Full text of "Proceedings of the Federal electric railways commission. Held in Washington, D.C., during the months of July, August, September, and October, 1919"

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V.I

UNIVERSITY of CAIJFORN't

AT .

LOS AJSGEL&S
LIBRARY

PROCEEDINGS OF

The FEDERAL ELECTRIC
RAILWAYS COMMISSION

Held in WASHINGTON, D. C., during the months
of July, August, September, and October, 1919

together -with.

Final Report of the

Commission to the

President

IN THREE VOLUMES

VOL. 1

WASHINGTON

GOVERNMENT 1'RINTING OFFICli
1920

N/.l

INTRODUCTORY STATEMENT.

The Federal Electric Railways Commission was appointed by the
President of the United States in response to a suggestion outlining
to him the need of such a commission in the following letter from two
members of his Cabinet, the Secretaries of Commerce and of Labor :

WASHINGTON, D. C., May 15, 1919.

DEAR MB. PRESIDENT : The electric-railway problem to which your attention
has been called on several occasions has recently assumed such serious na-
tional proportions as to warrant the prompt attention of the Federal Govern-
ment. Already 50 or more urban systems, representing a considerable per-
centage of the total electric-railway mileage of the country, are in the hands
of receivers. The communties affected are among the most important — New
York, Providence, Buffalo, New Orleans, Denver, St. Louis, Birmingham, Mont-
gomery, Pittsburgh, Memphis, Ft, Wayne, Des Moines, St. Paul, Spokane,
Chattanooga.

Other large systems are on the verge of insolvency, for the industry as a
whole Is virtually bankrupt. The continued shrinkage in the value of
hundreds of millions of electric- rail way securities held by savings banks>
national banks, life-insurance companies and by the public at large threatens
to embarrass the nation's financial operations. Furthermore, the withdrawal
of this industry's buying power, which is said to rank third in magniture,
Involves the unsettlement of collateral indiistries, naturally entailing labor
dislocation that will affect hundreds of thousands of employees.

The return to normal conditions is being hampered and the efforts of the
Government to avert strained conditions in finance, labor and commerce are
being less fruitful of satisfactory results than should be expected, if some
solution of the electric-railway problem were in view.

What the solution is, may, we believe, be evolved by a thorough investiga-
tion of general franchise and operating conditions in their relation to rates,
including service-at-cost plans, State and municipal taxation, local paving
requirements, and internal economies that may be effected.

We therefore propose and recommend the appointment by you of a Federal
board or commission, whose duty it shall be to study and report upon the entire
problem, in order that the State and municipal authorities and others eon-
cerned may have the benefit of full information and of any conclusions or
recommendations that may be formulated. Such a study will, in our opinion,
exert a helpful and constructive force in this critical period of the industry's
existence, and will aid in the readjustment. If you would make such an ap-
pointment before June 30. your contingency fund could be used to defray the
expenses, which would be about $10,000.

The National Association of State Commissioners has always invited Federal
aid in this matter and the recent Conference of Governors and Mayors adopted
a resolution recommending Federal consideration of the problem of preventing
the financial disaster threatening this industry.

We projtose that such a commission shall be made up of one representative
of each of the following groups :

Treasury Department or War Finance Corporation, Department of Com-
merce. Department of Labor, National Association of State Commissioners,
American Cities League of Mayors, Amalgamated Association of Street & Elec-
tric Hailwny Employees, American Electric Railway Association, Investment
I Stinkers Association of America.

Wt» respectfully urge your authorization for such a commission, to be fol-
lowed by your formal proclamation upon the selection of personnel.
Cordially yours,

(Signed) WILLIAM C. REDFIELD,

Secretary of Commerce
(Signed) W. B. WILSON,

Secretary of Labor.
ill

IV PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

On May 20, 1919, the President cabled his approval of the fore-
going plan for the creation of a Federal commission to investigate
and report on the condition of the electric-railway industry of the
United States ; and on June 1, 1919, the commission was accordingly
created by the President and the folloAving members appointed to
serve thereon without compensation :

Charles E. Elmquist, representing National Association of State
Public Utility Commissioners.

Edwin F. Sweet, representing Department of Commerce.

Philip H. Gadsden, representing American Electric Railway As-
sociation.

Royal Meeker, representing Department of Labor.

Eugene Meyer, jr. (alternate, Louis B. Wehle), representing War
Finance Corporation.

Charles W. Beall, representing Investment Bankers Association
of America.

William D. Mahon, representing Amalgamated Association of
Street & Electric Railway Employees.

George L. Baker, representing American Cities League of Mayors.

The new commission met on June 4 and organized by electing Mr.
Elmquist as chairman and Mr. Sweet as vice chairman. The an-
nouncement was at once made that the commission would attempt
to determine the general principles which should govern the regu-
lation, operation, and service of electric railways, but that the com-
mission was without authority to hear and determine specific local
controversies, and that it would not interfere in any way with the
functions of State commissions or of municipal authorities. The
purpose of the commission is rather to investigate and study the con-
dition of the electric-railway industry, including franchises, rates,
taxation and assessments, economies of operation, public rela-
tions, etc.

The commission on June 28 appointed Charlton Ogburn as its
executive secretary under a contract which obligated him " to conduct
a thorough investigation into the condition of the electric-railway
industry of the United States, both urban and interurban," employ-
ing the necessary experts to aid him.

The commission gathered its evidence in three ways: First, by
means of public hearings at which large numbers of witnesses testi-
fied ; second, by a series of questionnaires sent to every city in which
there is an electric or interurban railway, addressed to the electric
railways, the mayors, the chambers of commerce, and the central
labor unions, and also to all of the State public-utility commissions ;
and third, by a personal investigation on the part of the executive
secretary.

The first public hearing was held in New York on June 19, and the
first witness Avas ex-President William Howard Taft. The next hear-
ing was held in Washington on July 15, lasting two weeks, during
which time the witnesses on behalf of the railway's presented the evi-
dence under the direction of the Committee of One Hundred of the
American Electric Railway Association and its counsel, Mr. Bentley
W. Warren. The next hearing was held in Washington beginning
August 11 and lasting one week, at which time testimony Avas offered
on behalf of the public, chiefly by representatives of the municipali-
ties and of State public-utility commissions. The last hearing began

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. V

in Washington on September 29 and lasted one week, at which time
testimony was offered by still further witnesses representing the pub-
lic and by witnesses on behalf of labor, represented by the Amalga-
mated Association of Street & Electric Railway Employees of Amer-
ica. All of these hearings ran through day and night sessions, be-
ginning at 10 a. m. and usually running until 10 or 11 p. m.

Three separate questionnaires were sent out, copies of which are in-
cluded in these Volumes. The first was a general questionnaire deal-
ing with all phases of the situation. The last two were special ques-
tionnaires seeking traffic figures, month by month, for the past three
years; that is, number of revenue passengers, amount of passenger
revenue, fare charged, and a statement of any occurrences affecting
traffic, such as strikes, influenza epidemics, etc.

At the conclusion of the final public hearing the commission en-
gaged the services of Dr. Delos F. Wilcox to aid in analyzing the
testimony gathered and engaged Dr. Milo R. Maltbie and Dr. Wilcox
to advise with the commission relative to its report. Dr. Wilcox
made a very comprehensive analysis of the evidence. The final meet-
ing of the commission was held in June, 1920, at which time its
report was made to the President.

All of this work was done on an appropriation of $10,000 allotted
by the President for this purpose.

CHARLTON OGBURX,
Executive Secretary. ,

William H. Taft.

J. H. Pardee

G. C. Cummin__
J. H. Pardee

Page.

B. W. Warren 66, 200

G. E. Tripp 67

James W. Welsh 70

W. J. Clark 135

G. E. Tripp 146

Harold L. Stuart 184

Henry G. Bradlee 201

William J. Clark 228

Mortimer E. Cooley 247

W. D. George 289

Francis H. Sisson 314

A. H. Ford 354

C. L. S. Tingley 364

John G. Barry 380

M. B. Lambert 393

William H. Heulings, jr 395

Henry L. Doherty 403

Lucius S. Storrs 422

Luther R. Nash 466

W. C. Culkins 471

Walter A. Draper 498

Louis Pellissier 514

Job E. Hedges 519

Samuel Reading Bertron 537

J. K. Newman 553

Homer L. Ferguson 580

John J. Stanley 590

Charles A. Fagan 610

W. B. Head 627

Charles J. Bullock__ 637

L. R. Nash 662

Charles L. Henry 696

Charles W. Kellogg 730

Frank J. Sprague 750

James D. Mortimer 764

Eugene N. Foss 791

James D. Mortimer 808

James L. Quackenbush 817

James O. Carr 843

Richard Schaddelee 857

Henry J. Pierce 873

Frederick B. de Berard 875

John H. Pardee 882

W. E. Creed 883

Harlow C. Clark 896

Jeremiah W. Jenks 918

Thomas Con way, jr 941

Hal ford Erickson 967

Newton D. Baker.. UU5

Page.

C. W. Kutz 1037

Roger W. Babson 1053

John P. Fox 1073

Carl H. Mote 1086

Richard T. Higglns 1107

Carl H. Mote ^ 1118

F. F. Ingram 1120

James Couzens 1134

William C. Bliss 1168

Zenas W. Bliss 1195

Charles P. Gillen 1198

Delos F. Wilcox 1202

Lewis Nixon 1277

William P. Burr 1303

Irving Fisher 1319

Grenville S. MacFarland 1342

Thomas L. Hall 1:550

Alexander T. Connell 1377

William D. B. Ainey 13y4

Dugald C. Jackson 1413

Frederick J. MacLeod 1435

Fielder Sanders 1457

John J. Walsh 14155

Marion M. Jackson 1481

C. J. Joyce 1513

Thomas L. Sidlo 1585

Walter Jackson 15S9

R. S. Bauer 1(522

Homer Loring 1640

John A. Beeler 1661

Morris L. Cooke 16S7.

C. L. Delbridge 1703

W. Jett Lauck 1731

Carey Ferguson 1733

William M. Rea 1748

Arthus Stiiriris 1767

William F. Ogburn 1795

Lelfur Magnusson 1832

Stiles P. Jones 1842

W. Jett Lauck 1877

E. V. Babcock 189S

Charles K. Robinson 1913

W. Jett Lauck 1927

James D. Mortimer 1970

C. J. Joyce 2002

Stiles P. Jones 2012

Marion M. Jackson 2014

Joseph B. Eastman 2055

Milo R. Maltbie— 2088

Edward W. Bemts 21O5

Lawsou Purdy 2124

C. Oscar Beasley 2129

VII

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

NEW YORK CITY, June 19, 10 W.

The commission met, pursuant to notice, at 10 o'clock a. in.

Present: Charles E. Elmquist (chairman), Edwin F. Sweet (vice
chairman), Royal Meeker, C. W. Beall, L. B. Wehle, and Philip H.
Gadsden, commissioners.

Appearances: Lewis Nixon, commissioner, Public-Service Commis-
sion, first district, State of New York; John H. Pardee, represent-
ing the American Electric Railway Association.

PROCEEDINGS.

The CHAIRMAN. This hearing is called by the Federal Electric
Railways Commission for the purpose of hearing evidence bearing
upon the general public-utility problem. A number of witnesses
have been notified to be present and the commission at this time de-
sires to know who are here and who wish to be heard.

Mr. TAFT. Mr. Chairman, I am here; though I do not come under
the latter class, I am here very willing to be subjected to examina-
tion on what I know, without professing to know much. I report,
therefore, here.

The CHAIRMAN. We will hear from you, Mr. Taft, as soon as the
other appearances have been entered.

Are there any other appearances?

Mr. PARDEE. I am present, Mr. Chairman, representing the Ameri-
can Electric Railway Association, and at your convenience I desire
to make a statement.

The CHAIRMAN. Are there any other appearances to be noted?
[No response.]

Now, Mr. Taft, we shall be glad to hear from you.

STATEMENT OF HON. WILLIAM H. TAFT.

Mr. TAFT. Mr. Chairman, I am at your disposition.

I had a call from Mr. Wehle saying that your commission would
like to have an expression of opinion from me as to the present situ-
ation of the transportation public utilities, so far as I had observed
them.

My chief opportunity for observing the condition in which those
utilities now are has arisen from the work of the National War
Labor Board, of which I have been one of the joint chairmen. That
board was created for the purpose of maintaining, so far as possible,
maximum production. in war supplies, and our jurisdiction extended,
by the proclamation of the President, to mediation in controversies
arising in all fields of activity which would affect that maximum

2 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

production. The street railways and the suburban railways came
within that field, by reason of the dependence of many of the large
munition plants and other plants for making war supplies upon
these transportation facilities for their labor. Where the street-car
systems stop, where the suburban systems stop, the workingmen
and working women were not able to reach their places of work, and
it halted the production. In that way a great many cases came before
us, and in the division of labor by the board the cases with respect
to public utilities were referred to Mr. Walsh, my colleague, and
myself, and, in many instances, the parties submitted the cases to us
as sole arbitrators, which, of course, fixed our attention, in the dis-
tribution of work in the board, on these public utilities.

One of the great arguments which was made to avoid the increase
in wages was the financial condition of the companies which made
it impossible to grant any increase asked by the men; and the com-
panies requested that we take that matter into consideration.

There is not any doubt that the financial condition of the compa-
nies had actually in the past — at least, that was my inference after
hearing the evidence — had actually in the past kept down the wages .
of the men quite below the wages that were paid in fields of labor
of a kindred nature, because these companies were in a condition
where their backs were against the wall, and they maintained a po-
sition against increase of wages that was natural, where they saw
bankruptcy in front of them ; and they said, " No ; we will not do
it." The consequence was that we thought, from our consideration
of the cases, that the wages in the public utilities were generally
quite below wrhat they ought to have been.

On the other hand, these matters were referred to us as arbitrators,
and the issue then arose: Had we any right, in considering what
wages would be fair, to take into consideration the financial condi-
tion of the company that was present before us as a party? And
we had no hesitation in reaching the conclusion that labor was as
much entitled to an independent consideration of what its wages
should be as a coal man was who furnished coal or a material ma a
who furnished iron; that that question must be determined by what
was being paid in similar fields of labor. Therefore, we refused
flatly from the first to consider the financial condition of any com-
pany in determining the rate of wages. Of course, had we done so,
we would have been put in the further absurd position, which seemed
to demonstrate the correctness of our original conclusion, that the
man working for a company that had been badly managed and was
carrying on the business under conditions that rendered it unprofitable
for other reasons should be paid less, for the same work, than some
company that had a profitable arrangement paid — less than the man
who served with a company that was better managed and had a
profitable arrangement. So that, on all sides, it seemed to us that
that was the just conclusion.

We realized, however, in stepping into that field and increasing
wages free from that " back-against-the-wall " position which the
railway employers had had in the past — because we were acting as
judges and as arbitrators — that we might bring about, inasmuch as
wages formed a great factor in the cost of operation — that we might
bring about financial trouble. Therefore Mr. Walsh and I first rec-
ommended to the President that he apply to Congress for power |

PROCEEDINGS OF FEDEBAL ELECTRIC RAILWAYS COMMISSION". 3

to appoint a commission that should regulate the affairs, taking into
consideration the increase in the wages, and submitted a statement
to the President, which, however, for considerations that appealed
to him, he thought it unwise to grant.

There was then presented a request by a committee of the rail-
way employers — I do not remember the name, but Mr. Gadsden, who
is one of you members, was, I think, the president of the associa-
tion— in which the association asked that an advisory commission
be appointed that should go about and relieve the public-utilities
commissions from the political burden of granting an increase in
the rates of fare by recommendation from a Federal source — a
practical method of relieving the situation which appealed to Mr.
Walsh and to me, with our previous political experience; and we
urged that, too, and I went to Mr. McAdoo, and I also went to the
Interstate Commerce Commission, which it was then understood the
President was consulting in respect to the action that should be
taken.

There was one other consideration I wanted to add: In every
award that we made we encouraged a statement as to the financial
condition of the company, not with a view of influencing our con-
clusion as to what the wages ought to be, which was the concrete
issue before us, but in order that we might fully justify, if the case
required it, any recommendation to the local authorities, and giving
the weight of our recommendation, at least, to an increase in fares.

I am bound to say that that recommendation with State author-
ities not infrequently had weight. But when it came to local coun-
cils, or to referendum, it might just as well have been written in
water.

Take the case, for instance, in Buffalo, if I may be pardoned an
illustration. The submission to us there, by both parties, which
gave us the right to arbitrate, was on condition that if we recom-
mended an increase of wages there must be, before our award took
effect, an increase in the rate of fare; and the State public-utilities
commission granted an increase from 5 cents to G cents. Then some
gentleman in Buffalo concluded that that was a matter that ought to
be referred to the people of Buffalo, and he filed a petition with the
council to have a referendum; and the question was one of law as
to whether a referendum was required, and the case went to the
: court of appeals, and the court of appeals held that a referendum
on such a petition must l>e granted, and it was granted. Without
being exact as to the vote, my recollection is that the vote was 4 or
5 to 1 against the increase from 5 to 6 cents.

Then they appealed to us to intervene. We had no authority.
The men struck and the people of Buffalo walked for a month.

I think it had some effect on the people, but I do not know that
a referendum would reach any different result. That is an illus-
tration, however, of the difficulties of the situation.

They did not pay any attention, in the referendum vote, to our
recommendation.

All this, of course, brought us into more or less familiarity with
the conditions of the companies who were parties before us; and,
without being an expert in any financial matter, and certainly with-
out being an expert in street-railway matters, I can only give you
my general impression as to what the situation is. I am subject,

4 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

of course, to correction by gentlemen much more familiar with the
field.

As I understand it, the street-railway situation to-day, including
suburban railways, represents a field of business activity in which
there has been invested at least $5,000,000.000.

It is charged that there has been a good deal of watered stock, and
doubtless there has been — not of very recent years, I should think,
because watered stock, to be useful, has to be disposable; and I do
not think anybody can dispose of street-railway stock except in
banks that are run by gentlemen that have an optimism that would
justify their being removed from the bank trust. That, of course,
makes it most important that the situation should be considered in
a large way.

The lines have been built on the theory that the business for short
distances with a fixed fare be so large as to make up for the added
expense of the long distance; and I do not think that has worked
out.

The motives for extending the lines have been various. The build-
ing up of suburbs, the building up of subdivisions and, doubtless, the
pressure of local authorities have all figured as causes for the exten-
sion of street-railway investments far beyond business justification.
Then the Ford and the automobile have greatly reduced the businesSc

The CHAIRMAN. You say the Ford and the automobile, Mr. Taft?

Mr. TAFT. Yes. I think that the Ford has established a class by
itself. I have one, and I never refer to it as an automobile.

The CHAIRMAN. It must be a very reliable conveyance.

Mr. TAFT. It is very useful. I have had it for five or six years, and
I cherish it fondly.

The vast increase in the use of that method of reaching the center
of business from the suburbs has certainly largely interfered with
the revenue from passengers upon whose patronage the projectors
of those enterprises count. Then there has been, growing put of cor-
ruption, the watering of stock, and the dealing with councils and the
feeling of hostility on the part of the people against the companies —
the development of a condition so that whatever advantages the com-
panies may have secured by sinister means earlier have been more
than offset by the injustices that the people have done, or that their
representatives have done growing out of that past history, to thcso
enterprises.

The truth is, gentlemen, and I am sure you will agree with us,
that the condition of these investments and of this general transpor-
tation business of an urban and suburban character is most discour-
aging. If you can find a solution for it you will be entitled to the
gratitude of the whole community.

I am personally much against government ownership, for the
reason that I think it reduces the economy of operation and there-
fore greatly increases the cost of something that is essential to the
people. On the other hand, the public have grown used to a fixed
fare of 5 cents, and I think if you inquired of a great many of them
you would find some such idea — not literally, but some such idea as
that it was guaranteed to them in the Constitution; that anything
above 5 cents would indicate a return to investors that is outrageous.
It is a matter, of course, that can be demonstrated mathematically,
by the cost of operation, and figured out. The cost of operation has

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 0

increased, of course, with the -cost of commodities and the increase
in the price of labor, and it is mathematically demonstrable. If you
keep the fares at 5 cents, where they always have been — and even in
some cities they have been 3 cents and 4 cents; in Detroit, notably,
and in Cleveland— if you keep it there, the red balance is as inevitable
as the rising of the sun to-morrow morning. It is inescapable. Then
you are confronted with the limitation that if you raise the rate of
fare }7ou are likely to reduce the revenues by a falling off in your
patronage. I think perhaps the advancing to 6 cents does not do
that, and in some cases the advance to 7 cents ; but anything beyond
that is certain to reduce revenues by a loss of business.

You are met, of course, by the statement — and I do not wish to
escape the force of the argument — that these transportation facili-
ties are in the nature of roads. The public spends a great deal of
money in keeping roads in condition, and those who do not have
vehicles do not use the roads. It is contended that these electric
railways only fulfill a function of the same kind, and that therefore
the public ought to meet the deficit by taxation; and if it does it
will naturally take over the management.

My feeling in respect to the general loss that is certain to be in-
volved in public operation still* makes me hope for some other so-
lution than that of government ownership. That is a general state-
ment, and I am ready to answer any questions, if I can.

Commissioner SWEET. I would like to ask one or two questions.

Do you not think there is a middle ground between government
ownership and the present basis, or the condition as it would be by
merely raising the fares? In other words, are there not things that
could be done as regards, for instance, paving between the tracks,
and various things of that kind, that might be borne by the general
public without injustice, and at the same time relieve the corpora-
tions operating these railroads from a considerable amount of ex-
pense, and thereby help them to live and pay reasonable wages?

Mr. TAFT. Yes; that means reasonable franchises — reasonable in
other respects than the amount of fare allowed to be charged. Yes;
I agree to that.

Ihey have a system in Cleveland of what they call "service at
cost " — a division between the public and the company in respect
of profits. I do not know that they go so far as losses, but the fare
goes up automatically with the cost of operation. I am not suffi-
ciently advised as to the details of that method to say much about
it, except that the principle seems to be a wise one, except that you
have those limitations that will insert themselves whether you will
or not — that you can not charge too much or you will reduce your
business.

Commissioner SWEET. Is there not a sort of injustice in the pre-
vailing method in requiring street-railroad companies to pave be-
tween the tracks and for a foot or two outside, in that if they were
able to make ends meet it would mean, in the final analysis, that
that paving was paid for by those who patronized the street rail-
road and paid fares, and that the rest of the community, the auto-
mobile and the Ford owners, pay nothing?

Mr. TAFT. Yes.

6 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. As between the two parts of the community,
would it not be more just that the whole community should bear the
entire expense of paving?

Mr. TAFT. I think so. But I do not know how large a proportion
of the expense that constitutes.

Commissioner SWEET. That is something we will have to discover?

Mr. TAFT. Yes.

Commissioner SWEET. Undoubtedly it amounts to a great deal of
money ?

Mr. TAFT. I have no doubt that it is a heavy expense, but how
large a factor it would be in making the investment more favorable
I do not know.

Commissioner SWEET. It would help some, anyway ?

Mr. TAFT. Yes; certainly.

Commissioner SWEET. You said that you thought perhaps the rais-
ing of fares in many cases would result in the loss of patronage.
Would it not be feasible to make a distinction between a short run

Mr. TAFT. You mean the zone system ?

Commissioner SWEET. Yes.

Mr. TAFT. I have always thought so. I thought so in the be-
ginning, and theoretically that is true, and perhaps the railroads
may devise some method; but they have gotten so used to the
other method, and the complications arising from the zone system
are so many that a good many practical railroad men fear that they
can not put it into effect.

Commissioner SWEET. In the case you spoke of, of the extension
of street railroads into the suburbs, where the business is rather
light, people have built along these lines with a view of getting into
the business center by the use of them. Would it not be inherently
just that those people should pay both in accordance with the greater
length of haul and greater service they receive for their money?
Would it not be just, and, furthermore, could they not afford to do
it, because of their living where the taxes are less, and so on ?

Mr. TAFT. Yes; I agree to that. Yet, on the other hand, the very
plan of going out into the suburbs, at a fixed fare, was held out to
these people who went out there and promoted that avoidance of
congestion or removal of the causes for congestion. Of course, that
is a public matter. It is a housing matter that you would perhaps
not wish to interfere with the good effects of.

Commissioner SWEET. Is it your idea that there would be a sort
of moral obligation or a kind of implied contract with these suburban
purchasers and builders ?

Mr. TAFT. Well, of course, that depends upon the character of the
suburban living. I mean if a man goes out to live there cheaply,
in a small house, the matter of fare in and out is a considerable item
to him. Those suburban residents who go out to get the air and
build a good house can well afford to pay. But the greater the dis-
tance that a workingman can go, the more certain it is that he is
able to get a healthful place to live.

Commissioner SWTEET. From the standpoint of the revenues of a
street-railroad company, raising the fares on a long haul, as we say,
would be less likely, of course, to diminish the patronage?

Mr. TAFT. Yes ; I agree to that.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 7

Commissioner SWEET. In other words, people would not walk long
distances. They would rather pay a cent or two more ?

Mr. TAFT. That is quite true. You have the public there.

Commissioner SWEET. They have simply got to ride?

Mr. TAFT. Yes.

Commissioner SWEET. With regard to the short hauls, if I under-
stand you correctly, you think that it is a serious question as to
whether the patronage might not be reduced to the point where the
net revenues of the company would not be any greater by increasing
the fare?

Mr. TAFT. Yes ; if you have a fixed fare. I think in the zone sys-
tem you might, by having a smaller fare for the inner circle, main-
tain your receipts there, perhaps, dependent upon what you begin
at; and then by increasing it, you do avoid, in the zone system, the
reduction of fare.

Commissioner SWEET. From the consideration you have given to
the subject, do you think the zone system is a good system ?

Mr. TAFT. I think it should be tried far more than it has been.

Commissioner SWEET. You think it has merits?

Mr. TAFT. I think the other system was begun on a theory that has
not vindicated itself. It has tended to convenience of operation,
and it has accustomed the public to something it may be difficult to
get over, and it may increase complications; but I think in the end
it is bound to come, unless you have government ownership and
taxation to pay the deficit.

Commissioner SWEET. If a public accountant were permitted access
to the books :>f a street-railroad company and made a report that the
public would have every reason to regard as honest and square, and
the public recognized the fact that the earnings of the company were
not sufficient to pay business expenses and pay a reasonable wage, do
you not think then there would be a somewhat different attitude on
the part of the patrons of the railroad companies.

Mr. TAFT. Yes, I do; and I think that may be heightened by this
arrangement for a division of profits when profits are made, and
possibly the sharing of losses when losses are made; that a thing
that operates automatically like that is just like law, and people will
follow it, yield to it.

Commissioner SWEET. But your idea, if I understand you cor-
rectly, is that the public mind must be convinced of the need of it
before a raise of rates will be accepted ?

Mr. TAFT. Yes. In Colorado I believe they had a riot over a
rate of fare. I think it was in Denver. The fares went up 5 cents,
and for a time, I believe, it produced a condition where they were
not able to run their street railroads. That is my recollection of
the case.

Commissioner SWEET. If I understand. Judge, you were one of
the original projectors, in a sense, of this commission that is here
to-day?

Mr. TAFT. In the way in which I have detailed it here. I am
very glftd it has been appointed. I think you have an opportunity
to be most useful, even if you are doubtful of your own con-
clusions. You can accumulate a mass of evidence from men who
know that will be very useful for the solution and the making of
the public to know what the difficulties are.

8 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. I think that all the members of the com-
mission would be very glad to have you give us your views as to
the functions of the commission. We are just starting in our work,
and we recognize the fact that the situation is rather acute and that
action ought to be had as speedily as possible. Yet, on the other
hand, we recognize the need of thorough action. The two things
do not seem to jibe exactly. Now, will you tell us just about what
you think the commission ought to do?

Mr. TAFT. I feel very certain that, no matter what people say,
it is your business to find out the facts. Until you get the facts you
are not going to be able to make any recommendations that are
worth having.

Commissioner SWEET. Can you make that a little more precise,
as to what facts you think we ought to ascertain ?

Mr. TAFT. I think you should call the public-utility-commission
representatives through the country, and perhaps the mayors, or,
at least, those officials in the cities who have to do with the question
of street railways, and, doubtless, you can call accountants wrho have
been through street-railway accounts. I am not familiar with the
details, but I am quite sure there is a great field of investigation
that would be most useful in making up a general conclusion ; and,
being a Federal commission, you have the advantage of a remote-
ness from the subject matter in actual authority that gives your
conclusions a much greater weight that if you were a State com-
mission or a city commission, because one trouble about State com-
missions is the intervention of local politics and the doubt as to
whether their conclusions may not be affected by other than the
exact facts.

Commissioner SWEET. You had no thought originally of this com-
mission having any authority to interfere at all in local problems,
did you?

Mr. TAFT. Yes ; I did ; but that was under the pressure of war.

Commissioner SWEET. But not now?

Mr. TAFT. I thought, for instance, that if the bankruptcy followed
that there were some symptoms of coming, it would be a very serious
interference with the business finances of the country in time of war,
and, therefore, that the President would be justified in asking Con-
gress to enable him to take hold of the street railways that were
needed to run the factories of the country engaged in war work and
say to these local authorities : " During the war we are going to run
these railroads, not by actual operation, but we are going to say,
as a war measure, what these railroads shall have a right to charge."
And I thought it would be quite within the constitutional power
of Congress. I did not think the President had the poAver, but I
thought it wras quite within the constitutional power of Congress
to give the President that power ; and I felt certain that, in the gen-
eral patriotic spirit that prevailed throughout the country, even the
local feeling as to a 5-cent fare would yield.

Commissioner SWEET. But as the matter stands now?

Mr. TAFT. Now, of course, while we are still in a legal state of
war, the situation is not such as to justify that legislation, and Con-
gress, I am sure, would not feel like giving such a power in a mere
nominal state of war, a state of suspended hostilities.

PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION. 9

Commissioner SWEET. In that event our function would be to
make the investigation and a recommendation as a result of it which
would have a moral effect in the country and could be made the basis
of settling local troubles?

Mr. TAFT. Yes.

Commissioner SWEET. Not by reason of authority that we might
have, but because we had given an impartial investigation and made a
report that commended itself to the country?

Mr. TAFT. Exactly.

Commissioner SWEET. That would be your idea, would it?

Mr. TAFT. Yes; and you will be a center through which you can
interpret the general views of the public-utilities commissions and
perhaps bring about a uniformity in dealing with the situation that
would be most useful.

Commissioner SWEET. In cases that can^e before you, did you find
that there were certain general elements that pervaded all of them,
practically?

Mr. TAFT. About all of them; yes. This matter of labor was one.
Of course, the expenses of materials were the same everywhere, tak-
ing into account transportation; and the element of human nature
was exactly the same in one part of the country as in the other.

Perhaps the people in Massachusetts were more reasonable, and
they began earlier to take over State control than other States ; and
there they have gone up higher in their rates of fare than anywhere
else.

Commissioner SWEET. Did your investigation enable you to de-
termine what proportion of the street-railway companies had watered
stock?

Mr. TAFT. Xo. I think that they have been through a period in
their history that has squeezed a good deal of the water out, and
many of the railroads have been obliged, in their dealings with cities,
to clear their skirts in that respect. There were a good many that
came before us and proved what they had. and what they were at-
tempting to pay dividends on they had fully invested in the prop-
erty; but that did not overcome the history previously of dealing
with councils and so on.

Commissioner SWEET. That prejudice would remain?

Mr. TAFT. Oh, ves.

Commissioner SWEET. Is it your opinion, Judge, that a physical
valuation of railroad properties would be necessary, now, to satisfy
the public before the patrons of the railroad companies would be
satisfied to permit a raise in the rates of fare?

Mr. TAFT. The physical valuation of a steam railroad, where the
steam railroad owns the right of way and everything on it is one
thing, but a physical valuation of franchises and of the right to pass
over streets, which can be withdrawn, presents so many difficult prob-
lems of valuation that I doubt very much the wisdom of it. I think
the investment of actual money in what has been done is the only
means of satisfying the public. When }rou come to estimate the value
of a franchise which runs for 20 years, and which they could not
get to-day, having greater value on account of its provisions given
10 years ago, the public is not apt to be satisfied with the thought
that the road has got something out of the public in that franchise
that is of high value.
1(50043°— 20 2

10 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. Do you understand that any value would
be attached to the franchise if you were seeking to get the actual
investment — to learn what the actual investment was ?

Mr. TAFT. No ; I do not think so ; but I think, of course, you might
go into the actual investment and show that it was actually expended.

Commissioner SWEET. But is there not another phase of the ques-
tion that really interests the public to-day even more than what
figures of that kind would show, and that is that the problem is one
between public ownership and operation on the one side or receiver-
ships and failures on the other?

Mr. TAFT. Yes.

Commissioner SWEET. And that if railroad companies, these street-
railroad companies, are to be operated by private corporations, these
corporations must be put into such shape that they can secure new
capital as needed for extensions and so forth, and they must, then,
be on a paying basis in order to get that capital ?

Mr. TAFT. You must; you must have reasonable interest, in -view
of the necessarily precarious investment that history shows.

Commissioner SWEET. You can not compel anybody to buy stocks
in these companies ?

Mr. TAFT. No; you can not. You can pay taxes, but that is the
only thing you can do.

Commissioner SWEET, And in order to live they must be on a
paying basis?

Mr. TAFT. Yes.

Commissioner SWEET. If that were clearly demonstrated, do you
think that the general public would be willing to submit to a raise in
fares, and perhaps assume the responsibility of more paving and
things like that? Do you think they ought to be willing, whether
they would be or not ?

Mr. TAFT. Yes; I think they ought to be. But in talking with
Mr. McAdoo, he referred to this psychological phase of the situa-
tion. You remember he had some correspondence with the Presi-
dent in regard to the very thing we are discussing — the importance
of saving from destruction this five billions of money invested hi
public utilities, and he referred hot only to street railways, but he
referred also to gas companies, to electric-light companies, and to
water companies. He said to me : " Our recommendations " — that is,
his recommendation to the public in his letter to the President and
the President's concurrence in his view — " did have," as I understood
him, " a very considerable effect in making more reasonable the prices
paid for light and water and the other things that are furnished by
public utilities, except transportation." " Now," he said, " in my judg-
ment the reason is psychological. People are not so sensitive about
the payment of bills at the end of the month, but when a man gets
on the car in the morning to go to his business or to go to work,
or his wife gets on the car to go to market, and she finds that the
price has gone up from 5 cents to 6 cents, necessitating the making
of awkward change, and then she comes back from the market and
the same thing is rubbed into her again, and that happens twice, and
perhaps the children go to school, and that may happen 10 or 15
times in the family every day, the effect of the increase is naturally
much more irritating than where the additional cost appears only
in a monthly payment."

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 11

Commissioner SWEET. Could not that be obviated somewhat by
a general resort to the ticket system — selling so many tickets?

Mr. TAFT. That is what they do now, I think.

Commissioner SWEET. They do in some places. I do not think
they do in all.

Mr. TAFT. I do not think they do in all ; no.

Commissioner SWEET. Have you ever considered the question of
the Government issuing, say, a 7-cent piece, or something of that
kind, to facilitate the payment of these extra fares?

Mr. TAFT. That has been suggested — a 6-cent piece and a 7-cent
piece ; but it would be difficult to make them so different that there
would not be confusion. Perhaps you might have a 3-cent piece
that could be used, two of them for a 6-cent fare; I don't know.

Commissioner SWEET. I think some of the other members of the
commission would like to ask you some questions. I do not want to
monopolize you.

Commissioner GADSDEN. I would like to ask something, going
back to the question of the increase of wages, about what was the
percentage of increase awarded by your board on industry as a
whole.

Mr. TAFT. Of course, the places differed in the rates. We fixed
48 cents as what we called the maximum in the larger cities, and we
found that in those cities they ranged from 35 to 39, and some as
high as 40 cents, as I recollect it; so that would represent the
increase, probably, from 10 to 12 cents in 48 cents.

Commissioner. GADSDEN. On 40 cents, was it not? It was an in-
crease of 10 cents on the original 40 cents ?

Mr. TAFT. Yes ; the result being 48 cents.

Commissioner GADSDEN. Do you happen to recall what were the
facts in connection with New Orleans?

Mr. TAFT. That was very low. I think we found it as low as 23
or 24 cents, or perhaps 25.

Commissioner GADSDEN. And the board put it up to about 42 or
43, did it not?

Mr. TAFT. Yes. I am not sure but what it was 45 cents.

Commissioner GADSDEN. About 65 per cent increase?

Mr. TAFT. Yes.

Commissioner GADSDEN. There were quite a number of cases rang-
ing from 35 to 45 per cent increase, were there not ?

Mr. TAFT. Yes. In the South, where the range of wages was
lower, generally, we made a minimum, as I recollect it, of 40 cents —
40, 43, 45, and 48, that was the range. In second-class cities we
made it 45 cents.

I understand, now, that the Detroit Street Railway Co. has
granted 60 cents to its men.

Commissioner GADSDEN. Do you think, from your experience
in the study of street-railway questions, that any railroad can pay
any such wage scale on a 5-cent fare?

Mr. TAFT. No; I should think not. Of course, that is a very
general statement, and I would not like to be held to exactness in
it.

Commissioner GADSDEN. I mean as a general rule.

Mr. TAFT. But our experience was, when we looked into it, that
it would not be possible.

12 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner GADSDEN. Is it not a fact that the industry was
established on a cheap rate of fare and a cheap wage scale ?

Mr. TAFT. It was.

Commissioner GADSDEN. And that the original 5-cent fare never
contemplated any such wage scale as is now necessary to be paid?

Mr. TAFT. That is correct; or any such price of material, either.

Commissioner GADSDEN. Now, Judge, coming to the question of in-
vestment: The situation to-day, as doubtless your investigations
have shown, is that the electric-railway industry has lost its credit?

Mr. TAFT. Entirely.

Commissioner GADSDEN. As a matter of fact, in order that this
essential industry shall continue its service to the public, is it not
necessary that its credit, its financial credit, shall be restored?

Mr. TAFT. It is.

Commissioner GADSDEN. Otherwise it can not get the additional
capital to make its extensions and improvements and keep the
service up?

Mr. TAFT. That is true.

Commissioner GADSDEN. That being so, I think this commission
would appreciate very much your views as to the necessity of an
adequate return on whatever the real investment is.

Mr. TAFT. That goes without saying. You have got to make the
investment such that a reasonably prudent investor will be willing
to engage in it, and you have to pay the prevailing rate which will
give the prevailing income on such investment.

Commissioner GADSDEN. Is it not true that unless the public is will-
ing that the industry shall pay a reasonable return on the investment,
nobody else is going to put any more money into it?

Mr. TAFT. Yes; that goes without saying. I do not hesitate to
answer it, but I think that is self-evident. Nobody who makes an
investment is going to make it for philanthropic purposes, because
business is business. If he is going to be a philanthropist, he
is going to be a philanthropist in his own way, but when he comes to
invest money, if the investment is to be attractive, it must be secure,
and the more secure it is, the lower rate of income he is willing to
take; and the precarious condition of the investment makes a high
rate necessary in order to invite investment in such an enterprise as
this. What I mean is that a reasonable rate is higher because of
the insecurity of the investment.

Commissioner MEEKER. I would like to ask you a question, Judge.
In regard to increase in wages granted by the board : those increases
were quite generally based upon increases in cost of living, were they
not?

Mr. TAFT. They were; yes.

Commissioner MEEKER. And, so far as it was possible to determine,
the wage rate was fixed in each community in accordance with the in-
crease in the cost of living?

Mr. TAFT. Yes; that was an element that entered into it. The
principles of the National War Labor Board declared that there
should be a minimum rate which should offer life in reasonable com-
fort.

Commissioner MEEKER. I think the commission would be inter-
ested if you would explain, in not too much detail, but the general

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 13

principles of arriving at a reasonable cost of living, or minimum of
comfort standard.

Mr. TAFT. Well, we had a great deal of evidence before us, some
taken by our own experts and others presented by the parties who
appeared before us, and we had evidence to show that a family of
five persons should have, as I recollect it, an income of $1,760 a year
to live in reasonable comfort. That was put in by the Amalgamated
Association.

In the case in which that evidence was adduced — a New Jersey
case — there was counterevidence introduced to show, by actual census
of the men in the employ of the company, that 25 per cent of them
were unmarried and that 75 per cent who were married only had
average families of three and a half persons, and that there were
supplemental wages from other members of the family that reduced
the necessity for the full wage from the main breadwinner.

The board took up the question on a resolution that was introduced,
but before we got through the discussion of the resolution I think the
whole board saw a great lack of wisdom in our attempting to fix a
minimum wage as a general rule of decision. We were acting as a
quasi court and followed the experience of most courts in thinking
it very unwise to attempt to lay down a rule of decision which should
apply to different cases until we had heard enough cases to make an
announcement safe, and therefore we never made one. In some cases
we went as low, I think, as 36 cents an hour, and from that up to 42^
cents per hour in different localities for the minimum wage.

Commissioner MEEKER. Do I understand that the board did take
account of supplemental wages in making wage awards?

Mr. TAFT. No; we did not pass upon the question at all. You asked
me what evidence was before us. The argument, of course, which was
made with respect to the five members was that if they did not have
five members they ought to have five members, and that the rate
ought to be fixed with a view to the encouragement of families. But
our function was merely to adjust temporarily the situation in respect
of the maximum of production, and as it would take longer than our
jurisdiction was likely to last to have any effect on the increase in
population, that element was not pressed.

Commissioner MEEKER. I think I have brought out the points that
I wanted for the record in that regard.

Now, taking up service at cost, I understood you to express an
opinion against the physical valuation of properties of street rail-
ways. Do you mean merely to exclude consideration of franchises?

Mr. TAFT. Yes. Of course in service at cost — in Cleveland, at least,
and that is the case that is most concrete in my mind — I think they
agreed on valuation of the actual money invested by the company,
and then they had a provision for the borrowing of money for addi-
tional improvements, and the payment of a fixed rate of interest on
that, and then the raising and lowering of the fares as the result of
operation justifies.

Commissioner MEEKER. I am a little bit suspicious of automatic
arrangements. Perpetual motion does not seem to me to be a very
practical tiling.

Mr. TAFT. I may say that Mr. Squires, who is the counsel for the
companj', did not give us any great encouragement as to that, because
he did not think it was useful. They have a system in Chicago in-

14 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

augurated. as I recall, on a contract drafted by Mr. Walter Fisher,
which enables the city to share in profits, but I do not think that is
service at cost.

Commissioner MEEKER. In what respect would a service-at-cost
plan be superior to government or public ownership? Is not the
incentive of excellence in private management pretty largely squeezed
out of a concern that is guaranteeel a fixed return on its investment ?

Mr. TAFT. Oh, no; there is no guaranty, except in the result that
comes from an increase in the fare, and you have private ownership.

Commissioner MEEKER. I wish you would follow that up.

Mr. TAFT. I do not mean private ownership ; I mean private man-
agement. The question of private ownership and public ownership
of the physical property is a different one from that of private or
public operations. My objection is chiefly against public operation.

Commissioner MEEKER. You think that the private management
on a cost-of -service plan would be superior to public management?

Mr. TAFT. I do. I do not know that it would be as good — I am
quite willing to concede that there may be factors making for less
activity on the part of private owners in a service-at-cost plan than
where they can take all the profits that they can make.

Commissioner MEEKER. But you think that the stabilizing of the
industry would counterbalance the evil effect of taking away the
possibility of large profits ?

Mr. TAFT. Yes.

Commissioner MEEKER. And by improvements in the management,
in the equipment, and so on ?

Mr. TAFT. Yes.

Commissioner MEEKER. I would like to ask about repeals or unjust
taxation. Do you think that would relieve the companies?

Mr. TAFT. You mean taking out the cost of paving, and that sort
of thing?

Commissioner MEEKER. Yes. Do you think that would relieve the
street-railway companies to any great extent?

Mr. TAFT. I am unable to answer that. I question it. Street-
railroad men, however, know about that, and I do not. I only know
that whenever the argument has been made by street-railway-com-
pany management, 'that plays a good deal of a figure in the argu-
ment. How much of a part it would play in the actual calculation I
have not investigated sufficiently to answer.

Commissioner MEEKER. That is something for this commission to
find out ?

Mr. TAFT. Yes.

Commissioner MEEKER. Returning again to the physical valuation of
property, I take it that you think it advisable to get a physical valua-
tion of property, excluding franchises, of course ?

Mr. TAFT. Yes ; the actual investment.

Commissioner MEEKER. Suppose that such a valuation shows that
the outstanding capital, including bonds and stock, is not excessive;
that is, the par value of outstanding capital would be no more than
equal to a reasonable valuation of the property? From your in-
vestigations, do you think, then, that that indicates that the company
is entitled to earn upon its physical valuation ? What I have in mind
is this: Has the public already purchased that outstanding capital
and the investment by paying fares, in times past, that were simply

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 15

put in in improvements on the property instead of being declared in
dividends? Have I made myself clear? In other words, has the
public already paid a considerable part of the investment in the
street-railway corporations ?

Mr. TAFT. I do not see how that view can be justified. They pay
fare, and the company earns an income on what has been invested.
I assume that, naturally, there is a great depreciation in the value
of the property that constantly needs repairs and renewals, and
therefore I should think that the fares which have been paid should
be held to be nothing but a return on the investment from year to
year.

Commissioner MEEKER. Might not the fares be sufficient to return
a reasonable return upon the actual investment and also to lay aside
a renewal fund that would be put back into better equipment, better
rails, and so on, which would be paid by the public in fares, and
which would now be counted as a part of the actual physical prop-
erty of the company?

Mr. TAFT. No; I do not think that would belong to the public.
I think it would belong to the man who made the original invest-
ment; because in any business, as I understand it, there should be a
renewal fund, what is called a depreciation fund. They make an
allowance for depreciation each year, in order to maintain the level
of their investment.

Commissioner MEEKER. I do not think I have yet made my point
clear. Suppose that, in addition to a reasonable depreciation fund
which would maintain the property at its full value, its full effi-
ciency, suppose there was an excess over that that was put into new
equipment, and even extension of lines, without an additional in-
vestment on the part of investors at all — stockholders or bond-
holders— but simply taken out of the excess earnings of the com-
pany; do you think that such properties, if there be such, in your
opinion, are to be justly credited as the property of the company?

Mr. TAFT. I should assume that was the basis of the original con-
tract, the basis of the investment. I should also assume that there
are not many instances of that kind.

Commissioner MEEKER. That is what I am trying to get at.

Mr. TAFT. Perhaps I ought to go on and say if there were that
the change in ownership from time to time would create a new con-
dition, back of which you ought not to go, in equity. I think you
ought to take into consideration that these properties do change
hands, and that the people who are now sweating are not the people
generally, who were guilty of those original " rich " investments
that have so reflected on the character of the investment, in stirring
up hostility of the people.

Those statements are general statements. I could not give you any
details to justify them; out that is my impression.

Commissioner MEEKER. I think you amply protected yourself,
Judge, when you disclaimed being an expert; but I would like to ask
you another question

Mr. TAFT. In other words, I think that those people who water
stock and engage in other transactions that give property a meretri-
cious value, get out from under the load as promptly as possible, and
allow others to bear it. I think that is generally the history of these
transactions that can not be defended.

16 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner MEEKER. There is one other question that I \vould
like to ask you. Do you think it is possibly more hopeful to look to
improvements in the equipment of the street railways to cut down
operating expenses? Do you think we should look to that for relief
of the street-railway companies, rather than to the repeal of unjust
taxation, unjust paving conditions in the franchises, and so on?

Mr. TAFT. To sny the truth, I think one step is a reorganization of
all the companies, and the power to give up unprofitable lines that
ought never to have been built. That is going on in Massachusetts.
There was a furore at one time in building all sorts of lines that never
ought to have been built, and if the street-railway systems of this
country are to be saved, I think they have got to cut to the quick
with reference to many lines that were unwise in their projecting and
that it is now unwise to continue, so that they may get down to a
solid foundation, and then, from that on, make contracts with the
public \vhich shall secure a fair return on one side and proper service
on the other; but, of course, that will inconvenience quarters where
there is not the business to justify the railway, and will affect the
price of property there; but I do not see how that result can be
avoided.

Commissioner BEALL. I would just like to ask you this, in coming
back to the reestablishing of the credit of the properties of street
railways, which is now utterly destroyed, so that they can obtain
money, not only for their current needs, but for the future develop-
ment of the properties from time to time. Do you not think that
any plan of that kind has to be permanent, in the view of the public
and in the view of the men to whom you must go to get funds ? That
is, no temporary increase in fare, for instance, if you wish to take
that for a moment as a solution, will do. It must be something
that the investor feels is permanent ; that it is not only good to-day,
but that it is a plan that is good for 10 or 20 or 30 years hence.
When you go to an investor for money, if you sell him stock that
neA*er matures, his investment is permanent. If you sell him bonds,
depending on the financial terms it may run anywhere from a year
to, say, 30 or 40 or 50 years, if they can borrow the money for that
length of time. Now, does not a plan have to provide something
that the investor feels will make him secure permanently, that the
public feel they are going, under that plan, to get proper and rea-
sonable service, and that all the laboring men will feel that they are
going to be taken care of ? In other words, has not the solution got
to be in a permanent form, and not just simply a makeshift?

Mr. TAFT. I agree; but the permanent form may not be in fixing
exact terms.

Commissioner BEALI/. Xo; I do not think you can.

Mr. TAFT. But in placing the authority to deal with the situation in
a body sufficiently removed from the influences we have been discussing
to act with impartiality.

For instance, the State commissions, I believe, are much better
qualified to act in matters of this sort than local councils or local
authorities. I think that the suburban business and the relation of
one town to another, and the general condition in the State will so
affect street-car fares and street-car management that it might well
be under a State commission rather than under the local commission.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 17

Commissioner BEALL. Do you favor that, Judge ? Of course, you
have always got to have a supervising body and regulation. That
is just and proper. We all recognize that. But do you think that
the determination of fares from time to time, for instance, should
be left to the State commission rather than to some such arrange-
ment as they have in Cleveland and Montreal and various other
cities not only here but in Canada, where their fixed return is given
on what has been determined to be the money investment in the
property — if the revenue falls below that amount then the fare is
automatically increased, or vice versa, and if your receipts exceed
the determined return on your capital, then they fall to the lower
level ?

Mr. TAFT. That, theoretically, is a good plan. Before I adopted
it, however, I would wish to examine into its exact operation in the
cities that you have named.

Commissioner BEALL. I know both cities very well.

Mr. TAFT. I think you will find a difference of opinion in Cleve-
land ; and that is the only one that we have before us.

Commissioner BEALL. The trouble in Cleveland was — one trou-
ble— that the fare was limited ?

Mr. TAFT. Yes.

Commissioner BEALL. That was the trouble?

Mr. TAFT. I agree.

Commissioner BEALL. When you get to a certain point, you could
get no higher?

Mr. TAFT. When you got up to 4 cents, you could not get any
higher.

Commissioner BEALL. In the city of Montreal, Canada, there is
no limit. The city and Province recognize the right of an investor
or a man in the public who chooses to put his money into street rail-
ways on a given return, and no matter if the fare has to be 10 cents,
it will be made 10 cents, because it is service at cost, and that is what
it costs the company to give that.

Mr. TAFT. My mind inclines in that direction.

Commissioner BEALL. You have had such vast experience in look-
ing into these things that we would like to get your views.

Mr. TAFT. I have been fortunate enough never to have had any
investment in street railways.

Commissioner BEALL. But you know the experience of those who
have?

Mr. TAFT. Yes; I do; I do. There has been nothing quite so try-
ing to me in the last year as meeting gentlemen whom I have known
\vell and for whom I have entertained the friendliest feelings and
finding that they were interested in street-railway property. The
subject matter was not exhilarating, I found.

Commissioner SWEET. In view of your quasi-parental relation to
this commission, would you recommend that we should go at all
into the subject of past profits of these companies?

Mr. TAFT. If you do you will never get down to business. I can
tell you that.

Commissioner SWEET. Can you see any profit in nn inquiry of
that kind, in relation to the question that we are really to consider?
160G43— 20 2

18 PROCEEDINGS OF FEDERAL ELECTRIC RAIL WAYS .jCOMMLSSIOH",

Mr. TAFT. I do not mean to say that there may not be instances
in which you ought to go back, just to determine the facts that you
are trying to find out; but to entertain evidence of the corruption
and the methods of 10 years ago, or 20 years ago, and the history
of transactions that have been made the basis for hostility to street-
railway companies, will occupy all your time, so that you will
never get down to the real question; and I think you could sepa-
rate the two by finding out what is the actual money that is in-
vested now.

Commissioner SWEET. The real question now has very little rela-
tion to big profits or corruption that may have been received or
practiced years ago?

Mr. TAFT. Except in its psychological effect upon the attitude of
the public.

Commissioner SWEET. Is it not an old sore that had better be left
alone?

Mr. TAFT. We declined to go into it.

Commissioner SWEET. Don't you think we should decline to go
into it?

Mr. TAFT. Yes ; I do.

Commissioner SWEET. I wanted to get your opinion on that.

Mr. TAFT. I am speaking generally. I do not mean to say that
you may not have exceptional cases that do require your going back.
I think it is generally accepted, and I do not think if you would
call upon steam-railway men they would hesitate to admit, just
as it is a matter of which you can take judicial notice, that the
steam railways of the country abused their privileges until they
roused the public, and now the condition has been brought about
in which the public has had — I do not know but it is changed now —
but they have had a feeling of hostility that has led them to extremes
in dealing with the steam railroads, and to injustices.

Commissioner SWEET. But the great problem now, and the one
that you would contemplate at the start, does not practically involve
that question?

Mr. TAFT. No; I think you can escape it.

Commissioner SWEET. I think so.

Commissioner WEHLE. Have you given thought to the question as
to what should be done in cases where the franchise is a long-time
franchise which strictly limits the company to a lower fare than
it should economically receive?

Mr. TAFT. Yes ; I have. Of course, you can hold the company to it.
It is a contract.

Commissioner SWEET. Unless it dies.

Mr. TAFT. The public can hold the company. But a bankrupt ten-
ant is not a very useful occupant of your building, and a company
that is bankrupt and has not the means with which to render the
service which the franchise was granted to secure is of no use to the
public. You are a lawyer, Mr. Wehle, and understand, of course,
that the contract does not work both ways. What I mean is that you
can hold a company to a franchise and the company can hold the
public to the franchise as long as the term fixed in the contract, but
the legislature, acting for the municipality with whom the franchise
was framed under the statute, may repeal the statute or may destroy
the contractual effect of the franchise by merely waiving it, because

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 19

it may act for the municipality by whom the franchise was granted
and with whom the contract of the franchise was made; so that there
is no constitutional difficulty.

Commissioner WEHLE. That would point again, would it not, to the
State public-utility commission being vested with the power to deal
with these questions, and possibly to waive conditions in franchises?

Mr. TAFT. Oh, I think so. If you are going to have any reform at
all, you should have power on the part of the public authority to act
and clean the situation of past competitions. Of course, I would not
let up on a company that was able to carry out a contract and that
had made it in the face of conditions ; it should perform its contract.
But questions of public expediency enter in there.

Commissioner WEHLE. And as a general proposition you would say
that the local municipal authorities should be eliminated with respect
to the power either to enforce franchises or to waive conditions in
franchises?

Mr. TAFT. I think at least there ought to be an appellate jurisdic-
tion in State boards of public utilities.

Commissioner WEHLE, We have had some reference here to the
service-at-cost plan, and that suggests an analysis of the cost of the
service; and there has been some reference here to the element that
taxation plays in the cost to the street-railway companies in conduct-
ing their business. Would you state, for the enlightenment of the
commission, something of your views with respect to the question, On
what theory should the street-railway companies be taxed ?

Mr. TAFT. I never have been able to see why street-railway compa-
nies should be taxed by any other rule than that under which other
invested capital is taxed. You can tax them by income, you can tax
them by a percentage of the amount invested. Those are the two
methods ; and I think that simplifies the methods.

What you are going to find, if you have this percentage tax, is that
the value of the street railways wrill be taxed at a higher rate — I mean
the property of the street railwa}Ts will be taxed at a higher assess-
ment than the real estate of the ordinary taxpayer — and perhaps,
therefore, it is a fairer method to tax by income. I suppose you
could not tax by income only. You would have to have both systems
of taxation.

Commissioner WEHLE. Your thought on this subject has sug-
gested to me that possibly, in view pi the fact that you regard the
street-railway service as, in a way, similar to the service of conduct-
ing a public road-
Mr. TAFT. I only mention that as an argument in favor of tax-
ation to meet the deficit, if it be inevitable, of running suitable street
railways.

Commissioner WEHLE. The thought was suggested to me that pos-
sibly you would view any tax that goes beyond the necessity of
meeting the expense of the State with reference to the property it-
self as poor public policy. Is that your view?

Mr. TAFT. Well no; because I think those who get any profit out
of it ought to pay the same taxation that men who make a profit out
of other businesses pay.

Commissioner WEHLE. When you come to analyze the nickel or
the 7 cents that goes into the conductor's hands, and see what it pays
for, does it seem to you that the element of taxation that is repre-

20 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

sented in that fare should go beyond paying for the conducting of
the property itself, as it affects the State or the municipality ?

Mr. TAFT. I confess that if a man owns stock in a street railway
and the stock pays him, I do not see why he should not pay taxes
on that income, or on the value of the stock, just as if he had an
investment anywhere else.

Commissioner WEHLE. That suggests taxing the stock or the in-
come, rather than the property itself?

Mr. TAFT. Yes, it does; and I think the greater uniformity you
make in taxation the more likely you are to reach justice, and there-
fore if you treat shares of stock in street railways just as you do
shares of stock in a manufacturing corporation, or in any kind of
an enterprise, I think you are more likely to do justice; and you
create a simplicity which is merely likely to lead to justice or a
just operation.

Commissioner WEHLE. That is, by making the taxation come upon
the shareholder or the bondholder, who obtains income out of the
property, rather than on the property or the franchise itself — you
would think that was the direction in which to go in the matter of
taxing public utilities ?

Mr. TAFT. You are there confronted with a lot of questions of
expediency in taxation — the ability to find the bonds and tax them,
or the inability to find the bonds and tax them, is one thing. You
have got the railroad right in front of you. You have the wires,
you have the electric-power plant, and with some experience in levy-
ing taxes, I do not think that clearness of view that the State has
of the actual property ought to be given up as an advantage. I
think it ought to be reconciled, as it seems to me it might be, with
treating that property just as you treat any property in corporate
ownership. For instance, manufacturing corporations do not pay
on stock, all of them, but both on the property they own and on the
stock they own, do they not ?

Commissioner WEHLE. Yes.

Mr. TAFT. Of course, taxes vary so in different States that it is
difficult to state generally.

Commissioner WEHLE. Do you think, from your observation, that
there has been sufficient control of stock issues by public-utility com-
panies, and particularly electric-railway companies?

Mr. TAFT. No, sir; I do not know but there is now, but I think
that has been one of the sources of the difficulties in which we have
found the situation. I have always been in favor of the Federal
incorporation of steam railways engaged in the business of the coun-
try, and if you have Federal incorporation, I think you ought to
have a limitation of the power to issue securities. I think the great
abuses that have arisen in the management have been in the unwTise
and often the fraudulent use of such securities. I do not think now
that that is the case. I think there are limitations in the various
States.

Commissioner WEHLE. Do you think those are sufficient, as you
have seen them?

Mr. TAFT. No; I think there ought to be a uniformity produced
by putting those interstate railroads within the Federal authority.

Commissioner WEHLE. One of the phases of the present situation
seems to be that equities have been created in innocent holders of

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 21

stock which the public has an obligation to recognize in dealing
with the company, and yet the stock itself was not legitimately or
justly issued.

Mr. TAFT. That is very true.

Commissioner WEHLE. Can we approach the situation at all with-
out having that condition positively prevented in the future?

Mr. TAFT. I should think you ought to have a recommendation
that no company should be permitted to issue either stock or bonds
without a certificate issued by the public-utilities commission justi-
fying the issue, and knowing what the money to be derived from
that issue is to be devoted to.

Commissioner WEHLE. One more question. You suggested earlier
in the hearing that it seemed to you that possibly 7 cents for a
maximum fare, beyond which the companies could hardly go with-
out incurring a diminution in business, was the limitation which
would be found?

Mr. TAFT. That is, within urban limits.

Commissioner WEHLE. Yes.

Mr. TAFT. Of course, when you get outside of the city into what
is called the suburban line the rate goes up just as it does on steam
railroads.

Commissioner WEHLE. Yet the present increase in costs seems to
suggest the possibility that even with respect to urban business the
7-cent fare may not prove economically sufficient. According to the
contention of some of the owners, it is not sufficient to-day, and will
not remain nearly sufficient — or even 8 cents.

Mr. TAFT. If they say that, then I would ask them what their
suggestion is.

Commissioner WEHLE. I was* going to ask you, Mr. Taft, what
your suggestion is.

Mr. TAFT. That is a limitation upon your useful field. You are
dealing with human nature.

Commissioner WEHLE. But at that point, Judge Taft, comes the
place where, as a matter of public policy, we must avoid conges-
tion in the cities?

Mr. TAFT. Yes.

Commissioner WEHLE. Where it must be made possible for these
lines, in some way, to give this service, and where there is a margin
that seems to be almost unabsorbable by private initiative in order
that the people should have the sort of service, and the city should
have the sort of life that ought to be produced.

Mr. TAFT. I agree. That is the limitation of the situation. It is
part of the problem that makes it very difficult to solve.

Commissioner WEHLE. Is that the point at which you stop — in
that area of the unabsorbable margin — where you believe the munici-
pality or the State should come in and assist in a joint partnership?
Is that the idea that you were expressing?

Mr. TAFT. Yes. I do not know that I would limit it. I think if
Hie system proves good you might make the existence of that a con-
dition— I mean the service at cost: because the effect of the service
at cost is not alone to meet a situation such as you describe, but it is
also useful in dealing with the public and reconciling them to the
result. If their auditors have a part in the management, so far as
the examination of accounts is concerned, with certain restrictions

22 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

that they may impose as to the operation of the railway, and that is
done through their own officers, they are much more likely to be
reasonable than when they are on one side and the company is on
the other.

Commissioner WEHLE. At that point, then, you would suggest that
the problems of administration, in such a way as to insure the public
the proper use of the funds which the public might come to invest
in street-railway service, could be solved, by having a joint control
or a joint directorship?

Mr. TAFT. No; I would not call it joint; but I would call it a
directorship subject to the complete knowledge and certain limited
supervision of the management of the finances of the company.

Commissioner WEHLE. That is all I have to ask.

The CHAIRMAN. Commissioner Nixon, do you wish to ask any ques-
tions of Judge Taft ?

Commissioner NIXON. No.

The CHAIRMAN. Judge Taft, in dealing with the question of labor
and wages, did you find that an effort was made by those interested
in securing higher wages to demonstrate that the street-car com-
panies could effect economies in operation that would permit them to
pay a higher wage without increasing the fare ?

Mr. TAFT. No, sir; I will not say that somebody did not say that
in argument, because it would be unwise to say that the argument
did not have a very wide range; but there was no serious contention
on that point.

The CHAIRMAN. Was any effort made by anyone to present evidence
to your board to show how that can be done ?

Mr. TAFT. No.

The CHAIRMAN. In determining the question of wage, did your
board consider that it was making a temporary adjustment only?

Mr. TAFT. Of course^ we were making a temporary adjustment,
because that is all our jurisdiction was. Our orders only lasted for
six months, or during the period of the war; that is, we gave the
right to both sides to come before us and ask for a readjustment at
the end of six months.

The CHAIRMAN. And your wage was based upon the cost of living
at the time the problem was before your board ?

Mr. TAFT. Yes, sir.

The CHAIRMAN. How far back, in making the study of the cost of
living, did your board go?

Mr. TAFT. We had the benefit of the findings of what, for lack of
a better recollection, I call the Secretary Lane Board, which fixed
the rates of wages for the steam railways, and I think that went
back to January, 1915. I think it was January, 1915.

The CHAIRMAN. Then the study of the living cost was continued
just during the war period?

Mr. TAFT. Yes. Of course, one war period differed from the
other. I mean, the war period abroad, and the war period with us,
after we got into the war ; it was different, of course.

Commissioner MEEKER. May I make a suggestion there, Mr.
Chairman? I think your board, Mr. Taft, also made use of the
cost-of -living figures which the Bureau of Labor Statistics collected
in shipbuilding centers.

Mr. TAFT. Oh, yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 23

Commissioner MEEKER. That was based on 1914.

Mr. TAFT. Was it? It went back to 1914, did it? I had for-
gotten.

Commissioner MEEKER. Yes.

The CHAIRMAN. Did your board, Judge Taft, consider whether
the wages which existed prior to the European war were just and
ample to meet the conditions?

Mr. TAFT. I do not think they were ; I do not know but that we ex-
pressed an opinion that they were not. I think we did express the opin-
ion that they were not, for the reason that I have already suggested,
namely, that the conditions of the field were such that the employers
were very obstinate in viewing an increase of wages. When I say
"obstinate," you understand what I mean — they felt that if they
went on they would seriously injure the value or the investment.

The CHAIRMAN. What influence will your wage adjustment have
upon the future wages of emploj-ees in this class of service ?

Mr. TAFT. Well, it opened the subject up; and I have no doubt
that it has established a more or less permanent standard upward.

The CHAIRMAN. Then, that being so, must this commission con-
clude that the operating cost of the street railroads would be upon
a higher basis in the future than it has been in the past ?

Mr. TAFT. I have not a bit of doubt of it. Xot only that, but I
think that every business will be.

The CHAIRMAN. It is pretty well recognized that the cost of mate-
rial and supplies will fall in the course of time, and therefore a
large element of the operating cost will be on a lower basis than
it has been during fhe war period.

Mr. TAFT. You think it is going to fall a great deal ?

The CHAIRMAN. I hope so. It always has in the past, Judge Taft.

Mr. TAFT. It has, when they have had a panic ; but I do not think
the cost of living was reduced very much between 1865 and 1873.

The CHAIRMAN. I am not speaking of the cost of living. I was
speaking of the cost of material and supplies.

Mr. TAFT. That is what I am speaking of. That enters into the
cost of living. I mean, it is affected by the same reasons.

Of course, I am no prophet, and I am not a business man, but as I
have followed the general opinion of men who have been in busi-
ness— say, with reference to the building trades — people have kept
out of the building trades because the cost of material is so high;
but I think the general opinion now is that the cost of building is
not going down very much, and that people are going on to build
on the theory that that is a level more or less fixed. I may be wrong
about that.

The CHAIRMAN. The function of this commission, if it has any,
is to offer some permanent solution of the street-railway situation.
That being so, have we a right to consider that the present operating
cost, including wages, price of material and supplies, may repre-
sent the average normal price for a period of years?

Mr. TAFT. If I sat upon your board I would address myself to
that problem on that basis.

The CHAIRMAN. In the zoning system, should the commission
consider that the minimum charge should be 5 cents, or a less sum,
for short distances?

24 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. TAFT. I think you might perhaps, for short distances, in the
zone system, go down to 4 cents.

The CHAIRMAN. If there is to be a zoning system, we must have
a charge that will encourage short-haul traffic as well as long-haul
traffic to get the revenue for the company?

Mr. TAFT. Yes. I think we ought to have a minimum, but I
think it might be below 5 cents.

The CHAIRMAN. This commission has already been asked to offer
suggestions for the solution of the local problems; there are a num-
ber of utilities that have already sent telegrams and communica-
tions to us asking how to settle this particular problem or that par-
ticular problem.

Mr. TAFT. I have no doubt that they are reaching out for anything
that will prevent their sinking.

The CHAIRMAN. Do you think this commission should, prior to
the formulation of its report, attempt to interfere or even venture
suggestions as to the best manner of determining some of these
local problems?

Mr. TAFT. No; I do not think that. I do think, however, that I
would give them a chance to be heard, for two reasons: First, be-
cause you will get a great deal of information from particular in-
stances, and second, I do not see why you should not offer your-
selves, as you are seeking to give relief, to let this industry, if you can
call it such, have a safety valve. There is nothing that helps the
psychological condition of a man so much as to have an opportunity
to let out what is in him in respect to a subject where he thinks he
is not being treated fairly or properly.

The CHAIRMAN. While the street-car problem consists of a great
many segregated plants, yet their difficulties all bear upon the gen-
eral problem?

Mr. TAFT. Yes; they do.

The CHAIRMAN. For that reason we should hear them?

Mr. TAFT. I think you ought to hear them, because there are
common facts in respect to all the companies.

The CHAIRMAN. You have been addressing yourself somewhat to
the question of service at cost. Service at cost, if I understand the
plan correctly, represents a definite understanding that the investor
shall receive a return upon his honest investment, and also the public
shall receive as good service as it can for what it pays.
, Mr. TAFT. What he receives may differ in rate, as to the permanent
investment already made, from that that he would receive on subse-
quent investments ; where he becomes a borroAver himself, as he must
in many of these plants, he will pay the market rate for the money.

The CHAIRMAN. Is not the net result of the service-at-cost plan
a public guaranty of return?

Mr. TAFT. It is not a guaranty of the payment of money by the
corporation, by the municipal corporation, but is an arrangement by
which the fares which the public pay shall meet, within limits, the
cost of operation.

The CHAIRMAN. In other words, the public does not guarantee to
make up any deficit by appropriation ?

Mr. TAFT. No; but it agrees that, within certain limits, the fares
shall rise in order to meet the necessity for an income on the in-
vestment.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 25

The CHAIRMAN. With that understanding, do you believe that a
service-at-cost plan would remove the incentive to economy in the
operation of these plants ?

Mr. TAFT. I am willing to concede that the factor may not be so
strong in such an arrangement as it is where the company has com-
plete control ; but I think there is quite enough motive there to make
the management far more economical than it would be under mu-
nicipal management.

The CHAIRMAN. How do you differentiate between the incentive
toward economy under the service-at-cost plan and under municipal
operation ?

Mr. TAFT. The man who is running the company has to see to it
that he gets his income within the limits.

The CHAIRMAN. But he is sure of his income ?

Mr. TAFT. No; he is not; because the fares are not certain to pay.
It is a very different guaranty, if you call it such, to raise the fares
than to pay the money on the investment — very different. At least,
it seems so to me ; and, so far as municipal management is concerned,
I am somewhat familiar with that.

The CHAIRMAN. Do you believe. Judge Taft, that a service-at-cost
plan, with a certain guaranty of the term, would invite the demand
for municipal ownership of these plants ?

Mr. TAFT. I do not think so; I think it would allay the demand.
I think it would allay the demand in the sense of security that the
people would have that that thing was being run under their eyes —
that the game was played with the cards face up on the table. That
is one of the great advantages in that plan.

The CHAIRMAN. Of course, the plan could not be favored at all
unless it meant that the public had a very strict watch over the ac-
counting system ?

Mr. TAFT. Oh, j-es; and had their accountants there all the time.
I understand that there is no practical difficulty about that. At
least, in Cleveland, which was the concrete instance before us, there
was not the slightest suggestion that tire public did not know all
that was being done.

The CHAIRMAN. Do you believe that the street-car situation is
such that franchises could be adopted throughout the States carry-
ing the same general provisions?

Mr. TAFT. That is a question of success. If one State adopted it
and it. worked, I think another would ; and the solution is so difficult
that any success in its solution would lead to a general uniformity.
Of course you could not bring it about by national legislation, be-
cause there is no jurisdiction to do that.

The CHAIRMAN. Have you given consideration to any particular
form of franchise for these utilities?

Mr. TAFT. No, sir.

The CHAIRMAN. Whether the franchise should be for a limited
number, of years or for a permanent tenure?

Mr. TAFT. No; I would not venture an opinion. I may answer
that bv saying that that was not my job.

The CHAIRMAN. You do state, however, that from your experience
upon the board, you found that State commissions were more will-
ing to recognize new operating conditions and adjust the fares ac-
cordingly than the local municipalities?
1(50T,430— 20 3

26 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. TAFT. Oh, I think there is no doubt about that. A public-
utility commission comes into a community just as you come in here,
and you have a hearing that likens itself to a judicial hearing; and
it comes from the center of the State ; it represents the State ; it is
separated from the local feeling. You go before a common council
and — well, it isn't so, that is all ; it is not the same way.

The CHAIRMAN. Do you believe that State regulation should com-
pletely dominate the field, leaving nothing to local tribunals to
supply ?

Mr. TAFT. I believe in local self-government, of course, as far as
possible, and that might well be encouraged by an original hearing,
and then an appellate proceeding, so that it comes up before the
board with the finding of the council and imposes upon the com-
pany the burden of showing that the council was wrong.

The CHAIRMAN. There seem to be two schools of thought on this
question. One group of men favor centralizing all of the authority
over rates as well as service and capitalization in the State commis-
sion; the other favor leaving it with the local municipalities, sub-
ject to appeal, both as to service, rates, and other matters, to the
State commission. Which plan do you think is the more feasible?

Mr. TAFT. I think the more practical plan would be to give com-
plete control to the State commission, in point of speed of action
and possibly efficiency ; but there is a strong feeling among the peo-
ple for local regulation, and I do not think it would interfere with
efficiency enough or create so much delay as to offset the advantage
of recognizing local interests and local power, thus reconciling mu-
nicipalities to having such a system. I do not know whether I make
myself plain.

The CHAIRMAN. Do you believe that, under any circumstances, the
whole jurisdiction, both over service and rates, should be left with
municipalities?

Mr. TAFT. Are you speaking of fixing wages ?

The CHAIRMAN. No; as to rates and service.

Mr. TAFT. I think the whole subject should be under the control
of the State commission and of the local authorities.

The CHAIRMAN. But I asked if you think the whole question should
be left to the local municipality, without right of appeal to the State
commission ?

Mr. TAFT. No, sir ; I do not think so.

The CHAIRMAN. Do you believe that we have approached the time
where we should get away from the fixed fare, fixed by law or fran-
chise ?

Mr. TAFT. Yes ; I do. I think a fixed fare that runs for 20 years
is not right to either side.

Commissioner SWEET. If this commission should be requested by
any local authorities that might agree, perhaps to act as arbitrators
in the settlement of local troubles, do you think it would be wise for
us to accept that responsibility and do it, or would it lead to possible
multiplication of our work to such an extent that it would not be.
feasible, or would it weaken our authority, the authority of what
we may ultimately put forth?

Mr. TAFT. I think it would be a very useful body to tender service
in settling questions, where both sides are willing to submit; but
I think it will involve you in a permanent business.

PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION. 27

The CHAIRMAN. And, of course, our compensation is even less than
$1 a year.

Commissioner SWEET. I have one more question that I would like
to ask, suggested by your answer to the chairman with regard to the
general advance in prices of commodities and labor and everything
else. Is it such, in your judgment, as to justify the statement that
the purchasing power of the dollar has been very materially re-
duced ?

Mr. TAFT. I think it has. I think that as soon as peace comes
we are likely to have an era of prosperity ; and an era of prosperity
usually means high prices. It means large demand for everything.

Commissioner SWEET. If the purchasing power of the dollar is
reduced, the purchasing power of the nickel is reduced in the same
proportion, is it not ?

Mr. TAFT. Oh, yes.

Commissioner SWEET. And if the value of the dollar is reduced
to 60 cents, the value of the nickel is reduced to 3 cents, is it not ?

Mr. TAFT. Yes.

Commissioner SWEET. Is not that a fact that the public should
take into account in connection with their paying for this railway
service ?

Mr. TAFT. Yes.

Commissioner SWEET. If they are paying in nickels that are actu-
ally worth, in purchasing power, 3 cents, they ought not to expect
to get as much for that nickel as for a nickel that wiys -worth 5 cents
in its purchasing power: isn't that so?

Mr. TAFT. Yes. •

The CHAIRMAN. Suppose that the improvements in the art of
transportation should develop to a condition where the street-car,
as now operated, becomes an obsolete institution: should there be
any obligation upon the public to protect such an institution?

Mr. TAFT. If it becomes obsolete, it will be rejected, and then
they can not get any income. I think that will work itself out. I
think the suggestion, however, is a reason why these fixed fran-
chises for long terms are not wise arrangements now.

Commissioner WEHIX. Judge Taft, three of the gentlemen on this
commission are representatives of Government departments, and I
happen to be one of them, representing the Treasury Department,
and this question as to the scope of the commission's activities in-
terests me very much. I think it is proper to say here, because the
question has been brought up. that in Washington it is strongly felt,
certainly among the higher officials whom I have had contact with
in connection with my representation on this commission, that the
authority and influence which the commission can exert with ref-
erence to the street-railway problem must bo purely a persuasive in-
fluence, based on the balanced character of the personnel of the
commission, and based also on the thought that the Federal Gov-
ernment, in having been instrumental in bringing about this in-
quiry, is acting really as a mediator, so to speak, in this economic
dispute; and that this authority of the Government and the in-
fluence which it would have through this commission would 1m
greatly lessened if it undertook in any way to interfere or to sug-
gest as to the solution of any local difficulties.

28 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

You have suggested that these gentlemen who are involved in these
difficulties should, if they apply to us, be heard with reference even
to the difficulty itself. Dp you, may I ask, conceive that that sug-
gestion would carry with it, if adopted, a danger that the functions
of this commission and the intentions of its framers would be mis-
understood?

Mr. TAFT. I doubt it. I believe in the inductive method of philos-
ophy. I believe you will reach generalizations by getting particular
cases,,safer generalizations, by taking up a series of particular cases,
than you wrill by generalizations such as you have listened to this
morning. I do not know how much you value my evidence, but I
would not value it very much.

Commissioner WEHLE. We do value it very highly, Judge.

Mr. TAFT. I think the evidence of particular cases, with something
concrete before you, even though you have generalizations, will en-
able you to test those generalizations in a way that would be most
useful for you.

Commissioner WEHLE. But your suggestion that we hear these
men from troubled localities does not carry with it, does it, the idea
that we should make suggestions as to the way in which the dispute
should be settled?

Mr. TAFT. No; not unless both sides present the question to you
and ask you to do it. Then, if they do, that is a matter of discretion
for you to say how far you are willing to go in tendering services that
are gratuitous pn the part of the Government and. so far as I under-
stand, gratuitous on the part of the members who represent the
Government. •

The CHAIRMAN. I am sure, Judge Taft, that the commission wishes
to thank you for your very valuable contribution to this subject.

Mr. TAFT. I am very glad to come here, gentlemen. I have spoken
with great freedom on issues in respect to wrhich I do not claim to
have any expert knowledge ; but wTe are all in together in the solution
of these problems, or all affected by them, and if anything that has
happened to me in the course of the National War Labor Board's
experience is helpful to you, I am delighted to give it to you.

The CHAIRMAN. I have a telegram from Mr. G. S. MacFarland,
reading as follows :

Call to Washington makes it impossible for me to appear before you to-day.
Shall be glad to do so on some other occasion.

This telegram is sent from Boston June 19.

Now, Mr. Pardee, you have a statement to make, I understand, and
we shall be glad to hear you.

STATEMENT OF MR. JOHN H. PARDEE.

Mr. PARDEE. I appear as president of the American Electric Rail-
way Association, which of course is vitally interested in the investi-
gation which this commission has undertaken. The association rep-
resents a very large majority of the electric-railway mileage of the
United States.

It has, for a number of years, be«n fully alive to the alarming
tendency manifested in electric-railway affairs, and through its
various committees has been seeking for remedies. It was repre-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 29

sented at Washington during the war by a war board, which, for a
part of the time was presided over by Mr. P. H. Gadsden, one of
your members, and it constantly endeavored to bring to the attention
of the country, and especially to the national administration, the situ-
ation in which the industry has been plunged, not only by war con-
ditions, but by conditions which prevailed before the war.

The association believes that in the appointment of your commis-
sion a very decided forward step has been taken in the process of
informing the country of the very unfortunate state of affairs exist-
ing among the traction companies, and of arriving at some solution
of the difficulties. As its president, I am authorized to place its
facilities at your command.

At a recent meeting of the executive committee of the association
a committee of 100 of the leading owners, operators, and bankers in-
terested in the electric-railway securities, and others, of which Gen.
Guy E. Tripp is chairman, was appointed for the purpose of prepar-
ing a presentation of the situation as it is viewed by the electric-rail-
way interests. We hope to appear before you commission at its con-
venience with a full and complete presentation and with such sug-
gestions for the correction of conditions as the committee may decide
upon.

We approach this subject not only with the interest of the railways
in mind, but also with the interest of the public, which we firmly be-
lieve is threatened with the loss of an essential and important service,
unless measures be taken to check the present tendency.

We believe, with the President of the United States, with the Sec-
retaries of Labor and Commerce, that the situation because of its
effect, not only upon the financial structure of the Nation, but upon
its commercial and civic life, has national aspects which can not be
ignored.

The situation of which we complain is not confined to one locality
but extends throughout the United States.

The solution in our opinion depends, in the first instance, upon a
complete understanding by the public of the problems as they now
exist; and in the education of the public to the importance of these
problems, as well as to the method of curing them, your commission
can do a very large and a very important work.

Please consider that the association and its resources are at your
command in the investigation that you have undertaken. I desire
at this time to request your commission, at its convenience, to ap-
point a date at which pur committee may present for your consid-
eration the facts affecting the situation which you are studying, as
they appear to the men actively interested in the financing and
operation of electric railways. It shall be our endeavor to give you
as comprehensive a picture as we can of present conditions and the
causes which have led to them, as well as to the remedies to be
applied.

The CHAIRMAN. How soon, Mr. Pardee, would it be convenient
for your committee to present these facts to the commission?

Mr. PAKDEE. Gen. Tripp has called a meeting of the members of
this committee who are quite prominent men in all sections of the
United States, and he has called a general meeting of the committee
for June 20, in New York, at which we hope to have a very largo
proportion of the members of the committee present. Subcommit-

30 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

tees are now working on a definite program to outline to the general
committee, and we hope that at that meeting, on June 26, the de-
tailed arrangements will all be made so that we can get to work
immediately ; so that perhaps a week later we would be prepared to
present some particular phase.

Our present idea is that we shall, at these various hearings, present,
one at a time, definite phases of the situation: for instance, taxation,
in one comprehensive plan; franchises; service-at-cost plan; and va-
rious other phases of the general question.

The CHAIRMAN. Would it be convenient for the utilities to present
ail that you have to say at one general meeting which would consume
as many days as may be necessary, or would you prefer to have
separate hearings?

Mr. PARDEE. It would depend entirely, sir, upon whether we could
prepare it. We desire, if possible, to present this in a very compre-
hensive and complete way — each section. Some phases will take
longer for preparation than others, and I do not know that I can
answer that question just now. A little later, however, we can pre-
sent, I think, at a general meeting consuming one or more days, all
of the subjects.

The CHAIRMAN. The commission will be glad to consider any sug-
gestion that you have to make upon that subject. Would it be con-
venient for the representatives of your association to come to Wash-
ington to present that testimony?

Mr. PARDEE. Yes, sir ; at the pleasure of the commission.

The CHAIRMAN. There was a Mr. Clark who was to appear this
morning to give testimony.

Mr. PARDEE. Mr. Clark is the direct representative of the associa-
tion, Mr. Chairman, and I am speaking for Mr. Clark, as I conferred
with him this morning; and unless it is the earnest desire of the com-
mission to hear Mr. Clark this morning, we would rather have his
testimony come into our general plan, rather than take part of it at
this time.

The CHAIRMAN. The commission will hear Mr. Clark later, then.

Is there a Mr. Cummin in the room ?

Mr. CUMMIN. Yes.

The CHAIRMAN. Will you be at liberty to present your statement
this afternoon?

Mr. CUMMIN. Yes, sir.

The CHAIRMAN. Are there any other gentlemen present who wish
to present statements before this commission at this time, or at any
other period ? If so, we will take your names now. [No response1.]

Let it be understood that if any here desire to present testimony to
this commission, if they are not ready to do so now, they may com-
municate with us later on. We want to hear all sides of the question,
and get all the information that can be gathered.

We now stand adjourned until half past 2, to meet in this room.

(Whereupon, at 12.40 o'clock p. m., a recess was taken until 2.30
p. m.)

AFTER RECESS.

The CHAIRMAN. Is Mr. Cummin present?

Mr. CUMMIN. Yes.

The CHAIRMAN. We will hear you.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 31

STATEMENT OF MR. GAYLORD C. CUMMIN.

The CHAIRMAN. Please state your name, address, and business, Mr.
Cummin.

Mr. CUMMIN. I represent now the Institute for Public Service, at
51 Chambers Street, New York, a private institution that has on its
board of directors such men as Julius Barnes, of the Wheat Corpora-
tion, and Mr. W. Hefflin, manager of the Allied Grain Export Cor-
poration ; Dr. L. B. Upson, of Bureau of Governmental Research in
Detroit.

The CHAIRMAN. Have you had any experience in the handling of
public utilities ?

Mr. CUMMIN. I have handled them six years from the public
standpoint, and have been about as much with them on the private
side. I have been city engineer of Dayton, Ohio, city manager of
Jackson, Miss., and Grand Rapids, Mich.

The CHAIRMAN. When and how long were you city manager of
Jackson ?

Mr. CUMMIN. Two years.

The CHAIRMAN. And at the other place?

Mr. CUMMIN. One year.

The CHAIRMAN. When was it?

Mr. CUMMIN. Two years ago.

The CHAIRMAN. You may proceed.

Mr. CUMMIN. The street-railway situation, as I see it, divides itself
into two parts. I might say that, during the past year, I have been
with a large utility group and have had opportunity to study, at first
hand, the figures and the number of street railroads.

The street railroads seem to separate themselves into two groups
for purposes of treatment. One group is the group where it is pos-
sible for them to stand on their own feet, by means of increased
fares and decreased expenses of various kinds, decreased taxes
perhaps, and so on. In other words, the earning capacity is there,
to put them on their feet. The other class is the class where the
earning capacity is not there ; I mean, the rate of fare that is fixed
makes absolutely no difference. You could give the company a free
hand to charge any thing they wanted to charge, and they still could
not raise their gross revenue.

It is rather a simple problem of merchandising. Yqu have a
problem of getting the greatest gross revenue, and you can get it
in one of two ways — by soiling a large number of units for a small
price or a small number of units for a large unit price. There is
some price at which you can get the largest gross revenue. That is
true of street-railway fares just as much as it is of articles of mer-
chandise. But as the size of your town decreases, speaking gener-
ally, the price per fare at which you can get the greatest gross reve-
nue drops, and you get in the smaller towns, to the point where 5
cents is probably larger, or might be larger than the point where
you could get the greatest gross revenue. Of course, the habit of
paying 5 cents might not make that true; but it is certainly true
that a 6-cent fare in the smaller towns in many cases will give no
increase in gross revenue, and in some cases an actual decrease.

Commissioner SWEET. Are you saying that, now, from actual cases
that you know of?

32 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIN. I am saying that from actual cases.

I am not going to discuss, very much, the class where the revenue
does not exist, where they can not earn the revenue. I am going to
try to discuss the ones where it is possible to get the revenue.

The CHAIRMAN. Have you any figures to show in what cases the
increase in the fare from 5 to 6 cents would result in an actual loss
in gross revenue ?

Mr. CUMMIN. No; I have not them with me, Mr. Chairman. I
know of two small street railroads that I was watching with a great
deal of attention and when the increased fare was put into effect
they fell off very materially, not only in passengers .carried, but in
actual gross revenue for the period of months over which I watched
.them, about some seven months.

Commissioner GADSDEN. Have you followed up the experience
since that time?

Mr. CUMMIN. Since that time I happen to have been out of touch
with them.

Commissioner SWEET. I think you had better name the place.

Mr. CUMMIN. Jackson, Miss., was one of those. That is a town of
30.000. There is a case where they do not have to ride.

Commissioner BEALL That is because the distances are so short?

Mr. CUMMIN. Yes.

Commissioner BEALL. If there are any others that you may have
to cite, I -think we should know of them.

Mr. CUMMIN. That was the plainest case. That was the case of
an increase to a 7-cent fare, which resulted in a decrease in gross
earnings, a very material decrease, too, at first.

Commissioner GADSDEN. What was their average ride in Jackson,
do you know ?

Mr. CUMMIN. No.

Commissioner GADSDEN. Was it over a mile and a half, or less?

Mr. CUMMIN. Less than a mile and a half.

Commissioner GADSDEN. That explains it.

Mr. CUMMIN. It is easy enough to explain why, but it is a con-
dition that does exist.

In the cities where a change of fare promises relief, it seems to
me, from Avhat I have seen on both sides, that no form of agreement
which has been made at present is satisfactory. Perhaps the nearest
approach to it is the service-at-cost plan. That, I think, has in it a
fundamental weakness, which was touched upon briefly this morn-
ing, but was not brought out, and that is — I do not believe that by
making a fixed return, which a utility can not exceed, you can keep
that utility up to efficient operation or that you can keep its execu-
tives and managers interested in cutting its costs and cutting cor-
ners and keeping things as low as possible. That simply is not
human nature. You have got to give some incentive to do the thing
you want to do, if you want to do it for any length of time.

Commissioner BEALL. Suppose the maximum is not fixed, how
then ? Suppose there is no maximum there fixed, but that the rates,
as in Montreal, rise to whatever height is necessary to produce a
given revenue on a given investment. Are vou referring to a case
of that kind ?

Mr. CUMMIN. If you give the utility a fixed return only — that is,
if it is allowed, say, 7 pe.r cent on its invested capital, or 6 per cent

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 33

on its invested capital — when it once gets up to 6 per cent, it is not
going to exert itself to cut its costs, because it does not make any
difference, then, what the earnings are, it can only get its 6 per cent,
or its 7 per cent as the case may be. You are taking the incentive
away from the utility. That it actually has that effect I have seen in
other cases not connected with street railroads, but one case I think
of, particularly, where an electric-power plant in a small town had
an opportunity to buy current from a big central station plant at
quite advantageous terms, and they were earning, at that time, the
maximum allowed by that State public-service commission, the
maximum percentage; and when they signed up the contract with the
central-station plant, a rate controversy was inaugurated by some
citizens and taken up by the public-service commission, and they
lost all the advantage they had gotten by signing the contract, and
came back to whatever it was — 7£ per cent, I think — that they were
allowed.

The man that owned that utility and a group of utilities besides
told me shortly afterwards that that had cured him of ever trying
to save anybody any money ; and you can see how that Avould happen.

I have heard one other manager of another utility group that has
specialized on efficient operation and they are in States where they
are governed by commissions, and where they have a fixed rate of
return, and I have heard him explain, on several occasions, that he
could not see any reason why they should continue exerting them-
selves to hold the grade of efficiency which they had prided them-
selves on, because they absolutely got nothing out of it.

Commissioner BEALL. How about a case like Dallas, Tex.? The
electric-light company operates under a franchise whereby the
lower the rate the larger return they are permitted to earn on the
fixed value recognized by the franchise. Does not that cure the
thing?

Mr. CUMMIX. I had not heard of that. That is pretty much the
same thing I was about to speak of.

Commissioner BEALL. Would not that cure it?

Commissioner GADSDEX. That is also the consideration in the Cin-
cinnati contract.

Mr. CUMMIX. A street-railway contract?

Commissioner GADSDEN. Service at cost.

Mr. CUMMIN. And an increasing return?

Commissioner GADSDEN. An increasing portion that the railway re-
ceives of the net profit.

Mr. CUMMIX. I think there is an important point that has to be
watched, that the utility, as it decreases its cost so that the rate of
fare can be dropped, will get some part of that saving. I think that
is most important. I do not believe that otherwise you will get the
operation that you have a reason to expect from private operations.
I think that incentive must be there.

Commissioner MEEKER. You believe unless you have that money
incentive the private operation has no advantages over a public
operation ?

Mr. CUMMIX. I can see where it would have but little, if any. I
can not see any incentive there for them to continue to keep their
operation efficient.

34 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. At any rate, it would not reach the highest
state of efficiency ?

Mr. CUMMIN. No.

Commissioner BEALL. Are you basing that on any actual com-
parison between municipally owned and privately owned plants?

Mr. CUMMIN. No.

Commissioner BEALL. I think you will find the figures the other
way, if you take the operating sheets of municipal plants in this
country and compare them with those privately managed; you will
find the private companies have the advantage.

Mr. CUMMIN. I am speaking on the average, and not of any par-
ticular company. You mean the private companies —

Commissioner BEAM,. Are operated more efficiently, at less cost ?

Mr. CUMMIN. I believe so.

Commissioner BEALL. Where you can get the figures. In many
towns they will not give them to you.

Commissioner MEEKER. You mean, even without the economic in-
centive, private management is more efficient than public manage-
ment?

Commissioner BEALL. Yes.

Mr. CUMMIN. I think that is quite possible. There are other diffi-
culties in public ownership which do not generally appear to the
public.

Commissioner GADSDEN. Is it not true, also, that even where there
is no incentive to the private operation of the extra profit, that the
employees and officers of the company still have the incentive of
producing economic results in that industry as compared with the
results which their friends and associates are obtaining in other
plants?

Mr. CUMMIN. Yes.

Commissioner GADSDEN. You do not get rid of that incentive ?

Mr. CUMMIN. You still have another incentive, too. You have the
incentive that urges them to efforts in order to keep the percentage
they do get.

The trouble with municipally owned or publicly owned plants is
that you are liable to have a case where they do not look after the
financial condition of their plant at all. Their operating statements
may be one thing or another, but the actual physical condition of
their plant and the condition of their finances is not looked after
carefully.

The CHAIRMAN. Do you prefer to complete your statement before
submitting yourself to cross-examination ?

Mr. CUMMIN. I think this is probably the best way, Mr. Chair-
man, to bring out any points that I can cover.

The main point that I wanted to impress was the point of not
forgetting that you must put the incentive in front of the utility as
well as in front of the people, if you want to get efficient operating
results. You put an incentive in front of the people by lowering
fares, an incentive for them to treat the utility fairly; because if
they treat the utility unfairly, they spoil its chances for having a
good year's operation, and spoil their chances for getting a lower
fare. They can onty get a lower fare when the utility is prosperous,
and the utility can only get a greater return when the consumer gets
a lower fare. I think that is the thing, boiled down. Psychologically

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 35

that is correct. On both sides you put an incentive before each
party to do the thing that they ought to do.

The great point in the whole controversy, the big job that is before
you gentlemen, as I see it, is a job of education. The public are
prejudiced. There is no doubt about that. They have known of
things that have been done in the past, and they labor under the
delusion, or they at least have the feeling that tremendous profits
have been made out of the operation of street railroads — I mean
directly out of the operation of street railroads — and they see no
reason why the companies that in times past have made, as they
feel, tremendous profits, should not stand the temporary setbacks
also.

Furthermore, by these acts of the past, the utilities have aroused
the suspicion and distrust of the public for almost anything they
say; and unfortunately the utilities do not seem to have learned to
handle the public with any degree of good sense in many of these
disputes; they needlessly arouse the distrust and suspicion of the
public, and arouse it anew.

Take an instance that occurred in Akron, just recently; that is,
in the spring : There was an ordinance in the city council asking for a
6-cent fare, put in by the Northern Ohio Traction Co., and at the
same time that that was in the council, asking for increased fare on
account of changed conditions due to the war, before the county
commissioners was the project of a viaduct which had been designed
before the war, where they had entered into a contract with the
street-railway company to pay a certain amount based on a per-
centage of the cost of that viaduct. The war had held it up. After
the war, they had got together, and they had to reestimate it at a
very much higher cost, on account of the increase in the cost of
materials.

They came to the street-railway company to modify their con-
tract on account of the conditions due to the war, the changed con-
ditions due to the war, and the manager said, " We have a contract."
And then they wondered why there was a public explosion.

There is an instance of a bone-headed thing that a utility does.
They disavowed it in two or three days, but the damage was done.
That was not, probably, intentional. The man that that came up to
did not see what he was doing. But that sort of thing promptly
makes a bad impression the great bulk of the citizens, who say : " You
can not rely on anything these fellows say. They want the money,
and that is all they are interested in. They do not want to play fair.
They want simply what they can get out of it."

I simply cite that as an instance of a thing that is to be remedied
if present conditions are to be improved. The utility companies have
got to pay a little more attention to the public relations than they
ever have before.

There are many instances, as you look over one dispute after an-
other and see where things have been done that were not necessary,
where they went out of their way, apparently, to arouse the public.
One case that I have in mind occurred in Michigan — Michigan, by
the way, is a home-rule State, where the citizens are very particular
about any interference with local self-government — and in one of
the bills, which was supposed to be fathered by the utilities, that
was put in the last legislature, for a public-service commission —

36 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

which, for the first time, has a chance of passing in Michigan — the
public mind has been educated to the point where they saw the neces-
sity, but this bill came in

The CHAIRMAN. Did that bill give the public-service commission
exclusive control over the rates and service of the utilities?

Mr. CUMMIN. Not only the utilities, but over the municipal util-
ities, over their rates, and everything connected with them.

Well, now, that promptly brought up the argument that that .will
give the public-service commission the power to say how much you
shall pay for water, for instance, which may be very much above
what we are paying now, because part of the cost is being carried
out of general taxation; and the way the bill was worded, that was
perfectly possible.

It is very advantageous, it is a good thing, a good protection for
the public, to have accounting control, to have the State public-
service commission have accounting control of municipally owned
utilities. They should have. They should have control over maxi-
mum rates, they should have control over discriminations in rates;
but -it certainly was not a wise thing to try to insist upon their hav-
ing absolute control of ordering what rates should be charged by
municipal utilities in a State that is so wedded to local self-govern-
ment. That was done, and it aroused a great deal of opposition —
an amount of opposition that was not at all necessary, and they had
quite a hard fight getting any bill through.

That is just another instance of a perfectly good idea being carried
too far, and needlessly arousing public distrust and su-spicion.

It seems to me that that is the big job that you have got on your
hands. You have got to educate the utilities to tell the truth to the
public, so that they will believe it. There are a lot of them that are
trying to tell the truth, but a good many of them do not seem to
know how. They make mistakes, just like the two I have cited.

It is also necessary to teach the utilities to bring out their infor-
mation in such a way that there is no more mystery left in their busi-
ness. Mystery is a great thing to engender suspicion, and the more
mysterious you make the financial operations of a utility, whatever
policy may have to do with it — I am talking about the effect on the
mind of the public — you must bring your financial operations out
into the open if you ever want to get the public to believe you, and
you have got to submit to public-accounting control — not simply an
annual audit, but real control of your accounting.

As everybody knows that has ever run any kind of a large job,
or any kind of a business, it is the easiest thing in the world to make
operating reports do all kinds of funny things. You can juggle
back and forth between capital account and operating account, un-
less it is being carefully watched. I do not believe that is being
done, to any great extent, certainly, and it certainly is not being
done where we have public-service commission control, but the pub-
lic thinks it is being done, which is just the same from the stand-
point of the utilities ; that is, they will not believe the financial state-
ments of the utilities.

You have got to get around that in some way, and the best way
to get around it is to take the ammunition out of the public's hands
by giving them abundant chance to be sure that their figures are
right.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 37

Commissioner GADSDEN. I want to ask you a question. What are
you going to do with the other class of utilities?

Mr. CUMMIN. The other class of utilities — you simply have two
questions, two things you can do: One of them means — and I am
looking at it purely from the standpoint of the public; the public
must have service — you have either got a public partnership, a part-
nership with the public, a subsidy, or something like that, or you
have public ownership. There are two things you can do. It has
to be subsidized out of taxation some place.

Commissioner GADSDEN. The public has to absorb the loss ?

Mr. CUMMIN. The public has to absorb the loss. They are neces-
sary facilities. Unfortunately, they have nothing to look forward
to, because the loss that they have suffered now is a loss due to the
automobile, very largely, and the use of the automobile is going to
increase, and not decrease, and the probable passengers per unit of
population served will probably tend to- decrease and not increase.

The CHAIRMAN. You mean, then, that the street-car utility is going
to become a diminishing factor in transportation, with the develop-
ment of communal life 2

Mr. CUMMIN. Per unit of population, I would think that was cor-
rect.

Commissioner GADSDEN. I want to bring out your idea of what is
going to be that essential service that could not pay its way.

Mr. CUMMIN. The effect of the automobile now can be shown by
comparing the figures on gasless Sunda}*s and the Sundays that
were not gasless. On a number of lines I found that the gasless
Sundays added from 20 to 40 per cent to the gross revenue, and
they seemed to average some place around 33^ per cent. Now, if
the street railroads had 33^ per cent more gross revenue than they
have now, it would go a long way toward helping the solution of
the difficulty, even under present prices.

Commissioner BEALL. You do not refer to carrying passengers at
a loss, and where the more they carry the more they lose ?

Mr. CUMMIN. I recognize that that would not all be clear. I
mean that would take some additional expense. But, unfortunately,
one cause of the street railroad's trouble is a falling off in travel per
unit of population served.

Commissioner GADSDEN. Is not one of the serious consequences
of the street-railway situation the fact that they are called upon
to do their maximum service in a limited time, morning and after-
noon?

Mr. CUMMIN. Yes; that is very serious.

Commissioner GADSDEN. And that that requires an enormous in-
crease in car investment, which is largely idle during the balance
of the 24 hours?

Mr. CUMMIN. Yes.

Commissioner GADSDEN. Is it not also true that the more 3*011 in-
crease that peak load the worse the financial condition of the com-
pany will get?

Mr. CUMMIN. Yes; unless something is done to fill up those val-
leys.

Commissioner SWEET. What could be done?

Mr. CUMMIN. I think that is a case that entirely depends upon
local conditions. I mean I believe it can be worked out, that loads

1278 1; 5

38 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

can be furnished for street-railroad cars, under some situations,
where just now they are not. I mean by perhaps making particu-
larly attractive rates, by finding on study that a certain line or
cars travel in a certain direction at a certain hour of the day that
are hardly used, that it might be possible to encourage travel that
way.

Commissioner GADSDEN. Have you ever made a study of the effect
on that situation of industry in general staggering its hours?

Mr. CUMMIN. I never have made a study of it, but it certainly
should have an effect.

Mr. GADSDEN. Would not that relieve it greatly?

Mr. CUMMIN. I think it would relieve it very considerably.

Commissioner GADSDEN. If industry generally would stagger its
hours and cut that peak down ?

Mr. CUMMIN. Yes. If they spread the peak over a greater number
of hours, that certainly would lower the cost of giving the service,
and probably give better service also.

Commissioner SWEET. What would be the practical method of
doing that?

Mr. CUMMIN. That is a matter of the education of the industries
to the point, and the workmen also — to the point where they are will-
ing to start and stop at different hours in these industries. It has to
be done by agreement. I do not see any way in which it could be
done by law. However, it certainly would add very considerably,
especially where you have, say, two large plants, two or three large
plants out on the end of a line, and they are all let go at the same time
now, if they separated their starting and stopping time by, say, half
an hour, or even 15 minutes, it would certainly add a great deal to the
relief of the situation; half an hour would probably be better. It
would not only give very much better service to the people served,
but also would cut down the cost of that service.

Commissioner SWEET. Something of that kind was done in Wash-
ington with the different departments during the war.

Commissioner BEALL,. It was done here during the influenza epi-
demic, too, and had a good effect.

Commissioner SWEET. That would be entirely out of the hands of
the street-railroad corporations?

Mr. CUMMIN. Yes.

Commissioner SWEET. That would be done by the municipality?

Mr. CUMMIN. That is a matter of the education of the public. The
public has to learn that they are vitally interested in this problem,
which they do not seem to see right now.

Commissioner SWEET. That is right.

Mr. CUMMIN. That is they are bound to lose as long as the contro-
versy keeps on, or as long as the utilities can not live, they are bound
to lose ; they are bound to lose in service, and perhaps in money, be-
fore they get through.

The CHAIRMAN. Had you finished your questions, Mr. Gadsden?

Commissioner GADSDEN. Yes.

Commissioner SWEET. You said something, Mr. Cummin, about the
incentive being necessar}'- to the greatest degree of efficiency, and I
take it that you are opposing, in a way, municipal ownership on the
ground that it does not offer a monetary inducement to the highest
degree of efficiency. Is that right ?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 39

Mr. CUMMIN. No; that is not the ground on which I objected to
municipal ownership. I think the question of municipal ownership,
as I see it, is that the people do not want municipal ownership ; that
is, in general; there are local instances where they do. I believe
that it is unproven as to whether a municipality can operate a street-
railroad company as efficiently as a private one can operate it. I
will not say that it is not possible for a municipality, but I will say
that it is unproved that a municipality can. I think it is a last resort,
right now.

Commissioner SWEET. Do you think it is possible that a munici-
pality might operate a street railroad as efficiently as a private cor-
poration ?

Mr. CUMMIN. I think most anything is possible. I should say
it was very improbable.

Commissioner SWEET. Improbable?

Mr. CUMMIN. Yes.

Commissioner SWEET. You said you were the city manager of
Grand Rapids, Mich.'

Mr. CUMMIN. Yes.

Commissioner SWEET. As city manager you had charge of the
pumping station, waterworks, and of the lighting plant for the city
lighting, as well as for other work that was conducted by the board
of public works?

Mr. CUMMIN. Yes.

Commissioner SWEET. Paving and construction of sewers and that
kind of work?

Mr. CUMMIN. Yes.

Commissioner SWE,ET. Do you think that your work would have
been any better done or any more efficient if you had been working
for a private corporation instead of for the public corporation ?

Mr. CUMMIN. Yes, I do ; because I do not believe the thing would
have been in the financial condition it was in if it had been a private
corporation, because it would have been in a receiver's hands a long
time before.

Commissioner BEALL. They had a rather obsolete plant, did they
not?

Mr. CUMMIN. The- water plant is modern.

Commissioner BEALL. I mean the electric-light plant.

Mr. CUMMIN. The electric-light plant was a joke.

Commissioner BEALL. It was, when I saw it. I do not know what
it is to-day.

Mr. CUMMIN. They had a number of brush-arc motors operated
by some single-cylinder Russell engines that were old enough to
vote. That, however, has been changed.

Commissioner SWEET. Those Russell engines had been defective
almost from the start, had they not, and subjected to a sort of partial
repair?

Mr. CUMMIN. Yes; I guess they were not very good in the first
place, but they were certainly steam eaters when I had them. That
apparatus, by the way, has been replaced.

Commissioner SWEET. Had there not been a lateral crack or break-
ago in the cylinders, or where the cylinders connected with the steum
engine \

40 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIN. No ; they seemed to have been in good enough oper-
ating shape for the type of engines they were.

Commissioner SWEET. But they were not economical engines?

Mr. CUMMIN. No; they were not. Running beside them, they were
running a pump and filter plant with the turbogenerator unit that
made them compare very unfavorably.

Commissioner SWEET. You think an up-to-date private corpora-
tion would have discarded engines of that kind and put in good
ones, Mr. Cummin ?

Mr. CUMMIN. They certainly would have discarded those, be-
cause they could not have operated and stayed solvent.

Commissioner SWEET. When you were conducting the business
affairs of the city of Grand Rapids, did the city make any use of
hydroelectric power ?

Mr. CUMMIN. No.

Commissioned SWEET. There was electric current distributed in
Grand Rapids by such method of generation, was there not?

Mr. CUMMIN. Yes, sir.

Commissioner SWEET. But the city did not use it?

Mr. CUMMIN. No, sir.

Commissioner SWEET. Could it have used it to advantage?

Mr. CUMMIN. Probably not economically. We had a very excel-
lent load factor on the electric part of that plant, for the reason
that the filter pumps were largely in use during the day, and the
same motive machinery ran the street lighting at night ; so that the
load factor was very excellent, and we could operate — with those
Russell engines replaced by turbogenerator equipment, we could
operate very efficiently.

Commissioner SWEET. Aside from the fact that cities are very
conservative oftentimes, and not disposed to make improvements
upon their plants, but merely bearing upon the question of effort or
incentive to effort on the part of the management, I repeat my ques-
tion whether your management in Grand Rapids, as the city man-
ager, was not as efficient, from the standpoint of effort on your part,
as it would have been if you had been employed by a private cor-
poration. Is that so ?

Mr. CUMMIN. Yes; because under the peculiar municipal situa-
tion there, my incentive was my own reputation.

Commissioner SWEET. With regard to the securing of competent
managers in a city, is that sometimes to your knowledge, influenced
by other motives than those of efficiency?

Mr. CUMMIN. Not only that, but the municipalities, as a rule, pay
such ridiculous prices for technical help; for instance, in that very
same large water plant you spoke of, the chief engineer was getting
$1,800 a year.

Commissioner SWEET. What was your salary ?

Mr. CUMMIN. My salary was $10,000. He was getting $1,800.
There is not a private plant of one-quarter that size that would
not have been paying their man more than that. They happened to
have a good man, but that was luck, and not good management.
When they have to compete with the whole field, with the whole in-
dustrial field, for the technical men that they need, and then try to
get them for one-quarter to one-third of what is paid outside — well,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 41

they just don't get them, that is all. That is one reason public effi-
ciency falls off. They clo not get the best man.

Commissioner SWEET.. I am trying to get your reasons for think-
ing that street railways could not be advantageously operated by
municipalities.

Mr. CUMMIN. Not at present.

Commissioner SWEET. I personally do not believe that municipal
operation is advisable; at least, I would have to have pretty strong
evidence to satisfy me that it is advisable. My leaning would be
the other way. And yet my own observation in connection with city
government has been that, as a rule, much better men are obtained,
better talent, and a greater amount of energy and efficiency than
ought to be expected for the salaries that are paid. Isn't that true?

Mr. CUMMIN. I think that is true; ves. sir.

Commissioner SWEET. Then, if cities would wake up to the idea
that they have got to pay proper compensation for their work, is it
not possible that municipally managed railways might be successful ?

Mr. CUMMIN. Absolutely. I think it is entirely possible. But I
think the public has got to be very decidedly rebuilt. The public is
a poor employer.

Commissioner SWEET. It is a stingy employer?

Mr. CUMMIN. Yes; and alwa}-s has been a poor employer. They
have got to get around to being a good employer if they want to be
efficient. They have got to quit political interference with the man-
agement of their public utilities if they want to make them a success;
and they have got to get them on a sound financial basis. Those arc
the things they do not do.

Commissioner SWEET. The man who preceded you in the manage-
ment of the public works at Grand Kapids was Samuel A. Fresh-
ney. Did you know him ? •

Mr. CUMMIN. Yes; very well.

Commissioner SWEET. The public paid him $4,000 a year?

Mr. CUMMIN. Yes.

Commissioner SWEET. And he left the public employment and took
a position with the Commonwealth Co. at a much larger salary, did
he not ?

Mr. CUMMIN. Yes.

Commissioner SWEET. Do you know what he got?

Mr. CUMMIN. Xo; but I know that he got a much larger salary.

Commissioner SWEET. Six, or seven, or eight thousand dollars?

Mr. CUMMIN. At least, to start with.

Commissioner SWEET. The public lost a good man because it was
not willing to pay him a good salary?

Mr. CUMMIN. Ves.

Commissioner SWKET. Is that general throughout the country?

Mr. CUMMIN. Yes; it is.

Commissioner SWEET. That is something, of course, that could be,
by proper education of the public, corrected, is it not?

Mr. CUMMIN. It is an educational question very largely. The line
of demarcation must be drawn in. the public mind between politics
in the legislative side and politics in the administrative side of their
governments. That is. they have got to keep politics out of the
actual doing of the things they want done.

1GOG430— 20 4

42 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. One objection that is raised to municipal
ownership is the political objection?

Mr. CUMMIN. Yes.

Commissioner SWEET. That it would create a large body of govern-
mental-employed individuals who would be a disturbing factor, in a
certain sense, from the political standpoint?

Mr. CUMMIN. Yes.

Commissioner SWEET. Have you seen evidences of that kind of
political influence in connection with the city government — some of
them ?

Mr. CUMMIN. Not to any serious extent; no. I have known of
cases of a police force being active in politics, for instance. That did
get to be serious, though. I understand in some Australian publicly
owned utility, up to the time of the war, one Province, I believe, dis-
franchized all their public employees.

Commissioner SWEET. If I understood you correctly, the solution
of this problem, from your standpoint, is to make it an incentive to
the public by giving lower fares, lower rates, an incentive to use the
public utilities, and to desire their success, and to have no limit to
what the management or the corporation itself may make, so as to
also present an object to them for the best and most efficient manage-
ment ?

Mr. CUMMIN. That is the general idea.

Commissioner SWEET. In other words, you want to eat your cake
and have it, too? How can you have lower rates, so as to please the
public, and increase the earnings so as to please the management?
Is not one antagonistic to the other ?

Mr. CUMMIN. No. It is done by a division.

Commissioner SWEET. What is that?

Mr. CUMMIN. It is done by a division. Take the case of a corpora-
tion where a rate is fixed which is computed to yield it 6 per cent, we
will say, on its investment, just for purposes of argument. It earns
7 per cent in the next year. Its actual net earnings are 7 per cent.
That extra per cent will be placed aside, because it was only allowed
to earn 6 per cent. The next year it will be allowed to earn G-} per
cent, and the consumer will get a discount, or an extra ticket, depend-
ing on what kind of a utility it is, the aggregate of which is com-
puted to be equal to this other half per cent. In other words, the
next year the return allowed will be 6^ per cent. We will say that
that year they earn 7 per cent. All right. Still divide it 50-50, and
you get up to a return to the utility of 8 per cent, or 7 per cent, and
give the utility one-quarter beyond that, and the consumer three-
quarters — let it diminish as it goes up, the possible return to the
utility, the additional return to the utility.

Commissioner MEEKER. Why diminish?

Mr. CUMMIN. For the purpose of the effect on the public mind.
As a matter of actual fact, I do not think it makes a great deal of
difference, but the public has the idea that it is possible at some time
to earn very tremendous earnings — 15 or 16 or 17 per cent. If you
have this diminishing scale as you go up, you can remove that fear
from their mind, and remove that argument from the opponents of
any such plan.

Commissioner WEHLE. That plan has been in use in English cities
for a generation or so, has it not, in connection with gas rates?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 43

Mr. CUMMIN. Xot that I know of.

Commissioner WEIILE. And is there not a plan of that kind in
effect in Boston, during the last 10 years — a sliding scale of rates?

Mr. CUMMIN. That means an actual change in the rate. I do not
want to get off on the gas question, because that is another question.

Commissioner WEHLE. It is the principle — I am not trying to get
into a discussion of the gas question — but simply inquiring whether
the principle you have just been advocating is the principle which
has been in use in English cities with reference to gas and in Boston
with reference to gas; is that true?

Mr. CUMMIN. My principle goes beyond that. I did not explain
that point, perhaps, because it does not appear so prominently in a
street railway. It is important that the consumer, in whatever utility
it is, be impressed with the fact that he is getting a part of that
profit. The way you have to handle it with street railways is to
fix the cash fare that is high, the incidental fare, but sell so many
tickets for a quarter and so many tickets for a dollar, in order to
take care of fractional cents, that is computed to be the correct fare.
Well, now, the extra tickets that go on for a quarter and go on for
a dollar are the thing that impresses that fellow with the fact that
he is getting a dividend out of that company all the time. The
same way, the important thing in distributing that to a gas con-
sumer is not simply giving them a different rate the next year. He
sees that rate, and that is all he does see. But put a discount on his
bill every time, an extra discount — that is what he gets for keeping
the company prosperous, and that is staring him in the face all the
time, that discount, just as the extra ticket will stare him in the face
in the other case. I want to impress it on the consumer in every
way that he is vitally interested in the well-being of the company.
The only way you can do it is to put it in such shape that he falls
over it every time he turns around. I think, from the psychological
standpoint, that is of vital importance.

Commissioner WEHLE. There are two things that you regard as
vitally important, if I understand you : One is that the user of the
street railroad, the rider, shall be impressed with the idea that the
company's advantage is his advantage?

Mr. CUMMIN. Yes.

Commissioner WEHLE. And the more prosperous the company is
the lower the rate is going to be to him the succeeding year?

Mr. CUMMIN. Yes.

Commissioner WEHLE. But also that the knowledge on the part
of the community in general, including those who ride on the street
railroads, that the investor or the corporation itself is not making
an undue amount?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Anfl that, if I understand j'ou correctly,
means not merely having their books audited from time to time,
but having them open all the time to the public; in other words,
having them practically kept by public accountants?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Who will represent the public, rather than
the corporation ?

44 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIN. Yes; perhaps keep it in parallel with them; but at
least I think it is necessary for public control of the entire making
of those accounts.

Commissioner WEHLE. The idea being that the public mind must
be impressed with the fact that there is no underhanded work
about it ?

Mr. CUMMIX. Absolutely. It must be made clear to the public
that there is absolutely no chance for anything to be put over. That
thing has been overlooked again and again. Utilities will get into
a rate dispute and the other side will bring up some perfectly fool-
ish arguments. They may be foolish arguments, but people be-
lieve them, and the utility that takes the stand when those things
come up and tries to fight them by simply saying they are foolish,
and refusing to pay any attention to them, and calling the man who
makes them names of various kinds — they are not getting any place ;
they are not impressing the people and the other fellow is impress-
ing the people. That ammunition can be taken out of the agitator's
hands entirely, if they start out to do it. For instance, if the leader
of an agitation against an increased fare disagrees \vith a valuation
that has been made upon which this increased fare is based, and says
that he does not believe that is the value, even though it has been
made by a competent man, the very obvious thing to do, from a sen-
sible standpoint, is to say to him : " Whom would you believe ? Is
there some man who specializes in this work that you would be-
lieve?" And if he says, " Yes; so and so." " All right, we will get
him in here to check that valuation." This man may not have
known at all what he was talking about, but you will kill his argu-
ment if you get in the man he says he will trust to check that valua-
tion. That is just an illustration of the principle that has to be
followed. The utility gets no place at all by simply saying that
these arguments are foolish.

Commissioner WEHLE. How do you think the valuation of street-
railway properties ought to be made? Should it be entirely upon
the basis of physical properties?

Mr. CUMMIN. It should be on the basis of the investment, if that
can be discovered.

Commissioner WEHLE. In many cases is not that absolutely impos-
sible?

Mr. CUMMIN. Yes; a valuation is always a case of getting an ap-
proximation.of the truth.

Commissioner WEHLE. I think you said you had been employed
part of your life for private corporations?

Mr. CUMMIN. Yes.

Commissioner WEHLE. If you are willing to make a 'statement on
that point, I wish you would — as to whether it is not a very common
thing, and from your own experience .and observation you do not
known it to be so, for these street-railway corporations to water their
slock, as we say ; in other words, to issue an amount of stock entirely
out of proportion to the actual cash investment.

Mr. CUMMIN. There is no question but for a number of years the
securities were issued on what they could earn, and not on what they
had in them.

Commissioner WEHLE. Don't you know cases where this has been
done : That bonds have been issued and sold for practically the entire

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 45

investment, and the stock has been issued on nothing that was ac-
tually paid for?

Mr. CUMMIN. I do not know; I do not believe, at the present
time •

Commissioner WEHLE. I do not mean at the present time. I mean
in years past.

Mr. CUMMIN. Yes ; I do not doubt that at all.

Commissioner GADSDEN. How many years ago since that practice
has stopped?

Mr. CUMMIN. I do not know that I can answer that question di-
rectly, because I think it is very largely a question — I do not believe
it was stopped until- people could not do it. It is possible that even
up to late years people could have done it. I think there always
were some people who were willing to do it.

Commissioner GADSDEN. Economically it has been impossible for a
good many years, has it not ?

Mr. CUMMIN. Theoretically.

Commissioner WEHLE. Practically ?

Mr. CUMMIN. For street railroads.

Commissioner SWEET. Street railroads have not been paying divi-
dends?

Mr. CUMMIN. No.

Commissioner SWEET. And people would not invest?

Mr. CUMMIN. No.

Commissioner SWEET. You spoke of two kinds of street railroads;
one kind that was hopelessly gone, practically —

Mr. CUMMIN. Where the earning capacity is not there.

Commissioner SWEET. Where the construction has been in locali-
ties that have not the resources upon which a railroad could live?

Mr. CUMMIN. Yes.

Commissioner SWEET. If I understand you aright, you do not pre-
tend to have any remedy for that kind of a street railroad. It has
simply got to go by the board ?

Mr. CUMMIN. No; I say that means public partnership, public
subsidy, or public ownership.

Commissioner SWEET. You mean that the public has to be taxed
to keep it alive in some way ?

Mr. CUMMIN. The community need must be met by taxing the
community, that is all. If the road is a necessity to the communit}',
the only way the community can preserve that is by paying the
deficit. I do not care how they do it. They can do it as a partner-
ship, they can do it as a subsidy, or as full owner, but it has to be
paid.

Commissioner SWEET. It can not, in your judgment, be made a
paying proposition from the standpoint of a business operation?

Mr. CUMMIN. No; I do not believe so, in the small town.

Commissioner SWEET. It must, be treated, then, as merely a public
convenience?

Mr. CUMMIN. Yes.

Commissioner SWEET. And paid for by the public because of that
fact?

Mr. CUMMIN. Yes.

Commissioner SWKET. In some way, either by taxation, or by
some sort of contribution?

46 PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION.

Mr, CUMMIN. Yes.

Commissioner SWEET. You spoke of another class of street rail-
roads that you think are good business propositions and> with fair
treatment, or with the right kind of treatment, would not need any
outside help?

Mr. CUMMIN. They have the earning capacity.

Commissioner SWEET. They have the earning capacity ?

Mr. CUMMIN. Yes. In other words, an increase in fares, and prob-
ably some lopping off of unjust burdens in the way of street paving
and undue proportions of bridges and things of that kind.

Commissioner SWEET. I want to ask you some questions about
that before I get through, but right on this point, first : Is the state-
ment you have made to us with regard to such an arrangement as
would make it an object for the general public to use the railroads
and feel an interest in their success and for the management also
to be interested and try to keep expenses down — do you regard that
as a sufficient panacea for the ills of what you would rank as the
better class of railroads?

Mr. CUMMIN. I think that is a promising solution. I do not say,
in any particular case, that it would be a complete panacea. I think
there will be a necessity, probably, under present prices, which are
likely to continue for a long time, to use every method which can
possibly be used.

Commissioner SWEET. All right. Let us go to the other methods.
What do you say about paving between the tracks and for a foot or
so outside?

Mr. CUMMIN. The cost of paving between the tracks and for a
foot or two outside is an unjust burden on the street-railroad com-
panies at present. Our street paving wras started in this country
when we had horse-cars, and the horses did wear out the pavement,
and that is the reason it started in that way; and it has been put in
every franchise, or almost every franchise, ever since, because the
street railroads could not get out of it and they just had to submit
to it. There is an undue burden. The maintenance of it, and any
extra cost due to the track, should be paid by the street railroad —
that is perfectly proper — but the pavement itself should not.

Commissioner WEHLE. You mean that part of the cost of mainte-
nance that is not due to the wear and tear of other vehicles?

Mr. CUMMIN. In fact, the most of the cost of maintenance of the
pavement between the car-tracks is due to the rails and operation
over them. They have to be cut into fairly frequently — a joint goes
down, and it will break up the pavement for a little distance around ;
soft spots develop in the roadbed, and it will result in raises and de-
pressions, etc., and the big bulk of your maintenance is main-
tenance that is fairly well traceable to the street railroad. The
maintenance is a proper charge against the street railroad.

Commissioner SWEET. But the original construction is not?

Mr. CUMMIN. The original pavement, except that part of it which
may be an extra due to the cost of paving around the rails, and
things of that kind, if it should exist, should not be paid b}' the rail-
roads. The extra cost, of course, that is necessitated by reason of
the pavement being laid around the rails, should be paid by the road.

Commissioner SWEET. Even at that, bearing in mind the fact that
the public is so deeply interested in having the advantage of the

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 47

street railroad there, is there any unfairness in having the public
pay for all the paving ?

Mr. CUMMIN. If they want to; but I think if they pay the main-
tenance as well — I do not believe it is going to be a practical op-
erating proposition, because a large part of that maintenance may
have to be done by the trackmen of the street railroad, the jnen who
are taking care of the track.

Commissioner SWEET. Can you give us any definite idea as to
what would be the saving to the electric railways of the country if
the construction of the pavement between the tracks and just outside
were to be borne by the public instead of by the street-railway com-
pany ? How much would the saving be ?

Mr. CUMMIN. Of course, that would vary very widely. I know
of one case where a street railroad in Dayton had an expense for
paving for one year of $200,000.

The CHAIRMAN. What per cent of its operating cost was that?

Mr. CUMMIN. I would not have any idea.

Commissioner SWEET. That would not be a real test unless you
knew that?

Commissioner BEALL. There are four street railways in Dayton,
are there not?

Mr. CUMMIN. Four or five.

Commissioner BEALL. None of the four are very large properties ;
but the point I think you want to make is that it was a very large
cost?

Mr. CUMMIN. It was.

Commissioner BEALL. I doubt if the net earnings of the street-
railway company were as big as $200,000 ?

Mr. CUMMIN. They were not. The net earnings were below that.

Commissioner SWEET. That might have prevented them from be-
ing on an earning basis ?

Mr. CUMMIN. Yes; although that line, I think, never has been on
an earning basis. When they were put in, they dodged the paved
streets. They were the newest line in town, and ever since then they
have been paving those streets. It is a pretty long line, and I guess
they have spent everything they could get together in paving.

Commissioner SWEET. Could you give us any idea of the main-
tenance cost per year for maintaining the paving between tracks
and just outside?

Mr. CUMMIN. That varies a great deal with your subsoil, with
your class of construction, and with your traffic that is carried. It
would be pretty hard to say what that would amount to.

Commissioner SWEET. If you are not in a position to give us fig-
ures on that now, could you prepare them and give them to us later,
or got them?

Mr. CUMMIN. Well, the only way to do that would be to take up
a special case and get the figures. It is a local issue. Your main-
tenance in one town may not bear any relation to the maintenance
in the next town, for exactly the same kind of paving.

Commissioner SWEET. Or in the same town next year?

Mr. CUMMIN. That is correct.

Commissioner SWEET. But still it would be possible, would it 'not,
to reach a sort of a general average or estimate that would be fairly
accurate ?

48 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIN. Probably it would, scattered around in different
places.

Commissioner SWEET. I think it might help if we knew rather
definitely what the cost of construction and of maintenance both was,
with regard to this paving, because that question has been raised,
and we want to look into it.

Mr. CUMMIN. There are two parts in the paving to the street rail-
road. One of them is absolutely charged against the street railroad,
and that is the cost of preparing the roadbed and putting in the new
track and ties and concreting in the ties. They concrete them in,

fetting up to the point where the surface is to go on. That is per-
sctly all right. That is chargeable actually to the company. Then
the rest of it is generally charged for at just the same price as for
the rest of the paving job, per square yard. In most cases the con-
tractor makes no difference for the paving between the rails and a
foot outside as compared with the rest of the paving.

Commissioner SWEET. Is the paving requirement of a privately
owned street-railroad company universal in this country, or does,
that vary?

Mr. CUMMIN. As far as I know, I have not been in any city yet
where it was not required, and in my experience I have never seen
any franchise where it was not required.

Commissioner SWEET. So that as far as you know it is a uniform
requirement ?

Mr. CUMMIN. Yes; and that is an unjust burden. That is some-
thing that can be taken off. I think the same thing occurs on some
bridge rentals. In some cases they have not been rentals, but they
have paid a lump sum, I think, in some cases, and that has been toa
big.

I think it proper that a street railroad should compensate for
extra cost in making that bridge strong enough to carry the addi-
tional loads put on it, by the street-railroad company. It perhaps
should pay a small additional rent, but I think in some instances the
amount required to be paid has been unreasonable.

Commissioner SWEET. On this paving proposition I asked Judge
Taft this morning, and I would like to ask you, whether there is not
an injustice as between the general public and the riding public
under the present system; whether, in the final anatysis, the pay-
ment for the expense of paving and maintenance of it, for that mat-
ter— although we did not dwell upon that — is not borne, assuming
that the company is solvent, by those who use the street-cars, those
who ride on the street-cars ; and those who use automobiles, and who
are very much interested in having good paving between the tracks
do not pay a penny for it ; is that true ?

Mr. CUMMIN. Yes.

Commissioner SWEET. Under the present system ?

Mr. CUMMIN. Of course, in a great many States they do not pay
anything anyway, because the property owner stands most of the
cost of paving, and not the city at large.

Commissioner SWEET. That is assessed against the property?

Mr. CUMMIN. That is assessed against the property.

Commissioner SWEET. But inasmuch as wherever the street is im-
proved it is assessed against each property, on one street, and then
on another, it balances up to a certain extent?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 4$

Mr. CUMMIN. When they all get paid.

Commissioner SWEET. But in Grand Rapids, and in many other
cities, at street intersections the city does pay?

Mr. CUMMIN. Yes; at intersections.

Commissioner SWEET. And that payment is made out of public
funds, raised by taxation?

Mr. CUMMIN. Yes.

Commissioner SWEET. So that the city pays a good deal of it ; quite
a considerable amount?

Mr. CUMMIN. About 25 per cent.

Commissioner SWEET. But as between the two elements in the com-
munity, the people who ride on street-cars and those who ride in
automobiles, there is a distinction ?

Mr. CUMMIN. Yes.

Commissioner SWEET. And those who ride on street-cars, under the
present system, we are trying to make, or it has been the custom
actually to try to make them pay. Ultimately their nickels go to pay
for that paving?

Mr. CUMMIN. That is simply an illustration of the public being
directly unable to see that when they make a public-utility corpora-
tion pay something they ought not to pay. that it is not the public-
utility corporation that pays it, but the people who use that public-
utility.

Commissioner SWEET. That is exactly it.

Mr. CUMMIN. One reason why they do not see that is because we
have had so many fixed fares and so many fixed rates for different
kinds of services — rates fixed in franchises — where they did not
change, no matter what happened.

Commissioner SWEET. Then, if I am correct, a change from the
present system with regard to paving between the tracks and to the
outside would probably do two things, or, I might say, would certainly
do two things: one, tend at least, to make it possible for the street-
railroad companies to live, which, under present conditions, they
find it difficult to do, and the other, distribute more justly over the
entire community the expense of constructing and maintaining this
pavement?

Mr. CUMMIN. It would certainly be a proper charge on the rest of
the community ; yes.

Commissioner SWEET. What about hydroelectric current? Are
there not a great many water powers in this country that are avail-
able— that might be developed?

Mr. CUMMIN. Yes.

Commissioner SWEET. And furnish cheap power for the operation
of street-railroad companies that are not being used?

Mr. CUMMIN. I doubt that.

Commissioner SWEET. You doubt it?

Mr. CUMMIN. Yes. I am a constitutional pessimist on water
powers. I have worked with too many rivers, Mr. Sweet. I doubt
whether 50 per cent of the water-power development — I am speaking
of the larger water-power development of the United States — would
ever have been built if they had known just what they were getting.
They do not get the theoretical power out of it.

50 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner BEALL. Are you talking of ordinary river powers,
or where they have a high head? There are numerous cases of
rivers where the head is very low and where they are subject to
overflow, — like the Mississippi, to take the most glaring example, of
course, where it is almost impossible to control it, and that is a
different proposition.

Mr. CUMMIN. Yes. The point is, though, that a lot of water-
power plants have been built and they have never gotten the cost
they expected to get. In other words, their fixed charges were con-
siderably higher than they thought they were going to be per
kilowatt.

Commissioner BEALL. That is limited to a very small class. You
will find the average water power in this country is pretty profitable
on its cost — the average, where they have a high head.

Mr. CUMMIN. Where they have a high head?

Commissioner BEALL. Where they have a high head ; yes. I mean
anything from 75 feet up to 1,800 or 2,200 feet.

Mr. CUMMIN. Yes ; I agree with that.

Commissioner SWEET. What distance is it feasible to convey the
electric current without too great loss to justify its conveyance?

Mr. CUMMIN. I think that is rather a broad question. I believe it
is being transmitted over 300 miles in California.

Commissioner BEALL. Yes; it is.

Mr. CUMMIN. That probably is not economical under low fuel
costs. That is, if you are operating against a steam plant with rea-
sonable fuel costs you might be able to beat that.

Commissioner BEALL. Even in normal times coal in most sections
of California is $9 or $10 a ton, so that you can understand in Cali-
fornia you can have water that cost, even on prewar prices, $250 a
horsepower and make good money out of it. In New York if you
go over $100 you want to be very careful and look out as to your
proposition. I am going back to prewar prices. I could not tell
you on to-day's prices.

Commissioner SWEET. It requires copper wire, does it not, or at
least that is the best ?

Mr. CUMMIN. That is the best; yes.

Commissioner SWEET. And alternating current?

Mr. CUMMIN. Yes.

Commissioner SWEET. Is it not a fact that there are in this country
a great many practical water powers that have not been used at all ?

Mr. CUMMIN. Oh, yes.

Commissioner SWEET. That are within, say, 100 miles of cities,
where the current would be very valuable for street-railroad purposes
or for interurban purposes, if you please ?

Mr. CUMMIN. Well, I would be inclined to doubt that.

Commissioner BEALL. Not in this section of the country.

Commissioner SWEET. Not in the East, you mean ?

Commissioner BEALL. Yes. Unfortunately the greatest and most
valuable water powers are in the West.

Mr. CUMMIN. In the far West and in the Southern Appalachians
there are some good ones.

Commissioner BEALL. But you do not get the population there.

Mr. CUMMIN. No: but the powers are there. They are not availa-
ble to markets, however.

PROCEEDINGS OF FEDEBAL ELECTRIC RAILWAYS COMMISSION. 51

Commissioner SWEET. Some steam railroads are using electric
power in the mountains, like the Chicago, Milwaukee & St. Paul?

Mr. CUMMIN. Yes ; but you take the States where you can not get
high heads, and especially the great Middle Western territory, where,
if you are going to regulate the flow of the rivers, so that your motor
power during the year will be something that is reasonable at all to
operate under, your cost per kilowatt will run out of all reason, and
that is the thing that makes those powers so very expensive.

For instance, it is perfectly feasible, to return to parts of the coun-
try that you know, to get power out of Grand River at Grand Rapids
and above Grand Rapids; it would be a matter of building a huge
storage reservoir, perfectly feasible from a physical standpoint, but
from an economical standpoint it is absolutely not feasible, as the
development of that storage would be so tremendously expensive that
steam power would not cost you nearly as much.

In the same way there is another power there that has been or sup-
posed to be before the public up the Thorne Apple River, and an
analysis of that power shows that by any reasonable amount of money
that might be economically spent on the development it would not
give you sufficient storage to give you a flow throughout the year that
would justify you in building that at all.

That is the situation that shows up about 90 per cent of the water
powers that you hear about; I mean the water powers that are not
being utilized, and are supposed to exist. You will find, on analysis,
that they are not an economical proposition. When they get to be an
economical proposition, they probably will be developed shortly,
unless there are some outside reasons that absolutely prevent it.

Commissioner SWEET. Then you would not look upon that as a
material relief for the street railways?

Mr. CUMMIN. No. I think an analysis of cost will show that sup-
pose you did cut the cost of electricity 15 or 20 per cent to them, that
would not help them out a great deal.

Commissioner SWEET. Every little would help.

Mr. CUMMIN. I know; but it would not help out as much as one
might think at first.

Commissioner SWEET. From your acquaintance with the operation
of electric railways, is the generation of current by the present
methods the most economical ? Are they using, in other words, up-to-
date methods as a rule?

Mr. CUMMIN. Of course, there are many plants that are using the
most up-to-date methods, and of course, there are others that are not.
You will find all classes of machinery scattered over the country in
these different street-railway plants. Where they have not put in
modern machinery in many instances it has been simply a case of
where it was impossible to finance it. You may know that you can
save money by spending some money, but if you can not get that
money to spend, you will just have to go on and keep wasting it.

Commissioner SWEET. It might have quite a bearing upon the find-
ings of this commission if we were satisfied that the reason why street-
railway companies are in such bad financial condition is that they are
using machinery that ought to be discarded and scrapped instead of
being used.

52 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIX. I do not believe that you will find that. That will
be a factor more or less in different cases, but I do not believe that is
the serious thing.

Commissioner BEALL. That is one of the smallest parts of their
operating expenses, is it not?

Commissioner SWEET. The coal ?

Mr. CUMMIN. No; electricity.

Commissioner SWEET. The coal required to produce electricity?

Commissioner BEALL. There is a big difference, -though, between a
city like Washington, that is level, and Kansas City, which is all
hill — a big difference.

Commissioner SWEET. In what way?

Mr. CUMMIN. In the amount of power. •

Commissioner BEALL. In the amount of power required. You havo
to have more motors in the car, and heavier.

Commissioner SWEET. Heavier motors?

Commissioner BEALL. Yes.

Mr. CUMMIN. That would be a hard thing to generalize on, and I
do not believe, as I say, that a reduction of 15 or 20 or 25 per cent in
the cost of electricity would make any serious inroad on the present
deficits of the companies.

Commissioner SWEET. How about the other economies, or possible
economies; can you suggest any?

Mr. CUMMIN. A possible economy, of course, not practicable for
some large cities, is the one-man car. That is a practical economy
under a great many conditions.

Commissioner SWEET. The motorman practically acting as con-
ductor and motorman, you mean?

Mr. CUMMIN. The motorman operates the car and the entrance is
nt the front ; the people have to come in and go out at the front of
the car.

Commissioner SWEET. Where is that system in operation?

Mr. CUMMIN. That system is in operation in a number of the
smaller cities.

Commissioner SWEET. Is it satisfactory?

Mr. CUMMIN. They have not gotten the reduction in cost that they
hoped ; or rather, costs have raised the value of things so that it has
not made a great effect upon the operating expense.

Commissioner BEALL. Is not the real reason for this that it is used
almost entirely on lines that never were profitable anyway — it is an
effort to get a further reduction of expense on something that always
will be unprofitable?

Mr. CUMMIN. Yes.

Commissioner SWEET. Do you think that would be a feasible plan
in a city of 40.000 or 50,000 ?

Mr. CUMMIN. In a city of 40,000 or 50,000, yes.

Commissioner BEALL. But only on their outlying lines ; not where
the congestion is?

Commissioner SWEET. In the heart of the city?

Mr. CUMMIN. In a town of 40,000 or 50,000 people I think it is
quite possible that it might be used. It would depend somewhat on
the situation; but I should say in most towns of that size it could be.

Commissioner SWEET. Are they a smaller car, or a standard size ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 53

Mr. CUMMIN. That is another economy that has been practiced —
the use of a lighter car. I do not know enough about the compara-
tive maintenance costs of the heavy car and the light car to know
whether that is a true economy or not, especially on heavy traffic
lines.

Commissioner BEALL. Is not the answer to that that you have
really got to have the expense in your power house anyway, and the
heavy car costs more, but the light car wears out faster ?

Mr. CUMMIN. Yes; there is some point in that.

Commissioner BEALL. There is- a balance?

Mr. CUMMIN. There is a question as to where you have the most
economical point; but that is suggested as a possible source of
economy.

Commissioner SWEET. Have you had any experience with the skip-
stop, so termed, that has been tried in many cities during the war?

Mr. CUMMIN. Yes; in the smaller cities the skip-stop saves noth-
ing.

Commissioner SWEET. How is it in the larger cities?

Mr.. CUMMIN. In the larger cities I am not familiar with the
actual figures, but I should say that there was a possibility that it
did save something. That is, it might enable them to take out a car
or so on a line at certain times by increasing the speed at which they
can get over the route. In a town of 30,000 or 40,000 or 50,000 peo-
ple it does not do it. You have to deal in car units, and you do not
save enough time to get rid of one car. If you are running 15 cars
at a time you can not cut it to 14.

Commissioner GADSDEN. As a matter of fact, is not the greatest
demand for power in the starting of the car ?

Mr. CUMMIN. Yes.

Commissioner GADSDEN. Does not the car use two or three times
the amount of power in starting that it does after it gets its head-
way ?

Mr. CUMMIN. Yes.

Commissioner GADSDEN. Therefore, every stop you cut out saves
that appreciable amount of power, does it not ?

Mr. CUMMIN. It saves some power, yes.

Commissioner GADSDEN. An appreciable amount?

Mr. CUMMIN. Yes.

Commissioner GADSDEN. And that reflects itself in the total gen-
eration at the power station and is appreciable, if it is a big enough
system ?

Mr. CUMMIN. Yes; but it does not affect it as much us you would
imagine, because when you are generating 1,000 kilowatt hours and
have to generate 1,200, provided it is well within your capacity — that
extra 200 — it does not cost you one-fifth more, by a whole lot.

Commissioner GADSDEN. But it does reduce your cost per kilo-
watt? It does save a few kilowatts, and if you save kilowatts, you
save so many dollars, do you not?

Mr. CUMMIX. It does not work out quite that way. For instance,
if you save 1,000 kilowatts out of a total of 10.000 kilowatts, you
would not cut your cost 10 per cent.

Commissioner GADSDEN. I did not say that, but you would save a
substantial amount of money I

54 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CUMMIN. They Blight save a little.

Commissioner SWEET. You said that the automobile was having
a very material effect in diminishing the travel upon street rail-
ways, and consequently diminishing their earning capacity. Can
you see any remedy for that from the street-railway standpoint?

Mr. CUMMIN. No; I do not know that I can. I think the use
of the automobile is going to increase rather than decrease, and the
only thing I can see is for the street railroads to try to work out
some scheme to make riding on street railroads more attractive than
riding in 'Fords. If they can do that, they can perhaps make in-
roads on these deficits. But there is the situation: A man owns a
car, and he goes back and forth to work in it, and he used to ride
in a street-car ; and he will probably seat two or three of his friends,
or at least one friend, probably an average of three or four a week ;
he will take them out with him as he passes them on the street.
Those all are potential street- railroad fares, that would be street-
railroad fares if it were not for that automobile; and you multiply
that by thousands and thousands of cases, and you make a very de-
cided inroad on the earnings of the street railway.

Commissioner SWEET. Of the two kinds of street railroads you
spoke of, those that are almost hopeless, or practically so, and those
that are not, which would be the more affected by the automobile
competition ?

Mr. CUMMIN. I do not see that it would make any particular
difference.

Commissioner SWEET. Don't you think that these street railroads
that I think you, or perhaps Judge Taft, said never ought to have
been built, that there was no logical reason for building, out into
the suburbs, would be more affected, in proportion, than those in the
center of the city?

Mr. CUMMIN. Oh, yes. Take a line that is built into a high-
class residential district, and it might be pretty nearly put out of
business by the automobile traffic. You take lines in the city of
New York, and they might be very little affected. I mean, the
percentage is probably very much less than it would be in a smaller
city, but that is taking the extremes, of course. I believe if you take
cities the size of Detroit and Cleveland and cities of that general
class, you will find that the automobile has cut very, very heavily
into the revenues of the street-railway companies. It is easy enough
to simply go out in the street and count them up — what would be
street-car fares if it were not for the automobiles.

Commissioner SWEET. In the cases you have in mind, is the jitney
playing any part, in your estimate?

Mr. CUMMIN. Under certain circumstances and in certain cases
the jitney may be a very serious competitor; but taking the question
and generalizing upon it, the serious thing is the automobile as a
whole — the privately owned automobile and the jitney and every-
thing all together; that is the thing that the street railroads must
face, the competition of the automobile. The jitney competition you
can control. The private-automobile competition you can not control.

Commissioner SWEET. That is likely to grow worse, rather than
better?

Mr. CUMMIN. I would judge so, at least by the plans that the
automobile manufacturers have.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 55

Commissioner MEEKER. There was one point that I wanted to
bring out — although I think perhaps it has already been covered by
questions which have been asked — and that was in reference to auto-
mobile transportation, either by jitney or automobile bus. As a
matter of fact, is transportation by automobile bus to-day as cheap
as transportation by street railways, in reasonably crowded districts ?

Mr. CUMMIN. The figures that I have seen are pretty conflicting on
that point. I do not know.

Commissioner MEEKER. But that is a serious thing, and must be
considered by this commission — the competition of the jitney trans-
portation or the automobile bus.

Mr. CUMMIN. As I say, in certain local situations it may be very
serious. I would judge, for instance, in Minneapolis that the big
automobile buses there were a serious factor in the earnings of the
Twin Cities Railroads.

Commissioner MEEKER. It is quite possible that in the future im-
provements in the gas engines may be made so that the street railway
properties in some districts will, as suggested by the chairman this
morning, become obsolete, or at least obsolescent, so that the street
railway companies in those localities will have to prepare to write
off a large part of or perhaps the entire cost of their investment.
You agree with that, do you?

Mr. CUMMIN. Yes ; that is possible.

Commissioner BEALL. You probably know this — that in Dallas
and Los Angeles, Calif., until the jitneys were regulated by law,
principally by compelling the furniGhing of indemnity bonds against
injuring people and property — I have not the exact figures in mind —
but it affected the gross earnings of those properties something like 30
or 40 ner cent or more — not less. That is how serious it was.

Mr. CUMMIN. Yes.

Commissioner BEALL. It was also very serious in Seattle ; but that
has been almost entirely eliminated in those places by a new law.

Mr. CUMMIN. As to the Minneapolis situation, they are regulated
there, but they have these great big buses that seem to be operating
pretty frequently, and I should imagine they cut into the street
railway revenues considerably.

Commissioner BEALL. They did between Dallas and Fort Worth ;
they almost put the interurban line out of business — but that is inter-
urban. I was speaking of the cities' lines.

Mr. CUMMIN. The same thing is happening to interurban lines in
the Middle West where good roads are put in. Where good roads
are put in, the jitney buses promptly take a large part of the busi-
ness away from them. But I think the whole question goes right
back to the automobile generally; if you attempt to generalize, you
have to treat it as the automobile, and not simply as the jitney bus;
because the jitney bus is local.

Commissioner WEHLE. Has any study of costs been made with
reference to these Minneapolis buses?

Mr. CUMMIN. Not that I have ever seen. The few costs I have
ever seen on buses have been rather conflicting.

Commissioner WEIILE. Has the engineering proposition ever been
made that street railroads might be propelled by gasoline instead of
electricity?

56 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CUMMIN. Henry Ford has proposed it, and he says he is going
to build a car.

Commissioner GADSDEN. Nobody else has?

Mr. CUMMIN. Oh, it has been proposed.

Commissioner WEHLE. Has it been proposed in any serious way,
so far, so that there might be data on it, or reliable estimates on that
subject ?

Mr. CUMMIN. There is no data that I know of. The only gasoline
operation of a car was some few years ago, when they operated some
gasoline cars on some branches of steam railroads.

Commissioner BEALL. Yes.

Mr. CUMMIN. Several of them out in Oregon, I think.

Commissioner BEALL. Some in California, too.

Mr. CUMMIN. I have not heard much about them lately, so I
imagine they were not a howling success.

Commissioner WEHLE. There would naturally be a great deal of
opposition to the development of the idea from those who are in-
terested in the investments in electric properties, would there not?

Mr. CUMMIN. Oh, I don't know.

Commissioner WEHLE. It would necessarily mean discarding these
electric properties, would it not, if that idea should ever come to the
fore ?

Mr. CUMMIN. Yes, of course; but I think that when any live
business realizes a situation of that kind, there is only one thing for
them to do, and that is to accept it and write off the losses ; they do
not have to write off all the losses in one year.

Commissioner WEHLE. I do not think people like to write off
losses.

Mr. CUMMIN. No ; they do not. They do not like to write off losses,
but if they do not do it, somebody else will get the business, and they
know that, and then they will not only have their losses to wTrite off,
but they will have lost their chance to render the service with tha
new thing.

Commissioner BEALL. That is what did occur in the change from
horse to cable, and from cable to electric power, is it not?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Exactly. You have stated that there is a
type of electric-railway property which is inherently impossible to
successful private operation ; that is, a small town property ?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Have you in your possession, or could you
file in this record, any detailed statement specifying the properties
which come within that description, within that type? You have
only given us one instance, so far — Jackson, Miss. — have you not?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Which, in your opinion, illustrates the
type?

Mr. CUMMIN. Yes.

Commissioner WEHLE. Do you think that your information is suf-
ficient to enable you to say that there is a large number of proper-
ties which conform to thai type ?
Mr. CUMMIN. Yes.

Commissioner WEHLE. And which can never be operated success-
fully under privat3 operation, from a business standpoint?

PROCEEDINGS OF FEDERAL ELECTBIC RAILWAYS COMMISSION. 57

Mr. CUMMIN. They probably never can. In fact, I imagine you
will find a great many that never have been operated at a profit.

Commissioner WEHLE. We know that that is true, of course, but
that may easily -be due to errors in management, or various kinds of
special circumstances. But you are talking now in the abstract, as I
understand it?

Mr. CUMMIN. Yes.

Commissioner WEHLE. And you are assuming that the founda-
tions for operation have been laid in a businesslike way to begin with,
and that the demonstration is that these properties are a blind alley,
speaking in terms of business. Can jou give instances of that, be-
sides Jackson, Miss., if you would be willing to do so?

Mr. CUMMIX. Another one I happen to know about is Fond du Lac,
Wis., and Oshkosh, Wis. Those are two that I happen to know of.
Oshkosh is a case where they have got a large part of their mileage
that is pretty dead, and always will be, possibly ; at least for a great
many years it is going to be pretty dead ; they get very little traffic
from it, and yet they have got to operate.

Commissioner WEHLE. In Jackson, Miss., was there an overbuild-
ing of the property there into territory that was really dead ?

Mr. CUMMIN. Not to any serious extent.

Commissioner WEHLE. So that you think that the conditions at
Jackson, Miss., are such that they really prove your proposition ?

Mr. CUMMIN. Oh, I think it is utterly hopeless for any street rail-
road in Jackson, Miss., to ever earn its salt. It has got to be helped
along by a stronger sister, which it always has been, down there ; and,
in fact, the city has more or less recognized that, and the street-rail-
road franchise is concurrent with an electric-light-and-power fran-
chise, so that evidently the situation was recognized.

I can not cite you a lot of cases, but I think that the public-service
commissioner right here could probably give you a dozen of them
within 40 miles of the city of New York. I do not think you will
have to go any further away than that, where, if you allowed them
to charge anything — I make the distinction there of where you allow
them to charge any rate of fare they want to charge — they can not
stand on their financial feet. Take the lid off, and let them charge
anything they want — the business is not there. In other words,
they can not increase their gross revenue appreciably, no matter
what they make their fare.

Commissioner SWEET. But as the rate goes up, the patronage goes
down ?

Mr. CUMMIN. Yes; and it goes down in the smaller cities so fast
that you simply can not gain anything by putting on the higher
rate. Let them charge 10, 15, or 20 cents, and it would not help
matters any. There is a case where regulation of fares is not neces-
sary by a public-service commission. It does not make any dif-
ference what they charge. There are plenty of instances of just
that, at the present time.

Commissioner MEEKER. You spoke of service at cost. Of course,
it Avould be necessary to have a physical valuation of the plant to
get at what the service cost. You said, as I understood you at least,
that the ideal method of getting at the value of the plant would be
to fret the amount invested?

Mr. CUMMIN. Yes; if you can get it.

1(50043°— 20 5

58 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner MEEKER. Suppose we" can get it. Suppose it can
be gotten. Suppose the investment has been an unwise one, as it
would seem the investment in Jackson, Miss., was?

Mr. CUMMIN. That would have to be taken into consideration. In
that particular case, as I say, the situation was recognized, appar-
ently, by the franchise. It was recognized that the electric-light
plant would have to support the street railroad, more or less.

Commissioner MEEKER. Then what you mean really is to get at
the prudent investment, is it not ?

Mr. CUMMIN. Yes. There was a public service that was needed,
the town wanted it, and made that arrangement in order to get it.
There will be a number of street railroads, I think, as your investi-
gation goes on, where you will find there probably is not a financial
basis to justify their being there, even in normal times, but that they
are a real community need, and some arrangement has been entered
into whereby that community need can be filled. That has to be
taken into consideration as well as the lack of wisdom as a straight
business investment. That is, sometimes the community need has
been filled at an actual business loss.

Commissioner MEEKER. And there must be some arrangement,
. either by writing off the capital or by subsidy of public ownership or
partnership, in order to maintain this service?

Mr. CUMMIN. Yes. You can not get an investor to put any money
into that in order to give the service which the public needs unless
you let it stand on its feet.

Commissioner MEEKER. You said getting at the valuation was but
an approximation in any case. Do you think it is possible to get a
physical valuation that is accurate enough to base their fares upon?

Mr. CUMMIN. You face this situation in a valuation — securing
a fair value or physical value or anything else of that kind — that
you can not get the exact truth. If you try to get the exact truth,
you will spend so much time in splitting hairs over things that are
matters of opinion and have to be based on hypotheses that your
results are not going to be worth the amount of time you put in.
What you must expect to get is the closest possible approximation
to the truth. You probably can have two thoroughly competent en-
gineers for the same property and they will not agree even with the
best intention in the world, both of them absolutely trying to get at
the truth. They will not agree and they may not agree within quite
a large margin, and yet both of them have an approximation of the
truth. You can not expect to get any better than an approximation,
and the thing you must aim at is to get the best approximation that
you can get. You have to start from some point in making your
fares. Well, now, there is only one thing to do and that is to work
out some way of agreeing upon that basis. It may not be the truth,
but if it is the closest approximation of the truth you can get it is
satisfactory as a starting point. After that, with accounting control,
you can see that your books are kept so that you can keep right on
upon that basis.

Commissioner MEEKER. You think the deviation from the mean in
these engineers' estimates is within a sufficiently narrow limit so that
these various estimates may be taken as the basis of adjusting fares?

Mr. CUMMIN. I would say so in the case of engineers who are
recognized as being disinterested. Some of them are not.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 59

Commissioner MEEKER. You spoke of taxation and also paving
charges as coming from the public. Taxation from the public, pav-
ing charges from the riding public. That would not necessarily be
true, would it ? In fact, were not those charges — paving charges and
taxation — resorted to by the public because the street railways were
making a good deal of money, and they were charged with the pav-
ing charges and with franchise charges in order to take some of their
profits away from them?

Mr. CUMMIN. That was the original idea. I think you misunder-
stood my statement somewhat, because when I spoke of taxation I
meant that deficits would have to be handled by the public, some
through taxation, either as a partner or as operating the business
themselves. If the deficit existed, it would have to be paid for by the
public, and paid for by taxation. I entirely agree that the utility
should be taxed on just the same basis as anything else. I think that
is entirely proper. I do not believe there should be any change made.
If you stop taxing the utility, you are paying it a subsidy ; I do not
care what you call it or how you do it.

Commissioner MEEKER. It is very desirable to resort to indirect
taxation if it can be avoided; that is, allowing the street-railway
corporation to collect in fares an amount that does give them an in-
come above a reasonable income on the investment which is to be
taken from them through the taxing power of the State; It is better
to reduce the fares and reduce income in that way ?

Mr. CUMMIN. Yes.

Commissioner MEEKER. So as to avoid the waste of pouring water
from one vessel into another repeatedly?

Mr. CDMMIN. Yes.

Commissioner MEEKER. Just one thing more. To what extent is
it possible in your experience as an engineer to improve the imple-
ments of street-railway transportation, and thereby assist to put
the companies back on their feet? Is there much of a margin to be
gained in that direction ?

Mr. CUMMIN. Of course, there is quite a margin in some cases.
You will find some roads that are in very bad physical condition.
They are in very bad physical condition in many cases because they
have not been able to get the money to keep themselves in good physi-
cal condition, and now their operating costs and maintenance costs
are out of all reason on account of their physical condition. There
is a case where, if the money could be put into it, a considerable
amount could be saved.

As far as new devices are concerned, I should say that these gen-
tlemen of the Electric Railway Association can tell you a whole lot
more about them than I can, because they keep in very clos"e touch
with them.

I think that anything that promised a saving the street-railway
companies would be only too glad to adopt.

Commissioner MEEKER. I think the commission would be inter-
ested in getting your views of how money can be obtained by these
railways of which you spoke when you said if they could put more
money in their investment, in their equipment, they could cut down
their operating costs and, incidentally, increase their income; and
they can not borrow the money. What is to be done?

60 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CUMMIN. They are in the position of the two mining partners,
one of whom stayed out West to develop the prospect and the other
came East to sell the stock; and the one who came East to sell the
stock could not sell the stock because the other fellow could not dis-
cover any gold, and the fellow out West could not discover any gold
because the fellow in the East could not sell any stock. That is just
the situation the street railroads are in. They can not get any earn-
ings until they can invest some more money in their plants to get
them in shape, and they can not get any more money to invest in
their claims until they get some more earnings.

Commissioner MEEKER. You have just repeated my question to you
to me. Now, what is the answer ?

Mr. CUMMIN. That is the situation. The answer, in a situation of
that kind, is that I do not see anything can be done, except I
think if an agreement can be secured that will reasonably assure the
company of being able to get back upon a business basis that possibly
financial arrangements could be made.

Commissioner MEEKER. Do you suggest the loaning of public
funds?

Mr. CUMMIN. I think that is bad public policy.

Commissioner MEEKER. Why ?

Mr. CUMMIN. Because if it is done once it is likely to be pretty
hard to tell where it will stop.

Commissioner SWEET. It will become a habit?

Mr. CUMMIN. Yes.

Commissioner MEEKER. Guaranteeing income ?

Mr. CUMMIN. I think there might be something, perhaps, done
along that line of where the city would borrow upon its credit and
in turn lend to the utility, taking proper security to cover its advance-
ment. I think something of that kind might be worked out, but I
do not believe that is advisable if something else can be done. I am
a little jealous of diverting the public funds to bolstering up private
credit on anything. It is bad enough to have to do it directly as a
subsidy. I doubt its policy as a matter of loan.

Commissioner MEEKER. Just one question more: Who is to deter-
mine these properties that would pay if you would put more capital
into them?

Mr. CUMMIN. Just like everything else, it is a pure matter of judg-
ment. You can not draw up any formula and make it fit all cases.
You have to work out the special case and come just as nearly to the
truth as you can come and then decide as may seem best in that case.
I can not see that you can draw up any formula that you can fit to
any cases that may arise.

Commissioner WEHLE. I am coming back to that subject of the
small town that you spoke about. Is there any way in which you
can suggest to us that we obtain data especially on that kind of a
town ? Because there are a great many towns of that general sort in
the country, and they would all be interested.

Mr. CUMMIN. I should imagine that the Electric Railway Associa-
tion could furnish you a very large number of instances.

Commissioner WEHLE. Is there any person outside of the Electric
Railway Association, or is there any source — any statietical source —
that you know of outside of that that could gwe us light on that
subject?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 61

Mr. CUMMIN. Perhaps some of the State utility commissions could
give you information on that. For instance, the statistician of the
Wisconsin Commission could probably give you considerable in-
formation on just that point, and that probably would be true of a
number of the other State commissions.

Commissioner WEHLE. You made one rather clear-cut generali-
zation that I should like to have a little examination of. We were
talking about the cost of construction of streets in between the tracks
and on both sides, and your view seemed to be that no part of that
cost should be borne by the street-railway company — that is, the con-
struction. What would you say to this sort of a situation: Suppos-
ing that a street-railway company, in order to reach an outlying
suburb which promised considerable traffic, extends its line to that
suburb in order to bring in that community within its operations and
into its revenues, and thereby necessitates the building up of the line
through the opening up of that roadway for more people, necessi-
tates the paving of that street. In view of the fact that the railway
company is expecting to add to the population of the street and of that
suburb, and to gain a considerable profit through that operation,
can we say, as a categorical matter, that it should not stand any part
out of its profits, or before it makes its profits, we might say, of
the cost of constructing that street in between the tracks ?

Mr. CUMMIN. No; because it is not the street railroad that has
made that paving necessary. The street railroad may have built out
to that suburb and increased the population of it very materially,
by furnishing transportation facilities. The thing that makes the
street paving necessary is the fact that the people who live out there,
and the people who want to ride out there and do not want to ride
on the street car, want to use the street.

Commissioner WEHLE. Are there not a great many conveniences
that people have that make a street necessary ?

Mr. CUMMIN. Yes; but a street is necessary as a community need.
It is not caused by the building of a railroad. It is caused by the
people being out there and needing the street.

Commissioner WEHLE. Don't you think it rather a difficult thing
to separate that — I am not ready to argue with you or disagree with
you — but whenever you undertake to make an out-and-out declara-
tion of where the right is and where the wrong is, I would like to
see whether we have made it safely.

Mr. CUMMIN. Your basis for assessing abutting property for the
pavement of a street — that is, the theoretical basis for it, anyway — is
that the pavement of that street added to the value of that property,
and that therefore it is proper to tax for the pavement of that street ;
in other words, a special benefit is derived.

Commissioner WEHLE. But the paving of the street, in so far as it
leads to any thicker populating of that part of the town, through
making it more acceptable for general traffic, adds to the traffic of
the street-railway company, does it not?

Mr. CUMMIN. No; it may not. It may do just the opposite.

Commissioner WEHLE. But it may, may it not?

Mr. CUMMIN. You take the case I cited here a little while ago,
where an interurban line is paralleled by a hard-surfaced road, and
the business is taken away from the interurban line by jitneys, auto-
mobiles, etc. The paying of that street may be an actual detriment.

62 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

In any case, I can not see why it is brought on except by very indi-
rect methods by the street-railroad company building that exten-
sion. I still think my generalization is good.

The CHAIRMAN. Isirt it a fact that there is comparatively heavier
maintenance on the paving between and immediately on each side of
the tracks?

Mr. CUMMIN, As I say, the maintenance is caused very often by
the breaking down of joints, it is caused by having to cut in to repair
bonds and by conditions in the subgrade underneath the ties, and by
the failure of the ties and the rails, etc., and the maintenance of
pavement in street-car tracks is always very much heavier than it is
any place else. If you go out and go over a street that has been
paved a number of years, and go along the street-railroad tracks,
you caoi see the condition that the street-railroad tracks put it in.
Numerous efforts have been made to get away from that high cost of
maintenance, some fairly successful and some not so successful, in the
way of using practically monolithic pieces of various kinds.

1'he CHAIRMAN. Are there any further questions of this witness?
[No response.]

Are there any other witnesses who wish to be heard by the com-
mission this afternoon? [No response.]

The commission stands adjourned, then, until further notice.

(Whereupon, at 4.30 o'clock p. m., an adjournment was taken
sine die.)

WASHINGTON, D. a, July 15, 1919.

The commission met, pursuant to notice, at 10 o'clock a. m.

Present: Charles E. Elmquist (chairman), Edwin F. Sweet (vice
chairman), Roy^al Meeker, C. W. Beall, L. B. Wehle, and Philip H.
Gadsden, commissioners.

Appearances: Mr. Bently W. Warren, Boston, Mass., and John H.
Pardee, New York, N. Y., representing the American Electric Rail-
way Association.

PROCEEDINGS.

The CHAIRMAN. Mr. Pardee, the commission is ready to hear the
Electric Railway Association.

STATEMENT OF MR. JOHN H. PAHDEE.

Mr. PARDEE. Mr. Chairman and gentlemen, I appear before you
as president of the American Electric Railway Association, an or-
ganization which represents a very large part of the electric-railway
mileage of this country and a very large part of the capital invested
in the electric railways in urban and rural communities.

This organization has been in existence since 1882 and has been
the spokesman of the industry through all the phases of its develop-
ment from the original horse-car lines to the cable road and through
the period of evolution from the first commercially successful electric
railway of the city of Richmond, Va., in 1888, to the present-day
trolley which is part of the social and economic life and industrial
life oi almost every city of any size in this country and in many of
the rural communities. I feel, therefore, as president of this asso-
ciation, and speaking with the authority of its members, I am pre-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 63

senting to you the views and wishes of an industry representing an
invested capital of over $6,000,000.000 and which operates more than
44,000 miles of electric-railway track in the cities and rural districts
of the United States.

We are before your commission because a crisis has been reached
in the conduct of this very important and essential enterprise. It is
not too much to say that we are no longer able, under existing condi-
tions and with the revenue which we are receiving, to continue in
the performance of the functions which the electric railways are de-
signed to perform. It is no longer a question of what return shall be
allowed to the owners, it is a question as to what service, if any, shall
be rendered to the public. It is a situation which very intimately
concerns these three classes:

First, and most important, the public, which is threatened — and I
am not now speaking in parables, but am dealing with actual facts —
in many cases with the entire loss, and in nearly all cases with a very
great deterioration of the service which it requires.

Second, the more than 300,000 employees, who, in the end, in spite
of theories or pronouncements of arbitration boards, must depend
for their wages upon the financial ability of the companies to pay.

Third, the owners of the properties whose investment — made, it is
true, with the object of legitimate compensation, but made, neverthe-
less, in the interest of the entire people — is now jeopardized.

The peculiar conditions surrounding the operation of all public
utilities, and especially of transportation utilities, is the direct cause
of our being before you. Owing to the complete system of control
and regulation exerted over us by the public authorities, which both
prescribe our service and control our rates, we are unable to readjust
ourselves to changing conditions as every other industry not so ham-
pered is readjusting itself. On the one hand, we can neither decrease
to any considerable extent the quantity or quality of our product, or,
on the other hand, increase the price of this product, without the
consent and cooperation of the public, acting through the constituted
authorities, which means in the end that to put into effect measures
for our salvation we must obtain the consent, or at least the acquies-
cence, of the public itself.

We realize fully that your commission is without power to take
peremptory action or to directly put into effect any recommendations
which you may make. You, however, bear the commission of the
President of the United States; you were. appointed at the joint sug-
gestion of the Secretaries of Commerce and of Labor, made because
these gentlemen realized the important bearing upon the national
interests intrusted to their charge of the precarious situation of the
electric railways and saw the necessity for its correction in the na-
tional interest. Your conclusions and recommendations will have
the confidence of the people and will carry with them the weight
that must always be attached to the wishes and conclusions of
the national administration. Your appointment gave to the elec-
tric-railway industry an opportunity of presenting to the public,
whose representatives you are, a true picture of the state into which
it has fallen through no fault of its own. We have no desire ro
"make a technical case" in the legal sense; what we want to give
you, and through you to the people of the country, are the facts, and

64 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

all £>f the facts, to the end that with your help and with their coop-
eration a solution may be found.

We are before you then, because we believe that the solution of
our problem is as much a matter of concern to the people as it is to
the shareholders and operators of the properties, and because we
believe that the solution can only be properly arrived at through the
cooperation of a public educated to the needs of the railways as
these needs affect the needs of the communities.

In my opinion, and I am confident that in this opinion I will be
supported by the industry, there are two major phases of the situa-
tion which we now face. The first concerns the absolutely uneco-
nomic and unsatisfactory basis upon which the relations between the
electric railways and the public have rested since the enterprise was
inaugurated ; and by this I mean that there has never been a proper
conception either on the part of the owners of these properties nor
on the part of the public as to the factors which should govern tha
service to be rendered or the fares to be charged by electric railways.
This is a situation which has existed during the entire life of the
industry and is responsible for much of the misunderstanding be-
tween the companies and the public. It existed before the war, is
entirely unconnected with the changes wrought by the war, but it is
one of the fundamental reasons why the war has helped to bring dis-
aster upon us.

The second phase was the direct result of the war. It first de-
veloped immediately after the declaration of war in 1914 and was
vastly accentuated by the entrance of the United States into the war
in 1917. The national war program, to which we, as railway men,
all subscribed, and to the fulfillment of which we lent our very best
endeavors, involved the electric railways and other public utilities
to an extent immeasurably greater than that in which any other
national industry was involved. The Government took control of
our labor, it raised the wages of our employees in many ca'ses as
much as 100 per cent ; it took command of our fuel supply, and fixed
the prices which we were compelled to pay for coal ; it fixed the price
of every commodity that entered in the maintenance and operation
of electric railways ; in a vast number of cases, it prescribed the serv-
ice which we were to perform, and called upon us companies for con-
struction involving many millions of dollars. In fact, there was not
a phase of electric-railway operation in which the Government did
not interfere, with the result that the cost of operating our roads
was very greatly and materially increased. Thus it did to add to our
burdens ; to assist us in bearing these burdens and to meet these obli-
gations, it did nothing.

We are not here to claim that this action of the Government w7as
not entirely necessary and entirely proper, or that it exclusively
affected our industry. But we do say that its effect upon the rail-
ways of the country was the more pronounced and the more disastrous
because alone of all the industries affected, the public utilities were
unable to apply the obvious remedy — an increase, on their own
\7olition, in the price of their product to meet the increase in its
cost thus forced upon them.

These two phases of the situation we propose to lay before you in
detail, showing by the testimony of those best acquainted Avith the
various groups of facts, what is the present condition of the in-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 65

dustry, what were the causes of this condition, and what are the
avenues of escape.

We believe that our problem, in the solution of which we claim
your assistance, is a problem of readjusting an essential industry to
conditions that have materially changed — first, because of the natural
development of the business and the changing civic and social life of
the communities; and second, because the Great War has wrought a
great change in national concepts of industrial and social relations.

As I see it, the elements that go to make up these changed condi-
tions as they directly affect electric railways are :

First, the higher price level upon which not only the United States
but the entire world has entered, which seems bound to obtain for
an indefinite period of years.

Second, the conditions surrounding the employment of labor,
which is a larger part of the cost of operation of electric railways
than it is of any other industry with which I am acquainted. In
this connection, I believe that'it must be evident to any unbiased and
unprejudiced student of present-day conditions that labor is demand-
ing and will receive a greater share in the wealth that it produces
than ever before in the history of the world. Everywhere industry
is adjusting itself to meet these demands, and no lasting solution of
the railway problem can be reached unless this industry is put in a
financial position where it can render the same meed of justice to its
employees as is expected from industry generally.

Third, the introduction of a new competitive factor in the auto-
mobile, not only the so-called " jitney," but more especially the
privately owned automobile and the motor truck.

Fourth, the enlarged functions of street-railway systems, which
with the growth of the communities they serve have ceased to be
private enterprises, with the sole aim of adding to the comfort and
convenience of the public, and have become absolutely essential to the
community growth, development, health, and welfare, with the result
that it is no longer possible to consider either service or rates from
the standpoint of business principle alone.

The association which I represent, and the Committee of One Hun-
dred, to which it has intrusted the presentation of its case before your
commission, does not intend to impress upon you in detail its own
views as to the remedies which should be applied to the cure of the
situation. We do believe, however, that there are two fundamental
ideas which will inevitably force themselves upon you for your con-
sideration. The first of these is that the cooperation of the public is
sine qua non to the stabilizing of electric-railway conditions: that
there must be impressed upon the public a new conception of the
relations between the communities and the public utilities which serve
them; that the antagonism which has hereto prevailed is disastrous
to both interests, and that only when the public and the companies
work together to secure efficiency and economy in operation can the
desired service be furnished at a reasonable price.

The second is that in order to provide, through the employment of
private capital, proper transportation facilities for cities and for
rural districts, the basis of compensation must be so determined as to
provide an assured, reasonable return and a rate of faro so flexible
as to readily and automatically adjust itself to the cost of providing
the service.

66 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I thank you, Mr. Chairman. The association Committee of One
Hundred has asked Mr. Bently Warren, of Boston, to represent it
in the presentation of this case.

The CHAIRMAN. You may proceed in the method which you desire.

STATEMENT OF ME. BENTLY W. WARREN.

Mr. WARREN. Mr. Chairman and gentlemen of the commission,
Mr. Pardee has stated our purpose and hope in coming before the
commission. We are here, as he said, because of the very serious
situation confronting this industry. We expect, and shall endeavor
to lay before the commission, a very full statistical statement of the
present condition of these railways and of the causes and possible
suggested remedies for that situation.

That the situation is extraordinarily serious is shown, I think, by
the figures which happen to be available for the last calendar year
in one State — my own State of Massachusetts. In Massachusetts,
as we shall show you from statements from our public-service com-
mission, with an investment of almost a quarter of a billion dollars
in the street-railway industry — exactly $241,000,000 odd, with gross
receipts of $45,000,000 last year, in 1918 — the combined street rail-
ways of that Commonwealth failed by $2,858,000 — almost $3,-
000,000 — to earn their operating expenses and fixed charges, earn-
ing not a cent toward a dividend upon the capitalization of $106,-
000,000 and paid-in premium of $6,000,000, or a total of $113,000,000
of paid-in capital and paid-in premium, except such dividends as
were paid upon leased lines under lease contract.

I mention that simply as an illustration. We shall not be able
to give figures for 1918 for the entire country, much as we should
like to do, because we believe that those Massachusetts figures are
typical. We shall be able to give you estimates of various operat-
ing results for the United States for the year 1918 through reports
from special companies made to the American Electric Railway As-
sociation.

What we shall try to do, as Mr. Pardee has told you, is to lay
before you the general situation regarding this industry over the
whole country, both its physical condition, its extent, and its financial
condition. We shall follow that by endeavoring to show you the
causes which have produced that situation and its effect upon vari-
ous phases of the industry, siich as the cost of labor, the cost of
capital, and other costs, the social need that is the essential character
of the street railways to the communities, some defects as we conceive
them in the application of public regulation to these utilities, and
finally, the theories advanced by many people and many different
theories as to what the proper remedies are.

I should like first, before gojng into the statistical part of our
presentation, to call upon Gen. Tripp, who is chairman of the Com-
mittee of One Hundred. That committee is serving voluntarily, as I
understand it, at the invitation and request of the American Elec-
tric Railway Association, and is representative of all the industries
directly affected by the street-railway industry, and is not composed
merely of street-railway men, but of representatives of insurance
companies, manufacturers, and various industries which have busi-
ness relations with the street-railway industry. I should like now

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 67

to call upon Gen. Tripp, chairman of that committee, to explain
further the organization of the committee and its reason for being.

STATEMENT OF GEN. TRIPP.

Gen. TKIPP. Gentlemen of the commission, I appear before you as
chairman of a committee of one hundred which was appointed by
the American Electric Railwa}* Association to present to you on '
behalf of the electric-railway industry the present conditions of it.

I would first like to call your attention to the character of the
committee, because it indicates how varied are the interests that are ;
affected by the prosperity or lack of prosperity of the industry.

You will notice by examination of the list of members that has
been handed you that it comprises not only those men who are en-
gaged in the administration of railways, but also includes officers of
insurance companies, bankers, trust companies, and manufacturers.
So we appear here not as simply representing the investor in street-
railway securities, who has already suffered large loss and is in great
danger of suffering further loss, but as manufacturers, bankers,
insurance men, to present this case to you in its broadest aspects,
and as representing the financial and industrial elements of the
Nation, which are affected by an industry which has an investment
capital of something like $7.000,000,000 and an annual income of
$730,000.000, and which is in extreme danger of complete collapse
and dissolution. This would jeopardize the interests not only of
the individual investor in its securities, but its effect would be a
real cause for alarm on the part of insurance companies, bankers,
trust companies, and other fiduciary institutions which, with sound
judgment at the time, have invested the savings intrusted to their
care in the securities of the electric railways. And it would also be
a matter of serious moment to manufacturers who find in the elec-
tric railways a customer which consumes annually about $200,000,-
000 of their product.

The appointment of your commission is evidence that the present
condition in which the street railways find themselves is also a mat-
ter of concern to the United States Government. And I take it that
that concern is not wholly nor perhaps principally on account of
any particular regard that the Government has for the street railways
themselves, but rather that the effect of the present condition of the
industry upon the financial and industrial fabric of the country was
the factor uppermost in causing the appointment of your commission.
And so we find the Treasury Department, the Department of Labor,
and the Department of Commerce represented on your commission.
The Treasury Department is interested because an industry which
requires $200,000,000 of new capital each year and a larger sum than
that for its refunding operations can not indefinitely remain in its
present condition without an effect upon the financial system of the
country. The Department of Labor is concerned because the ques-
tion of wages, conditions of work and employment, are concerned not
only as it affects the railways themselves but as it affects manufac-
turers who furnish materials and supplies to the railways. The De-
partment of Commerce is concerned because to an extent seldom real-
ized until a strike or some other circumstances operate to cause a ces-
sation of service, the industrial life of the community is very closely

68 PROCEEDINGS (XF FEDERAL ELECTRIC RAILWAYS COMMISSION.

bound up with the local transportation facilities. The close connec-
tion between the industrial life of the communities with local trans-
§ortation service was amply shown by the experience of the United
tates Government during the war. Very early in the experience
of those departments which had to do with the production of muni-
tions and supplies it was found impossible to secure efficiency and to
maintain it without seeing to it that the local transportation facili-
ties were efficient and ample to assist in the housing of workmen.
And so several of the departments instituted independent bureaus for
the purpose of dealing solely with that problem.

The appointment of your commission is the first opportunity
that the street railways have had to present their problem as a na-
tional problem. The present methods of regulation and control
have failed. It requires no argument to prove that. The fact that
an industry scattered all over the United States and operating un-
der different local conditions — the mere fact that such an industry
is as a whole on the verge of bankruptcy at a time when unregulated
industry is at the height of prosperity — speaks for itself.

The present sj^stem of regulation and control is entirely too in-
elastic to respond to the stress of changing conditions, particularly
such as now exist, and they do not permit of the prompt adjustment
of the price of the product or the cost of the product. And any
method of control or regulation which does not permit of the appli-
cation of this simple rule will always fail. I have no doubt that this
is a fundamental truth which is recognized by everybody, but in
the case of electric railways a peculiar psychological factor has
been introduced which has hindered the adjustment of electric-rail-
way problems.

The old system of contracts between a municipality and a rail-
way, under which the railway agreed for a certain fixed fare to-
perform certain service, raised a popular belief that the perform-
ance of a railway service through the medium of private enterprise
amounted to giving away public privileges to private individuals
out of which enormous profits have been reaped. It has been impos-
sible hitherto to eradicate that idea from the public mind. I da
not believe that the relations between municipalities and electric
railways can be satisfactorily adjusted upon the basis of a simple
contract such as might exist between two individuals or corporations.
I entirely subscribe to the theory of State regulation and control;
and that theory having been admitted, I believe it is impossible for
the parties to stand in simple contractual relations with each other,
and the idea should, if possible, be entirely removed from the pub-
lic mind and a new conception of the functions of electric railways
substituted. That concept I believe to be that the electric rail-
way is an agent of the public to furnish it service, and for that
service it is entitled to a fair and just return upon capital honestly
invested in the service and upon conditions which will respond to.
changing conditions of operation and of finance.

I think the electric-railway industry is facing three alternatives
and that the issue will come immediately : First, is municipal owner-
ship ; second, private ownership and operation under a sound funda-
mental basis of regulation and control; and third, complete disap-
pearance of the service. In some cases the service has already dis-
appeared and the tracks have been taken- up, but I believe that alter-
native is unthinkable in large communities except perhaps in part.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 69

I believe our experience in the governmental operation of those
utilities which are more or less complex in character has not been
reassuring, and I further believe that a majority of the people be-
lieve in private operation under proper regulation and control.

Your commission was appointed by the President, and as I read
the commission, it is for the purpose of inquiring into and making
recommendations as to ways and means to place this essential indus-
try upon a sound basis, upon a basis which will permit it to give
proper service to the people, insure a steady flow of capital into the
enterprise and safeguard investment that has already honestly been
made.

The Committee of One Hundred will present to you through the
testimony of men w*ho are best equipped to give testimony on the va-
rious aspects of the case a complete picture of the street-railway
situation; and we believe that when you have considered it, you will
realize that the industry is in dire extremity and that under present
conditions nothing can save it from complete bankruptcy, and that
you will also agree that such a denouement is unnecessary, unfair,
and un-American, and that you will also agree that such a debacle
would throw the larger burden not upon the rich but upon those that
are not rich.

All the special Committee of One Hundred ask is that the industry
be given its place in the sun.

Mr. WARREN. Mr. Chairman, would it be proper at this point to
ask for information from the commission as to the dates of the hear-
ings? The association has invited a large number of gentlemen from
various parts of the country to appear before the commission on va-
rious aspects of the general subject and it is very desirable that we
should be able to wire them as to when we expect to ask them to ap-
pear before the commission, giving them as nearly an exact data as
possible.

The CHAIRMAN. May I inquire how long you think it will take to
present your case ?

Mr. WARREN. We believe it will take 8 to 10 days, depending
somewhat necessarily upon the questions which the commission mem-
bers may desire to ask of vario js witnesses who will appear.

The CHAIRMAN. Is it your pleasure to present your case con-
secutively ?

Mr. WARREN. We should prefer to, if that would suit the con-
venience of the commission. We think we could arrange it better
with the witnesses.

The CHAIRMAN. The commission announces that its hearings will
continue until you are through with your case. The hours will be
from 10 to 1 o clock in the morning and from 2 to 5 o'clock in the
afternoon. If it is necessary to hold night sessions to expedite this
work, the commission will consider that later on.

Mr. WARREN. I wish to say that we appreciate very much the
kindness and consideration of the commission.

The CHAIRMAN. Unless otherwise advised, the commission will
not sit on Saturday.

Mr. WARREN. Then. I will proceed now?

The CHAIRMAN. You may proceed.

Mr. WARREN. I will ask Mr. Welsh to take the stand.

70 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

STATEMENT OF MR. JAMES W. WELSH.

Mr. WARREN. Your full name?

Mr. WELSH. James W. Welsh.

Mr. WARREN. And what is your occupation?

Mr. WELSH. Statistician of the American Electric Railway Asso-
ciation.

Mr. WARREN. In what were you engaged prior to that ?

Mr. WELSH. Prior to that I was connected with the Emergency
Fleet Corporation, in charge of the transportation of employees to
the shipyards in the New York district for a period of one year
during the war. And prior to that I was connected for a period of
about 12 years with the Pittsburgh Railways Co., which is the oper-
ating company of the electric railways in the city of Pittsburgh.

Mr. WARREN. What are your educational qualifications?

Mr. WELSH. I am a graduate of the Massachusetts Institute of
Technology in electrical engineering and of Harvard University in
general course.

Mr. WARREN. Now, Mr. Welsh, in preparation for this hearing
have you been preparing statistics and charts showing the condi-
tion and operating conditions and general situation of the street
railways ?

Mr. WELSH. We have.

Mr. WARREN. And what have been the sources from which you
have drawn the information that I am going to ask you to lay before
the commission?

Mr. WELSH. We have relied to a very large extent upon the special
reports of the Department of Commerce of the Census Bureau with,
reference to electric railways, from the reports of 1890 to 1917. We
received advance copies of the latter report through special courtesy
of the Census Department. In addition to that we have sent out
questionnaires and data sheets to electric-railway companies and, in
fact, have done that from time to time as a part of the regular work
of the association. We have also relied upon other sources of in-
formation with reference to special subjects, but in every case we
have, in our presentation here, attempted to show very clearly the
source of our information.

Mr. WARREN. I now propose to take up your various charts in the
order in which you think they should be introduced. Have you the
large charts for the commission? [See charts in Appendix.]

Mr. WELSH. Yes.

Mr. WARREN. Now, Mr. Welsh, what is that chart designed to
show?

Mr. WELSH. The purpose of this chart is to illustrate the growth of
electric railways from 1890 to 1918. It shows the principal elements
of electric-railway property, such as the passenger cars and the miles
of line and the miles of -track, and we have also shown upon the
chart the number of employees.

The point of special interest is the rate of increase in these various
items. It is notable that up until 1907 there was a rapid growth;
and from 1907 to 1912 all elements of physical property declined
somewhat in the rate of increase with a still further falling off in
the rate of increase from 1912 to 1917, as indicated by the lesser
slope of the lines.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 71

These same facts are brought down in the table which accom-
panies this chart, at the bottom of the page, where the percentage
increase for each of these items is shown over each prior census year.

It is notable, for example, that whereas in the case of miles of line
the increase was 15.6 per cent in 1902 over 1890, it fell to 10.7 in 1907,
3.8 per cent in 1912, and 1.4 per cent in 1917.

In the case of the number of passenger cars, the rate of increase
fell from 7.1 per cent in 1902 to 3.2 per cent in 1907, 1.8 per cent in
1912, and 1 per cent in 1917.

Mr. WARREN. Now, I notice that on the chart you show certain in-
formation for the year 1918. Beginning with those years at the
bottom of the chart — are they census years or special street-railway
census reports?

Mr. WELSH. Yes.

Mr. WARREN. For 1912, 1917, etc. How did you arrive at your
figures for 1918 so far as you were able to give them there?

Mr. WELSH. The 1918 figures in all of these charts which we will
present hereafter were obtained from a questionnaire which was
sent out to all electric-railway companies, covering various items for
both the years 1917 and 1918. In that way a comparison was ob-
tained between the 1917 values for this group of companies and the
census value for 1917 and a proportion in that way was determined
which was applied to the 1918 figures of the same group of companies
to determine a corresponding estimated 1918 census figure. This
group of companies, I may say, covered 345 in number and repre-
sented over 80 per cent of the operating revenues of the country. We
believe it to be a typical group of companies because of the close
checking up of various items as will appear hereafter.

Mr. WARREN. Is there anything that the commission would like to
ask about either that chart or the table ?

Commissioner BEALL. Are you sure of that number of employees?
It seems to me that is too low. You have down here 294. I think
there is an error. It is around 340 or 350, 1 think.

Mr. WELSH. That is in thousands. The chart is represented in
thousands of employees.

Commissioner BEALL. But you have here 294,000 on your statistics
accompanying the map. Is not that pretty low? Are there not
more than that to-day?

Mr. WELSH. That is the figure reported by the 1917 census.

Mr. WARREN. Do you know from the census reports, Mr. Welsh,
whether that is the total number of employees including trackmen,
linemen, car-house men, or only trainmen, so-called?

Mr. WELSH. I understand it represents the total number of em-
ployees.

Commissioner SWEET. The principal value of this, I take it, Mr.
Welsh, is a comparison at the different periods.

Mr. WELSH. Yes.

Commissioner SWEET. And if it were taken on the same tmsis — it
is not so essential that the absolute number should be correct, if it is
taken on the same basis at different times.

Mr. WELSH. That is true.

Commissioner SWEET. That is your main purpose in presenting it,
is it not?

Mr. WELSH. That is true; yes.

72 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Have you any reason or explanation of the rapid
increase of the number of employees between 1902 and 1912 ?

Mr. WELSH. Of course, between 1902 and 1912 the industry at
large was in its most rapid period of development. However, the
number of employees has increased more rapidly than other ele-
ments. It is possibly due to various circumstances. One thing may
be the tendency toward shortening of the hours of labor and requir-
ing, therefore, a greater number of employees.

Commissioner GADSDEN. Does it not appear on this table that be-
tween the same dates the mileage increased 100 per cent?

Commissioner BEALL. The latter was like the New York subways.
Did they not put in a lot of additional tracks ? I think a good deal
of that came in during those years.

Mr. WELSH. Yes; I was merely comparing the rate of increase of
the number of employees with the rate of increase in miles of track
and passenger cars, which, from the chart, is evidently greater owing
to the higher slope of the line.

Commissioner MEEKER. I do not think you can depend upon the
slope of the line on an arithmetic chart; you would have to draw it
on a logarithmic scale. And the figures of your table do not sub-
stantiate the statement that the number of employees increased by
a greater percentage than the mileage of line or even the miles of
single track.

Mr. WELSH. Well, for example, you can compare the increase in
1912 over 1907, which, in the case of the number of employees, is
5.5 per cent, and in the case of the number of passenger cars is only
1.8 per cent. There is an excess of about three times in the rate of
increase for the number of employees over the number of passenger
cars.

Commissioner MEEKER. I understood the question was rfsked from
1902 to 1912 and not from 1907 to 1912.

Mr. WELSH. All right, in the case of 1907 over 1902 the rate of
increase in the number of employees is 11.4 per cent, and in the num-
ber of passenger cars, 3.2 per cent.

Commissioner MEEKER. The first figures refer to the increase from
1890 to 1902.

Mr. WELSH. That is true.

Commissioner WEHLE. In connection with the number of em-
ployees, may I ask you whether in the case of an electric railway and
power company where some employees would be allocatable, so to
speak, to the power activity and some to the street-railway activity,
whether such allocation has been made in arriving at these esti-
mates?

Mr. WELSH. I believe the census reports attempt to do that very
thing. So far as I know, even where there is the combined electric
railway and power company, the management of the electric-railway
end is distinct, at least so far as departmental organization is con-
cerned, from the power business.

Commissioner WEHLE. But you are not certain that such a separa-
tion has been .made ?

Mr. WELSH. I am reasonably certain; yes.

Commissioner WEHLE. Can you ascertain that and put it in the
record ?

Mr. WELSH. I will ; yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 73

Mr. WARREN. Do you know as to the relative number of employees
in power plants as compared with street railways, as to whether it is
smaller or larger generally ?

Mr. WELSH. Very considerably smaller.

Mr. WARREN. There is no public utility, is there, in which the
number of employees is so large in proportion to the income as in
street railwaj'S?

Mr. WELSH. Xo ; I believe that is true.

Mr. WARREN. Barring possibly the railroads, but I mean the power
industry.

Mr. WELSH. No ; that comes about from the great number of men
required to operate the cars.

Mr. WARREN. If there are no other questions, I will pass to the
next.

Commissioner WEHLE. May I ask another question?

Mr. WELSH. Yes.

Commissioner WEHLE. Will there be any way of finding, with
reference to these years that you have listed here, the actual number
of passengers carried ?

Mr. WELSH. We will show that in a later chart.

Commissioner WEHLE. As of the same years?

Mr. WELSH. Yes.

Mr. WARREN. That is in the next chart.

The figures in the table accompanying Chart C-101 are as follows :

Grotcth of electric ratticays.
(Chart C-101 — Based on United States eensns reports.)

Year.

Miles of line.

Mile? of
single track.

Number of
employees.

Number of
passenger
cars.

1890»

5, 783. 47

8 123 02

70 764

32 505

19021

16,&i5.34

22,576.99

140 769

60 290

1907«

25,547.19

34 381.51

221 429

70 016

1912*

30.437.86

41.064.82

-x • 4,,'

76* 162

1917J

32,547.58

44 835.37

•-.4 •> ••,

79 914

1918'

44,949.50

> United States Census Reports, 1912, Table 4, p. 184.

1 Advance Report, Table 5.

» Data sheet No. 186 (estimated).

Average per cci\t increase per year over previous census.

Year.

Miles of
line.

Miles of
single
track.

Number of
employees.

Number of
passenger
cars.

1902...

15.6

14.8

8.2

7.1

1907

10.7

10 5

11 4

3.2

1912

3.8

3.9

5.5

1.8

1917

1.4

1.8

1.0

1918

Mr. WARREN. Now, what does this chart show ?
Mr. WELSH. This chart shows the principal traffic statistics of
electric railways, namely, the revenue car-miles and the total pas-

1G06430— 20 6

74 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

sengers carried. At the same time a comparison is made between the
number of passengers carried and the population, which is expressed
as the riding habit. The riding habit is a useful measure of the
growth of the electric-railway business. It is determined by divid-
ing the annual revenue passengers carried by the total population
of the country and therefore represents the average number of rides
per year for each inhabitant. The chart indicates

Commissioner WEHLE. May I interrupt?

Mr. WELSH. Yes.

Commissioner WEHLE. You have done that only for the whole
country. You have not done it in particular localities ?

Mr. WELSH. We have later a chart for the cities. The chart indi-
cates an increase in this riding habit in every case, but it is notice-
able that the rate of increase has been falling off since 1907, as indi-
cated by the decreasing slope of the line. That is the line at the
lower part of the chart. I might explain that chart better if I
pointed out the lines.

Mr. WARREN. I think that would be very much better.

Mr. WELSH (referring to large chart). The riding habit is indi-
cated by this line here, coming along in this way. The rate of in-
crease from 1902 to 1907 is indicated by this slope of the line and
represents an increase of about 25 rides per inhabitant. From 1907
to 1912 the increase is about 15 rides per inhabitant, and from 1912
to 1917 the increase is 9 rides per inhabitant.

Mr. WARREN. That appears also on the table accompanying the
chart.

Mr. WELSH. On the accompanying table to the chart. We have
also plotted the relative number of passengers per car-mile, which
is a measure to some extent of the necessary traffic and to some ex-
tent of the number of short riders. This value, however, has been
approximately constant throughout the entire period, ranging of
averaging about 5 per cent, although as noted there has been a
gradual increase.

Mr. WARREN. Can you tell from that line, the relative passengers
per car-mile, anything about the number of passengers in the car
at any one time, the average number?

Mr. WELSH. In this way you can estimate about what the average
number in the car at one time is. The average length of ride on most
electric-railway properties is about 3 miles per passenger, and tak-
ing five passengers per car-mile as the average it would appear as
though 15 passengers on the average is the number in the car at one
time. Compare that with the average seating capacity — it is possible
to determine roughly the extent to which the equipment is used on the
average. This is really an expression of the load factor.

Commissioner MEEKER. Mr. Chairman, I would like to call atten-
tion to a rather technical point. I think it may assist the commis-
sion if I do so. Take the period 1907 to 1912 and take your riding-
habit line and compare that slope on that line with the slope on the
revenue car-miles run, you can see at a glance that the slope is very
much steeper on the revenue car-miles line, yet, according to your
tabular statistics, the percentage of increase in revenue car-miles
from 1907 to 1912 was 3.7 per cent, whereas the per cent increase in
the riding habit from 1907 to 1912 was 17.6 per cent. What I wish
to call attention to is that you can not trust the slope of the line as

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 75

indicating anything with reference to percentage increase when it is
drawn on an arithmetic scale. If the chart had been drawn, as I
think it should have been, on the logarithmic scale, the slope of the
line would show exactly the per cent of increase. Now, we need to
confine our attention, if we want to learn anything about the per-
centage increase, to the tabular scale and not to the lines on the chart.
I think it would be well, perhaps, to have the charts redrawn for
the purpose of showing the percentage increase to the main line in all
of these. I just wanted to make that point, Mr. Chairman.

Mr. WARREN. We will try to have the charts redrawn.

Mr. WELSH. Well, I would just like to say that the charts are
drawn to a scale.

Commissioner MEEKER. Oh, yes.

Mr. WELSH. In other words, the period from 1890 to 1902, repre-
senting 12 years, is on the same scale as the period from 1902 to 1907.
In other words, one is 5 years and the other is 12 years, and the dis-
tances are indicated.

Commissioner MEEKER. But you caught my point. The slope of the
line there is very much steeper on the upper line, but the percentage
increase indicated is very much smaller, because you have so much
larger base to measure the prior line.

Mr. WELSH. In other words, each percentage is figured on the prior
census, and so a new base occurs in every census year. In other words,
the base for the 1917 figures in the table is 1918

Commissioner MEEKER. No question is raised as to the statistical
accuracy of the figures. The only point is that we can not trust the
slope of the line to represent percentage increase. We must get that
from your statistical data.

Mr. WARREN. If the commission would like to have the charts re-
drawn on the above terms, you could do that ?

Mr. WELSH. We could. It would probably take some time to
do so.

Commissioner MEEKER. I do not think that is at all necessary, if
we have the figures before us.

Mr. WARREN. That is really all you need?

Commissioner MEEKER. Yes, sir.

Mr. WARREN. I suppose there is no question but what each lino
indicates that particular item?

Commissioner MEEKER. What the lines on the chart show, of
course, is absolute differentials. It shows that perfectly; but when
you come to show percentages, you will have to be very careful with
your charts.

Mr. WARREN. Yes. It does not show the percentage, but it does
show the growth and development.

Mr- WELSH. Yes; that is so.

Mr. WARREN. Is there anything else you wish to call attention to,
Mr. Welsh, on that chart or the accompanying table?

Mr. WELSH. No; I think not..

Mr. WARREN. Now, Mr. Welsh, I think it would be well if you
take your papers over here, where you will be near the chart and
whore you can use the pointer.

Mr. WELSH. Very well.

76 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The figures on the table accompanying Chart C-1O2 are as follows :

Electric railway traffic.
(Chart C-102. — Based on United States census reports.)

1912

1917

1918

Revenue car-miles

U.921. 620, 074

> 2. 139, 801, 530

2 2, 051,355,560

Average per cent increase per year over'prior census. .
Ridinghabit

3.7
< 100

2.2

6109

"4.1

Average per cent increase per year over prior census . .

17.6

9.0

Total passengers carried

i 12,135,341,716

i 14,506.914,573

2 14 243 415 830

Average per cent increase per year over prior census. .
Revenue passengers

5.4

19,545,554,667

3.9
i 11 304 660, 462

'1.8
2 11 107 864 347

Average per cent increase per year over prior census. .
Revenue passengers per car-mile

5.6
15.06

3.6
15.41

*1.7

Average per cent increase per year over prior census. .

1.5

1.4

i Advance Report, Table 5.

* Data sheet No. 183 (estimated).

» Decrease.

« United States census reports.

' Advance report, Table 11.

« Estimated as 78 per cent of total passengers as estimated by American Electric Railway Association
for 1918 census. Rates of revenue to total passengers (78 per cent) found to be practically constant for years
1917, 1912, and 1907.

Electric railway traffic.
(Chart C-102. — Based on United States census reports.)

1890

1902

1907

Revenue car-miles

»383,178,085

1 1, 144, 430, 466

8 1,617,731,300

Average per cent increase per year over prior census. .

16.5

8.3

«32

'61

Average per cent increase per year over prior census

90.6

39.3

Total passengers carried 6

'2,023,010,202

* 5, 836, 615, 296

'9,533,080 760

Average per cent increase per year over prior census... .

15.7

12.7

Revenue passengers '

'2,023,010,202

* 4, 774, 211, 904

» 7, 441, 114 508

Average per cent increase per year over prior census... .

11.3

11.2

Revenue passengers per car-mile

•4.26

»4.70

Average per cent increase per year over prior census

2.1

i United States Census Report, 1907, p. 33, text.
» United States Census Report, 1912, Table 156, p. 293.
» Advance Report, Table 5.
« United States census reports.

• Advance Report, Table 11.

• Transfer and free passengers not noted.

' United States Census Report, 1902, Table 1, p. 6.

• United States Census Report, 1912, Table 156, p. 292.

Mr. WARREN. This chart, which is marked "C 107," indicates
what?

Mr. WELSH. This chart supplements the preceding chart, and
shows the number of revenue passengers carried, as distinguished
from the total number of passengers carried on the previous chart.
We have again plotted the number of revenue passengers per inhab-
itant, but in this chart have included the year 1918, as well as the
census year.

Mr. WARREN. And you have confined this to the revenue passen-
gers ?

Mr. WELSH. Yes ; this chart is based on revenue passengers.

Mr. WARREN. Well, the revenue passenger is the one who really
pa}7s a fare, is he not?

Mr. WELSH. Yes, sir.

Mr. WARREN. As distinguished from the transfer passenger ?

Mr. WELSH. Free passengers and those who pay lor transfers.

Mr. WARREN. That is an account of these passengers, indicating
whatever the Be venue will be at the rate per passenger ?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 77

Mr. WELSH. Yes.

Mr. WARREN. And the total number of passengers does not indicate
that, but where you show on this chart the revenue passengers per
inhabitant, a more simple way of stating it, I suppose, would be the
number of rides per inhabitant — the average number of rides ?

Mr. WELSH. That would be a little better expression.

The 1918 figures were rather interesting as indicating an actual
falling off, both in the total number of revenue passengers carried
and also in the number of revenue passengers per inhabitant.

The 1918 figures have been based on the same 345 companies as re-
ferred to before. This falling off in riding habit is probably due to a
number of causes — the abnormal winter in the early part of the year
1918 ; the operation of the draft law, taking away a number of million
men and, at the same time, undoubtedly reducing the pleasure riding
during the summer months by people generally; and the influenza
epidemic in the fall, on account of which in many cities all community
life was more or less interfered with and in many cases stores were
shut up and theaters closed.

Mr. WARREN. And the public was advised to avoid street-cars,
like all other places of congregating, so far as possible — is not that
so — in many places?

Mr. WELSH. Yes, sir.

We have also plotted the percentage increase in revenue passengers
per inhabitant over the chart for the previous year, and that per-
centage indicates a falling off from one year to the next. That per-
centage is a comparison of each census period to the preceding.

Commissioner MEEKER. In 1918, the percentage decreased?

Mr. WELSH. Yes; that is due to the actual decrease in the number
of passengers per inhabitant.

Mr. WARREN. I would ask, Mr. Chairman, that the figures in
these tables go into the record, without taking the time of the
commission to read them, and I am handing to the reporter the
figures for that purpose, if that is satisfactory to the commission.

The CHAIRMAN. Very well.

Mr. WARREN. I think we will save considerable time by doing
that.

The figures contained on the chart referred to (C-107), are as
follows :

Riding habit.

(Chart C-107. — Based on United States census reports.)

Increase in

Revenue
passengers
per inhab-
itant

Number of
revenue
passengers carried.

revenue
passengers
per inhab-
itant over

Source.

prior

census.

Per cent.

1890

2,023,010,202

Advance report, Table 11.

1902

4,774,211,904

Do.

1907

7,441,114,508

Do.

1912

100

9,545,554,«>7

Do.

1917

109

11,304,600,4<>2

Do.

1918 i

106

« 11, 107, 864, 347

»3

> Estimated population of United States July 1, 1918.

« Data sheet No. 1*6 (estimated).

* Revenue passengers per inhabitant 1917 less 1918 (above); decrease.

78 PBOCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner GADSDEN. Do you propose to put in evidence the
names of the 388 companies used in making these estimates, Mr.
Welsh?

Mr. WELSH. We have not prepared that list. We can readily
do so.

Commissioner GADSDEN. I suggest that you do that, together with
their mileage. You said that they did represent 80 per cent of the
operating revenues.

Mr. WELSH. They represent 80 per cent of the operating revenues.

Commissioner BEALL. Mr, Welsh, do these figures include the
properties in all of the large cities, or any of the big cities right
now?

Mr. WELSH. They include a great many of the large cities.

Commissioner BEALL. Well, for instance, do they include all of
the larger cities, like Washington, New York, and Boston?

Mr. WELSH. Tliey do.

Commissioner BEALL. Chicago and San Francisco?

Mr. WELSH. I believe New York City is not in. We have Brook-
lyn, but New York is not in. We have Philadelphia and Boston.

Commissioner BEALL. If that is the case, you have left out one of
the largest and most important of the properties. Are not those
figures available?

Mr. WELSH. I will have to check that up as to whether the New
York City lines were included. I am not quite sure about that. I
know practically all of the large cities are included. Of course,
some of the smaller cities were also not included. So we believe it
represents a true picture.

Commissioner GADSDEN. That is what I had in mind in requesting
that you give us the names of the companies.

Mr. WELSH. Yes.

Mr. WARREN. But these no doubt represent 80 per cent of the
operating revenues ?

Mr. WELSH. There is no doubt of that.

Mr. WARREN. Whatever companies they are.

Commissioner BEALL. I think you have left out some companies,
if jTou will permit me to say so, that will strengthen your case.
• Mr. WARREN. How is that ?

Commissioner BEALL. I think you have left out some of the com-
[panies that will strengthen your case more than any others.

Mr. WARREN. I think so, too. As far as we have gone, we have
not exaggerated the situation.

Is there anything else from that chart, Mr. Welsh, that you want
to call the attention of the commission to ?

Mr. WELSH. I think not.

Mr. WARREN. Regarding the companies that we have used in these
computations, the 345 companies, Mr. Pardee calls my attention to
the fact that we used all the companies from which we can get re-
ports. Some companies, for some reason or other, do not respond
to the inquiries for the association. The 345 companies report
regularly, as I understand it, to the association, their earnings and
operating expenses and other items of interest; so that the asso-
ciation is able, from those reports, to make up combined exhibits
for the companies. Some of the companies do not report, represent-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 79

ing about one-fifth of the operating revenue, and we will furnish
the commission a list of the 345 companies here.

The CHAIRMAN. Can we have in the record a statement showing
how you proceed to get the average riding habit for a year?

Mr. WELSH. Those figures are taken directly from the census
tables. The reference in table accompanying Chart No. 3, I be-
lieve, gives the reference to the census report in which is quoted the
number of rides per total inhabitants. It is obtained, I might say,
by dividing the annual number of annual passengers carried by
the total population of the country in each year.

The CHAIRMAN. That is what I wanted to get into the record.

Commissioner WEIILE. The passengers carried in the 345 cities?

Mr. WELSH. No; I am referring to the census report, reporting
on all the companies in the country. The 345 companies refer to
1918 only, the estimate for 1918.

Mr. WARREN. You have used in every case the census figures
through 1917, have you not?

Mr. WELSH. Exactly.

Mr. WARREN. And for 1918, not having the census figures, Mr.
Welsh has made an estimate for all the companies based on the show-
ing of the 345 companies, from which he gets monthly returns.

Commissioner WEIILE. Taking the census as applied to the figures
prior to 1918, is that a census of the entire population of the coun-
try, rural and urban?

^Ir. WELSH. The figures used for determining the average rides
per total inhabitants are those figures, but the census, if I understand

e)ur question correctly, is the special census report gotten out by the
epartment of Commerce covering electric railways.

Commissioner WEHLE. Did you use the figures that cover the elec-
tric railways as they were obtained by the Department of Commerce
specially, where there are electric railways?

Mr. WELSH. All electric railways in the United States are included.

Commissioner WEHLE. Then you used the population figure, which
you got from the United States Census reports in places where there
are and where there are not electric railways, both f

Mr. WELSH. In the United States.

Commissioner WEHLE. Now, is there anywhere a compilation or
comparison such as you worked out here in principle using the
figures of population in those places where there are electric rail-
ways ?

Mr. WELSH. To this extent: We have taken the population of the
urban districts, which is shown separately in the census reports, and
we will later introduce such a chart.

Commissioner WEHLE. Will those charts cover the same ground
as the chart you have just been showing us?

Mr. WELSH. So far as riding and traffic statistics are concerned;
yes, sir.

Mr. WARRKN. Mr. Welsh, this computation of of the number of
rides per inhabitant is contained in the census report itself, is it not?

Mr. WELSH. It is.

Mr. WARREX. You did not figure that?

Mr. WELSH. No, sir.

Mr. WARREN. You simply took the census figures?

Mr. WELSH. Yes, sir.

80 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. As to this next chart, you have not a large chart
for that, I believe, have you ?

Mr. WELSH. It seems to be missing. We slipped up on that.
Mr. WARREN. This is marked C-145.

The figures accompanying the chart referred to, C-145, are as
follows :

Power generated and capacity of generating and subsidiary equipment.

(Chart C-145— Based on U. S. Census Report of 1912, Table 17, p. 196.)

1902

1907

1912

1917

Kilowatt capacity
Subsidiary equipment

.kilowatts. .
.kilowatts..

898,382
160,053

1,723,416
942, 232

2,508,066
1,637 260

2,924,779
2 339 333

.kilowatts..

2,231,484,397

4,759,130,100

6,052,699,008

7,290 502,789

Mr. WELSH. This chart is another indication of the growth of
electric railways based upon the power situation. We have plotted
here the plant capacity in the middle curve, which is designated
kilowatts or generators, and also the capacity of the subsidiary
equipment on the bottom curve.

Mr. WARREN. What do you mean by " subsidiary equipment," Mr.
Welsh?

Mr. WELSH. The subsidiary equipment covers largely the sub-
station apparatus ; that is, the converting machinery, in which alter-
nating current is transformed into direct current for use on the
trolley wires; and it therefore represents very largely the purchase
power, since that is the way, in almost every case, that power is
purchased from the power companies, for the reason that power
companies generate alternating current, whereas the electric rail-
ways, in their own power stations, generate largely direct current.

Mr. WARREN. And the third line from the bottom, " power gener-
ated, kilowatt-hours," represents the —

Mr. WELSH. The annual output or the power used by electric
railways.

Mr. WARREN. Now, turning to the table accompanying this chart,
will you read some of those figures, those which you consider most
informing?

Mr. WELSH. In the first place, I would like to make a correction
under the column " 1912." In the line marked " Power generated,"
2,000,000,000 should be 6,000,000,000. It is a typographical error.

The significant thing in this table

Mr. WARREN. Just a moment, Mr. Welsh. In this same line should
not the " Power generated (KW)" be " KWH "?

Mr. WELSH. That correction should also be made.

Mr. WARREN. Kilowatt hours on the last line of the page.

Now, if you will just read those figures right across the page

Mr. WELSH. Yes.

Mr. WARREN. Showing the increases.

Mr. WELSH. The increase in kilowatt capacity of generating equip-
ment is indicated.

In 1902 it was 898,362; in 1917, 1,723,416; in 1912, 2,508,066; and
in 1917, 2,924,779.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 81 '•

Commissioner MEEKER. That is kilowatts, not kilowatt hours?

Mr. WELSH. That is kilowatt capacity, and represents the station
and plant equipment, and on the next line, marked " Subsidiary
equipment," it likewise represents the substation capacity or equip-
ment devoted to the purchase of power. It has increased from
160,053 in 1902 to 942,232 in 1907, 1,637,260 in 1912, and 2.339,333
in 1917.

It is notable here that there has been a falling off in the rate of
increase in the first line; that is, kilowatt capacity of generated
power in 1917 as compared with 1912, as compared with a similar
increase in subsidiary equipment. This is clue to the increasing
tendency of electric railways to purchase their power rather than
to generate it themselves.

Mr. WARREX. And that is partly due, perhaps, to the increasing
difficulty of the electric railways to receive the capital necessary to
enlarge their power plants?

Mr. WELSH. Undoubtedly.

Mr. WARREX. Now, power generated in kilowatt hours.

Mr. WELSH. Power generated, kilowatt hours, has increased from
two and a quarter billion, in round numbers, in 1902 to four and
three-quarter billions in 1907, over six billion in 1912, and seven and
a quarter billion in 1917, in round numbers.

Mr. WARREX. You have finished that line, have vou ?

Mr. WELSH. That is all.

Mr. WARREX. What does this indicate as to the load factor of the
street railways?

Mr. WELSH. It indicates that the load factor has been decreasing.
In other words, it indicates that the railways have had to overload
their equipment more in 1917 than they had in previous years, owing
to the fact that they have had to put a greater output into the same
capacity.

Mr. WARREX. What do you mean by " load factor " ? Very likely
the commission knows, but I do not know exactly what that is.

Mr. WELSH. The load factor is the ratio of the average output to
the maximum output.

Mr. WARREX. And what does this indicate about the peaks?

Mr. WELSH. It indicates that the peaks have been increasing in
extent; in other words, that the electric railways have had to carry
more people during the rush hours than they have had in the past,
and that the increase in business has been largely during the rush
hours.

Mr. WARREX. Well, what bearing has that on the expense of op-
eration of a street railway, suppose the peak load does increase?

Mr. WELSH. The peak load is, from all standpoints, the most ex-
pensive to carry. It involves the use of equipment, in power-plant
capacity, in the number of passenger cars, in the number of men
required to operate the system, and in all matters of plant and
facility for comparatively few hours in the day, and that equip-
ment can not be used at any other time. For that reason, the rush-
hour business is the most expensive and is more costly than the
average.

Mr. WAKREX. And that applies, in referring to this particular
table, to this very power situation here, does it?

82 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH:. Yes, sir.

Mr. WARREN. And do these figures fairly show that the peak has
increased, notwithstanding what the previous figures show, that the
traffic was increasing at a very much less rate and an actual falling
off in 1918?

Mr. WELSH. They do; yes, sir.

Mr. WARREN. They do?

Mr. WELSH. Yes, sir.

Mr. WARREN. Is there anything else on that table?

Mr. WELSH. I think not.

• Mr. WARREN. Is there anything that the commission wishes to
ask on this?

Commissioner MEEKER. Nothing is shown on this chart or in that
table about 1918. That was shown on the previous chart.

Mr. WARREN. I spoke of 1918 with reference to the traffic falling
off, Mr. Commissioner Meeker, and I asked Mr. Welsh whether the
figures regarding power shown here indicated an increase of the peak
load, not for 1918 but for all recent years.

As a matter of fact, Mr. Welsh, if I may put this in at this point,
apart from the chart altogether, apart from what the power construc-
tion shows, do you happen to know whether it is a fact that the peak
load has been increasing in recent years?

Mr. WELSH. It has.

Mr. WARREN. And among other causes is one that is particularly
contributory to that as regards the hours of labor generally?

Mr. WELSH. Yes; the coming together or the coincidence of the
peaks in the matter of employment has had a great deal to do with
that.

That same thing has been illustrated in the reverse way here in
Washington by the plan which was in operation here during the war
of staggering hours of employment for the very purpose of spreading
the peak and avoiding the necessity of the transportation companies
carrying all of the people at one time or during one hour in the
morning; and one hour in the evening.

Mr. WARREN. In other words, the more general adoption of the
eight-hour day for labor has brought their day much nearer to the
dav of other occupations dependent upon street -car service?

Mr. WELSH. Yes, sir.

Mr. WARREN. So that the peaks have become coincident?

Mr. WELSH. Yes, sir.

Commissioner WEHLE. I would like to ask you a question similar
to the one I asked you with reference to the employees in the chart
you presented earlier.

This table which refers to power generated, does it take into con-
sideration the power generated by the companies which are both
power companies and electric companies, or is there a separation
there where the two are reported in the same report ?

Mr. WELSH. There is that separation, in this way : There are some
electric-railway companies who sell a small amount of power. Those
companies are not separated here, and there is a separation between
combined properties where power is sold for general lighting and
power business as between electric-power companies and electric-rail-
way companies.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 83

Commissioner WEHLE. In getting up this chart, then, there has
been a separation as to such power as is used for power purposes, as
distinguished from electric-railway service, where the proportion
used for power is large?

Mr. WELSH. Well, that is entirely in the hands of the Census De-
partment. We have used their figures in both cases — both in the case
of the power and in the case of the number of employees that you
spoke of before — and I am confident that only electric-railway prop-
erties as such have been included in each case. We have completed
separately the power and lighting departments of any combined com-
panies, both in the power generated and in the number of em-
ployees.

Commissioner WEHLE. Would you suggest that we call in here for
the record those of the officers who are responsible for the compiling
of these figures in the United States Census and have that point
clarified ?

Mr. WELSH. It might be very helpful to do so, if there is any
question about that.

Mr. WARREN. Well, what do you understand to be the fact about
that power generated?

Mr. WELSH. It represents largely the power output of the direct-
current stations of the electric-railway companies, since the electric-
railway generating stations are largely of that type.

Mr. WARREN. And to that would be added such power as was
actually purchased for street-railway purposes ?

Mr. WELSH. Yes.

Mr. WARREN. And you understand that it would not include power
that was sold by a combined electric-light and railway company for
commercial and general purposes?

Mr. WELSH. It would not.

Mr. WARREN. Is there anything else in the census report which
shows clearly how they arrived at that?

Mr. WELSH. It may be that we could take care of that in that way
; by just reading the extract from the census report, which I believe
will make that clear.

Mr. WARREN. I seem to remember that in previous census reports
i there was some statement about that.

Mr. WELSH. Yes.

Mr. WARREN. Now, Mr. Welsh, this chart shows what?

Mr. WELSH. This chart shows the mileage of electric-railway com-
panies going into receivership from the year 1009 to 1019. The
| curve as plotted is a cumulative curve, and each year includes the
' mileage of the previous year.

Mr. WARREN. So that it shows the total mileage of all street rail-
ways that have gone into receivership, whether still in receivership
or not since

Mr. WELSH. Since 1000.

Mr. WARREN (continuing). Nineteen hundred and nine?

Mr. WELSH. Yes, sir.

84 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The figures on the statement accompanying this chart (Chart 143)
are as follows:

Groivth in the extent of receiverships.
(Chart 143-As repartei in the Electric Railway Journal for Jan. 4, 1919.]

Year.

Miles
of single
track.

Year.

Miles
of single
track.

1909...

558

1914 ..

352

1910

697

1915

1,152

1911

519

1916

359

1912

374

1917

1,177

1913

343

1918

2,108

Values for miles of track are cumulative each year, including amounts for previous
years.

Mr. WELSH. The interesting thing in connection with this chart
is the rapid increase from the year 1918 to 1919 of over 2,000 miles,
which, from the table, will be seen to be about two to three times
the average mileage during the entire period.

Mr. WARREN. And the table shows what?

Mr. WELSH. The table shows 2,108 miles going into receivership
in the year 1918.

Mr. WARREN. And similarly, the number that have gone in each
year ?

Mr. WELSH. Yes, sir.

Commissioner MEEKER. The table is not cumulative?

Mr. WELSH. The table is not cumulative.

Mr. WARREN. No; that statement, I think, is wrong on the table,
is it not? "Values for miles of track are cumulative, each year
including amounts for previous years."

Mr. WELSH. That is an error. That statement was put on the
chart, but should not apply to the table.

Commissioner MEEKER. It should be stricken off?

Mr. WELSH. It should be stricken off.

Mr. WARREN. It should be stricken off the table.

Commissioner GADSDEN. Mr. Welsh, what is the total mileage as
of this date in the hands of receivers ?

Mr. WELSH. We will show that in the next chart, Mr. Gadsden.

Commissioner GADSDEN. All right.

Mr. WARREN. Is that all on that chart, Mr. Welsh ?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now, Mr. Welsh, what does this chart show ?

Mr. WELSH. This chart shows the number of miles of track of
companies in receivership; of companies wrhose lines have been dis-
mantled and junked; and of companies that have abandoned portions
of their trackage.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 85

The figures accompanying this chart (Chart C-146) are as fol-
lows:

Number of receiverships, abandonments, and lines junked, in effect as of May

31, 1919.

(Chart C-146 — Based on electric-railway journals.)

Number of
companies.

Miles of sin-
gle track.

Receiverships .

5.912

Lines dismantled and junked

791

Abandonments

257

Mr. WELSH. This chart is based on the situation as of May 31,
1919, and shows that at that time there were 62 companies having a
mileage of 5,912 in receivership, 61 companies having 791 miles of
line dismantled and junked, and 38 companies having 257 miles
abandoned.

Mr. WARREN. Now, those last two items do not mean that 61 com-
panies have had all of their lines dismantled and junked, does it ?

Mr. WELSH. No.

Mr. WARREJST. But that 61 companies have, together, dismantled
and junked 791 miles?

Mr. WELSH. Exactly.

Mr. WARREN. And so with the abandoned ?

Mr. WELSH. Yes, sir.

Commissioner BEALL. Do you propose to file the names of those
companies with us?

Mr. WELSH. Yes, sir.

Commissioner BEALL. And will the person who has made this ex-
hibit furnish the names of the companies referred to on this chart?

Mr. WARREN. They will be here this afternoon.

Mr. WELSH. I have them here this morning, some place.

Commissioner MEEKER. I would like to ask a question about the
lines dismantled and junked and the lines abandoned.

Are they, in any instance or in large part, lines that were built to
accommodate war plants, munition plants, shipyards, etc., that have
ceased to make munitions or to build ships ?

Mr. WELSH. No ; I believe that I can say that in no case was there
any of those included.

Mr. WARREN. I can answer that for Massachusetts. I am sure that
there is nothing of that kind in Massachusetts.

Mr. WELSH. The list will indicate that, I believe, too.

Commissioner MEEKER. The list will indicate that?

Mr. WARREN. Yes.

Mr. WELSH. Yes.

Mr. WARREN. We will get out that list and give it to you as soon as
possible.

Commissioner WEHLE. Would the figures which represent the dis-
mantled and junked lines represent in any degree lines which have
been substituted?

Mr. WELSH. I do not believe I know what you mean by "sub-
stituted."

86 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Dismantling 10 miles of track in order to build a
shorter line 5 miles, or another line of 10 miles by a different routo,
which better served the public.

Mr. WELSH. I think not, as a general rule. They represent largely
some unprofitable extensions, outer ends of lines, and some inter-
urban lines. There has been a great deal of mileage in the Massachu-
setts district that has been abandoned and dismantled of that char-
acter.

Commissioner MEEKER. Does your statement show anything with
reference to the causes for the abandonment or dismantling?

Mr. WELSH. The one we have prepared merely shows the names of
the companies and the mileage that has been dismantled.

Commissioner WEHLE. Could there be a separation made there in
order to make the chart more serviceable?

Mr. WELSH. J think it would be possible for us to secure the cause
in each case.

Commissioner WEHLE. Well, would it be practicable?

Mr. WELSH. I would say that we could get that in the majority
of cases. We might not in every case.

Commissioner GADSDEX. One of the noted cases of that kind is the
Bay State.

Mr. WELSH. Yes ; I had that in mind.

Commissioner GADSDEX. If the receiver of the Bay State were
brought before the commission, he might be able to give the reason
for the abandonment of the 25 or 30 miles, would he not?

Mr. WELSH. I should say so.

Mr. WARREX. I was to have later the chairman of the trustees of
the Bay State here on this very subject of abandonment. The Bay
State has abandoned a very small proportion of what it believes it
shall be obliged to abandon unless some relief is obtained. I think
the receiver proposes to abandon something like 200 miles, but that
actually abandoned, as shown in this table, as I recall it, is only
about 30 miles. In some cases the companies have simply abandoned
the whole proposition. On the theory that one can not get blood
out of a stone, I do not suppose a bankrupted company could be
forced to operate a losing venture indefinitely.

The CHAIRMAX. If that is convenient for you, you will have a
witness who will present testimony or else file exhibits on that?

Mr. WARREX. On these abandonments?

The CHAIRMAX. Giving the reasons for those abandonments.

Mr. WARREX. Yes; we will be very glad to do that, as far as
possible.

Have you anything else on that exhibit ?

Mr. WELSH, fro, sir ; except that I might state that the total mile-
age represented by these companies, being just under 7,000, is ap-
proximately 16 per cent of the total mileage of the electric railways
in the country, or, in other words, about one-sixth of the mileage of
the country is in serious difficulty or has been abandoned.

Mr. WARREX. The next exhibit that we should like to put in, but
we shall not have it ready until this afternoon, is a combined balance
sheet of the street-railway companies of the country, which is con-
tained in the census report, is it not, Mr. Welsh ?

Mr. WELSH. Yes, sir.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 87

Mr. WARREN. We can obtain the advance census sheets' showing,
and we propose to file that.

We have now a list of the companies in receivership and those
which have dismantled and which have abandoned track, and we
will file those with you now.

The list of railways thus referred to is as follows :

Electric railways that have been dismantled and sold as junk, June 7, 1919.

IQI K Miles of track

ly±0- dismantled.

Mountain Railway, West Orange, N. J 2.0

1916.

Lima & Honeoye Light & Railroad Co 4. 50

Elkins Electric Railway, Elkins, W. Va 9. 00

Lake Erie, Bowling Green & Napoleon Railway, Bowling Green, Ohio 12. 50

Lancaster & Southern Street Railway, Millersville, Pa 7. 30

1917.

Alton, Jacksonville Railway, Alton, 111 21.30

Arkansas Northwestern Railroad 2.13

€atskill Traction Co., Catskill, N. Y 5. 50

City Railway, Mount Vernon, 111 3. 25

Clehurne Traction Co 8.00

Goshen, South Bend & Chicago Railway, Goshen, N. Y 20. 00

Mexico Investment & Construction Co 10. 00

Mount Vernon Railway, Mount Vernon, Ohio 9. 00

Norfolk City & Suburban Railway, Norfolk, Va 14.50

St. Lawrence International Electric Railroad & Ltmd Co., Alexandria

Bay, N. Y 7. 79

Norfolk & Ocean View Railway, Norfolk, Va 10. 00

Sacramento Valley Electric Railroad, Dixon, Calif 1.30

Waycross Street & Suburban Railway, Waycross, Ga 7. 20

1918.

Adirondack Lakes Traction Co., Gloversville, N. Y 5. 00

Billings Traction Co., Billings, Mont G. 00

Bluffton, Geneva & Celina Traction Co., Bluff ton, Ind 19. 00

Bristol Traction Co., Bristol, Tenn 15. 30

Clarksville Railroad, Clarksville, Ga 1. 25

Central of Florida Railway, Daytona, Fla 5. 00

Consolidated Street Railway, Strong City, Kans 2. 00

Covington & Oxford Street Railway, Oxford, Ga 6. 00

Dayton, Springfield & Xenia Southern Railway, Dayton, Ohio 12. 00

Deiiton Traction Co., Denton, Tex 4. 50

Gettysbxirg Railway, Gettysburg, Pa 0. 50

Interurban Railway & Terminal Co., Cincinnati, Ohio 23.00

London & Lake Erie Railway & Transportation Co., London, Ontario,

Canada 28.00

Marthas Vineyard Street Railway, Marthas Vineyard, Mass 1. 10

Memphis & Rugby Railway, Rugby, Tenn 2. 50

Middletown Street Railway, Middletown, Ohio 1.00

Montecito Railroad, Los Angeles, Calif 1. 46

New Jersey Rapid Transit Co., Sea Isle City, N. J 8. 00

Northwestern Traction Co., Brazil, N. Dak 5.00

Norwood, Canton & Sharon Street Railway, Foxboro, Mass. (Norwood

division)1 2. 50

Oak Bluffs Street Railway, Oak Bluffs, Mass 0. 47

Oklahoma Union Railway, Sapulpa, Okla 1.50

1 Part of road.

.88 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Miles of track
dismantled.

Richmond & Rnppahannock River Railway, Richmond, Va__^ 16. 30

Rockland, Thomaston & St. George Railway, Rockland, Me 5. 71

Rutland Railway, Light & Power Co., Rutland, Vt * 2.50

St. Joseph Valley Traction Co., Elkhart, lud.1 7.50

St. Louis, Lakewood & Grant Park Railway 4. 00

St. Simon Railroad, Brunswick, Ga 1.70

San Point & Interurban Railway (Ltd.), San Point, Idaho 6.00

Sioux City, Crystal Lake & Homer Electric Railway, Dakota City, Nebr__ 4. 00

San Jose Traction Co., Jacksonville, Fla 3. 00

Taunton & Pawtucket Street Railway, Taunton, Mass 14. 00

Topeka Railway, Topeka, Kans 1 1. 50

Yazoo Municipal Railway, Yazoo, Miss 4. 00

Woodstock-Sycamore Traction Co., Sycamore, 111 25. 00

Worcester & Warren Street Railway, Brookfield, Mass 20. 10

Twin Falls Railroad, Twin Falls, Idaho- 12. 00

Uvalde & Leona Valley Interurban Railway, Leona Valley, Tex 8. 00

WTare & Brookfield Street Railway, Ware, Mass 11. 71

Lincoln Traction Co., Lincoln, Nebr 1.00

Cincinnati, Bluffton & Chicago Railroad, Huntlngton, Ind 58. 00

1919.

Lake James Railroad, Angola, Ind 3. 75

Total number of miles of track dismantled and sold as junk 534. 12

Total number of miles of track on which service was abandoned2— _ 256. 58

Grand total 796. 70

Electric railways that have abandoned service, June 7, 1919.

1915. Miles of track

abandoned.

Binghamton Railway Co., Binghamton, N. Y feet__ 600

1916.
Forest Grove Transportation Co., Oregon - 2. 70

1917.

Amarilla Street Railway, Amarillo, Tex 8.20

Fort Smith, Okla., Light & Traction Co., Fort Smith, Ark 1.21

Richmond & Chesapeake Bay Railway, Richmond, Va 14. 80

1918.

Greenville Railway & Light Co., Greenville, Tex 7.00

Texas City Street Railway Co., Texas City, Tex 4. 00

Bay State Street Railway Co., Boston, Mass * 30. 40

Berkshire Street Railway 1 5. 05

Bristol & Norfolk Street Railway, Randolph, Mass 6.44

Columbus, Magnetic Springs & Northern Railway, Richwood, Ohio 18. 50

Conway Electric Street Railway, Conway, Mass 6. 60

Fernandina Municipal Railway, Fernandina, Fla . 2. 00

Fort Scott Gas & Electric Co., Fort Scott, Kans 7. 00

Fryeburg Horse Railroad, Fryeburg, Me • 3. 00

Hamilton Radical Electric Railway, Hamilton, Ontario, Canada 29. 10

Laconia Street Railway, Laconia, N. H * 1. 30

Lebanon & Franklin Traction Co., Dayton, Ohio 10. 80

Madison Light & Railway Co., Madison, Ind 3. 50

Mount Vernon Railway, Mount Vernon, Ohio 9. 00

Norwood, Canton & Sharon Street Railway, Foxboro, Mass 4. 00

1 Part of road.

2 Exclusive of companies where mileage figures were not available

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 89

Miles of track
abandoned.

Ocean City Electric Railroad, Ocean City, N. J 10. 00

Oxford Electric Co., Norway, Me , 2. 13

Parkersburg & Ohio Electric Railway, Parkersburg, W. Va 5. 00

Plymouth & Sandwich Street Railway, Plymouth, Mass 17.43

Fresno Interurban Railway, Fresno, Calif. (* Lines in Fresno.)

Norfolk & Bristol Street Railway, Foxboro, Mass

Kansas City Railways, Kansas City, Mo. (Argentine, Minn., line.)

Indiana Utilities Co., Angola to Lake James, Ind 3. 75

Babylon Railroad, Babylon, N. Y 8.00

1919.

Los Angeles & San Diego Railway, San Diego. Calif 21. 54

Buffalo & Lackawanna Traction Co., Buffalo, N. Y 8. 80

lola Electric Railroad, lola, Kans

Tiffin, Fostoria & Eastern Traction Co

Yonkers Railroad Co., Yonkers, N. Y. (Hastings) 3.30

Pacific Electric Railway, Los Angeles, Calif. (Brockton Avenue Line

in Riverside) -

Yakinia Valley Transportation Co., North Yakirna, Wash. (North

Fourth Street Line)

Bartlesville Interurbau Railway Co., Bartlesville, Okla. (City Loop

Line) 2. 03

Total number of miles of track on which service was abandoned
exclusive of companies where mileage figures were not avail-
able L 25G. 58

Electric railways in the hands of receivers, June 7, 1919.

9 Miles of single

track operated.

Kansas City, Lawrence & Topeka Railroad, Kansas City, Mo 12. 00

Birmingham Railway, Light & Power Co., Birmingham, Ala , 153. 65

Buffalo Southern Railway, Buffalo, N. Y 25.35

Interurban Railway & Terminal Co., Cincinnati. Ohio 65. 60

Atlantic City & Shore Railroad Co., Atlantic City, N. J 30. 05

Atlantic Shore Railway, Sanford, Me 50.00

Buffalo & Lake Erie Traction Co., Buffalo, N. Y 168. 00

North Branch Transit Co., Bloomsburg, Pa 30. 00

Winona Interurban Railway, Warsaw, Ind 70. 00

Bay State Street Railway Co., Boston, Mass 955. 07

Beech Grove Traction Co., Beech Grove, Ind 6. 30

Grafton Light & Power Co., Grafton, W. Va 7. 00

Hornell Traction Co., Hornell, N. Y 10. 90

Manhattan & Queens Traction Corporation, New York City 22. 00

Pennsylvania & Ohio Railway, Ashtabula, Ohio 26. 00

Plymouth & Shelby Traction Co., Norwalk, Ohio 6. 97

Southern & Cambria Railway, Johnstown, Pa 30. 00

Trans-St. Marys Traction Co., Sault Ste. Marie, Mich 7. 52

Southern Traction Co., of Illinois, East St. Louis, 111 15. 00

Binghamton Railway, Binghamton, N. Y 40.74

Brooklyn Rapid Transit Co., Brooklyn, N. Y 690! 89

Buffalo & Depew Railway, Buffalo, N. Y 14.00

Buffalo & Lackawanna Traction Co., Erie, Pa 8. 80

Cumberland Railway, Carlisle, Pa

Denver & Interurbau Railroad, Denver, Colo 51. 93

Des Moines City Railway, Des Moines, Iowa 85. 00

Evansville Railways, Evansvllle, Ind 72. 4.'i

Fort Scott Gas & Electric Co., Fort Scott, Kans 7. 00

Hartford & Springfield Street Railway, Warehouse Point, Conn 48.00

lola Electric Railroad Co., lola, Kans 10. no

Lewiston, Augusta & Waterville Street Railway, Lcwiston, Me 165.65

'Part of ror.d only. 'City lines only.

160643°— 20 T

90 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Miles of single
track operated.

Paducah Traction Co., Paducah, Ky 19. 34

Penn Yan & Lake Shore Railway Co., Perm Yan, N. Y 10. 00

Pittsburgh Railways Co., Pittsburgh, Pa 605. 25

Plymouth & Sandwich Street Railway, Plymouth, Mass 17. 45

St. Paul Southern Electric Co., St. Paul, Minn 17. 54

St. Petersburg & Gulf Railway, St. Petersburg, Fla 26. 11

Scranton & Binghamton Railroad Co., Scranton, Pa - 50. 00

Southern Oregon Traction Co., Medford, Oreg 8. 19

Southern Traction Co., Bowling Green, Ky 4. 50

Springfield Electric Railway Co., Springfield, Vt 9. 00

Sandusky, Norwalk & Mansfield Electric Railway, Cincinnati, Ohio 29. 50

Cincinnati, Lawrenceburg & Aurora Electric Street Railway, Cincin-
nati, Ohio _• 32. 20

Cincinnati & Columbus Traction Co., Cincinnati, Ohio 53. 00

Sunbury & Susquehanna Railway, Sunbury, Pa 9. 00

Memphis Street Railway Co., Memphis, Tenn 124. 00

New Orleans Railway & Light Co., New Orleans, La 218. 15

Montgomery Light & Traction Co., Montgomery, Ala : 38. 00

Spokane & Inland Empire Railroad, Spokane, Wash 290. 47

Rhode Island Co., Providence, R. I 400. 04

Jackson Light & Traction Co., Jackson, Miss 13. 50

Fort Wayne & Northern Indiana Traction Co., Fort Wayne, Ind 220. 00

Tucson Rapid Transit Co., Tucson, Ariz 5. 00

Ohio River Electric Railway & Power Co., Pomeroy, Ohio 12. 70

Philadelphia Railways Co., Philadelphia, Pa 13. 29

New York Railways Co., New York City _ 153. 60

Pascagoula Street Railway & Power Co., Pascagoula, Miss_l 8. 36

United Railways Co. of St. Louis, St. Louis, Mo 458. 22

Chattanooga Railway & Light Co., Chattanooga, Tenn 69. 31

Blue Hill Street Railway, Canton, Mass 19. 70

Colorado Springs & Cripple Creek District Railway, Colorado Springs,

Colo. 18. 50

Portsmouth, Dover & York Street Railway, Portsmouth, N. H 42. 00

Total 5, 912. 25

Mr. WARREN. If, then, I may pass over for the moment the balance
sheet, I propose to take up the income accounts, Mr. Welsh, which
come next in your preparation.

Mr. WELSH. Yes.

Commissioner BEALL. Mr. Welsh, I notice that you have a Cana-
dian company in here. I take it that all of these figures that you
have given us are for electric railways in the United States, and not
those in Canada?

Mr. WELSH. That is true, with the exception of that list of re-
ceiverships. That is, our figures with reference to these income ac-
counts have been related exclusively to the United States.

Mr. WARREN. And your figures with regard to passengers ?

Mr. WELSH. Yes.

Mr. WARREN. And all those things?

Mr. WELSH. Oh, yes.

Commissioner BEALL. How much of Canadian figures are included
here? Is there anything more like that one of the London & Lake
Erie Railway & Transportation Co. of London, Ontario, Canada?

Mr. WELSH. So far as I know, that is the only one.

Commissioner BEALL. I can not understand why you put that in,
because it might raise some question.

Mr. WELSH. Which company is that?

Commissioner BEALL. Why not take that out? Because you will
only confuse the issues.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 91

Mr. WELSH. Which company is that, Mr. Beall?

Commissioner BEALL. It is the third item on your second page,
the London & Lake Erie Railway & Transportation Co., of London,
Ontario, Canada.

Commissioner GADSDEN. That company has been dismantled and
sold.

Commissioner BEALL. That is in that last statement you handed up.
Why don't you just take that out ?

Mr. WARREN. Yes.

Mr. WELSH. Yes.

Mr. WARREN. That is the only one, is it ?

Mr. WELSH. That is the only one.

Mr. WARREN. We will have that taken out and have the figures
corrected.

Mr. WELSH. Yes.

Commissioner WEHLE. Mr. Warren, after a conference with the
chairman, I should like to ask you a question which should come in
in connection with the presentation of Chart 145.

Mr. WARREN. That is the chart relative to power.

Commissioner WEHLE. Railway and power?

Mr. WARREN. Yes, sir.

Commissioner WEHLE. Mr. Welsh, referring to the line on Chart
145, which is entitled " subsidiary equipment," is the railway associa-
tion prepared to show how that line has been made up, particularly
with reference to the question as to whether or not there have been an
appreciable number of instances where the power-producing function
has been abandoned by the street railways and has been transferred
to an independent company, which, from that time on, furnishes
power back to the street-railway company, and also performs the
function of furnishing power to other activities in the community?

Mr. WELSH. Well, I should say we can do it; yes, sir. We could
give you a number of typical examples of that. Of course, you un-
derstand, these figures have been taken from the census report, and
so far as they are concerned, we do not know how they have been
compiled as to the elements and details, but we can refer to the
definite census tables for that.

Commissioner WEHLE. Well, it was suggested by counsel a few
moments ago, you will remember, that the reason for the increase in
the amount of purchasing power that is done by the street-railway
companies is the growing difficulties which have been confronting the
street-railway interests. That , undoubtedly, is one of the contribut-
ing reasons, but it occurred to us that possibly the whole situation
could be opened up and clarified, in order to show all the reasons, or
as many of them as are really relevant in any large way.

Mr. WELSH. I had in mind adding, at that time, that the one
reason given is undoubtedly the fact that the power companies are in a
position to make power and sell it, and at an economical rate, and
undoubtedly can, on account of the introduction of the steam turbine,
which is far more efficient than the old reciprocating type of engine,
generate power more economically and sell it at a rate which is ad-
vantageous to the electric railway properties. That, undobutedly, is
an element that should be taken into consideration.

Commissioner WEHLE. Could the association amplify that point
by charts or by testimony, you think 2

92 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. We could, as I say, for some typical companies — as
many companies as we might be able to get a report for.

Commissioner WEHLE. Would it be practicable or possible, Mr.
Chairman, to ask the gentlemen to show all instances which they can
easily produce where the electric-railway company has turned over
the function of producing the power to other companies?

The CHAIRMAN. Yes.

Commissioner BEALL. There are some instances where, on account
of water power, they can buy it cheaper than they can generate it,
on account of the cost of the fuel. They might, in some of those
instances where power plants are built at the mines, where enormous
energies are generated and they furnish power to a lot of other com-
panies in a large area throughout the country. Is that what you
would like?

Commissioner WEHLE. That is one of the elements of the situation.

Commissioner BEALL. That is the reason why a lot of electric rail-
ways buy their power — because certain companies can generate it
cheaper. They generate ia larger amount than their competitors
generate, through water power or otherwise.

The CHAIRMAN. We wish you would consider that and advise us
as to the results.

Mr. WARREN. We certainly will make every effort to get as much
information along that line as we can and file it at a later date with
the commission. I know of some instances where it can be furnished
very readily. I think we can get it in a number of instances.

The CHAIRMAN. You may proceed with your examination of Mr.
Welsh.

Mr. WARREN. Mr. Welsh, this chart, which is marked " C-100,"
indicates exactly what?

Mr. WELSH. This is a comparison of the years 1917 and 1918 of
the income accounts of 345 companies referred to before. It
shows

Mr. WARREN. This is not the census companies ?

Mr. WELSH. These are not the census companies. These are tho
entire group of companies that have responded to the association's
questionnaire for this information.

Mr. WARREN. But it is the same for both years ?

Mr. WELSH. The same for both years.

Mr. WARREN. 1917 and 1918?

Mr. WELSH. It shows the increase in operating expense in 1917,
when it was $361.000,000, in round numbers, to $426,000,000 in 1918.
It shows the increase in taxes. It shows the increase in deductions
from income.

Mr. WARREN. Won't you give the figures as you go along?

Mr. WELSH. The taxes in 1917 were $35,750,567, and in 1918,
$38,669,011. The gross income in 1917 was $142,373,728, and in
1918, $146,652,347.

Mr. WARREN. That is deduction from gross income?

Mr. WELSH. That is deduction from gross income.

The most striking feature of this chart is the comparison of the
net income.

In 1917, this amounted to $41,800,394. In 1918, the net income
•was $10,712,726, or about 25.7 per cent of its former value.

Commissioner GADSDEN. Mr. Welsh, have you the 1916 figures ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 93

Mr. WELSH. No ; we have not.

Commissioner GADSDEN. Do you happen to know what they were?

Mr. WELSH. Do 3^011 mean for the same group of companies?

Commissioner GADSDEN. For all of the companies.

Mr. WELSH. Well, we do have the figures for 1916, which we will
produce in subsequent charts.

•Mr. WARREN. Do you happen to remember whether they show a
larger net income?

Mr. WELSH. They show less.

Mr. WARREN. Less?

Mr. WELSH. They show larger; yes, sir; I believe they do.

Mr. WARREN. They show larger?

Mr. WELSH. Yes, sir ; based on a per car-mile basis.

Mr. WARREN. Does the table, then, accompanying this chart,
C-100, show that while the operating revenues increased, the oper-
ating expenses increased so much more that the net income almost
disappeared for the 345 companies?

Mr. WELSH. That is true. It shows that whereas it was increased
to about 6£ per cent in operating revenue, operating expenses, on
the other hand, increased 18 per cent, and taxes increased about 8
per cent.

Commissioner GADSDEN. What proportion is the revenue of these
345 companies there of the total revenue ?

Mr. WELSH. Over 80 per cent of all the companies in the country.

Another point that I would like to call your attention to is the
comparison of the operating ratio in the two years. This increased
from a value of 65.14 per cent in 1917 to 72.13 per cent in 1918. The
operating ratio is to a large extent a measure of the prosperity or
the expenses of operation of a company. It is determined by taking
the ratio of the operating expense to the operating revenues, and,
therefore, the higher its value, the less amount is left for return on
investment.

Commissioner GADSDEN. Well, the net income shown there being 80
per cent of the total, that would indicate that the net income of the
total industry for 1918 was $12,500,000.

Mr. WARREN. For the entire industry?

Commissioner GADSDEN. Yes; if that is 80 per cent of it.

Mr. WARREN. Yes.

Mr. WELSH. Well, I do not believe you can draw that conclusion,
Mr. Gadsden. We have worked out these values for 1918, on a
subsequent chart.

Commissioner GADSDEN. All right.

Mr. WELSH. And show the method in that case.

Commissioner MEEKER. What is included in railway operating
expenses ?

Mr. WELSH. All expenses in connection with the operation of a
railway system ; that is to say, all cost of labor, all cost of material —
anything that has to do with the operation and maintenance of the
electric-railway property.

Commissioner MEEKER. Does that include any expense for renew-
ing equipment or extensions or improvements?

Mr. WELSH. Only to this extent: It is based upon the Interstate
Commerce Commission classification of accounts, and in that classi-
fication there is an item for depreciation and renewals, but, as a

94 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

matter of fact, that item is relatively small as actually expended by
railway properties, and is a rather insignificant proportion of the
operating expenses.

Commissioner MEEKER. Would it not be well, Mr. Chairman, to
have a statement submitted giving the items included under railway
operating expenses? It is a significant item, and I think it would
be well to have that presented.

Commissioner BEALL. Mr. Welsh, referring to the term " operating
expenses," where you replace one car that is worn out with another
car because of its greater carrying capacity, that is an improvement,
and is not charged in that expense of operation. Is not that the
basis that you do it on?

Mr. WELSH. Yes, sir.

Commissioner BEALL. I wanted to make it clear to Dr. Meeker.

Mr. WELSH. That can be made very clear if we introduce a copy of
the Interstate Commerce Commission classification of accounts,
which explains that very clearly.

Mr. WARREN. Are there any more questions on that chart, No. 1 00 ?

Do you want to say anything more on that, Mr. Welsh ?

Mr. WELSH. I would like to call your attention to one thing.

The operating ratio of this group of companies is almost exactly
the same as the operating ratio for the entire industry, as shown by
the census reports. The operating ratio is 65.14 per cent for this
group.

Mr. WARREN. That is for 1917?

Mr. WELSH. That is for this group of companies.

Mr. WARREN. For 1917?

Mr. WELSH. For 1917, for the same year, while for the entire cen-
sus it is 64.8 per cent.

The CHAIRMAN. Have you got the operating ratio for the last 10
years ?

Mr. WELSH. I believe we have that in another chart back in 1902 —
the census reports.

The figures on the statement accompanying this chart (C-100) are
as follows:

Statement of income accounts and operating expenses of S£5 companies; income
account for 12 months ending Dec. SI, 1918, compared with the 12 months
ending Dec. 31, 1917.

Items follow standard classification.

12 months ended —

Increase or decrease, 1918
over 1917.

Dec. 31, 1918.

Dec. 31, 1917 .

Amount.

Per cent.

Railway operating revenues (201) .

$590,710,837
426,082,146
164,628,691

16,917,673
38,669,011
142,877,353
14,487,720
157,365,073
146,652,347
10,712,726
1,654,319,023
11,969,256,764
32,570.21
72.13

$554,674,718
361,315,721
193,358,997

15,563,861
35,750,567
173,172,291
11,001,832
184,174,123
142,373,728
41,800,395
1,722,369,093
12,187,434,043
32,476.64
65.14

$36,036,119
64,766,425
128,730,306

1,353,812
2,918,444
130,294,938
3,485,888
126,809,050
4,278,619
»31,087,669
168,050,070
1218,177,279
93.57

6.50
17.93
14.86

8.70
8.16
17.49
31.68
14.56
3.01
74.37
3.95
1.79
.29

Railway operating expenses (213)

Net operating revenue

Net revenue from auxiliary operations (202

minus 214). .

Taxes railway operations (215)

Operating income . .

Nonoperating income (203 to 212)

Gross income or loss

Deductions from gross income (216 to 225)
Net income or loss

Total car mileage operated

Total passengers carried

Total miles of single track

Operating ratio " per cent

i Decrease.

PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION. 95

Mr. WARREN. The next table, Mr. Welsh, I think you have no chart
for, although the table is referred to as being identified as a chart,
C-110, operating revenues and expenses. Have you that before you?

Mr. WELSH. We have a large chart for that.

Mr. WARREN. All right. Will you put up the large chart, then ?

Mr. WELSH. This chart shows the railway operating revenue, the
railway operating expenses, and by subtraction, the net operating
revenue,' also the taxes and the operating ratio, this question just
referred to.

Mr. WARREN. The table shows the same thing in the figures, does
it not?

Mr. WELSH. The table shows the same information.

Probably the most interesting feature of this chart is the net op-
erating income. It has increased up until 1912, and from ID 12 to
1917 the rate of increase fell off very markedly, and in 1918 took an
actual decrease. This is seen in the table to be due to the increase in
the operating expenses, as compared with the operating revenues.

Mr. WARREN. The net operating revenues means the amount of
money that is left of all the money that you take in after you have
paid the expense of just running the railway — operating it?

Mr. WELSH. That is it exactly.

Mr. WARREN. That has nothing to do with the return on investment
or anything else, has it ?

Mr. WELSH. No ; it has not. In fact, taxes are deducted from the
net operating income.

Mr. WARREN. And the figures show, if I understand them, that in
1912 this net operating revenue was two hundred and seventeen mil-
lion-odd dollars, and that five years later it had increased to only
$228,898,000; is not that so?

Mr. WELSH. That is true.

Mr. WARREN. And for the next. year the net operating revenue'was
actually considerably kss, being only $192,000,000 in 1918?

Mr. WELSH. That is true.

Mr. WARREN. Now, the 1912 and 1917 and other earlier figures on
this table are the census figures, are they not?

Mr. WELSH. They are.

Mr. WARREN. And you got the 1918 figures how ?

Mr. WELSH. They are estimated from the group of the 345 com-
panies shown on the previous chart.

Mr. WARREN. Which represented a certain per cent of the total ?

Mr. WELSH. Which represented over 80 per cent of the operating
revenue.

The operating ratio is shown on this chart, and is of special in-
terest in comparison with former years. It is seen that it had got-
ten up to about the 60 per cent line up to 1912. At that time it in-
creased to about 65 per cent, and in 1918 it was increased to 72 per
cent.

Mr. WARREN. Is there any figure that you would have called a
normal operating ratio before the European war began?

Mr. WELSH. I think the average figure as shown by the census of
60 per cent would represent for all companies a normal figure.

Mr. WARREN. A normal average?

96 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. A normal average.

Mr. WARREN. The operating expense does not include taxes, does
it, Mr. >Velsh?

Mr. WELSH. It does not.

Mr. WARREN. Is there anything else you want to say on that table ?

Mr. WELSH. No; I think not.

Mr. WARREN. As a matter of fact, the taxes show an increase,
although the results of operating the railroad show a very large de-
crease ; is not that so ?

Mr. WELSH. That is true.

Mr. WARREN. Have you in mind what the total taxes of the street
railways would amout to per passenger; have you any figure that
would give you that, or have you roughly estimated it ?

Mr.' WELSH. The direct taxes paid to the governmental-
Mr. WARREN. Yes; all taxes, direct and indirect.

Mr. WELSH. Well, they amount to something under one-half a
cent. Is that what you mean?

Mr. WARREN. Yes.

Mr. WELSH. On the basis of a fare.

Mr. WARREN. Yes.

Mr. WELSH. They amount to something under one-half a cent.

Mr. WARREN. Well, it is pretty close to half a cent.

Mr. WELSH. It is pretty close to half a cent.

Mr. WARREN. In other words, if it were possible to relieve1 the street
railways on the theory that the other public utilities, like waterworks,
are, of all taxation, it would represent pretty close to half a cent per
passenger, would it not?

Mr. WELSH. That is true.

Mr. WARREN. Are there any further questions that the commission
want to ask on that table ?

Commissioner GADSDEN. I would like to ask Mr. Welsh in refer-
ence to the net operating income : Do I understand that the net op-
erating income is the amount after the payment of operating ex-
penses and before anv interest charges are paid ?

Mr. WELSH. Yes, sir.

Commissioner GADSDEN. Now capitalize that at 7 per cent, and
what would that indicate as the value of the industry ?

Mr. WELSH. It would be about fourteen times that, would it not?
It would represent something under $3,000,000,000.

Commissioner GADSDEN. About $2,700,000.000.

Mr. WELSH. Yes; $2,700,000,000

Commissioner GADSDEN. What is considered a fair estimate of the
total investment, or what was the association's estimate is the total
investment ?

Mr. WELSH. Something in excess of $5,000,000,000.

Commissioner GADSDEN. So that this net return in 1917 was 7 per
cent on less than half of that?

Mr. WELSH. That is true.

Commissioner GADSDEN. Seven per cent on less than half of the
investment.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 97

The figures on the statement accompanying the Chart C-110 are
as follows:

Operating revenues and expenses.
[Chart C-110— based on U. S. census reports.]

1890

1902

1907

1912

1917

191S

Taxes ;

?3 30* 190

$13,078 899

$19 755 602

$35 027 965

$45 756 695

$49 496 334

Source

(i)

(t)

(3)

'(*)

Railway operating revenue
Source

90,617,211

(5)

247,553,999
(*)

400,896,034

(3)

535,998,122
(»)

650, 149, 806

(S)

691.131,682

(4)

Railway operating expense
Source

62,011,185
(')

140,123,844
(»)

245,140,379
(«)

318, 700, 534
(*)

421,250,838
(')

498,516,115

(4)

Net operating revenue
Source

28.606,026

(1,5)

107,430,115
* (Base).

155, 755, 655
J'« (Base).

217,295,588
8>6 (Base).

228,898,968
3'8 (Base).

192,615,567

(4)

Operating ratio

68.4

56.6

61.1

59.5

64.9

72.13

Source

(7)

«.« (Base).

*»• (Base).

