations, -or other form of legislative control which would unfavorably and -violently affect earnings, is bound to hold down franchise or -non-physical values; as it would not seem possible to read into the -various decisions any intention on the part of the Court to base the -right to demand fair return on anything but the "fair value of the -property being used." - -The writer, therefore, reaches the following conclusions regarding -non-physical values: - -_1._—That all the different non-physical elements of value are -inseparable. - -_2._—That in the case of very many properties, no non-physical value can -attach, and in many cases this value will be a negative or subtractive -quantity. - -_3._—That in the case of properties located so as to secure either a -monopoly of business in a congested territory, or in which the -construction, location, strategic position, or economic excellence of -design, is such that, on a schedule of rates which is fair and -reasonable for competitors less advantageously situated, an earning is -secured which is in excess of usual returns, a non-physical value of -considerable magnitude may very properly be assigned. - -_4._—That, for the computation of non-physical values, the income -account of the property under consideration affords the only legitimate -basis, but even then consideration must be given to duration of -franchise, reasonableness of rates, and other modifying conditions, and -also, possibly, the purpose for which the appraisal is made may -determine whether or not a non-physical value may be used. The language -of the Court in the Knoxville and Omaha cases apparently leaves this a -very open question. - -This brings us substantially to the conclusion reached by Professor -Adams in 1900, and a careful study of the method laid down by him shows -nothing that cannot be accepted as fair and reasonable. His plan should -be extended so as to cover subtractive values or the case of properties -showing a deficit. - -This method has the merit of being based on the actual earnings and -expenses of the company under investigation and on the value of the -physical property as already computed. It does not introduce a mass of -purely supposititious figures, nor depend on hypothesis. The proposition -is simply this: If a property earns only its operating expenses, -including therein proper depreciation reserves, taxes, and such a -percentage on its actual invested capital as could be earned by that -capital if invested in good non-taxable bonds or other like security, it -is worth no more than its physical property is worth. If it earns more -than that, it is due to the franchise, going concern, or other -intangible elements of value, and, to determine that value, capitalize -the surplus. - -It takes several years for a property to reach its normal earning -capacity after construction is completed, and, in the investigation of a -property of comparatively recent construction, where the gross and net -earnings show a steady annual increase, the application of a negative or -subtractive value should be made with great caution; but where the -earnings have been fairly uniform and stationary for a period of years, -and the property does not earn a sufficient sum to care for depreciation -and annuity, it is clear that the value as an earning investment is less -than the determined physical value, and that the physical valuation -should be reduced by some amount to arrive at the "fair value." - -The Courts hold that public service corporations are entitled to earn: - -(_a_) Operating expenses, - -(_b_) Expenses of maintenance and running repair, - -(_c_) Taxes, - -(_d_) A sinking fund from earnings to cover depreciation and -obsolescence, and - -(_e_) A reasonable profit on the fair value of the property. - -An investigation of non-physical values should then include an analysis -of operating expenses, to determine that additions and betterments to -property are not included therein. - -The general practice of corporations in the past has been to ignore any -reserve to cover depreciation and obsolescence. If, at the beginning of -operations of any property, such a sum should be annually set aside out -of earnings as should, when invested as a sinking fund, maintain the -integrity of the investment, then this amortization fund at any period, -plus the depreciated value of the physical property, should equal the -amount of the total capital actually invested in the property. In most -cases this has not been done, and the Supreme Court in the Knoxville -Water Case holds that, by reason of the failure to create such a fund, -whether due to carelessness, excessive dividends, or other cause, the -company must lose the amount of capital represented by the depreciation -that has taken place. In making a computation of intangible values, it -is certainly proper to consider the income account as averaged over a -period of years, to avoid violent fluctuations of gross or net earnings, -and a depreciation reserve should be determined for such years, as it -cannot be claimed that, unless such an amortization fund is earned, in -addition to other operating expenses and taxes, there is any -non-physical value. - -Professor Adams covered the depreciation in the Michigan work in the 4% -annuity which was deducted before non-physical values were computed. The -writer is inclined to go a step farther than Professor Adams, and hold -that, before any intangible values can be attached to the property, it -should earn not only all operating expenses, taxes, and reserve for -depreciation, but also interest on the actual investment equivalent to -the return that would be had were the money invested in a non-taxable -bond, say 4%, and that any earnings in excess of such a sum might be -termed properly "earnings on franchise," or intangible values. - -On this basis, then, a rule would be formulated, being that of Professor -Adams, with some modifications: - -_1._—Deduct from gross earnings from operation the aggregate of -operating expenses, including in operating expenses an annual sinking -fund to amortize the depreciation and obsolescence, and the remainder -may be termed "income from operation." - -_2._—To this income from operation add income from investment, giving -"total income," which represents the amount at the disposal of the -corporation for the support of its capital and for the determination of -its annual surplus. - -_3._—From "total income," deduct taxes, rents paid for lease of operated -property (provided such property is not included in the appraisal), and -improvements chargeable to income. The remainder represents the income -after all charges against operation of property, and maintenance of the -integrity of the capital investment have been cared for. - -_4._—From this remainder (_3_) deduct such a percentage of the value of -the physical property (representing invested capital) as would equal the -income of that capital if invested in government or other non-taxable -bonds. The remainder would represent surplus, which, capitalized at a -proper rate, would equal the value of intangible or non-physical -properties, which is to be added to the appraised value of the "physical -property." - -_5._—If, instead of a surplus, a deficit occurs, a careful study of all -the conditions surrounding the operations of the property should be -made, and, if there be no reasonable expectation of increase of -earnings, or other modifying conditions, a proper figure, based on the -average deficit, should be determined, and, as a negative intangible -value, deducted from the value of the physical property. - -_6._—In the determination of rates, to be used in computing income and -for capitalizing surplus or deficit, the greatest of care must be -exercised to adopt such figures as will be proper and absolutely just. - - - - - CONCLUSION. - - -The subject of valuation is so appallingly great that, notwithstanding -the length this paper has reached, many points have not been covered. - -No discussion of the method of valuation by capitalization of net -earnings, which is practically that adopted by Professor Adams in his -commercial valuation, has been attempted; nor has any attempt been made -to describe the stock and bond method. Neither method is adaptable to -the requirements of any public appraisal. - -The so-called cash investment in property, or the actual cost of -construction through the entire history of the property, cannot be -sustained by any process of argument as a proper method of valuation, -nor can the method of computing the cost of construction of an adequate -modern property assumed to replace the existing property. The scope of a -valuation must be limited to the property as it exists on the date of -the appraisal, and it would be equally fallacious to include -non-existent and long-perished facilities, or to assume a hypothetical -and never-existing property. - -There are many intricate problems in connection with a valuation for -rate-making or taxation which really belong to these undertakings, not -to valuation. They are usually brought into the discussion of valuation, -but have been here excluded. Among these are the separation of -interstate from intra-state business, and others, of great interest, it -is true, but foreign to the subject of valuation. - -The question of the fair return on money invested is not referred to, -for the reason that it has no direct bearing on valuation, and for the -further reason that it has been quite exhaustively discussed in the -papers listed in the Appendix. The writer desires to make clear the fact -that he is not advocating low rates _per se_. The rate must be -determined to meet the special requirements of each investigation. The -Supreme Court of Maine says (97 Maine): - - "The reasonableness of the rate may for a time be affected by the - degree of hazard to which the original enterprise was naturally - subjected. That is such hazard only as may have been justly - contemplated by those who made the original investment, and not - unforeseen and emergent risks, and such allowances may be made as is - demanded by ample and fair public policy." - -While the Supreme Court of the United States, in Willcox _vs._ -Consolidated Gas (212 U. S., 12), fixed a rate of 5½% as reasonable in -that instance, they said: - - "No particular rate of compensation must in all cases be regarded as - sufficient for capital invested in business enterprises. Such - compensation must depend greatly on circumstances and locality. - Among other things the amount of risk in the business is an - important factor, as well as the locality where the business is - conducted and the rate expected and usually realized there upon - investments of a somewhat similar nature with regard to the risk - attending them. There may be other matters which in some cases might - also be properly taken into account in determining the rate which an - investor might properly expect or hope to receive and which he would - be entitled to without legislative interference. The less risk, the - less right to any unusual return upon the investments." - -In view of these dicta, it is needless to argue whether a rate of 6% or -10%, or 15%, or more, be reasonable. - -The writer has herein endeavored to narrate the story of the Michigan -appraisal in some detail, to review briefly subsequent similar work, to -present the main points in the legal decisions bearing on appraisal -practice, and to present his own views as to proper and legitimate -methods of valuation in the light of judicial opinions. He has attempted -to do this in the spirit of absolute fairness, without permitting either -early years of training in corporation service, or more recent -investigations for State and city, to bias the presentation of truths. - -The subject is one which has not attracted the average citizen -sufficiently to compel him to give it deep study. Those who are familiar -with it all too frequently have views biased by interest, and it is -hardly conceivable that any final conclusion will be reached until each -and all of the main issues are determined by the Courts. When thus -determined, it will be done with wisdom and with justice. It is -impossible to study the cases referred to without being impressed with -the absolute fairness of this great tribunal. Quotations from decisions -have been included at considerable length in order to obviate the -criticism that the references do not convey the exact meaning of the -Courts. - -The writer acknowledges the valuable suggestions, criticisms, and -information furnished him by Professors Henry C. Adams, Mortimer E. -Cooley and W. D. Pence; Mr. Henry L. Gray, Engineer of the Railroad -Commission, Washington; Mr. D. F. Jurgensen, Engineer, Railroad and -Warehouse Commission, Minnesota; Mr. Bion J. Arnold, and others who have -made possible the presentation of data regarding State and other -appraisals. - -_Bibliography._—Accompanying this paper will be found a bibliography of -the principal articles on the subject of property valuation. - - - - - APPENDIX - - - - - BIBLIOGRAPHY. - - - _Railroad Valuation._— - - "The Appraisal of - Plants for Public Services." Nicholas S. - Hill, Jr. _The Engineering Record_, June - 8th, 1901. A review of the principles on - which a property is valued when purchased by - private parties or by municipalities. - - "The Value of - Railways and Their Capitalization." H. T. - Newcomb. _Railroad Gazette_, August 29th, - 1902. Abstract from _Yale Review_, August, - 1902. - - "The Census Office - Railroad Valuation." (Editorial.) _Railroad - Gazette_, September 1st, 1905. A discussion - of the work of Professor Henry C. Adams, - Statistician of the Interstate Commerce - Commission, and his assistants. - - "Railroad Taxes and - Plans for Ascertaining the Fair Valuation of - Railroad Property." _The Railway Age_, - September 8th, 1905. Report presented at the - meeting of the National Association of - Railroad Commissioners, at Deadwood, S. Dak. - - "Railroad Valuations - in State Reports." Professor Harold M. - Bowman. _Railroad Gazette_, September 8th, - 1905. Abstract of a report, which explains - briefly the systems of valuation provided - for by the laws of the several States, with - a critical review of the systems and - administrative reports. - - "The Determination of - Physical Values." Clinton S. Burns, M. Am. - Soc. C. E. _The Engineering Record_, - September 16th, 1905. Presents a - mathematical formula for fixing depreciation - on articles, based on age, with quite a - complete demonstration of the theory - presented. - - "Valuation of - Railroad Property," Henry Fink. (Serial.) - _Railway Age Gazette_, July 24th, 1908, _et - seq._ A brief review of several methods. - - "The Valuation of - Railways." (Serial.) _Railway Age Gazette_, - January 22d, 1909, _et seq._ A thorough - discussion of the subject, and one of the - best presentations of it from a rational - corporation standpoint. - - "Some Neglected - Factors of Fair Valuation." (Editorial.) - _Railway Age Gazette_, March 5th, 1909. - - "Railway Capital and - Values." W. H. Williams. (Serial.) _Railway - Age Gazette_, April 2d, 1909, _et seq._ An - address setting forth at length the views of - the railway managers who oppose valuation of - property for any purpose. - - "Valuation of Street - Railway Properties." _Electric Railway - Journal_, June 19th, 1909. A general - discussion of the subject. - - "Commercial Valuation - of Railway Operating Property in the United - States: 1904." Bulletin 21, United States - Bureau of the Census. Contains an exhaustive - discussion of sundry methods of valuation. - The most complete series of papers on - valuation yet published. - - _The Chicago Appraisal._— - - Report to the Common - Council on Railroad Valuation. B. J. Arnold, - M. Am. Soc. C. E., M. E. Cooley, and A. B. - Du Pont. - - _The Michigan Appraisal._— - - "Expert Valuation of - Railway and Other Corporate Property in - Michigan." E. E. R. Tratman, Assoc. M. Am. - Soc. C. E. _Engineering News_, December - 20th, 1900. A descriptive paper. - - "What is the Value of - a Railroad for the Purpose of Taxation?" - Charles Hansel, M. Am. Soc. C. E. _Railroad - Gazette_, April 19th, 1901. Discussion of - the work done by Professor M. E. Cooley, and - on valuation in general. - - "Michigan Railroad - Appraisal—Valuation of Physical Properties." - Professor Mortimer E. Cooley. Bulletin 21, - U. S. Bureau of the Census, p. 76. - - "Michigan Railroad - Appraisal—Valuation of Non-Physical Elements - of Railway Property." Professor Henry C. - Adams. Bulletin 21, U. S. Bureau of the - Census, p. 78. - - _The Minnesota Appraisal._— - - "Valuation of Railway - Property." A. S. Cutler. _Year Book_, - University of Minnesota, 1908. An account of - the methods used for obtaining and checking - the information. - - Report on the - Valuation of Railways in Minnesota, January, - 1909. Minnesota State Railroad Commission. - - "Valuation of - Railways in Minnesota." _Railway Age - Gazette_, February 5th, 1909. A descriptive - article. - - _The Texas Appraisal._— - - "Railroad Franchise - Values in Texas." W. H. Coverdale, Assoc. M. - Am. Soc. C. E. _Railroad Gazette_, February - 12th, 1904. Discussion of methods used in - Texas. - - "Methods Used by the - Railroad Commission of Texas Under the Stock - and Bond Law, in Valuing Railroad - Properties." R. A. Thompson, Assoc. M. Am. - Soc. C. E., with discussion by Messrs. E. L. - Corthell, F. Lavis, W. H. Coverdale, and W. - D. Taylor. _Transactions_, Am. Soc. C. E., - Vol. LII, p. 328, _et seq._ - - _The Washington Appraisal._— - - "Report to the - Washington Railroad Commission on the - Valuation of Railways in Washington." - Halbert P. Gillette, M. Am. Soc. C. E. - _Engineering-Contracting_, April 7th, 1909. - - _The Wisconsin Appraisal._— - - "Wisconsin Railroad - Valuation." W. D. Taylor, M. Am. Soc. C. E. - Bulletin 21, U. S. Bureau of the Census, p. - 82. - - "The Appraisement of - the Physical Value of Wisconsin Railways for - the Purpose of Taxation." W. D. Taylor, M. - Am. Soc. C. E. _Engineering News_, March - 31st, 1904. - - Discussion on - "Valuation of Railroad Properties." W. D. - Taylor, M. Am. Soc. C. E. _Transactions_, - Am. Soc. C. E., Vol. LII, p. 353. - - "Report to the Tax - Commission." W. D. Taylor, M. Am. Soc. C. E. - Report of the Wisconsin Tax Commission, - 1907, p. 269. - - "The Work of the - Joint Engineering Staff of the Wisconsin Tax - and Railroad Commissions." W. D. Pence, M. - Am. Soc. C. E. _Journal_, Western Society of - Engineers, Vol. XIV, p. 73. (Abstract.) - _Engineering News_, March 4th, 1909. - - _Water-Works Valuation._— - - "Water-Works - Valuation and Fair Rates, in the Light of - the Maine Supreme Court Decisions, in the - Waterville and Brunswick Cases." Leonard - Metcalf, M. Am. Soc. C. E. _Transactions_, - Am. Soc. C. E., Vol. LXIV, p. 1. (A complete - bibliography of the subject of water-works - valuation may be found on p. 69 of Mr. - Metcalf's paper.) - - - - - TABLE OF CONTENTS. - - - PAGE - - INTRODUCTORY 1 - - _Reasons for Valuation_ 2 - - _As a Matter of Public Interest_ 2 - - _As a Matter of Corporation Necessity or Expediency_ 3 - - _Difficulties of Accurate Valuation Encountered_ 4 - - THE RELATION OF PUBLIC SERVICE, OR QUASI-PUBLIC CORPORATIONS, TO 6 - THE PEOPLE - - _Supreme Courts_ 8 - - _Regulation and Legislation_ 10 - - EXPLANATION OF TERMS 16 - - _Appraisal or Valuation_ 16 - - _Cost of Reproduction_ 16 - - _Cost, or Original Cost_ 16 - - _Present Value, or Present Physical Value_ 16 - - _Non-Physical, or Intangible, Value_ 17 - - _Elements of Final Value_ 18 - - _The "Physical Property" Element of Value_ 18 - - _The "Non-Physical" or "Intangible" Elements of Value_ 18 - - _True Method of Valuation_ 19 - - THE MICHIGAN STATE APPRAISALS 20 - - Organization 20 - - _Administration_ 20 - - _Civil Engineering_ 20 - - _Mechanical Engineering_ 20 - - _Telegraphs_ 20 - - _Telephones_ 21 - - _Vessel Properties_ 21 - - _Methods of Procedure_ 21 - - _Difficulties_ 22 - - _Lack of Complete Understanding on the Part of the State 22 - Officials_ - - _The Attitude of the Railroad Corporation Managers_ 22 - - _The Confused Condition of the Records_ 22 - - _Forms Used_ 23 - - _Board of Review_ 36 - - Office and Field Methods 37 - - _Making the Inventories_ 38 - - _Office Inspection as a Check on Field Work_ 39 - - _Field Inspection_ 40 - - _Special Work on the Chicago and Northwestern Railway_ 40 - - _Special Valuations_ 41 - - _Computation_ 42 - - _Filing in Office_ 42 - - _Computation Tables_ 43 - - _Unit Prices_ 43 - - _Classification_ 45 - - _Compilation_ 46 - - Special Problems of the Mechanical Department 46 - - _Assignment of Value to States_ 46 - - _Freight Car Inspection_ 47 - - _Locomotives_ 48 - - _Vessels_ 48 - - Overhead Charges 49 - - _Engineering_ 49 - - _Legal Expense_ 49 - - _Organization Expense_ 49 - - _Interest_ 49 - - _Discount on Bonds_ 49 - - _The Charge of Ten Per Cent. for Contingencies_ 50 - - Right-of-Way Values 52 - - _Comparison of Country Land Values_ 59 - - _Average Price per Acre for Village Land_ 63 - - _Comparison of Valuation Figures with Actual Considerations_ 64 - - Non-Physical Values 64 - - History and Results of the Michigan Appraisal 67 - - _Market Value of Stocks and Bonds_ 67 - - _Error in Published Reports as to Michigan Work_ 67 - - _The Cost of the Work_ 69 - - _Grand Summary of Railroad Appraisal of 1900 as to 70 - Seventy-eight Incorporated Railroads_ - - _The Result of the Michigan Appraisal_ 70 - - RAILROAD APPRAISAL OF THE STATE OF TEXAS 71 - - _Authority for the Work_ 71 - - _Method of Physical Appraisal_ 72 - - _The Result of the Texas Work_ 73 - - RAILROAD APPRAISAL OF THE STATE OF WISCONSIN 75 - - THE MINNESOTA STATE RAILWAY APPRAISAL 77 - - _Land Valuation_ 78 - - _Forms Used in the Compilation of Information_ 79 - - THE WASHINGTON STATE APPRAISAL 79 - - THE VALUATION OF TRACTION PROPERTIES IN CHICAGO 94 - - THE COMMERCIAL VALUATION OF RAILWAY OPERATING PROPERTY OF THE 97 - DEPARTMENT OF COMMERCE AND LABOR - - THE EXTENT OF APPRAISAL PRACTICE 99 - - REVIEW OF SOME METHODS OF VALUATION, AND SOME OF THE CRITICISMS ON 101 - THE MICHIGAN APPRAISAL - - THE DETERMINATION OF ELEMENTS OF VALUE AND METHODS OF VALUATION BY 112 - THE COURTS - - PHYSICAL VALUES AND METHODS FOR THEIR DETERMINATION 128 - - _The Preliminary Study_ 132 - - _The Field Inspection_ 135 - - _The Computation_ 136 - - _Classification of Properties_ 137 - - _Unit Values_ 138 - - _Right of Way and Real Estate_ 139 - - _Depreciation_ 141 - - _Immaterial Elements of Physical Property_ 142 - - _Organization_ 143 - - _Legal Expense_ 143 - - _Engineering_ 143 - - _Administration_ 143 - - _General Expense_ 143 - - _Discount_ 145 - - _Working Capital_ 145 - - _Contingencies_ 145 - - _Design_ 146 - - _Adaptation_ 146 - - _Apportionment of Values_ 147 - - _Terminals_ 147 - - _Development of the Art_ 148 - - The Preparation of the Final Figure 150 - - NON-PHYSICAL VALUES AND METHODS FOR THEIR DETERMINATION 150 - - _"Going Concern" Value_ 154 - - _Developed Business_ 155 - - _Cost of Handling Business_ 155 - - _Good Will and Established Organization_ 155 - - _Franchise Values_ 156 - - _Conclusions Regarding Non-Physical Rules for Determination_ 165 - - CONCLUSION 165 - - BIBLIOGRAPHY 168 - - _Railroad Valuation_ 168 - - _The Chicago Appraisal_ 169 - - _The Michigan Appraisal_ 169 - - _The Minnesota Appraisal_ 169 - - _The Texas Appraisal_ 169 - - _The Washington Appraisal_ 170 - - _The Wisconsin Appraisal_ 170 - - _Water-Works Valuation_ 170 - - - - - DISCUSSION - - -FRED LAVIS, M. AM. SOC. C. E.—The author states that his paper is -confined to "a discussion of the methods which should be used in -arriving at a correct figure of cost of reproduction and depreciation," -and that "it does not take up questions involving the propriety of those -figures when reached." In so far as this is concerned, it is probably -the most complete compilation of the available information on this phase -of the subject which has yet appeared in print. The author refuses to -recognize that the consideration of the so-called intangible values has -any place in a physical valuation. As, however, there exists such a -widespread feeling, especially among those interested in railroads, that -physical valuations, for any purpose whatever, are absolutely useless, -because these intangible values are not or cannot be included, it does -not seem out of place to refer to this phase of the subject at this -time, and more especially in view of the fact that many persons, the -prominence of whose position entitles them to consideration, have taken -this point of view very recently, and their remarks have received -considerable publicity. Not more than two weeks ago, Judge Lovett, the -head of the Harriman System, expressed the opinion that the theory of -valuing railroad property by trying to determine the cost of -reproduction was utterly impractical. It seems important, therefore, -that we, as engineers, interested in having the question properly -understood, should be careful, in referring to valuation, to make it -plain that other features besides the value of the physical property are -to receive due consideration. The speaker, therefore, proposes to -examine some of the arguments advanced by the opponents of valuation to -see if the objections most generally brought forward are insuperable. - -Some critics of valuation go so far as to say that engineers cannot make -a close valuation of even the purely physical property. For instance, -Mr. W. H. Williams, Vice-President of the Delaware and Hudson Company, -in a paper on this subject,[19] states that: - - "No engineer in estimating on the several important items of - construction work for the year will come within 10 per cent. of the - total aggregate cost. Many of the more important items are - frequently underestimated 25 to 50 per cent." - -He cites, as an especially good illustration, the Panama Canal, the -original estimate of the cost of which was $140,000,000, though the -present estimate is $300,000,000. Almost every one who has kept in touch -with that subject knows why the Panama Canal has cost more than the -original estimates, and that the greater cost is no reflection on the -judgment of the engineers who made such estimates. One cannot always -foresee what changes in plans may be made before construction is -completed, and would hardly expect the estimates of the cost of a -railroad to be adequate if they were made for a single-track road and a -double-track was built. In any event, there is a vast difference in -estimating the cost of an engineering work already completed and one -which has yet to be started, the difference being largely in favor of a -closer estimate of the completed work. - -Limitations are often placed on engineers, in connection with work they -do, which are afterward forgotten. The speaker was asked not long ago to -prepare a report in connection with the valuation of a large railroad -property. The time within which the results were required was very -limited, and the methods used in the valuation necessarily had to be a -combination of the inventory method and reliance, in a great many -matters, on the judgment of those making the appraisal. Undoubtedly the -result obtained was entirely adequate for the purpose for which it was -required, but would hardly stand if an attempt were made to use it as a -basis for an argument before a Court of law or a public service -commission, though it would not be beyond the range of the experience of -many engineers to have a matter of this kind brought forward some time -in the future as an absolute statement of fact, with no reference to the -way in which the work was done. - -It is inevitable, of course, that engineers will differ in their -opinions as to some details of methods of making an inventory of the -property of a railroad or other public service corporation, and also as -to exactly what unit prices should be applied, but in general it is safe -to say that any engineer of proper experience and training can make a -satisfactory appraisal of the value of the physical property of a -railroad, and that if two or more such competent fair-minded engineers, -unhampered by any consideration of the purpose for which it is to be -made, should make such an appraisal, the variation in the result would -be so small as to be negligible. The speaker, however, does not entirely -agree with the author, that the purpose for which the appraisal is to be -used should be entirely ignored by those who are making it. There can be -little doubt as to the propriety of using a properly made physical -valuation as a basis for taxation, or as information for the owners, -although there may be some as to the methods whereby the so-called -intangible values are to be determined in these cases, or even whether -they should be considered at all. The greatest difference of opinion -arises when an attempt is made to regulate the issue of stocks and -bonds, or to fix the rates which should be charged for transportation, -on the basis of a physical valuation. - -Arguments for and against rate regulation revolve in a circle, and, -apparently, there is no starting point which will satisfy every one. The -Courts have ruled that the railroads are entitled to such rates as will -enable them to earn a fair return on the value of their property; the -railroads claim that the only way to determine this value is on the -basis of the earning capacity; that is, one side claims that the rates -must be based on the value and the other that the value should be based -on the rates. It is evident, however, by this time, that the railroads -must submit to regulation, therefore a way must be found to break into -the circle, and it would seem to be incumbent on them to direct their -energies along lines which will tend to make such regulation fair and -just rather than to oppose it entirely. There is little claim that -unduly large dividends are paid, but there is a feeling in the mind of -the public that the railroads are over-capitalized. Is it not possible, -therefore, to break into the circle at this point, and decide, by means -of a proper valuation, as to the fairness or otherwise of the -capitalization? The objection to this, on the part of the railroads, is -that the value of the purely physical elements is by no means the whole -value of their property, but that something should be added for the -so-called intangible values. - -To emphasize the difficulties of appraising the intangible values in any -way which will permit the application of such value to the determination -of rates for transportation, the opponents of physical valuation cite -what is now the familiar instance of two mythical roads between the same -termini, the first with good alignment and easy grades following a -valley, and the second forced into the mountains, having not only -heavier grades and more curvature, with consequently a higher cost of -operation, but also more expensive construction. The value of the purely -physical features of the former, of course, would be much less than -those of the latter, but its actual value as a property would be -greater. How then should the rates on the two roads be fixed? The -fallacy of using this example as an argument against physical valuation -as a basis for rate-making is in assuming that there would be two -railroads built under such circumstances, with no other features than -the two termini and the line between. - -One has only to call to mind such examples of competing lines as those -of the Denver and Rio Grande between Denver and Salt Lake, the Union -Pacific between Cheyenne and Ogden, the Lackawanna and New York Central -between New York and Buffalo, or many others, to realize that there are, -on all roads of this nature, many other factors than the actual cost of -operating through trains between the termini, which determine the -through rates. - -One would hardly suppose that at this late date any one believes that it -is proposed to use only the value of the purely physical property of -railroads as a basis for rate regulation, yet the _New York Sun_, a -paper of national prominence and usually most ably edited, devoted a -column of its editorial page[20] to a discussion intended to show that -rate regulation, based on physical valuation alone, was an -impossibility. - -In addition to citing the example given above, the following is put -forward as the _reductio ad absurdum_ of the argument for rate -regulation based on physical valuation. It is said: - - "Suppose there are two bridges over the Ohio, the _cost of the - construction of each being the same_, one between Cincinnati and - Newport and the other twenty miles below where there is nothing but - a village on either shore.... On what basis would the proponents of - physical valuation, as the determining value in rate making, adjust - a toll charge on these respective bridges?" - -The example is far-fetched, and in no way applicable to the question of -the adjustment of rates on railroads, but inasmuch as it is seriously -put forward from a responsible source, it seems worth while to consider -it. - -Assuming, as apparently the propounder does, that the proposition is -uncomplicated by any questions of franchises, public rights in the land -on which the bridge and its approaches are built, etc., then there is no -question but that the owners of either bridge have a perfect right to -charge what toll they please. On the other hand, suppose the permission -of the War Department, or some other governing body, had to be obtained -in order to build piers in the river, or even to build the bridge at -all; the argument used in asking for this permission is that the bridge -is needed as a public convenience; or it is desired to occupy certain -streets for the approaches, again is used the argument of public -convenience, and so on. These privileges are granted on the tacit -understanding, at least, that the public convenience is to be served, -and the Courts rule that, in such cases, in consideration of the equity -which the public has in the property by reason of the rights granted, a -fair return on the value of the property, but no more, should be the -basis for establishing the rates of toll. Would the _Sun_ claim that the -value of the rights and franchises given by the public in such a case, -be included in the value of these bridges, and that a higher total -income should be derived from one bridge than the other because the -value of the streets on which the approaches had been built is greater -in one case than the other; or that a greater income should be derived -in one case than another because the cities furnish more people than the -villages? Is there any particular reason, except for the slightly larger -depreciation and cost of maintenance, and, bearing in mind the fact that -both bridges cost the same, why, if there is ten times as much traffic -on one bridge as on the other, the toll should not be proportioned -accordingly, to provide the same income on each? - -If the _Sun_ had imagined a bridge built by private individuals, with -their own money, between two villages, the inhabitants of which, at the -time the bridge was built, having been willing to grant almost any -franchises or privileges in order to get the bridge, the villages in -course of time growing to large cities, and the old bridge having been -replaced by a heavier modern structure, the example might have been more -nearly comparable to the railroad situation. In this case, the original -toll, of say 10 cents a head, may have, in the early days, only barely -returned a meager rate of interest on the investment, or even for some -years resulted in a deficit. Would the _Sun_ uphold the owners of the -bridge if, since the villages have grown to cities, they still insisted -on collecting the original toll, if it could be shown that a new bridge -could be built and would be a paying investment with a toll of, say, 2 -cents, except for the fact that the original bridge was built in the -only location where it was practical to build a bridge at all? Or is it -reasonable to say that the foresight and energy of the owners of the -bridge, even though it may have been one of the principal factors in -enabling the villages to grow into cities, entitle them to capitalize -their enterprise on the basis of a 10-cent toll? It cannot be denied -that the energy and foresight of the original builders should be -recognized in fixing the rate of toll, but there is a limit to the value -of this, and it is because of the feeling on the part of the general -public that the capitalization of similar intangible values on the part -of the railroads and other public service corporations is too large, -which, whether true or not, has caused the present agitation against -them. If the capitalization is reasonable, there must be some way to -demonstrate the fact, and it seems as if a properly made physical -valuation, with due allowance for the intangible values, is at least a -step in the right direction. - -The _Sun_ states in its editorial that: - - "The scheme of physical valuation, as a basis for rate making, is - flatly rejected as unworkable by practically all the ablest railway - authorities of the country, and that the only true measure of value - is the earning capacity." - -To quote only one, namely: Dr. Emory R. Johnson, who is generally -regarded as an authority and not by any means predisposed in favor of -the public as against the railroads, it is found that he states in his -"American Railway Transportation" that: - - "The earning capacity of the railroad cannot be equitably or - logically made the sole criterion of value, because the rates, and - hence the earnings, should depend to some extent, at least, upon the - amount of capital justly entitled to profit." - -It would seem to be self-evident that the earnings alone, either gross -or net, are not necessarily an indication of the value of the road. -Gross earnings are not, because, if a minimum proportion of them is used -for maintenance and betterment, the value of the property will steadily -decrease; whereas, if the opposite policy be followed, it will increase. -On the same principle, the net earnings offer no criterion as to the -manner in which the property has been kept up, and alone are, therefore, -no measure of its true value. - -As an example of the arguments used by some of the opponents of physical -valuation, the following quotations are made from an article by Mr. -Henry Fink, Chairman of the Board of the Norfolk and Western -Railway.[21] Referring to the fluctuation in the costs of construction, -he says: - - "As the cost of materials and labor fluctuates ... it follows that - what may be a fair valuation of a railroad one year may not be so - one or two years later. Hence, it would be necessary to make new - valuations from time to time." - -Further, in the same article, referring to a valuation based on the -market value of bonds and stocks, he says: - - "Unlike the physical valuation, this method has a rational basis.... - It is true that prices of stock fluctuate—at times violently—but - this difficulty can be overcome in a measure by using the average - prices for long periods." - -It is strange that it did not occur to so able a man as Mr. Fink that -the value of the physical property might also be based on average prices -for long periods; the cost of railroad construction and equipment as a -whole does not fluctuate nearly so violently as the stock market. - -The report on "The Basis of Unit Prices,"[22] by W. D. Pence, M. Am. -Soc. C. E., the Engineer of the Wisconsin Railroad Commission, in -connection with the Appleton Water-works case, is an excellent example -of a fair and impartial study of this phase of the subject, and the -conclusion of the Commission in this matter can only be regarded as -reasonable by any one who is disposed to be at all fair-minded. It says: - - "If the standard by which the reasonableness of charges is to be - determined should fluctuate with the market prices of material, - labor and land, no schedule of rates could be established for any - length of time, for, under the circumstances, a rate that would be - reasonable to-day might be very unreasonable to-morrow. The - principles of the law applicable to the subject certainly involve no - such absurd consequences." - -Another instance of an argument based on technicalities is found in the -_Railway Age Gazette_.[23] In an editorial on Valuation and Rate -Regulation, it is said: - - "It has been supposed in the past that rate-making is an exercise of - judgment. It seems to be assumed by many that after a valuation has - been made it will be merely an exercise in mathematics. Suppose the - value of a railway for state purposes is $50,000,000. Then, on this - theory, all that will have to be done will be to multiply this - amount by 6 per cent.—or whatever may be regarded as a fair - return—and so adjust the rates as to enable the road to earn, say, - $3,000,000 a year," but, the writer goes on to ask, "how are the - specific rates to be fixed? A great majority of those who advocate - valuation say that they should be based on the cost of the service. - The proper method, then, would be to ascertain the exact cost of - hauling each commodity and then base rates on these ascertained - costs, making them just high enough to allow the road a fair - return." - -Then the article goes on to point out the difficulties of doing this, -which of course we all know, and finally concludes that: "The theory of -basing rates absolutely on the cost of service is unjust and -impracticable." In the present state of the art this is probably true, -but why is it necessary to change the present theory of rate-making -because the rates are to be lowered or raised? If, for instance, it is -shown that it is necessary to reduce the rates sufficiently so that the -net earnings will be reduced, say, approximately 10%, is it beyond the -capacity of the traffic officials of a railroad to adjust their rates -accordingly? - -In an editorial in another part of this same issue the _Gazette_ -advocates the raising of rates to meet higher prices of supplies and -higher wages; it is surely as feasible to lower rates as it is to raise -them, and, even though it were necessary to base rates on the cost of -service, it does not seem as if that would be entirely impractical, -inasmuch as it is the whole argument advanced for raising the -commutation rates on the railroads entering New York City. Will the -_Gazette_ say that the arguments put forward by these railroads are all -wrong? Mr. Fink, in the article[24] already referred to, states: - - "It cannot be said that ... railroads make tariffs; they can only - adjust them to varying conditions." - - * * * * * - - "Adjusting freight rates is practical work of men who have special - training for it and large experience. They may not all be able to - explain underlying principles, such as the value of service, but - they have used this principle for years, and apply it, intuitively - in every case which comes before them." - -Surely this body of men is equal to whatever adjustment may be -necessary. Rates will probably never be arranged to suit every -individual shipper; but if the people, as a whole, believe that the -railroads are fairly capitalized on a reasonable basis of value, and the -rates, in the aggregate, are adjusted so that unduly high profits are -not made, individual complaints of injustice may easily be taken care -of. - -The most important considerations affecting the regulation of railroad -rates arise in attempting to fix the amount which shall be considered a -fair return on the investment. If a certain rate of interest is fixed as -the maximum which may be earned, all incentive toward improvement or -progress is removed. The effect of this would be, of course, to retard -all development. Once a railroad was earning its legal rate of interest, -there would be no necessity of cutting down grades, building larger -locomotives to handle larger trains, investigating the economics of -operation and location, in order to introduce the thousand and one -economies which are being developed day by day, or for our railroad -presidents to lie awake nights thinking how they are to save that -million dollars a day for the benefit of the always ungrateful shipper. -This objection against rate regulation, and incidentally against -physical valuation, can undoubtedly be overcome. One proposal which has -been made is somewhat along the lines on which it is proposed to finance -the New York Subways, the profits to be divided between the railroads -and the State, after a certain rate of interest had been earned. There -is nothing novel about this, as several railroad charters have been -granted with a provision that all earnings, over an amount necessary to -provide a certain rate of interest, should be paid to the State. Another -suggestion[25] is that the reasonable rate of return be fixed as a -percentage of the gross income, irrespective of the amount of capital -required to produce it. There are probably other ways in which this -might be worked out and adjusted, and this phase of the subject surely -does not present any insuperable objections. - -That the railroads have little to fear, in regard to capitalization, -from a properly made valuation, is shown by the results in the State of -Washington, where the valuation was undertaken solely for the purpose of -fixing rates, the result being a determination of the market value of -the three principal railroads of the State—the Northern Pacific, Great -Northern, and Oregon Railroad and Navigation Company—at an amount -considerably in excess of their capitalization.[26] It is true that -rates were lowered in this case on some commodities, but it does not -necessarily follow that every change of rates on the basis of valuation -must be toward a lower scale. Railroad rates are low and have stayed low -while the cost of everything else has been raised, and yet, while this -fact is well known to the general public, they still believe that, in -some way or another, the railroads are getting or have been getting more -than their proper share of profits. Evidently there is something wrong -somewhere, and it is not going to be set right by calling the public -fools and ridiculing their presumption for meddling in any way with -railroad affairs. Mr. F. W. Whitridge, the Receiver of the Third Avenue -Railroad, of New York, while stating[27] that he had only just -discovered that there was such a thing as valuation, at the same time -held up the whole scheme to ridicule, though he admitted that: - - "The people of this country have, I think wisely, made up their - minds, in consequence of great corporate abuses, that public service - corporations should be subject to regulation, etc." - -He nevertheless ridicules the efforts of the authorities, particularly -their endeavors in the matter of valuation, with its "irreverence for -facts." They seem, he says, "to be singing the song of the Banderlog who -dreamed of - - "'Something noble, grand, and good - Won by simply wishing we could.'" - -Valuation, however, has gone far beyond the point where it can be -considered a visionary scheme, or can be held up to ridicule; and it has -been worked out far enough to show, at least, that there is a rational -basis, on which a determination of values can be made, which will do -justice to both sides; furthermore, the Supreme Court of the United -States has not only ruled that valuation must necessarily be precedent -to rate regulation, but has gone so far as to specify at least some of -the elements which must be taken into account, and it may be worth while -noting that, in spite of the author's criticisms of the Washington State -Valuation, it is the only one, thus far, in which an attempt has been -made to comply with the rules laid down by this Court. The results in -Washington, however, indicate clearly the need of regulation of the -railroads, as a whole, and not varied regulation by individual States of -the parts of systems within the borders of each. - -Arguments on either side can be prolonged indefinitely, and many good -reasons for and against physical valuation are advanced from time to -time, just as they may be on any proposition. Some of the principal -objections have been referred to here in an endeavor to show that they -are not insuperable; the point which concerns us now is that to-day we -are confronted with a fact and not a theory, and that fact is that the -railroads are going to be regulated, and that their proper development -is held back and general business is hampered by the feeling of -uncertainty as to the outcome. Physical valuation is not a panacea for -all evils, but a properly made valuation of the physical elements, with -a due allowance for the intangible values, based possibly on some such -method as that developed by the Washington State Commission or by -Professor Adams in Michigan, is surely as good a way of breaking into -the circle of argument as any that has been proposed thus far. - -The equipment of freight trains with air brakes and safety couplers was -practically forced on the railroads by the pressure of public opinion -led by laymen, yet one will hardly find a railroad man now who will not -admit that this is good practice, not only from the standpoint of safe -operation, but from that of economy as well. The early attitude of the -railroads in this matter is already being quoted by the advocates of -valuation, and inasmuch as we have to admit, as we surely do, that a -start is going to be made somewhere along the line of obtaining some -more definite information in regard to the true relation of the value, -capital, and profits, of railroad properties, than the mere statement by -the railroads themselves that they are all that is good and fair, would -it not be wise on their part to do all they can to have the start made -properly rather than oppose it? Some of the most prominent and -progressive railroad men of the country have already arrived at the -point of believing and saying that regulation properly carried out may -not be an unmixed evil, in fact, would probably be beneficial, but they -still balk at valuation, without, however, suggesting any other means -whereby the general public is to obtain the information on which to base -an intelligent opinion as to how such regulation is to be carried out. - -The speaker does not for a moment underestimate the difficulties -incident to the determination of the intangible values, or forget the -difference between the problem presented by the comparatively new lines -in the State of Washington and a valuation of, say, the Pennsylvania -Railroad or the New York Central. No one who gives any real thought to -the problem pretends that the value of a railroad is the value of its -purely physical property; but, because the matter of determining the -intangible values is difficult and complicated, is it necessary that we -should sit back and fold our hands and say "it can't be done"; that in -the whole country there is no man or body of men, or engineers, if you -please, with brains and ability enough to solve the problem? As for -cost, is it not worth $10,000,000, which is more than $40 per mile for -all the railroads in the country, or about three times as much as the -cost of the most careful appraisals yet made, to have the question put -once and for all on a stable basis, satisfactory to all, if the problem -be approached in a fair, broad-minded, common-sense way, by engineers -big enough to command the respect of both sides? Aside from the question -of rate regulation, is it not worth this much to the railroads of the -country to be able actually to prove that the amounts at which they are -capitalized are reasonable, as in the great majority of cases they -probably are? - -There are one or two points which, it seems to the speaker, cannot be -too strongly emphasized: - -First, that valuations properly made may be the means whereby confidence -may be restored, not only in the mind of the general public, but in that -of the investor; but, in order to obtain this result, the railroads -should urge, with all the power they possess, the necessity of having -such valuations made by a body of men, some of whom, at least, should be -engineers, big enough to entitle their opinions to the respect of both -sides, and thoroughly qualified by training and experience for the work. - -Second, that, as far as possible, regulation should be general or -national, so as to avoid the complication of dividing all roads at the -State lines, and of having different regulations in different States. - -Third, that there need not necessarily be any relation between rate -regulation and rate-making. Rate regulation can well be confined to -rates in the aggregate, rate-making applies to the adjustment of -individual rates, and must necessarily be the work of men well versed in -all the varied elements which control it and the particular conditions -affecting the business of each particular road. The speaker believes -that valuations made in this way and with these objects in view will do -no harm to the railroads, and will do much to restore confidence and -give us the much needed peace and quietness to carry out necessary -development. - - * * * * * - -CHARLES H. HIGGINS, ASSOC. M. AM. SOC. C. E.