*»« (Base)

'•(Base).

(4)

1 United States census 1902, p. 11, Table 6.

* United States census 1912, p. 186, Table 5.
1 Advance report, Table 5.

* — - 191S census for 345 companies, data sheet 186.

5 United States census 1902, p. 20, text, receipts, and expenditures.

• Advance report, Table 162.

* United States census 1912, p. 6, Table 1.

• United States census 1912, p. 311, Table 162.

Mr. WARREN. Now, Mr. Welsh, we will pass to the next chart,
No. 111.

Mr. WELSH. We have no big chart for that — just the table.

Mr. WARREN. You have no chart for this next table, have you ?

Mr. WELSH. No, sir; this next table is made up of the same figures
used in the former table, but upon a per car-mile basis.

Mr. WARREN. This table is marked " Chart C-lll," to identify it.

All right, go ahead, Mr. Welsh.

Mr. WELSH. It shows the same information exactly, except that
it is put upon a per car-mile basis. The purpose of this is to take
account of any increase in growth and extent of operations
of the companies throughout the census periods. However, it is
notable that the same trend and relationship are found between the
various census periods and 1918, on a per car-mile basis, as were
shown previously on a gross basis of dollars. For example, the
net operating revenue was highest in 1912 at 11.3 cents per car-
mile, and it fell to 10.7 cents in 1917, and to 9.39 cents in 1918.

Mr. WARREN. Mr. Welsh, that means that for each mile that a
car was run, after paying the expenses, there was 9^ cents, roughly,
in 1918, earned above the mere running expenses, does it not?

Mr. WELSH. That is true.

Mr. WARREN. And from that you had to pay the taxes, and what-
ever else came afterwards?

Mr. WELSH. Yes, sir.

Mr. WARREN. You may go right on with your tax item.

Mr. WELSH. It also snows that the taxes per car-mile have in-
creased up to 1912.

Mr. WARREN*. The taxes went right on increasing. That is the
difference: is it not?

Mr. WELSH. The taxes increased right straight through, and
reached their maximum point in 1918.

Mr. WARREN. So that m 1918 the taxes took twice as much out of
each car-mile receipts as they did in 1902; is that right?

98 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes, sir.

Mr. WARREN. Instead of taking 1£ cents as in 1902, they took 2f
cents in 1918.

Mr. WELSH. Yes, sir.

Mr. WARREN. Is there anything else on that?

Commissioner MEEKER. I would like to ask whether the tax for
street railways increased at a greater ratio than for other industries ?

Mr. WARREN. They are not tied down to quite such a definite in-
come as in the street-railway business.

Have you anything alse on that, Mr. Welsh?

Mr. WELSH. No; that is all.

The figures on the table accompanying the Chart C-lll are as
follows :

Revenues and expenses of electric railways.

(Based on United States census reports.)

Cents per car mile.

1902

1907

1912

1917

1918

Railway operating revenue

21.63
(')
12.25

(V)
9.38
(l,a)
1.20

24.78

15.15

(',»)
9.63

(W>
1.22

(V)

27.89
(V)
16.51

(M)

11.30

(W)

1.82
(l,s)

30.39

(V)
19.69
(V)
10.70

(V,5)

2.14
(V)

33.69

<4)
24.28

(<)9.39

(4U

1 United States census 1912, p." 186, Table 5.

3 Advance report, Table 5.

» United States census 1912, p. 311, Table 162.

4 Estimate of 1918 census for 345 companies, data sheet 186.
6 Advance report, Table 162.

United States census typed advance summary released Apr. 21, 1919.

Mr. WARREN. Have you a large chart on this next one, Chart No.
120?

Mr. WELSH. Yes.

Mr. WARREN. We will pass, then, please, to Chart No. 120.

The CHAIRMAN. Have you available the per cent which the taxes
bore to the total operating cost of the railroads?

Mr. WELSH. We will introduce that later ; yes, sir.

Mr. WARREN. This chart, Mr. Welsh, indicates what?

Mr. WELSH'. Chart No. 120 is based upon the reports of the num-
ber of companies who sent in their financial statistics to the Ameri-
can Electric Railway Association, and it has been prepared for four
years, from 1916 to 1919, inclusive. It is on a car-mile basis, and
covers the principal items of income accounts, such as operating
revenue, operating expenses, net operating revenue, and operating
ratio. It is interesting because it shows the trend of all these items
for this recent period, and we have been able to prepare these figures
for 1919 by estimating the amounts on the basis of the first four
months of the year. For example, it shows that the net operating
revenue has declined consistently from 1916, when it amounted to
11.77 cents per car-mile, to 1919, when it was 8.87 cents per car-mile.
I believe this covers Mr. Gadsden's question. The operating ratio, on

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 99

the other hand, is increased from a value of 60 in 1916 to a value of
76.43 in 1919, showing that the same situation for the year 1918 is
extending into 1919.

Mr. WARREN. That operating ratio, Mr. Welsh, stated in dollars,
would amount to this, would it ? That where, out of every hundred
dollars in 1916 which you took in, $60 was used to pay merely run-
ning expenses of the road ; in 1919, you estimate practically $76 would
be used?

Mr. WELSH. Yes, sir.

Mr. WARREN. In that way?

Mr. WELSH. Yes, sir.

Mr. WABREN. Out of every $100?

Mr. WELSH. Yes, sir.

Mr. WARREN. So that out of every $100 there would be $16 less
available for other purposes, like taxes, interest, etc. ?

Mr. WELSH. Yes, sir.

Commissioner WEHLE. What standards of accounting have been
used in reaching the figures which you have been giving us here in
the last two charts, Mr. Welsh?

Mr. WELSH. The Interstate Commerce Commission classification
of accounts, which was adopted by the American Electric Railway
Association in October, 1914, and has been in use since that time.

Commissioner WEHLE. Has there been a special regulation with
reference to this method of accounting issued by the Interstate Com-
merce Commission for electric railways?

Mr. WELSH. There has been; yes, sir.

Commissioner WEHLE. Will you file that with the record ?

Mr. WELSH. We will do so; yes, sir.

Mr. WARREN. As a matter of fact, Mr. Welsh, do you happen to
know whether most of the supervisory commissions of the various
States have also adopted that system?

Mr. WELSH. I think they have to a large extent.

Mr. WARREN. I know that they have in Massachusetts.

Mr. WELSH. Yes.

Mr. WARREN. And I suppose others.

Mr. WELSH. They have. Some of the States do not, however.

Mr. WARREN. Yes. Is there anything else on that chart?

Mr. WELSH. No, sir ; I think not. I think that is all.

The figures on the statement accompanying Chart C-120, are as
follows :

Income accounts per car-mile of electric railtrays.
(Chart C-120 — Based on average of monthly reports to American Electric Railway Association.)

1916

1917

1918

I 1919. Jan-
! uarv to
i April.

29.43

30. 87

34.00

37.63

17.66

20.06

24. ">0

2S 76

11.77

10. Ml

9.50

8.87

2 45

2 49

Operating income

7. (15

«. 38

60.01

64.98

72.08

76.43

1919 estimated on basis of four months.

100 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREX. The next exhibit that we want to put in is the March
number of a magazine called Aera, which is published by the Ameri-
can Electric Railway Association, and gets its name from the four
initials of the four words in the name. We will put that in for the
figures which appear on pages 808 and 809.

The figures referred to are as follows :

TABLE I. — Comparison of revenues and expenses of electric railivays for 12
months, January to December, 1918 and

(Compiled from monthly returns of electric railways to the American Electric Railway Association.)

Account.

United States.

Eastern district.

Amount,
January-
December,
1918.

Per mile of line.

Amount,
January-
December,
1918.

Per mile of line.

1918

1917

In-
crease
over
1917.

1918

1917

In-
crease
over
1917.

O perating revenues ....

$111.688,563
81,192,846
30, 495, 317

$21,870
15,889
5,981

$20, 545
13, 728
6,817

Per ct.
6.45
15.74
1 12.26

$54, 554, 582
39, 793, 194
14,581,388

$19, 222
14,084
5,138

$17, 955
12, 155
5,800

Per ct.
7.00
15.87
1 11.41

Operating expenses

Net earnings

Operating ratio, per cent:
1918

72.65
66.82

5,107
5,107

73-27
67.70

2,838
2,838

1917

Average number of miles of
line represented:
1918

1917

COMPANIES REPORTING
TAXES.

Operating revenues . .

$100,014,301
73, 074, 000
26, 940. 301
6,761,245
20, 179, 056

$26, 325
19, 234
7,091
1,780
5,311

$24, 741
16, 827
7,914
1,765
6,134

6.40
14.31
1 10. 40
.85
1 13. 42

$49, 059, 914
36, 128, 085
12,931,829
3, 169, 712
9, 762, 117

$24, 033
17, 698
6,335
1,553
4,782

$22, 460
15, 611
6,849
1,596
5,253

7.00
13.37
17.50
12.69
18.97

Operating expenses

Net earnings

Taxes

Operating ratio, per cent:
1918

73.06
68.01

3,799
3,800

73.64
69.50

2,041
2,042

1917

Average number of miles of
line represented:
1918

1917

i Indicates decrease.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 101

TABLE I. — Comparison of revenues and expenses of electric railways for 12
months, January to December, 1918 and 1917 — Continued.

Account.

Southern district.

Western district.

Amount,
January-
December,
1918.

Per mile of line.

Amount,
January-
December,
1918.

Per mile of line.

1918

1917

In-
crease
over
1917.

1918

1917

In-
crease
over
1917.

Operating revenues

$11,407,529
7, 665, 957
3, 741, 572

$15, 343
10,311
5,032

$14, 136
8,473
5,663

Per ct.
8.54
21.69
U1.14

$45, 726, 462
33, 553, 695
12, 172, 767

$29,977
21,997
7,980

$28,486
19, 215
9,271

Perct.
5.23
14.48
113.92

Operating expenses

Net earnings

Operating ratio, per cent'
1918

67.20
59.94

743

73.38
67.45

1,525
1,525

1917

Average number of miles of
line represented:
1918

1917

COMPANIES REPORTING
TAXES.

Operating revenues

$5,346 149
3, 536, 456
1, 809, 693
414.567
1,395,126

$20,354
13,464
6,890
1,578
5,312

$18, 401
10, 917
7,484
1,470
6,014

10.61
23.33
17.94
7.34
1 11.67

$45,608,248
33, 409, 459
12, 198, 789
3, 177, 566
9,021,223

$30,505
22, 346
8,159
2,125
6,034

$28,970
19, 525
9,445
2,048
7,397

5.30
14.44
U3.61
3.76
•18.43

Operating expenses

Net earnings

Taxes

Operating income .

Operating ratio, per cent:
1918

66.15
59.33

263
263

73.25
67-39

1,495
1,495

1917

Average number of miles of
line represented:
1918

1917

« Indicates decrease.

102 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

TABLE II. — Comparison of revenues and expenses o1 electric railways, December,

1918 and 1917.

(Compiled from monthly returns of electric railways to the American Electric Railway Association.)

Account.

United States.

Eastern district.

Amount,
December,
1918.

Per mile of line.

Amount,
December,
1918.

Per mile of line.

1918

1917

In-
crease
over
1917.

1918

1917

In-
crease
over.
1917.

O perating revenues

$8, 903, 746
7, 362, 468
1,541,278

SI, 825
1,509
316

SI, 695
1,231
464

Per ct.
7.67
22.58
131.90

$4,805,173
3, 797, 060
1, 008, 113

$1,693
1,338
355

$1,538
1,235
303

Per ct.
10.08
8.34
17.16

Operating expenses

Net earnings

Operating ratio, per cent:
1918

82.68
72.63

4,878

79.03
80.30

2,839
2,839

1917

Average number of miles of
line represented:
1918

1917.

COMPANIES REPORTING
TAXES.

Operating revenues

$7, 707, 574
6, 472, 219
1,235,355
486, 798
748, 557

$2,159
1,813
346
136
210

$2,007
1,487
520
202
318

7.57
21.92
1 33. 46

» 32. 67
i 33. 96

$4,330,134
3, 437, 317

892, 817
295, 443
597, 374

$2, 121
1,684
437
145
292

$1, 922
1,576
346
179
167

10.35
6.85
26.30
>18.99
74.85

Operating expenses

Net earnings

Taxes. .

Operating income

Operating ratio, per cent:
1918

83.97
74.08

3,569
3,570

79.40
82.00

2,041
2,042

1917

Average number of miles of
line represented:
1918

1917

* Indicates decrease.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 108

TABLE II. — Comparison of revenues and expenses of electric railways? December,
1918 and 1917 — Continued.

Account.

Southern district.

Western district.

Amount,
December,
181&

Per mile of line.

Amount,
December.
1918.

Per mile of line.

1918

1917

In-
rease
over
1917.

1918

1917

In-
crease
over
1917.

Operating revenues

$1,229,030
881,531
347,498

$1,653
1,186
467

$1.470
886
584

Perot.
12.45
33.86
120.03

$2, 869, 543
2. 683, 877
185,666

$2,215
2,071
144

$2,167
1.419

748

Perot.
2-22
45.95
180.75

Net earnings

Operating ratio, per cent:
1918

71-75
60.27

743
743

93-50

65.48

1,296
1,296

1917 . .

Average number of miles of
line represented:
1918

1917

COMPANIES REPORTING
TAXES.

Operating revenues

$517,803
363,409
154, 394
26, 527
127, 867

$1,971
1,384

587
101

1-6

$1,688
992
696
122
574

16.77
39.52
1 15.66
1 17.21
'15.33

$2, 859, 637
2,671,493
188, 144
164,828
23, 316

$2,260
2,111
149
130
19

$2,211
1,445
766
256
510

2.22
46.09
» 80.55
M9.22
1 62. 75

Operating expenses

Net earnings

Taxes

Operating income

Operating ratio, per cent:
1918

70.22
58.77

263
263

93.41
65.36

1,265
1,265

1917

Average number of miles of
line represented:
1918

1917

1 Indicates decrease.

Mr. WARREX. What do those figures show, Mr. Welsh? I do not
mean the results, but, first, where do they come from and where do
you want those put in?

Mr. WELSH. The table shown in Aera is published each month cov-
ering all the electric-railway properties who report to the association,
and this exhibit is introduced to show the character of these reports
or a summary of these reports that are prepared each month from the
various electric railways of the country. This table is for the years
1918 and 1917 only.

Mr. WARREN. For those companies that report to the association?

Mr. WELSH. For those companies that report to the association;
yes, sir.

Mr. WARREN. And they show the actual figures, do they?

Mr. WELSH, Yes, sir.

Mr. WARREN. They are not on a per car-mile basis, but are the
total?

Mr. WELSH. That is true.

Mr. WARREN. Is there anything else that you want to say about
that?

Mr. WELSH. T think that is all.

Mr. WARREN. It comes along following the last chart that you put
in, 120, which was the per car-mile basis, was it not?

104 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes.

Mr. WARREN. I want to say, Mr. Chairman, at some time, and
perhaps I might s&y at this point on behalf of the association that
as soon as your commission was appointed the association began ac-
tively to put its whole force to work to get together as much data as
possible to submit to the commission. It has been working almost
exclusively on that undertaking since your appointment. But the
commission will realize that in corresponding with the 345 street-
railway companies a great deal of time is lost because of the tardy
responses of some of the companies, and I can testify from personal
observation that I have had since a few days ago in this matter that
the organization has been working night and day and was working
last night until 12 o'clock in an endeavor to present information
which might be of use and value to the commission in its work. That
is the reason we are compelled to put this copy of Aera in instead of
abstracting the figures. It is due to a lack of clerical assistance nec-
essary to transcribe it.

The CHAIRMAN. Have you reached a good stopping point here?

Mr. WARREN. Yes, sir.

The CHAIRMAN. Then we will adjourn until 2 o'clock.

(Whereupon, at 12.50 o'clock p. m., a recess was taken to 2 o'clock
p. m.)

AFTER RECESS.

JAMES W. WELSH — Resumed.

»Mr. WARREN. Mr. Chairman, we have not copies of this chart on a
small scale, but we have the statements which accompany the
chart —

Mr. WELSH. I have a few copies here.

Mr. WARREN. Now, Mr. Welsh, what does this chart illustrate ?

Mr. WELSH. The purpose of this chart is to show the composition
of operating expenses; the total operating expenses foy each of the
census years and for 1918 has been plotted, and in addition to that
we have shown the segregation between the various operating de-
partments.

The most notable element in the operating expense is the item of
conducting transportation. It is not only the largest item but the
one in which there has been a proportionate increase during the cen-
sus years and also in the year 1918. The principal element in that
is trainmen's wages. The next most important element is the cost
of power, and that- also has had a proportionate increase.

Mr. WARREN. That payment in wages is what you call conducting
transportation ?

Mr. WELSH. The principal item in conducting transportation is
trainmen's wages.

Mr. WARREN. And the total item of conducting transportation,
according to your table, is $204,989.000, and power is $86,000,000?

Mr. WELSH. Yes, sir. The increase in the cost of power is largely
due to the increase in the cost of coal as well as increased cost of
materials and labor.

Mr. WARREN. The way and structures. What does that mean ?

Mr. WELSH. That includes cost of maintenance of the roadway, the
cost of the track and overhead line constructions.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 105

•Mr. WARREN. Keeping it in proper condition to run your cars?

Mr. WELSH. Exactly.

Mr. WARREN. And that is all it means, is it not ?

Mr. WELSH. Yes, sir. The item for equipment covers the rolling
stock, the cars as well as the shop expense in maintaining the equip-
ment.

Mr. WARREN. That is keeping the cars in condition to run?

Mr. WELSH. Yes, sir.

Mr. WARREN. It does not include new cars, does it?

Mr. WELSH. It does not.

Mr. WARREN. And traffic and miscellaneous.

Mr. WELSH. Under that are included general expenses such as
office expense and the expense of injuries and damages and other
items of a general nature.

Mr. WARREN. And the total of that operating. expense as shown
here for 1918 is how much?

Mr. WELSH. $498,000,000, in round numbers.

Mr. WARREN. And the year before, it was how much?

Mr. WELSH. $421,000,000.

Mr. WARREN. Now, were the companies operating substantially
more mileage or more tracks in 1918 than in 1917 ?

Mr. WELSH. As a matter of fact, they were operating a less car-
mileage in 1918 than in 1917.

Mr. WARREN. By car-mileage you mean they ran the passenger
cars a smaller number of miles in 1918 than in 1917?

Mr. WELSH. Yes, sir.

Mr. WARREN. And notwithstanding that, it cost them something
like $77.000,000 more to operate their roads in 1918 — is that right?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now, the sum of those operating expenses, as you
have called them, has to come out of the total receipts first, does
it not?

Mr. WELSH. Yes.

Mr. WARREN. And you stated before the recess that the ratio, as
you call it — the operating ratio — was about 76 per cent for this
current year?

Mr. WELSH. Yes, sir; 76 per cent for the year 1919, based upon
the first four months.

Mr. WARREN. That means that $76 out of every $100 goes to this
operating expense ?

Mr. WELSH. Yes.

Mr. WARREN. Does that operating expense include the taxes?

Mr. WELSH. It does not.

Mr. WARREN. About how much is that?

Mr. WELSH. The direct taxes, exclusive of indirect taxes, amount
to about 7 per cent of the operating revenues.

Mr. WARREN. That would have to be added to the 76 per cent of
operating expenses, would it not ?

Mr. WELSH. Yes, sir.

Mr. WARREN. That would make al>out 83 per cent?

Mr. WELSH. Yes.

Mr. WARREN. Or $83 out of every $100 for operating expense mid
taxes?

100043°— 20 8

106 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes, sir,

Mr. WARREN. Now, about depreciation, Mr. Welsh: Does this op-
erating expense which takes $76 out of every $100 include a deprecia-
tion reserve to maintain the property at near its original value ?

Mr. WELSH. As a matter of practice it does not.

Mr. WARREN. And if such a reserve were set up, would it have to
be added to the 76 per cent of operation and the 7 per cent more taxes,
or the total of 83 per cent, and. be added to the 83 per cent ?

Mr. WELSH. Yes; it should.

Mr. WARREN. While, of course, we all realize that there is no agree-
ment on what it ought to be, what should you say the best judgment
was as to the two limits, the smaller and higher limit for deprecia-
tion?

Mr. WELSH. In percentage of operating revenues ?

Mr. WARREN. In percentage of operating revenues.

Mr. WELSH. Well, in the neighborhood of from 3 per cent to 7 or 8
per cent possibly.

Mr. WARREN. And why has not that been set up as a reserve by
these properties?

Mr. WELSH. I suppose they have not had the money to do it.

Mr. WARREN. If it were set up it would raise these prior require-
ments on the income from 83 per cent up to 86 per cent, or if you took
the maximum of 7 per cent depreciation, it would carry it up to 91
per cent, would it not?

Mr. WELSH. Ninety per cent.

Mr. WARREN. Ninety per cent?

Mr. WELSH. Yes. sir.

Mr. WARREX. So that before there is anything available to pay
interest on funded debt on the bonds or any dividends on the stock,
if the company is properly operated and pays its taxes and takes care
of its depreciation, approximately 90 per cent, somewhere from $86
to $90 out of every $100 will be expended or laid aside ?

Mr. WELSH. That is true on the basis of this year's figures.

Commissioner MEEKER. You spoke some time ago of the street-
railway accounts being in accordance with the accounting system
recommended by the Interstate Commerce Commission. In the ac-
counts which hare been recommended by the Interstate Commerce
Commission a percentage is set aside for depreciation.

Mr. WELSH. That is true, but not what is known as a depreciation
reserve.

Mr. WARREN. No percentage, I think. There is a provision for
setting it aside, but unless very recently — and I do not think it has
happened — the Interstate Commerce Commission has not indicated
to the companies what that percentage should be.

Mr. WELSH, I misunderstood your question.

Commissioner MEEKER, They simply said it should be set aside ?

Mr. WARREN. Yes.

Commissioner "MEEKER. As a matter of practice: the street-railway
companies have not set aside anything for depreciation ?

Mr. WELSH. That is right.

Mr. WARREN. Or if they have, as regards equipment, many of them
make a nominal reserve, do they not, Mr. Welsh ?

Mr. WELSH. In some cases, yes.

Mr. WARREX. On equipment?

PROCEEDINGS OF FEDERAL ELECTEJC BAIL, WAYS COMMISSION. 107

Mr. WELSH. Yes.

Mr, WARREN. We do in Massachusetts I know, but it is utterly in-
adequate. I know some companies that set up a reserve of 1 per cent
of the cost of the equipment per annum, which would assume an
equipment life of 100 years. I wish that they did last 100 years,
but they do not.

Xow, is there anything else on that chart that I have overlooked ?

Mr. WELSH. I think not.

The figures in the tables accompanying Chart C-155 are as follows :

Estimate of railway operating expenses by departments.
(To accompany Chart C-155.)

Expense accounts.

Year ending
Dec. 31, 1918
(115 com-
panies).

Per cent
of total.

Estimate of
census for
year 1918.

Way and structures

$19,911,322

12.80

$63 810 06°

F quipment

21,576,262

13.87

69' 144' 1S6

26, 842, 149

17.26

86 043 SSI

63 947 529

41 12

204 98l) S28

Traffic, .-.»- --•• -

629,080

0.40

l'994'otH

General and miscellaneous

22, 607, 326

14. 54

72 534 094

155,513,668

99.99

498'516'll5

Operating expenses by accounts for United States street and electric railways.
(Chart C-155 — Financial and traffic data from U. S. census reports.)

Census of—

1918
(estimated).

1902

1907

1912

1917

Conducting transportation

$60, 972, 739
23,062,328
13, «00, 236
16,676,532
25,812,009

$97,122,681
43,970,669
28,520,925
31,485,810
44,038,294

$129,204,515
53,598,922
44,270,582
38,717,202
52,909,313

$174,972,645
76,958,461
55,470,419
48,981,554
64,867,759

$204,989,828
86,043,881
63,810,0(52
69, 144, 186
74,528,158

Power .

Wav and structures

Equipment

Traffic and miscellaneous

Total

140, 123, 844

245,140,379

318,700,534

421,250,838

498,516,115

Items 1 to 5, inclusive

140,123,844
79, 151, 105
56,088,777
42,488,541
25,812,009

245,140,379
148,017,698
104,045,029
75,524,104
44,038,294

318,700,534
189,496,019
135,897,097
91,626,515
52,909,313

421, 250, 838
246,278,193
169,319,732
113,849,313
64,867,759

498,516,115
293,526,2X7
207,482,406
143,672,344
74,528,158

Items 1 to 4, inclusive

Items 1 to 3, inclusive

Items 1 to 2, inclusive. ...

Item 1

Cumulative figures (from above data) for plotting corves.

NOTE. — Figures taken from 1917 advance copies U. S. Government census by accounts for years 1917,
1912, and 1907 and 1912 census. Table 162, p. 311, for year 1902. Figures Tor 1918 estimated by American
Electric Railway Association from reports from 115 companies.

Mr. WARREN. You have spoken of the element of increased wages
in conducting transportation, have you not, as largely accounting
for the increase in that item?

Mr. WKLSH. Yes, sir.

Mr. WARREN. Would that also be true of the major item of ways
and structures?

Mr. WELSH. Wages enter into all of the accounts and it would be
true in practically every case.

Mr. WARREN. In conducting transportation, it would be princi-
pally the conductors and motormen, the men who operate the cars,
would it not?

108 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes, sir.

Mr. WARREN. In ways and structures, it would be the laboring
men who work on the track and overhead wire men, the electricians ?

Mr. WELSH. Yes, sir.

Mr. WARREN. And in the equipment, it would be the mechanical
men in the repair shops ?

Mr. WELSH. Yes, sir.

Mr. WARREN. Where do the men who clean the cars and do the
car-barn work appear, under what head ?

Mr. WELSH. Under the item of conducting transportation.

Mr. WARREN. And in power, again, wages enter there; do they
not?

Mr. WELSH. Yes, sir.

Mr. WARREN. Do you happen to know whether, as a general thing,
when there is a wage adjustment made with the men or with the
union representing the men on unionized roads, the settlement
usually applies to all classes of labor?

Mr. WELSH. In most cases it follows as a consequence of the de-
cision. While the agreement may apply especially to the trainmen,
in almost every case it applies to the rest of the employees eventu-
ally, if not immediately.

Mr. WARREN. In cases where the settlement is made with the
Amalgamated Association, does not the Amalgamated Association
include in its membership all the different classes of labor on street
railways?

Mr. WELSH. It does, but all the various classes are not members in
every case. I think they have the opportunity for membership
but •

Mr. WARREN. Are you familiar with the action of the War Labor
Board in raising wages ?

Mr. WELSH. Yes, sir.

Mr. WARREN. They usually applied it to all classes, did they not?
They raised all classes?

Mr. WELSH. They did; yes, sir.

Mr. WARREN. Not simply the trainmen.

Mr. WELSH. Yes, sir.

Commissioner MEEKER. Would it be possible to submit a detailed
account separating labor costs from other costs in conducting trans-
portation, maintenance of way and structures?

Mr. WARREN. I think we have that. It is the very next chart.

Mr. WELSH. It is the very next chart.

Mr. WARREN. If there are no questions on this chart we will pass
to the next one.

Commissioner WEHLE. May I ask if you have a separate statement
showing to what extent the cost of actual power purchased from
other companies enters into the item of power as shown on this
chart ?

Mr. WELSH. It does not enter at all into that item.

Mr. WARREN. Yes; it does.

Mr. WELSH. I beg pardon : it does enter into it. We can shoAv that.

Commissioner WEHLE. Would some chart show that?

Mr. WELSH. We do not have that chart ; no ; but we can easily get
that.

Mr. WARREN. We can prepare a statement if you would like it.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 109

Commissioner WEHLE. Would it be interesting and useful, Mr.
Warren ?

Mr. WARREN. Yes; I think it would. There is something to be
said about that, and it is something which is to be said about every
one of these items, and which I think the commission should have in
mind. You take in the case of purchased power — a company may
have made a contract for three years for power at a certain rate. It
may still this year be getting power at that rate. Next year the con-
tract may expire, and there will be an immediate large increase in the
cost of power, and the same increase for labor. Now, for example,
in the labor situation, the maximum wage up to a few weeks ago was
that fixed by the War Labor Board of 48 cents, was it not? That is
the highest I remember ; 48 cents for cities of the first class. Within
two or three weeks, as the result of the strike in Detroit, the Detroit
scale has gone to 60 cents an hour. Following that, Cleveland has
gone to 60 cents an hour, and in Chicago, I learned at lunch to-day,
that the employees had gone on a strike for — 80 cents, I think, was
their demand — 85 cents an hour.

In Boston, where I happen to come from, their case is now pend-
ing before the War Labor Board, and they have asked — I have for-
gotten, but it is something well over 60 cents, and also for an 8-hour
day, 8 hours platform work instead of 9, as they have hitherto per-
formed ; and they are threatening to strike. I understand, because the
decision is not forthcoming from the War Labor Board as promptly
as they want it.

Now, all these figures which we are putting in are figures based on
past experience and past operations, are they not, Mr. Welsh?

Mr. WELSH. Yes, sir.

Mr. WARREN. And the result of these various changes which are
imminent, of course, is going to make the showing infinitely more
serious than it is to-day.

You spoke of the power. I have in mind one company in Massa-
chusetts which had a five-year power contract which ran tuitil the
1st of July a year ago. Now, during the first years of the European
war and the first year of the increased cost of coal, in so far as that
company was buying its power — and it bought two-thirds of it — its
power cost did not reflect the changed conditions at all. The minute
the 1st of July came, however, the price of its power was increased
by that power company to a point where the cost of its power was
$150,000 more per year from the 1st of July than it had been for the
year before, and, of course, that is happening all along the line with
power companies.

Now, Mr. Welsh, will you pass to the next chart? That chart was
C-155. The next chart is marked for identification, " C-134." Now,
Mr. Welsh, this chart shows the cost of labor.

Mr. WELSH. The purpose of this chart is to show the relationship
between the cost of labor as represented by wages and salaries to the
railway operating expense. The increase in both the total expense
and in the cost of labor for each of the census years is indicated and
the sharp increase in 1918 is very noticeable. The approximately
level line representing the percentage of the cost of labor to the total
railway operating expense is the evidence showing how the total op-
erating expense has been the result of the cost of labor. In other

110 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

words, the total expense has increased at a uniform rate with the
cost of labor.

Mr. WARREN, Now, the accompanying statement to the chart shows,
does it not, the salaries and wages for 1912, as well as other census
years and for 1917. Will you state what they were in 1912 and what
they were in 1917 ?

Mr. WELSH. The cost of labor amounted to $200,000,000 in round
numbers in 1912 out of a total of $318,000,000 railway operating ex-
pense, or 63 per cent of the total. In 1917 the cost of labor was
$267,000,000 out of $421,000,000 total, or 63.4 per cent,

Mr. WARREN. That means, does it, that of all the operating ex-
penses almost two-thirds was to pay salaries and wages?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now, your table also shows the year 1918, does it
not?

Mr. WELSH. It does,

Mr. WARREN, And that was made up from your returns from
the—

Mr. WELSH. From the member companies.

Mr. WARREN. From the 345 companies, and then estimated for the
remainder?

Mr. WELSH. Yes.

Mr. WARREN. That shows a slightly smaller proportion of the total
operating expense going for wages and salaries, although as a matter
of fact a good deal more money went to wages and salaries. How
do you account for that ?

Mr. WELSH. There is a falling off of about half a per cent in the
cost of labor as compared with the total cost of operation. However,
it must be borne in mind that the service performed as represented
by the car-mile operated in 1918 fell off somewhat as compared with
1917, and this w^ould be reflected primarily in the item of labor,

Mr. WARREN. And how would the cost of materials affect it?

Mr. WELSH. There has probably been a slightly greater increase in
the cost of materials than in the cost of labor. In fact there has been
a larger increase in the cost of materials than in the cost of labor.

Mr. WARREN, So that would change the relationship ?

Mr, WELSH. That would change the relationship.

Mr. WARREN. Another thing about the cost of wages last year,
while there were very great increases in wages last year, did they
apply to the whole year ?

Mr. WELSH, No. That should be borne in mind, because the de-
cisions of the War Labor Board occurred at various intervals
throughout the year, and therefore the total figures for the year do
not represent the amounts that would have been expended had the
rates been in effect for the entire year.

Mr. WARREN. Roughly, they represent less than half the year, do
they not?

Mr. WELSH. About half, or less than half,

Mr. WARREN. And, as far as you know, was the highest rate per
hour in wages entering into these figures, the 48 cents which I men-
tioned as the War Labor Board's award ?

Mr. WELSH. That is true, except, I believe, in one western company
that pays 50 cents.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. Ill

Mr. WARREN. Two cents an hour more ?

Mr. WELSH. I think an interurban western company ; yes, sir.

Commissioner MEEKER. Would it not be possible to give us some fig-
ures as applying to 1919, showing the labor costs and the percentage
of total operating expenses? That would bring it down more to
date. It would bring before us more accurately the problem that
we are now facing.

Mr. WELSH. Our next chart will do that.

Mr. WARREN. The next chart will do that ?

Mr. WELSH. That is, in rates per hour.

Mr, WARREN. Is there anything further on this chart that you
want to call to the attention of the commission ?

Mr. WELSH. I think not ; no, sir.

Cost of labor — Ratio of salaries and wages to railway operating expense.
(Chart No. 134. — Based on United States census reports.)

Per cent

salaries

Railway
operating
expense.

Salaries and
wages.

and
wages is
of railway

operating

expense.

1918.

$498,516,115

$313,748.577

62.9

1917. .

421,:50, S3S

267, 240, 362

63.4

1912.

318,700,534

200,890,930

63.0

1907

245, 140, 379

150,991,099

61.6

1902. . ...... ..

140,123,844

88,210,165

63 0

Source of information: Tables 5 and 162 of the 1917 advance reports and the 1912 book of the Census
Bureau.

Mr. WARREN. Now, Mr. Welsh, this chart, which is marked
" C-133," indicates what as regards wages ?

Mr. WELSH. This chart is based upon the average rate per hour
paid by companies, somewhat over 60 companies having over 100
miles of single track each. It is on a percentage basis and 1900 is
taken as 100 per cent and the percentage increase over 1906 is shown
for each year up to the present time.

Mr. WARREN. Is that also shown in the table accompanying the
chart?

Mr. WELSH. The table accompanying the chart shows in addition
to the percentage the average rates per hour in cents. The 100 per
cent shown for the year 1906 in the table is taken arbitrarily as the
basis. This chart shows that, comparing 1919 with 1906, there has
been an increase in wage rates of about 93 per cent, the most rapid
increase having occurred from 1918 to 1919.

Mr. WARREN. Then follows a summary of the awards of the Na-
tional War Labor Board.

Mr. WELSH. That is, a part of this exhibit and summary as well
as the individual have been prepared. This summary shows the num-
ber of awards for each of the maximum rates.

Mr. WARREX- It shows the date of the award, the scale granted,
the previous scale, and the per cent of increase ; does it not ?

Mr. WELSH. In the detailed statement; yes, sir.

Mr. WAHUEN. For each company ?

112 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes.

Mr. WARREN. I think the commission will find that fully bears out
Mr. Welsh's statement that the increased wages are reflected in last
year's statements for only a relatively small part of the year.

Have you anything else on that, Mr. Welsh ?

Mr. WELSH. No, sir.

The figures in the tables accompanying Chart C-133 are as fol-
lows :

Summary of awards affecting trainmen granted by War Labor Board.

Maximum rate per hour (cents).

Number of
increases in
wage rates
awarded.

Maximum rate per hour (cents).

Number of
increases in
wage rates
awarded.

46...

46J

42i

47...

50....

44 1

Tctal number of awards, 66.

NOTE.— In some of the above cases several rates were made in one award.

Maximum increase, 71.4 per cent; minimum increase, 7.5 per cent.

Trainmen's w-ages.

(Chart C-133— Based on wages paid by approximately 60 companies having over 100 mfes of track each.
Values given show per cent increase in wages for each year over wages paid in 1903, as reported by com-
panies to American Electric Railway Association.)

Year.

Rate per
hour.

Per cent
increase.

Year.

Rate per
hour.

Per cent
increase.

1906

Cents.
23.03

100.00

1913

Cents.
27.74

120.45

1907

24.11

104.69

1914

28.14

122.23

1908

24.75

107. 47

1915

28.62

124.27

1909 .. .

24.57

106.69

1916

29.25

127.01

1910

25. 85

112.24

1917

31.57

137. 08

1911.

26.10

133. 33

1918...

33.92

147. 29

1912 .

26.89

116.76

1919

44.43

192.92

NOTE.— The rate per hour is the average rate of all companies reporting, based on that paid to men oldest
in the service.

Summary of awards of National War Labor Board.

Name of company.

rate of
award.

Scale
granted.

Previous
scale.

Per cert
increase.

Atlanta Northern Rv. Co., Atlanta, Ga

Dec. 5, 1918

Cents.
40

Cents.

Auburn & Syracuse Electric R. R. Co., Auburn, N. Y

Nov. 21,1918

C'itv lines

35 5

33 3

35J

Bav State Street Ry Co Boston Mass

Dec. 4, 1918

40i

11 1

Boston Elevated Rv Co Boston Mass

Oct. 2, 1918

Surface lines motormen and conductors

37J

28.0

Rapid Transit lines —

39i

26 6

44}

30.9

Brakemen

42i

30}

40.5

Boston & Worcester Street Ry. Co., Boston, Mass

Jan. 15,1919

39§

18.5

Buffalo & Lake Erie Traction Co. , Buffalo, N. Y

Dec. 5, 1918

36.4

Butte Electric Rv. Co., Butte, Mont

Nov. 21,1918

53}

22.4

Charleston Consolidated Railwav& Lighting Co., Charles-
ton. S. C...

Nov. 20,1918

42.9

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 113
Summary of awards of National War La&or Board- -Continued.

Name of company.

Tate of
award.

Scale
granted.

Previous
scale.

Percent
increase.

Chicago elevated railways, Chicago, 111

July 31,1918

Cents.

Motormcn, regular

22 0

Motormen, extra

Conductors, regular

26.5

Conductors, extra

Guards, regular

29.0

Guards, extra ..

East St. Louis, Columbia & Waterloo Ry. Co., East St.
Louis, III

Nov. 21,1918

East St. Louis lines (East St. Louis & Suburban Rv.,
Alton, Granite & St. Louis Traction Co., and East St.
Louis Rv.), East St. Louis and Alton, 111

July 31,1918

City lines '

45.2

Interurban lines

42.4

Empire State Railroad Corporation Syracuse, N. Y

Nov. 21,1918

"City lines r " . '.

31J

33.3

Interurban lines

33i

34.3

Evanston Ry Co. Evanston 111 .

July 31 1918

15.4

Galesburg Railway, Light & Power Co., Galesburg, 111
Georgia Railway & Power Co., Atlanta, Ga
City lines

do
Dec. 5,1918

42
}..

23
/ 32"

61.5
"~"25."6

I 34

17 6

International Rv Co. Buffalo, N. Y

July 31,1918

41.2

Freight service —
Engineers

Conductors

Brakemen

Joplin & Pittsburg Rv. Co., Pittsburg Kans . . . .

July 31 1918

20.0

Kansas City Rvs. Co., Kansas City, Mo

Oct. 24,1918

Kansas division

)

/ 33

45.5

Missouri division-

I 38

25.3

Knoxville Railway & Light Co., Knoxville, Term

Jan. 15, 1919

37.9

Lewiston, Augusta & Waterville Street Ry. Co., Lewis-
ton Me

Nov. 20 1918

38.7

Louisville & Interurtan R. R. Co., Louisville, Ky

Feb. 4, 1919

Louisville Rv Co. Louisville Ky

City lines

}..

f 38

18.4

\ 39

15.4

Memphis Street Rv. Co., Memphis, Tenn

Oct. 24,1918

42.9

Chicago surface lines, Chicago, 111

July 31,1918

23.1

Chicago & West Towns Rv. Co., Chicago, 111

. ..do

23.1

Cincinnati & Columbus Traction Co., Cincinnati, Ohio
Cincinnati, Lawrenceburg & Aurora Electric Street R. R.
Co., Cincinnati, Ohio

Nov. 22,1918
do

45
45

37
37

21.6
21.6

Cincinnati, Milford & Loveland Traction Co., Cincinnati,
Ohio

31.3

City Ry Co. Dayton Ohio

Oct 24 1918

32.4

Cleveland & Eastern Traction Co., Cleveland, Ohio

July 31,1918

20.0

Cleveland & Erie Ry. Co. Girard, Pa

Feb. 4 1919

30.3

Cleveland, Painesville & Eastern R. R. Co. and Cleve-
land, Painesville & Ashtabula R. R. Co., Willoughby,
Ohio

July 31,1918

20.0

Cleveland Ry. Co., Cleveland, Ohio

37.1

Cleveland, Southwestern & Columbus Ry. Co., Cleve-
land. Ohio

...do...

31.3

Columbus Railway, Power & Light Co., Columbus, Ohio..
Cumberland County Power & Light Co., Portland, Me —
Dayton Street Ry. Co., Davton, Ohio

do
Nov. 20,1918
Oct 24 1918

31
33

45.2
36.4

Day men

}..

/ 34

32.4

Night men

4.5

\ 33

Denver & Inter-Mountain R. R. Co., Denver, Colo

Nov. 20,1918

41.2

Denver Tramway Co., Denver, Colo

20.0

Detroit United Ry. Co., Detroit, Mich

July 31,1918

20.0

New Orleans Railway & Light Co., New Orleans, La
New York State Railways, Rochester, N. Y

do
do

24J

71.2

City lines

37J

20.0

25.4

Oakwood Street Ry. Co., Dayton, Ohio
Day men

Oct. 24,1918

1 "AH

/ 34"

"*32."4

} 45

\ 33

Ohio Electric Ry. Co. Lima Ohio ..

Jan. 15, 1919

Lima city lines. . .'. '.

27.3

Jan. 15,1919

12.5

City lines

27.3

Inter urban lines...

12.5

114 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.
Summary of awards of Natiotuil War Labor Board — Continued.

Name of company.

rate of
award.

Scale
granted.

Previous
scale.

Per cent
increase.

Ohio Electric Railway Co., Springfield interurban lines,
Springfield, Ohio

Jan. 15, 1919
...do...

Cents.
45

42
45
42
46
42

42
45
45

Cents.
40

33
40
31
34

12.5

27.3
12.5
35. 5
35.3

Ohio Electric Railway Co., Zanesville lines, Zanesville,
Ohio

Omaha & Council Bluffs Street Ry. Co., Omaha, Nebr
Ottumwa Railway & Light Co

July 31,1918
Dec. 5, 1918
Apr. 10,1919
July 31,1918

...do...

Pacific Gas & Electric Co., Sacramento, Calif

Pennsylvania-New Jersey Ry. Co., Trenton, N. J

Peoples Ry. Co., Pennsylvania-New Jersey Ry. Co., Tren-
ton. N. J

Peoples Ry Co , Dayton, Ohio

Oct. 124,1918
do

32
37

40.6
21.6

11.1

Philadelphia Railways Co., Philadelphia, Pa

Portland Railway, Light & Power Co., Portland, Oreg.:
City lines .-

...do

Interurban I ines

Nov. 21,1918

Passenger trainmen ,

56
60
47
59
60
45
50
43
48
42
45

48}

11.3

Freight trainmen —
Express, local freight, and day yard crews

Night yard crews

Passenger and freight brakemen

Day yard crews . .

Night yard crews

Public Service Ry. Co., Newark, N. J

July 31,1918
June 25,1919
Feb. 4, 1919
Oct. 2,1918
Feb. 4, 1919
Apr. 10,1919
do

40
45
40
37
32
38

12.5
11.1
7.5
39.7
31.3
18.4

One-man car operators . . ... . .

Reading Transit & Light Co., Reading, Pa

Rhode Island Co.. Providence, R. I

St. Joseph Ry Light & Power Co., St. Joseph, Mo. .

San Diego Electric Ry. Co , San Diego, Calif: . .

San Francisco- Oakland Terminal Rys., Oakland, Calif. . .

City lines

48
'50

48
42

42
45

14.3
11.1

Interurban lines

Brakemen

Savannah Electric Co., Savannah, Ga

Dec. 17,1918
July 31,1918

40.0

Schenectady Ry. Co., Schenectady, N. Y

City lines.

46J
45
45
42

37J
39
32

20.0
19.2
40.6

Interurban lines

Scranton Railway Co., Scranton, Pa

July 31,1918
Nov. 21, 1918
....do

Syracuse & Northern Electric Ry., Syracuse, N. Y

Syracuse & Suburban R . R . Co. , Syracuse N. Y

32}

29.2

Toledo, Bowling Green & Southern Traction Co., Findlay,
Ohio.

Dec. 5, 1918

City lines

42
43

46
40

32
33

38
36}
34

31.2
30.2
21.1
9.6
23.1

Interurban lines .

Toledo Railways & Light Co. Toledo, Ohio

May 27,1919
July 31,1918
Mar. 25,1919

United Traction Co , Albany, N. Y

Washington Ry. & Electric Co., Washington, D. C

Mr. WARREN. If the commission does not wish to ask anything, I
will pass to the next chart, which is marked for identification,
" C-136, cost of material."

Commissioner WEHLE. Would it not be useful in connection with
this statement to have a list of the 60 companies ?

Mr. WARREN. I think we could furnish that.

Mr. WELSH. Yes; I could furnish that.

Commissioner WEHLE. You might make a note of it.

Mr. WARREN. Now, Mr. Welsh, this chart which is marked " cost
of materials," indicates what, with its accompanying table?

Mr. WELSH. This chart shows the cost of materials for each of
the census years. That is not shown as a direct item in the census
reports, but has been estimated on the following basis : We have de-
ducted the annual expenses from the total operating expense cover-
ing the cost of labor, the purchase of power, insurance, and other mis-
cellaneous items which are found by analysis not to contain cost of
materials. In this way the estimated amounts have been determined
and plotted.

Commissioner MEEKER. Will you restate that, please?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 115

Mr. WELSH. I will state this: That on the second table the exact
method of determining this estimated amount for material is shown.
It consists in deducting from the total operating expense the cost
of labor as shown by salaries and wages, purchased power, injuries,
and damages, and certain other miscellaneous items as indicated,
leaving what is believed to be a net result containing as nearly as
possible the cost of material,

Mr. WARREN. In other words, you have endeavored to take out of
your operating expense everything of any other nature than ma-
terials and supplies?

Mr. WELSH. Exactly.

Mr. WARREN. And assuming that you have done that correctly,
what is the result shown ?

Mr, WELSH, One interesting feature is the falling off in the per-
centage between 1907 and 1912 in the <x>st of materials, as compared
with the total cost. This is probably due to the increased purchase
of power during that same period as the result of which the cost of
coal, wliich previously had been included as a material expense, is no
longer present. This chart shows that at the present time about 23
per cent of the operating expense is material.

Mr. WARREN. Where does the cost of power purchased enter in
the operating expense, Mr. Welsh ?

Mr. WELSH. It is a part o2 the total item of cost of power.

Mr, WARREN. But it is itemized so it can be segregated?

Mr. WELSH. Oh, yes ; it is segregated in the census report.

Mr. WARREN. You have not the cost of material for 1918, hare you ?

Mr. WELSH. No, sir; we did not have sufficient data to make an
estimate.

Mr, WARREN. It might interest the commission, if I may refer, not
as a witness, but to something within my own experience in a recent
rate case in Massachusetts on this cost of material. I asked the
company which I represented to take their material and supply
quantities for last year, 1918, the actual quantities of various sup-
plies which they used, with the cost of them, and to apply to those
quantities the prices prevailing in 1914 and then to take the per cent
of the increase. They gave me a schedule which was introduced in
the case and which was not, as I recall it, controverted by anybody,
and if it was correct it indicated an increased cost of the materials
actually used by that company in 1918 over what they would have
cost in 1914 of 105 per cent. And as far as I was able to ascertain,
it was accurate ; at any rate, it indicated a very large increase. And
I think, as I recall it, the commission in its decision adopted that
figure and referred to it.

Is there anything else on that chart?

Mr. WELSH. I think not.

116 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The statement accompanying Chart 136 is as follows :

Cost of materials.
(Chart 136. — Based on U. S. census reports.)

Cost of material and
supplies.

Ratio of cost of
material and
supplies to
operating ex-
pense.

Per cent increase
In cost of ma-
terials and sup-
plies over prior
census.

1917

$101,613,415

Per cent.
23.12

38 9

1912

75,271,556

22.61

13.3

1907

67,025,418

26.67

72 7

1S02

38 811 232

27.28

NOTE.— Above information collected from census figures as follows:

1. Operating expense figures from Table 2, 1917, and Table 5, 1912.

2. Cost of materials and supplies considered as that portion of the operating expense remaining after
deduction of following items:

(a) Salaries and wages: Table 2, 1917, and Table 5, 1912.

(ft) Purchased power: Table 104, 1912, and advance sheet for 1917 corresponding to Table 163 for 1912.
Figure used for 1917 is difference between "Power purchased and exchanged" and credit entry for same
item. This apparently taken into account for other years in Table 104 in 1912 book.

(d) Injuries and damages: Same source as item 6 — used three-quarters of amounts given as representing
other items than materials and supplies.

(e) Total rents: Same source as item b except year 1902 where for "rent of equipment" (which was not
reported separately) 0.288 per cent of total operating expense was used which was percentage for 1907 given
in 1912 book. (1907 book figures differ.)

(/) Stationery and printing: Table 104; 1912, except for year 1917 where this item was probably included
In general expenses under general and miscellaneous. Therefore estimated for 1917 as 2 per cent" of general
and miscellaneous which was percentage for all other years.

(a) Depreciation of ways and structures: Same as item b except no data for 1907 or 1902.

(A) Depreciation of equipment: Same as item c except no data for 1907 or 1902.

Detailed figures showing total reductions for obtaining cost of materials and

supplies.

' '

Railway
operating
expense.

Total
deductions.

Cost of
materials and
supplies.

Salaries
and
wages.

Purchased
power.

Insurance.

1917

$452,594,654
332,896,356
251,309,252
142,312,597

$347,981,239
257,621,800
184,283,834
103,501,364

$104,613,415
75, 271, 556
67,025,418
38,811,232

$267,240,362
200,890.939
150,99i;099
88,210,165

» $37, 757, 963
24,696,647
12,342,258
3,871,518

$3,101,407
3,151,576
3,137,071
2,080,875

1912

1907

1902

Injuries and
damages (three-
quarters of total).

Total rents
(tracks, facili-
ties and
equipment).

Stationery
and printing.

Depreciation
of ways and
structures.

Depreciation
of equipment.

1917 ....

$17, 807, 473
17,530,970
13, 632, 229
7,046,659

$7,152,823
4, 873, 359
3,342,615
i 1, 795, 766

» $1,284, 000
1,105,422
838,562
496,381

$6,800,348
3,705,511

$8.836,863
3,670,376

1912

1907

1902

1 See notes for each respective item on sheet accompanying this.

Mr. WARREN. The next exhibit which we wish to introduce, Mr.
Chairman, but of which we have not the extra copies at the moment
to supply the members of the commission, I will read into the record.
It is the United States Department of Labor, Bureau of Labor Sta-
tistics, Monthly Labor Review, volume 8, No. 6, page 97, which I
imagine is fairly familiar to one member of your commission, be-
cause I notice his name on it as the commissioner under whose direc-
tion it was prepared. This table on page 97 shows wholesale prices
in the United States and certain foreign countries, and the Bureau

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 117

of Labor Statistics treating 294 commodities showed for March,
1919, the figure 200. That I should like to consider as in the case,
and we will endeavor to get copies of that publication for all the
members of the commission.

Mr. Pardee suggests that probably the commission will take judi-
cial notice of that publication anyway, in view of the circumstances
of its editorship.

Now the next chart, please. The next chart relates to the taxes and
is marked for identification " C-122."

Mr. WELSH. This chart shows the total amount of direct taxes for
each of the census years and also the percentage of operating ex-
pense which I believe is in answer to one of the previous inquiries.
The percentage of operating expense has run in the neighborhood of
10 per cent, fluctuating somewhat from this figure with a very slight
decrease in 1918 as compared with 1917. This may be accounted
for by the fact that while the taxes in amount have actually in-
creased in 1918 over 1917, the total operating expense has increased
in so much greater proportion that the percentage of taxes com-
pared to the total operating expense is somewhat less that year. We
also show a segregation of the total taxes between the tax on earn-
ings and capital and the tax on real and personal property. This
is as shown in the census report.

Mr. WARREN. And as it appears in the statement annexed, in five
years from 1912 to 1917, total direct taxes went up from about
$35,000,000 to $45,756,000?

Mr. WELSH. Yes.

Mr. WARREX. And you have estimated them for 1918 at $49,-
496,000 ?

Mr. WELSH. Yes, sir.

Mr. WARREX. They have gone up from $35,000,000 in 1912 to $45,-
750,000 in 1917 and to about $49,500,000 in 1918 ?

Mr. WELSH. Yes.

Mr. WARREX. Does that total take in any of the indirect taxes or
burdens in the nature of paving, repairing bridges, and that sort of
thing?

Mr. WELSH. It does not. That is shown on a later table.

Mr. WARREX. These are money payments paid directly as taxes?

Mr. WELSH. These are moneys paid to the Federal, State, and
municipal governments.

Mr. WARREX. Was there anything else on that statement ?

Mr. WELSH. No.

The statement accompanying Chart No. 122 is as follows :

Taxes of electric railways.
(Chart No. 122— based on U 8. census reports.)

Item.

1902

1907

1912

1917

1918

Taxes(total)

$13,078,899

$19,775,602

$35,027,966

$45 756 695

$491 496

On real and personal property

5, 835, 542

9,464,016

15,65S,239

21,S04,619

On earnings, capital and other

7,243,357

10,310,986

19,389,7%

23,952,076

Perceft t of operating expenses

9.19

7.87

10.55

10.11

9.93

D 3. census Table 113, p. 254, 1912.

118 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner WEHLE. How much of the increase in taxes is trace-
able to higher valuations and how much to additional capital in-
vestment ?

Mr. WELSH. It would appear from the chart as half — roughly they
are about half and half.

Mr. WARREN. That really would not be so, would it, Mr. Welsh ?
You have segregated it into real and personal property and there
the increase for 1912 to 1917 is from $15,658,000 to $21,804,000. Do
you think that in those five years the companies added enough prop-
erty to represent such an increase as that ? I know in Massachusetts
they did not, because they could not get the money to do it.

Mr. WELSH. That rate of increase is apparently higher even than
in the case of the tax on earnings, where the increase was from
$19,000,000 to $24,000,000.

Mr. WARREN. Is not this probably the explanation, that the rate
of taxes has gone up in nearly all the communities?

Mr. WELSH. I think that is undoubtedly true.

Mr. WARREN. On real and personal property ?

Mr. WELSH. Yes.

Mr. WARREN. It has in Boston. In Boston the city has had to go
to the legislature both last year and this year to get the tax limit
which is permissible under the statute raised, so that they could
assess a higher percentage on property. The taxes have increased
very much there.

Commissioner WEHLE. Of course the increase in rate of tax cer-
tainly would account for part of this increase in the total amount of
taxes paid, but would it not perhaps render this statement more val-
uable if we also had accompanying it a statement of the additional
capital that had been invested ?

Mr. WARREN. During that period ?

Commissioner WEHLE. During that period, and some estimates per-
haps, if it could not be had in a better way than an estimate, of the
increased valuation of the property which is being taxed. It seems
to me that the total of the tax itself is not of great service to us unless
it is analyzed in some such way.

Mr. WARREN. Yes, I think that suggestion is a good one and we
will try — Mr. Welsh thinks he can furnish it and we will endeavor
to do so.

Now the tax on earnings, capital and other items, Mr. Welsh, be-
tween 1912 and 1917. I suppose the Federal tax is reflected in there
almost entirely, is it not?

Mr. WELSH. Yes, sir.

Mr. WARREN. 1 think that the commission would find — and if we
can get the information we shall furnish it — that the local taxes or
the State taxes on capital and earnings have diminished in that five-
year period. I happen to know that is true in Massachusetts, where
our taxation on capital is largely a franchise tax. It is based on the
market value of the stock in the aggregate from which is deducted
the aggregate amount of real and personal property taxed in the dif-
ferent communities. The balance is taxed at the State rate and paid
through the State tax authorities. Now in those five years the securi-
ties or stock of the street railways has depreciated to such an extent
that in almost no case, I think probably not in any case whatever ex-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 119

cept some leased roads, is there any market value left to the stock suffi-
cient to produce any margin between the aggregate market value of
the stock and the property taxed locally; and various companies
which five years ago paid a large franchise tax to-day are bearing no
franchise tax because it is based on that market value of the stock,
and the market value has dropped to such an extent that stocks which
five years ago were sold in the market at $100 or $125 and in some
cases $150 to-day are selling at anywhere from $20 to $72 a share ; and
of course that drop has wiped out the franchise tax ; but in the mean-
time the Federal tax has come in at an increased rate.

If that is all on that chart, we will pass to the one marked for
identification, " C-132,"

That last chart was based on the census, was it not ?

Mr. WELSH, Yes, sir,

Mr. WARREN. With the exception of the last year, 1918 ?

Mr. WELSH. Yes,

Mr. WARREN. And that was estimated as you have explained ?

Mr. WELSH. Yes.

Mr. WARREN. This chart is not based on the census, is it?

Mr. WELSH. To some extent; it is based partly on the census and
partly in response to an inquiry sent out to all companies to obtain
the cost of their paving and other imposts, such as free transportation
of employees, cleaning and sprinkling of streets, removal of snow
and ice and various other items —

Mr. WARREN. Strengthening bridges?

Mr. WELSH. Strengthening bridges.

.Mr. WARREN. And rebuilding bridges and eliminating crossings?

Mr. WELSH. And tolls over bridges that are free to the general
public and other imposts of a general character that are imposed upon
electric railways.

Mr. WARREN. When you say free transportation of employees you
moan of public employees?

Mr. WELSH. Or municipal emplo3<ees. This questionnaire covered
the period from 1912 to 1916, that period having been chosen be-
cause it was believed to be more typical than the present time as
representing a more normal situation before the war. The result of
that is shown in this curve next to the bottom which represents the
total amount of these various imposts in dollars, from which it is
seen that during the maximum period in 1914 they amounted to
about $22.000,000 or about 3£ per cent of the gross earnings.

Since 1914 there has been a falling off in these expenditures con-
tinuously resulting because of decreased work of this public charac-
ter since the war started.

This chart also shows the direct taxes plotted on the previous chart
and. in this case, the percentage of direct taxes to the gross earnings.
From this chart it appears that the total imposts and taxes amount
to about 10 per cent; 6£ per cent for the direct taxes and about 3^ per
cent for the indirect.

Commissioner BEALL. Would it not be well to bring out before the
commission the fact that while that is the average of the companies,
in the bigger cities it is very much more than that? That is one of
the principal troubles of the large companies — the paving and other
taxes which are imposed, which are very much greater than in the
smaller communities. And I want to ask you, does it not run up as

120 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION,

high as 10 and 15 per cent of the gross in some of the larger com-
panies in the big cities?

Mr. WELSH. I think in some of the larger companies that will be
found to be the case.

Commissioner BEALL. The reason I want to make that statement
is so the commission will understand in some of the small companies
the paving is not such a problem but in the big companies it is one
of the principal things which has contributed to their present con-
dition.

Mr. WELSH. That is true, and of course another thing which might
be properly charged here is the return on additional construction
which is not contained here, this being in every case the actual
expenditures of the companies. Of course, you will understand these
items are included in operating expense. This is the only additional
item from operating expense.

. Commissioner MEEKER. Would it be possible to submit tables show-
ing the paving costs and these other imposts in railway companies
operating in large urban communities?

Commissioner BEALL. I believe that is very advisable, Mr. Welsh.
Take cities of say 100,000 and up.

Mr. WELSH. I may say that this is based upon replies from, I be-
lieve, 214 companies.

Commissioner BEALL. Well, a great many of those companies are
interurban, are they not? They have practically no paving at all
unless they also have an urban system.

Mr. WELSH. Undoubtedly

Commissioner BEALL. But a great many of those companies come
into big centers over another company's lines.

Mr. WELSH. Yes. We can prepare that, can we not?

Mr. WARREN. I think we can prepare that.

Commissioner GADSDEN. Make a table of certain typical companies
in certain cities.

Mr. WELSH. Yes.

Commissioner BEALL. In making up this chart on the cost of pav-
ing has there been any attempt made to separate the cost of comply-
ing with the requirements of the contract with the city as to the gen-
eral street improvement from the cost of actually maintaining the
structure and right of way in ways that the railroad company would
have to adopt even in the absence of any such agreement ?

Mr. WARREN. I understand that this inquiry was confined to the
paving cost which was not incident to the maintenance of the rail-
way. Is not that so, Mr. Welsh ?

Mr. WELSH. That is true, and we should and can submit the form
of questionnaire which will show in detail just the items included in
this total cost of the various imposts.

Commissioner WEHLE. Then this curve on Chart 132 entitled
" Paving and other imposts," in so far as it relates to paving,
is based upon estimates in which the cost of complying with that
part of street construction which has no reference to the actual main-
tenance of the railroad is separated from such part of the cost of
street construction and repair as has reference to it and as would
necessarily have to be incurred by the road in any event as an operat-
ing proposition?

Mr. WARREN. I think that is true in the questionnaire.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 121

Commissioner WEHLE. I wonder whether — in connection with that
chart, C-132 — if it is convenient, the form of that questionnaire
could be filed ?

Mr. WARREN- Yes; we can file it.

Commissioner BEALL. Why not read it right now?

Mr. WARREN. While Mr. Welsh is looking for that I might say
that this item properly is a good deal larger than it is shown here, at
least as indicated by one of the commissioner's questions.

Commissioner BEALL. Yes ; I know one company that spent $4,000,-
000 in one year.

Mr. WARREN. Yes; you see this includes a large number of roads,
some of them interurban lines and some rural roads where the track
is not laid on the highway but out on the side in the grass and there
is no paving cost whatever, but yet the paving cost averaged over all
those roads amounts to this amount.

In Massachusetts we have a tax which runs approximately 2^ per
cent of the gross receipts which is called, or miscalled, a commutation
tax. It is levied as an intended substitute for this highway work
not incidental to taking care of the track but because of the former
imposition or requirement of the law. In addition to that, however,
many of the companies have spent a great many thousands of dol-
lars a year on this very same kind of work, because the local authori-
ties have met a request for a new turn-out or for a shifting of tracks
or for some other concession which the company wanted for better
service, with a suggestion that they would grant it if the company
would pave a certain piece of track or change the pavement to con-
form to something that the city had been putting in. So there is no
doubt that this item — in my judgment — is very much below the actual
fact. And of course, as Mr. Welsh said — and you will correct me if
this is not right, Mr. Welsh — this is merely the annual expenditure on
paving from year to year and does not include the paving connected
with the construction of track at all, does it?

Mr. WELSH. As indicated here; yes, sir.

Mr. WARREN. On the cost of which the company, of course, is pay-
ing interest. Years ago in Boston it used to cost about $7,000 a mile
for block paving the track. I presume now it costs much more. That
went into the capital and is one of the reasons why the capital cost
of street railways is so high as compared with other railroads.

This is the questionnaire that was sent out: In State taxes — first
the kind, then the basis, then the cost for the five fiscal years, 1912 to
1916, inclusive, and the total. City taxes — franchise, school, gross re-
ceipts, car, pole, wire, real property, cars for each year, and the total.
Federal taxes — left blank in the first column. Apparently they
thought it was not safe to specify, because they could not tell what
they would be from day to day.

Other State, county, or municipal requirements — paving; please
check extent of requirement; construction cost between tracks only;
blank feet outside tracks, full width of street; maintenance cost;
maintenance cost is against those last three items; cleaning streets;
sprinkling; snow and ice removal from surface other than between
tracks — in other words, the company takes that as part of its oper-
ating expenses— -clearing its own tracks — free municipal lighting;
free transportation, State, municipal, or Federal employees; bridge
or viaduct tolls or repairs, free to others; special crossing policemen j

160643°— 20 9

122 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

gross earnings, railway operation only ; operating expenses, excluding
taxes; total car-miles operated. If company is subject to any tax or
requirement not listed above, plea.se indicate below in detail.

I will ask to have this marked " Filed."

(The paper was marked " Filed.")

Mr. WARREN. Have you extra copies of this?

Mr. WELSH. We can very readily get them. I do not think we
have enough this afternoon,

Mr. WARREN. I will leave this one now before the Commission and
we will furnish the others as soon as we can obtain them.

Is there anything else that ought to be called to the attention of
the board on that chart? ,

Mr. WELSH. I do not think so.

The statement accompanying Chart C-132 is as follows:

Paring and " other imposts " and taxes for all electric railways of the United

States.

(Chart C-132— Based on replies from 214 companies (D. S. 182) and census reports.)

1912

1013

1914

1915

Taxes

JM, 027, 965
15,068,414

$38,780,938
21,372,414

$41,139,955
21,536,481

$40,761,586
20,442,519

Paving and otherimposts

Total

40,086,379
585,930,517
5.98

2.57

60,153,352
640,857,949
6.05

3.33

62,676,436
647,350,574
6.36

3.32

61,204,105
636,719,681
6.40

3.21

G ross earnings. ..

Taxes of per cent of gross earnings

Paving and other imposts, per cent of gross
earnings. .

1916

1917

1918

Taxes

$43, 633, 934
18,472,989

$45, 756, 695
17,522,593

$49,496,334
16,065,000

Paving and other imposts .. . ...

Total

62,106,923
688,968,612
6.35
2.68

63, 279, 288
730,108,040
6.27
2.40

65,5(51,334
765,000,000
6.47
2.10

Gross earnings. . .

Taxesof percent of gross earnings -.

Paving and other imposts, per cent of gross earn

ings

Mr. WARREN. You spoke of the amount of this paving and other
imposts falling off because of the diminution in the amount of public
work being done. You mean owing to the war the municipalities
themselves have been doing less work ?

Mr. WELSH. Yes.

Mr. WARREN. And it is usually in connection with their public
work that this requirement increases?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now, if you will, pass to the next chart.

The CHAIRMAN. Will you follow this with someone who will tes-
tify more specifically with regard to the different forms of taxation
and the cost of it and the effect it has on the stability of the industry ?

Mr. WARREN. The different forms more specifically?

The CHAIRMAN. Yes.

Mr. WARREN. Yes, we hope to call an expert of pretty wide reputa-
tion on that subject. I might say we are trying to get these statistics
before the commission as a basis upon which we can call the experts
for the various specific points like that.

Now the next chart, Mr. Welsh, is marked " C-138." This chart is
marked " Economies in Operation." What does that show ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 123

Mr. WELSH. We have taken three measures of general economies
in operation, the first being the revenue passengers per passenger car
based upon the United States census reports.

There has been a very remarkable increase in this from the year
1902 to 1912. That represents probably a number of different things.
The thing that first occurs to you is a greater crowd in the cars. Un-
doubtedly to some extent that has taken place. The size of the car
body has also increased during this period, making a larger unit in
which passengers are handled. To some extent there has undoubt-
edlj" been an increase in traffic at other times during the day to take
care of this, so that it represents in general an increased use of the
plant and equipment of electric-railway properties and therefore is in
the nature of an economy.

This is further illustrated in a different way in the bottom curve,
which represents the service performed by each car and shows the
revenue car-miles per passenger car increasing at an approximately
uniform rate from the earliest period to 1917. This in some measure
may be accounted for by fitting the service more accurately to the
traffic. This would be represented by an improvement in car sched-
ules so that each car is able to perform more effectively its service.
The introduction of such plans as turn-back service would result in
a greater car mileage per car, for example. And therefore this, we
believe, is indicative of an improvement in operating management
throughout this period.

The middle curve, representing the revenue car-miles per mile of
track, is possibly a measure of the density of traffic and may to some
extent show the result of extensions in outer districts that have oc-
curred during this middle period here, over which portions of track
the density of service is, of course, less than in the more congested
districts, this curve here being practically uniform throughout the
entire period.

Mr. WARREN. Summarizing the chart generally, you would say that
it rebutted the suggestion that the increase in your expense of opera-
tion was due to extravagant or ill-considered operation, would you?

Mr. WELSH. Yes, sir.

Mr. WARREN. Because it shows you are getting more out of your
cars ?

Mr. WELSH. It shows an increased use of plant and equipment.

Mr. WARREN. That is all on that, Mr. Welsh?

Mr. WELSH. Yes.

The statement accompanying Chart 138 is as follows:

Economies in operation.
(Accompanying chart 138.)

Year.

Revenue
car-miles per
passenger car.

Revenue
car-miles per
inile of track.

Revenue
passengers
per passenger
car.

1890 .

'11,788

'47,172

'62,20<>

1602 ...

'IK,! S2

» 50, 701

' 79.187

1907

>23 105

»47 053

» 10»i 277

J012 .... .

»2.">,231

« *>, 79«

•125,332

1817

» 2ti, 770

•47,726

>141,4t><>

1918

<2G,2»1

« 44, 930

<142,04S

' U. 8. Census Report, 1902, p. 6, Table 1.

M . 8. Census Report, 1912, p. 186, Table 5.

• Advance report, Table 5.

« Estimate of capital, etc., 1918; based on data sheet 191, American Electric Railway Association.

124 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. The next chart is marked " C-103, Income accounts
of electric railways." Now, Mr. Welsh, what does this chart show?
I suggest that in connection with the chart you look at the accom-
panying table so you can give the figures as well as referring to the
lines on the chart.

Mr. WELSH. With this chart we start at the net operating revenue,
which was the point which we left off in comparing the income ac-
counts in the previous charts.

Mr. WARREN. That means the money which is available after you
have paid your operating expenses for running the road, does it not ?

Mr. WELSH. Exactly. It represents the net difference by deduct-
ing the operating expense from the operating revenue. This shows a
uniform increase in the operating revenue up to 1912, and from 1912
to 1917 the rate of increase has notably fallen off as indicated in the
chart, whereas from 1917 to 1918 there has been an actual decrease in
the net operating revenue.

Mr. WARREN. That decrease is from $228,898,000 to $192,615,000 ;
is it not ?

Mr. WELSH. Yes, sir.

Mr. WARREN. As appears on the table ?

Mr. WELSH. Yes.

Mr. WARREN. From that operating revenue under the system of
accounting what do you first deduct?

Mr. WELSH. The net operating revenue is available for the fol-
lowing items: The deductions from income— I should first say for
taxes

Mr. WARREN. Taxes come out first?

Mr. WELSH. Taxes come out first, and they are represented as in-
creasing at an approximate uniform rate throughout the period.

The next deduction is known as the deductions from gross income
which also have run at about a uniform rate until 1912, at which
point the rate decreases. This leaves what is known as the net in-
come. I should say, however, that inasmuch as this is the net operat-
ing revenue from railway operation, before you arrive at the net in-
come it is necessary to add the net revenue from auxiliary operations
and the nonoperatmg income, and that has been* done as indicated in
the Census reports and that is in accordance with the Interstate Com-
merce Commission's classification methods. I wanted to explain that
this net income was not the arithmetical difference by deducting taxes
and deductions from gross income from the net operating revenue.

Mr. WARREN. Because you first have to add these miscellaneous
sources of income ?

Mr. WELSH. Yes, sir.

Mr. WARREN. Which are not the result of operating the railroad ?

Mr. WELSH. The net revenue from auxiliary operations is shown
on this chart, and it is rather interesting to note that it has through-
out this entire period, even including 1918, increased in amount,
whereas the net revenue from railway operations has gone through
the cycle indicated here, showing that the auxiliary operations which
include such things as operation of inclined planes, ferryboat service,
or any other transportation activity that a company may be engaged
in — it may also include some small power business.

Mr. WARREN. Now, Mr. Welsh, take, on your statement accom-
panying this chart, these figures for 1918, and explain to the com-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 125

mission just how they should be treated to reach your net income.
The first item I notice here is net operating income, $192,000,000. Is
that before or after the taxes have been deducted?

Mr. AYELSH. That is before the taxes have been deducted. The
next operation is the deduction of taxes amounting to

Mr. WARREN. In other words, subtract $49,000,000 taxes from
$192,000,000 operating revenue?

Mr. WELSH. Yes."

Mr. WARREN. The next is to add the net revenue from auxiliary
operations ?

Mr. WELSH. Yes.

Mr. WARREN. $30,000,000?

Mr. WELSH. Yes.

Mr. WARREN. And then from that result you subtract your de-
ductions from income; is that right?

Mr. WELSH. Before that you also add the nonoperating income,
which is not shown here.

Mr. WARREN. You add that as well as the auxiliary operations ?

Mr. WELSH. Yes.

Mr. WARREN. Then you subtract your deductions from income ?

Mr. AYELSH. Yes, sir.

Mr. WARREN. Which is $180,000,000?

Mr. WELSH. Yes.

Mr. WARREN. And that consists of rentals for leased lines and,
principally, of interest on funded and unfunded debt, does it?

Mr. WELSH. Yes, sir.

Mr. WARREN. And the residuum after that subtraction is what is
available as a dividend on the stock?

Mr. WELSH. It is what is known as net income or loss, and that
item is usually divided into either dividends, if it is a net income,
and a surplus, or it may be a loss.

Mr. WARREN. But if it is not a loss, if you have not made a loss,
at that point that is the only fund available for dividends on the
stock ?

Mr. WELSH. Yes.

Mr. WARREN. And in this case in 1918 that amount was $20,000,000.

Mr. WELSH. Yes.

Mr. WARREN. For all the street railways?

Mr. WELSH. Yes.

Mr. WARREN. As against $56,000,000 in 1917. Do you know what
that figure was in 1916?

Mr. WELSH. No, I do not.

Mr. WARREN. You do not remember that it was about $70.000,000.

Mr WELSH No, I do not.

Mr. WARREN. Have you anything that you could check that up by?

Mr. WELSH. We could get it, but I do not have the figure.

Mr. WARREN*. Assuming it was $70,000,000, that means in two
years the net income or the amount available for dividends or for
surplus or reserve has run down from $70,000,000 to $20,000,000?

Mr. WELSH. Yes.

Commissioner GADSDEN. This net income in 1918 of $20,000,000
does not include more than about 50 per cent of the labor increases
growing out of the decisions of the War Labor Board, does it?

Mr. WELSH. I think that is true; yes, sir.

126 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner GADSDEN. What were those increases estimated at
for the industry?

Mr. WELSH. Around 33 per cent.

Commissioner GADSDEN. In dollars and cents?

Mr. WARREN. About $100,000,000, was it not?

Mr. WELSH. About $100,000,000; yes, sir.

Commissioner GADSDEN. Between one hundred and a hundred and
twenty-five million dollars. Therefore, if the full increase had been
included in the 1918 report, there would have been an actual deficit
instead of a net income, would there not?

Mr. WELSH. Yes.

Commissioner GADSDEN. Of some $30,000,000?

Mr. WELSH. Yes ; its operating revenue had not also increased.

Commissioner GADSDEN. The industry would have failed by some
$30,000,000 to meet its interest charges?

Mr. WELSH. Yes.

Commissioner GADSDEN. Is not that, in your judgment, what is
happening right now?

Mr. WELSH. I believe it is.

Mr. WARREN. That is what this year is up against ?

Mr. WELSH. That is what we are up against this year, based on
the first four months.

Mr. WARREN. And is not another element which should make that
still worse in so far as any companies which had supplies on hand
Avhich they bought before the latest increase in the cost of sup-
plies— they are still putting those supplies in at the lower prices,
whereas this year they would have to pay the high price?

Mr. WELSH. Undoubtedly many companies purchased materials in
1918 on the basis of contracts which were still in effect and were
undoubtedly lower than anything they could buy at this time.

Mr. WARREN. I have in mind one company in Massachusetts, for
example, which made a rail contract, I think in 1914, and made it
for a very large quantity of rails on the theory that the prices were
going to go up. It may have been just after the war started. They
have been using those rails up to about this time. I think they are just
getting their last deliveries under that contract, and the contract
price is something like 40 or 50 per cent below what they would have
to pay to-day on the present market price for rails. So that the
$100,000,000 increase in wages is going to be reflected also in sup-
plies and materials.

Commissioner WEIILE. Those rails were for replacement?

Mr. WARREN. Yes.

Commissioner WEHLE. The scrap, of course, is more valuable than
it was?

Mr. WARREN. It was during the war, yes ; and it may be more valu-
able now than it was before the war. Is it, Mr. Pardee ?

Mr. PARDEE. I am not sure. I do not think so. I know scrap
rail-
Mr. WARREN. I know one Maine street railway where I am on the
bondholders' committee and we expected to sell it for scrap and we
could have gotten a very good price for it during the war. Unfor-
tunately the road was serving the navy yard down at Kittery, down
near Portsmouth, and the Government not only objected to our scrap-
ping the road, but we felt as patriotic citizens we should not, so we

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 127

proceeded to operate it, and the minute the armistice came there was
no market for the stuff at all. We could have gotten quite a dividend
on our bonds if we could have sold it during the war.

Commissioner WEHLE. Is there some way by which we could have,
in connection with this chart, a statement of what elements are de-
ducted from the income?

Mr. WELSH. The census report shows three items, the interest in
bonds, the rental of leased property, and miscellaneous deductions,
which are a very minor amount.

Mr. WARREN. That balance sheet you expect to get copies of from
the Census Department, do you not?

Mr. WELSH. Yes. sir.

Mr. WARREN. They have not come yet?

Mr. WELSH. No. I expect them any time.

Commissioner MEEKER. I notice that reference is made to data sheet
No. 186. What does that refer to?

Mr. WELSH. Here again, we have estimated the 1918 values on the
basis of the 345 companies.

Mr. WARREN. If there are no further questions we will pass to the
next. You have nothing more to say on that?

Mr. WELSH. No.

Tlie statement accompanying Chart 103 is as follows :

Income accounts of electric raihcays.
(Chart C-103— Based on United States census reports.)

'1902

1907

1912

1917

1918

'$105,241,420

'$155,755,655

'1217,295.588

*$228,898,968

'$192 615 567

Reductions from income

164,516,154

< 118, 339,114

« 149, 866, 307

* 175,305,781

8 180 3S2 390

i 30,596,977

* 40, 340, 286

< 68, 139, 889

< 56, 450, 930

8 20 183 413

Taxes

1 13,078,899

* 19, 755, 602

< 35, 027, 965

< 45, 156, 695

•49 496 334

Nit revenuefrom auxiliary oper-
ations .

'11,122,951

» 17, 319, 760

•28,331,470

»30 790 165

1 U. S. census reports, 1912, Table 5, p. 188.

' Advance report, Table 5, less advance report, Table 162.

» Data sheet No. 186 (estimated).
« Advance report, Table 5.

Mr. WARREN. We will pass to the next, which is marked for identi-
fication, " C-154, Net income of electric railways." Will you explain
what that shows?

Mr. WELSH. This takes up the distribution of operating income
from the point where it was left on the previous chart, starting with
the net income, and shows the distribution of the net income be-
tween dividends and surplus or deficit.

Mr. WARREN. That is, this is the income available after you have
paid interest and taxes and items of that sort?

Mr. WELSH. Yes; this represents the net income after the interest
on bonded indebtedness has been paid and represents the amount
available for dividends. The rapid increase from 1907 to 1912 is
apparent and the rapid decrease from 1912 to 1917 and the disas-
trous decline in 1918, from $56,000,000 to approximately $20,000,000,
is shown. At the same time the dividend follows very closely the
curve of net income up to 1912, falling off somewhat less rapidly to
1917, due, however, apparently at the expense of the surplus, because
the surplus has fallen off at a higher rate, which permitted somewhat

128 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

higher dividends to be paid in 1917 in proportion than were paid in
1912.

Mr. WARREN. But those were paid at the cost of the surplus?

Mr. WELSH. Of the surplus. In 1918 the surplus changed to a
deficit of about $24,000,000. At the same time dividends were paid.
This apparently nominally can be explained by the fact we are deal-
ing with a group of companies and not with one business, in which
the deficit of those companies operating at a loss far exceeded the sur-
plus of those companies that were able to declare some dividends.

Commissioner MEEKER. Would it not be better to segregate the
companies showing a deficit from those which do not show a deficit?

Mr. WELSH. That can be done, I believe. I believe the census re-
port does make that separation.

Mr. WARREN. The census does not make the segregation, does it?

Mr. WELSH. It makes this segregation; it shows a group of com-
panies that have a net income and it shows another group of com-
panies that have a net surplus.

Mr. WARREN. You might be able to combine those two to answer
Mr. Meeker's inquiry in that way.

Mr. WELSH. Yes.

Commissioner MEEKER. If the data as presented is anomolous, as
Mr. Welsh- says, it would be very much better to give us refined
statistics, it seems to me. Statistics of a birth rate based upon popu-
lation including men and babies and old women is not so useful as a
refined statement of the birth rate based upon the child-bearing
women, women of child-bearing age, and the same principle I should
think should apply in drawing up these statistics.

Mr. WELSH. I would like to call attention, however, that that same
situation existed in the prior census years, although not aggravated
in the same way. In other words, in 1917 when there was a surplus
and dividends were declared, there was a group of some three hun-
dred and odd companies, as I recall it, which operated at a deficit,
and that same situation was true in prior years, but this represents
the situation of the whole industry.

The statement accompanying Chart C-154 is as follows :

Net income of electric railways, including 1918 estimates of dividends and

surplus.

1902

1907

1912

1917

1918

Capital stock

'$1,957,300,149

3 $1,543,269,002

2 $1,957,300,149

2 $2,006,151,013

» $2,237,539,630

430,596,977

2 40, 3 40, 286

«68,139,889

2 56, 450, 930

* 20, 183 413

Dividends

4 15, 882, 110

5 26, 454, 732

251,650,117

3 48, 337, 435

8 44, 482. 218

Surplus

414.714,867

"13,885,554

2 16, 489, 772

3 8, 113,495

3 24, 298, 805

Rate of return, per cent .

«1.61

' 1.78

'2.64

'2.49

1 U. S. census report, 1912, p. 186, Table 5.

2 Advance report, Table 5.
s Datasheet No. 191.

4 U. S. census report, 1912, p. 302, Table 158.

» Data sheet No. 186.

• Based on U. S. census report, 1932, p. 223, Table 59.

7 Based on advance report, Table 5.

Mr. WARREN. Turning to your statement accompanying this chart,
Mr. Welsh, what was the rate of return on the capital stock for the
different census years, beginning with 1902 ?

Mr. WELSH. The rate of return in 1902 was obtained by applying
the dividends to the capital stock in each census year. The rate of

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 129

return in 1902 was 1.61 per cent; in 1907, 1.78 per cent; in 1912, 2.64
per cent ; in 1917, 2.49 per cent ; and in 1918, 0.9 of 1 per cent.

Mr. WARREN. Less than 1 per cent?

Mr. WELSH. Less than 1 per cent.

Commissioner WEHLE. Is this copied from the United States
census ?

Mr. WELSH. No; it has not been — that is, that value for the rate
of return has been determined by taking the dividends shown in the
United States census and the capitalization shown in the United
States census, and then the rate of return is based upon those two
amounts.

Commissioner WEHLE. So that the capitalization is not based upon
any assumption of the railway association, but that is taken actually
from the census report?

Mr. WELSH. Yes, sir.

Commissioner WEHLE. Do you happen to know

Mr. WELSH. Pardon me. That capitalization is the capital stock,
not the total capitalization. It is the rate of return on the capital
stock.

Mr. WARREN. That seems to indicate that the industry has not
been in a prosperous condition for some time. Mr. Welsh ; does it not I

Mr. WELSH. Yes, sir.

Mr. WARREN. And it bears out what Mr. Pardee said in his open-
ing statement to the commission, that it has not been prosperous for
a long time, and that the war has greatly increased that bad situa-
tion?

Mr. WELSH. Yes. sir.

Mr. WARREN. As shown by your estimate of the dividends for
1918?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now. the next charts are these in which you have
divided the companies into groups, beginning with that marked
"C-126?"

Mr. WELSH. I do not have the last chart.

Mr. WARREN. Have you any of those?

Mr. WELSH. I have No. 129.

Mr. WARREN. Well, we will distribute these now. We will take
up the one marked " C-126," of which you have no large chart, Mr.
Welsh?

Mr. WELSH. Yes. sir.

Mr. WARREN. But the commissioners have a small one.

Mr. WELSH. Yes.

Mr. WARREN. Now, will you explain that?

Mr. WELSH. The census reports divide the electric-railway com-
panies into three classes, based upon their operating revenues. Class
A are those companies having an annual operating revenue of
$1;000,000 or over; class B are those companies having an annual
operating revenue of $250,000 and up to $1,000,000; and class C are
those companies having a operating revenue of $250,000. This is
the Interstate Commerce Commission method of classification, and
the census report show the income accounts upon the same basis. In
addition to that, the census reports also show a separation of the
elevated and .subway lines.

130 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION'.

Mr. WARREN. How do you mean they are class A? For instance,
take the Boston Elevated Railway. That is both elevated and sub-
way lines, and it also has surface lines. Would that be class A?

Mr. WELSH. I understand that all elevated or subway lines are
classified together, and their operation does include the surface
lines — that is, it is put in the classification of the rapid-transit lines.

Mr. WARREN. So that it is practically four classifications, is it?

Mr. WELSH. Yes, sir.

Mr. WARREN. Those companies, like the rapid transit of New York
and the elevated in Boston, and the company in Philadelphia, would
be in the elevated and subway class, and not in class A?

Mr. WELSH. That is true.

Mr. WARREN. Now, this Chart C-126 shows the net operating in-
come of the electric railways by classes?

Mr. WELSH. Yes, sir ; and in order to take account of the varying
size of the companies, the charts have been plotted on a per-mile-of-
track basis, so that there is shown here the first part of the income
account, the net operating revenue for those four classes.

Mr. WARREN. For 1 mile of track?

Mr. WELSH. Per mile of track. The obviously greater amount
of the elevated and subway lines as compared with class A, class B,
and class C, in all the census years, is apparent. There has been a
falling off in the net operating revenue also to some extent in all
three classes from 1912 to 1917, although this is more apparent in
the case of the elevated and subway lines, and in class A than it is
in the other two, where it seems that the net operating revenue per
mile of track has been about constant for classes B and C.

Mr. WARREN. Have you any explanation of that, Mr. Welsh ?

Mr. WELSH. Apparently, the smaller companies have not been
hit so hard with respect to several items of expense. Among other
things, the rush-hour service does not affect the smaller companies
at all, you might say, or to anything like the degree that it does af-
fect the other companies.

Mr. WARREN. That is, the small companies are apt to operate in
the country or in small towns where the riding is more uniform

Mr. WELSH. Throughout the day.

Mr. WARREN. Throughout the day?

Mr. WELSH. Yes, sir.

Mr. WARREN. And that, of course, reduces their operating ex-
pense very largely?

Mr. WELSH. Yes, sir.

Mr. WARREN. The reason it does is because they do not have to
have so many men, they do not have to have so many cars, and they
do not have to have so much power for use for short periods; is it
not?

Mr. WELSH. All at one time; yes, sir.

Mr. WARREN. As a matter of fact, the smallest class here of all,
class C, which you say has net earnings of what ?

Mr. WELSH. Under $250,000.

Mr. WARREN. Under $250,000 — seems to have shown an increase
in the net operating revenue between 1902 and 1917.

Mr. WELSH. Yes, sir ; a slight increase.

Commissioner GADSDEN. What is class A?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 131

Mr. WELSH. Class A are companies having an operating revenue in
excess of $1,000,000.

Commissioner GADSDEN. And class B ?

Mr. WELSH. From $250,000 to $1,000,000.

Mr. WARREN. You have not figured the percentage of those earn-
ings, have you, Mr. Welsh ?

Mr. WELSH. In what way?

Mr. WARREN. The per cent of increase and decrease for the dif-
ferent census periods.

Mr. WELSH. No ; we have not.

Mr. WARREN. I think it would be interesting if you could figure
the per cent of decrease on that class A from 1912 to 1917 — that is,
the large city companies I do not mean now.

The figures on the statement accompanying Chart 126 are as fol-
lows:

Net operating revenue per mile of track by classes of electric railways.
(Chart 126. — Based on United States census reports.)

Elevated
and
subway.

Class A.

Class B.

Class C.

1902

$9,025

$3,408

$1 443

1907

$42, 879

8,036

3 053

1 712

1912

63, 727

8,592

3,420

1 835

1917 ;.

51,485

7,893

3 461

1 877

NOTE. — All above figures were taken directly from 1012 census table No. 120, p. 258,
with exception of those duplicated below, together with figures used in calculating same
and source of figures used

Year.

Net operating
revenue.

Miles of track.

Net
operating
revenue
per mile
of track.

Subway and elevated

f 1907
< 1912

(90) $18, 745, 029
(90) 28, 625, 860

(153) 437. 16
(153) 532.80

$42,879
53 727

Class A

I 1917
1917

(90) 36, 867,482
(85)205,743,098

(153)716.08
(53) 26 005

51,485
7 893

Class B. . ....

1917

(85) 35 507 354

(53) 10 259

3 461

Class C

1917

(85) 15, 979, 986

(53) 8,512

l's77

NOTE. — Figures In parentheses shown above are census table numbers giving source of
information, taken from the 1917 advance sheets, the numbers corresponding to .similar
ouml>er8 of 1012 census.

Mr. WARREN. Now, the next chart, which is a large one.

Mr. WELSH. No. 129 is the next.

Mr. WARREN. You have not a large chart on 129, either, have 3*011 ?

Mr. WELSH. No.

Mr. WARREN. That shows the net income of electric railways by
classes per mile of track, the previous one having shown the net
operating revenue. This is the same classification, is it not?

Mr. WELSH. This is the same classification, and takes up the next
income account. It shows a greater falling off in comparing li)17
with.1912 for all classes of electric-railway property.

Mr. WARREN. Bearing out the general result on the figures that
you put in earlier on the income?

132 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WELSH. Yes, sir.

Commissioner MEEKER. These classes, A, B, and C, are the same
classes A, B, and C, as appear in the previous chart?

Mr. WARREN. The same classes.

Mr. WELSH. The same classes.

Commissioner MEEKER. Class A includes those lines with net oper-
ating revenues in excess of $1.000,000?

Mr. WELSH. No; total operating revenues.

Commissioner MEEKER. Total operating revenues?

Mr. WELSH. Total operating revenues.

Commissioner MEEKER. Not net.

The CHAIRMAN. May I ask one question there with reference to
Chart No. 126?

What significance do you draw from the fact that the net operating
revenue of the subway and elevated railways is so much higher than
that of the surface lines?

Mr. WELSH. That is the result of two things. In the first place,
the density of traffic on the rapid-transit lines is far in excess of
that on the surface lines, the number of cars and the number of car-
miles operated per mile of track; and secondly, the number of
passengers carried per mile of track is far in excess of those on the
surface lines. Correspondingly, the investment per mile of track is
very much greater than on the surface lines. The necessary sequence
is that that should be so, that there should be that difference.

The CHAIRMAN. Does it not also indicate that people are de-
manding quicker transportation than that which can be furnished
by the surface lines?

Mr. WELSH. I do not see that it does.

Mr. WARREN. There is a greater volume of traffic.

Mr. Welsh, in that first chart. C-126", it appears that in 1912 the
elevated and subway lines earned between fifty and fifty-five
thousand dollars per mile net operating revenue ; is that right ?

Mr. WELSH. Yes, sir.

Mr. WARREN. That means, after paying their operating expenses,
they earned over $50,000 a mile?

Mr. WELSH. Yes, sir.

Mr. WARREN. Now, if the commission does not object, Mr. Trip'pr
who is a director in the rapid-transit company in New York, would
like to make a statement about the earnings of the elevated and sub-
way lines.

Gen. TRIPP. I do not quite understand the chart, which appears to
show that the net income per mile of track on elevated and subway
lines, as shown by the heavy black line on the chart, is holding rea-
sonably steady for the year 1917 — only a slight decrease.

I am a director in the Interborough Rapid Transit Co. of New
York, which operates the subwaj^s and the elevated there. The In-
terborough Rapid Transit Co., a year ago, or perhaps slightly over
a year ago, paid 20 per cent dividends on its stock. To-day it is not
earning its fixed charges. Therefore, I do not quite understand the
situation as set out by these charts. Perhaps I do not understand the-
charts, but I felt that perhaps the gentlemen of the commission
might be in the same situation that I am in. I am familiar with the
operations of the elevated railways in Chicago, and those railways

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 133

are in a still more critical condition than the subways and elevated
in New York city.

Mr. WARREN. How is that, Mr. Welsh?

Mr. WELSH. Well, we have no figures for anything more recent
than that given by the census report.

Mr. WAHREN. That is 1917?

Mr. WELSH. 1917 ; yes, sir.

Mr. WARREN. Xow, do you happen to know whether there has been
a marked change in the elevated and subway net operations?

Mr. WELSH. Undoubtedly tliere has been ; yes, sir ; but we have no
figures on it.

Mr. WARREN. You have not the figures?

Mr. WELSH. Xo, sir.

Commissioner GADSDEN. Well, do those charts show any 1917 fig-
ures?

Mr. WELSH. It only shows as far as 1917. I have nothing on 1918.

Mr. WARREN. Would it be possible, Mr. Welsh, for you to get the
1918 figures now7 for some of those subway and elevated lines?

Mr. WELSH. I presume we could get them ; yes, sir. We have made
no attempt to get them.

Mr. WARREN. If we could get them, I think it would be well to do
so, and add them to the charts which we have filed.

The Brooklyn Rapid Transit has elevated lines also?

Mr. WELSH. Yes, sir.

Mr. WARREN. As a matter of fact, that is one of the companies that
is in the receiver's hands at the present time ; is it not ?

Mr. WELSH. Yes, sir.

Commissioner GADSDEN. Mr. Warren, I would suggest that it would
help the commission to take up one or more of those large properties
and have somebody fully conversant with their affairs come here and
tell us about them, as an illustration of what these charts mean. You
might get someone here from the Brooklyn Rapid Transit or Inter-
borough.

Mr. WARREN. Yes.

Commissioner GADSDEN. And let him testify from his own knowl-
edge of the difficulties of the industry.

Mr. WARREN. We expect to call the receivers of some of those roads
to address the commission on their condition. Of course, it is a fact,
an unfortunate fact, in presenting the case, and it is still a more un-
fortunate fact for the industry itself, that every year and every
month, and every week, in fact, that is passing over our heads, is
making this situation very much more desperate than we can possibly
show from any figures for any past period of time. Gen. Tripp's
question illustrates that. In 1917, apparently, if our chart is cor-
rect, and I believe it to be right —

Mr. WELSH. I have a photostatic advance copy here to check it
with.

Mr. WARREN. You have?

Mr. WELSH. Yes, sir.

Mr. WARREN. And if our chart is right, it shows that those sub-
way and elevated lines were earning a net income in 1917. Now, as
a result of what h;is happened since 1917, one of the largest of them,
that in Brooklyn, has had to go into the receiver's hands, and one

134 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

in New York has had to default on some of its bonds. The Boston
one is having very hard sledding, and the Chicago company, I un-
derstand, is in a more or less similar difficulty. That is true not only
of those companies, but it is true of nearly all of the surface com-
panies also.

Commissioner WEHLE. How many companies are included in that
statement ?

Mr. WARREN. It is a census report. These charts that we are now
putting in

Commissioner WEHLE. But how many companies are covered in
connection with the subway and elevated part of Charts C-126 and
C-129?

Mr. WARREN. Can you answer that, Mr. Welsh?

Mr. WELSH. I can not answer it offhand. I am not sure that the
census reports show that.

Mr. WARREX. You see, even the census reports which we have used
for the year 1917 are advance sheets which were furnished to us
through the courtesy of the Census Office, to enable us to make up
these figures as well as we could. That is one of the difficulties of the
situation, which are insurmountable. In order to get the informa-
tion for any definite period, we have to take a past year, and the con-
dition is changing so rapidly for the worst that a past year is of
very little value as indicating the present condition.

Do you think you could get that from the census reports ?

Mr. WELSH. I think very likely; yes.

Commissioner BEALL. There are only four places, as I remember it,
that have subways, or, at any rate, three, and four that have elevated
railways. I do not think there are any more. There is a small ele-
vated system in Sioux City, but I do not think there is any large
subway system outside of Boston, New York, and Philadelphia. For
the elevated, you will have to add Chicago. I do not know of any
others.

Mr. WARREN. Those are the only ones that I know of.

Commissioner BEALL. Well, there is one in Baltimore, the Roland
Park Elevated road. I do not know how big it is.

Mr. WELSH. I have the figures here. There are seven companies,
in 1917, classified as elevated and subway.

Commissioner BEALL. How many?

Mr. WTELSH. Seven.

Commissioner BEALL. What were they?

Mr. WELSH. It does not give the names of the companies.

Commissioner BEALL. I think that you will find two of them are
verjr small, the one in Baltimore, and the one in Sioux City. They
do not amount to anything.

Mr. WTARREN. You do not suppose they count the Manhattan Ele-
vated as one and the Rapid Transit as another ?

Commissioner BEALL. I was speaking of the cities.

Mr. WARREN. Two in New York, anyhow.

Commissioner BEALL. Yes ; two in New York and two subways.

Mr. WARREN. Do any of you street-railway gentlemen know of any
cities with subways or elevated railroads except Boston, New York,
Philadelphia, and Chicago?

Mr. BLAKE. There are the so-called McAdoo tubes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 135

Mr. WARREN. I think that is classed as a steam road.

Commissioner BEALL. I think it is.

Mr. WARREN. It was taken over by the Government when it took
over the roads.

The figures on the statement accompanying Chart 129, are as
follows :

Net income per mile of track by classes of electric railways.

[Based on U. S. census reports.]
NET INCOME PER MILE OF TRACK.

1902

1907

1912

1917

$12,969

$17, 326

$16 843

Class \

$2,575

1,780

2,508

1,821

Class B — ...

1,134

858

1,132

643

Class C

364

520

373

277

NET INCOME.i

$5 669 738

$9 231 122

$12 060 843

Class A

$21,666,551

27,707,790

53,442 502

47 4tv; >?72

Class B

5,566,046

7,207,076

10,927,455

6,623 19t»

Class C

3,364,380

5,425 420

3 769 932

2 360 562

MILES OF TRACK.*

437. 16

532 80

716 08

Class \.

8,514.31

15, 564. 34

21,305 99

26 064 85

Class B

4,909.88

8, 396. 00

9,652.09

10, 258. 75

Class C

9, 252. 80

10, 443. 22

10 106.74

8 511 77

> Table 85, 1912 and 1917 census.

Tables 53 and 153, 1917 and 1912.

Mr. WARREN. That concludes the charts which we have ready for
to-day, Mr. Chairman.

The CHAIRMAN. Are you prepared to go ahead with another wit-
ness I

Mr. WARREN. Yes, sir; I would like to call Mr. Clark.

STATEMENT OF MR. WILLIAM J. CLABK.

Mr. WARREN. Your full name, Mr. Clark?

Mr. CLARK. William J. Clark.

Mr. WARREN. You are connected with the General Electric Co. 1

Mr. CLARK. The General Electric Co.

Mr. WARREN. And you have been for how long?

Mr. CLARK. Thirty-two years.

Mr. WARREN. And that company, I suppose it is unnecessary to
say, has been very closely identified with the development of the
electric transportation art?

Mr. CLARK. It has.

Mr. WARREN. Will you state to the commission your experience
in connection with electric transportation preparatory to going ahead
and making a statement to them about the development of the art?

Mr. CLARK. To begin with, my first practical knowledge of elec-
tricity— not in an engineering way — began as far back as 1870, as a

136 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

boy, through William Wallace, the pioneer of arc lighting and the
man who produced the first modern electric motor. However, my
first active participation in the electric or street-railway business
was with my associate, the. late H. Holden Wood, in securing a char-
ter from the Connecticut Legislature for what was the first electric
street railway in the world — a very small affair, connecting the docks
at Derby with the mills at Ansonia and what is now known as West
Derby. It was at that time known as Birmingham.

In that connection I became intimate with Van Depoele, one of
the earlier producers of electric-railway inventions, and the manage-
ment of the concern at Chicago which owned/these inventions of his,
and it was in a bad financial way.

At the urgent request of Mr. Van Depoele and the management
of the company, which controlled these patents, I undertook to in
some way raise capital, so that they could go ahead and develop
the industry under those patents. That resulted finally in my sell-
ing the same to the Thomson-Houston Electric Co., one of the prede-
cessor interests of the General Electric Co., and ultimately, in my
going with them and taking charge of their electric-railway develop-
ment in the field.

That proposition involved more detail than is apparent on its
face, because the first task which I performed was the purchase of a
railway where they could demonstrate their new system.

For quite a number of years I averaged over 70,000 miles a year
traveling on American railways in connection with this electric-
railway development, having crossed the continent some 14 times
in one year, during all of which, of course, I was obliged to familiar-
ize myself with the financial and operating conditions involved in
connection with the entire industry.

I am afraid, gentlemen, as I have had no chance for preparation,
nor to talk with counsel, I might get into things that are not rele-
vant, and I hope you will not hestitate to so inform me, if I do.

Now, the history of the street-railway business is briefly this:
As you may know, as early as 1838, there was one experiment on the
Baltimore & Ohio Railway right out here. I think there were
scattered experiments throughout the world. There were two or
three more in this country, up until about 1879, when Siemenes began
his experiments at Berlin, and immediately after followed by Mr.
Edison's famous road at Menlo Park, experimental.

For the next seven or eight years, and during that time, there were
quite a number, say some 12 or 15. I could give you the list if I had
my memoranda here. They were roads of different character con-
structed in this country, growing in size and importance, when the
industry was given a tremendous impetus by the electrification of
new lines at Richmond, Va., by my good friend, Mr. Sprague, who,
I understand, is to testify here to-morrow.

Now, digressing for a moment, as I see the situation in a practical
way, it was the development of three things of an engineering
character which gave the tremendous impetus to the adoption of
electric railways which began early in 1888. I think it Avas February
12, 1888, that the Richmond installation started. They were these
things: What was known as the Sprague motor suspension, the
very same practice as is followed everywhere on street-cars to-day;
the carbon commutator brush, which is used on motors universally

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 137

the world over to-day, Avhich created a great saving; and what was
known as the pivoting underrunning trolley. Those three im-
portant inventions, developed at about this same time, were incor-
porated by Sprague in his development at Richmond. The Thomson-
Houston Co. immediately thereafter proceeded to do the same thing.

Xow, perhaps, I had better continue along this line, although I
should like to say something about the economics of the street-rail-
way situation prior to electricity coming into the field.

We thought — we in the industry — that when these inventions had
been produced we had solved the great problem; in other words,
that a car equipment produced would be good for 20 years; that a
generator or dynamo would be good for 20 years; tracks, especially
as in most of the electric-railway construction the best of engineer-
ing advice was secured from others, would last a good many years.
But experience demonstrated otherwise ; and perhaps I can not better
illustrate it specifically than to refer to this little road of mine in
Connecticut.

We retained the man who was then the chief engineer of the
Baltimore & Ohio Railroad to advise us on this roadbed construction
especially. We laid it with a 45-pound rail. Before 1896 it had
been relaid three times, and heaven only knows how many times
since.

We will turn now to the car equipment and the car bodies. Dur-
ing this same period it was found necessary to change the car bodies
three times and the motors w7ere changed five times, as well as the
bn lance of the car equipment.

These same things occurred in connection with power station. We
supposed that we had constructed something that was going to last
for a great many years. By 1896 the third power station had been
built to operate that system.

I am citing these facts, gentlemen, to try to make clear to you
that to better serve the public and meet its demands, the losses of
depreciation through obsolescence have been almost beyond estimate,
in connection with all of the electric-railway systems of importance,
other than those built since, we will say, 1896 or 1897.

To speak plainly, gentlemen— I known the accusation has been
made — there is far less water in the capitalization of the street
railways than is generally supposed. There is some, but what now
may seem excessive capitalization has been created to a greater
extent through this continual change, change and change, through
advancement in the art to better meet the requirements of the public
in the way of service.

Xow, turning back, electricity did not bring: about a manipulation
of finance into the electric-railway field. It began long before that,
as I could trace for you if I had certain data, which I will have here
to-morrow. A very large part of what may be considered over-
capitalization to-day can be traced back to those periods.

Tn the horse-railway days there were certain contracting concerns
who used to do this thing in a sort of a way. Thev disappeared, al-
most all of them, with the advent of electricity. They were the fel-
lows who built track with a 20 or 25 pound mil. As long as they had
something to run cars over, on which to sell securities, bonds espe-
cially, they were contented.
1GOG430— 20 10

138 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

That, as I said, was more common in the days before the advent of
electricity than afterwards.

Now, going on with this question of the seemingly large capitaliza-
tion, let me tell you how much of that was brought about — and I want
to say this, gentlemen, that I personally have never, directly or in-
directly, participated in putting a dollar of water into any street rail-
way or any other public-utility property. If I may so put it, there is
an infatuation about doing things electrically. It seems to inspire
people with a public spirit, and through all of this development there
has been this tendency to go fully up to meet the public demands, and
incidentally to give the public advantages, beyond what they had
hoped for.

Once more returning to my own experience on this little line which
we built — that was the nucleus of that tremendous system which now
radiates over practically the whole State of Connecticut. We — that
is, I mean my immediate associates and myself — felt that we had con-
ferred a great blessing upon the public where we operated. We ex-
tended it somewhat before we sold it. We made no profit out of it.
We were glad to get out alive. We lost nothing but our interests, but
owing to what I have said, and I hope to have the figures here to-
morrow, we sold it, if I recollect aright, Mr. Morgan, about 1896 or
1897-

Mr. MORGAN. I think so.

Mr. CLARK. I mean that property up in Connecticut.

Now, Mr. Morgan and his associates believed that they could afford
to pay us what was seemingly a large price for that property, be-
cause, by extending it as they did, they could earn a larger return.
They went ahead, and as I said before, it was the nucleus of their
great Connecticut railway and lighting property, which has con-
ferred a great many benefits on that little State, more of them than
you can estimate. Now, I hope that they have made some money out
of it in selling out that property. They well deserved to ; but, gentle-
men, it was only a small fraction of the benefits which I know of — be-
cause I still consider myself a Connecticut man — which it conferred
on that entire State, in every manner, way, shape, and form, as it has
elsewhere.

Now, in continuing that illustration, the New York, New Haven
£ Hartford interests, as you know, thought that they could buy Mr.
Morgan's interests and those of his associates in the property, and
that by adding on, they could earn a return upon it. They were not
so successful. But in carrying this illustration into almost every
community in this country we find the same thing. It is not the
water that has been put in, you understand. It is upon this deprecia-
tion through obsolescence, and this increasing through combinations,
facilities, in the belief that the ones holding the properties will be
paid a large price — you can call that water if you want to, but the in-
tentions were good, and the public derived terrific benefits from that.

Now, gentlemen, I fear that I have rambled greatly and have not
been very relevant in my remarks.

Are there any questions that any of you gentlemen wish to ask me?
I will be glad to answer them if I can.

Commissioner GADSDEN. Mr. Clark, are you familiar with the re-
port of the Connecticut Commission recently on those properties 3

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 139

Mr. CLARK. I am not, I am sorry to say. I ha\\x been very busy for
Uncle Sam for nearly two years.

Commissioner GADSDEN. You do know that there was a committee
appointed

Mr. CLARK. Oh, yes.

Commissioner GADSDEN (continuing). To investigate those prop-
erties ?

Mr. CLARK. Yes.

Commissioner GADSDEX. Do you happen to know that they re-
ported that every mile of electric railway in Connecticut, except 12,
was bankrupt ?

Mr. CLARK. Well, I am not surprised. I had word to that effect.

Commissioner GADSDEX. And there is over 1,000 miles in that
State?

Mr. CLARK. Yes, sir, and I believe Connecticut to be enormously
benefited.

Commissioner GADSDEX. That is the same property that you have
been giving us the history of?

Mr. CLARK. Yes ; my little baby was the nucleus of it.

The CHAIRMAN. You have grown up with the electric-railway in-
dustry. What is the future?

Mr. CLARK. I wish that I knew. I believe that if temporary relief
is afforded them, it is going to survive and continue on and be a
great public blessing.

Now, in addition to all that has been shown you to-day — and more
of the same character will doubtless be presented to you — as I see
it, the street-railway industry is suffering from another cause, most
acutely, and while this cause is going to be continued, I think you
will find, looking back over the past history, a situation somewhat
analogous as regards the effect of the electric railways on the local
traffic on steam railroads. I mean the effect of the cheap auto — not
of the jitney per se — but the cheap auto — which means really, as near
as I can estimate it, after a good deal of study, the loss of anywhere — •
an average loss, we will say, of from three to five fares a day, be-
cause the man who owns the cheap auto not only goes back and forth
himself, to and from his employment, but carries one or two of his
neighbors. Now, the effect of that has been very, very acute, as you
know, during the last few years. The cheap auto is going to con-
tinue. There is no mistake about that, and yet I think ultimately
you will find, as I remarked a moment agoT that in time" the travel
which is now taken that way will come back to the street railways,
just the same as the travel which the street railways took from the
steam railroads locally has come back, to a great extent, to the steam
railroads.

The CHAIRMAN. Is there any evidence of that ?

Mr. CLARK. No; I can not say that there is as yet. I am simply
judging by past experience in the other direction. Well, if I may
qualify my remark — yes, I think there is, as shown in the dropping
off of jitney traffic in certain localities, where apparently it is not
as popular as it was. At the outset, everybody wished to ride in an
auto. Now, I think that has changed very materially.

Commissioner GAI>HI>KN. Mr. Clark, don't you think the parking
problem is going to bring about a change in the use of automobiles 2

140 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CLARK. I do.

Commissioner GADSDEX. The inability to park cars downtown.

Mr. CLARK. Yes, sir; and congestion on your streets.

Commissioner GADSDEX. In some cities they are now stopping them
from parking, are they not?

Mr. CLARK. Yes; and I think that is going to have its effect. I
think you will have a great deal of restriction placed on the use of
the automobile.

Commissioner BEALL. When you say that you can not foresee the
future of the electric-railway industry, is it true that the average
street railway is giving practically as good service with as good
equipment, and has put in, in the past, all the improvements known
to the art, yet the trouble is due to various reasons ? They simply are
not allowed to charge a proper return. There is nothing else to
replace it, is there?

Mr. CLARK. No.

Commissioner BEALL. When you say that you can not foresee the
future, I just wanted to get it into the record that you do not
mean to say that their situation is due to the methods they have
pursued, and that there is a better and cheaper method of doing it.

Mr. CLARK. No.

Commissioner BEALL. But simply that they are not allowed to earn
enough to enable them to live?

Mr. CLARK. Yes; that is it exactly.

I will tell you two stories, if you will permit my digression, which
I think are apropos.

As I remarked earlier in my testimony, I came into this industry
through the selling to the Thomson-Houston Co. the Van Depoele
railway patents. This deal was consummated on Washington's
Birthday of 1888, at Boston. It being a holiday, Mr. C. A. Coffin,
the man who has really made the General Electric Co., and is its
chairman to-day, took more time than usual at the luncheon table,
and he turned on me with this statement, " Clark, I never would have
made that deal which I did make with you this morning, if I did not
consider the possibilities of electric lighting exhausted to-day." Now,
you can hardly grasp that to-day, but there were grounds for his
making the statement.

Mr. WARREN. That was in 1888?

Mr. CLARK. That was on Washington's Birthday, 1888.

The country was filled with series of arc-lighting stations, which
meant very little in the way of investment. That wras the erecting
of a central station, with new machines, and the hanging of some
wire in the air and putting out some arc lamps. The possibilit}^ of
direct current low-tension was appreciated, but you could not go
great distances with that, probably only in the hearts of the large
cities. The alternating current had not come along. So, seemingly,
he had good grounds for making that statement.

The next is somewhat akin to that.

In that depressed condition of 1896 — that awful summer — I caused
a careful survey of the activities of all of the street railwa}7s in the
United States to be made, delegating our own men, and taking men
from student courses, young engineers, supply salesmen, and had an
actual canvass or census made of all of their conditions.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 141

The net result I was able to get together in August. I summar-
ized it on a half sheet before I sent it over to Mr. . There

was a hurry call for me to come to his office immediately. When I
got there, he was pacing up and down the floor, and he said, " Clark,
I can't see how we are going to do business." You gentlemen will
remember that that was a very dull time, along about August, 1896.
" You show that 90 per cent of all of the street railways of the
United States are already electrified. Now, look at those two big
factories at Schenectady. How are we going to keep them going?"

I told him the first story that I have just given you. He thought
for a moment, and then he burst into laughter, and he said, " I guess
you are right."

Xow, I believe most thoroughly that the electric railway is going
on, and not only in its present form upon your streets and other local
transportation lines, but my view is that in my remaining years in
this industry, I will see the electrification of steam railroads. I have
no doubt that, when conditions are adjusted properly in this country,
that form of electrification is going to come like a whirlwind.

Mr. WARREN. Mr. Clark, you spoke about obsolescence and the
earlier costs of equipment. Do you remember what the electric equip-
ment of a car used to cost in the early nineties around 1890 or 1888?

Mr. CLARK. I hope the Lord will forgive me for doing it, but I
sold many of them for $4,500.

Mr. WARREN. I think you did. I think you sold some of my
clients up there. Lately, before the war began, what would a better
equipment, much better equipment, have cost?

Mr. CLARK. Well, there was a period when it went down — better
equipment than that — when we sold it for a thousand dollars, during
the very low period of prices, and I should say that something com-
parable, before the war, sold for about $1,100 or $1,200.

Mr. WARREN. All of the companies which were organized in the
earlier years, and which care to publish the early benefit of this im-
proved traction system, bought their equipment at those prices, rang-
ing from $3,500 to $4.500 per car?

Mr. CLARK. Oh, yes.

Mr. WARREN. And, of course, that was a legitimate basis for capi-
talization at that time?

Mr. CLARK. It surely was.

Mr. WARREN. And yet for equipment to-day — I say " to-day," as-
suming that prewar prices were still in effect— the same equipment,
but a better quality or better character — better suited for the busi-
ness of to-day — it would be figued at a thousand dollars or eleven
hundred?

Mr. CLARK. Yes ; about that.

Mr. WARREN. And that, in your opinion, accounts for a great deal
of the so-called over-capitalization of trolley lines?

Mr. CLARK. Yes; it does.

Mr. WARREN. And that is merely one type of the things that those
pioneer companies purchased, is it not?

Mr. CLARK. One type. You might carry that illustration fur-
ther, in connection witli their sources of current supply at stations.
If (Lie gentleman will pardon me, we began with dynamos of 80-
horsepower capacity to operate the electric railways. There were
very many electric engineers, when it was suggested that we build

142 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

one of about GOO horsepower, who shook their heads, saying that, it
would not be feasible. However, this was successfully done, but
there were other street-railway engineers who still considered it im-
practicable; and if I recollect right, after that period, there was a
station built in Cincinnati where there were some 80 of these little
machines put in, and the extent of the building to put them in was
something tremendous, you understand.

Xow, all of this has no direct bearing, and yet it does serve some
of of these points.

I have heard some curious discussions among some of the celebrated
engineers. I referred earlier in my testimony to the development of
the carbon commutator brush. I might state that the copper brushes
used before used to cut these to pieces — the most important and ex-
pensive part of the machine — within a few days. But the carbon, as
you know, i* a good preventive of that, and hence its great advantage.
I heard Prof. Elihu Townsend tell Mr. Van Depoele, who invented
the carbon commutator brush, that it could never be a commercial
success, because of the resistance it would bring, and some people
were furnished motors with copper brushes for a little while after
that, as a result.

Remember, gentlemen, that this deal was uncharted when we
started off, both electric lighting and electric railway, and while the
evolution was rapid, there was much of it — very, very many changes.

One of the features after this period that I refer to of the three
great inventions — no one — Sprague, or any of the rest of them who
were in the field during any of those days — had a satisfactory con-
troller. That was something that was always giving out. In that
connection, I heard Prof. Thompson tell Mr. Potter that the magnet
which was invented to prevent the blowing out could never be a suc-
cess. That did not come along until about 1892, or perhaps the early
part of 1891. Now that, in itself, meant the change of the control-
ling apparatus on every electric car then in operation.

Mr. WARREX. Still, that change was justified for the service?

Mr. CLARK. Certainly, as many, many others.

I started in to tell you about the power stations, and I might go
through with that.

After we proceeded to build the big dynamos, for which we must
give very much credit to our Westinghouse friends and to William
Stanley, now dead, the utilization of alternating current for trans-
mission purposes, and then inserting a substation, so that you could
extend your line, was another great step forward. In those days
especially, as you may know, the cost of that apparatus was terrifi-
cally high ; and I might say in that connection, as I have stated about
the $4,500 per car equipment, the profits were not so very large, either.
Expenses for engineering and engineering blunders were very enor-
mous, in both cases.

Commissioner SWEET. Mr. Clark, have you definitely made up your
mind as to what the remedy for this situation is, or the remedies,
perhaps ?

Mr. CLAEK. I have not, definitely.

Commissioner SWEET. I did not understand you.

Mr. CLARK. I say I have not, definitely.

Commissioner SWEET. Of course, in some way or other, the income
of the electric-railway companies must be increased, or their ex-
penses diminished, must they not, in order to live ?

PROCEEDINGS OF FEDEKAL ELECTRIC RAILWAYS COMMISSION. 143

Mr. CLARK. They must be.

Commissioner SWEET. Perhaps something should be done in both
directions.

Mr. CLARK. Exactly.

Commissioner SWEET. Do you take into account, in connection with
this whole question, the fact that the purchasing power of a nickel
has been very much reduced in the last few years ?

Mr. CLARK. That is the whole story — not the whole story, but a
very good share of the story, of course.

Commissioner SWEET. The people generally throughout the coun-
ty have a sort of traditional idea that they ought to get a ride on a
street-car for a nickel, have they not ?

Mr. CLARK. That is it.

Commissioner SWEET. And yet the nickel of the present day is not
the nickel of even five years ago.

Mr. CLARK. Oh, no ; it is only about half of it.

Commissioner SWEET. To satisfy the people in the country — the
general public — that they ought to pay more for the service they are
getting, don?t you think it would be necessary for the electric-railway
companies to lay their cards down on the table, practically, and show
the public what is being done?

Mr. CLARK. Surely I do; and I think they have, in a great many
cases; and the more thoroughly that is done the better, unquestion-
ably.

Commissioner SWEET. Of course you understand that this commis-
sion is very anxious to render a real service in solving tliis very diffi-
cult problem.

Mr. CLARK. I appreciate that fully.

Commissioner SWEET. And we want all the advice and assistance in
the way of acquiring facts and ideas and suggestions that we can
possibly get. I suppose it would be natural for the general public
to say, " Can't the railroad companies do something by way of econ-
omy to cut down their expenses? "

Mr. CLARK. Exactly.

Commissioner SWEET. One question that might be asked — one ques-
tion that comes into my mind there — is whether the alternating cur-
rent that you have spoken of can be used on street-cars, or must it be
transformed into direct current? Is that feasible?

Mr. CLARK. That has not been done vet, in an economical way. It
can be done. It has been tried, you know, but it is not nearly as
economical as the direct current.

Commissioner BEALL. Well, it has been a failure, has it not, Mr.
Chirk, commercially, on every road that has ever tried it? They
have always lost money in comparison with other systems.

Mr. CLARK. Well, as our people have no advocated that, you will
pardon me for not answering that question.

Commissioner SWEET. You say you have advocated it?

Mr. CLARK. We have not.

Commissioner SWEET. Oh ! There are probably practical reasons
why the direct-current motor is the best for street-car service?

Mr. CLARK. So far as we know to-day.

Commissioner SWEET. Is the element of reversal one that enters
into the problem ?

Mr. CLARK. Oh, yes.

144 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. They have not succeeded in making an alter-
nating motor that can be reversed?

Mr. CLARK. Oh, yes; it can be done.

Commissioner SWEET. It can be done?

Mr. CLARK. It can be done.

Commissioner SWEET. Then, what is the objection to it?

Mr. CLARK. The greater expense of maintenance. The mainte-
nance is very, very much higher.

Mr. WARREX. The maintenance of the motor?

Mr. CLARK. Yes; the whole equipment.

Commissioner BEALL. They do not pick up, either, do they? You
can not start them ? It takes more current ?

Mr. CLARK. Yes, it takes more current to start them, but the great
feature is the maintenance, and, of course, you have more than the
item, per se. For instance, if you have a hundred cars on the system,
and you are averaging 1 per cent out of commission, you understand,
that is very small, but if you have 10 or 15 per cent out of commission,
you see the expense is cast on that item, as well as in the maintenance
proper.

Commissioner SWEET. Then, it is your opinion that the direct
motor is less likely to get out of order?

Mr. CLARK. Oh, yes, unquestionably. That has been demonstrated.

Commissioner SWEET. What about the original cost?

Mr. CLARK. The direct current is lower.

Commissioner SWEET. So that, on the whole, you do not see how
anything can be particularly saved by a change in that direction?

Mr. CLARK. Oh, no. Of course, this is true, that as long as your
labor item is the great big one in your operating expense, there is not
very much room to cut down otherwise. Now, your current costs are
small, relatively. Of course, it is entirely possible. I have ceased
saying that anything is impossible. I have seen such wonderful
things come.

We will say, for instance, Mr. Ford may revolutionize all traction
on street railways, as he has said he is going to do. I don't think
he will be able to do it, but it may come along and better our present
form of electrification ; but, as I remarked a moment ago, so long as
you have to have platform wages, 3Tou understand, and switchmen
and men in the car-barn, you have not great ways to go in the way
of economy.

Mr. WARREN. Mr. Clark, right at that point, you spoke of Mr.
Ford. Do you, as an engineer, think that a carrier on tires through
the highway can ever be as satisfactory economically as a carrier on
rails?

Mr. CLARK. Well, don't designate me as an engineer. I am only
a hedgerow engineer. I am a plain everyday business man.

Mr. WARREN. Well, from your experience, which has covered a
long period, do you think it can ?

Mr. CLARK. As a wholesale transportation proposition, something
equivalent in transportation facilities to that given by the street
railway, no.

Mr. WARREN. Mr. Ford's suggestion, as I recall it, was to equip
an automobile car which would run on rails, was it not?

Mr. CLARK. Yes.

Mr. WARREN. It was not to run a large jitney, for instance?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 145

Mr. CLARK. Oh, that was not his idea, but if you will let me finish my
answer, of course it does appeal to the average person, if they can be
picked up at their own curbstone, you understand, and delivered at
the curbstone where they wish to go ; but, in my opinion, with any
vehicle propelled by any power, not operating on rails, you can not
care for local travel under the requirements of the American public.
You can not do it.

Commissioner SWEET. Don't you think, Mr. Clark, that if it should
result from this investigation that we are making that a recommenda-
tion be made for higher fares — an increase in the rates charged the
general public — that we ought to be able to satisfy the public that we
have investigated all possible economies from the side of the railroad
companies?

Mr. CLARK. Surely.

Commissioner SWEET. And that we are satisfied nothing material
can be done in that direction before our recommendation would have
very much weight with the general public.

Mr. CLARK. Certainly it should, gentlemen.

Commissioner BEALL. Is it not true, Mr. Clark, that for, say, 10

years, there has not been any great new invention of importance of

•the ail of electric-railway equipment for propulsion that will save

any great amount of money, although there has been in electric

lighting and power?

Mr. CLARK. That is true.

Commissioner BEALL. And there has not been any great improve-
ment in the street-railway business?

Mr. CLARK. Xo.

Commissioner BEALL. You have increased the size of the car, and
you have used more power?

Mr. CLARK. Yes.

Commissioner BEALL. But there has been no great improvement in
10 years, that is, that you can see at the moment?

Mr. CLARK. Xo; nothing radical. Of course, you have the one-
man car and minor improvements, but there has been nothing great in
connection with the art, like in electric lighting.

Commissoner BEALL. No ; electric lighting and power has gone for-
ward with great strides.

Mr. CLARK. Yes; certainly.

Commissioner SWEET. Mr. Clark, you will be here to-morrow, so
that is we wish to ask you anything further we can?

Mr. CLARK. I surely will.

The CHAIRMAN. We will suspend until 10 o'clock to-morrow morn-
ing, sharp.

(Whereupon, at 5 o'clock p. m., the further hearing in this case
was adjourned until to-morrow, Wednesday, July 16, 1919, at 10
o'cloc-k a. m.).

WASHINGTON, D. C., July 16, 1019.

The commission met at 10 o'clock a. m., pursuant to adjournment
of yesterday.

/'resent: Charles E. Khnquist (chairman), Edwin F. Sweet (vice-
chairman), Royal Meeker, C. W. Beall, D. B. Wehle, and Philip H.
Gadsden, commissioners.

Appearances: As heretofore noted.

146 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

PROCEEDINGS.

The CHAIRMAN. You may proceed whenever you are ready, Mr.
Wan-en.

Mr. WARREN. I will ask Gen. Tripp to take the stand.

The CHAIRMAN. Mr. Clark was on the stand at the time of adjourn-
ment 3resterday.

Mr. WARREN. Yes. If the commission will permit us, I should
like to defer the completion of Mr. Clark's testimony. He wants
some figures which have not yet arrived, and Gen. Tripp is here and
is very anxious to get away, as he has some other engagements.

The CHAIRMAN. Very well.

Mr. WARREN. And we have two or three other witnesses in the
same situation.

STATEMENT OF GEN. G. E. TRIPP.

Mr. WARREN. Your full name is ?

Gen. TRIPP. G. E. Tripp.

Mr. WARREN. And you are chairman of the board of the Westing-
house Electric Co.?

Gen. TRIPP. Yes, sir.

Mr. WARREN. Gen. Tripp, you have had, I believe, a long experi-
ence and acquaintance with street railways and electric railways ?

Gen. TRIPP. Yes, sir.

Mr. WARREN. Will you kindly state to the commission what that
experience has been and when it began.

Gen. TRIPP. My connection with street railways began as early as
1890, at which time I was in the employ of the Thomson-Houston
Electric Co., and was assigned to the contract for the equipment of
the West End Street Railway of Boston with electrical apparatus.

Mr. WARREN. That was one of the first of the larger systems?

Gen. TRIPP. That was one of the first of the larger systems.

Following that, I was an officer, as auditor and treasurer, of sev-
eral street-railway systems throughout the United States, notably at
Lawrence and Brockton, Mass., and Allentown, Pa.

I then became connected with Stone & Webster, and for about 15
3*ears managed several of their street-railway properties. The man-
agers at Seattle, Wash.; Dallas, Tex.; Fort Worth, Tex.; and Gal-
veston, Tex., reported to me.

I also, during that period, acted as expert on behalf of Stone &
Webster in various examinations of street-railway systems and re-
organizations of street-railway systems.

In 1912, I became chairman of the Westinghouse Co., and in that
capacity directed the policy of the various street-railway properties
in which they were interested.

During that period I was president of the West Penn Railways, a
system operating around Pittsburgh, Pa. I was president of the
Western Light & Power Co. of Colorado, which was owned by
Westinghouse. Church, Kerr & Co., of which I was also president.

I was and am a director in the Interborough Rapid Transit Co.
of New York City, and the Interborough Metropolitan Co. of New
York City, and I was until about two and a half or three years ago,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 147

a director in the New York Railways Co., which operates a large
portion of the surface lines in New York City.

Mr. WARREN. Now, Gen. Tripp, with that experience, which ap-
parently has been continuous, will you tell the commission what the
tendency in the street-railway industry has been during the last few
years — say, since the outbreak of the European war in 1914 ?

Gen. TRIPP. It is more than a tendency. It has been a rapid
progress toward bankruptcy.

Mr. WARREN. And what has been the cause of that — or causes?

Gen. TRIPP. The principal cause — and all other causes are minor
in importance — was the decreased purchasing power of the dollar.

Mr. WARREN. And as regards this particular industry, why could
not that be met by an increased price for the commodity sold by the
companies, the price of transportation?

Gen. TRIPP. Because the fares had been fixed either by franchise
requirements or by popular impression that such a fare was standard
forever at 5 cents.

Mr. WARREN. And, as you say, the result has been that a great
many of the companies are on the verge of bankruptcy?

Gen. TRIPP. Not only on the verge of bankruptcy, but some of the
larger companies are already in bankruptcy.

Mr. WARREN. Can you illustrate, by any particular company with
which you are connected, what the results have been in the last few
years ?

Gen. TRIPP. There is only one company concerning which I feel at
liberty to speak in detail.

I have an intimate acquaintance with the situation in Chicago, be-
cause I participated in the reorganization of the North Side street
railways into what is now the Chicago Railways System. I also
acted for the bankers in the consolidation of the elevated lines in
Chicago, but concerning the situation regarding those companies I
do not feel at liberty to speak.

There is. however, one company which presents perhaps all of the
angles of the question, which I had an intimate knowledge of, and ,
which now being in the hands of a receiver, I see no impropriety in
telling the story about.

Mr. WARREN. What is that company?

Gen. TRIPP. That is the New York Railways Co.

Mr. WARREN. That is the company operating certain of the surface
lines in New York City?

Gen. TRIPP. Yes, sir.

Mr. WARREN. Now, tell the commission the history of that com-
pany and the effect upon it of this reduced purchasing value of the
dollar.

(ion. THIPP. Yes, sir.

The New York Railways Co. is a successor company to the Metro-
politan Street Railway Co., which went into the hands of a receiver
in 1(.}07. The Metropolitan Street Railway Co. operated all the sur-
face lines on Manhattan Island and the Bronx. Receivers were ap-
pointed, I believe, in 1907, and they found the system composed to
a large extent of leases, among which were the Third Avenue lines,
the Second Avenue lines, the bolt lines, sind perhaps one other. Those
leases which I have just mentioned the receivers dropped from the

148 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Metropolitan receivership; whereupon they also went into the hands
of separate receivers.

The securities which were defaulted at that time were two issues
of bonds, one a 4 per cent refunding bond and a 5 per cent general
mortgage collateral trust bond. Each of those classes of securities
organized their own reorganization committee. It seemed wise at
an early date in that receivership for them to join issue, and a joint
committee on reorganization of the Metropolitan Street Railway was
organized ; and I became chairman of that reorganization committee.

In 1911, a reorganization plan was promulgated and accepted,
under which all the securities which were issued, both of the
Metropolitan company itself and the securities of tire leased lines
which still remained in the system, added together, made an aggregate
amount of less than the physical valuation of the property as valued
by Ford, Bacon & Davis, and as verified by myself.

The classes of new securities consisted of a real-estate and refund-
ing 4 per cent bond. I do not just recall the amount, but it was the
only fixed charge upon the new property and, in my then opinion
and in the opinion of all those connected with the reorganization, con-
stituted a security which would be safe against almost anything but
an earthquake.

An issue of income bonds was also put out — those bearing interest
at 5 per cent — and in my estimates I told the reorganization com-
mittee that I believed that those bonds would pay 3 per cent for the
first year, 4 per cent for the second year, and 5 per cent for the third
year of the operations of the company.

The stock, which was reduced in amount from $56,000,000 to about
$T,500,000, was issued to the Interborough Metropolitan Co., which
had been a stockholder of the Metropolitan Co. before the receiver-
ship, upon the payment by them of an assessment of cash. I do not
recall now what that assessment was. However, the total amount of
the securities was not scaled by a figure which represented the dif-
ference between $7,500,000 and $56,000,000, but it was something less,
.because the income bonds and other bonds had been issued to other
classes of creditors, notably the tort creditors, those who had claims
against the system for personal injuries. Their claim was paid in
the same class of securities and in the same amount that the original
4 per cent bondholders of the Metropolitan Street Railway Co. re-
ceived.

The result was that the securities of the Metropolitan system was
scaled something like $40,000,000, as I recall it; and, as I say, the
total of all securities of all the lines now in the New York
Railways system was less than the physical value of the property as
appraised and as verified by me.

Mr. WARREN. Gen. Tripp, may I interrupt you at that point to ask
you : Did that appraisal include any value for the franchises of any
of those lines ?

Gen. TRIPP. No. sir.

Mr. WARREN. That made up the new company ?

Gen. TRIPP. No, sir.

Mr. WARREN. Those so-called and perhaps actual perpetual fran-
chises in them received ofl value in that capitalization?

Gen. TRIPP. They received no value in that capitalization.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 149

Mr. WARREN. So that the capitalization was, perhaps, less than if
the property had been then built for the first time and capitalized at
that time ?

Gen. TRIPP. Yes.

Mr. WARREX. And that was in 1911?
Gen. TRIPP. That was in 1911.

As I recall it, the properties were turned over to the New York
Railways on January 1, 1912.

Under the provisions of the reorganization agreement, the income
bondholders, which had a class of security that was comparable to
that of a preferred stock, required a representation on the board of
the new company. There were nine directors, and the income bond-
holders were entitled to four out of the nine; and I went on the board
of directors as one of the four representing the income bondholders.
My recollection is that we did pa}7 3 per cent on the income bonds,
as estimated.

The directors, of which I was one. thought it wise to set aside cer-
tain reserves, or to build up certain reserves, against accident claims,
and I, for one, coincided with the instructions that had been given us
by the Public Service Commission of New York to either expend in
maintenance or set aside each year a sum which would equal 20 per
cent of the gross earnings.

If these two things had not been done, the result would have shown
a full 5 per cent on the income bonds.

The holders of the income bonds became impatient because we set
aside those reserves claiming, with considerable justice, that if they
did not receive income at the present time, they never would receive
it, because it was not cumulative. So they waited upon me and other
members of the board of directors representing those bonds, and
insisted that we pay out the full net earnings. We declined to do it
on the ground that it was not good business, although we sympathized
with their desire to receive the earnings while they could. Where-
upon, a campaign for proxies was instituted at the next annual meet-
ing, and myself and three associates were ousted from the board.

The New York Railways Co. would have gone along on about the
basis we estimated if it had not been for the war. Due to the increased
expenses, which are the result, in my opinion, of the decreased pur-
chasing power of currency all over the world — it is not peculiar to
this country alone ; and parenthetically, I might say I believe it is a
condition more or less permanent — due to this, the New York Rail-
ways Co. was unable to earn the interest on the real-estate and re-
funding 4 per cent bonds, which, in 1912, we thought were proof
against anything that could happen to the street railway business in
New York.

I think that is a fairly complete story, except something might bo
said regarding the leased lines.

The New York railway system is to-day composed of perhaps 8 or
10 different corporations, their control over them being through the
medium of leases. Some of those leases bear a high rate of dividend.
I think there is one that is as high as 17 per cent. The others average,
I believe, about 9 per cent, but the capitali/aticTi of these leased lines
is comparatively small. They were leased in the early days when a
comparatively small investment had been made, and all the invest-

150 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

ment that has been made since in those companies has been made out
of the money of the Metropolitan system or the New York Railways
and expended on the property of these leased lines. Therefore, the
lease rentals are of a character which would make no difference what-
ever in the result, because they are, in amount of money, a very small
proportion of the whole.

Mr. WARREN. As a result then, of the increased cost of street-rail-
way operation, all the securities of this reorganized .company being
capitalized on the basis that you have stated, that is, at less than the
physical value of the property itself, the company has been unable to
receive recently anything upon those securities in the way of return ?

Gen. TRIPP. Yes, sir.

Mr. WARREN. And even the underlying security of these real-
estate bonds, the interest on those has been defaulted ?

Gen. TRIPP. Yes, sir.

Mr. WARREN. And that is what precipitated receivership?

Gen. TRIPP. Yes, sir.

Mr. WARREN. Do you happen to know, Gen. Tripp, whether Judge
Mayer in the United States court has already segregated certain of
the leased lines from the system ?

Gen. TRIPP. He has within a week issued an order dropping the
Eighth Avenue Railroad out of the system.

Commissioner GADSDEN. What is going to be the effect of that,
General ?

Gen. TRIPP. The effect on whom, Mr. Commissioner?

Commissioner GADSDEN. On the public.

Gen. TRIPP. The effect on the public will not be so serious, in view
of the fact that, as I read in the newspapers, the Eighth Avenue
line was dropped with the provision that the transfer privilege or
exchange of transfers between it and the remaining connections of
the system should still exist on the same terms.

Mr. WARREN. If, however, the courts should hold that the cancel-
lation of that lease left the Eighth Avenue Co. free to make its own
rates up to 5 cents, then the car-riding public would lose the ad-
vantage of the uniform system ?

Gen. TRIPP. Precisely.

Mr. WARREN. So far as that line is concerned.

Gen. TRIPP. Precisely. It would cost them more, and everybody
would be greatly inconvenienced.

Mr. WARREN. Yes.

Commissioner GADSDEN. Is the Eighth Avenue line equipped to
generate its own current and operate its own road ?

Gen. TRIPP. It has no power-house of its own.

Commissioner GADSDEN. It would have to purchase power, then,
from the Railways Co.?

Gen. TRIPP. It could either do that or purchase it from the Edison
Co.

Commissioner GADSDEN. Do you think they will be able to get it on
just as advantageous terms as they have been getting it as an integral
part of the New York Railways now ?

Gen. TRIPP. No.

The CHAIRMAN. Does that company have its own equipment ?

Gen. TRIPP. It has no equipment left of the original equipment.
My recollection is that the lease provides that the equipment shall

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 151

be returned in as good condition as when leased — which might operate
to force the New York Railways to equip the line to a certain extent.

The CHAIRMAN. How many miles are there on the Eighth Avenue
system ?

Gen. TRIPP. How many what?

The CHAIRMAN. How many miles.

Gen. TRIPP. It is a double-track line, extending the whole length
of Eighth Avenue, and running down to one of the ferries — the
Christopher Street ferry. I should judge there were 12 miles of
track.

Commissioner GADSDEN. You say there are 10 other leases of that
character— 8 or 10?

Gen. TRIPP. To the best of my recollection, I would say there are
10 other leases — not of that character; not of that same character,
but 10 other leases.

Mr. WARREN. 1 presume, Gen. Tripp, that the rental on those
leased lines also was stopped, was it not?

Gen. TRIPP. No. As to those leased lines that still remain in the
system, the rentals are being paid by the receiver.

Mr. WARREN. And on this line which has been abandoned the
rental has been dropped?

Gen. TRIPP. That rental ceases, naturally.

Mr. WARREN. Now, under an order of the public-service commis-
sion, a 2-cent charge was permitted on transfers recently, was it not I

Gen. TRIPP. Yes, sir.

Mr. WARREN. On the system?

Gen. TRIPP. Yes, sir.

Mr. WARREN. And if that does not continue as respects this line
which has been separated, then the transfer passengers, instead of
paying 7 cents, will be obliged to pay the sum of the two independent
fares, which at the present time would be 10 cents?

Gen. TRIPP. Yes, sir.

Mr. WARREN. Would you say that that situation had resulted en-
tirely from the reduced purchasing value of the nickel, or, to state it
in another way. from the increased cost of labor and materials and
operating expenses generally?

Gen. TRIPP. Yes, sir.

Mr. WARREN. And which was something which was entirely un-
foreseen when the reorganized property was launched?

Gen. TRIPP. Yes, sir. Of course, we acted — and we were all living
in a fool's paradise in the street-railway business and we suddenly
woke up, when the war woke us up, to find that no business which can
not increase its revenue under any conditions can live or is sound.
The street-railway credit, in my opinion, can never be restored under
the present system of relationship between the municipalities and
the companies. It is necessary to have a credit on a basis that is good
not for two years or three years, but for long periods. Capital stock
never falls due. Bonds usually run for from 20 to 30 years, and in
order to attract private capital into that class of securities herea-fter,
there must be a basis of relationship which will reasonably assure
the investor that for the period for which they are to use his money,
there is a reasonable assurance that he will receive a return, and that
he will l>e protected against unforeseen and unusual things, such as
this war has brought about.

152 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Would you say that the experience of this company
which you have given as an illustration of your general statement is
fairly illustrative of the probable fate of all conservatively capital-
ized street railways, limited by a fixed maximum rate of fare, or, we
will say, a fixed maximum rate of 5 cents?

Gen. TRIPP. I would say that while there may be exceptions to that
rule, practically all. I believe that while this commission is sitting
here, there will be other large systems in large cities of this country
•going into the hands of receivers.

I was familiar with the Brooklyn Rapid Transit situation. As a
matter of fact, I made the application for the receiver on behalf of
the Brooklyn Rapid Transit Co.

Mr. WARREN. That is an elevated company, is it not?

Gen. TRIPP. Yes.

There was a company which had, as I recollect it, $5,000,000 net
surplus for its stock only a year or two ago. It has entirely disap-
peared.

Mr. WARREN. By " disappeared " — these increased costs have ab-
sorbed it, you mean?

Gen. TRIPP. Yes.

The rapidity with which net profits on electric-railway companies
have gone during the last year is the most astounding thing that I
have ever seen in my business experience. They have melted like
snow in a hot sun, and the process is still going on.

As the witnesses have told you yesterday, the full effect of the
raise of wage by the War Labor Board — and I entirely subscribe to
the raise of wage by the War Labor Board. It was unavoidable;
labor must get more wages ; it can not be avoided ; the depreciation
of currency has made it necessary that those who have no margin
upon which to go, like labor, at once receive relief, and the situation
is here to stay so long as the present condition of depreciated cur-
rency exists — therefore the War Labor Board acted properly in
raising these wages, and the unfortunate situation of the street rail-
way, which is unique in itself — probably it may be the only indus-
try in the United States that is in that situation, where they could
not get an additional cent of income to compensate them for these
increased expenses — is a condition for which no one is to blame ex-
cept, perhaps, the investors or early promoters of these companies,
who could not look far enough into the future to see that it was a
fallacy and a fundamental error to invest money in a project where
it was impossible to increase your income. However, that was uni-
versally done, and we can only regret it now.

Nor can the public utility commissions be blamed for not acting
immediately. They require evidence; they move slowly. In some
cases, they have afforded relief.

Therefore the street-railway industry stands to-day unique in the
United States. There is nothing comparable with it.

To illustrate how I regard the value of street-railway securities,
Westinghouse, Church, Kerr & Co., a company of which I am the
president, owned practically all of the securities of a certain com-
pany in Colorado, and I sold that company, or rather, gave the stock
away, without the payment of one cent, if the purchaser would pay
the notes which the company owed Westinghouse, Church, Kerr &
Co. for borrowed money.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 153

Now, when you consider that the stock represented in that transac-
tion physical value, you can see that we had reached the stage where
we were willing to charge it off our books. I, for one, did not care
to go into the fight of abandoning street-railway service in a com-
munity which had had it for many years; nor did we have the or-
ganization to handle it. We were not street-railway operators. We
acquired it because we had to acquire it for a debt. This was a com-
bined company — electric light and power and street railway — and if
the purchaser of those securities, or if the man who accepted the gift
of that stock will cut out the street-railway system and abandon the
service, he will have a profitable property on his hands, and will
have made a good trade.

Mr. WARREN. Through retaining the lighting end of it?

Gen. TRIPP. Through retaining the lighting end and power end
of it.

Mr. WARREN. Reverting to the question of credit. Gen. Tripp, do
you think that the investing public is now aware of the effect of this
limitation upon income to such an extent that it will be impossible
in the future, with a fixed limit substantially higher perhaps than
5 cents, to rehabilitate the credit of the companies?

Gen. TRIPP. It is not, to my mind, so much a question of what the
individual investor feels about it. The individual investor usually
invests upon the advice of his bankers, but there is no doubt but what
the bankers of the country are thoroughly familiar with and thor-
oughly alarmed over the situation.

Mr. WARREN. And any remedy aught to involve the elimination of
the fixed maximum?

Gen. TRIPP. No other solution, in my opinion, would be adequate,
even if cities should remit all taxes, and releve the street-railway
companies of the burdens of paving and all charges of that character.
It would not affect the real situation. In the first place, the amount
involved is not sufficient to make up the difference and, in the next
place, it is attacking the symptoms. Even permission to increase the
fare on the basis of the present relationship is entirely inadequate.
That does not solve the problem. The problem is one which requires
a sound basis upon which to rest, but which permits of different solu-
tions in different localities. Some communities may require a street-
railway service that the population in itself would not warrant, and
perhaps it would be impossible to assess a fare high enough to pro-
duce sufficient net. In those particular localities, if they desire such
service, the remedy is through taxation to support it, or some other
methods. Zone systems may be desirable in some cases. And so.
I think, the basis must be fixed upon which these various solutions
sriay rest.

Mr. WARREN. So it is not only a matter of possibly higher fares,
but a matter of relations between the company and the car-riding
public that it serves?

Gen. TRIPP. I think a new scheme of relationship must first bo
devised.

Mr. WARREN. Do you happen to know. Gen. Tripp, whether what I
have heard this morning that surface lines have gone into the hands
of a receiver, is correct?

Gen. TRIPP. Yes, sir; but as I understand it. there are some linos
that have not gone in. I have forgotten just the make-up of those
100643°— 20 11

151 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

corporations over there. The Brooklyn Rapid Transit is in the hands
of a receiver.

Mr. WARREN. That does not involve surface lines?

Gen. TKIPP. That involves some surface lines.

Air. WARREN. I understood that some more surface lines had,
within a day or two, gone into receivership.

Gen. TRIPP. Well, that may be. I have not heard of it.

Mr. WARREN. I think that is all I want to ask Gen. Tripp. If any
of the commissioners wish to ask him any questions. I hope they will,
because, if I do not undertake to cover all the matters that may in-
terest different members of the commission, I hope they will feel free
to ask the witness any questions which will help them to study this
very difficult problem.

Commissioner SAVEET. Gen. Tripp, it has been said that there are
three parties interested very deeply in this question — the public, the
employees, and the company.

Gen. TRIPP. Yes, sir.

Commissioner SWEET, Do you see any valid reason why there
should be any antagonism among these three elements?

Gen. TRIPP. Not if a proper relationship has been established.

Commissioner SWEET. In order to bring about the condition that
you think is the only one that will guarantee the successful operation
of the roads hereafter, can you see any other possible solution of this
question than the bringing together of these three interested elements
in a full spirit of cooperation?

Gen. TRIPP. There is no other solution.

Commissioner SWEET. How do you account for the prejudice in the
public mind against these railway corporations? There is such a
prejudice, is there not?

Gen. TRIPP. Yes; and it is perfectly clear why it should exist. The
Metropolitan Street Eailway Co. was largely overcapitalized.

Commissioner SWEET. And overcapitalization is one of the reasons
why the public is prejudiced against these companies?

Gen. TRIPP. Yes. Large fortunes were made.

Commissioner SAVEET. Yes?

Gen. TRIPP. They were made, however, out of capitalizing the fu-
ture and selling the securities, and not out of the 5-cent-fare rider.
The 5-cent fare never produced more than a fair return upon the fair
investment of the property. But hopes were capitalized, and hopes
were sold, and the investors have lost money. But the car riders
have not paid for it.

Commissioner SWEET. As another element of prejudice and feel-
ing on the part of the general public against the corporations, has
there not in the past been a great deal of dishonest manipulation of
common councils and public officials on the part of the companies?

Gen. TRIPP. There was no doubt about that, in the early days. I
think of late years that has not been so.

Commissioner SWEET. But that created a feeling in the public
mind that has to some extent remained up to the present time; did
it not?

Gen. TRIPP. Precisely.

Commissioner SWEET. With regard to the discounting of the
future that you have spoken of, the overcapitalization, that is what
the people generally speak of as " watered stock"; is it not 2

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 155

Gen. TRIPP. Precisely.

Commissioner SWEET. The individuals who were chiefly respon-
sible for that, and who made money out of it — are they still-in the
business; or, for the most part, are they out of it; and have they
turned over the capital to innocent purchasers?

Gen. TRIPP. Of course, that question is a general question, and
there may be exceptions.

Commissioner SWEET. Oh, undoubtedly.

Gen. TRIPP. I should say it would be found that very few of these
electric-railway securities will be found in the strong boxes of the
estates of the men who originally promoted them.

Commissioner SWEET. Who are the present owners of street-rail-
way stocks?

Gen. TRIPP. The public, the small investor, the insurance com-
pany; in Massachusetts, to some extent, the savings banks.

Commissioner SWEET. You are speaking now of stocks exclusively,
or stocks and bonds \

Gen. TRIPP. No; I was speaking of bonds, principally.

Commissioner SWEET. Of bonds?

Gen. TRIPP. The public also owns the stock.

At the time of the reorganization of the Metropolitan Co., I met
many of the smaller security holders and, as an example of the
deplorable situation that has been brought about by receiverships,
I remember the case of an old lady, about 70 years of age, who came
into my office, having $10,000 of the 5 per cent bonds of the Metro-
politan Street Railway, which were in default, and, of course, she
had received no interest.

She told me that her husband, who was about her age, had been
an invalid for many years. They had lived together in a little house
out in the country, and they had their money in a savings bank, on
which they were getting $350 or $400 a year income. It was pretty
close manipulating for the old couple to get along, and she con-
cluded that she would invest in these 5 per cent bonds. Her hus-
band was an invalid, and she did not want him to have the worry
of a change of investment, but she felt sure herself. So she drew
the money out without his knowledge, and invested in these bonds
and they had nothing whatever to live on.

That was the most affecting case that came to my attention, but
I met many people who could not afford to lose the money.

Commissioner SWEET. Do you think, General, that that fact is
quite commonly understood by the general public?

Gen. TRIPP. No; I do not think it is.

Commissioner SWEET. Now, the employees, you said in your direct
testimony, were entitled to the raise given by the War Labor Board,
in your judgmeitt.

Gen. TRIPP. In my judgment they were.

Commissioner SWEET. And tlie wages can not reasonably be
reduced ?

Gen. TRIPP. No, sir.

Commissioner SWEET. So that, as far as the employees are con-
cerned, no relief can be expected from the situation that exists by
reason of reducing their compensation i

Gen. TRIPP. No, sir.

156 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. And it would not be right, in your judg-
ment, to consider it from that standpoint ?

Gerr. TRIPP. No, sir.

Commissioner SWEET. That, then, would leave the problem one to
be solved between the general public and the corporation, would it
not?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. And there would possibly be two solutions
there— one that the corporation should lay down entirely and go out
of business, and let the general public do what it saw fit, or else make
some arrangement with the general public, the municipalities, by
which municipal ownership and operation might take place ?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Or, if preferred by the general public, to
have private ownership and operation, then arrangement would have
to be made between the corporation and the general public that would
be mutually satisfactory; and that would contain in it the elements
that you have stated as essential to the continued success of private
operation of these companies. Is not that right ?

Gen. TRIPP. That is exactly as I believe, sir.

Commissioner SWEET. Now, upon what basis do you think the gen-
eral public and the corporation can meet in order to bring about the
condition that would permit of continued private ownership and
operation of these companies ?

Gen. TRIPP. I believe that some form of cost-of -service plan —

Commissioner SWEET. Will you explain that term " cost of serv-
ice?" It is often used.

Gen. TRIPP. Well, Mr. Commissioner, I am not an expert in the
various plans of cost of service which have been submitted but it is
based upon this theory, as I understand it, at least, that is the kind of
cost of service that I mean ; I do not know whether it is what the ex-
perts call " cost of service." It is that the income of electric railways
shall be sufficient to pay a proper wage to the workmen and the cost
of operation, properly provide for depreciation and obsolescence, and
to pay for the money actually and honestly invested in the property a
fair and just return. If the fare is fixed so that a larger return than
that is received, then the surplus may be treated in various ways. I
believe that in order to get efficient operation, to have personal initia-
tive and to have proper economy in operation, it will be necessary to
say to private capital, " If there is a surplus, you shall receive a por-
tion of it for an incentive to do good work." The remainder could go
to the public.

Commissioner SWEET. In the shape of reduced fares?

Gen. TRIPP. Yes; but that would not operate immediately each
year. As the surplus was accumulated over a period of years, it
could operate to reduce fares. Some cost-of-service plans, as I un-
derstand it, make the participation of the company in the surplus
larger as the fare is decreased, furnishing an incentive to them to
work toward decreasing the fare.

Commissioner SAVEET. Yes.

Gen. TRIPP. I do not myself feel that it would be wise to make a
direct participation for labor in this surplus, because it is too uncer-
tain. Labor should be paid for it all that can fairly be paid for it.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 157

The return should be steady and fixed, and if a surplus is accumu-
lated that permits an increase of wages, well and good ; but to have
them participate in an uncertain amount, I believe would prove
unsatisfactory.

Commissioner SWEET. By what method could this arrangement
that you speak of be affected — by legislation, State laws, or some
sort of agreement between the companies and the municipalities, or
in what practical way ?

Gen. TRIPP. Well, I have believed that if this commission should
make a strong and unequivocal recommendation that, in their opin-
ion, for example — if they did believe it — some fundamental plan of
that kind was necessary to save the industry, that with that, each
company could go before their properly constituted authorities — •
before the municipalities in some States, where they have not com-
missions, or before the commissions where they have commissions —
and a satisfactory arrangement could be made. The municipalities
and the public-service commissions would be glad to do this if they
felt that public opinion was behind such a plan.

Commissioner SWEET. So, in your judgment, the real solution of
the whole problem goes back to the matter of creating a sound and
correct public sentiment on the subject?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. And that means the eradication of a number
of ideas that have come down from the past in the way of prejudices
that might be removed if the facts were fully understood. Is that
your opinion ?

Gen. TRIPP. Yes, sir ; that is my opinion.

Commissioner SWEET. I think you said in your direct testimony
that, in your judgment, the elimination of taxes, direct and indirect,
we will say, would not afford a proper and perpetual solution of the
problem.

Gen. TRIPP. Yes, sir.

Commissioner SWEET. In your opinion, would it be just that the
custom in regard to paving between the tracks and little outside
should be changed ? Do you think that is a

Gen. TRIPP. I think that is an unjust burden, per se.

Commissioner SWEET. An unjust burden?

Gen. TRIPP. On the properties ; yes, sir.

Commissioner SWEET. How did that originate ? When was the be-
ginning of that as a custom ?

Gen. TRIPP. It was a part of the inducement which the earty pro-
moters, in some cases, held out, and it was also, in some cases, a
requirement on the part of the municipalities, until it gradually,
perhaps — no one can say — became an established policy.

Commissioner SWEET. Was there not a certain element of justice in
it in the old horse-car days?

Gen. TRIPP. Yes; there was to that extent, and it was to some
extent a relic of the old horse-car days.

Commissioner SWEET. Have you not found, General, that offieo
seekers — candidates for official positions in cities — have made it quite
a point in the past to decry the public-service corporations — the pub-
lic-utilities corporations — and found it a very good way to get votes.

Gen. TRIPP. Oh, yes; undoubtedly.

158 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. And, as a corporation man, you think that
is all wrong?

Gen. TRIPP. I do, yes, sir; decidedly.

Commissioner SWEET. That situation, however, has taken into ac-
count the prejudice that we spoke of a few minutes ago ; has it not?

Gen. TRIPP. Exactly.

Commissioner SWEET. Against these corporations?

Gen. TRIPP. Yes, sir; exactly.

Commissioner SWEET. Created to some extent by their own dis-
honest conduct in trying to influence officials to do what is wrong?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. That is true: is it not?

Gen. TRIPP. In some cases. I do not state

Commissioner SWEET. And overcapitalization in other cases ?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. If the general public and the corporations
are to get together, there is no doubt, in your mind, I presume, but
that every single fact known to the corporations must be honestly
and squarely presented to the public?

Gen. TRIPP. Oh, it must be. There is no other course.

Commissioner SWEET. And on this cost proposition there would
be perpetual need, would there not, for public inspection of the books
of the corporation?

Gen. TRIPP. That follows naturally.

Commissioner SWEET. The public would have to know exactly
what was being done?

Gen. TRIPP. They would have to know.

Commissioner SWEET. By way of receipts and expenditures?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. And you would have a representative or
representatives of the public on the board of directors of the com-
pany ?

Gen. TRIPP. I have not thought that far. They certainly must
know. My only hesitancy on that point is whether a representative
of the public on the board would perform the duties in such a
manner as to expedite and encourage the efforts of the management
in bringing about efficient operation and economies, or whether he
would regard his presence on the board as representing an antago-
nistic element. But there must be, whether it is a representative on
the board of directors or brought about in some other way, a full
knowledge of the affairs of the company, full control and regula-
tion, and it may easily be that a careful consideration would show
that in this new relation it would be necessary to have a representa-
tive of the public on the board. But, as I say, I approached that
particular thing with some hesitancy. Boards which are divided
among themselves and do not arrive at a unanimous and har-
monious conclusion upon everything that is brought before them
certainly harm a company and its prosperity.

Commissioner SWEET. Going back to the paving proposition — in
your judgment do the owners of automobiles now, under the present
system, pay for any part, directly or indirectly, of the paving be-
tween the street-railway tracks?

Gen. TRIPP. No, sir; except so far as the State automobile license
tax would apply to that, in some cases.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 159

Commissioner SWEET. How is it with regard to paving with the
street-railway companies? Do they pay for it?

Gen. TRIPP. Do they pay for the paving?

Commissioner SWEET. Yes, sir. In other words, does it come out
of their nickels ?

Gen. TRIPP. Yes; it comes out of their nickels.

Commissioner SWEET. Is it a fact, then, that under the present
system one part of the community — the part least able to bear it —
pays for that paving of the streets, and the automobile owners — the
part presumably the best able to bear it — are relieved of that burden ?

Gen. TRIPP. Absolutely.

Commissioner SWEET. Do the automobile owners get any benefit
of that paving?

Gen. TRIPP. Yes; they do.

Here is a very amusing incident, if I may be permitted to refer
to it. I am told that in Boston the automobile owners complained
because there was no place to park their automobiles on Charles
Street, and the city authorities took a portion of the common, or
of the public ground — I have forgotten which, as I have not seen
it — and widened the street at that point to about 20 feet — paving
the street — and paid for it, and turned it into a place where auto-
mobiles might be parked, when running right in front of them
along the same street is the street-railway company, which is paying
for the maintenance *>f the paving over which it runs.

Commissioner SWEET. Do you regard the automobile and the j itney
as responsible to some extent for the present situation?

Gen. TRIPP. Yes.

Commissioner SWEET. But, if I understood you right in your direct
examination, you do not regard them, by any means, the sole culprits ?

Gen. TRIPP. No.

Commissioner SWEET. Now, with regard to the increase of fare,
if I understood you correctly, you think that that would not be a
panacea for the trouble?

Gen. TRIPP. It would be temporizing, Mr. Commissioner. It might
solve the question for to-day in a particular case, but if it is fixed,
and there is no provision for prompt readjustment of it to meet
changed conditions of finance or operation, you may in another
year, be just where you are to-day, with a new rate of fare.

Commissioner STVEET. In other words, do you think there should
be greater elasticity in the system?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. To adapt itself to changing conditions?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Would this be a further reason why the
raise of fares might not afford the necessary remedy, that sometimes
the raising of fares diminishes the patronage to such an extent that
the income received is not really increased?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Is not that true?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Would not that be particularly true with re-
gard to the distances, the short runs?

Gen. TRIPP. Yes, sir.

1 30 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Where people could walk readily if they de-
sired to do so?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. And perhaps would, rather than pay the
increased fare?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Do you regard the present prevailing system
of charging the same amount for short hauls and long hauls as just?

Gen. TRIPP. No; I do not regard it as just.

Commissioner SWEET. Is it good business?

Gen. TRIPP. It is not good business.

Commissioner SWEET. Well, how would you change it?

Gen. TRIPP. Of course, the only change that I know about would be
a zone system, such as is universally used almost all over England
and the Continent.

Commissioner SWEET. How is it working there?

Gen. TRIPP. Working perfectly well.

Commissioner SWEET. Will you describe that zone system, so we
will understand more fully what it is?

Gen. TRIPP. A zone system simply consists in certain zones. After
you pass out of one zone into another you pay an additional fare.
The fare in England, in the shorter zone, is low. I just do not recall
what it is, but it is less than 5 cents, or its equivalent.

Commissioner SWEET. Yes.

Gen. TRIPP. But it increases as you go out into the suburbs.

Commissioner SWEET. Would not that necessitate a great deal of
bother and annoyance that Americans would object to ?

Gen. TRIPP. That is the objection. It is not based on sound eco-
nomics and it is not just, but it is the custom in this country.

Commissioner SWEET. You mean the present system ?

Gen. TRIPP. Yes; the present system.

Commissioner SWEET. But I am speaking of the zone system, and
I am asking you whether Americans would not rather object to
paying these small amounts as they pass from one zone into another.

Gen. TRIPP. Well, I don't know. They are becoming more or less
educated to do it on interurban lines and, I have heard, some cities
have recently adopted it. I do not know how it is working. My
impression has always been that they would object, but I have never
known of its being tried in a large community; so I do not know
that it has ever been proved that they would object.

Commissioner SWEET. But you think that that is a just and a busi-
ness way of handling it?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. How about general taxes? -Do you think
that the street-railway companies ought to be taxed on their physical
property ?

Gen. TRIPP. Under the present theory of relationships, there is no
reason why they should be taxed.

Commissioner SWEET. Is there any consideration, do you think,,
which should be taken of the value of their franchises?

Gen. TRIPP. For purposes of taxation?

Commissioner SWEET. Yes.

Gen. TRIPP. No, sir.

Commissioner SWEET. Merely the physical properties?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 161

Gen. TRIPP. Yes, sir.

Commissioner SWEET. That should be assessed on the same gen-
eral basis as other properties owned by private individuals?

Gen. TRIPP. Yes, sir.

Commissioner GADSDEX. General, on the present basis do you
think the persent franchises have any value on which to base
taxation ?

Gen. TRIPP. No, sir.

Commissioner SWEET. They are rather negative, are they not?

Gen. TRIPP. Precisely. They are decidedly negative.

Commissioner SWEET. Do you see any practical way of diminish-
ing the expense of operation of the street railways?

Gen. TRIPP. No, sir; I can not.

Commissioner SWEET. Do you think that the last word has been
said on that subject, practically?

Gen. TRIPP. So far as I can see ; yes, sir.

Commissioner SWEET. The charts that have been shown us have
brought out a rather interesting point in regard to the peak of the
load, that where there are great variations at different times of the
day, a problem arises that is hard to solve and results in less profit
to the company. That is true, is it not ?

Gen. TRIPP. That is true; yes, sir.

Commissioner SWEET. Can you think of any way that might be
met that would be just to the general public and bring about better
results ?

Gen. TRIPP. No; I can not think of any way. Experiments have
been tried of low fares during nonrush hours to fill up the valleys
but, so far as I have observed, they have only demonstrated that
people won't ride unless they want to. They won't go down town
unless they have business down town, and those experiments have been
unsatisfactory ; at least all that have come under my notice.

Commissioner SWEET. So it is necessary for the companies to
haA'e the equipment required by the highest point, and then at other
times of the day to leave that practically idle.

Gen. TRIPP. Yes, sir.

Commissioner SWEET. What is the custom in regard to employees
in cases of that kind? Are the conductors and motormen on these
cars that are not used in the quiet part of the day idle, too ?

Gen. TRIPP. No ; there is a great deal of lost time that is paid for.
In other words, time that is not represented by platform service. At-
tempts are made, of course, to put in swing runs, as they call them,
and so they utilize to the greatest extent possible the time of the men.

Commissioner SWEET. In trying to show the general public that
the companies were doing what was right and fair, would you con-
sider that the capital stock of the companies as it now stands through-
out the country should be the basis for earnings or that the value of
the physical properties should be the basis for earnings?

Gen. TRIPP. I do not think you can take the stock as it now stands
as a basis for earnings allowed under a new relationship, if that is
what you mean.

Commissioner SWEET. Yes.

Gen. TRIPP. However obnoxious it may be to some of us who aie
in the business, I see no other method than to base it on the in-

162 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

vestment of the property, regardless almost of the securities that
are outstanding.

Commissioner SWEET. Would you mean the original honest in-
vestment or the present value of the property ?

Gen. TRIPP. I believe — and here I am expressing only my own
personal belief; I do not wish to commit the Committee of One
Hundred on this point — I believe that the fair method is to take the
money that has been honestly invested in the property.

Commissioner SWEET. Going back in many cases to the horse-car
days, and then through the various systems up to the present time,
do you mean?

Gen. TRIPP. Well, it is not such a tremendous job as that. I do
not believe that in these days you would find the investment in the
horse-car lines ever put forward as a part of the cost of the present
system.

Commissioner SWEET. Some of these roads, however, that are
operating to-day started as horse-car systems.

Gen. TRIPP. Yes; that investment has probably been written off
and disappeared in the tremendous increase in investment that has
come since those days. I could determine to my own satisfaction in
any property, I believe, the amount of investment that was honestly
made in the property.

Commissioner SWEET. Would you arrive at that by an examination
of the property itself, and take your own knowledge of the transitions
that have been gone through, and perhaps add a little something to it,
and fix the amount in that manner?

Gen. TRIPP. No; I would not do it that way, Mr. Commissioner.
I would take the different classes of securities that have been issued
on a given property, however many there might be, and it would be
easily determined how much money was received for an issue of
bonds and what became of the money. These men in the early days
did not steal the money. That is a popular fallacy. There was no
money taken. The money went into the property. Securities were
issued, however, on "general hopes". They issued "general hopes 5's",
if you please, for which no cash was received. Now, it is easy to
segregate that class of security from the class of security that was
honestly sold for cash, and it does not require a valuation of the
property in minute detail to arrive in any given case at a fair in-
vestment in a given property upon which to rest a new relationship
between the public and the company.

Commissioner SWEET. Do you think it would be easy to demon-
strate to the average citizen that an arrangement ought to be made
with these companies that would enable them to make profits upon
property that was not liable to taxation?

Gen. TRIPP. I do not quite follow that question, Mr. Commissioner.

Commissioner SWEET. I assume from what you have just said that
your method of arriving at the value of a street-railway property
would bring about the result that something more than the physical
value of the property would be allowed to the company upon which,
under the plan that you have suggested, the company would be per-
mitted to pay dividends.

Gen. TRIPP. I have not intended to convey the impression that I
meant anything more than the physical value of the property, or

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 163

rather, the cost of this property; it may not be the physical value
today, it may be more or less.

Commissioner SWEET. I see. I got the idea from what you said
that, figuring the actual amount that went in to the property

Gen. TKIPP. Yes.

Commissioner SWEET. Would be something more than the physical
valuation of the properties at the present time.

Gen. TRIPP. No, I did not intend to — I do not think so.

Commissioner SWEET. It might just at the present time, based
upon higher priced material and lauor; perhaps the physical value
of the properties would exceed the cost, figuring on the basis you
have in mind.

Gen. TRIPP. Yes, it might.

Commissioner SWEET. In some cases.

Mr. TRIPP. Yes, it probably would, on the cost of reproduction at
present prices.

Commissioner SWEET. Of course it would be necessary for the gen-
eral public to be satisfied as to the amount upon which dividends
were to be paid, would it not ?

Mr. TRIPP. Yes, absolutely.

Commissioner SWEET. What plan would you suggest as being the
most satisfactory for the determination of that amolmt?

Mr. TRIPP. From the standpoint of the general public?

Commissioner SWEET. You have to satisfy the general public be-
fore you can do anything, have you not?

Gen. TRIPP. Well, I believe the general public will understand the
simple proposition that the amount we are allowing here upon which
money shall be earned is the money that has actually gone into the
property, better than they will if you undertake to explain that
this valuation has been made upon a complicated cost-to-reproduce
plan. You have then to go into explanations: What prices are you
using in your value, cost to reproduce, existing prices, average
prices, prices before the war; and you get into such a maze of theories
and testimony that the general public throAv up their hands at and
say we do not understand anything about it. But they do under-
stand they are entitled to a return upon the money they put into
the property.

Commissioner SWEET. You think, then, the public would be satis-
fied with the report of an expert accountant who might examine
the books of the company ?

Gen. TRIPP. It is hard to say what the public would be satis-
fied with. They do not bplieve very much that the street-railway
interests tell them, unfortunately. I think —

Commissioner SWEET. How would it do for the municipal authori-
ties to name a committee either of their own members or of citizens,
or both, to investigate that subject ? Because it is one that would
have to be settled before any basis could be reached.

Gen. TRIPP. Well, that might be a way to do it.

Commissioner SWEET. You said you thought the lower purchasing
power of money was a somewhat permanent condition not only
in this country but throughout the world, did you not?

Gen. TRIPP. Yes; I do think so.

Commissioner SWEET. Consequently you think that the price of
material as well as higher wages is rather permanent ?

164 PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION.

Gen. TRIPP. I do; yes sir. I think that until these tremendous
war debts are very largely liquidated there can be no marked re-
duction in prices, or rather a resumption and a return to the old
value of currency. The war debts are half paid to-day by a de-
preciated dollar. In the very depreciation of the dollar it pays
50 per cent of the war debts, and it may be a very wise economic
law and prevent great national disaster that that should happen.
And until these debts have been reasonably well liquidated and taken
care of I see no hope for lower prices to any particular extent.

Commissioner SWEET. So that the street-railway fares, if based
upon the actual purchasing power of money, would to-day be con-
siderably more than a nickel; would they not?

Gen. TRIPP. Oh, yes, they would be 10 cents.

Commissioner SWEET. But if I understand you right, that would
not solve the problem entirely, because it would still lack the ele-
ment of elasticity ?

Gen. TRIPP. Precisely.

Commissioner SWEET. How would you introduce that element?
How would the various changes be made under your plan to meet
the varying conditions that might arise?

Gen. TRIPP. You would have to increase fares as the first step,
and then

Commissioner SWEET. That would be tentative, I suppose.

Gen. TRIPP. Tentative. And then the surplus account of the
companies — the accumulated net profits of the companies — would be
the governing

Commissioner SWEET. The barometer?

Gen. TRIPP. The barometer. As we reached a higher or lower
point your fares would be adjusted, not at frequent periods but
often enough to keep the thing in a stable equilibrium.

Commissioner SWEET. So that whatever arrangement is made
would in your judgment need to include the ability to adjust and
readjust and then readjust?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. As might be demanded by changing condi-
tions ?

Gen. TRIPP. Yes. We must put the street-railway industry in the
position that every other business is in — that it can adjust the price
of its product to the cost of the product.

Commissioner MEEKER. You were on the subject" of investment as
the proper basis for determining the amount upon which earnings
should be calculated. Will you elucidate that a little more fully?
How is it possible to get at the actual money put into a property?

Gen. TRIPP. I think the most feasible method would be an examina-
tion into the various classes of securities that have been issued upon
an electric-railway property from its beginning as an electric-railway
property, and not go back into the horse-car days — that examination
to develop what disposition was made of the securities, whether they
were sold for cash, and if so, at what price; or, to state it in another
way, at what discount. I think the history of each company, as re-
gards its security issues, would be readily available and that that
method would be more feasible than an examination of the books.
The books of a street-railway company show on its asset side certain
arbitrary items which are simply used to offset items upon the credit

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 165

side and do not in themselves represent in all cases investment in
the property. And since these systems are thirty to thirty-five years
old and many of them have been through receivers' hands and have
changed hands, it would be almost an impossibility to trace through
the books of account the investment in the property. While, on the
other hand, as I have just stated, evidence regarding the different is-
sues of securities is always available.

Commissioner MEEKER. Would it not be necessary to take account
of the money investment in the original horse-car lines, or would you
write that off as a loss ?

Gen. TRIPP. Those electric railways which began as horse railways
and were equipped and developed as a system starting with horse
railways, like the West End of Boston for example, probably have as
clear a record in regard to their securities issued in the horse-car days
as they have in the electric days. I know that to be so in the case of
the West End Street Eailwa}r, at least as far back as 1860, because
in some litigation that was had in Massachusetts, the issue being
something I have now forgotten, I was employed to report upon the
security issues and what became of them — how they were disposed
of — from 1860. That went back into the Middlesex Railway time.
And I had no difficulty in securing information and getting a state-
ment which satisfied the court as to the disposition of all of those se-
curities back to 1860.

Commissioner MEEKER. Then your answer would be that in the
horse-car line it will be necessary to take account of all investments,
even in the horse-car days ?

Gen TRIPP. I then would like to go on a little further with my
answer. There are some companies, however, that started by buying
up the horse-railroad system. That made a clean start. They usu-
ally bought the horse-railroad system for less than it cost. And I
do not believe that in those cases the public would be endangered if
they started at that point. So where an electric railway started by
buying up an existing horse railway and made a clean start I would
make a clean start there also.

Commissioner MEEKER. You think it is easier and better policy to
get at the investment in the way that you have indicated rather than
to make a physical valuation of the properties now existing?

Gen. TRIPP. A physical valuation of the property, Mr. Commis-
sioner, would not determine the investment. It would determine the
value, and that value would be figured on some basis of prices. An
arbitrary assumption would have to be made as to what period they
would take for the purpose of establishing prices on such a valua-
tion. It would be impossible to take each item of an electric railway
and ascertain what the original price paid for that particular piece
of apparatus' was, because in the first place it does not represent
the whole investment; it may haVe been replacement of an original
piece of apparatus and the difference between the cost of the original
piece and the new piece charged to plant account, while the value
of the old piece would be charged to operating expense. So that
there is no method of valuation which will determine the investment
in the property.

Commissioner MEEKER. Will it not be necessary to make assump-
tions and hypotheses in getting at actual investment in the way you
have indicated?

166 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Gen. TRIPP. No; I distinguish between investment and valuation.
By investment I mean the money that was spent on the property.

Commissioner MEEKER. By that you mean the money that was
turned back into the improvement and extension of the road out of
earnings?

Gen. TRIPP. That would be part of it. The other part would be
the money received from the sale of bonds and expended on the
property; the money received from the sale of stock and expended
on the property.

Commissioner MEEKER. And the accounts of the railways will show
all of these additions to investment, whether they are additions in
the purchase of bonds and stocks or whether they are additions made
out of earnings?

Gen. TRIPP. No, I do not think that the books of account of the
companies, generally speaking, are in such a condition as to show
that. And for that reason I have suggested that the books of ac-
count be ignored ; that evidence be taken as to the securities that have
been issued from the beginning on this property — what they were
sold for and what became of the money. The mere fact only would
be established — did the money go into the property ? Having estab-
lished that the money went into the property, that would be suffi-
cient evidence to call it investment upon which a return is fair and
just.

Commissioner MEEKER. Pardon me for my persistence, but I want
to get this perfectly clear. There would be some record somewhere,
would there not, whether it be on the books of the company or where-
soever, showing property extensions or improvements made out of
earnings ?

Gen. TRIPP. Yes, the books of these companies would probably
show that, but

Commissioner MEEKER. You would include all of such increases
in the value of the property of the company made from earnings
in the investment — capital investment?

Gen. TRIPP. Yes.

Commissioner MEEKER. I would like to ask you about the economic
justification for including as part of the investment, upon which
stockholders and bondholders are entitled to receive income, invest-
ments that are made not by stockholders and bondholders but by the
riding public.

Gen. TRIPP. Well, if you refer, Mr. Commissioner, to the money
that has been turned back into the property from the earnings, I
can not quite subscribe to your theory that that is an invesment.

Commissioner MEEKER. I have not expressed any theory. I beg
your pardon.

Gen. TRIPP. Well, I can not quite subscribe to the 'idea, I will
amend that — I can not quite subscribe to the idea that that is an
investment by the rider. The earnings that have been turned back
into the property were net profits that the stockholders were entitled
to. They chose, instead of taking those in cash, to put them back
into the property. There is no difference between that method and a
method where they had collected the dividends, put them in their
pockets, taken the money out of their pocket again and purchased
additional securities of the street railway in order to furnish it funds
for the necessary development.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 167

Commissioner MEEKER. Are there any limitations in any of the
municipalities with which you are acquainted upon the dividends
that may be paid upon stock?

Gen. TRIPP. There are some of the recent arrangements of cost-of-
service plans which have such limitations.

Commissioner MEEKER. You see the drift of my question. If
there were a limitation, say of 8 per cent, upon stock it would be
possible for the company to earn 16 per cent, let us say, and still pay
8 per cent dividend. This is merely a hypothetical question, under-
stand.

Gen. TRIPP. Yes.

Commissioner MEEKER. And put back into the property of the
company 8 per cent. And I do not think I need to explain any
further how that would be a subtle way of doing just wrhat I have
suggested might be done, making improvements in the property of
the street-railway company out of the fares paid by the riding puolic.
Is not that true?

Gen. TRIPP. "Well, Mr. Commissioner, where such a limitation
exists provisions are also made as to what shall be done with the
surplus over the 8 per cent. And in the city of Chicago, the city
entered into a contract with the Chicago railways by which a surplus
over a certain dividend — I do not remember the amount — should be
divided between the city and the company, the city taking 55 per
cent and the company taking 45 per cent. Now, if the company chose
to reinvest its 45 per cent, I think it fairly belongs to the company.

Commissioner MEEKER. Do you think it might be a fair way of
getting at the property upon which income is to be allocated to the
bondholders and stockholders by taking account of either apprecia-
tion or depreciation in the physical properties of the companies?

Gen. TRIPP. No, sir. My theory excludes the question of deprecia-
tion or appreciation.

Commissioner MEEKER. I want to get that clear. You spoke of
the New York Street Railway Co. As I understood you, you said
there were 11 leased lines, or is it 12 lines leased?

Gen. TRIPP. Approximately 10, I think I stated, at the present
time.

Commissioner MEEKER. Ten, all told?

Gen. TRIPP. I think so.

Commissioner MEEKER. Including the Eighth Avenue line?

Gen. TRIPP. I would like to say I would not like to be held too
closely to those figures. I am testifying from memory and I am
only approximating the figures.

Commissioner MEEKER. Yes. What I wished to get at was ap-
proximately the proportion of the lines operated b}^ the New York
Street Railway Co. that are leased lines.

Gen. TRIPP. In mileage of tracks?

Commissioner MEEKER. Yes, that would be sufficient, I think.

Gen. TRIPP. My estimate is but little better than a guess, but my
guess is 25 per cent.

Commissioner MEEKER. Seventy-five per cent are owned outright
by the company?

Gen. TRIPP. Yes.

Commissioner MEEKER. And as I understand your statement, somo
of these leased lines draw high dividends?

168 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Gen. TRIPP. Yes.

Commissioner MEEKER. Is not that rather a high interest upon
bonded debt?

Gen. TRIPP. You mean does not that produce

Commissioner MEEKER. Is it not a fixed charge on the New York
Street Kaihvay Co. in the shape of a bonded debt?

Gen. TRIPP. In so far as those high rentals exist, standing by them-
selves, they are high. There are only two or three which are high.
Those two or three constitute such a small proportion of the total
aggregate fixed charges upon the whole system that its effect is
almost negligible in the whole. But viewed as a property standing
by itself, the return is high.

Commissioner MEEKER. Could you submit for our information a
statement or some printed document that would give us more infor-
mation about this particular street-railway line, the percentage of
leased lines and what that obligates the company to ?

Gen. TRIPP. I will, with the permission of the receiver of the New
York Railways. I am not an officer, I am not now a director, and I
think I should have to get his permisison, but I will do that ; I will
ask him.

Commissioner MEEKER. You also made the statement, as I under-
stood it that, the 5-cent fare, generally speaking, was only sufficient
to pay a reasonable return upon investment.

Gen. TRIPP. Yes.

Commissioner MEEKER. So that as a matter of fact there has been
very little extension and improvement work done out of the earnings
of the street-railway companies so far as you know ?

Gen. TRIPP. Well, the stockholders of street railways have fore-
gone the collection of dividends to quite a large extent and that
money has gone back into the property and constitutes, in my judg-
ment, a large sum. But that is not inconsistent with my statement
that a 5-cent fare has yielded only a fair return, because they have
not taken the return.

Commissioner MEEKER. The return reinvested in property was
not what could be called an excessive return in any case ?

Gen. TRIPP. No, sir.

Commissioner MEEKER. In regard to the zone system, you said, as
I understood, that you were not aware of its being put in operation
on any large system.

Gen. TRIPP. No ; I am not aware of it, Mr. Commissioner.

Commissioner MEEKER. Is it not the same thing, however — the
extra fares that are charged on the Massachusetts interurban lines

Gen. TRIPP. Oh, yes.

Commissioner MEEKER. Lines that extend beyond city or township
limits?

Gen. TRIPP. Oh, yes ; that is in universal operation throughout the
United States — the zone system on interurban lines.

Commissioner MEEKER. Is not the evidence then pretty conclusive
that the American peopde have paid zone fares and would probably
continue to pay them even on a different principle, if they were
obliged to?

Gen. TRIPP. Yes, they might. As I stated, it has been the general
opinion of street-railway men that the public would not stand for it,

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 169

as they say, but I do not know how they arrived at that opinion,
because it never has been tried.

Commissioner BEALL. You mean within the limits of a city ?

Gen. TRIPP. Within the limits of a city; yes.

Commissioner MEEKER. I presume that they argue that we are
different from Europe and because they do it in Europe we can not
do it in this country.

Gen. TRIPP. That may be so.

Commissioner MEEKER. I have been very greatly puzzled by the
very great difference between the cities in the earning capacity of the
street-railway lines. The New York Street Railway Co. is in bank-
ruptcy. It seems to me that there is a company that should make
money, if any*ompany could make money, as it appears to me, and
I have read in the newspapers' recently — I do not know that that can
be taken as evidence — but I have read in the newspapers that the
street railways of San Francisco are very prosperous. Now the
traffic conditions are somewhat different, as I conceive, as between
New York City and San Francisco, yet not sufficiently different to
account in my mind for the enormous difference. Can you give us
any explanation of these differences, if they exist; and if they do not
exist, will you tell us that they do not?

Commissioner BEALL. Did you mean, Commissioner Meeker, the
lines that the city owns in San Francisco or the lines that the private
company owns?

Commissioner MEEKER. I am not prepared to say, because the
newspaper articles I read did not state —

Commissioner BEALL. The lines that the private company owns
are not prosperous but the lines that the city owns are short lines
with heavy density of traffic and have a high fare and are prosperous.

Gen. TRIPP. Different conditions do exist in different cities. There
are many factors that enter into it. In New York City the cost of
construction was tremendous. They have an underground trolley
system. The formation of the island is largely rock foundation. In
some cases they had to move the Croton water main. It cost $500,000
to go through Union Square alone on that account. The ground
under New York City is a perfect network of gas pipes, water pipes,
electric conduits and everything you can imagine; so the construction
of an underground trolley all over Manhattan Island was a tre-
mendously expensive proposition, and the capitalization in that case
was honestly very much more than in most other cities. That made a
large -capitalization. Then they were confronted with the congestion
in those narrow streets which reduced the car-mile speed; I have
not the figures now, but a very marked reduction in speed over what
we were able to get in other cities. So the service that you got out
of a car was much less; the service that you got out of the platform
men was much less. Then we have the competition, of course, in that
longitudinal island — avenues running up and down the island, the
competition of the subway and elevated lines, which was more intense
there than anywhere else.

The street railway would never have lived in New York except for
the tremendous earning power per car-mile: and that offset these dis-
advantages, but it left it with a narrow margin. As a matter of fact,
the street-railway business has existed on a narrow margin for 15
years, and it did not take much to wipe out that margin.

1GOG4.'{°— 20 12

170 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Now, there are other cities where the lines have not properly cov-
ered the city, where the people are not getting the service that they
ought to get out of a street-railway system. The street-railway sys-
tem is taking the cream. And those lines, wherever they exist, may
be able to run on a 5-cent fare.

The situation in Washington here is a splendid illustration of
that situation. One company can earn a return, as I understand it,
on a 5-cent fare. The other company, which gives a service out into
the suburbs, which serves the people, which appears to me better
than the prosperous company, is penalized; it can not make a fair
return because it gives a different kind of- service — it sells a more
expensive product.

So the factors that enter into any given locality ar^numerous and
differ in each locality. But even the 'prosperous ones, if there are
any left, are operating on a narrow margin.

Commissioner MEEKER. The moral for the commission is not to
indulge in too broad generalizations?

Gen. TRIPP. Yes.

Commissioner MEEKER. But deal with each community according
to the particular conditions in that community?

Gen. TRIPP. Yes. Generalizations are dangerous in this inquiry,
except so far as they are necessary to bring out a condition which
can be shown to be universal, regardless of local conditions. The
street railways in general are bankrupt, regardless of local condi-
tions. There are different degrees 01 bankruptcy, if you please.
Some are worse bankrupt than others; some are just skinning along;
some will be bankrupt within a week. But there are different de-
grees of it.

Commissioner MEEKER. As I understand you, in answer to Com-
missioner Sweet's question you said you did not think very much
improvement in street-car equipment and organization was possible,
at least it is not at present in sight, so that we can not look for the
cutting down of the cost of the service to any great extent, so far
as we are able to see ahead now.

Gen. TRIPP. No, sir; you can not.

Commissioner MEEKER. In regard to the New York City situation,
would it be at all feasible, do you think, to adopt perhaps the one-
man car for the surface lines — some of the surface lines that are
competing with the long-haul subway and elevated lines?

Gen. TRIPP. I should think in New York City it would be about
the worst place that you could operate a one-man car. At rush
hours a one-man car simply could not handle some of the traffic,
particularly on the downtown cross-town lines leading to Brooklyn
Bridge and to the various ferries and Hudson tubes.

Commissioner MEEKER. Pardon me, may I interrupt there? I was
speaking of the lines that are running in competition with the ele-
vated and the subway lines — the north and south lines in general—
and may I add here, would it be possible to run them at frequent
enough intervals merely for local traffic under a zone system, so that
it might relieve the elevated and' subway lines and might perhaps
contribute toward the solution of the transportation problem ?

Gen. TRIPP. My judgment would be that it would not, generally
speaking. The cars are already operated on the principal longitudi-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 171

nal lines about as closely as they ought to run in rush hours and
they could not get them any closer. And of course a car that seats
40 or 50 people will carry more than a one-man car.

Commissioner GADSDEN. You mean on account of the vehicular
travel, do you not?

Gen. TRIPP. Well, they operate all the cars they can and the
vehicular traffic results in cutting down the schedule, which, as I
have already stated, prevents their getting the greatest use out of
their equipment.

Commissioner MEEKER. Before I go any further I would like to ask
for your solution of the New York situation.

Gen. TRIPP. Oh, cost-of-service plan, as I have just outlined.

Commissioner MEEKER. Well, would that involve something like
a 10-cent fare?

Gen. TRIPP. That of course I can not state. That would require
an analysis of how much the deficit really is, and I am not familiar
with it. I have heard it stated that a 7^-cent fare might do it, but
it was doubtful. I do not know that of my own knowledge.

Commissioner MEEKER. So far as the physical matter of conduct-
ing transportation is concerned, you do not see much chance for
improvement over the present situation in New York?

Gen. TRIPP. No, sir.

Commissioner MEEKER. According to your present knowledge?

Gen. TRIPP. No, sir; I do not see much chance for improvement.

Commissioner MEEKER. It is a rather hopeless situation for New
York then. Now just one more question. Do you think that the
one-man car may aid in the solution of the transportation problems
of cities other than New York? Do you think it has possibilities?

Gen. TRIPP. A one-man car, under my theory, should be consid-
ered only from the standpoint of its economy, looked at from the
standpoint of the public. Will it properly serve the public. Is it
all they require? And if it is a satisfactory service, it is a cheaper
service; and the public ought to get its service as cheap as it can.
But it is not a cure, nor is it fundamentally proper to attempt as a
step in the solution of this problem to force a one-man car into a
situation that economcially requires a larger car. It is forcing an
economy at the expense of the public, because the whole situation is
set up on an erroneous foundation.

Commissioner MEEKER. I think that is all, Mr. Chairman.

Commissioner BEAU,. When you were talking of investment did
you bring out the point that the street-railway company sells say
a million dollars of bonds for $900,000 and it has really made,
nevertheless a million-dollar investment, because that is what it has
eventually to pay.

Gen. TUIPP. I agree to that entirely.

Commissioner BEALI,. Did you bring that out?

Gen. TRIPP. I did not.

Commissioner BEALL. I wanted the commission to understand
that there are a good many things that go to make up the cost of
this stivet-railway property that we are apt to lose sight of.

Gen. TRIPP. Yes.

Commissioner MEKKKR. Will you make that statement so it will
appear in the record as your statement?

172 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Gen. TRIPP. In arriving at the investment in a property there
should be included as a part of the legitimate investment the dis-
count on securities: that is to say, securities are not always salable
at par, and they are sold at the best price obtainable, and the differ-
ence between the price so obtained and par represents a discount
which is a proper investment in these properties upon which a
return should be allowed.

Commissioner MEEKER. Would that apply to stocks as well as
bonds ?

Gen. TRIPP. Stocks are usually issued at par. I think in most
oases, and perhaps all, stock when it is issued is fully paid at 100
cents on the dollar. Now it may be paid either in cash, 100 cents
.m the dollar, or it may be paid in promotion service at 100 cents
on the dollar, and between those two classes I would distinguish.
Where the stock is sold for cash, even if it was not sold at 100 cents
-on the dollar, if some law permits it, but if it was the best price
#;hat could be received for that stock, the discount there should go
'jito the cost of the property.

Commissioner MEEKER. Then what would be the difference be-
tween taking the total bonded debt and all the stock outstanding, ex-
cept such as was issued for promotion services, sum them, and take
that sum as the investment upon which returns must be paid to bond-
holders and stockholders?

Gen. TRIPP. That is precisely what happens. Segregate the se-
curities that are watered securities, so called, prove that the rest of
the securities were not watered, and if the rest of the securities were
not, they were honestly issued for value. That is the investment
in the property.

Commissioner MEEKER. If that were done — turning to the question
Mr. Sweet asked — would that in general give the total capitalization
above or below a reasonable physical valuation? I use reasonable
physical valuation because physical valuations are made and they
are alleged to be reasonable.

Gen. TRIPP. I do not think that question can be answered by say-
ing yes or no. About 10 years ago. or perhaps a little earlier, there
came a period of readjustment of some of the principal railroad prop-
erties in the United States — reorganizations. At that time I was
familiar with what was going on generally over the United States,
and as to those properties with which I was familiar the securities
were so reduced that the physical valuation of the property in al-
most all cases exceeded, and in all cases equaled and more than
equaled, the new securities that were issued — stocks, bonds, and secu-
rities of every character. Now, then, the statement regarding those
properties would be that the investment in the property — determined
by the methods which I have indicated, perhaps, are the more feasi-
ble methods — would be less than the physical valuation of the prop-
erty. There are undoubtedly some properties where this operation
has not gone through yet that such a method would determine the
amount in excess of the physical valuation.

Commissioner MEEKER. That is by the method that you have sug-
gested ?

Gen. TRIPP. Yes, that is to say this: The physical valuation of
the property taken at prewar prices might not in all cases equal the

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 173

investment in the property as determined by the method I have sug-
gested. But even if it did not, the money actually went into the
properties for the service of the people — that is the test. If, in order
to produce that service, there has been scrapped an overhead trolley
system, and an underground system substituted for the beautification
of the city, if expensive tunnels have been built and the company
participated in them — if many of those things which you might
imagine had occurred, that would form a part of the legitimate in-
vestment in the property for the service of the public, but might not
be reflected in the physical value of the property as it exists to-day.
I say there might be cases of that kind. I doubt if there would be
many, and perhaps none; and I would say further that I do not
know of any case where I think that would happen.

Commissioner MEEKER. Do you think that it would be easier to
arrive at an approximation of a proper valuation through the method
you have suggested of getting at investment rather than by the
method of physical valuation?

Gen. TRIPP. Yes; I think so. I think that is the most feasible
method, as I have suggested.

Commissioner. MEEKER. It would be easier and less costly to arrive
at?

Gen TRIPP. Yes.

Commissioner MEEKER. And you think that the public would be
satisfied by your method quite as much as by any method of arriving
at physical valuation?

Gen. TRIPP. Yes, sir. I think it would depend upon the confidence
that the public placed in the commission or individual that made the
inquiry along the lines I have suggested.

Commissioner MEEKER. That is all, Mr. Chairman.

Commissioner GADSDEN. General, in this method of arriving at
values you have been talking about, is it not true, referring to the de-
preciation in the purchasing price of money that you have referred
to, that under that system all the loss wo'uld fall on the investor?
In other words, suppose that a property worth a million dollars,
costing a million dollars under your system 20 years ago, is covered
by bonds at 5 per cent; under your plan that property to-day would
be, we will say, valued at a million dollars and the return is still
5 per cent. Now, admitting that the value of money has depreciated
50 per cent, the investor is getting one-half return on his property,
is he not ?

Gen. TRIPP. Yes.

Commissioner GADSDEN. Therefore is it not necessary, in view of
this extraordinary depreciation in the purchasing price of money,
in order to equalize that situation either to increase the rate of re-
turn or to give the current value of the property in the value of
money to-day?

Gen. TRIPP. I do not believe so, Mr. Commissioner. It would be
lifting yourself by your boot straps. Currency has depreciated. It
was the operation in my opinion of a natural law brought about by
the tremendous war debts all over the world. Those war debts have
got to 1)€ paid. Now, in order to do that, the natural law depre-
ciated currency by about 50 per cent and paid off half this debt.
The people who had to have immediate assistance because they had
no margin of safety to go on were labor. Next we find the landlord

174 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

who had less margin of safety to go on, and he searched for greater
income, and he got part of it, but he had trouble in doing it. Labor
particularly, then, is not in a position to pay any portion of this
war debt. It had no margin to pay it with. It has got to be paid.
The people who have got to pay it are the fund owners, the owners
of fixed-income securities. And if you adjust their incomes by the
method you have suggested so they are relieved, you have not done
anything — you have just lifted yourself up by. your boot straps and
you are right where you were when you started.

Commissioner GADSDEN. Is it not true that the people by your plan
would be confined solely to public utilities r-

Gen. TRIPP. No.

Commissioner GADSDEN. Would it not be true with investors in
every line of business, that their property would be appreciated ?

Gen. TRIPP. No; I think you are mistaken, Mr. Commissioner.
There are billions of fixed income bonds held by investors through-
out the United States on which they can not get relief — railroad
bonds. Now, your theory is that the street railway company could
get relief if it had a 5 per cent bond ; it ought to have an increase in
return because of the decreased purchasing power, of the dollar.
Under my theory, they are exactly in the same position : the owner
of a railroad bond is just in the same position

Commissioner GADSDEN. Unquestionably, but getting outside of
regulated properties, getting to textile properties and the value of
steel properties — is not the value of a steel mill to-day based upon
current prices and not what it cost?

Gen. TRIPP. Yes ; but when you get into the question of return on
stock in industrials, the industrials are reaping a harvest in this case.

Commissioner GADSDEN. But if you were asked a similar question
— What is the value of a shoe factory in Massachusetts or Connecti-
cut to-day ? — you would give its current value, would you not ? You
would not say its value was what the investors put into it in the.
history of the plant?

Gen. TRIPP. Well, I would not buy a shoe factory on the basis of
present earnings, on the same theory that I would have purchased it
before the war. I would have to have a wider margin. There is a
distinction between regulated and unregulated industries. My
theory asks the public to guarantee a return upon our investment in
electric railways. The industrials ask no one to guarantee their re-
turn. When hard times come they must take their medicine. Now,
you can not regard the investment in a public utility which is prac-
tically guaranteed by the public on the same basis —

Commissioner GADSDEN. Do you think the history of the industry
as you have shown it to-day has shown a guaranty of return ?

Gen. TRIPP. No ; but I am directing all my testimony here toward
the theory which I have promulgated

Commissioner GADSDEN. Toward the future?

Gen. TRIPP. That there should be a different relation in the future.

Commissioner GADSDEN. Exactly. Therefore is it not necessary to
bring the situation up to date to rectify the values of these properties
from now on up to date and then keep the account?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 175

Gen. TRIPP. No ; I do not think so.

Commissioner SWEET. Gen. Tripp, to put your idea into language,
which the average man would clearly understand, let me ask you
this question : Take for illustration the country merchant who erects
a small frame building in which to conduct his business ; he prospers
and later on finds that building insufficient for his needs and tears it
down and puts up a fine brick structure in its place. The original
cost to the frame building would be a part of the legitimate invest-
ment, according to your theory?

Gen. TRIPP. Yes.

Commissioner SWEET. And should be added to the subsequent cost
of the brick structure and together with other moneys actually in-
vested should constitute the capital upon which he ought to make a
legitimate profit. Is that correct?

Gen. TRIPP. Yes; I think he

Commissioner SWEET. Let me ask one thing further. I am present-
ing this now in order to bring down your theory to the individual — •
not saying or asking you to express an opinion as to whether individ-
uals would or ought to figure their profits on that basis, but whether
that would be an illustration which you think would be proper for
regulated public utilities.

Gen. TRIPP. If I understood your question correctly, I should not
think it was quite that way. I understood you to say that the cost of
the wooden building would be added in its entirety to the cost of the
brick building and that the sum of those two constituted an invest-
ment on which he is entitled to a return. Was that your question ?

Commissioner SWEET. Yes; the entire investment.

Gen. TRIPP. Now, however, in the street-railway field, the cost of
the old wooden building would be charged off against the properties
and the cost of the new building would be the amount that it would
be entitled to a return on under the system of bookkeeping which has
been adopted by the Interstate Commerce Commission, ii I am cor-
rect.

Commissioner SWEET. Then if money had been expended by a
street-railroad company for the purchase of a horse-car system or for
changing over from the horse-car system to the cable system or the
cable to electricity — do you mean to say all that money should be
crossed off entirely and only the value of the electric system taken as
representing the capital upon which dividends are to be paid ?

Gen. TRIPP. Yes, speaking generally; because a depreciation item
has or ought to have been set up to care for depreciation and obso-
lescence. Now I would not say that that rvde ought to be applied
arbitrarily and unjustly. But apparatus that has disappeared will
generally be found to have been taken care of out of the earnings of
the company and it is an item called depreciation or obsolescence.

Commissioner SWEET. In answer to a question by Dr. Meeker, did
you not say that earnings legitimately made that might be distrib-
uted as dividends, if not so distributed, but put into the property it-
sol f, constituted a legitimate basis for future dividends?

(Jon. TRIPP. Yes; but earnings legitimately made, as I meant it
in that sense, was after providing a reasonable amount for deprecia-
tion which covers the item which I have been talking about.

Commissioner SWEET. In other words, if my merchant in our conn-
try village had a delivery wagon and a horse, and the horse died and

176 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

he replaced that with another horse, that would not be treated as a
part of the investment but merely as a replacement of something that
is liable to happen in the regular course of bilsiness.

Gen. TRIPP. Yes.

Commissioner SWEET. I get your idea now a little better. One
thing further : In answer to a question by Dr. Meeker, you said there
were differences in the problem involving street railways in different
cities.

Gen. TRIPP. Yes.

Commissioner SWEET. Of course there are. Every one differs from
every other one — there are no two exactly alike any more than there
are two people exactly alike ; is not that true ?

Gen. TRIPP. That is true.

Commissioner SWEET. But is there not running through all of them
a series of questions or propositions, so to speak, that are almost ex-
actly similar?

Gen. TRIPP. If I understand your question, I think I would answer
it yes. Now, would you illustrate for example what you have in
mind ?

Commissioner SWEET. I mean to say, in taking the situation
throughout the country at large we find practically all of the street
railways in a distressed condition, do we not ?

Gen. TRIPP. We do; yes.

Commissioner SWEET. If there are any that are not, they are ex-
ceptions.

Gen. TRIPP. Yes.

Commissioner SWEET. And only very few of them.

Gen. TRIPP. Only very few.

Commissioner SWEET. Now then it would naturally seem as if there
are certain general causes that were bringing about this general re-
sult. One of those that you have mentioned, and a very important
one undoubtedly, is the lessened purchasing power of money?

Gen. TRIPP. Yes.

Commissioner SWEET. That goes through all of them. Do you not
consider, then, that it is one of the proper functions of this commis-
sion to endeavor to find what is the trouble that applies to all of them
and devote its efforts to- recommending remedies for those general
evils rather than to pry into separate city difficulties with a view of
directly applying its efforts to each separate case ?

Gen. TRIPP. Oh, by all means, I think that is your function abso-
lutely.

Commissioner SWEET. Of course our work would be interminable if
we took up the cases of Buffalo, Detroit, Cleveland, and different
cities.

Gen. TRIPP! Yes. Those are only valuable as they illustrate the
general condition.

Commissioner SWEET. That is exactly it. Now then, our knowl-
edge of the general condition must be based upon as much and as
accurate information as possible from the various localities.

Gen. TRIPP. Precisely.

Commissioner SWEET. Then is it not our function, in your judg-
ment, to sift and analyze and finally determine what are the general
factors that are practically applicable to all or nearly all of the com-
munities and make our recommendations in accordance with what our

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 177

conclusions may be as to those common, general, all-pervading fac-
tors?

Gen. TRIPP. Yes, sir.

Commissioner SWEET. Right on that point. General, considering
your familiarity with the whole subject and the general situation,
will you tell us what in your judgment is the best line of inquiry and
work for this commission, and whether you think we can do any
good or not ?

Gen. TRIPP. I think you can do —

Commissioner SWEET. I do not mean now good for the companies
or good for the employees or good for the communities alone, but good
for all, upon the theory that you expressed here a little while ago, that
their interests were in comm'on and not in conflict.

Gen. TRIPP. I could not express so well as you have, Mr. Commis-
sioner, the course which your inquiry ought to take. It exactly coin-
cides with my view. The fundamental difficulty should be inquired
into by your commission. And I hope that you will find a funda-
mental basis upon which should rest all local arrangements between
municipality and company. And if you should do that, I think,
speaking from the standpoint of the electric railways, that you are
the only hope that the industry has to save it from complete bank-
ruptcy. I think the general bankruptcy of the electric railways
would have an effect upon the public, their service rendered would be
reduced, the cost of service would bound to be increased, there would
be tremendous losses to small individual investors, fiduciary institu-
tions would find the assets which they have protecting their life in-
surance policies, and their savings bank deposits seriously encroached
on ; and all this is unnecessary.

Commissioner SWEET. Would it have any tendency to disturb labor
conditions?

Gen. TRIPP. Yes; I think the proper solution of this problem
makes for industrial peace.

Commissioner SWEET. And stability?

Gen. TRIPP. And stability. It makes for more satisfied employees.

Commissioner SWEET. And regular employment, I suppose ?

Gen. TRIPP. Yes, and more regular employment, because reduction
of service means unemployment to somebody.

Now there is no other hope, there is no other avenue that this mat-
ter can be put before the public as a national problem except your
commission. And I have great hopes that when you have made your
recommendation, the press in the interval will have treated this case
liberally and fairly and that the public will be ready to receive your
recommendation and will be interested in what it is, and when that
is done you will have paved the way for us to approach the parties
to the other side of the contract for a new deal which will be bene-
ficial to everybody concerned.

Commissioner MEEKER. May I ask a question? It seemed to me
there was a little bit of confusion involved in your answer to my ques-
tion as to what was the proper method of arriving at the capital in-
vestment upon which the companies were entitled to receive earnings
and the answer you made to Mr. Sweet's question. As I recall, you
said in reply to my question that all outstanding bonds and all stocks
not issued in payment of promotion services would constitute the sum

178 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

total of capital fund upon which income should be paid to the com-
pany.

Gen. TRIPP. Yes, sir.

Commissioner MEEKER. Now if a company purchases an old horse-
car line or any superannuated line — and it purchases it usually
through the issuance of bonds or may do so through the issuance of
stock — now, how can you write off the cost or investment in the old
horse-car line or the other superannuated line in such a case as that ?
How can you write it off in any case if you are going to take into ac-
count the bonds and stocks that represent the original investment ?

Gen. TRIPP. Well, as I stated, you would not write it off under my
method except that it would be found — I understood Commissioner
Sweet's question to be based on this : Would the physical valuation of
the property be found to equal or exceed the securities outside of pro-
motion securities which you have just mentioned; and my answer was
that in most cases they would and I knew of no case where they
would not. Then the question came as to what had been done with
the old properties in its bearing upon the physical valuation, and I
think there I stated that there had been or ought to have been set up
for depreciation an amount to amortize this old horse railroad that
you speak of.

Commissioner MEEKER. But it is not clear in my mind yet. Say
$100.000 worth of bonds have been issued to purchase an old horse-
car line. The $100,000 bonds, let us say, are not amortized. They
do make up a part of the outstanding securities.

Gen. TRIPP. Well, of course in the great aggregate of capital on an
electric railway you have sinking funds operating all the time to re-
duce your funded indebtedness. During the last 30 years issues of
bonds have fallen due, generally speaking, and have been paid or re-
funded. I suppose there are very few bonds outstanding which were
dated as long ago as the eighties. Now when you come to the re-
funding operation of those bonds, the matter, of taking care of the
depreciation and the obsolescence of those old horse-railroad proper-
ties all adjusts itself because the question that presents itself then to
the company is how much money do we need ; and they get what they
need.

Commissioner MEEKER. So that the process is not a cumulative
process of adding the brick building to the old wooden building

Gen. TRIPP. No.

Commissioner MEEKER. An a granite building to the brick build-
ing and a marble building to the granite building ?

Gen. TRIPP. Not at all.

Commissioner MEEKER. It is merely the marble building that is
getting the return ?

Gen. TRIPP. Yes. In other words, a properly managed company
when it comes to renew its bonded obligations which are falling due
only issues sufficient new bonds to take of its then requirements. Its
then requirements reflect, if its books have been kept properly, the
effect of depreciation charges and charging off this obsolent property.

Commissioner GADSDEN. Can I ask a question right there? — be-
cause I think there is probably a little misapprehension about it.
You are discussing this on the basis of a company whose income has
been sufficient to set up these reserves.

Gen. TRIPP. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 179

Commissioner GADSDEN. That is true, is it not ?

Gen. TRIPP. Yes.

Commissioner Gadsden. As a matter of fact in the history of the
industry have these companies set up these reserves to do that ?

Gen. TRIPP. Some have and some have not and those that have not
are to-day on the verge of bankruptcy, and you will have no difficulty
in dealing with those.

Commissioner BEALL. Let me ask a question which I think will
clarify it. Is not the general fact this? Take in New York for in-
stance, where the roads have changed from cable to electricity. They
did not do it because the cable was no longer able to take care of the
traffic or because it was absolutely obsolent because it was so old it
was worn out. They thought they had a better method, a more eco-
nomical method to the public — cheaper service and better service and
more carrying capacity.

Gen. TRIPP. Yes.

Commissioner BEAIX. They made those changes from the cable
roads and did the same thing in Seattle and numerous other cities,
when those cable roads still had a life of a good many years.

Gen. TRIPP. Yes.

Commissioner BEALL. Some of them had only run for a few years.
If they had run for 20 years, they could not have built up enough
reserve to charge it off at once. The method generally pursued, I
understand, was this : They did not charge them off in one fell swoop,
but amortized it over a number of years. For instance, if the change
cost $3,000,000 and they lost $3,000,000 for the junk in the old cable,
they amortized that over 20 or 30 years, so much a year. Xow the
fares proved insufficient from year to year on account of the depreci-
ated purchasing power of the nickel, and they were not able to carry
it through that amortization ; and the result to-day is that the com-
panies in the great cities are carding a big investment which they
have not been able to amortize and wipe out and that came about
through their desire to give better service to the public, and they
junked some things that were only 5 years old. Is not that true
in a great many cases?

Gen. TRIPP. Well

Commissioner BEALL. Let me follow that up. I do not under-
stand you to say, do I, that until they have had an opportunity to
properly take care of that amortization of past investment that they
junked in order to give better service — until they are able to get
that out of the way ought not they be allowed to earn on it?

Gen. TRIPP. Certainly.

Commissioner BEALL, I do not think that was clear from }'our
statement.

Gen. TRIPP. But, generally speaking, my method of valuing securi-
ties would result in that very thing.

Commissioner BEALL, I think it would, but I do not think the
commission quite got that point — that nearly all these companies in
the big cities are still carrying a great big investment which repre-
sents things which they junked, which still had a long, useful life
before them, in order to give better service to the public.

Commissioner SWEET. There is just one question. You do not
moan to say, General, that the change from the cable to electricity
was done solely to render better service to the public, do you?

180 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Gen. TRIPP. Not at all.

Commissioner SWEET. Was not the element of greater economy and
greater profit to the companies a large element?

Gen. TRIPP. Oh, yes; the larger element, of course.

Commissioner BEALL,. It was a combination of both. They were
able to give better and faster service and carry more people.

Commissioner SWEET. Yes.

Commissioner MEEKER. Then, in answer to my question, the com-
panies are, in some instances, carrying stock issues or bond issues
that represent the obsolete brick building. They have not yet had
time to amortize them?

Gen. TRIPP. I am glad you asked that question, because I had
almost forgotten to add to my reply to Commissioner Beall. All those
companies that have come under my observation that have changed
from cable to electricity have been through the hands of a receiver
and the whole thing has been wiped out.

The CHAIRMAN. We will resume at 2 o'clock, gentlemen.

Mr. WARREN. May I excuse Gen. Tripp?

The CHAIRMAN. I understand Commissioner Wehle desires to re-
sume the cross-examination. Is it convenient for you to be here this
afternoon ?

Gen. TRIPP. If I could be permitted to leave as early as a quarter
of 3 it will suit my purposes.

The CHAIRMAN. That will be all right.

(At 12.30 o'clock p. in. a recess was taken to 2 o'clock p. m.)

AFTER RECESS.

The hearing was resumed at 2 o'clock p. m.

STATEMENT OF GEN. G. E. TRIPP— Continued.

The CHAIRMAN. Have you any further statement to make, Mr.
Tripp?

Gen. TRIPP. No, Mr. Commissioner; I have nothing more.

The CHAIRMAN. You had been discussing the question of capital-
ization and value this morning. Do you believe it to be the function
of this committee to make a finding as to the existing capitalization
of railroad companies?

Gen. TRIPP. No, sir.

The CHAIRMAN. Do you think that the commission should investi-
gate the capitalization of independent or individual companies, so
that it could reach some determination upon the question as to
whether there is or is not watered stock in the securities of these
companies ?

Gen. TRIPP. No, sirj I have not thought that that would be a
function of this commission.

The CHAIRMAN. HOAV should the commission proceed to make
such an investigation, if it thought advisable to do so ?

Gen. TRIPP. It would be a very long investigation and require
a minute investigation into individual companies.

The CHAIRMAN. Could you outline the procedure? If we tried
to find out the amount of money that was taken from the sale of
stocks and bonds and invested in the property, and if we undertook

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 181

to reach the original cost in that way, how long would it take to
complete that investigation for the New York system ?

Gen. TRIPP. You cited the most difficult one, I think. It would
take some months.

The CHAIRMAN. How long would it take to clean up the Chicago
situation ?

Gen. TRIPP. It would take some months.

The CHAIRMAN. Would such an investigation be of any value,
unless a sufficient number of companies were looked into, so that the
findings would be regarded as reliable?

Gen. TRIPP. Will you please ask the question again ?

The CHAIRMAN. Will the reporter please read the question?

(The reporter read the question as above recorded.)

Gen. TRIPP. No.

The CHAIRMAN. Is it your opinion that a value based upon cash
securities and stocks and bonds put into the property would be
regarded as a safe value for purchase?

Gen. TRIPP. For purchase?

The CHAIRMAN. Yes.

Gen. TRIPP. By the municipality?

The CHAIRMAN. Yes, sir.

Gen. TRIPP. I should have to give considerable thought to that
question. Mr. Commissioner, before I answered it. I would say that
there should be added to the items you have mentioned the invest-
ment in property out of the net earnings, which net earnings be-
longed theoretically to the stockholders.

The CHAIRMAN. Would the companies be willing to sell upon that
basis ?

Gen. TRIPP. Sir?

The CHAIRMAN. I say, would the companies be willing to sell
upon that basis?

Gen. TRIPP. I don't know.

The CHAIRMAN. What is that?

Gen. TRIPP. I don't know whether they would or not.

The CHAIRMAN. You spoke this morning about establishing a new
relationship between the utilities and the public and investors. Of
course, that presumes a proper form of regulation ?

Gen. TRIPP. Yes, sir.

The CHAIRMAN. What should that be ?

Gen. TRIPP. Do you ask whether it should be State regulation or
local regulation?

The CHAIRMAN. I am asking you what should be the proper form
of regulation.

Gen. TRIPP. If the new contract between the municipality and the
company were of such a nature — and I think it should be — that it
amounted to a practical guaranty of a fair return upon a fair in-
vestment in the property, then it would seem safe to leave the regu-
lation of the local utility to the local authorities who have made the
guaranty.

The CHAIRMAN. In your judgment, will the service-at-cost plan
result in excluding the States from the regulation of these utilities?

Gen. TRIPP. It is difficult for me to say, without giving the matter
much consideration, what place the State commissions would have in
such a relationship.

182 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. Under a proper service-at-cost plan the rates
rise or fall automatically, according to the earnings, do they not?

Gen. TRIPP. Yes, sir.

The CHAIRMAN. Is there any rule for a regulating commission to
exercise judgment in determining the reasonableness of the rate
under such plan?

Gen. TRIPP. No ; I should think not.

The CHAIRMAN. That being so, can you see a good reason for
having the State commissions given any control over the service of
these utilities where the cost-of -service plan has been adopted?

Gen. TRIPP. I can not see any reason now. -

The CHAIRMAN. Do you see that they should exercise any control
over extensions of the properties?

Gen. TRIPP. I do not see any reason why they should.

The CHAIRMAN. Or the capitalization?

Gen. TRIPP. No; the capitalization in that case would be a matter
of no moment to anyone except the company.

The CHAIRMAN. Do you believe that the highest quality of service
and best form of protection to the public, as well as to the utilities,
would be secured through local regulation rather than State regu-
lation?

Gen. TRIPP. Provided always that there is a relationship which
imposes an obligation upon the municipality, which amounts to a
guaranty of a fair return on the fair investment, I think a better
administration of that relationship would probably lie in the hands
of the municipality.

The CHAIRMAN. But it presupposes, does it not, the fact that the
municipality has the intelligence to properly examine the operating
sheet of a railroad to see that the accounts are properly kept and to
clearly understand how to regulate such a utility?

Gen. TRIPP. It presupposes that, but the test comes in the cash
in the cash drawer to pay this fair return.

The CHAIRMAN. Well, from the experience you have had in this
work, is it your opinion that municipalities, generally speaking, give
close attention to the operation of these utilities and the control of
their securities and expenses in such a way that the public can
safely trust them with that responsibility?

Gen. TRIPP. I should answer that by saying that my observation
is that probably not, under the form of contract, at least, which
has been in common use.

The CHAIRMAN. If the service-at-cost plan is adopted, is it not pos-
sible that there will be a good deal of irritation between the utili-
ties and the public growing out of a shifting charge for the service ?

Gen. TRIPP. Yes, that might be possible.

The CHAIRMAN. What will that lead to?

Gen. TRIPP. It will probably lead to municipal ownership, if such
an irritation did arise that was severe enough.

The CHAIRMAN. You have recently gone through an experience
down in Cleveland. Was the recent settlement there satisfactory to
the public as well as to the utility ?

Gen. TRIPP. I am not familiar enough with that settlement to
state, Mr. Commissioner.

Mr. WARREN. Where was that, Mr. Chairman ?

The CHAIRMAN. In Cleveland.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 183

Gen. TRIPP. I heard it stated by my Cleveland friends that it is
satisfactory neither to the company nor to the public.

The CHAIRMAN. Should this commission undertake to outline a
proper form of franchise to be used by utilities?

Gen. TRIPP. I do not think your commission should, sir.

The CHAIRMAN. Should it outline or indicate the general prin-
ciples which should be incorporated in such a franchise?

Gen. TRIPP. Only the most basic principles.

The CHAIRMAN. At the present time, there is no common basis
upon which franchises are made, is there?

Gen. TRIPP. No.

The CHAIRMAN. They usually depend upon bargain and trade?

Gen. TRIPP. Yes.

The CHAIRMAN. Therefore there is no relationship between them.
Would not the utilities, as well as the public, be better off if there
was some standard form of a franchise used ?

Gen. TRIPP. There might be a few standard fundamentals, as, for
example, that the franchise should be without date of expiration, or
some general principle of that kind.

The CHAIRMAN. But you do not think the commission should at-
tempt to prepare a form of franchise and submit it to the public ?

Gen. TRIPP. I think the conditions are too varied, probably, to
permit such a standard form being of great value.

The CHAIRMAN. Would it not be helpful as a guide?

Gen. TRIPP. I should rather see more danger in it than possible
help.

The CHAIRMAN. What would be the element of danger to be found
in such a standard form?

Gen. TRIPP. That any standard form of franchise must go into
considerable detail, and those details would be rarely found to fit
in with completeness the local situation.

The CHAIRMAN. But you would feel satisfied if all of the mu-
nicipalities in the country would adopt the service-at-cost plan?

Gen. TRIPP. I feel that is about the only hope to work out the
situation.

The CHAIRMAN. Well, if that is the aim which you have in mind,
would it not be well to outline the kind of a franchise which should
be entered into when such a plan is adopted?

Gen. TRIPP. I do not think so, Mr. Commissioner, because the
service-at-cost plan does not necessarily mean an increase of fare,
although probaoly it would. It might mean a zone system in some
particular places. It does not always mean relief from paving taxes,
although it might be desirable in some places. For example, a com-
munity which require street-railway service and could not afford
to pay, say, a 6 or 7-cent fare, might relieve the company in that
community from taxes in the whole, including their real-estate and
real-property taxes, and I could imagine a community going so far
as to suusidi/e a street railway in order to retain the service at a
price which would make it useful to the public. Therefore, I think
it would be dangerous to outline in detail the kind of cost -of -service
plan — that is, any universal cost-of-service plan. I think the com-
mission should and ought to lay down the basic principles upon which
any cost-of-service plan should rest, and that should be broad enough
to permit of various plans.

184 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. Should such a recommendation suggest the wis-
dom of indeterminate permit franchises?

Gen. TRIPP. Yes.

The CHAIRMAN. That is one of the principles that you would ap-
prove ?

Gen. TRIPP. That is one of the principles which should be decided
upon.

The CHAIRMAN. Now, assume that the commission should not bo
willing to reach the conclusion that the service-at-cost plan was the
proper thing, then what alternative have you to suggest?

Gen. TRIPP. I have no alternative, Mr. Commissioner, except to
recommend that fares be increased to remedy the existing situation,
and let the future take care of itself.

The CHAIRMAN. Has your association, or will your association, pre-
sent a witness who will outline just what the result of increased fares
has been in the different communities ?

Gen. TRIPP. Yes, sir.

The CHAIRMAN. That will be gone into quite completely?

Gen. TRIPP. That will be gone into quite completely. And I would -
also say it is intended to present a witness who is thoroughly familiar
with all the different cost-of-service plans wrhich have been put into
use, or even contemplated.

The CHAIRMAN. Will there be a witness who will state where the
money comes from and where it is held and the extent of it?

Gen. TRIPP. Yes, sir ; there will be a witness to cover that point.

The CHAIRMAN. I have no other questions.

Mr. WARREN. Gen. Tripp, just one question : In reply to Mr. Gads-
den's question this morning, you said you saw no reason to change
the rate on the existing securities because of the depreciated purchas-
ing value of the nickel. That, of course, I assume, applied only to
the existing securities.

Gen. TRIPP. Yes.

Mr. WARREN. As regards securities issued in the future, to meet
future requirements, capital requirements, the money would have to
be obtained at the market rates, I presume?

Gen. TRIPP. Yes, sir.

Mr. WARREN. That is all. Thank you very much, General.

Mr. WARREN. Mr. Chairman, I a'm going to call next Mr. H. A.
Stuart, of the firm of Halsey, Stuart & Co., of Chicago, bankers.
Mr. Stuart has an engagement which makes it necessary for him to
take the Congressional Limited, leaving in an hour. I hope I can
finish with him in that time, but if not, I shall have to ask the in-
dulgence of the commission, in case it is necessary for him to come
back and finish his examination.

The CHAIRMAN. You may proceed without interruption.

Mr. WARREN. Yes.

STATEMENT OF MR. HAROLD L. STUART.

Mr. WARREN. Your full name, Mr. Stuart?
Mr. STUART. Harold L. Stuart.
Mr. WARREN. And your business?

Mr. STUART. I am president of Halsey, Stuart & Co., investment
bankers, whose principal office is in Chicago.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 185

Mr. WARREN. And in your banking business, Mr. Stuart, have
you had occasion to distribute street-railway securities to a con-
siderable extent?

Mr. STUART. We have distributed many millions of street-railway
securities. In one case alone, in Kansas City, I think, the amount is
about $15,000,000.

Mr. WARREN. On that one?

Mr. STUART. On the one system.

Mr. WARREN. On the one system?

Mr. STUART. Yes.

Mr. WARREN. And you have distributed such securities very gen-
erally, have you?

Mr. STUART. Very generally, from Maine to California.

Mr. WARREN. And on corporations operating from Maine to Cali-
fornia also?

Mr. STUART. Well, a great many different corporations, but to in-
vestors of all kinds residing in territory from Maine to California.

Mr. WARREN. But you have also handled securities of companies
all over the country?

Mr. STUART. Pretty generally, yes; throughout the country.

Mr. WARREN. You have handled some, I think, in Massachusetts?

Mr. STUART. Yes.

Mr. WARREN. Will you tell the commission how. in your judgment,
those securities are purchased and held — by what people, by what
classes of investors, and in what amounts?

Mr. STUART. They are held by all classes of investors — insurance
companies, savings banks, trustees, individual investors, insurance
funds of all kinds. The largest holders in the aggregate, I think,
of street-railway securities are the individual investors that buy not
over $5,000 at a time.

Mr. WARREN. That is what might be called the ultimate investor?

Mr. STUART. I think I would call that the ultimate investor of
street-railway securities, or he was the ultimate investor up to a
couple of years ago.

Mr. WARREN. And that applied generally, you say, all over the
country two years ago, that investors of that kind were the pur-
chasers and holders of these securities?

Mr. STUART. Up to that time street-railway bonds were generally
considered to be safe investments.

Mr. WARREN. How are street-railway securities regarded now in
investment circles?

Mr. STUART. They are regarded with great distrust and disfavor,
to such an extent that it is almost impossible to distribute street-
railway securities, I don't care how good they are. I am speaking
now about bonds, not stocks.

Mr. WARREN. Yes; bonds.

Mr. STUART. It would be absolutely impossible to distribute
street-railway stocks.

Mr. WARREN. And how long has that been true?

Mr. STUART. So far as bonds are concerned, as I say, about two
years ago. For some time back of that street-railway stocks had not
been sought for, I believe.

Mr. WARREN. But the market for bonds disappeared about two
years ago?

KJur>4.r— 20 13

186 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. STUART. Yes; just about.

Mr. WARREX. The distributing banking house, I suppose, has little
or no control over the earnings of the companies?

Mr. STUART. No; the distributing banking house has no control
over the earnings of the company. There is no control over the
management of the company. The distributing banking house makes
n very careful investigation of the value of the property, the com-
munity, the franchise situation, and the management, and then buys
outright bonds, and sells them through its selling organization to the
class of people that I have stated.

Mr. WARREN. And to what extent have the laws of any particular
jurisdiction had an effect upon the selling quality of the bonds issued
by utilities in that jurisdiction?

Mr. STUART. They have quite a considerable influence. For ex-
ample, when the public-service commissions throughout the country
]>egan to be formed a great interest was aroused on the part of in-
vestors, and I think that the very fact of those public-utility com-
missions being formed influenced a great many people to buy street
railway and other public-utilities securities that theretofore were
not interested. They believed that the public-service commission
would be a disinterested party, in so far as any local situation was
concerned, whereas the local authorities would be very much inter-
ested, and the investor felt that he would receive better and fairer
treatment from the disinterested party than he would from the
interested party.

Mr. WARREX. If, for any reason, in any particular State or other
jurisdiction, a system exists, whether of law or franchise, which is
antagonistic, or is not calculated to promote the development and
security of a public utility, what effect has that on the bonds ?

Mr. STUART. It has the effect of keeping people out of the State
entirely. There have been such situations. For example, I recall
a few years ago, in both Georgia and Texas, the sentiment in those
States was such that it was very difficult, or impossible, to sell public-
utility securities that came from those States. The investment
bankers have no control over what their client does with the money ;
and the great majority of clients are seekers after information, and if
they find that in any given community or State, or in any given in-
dustry, conditions are not very favorable, their money will go else-
where.

Mr. WARREX. That may apply to all kinds of securities in the
State and the securities of a particular industry, if for any reason
a particular industry is under this disadvantage?

Mr. STUART. Yes, sir.

Mr. WARREX. As the result of your having placed so many of these
street-railway securities, I presume you have followed the street-
railway situation more or less closely in the last fewr years?

Mr. STUART. Yes, sir.

Mr. WARREX. And you have heard Gen. Tripp's testimony this
morning ?

Mr. STUART. I have.

Mr. WARREX. Were you here all during his testimony 1

Mr. STUART. I heard it all.

Mr. WARREX. Do you agree in general with what he said about the
street-railway situation to-day in this country?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 187

Mr. STUAKT. I do.

Mr. WARREN. About its extreme seriousness?

Mr. STUART. Exactly.

Mr. WARREN. Have you had occasion in connection with any par-
ticular company to be acquainted with such a situation in the case of
that company as would illustrate the tendency which Gen. Tripp
referred to? You mentioned the Kansas City company, where you
had distributed some $15,000,000 of bonds. Have you followed that
company ?

Mr. STUART. I have and I should like to say something about that.

The Kansas City Railway & Light Co. was put in the hands of a
receiver in 1910. Up to that time I knew nothing about the com-
pany. The reason for its being put in the hands of a receiver was
not due to lack of earning capacity, but the company had an expiring
franchise and expiring bonds, and it was impossible to refund those
maturing obligations without either an extension of the franchise or
a new franchise.

After three or four years in the hands of a receiver, Kansas City,
Mo., in consideration of divorcing the properties — I mean by that
separating the electric light from the street railway property — gave
to the street-railway company a 30-year franchise, and at the time
it was granted it was considered by both street railway experts and
investors to be a model basis for investment. The property was re-
organized, and the bondholders received new securities of a market
value of substantially equal to the full principal of their securities.

In the meanwhile interest had been paid right along through re-
ceivership.

This reorganization plan was made by Judge William C. Hook, who
was the United States circuit judge, and he appointed me his repre-
sentative to carry out his financial plan of reorganization.

After the reorganization was completed, then my firm came into
the situation as banker for the railway company, and it is since that
time that we have placed and sold this substantial amount of securi-
ties. The people who took those securities were the most careful
investors in the country — savings banks, insurance companies, and
other investors. There were thousands of individual investors. The
securities were considered to be so good that one of the largest in-
surance companies, which took $500,000, had a special meeting of
their finance committee to decide whether or not they should take
$1,000,000 instead of $500,000, although $500,000 was their full quota
of anything.

The basis of the Kansas City franchise was a division of the profits
with the city. There was a valuation there in the franchise, agreed
to by the city through their own experts, and afterwards approved
by the Public Service Commission of Missouri, and all the securities
that were issued were approved lx>th by the city and the Public Serv-
ice Commission of Missouri. The valuation was largely in excess
of the bonded indebtedness, and the company was to have a 0 per
cent interest return after all depreciation on the capital investment.
The fare was fixed at 5 cents.

Time went on, and the first happening was the passing of the 5 per
cent dividend on the stock.

Mr. WARREN. About when was that, do you remember?

188 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. STUART. As I recall that, it was about in June or July, 1917.

The costs began to mount until what we considered — and we had
our judgment backed up by many, many people who know — on July
1 of this year, the railway company was compelled to pass its inter-
est. It had not earned operating expenses for the past six months.

Mr. WARREN. Its interest on these bonds?

Mr. STUART. The interest on all bonds, the interest on the first-
mortgage and the second-mortgage bonds.

Mr. WARREN. Yes.

Mr. STUART. I stated that the franchise provided for a 5-cent fare.
The situation got so bad that there was a great deal of sentiment
aroused in Kansas City by the public themselves, and when the com-
pany made an application to the Public Service Commission of
Missouri for an increase in fare to 6 cents, there was a great deal of
support for it on the part of the people in Kansas City. There was
some newspaper — I should say there was considerable newspaper
opposition. The public-service commission, however, granted the
increase in fare to 6 cents, and some citizens of Kansas City ques-
tioned the right of the commission to increase this rate in the face
of the 5-cent fare in the franchise ; and this matter was taken to the
supreme court, and last fall the Supreme Court of Missouri decided
that the public-service commission did have a right to raise the fare.

In this particular case, the matter is now in the hands of the
public-service commission for a further increase in fare, and the
company has asked for a 10-cent cash fare, or 2 tickets for 15 cents.
That is now pending, and is to be decided, I believe, within 60 days.

But I mention this as showing what was considered to be a mag-
nificent investment, which, through no control of the bankers, no
control of the investors, all the time giving first-class service to the
community, has fallen into disrepute, with very poor prospects in-
deed, unless relief is given by the public-service commission.

Mr. WARREN. Could you state when the company started on the
new organization?

Mr. STUART. The date was July 1, 1914.

Mr. WARREN. And it was at that time that the prospects looked so
good?

Mr. STUART. Well, even later. The prospects up to 1916 were ex-
cellent.

Mr. WARREN. Were these bonds distributed after July 1, 1914?

Mr. STUART. Yes; these bonds were distributed after July 1, 1914,
or really after July 1, 1915. Some of them before that.

Mr WARREN. So this complete overturning and change in situation
has been within the last five years?

Mr. STUART. Exactly.

Now, our interest in this thing, in common with all other dealers
in public-service securities, is that we want to protect our investors.
The investors can not be protected unless the future is in some way
taken care of, for a public-service corporation in a growing city
needs money constantly ; and if it does not need money, it is not in a
healthy condition.

Mr. WARREN. Do you mean capital money?

Mr. STUART. I mean new capital money — it is not in a healthy con-
dition, and in order to safeguard and protect these tens of thousands
of people who hold public-utilities securities, it is necessary to not

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 189

only provide for their investment which is already in, but to further
protect it by making it safe for the investors of to-morrow wyho have
not spent their money, and over which nobody has any control, to
come in.

Mr. WARREN. Now, did I understand you correctly — that before
the new securities were issued of which you distributed such a large
part, the property was valued by experts on behalf of the city?

Mr. STUART. The property was valued by experts in behalf of the
company, by a number of experts in behalf of the city, and, in addi-
tion to that, by the experts of the Public Utilities Commission of the
State of Missouri.

Mr. WARREN. On behalf of the city, and the commission approved
the valuation?

Mr. STUART. The valuation — the securities.

Mr. WARREN. The securities?

Mr. STUART. Yes.

Mr. WARREN. And that applied to all the securities which were
issued ?

Mr. STUART. That applied to all of the securities which were
issued.

Mr. WARREN. And the valuation was equal to all of those securi-
ties ?

Mr. STUART. The valuation was in excess of all of those securities.

Mr. WARREN. The valuation was in excess of all of those securi-
ties?

Mr. STUART. Yes.

Mr. WARREN. So that in that particular case, unless the valuation
was faulty, although made by many different interests, there was no
question whatever of stock watering as affecting the result which has
now overtaken the company ?

Mr. STUART. None whatever.

Mr. WARREN. I suppose you have not any data, Mr. Stuart, which
will enable you to give even an approximate idea of the number of
street-railway security holders, holders of bonds in the country, or
any part of it, have 37ou?

Mr. STUART. I think that would be impossible to find out, except
that it might be procured from the street railways themselves, all
of whom get income-tax certificates on every coupon that is cashed.
Collectively, they will have a list of substantially every bondholder
in the United States. I believe there are some 1,300 companies, most
of whom, I assume, have a bonded indebtedness, and you could there-
fore get it from them. But the average distribution of street-rail-
way securities is in very small amounts.

Mr. WARREN. That would include, in reaching your average, the
exceptionally large holder like the insurance company that you men-
tioned?

Mr. STUART. If I am not mistaken, the average holding of the
Kansas City Railway bonds, including some very large amounts held
by insurance companies and banks, is about $7,000.

" Mr. WARREN. I think that is all, Mr. Chairman, I want to ask Mr.
Stuart.

Commissioner SWEET. Mr. Stuart, arc many of these bonds held
by widows and orphans?

Mr. STUART. Yes, sir.

190 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Or for them by trustees ?

Mr. STUART. Yes, sir; both ways.

Commissioner SWEET. What was the smallest bond issued by the.
Kansas City Co. ?

Mr. STUART. A hundred dollars

Commissioner Sweet. A hundred dollars?

Mr. STUART. And there were many, many thousands of those sold
to widows, orphans, and wage earners.

Commissioner SWEET. A single bond?

Mr. STUAKT. Single bonds.

Commissioner SWEET. Of a hundred dollars?

Mr. STUART. Yes, sir. As a matter of fact, we considered them
so good that to the people who bought small denomination bonds, we
gave a wage earner a chance to buy a hundred dollar bond by paying
$10 down and $5 a month.

Commissioner SWEET. Did many take advantage of that?

Mr. STUART. Many.

Commissioner SWEET. Would the exact data or information on that
subject be available so that we might have it ?

Mr. STUART. In that particular case, yes, sir. We can have that
analyzed for you in a little time.

Commissioner SWEET. Yes.

Mr. STUART. A complete list of the bondholders, giving you all
the different classes and the amounts — a careful analysis — so that
you can see at a glance the class of people who hold these securities.

Commissioner SWEET. Will you be so kind as to do that, Mr.
Stuart?

Mr. STUART. I should be very glad to, but it will take a little time.

Commissioner SWEET. Yes.

Mr. STUART. It will probably take, I should say, a week or 10 days.

Commissioner SWEET. You can .send it to the chairman, Mr. Elni-
quist.

Mr. STUART. I should be very glad to do that.

Commissioner SWEET. And that will be available for the commis-
sion ?

Mr. STUART. Yes, sir.

Commissioner SWEET. Upon what basis did the expert you have
mentioned arrive at the valuation of the Kansas City properties ?

Mr. STUART. It was the depreciated physical property, plus about
15 per cent of old property that had not been previously amortized.
A part of the trade was that the city was going to contribute its
share of earnings toward that unamortized part, and, as a matter
of fact, under the franchise, the city was going to reinvest its
share of the earnings in the property right along until, in some 20
or 30 years, they would have controlled the property. The city would
have had more money in it than the individuals or than the companj'.

Commissioner SWEET. That is, if the business had gone along as
was anticipated in 1914 and 1915?

Mr. STUART. Yes, sir; at the time the calculations were made. It
was all calculated out on the basis of the earnings as they were at
that time.

Commissioner SWEET. Do you know whether municipal ownership
and operation were in contemplation?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 191

Mr. STUART. Municipal ownership and operation may have been
in contemplation to some extent, but not entirely, because by the
time the franchise would have expired the city would have owned
substantially half of the property, and I take it that if municipal
ownership had been in contemplation it would have been so arranged
that they would have controlled the property or owned it all by the
expiration of the franchise. But in connection with this arrange-
ment about the city reinvesting in the property, that was another
reason why the securities of the company were considered to be
so good, because we were permitted to say in our circular by the
city counselor of Kansas Cit}- at that time — although he would not
sign the circular — that this franchise was really a partnership agree-
ment between the city -of Kansas City and the railway company.

Commissioner SWEET. In one sense it was; was it not?

Mr. STUART. It was a partnership, but. it was a one-sided partner-
ship, I am afraid.

Commissioner SWEET. As it turned out.

Mr. STUART. As it turned out.

Commissioner SWEET. Because the profits were not there?

Mr. STUART. Yes, sir; exactly.

Commissioner SWEET. And the city at the present time, and for
the last two or three years, has not been getting any, has it i

Mr. STUART. The city has not gotten anything for over two years.

Commissioner SWEET. Xo.

Mr. WARREN. The company has not, either, has it, Mr. Stuart?

Mr. STUART. Xot for dividends. They have paid interest up
until July 1 of this year.

Mr. WARREX. But they defaulted then?

Mr. STUART. Oh, they defaulted on July 1 of this year.

Commiasioner SWEET. Do you remember whether any difficulty
was experienced in reaching a harmonious decision as to the valua-
tion of the property as between the experts representing the city
and those representing the company ?

Mr. STUART. My recollection is that there was very little difficulty
in reaching an agreement on the valuation. The real difficulty was in
trading on the other points of the franchise, the rate of interest
that was to be allowed, the division of profits with the city, the
amount that was to be charged for depreciation, the fact that the
city had o directors in the company out of 11, and points of that
kind. There was no great trade in the valuation, and a very im-
portant thing in connection with the franchise, really, that I have
not mentioned, was the fact that it was approved by referendum
vote, so that the voters all had a chance at it ; but it did take, from
the time of negotiations of this franchise began up until the final
referendum vote, about three years. In the meanwhile, the earn-
ings of the property were good enough, so that the receiver jwid in-
terest on everything right along, and kept the property up in first-
class physical condition.

Commissioner SWEET. At the time the referendum vote was taken.
was the propertv in the hands of a receiver?

Mr. STUART. It was; yes. sir.

Commissioner SWEET. And still the people voted in ffmir of if-?

Mr. STUART. And still they vote<l in favor of the fvnnch's". Th"
property was not taken out of the hands of the receiver until about

192 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

a year after this referendum vote, because, after the franchise on
which the whole reorganization was based, then, of course, it took
a long job to treat with all the different security holders and get out
the new securities and draw the mortgages and do all the many
other things that had to be done in a situation of that kind.

Commissioner SWEET. That was all done during the receiver-
ship ?

Mr. STUART. That was all done during the receivership. That
was done in the year between the time of the referendum vote and
the ending of the receivership.

Commissioner SWEET. The receivership then had no reference to
the defaulting or failure of income.

Mr. STUART. Not failure of income; but the receivership was
caused by a default, because the company had a lot of securities, sev-
eral million dollars' worth of securities, due with a franchise which
ran only a few years.

Commissioner SWEET. Yes*

Mr. STUART. And with the principal due ?

Commissioner SWEET. Yes.

Mr. STUART. Then the bankers of the company felt that they
could not undertake a refund with this expiring franchise in sight.

Commissioner SWEET. But all of that related to conditions which
had existed prior to the making of this new arrangement that you
have been telling us about.

Mr. STUART. Yes, sir.

Commissioner SWEET. Did the experts come to an agreement in
regard, to the addition of the 15 per cent that 3^011 speak of?

Mr. STUART. The experts of the public-service commission came to
an agreement in regard to the items that made up that 15 per cent.

Commissioner SWEET. You said that the securities issued were less
than the value placed upon the property by the experts.

Mr. STUART. Yes, sir.

Commissioner SWEET. Do you remember how much less?

Mr. STUART. I think I can give it to you in percentage. I should
say between 15 and 20 per cent.

Commissioner SWEET. It was slightly less, then, than the physical
valuation of the property?

Mr. STUART. As to bonds; yes. The depreciated physical value
was in excess of all of the bonds outstanding, including both first
and second mortgage bonds. It was at least 40 per cent in excess of
the first-mortgage bonds outstanding; and that is depreciated physi-
cal value.

Commissioner SWEET. Have you ever had any experience with any
company conducted upon the service-at-cost plan ?

Mr. STUART. No, sir.

Commissioner SWEET. That would be quite different from the Kan-
sas City plan, would it not?

Mr. STUART. Very different; yes, sir.

Commissioner SWEET. Have you any views on that sj-stem, as to
whether it will work any better than the Kansas City plan did ?

Mr. STUART. Yes, sir; I think it would. As an investment banker
my idea as to credit on which a street-railway company can borrow
money in the future, is that it will have to be on some plan where
the street-railway company will be permitted to earn all its operating

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 193

expenses, proper maintenance, proper depreciation, and a rate of in-
terest on the capital invested which will attract capital.

Commissioner SWEET. What would that rate be, in your judgment,
now?

Mr. STUART. That is a rather difficult question to answer, because
the street railways are in such bad repute. But assuming that they
were brought to the same standard in public estimation that, we will
say, first-class electric companies are in —

Commissioner SWEET. Do you mean lighting companies now?

Mr. STUART. I mean lighting and power companies.

Commissioner SWEET. Yes.

Mr. STUART. The rate, I should say, would be from six to six and a
half per cent on senior securities. By "senior securities" I mean
first-mortgage bonds.

Commissioner SWEET. Yes.

Mr. STUART. Further, my idea of the financial arrangement of the
future, assuming street-railway companies are going to be privately
owned and give first-class service and make extensions when needed,
is that the relationship between the municipality and the railway
company will have to be such as that it will be attractive for a stock-
holder, or for a man who buys stock, to invest in stocks, because it
is bad finance, and will never work out for any corporation to keep
on borrowing money, always putting out senior securities. It must
have a senior security, which will necessarily bear a comparatively
low rate of interest, and a junior securtiy furnishing the margin,
which would bear a higher rate of interest. In other words, the
first-mortgage bonds and stock. Unless some plan for safe credit
is worked out, it is hopeless for street-railway companies to expect
to get money, in my judgment.

Commissioner SWEET. As the situation is to-day, Mr. Stuart, if I
understand you right, it is impossible for street-railway companies
to get any new capital, practically.

Mr. STUART. Practically; yes.

Commissioner SWEET. t)o you mean taken as a whole?

Mr. STUART. Practically so.

If you will let me interrupt for a minute, I can tell you just what
the exceptions are.

Commissioner SWEET. Yes, sir; I wish you would do that.

Mr. STUART. The exceptions are only those properties that have
been financed by strong banking houses, who have to refund a
maturing obligation in order to make the rest of the securities they
have sold good. Generally speaking, there is no market for street-
railway securities to-day.

Commissioner SWEET. In the case that you speak of, would it
mean that the companies are not earning enough to justify investors
in putting in new money, but that they are being held up by bankers
and new capital that comes in for another reason than that of invest-
ment?

Mr. STUART. For both reasons. There are few properties that are
making any kind of a showing on their senior securities. I refer to
Kansas City again. We have taken securities of that company.
My firm has taken securities of that company which it has not tried
to sell, and won't try to sell, in the effort to make all the millions that

194 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

we have sold good, and we never will market those securities, we
never will ask anybody to buy any of them until we can go to them
and say, " These securities are again safe, in our judgment."

Commisisoner SWEET. You are doing that to protect your patrons ?

Mr. STUART. We are doing that to protect our patrons and the
patrons, the widows and orphans, the insurance companies, and the
people that we have sold these securities to.

Commissioner SWEET. And incidentally to protect your own repu-
tation?

Mr. STUART. Yes, sir ; but regardless of the reputation, every bank-
ing house has some responsibility in connection with the securities
it sells.

Commissioner SWEET. Yes.

Mr. STUART. And we propose to live up to our responsibility to the
utmost.

Commissioner SWEET. That is taking what I would call a moral
stand.

Mr. STUART. Yes, sir.

Commissioner SWEET. That is right in itself.

Mr. STUART. Yes, sir.

Commissioner SWEET. And perhaps the best policy in the long run
for those who want to keep on doing business.

Xow, Mr. Stuart, if the companies, as a rule, throughout the coun-
try, can not get new capital, they can not make extensions, nor keep
up repairs, nor really continue to do business very long, can they ?

Mr. STUART. They can not.

Commissioner SWEET. So that, as you see it, as I got it from what
you have already said, the general public has got to sit in, in some
shape or other, either as owners or owners and operators of these
companies, assuming now that they are to continue to operate, and
thereby subject the general taxpayer to, perhaps, the necessity of
making up for losses, or else in some other way the general public
must come in as sort of guarantors under the plan that has been
mentioned here. We will say service at cost. If that were carried
out properly, I suppose the burden would fall upon the patrons of
the company, would it not, instead of upon the general community ?

Mr. STUART. Yes, sir.

Commissioner SWEET. Which would seem to be more just than to
have it fall upon the whole community, would it not ?

Mr. STUART. That has always been my opinion, that the street rail-
way company should be permitted to operate so that its patrons
should pay the cost.

Commissioner SWEET. But under the supervision of the munici-
pality or State commission of some kind-
Mr. STUART. I am thoroughly in favor, from an investment bank-
er's standpoint, of supervision of public utilities.

Commissioner SWEET. Would you make a distinction there between
its being done by the municipality itself or by a State organization ?

Mr. STUART. Certainly, I would much rather it be done by a State
public-utility commission. I believe that is freer from local preju-
dices, and it is in a position to render a fairer judgment on any ques-
tion than local authorities would be.

Commissioner SWEET. Then all the municipalities of the State
would be on an equal basis, and under the supervision of the State
organization.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 195

Mr. STUART. Yes. sir.

Commissioner SWEET. And the interest of the general public would
be looked after by that State organization or commission, and the
users of the street railways would be the ones who would pay more or
less, according to the needs, thereby getting at actual cost — or as near
as may be at actual cost — the conveniences of street railway service.

Mr. STUART. Yes, sir; I think that is just.

Commissioner SWEET. Have you any other plan than that to sug-
gest as being worthy of consideration uy this commission ?

Mr. STUART. Xo, sir. My general idea is the one I spoke of in re-
gard to a basis of credit. As to just what in detail should be done
generally. I have no definite plan.

Commissioner SWEET. In regard to an indeterminate franchise,
such as you spoke of, would there be any means, according to your
plan — the plan which is in your mind — by which the franchise could
be terminated at all ? Would the public have any control over it, so
that on the happening of any possible event the public might step
in and terminate the franchise, or would it be absolutely indeter-
minate ?

Mr. STUART. I should say that it should be an indeterminate fran-
chise, the company to be regulated by public authority.

Commissioner BEALL. May I ask him one question there, Mr. Com-
missioner Sweet?

Commissioner SWEET. Certainly.

Commissioner BEALL. Mr. Stuart, in the States that now operate
under indeterminate permits, like Wisconsin, for instance — and there
are a number of States tliat have that plan for public utilities — do
not all of those permits provide that the continuance of the permit is
subject to the good behavior on the part of the corporation f

Mr. STUART. They do.

('oiiiini.ssioiier SWEET. So that there would be an impossibility of
terminating it upon the happening of some possible event, would
there ?

Mr. STUART. Yes, sir ; as a basis for extending credit, I should say
that would be perfectly proper, because, under such an arrangement,
practically everything would be agreed to in advance as to what
could be done and what could not be done.

Commissioner SWEET. Yes.

Mr. STUART. And it would be some very flagrant happening under
which the municipality would want to terminate the franchise. I
take it that the street railway corporation is a necessity, and if it is
not operated under private ownership, then it must be operated under
public ownership.

Commissioner SWEET. Don't you think it would be possible under
that sort of a contract to provide that the municipality might purchase
it, if it saw fit, at a future period?

Mr. STUART. Yes, sir; I think that would be quite proper.

Commissioner SWEET. Is not that ordinarily put into such a fran-
chise? Has it not been in the States where they have them?

Mr. STUART. It has been put in in a number of special cases that
I know about. And, if I am not mistaken, in Wisconsin, when you
take out an indeterminate permit, the municipality has the right to
purchase it at an appraised value.

196 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Where receivers have been appointed, as
they have been in many instances, have the results been generally
more favorable than under the control of the companies themselves ?

Mr. STUART. Oh, I think so.

Commissioner SWEET. The results have been

Mr. STUART. From every standpoint.

Commissioner SWEET. From every standpoint?

Mr. STUART. From every standpoint. In the first place, a receiver
is not appointed unless the property is in trouble.

Commissioner SWEET. Yes.

Mr. STUART. And it is usually in trouble on account of 'earnings.

Commissioner SWEET. Yes.

Mr. STUART. The receiver has a job representing the court. It is
usually more or less a temporary job.

Commissioner SAVEET. Yes.

Mr. STUART. And one of the first things he seeks to do is to cut
down service and cut down maintenance, in order to make the net
earnings larger and make a little better showing. My observation
is that properties in receivers' hands are not nearly so efficiently
operated as under private management.

Commissioner SWEET. Not as efficiently operated?

Mr. STUART. Not as efficiently operated.

Commissioner SWEET. That would depend somewhat upon the
ability and experience of the receiver, I suppose ; would it not ?

Mr. STUART. It would undoubtedly depend upon the ability of
the receiver ; but the receiver can not be as interested to operate that
property for the benefit of the community and for the future as the
permanent owners of the property would be. He has not the same
interest.

Commissioner SWEET. Under the service-at-cost plan, is it cus-
tomary, or do you think it would be right, that there should be a
limitation as to the salaries drawn by the managing officers of the
company ?

Mr. STUART. I have not thought about that phase of it; but the
public, in the interest of the public, would naturally want to allow
enough salary to attract the kind of talent that would efficiently
administer the property.

Commissioner SWEET. That would seem to be essential, and yet
you are aware of the fact, are you not, that public officials in most
cities are not very well compensated ; in other words, that the public
is rather stingy in its compensation of its officers ?

Mr. STUART* Shamefully so, I think.

Commissioner SWEET. But it is against public interest, is it not?
iWould it not pay the public to be more generous in the payment of
salaries and get higher-grade men?

Mr. STUART. Undoubtedly. For instance, take the public commis-
sioners of States, who are called upon to pass upon enormous in-
vestments in property, and to use their time, judgment, and experi-
ence. I have always thought that the pay that they got was nowhere
near commensurate with the judgment and experience required.

Commissioner SWEET. Have you had experience with commission
form of government in cities?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 197

Mr. STUART. Do you mean have we handled securities — —

Commissioner SWEET. Has your business brought you in contact
with cities that are governed under the commission form of govern-
ment— the newer form of city government? The city of Buffalo is
now the largest city in the United States governed that way, I think,
but there are Des Moines, Galveston, and a great many other cities
that are governed that way.

Mr. STUART. Yes ; we had a lot of experience with Galveston. In
fact, my firm bought the first bonds that Galveston issued after their
earthquake down there.

Commissioner SWEET. Yes; I wanted to ask you as a matter of
information, whether you are familiar with cities governed in that
way and whether you have noticed any disposition to be more liberal
in the payment of salaries of officials, especially of city managers.

Mr. STUART. I am afraid I am not sufficiently familiar with that,
except that I have had enough experience in Galveston to believe
that everything in that city is done on the most businesslike basis.

Commissioner SWEET. You made the remark that all healthy com-
panies needed a continual increase of capital, and if a company was
not needing more money — more capital — then it was not in a healthy
condition. Did you not say that?

Mr. STUART. I did ; and that is true, in my opinion.

Commissioner SWEET. Do you base that upon the ground that a
healthy company is continually expanding —

Mr. STUART. A public-service company, like an individual or like
any private business, can not stand still. It either has to go for-
ward or go backward. If it goes ahead, it needs more money; it
needs more capital all the time.

Commissioner SWEET. And that could not be properly provided for
by earnings?

"Mr. STUART. Earnings would not be sufficient to provide, in my
opinion, for the additional capital required by any growing public-
service corporation.

Commissioner SWEET. That is all.

Mr. WARREN. Mr. Stuart, did you say that under that Kansas City
franchise five directors were named bv the city ?

Mr. STUART. Five by the city and six by the company.

Mr. WARREN. You spoke of a rate from G to 6£ per cent on senior
securities of street railways, if the street railways were now enjoy-
ing the same position in public confidence that the electric-lighting
companies enjoy, and of a higher rate for the junior securities, which
I suppose is ordinarily stock.

Mr. STUART. Ordinarily I assume to be stock.

Mr. WARREN. How much higher?

Mr. STUART. Well, I should say from 1 to 2 per cent.

Mr. WARREN. Higher than—

Mr. STUART. Higher than the senior securities.

Mr. A\TARREN. Is there any general rule or practice in investment
banking houses respecting the earnings which a utility should show
in excess of the interest required on the bond issues?