—Mr. Riggs' able and timely -paper is of great interest and worth to all concerned with the matter of -values, whether of public service corporation property, or other -property; and what engineer is not concerned with values? - -One cannot but wish that an index accompanied the paper, as its -usefulness would be thereby greatly increased, particularly as, by its -arrangement, such subjects as depreciation, non-physical values, etc., -are treated of in many different portions of the paper. - -_The Wisdom of Having a Physical Valuation._—It is hard to understand -how any thoughtful person can now doubt this, for we are in a period of -regulation and taxation of public service corporations, and the only -question is whether they shall be regulated and taxed with a full -understanding of the investment involved, or by arbitrary methods, such -as the 2 cents per mile passenger rate, which has been so popular in -many States, under widely different conditions and irrespective of the -cost of the service. - -The time would seem to have arrived when the thoughtful public service -corporation manager would welcome a fair valuation of the company's -property, as protection against legislation conceived in ignorance of -the capital invested. - -_Relation Between Railroads and Other Properties._—The relation between -appraisals of railroad and of water, gas, and traction companies is very -close, and the same general principles apply. In the former, however, it -is complicated more often by the fact that the lines of a railroad -extend through many States, with terminals in one or two, and, further, -that the railroads have many subsidiary, controlled, or dependent -companies, such as coal, lighterage, terminal, car, warehouse, -contracting, elevator, stock yard, and supply companies, often owned, -wholly or in part, by men in the railroad management. Agreements with -these companies may greatly affect the non-physical values, as -determined by the methods advocated in this paper, which may otherwise -be sound. - -_Valuation of All Properties._—The author says that the valuation of all -railroad properties in the country "would be of interest." It would be -more; it would be of value infinitely greater than the cost. The mere -presence of light prevents many vices, and this is as true in -corporation practices as in the streets. It is in accord with Dr. -Woodrow Wilson's "pitiless publicity"; and, which is, perhaps, more -important, it is the basis, or should be, of all legislation concerning -the regulation of these great highways. - -_One and Only One Fair Value._—Nothing in Mr. Riggs' paper is of more -value than his insistence that there is one and only one fair value of -the physical property of a railroad, no matter for what purpose it is to -be used. How futile are the misdirected efforts of those who would have -it otherwise, for, no matter what the purpose of the appraisal may be, -who can foresee the use that may be made of it when it becomes public -property? - -_Cost of Reproduction._—Cost of reproduction less depreciation seems to -be the established method—that recognized by the Courts—for arriving at -the value of the physical property. Cost, as the author contends, can -only be an element in determining the present value, for the owner of a -stone bridge has as much right to any appreciation in the value of -masonry as the owner of land has in the increased value of his property; -and, though the cost early in the life of the structure is usually near -its value, it may lose that position. What relation exists between the -value of the Pyramid of Cheops and its cost? Now, as then, our unit -measure of value is changing. Cost is certainly of historic interest, -but present value is the subject for present uses. - -The points in favor of inspection to determine the physical condition of -the object to be valued are convincing, where the structure may be -readily inspected. Mortality tables mean little without a history of -maintenance. With perfect maintenance there would be no physical -depreciation. - -_Maintenance versus Depreciation._—Depreciation and maintenance are -interdependent, so much so that some engineers have advocated dropping -the term, "depreciation," and substituting "deferred maintenance." A -little thought will make this clear. While this term would not apply in -the case of a single rail or car, it is not illogical when applied to a -system, built and renewed piecemeal and maintained at a certain standard -of usefulness, that is, on all well-managed undertakings of magnitude, -units are constantly being replaced, thus maintaining a standard of -efficiency. This standard, on the entire system, is usually found to be -between 70 and 90% of the cost of reproduction. Some items are even -improved, and the cost is charged to the maintenance account, such as -that referred to in the paper as "consolidation and adaptation" of -roadbed; and only a few, such as steel rails, steadily and progressively -become less useful, and even these have a bottom value, that of scrap -steel. Nor are examples numerous where all the rails are laid at one -time, and they are extremely rare where all are replaced at -approximately the same time. When the rails on a street or section are -renewed, the cost cannot properly be charged to capital account, except -in so far as the new rails are of a more valuable type than the old -ones; for, if this were done, there would be no limit to the -capitalization as time goes on. Furthermore, the moment it is admitted -that, by reason of a change in the art, we may have depreciation through -obsolescence, we admit that through a change in the art we may have -appreciation through the opposite of obsolescence. This being the case, -the use of "mortality tables" to determine present value is misleading, -unless it is done with the full itemized accounts of maintenance, which -are seldom, if ever, available. The author's position in regard to the -need of inspection of each item is well taken. - -_Dead versus Live Properties._—These, perhaps, are not happy -expressions, but they serve to emphasize a vital distinction which must -be made in the valuation of properties. The difference may be as great -as between a corpse and a man; here, also, the distinction is hard to -define. We say the soul has departed, or the spark of life is -extinguished, but these expressions do not contain a satisfactory -scientific definition. So, as Mr. Riggs points out, the physical -property of a going business may not be valued as so much junk, even if -the non-physical values are to be determined separately. - -_The Franchise a Contract._—The Courts hold a franchise to be a -contract, something often forgotten, both by the public and by -corporations. The speaker, however, understands this only to mean, even -where the franchise is in perpetuity, that the property of the -corporation cannot be taken for public use without just compensation. In -a sense, then, there can be no such thing as a perpetual franchise. -Using the word franchise with its restricted meaning, the -unreasonableness of the rates may be measured by the value of the -franchise. - -_Physical versus Non-Physical Values._—The following division has been -made by the author between physical and non-physical property, for the -purpose of valuation: - - "That the Physical Value, or present value of the physical property, - should fairly represent the actual capital invested in the property - at the date of appraisal; that it should be made up of the sum of - the various elements which constitute the cost of reproducing the - property together with any appreciation which may have been added to - any of them, less all depreciation. - - "That the Non-Physical Value is the difference between the 'fair - value' as defined by the Courts, or the reasonable value of the - property as a business or producing property, and the physical - value, or actual present worth; and that the only proper method for - determining such values involves a study of income accounts. - - "This Non-Physical Value may be: positive, or a value in excess of - the physical property, or negative, or less than the physical value. - In the case of a property having a negative intangible value, a - deduction should be made from the physical value." - -This division is convenient but arbitrary. It is the division of an -engineer rather than of an economist; for these so-called non-physical -values are like the breath of a man's life; without them, the physical -value is like the discarded body. Again, the use of negative -non-physical values, while convenient, may not be wholly logical. These -remarks are not directed at Mr. Riggs, for he is careful to say that he -is dealing only with active enterprises, and not with those which are -inert, and the speaker realizes that he is not attempting primarily to -build up a logical argument, but to formulate certain rules to overcome -practical difficulties met by all who have attempted valuation work. As -many who have not given this matter much thought are apt to be misled by -the distinction made between physical and non-physical values, they -should bear in mind that the line between them is like the equator, an -imaginary one. - -_Water._—"The water is as much a part of the cost of putting that line -there as the rails," remarked a corporation official, of admirable -character and wide experience, pointing to a trolley line from the -window of a Pullman car; and, bearing in mind what he meant by "water," -this is undoubtedly so. The cost of promoting the enterprise, the -discount on the hazard, the loss of interest during its infancy, the -labor of building up the undertaking—these are all real elements of -cost, and may remain in the property as value, but, like all other items -of cost, they have their reasonable limits, which, in each individual -case, can be determined within narrow bounds. - -_Purpose of a Valuation._—As Mr. Riggs points out, there are four -reasons for a valuation: Taxation, rate-making, purchase, and control of -the issue of securities, one of which is usually the primary cause for -the valuation being made; and he argues that there can be but one "fair -value" of the physical property, whichever of these reasons may prompt -the appraisal. This is fundamental, for "fair value" is used in the -sense of true value, which, to the writer, seems to be a more apt -expression. It is rather surprising that it does not appear in the -paper. Its use, of course, is old; in the Constitution of New Jersey, -1875, we find: "Property shall be assessed for taxes under general laws, -and by uniform rules, according to the true value." Each of the three -matters, taxes, rates, and authorized capitalization, are interdependent -and, in the long run, cannot be considered separately. This can be -emphasized by a _reductio ad absurdum_: Modern civilization is so -dependent on transportation by rail that unquestionably all taxes could -be raised by assessment on the railroads, if these roads were allowed to -fix their rates and were protected in the collection of them; but how -would this method differ from that of the Romans, of farming out the -collection of taxes? Not materially, and no one advocates a return to -that method. This is absurd, but it serves to emphasize the relation -between taxes and rates. Taxes can only come from the rates. - -_Overhead Charges versus Unit Values._—There is much in various parts of -this paper concerning overhead charges, but very little about the items -considered in determining the unit values or unit prices used; and does -not the latter greatly affect the former? For example, in discussing the -Michigan appraisal, the author says: - - "For many items, such as clearing, grubbing, earthwork, masonry, - etc., the price was fixed by agreement during the discussion at a - figure which represented the fair average cost of this particular - item during the 5-year period preceding the appraisal." - -The "fair average cost" under what conditions? This word "cost" is -understood by different men in as many different ways as the word value. -Mr. Riggs very clearly gives the items included in "fair value" as -finally arrived at by him, but it would seem to be as important to -define "fair cost" as used in arriving at the unit prices, for otherwise -the chain has a weak link. - -What may be considered a fair cost per unit of measure for a particular -item differs greatly: First, with the point of view and breadth of -horizon of the man stating such cost; and second, with the methods of -letting contracts and accounting with which he may be familiar, as -applied to such items of work. Because of the first, a fair average unit -cost may mean one thing to a contractor, another to a division engineer, -still another to a chief engineer, and a fourth to a manager or -consulting engineer; and because of the second, the understanding of the -term may differ among men of the same class. All of this quite aside -from what may be termed the personal equation of the individual. Thus -the subject of overhead charges can only be discussed profitably in the -light of knowledge concerning what has already been included in fixing -the unit prices used. For example, the element of hazard common to all -construction, but differing in degree on different classes of work, may -be included in the unit cost used, or it may be added as a percentage to -resulting sums, but it cannot rightly be included twice. This is equally -true of other elements of cost of a similar character. - -The foregoing is pertinent, for any valuation will probably be attacked -in the Courts, and the unit values will be one of the most tempting -points for assault, for the very reason that this wide difference of -understanding in regard to cost, and particularly in regard to unit -costs, exists. This same difference of understanding is usually the -reason for the wide difference in unit costs testified to by able -engineers and, consequently, for the distrust often felt for such -testimony. The methods followed in taking expert testimony usually work -to make "confusion worse confounded." The judge or layman, hearing two -engineers testify to widely different unit prices as a fair average cost -for certain work, forms a low opinion of their judgment, or worse, -whereas the real difficulty may, and usually does, lie in a different -understanding of the meaning of the term "cost," or "unit cost." To the -speaker, this seems to be the weakest point in an admirable paper. - -_Paving._—Whether the value of the paving between and for a space -outside of the tracks is an element of value in a street-car line, or -whether the cost incidental to the construction and maintenance is in -the nature of a tax, is a much disputed point in all valuations of -street-railway properties, and an important one, for it may amount to -$15,000, or more, per mile. It is interesting to remember that the -custom of requiring street-railway companies to maintain the pavement -between the rails and for a space of about 2 ft. outside of them, which -has become almost universal, developed during the use of horses to draw -the cars, the animals causing great wear on that portion of the street. -This question of values is a difficult one. It would seem that the most -tenable position is that: If the fee to the pavement is not in the -company, and if the rule concerning cost of reproduction less -depreciation is to be followed, the cost of taking up and relaying the -pavement is an element of value in the physical worth of the track, for -it would be impossible to reproduce the track without incurring the cost -of such work. - -S. D. NEWTON, ASSOC. M. AM. SOC. C. E. (by letter).—The general scope of -this paper is admirable. The author's views and definitions are -unusually sound, clear, and forcibly expressed. To one minor detail, -however, the writer is unable to subscribe. Referring to "the physical -property element of value," he states that: - - "This consisted of those things which are visible and tangible, - capable of being inventoried, their cost of reproduction determined, - their depreciation measured, and without which the property would be - unable to produce the commodity on the sale of which income - depends." - - Take the case of an industrial spur for some minor industry along a - line of railroad. It is often a question in the minds of the - management whether or not the car-load business done by such an - enterprise is sufficient in quantity to warrant the expense of a - spur track. There are probably other facilities in the neighborhood - which could be used to take care of this business at the expense of - some inconvenience; in a large proportion of cases, the railroad - will handle the business anyway, and the spur can in no sense be - called a necessity. Still, it is visible, tangible, and capable of - being inventoried, and should be included in an inventory of the - property the same as any track or section of track belonging to the - Company. This may also be said of an extra settling basin or filter - bed in the case of a water-works plant. If such basin or bed were - not in existence, and a leak should occur in the original plant, the - business of supplying water to its customers could, in all - probability, be carried along in some manner until the break could - be repaired; nevertheless, such a tank or bed is desirable, and its - value should most certainly be included in an inventory. - -Take the extreme case of a piece of machinery which is utterly broken -down or so far out of date as to be entirely worthless for the purposes -for which it was designed. Yet such machinery has, at least, a scrap -value, and as such it should be included in the inventory as part of the -tangible assets of the concern at the date in question. - -Of course, in many instances, certain interests endeavor to have -inventoried items which should either be omitted altogether or included -at a much reduced valuation from that sought to be placed on them, and, -in such cases, the very best judgment of the appraising engineer must be -called into play in order that injustice may not be done to either -party; but to say, as Mr. Riggs' definition virtually does, that nothing -should be inventoried which can, either with or without inconvenience, -be dispensed with, is absurd, and the writer does not believe that such -is the meaning the author intended to convey. Probably, if the word -"economically" were inserted in the definition, it would more nearly -represent the proper idea. - -WILLIAM V. POLLEYS, M. AM. SOC. C. E. (by letter),—In his very thorough -and painstaking paper Mr. Riggs states that it is confined to a -discussion of methods for arriving at a correct figure of cost, and -disclaims any intention of considering the propriety of using said -figure when reached. - -Inasmuch, however, as he devotes the next eight or ten pages to a -dissertation on law, political economy, rate-making, finance, and advice -to railroad employees, with a word of encouragement to the good, and -firm reproof to the bad ones, it is fair to assume that he intends this -disclaimer in a Pickwickian sense, and that the real intent of the paper -is to show that the physical valuation of property is, with certain -determinative, corrective factors, a proper standard for gauging -taxation, bond issues, and kindred evils. - -Is it not a fact, however, that taxation is based on a much more -intangible structure, and that the net earnings must necessarily have -more to do with it than the physical valuation of the property—whether -it be that of a wicked public service corporation, or that of an honest -haymaker—rather on what their property can produce, than on what it -would cost to produce the property? Is it not rather a battle of -business acumen between the taxer and taxee, a battle which, among other -things, is regulated more or less by the fact that an extreme in either -direction will bring disaster to one or both, followed by the inevitable -reaction and readjustment? - -Take, for instance, an extreme case: A manufactory is erected on -comparatively worthless ground. A million dollars or more is invested in -a plant, with the result that surrounding real estate values go up with -a bound. Supposing that the manufacturer has not made any previous -arrangements for immunity, and the assessors are both acute and honest, -the property will be taxed for a large figure, which tax, if the factory -is making money, will be paid, with more or less grumbling, up to the -economical breaking point. Suppose that, owing to a sudden permanent -change in business conditions, it becomes impossible to operate this -plant, and it is abandoned. A corps of experts may be thrown into the -mill, before the last employee has left the building, and may carefully -scrutinize and caliper the machinery, count the bricks in the wall, tap -the stay-bolts in the boilers, and bore into the furniture to see -whether it is solid or veneer, and when they are through and their -figures are all in, they have not arrived at anything that is of the -slightest use as a basis for a bond issue or taxation, and very little -that would be of use for sale. In such an extreme (but by no means -unheard-of) case physical value bears no relation to real value. - -This is not to say that a physical valuation is without worth, and even -great worth in some cases; it is merely offered as an opinion that the -physical value is in many (and probably most) instances a very -treacherous guide to the real value—a far poorer guide, as a general -rule, than the accounting department; a minor quantity, in fact. - -It seems doubtful whether there is a scientific way of arriving at the -true value of a going property by the physical-valuation route. There is -too large a percentage of values which, being intangible, are matters of -judgment. At best, the determination of value must be that of opinion, -and the worth of that opinion hinges principally on the practical -qualifications and disinterestedness of the person who gives it. - -Unfortunately, or fortunately, as the point of view may be, the -disinterested person is not apt to be qualified, nor the qualified -person to be disinterested, and it seems extremely probable to the -writer that, while weapons may be changed and excuses vary, the tax war -will be waged as of yore, and the fool and his money will continue along -diverging paths until something more ingenious than physical valuation -is invented, however well the valuation may be made. - -C. P. HOWARD, M. AM. SOC. C. E. (by letter).—While there may be no -material differences of opinion as to the principles on which a physical -valuation should depend, such a detailed description of organization and -methods as that presented by the author should be of great service to -others undertaking similar investigations. - -It may not be amiss, however, to mention certain features affecting the -non-tangible values which should be more fully considered in any general -discussion of the subject. - -The author calls attention to one or more particulars in which the -methods of the Michigan appraisal may "fail as a method of determining a -value for use as a basis of rate-making." Later, after quoting various -court decisions, he dismisses this phase of the subject with the words: -"In view of these dicta, it is needless to argue whether a rate of 6% or -10%, or 15%, or more, be reasonable." - -A value for purposes of rate-making might more properly be called a -"permissible value." The writer holds no brief for the corporations, and -would not like to fall under the imputation of being "apparently incited -by, either the direct interest of corporations, * * * or an effort to -confuse the subject of valuations," but will venture the following, -which, while it does not exactly represent any particular case, it is -hoped may be recognized as an illustration drawn from life. - -A, B, C, and their associates, being familiar with a certain territory, -its resources, transportation facilities, and growing development, -believe that the time has come to build another railroad through their -State or States. They have made careful estimates of the amount of -tonnage that may be expected from the development of its mines, timber, -farms, etc., and conclude as follows: - -_First._—The road, completed along the most approved lines, will cost, -with equipment, $50,000,000. - -_Second._—It will take five years to construct and equip the road and -put it in fair running order. - -_Third._—The traffic, when fully developed according to their hopes and -expectations, will eventually afford at usual tariffs a handsome profit, -say, from 8 to 12% per annum on the capital invested. This condition, -they believe, in all human probability, will be attained in from 5 to 10 -years after completion. - -_Fourth._—That half the traffic anticipated will pay 5% on the -investment. - -_Fifth._—They are obliged to admit (though the chances of this are so -remote as to be in their opinion negligible) that, due to unforeseen -causes, obstruction, competition, etc., there is a possibility that, as -has so often happened in the past, the enterprise may prove a financial -failure, or that the period of prosperity may be postponed so far into -the future as to amount to practically the same thing. - -Here is a bold undertaking; but were it $5,000,000 instead of -$50,000,000, the conditions would be essentially the same. Nevertheless, -they have the courage of their convictions and go ahead. - -Now, with all the risks and uncertainties attending an enterprise of -this sort, if the ultimate profits were limited in advance to 5 or 6% on -the capital invested, less depreciation, who but the Government itself -could afford to build a railroad? - -Evidently, when an existing railroad makes small additions from time to -time to extend or take care of its business, the risk is not so great. -Such extensions will continue more or less under any limitations. - -For rate-making, it is evident that an appraisal based on earnings will -utterly fail of its purpose if made during the lean years immediately -following construction. If made some years later, when the property has -begun to pay, the risk and necessary financial loss of the lean years -should be remembered, as any one building a road in the future will -necessarily have the same problems to meet, together with the expenses -of interest, depreciation, loss from operation, etc., both during the -construction and the lean years following, all of which must properly be -considered a part of the real cost of constructing and developing a -property. - -J. E. WILLOUGHBY, M. AM. SOC. C. E. (by letter).—The determination of -the cost of reproducing the property of any steam railway involves, -together with other items, an estimate of the present cost of: - - _First._—The acquirement of the right of way, to the extent, in the - form, and on the location of that held in connection with the - railway to be reproduced; - - _Second._—The construction thereon of the roadway, to the form and - dimensions, and of the materials which the roadway to be reproduced - exhibits; and - - _Third._—The seasoning and adaptation of the roadway to the state of - perfection which the roadway to be reproduced exhibits at the time - the estimate of cost of reproduction is made. - -The first conception, for fixing the cost of the several items, is to -consider the railway to be reproduced as being non-existent at the time -the estimate is made, but having the environment which then exists along -the operated railway, although that environment may be largely of the -railway's own creating. The cost of the right of way is to be fixed as -ungraded and unimproved property attached and forming a part of the -adjoining improved property, which adjoining property will be entitled -to receive, in addition to the market value of the land taken, all -consequential damages due to the taking off of the right of way in the -form and location that the land has actually been taken, and for the -purpose of railway construction and operation. This adjoining property -is to give credit on the consequential damages for the incidental -benefits which it derives, if any, from the construction and operation -of the railway. - -In fixing these values, the drift of public sentiment—the bias of juries -of view and of trial juries—at the time the estimate of cost of -reproduction is made must be considered, since that sentiment may affect -enormously the cost of the right of way. The amount to be paid for a -right of way is in the end that which a condemnation court will award. -The question as to whether or not the right of way was originally -donated can no more enter into the determination of the cost of -reproduction, for the purpose of lessening the estimate of cost of -acquiring the right of way, than the fact that donations of lands or -bonds (or of convict labor and slave labor, as in the South prior to -1860) made by governmental authority or private enterprise, at the time -of the original construction, can be used to reduce the reproduction -cost of the excavation made in the formation of the roadway. - -No rule as to the sale of property for commercial purposes in the -vicinity of an operated railway can be rightfully adapted as covering -the line as a whole. While the cost of right of way through farm or -timber lands bears a general relation to the value of those for -agricultural purposes, where improvements thereon bear but a small -proportion to their total value, this relation is wholly wanting in the -cost of a right of way through a village or city or at any point where -the improvements on the property bear a large proportion to its total -value. The relation is also wanting where a right of way is obtained -through agricultural lands devoted to special purposes, like that of -country homes for the rich. It is also wanting where the right of way is -taken out of the narrow river lands in the Appalachian Mountains, where -the total value of the whole farm is dependent on the small acreage of -flat land along the river bank. The general rule of prefixing a constant -to the current selling price of lands, in order to determine the -estimated cost of right of way, should be limited to agricultural and -timber lands, and to those which, owing to their extent, the carving out -of the right of way does not wholly destroy for the continuation of -agricultural and timber operations. - -For villages and cities, and for lands devoted or adapted to special -purposes, an accurate estimate of the cost of reproduction of the right -of way can be determined only by a specific investigation of the -conditions in each community. While it is difficult to conceive all the -activities and sentiments which have growth in, from, and of railway -operation, as being in existence without the railway, it is only through -such an assumption that one can estimate correctly the make-up of the -items of cost of reproducing a railway as such railway may now exist. To -assume that the railway, not existent for the purpose of estimating the -cost of reproduction, will now receive the donations of land and moneys -that were made half a century ago, is merely going back to a -determination of what the road has actually cost; and that is contrary -to the intent of the theory of the cost of reproduction. The conception -of a parallel line is not correct, for it imposes thereby a further -burden on properties which have already contributed to the public good, -probably to an extreme extent, and gives an abnormal cost for right of -way, as shown when a railway seeks to enlarge its terminals in a crowded -community, or to find a new entrance into a populous city. - -So, too, in estimating on the formation of the roadway, one must -consider the roadway to be reproduced as being obliterated—all cuts and -borrow-pits refilled, and all embankments and spoil banks removed from -the right of way—but all other lines of transportation, except the -railway to be reproduced, must be considered as being in existence as -they actually are at the date when the estimate of cost of reproduction -is made, and that such other lines of transportation are available for -bringing in machinery, tools, teams, materials, and supplies for the -construction of the railway to be reproduced. It is only by such an -assumption that the benefit of the improved means and methods of -construction now prevalent can be obtained; but it is not permissible to -estimate for the construction of a railway with different grades, -alignment, roadbed, widths, or with different materials than that of the -railway to be reproduced merely because such construction at this day -might be actually cheaper or better than to construct it in exact -duplication. For example, if the rock cuts on the roadway to be -reproduced be only 18 ft. wide, with ¼:1 slopes, one must not figure on -the greater economy of steam-shovel excavation, because the steam shovel -cannot be worked in cuts of that width; nor can the spoil from such cuts -be carried long distances to eliminate a possible solid-rock borrow -originally made elsewhere, because long hauls are practicable in -steam-shovel work, but wanting in excavations where the mule is the -transportation force. So, too, it is not permissible to estimate on -reinforced concrete bridges to take the place of more costly cut-stone -arches, if cut-stone arches are the structures that have been actually -built. The idea of cost of reproduction is not synonymous with the idea -of the cost of building a railway capable of serving the same -transportation purpose. If all our railways were to be built anew, in -the light of our present knowledge, and with our present traffic -offerings and financial resources, vast changes would be made in the -character of construction. The physical fact of existing construction -prevents a theoretical substitution of what is the best construction for -any community, together with its costs for the construction which was -actually made years ago. - -In the event that an estimate of reproduction costs be made for a State -as a whole, or for a great railway system as a whole, the conception of -reproduction is modified so that the construction may take the form of -progressive construction, the principal lines being built first and the -less important lines afterward. This method will require the estimate -for interest during the construction period to be greater. - -The money cost of the seasoning and the adaptation of the roadway to -such a condition as will permit heavy trains to be run at high speeds, -is great, but the amount is not readily ascertained. An estimate of cost -of reproduction, to be true, must consider this item; and probably the -more usual method of ascertaining it is to assume it to be an amount in -some proportion to the cost of the excavation. This proportion will vary -with the character of the material through which and of which the cuts -and fills are made, and with the methods of construction necessarily -adopted. There are many railways on which this cost will exceed 25% of -the total cost of excavation. - -After the estimate has been made, including the item for seasoning and -adaptation, there should be added a contingent fund to cover the omitted -work, consisting of small borrow-pits and ditches, undetermined -foundations, unexpected conditions encountered, unavoidable "force -account" work, minor changes of streams and highways, damages to -adjoining lands due to the methods of construction and to diversion of -water, etc. This item will not exceed 5% of the cost of the roadway if -the estimate be accurately made. - -The more convenient form into which an estimate of cost of reproduction -of a steam railway is to be put is to follow the sub-accounts, as -prescribed by the Interstate Commerce Commission for Expenditure for -Road. Each item given in that accounting has a place in the estimate. -These comments are confined to the items covering the roadway, namely, -Right of Way and Station Grounds, Grading, Tunneling, Bridges, Trestles, -and Culverts. - -HENRY C. ADAMS, ESQ.[28] (by letter).—To the writer this paper seems to -be the most complete and comprehensive discussion of the general -question of valuation of property invested in public service industries -that has come under his notice. It is especially important in that it is -a summary of the discussion on this most difficult subject during the -past ten years, and the writer thoroughly agrees with the general -conclusions reached by Mr. Riggs. - -There is one point, however, which might possibly have been developed -more completely, and that is the treatment of discounts, which presents -itself from time to time in the general discussion. Mr. Riggs quotes -with approval the following: - -"If a company can market its 50-year, 4 per cent, bonds at 90 per cent. -of par, it means that the company's credit is on a 4½ per cent. basis; -that it could market a like security paying 4½ per cent. at par." - -This is, of course, correct as far as the mathematics of the proposition -is concerned, but it seems to overlook that peculiar psychology of the -market which enables a corporation to secure a larger amount of actual -cash for a given interest annuity when bonds are sold at a discount than -when they are sold at par. - -Aside, however, from the accuracy of the above quotation and of Mr. -Riggs' apparent acceptance of it as the final word on discounts, one may -ask if it recognizes all the elements necessarily involved in a -discussion of the problems raised by discount financiering. From the -literature of the subject one may read the following claims: Discount is -a measure of the risk involved in a new enterprise; discount is a market -adjustment that reflects the current value of money; discount is a -sacrifice of principal for a slightly reduced interest annuity; discount -is a dividend declared before the dividend is earned; and many cases are -cited in which a discount is merely a promoter's fee for services -rendered. - -The writer does not care to discuss at this time these various points of -view from which discounts may be regarded. They are mentioned merely to -suggest that the subject is not as simple as some writers seem to think. -Any valuation of public service industries, from whatever point of view -it may be regarded, must, from the nature of the case, touch the problem -of fundamental equities; and one of the elements of this problem which -has not as yet been fully analyzed is this element of discounts. From -the point of view of taxation, such an analysis is not perhaps -essential; but if the valuation is to be used as a basis of determining -reasonable rates, or as a measure of reasonable capitalization, it seems -to be essential. - -The writer is sure this discussion will not be construed as in any sense -a criticism on Mr. Riggs' paper; it is rather a suggestion of an -unwritten chapter in the literature of valuation. The American Society -of Civil Engineers is to be congratulated in securing from one of its -members so complete and satisfactory a discussion of the principles and -methods for the valuation of public service corporation property. - -CARL C. WITT, M. AM. SOC. C. E. (by letter).—The appraisal of the -railway property in Michigan was a wonderful performance in a great many -ways, not the least of which was the thoroughness of the work, -considering the short time available, and the writer desires to express -his appreciation of this paper, as it is a valuable addition to the -meager literature on this subject. - -More recent appraisals, made by States traversed by the same railway -systems as those involved in the Michigan appraisal, have been made with -a freedom from opposition by railway companies due to the educational -effect of this pioneer work. Particularly is this true of the recently -completed appraisal, by the Board of Railroad Commissioners of South -Dakota, of the physical property of the railways in that State, of which -work the writer was the Engineer in charge. No opposition was met; in -fact, some of the railway companies had established regular departments -for furnishing inventories and appraisals, had completed the necessary -field work in South Dakota before the inventory had been requested by -the State, and were able to furnish a very complete appraisal in a short -time after the request for it was made. - -This appraisal was made in compliance with an act of the Legislature of -1907, which required the Board of Railroad Commissioners to ascertain -the true cash value of all the property of every railroad company in -South Dakota used in the operation and maintenance of their respective -roads. No attention was paid to the purpose of the appraisal, but one of -the first uses made of the information thus secured was in the -litigation following the passage of an act by the Legislature of 1909, -prescribing a maximum passenger fare of 2 cents per mile on all -railroads operating within the State. In connection with a rate case of -this kind, some questions have been raised regarding proper bases for -land values, the use of an item for adaptation and solidification as an -element of physical value, the value of the intangible assets, etc. - -The lands of all railway companies were appraised at a cost to reproduce -or re-purchase at the time of appraisal, regardless of the original cost -of the property. The sales method was used for determining the market -value of adjoining property. There has been a very large land movement -in South Dakota in the last five years, and as most of the country is -prairie, with similar soil over large areas, it was not difficult to -determine the average market value of the land for farm purposes, at the -date of the appraisal, and the gradual trend of values for five years -previous to that date. An average multiple of 250% was used to arrive at -the cost of reproducing or purchasing the right of way. This multiple -was based on investigations made of recent right-of-way purchases, and -inasmuch as there are no large terminals in South Dakota, the same -average multiple was used throughout the State for both town and farm -property, investigation showing that town property could be secured for -slightly less and farm property for slightly more than the average -multiple used. - -In each supplemental appraisal the land values will be corrected to -correspond to the changes in surrounding values, as the railway company -is entitled to any increase, due to natural causes, based on the cost to -reproduce at the time of appraisal. This is a well-established theory, -as shown by Mr. Riggs. - -No allowance was made for the item commonly known as "adaptation and -solidification," except in the item of contingencies and in the -consideration of the present value of the ballast. In some recent -appraisals, large sums, based on a percentage of the cost of grading, -have been allowed for this item. While there is no question that large -sums of money are expended in maintaining a safe track on a new bank, -and that this expense gradually diminishes as the roadbed becomes solid, -due to the pounding of the trains and the action of the elements, this -expense is, and properly so, charged to maintenance, and is paid for out -of the operating revenues. Now, in the trial of a rate case, exhibits -showing the operating expenses, including maintenance charges, are -introduced, and to include this same item in the appraisal of the -physical property leads to a duplication, for if the passenger or -shipper pays for this maintenance charge, it should not be counted as an -item of physical value as a basis for determining what is a reasonable -rate. - -The case is similar to that of a locomotive: When new, it is kept in the -vicinity of the shops, because trouble from lack of proper adjustment -and weak parts is likely to develop, and the maintenance charges may be -much higher than a few months later when the machine has "found itself" -and, as an operating machine, is more efficient than when new. However, -no one will insist that it has an added physical value in dollars and -cents, or that the excess cost of repairs and maintenance during its -early life should be added to its cost of reproduction now; in fact, it -is a second-hand machine, and the maintenance charges must be paid for -out of its use. - -Generally, when a roadbed is turned over to the operating department by -the construction department, it is in good line and surface, and if an -appraisal were made at that time its condition would be 100%; but as -soon as it is placed under traffic, it begins to depreciate, as shown by -the fact that it requires constant attention to keep it up. If the -roadbed is cross-sectioned at each station and actual quantities -calculated from cross-section notes, there would be no depreciation, but -if the grading quantities are calculated from profiles of the line, as -constructed some time previously, and for a standard width of sub-grade, -with a percentage added for shrinkage, and allowance made where banks -have been widened, etc., it will probably be found to exceed the actual -measured quantities, because the action of the elements in washing the -slopes, the wearing of the shoulders of the embankment due to foot -traffic, etc., will show some depreciation in quantities. It is common -practice to carry the item for grading over to the present-value column -at 100%, or, with no depreciation. This practice, together with the -present condition of the ballast due to maintenance, and that part of -contingencies which covers washing of slopes, filling of ditches, sink -holes, etc., certainly takes care of all adaptation and solidification -which should enter into a valuation of physical property. - -No appraisal was made of the intangible assets. A great many arguments -have been advanced for and against such an appraisal, and in South -Dakota it was held that the earning ability of any corporation due to -its franchise, strategic location, efficient organization, going-concern -value, etc., while perhaps an element of value to be considered in a -transfer of the property or if assessed on an income basis, should not -enter into a valuation which would be used for determining a just and -reasonable return on the investment, because the greater the earning -power the greater would be the return, and that this condition would -produce a never-ending increase in returns; whereas, when the returns -reach a point at which they will not only pay a fair dividend on the -investment, but take care of any depreciation in the physical condition -of the property and make all needed improvements in roadbed, buildings, -and equipment, demanded by the traveling public, shippers, increased -traffic, or natural causes, they should be kept to that point. There are -several hundred miles of railway in South Dakota which have been built -out of the surplus earnings of the parent corporation—in other words, -with money supplied by the traveling and shipping public—but which are -owned by the railways and on which they may earn another surplus for -constructing more extensions, etc., etc. - -The original South Dakota appraisal, as of June 30th, 1908, on forms -similar to those used in Minnesota, has been supplemented by yearly -appraisals corrected for all additions and deductions made during the -fiscal year. For this purpose a new set of forms[29] was prepared, with -the various items classed in accordance with the "Classification of -Expenditures for Road and Equipment," as prescribed by the Interstate -Commerce Commission, and arranged so as to facilitate showing the yearly -changes. - -R. A. THOMPSON, ASSOC. M. AM. SOC. C. E.[30] (by letter).—This paper is -considered by the writer to be the most complete treatise ever written -on the valuation of public service corporation property, and the author -deserves the sincere thanks of the entire Engineering Profession and all -others interested in this most important question. Its presentation is -most timely, in view of the agitation, particularly on the subject of -railroad valuation, which is now engaging the attention of Congress and -the law-making bodies of the several States, as it contains much -valuable information relative to decisions of Courts, in addition to -clear and concise expositions of the methods in vogue for the -appraisement of corporate property, etc. - -It is a fact—rapidly coming to be recognized by legislative and judicial -bodies—that the prescription and regulation of tolls, charges, and -assessments against public corporations cannot be made systematic and -intelligent unless there is provided some estimate of the value of the -property involved, based on the cost of its replacement or reproduction. -Particularly is this true of railroads; and such regulation of the -affairs of these corporations as has heretofore been essayed by State -and National commissions, has generally been on illogical bases, -unsatisfactory alike to the proponents and the companies. Results have -been had, it is true, after a fashion, but there have been endless -disputes and litigation, with the prime questions involved no nearer -solution than before. One has but to contemplate the varied and often -antagonistic legislation promulgated by the several States, relating to -corporation management, and the many rulings and decisions of the -different courts and commissions on the subject of regulation, -assessment, and adjudication of corporate rates, revenues, taxes, and -tolls, to become convinced of the complicated and tangled condition of -the situation, and to realize the necessity for the early establishment -of some logical basis on which to establish the fabric of corporate -control. - -While it is not maintained that an appraisement of the physical property -of public service corporations will be the panacea for all such ills, -the writer firmly believes with the author that such appraisal, as a -beginning, is absolutely necessary, and when effected on some fair and -reasonable basis, will contribute largely to the successful solution of -many of these intricate problems. - -With the estimate of the physical value of a property before it—which -represents money actually invested, together with such accruals to costs -as it may be determined that the owner is reasonably entitled to have -considered—any Court, tribunal, or commission is in a better position to -mete out impartial justice, whether it be the regulation of a rate, the -assessment of a tax, or the imposition of a fine. - -Although the author's experience in valuing corporate property has been -principally in connection with the Michigan appraisal of railroads, and -to him is largely due the credit for devising methods for, and carrying -forward to successful completion, this thorough and most excellent work, -it is refreshing to note his inclination to give credit to the work of -others along the same line in other States, which, it is to be -regretted, has not always been the case with writers on this subject. -There is no doubt that the work of the Michigan and Wisconsin Boards of -Appraisal—conducted under the advice and direction of some of the most -eminent and talented engineers and economists in the United States, and -practically without regard to expense—is the most complete and perfect -of its kind heretofore attempted; yet there are many features in regard -to the organization and execution of its details about which there may -be an honest difference of opinion, as viewed by those who have been -similarly employed. - -It is but natural—as suggested by the author—to find the "individual" -character of the appraiser (which has been moulded by his environment, -training, and former service) reflected in his opinion, and this would -be most probable in the organization for, and carrying on the work of, -appraising a railroad property, which involves consideration of -practically every phase of engineering and economics. The judgment of -any man is essentially warped along the lines of his experience, and he -is necessarily biased and prejudiced in favor of or against certain -practice. As a consequence, therefore, it is not reasonable to suppose -that any one man, or set of men, can formulate a system for valuing -corporate property which will be perfect in all its details, and be free -from objection and criticism. - -The writer was employed for a number of years as Engineer for the -Railroad Commission of Texas, and had charge of the valuation of -railroad property under the Railroad Stock and Bond Law of that State. A -paper on the methods used by this Commission was prepared by him and -published by the Society.[31] This Stock and Bond Law was enacted in -1893, and the railroads then existing were valued in 1894 and 1895. The -average value of 8,860 miles was $15,844 per mile. This valuation was -made by Charles Corner, M. Am. Soc. C. E., now Resident Engineer of the -Rhodesia Railways, South Africa, and Mr. H. J. Simmons, now General -Manager of the El Paso and Southwestern Railway System. The actual cost -of this work is not available, but is estimated at about $2 per mile. -The engineers making the appraisal secured maps, profiles, and all -available information from the offices of the railroad companies, -including all the construction records and estimates of quantities which -were preserved. Appraisal was made only after one of the engineers had -made a personal examination on the ground, accompanied by assistants to -aid in measuring structures and estimating quantities. - -All valuations made since 1895 have been of new railroads making -application for issuance of securities, and in all cases the deeds for -right of way and depot grounds, the contracts for construction, the -actual quantities of construction of all kinds, the plans and -specifications for all structures and construction, and all other -information which the engineer desired, were submitted by the railroad -companies to enable an accurate appraisal of the value of the property -to be made. It is not possible for valuations of this character to be -made under more favorable circumstances. Up to October, 1909, more than -3,500 additional miles had been valued, and in all cases the estimates -limited the securities which the companies might issue. - -Writers on railroad valuation have generally been inclined to discredit -the work of the Texas Railroad Commission and the system of appraisal -used by it. One writer, of more or less prominence, has referred to it -as the "cheap" method. While it may be true that other appraisals have -been more expensive, it is a fact that those of the Texas Commission -have served their purpose well, and the railroads, as a rule, have made -little complaint. As a matter of fact, it is highly probable that the -valuations of railroad property made by the Texas Commission have been -of greater utility, as far as the public is concerned, than those of all -other States combined, and, at the same time, no injustice has been done -the railroads. - -It appears that those who have interested themselves in investigating -the Texas method of railroad valuation—including the author—have failed -to construe the real meaning and intention of the Stock and Bond Law. -Apparently, it was passed for the purpose of limiting railroad -indebtedness—and is referred to by Mr. Riggs as serving only this -purpose—but while its effect has been to accomplish this most -successfully, its enactment carried with it a deeper significance. - -This law was passed at the same time as the General Railroad Commission -Act of the State, which gave to this Board absolute control over all -freight rates and tariffs, and also other powers not possessed at that -time by any other State commission. The decisions of the highest Courts -at that time laid stress on the right of carriers to maintain rates -which would afford a reasonable return on stocks and bonds outstanding. -Hence, to delegate the regulation of rates to any tribunal by any law -which did not carry with it also the right to supervise and restrict -mortgage indebtedness to some reasonable extent, appealed to the -legislators as being essentially ineffective. The effect of the law has -been to reduce steadily the average outstanding stocks and bonds of the -railroad companies of the State from an average of $40,802 per mile in -1894 to $31,910 in 1909—and this, too, in the face of a recognized -increase in the physical value of the properties—thus depriving the -railroads of one of their most potent weapons of offense when contending -against the Commission's orders. It is a matter of common knowledge that -the indebtedness per mile of railroads of other States has increased -greatly during this period. It is also a fact that the railroads of -Texas have, except in rare instances, contended that injustice has been -done them in the enforcement of this law, and the market value of their -stocks and bonds has steadily risen. Also their physical condition is on -a par with that of railroads in other Southern and Western States, and -their incomes from operation are as substantial. The practice of -"watering" their securities has been effectually stopped, as regards -local issuance, and any interest which might have accrued on such -securities has been saved to the public. - -It has been contended that the Texas valuations of 1894-95 were too low, -and did not, even at that time, represent the fair value of the -properties. This is perhaps true to a certain extent, but it must be -remembered that the costs of materials and construction then were less -than at any time before or since; and, viewed from the present-day -standpoint, they seem to have been inadequate. It must also be -considered that real estate values throughout the entire State were very -low, compared with present values and with those of lands in other -States. Although the writer admits that the margin was very narrow, -still he is of the opinion that the valuations as made represented -closely the cost of reproduction of the physical properties at the time. - -The valuations of 1894-95 stand to-day on the Commission's records as -"the value of the property," except in cases where there has been -application and necessity for re-valuation. The machinery of the law did -not provide that these appraisals should be kept "up to date." The -mortgages on these railroads are still outstanding, and there has been -no call for another appraisal, except in a few instances. The Commission -has decided that in its opinion the "present value" of any of the -railroads already appraised is represented by the original valuation -plus the value of all permanent improvements and betterments added. This -principle has been carried out with those railroads which have applied -for re-valuation for any purpose, and the Commission has admitted the -same in testimony which it has given before the Courts. - -Since the appraisals which the Texas Commission makes are primarily for -the purpose of limiting indebtedness, and the carriers are entitled to -have these at least equal the cost of their property—the investment with -certain additions to cover promoters' profits—no consideration can be -given to depreciation of structures and equipment, although the -application for valuation and process of issuing of securities may be -had several years after completion. The writer holds that there is -strong argument in favor of not taking into account "depreciation," and -of estimating the value of the property as being entirely "new," -whatever purpose the valuation is proposed to serve. This is apparent, -as already stated, when the valuation is to serve as a basis for -limiting the issue of stock and bonds. Is there any logical reason why a -valuation for this purpose should not also serve—as far as it -pertains—as a basis for taxation or for regulating freight rates? As far -as the State is concerned—and to be consistent—should not "one" -valuation serve all purposes? - -Suppose that a State should create a board clothed with powers of rate -regulation, taxation, and authority to restrict indebtedness, and also -prescribe that it should appraise the value of the property of the -railroads, and use that appraisal as the basis for its acts. Would it be -logical for that board to make and apply one system of valuation for one -purpose and another system for another purpose? Manifestly, it would -have declared that a valuation was a "valuation" for all purposes, at -least as far as the physical property was concerned; and, when devising -a method for making its appraisals, it should incorporate therein all -the elements of value which might apply logically to either purpose. The -writer believes that "depreciation" of roadbed and structures would have -no place in such an appraisal, on the one hand, nor its negative, but -fully as intangible and difficult of concrete estimate, "adaptation and -solidification of roadbed," on the other. - -It should not be understood that the writer maintains that taxation -boards should not go beyond the valuation of physical property to arrive -at a final basis for assessment. There are certain intangible elements -which should be taken into consideration when taxing property, chief of -which is the net income. It is only as far as physical valuations apply -in either case that he considers that there should be uniformity. - -He does not approve at all of incorporating in an estimate of the -physical value of a railroad property such an element as "adaptation and -solidification of roadbed," which is credited with so much importance in -the Minnesota valuation. In the first place, such an element is -incapable of being measured in tangible terms and reduced to a -dollars-and-cents basis; second, it cannot be reproduced in the sense -that other property is reproduced, and its value does not appear in the -capital account of the railroad; and third, it results from the action -of the seasons on the one hand, and the working over of the roadbed by -the maintenance forces on the other, the cost of which appears in -operating expenses. One is constrained to believe that the engineer who -insists on incorporating such an element in an appraisal of the physical -value of a railroad is hard put to find material with which to swell his -estimate. When noting the large difference in value per mile of the -railroads of Minnesota, as compared with those of Michigan and -Wisconsin—adjoining States—it would appear that undue prominence had -been given to this and similar factors. - -The writer's experience as appraising engineer for more than 10 years -with the Texas Railroad Commission, and for the past 2 years as a -construction engineer—having built about 160 miles of railroad in -Oklahoma and Texas—confirms his belief that, in the absence of actual -figures of cost, right of way and other railroad real estate should be -appraised at but little in excess of the market value of abutting -property. The practice of the Texas Commission has been to add from 25 -to 50 per cent. The conditions under which railroads were built in -Michigan, Wisconsin, Iowa, and Minnesota cannot have been radically -different from those in the Southern and Western States. In Texas it has -been a rare instance when a railroad has had to purchase all of its -right of way. Also, contiguous lands have greatly increased in value -since the advent of the railroads. It would appear highly illogical to -advocate that these increased values should be multiplied by 3—or even -1½—and used as a basis for taxing the railroads on the one hand, or -taxing the public on the other, by permitting indebtedness to be issued -against it, the interest on which the latter must pay. The railroad -recently constructed by the writer traversed fertile and thickly -populated areas, already quite well served with transportation -facilities. Only a small fraction of the necessary real estate was -purchased by the railroad company, and only in a few cases of such -purchase did it pay largely in excess of the market value of the -land—and these were where the road interfered with houses and other farm -improvements. In cities and towns, land was acquired at practically its -fair market value. For rural property, the ratios used by Professor -Taylor in the Wisconsin appraisal appear to be quite fair, but in cities -they are too high—especially for the Southwest. The Minnesota ratios -appear to be unreasonably high. - -Any appraisal of the physical value of railroads—in the absence of -figures as to their actual cost—is necessarily only approximate, and is -correct only within certain limits. Especially with regard to the old -roads, where original cost data cannot be had, the values applied to -property and construction must be largely speculative. It is impossible -to build two railroads in the same territory, on the same -specifications, for the same amount; yet, on the basis of cost of -reproduction, an appraisal board must apply the same value to each. - -The writer believes that unless there is more uniformity as to methods -of valuing corporation property, as between the States, all valuations -will be more or less discredited, as they should be, by the Courts. It -is to be hoped that this paper will be generally discussed by the -Profession, and will lead to the adoption of more uniform methods. - -CHARLES H. LEDLIE, M. AM. SOC. C. E. (by letter).—The following is -suggested as a method of procedure for determining the fair and -equitable value of a property: - -1st.—Examine carefully the statutes governing corporations of the class -under examination. - -2d.—Form an opinion as to whether or not the locality can support such a -property, by inquiry regarding the different businesses carried on, bank -clearings, railroad facilities, what the surrounding country produces, -etc. - -3d.—Find from the archives of the company a general description of the -property, from its conception to the date of appraisement. - -4th.—By close examination of the minute books, directors and executive -committees, there can be ascertained all the details of organization, -issuing of stock, bonds, and other forms of indebtedness, contracts for -equipment, supplies used in the construction, etc. - -5th.—Obtain from the general manager or the superintendents an -explanation of the details of operating and maintaining the property, -including the different classes of service, rates, etc. - -6th.—Go over the property, examine it carefully, and talk to any and all -employees from whom it is thought that any information can be gained. - -The foregoing will give a general knowledge of the property under -examination, and will enable one to begin the real work. The examiner's -assistants must be competent and experienced men. - -7th.—Examine all the vouchers, from the beginning of the company down to -the date it began operation; classify their contents under the -respective heads for the different classes of material used in the -construction, for example, pipe, engines, cable, etc.; then prepare -blank tables for each heading, having columns for size, quantity, -prices, and total; and abstract each voucher. Do the same with the -vouchers for labor, general office salaries, general expenses, interest, -taxes, legal, etc. This, when completed, will give the detailed cost, as -shown by the vouchers. - -Next check the vouchers back through the books, and draw up a statement, -which will show the total book cost and, no doubt, will differ from the -voucher total. It is likely that many items will be found for which no -vouchers exist, a list of these is made and if the officers cannot give -a satisfactory explanation of any of them they are omitted. The total of -what remains is added to the voucher total and represents the cash -expended for the benefit of the original property, as shown by the books -and vouchers. - -8th.—Take all the remaining vouchers of the company (it is supposed that -the examiner has already been informed by the officers, and by his -inspection of the records, of the extensions and betterments which have -been made), separate the vouchers for materials, labor, etc., from those -on operating, etc. Next classify them by years, and then proceed as set -forth in 7th, and add the different yearly amounts to the total of the -original plant. This will show the amount of cash expended (according to -the vouchers and books) on the property, for its physical plant, -organization, etc., from its beginning to the date of appraisement. - -Every examining engineer should know (or can obtain) the prices for -materials, labor, etc., during these periods of original construction, -extension, etc. If the prices are the same, or about the same, as at the -time of purchase, the above total stands as the cash expended; if there -should be much difference—and sometimes there is—take the detail of the -materials as found in the vouchers, affix the proper prices, and do the -same with labor, etc., and this total will be what, in the judgment of -the examining engineer, the plant should have cost. A mean between this -latter total and that in 8th is taken, in order to be fair and -equitable. This amount, in place of that given by 8th, is then used as -the cash expended on the physical property. If no difference is found in -prices, then the total cash as shown by 8th is considered as the total -to be hereafter used. - -9th.—A careful detailed inventory is now made of the physical property -as it exists at the date of examination. This often requires some -excavation in order to determine sizes, quantities, and conditions. The -prices used to ascertain the total of the inventory are made by taking -the average of all those paid for materials, labor, etc., of the same -class, during each year of the property's existence. (The writer -considers it manifestly unfair to use the current prices in this -calculation, for they may be very much below or above those actually -paid, and in either event an injustice would be done, whereas, if the -average prices are used, the examiner cannot be accused of unfairness.) -To this total cost, as shown by the inventory, 5% is added for -engineering and superintendence; 3% for general office salaries, 2% for -general expenses, 1½% for legal and organization expenses, and from 5 to -10% for contingencies. (This latter percentage depends on the judgment -of the examiner, who, after studying the local conditions carefully, can -determine from his own experience what difficulties have been met in the -construction. It is not believed that a hard-and-fast rule can, in -equity, be laid down for this latter percentage.) This total represents -the value of the tangible property, based on the inventory. The -inventory cost and that set forth in 8th (or possibly as modified by -prices current when the plant was built) are averaged, and this result, -plus the supplies on hand, is the fair and equitable amount of cash -which has been expended on the property. This is used in finding the -"Fair and Equitable Value." - -10th.—Next take the inventory of the plant set forth in 9th, affix the -current prices at the date of appraisal, and to this total add the same -percentages for engineering, etc., as set forth in 9th. This gives the -cost of reproducing the property, with the same classes of materials, -size and make of engines, etc., as is now in it, to which total add the -cost of materials on hand for the total of cash required to be expended -at current prices to reproduce the plant as it exists. - -It is often found that this latter total is greater than that set forth -in 8th, for the reason that the engines, etc., may be of types which are -now abandoned or obsolete, and the manufacturing company, having to make -patterns, etc., would charge more for them than the original price at -the date of purchase. - -This reproduction cost at current prices is only to give the examiner -information he may or may not require later in the investigation to -determine some point that might arise in ascertaining the "Fair and -Equitable Value." - -The writer considers it unfair to call the reproduction value the cost -of a modern plant which will give the same service and output, because -one is not dealing with the value of a modern plant, but with that of an -existing property. - -11th.—From this cost (using the detailed inventory to find the extent of -property still in existence), calculate the amount of depreciation for -each section of the plant, this being based on the present condition of -the different parts and what their future life may be. The total -depreciation is then deducted from the result found in 9th, and this -remainder is used as the "Fair and Equitable Value" of the tangible -property at the date of appraisal. - -The intangible value (called by many names) must now be determined. It -consists of rights, from the State, county, city, or any one or more -combined, which the company must have in order to carry on its business. -These rights in nearly all States are taxable, and taxes are collected -on them. The Supreme Court of the United States has in the past held -that they are property, notwithstanding what State "Courts and -Commissions" have set forth on this subject, and in the writer's -examinations they will be treated as property until the Supreme Court of -the United States decides otherwise. - -There are in general three classes of franchises, namely: - - I.—Those granted by the State to conduct a business, where no county - or city franchise is necessary, only requiring the company to obey - the ordinances for excavation, etc. The charter of the Laclede Gas - Company, of St. Louis, Mo., is an example of this class. - - II.—Those granted by the State to carry on a business subject to a - county or city franchise. - - III.—Those granted by a city to an individual, singular or plural, - or a company, to do business within its limits or a section thereof. - -In each case the right may be a contract, for it may require a payment -for the franchise granted, either in a lump sum or in yearly -installments, or in the form of services rendered, such as for light, -etc., free service of some kind, or a combination of any two or all of -them. - -The manner of determining the value of "Intangible Property" is as -follows: - -(_a_) The gross collected earnings are audited for each year during the -period the company has carried on its business. The same is done for all -vouchers, _i. e._, operating, maintenance, salaries, legal, general -expenses, interest, insurance, and taxes, and includes every item -disbursed. Whatever this latter amounts to, is deducted from each year's -gross earnings as already found, and the result is the true net earnings -or deficit for each year. - -(_b_) The true net earnings are added together and the mean taken; if, -in the period from the beginning to the date of appraisement, any -deficits are found, these are deducted from the total of the -plus-earnings, the result is divided by the total number of years, and -this gives the true average net earnings. This is then capitalized at -the legal rate of interest of the State in which the property is -located. The result is used as the value of the "Intangible Property." - -12th.—The amount given by 11th is added to the result obtained by 9th, -and this total is the "Tangible and Intangible Value" of the property, -and the "Fair and Equitable Value" of the property at date of -appraisement. - -If it is found that grave mistakes in design or judgment have been made -by not employing competent people, and money has been wasted in -construction, the plant is re-designed, for the original plant, and its -cost estimated. The same is done for each extension, using the prices -paid at the different periods, and this result is used in place of 9th, -as the cash cost at the date of appraisement. - -In determining the intangible value, if it is found that the management -has been careless in order to make large net earnings, at the expense of -the physical property, estimates are made of what the property can be -operated and cared for (here the practical knowledge of operation, etc., -is necessary), and these results, plus taxes, etc., are subtracted from -each year's collected earnings. The mean or average of these results is -considered as the true net earnings, which are capitalized and added as -set forth in 12th. - -The writer holds that consumers or purchasers should not pay for -avoidable error or ignorance, and the amount of the securities issued on -the property is not considered as entering into the matter of "Fair and -Equitable Value"; when they do, the method is somewhat different. - -The mean true net earnings are used in determining the intangible value, -because franchises have average values, as earnings and expenses -fluctuate in corporations, and, when intangible values are to be -considered, they must not be based on the last year's net earnings, for -if they are, they may give a very large result in one year and a small -one in the next; therefore, to be fair, the mean true net earnings -should be the basis of the intangible value. If the company has been -over-capitalized, and no sinking fund or depreciation has been set -aside, it is the present owner's misfortune. If the company calls -something a betterment, and it is found that the betterment has only -replaced something, it is not allowed, but is classed as maintenance; on -the other hand, if the replacement is larger, and capable of rendering -greater results, such as a larger engine, pipe, cable, etc., the cost, -less the cost of what it replaces, is allowed as a betterment, and if -the old part is sold the proceeds are deducted from the betterment -charge, for if it is credited to maintenance, it increases the true net -earnings. This is often done, but is not the correct way to treat the -matter, for it increases the intangible value. - -13th.—When new rates are to be established for a period of future years, -the manner of determining the "Fair and Equitable Value" is the same as -has been heretofore set forth. The new rates are based on averages, and -the first step necessary is to ascertain what gross revenue the company -must have in order to pay all classes of operating expenses, -maintenance, depreciation, taxes, interest on the "Fair and Equitable -Value" of the property, and a reasonable profit. - -To obtain this amount, the procedure is as follows: - -(_a_) Find the percentage of increase of the operating expenses for each -year over the prior one, for a period of generally five years preceding -the date of examination (a longer time may be taken if, in the opinion -of the examiner, it is necessary), and then ascertain the average annual -increase of the percentages. The result thus obtained is taken as the -increase percentage for the operating expenses for the new period of -time. - -(_b_) In order to determine what the operating expenses will average -during the time the new contract is to run, take the amount of the last -year's operating expenses as a basis and add to it the percentage found -by (_a_). This total is the operating cost for the first year of the new -contract. The amount for the second year is found by adding to the cost -of the first year the percentage found by (_a_), and so on for each year -of the new period. These results are added together and their average is -then used as the mean cost of operation for each year during the full -period. - -(_c_) The same method is followed for maintenance and taxes, in order to -find the average maintenance and taxes for the new contract's life. - -(_d_) Depreciation on the plant begins from the date of appraisement, -and is estimated on the physical property by using for each section the -percentages used in determining the "Fair and Equitable Value." - -(_e_) Interest at the rate of 6% is allowed on the "Fair and Equitable -Value," and 6% profit. - -The question of extensions and betterments to the original plant must -now be taken into consideration. - -(_f_) The amount of the betterments and extensions have already been -found for each year of the property's existence, and an average of them -is taken as the amount the company will spend on extensions, etc., -during each year of the new contract. On this sum 6% interest and 6% -profit is allowed, and, for depreciation, the same percentage as used in -the original plant. - -It will be seen that all the expenses of operation, etc., of these -extensions have been allowed in (_b_), where the increase has been added -for each year for these extensions and betterments, as they are assumed -to increase the cost of operation, etc. - -(_g_) The amounts found by (_b_), (_c_), (_d_), (_e_), and (_f_) are now -added together, and to the sum 5% is added for interest, taxes, -operation, etc., which may be caused by the necessary increase in -capital expenditures, for a greater growth than could be foreseen at the -time the new rates were established, for losses, etc. This total is used -as the basis for establishing the new schedule of rates. - -14th.—The next step is to determine what part of the amount found by -(_g_) must be paid by the different classes of consumers. - -(I) First ascertain the yearly percentage of increase in the output of -the plant for the five years before the new contract is to go into -effect (or longer if, in the opinion of the examiner, it is necessary); -then find the average increase of percentage during the before-mentioned -five years. Add to the last year's output the percentage found above, -this result representing the output for the first year of the new -contract. Continue this operation for each year in the same way as the -operating expenses were found in 13th (_b_). The average of these -results will be the average estimated output during the life of the new -contract. - -(II) Next find the amount of the total output each class of consumers -used during each of the five years, and then find the average yearly use -during this period. Put these into percentages of the amount of the -average output for the five years, and then use the percentages as the -amount each class of consumer will use of the average output found in -(I) during the period of the new contract. - -This gives the average amount of the output each class of consumers will -use during the average life of the new contract. - -(III) Next find the average percentage of the total revenue each class -of customers paid during the five years. Take these percentages as the -average percentage each class will pay of the average revenue necessary -during the time the new contract is to run. - -(IV) Having found the average amount of the required revenue that each -class must pay, and the average amount of the total output each class -will use, dividing the former by the latter for each case will give the -rate each class is to pay during the new period. - -It is often found in plants that large extensions have been made to -supply a special contract for a long period of time, and these -extensions are set aside for the exclusive use of this contract. In such -cases exclude the cost, etc., of this part of the plant from the "Fair -and Equitable Value" in the matter of adjustment of rates. - -In determining the operating expenses, etc., in such a case, find the -percentage of the total output this special output amounts to; then, -using this percentage, find what part of the total power-house expenses -of all kinds are caused by this special contract. This result is -deducted from the total power-house expense, and the remainder is the -power-house cost of furnishing the consumers with their share of the -total output. If it is found that special employees are required to -deliver this special output, their cost is deducted, and the same for -the maintenance material used. Taxes and interest on the cost of this -special equipment are found by ascertaining the percentage this cost of -the special equipment bears to the whole plant. - -The above results are deducted from the total operating, maintenance, -taxes, and interest disbursements, and "Fair and Equitable Value," and -the remainders are used as the cost of the last year's expenses for -furnishing the consumers with their share of the product and the "Fair -and Equitable Value." - -The same method is used in determining the revenue paid by the consumer. - -The above result, _i. e._, cost of operating, etc., is then used as the -basis for estimating the expenses for the period of the new contract, as -heretofore set forth. - -If the charter comes under Class II or III, the city no doubt has -incorporated a clause for the adjustment of rates, and the method used -above is followed. - -15th.—Where the franchise has expired and is going to be renewed, the -same method holds. - -16th.—Where the franchise has expired and the city has paid a certain -amount for service, and is to buy the property, the same method is used, -except in determining the intangible value. For determining the latter, -the amount the city pays for service is deducted from the gross -collected revenue. From expenses is deducted the same percentage as the -amount of the city's payment is of the gross revenue; a net revenue is -found from this, the taxes paid are deducted, the remainder is -capitalized as heretofore set forth, and is the intangible value. -Whatever the latter amounts to is added to (or deducted from, in case of -deficit) the "Fair and Equitable Physical Value," and the result is the -price the city should pay. - -Cities generally claim, and so do their "experts," that they should only -pay junk value, or the cost of a modern plant to give the same results. -This is eminently unfair, because the city buys a property which is in -full operation and it receives the full revenue, in addition to -obtaining service for itself at a less cost than it heretofore paid. The -difference between the cost to the city of furnishing the service -itself, and what it paid the company, is profit, but there is a charge -against this of loss in taxes. These two latter items, namely, profit -and taxes, generally balance each other, although the writer has known -of cases where the city was the gainer. - -There are many points which can be advanced to establish the fairness of -the methods outlined herein, but they would take some time to explain, -and therefore the writer has only set out the plan he follows in his -examinations, hoping that it may be of some aid in establishing a -uniform method which will be upheld by the Courts. - -It may be stated that recently this method was used in an examination, -going back thirty-five years, and the results were accepted by both -sides without question. - -The writer has refused a number of examinations when told in advance -what result must be found, as well as in "expert" work, where the -examiner is expected to help make a case, regardless of his honest -judgment, for, by accepting such work, the engineer hurts his reputation -and lays the Profession open to such remarks as Judge Lacombe recently -made in the case of the Peoria Water-Works Company _vs._ Central Railway -Company. - -The writer is fast coming to the conclusion that a great deal of legal -trouble is caused by the decisions of commissions, the members of which -have not had experience in these matters. If a commission consisted of -an able lawyer, a financial man, and an engineer who has had a broad -operating experience, its decisions would carry weight, and the Courts -would not be burdened with so many appeals. - -WILLIAM G. RAYMOND, M. AM. SOC. C. E. (by letter).—This is, perhaps, the -best paper on the valuation of public service property that has yet -appeared. The author's analysis is very clear, and his arguments are -convincing. Three points the writer would like to consider; two of them -briefly. - -The item, "going value," even if it is determined on logical reasoning, -as suggested by Professor Mead, would seem to be a dangerous item, and -one which might result in absurdities when estimated by an unscrupulous, -ignorant person. Moreover, the term has been differently defined, and -there is no certainty as to just what it means. The writer sees no -reason for the existence of such a term, or of such a separate quantity -as this term is supposed to represent. - -The term, "franchise value," or, "value of the franchise," is used to -represent the difference between the capitalized net earnings and the -value of the physical property. Of course, there is such a difference, -either positive or negative, but there seems to be some objection by the -Courts to calling this "franchise value." The writer, therefore, would -suggest that, since franchise value is a very elusive item, depending on -the life of the franchise, the attitude of the community toward the -corporation, the activity of competing corporations, and numerous -indeterminate items, the term, "business value," or, "going concern -value," be used instead of "franchise value." "Going concern value" is -not as good a term as "business value" or "value of the business," -because it may be assumed to include both the value of the business and -the value of the property. "Value of the business" would presumably -include the value of the franchise, and perhaps would not always be -represented exactly by the difference between the capitalized net -earnings and the value of the physical property, but would be this -difference affected by some judgment percentage resulting from a -consideration of the probable continuance of the franchise. - -Mr. Riggs has truly said that the value of the physical property must -not be made to depend on the purpose for which the valuation is made; -that, for the business for which it is used, the value of the physical -property is the same, regardless of the purpose for which a valuation is -desired; but valuations are made for different purposes, and, while -there is room for argument as to the proper valuation to be used for -capitalization, taxation, or sale, there are perfectly definite methods -suggested for valuing property for these purposes. The writer has never -seen a statement—that appealed to him as at all rational—of a proper -method of valuing property for rate-making. Indeed, the writer has -said[32] that "proper traffic rates have no relation to valuation except -that the minimum net income should be at least sufficient to pay -interest on the physical valuation." The writer is not absolutely -certain of the correctness of this position, for a study of the public -right to regulate a corporation which is performing a semi-public -function seems to indicate that the public has a right to say, not only -that rates shall be non-discriminatory, but also that they shall be -reasonable. - -Now, the writer is familiar with three bases for the determination of -what constitutes reasonableness of rates. One, which applies to rates as -a whole, is this: That the net income should produce not more than a -reasonable interest rate on the actually invested capital. Another is -the rate that the traffic will bear, and the third is a rate that -represents what the service is worth to the purchaser. Of course, a -difficulty arises in determining reasonable rates on any one of these -three bases. - -The only difficulty with the first one is in determining what is a -reasonable interest rate on invested capital, and, as far as the writer -has read, no Court has yet determined what this is, although some Courts -have held that 5% is a not unreasonable return, that 8% is a not -unreasonable return, and, if the writer's memory serves him right, that -even 15% is a not unreasonable return. - -There is great difficulty in the determination of what the traffic will -bear. It is a matter of the exercise of judgment and of experiment, and -must be applied to a considerable extent to particular rates, for -particular commodities, for particular places. - -The third basis would seem to be the most difficult to use, although it -is one which has recently been established in important Court decisions, -and is mentioned by Mr. Riggs. What is a monopoly-provided service worth -to the user or purchaser? Suppose that a gas company charges $1.60 per -1,000 cu. ft. for gas, and a very considerable part of the populace -living in the city served purchases gas at this price. Presumably the -purchasers pay what the service is worth to them, and what they are -willing to pay rather than suffer the inconvenience of tallow candles, -oil lamps, or to pay a high price for electric lights. Suppose that -through a period of five years, by a series of reductions voluntarily -made, the price of gas finally reaches $1.15 per 1,000 cu. ft. Is this -gas worth any less to the consumer at the end of the five-year period -than it was at the beginning? So far as the writer can see, it is, for -only one reason, namely, that it can be had for less; but this has been -a voluntary reduction on the part of the supply corporation, and who -shall say that the service is not worth less than $1.15 to the consumer, -or who shall say that it was not worth less than $1.60 at the beginning -of the period suggested? The figures here given represent an actual case -which has occurred during the last five years, within the writer's -knowledge. There seems to be a growing feeling among the people that -rates as a whole must be fixed so as to yield only a reasonable return -to the corporation, and, apparently only for want of the suggestion of a -better method, a reasonable return has been held to mean a reasonable -return on the capital invested. Believing that there may be some ground -for the claim that rates as a whole should be thus fixed, and that the -return should not be unreasonable, let us consider how what is -reasonable may be determined. - -In the first place, it appeals to the writer that the invested capital -is not the proper basis for estimating reasonable rates. If it shall be -finally established that a corporation is entitled to realize only a -reasonable interest rate on the capital invested, there will be no more -public service corporations organized; but, if the reasonableness of the -return may be based on the capital invested and the business done, there -will still be good inducement to capable men to engage in public service -business. - -It would seem that the rate of return that is reasonable differs for the -capital invested and for the business done—that is to say, if the -capital invested is $1,000,000, an ordinary investment return of from 4 -to 5% may be sufficient; and if the business done with this -million-dollar plant amounts to $10,000,000 a year, a reasonable return -may be 10% or even 15% of the whole. - -Now, as has been suggested by Mr. Riggs, it is manifestly impossible to -capitalize the net earnings as a basis for determining reasonable rates, -because these net earnings are the result of certain rates already -established, the reasonableness of which may be in question; and if, -instead of speaking separately of interest rate on capital actually -invested and profit rate on business done, it is desired to obtain a -value on which to base reasonable rates, the following is suggested as a -method: Determine the physical value and the annual interest on this -physical value at an assumed reasonable rate, say 5%; determine the -annual expense of conducting the business, and assume a business man's -profit rate, say 15%, and find the profit that should be earned on the -business done. This, added to the total interest charge, should give the -net income, over and above operating expenses, that may be considered -reasonable, and this sum, capitalized at any given assumed reasonable -interest rate, would give a value which might with reason be used as a -basis for rate-making, rates being deemed to be reasonable as a whole -which furnish from year to year a simple reasonable interest rate on -this established value. Of course, there is no necessity for -establishing such a value, as the reasonableness of the rates will be -determined when it is learned that they produce not more than a fair -interest rate on the actual physical value of the property plus a fair -profit rate on the business done. - -This method is not free from the objection that what is a reasonable -interest rate and what is a reasonable profit rate have never yet been -fixed, but it is much easier to fix these separately than to fix what is -a reasonable return on the capital actually invested or the physical -valuation of the property. - -W. H. WILLIAMS, ESQ. (by letter).—Before entering upon the discussion of -the more essential elements of the problem presented by this paper, it -seems worth while to correct one or two misapprehensions under which Mr. -Riggs seems to labor, and to call attention to the rather extraordinary -temper in which he approaches the grave questions with which he deals. - -Mr. Riggs' first serious misapprehension is that railway officers, as a -class, are, with substantial unanimity, opposed to any official -valuation of railway properties, and that this opposition was voiced -through the writer's discussion of Professor Henry C. Adams' paper in -favor of valuation, at the last annual (December, 1909) meeting of the -American Economic Association. Of course, on that occasion, the writer -spoke, as he now speaks, only for himself, but, more than that, he then -expressly disclaimed any such opposition, undertook to make suggestions -as to the manner in which a proper valuation could be obtained, and -directed his criticisms plainly at a proposal which contemplated, as he -then observed: - - "An incomplete and misleading valuation bearing the stamp and - carrying the weight of governmental sanction, which can be of no - practical advantage to the Government, the public, or the railways; - but may easily injure the public and the railways by disturbing the - confidence of the former and hampering the activities of the - latter." - -The writer then added: - - "It seems very clear that such a valuation as is proposed would be - wholly useless to the Government for any practical purpose, because - it would omit so many factors essential to any fair appraisement of - the worth of the enterprises as going concerns." - -Bearing in mind that the foregoing was addressed to the particular -proposal made by Professor Adams, that being the topic on which the -writer was invited to speak, a proposal expressly limited to the -ascertainment of cost of reproduction less depreciation (the equivalent -of cost of replacement with second-hand materials in a condition -equivalent to that of the materials in use and hereinafter referred to -as "cost of replacement") under the pseudonym of "physical value" (or -sometimes "inventory value"), it would seem as though Mr. Riggs should -sympathize with the writer's view, rather than with that of Professor -Adams. Certainly, Mr. Riggs is fully aware of the inadequacy of mere -cost of replacement to serve any useful purpose, for, after saying that: - - "No account may be taken of the purpose for which the resultant - figure of value is to be used; and the result should not vary, no - matter what the purpose may be." - -He says, in another place: - - "* * * it is clear that the worth of the physical property, being - the cost of reproduction less depreciation, is not necessarily the - value of the property. * * *" - -And, defining what he calls the "non-physical or intangible elements of -value," says: - - "These are those things which, added to or taken from the worth of - the physical property, make up the value, and include whatever - accrues to the property by reason of its operation, or by reason of - grants, contract rights, competition, or location, which at the time - of appraisal affect favorably or unfavorably the worth of the - property." - -The second misapprehension that is worthy of notice seems to have grown -out of a curious sensitiveness, on the part of Mr. Riggs, as to any -suggestion, other than his own, of criticism of any work undertaken or -theories advanced by Professor Adams. As to every reader, other than Mr. -Riggs, it is surely quite unnecessary to say that no attack has been -made upon Professor Adams by the writer at the New York meeting of the -American Economic Association or anywhere else. Certainly, it will be -conceded that some difficulty would attend an effort to respond to an -invitation to discuss before a scientific body a paper written by one of -its members without making any allusion to the author of the paper or to -his views or work, and those who have any knowledge of the history of -official railway valuations in the United States, and especially of the -proposal to undertake a Federal investigation of cost of replacement, -are fully aware that Professor Adams has been from the beginning, and -now is, the Hamlet of the drama, without whom it would become dull and -lifeless. Strangely enough, Mr. Riggs seems to wish to deny to Professor -Adams this prominence, for he says: - - "Professor Adams was associated with the Michigan appraisal, but had - no connection whatever with the 'physical valuation,' to which such - objection is taken, and his appointment was made after the work of - physical valuation had been fully outlined and was well under way." - -It is true that the scheme devised by Professor Adams, and adopted at -his suggestion by Governor Pingree, required the employment of civil -engineers for the preliminary work which necessarily had to precede the -final "valuation" by Professor Adams, but the bare statement of this -fact is utterly misleading. Professor Adams' own testimony in one of the -Michigan tax cases happily places his responsibility for the whole plan -entirely beyond controversy. He said: - - "In 1900 I was called upon by the Michigan State Tax Commission to - determine whether railroads were paying a tax rate on their value - equal to the rate on other property. With that problem in view, I - formulated this inventory plan. * * *"[33] - -Any discussion of the proposal for a National inquiry concerning cost of -replacement which omits to show that its most persistent advocate, -Professor Adams, has advocated and actually conducted or controlled -several successive "valuations," in Michigan, as Statistician to the -Interstate Commerce Commission, and as special employee of the Bureau of -the Census, made in accordance with other methods than those which he -now proposes to apply, is seriously inadequate; as seriously inadequate -as it would be to omit to state that, using what purported to be the -same method, Professor Adams, by changing the details of its application -and decreasing the rates of interest used in his computations, raised -his "valuation" of Michigan railways from $152,958,202 to $177,689,292 -or 16.17%, each of the two calculations being presented to the public, -with assurances that it disclosed the actual taxable value, and there -being barely eighteen months between them. The writer is by no means -alone as an object of Mr. Riggs' dissatisfaction because of public -criticisms of Professor Adams' plan for estimating cost of replacement. -Thus, of a statement in which Professor Taylor, who conducted the -Wisconsin inquiry, questioned the validity of some of Professor Adams' -methods, he writes: - - "Undoubtedly this statement was made in good faith, and has gained - currency by not having been corrected, but it is not the fact." - -In another place, referring to a statement of comparative costs to the -respective States for valuation work, made by the Railroad Commission of -the State of Washington, he says: - - "It does not appear to be good taste either to criticize costs of - work in other States, or compare the costs in Wisconsin and Michigan - with the cost in Washington." - -Referring to a paper by Charles Hansel, M. Am. Soc. C. E., who took part -in the Michigan valuation, Mr. Riggs says: - - "The one point to which special attention is drawn is Mr. Hansel's - astonishing misconception of Professor Adams' plan of work. This - misleading statement appears in the first paper and is reiterated in - the second." - -Again, of the report of the expert of the Washington Railroad -Commission, who had the temerity to declare that it found "little value" -either in Professor Adams' methods or his estimates of the cost of the -work, Mr. Riggs says: - - "Such sentences, and others which, by inference if not by name, - reflect on work executed by men of high professional standing, are - hardly in good taste, even if true, in a report to a railroad - commission of another State." - -Yet Mr. Riggs does not fail to criticize the method of "valuation," -applied by Professor Adams in Michigan, in terms quite as definite as -any used by others. - -Thus, he condemns the method used to estimate the value of the -non-physical elements appertaining to the Michigan railways, on the -grounds (first) that it made this value a mere derivative of the rates -existing, and (second) that it made no allowance for negative values -when cost of replacement exceeded real value, saying: - - "It will be seen that, in the case of a property in which the - surplus earnings depend on excessive rates for service, it will fail - as a method of determining a value for use as a basis of - rate-making; and it fails, in the form in which it was used in 1900 - and 1902, to bring out those negative or subtractive elements which - may be determined from the income accounts, in the case of - properties which do not earn a fair return on the investment." - -Of the published statistics of American railways, compiled in the office -of which Professor Adams is the responsible head, derived from annual -reports made in accordance with forms prescribed by the Interstate -Commerce Commission under his guidance, and containing items selected -from and depending on the uniform railway accounting system devised by -Professor Adams and imposed on the carriers by the Commission, Mr. Riggs -writes: - - "The published statistics are in such form that only the careful - student of affairs can understand or analyze them, and but few of - the public officials who receive them are able to read the reports - of the properties and comprehend them." - -Railway officers fall quite generally under Mr. Riggs' condemnation, -for, of them he says: - - "As a body * * * it is doubtful if any equal number of men, of equal - intelligence, have as limited a knowledge of the fundamental truths - of government, or knowledge so colored by bias. It is also doubtful - whether any equal number of men have in their ranks so few who bear - an active part in the duties and activities of citizenship, or who - exercise large influence on their neighbors." - -Such assertions as the foregoing need no comment; their intemperance is -their most effective refutation; yet a few recent examples may be cited: -Paul Morton resigned as Vice-President of the Atchison, Topeka and Santa -Fe to become Secretary of the Navy in Mr. Roosevelt's cabinet; Jacob M. -Dickinson, General Solicitor of the Illinois Central, became Mr. Taft's -Secretary of War; his successor with the Illinois Central, William S. -Kenyon, later became Special Assistant of the Attorney-General; Lloyd W. -Bowers, General Solicitor of the Chicago and Northwestern, was -Solicitor-General of the United States from early in Mr. Taft's -administration until his death a few months ago. Thus, within but four -or five years, the Federal Government took four of its highest officers -from the railway officers located in only one of the country's great -cities—Chicago. - -Of a recent address by one of the ablest and most public-spirited of -railway officers, he says: - - "This address well expresses the spirit of the railway managers and - employees toward all forms of investigation, and the complete lack - of understanding, on the part of these managers, of the legal and - moral relations which they bear to the communities which they - serve." - -Belonging to this so hateful class, and having also ventured to question -whether Professor Adams has said the last and most perfect word on the -subject of railway valuation, the writer is neither surprised nor -disheartened to find that he, also, has caused Mr. Riggs undisguised -dissatisfaction. It is a misfortune apparently inseparable from his -profession and his conception of his obligations to his employers and to -the public. - -As has been already noted herein, the question is not whether railway -property shall be officially "valued," but rather (first) as to how the -"value" which is to be ascertained is properly to be defined, and -(second) how the determination of "value," as properly defined, can be -made most accurate. - -The essential difference between the view advocated before the American -Economic Association by Professor Adams and that of the writer was, and -is, that the former now desires to exclude all elements of value which -are not physical and tangible, while the writer holds that, if it is -worth while to ascertain, on a general scale, at the cost of a -necessarily large expenditure of taxpayers' money, and as to a -particular date, so unstable a fact as railway value, the kind of value -the ascertainment of which could be of sufficient utility to warrant the -effort can be nothing less significant than the "fair value" which the -Courts have said is a proper element for consideration in fixing -reasonable rates of charge. The fundamental difference between these two -conceptions of value is admirably indicated by the following quotations, -both of which rest on the authority of the Interstate Commerce -Commission. - - - FAIR VALUE. - -"The present value of a railroad property is necessarily very largely a -matter of opinion only; it depends upon a vast number of contingencies -and uncertainties, a road apparently of great value to-day may soon -become worthless by the opening of a competing line having superior -advantages or by the competitive struggles of other lines which operate -to reduce the income of all; the value of a railroad largely results -from the personal characteristics of its officials; the policy pursued -by directors for the conservative and economical or progressive and -daring, is a great factor in the determination of the current value of -the property; a railroad property is not necessarily worth what it would -cost to replace it and, on the other hand, it may be worth very much -more than that."