Mr. STUART. There is not any general rulo. But, as I said in the
beginning, the investment banker has no control over money of his
clients; and unless you present a street-railway security, or any other
security with a proper value and proper earning restriction, proper

198 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

earnings statement, proper depreciation fund, or proper sinking
fund, proper escrow provisions in the mortgage, the investor won't
buy it. Unless he thinks he is well protected, the buyer of bonds
would not buy bonds. He is conservative, and unless he thinks he is
well protected, he won't buy bonds.

Mr. WARREN. As far as the earnings are concerned, he would expect
the company to show considerable earnings in excess of the money
necessary to pay the interest on the bonds ?

Mr. STUART. The general rule, without, however, being a rule, is
that the senior security, the first-mortgage bond, to be considered
a safe security and to be in good standing, should earn twice its in-
terest charges, or more.

Mr. WARREN. You want to get a train, and I think you will just
have time to do it.

Mr. STUART. I thank you very much.

Mr. WARREN. I am very much obliged to you.

Commissioner SWEET. At the service-at-cost plan, would not the
senior securities, the stock and everything, be substantially on the
same basis, and all practically guaranteed by the public?

Mr. STUART. No. They would, to some extent, but there might be
conditions that would come up in any one year that would make the
showing for the junior securities a little less favorable, perhaps, than
it should be. Then, another thing: The buyer of the senior securi-
ties, if he has a big equity behind him, is going to buy those securi-
ties at a good deal less rate of interest than he would were he furnish-
ing all the money, and at times of panic or times of stringent money,
when the street-railway company finds it necessary to borrow, if they
have a senior security which has a big equity behind it in the shape
of junior securities, they can always raise the money on those senior
securities, either by selling the securities, or by hypothecation, until
such time as money conditions ease up. For instance, the average
rate of interest — suppose that it 'should be, we will say, 7 per cent.
Now, if you paid 8 on your junior securities and 6 on your
senior securities, the average, you will see, would be 7 per cent, a very
much better financial set-up, and if a corporation is always in a posi-
tion to borrow money, it is always sure of serving the public properly.

I would like to say a word just from an investment banker's stand-
point, and I know most of the investment bankers of the United
States. We look upon this commission almost as the court of last
resort in this matter. We feel that the decision of this commission
is going to have the same effect upon the public as the War Labor
Board's decisions had on the public ; and we are, therefore, very, very
deeply interested, and all of us are anxious to do everything we can ;
but we think that this is about the last chance, and that whatever you
gentlemen decide is going to go a very long way toward molding
public sentiment, out of which we hope for better things.

Commissioner SWEET. Do you think, Mr. Stuart, that the employees
of street-railway companies and the general public are equally inter-
ested with the investment bankers and the companies themselves,
substantially ?

Mr. STUART. Well, I may not have the correct view of that, but I
do not think so. I think the solution of this is between the public
and the railway companies, and the relations between the employer
and employee would be just like they would in any other company.

PROCEEDINGS OF 1'EDEKAi, ELECTRIC RAILWAYS COMMISSION. 199

The employee must be well paid. He should be well paid. Every-
body wants him well paid. But the public should see that the em-
ployer gets a rate with which he can afford to pay those wages.

Commissioner SWEET. As between the investor and the general
public, the advantages of settling this question and settling it right
are substantially the same.

Mr. STUART. Yes ; I agree with you.

The CHAIRMAN. You will be excused, Mr. Stuart.

Mr. WARREX. Mr. Chairman, at this point I should like to read a
letter which Mr. Tripp received from Mr. Hurley, who was asked to
come before the commission but was unable to attend, and if I may,
I would like to read it now before I call my next witness :

UNITED STATES SHIPPING BOARD,

Washington, July 15, 1919.
Mr. GUY E. TKIPP,

Chairman Federal Electric Railway Commission,

Washington, D. C.

DEAR MR. TRIPP: I have been requested to appear before yoii as a witness in
your pending investigation of the problems which confront electric railways
of the United States. It is impossible for me to appear in person without
neglecting other public duties to which I am committed, and I trust that you
will permit me to submit and record for your consideration the following facts
in written form :

The United States has been developed with unparalleled rapidity through
the construction of transportation facilities by men of vision and initiative.
Thus our great national industry has been built up by transportation which has
heretofore preceded, led, ami actually made possible and brought about the
wonderful development of the natural resources of this country and our na-
tional prosperity.

In the early days our national, State, and municipal authorities realized the
absolute necessity of fostering the construction of transportation facilities as an
essential factor in the development of our country, and subsidies in the form of
land and money were granted, thus aiding in their establishment.

Adequate and efficient electric railway facilities are just as essential to the
proper development, welfare, and prosperity of our cities and populous com-
munities as the transcontinental trunk lines are to our country at large. They
should be fostered and safeguarded accordingly.

Unfortunately pioneers who promoted the construction of many electric-
railway properties pursued practices which have saddled on the traveling
public excessive charges in the form of excessive amount for promoters' profits
rather than for construction costs. These practices naturally brought about
public antagonism.

The United States Shipping Board Emergency Fleet Corporation had oc-
casion during the war to require many electric-railway companies to enlarge
their facilities sufficiently to carry great numbers of shipyard workers between
their homes and the shipyards. We thus wore brought intimately In touch with
tlw electric railway industry and its requirements on all seaboards of the
United States.

We found in many instances that the companies were financially impotent,
owing to their having been prevented increasing their rates to a sufficient ox-
tent to cover the increased costs of operation and a reasonable return on the
capital already invested.

We have found that this condition applies to many companies throughout the
entire country and is mainly responsible for tl»e unsettled condition of the
electric- railway industry to-day.

In many cases the War Labor Board in Washington, In endeavoring to
meet war conditions, raised the wntres of the street-railway employees with
the thought in mind of preventing widespread strikes, they being fearful that
strikes might spread and develop a serious situation. But in their anxiety
to settle labor difficulties promptly they naturally were unable in the
emergency to take into consideration all the conditions, as it was their task t<»
prevent serious labor difficulties.

Now that the war is over and It la recognized that wages are not likely to
be reduced, when the facts show that certain street railways can not be op-

200 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

crated under the present high cost of materials and labor, so as to yield a just
return on the capital invested, it appears to me that there is only one remedy
and that is authority to increase the fares. The public interest requires first-
class service and the public is willing to pay additional fare.

With the whole world endeavoring to improve its transportation services
both on land and sea, and spending millions of dollars experimenting on trans-
portation in the air, it is most important to the future prosperity and comfort
of our people that the street railways be placed in a position where first-class
service will be given the public at a just cost under the supervision of broad
minded, sound commissions. If State and National Governments are to deter-
mine what is a fair street-railway wage scale, then they should also assume
the responsibility of determining and establishing what is an adequate street-
railway fare, and they should willingly, when the facts are presented, meet the
new conditions by authorizing street-railway companies to increase their fares.

It is clear that every electric-railway company should be freely accorded the
right to establish such rates as are necessary to meet operating costs, including
maintenance and depreciation, and a reasonable return on the capital invested.
If they are to be denied this right, it is perfectly clear that no additional
capital can be safely invested in electric-railway securities, that our electric
railways will be unable to meet their obligations to the public and their se-
curity holders.

As soon as the American public and the street-railway corporations of this
country are brought to a settled understanding of what constitutes fairness in
their mutual relations, your problem will be solved. Capital already legiti-
mately invested in public service will be safeguarded, the credit of our legiti-
mate electric-railway companies will be restored, new capital will be available
to them as required for the development and expansion of their facilities to
meet the requirements of the public, and the public will enjoy efficient, safe
service.

The true value of an electric-railway property is the legitimate cost incurred
in establishing and developing its business, and that any method of valuation
which disregards this principle is not fair.

The capital invested in an electric-railway property is certainly entitled to
a profitable return from the time it is placed at risk in the enterprise and the
public interest is best served when a fair return is paid on capital.

An electric railway is entitled to include in its cost of service not only its
current operating expenses but due allowance for renewals and depreciation.

Therefore, these are all elements which must be included in valuing an elec-
tric-railway property for rate-making purposes.

If you can clearly and firmly establish these fundamental principles, you will
save an important industry and perform a great service to the American public.
Very truly, yours,

EDWARD N. HURLEY, Chairman.

Mr. WARREX. I think I mentioned yesterday morning something
about Massachusetts investments. It might interest the commission
at this point, after Mr. Stuart's testimony, if I were to read the
figures which I prepared for an argument before the Massachusetts
commission which was considering this same general question that
your commission is considering here for the whole country. They
were considering it merely for Massachusetts. These figures, I be-
lieve, were authentic. They were made up from the reports of the
various street-railway companies as regards to stockholders and
from the saving bank and insurance commissioners' reports for
Massachusetts as regards those two classes of securities, and they
relate to the year 1915. At that time there were $102,493,675 of
capital stock outstanding which under Massachusetts laws is all
issued at 100 cents or more on the dollar. There was represented
in addition to the par value of that capital stock paid into the
companies under the laws of Massachusetts, which requires stocks
if they are selling at over par to be issued at a price above par, the
money being paid into the corporation — there were in premiums so
paid to the corporations $6,659,611, or in round numbers about

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 201

$109,000,000 of capital stock or what amounted to the same thing,
paid in premiums on capital stock, and there was $91,834,700 of
funded debt.

The number of people interested in the stock of those street-
railway companies in 1915 was 26,000. There were 26,000 investors
interested in the stock. In the bonds there was nothing available at
that time as to the number of bondholders, but the savings bank
and insurance reports did indicate the extent to which the bonds
were held by those two classes of corporations ; and it appeared that
$31,414,100 of street-railway bonds, which was a little more than
one-third of the total, were held by Massachusetts savings banks on
October 30, 1915; $5,758,000 of the bonds were held by Massachu-
setts life insurance companies, and $1,138,000 by other Massachusetts
insurance companies. The total held by savings banks, life insur-
ance, and other insurance companies was $38,310,100, or about two-
fifths of all the bonds which those street railways had outstanding
in 1915.

The CHAIRMAN. Did the bonds and stocks apply to railroads oper-
ating wholly within the State of Massachusetts?

Mr- WARREN. Yes; substantially so. There may be one or two
which operate without the borders to a neighboring town. There is
one, I think, that operates a little way over into Xew Hampshire
and one that operates a little way into Rhode Island; but substan-
tially they are corporations operating in the State of Massachusetts.
As far as the savings bank law is concerned that is confined to the
Massachusetts street-railway companies.

STATEMENT OF MR. HENRY G. BRADLEE.

Mr. WARREN. Your full name is?

Mr. BRADLEE. Henry G. Bradlee.

Mr. WARREN. You are connected with the Stone & Webster organi-
zation?

Mr. BRADLEE. I am a member of the firm of Stone & Webster.

Mr. WARREN. And that firm, as I think appeared from Gen.
Tripp's testimony this morning, has had a gi^at deal to do for a long
period of time with street railways among other public utilities, has
it not?

Mr. BRADLEE. We have been interested in the public-utility busi-
ness for nearly 30 years. We have under our charge the operation of
some thirty-odd public utilities, electric light, gas and street rail-
ways, of which about 25 are either street railway or combined rail-
way and electric-light properties. We have also been called on to
examine and report on many street railways in which we are not
directly interested, to advise the owners as to methods of handling
their property, also to help out certain receivers in the handling of
their present difficulties.

Mr. WARREN. Have you personally had a great deal to do with the-
street railway properties?

Mr. BRADLEE. For the last 18 vears I have been the executive head
of the so-called management division of our firm and in that capacity
have had general charge of the management of all of the properties.

Mr. WARREN. Mr. Bradlee, in connection with the street railways
over which you have had charge, what is your experience as to the

100C430— 20 14

202 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

need of additional capital by such companies from time to time, and
how regularly is that need shown?

Mr. BRADLEE. I have prepared certain figures and brought them
•with me covering specific cases, with the idea that that might be
more valuable to the commission than general figures.

Before taking up the matter of additions to capital, I would like to
say just a word on the amount of capital, as a whole, required in
the street-railway business.

About three years ago we had occasion to examine for our. own
information, or investigate for our own information, the amount of
capital required for various branches of industry. That investiga-
tion extended over a period of about a year. We obtained da.ta
from many different industries of all sorts and kinds, and while the
figures which we obtained are of course not accurate as applied to the
industries as a whole, they are indicative at least of the amount of
capital required to carry on these various types of industry.

When our figures were completed, a diagram was prepared show-
ing the amount of capital required to carry on a business of $-100,000
in gross earnings. I have several copies of this diagram here which
I thought might be of interest to the commission [handing papers].

The CHAIRMAN. Have you enough to supply each member?

Mr. BRADLEE. Well, I will send some more. There are three there.

You will see from this diagram that the amount of capital re-
quired to carry on, for example, the construction business, that is a
contract, is low. A capital of less than $50,000 will do $100,000 of
business. The same is true in what we have termed the trading —
that means retail and wholesale business. In manufacturing, the
capital appears to just about equal the gross annual business trans-
acted. In mining, due to the large amount of investment in mining
lands, mineral lands, the investment materially increases. Then we
come to the group of public utilities — telephone, gas, electric light,
street railway and steam railway, in which the capital required is
from $400,000 to $500,000, at least, to carry on $100,000 of gross
earnings. Last of all is agriculture, which is even higher than pub-
lic utilities.

I want to call your attention particularly to the part of the dia-
gram which is shown in red. That represents the operating plant,
the investment in operating plant. You will see in that case that
the public utility stands out even more markedly than in the total
capital. There is no other industry which apparently requires an
operating plant equal to its annual gross earnings. The public util-
ity requires a plant several times its annual gross earnings, from four
to five times.

Now this has a direct bearing on the earnings of the utility — the
necessary earnings. If a retail merchant is able to turn over his
capital three times a year and in turning it over makes 3J per cent
profit on each turnover, he will make 10 per cent a year on his entire
investment. A public utility, on the other hand, will turn its capital
over only once in every four to five years, and in order to make a
reasonable return on that capital, or rather to make the same 10 per
cent — if it were 10 per cent — it would be necessary to pay out from
40 to 50 per cent of the gross earnings as a return on the investment.
In other words, the trader or merchant may get along with 3^ per
cent profit and earn 10 per cent on his capital, whereas the public

PROCEEDINGS OF FEDERAL ELECTRIC RAH. WAYS COMMISSION. 203

utility must pay out 40 to 50 per cent of its gross to earn an equal
return on the public-utility capital.

The capital requirements of the public utility are not, as they are
sometimes supposed, paid in in the creation of a property at the start
and then continued at a more or less uniform rate. On the contrary,
there must be, as Mr. Stuart told you, a continual contribution of
capital year by year and month by month. The public utilities in all
parts of this country are growing and growing steadily, and there is
continually increased demand for service due to increased population
and also to increased demand per capita in a given population; and
to meet this increase in service, it is necessary for the public utility to
continually add to its investment.

The addition of capital follows very closely the increase in business.
I have brought with me here two charts of one of our street-railway
companies; they are identical. And on those charts you will see two
lines. The black line shows the increased investment in the property,
starting at the beginning of the period, an<l then running through the
long series of years, adding each year the new capital which was
invested that year, in that way producing the black line which 3^011
see on the curve. The green line is four times the increase in gross
business, and those two curves, as you will see, nm very closely to-
gether, showing that we have invested, year by year, four dollars of
new capital for each dollar of increased gross business, and that it
has been necessary to do that in order to adequately carry on that
business and serve the public.

Similar curves covering an electric-light company — a company in
Lowell — will show very similar results. For instance [handing
chart to the commission], you will see in both the electric-light and
the street-railway property the investment has followed very close
with the increase in business; the curves are not identical, but they
are very close to it; and in each case the additional money, the capital
required, has been about four times the increase in gross business.

I have also brought with me a statement which I will hand you.

The statement produced by the witness is as follows:

Ai>i>ro.rimatc grons earnings and apj>ro.rimate expenditures for construction of
d- Webster companies for the years 1902 to 1918, inclusive.

Year.

Gross earnings.

Construction
expenditures.

1902...

$3, 5X5, 000. 00
6,338,000.00
8,4*2,000.00
9,504,000.00
12,212,000.00
13.776,000.00
16,357,000.00
19,133,000.00
20,747,000.00
21,3^9,000.00
23,925,000.00
26,305,000.00
2X.K81.000. 00
27,044,000.00
29,456,000.00
31,029,000.00
36, 322, 000. 00,

$2,750,000.00
3,623,000.00
2,414,000.00
2, 900, 000. (X)
5,000,000.00
8,500,000.00
6,962,000.00
5,703,000.00
7,286,000.00
9,077,000.00
5,467,000.00
7,531,000.00
6,840,000.00
3,371,000.00
3, 736, 000. 00
5,001,000.00
5,691,000.00

1903

1504

loo.->

1906 .

1907

1WW

1909. . .

1910

1911

1912....

1913

1914....

1915

1916.

1917

1918.

Total

334,485,000.00

9i,s52,<»naoo

204 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The figures from 1902 to 1907 cover a considerable number of com-
panies. The cost of constructing the Puget Sound Railway, tho
Puget Sound power development and the Taylors Falls power devel-
opment are eliminated.

The figures from 1908 to 1918, inclusive, cover all Stone & Webster
companies.

The cost of the Verdi power plant, the Goat Rock development, the
Citizens' Railway Company (Northern Texas Traction), the Gal-
veston-Houston Interurban, Mississippi River power initial devel-
opment, Falls Village development, Dallas Terminal investment, and
all intangibles are eliminated. The Minneapolis figures are elimi-
nated from both gross and construction and Connecticut power earn-
ings from 1913.

Comparison of rates of increase of gross earnings of Stone cC- Webster companies*

Year.

Percentage
increase in
gross
earnings.

Year.

Percentage
increase in
gross
earnings.

1Q{)9

20.0

1912...

10 0>

1003

16.0

1913

10 &

1004

10.0

1914

2 1

1905

12.5

1915

6 $

1906

18.0

1916

8 9

1007

19.0

1917

13 4

1908

5.0

1918

18.7

1°09

16.0

1910

5.0

Average

10 7

1911

3.8

Year.

Percentage
increase
in gross
earnings.

Amount
spent on
construc-
tion per
$100 or
gross
earnings.

Year.

Percentage
increase
in gross
earnings.

Amount
spent on
construc-
tion per
$100 of
gross
earnings.

1902

20.0

$76.00

1909...

16.0

$30 00

1903

16.0

57.00

1910

5 0

35 00

1904

10.0

28.00

1911

3.8

42 00

1905

12.5

31.00

1912

10.0

23 00

10Q6

18.0

42.00

1913

10.0

29 00

1907

19 0

62 00

1908

5.0

43.00

Average

12.1

37.00

Year.

Percentage
increase
in gross
earnings.

Amount
spent on
construc-
tion per
$100 of
gross
earnings.

Year.

Percentage
increase
in gross
earnings.

Amount
spent on
construc-
tion per
$100 of
gross
earnings.

1902

20.0

$76. 00

1912 . . .

10.0

$23.00

1Q03

16.0

57.00

1913

10.0

29.00

1904

10.0

28.00

1914

2.1

24.00

1905

12.5

31.00

1915

6.3

12.00

1906

18.0

42.00

1916

8.9

13.00

1907

19.0

62.00

1917

13.4

11.00

1908

5.0

43.00

1918

18.7

11.00

1QQ°

16 0

30 00

1910

5.0

35.00 I

Average

10.7

27.00

1911

3.8

42.00

Mr. BRADLEE. On the first sheet of the four pages I have just
passed up, you will find the gross earnings of the group of properties

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS .COMMISSION. 205

which we manage, from the year 1902 to 1918, showing the gross earn-
ings of the properties in each year. The second column shows the
construction expenditures for additions to those properties each year.
In making up the construction expenditures we have omitted certain
large expenditures which were in the nature of new developments
rather than of additions to existing property. For example, we built'
an- interurban road between Galveston and Houston. It is owned by
the same company which owns the street railway in Houston and the
same company which owns the street railway in Galveston; but we
operated that as a new proposition and did not include it in here
under the construction expenditures for additions to property. We
have omitted certain water powers and others large items of that
kind. So that these figures of construction expenditures cover merely
the extensions and development of existing property.

Commissioner MEEKER. Why the tremendous drop from 1914 to
1915 in construction expenditures?

Mr. BRADLEE. I will come to that in a moment.

On the second sheet you will find the percentage increase in gross
earnings of the group of companies. In the year 1902 it was 20 per
cent and in each year there has been an increase, the minimum being

3.8 per cent, with the exception of the year 1917, in which there was
a decrease of 6.3 per cent. That decrease was due very largely to the
effect of the jitney bus combined, in certain sections of the country,
with poor general business conditions. Following, in 1916, the jitney
disappeared to some extent and the gross earnings increased again.
In the last year, 1918, the gross earnings have increased 18.7 per cent
or almost as high as the maximum of any year since 1902.

On the third page you will find repeated the percentage increase
in gross earnings for the years from 1902 to 1913, and also the
amount spent on construction extensions per hundred dollars of gross
earnings. In other words, in 1902 for every $100 of gross earnings
of this group of companies, it was necessary to spend $76 in additions
and extensions. The average for the entire period 1902 to 1913 is $37
expended on extensions and improvements for each $100 of annual
gross earnings.

On the fourth page the figures are identical with page 3, except
they have been continued from 1913 to 1918. The original figures, as
it happens, the first page, was made up in 1914 and this second page
was made to bring it up to date. You will note that the high rate of
investment continued up to and including the year 1914. In 1915 we
had conditions which had been brought about by the jitney; wo had
the beginning of the war period, and every effort was made to keep
down further extensions to property. During the war period we have
continued that policy, and of course during the past year and a half
the Government, through the Securities Issues Committee, has pro-
hibited the utilities from spending anv money on improvements or
extensions other than such as was absolutely necessary. In addition,
there has been the difficulty of selling securitiesv of which Mr.
Stuart spoke to you.

Now those figures of the last four years moan this: The companies
have gone on increasing in gross earnings. In 1916 they increased

8.9 per cent; in 1917, 13.4 per cent, and in 1918, 18.7 per cent; but wo
have not spent during that period anything like an adequate amount
to take care of that increased business. We have been in one sense

206 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMItflSSIOIT.

living on our fat — we have been calling on our power plants, our
track, our cars, to carry more than their normal amount of load, and
we have taken chances of breakdowns and interruptions to service
which in normal times we should not do. Tluit means that these
properties at the present time are below par. They are not developed
to the extent they should be normally to handle the volume of busi-
ness which they now transact.

To meet that situation and to adequately serve the public we must
not only meet future extensions but we must make up for what we
have failed to spend in the last four years so that the demand for ad-
ditional capital during the next four years, if we are to adequately
serve the public, must be above normal to offset the four years which
are below.

Mr. WARREN. Did you stater Mr. Bradlee, whether that statement
consisting of four pages related to all the utilities under the manage-
ment of Stone & Webster or street railways ?

Mr. BRADLEE. It relates to all of the utilities, street railway, gas,
and electric light. I was unable to separate them out in the time al-
lowed. In fact, I do not believe we could separate them out, because
many of the properties are combined companies, the same company
doing street-railway and electric service, and it would be difficult if
not impossible to separate many of the construction expenditures and
determine exactly what should be apportioned to the street railway
and what to the electric-light company.

The CHAIRMAN. You stated there were 35 companies being oper-
ated by Stone & Webster?

Mr. BRADLEE. Approximately; yes.

The CHAIRMAN. Of that number, how many are street-railway
companies ?

Mr. BRADLEE. Approximately 25 are either street railway or com-
bined street-railway and light companies.

The CHAIRMAN. You are quite familiar with the street-railway
companies operated by other concerns throughout the country ?

Mr. BRADLEE. Many of them.

The CHAIRMAN. Do you feel that your companies are quite typical
of the companies giving service in other sections of the country?

Mr. BRADLEE. I think they are reasonably typical of what has oc-
curred in the industry — yes.

The CHAIRMAN. Do you feel that the other companies have been
devoting about as much money to new construction annually as you
have ?

Mr. BRADLEE. About a year ago a report was made to Mr. John
Skelton Williams outlining the conditions in the street-railway in-
dustry. If I remember the figures correctly, the gross earnings of
the street railways were placed in that report at $1,500,000,000. It
was estimated that the annual expenditures for extensions and im-
provements would be from $600,000.000 to $700,000,000 a year. That
would correspond very closely to those figures. Those figures would
figure out just about $600,000,000 a year on a gross business of
$-1,500,000,000, so that the statistics which were gathered for all -the
companies correspond very closely with those for that group.

The CHAIRMAN. Your table shows that from 1902 to 1918 there
was $98,252,000 invested in construction expenditures.

Mr. BRADLT K. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 207

The CHAIRMAN. Is that whole amount capitalized?

Mr. BRADLEE. No. A large part of it was.

The CHAIRMAN. About what per cent?

Mr. BRADLEE. Oh, I could not tell you. A certain amount came
from earnings from companies that were not paying dividends, who
earned their dividends but turned the money back into the property;
but just what per cent that was I could not tell you.

The CHAIRMAN. How much of that money represents new capital ?

Mr. BRADLEE. A large part of it represents new capital.

The CHAIRMAN. About what per cent?

Mr. BRADLEE. Oh, I could not tell you what per cent.

The CHAIRMAN. Of course your books show that ?

Mr. BRADLEE. Oh, yes.

Commissioner BEALL. This gross earning which you gave on the
first page, does that include the additional gross earnings which you
derived from the new properties which you built and which you say
were not included in the total of $91,000,000 construction expendi-
tures ?

Mr. BRADLEE. No.

Commissioner BEALL. You have segregated that?

Mr. BRADLEE. Yes. Those gross earnings apply only to the com-
panies to which the construction expenditures applied.

Commissioner BEALL. How could you show that where you de-
veloped new water power and built new power houses, as you did?

Mr. BRADLEE. We simply segregated that as we did in the Houston
and Galveston interurban case.

Commissioner BEALL. But all your big developments on the White
Eiver and similar places, where you have spent many millions of dol-
lars, but which brought in a lot of gross revenue, how did you get
that out of this? I do not see how you could.

Mr. BRADLEE. The White River was included in this figure.

Commissioner BEALL. But you did not include the White River
expenditure on the other side, did you ?

Mr. BRADLEE. Yes; we included the White River expenditure in
the years in which it was made, and included the earnings from the
White River operation in the years following.

Commissioner BEALL. I thought you said you had not put it in
your construction expenditures, a new line.

Mr. BRADLEE. When I spoke of a new enterprise I meant an en-
tirely new thing — like a new interurban road, as distinguished from
a water power which was built to supply a going concern.

Commissioner GADSDEN. This statement you have rendered is ?
combined statement of the three utilities, gas, water, and electricity,
is it not ?

Mr. BRADLEE. Yes.

Commissioner GADSDEN. If it were made up entirely of street rail-
ways, as you have in the first chart, the proportion of capital would
be larger'?

Mi-. BRADLEE. The proportion of capital would be larger on the
street railway than on the other two.

Commissioner GADSDEN. This chart shows a proportion of about
fow ami a half to one.

Mr. BRADLEE. Yes.

208 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. That proportion holds true as regards additional or
increasing earnings and increasing capital expenditures, as I take it.

Mr. BKADLEE. Yes.

Mr. WARREN. The proportion is larger than that, is it not, as re-
gards the original or initial capital?

Mr. BRADLEE. In some cases, yes, and in some cases it would be
about the same.

Mr. WARREN. In some cases it would run five or seven to one, would
it not?

Mr. BRADLEE. Yes; it certainly would. I might r*iy that those
figures, you will understand, are average figures. We have one pub-
lic utility, a large water power, which was built entirely new and in
which the investment is 10 to 1. So that those figures should not be
used or considered as applying definitely to any particular industry.
They simply represent the average of the group.

Xow, to meet the requirements, such as those, we must sell securi-
ties. There is no other way to meet them. The earnings of the
properties are not adequate to even meet operating expenses — I am
speaking of street railways now — to meet operating expenses, taxes,
and interests on bonds, in many cases. There is nothing left there to
apply to extensions and improvement. It must all be obtained from
the investor in some form, and unless it is obtained from the in-
vestor it will be hopeless for the street railways to attempt to ade-
quately serve the public. The service to-day is inadequate. It will
continually grow more and more inadequate unless some means is
found to improve the credit of the street railways and enable them
to raise the money needed to meet these demands for further serv-
ice; and that amount of money, as is indicated in these figures, is a
very large sum in proportion to the gross earnings of the company.

The railway industry as a whole must, in some way, if it is to
fairly serve the public, raise six or seven hundred million dollars a
year for new work, and in addition it must provide for the refinanc-
ing of maturing obligations to an amount varying from $250,000.000
to $300,000,000 a year. So that there is approaching a billion dollars
a year to be raised in some way for the street-railway industry in
order to adequately serve the public.

The CHAIRMAN. Would it be convenient for you to file a statement
showing the amount of refunding obligations that are due in the
next year?

Mr. BRADLEE. I think such figures are obtainable. We secured
them for the report which was sent in to Mr. Williams, and I think
they could be obtained for next year. I would be glad to try and
see what I can get on that.

This portion of new capital, to my mind, is the crux of the situa-
tion. In many discussions of the public-utility situation the dis-
cussion has centered around what is a reasonable return on the
capital that is now invested, and the suggestion has been made — I
read just the other day the report of the committee of fifty or one
hundred, I have forgotten wrhich it was, in Denver, a committee of
citizens who were appointed by the mayor to investigate the Denver
situation. That committee made a very satisfactory and intelligent
report in many ways, but then they went on to say : " Here is a bad
situation. It is not anybody's fault in particular. The dollar has
depreciated and everybody is suffering; the public is suffering and

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 209

must suffer through increased fare. The company, on the other
hand, should share their part of the burden and take a moderate
return on their investment and be satisfied with less than they might
.think was reasonable." That is all right; it may be perfectly fair
and just as applied to the investment that is already there. But the
city of Denver is going to grow. The city of Denver, if it continues
as it has in the past, Avill have 10 years from now at least twice the
investment in its street-railway system that it has to-day, and that
money must come from somewhere.

Now the street railway should be looked on, as I see it, not as a
static thing but as a growing organization, something which is
expanding and extending all the time and which must extend and
expand to adequately serve the public. It is possible to make a trade
with the city by which the investment which has already been made
shall accept what may seem an inadequate return, but that is only
a half truth; it is looking at only half the situation. You can make a
trade with a man who already has his money invested, but you can
not make a trade of that kind with a man who is going to invest his
money next year and the year after. That man will look at the
situation in the street-railway field and compare it with the situa-
tion in other lines of industry. There is no situation that I knoAv of
where competition is keener than in the investment of money. The
investor looks for the investment which he considers is going to
be the most favorable for him, and that is the investment which he
buys. Unless he can be convinced that he will have equal security
and an equal chance for profit in the street railway or other public-
utility industry that he can obtain in manufacturing and any other
line of industry, he will put his money into manufacturing and
not into the public utility.

Xow that problem is the one which lies at the basis of the solu-
tion of this whole question. It is not the question of what money
is in there so much as it is how are you going to get additional money
in order to reasonably serve the public.

There are only two ways that I know of : One is to go to municipal
ownership and have the city or State raise the money on city or State
bonds. The other is to establish some plan under which the investor
will feel that in the future he may count on a reasonable protection
of his invested capital and a reasonable insurance of an adequate
return.

I think that covers what I had in mind here on the capitalization
end of the problem.

Mr. WARREN. Can you give the commission any information, Mr.
Bradlee. about the increasing costs of operation during the last two
years or the last three or four years?

Mr. BRADLKE. I received yesterday from Texas a letter and papers

Jvoni three of our Texas companies in which our Texas managers

•\d taken the operating expenses in two of the companies for the

onth of April. 1010, and in one company for the month of March.
:'»10. They listed on one of our regular sheets the expense items for
..hose months of the year 1010. They then figured the cost of the
s';ime labor and material on the basis of prices of labor and material
in March, 1013. In other words, they assumed that exactly the
same number of hours of labor were spent, exactly the same materials

210 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

were u.sed, but took the prices of 1913 and then refigured their operat-
ing expenses for the month. I will submit to the commission these
sheets in detail and simply give a few summary figures.

The Houston Electric Co., figured on that basis, shows an increase
in expense on the maintenance of way and structures of 76 per cent.

Mr. WARREN. That is one of the four important divisions of
operating expense, is it not, Mr. Bradlee ?

Mr. BRADLEE. Yes, that is an important division. On the main-
tenance of equipment the increase was 58 per cent. On the con-
ducting of transportation — that means the operation of cars — an
increase of 50 per cent. On general and miscellaneous expenditures,
32 per cent; an average for the total expense of 48.4 per cent.

In the case of the Houston company the cost of fuel was decreased
by making that change. The cost of fuel in 1919 was less than the
cost of fuel in 1913. That was due to the fact that we fortunately
made contracts for fuel oil two years ago at a very low rate and those
contracts are still in effect. If we were buying fuel oil at the pres-
ent prices, there would have been a marked increase in the cost of
fuel which would have increased these percentages.

Mr. WARREN. You made your contract at a lower price than the
price in 1913?

Mr. BRADLEE. Lower than the price in 1913, so there is an actual
saving in that item.

Mr. WARREN. I did not catch the figure for the total operating
expense there.

Mr. BRADLEE. The total operating expense was 48.4 per cent.

Mr. WARREN. Increase?

Mr. BRADLEE. Increase. In the Northern Texas Traction Co.,
which is the company in Fort Worth, Tex., a street-railway company
which operates the entire street railways in Fort Worth and two in-
terurban lines — one between Fort Worth and Dallas and the other
between Fort Worth and Cleburne — in this property, the increase in
maintenance of way and structures was 63 per cent; in maintenance
of equipment, 83 per cent ; in conducting transportation, 57 per cent ;
in general and miscellaneous, 7 per cent, a total of 45 per cent for
the entire property. In this case also we have a fuel oil contract so
we are paying no more for fuel oil in 1919 than in 1913.

The third company is located in El Paso, Tex. It is a combined
railway and lighting property, but the figures are separate for the
two departments of the business. In the railway department, the
maintenance of way and structures increased 47 per cent; main-
tenance of equipment increased 61 per cent; the total cost of conduct-
ing transportation increased 90 per cent; general and 'miscellaneous
expenditures increased 27 per cent, a total for the entire company of
65.3 per cent.

This you will see as a total is considerably higher than the others,
but in El Paso we burn coal. We had no contract, and the cost of
fuel increased 107 per cent, which accounts for this increase. If the
increase in fuel were eliminated, the increase in this company would
be 48 per cent or practically corresponding with the other two com-
panies.

Mr. WARREN. I thought as you read those figures that the trans-
portation in the last company, the El Paso company, I think, in-
creased more than it did in the companies preceding.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COJVOUSSIOiff. 211

Mr. BRADLEE. That is because fuel enters into the cost of trans-
portation ; it is one of the items.

Mr. WARREX. It is not separated into power and

Mr. BRADLEE. No. That enters in as one of the items under that
heading. These figures I onl.y received yesterday. These are the
only copies I have, and I would like to take tlie^ home and have
some copies made and then send them to the commission, if that
meets with your approval.

The CHAIRMAX. Yes,

Mr. WARREX.. You can not say, I.suppose. from the figures there,
how your operating ratio or operating railway revenue is affected
by this increase. Does that appear?

Mr. BRADLEE. Xo, that does not appear. These figures simply
cover the matter of expense. I might say, however, that the Hous-
ton company a few years ago was paying dividends at the rate of 6
per cent on its common stock. It now is not paying any dividends.
It is barely earning the interest on its bonds. The Fort Worth com-
pany is more fortunate and is still paying some dividends on its com-
mon stock.

Commissioner GADSDEX. On account of the oil contract ; is it not ?

Mr.. BRADLEE. On account of the oil contract to quite an extent ; yes.
It is a big help.

Mr. WAUREX. And the other company was a combined company?

Mr. BRADLEK. The other company was a combined company, a
large part of its business coming from electric light and power.

Mr. WARREX. What sort of franchises are these companies operat-
ing under in Texas?

Mr. BRADLEE. The ordinary old-fashioned type of franchise — lim-
ited term;. none of the modern provisions of service-at-cost or any-
thing of that sort.

Mr. WARREN. What is your opinion of those limited-term fran-
chises, are they to the advantage of the public served by the company
or not?

Mr. BRADLEE. I think they are very much to the disadvantage of the
public served. As the franchise term expires it becomes more and
more difficult to raise money needed for extension and improvement;
and being more difficult, it must be raised on shorter and shorter term
bonds or notes. They must be renewed more frequently, and e*ich
renewal costs money. The amount to be paid — that is. the rate of in-
terest— is also higher, because the term is short and because the fran-
chise is uncertain. My feeling is that the public is very much better
oif with some form of indeterminate franchise in which the public is
adequately guarded through power to take over the property by the
city if at any time they feel that that should be done.

Mr. WARREN. Is there also a tendency on the part of the company
to neglect improvements and maintenance toward the end of the
term, if there is anticipated difficulty respecting the renewal of the
franchise?

Mr. BRADLEE. Inevitably. As you get toward the end of the fran-
chise term, if you have doubts as to whether you are going to renew
it, you do not put in much new money — you hold everything down
to the lowest point that you can.

Mr. WARREX. And it used to be the case — I do not know whether
it is still — that at the beginning of the term there was a certain cocki-

212 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

ness and indifference on the part of the grantees of the franchise re-
specting the wishes of the public.

Mr. BRADLEE. Well

Mr. WARREN. Because they had a long period of enjoyment to look
forward to. Was that true in some cases?

Mr. BRADLEE. I imagine it may have been.

Mr. WARREN. Have any of your companies operated under the
service-at-cost principle ?

Mr. BRADLEE. Xo ; we have no companies operating under that prin-
ciple. We have made a pretty exhaustive study of the service-at-cost
franchise and of the results obtained in cities where it has been in
effect. I believe a little later one of our men, Mr. Nash, is to talk
to you on some phases of that.

In general, we believe that the service-at-cost franchise is work-
ing in the right direction, and we believe that some plan of this sort,
something which is a distinct departure from former methods, is an
essential to restore credit. There must be something definite and
something radical done in order to change public sentiment, and the
best solution from the standpoint of relations with the public that
we have seen suggested is the service-at-cost franchise in some form.

Mr. WARREN. Have you had anything to do, Mr. Bradlee, with the
sale and distribution of securities?

Mr. BRADLEE. Yes. We have a department for the sale and dis-
tribution of securities. The securities of our own properties are sold
partly wholesale to bankers, who then distribute them to investors,
and sold partly through our OWTH securities department; so that we
have had experience both in the wholesaling and retailing of public
utility securities.

Mr. WARREN. Can you give the commission any impression as to
the nature of that distribution — how widespread it is, how large the
holdings average? You may have heard Mr. Stuart's testimony
earlier this afternoon.

Mr. BRADLEE. I have no figures in mind, no definite figures, but my
impression is that the securities of our companies are distributed
fully as widely as Mr. Stuart stated was Kansas City's.

Mr. WARREN. And that would apply to a pretty large volume of
securities?

Mr. BRADLEE. Yes.

Mr. WARREN. That is all that I wish to ask the witness.

The CHAIRMAN. I would be very glad if the commissioners desire
to ask any questions that they do so.

Commissioner WEHLE. Mr. Bradlee, your statement which you
filed with reference to Stone & Webster companies does not mention
the number of companies involved in the statement nor the names
of the companies.

Mr. BRADLEE. I would be glad to send that to you if you desire
to have it.

Commissioner WEHLE. Could you add that to this testimony?

Mr. BRADLEE. I would be very glad to.

Mr. WARREN. You can state the number now.

Mr. BRADLEE. I think it is about 35.

Commissioner WEHLE. But some of them — we were not quite clear
as to their exact nature ; and I thought perhaps we could have it more
definitely stated.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 213

Mr. BRADLEE. Those are all public utilities and they are scattered
all over the country.

Commissioner WEHLE. Then your statement, while it treats of
the gross earnings, does not treat of net earnings. Would it be ad-
visable, do you think, in connection with this statement, to let us
have net earnings, or would you rather not include that in your
statement for some reason?

Mr. BRADLEE. I have no objection to giving the net earnings, but
what I was endeavoring to point out in those figures Avas the compari-
son of investment required and gross earnings; that is, the amount
of new investment as compared with the volume of business trans-
acted.

Commissioner WEHLE. The reason I ask for the net earnings in
connection with your testimony is that it is not entirely clear, unless
it its explained, just what you call your gross earnings, whereas net
earnings have a more common definition or more universal definition
than gross earnings.

Mr. BRADLEE. By gross earnings I mean the number of dollars
taken in by the company in its business before any deductions are
made.

Commissioner WEHLE. On what basis of accounting did you arrive
at these gross earnings?

Mr. BRADLEE. We simply add up the nickels as they come in and
the dollars as they are received.

Commissioner WEHLE. That is your gross earnings?

Mr. BRADLEE. That is our gross earnings ; it is the total income.

Mr. WARREN. Without deductions?

Mr. BRADLEE. Without deductions of any sort, kind, or descrip-
tion.

Commissioner WEHLE. Xo deductions of interest?

Mr. BRADLEE. No deductions for expense, interest, maintenance, or
anything; it is the dollars which are taken in by the company in
the year.

Commissioner WEHLE. But there are so many elements that enter
into the situation before we come to the net earnings then that it
is rather difficult for the commission, is it not, to know exactly how
to treat the situation of the street railway companies without taking
the net earnings?

Mr. BRADLEE. I presume that the commission will have presented
to it figures of net earnings of the industry.

Commissioner WEHLE. You see we have here in the record already,
Mr. Bradlee, some indication of the expansion in the various items
which are deducted from gross earnings.

Mr. BRADLEE. Yes.

Commissioner WEHLE. And which are, as we have seen here, cut-
ting down the net earnings or even extinguishing the net earnings en-
tirely.

Mr. BRADLEE. Yes.

Commissioner WEHLE. And along that same line it would seem
that we might have some interesting testimony if you could carry
your sheets just a little further.

Mr. BRADLEE. I would be very glad indeed to send you figures that
will show exactly what the expenses, net earnings, and charges are on

214 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION1.

both properties. We published a book which gives that information,
and I will send copies of those to the commission.

Mr. WARREX. What is the latest year you cover in those reports?

Mr. BRADLEE. 1918.

Mr. WARREN. 1918?

Mr. BRADLEE. Yes.

Commissioner WEIILE. In these 35 companies that you are report-
ing on in this concentrated way in these statements which you have
filed, are there any companies which have been allowed a higher
rate than the normal 5-cent rate for transportation?

Mr. BRADLEE. In the city of Tacoma we have a 7-cent fare; in
Beaumont, Tex., we have a 6-cent fare; in Galveston we did have a
6-cent fare, and they took it away from us and have gone back to 5
cents.

Commissioner MEEKER. Was that because you were making too
much money?

Mr. BRADLEE. Xo ; it was not. It was because the city administra-
tion changed and a new crowd was elected. I think those are the
only ones — no, in Paducah, Ky., the fare has increased to 6 cents.
Otherwise I think the fare is 5 cents.

Commissioner WEHLE. Have those fares been in force during the
entire year 1918?

Mr. BRADLEE. No; they have not. They have been increased at
various times during the year on the various companies.

Commissioner WEHLE. None of those increases were in effect in
1917?

Mr. BRADLEE. No ; all of them occurred in 1918.

Commissioner WEHLE. Do any of the properties which you have
listed here in your statement purchase their power rather than pro-
duce it?

Mr. BRADLEE. Yes.

Commissioner WEHLE. How many of the companies purchase their
power ?

Mr. BRADLEE. I think about three. In one case — there are two
companies there, one an electric-light company and one a railway
company, and the raihvay company purchases from the electric-light
company, so both companies are included in that statement.

Commissioner WEHLE. What kind of contracts for the purchase
of power are there in force in those three cities, if you can give us
those ?

Mr. BRADLEE. Well —

Commissioner WEHLE. First, as to the period over which the con-
tract of supply runs.

Mr. BRADLEE. I am afraid I have not that sufficiently in mind to
give you any exact figures on it.

Commissioner WEHLE. What are the three companies that pur-
chase their power?

Mr. BRADLEE. There is power purchased by one of the Seattle-
companies or Puget Sound companies ; power is purchased in Keokuk
and power has been purchased in the Blue Hill Street Railroad, which,
by the way, is no longer under our management.

Commissioner WEHLE. What is the last?

Mr. BRADLEE. The Blue Hill Street Railroad, and by the way, let
me say a word about the Blue Hill Street Railroad

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 215

Mr. WARREN. That is in Massachusetts?

Mr. BRADLEE. In Massachusetts.

Commissioner MEEKER. N«ar Boston?

Mr. BRADLEE. Near Boston. Mr. Tripp made a statement this
morning that Westinghouse, Church, Kerr & Co. gave up the stock
in a property in which they were interested. We gave up the stock
in the Blue Hill Street Railroad Co. in consideration of having some
one else assume the burden of going on and conducting the business.
That stock was issued under Massachusetts laws, and under the
Massachusetts laws it was necessarily fully paid at par and it repre-
sented an investment of 100 cents on the dollar. And rather than
continue the operation of that property, we gave away the stock and
we assumed in addition and continue to carry one-half the floating
debt, so that we not only lost our stock but we are still liable for
half the floating debt. Since that time the company has gone in
the hands of receivers, and I think we have lost half the floating
debt.

Commissioner WEHLE. In connection with purchasing power —
would you be willing to give the commission some view as to what
the future policy of street-railway business should be from an eco-
nomic standpoint?

Mr. BRADLEE. My impression is that there are to-day in the
country too many small power plants. I believe it would be eco-
nomically better to have a fewer number of large power plants and
obtain the economies which come from production on a large scale —
economies in first cost of the plant and economies through more effi-
cient operation with large-sized turbines. Just how far that should
be applied to street railways is an open question. In a city as large
as Boston, it is quite possible that the Boston Elevated can produce
its power as cheaply as it could produce it if it combined with the
local electric-light company, because each power station is of suffi-
cient size to produce power economically. In the smaller towns. I
think it might very frequently work out to be more economical to
have one power station owned either by the street-railway or the
electric-light company, as the case might be, to produce power for
both; and, as a matter of fact, in many of our properties, being
combined electric-light and street-railway properties, we have just
that situation.

Commissioner WEHLE. Do you find that in the places where Stone
& Webster Co. have in operation the combined power plant for
furnishing both the light and the power for traction that you are
generally producing it at a lower cost than in other places where
you have your independent plant for the operation of the traction
line?

Mr. BRADLEE. In general the cost goes down as the size of the plant
and the output increase.

Commissioner WEHLE. Then you would say that the normal de-
velopment which, as an engineering proposition and as an economic
proposition, should be aimed at in the years to come, is a plan which
would earn' with it the elimination in the smaller city of the power
plant devoted exclusively to traction purposes and would carry
further the purchase or the derivation of power from the larger
plant which serves the entire community?

216 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. BRADLEE. I think in many cases that would work out to the
economic advantage of the community.

Commissioner WEHLE. Not only for traction purposes and light-
ing purposes but also for industrial power?

Mr. BRADLEE. I think that is equally true for industrial power.
There are so many small plants which produce power very much
more expensively and .consume very much more coal than would be
the case if they were supplied from a central station.

Commissioner WEHLE. In the present state of the

Mr. BRADLEE. Of course, any change of that kind must be gradual.
I mean you can not afford to throw away what" you have to-day,
necessarily. There may not be enough additional economy to war-
rant simply discarding existing plants, but the tendency as develop-
ment goes on, I think, should be toward greater concentration.

Commissioner WEIILE. The Stone & Webster Corporation has
made a success, has it not, of the activity of taking over properties
which are in a far from flourishing financial condition, in building
them up and putting them on their feet?

Mr. BRADLEE. We thought so up to about a year and six months
ago. We have had a good many troubles in the last 18 months.

Commissioner WEHLE. In connection with doing that business
Stone & Webster have taken over properties of all sizes, have they
not?

Mr. BRADLEE. Yes ; up to cities of 300,000 people.

Commissioner WEHLE. You spoke of Paducah, Ky., for instance.

Mr. BRADLEE. Yes.

Commissioner WEHLE. Which has a population of how many,
do vou remember?

Mr. BRADLEE. About 30,000 or 35,000, I think.

Commissioner WEHLE. And you have there raised your fare to how
much ?

Mr. BRADLEE. Six cents.

Commissioner WEHLE. Do you believe that that will suffice to solve
your problem in Paducah?

Mr. BRADLEE. I am sorry to say the company is in the hands of
a receiver.

Commissioner WEHLE. Now we had testimony in the record some
time ago at another hearing, Mr. Bradlee, to the effect that in cities
of approximately this size that we are now discussing — 30,000 in-
habitants— there is a type of property which presents a dilemma,
from which there seems to be no escape, according to the testimony
of this witness ; if the rate is not raised it is impossible, so said this
witness, for the company to come out with a profit. On the other
hand, if it is raised, the people will refuse to ride to such an extent
as to cut down the profit again. Would you say that Paducah pre-
sents that sort of a situation ?

Mr. BRADLEE. No; I would not. I think that is true of certain
properties. I think those are primarily properties that depend to
a considerable extent on pleasure travel, or else they are properties
built through sparsely settled communities rather than urban lines.
I believe that the increase in fare in the urban systems, even in the
small cities, will bring about a solution of the problem, and I be-
lieve that even though the first effect of that increase in fare is to

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 217

cut clown earnings so that there is no immediate increase in gross,
I believe the ultimate effect will be to work out the situation.

As a matter of fact, in such of the small cities as I have had
experience, and as I have seen of other properties, the increase in
receipts when the fare is changed from 5 to 6 cents is about one-half
of the theoretical increase. In other words, from 5 to 6 cents is
20 per cent increase and you actually get about 10 per cent increase.
It does not apply to all cases, but in general it runs about that way.
Then gradually the falling off in riding returns, people get a little
tired of walking or else the growth of the city brings new riders into
the community, and after a time the riding is right where it was
before with the full increase of 20 per cent.

Commissioner WEHLE, Have you made any study of the cost of
affording the public service of transportation by gasoline instead of
electricity ?

Mr. BRADLEE. Yes.

Commissioner WEHLE. What sort of a study has been made by
the Stone & Webster Corporation of that?

Mr. BRADLEE. We have studied the situation in this country, we
have studied the situation abroad in Paris and London, and we are
operating gasoline buses in connection with our properties in Puget
Sound, in connection with our properties in Fort Worth, and I
think in one or two of the other cities. We are using the gasoline
buses primarily as feeders for the trolley lines, using them in terri-
tory where service is required but which is not yet built up to a
point to be self -supporting, and where there may be doubt as to
whether they will ever build up to a point to be self-supporting. It
is a simple matter to put in a bus and handle the traffic, and if the
district does not build up, to transfer the bus to some other location
where service is needed, whereas if you once lay your tracks you
have made a permanent investment which can be moved only at
material loss.

In general, the cost of transportation in the buses is greater than
with the service on rails and as far as we have been able to determine
we see no reason to assume that bus transportation can take the
place of the present type of trolley car except in special cases.

One of our men last week visited Mr. Ford's plant, and went over
with them the plans which they have in mind for a gasoline car to
be operated on the street-railroad tracks. Mr. Ford lias expressed
the idea that he can produce a gasoline car which is lighter weight
than the present electric car and will consequently be more efficient.
I am a little bit " from Missouri " on that, but we would be glad to
get anything that would increase efficiency.

Commissioner WEHLE. But it is an interesting field for thought
in connection with certain kinds of communities, is it not — for the
future, that is?

Mr. BRADLEE. I should say certain locations and communities
rather than certain kinds of communities.

Commissioner WEHLE. You were just now speaking of the snvillor
property to which the generalization made by a previous witness
might possibly apply, namely, that it presents an economic dilemma.

Mr. BRADLEE. Yes.

Commissioner WEHLE. And the exception which you had in mind
was a certain kind of sparsely settled community?
100043°— 20 15

218 PROCEEDINGS or FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BRADLEE. Yes.

Commissioner WEHLE. Does it occur to you that perhaps the
application of gasoline with or without tracks might conceivably
solve such problems as that?

Mr. BKADLEE. Well, it might solve it from the standpoint of the
community, but I would not want to be an investor in the company
that put them in. I do not think economically it would be a success.
In other words, if the street railway does not pay, I doubt if the bus
would, although there may be exceptional cases where it would.

Commissioner WEHLE. What kind of a case does Mr. Ford make
out in connection with the selling of the car? He must sell this bus
if he is undertaking to manufacture it at a considerable cost —

Mr. BRADLEE. He has at the present time an idea rather than a
developed car.

Commissioner WEHLE. Has he manufactured any cars?

Mr. BRADLEE. No ; he simply has it on paper, and not very complete
on paper, either.

Commissioner WEHLE. Your cars that you are operating in Fort
Worth and Seattle are not on paper, though ?

Mr. BRADLEE. No ; they are in the city.

Commissioner WEHLE. Are they operating on tracks?

Mr. BRADLEE. No ; they are operating on streets.

Commissioner WEHLE. How much higher does the cost of opera-
tion of those cars seem to run than the cost of similar transportation
would be on the track ?

Mr. BRADLEE. I do not think I ever figured it that way. I—

Commissioner WEHLE. If you had a new community in which no
street-car property existed

Mr. BRADLEE. I will say this. I do not think we are operating a
bus that pays.

Mr. WARREN. You do not think you are operating a bus that pays,
you say?

Mr. BRADLEE. No.

The CHAIRMAN. Is it convenient for you to be here to-morrow
morning ?

Mr. BRADLEE. Well, I have a ticket on the 7.30 train for Boston,
and have some pretty important engagements there. If I could get
through to-night I would like to, but if I can not, I will stay.

Mr. WARREN. Mr. Bradlee came at great inconvenience to himself,
Mr. Chairman, and I should like, if possible, if we could release him
to-night, because I know what his engagements in Boston are.

The CHAIRMAN. We will hear Mr. Bradlee through. Go on, Mr.
Wehle.

Commissioner WEHLE. Supposing that you have a community of
perhaps 20,000 to 30,000 inhabitants, somewhat scattered, and you
were called in as an expert to solve the problem — the transportation
problem — for that community and establish a transportation sys-
tem for it

Mr. BRADLEE. We have a general rule in our business and have had
for many years, and that is never to interest ourselves in a strcet-
railwav problem in a city of less than 25,000.

Mr. WARREN. Is that 'the result of the Blue Hill Street Railroad ?

Mr. BRADLEE. Well, that is the result of watching various com-
panies.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 219

Commissioner WEHLE. But I am asking you this question, Mr.
Bradlee, as an individual whom I know to have had considerable ex-
perience, and I am asking you this from the public point of view and
really asking you to address yourself to it, not from the investment
point of view of a company which has a certain settled policy in de-
veloping property, but simply because one of the various phases of
this whole problem that is being put up to us is even the phase of the
small community.

Mr. BBADLEE. Xaturally.

Commissioner WEHLE. And I am asking you not with reference to
your business, of course, but simply from the public point of view.

Mr. BBADLEE. Well, I said that simply to indicate our point of
view on those properties. I think when you have a small community
of that sort it really comes down to a community problem. I doubt
whether there is any system of transportation in a community of
15,000 or 20,000 people which would be self-supporting just as a
commercial enterprise. It may be run in connection with the larger
system, and the larger system may support that smaller district.
In that way, they may be served without any help from the com-
munity. But if it is an isolated community I think it will need some
form of public help. Relief from burdens will be one help; pos-
sibly some contribution toward the expenses, another form of help.
You probably know that in Massachusetts a law has recently been
passed under which cities and towns are permitted to contribute a
small percentage of the assessed value of the city or town property
toward the local transportation system; and a number of Massa-
chusetts cities and towns are making such contributions. A property
in which we are interested in Plymouth, Mass., is receiving a con-
tribution of that kind at this time, and without it the company could
not have got along.

Commissioner WEHUC. Where the Stone & Webster Corporation — •
to come back to the corporation now — has taken over property and
reorganized it, what has it generally done with reference to the out-
standing issues of stock ?

Mr. BBADLEE. In some cases the outstanding issues of s.tock have
been left unchanged. In other cases there has been a complete re-
organization— a new company has been formed, the old companies
have disappeared and the new company has issued securities against
the properties taken over.

Commissioner WEHLE. On what basis, generally?

Mr. BBADLEE. I do not know that there' is any general basis.

Commissioner WEHLE. Is there any approach to a general basis?

Mr. BRADLEE. No; I do not think there is. We have done all kinds
of things. We have issued securities for less than the cost; we have
issued securities exactly equal to the ccst to us of the property ; we
have issued securities equal to the assumed value, or the best we could
determine to be the value of the property; and we have iasued se-
curities in excess of the value of the property. I think we have done
all the different combinations, first and last.

Commissioner WEHLE. Have you issued any bonus stock?

Mr. BRADLEE. Yes.

Commissioner WEHLE. How recently?

Mr. BRADLEE. Well, not for quite a number of years.

Commissioner WEHLE. How many years?

220 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BRADLEE. I can not tell you ; but it is several years back. We
have not taken over any new companies for several years now. The
question of issuing bonus stock, as I see it, has been this : Rightfully
or wrongfully, the practice has developed of selling bonds in a new
company and of selling preferred stock and giving the purchaser of
the bonds and the preferred stock a certain amount of common as
a bonus ; the idea being that the bonds and the preferred stock would
represent their investment, the common stock would represent, as
Mr. Tripp said this morning, their hopes; and if the proposition
worked out well, the common stock might be worth something; if it
did not work out well, it would have no value.

Now that practice grew up — I do not know when it started or
where, but it did grow up — and there was a time when it was prac-
tically impossible to finance a new corporation without following
that practice. You were in competition with that method, and the
investor liked it, and if you were going to get the investor's money
and get him interested in the enterprise, you were more or less forced
to fall in line to a greater or less extent with that method of handling
the business.

I think the public-utility people recognized, perhaps not at the
start, but many years ago, the fallacy of that method of financing.
I think most of them would have done away with it many years ago
if it had been in their power to do away with it and go on and
develop the business. But it has taken time, and it is only gradually
that the public have been perhaps educated up to a greater extent
to handle the financing of such corporations in that way.

Commissioner WEHLE. The legitimate investment interests and the
better class of production interests would be glad to see an abolition
of the practice of issuing bonus stock ?

Mr. BRADLEE. I would be delighted if it could be wiped out.

Commissioner WEHLE. Has it been abolished?

Mr. BRADLEE. No ; it has been abolished recently, because there has
been no financing of street railways.

Commissioner WEHLE. How recently do you know of bonus stock
having been issued in connection with the sale of securities or the
issuance of mortgage bonds of any public-utility company?

Mr. BRADLEE. Well, I have no case in mind in the last few years.

Mr. WARREN. Has it not been abolished in all States where the
supervisory commissions have been established?

Commissioner BEALL. There is hardly any State, as I understand
it, where it could be done to-day. You certainly could not do it in
any state where there is a public-service commission.

Mr. WARREN. That is what I thought.

Commissioner BEALL. And all the older and more important States
I think, without exception, have a commission, have they not, Mr.
Elmquist?

The CHAIRMAN. Forty-seven States of the Union have commis-
sions.

Commissioner BEALL. Of course, there are a few States, I believe,
where the commission does not pass on the issues of securities, but
in most States they do.

Mr. BRADLEE. Wherever there is a commission with that authority,
of course that immediately stops it.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 221

Commissioner WEHLE. Certainly, the commission knows there are
a number of States where the public-service commission of the State
has that authority.

Mr. BRADLEE. Yes.

Commissioner WEHLE. But there are some left where the public-
service commission has not that authoritj7, and my question which
I asked merely had reference to those States.

Mr. BKADLEE. Yes. I think the practice is very distinctly disap-
pearing, and I hope it has disappeared.

Commissioner WEHLE. Even the authority, though, as it exists,
differs very much in different States, does it not?

Mr. BRADLEE. In the control of securities?

Commissioner WEHLE. Yes.

Mr. BRADLEE. Yes, it varies as to the extent of control.

Commissioner WEHLE. There are some States which undertake to
exercise some regulation over the issuance of securities. The statute
does not, in terms, forbid the issuance of bonus stock; is not that
true ?

Mr. BRADLEE. Yes; I think so.

Commissioner WEHLE. That is all. Mr. Chairman.

Mr. \VARREN. Is it not true, Mr. Wehle, that the law does not
recognize the issuance of bonus stock as such in any jurisdiction; it
always has to be maneuvered? Theoretically, any State law that I
have ever run across treats all stock as being required to be issued
for value and the so-called bonus stock is usually the result of a con-
struction contract, or something of that sort. I do not recollect any
State which in terms would sanction the issuance of stock for noth-
ing as a bonus to go with other security.

Commissioner WEHLE. No; my question did not imply that, I
think, Mr. Warren. My question did imply, though, that there arc
some States where there is a regulation over the issuance of securities
by public-service companies where the issuance of securities in the
form of bonus stock is not positively prohibited.

Commissioner MEEKER. I would like to get your idea of the proper
basis for getting at the value of properties upon which the company
has a just claim to receive a return. Would you agree with the state-
ment made by Gen. Tripp as to using stocks and bonds outstanding
as the basis of a physical valuation ?

Mr. BHADLEE. I think that Mr. Tripp's idea for determining the
money that went into the property is good as far as it goes, but I do
not think it covers the situation fully.

To take a specific instance: The Haverhill Gas Light Co. was
organized many years ago — I think in the sixties. It is a company
in Massachusetts which furnishes gas in. the city of Haverhill. That
company invested some sixty-odd thousand dollars of capital in its
original plant. Then, year after year, they took everything they
earned and they put it back into the property. They never paid any
dividends and never increased the stock. They just gradually worked
up the value of the property. Later we became interested in that
property and we acquired the $05,000 — I think it was — of stock. But
there had 1>een invested in that property at that time something like
$HOO,000 of monev. It could not be reproduced—

Commissioner !\!EEKER. In addition to the original $65,0001

222 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. BRADLEE. Well, including the $65,000. Ninety per cent of the
money had gradually been put in there through dividend accruals
and accruals on those dividends. We had a rate case before th«
Massachusetts Gas and Electric Light Commission, and in that rate
ease it was necessary for us to go back and show what happened in
the building up. of this property, because there was danger from our
point of view that they would simply say, u You only have an invest-
ment here of $65,(X)0." We were able fortunately to get at the books
of the company running away back, and we found that over that en-
tire period, while the property had been built up, with the excep-
tion of the $65,000, out of earnings, the company had never earned
an excessive amount in any year on the property which existed at
that time.

Commissioner MEEKER. As I understood Gen. Tripp, he would
take account of just that situation. How did you acquire the prop-
erty ; was it by trie issuance of bonds or

Mr. BRADLEE. No, we bought the stock.

Commissioner MEEKER. The $65,000 of stock?

Mr. BRADLEE. Yes, but we paid a good deal more than $65,000
for it.

Commissioner MEEKER. Yes, naturally. But you would be able to
show you had more than $65,000 of an investment in the property of
the plant?

Mr. BRADLEE. Yes.

Commissioner MEEKER. I think that he

Mr. BRADLEE, I do not understand that Mr. Tripp would take the
purchase price of the property. That is, if you owned a property
and I bought it from you to-morrow, and a week later we appeared
before a public-service commission to have our rates regulated, I do
not assume that the commission would take the price I bought the
property from you at a week previous to the hearing as an indication
of its value.

Commissioner MEEKER, No, but his scheme did take account of the
turning back of earnings into the property. But that is not the
point I want to bring out. Do you think that the value of the prop-
erty is most easily gotten at by the method of appraisal of physical
valuation, or do you think it can be gotten at easier in some other
way?

Mr. BRADLEE. I do not think the problem is quite as simple as Mr.
Tripp stated. The Supreme Court, as I understand it. has pointed
out that the money that goes into the property is one element in de-
termining a fair value j that the cost of reproduction is another ele-
ment in determining a fair value ;. that the price paid for the prop-
erty by the then owners is another element in determining the fair
value; and that it is necessary to weigh those all more or less and
give them some consideration in arriving at a conclusion as to what
is the fair value.

Now, I think it is perfectly true that there are cases in which a fair
value can be arrived at by taking the money that has gone into the
property. I think there are other cases in which that would lead to
an unfair value unless a broader consideration was given to the other
factors. Wherever it is possible to arrive at a fair solution of the
question by taking the actual cash investment, I believe that that is
a simpler thing to get at. I believe it is a thing which is much better

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 223

understood by the public. I think it makes it much easier to work
out a Satisfactory solution with the public and I am inclined to adopt
that plan and favor it except with this reservation — that there are
cases in which I believe that might lead to injustice sometimes toward
the investor, sometimes an injustice perhaps to the community.

Commissioner MEEKER. Do you believe that it is essential that we
get at a fair valuation of the street-railway properties?

Mr. BRADLEE. I do. I see no way of working out a service-at-cost

franchise or any other equitable solution without arriving at some
-c • i
fair value.

Commissioner MEEKER. I do not wish to keep you any longer than
possible

Mr. BRADLEE. That is all right; I can stay. I am not going until
7.30. I am sorry to keep }7ou.

Commissioner MEEKER. You have indicated you have not very
much faith in the motor bus. I would like you to explain to me, if
you can, this great falling off in gross earnings that occurred in 1915,
which you say was due in part to the jitney bus.

Mr. BRADLEE. Yes.

Commissioner MEEKER. If the jitney bus or any other kind of bus
is not really a competent competitor with the street railways, how
could they have dug such holes in your gross earnings in that year?

Mr. BRADLEE. Well, it takes a little time to find out whether a thing
is a financial success or not. The jitney started up, not with a bus,
not in the class of service that a street railway would give; it started
out with a lot of second-hand automobiles, a great many of them
Ford cars and other low-priced cars. The people were crowded into
those cars in a way that they never would stand for in the long run.
There were no regulartory ordinances, there was nothing to deter-
mine what was reasonable service and what was not. But even under
those conditions, the figures which we have show that the average
time a man stayed in the jitney-bus business was about three months,
and then he disappeared and went into something else. Unfortu-
nately, others were not willing to profit by his advice, and they had
to learn for themselves; and the numbers of buses remained the same
over a very considerable period of time, but the men who operated
them shifted.

Commissioner MEEKER. In other words, the jitneys were running at
a loss all the while, although a good many of the jitney operators did
not know enough to know that they were operating at a loss?

Mr. BRADLEE. It took them time to find out, and many of their
expenses were not charged in at all.

Commissioner MEEKER. And just following that out, the jitney
buses did not give any sufficient security to the passengers: In case
of accident the passengers simply suffered loss?

Mr. BRADLEE. In the early clays there was no security at all.
Later, in many cities, ordinances were passed which required the
jitney driver to take out a lx>nd.

Commissioner MEEKER. And as soon as the jitney bus was put on
a business basis it became a more expensive method of conducting
transportation than the street-railway system?

Mr. BRADLEE. Yes.

Commissioner MEEKER. Do you think there may be possible im-
provements in the motor bus and gasoline engine that may bring it
again into the field as a competitor?

224 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BRADLEE. That is always a possibility.

Commissioner MEEKER. But nothing is in sight as far as you
know ?

Mr. BRADLEE. And that is one of the menaces to the street-railway
business.

Commissioner MEEKER. In Great Britain they have given some
attention to the creation of power at great central plants located at
the mines. Has any such plan developed in this country to your
knowledge?

Mr. BRADLEE. Xot on any definite plan such as has been worked
out in England. In England the Government took the matter up
and appointed a special commission to investigate, and that com-
mission has studied the situation throughout England and has made
very definite recommendations for centers at which large power
plants shall be developed. As I understand it, that is now in report
form; that is, no definite progress has been made in carrying out
the plan. The report was submitted about a year and a half ago, I
think — about, but during the war; so naturally it was held up.
Just what will take place now I do not know.

Commissioner MEEKER. Do you think that there is a possi-
bility

Mr. BRADLEE. And in this country there has been a tendency to
work toward that same general plan. There is a tendency to con-
centrate, there is a tendency of the larger power distributing sys-
tems to interconnect their lines and relay each other, and I think that
is a tendency in the right direction.

Commissioner MEEKER. That may then eventually, help in the
solution of the troubles of the street railway companies, the furnish-
ing of cheaper power?

Mr. BRADLEE. Yes; but the saving in power will not go very far
in the street-railway situation. Power, after all, is not a very large
percentage of your total expense.

Commissioner MEEKER. The principal expense is labor — . —

Mr. BRADLEE. Yes; so that even though you made a 25 per cent
saving in power it would be a pretty small per cent of the total
railway expense.

Commissioner MEEKER. Xow we had data furnished to us yester-
day giving some information about labor costs. Could you give us
some further information about the actual increase in the wage scale
in the different items that you spoke of a few moments ago?

Mr. BHADLEE. I think you will find that all here in detailed figures
which I am going to send you. For example, I simply gave you the
figures under conducting transportation. Now one of the items that
goes to make up that figure is the expense of trainmen. The train-
men's expense increased 80 per cent in the Houston companv from
1913 to 1919. And you will find all through-
Commissioner MEEKER. As long as that is to be a matter of record,
that is all I want to know.

Mr. BRADLEE. Yes.

Commissioner MEEKER. Another thing I would like to ask, is it
possible for you to give us a monthly statement showing the effects
on your gross earnings and net earnings, too, if possible, of the
increase in fares in those cities where you have secured an increase
in fares? Otherwise, we will not know where you stand, whether

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 225

your gross earnings have actually been increased or remained station-
ary, or to what extent they have been increased by the increase in
fares.

Mr. BRADLEE. Yes; I think we might get some such figures up.

Commissioner MEEKER. If it is possible, I think it would be very
important to show such figures.

Mr. BRADLEE. I will see what we can do along that line.

Commissioner SWEET. Do you think, Mr. Bradlee, that the crucial
point in this whole matter is getting the companies on a basis where
they can appeal to new capital and get new capital invested, and
without that kind of relief their case is pretty hopeless?

Mr. BRADLEE. I think that is crucial in this way : That it is essen-
tial if the public is to be adequately served. Now, if that situation
is met and the situation is worked out so that the new capital is
attracted, then I think we can assume that the old capital is in that
same plan reasonably taken care of so that the measure of what is
necessary to be done is what is necessary to attract new capital.

Commissioner SWEET. You agree substantially with Gen. Tripp,
that to be upon a healthy basis it must be possible for companies
engaged in the business to attract new capital so as to keep up with
the needed extensions and growth of the industry; do you?

Mr. BRADLEE. I do. I do not think they can adequately serve the
public without that. It is an essential.

Commissioner SWEET. Now, can you suggest any way by which
the public can be brought to a realization of that fact? You do not
think the public does realize it now, do you?

Mr. BRADLEE.- No; I do not.

Commissioner SWEET. Can you suggest any way in which that can
be brought to the public so as to make the public realize that it is not
inerely a question of invested capital and making that fairly profit-
able, but a question of continually increasing capital? How can the
public be made to understand that?

Mr. BRADLEE. I hope that yaur committee will state that so clearly
in your report that it will be understood by the public and will come
not only to their attention but so forcibly that it will in the future
understand it.

Commissioner SWEET. You are passing the buck, as they say.

Mr. BRADLEE. Well, you are our hope right now.

Commissioner SWEET. We want you to tell us how to do it, if you
can.

Mr. BRADLEE. Well, I have tried to present there, just from specific
cases, what has happened in a group of companies whore there has
been need of capital or the capital has been furnished, that their
need is not a sporadic and occasional need but it is a continuous one
month by month and year by year. Similar figures could be pro-
duced and very likely have boon produced and will be. presented to
yon for the industry as a whole, showing the amount of money which
has gone into it year by year in order to meet the public need. I
think those figures might be put in such a form that a convincing
statement to the public could be made, and I am sure that anything
that your commission would say along that line would be very
helpful.

Commissioner SWEET. That is all, thank you.

223 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commisioner BEALL. Mr. Bradlee, you were speaking about noth-
ing having been done in this country as to big power plants at the
mines. That is not really quite correct, is it? Are you familiar with
the Windsor plant on the Ohio River ?

Mr. BRADLEE. If I said that, I did not mean that.

Commissioner BEALL. I want the commission to know there are a
good many plans and some are actually being built, for big power
houses that will distribute not only in one State but in a number of
states. There is this big plant at Windsor on the Ohio River which
furnishes power to at least two or three States. The Duquesne Co. of
Pittsburgh is now erecting at a cost of many millions of dollars a
plant at a place near Cheswick, right at the mine. They are making
actual progress on that. And there is a big power company in Cali-
fornia, and, if I recall it, through the war, at the request of the
Government they were all hitched up together, California, Colorado,
Utah, and I think they went up into one of the Northern States as
well.

Mr. BRADLEE. What I thought I said and what I intended to say
was that there had been no general plan worked out by the Gov-
ernment

Commissioner BEALL. No; not by the Government, but they have
been requesting it

Mr. BRADLEE. As they have in London, and no general plan refer-
ring to the country as a whole, as has been done in England. There
are many cases; we have such cases ourselves. The Mississippi River
Power Co. is an instance. The Puget Sound Traction, Light &
Power Co. is another instance of such a case. There we have
four water powers and two steam plants interconnected feeding the
cities of Tacoma, Seattle, Everett, and Bellingham, and all the in-
termediate territory. We are connected up with another power com-
pany which is located in Canada, which supplies power across the
line. We have a similar system in Georgia — in Columbus — and that
system is connected up with another large power-supply system
there; and that general tendency is marked throughout the country.

Commissioner Beall. That is true also in Utah, is it not ?

Mr. BRADLEE. Yes.

Commissioner BEALL. That company with all its plants in Utah
and Montana and Nevada, connected with street railways and elec-
tric light and power companies ?

Mr. BRADLEE. And the New England Power Co. in New England
is another instance. There are many instances of that kind. I did
not mean to say for a moment that such was not the case.

Commissioner BEALL. I wanted to ask one question on those jit-
neys. Was not one cause for the success, to use such a term as that,
in Seattle, Los Angeles, and other western cities, the fact that in the
first year or. two of their operation they only operated in the rush
hours when the traffic was the heaviest and only operated on good
streets where the congestion was thickest?

Mr. BRADLEE. Yes.

Commissioner BEALL. That is, they did not give service at all
hours of the day or night like a street-railway company does.

Mr. BRADLEE. No ; they simply went in and took the cream of the
business. They not only operated on the most crowded streets, but

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 227

they only operated short distances. They picked out the short hauls.
They also

Commissioner BEALL. In other words, they took the business which
was profitable?

Mr. BRADLEE. They took the cream of the business and left the
skim milk.

The CHAIRMAN. Before adjournment, the commission has the fol-
lowing announcement to make: At the conclusion of the testimony
which is to be presented by the American Electric Railway Associa-
tion and related utilities, the commission will adjourn until August
4 at this point, when it will receive testimony from Secretary of War
Baker and a group of economists and others who will be invited to
attend. After that the commission will take another adjournment
until August 11, at which time mayors from Xew York, Boston,
Buffalo, Chicago, Xew Orleans, Minneapolis, St. Louis, Seattle, San
Francisco, and probably some other cities will be invited to attend
and testify. At the same time we will invite regulating commis-
sions to come here and present their testimony.

We now will stand adjourned until 10 o'clock to-morrow morning.

Mr. WARREN. May I ask one question before we adjourn?

On that matter of valuation, Mr. Bradlee, in cases where the securi-
ties of the company have been issued under supervision by a super-
visory board and with its approval, the easiest method would be,
would it not, to take the capitalization of the company as the basis
rather than either a valuation or an attempt to determine the amount
of money that has gone in?

Mr. BRADLEK. I think that would be easy and that would appl}' to
the State of Massachusetts as a very good example —

Mr. WARREN. Yes; exactly.

Mr. BRADLEE. There for 2u or 30 years the securities have all been
issued under the direction and control of the commission and the
securities represent the actual cash which has gone into the property.

Let me say just a word on that. It seems to me if you are going
to take the cash that has gone into the property as the measure of
value, the cash to be considered and the value to be considered is
the entire cash value of everything that has gone in to create that
property from the investor or any services, and which has not been
paid back. If the investor has had some of his investment paid
back to him that, of course, cancels that part of the proposition.
But in so far as the investor has put in money in good faith* and
properly, that should be recognized, whether that money has gone
into a building which is there to-day or a building which was there
some time ago and has disappeared. If the investor has not got his
money back, he is still entitled to a return on his money until such
time as lie is reimbursed for the capital which he has furnished. So
to my mind, the essence of the thing is what money has gone in there
and not been paid back, and everything that enters into that class
should be a proper element in the cost of the property.

The CHAIRMAN. We now stand adjourned until 10 o'clock to-
morrow morning.

( Wlu>reu}>on, at 5.30 p. in., an adjournment was taken to Thursday,
July 17, at 10 a. m.)

228 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

WASHINGTON, D. C., July 77, 1919.

Met pursuant to adjournment at 10 a. m.

Present : Parties as before.

The CHAIRMAN. Are you ready to proceed, Mr. Warren?

Mr. WARREN. I am going to ask Mr. Clark, whose testimony was
interrupted day before }"esterday, to resume the stand and com-
plete his historical sketch, if I may, now. Will you take the stand,
Mr. Clark?

STATEMENT OF MR. WILLIAM J. CLARK— Continued.

Mr. WARREN. Mr. Clark, the other day about the time that you fin-
ished your testimony, you were speaking of obsolescence, referring to
some company, I think.

Mr. CLARK. Depreciation through obsolescence. Possibly I may
have given the commission a wrong impression as regards when that
terminated. I was referring to the Connecticut situation, as you may
remember, and I was speaking of the excessive depreciation from
that cause up to, I think, 1897 and 1898.

Of course, as a general feature, this has continued throughout the
country. 1 did not know but I might have given the commission the
wrong impression in that regard. The ratio has decreased, of course,
with the advancement in the state of the art. That was all on that
feature.

But, gentlemen, if I may make another statement, I am exceed-
ingly anxious to assist the commission in every possible way and, at
the same time, even more anxious not to unnecessarily absorb your
time. I would, therefore, explain that while I consider myself quite
well acquainted with street-railway and local-transportation condi-
tions the world over up to about two years ago, since then I have
devoted practically all of my waking hours for seven days a week to
the preparation of some exhaustive data on foreign commercial, in-
dustrial, and business conditions for the Government, more espe-
cially to aid in the expansion of American foreign trade. Conse-
quently, I can not say that I am up to date fully on all of these later
developments, although I have a general idea.

It has struck me, therefore, that perhaps my greatest value to the
commission — if they so desire — would be in connection with the
historical side; and in that regard I would say that before leaving
New 'York I hastily caught from my files certain material which I
have here, which is not in condition to be presented as exhibits to the
commission, but which I should be very glad to turn over to them if
they desire it as a basis for verifying certain facts. I would go
further and state that

The CHAIRMAN. In what shape is that Mr. Clark?

Mr. CLARK. It is copies of newspaper articles, over different peri-
ods. I might say, continuing this, that I find even with our friends
of the street-railway association a mystery, or a seeming mystery,
concerning the census of street railways for 1890. I have never found
but very few people who knew where that existed. Well, here it is,
gentlemen ; and the mystery is this : The data is found in the volume
on steam railroads and, so far as I know, has never been catalogued
so that people could discover where it was.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 229

Xow, in my opinion, much of the data contained there is of ex-
treme importance to you on this question of capitalization, because
it is very thorough and complete ; and many of the comparisons there,
although the census of 1890, are with the figures of 1880, so it carries
you back to that point. I wish that Mr. Welsh might have had this
material so he could perhaps have started some of his charts earlier.

Xow, as to the other sources of information which are not gen-
erally known: Obviously examination of the trade- and technical
journals reveals much, and that is the character of material I have
here — extracts which we made in the days gone by.

There is another feature incident to that which is not generally
appreciated. If you desire to fix dates, if you desire certain other
facts incident to these different periods, examination of the adver-
tisements of electrical manufacturing companies the world over — •
this is as true of European publications as it is of Americaiv — re-
veals a great deal of interest.

Xow, even more important as regards finding these facts, while
at the outset without explanation it may seem to be entirely technical,
are the patent records in many important pieces of litigation. I
might say that the records in one particular case would fill a shelf
7 or 8 feet long. Xow those records are made up principally, of course,
with the reports of testimony of individuals, of fac simile reproduc-
tions of articles which have appeared, some of them, away back in the
thirtes and forties — the reproduction of drawings and everything of
that sort, And this material is beautifully cross-indexed. Xow I
suppose that it is existing here in the library of the Patent Office — I
am not sure — but if not, those are available at a library that we
control in Xew York City.

Xow, I should be very glad, if the committee desires — to avoid us-
ing up your time here — so far as the time will permit, to compile a
statement — I do not mean an expression of opinion — as to what the
past publications reveal in connection with the history of the devel-
opment of electric railways, not only in this country but, if it is
desired, to a great extent abroad, because the same —

The CHAIRMAN. The commission would be pleased to have that
statement, Mr. Clark.

Mr. CLARK. And it can be made as extensive, as I say, as time will
permit. It can be made very, very short — I say that, but not very
short — or it can be made quite extensive, if you wish it to tell the
history.

Xow turning to historical matters of a general character briefly
for a moment : As you doubtless know the street railway as a possible
carrier originated in this country, although for transportation of
minerals and so on, in England, it probably goes back to the seven-
teenth century. The first moves of its introduction abroad were by
i\ gentleman once famous in this country, Mr. George Francis Train,
\vho had some very unusual experiences in trying to do it.

Xow briefly, to outline the results of this and perhaps carrying
that further, I will put it this way: The street-railway mileage of the
United States to-day is greater than that of all the other countries
of the world combined. We have not accomplished everything here.
I will probably surprise you when I tell you this, that the idea
of what we now call the interurban railway developed in Argentina

230 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

with animal traction, and that long before there had been any prac-
tical electric railways there was a straight-away horse-car line which
ran for 120 miles and which operated sleeping cars which were made
in Philadelphia. Now I do not wish to lead you far on this thing —

Commissioner SWEET. What was the date of that, Mr. Clark ?

Mr. CLARK. I can not give you the exact date.

Commissioner GADSDEN. Where did it run from?

Mr. CLARK. From Buenos Aires out to a town — I have forgotten
the name of it — in the direction of Rosario, 120 miles. I do not know
but our friends of the Brill Co. who are here to-day, who built those
sleeping cars, can give you more exact data.

But turning back historically and bringing in further information
concerning the condition, as I see the question of electric street-
railway development and the problems involved in its operation, up
to a comparatively recent period — two or three years, or three or four
years — the great question was the one of investment or, perhaps more
properly, capitalization involved. Now, of course, as you are well
aware from what has been said here, it is a different thing; the
character of the problem has changed somewhat. Decrease in the
value of the purchasing power of the dollar, so that the costs of all
that goes fcrward construction and operation are the great questions.
You have all doubtless heard much on this subject as regards the
lower capitalization or lower costs of construction, because, of course,
with the municipalities the account stands as construction account
and not as capital account, in the United Kingdom as compared with
the United States, and true of some other countries. So, if agree-
able, I will say a word or two on that.

Now, remember that, like the street railway, in a practical manner
the electric railway was developed here in America. Now, all this
excessive depreciation through obsolescence that I have already re-
ferred to — that is, the worst features of it, the earlier ones, when
the seemingly excessive costs were involved — had been gone through
to a great extent before Europe had made much of any start. In
other words, it was able to profit by our experience here. In the
United Kingdom especially, street railways as a whole had gone
through a unique experience which culminated about the time —
well, it culminated about 1893 or 1894 when we here had been ac-
quiring this costly experience that I have referred to.

As you are perhaps aware, the English theory of vested rights in
property the courts have carried a great deal further than has ever
been done here. Now the gas companies, the water-supply com-
panies which the municipalities had taken over, had gone to the ex-
treme in paying for enormous costs, some of which I could give you
if I had my data here. Carrying this further in the practical opera-
tion of street railways — I myself have had charge of construction
there where this has been done, where street wiclenings were neces-
sary in the construction of a street railway and it was necessary to
expropriate or condemn property — if you touched a licensed saloon
for which the proprietor had a long lease, you would usually be
forced to pa}^ more to the holder of that license than the entire value
of the property. That is a specimen of the way they do with that
problem.

Now, everybody supposed that the tramway act of 1870 or 1871
carried with it the usual British practice, as I remarked before,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 231

going to the extreme on paying for vested rights. But about the first
of the street-railway franchises granted under that expired at Glas-
gow and, to be very frank, the street-railway company there had not
treated the public or the municipality fairly well. The holding of
the court or the courts, for that matter, was to the effect that the
municipalities were not obliged, as in the case of the gas companies,
if they acquired the street-railway property, to take it over as a going
concern, or, in fact, to take it over at all. If they desired to do it,
it was what was known as scrap value. And so this term which is
commonly used, of the scrap-iron tramway clause, resulted in this —
that for all the mileage of street railways which were taken over by
the municipalities — I have forgotten the exact figures; I could give
it you ; it was a mere trifle — I think, in the entire Kingdom, some-
thing like two and a half millions of dollars was all that the munici-
palities paid for the tramways that they took over. However, I
would like to correct that figure later on.

Now, for comparison's sake, let me say that the tramways of the
United Kingdom in extent are not comparable to those of this
country; in fact in extent they are about the equivalent to those ot
New 1 ork State alone. But as these were municipalized, as I said,
they were practically able to wipe out the previous capital account.

Now, with all due respect to our friends there, \vhen it came to
reconstructing these lines and getting them in shape for electrical
operation, it was found necessary to do a great deal of street widen-
ing and straightening; and the municipal authorities were up against
what I stated a moment ago, in that regard, going to the extremity
as to fixing the value of the property taken over. In the great ma-
jority of cases that was done out of the general funds of the mu-
nicipality. If I recollect right, about $^5,000,000 were expended
in that way at London, which the London County Council municipal
tramways had the advantage of. Liverpool, I think, was about
$15,000,000 in the same way. That, of course, all tended to hold
down the capital investment. And so it can be said without fear
of contradiction, and I think if the gentleman who is listed to testify
here, and who can give you far more information and more exact
information than I, Sir Albert Stanley — I think he will give you
some very interesting facts on that.

Now, continuing on with the progress of the street railways in
certain cities, and in fact there has been a great outcry since the
war on the part of municipal authorities where this was done; like
here, they were forced to pay for paving between the tracks, and
I think there, 2 feet outside of the outer rails, but in many other cases
this was not done. Paving was cared for out of the general funds
of the municipalities, and so it has gone — with the net result that
those tramways — their construction accounts — are relatively very
much lower than here. But as I have sometimes put it, while the
investors in American street-railway securities have paid liberally
and excessively for what went before them, thank God, none of us
has stolen anything from the men who made their investments, as
has been done under legal form there in England.

Xow, as regards another most important feature which has been
partially touched upon in the testimony of others: The fundamental
error, as I see it, in the establishment of our system of street rail-
ways here in this country was the fixed 5-cent fare or the fixed fare,

232 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I should say, because it was not in all cases 5 cents. Whereas, in the
United Kingdom and elsewhere throughout the world, as you well
know, they have the zone system or something which is the equiva-
lent of it. o

Xow, while the investors in street railways here at prasent, as you
all know, are suffering from the result of that system, unquestionably
the result has been to confer far greater benefits upon the American
public than has the other system ; that is by distributing your urban
population far more thoroughtly than has been the case over there.
Had our street railways as they existed,. we will say, in 1880, simply
electrified as the time came along their existing lines and constructed
only those which it would have been profitable to operate, their
stockholders would have been very much better off. But practically,
on the other side — I could go into it in detail if I had my data and
show it to you — much as you have heard about this wondrous de-
velopment over there, they have in the main simply constructed lines
where they would pav at the outset.

Now, in perhaps the best managed system of all — in Glasgow — I
have been intimate with that from the first. I went over in 1897,
after they had sent their commission here to this country, when they
were just making their preparations. I went over the line which
they were supposed to electrify first, and I followed it up after I
located there in 1899 and was very intimate with the management.

Now, what is the result ? That Glasgow, with its low initial invest-
ment, its low rates of fare, seemingly, has made on paper a very good
showing ; but you have one of the most congested cities in the world
there to-day. And that holds true of these other cities. The zone
system of fares has not distributed the population as has been done
here, with all the benefits which I believe go with it. I firmly be-
lieve that the decrease in the average death rate of American cities
is as much attributable to this expansion of their population which
has occurred within the last 30 years as to improved sanitation, water
supply, and all the other things which have assisted in doing it.

Commissioner SWEET. They have the zone system in Glasgow ?

Mr. CLARK. Oh, yes ; they do.

The CHAIRMAN. Do you believe that the zone-fare system in Glas-
gow has contributed to the congestion that you speak of ?

Mr. CLARK. The congestion existed before, but as they have not
extended their system out, you understand, where it would not pay,
they have not improved the condition.

Commissioner SWEET. They have not encouraged suburban resi-
dence ?

Mr. CLARK. Not at all. That is true all over Europe.

Mr. WARREN. Do you happen to know what the mileage of the
Glasgow system is now ?

Mr. CLARK. I can not tell you. I have the reports at home, but I
will file with the commission, as part of my exhibit, the parliamentary
publications which give that on all of the British cities.

Mr. WARREN. I remember at one time that with a considerably
larger population than Boston the mileage was much less.

Mr. CLARK. Oh, yes ; only a fraction.

Commissioner GADSDEN. Before you leave that question of Glasgow
and the congestion — what you say would seem to indicate that the
expansion of American cities and the improvement in sanitation and

PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION. 233

community life has apparently been at the expense of the railways
and not of the public.

Mr. CLARK. That is exactly what I believe to be the case.

Commissioner GADSDEN. You think the railways have paid for the
improved condition and not the public themselves?

Mr. CLARK. They have. And as I partially remarked the other
day — I suppose you will laugh at this, gentlemen — that while of
course it is the desire for gain that has actuated the financing of our
railways, and so forth, there has been something about electricity —
there is a germ which catches the average individual and makes him
progressive, and that goes further in serving the public than would
be done in any other way, as I see it.

Commissioner GADSDEN. Now, what have you got to say, Mr. Clark,
about the wisdom of changing over now from a fixed system of
fares to the zone system, so far as it affects the companies and their
fares or effects the communities?

Mr. CLARK. Now, gentlemen, you arc getting into intricate prob-
lems. If you will pardon me, Mr. Gadsden, for going back a little
ways, I wish to start no controversy here on the relative merits of
private and public ownership, but I believe, gentlemen, that mu-
nicipal ownership per se is practically a dead issue, for this reason:
Your public utilities almost without exception have outgrown
municipal boundaries. You see it everywhere. Now. I think if you
will examine the census reports — my figures will not be exact — some
15 or 20 per cent of the entire population of the United States is
resident within 10 miles of the boundaries of some 40 of the more im-
portant cities; that is, not within the municipal boundaries, but within
10 miles limit of them. Now, your electric-lighting systems and your
street-railway systems have spread there. In trying to solve your
problems, this is what has. embarrassed me. I have an abiding faith
m the American public; and to be very frank, gentlemen, I believe
that if the street-railway interests had devoted more of their energies
to educating the public as a whole than they have to educating the
representatives of the public we would all have been very much bet-
ter off.

Now, I agree with what has been testified to here already — that
this remedy which you are seeking must rest on public opinion; it
could not stand without it. Now this is what puzzles me. Take al-
most any of these cities: How are you going to get your expression
of public opinion where it may be scattered through — well, we take
the Public Service Corporation of New Jersey, where it takes in half
of the State of New Jersey in these various municipalities. And yet,
I feel that what we do want in settling it is to let the public have a
say.

Now, as I said before, I am not up to date on all these things, for
good reasons; but I think there has not been a case in the United
States yet where the public utilities have gone direct to the people
witli a well-demonstrated proposition, you understand, shown to pos-
sess merit and to be in the public interest, but what the public have
supported it. I think that that is the case. But dealing with the
street-railway situation, as I say, to get this expression of public
opinion — how you are going to do it is what bothers me. Take this
public-service corporation, for the sake of illustration — the expres-

1GOG430— 20 10

234 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

sioia of a referendum to the people of Newark or Newark and Jersey
City and the Oranges would not tell the whole story. And every-
where you go it is the same thing. And yet I am particularly
anxious to see if some scheme can not be worked out so that the public
itself can have a chance to express its opinion on these matters.

Commissioner SWEET. Do you not think there are other ways of ex-
pressing public opinion rather than by votes or referendums?

Mr. CLARK. Well, I think there is within—

Commissioner SWEET. If there is a settled public sentiment in favor
of a proposition such as municipal ownership or any matter of that
kind, is not that reflected generally in the representatives of the pub-
lic, in common councils, and in legislatures?

Mr. CLARK. Yes, to a great extent. Not always, I think.

Commissioner SWEET. Is it not true that most of the members of
these representative bodies have their ear to the ground ?

Mr. CLARK. .1 think it is, entirely so.

Commissioner SWEET. And they want reelection, generally?

Mr. CLARK. Yes.

Commissioner SWEET. And therefore they reflect public sentiment
in their votes and their action?

Mr. CLARK. They do.

Commissioner SWEET. Or they try to, at least?

Mr. CLARK. They try to.

Commissioner SWEET. Sometimes they make a mistake with re-
gard to public sentiment.

Mr. CLARK. Yes ; but I think the difficulty there is the fact, so fre-
quently, that before these gentlemen become representatives of the
people — in other words the more they are elected, they will inaugu-
rate a campaign of false education, that they arouse a public sentiment
which is not a proper one and not in accordance with the facts or
conditions. I think you can see it reflected in your public press. I
have within a very few days. You see it reflected in fiction. Here is
the traction magnate who has worked all these evils, and so on.

Commissioner SWEET. Well, that had a certain basis of truth, did
it not, in the old days ?

Mr. CLARK. In certain instances it did, I am sorry to say.

Commissioner SWEET. Yes.

Mr. CLARK. And I want to say right there, gentlemen, however —
if you will pardon me — do not conceive the idea that all the watering
of stock and all the ingenious forms of financial manipulation exist
on this side of the water, because the gentlemen on the other side to
my mind can teach the most expert 'Americans of that sort much more
than they ever knew. It is a delicate matter to speak on, gentlemen,
but I want to say this: In my thirty-odd years of experience with
this, on many occasions I have cursed the American public official, I
hav^ said he was corrupt, you understand, frequently — that he was
not*represehting his constituents. But, gentlemen, I want to say this,
after my extensive experience abroad, and I am glad to say, that
talk all you wish about the great integrity of public officials in other
countries, ours are just as near perfection as they are. Our great
difference is this — we wash our dirty linen in public, and they do not.

Commissioner SWEET. Well, it is a pretty good thing to wash it,
don't you think ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 235

Mi. CLARK. Oh, it is in the public interest, I think so; and yet
there is a tact

Commissioner SWEET. The process may be unpleasant, but it brings
better results in the long run.

Mr. CLARK. It does, unquestionably.

Mr. WARREN. You spoke of the foreign street-railway develop-
ment haxring had the advantage of the experimentation in this coun-
try, and that of course is true.

Mr. CLARK. Oh, yes.

Mr. WARREN. But as against that is it not true that our public got
the benefits of this improved method of transportation long before
the public abroad got it ?

Mr. CLARK. Oh, very much, very much. And that can be quite
easily shown, I think.

Mr. WARREN. And the cost of experimentation was one of the prices
that they might reasonably expect to pay?

Mr. CLARK. Yes.

Mr. WARREN. And that they Were anxious to pay at the time, were
they not ?

Mr. CLARK. Why, yes.

Commissioner SWEET. jCan you tell us what the electric-railway sit-
uation in Great Britain is now ?

Mr. CLARK. Not very accurately. I would much prefer that you
ask Sir Albert Stanley when he appears. You know who he is, I
presume. He was English born, but received his street-railway
training in Cleveland, then at Detroit, then with the Public Service
Corporation of New Jersey, and then went over as the manager of the
London Underground Railways; and during the war he has been tlio
chairman — he was not only knighted, but made chairman of the
British Board of Trade, which, as you are perhaps aware, is a good
deal more in form than any commission we have in this country.
If you can conceive of the Interstate Commerce Commission, plus
similar authority over everything in the way of navigation and indus-
tries of every name and nature, you have the British Board of Trade.
And Sir Albert, I am sure, with his experience in this country and
there, will give you a very accurate picture.

I would like to say this, gentlemen, however — I am jumping all
over the lot, as usual — once more referring to municipal ownership ;
there is a mistaken impression as to how extensive it is. Now while
it is very extensive in the United Kingdom, there is virtually none
in France, so far as street railways are concerned, very little as re-
gards the central stations, and only about one-third of the mileage in
Germany. Certain of the British colonies, as of course you know,
have it quite extensively, notably Australia.

Commissioner SWEET. You spoke of municipal ownership as be-
ing somewhat inconsistent with the general practice in this country
of extending the railway systems out into the suburbs or beyond the
limits of the city.

Mr. CLARK. "Y es.

Commissioner SWEET. Is there any legal objection to a munici-
pality's owning its street railroads and operating them beyond the
city limits?

Mr. CLARK. No legal one that I see. I think I can see —

Commissioner SWEET. Would it not be a very natural and proper

236 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

thing for a city to do that even without profit, or perhaps with a
small degree of loss, because of the resultant benefits to the city?

Mr. CLARK. Well, it might, and yet I should rather hold to the
contrary theory — that the municipal authorities would say, "If you
fellows want the full advantage of good public-utility service and
all that goes with it, come inside." Just the same as New York
reaches out and tries to catch in various ways the man who do:s
business there, you understand, and who may live in New Jersey or
Long Island or Connecticut. And apropos of that — it may not fit
this situation, and yet it reminds me of something I ought to tell
you — the most jealous people in the world that I have known, or
creations, I should say, are British municipalities. And I have
never expected to live to see what has occurred in connection with
those bulk power-station matters which were referred to, I think, on
yesterday's hearing. Now to illustrate : You can not tell where Man-
chester and Salford begin and end, any more than you can tell where
Hoboken and Jersey City begin and end, yet through jealousy, they
laid their tramways on different gauges so they could not exchange
traffic. There is another point there in the north — I have forgotten
the names of the towns— where they would not build within half a
mile of each other. And you find that all javer the Kingdom.

Now that is not only reflected in tramway practice, but otherwise.
I trust I will not be considered egotistical when I tell you my ex-
perience with those things, which was a little different, you under-
stand, than a business experience.

During the Spanish War, I became quite intimate with one who
was then Capt. and afterwards Admiral Paget, the royal attache,
and I located in London about the time that he returned. Through
him I became intimate with his brother, afterwards Gen. Paget,
about whom there Was quite a stir ^ in Ireland, as you will perhaps
remember, just before the present war. That brought me in con-
nection with certain people connected with the British war office;
and my advice was asked on this subject, and I gave it considerable
study, as to how far we could go in coupling up the tramway systems
of England or of Great Britain to be used as an auxiliary means
of military transport if necessary. It was found utterly impossible.
This parliamentary publication, which I will give you, tells the whole
story, which you will see.

This same thing — if I may digress for a moment from street rail-
ways— occurred in connection with the connection of power plants
and the character of their electric voltage. It is the worst mixed-
up affair imaginable — all kinds and sorts of conditions, instead of as
it is being done here in this country. And I might say it is true,
and I think all the engineers here will agree with me, that the larger
you make a physical electrical system — that is, I mean, make it
physically — whether the source of generation be water power or
whether it be steam, the better in the public interest, the more eco-
nomical will be your result. Now, you are probably aware how ex-
tensively that thing has gone on in this country, notably in the
South. You take it in the West, where these extensive hyrdoelectric
systems, and sometimes the steam systems, have interconnected
themselves physically.

Now, illustrating this point we are on — although it is not apropos
to street railways, it may be of interest to .you — in the very early days

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 237

of our getting into the war, a request came to me from the X-ray
experts selected by the Surgeon General for information upon the
central-station voltages of France. Without going into detail, it was
necessary to secure very careful electrical regulation to operate X-ray
apparatus. They said they could not get the information. I
laughed, and I went to my library and handed them a French publi-
cation of 1914 which gave it on every central station in France, But
this had to be worked up for them to get it in proper shape. To our
surprise, we discovered that with direct current alone there were 36
different voltages ranging from 60 to 560. Of course municipal
ownership was not responsible for this, but it led to something else
I am telling you about. With alternating current it was just as bad.
Xow England was not interested in this particular thing, of course,
but for curiosities sake we thought we would see what they had
there. Relatively there were wider differences in England than in
France in that respect. Xow as showing what the Germans had
done, there was one case alone that I know of where, by connecting
physically over 20 different generating stations, they were able to
mass something over 100,000 kilowatts for the fixation of nitrogen.
That had been carefully planned in advance.

Xow, the effect of all of this is shown, as you know, in England
by their proposed legislation on bulk power stations. This theory
that you could draw a line around a municipality and do what you
pleased inside without regard to your next-door neighbor or the
fellow outside has been completely exploded. But the details, as I
say, Sir Albert can tell you better than I can. But the tendency of
the world to-day is in this general direction — realization of the fact
that your electric public utilities are broader than the confines of any
municipality, and they are bound to be so if we are going on with
this development as I believe we are.

Mr. WARREN. And to get the best advantages from them?

Mr. CLARK. Yes, in the public interest.

Mr. WARREX. Mr. Clark, you spoke, when you were testifying day
before yesterday, of the cost of electric-car equipment in the early
days of the use of electric motive power compared with the cost just
before the war. I think you touched on the power-station costs.
Can you give the commission an}Tthing more definite as regards the
cost of power stations back in the early nineties and at the present
time and as to the efficiency?

Mr. CLARK. Perhaps so, Mr. Warren. But I think perhaps it
would be better to leave it this way — to give them not as part of this
historical thing, because I do not want to give you anything or ex-
press my own opinion, but I would be glad to have a statement
prepared for them to give this in detail. But the progress of the
electric-power station, as one of the commissioners spoke the other
day — I think it was you, sir [addressing Commissioner Beall] — has
been even more revolutionary than that of the street-car in every-
thing that applies to it. Because, as I remarked only a moment
ago, as you have gone on and on and on, you found it necessary to
expand your systems, ami while the incentive may have been proper
to the investor, it nevertheless has been in the public interest.

Now, as I remarked before, I do not wish unnecessarily to consume
the time of the commission, but if they would like a startling illus-
tration of this I will be glad to give it to them. And I might say

238 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

as the General Electric Co. did not furnish the apparatus, I am not
personally concerned. This is dealing with water power for the mo-
ment, particularly low head power.

Xow, I consider that what the Duke interests, so called, have done
in the Piedmont district in the Carolinas in the development of
power facilities is one of the most beneficial things that has ever been
attempted anywhere in the public interest. Xow, to have you grasp
what this means, I will have to go back. The most comprehensive
statement that has ever been made concerning our water powers is
the two volumes in the census of 1880; and that work was compiled
under the direction of Prof. G. F. Swayne, of Harvard, of whom
you doubtless know ; and I have understood he considers it the best
work of his life. His estimate as regards potential water power in
the United States agreed quite closely with those which have since
been made by the United States Geological Survey, but of course
there is quite a difference between your potential or theoretical water
power and the available water power.

In his work, he uses language practically to this effect : That while
we have, we will say — I think his estimate is something like
250,000,000 of potential water power in the United States— that the
existing low head streams like the Mississippi could never be utilized.
(Of course you gentlemen have heard of the Keokuk development
which has since occurred.) Going further, that where the greatest
proportion of your potential power existed in the headwaters of the
mountainous streams, that could not be utilized because it was im-
possible to use water at such high head. I believe that this last esti-
mate shows that 72 per cent of the entire potential water power of the
United States exists in those mountainous States.

As you may know, in the calculation of power, the Geological Sur-
vey fixes its permanent power and bases it on the lowest complete
minimum for 12 months in the year, so there is a wide difference be-
tween that and your maximum.

One of the reasons for Prof. Swayne's remark about high-head
power was this : Your first high head apparatus, the Peltoh, was hot
developed until 1887, or the first installation made in 1888 probably.
With that there was some electrical development. It was not until
you came to your practical application of alternating current trans-
mission, along in the early nineties, that that thing got a great im-
petus. Even as late as 1898, when of course there had been exten-
sive development and so on, a gentleman for whom I have the high-
est admiration, Mr. Leighton- — as you may know, formerly connected
with the Geological Survey — in his estimates of the available poten-
tial water power of the country, takes into»account what could be
accomplished by storage, which is obvious. But even at that date
they had not grasped something else that went with it, and that is
the physical inter-connection of watersheds, which is carried out to a
perfection by this Southern Power Co.

You gentlemen may all be familiar with the way in which they
do it. They have their water powers — that is, I mean, their de-
veloped powers — located on several streams with different head-
waters back in the mountains. They keep their watchmen there with
telephonic connections. We will suppose, for instance, that on
stream No. 1 they have shut down the plants there, so that the local

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 239

reservoirs or dams would fill, and they are operating, we will say,
their plants on streams No. 2 and Xo. 3. The watchman up at the
headwaters of Xo. 1 telephones in that there has been a very large
shower. Immediately the word goes out to start the machinery on.
stream Xo. 1, because they know there is all this mass of water com-
ing down, and they let off streams Nos. 2 and 3, we will say, the local
dams. Xow they are going to carry that even more extensively by
the construction of enormous reservoirs back at the headwaters.
Well, the net result of all that is this, gentlemen, that out of what
your Geological Survey estimates as, we will say^ one permanent
horsepower, they are getting somewhere from three to five. In
short, through inventions and advancement in the engineering art,
probably five, six, seven* or eight times as much potential water
power has been made available within the last 30 or 40 years as all
the water power that has been developed in the United States.

Well, continuing on for a moment, you may know how those large
systems in the South are interconnected, which carries this same
scheme a little further. Xow they, to a modified degree — and the
same principles apply to interconnection of large steam systems;
and we came very close to it during the war period, as perhaps you
know — I believe that within a few years ways and means will be
found, either through Federal or State legislation, where a man will
not be permitted to waste power. I think that is one of the funda-
mental things in our national economics. In other words, some
manufacturer who is running an old slide-valve engine and chewing
up some 30 or 40 pounds of coal per horsepower-hour is not going
to be permitted to do it when, through water-power development,
he can get his current at a far less figure, or where the best of modern
development is using less than two pounds and can produce the same
result. But, gentlemen, once more, I have rambled away from my
subject.

Mr. WARREX. Do you consider, under the present prices, the ques-
tion of whether the companies should generate or purchase their
power is of great importance?

Mr. CLARK. Xo, I do not on the main issue. Of course* they should
take advantage of every possible economical feature, but it is so
trifling at the present time. Take the street railways as a class — •
you are always going to find, Mr. Warren, opportunities to intro-
duce little economies, but this is a minor econonry and not a big one,

Mr. WARREX. The wage item is too big; it overshadows any one or
all of these possible economies, does it not, in your opinion?

Mr. CLARK. Well, that is a great issue. I would not say it is too
l)ig. I agree entirely with what Mr. Tripp testified here yesterday,
that it is the reduced purchasing power of the dollar that has created
that situation.

Mr. WARREX. I do not mean that the wages are too high, but the
aggregate amount of wages.

Mr. CLARK. That applies to everything else that goes to make up
cost of conducting transportation and of maintenance, which are
the great issues, as I see it.

Mr. WARREN. I think if Mr. Clark will be good enough to furnish
that statement which the commission intimated they would like —
an historical sketch of the industry and the statement about the

240 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

power stations — that is all that I want to ask him. I would be very
glad to have the commission ask him any questions.

The CHAIRMAN. Did you intend that the black book that you refer-
to should be filed with this commission?

Mr. CLARK. Why, I will do it if I can not get you another copy.
Knowing where it is, I have to go up to the Public Printer anyway
with some other material while I am here and I think I can get you
a copy. I will turn it over to you.

The CHAIRMAN. Well, we can get it then.

Mr. CLARK. Surely; and I think I can get you another copy.
And apropos of this, before I complete my statement. I think this
will interest you, which I will also leave with you. It is in rather
bad shape ; some photostat reprints which I have had made of a very
large number of letters from the mayors of numerous American cities
which were published in the New York press in 1892; and I think it
may be of interest to the commission when they are examining some
of these mayors who will testify, to see what their predecessors said.
I will give that to you now [handing papers].

The CHAIRMAN. You have been identified with the street-railway
industry since its inception?

Mr. CLARK. No ; I would say the electric-railway industry, not the
street-railway industry.

The CHAIRMAN. I understood you had worked in connection with
the first electric railway or street railway in Virginia.

Mr. CLARK. No; in Connecticut.

The CHAIRMAN. In Connecticut?

Mr. CLARK. In Connecticut. Mr. Sprague, who will be here, you
will find

The CHAIRMAN. Have you had much to do with the operation of
these utilities?

Mr. CLARK. To a considerable extent — as much as a man could who
was moving all over creation.

The CHAIRMAN. You are familiar with the operating conditions?

Mr. CLARK. Oh, yes; surely.

The CHAIRMAN. Have you had any experience in securing munici-
pal franchises?

Mr. CLARK. A great deal.

The CHAIRMAN. And you know all about the methods employed
in securing those franchises?

Mr. CLARK. Yes.

The CHAIRMAN. It has been stated here that there is considerable
prejudice existing in the public mind against these utilities. What
is the reason for that prejudice, Mr. Clark?

Mr. CLARK. You mean the existing prejudice?

The CHAIRMAN. Yes.

Mr. CLARK. Not those of the past?

The CHAIRMAN. Existing.

Mr. CLARK. To a certain extent, as I see it. certain financial
manipulation which should never have occurred; that is, I mean
on the part of promoters in certain directions. To a greater extent,
excessive exaggeration of what occurred in that regard. And third,
and perhaps more important, although none of you gentlemen may
agree with me, this: The street railway is the one form of public
utility with which the individual citizen, whenever he uses it, is up

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 241

against an employee of the company. Now what I mean by that is
this, we all have lost our temper- — we do these days — with the tele-
phone employees when things are not going very smoothly.

But to my mind more than all the rest it is little annoying things
which have happened in most localities; these other causes are con-
tributory. But if a lady comes rushing to catch a sfcreet-car, just as
it has started, you understand, and does not catch the conductor's
eye, she has a grievance. And I would make this novel suggestion,
gentlemen, that you go right down here on the street and pick up
two or three street-car conductors and let them tell their tales of woe
in dealing with the public, and you will get a different aspect of it
than you ever had.

The CHAIRMAN. Is much of this prejudice due to the political
relations which it is claimed exist between street-car officers and
local officers of municipalities?

Mr. CLARK. I do not think so. There was a time when* there was
somewhat, but I think it is the individual coming in contact with
employees, and that has been exaggerated by war conditions, as I
see it, when the street railways could not maintain as courteous a
character of employees as they had had before.

Now I must confess there is a great deal in local management.
Let me illustrate. I do not know what conditions are now, but up
to war time if you had gone to the city of Denver and taken a street-
car and commenced to ask questions of the conductor, you would
have found a most excellent guide to the cit}7, without exception.
They had been trained that way, to have pride in the city,- and they
wished to show it off and were courteous to the extreme. And in
other cities, where that had been neglected, you would find that there
was a lack of courtesy on the part of the employee.

Xow, gentlemen, I am going td give you in this connection — I
ought to put this first — a paradox, perhaps contradicting myself,
that while I remarked back, I believe the larger you make the public-
utility system, under thorough public regulation, of course, the better
for the public; but unquestionably a great share of this public preju-
dice in many localities comes through the absentee-landlord feeling
that they have. Do you grasp me? This not only applies to street
railways but it applies to others. And I will tell 3*011 a rather inter-
esting story, if I may — I do not know whether it should go in the
record or not — illustrative of it.

Xow very frequently your sensational press will play at that, you
understand ; and if the lady that I referred to a minute ago has an
incident like that happen on a street-railway system that is con-
trolled in the East, which is located in the South or West, that is a
local grievance against it. I think that has far more effect than is
generally supposed. But there is a wide difference between the waj71
in which certain of these properties are handled, and I will tell you
this story which relates to a combined gas and electric central sta-
tion— a very extensive one. I would prefer not to give the name of
the town for certain reasons, but it is a town I have known very well
for over thirty years.

On my arrival there some three or four years ago, I was invited
to a dinner, a sort of got-together dinner that they have there in the
town, of the business men — I have forgotten what the association

242 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

was — every week. And I sat next a former United States Senator
whom I had known for a great many years. He chanced to own a
newspaper in that town and his newspaper had always belabored
the public utilities, as I had well known for 30 years. But, in the
meantime, this property which I referred to, a few years previously
had drifted into other hands, and I had noticed that the paper was
dealing with it extremely kindly. So we visited at the luncheon
table and I said, " Senator, how is it that your paper is treating the
gas and. electric* company so nicely "? He says, " My God, they give
us -service; they are courteous; they are gentlemen." He says, "If
I make a complaint, before I have hung up my receiver on the
telephone they have a man on a motor cycle coming out to fix it." It
made a great impression on me, and I went further west and I
returned to this town. At a junction point some miles away I
picked up a morning paper and I found a great big headline in the
Senator's own paper : " Public-spirited action of so and so," referring
to the financial interests that controlled it, in marketing the civic-
center bonds without cost to the city.

Now that foreign landlord, if I might use the expression, had the
town and the people — they were behind him. About 150 miles away
I went to another town which was not so. large and where the re-
verse was true and where I think the error had been made by the
home interests in not giving the local management sufficient author-
ity. And I talked with the manager. His ideas were all right, but
the newspapers were hammering the whole institution. Everybody
in town was down on it. And I think you could trace it right to
this, as I say, something starting off this feeling that it was an
absentee landlord that controlled the property and consequently they
were against it.

But, as I have said before, I' think the great reason why the
street railways are hammered is because of the little things that grate
on the nerves of those who patronize them and are considered as
personal grievances against the company.

Commissioner SWEET. Was the name of the newspaper owned by
the United States Senator the Herald?

Mr. CLARK. No.

The CHAIRMAN. Of course, we all know that service has much to
do with irritating or soothing public opinion.

Mr. CLARK. Exactly.

The CHAIRMAN. And one of the more basic factors apparently
has been the disposition on the part of the utilities to make good
deals with cities or villages.

Mr. CLARK. Naturally.

The CHAIRMAN. The city had something to sell and the corpora-
tion had something which it wanted to buy.

Mr. CLARK. Exactly.

The CHAIRMAN. And an arrangement has been made which some-
times has been prejudicial to public interest.

Mr. CLARK. Unquestionably.

The CHAIRMAN. Is not that the real thing that has developed a
great deal of opinion against public utilities? Much of it may be
fancy, but

Mr. CLARK. I think most of it is fancy. There has been some of it,
unquestionably.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 243

The CHAIRMAN. Now, have yon had much to do with dealing with
regulating officials — State as well as municipal?

Mr. CLARK. I can not say that I have. I have had somewhat to
do with it, but my experience has not been extensive-. You see, I
brought this baby up until 189&, and then I accepted a transfer from
the management of the General Electric Co.'s railway department to
its foreign department, and I spent practically seven years abroad;
and I continued to manage the foreign department until we devel-
oped what we called the traction department, whic-h-is dealing with
the electrification of steam railways; so I have not been brought in
that direct contact with the public-sendee commissions that I was in
for very many years with State legislatures and municipal authori-
ties, and all that sort of thing.

The CHAIRMAN. You stated that the tendency of these utilities is
to branch out beyond the boundaries of cities and villages?

Mr. CLARK. Yes.

The CHAIRMAN. That applies to gas companies?

Mr. CLARK. Rat to gas companies so much — or let me qualify that
answer. Of course, your natural-gas companies do go long distances,
and I think there are a few case in the country — I am not particu-
larly familiar with the gas industry — where they have gone so far
to-day that they are pumping artificial gas. I think thre are two
or three cases of that sort.

The CHAIRMAN. Is it not quite true that these gas companies, as
well as electric companies, are branching outside of the city limits?

Mr. CLARK. Unquestionably.

The CHAIRMAN. And is not that going to continue to be the
tendency ?

Mr. CLARK. I believe it is, and I believe that tendency should bo
encouraged in the public interest.

The CHAIRMAN. That raises the question of the proper form of
regulation of these utilities.

Mr. CLARK. It does.

The CHAIRMAN. Their rates, as well as their service and capitaliza-
tion.

Mr. CLARK. Exactly.

The CHAIRMAN. If these utilities extend beyond the confines of a
village or city, how are they to be regulated efficiently by the city
officers ?

Mr. CLARK. They can not be, in my opinion.

The CHAIRMAN. Of course, it has been suggested that a city might
own the plant and extend out until it occupies the streets of other
villages or cities.

Mr. CLARK. Yes. find then you toave a civic jealousy raised.

The CHAIRMAN. Would not that raise a good many difficulties in
this way: It might be proper for the utility to charge one rate in
one city and another rate in another city?

Mr. CLARK. Exactly.

The CHAIRMAN. And there would be immediately R conflict aris-
ing between the two places.

Mr. CLARK. Unquestionably.

The CHAIRMAN. If that is so, where should the power to regulate

244 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CLARK. With the State, in my opinion; and when it comes to
interstate, as it is coming very fast — that is, not in the street rail-
ways so much; of course, the Interstate Commerce Commission has
jurisdiction over those — but the thought that was in my mind was
the central station, that I think in due course there should be
Federal regulation of those.

The CHAIRMAN. It has been suggested here that the proper solu-
tion of your street-railway difficulty is the cost-of -service plan. Arc
you familiar with that?

Mr. CLARK. In a way.

The CHAIRMAN. A cost-of-service plan properly agreed to would
be absolute perfection to the invested capital, would it not ?

Mr. CLARK. So it seems to me.

The CHAIRMAN. Of course, one of the principal items in u con-
tract of that kind is the value of the plant.

Mr. CLARK. Certainly.

The CHAIRMAN, In agreeing upon the value of the plant for that
purpose is there not apt to be a good deal of conflict of opinion
between the utility and the city?

Mr. CLARK. Why, yes. Without seeming egotistical — I made the
first physical valuation of any large public-utility corporation in
the United States in 1896. We called them appraisals then. It was-
in Milwaukee. The Federal court accepted my appraisal — we will
use that term instead of valuation — which was something like
$5,300,000, I think— or $5,250,000— whereas the city experts had, I
think, found a valuation of about $3,000.000. The proposition — this
may interest you gentlemen — was a little different in the way in
which it was put up — that is, as the court called for it — than is
done to-day.

There were two problems submitted, one was exact reproduction
less depreciation cost, and the other was the cost of constructing a
similar system to the same extent over the same streets, and all that
sort of thing, in accordance with the best of modern practice. This
may interest you, that the reproduction theory wTorked out at the
figures I have stated. The other would have cost something like
$2.000,000 more because of increased wreight of rail, and all that sort
of thing, that came in.

The CHAIRMAN. In view of the fact that corporations in the past
have found it expedient sometimes to corrupt public officers in secur-
ing franchises, do you think there would be any danger in the future
of their exercising the same conduct in agreeing upon a valuation of
a plant where they undertook to agree on a cost-of-service plan?

Mr. CLARK. There might be a slight danger, but I think that

The CHAIRMAN. Is not that a real danger wrhere you are dealing
with local officers?

Mr. CLARK. With local officers, unquestionably.

The CHAIRMAN. I am talking now only of local officers.

Mr. CLARK. Oh, unquestionably ; I agree with you.

The CHAIRMAN. If that is so, then would not the public be better
protected if the value in all matters of this kind should be determined
by proper rate regulative officers?

Mr. CLARK. Unquestionably.

The CHAIRMAN. That would remove the element of bargain and
sale, would it not?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 245

Mr. CLARK. It certainly would.

The CHAIRMAN. Then do you think that, where cities agree to pur-
chase a plant, it should be based upon a value found by the State s

Mr. CLARK. I do not see how you are going to determine it other-
wise.

The CHAIRMAN. If your cost-of-service plan is adopted, do you find
any opportunity for the State regulating commissions to pass upon
the question of a rate?

Mr. CLARK. Well, as I have understood it, it is this, that the State
regulating body would temporarily fix these rates. Is not that your
theory ?

The CHAIRMAN. I do not so understand, under the cost-of-service
plan.

Mr. CLARK. I had supposed that they were — it has been shaped up
in several different ways, but I had supposed it would operate this
way: We will suppose that under your cost-of-service plan, we will
say 6 cents was found to be a fair rate, you understand ; if you had an
unusual situation arise which might make a T-cent fare necessary,
that it would be your public-service commission which would deter-
mine that fact. Now

The CHAIRMAN. After the contract was made, then the rate becomes
self -executing, does it not?

Mr. CLARK. I think so practically, but I supposed the public-service
commission would come in there —

The CHAIRMAN. In view of the fact that that sort of plan guar-
antees a return to capital, can you point out wherein the public is
properly protected? Let me explain. If there is any danger in a
guaranteed return, it is that there would be no proper check made
upon operation. It may be expensive or it may be economical, it may
be extravagant or not; but there is no protection to the public from
that sort of operation. Now. how are you going to safeguard the
public against inefficient operation or extravagant operation under
your cost-of-service plan?

Mr. CLARK. I should say through the public-service commission.

The CHAIRMAN. Local or State?

Mr. CLARK. The State, every time.

The CHAIRMAN. Naturally there will be extensions and improve-
ments made by these plants even under a cost-of-service plan.

Mr. CLARK. Exactly.

The CHAIRMAN. Who is to pass upon the question of security issues
and the expenditure of the funds for that purpose?

Mr. CLARK. The State commission, I should say, although as I
remarked at the outset, I wish there were some way where you could
use the referendum once in a while on the more important features
developing in connection with anything of this sort.

The CHAIRMAN. Do you believe, Mr. Clark, that the real difficulty
in the street-car situation is the fixed 5-cent charge?

Mr. CLARK. Basically, yes.

The CHAIRMAN. That is the basic difficulty?

Mr. CLARK. Yes, that is whore the great error was made, as I see it,
at the foundation of the industry.

The CHAIRMAN. Then is not the big relief to the utilities coming
from a change in the franchise system through an elastic rather than
an inelastic charge?

246 PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION*

Mr. CLARK. Yes, I think so. It must

The CHAIRMAN. If you are to have proper State regulating com- |
missions with the authority to prescribe rates, do you not think that \
would largely remove the difficulties under which you now operate?

Mr. CLARK. Oh, I think it would to a very great extent. Vi

The CHAIRMAN. Would that contain a larger amount of protection
to the public than can be found in your cost-of -service plan?

Mr. WARREN. A larger amount 01 what, Mr. Chairman?

The CHAIRMAN. A larger amount of protection to the public.

Mr. CLARK. Possibly it might. That is, I believe that there
should be public regulation. As I say, I wish also there was some
manner — I do not see how it can be done — that on the graver prob-
lems you could go direct to the public. Now, if you will pardon me
for digressing a moment, there is a feature involved I do not think
has been touched on here. If it has, I have not heard it.

To the best of my belief, no street-railway dividends have ever
been paid by necessity riding, if I may so term it. I hope J7ou
grasp what I mean. That is, all of my experience goes to show that
it has been, so to speak, cultivated traffic — making it attractive to
the public, so that they will ride.

Now, I had hoped not to get into this feature of it that wre are deal-
ing with now, because I do not pretend to be an expert on it;
but in this situation arises this feature, as to how far you should
go in rates, you understand, in the way of advancement to avoid
killing your traffic. You doubtless know, although I do not
think it has been brought out here, what has occured in some of these
cities where the rates have already been increased. A corresponding
increase in gross receipts has not developed.

Coming back and applying this thing, if I may, to certain con-
ditions that you have touched on — I am not saying that this would
be practicable — but I can conceive of conditions where, under any
system, if all .that is essential to the construction and operation of
street railway continues to increase in price, and where, apparently,
you would have to keep going up and going up with your fares,
certain communities might be Avillihg to carry part of this burden
themselves in the form of a subsidy.

That is one reason why t have hesitated to emphasize my theory
here; but I am just expressing my opinion, because, after all, they
are the ones whose interest must be first considered — the public;
but I think, as I say, on this present scheme — I am not sufficiently
well up on it.

By the way, gentlemen, before I leave, I would like to make one
more statement.

Mr. Tripp, for whom I have the utmost admiration in every way,
in his testimony of yesterday, referring to the change from cable
to electric railroads, made one statement which I do not think was
quite correct, and which, I believe, was to the effect that this was
done purely on the part of the companies because of its economical
value.

Now, I think there is something more involved.

I think you will find in print a statement made by the Metropoli-
tan Railroad of New York, about 1894 or 1895, after they had some
experience with electrification. Of course, they were mostly cable,
and that gives the reasons for changing to electricity— that there

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 247

was a reduction in the accident account. The quick snap and jolt of
the cable car was more dangerous than electric cars.

I think, right in this town, you will find one of the best illustra-
tions of a similar character, as regards the Capital Traction Co.
As you may remember, their main lines were, all of them, operated
by cable for years. The cable house was located about where the
Municipal Building now is, and in 1894 — I think it was — it was
burned down. I came here in a hurry to try to help them out of their
difficulty, and I thought I had accomplished Atonders. I thought I
saw a way in which they could start with new operation, as a cable
road, within two weeks, because I found cable-winding machinery ;
I found a generator w^hich could be attached as a motor to operate
this winding machinery, and I thought the then electric-lighting com-
pany had sufficient current to spare so that they could throw up a
shed there and start operations : but when I reached the executive of-
fices of the company— Mr. Dunlop was then president ; Mr. Glover, of
the Riggs National Bank, was vice president ••: and I think Mr. Carl
was the chief engineer of the property — I was surprised to find that
this wonderful thing I had to suggest, out of which we were not going
to make very much money, was not what they wanted, for the very
reasons that I have stated — that they were anxious to get rid of their
cable, to reduce, among other things, this accident accoimt.

Now, gentlemen, I must apologize for taking up so much of your
time.

The CHAIRMAN. You may go right ahead, Mr. Warren.

Mr. WARREN. I will ask Prof. Cooley to take the stand.

STATEMENT OF MR. MORTIMER E. COOLEY.

Mr. WARREN. Prof. Cooley, you are dean of the College of En-
gineers and Architecture of the University of Michigan, are you not?

Mr. COOLEY. Yes, sir; I am.

Mr. WARREN. You are also president of the American Society of
Mechanical Engineers, are you not ?

Mr. COOLEY. Yes, sir.

Mr. WARREN. And you have taken part in a great many valua-
tions, as an expert on valuation, I believe?

Mr. COOLEY. I have taken part in a great many valuations. I at
one time considered myself an expert [laughter], but I now regard
myself more as a student. The many new problems that have arisen,
1 tli ink, require one to take the attitude of a student.

Mr. WARREN. I think the commission would like to know some of
your conclusions as your studies have progressed. How long have
you been engaged in the valuation of street railways?

Mr. COOLEY. Twenty years. I began in 1889 on public-utility-
vrluation work.

Mr. WARREN. And can you give the commission any idea of how
much property, in value, you nave had occasion to consider in this
way?

Mr. COOLEY. Yes, sir.

I started my work in valuation in 1899, working for the City
Commission of Detroit, of which Maj. Pingree, Lawyer Stevenson,
and Manufacturer Smith were members. It was the time when
t)elroil was considering the purchase of the street railways, and

248 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Tom Johnson represented the street railways. We made this valua-
tion in the summer of 1899. The purchase fell through.

The next year Pingree was governor, and he desired to have the
so-called specific tax-paying properties of the State of Michigan put
on an ad valorem basis; and the legislative act had been passed re-
quiring the board of State commissioners to have an investigation
made to determine whether they should change from one basis to
the other; and I had charge of that valuation in 1900. As a result
of it, the legislature passed an act transferring from a specific to
an ad valorem basis for the railways of Michigan. That valuation
amounted to about $200,000,000 for the railways. But it was not
confined to the railways ; it also embraced the telegraphs, telephones,
the plank roads, the river improvements, the express companies, and
private car lines. They were all specific tax-pa}7ing properties, and
so their valuation, in total, amounts to about $240,000,000.

Then, under the act transferring these properties to an ad valorem
basis, the State board of assessors were required to make the assess-
ment; and that was done in April, I believe, of 1902.

The railroads then brought suit to enjoin the auditor general from
collecting taxes ; and that resulted in another valuation.

But I am a little ahead of my story.

The law required the assessment to be as of a particular date, and
that required a valuation to be made as of some date in April in
1902 or 1903 — I have forgotten precisely — and for the railways alone
the value as of that particular date w-as about $240,000,000.

Then the railroads sued to enjoin the auditor general from collect-
ing taxes, and that resulted in a third valuation in 1905; and the
properties were then found to be worth about $280.000,000. That
suit was carried into the Supreme Court of the United States, and
decided in favor of the State, and brought some $13,000,000 of back
taxes to the State.

That was the first big work of the kind, I think, that was ever
done in this country.

Almost immediately came the valuation of the railroad properties
in the State of Wisconsin, and I was consulting engineer on that
valuation.

Just a little later came a valuation of certain of the railway prop-
erties in Newfoundland — properties that were going to be transferred
from private to public ownership — and I took part in that valuation.

Then, in 1906, the city of Chicago tried to settle a quarrel of some
15 or 20 years' standing, and T took part in the valuation of the
Chicago street railways as one of the board of commissioners there.
That valuation amounted to about $50,000,000.

Then, next, I was in Milwaukee in connection with their valua-
tion— some $15,000,000 of railway property — before the Wisconsin
Railway Commission. It was at that hearing that the so-called
Wisconsin method of finding the going value of the concern was
evolved. I had some little part in that.

The CHAIRMAN. Did you take part on behalf of the State?

Mr. COOLET. Up to the Milwaukee valuation, all of the others were
State employment, and I might state right here without enumerat-
ing in detail all the properties with which I have been connected —
there are several hundred of them, and they aggregated in value

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 249

somewhere between one and a quarter billion and one and a half
billion dollars — from 85 to 90 per cent of all that work has been
done for and paid for by the public.

The more recent work that I have been engaged on — in fact, we
are just finishing it; I have to write the report as soon as I get
back — is the valuation of all the properties of the Michigan United
Railways.

I am also just employed by the Michigan Railway Commission,
or rather, the public-utilities commission, which has just been cre-
ated, to bring the valuation of the Detroit United Railway lines*
which was made in 1914 for the Michigan Railway Commission,
down to date.

Those two properties — the Michigan United Railways and ihe
Detroit United Railways—embraced practically all of the railway
mileage in southern Michigan; I mean all of the electric-railway
mileage, not only interurban. but city properties as well.

Then, two or three years ago, I had charge of the valuation of the
electric railways of the Public Service Railway Co. of New Jer-
sey, which is a pretty large proportion of all of the electric rail-
ways in New Jersey.

I also worked on the Cleveland application at the time Judge
Tayler rendered his famous decision, and I have had some part in
the New York State Railways case before the up-State commission.

I also appeared before the clown-State commission on the Metro-
politan Railways, I think they are called, in New York City.

Mr. WARREN. How about Washington?

Mr. COOLEY. Oh, yes; I took part in the valuation of the Capital
Traction Co. here in this city three or four years ago.

These companies that I have just been mentioning are all electric
railways, but I have also had to do with telephone properties of the
New York State Telephone, the Pennsylvania, and the Baltimore,
or rather, the Baltimore & Potomac — I think they call it — and have
valued the telephone properties and electric and telegraph properties
of Michigan three different times.

I merely speak of that, because it does not make any difference,
as I have found, what the nature of the utility property is. The
fundamental principles involved in their application are all alike.

Mr. WARREX. Prof. Cooley, I think you have thoroughly qualified
and have gotten it into the record. I would like to ask you uo-v,
were you at the Naval Academy?

Mr. COOLEY. Yes, sir; I graduated as a cadet engineer in 1878, and
had all together about between 11 and 12 years' service in the Navy as
an engineer officer. I resigned after I had been at the University
of Michigan for four years under a detail from the Navy Depart-
ment, and then went back in the Spanish-American War as clref
engineer.

Mr. WARREX. What would you say was the keynote of the trou-
bles, so far as you have found troubles — and I assume you have — in
this valuation question?

Mr. COOLEY. There is not very much trouble now in valuing a
property. Valuation lias been very much simplified, very much or-
ganized, and it is not a difficult matter to procure results, and they
are reasonably accurate; but the great difficulty — and I myself think
100043°— 20 17

250 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

it is the keynote of all our trouble to-day — is ignorance, slieev igno-
rance and lack of understanding by the public, very largely, but not
confined to the public — a lack of understanding by the railroads
themselves of the fundamental principles that are involved in :ill
questions of valuing property, and especially all questions that are
involved in fixing rates. If we could have a campaign of education
which will make perfectly clear these things that are now misunder-
stood, I think the trouble would disappear almost wholly.

I am convinced of that, and I have been trying to do my part in
dispelling that ignorance, but it is very difficult. The attitude of the
public mind is such that you can not approach them ; you can not
make them listen to you ; they won't believe you, and I do not know
that they are to be altogether blamed for it, because they have been
sorely tempted in the past. I think the public-utilities companies
all admit to-day that their own conduct in the past has, to some
extent, merited the difficulties that they now find themselves in.

I make no defense, and the utilities themselves make no defense, of
the mistakes that they have made in the past. The utility com-
panies, as a rule, now see what mistakes they have made, and are
trying their best to remedy them; but the public is not yet willing
to meet them anywhere near half way; and so I say it is a case of
ignorance — a greater amount of ignorance on the part of the public
than it is on the side of the utility.

Mr. WARKEN. But you say that as a general proposition the factors
in any valuation are the same as in other cases s

Mr. COOLEY. I think myself that the factors that enter into a
Taluation of any kind of a utilit}7 property are just the same in the
case of a steam or electric road or a gas or water-works property
or a telephone or telegraph property. They are all practically the
same, the same fundamental principles, the same fundamental ele-
ments; and when you have described the process of valuation of one
property, and have all the factors in connection with that property,
you have them all in connection with the other property. There are
about 18 or 20 of them, depending upon how much subdivision you
give all factors that you can not fail to take into consideration in
eA'ery rate-making case.

Mr. WARREN. Will you say something on the historical develop-
ment of those factors, Prof. Cooley, and then run over them ?

Mr. COOLEY. Yes.

Mr. WARREN. I hesitate to ask you questions, because I know you
'know so much more about the subject, Prof. Cooley, than I do.

Mr. COOLEY. It is rather difficult to talk on this subject, because
it is so easy to talk — what I mean is that there is so much that can
be said and that one can talk a very long time, and I would like very
much to confine myself to the particular things about which the in-
formation I can give would be wanted.

Mr. WARREN. Well, it has been suggested here that in case the com-
mission should make recommendations along certain lines, as, for
instance, possibly a service-at-cost recommendation, that that might
involve, perhaps necessitate, a basis for any such plan for any par-
ticular company, and the valuation question has arisen and has been
discussed by some of the witnesses as to what sort of a valuation and
upon what basis it should be made.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 251

Mr. COOLEY. Then, perhaps I might start by discussing what wo
will call factors determining a reasonable charge for public-utility
service.

Mr. WARREN. I think that would be very useful.

Mr. COOLEY. That will not involve my going into the details of
valuation, unless it be desired.

The CHAIRMAN. Let me make this suggestion: Perhaps the com-
mission should give some consideration to the question as to whether
we should enter into a very full development of the proper principles
of valuation. It is a question whether our commission shall make
any finding, or even should make a finding, as to the proper elements
which should be included in the physical valuation of a plant. Wo
are dealing with fundamental principles and fundamental evils.

Mr. COOLEY. I will endeavor to take up what I understand to be
your point; but what I did not want to do here was to go into the
detail of physical valuation and take up the value of ties, rails, and
cars and different elements of the physical property.

Mr. WARREN. I might suggest, Mr. Chairman, that I suppose that
is a matter which the commission will consider in executive session, as
to whether they will make any recommendation about the valuation,
or as to the elementvS entering into it, or the basis upon which it should
be made. It might help the commission in its consideration of that
question if they themselves — you and other members of the com-
mission— were to ask Prof. Cooley any questions that seem to have
particular pertinence to your decision on that question.

The CHAIRMAN. There is so much to be said on that subject of
valuation that if we go into it we can occupy a whole month in just
taking that testimony alone.

Mr. COOLEY. Yes. I have found in presenting this subject that it
makes for quicker and easier understanding if you, the gentlemen
whom I am addressing, consider yourselves the individuals who enter
into, or propose to enter into, the enterprise or the project of build-
ing a railroad property. Each one of you gentlemen may, therefore,
consider yourself the originator of a railroad property, and I am
going to try to tell you what you will do as you proceed with your
study of the problem as you proceed with your work. I think that
will bring it home perhaps easier than any other way.

The first step will be for you to inquire whether the project is
feasible. You will not want to go into it unless it is feasible, and
this will involve a preliminary investigation. You will want to
sound public sentiment to know to what extent the proposed service
would be demanded or would be desired, what concessions would
have to be obtained in the matter of property consents, and the con-
ditions under which franchises could be obtained. If these inquiries
have resulted favorably, the next step would be to employ engineers
to look over the field and make preliminary surveys and estimates of
cost, and determine upon the feasibility of the project as a whole
from an engineering point of view. With this information thus far
accumulated, your next step is to go to your bankers and see about
the financing of the proposition. If they decline to finance it — if you
can not make a sufficiently good showing to induce money to como
into the project — it falls through, and all the time and all the money
that you have spent up to this point disappears. You write it on':

252 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

You have not anything to show for it, and it is a good deal of a sum
of money that these preliminary steps involve. You may not know
how much it will be; but the best investigations that I have been
able to learn about indicate that these preliminary costs that I have
just mentioned to you may run as high as 5 per cent of the total cost
of the property, from 2 to 5 per cent. Now, that is a great deal of
money. If you have a $100,000,000 property, that mav mean any-
where from $2,000,000 to $5,000,000. Of course, I have barely out-
lined that. But should the future promise be great enough to inter-
est capital mildly, let us say, at the outset, the banker may be induced
to gamble a bit, and he will make you a proposition of what he will
do. If the gamble is a good bit of a gamble, you will have to pay
a good bit of a price for it. If it is a small gamble, you will get a
corresponding reduction in the way of discounts, stock bonuses, and
things of that sort.

It is a gamble, you understand, up to this point.

The CHAIRMAN. Do you mean to say, Professor, that the bankers
gamble with the money that they have in their possession ?

Mr. COOLEY. I do not mean to say that they gamble in the sense
of putting the money on the table, but they gamble in the sense that
you have gambled when you have made your preliminary investiga-
tion of this property. You have made up your mind it is a good
thing, and you go into the thing. You do not know that it is a good
thing until you have actually brought it to completion and tried it
out. Now, the banker makes up his mind one way or the other.
There is alwTays an element of doubt, but he tries to make that ele-
•ment just as small as possible; nevertheless, it is in the nature of a
gamble up to the time the property has demonstrated whether it is
good property or poor property.

Commissioner SWEET. There is an element of chance in it?

Mr. COOLEY. That is it. I used the word " gamble." It is an ele-
ment of chance. That is precisely what it is, and the number of
wrecks is very, very large.

Now, you have got your property on its feet, so far as knowing
that the project is feasible and that you can get your money for it.

The next thing is to begin to do business. You hire your engineers
"and you organize your staff and your legal help. You make an or-
ganization which corresponds very closely to the organization that
you are going to use after the property is put into operation. You
make all the careful surveys that are necessary. You write all the
specifications. You go through all the steps that will enable you to
procure the physical property complete in all of its details.

Now, that is a preliminary part of the actual construction work.
In other words, all of this organization work and these preliminary
plans have followed the development of the project and are the be-
ginning steps of the actual building operations.

When all of this work has been done, these surveys are completed
and the actual work itself begins.

Now, at this point, the knowledge of the public begins. The pub-
lic knows nothing about the things that I have been talking about up
to this moment. They are ignorant of those. They can see that the
cost of the property begins when you start to lay the ties and to buy
the land.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 253

I doubt if it is necessary at this time to describe in detail all of the
various steps of building up the physical property. We can do that
later, if you desire it.

The CHAIRMAN. You may omit it for the present.

Mr. COOLEY. I beg your pardon?

The CHAIRMAN. That may be omitted for the present.

Mr. COOLEY. Yes. But when you have got through with this
physical property — and it has taken, perhaps, a year, two years,
three years or four years, depending upon its magnitude and extent,
depending upon market conditions with respect to material and
labor, depending upon the extent to which the municipality will per-
mit you to dig up and disturb its streets, depending upon a large
number of factors. It has taken from one to three or four years to
complete this property, to build the physical structure, the structure
which corresponds with the hotel structure, we will say, or to the
merchant's establishment — the physical structure.

Now, you can build that structure in several different ways — and I
speak of that because it is another point of doubt, of ignorance.
The company can organize its own construction force and build it it-
self, hire its own labor and buy its own materials; or it can let it by
contract. It can let it to a general contractor, who will, in turn, sub-
let different parts of it. All of those are legitimate ways of building
properties, and properties are being built that way all the time.

Now, suppose, for example, the property has been let to a general
contractor, and he, in turn, has sublet it. Each of those contractors
makes the closest possible estimate that he can make of the cost, and
when he gets his estimate made, he adds a contingency item, always.
He never fails to do that. He submits that figure to the general con-
tractor, and the general contractor, who is responsible for the com-
plete job, in turn, submits the aggregate of all of his subcontractor's
prices to the company, and, in turn, adds his contingency and takes his
profit out of it, the same as the subcontractors. Each has got to have
a profit. Otherwise, they are not going to build it.

Now, the public does not know that. They do not think that. In
20 or 30 or 40 years after the property is built, they send you to
value it. You do not know whether it was built by a general con-
tractor and sublet. You do not know anything about that. You
can not find out anything about it. The history of the property does
not exist any longer, except in the memory of the oldest inhabitant,
which is not always very accurate.

So, we have to adopt some plan of figuring what it would cost to
reproduce that property ; and it is our effort in valuing property, to
choose the most reasonable plan. The company will build certain
parts of it, we will say, because it can. It will sublet it, maybe di-
ivc-tly, to a subcontractor, who will build certain other parts of it.
We always utilize what seems to us to be the most reasonable plan of
rebuilding or reconstructing the property.

The public, as a rule, does hot know that the contractor to-day
must insure all his labor. Accidents and liability insurance and fire
insurance, arid all of those things, have to be taken into considera-
tion during the progress of the work. The public does not know, for
instance, that the company building this property has to make ar-
rangements for its money before it starts to build at all and has got

254 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

to carry the interest on that money during all the period of con-
struction. It does not know that.

The public does not know that the company has got to pay taxes
on all of that property. It has to pay taxes on the land, and if it
takes three years to build, you haATe bought your land presumably at
least a year ahead, and you have four years' taxes on the land that
have to be paid while you are putting up your property.

You are the gentlemen who are building this property. That is
why I am speaking to you this way. These are the things that you
gentlemen would do if you were engaged in this project.

Now, I mentioned one item, namely, this contingency item. I sup-
pose that contingency item is receiving more attention in hearings
before commissions than almost any other item. In the earlier days
we did not hesitate to add 10 per cent to the estimated cost of repro-
ducing that property. When we got the value of the property, we
added 10 per cent at the very end. That was taken, accepted, and
recognized as perfectly proper, the idea being to do just precisely
what the contractor does. But you can not do that any more. We
do not do it any more. We even go so far in valuing property to-day
as to add one contingency item in connection with roadway and track
and buildings, for example, and another contingency in connection
with cars and machinery and things of that sort. Take the piping
that comes around a steam-engine plant and the wiring that comes
into the station. You must add -20 or 25 per cent for a contingency
item for that, whereas 2 per cent is enough in certain other cases;
but when you have got through, you have — if you have done your
work fairly and as it should be done, in order to be safe in every
way — to add to the unit costs that appear in connection with the
physical property elements themselves what is equivalent to about 5
per cent contingency. Then, when you get all through, you have to
add another 5 per cent spread over the whole property. You have to
do that in order to be safe.

So you must not go into this, gentlemen, unless you have protected
yourselves amply.

I could talk for hours on the things that happen that make a con-
tingency item necessary. I can cite you one example, an extreme
example — the Detroit Biver Tunnel.

That tunnel was dug in a new \vay. It was excavated from under
the water, from a great ditch dug across the river, and then the tun-
nel built in steel sections and sunk in place and connected up and
covered with concrete. That had never been done before.

The New York Central Railroad and the other railroads interested,
forming the tunnel company, debated for a very long time whether
they should build that tunnel themselves or let it by contract. The
contractor added $1,000,000, I think it was — I will not attempt to
be precise on that, but it was an enormous sum — not 10 per cent, but
say 50 per cent — for contingencies, because he did not know what he
was going to encounter; and this tunnel company considered very
carefully whether they should accept his proposition or build it them-
selves and take a chance on the 50 per cent, and save it, if possible.
They decided it was better to let the contractor assume the responsi-
bility. And he did ; and he cleaned up a clean million dollars on it.
He had good luck.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 255

The next tunnel will not cost as much ; it will not cost anywhere
near as much, but that was the first one that was built that way.

Now, 20 years from now, you will send somebody to appraise that
tunnel. You do not know anything about this 50 per cent contin-
gency item. You do not know anything about this tremendous profit
to that contractor, Butler; but you go ahead and you estimate it in
the best way you can, and you take into consideration the conditions
of building tunnels that exist when you make the appraisal. You
are not going to get anywhere near the value of that tunnel, or the
cost of it, and if you do get it, is it going to be allowed? Xot if
certain men can prevent it. It never will be allowed. You can not
get that by. And yet it was an absolutely honest and very carefully
awarded contract, and the work was done by honest and reliable men
on every side.

So I say, with respect to this contingency, it may vary all the way
from 2 per cent up to 25 or 30 per cent. It will average inside of
10 per cent — 5 per cent on the inside in connection with the details
and 5 per cent on the outside — spread over.

Mr. WARREN. AVhen you give that figure, Prof. Cooley, you base
it on experience in actual cases, do you ?

Mr. COOLEY. Yes, I do ; out of a very great deal of experience, and
not only that, but I base it upon actual expenditures as they have
been found by the vouchers. It is not a guess any longer. It was a
guess in the first place, but it has gotten beyond the guessing stage.

The CHAIRMAN. This question of contingencies has been argued
before the Interstate Commerce Commission in the railway matter
for a long time.

Mr. COOLEY. Yes, sir.

The CHAIRMAN. Are you aware of the finding which was made
upon that question in the Texas Midland case?

Mr. COOLEY. No. I am not; I am sorry to say.

The CHAIRMAN. Perhaps it may be of interest to you to know that
the Interstate Commerce Commission did not fix any value for con-
tingency in either the Texas Midland or the A., B. & A. case.

Mr. COOLEY. You would not have to fix any contingency item at
all if you could get the historical cost of the property, if you knew
what the property first cost, starting from the very beginning. You
can take that cost out of the box, and that, of course, is the thing
to take, because it represents the money invested: but, unfortunately,
you can not do that with the old properties, at least. You may do
it with the newer properties. So, we proceed in the best way we
know how to approximate that cost: and it is my belief that this
so-called cost of reproduction method' is the fairest approximation
to what would have been the book costs if you could have had them,
if you could get them.

Commissioner MEEKER. Suppose, in the meantime, the costs of
labor and material have advanced from 50 to 100 per cent?

Mr. COOLEY. Yes; I am very glad you mention that right here. I
was going to speak of it a little later, but right there that leads me
to say that in making the statement that I just now made I was
assuming normal times, normal conditions — conditions that existed
well before the war — and did not have in mind the extreme costs of
lal)or and materials that we now have to bear.

256 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I think I should not fail to make this point, which is not usually
conceded, I may also say, and which has to be in the nature of an
expression of opinion. I have frequently said that, in my opinion,
if we could have the so-called book costs — the historical costs — and
have all of them, going back to the very day you gentlemen thought
of this project and decided to go into it, it is my belief that that
cost would be greater than the cost of reproduction in normal times;
and the common opinion is, or the common belief is, that it would
be very much less. I believe it would be more.

Now, I do not believe I can prove that, but that is a belief that
has crept in upon me, in view of my study of this problem during
all of these years.

Commissioner MEEKER. Well, it is a matter of common observa-
tion that improvements in construction and all of the other items
that you have mentioned have come about with the passage of time ;
so that it would seem to be a rather foregone conclusion that the cost
of reproduction in normal times, barring cataclysmic world wars,
would be less than the cost of actual construction.

Mr. COOLEY. I am very glad to hear that statement. It is the most
consoling thing that I have heard in a long, long time. I thought I
was alone.

Xow, when I spoke of building the property by a general con-
tractor, who might sublet, I also should have spoken of another way,
known as the cost-plus, a percentage method, which has been used
much in recent years. I do not need to describe it. It merely means
that the engineering firm, or whoever builds the property, renders
a complete account of all the costs, and when he gets through he adds
a percentage on it. That is his profit. The idea is this, gentlemen,
that there are profits going to somebody all the way through the
building of this property. Xow, you can not get away from that,
and I don't want you to get away from it, because the public does
not understand it, and they object to it. They do not want anybody
to get a profit, and yet there are profits going to somebody all the
Avay through, and you can not build the property without there be-
ing profits.

Xow, so much for that.

I have already mentioned incidentally this question of taxes that
have to be paid. If you bought your land the year before construc-
tion organization, and the construction period is, say, three years, you
are paying four years' taxes on the land. Engineers have usually
lumped it as a half of 1 per cent, or 1 per cent, or something of that
sort, in the past, but to-day they are figuring out to see what it
would actually be, and they are even going so far as to search the
records to find out precisely what the company has paid for taxes,
and instead of its being one-half of 1 per cent or 1 per cent, they
are finding upward of 2 per cent.

Xow, there is one other point in connection with taxes that should
be mentioned. It has particular reference to the question of muni-
cipal ownership. The public believes that if the city owns the prop-
erty, it does not pay any taxes, and, as a matter of fact, it does not
pay any taxes directly ; that is, the public utility is excused from
paying taxes, but the taxes — the money to run the city government
and the State government — have to be raised, whether the city owns

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 257

this utility or a private company, and if the city takes over the
property and it does not pay taxes, then every citizen has to take a
share in paying those taxes.

Xow, that is not ordinarily understood, and it should be, of course.
They throw up their hands and pooh-pooh when you speak of it to
them. They are getting something for nothing.

I might mention a few of the items, just a few, that appear under
the head of organization, administration, and legal expenses. This
heading is rather elastic. It is sometimes .made to include all of tho
preliminary expenses that I have discussed at the outset — costs of
promotion, certificates of necessity, mortgage tax, fees of incorpora-
tion, securing franchises, and other general expenses, and it runs, say,
from 2| to 5 per cent.

The question of the promotion of an enterprise and of promoter's
profits, is another red rag to the bull, and it is in connection with
these promotion costs and promoter's profits that the public thinks
that a good deal of the water has gotten into the capital account.
And I suppose there is water there in a great many cases, but there is
very, very little water in recent cases, as far as my observation goes,
and much less water in the older cases than the public believes, be-
cause when you write your securities the bonds are protected by a
mortgage on the physical property. The face of the bonds is not
equal to the cost of the physical property, but some percentage of it.
It may be 50, 75, or 85 per cent. The practice was to allow 85 per
cent in one case that I knew about.

Xow, that 85 per cent, we will say, is written in the form of bonds
protected by a mortgage. As soon as you have taken the precaution
to get into the cost of the property all of these preliminary costs and
all of these other costs that I have been discussing or will discuss,
you are not going to have anywhere near the full cost of that prop-
erty represented by the mortgage and by the bonds. Xow, you must
raise the rest of the capital in some other way — by stock, or whatever
it may be. But say it is stock.

If we have got 75 per cent of the cost of the property in the form
of bonds, protected by a mortgage, there must be at least 25 per cent
more in the form of stock, as we ordinarily think of our property,
that is, just the physical property, as the public sees it; but, in addi-
tion to that, we have got to have another 25 per cent, it may be, to
cover all of these things that you gentlemen know about — expenses
which you have incurred and which do not appear in the valuation
at all.

So I say. to some extent, this so-called water in the capital account
is fully and amply justified. Kemember, I say to some extent. I
do not say it is all justified, for I do not think it is in all cases.

The CHAIRMAN. Prof. Cooley, did you hear Mr. Bradlce's testi-
mony?

Mr. COOLEY. Xo; I just came in this morning.

The CHAIRMAN. He testified that.it was quite the common practice
in the past to give one share of common stock with each share of
preferred stock, and that was a sort of " hope" stock.

Mr. COOLEY. Yes, sir.

The CHAIRMAN. That represents water, does it not?

258 PROCEEDINGS OF FEDERAL ELECTRIC "RAILWAYS COMMISSION.

Mr. COOLEY. Yes; in a sense. I suppose it would be called water,
of course; but that raises another question in my mind that is very
interesting, indeed.

Suppose you try to induce some public gentleman, some citizen, to
buy a bond, so that you could get some fraction of the cost of your
property that you are engaged in, and he is not satisfied that it is a
good investment. He will not pay you par for the bond. He will
not pay you more than 85 or 90 per cent for it. Now, you take a
share of stock, or 10 shares of stock, and pin that stock to the bond
certificate. That is the bait that catches him ; and you have sold the
bond, whereas you would not have had a chance to sell it without it.

Now, to what extent is that legitimate?

The CHAIRMAN. Does that alter the fact that that share of stock
does not represent money that is actually invested in the property ?

Mr. COOLEY. I will tell you what it is, in my opinion. It is a
little more than the equivalent to dropping the price of the bond a
fewr more points. If you were to ask 80 for the bond, and it did not
attract him, you might drop that to 75, and it would not tempt him;
you might even drop it to 05, and you would not tempt him. Now,
you leave it at 80, say — the first proposition — and you attach this bait
to it, and it will go at 80.

Xow, if what I have said is true, then that water that you are
speaking of is worth the difference between 80 and CO or 65 or TO, or
whatever the lowest figure was that he declined. It is worth that in
actual money.

Mr. WARREN. It is what you have to pay to get the money ; is it not ?

Mr. COOLEY. Yes. I am just simply citing this as an illustration.
1 have not thought of it in just that way before, sir, but it is just
something that flashes through my mind.

The CHAIRMAN. But the person who holds that share of stock that
is pinned to the bond would like to have returns on that share of
stock.

Mr. COOLEY. Yes ; he would.

The CHAIRMAN. And that, in turn, is based upon a dollar that has
not been invested in the property.

Mr. COOLEY. Precisely; precisely. That is, for every thousand-
dollar bond that you have put on that property, if you have to sell
it for $850, there is $150 that has got to be provided for in some
other way. NOWT, if you are going to put that into a floating debt
and amortize it through a period of years, you are going to put it in
there one way or the other. It has got to go somewhere. Other-
wise, you are not going to build your property.

Right there comes this question of water again. If you can get
$850 with one, two, or three shares of water, whereas, without water,
you can not get more than $600 or $700 for that certificate, has not
water some value — a value equaling the difference between $850 and,
say, $700 or $600, or whatever it is ?

I raise the question. I have not reached a conclusion in my own
mind. I am arguing this thing now. It is a new proposition to me.
It is a new angle. I am inclined to think it is is logical. Maybe I
•will think differently to-morrow.

The CHAIRMAN. Perhaps you and I need not go into a debating
society on that question.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. COOLEY. My attitude is inclined to the research attitude. It
is a proposition. It is something that may be or may not be true.
I like to hold it up look at it and see whether it can be true. I think
just for the moment and for the purposes I am citing it is true. Now,
I ma}r not think so to-morrow.

While we are speaking of this discount on bonds, I think we might
as well dispose of another element, as it is closely connected with it
in the public mind.

You will have gentlemen on the stand testifying who can give
you the absolute inside facts; give you things that they gave me when
I went to investigate it myself, and things which the public has the
least possible conception of — namely, that with the very best security
that you can produce, the very best security that you can offer, you
have got to pay at least 5 per cent cost on getting your money. This
money is costing you actual dollars, just the same as steel rails and
ties and cars and everything else you buy. You have got to go into
the market and buy that money, and you have got to pay 5 per cent
on it. You do not need to take my word for that. I know that is
true, but you can find it out directly from the gentlemen who are
selling the money.

Now, you can not get the money in any other way. You can not
get somebody to give you a steel rail if he is engaged in manufactur-
ing or handling steel rails. You can not get anybody to give you
cars ; you can not get anybody to give you money.

Now, you are the gentlemen who are building this property, re-
member, and that is what you have to pay when you go into the money
market for money; and don't fail to make a point on it when you
render your opinion, because you have a chance to do a very great
good to the public. I do not like to pay it. I am opposed to paying
it. I am on the side of the public when it comes to paying 5 per cent
for the money. So I am on the side of the public when I have to pay
$1G for shoes; and, in fact, I would like to get everything for nothing.
There is no question about my attitude on that score. [Laughter.]
But you can not do it, gentlemen. You can not get these things for
nothing; and they are actual, bona fide costs, and they have not any-
thing to do with discounts, except that when the matter comes before
the public for the sale of these securities, this cost of money is really
merged in with the discount, covered up. The total discount is so
large. That includes the cost of money. As a matter of fact, it is an
absolute separate thing, and the public does not know it. I did not
know it myself three years ago.

That is enough for that, I should guess, because you will have a
chance to supplement that and get it much more fully.

Now, we have spoken of the cost of money, and we have spoken of
the cost of promotion, and it remains in this connection to speak of
promoters' profits. The public will not concede for a moment that
there shouhl be any promoters' profit. The word is a stench in the
nostrils of the public. The very word " promoter n does not sound
well ; but it is there, gentlemen. You are all promoters in your
projects. If you are not, you hire somebody who is, and you pay
him a rattling big salary, and the better the promoter the bigger the
salary you will have to pay him. You are not going into this thing
for your health. You are going into it for profit, and you are going
to pay a promoter's profit; and if you will bring anybody in here who

260 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

has had experience in promoting public-utilities properties, or any
other kind of property, you will find that 5 per cent is a mighty low
figure for it. Five per cent of the cost of the property is a mighty
low figure.

Now, you do not have to take my word for that, because I have
never promoted — well, yes, I have promoted one or two properties,
and they have turned out to be gambles, and they are written off.
They were written off a long time ago, and my regret now is that I
have not more recently lost them, so that I could write them off in my
income-tax account.

Commissioner GADSDEX. That is the reason, that you do not want
to act as a promoter much longer, I suppose.

Mr. COOLEY. Well, I was not good as a promoter. It was not my
forte.

You certainly will have appearing before you men who have done
these things, and it is not necessary for you to take my word for it.
You will get directly from these men the same thing that I have
gotten from them, and it is better that it come to you direct.

Not only has that to do with the development costs of the projects,
but the cost of money and the promoters' profits.

Now, comes the interest during construction. Curiously enough,
we have lumped that, and we say it takes three years to build a prop-
erty, and money is spent uniformly, starting at zero. At the end of
three years it is all spent. We will say that we had all of the money
for half of the time, or half of the money for all of the time, at 6
per cent. So we take 3 times 6 per cent — 18 per cent — and divide
it by 2, and call the interest 9 per cent, and we stick that on. Now,
that is not right, but we have been doing it for years ; we have been
doing it for 20 or 30 years.

It is not right, because that is not the way the money is borrowed.
It does not conform to the facts. If you can get hold of the books
and the historical records, you do not have to make any overhead at
all; you can go right through the books and dig out what the actual
interest was and find the thing you should use; but if you can not
get the books, you have to make some estimate of it in the best way
you kno\v how.

When you start a year's building program, you either have to have
the whole money at the beginning of the year, or at the beginning of
each quarter, if you can make that kind of a deal with a banker who
is furnishing you the money. We will say it is quarterly. Now, he
will let you have it at 6 per cent, say, and give you 2 per cent on all
balances, or whatever it is, so that when you get through the year it
m&y have averaged 5 per cent. But when you have run that over
the construction period, which includes for the land at least a year,
or four years — including three years for building the property — you
will find that that interest, instead of being 9 per cent, is over 11
per cent. Yet you did not know it until it was investigated, in
accordance with the actual facts which have been found to exist.
It was the same kind of an investigation that developed the fact that
a half of 1 per cent or 1 per cent for taxes did not anywhere near
reach the result. It should have been 2 per cent. They did not
know it. -

So I sa}', gentlemen, this is a research problem. When we used
to apply 9 per cent and one-half of 1 per cent, and certain of these

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 261

other per cents to these things, I was an expert; but to-day we do
not do it that Avay, and I am a student. I found out that we do not
have to do it that way. We have to do it some other way. So that
explains why I am no longer an expert. [Laughter.]

Now, when you have this property all done — I will try to finish
this property before 1 o'clock, this phj'sical property, I mean — you
have got the tracks laid and the power houses built and the cars
bought, and you have at the very end bought stores and supplies, and
you have already arranged for your quarters, or you may have to
rent quarters at the outset, or you may build your own building;
and if you rent it, the rent becomes an operating expense; and if you
build it, it is a part of the property, and it becomes a capital charge.
Then the very last thing 3Tou do before you turn a wheel is to provide
what we call a working capital. That is another red rag.

Now, of course, it does not need any great amount of sense to
know that when you start to do a thing in which you buy materials
and hire help, you have, at the end of the week or at the end of the
month, to have a pay roll. That is going to be the working capital
for that pay roll. That takes care of the pay roll, and that working
capital, gentlemen, is that fund of money that lies idle in the bank,
subject to check all the time. It is the amount of money that the
company has found necessary in order to do its business from day to
day. And I take that 'from the books; I do not estimate that. I just
take that. We go back over a period of years, and we find what lias
been the average amount required to do business, and we put it in.
Yet everybody comes along and takes it out. I say " everybody " ;
I mean the public. " Why should we pay for that ? " That is cash,
but it is idle money, and if it does not bear interest in the banks, it
earns an interest through the rate.

Now, we are ready to start the wheels going. We have a perfectly
inanimate property. It has not a particle of life. It is a structure
that merely exists ; and if you do not put it into use it would not be
worth a dollar, except for scrap, and whatever value it may have in
the future- depends on what you can make it earn.

That raises the question of the costs that come along in connection
with the operating of the railroad, which themselves become ele-
ments in the rate that you are going to fix.

Mr. WARREN. Before you get to that, Prof. Cooley, could you
state any general figure or limits for a figure of those overhead items ?

Mr. COOLEY. Yes; I can do that, and you may be surprised when
I get through with you. You will be very much surprised.

What the gentleman means by this overhead is something over
and above the actual money that you invested for materials and
labor in the physical property. That is what he means.

You buy materials, and you buy labor, and you put those costs into
the physical property ; and it is what we call the base figure. Now,
how much in addition to that base figure must you add for organi-
zation, legal expenses, engineering, interest on the cost of money, and
for this thing and for that thing — all of which are overheads, and
which can not be figured directly? They can not be inventoried.

These overheads will vary not only with the size of the property,
but with the location of the property. Out in my little town, or in
any little town, the overhead might t>e very small — 10 or 1*2 per cent,

262 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

perhaps; maybe not over 8 or 10 per cent, depending upon condi-
tions. In the city of New York, they might be 60 per cent. I heard
a gentleman, a very prominent engineer, testify before Judge Tayler
tli at, under certain conditions in the city of New York, the overheads
were 60 per cent. I did not know it. I was just as. much surprised
a.s Judge Tayler was.

Xow, let us see how that figures out.

Certain items of overheads to-day, instead of being put on over-
head, are put inside in connection with the item. A certain percent-
age for overheads comes in with grading, .a certain percentage for
track laying, and a certain percentage for this thing and that thing.
It comes into unit, costs, and disappears as a part of unit costs.
That is happening, and some engineers are very adroit, enough so
that they can conceal a very large proportion of the overhead, and
nobody will ever know. That is being done. That is the way they
keep their overheads down. But if you will be honest about it and
put your overheads where they belong — and by " overheads " I mean
the contingency items, the engineering item, the legal item, the or-
ganization item, the interest during course of construction — and
not yet consider cost of developing the project, costs of money, or
promoters' profit, but leaving those out, they amount to 12^ per
cent. They run from 15 to 18 per cent up to 25 or 30 per cent.
NOAV, if you add all of these other things, they actually come up to
between 30 and 40 per cent, and in certain instances, as high as 50
or 60 per cent, as this gentleman testified to in the city of Xew York.

The CHAIRMAN. If it is convenient, Professor, we will stop now
to meet at 2 o'clock.

Mr. COOLET. Yes; I have given you everything up to the point
of operating expenses.

Commissioner MEEKER. How much are we worth now \

Mr. COOLET. You may find out that you may not have made a
cent, and you will be lucky to escape without going into your
pockets.

Commissioner MEEKER. I was afraid that we were going to be a
bankrupt concern, and I was going to protest. [Laughter.]

(Whereupon, at 1 o'clock p. m^ a recess was taken until 2 o'clock
p. m.)

AFTER RECESS.

Appearance: Mr. C. J. Joyce, Philadelphia, Pa., representing T.
E. Mitten.

MR. MORTIMER E. COOLEY— Resumed.

The CHAIRMAN. You may proceed, Mr. Warren.
, Mr. WARREN. I want to read a telegram which was received in re-
sponse to our request of the vice president of the San Diego Co., to
come on and appear before the commission. He could not come, but
has sent this telegram which explains the reason and also throws some
light on the situation. It is dated San Diego, Calif., July 15 :

JOHN H. PABDEE, President,

950 Munsey Building, Washington D. C.

Utterly impossible for me representing our company he in Washington. We
indorse every word your statement before committee reported by Associated

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 263

Press tills morning. Speaking for San Diego Electric Railway Co.,- we luive
been preparing our case for 18 months and same has been partially submitted
to State railroad commission. Our accounts show that December 31, 1918,
our investment amounted to $5,000,000 and company had deficit of $1,240,000.
At the same time depreciation had accrued to amount of $1,664,000 but not
1 per cent of this accrued depreciation is on hand for replacements due to in-
adequate fares. This day there have been presented to me memoranda showing
that for first 6 months 1919. total operating revenue has been $525.700 with
operating expenses including interest, taxes, etc., amounting to $568.200 which
leave actual operating deficit of $42,500. This deficit is exclusive of deprecia-
tion for first 6 months 1919, which depreciation amounts to $155,200, making
total deficit of $197,600 for the 6-months period. The expenditures during those
6 months do not include adequate maintenance becaiise we have not got the
money. The company is in default of bond interest for 1918 and 1919, and
no dividend has been%paid since 1914. Unless we receive large measure of re-
lief from railroad commission, this company can not continue operating this
road and public must suffer. It offers absolutely no satisfactory security for
anyone to advance money to it in its present condition. Present holders of its
securities decline to further contribute to an institution which has no credit and
to which public itself will not contribute, with absolutely no assurance of re-
turn of principal or even interest on same.

The burdens of this company have been increased and accentuated by war
conditions. Wages of all employees have been largely increased. Cost of
supplies have advanced anywhere from 50 per cent to 300 per cent. Actual
average increased cost between 1914 and December, 1918, amounts to 134 per
cent, but the fare still remains at 5 cents. Street railways and other public
utilities of the country have been for years the vehicle of misstatement, and
vituperation of cheap politicians for their own political advancement until the
public mind has been so poisoned it will not accept the truth of their con-
dition to-day. As a consequence there is in many States hesitance and in some
cases refusal to grant railway companies proper and just relief. Power to
increase fares consistent with increased wages should go together. The arbi-
trary increase of wages through War Board without power increase fares has
brought some companies to verge of bankruptcy. Electric street-railways of
United States need prompt relief and if that relief can not be had through
State institutions, Congress should take action to establish Federal control. The
control should be a permanent Federal board so constituted as to be beyond or
outside any political interference, control or even suggestion.

W. CLAYTON,
Vice President, San Diego Electric Railway Co.

Mr. WARREN. Now, Mr. Cooley, that telegram speaks of deprecia-
tion in connection with those operating expenses. What can you tell
us about depreciation as a proper charge against income in addition
to the regular cash operating expenses?

Mr. COOLEY. The subject of depreciation is probably as little under-
stood as any subject connected with a public utility. It is almost im-
possible, apparently, for even well-informed men to get a clear con-
ception of what is meant by depreciation in connection with a utility
company, particularly with an electric street-railway property. I
think the best way to present it is like this:

When we build — when you gentlemen build — a street-railroad
property, all the elements are brand new, the ties and rails and cars,
power house, engines, dynamos, overhead wire, everything is new,
brand new ; it stands in what we call a 100 per cent condition: Some
of these elements are long-lived, some are short-lived. An engine
may last 30 years, a tie may last 6, 8, or 10 years; a car may last in
between somewhere. But the elements have different lengths of
lives and it becomes necessary to replace them at different intervals.

After the property has been running for 10 or 12 years, say, or 15
years, it will be made up of items some of which are brand new, some

264 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

of which are partly worn out, and some of which are all worn out.
After it has been running through 25 to 30 years — the length of
the longest-lived element^— it will be made up of elements of all
conditions as the length of remaining life.

Thus, when you make an appraisal, you examine these different
elements and you find some standing at 100 per cent, some standing
at 75 per cent, some standing at 50 per cent, and some standing at
zero. But when you have taken the weighted average of all these
elements, you find they stand somewhere between 80 and 90 per cent
of the original 100. In other words, there has 'been, say, 15 per cent
of accumulated wear, or of wear that has come into the elements, so
that the 100 per cent condition is represented by»an 85 per cent con-
dition.

Xow here comes the point that is so hard to understand. It makes
no difference if the property lasts a thousand years, the per cent con-
dition in which it remains after it has come through its longest cycle
remains practically constant, say 85 per cent. You can not raise that
85 per cent, if that is the mean, because in order to raise it, you have
got to throw away property before it is worn out. A tie will not " 3
entirely worn out, a car may not be worn out, and if you replace them
too soon, you will bring up the average condition at the expense of
property still usable.

Likewise, you can not let that property drop very much below, be-
cause then it becomes dangerous to operate and it does not render the
service for which it is designed.

Then the conclusion is this: That the 85 per cent condition that I
am speaking of for all practical purposes throughout all the life,
whether 10 years or 30 years or 1,000 years, is the 100 per cent
operating condition.

Xow you can not have that 85 per cent except 3-011 buy it with 100
per cent. Thus you must allow the 100 per cent as the basis for rate
making and not the 85 per cent. You can not have the 85 except
you pay 100 for it. It is the cost of the 85 per cent condition which is
the maximum practical operating condition. All this money that
comes into the treasury of the railroad comes through a property that
necessarily exists at an 85 per cent condition.

Xov that is one kind of a depreciation. You might call that a
fixed depreciation. And the proper way, if you are not going to
allow the 100 per cent as an earning, is to allow out of earnings some-
thing in the nature of a sinking fund. You must contribute to this
sinking fund through an annuity taken out of earnings which in a
given time — say the life of the franchise — will bring you back the
difference between 85 and 100 per cent. So whether you allow the
100 per c^nt or allow the annuity, its equivalent, it comes out of
earnings.

Xow the second depreciation

Mr. -WARREN. May I ask one question there ? Suppose instead of a
determinate franchise you had an indeterminate franchise, would you
alloAv 15 per cent?

Mr. COOOLEY. There would be difficulty in an indeterminate fran-
chise to determine what the annuity would be.

Mr. WARREX. Because if a property was expected to last forever
you wTould never make up the 15 per cent 2

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 265

Mr. COOLEY. Not at all ; and so I say we should always figure our
rate of return on what it costs to get that property in its working
coimition.

Now with regard to this second depreciation item. In order to
keep this property in the 85 per cent condition you have got to
renew elements as they wear out. Cars, engines, boilers, rails, ties —
they all have to be renewed from time to time as they wear out; and
you have to put aside a sum of money to do that work, to make those
renewals. A car may wear out or it may become obsolete even when
it is in splendid working condition, as was the case in Detroit with
the old single-truck cars. They stood at a physical condition close
onto 80 per cent and yet every last one of them was scrapped because
the public demanded double-truck cars and they had to throw them
away.

Now this second fund that I speak of, to keep the property in the
85 per cent condition, has likewise to come out of earnings, and it is
a much bigger amount than people think. And I could give you a
demonstration of that. If you will take all the elements of the
physical property which can wear out, and take the length of life of
those different elements and perform the arithmetical computations,
you will find that the average life of the elements that can wear out
is, say, 12. 13, or 14 years — something of that sort, the composite life.
So that it is necessary to put into this fund for renewal somewhere
around 6. 7, or 8 per cent of the items that wear out.

Now it happens that the items that wear out are only about one-
third or perhaps one-quarter of the total cost of the property. So
when you spread this 6, 7, or 8 per cent over the total cost, it means
that anyAvhere from 1£, 2, or 24 per cent of the total cost of the prop-
erty has got to go into this renewal fund or what is ordinarily spoken
of as a depreciation fund, being a different fund from the one I first
spoke of, namely, the one that makes up the difference between the
85 and 100 per cent.

Now what is 1£ or 2 per cent on the total cost of the property? It
may be a quarter of the bond interest; it just adds that much to the
earnings which that road has got to make, and it must be just as
religiously saved as bond interest, because if you do not save it and
put it back into the property the integrity of the property is not
maintained. So I say it is a religious duty to put into this deprecia-
tion fund as much money as is necessary to maintain the integrity of
the property, which as I have illustrated it is around about 85 per
cent of the original 100 per cent of the elements all being new. So
that is my idea, gentlemen, of this whole question of depreciation.

Mr. WARREN. Now, Prof. Cooley, will you say just a word about
the different methods of valuation, and then I will be through.

Mr. COOLEY. Yes, that comes very aptlv rigjit at this point. In
talking about the valuation we are askea, AY hat do you mean by
valuation? AYrell, of course we have the historical valuation or the
book valuation or the cost of reproduction method or the cost of repro-
duction less depreciation, the cost of reproduction less depreciation
being frequently spoken of as the present value, a very misleading
term.

Now, what I have just said about depreciation distinguishes the
difference between the cost of reproduction and the cost of reproduc-
tion less depreciation, because the cost of reproduction less deprecia-
100643°— 20 18

266 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

tion is about 85 per cent, so I do not need to say anything more about
that. Now the historical method, of course, does not need any dis-
cussion, because that means just what it says; likewise the book ac-
count. Those are the different ones.

Xow, we do not have the historical value. If the property is old
and the books have been lost, we do not have the book value. So we
attempt to get at them in the only practical way that we seem to know
anything about, namely, by estimating the cost of reproducing the
property under normal conditions or under the conditions as nearly as
may be which existed at the time the property was built with respect
to the purchasing power of a dollar.

Mr. WARREN. I think that is all I want to ask, Mr. Chairman.

Commissioner GADSDEN. Will you follow up there and say a few
words on the subject of obsolescence?

Mr. COOLET. Yes. Take the electric street-railway art as an ex-
ample and compare it, if you like, with the art of gas making. Now,
the electric street-railway art represents an art which has been chang-
ing very, very rapidly in the last quarter of a century, whereas the
gas-making art, which has existed for 75 or 100 years or more, has
been changing, but the changes have been relatively slight. In other
words, the gas-making art in comparison with the electric is a fixed
art and there is not much obsolescence. Take the street railway and
take its history. We all of us remember horse-car days and remember
how the horse-car was changed into the cable road in San Francisco,
Grand Rapids, Chicago, and elsewhere. And then came the electric
road back in the late eighties and early nineties. And perhaps aa
good a practical illustration as any I can give is the situation in
Grand Rapids, Mich. Succeeding the horse-car days they built there
a cable road up those hills. I do not think they operated that cable
road more than a year — perhaps not as long as that, but a very short
time — when they recognized the handwriting on the wall, and they
then scrapped that whole cable road and converted it into an electric
road — the boldest and bravest bit ^of financing I have ever known
anything about. Now, there was a case of obsolescence. The prop-
erty had only been running a year or so ; it was practically new ; and
yet it was scrapped for obsolscence, and so far as the duct and the
cable machinery was concerned, it was pretty nearly 100 per cent obso-
lescent.

The CHAIRMAN. Did the company stand that loss or did they amor-
tize part of it?

Mr. COOLEY. I have never heard. I have often wondered.

Commissioner GADSDEN. How ought it to be treated economically ?

Mr. COOLET. Treated economically. Of course they went into it hi
the best faith in the world and with the knowledge and consent of
everyone ; and economically or morally, at least, they should be per-
mitted to earn on that investment until they could wipe it out ; that
is, they should be permitted to earn enough so they could gradually
wipe out that tremendous investment. And so far as my experience
with commissions goes, they are permitted to earn it and wipe it out.

Take another case right there in Michigan: The Commonwealth
Power Co. built a high-transmission line from one of the dams up the
Muskegan, I think it is, and carried the current into Grand Rapids
and the southern towns. They went into the market for copper.
They thought copper was going up — everybody thought copper was

PROCEEDINGS OF F^_,ERAL ELECTRIC RAILWAYS COMMISSION". 267

going up — and they paid 30 or 32 cents, say, for copper, and bought
enough for the whole job so as to have it on hand, thinking thereby
to profit by the market. But before they got that line erected copper
dropped to 16 or 18 cents, ai. there was 13 or 14 cents. What would
we do with it? We were valuing the property under the Michigan
Railroad Commission; and the commission had a special hearing on
it, and the facts were related to them ; and they said, " Gentlemen, we
will allow them 30 cents for the copper — what they paid for it. They
invested their money honestly, and it was simply one of the turns
nobody could anticipate." And it went into the capital, or was set
up in a fund to be amortized.

Commissioner MEEKER. But if the amount paid had been subject to
the suspicion that good judgment had not been used in making the
purchase would the amount have been allowed just the same?

Mr. COOLEY. Well, you say good judgment. In my

Commissioner MEEKER. What the courts usually term, ordinary
business judgment.

Mr. COOLEY. Well, I do not know just where we would draw the
line there as to what would be good judgment.

Commissioner MEEKER. There is a difference of principle there that
I want to get at.

Mr. COOLEY. I would say this: If the contract had been carelessly
made or they had not properlv looked into the question and just sim-
ply had gone in without any foresight and done it, they should stand
for it. But the investigation showed it was honestly done.

Now, one of the best illustrations of this obsolescence was those
sti-eet cars in Detroit which I cited a moment ago — splendid cars.
They maintained them out of operating expenses up to this very
high condition; and they were maintained in that condition up to
the day they were scrapped and double-truck cars took their place.

Now, take the electric art, going back to the early days when we
had the little high-speed engine driving our belted dynamo; it was
not long; it was in 1893, at the time of the World's Fair, when we
had the direct unit still, a small unit. It was not very long until
we began to build big dynamos and hook them onto slow-moving
engines; and in a few years — say, along toward 1900, I do not re-
member the date — came the steam turbine and small units, first used
as exciters for the dynamos driven by steam engines, a few kilo-
watts capacity, now thrown up to 60,000 kilowatts capacity with the
steam turbine; and all that since 1890, say. Now, that shows a suc-
cession of scrapping of machinery and street-car material through
obsolescence.

Mr. WARREN. Is the cost of establishing the business a capital
charge or an operating charge?

Mr. COOLKY. I think it has up to very recently been considered a
capital charge.

Mr. WARREX. In that case it enters into the valuation and I want
to ask you about it.

Mr. COOLEY. Yes; but I think the modern tendency is to carry the
cost of establishing the business as a floating debt and amortize it.
In other words, it. partakes more of the nature of an operating
expense in these days than it did a few years ago.

Mr. WARREN. How substantial is it in an ordinary case)

268 PROCEEDINGS OF .FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. COOLEY. It is a very, very substantial item. It is so sub-
stantial that in a great many cases it runs from 25 to 35 per cent
of the cost of the physical property. It is so big an item as that,
so it is very, verv important. I know one property in Milwaukee,
for instance; it is the heating property owned by the Milwaukee
Electric Light & Eailway Co. They have kept the books separate
for that business. When I made the first analysis of it, in 1907, they
had 10 or 15 years of life and they must now have 25 or 30 years'
life. They were plotting the curves for those earnings and for
operating expenses. It looked at the time as if it would take 10
or 15 years for the earnings from that company to reach the operat-
ing expenses. That is, a period of 25 years, we will say, has been
required to make the business what we call a going concern — by
that meaning a concern in which the earnings of the company,
the income, is sufficient to meet all of the outgoes.

So I would emphasize the necessity of taking into consideration
the cost of establishing the business. It has several names. That,
I think, is the clearest name. I would emphasize it particularly as
the tendency to-day seems to be to treat it as an operating expense.

Mr. WARREN. How would you define it, Prof. Cooley?

Mr. COOLEY. Well, I think the Wisconsin definition is perhaps the
best or most generally accepted. It is really a summation, if you like,
of the early deficits — that is, a sum of losses that the company en-
counters up to the time its income meets its outgoes; and it is very
hard to obtain it, because companies until recent years have not ap-
preciated the necessity of so keeping their books that the items of
loss can be actually taken out. So it is a very difficult thing to sus-
tain in dollars and cents. But in the future it probably will be a
well-known factor ; no doubt about it at all, because they are keeping
their books now so as to tell us what it is.

Mr. WARREN. But as relates to income and operating expense, it is
something like the interest during construction, if you were valuing
the property.

Mr. COOLEY. Yes ; interest during construction period. Now I
might say just a word on that. Now, for'example, when before lunch-
eon we had completed our physical structure and were ready to start
the property into operation, we had just secured stores and supplies
and working capital to enable us to begin to turn the wheels. We
start in and it may take six months or a year before we get that prop-
erty settled so that the machinery all works well and gets the wrinkles
ironed out. It is the same kind of treatment of the property that we
have to make with a locomotive. When we buy it and put it on a
steam railroad, we have to run it a few weeks under easy conditions,
we will say, so as to work out the troubles — precisely the same thing
you have to do on board a battleship after it comes from the yard :
It has to be* run and tuned up. All those things have to be done be-
fore your property is in final shape for operation. Now, that all
costs money ; and when you start to earn, you do not earn anything
the first day or the day before the first day ; it is zero. Then as you
begin to operate your business the earnings begin to mount.

Meantime you are carrying along as expenses all these daily
operating expenses of whatever character, including taxes and in-
terest on the cost and — well, perhaps you would not start any sink-
ing fund or depreciation fund at that time, but if you did that would

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 269

also come in. And of course the earnings are almost nothing, we
will say, the first week or two or three weeks, and the operating ex-
penses are very large. Now the difference or that deficienc}' is one
element of this so-called cost of establishing the business. And
when you aggregate those losses for a period of years up to the time
the gross earnings line crosses the gross operating expense line, and
when you sum up all of those losses, you have the cost of establish-
ing the business as it is ordinarily understood. Now it is frequently
argued, and apparently with a good deal of sense, that the greater
these early losses the more valuable your property, because with every
loss you are adding to the cost of the property, if it goes into capital.
But that is fallacious, it seems to me, because the utility when it is
built is built to meet a public necessity. Now the public knows that
that property is not going to pay to start with, if they know anything
about it at all ; and that property has been built and accepted by the
public with full knowledge that it has got to grow into its business
and with a full knowledge that these early losses are to be there;
therefore they are a proper cost of the property.

Mr. WARREN. Now I want to ask just one other question, if you
are familiar with current prices of labor and material to-day, and I
presume you are, in connection with your valuations

Mr. COOLEY. Yes.

Mr. WARREX. What should you say would be a proper percentage
either of income or of operating expense — I should say preferably of
income — to allow for maintenance, which I understand covers main-
tenance of track and roadbed and maintenance of equipment?

Mr. COOLEY. Answering it in a perfectly general way, first — I had
occasion to investigate the relative expense of building such properties
as electric-railway and gas properties under prewar conditions and
under early war conditions and under late war conditions. I sup-
pose in the last six or eight months we have made a dozen or 15
different valuations with different units of cost.

Now, the fact appears to be that if we were to build properties
within the last year, say, or quite recently, we would have to pay
fully 50 per cent more to secure the same property, I think 50 per
cent is a very conservative estimate, and that of course is for the cost
of the property. It is due to the advance in labor and materials and
other elements which come in. Now, when you come to operate that
property of course there are the platform expenses of the motorman
and conductor — and all the labor has advanced tremendously; I think
in some instances, doubled, perhaps, and with a request for a trebling.

The importance of that labor element alone — that wage element
alone — almost is conclusive answer; because under prewar conditions,
as I recall the figures, about 50 per cent of the gross operating ex-
penses were required to pay the labor, the platform expenses and the
other help that entered into it. This whole operating cost excluding
taxes was about one-half the gross income. So one-quarter of the
gross income was labor and wages. Now, suppose you double them ;
that 25 per cent becomes 50 per cent. Suppose you treble them ; see
where you go. You have simply absorbed all the difference between
the original 50 per cent that you had to pay for taxes, depreciation
fund and interest on the capital, on the funded debt and the other
things that had to be paid out of the income over and above the cost
of operation per se. Now you double the cost of operation, you havo

270 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

wiped out everything. This telegram that was just read is very per-
tinent and makes it clear. I do not know that I could say very
much — it does not seem as if I could say very much, because it is so
patent, it is so apparent — but right there, if I may just say some-
thing showing how the public gets things wrong end to, we have been
making arguments right along, all of us, that we must have greater
wages in order to meet this increased high cost of living. That is
the argument. But you will correct me, Dr. Meeker, if I am wrong —
I understand that is your field — but as I see it, it is putting the cart
before the horse, for I believe it is an accepted fact that the cost of
everything we have to buy is very largely the cost of wages. I have
heard it stated that from 50 to 75 per cent of the cost of every article
we buy in the world is the cost of labor that went into that article.
Now if that is true, and I have no reason to doubt it, it means that
as we advance the price of labor we advance the cost of living.

Mr. WARREN. Now, Prof. Cooley, you stated that the depreciation
which ought to be taken care of was about 2 per cent.

Mr. COOLEY. I said from 1| to 2£ per cent on the cost of the prop-
erty.

Mr. WARREN. On the entire cost of the property ?

Mr. COOLEY. Yes.

Mr. WARREN. Supposing that is set aside or provided for — if the
company is fortunate enough to have money to do it — how much
more under present prices of labor and material should you say ought
to be allowed for maintenance — I mean for current maintenance ?

Mr. COOLEY. I do not think I answered the first question you asked
completely, now that you ask me this second question. I stalled to
speak generally and to say that the company should be allow-ed to
earn in direct proportion to the increased costs of building the
property. If the property costs 50 per cent more to-day than it did
5 or 10 years ago, the company should be permitted to earn 50
per cent more. I speak of that generally.

Mr, WARREN. In other words, the maintenance cost would have a
very direct relation to the cost of building a new property \

Mr. COOLEY. Oh, everything has gone up. I do not think 50 per
cent is enough. I think it is very conservative. It seems to be borne
out in certain instances, as I observe the reports. The old fare of 4£
and 5 cents has been supplanted by G-cent fares. That is about a 50
per cent increase. The old 5-cent fare in Boston has gone up to 8
cents, I believe. That is more than 50 per cent.

Mr. WARREN. Up to 10 cents.

Mr. COOLEY. Then that is more than 50 per cent.

The CHAIRMAN. When you speak of the company earning more on
account of the high cost are you speaking of the gross earnings or
net earnings ?

Mr. COOLEY. Gross. That brin.o^ up the question whether we
should use present-day costs or before the war; in other words,
whether we should use the cost of reproduction to-day or the histori-
cal cost. I think that is answered splendidly by comparing the pur-
chasing power of a dollar to-day with what it was when the property
Avas built. I have frequently said that our dollar of to-day was the
50-cent piece prior to the war. So if you are going to build a prop-
erty to-day you will have to build it so far as purchasing power is
concerned out of 50-cent pieces.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 271

Mr. WARREN. That has been the experience of the Boston Elevated.
They have just been double what they were in the past.

Mr. COOLEY. Well, as I understand it, the purchasing power of
the dollar is about 50 cents. So, if a property were valued before the
Avar at about around $100,000,000, it would to-day be valued around
$200,000,000 ; if you are allowed to earn the same percentage on the
$200,000,000, of course it would double the income, we will say.

Commissioner MEEKER. But the answer is not quite clear to me,
however. If you are arriving at a fair valuation on which earnings
are to be allowed, would you depend upon the cost of reproduction
to-day or would you take the historical cost, or what would you do?

Mr. COOLEY. I do not think it would make any diiference, if you
will keep in mind the purchasing power of the dollar and let your
earnings vary with the purchasing power of the dollar; that is what
I mean. For example

Commissioner MEEKER. It seems to me the difference between
$100,000,000 and $200,000,000 is quite considerable.

Mr. COOLEY. True, it is quite considerable; but the $200,000,000 is
precisely equal to the $100,000,000 as we are taking it. They are
different figures but they are not different quantities.

Commissioner MEEKER. That is, the company should be allowed
to earn upon the value of the property valued upon the cost of repro-
ducing under current prices?

Mr. COOLEY. Yes.

Commissioner MEEKER. Does that exactly jibe with your state-
ment made this forenoon that the original cost should be taken as
the basis? For example, the tunnel through the Detroit River which
eventually became the tunnel under the Detroit River; there was
about 100 per cent, was it, of contingency, or 50 per cent?

Mr. COOLEY. Very large.

Commissioner MEEKER. Very large?

Mr. COOLEY. Yes, I have forgotten which.

Commissioner MEEKER. $1,000,000, which was actually spent, and
that should not be disregarded in valuing the property to-day, but
the original cost should be taken into account.

Mr. COOLEY. That is all right. Suppose we do take in the original
cost, and I think fundamentally that is of course right, there can not
be any question about that. You should take in what your invest-
ment is ; that is, what the proper investment is, I mean. Now, prior
to the war, that investment was permitted to earn, say 5 per cent, and
we got 5 per cent and we were satisfied, and we were able to do
everything we wanted, with it — everything that we had to do. Now,
to-day what would that 5 per cent do? It would do only half the
things we have to do. So ir you are going to hang onto the original
cost that we have been discussing, the investment cost, you have to
allow twice the income from it or else you have got to double the
value and take the same rate of per cent, both being precisely equal.

Mr. WARREN. But, Prof. Cooley, that raises the question, I think —
or the commissioner's question raises the other question — of whether
the return on the capital ought to be double because of the reduced
purchasing power of the dollar or the higher cost of living; leaving
that to one side for the moment, because many of our street railways
are trying to earn their operating expenses and fixed charges, this

272 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

would be true, would it not, that if the cost of construction — that is
only a yardstick by which to measure

Mr. COOLEY. Yes.

Mr. WARREN. If the cost of construction to-day would bo twice
what it was when the road was built, then the operating expenses,
apart from the return on the capital, would be twice to-day, roughly,
what they would have been previously.

Mr. COOLEY. Yes; I think so.

Mr. WARREN. That is all I want to ask. I am very much obliged
to you, Prof. Cooley — unless the commission has some questions.

Commissioner MEEKER. The commission is a little bit afraid of
this question of going into the fair valuation of property. I do not
want to dwell upon that any more than is absolutely necessary, but
first of all I would like to know what is the pamphlet from which you
have been quoting.

Mr. CooLEr. I am very grateful to you for asking that question,
because I wanted the permission of the commission to send copies of
this pamphlet to them. It is a pamphlet that I read five or six years
ago before the electrical engineers, also before the Western Society of
Engineers, and it is entitled " Factors Determining a Reasonable
Charge for Public Utility Service." There would have to be a few
changes made to meet the new conditions that we are encountering
now, but this at the time it was written represented my best knowl-
edge, and I have used it in refreshing my mind as to topics, and I
would like to send enough so each member of the commission can havo
a copy. It is very short — you can read it in 40 minutes.

Commissioner MEEKER. I was about to ask if I might obtain a
copy.

Mr. COOLEY. Yes; I will be very happy to do it.

Commissioner MEEKER. How should improvements and extensions
which are made out of earnings be treated ?

Mr. COOLEY. If they are made out of earnings — the answer has
to be a double-barreled one — if they are made out of earnings which
ordinarily would go into the pockets of the people who have their
money invested in the property, it is equivalent to new capital. If,
on the other hand, the earnings have been very large, far in excess
of what would be regarded to-day as proper earnings, then I do
not think it ought to go into capital except there be some legal
phases which would require it.

Commissioner MEEKER. You think

Mr. COOLEY. I hope- 1 make that clear. Say an 8 per cent earning
is permissible and all right, and suppose the earnings have been 20
per cent — if in the first case you have got your 8 per cent and have
taken some part of that 8 per cent and invested it in new property,
it belongs to capital.

Commissioner MEEKER. Some part of a reasonable return ?

Mr. COOLEY. Yes; surely.

Commissioner MEEKER. But anything in excess of what might be
regarded as a reasonable return, you think that should not be
counted as a part of the original investment upon which the com-
pany is entitled to earn?

Mr. COOLEY. No; I would call that investment by the public, ex-
cept" there be some legal requirement which of course might control.
I do not know what

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 273

Commissioner GADSDEN. Let me ask a question right there. Take
a railway — I think it is entirely a hypothetical question as applicable
to street railroads, because in my judgment none of them ever made
a fair return on any proper valuation — but do you mean to say that
a railroad which had a franchise with the city and a fixed fare of 5
cents — suppose such a railroad made, we will say, 12 per cent net
return after operating expenses and fixed charges, amortization and
depreciation— do you mean to say that 4 per cent of that, say, ought
to go back into the property ?

Mr. COOLEY. No; not necessarily.

Commissioner GADSDEX. Or 3 per cent, or any proportion of it?
What I mean is if we had a legal right to charge 5 cents, whatever
the net return may be, does not that belong to the stockholders?

Mr. COOLEY. Well. I do not mean to say that at all, because there
is a legal phase I refer to.

Commissioner GADSDEX. But I wanted to distinguish that point.

Mr. COOLEY. I was answering in the broad way. Of course, the
real answer as to what is the proper earning is the amount which is
necessary to induce capital to come into the business. That may be
8, 10, or maybe 12 per cent; it may be one thing in one town and
another thing in another town. I just answered your question,
Dr. Meeker, broadly, without regard to its being a question which
might have different answers in different localities and under dif-
ferent conditions.

Commissioner MEEKER. We do not want to confine our attention
too much to hypothetical questions. You stated, however, that any-
thing above a reasonable return upon investment, if turned back into
the property, might be regarded as an investment by the public and
therefore would not constitute property value upon which the com-
pany was entitled to earn in the future.

Mr. COOLEY. Yes; that was my answer to the general question,
namely, and we at once put in 8 per cent as an example of a reason-
able rate

Commissioner MEEKER. As a point to argue from?

Mr. COOLEY. Yes.

Commissioner MEEKER. But as I understand it, Mr. Gadsden has
made the proposition that the company is entitled to everything that
it does earn.

Mr. COOLEY. There comes the legal thing. I made that point, top.
that Mr. Gadsden made, namely, there is the legal obligation, it
you please, or the legal element which permits the company to have
everything it earns regardless of how much it is.

Commissioner MEEKER. Everything it earns so long as the fare is
fixed, and the fare being the public's idea of regulating the income
of the company?

Mr. COOLEY. Yes.

Commissioner MEEKER. So if a company earns 50 per cent on its
investment, it is entitled to the 50 per cent and can do with it as it
chooses ?

Mr. COOLEY. Yes; and go into court and get it. That is what I
meant, but —

Commissioner MEEKER. So that must be taken account of in valu-
ing the property to-day?

274 PEOCEEDLNGS OF FEDERAL, ELECTEIC EAILWAYS COMMISSION.

Mr. COOLEY. Yes.

Commissioner MEEKER. In case there be such returns, such invest-
ment in improvements and extensions to property out of earnings
so obtained, such investments are bona fide, the property of the stock-
holders of the company and the company is entitled to earn upon
them ; is that correct ?

Mr. COOLEY. Well

Commissioner MEEKER. All investments made out of earnings as
the conditions have been laid down, the company is entitled to as
part of its property and that property must be valued in determining
the property upon which the company is entitled to earn in the
future ?

Mr. COOLEY. Yes.

Commissioner MEEKER. Do you know of any cases where improve-
ments and new equipment and even extensions have been made under
the guise of operating expenses ?

Mr. COOLEY. Oh, yes; any number of them. Not perhaps within
a year or two, but I think one of the most notable examples of that
is the Michigan Central Railroad. For years and years it paid its
stockholders 4, 5, or 6 per cent, whatever it was, and all the rest of
that property went into second track and new station buildings and
new property.

Commissioner MEEKER. I had in mind street-railway properties.

Mr. COOLEI". Well, I do not think at this moment of any street-
railroad property; but there is a very interesting outcome or sequel
to that Michigan Central case, if I may dwell upon it for a moment.
They had a very, very valuable property with absolutely no addi-
tions to capital for a great many years, under Mr. Ledyard, the
president. Then the Michigan Central and the Lake Shore and all
these roads were merged into the New York Central lines, and they
had to finance them in order to build this Grand Central Terminal
in New York; and then it becomes necessary to dig out all these
sums of money that had been hidden and. expended from earnings
and put them into capital. Now I may not have stated that precisely
in accordance with the facts, but that is the idea in my own mind —
that lots of the hew construction was built out of earnings and paid
for by the public, if you like.

Commissioner MEEKER. You would call such new construction and
new equipment as made out of earnings, would you ?

Mr. COOLEY. Yes; I call it in that case made out of earnings,
surely, because they did not add a dollar to capital for all those
years.

Commissioner MEEKER. Made out of gross earnings but not out
of net?

Mr. COOLEY. I do not know just how it was divided, but it was
made out of their earnings because they did not add a dollar of
capital for a great many years, and yet they double-tracked their
entire system and built very elaborate new stations with gardens and
everything of that sort.

Commissioner MEEKER. Do you know of any such instances where
street-railway companies have made improvements and extensions
in the same manner ?

Mr. COOLEY. No ; I can not identify any instances at this moment.

PROCEEDINGS OF FEDERAL, VJ.KCTBIC RAILWAYS COMMISSION. 275

Commissioner MEEKER. You see, I am trying to differentiate be-
tween improvements made out of net earnings and improvements
made under the guise of operating expenses.

Mr. COOLEY. Yes; I know.

Commissioner MEEKER. It seems to me there is a distinction there
which should be drawn. You have stated, have you not, that im-
provements made out of net earnings, out of earnings that might
have been paid as dividends under the legal contract entered into
by municipalities, is bona fide the property of the company?

Mr. COOLEY. Yes.

Commissioner MEEKER. Would you state also that improvements
made out of gross earnings under the guise of operating expenses
would be entitled to the same treatment even though the company
may have paid no more than a reasonable dividend on the stock ?

Mr. COOLEY. Well, let me put my answer this way, if I may : If
the net earnings have been sufficient to give what we are speaking
of as a fair return, meaning by that as much of a return as would
be necessary to induce capital to come into the business, then I
should think all this new property built out of gross earnings should
belong to the public who contributed the money for it, if it could
be done legally. Now, does that answer your question?

Commissioner MEEKER. Well, will you restate it?

Mr. COOLEY. Let me restate it. Assuming that the net earnings
have been sufficient to pay a fair return — a return which would
induce capital to come into the property — and then that with those
net earnings there had been expended out of gross earnings sums
of money for building new property not affecting the net earnings
except that had they not been spent out of gross earnings they
would have gone into net earnings and increased the same beyond
the figure required to secure the investment of money in the
property— now, I say under those conditions and speaking from the
moral point of view, I believe that property built out of gross earn-
ings should belong to the public. It should not belong to capital.

Commissioner MEEKER. How could the public gain possession?

Mr. COOLEY. They could not, as a matter of fact, I suppose.

Commissioner GADSDEN. May I ask another question right there?
Are you still of that opinion, if that railroad, we will say the Michi-
gan Central, was charging a rate at that time by law?

Mr. COOLEY. Yes; it was.

Commissioner GADSDEN. In other words, if the commission should
authorize them, if the rate was 2^ cents per mile for passenger
travel, say, and they had made not only what you call a fair return
upon the investment, but this surplus, do you think that surplus
under a legal rate fixed by the commission belongs to the public and
not to the stockholders?

Mr. COOLEY. No; not at all. In the Michigan Central case the
public had not anything to do with it. It was a question between
the Michigan Central and its stockholders. The stockholders got 4
per cent when, if they had not built all this property, they would
have got 8 ^r 10 per cent.

Commissioner GADSDEN. Is not that the distinction that I am
trying to draw, that if the public through a commission has laid
down a legal rate, then is not the stockholder entitled to the return
under that rate, whatever it is?

276 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. COOLEY. Absolutely, as I see it.

Commissioner GADSDEN. Until the commission changes it.

Mr. COOLEY. Absolutely, he is entitled to it. That is a different
question from the one Commissioner Meeker asked.

Commissioner MEEKER. Will you elucidate the difference? It is
not clear to me.

Mr. COOLEY. Well, you are asking a hypothetical question which
brought in a question of a moral return, as I took it — that is, a fail-
return — not a legal return but a fair return. And the assumption
•was, as I got the question, that the net earnings had been sufficient
to pay a fair return — a return which would induce capital to come
into the business. That was the first assumption. Now, that is per-
haps all the company should be permitted to earn. If, in addition
to that, it did earn enough so that it could build property exten-
sions— new property — that property, I said, might properly belong
to the public or at least not enter into the capital account.

The CHAIRMAN. Let me give you a practical illustration.

Mr. COOLEY. Yes.

The CHAIRMAN. In the Eastern Advanced Rate case, tried two
years ago, known as the Fifteen Per Cent case, President Rea, of the
Pennsylvania Railroad, testified that during the past 10 years that
road had expended $350,000,000 in new property taken from earn-
ings and that during all of that time the stockholders had received
their regular dividends. In your judgment, should the $350,000,000
taken out of earnings in that way be permitted to be capitalized ?

Mr. COOLEY. Well, I think that perhaps brings up the sharp dis-
tinction

. The CHAIRMAN. That is the distinction, is it not ?
ff Mr. COOLEY. Yes. In one case there is the legal right and the
other was the moral right. As you set up this question it is the legal
right, as I understand, to include it in the capital account.

The CHAIRMAN. That is the question I presented to you.

Mr. COOLEY. And the other question presented the moral right.
Now, my idea is this: That public utilities in the future should
only be permitted to earn just enough to induce capital to come
into the property—

The CHAIRMAN. What is your answer to the $350,000,000 propo-
sition ?

Mr. COOLEY. That, I would say, is precisely the same case as
Commissioner Gadsden spoke about: That the company was per-
mitted to earn that legally and therefore it belonged in the property.

The CHAIRMAN. That it ought to be capitalized?

Mr. COOLEY. Yes.

Mr. WARREN. That is on the theory it was earned at a rate which
was legally charged ?

Mr. COOLEY. Yes. I hope I have made myself clear.

Commissioner MEEKER. I intended to ask my question in such a
way that it would be a practical question. I do not want to ask
questions up in the air. I think I have your point clearly now. Does
it boil down to about this: That for the past, whatever has been
done, we must accept it, but in the future street-railway companies
and other utilities will be permitted to earn a reasonable return upon
actual investment and anything over and above that will be taken
in part or in whole by the public?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 277

Mr. COOLEY. That is my own view of it, regardless of any legal
aspects. I firmly believe that a public utility should be permitted to
earn enough to make it able to serve the public in the way it wants
to be served and to bring the investor a sufficient amount to satisfy
him and enable him to do all the things he has to do and, being a
public utility, I should not want them to earn any more than that.
Now, that is my own view. Of course, there comes the legal question
as to the right, and that is another matter.

Mr. WARREN. Do you know of any street railway which falls
either in the class of the Pennsylvania Railroad or the Michigan
Central Railroad?

Mr. COOLET. Not a single case,

Mr. WARREN. Or even within long-distance telephone reach of it?

Mr. COOLEY. No. We have been talking about a purely hypo-
thetical case all the* time when we are speaking of the electric street
railroad. It is a peculiar case, in that it has not yet become a stable
proposition, although it is 30 years old; and I do not know of any
electric-railroad property which approaches a fair return.

The CHAIRMAN. I think it is very interesting to realize, however,
that in the hearings before the Senate committee last December, the
railway executives declared it to be their view that, as to all future
construction paid out of earnings, there should not be any capitali-
zation ; so it at least represents a very marked change in their belief.

Mr. COOLEY. Yes. I gathered from my talk with public-utility
men that they would be tickled to death with conditions that would
permit them to earn a fair return on their investment.

Commissioner MEEKER. I would like to ask, in regard to forms of
securities — you spoke this forenoon of bonds and stocks and of any
other way of raising money — is there any other way ?

Mr. COOLEY. I was trying to convey the idea without being too
specific as to the character of the securities, having in mind this —
that the senior securities, the highest grade securities, would be those
that were protected by a first mortgage. Now there might be another
issuance of securities which would oe protected by a second mortgage,
or it may be in the form of preferred stock or common stock, but
I do not care to differentiate as between these different securities any
further than to say that after you have issued your bonds protected
by a mortgage, some other form of security must come along to en-
able you to get the rest of the money, and it might be stock.

Commissioner MEEKER. Just one other question. You spoke of
the cost of money and certain other charges that came in the over-
head. Those charges would all be lumped by the economist, would
they, under the hazard of the enterprise? ^The fixed return upon
capital investment is spoken of as interest. Anything in excess of
that is paid for the insurance against the risk of the enterprise. Is
that what you had in mind in speaking af the cost of money?

Mr. COOLEY. No, not that. I had in mind that money has a regular
market value. Of course, I may not be speaking correctly, because it
all comes to me second-handed, or as hearsay, but I take it for granted
that you will have testimony that will set forth precisely the facts.
But my idea is this — that you have to go into the money market and
buy this money. Now the expense of that money is a real expense,
because the bond house will send out and have its own investigation
made of that property. That will cost a considerable sum. And it

278 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

will cost perhaps a good part of the 5 per cent before they get through
with that investigation. Then they must provide in this cost of
money for fluctuations or market conditions which no one can foresee.
Money may go up or it may go down, but they have constantly to fur-
nish the utility with the money it needs for construction purposes, and
there is a risk involved there.

Commissioner MEEKER. I see what you mean, I think. It is the
risk or hazard of the enterprise. That is all.

Mr. COOLEY. It is partly that.

Commissioner SWEET. You evidently have thought a good deal
about the present street-railroad situation.

Mr. COOLEY. Yes.

Commissioner SWEET. And regard it as very precarious.

Mr. COOLEY. Very.

Commissioner SWEET. And you have also, frern what you have
said here to us, come to a very acute recognition of the difficulty of
bringing the public up to the point of understanding correctly this
situation and various features connected with it.

Mr. COOLEY. Yes, that is correct.

Commissioner SWEET. If I understand you right, this pamphlet
you have referred to was written four or five years ago. •

Mr. COOLEY. Yes.

Commissioner SWEET. And that treated of the subject you have
been discussing here with us.

Mr. COOLEY. Yes.

Commissioner SWEET. The proper method of arriving at cost and
what should be allowed, and so forth.

Mr. COOLEY. Yes ; and written with special reference to informing
the public.

"Commissioner SWEET. I suppose that others, experts and students,
have presented similar arguments and explanations to the public ?

Mr. COOLEY. Undoubtedly.

Commissioner SWEET. And yet the public is not informed ?

Mr. COOLEY. It is not informed, absolutely not informed.

Commissioner SWEET. Now don't you think, Prof. Coolej7, that the
situation with regard to the street-railroad companies is so acute
that it is practically hopeless for us to attempt or for anybody to
attempt now to educate the public and bring it up to the point of
doing what is right and advisable in this matter in time to meet the
requirements of the situation?

Mr. COOLEY. I think it will take almost a generation to educate
the public.

Commissioner SWEET. Then we have to find some other solution.

Mr. COOLEY. Precisely ; you have to do it right away, to-morrow if
you can, because it is very, very critical.

Commissioner SWEET. You are not personally, directly interested
in street railroads, or are yon?

Mr. COOLEY. Not at all.

Commissioner SWEET. You are simply employed by them to do the
work

Mr. COOLEY. I am not even employed by them hi this case.

Commissioner SWEET. Very well, I think you are a very good man
for us to talk to on this subject a little bit. What would you recom-

PEOCEEDIXGS OF FEDEBAL ELECTBIC RAILWAYS COMMISSION. 279

mend in view of the situation just exactly as it is to be done to help
out this situation?

Mr. COOLEY. I would recommend that the request of the street-
railroad companies be granted, that they be given an increased fare
sufficient first to meet their operating expenses and all the things
they have to meet to prevent them going into the hands of a receiver,
to fix them up so they can keep on serving the public and maintain
their property intact, as far as you can. You can not give them
enough at this time to do all the things which will have to be done
in the next 5 or 10 years. That will give ample time to make
investigation of the actual needs of the different companies. You
can satisfy yourself in 10 years as to what they actually need, but
you can not satisfy it yourself. You can know that they have all got
to have — not a 4£ or 5 cent fare, but at least 50 per cent more, if not
greater than that.

Commissioner SWEET. Where the* fares have been increased, as they
have been in Boston and other parts of Massachusetts, and I think in
some other parts of the country, has there not been more or less of
a falling off in patronage?

Mr. COOLEY. Yes, I think so; to some extent I know it has.

Commissioner SWEET. Is it your opinion that raising fares alone
would be a cure for this trouble that now exists ?

Mr. COOLEY. No, I do not believe it would.

Commissioner SWEET. What more, then, would you recommend ?

Mr. COOLEY, It would be in the nature of a palliative.

Commissioner SWEET. Then what would be your further recom-
mendation? Let me help you a little bit. It has been suggested
here that what is needed in this industry is bringing it into a better
relation and greater correspondence with other legitimate industries,
and that is, introducing an element of elasticity into the possible
returns, which is absolutely impossible if you have a regulated and
definite fare fixed by law. Is that true?

Mr. COOLET. I think that is true, and I have in mind one or two
instances which I think go to prove it. This was a case of a company
that had a very large surplus. After it had done everything it had
to do, it still had money, and they put it into a surplus. It had so
large a surplus that it was able to finance all its new undertakings
and wrhen they were put on their feet and had reached an earning
condition the money was returned to this surplus.

Now, that company has been, you may say, perfectly independent
during this war. It has been able to meet every requirement made
on it. It has been a flywheel. And I think one of the safest and
one of the sanest things to do is to permit every public utility to
have something which we may call a surge tank which you can draw
out of and put back into, so you can meet thase various fluctuating
conditions.

Commissioner SWEET. Would that involve necessarily in your
opinion a fluctuating in the fares that could be charged?

Mr. COOLEY. Well, I did not have in mind that so much, but it
might possibly work out in that form before you got through with it.
It might be the Cleveland plan; for example, a shding-scale business.
That still I consider in the experimental stage.

280 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. If that were to be adopted and this greater
elasticity introduced into the earning side of the business, do you
think the service-at-cost plan would fill the bill ?

Mr. COOLEY. No ; I do not believe it would ; because, if I am cor-
rectly informed, the Cleveland situation is not satisfactory in that
not enough money has been allowed to maintain that property in the
condition which it ought to be maintained. It has not been able to
do the things it ought to do for the public.

Commissioner SWEET. Well, is not that a defect in carrying out
the plan?

Mr. COOLEY. Yes.

Commissioner SWEET. In that particular case?

Mr. COOLEY. Yes.

Commissioner SWEET. Rather than a defect in the plan itself?

Mr. COOLEY. Well, perhaps so, but the surge tank is too small
there, which I think is necessary to that.

Commissioner SWEET. Service at cost might very properly be ar-
ranged on the basis of taking care of the repairs and deterioration
expenses and everything else, might it not ?

Mr. COOLEY. Yes.

Commissioner SWEET. And should, of course?

Mr. COOLEY. Yes, sir.

Commissioner SWEET. That should be done?

Mr. COOLEY. Yes, sir.

Commissioner SWEET. And at the same time provide for a proper
return to the investors?

Mr. COOLEY. Yes, sir.

Commissioner SWEET. And such a return as would induce further
investment ?

Mr. COOLEY. Yes, sir.

Commissioner SWEET. And still at the same time be absolutely
just to the public?

Mr. COOLEY. Yes, sir. I think Judge Tayler's idea was a beautiful
idea ; and it has worked out much better, I guess, than a great many
people expected it would, but it needs some perfecting, as I see it.

Commissioner SWEET. Can you suggest any better plan?

Mr. COOLEY. Well, I was thinking of what seems to me to be a
better plan.

Commissioner SWEET. Well, tell me what you think the objections
to the plan are. That would be the best way to do it.

Mr. COOLEY. The main objection to the plan is that it is not elastic
enough. It does not permit them to do things as quickly as they
ought to do them. Now, I may be misinformed in regard to that. I
have not looked into the matter within a year or two years, but it is
not big enough. The plan is not big enough. It is held in top small
units. They have not got enough money to work with. I think the
Chicago plan is more practicable.

Commissioner SWEET. What is that?

Mr. COOLEY. The straight 5-cent fare has been in existence there
for years, and, after all the expenses of all kinds have been paid,
the city and the company have shared profits in the proportion of
55 per cent to the city and 45 per cent to the company, and the last
I heard, four or five years ago, the city had accumulated, since 1906
or 1907, some twenty-odd million dollars, and put it into a fund

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 281

•which it has accumulated, and which would enable them in time to
buy the property outright and have municipal ownership.

Commissioner SWEET. Do you understand at the present time those
companies are making money ?

Mr. COOLEY. I doubt it. I very much doubt it.

Commissioner BEALL. I can answer that, Mr. Commissioner. Both
systems there are running at a deficit.

Commissioner SWEET. They are losing money?

Mr. COOLEY. Yes.

Commissioner BEALL. Very fast.

Commissioner SWEET. Why do you advocate a plan in a crisis like
this has proven to be, which has not permitted it to do its work ?

Mr. COOLEY. Well, that Chicago plan will work all right if you
let them increase the fare. Of course, the Chicago plan is very
practical.

Commissioner SWEET. But you have already answered that by
saying that an increase of fare does not always increase the results
on account of loss of patronage sometimes.

Mr. COOLEY. Well, that is true, too ; but I do not believe anybody
could say just how much loss there is. The automobile has had a
tremendous effect. Jitneys have had a tremendous effect. I do not
believe you could differentiate at this time the effect of the increase
of the fare from 5 to 6 or 7 cents.

Commissioner SWEET. Well, street-railway service is something that
the public must have; must it not?

Mr. COOLEY. Yes.

Commissioner SWEET. And they must pay what it costs?

Mr. COOLEY. Yes.

Commissioner SWEET. Now, to induce the public to depart from
the old nickel idea and pay what this service is fairly worth it must
be demonstrated to the public in some way that the nickel idea is
wrong?

Mr. COOLEY. Yes.

Commissioner SWEET. And that in order to have the benefit of this
service, something has got to be done?

Mr. COOLEY. Yes.

Commissioner SWEET. Now it has been stated here that there are
only two things practical that can be done. One is to have this serv-
ice performed by municipalities

Mr. COOLEY. Yes.

Commissioner SWEET (continuing). And municipal ownership

Mr. COOLEY. Yes.

Commissioner SWEET (continuing). And the other is by having
some form of relief

Mr. COOLEY. Yes.

Commissioner SWEET (continuing). Brought to the private cor-
porations in charge of it.

Mr. COOLEY. Yes.

Commissioner SWEET. Now objections have been made to muni-
cipal ownership.

Mr. COOLEY. Yes.

Commissioner SWEET. The question that we are trying to get at
now is what form of relief is most practicable?

Mr. COOLEY. Yes.

543°— 20 19

282 PROCEEDINGS OF FEDERAL ELECTBIC RAILWAYS COMMISSION.

.Commissioner SWEET. What can be done and done quickly ?

Mr. COOLEY. Yes.

Commissioner SWEET. To bring the public to such a frame of
mind. Because there is some psychology in this thing, is there not ?

Mr. COOLEY. Yes.

Commissioner SWEET. It is quite a psychological question?

Mr. COOLEY. Yes.

Commissioner SWEET. So as to enable the public to get the bene-
fit of the best way for the public ?

Mr. COOLEY. Yes.

Commissioner SWEET. As well as for the corporations themselves?

Mr. COOLEY. Yes. I think I can answer your question more in-
telligently now. Considering the fact that the Cleveland plan has
been running for 15 or 20 years, and that the public already knows
a great deal about it, and it is on a sliding scale — the fare being pro-
portioned to whatever is necessary to run the property — that would
seem to be the plan which would win the favor of the public more
speedily than any other plan that I know of. Now, whether it is
a better plan than the zone system that is being advocated to-day, and
•which has been in use in Europe, of course I do not suppose anybody
could say. I think the zone system is likely to be fairer; that is,
the man who rides 10 miles pays twice as much. as the man who rides
5 miles. I think that has all the elements of fairness in it, but
,1 am afraid it is going to meet with considerable opposition,
although it may be the fairest thing, because the public in this
country does not know anything about it, and they are opposed
to it, and it would not get there quickly enough, however much
merit it may have over the Cleveland plan, for example. I think
the Cleveland plan is a more practicable one to meet this existing
situation; but even that does not meet it to-day, because these rail-
roads have got to have help to-morrow, and the only practical way
that I know of getting help to them is to give them the increased
fare which they are asking for. Now, that does not need to go in-
definitely. It can .go for

Commissioner BEALL. May I break in there a minute, Mr. Sweet?

Commissioner SWEET. Just a minute. Right there, let me ask
you this: If I understand you right, that would merely be a
sort of sedative to keep the patient alive until some real curative
medicine could be administered?

Mr. COOLEY. Precisely. That increased fare would keep them
going until you could find out what they ought to have — what ought
to be done for the patient to cure it.

Commissioner BEALL. That is what I wanted to find out.

Mr. COOLEY. .Yes.

Commissioner BEALL. You can not raise money ?

Mr. COOLEY. No; you can not. You are quite right.

Commissioner SWEET. As a permanent matter, it would not fill
the bill?

Mr. COOLEY. Not at all; not in my judgment. This is a very sick
patient, gentleman, as I see it, and it has to be something more than
doctoring a pimple on the skin. ' You have to get at the constitution
of the patient.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 283

Commissioner SWEET. And what you have been telling us about
— about the methods of arriving at the cost — would be too intricate
altogether ?

Mr. COOLEY. Yes.

Commissioner SWEET. For a case of this kind, just now?

Mr. COOLEY. It does not seem to me to have any particular bearing
for the immediate needs.

Commissioner SWEET. No.

Mr. COOLEY. It will have a very great bearing, however, when you
come to treating the patient.

Commissioner SWEET. Yes.

Mr. CooiiEY. So as to cure him.

Commissioner SWEET. There is one thing that I want to ask you
in connection with that Grand Rapids case that you spoke of. Your
memory is a little bit faulty in one particular. The original street-
railway company there did not build a cable line, but another com-
pany built that, because the company that was first operating there
refused to obey a request or mandate of the common council with re-
gard to building a line up the hill. Subsequently, the original com-
pany bought out the cable company, and my recollection is that it
was at a very much lower price than the actual cost of the cable
line. In other words, that those who went into that lost money.

Mr. COQLEY. Yes.

Commissioner SWEET. Now, who should stand that loss?

Mr. COOLEY. Well, I guess those ohaps who accepted a lower price
for it.

Commissioner SWEET. But the old company that bought out the
cable company got the benefit of the lower price. In figuring the
cost, would you do it at what they paid for it ?

Mr. COOLEY. Yes.

Commissioner SAVEET. Or at what it cost?

Mr. COOLEY. I would figure it on what they paid for it.

Commissioner SWEET. Does not this system of yours involve a
great many qualities that might be considered to be historical? Is
not that one right there?

Mr. COOLEY. Yes.

Commissioner SWEET. Where the same property, if what you stated
was correct, o?nd the cable line had been built by the company then
in existence. As you put it to us in your direct testimony, that would
be a legitimate part of the cost that should be figured into a valua-
tion of the property?

Mr. COOLEY. Yes.

Commissioner SWEET. Now, when I ,tell you that it was built by
.-ouiebody else, and they bought it at a .reduced valuation — • —

Mr. COOLEY. Yes.

Commissioner SWEET (continuing). Then you say that what they
paid for it should be figured in?

Mr. COOLEY. Yes.

Commissioner SWEET. In other words, in figuring precisely the
same property, of the street-railway property at Grand Rapids to-
day, on the basis of your original statement, as I understand it, it
would be one amount, and on the basis of your present statement it
would be another amount; is not that so?

284 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. COOLEY. Yes.

Commissioner SWEET. How do you reconcile that inconsistency ?

Mr. COOLEY. Perhaps I can not, but here is what I had in mind,
namely, that there was no practical way of paying those chaps who
lost their money. As I understand it, the chaps who sold out went
out of the railway business entirely.

Commissioner SWEET. Yes, they did.

Mr. COOLEY. How are you going to pay them? They have not
made their money serving the public. It was a gambling loss.

Commissioner SWEET. And yet the two systems of figuring would
bring different results?

Mr. COOLEY. Morally, that money was wisely spent; that is, hon-
estly spent, at least, and the public was required to support the whole
investment; but there was no practical way of paying those chaps
who gambled and got out of the field that I can see.

Commissioner SWEET. We have had some testimony here with re-
gard to a western city, in which a valuation was made by experts
representing the corporation, a private corporation, and also the
municipality, and that they got together without very much difficulty
on the valuation.

Mr. COOLEY. Yes.

Commissioner SWEET. That has led me to think perhaps a similar
process might be adopted without much difficulty in other cities, and
without, perhaps, going into all of the details and niceties, and with-
out trying to educate the public especially on the subject. If the
representatives of the city — their experts — agreed with the experts of
the company, I dare say the cities would generally acquiesce, would
they not, in the decision, and say, " Well, that is all right "?

Mr. COOLEY. One would think so, really, but it does not seem to
work out that way. Detroit is a beautiful example of that. The
city's experts and the company's experts have all agreed, but they
have not any solution.

Commissioner SWEET. Well, that involves other questions.

Mr. COOLEY. Yes ; it involves another question.

Commissioner SWEET. Yes; several of them.

Mr. COOLEY. Yes ; several of them.

Commissioner SWEET. I think that is all.

Mr. COOLEY. Let me go right back again. I was thinking of the
case in Grand Rapids there, about those chaps who lost their money.
Of course, if they staj7ed in the company, and their investment was
still there for the public, I think I would have given them a return
on the whole of it, and I think I would, anyhow, if you could give it
to them ; but I do not see any practical way of doing it.

Commissioner SWEET. Prof. Cooley, there are other ways in which
the companies might be helped, besides increasing the fare, like the
refund of taxes, are there not ?

Mr. COOLEY. Certainly.

Commissioner SWEET. And especially the matter of paving be-
tween the tracks ?

Mr. COOLEY. Yes, sir.

Commissioner SWLET. Is not that very heavy on some of the com-
panies ?

Mr. COOLEY. That is very heavy in some cities. It really cor-
responds to a franchise payment. It amounts practically to an an-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 285

nual franchise tax. That is, the city contracts to let the railroad
company go through the street, providing they will keep either the
whole street paved, or a part of it.

Commissioner SWEET. Do you know what the origin of that cus-
tom was which required the companies to pave between the tracks
and a little outside?

Mr. COOLEY. I don't think I do.

Commissioner SWEET. Does it go back to the horse-car days?

Mr. COOLEY. It goes back to the horse-car days ; yes, sir.

Commissioner SWEET. That was because the horses that drew the
cars were supposed to wear out that part of the street ?

Mr. COOLEY. Yes, sir.

Commissioner SWEET. Do you see any inequality in that as between
the different elements in the community?

Mr. COOLEY. I do not know as I clearly understand the " elements
in the community."

Commissioner SWEET. If the patrons of the street-railway com-
pany are required to pay enough fares to meet all expenses, including
this paving —

Mr. COOLEY. Yes?

Commissioner SWEET (continuing). Then that part of the com-
munity would be the only part of the community that would actually
furnish the money to do the paving, would it not, under the present
system?

Mr. COOLEY. Yes.

Commissioner SWEET. Now, are there not many people in the com-
munity who have automobiles and other means of conveyance who
very seldom if ever use street railways?

Mr. COOLEY. Yes.

Commissioner SWEET. And would they not be exempt from that
taxation ?

Mr. COOLEY. Well, they are wearing out the pavement.

Commissioner SWEET. And they get just as much use of it; in fact,,
more.

Mr. COOLEY. Yes.

Commissioner SWEET. Than those who ride in the cars?

Mr. COOLEY. Yes.

Commissioner SWEET. And yet they do not pay any part of the tax
under the present system ?

Mr. COOLEY. I do not believe I could analyze that question suffi-
ciently to answer you.

Commissioner SWEET. If the paving is paid for out of the nickels
that come in, and they do not furnish any of the nickels, they do
not furnish any part of it?

Mr. COOLEY. Not to the company, certainly, but they pay another
tax — the automobile tax.

Commissioner SWEET. Yes; but that has nothing to do with this
particular paving between the tracks and just outside?

Mr. COOLEY. "ies, sir; I see your point.

Commissioner SWEET. Now, is there any good reason why Hie
street-railway companies should be required to do that paying f

Mr. COOLEY. No; I do not think so.

Commissioner SWEET. Is there any good purpose served by it I

Mr. COOLEY. No; I do not think so.

286 PROCEEDINGS OP EEDEEAL ELECTBIC RAIL.WAYS COMMISSION.

Commissioner SWEET. Do you think it is an unjust ibur.tlen upon
them ?

Mr. COOLEY. Yes ; it is to-day ; it surely is to-day, and in the final
adjustment you might excuse them from that, taking account .of :the
difference — the saving in the fare.

Commissioner SWEET. Do you think it would be more equitable if
spread over the community in the same way that other paving re-
pairs are ?

Mr. COOLEY. Yes ; I believe it would.

Commissioner SWEET. How about the taxation of its physical
properties? Do you think there .would Jbe any justice, or do you
think the public would stand for remitting taxation under present
conditions?

Mr. COOLEY. I do not know, sir; I do not know, sir. I do nqt
know whether it would stand for the remitting of anything to-day.
I do not know how far we can go toward remitting taxes.

Commissioner SWEET. Well, if the public had to walk instead of
ride for a week or two, or a month or so, they would reconsider some
of these matters, maybe, would they not?

Mr. COOLEY. I think that is quite true. It is, however, one .way
of helping in the present emergency to remit their taxes, for example.

Commissioner SWEET. It is just as important to reduce the costs—
'Mr. COOLEY. Yes.

Commissioner SWEET (continuing). 'To reduce the burden of these
companies —

Mr. COOLEY. Yes, sir.

Commissioner SWEET (continuing). As it is to .increase the.ir in-
come, is it not ?

Mr. COOLEY. Precisely.

Commissioner SWEET. The result is practically the same?

Mr. COOLEY. Precisely.

Mr. WARREN. It is even surer?

Mr. COOLEY. Yes.

Commissioner SWEET. Yes.

Mr. COOLEY. The companies are putting very materially - the
moneys required to keep the property. They are .not making any
renewals or replacements, but they are allowing the property to run
down. It is a deferred maintenance. They are doing everything
they can. They are even going too far in it. They are not rendering

food service. Of course, they have simply got to do it. They can not
elp themselves. They have got to do it.

Commissioner SWEET. Somebody, has to do it, and if the companies
can not do it, then the public has to do it for .itself?

Mr. COOLEY. The company has to do the very least it can do.

Commissioner SWEET. Yes, but there is a limit ; is there not ?

Mr. COOLEY. There is a limit, because they can let this maintenance
go down to such a point as to be absolutely dangerous to the public.

Commissioner SWEET. Yes.

Mr. COOLEY. Yes. And they will have to stop there, surely.

Commissioner SWEET. The, only recourse would be municipal own-
ership and operation, would it not?

Mr. COOLEY. Yes. Now, I have favored municipal ownership,
not that I believe it to be successful, but. I have been an advocate of
municipal ownership for 5 or 10 years.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 287

Commissioner SWEET. And operation?

Mr. COOLEY. And operation — the whole thing. I have advocated it
strongly, but I do not believe it would be a success.

Commissioner SWEET. Why do you advocate a thing that you do
not believe would be a success?

Mr. COOLEY. Simply because it is the quickest way to teach the
public. I have worked for it. I have urged it. I have said, " No-
body can answer that question ; nobody knows. Let us try it."

Commissioner SWEET. Then you think the way to make a boy
better is to punish him ?

Mr. COOLEY. No ; I think it is a case of giving candy to the person
who wants it until he gets the belly-ache. [Laughter].

Commissioner SWEET. What worse punishment could there be than
that?

Mr. COOLEY. Well, that comes to the same thing; yes.

Commissioner SWEET. Then, you really do not believe in the
efficacy of municipal ownership as a permanent proposition ?

Mr. COOLEY. Theoretically, it is altogether better than private
ownership. There is no question about that. Every analysis you
make of a 'public-utility property, worked under ideal conditions, it
shows a better thing for the public under municipal ownership;
but when you go to put it into practice, I think it will go way the
other way. I think it is a beautiful thing as an ideal, but absolutely
a fruitless prospect from the practical point of view.

Commissioner SWEET. In the matter of the water supplies, munici-
pal ownership has proven successful, has it not?

Mr. COOLEY. That is fine. There are other things there, because
there is policing required. The public is willing to pay a price for
such a thing as that. Their health is involved. It is the same way
with the sewers. The public has got to do that. I think water sup-
plies and sewers have to be run by municipalities.

Commissioner SWEET. Do jou remember the fight we had in
Grand Rapids against the corporation there?

Mr. COOLEY. Very distinctly. We had the same sort of trouble
down in Ann Arbor.

Commissioner SWEET. So that, as far as private corporations en-
.gaged in water supplies are concerned, you think it is better to put
them out of business?

Mr. COOLEY. I think so, although it is cheaper, when you buy it
from a private corporation ; I mean practically.

Commissioner SWEET. Yes. How about lighting? Would you put
that on the same basis as water?

Mr. COOLEY. If there was the same controversy going on to-day
in connection with lighting and electric power, lighting particularly,
that is going on with respect to the electric street railways, I would
favor municipal ownership until the people could find out whether
it was a good thing or a bad tiling to have municipal ownership. I
would answer their question in a practical way.

Commissioner SWKET. Do you think the people of the country
want municipal ownership of the street railways?

Mr. COOLEY. I do not think they do.

Commissioner SWEET. Then what is the use of advocating it ?

Mr. COOLEY. Because I believe the people that do want it make so
much noise that the other fellows are entirely smothered out.

288 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. That is all.

The CHAIRMAN. As a rule the fellow who makes the noise does not
pay the taxes.

Mr. COOLEY. That is right. I thank you very much, gentlemen.

Mr. WARREN. I want to file, if I may, Mr. Chairman, without
taking the time to read it, a memorandum of the valuation of elec-
tric-railway properties by A. Merritt Taylor, of Philadelphia, who,
as the commission may know, is the president of the Philadelphia
& West Chester Traction Co., a former president of the New Jersey
& Hudson River Railway & Ferry Co., and who was transit com-
missioner of the city of Philadelphia, from July, 1912, to July, 1913;
a director, department of city transit, city of Philadelphia, July,
1913, to January, 1915, in charge of location, design, and construc-
tion of municipal subways and elevated lines, and in charge of prepa-
ration of legislation required to enable the city of Philadelphia to
finance and establish its municipal system; and more recently the
manager of the division of passenger transportation and housing,
United States Shipping Board, Emergency Fleet Corporation.

The memorandum thus referred to by Mr. Warren is as follows :

MEMORANDUM IN RE VALUATION OF ELECTRIC-RAILWAY PROPERTIES.

By A. MERRITT TAYLOR, Philadelphia.

An electric-railway company engaged in a legitimate constructive enterprise
is entitled to charge rates for service which will yield a profitable return on
the true cost of establishing and developing its property and business. Any-
thing short of this means confiscation of money invested in public service.

In order that exact justice shall be accorded all parties at interest, and
electric-railway property must be valued* at the true legitimate cost of its estab-
lishment and development up to the date when the valuaion is made.

If, in the early stages of development, the net results of operation produce
a return which is short of the amount required to duly compensate the owners
of capital invested in the property for its use during such period, and to pro-
vide for normal depreciation and obsolescence, such shortage plus accrued in-
terest on accumulated portion of just return withheld from investors must
necessarily be considered to be a part of the cost of the development of the
property and its business and be included as an element of value.

If an electric-railway property be valued (as is proposed by impractical
theorists) at its cost less depreciation and obsolescence, or at what would be
the cost of reproducing it less depreciation and obsolescence, in instances where
the net revenue has been insufficient to yield a return on the capital invested
therein duly compensatory for the service performed and the risks assumed,
or where the net revenue has been insufficient to provide for depreciation and
obsolescence in addition to yieding a just return upon the capital — such valua-
tion is unjustifiable and rates based thereon are confiscatory.

An electric-railway enterprise is entitled to charge such rates as are re-
quired to protect the capital legitimately invested therein and to yield to the
owners of such capital a cumulative return which will adequately compensate
them for its use, for the risks assumed and the service performed, and which
are required to properly meet cumulative depreciation and obsolescence, to
invite corporate initiative and to maintain the credit and ability of the enter-
prise to procure such additional capital as is required from time to time for the
purpose of expanding its facilities for public service.

Capital will not be available for electric-railway requirements In States and
municipalities where there be question as to whether electric-railway com-
panies will be prevented by regulatory authorities from establishing rates re-
quired to yield and inviting cumulative return on the capital invested therein.
This fact must be recognized and steps must be promptly taken to remove the
grounds for reasonable doubt in the premises. Nothing short of a clear and
common understanding of how valuations of electric-railway properties made

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 289

for rate-making purposes shall be arrived at, and of what elements must be
regarded in the fixation of rates, will enable the electric-railway enterprise
to raise the capital which is required to meet their obligations and expand their
facilities as required for public service.

There is a serious and inherent risk which confronts every investor who in-
vests in electric-railway constructive enterprises, namely, the risk that such,
enterprise will not yield a just return on the capital investe- therein at any
rate which its customers would be willing to pay for the service. In such in-
stances where the rates are so high as to invoke the law of diminishing re-
turn, the management of the enterprise will necessarily have to decrease rates
to such a basis as will yield the maximum net return, and the investor, in the
absence of public assistance, will necessarily have to accept a lesser return on
his capital unless through development of business the shortage can be made
up and paid in later years.

Many electric-railway companies which are rendering essential service are
now confronted with the fact that there is no rate of fare which will enable
them to continue efficient operation of their properties and which will yield
to them a return sufficient to meet the new level of operating and renewal costs
resultant from the war, onerous conditions and charges imposed upon them by
municipal, State, and Government authority, and to pay a just return on the
capital invested in their properties. In such instances the credit of the electric-
railway company is impaired ; it can raise no money with which to provide the
additional facilities which are required from time to time for the service of the
public in a growing community ; and the public must augment its net revenue in
one way or another to an extent sufficient to enable it to maintain its credit
and meet its just obligations, or be deprived of essential service. There are
many electric railways which will be completely abandoned with the resultant
incalculable loss to the communities which they serve unless their credit be
promptly restored and maintained through public cooperation.

STATEMENT OF MR. W. D. GEORGE.

Mr. WARREN. Mr. George, will you state your full name, please ?

Mr. GEORGE. William D. George.

Mr. WARREN. William D. George?

Mr. GEORGE. Yes, sir.

Mr. WARREN. And your business ordinarily is that of

Mr. GEORGE. Real estate.

Mr. WARREN. And you have taken on a new business recently;
have you not?

Mr. GEORGE. Yes, sir.

Mr. WARREN. And what is that?

Mr. GEORGE. I am one of the receivers of the Pittsburgh Railways
Co.

Mr. WARREN. How long have you been such receiver?

Mr. GEORGE. Since December 21, 1918.

Mr. WARREN. Was that when the road first went into a receiver-
ship?

Mr. GEORGE. No; the road was in the hands of receivers since
March or April — I believe it was in April, 1918.

Mr. WARREN. And you are a successor to the receivers?

Mr. GEORGE. I am successor to one of the original receivers.

Mr. WARREN. You are not a street-railway man in the sense of
having been connected with the street-railway business before you
were appointed receiver?

Mr. GEORGE. No.

Mr. WARREN. Have you, since vour appointment, made a pretty
thorough study of the Pittsburgh Railways system situation?

Mr. GEORGE. I have tried to.

290 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. When you became receiver, what fares were being
charged on the Pittsburgh Railways Co. ?

Mr. GEORGE. They had two rates of fare in the city at that time.
One was 5 cents, which prevailed in the congested area, the down-
town district; and the other rate was 7 cents, which was in the out-
lying district; and the 7-cent fare also was charged for those pas-
sengers who rode from the downtown area out to the outlying dis-
trict, where the 7-cent fare prevailed.

Mr. WARREN. Was it roughly two zones, like my hat, one zone here,
covering the center of the city, a circle, and then .going around the
circle where the 7-cent fare applied?

Mr. GEORGE. Yes.

Mr. WARREX. And a ride anywhere in the outer zone was 7 cents?

Mr. GEORGE. Yes.

Mr. WARREN. Long or short?

Mr. GEORGE. Yes.

Mr. WARREX. But it also enabled them to come from the outer zone
to the inner zone?

Mr. GEORGE. Yes.

Mr. WARREX. A ride in the inner zone was 5 cents?

Mr. GEORGE. Five cents.

Mr. WARREN. And I suppose that prior to that it was a 5-cent fare
in the whole territory.

Mr. GEORGE. That is right.

Mr. WARREN. Also if a person went from this inner congested zone
to the outer outlying zone, he paid 7 cents?

Mr. GEORGE. You are speaking now of the new fare?

Mr. WARREX. No; I mean the fare that you found in effect.

Mr. GEORGE. It was 7 cents from the center of the town out to the
districts — the 7-cent district.

Mr. WARREN. Something like the zone system which was put in in
Springfield, Mass., except that fare was the same for each ^one, with
a reduced rate less than the sum of the two for a ride from one zone
to the other.

How long had that fare been in effect when you were appointed in
December $

Mr. GEORGE. They made a change from the flat 5-cent fare in
January of 1918. They first attempted a 6-cent cash fare and two
tickets for 11 cents.

Mr. WARREN. That was a flat fare all over the whole territory?

Mr. GEORGE. Yes ; but they found that that did not give them the
revenue which they needed, and very shortly after it was put into
effect they put the 5 and 7 cent fares into effect.

Mr. WARREN. Did the 6-cent fare, or two tickets for 11 cents, or
5^-cent ticket, give them some increased revenue ?

Mr. GEORGE. Well, they did not get any increased revenue out of
it. It was in effect a very short period of time, and during a period
of time when the situation was very much disturbed, due to war
conditions and other conditions, and they could not very well meas-
ure what the effect of that fare was, but they realized that they were
not going to get from it the revenue which was necessary, and they
immediately changed to the other system.

Mr. WARREN. Did *ne second system, of 5 and 7-cent fares, pro-
duce an increased income ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 291

Mr. GEORGE. Yes ; it has.

Mr. WARREN. A substantial increase?

•Mr. GEORGE. Well, the .receipts from the 5 and 7-cent fare, meas-
ured by the first 5 months of this year, as compared with the first
5 months of last year, have netted an increase of approximately 15
per cent. The average rate of fare under the 5 -cent fare, of course,
was approximately 5 cents, and there were some deviations in some
of the outlying districts, which made it slightly less than that, but
it was approximately 5 cents. The new rate of fare, when it was put
into effect, made an average rate of fare of approximately 6.23 cents.
:The average rate of fare now as received has risen until it is 6/28
cents, which indicates that the riding habit in the 7-cent zone has a
little better than maintained the average increase that it it did in the
5-cent zone.

The CHAIRMAN. Is that because they are longer rides, and they
must ride?

Mr. GEORGE. Well, that would no doubt have some effect on it. Of
course, any conclusion which you draw from a mere statement ^of one
factor must be a hasty conclusion and eliminate other factors. No
cloubt it must have some effect, but we were encouraged to believe
that increased rates of fare were going to produce an increased
revenue.

Commissioner BEALL. Your fare is now a IQ-centcash fare, is it not?

Mr. GEORGE. We have filed a new tariff with the public-service
commission to become effective on the 1st of August, which pro-
vides a 10-cent cash fare, or 4 tickets for 30 cents and 8 tiqkets for
60 cents.

Mr. WARREN. That becomes effective on August 1 ?

Mr. GEORGE. August 1.

Mr. WARREN. Well, you are doing that because your income, ;even
with this 15 per cent increase, is still insufficient?

Mr. GEORGE. Yes.

Mr. WARREN. Can you tell the commission approximately for any
particular period how your income ,and operating expenses have
run, and what balance there is, or deficit?

Mr. GEORGE. Early in the year we .made a budget estimate for the
year, and we estimated our income* for the year at something over
$15,000.000. Our experience so far this year— six months — -has very
accurately approached the estimate, or rather, the estimate is a pretty
accurate determination of wrhat the rate of fare has actually earned.
Xow, at the time we made that estimate, we estimated also our oper-
ating expense for the year, and we figured that at the end of the
year we would have an operating profit of about $1,600,000,
if we were able ,to induce tjie city to forego certain municipal
charges which ..were assessed against us, which we felt we were .not
able to pay.

The CHAIRMAN. What was the amount of those charges?

Mr. GEORGE. Those charges were approximately $300,000.

Commissioner BEALL. You were also behind in your power bills,
were you not?

Mr. GEORGE. Well, we had prereceivership bills of about $000,000,
which ,were still outstanding, and which the court had authorized
the receivers to pay at their discretion. We have made about 20

292 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

per cent of the payment on that $900,000 of prereceivership bills.
The power bill was in that, but this $1,600,000 of operating revenue,
of course, was after the power bills for the current were taken care
of. Now, that $1,600,000 did not take care of any of the extraordi-
nary maintenance charges — any depreciation charge — nor did it take
care of any of our fixed charges, or any interest charges of any nature
at all. The fixed charges amount to about $3,500,000 a year.

Commissioner GADSDEN. Three million five hundred thousand
dollars?

Mr. GEORGE. Three million five hundred thousand dollars a
year, about. So our situation is really very important at the pres-
ent time, because we have in default something between $2,500,000
and $3,000,000 of fixed charges, and we owe the city a very —

Commissioner GADSDEN. Is that from the 1st of January, the cur-
rent deficit?

Mr. GEORGE. What is that?

Commissioner GADSDEN. Is that the current deficit, from the 1st
of January?

Mr. GEORGE. I am speaking about the defaults which have actually
occurred, not the ones which are occurring.

Commissioner GADSDEN. Oh, yes.

Mr. GEORGE. But merely those defaults which have actually oc-
curred up to the 1st of July.

Mr. WARREN. How much did you say they were, roughly ?

Mr. GEORGE. Well, I said $2,500,000 to $3,000,000.

Mr. WARREN. That is interest ?

Mr. GEORGE. That is interest and rentals.

Mr. WARREN. Yes; and you started to say that you were also in
arrears in your payments to the city.

Mr. GEORGE. In our payments to the city for bridge tolls, for street
cleaning, for franchise charges of one nature and another, and, in
addition to that, the city is trying to force us into cooperating in
certain changes which they are making, which would entail a re-
alignment and change of grade of our tracks ; and we have no money
to meet that with. When we put the old rate of fare into effect, wo
did it without the sanction of the public-service commission, and we
were compelled to issue rebate slips, and there is approximately
$1,300,000 of those rebate slips which are in the hands of the public.
If the public-service commission refuses to allow the rate of fare
which is now prevailing

Mr. WARREN. That is the 5 and 7-cent fares ?

Mr. GEORGE. The 5 and 7-cent fares — and if they are presented,
why, the receivers are insolvent. [Laughter.]

Mr. WARREN. And nobody would take the job?

Commissioner GADSDEN. The only thing left would be to put the
receivers in jail ; would it not ?

Mr. GEORGE. I don't know wrhat would happen.

Mr. WARREN. Mr. George, you say that $1,600,000, without the pay-
ment of any fixed charges, was your estimate for the year, at the 5
and 7-cent rates ?

Mr. GEORGE. Yes.

Mr. WARREN. My attention was diverted for a minute. Did you
say to the commission what }^ou estimated the depreciation deduction
should be on that $1,600,000?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 293

Mr. GEORGE. Well, it has been suggested that we should build 26
miles of new track each year, to keep the plant in perfect condition.
We have 600 miles of track there, and 26 miles of track a year would
cost, I imagine, $60,000 to $70,000 a mile ; and you can imagine what
that would be. Then, we have to buy new cars, and they say we
should have about $300,000 a year to invest in new equipment.

Commissioner SWEET. How many receivers are there?

Mr. GEORGE. Three.

Commissioner SWEET. Are they all rich men? [Laughter.]

Commissioner MEEKER. Do you have in mind the third set of re-
ceivers? [Laughter.]

Mr. GEORGE. I am really embarrassed to state this situation; but
it is true, nevertheless.

Commissioner WEHLE. How many constituent companies are there
in the present Pittsburgh Railways system ?

Mr. GEORGE. Something over 60 underlying companies.

Commissioner WEHLE. When were the most recently formed com-
panies in this group of units organized ?

Mr. GEORGE. Well, the last consolidation which took place was the
formation of the Pittsburgh Railways Co., which brought together
three companies — the Consolidated fraction Co., the United Trac-
tion Co., and the Southern Traction Co. The Southern Traction
Co.'s name was changed to the Pittsburgh Railways Co., and the
other two companies were brought into the system under an operating
agreement. The operating agreement is subject to cancellation notice
of 90 days ; and those notices have been served.

Commissioner WEHLE. Were any of these three companies operat-
ing a service to the outlying portions of Pittsburgh — excuse me, Mr.
Warren.

Mr. WARREX. I only wanted to finish one line, and then have tho
commission take him up.

Commissioner WEHLE. You have some questions along a certain-
line which you wish to ask ?

Mr. WARREX. Yes. I have not quite finished the only line that I
had in mind asking him about, and which I wanted to find out about,,
because I do not have a chance to talk with -him myself to any great
extent.

As I understand it, Mr. George, you estimated $1,600,000 above
operation for the year. Was that above operation and taxes or above
operation?

Mr. GEORGE. Well, that was above operation, with about 40 per
cent of the taxes included. We have about a half million dollars
of annual taxes, and about 60 per cent of them are local taxes and
about 40 per cent of them are State and national taxes. That in-
cludes the State and national taxes, because we thought there was no
chance of having any relief from that source, but we still had hopes
that perhaps we could get the city to recognize the situation and re-
lieve us of the local taxes.

Mr. WAHREX. Then I understand that your experience for the first
six months of the year with your 5 and 7-cent fares indicates that
your estimate of $1,600,000 is substantially correct?

Mr. GEORGE. Very, very close indeed to the actual.

Mr. WARREX. Assuming it to be correct, you would then have about
$300,000 for taxes or city charges, unless you are relieved of them, and

294 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

you would have ,a depreciation that would exhaust those two items,
that would exhaust the entire balance above the operating expense;
is that correct ?

Mr. GEORGE. Undoubtedly.

Mr. WARREN. Can you say <a word .about your wage situation?
What rate are you paying now to the train men ?

Mr. GEORGE. Forty-eight cents is the maximum-wage pay.

Mr. WARREN. Was that a War Labor Board award '.

Mr. GEORGE. That was a War Labor Board award.

Mr. WARREN. Is there any movement with reference to its change
or increase of that?

Mr. GEORGE. The men demanded 60 cents as a maximum wage, and
the receivers refused, on the ground that they did not have the money
to pay, and the men went on a strike. Then it was agreed that the
matter should be left to the War Labor Board for arbitration; and
the matter has been heard by the War Labor Board, but no decision
has been rendered. A 60-cent rate of wages, if it is made effective,
and a corresponding increase .given fo other employees of the com-
pany

Mr. WARREN. And have they asked for a corresponding increase?

Mr. GEORGE. Yes ; they will have to have it — would mean an addi-
tional expenditure of about $2,000,000.

Mr. WARREN. Do you mean per annum or for six months?

Mr. GEORGE. For the year. It would cause us an increase of
about $2,000,000.

Mr. WARREN. For this current }7ear?

Mr. GEORGE. Yes.

Mr. WARREN. For 12 months?

Mr. GEORGE. At the rate of $2,000,000 a year.

Mr. WARREN. Or, in other words, another million dollars for this
year on which the budget was $1,600,000?

Mr. GEORGE. Yes.

Mr. WARREN. That would put you something over a million dollars
in the hole ?

Mr. GEORGE. Yes.

Mr. WARREN. Well, as a matter of fact, if you have that $1,600,000
is it all committed in one way or another for existing liabilities or
prereceivership liabilities or extraordinary expenses; or do you ex-
pect to have some of it in cash. at the end of the year?

Mr. GEORGE. Well, if we have any of it in cash it will be because we
have refused to pay it out.

Mr. WARREN. Not because there .are not liabilities on which you
could pay it out?

Mr. GEORGE. Not because there are not claimants for it.

Mr. WARREN. You seem to have a number of specific charges, some
of which sound a little unusual to me, although I thought I knew of
a great many. Can you tell the commission what they are? You
spoke of street cleaning. What does that mean ?

Mr. GEORGE. Well, the franchises call for the street-car companies
to maintain the track, as is customary, the paving, and also to clean
the streets along which they operate.

Mr. WARREN. How much of the street ?

Mr. GEORGE. Well, that was the question; and it was finally, after
years of litigation, resolved to a fixed sum of money which the trac-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 295

tion -company and the city agreed would be an actual charge, which
would take care of that obligation, whatever it was.

Mr. WARREN. And the obligation, in its nature, when it was ex-
pected to be performed in kind, was to actually sweep up the streets ?

Mr. GEORGE. Yes, sir.

Mr. WARREN. Such as most cities do?

Mr. GEORGE. Well, I think it was built on the theory that the
mules in the old horse-car days defiled the streets, and that it was
necessary to keep them clean, and it was handed down as a tradition
of the old mule day.

Mr. WARREN. There was no corresponding tax on the private
driver of the mule, was there?

Mr. GEORGE. No.

Mr. WARREN. What else of that nature?

Mr. GEORGE. Well, we have the bridge tolls. The city of Pitts-
burgh and the county of Allegheny some years ago joined and pur-
chased from private owners the bridges which connected different
portions of the city, from the main section of the city to the south
side and to the north side, which was then Allegheny. The old
private corporations had agreements with the railway company for
operating their cars over their bridges, and when the city and county
purchased them they freed them to everybody, except to the street-
car company, but the street-car company was still made to pay for
crossing the bridges.

Mr. WARREN. And still does pay?

Mr. GEORGE. Well, up until the time [laughter]

Mr. WARREN. There is still a claim on the $1,600,000 ?

Mr. GEORGE. Yes; it is.

Mr. WARREN. Well, do you mean, Mr. George, that the street-car
riders, who, I suppose, in Pittsburgh, as elsewhere, were the people
of less affluent means, taking it generally, are charged a toll for
crossing free bridges in street-cars?

Mr. GEORGE. Yes, sir.

Mr. WARREN. And the automobile owners and carriage owners and
all other residents use the bridges free?

Mr. GEORGE. Yes; that is time.

Mr. WARREN. Are there any other charges of that sort against
the car rider?

Mr. GEORGE. Well, they have

Commissioner MEEKER. Pittsburgh is a civilized community?

Mr. GEORGE. Well, there has been a conflict between the city and
the street-car company there, which has been going on for years and
years, and the city would not relinquish any hold it had on the trac-
tion company, or any charge it had made in the franchise. It held
religiously to them, in order that they could exercise some degree of
penalty for what it conceived to be the failure of the traction com-
pany to properly perform its duties to the city ; so these charges were
not built up as a proper system at. all. It was merely the remnants
of a conflict between the company and the city. I make that ex-
planation in defense of the intelligence of the city administration.

Mr. WARREN. How much do those bridge tolls amount to per year?

Mr. GEORGE. About eighty-odd thousand dollars. I am wrong on
that, now. I will have to ask Mr. Robinson to correct me on that.