[34] - - - REPLACEMENT COST. - -"The bill in question makes use of the phrase 'fair value.' Unless there -is some legislative necessity, which we do not perceive, we question the -advisability of using this phrase. - -"It would seem to us preferable to substitute a phrase which indicates -the fact that Congress desires an inventory valuation of railway -property. By inventory valuation is meant that the property of the -several railways shall be listed in detail, and that each kind or class -of property so listed shall have assigned to it a valuation to be -determined from the point of view of the contracting engineer, and not -from the point of view of a court or board of arbitration which, from -the nature of the case, cannot judge of what is 'fair value' except in -the light of some specific use to be made of the valuation."[35] - -As has already been noted herein, and amply verified by quotations, Mr. -Riggs is fully aware that replacement cost and real value can rarely, if -ever, coincide, and therefore plainly agrees, as to that elementary and -essential point, with the writer and disagrees with Professor Adams, who -would ignore or destroy every non-physical element of value in the -property of all public service corporations. Mr. Riggs' recognition of -the inadequacy of mere replacement cost is shown also by the excellent -and convincing example which he cites[36] of competitive railway routes -between two Michigan cities which were built and are maintained and -operated under such conditions that the far more costly of the two, -which inferentially has correspondingly higher replacement cost, has -much lower earning capacity, both as to gross and net, and is therefore -actually worth much less than its less costly competitor. Mr. Riggs -explicitly favors full recognition of the non-physical elements in every -valuation; and, therefore, may be ranked as an opponent of any such -scheme of valuation as that advocated by Professor Adams before the -American Economic Association, or in the letter of the Chairman of the -Interstate Commerce Commission, hereinbefore quoted. - -Mr. Riggs, however, believes that the determination of the cost of -replacement is an essential first step toward the ascertainment of real -value. He says: - - "The worth of the physical property is primarily that on which the - value of the whole property rests." - -The thought which the writer would place in opposition to the foregoing -is that: Physical property has no value which is not an expression of -its adaptation to economic needs. This is only another way of expressing -the inevitable economic law, from which there is no escape, either in -theory or in practice, that has been stated and sanctioned by the -Supreme Court of the United States, as follows: - - "But the value of property results from the use to which it is put, - and varies with the profitableness of that use, present and - prospective, actual and anticipated. There is no pecuniary value - outside of that which results from such use."[37] - -Mr. Riggs' own definition of value is not inconsistent with the -foregoing. He says: - - "The value of a property is its estimated worth at a given time, - measured in money, taking into account all the elements which add to - its usefulness or desirability as a business or profit-earning - proposition." - -The view of Mr. Riggs is that: - - "While ... the worth of the physical property, being the cost of - reproduction less depreciation, is not necessarily the value of the - property, ... the physical worth must bear some very definite - relation to value...." - -And he is, further: - - "Strongly of the conviction that this relation is such that 'value' - cannot be ascertained without a determination of physical worth." - -It is exceedingly difficult to comprehend just what Mr. Riggs means when -he describes the relation between real value (which he recognizes so -clearly as value in use) and cost of replacement as "very definite." -Certainly, he does not mean that it is a constant relation, or one which -can be ascertained until there has been independent determination of -both of the aggregates whose relation it expresses. In fact, the -emphasis which Mr. Riggs places on replacement cost has led him into the -grotesque fallacy of arguing that a correct estimate of real value is -only to be attained by ascertaining: (first) cost of replacement, -(second) real value, and (third) correcting the aggregate first obtained -by applying whatever "very definite" relation (ratio) is necessary to -make it agree with the second aggregate, which was from the beginning -the only aggregate really wanted. The accuracy of this characterization -of his proposed procedure is made perfectly clear by the following -quotation: - - "... the true method of valuing a corporate property is first to - determine the cost of reproduction of the property and its - depreciation, and modify this figure by any applicable positive or - negative non-physical elements of value." - -It is submitted that the clear meaning of the foregoing is that both -replacement cost and real value as derived from use must be separately -and independently ascertained, and that, these aggregates having been -compared, the former is to be corrected by whatever allowance for -non-physical value may be required to make it agree precisely with the -latter. The obvious suggestion flowing from this discovery of his theory -is that only value in use is wanted, as that is the only real value, and -as it must be separately ascertained in any event, no other and _pseudo_ -value need be taken. The essential character of the method is as -described, even when it is applied through determination of the annual -value of the use and the assignment of one portion of such annual value -to return on the capital value of the physical property and another -portion to return on the capital value of non-physical property. The -real nature of the method is not even effectually concealed by the -capitalization of the income assigned to physical property at one rate -and the income assigned to non-physical property at a different and -higher rate. In fact, if it is necessary to conclude that a portion of -the net annual income of railway property is normally paid to, or in -respect of, a portion of capital entitled to a lower rate of return, and -the remainder to or in respect of a remainder of capital entitled to a -higher rate, the appraisal of the physical property is an excessively -costly, cumbersome, and inaccurate expedient for determining the amount -or value of either portion of the capital. Yet that is exactly what was -done in Michigan by Professor Adams, the "valuation" he then made being -completed before he altered his view by deciding that the non-physical -elements of value are entitled to no consideration whatever, and that -only cost of replacement is worthy of inclusion in an official -"valuation." - -But is there any real distinction between the "physical properties" and -the "immaterial elements," such as the foregoing extract seems to -assume? Is not the superficial appearance of such a distinction -plausible but deceptive? A locomotive is an entity; so is a railway. The -separate parts of a locomotive are most of them independently valuable; -so are the separate parts of a railway; but a large share of the value -of the locomotive is the result of the nice adjustment of these separate -parts to each other and to the work to be done. - -Take a hundred different-sized locomotives, each adapted to different -work under different conditions, and separate each piece of metal; it -would be possible to value all these parts, but the aggregate would be -far less than the value of the locomotives from which they were taken. -Again, it would be possible to construct from these parts a hundred -locomotives of such poor design, their respective parts so out of -adjustment and balance, that they would be worth even less than the -parts out of which they were assembled. The highest paid intelligence -has not yet contrived the perfectly balanced locomotive, but a large -part of the so-called "physical value" of every locomotive represents -this sort of highly paid intelligence put forth at every stage from the -opening of the mine where the ore was obtained to the delivery of the -completed locomotive. Take ten railways of a thousand miles each, every -one of them efficiently constructed, and equipped with proper terminals, -stations, signals, rolling stock, and trained employees, and each -properly adapted to the requirements of its territory and traffic; -separate them into piles of ties and rails, groups of locomotives and -cars, acres of land, unorganized bodies of men of varied capacity and -training; what sort of intelligence will it require to build up out of -these masses ten railways as efficient and useful as those that -originally existed? Why, then, should the "physical value" of the -locomotive include the assembling of its parts in proper balance and the -"physical value" of the railway exclude the cost of the much more -complicated adjustment of its elements of machinery and labor and -location to each other? - -At an early point in his discussion, Mr. Riggs makes an announcement, -highly becoming on the part of one who proposes to deal with the problem -solely from the point of view of a civil engineer, that he does not -intend to argue the public utility of any sort of valuation, but only -the method by which it may best be made, should one be determined upon. -He says: - - "This paper is confined to a discussion of the methods which should - be used in arriving at a correct figure of cost of reproduction and - depreciation—it does not take up questions involving the propriety - of those figures when reached. The propriety or legality of using - such figures as a basis for an assessed valuation, as a basis for - rate-making (rate-making being an art in itself involving - complications as great as those encountered in valuation), or any - arguments as to the justice or injustice of legislation restricting - issues of stocks or bonds, will be conceded no place in this paper. - It is assumed that all these questions would have been taken up and - a satisfactory answer reached before a valuation could have been - ordered." - -Two pages after the foregoing paragraph, under the sub-heading "The -Relation of Public Service, or Quasi-Public Corporations, to the -People," Mr. Riggs proceeds to violate the wise, though self-imposed -restriction, and devotes no less than eleven pages to a defense of the -project on grounds of alleged public policy. In these pages he concludes -that such a valuation as he proposes—not a mere determination of -replacement costs, but a real valuation, with proper allowance for all -elements of value in use—would be of service in connection with (_a_) -taxation, (_b_) public control of rates, and (_c_) public control of -issues of capital securities. - -In supporting valuation as an expedient in taxation of railway property, -Mr. Riggs seems to rely on a table made up from Professor Adams' -Bulletin No. 21, as expert employed by the Federal Bureau of the Census, -which table shows that the assessment of the railways of Wyoming for -taxation purposes in 1904 was but 7.5% of their commercial valuation, as -estimated by Professor Adams, and that this ratio varied greatly -throughout the different States, running as high as 114.4 in -Connecticut. Of course, nearly every one knows, even if Mr. Riggs does -not, that the relation between the real value and the assessed value of -all other kinds of property varies greatly from State to State, and even -in different portions of the same State. On account of this variation, -no table such as that offered by Mr. Riggs in support of his argument -can have any value unless supplemented and explained by data covering -the assessment of other kinds of property. It is worth noting, _en -passant_, that the so-called "Commercial Valuation," on which Mr. Riggs -rests this part of his argument, assigns a value equivalent to $32,054 -per mile to the railways of Michigan and one of $45,211 per mile to the -railways of the prairie State of Nebraska. Possibly this variation in -the estimate of value is partly expressed in the conclusion that -Michigan railways are assessed at 70.9% of their value and Nebraska -railways at but 18.5 per cent. Obviously, there is no more need of -uniformity among the States in the taxation of railway property than in -their methods of deriving revenue from other kinds of property. - -Also, Mr. Riggs admits that, when the Michigan valuation for taxation -was made, it was not diminished, as it should have been, by the use of -negative, non-physical value. This is fully equivalent to an admission -that the method was unjust to every railway not capable of earning the -full return on its replacement cost. He says: - - "The use of a negative or subtractive non-physical value was - considered, and advised by Professor Adams.... - - "Professor Adams and his associates, therefore, applied only - positive values, where any such were found, although advocating the - use of negative values." - -And, of the method then used, he says: - - "... it fails, in the form in which it was used in 1900 and 1902, to - bring out those negative or subtractive elements which may be - determined from the income accounts, in the case of properties which - do not earn a fair return on the investment." - -And again: - - "... where the earnings have been fairly uniform and stationary for - a period of years, and the property does not earn a sufficient sum - to care for depreciation and annuity, it is clear that the value as - an earning investment is less than the determined physical value, - and that the physical valuation should be reduced by some amount to - arrive at the 'fair value.'" - -In his argument favoring the use of a valuation in rate-making, Mr. -Riggs affords no support to Professor Adams' contention that, for that -purpose, only replacement cost should be considered, and that, after -fixing the rates on the basis of the least favorably located and least -efficient line, so as to afford it a bare return on its replacement -cost, the surplus earnings at the same rates of its more favorably -located or better operated competitors should be confiscated under the -guise of a special tax. This extraordinary proposal, the character of -which is so illuminating as to the attitude toward railway property and -investments of the most prominent and persistent advocate of so-called -"physical valuation," is best stated in Professor Adams' own words, -which are as follows: - - "I cannot evade the conclusion that equity, as between various - classes of roads, can never be attained until all the excess of - revenue over the Constitutional limit be made a contribution to the - public treasury, and that this contribution be made as a substitute - for all taxes of all kinds and all sorts."[38] - -On the contrary, Mr. Riggs distinctly upholds the right to earnings in -excess of the bare return, at the minimum rate of interest, upon the -cost of replacement, saying, _inter alia_: - - "It is contended that the determination of rates that will be just - and fair to all competing companies involves other consideration - than the valuation of either physical or intangible properties, and - that when all these rate-making problems are properly solved, there - will remain large intangible values on the well-designed plants." - -Professor Adams has himself admitted that there is no possibility of -utilizing any valuation for the purpose of fixing specific rates, as -such a task is far beyond the capacity of any conceivable system of cost -accounting. Supplementing this admission, Mr. Riggs' opposition to the -plan proposed by the former and its gross injustice, so apparent to -every one but its author, destroys the last element of plausibility in -the suggestion that any sort of valuation could be of utility in that -connection. The writer is not overlooking the fact that the Courts, when -under the necessity of repelling efforts to confiscate railway -properties under the guise of rate regulation, and in view of the form -in which this necessity has commonly presented itself, have accepted -"fair value" as an element of importance in their inquiries; but if the -railways are entitled to charge rates based on the value of the services -they perform, it is clear that the question whether a rate or a schedule -of rates is reasonably adjusted to the value of the service or services -is very different from the question whether a fair return upon fair -value has been allowed. Assuming, however, the need of an appraisement -in every litigated case involving railway schedules, it is evident that -each case would have to have its own appraisement, for value is ever -changing and unstable. Mr. Riggs himself says: - - "It is true that the 'value' of a property is an unstable figure, - subject to fluctuations due to natural or artificial causes, and - that a material change in value may occur suddenly...." - -Professor Adams proposed to keep his replacement cost up to date by -annual accretions equal to annual expenditures for extensions and -betterments; but this plan is illogical and inconsistent, for it -proposes to ignore that very essential difference between original cost -(less a proportionate allowance for wear and tear) and present worth, -which is the very basis of the argument in favor of any valuation at -all. Equally obvious objections, growing out of the instability of the -ascertained value of any particular date, apply to any plan which does -not provide for a re-appraisement every time the aggregate is to be -used. - -The objections to the use of any valuation for rate-making which have -been cited are valid, and should be convincing, but they are -insignificant by the side of the fundamental objection that, as Mr. -Riggs says, "as a business proposition, the value of any property -depends on its earnings," while those who would thus utilize a valuation -are attempting to reverse the fact and make earnings depend on the -value. Such a reversal is impossible. Ascertain real value and you have -a consequence of earnings, past, present, and prospective, nothing else; -use this as a basis for a rate schedule and you get, as a mathematical -result, the present rates. The only way to derive any other result from -this method would be to use as the basis some figure other than the real -value, a method which would only be resorted to through moral turpitude -or intellectual incapacity. One might almost assume that Mr. Riggs knows -this, for he says: - - "Value is given to a property, either by reason of the fact that it - is an instrument for earning profit, or that it does earn profit or - gives promise of profit." - -The substance of Mr. Riggs' argument on capitalization control is that -American railways are not often over-capitalized, but such evils do -obtain in other industries, and therefore railway issues of capital -securities ought to be restricted.[39] Unfortunately, he gives no clue -to the methods he would have applied, nor as to how far he would go in -interference with the normal action and interaction of commercial forces -in determining what securities can and ought to be issued. Railways are -not over-capitalized. Table 9, a comparison of official valuations and -capitalization, originally compiled by Mr. Slason Thompson, is -instructive. - - TABLE 9. - - ═════════════╤═════╤═══════════════════════╤════════════════════ - State. │Year.│Valuation by commission│State proportion of - │ │ or tax board. │ capitalization. - ─────────────┼─────┼───────────────────────┼──────────────────── - Minnesota │1907 │ $411,735,194│ $334,979,691 - South Dakota │1909 │ 106,494,503│ 108,911,000 - Wisconsin │1909 │ 284,066,000│ 249,299,060 - Texas │1909 │ 413,000,000│ 412,465,743 - Washington │1908 │ 186,007,490│ 153,493,940 - ─────────────┼─────┼───────────────────────┼──────────────────── - Total │ │ $1,401,303,187│ $1,259,049,434 - ─────────────┴─────┴───────────────────────┴──────────────────── - - ──────────────────────────────────────────────────────────────── - Excess of total valuation over total capitalization $142,253,753 - ════════════════════════════════════════════════════════════════ - -In view of frequent suggestions, in the public press and elsewhere, -which indicate that there is a widespread opinion that the securities of -railways have generally been watered, Table 10 is given. It is an -analysis of the consolidated balance sheet as given in the reports of -the Interstate Commerce Commission for 1908 and 1890. - -Table 11 shows the length, in miles, of main and other tracks in 1908 -and 1890. - -The Commission, in its annual report, shows the securities issued per -mile of road (first main track), but does not show the results per mile -of main track (_i. e._, 1st main track, 2d, 3d, 4th, and other main -tracks), nor does it show the results per mile of all tracks (_i. e._, -main tracks, yard tracks, passing tracks, and industrial tracks). From -the consolidated balance sheet, it will be noted that the securities per -mile of road have increased 29%, while per mile of main track they have -increased only 24%, and per mile of all tracks they have increased but -14 per cent. However, deducting the investments in stocks and bonds of -other corporations, and showing the results only for the securities -issued on account of the cost of road and 12% equipment, we have an -average per mile of road of $62,388, an increase of 12%; and an average -per mile of all main tracks of $56,166, an increase of 8%; and an -average per mile of all tracks of $42,864, or a decrease of 0.7 per -cent. It will be noted that a considerable part of these increases is -due to increased cost of equipment, and the advantageous results -obtained from such investment have been clearly shown. Of the investment -in the track itself (cost of road), it will be noted that the cost per -mile of main track has increased only 5%, while the cost per mile of all -tracks shows a slight decrease in 1908 as compared with 1890. - -These comparisons are more significant and convincing in the light of -the large expenditures since 1890 for the reduction of grades, revision -of line, interlocking towers, automatic block signals, increased weight -of rail, increased capacity of bridges, improved stations and terminals, -elevation of tracks, and the many other items going to make up the -additions and betterments, and increasing the book cost of the property. -The figures plainly prove that there has been no general practice on the -part of the railroads of the country, from 1890 to date, of issuing -capital securities without securing full value for the vast amount -referred to. Why, then, should any restriction be placed on the form or -manner of their future appeal for the very large volume of capital -necessary to keep abreast of American industrial development? Why should -they be limited as to what form of security they may offer in return for -the cash capital which they must obtain if they are to serve the public -adequately and properly? - - TABLE 10.—CONSOLIDATED BALANCE SHEET FOR RAILROADS OF THE - UNITED STATES. EXCLUSIVE OF TERMINAL AND SWITCHING ROADS. - - ╒══════════════╤══════════════════════════════════════════════════════╕ - │ │ ASSETS. │ - ├──────────────┼──────────────────────────────┬───────────────────────┤ - │ │ Total. │ Per mile of road. │ - ├──────────────┼───────────────┬──────────────┼───────────┬───────────┤ - │ │ 1908. │ 1890. │ 1908. │ 1890. │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │RAILROAD: │ │ │ │ │ - │Cost of road │$12,035,195,403│$7,333,096,430│ $56,268│ $51,400│ - │Cost of │ 1,178,571,137│ 422,290,951│ 5,510│ 2,960│ - │ equipment │ │ │ │ │ - │Material and │ 226,250,462│ 63,785,950│ 1,058│ 447│ - │ supplies │ │ │ │ │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │$13,440,017,002│$7,819,173,331│ $62,836│ $54,807│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │INVESTMENTS: │ │ │ │ │ - │Stocks owned │ $2,115,313,379│ $489,049,859│ $9,890│ $3,428│ - │Bonds owned │ 1,271,311,512│ 241,115,665│ 5,944│ 1,690│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │ $3,386,624,891│ $730,165,524│ $15,834│ $5,118│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │CURRENT │ │ │ │ │ - │ ASSETS: │ │ │ │ │ - │Cash and │ $1,213,575,272│ $307,871,188│ $5,674│ $2,158│ - │ current │ │ │ │ │ - │ assets │ │ │ │ │ - │Sinking, │ 154,975,409│ 125,095,987│ 724│ 877│ - │ Insurance, │ │ │ │ │ - │ and other │ │ │ │ │ - │ funds │ │ │ │ │ - │Total │ $1,368,550,681│ $432,970,175│ $6,398│ $3,035│ - │Miscellaneous │ $1,277,458,795│ $710,300,536│ $5,973│ $4,979│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │$19,472,651,369│$9,692,609,566│ $91,041│ $67,939│ - │ total—All │ │ │ │ │ - │ assets │ │ │ │ │ - ├──────────────┼───────────────┴──────────────┴───────────┴───────────┤ - │ │ LIABILITIES. │ - ├──────────────┼───────────────┬──────────────┬───────────┬───────────┤ - │SECURITIES │ │ │ │ │ - │ ISSUED: │ │ │ │ │ - │Capital stock │ $7,289,597,964│$4,179,156,990│ $34,081│ $29,293│ - │Bonds │ 9,441,200,261│ 4,462,577,079│ 44,141│ 31,280│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │$16,730,798,225│$8,641,734,069│ $78,222│ $60,573│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │CURRENT │ │ │ │ │ - │ LIABILITIES:│ │ │ │ │ - │Accrued │ │ $25,341,994│ │ $177│ - │ interest │ │ │ │ │ - │Other current │ $1,151,233,255│ 440,513,629│ $5,382│ 3,088│ - │ liabilities │ │ │ │ │ - │Total │ $1,151,233,255│ $465,855,623│ $5,382│ $3,265│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Miscellaneous │ $845,115,552│ $394,918,201│ $3,952│ $2,768│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │$18,727,147,032│$9,502,507,893│ $87,556│ $66,606│ - │ total—All │ │ │ │ │ - │ liabilities │ │ │ │ │ - │Profit and │ 745,504,337│ 190,101,673│ 3,485│ 1,333│ - │ loss balance│ │ │ │ │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │$19,472,651,369│$9,692,609,566│ $91,041│ $67,939│ - │ total—All │ │ │ │ │ - │ assets │ │ │ │ │ - ╘══════════════╧═══════════════╧══════════════╧═══════════╧═══════════╛ - ╒══════════════╤══════════════════════════════════════════════════════╕ - │ │ ASSETS. │ - ├──────────────┼──────────────────────────────┬───────────────────────┤ - │ │ Per Mile of main tracks. │Per mile of all tracks.│ - ├──────────────┼───────────────┬──────────────┼───────────┬───────────┤ - │ │ 1908. │ 1890. │ 1908. │ 1890. │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │RAILROAD: │ │ │ │ │ - │Cost of road │ $50,656│ $48,109│ $38,659│ $40,033│ - │Cost of │ 4,961│ 2,770│ 3,786│ 2,305│ - │ equipment │ │ │ │ │ - │Material and │ 952│ 419│ 727│ 348│ - │ supplies │ │ │ │ │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │ $56,569│ $51,298│ $43,172│ $42,686│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │INVESTMENTS: │ │ │ │ │ - │Stocks owned │ $8,903│ $3,208│ $6,795│ $2,670│ - │Bonds owned │ 5,351│ 1,582│ 4,083│ 1,316│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │ $14,254│ $4,790│ $10,878│ $3,986│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │CURRENT │ │ │ │ │ - │ ASSETS: │ │ │ │ │ - │Cash and │ $5,108│ $2,020│ $3,898│ $1,681│ - │ current │ │ │ │ │ - │ assets │ │ │ │ │ - │Sinking, │ 652│ 820│ 498│ 683│ - │ Insurance, │ │ │ │ │ - │ and other │ │ │ │ │ - │ funds │ │ │ │ │ - │Total │ $5,760│ 2,840│ $4,396│ $2,364│ - │Miscellaneous │ $5,377│ $4,660│ $4,103│ $3,878│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │ $81,960│ $63,588│ $62,549│ $52,914│ - │ total—All │ │ │ │ │ - │ assets │ │ │ │ │ - ├──────────────┼───────────────┴──────────────┴───────────┴───────────┤ - │ │ LIABILITIES. │ - ├──────────────┼───────────────┬──────────────┬───────────┬───────────┤ - │SECURITIES │ │ │ │ │ - │ ISSUED: │ │ │ │ │ - │Capital stock │ $30,682│ $27,417│ $23,415│ $22,815│ - │Bonds │ 39,738│ 29,277│ 30,327│ 24,362│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Total │ $70,420│ $56,694│ $53,742│ $47,177│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │CURRENT │ │ │ │ │ - │ LIABILITIES:│ │ │ │ │ - │Accrued │ │ $166│ │ $188│ - │ interest │ │ │ │ │ - │Other current │ $4,845│ 2,890│ $3,698│ 2,405│ - │ liabilities │ │ │ │ │ - │Total │ $4,845│ $3,056│ $3,698│ $2,543│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Miscellaneous │ $3,557│ 2,591│ $2,715│ $2,156│ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │ $78,822│ $62,341│ $60,155│ $51,876│ - │ total—All │ │ │ │ │ - │ liabilities │ │ │ │ │ - │Profit and │ 3,138│ 1,257│ 2,394│ 1,038│ - │ loss balance│ │ │ │ │ - ├──────────────┼───────────────┼──────────────┼───────────┼───────────┤ - │Grand │ $81,960│ $63,588│ $62,549│ $52,914│ - │ total—All │ │ │ │ │ - │ assets │ │ │ │ │ - ╘══════════════╧═══════════════╧══════════════╧═══════════╧═══════════╛ - -It ought also to be borne in mind, in this connection, that, while there -could be no lawful mode for the revision of existing capitalization, -should it in any instance be found to be too small or too great when -measured by the results of such a valuation, the future issue of -securities must be controlled by the necessities of the carriers and the -state of the market, and is also practically restricted by the -Interstate Commerce Commission's accounting system, which declares what -expenditures may and what may not be carried into the capital account. -The law cannot compel any company to repudiate any existing security, -and if it could it is not to be supposed that Congress would compel such -an impairment of contract rights; public policy will not permit in -practice restrictions that would prevent the issue of securities to meet -the actual needs of the public and the carriers; the accounting system -prevents issues of any other sort. Further restrictions would be -cumulative and superfluous. - - TABLE 11. - - ═══════════════════════════╤══════════╤══════════╤══════════╤══════════ - Track. │ 1908. │ 1890. │Increase. │Percentage - │ │ │ │ of - │ │ │ │increase. - ───────────────────────────┼──────────┼──────────┼──────────┼────────── - Single track │213,888.36│142,665.89│ 71,222.47│ 49.9 - Second track │ 20,209.05│ 8,437.65│ 11,771.40│ 139.5 - Third track │ 2,081.16│ 760.88│ 1,320.28│ 173.5 - Fourth track │ 1,408.99│ 561.81│ 847.18│ 150.8 - ───────────────────────────┼──────────┼──────────┼──────────┼────────── - Total, all main tracks │237,587.56│152,426.23│ 85,161.33│ 55.9 - Yard track and sidings │ 73,728.57│ 30,750.17│ 42,978.40│ 139.8 - ───────────────────────────┼──────────┼──────────┼──────────┼────────── - Total mileage operated │311,316.13│183,176.40│128,139.73│ 69.9 - (all tracks) │ │ │ │ - ═══════════════════════════╧══════════╧══════════╧══════════╧══════════ - - "The Interstate Commerce Commission in 1908 report that their - Balance Sheet covers 'miles of road' aggregating 213,888.36 miles, - whereas their statement of mileage represents all roads reporting to - the Commission whether or not they furnished a Balance Sheet. - - "To analyze the Consolidated Balance Sheet, we have revised the - statement of mileage to cover same roads as are included in the - General Balance Sheet. The 'miles of road,' _i. e._, miles of first - main track, are actual. The Commission's report not showing - separately for each line the miles of other main tracks or yard - tracks and sidings, the figures shown in the statement of mileage - are _approximate_. It includes mileage of all second, third and - fourth tracks. Undoubtedly, practically all of the second tracks, - third tracks and fourth tracks are owned, or operated by, roads - furnishing the Commission with a Balance Sheet. Mileage of Yard - Tracks and Sidings is based on the proportion which the single-track - mileage of roads represented in the Balance Sheet bears to the total - single-track mileage of roads reporting to the Commission." - -Mr. Riggs considers _seriatim_ nine objections to the ordinary methods -of estimating cost of replacement which were mentioned specifically by -the writer, as among the most important commonly omitted items, in an -address before the New York Traffic Club, delivered during January, -1909. He concedes that the writer is correct in urging that allowances -for "working capital with which to carry on the business" and for -"impact and adaptation" ought to be included, and were omitted in -Michigan and have been usually omitted. These are two of the nine -objections specifically raised. As to five others, Mr. Riggs seems to be -in considerable doubt. Concerning the objection that an allowance of 3% -for interest during construction is too low, he contends that it was -justified in Michigan by the "assumption," that the whole work of -replacement would be accomplished in one year, and also "that on long -roads partial operation would commence as various sections of the line -were completed." He admits that these assumptions "clearly would not be -proper" under different conditions, but appears to hold that they were -warranted as to the Michigan work. - -Another of the writer's objections was the absence of an allowance for -"wear and tear of materials during the period of construction." As to -this, Mr. Riggs says: - - "This deterioration is a necessary incident to any construction - work. It has not been customary or usual to take account of it. To - add to the amount capitalized on account of this item would be - manifestly improper. The only way in which this could be cared for - would be in an adjustment of the depreciation reserve when raised to - cover that which takes place during the construction period." - -Of course, the depreciation account, when there is one, is a charge to -operation. Therefore, Mr. Riggs' anxiety to disagree with the writer has -led him into a frame of mind in which he is prepared to find that it is -"manifestly improper" to charge to capital the real cost of -construction, but is quite proper to charge to operation a part of the -cost of construction, even though this results in carrying into the -operating account items of expense incurred long before operation began -or could have begun. - -Mr. Riggs thinks that the writer was incorrect in objecting that "a -uniform price for earthwork was used, thus ignoring the varying -character of soil and length of haul," but he admits that there was -"practically no classification in the Southern Peninsula of Michigan, -or, in fact, on 90% of the mileage of the State," and his defense goes -no further than to assert that "the price * * * was not much out of the -way when considered as a fair average for the territory." - -His criticism of the objection to the use of a uniform price list for -materials, and ignoring the source of supply and the cost of delivery at -the point of use, is equally forced, for it admits that "no effort was -made to use different unit prices as between counties," and only -contends that "in a number of cases" differences in prices were made. - -The absence of an allowance for interference by labor troubles, weather -conditions (which he admits are "a frequent source of annoyance, delay, -and sometimes of expense"), Mr. Riggs defends on the ground that it is -"an expense difficult to separate and set up," and therefore ought to be -covered by an allowance for contingencies. On the same ground, he could -easily carry every item of cost of replacement into the contingent -account. - -The two remaining objections specifically raised by the writer are -squarely attacked by Mr. Riggs. As to one of them, the propriety of an -allowance for carrying charges up to the time of attaining a revenue -basis, has been admitted by the Railroad Commission of Wisconsin, but it -is a broader question than ought here to be discussed. The writer will -only suggest, at present, that in some form or other, these charges must -be on the whole and in the long run met out of net operating income, and -that the cheapest way, for the user of the services supplied, is to -carry them into the capital account—otherwise there must be an early -amortization of this item, which cannot do otherwise than to throw a -heavy burden on the early schedules of charges. The language of the -Wisconsin Railroad Commission on this subject merits quotation, and is -as follows:[40] - - "But new plants are seldom paying at the start. Several years are - usually required before they obtain a sufficient amount of business - or earnings to cover operating expenses, including depreciation and - a reasonable rate of interest upon the investment. The amount by - which the earnings fail to meet these requirements may thus be - regarded as deficits from the operation. These deficits constitute - the cost of building up the business of the plant. They are as much - a part of the cost of building up the business as loss of interest - during the construction of the plant is a part of the cost of its - construction. They are taken into account by those who enter upon - such undertakings, and if they cannot be recovered in some way, the - plant fails by that much to yield reasonable returns upon the amount - that has been expended upon it and its business. Such deficits may - be covered either by being regarded as a part of the investment and - included in the capital upon which interest is allowed, or they may - be carried until they can be written off when the earnings have so - grown as to leave a surplus above a reasonable return on the - investment that is large enough to permit it. When capitalized, they - become a permanent charge on the consumers. When charged off from - the surplus, they are gradually extinguished. (These facts alone, - however, do not always furnish the best or most equitable basis for - the disposal of such deficits.) Whether they should go into the - capital account, or whether they should be written off, as - indicated, are questions that largely depend on the circumstances in - each particular case." - -The other objection that is squarely opposed by Mr. Riggs is the refusal -to allow for unavoidable discounts on the securities sold. Here he -quotes with complete approval an unnamed writer, who contends that the -impropriety of such an allowance is proven because, as between an issue -of $10,000,000 in bonds (par value) at 4% and at 4½%, the 4% bonds -bringing 90 and the 4½% selling at par, there is an annual saving, in -issuing the 4% of $50,000 in interest, and that, if the issue is to be -for fifty years, this saving is $2,500,000, or $1,500,000 in excess of -the discount. Of course, these figures are correct, but both Mr. Riggs -and his unnamed authority seem strangely to have overlooked the fact -that if a railway construction requires $10,000,000, it cannot be -obtained by issuing $10,000,000 in par value at 90. The comparison, of -course, ought to be based on the issue of enough bonds at each rate to -obtain equal sums of money. As $10,000,000 in par value of bonds sold at -90 would produce $9,000,000, the following comparison is based on the -issue of enough bonds at each rate payable in fifty years to secure that -sum. - - Fifty-Year Bonds, - 4½% sold at par. 4% sold at 90. - - Amount of capital required $9,000,000 $9,000,000 - Par value of bonds necessary 9,000,000 10,000,000 - Annual interest charge 405,000 400,000 - - If 4% bonds are used: - Annual saving in interest $5,000 - Fifty years saving in interest 250,000 - Loss, original discount 1,000,000 - _________ - Net loss $750,000 - -Of course, the foregoing figures are not absolutely accurate, for the -real net loss in the issue of the 4% rather than the 4½% bonds at these -prices would be the difference between the $5,000 annual saving in -interest and the amounts which would have to be set aside annually for -fifty years to produce $1,000,000, the amount of the discount, at the -end of that period. But the table is sufficiently accurate to expose the -curious error into which Mr. Riggs has fallen. Perhaps it will convince -him that it would be better, hereafter, not to stray so far outside the -field of civil engineering. - -Mr. Riggs has little sympathy with those railway men who venture to -express the opinion that regulation ought not to extend so far as to -render it impossible to conduct the railway business in a business-like -way. His animadversions on railway men in general have already been -illustrated herein. He finds nothing worse with which to characterize a -previous utterance of the writer's than to say of it: - - "The manifest impatience with all forms of governmental interference - with corporations, which so often characterizes the utterances of - prominent railway officials, appears in this paper to a marked - degree." - -At the risk of incurring further displeasure, the writer will not omit -now to observe that, in his judgment, the whole question whether -railways shall be generally and officially valued, and how and by whom -the task shall be performed, is primarily conditioned by the country's -need of managing its legislative control of railway methods so as not to -restrict unduly the flow of capital into that industry. The steady -pressure for legislation during the last five years has so extended -legislative regulation that, for the first time, the sturdy, frugal, -conservative, "small investor" stands in the forefront of the problem. -His views of the stability and future prosperity of the American railway -industry now dominate the situation. What they are may be read in the -facts attending recent efforts to finance necessary improvements of old -and prosperous railways. It developed before the Interstate Commerce -Commission during the recent hearings in connection with the proposed -partial adjustment of rates to the diminished purchasing power of the -money in which they are paid, that one of the greatest of Eastern -railway systems, paying 8% annual dividends on its stock, which is very -widely distributed, had offered new shares to its stockholders at a -premium of 25%, and had found them unsalable at that figure, so that it -was obliged to recall the offer and put them out at par. Other testimony -disclosed the failure of one great company to obtain an offer of more -than 85 for its 4% bonds, while another had been forced to go to France -to raise $10,000,000, and many others have been forced to the expedient -of issuing short-term notes at relatively high rates of interest. It -also appeared that extensive proposals for new branch lines had been -abandoned or postponed, in view of the impossibility of obtaining funds -on reasonable terms. - -Other testimony shows that locomotive shops and car builders are putting -out not more than half of their capacity; that the supply trade is -receiving no new orders. Never, since the beginnings of the American -railway industry, has the American and foreign investor been so -reluctant to supply necessary capital, or so doubtful of the future of -railway enterprises. This fact is not due to absence of confidence in -the industrial future of the American people, but is directly -attributable to the unanswered inquiry as to how far the policy of -legislative control is to extend. Either this question must be answered -in a manner satisfactory to the investor, or the credit of the -Government must be made available for the extension and improvement of -railway facilities, either through Governmental guaranties of adequate -returns to capital, or through Government ownership; for adequate and -properly constructed and equipped railways the public must and will -have. Thus far, the American public is ready neither for Federal -guaranties nor for Federal ownership; it is to be hoped that it will -never be ready for either. In this situation, if a Federal valuation is -to be undertaken, it is primarily important that it should be under such -auspices and by such methods that the investor will not be alarmed as to -its consequences. This is not a suitable occasion to attempt to lay down -all the considerations applicable to such a valuation, but it ought to -be perfectly clear that it must relate to value in use, not to some -concept of value limited to replacement cost which excludes some of the -most important elements of value (which are also those most worthy of a -return, because they represent the highest and most difficult social and -industrial services), in order to obtain a means of excluding these same -elements from possibilities of adequate reward. - -One of the most important items to be considered is the "cost of -progress," which is sometimes referred to as "abandoned property," or as -"obsolescence." For illustration, in the revision of the grade and line -of a road, whereby the capacity of existing track is doubled, the -present instructions of the Interstate Commerce Commission require the -charge to operating expenses of the cost of that portion of the old line -no longer continued in use. If, however, the doubling of the capacity of -the line be secured by the construction of a second main track, the -entire cost of the new work can be charged to capital account and paid -for from the proceeds of the sale of capital securities. The latter -method becomes the easier to finance, but what of the comparative -results? Say, for example, the original cost of material of existing -property, including equipment, stations, yards, etc., was $10,000,000, -that the first main track cost $1,000,000, and that to double the -capacity of the main track would require a present expenditure of -$1,000,000, either for (1) a reduction of the grades and curves of the -first main track, or (2) for the construction of a second main track. -The increase in capacity is identical, but in the first case the cost of -train service to handle the tonnage is decreased 50%, and some reduction -in maintenance is secured, while in the second case no economies of -operation are effected, but the expenses may be increased. Undoubtedly, -Road (1) would be much more favorable than Road (2), yet the Commission -says a portion of the cost of perfecting Road (1) must be charged to -operating expenses, and cannot be capitalized. What general manager will -dare recommend such extensive improvements when the charging of a -portion of the cost to operating expenses will show the dividend as -unearned, and thus render the securities of the company no longer legal -investments for savings banks, trustees of trust funds, etc.? As an -alternative, he might permit the old line to remain, and by placing -thereon a few cars occasionally, could consider it as still in use, and -carry it in his capital account, thus avoiding the charge to operating -expenses. Thus, again, is it the method and not the result that is -controlled by these instructions. What should be done is to permit the -cost to be charged against the surplus accumulated during the years in -which the property to be abandoned was used. This would not affect -adversely the operating income of the year, and would not impair the -credit of the Company. - -Plainly, the instructions of the Commission tend to compel a method that -is contrary to the economic law. - -Obviously, any requirement as to valuation which would impose on the -carrier such a result as that shown would compel the continuance of the -less efficient service and prevent the progress which such replacements -express. The railway business is a continuing one, and an improvement -ought to be made whenever it can earn income, not only on its own cost, -but on that of the property abandoned, even though it cannot afford -income sufficient to wipe out the whole capital charge for the latter in -a single year. There is no reason for requiring each item of capital to -earn its cost in addition to its interest during its individual life. -Such a requirement would cry halt to progress. It is reasonable and -proper that such charges to operation should be made as far as the rapid -development of the art of transportation permits, and such is the -practice of every well-managed railway; but, to make the practice -uniform and compulsory, permitting no exceptions and allowing no scope -for individual judgment, is quite another thing. When the conditions -warrant such a course, the railway ought to be permitted to adjust its -accounts in a manner of which the following is typical: - - Replacing. Not - replacing. - - Capital account $19,750 $5,000 - - Additional net operating income attributable to 1,000 250 - this item - - Charge to operation for abandoned property 250 - - ______ _____ - - Operating gain $750 $250 - -A valuation adjusted in recognition of this developmental need would -include, in addition to the item of $15,000 for the replacement cost of -the new locomotive, an item representing "cost of progress" of $4,750 -for the former locomotive. It is not to be overlooked that in actual -practice it would be easy to obtain this allowance by cumbering the -yards and round-houses with obsolete and superfluous equipment. The plan -of Professor Adams places a premium on such a course, and there are many -conditions under which it could and would be followed where it would be -less obvious and more detrimental. For example, it might be that an -additional track over a steep grade and a new alignment which would -avoid it would cost the same. The new alignment would give greater -operating efficiency, but it would require the charging off of the old -line; the new track over the grade would be more costly to operate, but -would leave the apparent capital unimpaired. It is such possibilities as -this that are giving pause to the investors who would otherwise supply -funds for the needed development of the American railway system. How far -this development has so far required the abandonment of property capable -of further use and having genuine capital value is indicated by -available records. The aggregate capacity of all equipment has increased -much faster than the increase in number of locomotives and cars. The -reports of the Interstate Commerce Commission only show this information -for the years 1902 to 1908, both inclusive. The average tractive power -of locomotives in 1908 was 26,356 lb., as compared with 20,485 lb. in -1902, being an increase of 5,871 lb., or 28.7% per locomotive. The -average capacity of freight cars in 1908 was 35 tons, as compared with -28 tons in 1902, an increase of 7 tons, or 25 per cent. Undoubtedly, the -average capacity of locomotives and the average capacity of freight cars -in 1908 was not less than 60% above the average capacity of 1890. - -L. F. Loree, M. Am. Soc. C. E., President of The Delaware and Hudson -Company, as Reporter (For United States) to the International Railway -Congress, held in Paris in 1900, communicated with all roads in the -United States then operating 500 miles of line, or more, relative to the -capacity of cars actually in service. The result is shown in Table 12. - -As a result of these improvements in roadway and equipment, the average -number of tons of freight handled per freight train in 1908 was 351.80 -tons, as compared with 296.47 tons in 1902, an increase of 55.33 tons, -or 18.6 per cent. The average tons per freight train in 1908 was 351.80, -as compared with 175.12 in 1890, an increase of 176.68 tons, or 100.8 -per cent. - -These improvements have not been solely or mainly for the benefit of the -carriers, though there is no question that they have been prompted by -railway self-interest. The new car of 40 tons capacity is but 20% longer -than the old car of 13 tons, which means a great augmentation of the -efficiency of the private sidings and tracks of the manufacturers, as -well as the side tracks and terminals of the railway. Who would retrace -the steps of progress of the last decade or of the last two decades? Yet -the project to tie railway earnings to replacement cost, which makes no -allowance for the costly steps in such progress, is in reality a project -to tie them to their present state of development and to prohibit future -progress. Nor can it be forgotten that it is an inviolable law of Nature -that that which does not go forward must go backward—nothing can remain -stationary. - -The story of the crude millionaire who wanted to know the value of the -"plant" of Oxford University, in order that he might duplicate it, is -not inappropriate, and ought to have some significance to those who -imagine that replacement cost would tell the story of railway values. Do -they imagine, because they are ignorant of them, that a great railway -organization carries no traditions of loyalty, of persistence in the -face of overwhelming difficulty, of generous recognition of public needs -and rights, of courageous adherence to the real interests of its -shareholders that inspire its personnel and provide a genuine _esprit du -corps_? Do they find no superiority in one organization over another, no -systematic economies of method, no especial adaptation to economic needs -that has value more genuine than any replaceable element, and is at -least equally worthy of compensatory return? - - TABLE 12.—CLASSIFICATION OF FREIGHT - EQUIPMENT ACCORDING TO THE CAPACITY. - - ═════╤═════════╤═══════╤════════╤════════╤═════════╤═════════╤═════════ - Year.│ No. of │ Five │ Ten │Fifteen │ Twenty │ Twenty- │ Thirty - │ Roads │ tons │ tons. │ tons. │ tons. │ five │ tons. - │Reporting│ and │ │ │ │ tons. │ - │ (see │under. │ │ │ │ │ - │ note). │ │ │ │ │ │ - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1880 │A-7 │ 38,399│ 131,988│ 447,270│ 89,420│ │ - │ 7 │ 38,399│ 131,988│ 447,270│ 89,420│ │ - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1890 │A-7 │ 16,450│ 71,982│ 182,175│ 651,740│ 441,475│ 548,670 - │B-13 │ 16,450│ 72,082│ 240,900│ 933,040│ 624,125│ 638,100 - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1893 │A-7 │ 1,145│ 34,088│ 144,795│ 629,780│ 734,350│ 842,640 - │C-13 │ 1,145│ 34,238│ 255,795│ 993,840│ 947,500│1,112,070 - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1895 │A-7 │ 355│ 13,978│ 120,435│ 589,140│ 743,975│1,011,030 - │D-15 │ 355│ 20,863│ 245,709│1,186,320│1,103,100│1,493,700 - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1897 │A-7 │ 20│ 6,462│ 92,585│ 555,980│ 761,150│1,224,030 - │E-16 │ 20│ 9,407│ 163,189│1,029,756│1,089,300│1,822,530 - ─────┼─────────┼───────┼────────┼────────┼─────────┼─────────┼───────── - 1898 │A-7 │ │ 1,540│ 94,275│ 523,080│ 721,425│1,314,840 - │F-27 │ 63,565│ 9,491│ 418,551│2,190,360│1,654,850│4,831,170 - ═════╧═════════╧═══════╧════════╧════════╧═════════╧═════════╧═════════ - - ═════╤═════════╤═══════╤══════╤══════╤═══════╤═══════╤═════════╤═══════ - Year.│ No. of │Thirty-│Forty │Forty-│ Fifty │ Total │ Total │ Aver- - │ Roads │ five │tons. │ five │ tons │number │capacity,│ age - │Reporting│ tons. │ │tons. │ and │ of │in tons. │capac- - │ (see │ │ │ │ over. │ cars. │ │ity, in - │ note). │ │ │ │ │ │ │ tons. - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1880 │A-7 │ │ │ │ │ 53,733│ 707,077│ 13.2 - │ 7 │ │ │ │ │ 53,733│ 707,077│ 13.2 - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1890 │A-7 │ │ 4,000│ │ 50│ 91,281│1,916,492│ 21.0 - │B-13 │ │ 4,000│ │ 50│119,513│2,528,747│ 21.2 - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1893 │A-7 │ │ 4,000│ │ │103,315│2,390,798│ 23.4 - │C-13 │ │ 4,000│ │ │145,440│3,848,588│ 23.0 - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1895 │A-7 │ 70,000│ 4,000│ │ 50│104,496│2,652,963│ 24.4 - │D-15 │ 70,000│ 4,000│ │ 50│171,307│4,074,217│ 23.8 - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1897 │A-7 │ 74,865│ 4,400│ 450│ 150│108,118│2,720,042│ 25.2 - │E-16 │183,190│ 4,400│ 450│ 150│174,315│4,322,432│ 24.8 - ─────┼─────────┼───────┼──────┼──────┼───────┼───────┼─────────┼─────── - 1898 │A-7 │ 75,320│ 4,480│ 270│ 50,950│108,559│2,786,180│ 25.7 - │F-27 │ 88,515│ 8,840│ 270│104,700│385,765│9,409,918│ 24.4 - ═════╧═════════╧═══════╧══════╧══════╧═══════╧═══════╧═════════╧═══════ - - Note:—A—Figures cover only these roads: - - Reporting for 1880 and all other years, viz.: - Allegheny Valley - - B. & M. R. - - C. of G. - - G. R. & I. - - Penn. Lines W. - - Phila. & Reading - - Wis. Cent. - - B—Includes roads under "A," also: - Ches. & Ohio - - C. G. W. - - M. K. & T. - - N. D. & C. - - Phg. & Western - - Vandalia - - C—Includes roads under "A," also: - Ches. & Ohio - - C. G. W. - - Mich. Cent. - - M. K. & T. - - N. D. & C. - - Phg. & Western - - D—Includes roads under "A" and "B," also: - Mich. Cent. - - Southern Ry. - - E—Includes roads under "A" and "C," also: - C. R. I. & P. - - Seaboard Air Line - - Southern Ry. - - F—Includes roads under "A" and "B," also: - Ann Arbor - - B. & M. - - C. R. I. & P. - - C. St. P. M.& O. - - Grand Trunk - - Lehigh Valley - - Mich. Cent. - - O. R. R. & Nav. - - Penn. R. R. - - P. B. & L. E. - - Seaboard Air Line - - So. Pacific - - Southern Ry. - - TABLE 13.—STATEMENT OF RETURN ON INVESTMENT IN ROAD, EQUIPMENT, - ETC., FOR ROADS IN THE OFFICIAL CLASSIFICATION TERRITORY, FOR ELEVEN - YEARS ENDED JUNE 30TH, 1909, ALSO FOR THE YEAR 1890. - - ╒═══════╤════════════════╤═══════════════╤══════════════╤═════════════╕ - │ Year. │ Cost of road. │ Cost of │ General │Material and │ - │ │ │ equipment. │expenditures. │ supplies. │ - ├───────┼────────────────┼───────────────┼──────────────┼─────────────┤ - │1909 │ $4,357,455,101│ $686,116,206│ $50,586,812│ $75,550,135│ - │1908 │ 4,306,902,038│ 669,751,320│ 51,324,157│ 86,201,748│ - │1907 │ 4,438,582,438│ 587,637,733│ │ 91,923,338│ - │1906 │ 4,269,066,800│ 513,028,004│ │ 80,479,333│ - │1905 │ 4,110,883,904│ 492,498,488│ │ 65,875,071│ - │1904 │ 3,906,766,459│ 461,941,677│ │ 72,240,521│ - │1903 │ 3,830,580,776│ 426,822,318│ │ 64,458,257│ - │1902 │ 3,744,205,552│ 389,909,755│ │ 50,565,290│ - │1901 │ 3,682,894,343│ 378,545,580│ │ 47,746,178│ - │1900 │ 3,620,630,187│ 377,156,700│ │ 49,940,838│ - │1989 │ 3,566,223,557│ 351,902,957│ │ 31,162,907│ - ├───────┼────────────────┼───────────────┼──────────────┼─────────────┤ - │Total │ $43,834,194,155│ $5,335,310,738│ $101,910,969│ $716,143,616│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 3,984,926,469│ 485,028,249│ 9,264,634│ 65,103,965│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - ├───────┼────────────────┼───────────────┼──────────────┼─────────────┤ - │1890 │ $2,927,221,233│ $283,407,139│ │ $35,262,205│ - ├───────┼────────────────┼───────────────┼──────────────┼─────────────┤ - │Total │ $46,761,412,388│ $5,618,717,877│ $101,910,969│ $751,405,821│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 3,896,784,365│ 468,226,489│ 8,492,581│ 62,617,152│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - ╘═══════╧════════════════╧═══════════════╧══════════════╧═════════════╛ - - TABLE 13. (_Continued._) - - ╒═══════╤═══════════════╤═══════════════╤══════════════╤══════════════╕ - │ Year. │ Total. │ Operating │ Operating │Net Operating │ - │ │ │ Revenues. │ Expenses. │ Revenue. │ - ├───────┼───────────────┼───────────────┼──────────────┼──────────────┤ - │1909 │ $5,169,708,254│ $1,032,285,890│ $700,694,007│ $331,591,883│ - │1908 │ 5,114,179,263│ 1,049,545,984│ 746,575,094│ 302,970,890│ - │1907 │ 5,118,143,509│ 1,141,324,116│ 794,998,803│ 346,225,313│ - │1906 │ 4,862,574,137│ 1,044,552,909│ 714,461,452│ 330,091,457│ - │1905 │ 4,669,257,463│ 944,805,659│ 658,337,498│ 286,468,161│ - │1904 │ 4,440,948,657│ 899,868,519│ 636,217,217│ 263,651,302│ - │1903 │ 4,321,861,351│ 871,697,611│ 601,864,284│ 269,833,327│ - │1902 │ 4,184,680,597│ 782,975,559│ 528,681,892│ 254,293,667│ - │1901 │ 4,109,186,101│ 730,590,144│ 491,657,899│ 238,932,245│ - │1900 │ 4,047,727,725│ 698,368,829│ 467,462,093│ 230,906,736│ - │1899 │ 3,949,289,421│ 610,724,301│ 413,390,359│ 197,333,942│ - ├───────┼───────────────┼───────────────┼──────────────┼──────────────┤ - │Total │$49,987,556,478│ $9,806,639,521│$6,754,340,598│$3,052,298,923│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 4,544,323,317│ 891,512,684│ 614,030,963│ 277,481,721│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - ├───────┼───────────────┼───────────────┼──────────────┼──────────────┤ - │1890 │ $3,245,890,577│ $524,767,906│ $348,388,268│ $176,379,638│ - ├───────┼───────────────┼───────────────┼──────────────┼──────────────┤ - │Total │$53,233,447,055│$10,331,407,427│$7,102,728,866│$3,228,678,561│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 1,436,120,588│ 860,950,619│ 591,894,072│ 269,056,547│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - ╘═══════╧═══════════════╧═══════════════╧══════════════╧══════════════╛ - - TABLE 13. (_Continued._) - - ╒═══════╤══════════════╤═══════════════╤══════════════╤═══════════════╕ - │ Year. │ Net revenue │ Total Net │ Taxes. │ Operating │ - │ │ from outside │ Revenue. │ │ Income. │ - │ │ operations. │ │ │ │ - ├───────┼──────────────┼───────────────┼──────────────┼───────────────┤ - │1909 │ $2,425,726│ $334,017,609│ $37,397,973│ $296,619,636│ - │1908 │ 3,446,600│ 306,417,490│ 36,021,974│ 270,395,516│ - │1907 │ │ 346,225,313│ 35,876,148│ 310,349,165│ - │1906 │ │ 330,091,457│ 34,863,314│ 295,228,143│ - │1905 │ │ 286,468,161│ 27,675,211│ 258,792,950│ - │1904 │ │ 263,651,302│ 28,091,468│ 235,559,834│ - │1903 │ │ 269,833,327│ 26,537,954│ 243,295,373│ - │1902 │ │ 254,293,667│ 25,297,465│ 228,996,202│ - │1901 │ │ 238,932,245│ 28,797,264│ 215,134,981│ - │1900 │ │ 230,906,736│ 22,616,893│ 208,289,843│ - │1899 │ │ 197,333,942│ 21,692,694│ 175,641,248│ - ├───────┼──────────────┼───────────────┼──────────────┼───────────────┤ - │Total │ $5,872,326│ $3,058,171,249│ $319,868,358│ $2,738,302,891│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 533,847│ 278,015,568│ 29,078,941│ 248,936,627│ - │ 11 │ │ │ │ │ - │ years│ │ │ │ │ - ├───────┼──────────────┼───────────────┼──────────────┼───────────────┤ - │1890 │ │ $176,379,638│ $14,753,550│ $161,626,088│ - ├───────┼──────────────┼───────────────┼──────────────┼───────────────┤ - │Total │ $5,872,326│ $3,234,550,887│ $334,621,908│ $2,899,928,979│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - │Average│ 489,360│ 269,545,907│ 27,885,159│ 241,660,748│ - │ 12 │ │ │ │ │ - │ years│ │ │ │ │ - ╘═══════╧══════════════╧═══════════════╧══════════════╧═══════════════╛ - - TABLE 13. (_Continued._) - - ╒═══════╤═══════════════════╤════════════════════╤════════════════════╕ - │ Year. │ Operating ratio. │ Percentage to cost │ Mileage of line │ - │ │ │ of road, cost of │ owned. │ - │ │ │equipment, material,│ │ - │ │ │ and supplies │ │ - ├───────┼───────────────────┼────────────────────┼────────────────────┤ - │1909 │ 67.88│ 5.738%│ 56,563.41│ - │1908 │ 71.13│ 5.287%│ 56,328.79│ - │1907 │ 69.66│ 6.063%│ 56,415.25│ - │1906 │ 68.40│ 6.071%│ 55,990.12│ - │1905 │ 69.68│ 5.542%│ 54,963.20│ - │1904 │ 70.70│ 5.304%│ 54,643.50│ - │1903 │ 69.04│ 5.630%│ 53,873.11│ - │1902 │ 67.52│ 5.472%│ 52,980.70│ - │1901 │ 67.30│ 5.235%│ 52,911.46│ - │1900 │ 66.94│ 5.146%│ 52,495.25│ - │1899 │ 67.69│ 4.447%│ 52,009.93│ - ├───────┼───────────────────┼────────────────────┼────────────────────┤ - │Total │ 68.88│ 5.478%│ 599,174.72│ - │ 11 │ │ │ │ - │ years│ │ │ │ - │Average│ 68.88│ │ 54,470.45│ - │ 11 │ │ │ │ - │ years│ │ │ │ - ├───────┼───────────────────┼────────────────────┼────────────────────┤ - │1890 │ 66.39│ 4.980%│ 43,094.73│ - ├───────┼───────────────────┼────────────────────┼────────────────────┤ - │Total │ 68.75│ 5.448%│ 642,269.45│ - │ 12 │ │ │ │ - │ years│ │ │ │ - │Average│ 68.75│ │ 53,522.45│ - │ 12 │ │ │ │ - │ years│ │ │ │ - ╘═══════╧═══════════════════╧════════════════════╧════════════════════╛ - -If there were not abundant evidence that the railway industry is not -excessively profitable, there would be more reason on the side of those -who continually put forward new schemes of restriction; but, not only is -such evidence ample, but there is no evidence of any sort tending to -establish the contrary. Limiting the inquiry to the region east of the -Mississippi and north of the Ohio and Potomac Rivers, commonly known as -Official Classification Territory, the statement in Table 13, based on -the book cost of railways, with their equipment, supplies, and materials -on hand, is instructive. The data are from the reports of the Interstate -Commerce Commission. - -The amounts shown in Table 13 as "operating income" are, as should be -remembered, those earned, and not those distributed as interest on bonds -and dividends on shares, which were necessarily much smaller. Bearing -this in mind, it is significant that the percentage of such operating -income to cost of property has not but once in the last twelve years, -the most prosperous duo-decade in the Nation's history, exceeded 6%, and -then only by a very small fraction; and that the average for the whole -period is less than 5½ per cent. Every one knows that the real value and -the actual cost of the railway property in this region greatly exceeds -its book cost, so that these percentages are undoubtedly much in excess -of the real rates of net earnings to value or cost of property. - -P. E. GREEN, ASSOC. M. AM. SOC. C. E. (by letter).—It is not often that -there is presented to the Society a paper which shows such thoroughness -of understanding of a difficult problem, and as much real experience in -its solution, as is manifested therein; and the author is certainly to -be congratulated on such a logical and forcible presentation of the -subject. There may be some points on which engineers who have been -engaged in such work cannot agree with him; but certainly it cannot be -said that he has not argued very clearly and logically on nearly all the -debatable questions. - -Those who have not had actual experience in making a valuation of a -railway company's property cannot have any idea of the enormous amount -of detail and labor necessary to make such a compilation of any real -value. It simply means that every detail of every structure of whatever -kind must be investigated, together with the various considerations -covering "intangible values," which the author has so ably discussed. - -The writer was fortunate enough to be employed on the valuation of the -Chicago and Northwestern Railway property in Minnesota in 1906, and -possibly some details of the manner in which the actual field work of -the survey was done may be of interest. - -The work consisted of making a compilation from records, or from actual -surveys when necessary, of about 625 miles of railway property, -including several important terminals. The property had been built -between 1860 and 1901, mostly in the early part of this period. The -portions which had been constructed during the latter part of the -period, say from 1890 to 1906, presented no difficulties, as the records -were very clear and complete, but the portions constructed in the -Sixties had practically no records. Some had been built by small -independent companies, which were acquired later by the Northwestern -System. On these old lines the records were practically nil, and those -in existence were soon found to be of absolutely no use. Even on the -newer lines it was found that many changes had been made within a few -years after their construction, and that it was sometimes more -economical, as regards time at least, to make a new survey of the -property than to use the records. - -After examining all the old records very thoroughly, and endeavoring to -get some order and information out of them, it was decided that the only -way to do the work properly was to make a complete survey and valuation -of all the physical property. Several field parties were organized and -also an office force, about twenty men being put on the work. The -parties ran levels for profile purposes, cross-sectioned cuts where -necessary, noted evidences of clearing and grubbing, of the character of -the cuts, and the disposal of the material, examined the ballast for -depth and character, examined the rails for age, weight, and condition, -and noted the kind and condition of the fences, gates, farm crossings, -planking, whistle and highway-crossing posts, culverts, bridges, and in -fact every detail of construction. Advantage was also taken of the -survey to re-station the lines, to paint such stations on the rails, and -to set permanent posts, so that afterward the stationing could be picked -up at any time with little trouble. - -In this way there was accomplished much work of value to the railway -company, for which there had been a demand by the division officials for -years, but which had not been done because of lack of men and money. - -No attempt was made to assign depreciation, as regards the rails; this -was determined afterward, from the age of the steel in the track. It was -necessary, however, to make quite a thorough inspection of the ties, and -to note their condition, as they were replaced year by year singly as -they wore out. Almost every conceivable kind of timber had been used for -ties at one time or another. Treated and untreated ties lay side by -side; and thus there was great difficulty in classifying them with -regard to the kind of timber. With bridge ties and timbers of frame and -pile bridges, there was not so much difficulty, as they were open to -inspection, and had been inspected twice yearly by the Division Engineer -and the Superintendent of Bridges and Buildings, and accurate records of -their condition and renewals had been kept. The depth and condition of -the ballast also varied very widely. - -In a very short time all the men on the survey became well acquainted -with the character of the work they had to do, and, as the work went on, -the progress of the party day by day was very much more rapid. At the -beginning of the survey, a progress of 6 or 7 miles of single track was -considered a very good day's work; at the end of the survey, the parties -were making from 12 to 15 miles per day. - -There was considerable difficulty in setting proper values on the -hundreds of buildings, large and small, owned by the railroad. Most of -these buildings had never been constructed from plans, and it was -difficult to calculate what they had cost originally, and what it would -have cost to build them at the time of the survey. However, time books -were searched, and the contents of the buildings in board feet were -calculated, and, while in many cases their age was not known from any -records, it was nearly always possible to find out from somebody just -when they were erected. - -As intimated before, the railway company derived much actual benefit -from the work, outside of the accurate knowledge obtained as to the -value of the property itself. Steel charts, bridge records, etc., were -established, and profiles, stationing, continuous bench-levels, etc., -were all re-run or re-established; thus making the engineering work of -the future more consistent and uniform, and enabling more work to be -done with a smaller force. New maps of all the station grounds and -terminals were obtained, and all the records were put in better shape -than they had ever been before. - -Examination of some of the old terminals brought to light many strange -and out-of-date conditions. Old wrought-iron rails of antiquated -pattern, old cast-iron frogs, etc., of a pattern which had not been in -general use for fifty years, were found in the track. On some of the -little-used sidings, the old wrought-iron rails were so worn that the -tread of the rail was entirely gone, only the web remaining to carry the -traffic, and such rails were still in use. - -In such a valuation, also, many items, some of considerable magnitude, -were found which were extremely difficult to classify and assign to -their proper place. Such a one, for instance, as a soft, sand rock -deposit beside the track, which for many years had furnished engine -sand. Many thousand cubic yards of this material had been excavated, but -it had not gone into the roadbed as ballast, or to make fills, or to -widen embankments. It would hardly have been proper to classify such -excavation as grading, for it was an item of engine maintenance and -train operation. This is only one of numerous problems which had to be -solved. - -After all the survey had been made, most of the work of compilation had -to be done. Some of it had already been done in the office by the small -office force, but the great mass had to be done by the men who did the -work in the field. This task was of almost incomprehensible magnitude. -There were thousands and thousands of items, and such a great mass of -figures that the ordinary man would become lost in the maze. The data -had to be checked and re-checked by men who were not accountants, and -sometimes most ludicrous mistakes were discovered. However, it was at -last accomplished, and the writer's recollection of the "Present Value" -of the Chicago and Northwestern property in Minnesota is that it was -somewhat more than $23,000,000 for the entire mileage (about 625 miles), -or an average of about $37,000 per mile of track. Hardly any of the -mileage would be called high-class or trunk-line track, but most of it -might be classed as second-class or important branch-line railway. - -E. KUICHLING, M. AM. SOC. C. E. (by letter).—This paper is a very -valuable addition to the literature of a comparatively new subject that -is rapidly attaining great political importance, and it gives abundant -evidence of deep research and thought by the author. The reasons for -determining the true value of such properties, as well as the general -principles of making the valuation or appraisal, have been set forth so -clearly and convincingly that little can be added in this respect; -hence, there is room for comment only about details. - -One of the perplexing questions is the determination of the proper value -of the right of way and real estate of a railroad. The land was -originally acquired at a certain cost, essentially for public use, and -in the course of time its value, as determined by reproduction cost, -usually becomes greatly increased by the development of the adjacent -land by its various owners. Without the railroad, such development and -appreciation of land values would probably not have occurred, and, -therefore, it has been argued by many persons that, for taxation -purposes, the railroad lands should be appraised at only their original -cost, while, for capitalization purposes, they should be appraised at a -value measured by that of the adjacent land at the present time. This -claim is based on the theory that the railroad is like any other piece -of public work, such as a canal, highway, or pavement, which is built -for the use of the public, and on which no tax is levied by State or -municipality. On the other hand, it has been held by some of our Courts -that a proper valuation must take into account the appreciation or -depreciation of land values; but, as the opinion of a Court is not -unalterable, the soundness of this doctrine cannot be regarded as -permanently established. - -The author states[41] that there can be no serious objection to this -doctrine in relation to rights of way in the country and small towns, -although he admits that it is subject to exceptions in the case of -cities and terminal and dock properties. It will be of great interest to -learn his reasons for making such exceptions in the case of the most -costly lands, and whether the valuation of such lands should be more or -less than that of similar adjacent lands used for other purposes. From -the context the inference may be drawn that the valuation should be -somewhat higher than that of adjacent similar land in the case of a -steam or interurban railroad, because its holdings form a continuous -strip; but to the writer this reasoning does not appear satisfactory. -The statement of the Court, that "the value of land depends largely upon -the use to which it is put and the character of the improvements upon -it," does not necessarily involve a higher valuation of the property -than its cost, and it is quite conceivable that the actual value of the -property after being taken by a railroad may be much less than it was -before. The only reason in such a case for maintaining the purchase -price is to conserve the general valuation of the adjacent similar real -estate. - -In dealing with the subject of depreciation, the author has been very -brief, as he did not consider it essential for the purposes of the -paper. This is to be regretted, as depreciation is an important feature -in every valuation, and so few trustworthy data concerning it are -available. The value of the paper would be greatly enhanced if the -author would give the assumed average life of the principal components -of a railroad, based on some definite traffic, and normal grades and -curves. Much diversity of practice in this respect prevails, and the -final judgment of the numerous experts who were engaged in the Michigan -valuations cannot fail to be of great interest. The same remarks are -also applicable to the unit prices adopted for construction and -equipment. - -The subjects of expenses for organization, engineering, administration, -contingencies, and non-physical values are treated very thoroughly by -the author, and particularly interesting is his discussion of the -complex question of franchise value. After quoting from numerous -judicial opinions, he reaches the conclusion that the franchise simply -protects the owners of the property in their enjoyment of the earnings, -and that its value merges into the "fair value" of the property and -becomes inseparable from the other non-physical elements of value; also, -that the aggregate non-physical value of the property depends only on -the net income for a period of years. This method of estimation -certainly has the merit of being simple, rational, and free from all -hypothetical considerations. It is, however, obviously governed by the -rates charged for the services rendered, and if these are likely to be -altered at any time by governmental action, a corresponding alteration -in the "fair value" of the property will take place. - -This consideration brings us at once to the intricate question of -reasonable rates, which involves the matter of reasonable design and -construction of the property. In most cases the working capacity of the -plant must be much greater than the average annual demand for the -service performed, as so-called "peak loads" of relatively short -duration must be provided for. The magnitude of these peak loads, -however, varies with the subsequent development of the territory, which -is necessarily conjectural; hence it follows that a comparatively large -amount of capital is often invested in an enterprise for the purpose of -taking care of such anticipated temporary demands, and on this -investment a "fair return" should be granted. This condition is -particularly noticeable in municipal water-works plants, where provision -must be made for supplying water for fire service to an extent which may -be several times greater than the normal hourly rate of consumption. In -the case of railroads, such demands can usually be met by adding to the -rolling stock at moderate expense, while in a water-works the outlay is -relatively greater because the entire plant must be adapted in the -outset to the anticipated maximum delivery in the course of a -comparatively long period of time. - -The problem of rate-making has been excluded by the author from his -present paper on valuation; but, inasmuch as he is so well qualified for -the task, and also because the non-physical value of the property -depends mainly on the rates obtained for the service rendered, it is -hoped that he will deal with this feature in a subsequent paper, thereby -bringing out a discussion on the obscure subject of "fair return." It is -noticeable that these phrases occur frequently in judicial opinions, but -the fundamental principles on which a definite conclusion should be -reached are seldom set forth clearly. - -RICHARD T. DANA, M. AM. SOC. C. E. (by letter).—The solution of this -problem includes practically all the factors in the general subject of -economics, in which engineering occupies a large but by no means -preponderant part. Mr. Riggs has done some very valuable and pioneer -work in contributing this paper at this time; and the writer, in calling -attention to what appears to be a radical error in it, does not wish to -be taken as attempting to detract in any way from its great value as a -whole. It is most important, in the inception of such an investigation, -on the part of the members of this Society, to remove from the subject -the stumbling blocks as they appear. - -The author makes the following statement: - - "It is true that the 'value' of a property is an unstable figure, - subject to fluctuations due to natural or artificial causes, and - that a material change in value may occur suddenly, but the 'value' - of any given property on any given date is, or should be, from an - engineering standpoint, a definite sum which may not be varied or - changed to suit the whim or will of the people for whom the work is - done." - -The fundamental conception of a value is so important in an -investigation of this kind that it is worthy of careful and thorough -discussion. - -The appraisals which the writer has had occasion to make have generally -been for one or other of the following purposes, namely: - - (I) Taxation, in the interest of the community or corporation - taxed; - - (II) Bonding, in the interest of the banker or representative of - persons who contemplated lending money on the property; - - (III) Rate-making, in order to determine what was a fair amount - of money that the property should be allowed to earn for the - owners. - -Now, in general, a proper value for any property for any one of these -purposes is different from its proper value for any of the others. This -proposition is of immense significance, for the reason that, if the -value for the property arrived at, on one basis, be accepted and applied -for one of the other purposes, it will inevitably result in gross injury -and financial loss to some one. - -In attacking this problem, one must be careful to take the correct -standpoint, which is not necessarily that of engineering. Engineering -science is indispensable for a large part of the work, but there are -other indispensables, which would not ordinarily be recognized as -engineering. The writer takes the view that engineering is a part of -economics, rather than economics being a part of engineering. - -To illustrate this point, consider two objects, one of which is concrete -and simple and the other more complex. - - (1) A steam shovel belonging to a railroad, costing $10,000, new; - - (2) The entire railroad as an operating entity. - -Assume for (1) that the shovel has been purchased recently, is in -perfect condition, and that the railroad has some work for it to -commence on as soon as it can be properly installed. What is its: - - (I) Taxable value, - - (II) Bonding value, and - - (III) Rate-making value? - -(I) The tax assessor cannot properly appraise it at $10,000, because it -certainly would not sell for that sum, and if the community should have -to sell it for taxes the actual return minus the charges would be so -much less than the $10,000 that the community's books would show a heavy -loss; and this practice, if largely indulged in, would bring the -community into financial straits. The community must be exceedingly -conservative in its estimate, for this very reason; and, therefore, it -has been customary, almost universally, to tax such articles practically -on their sale value at what might be called panic prices. The company -which sold the shovel to the railroad would not buy it back two days -after the sale for more than the original price minus what that company -considers its selling charges, say 20%; so that, in this case, even if a -customer were at the door, the shovel would not be worth more than -$8,000, and a fair tax appraisal could not consistently be more than -$8,000 minus charges of, say, $250, or $7,750. - -(II) Assuming that the railroad is a very small one, that it wants to -borrow money, and desires to put up the shovel as collateral for the -loan. What would be its loan value to the lender? In considering this -point, it is necessary to assume that no aid is rendered by the credit -of the railroad itself, but that the protection for the loan is to be -furnished by the shovel only. Now, the banker will reason that, in the -event of the note remaining unpaid, he will have to sell the shovel to -reimburse the bank for its loan, and he will be required to consider the -matter on a conservative basis. He cannot lend on the shovel up to its -full value, for in the first place it is not a "negotiable security." If -it were a security, with a free market on some stock exchange, he would -probably lend to the amount of 80% of its value, but a steam shovel in a -sand bank on a railroad is by no means as convenient of exchange, nor as -easy to foreclose on as a stock certificate in a banker's box; therefore -he will lend, or he ought to lend, less than 80% of its sale value, -minus the selling charges. If he lends more than this, he is lending on -the credit of the owner of the shovel rather than on the shovel itself. -Granted that the maker of the shovel is willing to buy it back at its -full selling price less the selling cost, the maximum loan value of the -shovel would be a little less than 64% of its purchase price, or $6,400. -To lend more than this on the shovel would not be conservative banking. - -There is another bonding or loan value to this shovel, when it is -considered as part of the assets of the railroad, the bonds of which are -to be held by the banker, under which circumstances a higher value than -$6,400 would be admissible. - -(III) If the value is to be determined with a view of ascertaining what -is a reasonable figure that the owner of the shovel ought to be allowed -to earn as a public utility organization, the problem is entirely -distinct from the foregoing two cases. Assume that the railroad is -entitled to earn at least 6% on its investment in the shovel. Now, its -investment is $10,000, because that is the money that it cost; and -nothing had been credited to its account, since the shovel had just been -purchased and had not yet done any work. The shovel cannot be considered -as being worth more than its cost, and it can easily be shown it is not -worth less for rate-making purposes. - -These three illustrations, which are very briefly outlined, should -demonstrate the fact that there is almost no relationship between any -two of the different kinds of value which are being considered. - -Now, from the standpoint of the railroad as a whole: - -(I) Should railroad property be taxed on the basis of what the entire -railroad would bring on a foreclosure procedure? Obviously not, because -the railroad is taxed in sections. The Town of Squedunk will tax the -portion of the railroad that lies within that town, and will have -considerable difficulty in putting down as security for its own bonds -the locomotives and cars which go through once a week or twice a day at -40 miles per hour. To cover partly the flitting assets, it taxes the -railroad on a franchise value. It may tax a railroad's land on the same -basis that it taxes land owned by private individuals, notwithstanding -the fact that when the railroad buys the right of way it generally has -to pay more money per acre than the householder or the farmer. This unit -cost to the railroad may be two or three times that to the farmer, yet -the writer has never heard of a community attempting to tax railroad -property two or three times as heavily as adjoining property used for -private or commercial purposes. - -(II) On the other hand, this same property is an absolutely sound asset -for the railroad, and the railroad probably bought the property from the -proceeds of the sale of bonds. If the public service commissions were to -rule that the railroad may be allowed to issue bonds only to the amount -of the taxable value of the property which is to be held as security for -the bonds, the result would be an absolute paralysis of railroad -construction. A bond is an obligation to pay so much interest for so -many years, and to pay back the principal at the end of its term. The -bondholder is interested in the absolute regularity of his interest, and -in the security that lies behind the principal, and it is to-day the -custom of banking houses to consider a bond well secured when, in a -territory of reasonably rapid growth, the principal is earning say twice -the interest on its bonds, and when the cost of reproduction is in -excess of the amount of the bonds, provided that the property is in good -physical condition. If it should be necessary to foreclose on the bonds, -it is then reasonable to suppose that some one else will buy it in for -at least the amount of its bonded indebtedness. What can this possibly -have to do with the taxable value of the track in the Town of Squedunk? -One may be 1.5 times the other, or three times the other, depending on a -multitude of circumstances. - -(III) The value of the property for rate-making is a complex one to -determine, and, of course, there is no opportunity for a full discussion -of it here. One point, however, will serve to establish thoroughly the -difference between this and taxable or bonding value. If the community -is prosperous and the business is a good one and honestly managed, the -railroad ought to be allowed to earn a reasonable percentage, say, at -least 6%, on what has been put into it. If the community should decree -otherwise, then people will not build railroads for investment purposes, -and all will lose money. Now, it is a well-known fact that a new -railroad's earnings have to grow for several years before they are on a -normal basis, and part of what the owners of the property have put into -it is, for example, the interest on its cost before its earnings are on -a normal basis. This may amount to a considerable percentage of the -original construction cost of the property, if the business is several -years in developing. Granted that the community ought to allow the -property to earn a reasonable interest on what has been put into it, -then the rate-making value will be very much larger than the sum of the -taxable valuation of all its different parts. It will also be much -greater than its bonding value, because, as a bond proposition, it can -borrow money up to a limited percentage of what it is actually worth. - -GEORGE T. HAMMOND, M. AM. SOC. C. E. (by letter).—The engineer called on -to fix the valuation of public service corporation property has so -little engineering literature on this special subject to guide him that -he must feel grateful to the author of this excellent paper for adding -so much of a kind that is very desirable. - -Estimating the cost of an engineering structure in advance of its -construction is one of the most ordinary professional duties, but how -difficult it actually is, and how much engineers differ with one another -in their estimates on the same structure! Perhaps there is no -professional duty which calls for so much study and so much experience, -or which tests so closely the ability and capacity of the engineer. How -seldom professional estimators agree with each other; or designing -engineers with contracting engineers; as witness the bids received at -the public lettings of contracts when compared with the engineers' -estimates of cost; and, if this is true, which no one will attempt to -deny, how much more so is it probable that estimators will disagree when -they attempt to place a value on works already completed, and in -service, perhaps, for many years, in which various changes in value have -occurred, and in which questions of fact are mixed with legal questions -involving legal rights, as well as financial questions. - -The tendency in all such valuations appears to be a mixing up of things -in general—like the witches' stew. Everything goes into the pot and is -boiled together until all becomes soup, at least until the official -commission, like the witches, considers it done and ready to be served -up in the form of a report. It is then observed that the substance -served out is of a complex nature; that the valuation of engineering -structures has become mixed with other and uncertain values; that the -whole value, as stated, is, after all, little better than the -commission's opinion of the value; and that another commission would -reach a different conclusion. - -The author states that the valuation of corporation property: - - "Should be the honest judgment of the men composing the commission, - as to the actual cost of reproduction, present physical value, or - 'fair value,' and should be ascertained by a systematic and - scientific method which takes into account all the facts concerning - the property, its physical value, its strategic location, its - operating revenues and expenses, and its franchises, rights, - competition, opposition, and all other tangible or intangible - elements, which would affect values. The method of valuation should - be such as to minimize or entirely eliminate all differences due to - errors of personal judgment." - -This, it seems, complicates actual present values with conditions which -might, or might not, continue. Outside of the physical valuation of the -plant, which offers the easiest problem presented, how can one fairly -put a value on operating expenses and revenues, which might be affected -favorably or advisedly by good or bad management, and by numerous other -complex and almost incomprehensible circumstances. - -The tendency of all such commissions seems to be to confuse together and -mix up some things which are logically separate. Thus, the value of the -plant and franchise, good will, and present investment or income value, -etc., are too often taken together. The value of the plant is dependent -on the cost of reproduction, and also the depreciation of the -structures, as engineering structures, and should be based on present -prices for which the work could be replaced, minus the depreciation, -which is a question of engineering judgment and experience. The other -items of value are largely dependent on the situation of the plant and -its prospects as an income-producing property, and this again is a -matter of opinion, in which the opinions of financiers and investors are -sometimes of more moment than those of engineers. The opinion of lawyers -as to the value of the franchises and the cost of the legal -complications possible or probable must also enter into any seriously -worthy opinion as to value. - -The few salient lights in the picture of valuation, presented by the -author, serve especially to reveal the darkness which involves the whole -subject of valuation, estimating, and the use of cost data for such -purposes, and to suggest that, with all the wonderful progress on the -theoretical side of the profession, engineers have as yet advanced but -little in this division of the practical side—cost data, valuation, and -estimating. Engineers cannot compare the results of different estimators -and appraisers without sorrow and even shame for their ignorance, or -their incapacity to agree in the application of scientific principles -and the results of practical experience to this branch of their work. - -At present we would seem to be a long way from a method of valuation, -"such as to minimize or entirely eliminate all differences due to errors -of personal judgment." - -The method described as having been used by Professor Adams seems to be -at least an advance toward a logical and rational method of getting at -the value of corporation property, but it must be acknowledged that we -are as yet a long way from a perfect method of appraisal, even of the -physical values, to say nothing of the non-physical. He held that as -nothing visible or tangible gave support to the latter value, it must be -determined on the basis of information secured from the income accounts -of the company. This method of measure, it would seem, is not unlike the -celebrated dictum on the length of the Chancellor's foot, "some -Chancellors have a long foot, and some an indifferent foot, and some a -short foot"; therefore, a great English Chancellor says, "the length of -a Chancellor's foot should not be taken as a measure of rights in -equity." Thus, if the income of the company is to be taken by the -appraising engineers, or the gross income, it may have to be given a -different interpretation from the net income, and if the surplus -earnings depend on transient causes or on excessive rates for service it -will lead to a totally erroneous conclusion. The same may be said if the -rates for service are too low, or if the company is badly managed, or is -carrying a great deal of "dead wood," either in the form of property or -of servants. Therefore, it seems evident that he who attempts to follow -this method of appraisal must possess almost superhuman judgment of -present conditions, and prescience to forecast the future, as well as a -grade of wisdom and knowledge of existing conditions of trade and -industry which may be also characterized as superhuman. In order to -apply Professor Adams' method justly, we must know whether the company -is wisely managed, whether its income is a fair income, whether its -physical property is all useful and needful, whether its service is what -it ought to be as to efficiency and economy, etc. We must assume an -ideal condition of commerce and industry, and of property value and -management, and then appraise the company's property by comparing it, -consciously or unconsciously, with this ideal. Possibly this is the best -method devised so far, but surely it leaves a great deal to be desired; -and it is difficult to see how different engineers, on different sides -of the question, representing different interests, can find any common -ground of agreement in Professor Adams' method. Under such -circumstances, engineers are likely to differ in their results as much -as the length of the different Chancellors' feet. - -LEONARD METCALF, M. AM. SOC. C. E. (by letter).