Mr. ROBINSON. $125,000.

296 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. GEORGE. $125,000.

Mr. WARREN. $125,000?

Mr. GEORGE. Yes. The bridge tolls and the street-cleaning item I
confused. The street cleaning is $80,000.

Mr. WARREN. That makes about $200,000. I think you said
altogether there was about $300,000.

Mr. GEORGE. There is a gross-receipt tax in former Allegheny that
still prevails.

Mr. WARREN. Is former Allegheny a part of the city of Pitts-
burgh now?

Mr. GEORGE. It is now, the north side of Pittsburgh.

Mr. WARREN. And what is that for?

Mr. GEORGE. Well, they have in some places, toll taxes. They
asked the company to contribute in relation to the number of poles,
trolley poles that it has. In another instance, they have been asked
to contribute in proportion to the number of cars which they operate.
That is not all of the city of Pittsburgh. This is in the communities
around the city, as well as in the city proper ; but those are different
charges of one nature or another, which would go to the franchise
charges which were made at the time the company was given its
original grant.

Mr. WARREN. Have you in mind how much the car charges
amount to?

Mr. GEORGE. Well, I could not separate those from memory.

Mr. WARREN. Well, I mean, have you in mind how much the
charge per car is in different parts of the system ?

Mr. GEORGE. Well, there was quite a dispute regarding that, and
the public-utilities commission regarded a certain charge as a legal
charge. Mr. Robinson can tell you that, too, probably.

Mr. ROBINSON. There is not any charge per car in the citv of
Pittsburgh, but in the outlying boroughs they have.

Mr. GEORGE. Well, that is what I am speaking of.

Mr. WARREN. I think that is all I want to ask Mr. George.

The CHAIRMAN. Commissioner Wehle, you may proceed.

Commissioner WEHLE. Did the commission understand you cor-
rectly, Mr. George, as saying that the last consolidation of the 200
or so separate companies which composed the Pittsburgh system •

Mr. GEORGE. Sixty.

Commissioner WEHLE (continuing). The 60 companies, which
composed the Pittsburgh system, was in the form of a consolidation
of three constituent companies?

Mr. GEORGE. The last consolidation was between three of the
parent companies then existing.

Commissioner WEHLE. And those three parent companies, between
them, represented what originally had been about 60 companies?

Mr. GEORGE. Yes. Some of those were legal fictions, of course, of
companies, but they were not all of them operating companies.

Commissioner WEHLE. Were some of them power companies?

Mr. GEORGE. No.

Commissioner WEHLE. That sold current to street-railway com-
panies?

Mr. GEORGE. No.

Commissioner WEHLE. Well, what were those parent companies?
What were their functions?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 297

Mr. GEORGE. The Consolidated Traction Co. was a street-railway
company. The United Traction Co. was a street-railway company;
and the Southern Traction, which is now the Pittsburgh Railways
Co., was also purely a street-railway company.

Commissioner WEHLE. That is, all three of those companies were
the constituent companies of the three parent companies, although
you say some of them are not really traction companies, but had
other functions?

Mr. GEORGE. Oh, no, No; I say that they were street-railway
companies, but they never operated the property. It was merely
forming a nev company for the purpose of building a line and to
issue its securities, and then become a constituent part of the older
company. That was necessary for legal purposes, merely.

Commissioner WEHLE. On what basis was the stock of the three
constituent companies converted into the stock of the main company ?

Mr. GEORGE. It never has been entirely converted. A great por-
tion of that stock is outstanding. The operating power which we
have over those companies is merely an operating agreement.

Commissioner WEHLE. When you say, " We have operating
rights "-

Mr. GEORGE. I am speaking of the Pittsburgh Railways Co.

Commissioner WEHLE. They only have operating agreements?

Mr. GEORGE. Yes, sir; operating agreements. Of course, the rail-
ways company has stock in some of the companies which they are
operating, and in some cases they own all of the stock of the com-
pany they are operating, but, nevertheless, the power to control
is through the operating agreement which they have, or lease.

Commissioner WEHLE. In what year was this arrangement put
through ?

Mr. GEORGE. I think it was in 1902.

Commissioner WEHLE. And in what proceeding? Was it the
subject of inquiry at all?

Mr. GEORGE. Well, it has been the subject of a great deal of in-
quiry before the Public Service Commission of the State of Penn-
sylvania.

Commissioner WEHLE. I did not catch the answer.

Mr. GEORGE. The Public Service Commission of the State of
Pennsylvania did investigate these affairs before it quite frequently.

Commissioner WEHLE. Did the public-service commission law of
Pennsylvania exist at the time of this consolidation, or when it was
pending in Pittsburgh?

Mr. GEORGE. I think not. I do not know what the date of our pub-
lic-service commission law was.

Mr. ROBINSON. January 1, 1914.

Mr. GEORGE. 1914.

Commissioner WEHLE. Under what terms is the present Pitts-
burgh Railways Co. operating over the lines of the constituent
companies?

Mr. GEORGE. I did not get the question.

Commissioner WEHLE. Under what terms is the operation being
carried on, as to lease or otherwise?

Mr. GEORGE. Do you mean what are the terms of the agreement
of the Consolidated Traction, the United Traction Co., and tho
other companies?

100043°— 20 20

298 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner WEIILE. Under which the Pittsburgh Railways Co.
is operating over the trackage of those three constituent companies.

Mr. WARREN. Do you mean under the receivership, Mr. Wehle ?

Commissioner WEHLE. No. I mean before the receivership.

Mr. GEORGE. Well, the operating agreement called for the payment
of certain fixed charges of the company first, and then we have some
payments of dividends on some stocks, but the dividends on the
stock were only temporarily paid and were soon waived, and the
operating agreement kept in force merely for the payment of the
fixed charges.

Commissioner WEHLE. Well, was there no fixed rental of any sort?

Mr. GEORGE. No.

Commissioner WEHLE. Then just exactly how was this compensa-
tion to be determined?

Mr. GEORGE. Well, it was to be determined merely by their meet-
ing these — in the first instance it was to be determined by their
meeting these fixed charges and by paying the dividends on the
stock, but when they failed to pay the dividends on the stock, that
portion of the contract was waived, and merely the payment of the
fixed charges was had.

Commissioner WEHLE. When was that failure found to be neces-
sary, the failure to pay the dividends on the stock ?

Mr. GEORGE. I could not state just exactly what the date of that
was, but the payments on the stock failed very early in the case of the
Consolidated Traction Co.

Mr. WARREN. Do you know when that was ?

Mr. GEORGE. I can not give you that. Can you give that, Mr.
Robinson ?

Mr. ROBINSON. It was complete before 1912, but I do not know
just the exact date.

Mr. GEORGE. The failure was complete before 1912.

Mr. WARREN. On the part of the Consolidated Co., or the other
company ?

Mr. ROBINSON. The Consolidated and the United. No dividends
were ever paid on the Pittsburgh Railways Co.

Commissioner WEHLE. Well, the Pittsburgh Railways Co. is the
operating company, I understand. I am asking you about the divi-
dends of the three companies, over whose property the Pittsburgh
Railways Co. is operating.

Mr. ROBINSON. One of those three was the Pittsburgh Railways Co.
At first it was under the name of the Southern Traction Co., and as
to the other two, as I said, the default was complete before 1912.

Commissioner WEHLE. Was any new stock issued by any of the
three companies at the time of the consolidation agreement in 1912 ?

Mr. GEORGE. I am not familiar with that. You see that is not a
matter of concern to the receivers of the companies, because we have
long passed the consideration of the stock. We are merely now
struggling with operating expenses and primary lines. If we get
that far along, we would be comparatively comfortable.

Commissioner WEHLE. Still, you see, one of the purposes of this
commission is to inquire into causes as well as results ; and it would
be interesting, when you present present conditions, to know what
may possibly have led up to them. In view of some of the testimony
that has been given here, it has simply occurred to me to inquire

PROCEEDINGS OF FEDERAL, ELECTRIC HALLWAYS COMMISSION. 299

whether, perhaps, there was some bonus stock, or some stock based on
a fictitious or imaginary value, or a value based on hope, which may
have been used in 1902 in connection with the consolidation agree-
ment, in order to induce the necessary financial assistance to the whole
plan of consolidation.

Mr. GEORGE. Well, that will all be

Commissioner WEHLE. Do you know whether or not that took
place ?

Mr. GEORGE. No; but that will all be straightened out in the valu-
ation which is now being made of the property. The valuation of
the property has been undertaken under the direction of the Public
Service Commission of the State of Pennsylvania; and that com-
mittee, in connection with the engineers appointed by the railways
company and engineers appointed by the city of Pittsburgh, presided
over by the engineer of the Public Service Commission of the State
of Pennsylvania, is about to conclude an agreed valuation of the
property, which will be the basis of the determination of the return
which the company is entitled to if it can get it from the property.

The CHAIRMAN. Will that valuation consider the property as a
whole ?

Mr. GEORGE. Yes.

Commissioner WEHLE. Then you are really not able to give us the
history of the company? All you can say is that you are one of the
receivers, and the company is in very bad way financially ?

Mr. GEORGE. Well, I can speak about the operating profit of the
company, and I can tell you, of course, about the charges which it is
expected to meet. Now, about the history of the company — we would
be here for several days if I were able to go back and go through the
history of that.

Commissioner WEHLE. It might be worth the time, Mr. George.

Mr. GEORGE. Well, if you are interested in it, there are several
volumes that have been prepared on it, I think, and have been put in
book form, and I will be pleased to send you a copy of it.

Commissioner WEHLE. Well, anything of that kind would have to
go through the commission here, of course.

Mr. WARREN*. Will the history enable yon to explain why the com-
pany is not earning its real operative expenses?

Mr. GEORGE. I do not think it would. I do not think it has any-
thing to do with the situation at the present time.

Mr. WARREN. You say that as a receiver?

Mr. GEORGE. Yes. The property is there, the physical property is
there, and it has to be operated in a certain community, and it is
reasonable to suppose that it has some value, and that whatever the
overcapitalization of the property may be, that what value there is
there is entitled to some return.

Commissioner MEEKER. Well, as a matter of fact, you have not yet
been able to meet operating expenses.

Mr. GEORGE. That is what we are struggling with to-day to meet
operating expenses.

Commissioner MEEKER. And the question of watered stock, and
whether it is entitled to an income or not, has not yet come up as one
of your troubles?

Mr. GEORGE. No.

300 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. But you have 600 miles of track ; and have you any
power stations?

Mr. GEORGE. No; we buy our power.

Mr. WARREN. You buy your power?

Mr. GEORGE. Yes.

Mr. WARREX. But you have a good many cars, and you are not
thus far earning anything on any of that property ?

Mr. GEORGE. No; we have 1,300 cars.

Mr. WARREN. Has the valuation proceeded far enough to indicate
anything about the probable value of the property that you can state ?

Mr. GEORGE. No. Anybody who can foretell what the vakie would
be would certainly be a very interesting citizen in Pittsburgh just
now.

The CHAIRMAN. What have you done, Mr. George, as a receiver, to
try to economize in the operation of the plant ?

Mr. GEORGE. Well, I think that we have economized as far as we
could, taking into consideration the degree of safety which the riding
public are entitled to and the service wThich we feel that we should
give to them.

The CHAIRMAN. What are those economies?

Mr. GEORGE. Well, you are speaking about operating economies ?

The CHAIRMAN. Yes, sir.

Mr. GEORGE. Well, I can not say that there has been any particu-
lar economy in operation that was possible under the receivers over
what was possible under the management. I think the management
of the company, up to the time that we took hold of it, could not be
criticized from the point of view of economy.

The CHAIRMAN. Have you directed your officers to make a study of
that question?

Mr. GEORGE. Yes.

The CHAIRMAN. What was the report?

Mr. GEORGE. We did that in the budget. I made an examination
of all of the charges that were included in the budget, and it was gono
over very, very thoroughly. The company has been investigated year
after year, by expert after expert, who has been employed by the
city to come there and make a study of it to see what could bo done
about bringing about a more efficient operation of the property, and
many recommendations have been made. Mr. Bion J. Arnold was
there some years ago, and other operating men have been there, and
experts have been there since.

The CHAIRMAN. Has the company accepted the recommendations
made by these experts?

Mr. GEORGE. In so far as they could.

The CHAIRMAN. In your judgment, what is it necessary to do then
to take care of your situation?

Mr. GEORGE. Well, the only thing that I can see that can be clone
at the present time is to get the fare on the best possible basis that it
can be put on for producing revenue and to get, if possible, relief
from some of these municipal obligations. I think progress is being
made in that direction.

The CHAIRMAN. To what extent do you expect relief from these
municipal obligations ?

Mr. GEORGE. Well, I do not know that I have any ground to state
that I expect the city to cancel what charges it has and to agree to

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 301

forego the levying of more charges against the company ; but in the
study which is being made by the valuation in -which it is taking
part, it must be brought to a realization of the fact that either serv-
ice will be very materially reduced or will break down at some points,,
unless there is some relief afforded to the company.

The CHAIRMAN. In your study, did you discover that the company
had been making extensions to lines out of earnings and charging it
to operating cost ?

Mr. GEORGE. The railways company?

The CHAIRMAN. Yes.

Mr. GEORGE. The Pittsburgh Eailways Co.?

The CHAIRMAN. Yes.

Mr. GEORGE. I do not think it has. I do not think it lias ever been
accused of that.

The CHAIRMAN. That is not done while you have been receiver ?

Mr. GEORGE. No; it has not.

The CHAIRMAN. Do you believe that an increase in fare is neces-
sary in Pittsburgh?

Mr. GEORGE. I do.

The CHAIRMAN. "Will that bring in the needed money?

Mr. GEORGE. It will bring in a portion of it, at least.

The CHAIRMAN. Is it your thought that an increase in fare will be
a temporary arrangement?

Mr. GEORGE. No.

The CHAIRMAN. Do you believe the present high operating costs
of that plant will remain for some time ?

Mr. GEORGE. I do.

The CHAIRMAN. Upon what do vou base that judgment?

Air. GEORGE. "Well, I do not look for a reduction in the cost of labor
or commodities for some years to come, and I think that that has ac-
counted for the high operating costs.

The CHAIRMAN. Do you expect that the operating costs will in-
crease or remain stationary?

Mr. GEORGE. Well, I would look for it to remain rather stationary,
but in the late months, the increase in the index figures indicates that
there are still high prices for commodities — in the last two months —
and I do not like to set my judgment up as being expert on that.

The CHAIRMAN. Prior to the receivership did you have any ex-
perience with street-railway affairs?

Mr. GEORGE. Just as a citizen.

The CHAIRMAN. Just as a citizen? '

Mr. GEORGE. Yes.

The CHAIRMAN. Have you made a study of this service-at-cost
plan?

Mr. GEORGE. Yes, I have.

The CHAIRMAN. Is your city making a study of that also?

Mr. GEORGE. Yes.

The CHAIRMAN. Has any conclusion been reached in respect to
that plan?

Mr. GEORGE. I think that is the idea that is behind the valuation —
that a new agreement will have to be entered into after the valua-
tion is determined which will practically be a service-at-cost plan.

The CHAIRMAN. Under such a plan would you favor a zone system
in your city?

302 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. GEORGE. Personally, I would not.

The CHAIRMAN. You prefer a straight fare?

Mr. GEORGE. A flat rate of fare.

The CHAIRMAN. Is it in contemplation that under a cost-of-service
plan", the company should be under a regulating body of the city, or
by the State commission?

Mr. GEORGE. The State commission. Under the laws of the State
of Pennsylvania, the valuation will be used by the State commission
to determine what are adequate rates of fare in the effort to produce
a return on the valuation which had been agreed upon.

The CHAIRMAN. At present, what body controls the service and
rates of your city — the State commission or the municipality?

Mr. GEORGE. The State commission.

The CHAIRMAN. And is that a satisfactory arrangement in Penn-
sylvania ?

Mr. GEORGE. I think it is. The city has a right to complain to the
State public-service commission and to be heard there, and the com-
pany has a right to defend itself before that body.

The CHAIRMAN. Is there anything in the contract which prevents
the State commission from making fares as high as may be neces-
sary?

Mr. GEORGE. Yes. The franchise you are speaking of ?

The CHAIRMAN. The franchise.

Mr. GEORGE. Yes.

The CHAIRMAN. Suppose a new franchise were adopted, or the law
of Pennsylvania would permit the State commission to make reason-
able rates for a street-car system ; would that settle your problem ?

Mr. GEORGE. Well, as near as it could be wrorked out, in view of
public sentiment.

The CHAIRMAN. Would it be as satisfactory to your city as the
service-at-cost plan?

Mr. GEORGE. Well, I am only giving my personal views in this
matter, but my view is that the service-at-cost plan would be better
administered through a public-service corporation of a State than it
would if the State commission was done away with.

The CHAIRMAN. Perhaps, you misunderstood my question. It was
this : Would a law permitting the State commission to fix just and
reasonable rates for a street-car company be as satisfactory to the
city as a contract establishing a service-at-cost plan?

Mr. GEORGE. Well, I do not know how the city would speak in
regard to that. As far as I am concerned, I think the public-service
commission should be allowed to regulate those rates.

Mr. WARREN. Mr. George, how many municipalities does your
company operate in?

Mr. GEORGE. Well, there are a number of boroughs adjacent to the
city of Pittsburgh. They are so closely built up and contiguous to
the city that they are really a part of it. I do not know, but I
imagine that there are probably 13 or 14 or 15, or something like
that. Do you know how many there are, Mr. Robinson ?

Mr. ROBINSON. About 80 municipalities, townships, and boroughs.

Mr. GEORGE. Well, you are speaking of townships.

Commissioner MEEKER. HOWT many ?

Mr. WARBEN. Eighty.

Commissioner MEEKER. Eighty?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 303

Mr. WARREX. Yes, sir.

Mr. GEORGE. That is including the interurban. That includes two
interurban lines — one which runs to Washington, Pa., and the other
up the Monongahela River to Charleroi.

Mr. WARREN. But those are a part of your system?

Mr. GEORGE. A part of our system ; yes.

Mr. WARREX. They are in a receivership ?

Mr. GEORGE. Yes.

Mr. WARREX. Well, do you think it would be practicable — follow-
ing out the line of the chairman's question a little further — to make
a contract with the city of Pittsburgh relative to the rates and serv-
ice that would be satisfactory to all these other political units around
Pittsburgh?

Mr. GEORGE. The cities of Pennsylvania are regulated by laws of
the State, and they are grouped in classes; and the laws which are
passed are not passed with regard to any particular community, but
are passed with regard to a class of cities and a class of boroughs
and a class of third-class cities. Now, I do not know whether legis-
lation could l>e so devised that sufficient flexibility could be given to
all of those cities to act in a situation as complex as this would be,
which would enable them to control the situation; whereas if you
have the State body empowered to use discretion, then these com-
munities could all gather before the State body and reflect their
troubles and their views, and in that way you would have a better
rounded out plan than it would be possible to have if all of these
communities or all of these subdivisions were dealing direct with the
company.

Mr. WARREX. And you think that such an arrangement as that
would be reasonably satisfactory to the different communities, do
you ?

Mr. GEORGE. They have a very high regard for the public-service
commission in the State of Pennsylvania. Public sentiment sup-
ports it.

Commissioner MEEKER. I want to ask you one question, Mr. George.

Would it be possible, or is it advisable, to discontinue some of
these outlying lines? You say that you serve 80 distinct boroughs,
townships, and so forth. Would it be possible to economize in the
service by cutting out some of these places, for instance?

Mr. GEORGE. That, of course, is what we will have to do. We will
have to reduce the service to the point where it will support itself,
and that will no doubt result in some communities being without any
service at all, but that would be an extreme case, it would seem to me,
and it would be very unfortunate if we should have to resort to
that.

Commissioner MEEKER. Well, it is a matter that we have to face.
Some communities can not support any street-car service, and if
service has been extended to that kind of communities, it would
seem essential to cut it out ; would it not ?

Mr. GEORGE. Oh, there is no doubt about that. But there is a
certain amount of expansion and growth which is going on in a
large community all the time, and what is taken in one year as a
unit as unprofitable business may be developed within a short time
to be the profitable business; and the question is whether it is not
the duty of the company so to conduct itself that it will cooperate

304 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

with the growth and development of the community. That is only
possible if they can secure the cooperation of the community in sup-
port of the public utility, and I can not conceive of the people of
any community being so blind that they are going to destroy a
needed public service; in the end they will have to respond in some
way to the necessities of the public service. These street-car com-
panies are attempting to give that service.

Commissioner MEEKER. Do you think if you had an increased
fare it would not be necessary to cut out the service in any com-
munity?

Mr. GEORGE. I would far rather increase the fare than cut off that
service, which is the lifeblood of the community. Why should we
as administrators of a public-service corporation move in the direc-
tion of destruction of property — in the direction of destruction of
property values — and handicap community life? Can we not bring
the lesson home to them rather by increasing the fare and telling the
people what the situation is and trying to get them to respond to it?
That is my thought, and it is the thought that the receivers of the
railway company are acting on. If the rate is 7^ and 10 cents, and
we can justify ourselves by the necessities of the situation, we need
to offer no apology for making the attempt ; and I believe the people
will respond. I think this idea that you are going to destroy the
revenues of the company by increasing the rate of fare is to a
degree fallacious, and I think we ought to move in that direction —
that we ought to move toward an increase in the rates of fare and
toward the education of the public that they have to pay a fair
return for the service which they are getting from the transporta-
tion companies.

Commissioner GADSDEN. And you believe that in the long run the
people will pay the increased fare ; do you not ?

Mr. GEORGE. I do.

Commissioner GADSDEX. And it is simply a question of waiting?
Can you keep going a long time?

Mr. GEORGE. You have to ask them to do it before they will do it.
They won't say voluntarily, "We would like to pay 10 cents rather
than 5 cents " ; but if they can be shown that the necessity of the
situation is so great that there is no alternative — that they are face
to face with a crisis, either of the interruption of service which is
necessary to the communal life, or pay the fare, I think they will
pay the fare.

Commissioner WEHLE. Mr. George, you have been discussing this
now from a public-policy point of view ?

Mr. GEORGE. Yes, sir.

Commissioner WEHLE. And we will assume now for the sake of the
discussion that this increased fare ought to be had; and you speak
of educating the public and convincing them that it is both neces-
sary and just that they should have it. Now, we have been hearing
to-day — and you have been here, I think, for the last few days — from
officials of the railway companies and investment companies, to the
effect that there are certain deplorable practices that have prejudiced
the people against the companies, so that they do not do them
justice.

Several of these gentlemen have stated that these practices should
not continue. For instance, one of the practices that were discussed

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 305

was the practice of issuing bonus stock, and it has been stated that
were it not for the fact that there is no way of controlling the com-
panies, the better element in the public-service business would be able
to avoid the continuance of the practice. Now, if that fare were
raised, as you say it should be, and if nothing were done by us or by
the American Electric Railway Association or any of the other in-
fluential interests that have this matter in their hands at the present
time, to eradicate those things which have prejudiced the public
mind and which have also led indirectly to, or contributed at least to
the present condition which the railroad companies find themselves
in, are we not going to end up, in another 5 or 10 years, with this
issue all over again? I want to ask you this with the thought in
mind, in the first place, whether you agree with me. Do you agree
with me?

Mr. GEORGE. I think I do; and I have confidence that this com-
mission is going to make a statement which will be clear to the
public — that such practices as did prevail in the past are no longer
to be tolerated.

Commissioner WEHLE. But, mark you, Mr. George, such practices
as that have got to be handled not only by a small group, such as we
are, with advisory and purely persuasive powers, but those changes
have to be effected by the men who are in the business themselves.

Mr. WARREX. There was not any evidence, as I understood the
witnesses, that those practices are continuing at present, but that
they were all well in the past.

Commissioner WEHLE. Well, Mr. Warren, I understood this from
some testimony given yesterday, and that at present it is impossible
to sell stock anyway, so that the subject of issuing bonus stock is a
dead subject for present purposes, but that up to about the time —
say 1914, or a little bit earlier, perhaps — when the street-railway
business was still a fairly prosperous going concern, this practice
still did prevail.

Xow, I am going to ask Mr. George, because he has taken a some-
what statesmanlike view of the public-service problems here and
has given us a very interesting discussion of them, whether he could
give us any suggestion as to any combined effort that might be made
by the American Electric Railway Association or any other general
public movement which might be instituted by them, or by any
public body, looking toward the eradication of those practices, look-
ing toward a clarification of the methods of the business and
finances that the public-service companies pin-sue, so that a program
may be formulated looking toward the financial relief of the com-
panies which would be more favorable to them than those that are
now prevailing, and that the people would have some sort of a guar-
anty that this great big public-service business will be conducted
on a fair basis from now on. We are aJl here equally interested in
the solution of this big public problem, and I do not think it would
be a waste of time for us to address ourselves to that question.

I would like to have Mr. George, if he would, give to us, either
this afternoon or to-morrow, some statement as to what constructive,
preventive measures could be put forward by the American Electric
Railway Association, itself, looking toward an eradication of those

306 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

abuses of which we have been speaking and on which we are all
agreed that they exist.

Mr. GEORGE. Well, I will not be here to-morrow, and if you will
give me just about two minutes — I think public sentiment has taken
care of that situation to a large extent, that those things which were
possible, and which have been done in the past, have had their
natural outcome, and I do not think it is possible in the future. In
addition to that, the public-service laws of the different States have,
to a very great extent, taken care of that situation, and it would be
.impossible, in most States, to do any of those things which were
done in the past and which have to an extent contributed — to a
large extent contributed — to the present unfortunate state of the
public mind, as it is reflected in these questions.

Commissioner WEHLE. Now, Mr. George, of course the incident
that I happened to refer to— the issuance of fictitious stock, or,
rather, stock based on a fictitious value or hope — I suppose has been
largely prevented for the future by laws, in a number of the States,
at least; but does it occur to you that there are any other kinds 01
control that could be exerted, not necessarily against actual unscru-
pulous dealing but, perhaps, against the injudicious development
or overextension by companies of their property?

Mr. GEORGE. I think the public-service laws of the different States
have very well covered that. In the State of Pennsylvania, it is very
effective. We can not move in the management of the company in
Pittsburgh without complaint being registered by the city of Pitts-
burgh before the public-service body of the State. They tell us to
put on more cars. If some citizen in some community complains
of the service that is afforded that particular community, he has a
right to be heard before the public-service commission, and they say
whether we shall put that service on, or whether we shall not put that
service on.

Commissioner WEHLE. Let us take a hypothetical case. Suppose
we take a company in some hypothetical State, in some hypothetical
city unnamed, and the men in that company were men who were in-
terested in the development of land in a certain outlying district,
and at the risk of the company's financial condition, in order to bet-
ter the values of the land, they were to go into the construction of an
extension. That is a situation which is not absolutely unknown in
American life. Now, if that extension happens to have been im-
providently constructed from the point of view of the stockholders
of the company, and from the point of view of the public, which
ought to have a proper kind of improvement in service in the really
thickly populated part of the city, what check is there in most of our
cities, or in most of our States, against that kind of improvidence?

Mr. GEORGE. Well, if you gentlemen will agree to recommend what
I would suggest in that instance, I would make land speculation un-
profitable. That is my remedy on that situation but, of course, that
is somewhat in advance of public sentiment at the present time.

Commissioner WEHLE. You do not think there is any way of get-
ting at the characters of the street-railway men in such cases ?

Mr. GEORGE. Well, that is police power, and it is not very effective
in controlling the action of people where the public sentiment is not
against their action.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 307

Commissioner WEHLE. You think that, perhaps, placing in the
control of the public-service commission the creation of any new ex-
tensions would guard somewhat against that kind of an abuse ?

Mr. GEOKGE. The extension of a street-railway line they attempt to
guard with the greatest secrecy; but somebody always tells some-
body, and somebody always buys something out in the neighborhood
where the extension is about to be made, and somebody generally
makes a handsome profit on his purchase. Now, if you can devise
some method of controlling that, you will make a great contribution
to a very serious problem.

Commissioner WEHLE. Xow, Mr. George, we are not talking about
somebody making money out of a land speculation at all.

Mr. GEORGE. I understand.

Commissioner WEHLE. We are talking about public service. We
are talking about the effect on the finances of a public-service com-
pany when it has made improvident extensions. Xow, what I
would really like to have from you is a statement as to whether or
not you think it would be well for the public-service commissions to
have control of the construction of extensions and control of the de-
cision as to whether or not finally a construction of an extension of
the line should be entered into.

Mr. GEORGE. Undoubtedly.

Commissioner BEALL. They have that in very many States now.

Commissioner WEHLE. I know they do in a number of the leading
communities.

Mr. WARREN. They have it in Pennsylvania, I understand.

Commissioner WEHLE. They have it in a few of the leading com-
munitie«, Mr. Warren, but my suggestion goes to the idea that per-
haps you gentlemen who are interested in clarifying this situation
should even go to the extent of supporting legislation of that kind,
instead of — as has often been done by constituent members of your
organization — actually resisting it.

Mr. WARREN. Let me say for the association — because I can not
say it for each of the 1,500 members — that I am authorized by the
president of the association to say that the association is definitely in
favor of regulation and control by public-service commissions not
only in the States where that already exists, but the association is in
favor of its extension to all of the States of the Union ; and that that
includes the regulation of securities in every respect. Of course,
having lived in Massachusetts so long, I can not imagine some of
these things not being in effect. We can neither build an extension
in Massachusetts, nor issue a share of stock, or a dollar's worth of
bonds, or a dollar of any debt running over 12 months, without the
approval of the commission. We have to have a certificate of public
exigency from the commission before we can build any extensions,
even though it be a turnout on a single-track line; and it has done
no harm. If anything, there has been too much building in
Massachusetts, notwithstanding that restriction, because, with all of
that regulation, the statement of the trolley lines of Massachusetts
for the last year — 1918 — I think is probably the most discouraging
of any State, as to the operating expenses alone; and I am going to
put an official statement in later, but I think the operating expenses
alone were 87 per cent of the gross receipts of our companies,
although they are so closely regulated.

308 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

So that whatever this crisis is due to, I do not think it can be due
to failure of regulation, or abuses, which I condemn as fully as any-
one can in the way of issuing securities, but because, as in this very
Pittsburgh Co. case, whatever its history may be, it is not earning its
operating expenses, and that is true of a good many companies all
over the country.

Commissioner WEHLE. I think seriously — following the thought
suggested by Commissioner Sweet yesterday, and which seems to be
so generally accepted, too — that one of the serious elements in this
situation is the state of public regulation.

Mr. WARREX. I agree with you entirely.

Commissioner WEHLE. And these questions were addressed to some
constructive way of removing certain antagonism that lies in the pub-
lic opinion.

Mr. WARREN. I did not want you to think that our association here
did not believe in progressive and proper legislation. I think prac-
tically every forward-looking man in the public-utility business to-
day, however much he may be irritated occasionally by the particular
exercise of public control, believes that it is an advantageous thing
and in the long run is going to benefit the public-utility industry,
not only trolleys, but all others.

Commissioner SWEET. You will not be here to-morrow, Mr.
George ?

Mr. GEORGE. Xo.

Commissioner SWEET. What court appointed you?

Mr. GEORGE. United States court — United States district court.

Commissioner SWEET. What was your business before?

Mr. GEORGE. Real estate.

Commissioner SWEET. Have you any personal interest in street-
railway properties?

Mr. GEORGE. Xone whatever.

Commissioner SWEET. Who are the other two receivers?

Mr. GEORGE. Mr. Charles A. Fagan, wrho is an attorney, and Mr.
S. L. Tome, who was the former president of the Pittsburgh Street
Railways Co.

Commissioner SWEET. Are they interested in street railways?

Mr. GEORGE. Mr. Tome was formerly the president of the company.

Commissioner SWEET. He has stock in it ?

Mr. GEORGE. I don't know.

Commissioner SWEET. You don't know?

Mr. GEORGE. I don't know what stock he has. Mr. Fagan was an
attorney at law and, as far as I know, had no interest in the com-
pany.

Commissioner SWEET. You expressed a distinct preference for the
service-at-cost plan?

Mr. GEORGE. Yes.

Commissioner SWEET. Do the other two receivers share your views
on that question ?

Mr. GEORGE. Yes.

Commissioner SWEET. They do?

Mr. GEORGE. They do.

Commissioner SWEET. When you entered upon your duties, you
probably thought there was something wrong about the company,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 309

because it had defaulted in some of its payments and was not running
successfully ; did you not ? You thought there might be

Mr. GEORGE. I knew there was something wrong. It was perfectly
apparent.

Commissioner SWEET. Well, I mean something wrong in the man-
agement of the company.

Mr. GEORGE. Oh !

Commissioner SWEET. Did you not think there might be something
wrong there ?

Mr. GEORGE. I felt that there might be something crucially wrong
in the management ; yes.

Commissioner SWEET. And you entered upon your duties in a some-
what

Mr. GEORGE. Critical mood.

Commissioner SWEET. In a somewhat critical mood?

Mr. GEORGE. I did.

Commissioner SWEET. And your investigations satisfied you that
everything was honest and that the management wras capable; did it?

Mr. GEORGE. It did.

Commissioner SWEET. Honest as well as capable?

Mr. GEORGE. It did.

Commissioner SWEET. So that you are now convinced that the
troubles were inherent — something that was beyond the control of
the management?

Mr. GEORGE. Well, it was historical, due to old competing days.
Of course, Pittsburgh has a very difficult operating problem — more
difficult than almost any other city in the country. Perhaps Bos-
ton

Commissioner SWEET. But the trouble was in the problem rather
than in the personnel?

Mr. GEORGE. Yes; and the manner in which it had developed by
the evolutionary process. Of course, you would not build the same
street-railway property to-day. It does not fit the situation exactly ;
but nobody could foresee just what the situation as it is to-day would
be. In other words, they built as well as they could, with the light
which they had in those days, taking into consideration, of course,
that there were a number of people who were bidding one against
the other for a foothold in the business: and they built competing
lines. Very often they made a duplication, but as far as the manage-
ment of the company was concerned, I have lost my critical aspect
toward it and feel that the management is good.

Commissioner SWEET. In the extensions made by the company
into outlying districts, do you think mistakes have been made in the
past ?

Mr. GI'.ORGE. I think that they overbuilt, but that, of course, was
to an extent not their fault. In the growth and development of
Pittsburgh — you know the territory is very peculiar there, and the
great amount of broken territory right in the city, where it is not
suitable for building, and long stretches where you go out along the
lines, there is practically no traffic; maybe there is a house on each
side of the street, and behind that there is always a hill that goes up.

Commissioner SWEET. Yes.

Mr. GEORGE. There is a great deal of territory of that kind and, in
addition to that — as develops in a great many communities — there

310 PROCEEDINGS OF FEDKRAL ELECTRIC RAILWAYS COMMISSION".

would be the development in the downtown, then perhaps a Mttle
sparsely settled district, a little community farther out, and then
more undeveloped territory, and another community farther out, and
then working all the time for the purpose of connecting up these
little communities which had developed, and working in such a
manner as would contribute to a proper growth and development of
the city.

Commissioner SWEET. And afford reasonable facilities to those
people who had located there?

Mr. GEORGE. Yes.

Commissioner SWEET. And enable them taget back into the main
community — the center ?

Mr. GEORGE. To allow a man to live at one place and work at an-
other place.

Commissioner SWEET. Yes.

Mr. GEORGE. That is the great need, it seems to me, that is sup-
plied by the transportation companies. A man should not live right
around the mill where he is working; and if he has a job and wants
to get to another section of the city to seek employment, he ought to
be able to go there without moving his family and everybody else.
There should be a chance for them to circulate and live where they
want to live and work where they want to work.

Commissioner SWEET. Is it the rule with the company of which
you are receiver that the rates are different from one community to
another? As you go on these intemrbans, you have different rates,
have you not ?

Mr. GEORGE. Yes ; only on the interurbans. The new rate of fare
which we have in effect is more of a flat fare than any fare that they
have ever had there, in that we are giving now what they never had
before — a cross-town transfer privilege. Ten cents will entitle a man
to cross the downtown section, with a transfer — something which
they never had before.

Commissioner SWEET. That was put in operation by the receivers?

Mr. GEORGE, We put that in operation in the attempt to afford that
freedom o-f travel from one section of the town to the other, and we
are getting away from this zone system of fares which, to my mind,
works toward the congestion of population, and it has a tremendous
effect.

I want you gentlemen to consider what any discrimination of 2
cents in railroad fares will mean to a family of, say four riders a
day. To see what it would mean, I figured it out one day, as a real-
estate man, and I figured that a lot that was just inside of a zone
that had a o-cent fare was worth about $30 a front foot more than
the lot that was just outside of a 5-cent zone, in a 7-cent zone, to a
man Who had four daily riders on the street cars. He could afford
actually, if he was buying a 30- foot lot, to pay $30 a front foot more
to get inside that zone. And don't you think they will get in ?

Why, they will get in; and the apartment houses will get in;
and there will be a tendency toward congestion in these American
cities which will approach the situation in Glasgow to-day, and if
you have been familiar with the studies which have been made of
housing conditions in Glasgow, they will cure you of any notion that
street-car companies should be built up for the purpose of raising
revenue and, at the same time, working against the proper distribu-

PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION. 311

tion of the population of a city. If you will allow me to regulate
rates in the city of Pittsburgh, I can move the population aiid create
land values and destroy land values.

Commissioner GADSDEN. Now, Mr. George, admitting that, is not
that casting the burden of the solving of the social problem on the
street railways, and not on the community?

Mr. GEORGE. Well, we have got to cooperate one with the other.

Commissioner GADSDEN. Have not the street railways in the past
solved that social problem at their cost, and is not that one of the
troubles that we are up against?

Commissioner SWEET. That is, the flat rate, you mean?

Mr. GEORGE. Yes; I think the street-car companies made a valuable
contribution, but the}7 felt that they were going to be rewarded for
doing it.

Commissioner GADSDEN. Yes, and they have not been?

Mr. GEORGE. And they have not been.

Commissioner GADSDEN. And the community has gotten its con-
sideration.

Mr. GEORGE. Oh, it has gotten its consideration.

Commissioner SWEET. But the general practice has prevailed in
the past in the direction that you think is right, of spreading com-
munities, instead of bringing them into congested centers?

Mr. GEORGE. I do not believe anv city can afford to see a system of
zone fares built up in it. I think it would be tremendously destruc-
tive to the right sort of development of the city.

Commissioner SWEET. And I think most people would agree with
you on that point, with regard to sanitation, and perhaps with re-
gard to morals.

Mr. GEORGE. Not only that, but it would be destructive of business
locations which have been created on a flat system of fares.

Commissioner SWEET. Yes.

Mr. GEORGE. Take a man's business house that is located in a com-
munity and that has a large investment made there, and the business
is established and you make him work against a handicap of an
increased rate of fare to get to and from him, as against his com-
petitor. In what shape does that put his business ?

Commissioner GADSDEN. Does not that seem to indicate — and I
am not questioning the wisdom of what you say — that the only so-
lution of this problem is that the community shall own the street
railways and absolutely run them?

Mr. GEORGE. I am not ready to admit that. I may later on, but
not yet.

Commissioner SWEET. Do you think t^pt the service-at-cost plan
would solve that problem?

Mr. GEORGE. I think so. Of course the cost is going to be higher
than it is at the present time, and I think the people have an an-
tagonism toward an increase in rates, which, to an extent, is due lo
the bad relationship which has existed between the public and the
public-service corporations in the past. I think that is one of the big
hills they have to climb, to get over these increased rates of fares.
Whether they can successfully get over, and in time to save them-
selves, I do not know, but I think we ought to mal the attempt in
that direction.

312 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. If I understood you right, you have a
zone in which the fare is 7 cents within that zore?

Mr. GEORGE. At the present time, yes.

Commissioner SWEET. Suppose a person •..•anted to ride three
blocks within your outside zone, the fare would be 7 cents?

Mr. GEORGE. Yes.

Commissioner SWEET. And he might ride a great many more
blocks in the 5-cent zone for a nickel ?

Mr. GEORGE. Those inconsistencies —

Commissioner SWEET. Do I understand that to be the real or-
dinary idea of a zone system?

Mr. GEORGE. No. But no matter what sort of a zone system you
build up, there has got to be a line some place.

Commissioner SWEET. Sure.

Mr. GEORGE. A man just on one side of that line and a man just
on the other side of the line will be very differently treated.

Commissioner SWEET. Sure.

Commissioner GADSDEN. You have given us your estimate with
respect to real estate value on each side of the zone. I am inter-
ested in that. How did vou arrive at that ?

Mr. GEORGE. Well, I took four people riding each day. That was
8 cents, and twice a day was 16 cents, and 30 times 16 would be $4.80,
and 12 times —

Commissioner SWEET. That would be per month?

Mr. GEORGE. Yes; and 12 times $4.80 would be

Commissioner GADSDEN. $56.

Mr. GEORGE. Well, almost $60.

Commissioner GADSDEN. $54.

Mr. GEORGE. Something less than $60; and this return at 6 per
cent is on an investment of a thousand dollars, is it not ? And if so
much a day is worth a thousand dollars of cash investment, a man
could afford to pay a thousand dollars more for a lot inside than out-
side the zone ; and if it is a 30- foot lot, it would be $30 a front foot.

Commissioner GADSDEN. That is what I wanted to get.

Mr. GEORGE. That is my method of reasoning; and if you do not
believe it, you just establish a zone once and see the people rush to the
apartments just inside the zone and the increase in rents which would
result.

Commissioner SWEET. You could not entirely get rid of that condi-
tion, could you, Mr. George, when you come to suburban railways ?

Mr. GEORGE. That is a different proposition. That is natural. It
is sort of natural out in the country there ; and that is reflected, really,
in the value which the man puts on his ground when he goes out
there, because the landowner has discounted that. If you go close
to the city, where the rate of fare is lower, you will pay more for
your land.

Commissioner SWEET. Then they are not subject to municipal
taxes?

Mr. GEORGE. No.

Commissioner SWEET. So that they offset each other to a certain
extent ?

Mr. GEORGE. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 313

Commissioner SWEET. But this zone plan that you have been tell-
ing us about — is that within the same municipal limits?

Mr. GEORGE. They had rather a thin justification for it, but the
justification was this: That where a number of people are riding in a
car, they distribute the cost of running that car for people who are
riding in it. Out in the sparsely settled districts, where there are not
so many riders, and each pays a proportionate cost of operating that
car, they ought to pay more money individually to make good the
deficit.

Commissioner SAVEET. Did you hear what was said by one of the
witnesses here in regard to the need of elasticity in the adaptation to
the income of street-railway companies to varying conditions, the
same as in other industries ?

Mr. GEORGE. Yes.

Commissioner SWEET. Do you think that that is as it was pre-
sented by that witness, or do you think that a straight raise of fare
would permanently solve the question?

Mr. GEORGE. Well, I do not believe in creating values by the earn-
ing power of public utilities. That is, I think the public has an
interest in the public utilities, and that capital, even if it gets a fair
return, should not expect to make any speculative profit on it; but I
think that capital should get a fair return. Now, in order to pre-
vent them, as they have in Cleveland, and as they attempted to do in
Boston, if they establish a reservoir into which this surplus goes, and
then that can be withdrawn either for the purpose of rendering a
similar service at a lower rate of fare or a better service at the same
rate of fare, why, I think that is the proper method of doing it. I
think that is what should be done, and I do not believe that, if that
is worked honestly and the people become accustomed to it, there will
be any difficulty in replenishing that fund for needed enlargement,
maybe, by the public, if it becomes necessary.

Commissioner SWEET. Did you hear the statement made by a wit-
ness who said that street-railway companies could not remain in
statu quo: they either went forward or backward, and that they
could not be in a healthy condition unless they were getting in new
capital ? And do you think that statement is true ?

Mr. GEORGE. Undoubtedly, because the street-car company must
reflect the growth of a community, and it must grow as the com-
munity grows. In fact, it must grow a little in advance and help
the growth of the community, it seems to me, and that necessitates,
of course, extensions, and extensions should be made from the new
capital which is secured.

Commissioner SWEET. Is there anything you would like to say
further, Mr. George, before we adjourn?

Mr. GEORGE. I think I have exhausted more time than I should
have used.

Mr. WARREN. Mr. George, there is one further question: Do you
have jitneys in Pittsburgh?

Mr. GEORGE. Yes, sir; we have jitneys. They come and go. I
think that they solve their own problem. I do not think we ever will
be rid of them, but I do not think we need fear them.

Mr. WARREN. Even with a 10-cent fare, Mr. George?

1GOC430— 20 21

314 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. GEORGE. Xo.

Mr. WARREN. For short distances?

Mr. GEORGE. No. They will do a certain amount of business. I
may be very sanguine. You must remember that I am a novice in
this business. I have only been in it six months.

Mr. WARREN. It is a question of public interest in a community,
possibly, as against the business principle of operating a utility.

Mr. GEORGE. Well ought not the public, then, to protect the com-
pany against licensing these jitneys, who perform no constant serv-
ive and who, perhaps, are just using the streets temporarily ? Ought
they not to regard that and its effect on the company, which is en-
couraged to buy a constant service, and under the jurisdiction of the
city and the State ?

Mr. WARREN. They ought to do that. I am not sure that the
community would not have to go a step further and absorb itself the
difference between such a rate as the people in the inner part of the
territory were willing to pay to ride, and the amount that would be
lost by the people in the outer part of the territory. That is a fea-
ture that has been considered in Massachusetts this very winter. In
Boston now, where they have gone to 10 cents, I have heard — since
I* came down here, so I do not know what the fact is — in certain parts
of Boston, very near the heart of the city, the)7 are walking at present
rather than pay the 10-cent fare, because they are so near that they
feel that it is a discrimination against them, as against the discrimi-
nation you speak of against the people on the other side of the zone
line.

Mr. GEORGE. Well, they will walk for a while, but the question is
whether the natural laziness or desire to avoid exertion will not
cure them of that habit.

Commissioner SWEET. We will stand adjourned until 10 o'clock to-
morrow morning.

(Whereupon at 5.40 o'clock p. m., the further hearing of this case
was adjourned until to-morrow, Friday, July 18, 1919, at 10 o'clock
a. m.)

. WASHINGTON, D. C., July 18, 1919.
Met pursuant to adjournment, at 10 o'clock a. m.
Present: Parties as before.

Commissioner SWEET. The hearing will come to order. Mr. War-
ren, are you ready to proceed?

Mr. WARREN. Yes, I am, sir. I will ask Mr. Sisson to take the
stand.

STATEMENT OF MR. FRANCIS H. SISSON.

Mr. WARREN. Give your full name, please.

Mr. SISSON. Francis H. Sisson.

Mr. WARREN. And you are one of the vice presidents of the Guar-
anty Trust Co.?

Mr. SISSON. I am one of the vice presidents of the Guaranty
Trust Co.

Mr. WARREN. Have you had occasion to give a great deal of atten-
tion to the economic features and the financial figures of public
utilities 2

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 315

Mr. SISSON. I have.

Mr. WARREN. Including street railways?

Mr. Sissox. Yes.

Mr. WARREN. Without questioning you in detail — will you state
to the commission your view of the situation as regards street rail-
ways, particularly their credit and their economic situation, as well
as their needs?

Mr. SISSON. Mr. Warren, with your permission, and with the per-
mission of the commission, I have prepared a brief memorandum,
which sets forth some of my formal conclusions, which I will be
glad to lay aside for questions later, but I would like to run over
some of these points, with your consent.

I have addressed my memorandum chiefly to the street-railway
credit and the cost of capital for street railways.

The cost of money is affected by conditions which affect all other
costs. The law of supply and demand affects it primarily. The
degree of safety and future promise are also instrumental in de-
termining it. There is every reason to believe that, with the tre-
mendous destruction of wealth which has taken place in the world,
both through its physical loss and the diversion of vast numbers of
men from productive industry, there will be a long period of tight
money in which the demand for capital will exceed its supply. The
rehabilitation of Europe, the conversion of industry, labor unrest,
the reestablishment of trade and the instruments of commerce will
all make large drafts upon the available capital of the world, which
must inevitably be reflected in higher charges.

As long as wealth remains in private hands, subject to private dis-
position, it will seek the most profitable fields of investment. It
can not be coerced into situations that do not promise reasonable
protection and return, and the present public attitude toward public
utilities, whether inspired by political considerations or selfish ig-
norance, has inevitably diverted capital from such channels into
others not subject to these limitations.

This is not a question of the bankers' attitude toward the sub-
ject, as the bankers are for the most part but middlemen in the
handling of securities of this character. The ultimate investor
fixes the conditions upon which he will purchase securities, and the
question of rate is simply that at which the security will pass to
the buyer. It is certain that, unless there is a widespread change
in the public attitude toward public utilities, the security buyer will
not hazard his money in such ventures, and the bankers have no
choice but to follow his decision. Furthermore, it is certain that
no satisfactory alternative is left in public ownership, as there is
nothing in the record of public ownership on the whole to warrant
the hope that this may offer a solution of the problem.

Stripped of all complications, the question seems to be whether
or not the American public are willing to pay for service rendered.
The alternatives are simple — either the service will not be renderd
and the growth of our communities and the comfort of our people
will be denied, or the cost must be met, either directly through fares,
or indirectly through taxes. As to which of these alternatives is
economically sound, I assume there can be no doubt.

316 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The open question is whether the traveling public will continue
to deny to its utilities the basis of charges which it accepts in every
other line of business.

With the average purchasing power of the dollar decreased gen-
erally about 50 per cent since 1914, it is impossible for 2£ cents to
buy 5 cents worth of transportation. That is the sum and sub-
stance of the whole situation.

The impairment of the street-railway-credit structure has been
brought about through increased operating costs coupled with a
fixed unit of fare. Prices of some of the most important material
used in the maintenance of street-railway property have increased
38 per cent to 126 per cent over those in 1914. Increases in wages
and fuel, the largest items in the cost of operation, in some localities
are as high as 100 per cent over prices prevailing in 1914. In recent
testimony before the congressional Committee on Appropriations,
it has been estimated that the cost of labor and materials over pre-
war prices was 85 per cent.

In times of lower costs the profit from the short-haul carried the
long-haul passengers for the same fare. AVhen the margin of profit
from short-haul business was wiped out by increased cost of opera-
tion, the economic unsoundness of the traction business became
critical.

In many cases this condition was aggravated by local difficulties,
such as cheap motor-car competition, franchises litigation and ex-
cessive burdens imposed by regulating bodies.

As a result, net earnings of the traction companies fell off. Where
relief was granted it usually did not come until the companies were
already in a weakened financial condition and credit seriously im-
paired.

Under such circumstances the .companies found it increasingly
difficult to attract new capital by means of stock issue. A few in-
stances may be given to illustrate how the market for street railway
stocks was affected : In 1908 the stockholders of the Boston Elevated
Railway were permitted to subscribe to new stock at $110 per share,
the par value of such shares being $100. Some 1,500 shares were not
subscribed for, and these were bid in at public auction at $130| per
share in May. 1909. By December, 1917, Boston Elevated Railway
capital stock had declined to as low as $27 per share. Twin City
Rapid Transit stcck, which sold at 107 in February, 1909, fell to 32
in 1918. Union Traction Co. of Philadelphia sold at $58£ per $50
share in May, 1909; in 1918 it sold as low as $37 per share.

Finding it difficult, if not impossible, to obtain new capital through
the issue of stock, the street railways have had to resort to financing
by means of fixed charge obligations. As the margin of safety over
interest requirements diminished and the risks attending investments
in street-railway securities increased, the companies have had to offer

Si-eater and greater inducements to attract the necessary new capital,
apital had to be secured to take care of maturing obligations at in-
terest rates, in many instances higher than the fixed rate of return
allowed on the investment by franchises and other regulations, and
with the temporary sacrifice in many cases of a large part of the
equity value. Such costly financing increased the companies' burdens
still further, resulting in still further impairment of credit.

PROCEEDINGS OF FEDEKAL ELECTKIC RAILWAYS COMMISSION. 317

In the following table a comparison is made of the yields on vari-
ous standard street-railway bonds in July, 1909, and July, 1919.
This indicates roughly how much more the street railways must pay
for capital to-day than they did 10 years ago.

I will not undertake to read this table, but will just leave it with
your secretary.

Mr. WARREN. Won't you read just two or three of them?

Mr. SISSON. For instance, here is a range in 1909 from 3.84 to 5.90
in the yield of such bonds as the Detroit United First Consolidated
and West End Railways and bonds of a similar character, standard
public-utility bonds which to-day are ranging from 5.74 to 13.25 —
5.74 being the lowest and 13.25 being the highest — an increase of 100
per cent and more in the range of yield.

Mr. WARREN. And those are companies which are considered par-
ticularly strong and gilt-edge securities?

Mr. SISSON. The best securities in the public-utility market, as the
table shows.

The table contained in Mr. Sisson's statement, and referred to by
him, is as follows :

Year.

Price
July, 1909,
to yield.

Price
July, 1919,
to yield.

Detroit United 1st Con. 4$s

1932

5.90

7 55

New Orleans Railway & Lt. Gen. 4Js

1935

5.48

>9 64

T'niti'd Railways of St. Louis 1st 4s ~

1934

5 01

9 98

Chicago Citv Railways 5s

1927

4.68

9 75

Metropolitan West Side El. 1st 4s

1938

4 68

9 40

South Side Elevated 4Js

1924

4 95

9 71

West End Railway Co. Deb. 4s

1932

3.84

"6 00

Philadelphia Rapid Transit Col. Tr. 5s

1957

4.85

5 85

Aurora, Elpin & Chicago 1st 5s

1941

4.94

9 30

Chicago Railway 1st 5s

1927

4.90

9 80

Duluth Street Railway 1st 5s

1930

5.00

7 82

Los Aneeles 1st 5s . ..'

1938

4.68

6.42

Louisville Ry. Con. Mort. 5s

1930

4 45

5 74

Denver C. Tram. 1st & Ref. 5s

1933

5.22

13 25

B. R. T. Gen. 5s

1945

4.60

8 40

B. R. T. 1st Ref. Conv. 4s

2002

4.63

»8 70

Conn. Rv. & Lt. 1st & R°f. 4 is

1951

4.40

5 9,*

Interborough Rapid Transit 1st & Ref. 5s

1966

5.05

6.9!

i Interest delayed.

* Stock yield.

Mr. SISSON. A striking contrast is afforded by a comparison of
yield on a few standard industrial bonds for the same period.

Year.

Price
July, 1909,
to'yield.

Price
July, 1919,
to yield.

American Tobacco 4s .. .

1951

5.15

5 30

American Tobacco 6s

1944

5.25

5.15

Bethlehem Steel 1st Ext. Sk. Rd. 5s

1926

6.05

5 60

U.B.8teelSk Fd 5s

1963

4 70

4 95

Va.-Car. Chom. 5s

1923

5.15

5.65

I have quoted here such bonds as the American Tobacco 4s,
which have a range only of from 5.15 to 5.30, and such bonds as tho
United States Steel, which have a range of from 4.70 to 4.95 and,
in some instances, a positive decrease. American Tobacco Gs show

318 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION,

a yield of 5.25 in 1909, and a yield of 5.15 at current prices, and that .
is true broadly in the whole industrial field. \

Under these deplorable conditions, electric-railway-security own-
ers have seen their holdings precipitately and alarmingly depreciate
in value. With the opportunities offered to the investing public
during the last few years to purchase the securities of industrial com-
panies which have shown extraordinary earnings, electric-railway
securities have found few buyers. With the war-time demands upon
capital, these securities have sold at prices which have been so low
that the electric-railway companies have had the utmost difficulty in
obtaining and, in some cases, have been absolutely unable to arrange
long-term financing. Under the ordinary operation of economic law,
the electric-railway companies have been compelled to pay high rates
for the capital they did get, which has further reduced the return on
their securities.

Another factor, however, which has contributed largely to the diffi-
culties of the situation, has been the wage awards of the National
War Labor Board.

In this connection, it may be illuminating to quote the following
sentence from a letter written by the receiver of a New England
electric-railway company :

The receivership is a direct result of the National War Labor Board's award,
which placed an additional pay-roll burden of $125,000 per annum upon the
company, notwithstanding our having submitted to the board a full statement of
our funds and demonstrating to them that any other increase in wages would
create the situation which we now face.

In a hearing between the street-car companies of Cleveland and
Detroit and their men, the companies pleaded that they should not
be Tequired to raise wages because they had no income out of which
to pay the increase. They said : " We are working under a franchise
on which we receive only 3 or 4 cents a passenger carried many miles
and, if a substantial increase in wages be granted, bankruptcy and a
receivership must follow."

Yet, the general chairman of the board of arbitrators in these cases
held that the financial condition of the companies could not affect
the issue at stake — the issue of wages.

Such rulings, however, are only in keeping with the general public's
attitude toward the electric railways, which has compelled these com-
panies to operate under two distinct and, in some respects, diametri-
cally opposed kinds of law — legal and economic. The seriousness of
this handicap is apparent when it is realized that probably one-half
of the gross operating expenses of a railroad consists of direct labor
costs, which are constantly increasing while the abnormally low rates
for the service rendered by electric railways were, in many cases, fixed
years ago by special laws or by provisions contained in ordinances or
franchises. The rate of fare, in effect, was a part of the considera-
tion for granting franchises.

But the franchise method of fixing rates is too rigid to meet
present-day conditions. The franchise, while holding down the
charges for the service, does not hold down costs ; consequently, costs
have rapidly been overtaking gross revenues and have reduced to the
danger point the margin between the two.

The commission form of regulation was developed largely with a
view of remedying the. evils o? the rigid franchise method, but even

PROCEEDINGS OF FEDERAL ELECTlilG RAILWAYS COMMISSION. 319

the commission form of regulation is losing esteem among the think-
ing people because of the attitude many commissions have assumed
toward the public-utility corporations.

Transportation can not be rendered at less than cost without the
money to make up the deficit coming either from the security hold-
ers or the taxpayers, or both. It should be obvious to all that the
cost of transportation ought to be borne by the users of transporta-
tion and that some plan should be worked out by which such pro-
vision is made.

If public authorities maintain the position they have held and
unwarranted additions are continuously made to the tax burdens of
communities, the bonds of municipalities will not be attractive to
bankers or investors, and the growth and prosperity of many cities
will be seriously threatened. Indeed, as has been pointed out, there
is involved in the situation the validity of a huge structure of invest-
ment and credit, the undermining of which can not fail to have far-
reaching effects upon general credit and business prosperity, for the
credit of our transportation lines can not be placed in jeopardy and
the effects localized or even restricted to these utility companies.
Cities can not be prosperous without efficient utilities; and utilities
can not be efficient without prosperit}7. Public regulation involves
public protection of credit.

There can be no possible justification for imposing such burdens
as are being inflicted upon security holders and taxpayers to-day in
an attempt to give something for nothing, by allowing the users of
transportation lines to enjoy the conveniences provided them at less
than cost. The crux of the whole problem is that fares should be
fixed on an equitable basis that will assure earnings sufficient to meet
operating expenses and pay a fair return on invested capital. And
by " invested capital," I mean actually invested capital, in its broad
sense.

The electric-railway security holders do not seek exorbitant in-
creases in fares ; quite the contrary. They are fully cognizant of the
fact that it is to their interest, as well as to that of the public, to
keep rates for service as low as possible, for low fares benefit the
companies through stimulating business.

In facing this situation public authorities should not forget that
they are holding in their hands the credit of their cities — savings
banks, life insurance companies, and other investment institutions,
and a large portion of the invested wealth of the country.

The problem is not merely local or political but of nation-wide
business importance : and if it is not fairly met, is capable of having
a widespread and disastrous effect on business — an effect which every
business interest, directly or indirectly, but inevitably, must share.

Mr. WARREN. Mr. Sisson, referring to that last statement about
the effect on business generally, are the securities of street railways,
in your opinion, pretty widely distributed?

Mr. SISSON. Yes; they are.

Mr. WARREN. And if this whole structure collapses, representing
an investment of about five or six billion dollars, you think that the
effect would be very widespread and very serious?

Mr. SISSON. I do. I think public-utility securities are more widely
distributed than any class of securities, broadly speaking.

320 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. And that is more true of street railways than of any
other class of securities ?

Mr. SISSON. Yes.

Mr. WARREN. It is more true of street railways than of any of the
others, except the railroads ?

Mr. SISSON. Yes.

Mr. WARREN. You spoke in the course of your statement of the need
of increased fares. Have you, from your study of the street-railway
situation, any doubt that, generally speaking, an increase in the fare
will produce a substantial increase in revenue?

Mr. SISSON. I have no doubt about that; no, sir.

Mr. WARREN. You have no doubt about it ?

Mr. SISSON. No.

Mr. WARREN. You spoke also of the diminishing margin of profit
on the short-ride haul.

Mr. SISSON. Yes.

Mr. WARREN. As making it impossible longer to continue the low
flat rate for all riders. What would be your remedy for that ?

Mr. SISSON. Well, the most obvious suggestion is that of the zone
system, of charging on some mileage basis.

Mr. WARREN. Under which a rider would pay for what he got ?

Mr. SISSON. Yes, sir.

Mr. WARREN. You spoke of the propriety of the car riders in bulk
paying for the service. When you say that, would you revise in any
respect some of the elements of cost for which car .riders now pay,
such as paving streets, paying bridge tolls, paying for bridge repairs,
cleaning streets, and so forth?

Mr. SISSON. I think a very effectual remedy could be applied im-
mediately in many instances by relieving the companies of local pub-
lic-improvement costs.

Mr. WARREN. As far as you can see, is there any reason why the
car rider should contribute anything to the general highway ex-
penses, more than an automobile rider or a truck rider ?

Mr. SISSON. No ; I certainly do not think so.

Mr. WARREN. The witness is at the disposal of the members of the
commission, Mr. Chairman. I' will be glad to have you ask any
questions that may interest any members of the commission.

Commissioner SWEET. Have you any figures, Mr. Sisson, or a table
prepared — or could you prepare one — that will show definitely the
distribution of the holdings throughout the community ?

Mr. SISSON. Yes. I have not such a table writh me, but we could
prepare a table that would give you a very good impression, although
not entirely accurate, of where these security holdings are, how much
of them are in the institutions —

Commissioner SWEET. Indirectly, we have been informed by other
witnesses that a great many street-railway bonds, and I think also
some stock, are owned by widows and orphans, or more than by
trustees.

Mr. SISSON. Yes.

Commissioner SWEET. And that the impression, which is rather
broadcast in the community, that the holders of these bonds are
wealthy people, is entirely a mistake. Is that true or not?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 321

Mr. SISSON. I think that is true without question. There are a
great many of these securities in the hands of institutions. Life
insurance companies and savings banks are holders of the bonds, in
very large figures. Aside from that, these securities are very largely
in the hands of the small investors. It was a class of security at the
time it was offered, which attracted the least conservative of in-
vestors because of the somewhat higher yield they gave over the
prevailing security offerings at that time and, as a rule, they were
very widely distributed to many comparatively small buyers.

Commissioner SWEET. At the time when the 5-cent fare was
originally agreed upon, apparently, between the cities and the pub-
lic-service corporations, in the granting of the franchises, that was
sufficient pay for all necessary expenses and a fair return upon the
investment, was it not?

Mr. Sissox. It was.

Commissioner SWEET. And, in some cases, I suppose, rather a large
return ?

Mr. Sissox. Yes.

Commissioner SWEET. And that naturally offered an inducement
to investors?

Mr. Sissox. Yes.

Commission SWEET. So that institutions like insurance companies
and people in a fiduciary relation representing an aggregation of
comparatively poor peopie, invested in them because they paid well
and were looked upon as exceedingly safe ?

Mr. Sissox. Yes.

Commissioner SWEET. Is that a fact?

Mr. Sissox. It is so. The popular selling argument, and one very
generally used in those days, was that you could count upon the
revenue-producing power of utilities of our great cities more def-
initely than you could upon any other class of securities.

Commissioner SWEET. Up to about what time did that condition
continue ?

Mr. Sissox. It existed until about the outbreak of the war. I
should say when the recent rise in the cost of labor and materials
overtook the revenues — perhaps beginning with 1915.

Commissioner SWEET. Has the change been gradual?

Mr. Sissox. It was rather abrupt. I think it has been staccato,
rather than gradual, in many instances, but it has been constant for
four years.

Commissioner SWEET. Is it as great to-day as it was three or four
months ago?

Mr. WARREN. Xo, it is not; although there are still rising costs in
labor and there are rising costs in material that must be met in many
instances, but the ratio of increase is smaller to-day that it was
before.

Commissioner SWEET. How do you account for that?

Mr. Sissox. Weil, largely because the costs of labor and material
both have almost reached the breaking point, and it was not possible
for them to increase ratably as much as they had for the last three
years and still find a market.

Commissioner SWEET. Do you mean to say then that there is an
increase up to the present time?

322 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. SISSON. Yes.

Commissioner SWEET. But that the rate of increase has been some-
what less in the last few months?

Mr. SISSON. Yes.

Commissioner SWEET. But that the point reached at the present
time is the high-water mark ?

Mr. SISSON. Yes. Up to this point ; yes.

Commissioner SWEET. In your judgment, what is the prospect for
the future?

Mr. SISSON. I think you will find still higher costs of material and
higher cost of labor. I think we will have to reckon with them for
an indefinite period of time.

Commissioner SWEET. The remedy you have suggested is higher
fares ?

Mr. SISSON. Yes.

Commissioner SWEET. Are you not aware that in some cases where
it has been tried it has resulted in a loss of patronage ?

Mr. SISSON. Yes; I am.

Commissioner SWEET. Do you think that a temporary condition ?

Mr. SISSON. I should say that that was exceptional and temporary,
because it is not sound economic law, as I understand economic law.

Commissioner SWEET. Do you think that may be the result of a
sort of temporary resentment on the part of the public ?

Mr. SISSON. Yes, I do; but, in smy event, an adjustment would
sooner or later be made on the equipment and extensions, and so forth,
to meet the public demand, whatever it was.

Commissioner SWEET. If the public were better informed as to the
causes, and realize that the present situation is not in any sense the
result of mismanagement or dishonesty, the public would be more
willing to accept the situation and pay higher fares; would it not?

Mr. SISSON. Unquestionably.

Commissioner SWEET. What, in your judgment, ought to be the
method of raising fares? Who should have the right to determine
what the fares should be?

Mr. SISSON. Of course, the laws affecting that matter are so dif-
ferent in the different States that it is rather hard to generalize.
Where there are efficient public-utility commissions in the States, it
seems to me that that power should rest with them as the agencies of
the legislature from whom the power springs, and that they should
regulate fares to meet the current situation, whatever it is.

Commissioner SWEET. Have you not already said that some of
these commissions were of rather narrow gauge?

Mr. SISSON. I have; and for that reason it is all the more neces-
sary that the public be informed, and that such a commission as your
own aid in that operation — if I may be pardoned for suggesting it —
which I believe is the basis for proper action to follow. I have
enough faith in the American people to believe that when they under-
stand a thing and that understanding is based upon an impartial in-
vestigation, or through their political agencies, they will have the
wisdom to put it on the right basis.

Commissioner SWEET. Do you think it is in the power of this com-
mission to perform a valuable public service in the way of recom-
mending what ought to be the general policy of the municipalities of
the country on this subject?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 323

Mr. SISSON. I certainly do, sir. I think there is a great oppor-
tunity— a great duty, I might add.

Commissioner SWEET. And is that duty, in your mind, restricted to
the corporations themselves ?

Mr. SISSON. Do you mean

Commissioner SWEET. I mean the private corporations engaged in
the street-railway business.

Mr. SISSON. No ; I should say that your chief duty lay in advising
and informing public bodies in relation to it.

Commissioner SWEET. For whose benefit ?

Mr. SISSON. The benefit of the public. I am willing to put this
whole matter on the flat basis of public interest, because it has funda-
mental public interests.

Commissioner SWEET. Then from 3'our viewpoint the chief benefit
that might be derived from a proper understanding of this subject and
a proper recommendation on the part of this commission would be to
the public, rather than to those who are conducting the business?

Mr. SISSON. I certainly do, sir.

Commissioner SWEET. Or the investors?

Mr. SISSON. Yes.

Commissioner SWEET. In order that the street-railway business
may be prosperous, is it essential that new capital should be added
continuously?

Mr. SISSON. Yes, sir; without question — constantly. As the coun-
try grows its demands grow. New capital must constantly be sought
to meet the local demands of some growing communities.

Commissioner SWEET, You are rather inclined to favor the zone
.system, are you?

Mr. SISSON. It seems to me to offer a fair solution ; yes, sir.

Commissioner SWEET. Have you worked out in detail a plan for
operating the zone system ?

Mi\ SISSON. I have not, but I have seen such plans in New York,
but nowhere else.

Commissioner SWEET. Is it in operation?

Mr. SISSON. No. It is purely theoretical, on paper.

Commissioner SWEET. It has been tried in some places, has it not?

Mr. SISSON. It has been tried with great success, I understand, in
London and in many other great European capitals. It has been
tried successfully there.

Commissioner SWEET. Some witnesses that appeared before us
have told us that where the zone system had been employed in Europe
and in some parts of this country, I think, the tendency has been to
build up the centers and to add to the congestion of cities rather than
to properly distribute the population. Do you know anything about
that?

Mr. SISSON. I have heard that argument made, and I recognize its
soundness. I think perhaps that may be true, offset by decreased
rentals and decreased cost of land. I think it would not be so
valuable for vacant-land speculators, but I do not think the con-
suming public should have to bear that charge. In other words,
the lower cost of living in the outlying sections ought to more than
offset the increased fare to their business or industrial engagements,
whatever they are.

324 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. The city burdens would be substantially the
same, however, in the outlying districts as in the centers?

Mr. SISSON. Yes.

Commissioner SWEET. So far as taxation and matters of that kind
are concerned?

Mr. SISSON. Yes.

Commissioner SWEET. It is only after you get beyond the limits of
the city that you would find relief from those burdens, is it not?

Mr. SISSON. Yes.

Mr. WARREN. The assessments would be smaller, though; would
they not, Mr. Chairman ?

Commissioner SWEET. The assessments would be smaller, but the
rate of taxation would be the same, I take it.

Mr. Sissox. Yes; of course that spreads over the city.

Commissioner SWEET. The zone system that you have in mi: id —
will you kindly describe that so that we may have a little moro
definite idea of it ?

Mr. SISSON. Well, I will not undertake to go into any great detail,
any more than to say that it should be, in my judgment, based upon
mileage. For instance, in the great city of New York a man can
ride from Yonkers' city line almost and from Mt. Vernon's city line
clean to Coney Island, nearly 30 miles, for 5 cents. Well, that is
obviously a luxury that the public enjoys at the investors' expense
to-day. It is not equitable ; it is not good business. Now, if a system
could be arranged whereby a man pays a 5-cent fare from the Yonkers
city line to a given point and then is required to deposit another ticket
for another haul, as is true in many surface systems, it would be only
equitable and it would be a source of immense revenue to local trac-
tion lines.

Commissioner SWEET. It would not be practicable to bring the
relation between service and compensation to an absolutely fine point
in the way of equity, would it? For instance, a man who travels
a single block, or two blocks, on a street railway would pay, under
the conditions that exist, a nickel ?

Mr. SISSON. Yes.

Commissioner SWEET. And the same for a dozen or more blocks
or more?

Mr. SISSON. Yes.

Commissioner SWEET. Now, there a greater service would be ren-
dered for the same compensation?

Mr. SISSON. Yes.

Commissioner SWEET. That can not very well be avoided?

Mr. SISSON. No; I do not see that that can be made accurate.

Commissioner SWEET. But your idea, if I understand it, is that
zones might be established which might be equitable and just, and
bring about a better relation between service rendered and

Mr. SISSON. Cost.

Commissioner SWEET (continuing). And compensation for it?

Mr. SISSON. Exactly.

Commissioner SWEET. And that system would be desirable on the
whole ?

Mr. SISSON^ Unquestionably, in our great cities — between cities.

Commissioner SWEET. And it would be more businesslike?

Mr. SISSON. Yes; there is not any question about that.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 325

•Commissioner SWEET. Do you see any other argument, except that
of the distribution of population, against this plan ?

Mr. Sissox. The argument of difficulty in collection, which is
sometimes advanced, but I think that would be very easily overcome
by mechanical methods.

Commissioner SWEET. The sale of a number of tickets would
obviate the necessity of making change, would it not?

Mr. Sissox. Yes.

Commissioner SWEET. It has been said that if we had a different
coinage, a 7 or a 74 -cent piece, or something of that kind, it would
be of very great benefit in this matter. What is your opinion there?

Mr. Sissox. Well, I think if the dollar continues to depreciate in
value, it will be necessary for us to have some intermediate coins,
because, after all, these are simply tokens of exchange. They do
not represent real value in themselves, to any extent.

Commissioner SWEET. No.

Mr. Sissox. And our old coinage system, based upon the dollar
value of five years ago, does not meet the situation of to-day, in
many instances.

Commissioner SWEET. It would avoid a certain amount of annoy-
ance and inconvenience?

Mr. Sissox. Exactly.

Commissioner SWEET. Is it your opinion that the American people
pay more attention to that annoyance than do Europeans ?

Mr. Sissox. I think they do, yes. I think they do.

Commissioner SWEET. Do you think we are inclined to do things
on a somewhat larger and more liberal scale, and we do not like
what seems to be hair-splitting?

Mr. Sissox. Yes; I think that is true; and you need only see tho
situation in various parts of our own country. In California, for
instance, for a good manj7 years, the nickel was the smallest unit
used.

Commissioner SWEET. Yes.

Mr. Sissox. You had to pay 5 cents for a newspaper, and 5 cents
for anything — they never saw pennies out there — and everything
from that point up. It was simply the custom of the community.

Commissioner SWEET. Do you think that is something that is in-
herent in the newer communities?

Mr. Sissox. I do. There is no question about that.

Commissioner SWEET. In regard to taxation, you said you thought
certain forms of indirect taxation — like paving between flie tracks,
bridge tolls, bridge repairs, and that sort of thing — all of which are
now borne by the street-railway companies, in many instances should
be avoided — that that is a bad practice.

Mr. Sissox. Well, I think it imposes undue hardships upon the
transit lines in many cases, and it might mean the difference between
solvency and insolvency in many cases. It seems to me that when
these lines are operating so near the danger line as thejT are, the
community might very well afford to undertake those improvements
at its own expense, rather than force the issue against the lines. Of
course, that situation would vary in different communities. It is
very hard to generalize about that.

Commissioner SWEET. In the period prior to 1015. when the busi-
ness was reasonably prosperous, is it your opinion that the arrange-

326 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

ment that was made between the cities and the street-railway corpora-
tions for doing this paving and repairing, and so forth, was based
upon the idea that they were getting it out of the companies them-
selves rather than out of the users of the railways?

Mr. SISSON. Unquestionably.

Commissioner SWEET. Was that at that time a correct theory ?

Mr. SISSON. No ; I think not, entirely.

Commissioner SWEET. Is its incorrectness, in your opinion, empha-
sized and increased very largely by present conditions?

Mr. SISSON. I certainly think so. It is fallacious.

Commissioner SWEET. Is there any doubt in your mind as to the
fact that, under the conditions as they now^xist, the continuance of
this policy means placing an undue burden upon the users of the
street railways?

Mr. SISSON. That is the exact effect of it to-day; yes, sir.

Commissioner SWEET. And if the fares are increased, and this
system with regard to paving, bridge tolls, bridge repairs, and that
sort of thing, should be continued, would it not be, in your judgment,
exacting from the users of railways an unjust form of indirect taxa-
tion, which would be requiring that part of the community to pay
for something that is used more by automobile owners in other parts
of the community, which would be exempt from that form of tax-
ation ?

Mr. SISSON. That seems to be a very clear and obvious statement,
sir. I do not see how anybody could escape that conclusion. It is
certainly true in our large cities.

Commissioner SWEET. Is not that a very strong argument in favor
of abandoning this sort of obsolete practice?

Mr. SISSON. It certainly is.

Commissioner SWEET. In your judgment, are the street-railway
companies at the present time being managed efficiently?

Mr. SISSON. On the whole, I think they are. We as bankers, have
just finished a very searching and thorough examination of the New
York transit lines, entirely impartial and quite critical ; and the re-
ports that we get are most reassuring that, so far as the management
is concerned, it is just as nearly efficient as it can humanly be made,
and that I think is true of most of the high-grade lines throughout
the country.

Commissioner SWEET. We had evidence yesterday from Mr.
George, one of the receivers of the Pittsburgh Railways Co.

Mr. SISSON. Yes.

Commissioner SWEET (continuing). That, after taking charge of
the property, they reached the conclusion that the management had
been both honest and capable.

Mr. SISSON. Yes ; I think that is broadly true throughout the coun-
try of the lines with which I am familiar.

Commissioner SWEET. Have you any direct information on that
point from the receivers of other companies, or in any other manner?

Mr. SISSON. Yes; particularly in New York City and Brooklyn,
where that is the opinion of the receivers of all the companies there,
I think I am safe in saying, and better than that, it is the direct
finding of capable engineers who have made this analysis for the
benefit of the security holders.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 327

Commissioner SWEET. I assume that there may be instances of in-
competency and possibly of dishonesty in some particular localities.

Mr. SISSON. Undoubtedly.

Commissioner SWEET. What is your judgment in regard to the
business as a whole, whether it is managed with honesty and ability,
and with an earnest desire to promote the interests of the general
public, as well as of the investors ?

Mr. SISSON. I think, from a very careful study of the situation,
that it ranks above the average business in all those particulars.

Commissioner SWEET. You do?

Mr. Sissox. I do. I might say in that connection, because of the
necessities of their situation.

Commissioner SWEET. Yes.

Mr. SISSON. In many cases, undoubtedly.

Commissioner SWEET. Have you any suggestion to make to this
commission as to the practical method of getting into the minds of
the general public the situation as it exists, and as you see it ?

Mr. SISSON. Well, I could not go into great detail, but I should
think that an authoritative report from you, based upon your analy-
sis of the situation, recommending a certain attitude and course of
action on the part of the public and their political agencies, would
have a very farspread effect in remedying the situation throughout
the country.

I do not know the scope and limit of your authority in the matter.
I did not see what the nature of the appointment was, but I assume
your findings will be only recommendations. However, I am very
sure that they will have a very immediate effect in the making of
public sentiment, which is the underlying necessity in the whole
situation, because, sooner or later, public sentiment is reflected in
legislative and regulative action. ,

Commissioner SWEET. The present attitude of the public upon this
subject is a sort of inheritance, is it not ?

Mr. SISSON. Yes; it is in part justified and in part the blind, un-
reasoning ignorance of self-interest. It is justified in a measure by
some bad practices — bad financial practices and operating practices
in the past that have aroused resentment, and proper resentment, but
from which the public has reacted to a point of antagonism that is
just as unfair and unwarranted and unjustified as the actions which
they themselves have criticized.

Commissioner SWEET. Who are the chief sufferers because of that
mistaken view?

Mr. SISSON. Of course, the security holder, primarily, and the
traveling public in the next place.

Commissioner SWECT. Does it not have an effect upon the general
prosperity of the country — are not all the people of the country more
or less atfected by it?

Mr. SISSON. Unquestionably, because so large a portion of the pub-
lic is interested, directly or indirectly, in the problem.

Commissioner SWEET. As an investment banker, would you know
if the custom of issuing bonus stock or putting water, as the people
say, into stock is now in vogue?

Mr. SISSON. It is not.

Commissioner SWEET. Do you know that it is not ?

Mr. SISSON. I know that it is not, in companies of that character.

328 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Yes.

Mr. SISSON. It is still frequently used in industrial flotations of
various sorts. Public sentiment has not reached that point ap-
parently, yet; but the public utilities — the railways and matters
where the public interest is alive, that practice has not been in vogue
in regard to them for a long time.

I might say in further explanation of that, that in the development
of any new industry, like a railway or public utility, the investment
banker very often finds it necessary, in order to secure direct invest-
ment in the obligations of the company, to give a profit-sharing in-
terest in the future of that company, in the form of a stock bonus,
in order to induce investment. Where these things are hazard, their
profit earning is all estimated as a matter of guess work ; the specula-
tive possibility in the situation is the only thing that attracts the
investor, and stock bonuses have been given simply to make the direct
offering attractive.

Commissioner SWEET. The way in which that has been done has
been by giving a certain amount of stock ?

Mr. SISSON. Of common stock.

Commissioner SWEET. Of common stock?

Mr. SISSON. With the bonds.

Commissioner SWEET. To the purchaser of the bonds or preferred
stock ?

Mr. SISSON. Exactly. I might go further and say that it is my
judgment that this country would not have been built up and we
never would have had our railways and public utilities if that finan-
cial practice had not been pretty general throughout the days of pro-
motion and creation.

Commissioner SWEET. In order to get new capital to invest in
street-railway enterprises

Mr. SISSON. Exactly.

Commissioner SWEET (continuing). There must be some reason-
able assurance of a fair rate of interest upon the investment?

Mr. SISSON. Yes.

Mr. SWEET. And a reasonable certainty of return on the capital
investment ?

Mr. SISSON. Exactly; absolutely.

Commissioner SWEET. No one could possibly deny that proposi-
tion?

Mr. SISSON. No.

Commissioner SWEET. Now, can you suggest any definite and dis-
tinct and practical method by which that may be accomplished?

Mr. SISSON. Well, of course, very obviously by an expression of
public sentiment through regulating bodies — that would assure a
reasonable earning power.

Commissioner SWEET. Have you considered the service-at-cost
plan, as it is called?

Mr. SISSON. It would seem to me that that margin would be too
narrow to attract investors, as a rule. They would like to have a sur-
plus, a sinking fund, and a margin of earnings above that, if they
had their say in the matter.

Commissioner SWEET. Does the service-at-cost plan necessarily
limit the return that should be allowed on the capital invested ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 3'29

Mr. SISSION. It does not necessarily, but. of course, it might do so.

Commissioner SWEET. Or, if it does it, would it be limited at a
point to attract investors?

Mr. SISSON. That would .be the danger.

Commissioner SWEET. Suppose it were not. Suppose a 6 or 6| or
7 per cent rate were understood to be a reasonable amount?

Mr. SISSON. I think that would be very attractive to the average
investor.

Commissioner SWEET. What percentage do you think would be
necessary ?

Mr. SISSON. Well, I should say on bonds that the investor would
not be satisfied with less than 5 per cent earnings on street railwa}7s,
and not less than 6 per cent upon stock. I mean actual stock.

Commissioner SWEET. Common stock?

Mr. SISSON. Common stock; but he would like 8 or 9, and in the
ordinary attitude of the investor and banker toward the question,
in my judgment, it should not be less than 7, and ought to be 8; but
I assume the whole situation would be stabilized if he knew he got
anything above the 6 per cent return.

Commissioner SWEET. Do you think a guaranty of 5 per cent on
bonds would be sufficiently attractive to investors to meet the needs
of the companies at the present time?

Mr. SISSON. Well, the guaranty — do you mean by that to limit it to
5 per cent ?

Commissioner SWEET. Yes.

Mr. SISSON. To assure them of 5 per cent?

Commissioner SWEET. To assure them of 5 per cent, and not more.

Mr. SISSON. Yes; I think

Commissioner SWEET. On bonds.

Mr. SISSON. I think the public-guaranteed bond on a 5 per cent
offering would be attractive to-day.

Commissioner SWEET. Do you think such bonds could be floated
at the present time?

Mr. SISSON. It would depend a good deal upon the nature of the
guaranty, upon the size of the community, and the political character
of the Government. Money rates are higher than that to-day. Five
and a half per cent is the existing rate on money to-day, and my own
judgment is that money is going higher. The demand for capital is
so great that it seems to me inevitable that it will be forced up,
and that while a guaranteed governmental obligation, like our own
United States obligation, can be sold at better than 5, it would have
to be of a very sound character to be attractive at 5 ; but it would be
attractive on a sound guaranty. If the city of New York or the
State of New York guaranteed its corporations 5 per cent, the se-
curities could be sold, and they would be attractive to investors.

Commissioner SWEET. Do you see anything inconsistent with a
guaranty, or what would amount to a guaranty of that kind, in the
cost-of -service plan?

Mr. SISSON. No.

Commissioner SWEET. Service at cost, I think it is called.

Mr. SISSON. No; I do not. My own theory is that if we got into

the guaranty field, we are encroaching so closely upon the field of

public ownership that sooner or later we will step over the line into

it, and with an assurance of a reasonable earning power to be dis-

100043°— 20- 22

330 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

tributed by the owners of the roads through fixed charges and labor
charges and material charges, in accordance with their owTn necessi-
ties and judgment, is a much more businesslike way to leave the situa-
tion than to provide for fixed guarantees. But perhaps that is not
possible. If it is not, I would approve the guaranty.

Commissioner SWEET. Would it not be feasible for a State com-
mission, for instance, to fix a tentative rate and then, later on, have
an adjusting scale? If the rate fixed in the start did not produce the
fixed income to meet the needs of the companies and the investors,
would it not be feasible that automatically or by further action of the
State commission, a slight increase should be made, and so on, until
a point Avere reached where the property would be preserved in at
least avS good condition as it was when taken, necessary extensions
made, investors properly compensated, and business go on profitably ?

Mr. SISSON. I think that is entirely feasible.

Commissioner SWEET. That would be feasible, would it not ?

Mr. SISSON. It would be feasible, and most desirable.

Commissioner SWEET. Would not a somewhat elastic arrangement
of that kind really meet the situation better than merely a range of
7^ or 8 or 9 cents?

Mr. SISSON. It would be much more scientific.

Commissioner SWEET. Yes.

Mr. SISSON. It would depend only, I might add, upon the intelli-
gence and broadmindedness of the regulating commission which, in
many instances, undoubtedly, would be equal to the situation.

Commissioner SWEET. You can not entirely exclude the human ele-
ment, could you, from any arrangement of that kind?

Mr. SISSON. Nor the political element.

Commissioner SWEET. No. The success of any plan that may be
adopted would depend very largety, would it not, upon eradicating
from the public mind the prejudices that have existed?

Mr. SISSON. Exactly.

Commissioner SWEET. And bringing about a better cooperation
between the companies and the public. And the common councils
and representatives of the public.

Mr. SISSON. Yes.

Commissioner SWEET. By making the people realize what is the
fact — that their own prosperity depends largely upon the mainte-
nance of this service.

Mr. SISSON. Exactly. It may be necessary, in order to secure that,
to establish some sort of community of interest between the corpora-
tion and the public, whereby earnings above a certain figure revert
to public uses. That might put an automatic check upon too high a
fare. I am really skeptical of that profit-sharing arrangement, as
it has not worked successfully in all places where it has been applied ;
but, theoretically, I think anything that establishes a community
of interest and a community of understanding between the owners
and users is to be desired.

Commissioner SWEET. Will you explain that a little more
definitely ?

Mr. SISSON. Well, you are familiar, undoubtedly, with the systems
that are in vogue in several cities in this country, where there is .1
provision for a division of profits between the city and the corpora-
tions beyond a fixed return to the corporation.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 331

Commissioner SWEET. We ask some questions of this kind in order
to make the record more complete.

Mr. SISSON. Yes.

Commissioner SWEET. And if you will just explain it so that a
person — the average man in the community on reading it — will get
a clear apprehension of what you have in mind, it would be better
than it would be to appeal to the members of the commission upon
their own information.

Mr. SISSON. Yes. Well, that plan is theoretically perfect, but it
has not always been practically successful.

Commissioner SWEET. Well, just give us what that plan is.

Mr. SISSON. To provide that the fare shall be such as is mutually
agreed upon, and that any return to the corporation above a certain
fixed return to be agreed upon shall be divided on some basis between
the city and the corporation. That ought to prejudice public senti-
ment in favor of the corporation, as it is an institution in which they
have an interest.

Commissioner SWEET. It ought to remove prejudices against the
corporation ?

Mr. SISSON. Now, I am sorry to say that that has not been true
in all instances where it has been tried, but I believe that it is still
worth a trial, and that the sound theory that is presented by it has
hot yet been disproven by its failure in instances to secure that
result. Personally, I believe very thoroughly in the profit-sharing
plan.

Commissioner SWEET. But, Mr. Sisson, don't you think that this
objection might be raised to that plan — that whatever is the share of
the general public in those properties, would simply reduce general
taxation?

Mr. SISSON. Yes.

Commissioner SWEET. And during the following year would be
somewhat lessened by reason of receiving their share; is not that
true ?

Mr. SISSON. Yes.

Commissioner SWEET. Would not that, then, be removing from the
general public a part of the burden of taxation and placing it
entirely upon the users of the railways?

Mr. SISSON. Unquestionably.

Commissioner SAVEET. Would that be a just arrangement?

Mr. SISSON. No; not entirely, except on the theory that a large
proportion of the general public are users of the utilities; but the
point is well taken.

Commissioner SWEET. What portion of the public is it that does
not use the street railways, or that use them the least ? Can you tell
us what that is?

Mr. SISSON. Well, it is being relieved, of course, from a portion
of taxation.

Commissioner SWEET. Well, what portion of it is it? Is it the
richest or poorest, or what part of the community is it that uses the
street railways the least?

Mr. SISSON. I think it woud be a portion of both extremes.

Commissioner SWEET. A portion of both extremes?

Mr. SISSON. Yes, sir; the poorest and the richest.

332 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. The people who have no property to tax,
and the people who have the most property to tax.

Mr. SISSON. Yes.

Commissioner SWEET. Is that right?

Mr. SISSON. Yes, sir; absolutely.

Commissioner SWEET. The one not having the nickel, and the other
having an automobile?

Mr. SISSON. Exactly.

Commissioner SWEET. Very well. Now, the people that do use the
street railways most would be paying a fare that was higher than
actually necessary.

Mr. SISSON. Yes.

Commissioner Sweet. A part of the general burden that ought to
be borne by the whole community.

Mr. SISSON. Yes; undoubtedly.

Commissioner SWEET. And the users of automobiles, at least, get
the benefit of this saving and street improvements and all that sort
of thing that. would be thrown largely upon the users of the rail-
ways ; would they not ?

Mr. SISSON. Yes; that is a perfectly sound argument. The only
defense for the other theory is that it might help establish a better
feeling towards the property, which would be reflected in the general
community good, but it should not be necessary. In other words, I
think the more we can avoid paternalism in the treatment of this
business, the better it will be, not only for them but for the com-
munity as a whole.

Commissioner SWEET. Would not the remedy in all cases of that
kind, where a surplus was produced, better be handled by reducing
the rates?

Mr. SISSON. Yes; that could be done.

Commissioner SW'EET. To the lowest point consistent to its pro-
ducing the necessary amount of income ?

Mr. SISSON. Yes.

Commissioner SWEET. That would be the nearest to absolute justice
to the whole community ; would it not ?

Mr. SISSON. It certainly would.

Commissioner SWEET. And the profit-sharing device — don't you
think it has in it a sort of element seeking to get the favor of people
by deceiving them?

Mr. SISSON. It is begging the question, I frankly agree; yes, sir —
perhaps not deceiving them as much as throwing a sop to them, I
should say.

Commissioner SWEET. Well, making them feel that they are get-
ting something for favoring the system.

Mr. SISSON. Yes.

Commissioner SWEET. Without really a basis of justice in it.

Mr. SISSON. You are quite right. I definitely agree with you.

Mr. WARREN. It is another form of paving taxes, really, is it not?

Mr. SISSON. Yes. It has some color —

Commissioner SWEET. And the bridge tolls and the fares and the
cleaning of the streets, where it is required of the companies ?

Mr. SISSON. Yes.

Commissioner SWEET. All those things would come under that same
objection?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 333

Mr. Sissox. Absolutely.

Commissioner SWEET. I think that is all. Mr. Meeker, have you
any questions?

Commissioner MEEKER. You spoke of the practice in financing
street railwaj's in times past whereby stock was issued, not for a
money payment, but as an inducement, as a bonus, to bond buyers.
Do you think the street railways now represent in their physical
properties value equivalent to the outstanding bonded debt and stock?
Mr. Sissox. Well, I can not speak accurately about that. I should
be surprised if they, under their present earning power, represented
value equivalent to their entire capitalization.

Commissioner MEEKER. I did not catch your answer.
Mr. Sissox. I say I should be surprised, if under their present
earning power — because earning power determines value — I should
be surprised if their value equaled their capitalization. I do not be-
lieve it does, including stocks and bonds.

Commissioner MEEKER. When you speak of value, do you mean
the value of the physical property?

Mr. Sissox. No ; I was speaking broadly of their whole value, be-
cause it is the entire value that is capitalized. For instance, fran-
chise values are capitalized and are taxed in New York State defi-
nitely as property, and in other places, I have no doubt, and are dis-
tinct value, provided there is earning power to warrant it. The taxa-
tion of franchises in New York State was based upon the theory
that earning power derived from franchises was a legitimate source
of public taxation. Now, if that earning power does not exist, the
value does not exist. In other words, common-stock values in most
street railways were based upon franchise values and earning power,
and not upon physical values. I do not believe the physical values
of the railways, while I am sure it is greater than the bond obliga-
tions, has yet reached the point where it absorbs stock obligations.
Perhaps I can give you a better analogy of it in the railroad field.
One of the great public fetiches to-day is that railroad stocks are
watered, but the sober fact is, as any student of the situation can
determine, that the probabilities are that the physical value of the
railroads to-day is something like $1,500,000,000 in excess of the
capitalization. That was not true 25 or 30 years ago, but out of
earning power the railroads have put back into the property, year
after year and year after year. For instance, the Pennsylvania has
put back something over $300,000.000 out of earnings into prop-
erty values. The New York Central lines built their Chicago termi-
nals out of the surplus earnings on the Lake Shore, and that has
been true of many of the big railroad lines. To a lesser degree that is
true of the street-car lines, but they have not yet reached the point
where they have absorbed their overcapitalization, if you may call
it such.

Commissioner MEEKER. What, in your opinion, should be done
with investments out of earnings in that fashion ? Are they the
property of the street-railway companies upon which they are en-
titled to a reasonable return?

Mr. Sissox. In my judgment, yes, because that is the practice in
every business in the world, and I do not know any reason why in-
vestors in street-railway securities should be discriminated against.

334 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

It is true of every industrial activity. Henry Ford starts a factory
with a few thousand dollars, and to-day he is worth hundreds of
millions out of earnings, and we all pat him on the back and say,
"A wonderful job."

Mr. WARREN. And buy Ford cars without any protest.

Mr. SISSON. Yes, sir ; and pay the price that enables him to make
those profits ; and I do not know of any reason why we should dis-
criminate against our public-service corporations for having, in
their limited way, done what the industrial corporations and financial
institutions and every other class of business do without protest. In
other words, it is the legitimate reward tha-t comes to business ven-
ture. That has been true according to all of the old theories of
doing business. We may change that in the future.

Commissioner MEEKER. You think that public opinion has not
changed in reference to public utilities?

Mr. SISSON. I think it has to a certain extent. I think it has
been becoming definitely socialized in a great many places.

Commissioner MEEKER. It was not quite clear to me whether you
believed in a guaranty of a fair return upon a fair valuation of the
whole property of the street-railway company or not ?

Mr. SISSON. I believe in a guaranty if they can not get an assurance
of earning power in any other way. I think the less paternalism,
the less operating guaranties that we have in any of our public util-
ities, the better; but if it is not possible to adopt such plan as your
chairman indicated there, by ."which an assurance of earning power is
given, and arranged scientifically up and clown to meet the costs
and the needs of the situation,^ then I am frank to say that I think
a guaranty is the only think that will attract the investor.

Commissioner MEEKER. Do you think a guaranty of a minimum
earning might be made, with freedom to make more than a mini-
mum earning?

Mr. SISSON. That would be somewhat more attractive.

Commissioner MEEKER. More attractive to the investor ; but would
you advocate that as justice to the public?

Mr. SISSON. Well, I should say that if that was kept within reason-
able limits yes.

Commissioner MEEKER. That is a minimum and a maximum fixed ?

Mr. SISSON. A minimum and a maximum ; yes.

Commissioner MEEKER. What would do in the case the earn-
ings exceed the maximum?

Mr. SISSON. Well, you would have two alternatives: An elastic
system of regulation, which would reduce the rates to take up that
slack, or a profit-sharing plan, which would turn it over to the pub-
lic treasury.

Commissioner MEEKER. It was not entirely clear to my mind
which of those alternatives you would prefer.

Mr. SISSON. I would prefer the business alternative of regulating
the rates to meet the situation, if it were possible to do so scien-
tifically. That assumes an intelligent and sympathetic regulating
board which, I am sorry to say, is not always possible in American
politics.

Commissioner MEEKER. A true service-at-cost plan would take
cognizance of all costs of service, would it not ?

Mr. SISSON. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 335

Commissioner MEEKER. It would necessarily provide for a solvent
concern instead of an insolvent concern; all of the legitimate ex-
penses of conducting- the business must be taken care of.

Mr. SISSON. Yes.

Commissioner MEEKER. Under any cosl -of-servicc or service-at-
cost plan?

Mr. SISSON. Yes.

Commissioner MEEKER. That deserves that name?

Mr. SISSON. That is right.

Commissioner MEEKER. And with that reasonable interpretation
of the service at cost you would be in favor of such a plan?

Mr. SISSON. I would.

Commissioner MEEKER. That is, with no fixed fare of 5 cents or
7 cents or 10 cents?

Mr. SISSON. Exactly.

Commissioner MEEKER. But the fare to be fixed according to the
earnings ?

Mr. SISSON. Exactly. I think that would be very desirable.

Commissioner MEEKER. I came in late, unfortunately. Are you in
favor of local regulation by municipalities? You are in favor of
regulation ?

Mr. SISSON. Yes. Xo; I think that State regulation is on the
whole much fairer.

Commissioner MEEKER. Should there be a combination, perhaps,
of local and State ?

Mr. SISSON. Well, suffering as they are jn New York City right
now, I would prefer that there be no combination ; but perhaps it is
only fair to the community that they should have something to say.

Commissioner MEEKER. I am not entirely familiar with the Xew
York situation. Will you elucidate the situation there?

Mr. SISSON. In Xew York to-day, we have a conflict of authority
between our board of estimate, which includes the mayor and his
immediate associates in power, and our State authorities. They have
been at loggerheads there for a year, with the result that nothing has
ever been done ; no relief given and bankruptcy after bankruptcy has
followed. Xow, if there was power in either body to act independ-
ently of the other, I am sure that some change in the situation
would have taken place long ago; but for a long time there we had
a political conflict between the Republican public-service commission
and the Democratic State administration and neither side was willing
to yield to the other, which was most unfortunate to the interest of
the public and security holders. That conflict still exists, although
there are signs of relief there through the courts and through the
more sympathetic attitude on the part of our governor. But whether
or not they will reach the point of action only the future can develop ;
but it lias been most unfortunate for Xew York City that that con-
flict has existed, in which rights of action have not been clearly
defined.

Commissioner MEEKER. Your opinion then is that an undivided,
single authority is to be preferred to any cooperative plau ?

Mr. SISSON. Unless the right of ultimate decision is clearly fixed,
I certainly think so.

Mr. WARREN. And made apparent.

336 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. SISSONT. I think they might work out some advisory relation-
ship or something of that sort, but I think there should be but one
authority in a situation of that kind and that definitely fixed.

Commissioner MEEKER. I take it from the testimony that I have
listened to that there have been unwise extensions and building of
new lines on the part of street-railway companies. What should be
done with those lines that have been unwisely built and those exten-
sions that have been unwisely built ?

Mr. SISSON. Well, broadly speaking, bad business ventures pay the
penalty for bad guessing, in losses, and where there is no power of
recovery from a clearly established public interest, I should say the
men who put money in those properties would have to face the losses
unless the public interest was such as made that inadvisable from the
public viewpoint.

Commissioner MEEKER. Do you think it would be justifiable to
abandon those lines to cut down the operating expenses?

Mr. SISSON. Yes.

Commissioner MEEKER. Well, do you think that the regulating
body should have decision as to when extensions should be made —
when and where — and when and where new lines should be built ?

Mr. SISSON. I do, providing the arrangement is such as to furnish
the credit by which those extensions can be made. In other words, I
feel that if the regulating bodies are going to get on top of these utili-
ties they must get underneath them, too. If they are going to fix
their earnings, they must also establish credit.

Commissioner MEEKER. You spoke a momei.t ago about the de-
sirability of having a definite single authority. Does that squint
toward public ownership ? Is it possible to have this public interest
on top and underneath private companies in the street-railway busi-
ness? Is it possible to work out any scheme of cooperation there,
or is it best to give up the attempt and go back into public ownv.r-
ship?

Mr. JSissoN. Well, that is a very v .al question. My hope and be
lief is it is, but I am not entirely sure in my onw mind.

Commissioner MEEKER. Your answer is "Rut entirely clear to mo.

Mr. SISSON. It is my hope and belief that it would be possible
to work out a plan of regulation, which does no; necessarily imply
public ownership, but I am not entirely sure that it is. I frankly
say that.

Commissioner SWEET. You think it ougL to be tried first, any-
way?

Mr. SISSON. I think it should be the first attempt — that we ought to
do everything possible before we reach any conclusion that public
ownership is inevitable, because in my mind 7 believe that political
and economic tragedies would follow public ownership in this
country that would be very disastrous.

Commissioner MEEKER. With minimum and maximum earnings
practically guaranteed, what better Avould be private ownership un-
der such a scheme than public oAvnership and operation?

Mr. SISSON. Well, you would avoid the chief objection to public
ownership and operation, which is political ownership and opera-
tion, which inevitably piles up cost and reduces efficiency; and I
can show you a long record of inefficient operation and multiplying

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 337

eosts, which would have to be borne by the public and would be
disastrous to the public interests as well as to the private interest
involved.

Commissioner MEEKER. You are speaking of publicly owned and
operated lines now?

Mr. SISSON. Yes.

Commissioner MEEKER. In what communities?

Mr. SISSON. Well, broadly speaking, in 85 or 90 per cent of the
communities that have tried it. There are some exceptions, sir, but
the whole record of public ownership and operation of public utili-
ties has been that of multiplying costs.

Commissioner MEEKER. You are speaking of public utilities in
general now?

Mr. SISSON. I am speaking of public utilities in general now, but
it would apply in equal degree to the street railwa}*s. And perhaps
in a greater degree to them than to some others.

Commissioner MEEKER. Why should it apply to the street railways
in a greater degree?

Mr. SISSON. Because of their close contact with the public. Water
power does not come in such close contact in the same way.

Commissioner MEEKER. It is easier to move water than it is to
move an electric car?

Mr. SISSON. Yes, and there are not all the causes of daily irritation
and delay.

Commissioner MEEKER. It is nowhere nearly as complicated.

Mr. SISSON. No.

Commissioner MEEKER. You were not speaking of the experiments
abroad, were you?

Mr. SISSON. Well, I was, throughout the world.

Commissioner MEEKER. Throughput the world?

Mr. SISSON. Yes. There are some exceptions abroad, but those ex-
ceptions are, for the most part, marked by reasons that make them
exceptions, that are very obvious.

Commissioner MEEKER. You expressed some doubt about the win-
ning out of this cooperating scale between the public and private
corporations.

Mr. SISSON. No; I should not say a doubt — a mental reservation.
I said I hoped and believed it was possible, but I was not entirely
sure.

Commissioner SWEET. I^et me ask one question or two there, Mr.
Meeker.

Have you found objection to municipal ownership of the water-
supply ?

Mr. SISSON. Not extensively; no. There have been instances of
objection and instances of marked failure on the part of the munici-
pality but, on the whole, I think the ownership — the municipal own-
ership— of water stations has been efficient and desirable.

Commissioner SWEET. In addition to the points referred to, is it
not true that the relationship between public health and the water
supply is so direct that the city ought to have control of the water
supply?

Air. SISSON. I am inclined to think that that is true; yes.

338 PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Is it not also true that the need of water in
public parks and cemeteries and for fire protection is a further rea-
son for municipal ownership of the water supply?

Mr. Sissox. Yes.

Commissioner SWTEET. And those are arguments that would not
apply to street railways?

Mr. Sissox. Not at all. It is a different form of service entirely.

Commissioner SWEET. The first step toward a sort of qualified
guaranty such as you have mentioned of a reasonable interest or
dividend upon the investment is to find out what the investment is,
is it not?

Mr. Sissox. Exactly.

Mr. SWEET. This guaranty ought to apply, ought it not, to present
investors as well as future investors?

Mr. Sissox. Exactly.

Commissioner SWEET. Have you any suggestion to make to the
commission as to a practical way of determining the amount upon
which such a qualified guaranty should be based ?

Mr. Sissox. Well, that is a rather difficult question. Of course it
ought to be based upon the physical values of the properties, consid-
ering the cost reproduction. It ought to be based upon the franchise
values and the estimated earning power upon which money was
invested, as far as possible ; and perhaps there ought also to be taken
into consideration the average price of the securities which were sold
to the public. I think perhaps all three of those elements ought to
enter into any fair valuation.

Commissioner SWEET. Do you think the public ought to be asked
to provide for a dividend upon the stock that was given away as an
inducement to buy bonds?

Mr. Sissox. Within reason, yes; because those bonds would not
have been sold unless that stock had been offered as an inducement.

Commissioner MEEKEK. But in case the earnings have been put
back into the plant until now the plant is valued either physically or
taking the whole value as a going concern equal to bonds and stocks
outstanding, you would hold that the public is obligated to pay a
reasonable return upon the value of the bonds and stocks out-
standing ?

Mr. Sissox. I should say that is only fair and that it is good busi-
ness. The alternative would have been very simple; assuming the
board of directors, instead of putting that money back into the prop-
erty had declared it out in dividends and the stockholders had it. the
public would be powerless. But a board of "directors who in their
wisdom and foresight for the future put that back into the property
ought not to be penalized in favor of a board of directors who paid
it out to their stockholders in dividends.

Commissioner SWEET. Have you considered this phase of the ques-
tion ? In the early days you said the 5-cent fare more than compen-
sated, so that we will assume in most cases their dividends were paid
to the holders of common stock. And then the interest as agreed
upon was paid upon the bonds or preferred stock. Now, if the 5-cent
fare named in the original franchises produced more than enough
to meet those requirements, so that a certain part of the nickel could
be devoted to extensions, is not that evidence to your mind that the

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 339

nickel as it was originally agreed upon between the companies and
the municipalities was more than it ought to have been ?

Mr. Sissox. In some instances that is undoubtedly true; yes, sir.

Commissioner SWEET. Now, if in the future or under the present
situation the public is to be asked to provide a direct or indirect form
of guaranty upon profits from this time on, is it fair that the public
should be asked to pay more or to allow more by reason of the com-
panies having had the advantage in the earlier stages of this pro-
ceeding ?

Mr. Sissox. I should say that is a matter of equity in which you
could hardly make a flat ruling. I think there are instances when
the public should alloAv those values to accrue to the stockholders.
There may be instances where those values are greater than they
ought to be in the public interest. I do not believe you could gen-
eralize on that subject, sir.

Commissioner MEEKER. That could be taken care of in the process
of valuing the properties ?

Mr. Sissox. Absolutely; and that is what I have had in mind.

Commissioner MEEKER. You think that is the way it should ba
taken care of?

Mr. Sissox. I do.

Commissioner MEEKER. And an equitable arrangement be made
whereby this business, which is in a bad way now, can go on without
obligating the public to pay more than it ought to pay?

Mr. SISSON. Exactly. I think that is a pure matter of equitable
arrangement between the public and the owners in the fixing of
values.

Commissioner MEEKER. I am a little afraid that heretofore in my
questioning I have elicited answers that seemed to indicate that the
street-railway companies now want the public to come to their assist-
ance— that they are in such dire straits; but they do not wish any
examination into what was done in the past, when the}' were possibly
earning dividends upon watered stock, if you please, earning in ex-
cess of a reasonable return upon investment. Xow, I take it that
the street-railway companies do not wish any such impression as
that—

Mr. Sissox. Certainly not.

Commissioner MEEKER. To be given in the hearings before this
commission.

Mr. Sissox. Certainly not. I think the general disposition of the
street-railway companies and their owners is to lay all the cards be-
fore the public and to put it up to the public as their business pri-
marily and as a public property.

Commissioner MEEKER. It seems to me you have indicated the
way in which an equitable agreement can be reached as between the
public and the street-railway corporations. The all-important thing
sis I see it is in the arriving at a proper estimate of the value of the.
properties upon which the street railways are entitled to earn a rea-
sonable return.

Mr. Sissox. Exactly.

Commissioner MKKKKR. That is the all-important thing, is it not?

Mr. Sissox. Exactly so; yes, sir.

Commissioner MEEKER. There are two other questions I would
like to ask. You spoke of the principal objection to public owner-

340 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

ship being the political control. Under private ownership there has
not been absolute freedom f'i~>m political maneuvering —

Mr. SISSON. That is unfortunately true.

Commissioner MEEKER. But in your experience you think that
the evil would be greater under public ownership than under pri-
vate ownership?

Mr. SISSON. That has been the experience of a majority of the
communities throughout the world who have tried it, as the record
very clearly shows.

Commissioner MEEKER. The only way that could be brought
about —

Mr. SISSON. I might cite a very extreme instance in Australia or
New South Wales, where they took over the railroads. In the course
of a few years' time the railroad employees became so powerful po-
litically that they were controlling the affairs of the Dominion, until
finally the shippers and farmers arose in righteous wrath and dis-
franchised all railroad employees in order to get political control
back into the hands of the people.

Commissioner MEEKER. I do not want to go to Australia

Mr. SISSON. That was an illustration of the extreme operation of
that sort of thing.

Commissioner MEEKER. Let us take nearer at home

Mr. SISSON. Well, I did not want to make it offensive, so I went to
Australia.

Commissioner MEEKER. Are you personally acquainted with any
street-railway enterprise that is owned and operated by the public
in this country ?

Mr. SISSON. In a general way I have studied the situation, yes.

Commissioner MEEKER. And it is your experience that in this
countr}7, no matter what they may do abroad, public ownership
results in greater evils?

Mr. SISSON. It certainly does.

Commmissioner MEEKER. And greater inefficiency than private
ownership ?

Mr. SISSON. Yes. I would be glad to submit to the commission, if
they desire, a pamphlet we prepared in New York last winter on this
same subject for the merchants' association, in which many instances
are cited and a complete background of facts and statistics is given
for that conclusion.

Commissioner SWEET. We would be glad to have it.

Mr. SISSON. I will be glad to send it in.

Commissioner MEEKER. As I see it, the only way by \vhich we can
have private ownership without the evils that have existed in times
past and which are admitted, I think, by the street-railway men
themselves — the only way by which we can have private ownership
of street railways without those evils is for the street railways to
open their books, to make known all their operations and submit to
public control.

Mr. SISSON. Yes.

Commissioner MEEKER. And you think that publicly controlled
private corporations can conduct the street-railway business better
than publicly owned and operated concerns can?

Mr. SISSON. I certainly do.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 341

Commissioner MEEKER. Just another question in regard to public
health. The street railways themselves are very intimately con-
nected with the public health, are they not ?

Mr. SISSON. Yes ; to some extent, and with the public comfort to a
very large extent.

Commissioner MEEKER. Public comfort is just another name for
public health, as I take it.

Mr. SISSON. Yes.

Commissioner MEEKER. And I have not merely in mind the health
of individuals riding in the street-cars themselves, but the street-cars
enable the population to be distributed more widely.

Mr. SISSON. Yes.

Commissioner MEEKER. So that the people may live in better
houses.

Mr. SISSON. Yes.

Commissioner MEEKER. So that there is distinctly a public interest
in properly conducted rapid-transit street railways.

Mr. SISSON. Unquestionably.

Commissioner MEEKER. Which is only less important than their
interest in a pure-water supply.

Mr. SISSON. Exactly.

Commissioner MEEKER. I just wanted to bring that point out.

Mr. SISSON. Yes; an interest which warrants public regulation,
without any question.

Commissioner GADSDEX. Mr. Sisson, do you know how many mu-
nicipal street railways there are in the United States?

Mr. SISSON. I can not tell you right offhand.

Commissioner GADSDEX. As a matter of fact, are they not limited
to two, one in San Francisco and one recently organized in Seattle?

Mr. SISSON. Of course there is municipal collusion in a number of
other instances.

Commissioner GADSDEN. But, municipally owned, there are only
two?

Mr. SISSON. Yes.

Commissioner GADSDEN. And Seattle is a matter of only three or
four months?

Mr. SISSON. Yes. Those are the only large ones I know of.

Commissioner GADSDEX. $o that we have not any real municipally
operated experience to rely on in this country?

Mr. Sissox. Not that I know of.

Commissioner GADSDEX. Dp you consider that the present condi-
tion of the electric railways in this country has been brought about
by watered stock?

Mr. Sissox. No ; I do not think it has had anything to do with it.

Commissioner GADSDEX. Can you conceive how the present eco-
nomic situation which faces electric railways could have been pro-
duced by their issuing watered stock in times past?

Mr. SISSON. I do not think it has had the slightest effect on the
present situation. If they had no stock issues at all the situation
would be the same.

Commissioner GADSDEX. Exactly. As a matter of fact is not tlio
situation which faces electric railways a question of getting enough
revenue to operate?

342 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. SISSON. Absolutely; to pay their costs and pay the money
charges, unquestionably.

Commissioner GADSDEX. Are not they faced Avith a situation which
lias practically for the moment wiped out all the value?

Mr. Sissox. Absolutely.

Commissioner GADSDEX. Bonds and stocks?

Mr. Sissox. In many instances.

Commissioner GADSDEX. Many instances of it?

Mr. Sissox. Yes.

Commissioner GADSDEX. So that the bad financial practices — if we
choose to so characterize them — in the past can not be'held respon-
sible for the present situation, in your judgment?

Mr. Sissox. Only in so far as fliey have been used as a text for the
opponents of street railways to create agitation and public prejudice.

Commissioner GADSDEX. To prejudice the public mind?

Mr. Sissox. Yes4 which has been done very extensively in certain
communities.

Commissioner GADSDEX. But economically they have not had any
effect ?

Mr. Sissox. As a matter of economics, not at all.

Commissioner GADSDEX. On this question of the right of a cor-
poration to put back into the property its earnings, whether excess
or not, and the question of whether that belongs to the stockholder
or the public; supposing for a moment that we adopt the economic
theory that those excess earnings reinvested in the property belong
to the public; would it not be equitable and just, if that is a sound
economic theory, that the public should make good to the corporation
any deficits of earnings in bad times?

Mr. Sissox. It certainly would. If they are to take all the profits
they ought certainly to bear the burden.

Commissioner GADSDEX. In other words, ought not the rule to
work both ways?

Mr. Sissox. Certainly.

Commissioner GADSDEXT. And therefore if the public is now going
to claim the excess profits reinvested in these properties in times past,
should not the public within the last two or three years have held
the bag?

Mr. Sissox. They certainly should. As I said a little while ago.
if they are going to get on top of these properties, they ought in jus-
tice to get underneath them.

Commissioner GADSDEX. Would it be fair for the public to claim
these excess earning values in property and at the same time allow
these properties to go into bankruptcy?

Mr. Sissox. It certainly would not.

Commissioner GADSDEX. That is not only good economics but it is
£cod morals ; is it not ?

Mr. Sissox. It certainly is. I might add that I had a letter only a
i'ew days ago from a Member of Congress, in which he asked the
question as to why it was proper for the public authorities to offer
any sort of a guaranty to public utilities any more than to any other
sort of business. Well, the answer is perfectly obvious, because pub-
lic authorities regulate their earning power. If public utilities were
allowed to charge as they pleased for the service rendered, they
would ask no greater odds than any other business. But when they

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 343

are limited as to earning power, it is right and proper that they
should have some assurance as a guaranty.

Commissioner GADSDEX. In a practical way is not that just what
the United States Government has done to the steam railroads dur-
ing the war?

Mr. Sissox. Yes.

Commissioner GADSDEX. And failed to do for the electric rail-
ways ?

Mr. Sissox. Exactly.

Commissioner GADSDEX. Do you know of any other public-service
industry except the street railroads which has been left to take care
of itself under war conditions?

Mr. Sissox. I assume that is true of electric lighting.

Commissioner GADSDEX. But aside from the street-railway, gas,
and electric companies?

Mi\ Sissox. No, I do not. There has not been any other.

Commissioner GADSDEX. Telephone, telegraph, and steam rail-
roads—

Mr. Sissox. All of them, and shipping.

Commissioner GADSDEX. The Government has got both on the top
and bottom, as you say ?

Mr. Sissox. Absolutely.

Commissioner GADSDEX. Is there any reason in the nature of the
business why railway companies and electric properties should not
have the same consideration from the public as telephones, tele-
graphs, and steam railroads?

Mr. Sissox. Well, the only distinction that should be made, I as-
sume, is the one that the Government has made, that these Federal
utilities serve a war purpose directly which the others do not; they
serve a local purposes rather than national purposes.

Commissioner GADSDEX. Was not the distinction, on the contrary,
that these other utilities were engaged in interstate commerce and
therefore come directly under the province of the Federal Govern-
ment and the Federal Government could. act?

Mr. Sissox. Yes.

Commissioner GADSDEX. Whereas these gas and electric-railway
companies, not coming within the purview of the Federal adminis-
tration, it could not assist them?

Mr. Sissox. Yes, I think that was undoubtedly the view taken, and
that was their limitation. I think it is proper to say that the Fed-
eral Government gave indication many times of the desirability of
local authorities doing that.

Commissioner GADSDEX. As a matter of history in connection with
electric railways, do you know of many electric railways which have
been sufficiently prosperous in the past to' reinvest surplus earnings
in property?

Mr. Sissox. Not extensively, no; to a limited extent.

Commissioner GADSDEX. Which road-
Mr. Sissox. Not nearly so prosperous, for instance, as steam rail-
roads.

Commissioner GADNDEX. Yes. Is it not approximately true and
correct to say that if electric railways had set up a proper deprecia-
tion from the beginning that it is questionable whether the 5-ccnt

344 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

fare was ever a full and adequate compensation for the service
rendered ?

Mr. SISSON. I think it is.

Commissioner GADSDEN. Tell the commission Avhat you think about
that.

Mr. SISSON. I think in the majority of cases that is an open ques-
tion. There are instances when it was adequate, but I should say in
the considerable majority of the cases it is an open question.

Commissioner GADSD'EN. If they had set up, as they should have,
a proper provision for depreciation and extraordinary obsolescence,
is it not questionable whether the 5-cent fare ever was an adequate
compensation ?

Mr. SISSON. Yes; and as a banker I very frankly think they should
have gone further than that and set up sinking funds which would
have provided for the liquidation of their indebtedness — which al-
most none of them have done, and they could not do it, as a matter of
fact, out of the 5-cent fare.

Commissioner GADSDEN. That is all, Mr. Chairman.

Commissioner MEEKER. Are you acquainted with the railway sys-
tems about Boston and Cincinnati?

Mr. SISSON. Well, in a general way only.

Conrunissioner MEEKER. Have they in those communities a system
that is practically private ownership and public operation ?

Mr. SISSON. I understand so.

Commissioner MEEKER. How does that sort of cooperation between
the public and the private corporation work out ?

Mr. SISSON. Well, my rough judgment is that it is working out
fairly well and that it is very just and ought to be workable. In the
Boston situation, writing off a good deal for depreciation and spend-
ing a good deal of money for maintenance that was needed, as I
understand it, kept them from making the showing they expected to
make; but the situation is improving and gives every promise of
working satisfactorily and with fairness to the public and to the
owners both.

Mr. WARREN. Those two cities are not on the same basis, however ?

Mr. SISSON. No; the arrangement is different.

Mr. WARREN. Boston is public control practically ; there is a board
of public trustees running it. I understand that Cincinnati is
service at cost with local supervision and regulation but with cer-
tain elements tending to stimulate the initiative of the private man-
agement. We expect to put on some witnesses as to Cincinnati.

Commissioner MEEKER. Very well ; I will not follow that up.

Mr. WARREN. Yes, we will call witnesses on that, but I just wanted
to call attention that the two situations were not identical.

Commissioner MEEKER.'! was aware they are not identical, but if
there are other communities where experimentation is being tried, I
hope you will have witnesses to explain that.

Mr. WARREN. We hope to put on witnesses covering nearly all the
more important service-at-cost experiments.

Commissioner MEEKER. Very good ; I will not trouble you further.

Mr. WARREN. I want to ask one or two questions suggested by some
of the commissioners' questions. When you speak of 5 per cent under
a service at cost, that was predicated on an absolute guaranty of 5
per cent?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 345

Mr. Sissox. Exactly.

Mr. WARREX. Now suppose that the allowable return under the
service-at-cost arrangement, which included all the proper elements,
included finally a return on the investment value, whatever that was
determined to be, dependent upon the ability of the road at the vari-
ous rates under the sliding scale to earn the return, what then should
you say the return under present money conditions ought probably to
be in order to induce new capital to come in ? That is rather a long
question, but perhaps you see the point.

Mr. Sissox. Yes. When you speak of return, it depends whether
you treat the capitalization as a whole or distinguish between bonds
and stock.

Mr. WARREX. I treat it both as a whole and in part, and I would
like to know your opinion as to the wisdom of those two methods,
too.

Mr. Sissox. I think that on that basis

Mr. WARREX. This is without any guaranty other than what the
business would insure.

Mr. Sissox. Viewed from the standpoint of the paying public, I
should say that a bond would have to bear an interest rate of at least
o^ per cent to be salable and that a stock would have to have a
reasonably assured return of not less than 8 per cent to be salable.

Mr. WARREX. And I suppose it follows from that that if the return
were going to be a flat return on the entire investment value, it would
be a combination of those two?

Mr. Sissox. Yes.

Mr. WARREX. An average of those two?

Mr. Sissox. Yes. Might I add that I think one of the fallacies
of our public-utility financing, which has been particularly true of
the railroads and in a measure true of street-railway lines, has been
.the building up of this burden of debt all the time instead of mak-
ing the stock attractive so people will buy it. We have been piling
up fixed charges instead of giving these roads a credit based upon
earnings which would permit a sale of stock to the public at a fair
price. The railroad burden of debt has been increasing ratably year
after year, because you can not sell railroad stock, the public will
not bii}' it. because it is not assured of a fixed return.

Mr. WARREX. We have had a law in Massachusetts designed to
provide for that, by which funded debt can be issued only to the
par value of the stock, and as the stock can only be issued at par the
result has been the piling up of a floating debt which is far more
inimical, because it invites a receivership over night.

Mr. Sissox. A proper financial construction ought to provide for
a bonded obligation of not more than 60 per cent of the real value
and the balance in stock.

Mr. WARKEX. And the situation ought to be made sufficiently
attractive to readily market that stock?

Mr. Sissox. Absolutely.

Mr. WARREX. Mr. Stuart yesterdav — whom you know prob-
ably-

Mr. Sissox. Yes.

Mr. WARREN. Testified that, in his opinion and from his experi-
ence in distributing street-railway securities, street-railway bonds

100043°— 20 23

346 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

particularly, the average holding of such bonds outside of the few
large corporations like life insurance companies, and so forth, was
not over $5,000; that including all the large corporate holdings the
average holding was not over $7,000. Would you think you could
agree to that?

Mr. SISSON. I should think that is a very fair estimate. I should
say it is no more than that and possibly less.

Mr. WARREN. You were asked something about abandoned lines,
and I think you intimated that if a line was unsuccessful the people
who invested the money ought to take the ^consequence, which T
think as a business proposition is no doubt true. Is it not, however,
a fact that there are a great many lines which are not earning even
their operating expenses but the abandonment of which would work
a very real hardship upon a considerable portion of the public?

Mr. SISSON. Yes. In answering that question I made that reser-
vation, that unless the public interest was involved clearly.

Mr. WARREN. Yes, I think you did, but I did not think —

Mr. SISSON. And I think that is a very important reservation
which must be made there.

Mr. WARREN. And in such cases probably some method of public-
ownership or public support such as has been worked out in Massa-
chusetts to a certain extent ought to be resorted to ?

Mr. SISSON. Yes; it is entirely possible that the operation of that
line creates tax values which are a distinct source of profit to the
municipality which it could well afford to provide for through the
maintenance of the line.

Commissioner GADSDEX. In that connection, is it not true that
most of these lines that are unproductive lines that we refer to, are
tied in with existing systems?

Mr. SISSON. Yes..

Commissioner GADSDEN. And if the system could lop off the unpro-
ductive suburban lines, in many cases the road could probably take
care of itself ?

Mr. SISSON. Yes, that is true in a good many instances.

Commissioner GADSDEN. And under the law they are not permitted
to cut off those unproductive and unremunerative lines?

Mr. SISSON. Yes, that is true in NewT York City to-day.

Commissioner GADSDEN. If they could get rid of their extensions
they probably could get along in many cases?

Mr. SISSON. Yes, but it would be opposed to the public interest-
Commissioner SWEET. Those extensions are maintained for the
benefit of the public residing in those outlying districts.

Mr. SISSON. Yes.

Mr. WARREN. That situation exists in a great many places and it
is a very important public question, and not one that affects the
street railways alone. In some jurisdictions — in Massachusetts, for
instance — the companies can abandon lines, but that does not change
the public question of whether those lines ought to be abandoned and
the public dependent on them left high and dr}^, and the industrial
centers dependent on them be deprived of the support coming from
those lines.

Commissioner SWEET. Is it not true, Mr. Sisson — the fact that
street-railway companies that have reached out into districts that
are not directly profitable are performing now, and have been for

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 347

years, a sort of public service for which the companies have received
no compensation or not adequate compensation ?

Mr. SISSON. That is entirely true^ yes, sir.

Commissioner SWEET. And is not that an additional reason for the
public and the companies getting1 together now upon some general
basis which will be fair and just?

Mr. SISSON. It certainly is. The public interest is greater than
that of the corporation in many of those instances.

Mr. WARREN. Do you happen to be familiar with the Springfield
fare situation, where the territory was divided into two 5-cent zones?

Mr. SISSON. I know of it in a general way.

Mr. WARREN. With a somewhat reduced rate passing from one zone
into the other?

Mr. SISSON. Yes.

Mr. WARREN. With the American habit of either being irritated at
having to use pennies or ignoring them, do you or do you not think
that in many instances a 5-cent-fare zone might be established that
would work out substantial satisfaction?

Mr. SISSON. I do; yes.

Mr. WARREN. Particularly with the present reduced purchasing
power of the nickel ?

Mr. SISSON. I certainly do; yes.

Mr. WARREN. Turning to the zone system more technically so"
en Hod, which you referred to. of a small increment of fare to each
new zone, usually a very limited system, is it not a fact that the
initial fare i.s almost wholly a flat fare?

Mr. SISSON. Yes.

Mr. WARREN. And more than the increment for each successive
zone ?

Mr. SISSON. Yes.

Mr. WARREN. And that you had in mind, I suppose, when you
spoke of that system ?

Mr. SISSON. Exactly.

Commissioner BEALL. I would like to bring out for the benefit of
*.he commission that it is not always outlying lines that are un-
profitable. Very frequently it is duplications, and sometimes it is
owing to the change in the characteristics of the neighborhood, like
certain cross-town lines in Xew York Citv which you are familiar
with.

Mr. SISSON. Yes.

Commissioner BEALL. And we have one north and south line
there; — the Second Avenue line — which is very unprofitable.

Mr. SISSON. Yes.

Commissioner BEALL. You see as many people on the street as you
would in other places where the street-railway traffic is good, but it
happens to be an avenue, although north and south, strange enough,
where there is not a trend of travel.

Mr. SISSON. Yes»

Commissioner BEALL. Very frequently these things come about
from either duplication or a change in the neighborhood.

Mr. SISHON. Yes. That has been a growth of recent years. That
presents a peculiar situation; of a default upon receivers' certificate.
They can not even make good the certificates of the court on that line.

348 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner BEALL. I wanted to bring out that in the bigger
cities particularly, perhaps there is more trouble with duplication of
lines and changes in neighborhood characteristics than there is in
outlying lines, although that is a big factor.

Mr. Sissox. Yes.

Commissioner MEEKER. May I add a word ? What I had in mind
particularly when I spoke of unwise extensions and building of new
lines was perhaps primarily land speculation; and that should be,
I take it you will agree, absolutely under the control of a commis-
sion.

Mr. Sissox. Yes.

Commissioner MEEKER. So that street railways would not be built
in order to make profits and money for the members of a street-
railway company regardless of the need of such an extension or line
as a public rapid transit.

Mr. SISSON. Yes, I believe that.

Mr. WARREN. Following up the last two questions, you would
agree. I think, that in those jurisdictions where the companies have
not the authority to abandon lines, the authority ought to exist in
some commission to permit the companies to do so under such cir-
cumstances ?

Mr. Sissox. It certainly should.

Commissioner SWEET. There is one point that is not quite clear to
me, Mr. Sisson. You have stated that you think there should be a
qualified guaranty, as we speak of it, of at least 5£ per cent on bonds
in order to enable the companies to get their needed capital, and 8
per cent or thereabouts on stock. Have you not reference when you
say that to the conditions that have prevailed heretofore in the rela-
tion between common stock and bonds?

Mr. Sissox. Well, no; I was speaking broadly about what I con-
ceived to be a sound

Commissioner SWEET. There never has heretofore been any guar-
anty upon common stock whatever.

Mr. Sissox. No.

Commissioner SWEET. And the purchasers of common stock have
realized there was more of a speculative feature in their purchase and
ownership of stock than the holder of the bonds.

Mr. Sissox. Yes.

Commissioner S^EET. They might get 1 or 2 per cent or they
might get 10 or 15 per cent on the common stock.

Mr. Sissox. Yes.

Commissioner SWEET. Now if the public was to stand behind this
matter and so adjust the rates — the fares that could be charged —
that it would produce an income that would make the return upon
common stock just as certain as the return upon bonds, Avhy should
there be any difference between the rate that should be obtainable by
the holder of the common stock and the holder of the bonds?

Mr. Sissox. I had not assumed that the public would make any
such definite assurance. I dealt particularly with the cost of capital
and answered the question broadly that in order to sell bonds to the
public and stock to the public in a proper financial structure of 60
per cent bonds and 40 per cent stock, the return ought to be about
5£ per cent on the bonds and 8 per cent on the stock, or a reasonable

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 349

assurance of it. A return upon stock ought to provide for years in
which no dividend would be paid perhaps, and earnings would be
accumulated for extensions and betterments and perhaps sinking
funds and depreciation. It might not always be possible to declare
an 8 per cent dividend annually. It might be greater some years and
less others, but a reasonable assurance of an earning of 8 per cent
would sell common stock at par; which was the problem I faced in
Mr. Warren's question.

Commissioner SWEET. In your mind would the assurance given by
the public to the holders of stock be different and less than the assur-
ance given to the holders of bonds?

Mr. Sissox. Well, I assume so, of course. If you are to have an
unqualified and positive guaranty, there would be no difference be-
tween the two classes of obligation.

Commissioner SWEET. Suppose it were not a guaranty, but if the
matter were left entirely to a State commission to adjust these rates
so as to produce enough to pay interest upon the bonds of 5£ per
cent and 5| per cent upon the common stock; if the adjustment of
rates were to be such as to enable that to be done, while taking care
of the other necessities of the company, would not that be as fair
an arrangement as could be made ?

Mr. Sissox. That does not quite cover the question, because, bear
in mind •

Mr. WARREX. Without any definite guaranty?

Mr. Sissox. Yes.

Commissioner SWEET. Without any guaranty except that the rate
would be changed from time to time so as to, as nearly as possible,
bring about that result.

Mr. Sissox. That does not quite cover the question, because, bear
in mind, the bonds are a first obligation on the property and the stock
does not come in until after that is met.

Commissioner SWEET. The stock only has an equity.

Mr. Sissox. That is all ; and a man ought to be entitled to a larger
return on an equity above the mortgage than the fellow below it, and
you could not get the people to take an equit}r.

Commissioner SWEET. Would that be the case if the arrangement
with the public were such that the amount which would be received
by the stockholders in proportion to their holdings would be as great
as the amount received by holders of bonds ?

Mr. Sissox. I think it would, because I think there is no definite
assurance of permanency of such an arrangement indefinitely. Politi-
cal conditions and public sentiment change, and a man who has an
underlying mortgage upon physical property is in much stronger po-
sition and has greater protection in the courts than a man who has
an equity which might be greater or less in accordance with the fluc-
tuation of public sentiment and conditions.

Mr. WARREX. In other words, the fluctuating conditions might af-
fect the possibility of the scale's yielding a return on stock, although
yielding sufficient to cover the bonds?

Mr. bissoN. Yes.

Commissioner SWEET. In other words, the bonds would come in
first for their share?

Mr. Sissox. Yes.

350 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. The holders of stock would have to take
what was left after providing for the other needs of the company?

Mr. Sissox. Yes ; both in earnings and ownership.

Commissioner SWEET. And under your plan there would be some
variation in what the holders of stock would receive ?

Mr. Sissox. There must necessarily be so; yes, sir.

Commissioner SWEET. And consequently you think it would be
just that the maximum would be somewhat larger than the maximum
provided for the holders of bonds?

Mr. Sissox. Yes.

Commissioner SWEET. And that is your reasion for it?

Mr. Sissox. I think it not only fair, but the practical question is
that it would be necessary in order to sell stock to the public.

Commissioner MEEKER. Xo commission short of omniscience could
regulate a rate so that you would get a 5| per cent return upon
bonds and the same return upon stock.

Mr. Sissox. There is bound to be fluctuation.

Commissioner MEEKER. The bonds would come in first?

Mr. Sissox. Yes.

Mr. WARREX. That is the answer to it. In other words, there is a
business risk. This service at cost does not eliminate after all the
business risk. The street railway might be a business failure at a
service-at-cost plan just as a shoe factory might be.

Mr. Sissox: Yes.

Mi'. WARREX. All service at cost insures the investor that within
the rules of business you can charge enough to make a profit in your
business if your business will yield a profit ?

Mr. Sissox. Yes.

Mr. WARREX. The minute you put the guaranty on the investor is
safe ; he does not care whether it is a successful or unsuccessful busi-
ness. But as bearing upon the return, if I may refer to the Boston
situation — and I think Mr. Sisson will probably bear out my fig-
ures— the Boston Elevated stock is guaranteed for 10 years under the
service-at-cost proposition and then under the State guaranty, but
the street-railway securities are still in such a position in the public
estimation that that stock is selling for about 70, although guaran-
teed a 5 per cent return for two years and G per cent ultimately ; so it
is going to take some time, is it not, to rehabilitate this guaranty?

Mr. Sissox. Unquestionably.

Mr. WARREX. Even after a sound system is introduced for its as-
surance in the future?

Mr. Sissox. Yes.

Mr. WARREX. There are two or three questions on the rate. You
said that undoubtedly in some cases an increase of rate involved a
loss of traffic. Did you mean by that to imply that in some cases
nn increase in rate involved such a loss of traffic as to yield no in-
crease in revenue?

Mr. Sissox. There have been such instances, but I do not be-
liove that would be true generally.

Mr. WARREX. They are very exceptional; are they not?

Mr. Sissox. They are very exceptional ; yes, sir.

Mr. WARREX. In other words, has not this been the usual situation
— that when the increased rate first went into effect there would be

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 351

loss of traffic, meaning by that counting the number of pas-
sengers.

Mr. SISSON. Yes.

Mr. WARREN. But there was almost in every case an immediate and
substantial increase in revenue?

Mr. Sissox. Yes.

Mr. WARREN. You spoke of being in favor of public-service com-
mission regulation, as the association which I represent here is on
record as favoring.

Mr. SISSON. Yes.

Mr. WARREN. Is there any particular feature in the administra-
tion of the public-service laws which in this present emergency you
Avould criticize or which you think might be improved ?

Mr. SISSON. Well, in some instances, the matter that we discussed
a while ago, the conflict between the public-service commissions and
the local authorities. I think these laws drawn by the States ought
to give the commission the full power to regulate rates upward as well
as downward.

Mr. WARREN. Take cases where they have the complete power,
as they have in Massachusetts and in numerous jurisdictions; is
there still anything that you think has militated against the appli-
cation of a remedy in this emergency in the last year?

Mr. SISSON. I think the fundamental thing that has militated
against it has been political controversy.

Mr. WARREN. How about the delaj*?

Mr. SISSON. And- the slowness of action which has failed to meet
the crtsis, as I pointed out in my first statement.

Mr. WARREN. And the crisis is increasingly serious up to the
present time; is it not?

Mr. SISSON. It is indeed; yes, sir.

Mr. WARREN. Do you think that any of the more fundamental
remedies which have been discussed here can in most cases be ap-
plied quickly enough to remedy the present situation — service at
cost, guaranty, or what not, depending possibly upon legislation or
action by municipalities? Do you think the companies can get
along, in other words, without some immediate, or almost immediate,
relief?

Mr. SISSON. Xo, I do not. I think they need it and need it im-
mediately, and I do not know that the word " remedy " meets the case
even then.

Mr. WARREN. But it would keep their heads above water?

Mr. SISSON. It certainly would help ; yes.

Mr. WARREN. And that would be, as I understood you, through
an increase in rates?

Mr. SISSON. Exactly.

Mr. WARREN. Referring to those street burdens again and to a
possible profit-sharing plan between the company and the munici-
pality, should not yo\\ say that it is generally true that the com-
mon phrase or term for the street car, " the poor man's carriage,"
is really the fact?

Mr. STSSON. Yes.

Mr. WARREN. And that in dealing with the fares and the burdens
upon street railways, that ought to be kept in mind?

Mr. SISSON. I certainly do. It is only just.

352 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREX. You spoke of the two possibilities in case the reve-
nue exceeded the amount necessary to meet the cost of the service,
I think; one turning the money over to the treasury, which you did
not approve on the whole, because it was helping the more well-to-do
taxpayer at the expense of an indirect tax on the poorer members of
Ihe community.

Mr. Sissox. Yes.

Mr. WARREX. And the other was to reduce the rate. Is there not,
in some cases, a third method which might be desirable, not to reduce
the rate but to let that surplus earning be retained in the property,
not as a basis for payment of return to anybody but simply to
strengthen the property ?

Mr. Sissox. I think that most desirable, and I had assumed that
that would be done under any arrangement.

Mr. WARREX. Through a sinking fund ?

Mr. Sissox. Yes, or accumulated surplus.

Mr. WARREX. That is all.

Commissioner MEEKER. I would like to ask Mr. Warren a question,
if it is allowable.

Mr. WARREX. I will be very glad to answer.

Commissioner MEEKER. You spoke of the absolute guaranty ac-
corded to the Boston Elevated for 10 years. Is there any likelihood
that the stocks will sell above 70 with such a limited guaranty as that?

Mr. WARREX. Well, considering, Mr. Meeker, that a few years ago
the stock sold at 150 without any guaranty whatever, it would seem
as if they ought to sell higher than that.

Commissioner MEEKER. Well, there is not any possibility, is there,
of the stock being rehabilitated so as to sell at par or above under a
guaranty limited to ten years, because Heaven only knows what will
happen when the ten years is up?

Mr. WARREX. Apart from the guaranty, of course, the company
has the right to charge on this sliding scale whatever is necessary to
pay the cost of the service including that return. The guaranty is
additional to the service-at-cost principle. At the end of the 10
years, in other words, the service-at-cost principle involved in that
settlement continues.

Commissioner MEEKER. After 10 years the service-at-cost principle
goes into effect ?

Mr. WARREX. It is in effect now.

Commissioner SWEET. It is continued?

Mr. WARREX. Yes.

Commissioner MEEKER. But. Mr. Warren, under that system there
never could be any justification for the common stock of the company
to go up to such figures as you mention.

Mr. WARREX. No, not with the absolute guaranty.

Commissioner MEEKER. No; whether it was an absolute guaranty
or an assurance of rates being changed in accordance with needs,
there never could be the possibility of what we might call the gam-
bling advantages which have been looked upon as being connected
with common stock under the old system. There would not be the
possibilities of great profits.

Mr. WARREX. No; there would not be. You mean under the ser-
vice-at-cost system ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 353

Commissioner MEEKER. Certainly.

Mr. WARREN. Xo ; there would not. I assume that there would be
some limit fixed. I was asking Mr. Sisson only to get his idea as a
banker of where that limit ought approximately to be placed to
insure a market for the stock, and I referred to the Boston Elevated
stock only as in my judgment confirming his opinion of where the
stock ought to be placed.

A few years ago street-railway stocks in Massachusetts sold on
a 4 per cent basis. If their dividends were 6 per cent the}" sold at
around 140 to 130, and some of them earning 8 per cent, of which
there were a few sold for 200 to 220. But that was under our very
strict regulation system, so that everybody knew that not only $100
had been paid in but, in the case of the Boston Elevated, I think
the stock averages the stockholders, not in the market, but in buying
it from the company on the original issue; I think it is around $119
or $120 a share.

Commissioner MEEKER. Actually paid in?

Mr. WARREN. Actually paid in. The street railways of Massa-
chusetts— and those figures I have referred to I must put in and
will try not to forget it — the Massachusetts street railways, as a
whole, with $102.000,000 par capital, show in their balance sheet
something like six and a half million dollars paid into their treas-
uries in addition to par value as premiums: and they really have
paid in considerably more, because when that law first went into ef-
fect the premium was not set up in the balance sheet as it is now
and as the Interstate Commerce Commission's method of account-
ing requires, but the premium would be paid in and carried to profit
and loss and all charged off again. In other words, the property
would be marked down by the amount of premium paid in; and
my impression is there were two or three million dollars paid in in
that way which are not reflected on the balance sheet.

Commissioner BEALL. Mr. Warren, was not one reason for the
high price of street-railway stock in Massachusetts and also in Ohio,
where the Cleveland property is located, the fact that they were
legal investment for trustees and had certain exemptions from
taxation?

Mr. WARREN. Yes, and—

Commissioner BEALL. What I want to bring out is : Under exactly
the same conditions and same earning power and same rate of re-
turn in certain other States they would not sell for anything like
as much, due to peculiar local conditions.

Mr. WARREN. I think you are quite right. In Massachusetts until
recently the bonds of all corporations — and which made it impos-
sible for trustees to buy bonds to any great extent — and the stock
of all corporations not organized under the Massachusetts law were
taxed on their principal value at the local rate, so that a .r> per cent
Ixmd selling for par would have to pay a tax in most towns and
cities of approximately $20, reducing the yield to 3 per cent. And
the same would be true of the stock of a New York corporation sell-
ing in Massachusetts. That made a very marked differential in
favor of the Massachusetts stocks.

Mr. Ford, will you take the stand?

354 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.
STATEMENT OF MR. A. H. FORD.

Mr. WARREN. I want to call Mr. Ford out of the order I had in
mind, Mr. Chairman, because of the reference to the effect of in-
creased fares, and I think he can give the commission some informa-
tion on that which may be very interesting.

Your full name, Mr. Ford?

Mr. FORD. A. H. Ford.

Mr. WARREN. Your residence is?

Mr. FORD. Portland, Me.

Mr. WARREN. You are connected with a street railway there?

Mr. FORD. Vice president and general manager of the Cumberland
County Power & Light Co.

Mr. WARREN. That company operates the Portland Street Rail-
way Co.?

Mr. FORD. Yes.

Mr. WARREN. And the Portland Street Railway Co. is merely a
street-railwa}' company; is it not? Does it have an electric-light
company attached to it?

Mr. FORD. The Cumberland County Power & Light Co. controls
and operates the Portland railroad under a lease.

Mr. WARREN. But the Portland Street Railway has no business
except a street-railway business?

Mr. FORD. That is all ; yes, sir.

Mr. WARREN. And the Portland Street Railway has recently in-
creased its passenger fares?

Mr. FORD. Yes, sir.

Mr. WARREN. To what figure?

Mr. FORD. We had originally 5 cents; and in 1918 we increased
it to G cents, and on June 15 we increased it to 7 cents.

Mr. WARREN. Now, since you increased the fare to 7 cents, which
involves a theoretical increase in revenue of 40 per cent, does it not.
over a year ago

Mr. FORD. Yes.

Mr. WARREN. Will you please tell the commission what thus far —
as far as you have returns — the actual increase in revenue has been?

Mr. FORD. Well, the increase for the first half of July amounts to
37 per cent.

Commissioner SWEET. July of this year?

Mr. FORD. Yes ; this present month.

Mr. WARREN. Compared to a year ago when there was a 5-cent
fare?
• Mr. FORD. Yes.

Commissioner SWEET. And this is on the 7-cent basis?

Mr. FORD. Yes.

Commissioner MEEKER. Will you please repeat it, so I can get it
clearly ?

Mr. WARREN. State what the fare was a year ago at the same time.

Mr. FORD. The fare a year ago was 5 cents. Then in August the
fare was increased to 6 cents.

Commissioner MEEKER. That is August, 1918?

Mr. FORD. Yes. Then on June 15 of this year the fare was in-
creased to 7 cents. We are operating under the zone system.

Mr. WARREN. What do you mean by the zone system?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 355

Mr. FORD. The system was divided. We have 106 miles of track,
and the system was divided up into practically mile zones, and a
charge is made of so much for each zone. Our rate at the^ present
time is 2£ cents for a zone — the city proper being divided' up into
three zones, making a 7-cent fare.

The CHAIRMAN. Do you mean by that that there is a rate of less
than 3 cents within one zone?

Mr. FORD. Yes, sir ; that is, you can ride on an initial ride of three
zones for 7 cents, and then

Mr. WARREN. That is the minimum initial fare ?

Mr. FORD. Yes.

The CHAIRMAN. For the shortest ride?

Mr. FORD. Yes ; the initial ride of three zones — in three zones.

Mr. WARREN. Or less. If you ride 1 mile you pay 7 cents, or three
zones.

Commissioner SWEET. How about one block?

Mr. FORD. Seven cents.

Mr. WARREN. That 7 cents, however, is good, if you want to go so
far, for three of your zones?

Mr. FORD. Yes.

Commissioner SWEET. That would be in a continuous journey?

Mr. FORD. Yes; but if you want to ride four zones you pay 9^
cents; but it is handled by a system of tickets. A zone-ride ticket,
which is the popular ticket used, costs 35 cents. Then we have what
we call a 15-zone ticket that costs 35 cents. So that the passenger
supplies himself with two kinds of tickets — the 7-cent ticket, five
rides, and the 15-zone ticket — and if he wants to make four zones
the conductor punches one ticket out for the 7-cent ride or the 3-
zone ride, and then he punches one of these 15-zone coupons out for
the extra zone that he rides.

Mr. WARREN. How many zones are there in the city limits?

Mr. FORD. Three.

Mr. WARREN. Then am I right in thinking that the net effect of
that system in the city limits is a 7-cent fare?

Mr. FORD. Yes, sir.

Mr. WARREN. Just the same as if you had a flat 7-cent fare in the
city of Portland?

Mr. FORD. Exactly.

Mr. WARREN. Is this increase you speak of 37 per cent in the
city limits or on the entire system?

Mr. FORD. The entire system.

Commissioner MEEKER. It is not yet clear to me just what that 37
per cent increase means. Is it the increase in July of this year over
July of last year?

Mr. FORD. Yes, sir.

Commissioner MEEKER. For the same length of time?

Mr. FORD. Yes.

Commissioner MEEKER. One-half of the month?

Mr. FORD. Yes.

Mr. WARREN. And what was the system of fare a year ago, Mr.
Ford?

Mr. FOBD. It was the straight 5-cent ride, or our ordinary New
England zone of—

Mr. WARREN. Two or 3 or 4 miles- in length?

356 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. FORD. Something like that.

Mr. WARREN. Then it was a 5-cent flat fare in the city limits a
year ago?

Mr. FORD. Yes. sir.

Mr. WARREN. And then as yon went from the city limits you went
into a 5-cent zone of 2 or 3 miles in length?

Mr. FORD. Yes.

Mr. WARREN. .And then passed into another 5-cent zone?

Mr. FORD. Yes.

Mr. WARREN. That was the system a year ago ?

Mr. FORD. Yes, sir.

Mr. WARREN. This system you have described now as the present
system — 7 cents in the city — is a 7-cent fare for any three much
shorter zones?

Mr. FORD. Yes.

Mr. WARREN. And as you go from the city you pay a certain
amount. What did you say it was?

Mr. FORD. Two and one-third cents.

Mr. WARREN. Two and one-third cents for each additional zone?

Mr. FORD. For each mile or zone.

Mr. WARREN. And each zone is about a, mile?

Mr. F"ORD. Yes.

Mr. WARREN. You spoke of having increased the rate last August,
I think, a year ago.

Mr. FORD. Yes.

Mr. WARREN. What system did you adopt then? You had this
old-fashioned Xew England 5-cent zone. What did you put in in
August ?

Mr. FORD. In August we put in the straight 6-cent fare, 1 cent in-
crease on those 5-cent zones.

Mr. WARREN. You did not change the limits at all's

Mr. FORD. Xo.

Mr. WARREN. You jacked up each 5-cent fare to 6 cents?

Mr. FORD. Except in the city, and on the city lines which were — on
three of our city lines we charged a 5-cent fare.

Mr. WARREN. You continued the 5-cent fare, in other words ?

Mr. FORD. Yes.

Mr. WARREN. And did not change it?

Mr. FORD. On only three of the city lines; those are the principal
lines running up and down the city on the peninsula.

Mr. WARREN. And the other city lines you did raise to 6 cents,
did you?

Mr. FORD. Yes.

Mr. WARREN. Was that change of fare accompanied with a general
public acquiescence in August last, or was it made against a good
deal of opposition?

Mr. FORD. It was made against a great deal of opposition. We
made application in February for this increase in fare

Mr. WARREN. February, 1918?

Mr. FORD. February, 1918. We had previous^ made a valuation
of our property, and that valuation took us 19 months to make; and
that valuation was checked by the public-utilities commission engi-
neers, and it took us until August 2 ; while the application was made

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 357

in February the hearing continued until August 2 before we got a
decision.

Mr. WARREN. And as you have said, there was a good deal o£
public opposition to it?

Mr. FORD. A great deal.

Mr. WARREN. How did that first increase work out, from 5 cents to
6 cents?

Mr. FORD. It was not satisfactory.

Mr. WARREN. That should have shown theoretically approximately
20 per cent.

Mr. FORD. Twenty per cent.

Mr. WARREN. But not quite, because on three of your best lines
in the city you still kept the 5 cents.

Mr. FORD. Yes.

Mr. WARREN. So it would be less than 20 per cent. But have you
ever figured what is should have shown?

Mr. FORD. Well, it ought to have shown about 18 per cent. It
actually showed about 4 per cent.

Mr. WARREN. For what period?

Mr. FORD. For that period. August 2 to

Commissioner SWEET. To July 15, 1919?

Mr. FORD. To June 15.

Mr. WARREN. That period included the influenza situation?

Mr. FORD. In October; yes.

Mr. WARREN. When you made your change in June, was that made
against public opposition to any great extent?

Mr. FORD. Xo; we had practically no opposition.

Mr. WARREN. In other words, the public really recognized your
need of additional revenue, you think ?

Mr. FORD. Yes, because of the efforts that had been made by the
public-utility" commission and by ourselves — the management — to
make the people acquainted with our condition.

The public-utility commission recognized the gravity of our situ-
ation and were anxious to provide a remedy. I think they recognized
the fact that any rate that they named on our property would not
yield the results unless the people supported the rates. The first
move they made in that direction was to invite representative citi-
zens to a dinner given under the auspices of the chamber of com-
merce, and at that dinner they promulgated this rate -

Commissioner SWEET. That is, the State commission did?

Mr. P"ORD. Yes, sir; and explained to the people present what that
rate meant and what it would produce and the needs of the com-
pany for an increased rate. And the whole purpose of that gather-
ing was to get the cooperation on the part of the public in support-
ing that trolley company. Then they followed that up by getting
the newspaper men together, and they requested the newspaper
people to support the trolley company.

Commissioner SWEET. When you say " they," you still refer to
the State commission?

Mr. FORD. The State commission. Those two acts were rather
unusual on the part of a State commission. However, that produced
the result. We began to notice immediately a change in the public
sentiment.

358 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Well, the management followed uj) that plan on two increases that
we asked for, and two separate hearings before the commission were
held on those increases. We followed that up by holding public
meetings in 10 different locations on our property : the people that we
served, the community centers of population, and the people were
invited. The meetings were advertised; and I went with my as-
sistants before them to ask for any criticism that they had to make on
the service, on the management, or any suggestions they had to make.
At the same time we explained this ticket system, which is a rather
new proposition. We had never tried it before and did not know of
any place where it had been tried; and it Was important that the
people should understand the system that we proposed to put in to
get these fares, and at the same time we had to explain this new zone
system.

Well, the result of that work and of the work done by the com-
mission was a complete change in the public sentiment. In the mean-
time, we were working with our own employees. The public senti-
ment prior to that time was antagonistic to the company. The men
themselves were unionized and they were not interested in our propo-
sition. The work that we did with them resulted in securing their
cooperation.

Commissioner SWEET. Was that purely educational?

Mr. FofiD. Entirely — and explaining to them wrhat the situation
was and what their duty was in this matter.

The CHAIBMAN. Was there any hope entertained that if a larger
fare was secured they would have additional wages?

Mr. FOBD. No. sir.

The CHAIRMAN. Xo promise was made?

Mr. FORD. Xo, sir. In Xovember the Xational War Labor Board
had increased our wages on that little property $150,000 in the award
that they made.

Mr. WARREN. From what rate to what rate, Mr. Ford?

Mr. FORD. To 45 cents for the maximum for motormen and 42|
cents minimum pay.

Commissioner MEEKER. What had been the pay before that ?

Mr. FORD. The pay before that had been 33 cents.

Commissioner MEEKEE. Flat?

Mr. FORD, Xo, sir ; 33 cents for the maximum.

Commissioner MEEKEE. For the maximum?

Mr. FOBD. Yes. Xow, I stilted that we did not have opposition on
this 7-cent fare. It was because we had done these things — or we
had not done it, but all of these things had been done to make the
public acquainted with our condition and to appeal for then- support ;
and that is the reason we are getting 37 per cent increase on this 40
per cent theoretical raise in rate.

Commissioner MEEKER. May I ask a question there? In case an
individual does not provide himself with tickets, must he pay 7 cents
for every zone outside of the city limits ?

Mr. FOBD. The commission fixed a differential between a cash fare
and a ticket fare. The cash fare is 9 cents, and the—

Commissioner MEEKER. That is 9 cents within the city limits I

Mr. FORD. Nine cents within the city limits.

Commissioner MEEKER. In the three zones?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 359

Mr. FORD. For the three zones, and 3 cents for each zone outside.
That is, they pay a 9-cent fare and they get a transfer which en-
ables them to continue their ride for one zcne or two zones more by
the payment of 3 cents or 6 cents.

The CHAIRMAN. In the absence of this differential what per cent
of your revenue is cash fare ?

Mr. FORD. About 5 per cent.

Mr. WARREN. Ninety-five per cent is tickets?

Mr. FORD. Yes.

Mr. WARREN. So that really the ticket rate is the actual rate?

Mr. FORD. Yes. There is no complaint from our traveling public
on account of that system.

Commissioner BEALL. Can a passenger buy tickets from any con-
ductor?

Mr. FORD. Every conductor is supplied with a full line of tickets.

Mr. WARREN. I think that is all. I submit that merely as indi-
cating, Mr. Chairman, that the increase of rates under circumstances
where the public appreciates the necessity of it has materially in-
creased the revenue, and that the opposition — do you think the oppo-
sition or this whole public attitude toward the increase of rates, Mr.
Ford, is a matter of sentiment on the part of the public psycho-
logically?

Mr. FORD. I think it is. I believe that the success of any rate de-
pends upon the support that the people give that rate.

Mr. WARREN. When it is first put into effect?

Mr. FORD. When it is first put into effect.

Mr. WARREN. That leads me to another question. Suppose that
at the beginning the new rate does not yield either the theoretical
possibility or a substantial part of it : do you think in the long run,
after the public gets used to it and gets over any irritation or pique
that they may feel, that at the increased rate the traffic will gradu-
ally return at the higher rate?

Mr. FORD. I think it will. There are two things that are psy-
chologically in the public mind when the rate is increased. The first
is that the people want to economize, and the second is there is a
rel>ellion against the increase in the rate. Now gradually both of
those are overcome, and I believe in our situation that we shall get
the full 40 per cent theoretical increase and that we shall get from 2
to 5 per cent of the natural increase that ought to come with the
growth of the city.

Mr. WARREN. And I judge from what you have said and the
emphasis which you have placed on the action of the Public Utilities
Commission of Maine that you believe that that attitude, the com-
mission itself having become convinced of the exigency, was the
most helpful element of any of the elements you have mentioned ?

Mr. FORD. I think it was.

Mr. WARREN. That is all.

Commissioner MEEKER. I would like to ask what you moan by 2 to
5 per cent increase due to the natural growth of the city? That has
been the experience of the railway company in times past, that the
annual earnings increase about that much each year?

Mr. FORD. Yes; all of our cities are increasing naturally in popu-
lation; and we must naturally count upon getting a larger travel
under exactly the same conditions next year than we had this year.

360 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner MEEKER. You think the institution of the zone sys-
tem will not have any appreciable effect upon the growth of the
community — centering the population rather than spreading it out
as in times past, so as to diminish the rate of increase?

Mr. FORD. I think not. The zone system is, in my judgment, the
fairest way to fix a rate for the reason that people pay for what
they get.

Commissioner SWEET. When did you establish the zone S}'stem?

Mr. FORD. That was established October '2, last year.

Commissioner SWEET. 1?)18?

Mr. FORD. Yes, sir.

Commissioner SWEET. Since that has been in operation have you
noticed any tendenc}- to greater congestion in the center of your city?

Mr. FORD. No, sir.

Commissioner SWEET. The rate which you have decided upon is
substantially 3 cents a mile where cash is paid?

Mr. FORD. Yes.

Commissioner SWEET. The zones are a mile wide?

Mr. FORD. About a mile; they vary. Those zones were fixed to
convenience the greatest number of people. Sometimes they would
be three-quarters of a mile and sometimes a mile and a quarter —
it depended upon the centers of population.

Commissioner SWEET. But roughly speaking, it is about a mile?

Mr. FORD. Rpughly speaking, it is about a mile.

Commissioner SWEET. And 3 cents in cash is paid for each zone?

Mr. FORD. Yes.

Commissioner SWEET. And where tickets are bought

Mr. FORD. Two and a third cents.

Commissioner SWEET. You have a rather public-spirited commis-
sion in this State, have you not?

Mr. FORD. We certainly have.

Commissioner SWEET. Made up of pretty broad-gauge men?

Mr. FORD. Yes.

Commissioner SWEET. How is that commission appointed?

Mr. FORD. Appointed by the governor.

Commissioner SAVEET. How many are tftere on the commission?

Mr. FORD. Three.

Commissioner SWEET. Were they political appointments?

Mr. FORD. Two Republicans and one Democrat.

Mr. WARREN. Does the law provide for bipartisan representation ?

Mr. FORD. No.

Mr. WARREN. It could all be of one party?

Mr. FORD. It could be. They have kept the public-utilities com-
mission out of politics up there; and the public-utilities commission
has entire regulation of our rates, under our law. Any 10 people
can hale us before the commission on a petition, and then 30 days'
rotice has to be given before a rate can be changed; and we have
conditions like that.

The CHAIRMAN. What control is there over your service?

Mr. FORD. Absolute control.

The CHAIRMAN. By the public-service commission?

Mr. FORD. Yes.

The CHAIRMAN. Have the municipalities any control at all?

PROCEEDINGS OF FEDEEAL, ELECTJRIC RAILWAYS COMMISSION. 361

Mr. FORD. None whatever; and we like the arrangement and are
very well pleased.

Commissioner SWEET. Has the commission handled other similar
cases in other cities in Maine?

Mr. FORD. Yes.

Commissioner SWEET. What other cities have had an experience
along this line?

Mr. FORD. Well, the Lewiston, Augusta & Watcrville Street Rail-
way Co., which is 164 miles of practically interurban lines. They
have raised the rates on that road from 5 to 7 cents.

Mr. WARREN. Keeping the same old zones?

Mr. FORD. Practically the same zones.

Mr. WARREN. In the 5-cent collection zone right along, the rate
was raised to 7 cents?

Mr. FORD. Yes.

Commissioner SWEET. What was the experience there? Does it
correspond with Portland's experience, if you know ?

Mr. FORD. Well, yes; I know, because I have a good deal to do with
that company. They are showing now about 36 per cent increase
since the first of the year on that road.

Commissioner SWEET. Is their business largely a suburban busi-
ness?

Mr. FORD. Yes, sir. But they went about the thing in the same
manner. The utilities commission appeared before the chambers of
commerce, and they did other things to help that company out —
really doing the thing that a public-utility commission ought to do ;
and a better sentiment was built up along that entire system and
people responded.

Commissioner SWEET. What other cities have been helped by the
commission?

Mr. FORD. Bangor. The Bangor company has increased their rate
from 5 to 6 cents.

Commissioner SWEET. They have adopted the zone plan?

Mr. FORD. Well, no; they have not the same mile-zone plan that
we have. They have the usual New England 5-cent zone or terri-
tory : it is about 2 miles or 2£ miles, something like that.

Commissioner SWEET. And then it jumps a full 5. cents to the next
zone; does it?

Mr. FORD. Well, yes; 6 cents is what they charge for each zone.

Commissioner SWEET. That is paid in cash?

Mr. FORD. Well, they have only the one system.

Commissioner SWEET. They do not have the ticket system ?

Mr. FORD. No. Now on the Atlantic Shore Railway — that is an
interurban line in the southern part of the State — they have just
recently advanced their rates to 8 cents per zone.

Commissioner SWEET. What have been the results in Bangor and
on the Atlantic Shore?

Mr. FORD. Well, of the Atlantic Shore I have not heard, because
that only recently went into effect. In Bangor they have increased
their receipts — I think they have gotten about 12 or 15 per cent out
of the 6-cent rate increase.

Commissioner SWEET. Does that indicate some falling off in
patronage?

Mr. FOHD. Yes; you never get the full amount of the increase.

100643°— 20 24

362 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. How long has the Bangor raise been in
operation ?

Mr. FORD. I think it has been in operation about four months.

Commissioner SWEET. Would you expect that, as the public become
educated to it in Bangor the same as in Portland, that will increase ?

Mr. FORD. Yes.

Commissioner SWEET. The patronage will return?

Mr. FORD. Yes.

Commissioner SwrEET. In the educational work that you did, was
particular stress laid upon the advantages to the public or both ?

Mr. FORD. Well, we discussed the matter with them from their
viewpoint.

Commissioner SWEET. That is, the public viewpoint?

Mr. FORD. It was a question of service. We did not wait for the
increase in the rate. We increased our service before the rate came
in, showing — or we wanted to show — our faith in the public. I think
that did a great deal to get us support.

Commissioner SWEET. In wThat way did you increase your service :
more cars?

Mr. FORD. We ran cars more frequently.

Commissioner SWEET. They ran on shorter schedule?

Mr. FORD. Yes.

Commissioner SWEET. And you think the public appreciated that ?

Mr. FORD. Yes.

Commissioner SWEET. And showed its appreciation by acquiescing
in the raise when it finally came?

Mr. FORD. Yes.

Commissioner SWEET. But in your efforts to educate the public to
the situation, you laid your cards practically on the table and let
them understand your financial situation?

Mr. FORD. Yes.

Commissioner SWTEET. And everything?

Mr. FORD. And everything. There was not a thing concealed from
them.

Commissioner SWEET. And they appreciated your frankness and
candor and responded in kind, in a way?

Mr. FORD. Yes. In these meetings I gave them the privilege of
asking any questions they wanted to and advance any criticism they
wanted to.

Commissioner SWEET. Do you think. Mr. Ford, that similar tac-
tics throughout the country would show similar results ?

Mr. FORD. Undoubtedly.

Commissioner SWEET. Do you think human nature is the same in
Maine as it is in other parts of the country ?

Mr. FORD. Yes.

Commissioner SWEET. And you feel that you have solved the prob-
lem ; or don't you?

Mr. FORD. I would not like to say that. I hope we have. I be-
lieve that we have gotten a rate that the people are going to support
and that gradually we shall work out of our difficulties. It is going
to take time, but I believe that a rate can be put to such a point that
you will spoil your whole proposition and raise it too high.

Commissioner SWEET. Are you making proper provision now for
deterioration ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 363

Mr. FORD. Yes, we are depreciating our property through operating
expenses, charging it right to operating expenses — 10 per cent of our
earnings.

Commissioner SWEET. Have you any objection to being as frank
with us as you were with the people there, with regard to your finan-
cial situation and the result ?

Mr. FORD. Not at all.

Commissioner SWEET. Of course it would be very instructive to us
to have you give us a statement showing what your condition was,
we will say, after the first change that you made, on August 2, 1918 —
was that the date?

Mr. FORD. 1918 ; yes, sir.

Commissioner SWEET. Now at that time what your situation was,
the results that followed that first change, and then the next change
was made June 15, 1919, was it not?

Mr. FORD. Yes. Well, the next change was made

Commissioner SWEET. Of course, you have told us in a general way,
but what I mean is more definitely with reference to the lack of nec-
essary earnings prior to the first change that made that change or
some change necessary, and what the situation has developed into
with reference to your earnings and your ability to pay any divi-
dends or meet interest on obligations and so forth. I think that
would be very instructive, if you are willing to tell us.

Mr. FORD. Yes, sir ; I am entirely agreeable to it.

The CHAIRMAN. Can you file a statement showing those figures?

Mr. FORD, I can do that or I can state it to you very briefly now
probably.

Commissioner SWEET. Stating it briefly and filing a statement for
future reference would be very helpful; don't you think so?

Mr. WARREN. On August 2 were you earning any dividends?

Mr. FORD. No; we were not earning our dividend.

Mr. WARREN. Were you earning your fixed charges on August 2 ?

Mr. FORD. Yes.

Mr. WARREN. At the old rate you were just meeting your operating
expenses and fixed charges?

Mr. FORD. Yes.

Mr. WARREN. And taking care of your depreciation?

Mr. FORD. Yes. .

Mr. WARREN. At the same rate that you are taking care of it now ?

Mr. FORD. Yes, sir.

Mr. WARREN. Now, with this increase which you have recently
made which you figure at 37 per cent of gross, you of course would be
able to take care of your operating expenses, do you think?

Mr. FORD. I think we can. Of course the people are not as fully
reconciled to the new rate as they will be eventually. We ought to
have a natural increase in our business of, say 5 per cent, and we
ought to handle as much business under the 7-cent rate as we handled
under the 5-cent rate — as much business.

Mr. WARREN. Well, you are very nearly handling as much?

Mr. FORD. Very nearly.

Mr. WARREN. I think what Mr. Sweet wants to know is, assuming
that that continues — that same increase in gross of 37 per cent — what

364 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

will it do, first, as regards operating expenses; second, a proper de-
preciation; third, fixed charges; and fourth, dividends?

Mr. FORD. Well, I believe that the 7-cent rate will pay 5 per cent
on the $2,000,000 of stock we have issued — it will pay all the interest
on the bonds, and provide this depreciation fund.

The CHAIRMAN. How does the value of your property which was
agreed to by the public-service commission correspond with your
capitalization?

Mr. FORD. It took us nearly two years to make a valuation of our
property. That valuation was checked by expert engineers em-
ployed by the State; and the value of the stock, leaving out certain
intangibles, which ought to be included in value, they showed that
that stock was worth $132 a share.

Commissioner SWEET. On a face value of 100?

Mr. FORD. Yes.

Mr. WARREN. One other question, Mr. Ford •

Mr. FORD. In other words, we had more value in the property than
the securities represented.

The CHAIRMAN. Will you resume the stand at 2 o'clock, please?

Mr. FORD. Yes.

(At 1 p. m. a recess was taken until 2 p. m.)

AFTER RECESS.

The hearing was resumed at 2 o'clock, p. m.

Commissioner SWEET. You may proceed, Mr. Warren.

Mr. WARREN. Will you resume the stand, Mr. Ford, please?

STATEMENT OF MR. ALBERT H. FORD— Continued.

Mr. WARREN. There is only one more question, Mr. Ford, that I
wish to ask you, and that is this: As I understand, you have an
existing agreement with your men for 45 cents an hour, running
until next May?

Mr. FORD. Yes, sir.

Mr. WARREN. If, at the end of that period, or if before the end
of that period, it should become necessary to increase materially
your r^ite of wages, would it then, in your opinion, be necessary to
make a further increase in your rate of fare?

Mr. FORD. I think it would.

Mr. WARREN. That is all. Thank you very much.

Commissioner SWEET. Have you any questions you want to ask?

Commissioner MEEKER. No.

Commissioner SWEET. Have you, Mr. Gadsden?

Commissioner GADSDEN. No questions.

Mr. WARREN. Mr. Ford may be excused?

Commissioner SWEET. Yes, sir.

Mr. WARREN. Mr. Tingley, will you take the stand, please?

STATEMENT OF MR. C. L. S. TINGLEY.

Mr. WARREN. Will you give your full name, Mr. Tingley, please?
Mr. TINGLEY. C. L. S. Tingley.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 365

Mr. WARREN. You are vice president

Mr. TINGLEY. I am vice president of the American Railways Co.

Mr. WARREN. And that company is interested in the operation of
various street railways?

Mr. TINGLEY. It is a holding companv for various public utilities,
principally in the States, including Virginia, West Virginia and
Kentucky, east of the Mississippi River, north of those States, and
east of the Mississippi River.

Mr. WARREN. Will you name the street-railway companies?

Mr. TINGLEY. The Jersey Central Traction Co., the Bridgeton &
Millville Traction Co., the Wilmington & Philadelphia Traction Co.,
the Scranton Railway Co., the Altoona & Logan Valley Electric
Railway Co., the Roanoke Railway & Electric Co., the Lynchburg
Traction & Light Co., the Ohio Valley Electric Railway Co., the
People's Railwav Co. of Dayton, Ohio, the Springfield Railway Co.
of Springfield, Ohio, and the Chicago & Joliet Electric Railway Co.

Mr. WARREN. Now, Mr. Tingley, will you tell the commission, as
regards any of these companies, what your experience has been in
increasing rates and what the effect has been?

Mr. TINGLEY. We have increased rates on practically all of these
companies. The increases and the effect have been materially con-
trolled by the industrial conditions. In communities which had a
large war business and where there had been a great influx of popu-
lation the increases did not have to be so much and the effect was
greater than it was in other communities.

To illustrate: Scranton, Pa., was not only not affected by war in-
dustry, having none, but it lost substantially in population by rea-
son of the military service of the 3rounger men, who are among the
best patrons of the railway, and also the men being attracted to
the centers where the war work offered much higher wages than
they could get in the main industry of Scranton, which is the an-
thracite coal mines. The riding habit was also affected by the stimu-
lation of mining, which kept the men underground for longer pe-
riods than they would be normally.

In September, 1917, we filed an increase in rate from 5 to 6 cents.
The municipality raised the question of the authority of the public-
service commission to permit an increase in rates in the face of a
rate of fare fixed in the contract ordinance, and we agreed with the
public-service commission that we would not attempt to put that
rate into effect until that legal question was decided.

In explanation of that, I think we should put in right here some-
thing with reference to our public-service law in Pennsylvania.

Under the laws of Pennsylpania, a railway is primarily charged
with the fixing of its rate. The railway files its tariff with the
public-service commission, and it becomes effective 30 days after
filing. The commission is without power to suspend rates until
after complaint and hearing. So that that agreement was neces-
sary to avoid the rates becoming automatically effective at the end
of the 3(X days.

Commissioner SWEET. Unless there is some question from some
private individual

Mr. TINGLEY. It becomes automatically effective.

Commissioner SWEET (continuing). The public-service commis-
sion takes no action upon it whatever?

366 PKOCEEDINGS OF FEDERAL ELECTEIC RAILWAYS COMMISSION.

Mr. TINGLEY. It takes no action. Of course, if the commission
should think that your rate was unreasonable or extortionate, they
could on their own motion institute an investigation.

Commissioner SWEET. They have the power

Mr. TINGLEY. They have the power; but it would be an unusual
case in which they would do it that way, without complaint.

The matter dragged along until March, 1918, when the commis-
sion decided that they had power, notwithstanding the contract
ordinance; and when one or two of the lower courts in Pennsyl-
vania had acted on injunction proceedings seeking to restrain the
commission from acting, they decided that the commission must first
act before the court had jurisdiction, and, again, parenthetically,
the superior court yesterday handed down a decision sustaining the
powers of the commission, notwithstanding the contract ordinance.

Commissioner SWEET. Is that the court of last resort?

Mr. TINGLEY. No, sir. That is the court of appeals there

Commissioner SWEET, An intermediate court 2

Mr. TINGLEY. An intermediate court.

On the 21st day of March, 1918, a 6-cent fare went into effect.

Commissioner SWEET. In Scranton?

Mr. TINGLEY. In Scranton; and it resulted in a small diminution
in travel. Being a theoretical 20 per cent increase, it was producing
about 12 to 13 per cent increase.

The War Labor Board, in August, handed down a decision in-
creasing our wages very materially. The maximum rate for motor-
men and conductors at the end of three years' service had been 36
cents an hour. It was raised to 45 cents an hour at the end of the
first year's service. A minimum wage of 42£ cents was established
for all other employees, amounting in some instances to a 90 per
cent increase. It was a flat increase of all wages of 51^ per cent.

Under the 6-cent fare we were having a surplus of about $100,000
a year over and above fixed charges. The theoretical increase
granted by the War Labor Board amounted to $340,000; so it was
manifest that we had to have more income.

We filed in August an 8-cent tariff, which became effective on the
15th day of September.

Commissioner SWEET. Of this year ?

Mr. TINGLEY. Of 1918.

Commissioner SWEET. Oh, I mean 1918.

Mr. TINGLEY. Which resulted in a very prompt diminution in
travel. It was followed early in October by the outbreak of in-
fluenza, which was very severe in that country and the travel dropped
50 per cent. By December, however, the travel had returned, show-
ing a loss of about 20 per cent in passengers but an incease of about
28 per cent in income; and in May, when the public-utility commis-
sion finally decided the rate case, the travel was running along, show-
ing a diminution of about 18 or 19 per cent, which was just where
the company had figured it woidd land. We had figured that if we
only lost 20 per cent of our travel and collected an 8-cent fare we
would be made whole a/nd able to stand this increase in wages.

Mr. WARREN. Did that mean that you were getting about two-
thirds of the theoretical possible increase in revenue, Mr. Tingley ?

Mr. TINGLEY. Yes, sir.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 367

The commission then handed down its decision, which created
four tickets for a quarter, or 6£ cents each, sold on the cars, for a trial
period of six months, with a cash fare of 7 cents. Under that 7-
cent tariff, in the month of June, and so far in July, we are carrying
more people than we carried last year under the 6-cent tariff which
was then in effect.

Xow, taking the Wilmington & Philadelphia Traction system that
serves the city of Wilmington, the adjacent territory, the city of
Chester, and up to a connection with the city lines of the city of
Philadelphia, the borough of Darby —

Commissioner SWEET. Before you leave Scranton let me ask you
this question, Mr. Tingley : Has the return of the soldiers or laborers
had anything to do with this increase ?

Mr. TINGLEY. The town is getting back to normal ; yes, sir.

Commissioner SWEET. Yes.

Mr. TINGLEY. The town is getting back to normal.

Commissioner SWEET. Can you differentiate now between the ele-
ments ?

Mr. TINGLEY. Well, I did not refer to income there. I said that
we were carrying more passengers.

Commissioner SWEET. I understand.

Mr. TINGLEY. In other words, we are getting about what I think
is more nearly approaching the growth of a community of that size;
that is, about 5 per cent per annum.

Commissioner SWEET. That would be due to the return of the popu-
lation ?

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. In part?

Mr. TINGLEY. Yes.

Commissioner SWEET. And you also think it is in part due to a
better feeling on the part of the public in regard to the raise ?

Mr. TINGLEY. Well, as to the feeling on the part of the public,
I want to speak very guardedly on that, because we are in a very
nasty political situation there. In other words, it has been made
a political issue with the city council.

Commissioner SWEET. Of course, we are all one family here and
you can tell secrets if you want to.

Mr. TINGLEY. I know, but a good deal goes out over the wire.

Mr. WARREN. At any rate, you are now back to your normal situa-
tion?

Mr. TINGLEY. Yes.

Mr. WARREN. In other words, with this increased fare, your traffic
is just the same as it was with the old 5-cent fare or 6-cent fare?

Mr. TINGLEY. Under the 6-cent fare a year ago; yes.

Now, the Wilmington to Philadelphia system, serving Wilmington
and Chester, which probably, in proportion to their size, had more
war business than any other community in the country — we instituted
a 6-cent fare there in June, 1018. That is a theoretical 20 per cent
increase. As a matter of fact, after the armistice was signed, the
increases there ran from 30 to 40 per cent, and to-day, with the war
business practically eliminated, we are showing about a 7 per cent
increase in those earnings, comparing a 6-cent fare this year with a
6-cent fare last year.

368 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

There was a complaint against that fare in the city of Wilming-
ton. The commission sustained us, and the court sustained the com-
mission.

In Pennsylvania, in the Chester end of the system, complaint was
filed with the public service commission, but was later withdrawn.

Commissioner SWEET. When you speak of the G-cent fare, you refer
to the fare within the corporate limits?

Mr. TINGLEY. Yes.

Commissioner SWEET. Only?

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. And from Wilmington to Chester

Mr. TINGLEY. And from Wilmington to Chester there are three
zones of 6 cents each ; and from Chester to Darby there are two zones
of 6 cents each : and there are collateral lines that have been placed
upon the same basis.

Commissioner SWEET. Yes.

Mr. WARREN. Those are somewhat like what Mr. Ford called the
New England old-fashioned zone?

Mr. TINGLEY. Yes. Those zones are about 3 miles long.

Mr. WARREN. And that system you did not change?

Mr. TINGLEY. We did not change that system.

Mr. WARREN. As I understand it, that 6-cent fare has been in effect,
how long, Mr. Tingley?

Mr. TINGLEY. Since June, 1918.

Mr. WARREN. And you show an increase in revenue much in excess
of the theoretical increase in rates?

Mr. TINGLEY. More than double.

Mr. WARREN. During the war period?

Mr. TINGLEY. Yes, sir.

Mr. WARREN. And now this year, with the restoration of normal
traffic conditions, you show an increase of

Mr. TINGLEY. About 7 per cent.

Mr. WARREN. Over last year ?

Mr. TINGLEY. Yes.

Mr. WARREN. Over the war period?

Mr. TINGLEY. Yes.

Mr. WARREN. I suppose, of course, you are pretty well satisfied
with the increase, which has not affected your traffic?

Mr. TINGLEY. Yes, sir; absolutely.

Commissioner MEEKER. Of course, you can not tell what the traffic
would have been if you had still the 5-cent fare?

Mr. WARREN. If we could hold all of the traffic and get a 6 or
7-cent fare, we would be reasonably satisfied.

Commissioner BEALL. Is not that a section — through Chester and
that territory — where people are compelled to ride more than usual ?

Mr. TINGLEF. I would not say more than usual ; no, sir.

Commissioner BEALL. It seems so to me. I know that section, and
you have long stretches there.

Mr. TINGLEY. It is a long stretch. It is 6 miles from the city line
of Philadelphia to the center of Chester.

Commissioner BEALL. But the distribution is such between the
factories and the residential sections that I think that more than

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 369

ordinarily people are compelled to ride. Does not that in part ac-
count for

Mr. TINGLEY. That would account for the great increase during
the war period.

Commissioner BEALL. If the city there was round in shape, and
the residences radiated out from it, it would not be so good ?

Mr. TIXGLEY. That was true all during the war period, because
many of the employees of the Baldwin Locomotive Works and the
Remington Arms Co. lived in Philadelphia and rode down. In
fact, the travel there was so enormous that the Government spent
over $1,000,000 in building a second track on that Darby pike, and
we made no protect against the jitneys which Avere simply flooding

the pike, because we simply could not handle the people that were

& •
ottering.

Commissioner BEALL. Is not your situation there a little more fa-
vorable than the average situation?

Mr. TINGLEY. Yes, sir.

Commissioner BEALL. With a similar population. That is the
point I wanted to bring out.

Mr. TIXGLEY. But now the Remington Arms Co. is closed down
entirely. I do not think there is anybody in there but a fewr clerks
and storekeepers who are supervising the removal of the machinery
and the necessary guards to protect the plant.

In Wilmington, there is a different situation. Their industries
are right plumb in the city.

Commissioner SWEET. The shipbuilding industry, is it not?

Mr. TixGLEr. Yes; and that work is going on, although not at the
speed that it was during the war.

Commissioner SWEET. No.

Mr. TIXGLEY. Of course, the Pusery & Jones people have been in
financial difficulty and have had to curtail their activities con-
siderably.

Now, taking the Altoona situation. In April, 1917

Commissioner SWEET. Before taking up that situation, let me ask
you this one question in regard to the Wilmington and Chester sec-
tion: How do you account for the fact that your earnings this year,
under the apparently adverse conditions, are better than they were
last year under such favorable conditions?

Mr. TIXGLEY. Well, the community is prosperous. The working-
man is receiving the highest wage he ever received in his life, and
he is perfectly willing to spend it.

Commissioner SWEET. There are not so many people to ride?

Mr. TIXGLEY. No.

Commissioner SWEET. How about the jitneys? Have they gone
out of business?

Mr. TIXOLEY. The jitneys have gone out of business. They disap-
peared with the signing of the armistice.

Commissioner SWEET. So that you are getting now the business
that they were doing?

Mr. TIXGLEY. Yes, sir.

Commissioner MEEKER. Did I understand you to say that your
traffic this year is 7 per cent greater than it was last year?

Mr. TIXGLEY. Yes, sir.

370 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner MEEKER. Under the war conditions?

Mr. TINGLEF. Yes, sir.

Commissioner MEEKER. And last year there was an increase of
40 or 50 per cent over the preceding year ?

Mr. TINGLEY. From 30 to 45 per cent.

Commissioner MEEKER. From 30 to 45 per cent?

Mr. TINGLEY. Yes; it fluctuates.

Commissioner SWEET. In gross income?

Mr. TINGLEY. In gross income.

Mr. WARREN. Not in traffic?

Mr. TINGLEY. Not in traffic. In gross income. It would have
indicated, for a 20 per cent increase in rates, anywhere from 12 to
18 per cent increase in traffic. With your normal increase running
from about 5 to 7 per cent, it meant a war increase of from 5 to 12
per cent. I am talking in v&ry rough, round figures because I had
not expected to go on the stand, and I am talking purely from
memory, and my percentages may vary 1 or 2 per cent in either
direction.

Commissioner SWEET. Well, the fare last year and the fare this
year

Mr. TINGLEY. Are 6 cents in each case.

Commissioner SWEET. They were the same?

Mr. TINGLEY. Yes, sir.

Commissioner GADSDEN. Mr. Tingley, what has been the history
of the net?

Mr. TINGLEY. The history of the net is that it is very much smaller.

Commissioner GADSDEN. Explain that to the commission. I want
to understand it myself. You have had some very substantial in-
crease in business. Give us the history of your net results.

Mr. TINGLEY. In 1917, conductors and motormen on those lines
were receiving, as I recall it, a maximum of 30 cents an hour. To-day,
they are receiving 48 cents an hour, and all other labor has been in-
creased proportionately.

The cost of coal at the power plant has more than doubled; and
its having been a war situation — we could not cheese-pare on main-
tenance and upkeep. We simply had to do everything that we could
to get the material to do it with. We have not been able to curtail
expenditures, as we had, for example, in Scranton. There, we were
able to curtail our expenditures in the way of maintenance and up-
keep to the extent of $150,000 to $200,000 a year. That is deferred
maintenance. It is accumulating, and it has to be taken care of,
but we were able to avoid the expenditure of this money in these
strenuous times. In this situation we were not able to do that, be-
cause, instead of being able to curtail the service, we had to mate-
rially increase the service.

Commissioner GADSDEN. So that, notwithstanding the increase in
business

Mr. TINOLEY. The net results were very materially less. I would
not dare give you the figures, because I do not carry them in my head.

Mr. WARREN. In other words, the increase was all needed to main-
tain

Mr. TINGLEY. More than all of it was needed. In 1916, the street-
railway lines earned a surplus. In 1918, they earned a deficit.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 371

Commissioner GADSDEN. Would it be fair to say then that the pub-
lic got the benefit of all the increase, and not the stockholders?

Mr. TIXGLEY. The public and employees got every penny of the
increase. „

Commissioner GADSDEN. Yes; I mean that.

Mr. TINGLEY. And then a little ntore.

Commissioner MEEKER. Mr. Chairman, I would like if Mr. Tingley
would submit a brief statement summarizing the experience of the
Wilmington and Chester and Darby line, giving the experience with
the increase in fare and the increase in wages and the other expenses.

Mr. TINGLEY. I will be glad to do that, sir.

Mr. WARREN. Mr. Tingley, you started to speak of the Altoona
situation.

Mr- TINGLEY. The Altoona situation, again, was affected by the
war situation, Altoona being the great repair and manufacturing
shops of the Pennsylvania Railroad; and due to the demands of
the railroad they were unusually active, working, as a matter of fact,
throughout 1916 and 1917 in three 8-hour shifts — continuous opera-
tion. In April, 1917, we did away with the tickets, which thereto-
fore had been sold in large quantities, good for a 5-cent fare, at a
rate of 4 cents. There was no protest, and no diminution in riding.
We kept right on the abnormal growth, because riding had begun to
increase. The curve kept ascending.

In April, 1918, we increased the fare from 5 to 6 cents; and the
increases have averaged and are averaging right up to the present
time from 30 to 35 per cent over the flat 5-cent fare of last year. So
that the theoretical increase of 20 per cent has practically all been
saved, and that is notwithstanding the fact that since the armistice
was signed the activities in the shops have been curtailed. I do not
know just what they are doing at the moment, but for quite awhile
they were only working in two 8-hour shifts, instead of three.

Commissioner SWEET. How do you account for that, Mr. Tingley ?
How do you account for it?

Mr. TINGLEY. Enormous earnings. The men in those shops have
more money than they ever dreamed of having. Some of those
men, under General Order No. 27, received as high as $1,000 in
back pay.

Commissioner SWEET. Then it would indicate an increase in the
riding habit ?

Mr. TINGLEY. Yes. They have money, and they are spending it.

Mr. WARREN. Is it not true, Mr. Tingley, that if the present scale
of wages general in the industry is maintained, people will feel
better able to ride and pay higher rates of fare than they did in the
time of the old 5-cent fare?

Mr. TINGLEY. Unquestionably. For example, we have a very beau-
tiful park located about 3 miles out of the city, and on the Fourth
of July we hauled more people out to that park than had ever been
taken there in the history of the road.

The CHAIRMAN. What success did you have with the 5-cent fare
prior to 1917?

Mr. TINGLEY. Well, that has always been a substantial, profitable
property.

The CHAIRMAN. And the difficulty which now confronts you is duo
wholly to war conditions?

372 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. TINGLEY. Absolutely, sir; wholly. Well, I would not say to
the war conditions, but wholly due to the increase in wages and ma-
terial which, of course—

The CHAIRMAN. Which, of course, would not have come without
the European war?

Mr. TIXGLEY. Well, they were coming before the war came, sir.
The war has simply hastened it and aggravated it. Wages were
rising, and rising steadily, and have for the last 20 years.

Commissioner SWEET. Can you tell us what the relation is be-
tween the increase in earnings and the increase in expenses on the
Altoona road?

Mr. TINGLEY. I would not want to do that from memory; no, sir.
I will be glad to submit it.

Commissioner SWEET. If it would not be improper for you to. give
that information, I think we would be glad to have it.

Mr. TINGLEY. It is a matter of public record, and I will be glad to
submit it.

Commissioner SWEET. All right. Thank you, sir.

Commissioner GADSDEN. Mr. Tingley, the figures that you have
given for these various properties would seem to indicate that the
income of that class of the population which is particularly given to
car riding has been proportionately increased?

Mr. TINGLEY. Yes, sir.

Commissioner GADSDEN. So as to justify and encourage them to
ride more, has it not?

Mr. TINGLEY. Yes, sir.

Commissioner GADSDEN. It would seem to carry with it, as a logi-
cal sequence, that they should be willing to pay more ?

Mr. TINGLEY. I would think so.

Commissioner GADSDEN. In other words, it would seem to indicate
that the car-riding class of the community has profited to a greater
degree than any other class, in the increase in wages; is that your
observation ?

Mr. TINGLEY. That is my observation. And in the places where
they have, unless the opposition has been stirred up politically,
there has been no opposition.

Now, there is not the slightest semblance of opposition from any-
one in the city of Altoona to that increase in rates. We operate also
an interurban line there, and there was a complaint from a borough
on the interurban line — not against the 6-cent fare, but it was a
repetition of a complaint which the commission decided 10 years
ago nearly, that that borough was discriminated against, because it
paid 3 cents to get to Altoona, when the borough on the other side
only paid 2 cents.

The CHAIRMAN. How many years had that company been profit-
ably operating under a 5-cent fare?

Mr. TINGLEY. Well, of course, sir, it had a very heavy percentage
of 4-cent fares prior to April, 1917. Oh, that road was built —
well, as a matter of fact, the lines in the city of Altoona were origi-
nally a horse railroad. They were electrified, I think, in about 1893.
The interurban lines were built about the same time, and they have
always shown a reasonable return. They have never paid

The CHAIRMAN. What dividends had you been paying, upon the
average ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 373

Mr. TINGLED Why, I would say — and, again, I am speaking from
memory — it would average about somewhere between 6 and 7 per
cent.

Commissioner SWEET. On the common stock?

Mr. TINGLEY. There is only one class of stock.

The CHAIRMAN. Did you also lay up a surplus?

Mr. TINGLEY. We had some surplus ; yes, sir.

The CHAIRMAN. What was the extent of that?

Mr. TINGLEY. I could not answer that offhand, sir.

The CHAIRMAN. Did you likewise set aside a depreciation fund?

Mr! TINGLEY. Yes, sir.

The CHAIRMAN. Have you made a reasonable effort to protect that
situation and take care of this large increase in operating costs?

Mr. TINGLEY. That road, sir, has the reputation of being one of
the best-managed roads in the State of Pennsylvania; so much so
that when the property over in Johnstown, about 40 miles away, got
into trouble, the citizens and stockholders there came over and asked
us if we would not come down to Johnstown and straighten them out.

The CHAIRMAN. Have you given any consideration to the use of
the one-man car?

Mr. TINGLEY. Yes, sir ; we have. There are two or three questions
involved in the one-man car. We have not felt that it solved all of
pur questions. In the first place, for a company of that size, it would
involve a very considerable expenditure of money to scrap rolling
stock in thoroughly good operating condition and replace it with
new rolling stock. In the second place, Altoona is a mountain town.

The CHAIRMAN. What is that?

Mr. TINGLED. A mountain town, with very severe grades. And. I
am not yet satisfied in my own mind as to the advisability of operat-
ing a car with one man only on it under those circumstances.

Commissioner SWEET. What kind of power do you use there?

Mr. TINGLEY. Overhead trolley.

Commissioner SWEET. I mean how is the power generated — water
power of coal ?

Mr. TINGLEY. Oh, coal. There is no water power in that part of
the State.

Commissioner SWEET. You get your coal cheaper than they do in
most places; do you not?

Mr. TINGLEY. Coal is cheap; yes, sir.

Commissioner SWEET. What kind of coal do you use — anthracite?

Mr. TINGLEY. Bituminous.

Commissioner SWEET. Is that purchased in the immediate
vicinity?

Mr. TINGLEY. Yes, sir; within 15 miles of the power plant.

Commissioner SWEET. How do your prices compare with your
prices in Wilmington?

Mr. TINGLEY. Well, I think the difference in price between Altoona
and Wilmington is about $2.

The CHAIRMAN. Did you have to make a substantial reduction in
the operating cost before it made you able to reduce your rates?

Mr. TINGLEY. Yes, sir.

The CHAIRMAN. What has been your percentage increase in your
operating costs since the war?

Mr. TINGLEY. I could not answer that offhand, sir.

374 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. Have you substantially the same number of
employees ?.

Mr. TINGLEY. Or more. There has been no radical change in the
number of employees in the car service. Of course, during the war
period there was a shortage of labor, and their shop force and track
force were somewhat depleted, and the extra list was somewhat
depleted, but that is coming back again.

The CHAIRMAN. These rates were allowed by the Public Service
Commission of Pennsylvania?

Mr. TINGLEY, Yes, sir. That is, they went into force automatically,
as there was no protest.

The CHAIRMAN. Have any petitions been filed with that commis-
sion asking for a reduction of those charges?

Mr. TINGLEY. No, sir; the community is entirely satisfied with it.

The CHAIRMAN. Do you feel that you could continue with these
charges a rather indefinite period without any public protest?

Mr. TINGLEY. I do; yes, sir.

Mr. WARREN. May I interrupt just a minute, Mr. Chairman, to
say that before you came in Mr. Tingley explained the situation
there, and I think it might be of interest to you to turn briefly
to it

The CHAIRMAN. Well, I will read the record. I would not ask
him to repeat it.

Can you conveniently file with us a statement of your operating
sheets for the years 1918, 1917, and 1916?

Mr. TINGLEY. Yes, sir.

The CHAIRMAN. And with that a statement showing the increase
in dollars in the wage account, for fuel, material and supplies.

Mr. TINGLEY. That latter is rather a large order, sir.

The CHAIRMAN. Is it? I supposed that you were so much inter-
ested in that that you had it all at your fingers' ends.

Mr. TINGLEY. Well, to describe it in that fashion.

The CHAIRMAN. I do not want you to go into too much detail, but
I think it would be helpful to this commission if you had some con-
crete figures on that question. It is one thing to make a statement
that there has been a large increase in the cost of wages, materials,
supplies and fuel, and another thing to have the figures to back it
up. I think it would be well for you to give some attention to that,
Mr. Warren.

Commissioner SWEET. Is the Altoona Co. paying legitimate ex-
penses now and any more than that?

Mr. TINGLEY. In 1918, it earned a small surplus — a very small
surplus. That was due almost entirely, as I recall the figures, to the
fact that it leases and operates the electric-lighting plant -in the
borough of Tyrone, which had a net earning of about $30,000.

Mr. WARREN. Do you mean to say a surplus after paying
tliiadends?

Mr. TINGLEY. No, sir.

Mr. WARREN. A surplus over fixed charges?

Mr. TINGLEY. A surplus over fixed charges.

Commissioner SWEET. That was the combined property?

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. The lighting property would be somewhat
more profitable?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 375

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. Than the traction property?

Mr. TINGLEY. Yes, sir.

Commissioner GADSDEN. Mr. Tingley, will you give the commis-
sion some idea of the increase in the freight rate on coal, we will say,
put on by the Government?

Mr. TINGLEY. I could not give you that offhand, Mr. Gadsden.

Commissioner GADSDEN. You could not ?

Mr. TINGLEY. No.

The CHAIRMAN. In your experience, do you feel that your com-
pany could get along all right under the commission form of regu-
lation, where that body has the power to fix just and reasonable rates,
according to the operating conditions?

Mr. TINGLEY. That would depend, sir. I will answer you in this
fashion: Under the Pennsylvania law and under the New Jersey
law, with one slight modification, yes, if you could persuade those
bodies to act with reasonable promptness.

The CHAIRMAN. You have difficulty-in getting prompt action from
your commissions?

Mr. TINGLEY. The Pennsylvania Commission has no power to sus-
pend a rate until after a complaint and hearing, or upon its own
motion and hearing, and consequently the rate may become effective
in 30 days after you file it. In New Jersey the commission has the
power, and has exercised it very freely, to suspend the rates for 120
days. The result is that the commission was small until increased by
the last session of the legislature — only three members, and it was
increased to five— and the calendar was crowded, and it took you
anywhere from six to nine months to get a decision. In the mean-
time the patient died.

The CHAIRMAN. Well, did the patient die in New Jersey ?

Mr. TINGLEY. Well, I have in mind two with which I am con-
nected which would have died if the holding company had not gone
down into its surplus account to the extent of three or four hundred-
dollars and put it out to take care of it. If they had been inde-
pendently operated properties, they would have been in the hands
of a receiver within 60 days of the application to the commission for
relief.

The CHAIRMAN. But your experience in Pennsylvania has not been
unsatisfactory.

Mr. TINGLEY. No, sir. I think the Pennsylvania law is as nearly
a just and equitable law as can be drawn to both the companies and
the public, with possibly the exception, from the public point of
view, that their power over security issues is limited.

The CHAIRMAN. Is your criticism of the New Jersey Commission
based upon its judgment in passing upon rate questions or simphT on
its delay in making an order?

Mr. TINGLEY. Its delay in making an order.

Commissioner SWEET. The only very important difference, I take1
it, is that in New Jersey the raise is not made pending an investi-
gation and decision.

Mr. TINGLEY. Yes.

Commissioner SWEET. Whereas in Pennsylvania it is?

Mr. TINGLEY. Yes, sir. That, I think you will appreciate there, is
the just process, because the commission can, on complaint, say to

376 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

the railroad company, " You must issue rebate slips for this"; to the
electric light and power company, " You must stamp your bills to
the effect that if this rate is approved you will refund it," and so on ;
and the consumer is not hurt. The consumer can get his, but if the
rate is suspended, even though it be declared just and reasonable at
the end of the hearing, six months hence, the company has lost that
money and can never get it back.

The CHAIRMAN. There has been a good deal of discussion here
about the cost-of -service plan. In your judgment, which system
will give the greatest public satisfaction — the increase of a rate auto-
matically under your cost-of -service plan as your costs of operation
go up, or an increase ordered by a State commission after a hearing
in which parties can be heard?

Mr. TINGLEY. I have had no experience, sir, with the cost-service
plan. I can only look at it from the outside, and as I have seen it
working in Cleveland from the outside, it seems to me that the com-
pany there does not get the full benefit that they were supposed to
get. In other words, the tendency of the council that regulates this
reserve fund is to keep down the allowance for maintenance and other
purposes and to avoid an increase in fare which wTould be unaccept-
able to the public.

The CHAIRMAN. Of course, you are answering these questions from
the standpoint of the company?

Mr. TINGLEY. Yes.

The CHAIRMAN. I am trying to get your point of view from the
public standpoint.

Mr. TINGLEY. Well, I do not believe, sir, it will make very much
difference from the public standpoint, one way or the other. Human
nature is very much the same everywhere. We are all a little bit
selfish, and we want to get what we get as cheaply as we can get it;
and the public will feel temporarily — it won't last long — that some
injustice has been done when the fare is increased, no matter whether
•it comes through automatic ordinance or through an order of the
commission.

The CHAIRMAN. Is it not pretty well understood that our people
feel very much better if they get something off their stomachs once
in a while through a proper tribunal?

Mr. TINGLEY. Oh, sure. I think there is no question about that,
and I believe thoroughly that in those hearings they should be given
the greatest possible latitude to ease their minds.

The CHAIRMAN. But there are no hearings provided for in the cost-
of-service plan.

Mr. TINGLEY. No.

Commissioner GADSDEN. Mr. Tingley, is it not a fair criticism of
the commission regulation that there is delay in arriving at the
results ?

Mr. TINGLEY. Yes, sir.

Commissioner GADSDEN. And while the opportunity is being af-
forded the public to get something off its stomach, the railway is
paying for it?

Mr. TINGLEY. Yes, sir; that is true.

Commissioner GADSDEN. Now, if that could be remedied, a very
serious criticism of commission regulation, so far as the railways are
concerned, would be disposed of, would it not?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 377

Mr. TINGLEY. You can escape that by applying the provisions of
the Pennsylvania law to the case.

The CHAIRMAN. That is the law in quite a number of States.

Mr. TINGLEY. Yes.

Commissioner MEEKER. Is your criticism of the Cleveland so-called
service-at-cost plan that it is not a service-at-cost plan? If it does
not provide enough for depreciation, it certainly is not a service-at-
cost plan.

Mr. TINGLEY. No, sir; and it is exceedingly difficult to get a true
service-at-cost plan, because there always will be that tendency of the
city council to keep down the allowance for these expenditures.

Commissioner MEEKER. Do you think that

Mr. TINGLEY. You see now, under the Cleveland plan, they are
allowed so much a car-mile for maintenance. Now, they have always
starved the company on that maintenance item. If you take their
annual report from the time of the inception up to the present time
and compare their actual expenditures with the allowances made for
those purposes, you will find that in practically every year since that
thing was instituted, the actual expenditures have exceeded the allow-
ances by the council.

Commissioner MEEKER. Do you think that is likely to be the case in
any service-at-cost plan- that might be devised?

Mr. TINGLEY. Well, there is the most notable example of the
service-at-cost plan, and that is the way it has worked there.

Commissioner MEEKER. Do you think commission control as under
the Pennsylvania law would be a satisfactory service-at-cost plan so
far as you know it?

Mr. TINGLEY. I do, sir ; for the simple reason that in the service-at-
cost plan the city council or the city authorities, by whatever name
they are called, are prosecuting attorney, judge, and jury; and the
three offices are incompatible.

Mr. WARREN. Mr. Tingley, would not that objection be lessened in
case of the administration of the service-at-cost by the State commis-
sion in cases where the State commission has sufficient jurisdiction, to
change this so-called contractual franchise?

Mr. TINGLEY. I do; yes, sir.

Mr. WARREN. They would be apt to administer it without that
selfish purpose.

Mr. TINGLEY. Yes, sir.

Mr. WARREN. That is bound to influence the other party to the
contract.

Mr. TINGLEY. Yes, sir ; but then you are back to State-commission
regulation.

Mr. WARREN. Yes ; but there might be a State-commission regula-
tion with an automatic sliding scale.

Mr. TINGLEY. Yes, sir.

Mr. WARREN. When once approved by the State commission

Mr. TINGLEY. If that is workable under the State laws. I am not
a lawyer, but I am advised that that could not be done, for example,
in the State of Pennsylvania.

Mr. WARREN. You mean without more legislation.

Mr. TINGLEY. Without more legislation.

Mr. WARREN. But I rather think this commission is proceeding
somewhat on the theory — we certainly are — that legislative obstacles
160043°— 20 25

378 PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION.

should not interfere with our consideration of the best method, be-
cause these contractual franchises are an absolute obstacle to the serv-
ice-at-cost plan, unless the parties are willing to change it.

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. How many members are there on the Penn-
sylvania Commission ?

Mr. TINGLEY. Seven.

Commissioner SWEET. How are they appointed?

Mr. TINGLEY. By the governor, for 10 years.

Commissioner SWEET. Is there any provision in regard to their not
all being from one political party ?

Mr. TINGLEY. No, sir.

Commissioner SWEET. How do they stand at the present time?

Mr. TINGLEY. At the present time there are, I think, six Republi-
cans and one Democrat.

Commissioner SWEET. The Democrat leavens the whole lump, I
suppose? [Laughter.]

Commissioner MEEKER. It is hard to find a Democrat in Pennsyl-
vania.

Mr. WARREN. It sounds like a Pennsylvania situation, doesn't it?

Mr. TINGLEY. As near as I can recall, there always has been one
Democrat on the commission.

The CHAIRMAN. I was wondering if they would be as liberal as
that down in Texas.

Commissioner SWEET. How many members are there on the New
Jersey Commission?

Mr. TINGLEY. Five.

Commissioner SWEET. And what is the situation there?

Mr. TINGLEY. Well, at the present time, there are four Republicans
and one Democrat. Up until a year ago, when the commission was
composed of three, there were two Democrats and one Republican.

Commissioner SWEET. You say their calendar was somewhat over-
loaded, so that they did not get on with their work.

Mr. TINGLEY. Yes, sir. Of course, the New Jersey Commission has
rather an insufficient appropriation for their work.

Commissioner SWEET. Has there been any difficulty of that kind in
Pennsylvania ?

Mr. TINGLEY. No, sir.

Commissioner SWEET. The Pennsylvania system has a tendency to
give the commission less work, does it not ?

Mr. TINGLEY. Yes, sir.

Commissioner SWEET. Than the New Jersey system ?

Mr. TINGLEY. Yes, sir; and then, further, the commission, of
course, practically never sits in a body except to hear argument.
Your case is never argued at the time you take the testimony. The
commission sits once a month to hear argument. In Pennsylvania,
the taking of testimony is apportioned among the seven commis-
sioners ; and if the calendar gets a little congested they can deputize
their attorney or one of their engineers as an examiner to take the
testimony; and you can have 8 or 10 hearings going on at once.
That is not true in New Jersey. They usually sit as a body. Occa-
sionally they will split up and sit one commissioner at a time.

Commissioner SWEET. The Pennsylvania Commission keeps pretty
well up with its work ; does it ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 379

Mr. TINGLEY. Yes.

Commissioner SWEET. So that the delays which you regard as a
serious objection do not occur so much in Pennsylvania?

Mr. TINGLEY. No, sir.

The CHAIRMAN. New Jersey is so small that if you divide the
commission up and have hearings in different parts of the State, it
might find itself outside of its own domain. [Laughter.]

Mr. TINGLEY. New Jersey is peculiar in this situation, too — that
they have three great big companies: the Public Service Railway,
the Public Service Electric, and the Public Service Gas, which over-
shadow, outside of the steam roads, everything else in the State.
While there are many small companies serving them, still those three
big companies overshadow all the rest of the State, and naturally
get a larger percentage of the commission's time than some of the
others think they are entitled to.

Commissioner SWEET. Are you going to tell us about some of those
other properties that you are connected with ?

Mr. TINGLEY. Well, I could go on for a considerable length of
time, if it is interesting, sir.

.Mr. WARREN. I would like to ask you to go on at least to one mat-
ter— as to the increase of rates, and the effect of the increase of rates
on the traffic. You have mentioned three now. Altoona was the last
one.

Mr. TINGLEY. Yes.

Mr. WARREN. If there are other instances where you have in-
creased rates, I would like to have you inform the commission as to
the effect of them.

Mr. TINGLEY. In all of the other properties, the increases in rates
have not produced any diminution in travel, with the exception of
Joliet. 111. There the city itself is small. On the interurban line
extending from Joliet to Chicago, the increase to the maximum rate
of 2 cents a mile under tickets and 3 cents a mile under cash, has not
produced much if any effect on the travel. We have continued to get
our normal increase. In the city of Joliet, however, where we went
from a 5-cent fare to a 7-cent fare, owing to the smallness of the city
and the infrequent service which the population would sustain, there
has been a substantial diminution in travel. Now, just what the
percentage was I could not tell you offhand. It has produced an in-
crease in gross revenue, but not at all proportional to the increase in
rate.

Commissioner SWEET. In Joliet, was there a popular dissatisfac-
tion?

Mr. TINGLEY. No, sir. There was some. There was an effort on
the part of one or two labor agitators to make it a political issue, and
they took a complaint to the public-service commission, and the rate
was sustained. Then they took it into the mayoralty election, and
they were defeated ; and since then we have heard nothing from it.

Commissioner SWEET. But even there, as I understand it, there
has been an increase in revenue.

Mr. TINGLEY. There has been an increase in revenue, though not
nearly proportional to the increase in rate.

Mr. WAKREN. But in each instance, the increase in revenue has
been

Mr. TINGLEY. Has been proportional to the increase in rate.

380 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. <

Mr. WARREN. So you would say to the commission, would you, Mr.
Tingley — because I think this is an important point in the investiga-
tion, at least it seems so to me — that the increase in rates is justified
as a measure by which to increase the revenue of these companies
which are so hard pressed now?

Mr. TINGLEY. I think it is the only quick remedy that can be had,
sir.

Mr. WARREN. And you have confidence in its effectiveness?

Mr. TINGLEY. Yes, sir.

Commissioner MEEKER. Can you file a statement covering that
Joliet situation?

Mr. TINGLEY. Yes, sir.

Commissioner MEEKER. Along with the other statements.

Mr. TINGLEY. Yes, sir.

Mr. WARREN. I am very much obliged to you, Mr. Tingley, and
unless the commission has some further questions, I will ask that you
be excused.

The CHAIRMAN. You are excused.

Mr. WARREN. Mr. Barry, will you take the stand, please?

STATEMENT OF MR. JOHN G. BARRY.

The CHAIRMAN. What is your name, sir?

Mr. BARRY. John G. Barry, sales manager of the General Electric
Co., Schenectady, N. Y.

Mr. WARREN. This next witness. Mr. Chairman — the next three
witnesses will be manufacturers, producing supplies very largely used
by street railways. I have no objection to your asking them any
questions to aid in your investigation, but I am merely calling them
for the purpose of giving you information as to the increased cost
of such supplies, and not as experts on street-railway methods.

The CHAIRMAN. We are very glad to have that testimony.

Mr. WARREN. Mr. Barry, your full name?

Mr. BARRY. John G. Barry.

The CHAIRMAN. And what is your occupation?

Mr. BARRY. I am sales manager for the General Electric Co., with
headquarters at Schenectady, N. Y.

Mr. WARREN. And you have been with that company how long?

Mr. BARRY. Twenty-eight years.

Mr. WARREN. In your position, is it a part of your duty to fix all
prices of railway supplies — electrical supplies — produced by the Gen-
eral Electric Co.?

Mr. BARRY. That is a portion of my duty.

Mr. WARREN. You are familiar with the course of the prices of
electrical supplies purchased by electric railways, are you?

Mr. BARRY. Yes.

Mr. WARREN. I think perhaps, Mr. Barry, you should go right on
without my questioning you and tell the commission how the chief
articles are sold, what the prices are, and how they have increased.

Mr. BARRY. Yes; I have prepared certain data here on railway
motors and car equipment. By " car equipment " I mean all of the
electrical material that is used on a car, including motors, controllers,
trolleys, cable, circuit-breakers, and so forth.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 381

In 1914, the selling price of a four-motor equipment, consisting of
25-horsepower motors, with control, was $1,450. In 1915, it was the
same. In 1916, it had increased to $1,850, or an increase of 28 per
cent. In 1917, the price was $2,275, an increase of 57 per cent over
the 1915 price. In 1918, the selling price was $2,900, or an increase
of 200 per cent over the 1914-15 price.

Mr. WARREN. That blue print shows that in graphic form.

Mr. BARRY. This shows the increase from year to year, but I have
read it off there from the statement, showing the selling prices. This
shows it in percentages.

Mr. WARREN* I just handed the commission my copy of the blue
print.

Mr. BARRY. Yes. Now, that particular size of equipment is in-
dicative of the prices of all car equipment of all sizes.

Mr. WARREN. I notice that your figure for 1919 shows a slight
drop, Mr. Barry.

Mr. BARRY. Yes. In the early part of 1919, there was a drop in
prices of certain materials entering into the manufacture of this
equipment, such as copper. Copper dropped from 23 cents, which
was the price established by the Government during the war time —
that is, the latter part of the war period. Copper dropped to be-
tween 15 and 16 cents during February or March of this year. Steel
also went off some. That caused a reduction in the prices of car
equipment, although not anything like the increases that had gone
into effect, because there was no reduction — in fact, there was an in-
crease in labor costs.

Now, at the present time, it looks to me like prices will be some-
what increased, due for one reason to the fact that copper has now
^one back from between 15 and 16 cents to 22 to 23 cents, and copper
is one of the largest raw materials that we use in electrical apparatus.
I am informed that copper has taken a very rapid and sudden
advance in the past 10 days, going from 18 to 22*5 or 23 cents.

The CHAIRMAN. What has become of this vast quantity of copper
which the Government had in store, Mr. Barry?

Mr. BARRY. Well, I understand that a great deal of that copper
has already been purchased — oh, that the Government had in store,
you mean?

The CHAIRMAN. Yes.

Mr. BARRY. Well, I don't know, I am sure; but it was reported in
the early part of this week that there was a very large amount of
copper on hand in the hands of producers, but I believe that a very
considerable portion of that has already been bought for foreign use.

Mr. WARREN. In other words, the market has caught up with that
temporary drop, due to the armistice, in the price of copper, entirely?

Mr. BARRY. Yes; copper, as I say, is back to the figure where it was
put by the Government at the time the armistice was declared.

Mr. WARREN. Is there anything further that you want to say on
that?

Mr. BARRY. Now, the next article that I have prepared data upon
is the electric motors used by quite a number of electric railways,
particularly interurban lines; and these have increased from the
1914 basis 100 per cent. In 1915, they increased 70 per cent. In
1916, the increase was 31 per cent, and in 1917, the increase was 82
per cent. In 1918, it was 101 per cent; and in 1919 it is 97 per cent.

382 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. What was the first figure there ?

Mr. BARRY. In 1914 the price was $13,700.

The CHAIRMAN. $15,700?

Mr. BARRY. $13,700.

Commissioner SWEET. And it is what now ?

Mr. BARRY. $27,000 ; that is, for a locomotive of 50-ton weight.

Mr. WARREN. There is a slight drop, I notice there, in 1919, as
there was in the case of car equipment. Is that probably due to the
same thing?

Mr. BARRY. On all of this, you will find that there has been a slight
drop in the first few months of 1919. That is; applicable to nil elec-
trical material, I think.

Mr. WARREN. And in your opinion, it is only temporar}' ?

Mr. BARRY. In my opinion, it is only temporary.

The CHAIRMAN. Do you mean by that that these high costs of
locomotives and other material will continue for a long period of
years ?

Mr. BARRY. Well, I could not say for a long period of years, but
they will continue, in my judgment, for at least a year. They will
continue while materials are at the price they are now and while
labor is at the price at which it is now, and I do not look for any
reduction in either.

The CHAIRMAN. Within a year?

'Mr. BARRY. No, sir.

Mr. WARREN. During the year?

Mr. BARRY. Within a year.

Mr. WARREN. Within a year.

The CHAIRMAN. Do you expect a falling off in the price of ma-
terials and labor after the year has passed?

Mr. BARRY. Well, I don't know. I can not express an opinion on
that. I do not believe labor is going to fall off, unless the cost of
living falls off very materially.

Mr. WARREN. WTiat is your next item?

Mr. BARRY. In the matter of power apparatus, the electrical com-
panies furnished a large number of rotary converters for substation
operation. These rotaries have increased very substantially, but not
to the marked extent of car equipment. This data shows that in
1914 — we have taken as an example a 300-kilowatt rotary convert-
er— our selling price was $2,350. In 1915, it was $2,400. In 1916,
it was $2,900. In 1917, it was $3,875. And in 1918, it Was $4,225 ;
and that price practically prevails to-day — very little lower. That
means an increase in that class of apparatus of 79 per cent over the
1914 prices.

Commissioner MEEKER. How do you explain the lower rate of in-
crease of this type of apparatus as .compared with the other?

Mr. BARRY. The explanation of that, Mr. Commissioner, I think,
is this, that in certain classes of apparatus while, of course, the basic
prices of materials — copper, and so forth — would be the same, the
percentage of labor as applied to certain classes of apparatus is higher
or lower than in other classes. The percentage of labor involved in
the building of a railway rotary converter, the percentage of the
total cost, is less than it would be in the case of a railway motor.

Commissioner MEEKER. Then it is the labor costs that make the
greater increase ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 383

Mr. BARRY. Yes. The railway companies, of course — many of
them — have got to generate their own current. We furnish a ma-
chine known as a steam turbine generator. The prices of this class
of product have been increased, in the case of a 1,000-kilowatt tur-
bine, from a price of $12,750 in 1914 to $24,000 in 1918. The price
is $23,000 to-day.

Commissioner MEEKER. Do these prices represent the actual selling
price, or are they the list prices ?

Mr. BARRY. Oh, 'these are

Commissioner MEEKER. Are these prices subject to discounts ?

Mr. BARRY. Xo ; these are actual net prices on this particular piece
of apparatus.

Commissioner MEEKER. And that is true of all of your prices?

Mr. BARRY. That is true of all of these prices.

Commissioner MEEKER. So the discoimts would not enter into it to
explain any of the difference in the rate of increase in prices?

Mr. BARRY. No; these are all net prices that I cite, and I have
taken a certain specific capacity of machine, and all the machines are
of the same kind.

On motor generator sets, which are also used to a considerable
extent by railway companies, our prices increased from 1914, on a,
particular machine, costing $3,600, gradually up to 1919, to $6,200,
or 72 per cent.

Commissioner MEEKER. May I suggest that it would help us in in-
terpreting these graphs that you put in, if you give us the actual
prices as well as the percentages ?

Mr. WARREN. Yes. Can you leave your copies?

Mr. BARRY. Oh, yes ; I will leave them.

Mr. WARREN. I was following your testimony with this copy.

Commissioner MEEKER. As I understand it, we have the percentage
of increase here, but we have not the actual prices except as we have
written them off.

Mr. BARRY. Here is the explanation of each one, showing the
actual amounts.

Commissioner SWEET. Mr. Barry. I suppose it is none of our busi-
ness what profit the General Electric Co. makes on this stuff, but if
you do not object to telling us, I would like to know whether the
profit has been substantially the same during this period from 1914
to 1919.

Mr. BARRY. I can assure you that the profits have not been any
greater during the war period than they were during the previous
years — that is, the percentage of profit obtained by us.

Commissioner SWEET. In the profit on a percentage basis, do you
mean a percentage cast?

Mr. BARRY. We usually figure our selling price on a certain per-
centage over our cost.

Commissioner SWEET. Then in dollars the actual profit in 1919
would be greater on some of this material than it would be on the
same material in 1914?

Mr. BARKF. In dollars, the profit would be greater, because .your
selling price has been increased. If you sell your machine in 1914
for $2,000. you get a certain amount of profit.

Commissioner SWEET. I understand.

384 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BARRY. And if you sell it in 1918

Commissioner SWEET. You would get the same percentage of
profit?

Mr. BARRY (continuing). The same percentage of profit would
apply.

Commissioner SWEET. But it would be more proportionately in
dollars ?

Mr. BARRY. Yes, sir.

Mr. WARREN. That is, I suppose, because it requires much more
working capital tq produce it ?

Mr. BARRY. Yes, it does ; and the volume 6£ business has dropped
off very substantially. While you get more profit on a single ma-
chine, you have been selling a great many less machines.

The CHAIRMAN. You have given some very striking figures here,
showing the increase in cost of machinery and so forth, during the
past two. years particularly.

Mr. BARRY. Yes.

The CHAIRMAN. As a matter of fact, have you sold much of this
equipment to the utilities during this period ?

Mr. BARRY. We have prepared figures along this line, showing
that in a normal year — and I mean by a normal year 1912, 1913, and
1914 — our company's business with the railway companies aggre-
gated from eighteen to twenty million dollars of materials and
supply parts. During the years 1917 and 1918, our business with
the railway companies amounted to approximately $9,000,000 per
year. In other words, it was cut to less than half in money amount,
but due to these increases in the selling price, the output of this
class of apparatus was reduced to about 25 to 30 per cent of our
normal sales.

The CHAIRMAN. That is what I expected.

Mr. BARRY. Now, during 1917 and 1918, whereas, I say we did
business up to about $9,000,000, a considerable amount of that busi-
ness was financed by the Emergency Fleet Corporation — where equip-
ment had to be furnished to certain roads. A good example is the
Philadelphia Rapid Transit Co. They had to supply about 125 or
150 cars additional to their ordinary equipment to supply service to
the Hog Island shipyard. Now, we made a contract with the Phila-
delphia Rapid Transit Co. for that equipment, but I have reason
to believe — in fact, I am sure — that the money was provided by the
Emergency Fleet Corporation on some basis or other. That is true
of other roads, like Baltimore, the Bay State road of Massachusetts,
and several other large properties that have to serve shipbuilding
industries.

The CHAIRMAN. Have the utilities which have not been affected
by war industries purchased much equipment during the last two
years?

Mr. BARRY. They have not, Mr. Commissioner. They would like
to purchase equipment, but unfortunately, they are not in a position
to get the equipment. Their credit is gone.

The CHAIRMAN. Are there many orders for new business filed by
the utilities ?

Mr. BARRY. There are orders filed by certain utilities. Take the
Brooklyn Rapid Transit Co., which is now in the hands of a receiver.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 385

They have recently ordered quite a large amount of motor equip-
ment but. by and large, the business is very poor.

The CHAIRMAN. How does new business now compare with the
normal period for, say, the first six months of this year?

Mr. BARRY. Our business for the first six months of this year is,
I should say, 30 per cent of our normal business — say, during the
years 1913, 1914, and 1915.

Mr. WARREN. Are. you speaking of the utility business or all of
your business?

Mr. BARRY. No; I am speaking of the railway business.

Mr. WARREN. The railway business?

Mr. BARRY. The railway business alone. You were speaking of the
railway business or the general business?

The CHAIRMAN. I was speaking of your general business.

Mr. BARRY. Oh, the general business?

The CHAIRMAN. That is, I was in my last question.

Mr. BARRY. Yes. Well, our general business is about 75 to 80 per
cent of what it was last year.

The CHAIRMAN. Well, the last year was not a normal year.

Mr. BARRY. I thought you asked me how it would compare with
last year.

The CHAIRMAN. No; I asked you how your general business for
the first six months of this year v ould compare with the same period
during normal years.

Mr. BARRY. Our business for the first six months of this year — our
total business — has been practically normal.

The CHAIRMAN. But the business with the utilities has been about
30 per cent normal?

Mr. BARRY. Thirty per cent.

Now, the increase is due mostly to industrial plants. Many cen-
tral-station plants are adding to their equipment, and that has offset
the reduced business from the railway companies.

Mr. WARREN. Mr. Barry, right in that connection on the amount
of business done with railway companies — I suppose that in some
cases the companies had stocked up to a greater or less extent to
supply their needs before the war, had they not? Such things as
entered into their operating expenses, they would carry more or less
of on hand; would they not?

Mr. BARRY. Well, not any great amount.

Mr. WARREN. Not any great amount?

Mr. BARRY. No. We ordinarily do carry a considerable stock on
hand, but in 1914

Mr. WARREN. I do not mean that you were stocked up. I mean
the companies.

Mr. BARRY. Oh, the railway companies?

Mr. WARREN. Yes.

Mr. BARRY. Well, the railway companies previous to the war
period, of course, did keep a considerable stock, especially of supply
parts or repair parts.

Mr. WARREN. So that during the last two or three years, by using
what they had on hand and by restricting themselves to the lowest
point in what they did, they could drift along on these small pur-
chases that you have mentioned?

386 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BARKY. Yes. Of course, they have been buying as a sort of
hand-to-mouth proposition.

Mr. WARREN. But that means that, sooner or later, they will have
to buy in larger quantities, if they can get the money to pay for it?

Mr. BARRY. Yes; or else break down the railways, I imagine.

Mr. WARREN. Yes.

The CHAIRMAN. Perhaps they are like a good many people — they
are waiting for prices to fall. I think most of us are beginning to
think that it is not worth while to wait much longer.

Mr. BARRY. I think for the first three months of this year it was
the general impression of all purchasers of -large apparatus, by and
large, outside of railways, that there would be a marked reduction
in prices, and buying was held off. There was a slight reduction.
I think it is the opinion of the trade generally that there will not be a
marked reduction — that prices, instead of going down, will likely
go up; and, therefore, during the past three months, business has
been improving very substantially.

Mr. WARREN. Have you some other items there, Mr. Barry?

Mr. BARRY. Yes; I have some data on supply parts which railway
companies must have. They can probably get along without having
to buy actually entire new equipment to put on new cars, but they
must have certain material — gears and pinions, which is a wearing
article. Our prices on gears and pinions have increased from 1914,
when the gear and pinion cost $14, to $34.60 in 1918, and $31.82 in
1919.

Mr. WARREN. That was an increase of how much, what percentage ?

Mr. BARRY. That was a total increase from 1914 to the present
time of 127 per cent.

Commissioner MEEKER. Do the labor costs enter very largely into
these costs?

Mr. BARRY. Xot so great there. That is largely a special grade
of steel used in a railway motor and pinion — a special high-grade
steel.

Commissioner MEEKER. I am interested in the statement you made
a moment ago that the greater increases occurred in the types of
apparatus into which the labor cost entered most largely. Is it
your experience that the wages of labor have increased to a greater
extent than prices of materials?

Mr. BARRY. I should say that, by and large, the increase in both
has been approximately 100 per cent.

Commissioner MEEKER. It would seem to me, if that is the case,
that your explanation of your answer to my former question is
hardly correct.

Mr. BARRY. As applicable to this gearing?

Commissioner MEEKER. You stated, as I understood it, that in
those types of equipment and apparatus in which your labor enters
most largely, the increase in prices had been greatest.

Mr. BARRY. Yes.

Commissioner MEEKER. Now, if labor has increased at about the
same rate as the cost of materials, I do not see that it would make
any difference.

Mr. BARRY. Well, I tried to explain that in certain classes of ap-
paratus, the percentage in cost of labor is not as great. That is,
you do not have to perform as much labor on certain classes of

PROCEEDINGS OF FEDEBAL ELECTRIC EAILWAYS COMMISSION". 387

apparatus as you do on other classes. For example, on a rotary
converter, which involves large castings, the percentage of the labor
cost of that rotary converter to the total cost of the rotary converter
is considerably less than would be the percentage of labor cost to
a railway motor, which involves a considerable amount of hand
work.

Commissioner MEEKER. Yes. Now, if the cost of labor has in-
creased 100 per cent, let us say, and the cost of materials has in-
creased 100 per cent, why would not the cost of both t}rpes of appa-
ratus increase approximately 100 per cent? Instead of that, in one
case it has increased 100 per cent and in the other only some 79 per
cent.

Mr. BARRY. Because there is simply not as much labor used on a
large machine as there would be on a small machine.

Commissioner MEEKER. I do not think it is worth while pressing
the point any further. I did not quite see, if the rate of increase is
the same on all elements entering into the cost of the final product
why the increase would not be the same in each case.

Mr. BARRY. Suppose you had a machine

Mr. WARREN. Does the overhead expense have anything to do
with it? How is the overhead figured?

Mr. BARRY. The overhead expense on large machinery which in-
volves a considerable expense in tools is somewhat greater than on
small stuff.

Mr. WARREN. What is it figured on — labor or the materials, or
both?

Mr. BARRY. The overhead is figured on labor.

Mr. WARREN. So that in any item where labor enters less into the
total cost the overhead would be less ; would it not ?

Mr. BARRY. Yes; that would apply to overhead; the percentage
of overhead is applied only on direct labor.

Mr. WARREN, feo if you had something that was largely material
and only to a small extent labor that you applied in your own shop,
then the overhead on that particular item would be very much less ?

Mr. BARRY. It would be correspondingly reduced.

Mr. WARREN. Does that explain the difference somewhat, Mr.
Barry?

Mr. BARRY. Yes ; that would explain it to a certain extent.

Now, on what we term overhead line materials — that is, hangers,
and so forth, that are furnished to railway companies for their over-
head line — this material is largely composed of malleable iron. Mal-
leable iron took a tremendous advance during the war period, much
more so than about any other product; so that on the basis of mal-
leable iron — 100 per cent in 1914 — it has run up to 350 per cent in
1919.

Transformers used with substation apparatus have increased from
100 per cent in 1914 to 178 per cent in 1918.

Switchboards have increased from 100 per cent to 182 per cent,
1914 to 1918.

Commissioner MEEKER. That is, it is an increase of 82 per cent?

Mr. BABRY. Eighty-two per cent; yes. So taking all of those, the
average cost of all electrical material used by the railroad companies
has increased from 1914 on a 100 per cent basis to 204 in 1918 and
19T per cent in 1919.

388 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner GADSDEN. One hundred and ninety-seven per cent is
the average increase?

Mr. BARRY. Well, 97 per cent is the increase.

Mr. WARREN. And that is all the apparatus you have referred to?

Mr. BARRY. That I have previously cited. It simply throws it
into an average.

Mr. WARREN. Can you leave the statements with the figures ac-
companying those blue prints with the commission ?

Mr. BARRY. Yes; surely.

The statements above referred to are as follows :

Average cost of all electrical apparatus and supplies used &j/ electric railways.

Year.

Per cent.

Year.

Per cent.

1912 .

104
101
100
104

1916...

130
175
204
197

1913

1917

1914

1918

1915

1919

Railway switchboards.

Year.

Per cent.

Year.

Per cent.

1912

100
100
100
91

1916...

110
146
182
172

1913

1917

1914

1918...

1915

1919..

Transformers for rotary converters.

3 HR., 60-100 Kva., 11,000 volts.

Year.

Price.

Percent.

Year.

Price.

Percent.

1912

$1,700

121

1916.

$1 600

114

1913.

1,600

114

1917

2,000

143

1914

1,400

100

1918...

2 500

178

1915 ....

1,550

110

1919

2,400

171

Railway rotary converters.

500 kw., 1,200 rev., 600 volts, 60 cycles.

Year.

Price.

Percent.

Year.

Price.

Per cent.

1912

$2,325

1916. .

$2 900

123

1913

2,375

101

1917

3,875

165

1914

2,350

100

1918.

4 225

179

1915

2,400

102

1919

4,200

177

Railway locomotives.

(50-ton, 600 volts.)

Year.

Price.

Per cent.

Year.

Price.

Per cent.

1912

$14,000

101

1916

18 000

131

1913

13,000

1917

25 000

182

1914

13,700

100

1918

27 500

201

1915

16,000

117

1919

27 000

197

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 389

Railway car equipments.

(4-motor, G.E.-258, "K" control.)

Year.

Price.

Per cent.

Year.

Price.

Per cent.

1912

|1, 475

102

1916...

$1 850

128

1913

1,475

102

1917

2 275

157

1914 •

1 450

100

1918

2 900

200

1915

1,400

1919

2 800

19$

Railway line material, round top hanger.
(Price per 100.)

Year.

Price.

Per cent.

Year.

Price.

Per cent.

1912

$22 50

103

1916

823.40

103

1913 ...

19.00

1917

40.77

183

1914

21 75

100

1918

57 75

266

1915

21.75

100

1919

75.75

350

Malleable iron Sherardized and molded compound. No copper.

Railway motor gears and pinions.
(Solid, rolled, grade "M".)

Year.

Price.

Per cent.

Year.

Price.

Per cent.

1912

$14 87

106

1916

$18 90

135

1913

15.29

109

1917

25 11

179

1914

14.01

100

1918

34.60

247

1915 .. .

15.16

108

1919

31 82

227

Steam turbines — Condensing turbine with exciter.
(1,000 k.w., 3,600 rev., 2,300 volts, 3-phase.)

Year.

Price.

Per cent.

Year.

Price.

Per cent.

1912 ....

$13,000

102

1916...

$15 500

121

1913

13,000

102

1917

20 000

157

1914

12,750

100

1918

24 200

189

1915

13,000

102

1919

23 000

180

Mr. WARREN. I think that is all, unless something occurs to you,
Mr. Barry, that the commission ought to be advised upon.

Mr. BARRY. I might say that the General Electric Co. are operat-
ing under a wage scale established by the War Labor Board in July
or August of 1918, with the exception that some increases have been
put into effect in that wage scale by reducing the number of hours
in our shops from 50 hours per week to 48 hours per week and mak-
ing a corresponding increase of 4 per cent in the wage scale.

The CHAIRMAN. Has there been a large turnover of labor?

Mr. BARRY. Our turnover during the war period was very large.
We were employing at our Schenectady works during 1918 approxi-
mately 23,000 hanus. A considerable portion of that proved to be
of very little value and drifted back to farms or other occupations,
and we are now operating a force of approximately 20,000. We are.

390 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

operating more efficiently, the turnover is cut down very materially,
and as far as we can see we will continue to operate at that rate.

Commissioner GADSDEN. Mr. Barry, from the standpoint of the
General Electric Co., what is the credit of the electric railways?

Mr. BARRY. Well, I am sorry to say, Mr. Gadsden, that the credit
of electric railways, by and large, is in very poor repute.

Commissioner GADSDEN. These electric rail ways would like to order
a good many of these apparatuses from you if you would sell them
to them, would they not?

Mr. BARRY. Yes, they would; particularly if they can get long
accommodation.

Commissioner GADSDEN. They are trying to do it all the time, are
they not?

JJr. BARRY. Yes.

Commissioner GADSDEN. Are you accommodating them ?

Mr. BARRY. We are accommodating them to this extent: In the
sale particularly of equipment for the one-man-operated safety
car, we furnish equipments to railway companies and have made —
we will sell the equipment for 25 per cent cash, the balance of 75
per cent in car-trust certificates running over a period of from 1
month to 36 months.

Commissioner MEEKER. What kind of certificate?

Mr. BARRY. Car-trust certificate. We can ordinarily turn a total
of 50 per cent of the car-trust certificates over to certain banking
connections who will take it as a banking proposition. That leaves
25 per cent of car-trust certificates on our hands on which we take
more or less chance of being paid for. That is the way we are now
furnishing a considerable amount of car equipment to railway
companies.

Commissioner GADSDEN. Therefore your credit in the first instance
is practically limited to equipment for one-man cars ?

Mr. BARRY. Yes; in most cases. Of course, there are cases — from
the Brooklyn Rapid Transit Co., which is in receivers' hands, we
have recently received orders for $600,000 or $700,000 worth of busi-
ness, and the cash is provided — it is assured.

Commissioner GADSDEN. You get receiver's certificates?

Mr. BARRY. No ; we get cash in that case.

Commissioner GADSDEN. But I am talking about the general run of
the electric-railway industry. What has become of their credit with
you?

Mr. BARRY. I am sorry to say it is very poor.

Commissioner GADSDEN. Does the General Electric Co. feel that
there is hope in this one-man car that they are willing to extend the
credit on it?

Mr. BARRY. Well, we are willing to extend credit by the amount I
have stated.

Commissioner GADSDEN. By practically taking a mortgage on the
equipment ?

Mr. BARRY. Yes.

Mr. WARREN. The reason you can do that is that they can give you
a mortgage on the new equipment, but can not give you a mortgage
on old equipment which is already mortgaged; is not that it? These
car-trust equipment certificates are put on when the one-man cars are
purchased, are they not ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 391

Mr. BARRY. We get these certificates when the car is delivered.

Mr. WARREN. Exactly. In other words, it is delivered to the trolley
company subject to the mortgage represented by certificates?

Mr. BARRY. Oh, yes; and of course, if the railway company should
be in default in any of their payments we have a lien on the property
and can take the car.

Mr. WARREN. That is all, unless the commission has some questions.

The CHAIRMAN. How long has that certificate plan been in op-
eration ?

Mr. BARRY. We instituted that about three or four months ago.

Mr. WARREN. As a means of helping them out ?

Mr. BARRY. Yes.

Commissioner GADSDEN. From the standpoint of a salesman, that is
just about the last ditch in credit ; is it not?

Mr. BARRY. Why, yes, Mr. Gadsden. We are in the manufactur-
ing business; we are not in the banking business. We, in common
with most manufacturers, want to get our money when the stuff is
delivered, but in order to help out the situation and in order to get a
certain amount of business in our own shops for this class of material,
we have been willing to extend this accommodation.

The CHAIRMAN. You feel that the hazard in the utility business
is greater than it has been before ?

Mr. BARRY. Oh, in the railway business ; yes, sir.

The CHAIRMAN. Are you increasing the price of the articles you
sell to these utilities on account of the increasing hazard ?

Mr. BARRY. No ; we do not take any unreasonable business hazard.
If we do not feel reasonably sure that our money will be forthcoming
from a railway property we do not want to sell the stuff, so we make
no increase in profit on account of a railway company's wanting to
buy the stuff.

Mr. WARREN. That is one of the reasons the sales have fallen off,
I suppose, is it not — that you do not sell where you have to take an
undue hazard?

Mr. BARRY. Yes; but I think the main reason is that the railway
companies simply can not see their way clear to pay for apparatus
on a cash basis or most any other basis.

Mr. WARREN. They can not see their way clear to pay for it and
even if they tried to make you think they could, you can not see your
way clear?

Mr. BARRY. No: unless we could obtain some data that would war-
rant our furnishing it.

Commissioner SWEET. Is this car trust a sort of mortgage on the
property ?

Mr. BARRY. Yes; it is a first lien on that particular equipment.

Commissioner SWEET. The title passes from the General Electric
Co. to the purchaser, does it ?

Mr. WARREN. The title usually passes to a trustee.

Mr. BARRY. The title is held by a trustee until paid for.

Mr. WARREN. It is roally a conditional sale, as I understand it.

Commissioner SWEET. The legal effect would be similar to selling a
piano, for instance, and retaining the title in the manufacturer until
it is paid for.

Mr. BARRY. Yes.

392 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Except in these cases it is usually put in a trustee to
pass to the carrier when it is all paid for.

Mr. BARRY. Yes.

The CHAIRMAN. Under this plan of certificates what part of the
purchase price must be paid on delivery ?

Mr. BARRY. Twenty -five per cent.

Mr. WARREN. And the rest is payable in installments ?

Mr. BARRY. The rest is paid in installments running from 1 month
to 36 months.

Commissioned SWEET. Is the custom of selling the same? Do you
send salesmen out, or do you go and visit these companies as in the
years past, or do the orders come in

Mr. BARRY. Oh, no.

Commissioner SWEET. Or both ways ?

Mr. BARRY. Orders do not come in. You have to go after orders.

Commissioner SWEET. Very well

Mr. BARRY. Our methods of sale are .these: We have eight large
district offices in the country with a certain amount of material stored
at these places, Chicago, Boston, New York

Commissioner SWEET. For ready delivery ?

Mr< BARRY. Philadelphia and San Francisco. There are eight of
what we term district offices. Under those district offices — we will
take San Francisco for example — we have a district office in San
Francisco with a certain amount of stock there. We have a local
office in Portland, Oreg., one in Seattle, one in Spokane, one in
Los Angeles, one in Phoenix, Ariz., which report to that district
office and are directed by the management of the district office. And
all these district offices or local offices will have a corps of engineers
and salesmen who are meeting the trade all the time and trying to
get their business. The day of sitting down and waiting until
orders are delivered to you by mail has gone.

Commissioner SWEET. Have you charge of these various district
offices or their management?

Mr. BARRY. I have charge of it in so far as establishing selling
prices and method of sales are concerned. Of course they have
executive charge of their men —

Commissioner SWEET. The detail work?

Mr. BARRY. The detail work.

Commissioner SWEET. Have your duties brought you in contact
with the street-railway companies and their managers in the past?

Mr. BARRY. Oh. yes; I frequently meet them.

Commissioner SWEET. Have you any distinct idea now as to
what is the matter with the street-railway companies and what
would be the best remedy for it?

Mr. BARRY. Well, my motion is this: Of course the street rail-
ways are reduced to the deplorable condition in which they are now,
due to the tremendous increases they have had to pay for their ma-
terials, the tremendous increase they have had to pay for wages
and taxes and—

Commissioner SWEET. Without a proportionate increase in income ?

Mr. BARRY. Without the income. Now while I do not know very
much about the financial or operating conditions of electric rail-
ways outside of unfortunately investing some of my personal money,
in electric railways, my notion is that the electric-railway companies

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 393

must be given immediate relief by an increase in fare or many more
of them are going to the wall. I think that if it were possible to
give the electric railways an increase to 6 cents or 7 cents or what-
ever is considered reasonable, that that is the only method of saving
many electric railway companies from bankruptcy.

Commissioner SWEET. Is it your judgment that there are many
economies that can be effected in the conduct of the street-railway
business ? •

Mr. BARRY. I do not think I am qualified to answer that. I do
not know enough about the operation of railways to give an intelli-
gent opinion on that.

(Witness excused.)

STATEMENT OF ME. M. B. LAMBERT.

Mr. WARREN. Will you state your full name ?

Mr. LAMBERT. Miles B. Lambert.

Mr. WARREN. Your occupation?

Mr. LAMBERT. Assistant manager of the railway department,
Westinghouse Electric Manufacturing Co.

Mr. WARREN. How long have you been in that business ?

Mr. LAMBERT. Nineteen years, about.

Mr. WARREN. Does that bring you in touch with the sale and
prices of equipment and apparatus for electric railways?

Mr. LAMBERT. That is part of my duty — to have charge of the
prices of electric-railway equipment and locomotives.

Mr. WARREN. Will you, in your own way, make a statement from
such data as you have prepared for the commission, touching the
cost of electric apparatus and equipment handled by the Westing-
house Co.?

Mr. LAMBERT. Yes, sir. The Westinghouse Co. is engaged in the
manufacture and sale of electric street railways and railway motors
and car equipment to electric street railways — controlling apparatus,
locomotives, rotary converters, transformers, switchboards, motor-
generator sets, turbines, and other electrical apparatus.

Our prewar average gross sales of this apparatus and equip-
ment ran from $7,000,000 to $15,000,000 a year; it varies that way,
within the United States, our customers being generally throughout
the United States. During the past two years it has ranged from
30 to 40 per cent of this normal.

Beginning with about the middle of the year 1915 there has been
a steady and steadily accelerating increase in the prices of the
various equipment and apparatus until at the present time, as
compared with the middle of the year 1915, the percentages are
about as follows:

Railway motors and car equipment, approximately 87 per cent
increase.

Locomotives, approximately 87 per cent increase.

Rotary converters, approximately 75 per cent increase.

Transformers, approximately 70 per cent increase.

Switchboards, 100 per cent.

Motor-generator sets, 95 per cent.

Turbines, 100 per cent.

100643*— 20 20

394 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

I have given some thought to the future conditions and prices,
but can see nothing at present which would indicate to me a sub-
stantial reduction in prices other than the slight reduction that has
taken place during the past two months.

These increases in our prices as manufacturers and producers of
electrical equipment have been caused by our increased cost of raw
material, manufacturing machinery, and labor. In comparing the
present time with the latter part of the year 1914 and the first half
of 1915, I find that machine tools which wre must purchase to manu-
facture our apparatus and equipment show an increase of approxi-
mately 100 per cent. The raw materials have shown great increases,
as shown by the following tabulation.

It might be well to inject at this point the fact that we, as manu-
f acurers, and I think also the General Electric Co. and other manufac-
turers supplying electric railways, depend to a very large extent on
other manufacturers to supply raw material, sometimes partially
fabricated and sometimes just in the raw state; and the following
will give you an idea of the increases we have had to pay for the
materials which we fabricate. All raw materials have shown great
increases, as shown by the following tabulation: Pig iron, approxi-
mately 106 per cent; steel plates, 141 per cent; copper, 58 per cent.
That corrected as of to-day would go up a bit, because copper has
gone up from the time I had this tabulation made. Steel castings,
'220 per cent.

I niight digress here for a moment for the benefit of the com-
missioner who is asking about the discrepancy in the high cost of
cars. The reason for the high cost of cars is because of the steel
castings which both companies get from the foundries and the
Carnegie Steel Co.; so the price of materials entering into cars has
gone up 220 per cent.

Spelter, 30 per cent ; coke, 35 per cent ; mica, 100 per cent ; asbes-
tos material, which we use a great deal of, 560 per cent; other in-
sulating materials, 125 per cent; magnetic sheet steel, 280 per cent.

The development of electric railways has been very rapid, and in
general the equipment and apparatus are not always used until worn
out, being laid aside very frequently by reason of advances in the
art. In my opinion, it is proper that the reserve for depreciation
and obsolescence of electric railways should notjbe wholly based on
the physical life of the equipment. I thought it would be interesting
to the commission to know that point. Actual experience has shown
that it is necessary to make special provision for what may be called
the shorter economic life of equipment and other apparatus where
the physical life has not ended but where the life of the investment
in the old equipment has not as yet been economically reached. I
could not state any definite term of this economic life because it
varies very much, depending very largely upon the improvements
which we and other manufacturers develop. Nevertheless this has
an actual bearing and serious importance and, in my judgment,
would largely affect all electric railways in setting up their deprecia-
tion reserve in order to meet these economic conditions.

That is a very brief statement, but if there are any questions you
would like to ask I will be very glad to answer them.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 395

Mr. WARKEN. One question I would like to ask, if you are willing
to answer it, whether in your judgment the prices for labor are likely
to diminish within the next year or within the next few years.

Mr. LAMBERT. In my judgment the price of labor during the next
year and perhaps the next two years is going to increase unless, as a
former witness said, the high cost of living comes down very rapidly.

It might be well to mention there, Mr. Warren, that when you stop
to consider it, and segregating the price of materials and labor as
two distinct and separate factors, labor after all is nearly the whole
thing when you take everything from its source. Take the ore, for
instance: you might say that the raw materials cost nothing, it is
the cost of labor producing them. They are in the earth. Therefore,
the content of labor enters into the whole thing, and therefore prices
are not going down ; in fact I think they are going to increase mod-
erately.

Mr. WARREN. That is all I want to ask.

The CHAIRMAN. Do you sell a large quantity of materials to these
utilities ?

Mr. LAMBERT. Well, in proportion, if you call it large, to that
which I mentioned here — that is, seven to fifteen million dollars.

The CHAIRMAN. Have you many orders on hand at this time?

Mr. LAMBERT. No ; probably 30 per cent of normal.

The CHAIRMAN. Are you expecting an increase in the volume of
your business with electric railways within the next year?

Mr. LAMBERT. Our hope is that some relief will be given the rail-
roads to restore their normal buying power.

The CHAIRMAN. Does that statement of yours apply exclusively to
the electric lines?

Mr. LAMBERT. No; the electric railways are in worse straits, I
think, than any other industry in the country or in the world.

(Witness excused.)

STATEMENT OF MR. WILLIAM H. HEULINGS. JR.

Mr. WARREN. Your name is?

Mr. HEULINGS. William H. Healings, jr.

Mr. WARREN. You reside where?

Mr. HEULINGS. Philadelphia.

Mr. WARREN. You are vice president

Mr. HEULINGS. Vice president of the J. G. Brill Co.

Mr. WARREN. That is one of the largest electric car-building con-
cerns in the country, is it not?

Mr. HEULINGS. Yes; it is.

Mr. WARREN. How long have you been connected with that com-
pany ?

Mr. HEULINGS. About 35 years.

Mr. WARREN. You are now in the sales department?

Mr. HEULINGS. Yes, sir.

Mr. WARREN. How long have you been in that department?

Mr. HEULINGS. I have had complete charge of it for 20 years and
have been associated with it for 25 year's.

Wr. WARHEN. What plants does that company operate?

Mr. HEULINGS. At the present time we own four plants: The .1. G.
Brill Co., Philadelphia, Pa.; The G. C. Kuhhnan Car Co., Cleveland,

396 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Ohio ; The American Car Co., 'St. Louis, Mo. ; and The Wason Manu-
facturing Co., Springfield, Ohio.

Mr. WARREN. If you will go on in your own way and state to the
commission the situation regarding street cars, especially the electric-
raihvay industry, I shall be much obliged.

Mr. HEULINGS. I have prepared a little statement, gentlemen.
Shall I read it?

The CHAIRMAN. Yes.

Mr. HEULINGS. I have been given to understand that the character
of information you want from me is data that will enable you to form
an opinion as to why the street-railway properties through this coun-
try have been called upon to make the heavy investments that they
have made and are making in street-railway rolling stock. There are
several important elements that contribute most largely to this re-
sult, and they are as follows:

First. Change in the character of car. There have been, within the
past 10 years, very decided changes made in the constructional details
of the electric-motor car for street-railway service, inasmuch as
metal has to a considerable extent been used in substitution of wood.
This condition has produced a situation in our various plants making
it necessary for us to lay aside a great deal of woodworking machin-
ery and to increase our capital account by the introduction of metal-
working machinery in its stead, and the further introduction of spe-
cially designed and especially built machinery for working special
metal for special service conditions.

This change in the character of cars from wood construction to
metal construction has, in itself, made a material increase in the cost
of the finished vehicle. It must not be overlooked that in this change
from wood to metal cars the element of safety to the traveling public
was the foremost consideration.

Second. When the various horse-drawn street-railway properties
made their conversion to cable and electrically propelled equipments'
the tendency seemed to be to adhere to about the then approximate
length of the horse car most popular at that time. This was doubt-
less a mistake and the street-railway operators were quick to increase
the carrying capacity of the vehicle to hereby influence and decrease
the cost to carry a unit passenger. This led to the replacement of the
smaller cars with larger, heavier, and consequently more expensive
rolling stock.

Third. The factor of obsolescence is a very important one and
many changes in design all tending toward economy of operation
have been produced in the past 15 years. It is also perfectly reason-
able to state that cities which have been served with a type of car not
of the very latest design have through their public organizations al-
most invariably made demands for the more up-to-date and addi-
tional rolling stock.

Possibly the most important fundamental change wras the introduc-
tion of the prepayment system. This item, in itself, made necessary
the expenditure on the part of the railway company from six to eight
hundred dollars on each of their then present cars to convert them
into prepayment cars, the only alternative being to scrap them and,
as a matter of fact, the scrap heap was used actively, for the average
railway company purchased up-to-date and, generally speaking,,
metal prepayment cars.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 397

These elements — character, design, and obsolescence — have always
contributed toward the introduction of new and better equipment, so
much so that it is the exception for a car to ever render service for its
complete lifetime. I believe that there are few if any instances
wherein an electric-motor car has actually remained in service on the
line that originally purchased it for a period of anything like its
lifetime.

The above elements are fundamental factors that have made addi-
tional outlay for rolling stock on the part of the railway companies
positively imperative, but the excessive costs of every increase in
labor and material have made a marked increase in the selling price
of cars within the past five years. We have considered, for the sake
of making a starting point, that the prices of material and labor that
prevailed in 1914 and 1915 were about normal. It is quite true that
the labor rate has been, for a great many years, constantly increasing.
The yearly average of increase has been small except under special
conditions, but nevertheless it has shown an average of increase.

In the early part of 1915 both material and labor advanced in un-
heard of proportions, and while it is a fact that from the early part
of 1918 to January, 1919, there has been a reduction in the cost of
material, material has remained stationary as far as our purchases
were concerned, from January 1, 1919, to the present day. It is my
opinion that material will increase from now on, rather than de-
crease. In contradistinction to the drop in material, the cost of
labor has shown a constant increase.

I have charted the direct material and direct labor in the proper
proportions in which they appear in the car of to-day and I present
this chart as showing the actual conditions. Note, if you will, the
material increase from January, 1915, to January, 1916, was about
36 per cent. From January, 1915, to January, 1917, it wras 119 per
cent. From January, 1915, to January, 1918, it was 126 per cent.
From January, 1918, to January, 1919, however, the decrease was 18
per cent.

The labor curve, however, shows the following course : From Janu-
ary, 1915, to 1916, 12 per cent increase; from January, 1915, to Janu-
ary. 1917, 40 per cent; from January, 1915, to January, 1918, 117 per
cent; from January, 1915, to January, 1919; 119 per cent; and the
course since January 1 of this year to the present day has been
upward.

One of my reasons for contending that material will advance is
that I know our labor has advanced and is continuing to advance, and
as a matter of fact, as labor constitutes a very great proportion of
that which we buy as "material," it is but to be expected that the
material will follow the course of labor, especially when the absorp-
tion of stocks is completed.

I want to make perfectly clear to your commission that this chart
shows the actual different grades of material and the actual different
grades of labor in the correct proportion and quantities as appears
in the average standard double-truck car of to-day.

In the foregoing information I have not elaborated at all on one
very important item of obsolescence. This item is the Birney safety
car. The adoption of this car has been phenomenal. We have built
about 1,000 of them for different parts of the country and the prin-
ciples of operation which they involve have shown pronounced econ-

398 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

omies. The introduction of the safety car, however, means a further
outlay for rolling stock on the part of the railway companies. It
is, moreover, economical and warrants adoption on exactly the same
ground that the introduction of the prepayment idea was economical
and warranted adoption.

My testimony, I understand, is to be confined to rising costs of cars,
and as a consequence I will not elaborate on the Birney safety car,
especially as I understand some direct testimony is to be given by
another witness.

That is all, Mr. Warren.

Mr. WARREN. I am very much obliged to you.

The CHAIRMAN. When you speak of the labor cost increasing 120
per cent from 1915 to 1919, do you speak of the labor that enters into
the car that you sell to these utilities ?

Mr. HEULINGS. No, I mean the price we pay to the man to pro-
duce the car that we sell to the utilities — that is, the actual direct
labor as differentiating between indirect labor.

The CHAIRMAN. But the direct labor which goes into that car
has increased 120 per cent from 1915 to 1919 ?

Mr. HEULINGS. Yes, sir.

The CHAIRMAN. And what per cent of the cost of the car is repre-
sented by labor?

Mr. HEULINGS. Direct labor about 33^ per cent. The material at
the present time averages about $2 for every $1 of labor. It used to
be practically even.

Commissioner SWEET. You say now the material cost of a car is
about double what the labor cost is ?

Mr. HEULINGS. Yes — well, that is hardly fair. I say that for
every dollar in labor that you invest in a car you will invest about $2
for material, making $3 as the total. In other words, a car that costs
$3,000 will be represented by $2,000 for material and $1,000 for direct
labor.

Commissioner SWEET. Well, that would be twice as much in mate-
rial as in labor?

Mr. HEULINGS. Yes.

The CHAIRMAN. But you said before it used to be fifty-fifty?

Mr. HEULINGS. Yes, it used to be even and now it is two to one.

The CHAIRMAN. So material has advanced twice as fast as labor.

Mr. HEULINGS. Material has advanced; yes.

Commissioner GADSDEN. To state it the other way, let us take a
standard car — one of your standard cars — and give us the price before
the war and the price now, and let us get at it that way.

Mr. HEULINGS. It is an extremely difficult thing to give a price
on a standard car because there is no such article.

Commissioner GADSDEN. Well, any car you choose to take, so you
use the same car in each case. Take any double-truck car that you
make and give us the price for 1914 and give us the price for 1918.

Mr. HEULINGS. Of the same car?

Commissioner GADSDEN. Of the same car.

Mr. HEULINGS. Would you let me send that to you accurately.
I would hesitate to guess at it.

Commissioner GADSDEN. Well, I thought you could approxi-
mate it.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 399

Mr. HEULINGS. I can approximate it, but I would like to give it to
you accurately.

Commissioner GADSDEN. Just approximate it, in order that the
commission may understand what you mean about the material being
double the labor.

Mr. HEULINGS. Well

Commissioner GADSDEN. I can tell you approximately myself.

Mr. HEULINGS. Yes. Well, about $3,000 to $6,500.

Mr. WARREN. That is, a $3,000 car in 1914

Mr. HEULINGS. Would be $6,500 to $7,000 now.

The CHAIRMAN. Then in 1915 that $3,000 car would represent
$1,500 in labor cost and $1,500 in material?

Mr. HEULINGS. Yes.

The CHAIRMAN. To-day that $6,500 car would represent two thou-
sand a hundred and odd dollars in labor and the rest in material ?

Mr. HEULINGS. Yes.

Commissioner SWEET. Has not the advance in wages and labor
been more than that?

Mr. HEULINGS. The advance in labor has been about 119 per cent —
nearly double.

Commissioner SWEET. If $1,500 of labor was put in in 1915, why
would it not be more than $3,000 now, if it has more than doubled ?

Mr. HEULINGS. As a matter of fact it would be, because labor has
increased over 100 per cent.

Commissioner SWEET. Well

Mr. HEULINGS. Then my guess is off. That is the story; that is
the exact answer.

Commissioner SWEET. I accept your apology.

Mr. WARREN. Is your guess off, Mr. Heulings?

Mr. HEULINGS. I think it must be, if they do not check.

Mr. WARREN. As I look at this chart, apparently the cost of ma-
terial accelerated very much more rapidly than the cost of labor.

Mr. HEULINGS. Oh, it did.

Mr. WARREN. In other words, is it not generally a fact that labor
lags behind in this readjustment of prices to a depreciated currency
or increase in cost or whatever one chooses to call it?

Mr. HEULINGS. It has, as far as our work is concerned, lagged be-
hind materially.

Mr. WARREN. Your material cost in 1916 was substantially higher
than your labor?

Mr. HEULINGS. Yes.

Mr. WARREN. But in June, 1917, it had jumped up almost to 120
per cent.

Mr. HEULINGS. Yes, as against 40 per cent,

•Mr. WARREN. As against 40 per cent for labor?

Mr. HEULINGS. Yes.

Mr. WARREN. It was not until January 1, 1918, that they began
to got nearer together, and it was not until the middle of 1918 that
they crossed?

Mr. HKULINGS. That is correct.

The CHAIRMAN. Are you selling much to the utility companies
at this time?

Mr. HKULINGS. Not a great deal ; no.

The CHAIRMAN. Have you during the past six months?

400 PKOCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. HEULIXGS. No; our business I should say has been consid-
erably less than the average.

The CHAIRMAN. How much less?

Mr. HEULINGS. Well, in dollars and cents it ran about the same,
but that represents about 100 per cent increase over normal times,
so it must be about half of the normal.

The CHAIRMAN. Is the industry, speaking of it as a whole, hav-
ing any difficulty in financing its purchasers with you?

Mr. HEULINGS. Oh, yes.

The CHAIRMAN. How do they do it?

Mr. HEULINGS. Well, they do it as Mr. Barry just referred to.
We are jointly interested with him in the car-trust matter. That
is how we are being able to finance quite a few of the purchasers of
these safety cars and to help the railroads make economies which
they will provide them with.

Commissioner GADSDEN. Are you requiring certificates on other
types of cars than the safety cars?

Mr. HEULINGS. No. We can not handle them. You see they are
not a standard article. Barring the safety cars we have never dupli-
cated an order. Except in one instance have we ever duplicated
an order for exactly the same style as the other order. We built
1,500 cars for Philadelphia in a period of four years and they are
so nearly the same you can not tell the difference, but each particu-
lar set required a new set of drawings and specifications.

Commissioner GADSDEN. Does not that suggest one of the economies
that the railway people could work out, in the standardization of
equipment ?

Mr. HEULINGS. Unquestionably they could, and they could do us
great good and economize.

Commissioner GADSDEN. If we could come out of this hearing by
standardizing the railway equipment would not that help solve this
problem ?

Mr. HEULINGS. You would take a great step in the right direction.

Commissioner SWEET. How much difference do you think it would
make if the cars were standardized instead of having different
specifications for each car?

Mr. HEULINGS. I might answer that by the experience of the safety
car. The safety car is practically standard. The total amount of
advance in the safety car was about 50 per cent, and that was due
to the fact it was standardized and we could run them through in 100
and 200 car lots and sell them to the individual as he wanted them
and practically take them off the shelf. Now other cars have ad-
vanced over 100 per cent. That is the best answer.

The CHAIRMAN. Yet the Railroad Administration let an order for
100,000 cars that used to sell for somewhere around $900 and their
order was about $3,000. There is another sample of standardization.

Mr. HEULINGS. Yes. It possibly would have gone a great deal
higher

Mr. WARREN. Is it not a fact — or perhaps you do not know about
them, but some of us to our sorrow do — that many of the differentia-
tions in rolling stock on street railways are caused by the require-
ments of different local authorities. Do you know as to that ?

Mr. HEULINGS. Yes, that is quite a factor. The individual ideas of
the mechanical departments of the various railroads make for

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 401

standards that are peculiar to their property ; and that is the reason
we have so many.

Mr. WARREN. But is not that largely the result — perhaps you do
not know that, but I will ask you — is not that the result of the
requirements of the local municipal authorities themselves?

Mr. HEULINGS. Well. I do not think I would want to say that. I
have never had an experience which would warrant an answer to that.

Mr. WARREX. I do not want to justify, but I think we can bring
some witnesses who will show that is so. In Xew England the local
authorities have very set ideas as to the kind of rail, for instance, to
be used. The worst of it is that the successive incumbents of the
same office have very different ideas of the kind of rail to be used;
and many of the specifications which make our rails cost much more
money are due to the absolute requirements of road commissioners,
superintendents of streets, and so forth.

The CHAIRMAN. Do you believe that in a country with such diversi-
fied climate and territories, part being prairie and other parts rolling
and others mountainous, and where in the Xorth you have your cold
winters and heavy snows, and in the South your large precipitation,
that there is such a thing as a standard car that can be used all
over this country ?

Mr. HEULINGS. Well, Mr. Commissioner, I will also again refer to
the safety car. The safety car is used in the southern part of Texas,
it is used in Jacksonville and Tampa, and it is used in Bangor, Me.,
and in Canada, and it is used in Seattle, in Portland, and Lower
California.

The CHAIRMAN. Well, your safety car is a one-man car.

Mr. HEULINGS. Yes; a one-man car.

The CHAIRMAN. Light equipment.

Mr. HEULINGS. Light equipment, light weight; and it is used in
all those various climatic conditions.

The CHAIRMAN. Could the same principle be applied to a heavier
car ?

Mr. HEULINGS. I do not see why it could not. The safety car
applies to certain conditions where your travel does not get to prac-
tically a moving platform. Then you have to have larger equipment
and greater carrying capacity, but I do not see why to a very con-
siderable degree the same standard should not prevail.

The CHAIRMAN. Has the diversity in the car been due largely to
the demands of the municipalities or has it been due to the competi-
tion between car manufacturers in the sale of a superior car?

Mr. HEULINGS. While the car manufacturers I think have all tried
to outdo each other in regard to the superiority of their equipment,
I know we have always tried to hold the better position. I really
think the diversity of car equipment is more due to the opinion of the
local men than anything else — the local operators.

Commissioner SWEET. The local what?

Mr. HEULINGS. The local operating men.

The CHAIRMAN. What effort has been made in the industry as well
as in the manufacturing end to get together upon some standard form
of carl

402 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. HEULJNGS. I do not believe that any considerable effort has
been made along that direction, where we tried to bring all the rail-
way operatives together and to present a standard form of vehicle
for them.

The CHAIRMAN. Do you think that the saving in dollars to the
public is sufficient to warrant an effort being made by interested
parties to agree upon a standard form of equipment?

Mr. HEULJNGS. There would be a big saving in the manufacture,
without a question of doubt.

Mr. WARREN. How much saving? I want to get at the percentage
of saving you thought might result.

Mr. HEULINGS. There would be a saving of from $300 to $400 on
every double-track car.

The CHAIRMAN. But would it not be open to this objection, if it is
one : The moment the country agrees upon a standard form of car,
you have thus at that very moment prevented any further improve-
ment in the art?

Mr. HEULINGS, You would. You would probably stop initiative
and you would halt inventive genius, I believe.

Commissioner GADSDEN. You would also stop obsolescence, too.

Mr. HEULINGS. Yes.

Commissioner GADSDEN. Which would be desirable.

The CHAIRMAN. Have you reached the point of development in
the industry where it can be safely said that we can agree upon a
standard car that is going to meet the demands of the country?

Mr. HEULINGS. No, I do not think so. I do not believe you could
get an agreement on that basis.

Now, to illustrate that, there are many very successful operators
who will insist upon the use of center-entrance cars. We have had
them in Washington; we have had them in Boston, and we have
them in New York; we have them in Brooklyn; and yet there are
other roads that would not have a center-entrace car under any cir-
cumstances.

The CHAIRMAN. To agree upon a standard form of car would
mean the practical elimination of all the equipment which you have
got to-day, or a very great part of it?

Mr. HEULINGS. It would.

The CHAIRMAN. And in the present state of the industry is there
any hope of being able to abandon that equipment and put in a new
form 01 car ?

Mr. HEULINGS. I doubt it; only so far as the introduction of the
new Birney safety car is concerned. There, I think, it can be done.

The CHAIRMAN. Would there be any hope of agreeing upon a plan
for a standard car that could be used for new equipment as it is be-
ing purchased?

Mr. HEULINGS. Well, the United States Housing Corporation took
up that identical thing here about a year and a half or two years ago,
maybe, and they tried to come to some conclusion with regard to a
standard car or something that could be called a standard car, but
I doubt if you would consider that very much headway was made
with it.

Xow. there is another very popular type of car that is used in
Cleveland, known as the Peter Witt type of car — a front entrance
and center exit — that probably presents some advantages. It han-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 403

dies passengers probably as quickly, or more quickly, than any other
type of vehicle.

The CHAIRMAN. Do I understand you have another witness you
want to put on to-night ?

Mr. WARREN. If you please, Mr. Chairman.

(Witness excused.)

STATEMENT OF MR. HENRY L. DOHERTY.

Mr. WARREN. Your full name?

Mr. DOHERTY. Henry L. Doherty.

Mr. WARREN. You are interested in a great many public utilities?

Mr. DOHERTY. Yes, sir.

Mr. WARREN. Including street railways?

Mr. DOHERTY. Including street railways.

Mr. WARREN. What are some of your street railways, Mr. Doherty ?

Mr. DOHERTY. We have a street-railway company at Toledo, Ohio,
a number of interurbans there; we have a street-railway property
running over the Manhattan Bridge and down to Jamaica, Long
Island, from New York City ; we have some 8 or 10 small street-rail-
way companies.

Mr. WARREN. He being interested in all these railways — I think,
as the time is limited, I would like to turn Mr. Doherty over to the
commission to answer questions that may interest the commission,
instead of my questioning him directly.

Mr. Doherty represents the Cities Service Co., I think, do you not,
Mr. Doherty?

Mr. DOHEHTY. I am president of the Cities Service Co., and then we
have other interests besides that — the firm of Henry L. Doherty
& Co.

Mr. WARREN. So your experience has been very great. I might
ask one question following the line of the other witness, and that is,
have you had experience in increasing your rates of fare on any of
your companies?

Mr. DOHERTY. Yes, sir; I have.

Mr. WARREN. Has the result justified what some of the other wit-
nesses said here to-day, that they got a substantial increase in
revenue ?

Mr. DOHERTY. I have not heard any of the other testimony that
has been given before at this hearing, and I have not read about it.
A raise of fare eventually results always in a raise in revenue; but if
I were trying to state the effect of it, I would prefer to make a funda-
mental analysis of it rather than to take the specific figures from
some certain town and assume that that would apply elsewhere.
Now you can divide your riding, into two classes — necessity riding
and nonnecessity riding. If you are in a city where practically all
your riding is necessity riding, where the rider has to ride, of course
a raise in faros will not bring any greatly diminished amount of
riding. But if you are in a city where the distances are .short, it
will bring a diminished amount of riding, at least for the time being,
and I think that depends largely on the temper of the people toward
the road, whether they believe the rate is justified or not. What I
expect to see is this — that a raise in rates will always cause mo-
mentarily a falling off in the number of passengers but eventually

404 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I believe, except in the smaller cities, the same number of people will
ride.

Mr. WARREN. And even immediately on the change there is some
increase in revenue, is there not, unless it is an exceptional case ?

Mr. DOHERTY. Unless it is an exceptional case there is immediately
an increase in revenue.

Mr. WARREN. So that it is a real means of relief to the companies
needing additional revenue?

Mr. DOHERTY. Yes, sir.

Mr. WARREN. Are there any questions the commission would like
to ask?

The CHAIRMAN. I would like to have Mr. Doherty go ahead and
talk awhile. He has had a wide experience. Tell us what the trouble
with the street-car industry is and what is the remedy, if there is one.

Mr. DOHERTY. Mr. Chairman, I did not come down for this hear-
ing, although I am intensely interested in it, and I am very glad that
the street-railway men are having an opportunity to tell their story.

In the early days of street railroading — and in a great deal of this
I may be simply repeating what other witnesses have said — but in
the early days of the street railway, most of the roads were not to
exceed 2 miles long and the platform-labor cost not to exceed 15 cents
an hour. I think in the city I was brought up in the maximum wage
for a long time was $1.80 and the hours were about 12. Now we
have seen wages gradually increase from 15 cents to a maximum of 60
cents and we have seen the distances increase from, say, 2 miles to,
I believe in some cases, 15 or 20 miles, and the average distance of
riding constantly going up on account of the size of the city. And
it seems to me perfectly obvious that we can no longer stick to the
original amount that was fixed for a street-railway fare. That was
fixed at that time largely as a matter of convenience, on account of
the nature of our coins.

Now, in addition to that, we went through the bicycle craze and we
saw the effect that had on the street-railway companies, and now we
have the automobile with us and apparently we have got that with
us permanently.

I do not know the answer to these problems. I would be perfectly
willing to try to sit down and work them out with any group of
men. There must be some answer, and if things are allowed to go
the way they are I am sure that in the end, while the security holders
and street-railway men will suffer severely, it will be the public that
will suffer the most and it will be the wage-earning class of the
public that will be punished most, because they will have no other
means of conveyance.

The public are always imbued with the idea in public-service work
that the thing they are the most interested in is low cost of service.
It seems to me they are interested first in complete service from a geo-
graphic standpoint, second in good service, and lastly in low rates.

The only solution that I see to the difficulty is to raise the rates of
fare to a point where the street-railway companies can live ; and until
some scheme of premiumizing good management and economical
operation can be devised — something like what is known as the
London sliding scale — I do not see that there is any other way to
work except on a cost-plus basis. I am a believer that, if we had the
methods developed for doing it, we ought to go to a metered system

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 405

of riding, paid for distance. But I think that the paramount thing
is immediately, before the credit of street-railway companies is en-
tirely wrecked in the minds of the investing public, to get some sort
of relief for the street railways, and that, as I see it, can only be
done by an increase in the rates of fare.

The CHAIRMAN. Could the problem be solved by getting away
from fixed franchise rates and leaving it to the utility commissions
to determine the reasonableness of a rate?

Mr. DOHERTY. Yes, if the utility commissions would act promptly
it would; and I think utility commissions are in better shape to de-
termine what a rate should be than the local authorities.

I have had one case where we have been trying to settle the street-
railway difficulty for a number of years and we have had continu-
ous negotiations, I would say, for nearly five years with the city
authorities and have never reached a settlement, and largely I think
because the city authorities felt that they had to comply with what
they believed to be the wishes of the people; and yet in many ways
those conditions would have been something under which the com-
pany could not have lived.

In that case — I refer to Toledo — we took hold of the Toledo situ-
ation when it had been a matter of controversy for a long time, and
the people there were determined to have a 3-cent fare, and a great
number, perhaps a majority of the population, felt that if they voted
for a 3-cent fare that that should entitle them to a 3-cent fare- —
simply because they had voted for a 3-cent fare. They had that im-
bued in their minds, and when we would try to tell them we could
not furnish street-railway service at 3 cents, they would say, " We
voted to have you do it."

Xow, we have never been able to make the local authorities believe
that the people of the city understood that we must have a higher
rate of fare; and yet I think the people as a whole know that we
must have a higher rate of fare, and I think they would be willing
to pay it.

I think in most every case if the matter was laid properly before
the people, without any confusion from the other side, and was hon-
estly presented from both sides, the people would be willing to pay
the necessary amount to provide adequate and proper street-railway
service.

The CHAIRMAN. Well, of course, it is the law that a utility is
entitled to a fair return on property which it uses in the public
service. Now, if we can reach the time when the street-railway
properties are given an honest valuation by State regulating authori-
ties or some others who have the power to say what that value is, and
then a close examination is made of the operating sheet of the com-
pany, can you see that there would be any difficulty in having State
commissions or other tribunals promptly determine the question of
a rate increase?

Mr. DOIIERTY. Xo. sir.

The CHAIRMAN. Has not the great trouble heretofore been that
there is always a dispute as to the value of your property, as to the
amount of the actual investment in the property, and a feeling that
your property has been greatly overcapitalized, and because of that
the investors are getting really more than they are entitled to I

406 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. DOHERTY. Well, there has been so much of a play made on the
matter of watered stocks and capitalization in excess of cost that the
public can not dissociate that from the idea of a valuation made
strictly on the property.

The CHAIRMAN. Yes. Now, then, when you get a valuation, is
not that in and of itself going to remove most of the difficulties which
you have in dealing with the public ?

Mr. DOHERTY. If you can make the public understand that the
amount of bonds and stocks issued on these properties is not going
to be considered at all in making the valuation of the property — the
newspapers in the different cities generally play up the matter of
watered stock, whether there has been any watered stock or not ; but
if you can make it plain that the property is going to be valued as a
property and without regard to its capitalization— I think the public
woiild be perfectly willing to pay a rate of fare that would in turn
yield a fair rate of return of the actual value of the property. Now
in the matter of the value of the property, I do not see that there
should be such a great difference of opinion as there has been on some
of the valuations.

The CHAIRMAN. Well, that is a matter of detail and does not go
into the principle we are trying to discuss.

Mr. DOHERTY. No; I just want to make a point — that it is very
easy to determine the value of the property.

The CHAIRMAN. I was back in St. Paul last winter, and the Twin
Cities lines were trying to get some sort of legislation. The mayors
of the cities and some others immediately took advantage of a public
feeling that there were about $10.000,000 or more of watered stock in
the property, and that element alone I think had more to do with
defeating really wise legislation than any other single factor. Now,
if those properties could have been properly valued by the State, sub-
ject to the right of appeal to the courts by either party, that element
of criticism would have been removed.

Mr. DOHERTY. And I agree with you — if you can just get out of
the public mind that that watered stock has anything to do with
the valuation that is going to be made.

The CHAIRMAN. Exactly. Now, if the utilities and the public
authorities can reach the point where these properties can be prop-
erly valued and you get away from a fixed franchise rate, have jrou
not, as a matter of fact, got about all that a public-service corpora-
tion should have?

Mr. DOHERTY. Well, that is all I think that any of the public-
service corporations should ask for, but they are asking if possible
that that really be granted to them very quickly.

The CHAIRMAN. Oh, I am asking questions now with reference to
a permanent policy and not immediate relief.

Mr. DOHERTY. I agree with that policy until we can find some
better one. If there is a better one, all right; but that is the only
one I see now.

The CHAIRMAN. If you can reach this, proper value and have the
State fix the rates, is there any reason why you should adopt the
cost-of -service plan ? I am asking these questions, and I am entirely
open-minded on the proposition.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 407

Mr. DOHERTY. Is it not practically the same thing? Because

The CHAIRMAN. No; because one operates automatically with the
rise and fall of the cost of operation and the other addresses itself
to the judgment of the tribunal.

Mr. DOHERTY. Well, I should think it would be preferable to have
the State commission determine the valuation — I did not quite catch
the distinction that you make between your plan and the cost-of-
service plan. I should think

The CHAIRMAN. I am not announcing a plan but I am stating
the plans.

Mr. DOHERTY. No. Well, your question, I will put it. But it
seems to me the matter of being able to adjust yourself to new con-
ditions without a new hearing is very valuable. Now, here is what
happened, Mr. Elmquist, in the matter of public-service commissions.
If the day ever comes when the farmer must go to the public-service
commission or some agricultural commission and get the consent of
that body to plant one field in wheat and another field in corn he
will probably say, " Oh, well, it is so much trouble I will just let it
go ; I will not plant anything," simply on account of the delay. We
have not been hurt so much by public-utility commissions, even
where they have shown their teeth in many cases, because we have
been able to tell our story to them and get it before them. But we
have often been intensely hurt by delay, and the street-railway com-
panies now are in a condition where they need assistance, and they
need assistance at once, and if they do not get it at once their credit
is going to be permanently crippled. The whole industry's credit is
going to be so crippled that I doubt if it can be reestablished. I do
not know that I make myself entirely clear. But if some man would
go around to a farmer and say, " I am starving," and the farmer
would say, " Old fellow, I am going to have the finest crop of wheat
next year you ever saw. You come around when that crop is in and
I will give you something to eat." That would not do the starving
man much good, because he would be dead when the crop came in.
Now, the street railways are just in a crucial condition. In fact,
their credit is already strained beyond the elastic limit, and when
we talk about stopping and making an accurate valuation of these
properties a very long period of time can be consumed. It is sur-
prising how much time it does require sometimes in connection with
a State commission making an accurate valuation.

The CHAIRMAN. I hope you did not get the idea that I meant there
had to be a valuation of these properties in order to determine the
immediate pressing question. You know

Mr. DOHERTY. Well, I was afraid the conclusion would be drawn
by many of our State commissions that no relief whatever should be
granted until this very detailed determination of values could be
made.

The CHAIRMAN. Well, of course you know that State commissions
during the war times have uniformly granted rate increases with-
out going through the form of valuing the properties. They have
simply overlooked that during the time of the war and have treated
thorn as emergency propositions.

Mr. DOHERTY. They have in many cases, but in other cases they
have not granted the increase; and my theory would be whatever is
done, to make an approximate valuation and make some rate ad-

408 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

justment on that basis and then later make the detailed and more
accurate valuation.

The CHAIRMAN. Are we to understand that in your opinion
this commission has just one duty to perform, and that is to evolve
some plan by which immediate relief can be given to the utility?

Mr. DOHERTY. Will you read that to me?

(The question was then read as above recorded.)

Mr. DOHERTY. Now, I did not assume that, but I do assume that
if anything is going to be done and eventually serve the public
properly with street-railway service, there must be immediate re-
lief given. In other words, that a permanent plan will be greatly
handicapped unless immediate relief is given.

The CHAIRMAN. Well, might we assume then that tlxere are two
functions to be performed by this commission : One to evolve a plan
for temporary relief and another to outline a plan for permanent
relief ?

Mr. DOHERTY. That would be very wise, I think.

The CHAIRMAN. Now, addressing yourself to the first proposition —
of immediate relief — how can we serve the utilities in that respect?

Mr. DOHERTY. I would say by recommending that revaluations
of the properties be made by approximate methods and rates predi-
cated on the valuation by the approximate methods until such time as
credit valuations of these properties can be made.

The CHAIRMAN. Do you mean that, where a utility is actually
operating in the red and paying nothing at all to its stockholders,
there should be a valuation of the property before relief is given,
even upon an approximate basis?

Mr. DOHERTY. Now, I do not think that is necessary. I will amend
my answer by saying that in many cases there is no need of even mak-
ing an approximate valuation. We know that a raise has to be made.
But I should think an approximation should be made. I should
think rates could be based better, even in a situation like that, if an
approximation was made. Say, for instance, you just took roughly
and said for a railroad, we will allow a valuation — I am just talk-
ing now in round figures — we will allow a valuation of $100,000 a
mile of track as an approximate valuation, and then we will see what
the situation would have to be on that valuation to yield a proper
return, and then these rates will prevail until an accurate valuation
can be made.

The CHAIRMAN. Irrespective of value, the utility has got to have
enough money out of its rates to pay its operating costs.

Mr. DOHERTY. Oh, yes, absolutely. But I would not like to see
just enough given to them to pay operating expenses, because "that
does not save their credit and that does not save the credit of the
business.

The CHAIRMAN. No doubt about that, but I was trying to develop
the point that there are cases where valuation is not necessary.

Mr. DOHERTY. Certainly, in most cases valuation is not necessary
to know that there has to be an increase in rates.

The CHAIRMAN. Now then, to whom should our recommendation be
made, and how, answering with respect to immediate relief?

Mr. DOHERTY. Well, I do not know, of course; I am not a very
quick thinker, but it seems to me we have got to make that apparent
to whoever the rate-making body is. In many States both the city

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 409

and the commission have to act, and having two bodies which must
act makes it more than doubly difficult.

I think that the one important thing to do here is to make the pub-
lic understand it, because I know from my dealings with public offi-
cials that very often they know that a thing ought to be done, but
they are not going to do it unless they believe the public thinks it
ought to be done.

The CHAIRMAN. Do you believe the function of this commission,
then, is largely educational?

Mr. DOHERTY. Yes, largely educational. I would say that the work
of this commission would not be entirely covered if it simply suc-
ceeded in impressing upon the rate-making body that this or that
were so. Unless it can go further and be of enough public interest
to make them courageous enough to act, not much will be accom-
plished from it.

The CHAIRMAN. Now to step from the temporary plan to a perma-
nent plan ; how can this commission serve the utilities and the public
with respect to a permanent plan?

Mr. DOHERTY. Well, it can point out the possibilities of street-rail-
way economies, and it can point out the possibilities of the relief of
persons that street-railway companies should not bear. There has
been — I do not know how many cities there are where there is an
occupation tax laid on street railways. I do know that many public
utilities are subjected to an occupation tax. And in talking with
people responsible in some cases for levying that tax I find that they
always look upon it as a tax upon the occupation of the street, not
using the name of the tax in the way it originally started — as being
the character of business carried on. And many gas and electric-
light and street-railway companies are compelled to pay a tax for oc-
cupying the streets in some form or other. Well, that is a very un-
wise policy, it seems to me, from the standpoint of the public. Be-
cause, taking a gas or electric company — they transmit the equivalent
of an enormous amount of energy over or under the public streets
without noise, wear and tear or causing the city the expense of main-
taining the streets. A street-railway company operates on its own
steel tracks, and it does not wear out the pavement, and to tell the
truth, it saves a great deal of the city's pavement by the amount of
trucking that is done on its tracks.

The CHAIRMAN. I assume we will have witnesses who will develop
this part of the question more fully, but what I am trying to find
out is if you can not sketch out in a word the things this commission
will do.

Mr. DOHERTY. I am trying to think of a few; but if you will al-
low me to proceed a moment — no occupation tax ought to be put on a
street railway, because a car carries an average of 30 passengers as
compared with an automobile which carries 2, yet we are subjected
to a paving tax and it is not. There was a time we wore out the
pavement; there was a time when the horses littered up the pavement
and we had to clean them. We have lots of obligations forced on us
now that are relics of the past, and we can not get rid of them. I
can not think of all of them sitting here. But every possible relief
which can be given to the street railways and transferred from a
specific charge against them to either the property holders or the
1GOG430— 20 27

410 PROCEEDINGS Or FEDERAL ELECTRIC RAILWAYS COMMISSION.

general fund should be done. Because even if a man has an auto-
mobile and does not use the street railway, he wants it there — it is
an asset there to him. It is there ready to serve the needs of his
premises, with a messenger boy or anything else that comes along;
and in a way you could almost justify a subsidy for a railway rather
than have it shut down. Even if the people did not use it enough
to pay for it, it would still be a municipal necessity. One of my first
thoughts would be to take off every load that can possibly be taken
off of the street railway company.

The CHAIRMAN. That involves a very comprehensive study of the
chief function of a utility with reference to -its service to the public.

Mr. DOHERTY. Yes ; and it even involves the matter of the differen-
tiation between a street-railway company and another form of public
utility, because there is a differentiation there.

The CHAIRMAN. Should this commission undertake to recommend
a definite form of franchise to be used by utilities throughout the
country I

Mr. DOHERTY. I would say no to that, because I assume we are
not going to get away from regulation by some regulating body,
and I think the franchise is more or less a superfluous thing, if you
are going to have a regulating body. I do not think you can write
into a franchise in advance as wisely as you can be regulated^ and
I take it that by no chance will regulation be given up of the public
utilities; and if regulation is going to be maintained, it is a good
deal better not to have any other instrument that interfered with
regulation. Have your franchise just that you are able to operate
and have it of an indeterminate character and subject to regulation,
I would say — just thinking out loud, because I did not know that
question would be asked and have not thought of it.

The CHAIRMAN. Then you would be satisfied with a recommenda-
tion for an indefinite term franchise ?

Mr. DOHERTY. Yes.

The CHAIRMAN. And have the utilities regulated by public author-
ities?

Mr. DOHERTY. I would, as a street-railway man. I do not know
as that represents the views of the other street-railway men.

The CHAIRMAN. Then there is one kind of a franchise which you
would be satisfied to have us recommend ?

Mr. DOHERTY. Yes.

The CHAIRMAN. Are there any other features you would have in-
corporated in that franchise?

Mr. DOHERTY. Well, I do not know how to distinguish between
what is in the franchise and what is in the law creating the regu-
latory body. If the duty of the regulatory body is to act and act
promptly, I would say the less in the franchise the better. Most
every franchise to-day — if you would start out to-day and get a
franchise from the city, you would get what I have seen in my own
case ; they want to give you half a page as to the rights of the com-
pany and 68 pages of restrictions on the company. That is what a
franchise is to-day.

Mr. WARREN. And attempt to regulate in advance, for all time?

Mr. DOHERTY. Yes, and attempt to regulate in advance. Now, we
are not asking to get away from State regulation, so if we are not
asking to get away from State regulation and are going to have State

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 411

regulation permanently, it seems to me it is better not to write a,
State regulation in, in advance, at the time the franchise is granted.

The CHAIRMAN. Don't you think it would be well for a Federal
commission to make certain general recommendations to the States
and to the municipal authorities that can be incorporated in new
franchises. as they are granted?

Mr, DOHERTY. There may be some things, but I do not think of
them now. But I am very sure you could make one very valuable
recommendation by saying, " Put very little in it."

Commissioner SWEET. If real relief is obtained through this com-
mission or otherwise, does it not, in your judgment, mean a rather com-
plete revolution as compared with what has been ; in other words, has
there not been antagonism of a certain kind between the general pub-
lic and the public-service corporations in the past — a feeling on the
part of the public that the public-service corporations were grasping,
were seeking to get more than they were fairly entitled to, and that
it was the duty of the public to be very watchful and to do a great
many things in the way of punishing the public-service corporations
for what tney might do?

Mr. DOHERTY. Well, you have described the attitude. I would use
your same words in trying to answer your question.

Commissioner SWEET. Well, do you think that has been the situa-
tion?

Mr. DOHERTY. I think that has been the situation. I think there
have been some grievances that the public have had, but I think they
have been enormously overagitated; and so many men have capital-
ized the little original unpopularity of the utility corporations to
put themselves into political power and have kept at it, and the pub-
lic have felt that they had to be watched very close.

Commissioner SWEET. Is it not necessary to change that attitude
entirely and wipe out this whole feeling, to get permanent relief?

Mr. DOHERTY. You have to make the public understand that ordi-
nary, common garden variety of fair play demands that the street-
railway company be given a fair and adequate rate of return, and it
can not do it with the old rate of fare, with all its expenses increased
so enormously.

Commissioner SWEET. Now you are putting that solely as a street-
railway man and not as a citizen. Don't you think that instead of
demanding it or recommending it as far as this commission is con-
cerned— as a matter of justice to the street-railway company — that
particular stress should be laid upon the fact that the public can not
have this absolute necessity, to say nothing about convenience, unless
it changes its attitude and becomes helpful and cooperative instead
of having its tentacles out looking for trouble ?

Mr. DOHERTF. Yes, sir; I agree with you thoroughly. But the
only distinction at all between you and me is that I believe that
sentiment would be largely removed if they did understand that
these companies were really losing money. But you will find in
every community some demagogue telling them that is all a bluff —
the street-railway company is not losing money; and that is one of
the troubles. But I agree with you on another thing, Mr. Sweet,
and very, very thoroughly; and you took a slant at it, and I was
hoping you would come out and say so. Let us assume we all do
get wiped out; for every dollar we lose it will bo nothing in com-
parison with the punishment inflicted upon the public.

412 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Let us take our railroad situation. I saw the railroad situation
made a toy of. I lived in Wisconsin, I was a young man there ; and
I tried to point out what was to be the effect of making the railroads
of this country a political football. But on the plea of saving money
for the wage earners, they kept reducing fares and regulating and
regulating. Now the wage earners are not great travelers. And I
maintain this, and this is conservative — that for every penny that
was saved the wage earners of this country by a reduction of fares
and regulation of railroads, it cost those people at least 10 cents in
the way of increased food, increased cost of clothing, and increased
cost of sheltering and housing them, because we were a rapidly
growing country; we had more mouths to feed and more bodies to
clothe and shelter and were not opening up more land to take care
of them. Now in the end it was the public that paid the bill. The
railroad companies paid first, but the big bill was paid by the public.
And how much it cost the public after we got into the war I do not
know, but if it had not been for the development of the automobile
and the substitution of gasoline for horsepower I do not know how
we would have fed ourselves and our Allies. We could not have
done it. And that is just what foolish regulation cost and always
does, that is done for the political advancement of the men who pro-
mote it. It would have cost us the loss of the war if it had not been
for the development of gasoline-consuming devices instead of food-
consuming animals.'

Commissioner SWEET. Well, that is a little bit aside from the im-
mediate question, but as a matter of fact

Mr. DOHERTY. Well, it is a public utility, and we are doing the
same way with the public utilities; and the public will pay the big
bill in the future.

Commissioner SWTEET. But the internal combustion engine has
really played a big part in this war.

Mr. DOHERTY. Yes; and in hurting the street railways; and it
did not save us on the fare question.

Commissioner SWEET. Certainly, but we would have no aeroplanes
if it was not for that kind of an engine.

Mr. DOHERTY. No.

Commissioner SWEET. And no dirigible balloon.

Mr. DOHERTY. Well, we might have the balloon, but not the lighter-
than-air machine. But it was the substitution of gasoline, a mineral
product, for a food product, that enabled the existing lands to feed
ourselves and our Allies.

Commisisoner SWEET. Now, to come back to the main question

Mr. DoHERTr. In other words, it is a mere accident that the matter
of trying to capitalize railroad unpopularity for political advance-
ment did not ruin us.

Commisisoner SWEET. Now the real point is, to get away from
that prejudice which we all realize does exist to a certain extent
and that there was some ground for in the past a great deal more
than there is at present ; in fact, the evidence so far introduced seems
to be that there is little if any ground for it now, and yet we all recog-
nize its existence to a certain extent. How to get rid of it is the real
problem, is it not ?

Mr. DOHERTY. I think so. But I think the real way to get rid of
it is to convince the public — that is, I think it will change their

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 413"

attitude of unfriendliness if they thoroughly appreciate that the
roads are losing money and that they must be supported, because this
is a public necessity, it is not a matter of something alone purely for
the benefit of the stockholders ; but they must have it, and it is more-
essential to them than it is to the stockholders.

Commissioner SWEET. Then would it be your opinion that if this
commission, by reason of all the investigation that it is capable of
making within a comparatively short time, should report that the
interest of the public, in its judgment, demands first the immediate
relief that you have referred to and later on more permanent meth-
ods of relief, to say comparatively little- about the interests of the
companies, although that means, however, the interest of investors,
who are a part of the public — often widows and orphans and a com-
paratively few people

Mr. DOHERTY. Yes, and some of them savings banks and life-
insurance companies.

Commissioner SWEET. Well, if the whole subject were presented to
the public just exactly as it is and in a comparatively brief and
forceful manner, backed up by what little authority there may be
given to this commission in the minds of the public, do you think it
would do some good?

Mr. DOHERTY. Oh, yes; it will do a great deal of good, and I do
not believe that you men can sit and listen and examine every part
of this case except when you get through you can honestly say that
it is more greatly to the interest of the public to do this and to do it
promptly than it is to the railroads or to the investors.

Commissioner SWEET. Well, it certainly seems as if the public
ought to then be open-minded enough to realize that fact.

Mr. DOHERTY. Well, it depends how many newspapers are preach-
ing the other side as a pure matter of their own selfish interest and
how many people have already started out to capitalize their own
political future on this particular issue and they can not very well
back up.

Commissioner SWEET. Why should newspapers have any interest
in their taking an opposite view?

Mr. DOHERTY. Well, lots of newspapers have built up their circu-
lation by simply preying on the public utilities, thinking that that
would be a matter of interest that would sell their newspapers.

I have been in the public-utility business — this coming fall, if I
wanted to, I could celebrate my thirty-eighth year in the public-
utility business. I have seen case after case of trouble hatched up
between a city and a public-utility company that was done purely for
political reasons. Now I could name you case after case where pub-
lic councilmen or people of that sort would make a demand on the
public utility where they would have been the most disappointed
people in the world if the company had met the demand, and in
many cases they were. And I could cite you other cases where the
public utility met the demand for a reduction in rates and they
immediately made some demand that they knew the company could
not meet; and then they would have an issue they could go to the
people with and promise them cheap gas or cheap current and they
would get it for them if they would put them in office.

Now you have that to meet. An average reformer is a man, to my
mind — in my time I have met a great many of them, and I would

414 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

describe him as a rule as a man who was willing to take every one
of the great big human problems and use them as brickbats and use
them as a pedestal" by which he could get his shoulders above the
balance of the crowd. Of course, many of them are genuine, but
they are shallow thinkers — they are always going to tell you. I al-
ways measure a reformer, as to whether he is a real reformer or not,
by whether he is willing to give the people something out of his own
pocket or out of somebody else's pocket, and I do not see very many
that are. They are generally looking for a good fat job.

The CHAIRMAN. If your definition of a reformer is accurate, then
does it not mean that all .reforms that have -been accomplished for
the benefit of civilization have been made to meet the selfish wishes
of those who advocated them?

Mr. DOHERTY. Well, I will tell you. There are a lot of things
you would call reforms probably that I would not.

Commissioner SWEET. The reformer you have been talking about
is the spurious reformer, the- man who is trying to trade on the
principles of being a reformer and is not really one.

Mr. DOHERTY. Yes, but just think how many of those we have
with us.

Commissioner SWEET. Yes, I understand.

Mr. DOHERTY. They kind of crowd out all the rest.

Commissioner SWEET. For one real reformer there are probably 15
or 20 or maybe 50 of these so-called reformers who ase not in reality
such. Is that it?

Mr. DOHERTY. I think your figure is a little low there. I would
say 100 or 200.

Commissioner SWEET. Well, I presume we will all of us agree in
rather despising those who sail under false colors of any kind.

Mr. DOHERTY. Well, I do not know as I do. I have a lot of sym-
pathy with many of these public officers. You people know that the
people right down here in the Senate and House can not vote as they
really think. I took lunch to-day with a Senator at the Senate
lunch room. He said of course they can not do it — they are such big
cowards they' can not do it. If they just did what they thought was
really right they would never serve but one term, and they would not
serve that one term out, if the article could be sprung on them.

Mr. WARREX. I believe they could vote what they really believe
and stay there, but they do not think so.

Mr. DOHERTY. I do too. I think the public admire bold people. I
think that is the reason Theodore Roosevelt was such a hero, because
he had the nerve to tell the public where they could get off, and they
liked it, but the average politician does not.

I went to a city official and said, " Are you going to allow a thing
like this to be pulled ?" He said, " What can I do ? If I don't permit
this thing to go through, people would say you had bought me out."
It was a case of two opposition companies fighting. There was a
man as honest as the day was long, but he felt he could not stand up
and do what he knew was right, because it meant that sort of criti-
cism.

Commissioner SWEET. I am going to turn the tables on you a
little bit.

Mr. DOHERTY. That is fair enough.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 415

Commissioner SWEET. I know of a case where a public-service
corporation attempted to induce the appointing authority of a city
to appoint a man on the board of assessors who hael been a member
of the common council and had been recognized all over the city as
a very decided friend of public-service corporations. The appoint-
ment was not made. I know of another case where a public-service
corporation attempted to induce a public official who had the ap-
pointive power to appoint as chairman of a franchise committee of
the common council a decided friend of such corporations, and
especially desired to have left off from that committee entirely a
man who had shown himself somewhat advanced and a little too
anxious to require street-railway companies to put down what is
called the Trilby rail. And I could name a number of other in-
stances of that kind that never got into the newspapers at all.

Mr. DOHERTY. Don't think that I am sitting here and claiming
that the only virtue in the world belongs to corporation men. I do
not. But I do say this — that the greatest degree of honesty that
you will find in the United States you will find among the big
business men of this country. And there is a reason for it, and it is
a natural reason : Big business requires a certain amount of mutual
trust every place. Icon do not advance men there who are thieves.
Thieves have to work in squads of one; they have to watch each
other. It is natural that business carried on with corporations should
bring about the advancement of the men who are honest and trust-
worthy, and while I do not say for a moment but what — I am not
here pinning any particular stars on them, that is, I am not claim-
ing that the corporation men have done no wrong; but I would say
there are certainly no more honest men in this country than corpora-
tion men. Unfortunately, they are badged wrong. If you go to
Europe you will find everybody tells you, " Look out for the
American business man." I say to you after doing business with
most of the men in the European countries, there is no man as
honest as the American business man, and yet he allows himself to
be badged as the dishonest business man, on account of a few of
our fakers who have gone over there and put things over on them.
Now the corporation man, for not having defended his reputation,
has been made to appear in the eyes of a great many people in
America a little more dishonest than the average. Now they view
something as being unfair when we try to get somebody put on a
board who we know will be fair. We are not supposed to do
that. They can go out and preach that as far as they want to. But
the average corporation in this country is not looking for anything
but a fair deal and the}7 will be glad if they get that. They just
want the common, ordinary garden variety of fair play. They will
be satisfied with that, and it is that or ruination in some cases.

Commissioner SWEET. Let me say this, to close the matter up, and
I think you will agree with me, that with many business men, big
or little, there are some who are honest and men that you can admire
from every point of view, and others who are not. You will find
the same thing among newspapers and newspaper men. I think you
will find the same thing among city officials; you will find some who
are strictly honest and square and serving the city faithfully for
compensation far below what is actually earned. You know that
is a fact in many cases, do you not?

416 PROCEEDINGS OF FEpERAL ELECTRIC RAILWAYS COMMISSION.

Mr. DOHERTT. Yes.

Commissioner SWEET. And there are dishonest ones. Men have
been shown, many city officials, to have accepted bribes and business
men have been known to give men bribes on school boards and com-
mon councils. Now these things all occur. We have got to admit it,
and it is not fair nor is it wise for us to generalize too much and say
that one type of man or people engaged in one kind of business are
all right and nobody else is. Now the facts do not substantiate or
sustain any such proposition as that. Now, then, when we come right
down to the point before us, is not this the situation — that whatever
may be said about public-service corporations or public officers or the
general public or newspapers, that the points of antagonism that
existed a few years ago have disappeared and that now the interests
of the corporation, both public, private, and the general public and
the newspapers, for that matter — because the newspapers are sup-
ported by the general public and ought to be1 carried on in the in-
terest of the general public, and for that matter the interest of the
politicians who used to trade to some extent in getting up on the
housetops and decrying the public-service corporations — but the in-
terests of all if properly understood are distinctly in favor of co-
operation hereafter instead of opposition and of resorting to some
method by which the general public shall not be deprived of the
necessity of railroads and that the holders of bonds and stock as well,
for instance, shall not be deprived of a reasonable income, and that
some steps shall be taken if it is possible to find out what ought to be
taken, to adjust this matter in a proper cooperative manner for the
general benefit of all rather than in a spirit of opposition such as has
existed before. Is not that true?

Mr. DOHERTF. Yes, sir; that is true.

Commissioner SWEET. Now, then, if that can be brought about — we
may say that it will be bringing about the millenium, but it is not
absolutely impossible that an approximation of that may be reached,
is it?

Mr. DOHERTF. I do not think it is so difficult either.

Commmissioner SWEET. It ought not to be, because it is a mere
question of knowledge and knowing what the facts are, is it not?

Mr. DOHERTY. It seems to me obvious that the relief must be given.

Commissioner SWEET. That is all.

(Witness excused.)

The CHAIRMAN. We will stand adjourned until 10 o'clock Monday
morning.

(Whereupon, at 5.20 p. m., an adjournment was taken until Mon-
day, July 21, at 10 a. m.)

WASHINGTON, D. C., July 21, 1919.

Met pursuant to adjournment at 10 a. m.

Present : Parties as before.

The CHAIRMAN. Are-you ready to proceed, Mr. Warren?

Mr. WARREN. All ready; yes, sir.

Mr. Chairman, at this time I should like to put in the statement of
Mr. England, who was here on Friday but was not reached and
could not well be here to-day.

The CHAIRMAN. Is that the witness you spoke to me about?

Mr. WARREN. That is the witness I spoke to you about.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 417

The CHAIRMAN. You may file the statement.

Mr. WARREX. I will not read it. I will just read the statement
accompanying it :

The business of the Electric Service Supplies Co. consists of a varied line of
supplies and accessories for the construction and maintenance of electric rail-
ways, taking in pretty nearly everything used in the way of electrical and
mechanical supplies.

The schedules attached show the actual selling prices of some of the principal
lines, as well as comparative percentages of such prices, as between prewar
period of 1914 and the years following, up to July 1, 1919. These figures have
been compiled from actual sales records and therefore reflect the true condition
as to prices prevailing during the period covered.

We see no indication of lower prices in the near future; on the contrary,
there are unmistakable signs of a stiffening of prices in many lines. While
labor is somewhat easier to obtain, the rates remain on prearmistice basis.
Respectfully,

A. H. ENGLAND,
Vice President and Treasurer.

Then follows these schedules of materials, and taking 1914 as 100
per cent, the six months of 1919 showed had an average percentage
of 220 per cent.

S-CHEDULE A. — Overhead line material; relative selling prices during years

specified.

(Prices of 1914 taken as 100 per cent.)

Cata-
logue
No.

Description.

Percent.

1914

1915

1916

1917

1918

6 months,
1919.

50041
50089

31006
41162
30987

30989

31051
30995
31169
31171
31173
31175
31097
31107
41425
31219
31225
31237
31243
31274
31280
41586
41600
41634
41550
31290
41619
31298
31322
31333
31336
42104
31396
31398
liv-,s
41862
31403

EG lightning arresters, 750 volts, direct cur-
rent

100

100
100
100

100

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

jno

100
100
100
100
100
100
100
100
100
100
100
100

too

100

100
100
100

101

102
100
100
121
122
119
121
100
100
100
148
144
147
137
100
100
103
102
100
100
100
100
100
100
100
100
100
100
100
100
100
100

115

100
103
105

124

122
117
120
167
172
162
168
128
135
128
199
194
200
188
133
126
130
126
132
85
137
109
112
144
115
122
101
104
98
115
126
116

120

100
132
156

175

192

203
212
182
192
181
189
223
182
186
222
217
229
229
148
180
175
168
188
116
191
181
157
|ss
176
187
159
179
161
217
236
159

127

123
183
191

248

255
264
277
198
202
196
206
307
234
238
234
235
235
235
205
203
200
188
201
140
210
216
167
189
226
225
201
231
214
278
301
205

138

130
189
207

257

265
273
286
188
187
181
191
353
240
245
224
228
224
224
194
193
190
179
194
147
207
231
158
175
232
267
212
237
220
294
319
210

CE-2 lightning arresters, 2,500 volts, alternat-
ing current

Type K, round top hanger, |-inch ...

Type K, round top hanger, |-inch

Type single curve with giant strain gal-
vanized .

Type double curve with giant strain gal-
vanized... .

Type C, cap and cone, f-inch

Tvpe C, straight line, galvanized

Bronze ears, 15-inch, 2/0

Bronze ears, 15-inch, 4/0 .

Bronze ears, 12-inch, 2/0

Bronze ears, 12-inch, 4/0

Malleable iron clamps, 5-inch, galvanized
Malleable iron clamps, 7-inch, galvanized
Malleable iron clamps, 9-inch, galvanized —
Copper sleeves, 2/0, 16-inch

Copper sleeves, 4/0, 16-inch ...

Brass sleeves, 2/0, 16-inch

Bran slf ewsj 4/0, l ft-inch

Bronze frogs, 20°

Bronze frogs, 15°

Malleable iron frogs, 20°

Malleable iron frogs, 15°

Rigid R. A. bronze crossing....

Rigid R. A. malleable iron crossing

Adjustable bronze crossing

Adjustable malleable iron crossing

Type K, section insulator 2/0, 24-inch

Type (J, section insulator, 2/0. .

Giant strain insulator, 2-inch ..

Giant strain insulator 2i-inch

Brooklyn strain, J by 4 inches, galvanized . ..

Wood strain, H by 9 inches, galvanized
Pole brackets, 9 feet 1J inches, A

Pole brackets, 9fe«t 2 inches, A
Feeder wire insulator, 500,000 CM

100

107

131

180

217

2-JO

418 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

SCHEDULE A. — Overhead line material; average selling prices to electric rail-
ways.

Cata-
logue
No.

Description.

1914

1915

1016

1917

1918

6 months
1919.

50041

EG lightning arresters, 750 volts, direct cur-
rent

$350.00

$402. 50

$420.00

$443. 34

$476. CO

50089

CE-2 lightning arresters, 2,500 volts, altcr-

440 00

440.00

542. 50

589. 40

31006

Type K, round top hanger f -inch

36.00

37.00

47.65

66.81

^8.20

41162

Type K, round top hanger, J-inch

41.00

43.00

64.02

78.14

85.00

30987

Type K, single curve with giant strain, gal-

41.50

42.00-

51.50

72.63

102.80

106.00

30989

Type K, double curve with giant strain, gal-

73.00

74.50

89.00

139.85

186.42

193.00

31051

Tvpe 0, cap and cone, f -inch

17.50

20.50

35.50

46.35

47.00

30995

26. 25

26.25

31.50

55.61

72.77

75.00

31169

Bronze ear3 15-inch, 2/0

28.25

34.10

47.25

51.38

55.96

52.00

31171

33. 50

40.90

57.75

64.48

67.71

62.00

31173

Bronze ears, 12-inch 2/0

25. 50

30. 25

41.25

46.18

50.00

46.00

31175

28 25

34.25

47.50

53.50

58.33

53. 95

31097
3107
41425
31219

Malleable iron clamps, 5-inch, galvanized —
Malleable iron clamps, 7-inch, galvanized
Malleable iron clamps, 9-inch, galvanized
Copper sleeves, 2/0, 16-inch

9.00
13.75

16. 25

9.00
13.75
16.25
75.00

11.50
18.50
21.00
101.00

20.09
24.98
30.21
112.50

27.66
32.14
38.63
119.00

31.76
32.96
39.78
113.85

31225

Copper sleeves, 4/0, 16-inch

10R. 00

151. 60

204.00

227.50

246.90

239. 10

31237

Brass sleeves, 2/0, 16-inch

44. 25

65.00

88.50

101.46

104.17

99.00

31243

89 50

123 40

168 50

204.94

218. 75

207. 90

31274

Bronze frogs, 20°

230.00

305.00

300.54

470. 41

445. 50

31280

270 00

340 00

485.17

546 88

519 75

41586

Malleable iron frogs, 20°

185.00

190.00

240.00

324. 33

369. 79

351. 45

41600

Malleable iron frogs, 15°

210. 00

215 00

265 00

352 08

385.83

376 13

41634

Rigid R . A. bronze crossing

280.00

370.00

520.00

563.00

644.50

41550

Rigid R . A malleable iron crossing

240 00

205 00

277 50

335 00

352 75

31290
41619

Adjustable bronze crossing

335.00
215 00

335. 00
215 00

460.00
235 00

638.75
389 17

702. 50
464 17

693.00
497 29

31298

Type K section insulator 2/0, 2i-inch

565.00

630.00

886.08

944.17

891 00

31322

Type K section insulator, 2/0

395.00

570.00

742. 30

745.00

693.00

31333

Giant strain insulator 2-inch

24 00

27 50

42 14

54.30

55 70

31336

Giant strain insulator, 2i-inch

32.00

39.00

59.75

72.04

85.55

42104
31396

Brooklyn strain f by 4 inches, galvanized
Wood strain, 1 by 9 inches, galvanized

67.50
18 00

68.00
18 75

107. 40
32 38

135.42
41.56

143.08
42.63

31398
41858

Wood strain, 1J by 9 inches, galvanized
Pole brackets, 9 feet 1J inches, A

22.00
135.00

22.00
135 00

21.50
155 00

35.39

292 67

47.10
375 59

48.32
397 63

41862

Pole brackets, 9 feet 2 inches, A

155.00

195.00

365.25

466.63

494. 45

31403

Feeder wire insulator, 500 000

32.50

32 50

37 75

51 60

66.50

68 20

31406

Feeder wire insulator, 500,000

29.50

33.50

45.70

77.58

79.57

SCHEDULE B. — High tension transmission material; average selling prices to

electric railways.
(Prices of 1914 taken as 100 per cent).

Cata-
logue
No.

Description.

Per cent.

1«4

1915

1916

1917

1918

1919

360
315
3-3/4
42375
298
42394
42397
2335A

19420
46008

31644
31684
31769
31763
31449

Porcelain insulator, pin type, 66,000 volts
Porcelain insulator, pin type, 40,000 volts
Porcelain insulator, pin type, 23,000 volts
Porcelain insulator No. 3, pin type, 20,000 volts.
Porcelain insulator, pin type, 13,000 volts
Porcelain insulator No. 12, pin type, 8,000 volts
Porcelain insulator No. 44, pin type, 6,600 volts
Porcelain insulator suspension, 16,000 volts .
Cross-arm truss pin (Pat. 269), galvanized
Cross-arm truss pin (Pat. 269), japanned

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

100
100
100
100
100
100
92
100
100
100
100
100
123
119
100
91
135
136
136
153
122

122
112
148
185
109
130
113
127
129
120
111
100
167
191
133
86
205
215
234
265
199

182
183
244
272
166
190
165
201
187
198
137
132
167
208
150
111
245
260
269
309
240

252

266
328
363
211
228
194
262
203
219
151
150
194
224
198
145
256
274
286
328
254

263
295
328
263
211
231
194
262
203
219
151
150
200
225
204
150
240
256
265
306
238

Cross arm truss pin (Pat. 185)'. galvanized
Cross-arm truss pin (Pat. 185), japanned

Metal cross arm, 30 inches (Keystone triangle).
Metal cross arm, 36 Inches (Keystone triangle).
Wood cross arm, fir, 3i by 4} inches, cubic foot .
Wood cross arm, fir, 4 oy 5 inches

24-inch galvanized cross-arm braces

f x 12 inches galvanized bolts

| by 4^ inches galvanized carriage bolts

i by 4 niches galvanized lags

| by 12 inches"gal vanized eye bolts

Average percentages

100

110

152

201

237

236

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 419

SCHEDULE B. — High tension transmission material; average selling prices to

electric railirays.

Cata-
logue
No.

Description.

1014

1915

1916

1917

1918

1919

380

$224.00

$272.60

$408. 10

$563.75

$590.00

315

P. rc°lain insulator, pin type, 40,000 volts.

57.60

64.38

105.20

153.10

170.00

3-3/4

Porcelain insulator pin type 23 000 volts.

19.20

28.39

46.80

63.00

42375
298
42394
4i:i97
2335A

Porcelain insulator No. 3, pin type, 20,000 volts.
Porcelain insulator, pin type, 13,000 volts
Porcelain insulator No. 12, pin type, 8,000 volts.
Porce'ain insulat-r No. 44, pin type, 6,600 rolts.
Porcelain insulator, suspension, 16,000 volts —
Cross-arm truss pin (Pat. 269), galvanized
Cross-arm truss pin (Pat. 269), japanned

12.40
12.80
5.20
4.64
84.00
52.50
41.50

12.40
12.80
5.20
4.25
84.00
52.50
41.50

23.00
13.96
6.75
5.25
106.40
67.50
50.00

33.79
21.19
9.87
7.66
168.90
98.00
82.25

45.00
27.00
11.83
9.00
220.00
108.50
91.00

45.00
27.00
12.00
9.00
220.00
100.50
91.00

Cross-arm truss pin (Pat 185), galvanized....

36.50

40.50

50.17

55.00

Cross-arm truss pin (Pat. 185), japanned

32.00

31.50

42.17

48.00

19420
46008

Metal cross arm^SO-inch (keystone triangle). . .
Metal cross arm, 36-inch (Keystone triangle).. .
Wood cross arm, fir, 3} by 4J cubic feet

1.05
1.18
6.60

1.29
1.40
6.58

1.75
2.25
8.75

1.75
2.46
9.90

2.04
2.64
13.06

2.10
2.65
13.48

Wood cross arm, fir, 4 oy 5

12.33

11.28

10.63

13.64

17.88

18.47

31644

24-inch galvanized cross-arm braces

10.90

14.80

22.30

26.69

27.90

2P. 13

31C84

5.8 by 12 inch galvanized bolts. .'

5.14

6.97

11.05

13.25

14.10

13.18

317G9

f by 4 J inch galvanized carriage bolts

1.00

1.3G

2.34

2.69

2.86

2.65

3)783

j by 4 inch galvanized lags

1.52

2.33

4.03

4.69

4.98

4.65

314

| by 12 inch galvanized eye bolts

9.71

11.87

19.35

23.34

24.65

23.08

SCHEDULE C. — Copper rail bonds; relative average net selling prices during

years specified.

(Price of 1914 taken as 100 per cent.)

/ Standard sizes of rail bonds.

1914

1915

1916

1917

1918

6 months,
1919.

4/0 by 7/0 by 10 inches

$41.63

$45.88

$63.75

$70.00

$64.51

$59.13

4/0 by j by 12 inches

45.07

50. 75

69.02

76.73

69 95

64 02

4/0 biT | by 36 inches

83.03

93.50

127. 16

141.37

128.88

177.94

500M-CM~by 1 by 15 inches

104.06

117.19

159.38

177. 19

161.53

147.83

50014-CM by 1 by 20 inches

124. 32

140.00

190.40

211.68

192.98

176 CO

Percentages

100

112.6

153

170

155

142

(Price of 1914 taken as 100 per cent.)

1914

1915

1910

1917

1918

1919

Steel gear cases

100

105

126

211

238

239

Incandescent headlights

100

112

142

155

Tr nl lev c -ateliers

100

111

139

16S

200

Curtain signs

100

110

165

175

200

213

Light ing fixtures

100

110

115

120

fixture shades

100

104

121

132

166

Trolley poles

100

123

181

230

2«5

Trolley cordage

100

106

122

161

221

250

V are registers

100

106

126

139

Motor gears;
Westinghouse 101 sol., cast steel

100

106

119

206

224

Westinghouso 101 sol., forged steel .. ..

100

115

146

1SU

210

245

Motor pinions, 17 teeth, 5-inch face

100

116

167

244

200

208

Average percentages

100

105

127

168

194

Per cent.

420 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

SCHEDULE D. — Car equipment specialties; average selling prices to electric-
railways.

Item.

1914

1915

1916

1917

1918

1919

Steel gear cases

$11.40

$12.00

$14. 40

$24 00

$27 12

$27 20

Incandescent headlights

8.50

9.50

12.01

13 20

Trollev catchers

4.50

5 00

C 25

7 53

9 00

Curtain signs

10 00

11.00

16.50

17 50

20 00

21 25

Lighting fixtyres

1.25

1.38

1.44

1 50

3.80

3.95

4 CO

5 02

6 30

Trolley poles

1.03

1.27

1.86

2.37

2.73

Trolley cordage

.36

.38

• .44

.58

.795

.90

18.00

19.00

22.50

25.00

Motor gears:
Westinghouse 101 sol cast steel

14.90

15.75

17.80

30.75

33.40

Westinghouse 101 sol., forged s,teel

13.88

15.94

20.25

26.25

33.25

34.00

3.05

3.55

5.10

7.45

7.94

8.18

Mr. WARREN. Then, if I may, I should like to put in a similar state-
ment of Mr. James S. Thompson, who was here also, as a part of our
cost-of-material witnesses, who is vice president of the American
Brake Shoe & Foundry Co. It is accompanied with blue prints and
charts and relates principally to brake shoes and things of that sort.
I suppose I had better not take time to read that, but I will file that
also.

The CHAIRMAN. You may file it.

The statement is as follows :

My name is James S. Thompson ; I reside at Pelham, N. Y. ; I am a vice
president of the American Brake Shoe & Foundry Co., whose plants for the
manufacture of brake shoes and cast-iron products are at Norwood, Mass. ;
Buffalo, 'N. Y. ; Burnside, 111.; Chicago, 111.; Melrose Park, 111.; Cincinnati,
Ohio ; Mahwah, N. J. ; Baltimore, Md. ; Minneapolis, Minn. ; Chattanooga, Tenn. ;
South San Francisco, Calif. ; Los Angeles, Calif.

My connection with this company has covered a period of 17 years, during a
part of that time as assistant chief engineer in charge of service performance of
brake shoes used on steam and electric railways. For a considerable portion of
time I have had some supervision over sales, and for the last three years as
vice president in charge of engineering matters of all characters, particularly
those pertaining to the service of brake shoes used on the railroads. Through-
out the period of my connection with this company I have kept myself familiar
with the selling prices of our finished product and generally with the cost of
production.

The principal product of our company is brake shoes for electric railroads,
for which many types and patterns are used, and steam railroads, for which
the types and patterns are generally the same.

I have prepared and annexed hereto and made a part of this statement a
blue-print curve entitled "American Brake Shoe & Foundry Co. ; change in cost
of raw materials from 1912 expressed in per cent." This chart bears the identi-
fication mark No. 1, and shows, in effect, that I have taken the prices per net
or gross ton, as the case may be, as of July 1, 1912, as 100 per cent, the prices
at that time presenting within a slight variation the average costs during the
10 years preceding. The chart shows changes in percentages of cost from July
1, 1912, at yearly intervals to July 1, 1918. Percentages of costs are also shown
as of November 1, 1918, and monthly changes thereafter to and including July
1, 1919. The advances in per cent in the prices of these raw materials which
we have been obliged to purchase are correctly shown and set forth on said
blue print.

This chart shows generally that from July 1, 1912, to July, 1915, there had
been slight reductions in the costs of materials. From that date, however, up
to and including July 1, 1917, the costs increased rapidly, and the peak of all
raw material prices was reached upon that date or within a few months there-
after, at which time the Government established maximum prices for the mate-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 421

rials we use, and the chart therefore shows declines to the Government prices.
From the date of establishment of the Government prices in September and
October, 1917, until the signing of the armistice in November, 1918, the prices
remained the same or increased slightly, due to additional charges for trans-
portation and, in the instance of coke, to increase in the Government price.

After the signing of the armistice prices remained comparatively steady for
a brief period, excepting for scrap iron, and then declines occurred in all
materials until June of 1919, at which time the prices of scrap iron and coke
increased, so that on July 1, 1919, there had been an increase of 12 per cent
in scrap iron over the June 1 purchases and 10 per cent in coke. The chart
shows that the increases in the prices of raw materials on July 1, 1919, over
those of July 1, 1912, were as follows :

Per cent.

Steel plate 136

Pig iron 108

Scrap iron 86

Coke 84

It may be added that since July 1, 1919, until this date, July 18, there has
been further increase in the price of scrap iron, amounting to about 7 per cent,
and it is expected that additional advances in steel plate, pig iron, scrap iron,
and coke are imminent.

I have prepared and annexed hereto and made a part of this statement
a blue-print curve entitled "American Brake Shoe & Foundry Co., average daily
wage expressed in per cent from July 1, 1919." This chart bears the identifica-
tion mark No. 2. The percentages as shown upon said blue print are correct
and in accordance with the books of our corporation. This shows in effect
that I have taken the labor cost as of July 1, 1916, as 100 per cent, the rate at
that time representing, with slight variation, the average covering the 10 years
preceding. This curve shows a constantly increasing scale, the most rapid
increase occurring from July 1, 1918, to January, 1919, during which period the
increase was 41 per cent. It will be noted from the chart that from July 1,
1916, to April 1, 1919, the daily wage scale increased 106 per cent.

For many years preceding July 1, 1915, the cost per ton of materials enter-
ing into the manufacture of our product, together with, the labor costs, re-
mained practically uniform, and there had been no advance in the selling prices
to the electric railroads. However, the selling prices were increased from
July 1, 1915, from time to time, until a maximum increase of 108 per cent
had been reached. The present selling prices are 83 per cent in excess of those
of July 1, 1915.

The company with which I am connected are not producers of the raw ma-
terials used in the manufacture of brakeshoes. These materials are secured
by purchase, and in reaching a conclusion relative to the costs of materials in
the immediate future it may be well to state that such materials are the prod-
uct, in a great measure, of accumulated labor, and we do not see the possibility
of a reduction in the cost of material and, consequently, the selling prices of
our product, unless there is a decrease in the labor rates.

Mr. WARREN. There is one other statement of a witness, Mr. Ren-
shaw? an engineer who was with the Fuel Administration during its
activities and took great interest and did a great deal to introduce
various economies in connection with the conservation of fuel, such
as the skip-stop and matters of that sort. He was here all day Fri-
day and I think Thursday, also, but could not be here this week; and
he had prepared a statement from which he was going to testify,
which is at our office, and I should like to file that, if I may, as soon
as it comes down.

The CHAIRMAN. May his statement and the other two which you
have just filed be subject to the provision that if the commission at
any tune desires to cross-examine these witnesses with reference to
any matters in those statements, they may be called ?

lilr. WARREN. Yes ; exactly. I should like also to put in, if I may,
a communication from the actuary of the Association of Life Insur-

422 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

ance Presidents, which is a rather short one, and I will read it. It
relates merely to the distribution of securities as regards the life
insurance companies. It is addressed to the statistician of the asso-
ciation, dated July 16:

Responsive to your inquiry of recent date regarding the investments of life-
insurance companies of the United States in electric-railway bonds and stocks,
we are very glad to give you the following information, which you are at liberty
to use in any way which you may deem wise:

The investments of 26 life insurance companies in electric-railway bonds and
stocks — these 26 companies representing every company in this country having
$500,000 or more invested in public utilities— amount in bonds to $109,624,550.77
and in stocks to $6,968,120.17. This large investment represents policyholders'
money held in trust and is the property of individual policyholders, numbering
over 34,000,000, scattered all over the United States. With this in view, it
would seem wise to emphasize, particularly, that it is to the individuals' interest
to have such investments protected, as any depreciation in these funds, due to a
decrease in the value of such investments, reverts at once, in a detrimental
way, to the interest of each individual.

1 have asked your office in New York to convey this information to you by
wire, and this letter is to confirm my telephone message. If we can be of
service in preparing additional facts to present before committees, we shall
be only too glad to place our facilities at your disposal.
Yours, very truly,

GEORGE W. SMITH, Actuary.

The CHAIRMAN. Is there evidence within your possession which
shows the amount of stocks and bonds of these utilities that is in -the
possession of life-insurance companies?

Mr. WARREN. Nothing other than that. That covers 26 companies —
it covers all the companies^ Mr. Smith says, holding severally more
than $500,000 of the securities, and the total which he gives is
one hundred and nine million and odd dollars for bonds and nearly
$7,000,000 of stocks.

The CHAIRMAN. Would it not be well to develop for the record
some evidence to show where utilities must go for money to use for
new construction or for the refunding of bonds and things of that
kind? Now, my thought is that it might be shown that a street-
car company is something other than esesntially a local institution.
Where it needs money perhaps it can not secure it in its own locality ;
thus it may have to go to the market centers for that money. When
it presents its application to the bankers or others, it must be able
to establish its credit, and that credit can only be established by
showing that the business is upon a sound basis. I think it would be
well if you could develop something along those lines.

Mr. WARREN. Yes ; we will endeavor to do that, Mr. Chairman. I
expect to-day to introduce witnesses chiefly on the subject of cost of
service, but before I do that I should like to call one witness, Mr.
Lucius S. Storrs, president of the Connecticut Co., which operates a
very large portion of all the street-railway mileage in the State of
Connecticut.

Mr. Storrs, will you take the stand ?

STATEMENT OF MR. LUCIUS S. STORES.

Mr. WARREN. Your full name.
Mr. STORRS. Lucius S. Storrs.

Mr. WARREN. I have already stated that you are the president of
the Connecticut Co.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 423

Mr. STORKS. President of the Connecticut Co.

Mr. WARREN. And have been president for how long?

Mr. STORKS. Nine years.

Mr. WARREN. And I think you are an engineer by profession?

Mr. STORRS. Yes, sir.

The CHAIRMAN. Where does that company operate?

Mr. WARREN. In the State of Connecticut, almost exclusively, does
it not?

Mr. STORRS. Yes; exclusively and entirely within the State of
Connecticut.

Mr. WARREN. You also, I think, are vice president and in charge
and control of the Berkshire Street Railway Co. ?

Mr. STORKS. Yes.

Mr. WARREN. Which operates in the western part of Massachu-
setts?

Mr. STORRS, In the western part of Massachusetts and southwest-
ern Vermont, and over the line into New York.

Mr. WARREN. So it crosses the western end of Massachusetts and
goes through a corner of Vermont into New York ?

Mr. STORRS. The total mileage I can give you in detail if you
wish.

Mr. WARREN. Yes.

Mr. STORRS. The Connecticut Co. operates 696 miles of electric-
railway trackage in Connecticut and the Berkshire Street Railway
164 miles of electric-railway trackage in the States of Massachusetts,
Vermont, and New York.

Mr. WARREN. You have given special attention among other sub-
jects relating to the operation of street railways to the effect of the
automobile business, have you not?

Mr. STORRS. Yes, sir.

Mr. WARREN. And the jitney competition?

Mr. STORRS. Yes, sir.

Mr. WARREN. And you have encountered a good deal of jitney
competition to vour lines at various points in Connecticut ?

Mr. STORRS. Yes; very largely throughout Connecticut.

Mr. WARREN. Are you prepared to go on without my questioning
you and describe to the commission what you have found about the
jitney and automobile, the effect of each upon the street railways
and statistics relating thereto?

Mr. STORRS. I am. I have some statistics here as well as a general
statement in connection with it, and if I may be allowed I will pre-
sent it in that way, if Mr. Warren wishes.

Mr. WARREN. Yes.

Mr. STORRS. In order to carry the statistics through, if I may, I
will sketch it over. The rapid development of the automobile busi-
ness has had a tremendous effect upon the earnings of electric rail-
roads throughout the country; that, attendant with the very great
development of the perfected highway and the permanent paving
of city streets.

I have a tabulation here prepared as the most detailed study of tho
automobile which has been prepared in any Commonwealth, which
is that of the Special Commission on Motor Vehicles of the Com-

424 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

monwealth of Massachusetts, and as it is rather a lengthy table I
will merely sketch a few of the heads.

Beginning in 1903, at the time they began to register the auto-
mobile under the present act there was a total of 3,241 automobiles
registered within the Commonwealth of Massachusetts. Fifteen
years later, in 1918, there were 160,000 pleasure automobiles, private
cars and with motor trucks and motorcycles sufficient to bring that
total up to 193,000. That is, in 15 years, from 3,200 to 193,497. Dur-
ing that period the history of the electric railroads in Massachusetts
is one of rapidly approaching insolvency. Two hundred and fifteen
miles of electric-railroad tracks within that State have been aban-
doned. The fares in the city of Boston have been raised to 10 cents
with an attendant deficit to be met from the State treasury under
their plan of operation of over $2,000,000, and throughout the State
the fares have been gradually increased, but with the rapid increase
in the cost of producing transportation they have not been able to
make the income and the outgo quite equal.

Report of Special Commission on Motor Vehicles in Massachusetts.

Year.

Auto-
mobiles.

Trucks.

Total
auto-
mobiles
and
trucks.

Motor
cycles.

1903

3,241

502

1904

3,772

489

1^05

4,889

533

1906

6,572

665

1907

7,733

832

1938

18,066

1 922

1909

23,971

2,394

1910 .

31,360

31 360

3 358

1911

38,907

;1S <)07

3 C58

1912

50, 132

50 132

5 034

1913

62,660

7.127

1914

77,246

8,161

19151 .

90,580

12, 053

102 633

9 520

1916

118,615

18,194

136, 809

10 713

1917

147, 310

26,964

174 275

11 065

1918

160, 486

33,011

193, 497

12 862

i This is the first year trucks were registered separately from pleasure cars.

As far as the United States is concerned, a tabulation has been
prepared through the Census Department and others for the last
four years for which the accurate figures are available, showing the
motor-vehicle registration in every State in the Union. In 1914 there
were a total of passenger cars and commercial cars, the passenger cars
being very greatly preponderant, of 1,711,000. On the basis of the
then population, that was 1 car for every 64 people, or assuming
4 members to a family, 1 car for every 19 families. In 1918, these
figures had reached a maximum of 6,140,000 automobiles or 1 for
every 19 of the then population, or 1 for every 5 families.

Now, during the first six months of .1919 the records which we have
been able to obtain in but few States show there is an alarming
further increase in the use of the automobile.

• PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 425
Total number of vehicles in the United States.

Passenger
cars.

Com-
mercial
cars.

Total
motor
vehicles.

Population.

Number
of
persons
per
pleasure
car.

Number
of
families
p2r
pleasure
car.

Dec. 31, 1914

1,574,431

130, 907

1,711,338

98,781 324

Dec. 31, 1915
Dec. 31, 1910

2,240,229
3, 243, 031

205,435
301,321

2,445,6(54
3, 544, 952

100,399,318
102,017,312

Dec. 31, 1917

4,643,481

442,478

5,085,959

163,635,300

Dec. 1, 1918

5,352,350

593,092

5,945,442

105,253,300

Dec. 31, 1918

6,146,617

Remarks: Figures based on separate registrations of commercial cars in 10 States and estimates of number
of commercial cars by secretaries of state in 5 States.

It is interesting to note that during that period the amount avail-
able for city paving and highway betterment throughout the country
reached in 1917-18 a gross of $255,000,000, or an appropriation from
the taxpayers toward highway betterment for the benefit of the auto-
mobile users of slightly under $2 per capita of the population. The
only study that has been made that I know of of the electric-railway
situation is that in Massachusetts, in which an attempt was made to
show the amount of tax which would have to be assessed against the
population of the various communities in order to keep the electric
railways of the State as a whole solvent, which brought about the
figures of a tax ranging from $2 per capita in the small villages to
slightly under $1 per capita in the larger cities.

Of the amount of contribution to the paving program and the
betterment program of the streets throughout the country, so far as
we can differentiate that impost from general imposts made upon
the electric railwaj's, it would indicate an appropriation in the neigh-
borhood of $16.000,000 per year required of the electric railways to
conform to the requirements of the communities in the State in the
street and road betterment program — all that, of course, in the ulti-
mate analysis being a tax upon the car rider for the benefit of the
more fortunate member of the community who has an automobile.
At the present time the automoble industry, in its efforts to expand
the use of the cheaper car, has adopted as a slogan for future pub-
licity, " The world owes you a car," with the idea of developing with
that as a slogan a certain amount of unrest and dissatisfaction in the
mind of the individual who does not already own an automobile.

In parts of the Commonwealth of Massachusetts, and doubtless it
is true in other parts of the United States, while electric lines were
built through strictly summer-resort territory, such as the Berkshire
Hills, which has been a very popular summer trip, some years ago
the tourists came in and spent a week or a month in some favorite
inn with an accasional trolley trip through the hills. Xow the tourist
comes in in his automobile, and depending upon his standing, a very
elaborate one or a very simple one, stays a day or two and passes on
to some other part of the country. That has had a most disastrous
effect upon the revenue of the electric lines in the territory, necessi-
tating a very material decrease in the service rendered — that decrease

100043°— 20 28

426 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

now running as high as two-thirds— that is, one-third of the service
which was originally rendered on those lines which are still in opera-
tion only is given. Some lines were abandoned, some of them entirely
junked, the tracks torn up and the wires torn down, and on other
lines the service discontinued entirely, and on other lines a measure
of local relief or aid given to the corporation for continued service
of one or two cars to serve the little village and the small communi-
ties around.

With the cheap automobile and the even cheaper second-hand
car there has sprung up a measure of competition with the electric
railroad which, when not recognized as competition, has been very
serious upon the revenues of the transportation utility. That is the
jitney. And there is the development of the small second-hand and
jitney-bus automobile carrying 20 passengers. In those communities
where the essential need of transportation has been thoroughly recog-
nized and the responsibility of the transportation utility to the com-
munity expressed in form of statute — that is, the requiring of the
jitney bus a regularity of service during all periods of the day, a
certainty of service over particular routes, a responsibility in case
of accident hazard, and also a measure of tax to compensate for the
pavement and other facilities offered by the city — that has placed
that competitor upon what might be considered a legitimate basis.

In other communities, however, as yet there has been no regulation
•which has been effective .from the standpoint of the community in
giving essential means of .service, and in those parts of the country
the jitney operates in casual service over certain routes or as far as
the individual may have passengers, turning back into the center
and picking up another load, and if by any chance a number of
people are waiting to go into other portions of the city, going on
other routes. They are irresponsible, the title to the car remaining
frequently in the hands of the manufacturer or in the name of the
wife of .the driver ; and the .only property which can be attached
from .the standpoint of those who might be injured by accident
being that of the deteriorated automobile, of little or no value.

I have some interesting statistics in connection with that. New
Jersey is one of the States in which the laws have not been effective
from the regulatory standpoint. I am speaking now always from
the standpoint of the regulations required by the community itself
to give a measure of service which might be of value. There the in-
crease in competition has been directly attendant upon an effort of
the electric-railway utility -to obtain increases in revenue through
changes in its rates of fare. From a total of 120 jitneys operating
in 1914, carrying a total of 1,000,000 passengers, to August, 1918, a
total of 232 jitneys and carrying a total of 1,400,000 — that is. the in-
crease under the straight rate of fare, without any increase on the
part of the electric railway — to an increase of 601 cars immediately
after the increase of 1 cent for a transfer, to the period of a 7-cent
fare and 1 cent for transfer, a total of 1,040 cars with estimated
earnings as estimated from the returns of the jitneys for tax pur-
poses of over $3,000,000 a year; and all of that entirely irresponsible
and a service which would not meet the requirements of the com-

PROCEEDINGS OF FEI>ERAL ELECTRIC RAILWAYS COMMISSION. .427

munity by any stretch of the imagination, were it not for the excel-
lent service given by these public utilities.

Connecticut also lias no effective jitney regulation; in fact, no
statute at all up until very recently from which any basis of regula-
tion might be determined. A very careful analysis of the service
in the city of Bridgeport, which is more largely overrun with that
type of competition than any other, shows that jitney routes par-
allel practically all of the city streets on which service by the utility
is rendered, those jitneys running from a terminal convenient to
their service 1 mile to 2 miles from the city center, into the city cen-
ter and returning, one fare in, but not across the city center, a short-
line car with occasional cars running from a short distance out from
the center on one side to a short distance out from the center on
the other side, 50 per cent of the total passengers riding 011 electric
railroads and jitneys carried by the jitnej'S within the area of 1J
miles of the center of the city ; a total of 68 per cent carried by the
jitneys within If miles; that is, including the 1£ miles; 44 per cent
of the total passengers riding within the area of 2 miles, showing
the rapid decrease in jitney business beyond the If to 2^ miles, and
on only 56 per cent of the total of the entire city area did the electric
railway have the opportunity of giving a service similar to the
jitney service.

There is no question but that the electric railway could not
compete with its competitor, could not produce a satisfactoiy service,
if the jitney service is by any means at all satisfactory, and it must
be if they carry such large numbers, to make a very handsome profit,
and because the jitney is confined solely to the area of short riders
in the densely settled portion of the community. The electric-rail-
way service, on the other hand, extends miles beyond the densely
M-ttlcd portion of the community into the rural districts, the coun-
try di.-tricts, the nonreveiuie-producing area, that area in which, by
the very enthusiasm and supreme optimism of the original promoters
of the electric railroad, these lines were pushed from the city center,
by reason of the fact that an electric car could run so much more
rapidly than a horse-car.

Mr. WARBEN. I did not catch the per cents you gave the jitneys
in the whole city area.

Mr. STOKKS. Fifty-six. That takes in, by the way, an area of
44 mUes in radius from the center of the city, over two-thirds of
the total business being done within an area of 2 miles from the
« i'y renter and 50 per cent, only half "of it, being done in the area
of \ mile-. leaving to the transportation utility the unprofitable
long-haul business and taking the only profitable business there is
in the community.

That is occasioned very largely by reason of the very narrow
New England streets, congested to such an extent that it tak'cs a
very great length of time for even the most rapidly moving electric
car to pass through the city business area.

428 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Comparison of number of passengers carried &y street railway and jitneys,
classified by length of ride.

In both directions.

On the
railway.

On the

jitney.

Total.

Per cent
taking
jitney.

Riding within 1J miles radius of center of pitv

5 432 947

5 561 451

10 994 398

50 5S

Riding more than 1J miles, but less than 2 miles from
center of city

4,805 761

10 620 347

15 426 10S

68 85

Riding more than 2 miles but less than 2J miles from
center of city . . .

3,395 431

2 758 041

6 153,472

44.82

Riding more than 2J miles but less than 3J miles from
center of city . .

239 724

239, 724

Riding more than 3J miles but less than 4i miles from
center of city

860,048

880, 048

Total

14,733,911

18, 939, 839

33,673,750

56,245

The matter of the jitney and general electric-railway conditions
was studied in the State of Connecticut by a commission appointed
last winter — a commission made up by members of the legislature
and also representatives appointed by the governor, and they summed
up their consideration of the jitney competition, I think, in a very
admirable way, and I would like to quote from that :

Originally the street-railway companies obtained a franchise and charter
granting them exclusive transportation rights over certain specified lines,
and in consideration of such exclusive rights they were and are called upon to
pay an annual tax to the State of 4} per cent on their gross revenue.

That is, that happens to be the State law in Connecticut.

Instead of being protected in the holding of a privilege which was practically
a monopoly, changed conditions have developed a new type of transportation
service along the highways over which the trolleys run which has resulted in-
serious inroads in their revenues. There seems to be no question of the right
of this new and needed supplement to the trolley service to serve the public.
The commission believes, however, that this jitney service should be governed
and regulated and be subject to the same control as is placed over other classes
of common carriers, and it believes that the patrons and the public should be
guaranteed redress for loss of life or personal injury in the same degree and
manner that other common carriers are required to provide. We believe that
the jitneys should be regulated as to schedules, routes, and rates in the same
manner as the street-railway companies.

It is useless to assume that the jitney can by any manner of means;
take over the transportation within the city area. It seems to me
that the best answer to that is a very careful study which we have
made of the possibility of something of that kind in connection with
one of the large cities, a congested type of old New England street,
with a population of 180,000. It would be necessary for jitney buses
of a capacity of 20 passengers, loaded to full capacity, to come into
the central business loading zone, and as in the case of all the New
England type of city and a great many other cities throughout the
country, business originates or centers around the central green or
square or business area of but relatively a few blocks — it v\oiild be
necessary, as I say, for 6| of such type of buses to enter and leave
the central business loading zone loaded to the full capacity every
minute during the rush hours each day ; that is, for a period of some-
thing like 6 hours, morning and night rush hours, an absolutely im-
possible condition imposed upon city streets, together with the use of
the privately owned automobile and the truck and pedestrian and,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 42 9»

whatever other vehicular or other traffic there might be through tlio
city area.

The development of the motor truck has also had a serious effect
upon the revenues of the electric lines. That is now becoming more
and more apparent as we see makeshift seats placed upon the motor
trucks or trucks loaded to full carrying capacity in space, if not in
tonnage, of those bound out for picnics or to other places of resort.

A case in point that will be of interest is this: Some time ago
in one of the New England cities there sprung up unexpectedly
to the transportation utility a very large business in shore bathing
by the foreign element entirely — Russian Jews, Lithuanians, Italians,,
and Greeks — which required an immediate increase of transportation
during the hotter summer days, and especially Saturdays and Sun-
days, of some 20 to 30 extra cars of full carrying capacity — that is, a
carrying capacity of 75 to 100 passengers, dependng upon the num-
ber that might stand. That ran over a period of three or four years,,
arid as there was a great deal of difficulty to get the fares from all
the mothers of the small foreigners — they would not all of them ac-
knowledge the individual children — the traction utility put in a pre-
payment inclosure through which they all had to pass and pay their
fare going in. That was very effective in getting the electric-rail-
road fares, but, unfortunately, the fathers in a great many cases
were vegetable vendors, or ice vendors, or something of that kind,
and they all of them use their motor trucks, which were normally
used for their business, by putting in extra seats and taking down
all these hordes of people to the shore, with the result to-day that,
there is no demand whatever for transportation by the utility.

Commissioner SWEET. Are you speaking now of Bridgeport?

Mr. STORKS. No; I am not speaking of Bridgeport at the present
time. I am speaking of Xew Haven, sir.

One of the very profitable by-products of the electric-railway
business has been the carriage of goods in small packages or in larger
quantities. That has been developed very largely through our com-
munities, and the total revenue is relatively small — about 8 per cent
of the total coming from the carriage of goods of various kinds —
but with the excellence of the highways throughout New England
the motor truck bids fair to absorb almost entirely, or very largely,
the short-haul high-rate express business — that which is the most.
profitable.

Commissioner WEHLE. That affects your interurban lines?

Mr. STORKS. Entirely; yes, sir.

Commissioner WEHLE. But what per cent, speaking in terms of'
percentage, has the package service of the interurban increased in(
the past five years in your district?

Mr. STORKS. It has decreased in the last — well, I want to put that
with a qualification.

Commissioner WEHLE. Yes?

Mr. STORKS. In the last three years it has decreased by reason of
the motor-truck competition.

Commissioner WEIILE. It does not show any increase then in the
past five years?

Mr. STORKS. I think it would in the last five years. I would want
to qualify that, but I think that in three years it has shown a de-
crease.

430 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner WEHLE. Do you have through billing arrangements
on less than carload shipments through New England?

Mr. STORKS. Not outsiole of the State of Connecticut. We have
those billing arrangements there.

Commissioner WEHLE. You do an interline billing in the State
of Connecticut, but not in the other States?

Mr. STORKS. We control about 85 per cent of the total mileage in
the State of Connecticut. We do have interline billing though,
however.

Commissioner WEHLE. A shipper can not effect interline billing
from a point in Connecticut to a point, say, in New York or Massa-
chusetts ?

Mr. STORRS. There has been no demand for that type of service.
That has been very carefully watched, but there has been no demand
for it; and when occasion arises, if there are individual shipments
and that occasion arises that convenience is afforded, particularly
during the congestion of war-time transportation.

Commissioner WEHLE. But there has been no attempt, has there,
on the part of any urban electric company in Connecticut to carry
packages within the city?

Mr. STORKS. Oh, yes.

Commissioner WEHLE. From one point within the city to another
point within the same city?

Mr. STORKS. Well, we have various express terminals within the
city. We do have a measure of carrying packages by tickets on the
passenger cars themselves which is availed of to a certain extent,
although none of that is within the city areas. There has been no
attempt on the part of the public to avail themselves of the service
which can be rendered, except occasionally as between two industries
where there is a large shipment, we have a great deal of that in-
dustrial movement.

Commissioner WEHLE. Has there ever been any test of any fran-
chise in Connecticut with reference to the authority or power of a
street-railway company to carry packages within the limits of a
city?

Mr. STORKS. No serious attempt. There has been some question as
to that.

Commissioner WEHLE. The exercise of that right has never been
resisted by anybody?

Mr. STORRS. No. Well, some years ago there was; it was not a
serious resistance, but there was a little objection to it.

Commissioner WEHLE. When the passenger himself carries the
package did I understand you to say that the regulations of the
company provide that an additional compensation be paid the car-
riers ?

Mr. STORRS. No; that was in case a package is sent from — well,
particularly from some drug store to some home ; it can be sent that
way on a trolley car -by a tag; that is put on it. When the passenger
carries his own package it is carried free.

Commissioner WEHLE. Take some city. New Haven, for instance.
On what basis do you render that service ?

Mr. STORKS. By .a tag — an express tag which is put on the pack-
age, and the package is taken on the car and delivered to the motor-
man and he in turn delivers it to whoever calls for it at the other end.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 431

We do not make any deliver}-, of course, in a case of that kind ex-
cept from the individual to the car crew and back.

Commissioner WEHLE. What is the compensation that the com-
pany receives for that service?

Mr. STORKS. I am trying to refresh my mind, as we have made
some changes in those things. There is a minimum of 25 cents.

Commissioner WEHLE. Does it amount to anything at all in reve-
nue?

Mr. STORRS. Very little; not enough to notice.

Commissioner WEHLE. These companies carry newspapers for dis-
tribution ; do they not ?

Mr. STORRS. Yes.

Commissioner WEHLE. To distributing points within the city?

Mr. STORRS. Yes.

Commissioner WEHLE. Does that amount to anything in revenue,
say, in New Haven?

Mr. STORRS. Very immaterial. I will be very glad to give you
those in detail. I would rather have them that way than give them
from recollection. I will be very glad to supply that information.

Commissioner WEHLE. Mr. Chairman, would you suggest that the
witness put that in the record — his revenue from the carriage of
papers?

Mr. STORRS. I can easily get our statistical office to draw that up in
detail and send it down for filing in the record.

The CHAIRMAN. You can file with us a statement showing the
gross revenue secured from the handling of the mail and express and
freight and at the same time your passenger revenue.

Mr. STORRS. We have no mail.

The CHAIRMAN. You have no mail?

Mr. STORRS. Xo. The compensation given by the Post Office De-
partment was so immaterial that we declined to carry the mail any
further some years ago.

The CHAIRMAN. Will you file a statement showing your gross
revenue divided into the different classes?

Mr. STORRS. I will be very glad to do that.

Mr. WARREN. I can give you those figures for Massachusetts, Mr.
Wehle, I think — for the whole State, if you care to hear them.

Commissioner WEHLE. I. think it would be very interesting.

Mr. WARREN. The passenger revenue (this was for the last year —
J have .not filed this yet, but I mean to) — this is a certified compila-
tion of the figures for all Massachusetts, which I got from our pub-
lic-service commission before coming down here. The passenger
revenue was forty-three million ninety-two thousand odd dollars
for the year; special-car revenue, seventy-five thousand odd dollars;
mail revenue, $41,852; express and baggage revenue, $175,025; milk
revenue, $15,437; freight revenue, $1,072,320; miscellaneous trans-
portation revenue, $20,811. So from all of those sources the revenue
was increased from ^3,092.000 to $44,493,000, or about $1,400,000.

In your investigation of the automobile and jitney question, did
you find any States or localities where either the privately owned au-
tomobile or the jitney paid any tax for the use of the highway other
.than such registration fee as might be required under the laws?

Mr. STORRS. I believe there are some States in which a gross reve-
nue tax is fixed also.

432 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Is that true in Connecticut?

Mr. STORKS. It is not true in Connecticut.

Mr. WARREN. And not in Massachusetts?

Mr. STORRS. No ; not in New England at all.

Mr. WARREN. You spoke of a Massachusetts investigation of the
amount necessary to maintain the electric railwa}~s generally on a
solvent basis as regards income and outgo. I think you spoke of
$2 per capita of population : was is not $2 per thousand of valuation ?

Mr. STORRS. Yes; I meant to correct that later on. Instead of
being a per capita tax it was $1,000 of assessed valuation.

Mr. WARREN. And that was in this special report of the public-
service commission this last year?

Mr. STORRS. Yes. I assume that report will be at your service
anyway.

Commissioner MEEKER. Could you put those figures on a com-
parable basis ? The figures regarding the tax necessary to keep up
the highways is on a per capita basis, and it would be more useful for
me if you had the other figures on the same basis.

Mr. STORRS. I can easily do that. We could easily determine from
these figures that amount. The statistician could easily determine it
and file it here as a part of the record.

Mr. WARREN. I do not think it would vary very much as between
the per capita and per $1,000 of valuation.

Mr. STORRS. No.

Mr. WARREN. I notice the assessed value of the Berkshire County
district is $104,000,000 ; and I think the population is about 8,000, is
it not ?

Mr. STORRS. Yes. There \vould be very little difference, as I have
it in mind at the time, but it can be easily done.

Mr. WARREN. There was testimony last week — I do not think you
were here last week

Mr. STORRS. No.

Mr. WARREN. From various street-railway representatives to the
effect that increasing the rates produced a substantial increase in
revenue, as bearing on the point whether it was possible to get in-
creased revenue by increase in rates. Have you had experience in
increasing rates on any of your lines?

Mr. STORRS. I have. In Connecticut we are on a 6-cent basis, hav-
ing been taking 6 cents since October, 1917. The first 12-month
period after that was the time during which we were in the war,
and all industries throughout Connecticut were most intensely en-
gaged in the production of the essentials of war. With the taking
out of the population the younger men for serious Avar duties on
this side and also abroad and also the young women for loyal work
who did not need the income, to relieve men for other more serious
places in the industries and offices, the result was a very great drop-
ping off in the use of the electric-railway car. The additional carry-
ing of operatives to and from the plants in which they \vere engaged
did not nearly compensate for the loss of riding during the normal
hours of the day and during the pleasure-riding hours of the day,
the evening. The result was that for the first year after the instal-
lation of the 6-cent fare our revenue was practically identical, that
is, there was an increase of 0.9 of 1 per cent in the gross revenue.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 433

That could not, of course, be entirely attributed to the increase in
the rate of fare, and it would be* impossible to determine what por-
tion of that loss in passenger riding should be attributed to the in-
crease of rate of fare.

Mr. WARREX. What period was that?

Mr. STORRS. October 1, 1917, to October 1, 1918.

Mr. WARREX. Do you happen to know from the returns of other
companies in Xew England which were operating at the old rates
during that same period whether or not there was a large loss of
traffic on those companies?

. Mr. STORRS. I will amplify that a little bit in connection with the
Connecticut Co. We made a very careful survey of that and came
to the definite conclusion that we had lost 10 per cent of the in-
crease; that is, that the increase from 5 to 6 cents resulted in a
decrease of 10 per cent in revenue; that, had we remained on the
5- cent basis during those serious days of 1917 and 1918, we would
have lost 10 per cent of our revenue. And we were borne out by
some of the records of other electric railways who, during that
time, went from 5 to 6 cents, practically a 10 per cent increase
in the rate of fare.

The most effective increase is a decrease in the service offered,
effective in the increase of gross revenue, decreasing the area for
which the 5-cent coin will buy transportation.

Mr. WARREX. How has the increase operated since the termina-
tion of the war?

Mr. STORRS. With the reversion to more normal conditions through-
out New England and throughout those dense industrial communi-
ties, there has been, of course, a very great increase in revenue ; that
is, a comparatively great increase, not large enough to offset the
increase in cost of operation, but an increase over the 1918 figures,
which is readily to be seen. People are bock to a more normal basis
and the relief from the strain of war-time conditions has brought
back a desire for pleasure riding in the off-peak hours of the day
and during the evening.

The CHAIRMAX. Have you the per cent of increase?

Mr. STORRS. It would run — starting about April, it has been run-
ning at an average of 14 per cent since Aoril, mid-April that was,
Mr. Chairman.

Mr. WARREN. So, from your experience, have you any doubt
about the efficacy of rates to produce an increase in revenue?

Mr. STORRS. I have a very grave doubt as to any ability on the-
part of the utility to estimate within any kind of reason what the
result of an increase in rate might be upon the gross revenue. And,
of course, there is a point with the increase above 6 cents at which
you will have a declining gross revenue. An increase to 7, 8, or
10 cents would result in a declining gross.

Mr. WARREN. On some lines.

Mr. STORRS. On some lines, at least. There is a very great un-
certainty.

Mr. WARREN. Now, have you made an investigation and are you
prepared to express to the commission some views on the effect of
extension of lines and complying with various requests of tho
communities for additional service?

434 PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION.

Mr. STORKS. Yes.

Mr. WARREN. Can you go on with that, without my questioning
you '£

Mr. STORKS. In this case it is rather hard to treat it in a broad
way, and I may divert occasionally to the particular instance.

In the early days of the electric-railway industry the optimism
of the promoter and the willingness of the investor ito be convinced
led to a very great expansion, primarily due. to the fact that the
electric service could be performed at so much greater speed than
the old horse-car service. The electric car could cover in 15 minutes
:practically three times the distance that the liorse-car could. Aiter
it was considered desirable to develop this speed to the maximum
of lines to be served, the lines were extended out to the outlying
edges of the cities and towns and even out in the rural and suburban
.communities — all of it to the advantage to the communities served
and the patrons of the line — and it was always at a fixed rate of
fare, during the horse-car days — a 6 and 7-cent fare, possibly, ulti-
mately reverting to the standard -nickel.

One little line of New England of interest in a small village was
a stage running from the railroad station up into the village, as so
many of these villages were founded away back from what was ulti-
mately the line of transportation, or on the line of transportation of
those days, the stage; and when the steam railroads came through
the lines of transportation changed. The stage was operating from
this small station to the little rural community, an attractive little
New .England village. Some mill owner who had made a lot of
;money up there perhaps thought it would be a good idea to put a
;horse-car line, and he put in a horse-car line 2^ miles long.

It was very profitable and ran along. The car ran on rails instead
.of the stage on the road. .It was a typical old corduroy road. If
a man had a house a little bit beyond the center of the town, distant
from the railroad station, he thought it would be a good idea to ex-
tend it out there, and he extended it out there. A mile or two beyond
that was a cemetery and lots of people wanted to go out to the ceme-
tery, and they extended it out there. A little beyond that was a
waterworks plant, and ultimately they extended it out there because
a few people worked out there and they wanted to ride. In the mean-
time, it had been developed from the horse-car to ;the trolley car.
iThere was a beautiful hill a little farther away W7ith a lot of chest-
nut trees on the side, and a lot of people wanted to go out there;
and so they built a line out there to accommodate the people who
wanted to go out to gather the chestnuts. We became responsible for
that line.

The CHAIRMAN. Were these extensions voluntary?

Mr. STORRS. Some of them were at the request of the community
and some of them were voluntary. Most of them were at the urgent
request of the community. I am not sure but what the chairman of
the board of selectmen had some interest in the chestnut grove and
wanted to get the people out there to see it.

The result has been that during the last year that line with only
:One car, a single-truck car, took in $2,000, and it cost $8,000 to oper-
ate the car, that is, out-of-pocket cost ; I do not mean to say the de-
.preciation and fixed charges, but the actual dollars of outgo to pay
for the construction and the maintenance, to maintain that indi-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 435

vidual car, together with the actual cost of the power, the power at
that point being brought on the kilowatt basis.

This was frequently the case throughout the communities, a grad-
ual development of inconsistent demands. Of course, it has been
rather inconsistent or rather inconceivable that the owners of the
utility would seriously oppose the insistent demand of the com-
munity, which itself gave the franchises essential to the life of the
corporation, and where that became a serious pressure frequently ifc
was granted,

Commissioner MEEKER. In the end do you think that such exten-
sion should be passed upon by a State commission rather than by
local authority ?

Mr. STORKS. Those in New England are passed upon so. And in
connection with that there is now unanswered an order of the public-
utilities commission in one of the New England States directing
the electric railway to build an extension, in this case only about 4
miles long, to serve a little community, that community having a
double-track line between the center and the large city adjacent,
but the town hall happened to be in one part of the community and
a large part of the inhabitants in that village off from the main
line of transportation, and the people wanting to attend town meet-
ings had to take the trolley into the center some 4 miles and back
out to the town hall some (> miles. The people in that community,
rather important politically and otherwise, pressed successfully their
case before the commission, and an order was issued directing the
electric railroad to build a line something between 3 and 4 miles, as
I recall, to connect that little portion of the isolated community
with the town hall. That is practically what it was, the larger por-
tion of the community having already a double-track line and prac-
tically two connecting with the main civic center. There was a case
in which the commission itself had ruled upon it, and, needless to say,
the corporation has not been able to obey the order of the commission.

The CHAIRMAN. That is the street-railway corporation?

Mr. STORRS. The street-railway corporation has not been able to
do it. The authority was issued two or three years ago ; and we came
upon the rocks at about that time and have not been able to finance
orders of that sort, and the commission itself has not pressed its
demands to the court nor has the community pressed its demands to
the court and through mandamus forced the company into the con-
struction of the line.

Commissioner WEHLE. Is that in Connecticut?

Mr. STORRS. Yes; adjacent to New Haven.

The CHAIRMAN. Have you taken any steps to abandon that track
which cost $8,000 to operate with $2,000 revenue?

Mr. STORRS. We have now a little publicity going forward to an
immediate cessation of service on that line.

The CHAIRMAN. So there is a remedy for the company?

Mr. STORRS. There is. What the local remedy is we do not know,
but the practical remedy must be that.

Commissioner WEHLK. AVhat is the name of that point?

Mr. STOKRS. That is up to West port, from the railroad station
below Saugatuck. You will recognize that going up above West-
port and on up to the waterworks.

436 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSIONS

Mr. WARREN. I suppose that cost of $8,000 is a good deal more than
the cost was?

Mr. STORRS. Decidedly more than the cost was in horse-car clays.

Mr. WARREN. Yes ; or in the early electric days.

Mr. STORRS. Yes. A little tabulation which might be of interest
in connection with that as showing the difference between the com-
munities in this country and in the old world, where the funda-
mental theory of the electric railroad has been so different — the
theory being over there that the electric railway must serve the
densely settled part of the community; it was established for that
purpose, and that any line built must be a line which would pro-
duce transportation which would serve to pay for the investment.

If I may, I will read a little bit here. Figures have been prepared
and a great deal of publicity giATen it in the past showing that had
the utility in this country developed along the line of the same utility
in European countries or in England, the city of Columbus, Ohio,
if it had the same facilities as Glasgow, Scotland, would have at-
tained but about 15 per cent of its present area. Or the city of
Bridgeport, Conn., would have less than one-fourth of the street-
railway trackage which it actually has if it had the facilities of
Aberdeen, Scotland, cities of the same type and character.

Commissioner WEHLE. What facilities?

Mr. STORRS. The lines of track, I had in mind in that case.

Commissioner WEHLE. Have you in mind the system of charging
fares when you speak of the facilities?

Mr. STORRS. Xo ; only the physical facilities.

As showing the difference in the facilities afforded to American
and European cities by electric railways, the following tabulation
of statistics for cities in Great Britain having a total population
of 965.000 and cities in Xew England having a total population of
1,085,000, the same number of cities in both cases, and practically the
eame population, shows:

Item.

Great
Britain.

New
England.

Population

985,000

1,085,000-

Miles of track

156

695

Population per mile of track

6,187

1,560

Re venue per mile of track

$16 767

$13 31*

The most significant part of that comparison is the fact of the
population per mile of track. It is a picture of the whole British
tramway conditions, slender accommodations, dense congestion, slow
service, low fares, and high earnings per mile.

Commissioner WEHLE. Have there been any developments in inter-
urban business in Great Britain?

Mr. STORRS. Relatively small, I think. I am not qualified to
testify.

Commissioner WEHLE. The interurban business in this country
where the general communities are fairly closely united together has,
grown considerably, has it not ?

Mr. STORRS. It has been very largely overdeveloped.

Commissioner WEHLE. It has been overdeveloped ?

Mr. STORRS. In this country, you are speaking of ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION 437

Commissioner WEHLE. Yes.

Mr. STORKS. Yes; that is, throughout the densely settled portions
of the community, throughout New England and portions of New
York State.

Commissioner WEHLE. Taking the railway system in Illinois-^
would you say that was an overdeveloped interurban system ?

Mr. STORKS. I am hardly competent to testify.

Commissioner WEHLE. How about Indiana and Ohio ? Would you
say those are overdeveloped?

Mr. STORKS. I do not know as to that either. My detailed experi-
ence is in connection with New England properties, although I have
been over some of these other lines, of course, but I am net familiar
with their revenues and finances generally.

Commissioner WEHLE. I mention this at this point simply because-
I think that we may find that the interurban development which
would have to be taken into consideration in connection with the
comparison in population per mile, as it has occurred in this country,,
might from an earning point of view affect considerably the sparse
business in the cities themselves.

Mr. STORKS. For that reason I took New England, where the de-
velopment there, as you know, is between the small village and small
town into a larger city where they are relatively dense and nearer
together, and there I think those figures would be more comparable
than they would in any other portion of our country.

Commissioner WEHLE. And the English have nothing, as I under-
stand, to compare with that sort of development.

Mr. STORKS. No; that is true. And I was trying to bring out
that very point, that had we not developed beyond the area of dense
population, we would have not reached the difficulties we have, but
it was in the effort to serve the large community interest rather than,
the local civic interest that we have come upon these rocks, and that
by a system of abandonment of lines and discontinuance of service we
can find that measure of supplying the pedestrians which we can
meet.

Mr. WEHLE. The point is that the electric-railway systems in New
England by reason of their initiative have contributed a real social
service to the cities by preventing congestion ?

Mr. STORKS. Yes. Take a great many small country communities.
They are made up entirely of operatives in the mills in the larger
cities and they are given that opportunity for a free life and the
owning of little homes and going out into the country which would
not have been possible if there had been no transportation facility of
this kind.

Commissioner WEHLE. Has there been any indication that popular-
sentiment would permit of the discontinuance of the service?

Mr. STORKS. I am afraid it is a question of necessity rather than
popular sentiment when we get down to the point of income and
outgo not meeting.

Commissioner WEHLE. Has the legal question been tested in New
England as to whether there can be a discontinuance of the service?

Mr. STORKS. Only in the case perhaps of a receivership has it been
questioned.

Mr. WARREN. How has it resulted ?

Mr. STOKRS. That the utility could be abandoned.

438 PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION".

Mr. WARREN. The same as in Massachusetts ?

Mr. STORES. The same as in Massachusetts.

Commissioner WEHLE. Would you be willing to put the case in
the record for reference?

Mr. STOBRS. The case of a receiver of the Danbury & Bethel Street
Railway ? I COB not give you the citation, but it can be readily
found.

Commissioner WEIJLE. Will you do that, Mr. Warren?

Mr. WARREN. I have not it here.

Mr. STORES. I will ask the receiver to let you have a copy of it.
He can send the citation to you readily.

Commissioner WEIULE. What is your idea as to the remedy that
could be found if, as you say, a decline in gross revenue is apt to
follow any increase in fare beyond 6 cents and if, as you further say,
even an increase beyond C cents might not produce a sufficient revenue
to make the industry self-supporting?

Mr. STORES. A recognition on the part of the communities served
of the essential need for transportation, if that need is as it is to-day
throughout the sparsely settled districts, and a continuance of that,
we will say, with community assistance.

The CHAIRMAN. You may proceed with your statement.

Mr. STOEES. There is no question but what the development of
these lines through the rural districts has been to the welfare of the
State as a whole. It lias made it possible for the small villages to
keep in touch with the larger cities and towns, and it is doubtful if
those towns now served would care to go back to the days before
trolleys.

It has been possible for the cities to develop rapidly because
the street railways have been built in the suburban territory and
in many cases have preceded the coming of the householder. Were
it not for this development the growth of industry, business, and
commerce in large cities would have been much slower. Everybody
knows that in days gone by the development of a suburban real-estate
tract quickly followed the construction of a trolley line. These rail-
ways have also made possible the location of industrial plants at
advantageous sites remote from the city proper. The new construc-
tion created as a result of trolley lines being built to the outskirts of
large cities and towns has a value of many millions of dollars, the
taxes on which have made possible the improvement of the cities
and towns themselves. The investors in electric railways built these
lines in the hope that eventually -there would be a fair return upon
their investment. It was the investment in these lines that created
in a large measure the increased valuation of the cities and towns.
Therefore, should there be a reduction in service or a further destruc-
tion of incentive to invest in electric-railway securities, there would
naturally follow a slackening of community and industrial develop-
ment.

Without question, unless a resolution is found whereby the integ-
rity of the electric lines can be assured, mile upon mile of unprofit-
able extensions will have to be abandoned with a resulting loss to the
communities in declining real estate values and general destruction
of the existing social conditions which have been based upon this
convenient method of intercourse.

Shall I go forward? Are there any other points, Mr. Warren?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 439

Mr. WARIIKS. Is there anything further you have to offer ?

Mr. STORKS. The question is also presented in connection with the
tranfers .which are now given so generally and freely by the electric
railways without any recognition of the value which is given by tha.t
transportation service. Developed originally in all the cities of any
size there were a number of independent electric-railway corpora-
tions serving the community as a whole, without any interchange
whatever of service or exchange of patrons. These properties were
gradually consolidated and, in the process, there was either imposed
upon the electric railway, or there was offered as a sop for favor of
the consolidation, a larger extended area for one fare coming through
the transfer. That has developed now until — there is a case in point
as being the most extreme case of which we know and perhaps also
the most absurd case, which was at the time ex-President Brush, of
the Boston .Elevated, gave a man a 5-cent piece and told him to go out
and ride as far as he could. I will have to refer to the figure to get
the exact distance, but I think he rode 54 miles before he had ex-
hausted the possible extent of the 5-cent fare and stopped then, not
because the o cents was exhausted but because he was exhausted.
That is a very extreme and absurd case, but it is noted throughout all
the country that more transportation is given for the original fare,
whatever that may be, than the utility can afford to supply.

They come into the center of the city from one end; that line may
be 5 or 6 or 7 miles long; they transfer freely to another line going
out 5 or 6 or 7 miles to the other side of the city.

That has gradually come up with the extension of the lines, the
f> cents for the unit fare covering the entire city and has been a free
gift originally, and a part of the franchise ultimately, in very many
cases, but a right of the community without question in the minds
of the individuals of that community; but it is always at an addi-
tional cost to the utility in the additional accident hazard by carrying
more units of passenger's on and off the cars and also by reason of an
additional cost necessitated to take care of the additional riding and
supplying additional passenger carrying capacity to take care of
those transferred passengers.

Another reason for the installation of the transfer was originally
the desire on the part of the utility to economize by not running
through-route cars from one side of the center of the city to another
or by changing that route, and in order to placate the public a trans-
fer was given between the two new routes obtained by the change
in routing the cars.

The additional value g^iven by the utility to its patrons is nowhere
more exemplified than in connection with the construction of the
property to-day as compared with the construction of the property
in the early days of the horse car, and since the early days of elec-
trification.

We have made a very careful study — we have a great many
throughout New Englancl; practically on the great portion of those
lines, the fundamental basis was the electrification of the horse-
car lines — and we have drawn out some interesting figures in connc •-
tion with that. The old horse car, in the first place, cost from $800
to $1,000. It was heated by straw and, as someone has so well put
it, the animal heat of passengers, lighted by kerosene, and propelled
by a horse at a pace not much faster than a walk. It was hardly

440 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

more than a good-sized box on four wheels. The first electric cars
cost about $4,000, some heated by stoves and some by electricity.
They were. not as large nor as convenient as the public ultimately
or gradually demanded, so that there has come about an evolution
in the equipment of electric railways ; and to-day the people are not
satisfied with anything less than the very finest product of the car-
builder's art. The difference between the first electric cars and the
modern street-railway car, costing $17.000, is indicative of the in-
creased value of the service given to the public.

Of course, attendant with the increase in the size and weight of
cars has come a corresponding increase in the track construction. In
the old horse-car track carrying the light car, all that was necessary
was a strip of steel on a wooden stringer and the stringers held to-
gether at occasional intervals and costing approximately $10,000 per
mile of city street. We have come through the development to the
first electric railway rail of 48 pounds per yard, with occasional ties,
to rail to-day weighting from 91 to 125 pounds per yard and ties
more frequently spaced than on any steam railroad and rail as
heavy as the best steam railroads and heavier than 90 per cent of.
the steam railroads of the United States.

Starting out with the horse-car days there was a demand and ne-
cessity for paving the streets between the rails, and gradually we
worked into the high-type paving of to-day, which requires a still
further cost of concrete base for the rail for the ties and a thoroughly
ballasted roadbed; all of it, the whole development, from the track
costing originally $10,000 per mile to a track costing to-day $85,000
per mile, both being miles of single track, entirely for the benefit of
the public; an additional service rendered and additional facilities
offered ; but the return to the individual is in dollars and cents the
same figure. Of course, to the corporation, in figures of value, it
is practically half.

Along with that development which I have indicated was the im-
post laid upon the electric railway for paving the street; perhaps
logical in its original imposition by reason of the fact that the horses
used for propelling the cars did destroy the pavement. But to-day
this creates an attack upon the revenue of the company which, of
course, must be passed on to the car rider, whereby competitive serv-
ice may be profitably operated as well as rendering it more attractive
for the private automobile, thus passing the burden from the resident
who can afford his own private means of transportation to the one
who has not sufficient income and must utilize the trolley.

It also works a hardship on the rural territory, for under the
present method of fare regulation this large annual burden must be
borne equally by all the patrons of the company and, of course, only
a very small amount of this expenditure benefits the country terri-
tory, as a very small portion of the expense for paving and street
betterment is spent in the rural areas.

Furthermore, under the present situation, this large annual con-
tribution, estimated to amount to approximately $16.000.000. made
by the electric railways is actually made for the benefit of the resi-
dents and users of those particular streets through which tracks are
located, thus reducing the cost of municipal betterments to one group
of inhabitants, while others are charged the full cost of such better-
ments.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 441

Of course, the railways feel that it is a perfectly proper charge,
if they destroy the pavement — the same as any other utility in me
use of the street — to have that replaced and put in repair ; but the
idea of passing on a burden amounting to such large figures — in
Connecticut alone in the last eight years our properties, representing
85 per cent of the track of the State, has expended solely for pave-
ment over $2,000,000, and it is of record that in Portland, Oreg., in
the valuation of the public-utility commission they found an actual
expenditure by the public utility in Portland, Oreg., of $2,000,000 ;
and we have been spending right along in Connecticut at a rate of
$310,000 a year solely for the permanent pavement. To which must
be added a very large expenditure to prepare the rails for pavement
laying, the older rail of the standard types running up as high ag
even 80 pounds per yard — and. a very good rail, but which was a
low rail, and the change in the type of pavement required the use
of a higher rail in order to accommodate the concrete base and the
concrete subbase and wood-block surface cover; and we have had to
put in rails up to 91 pounds per yard and destroy physical value
of the rails and the roadway which had, at least in many instances,
10 or 15 years more life, and in practically all instances 5 or 6
years more life. It had to be done in order to accommodate the
requirement for pavement on the part of the public. That item
alone, in connection with one which' has been running — but not at
the present time because there is no revenue to supply it, but the
demands are there just the same, and in the past they have been met —
totals a cost of over half a million dollars a year for the one item
of pavement and the incidental betterment of the roadway necessi-
tated by that pavement. That is just in one small community, to
bring it down to a concrete case.

The trolley car is the only user of the street that does not destroy
the pavement. The automobile, the large truck, the horse and
wagon, even the motorcycle it is conceivable might possibly damage
it, but the trolley car is the only one that does not destroy the sur-
face of the street. In fact, it takes off from that surface a Large
amount of what otherwise might be vehicular traffic; and yet it is
the only utility, the only individual, that is charged for that better-
ment. It is probably logical, because the easiest thing to do is to
soak the utility.

Another impost is that of the requirement for bridges, and with
the gradual development and civic betterment and improvement, a
new and more ornamental bridge is frequently required, or with the
gradual increase in the vehicular use of the highway, particularly
the use by trucks carrying as high as 25,000 pounds at times, a new
bridge over a large waterway is required. That is recognized in
various cities by varying imposts upon the utility, because it hap-
pened to be the easiest thing to reach out and pass the burden of
the public onto, in the minds of the average legislator. Of course,
that burden is not passed on; it ultimately rests on the taxpayer
and the individual user of the utility, but it was a popular thing
to pass it on. It worked out in some cases to an imposition of over
one-third of the total cost. Right here let me say, where the utilities
are recognized in their mutuality of relation between the community
served and the utility, these imposts are not made on the utility;
they are, rather, made entirely from the tax.

160643°— 20 29

442 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Now in Connecticut, revelling again to the case of my particular
property, there are many large bridges spanning navigable streams.
Some of those were built years ago when the farmers' wagons and
the drays were the only known means of carrying heavy loads and
the electric-railway service given was in light-weight cars. The
electric railway was ordered or directed, in case of a change of equip-
ment or in use of that highway bridge over which it was given a
right to operate — if by reason of its own service it increased the
demands upon that bridge and rendered necessary an increase in
construction from the standpoint of safety, the electric railway must
care for that increase. There was also some little suggestion as to
the necessity to pay for the additional cost occasioned by widening
if widening were necessary.

Discussions came up from time to time as to how much of a
contribution was necessary from the standpoint of the electric
railway for the increased strength of the bridge or the increased
widening, becoming almost vitriolic at times. It resulted in an ap-
peal to the legislature by a single community in which there was
involved at that time a small-bridge construction and ultimately
the enacting of a statute by the State requiring the payment by the
electric railroads of one-third of the total cost of all bridges where
built between towns of 10,000 population, the extreme usually be-
ing the town line; another third being assesed against the towns
and another third against the State.

There happens to be one bridge in Connecticut at the present time
which is perfectly good from the standpoint of strength but which
is not architecturally or structually beautiful. It is across a beautiful
stream and is very largely used by the automobile visitors from
foreign states and by the trucks of New England industries rush-
ing goods down to the New York market. That bridge is now being
contracted for reconstruction and the contract is in the neighbor-
hood of $900,000 and its cost will probably be about $1,200,000. The
utility will be required under the State law to pay $400,000. On
the basis of ^ 6-cent fare, that is over 6,000,000 passengers — the
total contribution by 6,000,000 passengers. We carry over that
area in the neighborhood of 1.000,000 to 1,250,000 per year. There
is not enough profit on the million and a quarter to pay the carry-
ing charges on the $400,000 spent on the bridge, and it is absolutely
of no value to the corporation and is absolutely no improved service
to the community.. It is merely because the community and the
State need the bridge and some one happened to pass on to the
poor utility a payment of one-third of the total cost of construc-
tion.

Mr. WARREN. Have you anything more, Mr. Storrs?

Mr. STORKS. I would like to emphasize, if I may, this point, the
one phase of the combination of competition and imposts which is
so hard upon us, and that is that of the motor truck. I think we
will all acknowledge that the one thing that wears out the city pave-
ment most is the highly developed motor truck. I happen to recall
now, passing in front of my house, which is on one of the principal
city streets leading through the city of New Haven, frequent fleets of
trucks which pass by there, going at as high a rate of speed as they
can and escape on, and at nighttime, unfortunately, there are no
traffic policemen out there' to stop them- The result is that the pave-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 443

ment through there is being torn up. The wooden blocks are being
torn out of the pavement. When it rains, the wooden blocks are
soaked out of the pavement by these trucks, and, unfortunately, the
poor electric-railway company has paid for 19 feet out of a total
of 40 feet of the pavement.

Mr. WARREN. The street-railway company has paid for 19 out of
a total of 40 feet of the pavement?

Mr. STORRS. Yes, sir; and that is true throughout the country,
wherever the right of way has been given to that competitor. Of
course, in this case, a long-distance motor truck would not be a par-
ticular competitor. The right of way has been provided very largely
at the expense of the ridel's on the cars, and that is being torn up
and destroyed by a form of transportation that pays nothing what-
ever toward the maintenance and upkeep of that highway. I can
not think of anything more particularly, Mr. Warren.

Mr. WARREN. I would like to ask you one question, Mr. Storrs.
You spoke of the annual expenditure over the country of something
like $200,000,000 on highways largely for the improved operation of
automobiles. Have you in mind, and can you tell the commission
what the aggregate amount paid by automobiles in registration
fees is?

Mr. STORES. I have that in figures. This is a tabulation that I
overlooked, but I meant to get it in in connection with my testimony
as to the automobile portion of it. I have the tabulation, if I may
put it into the record.

The CHAIRMAN. Very well.

The tabulation referred to is as follows:
Comparison of automobile and of electric-railieaij induxtrir as of J.9/8.

Automobile.

Electric
railway.

Total number of cars

6,146,617

102 379

Number of passenger cars

5,352,350

£3 SS3

Capital investment

» $1,297 000 000

Jo 3.r>f> 304 t>10

Number passengers carried per year

'3,000,000,000

14 243 415 S30

3 4o, 000 000 000

42 730 247 4*10

;•• i -.it i : i •-' capacity of all passeiiper cars

25,000,000

2 93"' 90">

Number 01 employees

830 000

293 39''

Gross revenue from license or taxes

$51,477,416

$49 4% 334

Cost of maintenance of wav and structures... . .. .. ...

4 4,s joe ;ttO

Amount for paving and other imposts

16 06."> 000

1 Exclusive of cars.
1 Based on t*-o passeneers per car.

1 Based on three passenr ors per car and 3,000 miles per vear.

4 Estimated as same percentage of total cost of way and structures as in 1917, using 191S estimate based
on 115 companies, American Electric Railway Aowetotion.

Mr. STORRS. That tabulation shows the total number of cars and
tbe investment. The taxes received from the automobiles were $51,-
000,000.

Mr. WARRKN. That is all that comes in a>s against the $'_>00,000.000 ?

Mr. STOHRS. The $256,000,000 put in by States and communities
as a whole for that pavement.

Commissioner MEKKER. Just what does that $256,000,000 repre-
sent? Does it represent new construction?

Mr. STORRH. And renewals, so I understand. That was obtained
from the statistical department of the Bureau of Census.

444 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Do you happen to know the mileage of the tracks?

Mr. STORRS. I have not that.

Mr. WARREN. Did you not have that in your statement?

Mr. STORRS. Well, the statement that I had there was the total.

Mr. WARREN. As between Columbus and Glasgow?

Mr. STORRS. I am not at all sure that I had that in the statement,
and, unfortunately, that statement is not here just at the present
moment. I have an extra copy of it, and I will look at it. [After
referring to papers.] No ; I do not have that mileage. My compar-
ison as to mileage is entirely between the six large cities, as totals.

Mr. WARREN. Yes.

Mr. STORRS. I can easily supply that figure, if necessary.

Mr. WARREN. These imposts which you have described, such as
paving, bridges, street widening, street cleaning, and other require-
ments of that sort through the street railways on the car riders,
really all analyze down, do they not, to a question of the expediency
of relieving the general taxpayer through an indirect tax upon the
car rider?

Mr. STORRS. Absolutely ; there is no question about that. That has
to be recognized either in an increasing rate of fare or a decreasing
facility, or deteriorating facility.

Mr /WARREN. And while the street railway was supposedly pros-
perous, it seemed an easy way to increase municipal revenue?

Mr. STORRS. Yes, sir.

Mr. WARREN. But now it becomes a very acute question as to
whether the people who have the property shall pay for these various
burdens, or whether the people whose interests force them to ride on
the street-cars shall pay?

Mr. STORKS. Yes, sir.

Mr. WARREN. That is all there is to the question, is it not '(

Mr. STORRS. Absolutely, as far as those imposts are concerned.

Mr. WARREN. That is all I want to ask Mr. Storrs, gentlemen.

Commissioner MEEKER. Mr. Storrs, it is true, is it not, that the
street railways do wear out the surface of the street, to a limited ex-
tent, next to the rail?

Mr. STORRS. Next to the rail for a distance of 5 or 6 inches.

Commissioner MEEKER. Would you advocate the exempting of the
street railways entirely from any charge for paving the streets be-
cause of the insignificance of the area that the street-railway traffic
actually affects?

Mr. STORRS. I think not, particularly on that basis, but upon the
theory that communities are giving to other means of transportation
a thoroughly improved highway, and they certainly should be willing
to take up the relatively insignificant burden that that might be, but
which is a very large burden, of course, in the total paving costs.

Commissioner MEEKER. I take it that you advocate the regulation
of the jitney and the motor-truck traffic and control of such traffic
by the public, in order to put those services on the same footing as
the services rendered by the street-railway companies?"

Mr. STORRS. Absolutely. It seems to me essential from the stand-
point of the communities and the Commonwealths in the large com-
munities to have that character of transportation thoroughly regu-
lated, the same as the other means of transportation are regulated.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 445

Commissioner MEEKER. And if those means of traffic are able to
beat the street railways out, if they were all subjected to the same
regulation,' the same measure of control, then the street-railway com-
panies would have to take a licking; but it is wholly unfair, I gather
from your testimony, to have these services rendered on an unfair
basis.

Mr. STORKS. Yes. sir.

Commissioner MEEKER. Which is really service rendered to the
public at less than cost ?

Mr. STORRS. Without doubt.

Commissioner MEEKER. And at the expense of the established
service rendered by th street-railway companies ?

Mr. STORRS. The communities and the States have invited in-
vestors to come in and provide the essential transportation need of
the communities and have in the past guaranteed, through their
statutes, a transportation monopoly. In this case, this other public
utility would come in; and for the community and the Common-
wealth to allow unregulated competition is inconceivable. It should
not be allowed to go on.

Commissioner MEEKER. May I ask you a hypothetical question
there? If, however, some improved means of transportation of
traffic shall be hit upon in the future, you would not urge the mo-
nopolistic character of the charters granted for the protection of
the street-railway companies?

Mr. STORRS. I think that is so largely a hypothetical question that
it is easy to answer. I can not see that it would be possible. The
originally chartered companies have gone through a very great de-
velopment by a change in the art, and it is inconceivable, at least
to my mind, that a further change wrill come in the transportation
field without the experts and those interested in the present utility
availing of the change.

Commissioner MEEKER. So many wonderful things have happened,
even in my lifetime, that I do not like to predict the impossibility
of anything. I just want to get your views on the subject. I think
I have stated your views correctly, have I not, that all you want is
the same measure and kind of regulation and control over jitney and
motor-truck traffic that is exercised over street railways and public
utilities, and then they can fight it out ?

Mr. STORRS. Absolutely.

Commissioner MEEKER. And possibly in some lines the jitneys and
motor buses and motor trucks will remain, even under those condi-
tions?

Mr. STORRS. That is absolutely all that the utility is asking at the
present time, so far as I understand it.

Commissioner MEEKER. Now, you gave us some very interesting
facts regarding the developments and extensions. Do you think it
would be advisable because of the public service rendered by street-
railway companies in distributing population over wider areas, re-
lieving the congestion, or preventing congestion, if you please, do
you think it would be advisable to maintain services that were not
paying for the services at the expense of general taxation?

Mr. STORRS. Without question, in my mind, it would be very de-
sirable. There are certain specific cases in which that is now being
done in Massachusetts. On one of our own properties we aban-

446 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

cloned entirely some 5 miles of trackage, and we discontinued the
service on 21 miles more and proposed the discontinuance of service
on 9 miles farther. In that case, the communities served came for-
ward with a sufficient annual fund to meet the actual cost of opera-
tion of that line, giving us all the revenues.

Commissioner MEEKER. Well, is it a foregone conclusion that the
9 miles which you propose to abandon could not be put upon a pay-
ing basis if you were given sufficient elasticity of fares?

Mr. STORRS. Well, I think it was in that case, because it was a very
sparsely settled community, and the costs were going up so rapidly
that it* would be almost impossible to get enough people to travel
to meet the costs of to-day. The costs of years ago were a different
matter, at tire time that they built.

Commissioner MEEKER. Did the community pass judgment upon
this, or did the State public-utility commission pass upon it?

Mr. STORRS. The appropriation was voted on in open town meeting,
largely called for that purpose.

Commissioner MEEKER. And the deficit was made up out of taxa-
tion in the community affected?

Mr. STORRS. Yes, sir.

Commissioner MEEKER. Is it the thought of the people of the com-
munity that they are going to grow big enough so that eventually
the street-car riders will pay for the service?

Mr. STORRS. They temporized with that question and made the vote
only for one year. What the next year will show will be perhaps
going over it again. I don't know.

Commissioner MEEKER. There is just one further question that I
want to ask : With reference to the amount of the automobile license
fees and the amount expended on building new roads and the up-
keep of the roads built, of course, those roads are not built entirely
for the automobile owners, and they are not worn out entirely by
automobiles. What is the amount in license fees collected annually ?

Mr. STORRS. $56,000,000, I think, was the figure.

Commissioner MEEKER, Does that represent only the revenue that
the public collects from the automobiles?

Mr. STORRS. I understand that is it. This tabulation of statis-
tics was obtained from various motor vehicle associations throughout
the country.

Commissioner MEEKER. But that would not include the personal-
property tax?

Mr. STORRS. No; I understand that. This is license fees.

Commissioner MEEKER. I wonder if you should not give to the
commission your best estimate of the total revenue paid by automo-
biles. As long as the question has come up, it would seem to me
that that would be the fair way of presenting the facts.

Mr. STORRS. This was prepared by our statistical department, and
I would have to find out. I would perhaps have to amplify that.

Commissioner MEEKER. If you asked my personal opinion, I would
not attach very much importance to those figures. That is all, Mr.
Storrs.

Mr. WAKBEN. Mr. Storrs, in the matter of that track which the
community made a contribution to support, had not the matter
been before the Public Service Commission of Massachusetts?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 447

Mr. STORKS. Yes; the matter had been before that commission.
The question of the discontinuance of the service over this portion
of 9 miles of track had been before the Public Service Commission
of Massachusetts, and they directed the communities and the public
utility to get together, if possible, on the basis of seeing whether
the communities required transportation to an extent sufficient to
make an appropriation.

Mr. WARREN. And that they did, instead of passing on the aban-
donment formally?

Mr. STORRS. Instead of passing on the abandonment formally.
The petition for abandonment was then pending before the public-
service commission.

Mr. WARREN. You spoke of the car cost being $17,000, with full
equipment. I think the testimony of Mr. Heulings, of the Brill Co.,
on Friday, was something like $10,000 a car.

Mr. STORRS. In connection with that, I am giving the figures that
we paid the Brill Co. for some cars recently purchased. They were
purchased during war days, the delivery having just been completed,
but the orders were placed in August, a year ago, 1918, for those cars,
complete with all the equipment, $17,000.

Commissioner GADSDEN. Did not Mr. Heuling give the price of a
specific car to show the difference between the prewar prices and the
ordinary prices? He did not claim that that was the highest price
of a car.

Mr WARREN. No; but I just wanted to bring out the explanation
of it.

Mr STORRS. Yes.

Mr. WARREN. You think then, Mr. Storrs, that the question of
convenience and necessity of the extension of the street railways
should be passed upon by the State commission, if there is one?

Mr. STORRS. Oh, absolutely.

Mr. WARREN. You believe also in connection with that, that it
should pass upon the question of whether it should be self-sustain-
ing, if built?

Mr. STORRS. There is no question about it.

Mr. WARREN. That is all.

Commissioner SWEET. How is the State Commission of Connecticut
appointed ?

Mr. STORRS. It is appointed by the governor, sir.

Commissioner SWEET. How many members are there?

Mr. STORRS. Three.

Commissioner SWEET. Is there any politics in it?

Mr. STORKS. Not that I know of. It is extremely clear from any-
thing of that sort. There never was any accusation of such.

Commissioner SWEET. What authority is given to the State com-
mission in Connecticut now?

Mr. STORKS. Very broad powers in connection with the method and
manner of the construction of the property, the service to be ren-
dered, and the reasonableness of the rates of fare which have been
established.

Commissioner SWEET. Do you think this subject can be referred
to State commissions, or should l>e referred to State commissions
rather than to municipalities?

Mr. STORRS. Without question, sir.

448 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. If your figures are correct — and I have no
reason to doubt their correctness — you have made out a very strong
case tending to show that present conditions are wrong in many re-
spects and need readjustment, have you not?

Mr. STORKS. I hope so.

Commissioner SWEET. The basis upon which we are now pro-
ceeding with regard to transportation such as we are digcussing is
all obsolete; that is to say, our present system w.as adopted when
things were entirely different from what they are now, and in order
to reach a proper readjustment, a great many things have to be
changed; is not that so?

Mr. STORKS. Doubtlessly.

Commissioner SWEET. That would take a great deal of time, would
it not?

Mr. STORKS. The change would be more particularly one in the
public mind.

Commissioner SWEET. Certainly, but the public mind has to be
changed before the other changes, the real changes, can be made;
but that would take a great deal of time, would it not ?

Mr. STORKS. Doubtlessly.

Commissioner SWEET. Would it be possible to give to the electric
railways of the United States the relief demanded from the present
conditions that exist within the time that would be required to make
these readjustments?

Mr. STORRS. That is a rather broad problem.

Commissioner SWEET. Well, do you think it would? In your
judgment, would it be possible to make these readjustments soon
enough to relieve the situation?

Mr. WARREN. These fundamental readjustments, the franchises,
etc.?

Commissioner SWEET. Certainly.

Mr. STORRS. Oh, it would be impossible to do that, but in the
meantime, a step in advance could be taken by an assurance of the
adjustment of the fundamentals which would give to the public
utility an opportunity of so conducting its business within areas,
by discontinuing service, by temporarily abandoning lines that are
unprofitable, until the fundamental adjustments were brought about,
and which might give the utility an opportunity to continue its life.

Mr. WARREN. Or by temporarily increasing the rates?

Mr. STORRS. Yes; or by increasing temporarily the rates.

Commissioner SWEET. Well, it would follow that if the readjust-
ments that are necessary to put things on a proper basis can not
be made within a reasonable time, then we must look for some tem-
porary measures?

Mr. STORRS. Yes.

Commissioner SWEET. Now, the question that I would like to have
you answer, if you feel disposed to dp so, and can, is to tell the com-
mission what temporary measures, in your judgment, ought to be
adopted, pending a general readjustment in regard to the whole
subject?

Mr. STORKS. That is very broad, and I would not like to pass
judgment for the entire industry, Mr. Commissioner Sweet.

Commissioner SWEET. Well, is not that the problem before us ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 449

Mr. STORKS. It is the problem that is before you ; yes, sir. With-
out any question, relief from the imposts that are made upon the
public utility, the regulation of competition to the point that we
know what that competition may amount to. the granting of the right
to discontinue, either temporarily or for a long time, the essentially
unprofitable lines, the giving to the utility by the public of a sub-
sidy to enable them to continue operation of those unprofitable lines,
thereby bridging over the period of reconstruction, and a recognition,
always, of course, going with that, by the public of the essential
need of the change, and a willingness to pay the increased rates of
fare — an increased rate of return, relief from imposts, regulation of
competition, and the privilege of discontinuing service that is so un-
profitable as to be-really a nonessential service.

Commissioner SWEET. If I understand you correctly, the mere
increasing of rates at the present time would not be even a tem-
porary remedy ?

Mr. STORKS. In my opinion, no.

Commissioner SWEET. In that respect, you differ from some other
witnesses who have appeared before this commission.

Mr. STORKS. Well, the effect of an increase in rates in various
communities is different. It differs all over the country. It so hap-
pens that in parts of Connecticut, doubtless by reason of the fact
that the distances are so relatively short, there is a greater falling
off in traffic than there would be at other points where the ride is,
of necessity, longer and the need for the service more acute; but
that has been our experience in parts, at least, of the New England
territory.

Commissioner GADSDEN. You have had your increase already?

Mr. STORRS. Yes; we have had our increase already.

Commissioner GADSDEN. And you are talking about a further
increase ?

Mr. STORRS. I am talking about a further increase.

Commissioner GADSDEN. You are operating on at least a 6-cent
fare?

Mr. STORRS. We are operating on at least a 6-cent fare.

Commissioner GADSDEN. And Commissioner Sweet has been ask-
ing you about a situation where they were still operating at 5 cents.

Mr. STORRS. Well, you have to keep on going and going and going.
The 6-cent fare is not sufficient to meet the needs of the corporation.

Commissioner SWEET. My understanding of your testimony has
been that the companies under your control are losing money to-day?

Mr. STORRS. Yes, sir.

Commissioner SWEET. I do not think you have put in evidence as
to just exactly what that situation is regarding these companies.

Mr. STORRS. I will be very glad to do that. I will have to have
some little time to get that tabulation together.

Commissioner SWEET. But, broadly speaking, are you paying
operating expenses?

Mr. STORRS. Some of the companies are paying operating ex-
penses, and some of them are not paying operating expenses.

Commissioner SWEET. Taking it as a whole, you are losing money;
you are not paying operating expenses I

Mr. STORRS. Yes, sir.

450 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. I assumed that that is the case in the ques-
tion I asked you with regard to the remedy.

Mr. STORKS. Yes.

Commissioner SWEET. Because that is substantially the case all
over the United States.

Mr. STORKS. Yes, sir.

Commissioner SWEET. Undoubtedly, there are some parts of the
different railway systems that pay, but that is more than offset in
almost every case by other parts of the systems that are losing
money ?

Mr. STORKS. Yes.

Commissioner SWEET. The idea that seemed to prevail in the early
days was that the community ought to get everything it could out
of these public-service corporations.

Mr. STORKS. Yes.

Commissioner SWEET. And the general taxpayer seems to have
consulted his own supposed interest at that time in shifting burdens
to the street-railway companies and other corporations of that char-
acter, wherever they could do so.

Mr. STORKS. Yes, sir.

Commissioner SWEET. The public-service corporations, I think you
will admit, used means in connection with the public that were
sometimes dishonest and dishonorable, in the way of bribing, di-
rectly and indirectly, public officials, seeking to get men who were
particularly favorable to their interests on common councils, boards
of assessors, etc., and there was a prejudice created in the public
mind against these corporations to some extent which was just.
Was not that true in the old days?

Mr. STORRS. It is so rumored to be, at least.

Commissioner SWEET. When did your connection with this busi-
ness commence?

Mr. STORRS. Not until 1906.

Commissioner SWEET. Have you ever seen anything of that kind
since 1906?

Mr. STORRS. No, indeed ; no, sir — nothing of that kind.

Commissioner SWEET. I am not asking you now to incriminate
yourself.

Mr. STORKS. The days of the optimist had almost passed when I
came into the business, sir.

Commissioner SWEET. Do you call those days that I have referred
to as the days of the optimist ?

Mr. STORRS. Well, those matters of rumor and gossip that came
on down are pretty hard to trace with any particular accuracy.

Commissioner SWEET. In your mind, you have no doubt that those
things did exist and that they were responsible for a portion, at
least, of the prejudice in the public mind against these utilities.

Mr. STORRS. That is possible.

Commissioner SWEET. Is not that true?

Mr. STORKS. That is possible.

Commissioner SWEET. Well, is it not more than possible; is it
not probable?

Mr. STORRS. In fact, it is probable. In the early days, there may
have been something of that kind, but that was away back in the
earliest days — away back in the ancient history.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 451

Commissioner SWEET. But the developments of the last decade, or
perhaps the last two decades — the internal-combustion engine, the
automobile, the jitney, the autotruck, the motorcycle — all of these
changes have revolutionized the whole situation with regard to tho
business performed by the electric railways; it not that true?

Mr. STORKS. Yea

Commissioner SWEET. And the competition that they have to
meet?

Mr. STORKS. Yes, of course.

Commissioner SWEET. And the justice, if there was any, in con-
nection with the paving, their bridge repairs, and all that sort of
thing, is all changed, is it not?

Mr. STORES. Absolutely.

Commissioner SWEET. And that is the reason why a general re-
adjustment, according to conditions as they now exist, ought to be
made; is not that true?

Mr. STORKS. The imposts, with the greatly increasing costs of pro-
ducing transportation.

Commissioner SWEET. Certainly.

Mr. STOKRS. Labor and material costs.

Commissioner SWEET. That comes in, of course.

Mr. STOKRS. Yes.

Commissioner SWEET. Have you any suggestion to make to the
commission as to what benefit would be received by the roads under
your control if the State commission would permit you to make a
further increase in your rates of fare?

Mr. STORKS. In Connecticut, the origination of the increase in rat«
comes from the directors of the corporation, and the commission's
control conies through a review of the rates as established by the
corporation.

Commissioner SWEET. Well, the commission, of course, would
really have the final report?

Mr. STORKS. They have the final review after a rate has been hi
effect.

Commissioner SWKET. Very well. Now, suppose further increases
were made; would that materially increase the gross income of the
company?

Mr. STOCKS. 1 had felt in our company that it would not have a
material effect upon our gross revenue.

Commissioner SWEET. That is because your distances are not as
great, and you think the people would walk or find some other means
of transportation?

Mr. STOUKS. Yes. You see, the perfected highway has been devel-
oped to a veiy great degree throughout that portion of New England.

Commissioner SWEET. It is your thought that any further increase
of rates would stimulate and bring about a greater use of the jitneys?

Mr. STOKRS. Yes; decidedly.

Commissioner SWKET. So that, from that point of view, you could
not expect relief unless the regulatory laws that you have spoken of,
in regard to jitneys and autotrucks, perhaps, were enacted at the sumo
time?

Mr. STORKS. Yes, sir.

452 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. You have mentioned the abandonment of
some parts of roads that have already occurred and others that would
be necessary in order to bring about a real condition of economy ?

Mr. STORKS. Yes, sir.

Commissioner SWEET. What has been the effect of the abandonment
you have made? Tell us a little more about that; what they have
been and how they have been received and what has been the effect of
them upon those who were previously using this service.

Mr. STORKS. Well, all of them, of course, naturally resulted in
appeals to the commission.

Commissioner SWEET. Can you name sonte of the specific cases
where abandonments have been made ?

Mr. STORKS. Yes. In Berkshire County, Mass., the line was aban-
doned from Cheshire to Lanesboro, 5 miles. There are relatively few
houses, and there was an alternate route that served the terminals of
the line, but not the intermediate area.

Commissioner SWEET. What was this other road — electric ?

Mr. STORKS. Both electric.

Commissioner SWEET. Both electric ?

Mr. STORKS. We own them both.

Commissioner SWEET. Yes.

Mr. STORRS. That was abandoned and the service discontinued with-
out any serious complaint — the line between the towns of Huntington
and Lee in Berkshire. The service was discontinued last winter, with
no opposition during the wintertime. In the spring a complaint was
laid with the commission and a hearing held on that relative to the
request of the petition for an order from the commission ordering us
to resume the service. That was heard some time ago — a month and
a half ago — and no order has yet been found. In connection with the
other case that I have spoken of, the proposed discontinuance of
9 miles of track resulted in the suggestion by the commission that we
get together, and that resulted in an appropriation being given by
the town.

Commissioner SWEET. In Connecticut is the increase of a rate that
might be made by a street-railway corporation effective until it has
been passed upon by the public-utilities commission ?

Mr. STORRS. Yes, sir.

Commissioner SWEET. While the subject is before the commission,
while it is pending, which rate prevails?

Mr. STORRS. The increased rate.

Commissioner SWEET. The increased rate?

Mr. STORRS. We increased our rates on October 1, 1917, and we
serve the cities of Hartford, New Haven, Waterbury, Bridgeport,
Stamford, Norwalk, and all of the intermediate smaller towns. The
only community that petitioned the commission for a review was
that of Hartford, and it was heard in connection with the Hartford
complaint— —

Commissioner SWEET. If the State commission should refuse the
increase, would the street railways have to refund anything ?

Mr. STORRS. No.

Commissioner SWEET. To the users in the meantime?

Mr. STORRS. No, sir.

Commissioner SWEET. Do you think that the people who reside
upon the portions of the roads that have been abandoned — take the

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 453

case that you just spoke of, intermediate between the terminals —
have suffered materially, and have they exhibited any particular
feeling on the subject — any serious feeling?

Mr. STORKS. Well, they have been seriously discommoded, and
suffered more prospectively than immediately. Most of the people
served throughout there are farmers — the land is farming land, and
of course the value of the property has declined materially since
the abandonment of that service.

Mr. WARREN. Has that line been dismantled?

Mr. STORKS. That line has been dismantled and the track taken up
and taken away — completely abandoned.

Commissioner SWEET. If all of the electric railways of the United
States that are not profitable, or portions of the electric lines that
are not profitable, or did not pay their own expenses, should be
abandoned, the result would certainly be very disastrous to a very
great number of people, would it not?

Mr. STORK. It would be presumptuous, of course, on my pail, to
speak for the other portions of the country, but throughout New
England, in general, there would be about a 30 per cent abandon-
ment of property.
. Commissioner SWEET. What percentage?

Mr. STORKS." Thirty.

Commissioner SWEET. Without going into the actual percentage
throughout the country as a whole, there could not be any question
but what a very large number of people would be seriously discom-
moded, at least?

Mr. STORKS. Very disastrously so.

Commissioner SWEET. The losses, the loss of time, the deprecia-
tion of real estate, and the general injury to the communities of the
United States would be very material, beyond any doubt?

Mr. STORRS. Beyond any doubt at all.

Commissioner SWEET. Do you think that, if the people of the
country were made to fully understand that abandonment would be
necessary unless relief were given to the electric-railway companies,
the element of personal interest would come in to an extent that
would bring support to the companies and to the position that they
are taking?

Mr. STORRS. I can not help but believe that that would be the
fact, sir.

Commissioner SWEET. In other words, there would be an element
in the community that would be militant or quite active in helping to
bring about a reformation in the general situation?

Mr. STORRS. Yes, sir.

Commissioner SWEET. Then what have you to say with regard to
the proper means of getting before the public the sort of education
that is necessary in order that the real situation may be understood?
You do not think it is now, do you ?

Mr. STORRS. Far from it. but I believe that through the medium of
such commissions as your honorable body we can get to the public
the story so thoroughly analyzed that they can not help but believe
that the conditions as they have been represented by the utilities'
managers are true; and there is a growing tendency without any
question, on the part of the public, to recognize these things and to
recognize the conditions as they are. It seems to me it would be

454 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

but a very short time before an actual thorough knowledge of the
needs can be made public.

Commissioner SWEET. You have spoken about the patrons of the
railway companies, those who ride on their cars, both in the cities
and in the rural districts particularly, having to pay for this pav-
ing between the tracks?

Mr. STORKS Yes, sir.

Commissioner SWEET. And for the bridge construction and re-
pairs?

Mr. STORKS. Yes, sir.

Commissioner SWEET. And cleaning, perhaps?

Mr. STORKS. Yes, sir.

Commissioner SWEET. And you have alluded to that as an unjust
discrimination between that part of the community and the balance
of the community?

Mr. STORRS. Yes, sir.

Commissioner SWEET. And especially that part that owns automo-
biles?

Mr. STORRS. Yes, sir.

Commissioner SWEET. There is no question about whether your
position is right with regard to that, is there ?

Mr. STORRS. I do not see any question about it; and so far we
have always been able to convince the commissions or others.

Commissioner SWEET. Yes; you probably could convince commis-
sions. Do you think the general public understands it that way ?

Mr. STORKS. They can not help — they do not now, but they can
not help but recognize that as we convince an ever increasing num-
ber of people of the serious condition of things and the solution
for it.

Commissioner SWEET. Do you think that is a part of the educa-
tional work that should be carried on now ?

Mr. STORRS. Absolutely. There is no question about that.

Commissioner SWEET. If I understand you right,' you think that
jitneys, autotrucks, and any conveyance that carries people for
hire, ought to be regulated and controlled on the same equitable
principles, with a view to the general interest of the public, as
well as the electric railways?

Mr. STORRS. Absolutely.

Commissioner SWEET. You would recognize, then, the right of jit-
neys to exist ?

Mr. STORKS. Without question.

Commissioner SWEET. But I dare say that you think if they were
properly regulated there would not be so many of them?

Mr. STORKS. The weather regulates them automatically at times.
During periods of severe rains, they get off of the streets, and dur-
ing periods of snowstorms the service is entirely discontinued, or
continued, perhaps, through that portion of the street that is cleared
of snow by the railway for its own needs.

Commissioner SWEET. If the same rule were applied to these
methods of conveyance as is applied to electric railways, do you
think it would make a very material difference in the number of
jitneys that would be used?

Mr. STORKS. Oh, without doubt.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 455

Commissioner GADSDEN. As a matter of fact, has not that been the
history throughout the United States already, Mr. Storrs?

Mr. STORRS. That has been the history7.

Commissioner SWEET. Have you figures that would show that?

Mr. STORKS. They can be prepared. We have no figures of that
particular kind, because in our country there has been no regulation.

Commissioner SWEET. But it would seem reasonable that they
should be regulated on the same general principles as the electric
railways.

Mr. STORKS. Yes ; that is true.

Commissioner SWEET. Can you think of any reason that would be
given why they should not be so regulated?

Mr. STORRS. It is inconceivable to me that there would be any
reason.

Commissioner SWEET. You spoke about autotrucks carrying peo-
ple in cities, in New Haven, for instance, or from inland to some
bathing point?

Mr. STORRS. Yes.

Commissioner SWEET. Where was that—down to Savin Rock ?

Mr. STORRS. No; this is on the other side of the shore, down to-
ward Lighthouse Point; but that is immaterial, of course, although
it is indicative.

Commissioner SWEET. Down to Fair Haven?

Mr. STORRS. Down to Fair Haven ; yes.

Commissioner SWEET. Is there no regulation whatever in New
Haven; is there no restriction upon what they can do in that re-
spect ?

Mr. STORRS. The State did pass, at the last session of the assembly,
a law requiring them to file a bond for security beginning next
January.

Commissioner SWEET. Do you mean to protect the users against
accidents?

Mr. STORRS. Accidents; that is all. Of course, there is the usual
regulation relative to obtaining licenses, but nothing in the way of
regulation at all.

Commissioner SWEET. Is a license fee of any material size re-
quired?

Mr. STORKS. Not much — very small.

Commissioner SWEET. Is there a larger license fee for those carry-
ing passengers than for those who do not?

Mr. STORKS. Yes; there is an additional fee required of $25 or $30.

Commissioner SWEET. You spoke about transfers and the great
number of miles passengers are often carried for the initial expense
of a nickel, or G cents, or whatever the fare may be?

Mr. STORKS. Yes, sir.

Commissioner SWEET. Have any changes taken place since in that
regard?

Mr. STORKS. Not on our property. There have been some changes
made on some of the other smaller properties around, in restricting
the transfer use, or making a charge of the issuance of a transfer.

Commissioner SWEET. None of your passengers, I infer, could ride
54 miles for a nickel ?

Mr. STORKS. Hardly.

Commissioner SWEET. Or G cents?

456 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. STORRS. Hardly. That would be merely an absurd case.

Commissioner SWEET. What is the farthest they can ride on your
system for 6 cents?

Mr. STORRS. About 13 miles, an extreme case. Nobody would avail
themselves of that service.

Commissioner SWEET. That would be less than half a cent a mile?

Mr. STORRS. Yes.

Commissioner SWEET. Do you think that the fares charged ought
to be in proportion to the distance?

Mr. STORRS. You are getting down to the fundamental theory there
on which the American city has been developed. That is the uni-
versal fare throughout an entire area. Now, we are coming down
to fundamentals.

Commissioner SWEET. Well, on the steam railroads, from city to
city, the custom, of course, throughout the country is to charge ac-
cording to the number of miles, at so much a mile?

Mr. STORRS. Yes.

Commissioner SWEET. Is that feasible on the electric railways ?

Mr. STORRS. Yes; unquestionably it can be made feasible, and
should be made so.

Commissioner SAVEET. It can be made so?

Mr. STORRS. Yes.

Commissioner SWEET. Well, what would the effect of it be ?

Mr. STORRS. Well, we would naturally hope for improvement
before we would ask to put it into effect.

Commissioner SAVEET. From the standpoint of the railway do you
think it would result in a remedy?

Mr. STORRS. Yes.

Commissioner SWEET. And it would help them out of their present
situation to a very considerable extent?

Mr. STORRS. We hope so.

Commissioner SWEET. That is, assuming that people paid the fare,
and that they did not lose any traffic to a large extent?

Mr. STORRS. Yes.

Commissioner SWEET. What would be the effect, based upon the
general community?

Mr. STORRS. It can not help but have the effect of gradually draw-
ing in all of the tenement districts to the inner zone of the city.

Commissioner SWEET. In European cities has it actually worked
in that way?

Mr. STORRS. I understand so as to the condition of the inner area
of the city. That is the only portion that is served, and conversely,
the fact that it is congested must be to a certain extent due to the
fact that it is the only part served.

Commissioner SWEET. Well, in reasoning on the subject, is not that
the natural conclusion to come to?

Mr. STORRS. Yes, sir; I have always drawn that conclusion.

Commissioner SWEET. Then, in this regard, there seems to be a di-
rect conflict of interests between the general community and the
railway companies. It would be to the interest of the railway com-
panies to adopt the system that prevails on the steam railroads,
would it not, and that would be inherently just, would it not ?

Mr. STORRS. It would seem to be inherently just and much more
reasonable.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 457

Commissioner SWEET. And then the people would pay for just
what they get?

Mr. STORKS. Yes.

Commissioner SWEET. But in the interest of the proper distribu-
tion of the population and to prevent the congestion in the centers
of population, the other system has been adopted throughout the
United States?

Mr. STORKS. Yes, sir; the fundamental theory.

Commissioner SWEET. And it has worked, as you no doubt would
expect it to work, and has produced the distribution that has de-
cided advantages from many standpoints?

Mr. STORKS. Yes, sir.

Commissioner SWEET. Xow, let me ask you this question: If that
antagonism of interest is recognized between the general interests
of the community in that particular and the interest of the com-
panies, what remedy, what meeting ground, what sort of compromise
do you think should be made so as to get the best results from the
standpoint of both the companies and the general public?

Mr. STORKS. I can not see that there is any happy medium between
the two theories of a flat rate of fare and a distance tariff. It seems
to me we must either have one or the other.

Commissioner SWEET. Well, would not a flat rate such as gener-
ally prevails regardless of distance, unless the distance becomes
very considerable, carry out the desire of the public with regard to
distribution ?

Mr. STORRS. Yes.

Commissioner SWEET. And would not the same flat rate, if it was
enough, and if the general public was educated up to the point of
paying it, so that it did not reduce the patronage of the company,
meet the case from the standpoint of the company ?

Mr. STORKS. Oh, yes. They would still buy the goods at the higher
rates.

Commissioner SWEET. Yes.

Mr. STORKS. Yes.

Commissioner GADSDEN. Would the short-haul rider do it, though?

Mr. STORKS. The trouble is they won't buy the goods. They will
buy the jitney goods instead.

Commissioner SWEET. Well, you said they would use the jitneys.

Mr. STORKS. Or walk.

Commissioner SWEET. Or walk.

Mr. STORRS. The short-haul riders.

Commissioner SAVEET. Of course, the largest profit is on the short
haul ?

Mr. STORRS. Yes.

Commissioner SWEET. There is less service performed?

Mr. STORKS. Oh, yes; the more people you can get in the same car
on each mile of the trip the more profit that car makes, of course.

Commissioner SWELT. You do not. as far as I can see, hold out any
very rosy anticipation for the immediate future.

Afr. STORKS. Not the immediate future; no, sir. We hope that
this will be made a continuing business, however, with the assistance
of the commissions.

Commissioner SWFKT. There is no doubt of that, Mr. Storrs, but
would not the general collapse of the street-railway business result
1(KX}43°— 'JO 30

458 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

in great injury to the general public, and not only the general pub-
lic, but to a great many people of comparatively small means who
have invested in their securities? Is not that true?

Mr. STQURS. Tremendously so.

Commissioner SWEET. It is almost unthinkable that these great
properties should be permitted to evaporate and collapse, and yet
some means has got to be found to meet the present emergency — •
which is certainly acute, is it not?

Mr. STORES. Decidedly acute.

Commissioner SWEET. And then it must be followed up, I should
judge, from what you say, by a readjustment on the line, according
to the conditions that have arisen since the old days?

Mr. STORRS. That is my thought on it.

Commissioner SWEET. In fact, up to within a comparatively re-
cent period?

Mr. STORRS. That is my thought on it.

Commissioner SWEET. That is a correct statement?

Mr. STORRS. That is my thought.

Commissioner SWEET. Thank you.

Commi.s.sioner GADSDEN. Mr. Storrs, on this matter of the dif-
ference between a flat rate and the zone system, Mr. Commissioner
Sweet wanted to know whether there was any compromise. Don't
you think you have worked out the answer to it, or they have worked
it out in Massachusetts — that where the community prefers a flat
rate of 5 cents it agrees to subsidize the company for the difference?

Mr. STORRS. There is no question about that.

Commissioner GADSD£N. That is the answer, is it not?

Mr. STORRS. The complete answer is the subsidizing of the prop-
erty. There is no question about that.

Commissioner GADSDEN. If the necessary revenue for a given piece
of property had been properly ascertained, a community could very
well decide, for sociological reasons, to keep a 5-cent fare, and enter
into a contract with the company to put up the difference out of
general taxation, could it not?

Mr. STORRS. There is no question about it.

Commissioner GADSDEN. And in that way solve the question of
the flat rate, if it be thought desirable to keep the flat rate ?

Mr. STORRS. Yes. If the theory on which so many cities have
been developed has been a proper theory from the standpoint of the
communities, the only way to get that is by proper taxation.

Commissioner GADSDEN. As a matter of fact, Mr. Storrs, is it not
your observation that this solution of the community problem of
America has been worked out by the electric railways at their own
expense so far?

Mr. STORKS. Absolutely. There is no question about that.

Commissioner GADSDEN. Therefore, if the American people are
wedded to this system, would it not be proper that they should at
least come in and pay the difference ?

Mr. STORRS. Unquestionably.

Commissioner GADSDEN, Instead of being put up by the stock-
holders or the bondholders in electric railways?

Mr. STORRS. There is no question about it. -,,

Commissioner GADSDEN. That would seem to be a fair way to
meet the issue, would it not?

PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION. 459

Mr. STORES. Yes.

Commissioner GADSDEX. Now, Mr. Storrs, on the question of the
effect of the zone system on congestion, which you have referred to ;
the effect of the zone system in America is largely problematical, is
it not?

Mr. STORKS. Absolutely problematical.

Commissioner GADSDEN. We have no basis for thinking that what
has happened in Europe is going to happen here, have we?

Mr. STORKS. None whatever.

Commissioner GADSDEX. As a matter of fact, have we not in New
York City to-day, with the flat rates of fare of 5 cents, as congested
a district as there is in the world ?

Mr. STOKRS. Yes; that is doubtlessly so.

Commissioner GADSDEN. Notwithstanding the fact that for a
nickel you can ride anywhere from 30 to 40 miles?

Mr. STORKS. Yes.

Commissioner GADSDEX. Yet that condition exists to-da}' under a
fiat-rate situation, does it not?

Commissioner MEEKER. Would you let me make a suggestion
there?

Commissioner GADSDEN. Yes.

Commissioner MEEKER. Is it not, perhaps, partly due to the flat-
rate situation that we have the greatest congestion known in the
world in New York City ? And is it not quite as likely that a zone
rate will result in scattering industries to smaller localities rather
than to center industries and population in urban centers?

Mr. STORRS. It is very hard to assume, in connection with the
New York situation, that it is entirely due to transportation.

Commissioner MEEKER, My object m making the suggestion was
to show that the flat rate of fares and the zone rates operate in two
directions simultaneously; and that you can not, in my judgment,
foretell what the result will be.

Mr. STOKRS. No, sir; that is true,

Mr. WARREN. That is, it will keep some people at home in their
own zone?

Commissioner MEEKER. Yes.

Mr. WARREN. And it will lead other people to congest themselves
in the central zone, and you can not tell until you have tried what
is going to be the result in a particular locality.

( 'ommissioner MEEKER. Yes.

Mr. STORRS. That is the entire problem.

Commissioner MEEKER, Pardon me for making the suggestion.

Commissioner GADSDEN. Yes.

Commissioner MEEKER. We can not derive very much useful in-
formation from the history of the trolleys, the electric railways of
Kurope, because they are older communities, much more thickly
populated, and they all had about the degree of congestion that the}'
Ivavo, now before any trolley was put in.

Mr. STORRS. Yes.

Commissioner MEEKER. And our communities are wholly different;
and I do not think we can safely deduce from European history.

Mr. STOKRS. We caji only deduce from the European history the
fact that the building of the trolleys has prevented the congested
areas of cities, or those trolleys would be profitable ventures.

4CO PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner MEEKER. That would be a generalization that would
be true anywhere.

Mr. STORRS. That is just the point. There is no question but what
it means the gradual bringing in of the trolley development, un-
less some other means should be found, and to abandon the un-
profitable parts.

Commissioner SWEET. Is not that merely another way of saying
that if you had only the profitable parts of your road and could
abandon the unprofitable parts, you would be making money?

Mr. STORRS. Of course.

Commissioner GADSDEN. Mr. Storrs, on the question of the regu-
lation of the jitneys — the jitneys started on the Pacific Coast, did
they not?

Mr. STORRS. Yes.

Commissioner GADSDEN. They started at Los Angeles?

Mr. STORRS. At Los Angeles and in the southern part of the
State.

Commissioner GADSDEN. That was the great center of the jitney
activity ?

Mr. STORRS. Yes.

Commissioner GADSDEN. Do you happen to know what the his-
tory of the jitney in Los Angeles has been in recent years?

Mr. STORRS. Practically elimination, as I understand it — the elimi-
nation of the service of the jitney out there.

Commissioner GADSDEN. By what?

Mr. STORRS. By the safety car and the operation within the con-
gested area.

Commissioner GADSDEN. What about public regulation?

Mr. STORRS. Public regulation, too, has had the effect of making
them a responsible transportation medium and eliminating the casual
operator entirely.

Commissioner GADSDEN. Well the point I wanted to get your opin-
ion on was this: Is it not true that wherever there has been proper
public regulation, the jitney has practically disappeared?

Mr. STORRS. Almost entirely.

Commissioner GADSDEN. Now, Mr. Storrs, do you happen to know
whether the Los Angeles railways are interested in operating jit-
neys of their own ?

Mr. STORRS. I do not.

Commissioner GADSDEN. Mr. Storrs, did you intend to give the
commission the impression that an increase of fare bej'ond 6 cents
would necessarily result in a loss of revenue ?

Mr. STORRS. Not at all.

Commissioner GADSDEN. I rather got that impression.

Mr. STORRS. That was very much too broad. Throughout our
communities in New England it has been generally the fact that
where there is an increase of fare, there has been a loss of patron-
age. I think that is almost universally so. Mr. Warren can cor-
rect me if I am not correct.

Mr. WARREN. I did not catch that.

Mr. STORRS. As to whether an increase in rates of fare would tend
to decrease the revenue. It was a misstatement on my part, if it

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 461

was so understood. My thought was that with the increasing of the
rate of fare over and above 6 cents — there has been an increasing:
loss of patronage, although still the gross was ascending.

Commissioner GADSDEN. Yes.

Mr. WARREN. Not in all places. Mr. Ford, of Portland, testified
that when it was a 7-cent fare they got 37 per cent.

The CHAIRMAN. Twenty-five per cent out of the possible 40 per
cent.

Commissioner GADSDEN. Does not your own experience in Con-
necticut tend to prove the fact that if you will stick out long enough
you are going to get the money?

Mr. STORRS. That is true.

Commissioner GADSDEN. You put in a 6-cent fare, and for a year
you could get no result, but at the end of 18 months you got 14 per
cent. Now, don't you think that that is true, as a general propo-
sition, if we stay by the fare?

Mr. STORRS. That may be true.

Commissioner GADSDEN. That we will sell the transportation at
a higher price.

Mr. STORRS. That is probably true.

Commissioner GADSDEN. It hr.s been true in connection with your
propert}' ?

Mr. STORRS. It has been true in our property, certainly.

Commissioner GADSDEN. Mr. Storrs, have you had any experi-
ence in your Connecticut properties with the frequent-service car ?

Mr. STORRS. Yes.

Commissioner GADSDEN. I think the commission would be inter-
ested in having your experience from the standpoint of the oper-
ators. We have heard from the manufacturers, and we would like
to hear from the operators on that.

Mr. STORRS. Well, in connection with that, we have relatively
few of the safety cars. Twenty of them were purchased originally,
and some of them were placed in service in Bridgeport, some in New
Haven, and some in Hartford. They have been universally satis-
factory, so far as we can find. One of the communities is so thor-
oughly satisfied with them that they are requesting us to abandon
all other means of transportation in that community. We operate
something like 100 cars at the present time. From the standpoint
of the management, the treasury is the only thing to look at; and
they are entirely satisfactory. A more frequent service brings a
greater gross revenue, a slightly increased service a slightly in-
creased gross revenue and, of course, an equal service brings a de-
creased operating cost.

Commissioner GADSDEX. Would you care to say what community
that was?

Mr. STORRS. That is in Bridgeport.

Commissioner GADSDEN. In Bridgeport?

Mr. STORRS. I would be glad, if you care to have me do so, in order
to get the atmosphere, to file as part of this testimony a letter which
was written by the secretary of the Chamber of Commerce of the city
of Bridgeport to the secretary of the Chamber of Commerce of the
city of Norwalk, that letter having been written without our knowl-
edge. I can get a copy of that.

Commissioner GADSDEX. We would bo glad to have you put it in.

462 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. STORKS. Yes.

Commissioner GADSDEN. In that connection you referred to a report
of the Connecticut Commission ?

Mr. STORKS. Yes, sir.

Commissioner GADSDEN. I wish you would put that in the record.

Mr. STORKS. I will be glad to.

Commissioner GADSDEN. As a part of your testimony?

Mr. STORRS. Yes, sir.

The CHAIRMAN. There are about 6 miles of lines in Connecticut to
1 in England.

Mr. STORKS. That was on those cities.

The CHAIRMAN. I wonder if that is due to the fact that in England
the trolley lines came after the cities and villages had been established ?

Mr. STORKS. Very possibly so.

The CHAIRMAN. While here the trolley lines have been attempting
to create business and develop the country. Would not that be a
large reason

Mr. STORRS (interposing). It might have some effect. At the same
time you are familiar with some of the English cities and British
cities and foreign places. They do- not have the dense transportation
facilities that we have in this country.

The CHAIRMAN. You have given us some very interesting testimony
about the growth of the automobile, the jitney, and the motor-truck
business. In 1905 there was one automobile to each 17 families, and
in 1917 one automobile to each 5 families?

Mr. STORRS. Yes.

The CHAIRMAN. Naturally, there was a very great use of that kind
of conveyance?

Mr. STORKS. Yes.

The CHAIRMAN. And that has determined the revenues of the
utilities?

Mr. STORRS. If you will go through some of the New England cities,
outside of the industries, you will see the field parked with automo-
biles, all of which are owned by the operatives in that industry and
used in their trips back and forth by that operative and his neighbors.

The CHAIRMAN. Do not the automobile and the good roads also
bring into the zone of the street-car operations a great many people
from the country ?

Mr. STORRS. It is conceivable that they do.

The CHAIRMAN. To do business, and they travel upon the cars?

Mr. STORRS. That is true. There is a certain revenue in that way.

The CHAIRMAN. Does not the amount of business that is brought in
in that way to your companies result in meeting the losses which you
sustain within the city ?

Mr. STORRS. No; not at all.

The CHAIRMAN. Does it not do so in any considerable part?

Mr. STOURS. No, sir; not at all. I think that that case that I re-
ferred to in Berkshire is very clearly indicative of that. Our serv-
ice there has not grown materially over Avhat it was five years ago
in the city, and our suburban service has decreased two-thirds over
what it was five years ago.

The CHAIRMAN. During the growth of the automobile industry,
there has likewise been, I suppose, an increase in the gross earnings
of the street-car industry?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 463

Mr. STOKKS. I have never checked that up.

The CHAIRMAN. Has this increase kept pace with the growth of
the automobile industry?

Mr. STORKS. Xo; not by any manner of means.

The CHAIRMAN. Mr. Ford and others are suggesting the construc-
tion of a very much cheaper automobile ; and I presume we have rea-
son to believe that in the course of years the use of machines will
be very much extended?

Mr. STORRS. Of course, that depends entirely upon the traffic pos-
sibilities in the street. There is a limitation on the streets and roads.
Certainly the highways throughout the populated portions of New
England have reached their maximum carrying capacity for auto-
mobiles on Saturdays and Sundays and when the casual rider is out.

The CHAIRMAN. And if the automobile industry does expand, what
is the ultimate future of the street-car industry ? Of course, we must
all of us realize that the street-car industry or something to take its
place is here to stay, because the people must be served. Now, what
will be the ultimate effect on the street-car industry if this automo-
bile industry expands as rapidly as it has in the past ?

Mr. STORRS. ^Recognition by the community of the need of trans-
portation and the subsidizing of it to meet that need. They are
subsidizing the automobile utility now by paving and things of that
sort, which they are offering them free.

The CHAIRMAN. If you reach that point, will private capital be
interested in investing in the street-car industry?

Mr. STORRS. With a guaranteed return, I imagine it would.

The CHAIRMAN. Well, if there is not a guaranteed return?

Mr. STORRS. No; certainly not.

The CHAIRMAN. Suppose the communities are obliged to guaran-
tee a return to the street-car industry. Do you think that will con-
duce to the continuation of private ownership and operation of the
utility?

Mr. STORRS. It is conceivable that there would be some method
of recognizing that subsidy that would still give to the management
of the industry and the investor a method of compensating them for
their initiative and ownership.

The CHAIRMAN. Do you believe it would create a very pronounced
agitation for municipal ownership and operation?

Mr. STORRS. Conceivably so.

The CHAIRMAN. Suppose we reached a point where communities
must guarantee, or rather, subsidize, this industry, do you believe
that private ownership and operation or municipal ownership and
operation should be preferred?

Mr. STORRS. I think that private ownership and operation would
be preferable from all standpoints — from the standpoint of the in-
vestor, because it will recognize his energy and initiative in the con-
stantly-increasing return, and from the standpoint of the community
in the certainly declining rate of fare, as compared with what would
result if the municipality itself were to operate the property.

The CHAIRMAN. Is there any experience in this country which
would help this commission to reach a conclusion upon that question?

Mr. STORKS. That I am not thoroughly advised of.

The CHAIRMAN. That is all.

464 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Can you express any opinion on the service-
at-cost plan?

Mr. STORKS. I am not an expert on that, because \ve have not got it,
but I have, of course, followed that with a great deal of interest.
I have followed the development of it.

Commissioner SWEET. You have not tried that out on your system ?

Mr. STORKS. We have not tried that out on any of our properties.

Commissioner MEEKER. I would like to ask one question, if I may.

I thought I understood what your opinion was with regard to
competition from motor vehicles. I am not so sure that I understand
it now. Do you think that, if there should come about a very great
improvement in some means of transportation other than street-
railway transportation, a means of transportation that was clearly
better and more economical than street-railway transportation, the
street railways should still be maintained by means of subsidies?

Mr. STOKRS. In that connection, I would say that the development
of the ait has been from within the art itself and not from any
surprise point, such as the automobile. The automobile to-day is not
capable or properly equipped to take care of the transportation needs
of the community; nor is it at all possible to operate on the same
basis as the electric railway operates, except in isolated cases ; but
the development to the ideal to which you refer, it seems to me, must
come from within the industry itself, and that would be a great deal
of progress.

Commissioner MEEKER. That is, the street-railway industr}7?

Mr. STORKS. That is my thought in connection with that.

Commissioner MEEKER. I have in mind the situation with respect
to the old toll roads and the steam railroads.

Mr. STORRS. Yes.

Commissioner MEEKER. The courts of Maryland decided that the
toll roads, although they had been granted monopoly charters, could
not stand in the way of the much more economically operated means
of transportation, the steam railroads, and so they did not — I don't
remember whether the suit was in the nature of an injunction or not,
but at least they did not uphold the contentions of the toll roads,
and I think the same rules would apply in the case of the street-rail-
way companies.

Mr. STORRS. Of course, they might, but the thought was so entire
hypothetical as to the future that it was not one that I could base
a judgment on.

Commissioner WEHLE. Is the commission correct, Mr. Storrs, in
understanding you as saying that, based on your knowledge of the
Connecticut situation, the only way of preventing these public utili-
ties from becoming public futilities is for the general public to
guarantee deficits of the privately operated companies?

Mr. STORRS. In this report, which I am leaving on file here, there
•was gone into quite largely the question of temporary relief, and that
commission spoke of it all the way through as a means of temporary
relief, until we could come to some adjustment, and without any
question in my mind the same is true in Connecticut as has been
true in Massachusetts and other places.

The CHAIRMAN. I notice you have that Connecticut report in your
hand, Mr. Storrs.

Mr. STORRS. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 465

The CHAIRMAN. Can you secure enough copies to file with us so
that we will not have to have it transcribed in the record?

Mr. STORKS. Oh, yes.

Commissioner WEHLE. Mr. Storrs, do you think that in the freight
business, both urban and interurban, there might be a source of
revenue to the electric railways which has not yet been developed
and which might possibly effect a greater financial return to them?

Mr. STORRS. Without question, there is a by-product there of con-
siderable value.

Commissioner WEHLE. Mr. Warren, I have conferred with the
chairman over the following questions which it was thought might
'be developed by you through witnesses:

First, to what extent might the net revenues of traction lines in
the larger cities be increased through a use of the properties for city
express service at such times and under such conditions as would
not impair passenger service?

Second, have companies undertaken such service as this kind in
any cities; if so, with what financial results?

Third, have companies been prevented from developing such city
express business through limitations in franchises, and have there
been attempts to have such limitations removed; if so, with what
results ?

Fourth, to what extent, if at all, does the interurban freight busi-
ness improve the earnings of traction companies?

Have you considered, Mr. Warren, that that field of inquiry could
be developed in this hearing? I think it would be of interest to the
commission.

Mr. "\VARREN. We certainly shall try it. Some of it, I think, can
be furnished. Whether the rest of it can, I do not know.

The CHAIRMAN. Mr. Warren, before you proceed with the next
witness, the commission wishes to submit a proposition to you. This
is the month of July, and the weather is somewhat enervating.
However, we are all confronted with a tremendously important
problem, and it is one, of course, that should command our undi-
vided attention until the question is disposed of. The commission
is willing to violate the union hours and hold night sessions, from
8 o'clock to 10, to expedite these hearings, if it is convenient to
yourself and your witnesses, and if you will confer with your as-
sociates and your witnesses during the noon hour

Mr. WARREN. Yes ; I will be very glad to.

The CHAIRMAN. And advise us after our recess, which we will
take from now until 2 o'clock

Mr. WARREN. We can assure you at once that we will accept it.

The CHAIRMAN. Then it is understood that, beginning to-night,
we will have sessions from 8 o'clock until 10.

Mr. Warren, in connection with the questions that were asked by
Commissioner Wehle, will you insert one more:

What advantage is there to be gained in utilizing a double-deck
passenger car, and what experience has there been with that car in
this country or in Europe?

Mr. WARREN. We will be glad to add that.

The CHAIRMAN. Have you any witness that can complete his tes-
timony before the hour of adjournment?

466 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. I have not. I was going to ask you to suspend now.
The CHAIRMAN. Then we will adjourn until 2 o'clock.
Mr. WARREN. Yes.

(Whereupon, at 12.55 o'clock p. m., a recess was taken until 2
o'clock p. m.)

AFTER RECESS.

Mr. WARREN. Mr. Chairman, during the noon recess I have been
looking over my witnesses somewhat and I am afraid that I can not
to the best advantage go on with an evening session this evening.
After this evening I am very confident I can ; but the list of wit-
nesses has been made up for the day, and if it could be possible to
begin night sessions to-morrow evening instead of this evening, I
think perhaps we shall get along just as rapidly.

The CHAIRMAN. I am quite sure it will be agreeable to the com-
mission to suit your convenience.

Mr. WARREN. Then we may leave it that way — that the evening
sessions may begin to-morrow evening?

The CHAIRMAN. Very well.

Mr. WARREN. Mr. Nash, will you take the stand?

STATEMENT OF MR. LUTHER R. NASH.

Mr. WARREN. Your full name.

Mr. NASH. Luther R. Nash.

Mr. WARREN. You are an engineer by education, I think?

Mr. NASH. By education.

Mr. WARREN'. And you are a member of the Stone & Webster
staff?

Mr. NASH. I am. I have been connected with the Stone & Web-
ster organization for about 24 years.

Mr. WARREN. And along what lines does your experience run in
that organization ?

Mr. NASH. About the first third of that period I was designing
and constructing engineer and made various investigations in con-
nection with the surveys of prospective fields and other work pre-
liminary to and in connection with the construction of public-utility
properties. Following that I became the manager of one of the
Stone & Webster properties for about four years. After tha* I
was connected with the supervisory staff of a group of the Stone &
Webster companies and had to do with the general problems of man-
agement and betterment, engineering and financial plans. More
recently I have given more particular attention to the public rela-
tions problems, matters of rate and fare adjustments, valuations,
tax adjustments, and financial plans.

Mr. WARREN. And have you also given special attention and made
a special and pretty detailed study of the so-called service-at-cost
franchises and plans?

Mr. NASH. I have. I have been connected with the working out
of a number of such franchises and have made a study of all of those
which are now in effect in the United States and Canada.

Mr. WARREN. Will you describe to the commission what you con-
sider the essential features of a service-at-cost franchise ?

PROCEEDINGS OF FEDEKAL ELECTRIC RAILWAYS COMMISSION. 467

Mr. NASH. I think perhaps, not to directly answer your question but
to get at the import of it, service at cost was developed in the da^ys
before State regulation of utilities was bej^ond its experimental stage.

The first service-at-cost franchises were framed in 1907. Except
for Massachusetts, there was no commission with full regulatory
powers previous to 1907. And I might add that, up to 1918, there
wore no service-at-cost franchises put into effect in States which had
public-service commissions.

The purpose or scope of service-at-cost franchises is not at all dis-
similar to that of the regulation of the public-service commissions.
It involves the determination of all the elements of cost of service
and adjusting the fares to that cost. The elements of cost include the
return on the capital invested, which the investors demand for the
use of their money, the ordinary expenses of operation, the upkeep
of the property or a provision for its depreciation, taxes, and the
creation of such reserve barometer funds and, in a few cases, amorti-
zation, although I do not consider amortization any part of the
proper cost of service. Those are the fundamental elements which
enter into practically all of these service-at-cost franchises. Not all
of them carry out fully the service-at-cost plan. The early ones had
a fixed fare, which was assumed to be higher than the cost of service,
with a provision that the surplus yielded by this fixed fare in excess
of the cost of service would be divided between the city and the rail-
way. But the later forms have an automatic adjustment of tlie fare
to the cost, and that automatic feature I consider the essential differ-
ence between the operation of a service-at-cost franchise and the
regulation of railways as practiced by the State commissions.

I think one reason why the service-at-cost plan has become popu-
lar is because of this automatic feature. It has been the experience
of a good many railways in taking cases before public-service com-
missions, even where these commissions have full authority to act,
which they have not in many cases, that action has been slow. I have
been concerned in a number of rate cases myself where, with a com-
paratively free slate, the commissions have held cases under consid-
eration for the major part of a year before rendering a decision,
even when the condition of the railway, its need of additional reve-
nue, were perfectly obvious.

As an alternative, any plan of procedure which would automati-
cally increase — or decrease, so far as that is concerned — the fare as
soon as the need developed, is and should be welcomed by the elec-
tric railways.

Mr. WARREN. Is there anything about that sliding scale, that
automatic adjustment of rates with the cost of the service which, in
your judgment, is incompatible with the jurisdiction of the State
commission or with the State commission's exercising the authority
which under some of these franchises is reposed in municipal or local
authorities?

Mr. NASH. I do not think there is any fundamental difference in
the effectiveness of the plan as far as the fare schedule, is concerned
as to whether a State commission or a local board has immediate
supervision. The automatic feature might be applied in either event
perfectly well.

Mr. WAHHBN. As a matter of fact, Mr. Nash, when the Massachu-
setts service-at-cost statute was adopted lust year, I think, tho

468 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

adoption of the sliding scale itself is first to be determined by the
commission, is it not? Or do you recall?

Mr. NASH. Yes; in case of the Boston Elevated and the Bay
State Gas

Mr. WARREN. I mean the general law.

Mr. NASH. Yes; the State commission has jurisdiction under the
general Massachusetts act.

Mr. WARREN. The scale has to be satisfactory to the State com-
mission; and, as I remember the act, there * was a provision for
changing the scale from time to time on the initiative of the com-
pany, with the approval of the commission, or something of that
sort; was there not?

Mr. NASH. It is my recollection that the State has entire jurisdic-
tion; that there are no local boards having any jurisdiction at all.

Mr. WARREN. Was there something you wanted to say about that ?

Mr. NASH. I think not.

Mr. WARREN. The term, I suppose, varies a good deal in these
different service-at-cost plans which have been adopted?

Mr. NASH. There is quite a wide range, from 20 years to an in-
determinate form. The indeterminate form, I think, is becoming
decidedly more popular, and properly so, because of the great facility
in financing and refinancing under a plan of that kind. With either
State or local supervision the public is amply protected against any
inferiority of service or excessive charges or any of the other things
that might develop without regulation.

Mr. WARREN. In fact, is one of the merits of the plan, where that
feature is incorporated in it, that the term is indeterminate so that
the city or territory served is always free to purchase the property
if the service is not properly conducted ?

Mr. NASH. That is a provision usually coupled with the indeter-
minate franchise that the city may purchase at any time on reason-
able notice, and that, of course, is a protection against any misbe-
havior on the part of the railway.

Mr. WARREN. And the price is usually determined in connection
with the franchise?

Mr. NASH. It is usually the purchase price and capital value,
so called, which is the rate base, which are usually the same. That is,
the value of the property is fixed at the time the franchise becomes
effective and as additions to the property are made, and, as property
is abandoned, the appropriate additions or subtractions are made:
so that there is constantly kept up a so-called capital value of the
property on which the return provided for in the franchise is
allowed and which is very often used as the basis for accruing for
depreciation, all in addition to being the basis of purchase by the
municipality.

Mr. WARREN. And this rate base is determined how? This rate
base, I take it, is the amount on which the return on the investment
is figured or estimated ?

Mr. NASH. Usually that is a sum determined more or less arbi-
trarily, I might say, with due consideration to the outstanding se-
curities, the actual investment in the property and its cost of repro-
duction, and so forth; but in the majority of cases the amount which
has been determined coincides fairly closely with the actual invest-
ment in the property. That is at least true in Massachusetts, where

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 469

the actual investment has been the standard for a good many years
of the rate base which the commissions have adopted. And, although
cost of reproduction has been used and been recommended in other
jurisdictions, I think there is a definite tendency toward actual in-
vestment, so far as that can be determined. Of course, in the case
of many of the very old railways which have gone through numer-
ous reorganizations and consolidations it is often difficult to deter-
mine from the accounting records what the actual investment was,
but it is usually possible to make some approximation by a thorough
search through the old records.

Mr. WARREN. But in every case there lies at the entrance upon
this plan a determination by agreement, or in some way — ultimately
by agreement, I suppose — as to what that rate base, or so-called
value of the property, shall be.

Mr. NASH. That is one of the essentials of the service-at-cost plan.

Mr. WARREN. Then, as to supervision — does the plan ordinarily
contemplate supervision of the operation and finances of the com-
pany ?

Mr. NASH. Ordinarily the plan provides for a local supervisor
or board of control, with one to three members, which has super-
vision over the service, the accounting, the rates, and matters of ex-
tension; in fact, the general supervision of the operations and pol-
icy of the property.

Mr. WARREN. And where the plan is put into effect merely as a
local undertaking by arrangement between the company and the
local authorities of the city or town, the supervising commission,
if there be one. has nothing to do with it ?

Mr". NASH. No.

Mr. WARREN. As in Ohio?

Mr. NASH. In Ohio there are two service-at-cost franchises in op-
eration— in Cleveland and in Cincinnati; and in both of those cit-
ies the local supervisor has direct charge and full charge over the
regulation of the railways. The State commission has no such au-
thority.

Mr. WARREN. As a matter of fact, does the Ohio commission — if you
happen to know — have very much jurisdiction over street railways?

Air. NASH. I am not very familiar with the act there, but as far
as its actual operations are concerned, it has not. I have seen very
few evidences of its activities in railway cases.

Mr. WARREN. If you were recommending the supervision pro-
vision in such a franchise, should you stop with the absolute juris-
diction in the local authorities, or should you provide an appeal,
and if so, to whom?

Mr. NASH. I do not think that the absolute local supervision would
work out to the best advantage. It has worked fairly satisfactorily
in the cases where it has been tried, but experience with any of these
franchises has been comparatively limited. It seems to me that in
the final analysis authority ought to be lodged with the State regu-
latory authorities.

Now, there are all kinds of degrees of jurisdiction between local
and State that might bo worked out. For example, the city might
appoint a representative, who would be called a supervisor, or ho
might be an existing city official, who would represent the city in

470 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

negotiations with the company with respect to service, extensions.
or changes in rates or operating conditions, and in 9 cases out of 10
the city representative and the company representative would prob-
ably agree upon what should be done. In cases where they could
not agree, I think the logical appeal should be to the State commis-
sion, partly because of their wide acquaintance with the conditions
which "have arisen in some particular locality and partly because
it removes the decision in the case further away from local appeal
and prejudice. City officials are apt to make the best kind of a
trade they can for their constituents, and the State commissions, on
the other hand, have a broader view and are more apt to decide the
question upon abstract merits and with a view to the long-range
interests of the community rather than its immediate advantage.

Mr. WARREN. What do these franchises provide, if there is any
usual provision in them, with respect to franchise practice? And
what, in your opinion, should be the provision regarding franchise
practice ?

Mr. NASH. There are only two or three of the dozen, approximately,
that I recall that provide specifically for a tax which could be called
a franchise tax or .a rental. In fact, the only two that I recall at
the moment are Montreal and Cincinnati, in which substantial sums
are provided to be paid annually as a price for doing business on
the city streets. In both those cases the percentage of the gross
earnings, if I remember rightly, is in excess of 4 or 5 per cent; in
one case it is considerably higher than that.

I do not at all approve of that kind of a tax. Theoretically a
tax on a franchise ought to be a tax on the right to earn a profit
in excess of that which investors could earn in ordinary industrial
or commercial enterprises. Under a service-at-cost plan there is
no excess profit. The profit is just the bare amount which theoreti-
cally the investor could earn somewhere else. So that the oppor-
tunity for rendering a public service has no special value on which
a tax should be levied. So that I think taxation of public utilities
should be limited to the ordinary ad valorem taxes which are paid by
other industrial and commercial industries, plus also such license
fees as are paid by other kinds of business; in other words, the
same kinds of taxes which other industries pay and no more.

Mr. WARREN. In other words, I suppose the effect of the franchise
tax, if it is levied, is to add just that much more to the cost of service
to the car rider.

Mr. NASH. Yes; it is passed along directly to the car rider — wThich
means that amount of taxes is paid by a certain group of citizens
instead of being distributed uniformly over the entire list of tax-
payers, as it should be.

Mr. WARREN. Do any of these franchises provide for public con-
tributions to the cost of operation or to the cost of the service?

Mr. NASH. A number of the most recent ones do make provisions
of that kind. These contributions are of different kinds and of
different degrees. The franchise which was prepared — or it might
be called a lease — in Philadelphia .for the use of the new rapid-
transit facilities which are being constructed there — an agreement
which was entered into between the railway and the city which went
to the public-service commission and was criticized in certain re-
spects and has not gone into effect as yet — that franchise provided^

PROCEEDINGS OF FEDERAL. ELECTRIC RAILWAYS COMMISSION. 471

that rentals on the city-owned rapid-transit facilities might be sus-
pended wholly or in part by the city if the revenues under the exist-
ing fare schedules were not adequate to take care of all of the other
costs -of service and these rentals. And I think in all cases the rental
of subways and rapid-transit lines was to be borne by the city dur-
ing the first year, but thereafter it might be waived wholly or in
part if, under existing or normal or what might be considered normal
rates of fare, the rentals could not be paid.

Mr. WARREN. Did that franchise provide for a sliding scale of
rates*

Mr. XASH. It has the sliding scale, but without the steps being de-
fined. The determination of fares in that case was left entirely to
the board of supervisors, consisting of a city representative and a
company representative and a third member, who would act as an
umpire in case of disagreement. That is one of the very few fran-
chases in which no rates of fare are mentioned. Usually a scale is
fixed with a certain number of steps from one to another in which
the rates in effect change automatically as the costs increase or
decrease.

Mr. WARREN. And in that franchise, do you remember whether
there was a provision that, after the board of supervisors and the
company agreed on the change in rate, the proposed change Avas to
be submitted to the public-utilities commission for its approval?

Mr. NASH. The approval of the commission is required in that
case.

Air. WARREN. If the commission will allow me, Mr. Chairman, I
should like to suspend Mr. Xash's testimony at this point and call
Mr. Culkins, who is the Cincinnati director of street railways. He
is not our witness in any sense, except that he has very kindly con-
sented to come at this time, while more naturally he might come
when the cities are represented two weeks from now. It seemed to
us very desirable, if we could, to present somebody to the commis-
sion who would explain the city side of one of these service-at-cost
franchises which is in actual operation at the same time that we
explain the other side.

The CHAIRMAN. Do you intend to put Mr. Xash on again?

Mr. WARREN. Yes; we intend to put Mr. Nash on again. Mr.
Culkins has to leave at 4 o'clock to get a train at half past 4, so
with that explanation I should like to call Mr. Culkins.

(Witness excused.)

STATEMENT OF MB. W. C. CULKINS.

Mr. WARREN. Your full name?

Mr. CULKINS. W. C. Culkins.

Mr. WARREN. Have I correctly described your title?

Mr. CULKINS. Director of street railroads is correct.

Mr. WAUICKN. Director of street railroads of Cincinnati?

Mr. CULKIXS. Yes.

Mr. WARREN. And in that capacity you represent the public in
supervising the opc'rations and activities of the street-railway com-
pany ?

Air. CULKINS. Yes.

472 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Can you and will you tell the commission how Cin-
cinnati came to adopt this service-at-cost plan, what the public
sentiment was with reference to it before its .adoption and how it is
working out, and how the public regard it ?

Mr. CULKIXS. The situation in Cincinnati was a little different
from a good many other cities from the fact that there was a fran-
chise revision open at the time this general question had arisen all
over the country. And perhaps it might clarify it if I would ex-
plain briefly just how that situation arose. It was not a question of
a new franchise. In 1890 the city granted a 50-year franchise to
the companies which contained a provision that .this franchise should
\)f. open for revision at the end of the first 20 years and each 15
years thereafter, and provided in that clause that the revision should
be as to rates of fare and all other terms and conditions based
equitably upon the then cost of carrying passengers, and should
be acceptable to the company, and in event of their failing to agree — •
the company and the city — that it should be submitted to a court,
of competent jurisdiction by way of an injunction on the part of the
company against the city's enforcing its proposed contract.

This 20-year period expired in 191C. and the city proceeded with
the company to revise the franchise then which included a provi-
sion for the rental of a rapid-transit system that the city proposed
building. The Supreme Court declared that franchise invalid on
the ground that it was a lending of the city's credit, because the
rental was not paid in the distribution of gross receipts. The pay-
ment of the rental on the rapid -transit lines came subsequent to the
returns to the company. That decision was handed down in October
of last year and immediately brought up the question of a further
revision or a new revision.

Xow, in approaching this question, the city took the view in the
experience that had already appeared during the war times that
there was a new viewpoint necessary in the working out of a fran-
chise that would be the most serviceable to all concerned. They
realized that a street-railway utility was the key utility in any
community, since it made all other industries possible, and that
therefore it was highly important to the development of the com-
munity that some kind of a franchise be worked out which would
allow the community itself to expand and to do its part in the general
expansion of the country. They took rather the new view. The old
franchise was the old type of franchise. It contained very few re-
strictions ; it provided that cars should run as often as the public con-
venience required and neglected to say who should determine that.
And it was found there was a very great difference of opinion between
the stockholder and the strap hanger as to how often cars ought to
run. The view taken by the city in this case was that we should vis-
ualize a street-railway franchise not so much as a permit given to per-
mit a corporation to operate an industry in the city, but as the crea-
tion of an agency to carry out a purely municipal function; that it
was- the duty and the function of the city, which it might exercise of
its own motion and of itself, to provide transportation for its people;
and that if it did not do it, it should create an agency under
its control that would carry out this function in the way that the
city should direct.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 473

It was very evident that most of the trouble in street-railway
franchises was growing out of too much rigidity all along the line,
not only in rates of fares but in terms and conditions; and the city
felt that perhaps the cure for too much rigidity was a great deal of
elasticity. The question was opened at a time when prices were very
high, when it would be obviously unfair to the company to expect
them to operate on a rate of fare based on prewar conditions. It
would be obviously unfair to the community to ask them to allow
the company a rate of fare based upon war times which would
continue for a period until 1931. assuming that there was a prob-
ability at least of there being some change in conditions during
that period. So that the thing which seemed to be obvious was the
service-at-cost plan, since it would automatically adjust itself to
these changing conditions. It would be high enough to allow the
public to have the kind of service that it wanted and was willing to
pay for, and it would automatically reduce those rates when the
costs and market conditions changed in accordance with that. So
that a plan was adopted that follows somewhat the Cleveland plan,
being the oldest service-at-cost plan in operation then, with such
modifications as we felt experience had warranted in that plan.

Our plan, briefly, provides that the rates of fare shall be sufficient
to pay the cost of service — the cost of service being defined as operat-
ing expenses and taxes and a return to the company and $350.000
franchise tax. After that is earned, the surplus goes into a fund
with the usual machinery of a reserve or stabilizing fund to regulate
the rates of fare.

The CHAIRMAN. Will you refer to your franchise-tax item again?
I did not understand about that franchise tax of $350,000.

Mr. CULKINS. Yes; there is a franchise tax of that amount.

The CHAIRMAN. That is collected out of operating revenues?

Mr. CULKINS. That is collected out of operating revenues. I will
be glad to refer to that further a little later, if you desire.

Mr. WARREN. How about depreciation ? Have you mentioned that ?

Mr. CULKINS. Depreciation, of course, will be included in the cost,
although the provision in there is not altogether satisfactory, and
will continue for five years, at which time the public-utility commis-
sion will decide the method of charging the depreciation.

There were many things in this franchise which had to recognize
the present financial condition of the company, because it was
necessary to keep the thing moving — to recognize that the company,
like all companies, was in strained financial condition. The pro-
vision for a return on the capital seemed to us to be perfectly legiti-
mate and absolutely necessary, aside entirely from the fact that a
great number of our people have invested their savings in this par-
ticular utility, which is very popular, from the fact that people can
see it running on the streets and feel that the}7 own it, and very
largely it is held by people in very moderate circumstances.

But primarily, from the city's point of view, the situation was no
longer whether an investor should save or lose his investment, but
it would be necessary to provide a return in this cost of service that
would enable the company to procure the necessary new capital to
carry on its expansion in harmony with the expansion of the com-
munity.

100043°— 20 31

474 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I do not linow that you want me to go into minute details in de-
scribing this ordinance.

The CHAIRMAN, You may file a copy of the ordinance.

Mr. CULKINS. Perhaps that would be better.

The CHAIRMAN. But we would like to have you touch the high
spots as you go along. I am quite unfamiliar with the service-at-
fost plan, and I am sure the other members of the commission will
wish to hear more about it.

Mr. CULKINS. As I have said, it includes the, operating expenses,
depreciation, taxes, return to the company, and this $350,000 fran-
chise tax, and provides that after that, with the authority of the city,
a working capital may be set up and any receipts beyond that go info
what is known as the reserve fund ; that is, the balancing or stabiliz-
ing fund.

Under the plan, when this fund reaches $650,000, fares will be
automatically reduced by one-half cent. When it is reduced — deficits
then will be paid out of it if there are any— -and when it is reduced
to $250,000, fares automatically are increased one-half cent. The
$250,000 is to be put into this fund by the company, the remainder
of it to be from receipts.

The CHAIRMAN. At" that point will you explain how you handle
the half -cent increase or decrease in the fare ?

Mr. CuwaNS. It is handled by way of tickets. There is no limi-
tation either top or bottom in this ordinance. The ordinance was
initiated at a 5-cent fare, which was an incorrect rate of fare. The
committee which prepared the ordinance found on investigation that
it was costing 5-J cents to carry a passenger, and recommended that
the initial rate of fare be C cents. A committee of public-spirited
citizens, who had been before the committee every day threatening
a referendum, suggested that if the city would initiate the ordinance
with a 5-cent fare that then they would abandon all their suggestion
of a referendum. That suggestion was made about three days after
Buffalo had a referendum, and I think, rather to the surprise of
the city, the company came in and volunteered to carry it out on
that figure. The citizens continued to talk about a referendum;
but it should not have been initiated at 5 cents, because you are ini-
tiating a service-at-cost ordinance at less than cost.

I might bring this to your attention, too — that in the distribution
of this surplus there is another provision that is unlike most of the
service-at-cpst ordinances. Based upon our information that the
greatest criticism of the service-at-cost ordinance plan was that it
tended to produce an inertia on the part of the company, a sort of
feeling, " We get ours; now go ahead and tell us what to do " — there
is a provision by which the company may participate in this surplus
at certain times. When the fares are more than 6 cents, all the sur-
plus after paying cost of service goes into the reserve fund for reduc-
tion of fares. When the fares are 6 cents the company is permitted
to retain 20 per cent, 80 per cent going into the reserve fund.
When fares go down to 5-}- cents the company is permitted to retain
30 per cent, and when fares go down to 5 cents or less the company
is permitted to retain 45 per cent. So we think we have a piece of
machinery in there which makes it always against the interest of
the company to have high rates of fare, but which enforces from our
point of view the necessity of economical operation.

PROCEEDINGS OF FEpEEAL ELECTRIC RAILWAYS COMMISSION. 475

Xow, it might be said that the company might impair the service
in order to get that, but the city retains absolute control. To my
mind, that is a very vital feature of this ordinance. The city main-
tains that control over the operation of the company, over its
finances, over its service, over its investments, and that control, with
the exception of three particulars, is vested in the director, in one
man, with a view of centralizing the responsibility. He is not only
made responsible for that but he is made responsible wherever any
olher department touches this company— that the company need
only to go to one man and then its becomes his duty to take it to the
proper place. The matter of extensions, rerouting, and further fran-
chises are vested in the city council, but they are required to refer the
matter to the director for report and recommendation before they
take any action on it, thus overcoming the action of the council from
being influenced by a large delegation and the usual procedure.

By way of controlling the cost and expenses of the company we
adopted, rather than the Cleveland plan of a car-mileage allowance,
a budget plan. The company is required to file with the director,
45 days before the beginning of each year, a budget of operating ex-
penses classified in accordance with the Interstate Commerce Com-
mission system. That budget, however, carrying out the thought of
elasticity and realizing that you can not even tell a year ahead just
what will happen, may be revised by way of the company's filing
a request for a supplemental budget, which the director may allow
or disallow, or he may transfer among those funds in order to meet
any extraordinary or unusual expenses. That is the only feature of
the ordinance wherein an arbitration is involved. If the company and
the director are unable to agree to the budget, then the matter may be
submitted to an arbitration, which is final.

The thought of elasticity is carried out in the control, since the
city determines the number of cars, the kind of cars, their frequency,
where the cars shall stop, where the transfers shall be given, and in
the matter of extension the city reserves the right to order extensions
wherever it sees fit.

We have also included in there, in case it may be feasible to do it,
the right of the company to operate freight cars, to haul express
packages and anything of that character.

The council reserves the right to reroute at any time, in other words
to meet whatever condition may arise at any time. There is no
rigidity and no specific requirement as to anything. In the case of
nn order to improve service, the order is effective in 10 days unless
the company files a complaint. In the event of the company filing
a complaint there shall be a public hearing before the director, who
finally determines after the hearing what shall be done; and the city
may enforce its order in a suit for specific performance and the com-
pany may defend only on the ground it has not been allowed a suf-
ficient revenue in the budget to carry out the improvement as ordered.
Since the director has the right to authori/e a supplemental budget,
it really amounts to no defense or a question of fact. In regard to
transfers, the only limitation is that the public may not be brought
back to the point of origin.

I think I have tried to touch all the high points in the system.

Mr. WARREN. You spoke of arbitration once or twice, Mr. Culkins.
Is there any fixed arbitration board or tribunal ?

476 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CULKINS No.

Mr. WARREN. Or is it selected by agreement?

Mr. CULKINS. The company selects one, the city selects another,
and those two select a third, but in the event of their failing to do
that the arbitration committee of the local chamber of commerce
selects the third, and in event of the failure to appoint a committee
the sinking-fund trustees — that is, the initial arbitrators — the sink-
ing-fund trustees appoint them.

Mr. WARREN. Under the present rapid increases in the cost of
operating street railways how is the experience of this year compar-
ing with the budget which was presented at the beginning of the
year ?

Mr. CULKINS. Well, we are keeping within the budget ; very close
to the edge of it — well, keeping well within the budget. I think just
offhand we are probably $100,000 to the good on the budget. The
budget was estimated on the basis of reaching a T-cent fare in
October.

Mr. WARREN. Of this year?

Mr. CULKINS. Yes. We are hoping not to have to reach a 7-cent
fare. We went to a 5^-cent fare in January, a 6-cent fare in April,
and 6^-cent fare in July. Now, our experience has probably been a
little more fortunate than that of some cities in regard to the loss of
traffic on the increase of fares.

Commissioner GADSDEN. Before you get into your experience, Mr.
Culkins, would you go a little further into the question of how you
are treating the franchise as to the cost of money ?

Mr. CULKINS. That, too, is so drawn as to meet the conditions as
they arise. Any new securities issued by the company must be
approved by the public-utilities commission tnder the State law, and
also by the director ; and all of the terms and conditions and the rates
and everything are determined at the time. There is no limitation
on that. Market conditions of money determine it.

Commissioner GADSDEN. That is flexible, too?

Mr. CULKINS. That is flexible, just the same as the other.

Mr. WARREN. If you borrow money at 6 per cent, the interest
charge on that money is added to the cost of service ?

Mr. CULKINS. To the cost of service ; yes, sir.

Mr. WARREN. And if you refund an existing issue of bonds at a
higher rate that is added?

Mr. CULKINS. We recognized this principle — that you could no
more foresee the value of money ahead of time than you could have
foreseen these things that came upon the industry in the last few
years.

Mr. WARREN. Like the rate of wage, for example ?

Mr. CULKINS. Yes ; like the rate of wage.

Mr. WARREN. You spoke of the council's having control of exten-
sion, I think.

Mr. CULKINS. Yes.

Mr. WARREN. And service?

Mr. CULKINS. No ; the council has control of extension, rerouting,
and new franchises. They are final on that. But in each case they
must refer it to the director for his advice and recommendation. I
think that is the term.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 477

Mr. WARREN. Suppose he makes a recommendation one way and
they can still —

Mr. CULKINS. They can still do just as they please. The value of
that is that it secures some kind of study into the question ; that it
will not be carried by public hurrah.

Mr. WARREN. You spoke of having started with the 5-cent rate?

Mr. CULKINS. Yes.

Mr. WARREN. How soon did you go to the 5|-cent rate?

Mr. CULKINS. At the earliest opportunity, in the three months.
Now, perhaps to explain that, until this reserve fund is accumulated
the rates of fare may change every three months. In any two calen-
dar months where the gross receipts are not equal to the cost of
service, the rates of fare, beginning at the first of the next succeeding
month, shall be advanced one-half, cent. That is to continue until
they reach the cost of service and until $400,000 of the normal re-
serve fund is accumulated. When there is $400,000 in the fund then
the reserve fund may be used to meet deficiencies, but not until then.

Mr. WARREN. When you went to the 5^-cent rate — you may have
told it but I did not catch it — that is with tickets?

Mr. CULKINS. Yes.

Mr. WARREN. And the cash fare is 6 cents ?

Mr. CULKINS. Yes.

Mr. WARREN. Your present rate is G| cents ?

Mr. CULKINS. Six and a half cen-ts or 7 cents cash.

Mr. WARREN. What do you estimate that that would yield, if there
was no loss of traffic ?

Mr. CULKINS. Well

Mr. WARREN. Does practically everybody use the tickets?

Mr. CULKINS. No ; our experience with the 5£ and 6-cent fare, was
that 80 per cent used tickets and 20 per cent paid cash. We have not
got the figures out yet, but there is a sort of surface indication, which
is interesting, that there will be a larger percentage of cash fares
than tickets from the 6£ and 7-cent fares, they apparently feeling
that the proportion is not sufficient — a man would put up 33 cents
rather than pay the extra half cent each time, but he will not put up
39 cents. However, it is not a sufficiently large fraction to be of any
importance.

Mr. WARRAN. Has your experience with the increasing rate led you
to believe pretty firmly that your revenue will increase with increase
in rates?

Mr. CULKINS. As a broad question, I do not think there can be
any doubt that under this plan raising rates of fare will reach a
point where the economic law of diminishing returns will set in and
where there will be a loss of car riders. Because the man who must
ride and on whom the company loses money will be with you' always.
The man who can walk will have a disposition to walk as fares go
up. I think that will probably be different in every city or in various
cities.

Mr. WARREN. What has been your experience?

Mr. CULKINS. On the 5£ and 6-cent rates there was apparently no
appreciable loss. Of course, you will understand that it is a little
difficult to reach any conclusion, because this is just at a period when
the soldiers and the workmen are coming back, when people are re-
turning. We do not know how many arc returning; we do not know

478 PROCEEDINGS OP FjEDEJiAL i^^JCOWC RAILWAYS COMMISSION.

what we ought to ;get. On the >6£-cent fare so Jar this month, the
increase in receipts is 31.7 per cent. Now, that would indicate that
we are setting a little more than — the increase is 30 per cent

The CHAIRMAN. Is that an increase over

Mr. CULKINS. Over 1918.

The GH AIRMAN . But not over the 6-cent fare?

Mr. CULKINS. No; over 1918— over last year. The previous ex-
perience of the company indicated that under normal conditions
there should he .on average increase of &| .per cent every year. You
see, even with the soldiers coming back it is not up to that. The
excess of the 30 per cent of what your fare would actually produce
is ,not up to that, which would indicate we are getting dangerously
near the point where they are going to come together.

Mr. WARRED. Where there might be some loss?

Mr. CULKINS. Yes. But I do not think there is any doubt that
there is some now; there is bound to be, of course, but J do not
think it is very large.

Mr. WARRED. You think your theoretical increase, leaving out the
3^ per cent of normal increase, anyway is about 30 per cent?

Mr. GULKINS. Yes; a little over 30 per cent.

Mr. WARREX. And you are actually getting a little over 31 per
cent?

Mr. CULKIXS. Yes.

Mr> WARREN. So if you -subtract your 3£ from that, you are getting
28.2 per cent?

Mr. CULKIXS. Yes; you are getting as much as you could

Mr. WARREN. You are getting pretty nearly as much as you could.

Mr. CULKINS. Yes.

Mr. WARREX. You would normally get 29 per cent where you are
getting 28 ?

Mr. CULKIXS. Yes. There has not been very much change on the
part of the public, which probably accounts for that.

Mr. WARREX. You were at one time city auditor?

Mr. CULKINS. Yes.

Mr. WARREN. And at another executive secretary of the Cham-
ber of Commerce, of the city of Cincinnati ? Do you want to say
anything to the commission about the state of public sentiment about
this service at cost since it has been in effect ?

Mr. CULKIXS. I believe that the plan appeals to the public very
strongly. Of course, it is like everything else connected with this
subject ; many of the public do not understand it and have not been
able to understand it ; but wherever it is brought to their attention
it seems to be popular, and I think it will be safe to say it is a
very popular plan in the city. Now, just where the rate of fare
would have to be for it to begin to be unpopular is a thing only ex-
perience will showr, but the current comment is that the suggestion
of paying for what you get does appeal to the public. And I think
the best test of that is that they keep on riding.

Mr. WARREX. Do you think the reason of that popularity is the
assurance that the company is not making excess profits?

Mr. CULKINS. Where they understand it. Of course, that has to
be explained, and it has not been thoroughly explained. The com-
pany now contemplates a campaign of publicity in order that the
public may better understand this franchise, f have explained it

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 479

to a large number of groups of our citizens, and I have never had
an exception to the experience that where it was explained to them
they looked very favorably upon it and seemed to be very well
satisfied with the plan.

Mr. WABKEN. How do you get along with the company, you as the
city's representative?

Mr. CULKINS. Oh, we get along fairly well.

Mr. WARREN. If you were starting out with such an experience as
you have already had with your service-at-cost franchise — if you
were starting out to draw one now just as you would like it as a
sort of ideal or model franchise, what changes would you make
from those you have described in the Cincinnati franchise?

Mr. CULKINS. I do not know that I would make any fundamental
changes. I think there is a weakness in our ordinance that the super-
vision is charged to the general taxpayer rather than as a cost of op-
eration. That will always have a tendency to crab the supervision,
because cities are always broke. I believe that legitimately ought
to be a charge against the car rider, for the service is specifically for
the car rider, and you can easily see it differentiates from every other
city department.

Mr. WARREN. How about the term of franchise, if you were start-
ing out with a new franchise?

Mr. CULKINS. Of course that is a matter of p-ersonal opinion. I
personally believe in an indeterminate franchise.

Mr. WARREN. Your franchise, however, has so long to run that
that question is not vital yet, if it is ever going to be.

Mr. CULKINS. Well, not until we get near to the end of it; and
that may be corrected some way in the 1931 revision.

Mr. WARREN. Has the operation of this service-at-cost franchise so
far resulted in any demand for public ownership or any increased
demand?

Mr. CULKINS. Not any at alL I do not think there is, beyond the
group which exists in every city, any very large amount of sentiment
for public ownership, and perhaps less than before. Because we have
said that under this ordinance you get substantially all the benefits
of public ownership without any of its disadvantages. I believe if
Cincinnati leaned toward public ownership they would lean first
toward public ownership and private operation, because we have the
experience ; we own a steam railroad which is operated privately and
yields about one and a quarter million dollars revenue to the city
every year; so I think that sentiment would be the first. I have
heard that suggested as a way of relief — that the city might own it,
thereby relieving the company of that much taxes.

Mr. WARREN. I think that is all I want to ask, Mr. Chairman, but
I think Mr. Culkins would be very glad, because he has realty come
to give information to the commission, to answer any questions of the
commission, keeping in mind only that he would like to get away at
4 o'clock.

The CHAIRMAN. Have you some other witnesses upon this same
question ?

Mr. WARREN. We have other witnesses on the question ; yes.

The CHAIRMAN. You are going to file with the commission a copy
of the city franchise?

Mr. WARREN. Yes; I understand Mr. Culkins will.

480 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CULKINS. Yes ; I will as soon as I get back.

The CHAIRMAN. And Mr. Nash had some books.

Mr. WARREN. Yes; he is coming back. I see every commissioner
has one of those.

The CHAIRMAN. And that book enters into a very complete de-
scription of the plan, does it not ?

Mr. WARREN. Well, of the Cincinnati plan — you refer to Mr.
Nash's book?

The CHAIRMAN. Yes.

Mr. WARREN. Yes ; together with the ordinance. I think you will
get all you want from it.

The CHAIRMAN. Ho\v long have you been commissioner of Cincin-
nati ?

Mr. CULKINS. About two years.

The CHAIRMAN. What was your experience in the handling of
street-car companies prior to that time?

Mr. CULKINS. None.

The CHAIRMAN. What was your business before that ?

Mr. CULKINS. I was executive secretary of the chamber of com-
merce before that.

The CHAIRMAN. How long have you been a resident of Cin-
cinnati ?

Mr. CULKINS. Oh, since 1890.

The CHAIRMAN. Were you appointed or selected?

Mr. CULKINS. Appointed.

The CHAIRMAN. For how long a term?

Mr. CULKINS. Well, there is no term specified. It runs with the
mayor.

The CHAIRMAN. The appointment of the commissioner is a part
of this cost-of -service plan?

Mr. CULKINS. Oh, yes; the plan itself; the power — of course, the
department is not part of the cost of service.

The CHAIRMAN. Did the State have a commissioner before they
adopted this plan?

Mr. CULKINS. No. In 1917 — which was declared invalid — there
was a provision in the ordinance for the city street-railroad com-
mission, adopting the title in Cleveland, to take charge, which was
made a subdepartment of the mayor instead of the council, as in
Cleveland. Then in the new charter it wras made a principal depart-
ment of the city with the title of director of street railroads.

The CHAIRMAN. What is the length of your term ?

Mr. CULKINS. At the pleasure of the mayor.

The CHAIRMAN. What are your duties as commissioner?

Mr. CULKINS. The general supervision over the entire operation —
over whatever powers outside of those three of the legislative powers
the city has reserved on any electric street railway, interurban or
electric union . depot. If tlie rapid-transit plan is carried out,
the director will have control of the operation of that, whether
it be municipal or privately operated.

The CHAIRMAN. Are you the regulating force of the city?

Mr. CULKINS. Yes; and in addition to that I have control over
the accounting of the company.

The CHAIRMAN. You have control over service, accounting, ex-
tensions •

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 481

Mr. CULKINS. Not extensions, except as to advise and recommend
to the council.

The CHAIRMAN. To what extent do you regulate the rates?

Mr. CULKINS. They are automatic.

The CHAIRMAN. Taken care of in the contract?

Mr. CULKINS. Taken care of in the contract.

The CHAIRMAN. Are your orders valid before they are approved
by the council?

Mr. CULKINS. Yes; the council has nothing to do with the orders
issued by the department. My orders are issued directly to the com-
pany, and they are enforceable.

The CHAIRMAN. Has the company the right of appeal to the
courts?

Mr. CULKINS. Xo ; it has the right of appeal first to me and then
the right of appeal to the court, but the only defense they may
offer is that the amount allowed in the budget is insufficient to carry
out the order.

The CHAIRMAN. Suppose you made an order affecting the service,
would they have the right of appeal from that?

Mr. CULKINS. Not except on the ground that to improve the service
as required would cost more than they were allowed in the budget.

The CHAIRMAN. Then you are permitted to make any order you
please so long as the cost does not exceed the amount fixed in the
budget ?

Mr. CULKINS. And have authority to increase the budget if
necessary to cover it. It amounts to practically absolute authority.

The CHAIRMAN. Well, that is some power.

Mr. CULKINS. That is some power. Well, that is the thought of
the ordinance, Mr. Chairman, because the city allows the company
to retain its reserve that it reserves to itself, and to charge whatever
may be necessary to do that — that it reserves to itself to say how
much this shall be.

The CHAIRMAN. How large a force have you under you?

Mr. CULKINS. Three inspectors, an accountant, chief clerk, and
stenographer; not a sufficient force.

The CHAIRMAN. What are the duties of the inspectors?

Mr. CULKINS. They inspect traffic, inspect equipment generally
and whatever may be necessary, under instruction, and, of course,
most of their time is required to make traffic checks and determine
what improvements may be necessary in the service, or to make any
investigation that may be necessary.

The CHAIRMAN. You have one accountant?

Mr. CULKINS. Yes,

The CHAIRMAN. Is that enough to pay close attention to the work?

Mr. CULKINS. Well; of course he puts in all his time. The com-
pany furnishes an office adjacent or adjoining their accounting de-
partment and

The CHAIRMAN. How is he selected?

Mr. CULKINS. Appointed by me.

The CHAIRMAN. Must he be confirmed by the council?

Mr. CULKINS. No.

The CHAIRMAN. How are the inspectors appointed?
. Mr. CULKINS. They arc civil-service appointees.

482 PROCEEDING OF IfEDEEAL ELECTBIC BAIL WAYS COMMISSION.

The CHAIRMAN. You have nothing to do with it?

Mr. CULKINS. Except that I requisition the civil service for an
eligible list and make the appointments from it.

The CHAIRMAN. To what extent do you regulate the accounts of
the company?

Mr. CULKINS. Under the ordinance the right is reserved to object
to any voucher, to have access to all the books and records of every
kind and description, and it is practically a control over the account-
ing.

The CHAIRMAN. Do you prescribe the method?

Mr. CULKINS. No. That is described under the ordinance by the
public-utilities commission of the State; which means that the public-
utilities commission of the State simply advise us that they had
adopted the Interstate Commerce Commission's uniform system of
accounting, which we have adopted.

The CHAIRMAN. In what way is the depreciation determined?

Mr. CULKINS. There is no regular depreciation charge made now
and that will not be put in until five years after the ordinance is
adopted; and then it will be prescribed by the public-utilities com-
mission of the State.

The CHAIRMAN. Is that commission making a study of the depre-
ciation?

Mr. CULKINS. I assume they are doing it generally on the subject
of depreciation. They are not making a study of our particular
case. No doubt they will make a sufficient study in advance to adapt
the general rules for depreciation to the local condition.

The CHAIRMAN. Under your Cincinnati plan, what is there for
the State commission to do either with respect to service or rates, or
accounting, or anything else affecting the service?

Mr. CULKINS. The State commissions Irave only two powers — that
is. the State commission has a general State control over accounting
of all utilities in the State, and these specific things I have referred
to, which is a right that they have without its being specified in the
ordinance, and to pass upon securities; and all of those rights exist
doubtless without regard to this ordinance, although they are spe-
cifically provided therein. It is local control, Mr. Chairman, specifi-
cally and intentionally local control, and it is in conformity with
the constitutional provision of the State granting local control to
home-rule cities. There has been a decision of the Supreme Court
that in Ohio the chartered cities have plenary powers in matter of
all contracts of this kind.

The CHAIRMAN. Has the commission any control over the issuance
of securities?

Mr. CULKINS. Yes; they must be approved by the commission as
Avell as by the city.

The CHAIRMAN. But have you any power over the issuance of se-
curities?

Mr. CULKINS. Yes ; they must be approved by the director as well
as by the commission.

The CHAIRMAN. Suppose you disapprove it and the commission
allows it.

Mr. CULKINS. They would not be issued.

The CHAIRMAN. They would not be issued?

Mr. CULKINS. No.

PROCEEDINGS OF FEDEKAL ELECTBIC RAILWAYS COMMISSION. 483

The CHAIRMAN. There has to be joint action?

Mr. CULKINS. Yes.

The CHAIRMAN. Under the cost-of -service plan is there a tendency
on the part of the company to be extravagant in its operations ?

Mr. CujLKiNS. No; there is not. The purpose of providing this
incentive., by an additional return, was intended to meet that. Then
our control over the expenditures would prevent that in any event,
but there lia.s been practically no such tendency.

The CHAIRMAN. That return which you speak of goes to the stock-
holders and not to tlie employees?

.Mr. CULKINS. It goes to the stockholders — well, of course it goes
to the company for such purpose as they see J6t to use it. The city
does not dictate where it goes. The .company retains that and it goes
wh.ere they .see fit.

The CHAIRMAN. Are the employees as efficient under that plan?

Mr. CULKINS. Yes; I think they are.

The CHAIRMAN. Have vou found any tendencj7 on the part of the
(MMployees to soldier on tne job?

Mr. CULKINS. No; not # bit of that. Whether that is due to the
fact that they are the same employees or to other reasons, of course
it is too early in the game to determine.

The CHAIRMAN. Does it have any tendency on the part of the em-
ployees to try to secure higher wages?

Mr. CULKINS. Well, judging by the experience in cities not having
the cost-of-service plan, I would say not. In fact, the wages are
lower now in Cincinnati than they are in some cities that have not
the service-at-cost plan.

The CHAIRMAN. What is your scale?

Mr. CULKINS, The scale is 50 cents an hour.

The CHAIRMAN. Eight hours?

Mi-. CULKINS. Nine hours.

The CHAIRMAN. Is there any demand for increases now?

Mr. CULKINS. WTe have just closed a new contract with them.

The CHAIRMAN. And that is the new scale?

Mr. CULKINS. That is the new scale, as effective the 1st of July.

The CHAIRMAN. How long does it exist?

Mr. CULKINS. Three years — no; one year.

The CHAIRMAN. What was it before?

Mr. CULKINS. Before that it was a War Labor Board award— -43,
46, and 48.

The CHAIRMAN. Will this increased . w.age result in an increased
fare?

Mr. CULKINS. I do not know, Mr. Chairman. As I say, I am
hoping so strongly that it will not that perhaps I may be a little
biased. In the month of June it cost 7.54 cents per revenue pas-
senger, but that included a largo back award from the War Labor
Board. Deducting tliat, the cost per revenue passenger was C.75
cents. Now, with any kind of an increase in July that will be met.
July and August will be the base months to determine the rate of
fare on the 1st day of October.

Commissioner GADHDEX. Have you talked with the employees suffi-
ciently to find out whether the fact that an increased wage might
increase the fare would have a tendency to keep them from asking
for it?

484 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CULKINS. Well, I think it did in Cincinnati. I really think
it has had an effect. I think it was an effective feature there, because
they seemed to be somewhat sensitive to the fact that the public
know that most of the increase is going to them and that they may
reach a point where their own unions and their own fellows will
say, " Now, here, this has gone far enough." That is that sentiment
in their minds, without any doubt, because they have talked to me
about it. The rate of wage reflects so directly on the rate of fare
that there is an opportunity for the public to measure it.

The CHAIRMAN. Do you feel from your experience that this plan
would tend to reduce, or at least keep in a more permanent form,,
the present scale of wages?

Mr. CULKINS. I would not be prepared to answer that, Mr. Chair-
man, because the personal equation is strong in that among the men,
and because in this particular industry you find there is an indi-
viduality in every city and different characteristics of the people.
While a man in Cincinnati may feel strongly, as I have indicated —
and they undoubtedly do — it is pretty evident there is no such feel-
ing in Cleveland, which has a similiar franchise.

The CHAIRMAN. Is Cincinnati a large manufacturing city ?

Mr. CULKINS. Yes.

The CHAIRMAN. And are the unions strong there ?

Mr. CULKINS. Fairly so. Not as strong as they are in other places.

The CHAIRMAN. Is there a close relationship between the street-
car organization and other organized labor?

Mr. CULKINS. Yes ; they are a member of the central labor council.

The CHAIRMAN. How do the wages compare between the em-
ployees of the company and other lines of industry ?

Mr. CULKINS. Well, if you regard conductors and motormen as
common labor, it is higher than other branches. Probably I would
say a little out of proportion upward as to other lines at this time.

The CHAIRMAN. Now, you said that the cost-of-service plan is
popular in Cincinnati?

Mr. CULKINS. Yes.

The CHAIRMAN. Do you mean that plan is popular since it results
in a 6|-cent fare as compared with the former franchise with the
same charge?

Mr. CULKINS. No — do you mean that it is more popular at 6|
cents than the old franchise would have been at 5 cents?

The CHAIRMAN. No; both at 6£ cents.

Mr. CULKINS. Unquestionably, because they can see the time when
this rate of fare will be lower. Oh, I think there is no question that
an arbitrary fixing of the rate of fare at 6£ cents would have cre-
ated a great deal more disturbance than has been created by this,
and, in fact, there has been no disturbance on this; and I think that
that is one feature which must be considered in connection with the
whole feature of car riding under service-at-cost franchises — that
much of it depends upon the psychological phenomena that whether
a man, for example, goes and pays 20 per cent more to see a moving-
picture show and thinks nothing about it, the picture shows aro
crowded, but if he feels half a cent or a cent g^oing to a street-rail-
way company is being taken away from him unjustly, his resentment
will counterbalance the question of convenience and comfort.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 485

The CHAIRMAN. When the fare was increased from 5| to 6 cents,
were there many demands for an accounting?

Mr. CULKINS. No.

The CHAIRMAN. Or when it was increased from G to 6^ cents ?

Mr. CULKINS. No.

The CHAIRMAN. They were satisfied with your supervision ?

Mr. CULKINS. Apparently so. In fact, I was very much surprised
that there was not a great deal more of a clamor at fr| cents than
there was at 5^ cents. Of course, the public mind was pretty well
set for 6 cents at the time the franchise was adopted, because it was.
known the committee had recommended it, and as an actual occur-
rence, quite a number of people offered a 6-cent fare to the con-
ductor under the impression it was already in effect. They were
rather set for 6 cents. 1 expected there would be' considerable feel-
ing expressed at 6i cents, but it has not appeared.

The CHAIRMAN. What is the result of your operation? You sug-
gested, or at least I inferred from your testimony, that you would
have to put in a 7-cent fare pretty soon.

Mr. CULKINS. No; I said I trust not. I was afraid we might have
to. That would depend upon whether or not the increase in the new
wage scale would be offset by the increase in traffic. In the month of
June, 6£ cents would have taken care of the cost of service, so we are
getting just about to the point

The CHAIRMAN. Did the population in Cincinnati increase or de-
crease during the war?

Mr. CULKINS. Oh, it decreased.

The CHAIRMAN. About how much?

Mr. CULKINS. Twenty or thirty thousand, I would say. The de-
crease in revenue passengers was about 5,000,000.

The CHAIRMAN. If you had maintained your population, would
you have operated favorably on the 5-cent fare?

Mr. CULKINS. The 1917 ordinance, which is the 5-cent flat fare
ordinance, was based on the experience in 1916, which showed
$100,000 margin, after paying what they call the cost of service
in this ordinance, although it was not the same items, and the coul
alone in 1917 more than wiped that out.

The CHAIRMAN. How long had your company been paying regu-
lar dividends on its fixed charges, according to this past year?

Mr. CULKINS. I don't know that, because they have not paid any
dividends since my connection with the properties. The operating
company is not the owning company. The property is leased by the
Cincinnati Street Railway Co., and is operated on a leasehold, by a
lease which requires a rent, equivalent to 6 per cent on the outstand-
ing capital stock of the street-railway company.

The CHAIRMAN. Wherein does your company have anything to
do with the operation of this plant ?

Mr. CULKIXS. I don't know that I got your question, Mr. Chair-
man.

The CHAIRMAN. Well, you have nothing to do with the hiring and
discharging of the men for the company?

Mr. CULKINS. No: nothing at all.

The CHAIRMAN. You have nothing to do with the expenditure of
its money ?

486 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CULKINS. Except that it must be kept within the budget al-
lowance.

The CHAIRMAN. Within the budget allowance?

Mr. CULKINS. Yes — as long as it is not objected to as an improper
charge.

The CHAIRMAN. Yet your supervision is not to any extent a check
upon the operation of the company ?

Mr. CULKINS. Oh, yes, in this way — that, in the first place, there
must be no expenditures made in excess of the budget which is al-
lowed to them.

The CHAIRMAN. Within that budget, they -can do anything they
like?

Mr. CULKINS, Except that we have the right to object to improper
expenditures, which is done through the supervision of accounting
and a constant check on the accounting.

The CHAIRMAN. Can you place any limit upon the salaries paid?

Mr. CULKINS. The question has never been raised. I would think
I could to an unreasonable salary. I think it would have to be
manifestly unreasonable.

The CHAIRMAN. Does the ordinance give you that power?

Mr. CULKINS, It gives the power to object to the purpose of any
voucher. I would do it, if there was an increase of salary to any
official which I regarded as unreasonable.

The CHAIRMAN. What is the highest salary paid there?

Mr. CULKINS. I don't recall.

The CHAIRMAN. How do the salaries go, generally?

Mr. CULKINS. Well, they vary.

The CHAIRMAN, What is the salary of the general manager?

Mr. CULKINS. I don't recall. I would have to refer to the pay
roll.

The CHAIRMAN. Or the vice president,

Mr, CULKINS. As I say, I do not recall those salaries.

The CHAIRMAN. If the cost-of-service plan is extended to all of
the villages of Ohio, will there be anything for a State regulating
commission to do?

Mr. CULKINS. Yes; the supervision of securities — the issuance of
securities, and of accounting.

The CHAIRMAN, Now, when it comes to the question of account-
ing, do you feel that the inhabitants of a city would be better satis-
fied to Kave that left with the city commission or with the State
commission ?

Mr. CULKINS. That will be a matter of personal equation entirely.
It would depend upon the individual. It would depend upon their
confidence in the State or their confidence in the local official. There
is in our city a very strong tendency to resent outside influences;
that is, they would rather have the thing done at home, if possible.
Now, that sentiment might be different in other cities. I think we
get a more direct action through direct control than we would get
by going through the form of filing complaints and applications
before the public-utilities commission, and having people taken up
to the Capitol, perhaps, unless the commission elected to hold hear-
ings in the city.

The CHAIRMAN. In this cost-of-service plan, you fixed the plan?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 487

Mr. CULKINS. There was not an appraisement. This particular
ordinance adopted the method of valuation from the old ordinance,
which was invalidated by the Supreme Court, with the exception
of one item, because that had been approved by the vote of the
people, and because the city did not feel that the year 1918 was a
very good time to make a valuation, particularly as our commis-
sion had adopted the reproduction method of valuation.

The CHAIRMAN. Well, does that value remain the value for all
time as to that basis with respect to extensions and betterments?

Mr. CULKINS. Yes; generally speaking. It is not a specific val-
uation. The company is to pay interest on its bonds and notes and
interest on the equipment notes,, the equipment notes being paid out
of operating expenses, and a flat allowance for this additional in-
vestment of $416,000.

The CHAIRMAN. That is not a real valuation there?

Mr. CULKINS. Oh, no.

The CHAIRMAN. Were you permitted to make a valuation?

Mr. CULKIXS. Oh, yes.

The CHAIRMAN, Suppose you did make a valuation and found
that the value of the plant was considerably in excess of the items
that you have enumerated, then what would you do ?

Mr. CULKINS. The company would be stuck then.

The CHAIRMAN. Would you be permitted to change the con-
tract then, inside of three years?

Mr. CULKINS. Not unless the city elected to purchase from the
company.

The CHAIRMAN. On the other hand, should it be found that the
valuation was considerably less than the items you have enum^
crated •.

Mr. CUKLINS. The city would be stuck then.

The CHAIRMAN. The city would be stuck then?

Mr. CULKINS. Yes.

The CHAIRMAN. So that is a very important =-

Mr. CULKINS. Yes; it is very important.

The CHAIRMAN (continuing). Question to establish a physical
valuation of the property?

Mr. CULKINS. Well, in this case, it was not a haphazard matter
by any means. It was established as a guide and compared with
the valuation made by the public-utilities commission, which ran
about $27,000,000, several years ago. There was an agreed valua-
tion under a previous administration of $29,000,000, in 1912, and
this valuation amounts to about $30,000,000, and the return is about
equivalent to 6 per cent on that.

The CHAIRMAN. What tribunal should make the valuation?

Mr. CULKINS. The public-utilities commission.

The CHAIRMAN. The city or State commission?

Mr. CULKINS. Well. T think the State commission would prob-
ably be the logical tribunal to make it. The city has a right, under
the constitution, to purchase by condemnation, or the right under
this plan to purchase by that plan, or on the valuation prescribed
by the ordinance. Five million dollars of this will be wiped out
before the end of the franchise.

The CHAIRMAN. Did the company express a great necessity for
having tho value fixed upon its present basis?

488 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CULKINS. Do you mean to have a valuation fixed at that?

The CHAIRMAN. Upon the basis recognized in the contract.

Mr. CULKINS. I don't know that that question has come up at all,
Mr. Chairman.

The CHAIRMAN. Do you believe that the city will continue to be
favorably impressed with the cost-of-service plan?

Mr. CULKINS. If rates do not go too high, I think they will.

The CHAIRMAN. What will be the effect upon the public mind if
the rates are put to 7 cents?

Mr. CULKINS. I do not think anybody can answer that question,
because experience has been of no value. The city of Pittsburgh
went to 6 cents and showed an increase in gross receipts, I think, of
less than 1 per cent. The city of St. Louis showed a marked falling
off on the 6-cent rate. Other cities have shown a falling off. It
seems to vary in each community. It varies entirely in accordance
with the temperament of the public. I do not believe that any man
who sits down and figures it, when he is paying 200 per cent for every-
thing else, believes that he is being stung if his transporation rates
go up 35 or 40 per cent ; but, as I said before, there is a psychological
phase to this whole question that can not be overlooked. One city
will agree to 7 cents and another city will shove the cars over.

The CHAIRMAN. Is there any relationship existing between the
company, their employees, and the public?

Mr. CULKINS. Between the company and their employees?

The CHAIRMAN. Betwreen the company, their employees, and the
public ?

Mr. CULKINS. Yes; I think so — probably a better relation than
there wras.

The CHAIRMAN. Do you think that improved condition has re*
suited somewhat from your cost-of -operation plan ?

Mr. CULKINS. Yes; I do. I believe that there is a feeling that as
the public generally understands it better, that they have an interest
in the control of the company and its operations, and that there is
going to be a readjustment whenever they are entitled to it. That
has a tendency to produce that state of mind.

The CHAIRMAN. Does the feeling that the public has an interest in
the control and operation of the property naturally lead to the other
feeling that they should own the plant as well as operate it?

Mr. CULKINS. Not so far. The feeling has been — and I think the
general feeling in our city is — that municipal ownership would be
the last thing to do; that this will give them all that they would
have under municipal ownership and not the obvious disadvantages
that they would have. There is not so much talk about that at all.
It is not a live subject in the city.

The CHAIRMAN. I believe you said that the Government operation
of the railroads and the telephones might have something to do with
that opinion.

Mr. CULKINS. Well, I was thinking of that.

The CHAIRMAN. I have no further questions.

Commissioner SWEET. Has your street railway in Cincinnati any
outside lines ? Does it control any interurban companies ?

Mr. CULKINS. Well, only one line is an outside line, that is owned
by the owners of the traction company. Some parts are in the city

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 489

and some parts outside; and under this ordinance they are required
to operate it as a part of their regular system.

Commissioner SWEET. Does that come under your jurisdiction as
director?

Mr. CULKINS. In so far as it is within the city.

Commissioner SWEET. In so far as it is within the city ?

Mr. CULKINS. Yes, sir.

Commissioner SWEET. Beyond the city limits you have no author-
ity?

Mr. CULKINS. No authority, although the question is not particu-
larly raised on that, because you can not run a schedule to the Nor-
wood line and change it very much beyond the Norwood line.

Commissioner SWEET. Is that interurban or extension outside of
the city limits paying or running behind?

Mr. CULKINS. It is not paying. The interurban end of it is not
paying.

Commissioner SWEET. Are the accounts of that company kept en-
tirely separate from the accounts of the other ?

Mr. CULKINS. They are kept separate, but they are kept in the
same office. The gross receipts from that line become a part of the
gross receipts under this ordinance, and the expenses of that line pay
the expenses under the ordinance; so that it is handled simply as
n part of the general system, although there is a separate account-
ing kept, because it belongs to the Ohio Traction Co., which is the
owner of the Cincinnati Traction Co.

Commissioner SWEET. The people of the city then, in one sense,
are losers by reason of having this outside line?

Mr. CULKINS. Yes; the car riders are.

The CHAIRMAN. Yes.

Mr. CULKINS. Although there is, of course, a great part of the
community population of the city, some of them actually within the
city limits — others are within the economic community — who would
necessarily be served by an extension, even though this did not exist;
and that was why it was included, because it would doubtless have
to furnish service to them, and, like all long extensions, you would
run a pretty good risk of having a losing line. Many of them are
losing, because we have very many long hauls in the city which are
losing lines.

Commissioner SWEET. And there might be a necessity for what-
ever might be directly lost in money, in the fact of bringing the
business into the city?

Mr. CULKINS. Yes.

Commissioner SWEET. It would be a benefit to the merchants?

Mr. CULKINS. Unquestionably the community would get the bene-
fit of it.

Commissioner SWEET. Were you appointed by the mayor absolute,
or did it have to be confirmed by the council?

Mr. CULKINS. By the mayor.

Commissioner SWEET. He has the power of removal ?

Mr. CULKITCS. At any time.

Commissioner SWEET. Have you the commission form of govern-
ment in Cincinnati ?

Mr. CULKIXS. No. We have a council-and-director plan. We have
a council representative from each ward, and six at large, and the

1GOG430— 20 32

490 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

mayor appoints the — he has the general appointing power. The
council is limited to legislative duties. There is a director of service,
a director of safety, and a director of street railways, which the
maA'or appoints.

Commissioner SWEET. Just one from each ward, and then six at
large?

Mr. CULKINS. Yes.

Commissioner SWEET. And then one joint body?

Mr. CULKINS. One joint body.

Commissioner SWEET. What was the condition of the street-rail-
way companies that led to making this change?

Mr. CULKINS. Well, the franchise was open for revision. It came
about logically. It was the time to revise it.

Commissioner SWEET. I understand that. But was it, like other
companies throughout the country, recognized to be in rather bad
financial condition?

Mr. CULKINS. There is a question about that. At the time this
revision was passed it was costing three-quarters of a cent more
to carry each passenger than was received.

Commissioner SWEET. That was well understood in the com-
munity generally?

Mr. CULKINS. I think so.

Commissioner SWEET. What did the company do, if anything, to
make the public aware of its actual financial situation?

Mr. CULKINS. There was nothing done beyond these statements to
the council. It issued a booklet, which was given to the council,
and very widely published in the newspapers — general newspaper
news publicity, not any paid publicity.

Commissioner SWEET. Giving a statement of the

Mr. CULKINS. A statement of its condition, the financial condi-
tion, and the reason therefor, and why it was necessary to have an
increased, rate of fare in order to live.

Commissioner SWEET. Did the council select any auditor or ex-
pert to go to investigate and see whether that was correct?

Mr. CULKINS. Not other than my department.

The CHAIRMAN. Your department had not been created then,
had it?

Mr. CULKINS. Oh, yes.

Commissioner SWEET. You had been appointed before that?

Mr. CULKINS. Oh, yes. I had been appointed the previous year,
on the 1st of January, and the department was changed from a sub-
department of the mayor to a principal department of the city.

Commissioner SWEET. And an accountant employed by you went
over these figures to see whether they were correct ?

Mr. CULKINS. Yes.

Commissioner SWEET. And was that understood by the public?

Mr. CULKINS. Yes.

Commissioner SWEET. There had not been any serious dispute?

Mr. CULKINS. Oh, not at all. During the public hearings I think
one or two came in and suggested that outside accountants might
be brought in, or that outside experts be brought in, but nothing
very serious.

Commissioner SWEET. No other public sentiment demanding that ?

Mr. CULKINS. No.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 491

Commissioner SWEET. At that time, at the time the change was
made and immediately prior thereto, had the company been able to
sell its bonds or induce any new capital to become interested in it?

Mr. CULKINS. It had not been able to do that for some time.

Commissioner SWEET. Has it been able to do it at all since?

Mr. CULKINS. Not since. As a matter of fact, immediately after
the passage of this ordinance there was a suit filed to test its validity,
and that was only decided a little over a month ago. The superior
court sustained the validity of the ordinance.

Commissioner SWEET. Is there an appeal from that ?

Mr. CULKINS. No appeal was taken. The time has elapsed in
which an appeal might be taken.

Commissioner SWEET. So now you regard that as conclusive?

Mr. CULKINS. Yes. Now, they can go ahead with things they
might have done some years ago, if it had been possible.

Commissioner SWEET. I take it from what you have told us that
the sentiment of what might be called the more intelligent people
of Cincinnati is distinctly favorable to this change.

Mr. CULKINS. I think so.

Commissioner SWEET. And that from what you might call the less
intelligent portion of the community there has been no complaint?

Mr. CULKINS. There appears to be practically none.

Commissioner SWEET. Have you had any jitney opposition there?

Mr. CULKINS. No; none whatever. The jitney was attempted in
Cincinnati some years ago, and the public just ignored it. A man
would stand waiting for a street -car, and when a jitney rode by ready
to pick him up and take him down to the station, he would let the
jitney go by and take the street-car. There are none there now
at all.

Commissioner SWEET. How do you account for that, when you
have heard such testimony as we have heard this morning?

Mr. CULKINS. I do not. It is a question of temperament. In
this whole transportation industry, yon can not tell what any par-
ticular city is going to do, or know an}rthing about it. They just
don't want them in Cincinnati, and they don't like them.

Mr. WARREN. That was before the cost-of-service plan was
adopted ?

Mr. CULKINS. Oh, yes. There has not been anything since that.

Commissioner MEEKER. Are not your street-cars rather unusually
efficient instruments of transportation ?

Mr. CULKINS. Well, we would like to think so. I think they
should be more efficient than they are.

Commissioner SWEET. Is there any difference between vour cars
and those used by the Bridgeport Co., so far as you know!

Mr. CULKINS. I don't know what kind they use in Bridgeport.
The later type of cars are very modern cars.

Commissioner SWEET. The pay-as-you-enter car?

Mr. CULKINS. A pay-as-yon-enter car. Wo have some old anti-
quated equipment, and that will be got rid of very soon now.
They are, building 105 new cars now to take the place of a lot of
single-truck old-type cars that are obsolete. Then we are operating
some open curs which, under the State law, will be discontinued this
year, the old running-board type of cars.

492 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Do you use what they call the safety car?

Mr. CULKINS. No.

Commissioner SWEET. The one-man safety car ?

Mr. CULKINS. No ; we are investigating tnat. They have a double
trolley in Cincinnati, and the question was whether they could be
operated there. That is a matter which is being investigated now.

Commissioner SWEET. You use the overhead trolley wire?

Mr. CULKINS. Two of them — the double trolley.

Commissioner SAVEET. Yes; two of them.

Mr. CULKINS. Yes.

Commissioner SWEET. "What sort of power do you use?

Mr. CULKINS. Electricity.

Commissioner SWEET. What is that ?

Mr. CULKINS. Electricity.

Commissioner SWEET. I mean how is it generated ?

Mr. CULKINS. The company generates its oAvn power.

Commissioner SWEET. It has a power plant ?

Mr. CULKINS. It has a power plant; yes.

Commissioner SWEET. Does it buy any of its power?

Mr. CULKINS. Very little.

Commissioner SAVEET. Dees it use coal in the generation of current ?

Mr. CULKINS. Yes, sir.

Commissioner SAVEET. I am a little surprised at what you say with
regard to no new capital being invested. Under this plan, now, there
is practically a guaranteed return on the investment ?

Mr. CULKINS. Well, I do not know that I made it clear that this
plan has only been in operation since last October, and that up to a
few months ago it Avas under attack in the courts.

Commissioner SAVEET. I understand.

Mr. CULKINS. Of course, you would not be able to issue any capital
as long as the ordinance was under attack.

Commissioner SAVEET. That is very true. But from what you say,
it has been a couple of months or so since the decision Avas rendered.

Mr. CULKINS. About that; yes.

Commissioner SAVEET. Is there a crying need of neAV capital now?

Mr. CULKINS. Yes ; there is a need for neAv capital.

Commissioner SWEET. But it is a fact, as I stated a moment ago,
that, under your statement, there would be practically a guaranteed
return on the investment?

Mr. CULKINS. It would be a guaranteed return, unless eventually
a rate of fare would be reached that would not produce increased
revenue. That is on the knees of the gods. Nobody knoAvs whether
that Avill happen or not. That would be the only contingency that I
can see that would prevent this from being substantially a guar-
anteed return.

Commissioner SAVEET. Is there any difference in the different
classes of expenses to which the gross returns should be applied ; for
instance, if there should be a falling off of business so that your gross
revenues should not be alloAved to take care of the expenses, including
fair interest upon the investment ?

Mr. CULKINS. That has been provided for in the ordinance by the
method and arrangement of distribution of the gross receipts: A,
operating expenses, including taxes and depreciation. .

Commissioner SAVEET. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 493

Mr. CULKINS. B, rental of leased lines; C, what is called the re-
ducible debt — that is, $5,000,000 of bonds, notes, etc., that will be
wiped out; D, return on new capital; E, $416,000 further flat return
allowed to the company; F, the City's $350,000 franchise tax; G,
working capital, if any; H, reserve fund.

The result of these two months will show whether or not it is
necessary to raise fares in order to produce all of those items. So far,
it has not been.

Commissioner SWEET. Including the reserve fund ?

Mr. CULKINS. Yes. Of course, the reserve fund will be an overflow
of that.

Commissioner SWEET. So that, if there should be a slight falling
off — if there should not be quite enough revenue, the first thing to
suffer would be the reserve fund?

Mr. CULKINS. Well, of course, the reserve fund would —

Commissioner SWEET. In other words, that might get nothing?

Mr. CULKINS. Yes; it would get nothing on that until there was
more than enough to pay for the cost of service.

Commissioner SWEET. Then, the next —

Mr. CULKINS. Would be the working capital, if any.

Commissioner SWEET. Return on the capital originally invested?

Mr. CULKINS. No ; the next would be the city's franchise tax. Just
as it is now, the money has not been sufficient to come all the way
down; of course, when the reserve fund is once established those de-
ficiencies will be taken out of the reserve fund; and that is just the
point now. For the first two months of the ordinance there was not
sufficient to pay all of these items.

Commissioner SWEET. Yes.

Mr. CULKINS. Therefore, the fares won't do, and they will have
to go up. Unless in the months of July and August there will be a
sufficient amount of money received to pay from A to F^ inclusive,
fares will have to go up. If there is a sufficient amount of them,
and there is not going to be a cent left for the reserve fund, the fares
will not go up, but the city franchise tax will be lopped off first.
That, of course, is cumulative, and must be paid when there is money
with which to pay it.

Commissioner SWEET. The company, I suppose, like most other
companies, had to issue bonds?

Mr. CULKINS. Yes.

Commissioner SWEET. At what rate of interest on the bonds?

Mr. CULKINS. Five per cent.

Commissioner SWEET. And common stock?

Mr. CULKINS. No; there is no common stock provided for under
this ordinance.

Commissioner SWEET. It does not say anything about the common
stock?

Mr. CULKINS. Unless they are able to get it out of this incentive
return — the additional return to the road for economic management.
They are allowed interest on the sinking fund, on the bonds and
notes, and interest on new securities, and an amount which is equal
to 4.87 per cent of the outstanding preferred stock of the Ohio
Traction Co., which owns the Cincinnati Traction Co. There is no
return allowed on the common stock of the Cincinnati Traction Co.

494 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

or the common stock of the Ohio Traction Co., unless, from the in-
centive return, there is an added return to produce it.

Commissioner SWEET. I am not quite clear on that. Would the
common stock come in after the reserve fund that is to be created, or
come out of that? I don't quite understand it.

Mr. CULKINS. Perhaps I did not make it plain. The return al-
lowed are these specific items.

Commissioner SWEET. Yes; I understand that.

Mr. CULKINS. Now, naturally the preferred stock would have the
first claim on the $416,000, and then only enough to pay less than
the 5 per cent on the preferred stock.

Commissioner SWEET. Could the directors of the company, the
management of the company, have absolute control of that and de-
vote that to any purpose that they saw fit without your consent ?

Mr. CULKINS. Oh, yes.

Commissioner SWEET. What is that?

Mr. CULKINS. Oh, yes; I assume so, although it is allowed as the
return on the investment. I guess that is a matter that the stock-
holders themselves could work out together. They could defer
it if they did not want to apply it to the dividend, if they saw fit to
use it for other purposes, but the dividend is cumulative.

Commissioner SWEET. If they did not declare a dividend, it would
remain ?

Mr. CULKINS. I think that would be a matter between them and the
preferred stockholders. I do not know anything about that. Now,
the reserve fund is the reservoir into which the surplus is deposited.

Commissioner SWEET. I understand.

Mr. CULKINS. Now, if there is not any surplus, there is nothing
that goes in there.

Commissioner SWEET. No. I wish you would tell us again — you
explained it once, but I did not quite get a clear idea of it — with re-
gard to that reserve fund going up to a certain point.

Mr. CULKINS. The reserve fund consists first of the $250,000 pro-
vided by that company. It is the bumper.

Commissioner SWEET. Yes.

Mr. CULKINS. The minimum. Then into that reserve fund is
placed the whole excess earnings over the cost of service.

Commissioner SWEET. Yes.

Mr. CULKINS. That is, A to F, inclusive.

Commissioner SWEET. Yes.

Mr. CULKINS. When that reserve fund reaches $650,000, including
the amount put in by the company, then fares shall be reduced a half
a cent.

Commissioner SWEET. I see.

Mr. CULKINS. Then when it goes down to $250,000 they are to be
increase^. Now, if you want a further explanation about the initial
return to the company out of that surplus —

Commissioner SWEET. Yes ; I think we might have that.

Mr. CULKINS. Now, under certain conditions all of the surplus in
excess of the cost of service goes into the reserve fund. That is, when
fares are more than 6 cents. When fares are 6 cents only 80 per cent
of the surplus goes in, and the company retains 20 per cent. If they
can bring the fares down to 5^ cents they would get 30 per cent of it,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 495

and if they can bring it down to 5 cents or under, they would get 45
per cent.

Commissioner MEEKER. That is not clear. The return paid to the
company is granted upon the valuation of the properties?

Mr. CULKIXS. No ; rather upon an agreement.

Commissioner MEEKER. Outstanding capital?

Mr. CULKIXS. Outstanding capital.

Commissioner MEEKER. That is all.

Commissioner SWEET. Just one point further, Mr. Culkins. After
going through the experience that you have gone through in Cincin-
nati up to date, and realizing, as I have no doubt you do, the general
problem now confronting the country, and one, as you know, which is
being considered by this commission with the hope of helping, in
some way or other, in this serious situation, what suggestion would
you make as to the proper remedy for the general situation? Do you
think that it is to go to this service-at-cost plan such as you have
adopted, with one or two slight, changes that you have made? Would
you recommend that the Cincinnati plan be adopted generally
throughout the country ? Do you think that would be the best remedy
or do you have any other suggestion to make?