—Mr. Riggs has done -engineers, and more particularly those interested in valuation works, a -genuine service in presenting to the Society this admirable paper. - -No shrewd observer can fail to recognize the increasingly insistent -demand of the public for greater publicity in the accounting, and a -larger measure of governmental control in the operation, of public -service corporations. In its best form, such control will be welcomed by -the corporations, as giving greater stability to investment in such -property; in its worst, it may prove a serious limitation to prompt -development of the best standards of service. In the water-works field, -the anti-corporation movement has resulted in taking over by the public -many such plants. It does not seem likely, however, that we are ready to -go farther in the railroad field of operation than to demand reasonable -regulation of such corporations. - -While the writer has had no experience in railway management or -valuation, he has devoted much time and thought to the valuation of, and -determination of fair-rate schedules for, water-works properties; -therefore, what he may have to say in comment on this paper may be -assumed to have direct application to water-works valuation, and to -railroad valuation only as the similarity in the public service rendered -by these corporations may imply. - -In the main, the writer subscribes heartily to the views expressed by -the author and the temperate way in which he has expounded them. Space -forbids discussion in detail of all the matters alluded to and so well -covered by Mr. Riggs. On one important subject, however—the inclusion of -the going value, or going concern value, of public service corporation -property, in the intangible property values, rather than in physical -plant value, and the consideration of it as an intangible value rather -than as a real and substantial item of cost to the public service -corporation—the writer differs from the author. It is clear, from what -Mr. Riggs has said, that this is debatable ground, and, from the care -and fairness with which he has expressed his views on this subject, one -might almost be led to infer that he invites attack on it. It is in no -carping spirit of criticism, however, that the following views are -expressed. - -As the writer has recently submitted to the Publication Committee of -this Society a paper on the "Going Value of Water-Works," written by him -in collaboration with John W. Alvord, M. Am. Soc C. E., in which a -detailed discussion of this subject will be found, only enough will be -said to outline clearly his point of view. - -The author says: - - "The physical property is that which enables the corporation to do - business. Without physical property it could not produce the - commodity which it sells. The amount of money actually invested in - acquiring that physical property represents the measure of capital - on which it is morally entitled to earn interest and profit; and, in - the stage of promoting and financing the enterprise, all hope of - earnings is based on the amount of money required to construct the - property." - -He also says: - - "It would seem reasonable to say that this difference between the - physical value and the value based on earnings represents the 'good - will,' 'established business,' or 'going value,' and all other - non-physical elements of value." - -In referring to going value, he says: - - "* * * Yet, to fix a value on it by the method described by him [Mr. - Alvord] involves going into the realm of conjecture and speculation - to a degree that could never be sustained. * * * It can be readily - seen that the physical present value is not always—indeed, is not - often—the 'fair value.' The 'fair value' may be more, or less, than - the present value of the physical property." - - "* * * Is it not, then, proper to conclude that the non-physical or - intangible value, composed of all these various elements of value, - can only be determined absolutely by a study of the earnings and - operating expenses? * * *" - -He also says: - - "The contention that all the different elements of non-physical - value merge into one intangible value, not capable of separation, - will doubtless be objected to by many engineers and corporation - managers. * * *" - - "The writer does not concede that 'going concern' is a proper - element to consider in the physical value, as it does not represent - any part of the cost chargeable to capital, and the physical - valuation should be confined to the determination of capital - invested." - -Quotations might be multiplied. Those cited, however, will suffice to -recall the author's view, and to make clear the point with which issue -is taken. - -Is Mr. Riggs right in his contention that going value is in fact an -intangible value; that going value is not an element of real cost to the -company, involving investment of capital; that going value, therefore, -should not be included in physical plant value; and that the company is -not morally entitled to earn interest and profit on it? - -The writer contends that going value is as real an element of cost, in -the property of any public service corporation, as is the cost of any -portion of its physical plant. It pertains, however, to the business, -rather than to the physical plant, of the corporation. - -Whatever the difficulties of its computation may be, whatever the -methods used—whether that adopted by the Wisconsin Public Service -Commission (which is essentially one of determining the original cost of -the going value and not its reproduction cost), or whether that perhaps -first outlined by Mr. Benezette Williams and George H. Benzenberg, -Past-President, Am. Soc. C. E., in the Middle West, and by William -Wheeler, M. Am. Soc. C. E., in the East,[42] a method which seeks to -determine the reproduction cost of the going value, rather than its -original cost—the going concern value has come to be recognized, by -water-works appraisers at least, as a substantial element in the cost of -the plant, and hence as differing essentially from the franchise element -or so-called unearned increments of value. - -Is not going value in a "between" class—a middle ground between tangible -and intangible values—tangible in that it has involved real cost and -expenditure of money; intangible in that it is not as readily calculated -as are other reproduction cost items, is dependent fundamentally on the -earnings of the company, and that there is no tangible equivalent to -show for the expenditure, except the existing income of the corporation? -Surely its character is quite different from that of the franchise, as -ordinarily found, the value of which, while real, from the rate-payers' -point of view, seems to be made out of whole cloth; in short, seems to -be of fictitious value. - -Certainly, the conjectural and speculative character of the -computations—as referred to by Mr. Riggs—involved in the determination -of going value is no excuse for failure to recognize going value as a -real element of cost, rather than as an intangible value. As a matter of -fact, the variation in the views on going value, by engineers who have -given this subject particular study, while greater than the variation in -their estimates of the reproduction cost of the physical plant, is still -far less than the variation in their views on franchise value. - -As bearing on the proper basis for rate-making, the author's statement, -that the "* * * physical property represents the measure of capital on -which it [the public service corporation] is morally entitled to earn -interest and profit * * *" cannot be admitted, equitably or legally; and -it is not to be assumed that Mr. Riggs desired to imply that this -sentence summed up his final views. - -Are we not, however, approaching a basis of rate-making, predicated on -the earning, by public service corporations, of operation and -maintenance expenses, depreciation allowance, and return (_i. e._, -interest and profit) on reproduction cost of the property, less accrued -depreciation, plus going value, plus a nominal allowance for the -franchise and other intangible values of the corporation? Is it not -possible that the recent depression in the business world has been due, -in considerable measure, to the shrinkage in the values ascribed to -franchise and other intangible value in public service corporation -property? - -If we are approaching such a limitation, it is the more important that -the public should be educated to the fact—not theory, for it is a -fact—that going value, or going concern value, is a real element of -cost, covering an outlay in effort and money on the part of the -corporation, and as such is as much entitled to earn a return (interest -and profit) as is the other capital invested in plant. It is not on any -items of real and necessary cost to the corporation that the public -objects to paying tribute, but on the "unearned increments" and the -virtual monopoly "privileges" enjoyed by the corporation and created, in -large measure at least, by the public itself and by normal conditions of -growth and development for which the public, rather than the -corporation, was perhaps responsible—though in many cases it may be -urged truly that the corporation itself, rather than the public, has -been responsible for the development. - -Such a basis of rating, while still dependent on sound judgment and -judicial treatment, is nevertheless not beset with the speculative -element involved in the capitalization theory, which, Mr. Riggs himself -admits, fails as a basis of rate-making except when predicated on fair -rates. - -If the writer's contention, that going value is a real element of cost -in the property of any public service corporation, is sound, Mr. Riggs' -statement that, "It appears to be doubtful whether the Court can be -construed as approving such an element of value in rate cases," and his -interpretation of Judge Tayler's ruling in the Cleveland Street Railway -matter,[43] must be challenged. - -Certainly, as applied to water-works valuation, Mr. Riggs' statement is -not justified. The Maine cases clearly include going value as an element -of value on which rates should be predicated; by inference, so does the -Kansas City case. In the Knoxville case it was in fact allowed by the -Master. - -In equity it cannot be doubted that going value should be included in -the base on which the returns are predicated, if, as contended, it -involves real cost to the company; for the company must be permitted to -earn a fair return on this cost, or to liquidate it in some way, as -otherwise the corporation would suffer substantial property loss—from 10 -to 20%, more or less, of the reproduction cost of its property. This -would be contrary to public policy, for, with such an outlook, capital -would not enter this field of enterprise, except at increased rates of -return, commensurate with this added hazard. To assume such increased -rates of return is to provide another means of liquidating such a loss. - -As to "good will," it has seemed to the writer more proper to use this -term in private competitive corporation enterprises, as applied to the -element of value corresponding to the going value of the quasi-municipal -or public service corporation enterprises, which latter are in effect -controlled monopolies. If the term is used in its more colloquial sense, -such as the effect on earnings of having, in the office of the -corporation, men who meet the public pleasantly, who are good "mixers," -and who are active in getting business, the value is substantially -included in the consideration of the income, in the manner involved by -going value determination and franchise valuation. - -The depreciation question has been discussed so fully elsewhere that the -writer only calls attention to the fact that, while physical and -functional depreciation only are to be considered in a review of the -present physical condition of any plant, in considering a fair-rate -schedule, provision should also be made for contingent depreciation, -covering such items as cost incident to change in street grades or -construction of subways; placing structures under ground, which were -previously above ground; serious loss due to injury by electrolysis, the -distribution of which over a period of years rather than inclusion in -the operating cost for one year, is to be preferred, alike from the -public and from the corporate point of view, from the fact that it -spreads the burden to be borne by the rates, and prevents violent -fluctuation in prices or valuation of the public service corporation's -property. The public pays dearly for all hazards. It is wise, therefore, -to pursue the conservative course in providing adequate funds to meet -extraordinary conditions, and to give stability to the investment of the -corporation. Moreover, such funds can be carried in a separate account -which can readily be watched; any excess can be credited to future -reduction in depreciation account requirements, while a prolonged -deficit cannot perhaps be recovered by the corporation, in the light of -the Knoxville decision. - -The comment that no hard-and-fast rule can cover determination of proper -depreciation allowances, is amply justified. In its final analysis, it -is a matter of good judgment, experience, and judicial temper. - -The author's statement that the organization, legal, engineering, -administration, and general expense accounts, "should not be considered -as affected by depreciation, as long as the property is a going -concern," is not quite clear. Obviously, this is true with regard to all -the early organization expenses, as these expenses are incurred once for -all, and constitute a continuing asset similar to other elements of -plant cost. If, however, the author refers therein also to the -engineering and contingent item added to many of the reproduction cost -items making up the physical property, exception must be made; for when -an old structure, the life of which is gone, is replaced with a new -structure, new engineering costs are incurred, and the engineering -element of cost incident to the installation of the original structure -no longer inheres in the plant. It, too, has passed away with the life -of the structure, and, therefore, its cost should be liquidated, or -provided for in the depreciation account, as well as the cost of the -structure to which it was incident. - -In the same way the "interest-during-construction" item is not a -continuing asset, but should be liquidated with the complete -depreciation of the portion of the structure to which it -relates. The replacement of the structure will involve new -"interest-during-construction" charges, commensurate with the -time required for construction. The value of the initial -"interest-during-construction" costs will have disappeared with the -original structure and, therefore, should be taken care of by the -depreciation account. - -The method of making allowances for interest during construction, -suggested by the author,[44] accords closely with that used by Mr. -Alvord and the writer in a recent valuation of a large water-works -property, in which the "interest-during-construction" charges were -limited, and the contributions to depreciation account were begun, at -the date on which any workable unit of the property was assumed to be -available for service and to begin to earn a return on its investment -cost, even though the structure, as a whole, was not assumed to be -completed for a considerable period of years thereafter. Thus, for -instance, it might be assumed that as soon as the supplying works in a -water-works project were in operation, the investment in them and in the -distribution pipe system laid up to that time, would cease to be -credited further with "interest-during-construction" allowances, and -would be compelled to earn interest through the water rates or income -from water supplied to consumers—the fact that the interest charge could -not be wholly met, immediately at this time, being taken care of in the -resulting increment in going value. - -Such a theory, of course, does involve a determination of the probable -order and rapidity of construction of the component parts of the -property, and this is usually made, in water-works valuation, in the -estimate of the reproduction cost of the property. - -For the sake of completeness, in reference to the legal decisions of -importance in valuation proceedings, attention is called to the -Pennsylvania case, Brymer _vs._ Butler Water Company (179 Pa., 231), -referred to in the closing discussion on the writer's paper on -"Water-Works Valuation."[45] - -In this case Justice Williams, speaking for the Supreme Court of -Pennsylvania, says: - - "By what rule is the Court to determine what is reasonable and what - is oppressive? Ordinarily, that is a reasonable charge or system of - charges which yields a fair return upon the investment. Fixed - charges and costs of maintenance and operation must first be - provided for. Then the interests of the owners of the property are - to be considered. They are entitled to a rate of return, if their - property will earn it, not less than the legal rate of interest; and - a system of charges that yields no more income than is fairly - required to maintain the plant, pay fixed charges and operating - expenses, provide a suitable sinking fund for the payment of debts, - and pay a fair profit to the owners of the property cannot be said - to be unreasonable." - -The Pennsylvania Court, therefore, in the words of William S. Wallace, -Esq., recognizes the single standard: - - "The Single Standard, according to the Brymer case, while - acknowledging the full right of the public to regulate such public - corporations, also recognizes as a prime factor its private - character and the rights which accrue to it in that capacity, ... - and holds to what seems to me the only rational and practicable - basis, that a fair return, after deducting the charges above - enumerated, _is_ a reasonable rate"; whereas, "the Double Standard - basis of fixing a reasonable rate seems to accentuate the public - side of the corporation and rather ignores the private element." - -As to the propriety of the inclusion of a substantial recognition of -franchise value as a basis for rating, the layman may well confess to -perplexity, in the light of the conflicting nature of the two important -recent United States Supreme Court opinions referred to—the Knoxville -case, and the Consolidated Gas Company case—for, while substantial -allowance was made for franchise value, in the Consolidated Gas Company -case decision, in large measure apparently on account of its earlier -recognition by the legislature, in the Knoxville case, in spite of -legislative recognition of such value, and similar approval of the issue -of securities predicated on such recognition, the United States Supreme -Court failed to make similar allowance for franchise value. - -The author's treatment of the unit price question and the contingency -item is intelligent and creditable. Engineers are prone to make -valuations based on "hindsight" instead of "foresight," on the -assumption that no substantial difficulties in construction were -encountered, when, in fact, substantial difficulties should perhaps have -been anticipated, and may actually have been encountered in the original -construction, record of them having been obliterated, however, with the -lapse of time. - -The author's definition of the value of a property, as the "estimated -worth at a given time, measured in money, taking into account all the -elements which add to its usefulness or desirability as a business or -profit-earning proposition," suggests the advisability of recognizing -the other side of the ledger by modifying his statement so as to read: -"* * * all the elements which add to, 'limit, or detract from' its -usefulness or desirability as a business or profit-earning proposition." - -While recognizing the author's view, that there is no separate and -independent method of determining franchise value, which is not based on -the determination of the value of the property as a whole, by -capitalization methods, it must be recognized that going value may be -determined independently, and may have a positive value, even though the -property as a commercial whole is worth less than the sum of the -physical value and the going value. - -The Court, appraisers, and the author, alike recognize that there is no -one method of valuation of universal application. First cost, -reproduction cost, reproduction cost less depreciation, commercial value -determined by capitalization, worth of the service to the consumer, and -market price of the property, if such exists, all have their weight, in -varying degree in different cases. Whatever may be said of, for, or -against, these several methods of valuation, relates rather to their -significance, and the weight which should attach to the results obtained -by them, as evidence of value and of the effect of the modifying local -conditions, than to the soundness of the methods themselves. - -In this connection it may be of interest to refer to a recent valuation -of a water-works property, in the appraisal of which the writer chanced -to participate, in which there was finally placed before the board of -appraisal a summing up of: - - 1. The original cost; - - 2. Reproduction cost less accrued depreciation, plus going value; - - 3. The worth of the service to the consumers, based on a stated - assumption of reasonable increment in value in excess of actual - cost, upon which a return (or interest and profit) should be - earned; - - 4. The commercial or capitalized value, on certain assumptions based - on present conditions, and also on possible future conditions - which might be involved in a renewal of the City contract, which - was to expire within two years. - -That these determinations of value, from different points of view, had -an influence in moulding the opinion of the individual appraisers, there -can be little doubt; yet it is probably equally true that in no case was -like weight attached to the several items or bases of valuation. -Nevertheless, in the final valuation, the consensus of opinion as to the -value of the property, as a whole, was remarkably close, the extreme -variations in opinion being approximately 8%, more, or less, than the -final appraised valuation. - -Attention should also be called to the necessity, in any valuation by -capitalization of income, such as that outlined by Mr. Riggs and used by -Professor Adams in the U. S. Government Valuation of Railroads,[46] of -determining whether the plant or property is in what might be termed an -over-built, normally developed, or under-built condition; in short, -whether the investing public has correctly gauged its momentary physical -condition with reference to its bearing on the rates, and whether the -earnings are in fact inadequate, commensurate with the service rendered, -or excessive. In the long run, due weight will be given to these facts; -in a brief period, they may be incorrectly gauged. In water-works -properties, unfortunately, there is rarely, if ever, a market price of -the securities which can be said to be credible or significant in -valuation. Therefore, in the valuation of water-works properties, it is -the more important that the appraisers should weigh carefully the -present character of the service furnished and the momentary adequacy or -inadequacy of the rates as predicated on such service, on the needs of -the community, and the existing standards of the day, if full justice is -to be done. - -In conclusion, the writer reiterates his statement, that he has taken -issue with the author in no carping spirit of criticism, but with a -recognition of the difficulty and complexity of the work of appraisal, -and the conviction that engineers are under a moral obligation to do an -educational work in pointedly calling attention to the fact that the -going, or going concern, value, of a public service corporation's -property is not an intangible value representing an unearned increment, -but a very real and substantial item of cost in the property as a whole. -While the difficulty may be met by placing going value, as suggested by -the writer, in a middle class between physical plant and intangible -values, the placing of it in the same class with franchise and other -intangible elements of value, as suggested by the author, may, in the -judgment of the writer, do a serious injury to corporations, in failing -to give expression, in such a manner as shall be clearly within the -grasp of the popular mind, to the fundamental idea of the cost of -developing going value. While the writer has no personal interest in the -matter, on one side or the other, having served both municipality and -corporation in water-works valuations, he feels, nevertheless, that -engineers can do a genuine service, alike to the public and to the -public service corporation, in laying stress on the fundamental elements -of cost and value, and particularly those on which rates should be -predicated, in public service corporation property valuation and rating. - -CHARLES HANSEL, M. AM. SOC. C. E.—So much has been said on the subject -of valuation of public utilities that, although the speaker has thought -on the subject for ten years, and has done considerable valuation of -railroad properties, he finds that he is considerably confused, for the -reason that the discussions seem to cover the whole field of -engineering, accounting, taxation, and economics; therefore he suggests -that, in order to get down to a basis of usefulness, a special committee -should be appointed to take this question under consideration. - -The speaker had the honor of being associated with the Michigan -Commission, as a member of the Board of Review. Professor M. E. Cooley -was selected by the State of Michigan to take charge of the work of -organization, and Mr. Riggs was the engineer who organized the office -and field forces. Both these gentlemen were eminently successful in that -very difficult work. Mr. Cooley did this Board the honor of saying that -there were so many problems coming up in actually carrying out the work -(aside from the theories of taxation, rate-making, accounting, and -several other things, which could be found more readily in the Auditor's -office than in the Engineer's), that he had asked for the appointment of -this Board of Review, to sit as a Court, and to pass on the many complex -questions arising from day to day; and he had the satisfaction of coming -to the Board every day and saying: "Well, now here is a condition, and -how will I handle it?" Of course, actually, he knew more about it than -the Board, but he was kind enough to say that he would ask for the -Board's opinion. That Board adjudicated all these various questions to -the best of its ability, and the speaker has the satisfaction of knowing -that the valuation has stood in the Federal Courts. The subjects are so -fugitive and so illusive that very much depends on the point of view. - -The speaker is now engaged in the actual task of trying to place a -valuation on some $300,000,000 worth of property in New Jersey, -involving the most important terminals in the United States. - -The valuation of public service utilities is the most profound question -which has ever been before the Society, and it includes a great deal -which is outside of strictly engineering questions; in fact, the -discussions do not throw much light on the methods which should be -followed in making valuations. - -The terminology of a subject is very important; in fact, the speaker has -found it so important that in his discussions with the Attorney-General -of New Jersey, in reference to the Railroad Tax Law, which he has been -asked to re-draft, that draft will be accompanied by a glossary, so that -the meaning of certain terms used in that particular Act will be clear. - -In this New Jersey work some eighty-seven engineers and assistants are -employed, and for their guidance the speaker has prepared thirty-five -pages of very carefully considered instructions. These instructions are -accompanied by blue prints showing exactly how all field notes must be -recorded, with diagrams of trusses, culverts, and the like, and all the -elements of railroad construction. - -The Tax Law of New Jersey states that, first, the true value of the real -estate shall be ascertained; second, the true value of the tangible -personal property; and the first law of 1884 stated: "and third, the -value of the franchise"; but somebody discovered that there was -something besides the value of the real estate, the tangible personal -property, and the franchise. They did not know what it was, but there -was something else; therefore, in the 1888 law they changed the third -division of value to read: "the remaining property, including the -franchise." - -As an example of one of the difficulties of determining classification, -attention is directed to the term, Real Estate, which is broadly, but -seldom accurately, understood. - -The Interstate Commerce Commission is the highest tribunal in the land, -in the matter of railroad accounting, but it affords no help in many -important elements of value; for instance, under the Interstate Commerce -Commission, real estate includes only such real estate (land) as is not -required for railroad purposes. All land actually used for railroad -purposes is classified under "Right of Way and Station Grounds." - -When the engineers on the New Jersey valuation were sent into the field, -it was necessary to specify exactly what elements must be described as -real estate, and what as tangible personal property. The division line -had to be defined accurately for the reason that all personal property -is assessed permanently to the State, while, in the case of real estate, -the State receives the taxes on a strip not exceeding 100 ft. in width, -and the tax on all property used for railroad purposes outside this -strip reverts to the taxing district wherein it is found. - -The vexatious question as to whether machinery is to be considered as -real estate or personal property was settled by the New Jersey Law, -which says that tangible personal property shall include all machinery; -but it left unsettled the question: what is machinery? After careful -consideration, real estate was divided into 74 classes, and all other -tangible elements were classified as personal property. Some of the -items of real estate are: ash-handling machinery and the like, chimneys, -cisterns, conveyors, dams, locks, lock machinery, electric wiring, -piping, heating, interlocking, signaling, pavements, reservoirs, shop -fittings, tanks, telegraph lines, track, track scales, transfer tables, -water-works, etc., etc. Generally speaking, all items of a fixed -character were included in the 74 divisions of real estate. - -The difficulties of determining all the elements of real estate are -mentioned simply to call attention to what at first glance seems quite -simple, but on close examination is found to have great complexities. - -The question of useful life depreciation, direct and indirect, due to -decrepitude or obsolescence, or both, is one of the illusive questions; -and then comes the value of the franchise. - -The valuation of railroad property in New Jersey is further complicated -by the requirements of the State Tax Law, which specifies that the value -of the remaining property, including the franchise, shall be determined -after the "true value" of the real estate and tangible personal property -have been determined. - -The speaker will not attempt a discussion of franchise values, as it is -a subject which requires the most profound study. - -The author states that he is appalled at the speaker's misconception of -the method of determining non-physical value used by Professor Adams in -Michigan. The speaker is perfectly familiar with that method, and, -although having the greatest respect for Professor Adams' opinions, is -compelled to draw attention to two important elements of that formula -which are open to objection. - -Professor Adams establishes his annuity on the depreciated value, rather -than on the cost, or the reproduction cost, which, in the speaker's -opinion, does not determine the proper annuity or reasonable fixed -charges to be deducted from net income before net surplus is -established. Bonds are generally sold at a considerable discount, and -represent the full cost plus this discount, consequently, the interest -on bonds or fixed charges will be greater than an annuity established on -cost, "reproduction cost," or "present value." Would it not more nearly -establish fixed charges or annuity, to take the cost plus discount and -commissions as the basis on which to apply the annuity rate? - -While Professor Adams' formula establishes a larger net surplus for -capitalization than the method suggested by the speaker, he in effect -destroys this net surplus by charging against it all betterments -chargeable to income. It is quite clear that this gives the railroad -company a chance to absorb all net income into betterments, and thus -wipe out all net income, in which case there would be no net surplus to -capitalize, consequently, no non-physical or franchise value, and the -total value established under this plan would be less than if the -property had not been improved by the betterments—_reductio ad -absurdum_. - -In reference to the question of whether or not the method of valuation -should be the same, regardless of the purpose to which the value is to -be applied, the speaker cannot agree with the author, and believes that -it is quite consistent to establish different values for different -purposes. - -The completion of a large public utility, planned on such a scale as to -provide for the requirements of many years to come, utilizing but part -of its capacity, and earning less than its operating expenses and fixed -charges, with its rates of toll fixed by law, must be considered in a -different way than a well-established public utility, with business -forcing it to its utmost capacity, and with tolls not fixed by law. -There are many important elements bearing on this consideration of -value, and the purpose of the valuation should be known before -attempting to establish the value. - -In New Jersey the work is complicated further by the necessity of -establishing the value of 122 separate railroad corporations, and the -assignment of all property outside the 100-ft. strip to each of the 450 -taxing districts through which the 122 corporations, with their many -branches and spurs, are operating. - -In order to determine the quantities and materials in the permanent way -and structures, nine engineer corps were organized, each corp consisting -of six men. With this force the center line of the main running track -was measured, and the exact distance in each taxing district recorded. -Cross-sections of the roadbed were made as often as changes in the -natural surface required, and accurate measurements and notes were made -of all structures; and, although in many cases the engineers were able -to secure the plans of the more important steel structures, the field -parties were required to obtain sufficient data to compute the tonnage -in case it was impossible to get these plans. - -The field parties were also instructed to note the character of the land -and improvements adjoining railroad property, and record such other -information as was necessary for a comprehensive understanding of the -conditions attendant on the construction of a railroad in that locality. - -The time allotted for the completion of the work is one year, and -although this is a comparatively short period in which to introduce a -premium system in field work, it was decided to inaugurate such a system -as would be as nearly satisfactory as possible under the conditions. A -record of each field force for each day in each month was made on -profile paper, using the horizontal lines to represent the number of -tracks, and the vertical lines to represent distance. Two horizontal -lines were allowed for single track, four for double track, and so on. -One mile was allowed for each vertical division of the paper, and, in -awarding the premium, there was taken into consideration, not only the -extent of territory covered by each field party, but much consideration -was given to the field notes, and a cash prize was awarded each month. - -The results of the organization and encouragement to the field parties -are shown by the very great increase in the amount of work per man of -the field parties, which was nearly 300% during the time the parties -were in the field. - -A great many questions hinging on interstate commerce, and involving -Fundamental, State, Federal, and International Law, are embraced in the -broad view of the valuation of railroad properties. The movement of -rolling stock through various States, and between the United States, -Canada, and Mexico, and the determination of the situs and domicile of -floating equipment, are subjects which, not only require considerable -knowledge of railroad operation, but involve many questions not clearly -determined by the Courts. - -The subject is of such great importance that steps should be taken to -formulate methods of procedure, and, at the Annual Meeting of the -Society, the speaker will offer a resolution requesting the appointment -of a Special Committee to determine the proper methods to be used in the -valuation of public utilities. - -J. MARTIN SCHREIBER, M. AM. SOC. C. E.—Engineers and those generally -interested in the valuation of public service properties are fortunate -in having the valuable information embodied in this paper. Although -there are some points on which the speaker differs with the author, the -following remarks are only offered in order to bring out, from -experience, some further phases of the subject, rather than as an -attempt to criticize. - -A great deal is heard about the exact cost of reproduction, also -arguments in reference to the proper allowance for contingencies, -probably only involving a small percentage. The speaker questions the -propriety of advocating the exact cost figures. The carefully checked -cost figures of reliable contractors, with first-class engineering -organizations, submitting proposals on the same construction, are often -found to vary from 5 to 15% from the total cost. Different organizations -will sometimes be the cause of figures varying 5% or more, depending on -the efficiency and experience of the corps. A clever purchasing agent -will reduce an apparently precise estimate on equipment or supplies as -much as 10%; on the other hand, the condition of the market may be such -that the actual price paid exceeds the estimate by the same percentage. -Engineers who are responsible for estimating on, and the execution of, -construction projects generally add more than 10% for contingencies, as -it is practically impossible to anticipate them, and a precise estimate -is almost certain to fall short. It is unfortunate that it is almost -impossible to sustain contingency figures on the witness stand; for that -reason, probably, it would be more satisfactory to the lay mind, and to -the various courts, boards, etc., which are required to pass on -valuations, and do not thoroughly understand the technicalities of the -situation, if engineers would drop the contingency item and modify the -quantities or the unit prices. - -If it is possible to estimate the exact cost of reproduction, certainly -considerable variation may be expected from independent sources in -computing depreciation and present values. Yet there are reputable -engineers who would have one believe (assuming that they know the cost -of reproduction) that by a simple field inspection they are able to -compute the exact present value. - -Some time ago, the speaker heard an expert testify in the interest of a -certain city, for tax purposes, with reference to the value of a piece -of street-railway track. He first stated the valuation for reproduction, -and then the definite present value. The latter was greatly in excess of -the actual value. The expert, who was an engineer of considerable -standing, on cross-examination, did not know the height of rail from top -of head to bottom of groove, either at the joint or any other part in -its length; he did not know the exact depth of flange of the car wheels -which operated over that track, the headway, or the exact weight of the -cars used. He had assumed the condition of the ties, and that the track -was ballasted. Finally, he was compelled to admit that his determination -of the depreciation, by simply a field inspection, was a very rough -approximation. Now, it is not in every case in the past that a -corporation attorney, even with engineering assistance, has been able to -point out unfair testimony. Many times the speaker has heard incompetent -testimony admitted, on the general principle that the witness was an -engineer of note, even though his record had been made in other -specialities. Too much stress cannot be put on this phase of the -subject, and the speaker is glad that the author has mentioned the fact -that the personnel of those doing appraisal work should be of the -highest order. In the past it is probable that the failure to -discriminate properly in accepting incompetent testimony (not to mention -prejudiced testimony) was automatic, and this is the most important -reason for much of the hostility of officials of public service -properties toward all forms of investigation, as the author mentions. - -Company officials know that they are often compelled to employ and train -specialists to furnish, within fairly accurate limits, the very -information which is being sought, and naturally they are skeptical -about the data presented by those who, though not intimate with the -property, purport to give exact cost figures. Any one who is able to -point out a consistent method whereby these exact figures may be -obtained surely will obtain credit for a valuable contribution toward -the solution of the complex subject of valuation. - -Referring to the valuation of the property of the Detroit United -Railroads, mentioned in the paper, the Director of Appraisals for the -city estimated that the cost of the complete appraisal of the property, -which includes about 220 miles of single track, would be from $3,000 to -$4,000. Approximately, $25,000 has already been spent, not including the -expense sustained by the company, which furnished a large proportion of -the information. - -Probably correct present value estimates which include depreciation may -not be even fairly approximated without intimate knowledge of the -particular property, and this should embody operation, policy of -management, past performance, study of historical cost (as far as the -records will permit), estimated cost of construction, and actual cost of -maintenance. The life of a piece of track or equipment, disregarding -obsolescence and extraordinaries, generally depends on the type and -details of construction, the service it has done, and the service that -will be required of it. Renewals should be made when the cost of repairs -reaches a certain figure, other conditions being favorable. It is a fact -that able engineers, intimately acquainted with the case at issue, and -employed on the same property, often have conflicting ideas in reference -to the life of track or equipment, one recommending immediate renewal -and another advocating longer operation. - -The speaker does not intend to argue against the possibility of placing -fairly accurate values on reproduction or present value, but wishes to -bring out the fact that it is not as simple as the lay mind is often led -to believe. Further than that, he is of the opinion that the following -is essential for economical and satisfactory valuations for all -concerned: - -(1) There should be co-operation of the appraisers with the public -service property officials, including operators, engineers, and their -records. - -(2) Present values should be determined by: - - (_a_) Cost of reproduction, - - (_b_) Mortality tables, - - (_c_) Data of performance, - - (_d_) Field examination. - -(3) The organization for the appraisal work should be of sufficient -scope, and should be allowed the time and funds which the project -reasonably requires. - -(4) The appraisers should be carefully selected, the personnel including -men who have had wide experience in the particular class of operation; -and specialists should be obtained if necessary. - -Mr. Riggs states that the valuation should be the same, regardless of -the principles at issue. It seems questionable to consider the fair -value which involves the non-physical value in costs or tax regulations. -Certainly, in the case of street railways in cities, where a percentage -is levied on the gross receipts, the non-physical valuation, only -representing present value, is necessary. Again, a physical present -value for taxation should not include the value of paving in the street -in the strip occupied by street-railway tracks. That the street-railway -company often pays an arbitrary assessment tax and keeps the paving in -repair, though it is in no way responsible for the wear, should be -sufficient to offset any obligation for other taxes. In some States this -is fixed by the Courts. The physical valuation, however, intended to be -used in connection with rates, cost, or capital regulation, should -include the cost of paving the railway strip. Referring further to the -question of including the paving in the physical valuation of street -railways, in the case of a decision of R. W. Tayler, Arbitrator, in the -proceedings between the Cleveland Electric Railway Company and the City -of Cleveland, on a basis of a renewal of franchises, Judge Tayler said: - - "Paving represents actual money expended. It belongs to capital - account, and in its depreciated form is worth all the allowance that - I have given it." - -Also for rate-making and the capital regulation some consideration is -certainly due to obsolescence and change of art, while in taxation they -should not be included. - -In conclusion, the speaker is optimistic enough to believe that the -problem of physical valuations will be solved satisfactorily for all -concerned. Co-operation of officials of the public service properties, -reliable testimony, with a better understanding by the Courts, will -certainly tend to clarify the situation. Non-physical values are very -difficult to determine, and their intelligent treatment will require -some well-defined procedure. Mr. Riggs' valuable paper will go a great -way toward producing a correct idea of the general proportion, and will, -no doubt, assist in the formulation of proper methods for valuation. - -CLINTON S. BURNS, M. AM. SOC. C. E. (by letter).—The author is to be -congratulated on the detailed care shown in the presentation of this -subject. Perhaps few engineers who have not been called on to cope with -the subject of valuation of properties, realize or appreciate the real -complexity of the many varied problems encountered in work of this -class. To those who are engaged directly in appraisement work, this -paper will be a welcome contribution to the literature on the subject. - -The author's statement that if a commission of engineers is directed to -report the true cost of reproduction, depreciation, or present value of -a certain property, the final figures should not differ, whether the -report is to be used as a basis for reorganization, sale, rate purposes, -or taxation, is open to argument. It seems proper that, if a property is -appraised in order to fix a selling price to a Government or -municipality exercising its right to purchase, the final figures should -be based on current prices of labor and material, because this does no -injustice to either party. It is evident that if the seller secures -payment for his property based on current prices, he may, if he desires, -reinvest the proceeds of the sale in similar enterprises at current -prices, so that thereby he secures the same benefits, whether prices are -high or low. - -It is equally evident that if the purchaser (the municipality) chooses -to purchase the property, the right to purchase must be exercised at the -particular time permitted by the franchise. If prices chance to be -abnormally high at that time, the municipality is exactly on a par with -what it would be if compelled to build its own plant at that particular -time; while, if prices be abnormally low, the same relative situation -still exists. There seems, therefore, to be no possible injustice to -either party in using current prices, when the object is a sale or -transfer of the property. However, in determining a proper value as a -basis of rates, another factor must be considered. It is inexpedient and -against public policy to make frequent changes in the rate charged for -such commodities as water, gas, or electric current. Theoretically, the -rate could be fixed each year, based on an annual valuation of the -property, thus permitting a high rate one year and perhaps an abnormally -low rate another year; but, practically, this is impossible, for, aside -from the inconvenience of such a cumbersome system, no community is well -enough informed as individuals to comprehend any reason whatever for -ever raising rates. Raising rates is invariably accompanied by a wave of -indignation. However, it is apparent that a series of rates based on an -annual current price valuation of the property would average exactly the -same, during a term of years, as though the property were valued once -for all on the basis of the average prices of labor and material for the -same term of years, and the rate based on the one valuation thus -determined. - -If the object of the valuation is to afford data for taxation, the same -argument applies as in a case of fixing rates. It thus seems proper that -the object of the appraisement should be taken into consideration before -it is determined whether to use average prices, or current prices, of -material and labor; and, if this is correct logic, the final figures -must differ according to the object in view; but, having determined the -proper unit prices to be used throughout any appraisement as being the -most equitable for the object in view, then, as the author well says, -the appraiser must not allow personal prejudices or fancied conditions -to influence his course. Above all, an appraiser must not be afraid of -his client. He must not allow his personal judgment to be swerved by the -latter's desires. It perhaps seldom if ever occurs that an appraiser, -representing a municipality, or State, is subjected to this unconscious -influence, inasmuch as his employer is merely a temporary public -official, and consequently he has no client to fear. He goes into the -work with a full knowledge that his employer knows little or nothing of -the subject, and his only desire is to reach results which will be -unquestionably fair to both parties. - -On the other hand, the appraiser who is chosen by the owner of a plant -takes hold of the work with a feeling that he is expected to report a -value as favorable as possible to his client, and this feeling is -reflected in the report, regardless of how sincerely or conscientiously -he tries to avoid it. - -One of the most intricate and yet interesting problems in appraisement -work is the computation of the "going value," or "business value" which -should be allowed in addition to the physical value. - -In considering a competitive enterprise, such as a railway serving a -community in competition with another independent railway, this problem -must be treated in a different way than in a non-competitive business, -such as a water-works, gas-works, electric plant, street railway, or -similar enterprise operating under the protection of an exclusive -franchise, or under natural conditions equivalent to an exclusive -privilege. - -In considering competitive enterprises, it is manifest that a railway -operating under conditions more advantageous than its competitor -possesses an intangible value equal to the measure of that advantage. It -is not clear, however, whether it is more proper to say that the railway -possessing the advantage has a positive going value, or whether the less -fortunate one has a negative going value. Using the rule formulated by -the author, being that of Professor Adams, with some modifications, it -is evident that many properties would show negative going values; but, -as pointed out by the author, the Courts hold that public service -corporations are entitled to earn: - - (_a_) Operating expenses; - - (_b_) Expenses of maintenance and running repair; - - (_c_) Taxes; - - (_d_) A sinking fund to cover depreciation and obsolescence; - - (_e_) A reasonable profit on the fair value of the property. - -It is improbable that a reasonable profit on the fair value of the -property could be construed to mean less than the interest or revenue -from a like amount of Government bonds or other non-taxable securities. - -This ruling of the Courts fixes the rates at such a figure as to -preclude the possibility of a deficit; from which it must follow that a -negative going value cannot be created by a compulsory reduction in -rates, for such action would be confiscation of property to the extent -of the negative intangible value thus created; that is to say, if the -Courts are right in the above ruling, then all intangible or going -values are positive, and must be determined by using the most -unfavorably situated railway as the basis of computation in determining -the question of reasonableness of rates; and the rates in turn must be -reasonable and proper before they can be applied to determine the -intangible value. This raises an interesting and far-reaching query. -Assume that a negative going value is the result of real competition -between two roads such that the "fair value" of the less fortunate -competitor is 20% less than its physical value. - -If rates are based on this valuation, are they really fair rates? For, -suppose the rates had always been maintained at a point where the less -fortunate road could just support its physical valuation. Clearly, no -rate could then be enforced which would compel it to operate for less -than a reasonable profit on the fair value of its property, and the fair -value under this assumption is 25% greater than before, due to no effort -of its own, but simply to the fact that its competitor has not cut -rates, and has thereby preserved the original "fair value" of the less -fortunate road, and at the same time increased its own positive going -value by an equal amount. - -In view of this analysis it is doubtful if it is ever proper to consider -the existence of negative intangible values, although it is true that -the commercial value does fluctuate, and may be less than the physical -value, due to rates which are too low, perhaps, or due to other -temporary causes. - -The method quoted from Mr. Alvord for determining going value applies to -non-competitive enterprises only, as was stated by Mr. Alvord in his -paper before the American Water-Works Association. This method is open -to the criticism that the forecast of the business of the older works, -and of the new hypothetical works as well, is reduced to a monetary -value, based on the present rates, regardless of whether or not such -rates are reasonable. Rates are subject to legislative control in many -States, and there is absolutely no assurance that any other State may -not adopt legislation at any time permitting regulatory ordinances to be -enforced. Therefore, any forecast of the value of future business must -be based on reasonable rates, for otherwise it is merely an unwarranted -estimate based on a fond hope. - -Taking into consideration the fact that rates must be reasonable, either -by virtue of present laws or laws which may become effective at any -time, perhaps in the immediate future, going value may well be defined -as the present worth of the amount by which the anticipated profits of a -going plant, operating at reasonable rates, exceed the present worth of -the anticipated profits of a similar hypothetical starting plant, -operating at those same rates. With this conception of going value, it -is impossible for a non-competitive property to have a negative going -value, and every operating plant has a positive going value, even though -operating at a loss. - -The whole problem hinges on the question of "what is the reasonable rate -or proper return," and this should be determined in the aggregate as the -starting point. The Courts have persistently dodged the issue, and -properly so, whenever that question has arisen, leaving it for -consideration in each particular case, depending on the stability of the -business, the hazard involved, and various other local factors. - -It may safely be conceded that this fair profit is something in excess -of the return from Government bonds, and for the purpose of this -discussion it matters not what figure is assumed as the fair -profit—whether 5, 6, or 10%, or what-not—the theory is the same in any -case. This is perhaps best explained by a practical illustration: - -Take, for example, a water-works system, the physical present value of -which has been determined by the method of reproduction to be -$1,000,000, and denote the going value by the unknown quantity, _x_; -suppose, further, that 6% is considered a reasonable return on the "fair -value"—not yet determined, the "fair value" being $1,000,000 plus the -going value, _x_. Therefore, the rates must be such as to produce in the -aggregate an amount equal to the operating expenses, maintenance, taxes, -sinking fund, and depreciation, and still have a profit of 6% on the -fair value of the property. The anticipated profits of the going plant, -therefore, are exactly 6% of ($1,000,000 + _x_) = $60,000 + 6_x_/100 per -annum. The anticipated profits of the hypothetical starting plant will -be negative at the start, and gradually increase, finally reaching a -maximum of $60,000 + 6_x_/100 per annum. - -It must be remembered that, in estimating the operating expense and -income of the starting plant, as well as the going plant, the figures -must be confined rigidly to the plant as it is found at the date of -valuation, and in no case should any account be taken of income or -operating expenses due to probable future extensions of the distribution -system. Many appraisers overlook this point, and predicate the -anticipated profits of the going plant on the past growth of the income -account, forgetting that a considerable portion of this growth is due to -extensions into new territory, and not to any material increase in -revenue from the territory already served. To include income from new -territory in the forecast of income is just as fatal an error as to -include the anticipated expenditure of new capital in the present -physical valuation. Either of these procedures is really an estimate or -appraisement of some other plant, rather than the one actually under -consideration. - -To complete the numerical illustration, suppose it is determined that -the time required to construct the hypothetical starting plant is 3 -years; that a portion of the plant is put into operation at the end of -the second year, taking over fire-hydrant rental equivalent to $20,000; -that the revenue from private sources aggregates $20,000 during the last -year of construction; that the expenses of operation, maintenance, -taxes, and depreciation amount to $30,000 during this year. After the -time of completion of the plant has elapsed, it has the total credit for -fire-hydrant rental, and it is assumed that the revenue from private -sources and the cost of operation, maintenance, taxes, and depreciation -increase as shown in Table 14, which illustrates the method of computing -the going value, and gives the resulting value for the case just stated. - -Therefore, 171,005 + 0.2597_x_ = _x_; hence, _x_ = $231,000. This result -is based on the assumption that the starting plant earned no interest -during the construction period. If an allowance for lost interest during -construction has been made and added to the capital account already -being included in the physical appraisement of $1,000,000, then this -must be charged back against the going value found above. This is -clearly evident, because the calculations to determine going value date -from the beginning of the construction period, and the lost interest -during construction, therefore, is provided for in the result. Most -appraisers allow an item for lost interest amounting to the legal rate -of interest running for half the construction period, which, in the -illustration under discussion, would be $90,000; deducting this sum, if -previously included, gives $141,000 as the going value. - -There seems to be no good reason for allowing lost interest during -construction as an item in the physical valuation of a property, any -more than for allowing all of the lost interest, up to the time when the -property begins to yield a return equal to the rate of interest. It is -one of the problems in finance, and is much better treated as an element -in the going value, as shown in the above illustration. - -One of the most difficult factors on which to agree in computations of -this nature is the element of time required for the hypothetical -starting plant to acquire the business. Were it not for this -uncertainty, going value could be computed with mathematical precision -by the method suggested. - -In determining the physical valuation on the basis of cost of -reproduction, such items as cost of taking up and replacing street -paving over the pipe lines, cost incurred by reason of sewers and drains -encountered, interference due to electric wires and conduits, -interference of traffic, and other metropolitan conditions which add -greatly to the cost of construction, must be allowed. Wherever such -metropolitan conditions exist, there must also be present a -corresponding necessity for the use of water under pressure. People use -water because of necessity or convenience, and not on account of any -feeling of obligation or loyalty to the water company. - - TABLE 14.