Mr. CULKIXS. We do not offer the Cincinnati plan as any perfect
36, or anything of that sort, but I believe the service-at-cost plan
offers an opportunity to solve the whole question ; but as to whether
it may require some modifications as to the introduction of some
zoning system or something of that character is going to depend
a good deal upon the city or the particular community. Now, many
cities have not had the experience that Cincinnati has had. I per-
sonally believe it is going to be necessary for the companies to intro-
duce every reasonable efficiency, that the keeping of fares down
is of vital importance, and that these losses of traffic will not be a
vital thing, provided the companies could live throughout. I think
that if they could live throughout for a year, or perhaps two years,
you would find that the people would become accustomed to it;
localise I think we all have to realize that this increase, just like
that of any other commodit^y that is bought, is due to a great many
of the things that you brought out this morning. There is appar-
ently an inherent prejudice against the public utilities, and the feel-
ing of the average man is that a public utilh\y is making all kinds
of money. Anyhow, and, of course, there is the fetish of the nickel,
which unquestionably was built up by the utilities themselves. They
were taught that the nickel was ]ust right for a street-car ride, and
you have to have a lot of sentiment to make them realize that the
question of transportation is just like coffee or coal or hogs or
hominy. They can not go and buy a 7-cent pound of sugar for a
nickel, without running a long chance for having short weight or
having sand.

Commissioner SWEET. Are you personally interested in street-
railway stocks or l)onds?

Mr. CULKIXS. Not in anv street-railway stock or bonds.

Commissioner SWEET. And you make your statement now as a
citizen ?

Mr. CULKINS. As a citizen.

Commissioner SWEET. And a representative of the public of Cin-
cinnati ?

496 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. CULKIXS. Absolutely.

Commissioner SWEET. I think your views from that standpoint
ought to have special weight.

Mr. CULKIXS. I don't know anything about that.

Commissioner SWEET. Of course, the matter of education — differ-
ent standards in different communities do undoubtedly exist. Every
community has certain characteristics that are, perhaps, controlled
by the leading citizens to some extent, and by various causes which
we can not analyze definitely, but that really give communities an
identity, just the same as individuals have. Now, that is oftentimes
very largely controlled by the newspapers of -the community; is it
not? They have, perhaps, more influence than any other one thing.

Mr. CULKINS. There is no question about that.

Commissioner SAVEET. What was the attitude of the newspapers in
Cincinnati on the question?

Mr. CULKINS. The newspapers have all been favorable to the plan.
I attribute that very largely — the lack of loss of short haul — to the
fact that the newspapers have not been unfavorable. If the news-
papers had given the impression to the public that this was not
right, the ordinary man would have said, " I won't do it; I will walk
first."

Of course, there is another thing that should be borne in mind
in connection with this, because, as you get away from the nickel,
your problem becomes greater : Your communities also differ in their
local characteristics. I do not mean the sentiment of the people,
but in the characteristics themselves. For example, Cincinnati has
long lines, long hauls. It has low density of traffic. Other towns,
like Cleveland, for instance, and Detroit, have high density of traffic.
They may be perfectly able to get the service-at-cost plan to a point
where they can haul passengers for a nickel and make a profit,
whereas Cincinnati would be unable to do it. There is one of your
problems, because the avearage man says, " If you can do it in one
town, why can you not do it in another ? "

Towns that have a great many short hauls and congested popu-
lation can haul passengers at a lower rate per passenger; because,
after all, that is the volume of business, just as any other line of
business treats the cost of handling a unit.

Commissioner SWEET. Do you think the service-at-cost p)an suffi-
ciently elastic to adapt itself to these varying conditions in different
communities?

Mr. CULKIXS. It must do it, of course.

Commissioner SWEET. So it would be peculiarly appropriate then
as a sort of general plan, because it would adapt itself to the needs
of the community, which are quite different in the different com-
munities.

Mr. CULKIXS. I think so; and yet I think it probably is well to
have in mind that, in the communities that have long expensive
hauls there may be some question again of making the service on
those particular lines pay a little more than their share. Of course,
you are running now into a very large question — into that flat-fare
question that you had up this morning, with the congestion, and so
forth, with which I have not a great deal of sympathy.

Mr. WARREN. Your scale is only a flat fare?

Mr. CULKINS. Yes; we have a flat fare.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 497

Commissioner SWEET. You have never tried the zone system ?

Mr. CULKINS. The zone system was discussed in thrashing out the
ordinance. I think I was the only one present to have any sym-
pathy for the zone system when it was being discussed ; but there are
a great many reasons why it would have been difficult to have placed
it in effect. It would have taken time to study it, and at the same
time we were anxious to have the matter thrashed out as soon as
possible. It was suggested not only in connection with the ordi-
nance but the suggestion was made also in connection with the ex-
tensions.

The CHAIRMAN. Just a moment, Mr. Culkins. What is the amount
of that franchise tax ?

Mr. CULKINS. $350,000.

The CHAIRMAN. And what does the railway pay for its paving
obligations in that city?

Mr. CULKINS. That is supposed to take the place of the paving
obligations. They are not required to pave. That goes into the
public-service fund.

The CHAIRMAN. If you excluded the franchise tax and the operat-
ing cost, you would be able to reduce your fare ?

Mr. CULKINS. We would not be able to reduce it, but we would be
able to hold it where it is, without any question.

The CHAIRMAN. Has any consideration been given to that subject?

Mr. CULKINS. Well, there was discussion at the time the franchise
was issued; but it was not seriously discussed, because it has been
there so long that no power could have convinced the people of Cin-
cinnati that to remove that tax would not have been taking the money
out of their pockets and presenting it to the traction company. The
cit}T's financial system was built around it. WTe have the present
limitation of taxes in Ohio, and the cities are all bankrupt. The
taking away of $350,000 was a matter that the council would not
have agreed to in any event.

Commissioner SWEET. If they had the option of paying 7 cents for
a ride, or simply paying this $375,000 in the form of a general tax,
which would be more satisfactory?

Mr. CULKINS. I think, Mr. Chairman, that the car riders, 'if you
ever get them up to it, would begin to then understand it for the
first time. Of course, there is no option in it. It is a part of the
ordinance now.

The CHAIRMAN. Does the cost-of-service plan have any material
effect upon the number of or the amount of the payments of judg-
ment allowed on personal-injury claims?

Mr. CULKINS. There has not been any experience upon which to
make any determination on that, Mr. Chairman. Our claim ratio
is pretty low — less than 3 per cent ; and I have not noticed any par-
ticular change in it.

The CMAIRMAN. Would it be convenient for you to file a sufficient
number of your franchises?

Mr. CULKINS. I will be very glad to do so, or any other informa-
tion that may occur to the commission. I would be only too glad to
furnish it.

Mr. WARREN. Mr. Culkins, you said that the rate of wages was 50
cents an hour?

498 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CULKINS. Yes.

Mr. WARREN. How much of an increase is that?

Mr. CULKIXS. Two cents an hour over the award of the War
Labor Board.

Mr. WARREN. Have you any idea what the eft'ect would be on your
rate of fare if your rate of wages went up to 62 cents an hour, and
your day's work reduced to eight hours, as has just been done, ac-
cording to the papers, in Boston?

Mr. CULKINS. Oh, just roughly, I would say that it would put the
fare above 8 cents.

Mr. WARREN. Above 8 cents, instead of 6| cents?

Mr. CULKINS. Yes, sir ; I would say so, about.

Mr. WARREN. Do you publish your cost of service periodically?

Mr. CULKINS. We have it in the newspapers. It is not published
in advertising form, but it is available to the public through my
office.

Mr. WARREN. That is all, Mr. Culkins. Thank you very much.
Mr. Chairman, I am going to suspend Mr. Nash's cross-examina-
tion longer, because Mr. Draper is here. He is the operating vice
president of the Cincinnati Co., and I thought it might be well to
hear both the Cincinnati sides at the same time.

The CHAIRMAN. Very well.

Mr. WARREN. Mr. Draper, will you take the stand?

STATEMENT OF MR. WALTER A. DRAPER.

Mr. WARREN. Your full name, Mr. Draper?

Mr. DRAPER. Walter A. Draper.

Mr. WARREN. Was I right in saying that you were the vice presi-
dent?

Mr. DRAPER. Vice president of the Cincinnati Traction Co.

Mr. WARREN. How long have you been connected with that com-
pany, Mr. Draper?

Mr. DRAPER. Since 1907.

Mr. WARREN. And how long have you been vice president of that
company ?

Mr. DRAPER. Since 1913.

Mr. WARREN. You have heard Mr. Culkins's testimony?

Mr. DRAPER. I did ; yes, sir.

Mr. WARREN. What can you add to his testimony regarding the
Cincinnati situation?

Mr. DRAPER. Well, I understood that one point that was desired
to be touched upon was the question of the incentive to economical
operation, and knowing time was of the essence here as everywhere
else, I have reduced to a few pages what I might say on that sub-
ject, if you will allow me to read it.

Mr. WARREN. I would be very glad to have you do that. Is that
based on what Mr. Culkins referred to, in part, the amount of the
surplus?

Mr. DRAPER. Yes ; that is based on the amount which comes to the
company from the amount that was left over after providing for all
the other requirements, and based on what the rate of fare may be.
In other words, if it is 6 cents or over, the company gets nothing.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 499

NEED FOR INCENTIVE FOR ECONOMICAL OPERATION UNDER SERVICE-AT-

COST FRANCHISES.

One of the fundamentals of the serviee-at-cost plan is to arrive at
some figure that will represent the return to the company on capital
invested. This is reached by ascertaining the present value of the
property, or the actual cost of the property and allowing a certain
rate of return on such value. The rigid application of this rule, how-
ever, pays little or no attention to the fact that a return on mere
present value or historical value does not include any consideration
for the risk originally undertaken or for the care, attention, labor,
and efficiency bestowed by the company on the development of the
property.

The advocate of a fixed and rigid return will say that by the very
certainty of its being earned, which is often erroneously called a
guaranty, the company is sufficiently rewarded and needs no other
recompense for its years of effort and endeavor. It is nowadays
rather easily forgotten that the property was built and developed
by capital mat was attracted to it by the anticipated opportunity of
making more than a bare legal interest on the investment. In fact
the investor himself has almost forgotten the happy days when he
looked forward to the increasing value of his property with the de-
velopment of the city or county it served; and as increasing costs
have left an ever-decreasing margin between income and operation,
it is considered the height of kindness and generosity on the part of
the municipal or other government to allow a legal rate of interest
on the bare bones. Ought not in all fairness an opportunity be given
the investor to get a little more by efficient operation out of his money
that he has risked in the development of his community than he could
have gotten if he had locked it up in bonds or turned money broker?

In settlements of traction problems fixing a valuation and a return
the rate is generally made as low as the lowest legal rate of interest.
Six per cent is most frequently used. The original investor certainly
expected more when he risked his money, and money for utilities
can not be borrowed at that rate very easily now ; and if a low rate is
fixed in the franchise to define the minimum return the investors
should be encouraged to careful and economical operation by an op-
portunity of receiving something more if they can earn it.

So much for the ethical side of the question. What of the prac-
tical ? It is true that a servicc-at-cost franchise offering an almost
certain return makes it more easy, or at least possible, to borrow
money. But bankers have always taken into consideration not the
question whether a concern can just live — just manage to make ends
meet — but rather how much margin, how much over the bare living,
it can make. And this question of banking and getting new money is
a vital one. Not only has the question to be solved as to how street
railroads are to make their operating expenses, but how they are to
pay interest on borrowed money in the shape of permanent invest-
ment or bank loans.

Actual experience under the Cincinnati franchise has demonstrated
that the banker begins to take more interest when he is shown that
in addition to a fixed low interest rate that is practically assured the
company can do even a little better by careful and attentive manage-
ment. When it comes to marketing securities those paying a fixed

COO PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

return of 6 per cent will not sell so well as those that have at least some
show of paying a fixed return of G per cent and then something more.
But G per cent is not n«w a sufficiently high return. If 6 per cent
must be written in the franchise, then let there also be written therein
that an additional 1 or 2 per cent can be earned by hard work. If
the fixed return is just enough to meet the dividend or interest on a
senior security, let the possible additional return go to the common-
stock holder, who under a service-at-cost franchise is pretty apt to be
left at the dock when the boat pulls out, because there is no room for
him. And don't forget that the common-stock holder has played his
part, if not the important part, in the development of street-railroad
enterprises. The senior security holder is the banker. The common-
stock holder is, or was, the prospector, the pioneer, the builder — the
man with the vision.

Those who operate street railroads have not lost, and it is to be
hoped never will lose, their ambition to operate as economically and
efficiently as possible; and yet, because we are all still human, there is
needed in addition to the desire to make a showing the spur of real
financial benefit. Under a rigid service-at-cost franchise the company
really becomes a sort of clearing house for the money it takes in. It
pays the employees, then the tax gatherers, and then the senior security
holders. This takes its all. Justice and good business sense dictate
that there should be at least a small commission paid for all this work.
It wrll add zest to an otherwise flat existence. Operating under a
service-at-cost franchise, without some added incentive, would be a
good deal like asking an old gambler to play poker for fun and not for
money.

It has sometimes been said that a service-at-cost franchise with a
purchase clause therein and complete city control has all the good
features of municipal ownership and none of its bad ones.

I did not know that I was going to quote Mr. Culkins's language,
but I think that is what he says.

This becomes true if there is an incentive to careful management in
an additional and contingent return.

The Cincinnati franchise provides that when the fare is 5 cents the
surplus remaining after all requirements are met shall be divided—
f>5 per cent to the reserve fund and 45 per cent to the company. When
the fare is 5| cents the division shall be 70 per cent to the surplus
fund and 30 per cent to the company, and when the fare is 6 cents the
division shall be 80 and 20 per cent, respectively. When the fare is
over G cents the company gets nothing. This plan falls short of pro-
viding a proper incentive, because if the fare goes above 6 cents there
is no additional return to the company beyond the fixed minimum.
A more efficacious plan would be to allow some additional return at
all times — larger as the operating expense is kept down, smaller as
the operating expense increases. Even as it stands the company has
an incentive to operate efficiently and economically, since by keeping
the fares down it will receive a bonus, which can be given the com-
pany's common-stock holders, who otherwise are cut off under the
franchise like a disinherited child.

There is another potent argument for providing this incentive,
and that is the tendency of the public to feel that if the company is
practically guaranteed a certain return and can get no more, it will
be indifferent to how high operating costs and fares may go, and

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 501

will readily " pass the buck " to the city in matters of higher wages
or any other element likely to affect fares on the very comfortable
theory 'of "Why should we care? Let the men get higher wages
so long as the car rider pays."

In a recent discussion of the wage question with our employees,
the main interest the public took in the matter was whether we
wouldn't give in without much pressure, because it would all go
into the rate of fare. In fact, some people declared that we were
in league with our men to get the rate of fare up and hold it there
through their asking for higher wages and our quickly granting
the demand. When they were informed that it was to our interest
to keep fares below 6 cents, as we would then receive an additional
allowance, they saw things differently.

I have spent much time and vigorous language in advising against
a certain extension to a remote suburb, but my talk was taken as
all buncombe, and received with the question : " Why do you care
as long as we will pay for it?" until I mentioned the fact that
we were interested in a financial way by getting more money in our
own hands if we kept the fare down. It is all very well for street-
railway officials to argue against unwarranted expenditures on the
ground that it will make the public pay higher fares, but it only puts
this same public to the task of trying to find some other motive than
regard for its welfare. If told that it is financially to the interest
of the company, the motive is apparent, the mystery is no longer a
mystery and the public is satisfied. The people have too long looked
upon the utility as having no regard for their welfare to think of it
at once as an unselfish, sympathetic benefactor. They want some-
thing that they can comprehend. In the Cincinnati Enquirer of
June 12 appeared an editorial on a strike in one of our large cities.
It contained the -following language:

THE PUBLIC BE — IGNORED.

The paralysis of the public service is becoming more and more fashionable
as a forcible argument for the increase of the corporation's income and the
payment of wages.

* * * furnished the latest illustration of this tendency. Transportation
arbitrarily was denied three-quarters of a million people because the city
council had declined to amend the street-railway ordnance in compliance with
the demands of the employees. The operating company, faced with requests
for increased wages, promptly transferred the burden to the municipal govern-
ment, which was the same as passing along the increase to the patrons of the
service.

If there were, in the city referred to, a service-at-cost franchise
and a clause therein providing a premium on efficient and economical
management as reflected by the rate of fare, could this complaint
have been penned? Moreover, would not the company have more
reason to consider much more carefully the merits of the case instead
of merely " passing the buck," even if it were inclined to do so?

Such an added incentive could be provided in many ways, either
by dividing a surplus over requirements as in the Cincinnati fran-
chise, or an addition of 1 or 2 per cent to the fixed minimum return.
In all cases, however, it should be made to depend upon the com-
pany, not how well it is liked or the degree of Christian fortitude
with which officials bear public criticism, but upon actual tangible re-
sults obtained in successful operation. The best test would be pro-

502 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

vicled by fixing the added return inversely on the rate of fare, but
allowing something, no matter what the fare may be.

Mr. WARREX. Mr. Draper, does your franchise have any provision
for changing the measure of the scale? As I understood Mr. Gui-
ld ns, it has a scale based on a flat rate of fare.

Mr. DRAPER. Yes ; there is no provision for a change unless the city
avails itself of the opportunity of again revising the franchise in
1931.

Mr. WARREX. There is nothing in connection with it, except by
agreement ?

Mr. DRAPER. No.

Mr. WARREX. The last thing Mr. Culkins said as he left — and I
would like your judgment on that also — was that if the Boston wage
scale, which had just been settled by arbitration at 62 cents an hour,
and the Boston hours of work of 8 hours per day were introduced
in Cincinnati, it would probably send the cost of service up to about
8 cents per passenger. Did you hear that?

Mr. DRAPER. Yes; I heard that.-

Mr. WARREX. You think that is about right?

Mr. DRAPER. It is rather hard to estimate. I do not know what
the 8 hours would mean, but I think if the fare was as high as it
would go under existing conditions at the present time, it would run
it to about 7.5 cents.

Mr. WARREX. If your present 6.5 cents is paying the cost of service
at the 50-cent wage scale?

Mr. DRAPER. Yes.

Mr. WARREX. Do you think the 62-cent wage scale, if not affected
too much by the 8 hours, would be met by the 7.5 rate?

Mr. DRAPER. I think so.

Mr. WARREX. Now, suppose the 7.5 cent rate did not meet it, or
suppose the scale of wages went substantially higher than 62 cents —
I believe in Chicago they are asking 87 cents, are they not?

Mr. DRAPER. Eighty-five cents, I think.

Mr. WARREX. Eighty-five?

Mr. DRAPER. Yes.

Mr. WARREX. Is there any way, then, in which you could substi-
tute some different method of collecting the fare, or some method
which would be related to the distance that the passenger rode, for
example ?

Mr. DRAPER. Only by amending the present franchise.

Mr. WARREX. And that can only be by agreement between the com-
pany and the city?

Mr. DRAPER. Yes.

Mr. WARREX. Do you think the method which you have of increas-
ing the income of the company, in case of making a reduction in the
rate, furnishes a sufficient inducement ? How does it work out finan-
cially, in other words?

Mr. DRAPER. Financially, of course, up to the present time, it has
not worked at all.

Mr. WARREX. At present it all goes into the reserve fund?

Mr. DRAPER. No ; it does not even reach the reserve fund ; but if it
reached the reserve fund under the 6.5 cents there would not be any
division at all.

Mr. WARREX. It would all go into surplus ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 503

Mr. DRAPEB. It would all go jnto surplus.

Mr. WARREN. At 6 cents there would be 20 per cent of the amount
otherwise going into the surplus going into the treasury of the com-
pany ?

Mr. DRAPER. That is true, if it reached that.

Mr. WARREN. How much that would be would depend upon your
fare?

Mr. DRAPER. Yes, sir; you can not fix a rate that will be just
enough to be $20,000 too much.

Mr. WARREN. But if there is enough to bring the reserve fund up
to $650,000, then the rate automatically goes down ?

Mr. DRAPER. The rate goes down. If it builds your reserve fund
up to $650,000 in a certain period, and is $20,000 in excess on a
6-cent fare, we get $5,000 out of it, or 20 per cent— $4,000.

Mr. WARREN. That does not seem to be very much.

Mr. DRAPER. Well, it is not much of an incentive.

Mr. WARREN. Did you consider at all, or would you think it worth
recommending, to share the savings, if there were any, between the
company and employees — a saving on the budget?

Mr. DRAPER. I do not quite

Mr. WARREN. In Mr. Culkins's testimony, the company submits
the budget 45 days before the beginning of the new year. That
is the calendar year, I presume.

Mr. DRAPER. Yes.

Mr. WARREN. And that budget has to be approved by the director
of street railways ?

Mr. DRAPER. That is true.

Mi\ WARREN. He intimated that thus far, I think, you were living
within the budget?

Mr. DRAPER. That is true.

Mr. WARREN. Now, suppose you get through the year with a sav-
ing of $100,000 on that budget, would it be any more of an incentive
if that amount, $100,000, were to go to the company or to go to the
company and the men, or be distributed in some other way and not
go into the reserve?

Mr. DRAPER. Yes; I would say that that would be an additional
incentive. We found, however, if that would be used in any way
to induce the men to accept a lower flat wage in anticipation of a
possible additional return, that they would not receive it very
enthusiastically.

Mr. WARREN. They do not care for the contingency in it?

Mr. DRAPER. No ; they want to be sui-e of what they get.

Mr. WARREN. They do not like to live on what was referred to
here the other day with reference to some of the securities as
"hopes"?

Mr. DRAPER. No; they do not care to live on what the street rail-
ways would.

Mr. WARREN. Perhaps they have been in the business too long and
would not want to live on the street railway's " hopes."

Mr. DRAPER. Well, they have been in the business a long while;
that is true.

The CHAIRMAN. Is that the hopes of the holder of common stock
in your company!

504 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. DRAPER. The holder of the common stock has apparently no
hopes left.

Commissioner SWEET. That was his attitude several years ago.

Mr. DRAPER. When?

Commissioner SWEET. Quite a number of years ago that was his
attitude.

Mr. DRAPER. He had hopes then; yes. This franchise has given
our common stockholders some hope. You can see how vague the
hope is from the fact that if your surplus goes down to about $20,000
in excess, they will get $4,000 on the 6-cent fare.

The CHAIRMAN. What is the amount of the common stock ?

Mr. DRAPER. $7,500,000.

The CHAIRMAN. How much money actually went into the property
from the sale of that common stock ?

Mr. DRAPER. That is a little hard to tell, because of the fact that
the company also invested some money in the building that is occu-
pied by the officers.

The CHAIRMAN. Well, can you approximate the amount that went
into the plant of that $7,500,000 common stock?

Mr. DRAPER. The $7,500,000 common stock and the preferred were
both used. The preferred was sold at a discount, and the common
block practically took up that discount. I don't know

The CHAIRMAN. This common stock is technically called the
"• hope " stock ?

Mr. WARREN. That is about what it is; yes.

The CHAIRMAN. That is all.

Commissioner GADSDEN. Mr. Draper, you did not intend to give
the impression to the commission that you think that there is any-
thing inherently opposed to the interest of the common stockholder
in the service-at-cost plan, do you?

Mr. DRAPER. No; I should say under this franchise he is given
some •

Commissioner GADSDEN. But the service-at-cost plan is theoreti-
cally based upon the investment, is it not?

Mr. DRAPER. The service-at-cost plan presupposes some sort of a
valuation, either made or agreed upon.

Commissioner GADSDEN. If the common stock represents real
value, is there any more reason why he should not be taken care of
under the service-at-cost plan than the owner of the preferred stock ?

Mr. DRAPER. If it represents real value, it would have to be taken
care of.

Commissioner GADSDEN. Exactly. You did not want this com-
mission to understand that, as a general proposition, the common-
stock holders in this industry had given up hope that the common
stock will be of real value?

Mr. DRAPER. No; absolutely. I say our common stock has this
additional interest in the building, but, so far as the street-railway
business is concerned, they have not been very much encouraged in
the last, few years, and this franchise gives them some additional
hope.

The CHAIRMAN. Does your common stock, separate from the pre-
ferred stock, ever have a market value?

Mr. DRAPER. Yes ; it is sold in the local stock market.

The CHAIRMAN. What is the highest price that it has sold fqr?

PiiOCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 505

Mr. DRAPER. I think it sold for about 52.

The CHAIRMAN. What is it worth now?

Mr. DRAPER. It is quoted at 20.

Mr. WARREX. Mr. Draper, how, under your service-at-cost plan,
can there be any return on that common stock?

Mr. DRAPER. Under this plan there can be only a return on the
common stock in case, in the first place, the fare can go down again
to 6 cents, and then they get a share in the excess over the amount
necessary to take care of the requirements.

Commissioner GADSDEX. If you could get your fare back to 5
cents your common stock would be worth some money, would it not ?

Mr. DRAPER. Yes; the common stock, on $20,000, as I illustrated
a while ago, would get nearly half.

Commissioner GADSDEX. Yes.

Commissioner SWEET. If the general prices throughout the coun-
try should drop to the same level as they were in 191-1, we will say,
so that a nickel was worth 5 cents instead of being worth 2.5 or 3
cents, the common stock in your company would be worth more
than 50 cents on the dollar, would it not ?

Mr. DRAPER. It might. There is this to be taken into considera-
tion: that if we could return to former conditions on the following
scale, and we cut down the scale, there would be a much larger
accumulation into the reserve fund.

Commissioner SWEET. Now, if I understand 3rou right, Mr. Draper,
your position is this: that there are certain things in the arrange-
ment made in Cincinnati that you think might be improved, from
the standpoint of the stockholders of the company ?

Mr. DRAPER. Yes.

Commissioner SWEET. But I do not understand you to express any
disapproval of the system under which you are operating, the service-
at-cost system?

Mr. DRAPER. No; I think not.

Commissioner SWEET. But if the amendments which you think
should be made were made, you would regard it as pretty nearly
an ideal arrangement; is that right?

Mr. DRAPER. Well, in regard to this one thing. There are two
or three other things that we would like to have different; but let
me answer your first question.

Commissioner SWEET. Yes.

Mr. DRAPER. And say this

Commissioner SWEET. Yes.

Mr. DRAPER. That this incentive, this division, that might remain
after the requirements are taken care of, was one of the things that
we discussecl more than any other one point with the city. We in-
sisted that there should be some consideration given, no matter what
the rate of fare was; that if the rate of fare went up, it was not
our fault, under this plan, but it was due to conditions, and that
we were entitled to consideration with a high rate of fare, the same
as we were with a low rate of fare, at least something; but in order
that we might be given this spur to try to get faros down by economi-
cal operation, we recognized the fairness of getting less in case tho
fare was high than we would get in case the fare was low.

As to other points in the franchise, we felt that the matter of
the budget is something that is a little more theoretical than we
1GOG430— 20 33

506 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

would like to see it. It is almost impossible to anticipate as far
ahead as we ha.ve to under this franchise what our expenditures
are going to be.

Commissioner SWEET. But there is some elasticity in that, as ex-
plained by Mr. Culkins, is there not?

Mr. DRAPER. There is some elasticity, but notwithstanding that
there is a feeling on the part of the director and city administration
that, by the very fact that we are asking for an additional allow-
ance, we are not operating quite as economically and carefully as
we should, unless it does have some specific thing — take, for example,
the increase in wages. Of course, you can measure that very ac-
curately.

Commissioner SWEET. Are there any objections now that you have
to the arrangement that you have made with the city ?

Mr. DRAPER. None vital; no.

Commissioner GADSEX. What about the limited time as against
the indeterminate?

Mr. DRAPER. We could scarcely avoid that.

Commissioner GADSEN. But if you were drawing another one.
That is what Commissioner Sweet wants to know.

Mr. DRAPER. The Ohio law is not such as will allow the exchange
of a term franchise for an indeterminate franchise. If it were, we
would, of course, prefer the indeterminate.

Commissioner SWEET. But these matters that you speak of now by
way of criticism relate to detail in the arrangement that might
easily be avoided in another city, for instance. For instance, if it
should adopt the service-at-cost plan, the whole arrangement with
regard to the reserve fund, with regard to the various points of which
the company should get a part of the earnings, could all be changed
as a matter of detail, and you did try to get certain things dif-
ferent from what you did get?

Mr. DRAPER. That is true.

Commissioner SWEET. Now, in another city, the company might
get the very things that you tried to get and failed to get, but with
those details somewhat changed, you think exceedingly well of the
system ; is not that correct ?

Mr. DRAPER. We think very well of it, with the exception of the
details, which you might call local details, and which are not funda-
mental. For example, starting at 5 cents. While we agreed to that,
that was purely and solely to try to satisfy a group that was bent
on taking the matter before the people for another vote.

Commissioner SWEET. Yes.

Mr. DRAPER. The principles of this had already been voted upon
at a previous election, and the only change that was made was a
change really dictated by the Supreme Court, saying that we could
not carry out a certain form. That was purely a local condition,
howevei.

Commissioner SWEET. Yes.

Mr. DRAPER. That might not come up in another city.

Commissioner SWEET. So that this afternoon we had Mr. Culkins's
statement representing the city, and without any personal interest in
the company whatever, favorable to the service-at-cost plan ; and wo

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 507

have your statement, from another standpoint, so far as the general
principles involved in the plan are concerned

Mr. DRAPER. You are safe in saying that; yes, sir.

Commissioner GADSDEX. Mr. Draper, what solution to this prob-
lem occurs to you, other than the service-at-cost planJ

Mr. DRAPER. You mean a permanent solution?

Commissioner GADSDEX. Yes; of the industry.

Mr. DRAPER. The only other solution that I can see is to give the
State commission such power that it can regulate fares from time
to time as the necessity would require.

Commissioner GADSDEX. Do you think that is going to restore
the credit of this industry ?

Mr. DRAPER. It would not immediately. It would tend very largely
to do so, just as the fact that this franchise was dead helped us very
materially. It did not help us to finance, because the matter was
tried out in the courts, but it enabled us to borrow money for certain
things that we had to do.

Commissioner GADSDEX. Here is the thought that I wanted to bring
out: Whether you entertained the view that some of them enter-
tained, and testified to before the commission, that the alternative
presented to the industry at this time in order to permanently restore
its credit is either some well worked out service-at-cost plan or
municipal ownership?

Mr. DRAPER. You say it would restore its credit?

Commissioner GADSDEX. I asked you whether you think there is
any other alternative besides those two.

Mr. DRAPER. I say, if you give the public-utilities commission
power to regulate rates as the necessity would require, you would
restore its credit, if you were assured that it could be worked out.

Commissioner GADSDEX. Why, then, do we find companies operat-
ing in States where the public-service commissions have full powers
in just as bad shape as the others?

Mr. DRAPER. Well, as I say, because it does not work out. The
theory is all right, but it is pretty hard to get at in practice. If you
fix something that is automatic, as the cost-of-service plan, then you
have it settled. You do not have to depend upon a human agency
at all.

Commissioner SWEET. But the important element in this, which
everybody agrees to, is public approval. If the people of Cincinnati
Were not favorable to this scheme, it is easily conceivable that your
income might have failed to show any increase of gross revenue by
making an increase of fare. The fooling, as in some other places,
might have been such as to fully offset the increase in the gross
revenues that might be expected from an increase of fare; is not
that true?

Mr. DRAPER. That is true.

Commissioner SWEET. So that public sentiment has a groat deal
to do with it, has it not?

Mr. DRAPER. It has. In our case, we wore very careful to jyive the
public and those who wore authorized to secure information tho
fullest possible opportunity that they could have.

Commissioner SWEET. Tlon't you think that in any servioc-at-oost
plan there is something that appeals to tho public, makes it easier

508 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

to convince the public as to the need of the increased fare, and has
a tendency to allay suspicions and prejudices? Don't you think
there is something in that ?

Mr. DRAPER. Undoubtedly. There are two things. In the first
place, it appeals to them as fair, and, in the second place, the fact
that the city can not only control the situation, but can come in and
determine what the situation is, appeals to them.

Commissioner SWEET. Yes.

Mr. DRAPER. That was our experience in conducting the negotia-
tions.

The CHAIRMAN. Are you familiar with the effect that the war has
had upon the rates of service of similar utilities in European
countries?

Mr. DRAPER. No; I am not, Mr. Chairman.

The CHAIRMAN. You have said that you favor the cost-of-service
plan with a few modifications. One of them which you have em-
phasized is that the city has real control over the management and
supervision of the industry. What is your relation to Mr. Culkins?

Mr. DRAPER. Our relations with Mr. Culkins are very friendly. He
has been in public life in Cincinnati for a good many years, and he
had the confidence of the people at large before he took the position.
He conducted negotiations in the second revision. First, as I ex-
plained before, by reason of the fact that it was declared unconsti-
tutional, and having to work it out, he became thoroughly familiar
with it, and giving pretty full information on it to the public, they
felt that it was fair, and it started us off on the right basis.

The CHAIRMAN. He has as broad powers as those usually enjoyed
by State regulating commissions, over both your service and other
matters ?

Mr. DRAPER. Yes ; broader powers than our State commission has.

The CHAIRMAN. Now, of course, in view of the close relationship
existing between you and Mr. Culkins, and the fact that he is a
broad-gauge man, you are getting along all right. Let us suppose,
for a moment, that you had a man in there who preferred to play
politics and made orders affecting service and the maintenance of
streets and repairs and equipment and things of that kind, which
would be very burdensome to the company, and be more or less
exasperating; then how would you get along under that cost-of-
service plan?

Mr. DRAPER. It would not be very burdensome on the company. It
would be burdensome on the car rider. I do not think anybody could
dare do that. He might make it disagreeable for you ; he might make
you work 24 hours instead of 18, and insist on a lot of information
that was not necessary, but he would not dare do anything that is
going to add to the burden of the passengers.

The CHAIRMAN. In other words, his responsibility would be to the
public and not to the company under this plan?

Mr. DRAPER. Absolutely.

The CHAIRMAN. So that it would not make any difference, would

Mr. DRAPER. Well, there is a dividing

The CHAIRMAN (continuing). How costly the service would be-
come, the man who had invested his capital in the company would
be secure at all times?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 509

Mr. DRAPER. Yes ; if the base on which you make the rate and on
which you provide for purchase represents the amount that he has
invested in the property.

The CHAIRMAN. None of the surplus that is accumulated from
operation can in anywise go to officers of this company? That goes
to the stockholders?

Mr. DRAPER. Not necessarily. The company itself has to dispose
of that. That is a corporate matter of its own.

The CHAIRMAN. Have you found any tendency on the part of
employees to lay down on the service since you adopted the new
plan ?

Mr. DRAPER. You mean trainmen or the higher-up employees?

The CHAIRMAN. No ; trainmen — employees in the shops and cars.

Mr. DRAPER. No, sir; we have not. And I will say that wre have
not found any tendency of that sort all the way up the line.

The CHAIRMAN. Do you believe that under this plan you will get
just as high quality of service as 3-011 will under the plan where the
employees are largely subservient to the management and must do as
directed?

Mr. DRAPER. He is still subservient to the management. The city
does not attempt to dictate in any manner of form whatever between
us and pur employees, and the employees, I think, will continue to
do the best they can, just as they always have, or better.

The CHAIRMAN. Is there anything in the contract which prevents
an employee from striking?

Mr. DRAPER. Not in this contract. We have in our contract with
the trainmen's organization an arbitration provision.

The CHAIRMAN. Did your company really promote this cost-of-
service plan?

Mr. DRAPER. It was a growth. The thing started in 1013 — three
years before the period for revision, when council passed a resolu-
tion requesting the Public Utilities Commission of Ohio to make a
valuation of our property. The public-utilities commission then is-
sued an order to the company, compelling us to file an inventory and
appraisal. It then checked it. It checked every bit of wire and
counted the bolts and measured the track and made its own valua-
tion. It took about two years for us to make our inventory and ap-
praisal and have the State to check it. A valuation was handed
down by the public-utilities commission as a tentative valuation,
nnd both the company and the city appealed for a rehearing. Be-
fore that rehearing could be held, the time was proceeding so rap-
idly that the city, desiring to go ahead with this rapid-transit line,
which was a feature in the first revision, decided that if we could
get together on some valuation that it would not wait for the re-
hearing before the public-utilities commission, and consequently
there was an agreed valuation very largely based upon the valuation
handed down by the public-utilities commission.

Mr. Culkins did not touch on that because he was really not fa-
miliar with the negotiations at that time.

It may be interesting to point out that the final valuation found by
the company's engineers and bv the public-utilities commission were
practicallv tho s:\ino. about $-27,000,000. to which an allowance was
made by the public-utilities commission for superseded values, bring-

510 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

ing the public-utilities commission's tentative valuation to about
$30,141,000, and that is the basis that Was used in this franchise.

The CHAIRMAN. Is it not rather an unusual situation, to find the
public utilities commission and the utility agreeing upon the valua-
tion of the plant?

Mr. DRAPER. Not on the physical valuation, I think, Mr. Chair-
man. I think that is a matter that, if the work has been done prop-
erly on both sides, they ought to agree upon.

The CHAIRMAN. There is more or less dispute as to overhead ex-
penses, contingencies^ and other things ; is there not ?

Mr. DRAPER. Yes; we requested the franchise value, which they
did not allow. We requested the paving value} which they did not
allow, and on that subject I might say that the city hired an engineer
to make the valuation, and he made a depreciated valuation of $12,-
000,000. So, you see, there are discrepancies occasionally.

Commissioner SWEET. How did this physical valuation compare
with your paper valuation?

Mr. DRAPER. The book valuation at that time was $29,029,000.

Commissioner S\VEET. What did that cover ? Give the items.

Mr. DRAPER. That covered purely the physical valuation. In
other words, the Cincinnati Street Railway Co. is the company that
built this property and leased it to the Cincinnati Traction Co. in
1901. The capital stock of the Cincinnati Street Railway Co. in
1901 was $18,738,950, which historically represents money that went
into the property. We can trace it very carefully to show that was
the real value, and that was recognized by the city when it approved
the lease from the old company to the present operating company.

Commissioner SWEET. Yes.

Mr. DRAPER. Taking that as the basis, and then taking the amount
that we have expended on the property ourselves, dollar for dollar —
not the securities issued to provide money, but the money that went
into the property — it brings it up to $29,029,000. Now, adding to
that what we are entitled to, the cost of procuring that money, be-
cause you can not go and get a hundred cents on each dollar in-
vested, that would bring it very -nearly to the valuation that was
found by the public utilities commission and by our own engineer
and put in the franchise.

Commissioner SWEET. That is about $30,000,000 ?

Mr. DRAPER. About $30,000,000.

Commissioner SWEET. What was that $416.000 that you spoke
about, and which Mr. Culkins spoke about, too?

Mr. DRAPER. The $416,000 is a little less than the amount necessary
to pay the 5 per cent on the preferred stock — $8,500,000 preferred
stock. The money went into the property, but the city, when it
came to go into the whole matter, decided that this interiirban line
that Mr. Culkins spoke of a little while ago — he did not treat that
fully — should be brought in as a part of the city proper. The reason
it did that was because that line, under this franchise, was within
the city. Within the city, including the former villages that were
annexed to the city under this old franchise, it was entitled to
charge a 10-cent fare. We had voluntarily reduced the fare some-
what, but the city wanted the same rates of fare for these communi-
ties which had been taken into the city as for the rest of the city. So,
at that time, this interurban line was making a little money, but

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 511

inasmuch as the city wanted to bring it in as a part of the city proper
and reduce the rate, we did it in order to get the whole thing cleaned
up at that time, which reduced the earnings on that property to a
point where we did lose money, but that was on account of the fact
that we extended the city fare zone out to include these annexed
villages.

Now, the $416,000 was arrived at in a peculiar way. In cleaning
the whole thing up, $425,000 was the amount that should have been
allowed to take care of preferred stock. The amount of money that
the Mill Creek Valley line lost in the year that we put in this re-
duced rate of fare was $9,000, and some of the very careful nego-
tiators on the other side said, " Well, we are not going to separate
that loss, so we will take it off for $425,000." That accounts for that
unusual figure.

Commissioner SWEET. Well, how 'were you to pay the $425,000
before the $9,000 was taken out to meet the interest on the preferred
stock?

Mr. DRAPER. That was to come from the operation of the prop-
erty, the same as any other.

Commissioner SWEET. As in any other instance?

Mr. DRAPER. Yes.

Mr. WARREX. It was a part of the return on the investment.

Mr. DRAPER. That is the return before the $350,000 for the city.

The CHAIRMAX. From the standpoint of operation, what is the
substantial difference between the cost-of-service plan and public
ownership and operation ?

Mr. DRAPER. The essential difference is that you have a group of
men — employees— operating the property that nave had experience.
As far as operation itself is concerned. I think a. private company
can always operate more efficiently and economically than a city
administration, which is subject to change, and however well the city
affairs are conducted, it is always subject to political influences.

The CHAIRMAN. Do you believe that this plan will naturally lead
to government ownership in Cincinnati?

Mr. DRAPER. I do not. I think it tends the other way.

The CTIAIRMAX. Suppose the rate should be increased to 7 cents;
then what would be the effect on the public mind?

Mr. DRAPER. If the rate is increased to 7 cents, it may be necessary
or advisable to go a little more in detail, so far as the figures are
concerned. They have not asked so far for details. They are satis-
fied with the showing that we have made and by the increase that
they know of. In other words, the rate to our men, the trainmen,
a year ago last April was 30 cents. It was increased to 48 cents by
the award of the War Labor Board, and the same proportionate in-
crease, as in all other awards of the board, was allowed to the other
employees. The people, knowing about that, could easily see that
an increase of practically $1,000,000 a year in our pay roll made
higher fares under a nlan of this kind necessary.

There is pretty full and free publicity of the operation of the,
company's propertv right along, and there is a feeling in Cincinnati
that is often voiced in public meetings and otherwise that they want
service, and as an evidence of how they feel, during the war the Fuel
Administration ordered us to install the skip-stop plan, which \vo
did. When the treaty was signed, although the President has not

512 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

vet made the proclamation of peace, the people said, " Now, the war
is over; let us abolish the skip-stop plan." There was considerable
argument pro and con, and they said, " If it was well for us to save
$08,000 in coal and something like $25,000 or $30,000 in other inci-
dentals during the war, it is just as well for us to save that now that
the war is over." But the people said, "No; if we are paying a
higher rate of fare, and are willing to pay for the service, we ought
to get the kind of service that we want." That was the expression
that was used.

The CHAIRMAN. What has been done during the war to keep up
your maintenance?

Mr. DRAPER. "We have kept up our maintenance, except the streets.
As anybody else, we could not get the rail or materials. Neither
the city nor ourselves could do any work in the street until this year.

The CHAIRMAN. Have you run up a large item of deferred main-
tenance?

Mr. DRAPER. We are doing more work in the streets this year
than we have in several years past in any one year.

The CHAIRMAN. Are you able to get that out of your operating
revenues ?

Mr. DRAPER. Yes; all of that is in the budget, with the exception
of about $70,000, which we expect to save on some other items.

The CHAIRMAN. Have you kept your cars well repaired ?

Mr. DRAPER. Our cars are in very fair shape, except about 180
small-truck cars that we are going to abandon as soon as we get the
105 new cars.

The CHAIRMAN. Are you purchasing new equipment ?

Mr. DRAPER. Yes; we are adding 105 cars to the total.

The CHAIRMAN. How much will that add to your capital account '?

Mr. DRAPER. It will add $1,200,000, at 6 per cent.

The CHAIRMAN. Have 3Tou worked out any economies in opera-
tion?

Mr. DRAPER. Yes. We have attempted some rerouting, which wre
expect to put through, and we have also started all the way down
the line, as far as the employees are concerned, toward getting more
and efficient help nowT &iat the wage is such as will attract the
better class of men in the service, and we are adopting a great many
efficiency plans, such as street railways do when they can and which
everybody had to drop during the war.

The CHAIRMAN. What do you expect to save by the rerouting
scheme ?

Mr. DRAPER. Well, by the rerouting scheme wre wyill probably save
about $100,000 a year.

The CHAIRMAN. Have you discussed the one-man car?

Mr. DRAPER. Mr. Culkins has. We have not.

The CHAIRMAN. What is your idea upon that q uestion ?

Mr. DRAPER. WG are peculiarly located in Cincinnati. In the first
place, we have hills and narrow streets in excess, I think, of prob-
ably any other city, unless it be Pittsburgh or Kansas City, and wre
have three inclined planes over which we operate three different
lines. Those inclined planes can be operated only so frequently;
you can not make closer headway than a certain headway, neces-
sitating oi*r using larger units instead of smaller units. In addition

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 513

to that, the congestion in the downtown district, with the narrow
streets, is such that we have not so far found that we could, in our
opinion, save money by going into a smaller unit and more frequent
operation than by having the larger units and not so close together.

The CHAIRMAN. As I understand it, you make these one-man cars?

Mr. DRAPER. Well, the Cincinnati Car Co., an affiliated company
with us.

The CHAIRMAN. Are you able to make any economies in your over-
head expenses?

Mr. DRAPER. No much. The tendency, of course, all the way
through the salary list is toward increasing the pay. None of the
officials of the company have had any increase in pay. It is nec-
essary to increase the clerks and bookkeepers and people in the ac-
counting department and others in the general office, as well as
outside, which has made it impossible to reduce the overhead ex-
penses very much.

The CHAIRMAN. That is all.

Mr. WARREN. What is the gross operating revenue, roughly, Mr.
Draper, of vour company ?

Mr. DRAPER. In 1918 'it was about $5,250,000.

Mr. WARREN. How many passengers did you carry in that year?

Mr. DRAPER. Pardon me just a moment. And for the present
year, our estimates, considering the increase of 7 cents, it will be
slightly under seven million.

Mr. WARREN. And how many passengers did you carry, roughly ?

Mr. DRAPER. We carried about 106,000,000 last year. That 'is,
revenue passengers, and about 35.000,000 transfer passengers.

Mr. WARREN. The powers of your commission in Ohio are not
very extensive, are they?

Mr. DRAPER. Not as far as street railway's are concerned.

Mr. WARREN. Not as far as street railways are concerned ?

Mr. DRAPER. No; the law is so drawn that their jurisdiction prac-
tically does not extend to street railways, unless in case of certain
appeals — appeals under certain conditions.

Mr. WARREN. Yes.

Mr. DRAPER. And they have constantly refused to take jurisdic-
tion in cases of any franchise rates. In other words, they won't step
in and determine a rate, or have anything to do with rates, where
they are fixed by franchises?

Mr. WARREN. So, as a matter of fact, a good many of the powers
which are given to the director of street railways in Cincinnati are
taken from the commission and given to him ; but they do not exist
anywhere, except as that agreement sets them out ?

Mr. DRAPER. That is true.

Mr. WARREN. That is all, Mr. Draper.

Commissioner GADSDEN. Just a question, Mr. Draper:

The city has an option to purchase the property, has it not?

Mr. DRAPER. Yes.

Commissioner GADSDEN. In the franchise?

Mr. DRAPER. Yes.

Commissioner GADSDEN. That is practically true of all these serv-
ice-at-cost plans, is it not?

PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. DRAPER. Well, it is essential. There would be no way of the
city's getting any changed condition unless it was privileged to
purchase.

Commissioner GADSDEN. That is what I wanted to find out.

Mr. WARREN. That is all, Mr. Draper.

The CHAIRMAN. We will adjourn until to-morrow morning at 10
o'clock.

(Whereupon, at 4.55 o'clock p. m., the further hearing of this case
was adjourned until to-morrow, Tuesday, July 22, 1919, at 10 o'clock
a. m.)

11 •••

WASHINGTON, D. C., July 82, 1919.

Met pursuant to adjournment. 10 o'clock a. m.

Present : Parties as before.

The CHAIRMAN. You may proceed, Mr. Warren.

Mr. WARREN. Mr. Pellissier, take the stand.

The CHAIBMAN. You did not complete Mr. Nash's testimony ?

Mr. WARREN. No ; I did not. I am going to put Mr. Nash on, but
I want to put on Mr. Pellissier 'for just one point, may it please the
Chairman.

STATEMENT OF MR. LOUIS PELLISSIER.

Mr. WARREN. Your full name?

Mr. PELLISSIER. Louis Pellissier.

Mr. WARREN. You are President of the Holyoke Street Railway?

Mr. PELLISSIER. Yes.

Mr. WARREN. You are also general manager of the Northampton
Street Railway Co.?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. Both Massachusetts companies?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. You are in charge of the operations of both com-
panies ; are you not ?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. What sort of a franchise do you have on those prop-
erties?

Mr. PELLISSIER. Indeterminate franchise.

Mr. WARREN. Indeterminate?

Mr. PELLTSSIER. Yes.

Mr. WARREN. That is a franchise during good behavior.

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. What power has the commission in Massachusetts
.over rates?

Mr. PELLISSIER. They have the absolute power over rates.

Mr. WARREN. It is unlimited?

Mr. PELLISSIER. It is unlimited; yes, sir.

Mr. WARREN. Is there any limitation in the franchise on what
rates you can charge ?

Mr. PELLISSIER. No, sir.

Mr. WARREN. That means, does it, that you can charge any rates
which the public-service commission approves?

Mr. PELLISSIER. Yes, sir.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 515

Mr. WARREN. Have you had occasion to increase your rates on
either or both of these properties?

Mr. PELLISSIER. Yes ; we have on both.

Mr. WARREN. On both?

Mr. PELLISSIER. Yes.

Mr. WARREN. Take the Northampton Co. first. How did you in-
crease the rates there?

Mr. PELLISSIER. There we increased the unit from 5 cents to 7
cents.

Mr. WARREN. And that indicated a theoretical increase of 40 per-
cent?

Mr. PELLISSIER. Forty per cent ; yes, sir.

Mr. WARREN. Was that increase taken before the public-service
commission ?

Mr. PELLISSIER. Yes.

Mr. WARREN. And approved by them?

Mr. PELLISSIER. Yes, sir; and approved by the public. When we
went before the commission the representatives of the public were
there and they told the commission that if they thought we needed a
7-cent fare they were perfectly willing to paj* it; and that they
needed the service and were willing to pay what it cost.

Mr. WARREN. And you put it in effect?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. When did you put it in effect?

Mr. PELLISSIER. February 1, this year.

Mr. WARREN. What has been the result ? Theoretically, you might
have gained 40 per cent?

Mr. PELLISSIER. Yes.

Mr. WARREN. And what did you actually gain?

Mr. PELLISSIER. Thirty per cent.

Mr. WARREN. You are still getting that?

Mr. PELLISSIER. Yes; about.

Mr. WARREN. So you gained three-fourths of the actual possibility?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. On the Holyoke Street Railway, what did 3Tou do?

Mr. PELLISSIER. There we shortened some of the zones and re-
mained on the 5-cent fare, with the exception of a central zone that
the commission decided they would increase the unit in the central
zone from 5 to 7 cents.

Mr. WARREN. What was the theoretical increase there in per cent ?

Mr. PELLISSIER. About 35 per cent.

Mr. WARREN. About 35 per cent?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. And what was your experience with it?

Mr. PELLISSIER. We are getting between 25 and 30 per cent.

Mr. WARREN. Between 25 and 30 per cent?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. Has that been in effect several months?

Mr. PELLISSIER. Since the 1st of January, this year.

Mr. WARRKX. You say that the public was not unfriendly?

Mr. PELLISSIER. Not at all.

Mr. WARREN. Do you think that helped the immediate result?

Mr. PELLISSIER. Yes, sir; I do.

516 PROCEEDINGS OF FEDERAL ELECTRIC. RAILWAYS COMMiSSIOISr.

Mr. WARREN. What is your opinion as a street-railway operator of
the ultimate effect of increasing fares, regardless of the attitude of
the public? Suppose the public were opposed to it.

Mr. PELLISSIER. It increases the revenue.

Mr. WARREN. It increases the revenue?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. And as time goes on does it increase it very much?

Mr. PELLISSIER. Yes, sir. As time goes on that loss of traffic does
come back to a large extent.

Mr. WARREN. So that in your opinion an increase in fare, even
though the public does not understand it or is. even hostile to it, pro-
duces some immediate increased revenue and ultimately a large in-
crease ?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. Your stock in the Holyoke Street Railway Co. was
all issued for cash?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. And under the Massachusetts law was a premium
paid in on it?

Mr. PELLISSIER. Yes, sir. For every share of $100 there is $120
of property behind it.

Mr. WARREN. So that the company has realized $120 a share?

Mr. PELLISSIER. Yes, sir.

Mr. WARREN. That is all I want to ask this witness, Mr. Chairman.

The CHAIRMAN. What is the effect of this increased rate upon the
short-haul traffic ?

Mr. PELLISSIER. Well, in the city of Northampton the community
is more or less of an interurban community; that is, the city of
Northampton itself is only a city of 20,000, but the suburbs are
about 3 miles away from the center. There is very little short-
haul riding. There we increased the unit because of the fact that
there was practically no short-haul riding and —

The CHAIRMAN. There many people are obliged to ride?

Mr. PELLISSIER. Yes, sir.

The CHAIRMAN. And the increased fare would not affect the num-
ber of passengers hauled?

Mr. PELLISSIER. No, sir.

The CHAIRMAN. What can you tell us of your experience in a more
congested territory?

Mr. PELLISSIER. In the more congested territory the increasing of
the unit does affect the short-haul riders to some extent.

The CHAIRMAN. To what extent?

Mr. PELLISSIER. Well, I do not know just how much, but probably
as high as 10 per cent.

The CHAIRMAN. Have you made any study for the purpose of
finding out how many less passengers you carry within a certain
zone, a congested zone, since this fare went into effect?

Mr. PELLISSIER. No; we have not.

The CHAIRMAN. AVas that 10 per cent shrinkage in the number of
passengers observed immediately after the increase went into effect?

Mr. PELLISSIER. Yes, sir.

The CHAIRMAN. Has there been an increase in the number of pas-
sengers as time has gone on?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 5 IT

Mr. PELLISSIER. Yes, sir; it has. It has been coming back to some
extent.

The CHAIRMAN. About what is the effect at the present time?

Mr. PELLISSIER. The effect at the present time, in my best judg-
ment, is about 10 per cent, but —

The CHAIRMAN. What was it when it first went in ?

Mr. PELLISSIER. Well, it was 10 per cent, but the reason of that
is jitney competition. I think, if the jitneys were not allowed to
operate for 5 cents where .we are obliged to charge 7 cents under
the ruling of the public-service commission, that it would probably
not be over 5 per cent.

The CHAIRMAN. Did the jitneys take advantage of this increased
charge ?

Mr. PELLISSIER. Yes, sir.

The CHAIRMAN. Are there any larger number of jitneys in service?

Mr. PELLISSIER. Well, there is not a very large number, but there
are probably in our town — it is not a very large town, 70,000 — there
are 20 to 30 operating now when there were only 1 or 2, I think,,
before.

The CHAIRMAN. What character of vehicle is used in the jitney
service ?

Mr. PELLISSIER. There are several motor buses with a carrying
capacity of about 12 to 16, I think, and then there are a number of
touring cars with a capacity of 5 to 7.

The CHAIRMAN. Does the commission have any control over the
fare charged by jitne.ys?

Mr. PELLISSIER. I do not think so.

Mr. WARREN. I think not, Mr. Chairman.

The CHAIRMAN. Does the municipality?

Mr. PELLISSIER. Yes; I think the municipality can fix the rate.

The CHAIRMAN. Has it fixed the rate?

Mr. PELLISSIER. Well, in a way it has. I think in the ordinance
it states that it will not be more than that charged by the street-
railway company.

Mr. WARREN. Has that ordinance been adopted in Holyoke?

Mr. PELLISSIER. Yes, sir.

The CHAIRMAN. Does the 7-cent fare bring you in money enough
to pay all your operating expenses and fixed charges ?

Mr. PELLISSIER. Well, the combination of the two on that systemr
5 and 7 cents does ; yes, sir.

Mr. WARREN. That is on the Holyoke system?

Mr. PELLISSIER. That is on the Holyoke system.

Mr. WARREN. How is it on the other system, where you have the
straight 7-cent fare?

Mr. PELLISSIER. On that we are doing very well.

The CHAIRMAN. I did not get clearly in my mind where you were
charging the 5-cent fare.

Mr. PELLISSIER. Well, on the Holyoke system we charge a 5-cent
fare on the greater part of the system, in the central zone. That is,
it takes the congested section of the city— we charge 7 cents there.
That has a diameter of 4 miles, and they ride for 7 cents. All the
other zones are on practically a 2-mile basis, and in those zones we
charge 5 cents.

518 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. You stated that the public approved of this in-
crease. In what way did they make that approval manifest?

Mr. PELLISSIER. Well, on the Holyoke system they were not quite
as unanimous in their approval of it as they were in Northampton ;
there was some objection on the Holyoke system by the public.

The CHAIRMAN. How was the approval indicated ?

Mr. PELLISSIER. Well, oh the Northampton system . it was indi-
cated by the representatives of the cities and towns before the com-
mission stating that if the company needed a 7-cent fare to operate
its business successfully, they were perfectly willing to pay it, that
they wanted the service and they knew they could not have it without
paying for it.

The CHAIRMAN. Had they attempted in some way to get an ex-
pression of the opinion of the community before they made that ex-
pression before the commission?

Mr. PELLISSIER. I presume so. These were selectmen of the town
who represented their people.

The CHAIRMAN. Had they had some sort of a New England town
meeting to discuss the question?

Mr. PELLISSIER. I do not think they had a town meeting but they
had a meeting of some committees.

Mr. WARREN. The average New England selectman can sense the
opinion of his community pretty rapidly, Mr. Chairman.

The CHAIRMAN. He keeps his ear near the ground, does he?

Mr. WARREN. Very hear the ground all the time.

The CHAIRMAN. Tell us something about the sentiment of tlie
other community on the other system.

Mr. PELLISSIER. Well, oh the Holyoke system we attempted to re-
duce the zones to 2 miles, and of course, that immediately threw
some of the people that were formerly in the inner zone into the
outer zone. In that case they were obliged to pay 7 cents where they
were paying 5 cents. Those people objected to that increase.

The CHAIRMAN. What is the charge from one zone into another
zone ?

Mr. PELLISSIER. It is 12 cents.

The CHAIRMAN. Twelve cents?

Mr. PELLISSIER. Yes ; 7 in one and 5 in the other.

The CHAIRMAN. So that your trip from one zone into another is
the sum of the two local charges, is it ?

Mr. PELLISSIER. Yes, sir.

The CHAIRMAN. The 5-cent zone is in the congested part of the
city?

Mr. PELLISSIER. No; the 7-cent zone is in the congested part of
the city.

The CHAIRMAN. Where is the 5-cent zone?

Mr. PELLISSIER. Oh the outer zone, adjacent to the inner zone.

The CHAIRMAN. Does not that rather reverse the rule of the zone
charge ?

Mr. PELLISSIER. Yes; a little, I think.

Mr. WARREN. Your idea was to make the inner zone smaller and
charge 5 cents there?

Mr. PELLISSIER. Yes; that was the idea, with the idea of retain-
ing the short-haul passenger.

The CHAIRMAN. Why did you not stick to that idea?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 519

Mr. PELLISSIER. We did, but the commission ruled against us.
The people that made the objection to the 5-cent fare, or the shorten-
ing of the zone, rather, preferred a flat increase in the unit rather
than shortening the zone.

The CHAIRMAN. What justification is there for charging a lower
fare in the sparsely settled section of your line and a higher fare
in your congested portion?

Mr. PELLISSIER. The only justification is this, that the zones of
course in the outer sections are only 2 miles, so that the limit of the
ride is 2 miles for 5 cents, which makes 2^ cents a mile, but in the
inner zone the diameter is 4: miles, so the possible ride is 4 miles
for 7 cents, and the short ride of course is anything that it may
be — several blocks.

The CHAIRMAN. What is your combined mileage?

Mr. PELLISSIER. In the system ?

The, CHAIRMAN. Yes.

Mr. PELLISSIER. Seventy miles in the Holyoke system and 30 miles
in the Northampton system.

The CHAIRMAN. That is all.

Mr. WARREN. What the commission really did was to enlarge that
inner zone and enlarge the fare upon it from 5 to 7 cents?

Mr. PELLISSIER. Yes.

Mr. WARREN. Your idea being to make it a smaller zone and
charge 5 cents and^ preserve the snort ride ?

Mr. PELLISSIER. Yes.

Mr. WARREN. That is all.

(Witness excused.)

Mr. WARREN. Mr. Hedges, will you kindly take the stand?

STATEMENT OF MR. JOB E. HEDGES.

Mr. WARREN. Your full name?
Mr. HEDGES. Job E. Hedges.
Mr. WARREN. You are receiver-

Mr. HEDGES. Receiver of the New York Railways.

Mr. WARREN. How long have you been receiver, Mr. Hedges?

Mr. HEDGES. Since the 20th of March.

Mr. WARREN. Will you kindly tell the commission how you came
to be receiver and what your experience has been as receiver in
operating those lines?

Mr. HKIMJES. Modesty compels me to withhold my real reason for
appointment. I think it was the intelligence of the judge, but it
was a surprise to me, because I have never been in this or had any-
thing to do with railways before.

I was appointed on the 20th of March in an equity suit to preserve
the properties of the railways, there being many unpaid debts and
taxes and the actual physical operation of the road being in jeopardy
and two foreclosures imminent, dependent upon the payment of
approaching coupons.

Now, since then I have been personally occupied largely in learn-
ing the mechanism of it, and I have not any particular technical
knowledge of the detail of it, except I have possibly some observa-
tions as this struck me as I first saw it.

520 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

When I went in there, and up to now, it takes part of the capital
of the road all the time to run the road. There are no rentals being
paid at all — all the rentals are in default. One of the roads, the
Eighth Avenue, has applied for a severance, and an order has been
entered on that and there will be a separate operation on the 1st of
August.

Within a month an application before Public 'Service Commis-
sioner Nixon was made for authority to charge for transfers. The
law seems to be in New York that a public-service commissioner
has authority over transfers, but it has been in dispute as to whether
he has over a flat rate. And in the recent case in Buffalo it is
analyzed both ways; some people say it just applies to the local con-
dition under which it aro^e and others generally — the public-service
commission counsel in New York holding that it does give the
public-service commissioner authority to raise or lower the flat rate
and the counsel to the city, the corporation counsel, saying, naturally,
it does not. And under direction of the mayor the corporation coun-
sel has been told to fight this rate to the last ditch, as I read it in
the paper.

Mr. WARREN. This transfer?

Mr. HEDGES. This transfer — on the ground that the public is being
robbed. So the issue in New York at the present moment is sustain-
ing the order of the public-service commission providing for a paid
transfer as against an admitted declaration that there .shall be no
money added for transportation than the 5 cents, and that that is
enough. And the corporation counsel within a week took the posi-
tion that this 2 cents was not justified because of excessive rentals,
and therefore the public-service commissioner went beyond his
jurisdiction either as to fact or law.

Mr. WARREN. As I understood you, you are not paying your
rentals.

Mr. HEDGES. And so I wrote the corporation counsel and suggested
that he was all right except as to his facts — that the rentals could
not be a part of a composite condition because we were not paying
them.

Now, there is one thing perfectly certain in New York, in my judg-
ment— am I too discursive, Mr. Warren?

Mr. WARREN. No ; that is just what I want.

Mr. HEDGES. Because I am quite ingenuous in some features of
this

Mr. WARREN. No ; because you are not a street-railway man, and I
want the commission to hear your experience.

Mr. HEDGES. Unless the railways get relief — and in any event it
may be that this 2-cent charge for a transfer will not satisfy, and if
it does not, every one of those lines will be severed from the general
system except the five they own. All the rest are leased lines.

The CHAIRMAN. Except the what?

Mr. HEDGES. There are five where they have the controlling interest
in the stock. The rest are all leased lines. The railway system is
in default to the Sixth Avenue line, to the Fourth Avenue line, and
the Eighth Avenue is gone, and it is in default to the Ninth Avenue.
Now, my observation, wrhile it is limited, is this, among other things :
Even the short-haul traffic on the New York railways has been in-
terfered with in two ways — by the difficulty of expediting their cars

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 521

on the street, owing to congested vehicular traffic, and the fact that in
many cases either the elevated or the subway parallel the surface
line. And therefore it is just a matter of expedition in New York —
New York living on the fashion to get from one place £o another be-
fore somebody else gets there.

Now, outside entirely of the question of remuneration by way of
a charge, these street railways, apparently, from my limited observa-
tion, have arrived at their highest point of passenger traffic. That
was reached somewhere in 1913; I saw in some figures furnished
me, and that was a high-water mark. Since then, with varying con-
ditions as to finances and otherwise, we have gone up and down dur-
ing the war and after the war and are rather approaching that 1913
figure, but will never go above it probably. Therefore the logic of
it is very simple. If $2,500,000 has been added at a computed rate
to the expenses of the road — assuming it is running at a full rate
of car equipment and conductors and motormen — and they are run-
ning behind and do not earn even that, it is just a question of the
date of burial of the road. It is not a question of rate or the
earning at all, because we are not even within the penumbra of
discussion of what the roads ought to earn. In some way they have
got to be put in a position to have enough physical strength left
to discuss how much they ought to earn finally in the reorganiza-
tion. Now, that is not rhetorical intensity at all. The discussion
before the public in New York has lately veered to the question of
certain rentals which, to my mind, logically have nothing to do
with it. These roads were organized by a combination of ownership
plus rentals. Those rentals were made up at the time of what was
the best guess as to what they ought to earn. Now. at the present
writing, according to the way you make a computation, the rate of
a rental has a rhetorical value. I do not know anything about street
railways, but if you pay $100,000 a year for rental on a capitaliza-
tion of a million or a capitalization of the same property at two
million, with that being possible in the growing of time, the question
is not a per cent but the relationship of that rental to the value of
the property by way of use. Now. this severed line of the Eighth
Avenue the other day was a street-car line. When it was

The CHAIRMAN. Was it under your control?

Mr. HEDGES. Yes, sir; it came through the New York Railways,
following the old Metropolitan system there, and therefore to me
as receiver.

Mr. WARREX. By a street-car line you mean a horse railroad ?

Mr. HEDGES. I mean at the time it was first taken over as a horse-
car line, and the agreement as to lease as a price was $215,000 —
stating just from memory — plus taxes and some other charges, city
charges, and an agreement that they should electrify the road.
Since then the road has been electrified: some three or four million
dollars have been added to it, according to the covenant, and the
computation as I can make it out is twelve and a fraction per cent
on all the property used by the public. The mayor, who seems to
be my rhetorical antagonist at the moment, divides 215,000 into a
million and lets it go at that, because 2GJ per rent has a great deal
better conversational value in opposing an increase in rate than has
12£ per cent.

160643°— 20 34

522 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Now, without any desire to express my private opinion or a desire
to flaunt my suggestions, and having in mind the question the
chairman asked the gentleman who was on here before me, I would
very modestly, suggest this: The chairman asked the gentleman how
he knew that the public accepted something or acquiesced in some-
thing in this increased rate. I know nothing about Northampton
or Holyoke, but I do know something about the people of New York
City. New York City can get up a protest on any side of any topic
overnight, with any number of people protetsing, usually the same,
and with any intensity of vocalizing required by the situation.
Therefore there is no question settled in New York primarily, eco-
nomically, or legislatively successfully until the facts are told the
citizens.

My observation through some 35 years, including one unfortunate
year, is that the public of New York, made up of the tremendous
varieties of intelligence, will understand a fact. The average man
and woman on the streets of New York will face a fact and acquiesce
in it. What confuses them is when they see a discussion carried on
by deductions from inferences, and then they know nothing about it.
" Now, there is no disposition in New York, Mr. Chairman, I think,
regarding these fares other than to believe that they have got to be
increased. As I make a nonprofessional deduction, it would have
been wise instead of giving, had there been authority, a 2-cent trans-
fer charge as a tentative thing, to raise the flat rate a cent, if you
are just going to experiment. I think the average person on the
street looks on a cent now as a means of a fractional way to deter-
mine something. It used to be the minimum charge for something.
Now, it is 5 cents. Then, I think, there is an instinct that whatever
you get where you do not show a physical commodity as a result of
it, you think you are entitled to get for nothing ; and therefore what
is in the mind of the average person — the working person there, we
will say — is to get from their residence to their place of work.

Now, they are being carried across one of the Brooklyn bridges at
a reduced rate, at a loss ; one of the arguments there why there should
not be a raise, being that a small corporation there for operating
that bridge service is earning a substantial per cent, more than any-
one ought to earn who has not money; the fact being that they or-
ganized a little bit of a tentative corporation, if I recollect right,
something like $10,000, just to have a corporation, so that the people
in Brooklyn and New York and the operating companies could each
have half of it. Therefore, in the plentitude of present-day wisdom
they compute what the earnings would be by way of a dividend on a
$10,000 corporation, leaving out for mental and physical fatigue the
question of whether it earned anything or whether the thing was
run at a loss except for that capitalization.

Now, the question has got to be continued there. This decision of
Commissioner Nixon will probably go to the court of appeals, and
pending that the problem of my receivership is: Do I get enough
money as receiver to discontinue the use of capital with which to
operate those roads. The receivership owes to-day about a million
dollars' worth of taxes, with the penalties beginning to accrue. I
assumed in the neighborhood of half a million dollars of postponed
necessary reproduction in the streets and maintenance of way and
whatever those things may be. So that I am at the present moment

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 523

personifying the New York Railways, at least, between one and a
half and two millions of dollars behind, before I get to the point of
the question of whether the operating receipts meet operating ex-
penses.

Now, that discussion is all carried on in the atmosphere which is
within the penumbra of what is the best for the common people.

One side is appealing for the maintenance and the physical exist-
ence of a piece of property and the other side is appealing to what is
for the interest of somebody else who does not know what it is all
about and would like to, and I think is more intelligent than their
advocate ; and all of which is colored by the collateral discussions of
municipal ownership and the proximity of elections which are never
further off in New York City than 12 months.

Now I believe that the people of New York — and I do not know
whether this is pertinent, I only suggest it because your chairman
asked it — there will always be people in New York City who will
protest against anything except an annuity. And they will protest
against anything new and revile anything that is old. But the pub-
lic in New York — if they understand this situation, and it can be
explained to them — will make no protest against a proposition that
to make a railroad live on its capital is public larceny, and they will
not be a party to it. But as long as the discussion is kept within
the range of who can say the most for something while doing some-
thing to them, the thing will never be solved.

Now. any specific data that the commission wants — and I feel I
have taken too long — I will get for them if I can. There are two
mortgages under foreclosure there now: a 4 per cent mortgage in-
volving, as I recall it, something around $16,000,000 or $18,000,000,
and another involving I think something like $50,000.000 and a
mortgage predicated on income. If nothing is done there the $50,-
000,000 mortgage becomes a memory, because if the first mortgage
forecloses and sells, the later bonds have only a conversational me-
morial value. If the first bonds do not sell and the public-service
authorities permit the receiver to have an income, why, there should
be a reorganization, otherwise all these lines will divide. That is
just the observation of a layman. Later I will know more about it.

Mr. WARREN. Mr. Hedges, you spoke of the commissioner having
authority to change transfers.

Mr. HEDGES. Yes; to permit a charge for transfer.

Mr. WARREN. To permit a charge lor transfer?

Mr HEDGES. Yes.

Mr. WARREN. But not an increase in fare. That of course means
where the franchise itself limits the fare.

Mr. HEDGES. Y*es, sir.

Mr. WARREN. Because in many parts of New York the fare is in-
creased owing to the silence of the franchise.

Mr. HEDGES. Yes; that is, you mean where it is a part of the origi-
nal contract in the franchise itself.

Mr. WARREN. And that is the situation in New York franchises
generally?

Mr. HEDGES. Yes, sir. Now, the Buffalo case, as the commission
probably knows, came up from a legislative ratification of the con-
tract between the city and the company.

524 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. And there the court held that the legislature had
delegated the commission its own power to change the rate.

Mr. HEDGES. Yes. Now, the legal discussion is whether that carried
anything other than the Buffalo case.

Mr. WARREN. The court having previously decided the Quinby
case

Mr. HEDGES. Yes ; in which they said they had no authority.

Mr. WARREN. You spoke of the congestion in the streets as retard-
ing and slowing up the cars.

Mr. HEDGES. Yes.

Mr. .WARREN. Do you know whether there is any effort made by
the municipal authorities to give the cars any right of way over the
tracks ?

Mr. HEDGES. Not that I know of.

Mr. WARREN. There is in some cities.

Mr. HEDGES. Yes. Every once in a while there will be an effort
made to divert traffic to another street, like the widening of what is
now Lafayette Place, but I know of no method generally.

Mr. WARREN. Trying to keep the traffic off the rails themselves?

Mr. HEDGES. Yes.

Mr. WARREN. That is all, Mr. Hedges. I think perhaps the com-
missioners would like to ask you some questions.

The CHAIRMAN. Have you had any prior experience in the railroad
business?

Mr. HEDGES. No, sir; not the slightest.

The CHAIRMAN. The immediate problem seems to be to secure
revenue enough to operate the railroad.

Mr. HEDGES. Yes, sir.

The CHAIRMAN. You have no immediate concern in the return
upon capital invested?

Mr. HEDGES. That is not within my activity.

The CHAIRMAN. The New York Railways which you represent con-
sist of all of the surface lines?

Mr. HEDGES. All of the green-car surface lines; not all of Man-
hattan Island, because there is another system called the Third Ave-
nue system — and the Second Avenue.

The CHAIRMAN. Any connection with the subways?

Mr. HEDGES. No.

The CHAIRMAN. Or the overhead?

Mr. HEDGES. Do you mean the system I represent ?

The CHAIRMAN. Yes.

Mr. HEDGES. No, sir; except this: that there were three corpora-
tions, the Interborough, the New York Railways, and an overhead
corporation know as the Interborough Consolidated, which owned
the stock of these two other companies; and the physical service of
the two companies, the Interborough and the New York Railways,
is performed in large part by the same administrators or executives
with an allocated remuneration.

The CHAIRMAN. From your study do you believe that the rentals
which are being paid to these subsidiary companies are fair?

Mr. HEDGES. I think, as far as I know, approximately. I do not see
how that can finally be determined on that, I dp not see why the New
York Railways had not a right to make an original contract. I can
see that there might be a desirability to change the rate. For in-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 525

stance, the rate of return on the Eight Avenue on their capital is 12
and a fraction per cent, on the capital involved. Now, if the question
of the physical life of a railroad has got to be considered exclusively
as to a final reorganization earning price there will never be any
solution of it.

The CHAIRMAN. If you could consolidate all the surface lines into-
one corporation, could you perfect such saving in the overhead and
other costs as to pay your fixed charges and operating expenses on a.
5-cent fare?

Mr. HEDGES. No, sir.

The CHAIRMAN. It could not be done ?

Mr. HEDGES. No, sir.

The CHAIRMAN. Then that is not the solution ?

Mr. HEDGES. No, sir. I think I can sa}' with as much accuracy a.s
a layman could give that the operating expenses have been reduced
to a minimum, from necessity if for no other reason, during the past
three or four years.

The CHAIRMAN. Have your wages been increased during the past
year ?

Mr. HEDGES. Yes, sir — not the past year, but a year ago, as I
recollect it.

The CHAIRMAN. Were they increased before the War Labor Board ?

Mr. HEDGES. The New York Railways did not come up during the
war. I think it was just before the war.

The CHAIRMAN. What was the increase in dollars?

Mr. HEDGES. It would have amounted, if the road was running ta
its proper capacity, as I recollect, to about two million four hundred
or two million five hundred thousand dollars.

The CHAIRMAN. What is your present scale?

Mr. HEDGES. I can not give you that from memory. I will be very
glad to furnish it to you.

The CHAIRMAN. Are you operating the roads as economically as
it is possible to do consistent with reasonable service to the public ?

Mr. HEDGES. I think very close to the danger line. The question
of accidents in New York is very serious, and they are in arrears in
keeping up their paving contracts and keeping up their maintenance
of right of way.

The CHAIRMAN. Have you at your fingers' ends the per cent of the
operating cost — that is, the per cent which the claims paid bear to
the operating cost of the railroad ?

Mr. HEDGES. Do you mean the accident claims?

The CHAIRMAN. Yes.

Mr. HEDGES. No; but I can give you that.

The CHAIRMAN. Is it a large amount?

Mr. HEDGES. It is quite a substantial amount — much larger propor-
tionately than the Interborough.

The CHAIRMAN. Do you also have paving obligations?

Mr. HEDGES. Very serious ones.

The CHAIRMAN. What per cent of the operating cost is borne by
the paving items?

Mr. HEDGES. I can not give it from memory, but I will send it to
you.

The CHAIRMAN. I wish you would.

Mr. HEDGES. I will be very glad to, and any other data.

526 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. Will you send us a statement showing the amount
of claims paid, the paving obligations and other assessments made
against the property 1

Mr. HEDGES. Yes.

The CHAIRMAN. And work it out on a percentage basis.

Mr. HEDGES. Yes. I will say regarding the $200,000 that was sup-
posed to have been cleared over operating expenses in the past six
months that that was exclusive of the luck — that they did not happen
to have to expend $200,000 for snow removal last year, so that up to
the present writing it can literally be said that the road is running
on capital expenditure.

The CHAIRMAN. Will the 2-cent transfer charge divert much
traffic to the subways or the overhead lines?

Mr. HEDGES. My own judgment is that it will be appreciable. I do
not know. I think that is experimental, and I do not know that
anyone can tell definitely. The experts on the road figured out that
there would be a falling off of 40 per cent in transfers themselves,
even by an increase of 2 cents, and that th«t would cause people to
walk or otherwise, but the slowness of the movement of the surface
cars has already diverted traffic to the subways and the elevated.

The CHAIRMAN. In your judgment —

Mr. HEDGES. And I think more will go with the transfer, especially
in those places where the subway approximately parallels the sepa-
rate road. Take, for instance, the Brooklyn Rapid Transit. It now
goes up Broadway to Fifty-seventh Street before it veers off through,
going under the East River. In other words that parallels the green
cars all the way to Fifty-seventh Street.

The CHAIRMAN. Will the transfer charge add to or take from the
gross revenues of your lines?

Mr. HEDGES. I think, hope, and pray it will add to it.

The CHAIRMAN. What is your judgment?

Mr. HEDGES. Mv judgment is that of the experts who know more
about it, that it will add something in the neighborhood of six hun-
dred or seven hundred thousand dollars, as I recall the figures.

The CHAIRMAN. Will that take up the slack in your operating ex-
penses ?

Mr. HEDGES. No, sir.

The CHAIRMAN. Then you have got to have some relief other than
a transfer charge?

Mr. HEDGES. Yes; there has to be a flat rate; and I think the flat
rate would be less objectionable to the public in its ordinary every-
day human activities, where you pay it all at once and get it off
your mind than to pay it apparently in two amounts.

The CHAIRMAN. Now, you proposed a flat-rate increase of 1 cent?

Mr. HEDGES. No; I say that a tentative increase of 1 cent on a
flat rate would have been a better test than a 2-cent transfer charge.

The CHAIRMAN. Do you believe that the 6-cent fare would enable
you to operate the railroad satisfactorily ?

Mr. HEDGES. I doubt it. I do not think it would; it would take
a very great period of time with that even to approximate the pay-
ment of arrears of taxes and maintenance and things that had
fallen off.

The CHAIRMAN. That would represent a 20 per cent increase in
gross ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 527

Mr. HEDGES. Yes, sir.

The CHAIRMAN. What do you think the actual increase would be
on .a flat 1-cent raise?

Mr. HEDGES. I do not know, sir; I have not the slightest idea.

The CHAIRMAN. No way of telling?

Mr. HEDGES. No; the only way they could tell that would be for
the men in the company who have followed it to make their best
guess from human experience along the developing of new lines, or
where it has fallen off owing to the subway or elevated.

The CHAIRMAN. Would the 6-cent fare tend to divert a great deal
of traffic to the other lines and also force a great many people to
walk in the congested territory ?

Mr. HEDGES. I think not so much as a 2-cent transfer.

The CHAIRMAN. It would not?

Mr. HEDGES. That is just my layman's guess.

The CHAIRMAN. What, in your judgment, is the ultimate solution
of the railroad problems in New York ?

Mr. HEDGES. The first step, to my mind, would be the human step
of letting the public know what the facts were.

The CHAIRMAN. That is your job?

Mr. HEDGES. So far as it is not interfered with by the authorities.
But I have got to persuade the authorities to tell the facts, and then
between us we will tell them to the public. Now, the public will be
reconciled, in my judgment, except the protesting professional mi-
nority, to any proposition that officialdom declares is the substan-
tially just thing to do. I have a higher opinion of the public in that
respect than I did a few years ago, from personal experience.

The CHAIRMAN. Well, undoubtedly you have to nave the proper
psychology.

Mr. HEDGES. Absolutely.

The CHAIRMAN. And that can only be secured by giving to the
public the real facts, so they will understand them and believe them?

Mr. HEDGES. Absolutely.

The CHAIRMAN. And assuming that the public have the facts, what
is vour solution ?

Mr. HEDGES. An increase of remuneration for the service rendered.

The CHAIRMAN. Do you require a reorganization of your plant if
you get an increase in fare?

Mr. HEDGES. Do you mean in the manning of it?

The CHAIRMAN. Yes.

Mr. HEDGES. The only question I could see involved now would bo
whether the New York Railways were severed from the joint me-
chanical operation. That would mean the installing of power else-
where. The New York Railways buys its power from the Inter-
borough, and I think gets it at a cheaper rate than it could through
an independent company.

The CHAIRMAN. Suppose there was a consolidation of all the sur-
face, subway, and overhead lines; could you then operate on a 5-cent
fare so as to pay operating costs and fixed charges?

Mr. HEDGES. I have not professional knowledge to know that, but
I have not the slightest doubt that it could not be.

The CHAIRMAN. That it could not be?

Mr. HEDGES. No.

528 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. How much of a saving in overhead cost and other
expenses could be made by perfecting a complete consolidation of all
lines in New York City?

Mr. HEDGES. A very inappreciable amount, in my judgment, so far
as my observation goes.

The CHAIRMAN. You think it would not be substantial?

Mr. HEDGES. I can not conceive of anything being more compact
than it is now. I can conceive that a man may have so much to do
by way of executive function that he scatters. But, as it is now,
everything is made about as composite as it could be. I do not know
anything about the Third Avenue.

The CHAIRMAN. There are all sorts of franchises existing in New
York City, are there not ?

Mr. HEDGES. Yes.

The CHAIRMAN. Different terms and different conditions?

Mr. HEDGES. Yes, sir ; some of them.

The CHAIRMAN. How many of the companies are included in your
system ?

Mr. HEDGES. My recollection is something like 14. I think there
are five owned and —

The CHAIRMAN. Do you believe that the situation would be helped
some if you could have a uniform franchise for all of the railways
in your system?

Mr. HEDGES. I do not believe the form of franchise would af-
fect it.

The CHAIRMAN. I beg pardon ?

Mr. HEDGES. I do not see how the form of the franchise would
affect it unless it provided a living rate.

The CHAIRMAN. Then you do not think there are provisions in
the franchise which are against the public interest ?

Mr. HEDGES. None that I know of, sir.

The CHAIRMAN. Are there any that are against the interests of the
corporation 'I

Mr. HEDGES. There are certain transfer points required by cer-
tain franchise provisions now where there can not be any charge
for transfer.

The CHAIRMAN. How about your paving charges?

Mr. HEDGES. I think that is a burden — well, I do not know how
that started, but I think that is a burden that the roads should not
bear, certainly not exclusively, because what is reproduced by them
for the city is not destroyed by them in their own service.

The CHAIRMAN. Would it be possible in a new franchise to elimi-
nate that feature?

Mr. HEDGES. You can do it without a franchise.

The CHAIRMAN. Has the council the right to do it?

Mr. HEDGES. I think so.

The CHAIRMAN. The franchise is a contract.

Mr. HEDGES. Yes, sir. I think the council can contribute that if
it wants to in some way.

The CHAIRMAN. Has that proposition been advocated?

Mr. HEDGES. It has been suggested in the public prints. I have
never participated in a discussion, but I doubt, Mr. Chairman, dur-
ing the present official situation in New York, if it would provoke
other than noise.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 529

The CHAIRMAN. There is a very considerable sentiment for mu-
nicipal ownership there, is there not?

Mr. HEDGES. There is a very intense feeling for it in certain limited
localities. It is being advocated in one daily publication and is.
advocated from the city hall up to the point of their not having
any money to buy with.

The CHAIRMAN. Do you believe it would be possible for the mu-
nicipality to operate the surface line on a 5-cent charge ?

Mr. HEDGES. No, sir; I do not believe they could operate it within
a substantial per cent of the rate private ownership can ; and I
make that observation with considerable conviction, because I was
once secretary to a mayor in New York. It is physically impos-
sible, in my judgment, with an unrestricted franchise — the same
man being the recipient of what comes from the casting of a ballot —
to administer a function unmindful of that, and that is regardless
of party or anything else.

The CHAIRMAN. We have heard a good deal here the past week
about the cost-of-service plan. Are you familiar with that?

Mr. HEDGES. A cost of service?

The CHAIRMAN. Yes; a cost-of-service franchise, such as they
have in Cleveland or Cincinnati.

Mr. HEDGES. I am not familiar with it. I have heard it dis-
cussed, but I have not any judgment about it.

The CHAIRMAN. Then you are not prepared to discuss that as to
its applicability to the New York system?

Mr. HEDGES. No, sir; but it is quite — wTell—

The CHAIRMAN. I have an appointment at 11 o'clock. If you will
pardon me, you may proceed.

Mr. WARREN. You are not prepared to discuss it further than
that you would like to see the limitation of 5 cents removed so that
the rates could go up, if they are to go up ?

Mr. HEDGES. I do not know anything about this other theory you
mentioned, Mr. Warren, but I am confirmed in my own mind that
if the rates do not go up, the roads will go out, not down.

Mr. WARREN. And that that provision of the franchise ought to
be changed by some method so that the rates can be changed?

Mr. HEDGES. Yes; but I have not any fruitful opinion as to how
to do it.

Commissioner SWEET. I understood you to say that you had not
had previous street-railroad experience.

Mr. HEDGES. Yes.

Commissioner SWEET. You are an attorney at law?

Mr. HEDGES. Yes, sir.

Commissioner SWEET. And have been practicing for quite a good
many years in New York City?

Mr. HEDGES. Since 1886, sir.

Commissioner SWEET. You have also been giving some attention
to public affairs all your life, have you not?

Mr. HEDGES. All my life — and tried to officially.

Commissioner SWEET. You refer by that to your candidacy for
Governor of New York?

Mr. HEDGES. Yes, sir.

530 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. I believe you were born in Livingston
County, N. Y., were you not?

Mr. HEDGES. I came from there ; my people came from there.

Commissioner SWEET. "Were you not born there ?

Mr. HEDGES. No, sir; I was born in New Jersey, but my father
came from Danville.

Commissioner SWEET. Without going over the ground you have
been over, with regard to the detail of the New York system and your
present very difficult problems, in your study of public questions,
your mind undoubtedly has rested frequently and with more or less
care upon the question of the public utilities^

Mr. HEDGES. Yes.

Commissioner SWEET. Were you present in New York when for-
mer-President Taft appeared before this commission?

Mr. HEDGES. I was in the city, but not at the hearing.

Commissioner SWEET. He made a statement before the commis-
sion that he had taken up the general study of the subject of street
railways as a member of the War Labor Board in connection with
wages, and that as a war measure it became exceedingly important
that the electric railways on lines over which workmen in factories
doing war work were transported from their homes to the factories —
that it was important that these lines be kept in operation. He also
stated that wages were raised on the basis of needs — the general in-
crease throughout the country of what we call the cost of living —
and that not so much consideration was given to the ability of the
railroads to pay those wages. Of course, you know as a citizen and
also as receiver of these companies that wages have been raised to
a very high point as compared to the prewar rates. You also know
that everything that a railroad has to buy — steel, equipment of all
kinds, electrical apparatus, and everything — is very high ; is not that
true?

Mr. HEDGES. Yes, sir; very high.

Commissioner SWEET. Now, former-President Taft took the posi-
tion that something had got to be done to help the general systems
of railroads throughout the country — not New York City alone, but
all over the United States — to continue in operation, and that their
incomes had to be very materially increased or expenses very mate-
rially reduced. He also expressed the opinion that expenses could
not be very well reduced, or to any material extent, in the immedi-
ate future. He thought the purchasing power of money had been
reduced and that it was a condition that had come to stay — -that
had some degree of permanency. Is that your opinion ?

Mr. HEDGES. Only in degree. I think that the cost of maintaining
these roads, the cost of living, has very largely increaased, abnormally
increased. I think a measure of it will continue for a period of time. I
think prices are inflated as a result of the war plus an added amount
imposed upon a purchaser by virtue of not knowing how much the
article cost. I think we are still making the war as an excuse, and
I do not think it has gotten back yet to an approach to economic
propositions; but I think it will continue some time, and I think
that the price of material and the price of wages have each forced
the other up — whichever took the first step, it had to be responded to.

Commissioner SWEET. In matters of that kind it is very often
difficult to tell which is cause and which is result, is it not?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 531

Mr. HEDGES. Yes ; they are each both.

Commissioner SWEET. But they have moved along in parallel
lines to a certain extent?

Mr. HEDGES. It seems to me, Mr. Sweet, they have, competed with
each other for raises, with the general public standing by as the
object lesson.

Commissioner SWEET. Each one affording a certain measure of
justification for the raise in the other?

Mr. HEDGES. Yes.

Commissioner SWEET. You say you do not quite agree with Presi-
dent Taft that this situation has some degree of permanency — or a
considerable degree of permanency?

Mr. HEDGES. Where I would differ, with modesty, would be as to
the period of time before we begin to recover. The period of time,
in my judgment, would be shortened by the courage of intellectual
men in discussing things as they are; and the public will respond
to that, and conditions will become more normal from an accurate
knowledge.

Commissioner SWEET. I assume, Mr. Hedges, that you would not
like to state exactly, or with any degree of exactness, the period that
you think these conditions will continue.

Mr. HEDGES. My knowledge would not have any value.

Commissioner SWEET. Well, would anybody's?

Mr. HEDGES. According the value they placed upon their own
judgment.

Commissioner SWEET. In their own minds.

Mr. HEDGES. In their own minds.

Commissioner SWEET. They might have some value, but in
fact

Mr. HEDGES. In fact, I think it is a guess, sir.

Commissioner SWEET. But this is not a guess, is it, Mr. Hedges,
that unless .these railroad companies that are now generally, through-
out the country operated at a loss, defaulting in the payment of in-
terest upon their bonds, paying nothing to their stockholders — un-
less that condition is changed, these companies are going practically
out of existence ?

Mr. HEDGES. They will cease to be a part of community life en-
tirely?

Commissioner SWEET. Exactly so.

Mr. HEDGES. They will pass from the realm of actuality.

Commissioner SWEET. And whether the purchasing power of the
dollar is going to be restored in six months or a year or two years
is not so important for this immediate consideration as the fact
that these railroad companies can not exist until the purchasing
power of the dollar is restored, in your judgment?

Mr. HEDGES. Absolutely not. That is a matter of years. The life
of these companies, so far as I have observed, is a matter of months.

Commissioner SWEET. So far as the question that President Taft
presented is concerned, that is the real essential feature of it as ap-
plied to this situation, is it not?

Mr. HEIXJKS. Absolutely, the question of the period of time is the
point of view and tho degree of human experience the man has had
in observation who utters the opinion.

532 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. But, so far as the railroads are concerned^
they must have what we might call immediate relief in order to live.

Mr. HEDGES. Absolutely ; and in New York, Mr. Sweet, it is pathetic
the way the matter is discussed publicly.

Commissioner SWEET. Not only in New York but everywhere.

Mr. HEDGES. I mean wherever it is discussed. The reason is thisr
sir, if I may volunteer a suggestion: The 'discussion of the street
railways, a part of the everyday life, is made the bonus of a request
for advantage and public approval by giving to somebody something
that some one else has paid for and claiming a reward in the next
few months, usually falling in about November. And I am com-
pelled to say with entire truthfulness, as a man from the same
locality with which you are familiar, that that weakness is not en-
tirely chargeable to any one line of political faith.

Commissioner SWEET. No; that is true. Is it not your experi-
ence, Mr. Hedges, in connection with your observation and partici-
pation in public affairs, that politicians have made a sort of football
of public utilities and have frequently found it to their immediate
advantage, perhaps in the way of getting into office, to bring a
great many charges against public utilities that were unjust?

Mr. HEDGES. Yes, sir. I think that many of these intellectual
opinions that people arrive at they reach for their rhetorical possi-
bilities.

Commissioner SWEET. Beyond any question of doubt.

Mr. HEDGES. Yes.

Commissioner SWEET. Can you tell the commission what, in your
judgment, it can do, or the interested railroads can do, to change
public sentiment in that regard?

Mr. HEDGES. You are not asking now regarding some particular
legislative way or legislative feature?

Commissioner SWEET. No ; I think it will have to go back of that.
I think the legislative measures would follow a change, in public
sentiment.

Mr. HEDGES. I think this, Mr. Sweet : I think the country is more
and more responding to the officialdom of Washington as to an ex-
pression of opinion. I think if there should come from this com-
mission a succinct statement that the present management and
handling of these roads as between them and municipalities is result-
ing in plain ordinary theft — the taking of property without re-
muneration— it would cause people to think about it. I think the
more the facts of it can be promulgated, and they come with greater
force when sent from Washington — here is a Federal commission
discussing a great question which goes into the jurisdiction of States
as well

Commissioner SWEET. You think that would reach the public con-
science ?

Mr. HEDGES. I think it would help very greatly. Now, of course,
there are questions — this political question — I think you have touched
on pretty nearly the sore spot very largely. It is impossible to have
an accurate, wholesome public opinion when men of intellect will
appeal for public rewards by an inaccurate and dishonest statement
of fact; not deliberately making it but making deliverances. Now,
for instance, we are discussing in New York the question of munic-
ipal ownership; that is gradually passing out of discussion. Aca-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 533

demically, municipal ownership is perfectly sound if predicated on
two propositions — I am giving my own opinion — that all people who
cast a ballot are of equal status mentally and morally. There is no
way, in my judgment, to get away from the logic of that, if that
were the fact, because it is predicated upon that. Now it does not
happen to be the fact and in the providence of God was never in-
tended to be the fact. Now, then, we go to the further proposition :
What is the duty of a thoughtful man, official or otherwise, in bridg-
ing over the gap between a fact and an intelligent but uninformed
mind in coming to a conclusion ?

Now, I believe — if this is not taking the time of the commis-
sion— we talk about the people and the relation of government to
them: the real question is whether government is a thing to live
on or under. Now what is the relation of government to an indi-
vidual? Not to bribe his mind by a pretended favor. The public,
Mr. Sweet, at this moment — I am speaking beyond the ultraigiiorant
public — is yearning for a statement of fact. For 20 years facts have
been gradually eliminated from the discussion of public questions
in the United States, in my judgment.

Commission SWEET. You are speaking of public questions gener-
ally?

Mr. HEDGES. Of public questions generally. Now, here is one that
comes very intimate; here is a community that builds a road — I am
speaking as an amateur — the people on that road are people right
from that community, some of them,, the motorman, the conductor;
it is a part of the life of that community. But at the same time, while
it visualizes the car and the conductor and the motorman, the corpo-
rate entity is not there ; they do not see it because it is an intangible
thing. They know that somebody connected with it, an official or a
majority -holding stockholder, has more money than somebody else
has. Now it is perfectly human nature to display mental heights
by criticizing somebody else or something ; therefore it is vented on
this, and no one to speak back. I think the roads and corporations
generally have been rather cowardly about it in not going before the
public; and I can understand their reasons for it. They have a local
condition to meet and they may give an opponent an advantage by
arguing for themselves. That would only be temporary. For in-
stcfnce, at the moment — if you will pardon the personal reference — •
I am counsel for the Association of Life Insurance Presidents of New
York. The companies own volumes of railroad securities, steam, and
otherwise. Those securities represent policyhoklers, of course. Those
securities are the reserves to substantiate those policies. For, away
in the background beyond this little childish petty discussion about
a specific rate and a specific locality, when those people begin to
know about it and the official in a petty office begins to know that
his constituents in his ward know it, he will begin to do business
intelligently. Now, somebody's business it is to do that.

Now, it is for the individual citizen .to present the discussion. It
is for the public official to tell the truth. It is the position of a com-
mission like this, if you will pardon me, to state the facts and give
their reasoning for them, with the scalpel cut right down, to mako
the whole thing impersonal-
Commissioner SWEET. You need not beg the pardon of the com-
mission for offering any advice or suggestion.

534 PROCEEDINGS OF FEDEKAL ELECTRIC RAILWAYS COMMISSION.

Mr. HEDGES. I only say that because I am so conscious of my
ignorance.

Commissioner SWEET. That is exactly what we want.

Mr. HEDGES. I am ignorant of the technique of the rate, but I have
general impressions.

Commissioner SWEET. That is the idea. Now, you seem to think-
that by presenting the facts to the public just exactly as they arc.
whether it is brought to their consciousness by this commission or ir>
other means, that the public conscience in any way will be reached
and the fact that injustice is being done to the railroad corporations
will be impressed upon the public mind.

Mr. HEDGES, I think it will be a very great gain for a tremendous
commission like this sitting here to state to the public that there is
such a thing as American justice as between an impersonal thing
known as a corporation and a human vitalized thing like an indi-
vidual.

Commissioner SWEET. Now, then, aside from the matter of con-
science that would be involved in what you have spoken of, would
there not be two other very important considerations: One the fact
that you alluded to with regard to investors being composed
throughout the country of people of moderate means and of the
moneys invested by insurance companies, for instance, protecting life
insurance throughout the country of all classes of people who insure,
so that aside from the question of conscience involved, there is the
matter of doing what is right for their own benefit and selfish inter-
est, on the part of the community as a whole involved in protecting
life-insurance companies and protecting themselves in their invest-
ments— widows and orphans who directly or through trustees have
invested in these securities? But in addition to that, is there not a
still larger question, and that is the matter of providing in some way
for the necessity, not merely the convenience, but the absolute neces-
sity of the public for these services rendered by corporations of this
kind, which will be either cut off 'entirely or transformed into some
other position with regard to the public which may not be anywhere
near as convenient as at present ?

Mr. HEDGES. Why, somewhere, Mr. Sweet, a high legislative
authority, or whatever kind of authority it is, has got to give some-
body official permission to meet the situation as it is and give a rhte
that will preserve property. Now, you take as illustrating what }7ou
were saying a moment ago about a political coloring: Here is the
situation in New York — and I am speaking just because I am here —
of a public-service commission of the same political faith as a city
administration. The moment an official opinion is rendered it is at-
tacked. The party to which I belong had a commission of five, neces-
sarily well-ordained men mentally but without any spines; and so
they rested for a year lest they be misunderstood, and they were not
misunderstood. That is the reason the condition changed, by virtue
of which they resumed labor. The proposition is finding a mind
and a spine that will synchronize and a man who will come to his
intellectual conclusions and wait for the conclusions to justify his
utterance rather than a claque. The question of breathing self-manu-
factured incense is one of the greatest outdoor sports known to man,
but, in my judgment, I think headlines have destroyed more men
than obituary notices.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 535

Commissioner SWEET. You do think, Mr. Hedges, there is a very
clear, definite interest on the part of the public in the proper solu-
tion of this railway question, do you not?

Mr. HEDGES. I think, Mr. Sweet — not as even advocating anything
for the roads I represent — I think the public is yearning to have
this thing decided rightly. They understand it; they understand
that there is trouble here. To the last minute they are going to
enjoy 5-cent fares or 4-cent fares. It was suggested by an expert
in New York City for the city the other day, in the hearing before
Commissioner Nixon, that the New York Hail ways would make more
money by reducing fares. The coroner was not called, because the
thing was going on all the time, you know.

The fact is that there are two governments under our form : One
is the man who has official office, charged with the particular re-
sponsibility under the statute. The other is the tremendous numeri-
cal majority of people who do not hold it. Neither one of them can
get along without the other, and public opinion is the umbilical cord
that ties them together. The conscription act could not have been
put over if the public had not acquiesced in it; there were not enough
soldiers here to enforce it. Now, the intelligent part of the com-
munity owes more than its numerical obligations to the rest of them ;
and therefore there is no way to divide individual responsibility
mathematically.

Now, I think — I do not know enough about it, but it is my infer-
ence— I think that these corporations in past years have erred by not
instructing the public as far as they could while they were going on.
Now, I assume they attempted to; I assume that was mixed up by
the diversion of local opinion for individual opinion, and everybody
likes to be preferred. A man who says he docs not like applause is
an ordinary liar. The test is what will he do to get it. The test is
whether his principle is weaker than his personality. My observa-
tion is that when a man assumes that his personality has become a
proposition of conduct, his mind has begun to decay without his
knowing it, because the Almighty never intended us to be personal
and impersonal at the same time.

Commissioner SWEET. It seems to be admitted, Mr. Hedges, by
the people who have appeared before us and those connected with
the railroad business as well as others, that there was a time in the
history of the country when practices that were not strictly honest
or honorable were indulged in by the street-railroad companies in
various communities and that these practices had something to do
with the creation of the prejudice which has existed and, to some
extent, still exists against the companies.

Mr. HEDGES. I have no doubt that is literally true, sir.

Commissioner SWEET. Now, then, to eradicate prejudice and to
place before the people the exact facts and to secure acquiescence in
measures that must be adopted in order to bring about a healthy
condition with regard to these companies is certainly no boy's job,
is it?

Mr. HEDGES. It is not only no boy's job, but it will take a consider-
able period of time, sir, and with continuous effort.

Commissioner SWEET. Now, during the period that will be required
to bring that about, if it is ever brought about, if nothing is done for
the relief of the companies, they are going by the board, are they not I

536 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. HEDGES. They are going by the board, and discussion of railway
matters will be as to what would have happened in the past if some-
thing had been different.

Commissioner SWEET. Now, then, can you make any suggestions or
offer any helpful thought on the subject as to what might be done by
this commission, if it saw fit and had the real good of the public at
heart as well as of the companies, as a remedial measure to keep the
patient alive before the final administration of the remedial cure?

Mr. HEDGES. I can not intelligently or illuminatingly answer that
question, except so far as for the moment to- say officially that the
keeping alive of these tilings requires an increased fare and giving
reasons for it, and then meanwhile looking for some legislative way
to do it. I have not reflected enough to answ er your question.

Commissioner SWEET. Don't you think that even to get the full
benefit of an increased fare a certain degree of education is necessary
on the part of the public to avoid a diminution of patronage to a
certain extent?

Mr. HEDGES. Yes ; but I think the public as a matter of protest and
principle will not physically inconvenience itself.

Commissioner SWEET. You think the public would acquiesce in the
recommendation for a general increase of fares ?

Mr. HEDGES. There is a difference between acquiescing in it and not
physically protesting against it, Mr. Sweet.

Commissioner SWEET. Yes ; in other words, they pay the fare.

Mr. HEDGES. They pay tlie fare; and if there is no mob violence,
they have relatively acquiesced.

Commissioner SWEET. That is right.

Mr. HEDGES. In other words, the public, in my judgment, thinks
anti, not pro. A small minority think pro.

Commissioner SWEET. But if there were no direct affirmative oppo-
sition, you think the wheels would keep turning.

Mr. HEDGES. I have not the slightest doubt about it, providing they
had enough money to turn them, and I have not the slightest doubt
about it that after the public mind had adjusted itself to that by a
physical everyday habit they would curse the people that did not help
bring it about.

Commissioner SWEET. And the way to keep the wheels turning, if
I understand you right, is by an increase of income, especially because
you think that a diminution of expenses is not to be expected in the
immediate future.

Mr. HEDGES. Oh, not near enough to apply to this solution, not at
all, and I think all that can be done is to substitute money for rhetoric.

Commissioner SWEET. That is all.

Mr. WARREN. Just one minute, Mr. Hedges. You could have, could
you not, immediate increase of fares if the city government, which
represents the other side of the contract, assented ?

Mr. HEDGES. In New York the board of estimate and apportionment
can give it.

Mr. WARREN. So if this commission saw fit in its wisdom to recom-
mend as an intermediate remedy, while more permanent remedies were
being considered, an increase in rate, places like New York, which are
tied up with contracts, could give that relief if the public representa-
tives chose to do so ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 537

Mr. HEDGES. I have not any doubt that they could, and, further-
more, that they would; and' then, everything having gone along
rightly, they can say, " We acquiesce in a higher authority " ; and
that lets them out from local conversational effect; and then, later,
they can say, when the embroglio is somewhat forgotten, "I shall
never forget how glad I was, recommending the commission to
do it,"

Mr. WARREX. And as regards those States where the State com-
missions have authority, and cases in New York where they have
authority, the commissions themselves could grant immediately ou
the application of the company such increases as seemed necessary
to tide the companies over?

Mr. HEDGES. I have not any doubt about it, and I have but little
doubt that they would.

Mr. WARREN. If this commission made the recommendation?

Mr. HEDGES. Yes ; and then express regret that the commission
had not done it sooner.

Mr. WARREN. Thank you very much, Mr. Hedges.

(Witness excused.)

Mr. WARREN. Mr. Chairman, I would like to ask the indulgence
of the commission to postpone a little longer Mr. Nash's testimony.

The CHAIRMAN. Very well; suit yourself.

Mr. WARREX. Because we have other witnesses called for to-day.

The CHAIRMAN. All right.

Mr. WARREX. I will ask Mr. Bertron to take the stand.

STATEMENT OF MR. SAMUEL READING BERTRON.

Mr. WARREN. Your full name, Mr. Bertron?

Mr. BERTRON. Samuel Reading Bertron.

Mr. WARREN. And you are a banker, I believe.

Mr. BERTRON. Yes, sir.

Mr. WARREX. Your firm is —

Mr. BERTRON. Bertron, Griscom & Co., of New York and Phila-
delphia.

Mr. WARREN. And what experience have you had in street rail-
ways, Mr. Bertron?

Mr. BERTRON. Well, I regret to say, sir, that we have made a
specialty of handling public-service securities for about 25 years.

Mr. WARREX. Including a great many street railways?

Mr. BERTROX. Including a great many street railways.

Mr. WARREX. And are the street-railway securities broadly dis-
tributed, in your judgment?

Mr. BERTRON. Yes; I think next to steam railways, more so than
any other security that we have to offer in this country.

Mr. WARREN. Is it also true that many of the companies, in order
to make necessary extensions, betterments, and improvements, need
capital beyond the amount which they can obtain locally?

Mr. BERTRON. A very few communities absorb their own securi-
ties— at least on the initial issue.

Mr. WARREN. Yes.

Mr. BERTRON. Very often they gradually get back and are dis-
tributed locally.

160643°— 20 35

538 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN, As a result of that, credit, general credit, is necessary
in order to enable the companies to get money?

Mr. BERTRON. Absolutely.

Mr. WAI{RE>T. To get credit in the financkl centers?

Mr. BERTRON. Yes.

Mr. WARREN. And now, without my questioning you right along.
Mr. Bertron, will you state to the commission your view of that
situation ?

Mr. BERTRON. I will take pleasure in doing so, but I fear I will
repeat a good deal that has been said already by others, and I will
be as brief as possible.

Mr. WARREN. You may state first some of the companies with
which you have had personal experience.

Mr. BERTRON. Well, we have financed the International Traction
Co., of Buffalo, the New Orleans Co., Memphis, Birmingham,
Wiikes-Barre, Harrisburg. Oh, we have had about, I suppose, close
to 50 companies since I have been in the business.

There are, as you know, 6 billions of street-railway securities in the
hands of the public, as against 19 billions of steam-railway securi-
ties. Many of us thought that well -selected securities of steam
railroads and street railways offered the safest investment that could
be had, because they supplied an absolute necessity; and that was
demonstrated by the fact that good street-railway bonds sold on a
very low interest return basis. They are very largely held by sav-
ings banks, by trust funds, by insurance companies; and there are
very few investors, I think, who have not some public-service
securities.

When the war came, although this particular industry was re-
garded as doing a war service equal to that of the steam railroads,
and it was so stated by the highest officials, yet it is the only in-
dustry, I think, that received no support and was unable in any
way to pass on the increased costs of labor and material to the
consumer.

It was said by the officials here that it was a local problem and
should be handled locally, although the causes which have brought
disaster to the companies were widespread and due to the "war.

Only a few local municipalities responded promptly, and hardly
any sufficiently, in raising rates so as to maintain the credit of these
companies and, as a result, it is practicaljy impossible for anyone
to sell any street-railway security to any investor — anything else,
but not a street-railway security; an oil stock, or any old thing,
but no street-railway securities; and, as a result, it is impossible to
raise money, because they have no credit.

That presents, apart from the enormous losses that have been
entailed to widows and orphans and to institutions and every in-
vestor— -many o;f them have their all in these properties — apart from
that phase of it, the public service is going to be seriously jeopard-
ized and, in some cases, actually suspended.

When 'the problem has been put up to a local municipality as to
giving a rate sufficient to offset the extraordinary costs, it has rarely
been done in a comprehensive way, so that the average citizen said,
"Oh, well, they have gotten along; they will go on. If these people
don't run them, somebody else will run them." They have not come
face to face with a suspension of the service.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 539

Xo\v. there is not an intelligent or semi-intelligent citizen who
won't realize that without the service his municipality can not exist.
They can not conduct business unless they have the transportation
means, but that has not been brought home to him.

The lack of intelligent publicity is excessively great. I think,
as Mr. Hedges remarked, possibly the majority of our people would
act intelligently and wisely if tne problem were brought home to
them with sufficient clearness, and the others would act — the un-
intelligent and the selfish — provided they thought they would have
to walk instead of ride. They do not realize that.

Then, one of the great drawbacks has been the injection of this
business into politics. To use a vulgar expression which, to my
mind, is effective, they have not the " guts " to stand up and do what
thjeY know to be right.

Xow, these companies ought not to be in politics. It is a great
economic problem. It is not a political problem. And I think that
your commission, which we all hoped would have, been appointed
two years earlier, will be very effective in bringing that home to the
people of the municipalities.

You need intelligent publicity and the realization that these com-
panies must be taken out of politics, ft is an economic problem and
nothing else, and the whole life of municipalities is dependent upon
the proper handling of their public utilities. How best it can be
effected, of course, is a big problem, but I do not think it is beyond
the possibility of your devising a formula which can be applied
generally. To handle each specific case would take a very, very
long time.

For instance, I know one city where a 6-cent fare has produced
a 20 per cent increase instead oJ 20 per cent. There are other com-
munities where a 6-cent fare does not produce, over a 5 per cent
increase. That is dependent upon local conditions very largely,
and it would be very difficult for you to analyze each one separately.

The CHAIRMAN. Where did the 6-cent fare produce a 29 per cent
increase?

Mr. BERTROX. At the moment, it is doing that in, New Orleans.

Mr. WARREX. A 29 per cent increase?

Mr. BERTROX. Yes; from 25 to 29 per cent. One month it was 29.

Mr. WARREN. Yes.

The CHAIRMAN. Where did that ."> per cent increase come in?

Mr. BERTRON. That has been pretty general. There are a number
of places where they have not had even a 5 per cent increase, in some
cities.

You are not going to be able to raise money to operate these prop-
erties unless, in the public estimation, their credit is substantial
and is going to continue so. A temporary adjustment is not going
to help, because people are not going to buy any more securities of
street railways in such a temporary expedient.

Mr. WARREN. A temporary expedient might save ithe companies
while the permanent one was bein<* adopted?

Mr. BERTRON. It would be essential to increase fares generally, and
that should be immediate. Otherwise, most of the remaining ones
would go into the hands of a receiver.

Mr. WARREN. It would be a post-mortem otherwise!

540 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. BERTRON. Indeed so. But that should be recognized as a tem-
porary expedient pending a valuation of the properties and the
granting of a fair return on that valuation by some elastic, easily
adjustable, automatic system; and that is what I think should be
striven for. You will save many of these companies from receiver-
ships and enable them to pay at least their bond interest by a 6-cent
fare at the moment. That is not going to be enough generally, I
fear. Prices rise —

The CHAIRMAN. What fare is that?

Mr. BERTRON. Six cents.

Then the politicians have brought in this question of watered
stocks, bonds, and so forth. All of that has passed. It probably
was done often in the old days, but everybody should be satisfied with
a fair, honest valuation of the property, and in many States rules
have been established for making such a valuation. There is a field
that I hope you can enlighten the people with reference to. And
when 3rou have a fair valuation, let there be definitely a fair return
on that valuation ; and Avhen that is established the credit of the com-
panies will be reestablished and the service will be able to be main-
tained.

Now, to my mind, there is only one alternative — two alternatives.
The first, is the business going to pieces, and the people not be
able to get the service ? That means walking. The other is munici-
pal ownership.

Now, personally, while I may not be in accord with many of my
friends, I am not so averse to municipal ownership as some people
are. of these properties.

The objection to it is that these companies would be run for politi-
cal purposes. I do not think that that follows at all. A plan can be
devised in each municipality, by which the merchants' associations,
the banks, the chambers of commerce could cooperate, and have a
business board, with labor represented, and they could handle this
as a great economic problem and not as a political problem.

Many years ago wrater companies gradually became municipalized.
A great many people looked upon that with a great deal of hesi-
ta.ncy and dread. It has worked well, as a rule; and I do not think,
as a rule, there are any politics in it. It has one distinct advantage,
and that is that a municipally guaranteed security will be placed
at a lower rate than any other, and therefore the money necessary
to maintain these properties can be secured on the lowest possible
basis.

Mr. WARREN. Mr. Bertron, might not that result be served, to a
certain extent, if privately owned securities were guaranteed, or
substantially so?

Mr. BERTRON. I think if the valuation were recognized by the
public service commission or the city, as the case may be, and ap-
proved as increased expenditures occurred, and a definite return on
that capital were assured by the city through an automatic plan,
in which the fares would increase if the earnings were not sufficient
to pay that, and decrease if they were too high, and act speedily.
The great trouble is that they do not act for six months or a year
and then the company is busted, and to restore confidence, it has
to be something that moves at once.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 541

Mr. WARREN. When investors feel that they will get a fair re-
turn

Mr. BERTRON. Whatever return, it is there to get it.

Mr. WARREN. As soon as expenses require it, it will go up ?

Mr. BERTRON. That is it.

Mr. WARREN. What about the limitations in the franchises now?
Are there pretty generally fare limitations?

Mr. BERTRON. In my experience, there are very generally. They
are limitations that are bad for the municipality and bad for the
finances of the company, and if you had just one kind of franchise
for a whole lot of them, they would all be better off.

Mr. WARREN. And that makes an absolute obstacle to increasing
the fare, without the city's authorities giving permission?

Mr. BERTRON. In some cases; not always. The Public Service
Commission in New York State has increased the fares to a num-
ber of cities. In the case of Buffalo, it did not do so, by reason of
an old agreement, called the Middleburn agreement, which had been
in existence for some time, and in which a 5-cent fare was assured
the municipality in consideration of the abolition of transfers.

Mr. WARREN. And the opponents of the increased fares claimed
that that was

Mr. BERTRON. A fixture.

Mr. WARREN (continuing). A practical limitation?

Mr. BERTRON. And the public-service commission refused to take
the case under consideration for that purpose, for the purpose of
adjusting fares. The case was presented to all of the courts of the
State and finally, a day or two ago, the highest court of the State
unanimously determined it was a right and duty of the public-
service commission to take

Commissioner SWEET. Determined what? I did not catch that.
You said the Court of Appeals of New York determined wrhat?

Mr. BERTRON. Decided that the public-service commission should
take cognizance and had a perfect' right to increase fares.

Commissioner SWEET. A perfect right to raise- the fares?

Mr. BERTRON. And the case is being presented to it to-day.

Mr. WARREN. Then these fare limitations in franchises would be
almost the first step

Mr. BERTRON. Where they exist.

Mr. WARREN. Where they exist, in some way must be eliminated;
and your suggestion is to substitute for them this automatic scale of
the rates going up and down in accordance with the expenses of the
company?

Mr. BERTRON. Yes,

Mr. WARREN. And you think that that, coupled with the fair val-
uation, would ultimately restore the credit of the companies?

Mr. BERTRON. It is essential that you have a valuation first.

Mr. WARREN. Yes; I say based on a valuation.

Mr. BERTRON. Based on a just valuation; and that is not difficult
in these times.

Mr. WARRKN. How long would it take to restore the credit, in your
judgment, Mr. Bertron?

Mr. BERTRON. If the municipality took over the street railway and
lent it credit, its credit would be that of the municipality.

Mr. WARREN. I did not mean that.

542 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BERTRON. If* the other plan went into effect the mei*e public
statement put in a circular offering the security of that company,
with a statement of the agreement with the city, which convinced the
investor that his investment was safeguarded, it would enable you to
finance at once.

Mr. WARREN. So it would depend largely on how long the authori-
ties might require to be satisfied with the utility and satisfied with
the adoption of the scale?

Mr. BERTROX. Well, a temporary increase in fates could be estab-
lished, pending the working out of that plan.

Mr. WARREN. Yes; I understand that that would be necessary any-
way.

Mi-. BERTRON. Yes.

Mr. WARREX. Without that there is no use discussing the other.

Mr. BERTROX. You would hot get much credit on the temporary
line, of procedure,

Mr. WARREX. Xo; I assume not,

Mr. BERTROX. No.

Mr. WARREX. But it is necessary to take care of the company while
tlie other matter is being considered ?

Mr. BERTROX. Absolutely. You have that or wholesale bank-
ruptcy.

Mr. WARREX. Yes.

Mr. BERTROX. And what they do not realize is that that means
practically a suspension of service. It has not been brought home to
them that the tracks are wearing out and the cars are going to pieces
and they can not buy new stock. They take it out in damning the
company, and the company can not help it.

Mr. WARREX. Don't people have the impression that a company
will continue to run just as well under a receivership as otherwise?

Mr. BERTROX. Yes ; that is the lack of intelligent publicity.

Mr. WARREX. Because that is not the fact?

Mr. BERTROX. It certainly is not.

Mr. WARREN. In your judgment, then, a receivership means a con-
stantly deteriorating service and, in many cases, would mean a sus-
pension of service?

Mr. BERTROX. In a great many, cases. We have actually recom-
mended the tearing up of tracks — the abolishing of service altogether.
A temporary expedient, one that they can exist under for a time, on
which the investor does not make anything on his investment, and he
is eager for payments, when things are so high

Commissioner SWEET. Will you speak a little louder ?

Mr. BERTROX. That does not help the investor who bought these
securities, expecting a remedy, and gets none.

Mr. WARREX. Have you given any study to the abandonments of
any of the railways?

Mr. BERTROX. Well, t know of a number ofc cases in which it has
been recommended and, I am sorry to say, one or two that I financed.

Mr. WARREX. But, speaking generally, you would say that these
companies were performing an essential service?

Mr. BERTROX. I think there is no doubt on that point, sir.

Mr. WARREX. That service must be rendered in some way by some-
body.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 543

Mr. BERTROX. The highest officials of our Government have recog-
nized that and have so stated, and I think there is satisfaction in
that thought.

Mr. WARREX. That is all, Mr. Bertron, unless you think of some-
thing more that you want to say.

Mr. BERTROX. I think not. I am afraid you have heard all of this
before.

The CHAIRMAN. You have been handling securities for about 25
years?

Mr. BERTROX. Or more.

The CHAIRMAN. Consisting of stocks, as well as bonds?

Mr. BERTROX. Principally bonds.

The Chairman. Principally bonds?

Mr. BERTROX. Yes.

The CHAIRMAN. What per cent of your business has been the han-
dling of stocks, or securities, I will say?

Mr. BERTROX. Our business has been principally that of handling
bonds. We have handled preferred stocks and some investment
stocks.

The CHAIRMAN. Have you ever handled stocks separate from the
bonds?

Mr. BERTRON. Oh, yes.

The CHAIRMAN. In a case of that kind, do you undertake to find
out whether or not there is real value behind the stock issue?

Mr. BERTROX. We endeavor to find that out.

The CHAIRMAN. What investigation do you make before you sell
your stocks?

Mr. BERTROX. Well, we always have engineers go over it and make
a valuation, and we ascertain what the earnings have been for a num-
ber of years, and the chances of earnings being continued, showing
a handsome margin over the security, etc.

The CHAIRMAX. Have you ev«r sold stocks at a premium ?

Mr. BERTROX. Oh, yes.

The CHAIRMAN. Frequently?

Mr. BERTROX. Well, I do not know of any stocks of public-service
companies that we have sold at a premium lately. I think not.

The CHAIRMAX. Have you sold many lately much below par?

Mr. BERTRON. Well, if they sold at all, they were sold below par
now. The fact is that they are unsalable.

The CHAIRMAX. You stated that there is practically no market for
these securities at the present time. Is that statement based upon
your experience?

Mr. BERTRON. Absolutely.

The CHAIRMAN. What have you done in the last year or two to
sell securities? What has been your experience?

Mr. BERTRON. You mean quite recently?

The CHAIRMAN. Yes; in the last two years, or during the war.

Mr. BERTRON. We have never offered anv public-service securities
in the hist two years, because there were hardly any that could be
sold, in our judgment.

The CHAIRMAN. You have had no actual experience in the last
two years?

Mi-. BEHTHON. Well, naturally, there is a little going on. The
bond rates are very low, and some man will say, " Well, I will take

544 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

a chance on that bond ; it is very low," and he will buy it. But that
is a speculative investment.

The CHAIRMAN. And have those bonds that you have sold been
new bond issues or old bond issues ?

Mr. BERTRON. There are very few instances where new bond
issues are sold.

The CHAIRMAN. Have you sold any new bonds in the last two
years ?

Mr. BERTRON. No; not of street-railway companies.

The CHAIRMAN. As a matter of fact, is not the public looking with
rather eager expectation to the purchase of a le>t of these bonds that
are now selling at a large discount?

Mr. BERTRON. I do not think you could say that the investing
public does. As a rule, the investing public does not buy any until
it is sure —

The CHAIRMAN. Who does it?

Mr. BERTRON. There is a class of people — usually it is the rich
man who takes a flier in buying a cheap security, and he does not
buy it on the advice of anybody, because we would not advise a
client to buy a security that was not sure of a return.

The CHAIRMAN. You stated that these securities are held by in-
surance companies, trust companies, and bankers, generally speak-
ing?

Mr. BERTRON. Very generally.

The CHAIRMAN. About what percentage of the securities of the
country — the public-utilities securities — are held by investors other
than the corporations that you have named ?

Mr. BERTRON. Do you mean to ask what percentage of the street-
railway bonds are held

The CHAIRMAN. Other than by trust companies, insurance com-
panies, and bankers.

Mr. BERTRON. Well, this is more or less of a guess. I have not the
figures with me, but I have the figures of the holding companies and
the savings banks in these securities. Probably one-fifth of the se-
curities outstanding, or maybe more, are held by institutions, sav-
ings banks, and insurance companies.

The CHAIRMAN. Would it embarrass you to supply us with the
figures showing the amount of bonds and stock held by trust com-
panies and insurance companies?

Mr. BERTRON. Xot at all. It is a public record. The Comptroller
of the Currency — I made the statement, and you are familiar with
it. Mr. Gadsden, last year, giving the details which we had worked
.up for him. Mr. Gadsden has that data.

The CHAIRMAN. Well, will you supply us with the record?

Mr. BERTRON. I will, if he has it not at hand ; yes, with pleasure.

The CHAIRMAN. Do you recall just where the market center for
this money is to be found ?

Mr. BERTRON. Well, of course, the East is usually the market for,
and has been, this class of securities. Later on the market broad-
ened, and the West bought a lot. Farmers became prosperous, and
they bought the securities of public-service corporations.

The CHAIRMAN. Do they come to New York in this particular
business?

Mr. BERTRON. If it is a large issue ; yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 545

The CHAIRMAN. What do you regard as a large issue — one that
would require them to come here ?

Mr. BERTRON. Well, they could have the capital in San Francisco
to finance any issue, but I do not think you would see an issue of any
considerable size that was not offered in New York and locally.

The CHAIRMAN. What size would the issue have to be before it
proved attractive to New York?

Mr. BERTRON. Well, there is no limit to that, sir. Large banking
houses rarely bother, with a very small issue, because they handle a
large issue with the same facility and at the same expense of looking
up as a small issue. It is just as great in the case of a small issue as
in a large one.

The CHAIRMAN. Well, generally speaking, what must the size of
the issue be before an eastern bank will handle it?

Mr. BERTRON. There is no limit. You see them advertise a $200,-
000 issue at times, and at other times a $20,000,000 issue.

The CHAIRMAN. Is that the practice in most of these companies
going to New York for money?

Mr. BERTRON. The public offerings are usually made in New York,
and then they are absorbed over the country.

The CHAIRMAN. When a western issue comes to New York, how
thoroughly does the New York banker investigate that security be-
fore he handles it?

Mr. BERTRON. That depends on the banker. There was a time, I
think, when those things were taken upon faith more than they are
to-day. You will find that there is a most rigid investigation to-

The CHAIRMAN. Are there many bonds that are maturing, or
about to mature, this year?

Mr. BERTRON. Oh, a great many.

The CHAIRMAN. What is to be done with those bonds?

Mr. BERTRON. In default.

The CHAIRMAN. I beg your pardon ?

Mr. BERTRON. In default.

The CHAIRMAN. A great many of them?

Mr. BERTRON. A great many of them.

The CHAIRMAN. Does that usually result in the line's going into
the hands of a receiver?

Mr. BERTRON. It usually does; not in all cases.

The CHAIRMAN. Have you handled any refunding bonds in the
past two years?

Mr. BERTRON. No.

The CHAIRMAN. Do you know of any that have been?

Mr. BERTRON. Yes.

The CHAIRMAN. What have they been sold for?

Mr. BERTRON. There were a few cases in which street-railway
bonds were sold. I only know of one or two, and that is due to
special circumstances underlying the bonds. They made an excel-
lent showing, and under all the circumstances we will say on the
valuation that was made on the property, the property was well
worth more than the bond issue; but you can count on one hand all
the issues that have been offered.

The CHAIRMAN. What did it cost to handle those bonds?

546 PROCEEDINGS OP FEDERAL ELECtRIC RAILWAYS COMMISSION.

Mr. BERTRON. That is very difficult to answer. It depends upon
the investigation that is made, but it would cost anywhere, I should
say, from 2 to 5 per cent, depending on the size of the issue.

Commissioner GADSDEN. What does it cost the company, Mr. Ber-
tron ?

Mr. BERTRON. Well, you mean what rate it would cost? I haven't
any idea.

'The CHAIRMAN. Give us some illustrations.

Mr. BERTRON. Well, there are companies I know of that money
cost them up to 12 per cent.

The CHAIRMAN. What companies?

Mr. BERTRON. Well, I should not mention the names of the com-
panies. I can get you some and give them to you, but there is hardly
any company to-day that can afford to borrow money of this charac-
ter and' practically none that can afford to borrow it at what it costs
them to-day.

The CHAIRMAN. Now, when the banker handles a bond issue at
that 2 per cent, does the banker keep that bond until he can sell it in a
favorable market?

Mr. BERTRON. That depends altogether on the circumstances. As
a rule, in these times, a man buying a bond usually wants to get rid
of it and buy something. Of course, if there are reasons why it may
be worth more later on he may carry it.

The CHAIRMAN. That is purely a business proposition with a bank?

Mr. BERTRON. And the conditions surrounding the property.

The CHAIRMAN. That is all.

Commissioner SWEET. I would like to ask a question or two.

Have you given much attention to the service-at-cost plan of
operating street-railway companies?

Mr. BERTRON. What do you mean, please, Mr. Commissioner, by
that?

Commissioner SWEET. Are you familiar with the plan adopted in
Cincinnati ?

Mr. BERTRON. Fairly so.

Commissioner SWEET. That is

Mr. BERTRON. It is a term that is used very generally.

Commissioner SWEET. Yes.

Mr. BERTRON. But I think various people have different ideas as to
just what it does mean.

Commissioner SWEET. Well, in Cincinnati, you are aware of the
lact that an arrangement has been made between the corporation and
the city whereby fares may be increased?

Mr. BERTRON. Yes.

The CHAIRMAN. One-half a cent at a time.

Mr. BERTRON. Yes.

Commissioner SWEET. And a reserve fund is provided for operat-
ing expenses, etc. You understand the general principles?

Mr. BERTRON. Yes.

Commissioner SWEET. I think that is called a service-at-cost plan.

Mr. BERTRON. Yes. What they mean to do is to find out the cost
of 'service, including a fair return on the capital.

Commissioner SWEET. Including a fair return on the investment.

Mr. BERTRON. That is, making a rate that has a margin over and
above that, so that they have a fund to go upon.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 547

Commissioner SWEET. Yes.

Mr. BERTRO^. And when the costs rise above that there is a raise
in fare to meet it, or if they go below, they use the surplus, etc.

Commissioner SWEET. A^nd if sufficient funds are produced to
meet all of these expenses and produce a fair return upon the in-
vestment, at a certain point the fares would automatically drop?

Mr. BEKTROX. Quite so. I hope so, some day.

Commissioner SWEET. And the lower the fare, after it gets down
to 6 cents, or below 6 cents, the holders of the common stock would
come in on a better basis, or, at any rate, the company itself would
receive a larger percentage than it would under any other circum-
stances, and if it saw fit it could make a distribution of profit, then?

Mr. BEHTRON. Well, it should be able to distribute, as I under-
tand it^ whatever amount, after properly safeguarding the property—-
with a proper depreciation — and that, by the way, has been grossly
underestimated always, in my judgment; but after providing for a
proper depreciation and maintenance, and all that, and after a valu-
ation is had, and after you have determined upon what value should
be paid upon that valuation, then, whatever that amount is, the
company can distribute it at will.

Commissioner SWEET. Well, without confining our consideration
now to any specific form of service-at-cost plan — there might be
variations in details, of course — and without particularly distin-
guishing between the common stock and the bonds or preferred
stock, but simply going on the basis that all moneys actually in-
vested, whether represented by one form of security or another,
ought to produce a fair return?

Mr. BKRTROX. Whether stock or bonds*

Commissioner SWEET. Going on that principle

Mr. BERTROX. Yes.

Commissioner SWEET. I want to ask you what you think of the
plan.

Mr. BERTROX. The principle of it is good.

Commissioner SWEET. Do you know of any other, or have you
thought of any other plan that you think would be equally good?

Mr. BERTROX. Well, you know there are several of those plans.
The most comprehensive one that I know of is one in Montreal. It
is rather complicated- — probably more complicated than we would
adopt here — but most comprehensive.

Mr. WARREN. You described the general principle of that in your
direct testimony, did you not?

Mr. BERTROX. Quite so; yes.

Commissioner SWEET. Yes; I understand that, but what I want to
ask you now is this, without going into the details of any particular
plan: Would the plan of service-at-cost, properly worked out as
to detnil, render a return upon capital sufficiently certain, so that
you, ns a banker, could recommend it to your clients, that you could
recommend the bonds?

Mr. BKRTROX. That would depend upon whether or not the munici-
pality was a party to the agreement and it was legally effective.,

Commissioner SWEKT. Well, the municipality would have to be
a party to the agreement, would it not, in any plan of cost of
service f

548 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BERTRON. By attorneys giving the opinion that the amount
agreed upon was properly safeguarded in that agreement, that it
was just and legal, and the company would be put into the posses-
sion of funds, whatever they were, that that plan called for. That
would restore credit very largely. But if there is a doubt about it,
then it does not have the effect.

Commissioner SWEET. As I understand it, Mr. Bertron, there
would be one element of doubt, but not a very large one, under the
plan such as I think ordinarily would be adopted, and that is
whether, having the right to increase fares, a point would be
reached where the general public would not respond and where the
loss of patronage would perhaps offset whatever might be gained
by the increase of rates and where an amount could not be obtained
that would be sufficient to pay the interest upon the securities.

Mr. BERTRON. Yes; that is quite remote, though.

Commissioner SWEET. It would seem to me that that would be
remote, but what I wanted to get at was whether, assuming now that
all steps were legal and a good, reasonable plan of that kind was
adopted, as an investment banker, you would be willing to recom-
mend to your clients the purchase of such securities, without at-
taching too great or too serious importance to the contingency that
I have mentioned.

Mr. BERTRON. Well, we should like them to look at it, but gen-
erally speaking, it would go a very long way toward restoring credit.
I think you might say it would restore credit entirely. As far as
they did it, it wTas working out in a great many places.

Commissioner SWEET. You understand, I am asking this question
so that the commission will have your opinion?

Mr1. BERTRON. Yes.

Commissioner SWEET. As a practical man?

Mr. BERTRON. Yes.

Commissioner SWEET. Engaged in this business?

Mr. BERTRON. Yes.

Commissioner SWEET. As to the efficacy of a service-at-cost plan,
if one should be recommended, in bringing about the necessary re-
lief with regard to bringing in new capital into the business?

Mr. BERTRON. It would go a very long way toward doing it.

Commissioner SWEET. You think it would?

Mr. BERTRON. You would have to pay higher rates at first until
you demonstrated that it was effective, and afterwards you would
get some at a lower price.

Commissioner SWEET. Of course, an out-and-out agreement on the
part of the municipality would avoid even that contingency ?

Mr. BERTRON. Yes. "

Commissioner SWEET. And would give greater relief?

Mr. BERTRON. And get your money at the lowest possible cost.

Commissioner SWEET. But the probability is that it would be very
difficult to induce municipalities to make such a guaranty ; would it
xiot?

Mr. BERTRON. That is altogether a question how it is done and the
amount of publicity.

Commissioner SWEET. You think that might be accomplished ?

Mr. BERTRON. If they realize that they were not going to be
political footballs and were going to have a business administra-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 549

tion, they must then realize that the money would be acquired at
a less rate of interest than in any other way, and hence that they
would pay less for service.

Commissioner SWEET. You expressed a fairly favorable opinion
of municipal ownership ?

Mr. BERTROX. I personally think it will come to that in time..

Commissioner SWEET. You think it will come to that ?

Mr. BERTROX. Yes; that is only a personal opinion.

Commissioner SWEET. Do you base that on your idea of the sit-
uation as it is, especially with regard to public sentiment, etc., or
upon what you regard as really the best for the public?

Mr. BERTROX. Well, there is a general disposition on the part of
any municipality to run their own property. They dislike having
it owned and operated from a distance.

Commissioner SWEET. Yes.

Mr. BERTROX. They would like to have it operated at home, very
naturally. Well, it is not a far step from that, if you are going to
operate at home, to work out a business plan for operating it, and
they will not concede that some one else, living at a distance, has
any better business judgment than they have for operating the
company, and they know that they will be able to get the money
cheaper, and hence should get the service cheaper. Therefore, the-
logic of the situation is, isnT it, that it should come to that in these
distinctly local affairs?

Commissioner SWEET. Do you know of any objection on the part
of chambers of commerce or of the communities generally to having
foreign capital come in and invest in industries of other kinds —
manufacturing, for instance?

Mr. BERTROX. No, not so much that; but there is a distinct feeling;
in most municipalities that they would like to be their own doctors
on their own municipal problems.

Commissioner SWEET. Don't you think there is, and ought to be,,
a distinction between water supplies and street railways in regard
to ownership by the city ?

Mr. BERTKOX. Somewhat.

Mr. WARREN. What is your answer, Mr. Bertron ?

Commissioner SWEET. Somewhat.

Mr. BERTROX. Somewhat.

Mr. WARREX. Somewhat?

Mr. BERTROX. There is not much danger of the water company
being utilized politically; less than with the street railway, on ac-
count of the number of employees, and all that.

Commissioner SWEET. The water supply is somewhat of a natural
monopoly ; is it not ?

Mr. BERTROX. Yes.

Commissioner SWEET. There is a disadvantage to the municipality
in having more than one water supply, ordinarily?

Mr. BERTROX. The same is true with the street railway. It is a
natural monopoly.

Commissioner SWEET. A natural monopoly?

Mr. BEUTRON. Yes; and recognized as such.

Commissioner SWEET. Is not the same thing true of telephone:
companies?

550 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BERTRON. Well, that is not local so much. You have telephone
systems that are a part of great trunk lines running all over the
country.

Commissioner SWEET. Don't you think it is a nuisance in a com-
munity to have more than one company operating there?

Mr. BERTRON. Oh, unquestionably.

Commissioner SWEET. If the street-railway company is a natural
monopoly in the same sense that the water supply is a natural mo-
nopoly, why did you make a distinction between the two with regard
to municipal ownership?

Mr. BERTRON. The point I made was that there would be more ob-
jection, probably, on the part of citizens to a municipally owned
street railway than to a water company, fearing lest they might not
have as good business management. It is a little more complicated
problem. They have engineers on the outside and various other
things. They have to keep in touch with operations in other cities
and other developments that take place.

Commissioner SWEET. Yes.

Mr. BERTRON. And then, too, a great many people think it would
be a mistake to have such a large body of men who are employed
upon street railways subject to political influence of various par-
ties.

Commissioner SWEET. Don't you think that would be a serious
objection?

Mr. BERTRON. I think it can be overcome. I think the street rail-
ways can be taken out of politics, just as much as the water com-
panies, and made an economic business proposition in the municipal-
ity. I think it quite possible to do it.

Commissioner SWEET. You are rather optimistic with regard to
city government, are you not, then ?

Mr. BERTRON. Well, I think we are on the upgrade. I am a great
believer in the honesty of the American ^people when they know the
facts.

Commissioner SAVEET. Do you think the introduction of the com-
mission form of city government has helped materially in the quality
and character of 'those governments ?

Mr. BERTRON. That depends upon the locality. It has in some
and it has not in others.

Commissioner SWEET. Do you think at the present time there is a
greater freedom from bribery and dishonesty than there was 25 years
ago?

Mr. BERTRON. I do, Very much; and I think that when this great
body of young men that we are demobilizing from the military
service are disseminated throughout the country— men who have had
discipline, who have had patriotism, and who have had experi-
ence— I think they are going to be more public spirited, and I look
for a distinct improvement in our whole civic morale as a result of
what these young men have gone through.

Commissioner SWEET. Do you think the management under mu-
nicipal ownership and operation would be as efficient as under private
ownership ?

Mr. BERTRON. It can be made so.

Commissioner SWEET. Would it be likely to be ?

'PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 551

Mr. BERTRON. Well, it can be made so. Now, whether it would,
would depend entirely on how it is handled. There are cities in
which they could provide the arrangement that you have — say, two
members of the chambers of commerce on the board, a member of the
merchants' association, and two men representing labor, etc. — and
take it out of politics and mil it as a business enterprise. It can bo
done, and I think the people will welcome it.

Commissioner SWEET. Do you think they would have the feeling
that it was their own business ?

Mr. BERTRON. And they would take a pride in it.

Cornmissioner'SwEET. And you think it would so develop that they
would acquiesce in changes of fares with less skepticism?

Mr. BERTRON. Oh, infinitely less.

Commissioner SWEET. At the same time, Mr. Beftron, don't you
know that up to date where municipal ownership has been " tried, it
h:ih not been as efficient as private ownership?

Mr. BERTRON. Rarely.

Commissioner SWEET. What?

Mr. BERTRON. Very rarely.

Commissioner SWEET. Well, as a rule, it has not been?

Mr. BERTRON. Yes; as a rule it has not been.

Commissioner SWEET. Don't you think your discounting the future
On that line is conservative for a banker, in assuming the conditions
are going to be better in the hereafter than they have been in the
past — materially better in that regard?

Mr. BERTRON. I think it will come.

Commissioner SWEET. Former-President Taft, when he appeared
before us, expressed the opinion that, under the present situation of
the street:railway companies, they would come to municipal owner-
ship.

Mr. BERTRON. Not necessarily.

Commissioner S\VEET. If relief were not given to the companies in
some way.

Mr. BERTRON. Oh, well.

Commissioner SWEET. He said he thought it would be an unfor-
tunate thing to have to adopt municipal ownership.

Mr. BERTRON. Unless it was properly safeguarded and removed
from politics; yes.

Commissioner SWEET. Well, that is the problem, but you can't re-
move anything that is under the control of elected officials from poli-
tics. A man who is elected to office — the mayor of a city, or an
alderman, or whatever the office may be — if he wants reelection, as
most officials do, is bound to consider the methods by which that may
be attained, if he is an ordinary, everyday human being.

"Mr. BERTRON. He thinks so, but he makes a big mistake. I think
the people would much rather vote for a man who was brave enough
to stand up for something —

Commissioner SWEET. That is very true.

Mr. BERTRON (continuing). Than a man who would attempt to ad-
just himself to what he thought were their wishes.

Commissioner SWEET. "But those are his purposes and those are his
morals. That is almost invariably the case, fie wants at least one
reelection as a sort of indorsement. Now, according to his breadth,
according to his vision will be the course that he will take, and I

552 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

think you will agree with me that a very large proportion of officials
are rather narrow, not altogether wise, and instead of taking a
broader view and doing what is right and depending upon that for
public indorsement in reelection, they indulge in what we call petty
politics and seek to get votes here and there by cultivating the good
will of this one or the other ; is not that true ?

Mr. BERTRON. Very frequently.

Commissioner SWEET. At least, it has been true in the past?

Mr. BERTRON. Very frequently.

Commissioner SWEET. And you are looking now for a broader
knowledge and a bigger lot of public officials— those who will not be
controlled by such narrow methods?

Mr. BERTROX. In the organizations, the removal of the stock from
political atmosphere entirely. I think that can be done.

Commissioner SWEET. One question more on this point: Do you
think this same man serving as an elected official or serving at the
head of a street railway company as an appointee of an elected of-
ficial would do as good work, would be as efficient as he would if he
were employed by a private corporation ?

Mr. BERTRON. He should be.

Commissioner SWEET. I am not asking what he should be, but do
you think he would be?

Mr. BERTRON. Well, I think he would have as much or even more
civic pride in doing well for his community than he would for a cor-
poration. It would depend on the man, largely. Please don't mis-
understand me about advocating municipal ownership of these prop-
erties. I think it is better not at this time. I think we can work out
a plan, as I said — an automatic adjustment on a fair valuation — to
give a fair return, and that is the way it should be handled; but I
said ultimately I think it will come to the other thing, because it is
the rational thing and the cheaper thing.

Commissioner SWEET. When you say " rational," you mean in
theory it would be a better thing ?

Mr. BERTRON. Yes.

Commissioner SWEET. But in practice I do not understand you to
say that now, at the present time, you consider that it is the better
thing?

Mr. BERTRON. I prefer to see the other adopted first.

Commissioner SWEET. That is all.

The CHAIRMAN. Have you had any experience in dealing with
municipal officers?

Mr. BERTRON. No.

The CHAIRMAN. Then why do you say that there is not the same
degree of integrity and moral strength of character and good judg-
ment observed by officials in the conduct of public affairs as there is
by bankers or others in the conduct of private affairs 2

Mr. BERTRON. I did not make that statement.

The CHAIRMAN. I rather assumed that.

Mr. BERTRON. Not at all.

The CHAIRMAN. You have not got that opinion?

Mr. BERTRON. No, sir. I did not express it.

The CHAIRMAN. That is all.

Mr. WARREN. I thought Mr. Bertron was going rather far the
other way.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 553

Mr. BERTROX. What?

Mr. WARREN. I say I thought you were going rather far the other
way.

Mr. BERTROX. In the other direction; yes.

The CHAIRMAN. Perhaps I got the wrong slant.

Mr. BERTRON. You certainly did.

The CHAIRMAN. And I wanted to defend the public officer, because
I have been one myself pretty long.

Mr. BERTRON. I have a great respect for many of them.

Mr. WARREN. Did I ask you your opinion of the term franchise?
I do not think I did.

Mr. BERTRON. No; you did not.

Mr. WARREN. In this plan which you suggest as the best plan, in
your opinion, for adoption, there would be involved, would there
not, the elimination of these term franchises, which come to an end
and have to be reviewed periodically?

Mr. BERTRON. It is much better not.

Mr. WARREN. It should be during good behavior.?

Mr. BERTRON. The better the franchise the better the property and
the better the service the public will get.

Mr. WARREN. And those things will follow if the people feel that
the company is there during good behavior?

Mr. BERTRON. Quite so.

Mr. WARREN. You spoke of a straight guaranty. Of course, this
plan that you are suggesting involves no real guaranty, does it,
except the right to adjust fares as the exigency of the business may
require?

Mr. BERTROX. Yes; or it may be that the city would guarantee a
fair return.

Mr. WARREN. Yes; but that was not what you suggested.

Mr. BERTRON. Xo.

• Mr. WARREN. If the city added to it a real guaranty, a legal guar-
anty, then I suppose the securities would sell just the same as
municipal securities?

Mr. BERTRON. Absolutely.

Mr. WARREX. So the cost of that particular service would be no
more than it would be without the public control of the service?

Mr. BERTROX. That is right.

Mr. WARREN. That is all. Thank you very much, Mr. Bertron.

STATEMENT OF MR. J. K. NEWMAN.

Mr. WARREX. You gave your full name, Mr. Newman?

Mr. NEWMAX. Yes.

Mr. WARREN. What has been your streetrailway experience?

Mr. NEWMAN. I started in in the engineering department.

Mr. WARREX. As engineer?

Mr. NEWMAX. Yes; then in the operation department.

Mr. WARREX. Of actual street-railway properties?

Mr. NEWMAX. Yes; of actual street-railway properties. Also in
the accounting department ; and while I am not a lawyer, I have
had to get very busy with the legal department.

Mr. WARREN. Most street-railway men do.

Mr. NEWMAN. Yes.

160048°— 20 3C

554 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. WARREN. How long were you in the engineering department ?

Mr. NEWMAN. Well, I have never been out of it.

Mr. WARREN. How long have you been in the railway business?

Mr. NEWMAN. Well, since 1895. I have had a little lapse in be-
tween, when I was out in business.

Mr. WARREN. And over how long a period has this experience
extended ?

Mr. NEWMAN. Twenty-four years.

Mr. WARREN. With what companies have you had this practical
experience ?

Mr. NEWMAN. With the Canal & Claiborne in New Orleans, the
New Orleans & Carrollton at New Orleans, the Birmingham Rail-
way Light & Power Co., the Knoxville Railway & Light Co., Little
Rock Railway & Light Co., the Nashville property — I have been in-
timately connected with the St. Louis property, with the Dallas
property, and I have been acting in an advisory way at times in the
San Francisco situation.

Mr. WARREN. You have some pretty definite views on this present
street-railway situation, I imagine.

"Mr. NEWMAN. I have had to have.

Mr. WARREN. Would you prefer to state, without interruption by
questions, and if so, will you state to the commission what you think
of the present situation and how it came about?

Mr. NEWMAN. Well, if the commission will bear with me, I think
I can throw some light on this situation.

The CHAIRMAN. Go ahead.

Mr. NEWMAN. Now, I am not going to take this from the street-
railway point at all. I would like to talk from both sides of it, be-
cause I recognize that there are two sides to this question. The pub-
lic have a very definite interest, and without understanding the pub-
lic side of it it is impossible to arrive at a solution of this problem.
I do not take the stand that we are altogether right.

Let us go back into the history a little bit.

I started out with 13f cents for motormen and conductors. I
bought the first rail at $20 a ton, ties at $12 a thousand.

Now, the one thing that was uppermost in my mind always was.
the franchise, and I wanted to be sure that there was a 5-cent fare
in the franchise and that I had a franchise for as long a term as
possible. I have repeatedly refused to be interested in street-railwTay
propositions that did not embody a 5-cent fare and a long-time
franchise. This franchise gives an enormous value to the property
over and above its physical worth.

The bankers were keen to see that. I want to confess to being a
banker also, or I try to be a banker.

Taking advantage of the situation, we commenced to capitalize.
We capitalized the earning power, because we had a monopoly. If
we did not have a monopoly, we went on and bought the other road
and put them together as a basis of some additional capitalization.

The CHAIRMAN. Are you speaking now about the bankers?

Mr. NEWMAN. The bankers and the street-railway men. They
work together always, and the result was that it was about as lucra-
tive a business as there was in this country. The public got the
idea, and it has it to-day, that the street-railway men and the bank-
ers associated with them made enormous profits ; and that is true only

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 555

on paper. It was true in reality in the early stages of the game,
and the securities became very desirable, became generally distrib-
uted and, next to steam-railroad securities, are the most popular
form of investment on the part of the general public.

Now, we took these franchises with the 5-cent fare. We did not
oiler to divide any of that profit with anyone who was not in on the
game ; but if we had too much, we revised the capitalization ; and we
got this reputation of being big money-makers, and we got the repu-
tation of beating the public. There is no doubt about that.

Now, the thing reverses itself completely.

Your labor has gone up three or four times, and we have not
reached the end of it yet. Your rails are up three times, and all
other materials are up in the same way. Within the last few years
everything has practically doubled, which means that the nickel
is worth 50 cents on the dollar — about 2.5 cents ; and we are in abso-
lute distress.

I do not believe the street-railway men here appreciate that as
thoroughly as it is true. We are hopelessly bankrupt. Now, that
may be a shock to some of them ; but I want to tell you the part of
the game that hurt us more seriously, or nearly as seriously as the
idea which the public has that we have been enormously profitable —
that we are making enormous profits and do not need this relief.

When these roads began to improve their science, bigger cars and
fast schedule speed and improved service to the public, we got an
ascending curve of gross earnings that was quite remarkable. As
long as that ascending curve continued upward, we could capitalize
and sell securities. As long as we were selling securities, we capi-
talized the renewal and replacement fund, which should have been
in the operating expenses, but which had not been in the operating
expenses to the extent that it is necessary. The only situation that
I know of — I suppose there are others— where they have taken care
of that renewal and replacement fund is the United Railways of St.
Louis. There, for a period of 8 or 10 years, on top of their regular
maintenance, they have set aside a fund called depreciation, but
which should be called renewals and replacements, to take care of
the thing that was going to be put out of service next year or the
following year, but which did not need throwing into the junk pile
at that immediate time.

That ran for a period of seven or eight years, and that road now
has reduced its capitalization. It has not sold a security, to my
knowledge, within the last seven or eight years. It does not sell
securities. But still, what do we find? We find that that road is
in the hands of a receiver, is not able to meet the natural growth of
the city of St. Louis by putting in the improvements, because it can
not capitalize. We find the 4 per cent bond selling for 55. They
were selling a few weeks ago for 50, and behind them the junior
bonds. We find the four's closed out and no more could be issued,
and even though they could be issued you could not sell them.

Now, there is the one outstanding property that has taken care of
this renewal and replacement fund, and yet it has not been able to
navigate in a capital way and has had to go into the hands of a
receiver.

We are all familiar with the fact that they had a loan from tho
War Finance Board during the war and have not been able to pay it

556 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

off up to this time, notwithstanding the fact that these gentlemen
on that commission have crowded this road to the utmost, threatening
them with the sale of the securities, which has not alarmed them very
much, because what we can not do the commission can not do. The
securities can not be sold.

Mr. WARREN. You are referring to the Finance Commission ?

Mr. NEWMAN. Yes.

Mr. WARREN. The Federal commission.

Mr. NEWMAN. Then, we find the road breaking down under their
old system of accounting. We find that they can not do any financ-
ing. We are finding this, too, that when they have to come out from
under their old system of financing, there must be established a com-
plete new financial set-up, a complete new process of financing.

Now, what is going to happen ? I have had to do with putting six
properties in the hands of receivers. The interest is being cut on all
of the bonds.

The CHAIRMAN. During the last year or so?

Mr. NEWMAN. During the past year. And we have a serious prob-
lem, a problem which is far more serious than the public has any
idea of, and I believe far more serious than the members of this
commission believe.

How are we going to get around it ? How are we going to solve it ?

Let us talk municipal ownership for a minute. There is a consti-
tutional prohibition in the charters of all of the cities that they
can not take over the street railways by any system of guaranty, be-
cause it is not legally possible.

The next thing is that they do not want to do it. There was a cry
for municipal ownership ; but I do not know of a community to-day
that would take over these properties. Why? Because the politi-
cian lives on public favor, and the moment the politician attempts to
raise the street-car fare, the public are against him, and he will lose
out at the next election. They do not want to enter into that; so,
frankly. I have given up all hope of municipal ownership.

Mr. WARREN. Before you leave that. Mr. Newman, have you any
views on State ownership as distinguished from municipal owner-
ship?

Mr. NEWMAN. No ; I never thought of that proposition.

Mr. WARREN. Of course, that would be a possibility with which
most of the constitutions would not interfere.

Mr. NEWMAN. There you are separating the city and State, and I
do not dream of that as a possibility.

I do not believe the people themselves want to put street railways
in municipal ownership. They are different from any other kind of
public-service corporation, for this reason. They have an enormous
pay roll — 40 per cent, maybe 50 per cent, of their operating expenses,
and maybe a great deal more than that, the way wages are going. It
means that motormen and conductors, who have not had the advan-
tages of an education, who are not carpenters or mechanics, and who
have to take this class of work — that means not the highest order of
education — are prey for politicians; and that puts a lot of strength
into the hands of the politicians. It puts a great big pay roll in the
hands of the politicians. A wrater company, a gas company, and a
lighting company do not have the same proportion of employees.

So I do not believe in municipal ownership.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 557

I would be glad to get relief if we had to lose money and got rid
of some of the trouble. Life is hardly worth living with the proposi-
tion as it is to-day; but I think the cities themselves do not want
municipal ownership.

Xow, then, what are we going to do?

The street-railway people have not presented their case. TJiey
have been assailed. When they did ask for something, they asked for
a 6-cent fare. Why, that did not begin to take care of the situation,
if you keep in mind this renewal and replacement fund, and espe-
cially the wage scale. They left no room for a trade. If they had
asked for a 10-cent fare, they might have helped the situation some.
Even at a 6-cent fare, I do not believe there is a single municipality
in the United States that would vote a 6-cent fare at a referendum,
and many of the cities have a referendum. The reason they won't
do it is because they say, " These fellows have been getting rich, and
they have made a lot of money, and we don't believe it."

The CHAIRMAN. They did in Sioux Falls, S. Dak.

Mr. NEWMAN. Well, that is an exception, as you know.

Mr. WARREN. The exception that proves the rule.

Mr. NEWMAN. Then, what are we going to do with the situation?
We have to reach the masses.

In the city of New Orleans I knew an old conductor on a line;
and when I was riding with him I said, " Why do you motormen
and conductors fight this increase in fare'' (they employed an at-
torney and they are going to the court to fight it) "when you get
this enormous increase in wages ? " " Because the company does not
need it."

I believe the public is fair enough to give it if the facts are
known ; and the hope that I have in this situation is that this com-
mission will say something to the public which they will fully be-
lieve when the}' won't believe the same thing said by the street-
railway people.

The solution, in my judgment, is the service at cost, plus a return
on the investment — an ascending fare, or a descending fare, but a
fair return on the investment.

If they choke off the chance of the street-railway people and bank-
ers from manipulating the securities again, I do not believe it mat-
ters much what the capitalization of the company is, whether it is
high or low. That is not the point. If we got out to make securi-
ties, they could be cut down. It can be dealt with by the process of
law, but what the people want to know is that an unfair return is
not paid on the capital invested.

AA hen the public is educated to the fact that they are paying a
fair return on the investment and not a return on watered securi-
ties they are not going to object to an increase in fares, no matter
what it is, even if it should bo 10 cents.

Now, in this position you have to take the public's point of view,
because you can not look at it fairly if you just go below the sur-
face of the street-railway situation and do not analyze the public
point of view.

Suppose we are operating a factory, and we were unwise enough
to sell our product at a fixed price for a term of 20 years, what
would happen when the raw material went up, so that we could not

558 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

produce that article at cost? We would go into receivership and
then bankruptcy.

Now, would the purchaser of that material want to take the fac-
tory and run it, or would he say, " Here, you go on and manufacture
your goods, and I want to see that you do not make an abnormal
prpfit out of it." I think most business men would say, " You had
better operate your factory; I don't want to operate it, especially
when you are only getting a meager return on your investment."

And that is what the public is going to say when they are con-
vinced that that is the situation in the street-railway business. They
are fairly entitled to know that, after we have had the cream of
these franchises, and that when the day of reverses passes, we are not
going to continue to pay large dividends on the basis of securities.
They will insist that we pay only a fair return on the capital prop-
erty value and let the securities readjust themselves.

There is another feature about the financial plan — the securities
plan — that I would like to see the commission adopt, if the commis-
sion should favor the plan of service at cost plus a fair return on
the capital property value, and that is this, that there should be a
condition attached to that sort of an arrangement by which the
securities would be readjusted so that a new system, a financial set-
up, will be established in order to make it possible for the street
railways to go ahead and keep up with the times, to take care of
this renewal and replacement fund, which has not been accumulated
by a majority of the roads, but which has been an operating charge,
just to the same extent as the motormen and conductors' salaries.
It has been taken care of in the past through this ascending pros-
perity, now blocked, because we have reached the height of the in-
dustry or nearly so ; and automobiles have come along and have taken
the cream off the top. So we are dealing to-day with this problem
of a renewal and replacement which must be inserted in the operat-
ing charge at a fixed charge. Now, when you have done that, you
have broken down your whole system of finance, because there is not
a banker who has played the game in New York or elsewhere who
has not adopted the standard of judging a bond by the ability of
the company to earn twice its interest charge. When you insert
that renewal and replacement charge — notwithstanding all the prop-
erties are face to face with that, and it is a much more material
thing than we have been thinking of in the past — you destroy its
net earnings, and even if you had an open issue of bonds, you could
not sell them unless you had two for one and, of course, I do not
know of 1 road in 10 that can make that sort of a statement to-day,
with a renewal and replacement fund.

Now, if you do not put it in operating expenses, you have to
capitalize it, and you are not allowed to do so by the cities as an
operating expense. When you put it into operating expenses, and
you want a return, an interest on the fair valuation, 6 cents fades.
There is nothing to it, and 7 cents, in many instances, will fade, and
will go up to a very much higher standard, and there is no hope of
that higher standard, unless we have taken the public into our con-
fidence and say, "We have stopped the juggling of securities; we
have stopped consolidation to get out more stock; we have gotten
down to an honest system of finance, by which the public will pay
a return on the investment and nothing more, and what you pay you

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 559

get. If you want a low rate of fare, take the seats out of the cars,
and let everybody stand up ; but if you pay enough, we will put on
Pullman palace cars for you. You shall be the judge of what you
want, but whatever you pay you get, and you pay it only to give us
a return on our actual investment."

The CHAIRMAN. At this point, we will discontinue until 2 o'clock.

(Whereupon, at 1 o'clock p. m., a recess was taken until 2 o'clock
p. m.)

AFTER RECESS.

STATEMENT OF MR. J. T. NEWMAN— Resumed.

Mr. WARREN. Will you resume, Mr. Newman?

Mr. NEWMAN. We Avere talking about renewals and replacements;
or if we were not, I want to talk it strong.

Let us assume for a basis now that your property has a fair valua-
tion of five to one, gross receipts. I will not say that that is the
way it is going to work out, but let us take that figure arbitrarily—

The CHAIRMAN. What do you mean by five to one, gross receipts?

Mr. NEWMAN. That the value of the property is five times the
gross receipts. Now, we talk about 10 per cent of the gross receipts
for renewal and replacement. That is 2 per cent of the value of the
property. Just ask yourselves the question, how far will 2 per cent
go toward rebuilding the property; what is the life of the car;
what is the life of the rail; what is the life of the special work;
what is the life of power equipment? So I am emphasizing the fact
that this renewal and replacement fund has not lien dealt .with as
an operating charge in the past; that we have capitalized the recon-
struction of worn-out property because the prosperity of the com-
pany in the past permitted the capitalizing and the sale of securities,
but now we can not do it any more; we can not capitalize; we can
Dot sell the securities. The wearing out of the property is going
on and we are face to face with this renewal and this replacement
on top of the ordinary maintenance. You can maintain a thing up
to a certain point by repairing and patching it and then it comes to
where it has got to be replaced; so that becomes an operating ex-
pense from now on.

Mr. WARREN. How much do you think that should be, Mr. New-
man?

Mr. NEWMAN. That varies all over the country, according to
the local condition. Some roads have very heavy traffic in narrow
streets; some have wide streets to permit vehicles to go on the side,
and they do not interfere with your track, do not wear out your
track. Paint lasts longer in some communities than others. But it
is so much more substantial than street-railroad men and bankers
have ever put into their statements that from now on we have got to
deal with that as an operating expense.

Commissioner GADSDEN. Do you mean the current or accumulated,
or both?

Mr. NEWMAN. Both. The current is repairs and maintenance.
The future is going on every day, but may be only calling for a largo
amount of capital at some future time; reconstruction of the track
or something of that kind is a replacement.

560 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. Who is to determine the amount of the deprecia-
tion ?

Mr. NEWMAN. The management of the road. Now, I will talk
about that in a minute.

The CHAIRMAN. You know that in the past railroad companies
desiring to hide a large return would charge a very big depreciation
account, and those who wanted to make a very favorable showing
would charge practically no depreciation. Now, are you going to
be able to leave this to the street-car management ?

Mr. NEWMAN. You have stated two cases. One does not exist
very often.

The CHAIRMAN. Well, it has in the past, and we hope it will in the
future.

Mr. NEWMAN. There has been very little hiding of net earnings.
To the contrary, there has been representation of net earnings that
did not exist in order to justify the sale of securities for capitaliza-
tion purposes. Now, that must go in the future. When that goes in
the future — I want to talk banking to you a minute. You go into any
banking house in the country that has a means of distributing se-
curities and they say, "What are your net earnings? Are they
two for one?" "No." "Well, we are not interested." And that
standard has been adopted before you reached the renewal and re-
placement account. Now, if you leave it out in the future —

The CHAIRMAN. What is that two for one ?

Mr. NEWMAN. Net earnings, twice the bond interest. Now, if you
leave it out in the future the cities will say when giving you a return
on your investment, " Oh, this does not belong in here." If you put
it in as an operating expense you have destroyed this system of
financing, so you have to set up an entirely new financing. That is
as it should be, a new system of financing, because you will never
finance on the old basis. And before the cities grant this new relief
that should be one of the conditions. And I hope that this commis-
sion will point to that as one of the necessary things to be done. It
will help the reorganization of the property, it will help to a better
understanding in the future as to when and how we can get money
for these properties. Now, those are two of the points that I want
to emphasize.

Now, about the increased fare, when we get it. The mathematical
percentage of a 6-cent fare is 20 per cent- It is practically impos-
sible to say from the past experience what that is yielding, because
when you get your receipts, showing, as Mr. Bertron has said, in
some cases 30 per cent increase and in other cases only 5 per cent in-
crease, that is mixed up with the prosperity or the lack of pros-
perity in a given community. In New Orleans, where we are get-
ting about 30 per cent increase with a 20 per cent increase in fare,
it is very largely due to an enormous prosperity brought on by war
conditions, and it is very hard to say which is which. But if you
can just get the public mind convinced that they are getting a square
deal now, that there will be no more pyramiding of securities and
no more compounding and excessive flotations and excessive profits
to the bankers, and convince them that they are paying only for
what they get plus return on invested capital, I think there will be
no objection at all to the increased fare nor will that mean even-
tually a material reduction in the riding. So I do look for consider-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 561

able relief from the increased fare and I believe it will measure up
very closely as time goes on to the mathematical proportion.

Mr. WARREN. And it is the only relief that can be immediately
applied; is it not, Mr. Xewman?

Mr. XEWMAN. Absolutely.

Mr. WARREN. These other matters that you have discussed and
that others have discussed require a good deal of time for their
consideration and adoption?

Mr. NEWMAN. Yes-

Mr. WARREN. And in the meantime this increased revenue must
be obtained?

Mr. XEWMAN. But if the public is convinced that the relief they
are giving is for service, irrespective of capitalization but dependent
upon the value of the property plus a fair return — once the public
believes that, we will get our increased fares with a less effort than
we are making at the present time.

Mr. WARREN. And without public hostility?

Mr. XEWMAN. Yes. Xow, if we say this they do not believe us —
and I say we. the street-railroad people — but if this commission
would say it, I believe it would be a tremendous step forward.

Mr. WARREN. I agree with you. I think that is all I want to ask
Mr. Xewman, Mr. Chairman.

The CHAIRMAN. How many years have you been in the street-car
business ?

Mr. XEWMAN. Twenty-four.

The CHAIRMAN. During all of that time have you also been in the
banking business?

Mr. XEWMAN. Yes; not all of the period in the banking business.
I graduated from the street-railroad business into the banking end
of it.

The CHAIRMAN. To what have you given your greatest attention,
railroading or banking?

Mr. XEWMAN. First to railroading and then to the banking end
of it.

The CHAIRMAN. How many years have you been giving most at-
tention to the banking end?

Mr. XEWMAN. Since my father died, about 10 years ago.

The CHAIRMAN. Have you been giving much attention to railroad-
ing in the past 10 years?

Mr. XEWMAN. Yes.

The CHAIRMAN. At the present time you have a good many prop-
erties under }^our control?

Mr. XEWMAN. Yes.

The CHAIRMAN. How many?

Mr. XEWMAN. Well, I do not like that word control, but I am act-
ing in an advisory capacity for nine.

The CHAIRMAN. You gave us some very interesting information
about the early history of these companies, and particularly about
the long-term franchise and the 5-cent charge. Was it your ex-
perience in the early days that the 5-cent fare was profitable to theso
companies?

Mr. XEWMAN. In the very early days it was profitable, but it never
was as profitable as the bankers thought it was, for the reason that
we were capitalizing that renewal and replacement charge.

552 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. How long did they operate profitably on that
5-cent fare?

Mr. NEWMAN. I should say up to the time that they began to hnve
an increase in their platform expenses over and above 25 cents an
hour, and that varied in different situations.

The CHAIRMAN. Did the practice of capitalizing the replacements
and earnings begin early in the history?

Mr. NEWMAN. Yes.

The CHAIRMAN. And did you participate in that practice?

Mr. NEWMAN. Yes.

The CHAIRMAN. Did the bankers know that sooner or later that
practice would lead the companies into trouble?

Mr. NEWMAN. Maybe not.

The CHAIRMAN. They were fascinated with a scheme of the 5-cent
fare with a long term and thought that would carry them over all
sorts of difficulties?

Mr. NEWMAN. Yes; but you must keep in mind this— that we had
a new industry and it was just making leaps and bounds. Where a
town or a city was at all prosperous the improved service, the im-
proved cars, the improved speed, the moving out from the con-
gested centers of the city into the outlying districts developed the
traffic with leaps and bounds, and that was an appreciation which
more than counterbalanced that renewal and replacement that was
going on, sometimes called depreciation.

The CHAIRMAN. But there was a large amount of capital issued
for stock which did not represent the capital put into the plant, was
there ?

Mr. NEWMAN. Absolutely.

The CHAIRMAN. Was not that quite a common practice in the early
days?

Mr. NEWMAN. Yes.

Commissioner GADSEN. Was it confined to public utility?

Mr. NEWMAN. No, sir.

The CHAIRMAN. I think the limit was the roof in almost every-
thing.

Mr. NEWMAN. I think the steam railroads are in exactly the same
condition to-day, and if they were to be taken from under the
Government control you would see a situation similar to the street-
railroad situation, and that is something this Government is facing.

Qommisioner GADSDEN. Was not that the code of ethics in those
days and everybody subscribed to it?

Mr. NEWMAN. Yes.

Commissioner GADSDEN. It was looked upon as proper by every-
body ?

Air. NEWMAN. Absolutely. I am not meaning to reflect that I
have been dishonest — I won't let you say that — and I do not believe
the bankers were.

The CHAIRMAN. I am not attempting to make any reflection but
am trying to develop the facts.

Mr. WARREN. It is still the practice in many industrials; is it not?

Mr. NEWMAN. It is quite the fashion to-day.

The CHAIRMAN. Suppose these properties had been operated ac-
cording to modern ethics, capitalizing only the money that is in-
vested, would they be able to operate under a 5-cent charge?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 563

Mr. NEWMAN. Never.

The CHAIRMAN. To what extent, if any, does this excess capitaliza-
tion or the practice which you refer to 'influence the present ability
of these^ utilities to pay their operating costs?

Mr. NEWMAN. Well, if you mean eliminating the return on invest-
ment

The CHAIRMAN. I spoke of operating costs.

Mr. NEWMAN. They can all earn their operating costs.

The CHAIRMAN. Under a 5-cent fare?

Mr. NEWMAN. Without interest, I think so; yes, sir.

The CHAIRMAN. Can your companies pay operating expenses on
a 5-cent fare?

Mr. NEWMAN. I think they can, but no return on the investment.

The CHAIRMAN. You spoke of the service-at-cost plan. Has that
question been discussed in St. Louis?

Mr. NEWMAN. Why, I should say it has been discussed by every
street railroad man in the business.

The CHAIRMAN. What is the present charge in St. Louis?

Mr. NEWMAN. Six-cent fare.

The CHAIRMAN. How long has that been in effect?

Mr. NEWMAN. Something over a year.

The CHAIRMAN. Granted by the commission?

Mr. NEWMAN. Yes; as a temporary expedient.

The CHAIRMAN. Did it take you long to get the commission to
make that order?

Mr. NEWMAN. Well, it came rather easily at St. Louis as compared
to what has been happening in other situations.

The CHAIRMAN. The Missouri Commission has been very prompt
in disposing of these war-time questions; has it not?

Mr. NEWMAN. Compared to other commisions.

The CHAIRMAN. Well, what commissions have not, in your ex-
perience?

Mr. NEWMAN. Well, take the Alabama Commission. There they
have done very well — the State commission — but there has been a
conflict as to whether there was not some constitutional power in the
city charter which prohibited the State commission from acting, and
as the result of that in Birmingham we are still operating under a
5-cent fare, but the company is under a receiver.

The CHAIRMAN. The commission showed a disposition to act if it
had the power?

Mr. NEWMAN. Yes.

The CHAIRMAN. Have you not found that generally true with all
commissions?

Mr. NEWMAN. Yes, if you can get a fair public-utility bill through
the State and take the burden off of the local administration for giv-
ing you this increased fare — I say burden because it is so unpopular
with the public — you do not have so much difficulty with the com-
missions where they are constituted with reasonable men on the
board.

The CHAIRMAN. You have had a lot of experience in the railroad
business and also in the banking business. Which, in your judgment,
would be the most satisfactory solution of the street-car problem—
the cost-of-service plan with municipal control and supervision, or

564 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

an indeterminate permit franchise subject to the right of the city to
bujT, with the rates to be fixed by the State commission?

Mr. NEWMAN. Well, I do not see a great deal of difference between
the two statements; they are so closely related that they are about
the same thing. I believe all service-at-cost plans are based upon an
indeterminate franchise. A franchise is worthless, or a scrap of
paper, from my point of view. What we want is the indeterminate
franchise which regulates the rate so that here are your gross re-
ceipts and here are your operating expenses, and there are your net
earnings between, and that remains constant, no matter which way
the business goes. Just keep it that way. NQAV, that indeterminate,
with the city represented on the board of the property to see that
there is an honest administration, and with the city, or if they have
not the power, the public-service commission of the State granting
the increase and ordering the decrease in rates.

The CHAIRMAN. Then so far as you are concerned either plan would
offer a satisfactory solution?

Mr. NEWMAN. Yes.

The CHAIRMAN. Have you discussed this alternative plan with
many people engaged in this line of business?

Mr. NEWMAN. Yes, I have. We have had a conference of the in-
terested parties in all of our properties together with the operators of
these properties, and we have thrashed this whole question out. I
am able to talk freely about it, not because of my wisdom but be-
cause I think I represent here, in what I am saying, the consensus
of opinion of a great number of able men in the business.

The CHAIRMAN. This conference that you speak of is the one held
by the representatives of the plants that you are interested in?

Mr. NEWMAN. Yes.

The CHAIRMAN. Have you discussed this alternative plan with
those men?

Mr. NEWMAN. Well, I may be a little thick, but I can not quite
catch the alternate-plan idea.

The CHAIRMAN. The cost-of-service plan is one, and the other to
have the rates established by a State commission, the franchise based
on an indeterminate permit subject to the right of the municipality
to bny.

Mr. NEWMAN. Let me see if I can not clear that up for you. The
cost-of-service plan is nothing until the rate is fixed. You find out
what your gross receipts are and what your operating expenses are
and that determines the fare.

The CHAIRMAN. That is true.

Mr. NEWMAN. And then the public commission fixes the fare?

The CHAIRMAN. That is true.

Mr. NEWMAN. And they go right together; you can not separate
them ; it is only one plan. It is not an alternative plan ; one is part
of the other.

The CHAIRMAN. Well, not exactly. One operates automatically
after the contract has been made. In the other, you must address
yourself to the judgment of a commission when you make an applica-
tion for an increase or decrease, and the question then depends upon
the facts presented. Now, as between those two plans your people
would be satisfied with either?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 565

Mr. XEWMAN. Yes, sir; preferably a combination of the two, if you
can distinguish them as two plans.

The CHAIRMAX. Well, we may be able to develop that later on, but
I have not seen the combination of the two yet; at least, it has not
been presented to us.

Mr. NEWMAN. You will find this, that the city administration want
to get out of this problem; they do not want to deal with it. They
are going to be only too happy to leave it to the public-service com-
mission. Xow, the alternate plan you talk about is this, that the
public-utility commission may order certain rates to be put in force.
Xow, the cities may take action to make effective the State com-
mission's recommendations.

And while I am on that point I wrant to say something, too, that I
hope your commission will adopt in your report; and it is this: A
tentative increase in fare not based upon some definite policy by
which the companies will come into vested rights is worthless for
banking purposes.

The CHAIRMAN. Why?

Mr. XEWMAN. They must have vested rights; they must have the
question settled for all time. We can not be going through these
controversies and these discussions every two or three years.

The CHAIRMAN. How did the patrons in St. Louis regard this
G-cent fare?

Mr. XEWMAN. There was not a bit of opposition to it — well, just
correct that. There was no concerted action. It was generally well
received.

The CHAIRMAN. Do you think that the public looked upon that
charge with favor because the rate was established by a commission
that examined the facts?

Mr. XEWMAN. Yes.

The CHAIRMAN. Your home is in Xew Orleans?

Mr. XEWMAN. Yes.

The CHAIRMAN. There are some street-car difficulties in that com-
munity, are there not?

Mr. XEWMAN. Yes; terriffic.

The CHAIRMAN. Are you interested in that plan?

Mr. XEWMAX. Well, indirectly; yes. I do not know whether I am
going to be landed with it or not. I have got some senior securities.

The CHAIRMAN. What is the volume of your senior securities?

Mr. XEWMAN. All of the stocks of the Xew Orleans Railway &
Light Co. are pledged to secure an issue of collateral trust notes
which my firm floated.

The CHAIRMAN. What is represented by those notes? What is the
amount?

Mr. XEWMAN. Seven and a half million outstanding now of notes,
but they have all these other properties in addition to the Xew
Orleans property.

The CHAIRMAN. Have they got a fixed franchise fare there?

Mr. XEWMAN. Yes.

The CHAIRMAN'. What do they charge?

Mr. NEWMAN. Five cents. They are now giving them C cents.

The CHAIRMAN. Who gave them G cents?

Mr. NEWMAN. The city council; and there was a terrific time about
it, for this reason: They did not have a State commission, and the

566 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

War Finance Board had a loan made to New Orleans, and Mr. Hard-
ing came to New Orleans and absolutely demanded that the city
administration give a 6-cent fare. They gave a C-cent fare, but
there was real opposition to it; and the opposition came in this
way. Remember, I take the stand that there is no opposition to
an increased fare properly granted, because there is a very small
per cent of the population so ignorant as not to know that they have
got to pay the increased cost of these properties. But they do not
want to pay it until they know that it is being paid for service and
not being paid to make good some watered securities

The CHAIRMAN. Why did the people object to the 6-cent fare in
New Orleans?

Mr. NEWMAN. Because it was granted very promptly without the
proper explanation as to why it was granted; and they took the
stand that Mr. Harding had no right to come down there and de-
mand that the increased charge be put on the people without the
question being thoroughly discussed.

The CHAIRMAN. Was not the question discussed before the council ?

Mr. NEWMAN. Yes.

The CHAIRMAN. And did not the utility present figures there to
show what its operating conditions were?

Mr. NEWMAN. Yes.

The CHAIRMAN. Did not the people have the right to examine
those figures?

Mr. NEWMAN. Yes.

The CHAIRMAN. And cross-examine witnesses?

Mr. NEWMAN. Yes ; but they did not do it.

The CHAIRMAN. Were not the representatives of the public there?

Mr. NEWMAN. Yes; they were there and brought suit against it;
the attorneys for the public were there. The street-railroad men
were there themselves, and the motormen and conductors employed
an attorney to represent them. And, as I stated in my testimony
earlier, one of the most trusted conductors on the road told me they
were opposing it because they did not believe the street-railroad
company needed it. Of course, it is notorious that the New Orleans
property is grossly overcapitalized.

The CHAIRMAN. How much is it overcapitalized?

Mr. NEWMAN. In the light of the present information, it is im-
possible to tell what the value of the property is.

The CHAIRMAN. That may be so, but what is the generally-as-
sumed overcapitalization?

Mr. NEWMAN. Many millions of dollars.

The CHAIRMAN. And if the people there could have felt that this
6-cent fare would result in paying no more than the operating
charges and a fair return on the honest value of the plant, do you
suppose they would have objected?

Mr. NEWMAN. I think not; but the burden is upon the street-car
people to let the public know it, and the public does not believe the
street-railroad company; consequently your commission can do a
wonderful service for us by telling them the facts.

The CHAIRMAN. Of course, you would not expect our commission
to go into detail and develop statistical facts with reference to all
these companies in the country?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 567

Mr. NEWMAN. No; but yon could state generalities.

The CHAIRMAN. If we did, I do not know when we would reach
New Orleans.

Mr. NEWMAN. You certainly would.

The CHAIRMAN. Now, you spoke of renewals and replacements—
and I think it was a very interesting point. Have you ever made
an investigation as to the life of these bridges, rails, and culverts,
and things of that kind on the roads which you operate?

Mr. NEWMAN. I never mad« any particular investigation. I am so
thoroughly familiar with it that I carry it in my head.

The CHAIRMAN. Don't you believe since it is a very important
item that it would be better for yourselves, as well as the public,
having in mind this question of psychology, to have the question of
depreciation determined by public authorities?

Mr. NEWMAN. Yes; it must be developed in each locality, because
each one has its peculiarities and is different from the other.

The CHAIRMAN. Yes; it is always a question of study.

Mr. NEWMAN. Yes; but the principle remains the same.

The CHAIRMAN. And do you believe also that the public authori-
ties should have control over the expenditure of the money that is
set aside for that fund?

Mr. NEWMAN. Yes.

The CHAIRMAN. Giving the right of the utility to borrow from
that fund if it so chooses?

Mr. NEWMAN. Yes.

The CHAIRMAN. Don't vou believe that the public would have
very much more respect for the utilities if it had a larger share
in fixing this depreciation fund and in controlling the expenditures
and especially the contracts for material and supplies?

Mr. NEWMAN. Yes. We have got to take them into our confidence
and let them sit in with us. We have got to clear what is in the
mind — guilt.

Commissioner SWEET. Were you here when Mr. Culkins, of Cin-
cinnati, was on the stand?

Mr. NEWMAN. No; I only came to-day.

Commissioner SWEET, rie is the director representing the city
interests in dealing with the street-railroad company. Do you know
what sort of settlement or arrangement was made between the city
of Cincinnati and the street-railway company?

Mr. NEWMAN. Not in any of its details, only in a very general
way.

Commissioner SWEET. They have adopted what they call a service-
at-cost plan. But with certain details that perhaps would not be
applicable in every city. I understood you to say this morning
that in the city of St. Louis provision had* been made right straight
along, year after year, for what you call the renewal and replace-
ment fund.

Mr. NEWMAN. Yes.

Commissioner SWEET. And yet notwithstanding that, the company
got into trouble.

Mr. NEWMAN. Yes.

Commissioner SWEET. So that you would not rely upon that as
doing anything except to correct what you deem to have been an

568 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

evil in the past by way of what you might call self-deception on the
part of bankers and investors through the banks.

Mr. NEWMAX. That is it exactly.

Commissioner SWEET. They fooled themselves in the belief that
the profits were greater than they actually were ?

Mr. NEWMAX. Yes.

Commissioner SWEET. Because that very large item was omitted,
and you think it should always be included.

Mr. NEWMAX. In the future there will be no other way of handling
it except to take it out of operating expenses, x

Commisioner SWEET. And always will be, probably. Now you ad-
mitted this morning that in the old days your chief concern was to
get a long-term franchise and to have specified in that franchise a
5-cent fare.

Mr. NEWMAX. Yes.

Commissioner SWEET. And you thought if you got that you had a
valuable piece of property, based of course upon the history of the
industry up to that point and not based upon conditions such as
exist now. At the present time you would not think of taking such
a franchise?

Mr. NEWMAX. I think all of our 5-cent franchises are worthless.

Commissioner SWEET. Absolutely worthless?

Mr. NEWMAX. Yes.

Commissioner SW?EET. That is, because the cost of constructing the
street railroads and operating them has so tremendously increased?

Mr. NEWMAX. Yes.

Commissioner SWEET. That is the chief reason; so that the 5-cent
fare is not adequate and is not in proportion now and does not afford
a revenue sufficient to meet the proper operating expenses and pay a
fair interest on the investment. On the same basis as you figured in
the old days that a 5-cent fare was ample, what ought the fare in your
judgment to be now to produce a similar result, taking into account
the increased cost of material and labor?

Mr. NEWMAX. Well, I do not ever hope for a similar result such
as we fancied we had at the time

Commissioner SWEET. Well, you told us there was quite a differ-
ence between what you fancied and the real fact.

Mr. NEWMAN. Yes.

Commisioner SWEET. But could you answer my question without
any regard to what you fancied and tell us what you think to be the
fare now that would be equivalent under present conditions to the
5-cent fare in the old days ?

Mr. NEWMAX. It is different in every locality. I would like to
answer your question directly, but I do not think there are enough
brains in the street-railroad business to-day to answer that question.
Only time will tell when wre know whether these high costs are going
to continue and what the scale of wages is going to be. Only here
recently in Boston they were awarded 62 cents an hour pay to the
motormen and conductors. In New Orleans AVC are paying 42 cents.
We thought that was tremendously high. The biggest item of cost
of course is this wage scale, and it is fluctuating so fast now that it is
impossible for anyone to say they ought to have a 6-cent fare or
a 10-cent fare. But I say, let the commission say how much return
you must have and let them fix the fare accordingly and change it

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 569

from year to year as we know the conditions with which we have to
deal.

Mr. WARREN. That Boston rate is only an example of a great many
pending requests, is it not, Mr. Xewman? In Chicago, for instance,
Jo you know what the request for wages is there ?

Mr. XEWMAN. Well, I understood

Mr. WARREN. Eighty cents, or something like that ?

Mr. XEWMAN. Yes ; it is away up in the eighties.

Commissioner SWEET. Have you worked out a definite plan in all
its details on what we call the service-at-cost principle ?

Mr. XEWMAX. Personally, I have not, but there is a Mr. Xash con-
nected with the Stone & Webster organization, and I think he may
be present here

Mr. WARREN. He is the witness whose testimony has been inter-
rupted.

Mr. XEWMAN. And I think he has done the most comprehensive
piece of work we have had done in the street-railroad business.

Commissioner SWEET. You have not worked that out yourself?

Mr. XEWMAN. Xo; I have not. I have been content to take his
statement of the case. I have just the one objective in mind, and
all our people have it, and that is to get a fair return on the invest-
ment irrespective of what the capitalization may be on these prop-
erties.

Commissioner SWEET. The very thing that made you }rears ago
feel that you were getting a bonanza when you got a long franchise
at a 5-cent fixed rate of fare causes the public now, looking back at
those days, to realize that to some extent the public was buncoed "by
granting those franchises; does it not?

Mr. XEWMAN. Yes.

Commissioner SWEET. -And it is true, too, is it not, or some part
of it?

Mr. XEWMAN. If that renewal and replacement account had been
taken care of I say, Xo; it is not true. The money was made in
handling the securities but not in operating the property.

Commissioner GADSDEN. Do you think the car rider ever paid
more than he ought?

Mr. XEWMAN. Xo; I do not.

Commissioner GADSDEN. That is the point.

Commissioner SWEET. You do not think he ever did?

Mr. XEWMAN. Xo.

Commissioner SWEET. You do not think 5 cents was ever too high
a fare?

Mr. XEWMAN. Xo. If we had had the vision to see where the
science has developed as it is now — where the cream is no longer
on the top but has been taken off by automobiles and other condi-
tions— and had started to put aside then and there replacement and
renewal funds to take care of the dilapidation of the property, there
never was a time in the business under those conditions that 5 cents
was an excessive fare.

Commissioner SWEET. Are you speaking now of the industry gen-
erally, or

Mr. XEWMAX. Generally.

Commissioner SWEET. Will you admit that there might have been
particular localities in which the 5-cent faro was too large?

1G00430— 20 37

570 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. NEWMAN. Well, I could not deny it.

Commissioner SWEET. You could not deny it?

Mr. NEWMAN. No.

Commissioner SWEET. So that the local conditions which you have
previously mentioned as existing to-day have always existed to a
certain extent; have they not?

Mr. NEWMAN. Yes, sir. I might say this to you — that I started
10 years ago to write an article on the contingency overhanging the
street-railroad industry —

Commissioner SWEET. Ten years ago?

Mr. NEWMAN. Yes. I never finished, but I sold our property
when I got the opportunity.

Commissioner GADSDEN. You were fortunate to find a purchaser,
even 10 years ago; were you not?

Mr. NEWMAN. I thought so.

Commissioner GADSDEN. Others would have done the same thing
if they had found a purchaser ?

Mr. NEWMAN. No, I think not. There were others who realized
that the contingencies were there but we kept thinking that this
phenomenal growth which we had been enjoying due to the develop-
ment of the science and service would continue.

Commissioner SWEET. Have you had any experience with what
they call the safety car ?

Mr. NEWMAN. The safety car?

Commissioner SWEET. Yes.

Mr. NEWMAN. I do not knowr it by that name.

Commissioner SW'EET. The one-man car.

Mr. NEWMAN. The one-man car?

Commissioner SWEET. The one-man car.

Mr. NEWMAN. I have had one of our men investigate it. It will
be a very great relief to short lines in small cities or short hauls in
big cities. It will, in a measure do away with the competition of the
jitneys. We have several situations where we ought to use the one-
man car, but we have not got any money to buy them with and can
not get them.

Commissioner SWEET. Are you speaking of New Orleans now?

Mr. NEWMAN. I am speaking of all of our properties — and I think
ours are in no different situation than the generality of properties.

Commissioner SWEET. So you think there is a permanent place for
that kind of car?

Mr. NEWTMAN. Yes ; but it will give you relief of such a nature that
it will be important in influencing the conclusions that I think will
be brought out by this testimony here before your commission.

Commissioner SWEET. That is, you do not think that the amount
of relief that it would give is sufficient to cut very much figure ?

Mr. NEWMAN. No ; but if I should be mistaken in that, it will be re-
flected in the service-at-cost-plus-interest-on-investment plan by a
reduction in the fares of roads if they are put in shape to finance
themselves and buy these cars; and that is one point I would like
to emphasize again, that whatever is done by the cities it should be
withheld from the companies until they have put themselves in
financial shape to enjoy the new grant from the city to finance the
requirements of the property economically instead of at 12 per cent,
as Mr. Bertron testified was paid in one instance.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 571

Commissioner SWEET. Your idea of the way this whole subject
should be handled in the future, if I understand you right, is in a
spirit of cooperation between the city and the company ?

Mr. NEWMAN. And the public.

Commissioner SWEET. Well, when I say the city, I mean the public.

Mr. XEWMAX. Yes.

Commissioner SWEET. That would be a decided change of attitude
from the past ; would it not ?

Mr. XEWMAX. It would not be with the administration such as
we have had in our companies.

Commissioner SWEET. Has there not been an antagonism of interest
to a certain extent between the public represented by the city gov-
ernments and the companies?

Mr. XEWMAX. Yes, in a good many instances; but we were fortu-
liate in never having had but one difficulty with the city government.

Commissioner SWEET. Well, whether you had actual difficulty or
not, has there not been antagonism — that is, a conflict of interest in
respect, we will say, to taxation and paving and various things of
that kind?

Mr. NEWMAX. That is our steady diet; that is our daily work.

Commissioner SWEET. I know; but they have not pulled together
in those things, have they? Has not the municipality said, "We
insist now that you shall pave between the tracks and maybe for a
foot or two outside," and imposed a burden upon the companies
which was in one sense to the advantage of the municipality and
against the interest of the company. Has not that been the case?

Mr. NEWMAX. Yes; there has been a lot of that controversy, but
I should not say

Commissioner SAVEET. Well, whether they have actually quarreled
over it or not, I think it has generally been accepted by the com-
panies without any quarrel; has it not?

Mr. XEWMAX. Yes; the paving part of it was a franchise obliga-
tion in all of our properties.

Commissioner SWEET. In most cases it has been?

Mr. XEWMAX. Yes.

Commissioner SWEET. But it imposed a very heavy burden on the
street railroads of the country, did it not?

Mr. XEWMAX. Tremendous.

Commissioner SWEET. And what is your view with regard to the
future of those burdens? Should they be removed under the serv-
ice-at-cost plan? Do you think it would be wise and the proper
thing from every standpoint for the general public to relinquish
voluntarily whatever advantage it might have obtained by reason
of such paving and taxation?

Mr. XEWMAX. I would answer that in this way: The idea of
service at cost based upon a valuation is such a tremendous question
in itself that when you attempt to complicate that with these other
questions you will be getting nothing accomplished. Xow, I pre-
fer not to bring up the question of taxes and of paving and to let
that go along as part of the future obligations of the company,
because it makes no difference whether you do the paving or tho
citv does the paving provided you are getting a return on your in-
vestment and provided the public will pay the increased fare to
justify that investment. That is almost mathematics; is it not?

572 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Yes. The result, however, would be more
certain, would it not, and more satisfactory to investors if the bur-
dens that I have been speaking of were removed so that the total
amount necessary to earn would be less. That would mean that
the fares would be somewhat less ; would it not ?

Mr. NEWMAX. Yes.

Commissioner SWEET. And with a lowTer fare you are more cer-
tain to hold up your patronage, and the whole thing would move
more smoothly ; would it not ?

Mr. NEWMAN. Yes; but I am afraid if ,we tried to be too much
hog we might not get anything.

Commissioner SWEET. You do not think there would be any hog
about demanding or trying to get absolute justice; do you?

Mr. NEWMAN. Not at all. But when you remove the paving and
taxes you are throwing a burden back on the people that has been
on the street railroads and then asking them to pay increased fares,
and I think you are complicating the question so you can not pre-
sent it in a concise and clear manner and can not get relief. I am
afraid to tackle too many phases of this problem. It is unfair in the
light of to-day's operations to pay for paving because we all know
the city paves every street with rails on before any others are paved ;
and in New Orleans we pay more taxes than the steam rairoads to-
gether, and the same is true in Birmingham. Now, if you cut off
those big taxes you are transferring your troubles back to the ad-
ministration. In the city of New Orleans they can not do without
these street-railroad taxes. In the city of Birmingham they can
not do without these street-railroad taxes. And that is where this
thing is going to come back home to the city; they are going to
choke these companies to the point of receivership and poor service,
and then the companies are in shape to go into court and contest
the taxable value and get a reduction on this franchise tax; and
that is going to be a boomerang to the cities who can not afford
to cut off this tax. I do not believe in complicating the question
with this tax problem and the paving problem and starting more
antagonism to the street railroads, because I believe we can get a
fare which will return us a fair rate on our investment and at the
same time take care of the paving and the taxes without having to
go back to the city and complicate the problem further.

I really believe that if you could put that problem— I mean the
problem of the railroads — to all of the people we could get a 10-cent
fare if it was necessary, because we gave the service to justify the
10 cents. The people are not set against an increased fare ; they are
set against the street-railroad people who had a bonanza once, as
they thought, and who now in their trouble are asking you to take
up their burdens, and they want to know in the future that this
pyramiding of securities will stop and that the securities Avill be
sold on a fair interest rate. And that is why I say to you, reference
should be made to the financial plan and to get a fair financial plan
you must have vested right and permanent right and a process which
forever chokes off all those errors in the past. Gives us only a fixed
return and then let the public pay for what they want.

Commissioner SWEET. I spoke of the paving burden and taxation
together but really they are on quite a different basis, are they not?

Mr. NEWMAN. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 573

Commissioner Sweet. But if I understand your position it is that
even though absolute justice might require that the paving burden
should be removed from the companies, it would not be good policy
for them to urge that at the present time, because it would create an-
tagonism, and it is more for their interest and the general good that
it should not be created ; is that right ?

Mr. NEWMAN. Yes.

Commissioner MEEKER. It is not quite clear to me just how you
would obtain a reasonable return. Do you mean a reasonable return
upon moneys invested or a reasonable return upon a fair valuation?

Mr. NEWMAN. I mean upon a fair replacement value of the prop-
erty, including the cost of the development of that property.

Commissioner MEEKER. In the properties under your control have
you followed that scheme or have you depended upon physical valua-
tion of the properties?

Mr. NEWMAN. You can not take the naked physical value. There
is lots that does not appear in that that goes to make up part of the
value. It would appear in the cost to any city which would attempt
(o build a new street-railroad system, if it was all thrown out. You
can not find certain elements of value that were there to start with
and are not there to-daj', but they have been part of the cost of the
development of the system.

For instance, you put in a generator and that becomes obsolete.
The custom was, or should have been, not to capitalize the amount of
power which you threw out for the increased unit but to capitalize
the increased unit. But in many cases this unit was capitalized and
tht old one thrown away, because its efficiency was there and the
saving to the company was supposed to have wiped out the original
cost. But we have kept on doing that over and over again, and those
original costs never were repaid to the company.

Mr. WAKREN. If I may interrupt for a moment. Had the base of
any plan such as }'ou have been suggesting and at its very foundation
you would expect a proper and fair valuation of the property devoted
to use, would you not?

Mr. NEWMAN. Yes, sir; certainly. The paving taken up and re-
placed— who knows about the old paving? You have forgotten all
about it, but yet the city demanded that you do it. They had one
type of paving and they changed it. You would have to go back to
the old inhabitants to remember that, yet it was taken up and never
paid back to you and it is part of the original capitalization.

Commissioner MEEKER. I do not wish to press that further, but it
would be a sort of cumulative process then; you would necessarily
have to include as a part of your investment upon which you are en-
titled to a reasonable return some properties that have been discarded
bu. have not been written off the books as yet?

Mr. NEWMAN. Yes.

Commissioner MEEKER. The thing that I am really interested in is
the outstanding capital, whether bonds or stock. Are you much con-
cerned with the control of the issuance of such securities? What I
mean is this: Does it make much difference whether such securities
be controlled by a commission as long as you are limited to a fair
return upon investment?

Mr. NEWMAN. That is correct, but you must put — let me explain
this. It does not make any difference under this plan we are dis-

574 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

cussing what the securities are out against the property, whether
bonds or stocks. I say ignore it absolutely and let the security
holders fight that out among themselves. The authorities have
nothing to do with that capitalization and ought to ignore it entirely,
except for one reason. The roads must be financed in the future; and
you must have a sound financial plan by which you are going to
float your securities at the lowest possible rate in the future. Ex-
cept for that one reason the city authorities are not concerned as to
what amount of securities is outstanding, whether bonds or stocks.

Commissioner MEEKER. You think there should be some public
control of the issuance of securities so as to protect the credit of the
street-railway company?

Mr. NEWMAN. Absolutely.

Commissioner MEEKER. So it can get the capital it needs at the
lowest rate of interest?

Mr. NEWMAN. 'Yes; and I go further than that. I say that before
the cities make these new concessions — this new franchise arrange-
ment with the property owners — they should demand that they fix
up their capitalization in such shape that they will not only have
securities that can be sold to take care of the properties in the future,
but that wTiHtake care of them in a way that will do it at the lowest
rate of interest. You have got to reestablish the credit for these
roads and, in my judgment, you can not do it without a complete
financial reconstruction; and the cities are interested that that re-
construction takes place.

The CHAIRMAN. Which would require reorganization of the com-
pany ?

Mr. NEWMAN. Yes.

The CHAIRMAN. Throwing out all the old stock and reissuing
new?

Mr. NEWMAN. Yes.

Commissioner MEEKER. One point I did not hear you refer to;
that is, the zone system.

Mr. NEWMAN. No; I did not refer to it.

Commissioner MEEKER. Do you think that may perhaps be a means
of helping to solve the difficulties of the street railways?

Mr. NEWMAN. It will be a contributing help but it will not be a
substantial remedy.

Commissioner MEEKER. It is in the nature of the one-man car; it
may help some, and every little helps.

Mr. NEWMAN. Yes.

Commissioner MEEKER. But the one-man car and the zone system
seems to be incompatible so far as I can make out.

Mr. NEWMAN. No; they are a different proposition entirely. The
one-man car has no place in street-railway operation except in short
hauls.

Mr. WARREN. Where the zone system would not be operative, the
haul would not be long enough to make into zones.

Mr. NEWMAN. That is correct. The zone system goes out into

Commissioner MEEKER. The only way I can think is to think con-
cretely. Take the city of Washington: If we establish a zone sys-
tem in this city I do not see how we could, use the one-man car, be-
cause as I see it, it would be very uneconomical to have these one-
man cars operate only within these limited zones and then turn

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 575

back at the corner. We would have to run them through as we do
now from the beginning to the end of the run, as I see it.

Mr. NEWMAN. You would have two types of car — the present car
for long-distance hauls where the zone system would prevail, and on
the short haul, especially in smaller cities, you would use the one-
man car.

Commissioner MEEKER. And the one-man cars would operate only
within a single zone?

Mr. NEWMAN. Yes.

Commissioner MEEKER. Has that been tried, do you know, in that
way?

Mr. NEWMAN. I think the city of Houston has had some experience
in that direction.

Mr. WARREN. We expect to introduce a witness on the safety car
and its operation.

Commissioner MEEKER. Very well. That is all.

Commissioner GADSDEN. Mr. Newman, referring to what you said
about the public authorities having no concern with the capitaliza-
tions of these companies, do you not think that consideration would
probably have to be giv^n by public authorities to the innocent hold-
ers of these securities that the bankers and street-railroad people to
whom you referred issued some 20 years ago? What is going to
become of the innocent third party, we will say, who is holding some
millions of these securities now? Is the public conscience going to
stand for just depriving these people of their property? They did
not do any harm, did they ? They bought them from bankers, we
will say, in the ordinary course of business. Now, are you going to
take the position before this commission that those people's prop-
erty— widows, orphans, trust companies, and savings banks — that
those securities are going to be sacrificed because 20 years ago a lot of
bankers issued watered stock and inflated securities?

Mr. NEWMAN. Now, I am going to say yes, but with a tremendous
qualification.

Commissioner GADSDEN. I want the qualification; that is what I
am after.

Mr. NEWMAN. Yes; I am going to give you that.

Commissioner GADSDEN. Before you go ahead, here is the thought
in my mind. I want you to get my full thought. If that confisca-
tion were carried out, would not that of itself still further destroy
credit on the part of investors in any security which the public had
control of?

Mr. NEWMAN. All right. I want you to get what I am saying and
get it very carefully. I have taken the position in all of our reor-
ganizations that the bondholder who wants to exercise his full
measure will have to work without me. I will fight him to a finish;
that the securities in the first to the tenth position are all part of the
system, and when the reorganization comes I want all of them to be
dealt with fairly so that no one security holder can get advantage of
this new city contract to the detriment of the other. I do not mind
confessing to you that part of the scheme that I have in my mind is
to withhold this franchise right from the bankers or from any class
of securities and make them adopt a reorganization scheme. The
basis of that is sound, because it must take care of future financing
and it makes them deal with all classes of securities and agree upon

576 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

a reorganization. Now, in some instances — take the New Orleans
case where the common stock of $20,000,000 is absolutely worthless —
there is no chance for that stock to have any intrinsic value whatever.

The CHAIRMAN. Is that stock all water?

Mr. NEWMAN. Yes. It is going to work a great hardship on some
people, but is —

Commissioner GADSDEN. Then it is all held in New Orleans, is
it not?

Mr. NEWMAN. No; there is a holding company, but there is some
minority interest outstanding. I am very sorry for those people;
but you can not bring that into this problem..; But there is another
way of throwing equity to those common-stock holders. Take the
case of St. Louis, Detroit, and New Orleans: St. Louis has a 4 per
cent bond which matures in 1934; New Orleans has a 4£ per cent
bond maturing in 1934, and Detroit has a 4^ per cent bond maturing
in 1934 or 1935 — all about the same period. The St. Louis bond is
selling at about 55, the New Orleans bond is selling at about G7, and
the Detroit bond is selling at 76. Now, if you precipitate these
reorganizations these fellows who hold those bonds, who have made
a loan for 15 years, are going to come in and say, " Give me my
money now."

A dollar at 4 per cent paj-able in 15 years is not worth par to-day.
So, when von get this valuation of the property — take St. Louis with
$12.000,000 underlying and $30,000,000 fours, with $30,000,000 of
bonds. That $30,000,000 of bonds have got to be converted, say, into
a G per cent bond which would give it ultimately 66§ per cent value;
and you cut $10,000,000 out of that and that $10,000.000 capitaliza-
tion moves down. And the fair bankers who are in this reorganiza-
tion are now going to demand their pound of flesh on these strangle-
hold securities at the top but are going to pass the equity all the
way down, and if they attempt to do otherwise they are the ones you
want to complain about; they are the ones who will be to blame. Is
that clear?

Commissioner GADSDEN. I am looking at it now and the commis-
sion is going to look at it from the standpoint of the public and not
from the railroad company or the holders of the first securities. I
am asking you from the standpoint of the general good of this great
public, have we not got to take into consideration a situation where
there are millions of securities in the hands of innocent third parties?
The same is true of the steam railroads, is it not ?

Mr. NEWMAN. Yes.

Commissioner GADSDEN. Do you think this country can face the
catastrophe of wiping that stock out altogether ? Do you think your
banking S3rstem would stand that?

Mr. NEWMAN. Well, you are putting a question to me that is not
going to be a real one. I am quite an optimist on the street-railroad
situation, because I believe in the fairness of the American public
and I believe they are going to come around and straighten it up
for us when the time comes that we get on a right basis.

Commissioner GADSDEN. But they have to have your help and that
of others to do that.

Mr. NEWMAN. But the bonds that are in the trust companies and
insurance companies, etc., will be taken care of. It is the only
watered stocks in most instances that will be affected, and they will

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 577

get some by virtue of their voting power and control; and the fair
banker is going to pass a little of the plum all the way down ; there
are going to be several bites of the plum.

Commissioner GADSDEN. That is true ; but is it not true that a -lot
of that admittedly watered stock has gone into the hands of innocent
people ?

Mr. NEWMAN. Yes.

Commissioner GADSDEN. What are we going to do about it?

Mr. NEWMAN. Well, it is very unfortunate, but I think some of
them will have to take their loss. I hate" to say this, but it is neces-
sarily true.

Commissioner SWEET. Did you not say that in getting the valua-
tion of these properties you thought that the question as to what it
would cost now to replace them ought to be taken into account?

Mr. NEWMAN. Yes.

Commissioner SWEET. To replace rails and cars and electrical
equipment at present prices would mean a tremendous addition,
would it not, or produce a tremendous excess over the original cost?

Mr. NEWMAN. Yes ; but they will never stand for it ; they are not
willing to look at the cost when it means something for us, but they
are willing to look at the cost when it means something against us.
That is the attitude of the city authority.

Mr. WARKEN. The valuation has to be made on the best fair basis
it can, has it not, Mr. Newman, by agreement between the parties?

Mr. NEWMAN. Yes; but there are parties in line to-day who will
determine that amount — there are men who are following that as a
business who will do it.

Commissioner SWEET. My idea was this, that in fixing the valua-
tion of these companies the cost of replacement at present high
prices ought to be a factor: that possibly enough would be derived
to more than take care of the bonds and what you might call the
senior securities, and something might be left for the common stock.

Mr. NEWMAN. May I explain this to you on this problem of value?
No system has been devised for getting at that value and there is
never going to be any system either. There are no engineers in the
country competent enough, and no group of engineers in this coun-
try competent enough, to know the absolute cost of that system or
it.s past history, which is not available. It has to be a compromise
situation, as every situation I have seen — it is just a backward and
forward trade until you get a happy compromise or an unhappy
compromise for the street railroads usually.

Commissioner SWEET. Well, it has to be on a satisfactory basis to
the city anyway. In other words, they have to feel that it is sub-
stantially correct and fair.

Mr. NEWMAN. Yes.

Commissioner SWEET. Or else they will not agree to it.

Mr. NEWMAN. Yes.

The CHAIRMAN. Perhaps we can get your idea of the reorganiza-
tion of the company and the actual effect which it will have upon the
stockholders if I can present an illustration to you. T know figures
aro a little misleading, but I am quite sure you will grasp this.

Let us assume that you own a property which has a capitalization
of $10,000,000; $3,000',000 is in bonds, $4,000.000 in preferred stock,

578 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

and $3,000,000 common stock. This common stock is water. A
phj'sical valuation is made of the property and it is determined by
competent tribunals that that property is worth $6,000,000 and thut
value is established by the courts. Now, your plan is to perfect a
reorganization and to rewrite the securities down to the value of the
property. Tell me in that scheme of reorganization how the common
stockholder is going to be given any consideration.

Mr. NEWMAN. In the first place, these bonds may be 2 per cent
bonds due in 50 years. Now, what is the value of a 2 per cent bond
due in 50 years ? Certainly not par ; so those $3,000,000 may be cut
to 50 cents on the dollar. The preferred stock may have had a 5-cent
franchise and be earning nothing on it, but with the new rate from
the city it may be able to earn something. But the common-stock
holders say, " No; we will not join in this unless you will share with
us " — and they usually do share, the common-stock holders, where
fair bankers have got the situation in hand. Now there is another
place

The CHAIRMAN. Well, then, the only way by which the common-
stock holders can share in that reorganization is through their voting
power ?

Mr. NEWMAN. No ; there is another way. That is one way.

The CHAIRMAN. What is it?

Mr. NEWMAN. I had hoped to avoid this discussion. The rate of
return on that property — Now let us say we would get 10 per cent
return on the property, which to my mind, is not excessive, knowing
the business and the miseries of it as I do. I would not want to live
through it another 24 years for 10 per cent. The bonds may be 5
per cent bonds, the preferred stock may be a 5 per cent preferred
stock — and many of them are.

Commissioner MEEKER. This is under the reorganization?

Mr. NEWMAN. No; the old securities. Now, it only absorbs part
of that 10 per cent return on your investment. You pay that 5 and
5 and you might capitalize the common stock for one dollar and issue
certificates of participation in that dollar and yet have a substantial
amount to divide without having the capitalizaion. You might have
no par value a share. Do you see that ?

The CHAIRMAN. I do not know what I see. I am asking you
questions.

Mr. NEWMAN. Yes. Well, I have answered it, or I think I have,
and I will repeat it. Take your proposition of $3,000,000 bonds — I
will make it concrete for you — and $4,000,000 preferred and $3,-
000,000 common. I will make this calculation in a hurry for you.
Now, you have $6,000,000 value, and say that ought to get 10 per cent
for the risk and worry of the business. That gives us $600,000 a
year. We have to cut our capitalization to $6,000,000. These $3,-
000,000 bonds are four's and are entitled to $2,000,000 of the new
six's. The preferred stock of $4,000,000 will be entitled to $3,000,000
of new 7 per cent preferred stock. That is, 120,000 and 210,000 is
330,000 from 600,000 and we have an equity of 270,000 to pay the
1,000,000 common stock which I can issue within my capitalization
or 27 per cent.

The CHAIRMAN. Of course that is a hopeful future. I think that
is an exceedingly valuable contribution to the record. I may want
to go into the public-utility business.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 579

Mr. WARREN. You first have to catch your 10 per cent.

Mr. NEWMAN. If we get the 10 per cent you had better go into it,
at the present value of the security.

Commissioner MEEKER. Is there any reason why the holders of
common stock in street-railroad companies should be treated dif-
ferently from the holders of common stock in any other risky enter-
prise?

Mr. NEWMAN. I think so ; yes.

Commissioner MEEKER. Why?

Mr. NEWMAN. They rendered a public service; they took a risk
that was an extremely hazardous one. They have built extensions
of street-railroad tracks into territory that was vast fields, and yet
these fields to-day are city lots. Now, the city has had an enormous
valuation placed upon those cit}r lots, and it has come back into the
coffers of the treasury as city taxes and relieves the burden of all
the people ; and there are many of those street railroads to-day who
have built those extensions which are not paying interest on the
investment.

Commissioner MEEKER. But these widows and orphans who have
been mentioned to us — these innocent investors — to what extent did
they contribute to building street-railway lines into these extensions?

Mr. NEWMAN. By putting up their money to make such invest-
ments as I have mentioned possible.

Commissioner MEEKER. I do not wish to push that any further,
only it seems to me that a person investing in a risky enterprise,
his blood is on his own head, no matter whether that is a street-
railway company or a real-estate development of a steam railroad
or any other enterprise. I see no reason why we should treat the
security holders in this enterprise differently from what they would
be treated if they had invested it in some other risky enterprise.

Commissioner GADSDEN. Why not leave them to regulation of
their rates and then you would be treating them as other people ?

Commissioner MEEKER. Of course, they were well aware of the
regulation of the public rates when they made the investment.

Mr. WARREN. But the regulation followed the investment in most
cases. The investment was, made before regulation was installed,
but it seems to me if you had proper

The CHAIRMAN. How is that so? Do you not have to get a
franchise before you made the investment?

Mr. WARREN. Yes; but in many cases the rates were not fixed
in the older franchises. In Massachusetts rates were almost never
fixed.

Commissioner MEEKER. Do you think that any rate that the street-
railway company fixed was the established rate?

Mr. WARREN. Yes. The compulsory regulation followed later.
It was a development of the public-utility business from the State,
the government side.

Commissioner MEEKER. I think it would be very interesting, Mr.
Warren, if you could give us some documentary evidence on that
point.

Mr. WARREN. I should be very glad to.

Commissioner MEKKER. This is rather a new phase to me, for I
had supposed, as the chairman has indicated, that the franchises,
at least for a very long period of years, had fixed the faro.

580 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. In some States they have for a long time, but in
some States they were not fixed and the regulation came with the
supervisory commission.

Commissioner MEEKER. I wanted to make it clear that I regard
this as a minor point. The only thing is, Mr. Gadsden has brought
the matter up and it is not yet evident to me that the security
holders — those who have been innocent enough — to put it that way,,
to invest in street-railway securities, have a right to get 100 cents
on every dollar they invested in the street-railway company any
more than a man who invests in a shoe factory or a real-estate de-
velopment is entitled to get 100 cents return. .

Mr. WARREN. Of course, if they are entitled to 100 cents on the
dollar there is no reason for having any valuation, because the out-
standing securities would be the measure of the amount on which
the return was to be made. If the return is to be made upon the valu-
ation, then the security holders can adjust their respective equities
somewhat in the line suggested by Mr. Newman, or in various other
lines which have been suggested.

Commissioner MEEKER. Yes. I think Mr. Newman has given us
a very illuminating discussion of the possibilities of reorganization.

Mr. WARREN. We, probably all of us, have had more or less sad
personal experiences in reorganizations and we know they can be
worked out in very many ways, according to the actual or assumed
equities of the various security holders in the corporation.

I have two other witnesses whom I very much want to ^;et on be-
fore 5 o'clock, because neither of them can be here this evening. One
is Mr. Ferguson, president of the chamber of commerce, and the
other is Mr. Stanley, president of the Cleveland Street Railway ; and
Mr. Stanley has to leave at 5 o'clock and Mr. Ferguson wants to
leave earlier, so I would ask the commission to have in mind that if
Mr. Ferguson's examination takes too long Mr. Stanley will have to
go without testifying.

Mr. NEWMAN. You do not desire anything further from me ?

The CHAIRMAN. No.

(AVitness excused.)

The CHAIRMAN. You may proceed, Mr. Warren.

STATEMENT OF ME. HOMER I. FERGUSON.

Mr. WARREN. Your full name, Mr. Ferguson.

Mr. FERGUSON. Homer L. Ferguson.

Mr. WARREN. And you are the president of the United States
Chamber of Commerce, I believe?

Mr. FERGUSON. Yes, sir.

Mr. WARREN. And also of the Newport News

Mr. FERGUSON. Shipbuilding & Dry Dock Co.

Mr. WARREN. Yes, sir.

The CHAIRMAN. What was that last statement?

Mr. FERGUSON. The Newport News Shipbuilding & Dry Dock Co.

Mr. WARREN. As President of the United States Chamber of Com-
merce, have you had occasion to hold hearings or conduct an investi-
gation on this same subject, by the chamber?

Mr. FERGUSON. Yes, sir. The committee was appointed before I
was elected president, by Mr. Harry Wheeler, of Chicago. At the

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 581

St. Louis convention, it was decided that the conditions of the street
railways had become so critical that the chamber of commerce
should appoint a special committee to investigate the subject as com-
pletely as possible, with a view of submitting to a referendum their
decisions, with the arguments pro and con, so as to get an expression
of the business organizations of the country, which constitute the
chamber.

Mr. WARREN. And this convention was what — the convention of
what ?

Mr. FERGUSON. It was a convention of the Chamber of Commerce
of the United States, attended, I should say, by about 3,000 dele-
gates from all over the country, and it wyas decided there that this
committee should be appointed. The committee was appointed by
Mr. Wheeler, and has been in session here in Washington on a num-
ber of occasions. I have attended one or two of the meetings of the
committee, but not as a member.

Mr. WARREN. You have said that the feeling of that convention
was that the situation was a very serious one and demanded some car-
tain action?

Mr. FERGUSON. Yes, sir.

Mr. WARREN. And has that impression been increased or lessened
by what you have heard in the hearings ?

Mr. FERGUSON. It has been increased — that and discussion with a
great many men who are operating street railways and who are
concerned with them. I think the business judgment of the country,
so far as it can be gauged, is that the situation is right critical and
should receive attention just as soon as possible, on account of the
enormous amount of values involved and the fact that the companies,
a great many of them, are in a bad way.

Mr. WARREN. You yourself have had some street-railway experi-
ence, I believe?

Mr. FERGUSON. Not as a manager, Mr. Warren. I am a director in
a local street railway at Hampton Roads, between Old Point and
Newport News; and I believe we have one of the few street-railway
properties in the United States that is doing very well at the present
time.

Mr. WARREN. That is, thanks to your activities at present with the
shipbuilding company, I assume.

Mr. FERGUSON. Well, it has been due to the shipyard to an enor-
mous extent. It has been due to the fact that the population feeding
this railway probably more than doubled. We have from fifteen
to forty thousand soldiers there all the time, and they ride on the
cars a great deal, and it has also been due to the fact that the street
railway there not only sells transportation but also power, ice, gas,
and

Mr. WARREN. So the returns are not confined to the transportation
features?

Mr. FERGUSON. No. Another point is that in the early days we
had a 12-mile trip when we had a competing company. Both com-
panies practically went broke carrying people these 12 miles for a
nickel ; and then", when one company went under and the property
was absorbed by the other in a reorganization, the district was split
into three zone's, and a 5 cents fare in each zone, for the primary
reason, as I understand— I was not associated with the company at
all then

582 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Yes.

Mr. FERGUSON. For the primary reason that the country was so
sparsely populated that we could not afford to carry them for a
nickel. Now, when the traffic has increased enormously, this weak-
ness of the original system has been the strength of the present sys-
tem.

Mr. WARREN. You practically increased your fares ahead of time
because of the sparsely settled territory ?

Mr. FERGUSON. Yes; and now when the cars are running full, of
course that has given the benefit to us. At^the same time, at the
works, our men are carried over the old lines as much as 3.5 miles
for 2.5 cents.

Mr. WARREN. That is a special morning and evening rate?

Mr. FERGUSON. That is between 6 and 7 in the morning and 4 and
5 in the afternoon. They are carried very thick.. About 2,500 men,
or 20 per cent of our force, ride in the cars. The others walk.

On the new line, which was built with money loaned by the United
States Shipping Board Emergency Fleet Corporation, the fares were*
fixed by that corporation at 5 cents for workmen — or twice the fare
over the old line — on account of the excessive cost of the new equip-
ment of the new line.

Mr. WARREN. Which was built during the war ?

Mr. FERGUSON. 'It was built during the war under an agreement
that the money loaned on the actual railroad, as I understand it, was
•to be repaid in full, but the equipment was to be purchased at a fair
valuation under a board of neutral appraisers.

Mr. WARREN. Yes?

Mr. FERGUSON. In other words, the excess cost during the war
was taken care of by the war.

Mr. WARREN. Yes.

Mr. FERGUSON. In that, as in several other things in our vicinity,
it was recognized that this was a war cost.

Mr. WARREN. And where was this 5-cent fare, as compared with
the 2.5-cent fare— in the same direction?

Mr. FERGUSON. No; in another direction.

Mr. WARREN. But about the same distance?

Mr. FERGUSON. Not quite so far.

Mr. WARREN. So that the Government recognized thus the in-
creased cost of construction by fixing a higher fare on the new line
for the men than on the old line ?

Mr. FERGUSON. Oh, yes; not only for the men, but the ordinary
fare was made 15 cents a round trip over the new line for the sol-
diers. Then the citizens living along this line all kicked, and so they
were given 15 cents a round trip, although the ordinary fare was
10 cents, and for workmen 5 cents.

Mr. WARREN. And on the old line it was still 10 cents ?

Mr. FERGUSON. Yes.

Mr. WARREN. For that distance?

Mr. FERGUSON. Yes.

Mr. WARREN. For the public!

Mr. FERGUSON. Yes.

Mr. WARREN. How did you happen to become connected with the
road, Mr. Ferguson?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 583

Mr. FERGUSON. It was largely accidental. We were very much
interested in the street railway, because decent transportation was
necessary to the operation of our business; and after one of the old
roads had gone into bankruptcy and had been bought up by the
other, and the other was in pretty nearly as bad shape, the whole
thing being run down, and the}- did not have any money, and the
men would come into the works in the morning a half hour late or
an hour late, and we used to have to argue with them more or less
not to wreck the system. This had happened time and time again.
The lights would go out and would come on again the next night,
perhaps. So that when the bondholders took over the property and
reorganized it by sending some railway people there who, in my
judgment, knew the business, the local people were very much in-
terested; and in order to rehabilitate themselves in local favor, they
had a number of local men, or asked them to acquire enough shares
in the company to be elected directors. A majority of the directors
are local men, who, by no means control the stock; and it was an
evidence of good faith on the part of the people who came there to
rehabilitate this railroad. The question we asked them was whether
they are going to run a real railroad or the kind of thing that we
had had, and they showed every evidence of operating the street
railway not only for the benefit of the stockholders, but for the
benefit of the public; and I think they have done it; and the local
directors have been very active in assisting them to do it, and in
seeing that they did do it.

Mr. VARREN. Yes?

Mr. FERGUSON. Which they wanted to do. So, instead of having
a company which could furnish no service, we have a company
which does furnish a real service that did not break down during
the war, notwithstanding the fact that their traffic more than
doubled, and which has been a real asset to the community. The
war- working community could not have been carried on at all with-
out the street-railway transportation, the power and electric lights,
and so forth.

Mr. WARREN. So that you had an experience with a broken-down
road rendering poor service, because it was not earning enough to
do anything else 5

Mr. FERGUSON. Yes.

Mr. WARREN. And with an up-to-date road there, charging a
high rate of fare, you have maintained good service ?

Mr. FERGUSON. No; they did not charge a high rate of fare. The
old road had charged the higher rate before they went into tho
hands of a receiver.

Mr. WARREN. They had raised it to the three fares?

Mr. FERGUSON. They had raised it, but they had no money. They
had no credit. So a local syndicate was formed which raised ap-
proximately $1,000,000, about. Of this $1,000,000, $750,000 was put in
a power house and the rest was put in the property. In other words,
they put the property on its feet.

Mr. WARREN. Yes.

Mr. FERGUSON. By creating a credit for it. Then, with the in-
creased business the earnings picked up at once, and they have been
going very well ever since.

584 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. So that that is a question of a company without
credit as compared with one with credit?

Mr. FERGUSON. The company had no credit under the old arrange-
ment. As soon as it could borrow money they put the property in
good, condition and built it up, and that, with the increased business,
paid them very fair earnings.

Mr. WARREN. One of the reasons, I suppose, that you were on the
board was to get reliable service?

Mr. FERGUSON. Absolutely. .

Mr. WARREN. For your employees?

Mr. FERGUSON. Yes; that is very important in a small place like
ours — of about 30,000 or 40,000 people — because we have a grea^ many
men who live a good distance away from their work. I think the
most vital feature in a place like ours, of street-car transportation —
reliable transportation — is that it enables the workmen to live where
land is cheap, where he can eke out his wage by being fairly inde-
pendent in the matter of his own garden, his chickens and cow and
pigs, and all that sort of thing. Incidentally, I believe that the one
real sure cure for all of what we are pleased to call our modern ills
and bolshevism is to have every man own his own home ; and if his
home is out in the country, where land is cheap, and where living is
cheaper, I think that is of great benefit. We have built, for instance,
ii town of 500 houses, where this new transportation was provided,
for the express purpose of giving the men a place to 'live other than
a tenement or a mud row, or something like that.

Mr. WARREN. You provide some land for each owner ?

Mr. FERGUSON. Oh, yes.

Mr. WARREN. A house and lot?

Mr. FERGUSON. Well, they have a garden. The street-railway com-
pany has made access to cheap land for industrial workers, and I
think that is most important.

Mr. WARREN. Yes; and as president of the chamber, you would
say that this matter is one of the very greatest importance at this
time, would you not?

Mr. FERGUSON. Yes.

Mr. WARREN. This street-railway problem?

Mr. FERGUSON. I think it is one of the most important matters in
the country at the present time. Financially, it would seem to me
to be the most acute problem that we have internally at this time.

Mr. WARREN. And unless settled it might involve great and serious
financial dangers, I suppose?

Mr. FERGUSON. I should say so.

Mr. WARREN. That is all.

The CHAIRMAN. Has the committee of the chamber of commerce
which has been making a study of this question made any report ?

Mr. FERGUSON. I do not know that they have as yet, sir ; but they
are formulating a report. I understand the matter has progressed
favorably. They had a hearing in Washington.

The CHAIRMAN. Have you an idea how soon they will have such
a report presented ?

Mr. FERGUSON. I don't know. I believe, though, within a com-
paratively short time.

The CHAIRMAN. Before this commission gets through with this in-
vestigation ?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 585

Mr. FERGUSON. I hope so, and if the commission would like the
data that they have accumulated from a variety of sources it can be
put at the service of the commission, if the commission sees fit to
use it.

The CHAIRMAN. That is very kind indeed. We will take that into
consideration.

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. In your Newport News plant you have gas, light,
and railway combined?

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. Have you ever made a separation of the cost of
performing each branch of the company's service ?

Mr. FERGUSON. Yes.

The CHAIRMAN. Do you know whether the railway service, in and
of itself, is paying its own way?

Mr. FERGUSON. Yes ; it is paying its own way, but not much more,
at the present time.

The CHAIRMAN. Although you have greatly increased the volume
of your business?

Mr. FERGUSON. Yes.

The CHAIRMAN. And the number of passengers that you serve?

Mr. FERGUSON. Yes.

The CHAIRMAN. You mentioned a village of 500 houses which was
built for the use of industrial workers. How far is that from the
plant?

Mr. FERGUSON. About 2| miles.

The CHAIRMAN. What is that fare?

Mr. FERGUSON. 5 cents. The Government fixed that rate of fare
for this village. They loaned the money to build the village with.

The CHAIRMAN. Do you feel that the street-car industry is a per-
manent institution?

Mr. FERGUSON. Permanent?

The CHAIRMAN. Yes.

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. Do you think it is just as vital to the commercial
development and welfare — the communal development and welfare
of the city as the light, gas, and water?

Mr. FERGUSON. I do not think it is as important as water, but I
think it is as important as the light or gas or anything else we use,
except water and air.

The CHAIRMAN. But if the street-car companies should become a
decadent institution and there was nothing better put in its place,
would we not have to completely revolutionize our whole economic
and social system?

Mr. FERGUSON. I think so. Of course, automobiles can be operated,
but I do not believe we will ever see the time, unless some new power
method of transportation is devised, when we will operate over roads
as economically as we will on steel rails.

The CHAIRMAN. But the country must have some institution that
can travel 365 days on steel ?

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. Regardless of weather conditions?

Mr. FERGUSON. I think so.
100643°— 20 38

586 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

The CHAIRMAN. And, of course, the automobile will not supplant
that?

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. In Minnesota oftentimes we have 5 feet of snow
on the level.

Mr. FERGUSON. Yes, sir.

The CHAIRMAN. And the automobiles are stored up during that
period.

Mr. FERGUSON. I would say that they are an absolute necessity
in any modern city. For industrial workers, for whom I speak
particularly, I think it is vital that you haYe street-car transporta-
tion.

The CHAIRMAN. Then we should proceed upon the theory that
this distribution must be preserved ?

Mr. FERGUSON. Yes, sir.

Commissioner SWEET. What wages are you paying, Mr. Ferguson,
on your street railway?

Mr. FERGUSON. 45 cents, I believe, at the present time.

Commissioner SWEET. Was that adjusted by the War Labor Board ?

Mr. FERGUSON. No, sir; it has been adjusted by the company volun-
tarily. I think we had seven raises in three years.

Commissioner SWEET. Are your conductors and motormen white
men?

Mr. FERGUSON. Yes, sir.

Commissioner SWEET. Is that wage satisfactory to them ?

Mr. FERGUSON. As far as I know.

Mr. WARREN. I do not suppose it is fair to ask you whether you
think they will go up further?

Mr. FERGUSON. I do not think it is likely to come down soon.

Commissioner SWEET. The general raise of wages and materials
that go into street railways, and everything else now, has been men-
tioned by former-President Taft as an evidence in his mind that the
purchasing power of money had been reduced. Is that your view
of it?

Mr. FERGUSON. Yes, sir; it results in that. Wages and materials,
generally speaking, I think, have doubled and more than doubled
in the last four years. They have considerably more than doubled in
our business. In the street-railway business, I understand, they are
about doubled.

Commissioner SWEET. Taking an ordinary street railway that was
doing fairly well before prices advanced, with the nickel fare, having
no control over the increase of costs and no ability to increase its
income by raising fares; when you take that into account, are you
at all surprised at the critical condition that you say you think the
companies are now in with regard to street railways ?

Mr. FERGUSON. I think it would be very surprising, Mr. Sweet,
if what has happened had not happened.

Commissioner SWEET. Practically, to a man of any business abil-
ity whatever, or intelligence, it is the very thing that had to hap-
pen; is it not?

Mr. FERGUSON. I think it is ; and it is a demonstrated proposition
that if everything1 else goes up except street-car fares, and they are
left in the lurch, and no miracle is going to take place with refer-
ence to them any more than with anything else. Everything else

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 587

seems to have gone up that 1 know of. It seems to me — I won't say
absurd, but it seems very strange that the question would have to
be discussed at such length, Mr. Sweet.

The CHAIR-MAX. Yes.

Mr. FERGUSON. Now, for instance, when men have to be charged to-
day a greater fare because property costs more money, we have found
that by explaining it to the men, all of whom may be getting more
money, because it costs them more to live, that this is a necessary
thing on account of its having been done during the war; and al-
though they do not lake it, they put up with it as the rest of us do
when it is explained1 to them and when it is explained that the Gov-
ernment has allowed this. As a matter of right, they do not object
particularly, and we have found that they want to do what is fair
and right. I am speaking of the workmen who pays his nickel.

Mr. WARREN. On your line?

Mr. FERGUSON. Yes.

Commissioner SWEET. Do you think that is typical in all com-
munities throughout the country?

Mr. FERGUSON. J do not know that it is, sir. There seems to be
a good deal of opposition to it, but it does seem to me if the facts —
and particularly the facts as developed in an authoritative way —
could be properly placed before the people who are concerned, you
will find, in general, that most people, the big majority of people,
would be willing to do what is fair and right.

Commissioner SWEET. Yes.

Mr. FERGUSON. If they were convinced that it was the right thing
to do. Of eo«rse, I have no scheme of financing a reorganization.
The one thing that is patent to me is that they must get more faros
or go broke, but as to how it will be done and how the final reor-
ganisation will take place or jnst what method will be used, I do
not know ; but it seems perfectly patent that no one should expect
to riele now for 5 cents as he rode for 5 cents six years ago.

Commissioner SWEET. When he knows that he can not buy pota-
toes or an3rthmg else at the same price.

Mr. FERGUSON. He knows he can buy absolutely nothing except
at greatly increased prices.

Commissioner SWEET. In view of the fact that the Chamber of
Commerce of the United States has a committee investigating this
subject which will soon make a report, I presume you would prefer
not to express any personal opinion?

Mr. FERGUSON. >iot at all; hecuirse it would be my job to try to
assist in putting through the recommendations of that committee.

Commissioner SWUET. And you would prefer, naturally, to await
that report?

Mr. FiwfiusoN. Xot only that, sir, but I do not feel competent to
express a j-wlgment as to the final solution of it at all, and I would
nol do so, awaiting the report of our committee.

Commissioner SWEET. That is what I would imagine.

Mr. FERGUSON. Yes, sir.

Commissioner SWEET. And, for that reason, I will not ask 3*011 any
question on that point; but ,t matter that I think is patent to every-
body, or ought to be, at least, as you have said, is that with costs
increasing for everything that the company has to buy that its in-

588 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

come must be increased by higher fares in order to meet its obliga-
tion?

Mr. FERGUSON. Yes, sir.

Commissioner SWEET. Otherwise, it would have to go out of busi-
ness ?

Mr. FERGUSON. Yes, sir.

Commissioner SWEET. There is no question about that, is there ?

Mr. FERGUSON. I do not think there is.

Commissioner SWEET. That is all.

Commissioner GADSDEN. Mr. Ferguson, pending a working cut of
a permanent solution either on the lines, recommended by the com-
mittee of the chamber of commerce, or, we will say, by this commis-
sion, what would you say as to the immediate necessity of the situa-
tion?

Mr. FERGUSON. Well, I should say the first aid to the wounded
would consist in giving an increase in fare to suit the actual posi-
tive present necessities of any particular situation. I do not see
that that can be escaped, if the companies are to be saved.

Commissioner GADSDEN. That is all I have to ask.

Mr. WARREN. Your men, I suppose, are receiving a great deal
higher wages in your work than they received formerly?

Mr. FERGUSON. When the 2.5-cent workmen's fare — which also,
applied to school children, by the way — was adopted, the first-class
pay of the mechanic we had was two and a half a day. At the
present time the pay of a first-class mechanic is $6.40 a day. He
worked 10 hours then, and he works 8 hours now.

The CHAIRMAN. Go down the line and give us a few more figures
of the same kind, Mr. Ferguson.

Mr. FERGUSON. The common laborer got $1 a day. At the pres-
ent time he gets $3.68 a day for the commonest of the common
labor, and $4 a day for what you would call a helper or the higher
grade of laborer. When the fare was established he was getting 9()>
cents a day. That is black labor.

The CHAIRMAN. Are you paying black labor $3.68?

Mr. FERGUSON. The minimum is $3.68 now.

Mr. WARREN. For black labor?

Mr. FERGUSON. Yes, sir. It runs from that with pieceworkers up
as high as $150 a week. . .

Commissioner MEEKER. Have they been working 8 hours, too?

Mr. FERGUSON. Working 8 hours; yes, sir.

Commissioner SWEET. And formerly 10 hours?

Mr. FERGUSON. No one is working 10 hours.

Commissioner MEEKER. I say, formerly 10 hours.

Mr. FERGUSON. Formerly 10 hours; yes, sir.

The CHAIRMAN. These men are in your street-car service?

Mr. FERGUSON. No; the shipbuilding service. In the street-car
service the wages are different. They pay the same wages in the
shops as we do, but the motormen and conductors, as I understand it,
run about 12 hours. I am not sure, but they run longer hours than
we do.
. Commissioner SWEET. At 45 cents an hour?

Mr. FERGUSON. Yes, sir.

There was one thing that was done locally that may interest you
gentlemen, in regard to the street-car service, and that is in the

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 589

morning and afternoon when the cars are crowded we have a great
many men who are not motormen, and these men will take the place
of the regular motormen on the morning and afternoon runs and
get a quarter or 50 cents a day extra for the running of the car
in and out when it is loaded. They come into the shipyard and
work all day and run that car back at night. That is very satis-
factory to the men and very satisfactory to the company, because it
saves them the service of these extra men. That is done in the case
of a good many men.

Mr. WARREN. How has this wage of the men on the work that you
have mentioned been fixed?

Mr. FERGUSON. They were fixed by the Shipbuilding Labor Ad-
justment Board here in Washington. At the shipyard they were in-
creased about 150 per cent. In the case of some trades, in piece-
workers, it was much more than that ; so that I feel that, as a local
situation, the men who were employed industrially can very well
afford to pay the higher street-car fare.

Mr. WARREN. And it does not make the street-railway wage look
as high, by comparison, as it seems to the street-railway men, meas-
ured only by what it used to be?

Mr. FERGUSON. Xo ; and it has made it very difficult for the street
railway, locally, to keep their men, because they could come into the
shipyard and get so much better wages, so that their wages have
gradually been increasing with ours.

Mr. WARREN. Do you expect, Mr. Ferguson, that this level of
wages is going to continue for some time or is it going to drop again
soon?

Mr. FERGUSON. I think it will continue for some time.

Mr. WARREN. A matter of months or years?

Mr. FERGUSON. Years. I do not see any signs of decreases in
wages. It seems to me that commodities are bound to remain high,
on account of the tremendous foreign demand, and that wages with
us are bound to remain high, on account of the cost of living, and also
on account of the tide of immigration actually setting the other way,
instead of to this country; so that I think, although a great many
people predicted lower wages with the end of the war and the
signing of the armistice, there has been no sign of it, and if any ten-
dency has been exhibited, it has been, I think, a tendency upward
instead of downward, as illustrated by the various strikes going on.

Mr. WARREN. That is in the street-railway industry, certainly, is
it not?

Mr. FERGUSON. Oh, yes.

Mr. WARREN. I am very much obliged to you, Mr. Ferguson. That
is all I have.

Mr. FERGUSON. I am much obliged to you, gentlemen.

The CHAIRMAN. Mr. Ferguson, you have a very illustrious man to
follow in the chamber.

Mr. FERGUSON. Yes, sir; he is a very fine man.

Mr. WARREN. Mr. Commissioner, I will ask Mr. Stanley to take
the stand.

590 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

STATEMENT OF ME. JOHN J. STANLEY.

Mr. WARREN. Mr. Stanley, your full name?

Mr. STANLEY. John J. Stanley.

Mr. WARREN. You are the president of the Cleveland Street Rail-
way Co.?

]Nlr. STANLEY. The Cleveland Street Railway Co.

Mr. WARREN. And have been for how long?

Mr. STANLEY. Ten years.

Mr. WARREN. Were you the president before the service-at-cost
plan was introduced there?

Mr. STANLEY. I was vice president and general manager.

Mr. WARREN. How long were you connected with the road before-
you became president?

Mr. STANLEY. I had been with the road about 36 years.

Mr. WARREN. What did you start as?

Mr. STANLEY. Hill boy.

Mr. WARREN. Sanding the rail?

Mr. STANLEY. No; pulling the cars up the hill with a horse.

Mr. WARREN. Tow horse ?

Mr. STANLEY. A tow horse; yes.

Mr. WARREN. So^ you have been with the road from the time it
was a horse railway down to the time that it became a service-at-
cost road?

Mr. STANLEY. Yes.

Mr. WARREN. And that marked some change, I presume f

Mr. STANLEY. Yes : I have seen some change.

Mr. WARREN. Now, Mr. Stanley, you have to go at 5 o'clock,, do
you not?

Mr. STANLEY. Or very soon thereafter.

Mr. WARREN. I want to leave some time for the commissioners to
ask some questions, so I .do not want to take up too much time ask-
ing questions myseff ; but I should like to have you give the com-
mission a sketch of this service-at-cost situation— how it came about,
and how it is working:.

Mr. STANLEY. After 10 years of fighting in Cleveland with Tom
Johnson and the city officials, Judge Tayler devised a scheme of serv-
ice at cost. The scheme was to deduct from the receipts the operating
costs, the maintenance costs, taxes, and interest. The interest cost
was, of course, the 6 per cent on our stock. The balance would go
into the interest fund. When that interest fund became $700^000
or more, the fare was reduced. When it came down to $300,000 the
fare was increased. So the interest fund is the barometer. As the
interest fund reaches $700,000, there is nothing else to do but to
lower. When it reaches $300,000, it has to raise it.

We operated in Cleveland for 10 years on a 3-cent fare, 3 and 1.
We are now operating at 5 cents, i penny for a transfer, and 11
tickets for 50 cents.

That is about all there is to it.

Commissioner SWEET. What was the fund upon which you pay
the 6 per cent ?

Mr. STANLEY. Upon which we pay the 6 per cent?

Commissioner SWEET. You spoke of it as stock. Does that repre-
sent the entire cost?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 591

Mr. STANLEY. It was a valuation that was decided upon at the
time of the Tayler grant. That valuation was gotten together by
not only the city's side of it but the railway side.

Mr. WARREN. That was a valuation of the whole property?

Mr. STANLEY. A valuation of the whole property. We were al-
lowed at that time about $110,000 a mile for the amount of tracks
that we had in the city of Cleveland.

The CHAIRMAN. Including equipment?

Mr. STANLEY. Yes; including equipment and everything.

Mr. WARREN. Did that valuation include anything for unexpired
franchises, do you remember?

Mr. STANLEY. Yes! Yes, sir; about three million — $3,500,000.

Mr. WARREN. That was these term franchises that still had some
time to run, I suppose?

Mr. STANLEY. Yes.

Mr. WARREN. And you mentioned starting on 3 and 1, I think.
That was the rate of fare?

Mr. STANLEY. That was the rate of fare we decided on at that
time, to start on.

Mr. WARREN. What does three and one mean?

Mr. STANLEY. Three cents for a fare and a penny for a transfer.

Mr. WARREN. Was that the lowest rate that you ever had?

Mr. STANLEY. I really do not know whether we ever went below
that or not. I can't recall. I think, under the first commissioner,
we did operate for a while at 3 cents.

Mr. WARREN. At 3 cents?

Mr. STANLEY. Yes.

Mr. WARREN. Without the transfer charge?

Mr. STANLEY. Without the transfer charge. There was a rebate.
The charge was made, but it was rebated.

Mr. WARREN. How was that 3 cents paid — in cash each time?

Mr. STANLEY. Either cash or tickets. A ticket was worth 3
cents.

Mr. WARREN. Those tickets were bought in 'strips?

Mr. STANLEY. Yes; they were in a strip — six in a strip. Five at
15 cents; that is right.

Mr. WARREN. That cash fare, Mr. Stanley — was that strictlv a
3-cent cash fare? Suppose a man got on without any ticket, and he
did not have 3 pennies in his pocket but had a nickel, what was tho
fare to him?

Mr. STANLEY. He paid the nickel.

Mr. WARREN. In other words, the conductor did not make change?

Mr. STANLEY. That is true.

Mr. WARREN. Suppose he had a dime. Did he make change for
that?

Mr. STANLEY. Well, we had one line that ran down to the Union
Depot that we used to charge a penny for. If he put in a nickel,
why, it was all right. If he put in a dime, it was all right. Wo
would keep the dime or the nickel, or whatever he put in.

Mr. WTARREN. That is a very short ride, as I recall it?

Mr. STANLEY. It was a mile— about a mile long.

Mr. WARREN. That was from the square down to the Union Sta-
tion ?

Mr. STANLEY. From the square down to the piers.

592 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. I should like to turn the witness over to the com-
mission now, because I know you are interested in this subject; and
while I think I know something about the subject, I think your
questions are apt to be directed to the points that you want to know
about; and Mr. Stanley, I think, represents the pioneer company in
this so-called service-at-cost plan.

You were the first company in the country, Mr. Stanley, that went
into it, were you not?

Mr. STANLEY. Yes.

Mr. WARREN. Is it a term franchise that you have now ?

Mr. STANLEY. It is a perpetual franchise. .-It is a franchise that
runs 25 years ; but every 10 years they are supposed to renew it. If
they do not renew it, the service goes back to the railway company ;
and then we are supposed to get our money out of it in the last 15
years, at the maximum rate of fare. Our maximum rate of fare
to-rday is a 6-cent fare and a penny for a transfer.

Mr. WARREN. What fare?

Mr. STANLEY. Six cents, with a penny for a transfer. That is our
maximum rate of fare that we can charge. We are not charging it.

Mr. WARREN. Oh, yes. What are you charging?

Mr. STANLEY. Five and one, and 11 tickets for 50 cents.

Mr. STANLEY. Oh, yes.

The CHAIRMAN. Mr. Nash is going to file copies of the franchises
with us, is he not ?

Mr. WARREN. Yes.

The CHAIRMAN. So there is no need of our inquiring about the
terms ?

Mr. WARREN. I do not think there is. I think it is more the gen-
eral principles, the working of it.

The CHAIRMAN. It is the general principles and the effect?

Mr. WARREN. Yes.

The CHAIRMAN. How long has that franchise been in effect ?

Mr. STANLEY. Ten years, sir.

The CHAIRMAN. The* cost-of-service franchise ?

Mr. STANLEY. Yes.

The CHAIRMAN. What fare did you start at?

Mr. STANLEY. We started at three and one.

The CHAIRMAN. What is it now?

Mr. STANLEY. Five and one.

The CHAIRMAN. When was it made five?

Mr. STANLEY. I will read it off to you.

To May 31, 1911, rate E. 3-cent cash fare, 1-cent transfer.

To August 31, 1914, rate F, 3-cent fare, 1-cent transfer, and 1-cent
rebate.

To December 14, 1917, rate E, 3-cent cash fare, 1-cent transfer.

To December 25, 1917, rate D, 4-cent cash fare, 3 tickets for Ifr
cents, 1-cent transfer, and 1-cent rebate.

To April 2, 1918, 4-cent cash fare, 3 tickets for 10 cents, 1-cent
transfer.

To April 9

Mr. WARREN. Xo rebate?

Mr. STANLEY. No rebate.

Mr. WARREN. What does that rebate mean, Mr. Stanley?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 59 £

Mr. STANLEY. Well, when you receive the transfer, you pay a
penny; and if you do not rebate, of course, the company keeps the
penny ; but if you rebate, the conductor hands back the penny to the
passenger at the time he turns in his transfer.

Mr. WARREN. Oh. yes.

The CHAIRMAN. It is very hard to hear you, Mr. Stanley.

Mr. STANLEY. To August 3, 1918, rate A, 4-cent cash fare, seven
tickets for 25 cents, 1-cent transfer.

To August 6, 1919, rate 2d, 5-cent cash fare, five tickets for 25
cents, 1-cent transfer.

Now, the only reason that the five tickets for 25 cents were put in
there was as an accommodation to the public. They liked the five
tickets, rather than pay a cash fare.

The CHAIRMAN. How long did you operate under that contract be-
fore you increased rates?

Mr. STANLEY. Well, up to December 25, 1917.

The CHAIRMAN. That was how many years?

Mr. STANLEY. That is over eight years.

The CHAIRMAN. That was on a 3 and 1 basis ?

Mr. STANLEY. That was on a 3 and 1 basis?

The CHAIRMAN. During all of that time was the company meeting
the contract provisions?

Mr. STANLEY. Yes ; in a way.

The CHAIRMAN. Then you had no difficulty in paying your wages,
maintaining your property, and taking care of fixed charges on a
3 and 1 fare from 1908 up to 1917 ?

Mr. STANLEY. We had a deficit each and every year, which was
taken care of in the following year. Otherwise, we got along very
well with it.

The CHAIRMAN. Well, from what fund was that deficit paid?

Mr. STANLEY. Under the ordinance we are allowed so much for op-
erating, cents per car-mile, and so much for maintenance, cents per
car-mile. After the first year of operation, when we found that it
was not sufficient to take care of it, they allowed a sufficient fund, or
allowed a special allowance to take care of the deficit of the year
before.

The CHAIRMAN. But this fund is created out of the operating
revenue ?

Mr. STANLEY. Yes.

The CHAIRMAN. Everything comes out of the fare?

Mr. STANLEY. Yes.

The CHAIRMAN. Then, you were able to operate that plant and
pay all of the expenses and maintain the property and take care of
fixed charges?

Mr. STANLEY. Yes.

The CHAIRMAN. Out of the revenues?

Mr. STANLEY. Yes.

The CHAIRMAN. On the 3 and 1 basis?

Mr. STANLEY. Yes.

The CHAIRMAN. Do you regard the value of that plant as fair?

Mr. STANLEY. No, sir; we were not satisfied with the valuation at
the time the settlement was made. They cut our stock down from.

594 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

par to 55. I will frankly say that if we were allowed at that timo
about 80, we would have been satisfied.

The CHAIRMAN. How many years had the franchise to go at the.
time this contract was made?

Mr. STANLEY. Some of them were running out, and others had
four, or five, or six, or seven years probably, to go.

The CHAIRMAN. Do you consider that $3,500,000 valuation for the
franchise as fair ?

Mr. STANLEY. To some extent.

The CHAIRMAN. You began increasing these charges in 1917?

Mr. STANLEY. Yes.

The CHAIRMAN. Those charges, I understand, work automatically ;
as the increased cost takes place, the fare increases ?

Mr. STANLEY. Yes.

The CHAIRMAN. There has been quite a number of increases here
in the last year and a half — four, I think. As I recall your testi-
mony, there have been about four increases in the last year and a
half.

Mr. STANLEY. That is, in the fare?

The CHAIRMAN. Yes.

Mr. STANLEY. Yes.

The CHAIRMAN. Xow, what effect did those increases have upon
the patrons ?

Mr. STANLEY. Why, none at all. It had a good deal of effect on
the politician, but not on the car rider. I think the car rider real-
izes that he ought to pay more fare.

The CHAIRMAN. Well, under your contract, does the city maintain
strict supervision over expenditures?

Mr. STANLEY. They do.

The CHAIRMAN. And over your accounts?

Mr. STANLEY. They do.

The CHAIRMAN. In what way?

Mr. STANLEY. They have to approve everything that we buy, and
they have absolute supervision over our accounts.

The CHAIRMAN. And they have supervision over your contracts
as well ?

Mr. STANLEY. Yes.

The CHAIRMAN. Are all of the contracts submitted on bids?

Mr. STANLEY. Yes.

The CHAIRMAN. And the city has to approve those bids?

Mr. STANLEY. They have to approve bids.

The CHAIRMAN. How large a force does the city use in that work?

Mr. STANLEY. Well, the cost of the commissioner's office runs any-
where from $40,000 to $60,000 a year.

The CHAIRMAN. How many men are employed?

Mr. STANLEY. They have something like 20 or 25 men — 25 men.

The CHAIRMAN. Is the cost of maintaining that office charged to
the operation of the railway or paid for out of taxes?

Mr. STANLEY. It comes out of the railway.

The CHAIRMAN. It comes out of the railway ?

Mr. STANLEY. Yes.

The CHAIRMAN. Then the whole public, as well as the private
control of the road, is charged to operation ?

Mr. STANLEY. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 595

The CHAIRMAN. How many accountants are maintained by the
public?

Mr. STANLEY. I think they have probably three accountants.

The CHAIRMAN. They devote all of their time to a study of
your

Mr. STANLEY. Accounts.

The CHAIRMAN (continuing). Property?

Mr. STANLEY. Yes. They even inspect our work on the tracks
and inspect our cars.

The CHAIRMAN. Does this city supervision, in your judgment,
prevent the company, if so disposed, from pronting out of contracts
which it makes in supplies with others?

Mr. STANLEY. I do not believe there is any way of profiting from
contracts under this scheme.

The CHAIRMAN. Under this scheme?

Mr. STANLEY. No.

The CHAIRMAN. Of course, it has been under the old method — •
perhaps not in Cleveland?

Mr. STANLEY. I do not know of any that has been done.

The CHAIRMAN. By individuals, I mean the officers of the com-
pany.

Mr. STANLEY. Personally, I never have had that occur, that I know
of, in my organization. It may have happened, but I do not know
of it.

The CHAIRMAN. Well, could that happen under this system of
supervision?

Mr. STANLEY. Yes; it could happen.

The CHAIRMAN. Would it not have to be collusion between the
officer of the railway and that of the city ?

Mr. STANLEY. Sure.

The CHAIRMAN. It is very hard to get collusion among three
parties, is it not \

Mr. STANLEY. Yes, sir; it is.

The CHAIRMAN. Well, during the whole time the capital on the
fixed charges had been paid upon the investment?

Mr. STANLEY. Yes,

The CHAIRMAN. Had they been making any extensions and im-
provements since this contract was made?

Mr. STANLEY. We are making five extensions this year.

The CHAIRMAN. What is the cost of those?

Mr. STANLEY. The extensions are running probably a mile to an
extension, which would make it anywhere from 5 to 7 miles of exten-
sion this vear; and the cost of those extensions would run from
$30,000 to $60,000 a mile.

The CHAIRMAN. Where did you get the money?

Mr. STANLEY. From our stockholders.

The CHAIRMAN. You sold new stock?

Mr. STANLEY. We sold new stock.

The CHAIRMAN. What was that slock sold at ?

Mr. STANLEY. At par. We can not sell it at any less.

The CHAIRMAN. Was there any trouble in disposing of it ?

Mr. STANLEY. We have not had any trouble. We had trouble
when we first started the grant. That might be of interest to you.

The CHAIRMAN. Was that sold to the stockholders locally ?

596 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. STANLEY. Yes. I would be very glad to furnish you that.
We have with our company 5,202 stockholders. Seventy per cent of
those are local stockholders — Cleveland stockholders. All the trust
companies — three of them — in Cleveland control possibly anywhere
from $1,000,000 to $2,000,000 worth of stock for estates, widows, and
orphans.

The CHAIRMAN. What was the total amount of stock issued for
these hew extensions?

Mr. STANLEY. That I can't say offhand. I have not the record
here.

The CHAIRMAN. It is comforting to be able to find one street-car
company in the country that can sell its stock at par.

Mr. STANLEY. Yes.

The CHAIRMAN. Is that the result of your contract with the city?

Mr. STANLEY. Yes and no.

The CHAIRMAN. What are the conditions in Cleveland that estab-
lishes this credit for your company ?

Mr. STANLEY. If I might read this quotation here from Mr.
Baker. Hon. Newton D. Baker, upon taking office as mayor of
Cleveland, January 1, 1912, wrote a letter, in which he said:

My advice and hopes are that from now on, by cooperation and sympathy,
the company and the city administration can work out their respective parts
of what is, in effect, a common trust of the public welfare. The interests of
the owners of the property and the people whom it serves are one

Now, there is the secret. If the city and the railway company
work together, the plan \vill be successful.

The CHAIRMAN. Is there a real confidence between tl^e public and
the railway company ?

Mt. STANLEY. There has been; yes, sir.

The CHAIRMAN. Is there to-day?

Mr. STANLEY. Yes and no. A man might become mayor that
cares more for his affiliations with the unions than be would with
the railroads.

The CHAIRMAN. Will you speak a little louder, pkase?

Mr. STANLEY. He would do things for the unions and would not
care anything about what he did for the companies.

The CHAIRMAN. Well, just elaborate on that a little. I don't
know what you mean.

Mr. STANLEY. Well, we just got through a strike in Cleveland.

The CHAIRMAN. I thought you would lead up to that.

Mr. STANLEY. Yes.

The men were asking for more wage. On May 1 they came into
my office — the union did — and said to me, " Now, we are not going
to ask for an increase. If you won't ask to decrease our wage, we
won't ask to have it increased." Detroit comes along in six
weeks

Mr. WARREN. What were they getting then, Mr. Stanley ?

Mr. STANLEY. They were getting 48 cents. That was high, and
the low was 42.

Detroit comes along and pays the men 60 cents, after a strike.
Our men immediately came to me and said, " Now, we are going to
ask for more wages." " Well," I said, " What about May 1 ?" " Well,
that don't make any difference; we are going to get more." I said,
"All right; now, I don't propose to sit here and argue and talk

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 597

with you on the wage question. We will take our troubles right
to the city council and see if we can not fight it out there." The
mayor immediately — of course, they went to call on the mayor — and
the mayor said, " Of course, you are entitled to 60 cents," and that
is all there was to it. Now, we did go before the council, and they
did get their 60 cents. I got an increase in operating cost, and I
have an increase in maintenance. I got the maximum rate of fare
changed from 4 cents and a penny for transfer to 6 cents and a
penny for transfer, and there is to be arbitration on whether we
are entitled to 7 per cent on our stock or 6 per cent.

The CHAIRMAN. Well, in the first place —

Mr. WARREN. What did you mean by saying on May 1 ?

Mr. STANLEY. That was the time that the union had a right to
open their contract for a wage.

Mr. WARREN. If they do not do it within 30 d&ys

Mr. STANLEY. If they do not do it within 30 days it carries over
the next year.

Mr. WARREN. And they had not'opened it up?

Mr. STANLEY. Had not opened it up.

The CHAIRMAN. Does this contract fix a maximum charge of 6
cents ?

Mr. STANLEY. It fixes the maximum charge at 6 cents and a penny
for a transfer.

The CHAIRMAN. And what return on the capital does -the contract
fix?

Mr. STANLEY. Six per cent.

The CHAIRMAN. Six per cent?

Mr. STANLEY. Yes. .

The CHAIRMAN. In this negotiation, you say the union wanted
CO cents an hour?

Mr. STANLEY. Yes.

The CHAIRMAN. And then the stockholders came along and wanted
7 per cent?

Mr. STANLEY. Yes.

The CHAIRMAN. What difference did it make to the stockholders if
the union got 40 or 50 or 60 cents an hour so long as the stockholders
got their return ?

Mr. STANLEY. Well, the stockholders used the same argument that
the men were using, that the high cost of living was so that they had
to have more wages; and if that applied to the union, it certainly
applied to the stockholders.

The CHAIRMAN. Well, but under your contract you say the union
can come in on the 1st of May each year and ask for an adjustment of
wage.

Mr. STANLEY. But we can meet that any time on any change we
want to make in the contract.

The CHAIRMAN. Even as to the return upon the capital?

Mr. STANLEY. Yes; that can be arbitrated as well as anything else*
Now, the contract has been changed—

The CHAIRMAN. Can the city reduce that return?

Mr. STANLEY. Can they reduce it?

The CHAIRMAN. Yes.

Mr. STANLEY. Not below 6.

The CHAIRMAN. You can only arbitrate for an increase?

598 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. STANLEY. Yes.

The CHAIRMAN. Well, supposing labor gets 60 cents an hour; can
you then operate on a 6-cent fare ?

Mr. STANLEY. Yes ; I think we can operate on 6 and 1, on 60 cents ;
but if the wages go up above 60 cents, I doubt very much whether we
could operate on that.

The CHAIRMAN. Suppose the wage did go up to the Massachusetts
basis and you found that you could not operate under a 6-cent fare ;
what would be your remedy ?

Mr. STANLEY. A change of that maximum, of course.

The CHAIRMAN. Then, as a matter of fact, if you are going to have
a cost-of -service scheme of operation, shpuld there be any maximum
fixed to the charge?

Mr. STANLEY. In a franchise, there should not be any maximum
or minimum rate of fare. Eliminate that, and your troubles are
over.

The CHAIRMAN. Are you satisfied that this scheme is as good a
one as can be created for the utilities and the public?

Mr. STANLEY. I do not know. I know that it has carried us
through these 10 years, and I know we have been on easy street
those last four or five years, which no other railroad company in
this country has been.

The CHAIRMAN. Now, can you suggest a better plan?

Mr. STANLEY. No; I can not.

The CHAIRMAN. Do you think this is as good a plan as can be
devised to take care of the companies, as well as the public, during
good as well as during bad times?

Mr. STANLEY. Yes.

The CHAIRMAN. Do you feel that this plan establishes a good credit
for the company?

Mr. STANLEY. Without a doubt. I do not know what a banker
is in my business.

The CHAIRMAN. And creates an absolutely safe return for capital?

Mr. STANLEY. Yes.

The CHAIRMAN. And assures labor a fair wage?

Mr. STANLEY. Yes.

The CHAIRMAN. And the public a good service ?

Mr. STANLEY. Yes.

The CHAIRMAN. What does the State commission have to do
with the street railways in Cleveland?

Mr. STANLEY. You have to go before the State commission to get
an increase in capitalization. Now, they have never bothered us.
Whatever we wanted from the State commission, with the recom-
mendation of our street-railway commissioner, they have granted.

The CHAIRMAN. Now, looking forward to the best sort of scheme
that can be evolved, do you feel that the State commission should
have anything to do with the control of the rates, service, extensions,
betterments, expenditures, and accounting of your company ?

Mr. STANLEY. It surely depends entirely upon the personnel of
any botfrd that you go to.

The CHAIRMAN. Well, should the State commission have anything
to do with the things that I have mentioned?

Mr. STANLEY. Should they have that?

The CHAIRMAN. Yes.

PROCEEDINGS OF FEDEBAL ELECTRIC RAILWAYS COMMISSION. 599

Mr. STANLEY. Yes; I think so.

The CHAIRMAN. What should they have to do with it ?

Mr. STANLEY. I think we would be safer in going to the State
commission than we would in going to a city commission.

The CHAIRMAN. Well, do you believe that the State commission,
then, should have that supervision over your company, which is now
maintained by the city?

Mr. STANLEY. The fact of the matter is that they have supervision
over our company to-day.

Mr. WARREN. The State commission?

Mr. STANLEY. As well as the city.

The CHAIRMAN. I understood you to say that it does not have that
supervision.

Mr. STANLEY. As well as the city, because when we appear be-
fore the State commission for an increase in capitalization we have
to show our expenditures.

The CHAIRMAN. Oh, that is true, but the State commission has
nothing to do with the service furnished by your company.

Mr. STANLEY. Not at all.

The CHAIRMAN. Or with its construction?

Mr. STANLEY. No.

The CHAIRMAN. Or with its operation?

Mr. STANLEY. No.

The CHAIRMAN. Or its accounts?

Mr. STANLEY. Well, only as far as

The CHAIRMAN. The only supervision is as to capitalization. The
city has that entirely. Now then, should the State or city have that
supervision ?

Mr. STANLEY. Personally, I don't care which has it.

The CHAIRMAN. Well, you must have an opinion. You have been
in this business for a long while.

Mr. STANLEY. I know that the city has had it, and we have not
had any trouble so far.

The CHAIRMAN. Are j7ou satisfied with the present arrangement?

Mr. STANLEY. Am I?

The CHAIRMAN. Yes.

Mr. STANLEY. Yes; I am.

The CHAIRMAN. What was the effect upon the employees, speaking
about service and efficiency, since this contract was made?

Mr. STANLEY. Do you mean as to whether or not it was better or
poorer?

The CHAIRMAN. Yes.

Mr. STANLEY. I do not think the plan had anything to do with it.
I think the times themselves have had a good deal to do with it, but
the men are not as efficient now as they were four or five years ago.

The CHAIRMAN. Is there anything in this system that compels the
company to exercise initiative and economies in the service?

Mr. STANLEY. Well, I think it is shown very clearly that there
must have been some economy in the service by operating that rail-
road for lf> years on a 3-eent basis.

The CHAIRMAN. But under this plan, where yonr wages and rates
work up and down nutomatically, can you not conceive that the 'com-
panies may be extravagant, that their operation may be very ex-

600 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

travagant, and the costs piled up all the time, without any protec-
tion whatever to the public ?

Mr. STANLEY. That might happen ; yes.

The CHAIRMAN. Because the company itself is protected by its
returns upon the capital.

Mr. STANLEY. Sure.

The CHAIRMAN. Now, if that situation should develop, how could
the public protect itself against an increased charge and increased
operating costs?

Mr. STANLEY. Well, of course, our franchise gives the city the
right to take over our property at any time At 110.

The CHAIRMAN. Then the protection to the public grows out of the
fact that they can buy that plant at 110?

Mr. STANLEY. Sure.

Mr. WARREN. Does the city comptroller control your expenses and
supervise them?

Mr. STANLEY. If he sees any extravagance he can stop it.

The CHAIRMAN. That is what I am trying to develop. •

Mr. STANLEY. Yes.

The CHAIRMAN. I am trying to find out how the public can protect
itself against extravagant operation.

Mr. STANLEY. I will read you a clause from the franchise that will
probably give it to you.

The CHAIRMAN. It seems to me that that is a very important point
in connection with this cost-of-service plan, because you can not have
something that gives absolute protection to capital and no protection
to the public.

Mr. WARREN. I understand that the city comptroller of Cleveland
has absolute control over that.

The CHAIRMAN. That is what I wanted to find out.

Mr. WARREN. Yes.

Mr. STANLEY. Section 10 of the franchise reads :

Immediately upon the taking effect of this ordinance there may be desig-
nated by the city a city street-railroad commissioner, which designation
shall be made by the mayor of the city, subject to the approval of the city
council. The city reserves the right, at any time, and from time to time, to
remove the street-railroad commissioner designated b-y it, such removal to be
by the mayor, and to fill the vacancy in the manner provided for original
designation ; and the city shall forthwith upon the naming of any city street-
railroad commissioner notify the company in writing of the name and address
of such commissioner. The city street-railroad commissioner shall act as
the technical adviser of the council of the city of Cleveland in all matters
affecting the interpretation, meaning, or application of any of the provisions
of this ordinance and of action thereunder affecting the quantity or quality
of service or the cost thereof or the rate of fare. He shall keep always in-
formed as to all matters affecting the cost or quality or quantity of service
furnished, the receipts and disbursements and property of the company, the
rate of fare, the vouchering of expenditures; and if he disapproves of the
vouchering of expenditures, or of the manner of keeping accounts or other
matter affecting the bookkeeping of the company, he shall at once take the
matter up with the company; and in case of disagreement the matter shall
at once be submitted to the committee on standard classification of accounts
of the American Street & Interurban Railway Accountants' Association, or
to such person or persons upon whom the regulation of such matters may
from time to time be devolved by law ; and the decisions of such committee or
person- or persons, not inconsistent with the provisions of this ordinance, to
whom this question shall be submitted, shall be final.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 601

The CHAIRMAN. Now, will you let me give you a concrete ex-
ample ? Suppose that you had agreed to pay labor 60 cents an hour.
Could the city exercise any veto over that order?

Mr. STANLEY. Yes ; I have always been very careful to get the ap-
proval of the city in such a thing.

The CHAIRMAN. Well, you have as a matter of policy, but as a
matter of fact, can the city veto that wage agreement ?

Mr. STANLEY. Yes.

Mr. WARREN. Through the allowance, Mr. Stanley?

Mr. STANLEY. Through the allowance. They would not give us
enough allowance to take care of it.

The CHAIRMAN. I did not get that matter of the allowance very
clearly.

Mr. WARREN. Explain that allowance matter, Mr. Stanley.

Mr. STANLEY. All right. In the operating allowance, the city al-
lows us so much a car-mile to operate our road. Now, if the wage
goes up above that allowance, they would absolutely refuse to in-
crease our allowance, and we could not pay the men.

Mr. WAREN. That allowance is for all the operating expenses, i?
it not?

Mr. STANLEY. Yes.

Mr. WARREN. Including wages?

Mr. STANLEY. Yes.

The CHAIRMAN. Then, the city can prevent the pyramiding of
wages or any other operating expenses?

Mr. STANLEY. Yes; they can.

The CHAIRMAN. Then, the city has a double protection J.gu^st ex-
travagant operation ?

Mr. STANLEY. Yes, sir.

The CHAIRMAN. One by curtailing your charges, and the other by
taking over your property?

Mr. STANLEY. Yes. They prescribe the service gicui. They tell
us how many cars we can operate, and operate them at a certain
cost ; so they have a check there also.

Mr. WARREN. Can you make a contract without their approval?

Mr. STANLEY. Yes.

Mr. WARREN. Assume, then, that these agreements with the men
are what they purport to be, contracts, it is not only as a matter
of caution but as a matter of necessity that you should submit the
figures to the city, is it not?

Mr. STANLEY. Yes.

Mr. WARREN. What is the maintenance allowance?

Mr. STANLEY. What does it amount to to-day?

•Mr. WARREN. No ; but how is that fixed ?

Mr. STANLEY. That is fixed by the council at 9 cents a car-mile.

Mr. WARREN. Do you mean now or it always has?

Mr. STANLEY. It is now. It started with 5, and it has finally got
up to 9.

Mr. WARREN. That is, they allow 5 cents for each car-mile you
run?

Mr. STANLEY. Yes.

Mr. WARREN. For the maintenance of the property?

Mr. STANLEY. Yes.

Mr. WARREN. Does that include renewals?

160G430— 20 30

C02 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. STANLEY. That does not include depreciation.

Mr. WAKREN. Well; it includes all the current maintenance ?

Mr. STANLEY. Yes; the ordinary maintenance.

Mr. WABREX. Well ; is there any other allowance for depreciation ?

Mr. STANLEY. The depreciation is taken care of through the re-
production value. Now, if we scrap a car, we scrap that car at the
reproduction value. To-day any car that we scrap would be scrapped
at $6,000 a car. That is how trie depreciation is taken care of.

Mr. WARREN. When you were operating on a 3-cent fare and a
1-cent transfer — the lowest rate that you operated under

Mr. STANLEY. Yes.

Mr. WARREN (continuing). Did you happen to make any over-
drafts on your operating reserves?

Mr. STANLEY. Yes; we had some overdrafts, but it was taken care
of in the following year.

Mr. WARREN. Afterwards?

Mr. STANLEY. Yes.

Mr. WARREN. What caused the overdraft ? — The allowance was not
large enough?

Mr. STANLEY. The allowance was not sufficient to take care of it.

Mr. WARREN. So the allowance was increased?

Mr. STANLEY. Yes; the allowance was increased.

Mr. WARREN. And that increased, I suppose, the operating ex-
penses ?

Mr. STANLEY. Sure.

Mr. WARREN. Did it increase it enough to affect the rate of fare?

Mr. STANLEY. It did in time; yes.

Mr. WARREN. And during that same time, how about new cars?
Were they charged to depreciation or capital ? Did you have to buy
some new cars and charge them to capital ?

Mr. STANLEY. All new cars were charged to capital, but the
money for the scrapping of the cars — the reproduction value — was,
of course, applied to the new cars. In other words, if we scrapped
a car at $6,000 and we paid $10,600 for the new car, the $4,000
was charged to capital,

Mr. WARREN. Can you give a statement to the commission of the
increase allowed to the operating allowance — the increase made in
the operating allowance?

Mr. STANLEY. Since the Tayler advance ?

Mr. WARREN. Yes. It is based on so much per car-mile, I under-
stand, always; is it not?

Mr. STANLEY. Yes.

Commissioner GADSDEN. Mr. Warren, will you bring out from
him the effect of the increase in the rates on the revenues that he
gets?

Mr. WARREN. Yes; I will.

Mr. STANLEY. I can tell you right offhand that the operating
expense on March 1, 1910, was 11-J cents.

Mr. WARREN. And what is it now ?

Mr. STANLEY. On December 31, 1919, it was 19£ cents, and to-day
it is 23£.

Commissioner MEEKER. Mr. Warren, did you find out what in-
centive there is for efficiency, if there is any slkling-scale arrange-
ment with the city?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 603

Mr. WARREN. There is no sliding scale in your case, is there, Mr.
Stanley?

Mr. STANLEY. In what?

Mr. WARREN. In the rate of return.

Mr. STANLEY. No.

Mr. WARREN. To the investors.

Mr. STANLEY. No.

Mr. WARREN. Is there an arrangement for a bonus to the em-
ployees or to the officers ?

Mr. STANLEY. No.

Mr. WARREN. The salaries are fixed?

Mr. STANLEY. Yes.

Mr. WARREN. The salaries may be changed, but I suppose only by
a larger allowance for operating expenses?

Mr. STANLEY. That is true.

Mr. WARREN. Unless you can save in some other respect?

Mr. STANLEY. Yes.

Mr. WARREN. Now, you have heard Mr. Gadsden's inquiry. What
has been the effect? You have frequently had occasion to increase
your rate of fare?

Mr. STANLEY. Yes.

Mr. WARREN. How has that affected the riding by people, the
traveling? Have you ever noticed any difference?

Mr. STANLEY. Yes ; I can give you that.

Commissioner MEEKER. Perhaps you had better file that book with
the commission.

Mr. WARREN. I have an idea that that is a vade mecum, Mr. Com-
missioner.

I would like to know what the effect of the fare on riding has
been.

Mr. STANLEY. Of course, there has been some less riding. I do
not think it amounts to over 1 per cent.

Mr. WARREN. One per cent?

Mr. STANLEY. Yes. I think we carried 375.000.000 passengers the
year before last, and last year we carried something like 802.000,000.

Mr. WARREN. But I mean more closely than that, Mr. Stanley.
These changes in rates, changes in fares, go into effect automatically,
do they not?

Mr. STANLEY. Yes.

Mr. WARREN. For instance, this increase of wages that you have
recently made: if your operating income is not large enough to meet
it your rate of fare will automatically go up when? On the first of
the month or the first of the quarter?

Mr. STANLEY. The moment it reaches

Mr. WARREN. The moment the barometer goes down?

Mr. STANLEY. Yes; the moment it reaches $300,000, then the fare
goes up.

Mr. WARREN. When it reaches $300.000 the fare goes up?

Mr. STANLEY. Yes.

Mr. WARREN. Now, referring to those increases in fares that you
have made from time to time, how has the public received it? Have
they stopped riding in part, or have tho.y ridden just as much?

.Mr. STANLEY. Very nenrhr as much; yes. I do not think 'it has
changed very much.

604 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. WARREN. You would say to the commission, would you, that
there has been no appreciable effect on the traffic?

Mr. STANLEY. Well, there has been this effect: We have not had
any increase in rides. We usually run along about 6 to 8 per cent
increase from year to year. Now, this last

Mr. WARREN. In traffic?

Mr. STANLEY. In traffic.

Commissioner SWEET. Is that about in proportion to the growth of
the city?

Mr. STANLEY. Yes. Since we have gone to the higher fare there
has been a decrease of about 1 per cent, showing, you see, that there
has been about 8 or 9 per cent loss.

Mr. WARREN. Well, what period would that loss cover 2

Mr. STANLEY. I think it covered all of last year.

Mr. WARREN. All of last year?

Mr. STANLEY. Yes.

Mr. WARREN. That was 1918 ?

Mr. STANLEY. 1918.

Mr. WARREN. Well, have you followed the statistics of street rail-
ways— other companies — sufficiently to have noticed, Mr. Stanley,
that, regardless of fare increases, nearly all of the companies lost
traffic last year?

Mr. STANLEY. Now, here I will give you the year 1917 : The total
number of passengers carried was 398,000,000. In 1918 it was 375,-
000,000, showing, you see, that there was a loss there of about 20,-
000,000.

Mr. WARREN. And when was the increase of fare with respect to
1918— the last one?

Mr. STANLEY. August 4, 1918.

Mr. WARREN. But you did not answer my other question because
you were looking for that figure. Did you notice, or did you follow
the street-railway figures enough to have noticed whether or not in.
1918 the traffic on nearly all street railways fell off somewhat?

Mr. STANLEY. Yes.

Mr. WARREN. That is true, is it not?

Mr. STANLEY. That is true.

Mr. WARREN. Even on companies which made no change of fare
whatever during the year?

Mr. STANLEY. That is true.

Mr. WARREN. So that would account for a part of that falling off ?

Mr. STANLEY. Yes.

Mr. WARREN. And that is the number of passengers; in other
•words, it is the measure of the traffic ?

Mr. STANLEY. That is true.

Mr. WARREN. Those figures?

Mr. STANLEY. Yes.

Mr. WARREN. And that decrease is no more than the decrease of
other companies — many other companies?

Mr. STANLEY. I would not say it was ; no.

Mr. WARREN. It is no more than the decrease of some that I hap-
pen to know.

Mr. STANLEY. No.

Commissioner SWEET. You say that Judge Tayler was the author
of this plan?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 605

Mr. STANLEY. Judge Tayler was the author of the plan ; yes.

Commissioner SWEET. Was he the judge of one of the lower courts?

Mr. STANLEY. He was judge of the Federal court in Cleveland.

Commissioner SWEET. The Federal court?

Mr. STANLEY. Yes.

Commissioner SWEET. How did the matter come before him?

Mr. STANLEY. The matter came before him by the railway and
the city administration agreeing to submit it to Judge Tayler.

Commissioner SWEET. He was on the bench. at the time?

Mr. STANLEY. He was on the bench at the time.

Commissioner SWEET. Did he inaugurate the plan, or was it sub-
mitted to him by some one else and approved by him ?

Mr. STANLEY. He had both sides, and he gave a decision, and then
we put it into use. It was passed by the city council in Cleveland.

Commissioner SWEET. Yes; but in the argument before him was
this plan, either in whole or in part, recommended by either side — by
the city or by the company ?

Mr. STANLEY. No ; he thought of it himself.

Commissioner SWEET. He thought of that himself?

Mr. STANLEY. Yes.

Commissioner SWEET. Have you given any personal attention to
the plan now that is used in Cincinnati ?

Mr. STANLEY. Why, I do not think the Cincinnati plan is much
different from what our plan is.

Commissioner SWTEET. They got their idea largely from you, did
they not?

Mr. STANLEY. Entirely.

Commissioner SWEET. But there are some features of their plan
that differ quite widely from yours; are there not?

Mr. STANLEY. Yes ; I think so. I understand they

Commissioner SWTEET. Do you regard those changes as improve-
ments or otherwise upon your plan ?

Mr. STANLEY. Well, I really don't know.

Commissioner SWEET. You have not given that enough study ?

Mr. STANLEY. I have not given it enough study to know.

Commissioner SWEET. To pass an opinion on it ?

Mr. STANLEY. Yes; that is true.

Commissioner SWEET. I understand that the commissioner has been,
appointed or is, under the charter, appointed by the mayor?

Mr. STANLEY. He is appointed by the mayor.

Commissioner SWEET. During the 10 years that this plan has been
in operation have there been several commissioners?

Mr. STANLEY. There have been three.

Commissioner SWEET. Are they political appointments?

Mr. STANLEY. Political appointments.

Commissioner SWEET. The mayor has usually appointed a member
of his own party?

Mr. STANLEY. Always.

Commissioner SWEET. Always?

Mr. STANLEY. Yes.

Commissioner SWEET. Have they been broad-gauge men or poli-
ticians?

Mr. STANLEY. We have been very fortunate in having very good
commissioners.

•606 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Men who have worked honestly for the wel-
fare of the public and who have cooperated with the company?

Mr. STANLEY. Exactly.

Commissioner SWEET. Are there other street-railway companies in
Cleveland?

Mr. STAISTLEY. We have the only one.

Commissioner SWEET. Yon are the only one?

Mr. STARLET. Yes.

Commissioner SWEET. The entire street-railway system is under
your control ?

Mr. STANLEY. Yes.

Commissioner SWEET. Do you think, Mr. Stanley, that if a plan
similar in general principles to yours were adopted by the street
railways of the country it would relieve the situation that is now
bound to exist^

Mr. STANLEY. Yes ; I think it would help to relieve it.

Commissioner SWEET. Do you think it would help to relieve it
materially ?

Mr. STANLEY. Yes; I do. You know the city of Cleveland does a
great many things for the railway. We operate over eight bridges.
One of those bridges cost $5,000,000. Now, we do not pay a cent for
rental in going over that bridge, and at each end of the bridge they
have subways, and, as I say, that one particular bridge cost $5,000,000.
Now, we do not have to repave.

Commissioner SWEET. You do not pave between the tracks?

Mr. STANLEY. No ; the city is supposed to do that.

Another thing: For the past five or six years, a great many of our
extensions have been paid by the real estate men.

Commissioner SWEET. Abutting owners ?

Mr. STANLEY. Yes. They have assessed the real-estate men, the
abutting owners, $1 to $2 a running foot. That money goes to the
railway company so as to make that extension or help to make it.

Commissioner SWEET. You mean where new extensions have been
ordered by the council?

Mr. STANLEY. Exactly. Out in the country, where they want an
extension to develop a certain part of the city, they come to us and
say, " We would like to .have a road out there." We will say, "All
right ; how much can you afford to pay toward it ? " And in five ex-
tensions that I can name we have been paid for it.

Commissioner GADSDEN. Fully?

Mr. STANLEY. Sir?

Commissioner GADSDEN. How much did the company put up?

Mr. STANLEY. Well, we have taken these extensions and put prob-
ably a single track through it, Mr. Gadsden.

Commissioner SWEET. What?

Mr. STANLEY. Laid a single track.

Commissioner SWEET. Yes?

Mr. STANLEY. Where we were developing the territory, so as to
have the traffic there when the time comes to lay the second track.

Commissioner SWEET. Your car service in that locality would be,
of course, in proportion somewhat to the business?

Mr. STANLEY. Yes. Now. I will tell you how we handle it. We
apply that money to the receipts of that line. If the line was taking

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 607

20 or 25 cents a car-mile, we wsould take part of that money out there,
so as to raise it to the operating expenses allowed.

Commissioner GADSDEN. The average car-mile?

Mr. STANLEY. Yes.

Commissioner GADSDEN. What is your average car-mile in Cleve-
land ?

Mr. ST ANKLET. Forty- two.

Commissioner GADSDEN. That is very much higher than most
companies.

Mr. STANLEY. Yes.

Commissioner GADSDEN. You have a great density of traffic in
Cleveland ?

Mr. STANLEY. Our tripper service is four times more than our base
table. There is no other line in the United States that does that.

Commissioner GADSDEN. Is not that the real reason that 3rou have
been able to charge 3 cents, while other properties charge 5?

Mr. STANLEY. Yes.

Mr. WARREN. Mr. Stanley, with all of these things that you say
the city relieves you from — like bridge assessment, paving, and
things of that sort — if you were charged, as you used to be, or as
other companies are in those respects, how much below 5 cents would
your fare fall, when you have been making it 3 cents and 1 cent?

Mr. STANLEY. I doubt very much whether 5 cents was ever high
enough to pay a railway company. I mean by that that railway
companies never knew what depreciation was up to 5 or 10 years ago.

Mr. WARREN. In other words, you think this low fare has been
made possible largely because of the concessions that the city has
made to the company?

Mr. STANLEY. To some extent, and, of course, to the reduction in
our capitalization.

Mr. WARREN. Yes.

Mr. STANLEY. At the time we made our settlement with the city,
the particular line that my father and Mr. Samuel Andrews pro-
moted we offered to turn over our stock to the city at cost, plus 6 per
cent, and they would not take it.

The CHAIRMAN. Do your lines sprinkle the streets or any part of
them?

Mr. STANLEY. Do they sprinkle?

The, CHAIRMAN. Yes.

Mr. STANLEY. They sprinkled, but the city realized that that was
a burden to us, and they said, "Now, we will relieve you from sprink-
ling, and we will pay you for flushing the streets"; and we get out
of that somewhere, from $15.000 to $20,000 a year, but it used to cost
us for sprinkling something like $40,000 or $50,000. Unless you work
together, unless the city government and the railway —

The CHAIRMAN. I want to ask you this : You say it used to cost
you $40,000 or $50,000, and now you do it for $20,000 ?

Mr. STANLEY. Xo. At one time, we sprinkled the streets at a cost
of $30,000 or $40,000. Then tlie city saw it was a burden to. the car
riders, and they said, " Now, you flush the streets for us, and we will
pay you for flushing them." So they relieved us of sprinkling. We
flushed the streets, and we are getting out of that anywhere from
$15,000 to $20,000 a year.

608 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. You mean they pay to you .nore than actual'
cost?

Mr. WARREN. They pay for the service ; do they not ?

Mr. STANLEY. Yes.

Commissioner SWEET. Are your physical properties taxed?

Mr. STANLEY. No; we have sprinklers of our own.

Commissioner SWEET. No; I do not mean sprinklers. Is your
property taxed as it is in other cities ?

Mr. WARREN. Real estate, for example ?

Commissioner SWEET. Yes; real estate.

Mr. STANLEY. Oh, yes; we are taxed. The tax runs about 154 per
car-mile.

Mr. WARREN. The general theory is to take as much as possible off
the car riders and give them as low a fare as possible ?

Mr. STANLEY. Sure.

Commissioner MEEKER. Do you think it would be a better arrange-
ment to have a sliding scale so as to induce the company to make
improvements in service and introduce greater efficiency in connection
with the management?

Mr. STANLEY. No ; I rather think that a fair i ate should be given
to the company on its capitalization. I doubt very much — in fact,
I am satisfied that we could not to-day sell any of our stock at 6 per
cent. We would have to put our stock on the market below par.
Now, if that is so, the city should give us a higher rate of interest
and allow us to sell our stock at par, or above par.

Commissioner MEEKER. Do you think you are operating just as
efficiently as you could if you had an incentive to make a larger
profit, a larger income?

Mr. STANLEY. I think so; yes.

Commissioner MEEKER. By reducing the expense or increasing the
income ?

Mr. STANLEY. Yes; I think so.

The CHAIRMAN. We will stand adjourned until 8 o'clock to-night.

(Whereupon, at 5 o'clock p. m., a recess was taken until 8 o'clock
p. m.)

EVENING SESSION.

The commission met at 8 p. m., pursuant to adjournment.

Mr. WARREN. Before I call a witness I would like to put in a tele-
gram, if I may, from Mr. Paul Shoup, of the Pacific Electric Rail-
way, addressed to Mr. Pardee, president of the association. It is
dated Los Angeles, Calif., July 19:

There are 27 operating electric-railway companies in California, representing
several hundred millions of dollars in actual cash invested. Of these only one
actually earned 5 per cent return on investment during year 1918, and that was
due to extraordinary shipyard activities. Nineteen failed to earn interest
charges on their debts. One more earned its interest charges only because
bondholders of one issue waived collection. Another road showed net income
above all charges only because it has no bonded debt, but earned only 2i per
cent on money invested. Also true of three roads which earned about 3 per cent
on money invested. These figures illustrate the desperate situation of electric
lines in California. Wages and cost of materials have increased practically in
same proportion as in the East. Increases in wages, for example, since 1915
of conductors and motormen have averaged above 50 per cent. Cost of ties
has more than doubled. Our State taxation is on basis of gross income, which

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 609

was increased from 4 per cent in 1913 to 5i per cent in 1918, due to State
extravagance, resulting in increased rates of taxation for public service cor-
poration. In the same period value of our properties, as measured by market
quotations for the securities and by earnings above fixed charges carried to
surplus, has decreased fully 40 per cent. In California the jitneys and motor
trucks competing with electric lines are not only not taxed for maintenance
of highways but are permitted to operate over the very pavements which
electric lines are required to build and maintain for all space occupied by
tracks and 2 feet outside thereof. In addition, the State income tax on elec-
tric lines is in part used to maintain system of good roads generally so freely
used by motor trucks and jitney competitors.

Within last 30 days electric railways of State have again generally had to
face further demands for nicreased wages from conductors and motormen,
and they do not know which way to turn to secure the money to satisfy in
any degree these requests, and one of the largest systems is threatened with
strike if demands are not granted. Our costs of construction and maintenance
have been tremendously increased because of high standard of track construc-
tion and paving demanded by public where streets and other highways are used.
The old 60-pound T rail has been superseded by public ordinance with 128-
pound grooved rail for interurban cars and light paving of old days has been
superseded by concrete foundation, asphaltum-top pavements costing two and
one-half times as much. In some California cities 6-cent fares have been
granted and in a number of other cities applications for that rate are pending.
Very considerable increases in freight and passenger rates have been granted
interurban lines, but necessary relief has not followed. It is my judgment that
inasmuch as the 5-cent piece has only two-thirds of the purchasing power that
it had three or four years ago, the street-car nickel must be. replaced with a
7}-cent fare, and coin should be minted accordingly. All interurban fares will
have to be nicreased in proportion. Further than that, because of increased
costs of maintenance due to higher stands of competition of motor trucks,
jitneys, and privately owned automobiles, the following relief measures are
proposed: (1) Reduction in taxation from 5J per cent to 4 per cent of gross;
(2) elimination of franchise tax entirely; (3) elimination of paving obligation
and maintenance of paving; (4) reduction in number of free riders; (5)
service on basis of meeting public demands and not arbitrary requirements;
(6) elimination of obligations to beautify landscape with iron poles instead of
wooden poles, to put wire underground, separate grades, sprinkle or light
streets except where public bears all or larger part of expense; (7) free use
of one-man cars wherever adapted to service; (8) use of shuttle-car service
where service to and from certain points is not justified by business offered;
(9) restriction of street-car fares at even 7i cents to thoroughly settled dis-
tricts, zone systems to be provided elsewhere, and transfers to be made more
strictly limited as to number of points and extent of use. It may not be pos-
sible for national legislation to take care of these subjects, but if not, uniform
laws should be passed by various States looking toward this relief, and if it
is necessary to have subject taken up through constitutional amendments, then
it should be taken up that way, for situation is desperate and only prompt
application of relief measures by the public expressed through its govern-
ments will save the electric railway service. It must be remembered that this
service is vitally essential to the country and that no satisfactory substitute
has been found.

PAUL SHOUP.

Commissioner SWEET. Where is that from ?

Mr. WARREN. This is from Los Angeles, Calif.

The CHAIRMAN. He is president of the Pacific Electric Co.?

Mr. WARREN. Yes. I did not read the word " stop " as it occurred
through the telegram. I did not think that would help.

The CHAIRMAN. Do you recall whether the California commission
has complete control over the rates of these railway utilities?

Mr. WARREN. I do not know, Mr. Chairman.

The CHAIRMAN. I think it has.

Mr. WARREN. I think it has; that is my impression. I am advised
that they have full control now.

610 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. That was my understanding.

Mr. WARREN. Yes.

The CHAIRMAN. Well, is it not true that, at least during the early
months of the war, the California commission met every demand on
the part of the public utilities? The utilities of all kinds were get-
ting along very well in that State?

Mr. WARREN. It was my impression that the California Commis-
sion was very prompt.

The CHAIRMAN. What has happened in the last few months ?

Mr. WARREN., I suspect that the costs ha v§ mounted so fast that it
has not been possible to ask for the relief and get it ; but that is only
my own individual judgment. I do not believe the commission ap-
preciates the rapidity with which these costs have overwhelmed some
of the companies, and where a case is to be presented to a commis-
sion it has to be prepared before it is presented, of course; the com-
pany has to decide on the tariff it wants to ask to have permission
to operate and prepare the exhibits and data necessary to prove the
case. The burden of proof, I think, universally — certainly it is so in
Massachusetts — is on the company.

The CHAIRMAN. Have the companies to your knowledge been dili-
gent in presenting their claims to the California Commission 1

Mr. WARREN. That I could not say. I know that some companies
have, because some in which I am interested got relief some time ago,
but those did not happen to be street-railway companies. And the
labor item in the street railways is so very large that under the old
5 -cent fare it takes in some cases half the receipts, and the unsettle-
ment of labor is a very difficult thing to deal with. Even if an agree-
ment is signed up for a year or two years, under the effect of the war
the men will become restive and uneasy and oftentimes three months
after the agreement has been made they will intimate that unless
some further relief is given they will have to strike ; and very likely
that is what has been happening in California, because labor is more
or less active in California at all times, I think.

STATEMENT OF ME. CHARLES A. FAGAN.

Mr. WARREX. Your full name?

Mr. FAG AN. Charles A. Fagan.

Mr. WARREN. You are one of the receivers of the Pittsburgh
Railways?

Mr. FAGAN. Yes.

Mr. WARREN. And Mr. George is one of your two associates, I
think, who was here the other day.

Mr. FAGAN. Yes, sir.

Mr. WARREN. You were appointed by the court?

Mr. FAGAN. By the United States district court.

Mr. WARREN. Were you interested in the railways previously?

Mr. FAGAN. No. I was not ; except about 20 years ago I was counsel
for one of the underlying companies of this company.

Mr. WARREN. But of late years you have not been interested in
them?

Mr. FAGAN. Of late years I have not been interested in them in
any way whatever.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. '611

Mr. WARREN. No more than Mr. George is?

Mr. FAGAN. Not at all.

Mr. WARREN. When were you appointed?

Mr. FAGAN. On the 23d of April, 1919.

Mr. WARREX. So that you have been receiver about four months

Mr. FAGAN. I was appointed one of the original receivers. At that
time my associates and I disagreed about the policy of the company
and two of them resigned and thereafter Mr. George and Mr. Tome
were appointed. Mr. Tome, by the way,, was president of this com-
pany at the time of the receivership.

Mr. WARREN. When you were appointed did you believe that the
company had been well managed or poorly managed, or did you have
no opinion about it?

Mr. FAGAN. Well, do I have to answer that question?

Mr. WARREN. I will not press the question if you do not care to
answer it.

The CHAIRMAN. Read the question.

(The question was then read as above recorded.)

Mr. FAGAX. I might answer that by saying that the general opinion
was that it was not properly managed — I mean of the community.

Mr. WARREN. The genei'al feeling in the community?

Mr. FAGAN. Yes.

Mr. WARREN. Since }7ou have been a receiver you have had an
opportunity to acquaint yourself with the methods of management,
I presume?

Mr. FAGAN. Yes.

Mr. WARREN. And what do you think of the practical manage-
ment ? I am not speaking of the financial operations, but the opera-
tion of the railway.

Mr. FAGAN. I think it was fairly good.

Mr. WARREN. And what are the conditions prevailing in Pitts-
burgh with respect to the expenses and income of the company?

Mr. FAGAN. The income of the company is about $15,000,000 a
year. Of that, about 05 per cent is paid in wages.

Mr. WARREN. Sixty-five per cent of the income?

Mr. FAGAN. From 65 to 70 per cent of the income is paid in wages.

Mr. WARREN. I did not overstate it, when I said 50 per cent in
some cases; did I?

Mr. FAGAN. No. There are large municipal charges and franchise
charges against the company consisting of obligations to pave the
streets in the principal municipality through which the lines run, to
wit, the city of Pittsburgh, which amount to 40 per cent of the pav-
ing of the streets over which the lines run.

This company passes over about 150 bridges. Some of them in
the outlying municipalities like the boroughs and townships are
toll bridges. In the city of Pittsburgh where the greater part of
the business necessarily is done all of the bridges are free to all sorts
of passengers and vehicles except this railway company, and under
an old ordinance the railway company has always been charged for
tolls over those bridges and is still charged for them. There are also
pole taxes for the poles which are erected along the lines upon
which all of those municipalities collect tax.

612 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The bonds outstanding against the company amount to about
$50,000,000. There are leases upon which rentals are provided
amounting to about eight or nine million dollars.

When we took charge of this company, of course it was insolvent.
The road had been allowed to run down for G or 7 years. "We found
the physical condition of the company such that it was unsafe to
life or limb in some cases to travel over it. We were appointed dur-
ing the activities of the war, on the 23d of January, 1918. We
are in a district where a great many munition factories exist. In the
preceding winter the road had absolutely fallen down on account
of the severe weather, the immense snowstorms, and so forth, so that
in some instances you would have to wait for 2 hours at a time to
get a car/ On account of very great complaints that were made
about the inability of the company to convey back and forth the
munition workers, the Federal Government took cognizance of the
situation, and they sent a representative of the Navy Department
and also one of the War Department to insist upon the rehabilitation
of the road and the placing of the tracks in proper condition tc*
convey these munition workers. A board, I presume, of a Federal
nature, or quasi-Federal nature, called the war productions commit-
tee, which consisted of members of the cluamber of commerce acting
in conjunction with the representatives of the War and Navy Depart-
ments, insisted upon whateA'er money came into the hands of the re-
ceivers being used for the purpose of keeping up the service. That
was done to such an extent that the service became practicable, and we-
were able to convey these munition workers back and forth to their
homes. That entailed the expenditure of nearly all of the available
money that came into the hands of the receivers.

In the meantime a controversy arose upon my part on the one
side and the other receivers on the other side concerning the policy
of paying interest on the capital charges of the company. I main-
tained that all of the money ought to be put into the service of the
road until it was put in proper condition. Upon that subject we
disagreed and the other receivers resigned; thereupon Mr. George,
and Mr. Tome were appointed in their place.

Since that time —

The CHAIRMAN. Has your policy been followed since the ap-
pointment of the new receivers?

Mr. FAGAN. I was just coming to that. Since that time the re-
ceivers have agreed upon the policy of maintaining the service in
a proper way to accommodate the public. In order to do that, we
have been obliged to forego the payment of the capital charges. In
addition to that, we have not paid any of these municipal obligations.
And while we have improved the service and it is admitted gener-
ally that we have done so, it has been done at that expense, so that
now the only charges that are paid are the wages of the employees
and the payment of material men and for materials.

Just shortly before the receivers took charge of the company an
increase in the wages of the emplo}7ees had been effected. Imme-
diately after the receivers were appointed it became necessary to-
raise fares in order to have sufficient money to operate the road.

Commissioner SWEET. You are speaking of the first appointment
now in January, 1918?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 613

Mr. FAGAX. About January, 1918. We did increase the fares
which at that time were, in round numbers, about 5^ cents a fare.
In lieu of that we established a zone system consisting of two zones, in
the first of which, extending about 2 miles from the center of the
city in all directions, we made the fare 5 cents, and in the zones
beyond that within the city limits, 7 cents. The result of that
increase in fares was that the riders fell off about 14 per cent, but
notwithstanding that fact the revenue increased, I think, about
$600,000 for the year, gauging it by month to month.

Mr. WARREN. About when was that change made effective, Mr.
Fagan ?

Mr. FAGAX. I would say in January, 1918. We have proceeded
with those fares at that basis up until this time.

In the meantime, shortly after we went into office we increased the
wages of the workmen. When this governmental activity began the
men insisted upon another increase, which we opposed on the
ground that the receipts of the company did not ]ustify it. The
representatives of the War and of the Navy Departments and of this
war productions committee of the chamber of commerce insisted
upon the increase being granted; and thereupon we granted it. In
the meantime, we were using a great deal of money to rehabilitate
the road; in fact all the spare money we had. Things went along
in that way until the expiration of the then existing contract, which
expired on the 30th of April of this year. And under the terms of
the contract the employees notified us that they would require an
increase of the existing rate at that time, the maximum of which
was 48 cents an hour to CO cents an hour. We opposed that in-
crease and, we thought, demonstrated that the revenue was not
sufficient to justify it. However, the matter was carried on and we
had conferences covering a period of nearly a month with the result
that the employees, becoming dissatisfied, ordered a strike ; and the
strike went into effect last month and lasted about 4 days. And in
order to bring the strike to a termination, we agreed with the work-
men that we would join with them in the submission of the con-
troversy to the National War Labor Board for arbitration; which
we did. That matter is now pending before the National War
Labor Board. No decision has been rendered on it.

Now that is about the situation.

The CIIAIRMAX. Is there anything in that agreement which would
prevent the men from striking if they are not satisfied with the action
of the War Labor Board?

Mr. FAGAX. No. There is a provision in the agreement, first,
that — we were responsible for this covenant in the agreement — that
the decision of the National War Labor Board was to be subject to
the approval of the United States district court, that we agreed that
we would recommend for the approval of the United States courts
the decision of the National War Labor Board. And on the other
hand, the men exacted a covenant that in the event that they would
not agree to the final award that they would have 20 days in which
to resume their strike.

Mr. WARREN. That was the agreement submitting it to the Na-
tional War Labor Board?

Mr. FAGAX. To the National War Labor Board.

614 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Did you have an agreement with them otherwise?
Are they members of the Amalgamated Association?

Mr. FAGAN. They are— well, I do not know; the Federation of
Labor I think £hey call it.

Mr. WARREN. I guess if they are street-railway men it is more
likely to be the Amalgamated Association.

Mr. FAGAN. Well, whatever it is, they belong to the national or
international association, I have forgotten the technical name of it.

Mr. WARREN. The Amalgamated Association of Street Railway
Employees of America.

Mr. FAGAN. Yes. I do not know the name of it. I can not recall.
Amalgamated. I know they belong to the street-car employees' as-
sociation to which all of these other concerns belong.

Commissioner GADSDEN. They belong to the Amalgamated Asso-
ciation.

Mr. FAGAN. Well, I do not know.

Mr. WARREN. I ask only to identify it. Was there a written
agreement with them as regarded their wages?

Mr. FAGAN. Yes.

Mr. WARREN. Between the company and the men?

Mr. FAGAN. Yes.

Mr. WARREN. That was the agreement which expired on the

Mr. FAGAN. The 30th of last April.

Mr. WARREN. On the 30th of last April ?

Mr. FAGAN. In other words, on the 1st of May.

Mr. WARREN. Do you happen to know whether that contained a
provision for arbitration of grievances?

Mr. FAGAN. I think it did ; yes, I am sure it did.

Mr. WARREN. The Amalgamated usually has an arbitration agree-
ment in it.

Mr. FAGAN. Yes.

Mr. WARREN. But anyhow the strike took place?

Mr. FAGAN. Yes. We agreed to submit it to the United States
court and they declined to do it.

Mr. WARREN. They declined to submit it to the court?

Mr. FAGAN. Yes.

Mr. WARREN. As I have followed your statement, you increased
the wages twice before the strike?

Mr. FAGAN. The wages were increased just before we went into
office.

Mr. WARREN. That was by the old company ?

Mr. FAGAN. Yes. I would say that would be in December, 1917.
Immediately upon our going into office we increased the wages.
Then when this Government activity began we increased the wages
again, and then if this award should be made we will have increased
the wages four times.

Mr. WARREN. And the last time raised it to 48 cents, which wras
the maximum of the War Labor Board.

Mr. FAGAN. Yes. These wages, as I understand it, about five
years ago were 30 cents an hour, the maximum wages. If these
gentlemen in their application should be successful they will get 60
cents, which would be just double what they got five years ago.

Commissioner GADSDEN. What does that mean in dollars and cents?

Mr. FAGAN. From 30 cents an hour to 60 cents an hour.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 615

Commissioner GADSDEN. I mean do you happen to cany in your
head the figures it means to the company approximately ?

Mr. FA^AN. We have 8,500 employees who are members of this
association. We have 3,500 other employees who are not members
of the association. And the rule heretofore has been that when the
union employees were raised the nonunion ;men should be raised
a commensurate amount. It costs $80,000 a cent to raise these wages.
In other words — well, in round figures I figured out in my mind one
day it would cost us $2,1000,000 to make this increase per annum.

Mr. WARREN. That of <rourse would mean a further increase of
passenger rates.

Mr. FAGAN. Now, I forgot about that. Just about the time that
tiiis labor dispute was on and before that time we recognized that
if we wanted to carry on this company we would have to have
another increase in rates.

We have a public service commission in Pennsylvania which re-
quires that a notice of 30 days shall be given of any intended in-
crease. As I said, we had our minds made up about the time this
came along to ask for an increase, and while this question was pend-
ing we made an application for the increase because we finally figured
out that it would not be fair to these men to postpone the time of
asking for the increase until this case was decided, that the War
Labor Board ought to have all the information on the subject, and we
therefore did it before the argument before the War Labor Board
in Washington here. That, of course, provides for a flat rate of
7f cents without regard to zones. We obliterated the zone. And
by the sate of tickets it is 7£ cents, which would mean tickets of four
for SO cents or multiples of that and 10 cents if a cash fare was
paid. Now, we figured that, under ordinary circumstances, we could
get along with that and operate the road and possibly pay something
on these capital charges.

Commissioner SWEET, Did you include in that an increase in
wages or leave them as they were ?

Mr. FAGAN. Well, I apprehend that, considering the falling off
in passengers, which appears to be the inevitable result of these
increases in fares, if these wages were increased a substantial amount
we would be then or now just about where we are and there would
be nothing left to pay on account of the capital charges nor on
account of these municipal obligations.

Mr. WAB«EN. In other words should you say that you were not
earning. <H- gust earning, your operating expenses at the present time ?

Mr. FAGAN. That is all we are doing, after paying the wages
and material men and for materials.

Mr. WARREN. Nothing left after paying operating expenses?

Mr. FAGAN. Nothing left at all.

Mr. WARRENS Nothing left to pay these municipal charges?

Mr. FAGAN. Not a cent.

Mr. WARREN. Is there enough left to pay your regular taxes?

Mr. FAGAN. Well, we have paid our State taxes, our corporate
taxes.

Mr. WARBEN. You stated, I think, that you raised the fares in
January, 1918, and you stated how much the traffic fell off, but I did
not catch it.

Mr. FAGAN. Fourteen per cent I said.

616 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. But you gained nevertheless about how much?

Mr. FAGAN. About '$600,000.

Mr. WARREN. Did you follow during 1918 the street-railway sta-
tistics of any other road enough to notice whether the traffic of all
roads fell off in 1918 ?

Mr. FAGAN. That was my recollection; yes.

Mr. WARREN. That was the year, if I am not mistaken, when the
weather was so very severe in Januar}^ and February.

Mr. FAGAN. Yes. I think all railways fared about the same.

Mr. WARREN. So that part of your loss -of revenue or of traffic
might be due to that?

Mr. FAGAN. Yes.

Mr. WARREN. There were also the coldest days, socalled, in Janu-
ary and extending into February.

Mr. FAGAN. Yes; and in season, as I say, this road absolutely fell
down.

Mr. WARREN. And then Pittsburgh, I suppose, suffered from the
influenza epidemic as all the rest of the country did ?

Mr. FAGAN. Yes; we suffered from that, and during that time our
income was depleted about one-half.

Mr. WARREN. Are all those losses included in this loss of 14 per
cent of traffic?

Mr. FAGAN. Yes. I might say, I just overlooked an item. When
we were appointed, under the decree of the court appointing us, we
were required to pay the prereceivership debts, amounting to $900,-
000, which had accrued within four months of the time of our
appointment. We have been able up to now to pay only 20 per cent
of those. We have paid two installments of 10 per cent each since
we have become receivers.

Commissioner SWEET. What is the nature of those debts?

Mr. FAGAN. For materials wholly — materials furnished to the
company for the upkeep of the road for the four months preceding
the appointment of the receivers.

Commissioner SWEET. Was that after the application of the ap-
pointment of the receivers and before they were actually appointed ?

Mr. FAGAN. Yes. WThen they were appointed the court in its de-
cree appointing them provided that they should pay the obligations
owing by the company for materials furnished within four months
of the time of the appointment of the receivers.

Mr. WARREN. I suppose the court anticipated that you might be
able to pay those in addition to paying your current expenses?

Mr. FAGAN. Yes ; I think so.

Mr. WARREN. But it did not prove so.

Mr. FAGAN. No, only to the extent I say — that we paid two in-
stallments of 10 per cent each.

Mr. WARREN. In the entire period covered by the receivership?

Mr. FAGAN. Yes; and one of those just within a week.

Mr. WARREN. In your judgment, Mr. Fagan, is a substantial in-
crease of rates necessary to rehabilitate that company?

Mr. FAGAN. Absolutely, if it will bring the revenue. The revenue
is the last guess about the thing. I do not know to what extent this
will bring an increase. During the period of this strike about which
I have spoken it wras demonstrated in our community that this com-
pany of ours was not a monopoly. That strike lasted for four days

PROCEEDINGS OF FEDERAL ELECTRIC. RAILWAYS COMMISSION. 617

and nobody complained about being discommoded. We have 15
steam-railroad lines running out of our city through the suburbs
and in the city, with stations in the city; and among them, plus a
disposition upon the part of everybody who had an automobile to
pick up people and help them along and carry them back and forth,
there was decidedly little inconvenience, so that I think on that
question it narrows itself down to the riding habit.

Mr. WARREN. And yet you anticipate a considerable increase in
revenue ?

Mr. FAGAN. Of course we do. We hope to have an increase, but
judging the future by the past we can not count on the revenue being
commensurate with the increase.

Mr. WARREN. The percentage of increase?

Mr. FAGAN. Yes.

Mr. WARREN. I think, though, that you may be not quite hopeful
enough if you base that judgment on the 1918 figures, because I
think you will find you would have had a considerable loss of traffic
if you had left your fares the same in 1918.

Mr. FAGAN. Yes ; I think so, too.

Mr. WARREN. I judge from the method you are adopting of in-
creasing the fare this time — a flat increase to 7£ cents for tickets and
10 cents for cash — that you have reached the conclusion that in Pitts-
burgh a flat increase is more desirable than dividing the city into
two or more zones.

Mr. FAGAN. We thought so; because when the city was divided
into zones, we got no credit from the people who lived in the cheaper
zone, and it gave an argument to the people who lived in the higher
zone against the inequity of the proposition.

Mr. WARREN. Well, those charges, as I understood Mr. George and
as I have otherwise gained the impression from literature upon the
subject— M;he 7-cent fare in the outer zone, if I may call it that, was
charged to everybody whether he rode only in that zone or whether
he rode in both zones.

Mr. FAGAN. Yes.

Mr. WARREN. Did you consider at all the possibility of making
two 5-cent zones for the local rides within either zone?

Mr. FAGAN. No; we did not. Well, we did consider that, but we
did not think it was feasible. We also considered having in the 7-
cent zone a lower rate for collateral streets, cross streets, where you
would ride only three or four squares; but we were argued out of
that by experts and managers of the road and those who had had
experience.

Mr. WARREN. That is all that I wish to ask, Mr. Chairman.

The CHAIRMAN. When will that 7^-cent fare go into effect?

Mr. FAGAN. The 1st of August.

The CHAIRMAN. And that applies in this 5-cent zone as well as.
in the 7-cent zone?

Mr. FAGAN. Yes.

The CHAIRMAN. Was that ordered by the public-service com-
mission?

Mr. FAGAN. Under the act establishing the public-service com-
mission, upon filing application we are authorized, or any railway
company is authorized, to establish the fare, the hearing upon which
may take place 30 days afterwards. Of course, this is all subject,

1«0<U30— 20 40

618 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

to the decision of the public-service commission. And I might say
in passing that the public-service commission has not yet approved
of these prior increases we made.

The CHAIRMAN. Do you think that the 7|-cent fare in your con-
gested zone will result in a material reduction in the number of pas-
sengers ?

Mr. FAGAX. I apprehend that it will.

The CHAIRMAN. Do you expect it will result in an increase in the
gross earnings?

Mr. FAGAN. Well, we calculate it will.

The CHAIRMAN. Do you hope that the increase will be sufficient to
take care of your operating expenses on fixed charges ?

Mr. FAGAN. I do not.

The CHAIRMAN. What will be the result if it does not?

Mr. FAGAN. Well, one result already that has obtained is that one
of these underlying companies has asked the court for leave to fore-
close its mortgage and the court has granted the leave, and we are
getting ready to make the foreclosure.

The CHAIRMAN. Assuming that property is sold, what is the ulti-
mate result ?

Mr. FAGAN. Now this particular property could be operated as an
independent unit. It is not absolutely dependent upon cooperation
with the general system.

The CHAIRMAN. What is its mileage?

Mr. FAGAN. Our whole mileage is 620 miles, and this is about 20
per cent of that, about 120 or 130 miles.

The CHAIRMAN. Does it occupy the streets in the important part of
the city ?

Mr. FAGAN. Well, in an important part for a railroad system, but
not in the valuable part.

The CHAIRMAN. Then if it operates as an independent system, you
will have the sum of two local fares if a person is traveling from one
line to another.

Mr. FAGAN. I can not see any way out of it.

The CHAIRMAN. Has the commission the power to order physical
connection and a through rate between those lines ?

Mr. FAGAN. I do not think so.

The CHAIRMAN. Very well, that is one thing. Now suppose that
that company is not sold on the foreclosure of the mortgage, then
what is going to be the result ?

Mr. FAGAN. Then that company would take the same place as other
underlying companies and have to depend for any return upon the
prosperity of the whole system.

The CHAIRMAN. Looking at the system as a whole, what does the
future hold in store for it if the 7^-cent fare does not bring sufficient
revenue ?

Mr. FAGAN. I can not see anything except severance of the under-
lying companies from the system.

The CHAIRMAN. How many underlying companies are there?

Mr. FAGAN. Well, at the base there are about 208.

The CHAIRMAN. I am sure you do not mean that there would be
208 independent companies operating in the city.

Mr. FAGAN. Well, there are not 208 companies except in this
respect : This entire system is built upon about 208 underlying com-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 619

panics. Those 208 underlying companies have been merged and con-
solidated and remerged and reconsolidated until they now consist of
practically three underlying systems.

The CHAIRMAN. Then you might have three independent systems
operating in the city ?

Mr. FAGAN. Yes.

The CHAIRMAN. Very well. Would that seriously affect the
public ?

Mr. FAGAN. Well, it would seriously affect them inasmuch as they
would probably have to pay two fares where they have now to pay
only one; or in some cases would have to pay three where they pay
now only one.

The CHAIRMAN. Suppose these companies operated independ-
ently, do you think they could subsist on a 5 cent fare?

Mr. FAGAN. I apprehend that two of them could.

Mr. WARREN. On a 5-cent fare?

Mr. FAGAN. On a 5-cent fare; yes.

The CHAIRMAN. What makes you think so?

Mr. FAGAN. Well, they happen to be companies that, as I say,
might be operated independently. They run through districts not
very long and where a great many passengers could be served, and I
think perhaps they could operate at a profit.

Commissioner GADSDEN. On 5 cents?

Mr. FAGAN. Yes.

Mr. WARREN. Even with these present rates of wages?

Mr. FAGAN. Well, now, I have not taken into consideration the
increased cost of labor and materials and material men. Why,
looking at it from that viewpoint, I think it is very doubtful
whether they could or not.

The CHAIRMAN. You have got to have more money if you are
going to maintain that as a single system.

Mr. FAGAN. Yes.

The CHAIRMAN. If the 7-cent fare does not produce sufficient rev-
enue do you think that 8 cents will ?

Mr. FAGAN. Seven and a half cents is the proposed increase — 1\
cents for tickets and 10 cents for individual cash fares.

The CHAIRMAN. Yes.

Mr. FAGAN. Why, we hope it will ; and that is as strong as I can
put the feature of that situation. It is an experiment largely.

The CHAIRMAN. How does the public look upon this increased
fare?

Mr. FAGAN. The public in a general way, so far as individuals
are concerned and so far as trades bodies — civic bodies, of which we
have a great number, have not indicated very much about what
their feeling is. Some of the minor municipalities, the boroughs,
have shown a disinclination to the increase. The principal muni-
cipality— the city of Pittsburgh, consisting of the council and the
mayor, who look after such things as this, privately sympathize and
commiserate with us and say it has to be done, but publicly they op-
pose it and have filed an objection before the public-service com-
mission against the increase.

The CHAIRMAN. Have you paid any of the capital charges since
you became receiver?

620 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. FAGAN. Yes, sir; that is, the receivers — or while I was re-
ceiver under the first receivership; none since the other receivers
were appointed in last January; none has been paid at all.

The CHAIRMAN. The condition that confronts you is due entirely
to the increased cost of labor, supplies and materials, and fuel ; is it
not?

Mr. FAGAN. I would say yes to that question.

The CHAIRMAN. Because up to the rising tide of prices you were
operating successfully; were you not?

Mr. FAGAN. Well, if you mean that from a financial standpoint,
by paying the interest on the capital charges — yes. If you mean
satisfactorily so far as the service of the system was concerned, I
would say no. In other words I think this system is about at least
six years behind in the rehabilitation and upkeep of the physical
system.

The CHAIRMAN. How many years ago did this let down in the main-
tenance and condition of the property become apparent ?

MR. FAGAN. About six years ago.

The CHAIRMAN. What was the cause of it six years ago?

Mr. FAGAN. Well, my opinion is that the company in the beginning
or at these different times was overcapitalized ; that the capital stock
was too high ; that the bonds wrere not sold at par ; that favorite con-
tractors were given the contracts for the building and the rehabilita-
tion of the road ; and that all of those things tended to the situation
which finally developed.

The CHAIRMAN. To what extent was the system overcapitalized?

Mr. FAGAN. Well, now, as I tell you, the bonds of this company
amount to about $50,000,000. I do not know this of my own knowl-
edge, but the conditions are that those bonds were not sold at par —
they were negotiated through favorite banks at a sum below par, a
great many of them.

The CHAIRMAN. How much below par? What did it cost to sell
them ?

Mr. FAGAN. Well, in some cases I have understood they were sold
at about 20 per cent below par.

Mr. WARREN. What rate were they bearing?

The CHAIRMAN. What about the stock ?

Mr. FAGAN. Well, most of the stock, I mean of the common stock —
there are two classes of stock in this company, the preferred and com-
mon stock — my information is that the common stock was very
largely taken by promoters for the payment of their compensation,
for the compensation of engineers, and for the compensation of law-
yers and, in some instances, I think as a bonus for the sale of the
bonds.

The CHAIRMAN. Do you know whether the common stock represents
any money that was actually put into the plant ?

Mr. FAGAN. I think it does not. Now, I do not know that.

The CHAIRMAN. How much common is there?

Mr. FAGAN. About $50,000,000, 1 think.

Mr. WARREN. In addition to the preferred ?

Mr. FAGAN. Yes.

Mr. WARREN. How much is that?

Mr. FAGAN. It is equally divided.

The CHAIRMAN. Equally divided?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 621

Mr. FAGAN. Yes.

The CHAIRMAN. Fifty-fifty — fifty million more preferred?

Mr. FAGAN. Yes.

The CHAIRMAN. Did the preferred represent any money actually
invested in the plant ?

Mr. FAGAN. Well, really, I can not say that.

The CHAIRMAN. Has this property been valued by any public body £

Mr. FAGAN. It is in the process of being valued and has been under
a body called the valuation conference, which is a subordinate body
to the public-service commission, from which we expect a report
almost any day now. That has been in process of investigation I
think for about a year and a half and at the enormous cost of five or
six hundred thousand dollars. Now, I understand — by the way, this
may be interesting to you — that the basis upon which this valuation
is being made is first upon the original cost of the company and
secondly

The CHAIRMAN. Have you figures to show the original cost?

Mr. FAGAN. I think so. They have access to all our books and
they just go down there and take charge of them as if they owned
them.

The CHAIRMAN. What do they find the original cost to be?

Mr. FAGAN. They have not reported. We are waiting for the re-
port. It is to be based upon the original cost and then upon what
they call the historical value, which is based

The CHAIRMAN. I think I am quite familiar with the theory.

Mr. FAGAN. Yes, and then the ultimate object is to ascertain what
is the fair value.

The CHAIRMAN. The present fair value?

Mr. FAGAN. The fair present value.

The CHAIRMAN. You need not explain the theory. That is quit&
well understood.

Mr. FAGAN. Yes. Upon that they give their idea of what th&
fares ought to be, based upon this fact.

The CHAIRMAN. Do you believe, if a fair value of that property
is established and the whole operated as one system economically and
still giving good public service, that a 6-cent fare will be fair and
reasonable to the investors as well as to the public ?

Mr. FAGAN. I think not.

The CHAIRMAN. You think you have to have more than 6 cents
under those conditions?

Mr. FAGAN. Absolutely. I do not think there is any question about
it. My own judgment is that under the present living conditions
and wage conditions and costs of material that this road can not b&
operated and pay a decent return to the people who own it — I mean
the bondholders — under a fare less than 10 cents.

The CHAIRMAN. You stated that there is more or less suspicion
of municipal corruption and collusion in fixing the contracts and
things of that kind. Has anything of that kind been going on while
the road has been in the hands of the receivers, to your knowledge?

Mr. FAGAN. Absolutely not. I know that.

The CHAIRMAN. Contracts are let on open bids?

Mr. FAGAN. Openly. No contract could be let under this receiver-
ship unless it is open.

622 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. Had the city or the State commission attempted
to exercise any jurisdiction over the operation or the construction or
the letting of contracts or the expenditure of money prior to the time
you became receiver?

Mr. FAGAN. No. The only activity that the city has shown in re-
lation to this railway company has been to always criticize it, and
since the public-service commission was established — this public-
service commission is a recent creation ; it has only been in existence
about five years — is to file petitions against anything that the rail-
way company wanted. Now, they among others were anxious to
have this receivership created and we thought that when the receiver-
ship was created that that would probably end the antagonism of the
city, but instead of that they just carried it on the same as they al-
ways have. This railway company heretofore has not been a very
popular function in the city of Pittsburgh and politicians have al-
ways taken advantage of the virtue of having a propaganda against
the railway company. Now, as I say, we thought that would end
with the appointment of receivers, and it did end to a very large
extent; but when any concrete proposition is made like the increase
of fares, the city immediately comes in and files objections to it.

The CHAIRMAN. Were the politicians holding the company up?

Mr. FAGAN. Do you mean for sordid purposes?

The CHAIRMAN. Yes. I have heard it intimated that sometimes
they do — not in Pittsburgh.

Mr. FAGAN. In what period of time do you mean ?

The CHAIRMAN. Prior to the receivership, sir. I do not make any
such imputation since you have taken charge.

Mr. FAGAN. I wanted to fix the time. The politicians and the pro-
moters of street railways when these affairs were going on were
usually acting in conceit, at least they were in our bailiwick; I do
not know how they were in other places, although I have heard of
som,i other places where that situation did exist.

The CHAIRMAN. If these properties go back to private operation
and control again, how are you going to prevent a recurrence of
that old condition?

Mr. FAGAN. Well, of course — do you mean these receivers or the
public ?

The CHAIRMAN. The public.

Mr. FAGAN. I do not know except by the different standards of
honesty that prevails now and the difference in the publicity that is
given to all these public questions. And in our State by the existence
of this public-service commission, which, by the way, is a very
efficient and capable body which did not exist at the time when
these corporations were put together — at the time when they were
put together and when these securities were exploited the only test
was whether you could sell them. You had to get no consent from
anybody like the public-service commission.

The CHAIRMAN. Have you attempted to sell any bonds since you
were appointed receiver?

Mr. FAGAN. No, we have not any to sell; but I know something
about the market.

The CHAIRMAN. Have you had to raise any new capital ?

Mr. FAGAN. No; we have not raised any capital. We have issued
no certificates.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 623

The CHAIRMAN. You have heard something about this cost-of-
service plan, have you not? •

Mr. FAG AN. I just read it in the paper the other day at home when
Mr. George, one of my coreceivers, testified here, and I left town
the day he got back to town. I did not have time to go into the
subject with him.

The CHAIRMAN. You are not sufficiently familiar with that sub-
ject to discuss whether or not that would afford a suitable remedy for
the Pittsburgh situation?

Mr. FAGAN. I do not know enough about it to say that, except
this, that if the cost-of-service plan means that a railway company
should be run at cost, I think it is a very dangerous thing, because
then the door would be open to the labor to ask the highest cost
possible that could be obtained, and so as to materials and as to
material men. It might be all right if it was properly safeguarded
under suitable limitations, but if it is as the term implies I do not
think it would be a good thing.

Mr. WARREN. It would be a supervised cost.

Commissioner GADSDEN. I understand that the bonded indebted-
ness in that company is about $50,000,000 ?

Mr. FAGAN. Yes.

Commissioner GADSDEN. And your recollection is that the bonds
sold at about 80?

Mr. FAGAN. Well, I say that I have heard that some of them sold
as low as 80. That would be an issue or part of an issue to a bank
who would take them up and then the}' would probably sell them at
par and the profit would go to the bank and not to the company.

Commissioner GADSDEN. That would represent about $40.000,000
of real money in this property, would it not ?

Mr. FAGAN. If they all sold at that price. I never heard that they
all did.

Commissioner GADSDEN. So that even if the common and preferred
stock represented nothing it would look as if there was real money
in that property to the extent of about $40.000,000 or in that neighbor-
hood?

Mr. FAGAN. Yes, I would say that; although in the face of this
investigation being made by the public-service commission and which
report will probably be made public in a few days, it looks a little
mal apropos for me to give an opinion.

Commissioner GADSDEN. What I was getting at is, if that is so or
approximately so, how is that $40,000,000 or any part of it to be taken
care of under existing conditions?

Mr. FAGAN. As I tell you, this road has approximately 600 miles
of line — that is, 300 miles of double track. Under the present con-
ditions, costs, it would take $70,000 a mile to build that road. That
would be' $42,000,000. Now that is without regard to the rolling
stock; and we have as many cars on our road, I heard it testified
recently by the vice president of the Baltimore & Ohio Railroad, as
the Baltimore & Ohio Railroad has passenger cars. Now that is plus
power houses, barns, and all that sort of thing, so that there is actu-
ally, according to present prices, $42,000,000 invested in the tracks,
and I would say in a rough guess, twelve or fifteen million dollars
in these other things I have mentioned.

624 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner GADSDEN. Now, Mr. Fagan, even allowing 6 per cent,
which of course is too low*a rate of interest for these days, and allow-
ing 4 per cent depreciation that property ought to earn — that would
be 10 per cent on $40,000,000 or $4,000,000 net earning. Do you see
any possible way it can earn anything like that?

Mr. FAGAN. I can not.

Commissioner GADSDEN. Under an}7 system of charges, I mean?

Mr. FAGAN. Oh. yes. You could get up a system of charges that
would earn it, provided the passengers would continue to ride.

Commissioner GADSDEN. Yes ; that is what I mean.

Mr. FAGAN. Yes.

The CHAIRMAN. What have you to say as to the proposition that
the city has got to appropriate sufficient money out of its taxes to take
care of the deficit and provide proper service?

Mr. FAGAN. I think I told you we have all these bridges which
are free to everybody except the railway company and upon which
we pay tolls. We pay tolls for cleaning the streets which do not need
any cleaning at our hands. Those obligations were imposed in the
days of horse cars to clear up the drippings from the horses. We
pay 40 per cent of the paving expenses of the streets over which we
run, and I thought as one of the means by which this difficulty could
be obviated, it was to have the city forego these charges, and we in-
tend to take that question up with the city in the near future.

Commissioner GADSDEN. My recollection is that Mr. George testi-
fied that that was about $200,000 ; did he not ?

Mr. FAGAN. I think in the aggregate it amounts to $385,000.

Commisisoner GADSDEN. That goes far toward paying —

Mr. FAGAN. We pay $75,000 a year for this alleged cleaning. Well,
we do not have anything that causes cleaning. Electric cars do not
make the same drippings that horses do, and we are the only people,
as I say, who pay any tolls on bridges. Automobiles and evei^thing
else are free.

The CHAIRMAN. Of course, we people who use automobiles are in a
special class. [Laughter.]

Mr. FAGAN. Yes. Well, we poor fellows have to ride in cars once
in awhile.

Mr. WARREN. Do you reside in Pittsburgh yourself?

Mr. FAGAN. Yes, sir.

Mr. WARREN. And is it your opinion that the unified system which
now exists there should, if possible, be preserved?

Mr. FAGAN. Absolutely.

Mr. WARREN. It serves the city much better than if it were split
up, even in three ?

Mr. FAGAN. Yes, sir; there is no doubt about that, and, further
than that, the people are satisfied with it, the way it is running now.

Mr. WARREN. Is there any reason, under the law of Pennsylvania,
why there should have been so many companies originally entering
into this combination?

Mr. FAGAN. No. This was just the natural growth that occurred
there, the same as it did in every other place, through those days of
mergers and combination and exploitation and sexploitation.

Mr. WARREN. I had an impression that it was easier to get a char-
ter in Pennsylvania in one borough than it was to go through three
or four. That is not so ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 625

Mr. FAGAN. No.

Commissioner SWEET. These companies have not all been operating
companies, have they?

Mr. FAGAX. Originally.

Mr. WARREX. The 200?

Mr. FAGAX. Originally they were.

Commissioner SWEET. I understood Mr. George to say that some
of them were only paper companies and never had actually operated.

Mr. FAGAX. Well, there may have been some of that class. I would
not say that is not correct. It appears to be preposterous that there
should be 208 companies in a combination that comprises only 625
miles of track, but some of those, companies run over a very small
territory — some of them only half a mile.

Mr. AVARKEX-. It would be an average of 3 miles to a company.

Mr. FAGAX. Yes, sir. I think they were all real bona fide com-
panies in the beginning.

Mr. WARREX. Have you had any occasion to, or have you made any
attempt to, issue receivers' certificates?

Mr. FAGAX. No, we have not.

Mr. WARREX. You spoke of capital charges which were paid dur-
ing the last six years before the receivership.

Mr. FAGAX. Yes.

Mr. WARREX. What did you include in that — the interest on those
bonds?

Mr. FAGAX. The interest on the bonds and the rentals to the under-
lying companies.

Mr. WARREX. What is the occasion of this valuation? Why is it
being made at this time ?

Mr. FAGAX. The purpose of it is to ascertain the present value of
the property, and upon that to base what should be a proper return,
for the purpose of furnishing funds to operate the company and
pay the capital charges.

Mr. WARREX. Looking to a reorganization, perhaps.

Mr. FAGAX. Well, eventually, I presume. In fact, this valuation
board began its functions before the receivers were appointed.

Mr. AVARREX. Yes.

Mr. FAGAX. This trouble as to the financial condition of this com-
pany has been prevalent for four or five years. It was not a new
thing when the receivers were appointed.

Mr. WARREX. So the public-service commission took steps to have
this valuation made?

Mr. FAGAX. Yes.

Mr. WARREX. That is all.

Mr. FAGAX. I was told when I came here that if I had any sug-
gestions to make about this matter, I ought to make them.

The CIIAIRMAX. We would be glad to have them.

Mr. FAGAX. This one thing has occurred to me, and this arises
from the fact that I was here recently appearing before the National
War Labor Hoard. That board, of course, as everybody knows, is a
Federal institution, and during the existence of the war was given
authority to fix the wages of the men. I presume that that function
will cease as soon as the war is over; in fact, I understand that our
case is about the last one of which they can take cognizance.

626 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Now, take our case, for instance. The Public Service Commission
of Pennsylvania is vested with the power to fix the rate of wages —

Mr. WARREN. The rate of wages?

Mr. FAG AX. I mean the rate of fare.

Mr. WARREN. The rate of fare.

Mr. FAGAN. And it occurred to me that these two companies, be-
ing so closely correlated, ought to be under the jurisdiction of one
body.

The CHAIRMAN. Wages, as well as rates?

Mr. FAGAN. Wages as well as rates. Rates consist of all the in-
come of the company and that is now under the jurisdiction of the
public-service commission. Wages consist, in our case, of at least
two-thirds of the disbursements, and I think, therefore, that both of
those things, which are the largest and most import-ant items that
enter into this operation, should be under the jurisdiction of one
body, whether it be the War Board or somebody tantamount to that,
or the public-service commission ; but I think it would have to be the
public-service commission, from the fact that a Federal institution
would not have any jurisdiction, except over interstate affairs.

Commissioner GADSDEN. Do you think you could get the laboring
men to agree with you on that?

Mr. FAGAN. I don't knowr. The thought just occurred to me, and
I thought I would give it to you.

Commissioner SWEET. The War Labor Board will go out of exist-
ence as soon as peace is declared, as you have said.

Mr. FAGAN. Yes.

Commissioner SWEET. So that would not be a permanent body.

Mr. FAGAN. Well, when I was here appearing before the War
Labor Board, it was suggested that, after they did actually go out of
existence, they would probably be replaced by a commission to be
established by the Labor Department. I did not pay any attention
to it at that time, but in evolving this thought, it just occurred to me
that any Federal body could not have any jurisdiction, except in
interstate matters, and, therefore, the natural body to which the
power should be given, if it should be given, would be a State body.

Commissioner SWEET. With the idea

Mr. FAGAN. That they would have practically the whole situation
before them.

Commissioner SWTEET. Certainly, and if they would permit an in-
crease of wages, a corresponding increase in revenue could be made.

Mr. FAGAN. Yes; and then one of the defenses which we gave to
the National War Labor Board wras that we were an insolvent con-
cern. We gave them all our figures — everything wre had — and that
under no circumstances wrould we be able to meet the increase in
these wages; and we were politely informed that that wras not their
business — that their business was to fix the wages, and our business
was to find the money. [Laughter.]

Mr. WARREN. That has been one of your chief duties since you
became receiver; has it not, Mr. Fagan?

Mr. FAGAN. Yes.

Mr. WARREN. Thank you very much.

Mr. FAGAN. Not at all.

Mr. WARREN. I will ask Mr. Head to take the stand.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 627

STATEMENT OF MR. W. B. HEAD.

Mr. WARREN. Give your full name, Mr. Head.

Mr. HEAD. W. B. Head.

Mr. WARREN. Where do you reside?

Mr. HEAD. In Dallas, Tex.

Mr. WARREN. In Dallas, Tex.?

Mr. HEAD. Yes, sir.

Mr. WARREN. Are you connected with the street railway there?

Mr. HEAD. Vice president of the Dallas Railway Co.

Mr. WARREN. How long have you been vice president of that
company, Mr. Head?

Mr. HEAD. Since it was organized. The Dallas Railway is a
new company, however.

Mr. WARREN. When was it organized?

Mr. HEAD. It was organized in 1917.

Mr. WARREN. That company practically succeeded a prior street-
railway company; did it not?

Mr. HEAD. Yes, sir.

Mr. WARREN. Of the same name?

Mr. HEAD. No, sir.

Mr. WARREN. What was the name of the old company?

Mr. HEAD. There were several companies operating in the city
of Dallas, but under one management, owned by a holding company.

Mr. WARREN. And this new company was organized to take them
all over?

Mr. HEAD. Yes, sir.

Mr. WARREN. And merge them into one?

Mr. HEAD. Yes, sir.

Mr. WARREN. And in connection with that organization — that
new organization — was anything, and if so, what, done in respect to
a new franchise? Were some of the old franchises expiring?

Mr. HEAD. Yes, sir; all of the old franchises of the various com-
panies had practically expired.

Mr. WARREN. So that a new franchise was necessary either for the
old or new company?

Mr. HEAD. Yes, sir.

The CHAIRMAN. Did all of the old franchises have a fixed fare?

Mr. HEAD. I do not think so. Some of them had.

Mr. WARREN. Now, will you describe to the commission the prin-
cipal features of the new franchise, which you think they would
be interested in, this plan being the service-at-cost plan, as it is
sometimes called.

Mr. HEAD. As a preface, the things the present franchise has
negotiated, it might be well to state to the commission some of the
peculiarities of the Texas laws.

We have no public-service commission in Texas, but, on the other
hand, have what is known as home rule, an act passed by the legis-
lature in 1913, giving to all cities of 5,000 or more practically all
the powers of rate regulation that the legislature itself would have.

Prior to this time, however, there had been some laws passed
with reference to the operation of street-railway properties. We
have a State law that requires a railway company to pave Iwtween
its rails and 2 feet outside the rails. No city has authority to waive
that charge, even if it wanted to.

628 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

We also have laws with reference to carrying school children.

Mr. WARREN. Is that because the court has so decided, about the
paving, or because the statute is so clear?

Mr. HEAD. The statute is quite clear that that is the case. It
has never been . repealed. It was not repealed when the home-rule
act was passed.

Mr. WARREN. Well, does the statute say that the municipality
can not waive it, or shall not do it ?

Mr. HEAD. No; I do not think so.

Mr. WARREN. And the court has not said so ?

Mr. HEAD. No; there has been no ruling of the courts. The opin-
ions of various attorneys are, however, that the city can not waive
that charge.

Mr. WARREN. It is an interesting thing, Mr. Chairman, because
we had a law in Massachusetts quite like that — prescribing exactly
what the street-railway companies should do; and our supreme
court held that the municipality could extend the amount required
of the company.

Mr. HEAD. It has never been attacked, and in the development of
our franchise we asked the opinion of several attorneys with refer-
ence to whether or not these paving charges could be eliminated
from the franchises.

We were undertaking to work a service-at-cost franchise, and the
effort was made to get relief of all burdens, and we did get re-
lieved of numerous burdens that heretofore had been imposed on
the railway companies, such as pole and wire taxes, a gross receipt
tax, and other things of that kind which we were specifically re-
lieved of in the contract. The paving burden was one that we
discussed a great deal, and we came to the conclusion — both parties
to the contract — that the franchise would have to carry with it
paving burdens.

We also have in Texas the initiative and referendum, and we have
reached the point that the street-car rider, or the electric-light user,
or the user of any public utility, practically fixes the fare. It re-
quires only 500 signers to order an election and pass on any ordinance
that may have been passed.

The CHAIRMAN. Has the referendum been exercised ?

Mr. HEAD. Yes. sir.

Mr. WARREN. This is a local referendum.

Mr. HEAD. Yes, sir; a local referendum, under the home-rule act.

In the city of Houston, the street railway company, the Houston
Kailway Co., went before the city commission and asked for an in-
creased fare, and after laying all the facts before the commission,
the ordinance was passed granting a 6-cent fare. Five hundred peo-
ple signed a petition asking for a referendum on the ordinance, and
it was voted down.

Mr. WARREN. That was in Houston ?

Mr. HEAD. That was in Houston. I merely cite that to the com-
mission to show the situation in Texas with reference to utility rates
in general.

The CHAIRMAN. Perhaps that was after the people of Houston
began to experience great reductions in telephone and telegraph
rates made by the Postmaster General, who was from Texas.
{Laughter.]

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 629

Mr. HEAD. Possibly so.

To get back to the history of the development of the present Dal-
las franchises, I will state that not only the railway franchises, but
the light and power franchises, and the franchises of the gas com-
pany— all separate corporations — are under service-at-cost plan. I
say "service at cost." They are not real service-at-cost franchises,
which I will explain a little later on.

Under the former management, after having a great deal of agita-
tion, running over some six or seven years, in an effort to get these
separate railway companies consolidated and get the franchises for
the electric-light-and-power company the city of Dallas suggested
the cost-of-service franchise.

The mayor — it was in 1914, 1 believe — was active in trying to work
out a utility situation, both railway and lighting, and the Cleveland
franchise was brought to Dallas. The city employed experts to
make a valuation of the railway properties. The company employed
its engineers and experts.

They failed to agree on a valuation ; also they could not agree on
a kind of a franchise — the rate of return, and other things in con-
nection with it.

The city's charter had to be amended before a service-at-cost fran-
chise could be granted.

The city, in the April election, I believe, of 1914, prepared an
amendment to the charter, so that a service-at-cost franchise could
be granted, and at the same election put up to the people, on a kind
of a straw vote, the controversy, or the model franchise, that the
city was offering the companies operating at that time.

The company opposed the franchise and used every effort possible
to prevent even the amending of the charter.

The election resulted favorably to the city's side of the contro-
versy. The company refused to accept the franchises as favorably
indicated by the straw vote. Some gentlemen in Dallas then went
to the owners of the properties and secured an option at a figure
somewhat lower than the value that was placed on them by the com-
pany's engineers and opened up negotiations with the city, with a
view to organizing two separate companies, one for the lighting and
one for the railway. These negotiations went on for about a year.

The present franchises were voted upon by the people, as a result
of those negotiations, at an election in 1917.

Mr. WARREN. By " an election " you mean a referendum vote, do
you?

Mr. HEAD. Well, the franchises, being entirely different from the
ones the people had approved before, it became necessary that they
be ratified or adopted by the people. In the Dallas city charter
franchises must be voted on.

The CHAIRMAN. The electric-lighting company and the other com-
panies are entirely separate?

Mr. HEAD. Yes. The companies were organized under public laws
and the capitalization based upon the value agreed upon in the fran-
chise contract. In substance, the Dallas Railway franchise starts
out as of a certain date, with a fixed value, known as propeijjy value,
and every dollar that is added to the property value, thereafter that
value becomes the basis for making rates. The franchises provide,
for a very rigid supervision.

630 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. First, who fixed the value?

Mr. HEAD. Who fixed the value?

The CHAIRMAN. Yes.

Mr. HEAD. The original value was fixed in the contract, in the
franchise.

The CHAIRMAN. Who determined the value?

Mr. HEAD. It was a value agreed upon between the men who had
the option on the property and the city, approved by the people.

The CHAIRMAN. Go ahead.

Mr. WARREN. Based on the previous engineers' study ?

Mr. HEAD. Yes ; it was a compromise value.

Mr. WARREN. Yes.

Mr. HEAD. Based on the valuations which were made by the city's
experts and by the company's experts.

This figure, the property value, then becomes the basis of rates.

The franchises are different from the Cleveland franchises in this
respect : The city undertakes no control whatever of the issuance of
the securities, except there is a limit placed upon the amount of
bonds that may be issued in terms of property value. You can not
issue bonds in excess of 85 per cent of the property value. The con-
tract states that the city will not be concerned in and will have noth-
ing to do with the issuance of stocks and bonds, other than the pro-
viso that I have just mentioned ; but the grantee may issue securities
without a lot of legal questions on the part of the city, in any law-
ful manner. We have some State laws that regulate the issuance of
securities. There is no provision made for the cost of obtaining
money. It is the actual bare bones amount that goes into the prop-
erty.

The CHAIRMAN. What goes in is the only money that is reckoned
with?

Mr. HEAD. Yes.

Mr. WARREN. That is, up to this original amount.

Mr. HEAD. Yes ; and every dollar that goes into the property must
be approved by the city. The contract provides for what is known as
a supervisor of the utilities, .and when wre want to make an extension
of the plant, or spend any money that is to go into property value, a
requisition is made for the expenditure, and it is laid before the
supervisor. If it is a good large amount— I can not give you the ex-
act figure ; I think possibly even as small an amount as $10.000 — it
requires not only the approval of the supervisor but of the city com-
mission itself.

Mr. WARREN. Is that a commission city ?

Mr. HEAD. Yes, sir; a commission city.

The supervisor has his engineers and his accountants, and the com-
pany furnishes an office, a room, in the office building of the railway
company for his use, so that he can come there and examine the books.
Our accounts are open. We publish every month a statement of what
the company has done. We keep an account and present the city
each month with just what the books show as to what the property
value is, how it is growing, and what the additions have been.

Mr. WARREN. And also of the earnings?

Mr. HEAD. And of the earnings — a complete statement and that
statement is published every month in the daily papers in the city.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 631

The rate of return was 6 or 7 per cent on the property value. That
was the allowed return. You could make that, if you could. Ths
serious defect in the railway franchise

The CHAIRMAN. Is that rate of return a preferred charge?

Mr. HEAD. Xo, sir. The first thing you must do is that out of your
income you pay operating expenses, and these franchises provide re-
serves. Depreciation and replacement reserve must come out next.
Then, 6 per cent accident reserve, and the balance to surplus reserve.
That is the division of the operating expenses.

Mr. WARREN. That surplus reserve is what is sometimes called the
barometer.

Mr. HEAD. Yes, sir.

These reserves are all figured in terms of property value. When
the depreciation reserve gets to a certain per cent of the property
value, it is considered normal. When the accident reserve becomes a
certain per cent of the gross receipts, it is normal ; and when the sur-
plus reserve becomes a certain per cent of the property value, it is
normal. Then, whenever the surplus reserve reaches the point of so
many per cents above normal, fares are reduced for six months, until
we see where that reserve is going.

The great defect, as it turned out, in the railway franchise, on ac-
count of the war situation, is the fact that it has a top limit and, to
that extent, is not a service at cost. You can not go above a 5-cent
fare, and, therefore, it is not a service-at-cost franchise, to that ex-
tent.

Mr. WARREN. In that respect, however, it is like the Cleveland ono
originally.

Mr. HEAD. Yes.

Mr. WARREN. Until the Cleveland franchise was changed.

Mr. HEAD. It has this top limit. In addition to the top limit, we
introduced into the franchise the London sliding scale. The fran-
chise provides that we are allowed a certain per cent return on the 5-
cent fare. If by efficiency in operation and economies, we sell six
tickets for 25 cents, they allow us to make 7£ per cent, if we can.
Then it goes down. There are three items in the schedule, the idea
being that the rate of return would rise as the rate of fare descended.

That system in the lighting company's franchise has worked ex-
ceedingly well, and there have been reductions in the lighting rates.
The maximum in the lighting franchise, which had the top limit in
it, too, but it was such a limit that it could never interfere, because
of the fact that it only dealt with the maximum lighting rate, giving
you an opportunity to get your revenue from the long-hours con-
sumer, and hence it has been working quite well in the lighting
franchise.

I personally am very much of the opinion — I feel quite sure — that
but for this top limit, it would lie working quite well in the railway
franchise in Dallas to-day.

We find a hearty cooperation on the part of the city and the man-
agement. Each side seems to remember that, or to understand that
what is to one's interest is to the other's interest. We have it demon-
strated in the lighting franchise in several instances. For instance,
just prior to the time that we took over the property, the ducts had
been laid for a large amount of the underground wires in the busi-
ness section of the city of Dallas, and the time was up in which to

632 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

begin putting this copper underground. The city said, " Don't put
that in now while copper is so high, because we think we could afford
to wait, rather than have possibly a million dollars of excess money
in these ducts and have a lot of money that the city of Dallas would
have to pay a return on."

The same thing came up in the power plant about the installation
of a large turbine, under present prices. They said it would pos-
sibly be better, rather than to spend all of this money at this par-
ticular time, to wait a while and buy it when we could get it at
quite reasonable rates.

We have found the same sort of cooperation on the part of the
citv officials in the railway franchise.

"The question that we are up against now is to get this top limit
off. Under the present cost of material and labor, we are not — well,
we have made about 4 per cent on the property value.

Mr. WARREN. For wrhat period, Mr. Head?

Mr. HEAD. Well, it has been an average for the past twelve
months.

Mr. WARREN. How long has it been operating under the franchise ?

Mr. HEAD. It will be two years next October.

The CHAIRMAN. Have you made any extensions to the property
during that time?

Mr. HEAD. No, sir; that is the very question I was getting to.
The city of Dallas is not properly served. We need more cars.
The city is growing very rapidly.

Mr. WARREN. How large is Dallas now?

Mr. HEAD. It was 165,000 when I left. I don't know what it is
now. [Laughter.]

Mr. WARREN. You think it has increased since then ?

Mr. HEAD. Possibly 200,000. Well, that is one of the great troubles
in the utility business in Dallas to-day, to keep up with the very
rapid growth of these cities.

If you will pardon me for just a word or two on that, I can show
you cities in Texas of 20,000 to-day that had 20 people in them a year
ago. It is remarkable. During this oil development, possibly
150,000 or 200,000 people have come to Texas in the last year, in this
particular section lying immediately northwest of the city of Dallas.

We are not properly serving the city. We are not making any
extensions. We have not the money, and we can not get the money.
We need new equipment, and we can not get money with which to
purchase that equipment.

The CHAIRMAN. If you are making 4 per cent, I think your credit
would be good enough to get out and get new money for cars and
necessary extensions.

Mr. HEAD. No; not in Texas.

The CHAIRMAN. Not in Texas?

Mr. HEAD. No.

The CHAIRMAN. How about New York?

Mr. HEAD. I mean money invested in Texas. Rates of interest are
very much higher in our section than they are up in this section.

Mr. WARREN. You suffer, too, from the general collapse of the
street-railway credit, I suppose?

Mr. HEAD. Yes. We know that we are not maintaining the prop-
erty as it should be maintained. And that is not all. We have

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 633

nursed it every way we possibly could, in order to get the return out
of it that we have. The management of the Dallas Kailway Co. also
managers some other large properties in the State whose general offices
are in Dallas. As to the matter of salaries for officials, we are in a
position where we can favor the railways, in the matter of salaries
for management. We have done everything that we possibly could
to keep our heads above water. Our increases in operating expenses
have been about like the increases that you have heard testified to.
I have heard the testimony of a great many. I have some figures
which might be interesting to show some of the increases in Texas.

The maximum paid motormen —

The CHAIRMAN. Do you have this in writing?

Mr. HEAD. Yes, sir.

The CHAIRMAN. Suppose you file it with the reporter.

Mr. HEAD. Yes, sir — showing the increase in motormen's wages
from 25 cents to 42 cents, and other wages in proportion.

The statement referred to by Mr. Head is as follows :

Statement of the Dallas Railway Co. showing icages per hour or month, and
hours worked per day, July, 191^, and July, 1919.

July, 1914.

July, 1919.

Rate per hour
or mouth.

Hours
per day.

Rate per hour
or month.

Hours
per day.

TRAINMEN.

First six months of service

$0.20
.21
.22
.23
.24
.25

UOJ

Second six months of service

Second year of sen-ice

Third year of service
Fourth year of service

»$0.3S
.40
.42

175. 00
160.00
160.00
160.00
160.00
160.00
.47J-.60
.60
.40-. 45
.47i
.45
.38-. 40
.38-. 45
.42}-. 56
.40-. 60
.45
.70
.50
.32
.38-. 45
.30
.30

SO. 00
160.00
.55
95. 00-145. 00
.35

10J

9
9
9
9
10
10
9
9
9
10
9
9
10
9
9
10
9
9
10
9
10
10

10
9
9
9
9

Fifth year and thereafter

First three months of service

Next nine months

Second year and thereafter

SHOPMEN.

General foreman

115.00
110.00
.35
.32J
.324
.23*
.22J-.32J
.30
.25-. 30
.22-. 274
.27$
.17J-.25
.20-.27J
.25
.25
.24

.20
.18
.17i
.16
.15

55.00
.37*
.27*-. 25
.20-. 261
.17}

10
10
10
10
10
13
10
10
10
10
10
10
10
10
10
11
10
10
10
10
10
10

10
10
10
10
10

Truck-shop foreman

Carpenter foreman

Paint-shop foreman

Inspector foreman (day)

Inspector foreman (night)

Carpenters

Armature winders

Truckmen

Carpenter inspectors

Machinists

Machinists' helpers

Truck i nspectors

Electricians

Painters

Car shifter

Blacksmith

Blacksmith helper

Shop cleaners

I' itmen

Car-house cleaners

Car cleaners

TRACKMEN AND LINEMEN.

Watchman at material yard

Line foreman

Lint-men

Track foreman

Common laborers. .................................

1 Approximate number of hours in regular runs.

'The company owns 12 one-man cars. Operators of these cars receive 4 cents per hour in addition
regular rate.

160643°— 20 41

634 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. What you want to do now is to get your
franchise amended so as to permit you to charge higher fares ?

Mr. HEAD. Yes, sir.

Commissioner SWEET. Is that right?

Mr. HEAI>. Yes, sir; to get that top limit off.

Commissioner SWEET. Would that require another referendum?

Mr. HEAD. Yes, sir. You can not change a franchise in Texas in
any of the larger cities without an election.

Mr. WARREN. What is the term of the franchise, Mr. Head ?

Mr. HEAD. It is indeterminate. The city has an option to purchase
the property after 20 years.

Commissioner SWEET. At par?

Mr. HEAD. What is that?

Commissioner SWEET. At a hundred cents on the dollar?

Mr. HEAD. No, sir ; I believe it is a hundred and five. I forget just
the figure, but it is slightly above the property value as fixed.

Commissioner SWEET. Yes; somewhat like the Cleveland plan.

Mr. HEAD. Yes, sir ; very much. I think it is identically the same
figures as in the Cleveland plan.

Mr. WARREN. But is this matter of the maximum limit the only
criticism that you would make, after working under this franchise
for a couple of years ?

Mr. HEAD. I think so, Mr. Warren. Of course, we have not been
going long enough to find some defects in it. The question came up
and was discussed at great length, with reference to the question of
regulating on a basis of the actual money that goes into the property,
under city supervision and the regulation of securities. The city,
after considering the matter, was agreeable to this basis of regula-
tion; in facty a discussion as to whether or not we should be allowed
something for the cost of obtaining money, and they said that they
would prefer that they rather regulate on the actual money in the
property and make the rate of return somewhat higher, in order that
we might absorb whatever costs there might be in obtaining money.

The CHAIRMAN. What rate was your company charging before
this contract was made ?

Mr. HEAD. What did you say?

The CHAIRMAN. What rate was your company charging before
this contract was made?

Mr. HEAD. Five cents.

The CHAIRMAN. A 5-cent fare?

Mr. HEAD. A 5-cent fare, with a universal transfer.

The CHAIRMAN. And you are now charging a 5-cent fare?

Mr. HEAD. A 5-cent fare, with universal transfers.

The CHAIRMAN. A maximum of 5 cents?

Mr. HEAD. Yes, sir.

The CHAIRMAN. Has it not looked to you as if the city got every-
thing in this contract, and you got nothing?

Mr. HEAD. Well, I quite agree with you, Mr. Commissioner, that
they got the best of it.

The CHAIRMAN. Well, what did you get out of it?

Mr. HEAD. If conditions had continued as they were in 1913 and
1914, as to the cost of materials and labor, I think that we would
have been earning at this time about 8 per cent on the property value,
and the people would have been riding at six tickets for a quarter.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 635

Now, we did not have to support that, or rather, some of us did feel
that there might come a time when the fare would have to be made
above 5 cents as a straight fare; but at the time the franchises were
negotiated we had the severe jitney competition — that is, the old
company management had jitney competition — and one of the agree-
ments of the city was — what you might term a side agreement — that
they would pass an ordinance that would relieve the railway com-
pany of this jitney competition.

The CHAIRMAN. Has that been done?

Mr. HEAD. Yes, sir ; but it took a good long time. It got into the
courts ; and we have only been relieved of it in the month of May of
this year. That was the first month that we have had in which to
make a comparison.

Mr. WARREN. What was the result of that comparison, Mr. Head ?

Mr. HEAD. It is interesting. The receipts jumped up in May of
this year over May of last year about 50 per cent. We never knew
how much they were taking.

Mr. WARREN. Fifty per cent ?

Mr. HEAD. Yes.

The CHAIRMAN. Of course, you know Dallas is still growing and
has been growing some since last May.

Mr. WARREN. You think 30 per cent may have been the normal
growth ?

Mr. HEAD. The June statement showed an increase in June this
year over June of last year, with no jitneys last year, of about 10
per cent. The increase in May this year over May last year was
48.3 per cent. May, 1919, as compared with May, 1918, increased
48.3 per cent:

Mr. WARREN. And the next month it increased 10 per cent?

Mr. HEAD. The next month it was 10 per cent.

Mr. WARREN. Because they had been cut off in June a year ago?

Mr. HEAD. Yes ; because they had been cut off in June a year ago.

Commissioner SWEET. How did they get rid of the jitneys?

Mr. HEAD. Well, it is a very long stor^y, Mr. Sweet.

Commissioner SWEET. Well, briefly outline it.

Mr. HEAD. It was done by creating a zone in which they were not
allowed to operate, and that zone comprises practically all of the
business section.

Mr. WARREN. That was taken into litigation?

Mr. HEAD. That was taken into litigation and had to go through
the con its.

Mr. WARREN. And it was sustained, was it?

Mr. HEAD. It was sustained ; yes, sir. There had been other ordi-
nances passed, the requiring of bonds and things of that kind.
There were altogether four or five lawsuits in the court.

The CHAIRMAN. So far as this contract is concerned, you can not
got more than a 7 per cent return upon your capital?

Mr. HEAD. I did not understand it.

The CHAIRMAN. Under this contract you can not get more than
7 per cent upon the capital, no matter what the earnings are?

Mr. HEAD. Yes, sir.

The CHAIRMAN. Can you?

Mr. HEAD. Yes; we have this London sliding scale. If the earn-
ings will permit we can get 8 per cent if we sell 6 tickets at 25 cents.

636 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. That is somewhat academic under the present con-
ditions; is it not, Mr. Head?

Mr. HEAD. Very; yes, sir.

The CHAIRMAN. Do you expect to be able to get the lid off that
maximum fare?

Mr. HEAD. I rather think we will, for this reason: One of the
trading points of the city was that, on account of the fact that they
put this lid on, we introduced certain clauses in the franchises by
which they can not force extensions when we are not making the al-
lowed return, and we are hopeful of using that to be able to get
this lid off, so that the property can grow. That was one of the
offsets to the limit's being placed.

Commissioner SWEET. How do the people seem to feel about it?

Mr. HEAD. I think the great majority — well, I know that all the
business men, the thinking people, understand that an increase in
fare is necessary . and are perfectly willing to pay it. Of course,
we have an element in our city, like you find everywhere else, that
wants to hold on to everything they can get and will oppose —

Commissioner SWEET. They have a prejudice against the company,
I suppose, in its present shape?

Mr. HEAD. Yes, sir.

Commissioner SWTEET. As wrell as the old one.

Mr. HEAD. Well, there has not been a great deal of prejudice
now. This company is managed by a board of 21 directors. Prac-
tically all of them have lived in the city of Dallas and were selected
with a view to creating public sentiment favorable to the company
and to give it what you would call a moral standing in the com-
munity.

The CHAIRMAN. You said the business men favored this contract.
Do they use the cars very much, or do they use their own auto-
mobiles ?

Mr. HEAD. I did not understand you.

The CHAIRMAN. You said the business men favored this contract.
I was wondering if they used your cars very much or whether
they ride in their own automobiles?

Mr. HEAD. Well, I expect most of them ride in automobiles.

The CHAIRMAN. What does the ordinary citizen of Dallas think
about that system?

Mr. -HEAD. You mean about the franchise?

The CHAIRMAN. Yes.

Mr. HEAD. When the franchises were voted on, they wrere carried
by a majority of about 2 to 1, and that with one of the evening
papers violently opposing the franchises as drawn, and also with
the mayor who negotiated the franchises coming out at the very last
hour and saying that they were bad.

The CHAIRMAN. Saying that they were bad ?

Mr. HEAD. Yes, sir.

The CHAIRMAN. Well, a politician has a right to change his mind.

Commissioner GADSDEN. Is there any agitation in Texas for a State
commission, Mr. Head?

Mr. HEAD. Yes, sir ; there has been a great deal of agitation for a
State commission, which comes from two angles. The long-distance
toll service in Texas is not regulated by any authority. The smaller
communities, in the towns of less than 5,000, have no rate regulation.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 637

Commissioner GADSDEN. What is the attitude of the public utilities
toward that?

Mr. HEAD. The public utilities have taken the attitude of being
favorable to a State commission if the State commission has final
authority. There was a bill introduced in the last session of the
legislature, and it passed the house but did not get by the senate,
although it did not reach a vote, that undertook to create a State com-
mission, making the commission's jurisdiction in home rule cities
appellate or upon the request of the municipality. That, I think,
will really solve the situation in Texas.

Mr. WARREN. Was there not formerly a railroad commission in
Texas?

Mr. HEAD. There is a railroad commission there now.

Mr. WARREN. It has jurisdiction only over the railroads?

Mr. HEAD. Only over the railroads.

The CHAIRMAN. At this point, we will adjourn until to-morrow
morning at 10* o'clock.

(Whereupon, at 10 o'clock p. m., the further hearing of this case
was adjourned until to-morrow, Wednesday, July 23, 1919, at 10
o'clock a. m.)

WASHINGTON, D. C., July 23, 1919.
Met pursuant to adjournment at 10 a. m.
Present: Parties as before.
The CHAIRMAN. Are you reacty, Mr. Warren?
Mr. W^ARREN. All ready; yes, sir. Prof. Bullock, take the stand.

STATEMENT OF PROF. CHARLES J. BULLOCK.

Mr. WARREN. Your full name, Prof. Bullock, is Charles J. Bul-
lock?

Mr. BULLOCK. Charles J. Bullock.

Mr. WTARREN. You are connected with Harvard University?

Mr. BULLOCK. I am. as professor of economics.

Mr. WARREN. And you have had occasion repeatedly to make
special study of questions of taxation, I think?

Mr. BULLOCK. 1 have.

Mr. WARREN. You have advised various Massachusetts legislative
commissions and assessment commissions as to taxation along various
lines?

Mr. BULLOCK. I have.

Mr. WARREX. And if I am not mistaken, you had a groat deal to
do with the drafting of the Massachusetts income tax adopted a few
years ago?

Mr. BULLOCK. I had.

Mr. WARREN. Have you also had occasion to study the actual meth-
ods of taxation of public utilities and of street railways?

Mr. BULLOCK. I made a study of the taxation of corporations in
general for the purpose of working out a revision of our own corpora-
tion tax laws in Massachusetts. I have also served as chairman of a
committee appointed by the National Tax Association to investigate
the taxation of public service corporations, which committee submit-
ted a report of which I furnished you a copy.

638 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Mr. WARREN. And have you made a study of street-railway taxa-
tion for the purpose of submitting certain data and views to this
commission ?

Mr. BULLOCK. I have recently made a special study of street-rail-
way taxation for the purpose of presenting a memorandum to this
commission, and I have prepared a memorandum.

Mr. WARREN. Now, will you take up that memorandum and go
through it without my questioning you ?

The CHAIRMAN. Have you extra copies ef it ?

Mr. BULLOCK. I have left with Mr. Warren three copies of this
memorandum and also a copy of the report of the National Tax Asso-
ciation, that he will supply you, and with your permission I will not
read the memorandum, but undertake to summarize as briefly as pos-
sible the main points.

The CHAIRMAN. Very well.

Mr. BULLOCK. The memorandum begins by setting forth what are
the existing methods of taxing street railways, nationally and locally.
The Federal taxes, such as the Federal income and excess-profits-taxes
and the capital stock tax, are doubtless known to your commission.
In the aggregate they are not a particularly important part of the
total burden of taxes paid by street railways, because the capital-stock
tax is not very heavy and the income of street and electric railwaj^s
in recent years has been small. However, the rates of those taxes have
increased in recent years. I judge that the increase in rates of the
tax has been greater than the decrease in the net income of the street
railways, so that probably during the last two or three years there
has been some increase in the Federal taxes levied upon street rail-
ways.

The State and local taxes are various in form and not easy to sum-
marize. Generally speaking, in most of the States the property of
street railways is subject to local taxation. In about 22 of the States
all the operating property and sometimes the whole property of the
concern as a unit is valued by the State board and then a State tax
levied at the average State rate, for instance, as in Wisconsin ; or the
valuation determined by the State board is certified back to the local
taxing authorities and included in the local assessment rolls, and is
subject to local tax.

Those property taxes in principle are perfectly equal and perfectly
just, but it sometimes happens that the State boards under the law
are required to assess at true value, whereas the general mass of
properties subject to local taxation are under value, assessed at one-
half or two-thirds of what they are worth, with the result that street
railroads, like other public-service corporations, are assessed at a
higher valuation than other properties subject to the general prop-
erty tax. In a few States relief is afforded by equalization, as set
forth in the report of the committee of the National Tax Association.
But in the average State the statutes do not permit the average State
board to give effective relief.

In addition to the property taxes you find a variety of miscellaneous
taxes, which I have classified here as taxes on gross earnings, on cap-
ital stock, and license taxes. In three States, Maine, Connecticut, and
California, the operating property of street railroads is exempt from
taxation.

Commissioner SWEET. What was the second State ?

PROCEEDINGS OF FEDERAL, ELECTBIC RAILWAYS COMMISSION. 639

Mr. BULLOCK. Maine, Connecticut, and California the operating
property is exempt from local taxation, and from State taxation for
that matter, as property, and the railroads pay a tax on their gross
receipts in lieu of taxation on their operating property.

In some other States, enumerated in the memorandum, they levy
gross-receipts taxes in addition to property and franchise and capital
stock and license and other taxes, such gross-receipts taxes usually
being at a lower rate than those prevailing in Connecticut and Cali-
fornia. The gross-receipts tax is therefore extensively used, it being
the only tax on operating property in three States and it being a sup-
plementary tax in 10 or a dozen others.

Then there is a capital-stock tax which electric railways usually
in common with other corporations, pay, which ordinarily is not
heavy. It is a small fraction of 1 per cent. But in times like this
small taxes mount up, especially when one small tax is added to an-
other small tax and that to another. In Pennsylvania the capital-
stock tax is the principal tax levied on street railroads outside of
Philadelphia and Pittsburgh. That capital-stock tax is at the rate
of 5 mills on the dollar of the valuation of the capital stock, and it is
in lieu of other taxation of the property of the railroad. But there
is in addition to the capital stock tax a gross-receipts tax.

Commissioner SWEET. I did not quite understand that last.

Mr. BULLOCK. In addition to the capital-stock tax in Pennsyl-
vania there is a gross receipts tax as well, so that that of 5 mills on
the dollar is not the only tax paid. There is also a tax on the bonds
and obligations of electric railroads, which is a part of a general
tax levied on all corporation obligations. That corporations are
authorized to deduct from payments made to bondholders, and in
many times past they have assumed' the payment of that tax and
did not deduct it.

Then there is a great variety of license taxes and charges about
which it is very difficult to get comprehensive information. There
are State license taxes in a few States and a great variety of local
license taxes; especially in the Southern States, you will find a
pretty comprehensive system of privilege taxes which are license
taxes of one sort or another, applicable to a great variety of indus-
tries. I have run through the different taxes in the strict sense of
the word that the street railroads pay locally and nationally and
will presently present some figures thereon.

In addition to those taxes there are a multitude of other pay-
ments, other public contributions, made in connection with their
occupation of the streets or made in payment for franchises under
arrangements in effect in times past. These payments are fre-
quently of a contractual character; they are legally not taxes at all.
In fact, however, they amount to extra contributions made to the
public treasury which the street-railroad industry has to support,
and therefore they should be mentioned here and statistics auout
them will presently be presented.

Now, in regard to the taxes paid, there are some statistics con-
tained in this memorandum. The data have been carefully pre-
pared by the American Electric Railway Association, and I have
made an analysis of them which gives the following rather inter-
esting results:

640 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

The taxes on real and personal property paid locally by the electric
railways in 1917 amounted to $21,800,000, and the miscellaneous and
other taxes paid to State and local governments together with the
taxes paid to the Federal Government amounted to $23,900,000.

Commissioner SWEET. In addition to the twenty-one million?

Mr. BULLOCK. In addition to the twenty-one million; the total
taxes proper amounting to $45,756,000. The other public contribu-
tions which I have just been referring to amounted to $17,500,000 in
addition to the taxes; so that the total public contributions of the
street railways amounted to $63.200,000 in round numbers.

Of course, a total figure of that sort does not mean much until
you take it in its relation to the earning; power of the railroads
and some other things. Now that figure of $63,000,000 in round num-
bers amounted to 8.67 per cent of the gross earnings of the electric
railways. That will show you that the tax burden 'is a heavy one,
particularly with reference to this industry.

In the street-railway industry it used to be said or the figures
used to show that you invested $5 or $6 of capital to get $1 of gross
receipts. That means to get $100,000 of gross receipts you have an
investment of $500,000 to $600,000 of capital. Assuming that the
cost of capital — your interest charge in other words — is 6 per cent,
you have got a charge of $30,000 to $36,000 for capital against your
$100,000 of earnings. Therefore a tax burden of 8 per cent on top
of your capital charge that may amount to 30 per cent or more
mortgages a very large part of the available revenue of the street
railways. In an industry where you invest $100,000 and turn it
over two or three times a year, getting, say, $300,000 gross, you
have an interest charge of $6.000 against $300,000 gross, and a
gross receipts tax of 8 per cent, while it is a larger tax, because the
gross is larger, it comes out of a larger margin of earnings above
operating expenses; 8.6 per cent for an industry where the capital
charges are necessarily as large as they are in the street-railway
industry is a heavy tax. .1 further —

Commissioner SWEET. That is not all tax. That includes the con-
tractual-
Mr. BULLOCK. It includes all these public contributions. It is not
all taxes. It is about —

Commissioner SWEET. But it represents money that has to be
earned by the companies and is made to the public?

•Mr. BULLOCK. It has to be earned and is made to the public.

Commissioner SWEET. Either in the form of taxes or by con-
tractual agreement?

Mr. BULLOCK. Yes.

The CHAIRMAX. Does that include your assessment taxes, your
paving tax?

Mr. BULLOCK. It includes everything that the figures gathered by
the association identified as a public contribution for the use of
streets and—

Commissioner SWEET. I take it that that was practically paid over
in money and not in service, like paving ?

Mr. BULLOCK. Sometimes these contributions take the form of
carrying public employees without charge or doing work on the
streets, such as snow removal. Now whether the statistician of the

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 641

association has included the money spent for snow removal in this
item I can not tell you, but he can.

Commissioner SWEET. We ought to know that.

Mr. BULLOCK. I have assumed those figures are in here, so these
are outside figures. If they are not, then that estimate of 8.6 per
cent should be raised. I assume that that is included here, and if it
is not the statistician of the railroad association can correct that
figure.

Commissioner SWEET. Very well.

Mr. BULLOCK. The gross operating revenues have increased, but
while the net operating revenue has decreased in recent years, the
taxes down to the year 1918 have gone on increasing; that is, the
taxes and other public contributions. In 1912 the total taxes and
other public contributions amounted to $50,000,000 in round num-
bers; in 1916 they had increased to $62,000,000; in 1918 they had
risen to $65,500.000. I leave out the intermediate years, which sim-
ply show the steps in the ladder.

Now during that period the net revenue from operations has
diminished. The net revenue was $228.000,000 in round numbers
in 1917 and it decreased to $192,000,000 in round numbers in 1918,
a decrease of $36,000,000. At the same time the taxes proper, leav-
ing out these public contributions, increased from $45,700,000 to
$49,500,000.

Still more striking perhaps is the fact that the net income after all
charges in 1917 was $56,000,000 in round numbers, and in 1918 it fell
to $20,000,000 in round numbers. In 1917 the net income after charges
of $56,000,000 may be compared with taxes paid to the amount of
$45,000,000, public charges or contributions being ignored. In 1918
the net income of $20.000.000 after paying all charges including taxes
may be compared with the total amount of taxes paid amounting to
$49^,000,000. The taxes alone apparently took $2.50 for every dollar
of net income left after meeting the charges against the operating
revenue, The industry apparently is not only heavily taxed, but up
to 1918 at least, the last year for which figures are available, the
tax burden had increased.

Now I pass to a discussion of the principles that ought to govern
the taxation of street railways. I will first discuss the matter in
a general way, referring for further details to the report of that com-
mittee of the National Tax Association.

There are three theories that have been entertained at different
times about the taxation of public-service corporations. The earlier
theory of the three — and it was the one that prevailed 20 or 30 years
ago — was that public service corporations were possessed of very
valuable franchises from which they were deriving a large profit
and that they ought to be specially taxed. The period of the nine-
ties was a period of continual discussion of franchise taxation. That
theory was perfectlv logical in those days. It was the theory that I
taught classes in college. The public utilities, with the exception of
the railroads, were not under effective public regulation in most
States. The street-railway industry was a profitable industry, and
the companies possessed valuable franchises which in many cases
they had received on very favorable terms. Under those conditions
it was perfectly natural to look upon them as offering a fit subject

642 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

for special taxation. The special franchise tax of the State of New
York is the best illustration of the special taxation of franchises that
came in in that period.

Under those conditions of unregulated operation of street and
electric railways by public corporations, which were frequently very
profitable, that theory was justified. The companies were the pos-
sessors of valuable special privileges and it was proper to tax them.

With the coming of regulation, however, of the public utilities,
the basis for that theory changed. Under public regulation I take
it we have got to assume that public utilities are limited to a reason-
able return upon the capital investment and that their service also
is subject to regulation. Under those conditions, any special charges
that are put upon them shifted to the public. Before regulation
came in these special taxes might have been assumed to be paid out
of the company's monopoly profit. Under a system of regulation,
special taxation of public-service corporations simply increases the
cost of rendering the service and in one way or another has got to be
taken into account. If it is not recognized in rate making, then it
will simply come out of the service. The public has to pay either in
higher rates or in service, in less service or in poorer service.

So then, when we pass to a regime of regulation and pretty effec-
tive regulation of public-service corporations the situation changes,
and the matter of the proper method of taxation seems to need to be
reconsidered. Two theories have been advanced premised on effec-
tive regulation of public utilities. One of those theories is that with
the regulation of public utilities you do not need to consider whether
their taxation is more or less heavy than that of other companies ; it
all comes out of the consumers of the service and not out of the com-
panies. You can employ the companies as an agency for collecting
special taxes from people who ride upon the cars. Upon the other
hand, you can, if you please, exempt them from all taxes. The com-
panies will not profit because their rates are regulated accordingly,
and the consumers will get untaxed service.

In the report of this committee which I submit with my memo-
randum the objections to that view of the case are set forth, and I
believe they are valid. Under normal conditions it would seem that
street-car riders ought to pay just what the service costs, and not
more nor less. If you exempt public utilities from taxation and
give the riders untaxed service, you increase by so much the taxes
that owners of property have to pay, and that is something that a
city ought not to do and can not afford to do under normal con-
ditions.

There are many demands for city expenditure. To fritter away
your source of revenue by giving untaxed service, by granting ex-
emptions which benefit the rider, is bad municipal finance and it is
not fair as between the car riders and taxpayers who are not neces-
sarily the same people or, if they are the same people, do not use the
cars in the same proportion that they pay taxes. Our municipal
taxes fall very largely upon real property and that may be very
largely owned by nonresidents who get no benefit from the street-
railroad service whatever and never patronize it. Then, even those
that own property in the city and pay taxes there do not use the
street railways in precise proportion to their ownership of property.
Putting part of the cost of furnishing street-railway service into

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 643

the tax levy is not under normal conditions good finance. The
proper theory would seem to be that of equal treatment of the in-
dustry with other property. It should not be burdened beyond
other property in business; it should not pay tax less than other
property in business. If you levy upon the industry of the electric
railways taxes precisely like those levied upon other similar objects
of taxation, you hold the balance level between the taxpayers and
the car riders and you do substantial justice to all parties in in-
terest, and the correct theory seems to be that of equal taxation of
public utilities under normal conditions.

Now every general theory has, of course, certain limitations. The
limitations to this theory of equal taxation are implied in the ex-
pression " normal condition " that I have used. In time of war
when revenue is the paramount need, the Government may very
properly levy a tax on transportation, as it has just recently done
during the war. And similarly, in times when transportation facili-
ties are needed and it is not practicable to get them in any other
way, governments may properly offer exemptions from taxation, as
they have often done. The exemption policy has been abused. Per-
petual grants of exemption have been given which were never justi-
fied, but exemption for n limited number of years of companies un-
dertaking public-service enterprises which it is not likely can prove
immediately profitable may be justified under special conditions.

So, then, I conclude that your commission might very well find
that street railways under normal conditions ought to be taxed like
other similar enterprises, neither more nor less, and it might at the
present time? if it finds a serious emergency existing which can
not be effectively remedied in other ways, it might perfectly con-
sistently recommend relief from some of the taxation that street rail-
ways now bear ; and I shall make some suggestions on that point.

Nothing but an emergency would lead me to think that street rail-
ways ought to be relieved from equal taxation. I have always
maintained the theory of equal taxation — that is for 20 years past-—
but, however, always with this qualification — that circumstances that
would justify levying a tax on water or transportation or lighting
would justify heavier taxation of regulated public-utility companies,
and circumstances that would offer levying a tax to pay a bounty for
a needed public service that you could not otherwise get would jusify
reducing the burdens of railroad taxation.

Now looking over the taxes that street railways pay, you find that
Federal income and excess-profits taxes so far as they fall upon
street railways are perfectly conformable to the theory of equality
and ought not to be removed unless there is an emergency that
justifies it. You find that local-property taxes are in principle
perfectly conformable to the theory of equality and that they ought
not to be removed unless there is a very serious emergency that
justifies it. You find that these miscellaneous taxes on gross receipts,
capital stock, and license charges levied in addition to property
taxes, are frequently more in the aggregate than other properties
bear. Sometimes they are not. You will find in various Stntes — I
have alluded to the Southern States and some of the Western States —
you will find their property subject to special taxes, and also to
privilege, and license taxes, and under those conditions there is no
inequality in imposing similar charges on street railways. But

644 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

where, as in New York or Pennsylvania, you have taxation on prop-
erty and have in addition a gross-receipts tax or some other kind of a
tax that other property does not pay, you have a departure from
the principle of equal taxation and you have a special taxing on
transportation which is not consistent with the theory of equal taxa-
tion.

Now I come to the miscellaneous public contributions that I have
already alluded to, which in the aggregate are so large; and I in-
vite your attention to them. They are an inheritance from the
past. They came from the days when street railways were not
regulated and frequently derived large profits from the use of the
franchise which they enjoyed. Under a system of regulation of
public utilities, the charges must be assumed to fall upon the street-
car rider and they amount to a special tax on the transportation
industry in all cases where they exceed a figure which fairly repre-
sents the special charges that the presence of the street-railway tracks
in the streets occasions the city.

About that point — about the amount of special expense to a
city occasioned by street-railway tracks — there has always been dif-
ference of opinion. The companies have been inclined to think
that the presence of the tracks, at least under modern conditions, did
not occasion great expense and wearing out of the pavement and
the surface was due to the use of the tracks by other vehicles than
the cars. The cities, on the other hand, have undoubtedly made this
theory of charging for upkeep of the streets an excuse for levying
special taxes on the transportation industry far in excess of the legiti-
mate charges that the users of street cars should pay. The correct
principle seems to be, however hard it may be to apply it, that any
special damage, any special extra expense for upkeep of streets under
normal conditions may very properly be put upon the street-car
riders. It should be considered just like an equal amount of tax
similar to that which other similar enterprises pay and the car
riders should pay it. Anything beyond that point under normal
times violates the principle of equality in taxation and in a crisis
like the present is in every way objectionable. A thorough revision of
those charges in all cases where they exceed a fair charge for extra
cost of upkeep of streets would seem to be one of the things needed.

Now in conclusion —

Mr. WARREN. The only principle upon which it would be justified
would be that stated in this report of the committee, would it not,
Prof. Bullock, where it is stated somewhat graphically as follows:
" The principle of nlucking the most feathers with the least squawk "?

Mr. BULLOCK. Well, I am not sure about that. As I have said,
there has always been difference of opinion as to whether the pres-
ence of the car tracks occasioned special extra cost for keeping up the
street. I have supposed that it did. My opinion of that point is that
of a layman. I am not an engineer and am not expert in the matter
of street construction. But of course it is perfectly clear that these
charges in many cases vastly exceed any such figure, and if charges
could be reduced to that figure, substantial relief could be given.

In the concluding part of my brief I suggest first the revision of
these special charges. They used to be a means of securing to the
public treasury a part of the frequently excessive profits of unregu-
lated monopolies. They are to-day a special charge on the industry

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 645

of railway transportation and they are not consistent with the prin-
ciple of equal taxation.

I suggest', in the next place, that the other special taxes levied by
the States — the additional taxes, gross receipts, and capital stock
and licenses — ought also to be reconsidered, and in so far as they
lead to a burden of taxation on street railways exceeding that borne
by other business enterprises, they should be reduced or abolished.

I suggest, in the third place, that relief from the ordinary taxes
imposed upon property ought to be the last remedy. It can be justi-
fied only upon the ground of extreme emergency and the failure of
other relief measures. Before you reduce the ordinary taxes levied
on property you should raise your fares to the maximum point that is
practicable, looking at the matter from the revenue result. The in-
dustry should not be relieved of the ordinary property taxes which
other property pays except as a last resort. In some cases, appar-
ently we are about at that point. The increase of fares in my own
State has certainly reached the revenue point, and the revenue result
is somewhat disappointing. We very likely have got to give relief
in taxation if we want to keep a good many of our street-railroad
tracks down.

Commissioner SWEET. That is in Massachusetts ?

Mr. BULLOCK. That is in Massachusetts. I suggest, in the next
place, that if relief is to be given from the property tax it would be
better not to repeal the tax but to suspend its operation for a term
of years and to provide for an income tax on the companies during
that interval, if there are any companies —

Commissioner SWEET. Would that be on gross or net income?

Mr. BULLOCK. A tax on net income, if there are any companies that
are prosperous. We have one company in Massachusetts, if I re-
member, that was prosperous, or was prosperous six months ago ; at
least it was not unprosperous. If any companies are earning a sub-
stantial amount of net income they might pay a moderate income
tax. This substitution for a term of years of a tax on net income
for a tax on property would maintain the principle that street rail-
ways ought to be taxed and it would, as the industry revived and
begins to see better days, bring in . a normal contribution to the
public treasury.

I finally suggest that if the Federal Government is to lead the
way, reduction might very well be made or total exemption might
very well be granted from the Federal income and excess-profits
taxes. The revenue sacrifice by the repeal of those taxes would be a
small thing for the Federal Government. The Federal Government
by a very small sacrifice can afford substantial relief. For the State
and local governments to set aside their property taxes means a com-
paratively large sacrifice for a particular locality.

Mr. WARREN. You stated, I think, that there was no sound prin-
ciple on which the general taxpayer could be relieved by the imposi-
tion of special burdens on the street railways not called for by spe-
cial conditions —

Mr. BULLOCK. Nothing but a great emergency like war.

Mr. WARREN. And of course you would apply that, I assume,
equally to the taxpayers on a particular street, that they ought not
to be relieved from the otherwise local assessments for sprinkling a
street, repairing and similar items by casting the burden on the

646 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

street railway except to the extent that the car riders caused the
trouble.

Mr. BULLOCK. Undoubtedly.

Mr. WARREN. You have spoken of the present crisis in street rail-
ways. Do you consider it a very serious one?

Mr. BULLOCK. So far as my observation and information goes, it
has come to a point in some parts of the country where it is a ques-
tion of having the street railroad. In our part of the country, as
you know, we are tearing up tracks, and we have a good deal more
miles of track that ought to come up because it is absolutely unsafe
for street-cars to run over them.

Mr. WARREN. Unsafe?

Mr. BULLOCK. Absolutely unsafe.

Mr. WARREN. That is, the companies have been absolutely unable,
or at any rate they have not maintained the tracks in safe condition
in many cases?

Mr. BULLOCK. They have been absolutely unable. There are streets
in Massachusetts where, if you drive an automobile, you do well to
get over on the other side of the street if a street-car comes along ; you
do not know whether it is coming on the track or is not coming on
the track as it reaches you. I refer, of course, to our rural lines.

Mr. WARREN. In view of the injury the automobiles have done to
the revenues, that might not be an unmitigated evil.

Mr. BULLOCK. I was referring to the condition of the industry.
The tracks ought to come up.

Mr. WARREN. Yes, I know it, but if only the automobile driver
were going to suffer from the unsafeness, I do not know that we
should shed so many tears. Under those circumstances, should you
say that the imposition of these special burdens or special taxes not
called for by the injury done by the car riders to the street are really
indefensible ?

Mr. BULLOCK. I should say it was absolutely indefensible.

Mr. WARREN. I do not know that you expressed any definite opin-
ion as to whether in some cases this emergency is so great that the
relief temporarily from the ordinary taxation should be extended
at this time

Mr. BULLOCK. Well, there are companies that are not earning op-
erating expenses ; and if a proper allowance for depreciation is made,
of course vast numbers of companies are not earning their operating
expenses, and conditions are getting worse. That is, wages are ris-
ing and costs of materials and supplies have not begun to decline.
So far as I kno\y, there has been no improvement in the operating
ratio; the operating ratio has been going up. If there has been any
improvement it is very, very recent, and I have not heard about it.

Now under those conditions we are likely to reach a point in Mas-
sachusetts where we have got not only to abolish taxes but we have
got to go down into our pockets and make up deficits, if we are going
to have street railway service.

Mr. WARREN. If we are going to have it

Mr. BULLOCK. We have got to have it.

Mr. WARREN. In Massachusetts, you are familiar with the laws
there relative to the issue of securities and the length of time those
laws have been in effect?

Mr. BULLOCK. Yes.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 647

Mr. WARREN. So that in the ordinary sense of the term, should you
say to the commission that there is substantially no stock watering
affecting the situation of street railways in Massachusetts?

Mr. BULLOCK. There has been none since the nineties. Our anti-
stock-watering laws date back to about 1893, 1894, or 1895 ; do they
not?

Mr. WARREN. Yes.

Mr. BULLOCK. And alt issues of securities have been subject to the
approval of the commission, and the securities outstanding that were
issued before that time are a small part of the whole proposition.
Even with those securities the amount of stock watering was not so
large in many cases. Our first street railroads were built in days
when corporations in our part of the country were financed by capi-
tal stock and when bonds were not known. Our early railroads were
built by capital stock, and there was a period in the seventies and
eighties when there was stock watering, but there has been none since
the nineties.

Mr. WARREN. And in many, if not all, cases when those laws were
first put into effect in 1894, current issues were made dependent upon
appraisals of the property to verify the integrity of the past issues;
were they not. as a general practice?

Mr. BULLOCK. The commission passed upon the amount of securi-
ties to be issued and it has checked up the cost. We can say sub-
stantially there has been no stock watering.

Mr. WARREN. So that the plight of the street railways in Massa-
chusetts, whatever it is due to, is not due to that?

Mr. BULLOCK. In the case of roads like the Boston Elevated every
share of stock represents a payment of more than par. The stock
has been put out at premiums. I do not remember the Elevated
figures, but every share of Elevated stock represents something like
$110 or $115 of money put into the property.

Mr. WARREN. And that company was not incorporated until after
the laws you refer to were put in the statute books ?

Mr. BULLOCK. Not until about 1898.

Mr. WARREN. That is all I want to ask Prof. Bullock.

The memorandum presented by Mr. Bullock is as follows :

THE TAXATION OF ELECTRIC RAILWAYS.

In this statement the taxation of electric railways will be considered
under the following heads: (1) The existing method of taxing electric rail-
ways; (2) the amount of the taxes and other public contributions paid by
electric railways; (3) the principles which ought to govern the taxation of
electric railways; (4) the measures which ought to be adopted to relieve elec-
tric railways in the present crisis.

1. THE EXISTING METHOD OF TAXING EI.ECTKIC RAILWAYS.

The payments which electric railways are required to make to the various
governmental authorities, Federal, State, and local, may be conveniently di-
vided into two classes: (a) Taxes proper and (b) other public contributions.
The former include ppoperty, income, business, license, franchise, and other

Data on this subject may be found In the 17. S. Census Report on the Taxation and
Revenue System* of Statt* and I»cal (Jovernments, 1914; the report of the U. £•. Commis-
sioner of Corporations on the Taxation of Corporations, 1!H)9— 191.% ; and the report of
the Special Commission on the Taxation of Corporations of the State of Connecticut,
lOl.'l. Appendix. Statlntlcs concerning the amount of taxes paid by electric railways
may be found in the various reports of the IT. S. Census on the electric-railway industry ;
other data have been gathered by the American Electric Railway Association for the in-
formation of the commission.

648 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

taxes, which electric railways pay In common with other corporations and, in
many cases, with individual taxpayers. The latter include a great variety of
charges such as payment for street paving and other work in or on the streets,
free transportation for public employees and other similar services rendered
governmental authorities, payments, frequently of a contractual character, for
the privilege of using the streets, and miscellaneous minor items. Concerning
these payments it is impossible to make any summary statement because they
differ so widely in character, and all that I can undertake is to present, later
on, some statistics that will show how important a change these payments are
upon the revenues of electric railways.

The taxes which electric railways pay may conveniently be summarized as
follows:

A. Property taxes. In 43 States and the District of Columbia, electric
railways come under the operation of the general-property tax. In 22 of these
43 States * either all the property of such railways or all of what is known as
their "operating" property is valued by some State official or board. In a few
of these 22 States, such as Wisconsin and Vermont, the taxes levied are im-
posed by and payable to the Slate government, but in most cases the valuation
fixed by State authorities is certified back to the local taxing districts for tax-
ation at the prevailing local rates.

In 15 States a the property of electric railways is locally assessed and taxed
exactly like any other property.

In 5 States the assessment of the electric railways is divided between State
and local authorities. In Massachusetts, some or all of the tangible property
is subject to local taxation, while a State tax is imposed upon the franchise.
Colorado has State assessment of electric railways operating in more than one
county and local assessment of railways operating in only one county. Illinois
has State assessment for railways incorporated under the general railroad act,
while for other railways it prescribes local .assessment of the tangible property
and State assessment of the franchises.

In Rhode Island and the District of Columbia property taxation is confined,
respectively, to tangible property and real estate, while the intangible property
is reached by the gross-receipts taxes and is not subject to taxation as property.
In Rhode Island the assessment of the tangible property is made by the local
assessors.

B. Gross receipts, taxes. In 3 States (California, Connecticut, and
Maine) the "operating" property of electric railways is exempt from taxation,
and in lieu thereof taxes are levied by the State governments upon gross re-
ceipts. Real estate not used for "operating" purposes is subject to local taxa-
tion like other real estate.

A considerable number of other States 3 levy taxes upon -gross receipts of
electric railways usually, as additional taxes or in lieu of taxes upon franchises
or intangible property. In Massachusetts, however, the gross-receipts tax is
in lieu of other contributions which the railways were formerly required to
make in connection with their right to use the streets.

C. Taxes on dividends. — At least two States, Massachusetts and New York,
provide for taxes on dividends in excess of 8 per cent. It does not appear,
however, that occasion has ever arisen for the imposition of such taxes in
either State.

D. Taxes on capital stock. — In addition to other taxes, at least 14 States4
impose taxes on the capital stock of electric railways. Usually these taxes
are comparatively light, but in times like the present they are not a negligible
factor. In Pennsylvania the capital-stock tax is levied at the rate of 5 mills
upon the dollar and is (except in Philadelphia and Pittsburgh) in lieu of a
tax upon the operating property of electric railways. This tax is supplemented
by a tax levied at the rate of 4 mills on the dollar upon corporate loans, which

1 These States are Alabama, Georgia, Idaho, Indiana, Kansas. Maryland, Missouri,
Nevada, New Hampshire, New Mexico. North Carolina, North Dakota. Ohio, Oregon,
Tennessee, Utah, Virginia, Vermont, Oklahoma, Washington, West Virginia, Wisconsin.
It is possible that Wyoming should be added to this group of States, but I have been
unable to determine this opint and shall therefore omit Wyoming from consideration in
this statement.

1 These States are Arizona, Arkansas, Delaware, Florida, Iowa, Louisiana, Michigan,
Minnesota, Mississippi, Montana, Nebraska, New Jersey, South Carolina, South Dakota,
Texas.

3 These States are Alabama, Massachusetts, New Jersey, New York, Ohio, Pennsylvania,
Rhode Island, South Carolina, Texas, Virginia.

« Arkansas, California, Georgia, Idaho, Nevada, North Carolina, Oregon, Pennsylvania,
Tennessee, Texas, Utah, Vermont, Virginia, West Virginia.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 649

tax is deducted by the corporations from interest paid to the bondholder, ex-
cept in cases where companies have assumed liability for the tax.

In addition to these State taxes electric railways have been subject in recent
years to a Federal tax upon their capital stock.

E. License taxes. — A considerable number of States impose either State or
local, and sometimes both State and local, license taxes which take various
forms that are very difficult to classify. The aggregate amount of such charges
is sometimes considerable and, since they are always levied in addition to
other taxes, they are a factor of no small importance.

F. Federal income tax. — Since 1909 electric railways have been subject to a
Federal tax on their net income, which was at first an excise imposed on cor-
porations and since 1913 has been a part of a general income tax. With the
shrinkage of the net income of electric-railway companies the amount of tax-
able income has, of course, decreased, but upon the other hand the rate of
the normal income tax has increased so that the Federal tax is at the present
time a substantial burden. This it is entirely in the power of the Federal Gov-
ernment to remove if it desires to cooperate with the State and local gov-
ernments in rehabilitating the electric-railway industry.

G. Federal excess-profits tax. — The Federal excess-profits tax must also be
mentioned, even though most electric railways have shown so small a return
upon the capital invested in them as to exempt them from the payment of any
tax under this head.

2. THE AMOUNT OF TAXES AND OTHER PUBLIC CONTRIBUTIONS PAID BY ELECTRIC

RAILWAYS.

In the year 1917, according to the United States census, the electric rail-
ways of the United States paid taxes and other contributions amounting to
$63,279,000, which may be classified as follows:

Taxes on real and personal property $21, 804, 000

Taxes on earnings and capital and other bases 23, 952, 000

Total taxes 45, 756, 000

Other public contributions 17, 522, 000

Total taxes and other contributions,.: 63,279,000

The total payments for taxes and other contributions amounted in this year
to 8.67. per cent of the gross earnings of the electric railways. This percentage
would be moderate in the case of a business where the gross receipts, or annual
turnover, amounted to two or three times the capital investment ; but it is
exceedingly heavy in an industry where there is capital investment amounting
to several dollars for every dollar of annual gross receipts.

Although net operating revenue has actually decreased in recent years, the
taxes and other public contributions of the street railways appear, at least
down to the year 1918, to have increased. In 1912 the total taxes and other
contributions, according to data compiled by the American Electric Railway
Association from census reports and from replies from 214 companies, amounted
to $50.086,000. In 1916 these charges had increased to $62,106,000, while in
1918 they had risen to $65,561 ,000. The total of these payments for 1912
amounted to 8.55 per cent of the gross earnings of the railways. In 1918 they
amounted to 8.57 per cent.

The most striking commentary upon the present situation of the electric
railways with reference to taxation, is the fact that in the year 1918, when
the revenue remaining after defraying operating expenses decreased from
$228.989,999 to $192,615,000, the taxes paid by electric railways actually in-
creased from $45,756,000 to $49,496.000. Even more striking is the comparison
of the amount paid in taxation with the net income of electric-railway com-
panies after making deduction for all charges. This net Income In 1917 was
$56,450,000, after the payment of taxes amounting to $45,756,000. In 1918,
however, the net income fell to $20,183,000 after paying taxes amounting to
$49,496,000.1

1 I have taken those statistics from the tables compiled by the American Electric Rail-
way Association for the Information of this Commission. The figures for 1918 are in
part estimated.

160643°— 20 42

650 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

8. THE PRINCIPLES WHICH OUGHT TO GOVERN THE TAXATION OF ELECTRIC KAILWAYS.

There are three theories which have been advanced at different times con-
cerning the taxation of street railways and other public-service corporations.

The first of these is the theory that public-service corporations should be
subject to taxation much heavier than that imposed upon other classes of
business or property, because they hold and enjoy special franchises of great
value. A generation ago, before our Federal and State Governments had
undertaken to regulate effectively the service arid charges of public-service
corporations, this theory provided a natural and logical remedy for some of
the conditions which existed in the days of unregulated monopoly. Taxes upon
the property or business of unregulated monopolies will tend to fall upon the
profits of the monopolists, and by their agency the Government may secure a
share of the profits resulting from the possession of valuable public franchises.
But the situation was radically changed when public-service corporations were
brought under effective regulation. Under the latter condition, regulation ^of
rates and service must proceed upon the theory that the corporations have a
right to earn a reasonable return upon their investment. Special taxes upon
regulated monopolies increase the expense of providing the service, and there-
fore increase the rates necessary to yield a reasonable return or diminish the
resources available for extending and improving the service. Effective regula-
tions of public utilities not only remove the evils which in former times led
to the demand for special taxation, but also alters the incidence of such
taxation.

Since we are now committed to the policy of regulation of public-service
corporations, we should readjust our theories of taxation to present-day facts
and conditions. We must assume that special taxes upon electric railways or
other public-service companies increase the expense of providing the service
and, in the long run, must be borne by those who use the service either in the
form of increased rates or reduced facilities. There may be circumstances,
such as extreme need for public revenue, that can be provided in no less in-
convenient or objectionable manner, which justify the imposition of special
taxation upon transportation and other public-service companies. But these
circumstances must be regarded as exceptional, and we must conclude that un-
der a regime of effective public regulation it is undesirable to subject public-
service corporations to heavier taxation than is imposed upon other classes
of business or property.

The second theory takes effective regulation of "public utilities for granted and
holds that such regulation makes it unnecessary to consider whether the taxa-
tion of public-service corporations is heavier or lighter than that imposed on
other business or property. Such corporations, it is said, might even be ex-
empted from all taxation provided that their charges were reduced or their
service improved in a measure corresponding to the benefits they derive from
such exemption. And, on the other hand, it is argued that taxes upon such
corporations may properly be increased to any desired extent provided that
rates are increased in a corresponding degree. In the former case the public
will secure uaitaxed service and in the latter the Government will employ the
corporations as an agency for collecting special taxes. In neither case is the in-
terest of the corporations affected, either favorably or adversely.

This theory upon examination will be found to ignore the effect of taxa-
tion upon the real parties at interest, namely, the taxpayers and those who use
the services of public service corporations. Between these two classes of
people there is no necessary identity of interest. Here I may be permitted to
cfuote from the report of a committee of the National Tax Association ap-
pointed to consider the taxation of piiblic-service corporations : *

" With corporations national in scope it may be true that, if we leave out of
account citizens residing abroad and foreigners residing temporarily in the
country, the persons that consume the service are the same body of people that
must pay the taxes; but it is by no means true that the extent to which par-
ticular persons use the service is the measure of the contributions they make
to the national revenues. Even if all taxation were direct, and were, in fact as
well as theory, levied proportionately upon property or income without exemp-
tions of any description, it would be certain that all taxpayers would not use
the services of public-service corporations in properties to the amount of their
property or income. When we consider that direct taxation is not necessarily

» Proceedings of the National Tax Association 1913, pp. 372-3S3.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 651

proportional, either in theory or in actual operation, and that exemptions are
both numerous and important, it becomes evident that the assumed identity of
interest between consumers and taxpayers does not exist With services loeal
in scope the case is even stronger, since many taxpayers are likely to be non-
residents, while the service may be used extensively by persons who are em-
ployed in one locality during the day but have their domicile elsewhere. What
identity pf interest in this matter can there be between the taxpayers of a large
city and the army of suburbanites using the local transportation facilities?

" Since the interests of taxpayers and consumers are not identical, it follows
that exemption of public-service corporations from taxation confers a special
benefit upon consumers at the expense of taxpayers ; and by a parity of reason-
ing it follows that the imposition of special taxes upon such companies relieves
the taxpayers at the expense of the consumers. In exceptional cases special
considerations may justify the grant of what is in effect a bounty to consumers,
OF justify the imposition of special taxes upon them ; the rule of equality is not
an absolute one which admits of no exception. But your committee holds that,
as a general proposition, this second theory is inconsistent with the principle
of equality in taxation, and for this reason we are compelled to reject it."

There remains the third theory, that the taxation of public-service corpora-
tions should be governed by the general rule of equality, which should be the
controlling principle in governmental affairs. By equality is not meant abso-
hite uniformity of treatment irrespective of all differences in the nature or
condition of the objects upon which taxation is imposed. Differences in the
form and method of taxation are perfectly consistent with the principle of
equality provided they are justified by the circumstances of the case and result
hi a substantial equality of burden. Under normal Conditions public-service
corporations should be taxed neither more nor less than other classes of busi-
ness concerns. If they are taxed more, consumers are burdened for the benefit
of the taxpayers who would otherwise have to contribute the amount of revenue
raised by special taxation of public utilities; if they are taxed less, then the
consumers receive a subsidy which must be made up by additional charges
exacted from taxpayers. This theory has received very general approval in
recent years and may safely be accepted as our point of departure in the
present case.

But this theory of equal taxation for public-service corporations, like any
other general theory of taxation, has its necessary qualifications, A great
financial emergency would justify a government in employing such corporations
as agencies for collecting heavy emergency taxes from those who use their
services. And, upon the other hand, exceptional circumstances may justify a
reduction or total abolition of taxes upon particular companies or particular
classes of public-service corporations. To secure the construction of a new rail-
road, exemption from taxation for a period of years may be properly offered
as an inducement to a eompuny willing to construct a road that is not likely to
prove immediately profitable. In general, it may be snkl that whenever
special circumstances exist which justify the Government's levying special
taxes upon consumers or offering a bounty for some necessary public service.
It is possible to justify a departure from the general principle of equal taxation.

The application of this theory of equal taxation to the case of the electric
railways gives the following result : Under ordinary conditions the property and
business of such companies should be taxed like other property or business.
Nothing but fiscal emergency can justify the imposition of special taxation and
notliing but an emergency seriously. impairing the earning powers of such rail-
ways can justify either a direct or an indirect subsidy. Tlie only practical
difficulty in applying the principle arises from the fact that the occupation of
the street by railway companies seems to occasion some extra expense for
upkeep which the companies should fairly be called upon to meet. This extra
exj>ense is difficult, and perhaiw impossible, to estimnte with even approximate
accuracy. It seems to justify in normal times the payment of an extra contribu-
tion by such companies, but it has sometimes been made an excuse for imposing
special taxes which considerably or even greatly exceed the figure which would
be justified.

Under the Federal income and excels profits taxes there has been no discrimi-
nation against electric railways, and if times were normal there would l>e no
ground of complaint. The t:ixes levied by the State nnd local governments upon
tbe property of such railways are in principle i»erfectly justified and give no
occasion for complaint except in cases where valuations have been placed nt a
higher proportlou of the true value thuu is generally applied to the property of

652 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

individu.nl taxpayers. But the numerous additional taxes imposed upon fran-
chises, earnings, and capital stock have frequently resulted in the imposition of
a total amount of taxation considerably exceeding that which could be justified
under the principle of equality. The same is true of the payments, contractual
or other, which have been required as a condition of laying tracks in the streets.
In 1917 electric railways of the United States, in addition to all taxes, which
were undoubtedly very heavy, paid $17,522.000 in other contributions, a sum
which undoubtedly exceeded the amount which they would have had to pay if
the theory of equal taxation had been followed.

4. THE MEASURES WHICH OUGHT TO BE ADOPTED TO RELIEVE ELECTRIC RAILWAYS
IN THE PRESENT CRISIS.

The financial crisis which at present confronts the electric railways is so-
evident and so urgent that argument is not needed to demonstrate that, along
with other measures of relief, a substantial reduction should be made in the
amount of taxes which they are required to pay. How far this reduction should
go must depend in considerable degree upon the .relief afforded in other direc-
tions. The following suggestions are offered for the consideration of the coin-
•oiission :

A. The special contributions now required for the use of the streets ought
immediately to be reduced to an amount that will no more than cover the extra
cost of maintenance occasioned by the presence of car tracks. These contribu-
tions may have been, and probably were, justified before the days of effective
regulation of public utilities, but they have no logical place in our present
scheme of public regulation, except in so far as they do not exceed the extra
cost of maintenance. Instead of being a means of securing for the public
treasury a part of the excessive profits of unregulated monopolies, they have
become a special tax on electric-railway transportation and are inconsistent
with the principle of equal taxation.

B. The other special taxes levied by State and local governments in excess of
those imposed on ordinary business enterprises ought also to be reduced or
abolished, as the case may require. Like the special contributions for the use
of streets, these taxes may have been justified formerly, but to-day they are
inconsistent with the principle which should control the taxation of public-
service corporations in ordinary times. In an emergency like the present, they
are utterly indefensible.

C. Relief from the ordinary taxes imposed upon property can be justified only
upon the ground of extreme emergency, and such an emergency can not be held
to exist until the companies have been relieved of taxes that violate the
principle of equality and have also been permitted to increase their rates of
fare as far as may be expedient and practicable.

D. If other measures fail to give adequate relief and it seems necessary to
relieve the electric railways from the property tax, the best procedure would
probably be to exempt them from taxation on their property for a limited term
of years, and then to impose a tax upon their net income. Such a measure is
preferable in every way to total exemption since it maintains the theory that
public-service corporations ought to be taxed ; it will afford much relief in ex-
treme cases ; and it will insure some contribution to the public treasury as soon
as the industry begins to see better days.

B. If the Federal Government is to recommend measures of relief, which
the States are expected to adopt, it would -obviously be appropriate for it to
lead the way by relieving electric railways, at least for a limited term of!
years, from some of the Federal taxation that is now imposed upon them.

Commissioner SWEET. I was very much interested, Prof. Bullock,
in what you have said to us about taxation, and in one way I think
perhaps the ground has been fully covered, but there are one or two
little points I would like to ask some questions on.

With regard to the taxation of street-railroad companies or the
remission of it as a means of granting relief, do you not think it
would come too slowly now for the kind of relief that the companies
need, too slowly to be effectual?

Mr. BULLOCK. Well, it would be slower than some other things, no
doubt. If your commission can work out a solution without remis-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 653

sion of ordinary equal property taxation, you ought to do so. But
in so far as State and local taxation exceeds the figure that would be
consistent with equal taxation of the street-railway industry, aboli-
tion of the extra burdens ought to be recommended. You have to
ask the street-car rider to do enough in the way of increased rates
without asking him to contribute now this special transportation tax.

Commissioner SWEET. If I get your idea correctly, it is that in
normal times and under normal conditions the properties of street-
railroad companies ought to be taxed on substantially the same
basis as other property in the community ?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. No more and no less?

Mr. BULLOCK. Xo more and no less.

Commissioner SWEET. But that in times such as wre are passing
through now, and taking perhaps as one of the strongest examples
the situation in Massachusetts, the situation is very critical. If
what you said with regard to the risk of an automobile in the im-
mediate vicinity of a track is correct-
Mr. BULLOCK. That is something that occurred to a car that I was
riding in Sunday.

Commissioner SWEET. It did occur? Well, then, it is not an im-
possible case, surely. What I was going to say was if there was
even any remote justification for your remark, then there is involved
the question of public safety as to the riders upon these interurban
roads; is there not?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. There is also involved, as you have practi-
cally stated, the question of the existence of some of these roads,
which are not only great conveniences to the public but in many
cases necessities, are they not, for the conduct of business and moving
from one place to another place? Xow that is very far from normal,
is it not — what we regard as normal and hope to be normal in this
country ; that condition has not prevailed before and we hope never
will again; is not that true?

Mr. BULLOCK. It is so far from normal that the industry appears
to face ruin.

Mr. WARREN. What?

Mr. BULLOCK. It faces ruin ; that is. the tracks are coming up, as
I see it.

Commissioner SWEET. Taking that into account and looking at
the situation squarely as it is, do you think there would be any
impropriety, anything wrong or unreasonable, in the total remission
of taxes for a limited period?

Mr. BULLOCK. I do not. I think it will come to that in many
cases, or else it will be made up in some other way. We may go
through the form of levying taxes and then make up a deficit. That
is what we are doing in Massachusetts.

Commissioner SWEET. By levying more?

Mr. BULLOCK. Yes.

Commissioner SWEET. That would simply

Mr. BULLOCK. It is whipping the devil around the stump.

Commissioner SWEET. Yes; in a sense practicing a species of
deception upon the public.

654 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BULLOCK. Undoubtedly. What is involved is giving a sub-
sidy to an industry that faces ruin.

Commissioner SWEET. In the matter of taxation, whether upon
an equal basis or upon the unfair basis that your figures would
indicate has prevailed in many cases, the public has come to look
upon the taxation of these companies as a sort of public asset,
something the public in the past has been entitled to, and to
give them up would require a good deal of argument and dis-
cussion— would it not — and that would be the more difficult as
you get lower down in the community with regard to intelligence;
would it not?

Mr. BULLOCK. Yes; and with regard to the seriousness of the
burden. As I pointed out, for the Federal Government to give up
the income tax is a slight thing, but for some little locality to give
up some local charge may be comparatively a big thing.

Commissioner SWEET. Exactly. People would be more likely to
object the nearer home it would come to them.

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. Then under the circumstances do you not
think it would be unwise for this commission to attempt to help the
situation in that way at the present time? I mean as a matter of
immediate and temporary relief.

Mr. BULLOCK. I think that undoubtedly the adjustment of all
these inequalities in taxation will take time. Where the situation
is bad enough, however, the adjustment might be quickly reached
and a recommendation from the commission would be helpful. More-
over, a recommendation of higlier rates to be paid by car riders would
have more force if it were accompanied with a recommendation that
unequal charges be done away with. Whether your commission went
on the theory that the time had not come to take off ordinary taxes
and recommended that ordinary property taxes be left, but that
taxes in excess of what ordinary property pays should be remitted
and other charges cut down, such a recommendation would help very
much a recommendation for higher rates.

The street-car rider will object, and justly, to higher rates that
enable the continuance of taxes which under a scheme of public
regulation amounts to a special tax on the transportation industry
and which he pays for the benefit of property owners. It is hard
to raise the fares. A street-car fare is not like your gas bill that you
have once a month ; you have your bill presented to you twice a day,
six or seven days in the week, and the increase comes to you, the fact
of the increase is very obvious, it is rubbed into the street-car riders
twice every day. And a recommendation would come with greater
weight, it seems to me, if it were accompanied with a very strong
recommendation for the abolition of unequal taxes.

Commissioner SWEET. It would seem under present conditions as
if the general public ought to accept a recommendation of that kind
without very much dispute and controversy; would it not?

Mr. BULLOCK. They certainly ought.

Commissioner SWEET. What has been the attitude of the news-
papers in Massachusetts since the trouble has arisen with regard
to the street railroads.?

Mr. BULLOCK. My newspaper reading is limited on account of
poor eyesight. I read two or three papers in a summary fashion.

PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION. 655

Now the newspapers last year generally were favorable to the passage
of laws putting into application the principle of service at cost.
At the present time when the trustees that are operating the Boston
Elevated and the Bay State Street Railway, which is now the
Eastern Massachusetts, undertook to raise fares and make readjust-
ments which the car riders complained of. I should say that there
was a tendency of the newspapers to favor the car rider and to
tend on the whole to make comments that caused discontent over
the increase in fare. However, my observation is limited. Mr.
Warren has followed that probably • more than I have.

Mr. WARREN. I have not followed it very closely, but I should
think that was a correct statement.

Commissioner SWEET. Have you given personal consideration to
this plan of service at cost?

Mr. BULLOCK. I gave considerable attention to it last year. It was
much discussed.

Commissioner SWEET. Have you been here and heard the discus-
sions and explanations concerning Cleveland and Cincinnati and
Dallas?

Mr. BULLOCK. I have not.

Commissioner SWEET. You have not?

Mr. BULLOCK. I have not been here. It had many advantages as
a means of educating public sentiment on this matter. It was a plan
well calculated to lead to legislation in our State that was fair to the
street railway. But the continuance of high operating expenses and
the necessity of putting the ordinary fare up to 10 cents has been
producing some unrest.

Commissioner SWEET. Making the plan unpopular somewhat?

Mr. BULLOCK. I do not know. I think perhaps the people have
forgotten about the plan of service at cost and the only thing is the
10-cent fare. That is unpopular in Boston at the present moment.

Commissioner MEEKER. Well, the people certainly do not think
they can get service at less than cost, do they, in Massachusetts ?

Mr. BULLOCK. I do not know what they think, but they object to
paying the increase. Whether they think about the cost I do not
know.

Commissioner MEEKEB. Would you advocate keeping the fare at
a lower level and making up the deficit out of general taxation?

Mr. BULLOCK. I would advocate the highest charge for the service
consistent with revenue. I would have the rider pay the full cost
as far as it is practicable to make him do so, but at the same time
I would remove unequal tax burdens so as not to have him pay more
than the eost. Your question simply related to public sentiment.

Xow I am a little at a loss to judge just what the public sentiment
in Massachusetts at the present moment is. I should say the plan of
service at cost was not unpopular but I guess it has been forgotten,
has it not, Mr, Warren ?

Mr. WARREN. I think largely the interest centers in the fare.

Mr. BULLOCK. I think at the present moment the interest largely
centers in the fare.

Commissioner SWEET. As a national problem the solution of it
depends very largely upon public sentiment; does it not?

Mr. BULLOCK. It does. Now sentiment in our State I should say
worked admirably as a means of molding public sentiment last year.

656 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Is it not likely to be so all over the coun-
try?

Mr. BULLOCK. Yes.

Mr. WARREN. As Prof. Bullock has referred to me, I should say
the amount of dissatisfaction with the 10-cent fare in Boston is neg-
ligible compared to what it would have been had the company been
operating as it did up to a year ago. The public would have thought
it was being robbed.

Mr. BULLOCK. I think probably there will be a change there in
Boston. I guess that when the fare was 8 cents and before it was
raised to 10 a great many newspaper readers paid 8 cents for their
ticket and spent 2 cents for a newspaper and a good many people
now spend 10 cents for their ticket and do not pay 2 cents for the
newspaper, and the newspapers are unhappy.

Commissioner SWEET. Among the various remedies which have
been suggested and those that have been tried, has any come to your
knowledge or have you thought of any that you think would give
better results than the service-at-cost plan?

Mr. BULLOCK. I have not. I do not know any fairer means of
presenting to the public, or any more expedient and diplomatic and
straightforward means of presenting to the public, the idea that
they have got to pay for the cost of the service and at the same time
are going to be protected against undue exactions than that.

Commissioner SWEET. And, of course, you would include among
your costs a proper return upon the invested capital ?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. And a sufficient return and with sufficient
certainty to induce new capital to come in ?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. Do you regard that as essential to the con-
tinued prosperity of an industry of this kind ?

Mr. BULLOCK. Certainly. Of course the industry needs large
amounts of capital. It is in a run-down condition.

Commissioner SWEET. For safety or extensions

Mr. BULLOCK. First for safety^ and then doubtless for extensions
and improvements.

Commissioner SWEET. Upkeep of the track and rolling stock
would also be regarded as an expense that must be met under this
plan?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. Do you see any economic flaw or defect in
the system?

Mr. BULLOCK. I have not seen any. It seems to present the mat-
ter in a reasonable and fair way to the public and to offer a guaranty
against excessive charges if the plan is adopted.

Commissioner SWEET. What you have said to us about taxation
has brought to my mind more clearly than perhaps ever before what
seems to me to be a fact; and that is that the whole subject of taxa-
tion involves two propositions: One, getting enough revenue to
carry on the Government in some way; and the other — and this
is the point that has specially impressed itself upon my mind — the
adjustment fairly among different elements in the community, and
that perhaps involves the most difficulties, does it not?

Mr. BULLOCK. It is a very difficult problem.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 657

Commissioner SWEET. Now, then, on the old plan based upon the
idea that these companies were making large profits and might be
taxed heavily — more heavily than the private owners of property
and more than the ownership of their more direct properties would
justify — if I understand you right, that idea is now absolutely ob-
solete— it is a thing of the past and ought not in any degree be
applied as a principle of taxation to these companies. Is that
correct ?

Mr. BULLOCK. I think so. We have got to wholly readjust our
ideas. That is a difficult thing for us to do, but we must do it.

Commissioner SWEET. In other words, instead of fowls to be
plucked they are fowls to be fed, or at least, if we are to have the
conveniences of street railroads, they must be treated with the utmost
fairness?

Mr. BULLOCK. And where under former conditions you were tax-
ing what used to be called monopoly profits, with a regulated in-
dustry you are taxing the rider. That is a change that has come
about.

Commissioner SWEET. The paving tax when analyzed under
present conditions falls entirely upon the riders who. as you have
stated, are only one part of the community, and to that extent, there
is a flaw in the system as between one group and another in the com-
munity. In other words, as I understand it, according to your idea
at the present time at least, it is nor a proper or just apportionment
of the burdens to the various parts of the community ; is that correct ?

Mr. BULLOCK. Undoubtedly. .

Commissioner SWEET. Then for that reason as well as the fact
that it is putting a very heavy burden upon corporations which are
now seeking at least to be a benefit to the general community and are
needed by the general community, instead of helping them, it is
putting a burden upon them and in addition to that, it is inequit-
able as between the various parts of the community outside of the
'corporation. Is that true?

Mr. BULLOCK. Yes.

Commissioner SWEET. And would the same thing apply to bridgfe
tolls and street cleaning?

Mr. BULLOCK. I think the same thing applies to every kind of a
charge made upon a public-service corporation in excess of a pay-
ment for what they actually get or what damage they actually do.
And if I may suggest it, since you brought up the matter of service
at cost, it would seem to be logical and an essential part of that plan
that a service-at-cost scheme should be so contrived as to determine
accurately the cost, and that can not be done if these excessive public
charges and contributions are exacted. You are not giving service
at cost; you are giving service at more than cost.

Commissioner SWEET. Of course, if those burdens are to be con-
tinued under the service-at-cost plan, they would be figured as a part
of the expense ?

Mr. BULLOCK. They would.

Commissioner SWKET. And would have to be paid for by the riding
public?

Mr. BULLOCK. Yes.

658 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. But as you say, the nomenclature would be
incorrect, if you call it a service at cost when strictly speaking it
would not be at cost. Have you had your attention called to the one-
man car?

Mr. BULLOCK. Yes.

Commissioner SWEET. Have they been tried in Massachusetts?

Mr. BULLOCK. I believe they have been coming in within the last
year or so. Formerly they were not permitted.

Commissioner SWEET. Not permitted?

Mr. BULLOCK. Xot permitted. Is not that correct, Mr. Warren ?

Mi: WARREN. Yes.

Mr. BULLOCK. The commission for a long time did not think they
were safe and would not permit them.

Commissioner SWEET. Are they being used now ?

Mr. BULLOCK. To some extent, but not extensively, so far as I
know. It costs money to buy them and money is scarce.

Commissioner SWEET. They have not the money ?

Mr. WARREN. Several companies want to try them, but they can not
get the money to buy the cars.

Commissioner SWEET. As an economic proposition, Prof. Bullock,
do you think there is a place for them in the general regime of the
street-car industry ?

Mr. BULLOCK. I should think on many car lines in Massachusetts
there was a good place for the one-man car.

Commissioner SWEET. That it would give reasonable service and
satisfaction to the public and at the same time be operated economi-
cally ?

Mr. BULLOCK. I should think so.

Commissioner SWEET. So wherever such conditions exist under
the present emergency, don't you think it would be reasonable to
recommend that they should be used ?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. Do you think of any other economies or any
economies further than those mentioned that might reasonably be
recommended ?

Mr. BULLOCK. I do not. I am not particularly well informed about
the street-railroad industry. I know about it just what a layman
would know, and if the industry were one of expanding revenues that
could command plenty of capital, I have no doubt economies could
be effected by extensive reconstruction programs ; but capital can not
be had under present conditions.

Commissioner SWEET. That is to say, the poverty of these com-
panies has brought about uneconomical conditions ?

Mr. BULLOCK. It has absolutely forced uneconomical conditions.

Commissioner SWEET. For which the companies are not really re-
sponsible?

Mr. BULLOCK. Undoubtedly.

Commissioner SWEET. That is all.

Commissioner MEEKER. I'm interested in the 10-cent fare in Boston.
I gathered from what you say that .the 10-cent fare is insufficient, or
at least it has not furnished a fair return upon investment in addi-
tion to the cost of conducting the street-railway transportation ?

Mr. BULLOCK. In Boston it has been in operation but a very short
time, and there has been a strike and we do not yet know the result

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 659

and nobody can do anything but guess. Now my guess is that the
10-cent fare will not give the Elevated the revenue that it will need
to have, and that there will be a deficit which the city of Boston
and other cities served by it will have to make up. But that is a
guess and it is too early to determine. I hope that the guess will
turn out to be wrong.

Mr. WARREN. It would have met it before the last increase in
wages, would it not, probably? Did you see the cost given in the
papers at 9.3 cents per passenger under the old wage scale before the
strike?

Mr. BULLOCK. In my answer I took into account this recent strike.
Now, I think that strike has just about taken out of the company's
treasury and handed over to the men the increase of fare; at any
rate, the benefit of it to the company will not be sufficiently great, I
should guess, to put the company in proper financial position.

Commissioner MEEKER. Have you compared the street-railway situ-
ation in Boston with the situation in other cities?

Mr. BULLOCK. Not extensively. I know something about condi-
tions in New York, Chicago, and Cleveland.

Commissioner MEEKER. The president of the street-railway com-
pany in Cleveland testified yesterday that their o-cent fare plus 1
cent for transfer was sufficient to enable them to operate on a serv-
ice-at-cost plan and pay a yield on the investment, although the
company was not entirely satisfied with the yield upon the invest-
ment. How do you account for the great difference in Cleveland as
compared with Boston?

Mr. BULLOCK. We have a very extensive subway system in Boston.
In the old days when money could be had for about 4 per cent, and
when operating costs were low and gross revenues increasing, we
built a very excellent and very expensive system of subways; so the
Boston Elevated Railroad is under a charge for subways which makes
the situation there utterly unlike the situation in Cleveland.

Mr. WARREN. I might bring out here, because it might answer your
question in pail, that the rental of those subways which were built
by the city is charged as a part of the cost of the service; is it not,
Prof. Bullock?

Mr. BULLOCK. It is.

Mr. WARREN. And includes a sufficient charge not only to pay the
interest on the city debt incurred in building the subways, but suf-
ficient in addition to amortize the entire capital cost of the subways
over a given period of years. That is all included in the cost of
service.

Commissioner MEEKER. Twenty-five years?

Mr. WARREN. I think it is either 40 or 50 years, but it makes a
very substantial payment annually by the car ridel's, and it is in part
being paid upon suoways which are not yet completed.

Mr. BULLOCK. When I leave my house in Cambridge I get into a
subway that carries rne into the center of Boston in 8 minutes.

Mr. WARREN. That is 3 or 4 miles.

Mr. BULLOCK. And it is a very expensive service that we get. New
York is the only city with any subway outlay like ours, and there, of
course, their tniftic is much larger than ours in proportion.

Commissioner MEEKRR. We must be very careful in making gen-
eralizations not to make them too broad.

660 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. BULLOCK. Undoubtedly.

Commissioner MEEKER. And must take the different local condi-
tions into account.
Mr. BULLOCK. Undoubtedly.

Commissioner MEEKER. I would like to get your opinion — first of
all, your statement as to how the investment or capitalization was ar-
rived at. Was it by a physical valuation or

Mr. BULLOCK. You mean in Massachusetts ?

Commissioner MEEKER. Yes, or

Mr. BULLOCK. The commission with its engineers followed the
construction and checked it up; and every application for an issue
of stock was accompanied by statetments of the actual expenditures,
etc., so that the commission has approved not only the issue, but has
checked up the amount of the issue.

Commissioner MEEKER. So that there is no question of an excessive
valuation of property upon which a fair income is due to the in-
vestors ?

Mr. BULLOCK. No.

Commissioner GADSDEN. Are you familiar with the resolution re-
cently passed in the State of New Hampshire exempting street rail-
ways from all taxation in case the public-service commission certifies
that they have an operating deficit?'

Mr. BULLOCK. I have seen a newspaper statement about it, but I
have no other knowledge.

Commissioner GADSDEN. That is in line with your suggestion.
| ! Mr. BULLOCK. That is in line with the suggestion.

Mr. WARREN. What is the custom, Prof. Bullock, respecting taxa-
tion of municipally owned plants engaged in the utility business, if
you know?

i Mr. BULLOCK. In the United States ?
| I Mr. WARREN. Yes.

Mr. BULLOCK. I think the practice is to tax them. Of course,,
there are some departures from that rule. In our own State where
j a city or town goes outside its limits and takes land for waterworks,
then the land is taxed, and there are doubtless some other exceptions ;
, but municipally owned plants in the United States, so far as I am
J aware, are generally untaxed.

Mr. WTARREN. Presumably that would be the result if the munici-
palities or any other governmental agencies took over these street
railways ?

Mr. BULLOCK. Presumably it would.

Mr. WARREN. Is it not at least a debatable question whether if a
I service-at-cost plan or some other form of partnership between the
; corporation and the municipality were adopted, whether under those
\ circumstances the property should be taxed?

Mr. BULLOCK. It is perhaps debatable. I believe that under
\ normal conditions the property of municipal industries ought to be
j taxed.
j Commissioner MEEKER. Municipally owned industries?

Mr. BULLOCK. Yes; and of course in England that is done. If

the city municipalizes its gas works, it pays the national income tax.

The exchequer does not lose thereby and the real estate is supposed

j to be taxed for local taxation like other things, exempting the

property of public industries from taxation like other things. Ex-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 661

empting the property of public industries from taxation can be car-
ried only a certain distance without producing conditions which lead
to a reversal of policy. In Europe the property of municipal and
State industries is not uniformly taxed. In this country it some-
times is. Our Federal forest reserves, for instance, are not taxed,
but a part of the revenue is given to the counties in which they are
located.

Mr. WARREN. So that in the English system the car rider or gas
consumer pays a proper proportion of tax ?

Mr. BULLOCK. Pays a proper proportion of tax.

Mr.. WARREN. Whether it is municipally or privately owned?

Mr. BULLOCK. Whether it is municipally or privately owned.

Mr. WARREN. And you see no distinction between the principle of
taxation which ought to apply, whether the plant is publicly or
privately owned ?

Mr. BULLOCK. I do not. Under proper conditions the city — well,
there is an absolute limit to the amount of property that you can
withdraw from taxation. The Prussian railroads were taxed locally,
and they had to be. They never would have been nationalized other-
wise. If our Government takes over the railroads it has to have the
consent to tax them, and the proper condition is one in which indus-
tries of this character if owned by the municipality have charged
against them their due share of all taxes.

Commissioner MEEKER. May I interject a question here?

Mr. WARREN. Certainly.

Commissioner MEEKER. I intended to ask this before, but forgot it.

You spoke of the property tax being rescinded in favor of a net
income tax for the time being. Would it not be better to adopt the
taxation of net income as a permanent policy?

Mr. WARREN. On these utilities?

Commissioner MEEKER. Yes.

Mr. BULLOCK. I doubt if it would. At least, so far as all the real
estate is concerned. Keal estate can not be taxed on its net income
for local purposes.

Commissioner MEEKER. But what real estate does the street-rail-
way company own?

Mr. BULLOCK. Well, it has its power houses and barns and electric-
railway rights of Avay which they own in a good many cases. The
real-estate element with the electric railway is not as important an
element as with steam railways, but still it is an element. I should
say such real estate as they own should not be exempted from the
property tax under any condition. Their other property, their cars
and other things, might very well be exempted from taxation, and
you might very well have an income tax on the railroads and then a
real-estate tax on their real estate. Now, that solution might be a
very good ultimate solution. To illustrate, in other

Mr. WARREN. Under normal conditions?

Mr. BULLOCK. Yes.

Mr. WARREN. You are not proposing to modify what you said
about the possible exemption in view of the peculiar conditions?

Mr. BULLOCK. My income-tax suggestion which I make on the last
page of the brief has reference to an immediate measure of relief.
To suspend the property tax for 5 or 10 years and impose a tax on the

662 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

net income would give a very large amount of relief, and it is fairly
justified if the emergency is as great as I think it is in many cases.

Commissioner MEEKER. But you think it should not be adopted as
a permanent policy

Mr. BULLOCK. I think it should not be adopted as a permanent
policy.

Commissioner MEEKER. Except as you have indicated, in a modi-
fied form?

Mr. BULLOCK. In a modified form.

(Witness excused.)

Mr. WARREN. Mr. Nash, will you resume the stand, please?

STATEMENT OF MR. L. R. NASH— Resumed.

Mr. WARREN. I have here Mr. Nash's printed article, and I thought
it might be convenient, as he testified, if the members of the Com-
mission had it to look at, as some questions might be answered in
the article.

Commissioner SWEET. Yes.

(Mr. Warren thereupon handed copies of Mr. Nash's printed
article to the members of the commission.)

Mr. WARREN. Mr. Nash, when your testimony was interrupted
day before yesterday, you had just finished your outline, I think, of
the general principles that, in your judgment, should govern the
service-at-cost franchise. Is that correct ?

Mr. NASH. That is correct ; yes, sir.

Mr. WARREN. You had not, however, taken up the result of your
study with the various service-at-cost plans which had actually
been adopted and put in operation in this country and Canada, had
you?

Mr. NASH. No.

Mr. WARREN. And since then you have — necessarily, because of
not being put on the stand — heard the testimony here with respect
to Dallas and the testimony with respect to Cincinnati and the
testimony with respect to Cleveland ?

Mr. NASH. I have.

Mr. WARREN. I think it would help the commission in its con-
sideration of this service-at-cost plan if you would briefly compare
the different plans of service at cost, pointing out the differences in
effect in the different franchises.

Mr.. NASH. This paper that has been handed the commission sum-
marizes in an analytical and historical way the various franchises on
this service-at-cost form that have been put into effect in the United
States and Canada, with one exception. The city of Yonngstown.
Ohio, early this year, granted a franchise of that form. It did not
differ radically from those which are summarized in this paper.

The testimony that was presented yesterday from these cities
which Mr. Warren has mentioned simplifies the view that I need to
make of the details of these different franchises to a material ex-
tent, and I think it would be unnecessary to go into any great de-
tail of the features of these different franchises; so that I will re-
view rather briefly what I consider the important features, and leave
to the commission, through questions, to bring out such further
details as they may wish.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 663

I think one of the fundamental features, and one of the necessary
features, of this form of franchise is the so-called barometer fund.
It is through this barometer fund that the automatic feature has its
effect. All of these service-at-cost franchises have this fund under
one name or another. The amount has been testified to in the cases
that came up yesterday. In most cases, that amount is fixed — fixed
with the idea that the upper and lower limits will be far enough
apart so that any ordinary variations in either revenues or cost of
operation will not require frequent changes in the rate of fare, which
would be confusing to the public. I think if changes ordinarily
occur at intervals of six months, or even a year, the best results are in
the end accomplished, and the fund should be large enough for that
purpose. Rather than to have a fixed fund, I think it would be
better — and that is embodied in one of the recent franchises — to
have a fund varying with the size of the property. The Dallas
franchise fixes the fund on a per cent of the capital value; so that,
proportionately, as the property grows, the amount of this barometer
fund and its upper and lower limits increase.

Mr. WARREX. How is that fund provided, Mr. Nash?

Mr. XASH. In different ways. In some eases, by the borrowing
of money charged wholly to the capital account or property value.
In other cases, part of it — and this is the case in Cincinnati, for ex-
ample— a part of it is furnished by the company and included in its
capital value, and the balance gradually accumulated through the
surplus earnings from operation. This latter method has the ad-
vantage that a large sum of money is not necessarily borrowed at
once on which the car-riders are required to pay the specified rate
of return.

It is true that that fund is not kept as a fund in cash, but perhaps
it is not needed, in the same way as a corporate surplus. It may be
invested in additions to the property; but I think there are some
advantages, in building up at least a part of this barometer fund
through surplus revenues. I think a very useful purpose is served
by this automatic feature arising through the barometer fund, as is
evidenced by the testimony which was presented yesterday and the
day before by several witnesses,

It was brought out that in Cleveland, in Cincinnati, and other
places possibly, the increases in fares which have been made under
the service-at-cost franchises have occasioned comparatively littlo
reduction in riding. In other cities where increases have been made
through negotiations with the city, or through orders of public-service
commissions, where a 6-cent rate has been put into effect, for exam-
ple, involving a theoretical increase in revenue of 20 per cent, the
actual increase in revenue has averaged not i»r from 10 per cent. In
other words, there has l>een a material loss in traffic. I think that
loss arises almost entirely, not localise the car riders can not afford to
pay the additional cent, but because of the agitation and resentment
arising in connection with the negotiations for the increase. City
councils, city officials, where an appeal is taken to a public-service
commission for an increase of fare, always feel it incumbent upon
them to protest the increase; and the public press and professional
politicians take that opportunity to very loudly and at great length
express their opinion or the public utility who would impose addi-
tional burdens upon the poor working people. The result is that there

664 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

is bound to be a large amount of popular attention to the subject and a
lot of misunderstanding, and consequent resentment, without which,
I feel quite sure — and the testimony before the commission has borne
it out — that the reduction in riding would be comparatively small.
In other words, the operation of the service-at-cost franchises tends to
minimize the unfriendly public relations, and yield revenues from
fare changes that should, under normal conditions, be yielded — the
kind of increases in revenue that actually take place in private busi-
ness where, as a matter of course, the charges for commodities have
increased in these days as the cost of the commodities increased.

So that I think that that feature of the service-at-cost franchises is
of very particular importance.

Another essential feature, a universal feature, of these franchises
is supervision. It has a variety of forms. In the majority — I think
I am safe in saying in the majority of cases — supervision is centered
in a single individual selected by city officials, who represents them
in the regulation of service, the examination of the accounts, studies
all the needs of extensions of the facilities and other features which
are involved in the franchise. In other cases, and usually in the
larger cities, a board of city members has been substituted for the
single supervisor. In Massachusetts, the Boston Elevated board of
trustees, appointed by the governor, has five members. That is the
largest number on a supervision board so far in effect.

Mr. WARREN. And the Bay State has the same number?

Mr. NASH. The Bay State has the same number as the Boston Ele-
vated.

The CHAIRMAN. And is the expense of that supervision generally
borne by the utility ?

Mr. NASH. Generally.

The CHAIRMAN. In all cases?

Mr. NASH. It is my recollection that there is one case — I have for-
gotten what it is for the moment — in which the city pays the expense
of this supervisor's office, and I think very properly it is a part of the
cost of car service.

The consolidated franchise, socalled, which was drafted in Chicago
to cover the combined elevated service and the proposed rapid-transit
lines, but which was rejected by referendum last fall, provided for a
board of trustees of nine members. I think that is an unnecessarily
large number. It is apt to be unwieldy unless the duties of the board
are, in effect, lodged in the hands of a comparatively small executive
committee.

I have said in this paper that I thought it would be desirable that
the supervisor should be a man preferably of technical education or
else a man of broad business experience who should be appointed by
the State public-service commission, and perhaps act as the agent of
the commission, instead of supervision under the service-at-cost fran-
chise being independent of the State commission. This plan of State
commission appointment would have this advantage, if the service-at-
cost plan becomes widely extended

Mr. WARREN. That is the Massachusetts general-statute plan, is it
not, which was adopted last year?

Mr. NASH. I so understand.

While that plan has not come into general use at all as yet, because
of the unfavorable financial conditions, this general Massachusetts

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 665

plan provides that for each service-at-cost company, or at least a
group of nearby companies, the State board shall appoint a super-
visor who has special charge as the agent of the commission of these
companies.

Mr. WARREN. Those unfavorable financial conditions are due to the
fact that the Massachusetts act requires the barometer fund and also
a rehabilitation fund, I think.

Mr. NASH. To be set up in cash in advance.

Mr. WARREN. And raised through the issue of securities?

Mr. NASH. Yes; that is the real trouble.

Mr. WARREN. The companies have not found themselves able to
secure the credit necessary to issue securities; is not that true?

Mr. NASH. That is true.

The effect in any State of a large number of service-at-cost fran-
chises under such a plan of supervision would be that the State com-
mission would be able to train a body of supervisors, more or less
in the way that our diplomatic corps is, or ought to be. trained —
taking young men and educating them in the office of the commission,
sending them out as supervisors of the smaller properties, and gradu-
ally transferring them to larger and larger positions of responsi-
bility, with their increase in experience; so that in the end there
would be developed a body of specially trained supervisors to have
charge of this class of public service.

The commission has heard some testimony on the question of the
value or rate base to be adopted for use in cases of this kind. I
think it is sufficient to say that a franchise of this kind should have
a fair value expressed in more or less the ways the public-utilities-
service commissions have determined fair value in specific rate cases.

I think I testified in my opening testimony that, in my opinion,
the actual investment, honestly and prudently made, to use the words
of the Massachusetts commission, is the most logical basis for deter-
mining the return to investors. That, in these franchises, is also the
basis of the city purchase, which is a feature of nearly all of them
with, in most cases, the addition of a small percentage to cover costs
of liquidation and the procuring of money, where not otherwise pro-
vided for in the plan.

The values actually fixed in these various franchises show quite a
wide range with relation, as figured out in the per mile of traffic, and
in relation to capitalization, perhaps. In practically all cases, capi-
talization has been entirely ignored, as it is in the conventional
handling of rate cases by the public-service commissions.

In the majority of cases, I think the valuation has approximated
at least the actual investment of the properties, where it has been
possible to determine that. In a few cases, a depreciated value has
been accepted, but these have been cases where the franchises have
expired or, for other reasons, the railways were not in a position to
strenuously contest the values which they thought were too low.

Under the heading of the cost of service, from which the rates of
fare are determined, the testimony of various witnesses has brought
out the elements of cost which are universally recognized, but some
divergen.-e of method of determining this cost has been developed.

For example, in Cleveland, the company has been allowed for its
cost of operation a certain number of cents per car-mile; an amount
fixed in the franchise but subject to readjustment by ordinance of
1(50043°— 20 43

666 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

the city council and, in fact, actually adjusted a considerable number
of times, because of the increased cost of operation.

Mr. Culkins testified that in Cincinnati they thought it better to
prepare an annual budget, in dollars, of the anticipated cost of op-
eration, the expected conditions of service all being taken into con-
sideration as carefully as possible. I think that method is better, and
it involves a desirable increased flexibility. City councils are some-
times disposed to look at revisions of franchise terms fairly, and at
other times ^hey are influenced by political considerations; so that
there is a tendency, and I think a definite tendency, tp postpone the
needed adjustments in the operating allowance where it is fixed.

In the Massachusetts acts and in a number of other recent ones
there has been no attempt at all made to fix a definite standard of
operating costs for efficiency, as far as expense, or even as far as
maintenance and replacements are concerned, the responsibility being
placed wholly on the shoulders of the supervisor or the board of con-
trol to keep in close touch with operating costs that there will be no
chance of extravagance.

I think the budget system is a desirable one. It is desirable in any
form of corporate business, and particularly so under a service-at-
cost franchise, as it gives the public, so far as the public is interested,
a forecast of what is liable to happen. If this budget, for instance,
had been prepared in these service-at-cost cities prior to the begin-
ning of 1919, it would very probably have shown an anticipated
increase in the cost of materials and an increase in pay rolls and
would have shown the inevitable necessity of some fare increases,
and where the public is forewarned of increases of that kind, the dis-
turbance attending the actual increases when they go into effect is
minimized.

With respect to maintenance and replacement, again, in several of
the franchises there has been an attempt to fix the amount within
which the entire upkeep of the property should be taken care of in
cents per car-mile. That is true in Cleveland. That is fixed by
ordinance in Cleveland, and has been revised several times. In sev-
eral cases, it is fixed in the form of an annual budget. This allow-
ance is intended not only for the current routine maintenance and re-
pairs, but also for the replacements or larger items of the property.
In other words, it is supposed to take care of the permanent upkeep,
and supplementing the annual allowance or expenditures, it is ex-
pected that the company will accumulate a reserve for future re-
quirements.

The amount of this reserve — and I think this is rather significant-
is not definitely fixed in most of these service-at-cost franchises. In
the Dallas franchise, it has been. That is the only one, as I recall at
the moment, in which there has been a definite attempt to define what
provision should be made for obsolescence, supersession, and a future
provision for large replacements of the property analyzed.

Commissioner MEEKER. Has that definite fund been indicated in
dollars, or is it in a percentage of the capital ?

Mr. NASH. A percentage of the capital value.

Commissioner MEEKER. Do you know what percentage it is?

Mr. NASH. The Dallas percentage, if I recall rightly

Mr. WARREN. Mr. Head says it is 8.

Mr. NASH. It is 8.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 667

Mr. WARREN. Eighteen.

Mr. XASH. Not 18 per cent of the capital value. That is the maxi-
mum of 18 per cent of the gross annual accrual for the reserve. The
per cent of capital value, if I remember rightly, is 8. It is very
much less; and the point I would like to bring out about that is
this — that the provision in Dallas, which they marked out with a
great deal of care, is very much less than the theoretical requirements
of, for instance, the Interstate Commerce Commission and a number
of State commissions. They are getting more and more into the
habit of requiring the utilities to set aside each year an amount which
is estimated as the current loss in service value of the property ele-
ments. In other words, if an element of property has an estimated
useful life of 20 years, each year we should set aside this for its ulti-
mate replacement one-twentieth of its original cost, less whatever sal-
vage value there may be.

The effect of the method of accruing for replacements, deprecia-
tion, socalled, which I have referred to as being produced by the In-
terstate Commerce Commission and some of the State commissions
in their accounting requirements, leads to the accumulation of a large
reserve — in some cases, a very large reserve — which is never used.
This reserve accumulation comes from the car riders in the case of
the railway company. It is money taken from the car rider, and
usually this reserve is invested in the property. That is not in these
days a very profitable investment for the car rider, and if he had his
option, he would prefer to invest his money somewhere else. Of
course, normally and theoretically, this investment reserve earns a
return. It is unnecessary to go out and borrow as much outside
capital; so that the fixed charges against our operation are less than
otherwise would be the case; but so long as this reserve is in excess
of any possible actual requirements — and I am familiar with calcu-
lations which show that even on a sinking fund basis, this reserve
might amount to as much as 40 per cent of the investment in the
property — to the extent that that is excessive, the car riders pay a
higher rate of fare than otherwise would be necessary, and I think in
any service-at-cost program any excess accumulation of that kind
should be avoided.

I am heartily in favor of full provision for any actual require-
ments, but I doubt very much whether provision should be made for
so-called obsolescence and supersession; in other words, whether the
car riders of to-day, using a certain type of equipment, should fur-
nish the means of retiring that equipment, so that subsequent car
riders may have the advantages of more efficient, safer, and otherwise
more attractive service. For example, we are now introducing in
very large numbers about the country — quite large numbers — the one-
man car. It is a more efficient piece of equipment than the older
style of car. The cost of operation is less. The older and heavier
equipment is, in effect, abandoned. It probably will be for some time
used for extra heavy service, but, in the end, it is a supersession, and
there is a reduction in future costs. There is a more frequent service
for the car rider, and I think the user of the one-man car is the man
who ought to, in part, at least, pay for the amortization of the re-
maining life of the equipment which is superseded.

In short, in the service-at-cost franchise, the car rider should pay
as a part of the cost enough to accumulate reserves for existing re-

668 PROCEEDINGS OF FEDERAL ELEgTRIC RAILWAYS COMMISSION.

newals but not for theoretical depreciation or for unforeseen ob-
solescence of equipment.

Mr. WARREN. Your feeling is that the substitution of the new
form of equipment and apparatus before the normal life of the
superseded item has been reached is a proper charge for the future
car rider, rather than to be taken out of the present car rider ?

Mr. NASH. Largely so; yes.

Mr. WARREN. What features would you introduce, Mr. Nash, into
the Cincinnati franchise, or what differences would you make in it
from those which were actually adopted, to make it, in your opinion,
an ideal franchise?

Mr. NASH. There is one feature of the Cincinnati franchise which
I approve of theoretically. Practically, it does not work out, and I
doubt if it will ever work. That is the incentive to the management
and investors in that property to operate it efficiently.

This franchise provides that for a 5-cent rate of fare the investors
get this return specified in the franchise for various classes of se-
curities, plus 45 per cent, I think it is, of any surplus which may be
earned. If the fare is in excess of 6 cents, the traction company
gets nothing.

Now, back in normal times, that provision might have yielded a
material amount of supplemental return to the traction company,
but I think there is a very small chance, in the near future at least,
for fares to get down to a point where the company will get any
share in the surplus at all. So that this incentive intended to be em-
bodied in this franchise is not, in fact, a real incentive. It is a
theoretical one.

Commissioner SWEET. Your objection is rather to the figures that
they have agreed upon than the principles?

Mr. NASH. The criticism is of the figures rather than the princi-
ples. The principle, I think, is thoroughly right, except that it is
not clear to me how it can be applied to rates of fare.

That same provision exists in the Dallas franchise, as Mr. Head
explained last night. If rates of fare Were stable — that is, if we
could look forward to more or less uniform costs of living under
even the present scale, if we may assume that we have stepped from
one plane of living to another, which is 50 per cent or more higher,
and are going to stay there1, then that statute should be revised by
raising the fare a cent, or a cent and a half or 2 cents. Two cents,
really, should be the amount of increase, I think. Then there would
be a real incentive to the company for an increase in efficiency.
There would be an incentive to the investors to put additional
money in the property. The average investor likes to see something,
I think, outside of a certain fixed rate of return. That is the reason
why he likes to buy a security at a slight discount, rather than to
pay par for it, because at maturity he gets something more than he
originally contributed.

Mr. WARREN. Is there any method that you can suggest for fur-
nishing an incentive which you think would be better or more work-
able than either that of the Cincinnati franchise or that described by
Mr. Head last night, in the Dallas franchise ?

Mr. NASH. I do not know of any method that could be definitely
adopted to the radically changing conditions with which we are
confronted.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 669

Mr. WARREN. But in normal conditions, what do you think about
either of them ?

Mr. NASH. I think either of those plans, the Cincinnati or the
Dallas plan — they are somewhat similar — is useful.

I should like also a provision in the Montreal franchise, that if
the company lives within a predetermined budget — and its budget is
fixed on a car-mile basis similar to Cleveland, and is determined
each year in advance and not definitely fixed' — that if they live
within that, or do not exceed it by more than 2.5 per cent, I think is
the margin allowed, the company is allowed a so-called operating
profit of, I think, one-eighth of 1 per cent on the capital value.
That is a small amount, so far as percentages go, but it should serve
as an incentive to keep the expenses wTithin all reasonable limits;
but the just working of an allowance of that kind requires absolute
unvarying fairness on the part of the commission that fixes the al-
lowance in advance with a very clear forecast of what is going to
happen. Otherwise, it is difficult to definitely and successfully apply
it. If the commissioner fixes his allowance one year— if he fixes it
just as close as he can, and the company comes a little bit under, the
tendency in the succeeding year, if the commissioner does not want
the company to earn its operating allowance, is to crowd the allow-
ance down ; so that in a series of years there is an attempt to crowd
the allowance down to the lowest possible limit, and the incentive is
lost. If, on the other hand, the allowance is made liberal, so that
the company can easily live within it, somebody gets up and says
the commission and the company are in collusion and there is an
operating profit there that really does not belong to the company and
was not really earned.

That is the difficulty in applying that sort of an incentive, but
the principle is theoretically good.

Mr. WARREN. The principle of an incentive is good ?

Mr. NASH. The principle. I think it is better than the London
sliding-scale principle, because of the probability of continued
changes in the basic costs.

Commissioner MEEKER. Have you described the London sliding
scale in your pamphlet?

Mr. NASH. I have described its application in the cases of Dallas
and Cincinnati in the pamphlet, and I have described the Montreal
provision also on the operating profit here.

Commissioner MEEKER. Is the Dallas plan the London sliding
scale?

Mr. NASH. Practically so, but not exactly. It is based on the rate
of fare. The London sliding scale, I think, is correctly applied in
the case of the Boston Gas Co. ; that when the price for gas, for in-
stance, is a certain amount, a certain return in per cent is allowed.
If your rate for gas is reduced by the company 5 per cent, it may
add 1 per cent to its allowed rate of return.

Commissioner MEEKER. If the price of gas goes up

Mr. NASH. The rate of return goes down.

Mr. WARREN. The great difficulty with that is in establishing a
starting point: is it not, Mr. Nash?

Mr. NASH. That is a very serious difficulty.

Mr. WARREN. In Dallas, the starting point for its application is
the 5-cent fare.

670 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Mr. NASH. And even if that starting point is accurately de-
termined, the changes in conditions that we have gone through de-
stroy the effectiveness of it.

Mr. WARREN. It would be almost impossible to-day to adopt the
starting point which you could consider normal in the street-rail-
way business; would it not?

Mr. NASH. I think it is quite impossible.

Mr. WARREN. What rate of fare could be said to be a proper rate
of fare by which to measure your London sliding scale?

Mr. NASH. I do not think we could forecast at all what the normal
rate should be, established for the future, for any term of years.

Mr. WARREN. Do you think, under the existing uncertainties of
operating expenses, a semiannual budget would be preferable to an
annual budget, as provided for in the Cincinnati franchise ?

Mr. NASH. Under the authority provided, as is the case in the
franchises, the company and the commissioner may agree upon re-
visions. That is, if there is any definite change in the operating
conditions which make expenses necessarily higher, or possibly
lower, a revision of the budget is permissible, and I think it should
be made, as is done very commonly in general corporation prac-
tice, six months, or even quarterly, where conditions change at all
radically.

Mr. WARREN. This service at cost involves a franchise, as every
case of a street railway does, of course.

Mr. NASH. There is just feature of a grant conventionally

Mr. WARREN. AVhat would you say were the salient features of a
service-at-cost franchise the essential features, distinguishing it
from an ordinary franchise?

Mr. NASH. The essential difference is the assurance to the in-
vestor that, as far as any rate of fare can be put into effect which
the patrons, the car riders, can afford to and are willing to pay, the
investor will get a normal return upon his investment. In other
words, the kind of a return that he would get if he put his money
in an alternative commercial or industrial proposition.

That is not a guaranty. I think that distinction ought to be very
clearly brought out, that it is not a guaranty in the ordinary fran-
chise. In our Massachusetts cases — the Boston Elevated act. at
least — there is a guaranty that the State treasury will make up the
deficit, and the return to the investor is absolutely guaranteed; but
it is expected that the deficit which the State makes up at one time
will be paid at another time under more favorable conditions by the
car riders; so that in the end the State will not lose anything, but
there is no definite provision for that in the act.

Mr. WARREN. So that one essential feature and difference is
the assurance to the investors, that so long as the business is ca-
pable of producing it, they will get a fixed normal return on their
investment ?

Mr. NASH. That is the real vital advantage of it.

Mr. WARREN. Is there any assurance to the car rider that he
does not always enjoy under present franchises?

Mr. NASH. There is an assurance to the car rider that he can have
any kind of service that he is willing to pay for.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 671

Mr. WARREN. And is there not also an assurance to the car rider
that he will not be called upon to pay this return on any more
than a determined value of the property used in furnishing service?

Mr. NASH. Not when he does not pay any higher value, but he
never pays more than the established normal rate of return on that
established value.

Mr. WABKEN. Oh, yes.

Mr. NASH. There is an assurance that the investor never gets any
more out of the business than he could get if he put his money
somewhere else, in competitive business, where their return is re-
stricted by competition, as it is not, ordinarily, in the railway
business.

Mr. WARREN. So that really those two features are very im-
portant: The determination of the value of the property used, and
then permission to the company automatically to have its rates go
up and down, to furnish a return upon that value ?

Mr. NASH. Those are the fundamentally necessary features.

Mr. WARREN. Those are the two reciprocal benefits?

Mr. NASH. Yes.

Mr. WARREN. The investor says, "I won't require you to pa}7 on
money that is never invested " ; and the car rider says, " You may
get a proper return on whatever is invested."

Mr. NASH. Exactly.

Mr. WARREN. You said the other day, I think, in your opinion,
that the term of the franchise should be indeterminate — a goocl-
behavior franchise?.

Mr. NASH. There are undoubted advantages in the indeterminate
franchise. Unfortunatelj', there are laws in a good many States
that make the granting of such franchises impossible. When that is
the case the results can be, in a way, accomplished by franchises of
this Cleveland form, which Mr. Stanley described, or, assuming that
a 25-year term is the maximum that the authorities can grant,
at the end of a 10-year period the municipality must either extend
that franchise for 10 years more, starting anew again, in effect, with
a full 25-year term, or relinquish its rights of control, and permit
the railway to charge the maximum possible rate of fare authorized
under the franchise, and to amortize its investment. That means,
of course, a much higher cost of service to the car rider. The city
is really forced to make the extension in order to keep the rates down
to a consistency with current, normal costs; and if, at the end of
every 10 years, in that way the franchise is renewed and it never
comes nearer than 15 years of its expiration, the question of financing
is veiy much simplified; but undoubtedly the indeterminate form is
much better, because this 10-year agitation over terms and condi-
tions of the franchise is entirely avoided, and also when the ques-
tion of renewal comes up there is more or less popular discussion
and agitation.

Commissioner MEEKER. Should not the indeterminate franchise
be subjected to a review about every 10 years?

Mr. NASH. Certain features of it logically should be subject to
review.

Mr. WARREN. But these essential features ought not to need re-
view— the determination of the value and the assurance of a return?

072 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS -COMMISSION.

Mr. NASH. Those should be fundamentally unchanged. They
should be fixed.

Now, take the question of the rate of return, for instance. I do
not think we can foresee indefinitely what rate of return the investor
is able to earn in other business and what he is entitled to under
a service-at-cost franchise; so that there might well be a provision
for arbitration or readjustment of things of that kind that are sub-
ject to change with changing general conditions.

Commissioner MEEKER. Would you make these changing features
subject to review at periodical intervals, say every 10 years, or when-
ever the emergency arises?

Mr. NASH. Preferably when a real emergency arises, if it is pos-
sible to definie what one means by a " real emergency." That is
always difficult.

Commissioner MEEKER. Could you describe such an emergency as
you have just outlined?

Mr. NASH. I think it would be unquestionable that conditions
which have arisen during the war should be an occasion for the re-
vision of any established features of this kind.

For instance. Mr. Stanley has explained that while the Cleveland
franchise provides for a 6 per cent return on the company's stock —
and that that franchise was extended for 10 years, only a few months
ago — the company found it necessary to come to the commission,
saying that their investors are entitled to a 7 per cent return. They
are doubtless claiming that 7 per cent to investors to-day commands
less in purchasing power than 6 per cent did three or four years
ago. That is undoubtedly true; but I think a revision applied to
the question of the rate of return should or might properly be
limited to the question of what differences have arisen between the
time when the rate of return was originally established and the time
of the arbitration, so that the question may not be too broad. If it
is left too broad, the investor is likely to be frightened. If he knows
that unless conditions change, he is going to be assured of a continued
return on the basis on which he has made his investment, and that if
conditions do change the rate of return will be affected

Commissioner GADSDEN. Mr. Nash, don't you think that that will,
in some measure, affect the securities of the investor ? If an investor
buys a security under any consideration of that kind, with the pro-
vision that the rate on these securities is subject to revision, don't
you think that that is going to make money more expensive to get,
under this plan?

Mr. NASH. There would be a tendency both ways.

Commissioner BEALL. You think normally it would go up, and
not down?

Mr. NASH. If the investor foresaw that prices were going to con-
tinually rise, and that the rate of return that he could command in
the future ought to be revised, he would look for a revision to give
him an opportunity to get more than he started with.

Commissioner BEALL. Well, are not the chances all the other way ?

Mr. NASH. It is pretty hard to tell how the average investor would
look at the future, whether he thinks prices are going up or going
down.

Commissioner BEALL. A banker would not undertake to raise
money under those conditions. He could not do it, absolutely.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 673

Commissioner GADSDEX. That is a gamble; that is not an invest-
ment.

Commission BEALL. Is not the protection to the public this: If
the situation is such that the return ought to be fixed on the pur-
chase provision, which, I suppose, you would recommend as a feature
of eveiy one of these service-at-cost franchises, it would put it in
the power of the municipality or the State or other public agency
to take the property over ?

Mr. NASH. There is a still more definite provision than that in
the Cleveland franchise, for instance, that the city, instead of exer-
cising the right of purchase itself, could designate a new licensee, a
new purchaser, although the company has a right to retain, the
existing company has a right to retain the property, if it will accept
a rate of return somewhat lower than that originally prescribed.

Commissioner BEALL. That would protect the public.

Mr. NASH. That would prevent the prescribed rate of return from
being excessive.

Commissioner BEALL. Yes.

Mr. NASH. And that may be an adequate provision, so far as tho
city is concerned.

Commissioner BEALL. Now, the amount upon which the return
should be allowed should not vary, except as additional amounts aro
added to the imrestment in the property ?

Mr. NASH. I think not.

Commissioner BEALL. Having once been determined ?

Mr. NASH. Of course, there is this to be said, that an investor to-
day, if he gets a living out of his investment, must get more money in
dollars than he got a number of years ago, and that must como
cither through a higher rate of return or from a higher valuation
of the property which he has invested. I think the simpler way of
giving him that higher income is through a change in the rate of
return and not in his investment.

Commissioner BEALL. Yes.

Mr. NASH. The more stable an investment value is fixed the better.

Commissioner BEALL. If that amount is going to be varied up
and down, there will be the same feeling of insecurity on the part
of the investor; will there not?

Mr. NASH. I think there will be.

Commissioner BEALL. And if it was not determined, would you
say that the investor would not prefer to invest?

Mr. NASH. Here is an illustration that came up in a hearing on
this question before the chamber of commerce that may be of in-
terest on this point:

It was testified to in Cleveland when the franchise came up for
an extension last spring, that an incentive ought to be added to the
fixed rate of return, so that the investor might under certain condi-
tions' get more. I think there was no suggestion that the return
might be less than that fixed, but the investors — and a very largo
portion of them, Mr. Stanley has told you, are residents of Cleve-
land— seem to be opposed to any change from the fixed — the abso-
lutely fixed — rate that they were entitled to. They were afraid
that any added flexibility might result sometime in their getting a
less return than the franchise allowed them; so that that provision

674 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

of flexibility was not embodied in the franchise when it was re-
newed.

Mr. WAHHEN. Of course, you would say, I presume, that the fran-
chises ought not to contain a maximum rate of fare ?

Mr. NASH. Neither a maximum nor a minimum.

Mr. WARREN. Yes.

Mr. NASH. Neither.

Mr. WARREN. In view of the experiences of the last year and
a half?

Mr. NASH. I think the less definition regarding fare schedules that
is actually set forth in the franchise the better; and the more that
can be left to the judgment of the supervising authorities the better.
It may be advisable in cities to change from a fixed fare basis to a
zone basis, or change the character of the schedules in some other
way; so that if a franchise does not require a certain kind of fare
to be charged at varying rates the opportunity to make a change
in the type of the schedule is obtained.

Mr. WARREN. That exists in the Massachusetts statute, as I recall
it. The company can submit to the public -service commission a
scheme of fares, with a sliding scale, and when the commission ap-
proves it. the scale can be made effective; and it may subsequently,
if the commission permits, substitute another scale, a different kind
of scale; is not that so?

Mr. NASH. An entirely different kind.

Mr. WARREN. Yes.

Mr. NASH. There is no definition of rates or scales in the Massa-
chusetts acts at all. The only thing is that whenever a particular
schedule of fares is in effect, there must always be ready to go into
effect steps above and below, so that there will be no delay in making
a change, whenever it is necessary, promptly.

Mr. WARREN. Have you stated what rate of return is allowed on
capital in these different franchises. Does it vary?

Mr. NASH. It does vary to a material extent. I think it is 5
per cent plus a proportion of the divisible surplus— one-third, I
think in this case. In Chicago, it is 5 per cent plus 45 per cent of
the surplus. Kansas City has 6 per cent. We have not any real
service-at-cost franchises.

Mr. WARREN. Would you call Chicago a real service-at-cost fran-
chise?

Mr. NASH. It is not.

Mr. WARREN. It is a partnership arrangement?

Mr. NASH. It is a partnership arrangement, with a division of
the surplus, really.

Commissioner BEALL. Chicago has two plans. There is one that
you have not mentioned. That really increases your return. They
are allowed to charge a certain amount wThen they negotiate securi-
ties, which goes into their treasury. As a matter of fact, one of
the companies out there has something like four or five million
dollars accumulated through that process, which is entirely outside
of the rate of return that they are allowed on their capital stock or
the value of their property.

Mr. NASH. That is a very liberally promulgated supervision
allowance.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 675

Commissioner BEALL. Not when you figure it down, but it is an
addition to what you have mentioned.

Mr. Nash. All of that adds to the average rate of return. The
Dallas franchise embodies the highest theoretical permissible rate
that I recall; and that is 9 per cent, and that is only obtainable
when the fare is appreciably below 5 cents.

Mr. WARREN. But what they assume to be a normal fare in Dallas
is 7 per cent.

Mr. NASH. That is 7 per cent.

Mr. WARREX. That is 7 per cent on the value of the property?

Mr. NASH. Seven per cent on the value of the property, as fixed hi
the franchise.

Mr. WARREN. And I do not suppose anybody can tell to-day what
should be allowed, if you considered that.

Mr. NASH. Only in a general way. If the costs of living generally
have gone up not less than 50 per cent, the investor, who theoretically
may live on his income, ought to have his income increased 50 per
cent. The investor makes his money work for his living, and lie is
just as much entitled to a higher wage on his money as the working-
man is entitled to a higher wage for his physical labor.

Mr. WARREN. Do many franchises provide for the actual rate
which has to be paid for obtaining new capital?

Mr. NASH. There are several of them that provide that the actual
cost of obtaining new money, whatever it may be, shall be allowed as
a part of the cost of the service. That is true in Cincinnati, as Mr.
Culkins testified. It is also true of the Youngstown franchise, the
most recently granted, and not included in my summary. That is
true of the Massachusetts provisions, too, but not entirely so either,
because the Boston Elevated was allowed, of course, a certain fixed
return upon the capital stock to cover interest requirements upon
borrowed money.

Mr. WARREN. I think that is all, Mr. Nash.

The CHAIRMAN. I have not had time to review your pamphlet, Mr.
Nash. Have you discussed the theory of the cost of service in the
different franchises that exist in Cincinnati, Cleveland, Dallas, and
some other places, and also the experiences which have been derived
from the exercise of those franchises ?

Mr. NASH. I have discussed the theory and the experiences in
cases like Cleveland, where the franchise has been in operation a
considerable number of years. I have in the case of Dallas, I
think, although at the time that was prepared, only about one year
of experience was available. A great many of those franchises were
so new that there is comparatively little about the actual experience
in that.

The CHAIRMAN. If the commission should desire to cross-examine
you at some future time, could you come back here?

Mr. NASH. I will be glad to.

The CHAIRMAN. There are one or two points that I would like to
develop. It appears that the cost of public supervision must be
borne by the utility.

Mr. NASH. I think so.

The CHAIRMAN. Might not that prove very burdensome to the
utility in the case of small plants?

676 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. NASH. It might, of course; but I think that the supervision
might be so adjusted by having a joint supervisor for a number of
such small plants who would not spend all of his time on any one of
them; a supervisor, as I have suggested before, appointed by the
State commission and responsible to them, dividing his time over
an appreciable number of small plants. I think that is quite true;
that a very small railway would not need the attention or the entire
attention of even one supervisor, and other large systems will re-
quire not only the entire attention of one man but of a subordinate
staff of engineers and accountants.

The CHAIRMAN. If one company operates in several villages, and
also in the suburban territory, it might follow that you would hav6
as many contracts, different in form, as you have villages through
which the company operates?

Mr. NASH. That probably would be the case, because the}7 are apt
to disagree rather than agree on some things.

The CHAIRMAN. It would also follow that municipalities would be
attempting to establish rates for service for communities over which
they have no control.

Mr. NASH. They might attempt it, but they could not enforce it.

The CHAIRMAN. How are you going to work out that situation ?

Mr. NASH. I think, especially where a railway system covers a
number of cities and villages, that there must be State supervision;
that the municipality could grant a franchise only for the part of the
system within its limits, and it would only control the part of the
system within its limits. There is an attempt in several of these
service-at-cost franchises, notably Montreal, I think, to extend the
influence of the agreement beyond the confines of the city, and, as
far as I know, it is working through the sufferance of the adjoining
communities. It is, I think, a good deal to the advantage of these
communities that the general plan which is in effect in Montreal
should be working in these other communities as well, because it
gives to them probably lower rates of fare than they would otherwise
be paying.

The CHAIRMAN. Now, back in Minnesota, for instance, a rapid-
transit company operates on the streets of St. Paul and Minneapolis,
and the same cars go out into the suburban territory, 18 to 20 miles.
When it gets beyond the territory of the city of Minneapolis, it oper-
ates as a railroad company, yet you have the same equipment, the
same men, the same company, and the same capital investment.
Manifestly, it would be very difficult for the city of Minneapolis to
attempt to establish the service on the rails in the outlying territory.
Therefore, it seems that you must, in some way, link the State and
the city together.

Mr. NASH. I think, that is quite necessary. It must be, of course,
an apportionment of the value of the property over the city and of
all movable property between the city and suburban communities.

The CHAIRMAN. I have no further questions to ask at this time.

Commissioner BEALL. I just want to ask Mr. Nash a question or
two.

You were saying that you did not believe that the service-at-cost
franchise should provide too large a depreciation and obsolescence
fund ; and it was not clear to my mind wrhat was in your mind. How
do you propose that that should be taken out? As I understand it,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 677

there are only two ways of dividing it. You must do it year by year
by accruals or else pay it in one year, getting the whole lot of it
at once.

Mr. NASH. I would not take care of it out of capital at all.

Commissioner BEALL. When you said you would not charge the
present car rider for any of that beyond a certain point, I did not
know what your theory was, or how it would be taken care of. That
is what I am trying to get at. I did not know what you had in mind.

Mr. NASH. The thought I have in mind is that every railway
should set up a reserve. I do not know that I would attempt to define
what that would be, because it involves so many different questions
as to probable useful life and the extent of the effect of changes in
the art and all that; but if I were guessing at a suitable reserve,
which would take care of any actual retirements and replacements
on a normal charge, I would say something like 10 per cent of the
investment. I think that would be enough to wholly take care of
any normal amount of retirements. There might conceivably be a
time when some very large element in the property — for instance,
if they had a very large power station, writh reciprocating engines,
and it would be necessary, for reasons of economy, to replace that
plant with turbine units and converting system, the writing off of
that entire plant, together with other current retirements, might
conceivably overdraw the accumulated reserve. But what would
happen, I think, as a matter of fact, would be this, that in a case
such as 1 have cited, when this new power plant was built — and I
have known of a case of exactly this sort to actually happen — in-
stead of tearing down the old plant and writing it off and selling
for junk, it would be retained; some parts of it very probably
removed to the new station as being useful for future service, and
the balance retained for emergencies. Such emergencies happen. I
have known things that have been shut down for a year or two —
and when I say' " emergencies," I include the abnormal demands of
the war period, and the inability during that period to secure new
equipment — I have known these old plants that have been shut down
for several years to be replaced in service and operated more or less
continuously. So that the retirements, the writing off, and the dis-
posing of large items of property of that kind may very properly
be spread over a term of years, instead of being taken out all at once.

Commissioner BEALL. 1 do not know whether I understand what
you mean or not — whether you will want to put that burden on the
future car rider and extend it into the future, rather than have it
accumulated in a fund from year to year, which would ordinarily
take care of those kinds of items.

"Mr. NASH. I would accumulate a fund for a reserve, which could
be invested in the extensions of property, and not held in cash.

Commissioner BEALL. You see what I mean?

Mr. NASH. Yes.

Commissioner BEALL. If a big plant comes to you to spend a
million dollars for possibly this new power house or equipment or
whatever it may be, you either have tnat money accumulated — and
the difference between what you have accumulated and what is
needed you have to raise in some way and spend it. There are only
two ways of taking care of that: You either have to charge it to
capital account, which is probably wrong, or else you have to amortize*

678 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

that for quite a series of years in the future, and charge it for, per-
haps, so much per year.

Mr. NASH. My thought about the methods of accounting — and
I think they are consistent with the Interstate Commerce Commission
requirements and those of some of the other commissions — is that
when new property is added to railway facilities, it should be charged
to the property account. Now, if a railway builds a new power sta-
tion, that new power station is its property, and it should be added to
its capital value. The precribed methods are that when property is
retired or abandoned or replaced, it must be written off, and the
amount which was actually spent on the property account must be
removed.

Now, it is not necessary, for accounting purposes, that the removal
of an old plant, which may be temporarily, and possibly permanently,
put out of actual use, should be written off at exactly the time that
the new plant is added to the property. It may be disposed of in
the way that the Interstate Commission prescribes. If it is an actual
retirement and the reserve is not available in full, it may be put into
a suspense account provided for that purpose and taken out of prop-
erty and gradually written off.

Commissioner BEALL. But the public service commissions having
jurisdiction over electric railways will not let you write anything of
that kind off except the excess for your old property. They will not
let you take a new station that cost $1,000,000, and charge that in as
new construction. If you are going to abandon then or later an old
power house it has some value. You will duplicate your capital if
you do that. .

Mr. NASH. What they expect to be clone is that when a piece of
property is abandoned it should be written off, regardless of whether
something else takes its place or not. When anything new is added
to the property, whether it takes the place of old property or not, it
should be added to capital, and properly, of course. ' Where there is
a substitution, the old elements should be taken out. If it is really
abandoned, it should be taken out at the time the new one is added ;
but the accounting system does provide for a suspense account in
which that can be carried if the accumulated reserve is not adequate
to take care of it until the additional accruals can be made to make
the amount available adequate. I think we are quite agreed on the
principle. It is just a matter of accounting practice, in which com-
missions have endeavored to allow some latitude in the way in which
the retired property shall actually be charged off through the operat-
ing and expense accounts.

Commissioner BEALL. I was trying to get at what portion you
thought should be charged to the present car rider and what portion
you ought to charge to the future riders.

Mr. NASH. It is not a thing that can be definitely fixed, because you
can not state definitely whether a particular retirement is due, to
obsolescence. It is not wholly in those cases. A piece of track is torn
up because the city wants to pave the street. It is hardly worn out,
but the cause of removal is partly wear and tear and partly super-
session, or whatever you want to call it.

Commissioner BEALL. You see, we are anxious to get from every-
body who has stated these different plans their ideas and the best way
of working them out.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 679

Mr. NASH. I have studied this question of depreciation a good deal.

Mr. WARREN. Mr. Nash, what would you do with this piece of
track? I think that would answer Mr. Beall's question. You say
you would take up a piece of track. Suppose it had 20 years' life,
and the city repaves and wants to take it out at the end of 15 years?

Mr. NASH. I would take that immediately out of the property ac-
count entirely.

Mr. WARREN. At what rate?

Mr. NASH. At what it actually cost originally.

Mr. WARREN. Let us say $50,000.

Mr. NASH. A new piece of track would conceivably cost $100,000.
The wfiole of that $100,000 cost of new track would be added to the
property account. So that the net increase would be the difference
between the two.

Commissioner BEALL. That is $50,000. You only have an increase
in your property value of $50,000.

Mr. NASH. $50,000.

Commissioner BEALL. Only $50,000.

Mr. NASH. That is all.

Commissioner BEALL. That would be the real increase. Other-
wise, you would duplicate your value. Of course, that means the
same thing, but I was trying to see how you would take care of that.

Mr. NASH. I am not arguing for a duplication of capital.

Commissioner BEALL. No; I do not think there is any difference in
what we mean, but we have stated it in different ways, and I wanted
to see what your idea was as to how to take care of it. It may be
useful to the commission to know that.

Mr. NASH. I think it is a disputed question as to t how far obso-
lescence should be borne before the fact rather than 'after the fact,
because it is essentially an indefinite question. You can not tell how
far in any specific replacement that one element rather than another
requires the replacement.

The CHAIRMAN. We will suspend here to resume at 2 o'clock.

Commissioner MEEKER. It seems to me that Mr. Warren's question
has not yet been answered, and I would like to hear the answer to it.

Mr. WARREN. I do not think so, either.

The CHAIRMAN. You can get that answer at 2 o'clock.

(Whereupon, at 1 o'clock p. m., a recess was taken until 2 o'clock
p.m.)

AFTER RECESS.

STATEMENT OF ME. L. R. NASH— Continued.

Mr. WARREN. I think I am through with my questions of Mr. Nash.

Commissioner SWEET. Mr. Meeker, I think, has some questions he
wants to ask Mr. Nash.

Commissioner MEEKER. I would like to ask again the question Mr.
Warren asked, with a little modification. Let us take the supposed
values that he suggested, a piece of track that has cost originally
$50,000, and let us say that $30,000 of the $50,000 has been written
off in depreciation, that there remained $20,000 capital investment
unaccounted for, and that for some reason or other the track is torn
up and relaid by new track which costs $100,000; how would you
recommend handling that bit of finance?

680 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. NASH. Now your assumption is not quite in accordance with
the established accounting practice. That is, this original piece of
track would stay in the property account in full as long as it re-
mained in service. There might have been $30,000 accrued to take
care of it

Commissioner MEEKER. I was not making any assumptions there
as to what was actually done with the capital investment as shown by
the books of the company, but $30,000 has actually been taken care
of through a depreciation fund and $20,000 has not been touched at
all.

Mr. NASH. That piece of track when it is taken up, there would bo
some salvage to it; say a possible $5,000 of salvage, although that
would be large. That would be realized in cash, leaving $15,000 of
value unprovided for, and that, if there was no more reserve to take
care of that, would be put in a suspense account in your standard ac-
counting system, called property abandoned, and would remain there
until a sufficient reserve had been accrued to take care of that balance.

Commissioner MEEKER. It would be accounted as part of the in-
vestment until it was written off?

Mr. NASH. Well, it would be taken out of the property account,
but would still be included in an asset suspense account.

Commissioner MEEKER. So that any estimate of the value of the in-
vestment would take that into account

Mr. NASH. It would not. It would be taken out of the property
account.

Commissioner MEEKER. Well, but I am speaking now not merely
of the property account, but of an estimate of investment upon which
the company is. entitled to a reasonable return. There would be the
$100,000 which the new track cost, plus $15,000, would there not?

Mr. NASH. Yes.

Commissioner MEEKER. Making a total of $115,000 on thi« par-
ticular piece of line which the company is entitled to earn a reason-
able income on.

Mr. NASH. I think about $15,000 should be included in the rate
base, so to speak, until it has been written off . because otherwise it
is a part of the investor's money that would not be earning a return
as it should.

Commissioner MEEKER. I want to make sure of that. The ques-
tions asked by Mr. Beall seemed to rather becloud the issue so that I
was not certain of your opinion. Now you ha\;e brought up some
very fundamental and theoretical questions in your testimony this
morning in regard to changing the rate of return with changing
levels of prices. The term "gamble" has been introduced in this
morning's session. I want to ask, do you think there is any greater
uncertainty to the investor to guarantee him a fixed return in goods
purchasable by money rather than to guarantee him a fixed return
in money itself?

Mr. NASH. I should think there was. That is, money has a con-
stantly varying value and what an investor wants is purchasing
power.

Commissioner MEEKER. Well, your answer then — let me put the
question again. My question was. Is there any greater uncertainty to
the investor under a guaranty of a fixed return in goods purchasable
by money rather than a fixed return in money itself ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 681

Mr. NASH. The answer to that is no. I did not understand your
question.

Commissioner MEEKER. The greater risk would inhere in the fixed
money return ; would it not ?

Mr. NASH. I think so, but of course that is fundamentally so, and
yet I think the average investor is not apt to quite appreciate it. He
perhaps, without recognizing the full significance of what is going on
in the past few years, is very likely more apt to say he would rather
-take a chance, whatever the chance is on his fixed return rather than
submit himself to adjustments. A good many investors would very
much rather do that.

Commissioner MEEKER. Do you think that is true to-day?

Mr. NASH. Well, whether this is true of the average investor I
would not like to say.

Commissioner MEEKER. It seems to me the financial literature is
littered with costs of liA'ing data

Mr. NASH. It is.

Commissioner MEEKER. And with articles on the changing levels
of prices; and we know in what direction they have been changing
for the last 20 years, and it would seem to me that quite likely the
investor would much rather be assured of a fixed return in purchas-
iLg power rather than a fixed return in a depreciating dollar.

Mr. NASH. I think any investor who is a student of economics ap-
preciates that previous to these war times there was a steadily or
fairly steadily diminishing purchasing power cf the dollar. We have
estimated that the cost of electric-railway property since about 1894,
I think, when the upward trend started, has been about 3 per cent
a year on an average. So if that was true of commodities generally it
would necossarily follow that the purchasing powei of a dollar has
decreased in that proportion and the purchasing power of an in-
vestor's return on a fixed investment has similarly decreased.

Commissioner MEEKER. We are getting into the theory which I do
not care now to enter into, because I do not think it is pressingly im-
portant in this problem, although it is quite important: the ques-
tion as to whether the rate of interest tends to rise with rising prices.
Do you care to express an opinion on that subject?

Mr. NASH. No; I do not think so — not unless you wish it par-
ticularly.

Commissioner MEEKER. I will not press for an answer on that, but
I do want to call your attention to the fact that what you have just
said does depend upon the correctness or the incorrectness of the
theory that interest rates do tend to increase with increasing prices
and they tend to decrease with decreasing prices. Now, my own
opinion is that there is no necesssary connection whatsoever, and we
may have increases in prices with decreasing interest rates, and vice
versa. But whether or not — well, I do not care to press that: any
further unless you care to express an opinion upon it.

I would like to have your statement in regard to changing the
rate of return with changing price levels. Tlr.s morning, if I under-
stood you correctly, you said you believed that the rate of return
should change with changing price levels.

Mr. NASH. My thought was that where there are radical changes
in conditions, such as have occurred during the war, that an injustice
might be done either to the investor or to the party on the other sida

1GOG430— 20 44

682 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

with fixed rates of return. But under normal conditions, where
radical changes of that kind are absent, I think the average investor
would much prefer what he considers the security attaching to a
fixed rate of return.

Commissioner MEEKER. A fixed rate of money return?

Mr. NASH. Yes.

Commissioner MEEKER. And not purchasing power?

Mr. XASH. Yes.

Commissioner MEEKER. In case there is any provision for a chang- .
ing of rate of money return, would you wish to limit that provision
in any way? Would you make it a changing return as prices in-
creased but not make it a changing return in case prices decreased ?

Mr. XASH. I think with full fairness the question should be left
entirely open. Of course, the investor from his point of view would
prefer to see a stop which would not operate against him, but the
public from their point of view would prefer to see the stop the other
way ; and in f airness to both, if the question is open at all, it ought
to be open both ways.

Commissioner MEEKER. That is, there should be a rule to work
both ways?

Mr. XASH. Yes.

Commissioner MEEKER. If the rule is to be introduced at all?

Mi\ XASH. Yes. And as I said this morning. I think if a rate of
return is fairly fixed in the beginning — fair to the investor under the
existing circumstances— that' the question of readjustment should be
restricted to an extent measured by the specific changes in the con-
ditions existing at the time of the readjustment from what they were
at the time of the original fixing and not to leave the question wide
open for somebody to sit down and say, " What is the market value
of money to-day," but rather, " What is the difference in the value
or rate of return on money to-day from what it was 10 years ago, say,
for an investment of this particular character and risk?" I would
narrow the arbitrable issue just as closely as possible

Commissioner MEEKER. Would you make these periods of readjust-
ment fixed periods, every 5 or every 10 years, or would you pre-
scribe in a general way that the readjustment should be made when-
ever such and such an exigency arose — whenever a question of chang-
ing price levels, for example, brought the serious issue of the pur-
chasing power of the dollar of income before the public? •

Mr. XASH. I think the nearest approach to an accurate determina-
tion of actual cost of service as applying that thought to a case of a
railway company would be to have that question opened whenever the
occasions definitely arose; but there again would come the thought
on the one hand of the investor that he would hesitate about haying
the question of his rights raised at any time that anybody might
want to raise them, and the public on the other hand might feel that
there might be an advantage to them in holding the investor down,
for instance, during a given term of years rather than having the
issue opened at any time.

Commissioner MEEKER. The reason I asked the question was be-
cause price levels have changed more within the past year than they
had during the past three or four years, to put it very conservatively,
and they have changed within the war times more than they had
changed within the previous years.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 683

Commissioner GADSDEX. In connection with what Mr. Meeker is
asking you, I want to ask you whether it is not true that, when we
come to the question of the return on capital — the rate that money
shall bear — that is a question which is practically solely determined
by the investor. It is not a question that we can legislate about, nor
is it a question that we can compromise on. If the terms are not satis-
factory, the investor puts his money in other industries than the
street railroads. Is not that true ?

Mr. NASH. That is very true.

Commissioner GADSDEX. So it is not a two-sided question, where
the parties can discuss it pro and con. You have got to do what the
•investor wants in that respect, have you not, or you do not get his
money ?

Mr. NASH. This also is true, that if an issue of bonds is offered to
the investing public and the term of the bonds is, say, 30 years, the
public will pay for those bonds what they think the average return
on that money ought to be for the 30-year period during which
those bonds run. That is, a fair guess of the economic financial con-
ditions of the future to a certain extent.

Commissioner GADSDEX. What I had in mind — if the investor
was apprehensive of a provision in the franchise whereby the rate
this: Is it not entirely up to him to say what those terms shall be?
put any more money into street railway business; would he not?

Mr. NASH. That is perfectly true.

Commissioner GADSDEX. And the point I want to bring out is
this: Is it not entirely up to him to say what those terms shall be?
The city could not provide the terms, the companies could not pro-
vide the terms. We have at last got to one point in the inquiry
where one class of people dictates the terms, have we not?

Mr. NASH. They dictate the terms on the money that they have
got. On the money that they have already loaned under certain pre-
scribed conditions they can not; they have to take the return until
they get it back.

Commissioner GADSDEX. Of course the fellow that is in has to
take what he can get, but the fellow who is out and whom we want
to bring in

Mr. NASH. The fellow who is out can dictate whether the electric
industry or any other industry shall advance or remain fixed and
stagnant.

Commissioner MEEKER. Admitting the truth of that — and I do not
think anyone will gainsay it — my question was whether you think
investors would refuse to invest under terms that I indicated, of a
revision either upward or downward according as prices change or
price levels change. Do you think investors would refuse to invest
under those circumstances?

Mr. NASH. That is a quesion that I can not answer from experi-
ence. I do not recall that just that kind of a proposition has been
put up specifically to the investing public.

Commissioner MEEKER. I think that is correct, so far as my
knowledge goes. „

Mr. NASH. It is a matter of speculation as to what the frame of
mind of the average investor would be.

Commissioner MEEKER. But you did answer in response to a.
previous question of mine that you thought there was less hazard

684 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

involved in investing under a guaranty of a fixed return in pur-
chasing power than there is involved in investing under a guaranty
of a fixed return in money.

Mr. NASH. I think that is undoubtedly so; but the question re-
mains as to whether the average investor appreciates that point, and
I am not sure that he does.

Commissioner MEEKER. Well, I think we have covered that suffi-
ciently. There are two other questions I had in mind.

Commissioner BEALL. When you are through with that I want
to ask some questions.

The CHAIRMAN. Do you want to follow up this line ?

Commissioner BEALL. It has a bearing on it; yes.

Commissioner MEEKER. Go ahead.

Commissioner BEALL. Is it not true that, in any proper plan for
operation at cost of street railways, that it includes a provision as
part of the cost of operation, if you please, of what it costs to get
capital, money from time to time? Street railways always have
to raise large sums of money from year to year other than what
they may get out of earnings, even though they are prosperous — a
great many millions every year, the country over. Now every
proper plan should provide for that cost, should it not, as part of
the cost of operating the property?

Mr. NASH. Every plan should

Commissioner BEALL. Every plan provides for it that I know of
and every other so far as I have any knowledge of. Did you ever
know of an investor who ever bought a bond where the interest on
it at any time could be made less?

Mr. NASH. No.

Commissioner BEALL. I do not think anybody ever knew of such
a case.

Mr. NASH. I do not know of any.

Commissioner BEALL. The only case where a man is willing to
take less than what the property is paying when he goes into it is
when he is dealing with what are called equities in stock. There
he knows that if the property earns more his dividends may be
more or they may be less, but when he is bidding on stock he is
counting on a minimum dividend in his own mind; is not that true?
It may be a property that never has paid a dividend, but he is in
hopes that it will.

Mr. NASH. He is hoping that he will. Whether he can count on
it or not is another question.

Commissioner BEALL. But he does not count on its not paying at
all?

Mr. NASH. No.

Commissioner BEALL. Is it not true that the only forms of capital
where that is done is where a man is, you might say, speculating, and
he does not hope for a reduction but an increase and he would not
invest otherwise ?

Mr. NASH. The holder of a final equity, of course, always is sub-
ject to fluctuation. It may be nothing at one time and very good at
another. He is speculating on an average —

Commissioner BEALL. But he is not investing on that theory. He
knows he runs that risk, but he is not investing thinking that that
is going to happen, if the company earns nothing. He is expecting

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 685

it will earn something. If it earns 4 per cent he hopes it will earn
5 or 6 and not 3 per cent.

Mr. NASH. I think that is so.

Commissioner BEALL. Did you ever know of a man who invested
his money on any other theory?

Mr. NASH. No. There is always

Commissioner BEALL. If I may continue that a little further, does
not that take care of itself in this wa}T — that every proper franchise
of a company under the cost-of-operation plan provides for the cost
to the company of getting money from time to time? Now, a few
years ago some big companies who had large earnings would some-
times borrow at as low as 4 per cent, some of them at 4£, and the
average was 5, 5^, and 6. To-day you could not sell anything at all
to the public probably at less than a 6 per cent basis. What you
could get money from the bank at I do not know, but very few com-
panies could sell anything at any price. Now, next year if times and
conditions surrounding these properties are better, of course that
rate may be 5.5 per cent, maybe it will be 7 per cent. But when that
time comes that the company has to get money the point is they have
to pay the market rate for the period of time they want it. whether
it is 1, 5, 10, 20, or 30 years, but that rate varies and whatever that
cost is, the franchise should provide a means of taking care of it.

Mr. NASH. It certainly should provide —

Commissioner BEALL. It is a part of the cost of the property ; it is
what it costs you to get that money.

Mr. NASH. The return on the long-term issues of securities of
course would of course be much more stable than short term notes.

Commissioner BEALL. You never knew of a case of a man who
bought a bond which bore 5 or 6 per cent with the understanding
that sometime that rate could be reduced ?

Mr. NASH. I never heard of such a case.

Commissioner BEALL. He has a provision in it that if the interest
is not paid he forecloses and takes the property ?

Mr. NASH. That is the case; but the man would be affected by an
adjustment of the average rate of return such as we have been dis-
cussing.

Commissioner BEALL. The man who owns the property is a dif-
ferent matter; but the obligations you sell to the public by the way
of new capital have to bear a fixed interest subject to no change un-
less it is an increasing one and not a decreasing one?

Mr. NASH. That is undoubtedly true.

Commissioner MEEKER. Mr. Nash, I \vould like to ask regarding
the sinking fund or barometer fund, as you refer to it: You said,
p.s I recall, that you thought it should be partly charged to capital
investment and partly built up from net earnings. Would you
give your reasons for that ? I was not clear on that point.

Mr. NASH. There is not any very great difference as to whether it
is built up in one way or another. If the money is raised in cash
outright at the start, the whole fund, the riding public immediately
begins to pay interest on that whole fund. Now, if that can be im-
mediately invested in additions to the property so that it earns its
own support, it does not cost the car rider anything. If, on the
other hand, no extensions to the property are made for a time, that
fund lies idle except as it may draw a small interest on bank deposit

686 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION,

and the investor is getting a much larger return on that. That is,
the property is paying under the franchise a G per cent return and
this part of the investment only draws 2 or 3 out of the bank and the
car rider pays temporarily the difference. If only a small part of
that money is raised from capital, new money, and charged to the
property account, it is much easier to immediately use the cash
available for additions because of its smaller amount.

Commissioner MEEKER. Would that be safe financiering, to invest
the whole barometer fund in extensions?

Mr. NASH. Not the whole of it, but it Avould a large part. I
would treat a barometer fund in that respect very much like a cash
balance that the company might have, that it would keep in cash
just what was needed for outright payments of any maturing obliga-
tions or cmergencias.

Commissioner MEEKEK. In that way you advocate building up the
fund partly out of capital and partly out of net earnings?

Mr. NASH. To avoid adding so much to the capital account — that
is the only advantage in that.

Commissioner MEEKEK. I am not quite clear about this sliding-
scale business. You spoke of the franchise in Cincinnati. When the
fare becomes 6 cents then no extra earnings go to the company at
all, in case there should be any?

Mr. NASH. If the fare is in excess of 6 cents. When it is 6 cents
the company gets 20 per cent. When it is 5.5 cents, the company
gets 35 per cent, I think. And when it is 5 cents, the company gets
45 per cent.

Commissioner MEEKER. Of course it is possible to devise a sliding
scale which will have no limit except infinity, upward and down-
ward ?

Mr. NASH. Yes.

Commissioner MEEKER. Is that the London sliding scale?

Mr. NASH. The London sliding scale has no limit at all. And as
applied in the case of the Boston Gas Co., the original company to
adopt that in the United States, there is no limit there. Regardless
of the existing rate of return and the existing price of gas, if there
is a reduction of 5 cents the rate of return goes up 1 per cent. No
limit either way.

Commissioner MEEKEK. Do you think that is a superior form of
sliding scale to the Cincinnati or the Dallas plan?

Mr. NASH. I think so in principle, because of its -lack of limits in
either direction.

Commissioner MEEKEB. Does it give sufficient incentive to effi-
ciency in management to the company?

Mr. NASH. In principle it does, and in practice it does if it starts
at the right point. If the original

Commissioner MEEKER. The starting point puzzled me somewhat.
Will you elucidate that somewhat, just how you fix upon a certain
starting point and the approximately correct one?

Mr. NASH. If I recall rightly, when the Boston Gas Co. adopted
this act, which was a State legislative act which gave them the
right to employ this sliding-scale principle, the price of gas was
fixed at 90 cents, and that was the so-called normal price of gas.
The corresponding rate of return was 8 per cent. Then when the
price of gas, as it did, went down to 85 cents, the company got 9

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 687

per cent, and when it went down to 80 cents, they were allowed 10
per cent. Now if the price of gas should have been $1 instead of

00 cents, corresponding with 8 per cent, it should have been 80 cents
or 85 cents. The effect W7ould have been materially different.

Commissioner MEEKER. Yes; I see.

Mr. NASH. And it was somebody's business — I do not know whose
now — to see that that adjustment was made, and it has always been
charged, whether justly or not I do not know, that the price of gas
corresponding with an 8 per cent return was fixed somewhat too
high.

Commissioner MEEKER. That is alL

Commissioner SWEET. Are you a member of the firm of Stone &
Webster ?

Mr. NASH. I am not.

Commissioner SWEET. Have you investments in street-railway
properties of your own?

Mr. NASH. I es ;- 1 have, unfortunately.

Commissioner SWEET. In the statements that you haA7e made here
orally and in this pamphlet are you taking an attitude in favor of
investors that in a sense conflicts with the interest of the general
public so far as you know?

Mr. NASH. I do not think my personal interest in the matter is
sufficient to bias my judgment. I try to ignore that side of it.

Commissioner SWEET. In the present situation is there a conflict of
interest between the general public and the investors in utility prop-
erties, either those who have invested or those who may become
investors?

Mr. NASH. There is no real conflict. A good manv people think
there is, but fundamentally the interests of the public and the in-
vestors I think are substantially identical, in the final analysis.

Commissioner SWEET. When the railroad companies were making
large profits and the public was seeking to get all it could out of the
companies there was a conflicting attitude between the two that does
not exist at the present time, in your judgment?

Mr. NASH, I think there was more difference of opinion in those
older days that you speak of, but eten then I think that the differ-
ences were imaginary to a considerable extent rather than real. I
firmly believe that the exorbitant profits wliich the electric railways
are alleged to have made in the early days are very largely fictitious.

1 say that because I have had occasion to make a considerable number
of careful studies of the history of these old properties, going back
oven through the days of horse cars, 45 and 50-year periods of com-
plete study.

Commissioner MEEKER. Have you published any articles on that
subject?

Mr. NASH. I have not; no. And I found that in the horse-car days
in typical cases — that is, cases that I think are entirely typical — that
the companies were able to earn approaching 10 per cent on an
average. There were years in which they earned more and others in
which they earned less, depending upon the general business condi-
tions. But in the cases that I have studied carefully, the average
of the whole horse-car period has bet>n less than 10 per cent upon the
actual cash investment, regardless of security issues; and since the
days of electrification the average return has been materially less

688 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

than that, less than 8 per cent, and that is not an extravagant rate
of return, by any means.

Commissioner SWEET. I figured from what you said that you think
the solution of this problem depends upon cooperation upon the
part of the company and the public.

Mr. NASH. I think that is very essential, cooperation based upon
a knowledge upon the part of the public of the condition of the
electric railways which they have not at present acquired in full by
any means. '

Commissioner SWEET. Who do you think has the greatest interest
in arriving at a correct solution of this problem, the companies or
the public, if there is any difference between the two?

Mr. NASH. There may be some difference as to time — that is, the
railroads are for the moment much more disturbed over the situa-
tion than the communities are. In the long run, the communities
have just as vital an interest in the prosperity of the railways as the
investors have, because the communities can not exist without trans-
portation. The investors can take their money out and put it some-
where else or they can lose it.

Commissioner SWEET. Take a city like Pittsburgh, for instance, as
you have heard the testimony here. I think you were present.

Mr. NASH. Yes.

Commissioner SWEET. With regard to the rather critical and seri-
ous situation in Pittsburgh. Suppose you were called in as an ex-
pert and a student of this question, and asked to recommend what
the people of Pittsburgh should do now to bring about a better
situation with regard to their street-railroad facilities. What, briefly,
if you are willing to mention it, would be your recommendation ?

Mr. NASH. Without being fully acquainted with the local situa-
tion, particularly as to the degree with which the public are ac-
quainted with the financial condition of the railway, I would say
that the public should be acquainted as promptly and as thoroughly
as possible with the actual condition of the company, not only the
actual present condition, but the past prosperity or lack of it. The
public very often says that the railways are poor and they are not
earning their living, but they ought to live on their fat — they have
earned so much in the past that they had better get along awhile until
they have consumed their fat and then we will allow them some
increased revenue.

Commissioner SWEET. That is on the assumption that there has
been- some fat?

Mr. NASH. Yes. Now, if there has not been an accumulation of
fat the public ought to know it, and there has been altogether too
much exaggeration as to the accumulation of fat in the street-rail-
road business.

Commissioner S\VEET. Then the first step that you would recom-
mend to the people of Pittsburgh is that they learn the facts as they
are actually and not as they may have supposed them to be?

Mr. NASH. Yes.

Commissioner SWEET. What is the next step?

Mr. NASH. The next step wrhich would naturally follow would be
a recognition by the public of the justice of a larger revenue to
the railroad.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 689

Commissioner SWEET. Do you mean justice from the standpoint
of the investors or do you take in the entire community as being
benefited by what you are going to recommend now ? Is it good for
a part of the community or of the foreign investors, or is it for the
good of the entire community ?

Mr. NASH. The investors should be entitled to a return on the
money that they have put into the property and

Commissioner SWEET. Do you mean that from the standpoint of
investors merely or do you think in the long run it is for the inter-
est of the entire community that justice shall be done to investors?

Mr. NASH. It is undoubtedly to the interest of the community, be-
cause if justice is not done to the investor, he is going to quit and
go somewhere else and the service and the community will suffer.

Commissioner SWEET. Then self-interest would induce the public
to do what is best, not only for the investor but for the public itself.
Is that right ?

Mr. NASH. They should and I think they will.

Commissioner SWEET. Veiy well. How would you provide that?
The service-at-cost plan — would you recommend introducing that,
so that investors could be assured of a proper return on their
capital ?

Mr. NASH. I think service-at-cost plan would give more assur-
ance to the investors of a proper return on their money than any
alternative plan that has been proposed.

Commissioner SWEET. Right on that point let me ask you one
question.

You said this morning that in Massachusetts the public in some
way — the State, I think you said — had guaranteed a certain per-
centage on the investment; did you not?

Mr. NASH. Yes ; in the case of the Boston Elevated.

Commissioner SWEET. In the case of the Boston Elevated?

Mr. NASH. Yes. It is not the public at large; it is the public in
the communities served.

Commissioner SWEET. The public in the communities served?

Mr. NASH. The State treasurer pays out the voucher and then
assesses it back on the community served in proportion to their
riding.

Commissioner SWEET. That is done under a Massachusetts law?

Mr. NASH. Under a State law.

Commissioner SWEET. Do you know whether other States have a
law which would permit that to be done? •

Mr. NASH. There are none that I know of.

Commissioner SWEET. So that that remedy would not apply gener-
sillv throughout the country?

Mr. NASH. But I do not know that there are any limitations on
legislative acts of other States of the same kind, I mean constitu-
tional limitations. There may be or may not. That is a question of
State constitutions.

Mr. WARREN. I think Wisconsin has such a statute, recently passed.

Commissioner SWEET. Any other States besides Wisconsin?

Mr. WARREN. I do not recollect any, but I happened to sec a very
recent statute in Wisconsin.

690 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. Where that can be done, Mr. Nash, I take
it that the investment would be more certain than it would under the
service-at-cost plan ?

Mr. NASH. Undoubtedly.

Commissioner SWEET. If it is backed up by an organization, State
or otherwise, that is solvent, so that investments would be more
readily made and perhaps would be made at a lower rate somewhat
by reason of the extra certainty.

Mr. NASH. A materially lower rate, I think.

Commissioner SWEET. If so guaranteed. So that if States had the
authority — or communities— to make such a guaranty that would
secure the investment more certainly than any other way that has been
proposed; would it not?

Mr. NASH. I think that is undoubtedly the case; the securitty
would be greater, and the return demanded would be lower.

Commissioner SWEET. But service at cost, where such a guaranty
could not be legally made, or if it could be legally made if it is not
made, if the community does not wish to make it, if I understand
you aright, comes as near as may be or as is practicable under pres-
ent conditions to giving that assurance to the inventor?

Mr. NASH. It does. It is an assurance that the investor places a
good deal of reliance upon, as shown in the case of Cleveland. The
company has always paid for the full 10 years, including the war
time, the return which the franchise authorizes upon the company's
capital. It has never failed.

Commissioner SWEET. It is an absolute assurance with just one
limitation, and that is that enough money shall be made?

Mr. NASH. That is the only limitation.

Commissioner SAVEET. Enough net income

Mr. NASH. Can be obtained from the public.

Commissioner SWEET. That is it exactly.

Mr. NASH. And the public in the final analysis is the one to de-
cide whether it is going to patroniz^ it at any rate of fare.

Commissioner SWEET. And if there is not a limit as to the fares
to be charged then the question would simply turn upon the point
of greatest revenue — that is, fares could be raised to the point where
patronage would fall off to such an extent as not to increase the
revenue ?

Mr. NASH. Yes, that is the truth; the point of maximum net
revenue that will be earned.

Commissioner SWEEDT. If that point is enough to protect the in-
vestor he is just as well protected as he would be with a guaranty
or in any other way ?

Mr. NASH. Yes.

Commissioner SWEET. But he would not know that. That is the
disadvantage of it ; is not that true ?

Mr. NASH. That is true.

Commissioner SWEET. Then would your next step be in your
recommendation to Pittsburgh to adopt the same general plan they
have in Cleveland or Cincinnati?

Mr. NASH. The same general plan, yes.

Commissioner SWEET. With certain modifications which you men-
tioned ?

PROCEEDINGS OF FEDERAL ELECTEIC RAILWAYS COMMISSION". 691

Mr. NASH. Just incidental modifications. I think the question of a
point of flexibility that I mentioned — not having the thing so tightly
sewed up that it can not be adapted to varying conditions from time
to time — and the point of incentive to both the investors and the man-
agement to get the most that is possible out of the property — the
investor to more readily furnish the money, the management to keep
itself up to the highest pitch and to keep in the service of the railway
the class of men that is necessary to secure the best results. If the
extent of supervision, for instance, is so great that tlie officials of the
company are merely clerks to carry out the instructions and the
plans and designs of the supervisory body, that is not attractive work
for a real man. Just so far as is consistent with the interest of the
public I think the management sliould be left free to initiate the im-
provements and take credit for improvements.

Commissioner SWEET. But you would have a director, as they have
in Cincinnati, or a commissioner, or three commissioners — -some body
representing the public ?

Mr. NASH. Yes.

Commissioner SWEET. To see all the time that this is carried on?

Mr. NASH. Yes ; I would.

Commissioner SWEET. What other steps would you recommend?
Any others?

Mr. NASH. You mean what other changes from the fundamental
plan?

Commissioner SWEET. Yes. Suppose we now want to put Pitts-
burgh on a proper basis as regards its street-railroad facilities and
get rid of their receivership ; I assume you would prefer, if you could,
to get rid of the receiverships or the need of them and put the com-
panies on a paying basis under regular ordinary private manage-
ment; would you not? *

Mr. NASH. I think that would be possible as soon as the plan was
adopted, that the company could be so refinanced or reorganized that
it would take care of itself. Its credit would be so improved by the
adoption of a plan by which there was assurance of return to the in-
vestor that reorganization or refinancing could be effected without
groat difficulty.

Commissioner SWEET. Then the initiative should be made by the
city of Pittsburgh; is that your idea in the adoption of a different
kind of franchise?

Mr. NASH. It is not necessary that the initiative come from either
side, but very properly the city of Pittsburgh might say that they
were willing to grant a franchise of this kind to the railways if they
would accept it, and define the term ; and, of course, various more or
less extended negotiations would follow before the city and the com-
pany would get together. That would be inevitable, I think.

Commissioner SWEET. It would not make any difference which ono
started it?

Mr. NASH. Not at all.

Commissioner SWEET. Providing they had their conferences and
they finally resulted in such an arrangement ?

Mr. NASH. No; I think the ]x>int of initiation is immaterial.

Commissioner SWEET. The public officials representing the general
public having ut least as much interest in the matter as the com-

692 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

panics have, although perhaps not quite so immediate. That is your
idea, is it not ?

Mr. NASH. Yes.

Commissioner SWEET. And with the adoption of a change of that
kind, with an indeterminate franchise providing, as I understand they
usually do, and as you think they ought to, for the possibility of the
city taking over the entire property, if it sees fit, upon equitable terms
that could be prescribed in the franchise, you think that the arrange-
ment might be made without unreasonable delay and give the relief
that is necessary and bring about, we will say, as good results in Pitts-
burgh as they are getting in Cleveland ?

Mr. NASH. I see no reason why that should not be the case, except
that in all probability Pittsburgh would not be able to operate on as
low a cost and, therefore, as low a rate of fare as Cleveland. There
are essential differences in type between the communities, but the prin-
ciple would be the same.

Commissioner SWEET. That is a feature of it that I did not mean
to bring into it, because I assume that there are local differences. No
two cities are just alike.

Mr. NASH. No.

Commissioner SWEET. They all have their local problems, and one
city might be so situated that a 5-cent fare would be really higher in
the way of producing revenue than a 6-cent fare would be in some
other city. Is not that true ?

Mr. NASH. That is very true.

Commissioner SWEET. So that each city, so far as the actual fare
is concerned, must be controlled largely, if not entirely, by the exist-
ing conditions in that locality. Is not that so ?

Mr. NASH. That is entirely so.

Commissioner SWEET. But under this flexible system that would
adjust itself, would it not?

Mr. NASH. It could not help it. The fare would automatically ad-
just itself to the cost of service, whatever that was.

Commissioner SWEET. That is it exactly. Where the cost would
be greatest the fares would have to be the greatest to meet that cost.

"Mr. NASH. If the city was dissatisfied with the cost they might
conceivably be satisfied with a lower standard of service. That is
not usually the case, though. I think that the public in most of the
cities of the United States want good service, and if they are satis-
fied that what is called cost is real cost, they are willing to pay it.

Commissioner SWEET. What you have said about a remedy for
Pittsburgh would also apply, if I understand you correctly, in your
judgment, equally well to practically every other suffering com-
munity of the United States?

Mr. NASH. I think it would.

Commissioner SWEET. That is all.

Commissioner BEALL. I would like to come back for a moment to
that question of depreciation. I think perhaps we did not quite
understand each other. Do you not think that it is for the best in-
terests of the public, as well as the companies and investors, that a
property should be allowed to earn its full depreciation as it goes
along in fares? Otherwise they would be unable to maintain for
themselves and for the public the real value of their property. If
you start with a street-railway company that, for the sake of argu-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 693

ment, has an investment of $1,000,000, everybody knows that every
year a certain part of that wears out and has to be renewed — certain
parts of the plant and apparatus, etc. Now, if you do not renew or
make an accrual fund to provide for that from year to year, the day
would come when your property that cost $1,000,000 might be worth
only six or seven hundred thousand dollars and yet you might have
$1,000,000 in securities put against it. and instead of giving $1,000,000
service you would be giving a $700,000 service. Now, I do not know
what their rule is to-day, but your firm of Stone & Webster some
years ago had either a written law or an unwritten law that not less
than either 18 or 20 per cent, I do not remember which

Mr. NASH. Twenty.

Commissioner BEALL. That not less than 20 per cent of the gross
earnings of any street railway that they operated should either be
expended or reserved each year from gross earnings for maintenance,
renewals, and depreciation. Now, if you were accepting for any of
those properties to-day a service-at-cost plan, would you not
feel that it was absolutely necessary to include in such plan that 20
per cent, or whatever sum you deemed was necessary to take care
of that property over a long period of years? Because if you did
not do it, the day would surely come when your property would
actually be worth less money than it was when }Tou started out some
years before. You might have a less value than the city had allowed
you and than they were permitting you to earn on, and you would
have a less value on which your securities were based. Now,
although that may result in the accumulation of a cash fund from
time to time, it is customary, is it not, to invest quite a part of that
fund in other extensions than additions than the exact renewal of a
certain piece of property which may be in process of wearing out,
the idea being that in one form or another, by property of some kind,
or in cash you are always maintaining that value. If you do not do
that you are not treating the city right or the public or the investor
in your company. Is it not necessary to take care of that?

Mr. NASH. I am in thorough accord with the policy or rule, written
or unwritten, of reserving not less thaA 20 per cent of the annual
gross earnings of a railway for combined maintenance and deprecia-
tion. Now, that rule, as you naturally assume, is not an arbitrary
one. It is based on

Commissioner BEALL. I am not trying to say 'what is correct — it
may be 18 or 25 per cent, but there is some such amount?

Mr. NASH. Based on a long experience with properties I have had
occasion to test that rule out with properties we have operated for a
good many years, and as a matter of fact, it results in the keeping on
hand of a sufficient reserve to take care of replacements, current, and
large units, as they are required. I do not think it is large enough
to accumulate what would be called a theoretical reserve for accrued
depreciation of the property. Now, it is not—

Commissioner BEALL. I know; but you can put it into other things.
The idea is to at all times maintain the value that you started out
with.

Mr. NASH. That reserve is accumulated and invested in extensions
to the property-
Commissioner BEALL. Sonic of it.

694 PROCEEDINGS OF FEDERAL ELECTKIC RAILWAYS COMMISSION.

Mr. NASH. Now, when you come to ask me to set aside a reserve,
fully enough for theoretical depreciation, I have got to tell you I
do not know how, because I do not know in the first place what the
life of a railway property is, and that is really fundamental in order
to set up any reserve.

Commissioner BEALL. But you have a pretty good idea of it?

Mr. N,ASH. Well, I have not, unfortunately.

Commissioner BEALL. Well, your operating men, then.

Mr. NASH. Unfortunately there are a good many of the operating
men who have not; for ever since I have known anything about the
electric-railway business we have gone through one state of changes
after another. I have never yet seen an important piece of electric
railway property worn out. I have seen it put aside because some
more reliable or efficient piece came along, and that is almost the in-
evitable rule — that the railroad property is abandoned because it does
not fit in with something else, it is not suitable for the extended serv-
ice or it is not up in efficiency with modern standards. And the ques-
tion that I am confronted with if I attempt to forecast accrued de-
preciation is how is the future development in the art and in public
demands and other things that enter into this question going to com-
pare with the past, I am forced to say I do not know. I have hopes
that the near future, at any rate, will not show as radical changes in
the art as the past has. We have gone through the age of horse
cars and cable cars and the very experimental electric cars, and just
now we are going through a radical change in type of car, from the
big two-man double-truck car to a light one-man car, and something
else may come up and it may not ; but if there was not this question
of obsolescence and supersession and other things, aside from wear
and tear, to come up, the life of the average electric-railw^ay property
with recurrent renewals of parts could be maintained indefinitely;
so you could not say a car would wear cut in 30 years or in 100 years.
At the end of 100 years there would be no part of it left, but in no
year would you change from an old car to a new car. That is
the difficulty is estimating depreciation.