—COMPUTATION OF GOING CONCERN VALUE, BASED ON REASONABLE - RATES. - - ╒════════════════╤═════════════════╤════════════════╤═════════════════╕ - │ Year, dating │ Legitimate │Hydrant, rental │Domestic revenue │ - │ from beginning │ profits of the │ taken over by │ of starting │ - │of construction.│ going plant. │starting plant. │ plant. │ - ├────────────┬───┼─────────────────┼────────────────┼─────────────────┤ - │Construction│1st│$60,000 + 0.06_x_│ 0│ │ - │ period. │ │ │ │ │ - │ │ 2d│ 60,000 + 0.06_x_│ 0│ │ - │ │ 3d│ 60,000 + 0.06_x_│ $20,000│ $20,000│ - ├────────────┼───┼─────────────────┼────────────────┼─────────────────┤ - │ Business │4th│ 60,000 + 0.06_x_│ 40,000│ 55,000│ - │development │5th│ 60,000 + 0.06_x_│ 40,000│ 80,000│ - │ period. │6th│ 60,000 + 0.06_x_│ 40,000│ 90,000 + 0.06_x_│ - └────────────┴───┴─────────────────┴────────────────┴─────────────────┘ - - ╒════════════════╤═══════════════════════════════════════╤════════════╕ - │ Year, dating │ Interest on the starting plant. │ Operation, │ - │ from beginning │ │maintenance,│ - │of construction.│ │ taxes, and │ - │ │ │depreciation│ - │ │ │on starting │ - │ │ │ plant. │ - ├────────────┬───┼───────────────────────────────────────┼────────────┤ - │Construction│1st│If the physical validation contains an │ 0│ - │ period. │ │ item for lost interest during │ │ - │ │ │ construction, the same amount must be│ │ - │ │ │ credited to the starting plant as │ │ - │ │ │ interest earned. │ │ - │ │ 2d│ │ 0│ - │ │ 3d│ │ $30,000│ - ├────────────┼───┼───────────────────────────────────────┼────────────┤ - │ Business │4th│ │ 50,000│ - │development │5th│ │ 65,000│ - │ period. │6th│ │ 70,000│ - └────────────┴───┴───────────────────────────────────────┴────────────┘ - - ╒════════════════╤═══════════════════╤══════════╤═════════════════════╕ - │ Year, dating │Total difference in│ Present │Present worth of the │ - │ from beginning │anticipated profits│ worth │excess of anticipated│ - │of construction.│of the two plants. │ factor. │profits of the going │ - │ │ │ │ plant. │ - ├────────────┬───┼───────────────────┼──────────┼─────────────────────┤ - │Construction│1st│ $60,000 + 0.06_x_│ 95.2│ $57,120 + 0.0571_x_│ - │ period. │ │ │ │ │ - │ │ 2d│ 60,000 + 0.06_x_│ 90.7│ 54,420 + 0.0544_x_│ - │ │ 3d│ 50,000 + 0.06_x_│ 86.4│ 43,200 + 0.0518_x_│ - ├────────────┼───┼───────────────────┼──────────┼─────────────────────┤ - │ Business │4th│ 15,000 + 0.06_x_│ 82.3│ 12,345 + 0.0494_x_│ - │development │5th│ 5,000 + 0.06_x_│ 78.4│ 3,920 + 0.0470_x_│ - │ period. │6th│ 0│ 74.7│ │ - └────────────┴───┴───────────────────┴──────────┴─────────────────────┘ - - Total going value = 17,005 + 0.2597_x_ - _x_ = $231,000 - -If highly developed metropolitan conditions are present, new business -will be acquired in the hypothetical starting plant much more rapidly -than where such conditions are yet to be developed. For this reason the -problem cannot be based on the early growth of the same plant, and, -there being no exact duplicate of conditions in existence elsewhere, the -estimate of time required for the business development period is purely -speculative, and must be assumed with great care and judgment, else -injustice may be done to one party or the other in the resulting going -value. - -It is interesting to note that, in the Michigan appraisal, the allowance -of a percentage for contingencies was bitterly contested by the -railroads as improper. Probably every appraiser who has been connected -with rate cases has seen this same item strenuously insisted on by the -corporations. - -The author's query: should a corporation which is compelled to abandon -appliances while yet serviceable, in response to public clamor, be -allowed any item of value in the appraisal on account of such -appliances, seems to be best answered in the negative. If the appraisal -is for the basis of making rates, the corporation is fully compensated -by the fact that its depreciation account provides for all abandoned -machinery, and the average past depreciation is usually considered a -fair criterion of the future. If the appraisal is for purposes of -taxation, it would seem improper to levy tax on abandoned or rejected -machinery or equipment. If the appraisal is to determine the present -value of a property for sale under condemnation proceedings, it is -likewise difficult to conceive any reason for allowing any present value -on account of property abandoned or rejected, and, indeed, if such -abandoned material had any value at the time of its removal, it is more -than likely that such value was converted into cash at that time. - -The statement that no appraiser would be justified in placing a going -concern value on a property 3 years old, or 10 years old, unless the net -earnings were such as to indicate that the property had a commercial -value in excess of the physical property, is questionable. "Commercial -value" is not exactly synonymous with "going concern value," for, as -usually considered, the term "going concern value" represents the -difference between a dead structure and a live one. A property might be -compelled to operate temporarily at rates insufficient to return the -legal rate of interest on the physical value of the property, and while -this condition continued, its commercial value would be less than its -physical value, and yet this same property is worth more while running -than if operation ceased and the business was allowed to die. - -HALBERT P. GILETTE, M. AM. SOC. C. E. (by letter).—In common with others -who have written on the subject of appraisals, the author omits -consideration of one of the most important elements of the cost of -producing the property of a public service corporation, namely, the -development expense. - -Development expense is the deficit in "fair return" on the investment -during the early years of operation, while the business is being -developed to a point that will yield a "fair return" on the investment. -Unless this development expense is charged to the capital account as -fast as it occurs each year, it should draw compound interest up to the -end of the development period. Development expense might be regarded as -a part of the non-physical value of a plant, and a few years ago the -writer so regarded it. Latterly, however, he has come to see that it -does not differ one iota in principle from "interest during -construction," and, therefore, is properly a part of the cost of -production or of reproduction of the property. During the construction -period, interest on the investment is charged, and properly so, as a -part of the physical cost. Does this interest cease the day after -operation begins? Not a whit. The owners of the property are entitled to -a fair interest—a "fair return"—on their money, from the day it is -invested. At first they receive it in the form of "interest during -construction," which is charged to capital account. After operation -begins they must either be allowed to earn more than a "fair return" -during the fat years following the development period, or the deficit -below a fair return incurred during the development period must be -treated exactly like "interest during construction" and added to the -capital account. If public service corporation managers have chosen the -first of these two methods, it does not relieve the appraiser of the -duty of adopting the second method; for the object of appraisals for -rate-making purposes is to limit capital to a "fair return" on the -investment. In brief, if there are to be no "fat years," then every -"lean year" must be credited with its deficit as fast as it occurs. - -This, the writer concedes, is a radical departure from such precedent as -already exists, but we must not overlook the fact that we of to-day are -establishing the precedents for appraisals in the future. The whole -matter of valuations for rate-making purposes is still in a nebulous -form, as far as the public, and indeed, as far as the Courts, are -concerned. In the end it will devolve upon engineers to establish -logical methods of appraisal. To do so, they must be able to look on the -problem both as engineers and as jurists. Up to the present, however, -this broadness of vision has not characterized most engineering -appraisers, nor is it to be wondered at when the Courts themselves are -in a maze. - -A great deal has been heard lately about "going concern value." -Ultimately, the Courts will hold that, as far as rate-making is -concerned, there is no such thing as "going concern value" in the -present meaning of the term. "Going concern value," in the final -analysis, consists of two elements: First, development expense (as -previously defined), and, second, capitalized surplus earnings. Surplus -earnings are ascertained by deducting from net earnings both taxes and a -low rate of interest on the investment, equivalent to interest on bonds. -Many factors may affect surplus earnings; but, that "going concern -value" consists largely of capitalized surplus earnings, cannot be -denied. What are surplus earnings? The public replies that they are -mainly the result of extortionate charges. This is doubtless correct in -many cases; hence, any investigation of costs which has for its object -rate-making must inevitably lead to repudiation of that part of "going -concern value" which is based on surplus earnings, if the surplus is at -all large. In a word, we reason in a circle if we capitalize surplus -earnings, calling the result "going concern value," and then undertake -to use "going concern value" as one of the factors in judging the -fairness of rates. To express the problem mathematically, we cannot -solve for a variable when the variable is allowed to exist on both sides -of the equation. Yet that is precisely what some rate-making bodies are -trying to do, and it is precisely what the Courts have often attempted -to do. - -To escape this confusion there is but one possible step, and that is to -eliminate "going concern value" entirely. We must first determine the -element of cost, which the writer terms development expense, and we must -regard this item as a part of the cost of reproduction. We must next -cease to consider small rates of interest as being a "fair return" on -this cost of reproduction. When first-class mortgages draw 5%, it is -folly to talk of 6% as being a "fair return" on capital invested in a -business enterprise, especially when this 6% is figured on the actual -cost of reproduction of the property. It may be that 7% is an ample -"fair return" in some cases, but in others 10% will be found none too -much, considering the small size of the business and the risks involved. - -The writer will not at this time discuss methods of determining how a -"fair return" should be estimated, but, in general, the process should -be as follows: From the gross earnings deduct the operating expenses and -taxes to obtain the net earnings. From the net earnings deduct a small -rate of interest (equivalent to interest on bonds) on the cost of -reproduction. The remainder is profit, and should be expressed as a -percentage of the gross earnings. This percentage of profit can then be -compared with similar percentages made by merchants, manufacturers, -farmers, and other capitalists, and then it can be determined logically -by comparison whether or not the profit made by a public service -corporation is "fair." We must adopt this method of attacking the -problem or we shall inevitably drive capital away from railway and other -fields of public enterprise. - -The writer estimates roughly that a profit of 10% on gross earnings, as -above deduced, is about the same as a direct return of 7% on the cost of -reproducing the average steam railway. - -In a recent appraisal of a street-railway system, the writer determined -the actual development expense of the property, deducing it from the -accounting records. It was an astonishingly high sum, even assuming only -7% on the cost of reproduction as being a "fair return." During his -appraisal of all the railways in the State of Washington, for the -Railroad Commission, the writer made a similar study of development -expense, but this was not included in his estimate of the cost of -reproduction, as it was then regarded as being a part of the "going -concern value" and he was not commissioned to ascertain the "going -concern value" of the railways. Not a single railway, as far as he -knows, has ever presented to a State Railway Commission, or to the -Interstate Commerce Commission, an estimate of its development expense -along the lines indicated. Instead, the railway companies have talked in -general terms of long construction periods—often claiming 20 years or -more—and of great expense incurred in building up the business, and of -franchise value, and of a score or more of non-provable costs. The -consequence is that they have frequently lost entirely the one great -item that they are clearly entitled to, namely development expense, -which is an item which can be absolutely proved from their accounting -records, and, therefore, rests not on the "hot air" testimony of -experts, but on facts that are incontrovertible. In like manner, other -public service corporations have often signally failed to prove the full -worth of their properties, because their claims for "going concern -value" have been ignored entirely. When a franchise expires, the "going -concern value" is usually looked on by the public as worthless, nor is -this view to be wondered at. - -Mr. Riggs proposes adding to the physical value a minus "going concern -value," and he is logical in doing so, if it is conceded that values for -rate-making rest on profits; but this the writer does not concede for an -instant. Values for rate-making cannot rest on the very thing that it is -aimed to regulate, to wit, the rates charged. Until engineers and public -service commissions and Courts free themselves from this confusion of -cause and effect, there can be no rational theory of rate-making. - -Values for rate-making must rest primarily either on the actual costs of -the production of a property or on estimated costs of reproduction, -including therein both interest charges during construction and the -sequel thereto—development expense. - -Of almost as great moment as the item of development expense is the -question of depreciation. The author, in common with most engineers, -holds that depreciation should be deducted. This is a consequence of -regarding a public service plant as if it were a machine bought in a -second-hand store. A public service plant is a device which is intended -to perform a given service forever. It is true that its parts are -subject to wear, and must be renewed from time to time; but the plant as -a whole is everlasting, or practically so. Managers of public service -corporations, perceiving this fundamental truth, have rarely established -sinking funds for the redemption of any considerable part of the plant. -In a great railway system the renewal of a freight car is not a -proportionately larger item of expense than is the renewal of a tooth in -a steam shovel bucket owned by a contractor. This fact, coupled with the -permanence of the railway plant as a whole, has led railway owners to -make no provision for a return of the money lost in depreciation. -Railway ties in a large railway system inevitably reach a condition such -that their average age is exactly half the life of the average tie. -Shall a sinking fund be provided for ties? If not, where does logic -place a line of demarcation? When does an element of the railway plant -attain a condition of sufficient importance to warrant "writing off" -some of its value from the capital account? The facts are that railway -managers have not "written off" anything worthy of mention for -depreciation, and, in the writer's opinion, they have been perfectly -logical. Consequently, the operating expenses have been much less than -they would have been during the early years, had a sum been placed -annually in a sinking fund. Therefore, the development expense, as -deduced from the accounting records, is less than it would be if a -sinking fund were provided; and the amount of this difference is -precisely the amount of the depreciation. In other words, if -depreciation is to be deducted from the cost of reproduction, it must be -added to the development expense ascertained from the accounting -records; so that, in the final analysis, depreciation should be ignored -entirely in any appraisal of a public service corporation where the -object is either rate-making or purchase of the corporation by the -public. One qualification to this statement is needed, however, and that -is that the depreciation shall not have gone far enough to result in an -average age of plant less than half the life of the plant—that being the -ultimate normal operating condition. - -Engineers have a duty to perform, in making an appraisal of the sort -under consideration, which is judicial in its character and should not -savor in the least of the pawnshop. The engineer engaged by a public -service commission should not for an instant make it his object to "beat -down the price," no matter by what far-fetched theory he may effect the -result. Nor are engineers inclined to do this, except when they regard -themselves merely as agents of the public by whom they are employed. -Unfortunately, many appraisers have as yet failed to realize that there -is a vital distinction between the dealings that should exist in public -affairs and those that actually exist in private matters involving the -purchase and sale of property. In the latter case, the buyer usually -takes every possible advantage of the helplessness of the seller. Is the -seller ignorant? See that he remains so. Is the seller hard-pushed for -money? Grind down the price accordingly. Does the seller offer goods -which are a bit shop-worn? Dwell on that fact, to the exclusion of all -else. Such are the tradesman's arts, and such, the writer fears, have -been the arts of some appraisers of public service property. - -The writer believes that, under one form of agreement or another, nearly -every kind of public service can be more economically and better -performed by a public service corporation than by the public itself -through employees directly hired. But if America is not to pass speedily -into Government ownership and operation of all public utilities, there -must be a pronounced change of attitude on the part of the public toward -capital now invested in public service corporations. Even as engineers, -we are apt to be unconsciously influenced in our attitude toward public -service corporations, not only because of the present public attitude, -but because we are often put to great inconvenience by the -ill-considered resistance of the corporations whose property we are -called on to appraise for the public. Our duty plainly consists, first, -in regarding a public service corporation as a public agent, and, -second, in allotting such values that this public agent will receive a -full and fair return for every dollar judiciously and honestly spent in -building and developing its property. In carrying out this plan, the -writer finds it wise to study the entire financial history of a -corporation, going carefully through both the construction accounts and -the operating accounts from the beginning. - -The desirability of analyzing the actual costs of construction, -betterment, and operation of public service corporations, preparatory to -estimating the cost of reproduction, cannot be too strongly urged upon -appraisers. Unfortunately, many corporations refuse access to their -records, or claim that the records are too incomplete to be of value. -However, when they realize that from those very records can be deduced -one of the largest items of cost of reproduction, namely, the item of -development expense, they are certain to show as much willingness as -they now show aversion to disclosing their records. - -The writer has recently completed an appraisal of a street railway -system, the managers of which placed at his disposal the entire -accounting and engineering records. From these the development expense -was deduced, and forms an item which can be demonstrated in Court, if -need be, instead of being the subject of unsupported "expert testimony." -As far as the writer knows, this is the first time that a street railway -corporation has voluntarily opened all its books for use in an appraisal -which may be made public. May it not be one of the harbingers of a -far-sighted action on the part of public service corporations, which -will result eventually in eliminating entirely the hostile attitude of -the public toward its accredited agents? - -Reverting again, and finally, to the question of development expense, it -will be seen, after study, that the method of deducing it from the -accounting records provides for every possible item. The cost of -advertising, the cost of colonization, and canvassing by agents engaged -in building up the business tributary to the corporation, the cost of -developing an efficient business organization and an efficient -plant—every possible item of developing the business finds accurate -record in the development expense deduced from the accounting records as -outlined. This may not be apparent at first glance, but a little -consideration proves it to be so. If, for example, $20,000 has been -spent annually for ten years in advertising to secure business, the -operating expenses have been increased exactly $20,000 for each of the -ten years. Consequently, the annual deficit below a "fair return" on the -investment has been made $20,000 greater each year than it would have -been had no expense for advertising been incurred. In other words, the -deficit below a "fair return," which is the development expense, shows -automatically the amount spent for every such item as advertising. The -writer regards this automatic register of development expenses as being -one of the most important features of his method for determining such -expense. It removes the entire problem from the realm of guess-work and -expert testimony, and makes it a problem in engineering economics. It -involves no question as to whether or not the existing rates charged for -freight, or for any other service, are fair. - -ARTHUR L. ADAMS, M. AM. SOC. C. E. (by letter).—This paper, in spirit, -diction, and contents, is a masterly presentation of the best thought -and argument, by engineer specialists and the higher Courts, concerning -this difficult subject—a presentation which only one intimately -associated with the question for years, as has been the author, could -hope to make. It is of special interest, too, because it deals -fundamentally with the Michigan railroad valuation, now ten years old, -and deservedly considered somewhat ancient in the evolution of what may -be termed the logic of valuation methods. The frank acknowledgment of -the now apparent deficiencies or errors of that work, notably in the -defective method and resulting under-valuation of real estate, as well -as the upholding of that which still appears to the author to be sound -in principle, are excellent manifestations of the constructive and -judicial spirit so necessary to the making of any substantial -contribution to the art. - -Unanimity of opinion in matters of detail, even among those specializing -in this line of practice, cannot be expected, especially in a general -discussion. Details must receive their emphasis from local coloring and -local conditions. Making allowance for these local conditions in -Michigan and other contiguous States—notably conditions of population -and flat topography—and remembering that the basis of the paper is a -railroad valuation for purposes of taxation, and not a water-works -appraisal for annual rate-fixing in a semi-arid region of rapid -development, or some other widely differing utility, it seems to the -writer that the author has been singularly fortunate in giving -expression to views with which specialists will for the most part agree. - -The limitations of the logical application of the methods suggested, -however, are not sufficiently defined. Early in the paper an effort is -made to avoid the necessity for this, and to simplify the treatment by -limiting the scope of the paper, in the following language: - - "This paper is confined to a discussion of the methods which should - be used in arriving at a correct figure of cost of reproduction and - depreciation—it does not take up questions involving the propriety - of those figures when reached. The propriety or legality of using - such figures as a basis for an assessed valuation, as a basis for - rate-making, ... will be conceded no place in this paper." - -Such a restriction, however, seems to the writer to leave the subject -much confused. It is impossible to judge of the propriety or soundness -of a method of valuation while ignoring its purpose and failing to point -out the limitations of its logical application. To confine discussion to -a consideration only of cost of duplication and depreciation of physical -properties is presumably an attempt to avoid the difficulties incident -to the application of such results to specific purposes, and is in line -with the frequent argument of some attorneys in litigated valuations, -that the engineer must not encroach on the province of the Court by -having, much less expressing, any idea relative to the application of -his figures to the final solution. - -With this doctrine the writer has no sympathy. The engineer is -essentially an economist, and no one is more fully qualified to aid, -either directly or as an adviser to the Court, in the final -determination of value for specific purposes, provided he is trained in -the construction, operation, and valuation of such properties as are -under consideration. To accept any less responsibility than this is to -become party to inferior measures leading to popular misconception, and -is justified only as a practicable first step toward the final -realization and acceptance of the larger duty. - -All suggested methods of valuation should be subjected to close logical -analysis, with a view to their purpose. The unsuitability of the method -used in the Michigan appraisal to many classes of appraisals is -apparent, and can be readily indicated. Much space is given to -justifying the appraisal of all so-called non-physical elements by the -capitalization of the residue of net earnings after allowing interest on -the investment in the physical properties. This the author refers to as -Professor Adams' method. The addition of the physical to the -non-physical values, as thus determined, is supposed to give the value -of the property as a whole. It is evident that it gives, by indirection, -the same total valuation as would be obtained by the direct -capitalization of net earnings without any determination of physical -values, _per se_, and, as a method, is therefore not what it purports to -be. Since value, by this method, is in reality dependent on earnings, it -follows that where rates are fixed by governmental authority, with the -property value as the base, as is done annually in California in cases -of privately owned water and lighting plants, the method suggested is -without logical application, and the property values of such -corporations must be determined and justified on other or modified -grounds. Hence the necessity for dealing with such elements as so-called -"going concern," franchise, and other possible assets, each -independently, as is usually done in water-works appraisals, instead of -collectively, as in the Michigan appraisal. - -It should be made clear, therefore, that the method used in this -railroad appraisal, for the determination of non-physical values, simply -reduces the whole to one of capitalization of net earnings, and -presupposes no governmental regulation of rates with the value of the -property as the base; and, unmodified, has a comparatively narrow range -of application. - -The author seems to see difficulty ahead in dealing with rate-making by -this method, for he says, near the close of his paper: "There are many -intricate problems in connection with a valuation for rate-making or -taxation which really belong to these undertakings, not to valuation," -but, in stating some of these difficulties, he does not point out the -impropriety of determining value by capitalizing that (earnings) which -it may be the object of the valuation to determine and fix. - -Regulation of rates by governmental authority, which means their -limitation to that which is reasonable and just, will probably in the -future be the purpose in the making of most valuations of the property -of public service corporations, and no methods or rules for the making -of appraisals can be considered as being at all complete or fairly -comprehensive which do not meet the logic of such an end. - -If capitalization of net earnings is to determine railroad values for -rate-fixing, whatever the process, it must presuppose a fair and -equitable rate, thus following the rate, instead of the rate following -the property value. This is but a shifting of the difficulty; for, what -constitutes a fair and just rate, irrespective of the value of the -property used, is at least as difficult of determination as is the -property value, irrespective of its earnings. Valuations, to be useful, -must have their purposes carefully predetermined, that the right -application of principles may be made. - -Perhaps nowhere more than in California has thought been directed along -this line, for the organic law of the State for thirty years has -required the annual fixing of rates for water and light companies by -public official bodies, and many important cases involving rates and -valuations of large properties, chiefly in later years, have been tried. -Unfortunately, the most important and best tried of these have not yet -reached the United States Supreme Court. The result, thus far, is too -long a story to be told now, but it may be said that capitalization of -earnings in any form is not regarded as a logical basis of value under -such conditions. Franchises, as they exist here, are not regarded as -having value, unless from unusual circumstances. "Going concern" value -is recognized, but its money measure is sought through other channels -than present net earnings. - -The author's emphasis on the necessity for eliminating the personal -equation, as far as possible, is commendable, but a large exercise of -discretionary judgment is inseparable from the process of appraisal. The -fullest investigation of all pertinent facts should be made. Too much -must not be expected from rules and formulas. They are education only. -Governing principles must be understood, and subsequent procedure the -writer cannot better express than in the words substantially as used on -a former occasion:[47] Having considered the various factors likely to -influence the value of any property under consideration, and having -summarized the results, it will remain to determine the varying degrees -of importance and weight to attach to each, and to decide, in view of -all the attendant circumstances, what the amount is on which the company -is entitled to receive a suitable return. This final solution can never -be reduced to a mathematical formula applicable to all cases. The -inquiry will have established approximate limitations, both as to -maximum and minimum, but there will then usually be found remaining -quite a wide intervening field for the exercise of discretionary -judgment. - -That the final result will depend to some extent on the personal -equation, does not of necessity detract from its worth. It only shows -the greatness of the problem, which requires for its solution the -exercise of faculties higher than the application of mere formulas and -mere routine, faculties which are rooted in laborious thought, in ripe -experience, in moral worth. - -A word concerning the use of experts on work of this class: Most -valuations grow out of or grow into cases at law. Under the prevailing -order, the litigants secure the services of the necessary expert -appraisers, who, in the course of examination, are subjected to -processes usually much better calculated to magnify than to harmonize -differences, and to cloud rather than to clarify issues, to the -detriment of the record, the confusion of the Court, and the attempted -discredit of the witnesses and their profession. Self-defense is -calculated to lead witnesses into undue reliance on rules and -mathematical formulas, as direct means of obtaining the desired result, -instead of aids for the final exercise of a right judgment as to the -real value of the property for the purpose intended, simply because it -is easier in dealing with attorneys to justify mere mathematical -processes than to support opinion resting on considerations of a general -character, not always readily measurable in figures. This tendency leads -also to under-valuations. A change in the process of Court procedure -relative to such expert evidence is needed, and the influence of the -Profession, both individually and collectively, might be used to secure -the appointment of such witnesses at the instance of the Court, instead -of the litigants, to the great advantage, both of society and of those -more immediately concerned. - -C. D. PURDON, M. AM. SOC. C. E. (by letter).—A comparison of some of the -more important items in the Minnesota valuation may be of interest. In -the "Cost of Construction of Roadbed and Track," the principal items -are: - - Land 25.46% - Clearing and grading 21.49% - Rails 12.72% - Bridges 7.01% - Ties 6.72% - -These five items amount to 73.40% of the total cost, and "Adaptation and -Solidification of Roadbed" to 4.53%, the other twenty-three items -amounting to 22.07 per cent. - -The estimated value of "Adaptation and Solidification of Roadbed" ranges -from $543 to $1,542.80 per mile, averaging $1,231.92, which includes 4½% -for engineering. If engineering is omitted, the average for all roads is -$1,124.95, and for "Carrying Roads"[48] $1,128.16. - -The "multiplier" for cost of right of way was ascertained from the -market value of land in the vicinity, as shown by late transfers, and -the prices paid for right of way at about the same time; this cost -ranged from 195 to 891% of the market value. Taking "all roads," the -cost of land for terminals was 71.05% of the total cost of land for all -purposes, but only 3.78% of the quantity. - -A. MORDECAI, M. AM. SOC. C. E. (by letter).—Mr. Riggs has done a -valuable service in preparing this very able and painstaking paper, as -the subject of the proper value of Public Service Corporation property -is one but lately demanding attention. When the country was undeveloped, -and the railroad companies struggling for existence, and often ahead of -the needs of the people, no criticism was made; but, during the last few -years, securities have increased so largely, the increased issue often -being manipulated so as to accrue to the benefit of a few individuals in -place of the great mass of original security holders, rates have been -made and defended on the plea that the increase was necessary to pay a -fair interest on the capital invested, and increases in assessments for -taxes were fought and criticized to such an extent by the companies that -the public seems to think it absolutely necessary to have some -investigating and regulating power. It argues that the history of the -past shows that we cannot depend on the officials themselves, not from -any desire to be dishonest or unfair, but merely that they cannot reach -the proper point of view. After years of struggling, they cannot see the -justice of being obliged to show their books or have their incomes -disturbed, while they see a neighboring factory, owned by a like -chartered company protected by patents and copyrights, greatly enlarged, -and the company paying a very handsome return on an ever-increasing -capital, without investigation of any kind. - -No one supposes that any body of legislators or a committee selected -from one should understand the situation better than the managers -themselves, but the public, forced to look somewhere, demands that its -representatives try to regulate these matters and see that no abuses -occur, fully aware that the machinery is not perfect. It asks: - - As to Capital: that the company can show proper value for the - securities issued, and, if an increase is made, the sum obtained - should be used for the betterment of the property; - - As to Rates: the Courts have said that what the company is entitled - to ask is a fair return on the value of that which it uses for the - public convenience; - - As to Taxes: what is the true value of the property of the company, - treating it with absolute equality, as compared with that of other - taxpayers? - -It is to determine what these values are that the Engineer among others -has been called on. The literature on the subject is increasing, and -there are some decisions of the Courts which help, but there are yet -perplexing and intricate questions to be determined; not to be answered -by captious criticism and indignant retort, but by an honest effort to -arrive at some common ground of fairness to both State and Corporation; -for, after all, the Corporation is a part of the State, a great -distributor of money, a large taxpayer, its stockholders men of worth -and capacity, and there should be no desire to penalize it or interfere -with its legitimate prosperity. The Corporation is surely dependent on -the State and the good will of the people for its welfare. Mistakes have -been made, no doubt, just because this common ground has not been -reached, and the writer thinks that it is largely within the province of -the Engineer to establish it. - -In arriving at either of these values, the chief tangible asset is the -value of the physical property. This can be determined with a great -degree of accuracy, and though by no means alone representing any of the -values, it seems to be indispensable as a basis and starting point. The -balance sheets of the Corporation commence with a statement of the cost -of road, plant, etc., and must be checked to permit correct deductions -from the results of operation shown in them; and, for purposes of -taxation, they would seem to be particularly reliable. - -The Engineer called on to make such a valuation for whatever purpose -should, under like conditions, value each item the same for all, but it -does not follow that every item, including the percentages added, should -appear in the total valuation for all purposes. There are legitimate -charges in valuations made to determine capital which should not appear -in one made for assessment for taxes. Unit prices should not change, but -the purpose for which the valuation is made should properly be -considered in arriving at the final figure. - -To or from this valuation, especially if made to determine proper -capital, there must be added or subtracted certain values for intangible -property, often found by a study of the income account of the -Corporation. This makes the official ask: Why make a valuation of the -physical property at all if your final result depends on the income? -Because it is one item which cannot be manipulated; it does not change -materially from year to year; it is not dependent on rates or income; it -forms a very large item in the assets of the Corporation; and it is a -sound basis on which to stand. - -For the purpose of determining the proper amount of securities, the cost -of reproduction at present prices would seem to be the value sought; -whereas, for taxation purposes, or to determine a proper selling price, -the present value is what is required, allowance being made for -depreciation. A railroad, for instance, might be considered as an -instrument for transporting passengers and freight, and, though the ties -are not new, the rails worn, and the locomotives of an old type, they do -their work just as safely and expeditiously, and, if no account is to be -taken of the cost of maintenance, the road might be considered to be -worth as much as if new. - -The officials of the Corporation are generally perfectly willing to give -any facts or to furnish access to any records they may have, but are not -willing to state their opinions as to prices, depreciation, etc. The -Engineer is making the valuation, not they; and they reserve the right -to criticize, at the proper time, both the results and the conclusions -drawn from them. The Engineer should be absolutely fair and just, not -using improperly the information obtained, but endeavoring to reach -results which appear to be unquestionably correct. He must divest his -mind of the innate desire to minimize the consequences of his decision -to the Corporation, on the one hand, or to favor the State or his -employer, on the other; it may be difficult, but on his ability to do -this depends the success or failure of his work. - -Considering the subject generally: in making the valuation of the -physical property, the organization should consist of one man in charge, -and under him a field organization and an office organization. The -property, if large, should be divided into convenient districts, with a -division engineer and necessary assistants in charge of each. Care -should be taken that these assistants are competent men, though they are -often hard to obtain for temporary work of this character, and there is -not sufficient time in which to weed out and perfect an organization. -They should be men of experience on the particular class of work to -which they are assigned, and should be tactful and courteous. Stress -should be laid on keeping plain, neat notes, not too crowded; on -watchful care of the party working in the field, to prevent accidents, -and on the necessity of absolute correctness in calculations and -figures, in the multitude of which it is surprising how many mistakes -will creep in unless special care is taken to check every step -thoroughly. The office engineer should be equally competent, and -accustomed to systematizing and analyzing, so that the results will be -arranged systematically, not only as considered by themselves, but as -far as possible according to the classification of the Interstate -Commerce Commission, so that, no matter where made, they can be easily -compared. - -The work, if large, should be standardized. Everything to be reported -should have a form for the purpose. These should be as concise as -possible, calling attention to the essential information, but not in too -much detail. Unit prices should be established after proper -consideration. - -_Reproduction Value._—In ascertaining the reproduction value, the aim -should be to obtain prices for which the material could be purchased and -the work let to responsible parties at the date of the valuation. Real -estate and depreciation are probably the two items in which there will -be the largest differences in opinion as to values, and both should be -determined by the personal examination of experts, following some -prearranged system. One founded on the Somers system might do for the -land, and certain percentages of depreciation per year, varying for the -three conditions of good, fair and poor, for the structures and -equipment, but the results in any case should be examined and passed -upon by some one person so as to eliminate the individual equation as -far as possible. - -It is when the figures thus reached are before him that the Engineer -finds himself confronted with many perplexing problems. To what items -should percentages be added, and in what amounts? A small change in such -items often makes a large difference in the total. There is not much -trouble about general expenses, legal expenses, engineering, etc., as -these are undoubtedly proper items to be added, and the amounts of the -percentages are not difficult to determine from sufficient study of the -property. Opinions on such matters will not vary greatly, but there is a -difference with regard to such items as leasehold interests, -solidification, contingencies, interest and taxes during construction, -commissions and discounts on securities, working capital, value of the -good will, and considering the property as a "going concern," about -which opinions will differ much more widely. - -Leases from the company are like any other book asset. Leases to the -company should be considered as the land is considered. What is the -present value of the leasehold interest for the remainder of the term -for which the rental is fixed? - -_Present Value._—In ascertaining the present value, it would seem that -something should be allowed for solidification, the amount depending on -the manner in which the work was built, its age, the likelihood of -damage by the elements, etc. Possibly a percentage of appreciation on -the value of the earthwork and masonry would be the fairest manner in -which to consider it. Due care must be taken, however, to give proper -credit to good work and not put a premium on inferior construction. - -A percentage should be allowed for contingencies in all cases, but this -is not necessarily the same for every piece of property. The estimate is -made on a completed piece of work, consequently, if done with proper -care, this item should not be as large as if the estimate were made for -work to be constructed; but there are many things, not seen by the -estimating engineer or disclosed by available records, which must be -covered by this item, such as buildings bought with the land and -afterward destroyed, damages paid for reasons not now apparent, -difficulties encountered in excavating wet or hard material, amounts -spent in dredging, in artificial and difficult foundations, losses -during construction on account of strikes, washouts, etc. These are -perfectly legitimate charges, and are likely to have occurred, and -proper allowance should be made for them. - -It would seem that interest and taxes during construction is a -legitimate charge, and therefore, in the cost of reproduction, -sufficient amounts should be added to cover it. Care should be taken to -make the time long enough, as engineers are often too sanguine as to the -length of time necessary to complete a certain piece of work. It is true -that a part of a railroad, for instance, may be completed and opened for -operation, but the net revenue derived would be very different from that -of the completed road with its terminals and connections. - -A new corporation can rarely market its securities at par, not only on -account of the chances taken by the investor, but also because, being -human, he likes to think he is buying at a bargain, getting something a -little below its value; consequently, inducements vary from a small -discount on bonds to a share or two of stock thrown in. To what extent a -reasonable discount is a proper charge against construction may be -considered an open question. It might seem fair that a certain fixed -percentage be allowed in valuations, to determine capital for -commissions and necessary discounts, varying according to the amount of -the securities. This need not cover the whole amount of the discount, -but only that portion which experience would consider essential in -marketing unquestioned securities. - -Consideration of the items working capital, good will, etc., may not -properly belong to the Engineer, but rather to the Statistician, except -as the former hears of such items being used as an argument against the -necessity for a valuation of the physical property of a corporation. It -is often asked, for instance, how can a value be placed on the property -of the Pennsylvania Railroad Company, with its great commercial -position, its magnificent terminals, and its splendid organization, all -the result of the expenditure of much time and money? It is certainly a -difficult problem, but the Pennsylvania Railroad is one of the greatest -properties in America, possibly in the world, and because the proper -valuation of this property is surrounded with difficulties it does not -follow that the valuation of the properties of all other public service -corporations are equally troublesome. The very difficulty of the task -shows the importance of having firm ground for the first step. Having -that, it may not be as hard as imagined to take others. - -Thus it is seen that there are many perplexing questions for the -Engineer to consider, and many details for him to work out, in doing -which Mr. Riggs' paper will materially help. Above all, the Engineer -must aim to be impartial; he must arrive at such a point of view as to -see both sides with equal distinctness, and judge fairly and justly, -trying to determine some well-defined laws and formulas which will serve -as a basis in ascertaining the values desired. - -W. B. RUGGLES, M. AM. SOC. C. E. (by letter).—In his discussion Mr. -Lavis quotes the case assumed by the _New York Sun_, of two bridges over -the Ohio River—one between Cincinnati and Newport and one 20 miles -below, between villages, etc. - -In 1898 the writer was employed by the Board of Supervisors of -Cincinnati to put a valuation on its Ohio River bridges for purposes of -taxation, and the many points of view, as to their cost and their actual -value to the owners and to the communities, were at that time, and have -been frequently since, considered by him. In this particular valuation -the duties of the Engineer were comparatively simple and plain, for, as -there were sure to be controversies on two points at least, first, as to -the right of the city to levy any tax on the bridges as such, and -second, as to whether any control by the city extended to the center of -the river, informally but generally recognized to be the division -between the cities for police and similar purposes, or only to the -northerly low-water mark, the limiting boundary to the "Territory -Northwest of the River Ohio," as recognized by the ordinance of 1787, it -appeared to the Board to be advisable, in the earlier stages of their -efforts, to avoid, as far as reasonable, any controversies concerning -details of the valuation, and the writer was instructed to give the -bridge companies the benefit of any doubts. - -The railroad bridge of the Cincinnati Southern Railway, the one lowest -on the river and having the little village of Ludlow at its southern -end, and thus most nearly filling the conditions of one of the assumed -structures of the _Sun_, is, with its railroad, the property of the -city, and the Supervisors believed that, under the terms of the lease to -the operating company, it should not be taxed. - -Of the other four bridges, the Cincinnati and Covington Elevated Railway -and Transfer Bridge—commonly known as the Chesapeake and Ohio Railway -Bridge—the Covington and Cincinnati Suspension Bridge, the Central -Railway and Bridge Company's Bridge, and the Newport and Cincinnati -Bridge, commonly known as the Pennsylvania Railway Bridge (all noted in -the order of occurrence, passing up the river), the writer had official -or semi-official reports giving such details of at least the principal -features of the structures that in a measure they supplied quantities, -weights, and some prices; those lacking were either calculated from -actual measurements taken on the structures or supplied from plans -furnished by the companies, since, as the several companies relied on -defeating the efforts of the supervision on legal grounds, they conceded -values which otherwise might have been strenuously contested. As long as -the writer knew anything of the results, the Board of Supervisors was -unsuccessful in its purpose to get the bridges, as such, on the tax -duplicates; but that has no particular bearing on the points raised in -this discussion. Of the five bridges, three are primarily railroad -bridges. The Cincinnati Southern Bridge has one footway only, on which -it formerly collected tolls; all the others have footways and wagonways, -and the three above the Chesapeake and Ohio Railway Bridge carry -electric railways. The Newport and Cincinnati (Pennsylvania Railway) -Bridge has all the features of steam and electric railways, wagonways -and footways. In some particulars these bridges differ greatly, for -instance, the bed-rock of the river lies at the surface of the most -easterly (Pennsylvania Railway) bridge, and for each successive bridge -is found deeper, as the river is followed westward, the river-span piers -of the Chesapeake and Ohio Railway Bridge being 54 ft. below low water -and those of the Cincinnati Southern Railway Bridge being likewise very -troublesome. - -The two bridges with exactly the same uses—double footways, wagonways, -and electric lines—are the adjacent Suspension and Central Bridges, one -having the City of Covington and the other the City of Newport at its -southern terminus, but these differ most widely as to valuation. The -Suspension Bridge, as reported to the writer by the late W. Hildenbrand, -M. Am. Soc. C. E., with the consent of his company, was valued at only a -little short of $1,000,000 as reinforced; that of the Central Bridge -Company, as reduced from the reports of the engineers, was very nearly -one-third, only, of that amount, both without any right of way, as real -estate was in all cases listed separately. At that time, however, the -traffic over the Suspension Bridge, counted in persons and vehicles -passing over its several lines, was not far from as relatively greater -than that of the Central Bridge as its valuation was higher, and it was -more indispensably necessary, as the writer views it, than either the -Central Bridge above, or the Chesapeake and Ohio Bridge below it, for in -the thirty odd years of its use (it was completed in 1867), the -adjoining communities had adjusted their lines of traffic to it, while -that passing over the other two bridges occurred more because of little -differences of convenience (not, however, to be considered otherwise -than an important provision in traffic of such magnitude). - -Disregarding other differences, such as the unit prices of 10 or 11 -cents per lb. for iron paid by the Suspension Bridge Company in the time -of the Civil War, compared with 4.47 cents per lb. for the new cable -wire or 3.32 cents per lb. for the new structural steel, it appears to -the writer that the element of more or less indispensable use by a -community, as well as the greater freedom of movement in the river below -by reason of there being no piers in the stream, are elements of value; -but that they are items to be reduced to figures for the purpose of -taxation is not so clear, any more than that there is equity in any -demand that might be made that the New York Central and New York, New -Haven, and Hartford Railroad Companies should be taxed on the additional -$22,000,000 expended in the electrification of their lines about New -York City for the comfort, convenience, and edification, not of the -patrons of the roads alone, but of the public at large, without—as just -concluded by an eminently able board—any marked economies in operation. -There is no question in the writer's mind that any one line of railroad -is several times more valuable to each individual in inland regions, -such as Mexico and Arizona, than an equal mileage in Connecticut with -its Sound harbors, steamship lines, good wagon roads, and numerous but -non-competing railways, partly because of the relative usefulness, for -which no practicable substitute could be found, and partly because these -newer States have not entered on all these multifarious lines of -governmental activities, such as policing and safeguarding for public -health and the like, and, much as funds are everywhere desirable, could -possibly defer for a time some of these developments of civic zeal. It -does not appear, therefore, that the discriminations in valuations -disclosed by the author's Table 1 are altogether without a good basis in -relative convenience, although clearly extreme; but, as the law of most -States is understood by the writer, such discriminations may not usually -be made with strict regard for the legality of tax assessments. - -It is true, as remarked by Mr. Riggs, that a bridge is, of itself, not -usually a desirable feature of a railroad, but it must be clear that if -there were no river between Cincinnati and her sister cities in -Kentucky, communication between the two States might be entirely free, -and the business opening for toll bridges would not exist; consequently, -in these particular cases, the bridges cannot be considered undesirable. - -One other consideration bearing on values has been at least suggested by -the study of the Cincinnati Suspension Bridge. It is, as indicated, the -oldest river bridge at Cincinnati, the second or third oldest over the -Ohio River, and, though repaired and strengthened, it has never been -supplanted by an entirely new superstructure. The next oldest bridge is -the pin-connected Pennsylvania Railway Bridge, built five years later -than the Suspension Bridge, but, at the time of this valuation, it had -been entirely replaced by quite a different structure—even the masonry -was largely rebuilt. In a degree this comparative facility with which -provisions for the greater loads can be provided without condemnation of -the leading features of the structures has been shown in the Brooklyn -and Niagara Bridges, though not by any means perfectly, but the point -the writer would make is that this element of ease of reinforcement, or -with which provision can be made for greater loads, is to be considered -in the author's "Physical Property Elements of Value," as doubtless he -has concluded. - -HENRY EARLE RIGGS, M. AM. SOC. C. E. (by letter).—The discussion of this -paper has been so full, and so much of it is devoted to bringing out -methods of valuation not fully covered in the paper, that it does not -appear to the writer desirable to do more than to clear up one or two -matters which may have been left somewhat ambiguous in the paper, and to -review the main points on which there is apparent disagreement among -engineers who have engaged in valuation work. - -The writer wishes to express, to those who have added so materially to -the value of the paper by their discussion, his sincere appreciation and -his thanks, and he regrets that, owing to the length of the paper and -the extent of the discussion, it will be impossible to review all the -points raised. - -It would appear that there are a few matters in regard to which the -writer did not succeed in making his views entirely clear; consequently, -a few words on these items may not be amiss. - -_Overhead Charges Versus Unit Values._—The point raised by Mr. Higgins, -that the determination of any percentage figures to be applied to cover -overhead charges must be carefully considered in connection with the -unit prices that have been adopted and applied to the items of the -physical inventory, is well taken. On all valuation work with which the -writer has been connected the various local conditions were taken into -account, and, for each item a figure was used which, it was believed, -would fairly represent such price as would be named by a contractor for -the work under the existing conditions. Therefore, all elements of -hazard to contractors, and contractors' profits, have been included in -the unit price, leaving to be treated under overhead charges only those -elements of cost which the corporation under investigation would be -compelled to bear. - -The determination of a proper set of unit prices for a valuation -involves a very careful study of prices and local conditions, so that it -would appear to be impossible to establish any fixed rule which would be -generally applicable to all appraisals. If the unit prices adopted be -the cost to a contractor, then the overhead charges must be made large -enough to cover the contractor's hazard and profit. Every appraisal -should be accompanied with a report or statement, showing clearly what -has been done in this matter. - -_Items to be Inventoried._—In reference to the items to be inventoried, -the construction placed on one sentence by Mr. Newton is entirely -foreign to the meaning which the writer intended to convey. Mr. Newton's -statement of his own views is entirely in harmony with those of the -writer. - -_Discount._—Messrs. Henry C. Adams and W. H. Williams have both -discussed discount, and both take exception to the conclusions of the -writer. This would appear to be a subject on which there is disagreement -in all professions. Very able and experienced railway managers and -accountants will be found on both sides. Since the paper was written, -the writer has been engaged on the appraisal of a comparatively new -property which was defendant in a condemnation suit. In this case, -20-year bonds were issued in 1905, and sold at an average discount of 15 -per cent. The discount has been treated as an interest charge on the -books of the company, and was being written off from year to year. The -question arose: Should the discount balance (approximately -three-quarters of the discount) be added to the physical value and paid -by the parties acquiring the property; or should the loss be sustained -by the owner? The treatment of the account on the books of the company -was in exact accord with the writer's first contention, but a careful -study of the case in hand led to the conclusion that equity demanded -inclusion of the unamortized discount in this case. Had the condemnation -taken place in 1925, after all the discount item had been charged -against operation, no part of this amount would appear to be proper in -an appraisal. This case is cited as being the only one which has come up -in the writer's practice in which he has been inclined to recognize the -propriety of including the item. The writer is not yet convinced that -his first conclusion was in error. - -Professor Adams suggests several different claims made as to the -discount item. If any one of them be adopted, has suitable agreement -been advanced for treating the item as a capital charge? Clearly, the -amount of money involved in the discount item is not paid by the company -until the maturity of the bond. It is not invested in the physical -property of the company until it is paid. If written off from year to -year and charged against operation, or treated as a deduction from -earnings or from surplus, it would hardly seem proper to include it in -capital at the end of the period. The writer is open to conviction, but -he has not yet been convinced of his error on this point. Happily, this -is an item, the amount of which may be exactly determined from the books -of any company under investigation; so that, whatever the final -determination may be as to the propriety of its inclusion in an -appraisal, the amount to be treated is not a matter of estimate. - -_One Value Versus Several Values._—The writer has called forth -discussion on this point from several members, and, in view of some of -the discussion, he believes that a few sentences may tend to clarify his -views: - -(1) An appraisal should be in complete detail, and should show fully, -not only all schedules of physical property and of unit costs and -depreciation percentages on which physical values are based, but should -completely detail all schedules based on an examination of the books. - -(2) The final summary should include every element of value which enters -into the property, and which should enter into the "fair value" or "true -value" of the property, if valued for any purpose whatsoever. - -(3) An assessed value for taxation purposes should not necessarily -include all the items in the engineering valuation; but an assessment -can be made with absolute fairness if all the facts are at hand and in -such form that non-taxable items are separable. - -(4) If rate-making or the sale of the property be the ultimate object, -the work of making rates or of negotiating the sale can be carried on to -better advantage with a complete appraisal than with an incomplete one. - -(5) The work in the States of Minnesota and Washington was done with one -object in view. It was ultimately used for another purpose. If a low -valuation is deliberately made for taxation purposes, serious -embarrassment is likely to arise when rate legislation is contemplated. -It will be very difficult for an engineer to sustain his position when -he submits one "true value" or "fair value," with the expectation that -it will be used as a figure for assessed valuation, and another and -radically different one as a basis for rate-making. It would appear to -be much easier to submit a complete set of schedules, showing the cost -of reproducing the physical property, depreciation, present physical -value, together with all other elements affecting the final value, and -then to point out that certain modifications would appear to be proper -in an assessment for taxes. - -(6) The actual making of rates or of assessments for taxation is not a -duty usually assigned to a body of engineers. - -Mr. Dana's discussion is directed to this phase of the subject, and -brings out a number of points which are suggested above very fully. - -This is a matter on which engineers have radically differed in practice, -and it involves a principle of valuation which should be finally -determined as soon as practicable. Further discussion in connection with -this paper would hardly accomplish any definite end, therefore it is -left, with emphasis on the fact that there are radical differences of -opinion regarding it. - -_Going Concern._—The discussion of this paper, taken in connection with -the paper by Mr. Alvord before the American Water-Works Association, and -the recent paper by Messrs. Metcalf and Alvord,[49] brings out clearly -three points of view: - -(1) That of Professor Henry C. Adams, stated by him in various -publications, and advocated by the writer in the paper: That there is no -going concern value, as such, but that all intangible elements of value -merge into one non-physical value, which may be determined by a study of -the income accounts of the particular property under investigation. - -(2) The "Wisconsin Method," sometimes called the Cooley Method. The -general principles of this are described so fully and so clearly in Mr. -Gillette's discussion, under the head of Development Expense, that -further explanation is unnecessary. - -(3) The method advocated by Mr. Metcalf in his able discussion of this -paper, and by Messrs. Metcalf and Alvord in their paper. - -The writer cannot concede the accuracy of the position of Mr. Burns, -that interest during construction should be eliminated from the physical -valuation of the property and included as part of the "going value." -Interest during construction is no less a part of the actual cost of -constructing the property than the rails in a railroad or the water pipe -in a water-works plant. Nor can the writer accept Mr. Metcalf's -optimistic view of the probable action of the Supreme Court when it will -be called on to pass squarely on the "going concern" value in a rate -case. Mr. Metcalf says: - - "Certainly, as applied to water-works valuation, Mr. Riggs' - statement is not justified. The Maine cases clearly include going - value as an element of value on which rates should be predicated; by - inference, so does the Kansas City case. In the Knoxville case it - was in fact allowed by the Master." - -This is all true. The Knoxville case, however, reached the Supreme -Court, and the Supreme Court squarely side-stepped "going value" in the -following words: - - "We express no opinion as to the propriety of these two items - ['organization promotion, etc.,' and 'going concern'], in the - valuation of the plant for the purpose for which it was valued in - this case, but leave that question to be considered when it - necessarily arises." - -Judge Lurton, in upholding an intangible value in the Omaha case, and -quoting among others the Kansas City case and the Gloucester and Norwich -cases, which approved and followed the Kansas City case, significantly -adds: - - "No such question was considered on Knoxville Water Co. [212 U. S., - 1] or Wilcox _vs._ Consolidated Gas Co. [212 U. S., 19]; both cases - were rate cases, and did not concern the ascertainment of value - under contracts of sale." - -The writer quite inclines to the views expressed by Mr. Gillette, and -fails to read any approval of "going concern" or "going value," as -advanced by our water-works brethren, when the determination of a value -on which to base rates is the issue. - -That there is sound logic in Mr. Gillette's argument for development -expense—which differs in the last analysis but little from Mr. Metcalf's -presentation of "going value"—the writer will admit. There are many -corporations in existence to-day which have made substantial investments -in creating a successful business after the physical plant was completed -and in operation. It hardly seems equitable that such an investment -should not be taken into account in fixing a value. The real difficulty -lies in drawing the line between the really valuable property, and one -which is truly a profitable investment, and that property which, by -reason of poor business judgment in its creation, faulty or uneconomical -construction or bad management, is not earning a reasonable profit. - -The writer has given some study to the theory advanced by Professor -Cooley in the Milwaukee Street Railway case, and later adopted by the -Wisconsin Commission in the Antigo Water case, but is not yet ready to -accept it. The hypothetical curve appears to be acceptable and -reasonable, but the actual application of the formula to cases which -have come under the writer's attention, fails to show a profit at the -end of a period of years. If the rule be stated: "the greater the -deficit in earnings the greater the value," then this method may be of -general application, but it does not appeal to the writer as sound -business to advocate the assigning of any non-physical or "going" value -to a property unless the property has, for some years, actually been -earning a return on the investment which is large enough to justify -fully the claim that it is worth more than it cost, or more than its -present physical value. If, during the first few years, there was a -deficit, due to the expense of creating the demand for the commodity -produced and building up the business to a profitable condition, it may -be sound to include this element in an appraisal. The actual cost may be -determined, but the cost of reproduction is pure speculation. The actual -cost of a ton of rail, a locomotive, a boiler, or the copper for a -transmission line bought fifteen years ago may be radically different -from the cost of reproduction of the same physical things to-day; but -that cost of reproduction is radically determined as the things are -being bought and sold in the open market. Not so, however, with the -development charge, or cost of creating a business. Conditions are not -the same, they may not be at all similar. - -Without arguing the subject further, the writer submits that this is a -matter that requires the greatest of care in its treatment. The adoption -of any rule which will assign a "going value" to a property which has -been managed so that it not only has never earned a large return on the -investment, but has not taken care of depreciation—a property which -would not appeal to financial men as a sound investment at its physical -valuation—will not only be difficult to sustain in the Courts, but will -tend to discredit the entire subject of valuation. - -The writer's present feeling is that the term "going concern" ought to -be eliminated from the nomenclature of valuation practice, and that -scant consideration ought to be given to any attempt to include -anticipated profits in any manner in a valuation. - -Mr. Kuichling has suggested that some further data as to the Michigan -Appraisal might be of value. Unfortunately, the writer has not in -available form information as to different classes of railroads. Table -15, based on the average of all the roads in Michigan, was prepared by -James Walker, Chief Engineer of the Michigan Board of State Tax -Commissioners, after the completion of the Michigan Appraisal. Column 2 -gives the percentage of each item to the entire cost of reproduction. -Column 3 gives the average percentage of conditions. The remaining four -columns give the average cost of reproduction per mile on various -mileage bases. - -It must be borne in mind that Michigan is geographically unlike any -other State in the Union, that the mileage of high-class main-line -railroad is relatively small, and that there is a large mileage of cheap -branch lines and logging roads. As a result, these general averages are -of little value for comparison with similar figures in other States, -where trunk-line mileage forms a greater percentage of the entire -mileage. - -In closing, the writer believes that it is but justice to himself to -correct a few misleading statements in Mr. Williams' discussion which -might cause serious misunderstanding of the writer's views. - -Mr. Williams refers to his discussion of Professor Adams' paper before -the American Economic Association in December, 1909, he also again -refers to the same paper, and conveys the impression that the writer -discussed this particular article in the paper before this Society. - -Reference to page 105 will show that the writer did not refer to this -paper (which, in fact, he did not see until his own paper was in print), -but to one written by Mr. Williams in January, 1909, and given the -widest publicity, not only by its distribution in pamphlet form, but by -publication in the columns of _Railway Age Gazette_. - - TABLE 15. - - ╒═════════════════╤════════╤════════╤═════════════════════════════════╕ - │ Item. │ Per- │Present │ COST PER MILE, ON BASIS OF: │ - │ │centage │ value. │ │ - │ │of each │ Cost │ │ - │ │item to │ per- │ │ - │ │ entire │centage.│ │ - │ │cost of │ │ │ - │ │ repro- │ │ │ - │ │duction.│ │ │ - ├─────────────────┼────────┼────────┼──────┬────────┬────────┬────────┤ - │ │ │ │ Main │ Main │ Main │ Main │ - │ │ │ │track.│ track │ track, │ track, │ - │ │ │ │7,082 │ and │ bran- │ bran- │ - │ │ │ │miles.│ bran- │ ches, │ ches, │ - │ │ │ │ │ ches. │ spurs, │spurs, 2│ - │ │ │ │ │ 7,813 │ and │sidings,│ - │ │ │ │ │ miles. │sidings.│ and │ - │ │ │ │ │ │ 10,718 │ second │ - │ │ │ │ │ │ miles. │ track. │ - │ │ │ │ │ │ │ 10,883 │ - │ │ │ │ │ │ │ miles. │ - ├─────────────────┼────────┼────────┼──────┼────────┼────────┼────────┤ - │ 1. Engineering │ 2.7│ 100│ 761│ 689│ 503│ 495│ - │ 2. Right of way │ 13.7│ 100│ 3,918│ 3,551│ 2,589│ 2,542│ - │ 3. Real estate │ 0.4│ 100│ 122│ 110│ 81│ 79│ - │ 4. Grading │ 10.7│ 99.9│ 3,064│ 2,777│ 2,025│ 1,994│ - │ 5. Tunnels │ 0.6│ 95.2│ 162│ 147│ 107│ 100│ - │ 6. Bridges │ 4.0│ 78.9│ 1,133│ 1,027│ 749│ 738│ - │ 7. Ties │ 5.5│ 55.2│ 1,578│ 1,426│ 1,040│ 1,024│ - │ 8. Rails │ 14.1│ 76.2│ 4,052│ 3,673│ 2,678│ 2,637│ - │ 9. Track │ 1.9│ 77.7│ 543│ 492│ 359│ 353│ - │ fastenings │ │ │ │ │ │ │ - │10. Frogs, │ 0.7│ 70.7│ 207│ 188│ 137│ 135│ - │ switches │ │ │ │ │ │ │ - │11. Ballast │ 1.8│ 100│ 525│ 477│ 347│ 342│ - │12. Track laying │ 3.2│ 97.6│ 926│ 839│ 612│ 602│ - │13. Fencing │ 1.4│ 58.9│ 390│ 354│ 258│ 254│ - │14. Crossings │ 0.3│ 70.5│ 86│ 78│ 57│ 56│ - │15. Interlockers │ 0.2│ 89.4│ 71│ 64│ 47│ 46│ - │16. Telegraph │ 0.1│ 52│ 36│ 33│ 24│ 24│ - │17. Stations │ 0.2│ 75.7│ 580│ 526│ 384│ 378│ - │18. Shops │ 0.1│ 68│ 305│ 276│ 202│ 198│ - │19. Shop │ 0.5│ 79.6│ 156│ 142│ 104│ 102│ - │ machinery │ │ │ │ │ │ │ - │20. Water │ 0.4│ 71.9│ 103│ 93│ 68│ 67│ - │ stations │ │ │ │ │ │ │ - │21. Fuel stations│ 0.1│ 66.4│ 43│ 38│ 29│ 28│ - │22. Elevators │ 0.6│ 75.5│ 189│ 171│ 125│ 123│ - │23. Warehouses │ 0.1│ 71.1│ 37│ 35│ 24│ 24│ - │24. Docks and │ 2.7│ 69.3│ 781│ 708│ 516│ 507│ - │ wharves │ │ │ │ │ │ │ - │25. Miscellaneous│ 0.6│ 69.4│ 174│ 158│ 115│ 113│ - │ structures │ │ │ │ │ │ │ - │26. Locomotives │ 4.4│ 56.4│ 1,274│ 1,154│ 342│ 829│ - │27. Passenger │ 1.6│ 71.2│ 452│ 409│ 299│ 294│ - │ equipment │ │ │ │ │ │ │ - │28. Freight │ 9.7│ 69.4│ 2,787│ 2,525│ 1,841│ 1,813│ - │ equipment │ │ │ │ │ │ │ - │29. Miscellaneous│ 0.3│ 60.3│ 99│ 90│ 66│ 65│ - │ equipment │ │ │ │ │ │ │ - │30. Ferries and │ 0.8│ 63.5│ 244│ 221│ 161│ 159│ - │ steamers │ │ │ │ │ │ │ - │31. Electric │ 0.004│ 96.6│ 13│ 12│ 9│ 9│ - │ plants │ │ │ │ │ │ │ - │32. Terminals │ │ │ │ │ │ │ - │33. Legal │ 0.3│ 100│ 95│ 86│ 63│ 62│ - │ expenses │ │ │ │ │ │ │ - │34. Interest │ 2.6│ 100│ 747│ 677│ 494│ 486│ - │35. Organization │ 1.3│ 100│ 373│ 339│ 247│ 243│ - │36. Contingencies│ 9.1│ 82│ 2,602│ 2,358│ 1,712│ 1,695│ - │37. Total cost │ 100 │ 82.1│28,623│ 25,945│ 18,914│ 18,627│ - ╘═════════════════╧════════╧════════╧══════╧════════╧════════╧════════╛ - -The writer does not care to permit to go unnoticed the imputation that -he has attacked railroad officials as a class. If such inference is to -be drawn from this paper, he desires to correct it. - -The writer was in railway service for some years, for six years in an -official position. For the past fifteen years he has been, at frequent -intervals, on special service for railroads. He is at present under -employment by two of the principal railways of the country. He has many -warm friends in the service, many in official capacities, and he is -fully cognizant of the high ability, integrity, and loyalty of railway -employees, and by employees he means to be understood as including all -classes, from the highest officials down. - -Inasmuch as our railroads form our greatest industry, and inasmuch as -the active heads of the large roads have under their control such -properties as but few in other fields are called to administer, it -follows that there are hundreds—yes, thousands—of men in railway -service, competent to fill any office in the land. The writer repeats: -it is a pity that the demands of their work are such that they cannot -give more of the benefit of their highly specialized training to the -public service, and that they have so often apparently misunderstood or -misconstrued the perfectly honest attempts of public officials to find a -remedy for real evils. - -In closing, the writer desires to say that he regrets the impossibility -of treating the subjects of depreciation and fair return in a -satisfactory manner without unduly lengthening this discussion. - -It may not be out of place to say that, in the writer's opinion, a fair -return on the average public service corporation property should be -considerably in excess of the figures usually named. There is but little -incentive to invest in railways, street railways, or other public -service corporations, if the limit of return is to be 7%, or 8%, or even -10%, on the actual investment. This is especially true where the hazard -of investment is increased by term franchises under which the companies -are operating. The writer has the most absolute confidence in the -ability and integrity of our Supreme Court, and is led to believe that, -on a proper showing, confiscation will not be permitted. - -He also believes that, in general, the great mass of intelligent people -wish only absolutely fair dealing with the corporations. - -On making a full and frank showing of facts and conditions, the public -service corporation which is honestly financed and honestly operated, -need have little fear of ultimate justice. - -The public service corporation which is administered, not to render -service to the public, but to permit stock speculators to reap a -harvest, can hardly hope for the same brand of justice, and it is hardly -to be expected that such a corporation will welcome publicity. - ------ - -Footnote 19: - - _Electric Railway Journal_, January 8th, 1910. p. 76. - -Footnote 20: - - December 4th, 1910. - -Footnote 21: - - _Railroad Age Gazette_, July 24th, 1908. p. 587. - -Footnote 22: - - _Engineering News_, June 16th, 1910, p. 697. - -Footnote 23: - - March 4th, 1910. - -Footnote 24: - - _Railroad Age Gazette._ July 31st. 1908, p, 627. - -Footnote 25: - - _Engineering-Contracting_, May 25th, 1910, p. 468. - -Footnote 26: - - _Railway Age Gazette_, March 4th, 1910, p. 437. - -Footnote 27: - - _Electric Railway Journal_, January 15th, 1910, p. 110. - -Footnote 28: - - Professor of Political Economy and Finance, University of Michigan. - -Footnote 29: - - For convenient reference, a set of these forms is filed in the Library - of the Society. - -Footnote 30: - - Now M. Am. Soc. C. E. - -Footnote 31: - - _Transactions_, Am. Soc. C. E., Vol. LII, p. 328. - -Footnote 32: - - "Elements of Railroad Engineering." - -Footnote 33: - - Michigan Central _vs._ Powers Record, p. 500. - -Footnote 34: - - Second Annual (1888) Report of the Interstate Commerce Commission, p. - 64. - -Footnote 35: - - Letter of Hon. Martin A. Knapp, Chairman of the Interstate Commerce - Commission, to Hon. Stephen B. Elkins, Chairman of the Senate - Committee on Interstate Commerce, covering a then pending bill - providing for railway valuation, March 25th, 1908. - -Footnote 36: - - Pages 18-19. - -Footnote 37: - - C., C., C. & St. L. Ry. _vs._ Backus, 154 U. S., 445. - -Footnote 38: - - _Proceedings_ of the 22d Annual Meeting of the American Economic - Association. - -Footnote 39: - - Page 11. - -Footnote 40: - - Decision and order of the Railroad Commission of Wisconsin, issued - August 3d, 1909, in the case of Hill _et al._ _vs._ Antigo Water - Company, pp. 84-85. - -Footnote 41: - - Page 139. - -Footnote 42: - - Shortly after the Kansas City Water Company case and the classic - decision of Mr. Justice Brewer, and since developed by the suggestions - of a number of engineers, among them John W. Alvord, M. Am. Soc. C. - E., whose admirable article on "Going Value of Water-Works," presented - at the Milwaukee Convention of the American Water-Works Association, - held in 1909, is familiar to all students of water-works valuation. - -Footnote 43: - - Page 155. - -Footnote 44: - - Page 144. - -Footnote 45: - - _Transactions_, Am. Soc. C. E., Vol. LXIV. p. 94. - -Footnote 46: - - Bulletin 21. Department of Commerce and Labor, U. S. Bureau of the - Census. - -Footnote 47: - - "The Principles Governing the Valuation for Rate-Fixing Purposes of - Water-Works Under Private Ownership." By Arthur L. Adams. _Journal_, - Assoc. of Eng. Societies. Vol. XXXVI, No. 2. - -Footnote 48: - - The Minnesota Commission classified all roads as "Carrying Roads" or - "Switching Roads," the latter being mostly Union Depots. - -Footnote 49: - - This paper will be published in a subsequent volume of _Transactions_, - Am. Soc. C. E. - - - - - TRANSCRIBER'S NOTES - - - 1. Used a comma instead of a space after every third digit from right - to left in numbers of more than three digits in keeping with authors - preference. - 2. Table 9 on p. 228 has an error in the math. The total of the second - column is $1,259,149,434 instead of $1,259,049,434. The latter does - agree with the difference arrived at in the next line. - 3. Added "Grand total—All assets" to last line in Table 10 on p. 230 as - this description agrees with the actual totals provided. - 4. Silently corrected simple spelling, grammar, and typographical - errors. - 5. Retained anachronistic and non-standard spellings as printed. - 6. Enclosed italics font in _underscores_. - 7. Adjacent identical columns duplicated more than twice were not shown - in the representations of the forms. - 8. The forms that were too wide were split. The following section(s) - originally continued to the right. - - - - - -End of the Project Gutenberg EBook of ASCE 1190 The Valuation of Public -Service Corporation Property, by Henry Earle Riggs - -*** END OF THIS PROJECT GUTENBERG EBOOK VALUATION--PUBLIC SERVICE CORP. PROPERTY *** - -***** This file should be named 51298-0.txt or 51298-0.zip ***** -This and all associated files of various formats will be found in: - http://www.gutenberg.org/5/1/2/9/51298/ - -Produced by Richard Tonsing, Juliet Sutherland and the -Online Distributed Proofreading Team at http://www.pgdp.net - -Updated editions will replace the previous one--the old editions will -be renamed. - -Creating the works from print editions not protected by U.S. copyright -law means that no one owns a United States copyright in these works, -so the Foundation (and you!) can copy and distribute it in the United -States without permission and without paying copyright -royalties. Special rules, set forth in the General Terms of Use part -of this license, apply to copying and distributing Project -Gutenberg-tm electronic works to protect the PROJECT GUTENBERG-tm -concept and trademark. Project Gutenberg is a registered trademark, -and may not be used if you charge for the eBooks, unless you receive -specific permission. If you do not charge anything for copies of this -eBook, complying with the rules is very easy. You may use this eBook -for nearly any purpose such as creation of derivative works, reports, -performances and research. They may be modified and printed and given -away--you may do practically ANYTHING in the United States with eBooks -not protected by U.S. copyright law. Redistribution is subject to the -trademark license, especially commercial redistribution. - -START: FULL LICENSE - -THE FULL PROJECT GUTENBERG LICENSE -PLEASE READ THIS BEFORE YOU DISTRIBUTE OR USE THIS WORK - -To protect the Project Gutenberg-tm mission of promoting the free -distribution of electronic works, by using or distributing this work -(or any other work associated in any way with the phrase "Project -Gutenberg"), you agree to comply with all the terms of the Full -Project Gutenberg-tm License available with this file or online at -www.gutenberg.org/license. - -Section 1. General Terms of Use and Redistributing Project -Gutenberg-tm electronic works - -1.A. By reading or using any part of this Project Gutenberg-tm -electronic work, you indicate that you have read, understand, agree to -and accept all the terms of this license and intellectual property -(trademark/copyright) agreement. If you do not agree to abide by all -the terms of this agreement, you must cease using and return or -destroy all copies of Project Gutenberg-tm electronic works in your -possession. If you paid a fee for obtaining a copy of or access to a -Project Gutenberg-tm electronic work and you do not agree to be bound -by the terms of this agreement, you may obtain a refund from the -person or entity to whom you paid the fee as set forth in paragraph -1.E.8. - -1.B. "Project Gutenberg" is a registered trademark. It may only be -used on or associated in any way with an electronic work by people who -agree to be bound by the terms of this agreement. There are a few -things that you can do with most Project Gutenberg-tm electronic works -even without complying with the full terms of this agreement. See -paragraph 1.C below. There are a lot of things you can do with Project -Gutenberg-tm electronic works if you follow the terms of this -agreement and help preserve free future access to Project Gutenberg-tm -electronic works. See paragraph 1.E below. - -1.C. The Project Gutenberg Literary Archive Foundation ("the -Foundation" or PGLAF), owns a compilation copyright in the collection -of Project Gutenberg-tm electronic works. Nearly all the individual -works in the collection are in the public domain in the United -States. If an individual work is unprotected by copyright law in the -United States and you are located in the United States, we do not -claim a right to prevent you from copying, distributing, performing, -displaying or creating derivative works based on the work as long as -all references to Project Gutenberg are removed. Of course, we hope -that you will support the Project Gutenberg-tm mission of promoting -free access to electronic works by freely sharing Project Gutenberg-tm -works in compliance with the terms of this agreement for keeping the -Project Gutenberg-tm name associated with the work. You can easily -comply with the terms of this agreement by keeping this work in the -same format with its attached full Project Gutenberg-tm License when -you share it without charge with others. - -1.D. The copyright laws of the place where you are located also govern -what you can do with this work. Copyright laws in most countries are -in a constant state of change. If you are outside the United States, -check the laws of your country in addition to the terms of this -agreement before downloading, copying, displaying, performing, -distributing or creating derivative works based on this work or any -other Project Gutenberg-tm work. The Foundation makes no -representations concerning the copyright status of any work in any -country outside the United States. - -1.E. Unless you have removed all references to Project Gutenberg: - -1.E.1. The following sentence, with active links to, or other -immediate access to, the full Project Gutenberg-tm License must appear -prominently whenever any copy of a Project Gutenberg-tm work (any work -on which the phrase "Project Gutenberg" appears, or with which the -phrase "Project Gutenberg" is associated) is accessed, displayed, -performed, viewed, copied or distributed: - - This eBook is for the use of anyone anywhere in the United States and - most other parts of the world at no cost and with almost no - restrictions whatsoever. You may copy it, give it away or re-use it - under the terms of the Project Gutenberg License included with this - eBook or online at www.gutenberg.org. If you are not located in the - United States, you'll have to check the laws of the country where you - are located before using this ebook. - -1.E.2. If an individual Project Gutenberg-tm electronic work is -derived from texts not protected by U.S. copyright law (does not -contain a notice indicating that it is posted with permission of the -copyright holder), the work can be copied and distributed to anyone in -the United States without paying any fees or charges. If you are -redistributing or providing access to a work with the phrase "Project -Gutenberg" associated with or appearing on the work, you must comply -either with the requirements of paragraphs 1.E.1 through 1.E.7 or -obtain permission for the use of the work and the Project Gutenberg-tm -trademark as set forth in paragraphs 1.E.8 or 1.E.9. - -1.E.3. If an individual Project Gutenberg-tm electronic work is posted -with the permission of the copyright holder, your use and distribution -must comply with both paragraphs 1.E.1 through 1.E.7 and any -additional terms imposed by the copyright holder. Additional terms -will be linked to the Project Gutenberg-tm License for all works -posted with the permission of the copyright holder found at the -beginning of this work. - -1.E.4. Do not unlink or detach or remove the full Project Gutenberg-tm -License terms from this work, or any files containing a part of this -work or any other work associated with Project Gutenberg-tm. - -1.E.5. Do not copy, display, perform, distribute or redistribute this -electronic work, or any part of this electronic work, without -prominently displaying the sentence set forth in paragraph 1.E.1 with -active links or immediate access to the full terms of the Project -Gutenberg-tm License. - -1.E.6. You may convert to and distribute this work in any binary, -compressed, marked up, nonproprietary or proprietary form, including -any word processing or hypertext form. However, if you provide access -to or distribute copies of a Project Gutenberg-tm work in a format -other than "Plain Vanilla ASCII" or other format used in the official -version posted on the official Project Gutenberg-tm web site -(www.gutenberg.org), you must, at no additional cost, fee or expense -to the user, provide a copy, a means of exporting a copy, or a means -of obtaining a copy upon request, of the work in its original "Plain -Vanilla ASCII" or other form. Any alternate format must include the -full Project Gutenberg-tm License as specified in paragraph 1.E.1. - -1.E.7. Do not charge a fee for access to, viewing, displaying, -performing, copying or distributing any Project Gutenberg-tm works -unless you comply with paragraph 1.E.8 or 1.E.9. - -1.E.8. You may charge a reasonable fee for copies of or providing -access to or distributing Project Gutenberg-tm electronic works -provided that - -* You pay a royalty fee of 20% of the gross profits you derive from - the use of Project Gutenberg-tm works calculated using the method - you already use to calculate your applicable taxes. The fee is owed - to the owner of the Project Gutenberg-tm trademark, but he has - agreed to donate royalties under this paragraph to the Project - Gutenberg Literary Archive Foundation. Royalty payments must be paid - within 60 days following each date on which you prepare (or are - legally required to prepare) your periodic tax returns. Royalty - payments should be clearly marked as such and sent to the Project - Gutenberg Literary Archive Foundation at the address specified in - Section 4, "Information about donations to the Project Gutenberg - Literary Archive Foundation." - -* You provide a full refund of any money paid by a user who notifies - you in writing (or by e-mail) within 30 days of receipt that s/he - does not agree to the terms of the full Project Gutenberg-tm - License. You must require such a user to return or destroy all - copies of the works possessed in a physical medium and discontinue - all use of and all access to other copies of Project Gutenberg-tm - works. - -* You provide, in accordance with paragraph 1.F.3, a full refund of - any money paid for a work or a replacement copy, if a defect in the - electronic work is discovered and reported to you within 90 days of - receipt of the work. - -* You comply with all other terms of this agreement for free - distribution of Project Gutenberg-tm works. - -1.E.9. If you wish to charge a fee or distribute a Project -Gutenberg-tm electronic work or group of works on different terms than -are set forth in this agreement, you must obtain permission in writing -from both the Project Gutenberg Literary Archive Foundation and The -Project Gutenberg Trademark LLC, the owner of the Project Gutenberg-tm -trademark. Contact the Foundation as set forth in Section 3 below. - -1.F. - -1.F.1. Project Gutenberg volunteers and employees expend considerable -effort to identify, do copyright research on, transcribe and proofread -works not protected by U.S. copyright law in creating the Project -Gutenberg-tm collection. Despite these efforts, Project Gutenberg-tm -electronic works, and the medium on which they may be stored, may -contain "Defects," such as, but not limited to, incomplete, inaccurate -or corrupt data, transcription errors, a copyright or other -intellectual property infringement, a defective or damaged disk or -other medium, a computer virus, or computer codes that damage or -cannot be read by your equipment. - -1.F.2. LIMITED WARRANTY, DISCLAIMER OF DAMAGES - Except for the "Right -of Replacement or Refund" described in paragraph 1.F.3, the Project -Gutenberg Literary Archive Foundation, the owner of the Project -Gutenberg-tm trademark, and any other party distributing a Project -Gutenberg-tm electronic work under this agreement, disclaim all -liability to you for damages, costs and expenses, including legal -fees. YOU AGREE THAT YOU HAVE NO REMEDIES FOR NEGLIGENCE, STRICT -LIABILITY, BREACH OF WARRANTY OR BREACH OF CONTRACT EXCEPT THOSE -PROVIDED IN PARAGRAPH 1.F.3. YOU AGREE THAT THE FOUNDATION, THE -TRADEMARK OWNER, AND ANY DISTRIBUTOR UNDER THIS AGREEMENT WILL NOT BE -LIABLE TO YOU FOR ACTUAL, DIRECT, INDIRECT, CONSEQUENTIAL, PUNITIVE OR -INCIDENTAL DAMAGES EVEN IF YOU GIVE NOTICE OF THE POSSIBILITY OF SUCH -DAMAGE. - -1.F.3. LIMITED RIGHT OF REPLACEMENT OR REFUND - If you discover a -defect in this electronic work within 90 days of receiving it, you can -receive a refund of the money (if any) you paid for it by sending a -written explanation to the person you received the work from. If you -received the work on a physical medium, you must return the medium -with your written explanation. The person or entity that provided you -with the defective work may elect to provide a replacement copy in -lieu of a refund. If you received the work electronically, the person -or entity providing it to you may choose to give you a second -opportunity to receive the work electronically in lieu of a refund. If -the second copy is also defective, you may demand a refund in writing -without further opportunities to fix the problem. - -1.F.4. Except for the limited right of replacement or refund set forth -in paragraph 1.F.3, this work is provided to you 'AS-IS', WITH NO -OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT -LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE. - -1.F.5. Some states do not allow disclaimers of certain implied -warranties or the exclusion or limitation of certain types of -damages. If any disclaimer or limitation set forth in this agreement -violates the law of the state applicable to this agreement, the -agreement shall be interpreted to make the maximum disclaimer or -limitation permitted by the applicable state law. The invalidity or -unenforceability of any provision of this agreement shall not void the -remaining provisions. - -1.F.6. INDEMNITY - You agree to indemnify and hold the Foundation, the -trademark owner, any agent or employee of the Foundation, anyone -providing copies of Project Gutenberg-tm electronic works in -accordance with this agreement, and any volunteers associated with the -production, promotion and distribution of Project Gutenberg-tm -electronic works, harmless from all liability, costs and expenses, -including legal fees, that arise directly or indirectly from any of -the following which you do or cause to occur: (a) distribution of this -or any Project Gutenberg-tm work, (b) alteration, modification, or -additions or deletions to any Project Gutenberg-tm work, and (c) any -Defect you cause. - -Section 2. Information about the Mission of Project Gutenberg-tm - -Project Gutenberg-tm is synonymous with the free distribution of -electronic works in formats readable by the widest variety of -computers including obsolete, old, middle-aged and new computers. It -exists because of the efforts of hundreds of volunteers and donations -from people in all walks of life. - -Volunteers and financial support to provide volunteers with the -assistance they need are critical to reaching Project Gutenberg-tm's -goals and ensuring that the Project Gutenberg-tm collection will -remain freely available for generations to come. In 2001, the Project -Gutenberg Literary Archive Foundation was created to provide a secure -and permanent future for Project Gutenberg-tm and future -generations. To learn more about the Project Gutenberg Literary -Archive Foundation and how your efforts and donations can help, see -Sections 3 and 4 and the Foundation information page at -www.gutenberg.org - - - -Section 3. Information about the Project Gutenberg Literary Archive Foundation - -The Project Gutenberg Literary Archive Foundation is a non profit -501(c)(3) educational corporation organized under the laws of the -state of Mississippi and granted tax exempt status by the Internal -Revenue Service. The Foundation's EIN or federal tax identification -number is 64-6221541. Contributions to the Project Gutenberg Literary -Archive Foundation are tax deductible to the full extent permitted by -U.S. federal laws and your state's laws. - -The Foundation's principal office is in Fairbanks, Alaska, with the -mailing address: PO Box 750175, Fairbanks, AK 99775, but its -volunteers and employees are scattered throughout numerous -locations. Its business office is located at 809 North 1500 West, Salt -Lake City, UT 84116, (801) 596-1887. Email contact links and up to -date contact information can be found at the Foundation's web site and -official page at www.gutenberg.org/contact - -For additional contact information: - - Dr. Gregory B. Newby - Chief Executive and Director - gbnewby@pglaf.org - -Section 4. Information about Donations to the Project Gutenberg -Literary Archive Foundation - -Project Gutenberg-tm depends upon and cannot survive without wide -spread public support and donations to carry out its mission of -increasing the number of public domain and licensed works that can be -freely distributed in machine readable form accessible by the widest -array of equipment including outdated equipment. Many small donations -($1 to $5,000) are particularly important to maintaining tax exempt -status with the IRS. - -The Foundation is committed to complying with the laws regulating -charities and charitable donations in all 50 states of the United -States. Compliance requirements are not uniform and it takes a -considerable effort, much paperwork and many fees to meet and keep up -with these requirements. We do not solicit donations in locations -where we have not received written confirmation of compliance. To SEND -DONATIONS or determine the status of compliance for any particular -state visit www.gutenberg.org/donate - -While we cannot and do not solicit contributions from states where we -have not met the solicitation requirements, we know of no prohibition -against accepting unsolicited donations from donors in such states who -approach us with offers to donate. - -International donations are gratefully accepted, but we cannot make -any statements concerning tax treatment of donations received from -outside the United States. U.S. laws alone swamp our small staff. - -Please check the Project Gutenberg Web pages for current donation -methods and addresses. Donations are accepted in a number of other -ways including checks, online payments and credit card donations. To -donate, please visit: www.gutenberg.org/donate - -Section 5. General Information About Project Gutenberg-tm electronic works. - -Professor Michael S. Hart was the originator of the Project -Gutenberg-tm concept of a library of electronic works that could be -freely shared with anyone. For forty years, he produced and -distributed Project Gutenberg-tm eBooks with only a loose network of -volunteer support. - -Project Gutenberg-tm eBooks are often created from several printed -editions, all of which are confirmed as not protected by copyright in -the U.S. unless a copyright notice is included. Thus, we do not -necessarily keep eBooks in compliance with any particular paper -edition. - -Most people start at our Web site which has the main PG search -facility: www.gutenberg.org - -This Web site includes information about Project Gutenberg-tm, -including how to make donations to the Project Gutenberg Literary -Archive Foundation, how to help produce our new eBooks, and how to -subscribe to our email newsletter to hear about new eBooks. - |