Commissioner BEALL. Weil, you might differ frcm somebody
else as to the amount, but you know what it has been, and is not this
correct? You know in your own mind there would be some mini-
mum sum and you would feel that if at least that amount was not
preserved, your line would soon come to a point where your property
was worth less now than 5 or 10 years ago? And I think you will
agree that should not be permitted, in justice to the city or the
riding public, or the investor. If it takes a million-dollar property
to serve a certain-sized community, it should be kept at $1,000,000;
it should not fall below.

Mr. NASH. Its investment should be kept there, and assurance
should be given that no part of that property should ever be aban-
doned without having a sufficient reserve to replace it.

Commissioner BEALL. That is the point exactly. Now, men may
differ very materially as to what that amount should be, but each
one would have a minimum below which it should not fall each ^year.

Mr. WARREN. The principle is perfectly clear.

Mr. NASH. I think there is no question about the principle at alL

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 695

Commissioner BEALL. And you should be allowed to earn it out of
your fares; the earning power of the company should be made to
include that?

Mr. NASH. It should, unquestionably.

Mr. WARREN. It should not be paid out of capital.

Mr. NASH. No.

Commissioner BEALL. You are unfair to the public if that is not
done.

Mr. NASH. Yes.

Mr. WARREN. We may differ as to the amount

Commissioner BEALL. Yes, but there has to be an amount to take
care of it?

Mr. WARREN. Yes.

Commissioner MEEKER. You have spoken of the one-man car as if
it were a foregone conclusion, that it either had superseded the old
heavier car or that it would supersede it. What experience have you
to base that judgment on?

Mr. XASH. We have in various properties several hundred of that
type of car in operation. They have been in operation in some cases
two and a half }rears — more than two and a half years — and they
have been successful to such a degree that in my own mind I have
accepted it as the foregone conclusion that this was the coming type
of car for a very considerable portion of electric-railway service.

Commissioner MEEKER. Do you think it would be an economical car
to put on in Xew York City railway lines?

Mr. NASH. I have not made any study of New York conditions.
I think there will be a witness on this subject who will speak with
reference to New York conditions later. But I will say this, that I
ao not know of any places where the one-man car has been tried
that it has failed on account of density of traffic. There has been a
rather cautious introduction of it, I think, so that it would not be
pushed too fast in the wav of application to very dense-traffic con-
ditions: and very probably it will be found that the operator on
that type of car would have trouble in making fare collection in
cases of congested loading with sufficient promptness to maintain a
satisfactory schedule.

Commissioner MEEKEK. You heard the testimony that one of the
witnesses gave yesterday, I think it was, in regard to the one-man
cur operating under a zone system?

Mr. NASH. Yes; I heard that.

Commissioner MEEKER. Do you think that it is feasible to have
switches in our streets so that the one-man car will operate only in
a single zone and be turned back at the end of that zone ?

Mr. NAKH. No; I do not think that would be practicable. Street-
car service has got to be. for convenience, continuous.

Commissioner MEEKER. It would seem so to me. How is the one
man going to collect fares in the second, third, or seventeenth zone?

Mr. NASH. He can collect in the second /one perfectly well. That
is, he can collect from a passenger entering in the first zone and
leaving in the second /one. Beyond that, where there are more than
two zones, it would be necessary for the operator when a passenger
gets on not to collect (he fare but issue an identification check which
will tell him what zone that passenger got on in. Then when the

696 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

passenger gets off, regardless of how many zones he has gone through,
the operator will see at a glance or have a mechanical computer in
front of him which will tell him the amount of fare the passenger
should pay to correspond with the identification check, and the pay-
ment would always be left until the passenger left the car. There
are no insurmountable difficulties about that arrangement that I
know of at all.

Mr. WARREN. We have another witness especially on the one-man
car whom we hope to put on to-day. I do not want to cut your
questions short, but we will cover that subject.

(Witness excused.)

The CHAIRMAN. Let the record show that ex-Governor Foss of
Massachusetts sent a telegram to the commission requesting the
privilege of appearing before us to-morrow or on Friday. We have
set to-morrow at 12 o'clock for his appearance; and I hope, Mr.
Warren, you will make your arrangements accordingly.

STATEMENT OF MR. CHARLES L. HENRY.

Mr. WARREX. Will you give your full name?

Mr. HENRY. Charles L. Henry.

Mr. WARREN. Your residence?

Mr. HENRY. Indianapolis, Ind.

Mr. WARREN. And you have sometime, I think, been referred to as
" the father of the interurban railway."

Mr. HENRY. Well, that is when they do not have respect for my
old age.

Mr. WARREN. But you have had a very wide experience in inter-
urban railways?

Mr. HENRY. Yes; I have.

Mr. WARREN. And are connected with a great many to-day?

Mr. HENRY. No; not with many, but with only one company
to-day.

Mr. WARREN. What is that?

Mr. HENRY. The Indianapolis & Cincinnati Traction Co. I was
connected formerly with the Union Traction Co. of Indiana, and as
manager of that company built some of the principal parts of the
road.

Mr. WARREN. And you are acquainted with the interurban rail-
ways in other parts of the country ?

Mr. HENRY. Yes.

Mr. WARREN. Missouri and Illinois?

Mr. HENRY. Yes; quite fully;

Mr. WARREN. We have thus far had practically no testimony
specifically directed to the interurban railways; and I believe you
are prepared to tell the commission something about them, and
something about their conditions and difficulties and usefulness.
Before you begin, Mr. Henry, these are

Mr. HENRY. That is a map of what we term the central-electric ter-
ritory, the central-electric territory being that which is covered by the
Central Electric Railway Association, prepared by their traffic de-
partment and corrected up to date; and it is typical of the general
development of the interurbans.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 697

(At this point the map referred to was presented to the Commis-
sion.)

Commissioner BEALL. Did you build that terminal in Indianapolis,
the first interurban terminal ?

Mr. HENRY. No ; I did not.

Commissioner BEALL. Was that before

Mr. HENRY. That was built by the Indianapolis Traction Terminal
Co. I was not connected with that company, but I have been using
it with our cars ever since it was built.

The CHAIRMAN. Will your testimony relate exclusively to the inter-
urban as distinguished from the street-cars?

Mr. HENRY. It will so far as I know, unless you want to ask me
about something else. They will lap over, of course.

The interurban railway is a matter of 20 years' growth. Perhaps
it is well that we get clearly in our minds what is the interurban
as we talk about it. We have a good many electric railways: We
have the electrified steam road. We have some special electric
lines built for a specific purpose like, for instance, the line from
Philadelphia to Atlantic City, which amounts to nothing but
a shuttle train really between points; it does not do any gen-
eral interurban business, it pays no attention to the intervening
territory. Then we have what are known as suburban electric
roads which you are all familiar with. They run out to the various
suburbs of the city or town which they serve. Then we have, as in
New England, the roads which connect up the various communities,
sometimes called interurban, but entirely distinct from what I am
going to talk about, because, except for the fact that they run upon
the country highways, they are as much street railroads in fact and
in operation as the roads themselves within the cities and towns.

The interurban, as ordinarily understood and which I will direct
my remarks to, is of a different character from that. They are built
to take care of the traffic between cities and towns and from the coun-
try to the town and the town to the country. It is to serve not only
the travel between cities and towns but it is to serve the country com-
munity between those cities and towns. It is not confined to pas-
senger business but it includes express business and it includes freight
business. In other words, it is intended to serve the communities for
the transportation which properly belongs to that class of road. It
is in one sense a competitor of the steam roads. In another sense
it is not, because it has and develops and makes a traffic of its own
because of its peculiarity.

The first electric road in Indiana was built and the first car run
the 1st day of January, 1898. There had been some little interurban
development in Ohio before that time. It was restricted, however,
because of -the restriction on power. The three-phase distribution
system of power was not known in electric railways at that time. It
had been out in the West in connection with power in the mountains,
carrying the current to the cities for lighting purposes, but up to the
time of the building of the Indiana Traction Co.?s line at Anderson
for three-phase distribution, it never had been applied to street-railway
purposes. The station there was the first station of the kind built.
That brought out the opportunities of interurban business, because
before that time the direct current died top soon, the loss was too
great. The first line we built was only 12 miles long, from Anderson

1GOG430— 20 45

698 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

to Alexandria ; and in order to get enough current up at Alexandria
•we would put in the Anderson station what we called a booster. That
ran it up to 1,200 volts and carried it up to Alexandria and by that
time it had dropped to 600, and we put it in there at 600 volts, and
that is all we could do. But the three-phase distribution permitted of
reaching any distance that was needed, being transmitted on the high
tension line to substations 10 or 12 miles apart; there the voltage
was reduced and transformed into direct current and a large amount
of copper was dispensed with and the current was distributed equally
all over the system. From that time that has been the general way
of operating interurbans and is now. Of course, like everything else
new, we did not have a broad idea of the possibilities of interurbans
when we commenced. They were built cheaply, with lighter rails,
smaller cars. We did not think anything about freight, we did not
think anything about train dispatchers. We would put a signal with
a lever at one switch and a lever at another switch and we stopped
and got the train through as best we could.

Then after a while we saw that would not do. So the present
system — and I say the present system, for it is practically uniform,
the system of operation of interurban roads at this time — was gradu-
ally adopted. A train dispatcher was employed and we used the
telephones for issuing orders, and we have the men take the orders
by telephone and repeat them back to the dispatcher, and a record
is made and it tends to safety. We put on larger cars, put a com-
partment in for the smokers and another compartment for the gen-
eral public and another room for the baggage and express, and then
in the forward part a compartment for the motorman. The cars
average in size from 55 feet up to something like 65 feet long, with
heavier trucks, heavier motors, and heavier wheels, either steel-tired
or steel wheels. The purpose of that in the first place was to keep
from chipping the flange, which made it dangerour;, because the
flange had to be smaller where we ran through the city. Air com-
pressors are put on the cars so that the air brakes are as complete as
on the steam roads. Electric headlights are used; and they run
through the country at varying rates of speed, some of them as high
as 60 and 70 miles an hour. The fastest train that ever ran on our
road we ran from Indianapolis regularly to Connersville, 58 miles,
and we made the run in an hour and a half by schedule time, 22
minutes of that being taken in getting out 4 miles to the suburbs of
the city.

The CHAIRMAN. How many stops were there on that route ?

Mr. HENRY. We made two intervening stops — one to meet the other
car running in the opposite direction, and the other at the county
seat of Rush County, Rushville. That gives you some idea of the
speed at which they can be run.

Now, the old way when we commenced was that we picked up the
passengers everywhere ; we stopped on hail at a crossroad or an alley ;
it did not make any difference which. But that would not work;
that took too much time, so we had regular stations adopted, and we
got tickets and finally we organized a traffic association that is the
publisher of this map, which covers the territory of Indiana, Ohio,
Michigan, part of Pennsylvania, and part of Kentucky ; it does not
cover Illinois simply because there is no physical connection between
the lines in the two States. Under that freight business was built up

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 699

and regular freight schedules of trains and also freight tariffs filed
with the commissions, both the State and interstate, covering the
freight rates, and the passenger business the same way. So that it is
a regular systematic business — serving these communities; and this
map which you have is fairly indicative of the general territory cov-
ered by the interurbans, although it is true in this territory there is
a larger proportion than in other sections, according to the size of the
territory.

Down in south Missouri the great Southwest Missouri system serves
the mining districts of Joplin, Webb City, Carthage, and over to
Pittsburg in Kansas. On the western coast there are some very large
systems, the Pacific Electric being the largest. Over in Illinois, the
Illinois Traction, one of the biggest systems in the country, and the
Aurora. Elgin & Illinois is another, and from Chicago to Milwaukee
is another good system. This gives you an idea of the extent of it.

Now, they vary in amounts in different parts of the country, but I
am telling you about the body of them.

We are in all the States now nearly, you may say, generally speak-
ing, subject to the public-service commissions in everything. We file
with the Interstate Commerce Commission everything relating to in-
terstate business, and to that extent we are controlled by the Inter-
state Commerce Commission. This does not do away with the local
restrictions in towns, about which I want to speak a little later. Some
of those are troublesome and many losing propositions. But I have
tried to give you a general idea of the business.

Now, we have at Indianapolis the most perfectly developed system
for taking care of the people who come into and go out of Indianapo-
lis. We nave a terminal traction building there owned by the In-
dianapolis Traction & Terminal Co., which is the local city company,
which just changed hands by reorganization the other day — I mean
changed the name by consolidation, but it remains the same in every
other respect. That was built with a view of taking care of the in-
terurban business. I have before me some extracts from the report
of the secretary and treasurer of that company, which I think you
would be glad to have, from Mr. McGowan :

In accordance with your verbal request, we beg to advise that during the
year 1918, 7,519,634 passengers arrived and departed from the Traction Terminal
Passenger Station. The number of passenger trains in and out of Indianapolis
during the year 1918 was 128,145.

That gives you some idea of the extent of the business; that is,
the passenger business.

Now, I will stick for a little while to the passenger part of it,
and then I will give you some of the other. First, I want to give
you an idea of the extent of the mileage in those States\ Michigan
has 805 miles; Ohio, 2,48f> miles; Indiana, 1,732 miles; Kentucky,
158 miles; Illinois, 1,575 miles; a total in these 5 States of 6,8i6
miles of intorurban road.

The, Merchants' Association of Indianapolis is constituted of all of
the principal retail merchants. I asked the manager of that associa-
tion to give me a letter as to wh,at the interurban is to Indianapolis.
If you will allow me, I will read it:

Replying to your Inquiry ns to what extent the traction lines entering In-
dianapolis benefited the retail trade of this city, be advised that while we are
not able to give you exact figures as to the increase iu retail trade that the

700 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

interurban lines are directly responsible for, we are safe in saying that no
factor has done so much to increase down-town trade as have the interurban
lines.

Indianapolis being the center of the State probably enjoys a better out-of-
town trade than any other large retail center in the country. This is in a
large measure due to the fact that the interurban lines make it possible for
residents in a smaller city or town adjacent to Indianapolis to come to the
city to do their trading and return at most any hour of the day.

In former years this association rebated railroad fares, this plan having
been abandoned some 14 years ago. The plan served, however, to materially
increase the out-of-town trade, but had it not been for the interurban lines,
the increase would not have been nearly so large as it was.

Since the abandonment of the rebating of railroad fares the out-of-town
trade has still kept growing and to-day is even greater than when the custom-
er's fare was paid to and from Indianapolis.

The credit files maintained by this association show thousands of persons
throughout the State having regularly estalished credit accounts in our stores,
and we are safe In saying that the majority of these customers travel to and
from Indianapolis by interurban.

Generally speaking the interurban lines are the greatest asset that a retail
center can have.

Very truly, yours,

MERCHANTS' ASSOCIATION, INDIANAPOLIS,
W. E. BALCH, Manager.

The CHAIRMAN. Right at that point, can you tell me about what
radius Indianapolis draws its trade from on the interurban lines ?

Mr. HENRY. Well, some all over the State, but largely within 100
miles; some to all points within the State. That is largely because
of the length of the lines, but that is about the way it is.

Commissioner BEALL. That terminal station in Indianapolis was
the first one of its kind ; was it ?

Mr. HENRY. Yes; it is the only one of its kind to-day that is as
complete as it is. The one at Los Angeles is large and efficient, and
all that, but it does a little different kind of business. It takes care
more of the suburban cars, as you are aware, perhaps.

Now, this passenger business I want to speak of a little bit with re-
gard to the other towns. I am seeking to show you what the inter-
. urban means and why it is a necessity to these various communities.
Interurban towns outside of the large cities — I will give you now a
picture of the Indianapolis trade, the passenger trade. My idea and
that of others was that the little towns would be injured by the
interurbans. We all expected it, but it has proved not to be true.
It is a fact in practice, that every town in Indiana, and the rest of
this territory all over the country that an interurban touches, is
benefited by it. It makes it a better place for them to live; they
are happier and more contented; their homes are nicer and fixed up
better. They can go to the theaters; they can go to parties; they
can go to association meetings, and go and come as they please and
when they please; and they have made it easier to live there. They
live there and do business in town. We have a number of persons
that do business 25, 30, or 40 miles away from their homes. There is
one woman down in Shelby ville, 26 miles away, who occupied a State
position in connection with the schools, who goes back and forth
every morning and evening. That is an illustration of what I mean.
The children go to the schools, from the country or the villages to
the larger towns, either the grade or the high school. They go there
and attend church if they want to ; and it makes it one community.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 701

They all rely upon the service of the interurban for the purpose of
going and coming.

Those who travel most are furnished with reduced rates, so that
they get now almost uniformly in our State $20 worth of riding for
$17.50. That is about the way it is arranged now ; that is what used
to be the mileage book. And a 40-ride book is sold at about 1£ cents
to 1£ cents. There is a 60-ride monthly book sold for about 1£ cents.
Now they fit into the different classes. The school teachers and
children use the 40-ride book because it fits into their opportunities.
People who go to work in the larger towns and work every day
only buy the 60-ride book. The fares have been changed — I speak
of it in order that you may have it in your picture. Whereas we
charged originally about l| cents for the ordinary fares, then we
adopted what was known as the penny-zone system, which was a
cent for every half mile or 2 cents a mile ; then in Januaiy, 1918, we
put our rates up to 2£ cents and in February, 1919, we put them up to
'2| cents. That is almost uniform over the entire State.

Mr. WARREN. Do you have a minimum fare along with that?

Mr. HENRY. Yes; the minimum fare used to be 5 cents and has
been made 10 cents ; so that there is no fare now less than 10 cents.

The CHAIRMAN. By order of the commission or by statute ?

Mr. HENRY. By order of the commission. The statute made no
regulation of our fares. Our rates are — It has all been done by
the commission, and in that I may say that the commission, since
they got their faces turned toward the East and saw what was
needed — it was a little difficult to get them to see what was needed,
but as soon as we got their faces turned in the right direction and
they did see what was needed — they have shown a disposition to co-
operate with the interurbans.

The CHAIRMAN. I think you have a good commission in Indiana.

Mr. HENRY. Well. I second the motion. We have. But here is one
of the troubles about it. We were going in the hole for from six to
nine months because of the losses in operating expenses before we got
an increase, and when we got the additional increase it was the
same way ; it took three months to get them to issue the first permit
for 2£ cents per mile. I presented the petition for our road first,
and it took us three months to get action on it, before we got them in
the notion of really doing it. They first thought maybe the 2-cent
fare law affected it; and we showed them it did not; it only affected
steam roads; and after that they treated us — well, I will not say with
liberality, but with all the justice the situation demanded and re-
quired.

Mr. WARREN. That was the second application?

Mr. HENRY. Yes; 2J cents. Two and a half cents was the first one.

Mr. WARREN. That took how long?

Mr. HENRY. It was three months before we got the first action
on it.

Mr. WARREN. And by the first action do you mean the approval?

Mr. HENRY. Yes; it is a permission in our case; it is a permit to
file.

Mr. WARREN. That is from the time you filed your application
until you got the permit?

702 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. HENRF. Not exactly that. I talked to them about it and tried
to get them to receive the application and they would not even
docket it at first. It took a good while to get it on the docket.

The CHAIRMAN. That was because they thought they had no juris-
diction over the fare \

Mr. HENRY. They doubted the fact of their having jurisdiction
because of the 2-cent fare law on the statute book.

Commissioner MEEKER. Were the steam roads limited?

Mr. HENRY. They were, yes. That has been removed by the last
legislature.

Mr. WARREN. But from the time they recognized their jurisdiction
until you got your permission

Mr. HENRY. It did not take them long to act on it after that — a
month or six weeks — no longer than was required to get up the neces-
sary papers and everything.

Now, I want to give you a little idea of the freight business in
order that you may understand the extent to which it has been de-
veloped. First, I am going to read you a short letter from a live-
stock shipper, as to what benefit the interurban is to the community :

CRAWFORDSVILLE, IND., July 16, 1919.
Mr. CHARLES L. HENRY,

President Indianapolis <§ Cincinnati Traction Co.,

310 Traction Terminal Building, Indianapolis, Ind.

DEAR SIR: I have have been told that you want an expression from me as
to the advantages of shipping stock over electric lines, as compared with
steam-railway service and wish to state that my experience in using both
services has proven conclusively that the electric-road service is by far the
better, principally for the reason of quicker service.

This quicker service makes it possible to practically save the transportation
charges by the elimination of shrinkage. For this reason I, as a buyer and
shipper of stock, am able to pay the stock raiser 10 cents more per hundred
pounds than I could if my shipments were made over the steam roads.

Another reason for the saving is that while shipping over steam roads I
would average a loss of one hog to a car, while between September 12, 1918,
and July 15, 1919, I have shipped 355 cars of hogs from Crawfordsville to
Indianapolis and have lost just one hog.

Hoping that this information will answer the purpose for which you want it,
I am,

Yours, truly,

JESSE S. WARD.

Now, count that the average carload, and you will find that the
electric line put into the pockets of the farmers in the vicinitj' of
Crawfordsville, who sold their stock to this one man* $7,100 more
than would be paid them if he had to ship by the steam road.

The CHAIRMAN. It ought to be pretty easy sailing, selling electric
stock to those hog raisers.

Mr. HENRY. You think it should ?

The CHAIRMAN. Sure.

Mr. HENRY. Well, he would rather make his money the way he
does. He makes it quicker, faster, safer, and better.

Commissioner GADSDEN. He wants to make his money and keep it,
you mean?

Mr. HENRY. Yes. He is satisfied with it as it is, as you see from
his letter.

Now, it is generally supposed, gentlemen, that the traffic — freight
traffic — is limited to short distance. I want to read you a letter here

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 703

somewhat at length, although it is not very long, that shows you how
much it has already been developed as to long distances. This is
from Mr. Norviel, general passenger and freight agent of the Union
Traction Co., of Indiana, dated July 17, 1919 :

Mr. C. L. HENRY,

Pi-e$ident Indianapolis & Cincinnati Traction Co., Indianapolis, Ind.

DEAB MR. HENRY: Answering your esteemed favor of July 16 on the re-
quest of our freight service. This is rather a hard matter to give, offhand,
without sufficient time to gather statistics to back up the statements made
by us. However, in a brief way will state that for some years we have
operated a fast freight from Indianapolis to Fort Wayne, Ind., (125 miles)
the present schedule being as follows : Leaving Indianapolis 3.30 p. m., arriving
at Fort Wayne at 11 p. m. Leaving Fort Wayne on the Ohio Electric 4 a. in.
and arriving at Toledo about noon the following clay (137 miles). Total
Indianapolis to Toledo, 262 miles. Returning, leaving Toledo about 6 p. m.,
arriving at Fort Wayne about midnight over the Ohio Electric and leaving
Fort Wayne about 6 a. m. and reaching Indianapolis at 2.45 p. m. The motor
car in this service operates between Indianapolis and Fort Wayne trans-
ferring freight from or to points beyond Fort Wayne which may be con-
tained in the motor car to and from the Ohio Electric, motor car operating on
the above schedule to Toledo, Ohio, but the trail cars make the entire trip
unopened.

The effect of this service is freight leaving Indianapolis at 3.30 p. m. is
ready for delivery at Fort Wayne at 6 a. m. o'clock the following morning and
at Toledo at 12 o'clock noon of the next day following its departure from
Indianapolis, including all intermediate points touched by this service. Re-
turning from Toledo, merchandise loaded on one day reaches Indianapolis at
2.45 p. m. on the day following. An actual service not bettered by American
Railway Express.

Regarding the South Bend service a train leaving Indianapolis, known as
the Cannon Ball, at 7.00 p. m., makes deliveries to South Bend at 8 o'clock
the following morning (171 miles), with corresponding deliveries to all inter-
mediate points. Returning, a train leaves South Bend about 4 p. m. and ar-
rives in Indianapolis at 5.10 a. m. the following morning with corresponding
service for such intermediate points as Warsaw, Goshen, Elkhart, etc. A
service not equaled by the American Railway Express Co. These trains operate
six days a week and are reasonably uniform on their schedules.

We handle, in connection with the motor service above referred to, from one
to three trail cars on each of the trains named and hnve had as many as three
trail cars loaded with freight from Toledo to Indianapolis and vice versa, and
from Indianapolis to South Bend and vice versa.

The South Band service will shortly be extended to Michigan City, connecting
with the. Indiana Transportation Co. between Michigan City and the city ot
Chicago and the city of Milwaukee.

A water line part of the way.

The volume of this traffic I believe I can safely state is governed only by
the amount of equipment that can be set aside for same, as the time of these
schedules is far superior to any other mode of transportation, that the traffic
simply waits on facilities. Much of this traffic would be in carload lots of
1. c. 1. shipments under seals and without breaking bulk between large termi-
nals and would undoubtedly be a very profitable traffic to foster.
Trusting this is the information you desire, we beg to remain,
Yours, truly,

(Signed) F. D. NORVIFX,

G. P. rf F. A.

The CHAIRMAN. Yon may proceed, Mr. Warren.

Mr. HKNRY. I have a number of letters here, gentlemen, that 1
will leave copies of. I will leave them with the reporter, and in
order to save time will read extracts on a few points, because it would
tnko up too much time to rend the whole letter. If you will permit
me to do that, T will then hand the letter to the reporter.

The CHAIRMAN. Suit yourself, sir.

704 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. HENRY. Here is a letter from M. O'Connor & Co., large whole-
sale dealers in Indianapolis, in which they make this statement:

INDIANAPOLIS, IND., July 17, 1919.
INDIANAPOLIS & CINCINNATI TRACTION Co., City.

GENTLEMEN : Much has been said about railroad transportation and what it
has done for various communities, but here in Indianapolis the jobbers and
manufacturers realize that the traction lines centering in this city have
brought more business to this city on account of the splendid service and
low rates given the people of rural towns and districts touched by these lines.

We can not say too much in praise of the service rendered the merchants ot
this city and State by the traction lines by giving good service at a reasonable
rate.

It Is with great pleasure that we write this, and we know we echo the senti-
ments of practically all of the people in the community served by your and
other traction lines.

Yours, very truly,

M. O'CONNOR & CO.,

(Signed) O. C. HAGUE.

Here is a little side show that I want to give you.

There are a great many communities that are not served by elec-
tric current, and the business has grown up over a great many lines
of selling current to those communities, sometimes to the individual
farmer, sometimes to the grain elevator, sometimes to the town to be
distributed, and sometimes to the communities. I have one letter
here that illustrates that situation.

This is from Mr. G. K. Jeffries, the general superintendent of the
Terre Haute, Indianapolis & Eastern Traction Co. :

INDIANAPOLIS, IND., July 16, 1919.
Mr. CHAS. L. HENRY,

President I. & C. Traction Co., City.

DEAR SIR: This company, in addition to the power which it uses for trans-
portation purposes, furnishes power to 14 towns who retail it to the inhabi-
tants of the towns for lighting and power purposes and for street lights.

In addition to this we sell along our lines to 24 other consumers, such as
planing mills, elevators, brick plants, tile plants, etc. We will connect up
within the next few days a cement mill which will use between 600,000 and
700,000 kilowatts per month.

Hardly a week passes that we do not have inquiry for power, and just yester-
day a large zinc mill on our line was -conferring with us for powe.r to the
amount which will be consumed by the cement mill or more.
Very truly, yours,

(Signed) G. K. JEFFRIES,

General Superintendent.

The CHAIRMAN. Then your electric line is also a power company?

Mr. HENRY. Yes, sir; the transmission, as I stated at the begin-
ning, is of such a character that it carries an immense volume of
power.

Mr. WARREN. Is that generally true of interurbans?

Mr. HENRY. Yes, sir; it is.

Mr. WARREN. Most of them furnish power?

Mr. HENRY. Yes, sir; that is a fair illustration of the situation.
On our little road we have 13 towns and villages that we supply
with power. Then we supply grain elevators and farmers, anybody
that wants it.

Mr. WARREN. Many of those places, I suppose, were without any
service until you supplied it?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 705

Mr. HENRY. All of them that are mentioned. We have no com-
petition. We put them in nowhere where there is competition.
What I wanted to refer to before was this:

The freight tonnage carried in and out of Indianapolis for the year 1918,
by interurban freight trains, amounted to 151,654 tons.

The express business carried in and out of Indianapolis for the year 1918,
in the express and baggage compartments of passenger cars, amounted to 12,673
tons.

If you will just permit, I should like to say a word there, and I
do not want you to consider it as too much criticism, but I would
like to have you consider it as little criticism.

This refers to express business. Before the Railroad Adminis-
tration organized the American Railway Express Co. there were
contracts with almost all of the electric lines in the country, the in-
terurban electric lines, for carrying the business of the old line ex-
press companies.

Mr. WARREN. On what basis?

Mr. HENRY. They were paying us about 40 or 50 per cent of the
receipts. That is the same general kind of contract that the steam
roads had ; but when the American Railway Express Co. was formed
by the Railroad Administration, they immediately commenced di-
verting the business from the electric lines to the steam lines. I
would also state personally that the accounting department aided
also in cutting down the revenue of the electric railways; so much
so that on our little road, where we had been getting about $500 a
month from the Adams Express Co., it commenced going down right
away. During the first six months it went down to about three-
fourths of what it had been, and for the month of November they
sent us a check for 4 cents. I had that check photographed and
have it hanging up in my office. I wanted to bring you a copy of
it, but I forgot it.

Mr. WARREN. What effect does that have upon the express service
to the communities?

Mr. HENRY. It has hurt them. These communities that we servo
in many instances have no steam roads. That does not apply to all
of them. We run to the same place in many cases; but not only
that, they do not get the frequent service that we give. For instance,
take the C., I. & V., that runs along our line from Indianapolis to
Connersville. I do not know what their present schedule is, but
they only have a local passenger train stopping once a day, and that
is westbound. They run it down to the east and transfer the express,
and that is only once a day that they stop their westbound train;
whereas on our line they get it every hour, or every hour and a half
throughout the day, if they want it.

In view of the fact, the traction lines have gone into the express
business, and the public-service commission of our State has granted
off-line and interline rates. We are going into the business, and we
are increasing our business. We did before what we called station-
delivery express. We did not use a wagon-and-pick-up-and-delivery
system. That is one of the things that the war and the formation
of the Railroad Administration have put on us. I will tell you
some of the rest of them after a little bit.

706 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Now, I have a very interesting letter here from the Western Ohio
Railway Co., from Mr. Carpenter, which I would like to read:

THE WESTERN OHIO RAILWAY Co.,

Lima, Ohio, July 19, 1919.
CHART.KS L. HENRY,

President Indiana d Cincinnati Traction Co.,

Care of The New Wittard Hotel, Washington, D. C.

DEAR SIR : Replying to your favor of the 16th instant, beg to advise there Is
nothing striking or exceptional to the general rule to the operation of our line
that I am able to report. However, I wish to state a few items that in my
judgment should he included in your report, and you without much doubt will
have these already in your mind.

During the sugar-beet season we have been of material benefit to the sugar-
beet growers by being able to place cars near to their fields and thus save con-
siderable time and expense in hauling the produce to places for shipment. This
1s also true of many other commodities, especially with factories located in the
various villages along our -line.

We- have just concluded a contract for the handling of about 2,000 carloads
of cement, sand, and gravel for the building of public highway which runs
adjacent to our tracks. The contractor was able to make a less price for his
work on this road by reason of the prompt and convenient delivery we were
able to make, thus effecting a saving to the State and all other parties who
are taxed for this improvement. In this case we receive the carloads from the
Baltimore & Ohio in Wapakoneta, Ohio, and transport them to various sidetracks
upon the road where the work is being performed, and as above stated, afford
a great saving to the contractor, besides effecting a more prompt delivery of
the material, as compared with their haul by wagons or trucks.

Last year we completed a contract for 16 miles of Dixie Highway, amounting
to 3,800 carloads of business, which was handled in the same manner as the
above, also making a saving to the contractor and the taxpayers.

We operate through service between Dayton, Lima, Toledo, and Detroit,
and all intermediate stations, which through-freight service handles shipments
to all points reached by interurban lines in the States of Indiana, Michigan,
Ohio, Kentucky, and on account of the short time in which this freight is
delivered it makes quite a saving to the public located in this territory in the
way of being able to order their goods in the morning and in many instances
have same in their possession the same evening or the following morning.

During the war the interurban lines in this territory were a great factor in
the movement of all classes of freight, and especially Government freight, used
in the manufacture of war supplies, and the service rendered at that time and
also at present is practically the same as express service.

At the present time we are handling many carloads of castings, automobiles,
automobile starters, wheels, etc., from Dayton to Detroit, Pontiac, Grand
Rapids, and various other manufacturing centers and are giving second morn-
Ing delivery from Dayton to points mentioned. Shippers are gradually appre-
ciating this prompt interurban service, but we are handicapped in many places
by municipal restrictions as to the number of carloads that can be handled in
each train, and in some places we are restricted to the movement of one motor
car and one additional load at a time, which causes a great deal of expense
doubling through at nighttime, when the train consists of 8 to 10 carloads. Our
average cars per train for the last 12 months lias been 6 cars. Thus you can
see the extra expense incurred by reason of the municipal restrictions. In
some instances the municipalities object to the movement of freight cars at
any time during the day. This handicaps our movement and causes additional
expense by reason of being obliged to pass through these corporations during
the night. It is therefore necessary for us to maintain a day and night force
in order to handle the business, both in train service and station service, adding
as you will see very materially to our operating expense. We believe we
should in some manner be relieved from these restrictions and added expenses.

During the year 1918 we handled 1,316 carloads. During the year 1917,
1,717 carloads. This was straight carload business and does not include the
L, C. L. business, which is loaded and unloaded in our freight houses, but
consists of solid carloads, loaded by consignor and unloaded by consignee to
and from the cars. You will note from the above figures a decrease in
the carload business of -101 cars for the year 1918, and has continued on a
decline to the present date, due to the decrease in production of the various

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 707

factories that were served and the motor-truck competition. At the present
time we are confronted with motor-truck competition between almost all points
which are local to our line, and while at this time the motor trucks have not
proven a success, they have been the means of depriving us of many carloads
of business. From this competition I believe we should have some relief. Just
what the remedy is to be I am only able to suggest, namely :

Any truck line doing a transportation business for profit should file a tariff
and pay an additional license for the privilege of so doing. The public roads
are free, of course, for the public, and no taxes can be legally imposed for the
use of same, but this truck service is fast wearing out the roads for which the
public are taxed, and they are contributing nothing whatever to its main-
tenance, but a license tax would, to some extent, contribute to the same.

The steam roads should be induced to advance their interstate passenger
rates, which would entitle the iuterurbans to advance their rates. The steam
roads are, as I understand, operating a passenger service at a loss, and the
deficit is being made up in part from freight earnings and the balance finally
to be paid by the Government or taxpayers. The interurban roads should be
relieved of cost of new paving and repairs to paving. There should also be
some legislation to relieve the electric railways and for that matter the steam
lines from the tremendous financial burden from crossing accidents, most of
which are due to carelessness of the public operating motor cars and other
vehicles.

Trusting the suggestions herein named may be of some assistance to you, I
remain.

Yours, very truly,

THE WESTERN OHIO RAILWAY Co.,
(Signed) F. D. CARPENTER,

President and General Manager,

You will see the immense amount of business that they do in certain
towns.

Here is a letter from the Cleveland, Southwestern & Columbus
Railway, which I will treat in the same way. I have a map of the
road with that.

JULY 19, 1919.
Mr. CHARLES L. HENRY,

President Indianapolis d Cincinnati Traction Co.,

New Willard Hotel, Washington, D. C.

DEAR MR. HENRY : In reply to your communication of July 16, permit me to
inclose you two maps of our road. The territory outlined in green is a very
good dairy country, and practically all of the milk produced goes to the city
of Cleveland. The red line shows some of the minor dairy farms, the product
of which practically all goes to Mansfield.

We handle on our road over fifty thousand 10-gallon cans of milk per mouth.
The rate ou this milk is fixed by the Interstate Commerce Commission and the
public-utilities commission at 18 cents per can for a 10-gallon can over an
average distance of 25 miles. This rate compels us to return the empties free.

The milk has to be carried at certain hours of the day. The convenience of
the shipper in getting his milk to the stands and getting the milk into the city
before the he;it of the day, are factors which we have to take into consideration,
and provide service accordingly.

In addition to the above, we handle a large quantity of cream, which is not
on daily shipments and which, according to the public-utilities commission, we
are compelled to handle at the same rate that we handle milk ; the injustice
that we complujUi of in this respect is, if we lose a can of cream we have to
pay the price of cream for it, while handling it at the milk rate.

We also handle over some of the territory referred to, into Cleveland alone,
iipproximately 105,000 dozen eggs per month, and 40,000 pound's of butter per
month.

We undoubtedly could increase the business in dairy and farm products If
we were not limited in equipment, which at the present time we are unable
to procure on account of limitation of our finances.

With kindest personal regards, permit me to remain,
Very sincerely, yours,

, General Manager.

708 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner BE ALL. That road has not done very well?

Mr. HENRY. No; and there are a good many reasons for it.
' Commissioner BEALL. Yes.

Mr. HENRY. I can tell you more that have not done very well, too.

Commissioner BEALL. Yes.

Mr. HENRY. But, in a business way, they are serving the com-
munities, and that is the subject I am on now.

The Indiana Railways & Light Co. is a road running into and out
of Kokomo, both ways; and I have a letter from them on the same
subject:

INDIANA RAILWAYS & LIGHT Co.

Kokomo, Jnd., July -18, 1919.
MR. CHARLES L. HENRY,

General Manager, Indianapolis & Cincinnati Traction Co.,

Neiv Willard Hotel, Washington, D. C.

DEAR SIR : Having been informed that you will present the cases of the in-
terurban companies to the GoVernment commission appointed for the purpose
of investigating the present financial condition and future prospects of such
interurban properties, we desire to acquaint you with the location of the Indi-
ana Railways & Light Co. and as far as possible with the service it performs
to the public in general, which information we hope will be of some assistance
to you in presenting the deplorable condition of the industry to the com-
mission.

For the reason that the financial condition of the steam and electric rail-
ways of the country is so well known, we will omit any further reference to
this phase of the matter.

The Indiana Railways & Light Co. operates an interurban railway between
the cities of Frankfort, in Clinton County ; Kokomo, in Howard County ; and
Marion, in Grant County ; all in Indiana, a distance of 52.8 miles and the line
parallels the Toledo, St. Louis & Western Railroad, almost the entire distance
and connects with the Terre Haute, Indianapolis & Eastern Traction Co. at
Frankfort, the Union Traction Co. of Indiana at Kokomo, and the Union
Traction Co. of Indiana and Marion & Bluffton Traction Co. at Marion.

j The first operation of an interurban line by this company was performed in
1903 from Kokomo to Greentown, Ind., a distance of 10 miles, and this line
was extended in 1905 from Greentown to Marion, a distance of 18 miles, and
the line was further extended in 1912 from Kokomo to Frankfort, a distance
of 26 miles, and since 1912 there have been no extensions and none are an-
ticipated.

These lines traverse a rich farming territory and serve three incorporated
towns and eight unincorporated towns and villages, in addition to the three
cities named, and the frequent service of interurban cars enables the laborers
of the intermediate towns to take up employment in the three cities named,

, which are largely manufacturing centers.

p The farmers along the line have frequent service to and from their nearest
public-highway crossings, both passenger and freight, and have always been

i lavored by special service in emergencies. As an example: In January and
February of 1918 when the demand for stock cars in the South by the Govern-
ment for war purposes compelled the railroads of this territory to embargo
shipments of stock for lack of cars, this company arranged to transport the
hogs and cattle to the Indianapolis market with its freight equipment and in
the meantime, using improvised methods to perform service to those de-
pending on the freight service along its line.

Arrangements were quickly made with the Union Traction Co. of Indiana,
Indianapolis Traction & Terminal Co., and Terre Haute, Indianapolis & East-
ern Traction Co. for the use of their tracks and also with the farmers and stock
buyers along this line ; and by running the train of three cars night and day,
making two round trips per day, we were able to relieve the situation, to the

'" "extent that 9,000 head of livestock were marketed by reason of the operation of
the train on 44 trips from points along the line to Indianapolis, an average dis-
tance of 80 miles. The farmer was permitted to load his stock at any point
along the right of way, and the charges for transportation were very little iu
excess of rates for steam-road service.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 709

Many similar instances of minor nature might be mentioned, where this inter-
urban railway has relieved the stress of circumstances in such emergencies and
at no great profit to itself and, for the fact that it is not built or equipped for ex-
tensive carload business, at a great inconvenience to itself and a part of the
public in general.

However, this instance of helpfulness has been greatly appreciated by the
farmers and citizens in general and the company was given favorable com-
mendation by the local newspapers along the line, in many articles concerning
the relief obtained.

For many years the paralleling steam road passenger service has been very
inadequate to the needs of the public in this 53 miles and so far as passenger
service is concerned, this line is a necessity as great as if no parallel line was
in existence and is a valuable adjunct to the life and growth of the com-
munities which it serves in many ways — one of the most important being that
all of the smaller towns receive lighting and power service, they being a part of
the 23 towns outside of Kokomo receiving such service, a great many of them
being some miles from the line; this being made possible by the fact that cur-
rent is taken from the railway high-tension lines at frequent intervals for
transmission to other localities entirely off of the line and these branches pro-
vide power and lights for farmers along about 100 miles of highway.

It would appear that this interurban line, with its various methods of serv-
ing the public, so intermingled that the disposal of one means of the non-
success of the others, is indispensable so far as the public welfare is con-
cerned, and for this reason should be allowed to exist and after paying rea-
sonable wages to its employees, as other industries are permitted to do, and
after paying all expenses incident to the proper operation of the property,
should be permitted to pay its stockholders a reasonable return on its actual
valuation.

The company also operates 8 miles of city car lines in Kokomo and there
have been no additions to the tracks of these lines since 1902 and since that
time there has been no change whatever in the charges for the transportation
of the public over the lines, and in the meantime public opinion has compelled
a change from single-truck to double-truck cars, at a great expense, and the
cost of labor and material has increased entirely out of proportion to the num-
ber of passengers carried ; and while Kokomo has in this period grown from a city
of 7,000 to 28,000, at present it has not had a foot of track built for the purpose
of transporting the public, many of whom now live far beyond the present
lines, and these must walk as far as they can ride in their trips to and from
the center of the city.

This condition is deplorable and is a hindrance to the further growth of the
city and is practically the same condition as exists in hundreds of other cities
in the country and there are reasons for such conditions, vei'y well known to
those who might have observed in the past, not the least of which is the con-
tinual regulation of income by State and municipal officials, without in any
way attempting to consider the expenditures incident to the operation.

This company can not extend its lines to suit the needs of this city for the
reason that sane men will not invest money in a hazardous industry, in which
facts obtained from past and present conditions indicate that there can be no
reasonable return on actual valuation and with present conditions and the out-
look for the future there can be but very little hope that circumstances sur-
rounding such public utilities will become improved to the extent that they
may again take their position on the same plane with private industry and in
the meantime the public must suffer the inconvenience brought about by the
lack of adequate efficient service.

Our experience has taught us that it is not the public in general that object
to these public utilities being allowed to earn a reasonable return on valuation
after paying a reasonable wage to its workers and other operating expenses,
but that it is one of those who claim to represent the public In some political
office or position, and usually all of his efforts for their benefit are directed
toward public-service corporations and without a thought of the future, or of
any phase of the matter not beneficial to his constituents.

This condition, however, is being gradually relieved by the various public-
service commissions, but the outlook for that radical improvement necessary to
stabilize such industries is in no sense encouraging.

For these and many other reasons, not only the public should be fully in-
formed, but public officials should by some method be educated to consider both
sides of the matter of utilities, which must serve their constituents and there

710 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

must be that degree of fairness on all sides that will breed confidence if such
utilities can supply the needs of growing communities and expand to other
communities which are in crying need of them.
Yours, very truly,

C. P. RYAN, G. P. d F. A,

Here is a letter from the fruit district in the southwest part of
Michigan :

BERRIEN COUNTY BANK, July 17, 1919.
Mr. JAMES H. POUND,

Benton Harbor, Mich.

DEAR Mr. POUND: In reply to your request of this day, relative to the letter
of Mr. Charles L. Henry, I beg to advise that the Millburg Fruit Growers'
Association last year shipped approximately 30 carloads of fruit and had
shipped in 14 carloads of supplies ; that the Benton Center Fruit Gorwers'
Association shipped approximately 38 carloads out and 20 carloads of sup-
plies in.

You will appreciate, of course, when you make a comparison of these figures
with previous years, that the fruit crop was practically a failure; during the
year of 1916 the Millburg Fruit Growers' Association shipped 183 carloads of
peaches alone over your line. While the crop this year is not so large as dur-
ing 1916, nevertheless we are expecting that shipments from these two points
on your line will more than double last year's record.

I am frank to say that if it were not for your line in connection with these
two points, which as you know I am vitally interested in, the market for fruits
would be much less than at present.

Trusting that this is the information desired, I am,
Very truly, yours,

JAS. M. ROSE, Cashier.

The CHAIRMAN. Mr. Henry, would you not have a right to as-
sume that this commission regards the electric lines as a necessary
institution, and that we are disposed to do all we can to help them out
in their difficulty?

Mr. HENRY. All right; I do assume that, but I do assume that
possibly some members of the commission need to be enlightened
on the subject of the great advantages which we give the com-
munities over and above what the steam roads give them. That
is the only point that I thought there might be some doubt about.

I want to read here a letter from the Ohio Electric Railway Co. :

THE OHIO ELECTRIC RAILWAY Co.,

Springfield, Ohio, July 19, 1919.
Mr. CHARLES L. HENRY,

New Willard Hotel, Washington, D. C.

MY DEAR MR. HENRY : Mr. Dana Stevens, vice president of this company,
has referred your letter of the loth instant to me, in which you asked for a
statement from the traffic manager of this company with reference to the extent
of its merchandise-freight business and the manner, especially the expedition,
in which it is handled.

In response wish to advise that this company operates 510 miles of inter-
urban track over which freight business is handled, and the total gross freight
revenue for the year 1918 amounted to $613.052.32.

Merchandise freight is handled in the territory between Fort Wayne,
Union City, and Richmond, Ind., and Lima. Defiance, Toledo, Dayton, Spring-
field, Columbus, Newark, and Zanesville, Ohio, over this company's line. Ship-
ments received during the day at Toledo and Fort Wayne on the one hand,
and Dayton, Springfield, and Columbus on the other, are forwarded in the
evening and reach destination the following morning, making an over-night
delivery for L. C. L. shipments.

In addition to this service, solid merchandise cars are handled between all
the larger points on the line. For example, Columbus will load cars for
Zanesviile, Newark, Springfield, or Dayton. When these are loaded to their
full capncity before the schedule time of our regular freight trains, they are

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 711

coupled to one of our local passenger cars and handled through to destina-
tion on passenger-train schedule. 'Shipments from commercial centers to
near-by points within 30 or 40 miles are delivered within a few hours after
receipt.

This quick service when first inaugurated created quite a little fear in the
minds of merchants at the smaller towns and villages that their business would
be absorbed by the merchants at the large centers. This fear, however,
has proved groundless, and Instead It has really been a benefit to them in this
way : That it has enabled them to conduct their business with a reduced stock,
as sales can now frequently be made from selection from catalogues where
otherwise the stock would have to be carried on the fioor.

On rush orders the merchant can telephone to his jobber and frequently
have the article in the hands of the purchaser the same day or, at the furthest,
the next morning. As far as the matter of time is concerned, freight ship-
ments over our line make as good and frequently better time than those handled
by the express company.

I trust that this information is what you desire. Should you wish anything
further along this line, kindly advise.
Yours, very truly,

W. S. WHITNEY, O. P. d F. A,

Detroit is a large city, and I want to read to you a statement of a
disinterested outsider on that subject, and then leave the papers here.
This is from the Detroit Wholesale Merchants' Bureau:

Detroit, July 18, 1919.
Mr. W. S. RODGEB,

General Traffic Manager, Detroit United Railway, Detroit, Mich.

DEAR SIB: The question was recently asked how the wholesaling interests of
Detroit were affected by the freight service given by electric lines running from
this city to points in Michigan and Ohio. In answer to that question, I believe
that I can safely state that 70 per cent of. the shipments from wholesale houses
in Detroit go out via electric lines. As a result Detroit wholesalers are vitally
interested in service given by electric railroad lines in this section of the
country.

The electric lines give the wholesalers second or third-day deliveries to all
points within a radius of 100 and 150 miles. As a result of this they have
saved the wholesale interests of the city thousands of dollars in business. Many
accounts would have been lost had the wholesalers depended upon deliveries by
the steam roads running out of the city.

The electric lines have repeatedly saved the day for various business interests
of the city. This was particularly the case during the extremely cold weather
of the winter months, and at other times when the railroads had proved their
inefficiency in handling L. C. L. shipments.

The wholesalers of Detroit have found It to their advantage to ship their
goods via the electric lines wherever the electric company is in competition with
the railroad.

It would indeed be a serious blow to the wholesaling interests of the city
should anything happen to curtail the service given by the electric lines. We
believe that financial assistance should be given to these companies and every-
thing possible should be done to maintain a high standard of efficiency iu this
very important link of our country's transportation system.
Very truly, yours,

WHOLESALE MERCHANTS' BUREAU,
W. E. WrLiNosos, Secretary.

I have a map of their line also.

The Louisville Traction linos are a little different from the rest of
the interurbans down there. They run in and out in that form.
[Illustrating.] They look like snakes almost, only short distances
out, and I will not take up any time to say anything about them.

Now, then, what is the trouble! That is what you want to hear
about.

In a general way, the interurbans have no serious troubles with tho
exception of the goneral situation. That is, we are not hampered
by franchises to any large extent. We are to a certain extent.

712 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

For instance, take the city of Indianapolis, which will illustrate
one of them. I read to you there a letter about how much stock one
shipper brought into Indianapolis. There is a clause in the franchise
in Indianapolis that no live stock shall be shipped in by an interurban.
Only recently they allowed them to start. That was during the war,
when the steam railroads broke down in their service, and that was
the only way they could get stock in. Since that it has been going
along, and I do not suppose it will ever be stopped again.

Commissioner BEALL. Is that statement quite correct? Is it not a
fact that the Northern Ohio Traction Co., for instance, has been ham-
pered in its business for quite a number of years on account of the
franchises ?

Mr. HENRY. Yes; I was speaking generally.

Commissioner BEALL. And other lines have many difficulties.

Mr. HENRY. Yes; there are a great many difficulties of which I will
speak. Mr. Carpenter's letter and Mr. Schneider's letter both refer
to those things.

Commissioner BEALL. But you said a little while ago that they had
no franchise troubles.

Mr. HENRY. Well, perhaps my remark was too general in its form.

Commissioner BEALL. Yes.

Mr. HENRY. There are a great many places where the handling of
freight is restricted to one car, sometimes two cars, and sometimes to
three cars. They are bothered about the through business in that
way. The Ohio Electric Co. is bothered very much about that.
That is the largest company in Ohio. They are bothered very much
about it, and the trouble is to get a continuous acting business on ac-
count of these various things.

Even in Cleveland they do not allow freight cars to run in. They
call them express, whatever they take into Cleveland. They do not
allow freight cars to run in.

Then, there are also the provisions regarding paving that you have
heard so much about here during the hearings. Those apply in nearly
all of these small towns. In nearly all of them they have just that
kind of a provision. Personally I have only signed one contract of
that kind, and that was a renewal of one, which necessitated it. I
thought it better to do that than not to do it ; but I never believed in
signing them. There are lots of them in existence, though. I might
say that the first interurban contract that I ever made Avith that town
provided also for the handling of freight, that of Alexandria; but
there are a lot of these franchise restrictions.

For instance, in regard to what it termed the State highways that
the Government is assisting in : There are provisions in there for the
paving of the part of the street where the railroad is, and in many
towns and villages that will apply. That will require the elimination
of a great many grade crossings that otherwise would not have to be
eliminated, because there was no necessity for it ; but everybody recog-
nizes that with the travel on these proposed paved highways, it will
be so great that it will require the elimination of a great many grade
crossings. Nowr if that is carried to the extreme, as it looks like
it will be, that practically extinguishes the ability of the interurban
roads in many places to do anything. While they are doing that,
alongside of them are the gasoline trucks, their best competitor. In
other words, the gasoline runs along without any control, without any

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 713

sort of arrangement with the public-service commission or any other
public body, right straight alongside on the road which we are help-
ing to pay for. We get it both going and coming that way, you
know. We can not miss it.

Now, I want to call your attention to one thing in connection with
this trucking business. Just before I came over here, I was handed
a copy of the United States bulletin, issued on July 14, 1919, which
I think is very interesting :

LARGE BUBAL MOTOR EXPRESS COMPANY FEARS OPERATIONS OF SO-CALLED WILD CAT

LINES.

The highways transport committee of the Council of National Defense author-
izes the following:

The general manager of a new rural motor-express company in the northwest
submits some very interesting ideas to the highways-transport committee in
connection with the operation of motor apparatus for commercial purposes, and
this committee is glad to pass them along to the big and rapidly growing family
of highways-transport committee enthusiasts throughout the country.

This company is preparing to cover a pretty big territory with a complete sys-
tem of rural motor-express routes. In this connection its executives have made
a study of the various angles of this work and apparently seem to have devel-
oped the practical end of it most satisfactorily.

WILDCATTING OBJECTIONABLE.

However, one very pertinent subject is suggested, and that is the possibility
of a few individuals who might attempt to haul freight from a large city to
towns 30 or 40 miles away for a sum per hundredweight which would make it
impossible for one operating a route regularly and on fixed schedule to meet
such competition. The suggestion made is that a continuation of such practices,
wildcatting, as it were, in the motor-transportation field, tends to discourage
the entrance into this field of those who would seek to serve the public regu-
larly and satisfactorily, and at a cost to the shipper of just enough to make a
venture financially profitable.

QUESTION FOB STUDY.

This question is then asked:

" Is there not some way that an honest company, which will maintain schedules
and protect shippers against loss in transit, can be protected against operators
of the character suggested above?"

The highways-transport committee believes this question is one which State
highways-transport committees may very well and profitably take up for study.

Any views had on this subject by State highway organizations, or by anyone
else, would be welcomed by the highways-transport committee of the Council
of National Defense.

Now take that and apply it to the interurbans. It tells its own
story. It is rather remarkable that at this early day in the develop-
ment of trucking that they should have to issue such a circular as
that. We do not ask you to do away with the truck hauling by motors,
but we do think they ought to be under the same kind 01 regulation
and restrictions that we are under.

Mr. WARREN. They are like the jitneys, I suppose, are they not?

Mr. HENRY. They are worse; that is all. The jitneys are lice, and
these are full-grown animals. [Laughter.]

There is no reason why this sort of wildcatting, as this gentleman
calls it here, should be permitted to go on uncontrolled, and I am
glad to know that some fellow going into the truck business has seen
fit to call attention to it. It may bring about important results. It
is one of the things that you gentlemen ought to take into considera-

1G00430— ;>0 40

714 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

tion and lake such action as you may think is best in regard to it, be-
cause it amounts to a great deal.

Now. gentlemen, Mr. Hill here gave me a memorandum yesterday.
I think you will hear him in person. It is about the Pacific slope,
and I am not going to say much about the Pacific slope.

The Pacific Electric Co. is losing $1,400 a day, $500,000 a year,
from jitney buses doing country business. Now, you may call them
interurban jitneys, if you want to. They are absolutely uncon-
trolled.

In San Francisco the jitneys were uncontrolled absolutely until the
city-owned property — it is not city-owned, broadly speaking, but the
city built it on Market Street, and when the city built its lines up
Market Street, it excluded from Market Street the jitney, but it
could not see fit to do it when the privately owned company was
operating on Market Street — and there was no relief given against
the jitney in San Francisco until the city constructed its line. Then
it tried to protect its own line without giving any protection to its
other properties.

The CHAIRMAN. Do you think the Council of National Defense
would be as anxious to promote reasonable regulation of the trucks
as it has been in selling them?

Mr. HENRY. Do you want me to answer that?

The CHAIRMAN. Yes.

Mr. HENRY. I think not, because they have encouraged the selling ;
they have increased the selling by giving out the idea of the great
things that could be done with trucking. On that point, I want to
say that the interurban people of the country are not afraid of the
truck competition, if the trucking business by motors is put under
regulation and made to handle business like tney ought to. We can
take care of them all right if you will put them under regulation.

Now, so far as the general business of the interurbans is con-
cerned, expense of construction and maintenance has gone clear out.
of sight. It is fair to say, and we say it frankly, that in our section
of the countiy, where the interurbans are in fairly good shape and
where the commissions have taken care of us as best they could in
the matter of the increase of rates, our receipts at this time are
fairly promising, quite promising, but the expense of operation is
still going up. For instance, in the last 60 or 90 days there
has been an increase of about 10 per cent in wages — a thing which
was wholly unlocked for when the armistice was signed.

The CHAIRMAN. Has the National War Labor Board made any
wage adjustments for your lines?

Mr. HENRY. The National War Labor Board ?

The CHAIRMAN. Yes.

Mr. HENRY. Will you permit a strong expression there? Thank
God, they stayed away from us. We did not have to go to the
War Labor Board. We were able to take care of wages in a fairly
satisfactory manner, owing to the suitable conditions with which
we surrounded our men.

The CHAIRMAN. But I presume that the adjustment which they
made for the street-car lines and which the Director General made
for the steam railroads has had its reflection in increasing the costs
of your companies.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 715

Mr. HENRY. Yes; it did have. For instance, we have to pay a
dollar and a quarter for ties that we could get for 90 cents if it were
not for the regulation of prices by the Railroad Administration.
They bought 35 or 40 of them, and they put a price on them, and that
is the price that they charge us when we want more of them.

They are paying trackmen $3 a day at a minimum, while we have
our men working right across the fence, and they were work-
ing contentedly and happily at $1.83, when this commenced. Since
then, we have put our wages up to $2.50, and finally to $3 a day.
Those are the things which have helped us. The Railroad Ad-
ministration and the outgrowth of the war has helped us in increas-
ing our operating expenses all along the line. That is the history
of it.

Another thing that I want to call your attention to is this: I
have a letter here from Mr. Faber, of the Aurora, Elgin & Chicago
Railroad Co., which calls attention to a matter which is very perti-
nent. They started out to increase passenger rates. They came to
the suburban rates, which had always been ridiculously low for a
long number of years. I will not say " always,'' because I have not
lived always, but for a long time.

This is not a long letter, and it tells the story quite straight^

THE AURORA ELGIN & CHICAGO RAILROAD Co.,

Aurora, III., July 21. 1919.
Mr. CHAS. L. HENKY,

President and General Manager, Indianapolis & Cincinnati

Traction Co., Indianapolis, Ind.

DEAR MR. HENRY: Permit me* to suggest that, in your remarks before the
Federal Electric Railway Commission at Washington on Wednesday, you call
operating out of the so-called metropolitan districts, where the electric roads
find themselves in an absolutely helpless condition as a result of the ruinous
competition in suburban passenegr rates established by the steam railroads
on their so-called commutation and multiple-trip-ticket rates.

You are very familiar with the condition of the electric intenirban railroads
of the country to-day, particularly with respect to the competition of the steam
lines, where the rates are 3 cents per mile.

What I want to particularly call your attention to, in addition to the condi-
tions with which you are familiar, is the ruinous competition of the extremely
low rates on suburban multiple-trip-ticket rates in effect on the steam railroads.
The rates charged by the steam railroads on commutation business are, in some
instances, as low as 0.4 cent per mile. The 2.1-ride tickets, good for one year
and good for bearer, are sold at from 0.9 cent to 1.35 cents per mile. These
tickets are scalped by storekeepers and others, and are generally used by oc-
casional riders in the communities served, and therefore establish the going
rate paid. This business is not only done at a direct and substantial loss to
the steam railroads, but prescribes and limits the rates of the electric inter-
urbans, and results in a return of less than cost to these lines, and therefore to
a confiscation of their earnings and properties.

Attached herewith please find a few letters taken from my file, from which
yon will note that on May 27 Traffic Director Chambers advised that Director
General McAdoo had instructed that a careful study be given these rates at
once, with the view to placing them on a consistent and reasonable basis, and
for that purpose a committee was subsequently appointed, with Mr. Smith, of
the New Haven road, as chairman.

On June 17, 1918, a conference of the Inter-Regional Passenger Committee
was held in Chicago, for the purpose of standardizing surburban fares, and the
writer appeared as representative of the electric interurban roads. A further
conference of this committee was held in New York City, and on July 12 this
committee recommended a uniform rate per mile for 54 and 60-ride monthly
tickets, and that all forms of trip tickets be removed from sale, except a 2."-
rido family ticket, good for 90 days, to be sold at the rate of 2± cents per mile.

716 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Director Chambers approved the recommendations, with the exception that
he decided it was inexpedient to change the rate on 54 and 60-ride individual
monthly tickets and that the rate to be charged for the 25-ride tickets was
changed from 2} cents per mile to 2 cents per mile. In this form the recom-
mendations were approved by the Railroad Administration, and the effective
date of the new rates was fixed for February 10, 1919.

As a result of the announcement in the Chicago newspapers of the change in
suburban rates, the State attempted to enjoin the administration from making
the new rates effective. In the meantime, the question of State rights with
respect to the fixing of intrastate rates for telephones and railroads was raised
in a number of States, and the administration decided to hold up the commu-
tation rate matter until the Supreme Court of the United States decided defi-
nitely the question of whether the administration or the State had the power to
fix intrastate rates. The Supreme Court recently unanimously decided that this
power was vested with the administration. I have been informed that the
steam railroads have requested some modification in the Government order
as proposed, and that the final recommendations are now before the administra-
tion at Washington. In the meantime, the electric lines are unable to obtain,
relief through increased rates to offset the advanced cost of operation.

The effect of these extremely low suburban multiple-trip ticket rates upon
the electric lines serving the same territory is to limit the price of transpor-
tation over their lines and forces them to do business at rates that spell disaster.

There is some hope, through the obtaining of relief through increased rates,
for the local street-railway properties In large cities where distances are such
that most of the people must ride. There is no relief that I can see for the
electric interurban roads if the competing steam roads are allowed to continue
to furnish passenger service at rates which are admitted by them to be much
below their out-of-pocket costs, regardless of investment, taxes, etc.

During my work at Washington, as manager of the American Electric Rail-
way Association War Board, I had opportunity to see a report covering the cost
of operating the suburban-commutation business operated by the steam rail-
roads in the Chicago district, prepared by Mr. C. F. Balch, statistician of the
Chicago & North Western Railroad. This report shows :

Gross revenue from transportation for year ended Dec. 31, 1918_ $6, 251, 609. 54
Transportation expenses and maintenance of equipment ex-
penses (commonly known as out-of-pocket expenses) 1,569,422.76

Total operating costs amounted to 7, 936, 766. 96

Net revenue (deficit) 1,685,157.42

To this deficit should be added —

Estimated taxes assignable to suburban traffic 337, 614. 6&

Rental of property used in suburban service 3, 853, 929. 15

From these figures, the amount of gross revenue which it would be neces-
sary to derive from suburban service to make it remunerative as all-rail traffic
conducted by class 1 railroads in the western district in 1916 would have to
be $12,128,310.80, or about double the amount that was actually derived from
this class of business, viz, $6,251,609.54.

The Federal Electric Railway Commission coul-1 i»s helpful in this matter by
urging the administration to act promptly and establish these suburban mul-
tiple-trip-ticket rates upon a basis that would recognize the cost of the service
and a fair return upon the investment in the property.
Very truly, yours,

EDWIN C. FABER,

Vice President and General Manager.

P. S. Please return the inclosed papers for my files after they have served
your purpose.

E. C. F.

Now then, they raised it 10 per cent, and they stopped at that.
They put the steam roads' passenger rates up to 3 cents, but they
raised the suburban rates 10 per cent, and left them so low that
neither the steam roads nor the electric roads can do business and
make1 any money. They can not do it. We have not anything of
that kind at Indianapolis, but that is the situation there.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 717

Mr. WARREN. Mr. Henry, do you know about the railways in the
small towns, as to what their condition is?

Mr. HENRY. The electric railways?

Mr. WARREN. Yes.

Commissioner BEALL. Do you mean the interurban roads?

Mr. WARREN. Well, I mean others.

Mr. HENRY. You mean giving local city service?

Mr. WARREN. Yes.

Mr. HENRY. In small cities?

Mr. WARREN. Yes.

Mr. HENRY. Yes, sir ; I know a great deal about them.

Mr. AVARREN. AVill you tell us about their condition ?

Mr. HENRY. Their condition is worse than any others, than those
in the larger cities. The conditions have hurt them worse. The ex-
pense of operation has run high. I do not know any of them in any
of the small cities, in the interurban field, which I have been talking
about, which is making any money. They are like the interurban
roads, about which I was going to tell you, that on account of the
conditions which I have cited, there is not an interurban road in our
section of the country, and I do not think in any other section, that is
paying a dividend on its stock, either preferred or common — not one
of them. They are trying to live through these conditions and do
the best they can, and some of these things I have spoken to you
about are permanently existing. ,They are not just for the day.
They have all of these burdens that you have heard about for the
last couple of days. There is no reason to-day, and there never was,
in my opinion, which I will state — I am an Irishman, and I have a
right to state my opinion — in my opinion there never was a reason,
and there is not now any reason, why any charge — and that is as
broad as I know how to make it — to be put up against an interurban,
or city line for that matter, but I am speaking about interurbans,
except the cost of carding the passengers and the freight and express
business. There is not anything, gentlemen, that is so absolutely
necessary to the prosperity of this country as transportation. We can
not exist without it. The cities and towns of the country have not
learned to appreciate what might be done, even in the use of inter-
urbans. These interurban cars ought to be allowed to run right into
their market houses, with the produce of the country for a hundred
miles around, and cut out all of the charges for trucking and dray-
age and everything of that kind. It can be done just as easily as not,
and it should be done. That is one of the things that should be done
to help the business and to help the community.

Now, there is not any reason why anything more should be charged
against the man who is riding on our line or shipping goods on our
line, or shipping express on our line — anything at all. for only the
cost and the reasonable profit to do that business. Why? Why!
You take it in the cities. The merchant may ride down town, if he
wants to. in his limousine, but his customers are going down on the
street car. That is the way it is. The man from the country may
ride in alongside of the interurban road to Indianapolis to trade or
to attend to business, or anything of that kind, but the mass of the
people are going to ride on the interurban cars, and they do ride on
them right along, constantly.

718 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

You heard something said here yesterday, I believe it was, about
the decrease of business. We had a striking illustration of that. Our
fares were put up to 2£ cents a mile in the last few days of January of
last year. I kept an accurate account, a distributor's account, of
every day since then. Our business began running down in the num-
ber of passengers — down, down, down, down, and down, and I
couldn't understand it ; and when Air. McAdoo put the railroad fares
up to 3 cents, I said, " Now, we will see how our number of passengers
will increase." That was put on on the 10th of June, last year, and
the following month, in July, it showed the greatest loss in the num-
ber of passengers on our line that we had ever had at any time — 25
per cent of the number of passengers as compared with July of the
year before.

Now, that was not attributable to the fares. It is attributable to
two or three things besides the rate. In the first place, the people
had made up their minds to save their money ; they were not going
to spend their money unless they had to, and that is the reason that
they stopped riding a great deal. The other was that the flower of
the country, the young men of the land, had gone into the Army.
They constituted the moving part of the population very largely.
That was another thing which really cut down the number of fares.
Since then, since the close of the war — I mean the real close of the
war; I do not mean the theoretical close of the war — since the real
close of the war, they have been coming back gradually, and our
business is increasing constantly, all the time. Now, under a 2 or 3
or 4-cent fare, as against a 2^-cent fare a year ago, we have just the
10 per cent increase, and our passenger business shows an increase of
over 20.000.000 last year. So that about as much is coining from old
business, coming back, as well as the increased fare.

Mr. WARREN. How does that traffic compare with that of two
years ago?

Mr. HENRY. In number of passengers?

Mr. WARREN. Yes.

Mr. HENRY. It is still less than it was two years ago.

Mr. WARREN. But not very much?

Mr. HENRY. Not so much less.

Mr. WARREN. So that there is a decided increase in revenue?

Mr. HENRY. Oh, yes; the increase in revenue is very good. We
did not ask the commission to allow us to charge a 3-cent fare. We
asked for a 2f -cent fare, but that is what they gave us.

Mr. WARBEN. Have you any doubt that a reasonable increase
"would permanently increase your revenue account?

Mr. HENRY. There is no doubt about it.

Mr. WARREN. So that you are not afraid of the effect of increased
fares?

Mr. HENRY. No, sir; we are not afraid. We put in a 2^-cent fare
in July, 1917, in the face of the 2-cent law on the statute book regu-
lating the steam roads.

Mr. WARREN. And you did not lose any more then than you did
after the 3-cent fare went into effect?

Mr. HENRY. No; we lost more when it came to the 3-cent on the
steam roads than we did before.

Mr. WARREN. Mr. Henry, the other day a question was asked of
one of the witnesses whether the street railways had considered—

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 719

the city roads now, and I suppose you are pretty familiar with the
city system in Indianapolis?

Mr. HENRY. Yes; I know a good many of them.

Mr. WARREN. Would there be a material increase from revenue
by doing- city express business? What do you think about that? I
am not speaking of the interurbans.

Mr. HENRY. That would depend a great deal on the way the cities
are built, how compact, largely. The less compact, the more need
there is for that kind of business. The more compact, the less need
there is, because of the short distances; but I think in almost every
case, very much could be done on that.

Mr. WARREN. It would necessitate some sort of a freight terminal
on each line, would it not; either that or wagon deliveiy?

Mr. HENRY. Yes, it would, but I think it could be worked out very
largely without very much building in many places.

Mr. WARREN. You think that is a thing they may do ?

Mr. HENRY. I do. I. think the street railway must look, perhaps
not to as great a degree as the}' should, to the income from freight
and express, but there is no reason at all wh}r the street-railway car
should not pull a trailer hauling anything that is hauled in a truck
alongside of it. If there is, I never could find a reason for it.

Mr. WARREN. Except that the truck can go to the sidewalk, and
the trailer can not.

Mr. HENRY. Yes; it can do that, but I am not talking about the
inconvenience of the people.

Mr. WARREN. Oh !

Mr. HENRY. So far as the convenience of the people is concerned,
that does not mean so much.

Mr. WARREN. Xo; I do not mean that, but I mean as a revenue
producer, whether the company could make much net money out
of it.

Mr. HENRY. I think in large cities it could, but in small cities, no.

Mr. WARREN. Yes?

Mr. HENRY. That would be my notion about that.

Mr. WARREN. Do you know of any cases where street-railway cars,
as I understand they do in Grand Rapids, carry a mail box?

Mr. HENRY. Yes, they do there, and I happen to know that they
do in Des Moines, Iowa, simply from the fact of my daughter's be-
ing out there as an aide in the hospital, I know about that. I know
about those two places.

Mr. WARREN. So that letters can be dropped in the box on the car?

Mr. HENRY. Yes; dropped in the post-office box on the car.

Mr. WARREN. Do they have any of them on interurbans?

Mr. HENRY. Xo, sir.

Mr. WARREN. These interurbans, Mr. Henry, are built largely in
the highway?

Mr. HENRY. No, sir. Originally they started to build them on
the highways, but they soon disregarded that; they discovered that
it was a mistake, and they are now largely built on private rights
of way.

Mr. WARREN. And where they are built on the highways, they are
usually built outside of what we call the worked portion of the
highway?

720 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. HENRY. Yes; and whenever the highway is wide, for instance,
like the old national road built across the country, a hundred feet
wide — and I might say that that is theoretical — but they are not
any more; the honest farmer has encroached on them; they are
built clear outside of it, from the traveled highway. We have a
road 10 or 12 miles on the old Michigan right of way, which is
theoretically a hundred feet wide, and we are outside of the side
ditch of the highway, even, and there are some places where, on the
highways

Mr. WARREN. Where they approach villages?

Mr. HENRY. Yes; they have to do that where we go through the
streets of villages.

Mr. WARREN. But the great percentage of their mileage

Mr. HENRY. Oh, a large part.

Mr. WARREN (continuing). Is ordinarily on the highways; they are
built alongside of it ?

Mr. HENRY. Yes.

Mr. WARREN. But they are on private right of way, are they not ?

Mr. HENRY. Yes, sir ; we have 41 miles of road from Indianapolis
to Rushville. That is not on the highway after we get away from
the suburbs of Indianapolis. We even have our private right of
way through the little towns, and then beyond Rushville, 20 miles
farther, it is the same way.

Mr. WARREN. As I understand you, none of these companies at the
present time are paying their dividends.

Mr. HENRY. Xo, sir; we do not know what a dividend is, Mr.
Warren.

The CHAIRMAN. How long has that condition lasted?

Mr. HENRY. Well, with our company it is bound to exist until we
get our road completed to Cincinnati ; that is, we do not expect to pay
dividends until we get there. So that is out of the question, as far as
dividends are concerned, but with most of the companies the dividend
on preferred stock was paid four or five years ago.

Mr. WARREN. They all had to stop ?

Mr. HENRY. Yes.

Mr. WARREN. Are they earning fixed charges and their interest?

Mr. HENRY. No, sir ; they are not all. In Indiana they are mostly
and in Ohio, and so forth, but they are not all of them earning their
fixed charges. There are some roads that are not. Most of them now
are. Our condition is better under the increased fares than it was
before.

Mr. WARREN. And what further

Mr. HENRY. Mr. Warren, will you allow me to interject a remark
right there ?

Mr. WARREN. Yes, sir.

Mr. HENRY. In Illinois the condition is peculiar. Our public-
service commission held, and I guess rightly so, that they had no
right to raise the fares above the statutory limitation ; so the roads in
Illinois, all of them, went to charging 3 cents a mile; and it went
into the courts, and they enjoined the public authorities from inter-
fering with them, and they are operating on 3 cents a mile in that
way. That is a peculiar condition in Illinois.

Commissioner SWEET. WThat has been your experience with regard
to patronage?

PROCEEDINGS Or FEDERAL ELECTRIC RAILWAYS COMMISSION. 721

Mr. HENRY. Do you mean out there ?

Commissioner SWEET. In Illinois.

Mr. HENRY. They claim they have done well by it. They have
lost very little patronage. Nobody will claim that an increased fare
does not do any injury to the roads. It always does some.

Commissioner SWEET. But going to a 3-cent fare in Illinois has not
proved serious?

Mr. HENRY. No ; only in Ohio. They are nearly all on the 3-cent
basis in Ohio. Our State is right in there at 2f cents, and in Michi-
gan they could not raise the fares because of local legislation. The
last legislature made a provision for them to raise their fares. I can
not tell you just what the arrangement was just now.

Mr. WARREN. None of your roads were taken over or guaranteed
any return by the Railroad Administration?

Mr. HENRY. Xo, sir; but they were assured of losses.

Mr. WARREN. The assurance proved correct, did it not?

Mr. HENRY. Yes; they were assured of a loss, and they got it.

Mr. WARREN. Do you feel that a further increase of rates, an im-
mediate increase of rates, would help you?

Mr. HENRY. In our individual case, I have some doubt about it.
Our community is there; we are so situated that I would rather
have to-day the 2f-cent fare. I think at this time that is the best
basis.

Mr. WARREN. What are the companies doing about depreciation,
Mr. Henry?

Mr. HENRY. You mean as to their account?

Mr. WARREN. Yes.

Mr. HENRY. Under the instructions of the Interstate Commerce
Commission, which we follow in our accounts, we keep a deprecia-
tion account on our equipment, and nothing else. They have never
required it, except on the equipment.

Mr. WARREN. Independently of the accounts, are the companies
earning enough properly to take care of depreciation?

Mr. HENRY. No, sir; they are not. Our State commission — not
in interurban cases, but in other public utilities of the State — fixed
a sort of rule in the different hearings that 7 per cent for income and
3 per cent for depreciation, which would make 10 per cent, was
right; that is. in deciding what they would allow them to charge
in rate cases, they fixed that rule tentatively.

Mr. WARREN. Yes.

Mr. HENRY. But we never had any opportunity to use that rule.

Mr. WARREN. Either as regards the return or the depreciation?

Mr. HENRY. No; we did not.

Mr. WARREN. Well, the first suggestion you would make is the
elimination of these local requirements which retard and interfere
with your business and add unnecessary charges on your income?

Mr. HENRY. No; that is not the first.

Mr. WARREN. What would l)e your first?

Mr. HENRY. That is not the first, because it is not the quickest.

Mr. WARREN. What is the first?

Mr. HENRY. The first ought to be the quickest, and that ought to
be everything that the Government and the State can do to help them
in an emergency, in the emergency that is surrounding the roads.

7.22 PROCEEDINGS Or FEDERAL ELECTRIC RAILWAYS COMMISSION1.

One of them is the Government. The Government's administration
of the railroads ought to be equitable and fair. I do not know any
reason why the Government, running one utility, should run it in
such a way as to cripple other utilities which are needed just as
much.

Mr. WARREN. And from your knowledge of it, they are the same
kind of service, at that?

Mr. HENRY. Absolutely the same general kind of service. An-
other thing: I listened with a great deal of interest to some of the
things that have been said here in regard to the taxation question.
The professor, in talking about the income tax, mentioned that. I
had occasion a short time ago, in appearing before our State tax
board, to argue a point with them. It does not have any bearing
on this question, except that it is similar in its results, if we could
get it. I contended before the State tax board, and I think rightly,
that our properties had no value for the purpose of taxation, or for
any other purpose, for that matter, except the value represented by
their earning power. We are working under the State. We are
trustees for the State. We can not quit our business if wre want to.
We can not fix our rates if we want to, except as the commission
authorizes u,s. We can not even tear up our tracks, unless the com-
mission authorizes it. So that there can be no reason, in my opin-
ion, why we should be taxed upon a value any more than what our
earning power shows at this time.

Applied to our individual case, I showed the commission, in
round numbers — we were speaking about their assessment — it was
$2,000,000 as they fixed it, whereas if we applied it under the 10
per cent that I spoke of there, it should have been $700.000 less.

Mr. WARREN. The valuation?

Mr. HENRY. Yes. Now, that may not be an income-tax proposi-
tion, but it comes to the same point.

The CHAIRMAN. Would you want to use that same basis of value
for rate-making purposes?

Mr. HENRY. Well, I would say this in that connection : Our com-
mission has never had any formal valuations of any of the prop-
erties, but they have had informal valuations of them, and in one
case — I will not give the name, as I am not authorized to do it —
tentatively the tax board had fixed a valuation that was $5,000 a
mile above what the public-service commission was using in its
permission for the fixing of rates. That does not answer your
question, but it shows how it is turned the other way.

The CHAIRMAN. I think it depends upon the extent to which you
capitalize the earnings. Some railroads will have a very large value
and some will not have any value at all.

Mr. HENRY. They have no value, except what their earnings show,
and if they have the earnings, I do not know any reason why they
should not be taxed upon the value according to the earnings.

Mr. WARREN. You look upon them something as a highway?

Mr. HENRY. Yes.

Mr. WARREN. A highway produces no income, and the abutting
owner, who owns no fee in the middle of the highway subject to
servitude, is not taxed.

Mr. HENRY. That is right. I think taxation is a matter of justice,
distributed properly.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 723.

Mr. WARREN. Well, you have heard what Prof. Bullock said this
morning — that he would take off these special franchise taxes, and
when a sufficiently serious emergency existed, he thought it would
be proper to take off all the taxes, even the property tax.

Mr. HENRY. Temporarily.

Mr. WARREN. Temporarily?

Mr. HENRY. Yes, sir.

Mr. WARREN. Do you think such an emergency as that has arrived ?

Mr. HENRY. I think it has.

Mr. WARREN. And that if all of those taxes could be temporarily
removed from these companies, they could pay dividends?

Mr. HENRY. Yes.

Mr. WARREN. Is there anything else? That is the second. The
first thing you say is that the Government ought not to discriminate
against these electric railways.

Mr. HENRY. The next is that after you have taken care of the
emergency which is before us, then all of these burdens that are
not chargeable as a part of the transportation expense should be
taken off of every one of the roads.

Mr. WARREN. And that should be a permanent change?

Mr. HENRY. That should be a permanent change.

Mr. WARREN. Then, how about the regulation of the trucks?

Mr. HENRY. The regulation of the trucks? I should say that they
should be regulated locally by the public-service commissions of the
States, and that they should be required to file schedules and observe
them. That is my notion about that.

Mr. WARREN. And they should be required to render their services
regularly ?

Mr. HENRY. Yes.

Mr. WARREN. And reliably?

Mr. HENRY. Yes.

Mr. WARREN. Just as the railways do?

Mr. HENRY. Absolutely. In other words, in the language of the
article which I read f rom that circular, the " wildcatting " ought to
be stopped.

Mr. WARREN. And although the jitneys are only lice, as compared
with these trucks, the jitnevs ought to be subjected to similar treat-
ment?

Mr. HENRY. Oh, yes.

Mr. WARREN. Is there anything further?

Mr. HENRY. I do not think of anything else, Mr. Warren.

Mr. WARREN. How about the delays in securing an increase of
rates?

Mr. HENRY. Well, that hurt us locally and generally all over the

\ country, more than any other one thing. It is largely attributable,

or has been, to a condition. I gave you an instance of the delays

which we had. But you take Michigan. Just a month ago, not GO

days, that was the first relief that they got on the question of rates.

Mr. WARREN. Well, how long had they tried to get it?

Mr. HENRY. Well, they tried right away; but I think the com-
mission was right, and I think the traction companies believed they
were right, in saying that they had not any power, and that they
had to go to the legislature.

724 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. That was not a question of delay on the part of the
commission ?

Mr. HENRY. No. sir; I do not think the commission in any case
that I know of — the State commission — can be justly criticized, ex-
cept that they did not see the need quick enough. We felt it quicker
than they could see it.

Mr. WARREN. But where there are laws that interfere with prompt
action, or where there are franchise obligations that interfere with
prompt action, or some things that prevent action altogether, you
think they should be furnished by changing those laws?

Mr. HENRY. I do.

Mr. WARREN. And those franchise provisions?

Mr. HENRY. Yes, I do ; and the people believe it.

Mr. WARREN. You think, so far as your State is concerned — Indi-
ana— when that situation exists; or is brought about, you can rely
upon the commission for sufficiently prompt action ?

Mr. HENRY. I do. I have great confidence in our commission, not
only in its present make-up, but in former makes-up of the com-
mission.

Mr. WARREN. How about the other States in which the interurbans
operate ?

Mr. HENRY. So far as I know — and I know a great deal about
it, probably as much as anybody does in the country — the State
commissions have not been unfavorable to the interurbans. They
are regarded as the people's mode of transportation, the mode which
the people want, and it should be taken care of.

Mr. WARREN. Have you had much opposition from the people
"which you serve in the increases ?

Mr. HENRY. No, sir; none. I went down to the towns — this will
illustrate it — I wTent down to the towns along our line, the principal
towns, before I filed the application for the 2.5-cent fare, and I put a
notice in the paper and called for a public meeting, and I got an
actual affirmative indorsement from every one of these communities
to the commission to grant the increase ; and I think, in many cases,
we make mistakes in not going right to the people to get their affirma-
tive support.

Mr. WARREN. So that when you took your case before the com-
mission you had practically the indorsement of all your communities ?

Mr. HENRY. I had it absolutely.

Mr. WARREN. Do you think, perhaps, the delay would have been
greater if you had not had that ?

Mr. HENRY. No. I think they got muddled on the 2-cent-fare law.
That caused the most of the delay.

Mr. WARREN. Yes.

Mr. HENRY. I used the word " muddled," because it was muddled.
The proposition itself was as clear as could be, but they got muddled
on it. They did not want to violate the law, and they thought they
could say that they had not jurisdiction and get rid of the bother.
That is the only thing I blame them for.

Mr. WARREN. That is all I want to ask.

The CHAIRMAN. What three States embrace the Central Electric
Traffic Association ?

Mr. HENRY. Excuse me. I did uot catch your question.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 725

The CHAIRMAN. I say, what three States are embraced in the
Central Electric Traffic Association?

Mr. HENBY. The Central Electric Traffic Association embraces
nearly all of the roads in Indiana, Ohio, Michigan, a few of the roads
around Louisville, Ky., and a few in the western part of Pennsyl-
vania.

The CHAIRMAN. And your mileage is something over 6,000?

Mr. HENRY. Yes, sir.

The CHAIRMAN. How many railroads are there ?

Mr. HENRY. I can not give you the number. I do not have them
in my mind.

The CHAIRMAN. Do you have available figures showing the mile-
age of each separate corporation ?

Mr. HENRY. Of each of these ?

The CHAIRMAN. Yes.

Mr. HENRY. I can get that. I have not got that with me, but I
can furnish it to the commission, and would be very glad to do it.

The CHAIRMAN. Will you file with this commission a statement
showing the mileage of each of those railroads ?

Mr. HENRY. Yes, sir.

The CHAIRMAN. Their capitalization divided into stocks and
bonds?

Mr. HENRY. I may have difficulty about doing that. I will do it
as far as I can.

The CHAIRMAN. Let me present my request, and then do the best
you can — the capitalization divided between stocks and bonds, and
also a statement showing what dividends had been paid upon the
stock, and the other fixed charges during the past five years.

Mr. HENRY. I will try to get that. I can get most of it, I know.

Mr. WARREN. These statistical data that the commission has asked
for from time to time, I presume, it will be perfectly proper to file
after our hearings are closed? .

The CHAIRMAN. Oh, yes.

Mr. HENRY. There are 12 roads running out of Indianapoljs, and
in order that you may know that the service which I speak of was
not attributable to a want of steam railroads, there are 15 steam
railroads — not companies, roads.

Commissioner SWEET. Are you a lawyer?

Mr. HENRY. No, sir; I used to be.

Commissioner SWEET. You are a "has been "?

Mr. HENRY. I am a " has been "; yes, sir. 1 was a lawyer until I
drifted into Congress, and I drifted out of Congress into this.

Commissioner SWEET. You have been a Member of Congress?

Mr. HENRY. Yes. I will have to plead guilty to that.

Commissioner SWEET. Among your other sins?

Mr. HENRY. Yes.

Commissioner SWEET. You have had a good deal of experience in
dealing with people, have you not — the public?

Mr. HENRY. A very great deal. I always keep close to them.

Commissioner SWEET. And you have found that by going right to
the public with your Intemrban problems and presenting the facts
to them honestly and squarely, you met with a friendly and hearty
response ?

Mr. HENRY. Yes, sir.

726 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Do you think that rule would apply to the
city railways, as well as the mterurbans?

Mr. HENRY. Not as fully, but in a general wa}r ; yes. You can not
reach them the same way.

Commissioner SWEET. That is because the dense urban population
is more difficult to get hold of?

Mr. HENRY. Yes. And also there is a difference in the character
of parts of the population. In the small communities, you do not
find the bad spots in the population as much as you do in the cities.

Commissioner SWEET. I think I know what you mean. What we
call the laboring element, the manual labor

Mr. HENRY. No.

Commissioner SWEET. They are not as intelligent?

Mr. HENRY. No; I do not mean that. I have the greatest con-
fidence in the world in the laboring element, when they are let alone ;
when they do not have labor agitators in their midst, there is no
trouble with them. You can reason with them, just as well as you
can with anybody else.

Commissioner SWEET. But are they as much inclined to reading as
the ordinary laborer of the country ?

Mr. HENRY. Oh, yes; they are. We have quite a number of intelli-
gent laboring people in our part of the country.

Commissioner SWEET. Well, what is the difference?

Mr. HENRY. For instance, in Indianapolis, there is a Greek settle-
ment, there is an Italian settlement, and so on, like that. We do not
have a great deal of it. In New York you have much more.

Commissioner SWEET. You do not find that in the rural commu-
nities?

Mr. HENRY. No; in proportion, it is greater in the cities. They
soon get amalgamated in the smaller communities.

Commissioner SWEET. They Americanize rather quicker?

Mr. HENRY. Yes, sir; they do.

Commissioner SWEET. There are not so many of them to hobnob
together ?

Mr. HENRY. But outside of that, I think the proposition is just as
good for the cities as it is for the country, the country town — that
is, to go to the people and present it.

Commissioner SWEET. What is the rule on these interurban roads
that you are connected with with regard to passengers within city
limits? Do you take them on and discharge them —

Mr. HENRY. In Indianapolis, and that is the only large city we
touch, the city ordinance under which we enter the city requires us
to make the same stops as the city cars, and to carry city passengers
at 5 cents within the city, from a point within to a point within. At
the time that was made, the city company issued tickets at 6 for a
quarter, or 25 for a dollar, and the little difference of 5 cents — I was
instrumental in getting it — kept the city traffic off of our cars very
largely, but now, since the city company is charging 5 cents we are
cursed with it — a regular nuisance.

Commissioner SWEET. You mean the local business has increased
beyond what you want?

Mr. HENRF. They will take the seats of the interurban passenger
going at a distance ought to have.

Mr. WARREN. You do not want the city business on your line ?

F' PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 727

Mr. HENRY. We do not want it. That will have to be changed in
order to relieve us from that. The commission regulates an inter-
urban ride as a ride to or from a point outside the city, although it
starts within the city.

Commissioner SWEET. At the time the interurban car reaches the
city limits

Mr. HENRY. It doos not make any difference in our interurban fare.

Commissioner SWEET. It does not?

Mr. HENRY. No, sir. We get our mileage onto the terminal sta-
tion, under the order of the commission.

Commissioner SWEET. That is different from the interurbans in
Michigan; is it not?

Mr. HENRY. It is different from a good many States, but that is
our situation.

Commissioner SWEET. I think the interurban rule in Michigan is
to charge a 5-cent rate from the city limit to the terminal station.

Mr. HENRY. A good many of them do, but it is not right, and our
commission said so. Our commission said it was a pail of his ride
until he got to his destination.

Commissioner SWEET. Have you any reason to doubt your ability
to get a raise to the 3-cent per mile fare from your commission, if you
should gro to the commission for it?

Mr. HENRY. That is guesswork, and we never have a doubt about
guesswork.

Commissioner SWEET. Well, do you think you could get it?

Mr. HENRY-. I think so; but they would do it reluctantly, because
they have said it is to our interest to charge only the 2|-cent fare.

Commissioner SWEET. Do you think the same way ?

Mr. HENRY. I do now. I might change my mind. I always re-
serve the privilege to change my mind, but at the present time I
think the 2f-cent fare is what we ought to charge.

Commissioner SWEET. Then you do not think you could get relief
by increasing the fare?

Mr. HENRY. I do not, in our case, because we have already gotten
relief by an increase of fare from 2 cents up.

Commissioner SWEET. What is your explanation of the fact that
they can do that in Illinois and can not do it in Indiana?

Air. HENRY. I should say they are getting more money than they
got at 2J cents. I don't know what their local conditions are.

Commissioner SWEET. But they are charging a 3-cent fare?

Mr. HENRY. Yes.

Commissioner SWEET. I understood you to say it was without
particular objection.

Mr. HENRY. No; if I said that, it was not my intention to say it,
because there has been a great deal of objection on the part of the
people of the State to the 3-cent fare in Illinois, but there was very
little in Ohio.

Commissioner SWEET. Well, has it increased their revenues or not?

Mr. HENRY. Oh, yes.

Commissioner SWEET. Then, why would it not increase your reve-
nues?

Mr. HKNRY. Well, it might do it. I don't know whether it would
in our case. I think we could get more revenue at the 2$ cents than
we would at 3 cents. The people rather like it because they think we

728 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

are giving them a special privilege in carrying them for less than the
steam roads, and more people ride at that rate than they would at the
3-cent rate, in my opinion.

Commissioner SWEET. What is it you want the Railroad Adminis-
tration to do ?

Mr. HENRY. Well, as they are going to have a very short life it is
hardly wortli mentioning it, but I will tell you. One of them is that
in the express business they should direct the American Railway Ex-
press Co. to give the interurbans their proportion of the express busi-
ness of the country.

The CHAIRMAN. Has that question ever been put up to the Railroad
Administration ?

Mr. HENRY. I took it up personally with Mr. Thielen — I think that
is his name — under an appointment, along with others. I happened
to be the chairman of the committee, and I addressed him on the
subject, and I put the subject up to him just as it wras; and his answer
was, " Well, you would not expect us when we are running the steam
railroads" — this is in effect, not in words — "you would not expect
us, in looking out for the income of the steam railroads, to give the
business over to the electric lines, when we do not have to." That was
in effect his answer.

Commissioner SWEET. What do you think was wrong about that
answer ?

Mr. HENRY. What?

Commissioner SWEET. Outside of your personal interest, why was
not that a good answer ?

Mr. HENRY. I will tell you why it is not. They are representing
the people of the United States, and we are a part of the people of the
United States, just the same as the owners of the steam railroads are,
and they have no moral right, in running the steam-railroad busi-
ness, to run it in such a way as to cripple any other industry that is
entitled to live just as well as they are and that people are dependent
upon just as much as they are on them.

The CHAIRMAN. Do you believe that the Government should not
have diverted any traffic from any line, unless it was necessary to do
so for w*ar purposes ?

Mr. HENRY. That is exactly what I do.

The CHAIRMAN. I agree with you.

Mr. HENRY. Another thing they can do, while on that subject, is
this : They have an agreement with the short-line railroads by which
they allow them two days' free overtime 'on freight cars before de-
murrage commences. Now, they turn a car over to Mr. Faber, in Illi-
nois, on the line from Elgin- to Chicago, or to Mr. Budd, on the line
from Chicago to Milwaukee, and they charge them from the minute
they get it.

Commissioner SWEET. They charge demurrage right off?

Mr. HENRY. Yes. They did that. I do not know whether they
changed that at all or not. I know they are doing it in many cases.
In other cases the traffic was so large that there was some hope they
would change it.

Commissioner SWEET. What is the next thing you would have the
Railroad Administration do?

Mr. HENRY. The Railroad Administration itself 2

Commissioner SWEET. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 729

Mr. HENRY. Well, they can not do it now, but they ought to cut
clown the abnormal price of material which they fixed without rea-
son, and which, therefore, set a pattern against us for prices.

Commissioner SWEET. Are you referring to steel, now, and coal ?

Mr. HENRY. I refer principally to ties and poles and things of that
kind. Nobody is buying a steel rail.

Commissioner SWEET. Do you mean the prices that were fixed dur-
ing the war?

Mr. HENRY. Yes; and still maintained. Xot only that, but we can
hardly get the ties. They are making every effort, of course, to catch
up with their rehabilitation. They got behind, of course, during the
war.

Commissioner SWEET. Do you think, Mr. Henry, that the Railroad
Administration fixed, or can fix, these prices?

Mr. HENRY. They do fix them. I will tell you how they do it.

Commissioner SWEET. Now?

Mr. HENRY. They fix them now. This is the way they fix them.
They say, " We will give you $1.25 for all the crossties in a certain ter-
ritory," and then different prices in others. That is the price that
is fixed there, and when we have got to buy from that territory we
have to buy at the same price because the Government fixed the price.

Not long ago I inquired for some 45-foot cedar poles. I made
some five or six inquiries, and the answers came back as though
they had taken a rubber stamp and stamped the price which they
quoted. They were just exactly alike, just as much so as if they
had used the same rubber stamp on all of them. I was quite well
acquainted with the salesmen of several of the companies, and I talked
to them very freely about it. I said, " I realize, of course, that
you are not going to break your combination price." They said,
"What do you mean by combination price?" I said, "I mean the
combination price you have agreed you won't sell to us for aivv-
thing less than the price that is fixed for poles by the Railroad Ad-
ministration." Although they can buy only one-tenth or one-
hundredth of the number of poles, because they don't have much
use for that kind of a pole, it fixed a certain price there, and I
offered them $1.40 for less than that. I was just trying them, and
finally I bought them at that from a man who broke out of the gang.

Commissioner SWEET. This price fixing that you are speaking of
is not a matter of law ?

Mr. HENRY. No, sir.

Commissioner SWEET. It is something that inheres in every large
buyer, ordinarily, does it not, whether governmental or any other
large buyer?

Mr. HENRY. Usually the large buyer gets the cheaper prices. If
you count the Government as the large buyer, it fixed the higher
prices paid, although they were normal at the time they were fixed.

Commissioner SWEET. What else do you want from the Railroad
Administration?

Mr. HEXRY. That is all I have now.

Commissioner SWEET. That is all.

Mr. WARREN. That is all, Mr. Henry.

The CHAIRMAN. You are excused. Mr. Henry.

Mr. WARREN. Mr. Kellogg, will you take the stand, please?
100043°— 20 47

730 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

STATEMENT OF MR. CHARLES W. KELLOGG.

WARREN. Will you give your full name, Mr. Kellogg?

KELLOGG. Charles W. Kellogg.

WARREN. And your residence 1

KELLOGG. Boston, Mass.

WARREN. What is your occupation?

Mr. KELLOGG. I am with Stone & Webster, of Boston, and have
been in charge of the street-railway business, amongst others, for
about 15 years.

Mr. WARREN. Have you in connection with your work had occa-
sion to give special attention to the one-man car or the safety car,
so called?

Mr. KELLOGG. I have this year, as chairman of the committee of
the American Railway & Electric Transportation & Traffic Associa-
tion, which is studying that, among three or four other subjects;
and it was on account of the study which we have made of that sub-
ject that I was asked to testify here to-day, as I understand it.

Shall I go right on and tell about the car?

Mr. WARREX. Yes; go right ahead.

Mr. KELLOGG. The one-man car, so called, has to be distinguished
in two ways. The method of operating a street-car with one man
instead of two simply is the closing up of the back platform and
having one man on the front end of the car; and that is one that
has been in use in the street-railway business by small companies,
iust as a matter of saving platform expense, for a great many years.
There is nothing new about that method of running a street-car,
but there is a very new thought contained in the so-called Birney
safety, designed by a man named Birney from St. Louis, Charles
S. Birney. This car was the result of jitney competition. As you
all remember who have followed the street-railway business, about
five years ago there was a terrific flood of light automobiles, mostly
Ford cars, that came out on the streets, and especially in the south-
ern cities, where the climate was mild, which created havoc with
the street-railway business.

It was the feeling of Mr. Birney and others that the only way to
get that business back was to build a street -car which would simu-
late as nearly as possible the conditions which that seemed to be
able to create.

That meant a light car, so as to save power and so as to accelerate
quickly. It meant a one-man car, because there was only one man
to run a jitney; and that was how the one-man car, as they use
the term to-day, the one-man safety car, came into use. Xow,
this car was very light as compared to -the old ones. Let me go a
little further back in the business. About 10 or 15 years ago, or,
perhaps, as long as 15 years ago, there was a perfect mania among
street-railway companies for heavy street-cars, Pullman cars.

The CHAIRMAN. Why?

Mr. KELLOGG. It was felt that they were more dignified; they rode
smoother on relatively poor track, and therefore would attract
traffic. And anyone who has studied the situation and remembers
the conditions in those days will know that even a small town that
did not have large heavy double-truck cars was considered rather
out of the running.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 731

It was not until after all of the city systems were equipped with
. these very heavy cars, weighing around 50,000 pounds — some of them
even heavier — that the industry woke up to the fact that an enor-
mous unnecessary weight was being dragged around the streets,
that they meant excessive investment, a correspondingly heavy
track, and an expensive construction to carry these big cars. It
meant correspondingly more power-station capacity to move them,
including in that also substations, cables, etc., and correspondingly
higher maintenance costs, both of the cars themselves and for the
track they ran over to keep the service going.

The CHAIRMAN. Would you say that these large cars were urged
by the car manufacturers?

Mr. KELLOGG. I should say not, although I am not able to pass on
that point. At all events, the street railways were willing customers.

It was not until after this effect had occurred — I think that is a
fair statement — until it had practically fully occurred, that the re-
sults were realized by the industry. Xow, in view of the big invest-
ment that has been made, it seemed impossible to scrap this large
investment.

I have mentioned that past history simply to indicate that, in ad-
dition to fighting the jitney competition, the light one-man car also
filled a long-left want for some economy in power consumption and
platform time on the part of the street railways.

Another very important feature of this new car, which distin-
guishes it decidedly from past types of one-man operation which I
mentioned and which might be called a sort of home-made car, is
the safety devices, because it was realized that the public would not
stand in large cities for car operation by one man, unless there were
special devices, such as to make the operation of the car safe in case
that one man should be taken ill or drop dead or anything should
happen to divert his attention.

That brought out the so-called dead man's handle, more or less
similar to what is on a great many elevators, where if the man takes
his hand off the controller, it immediately automatically goes back
and shuts the power off; also if the controller automatically throws
off in that manner, the brakes are applied on this car and sand ap-
plied to the track and the car is brought to a quick standstill.

There are other special devices, such as allowing for the hand-
opening of the doors when this automatic stop is made; all of which
has tended to make this Birney car not only actually safe but to
convince the public, which uses the car, that it is safe.

This new car weighs about 13,000 pounds as against an average
weight of the former city cars, which it replaced, of not less than
35,000 pounds, and, as I said before, a great many considerably
heavier.

At the present time — and meaning by the " present time ", up to
October 1 this vear — there are 1,100 ox these Birney cars in opera-
tion in the United States, and there are now under order and in
process of manufacture about (500 more than that 1,100, 200 of this
latter being for the Brooklyn Rapid Transit Co.

Now, in connection with the stud}' which the committee of which
I am chairman has made, we sent out questionnaires to all of the
member companies in the street-railway business. The questionnaires
contained about 50 questions covering all the various features which

732 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

the Birney car, or other one-man cars, were supposed to furnish,
and I have here, in a report which I have worked out for my com-
mittee this year, the tabulated results of the answers to these ques-
tionnaires, which are very interesting.

They are quite brief, and if the commission will permit me, I will
read them through very briefly.

First, regarding power consumption, of course there will be no
power saving by converted one-man cars, but only by the Birney
safety cars.

The average reduction in energy consumption per car-mile of using
the Birney cars is 51.2 per cent.

Taking 3 kilowatt hours per car-mile as a fair average for most
city systems, this means a saving of about 1.5 kilowatt hours per car-
mile. Actual figures from 45 companies

Commissioner BEALL. May I ask you a question right there ?

Mr. KELLOGG. Sure.

Commissioner BEALL. Have you compared that car with a car that
will carry two or three times as many people ?

Mr. KELLOGG. No; I am comparing that with a car which will
carry substantially as many. I will read those figures oft'.

As to general dimensions, the Birney car seats from 30 to 32 and,
as you know, the seating capacity of 40 to 44 is quite a good-sized
city car. The seating capacity is quite thoroughly comparable,
although that of course is one of the ways the weight was cut down.

Commissioner BEALL. Well, how about the standing room?

Mr. KELLOGG. How about the standing room?

Commissioner BEALL. You make your money from the strap-
hangers, do you not, and not from the seated passengers? If you
ran all of your cars on seating capacity, you would not make any
money, would you?

Mr. KELLOGG. You do with the Birney car. That is one of the
surprising things that I am coming to later with regard to this car.

I will say this with regard to the heavy peak-load traffic, that
where it is found that large cars need to be used over the peak to
carry the heavy traffic, it is still possible to run those heavy cars
and use all of that power and use the two trainmen only a few hours
a day, with this light power car that saves power and labor. As. a.
matter of fact, the weight per foot of this car is very low.

Commissioner BEALL. Well, they carry the same capacity of stand-
ing passengers as the other will ; do they not ?

Mr. KELLOGG. It will carry more per ton of weight on the car ; yes.

Commissioner BEALL. That is not what I asked you, but will the
car itself carry them?

Mr. KELLOGG. No ; the car itself will not. It is a smaller car.

Mr. WARREN. It is a much narrower car ?

Mr. KELLOGG. It is not conspicuously narrower. It is a little bit
narrower. The over-all width of this car is 8 feet.

Commissioner BEALL. What I wanted to bring out so that we can
understand it is this : Would you have to have big cars in the cities
to handle the rush-hour crowd?

Mr. KELLOGG. You would in some cases, and in some cases you
would not.

Commissioner BEALL. That makes a very big difference, whether
this car will answer for all the demands of the average lines, or

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 733

whether it is only adapted to special business, and you have to havo
your other equipment anyhow.

Mr. KELLOGG. It is not a panacea. There are some lines where it
would not work. That is perfectly true.

Commissioner BEALL. Well, right there, if it is proper, I would
like to ask you this question : I think you have operated quite a num-
ber of them, have you not, in the West, around Seattle and other
places ?

Mr. KELLOGG. Yes ; mostly down in Texas and the Southeast.

Commissioner BEALL. Well, have you not found that they were
only adapted to lines which can not pay, or only to lines wThere you
have lighter traffic and not such frequent service, and where you do
not have a very big load ?

Mr. KELLOGG. No ; that is not so.

Commissioner BEALL. That is not true?

Mr. KELLOGG. No; that is not true.

The CHAIRMAN. At this point, we will adjourn until 8 o'clock
to-night.

(Whereupon, at 5 o'clock p. m., a recess was taken until 8 o'clock
p. m.)

EVENING SESSION.

STATEMENT OF MR. CHARLES W. KELLOGG— Continued.

Mr. WARREN. Mr. Kellogg, will you proceed with the result of your
investigation?

Mr. KELLOGG. When we adjourned, Mr. Chairman, Mr. Beall had
a question I do not think I had answered quite satisfactorily, and
that was with regard to the smaller size of these cars. I think you
made the point. Mr. Beall, that while the amount of power consump-
tion was small, the car itself was smaller, and as to that I think per-
haps the fairest way to put it is that the Birney car, seating, say
32. has a power consumption about half as large as a car seating 40
to 44; so that while the car is smaller there is some less power per
seat.

Commissioner BEALL. How about the rush-hour capacity? Will it
hold as many people standing? That was not really my point. I
think you missed it.

Mr. KELLOGG. I do not think I did get your point.

Commissioner BEALL. I was simply trying to find out whether
that necessitated any duplication in whole or in part by larger cars
to handle peak loads.

Mr. KELLOGG. It Avould require more of the Birney cars to furnish
the same number of seats than of the larger cars.

Commissioner BEALL. I did not mean quite that. I mean — a good
many companies have the Birney cars and whether they would not
also have to have larger cars also to some degree?

Mr. KELLOGG. To some degree they might ; yes.

Commissioner BEALL. I am not trying to make out a point, but to
get information.

Mr. KELLOGG. It might work out that way.

Mr. WARREN. What about snow? I have particularly the New
England cities in mind, where we have at least a month of very
heavy-snow weather.

734 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. KELLOGG. We have hud reports from one or two Northern
cities that they are sometimes bothered with snow, and also from
one company in Illinois — Mr. Bosenbury, of the Illinois Traction
Co., who reports that in that case they take out their heavier cars
and leave the light cars in the barn.

Mr. WARREN. That would mean more or less duplicate equip-
ment?

Mr. KELLOGG. That would mean more or less duplicate equipment
in that case.

Mr. WARREN. Something like the open-car proposition, where the
company, to run open cars in the summer weather, has to have two
equipments of cars.

Mr. KELLOG. That would tend to reduce the saving that could be
made from the operating feature.

The CHAIRMAN. Are any of these cars used in the congested por-
tions of the city ?

Mr. KELLOGG. Well, they are in some cases. The closest headway
we had reported was one minute; and in the city of Seattle I know
these Birney cars run in with the other cars through the congested
district and, as far as our reports go, they are able to hold their
place in line with the other cars.

Mr. WARREN. Is that the largest city that uses them?

Mr. KELLOGG. I should say perhaps Seattle was — no ; Kansas City
uses them, and Kansas City I think is larger than Seattle, and it
uses Birney cars.

Mr. WARREN. How long has Kansas City used them?

Mr. KELLOG. That I can not say. My impression would be per-
haps six months or something of that sort. It is quite recent.

The CHAIRMAN. You stated that 200 are being built for the
B. R. T.— in Philadelphia, is it?

Mr. KELLOGG. No; the Brooklyn Rapid Transit.

The CHAIRMAN. How will they be used there ?

Mr. KELLOGG. They will be used in some of the lighter lines where
traffic is not so heavy.

Commissioner BEALL. We have a lot of lines in the semisuburban
section.

Mr. KELLOGG. That would be where they would be used first.

Commissioner BEALL. They would not attempt to use them in the
thickly settled portions of the city ?

Mr. KELLOGG. No ; they will first be used in the lighter lines.

Mr. WARREN. Kansas City started, did it not, with some made-
over cars? Did they not start with 35 cars that they made over
themselves?

Mr. KELLOGG. That I do not know, Mr. Warren.

Mr. WARREN. Do you know whether or not they use them so far
as they have actually used them on the suburban lines — that is, the
outlying lines ?

Commissioner BEALL. Where do you mean ? To Independence and
those sections?

Mr. WARREN. Yes. I do not know the names of the places.

Commissioner BEALL. That is one of their principal suburban
lines.

Mr. WARRBN. But not in their congested section.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 735

Commissioner GADSDEX. I can answer that, because I was there
last week. Mr. Keeney is running those cars right in between the
others in the congested part of the town.

The CHAIRMAN. You may proceed, Mr. Kellogg.

Mr. KELLOGG. If the commission please, I will read the results of
the answers to these questionnaires.

The next subject we took up was the saving of the trainmen, and
the replies show that the operator on a one-man car was paid more
than either of the other trainmen on a two-man car by about five-
eighths of the companies which answered the question.

Commissioner MEEKER. Are you going to submit the results of the
questionnaire to the commission?

Mr. KELLOGG. I am going to have to dictate it because this thing
is just some notes I have for reference. The figures are fairly
simple, however, and I think it will be perfectly clear in the record.

I have here a list of the additional amounts in cents per hour paid
to the operators of one-man cars and they average 4 cents an hour
more than is paid to either of the men on a two-man car. The theory
of that is that the company shares with the trainmen part of the sav-
ing which is secured from this method of operation.

As to the question of how the trainmen feel toward one-man cars,
the replies showed favorable 83 and unfavorable 10.

Commissioner BKALL. What ij- ha- — systems or men?

Mr. KELLOGG. Systems reporting that their men were favorable or
unfavorable respectively, showing the men in 89 per cent of the
systems favored the Birney car.

Commissioner MEEKER. How reliable are those returns? Can we
accept the statement of the company officials whether the men are
favorable or unfavorable without question?

Mr* KELLOGG. That was the only source of information the com-
mittee had to go by. I do not think there was any plebiscite taken
or anything like that.

Mr. WARREN. May I state one thing from my own conferences
with the men? Do you happen to know whether or not the men
in a number of instances have included in their demands in making
contracts for their wages and working conditions a demand that
every car shall be operated by a crew of two men?

Mr. KELLOGG. I do know that the Amalgamated Association
through its president has come out very strongly against these cars.
Mr. Million has issued two or three manifestoes ridiculing and criti-
cizing the cars very severely ; and in giving these figures that I have
given I am simply giving the information we received from the com-
panies to whom we sent out the questions.

Mr. WAHREN. But you did not visit the companies; you did not
have an opportunity to ask them questions.

Mr. KELLOGG. Xo; we did not. It was all done by mail with a
formal printed questionnaire.

Mr. WARREN. Yes.

Mr. KKLLOGG. The same ratio was reported in answering the
question as to whether the trainmen opposed the inauguration of
one-man car operation, the opposition being classified as seven due to
labor-union feeling and three due to apprehensions of the men as to
the difficulty of accounting. Of course the man who runs these cars

736 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

is pretty busy ; lie has to operate the car and take care of his trip
sheet and the money and change, and lie is a pretty busy man.

In answer to the question as to whether or not trainmen have been
assured that they would not lose their jobs due to the starting of
one-man operation the companies were divided about equally, 39
reported that they had made this promise and 42 that they had not.
The recommendation of our committee would be to the effect that
such a promise should be made, for the reason that these cars are in-
troduced gradually and the number of men who fall out of the
ranks for one reason or another is sufficient to prevent the company
from being obliged to hold extra men on account of that promise.

Commissioner GADSDEN. Would not that be entirely taken care of
by the unusual turnover in employment?

Mr. KELLOGG. It apparently has been.

Mr. WARREN. That is the dropping out of men?

Mr. KELLOGG. That is the dropping out of men for one reason or
another — it would be, very easily.

Mr. WARREN. Do you not think that with a 60-cents-an-hour wage
that turnover is going to be very much lessened ?

Mr. KELLOGG. I should imagine it would be.

Mr. WARREN. Taking Boston, for instance, it is 62 cents an hour
for an 8-hour day. That is •

Mr. KELLOGG. Pretty good money for unskilled labor.

Mr. WARREN. That is $5 a day without any of the overtime and
the bonuses which will necessarily go with the shorter hours. I
apprehend myself that the turnover is going to be very much less.

Mr. KELLOGG. I think it will be hard to keep them out of the busi-
ness pretty soon.

Mr. WARREN. There have always been more applications than
places in normal times.

Mr. KELLOGG. With regard to the public attitude toward one-man
cars, it was reported as friendly by 84 and unfriendly by 18. It was
also stated that this latter number was changed to 4 after a trial of
the cars themselves.

Commissioner BEALL. May I ask there, is there anything in your
questionnaire which would show whether those which reported un-
favorably among the users of the cars, whether it was the large
towns or small towns, or whether it is interspersed between different
classes of cities as regards the size of population ?

Mr. KELLOGG. I am sorry to say I could not answer that question
without referring to the original record. I do not have it in mind.

Commissioner BEALL. All right.

Commissioner MEEKER. Can not you submit that information?
Because that would be important.

Mr. KELLOGG. I would be very glad to do so. I will get that and
send it in.

With regard to the question of fare collection on one-man cars, the
replies show that no difficulty or no change from conditions with
two-men cars took place in 88 cases; and three companies reported
difficulty, saying however, it wras only to a limited degree. In the
matter of schedules •

Mr. WARREN. Before you leave the other matter, did the question-
naire indicate whether the fare collections in those cases that had no

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 737

difficulty were flat fares, so far as the territory covered by the one-
man cars was concerned, or whether they were zone systems ?

Mr. KELLOGG. They did not. There would be more difficulty with
a zone system.

Mr. WABKEN. In fact, on a good many lines, even where it is not
technically know as a zone system — that is, a 5-cent fare with an
increment of 1 or 2 cents for each zone thereafter — there are a good
many lines where there is more than one 5 cents collected by a good
many companies.

Mr. KELLOGG. Yes. It is also true, of course, in the case of the
complicated zone system, where some kind of a ticket-issuing ma-
chine would have to be used : it might become almost impossible for
one man to do that class of business. That particular subject did
not happen to come up in the questions which we sent out. I do not
think there is any company yet using that machine, although the Pub-
lic Service Corporation of New Jersey. I believe, is planning to do so.

Mr. WARREN. I suppose a prepayment zone and an inclosed area
where the great majority of the passengers took the car — take Bos-
ton for instance, with which you are familiar, the subways are pre-
payment areas.

Mr. KELLOGG. Yes.

Mr. WARREN. And if in the cities generally it were possible at a
congested center to establish a prepayment area where every pas-
senger would pay his fare when he went into the area and take his
car in the area, that would help out with the one-man car.

Mr. KELLOGG. It would ; yes.

With regard to schedules, the replies to the questions under this
heading had to be clearly distinguished between the converted one-
man car — meaning by that a former two-man car that had been
rebuilt to operate with one man — and the Birney car, because of
course the former cars simply ran as they did before and we found
an average of 14.76 per cent increase in scheduled speed reported
from the use of the Birney cars. The headway had been increased
by the companies reporting on 43.7 per cent,- ma king '

Mr. WARREN. That means they ran more cars?

Mr. KELLOGG. That means they ran more cars — 43.7 per cent more
cars at an average speed of 14J per cent greater, which made an
average increase in car frequency of 58.46 per cent.

Commissioner BEALL. How much more money did they take in?
That is your test.

Mr. KELLOGG. That is the next question I have to answer. One
more point before I get to that. One question as indicating the
range of adaptability of Birney cars, the headways are from 1 to
30 minutes reported.

Now, on the matter of earnings, of course these reports on earnings
refer to the most successful lines where the conditions were exactly
right for the use of these cars; and the most successful lines showed
a slight decrease in gross per car-mile, from 21.11 cents to 20.65 cents,
with this increase in car-miles operated of 53.4 per cent and an in-
crease in gross earnings of 51 per cent. In other words, where the
conditions are just right for the use of these cars their benefit comes
from taking the saving in operating expense — that is. in power and
platform time — and spending that money on additional service.

738 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Now I want to explain right there, so that the commission will
realize the limitations of this Birney car, that the only place where
it can accomplish its best results is where the schedule initially is
such that more people will ride if cars come more frequently or —
that is the only case. Xow the other cases would be a very light
traffic in a small city where, if you had a car every 30 seconds, you
would get no more people because no more are there to ride. There
the car would save nothing but platform expense and fuel ; or in a
very dense traffic where cars were frequent enough to be in sight,
you might say, most of the time. The Birney car would add nothing
there to the amount of traffic, so its most useful field is in cases where
the traffic on a line can be increased if the frequency is furnished;
and that represents the maximum effective use of these cars.

Mr. WARREX. Before you leave that, Mr. Kellogg, you said the
earnings were 21 cents a mile?

Mr. KELLOGG. Before, and 20.65 afterwards.

Mr. WARREX. Is not that a pretty light earnings per car-mile?
Would not that indicate that these companies were not in districts of
heavy traffic? My recollection is

Mr. KELLOGG. That is a light average ; yes.

Mr. WARREX. I think the average for the country is something like
36 or 38 — is it not — now ?

Mr. KELLOGG. I do not happen to have that figure in mind. I
did not know it was quite as high as that.

Mr. WARREX. I may be wrong, but I know they have gone up —
the earnings per car-mile. During the last year, owring to the in-
crease in rates

Mr. KELLOGG. Oh, yes; I think perhaps that is true.

Mr. WARREX. And my impression is that the rates of some com-
panies in Massachusetts are over 40 cents, but it used to run around
25 or 26.

Mr. KELLOGG. These earnings that I am referring to are on a car-
mile basis.

Next as to the effect of Birney cars in eliminating jitney compe-
tition : As I explained this afternoon, the Birney car was born from
jitney competition; that is what produced the car. The replies to
that question do not make much of a showing because a large number
of the companies reported they were not bothered with j itney compe-
tition, but nine companies reported complete and two companies par-
tial elimination of jitney competition due to the use of Birney cars.
Those companies were largely in the South — Texas and the South-
east, where the mild winter enables the jitney to flourish a good deal
more than it can in the North and where the size of the cities is such
that it is just about right for jitney service.

Regarding operating features, the answers as to whether accident
reduction had been secured, 47 companies reported reductions and 22
companies no reduction. I am inclined to believe, however, that
those 22 were considerably of the old converted type, because there
were 24 companies which had no safety devices on their cars.

We asked the question as to car maintenance — whether any saving
could be made in car-maintenance cost through the use of the Birney
car. This question was really more for an expression of opinion
than for actual experience because, as you probably realize, this de-
vice is quite new. While there will be 1,100 of these cars in use in

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 739

this country by October 1, still the actual number in use is still pretty
small and the time in wliich they have been used is very brief.

Mr. "\VARREX. They are all new in other words?

Mr. KELLOGG. Yes. They are skimming the cream now. But at
all events six of the companies predicted a substantial reduction in.
car maintenance ; about half of the companies predicted a saving in
the cost of track maintenance. Of course, there were no figures on
that, but that was their opinion.

With regard to the question of acceleration — of course you realize
that the increase in speed obtained by these cars is obtained almost
entirely through their quicker acceleration; they pick up more
quickly. There were several companies that had actual figures on
that, giving the acceleration in miles per hour per second ; and they
showed for the average car 1.67 and for the Birne}' car 2.53.

Mr. WARREN. What does that mean ? What do those figures indi-
cate ?

Mr. KELLOGG. Those are miles per hour per second in acceleration
of the car. One point we asked particularly about was that of flag-
ging railroad crossings. You gentlemen, of course, realize that it
has been the practice from time immemorial in the street-railway
business when a street-car approaches a railroad crossing for the
conductor after the car has been stopped to get off and go ahead of the
car onto the crossing, look up and down the track and signal the car
to come across. With the Birney car that practice is impossible;
in fact it would be dangerous for the trainman to leave the car and
go onto the railroad crossing. So the method of flagging is simply
to stop the car, for the operator to look up and down the track, and,
if all is clear, to proceed. There is some difference of opinion as
to the safety of that. Personally I do not think with a normal rail-
road crossing where the view is unobstructed that that method of
flagging is any more dangerous than the old-fashioned method. But
wherever a complicated set of tracks are crossing it is necessary with
the Birney cars to maintain a flagman who can actually be there
at all times. Of course, to such an extent, whatever that amounts to,
it tends to offset the saving in expense in the use of these cars.

Mr. WARREX. Would that mean one man or two? It would mean
two; would it not? He would have to be there during the hours
the, car runs?

Mr. KELLOGG. Yes, you would have to have a man on a flag cross-
ing where the view was obstructed or there were a great man}* tracks,

Mr. WARREX. And to cover the period of operation it would re-
quire two men?

Mr. KELLOOG. Yes, two 9-hour men, probably.

Mr. WARREX. Yes.

Mr. KEIJ.OGG. The answer to the general question of whether the
saving with the one-man-car operation would lead the company to
favor the extension of its use showed this result: Extension favored
by 7(> companies; not favored by 2. That seemed like a pretty de-
cisive vote.

Commissioner SWEET. No replies from the rest of them?

Mr. KELLOGG. No, some of them did not answer some of
the questions. It seemed to work out that way. I think that is true
of all questionnaires.

740 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. That you ask questions and some people
answer some and some answer others, like a ballot.

Mr. KELLOGG. Yes; like a ballot.

The committee feels that the most valuable features of the Birney car
in the order of their importance are: First, improved service to
the public both as to frequency and safety; second, increased earn-
ings; third, decreased expenses (although, as I just explained, the
maximum results, when conditions are right are obtained by taking
the saving in expenses and spending it on service).

The committee also agreed that part of the saving should be shared
with the trainmen at a slightly higher hourly rate, although we did
not feel like recommending exactly what that percentage should be.

Mr. WARREN. You said the average so far was 4 cents ?

Mr. KELLOGG. Four cents.

Commissioner GADSDEN. What is the range?

Mr. KELLOGG. From 1 to 10; but most of them are in the middle
range. That is, it is not a uniform range from 1 to 10. There is
just one at 1 and one at 10, as I remember.

Commissioner BEALL,. I suppose on the average system there would
not be more than one-third of your motormen who would be capable
of satisfactorily operating that kind of a car, would there?

Mr. KELLOGG. Possibly not.

Commissioner BEALL. Is that what the objection is?

Mr. KELLOGG. Although the men seem to like it. That is, the work
interests them.

Commissioner BEALL. The fellow who can do it likes it because he
gets more money?

Mr. KELLOGG. Yes. Well, it interests them. They say 'the day
passes quicker; that is the comment you hear the men make.

Mr. WARREN. It requires the combination of the capacity of a mo-
torman and a conductor, to a certain extent.

Mr. KELLOGG. It does. It requires quite a high bookkeeping skill,
and in fact some of the old-line motormen, the old fellows who have
been on the front end for a great many years, do not seem to be able
to handle the one-man car at all ; it confuses them.

Mr. WARREN. That is due to the bookkeeping end of it, I suppose.
i: Mr. KELLOGG. Yes; they do not know the bookkeeping part.

Mr. WARREN. Do you know how the conductors have made out
in running them ? Are they, as a rule — or are a good many of them
able to take on the work of a motorman and do it satisfactorily ?

Mr. KELLOGG. We asked that question; and the replies seemed
to be rather inconclusive. The men I talked with who seemed to
have the most experience with Birney cars seemed to feel that an
ex-conductor makes the best operator.

Mr. WARREN. An ex-conductor?

Mr. KELLOGG. An ex-conductor; because he has had that experi-
ence in handling trip sheets, transfers, fares, and so forth.

Mr. WARREN, And he can take on the work of a motorman better
than the motorman can take on the work of a conductor.
• Mr. KELLOGG. Yes, although that is not universal. That is to say,
there is no reason why an intelligent motorman should not run one
of these cars.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 741

As I have just stated, one of our conclusions is that when inagu-
rating one-man-car service it is good policy to assure the trainmen
that no man will lose his job on account of the new cars.

Mr. WARREN. That is to head off their opposition?

Mr. KELLOGG. That is to head off opposition ; and it is a perfectly
feasible thing to do.

The other conclusions I have here have already been covered
more or less in my testimony. We point out the fact that the sav-
ing which can be obtained from Birney cars depends very largely on
the traffic existing at the time and that a very small community can
save only a certain amount of operating expense; a very dense line
can probably save very little if anything. So that the zone of great-
est usefulness is where increased riding can be obtained from increas-
ing the frequency.

Another point which has been brought out in the discussion —
this is really recapitulating — is the fact that where traffic is too
heavy over the peak field for the Birney cars, naturally the old
heavy cars can be used at that time. Of course, that is a very
mixed blessing, because it requires having two extra trainmen avail-
able for that service, to whom you have to pay the minimum wage
for waiting around all day, and it also means maintaining the
heavier car; so as such it is rather a disadvantage than an advantage.

Mr. WARREN. That minimum wage is running now at what num-
ber of hours, do you know, generally, Mr. Kellogg?

Mr. Kellogg. 1 think the practice varies a good deal on that.

Mr. WARREN. It is increasing?

Mr. KELLOGG. But I have in mind it is at least eight hours and
in some cases nine. I think it is at least eight hours a man is
guaranteed, so if he can not be used eight hours you are simply
wasting that much money.

Commissioner GADSDEN. There would not be any saving in that
feature.

Mr. KELLOGG. No; that would be rather an adverse feature. An-
other adverse feature, as Mr. Warren's question pointed out, wTould
be in case of heavy snow storms, where the light car could not get
by as well as the heavy one. It might be necessary to have spare
heavy equipment for that purpose.

The committee felt that standardization was quite desirable. So
far, these Birney cars have been built all of a pattern almost en-
tirely, and it is rather hoped that that may lead to somewhat lower
construction costs if these cars can be gotten put in very large
numbers from the same pattern on the general principle of quantity
production.

Mr. WARREN. On the whole, your feeling is that the car promises
considerable help within a certain range where it is adopted to use;
is it not ?

Mr. KKLLOGG. Within a certain range the results which have been
obtained are remarkable.

Mr. WARREN. I suppose, on the other hand, that the car is so new
that the answers to these questions are all more or less tentative —
that is. no company has, for instance, used them long enough to
know what the life of the car will be or what its maintenance will be.

Mr. KKLLOCG. That is true. What I said about maintenance ex-

742 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

presses the belief of managers who reported on that point. The
same thing was true of track maintenance; it was simply an expres-
sion of opinion.

Mr. WARREN. I suppose the latter would be based on the theory
that a lighter vehicle ought to use up the track much more slowly
than a heavier vehicle would.

Mr. KELLOGG. Yes.

Mr. WARREN. I think our own experience would demonstrate that,
when we used to run lighter cars.

Mr. KELLOGG. Yes.

Mr. WARREN. I think that is all I have to ask, Mr. Chairman.

Commissioner MEEKER. Do the passengers like this higher accelera-
tion of the Birney car or do they object to it?

Mr. KELLOGG. Do the passengers object to it?

Commissioner MEEKER. Yes.

Mr. KELLOGG. No ; so far as I know, they dp not.

Commissioner MEEKER. Does it mean starting so suddenly that it
gives a perceptible jerk?

Mr. KELLOGG. No; the jerk would have no particular effect on ac-
celeration. Acceleration is the actual gain in speed in miles per
hour for each second of time, which is a perfectly gradual process
right through from rest to full speed.

Commissioner MEEKER. There is not any greater jerk in the actual
starting of the Birney car as compared with the heavier car?

Mr. KELLOGG. No, sir.

Commissioner MEEKER. The same is true of stopping, of course?

Mr. KELLOGG. The same would be true of stopping. Of course, on
stopping any car the matter of standing people up on their ears is
a pure question of the motorman. With a car equipped with air
brakes, careless braking is always possible regardless of the weight
of the car ; but the acceleration is entirely a matter of the weight of
the car and the capacity of its motors, friction loss, and so forth.

Commissioner MEEKER. There is no greater possibility of standing
the passengers on their ears in stopping with the Birney car than
with the old-fashioned car?

Mr. KELLOGG. I should say not ; no.

Commissioner SWEET. Is the motor lighter on these cars than on
the heavier cars ?

Mr. KELLOGG. Yes.

Commissioner SWEET. Is it in proportion to the weight of the car ?

Mr. KELLOGG. In proportion to the weight of the car. The wheels
are lighter, the trucks are lighter, the axles are lighter. Weight has
been saved in every part of the car.

Commissioner SWEET. It is a single truck, I understand ?

Mr. KELLOGG. Single track; yes.

Commissioner SWEET. Do the cars ride as easily as the others ? Is
there any difference in that respect?

Mr. KELLOGG. They ride as easily as any single truck.

Commissioner SWEET. Well, not as easily as a double-truck car?

Mr. KELLOGG. Probably not, although their lightness makes them
ride a little bit easier.

Commissioner SWEET. A little easier?

Mr. KELLOGG. I think it does; yes.

Commissioner SWEET. That is not true of automobiles, is it?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 743

Mr. KELLOGG. No.

Commissioner SWEET. The heavier automobiles ride easier, do they
not?

Mr. KELLOGG. I think they do; yes, the ones I have ridden in.

Commissioner SWEET. Why is not that true of cars?

Mr. KELLOGG. Well, the case — you are talking now about single-
truck cars, of course?

Commissioner SWEET. I am comparing the single-truck car of the
Birney type with a double-truck car.

Mr. KELLOGG. Well, of course, no single-truck car will ride as
smoothly as the double-truck car. '

Commissioner SWEET. That is what I had in mind.

Mr. KELLOGG. I misunderstood your question.

Commissioner SWEET. So there might be objection from the pas-
sengers ?

Mr. KELLOGG. Yes ; that is one of the causes of the battleship type
in the old days.

Mr. WAKREX. The public used to object to the double-truck cars,
as I remember it.

Mr. KELLOGG. Yes.

Mr. WARREN. Is this a longer wheel base?

Mr. KELLOGG. It is an 8-foot wheel base. It is rather longer for
the weight of the car. I think the car rides rather more easily than
the average car for that reason.

Commissioner SWEET. What is the method of payment of fare in
these cars?

Mr. KELLOGG. As a rule a recording fare-box is used, but that is not
universal.

Commissioner SWEET. That is in the front end of the car?

Mr! KELLOGG. Yes ; the entrance and exit are both at the front end.

Commissioner SWEET. Is it necessary at the end of the route to
turn these cars around?

Mr. KELLOGG. That depends on track conditions. Some companies
have a Y and use a single-end car. Others prefer a double-end
operation or are obliged to use it and have double-end cars. That is
more a matter of track arrangement than car arrangement.

Commissioner SWEET. In that case only the front door would be
accessible to passengers?

Mr. KELLOGG. Well, in the case of the double-end car, there would
be an exit and entrance from either end.

Commissioner SWEET. From either end.

Air. KELLOGG. Yes ; and as a matter of fact the single-end cars as a
rule have a safety door at the rear so the passengers can get out that
way. But single-end and double-end operation are n question of
track in almost all companies — that is as to whether the car goes
around a loop or a Y at the end of the line or turns the trolley and
goes back.

Commissioner SWEET. In the one-man car is the motorman the one
who keeps track of the payment of fares by passengers?

Mr. KELLOGG. He is sometimes called the motorman-conductor.
He is a combination of motorman and conductor.

Commissioner SWEET. Is he supposed to see whether they put their
fare in the box?

744 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. KELLOGG. Yes, sir. While the car is standing still he has
nothing else to do, and it is proper that he should be watching the
passengers, because he can not start the car until the door is closed.

Commissioner BEALL. On the Birney car you only use the front
door, do you not? You do not let passengers get on and off from
the rear door except in case of accident?

Mr. KELLOGG. No.

Commissioner BEALL. I do not think Mr. Sweet quite caught that.

Mr. WARREN. They all have to pass the motorman as they get on.

Mr. KELLOGG. They all have to pass the motorman as they get on ;
yes.

Mr. WARREX. Mr. Sweet asked one question about the ease of the
car. Does this car have any overhanging platforms ?

Mr. KELLOGG. Overhanging in what respect?

Mr. WARREN. I mean like the ordinary car, does it have a platform
at each end which extends the length of the car and tends to give it a
teetering motion?

Mr. KELLOGG. It has proportionately as much platform as other
single-truck cars; yes.

Mr. WARREN. I suppose the single-truck car requires a track in
better condition for the same amount of riding than a double-truck
car does ; does it not ?

Mr. KELLOGG. It does. But it is a fact that the trucks of the
Birney cars are designed to ride rather better than the normal single-
truck cars.

Commissioner SWEET. How does the Birney car' compare with the
heavier double-truck car in the wearing out of the track ?

Mr. KELLOGG. Well, assuming that the wear and tear on track is
largely a matter of tonnage, it would be less. How much less is
unknown.

Commissioner SWEET. That would be partly offset by the greater
speed of the Birney car. Would it not, or would it ?

Mr. KELLOGG. The difference is rather too slight, I think, to make
very much difference, because the running speed and the full speed
attained is practically the same in the other cars. The question is in
the acceleration in starting and stopping.

Commissioner SWEET. I notice you do not seem to make any dif-
ference in your recommendations there with regard to climate.
Don't you think that the Birney car is better adapted to the cities
in the southern part of the United States rather than the extreme
north ?

Mr. KELLOGG. There is no question about that; that is perfectly
true.

Commissioner SWEET. Or cities like Seattle, which, although in
the north, do not have a great deal of snow.

Mr. KELLOGG. Yes; that is perfectly true.

Commissioner SWEET. Before a real test can be made of these cars,
don't you think that a great deal more time must elapse so that the
public taste with regard to the matter may be better determined?

Mr. KELLOGG. That is perfectly true. It is a new thing.

Commissioner SWEET. So that it would be stretching the point
somewhat, do you not think, for the commission to make any particu-
lar recommendation with ref ard to these cars 2

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 745

Mr. KELLOGG. Oh, I think for the commission to hang anything
definite on as relatively new a proposition as this, especially with
its limited application, would be very dangerous.

Commissioner SWEET. About the furthest the commission could
possibly go, it seems to me now, would be to suggest the possibility
that, with the incentive that there is at the present time and perhaps
that there has been during the war more than in ordinary times,
economical improvements such as this might be introduced through
the street-railway services of the future that would cut considerable
figure ?

Mi: KELLOGG. Yes.

Commissioner SWEET. Which is true, is it not?

Mr. KELLOGG. It is true. And the company is studying these things
all the time. The work of this committee, for example, has been
along the lines the association has been studying year in and year
out.

Commissioner SWEET. What is that committee ? Describe it a little
more fully.

Mr. KELLOGG. The committee I have reference to is on one-man
operation. The American Electric Railway Association is the parent
association, called the American Electric Railway Association, and
then there are two affiliated organizations which are really part of
the main organization. One of them is the American Electric Rail-
way Transportation & Traffic Association, and this committee of
which I am chairman is one of four committees which have been
appointed this year — that is, the year which will end in October at
the convention — to study various features and report on them to the
convention. And these committees during the year either send out
questionnaires or study the matter in any way they can, the idea
being that at all times there are various matters in process of study
on the part. of the industry, and one of the main functions of the
American Electric Railway Association is to study these things at
all times. That is what it was organized for.

Commissioner SWEET. And give all the members of it the benefit of
the accumulated knowledge that can be brought together by these
committees when they make their reports?

Mr. KELLOGG. Yes.

Commissioner SWEET. Which, of course, is a very good system.

Mr. KELLOGG. That is what the association was organized for many
years ago.

Commissioner SWEET. In small communities, and as a means of
going from one rather small community to another not very far
away, that kind of a car would seem to be exceedingly useful, Avould
it not?

Mr. KELLOGG. Do you i.iean a small interurban?

Commissioner SWEET. Well, you might call it interurban, or I think
it has been spoken of as a shuttle. Suppose there were two villages
or small communities, neither one of which would be able to support
a street-car system, and yet with a certain amount of business between
them.

Mr. KELLOGO. Yes.

Commissioner SWEET. If there was enough interchange there to
justify it — that is imaginable — a car of this kind would come into
160643°— 20 48

746 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

play a great deal quicker than the heavier double-truck car with two
men?

Mr. KELLOGG. No doubt about it.

Commissioner SWEET. One operated so cheaply. It might be serv-
iceable between such places where they could not begin to afford one
of the heavier cars with two men operating it.

Mr. KELLOGG. Yes; that is true.

Commissioner BEALL, You can not run any single truck at the
average interurban speed, not even with the old type, can you ?

Mr. KELLOGG. Not with the average interurban speed. Of course
there are interurbans and interurbans.

Commissioner BEALL. But if you are going to give your pas-
sengers rides with a good speed you can not do it. Have you ever
ridden on them ?

Mr. KELLOGG. Yes,

Commissioner BEALL. It depends on the speed, and I do not care
how good your track is either.

Mr. KELLOGG. Well, there are lines where, as Mr. Sweet says, two
communities are not very far apart

Commissioner BEALL. Yes, if they are close enough — but not a
real interurban.

Mr. KELLOGG, No,

Commissioner SWEET. I did not have in mind what you call a
regular interurban.

Mr. KELLOGG. An interurban generally means a pretty high-class
road with a private right of way, good track, well ballasted, and
high-speed cars, very different from city service.

Commissioner SWEET. Take a city like Washington, where about
4 or half past 4 in the afternoon when the department clerks want to
go home, there is a great congestion ; that you would call the peak ?

Mr. KELLOGG. Yes.

Commissioner SWEET. And, I should imagine, a pretty big peak,
would it not be?

Mr. KELLOGG. Yes.

Commissioner SWEET. In this city the peak would perhaps be
larger than in many other cities.

Mr. KELLOGG. On account of the large number of employees off at
the same time.

Commissioner SWEET. Yes.

Mr. KELLOGG. Yes ; I should think so.

Commissioner SWEET. With your regular equipment of heavy cars,
if you wanted to take care of that peak, why could not you treat this
single man as an assistant, an aid in carrying the load during that
peak ?

Mr. KELLOGG. For tripper service, you could.

Commissioner SWEET. And if there were very slack hours of the
day, we will say from 9 o'clock to 12 or 1 in the morning, there are
periods when it is necessary to run some cars but when the travel
is comparatively light. Why would not a car of that kind answer
the purpose and save in various ways in operation and in the various
wnys you have pointed out?

Mr, KFLLOGG. It would. Of course, it all depends on each indi-
vidual line. You can not make a general rule. You would have
to take each line and analyze it. If they were planning to install

PROCEEDINGS OF FED&BAI, ELECTRIC RAILWAYS COMMISSION, 747

these Birney cars here in Washington they would want to analyze
each of their lines and take each line on its merits and see if that line
was apparently one where those cars would work out. They would
probably get some one who had operated them and get his advice on
it, or else take a line where from all the information they could get
it appeared they could make a saving and just get the cars and try
them. That is really the way the thing has developed all over the
country, just by trial.

Commissioner SWEET. That is all.

The CHAIRMAN. If I understand your testimony correctly, the
principal object of the one-man car is to save.

Mr. KELLOGG. No; that was not what I said.

The CHAIKMAN. Well, let us see. By the use of the one-man car
you will save capital, will you not, because it costs less to buy a
one-man car than it does a large standard car?

Mr. KELLOGG.. If it replaces a car you already have, of course it
means more capital.

The CHAIRMAN. You also save in power used to propel that carl

Mr. KELLOGG. Yes.

The CHAIRMAN. And you save in wages for employees?

Mr. KELLOGG. Yes.

The CHAIRMAN. And you save in the maintenance of the car?

Mr. KELLOGG. Yes; the amount unknown.

The CHAIRMAN. And possibly maintenance of 3Tour track?

Mr. KELLOGG. Yes.

The CHAIRMAN. You also save in fixed charges upon the capital
employed ?

Mr. KELLOGG. Well, there again the saving is problematical, if you
replace existing cars that are in perfectly good condition with other
cars. If you will pardon the suggestion, the investuiient feature of
Birney cars is a burden and not a benefit. In other words, the Birney
car has got by its economy to offset additional investment. It is not
really a saving. The investment feature is a negative feature.

The CHAIRMAN. Might there not also be a saving in the amount of
depreciation which you find it necessary to set aside?

Mr. KELLOGG. As to that, experience has not been quite long
enough to be certain. Of course, these cars are a good deal lighter,
and some people think there is more depreciation on them, just like
there is more on a Ford than there is on a Packard. But it is simply
something we have not got the experience on.

Commissioner MEEKER. And the Ford never wears out, while the
Pnckard does.

Mr. KELLOGG. Well, that is what the protagonist for the one-man
car would say.

The CHAIRMAN. The advantages come, as I understand, from your
being able to start and stop more quickly?

Mr. KELLOGG. Yes; we class tin? greatest advantage as improved
service.

The CHAIRMAN. And greater speed between points. Those are
your principal advantages?

Mr. KELLOGO. Yes.

The CHAIRMAN. Now, summarizing the savings as well as the ad-
vantages, is not the whole matter of peculiar benefit to the com-
pany ?

748 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. KELLOGG. I think three people benefit from it, if you will
pardon the suggestion. I think the public get a great deal better
service where that is feasible under the conditions

The CHAIRMAN. We will take up the service next; but is it not
a peculiar benefit to the company?

Mr. KELLOGG. By "peculiar" do you mean eliminating others?

The CHAIRMAN. I am not eliminating anything. I am asking
you that direct question, and you can answer it.

Mr. KELLOGG. It is of benefit to the company.

The CHAIRMAN. That is what I thought. Now is it not also
true —

Mr. KELLOGG. I was not trying to quibble, but I wanted to raise
the point that the company was not the only beneficiary.

The CHAIRMAN. I am not trying to get you in a trap.

Mr. KELLOGG. Yes.

The CHAIRMAN. Is it not also true that your ability to use this
equipment more readily than the heavier equipment, and perhaps
the greater saving to the company, will be the real benefit to the
public ?

Mr. KELLOGG. Yes; it will.

The CHAIRMAN. In that you can give them better and perhaps
more prompt service?

Mr. KELLOGG. Yes.

The CHAIRMAN. That being so, why is it not a very good thing
to advocate the use of the one-man car just as much as possible?

Mr. KELLOGG. I think it is a good thing.

The CHAIRMAN. If it is a good thing for the companies as well
as for the public

Mr. KELLOGG. And for the trainmen.

The CHAIRMAN. And for the trainmen — why should it not be a
good thing for this commission to advocate the use of such a car ?

Mr. KELLOGG. I think they should advocate it wherever it can be
used to advantage.

The CHAIRMAN. How many companies are there that manufacture
equipment, cars?

Mr. KELLOGG. I only know of two. There may be more. There
is the J. G. Brill Co. in Philadelphia and the St. Louis Car Co. of
St. Louis. Mr. Beck is here. Is that right, Mr. Beck, or are there
more ?

The CHAIRMAN. Are those two separate companies?
. Mr. KELLOGG. They are two separate companies. Are there more
than that? The Brill Co. and the St. Louis Car Co.

Mr. BECK. Those are the two principal companies, although others
are in the business.

Commissioner BEALL. The Pullman Co. still makes cars, although
I do not know but that during the Avar they stopped making them.

The CHAIRMAN. So there are three companies then that manu-
facture street cars?

Mr. KELLOGG. The only ones I know of are the ones I mentioned.

Commissioner BEALL. Who swallowed up the Kuhlman Co.?

Mr. KELLOGG. I think the Brill Co. took them over.

Commissioner BEALL. Did the Brill Co. take them over?

Mr. KELLOGG. I think they did. I am not sure of that.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 74 &

The CHAIRMAN. Is there any relation existing between those com-
panies by stock ownership or directorship or anything else?

Mr. KELLOGG. None that I know of.

The CHAIRMAN. Which company manufactures the Birney car?

Mr. KELLOGG. They both manufacture it. It is not patented.

The CHAIRMAN. It is not patented?

Mr. KELLOGG. No; nothing about it patented.

The CHAIRMAN. That is very singular.

Mr. KELLOGG. It was given to the world by the inventor.

Commissioner GADSDEN. Does not the Cincinnati Car Co. make-
cars ?

Mr. KELLOGG. Maybe they do.

Commissioner GADSDEN. I know they do.

The CHAIRMAN. Is the Cincinnati company a subsidiary of any
of the other companies you mentioned?

Mr. KELLOGG. Not that I know of, but I really could not testify
anything about that definitely. I say negatively that I do not think
they are.

The CHAIRMAN. If it could be proved advantageous to generally
use the Birney car, would it not mean a replacement of a lot of
equipment now in service?

Mr. KELLOGG. To such an extent as they could be used to improve
the situation, I should say yes.

The CHAIRMAN. Are any of the companies you know of in posi-
tion now to buy these new cars and use them for equipment which
they now have which is serviceable?

Mr. KELLOGG. Do vou mean are they financially able?

The CHAIRMAN. Y*es.

Mr. KELLOGG. Well, I dare say a number of companies might be.
I do not happen to know enough about things to know directly.
Most street-car companies are nearly broke now.

The CHAIRMAN. Is it not true that these replacements must be
very gradual, if at all, on account of the financial condition of the
companies ?

Mr. KELLOGG. Yes; and even if they had the money, they would
have to go at it gently, one line at a time.

The CHAIRMAN. Then the one-man car is not an expedient that
can remedy the present situation?

Mr. KELLOGG. No. As I said this afternoon, it is not a panacea;
it is not something that you simply fill in a blank check and say that
is all there is to it. It is a great help in some cases.

The CHAIRMAN. Why is the Amalgamated Association opposed to
the one-man car?

Mr. KELLOGG. You are asking me to read the mind of that gen-
tleman. I can not do it.

Commissioner BEALL. What is his argument? You say he ob-
jects to it. You say you have read his objection. What does he say,
ostensibly ?

Mr. KELLOGG. Ostensibly, he says the car is not safe ; it is put out
by the companies simply to save money; the trainmen do not like
it; they get more work out of the men, and it is just a device to cut
out labor and deprive men of their jcbs — the usual talk that emanates
from that source.

750 PROCEEDINGS Otf FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. The questionnaires that you sent out covered that
question pretty thoroughly, didn't they?

Mr. KELLOGG. Not very fully. We did not think it was worth
while asking questions about it except as to how the trainmen felt ;
and those answers I gave.

The CHAIRMAN. Has there been a real protest by the employees of
the companies where the one-man car is in use?

Mr. KELLOGG. There have been about 10 per cent of the cases so
reported.

The CHAIRMAN. Did those protests result in any strike?

Mr. KELLOGG. Not that I know of. I think not.

The CHAIRMAN. Do you believe that the use of the one-man ear
could be so arranged as to take care of the present labor without any
grievance ?

Mr. KELLOGG. Absolutely. That is my opinion.

The CHAIRMAN. That being so, why should the Amalgamated As-
sociation or the unions object to it?

Mr. KELLOGG. The only reason I can think of is a general desire
to oppose anything which seems to take a man out of a job. That
is to say, I think they oppose labor-saving devices on general prin-
ciples, their purpose being to keep labor employed.

The CHAIRMAN. From the experience you have had and the study
you and your committee have made, do you believe that the one-man
car will give satisfactory public service?

Mr. KELLOGG. Wherever conditions of traffic are right, I do.

The CHAIRMAN. Is it necessary to have a better roadbed in order
to give good service with the one-man car?

Mr. KELLOGG. Compared to former single-truck cars, do you mean,
or former double-truck cars? Of course it depends.

The CHAIRMAN. Single-truck.

Mr. KELLOGG. I do not think any single-truck car can ride quite as
smoothly as a double-truck car. To answer that question we would
necessarily have to presuppose former conditions, which vary a good
deal.

The CHAIRMAN. Well, I can see that if we wanted to pursue that
inquiry it would consume considerable time ; so we will not pursue it.

Mr. KELLOGG'. I am not trying to dodge it, but I mean to answer
it categorically you would have to know what the conditions were
before.

The CHAIRMAN. That is all.

(Witness excused.)

STATEMENT OF MR. FRANK J. SPRAGTJE.

Mr. WARREN. Your full name is?

Mr. SPRAGUE. Frank J. Sprague.

Mr. WARREN. You are a graduate of the Naval Academy?

Mr. RPR AGUE. Yes, sir.

Mr. WARREN. You are a member of the Naval Advisory Board, or
were during the war?

Mr. SPRAGUE. Yes, sir.

Mr. WARREN. I think you were formerly associated with Thomas
A. Edison?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 751

Mr. SPRAGUE. For a short time.

Mr, WARREX. And you organized, did you not, and operated, the
first commercially successful electric railway in this country, in
Richmond?

Mr. SPRAGUE. I equipped it. I did not operate it.

Mr. WARREX. You equipped it?

Mr. SPRAGUE. Yes.

Mr. WARREX. That was in 1888, was it not?

Mr. SPRAGUE. In 1888.

Mr. WARREX. You also developed the multiple control

Mr. SPRAGUE. The multiple-unit control for train operation, yes.

Mr. WARREX. Which made it possible to operate cars in trains
instead of single units ?

Mr. SPRAGUE. It is the basis of operation of all subway and
elevated-train operations,

Mr. WARREX. You really were at the very beginning of the
electric railway in this country, were you not?

Mr. SPRAGUE. I suppose I might be called the midwife of those
certain interests.

Mr. WARREX. Would you mind telling this commission, because
they are studying that, what you experienced and discovered as a
midwife to this industry and whether you feel satisfied with the
child, now that it has grown up.

Mr. SPRAGUE. Well, really, Mr, Chairman, I do not quite know
why I am here, unless it is to carry out a practice that is often-
times common. I am reminded of an institution which was rather
famous in London and had its replica in New York, known as Mrs.
Jarley's Wax Works: and in Xew York it was the Eden Musee.
All tourists were invited to these places to see what people looked
like who had been identified with either politics or crime or scandal
or literature.

I am not directly interested at present in electric railways. My
work for a number of years was in development, in promoting and
equipment, either directly or through my agents. I built the first
modern road in this country and in Italy and in Germany. And
if you are interested at all in the history of it, I, of course, can give
you some information on that subject.

The CHAIRMAN-. I do not think we should forego the privilege of
hearing from the midwife.

Mr. SPRAGUE. Well, it may have a bearing upon the principle that
I think ought to be observed in the relation between communities
and electric railways.

There is an impression that when an individual or a group get a
franchise they are immediately embarked on a sure thing toward a
very happy return. But my impression is that it is very much
like getting a patent out of the United States Patent Office; it is
an invitation to a costh' contest. Oftentimes they sink capital in the
hope of some ultimate reward.

I am not interested in any electric-railway securities. I do not
own a bond and have not a share of stock, I am not a member of
any concern who is interested in dealing with electric securities.
So my opinion is no more than that of a looker-on from the outside,
because my present interests are quite in other directions.

752 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

I think perhaps the history of the growth of the electric railway
illustrates very clearly that there are two sides which have got to
be considered; not the community alone on the one side, but those
who take the risks in electric-railway development.

In 1887 I took the contract for the Richmond Union Passenger
Railway. I had more hope than sense; more confidence than ex-
perience. The basis of experience was that of experiments which
I had been carrying on on a private track on the elevated railroads
in New York City, or a short branch of them. And when I took
the contract for the Richmond road we really proceeded on the basis
of a blue print. That contract called for the equipment of 40 cars,
80 motors, a small central station in connection with the overhead
line, to be built in 60 days and to be paid for, $110,000, if satisfactory.
Most people would say that is an insane contract. Judged from
ordinary commercial principles it was. But on several occasions
I have had to make precisely that same kind of contract to carry
through some enterprise in which I have been interested, and I have
been interested in quite a number of popular developments. I have
had to take the risks.

At that time the Richmond road as a road did not exist. It was
simply a franchise belonging to a lot of New York politicians. It
cost us nearer $200,000 and it cost my company over $100,000 — the
wrong side.

The CHAIRMAN. To get the franchise?

Mr. SPRAGUE. No; I mean to carry out the contract. It cost them
nearly $200,000 and we lost over $100,000; but it began this business.
Well, that is 31 years ago.

I look over the field and I see the electric railway has perhaps
had the most remarkable growth of any industry in the world in
the same time. It represents to-day, in the United States alone, I
guess, $6,000,000,000; gross revenues of nearly three-quarters of a
billion ; men employed, about 300.000. There has been one continual
demand on the part of the public for the betterment and the increase
in service.

I look back at the Richmond road. I could not find a vestige of
equipment to-day for historical purposes, not a pound of copper on
that entire road. The growth of the art required it to be gradually
abandoned; it wore out. The first motors used were only 7| horse-
power, two on a car. The cars were of the ordinary street-car type
finally with special truck. The duty put upon the motors was at
least 100 per cent more than they could reasonably expect to carry.
They were operating with 30-pound rails laid in Virginia mud.
They could not run a single trip without repairs. Sometimes we
had 80 motors going, sometimes 2. And if the people interested in
that had not stuck to it, the electric-railway growth would have been
postponed some years.

In that time there has been a rather curious ratio of increase in
certain matters connected with electric railways. The cost of the
cars, the weight, the power of the motors have all been just about
quadrupled. The cost of tracks has increased from six to eight
times. In the last 15 or 16 years the revenue per car-mile has in-
creased about 50 per cent. The operating cost has about doubled.
The taxes have about doubled. The net return per car-mile has
remained almost stationary.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 753

Within recent years, owing to the general increase of prices in
everything, the cost of equipment, the cost of upkeep, the cost of
operation of every electric railroad in the country has been very
materially and very gravelj* increased; and it seemed to be about the
one business — that is, the selling of transportation — in which there
has been a fixity of unit return with a constant increase of the cost.

Now mam7 of those increases of cost have been due to the ordinary
increases in cost of material and labor, but many of them have been
due to Government action, to decisions in which the railroads had no
voice whatever.

There is another direction in which that rather curious relation
lias been evidenced. I think the taxable area and the livable area
of a great many of our cities has just been about quadrupled for the
same nickel ride. I can give you a single instance in which I sup-
pose, contrary to the knowledge and belief of a good many people,
a single invention has meant hundreds of millions of dollars to one
community.

The CHAIRMAN. To one wrhat?

Mr. SPRAGUE. A single invention has meant hundreds of millions
to one community. Take the multiple-unit system, to which ref-
erence has been made. That is a system in which, instead of a train
being operated by a locomotive, as in steam, cars are individually
equipped with motors and controllers and with master controllers
and train lines in such fashion that any number of cars can be
assembled into a train in any end relation or sequence or number,
and the characteristics of the train operated from either end of any
car are identically the same as the characteristics of a single unit;
which means that an 8 or 10-car train can make the same schedule — •
the same stops with the same maximum speed — that a single car
would. Now, that is the basis of operation of all subway and
elevated railroads.

I spent two years in trying at my own expense to get that system
introduced on the elevated railroads in Newr York. On two different
occasions I proposed to the directors of that company that I would,
at my own expense — which would have been a very heavy expense —
demonstrate that they could save a thousand dollars a day in coal
alone on the elevated railroads and increase their running schedule,
increase their capacity, and decrease their strain on their structures.

Commissioner MKKKER. That is when they were still operating
under steam ?

Mr. SFRAGUE. Yes; but electric railways in other directions were
being used, of course, all over the United States and the world. I
finally got the opportunity to try out that system in Chicago, still as
a personal venture. Well, the Chicago South Side Elevated Railroad,
which was a steam railroad, got in the hands of a receiver and the
stock went down to about 32 or 33, and I took the contract and we lost
$100,000 in carrying it out, and the road in a year had benefited to
the extent, as represented by the increase in the stock, to somewhere
about 105 or 110. That was the first instance in which that system
was used, and then it was afterwards adopted in Boston and Brooklyn
and New York.

Now, its value to the city of New York is measured by the cost of
the subways which would have to be built to give equivalent capacity

754 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

operated in any other way, and that cost would have been over $100,-
000,000 in excess of the present cost of the subways. And it added
several hundred millions of dollars to the property values in New
York City and a great many scores of millions to the operating tax-
able receipts. Nobody got any benefits from that. I did not as an
inventor, except in a very small sort of way. The manufacturing
companies did not, except in a small sort of way, but the public got
it all.

There is another direction also in which there has been that curious
expansiveness of ratio. The distance which people can ride to-day
is oftentimes about four times what they could in the early days of
the electric railroads for the same cost.

Now, it seems to me there must be a basic principle underlying the
relation between a community which is served by an electric railway
and those who are interested in this property, and that has got to be
simply one of fair dealing. It is absolutely impossible to keep up
the operation of electric railways unless the return gives something
to those who put the money into it, otherwise they had better get
into some other business; in fact they would have to. The welfare
of a community is inseparably connected with the welfare of the
means of communication and transportation. You can not destroy
the one without gravely hurting the other.

Commissioner MEEKER. May I ask a question there?

Mr. SPRAGUE. Yes.

Commissioner MEEKER. You spoke of the general public's reap-
ing all the benefits of your invention. Is that wholly true? Did
not the stockholders reap some benefit? You spoke of the stock of
the Chicago Elevated being at 32, I believe, and going to 105 as a
result of installing the electric system.

Mr. SPRAGUE. I think possibly, if I may, you have misunderstood
me. I did not say that in all cases. I said in that particular in-
stance, wThich was a very remarkable instance — that of the introduc-
tion of the multiple-unit system in New York City, those who were
responsible originally for it received practically nothing; the public
got the chief benefit, and I think that so far as individual quotations
of the Interborough stock of New York City, perhaps they feel that
they have not got the benefit of it. I do not know ; I am not inter-
ested in it at all.

Personally, in looking over some of the testimony that has been
given here, I do not know that there is anything I personally can
add to the facts that have been presented in such an able way by
gentlemen like Mr. Tripp and Mr. Pardee and the host of operating
and expert railway men that are here. If I can answer any ques-
tions I will be very glad to, but I do not want to burden the record.

The CHAIRMAN. What business are you now engaged in ?

Mr. SPRAGUE. Well, the usual business of sepending a lot of money
in the hope of getting a return. I am at present the president of the
Sprague Speed Control & Signal Operation, and I have been inter-
ested in the past five years — excluding the two years we have been at
war, when I have been giving most of my time to the Government—
in developing a system which ties together the braking system and
wayside-signal system of a railroad to make rear-end collisions and
head-on collisions impossible in steam-railroad operation.

The CHAIRMAN. You said that you had been

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 755

Mr. SPRAGUE. It is a pretty large enterprise, and a great deal of
money, running into many hundreds of dollars, has been spent, but
it is very uphill work on account of the present condition of the
railroads and also their reluctance to depart from present practices.

The CHAIRMAN. You stated that you had been engaged in pro-
moting and developing railroads and equipment in this country as
well as in Europe.

Mr. SPRAGUE. My activity has been mostly in this country.

The CHAIRMAN. How many years were you engaged in this work
in Europe?

Mr. SPRAGUE. Well, my work there has not been direct; it has been
through the people that control my interests there.

The CHAIRMAN. Are you quite familiar with the electric situa-
tion throughout Europe?

Mr. SPRAGUE. No; not in detail.

The CHAIRMAN. Have you kept track of the results of operations
during the period of the war over there?

Mr. SPRAGUE. No, sir ; I have not. For the past five years I have
been too absorbed in my own work.

The CHAIRMAN. Do you know whether the electric lines over in
Europe are suffering from the same financial disease that they are
over here ?

Mr. SPRAGUE. I do not see how it can be otherwise.

The CHAIRMAN. Commissioner Clark presented evidence to the
House Committee of Interstate and Foreign Commerce day before
yesterday which showed that the steam railroads in England had
operated during the war at a profit and without increasing the
freight rate. I have not analyzed the figures nor the statement

Mr. SPRAGUE. This is the steam railroads?

The CHAIRMAN. That is the steam railroads. Xow if that has
applied to the steam railroads in Europe, why has not the same
thing applied to the electric lines at the same time?

Mr. SPRAGUE. I might ask you why has it not applied to the steam
railroads of the United States, which have been run at an extra-
ordinarily heavy loss during the war. I think the only fair com-
parison there is steam railroads against steam railroads.

The CHAIRMAN. You think that is a fair comparison?

Mr. SPRAGUE. Yes.

The CHAIRMAN. I was just wondering though, how it happens
that the industry as a whole, steam lines as well as electric lines, is
in so much difficulty over here when perhaps the same conditions do
not apply in Europe, where the war really has been going on.

Mr. SPRAGUE. "\\ ell, I do not think thvj same conditions do exist
in any two countries; the same condition as to franchises and taxes
and cost of labor, methods of charging fares. Of course on a great
many European roads what is called the zone system of charging
is in operation. Personally, I believe it is the only fair system. We
have me American habit of thinking we can get for a nickel the
absolute limit of return. You can not do it, unless somebody pays
the price. I can see no i-eason why one man should ride two or three
blocks and pay a nickel and another may ride 20 or 25 miles and pay
the same price.

The CHAIRMAN. You have had a good deal of experience in pro-
moting railroads in this country?

756 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. SPRAGUE. No, sir; I have never been a promoter of railroads
at all. My work has been entirely on the technical side — that is, the
promotion of the idea of the use of electricity in pretty nearly every-
thing it can be used for, for power.

The CHAIRMAN. The only road which vou have mentioned as being
interested in is the Richmond road. llave you been interested in
other roads ?

Mr. SPRAGUE. Well, I equipped at least 150, I think, in the first
two or three years.

The CHAIRMAN. When you speak of equipping, you mean you sold
equipment to those roads : do you ?

Mr. SPRAGUE. We supplied the electric equipment.

The CHAIRMAN. Did you own stock in those roads?

Mr. SPRAGUE. Not a dollar.

The CHAIRMAN. You were simply a selling man ?

Mr. SPRAGUE. We were simply equipping them, supplying the
lines, and trying to convert the public to the idea that electric roads
were the thing to use.

The CHAIRMAN. Have you been brought into close contact with
any of the promoters of these roads ?

Mr. SPRAGUE. No; very little.

The CHAIRMAN. Do you know whether the promotion has been
successful from a financial standpoint?

Mr. SPRAGUE. It has been at times, and at times it has been very
disastrous.

The CHAIRMAN. Generally speaking, what is your judgment?

Mr. SPRAGUE. Well, I hope, and I think it is entirely true, that
the larger portion of those who ventured into the promotion of elec-
tric railways made a profit, if they let go soon enough.

The CHAIRMAN. The Richmond road was built 31 years ago.
There is not a pound of copper or a single piece of equipment left?

Mr. SPRAGUE. I do not think there is.
i The CHAIRMAN. That shows a very rapid improvement in the art.

Mr. SPRAGUE. Necessarily.

The CHAIRMAN. Do you suppose that we have reached the maxi-
mum improvement of the art?

Mr. SPRAGUE. Pretty nearly ; yes.

The CHAIRMAN. Pretty nearly ?

Mr. SPRAGUE. Yes ; looking at it from the mechanical construction
point of view. Motors have been brought to a remarkable degree of
perfection. I think they are perhaps the most reliable piece of
mechanism to-day in operation. There is very little possible increase
in efficiency — that is, in the ratio of conversion of electric energy into
power. There is almost a negligible margin ; and the same way with
generators. Generators for example, to give an illustration: At
Richmond I think we used — well, the generators were about possibly
100 horsepower as a maximum, driven by small steam engines. A
single unit to-day of a generating plant is 40,000 kilowatts or more.
Now. it has been the same in stationary-motor business, in the trans-
mission of power, as it is in the electric railway. There has been
that enormous increase. Now, the efficiency of those big generators is
way up until there is not over 2 or 3 per cent left that is converted
into heat; and it must be, otherwise they would go to pieces. And

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 75 T

as to mechanisms, I can not conceive of very much improvement in
them.

The CHAIRMAN. Let us see. Are you mindful of the fact that
Congress passed a special bill here this winter authorizing the patent-
ing of an electrical device by which — I can not describe it tech-
nical^— a small mechanism weighing about 50 pounds would gener-
ate 150 horsepower?

Mr. SPRAGUE. Well, a turbine

The CHAIRMAN. No ; this is not a turbine.

Mr. SPRAGUE. Of course, the turbine, the steam side of- every high-
speed generator set, is an extraordinarily light equipment. But if the
claim has been made that generators are built with any such ratio of
weight to output, I flatly say it is impossible.

The CHAIRMAN. Well, this person got a special bill through upon
the promise that his device would completely revolutionize the elec-
trical world ; you could run street-cars and run engines by this small
mechanism.

Mr. SPRAGUE. I knb\v. That universal claim at once condemns it.

The CHAIRMAN. If it should happen that such development could
be perfected, then there would be a very great improvement in the
art?

Mr. SPRAGUE. Then you could scrap everything there is.

The CHAIRMAN. Yes.

Mr. SPRAGUE. But such a thing, you may put your judgment down,
is impossible. This art is one of evolution, not revolution.

The CHAIRMAN. I suppose 20 years ago you and I would have
agreed that the man who said they could fly across the Atlantic
Ocean in 24 or 36 hours wyas crazy, but they are doing it.

Mr. SPRAGUE. I do not know what my opinion would have been at
that time, and I venture that perhaps you might have been a little
hesitant about saying a thing was impossible. But the electric art
for the past 40 years has followed perfectly clear lines of develop-
ment.

To give you an illustration in another branch of electric ait, I am
old enough to recall when one Dr. R. V. Pierce used to have an adver-
tisement running in the patent insides of almost every country news-
paper, called " Pierce's Golden Medical Discovery." It is not neces-
sary for me to explain. Pierce was not satisfied with the return he
was getting from his patent medicine and he thought he would go
into the mining business. And some promoters convinced him that
there was a river called the Feather River out — I think in Nevada,
but I am not quite sure ; somebody here can correct me — where there
was a great source of possible wealth if it could be drained, because
of an assured placer mine.

Well, he and his associates short-circuited a bed of that river by a
tunnel which drained the river. This was really before the electric-
railway business got going — I think it was about 1887. I made a
contract with Pierce for supplying him a number of motors which
were operated from 600 to 1,000 volts pressure over a maximum dis-
tance of 5 or 6 miles. I think the largest unit was perhaps 6 or 7
horsepower. When they got the bed of the river uncovered, it was
so full of boulders that it was simply impossible to try any placer
mining, and the enterprise was a failure.

758 PROCEEDINGS OF FEDERAL EJLECTRIC RAILWAYS COMMISSION1.

That location now is the site of the great Western Power Co.'s great
plant, and instead of a mechanism of 1,000 volts they are transmitting
it at over 100,000 volts; instead of a distance of 5 or 6 miles they are
transmitting it 100 to 150 and 200 miles ; instead of units of 5 or 6
horsepower they are dealing with units of twenty or thirty thousand
horsepower or more.

Xow, that jump from those miniature equipments and distances and
pressures to the enormous pressures and powrers and distances now in
use was a perfectly progressive one, a gradual increase in size, in-
crease of efficiency, increase in the method of manufacture ; and I do
not think that there is any possibility of any departure from that
evolutionary process, and I do not think that one man in 10,000 wrould
lay down a dollar based upon that possibility which you suggest. I
know I would not, and I have gone through a good deal of it. There
is no such hope to a man as an inventor.

The CHAIRMAN. Then are you quite confident that in the future
the item of obsolescence will be a very much less factor in railroad
development than it has been in the past ?

Mr. SPRAGTJE. Yes.

The CHAIRMAN. Investors can thus put their money into a plant
with a certain realization that the industry is going to continue along
certain well-defined lines and the property is not going to be scrapped!

Mr. SPRAGTJE. Yes; I do.

The CHAIRMAN. Now ought that to invite credit and give confi-
dence to investors?

Mr. SPRAGTJE. Yes ; and I will tell you another reason why. For a
long time there was a very unfortunate controversy in this country
between advocates of what is called direct-current and alternating-
current apparatus. There were those who, like myself, believed be-
cause of certain fundamental facts,, that direct-current motors were
the most satisfactory ones to be used on railways anel alternating cur-
rent for the transmission of the power. There were others who be-
lieved that what is called single-phase operation of motors was the
coming method of running street railways. You have here within
gunshot of where you are sitting a typical example of that contro-
versy, and its unfortunate results, in the Washington, Baltimore &
Annapolis Railway. There is an enterprise which for a long time
was considered a natural electric-rail w ay proposition in competition
with steam, and being in competition with steam railroads between
here and Baltimore, those who were active in its promotion sought to
get the maximum amount of economy. I advised against their deci-
sion. It cost them a very large amount to learn their lesson, and they
finally had to change over and operate the road by direct current. So-
that particular controversy, so far as it applies to street-railway sys-
tems, interurban systems, suburban roads, elevated and underground,
and — I personally think — others, has been settled. It is no longer
subject to dispute or question. So that I think it is perfectly safe to
say, as you expressed it, that the time has now come when the public
and the capitalists can rely upon the reasonable permanence of the
equipment. That does not mean there will not be improvements. Of
course there will always be.

Commissioner MEEKER. How about the primary generators of
power ? Is not there a possibility that the Diesel engine will do away
with the old steam engine ?

PROCEEDINGS OF FEDEBAL ELECTRIC RAILWAYS COMMISSION. 759

Mr. SPRAGUE. No, sir.

Commissioner MEEKER. Why not ?

Mr. SPRAGUE. Too large a capital cost for the outfit. The Diesel
engine, which, of course, is an attempt to get a higher thermal result,
uses oil instead of coal and uses it directly instead of through the
medium of boilers, and is necessarily a very heavy engine in regard to
its output. I can see no possibility from the standpoint of first invest-
ment, safe, occupied, output, of its ever rivaling the turbine. We do
not hear of the Diesel engine, for example, on board ship, except for
what we may call low-grade operation — slow steamers, comparatively
light power. But where you want great powers, there is no thought
of the Diesel engine.

Commissioner MEEKER. However, it is a new engine and it seems
to me there may be possibilities of improvement and development.

Mr. SPRAGUE. Well, the Diesel engine has been in existence a good
many years and it is a very excellent engine for its purposes. But
the old reciprocating steam engine was a very economical and very
good and very reliable piece of mechanism, and the steam turbine,
weight for weight, enormously outranks it.

The CHAIRMAN. Now, Mr. Sprague, you have borne a very con-
spicuous part in the development of this industry and you have
naturally given very close attention to it. You have seen it developed
from a very small industry to perhaps the second largest in the country
and performing a very great public service. In recent years you have
also witnessed the tremendous development in good roads and in the
automobile industry and in the very recent years in the aircraft in-
dustry. Now, bearing in mind the very great initiative of the
American people, can you for a few moments present to us what you
believe to be the future of the electric-railways industry.

Mr. SPRAGUE. Well, the electric-railway industry is going to face
greater and greater competition all the while. It is facing it to-day
in the automobile. The better your roads, the better your pavements,
the cheaper the automobile, the more people who can buy one — the
more the electric railway has got to suffer. That is undoubtedly true.

The CHAIRMAN. And will it stand up under the force of this com-
petition and rapid expansion of other lines of activity in transpor-
tation ?

Mr. SPRAGUE. Well, many of them, the aircraft and the automobile,
will create a traffic of their own which is in addition to the traffic
that the electric railways will carry.

When the electric light was first introduced it was freely pre-
dicted that the day of gas was ended. The incandescent lamp itself
has been but little changed in all these years. We have gone, it is
true, from a carbon filament to the metallic filament, but the basic
principle is the same — a high-resistance filament inside of a vacuum,
giving certain standard pressure, and that pressure has remained
practically all these years. There has been an improvement in the
economy of the lamp. On the other hand, those interested in the gas
industry have tried to improve their product and widen the uses of
it, and I guess there is more gas used to-day despite the rivalry of the
electric light than there ever was in the past.

People get the habit of riding. They do not forsake entirely one
method and adopt some other. They simply ride more. And I think
the electric railway has a field of its own — meeting competition, of

760 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

course, all the while — but if it is well managed, if it is well kept
up, if we maintain its standard, it will hold a traffic of its own.

The CHAIRMAN. Will not the improvement such as you have men-
tioned cause a more general distribution of our population through-
out the country, decentralizing the cities and spreading them out
into suburban territory on small tracts of land, thus causing more
travel ?

Mr. SPRAGUE. The more you spread them out the more intercom-
munication will exist.

The CHAIRMAN. And that will be beneficial to the railroad in-
dustry?

Mr. SPRAGUE. Yes ; I think so.

The CHAIRMAN. Do you feel hopeful that the electric railway as
it now stands is a permanent institution ?

Mr. SPRAGUE. Absolutely.

The CHAIRMAN. And such an institution that capital can safely
invest in it and people depend on service from it?

Mr. SPRAGUE. They can, if they can be assured of reasonable
treatment.

The CHAIRMAN. Now then you know their troubles. What is the
remedy ?

Mr. SPRAGUE. I say to a certain extent it is a sociological remedy.
It is an appreciation by those who are in power in a community.

The CHAIRMAN. Develop that a little further.

Mr. SPRAGUE. To establish as a basis for all dealings with a public-
service corporation — I care not whether it be a street railway, gas
plant, electric-lighting plant or any others — to establish a basis of
fair dealing. They want efficient operation. They demand a very
high character of service. They are not willing that that service
shall go backward, shall fall off in character. They can not get it
if capital will not invest the money, and even if the money is in-
vested, they can not get it unless the road is operated efficiently. It
can not be operated efficiently, it can not be maintained, it can not
be extended unless there is a reasonable assurance of profit. It is
simply selling a service. Many of the elements of the cost of that
service are no more under their control than the religion of this
country is under mine. Whether it be wages or the cost of mate-
rials, they must accept it. They are subject to taxes, they are sub-
ject to the possible expiration of their franchises, they are subject
to the demands of a good many petty types of politicians who seek
to use the expiration of a franchise as a means of driving a public-
service corporation to the wall. They gain nothing by it, because if
one corporation goes to the wall no other will take its place except
also at a profit.

It seems to me there has got to be a basis which means that on a
fair capitalization there must be a fair return; if costs go up, the
cost of service must go up. If those costs go down, the cost of serv-
ice should be reduced. The operation, of course, has got to be under
public control, and if it is under intelligent control, as it is in many
cases, if the books are open and aboveboard and the management
open and aboveboard and if the profits which the people seek, no
matter whether they are promoting an enterprise or simply invest-
ing as capitalists are only reasonable but still sufficient to encourage
them, I believe the public itself will accept that situation and pay

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 761

a reasonable price for the service. I do not see how it can be other-
wise. On everything else that they buy they do accept those con-
ditions. They demand it for themselves.

The CHAIRMAN. Then to summarize your opinion, you must first
cultivate a degree of confidence betAveen the industry and the public ?

Mr. SPRAGUE. That is the very first thing that is absolutely
necessary.

The CHAIRMAN. And that can only be done by having a basis of
fair dealing between the industry and the public ?

Mr. SPRAGUE. Yes, sir ; that is the only way it can be done.

The CHAIRMAN. That means honest performance by the public
corporation as well as by public officers?

Mr. SPRAGUE. Yes.

The CHAIRMAN. I never have seen, in my experience as a regulat-
ing officer, where the public seriously criticized the raising of a rate
or any other order made by a corporation or by the commission whera
they knew the facts and honestly believed in them.

Mr. SPRAGUE. I think that inevitable. I do not see how it can be
otherwise. If people will put in office men in whom they have con-
fidence, and those men have all the facts before them and then
render a decision, I believe the public can not help but accept it.

The CHAIRMAN. Then your second proposition is that after this
mutual confidence has been established you have got to have a basis
of regulation ?

Mr. SPRAGUE. Yes.

The CHAIRMAN. By which the public will pay no more and no less
than what the service costs, thus assuring to capital a fair reward,
to labor a fair wage, and to the public good service at reasonable cost?

Mr. SPRAGUE. Yes, sir.

The CHAIRMAN. Xow, the problem of the future then is to work
out that basis?

Mr. SPRAGUE. It is. I am reminded of a remark that the late
President Roosevelt is said to have once made. I think it was on an
occasion of some labor discussion, and the representative of that par-
ticular labor element said, " Well, now, finally we have got somebody
to listen to us." And President Roosevelt is said to have replied,
44 Yes, so long as I am President the door of the White House is open
to labor just as freely as to capital, but no easier."

The CHAIRMAN. I think your contribution to this commission has
been of very great value, Mr. Sprague, and I thank you for it.

Mr. SPRAGUE. I am very glad if I have been of the slightest use to
you at all.

The CHAIRMAN. There may be some other examination by other
members of the commission.

Commissioner SWEET. Are you the inventor of the Sprague motor?

Mr. SPRAGUE. Yes, sir.

Commissioner SWEET. Have you not invented other things besides
the motor?

Mr. SPRAGUE. Well, I started, after resigning from the naval serv-
ice, in the development of the stationary motor for all sorts of pur-
poses, and then I took up the development of the trolley; and the
principles which were laid down at Richmond have become uni-
versal— they are accepted everywhere — the motor mounting and con-
trol is now universal. Then I took up what is called the multiple-

108643°— 20 49

762 PROCEEDINGS or FEDERAL ELECTRIC RAILWAYS COMMISSION.

unit system of operation of trains, but meanwhile I had developed
the electric elevator, as distinguished from the hydraulic, and now I
have spent the past five or six years on the development of train con-
trol for safe operation.

I want to say this, that there were none of those enterprises but
what the cost of development has run into hundreds of thousands of
dollars. It is a long story before one gets a return.

Commissioner SWEET. A man who has had your long and interest-
ing experience, I imagine, would hardly be willing to say that any-
thing that now exists in the world is perfect ?

Mr. SPRAGUE. I have not found anything yet.

Commissioner SWEET. You would have no hesitation in admitting
or stating that there are likely to be improvements?

Mr. SPRAGUE. That is absolutely certain.

Commissioner SWEET. I think, in answer to a question that was
asked you, you have stated that you thought the generation of elec-
tricity and its conversion into power for the purpose of moving elec-
tric cars and other purposes had reached a very high point of ef-
ficiency and was not likely to be superseded by any other system.

Mr. SPRAGUE. That is my belief; yes.

Commissioner SWEET. But you would not go so far as to say that
improvements of various kinds — minor, perhaps, many of them— are
not likely to be made in the future ; would you ?

Mr. SPRAGUE. Oh, no. Of course there will be improvements just
the same as there are improvements in that fan there, for example,
which is on your desk. There is an example of a pretty reliable
piece of apparatus. You stick it away anywhere, anybody turns on
the current and it runs along hour after hour without any attention
•whatever. Well, it would be foolish to say that its efficiency could
not be improved a little.

Commissioner SWEET. Certainly.

Mr. SPRAGUE. And that it could not be made a little more noiseless,
that perhaps it could not be built possibly a little cheaper. But those
are more in the nature of refinements ; they are not radical, they are
not revolutionary. This incandescent lamp that I spoke of, which
is the basis of the modern incandescent-lighting system, operated
to-day as it is, has operated for the last 25 years at 125 volts;
it could be operated at 60 or it could be operated at 250, but there
happens to be an advantage in the raising and lowering of tension
which makes that about the best tension, and also it has become now7
almost universal. But the lamp itself in its economy has been in-
creased, the amount of power required to get a certain power is half
or one-third what it was some years ago.

Commissioner SWEET. That is by the substitution of one kind of a
filament for another ?

Mr. SPRAGUE. Yes; but with that same improvement has gone a
disadvantage. That is, we get more intense light and getting a
more intense light we cut down the light so that the net result has
not been very much changed.

You take a great generator, a thirty or forty thousand kilowatt
machine — it has an efficiency of 97 or 98 per cent, not 50 or 60 or 70
•per cent, as the earlier and small machines would have. There is only
a couple of per cents more that is left, so that all you can do is to re-
fine it.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 763

Commissioner SWEET. When you built your Richmond road the
art was at the beginning, practically?

Mr. SPRAOUE. Oh, yes.

Commissioner SWEET. Xow, it was perfectly natural that changes
should be made of a very radical character that would practically
scrap everything that you had there; and what you see to-day in the
absence of any of the equipment that you put in there is what you
might naturally expect, is it not?

Mr. SPRAGUE. Yes. For example •

Commissioner SWEET. But if I understand you right, that is not
likely in the very nature of things to be repeated?

Mr. SPIIAGUE. Oh, nor it would not.

Commissioner SWEET. Yet you do not claim for a minute that
considerable of the material that is used in present equipment may
fail to come up to either the demands of the public for the best
points of economy and be scrapped, do you ?

Mr. SPRAGUE. No; I would not claim that that was impossible, of
course. For example, a good many equipments are running to-day
with generators of perhaps a certain capacity. You may find it
necessary to combine this and that road under a common manage-
ment, like the light and power supply lines, as well as the trolley
lines themselves, and expand the operation under one management
over a very much enlarged territory, and it might easily be that it
would pay a company to scrap this or that smaller station and put
in a fewer number of larger stations of very much increased units.

Commissioner SWEET. Yes.

Mr. SPRAGUE. I would not say that was in the nature of ordinary
scrapping due to either wearing out on the one hand or failure in its
purpose, but because, taking it by and large, they could gain greater
economies in the operation of the station, fewer men, for example.

Commissioner SWEET. That is right. Now, Mr. Sprague, is not
this whole matter of obsolescence of very minor importance in con-
nection with the problem that we are here to consider ?

Mr. SPRAGUE. I think it is almost negligible.

Commissioner SWEET. Yes. Is not the real essence of the thing in
the fact that the nickel -that was paid at the time you built that
railroad in Richmond — because I suppose the fare was then a nickel,
was it not?

Mr. SPRAGUE. Yes.

Commissioner SWEET. It was a nickel fare?

Mr. SPRAGUE. Yes.

Commissioner SWEET. Away back in 1887?

Mr. SPRAGUE. Yes.

Commissioner SWEET. And it was an entirely different nickel from
the nickel we have to-day, as far as purchasing power is concerned?

Mr. SPRAGUE. Well, it is only about half as good or less.

Commissioner SWEET. Is it not a fact that these railroad compa-
nies are paying for everything that they get and everything that
thev need in the way of equipment and wages and everything in a
nickel or in a dollar or on the basis of a dollar that is worth 100 cents
and that their income is coming on the basis of a dollar that is worth
about 50 cents?

Mr. Si'KA(iUE. Yes.

764 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. And can any institution live under those cir-
cumstances ?

Mr. SRAGUE. I think that is a very modest way to put it; and no
institution can live under those conditions.

Commissioner SWEET. The only solution of the problem then is to
find some way of bringing up the income of these street-railroad
companies to a proper relation or proportion to what their expenses
are; is not that the whole question?

Mr. SPRAGUE. Yes ; because you can not compel people to ride ; and
there is the danger in handling it.

Commissioner SWEET. Certainly.

Mr. SPRAGUE. There are people who ride because they have got the
habit, or they ride because it is just about a little more advantageous
to ride1 a certain distance than it is to wralk. If it cost them any
material amount more they would walk. The fellow that has a
longer distance, however, will still ride ; and that is why I personally
feel that a more equitable system of charging is a zone system, al-
though it is rather difficult to apply, but one which in some respects
might be more flexible. But there has to be an increased return
somehow. People to-day are* not paying the same nominal- nickel
but really only about half value for a great deal better service and a
great deal longer ride. In other words, the ratio of what they have
got and what they are paying for has been increased enormously.

Commissioner SWTEET. The same thing could be accomplished if it
were possible to reduce expenses in some way so as to make the in-
come of these companies correspond properly with the outgo, but as
an inventor having full knowledge of electrical equipment and of the
general expenses of these companies, is it your judgment that it is
possible to reduce expenses to meet the present emergency ?

Mr. SPRAGUE. It is not.

Commissioner SWEET. Or anywhere near it?

Mr. SPRAGUE. No, sir.

(Witness excused.)

The CHAIRMAN. We will adjourn now to meet at 10 o'clock to-
morrow morning.

(Whereupon, at 10.05 p. m. an adjournment was taken to Thurs-
day, July 24, 1919, at 10 a. m.)

WASHINGTON, D. C., July 24, 1919—10 a. m.
Present: Parties as before.
Mr. WARREN. Mr. Mortimer, will you take the stand, please?

STATEMENT OF MR. JAMES D. MORTIMER.

Mr. WARREN. Mr. Mortimer, you are the president of the North
American Co.?

Mr. MORTIMER. I am.

Mr. WARREN. Which is interested in a good many street railways?

Mr. MORTIMEB. It is.

Mr. WARREN. You are also president of the Milwaukee Electric
Railway & Lighting Co.?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 765

Mr. MORTIMER. I am.

Mr. WARREN. Of Milwaukee.
'Mr. MORTIMER. Yes, sir.

Mr. WARREN. How many street railways is the North American
Co. interested in?

Mr. MORTIMER. Three; the Milwaukee Railway & Lighting Co.;
a railway utility in the southern part of Wisconsin, forming a part
of the Wisconsin Gas & Electric Co.; and we have a vanishing in-
terest in the United Railways Co. of St. Louis, being a common
shareholder.

Mr. WARREN. There is commission regulation in Wisconsin; is
there not, Mr. Mortimer?

Mr. MORTIMER. There has been commission regulation in Wiscon-
sin since 1905.

Mr. WARREN. Your company has been subject to that regulation
ever since it was adopted?

Mr. MORTIMER. We have been the experimental ground for most
of the regulation for street railways in Wisconsin, and also the ex-
perimental ground for the most of the regulation for street railways
in the United States.

Mr. WARREN. Will you give a brief sketch of the regulation and
its effect as it related to your company?

Mr. MORTIMER. Regulation in Wisconsin first was attempted in
1896 by the common council of the city of Milwaukee, acting under
its police powers. It sought, following a consolidation of seven de-
tached lines making up the unified system, to substitute a commuta-
tion fare of 6 tickets for 25 cents in lieu of the 5-cent cash fare,
with universal transfers.

That case went to the Federal district court on the ground of
confiscation, and the common-council resolution was declared to be
confiscatory. No appeal was ever taken by the municipality. It was
one of the early cases of regulation where a Federal court held that
street-railway utilities were entitled to a reasonable retum, and
any order of a governmental body reducing such return below cur-
rent ordinary interest rates was confiscatory, and therefore in viola-
tion of the Constitution.

In 1905, the legislature passed the railroad-commission law. The
railroad commission law was primarily designed to take care of
steam railroads and telegraph companies. It was not entirely clear
from a reading of the statute that it covered street railways.

Despite that fact, a case was brought by the city of Milwaukee in
th^ following January after the 3-cent fare in Cleveland, to have the
railroad commission ordered to discontinue the franchise rates of
fare and install a fare of 3 cents.

The railroad commission started a valuation of the physical
property —

Mr. WARREN. Of your company?

Mr. MORTIMER. Of the Milwaukee Electric Railway & Light-
ing Co.

The Milwaukee Electric Railway & Lighting Co. at that time
was serving the city fare area. It was closely related to a company
that was serving the suburban and interurban area, known as the
Milwaukee Light, Heat & Traction Co.; and when, hereafter, I
refer to the Milwaukee Electric Railway & Lighting Co. I refer to

766 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

the city company, and when I refer to the Milwaukee Light, Heat &
Traction Company, I refer to the interurban company.

Commissioner GADSDEN. Why not refer to them as the city com-
pany and the interurban company.

Mr. MORTIMER. I think I can refer to them more conveniently as
the city company and the interurban company.

Commissioner GADSDEN. Yes.

Mr. MORTIMER. These two properties were operated jointly, owned
by the same interests, and had the same operating organizations.
The physical property of one began where the other ended, and all
the physical property was used interchangeably.

The company relied upon the rate of fare prescribed in the fran-
chise, and did not take at all seriously the attempt to reduce the rate
of fare, and, accordingly, paid comparatively little attention to the
valuation of the physical property. In fact, there was some effort
to show how cheaply material was purchased, the idea being to keep
the valuation down because of its possible influence upon taxation.

The 3-cent-fare case was reinstituted again in 1907, following the
enactment of an amendment to the railroad-commission law, which
clearly put the street railways under the jurisdiction of the rail-
road commission. The case wras finally decided by the railroad com-
mission in August, 1912. The details of the testimony — the con-
clusions, the analyses, and related matters — are clearly set forth in
Mr. Doolittle's book on the cost of passenger transportation service.
That book I am going to offer to the commission for the detailed
information. The book carries data down to 1912. The com-
mission's order required that the company discontinue the sale of
25 tickets for $1, and substitute in lieu thereof the sale of 13 tickets
for 50 cents, retaining a 5-cent cash fare and 6 tickets for 25 cents.

It also ordered the extension of the single-fare limits — the city
fare limits, the 5-cent limits — out a distance outward from the
center of a mile to a mile and a half, thereby increasing the length
of the ride. Nineteen hundred and thirteen was a year of compar-
atively poor business. In 1914, the jitney competition sprang up.
Operating expenses per car-mile increased, and operating revenues
per car-mile decreased. The same conditions were maintained dur-
ing the year 1915, and in November of the last-mentioned year the
two companies filed a joint petition writh the railroad commission,
asking for an adjustment in fares. We had, in the interval, pro-
cured the installation of the modified zone system, whereby we
abandoned the 5-cent zone on the suburban lines, and substituted in
lieu thereof increment zones of 2 cents per mile.

The commission, after this hearing, putting in these cash zones of
2 cents per mile, ordered the sale of commutation zone tickets of
30 for 50 cents, in response to considerable complaint and political
pressure.

Prior to the time of our filing the November, 1915, petition, a re-
valuation of the ph}-sical property had been started.

Mr. WARREN. There had already been one?

Mr. MORTIMER. There had already been one valuation. The com-
pany was dissatisfied with that valuation, because it was evident
from their checking of it that a good deal of property had not been
disclosed. There were substantial quantities of property that had
been treated as nonoperating that were either at the time actually

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 767

operating or had since been converted into actually operating utility
property, and, moreover, there had been an increase in the quantity
of the physical property by approximately 50 per cent. The revalua-
tion of the physical property disclosed an increase of something over
$2,000,000, when contrasted with the physical property as of the
same date of the prior valuation.

The problem of making rates in our system is rather complicated
because of the fact that it is a joint railway, electric, and steam-heat-
ing corporation; in other words, we have three utilities, much of
certain classes of the property of which is common to all three
utilities.

The CHAIRMAN. Do they have a separate system of accounting for
each company?

Mr. MORTIMER. They have a separate system of accounting for
capital expenditures, operating revenues, and operating expenses;
but when a piece of land is purchased for a power situation or for an
office building, the value of that real estate must necessarily be ap-
portioned between the three utilities in accordance with the use by
each class of the business growing much more rapidly than another
class.

For example, if the light and power business is increasing three
times as fast as the railroad business both in capital expenditures
and in revenues, there will be a changing basis of apportionment of
the common property.

The railroad commission in its decision of August, 1912, estimated
that the rate of depreciation — that is, the allowance which should
be made to cover the cost pf replacements over and above the expendi-
tures for ordinary maintenance — should be 4.46 per cent per annum.
The city attorney had previously computed it at 2.394632 per cent.

Mr. WARREN. A sort of squaring of the circle?

Mr. MORTIMER. In our petition of November, 1915, we used the
railroad commission's valuation of the railway's property as of
August, 1912, and made it up to date by our capital expenditures,
using the railroad commission's estimate of the rate of accruing
depreciation, and thereby showed that we were earning between 4
and 5 per cent per annum upon the appraised value of the utility
capital.

No action was had upon the petition of November, 1915, for a long
time.

In the latter part of 1916, the company filed an emergency petition
with the railroad commission, asking for emergency relief, because
of the necessity of making large increases in wages to attract the
labor necessary to operate the railway system and also to permit it
to make an 8-hour day effective throughout the railway department.

That petition was denied on the ground that the emergency was
not such as to justify the granting of emergency relief as contem-
plated within the statute, and the commission at that time indicated
that even a threatened receivership would not be sufficient to con-
stitute an emergency within the meaning of the statute. The officers
of the company pushed for a determination on the petition of No-
vember, 1915.

The valuation had dragged rather slowly — the revaluation had
dragged slowly — and was finally completed in August, 1917.

768 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The cost of living began to very rapidly increase, and it became
necessary for the company to consider making substantial increases
in wages; first, to keep the men on the cars; and second, to keep the
service going — that is, to keep a sufficient number of trainmen to
operate the cars.

The matter finally came to a head in a demand made in the latter
part of April, 1918, by the employees for an increase of 15 cents
an hour and for an 8-hour day. The company told the men that
they had no dispute with them on the matter of wages, but since
wages were so intimately related to fares that the proper place to
make the application was at the office of the railroad commission
in Madison. The committee w^ent there and received very "atten-
tive treatment and were assured that by the 1st of May there would
be an order granting an increase in fares.

Based upon the assurance given by all three members of the rail-
road commission to the committee, I entered into a contract Avhere-
by the wages of the men were increased 10 cents per hour, or ap-
proximately $1 per day. A strike had been threatened. The cessa-
tion of service had been threatened, and this assured the continuity
of service for the time being. The Railroad Commission of Wiscon-
sin told the committee that an order would be forthcoming from the
15th of May, and not later than the 19th. The 15th came by, and
there was no order, and the 19th came by and there was no order ; and
the employees naturally wanted to know when the case was going to
be determined. I found it necessary to tell the committee that if there
was no order forthcoming by the time the pay roll for the last half of
the month of May, 1918, was made up, we would be unable to pay
the increase in wages for the last half of the month of May, because
the increase had been predicated upon the granting of relief by the
railroad commission.

The employees communicated these facts to the railroad commis-
sion, and on the 1st of June, before all the time slips had been as-
sembled, the railroad commission handed dow7n an order, order-
ing the company to discontinue the sale of 25 tickets for a dollar
and 6 for 25 cents, and to substitute in lieu thereof a 5-cent cash
fare ; and that is the fare that we are collecting to-day.

In August, 1918—

The CHAIRMAN. You say there was an understanding between yoti^
the railroad commission and the employees, that an order would .be
made increasing rates?

Mr. MORTIMER. The understanding

The CHAIRMAN. Now, what were they going to increase the rates
to?

Mr. .MORTIMER. There was an understanding between the com-
mission and the men, and then between the men and the company,
that there Avould be an adjustment of rates. There was no under-
standing as to the magnitude of that adjustment, so far as I know,
At least, the company had no knowledge of it.

The CHAIRMAN. It was one of those open covenants openly ar-
rived at which did not materialize?

Mr. MORTIMER. Well, we got an increase. So that, so far as that
part of it is concerned, the commission carried out its word tech-
nically with the employees.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 769

The results of the increase in rates were not sufficient to com-
pensate for the increase in expenses and produce a reasonable return
upon any measure of utility capital. So the company, in August,
1018, filed an additional petition asking the commission to investi-
gate the matter. The commission had retained jurisdiction, as they
usually do in cases of that kind, so that the results could be watched,
and we were filing frequent statements with the commission showing
the results of the order and the tendencies of operating expenses.
The commission appeared to be very much peeved because we had
filed an additional petition so shortly after we had been granted an
increase to 5 cents from the 1st of June. No time was set for the
hearing until the latter part of October. The hearings were neces-
sarily of relatively short duration, because all the essential facts
up to April, 1918, had been presented to the commission, and it was
only necessary to supplement them by more recent data of the ex-
penses and actual expenditures. The hearings were supposed to be
closed on the 27th of November, 1918.

The employees had begun to push for further increases in wages.
Their wages, following the May 1 adjustment, while embracing a very
large increase in the hourly rate, were not then comparable with the
awards that were being made by the National War Labor Board,
the first of which were made along in the early part of July,' 1918.

When the employees asked for further adjustments in order to
bring 'their scales into line with what they called the Government
wage, we told the employees that it was a question of revenues, and
that it was up to them to get an increase in revenues, and that we-
would cooperate to whatever extent we could, that we had already
had this petition filed.

The employees employed an accountant to make an examination
of our books of account to ascertain whether or not we were telling
them the facts, and the accountants reported to them that the facts
were substantially in accordance with what the company had stated.
Based upon this examination, the employees again presented them-
selves to the railroad commission and asked if the information con-
tained in the Hagenah and Erickson report was not correct. The
commission replied that, so far as their cursory examination indi-
cated, the report was substantially correct and did not differ ma-
terially from their own figures.

Then the situation began to become more active. The company
indicated its helplessness. It showed that the earnings on the rail-
way property were only 3 per cent per annum on the appraised
value of the physical property, stripped of all considerations of
stocks and bonds and bond discounts, and with only very modest
allowances for overhead, engineering overhead.

The employees made a number of trips to the railroad commission,,
and they finally went to the governor of the State. It thus became
more or less of a political issue. Then the employees finally decided
that they would have to cease service on the 1st of January, 1918, after
serving notice upon the public.

Commissioner MKKKKK. 1918?

Mr. MOKTIMKK. 1919, the end of the year 1918. And service waa
ceased for one day.

770 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The service was resumed on the night of January 1, upon the agree-
ment of the company to pay to the employees an increase in wages of
approximately ±$ cents an hour, predicated upon the organization's
using its influence to get out of the railroad commission a prompt
decision upon the company's application of August, 1918.

The fact that the company was not fighting with the men, that they
appeared to be on friendly terms, had caused the city attorney of Mil-
waukee to claim that a conspiracy existed and had resulted in the
first attempt on the part of the railroad commission to investigate the
cause of the strike, but later there was an appointment of a legisla-
tive investigating committee made up of members from both houses.

That legislative investigating committee held hearings during a
number of weeks, took testimony of over 1,800 pages, and, finally,
about the middle of April, it handed down its findings.

Now, the findings are of interest; and I beg the privilege of the
commission to read certain extracts.

Commissioner MEEKER. Will not the whole report, if it is contained
in that brief pamphlet, be of interest to the commission?

Mr. MORTIMER. I intend to file it.

Commissioner MEEKER. Yes.

Mr. MORTIMER. There are certain matters connected with it that I
want to develop.

The CHAIRMAN. Proceed.

Mr. MORTIMER. I believe it was said at some prior hearing that the
street-railway companies never presented their facts to the public,
and it was also said that the street-railway companies would have less
trouble if they fought back; and I want to disclose some of our ad-
vertisements.

This is a part of the findings of the legislative investigating
committee :

The railroad commission in the negotiations with the men always took the
position that the company should first raise the wages of the men and that the
commission would consider such raise as an operating expense in its decision.
It was on this basis that the raise of May 1 was granted, but it was claimed
on the part of the company that the railroad commission did not at that time
give sufficient consideration to the increase in wage cost. The company, there-
fore, took the position that no further raise should be made until the commis-
sion first acted on the proposed increased wage and provided revenues therefor.
There is a sharp difference of opinion between the company and the railroad
commission as to the power and duties of the railroad commission with refer-
ence to wages. The company contends that the commission has the power and
duty to pass on the question of wages as a factor in the administration- of the
railroad commission law, and that, where the increased wage is determined
upon by the commission, it is its duty, as a condition precedent to the payment
thereof, to furnish in revenues lawfully required for that purpose. The com-
mission contends that it has no power and no duties in regard to wages, ex-
cept to consider them when paid as an operating expense. It is the opinion of
the committee that the railroad commission takes too narrow construction of
the law and that it has the power to consider wages the same as It has the
power to consider any other factor in ordering service, and if this power is
hot sufficiently specific in the statutes as now provided, the commission should
be given that power. In other words, the commission should have full and
comprehensive administrative jurisdiction to keep the wheels going and prevent
cessation of service.

The company expressed its dissatisfaction with the delay of the commission
In its decision on the case pending from November, 1915, to June, 1918, and
seemed determined not again to take any chances on a delay of that character
by advancing wages and waiting for a subsequent recognition of the outlay.
It not only sought to bring pressure on the commission to decide the pending

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 771

application of August, 1918, by encouraging the men to bring pressure upon
the commission to act, but it sought to influence public sentiment against the
commission and in its favor by various means. This was partly done through
publications which it issued fi'om the Public Service Building and had dis-
tributed to the patrons of the road by its employees, and it was done by paid
advertisements in the public press. On December 28 the following paid ad-
vertisement was run in a Milwaukee newspaper :

" The Electric Co. has no dispute with its employees over wages, hours, or
working conditions. Our relations have been and are most friendly. The com-
pany deeply appreciates, and we believe the community does, the fact that
Milwaukee Street Railway employees have shown a high degree of loyalty and
forbearance in keeping the cars moving during the war year notwithstanding
the wage was less than that established by the National War Labor Board for
cities of Milwaukee's class. * * *

" The railroad commission well knows and our men, through their own ac-
countants' investigation, learned that the street-railway systems of these com-
panies entered the year 1918 earning much less than the reasonable return assured
them by State law. * * * It is in view of the foregoing facts that our
men demanded of the railroad commission par revenue increases which as they
know are the only means of giving them adequate wages. They share the
company's belief that the people of Milwaukee are able and willing to pay the
fair going price for the services they render and that the commission will fear-
lessly execute the plain intent of the State utility regulation."

And on December 29 the following paid advertisement was run in a Milwaukee
newspaper :

" Punishing Milwaukee. * * * Wisconsin Railroad Commission's refusal
to maintain the State's good faith by executing the plain intent of the utility-
regulation law robs street-railway employees and investors and injures the
whole community.

" Milwaukee and surrounding cities are threatened with a strike's stopping
street railway and electric service on January 1, because the railroad commis-
sion for over two years has failed and refused to allow the Milwaukee Electric
Railway & Light Co. and the Milwaukee Light, Heat & Traction Co. earnings
enough to pay living wages. * * * It is because our men through their own
accountants' investigation know the above facts that they address their de-
mands for higher wages primarily to the railroad commission rather than to
the companies.

" As a direct and unavoidable result of this gross violation of the State's
go"d faith, the employees of these utilities have been underpaid ; the owners
will be robbed of a large share of return on the investment which they should
have received for the year 1918 ; the companies are being compelled to pay a
higher price for new capital urgently needed to finance plant growth, and
service betterments desired by the public could not be provided."

The CHAIRMAN. Who paid for those advertisements?

Mr. MORTIMER. We paid for them.

Commissioner SWEET. The company did?

Mr. MORTIMER. The company did.

Commissioner GADSDEX. It was put out over the name of the com-
pany?

Mr. MORTIMER. Oh. yes; over the najne of the company, of the
Milwaukee Railway & Electric Lighting Co.

" These companies and their employees do not for a minute doubt the good
frith of the people of Wisconsin nor of the State nf Wisconsin. We feel sure
that when the facts are known public opinion will compel action by the
governor and the railroad commission to maintain the State's good faith and
do justice to this community and to the employees of and investors in Milwau-
kee's electric service.

" For more than two years past these companies have been quietly pleading
with the railroad commission to do its plain duty under the State law. The
commission, in possession of all the facts, has failed and refused to do its duty.

"As a result our employees are now prejwired to tie up the system unless
the companies give thorn wuuc !HCJ-<M>OS. which they need and should get, but
which can not bo gi\vu them without nibbing our creditora

772 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

" There is just one way out. That is for the railroad commission to fix
fares that will let the companies pay the wages demanded and pay their in-
vestors a fair yearly return, which the State assured them when it assumed
control of their rates, services, finances, and accounting."

Then, following the discussion of the causes and the faet that the
causes had not been removed, the legislative investigating committee
says :

As there is no change of venue from the commission, and the company must
continue to submit its matters of service and regulation to the commission,
this, in itself, presents a serious question. Provisions are made in the court
practice for a change of venue for prejudice of the judge, but there is no such
provision in the case of the commission.

The beginning of the trouble probably came from lack of prompt decision
on the part of the commission. That condition has existed for a long time.
Decisions have been delayed seemingly for unreasonable periods. There can
be little justification in a hearing pending from November, 1915, to June, 1918.
But other decisions have been delayed much longer.

The commission has the power and jurisdiction to require books to be kept
by the companies in the manner and form required by it and to require reports
from the companies in the manner and form and at the time demanded by it.
By a careful checking of these reports, as filed, and prompt correction of errors,
there would seem to be no reason why the commission should not be fully
advised of the financial conditions of the companies at all times. Such a sys-
tem in itself furnishes a valuable check on the management and service of such
companies.

The commission has frequently held, and so have the courts, that a rate from
7 or 8 per cent on invested capital is reasonable. In a decision by the circuit
court of Dane County, Judge Stevens presiding, the court held that the com-
pany had an "income on the city railway property in 1912 of 5.61 per cent;
in 1913, 3.48 per cent ; in 1914, 5.49 per cent," and he concludes " that the
average being 5£ per cent or thereabouts " — under 5£ per cent — " any order
which reduces returns on investment to so low a cost as 5£ per cent is unrea-
, eonable." In that decision Judge Stevens used the commission valuation.
I This rate is susceptible of fluctuation as the interest on money fluctuates, and
r the rate of return need not be uniform throughout the year or even over a term
of years. If the general level of rate upon investments is in conformity to the
lawful rate, the rates may vary considerably from time to time. By a full
accounting system, the commission should have no serious difficulty in deter-
mining the general level of returns on invested capital from month to month
and to maintain that level by adjustment of rates and service. Hasty and
ill-considered action should never be required, but reasonably prompt decisions
are necessary to any system for administering justice. .

It would be well to guard against unwarranted delay in the future in decid-
ing cases by the commission by providing in the law that whenever any party
deems its case to be unwarrantably delayed, it may obtain in the circuit court
'- for Dane County, an order to show cause against the commission why the com-
I mission should not be ordered to render a decision within a reasonable time
' to be fixed by the court.

The committee finds that the cessation of service on the street-car lines in
the city of Milwaukee on the 1st day of January, 1919, was the result of the
company's failure to meet the just wage demands of the trainmen on the one
hand, and the failure of the railroad commission to expeditiously function, on
the other hand.

The commission is subject to reasonable criticisms through the press or
otherwise, but in no case should it be coerced into a decision by a party liti-
gant.

Mr. WARREN. There is no time limit in your statute, the Wisconsin
statute, on the decisions of the commission ?

Mr. MORTIMER. No; there is no time limit on the decisions of the
commission.

Mr. WARREN. Do your tariffs have to be approved by the com-
mission before they become effective, or does the commission sus-
pend them ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 773

Mr. MORTIMER. In practically all cases, under both the railroad
commission law and the so-called public-utility law, increases are
procured by filing petitions, rather than by the filing of tariffs. In
other worcls, the Wisconsin law differs materially in that respect
from the laws of many other States by permitting the filing of the
tariffs and rate schedules, with the authority of the commission to
suspend for limited periods of time.

Mr. WARREN. So that your increase can not take effect at all until
affirmative action by the commission?

Mr. MORTIMER. Our increases can not take effect until there is
affirmative action by the commission. We can have no increase in
rates until there has been affirmative action by the commission.

Commissioner SWEET. After this legislative committee made its
report, were any bills introduced into the State legislature seeking
to amend the law, so as to compel the commission to take prompt
action ?

Mr. MORTIMER. There were a number of bills introduced in the
legislature at that time following the filing of this report relating
to the abolition of the commission.

Commissioner SWEET. Still more drastic than compelling them to
act promptly?

Mr. MORTIMER. Yes.

Commissioner SWEET. But was there ever any legislation enacted
or any laws passed by the State legislature on the subject ?

Mr. MORTIMER. There was no action taken on this report. There
has been some legislation not directly connected with this report,
but having a bearing on it, that was enacted, and that legislation I
would like to refer to in a separate discussion of recent legislation.

The CHAIRMAN. What action was taken on the bills introduced to
abolish the commission?

Mr. MORTIMER. They died their natural and usual death.

The CHAIRMAN. Was there any real support for those bills?

Mr. MORTIMER. It was isolated and not organized.

The CHAIRMAN. Were the utilities for or against those bills?

Mr. MORTIMER. Some of the utilities openly opposed them, and
other companies took the position that it did not make any difference,
that it could not be any worse if they had no commission.

Mr. WARREN. Are you a. believer or not in the theory of commission
regulation, State regulation through commissions?

Mr. MORTIMER. I am a believer in the theory of regulation by com-
mission, and believe it is the most satisfactory way of taking care of
the many complicated relationships that exist between the public
utility and the community served, the State, and the employees.

Commissioner SWEET. But you think there should be coupled with
it a requirement for prompt action?

Mr. MORTIMER. Yes. I would even go further than that and sug-
gest that the laws be materially changed, so that there should be no
shifting bases for commission regulation. That is one of the hazards
of commission regulation.

Commissioner SWEET. What do you mean by "shifting bases?"

Mr. MORTIMER. A commission may shift its basis on three princi-
pal things: First, the item of valuation. One commission may have
one viewpoint as to what elements of value are to be considered,
and another commission, a subsequent commission, appointed under

774 PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION.

the same law, may have an entirely different opinion. It is im-
portant that that hazard of shifting valuation be eliminated; first,
so that the utility may know where it stands with respect to earning;
and second, so that the investors may be assured when capital is put
into the property, when the property is sold or subsequently regu-
lated for rate-making purposes, it will be considered at the par value
of its original investment.

Commissioner SWEET. Well, you did not have two commissions,
did you ? There was only one State commission ?

Mr. MORTIMER. Yes; there was only one State commission, but
the personnel —

Commissioner SWEET. Oh, yes.

Mr. MORTIMER. There had been a rather rapid turnover in the
commission ?

Commissioner SWEET. I see.

Mr. MORTIMER. In the period between the August, 1912, decision,
and the decision of June, 1918.

Commissioner SWEET. So that the commission at different times
with different personnel might adopt a different plan of valuation?

Mr. MORTIMER. Yes. Then the second element is the amount to
be allowed to insure future replacements.

The commission that had the job in August, 1912, wrhen it ordered
a discontinuance of 25 tickets for a dollar and 13 tickets for 50
cents, used a depreciation allowance of 4.46 per cent.
The commission, in June, 1918, with a different personnel, used an
allowance of 2.82 per cent, a difference of 1| per cent. One and a
half per cent on the valuation of $20,000,000 runs into a substantial
sum each year.

Commissioner SWEET. Oh, yes. How large a commission do you
have in Wisconsin?

Mr. MORTIMER. There are three members-^the chairman and two
other commissioners.

Commissioner SWEET. Appointed by the governor?

Mr. MORTIMER. Appointed by the governor and confirmed by the
senate. Each gets paid $5,000 a year.

Commissioner MEEKER. What was the third point that you just
started to elucidate?

Mr. MORTIMER. The third point is some definite determination
with respect to permanency of return.

The commission, in its decision of August, 1912, held that the
railway utility was entitled to a reasonable return upon the fair
measure of the utility capital, that that reasonable return was 7|
per cent per annum, and, based upon that assurance, I authorized
the expenditure in our Wisconsin properties during the succeeding
years of, roughly, $15,000,000. I feel quite sure that we have never
earned any 7i per cent return in the railway business during the in-
tervening period of time, and the railroad commission, in its deci-
sion of April 4, 1919, in response to our petition of August, 1918,
held that the commission had never said that the companies were
to get a reasonable return during good times and bad times.

Now, if a reasonable return limited to 7£ per cent means
anything, it means that you are going to get it both in good
times and bad times. Otherwise, there is no justification for limit-
ing the return to a figure as low as 7£ per cent. The theory of the

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 775

computation of 7-| per cent is that there shall be an allowance for
interest of approximately 6 per cent, plus a profit on that for tho
compensation of the enterprise of H per cent.

Commissioner MEEKER* Do you mind suggesting how you think
these shifting things can be avoided?

Mr. MORTIMER. Yes; I would like to do that, Mr. Commissioner,
and I want to discuss that in touching on the relationship between
State regulation and so-called cost-of-service franchises.

Mr. WARREN. Do you want first to describe the recent legislation?

Mr. MORTIMER. There is one intervening thing, because I want to
lead up to the April 4, 1919, decision.

During the time that the legislative investigating committee was
holding sessions, just shortly prior to the time that it arived at its
decision and filed its report —

Mr. WARREN. Was that report unanimous ?

Mr. MORTIMER. That was the unanimous report. There was a sup-
plementary report that dealt more with the labor aspects of the sit-
uation. That supplementary report was signed by, I think, three of
the members, ancl it attempted to show the great hazard that existed
for the public and for the employees where there existed a labor or-
ganization such as ours.

Commissioner GADSDEN. Was it Amalgamated?

Mr. MORTIMER. No.

Mr. WARREN. It is an organization of your own men?

Mr. MORTIMER. Well, there is an organization that has exclusive
labor contracts with several of our companies, with all of our com-
panies, the Milwaukee Electric Railway & Lighting Co., the Wiscon-
sin (ias & Electric Co., the North Milwaukee Light & Power Co., and
the Wells Power Co.

The chairman of the commission during this time was up for reap-
pointment. There was considerable opposition to his reappointment
from the Social Democrat members in the legislature, in the Senate.
We also ascertained subsequently that there was a good deal of pres-
sure brought to bear upon the commission not to permit any advance
in fares while the legislature was in session.

So the railroad commission, in its decision of April 4, 1919, in re-
sponse to our petition of August, 1918, estimated the increase in rev-
enues during the year 1919, which they thought the company ought to
enjoy. They made certain allowances for maintenance of way and
structures and for the maintenance of equipment, and estimated what
the net operating revenues would be applicable to the payment of a
return upon the utility capital.

In this process of making these estimates, it very largely reduced
the allowances which we had incurred during the last two years — 18
months, rather — for the maintenance of way and structures, and for
the maintenance of equipment, and substituted its own allowances.
They also, in the process of the computation allowances, dropped
$100,000 of our expenditures for the maintenance of way and struc-
tures, and then forgot to pick it up again.

So that on its own computations, we were $100,000 short of earning
this reasonable return. They estimated that we would earn during
the year 1919, 7.5 per cent return.

if ere are the results :

For the Milwaukee city and suburban-railway utility, comprising
about 220 miles of track and involving a capital investment in tka

776 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

railway business alone, exclusive of power-plant facilities, of $15,-
910,000, the rate of return earned during the month of May was 3.92
per cent per annum, or about 0.25 of 1 per cent per month.

Mr. WARREN. May of what year, Mr. Mortimer?

Mr. MORTIMER. May, 1919. I want to correct that. That is in the
single fare area alone, comprising 167 mitas of track.

Mr. WARREN. What was that $15,000,000? Was that the result of
the valuation made by the commission?

Mr. MORTIMER. This determination of $15.900,000 is the appraisal
of the physical property by the railroad commission as of January
1, 1914, to which have been added the capital expenditures as shown
by the books and as audited by the railway-commission accounting
staff.

The figures that are — I was in error. The return during the
month of May for the single fare area was 0.45 of 1 per cent per
month, a net operating revenue of $71,557 out of a gross revenue of
$533,045. There was a loss shown on the suburban system, not in-
cluding the interurban, of 0.6 of 1 per cent, and the combined return
for the two systems for the month of May was 0.36 of 1 per cent.
For the five months ended May, 1919, we earned 1.92 per cent under
the 5-cent fare in the single-fare area, lost 3.39 per cent on the
suburban system, and on the two systems taken together showed a
net of 1.5 per cent for five months.

Commissioner MEEKER. Will you allow me to suggest that these
percentages that you have given should be in equivalent percentages
per annum, so that no confusion may arise? I do not ask that you
do that now, but will you have that in the record ?

Mr. MORTIMER. Yes. I now have the figures on the annual basis.
For twelve months ended May, 1919, the Milwaukee single fare
area shows a return of 3.92 per cent. That is a cumulative percent-
age for 12 months and is, of course, at that rate per annum.

The suburban system showed a loss of 6.27 per cent upon a utility
capital of $1,353,000, and upon the combined system a return of
3.12 per cent upon a utility capital invested exclusively in railway
facilities of $17,264,751.

Commissioner MEEKER. You said $17.000,000 now and over $15,-
000,000 a moment ago.

Mr. MORTIMER. Yes; the $15.910,909 relates to the capital in the
single-fare area.

Commissioner SWEET. The city property?

Mr. MORTIMER. Yes; the city property.

Now, we are required to file these statements monthly with the
railroad commission, showing these analyses, and we also hand
them to the press, so that the public who are interested will be in-
formed. We also filed with the commission, for the information
of the commission, a comparison between our actual results and the
commission's estimates.

For the five months of the calendar year, the commission under-
estimated the operating revenues by $18,084. It underestimated
operating expenses by $297,793, or something above 12 per cent

Commissioner MEEKER. Do you still have faith in the commission
principle of regulation?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 777

Mr. MORTIMER. If they would let me fix the law, I would have
fi.ith in it.

Commissioner SWEET. You would not fix the commission?

Mr. MORTIMER. Well, the commission thinks we did. During the
five months, according to the commission's computation, we should
have earned an actual return of 3.11 per cent — actual for the five
months, cumulative for five months — and we have earned 1.5 per
cent, as previously indicated, upon a utility capital of $17,335,134.
That is our most recent experience with the regulation by the com-
mission.

The statements thus referred to by Mr. Mortimer are as follows :

Utility income accounts of the Mihcaukee Etevtric Railway & Light Co. and
Milwaukee City & Suburban Railway utilities.

FIVE MONTHS 1919 ACTUAL COMPARED WITH ESTIMATE IN WISCONSIN RAILROAD
COMMISSION ORDER OF APR. 4.

Five months
operation based
on Wisconsin
Railroad Com-
mission order of
Apr. 4, 1919.

Utility income
account for five
months ended
May 31, 1919.

Differences.

Operating revenues

$2,698,442.85

$2,716,526.92

$18,084.07

Passenger revenues

2,695,846.12

20, 680. 80

Operating expenses

2,158,580.30

2,456,373.39

297,793.09

Way and structures

124,055.10

189,486.71

65,431.61

Equipment

182,271.75

295,431.07

113,159.32

Power

382,777.05

377,761.41

5,015.64

Traffic and transportation

1,014,708.00

1, 046, 860. 58

32, 152. 58

General and undistributed

164,399.65

238,157.37

73,757.72

Taxes

106,179.50

112,333.20

6,153.70

Depreciation

184, 189. 25

197,343.05

13,153.80

Net operating revenue

539.862.55

260,153.53

fl9, 709.02

Per cent return (five months)

3.11

1.50

Cost of reproduction

'$16,812,003.00

* $16. 795, 134. 00

542,500.00

540,000.00

Total utility capital

17,354,503.00

17,335,134.00

i Jan. 1, 1919.
1GOG430— 20 50

* Average.

778 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Utility income accounts of the Milwaukee Electric Railiray .<& Light Co. and
Milwaukee City <€ Suburban Railway utilities. — Continued.

TWELVE MONTHS ENDED MAY 31, 1919.

Milwaukee City
Railway (single-
fare area).

Milwaukee Su-
burban Rail-
way.

Milwaukee City
and Suburban
system.

Operatin" revenues . .

85,871,354.95

$298,057.86

$6 169 412 81

Passenger revenues . .. . ---

5. 823. 505. 38

286,967.50

6 110 472 88

47,849 57

11 090 36

58 930 "'!

5,217,022.70

383 024 80

5 630 047 50

Way and structures

399, 682. 43

65 513 25

465 225 68

Equipment

622,677.37

44 586 13

687* 263 50

Power

892,084.13

45, 852. 50

937,936 63

Traffic and transportation

2,213,011.68

133 580 SO

2 316 592 4H

General and undistributed

475, 358. 46

38, 345. 79

511,704 25

Taxes ... .

211 620 98

18 065 96

223 6S6 94

Depreciation

434,587.65

37 050.37

471,638 02

Net operating revenue

624 332. 25

84 966 94

539 365 31

Per cent return earned, per year

3.92

6.%7

3 12

Cost of reproduction average

$15 410 909 00

$1 313 842 00

$16 724 751 00

Materials and supplies

500 000.00

' 40 000 00

540 000 00

Total utility capital

15,910 909.00

1 353 842 00

17 264 751 00

MONTH OF MAY," 1919.

$533, 045. 70

$26 755 55

$559 801 25

529 559.20

26 008 06

555 567 26

3, 486. 50

747. 49

4 233 Q9

Operating expenses . .

461,487.74

34 923. 63

496 411 37

Way and structures

45,334. 08

5,909.82

51.243.90

Equipment . .

55, 529. 60

5,151.09

60 680 69

Power

64,395.02

3, 244. 88

67 639 90

Traffic and transportation

195 600 41

12 387 51

207 987 92

General and undistributed

43, 389. 50

3,346.36

46 715 S6

Taxes .

20 699.53

1,767 11

22 466 64

Depreciation

36, 559. 60

3, 116. 86

39 676. 46

Net operating revenue

71.557.96

8,168.08

63 389 S8

Per cent return earned one month

.60

Cost of reproduction, first of month

$15, 557, 275. 00

$1,326,323.00

$16, 883, 598. 00

Materials and supplies

500 000.00

40 000.00

540 000 00

Total utility capital .

16,057 275 00

1 366 323 00

17 423 598 00

FIVE MONTHS ENDED MAY 31, 1919.

Operating revenues

$2,596,458.43

$120,068.49

$2 716 526 92

Passenger revenues

2, 579, 379. 00

116,467.12

2 695 846 12

Other revenues

17, 079. 43

3,601.37

20 6X0 SO

Operating expenses

2, 290, 407. 70

165 965 69

2 456 373 39

Way and structures

163 535 73

25 950 98

189 486 71

Equipment

274, 430. 23

20, 000. 84

295 431 07

Power

359, 723. S3

18, 037. 58

377,761.41

Traffic and transportation

986 688.47

60.172 11

1 046 860 58

General and undistributed

220. 691. 38

17, 465. 99

238 157.37

Taxes

103 497.65

8 835 55

112 333 20

Depreciation

181,840.41

15, 502. 64

197,343.05

Net operating revenue

306,050.73

45, 897. SO

260 153.53

Per cent return (5 months)

1 92

3 39

1 50

Cost of reproduction, average

$15 475 779.00

$1 319,355.00

$16 795 134 00

Materials and supplies

500, 000. 00

40, 000. 00

540, 000. 00

Total utility capital

15,975,779.00

1,359,355.00

17,335 134.00

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 779

Utility income accounts of the Milwaukee Electric Railway d Light Co. and
Milwaukee City & Suburban Railway utilities. — Continued.

MONTH OF MAY, 1919, COMPARED WITH WISCONSIN RAILROAD COMMISSION ORDER

OF APR. 4.

Average month
based on Wis-
consin Railroad
Commission order
of Apr. 4, 1919.
and Exhibit 4,
Apr. 24, 1919.

Utility income
account for
month of May.
1919. •

Differences.

Operating revenues

$539,686.57

$559, 801. 25

$20 112.68

Passenger revenues

555, 567. 26

Other revenues

4, 233. 99

Operating expenses —

431,716.06

496,411.37

64, 695. 31

Way and structures

24,811.02

51,234.90

26 432. S3

Equipment

36, 454. 35

60 680.69

24 22f> 34

Power

76,555.41

67, 639. 90

8 .916. at

Traffic and transport ation

202,941.60

207, 987. 92

5,046.32

General and undistributed .

32, 879. 93

46, 715. 86

13 835 93

Taxes

21,255.90

22, 466. 64

1 230 74

Depreciation.

36, 837. 85

39, 676. 46

2 83S 61

Net operating revenue

107,972.51

63,389.88

44, 582- OS

Percent return:
Per month

.62

..36

Per year. .

7.47

4.37

Cost of reproduction

1*16,812.003.00

2 $16, 883, 598. 00

Materials and supplies

642', 500. 00

540,000.00

Total utility capital . . .

17,364,503.00

17.423.598.00

1 Jan. 1, 1919.

May 1, 1919.

Utility income accounts of the Milwaukee Electric Railway & Liffht Co. and
Racine City Railway utility.

YEAR ENDED MAY 31, 1919; FIVE MONTHS ENDED MAY 31, 1919; AND MONTH OF MAY

1919.

Year ended May
31, 1919.

Five months
ended May 31,
1919.

Month of May.
1919.

Operating revenues

$427, 426. 71

$205,097.13

$40, 935. 97

Passenger mvpim*"8

420,093.65

203,400.21

40, 610. 72

Other revenues

7,333.06

1,696.92

S'.'.V 25

Operating expenses

436,522.13

199,232.28

40, 989. 43

Way and structures

59, 409. 33

24,372.81

5, 5S2. 06

Equipment

50,913.37

23, 698. 44

6,17"). 32

Power

52,016.25

21,344.78

3, 8SIO. OS

Traffic and transportation

191,017.01

90, 719. 37

17, 973. 94

General and undistributed

44, 194. 04

21,887.91

3,914.01)

Taxes

12, 770. 78

6,245.80

1,249.16

Depreciation

26,201.35

10,963.17

2,204.18

Net operating ro venue

9,G9o.4t

5,864.85

53.46

Percent return earned

>.0«

«.ei

».006

Cost of reproduction

. < . ••, ; •_,. IK)

« $938. 037. 00

'$937,951 00

Materials and supplies

30,000.00

30, 000. 00

Total utility capital

999,126.00

963,037.00

967 951.00

1 12 months.

1 4 months.

• 1 mouth.

'Average.

» May 1, llil'J.

780 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. MORTIMER. Now, regulation by the Wisconsin Commission is
presumed to embrace the theory of cost of service. The rates of fare
are intended to produce sufficient revenues which will provide all
current ordinary operating expenses, taxes, and an allowance to
insure the future replacement of physical property and a reasonable
return, and in our railway utility the commission has held that a
7.5 per cent return is a reasonable return, and that has been adjudi-
cated by the, supreme court of the State as fair and proper. At
no time during the last two years have we earned any such return.

The year 1916 was our best year, because our expenditures for main-
tenance were rather low, but even then the commission held that,
during 1916, after making adjustments and operating expenses,
charging to depreciation reserve the things that this commission
thought should be charged, and things that the previous commission
thought should be charged to operating expenses, they found that
our return never exceeded 7.6 per cent.

Now, our experience with the investment of capital in a railway
business is such that I would feel no justification in recommending
to investors that they put any additional money into the railway
business in Wisconsin. I have frequently told the commission that,
and it is pretty well understood that some important change has to
take place. The railroad commission has information at all times
respecting the utility capital, provided there is no dispute on what
the valuation is. By the arrangement for the filing of frequent
reports, it is also in a position to watch the tendencies in operating
expenses, and it is my opinion that the railroad commission should
provide, by order, for a scheme of automatic regulation, so that the
net operating revenues would at all times be kept in approximate
accordance with the amount determined as the proper annual return
by the commission. There may be some technical objection from the
standpoint of law that the commission can not enter such an order,
but having been apprised of the facts in advance of the last session
of the legislature, it was the duty of the commission to have asked
for the enactment of such legislation as would have permitted it to
have entered such an order.

Now, that brings up the relation of cost of service and con-
tractual relations of municipalities. Commission regulation, as
I said before, contemplates cost of service, but it does not work out
that way in practice, because, first, of the shifting bases of subsequent
commissions, and, second, because of the long period of time required
by the commission to act upon applications of utilities for adjust-
ments in rates. There may even be a valuation required, or a
revaluation, or accountants may have to have an examination.
There can be any number of things developed as reasons for delay
if the commission desires to cause delay.

Some of these cost-of-service franchises are defective in two im-
portant respects. First, there is no guarantee of the integrity of the
capital. The franchises on their faces provide for a diminishing
capital account. In other words, they make no adequate provision
for the accumulation of reserves against the future replacements of
the physical property. They require usually the creation of re-
serves only in sufficient amount to take care of current replace-
ments, and in the Cleveland so-called cost-of-service franchise, if they
encounter an extraordinary replacement, that is carried as a sus-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 781

penclecl asset and written off over some agreed period of time. In
other words, there has been a number of years in which the Cleve-
land Electric Railway was financially insolvent and an examination
of the balance sheet would have disclosed that. That is touched on
in considerable length in Doolittle's book on a study of the Cleve-
land problem.

The second defect in these cost-of-service franchises lies in the fact
that the cost of capital is continually changing, and there is no pro-
vision made for the determination at the time of the return that is
to be allowed upon additions to capital account.

A proper State utility law would provide something to this ef-
fect : That all utilities shall be valued, and the utility capital shall
be determined by the commission; that before there are any capital
expenditures made, the utility shall apply to the commission for
authorization to make the expenditures, and the commission shall, at
the same time, fix the return to be allowed upon the capital ex-
penditure. If the commission fixes too low a return, the company
can say, " You get the money, Mr. Commissioner." If the commis-
sion fixes too high a return, that fact can be corrected in the next ap-
plication of the utility. Authorizations of capital expenditures shall
be cumulative. Authorizations of annual return shall likewise be
cumulative, and neither shall be changed, except, in the first case,
when property is removed, taken out of service, and abandoned, and
then it shall be taken out of capital account, and the amount of
annual return that is fixed in this manner shall not be changed ex-
cept in the event of refinancing, which may cause some subsequent
change in the cost of money.

Some such arrangement as that would be fair to both parties.
There is only one defect in it and that is the defect of all cost-of-
service franchises, and that is you may not be able to collect suffi-
cient revenues to pay the annual return. Operating expenses are
rising so rapidly, the demands of labor in all lines of industry are
increasing so fast that the electric-railway business is fast going
into the position of the British coal mines, and it is not at all sure
that we are going to be able to collect sufficient revenues out of the
railway business to keep it going. We already have situations, as I
will instance, where I am unable to see,, with substantial improve-
ments to the railway system and the addition of a large amount of
rolling stock for the size of the community, that we could, under
any system of fares which we can devise, collect sufficient revenues
to pay the operating expenses and pay a reasonable return upon the
utility capital.

That situation to which I refer is in the city of Kenosha. The city
of Kenosha has had a remarkable experience with its railway busi-
ness. In 1914, the little street railway down there, embracing about
7£ miles of track, had very severe jitney competition. Distances
were very short. We undertook the operation of one-man cars.
That produced a very unfavorable public reaction. The town was
not well situated for the operation of one-man cars, because there are
25 railroad crossings in our 1\ miles of track, and one of the principal
functions of the conductor is to flag the railroad crossings. At
least, that was the principal function during the time when the jit-
neys were so active.

782 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

The employees, in May, 1918, operating the cars in Kenosha fol-
lowing the increased wage of 10 cents an hour in Milwaukee, asked
for a like increase in wages. Our reply to them was, " We have not
the heart to deny it, but we have not the money from the Kenosha
Railway." Then they said they would strike, and we told them that
that was probably the best thing for them to do under the circum-
stances and that there were lots of other means of employment in
Kenosha that were more remunerative, and all but two men struck.
Two old men that could not understand what that meant. And it
was necessary to put them on other work, trimming lamps, as we did
not want two cars running around the .streets. Street-railway serv-
ice was entirely stopped for a period of five weeks.

While there had been much complaint about single-truck cars and
the fact that they would like double-truck cars down there, opinion
gradually changed, and on numerous occasions the editorial writers
in the local press wished the company would take a car out of the
station and let it stand down in Market Square, so that they could see
what a street-car looked like.

Things developed that way for five weeks, until the railroad com-
mission ordered the jitneys off the street, and ordered the company
to resume service. We resumed service at a 5-cent fare, and with
largely increased revenues. WTe are now operating that short sys-
tem with the smallest average-sized cars and the largest earnings
per car-mile that we have in the State of Wisconsin.

Kenosha is a large manufacturing city

Mr. WARREN. What is the population ?

Mr. MORTIMER. About 37,000.

The housing problem is very serious, and a housing corporation
has been formed, but the promoters are naturally unwilling to go
ahead with it until they are provided with additional railway facili-
ties.

The Wisconsin Gas & Electric Co. had indicated that it was unable
to provide any additional facilities under the revenues and under the
t}^pe of regulation which it had been experiencing.

Local discussion arose as to the desirability of purchasing the elec-
tric railway. We never indicated any opposition to that, because we
thought that would be a very good disposition of it. They called me
to Kenosha to give them a price on it. I told them, in substance,
that we had no objection to their buying it and thought it would be
a good thing, and then went on to try to sell it to them, but my ef-
forts at salesmanship were very poor, because the more I talked in
favor of the advantages of their buying it, the less they seemed to
want it. The result was that they asked if there was not any kind of
a proposition that we could make that would permit us to provide
additional railway facilities in Kenosha by the investment of private
capital.

We then outlined the necessity of a municipal guaranty, and that
led to the enactment in the closing days of the legislature of a mu-
nicipal guaranty law, whereby municipalities can contract with utili-
ties for extensions, for the loaning of municipal capital to provide
utility corporations, or for the guaranty of return, and profit shar-
ing.

I had indicated that, as a starter, we would require a guaranty
of 6 per cent annual return upon the then investment of approxi-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 783

mately $500,000, plus the additional investment of $500,000, roughly ;
that any returns earned in excess of 6 per cent should be divided
40 per cent to the municipality, 10 per cent to the employees, and 50
per cent to the company ; that all restrictions with respect to the rates
of fare should be eliminated; that the property should be operated
to produce the maximum return by whatever scheme of fares was
deemed to be advisable, and that the compan}^ should have the right
to initiate the fares. The fundamental ideas were accepted. The
original bill as drafted contemplated that this law should be ap-
plicable to all the cities of the State, which would have included
Milwaukee; but the governor limited it to cities of the third class,
which included Kenosha and one other of our municipalities, Racine.

Mr. WARREN. What is the division point of population between a
city of the third class and a city of the second class ?

Mr. MORTIMER. The cities of the third class embrace a population
of 10,000 to 40,000, by the last preceding Federal census. The cities
of the second class are in excess of that amount and up to 100,000.
So that there are only two cities in the State that are not in the third
class — I mean larger cities.

Mr. WARREN. That is Milwaukee and what other city?

Mr. MORTLMER. The city of Superior. Racine will pass out of that
class in 1920.

The 1900 franchise, under which the Milwaukee Railway & Light
Co. operated, contained a provision that the company should extend
its tracks over any street that might be designated by resolution of
the common council whenever public necessity and convenience re-
quired the same. That resulted in the ordering of track extensions
over a substantial number of streets whenever they wanted to pave
the balance of the street, because the costs of the permanent paying
in the track zone are imposed by ordinance upon the street-railway
utility. It became necessary to correct that. There may have been
other franchises in other municipalities of the State that contained
a similar provision. So, in one of the sessions of the legislature
somebody got a law on the books that provided that the railroad com-
mission should order extensions whenever public necessity and con-
venience required the same, provided that the cost of operating such
extensions should not prevent the utility from earning a reasonable
return upon the utility capital; and since that law went on the books
there have not been any street-railway extensions.

In connection with the labor problem there was introduced into
the legislature a bill making the railroad commissioner arbiter of
wage disputes between the public-utility employees and the em-
ployer. Comparatively little progress was made with the bill be-
cause there was another measure advocated by the administration
known as the conciliation bill. The conciliation bill provides that
in the event of dispute l>etween employer and employee on a matter
of wages, hours, or working conditions, the matter shall be referred
to the board of conciliation appointed by the governor, which shall
mediate and make recommendations.

Mr. WARREX. Is that confined to the utilities, or to all industry?

Mr. MORTIMER. The board of conciliation measure, up to the ex-
tent that I have described it, applies to all industries. It has no
mandatory powers and relies upon public opinion to enforce its
recommendations.

784 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

In addition, the bill contains provisions which, in the event of
disputes between a public utility and the employees, the matter
shall be referred for determination of the facts to the railroad com-
mission, should the employer set up the defense that it has in-
sufficient revenues with which to pay the increased wages demanded,
and that the determination shall be made promptly by the railroad
commission, it thus being the outgrowth of the recommendations of
the special legislative investigating committee.

Now, as I have watched the operation of our railway system in
Wisconsin, there have been two very notable influences that have
caused the increase in cost of carrying passengers. One of these has
been the general rise in wage level and commodity prices, and the
other has been of an entirely different character.

Mr. WARREN. Before you go to that, have you described all of the
legislation that you want to call the attention of the commission to ?

Mr. MORTIMER. Yes ; I think so. I think that is all that is impor-
tant. .

A part of this additional investment of $15,000,000 in our Wis-
consin utilities to which I have referred has been caused by extend-
ing our railway lines into unprofitable territory, having expenses, in
the way of unremunerative car mileage, car hours, track mainte-
nance, maintenance of equipment, and, in part, by the gradual in-
crease in length of haul over which passengers .ride.

The determination was made of the average length of haul in
1911, in the city of Milwaukee, and it approximated 2.6 miles.
Subsequent estimates have indicated that that average length of haul
had increased in about five years an additional half mile, showing
the gradual movement of population outward.

Mr. WARREN. What is that due to ? Is that due to the street rail-
ways in any way?

Mr. MORTIMER. I would not say that the street railway was in any
way responsible for it. It is due to the growth of the residential
and manufacturing territory gradually outward, from the center of
the city.

Mr. WARREN. Is it mostly within your flat-fare territory ?

Mr. MORTIMER. Oh, yes ; the average length of haul lies well wyithin
the flat-rate-of-fare area, the single-fare area. In other words, pas-
sengers are riding further and further.

Now, of course, its fundamental trouble is that its revenues are too
low and its operating expenses are too high, but the fact that its
revenues are too low may be due to either one or two causes — either
that the fare is too low, or we are hauling them too far for the fare
we are collecting. We have a fair demonstration of that in the case
of the Kenosha situation. The Kenosha railway utility is showing
a larger amount available for depreciation and return than is the
Milwaukee utility, although it is operating with smaller cars and
has a higher platform wage per car-mile. The scheduled speed is
lower. That is due to the fact that the distance passengers are hauled
is comparatively small.

There has been, during the last ten years, an incessant demand for
increased frequency of service, particularly during the nonrush hours.
That demand has been insistent, irrespective of the nature of line or
territory served, and there have been commission orders that have

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 785-

required that the minimum frequency inside given areas shall be not
greater than ten minutes. That has added to the cost of producing-
the service, but it is probably not an unmixed evil, because the added
service may, in a number of cases, have paid for itself through in-
creased travel. Our facts respecting that are comparatively few,
and what I give is merely an expression of opinion.

In all of our applications to the Railroad Commission of Wiscon-
sin, which we believe we had timed so that if properly acted on they
would have provided us with the necessary increase in revenue and
would have kept the railroad utility wholly solvent and produced a
reasonable return, we have never asked for an increase in fare above*
5 cents.

In 1914 we limited the length to which passengers might ride for a
certain fare by installing the small increment zone system outside
the single-fare area. That in itself lay somewhat outside the city
limits.

We have been desirous of retaining as much of the short-haul busi-
ness as is possible, but the delay in commissions in acting upon our
petitions has made the situation more urgent, and what would have
been adequate relief for us in 1910 and 1917 and afterwards would
not now be adequate relief, because the tendencies of increasing costs
are on an increasing rate of increase.

We have not found that the increase in rates into suburban terri-
tory has in any way influenced the growth of the communities. We
have tried, so far as we can, to make the outer ends of the lines self-
supporting. That has been absolutely impossible, and I do not be-
lieve it is possible on any street railway at the present time, but the
central area will have to make some substantial contribution to the
cost of carrying service in outlying territory.

Mr. WARREN. Before you go to that, Mr. Mortimer — You spoke
of extensions as increasing the haul, and then you spoke of the in-
creased haul which is independent of the extensions, but which is
simply the tendency of the population to live further out beyond the
existing lines, as both contributing to a higher cost.

Mr. MORTIMER. Yes.

Mr. WARREN. Was there any substantial increase of line going-
back to the electrification of this system, in mileage?

Mr. MORTIMER. No; in this system there has been no substantial
increase in mileage within the city limits, because the company was
built up of seven separate systems, many of which closely paralleled
one another, and in a process of gradual rehabilitation, the lines that
have been too close together have been removed ; so that while, say at
the end of the year 1910, there was less actual track mileage in the-
city of Milwaukee than there was in 1890, it reached farther out into-
the residential and manufacturing districts and was much better
distributed to serve the population.

Mr. WARREN. So that there were extensions ?

Mr. MORTIMER. Oh, there were extensions.

Mr. WARREN. But you have eliminated some unnecessary mileage?

Mr. MORTIMER. Yes; we have eliminated some unnecessary mileage.

Mr. WARREN. Were those different lines merged into one company,
or were they all in one company before that?

786 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. MORTIMER. The Milwaukee Electric Railway & Light Co. is
a reorganization of the Milwaukee Street E-ailway Co., and all lines
were merged in the Milwaukee Street Railway Co.

Mr. WARREN. After or before electrification?

Mr. MORTIMER. The process extended over a period of about
three years, electrification and merger simultaneously.

Mr. WARREN. Prior to merger, were those companies entirely
separate, so far as fares were concerned?

Mr. MORTIMER. Yes. There were no free transfers between the
different lines; so many lines serving the south side of the town,
running over to the river; other lines serving the north side; and
still other lines serving the west side, and possibly one or two of
the seven lines serving two sides, the north and the west sides.

Mr. WARREN. So that in connection with the electrification the
lines were merged, and in connection with the merger the double
fares were eliminated?

Mr. MORTIMER. The double fares were eliminated and the transfer
system instituted.

Mr. WARREN. For the benefit of all lines?

Mr. MORTIMER. Yes.

Mr. WARREN. That amounted to a very large extension of the
riding privilege in connection with electrification; did it not?

Mr. MORTIMER. Oh, without a doubt, it was a very substantial
improvement in facilities.

Mr. WARREN. And from your knowledge of street railways gen-
erally over the country, would you say that was a general practice?
Do you happen to know, in Boston, for instance, whether that was
done or not ?

Mr. MORTIMER. No; I am not familiar with the Boston situation.
I know about it in St. Louis. I know that it was a fact in St. Louis.

The CHAIRMAN. You may proceed, Mr. Mortimer.

Mr. MORTIMER. Aside from the problem of increased revenues,
one of the most pressing problems confronting the railway is that
of labor. It has been the experience in the last few years that the
strikes on electric railways have been frequent and of varying dura-
tion. Their causes have been numerous. During the last four
or five months it has been increasingly difficult for the inter-
national officers of the unions to control the local unions, and there
have been a number of street railways that have had sporadic strikes
and outbreaks and threats from the national officers to rule the
locals out of the national unions because of failure to adhere to
their labor contracts. That spirit or feeling is fairly general through-
out labor, prompted partly by the increase in the cost of living
and partly by some of the spirit of unrest that has apparently been
wafted across the ocean. The rises in hourly rates for the same
number of hours per day worked, resulting from some of these
recent wage awards, have been larger than the cost of living ex-
perienced since the aw^ard of the National War Labor Board. Some
of these hourly increased rates of wages may be justified on the
shorter number of hours worked a day and the fewer clays per
month, but as a general proposition I think most students of the
labor problem will indicate that something different from the present
clay scheme of arbitration will have to be developed. And I know
in the electric-railway business that we need a much keener re-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 7S7

sponsibility on the part of the workmen in their duties to the em-
ployer and in their dirties to the public, to the end that service may be
maintained at a minimum cost and that it may be operated with
minimum interruptions, that the convenience of the public may not
be disturbed.

It is also desirable as far as possible to incorporate the element of
productiA'it}' as a basis of wages. That looks as though it might be
difficult in the railway business, but it is not as difficult as it might
appear at first glance. The trainmen forming a part of the em-
ployees making up the principal -group have primary control over
the regularity of speed and the ability to maintain fast schedules
and thus influence the cost of platform labor per car-mile. Usually
they are paid on the basis of hours — that is, a rate per hour — and
the faster the cars are operated the less will be the expense of pro-
ducing the service. They also have control over the power con-
duction through care in operating the car, care in braking, care in
starting, and care in shutting off power when the same is not re-
quired in order to make its schedule. It is conceivable that the
schedule makers could design a time schedule that would appre-
ciably reduce the cost of platform labor per car-mile but would
require the cars to operate so fast that they would not have time to
stop for passengers. That that is not an exaggeration is disclosed
by the experience of the old St. Louis Transit Co., under the opera-
tion of the late Mr. A. B. Du Pont. He was pressed because of his
increase in operating expenses by the management, and he con-
cluded, of course, that the way to reduce operating expenses for
giving the same car mileage was to run the cars faster. So he ran
the cars so fast that they did not have time to pick up any pas-
sengers, and the result was that the passengers usually went to the
street intersection with a brick in their hand, and if the car did not
stop for them they threw the brick at the car. The damage to
equipment was considerable, and it finally resulted in the imposi-
tion of a license tax on the system, a gross-receipts tax of 2 per cent.
It was thought that by imposing that tax it would require tlie cars
to stop and it also would placate somewhat public opinion at the
outrages that had been committed on them.

Another element in which the trainmen are primarily interested
is the revenues per car-mile. So a productivity system of wages
can be arranged whereby an agreed hourly rate, graduated, if you
please, can be provided as a minimum, and in addition thereto a
system of participation in the savings which the employee may ef-
fect, first by reason of decrease in injuries and damages; second,
by the saving in power consumption ; third, by increasing the
schedule speed; fourth, by the maintenance of equipment over which
the trainmen have control: and fifth, through increased revenues per
car-mile. Such a system when extended can be made to develop one
for the administration of discipline. An employee may start out
at the beginning of the month with 1,000 points to his credit, and
for each infraction of rules or justified complaints on the part of
the public deductions can be arranged so that his participation in
the aggregate profits for the month, profits resulting from the sav-
ings under these standards, will bo reduced, but his saving — that is,
the money that is taken from him — should goto the other employees

788 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

of the group, so that it can not be said that the employer is disciplin-
ing the men for the purpose of increasing his net earnings.

It is also possible to put all accounting work on a productivity
basis, and there are some psychological aspects to that. Fundamen-
tally and individually workmen, be they male or female, are desirous
of being placed on an individual basis of •compensation. Now, that
is strongly urged against by certain classes of organized labor. But
it has been our experience that where there has been this gain-sharing
plan in certain departments that "we have had demands from other
departments — from the employees of those departments — that they
be installed. In other words, my actual experience with operations
of that kind is different from the general published results.

I am not suggesting that this will fundamentally take care of in-
creases in wages, because there are no economies which employees
can effect, at least in sufficient magnitude, to compensate them for
the increased cost of living, either actual or imagined. But they are
small elements which tend to develop care on the part of workmen
and which in turn have their influence in adding to the life of the
physical property under their jurisdiction and tend to develop a cer-
tain amount of individual pride and individuality.

Co'mmisioner SWEET. That would stabilize the labor market to a
certain extent, or have a tendency in that direction ?

Mr. MORTIMER. Yes ; it does tend to stabilize the market. It holds
out to employees first a certain return for the month in the way of
wage compensation and in addition it offers to them a speculation,
and desire to speculate is inherent —

Commissioner SWEET. A reward for extra good conduct?

Mr. MORTIMER. Well, it is a reAvard for extra good conduct, but
it is that same — it originates from that same brain cell that causes
men to go into the desert for the discovery of gold mines. There is
an intense curiosity invariably displayed as to what the results of the
earnings from the gain-sharing plans are going to be for that par-
ticular month; and it has the further advantage that through the
operation of the plan you can disclose some of the most intimate de-
tails of operation to the employees and show to them the influence of
changes in conditions and of their own conduct upon the results for
the month.

Commissioner MEEKER. Would you extend the sharing plan to a
share in the management of the industry ?

Mr. MORTIMER. Yes. We have done that in most of our companies.
We have provided for the election of a representative of labor to the
board of directors. In fact

Commissioner MEEKER. Will you elucidate that plan briefly ?

Mr. MORTIMER. The last thing I mentioned ?

Mr. WARREN. Yes; the representation on the board of directors.

Mr. MORTIMER. Yes. We first provided in our group for the elec-
tion by the Employees' Mutual Benefit Association of a representa-
tive to the board of directors of the Union Electric Light & Power
Co., the electric utility in St. Louis. The by-laws provide for seven
directors. One of those directors is now a direct representative of
the Employees' Mutual Benefit Association. The Employees' Mutual
Benefit Association first asked for representation upon the board of
directors and we acceded to that request.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 789

Commissioner MEEKER. How long has that plan been in operation?

Mr. MORTIMER. That election took place, I think, in March of the
current calendar year. The emyloyee was chosen by a process of
primary nominations at which two were selected to run for the elec-
tion ; and then an election was had to eliminate one or the other, and
the man chosen to represent the Employees' Mutual Benefit Associa-
tion on the board of directors is one of the watch engineers in the
Ashley Street power station, and he sits in at each of the monthly
board meetings. The same thing is now in process of working out in
the Wisconsin Gas & Electric Co.

Commisioner MEEKER. Does this employees' representative have
the same power as other directors?

Mr. MORTIMER. Absolutely. He has absolutely the same powers — •
the right of vote and the right to discuss questions of all kinds.

Commissioner MEEKER. Does he have to have a share in the
capital of the industry, or

Mr. MORTIMER. Yes, the law requires that the directors be share-
holders in the States in which we operate. That is not true of all
States. And in this case he was qualified by the company's trans-
ferring one share of stock to his name, so that he is legally entitled
to sit as a member of the board of directors. It is all being worked
out in the case of the Wisconsin Gas & Electric Co., and in the case
of the Milwaukee Electric Light Co. certain changes of our
articles of incorporation will have to be made, but that will be done,
I hope.

Commissioner MEEKER. This employees' representative was chosen
by the Employees' Mutual Benefit Association?

Mr. MORTIMER. Chosen by the members of the Employees' Mutual
Benefit Association, which embraces all of the employees of the
company.

Commissioner MEEKER. All employees?

Mr. MORTIMER. All employees.

Commissioner MEEKER. Is that an organization that stands on its
own feet or is it subsidized by the company ?

Mr. MORTIMER. It is an organization that has two principal pur-
poses in life: One is to administer sick benefits and death benefits,
provide medical and surgical attendance for the employees, and also
to provide additional insurance of both life and sickness and acci-
dents, off-duty types. In respect to certain of its insurance bene-
fits where the rate is flat and that business does not carry itself, the
premiums are not sufficiently high, it is necessary for the company
to make contributions. Its other principal function is that of col-
lective bargaining, and in that respect of course it needs no contri-
butions by the company.

Commissioner MEEKER. By collective bargaining, you mean set-
tling upon the wage and hours?

Mr. MORTIMER. And conditions of labor, yes.

Commissioner MEEKER. And conditions of labor within the com-
pany?

Air. MORTIMER. Yes; within the company.

Commissioner SWEET. Do you like that plan of representation on
the part of employees?

Mr. MORTIMER. On the board of directors?

790 PROCEEDINGS OF FEDERAL ELECTRIC 'BAIL WAYS COMMISSION.

Commissioner SWEET. Yes.

Mr. MORTIMER. Yes:; we have no objection to it at all. I think it
is a perfectly satisfactory thing ; in fact, we would have no objection
to giving them a larger representation.

Commissioner MEEKER. Did the plan originate with the men?

Mr. MORTIMER. Yes.

Commissioner MEEKER. And you acceded to it?

Mr. MORTIMER. Yes. 4".

Commissioner MEEKER. It was not your proposal?

Mr. MORTIMER. No ; it was not our proposal.

Commissioner MEEKER. Before you leave the question of labor re-
lations, I would like to ask a little bit further about this gain-shar-
ing plan that you have. Do the employees actually have an appreci-
able control over accident prevention^

Mr. MORTIMER. They do.

Commissioner MEEKER. Do you think you have statistical demon-
stration of that?

Mr. MORTIMER. Yes ; we think we have.

Commissioner MEEKER. Your actual rate has been cut down since
this plan was put into operation?

Mr. MORTIMER. Our actual disbursements for injuries and dam-
ages have been materially less since this plan was effected.

Commissioner MEEKER. How long has this plan been effective?

Mr. MORTIMER. This plan applicable to transportation in conjunc-
tion with our employees has been applicable since June, 1915 — a
period of four years.

Commissioner MEEKER. Have you statistics which .would bear
upon this subject? Of course, other causes have been operating to
cut down the accident rates; the general safety movement and the
workmen's compensation movement, and other movements. Do you
think your experience is better than the experience of other com-
panies in a similar line of business?

Mr. MORTIMER. I know in many cases the electric railways have
experienced an increase in the cost of injury and damage settlements.

Commissioner MEEKER. However, that verges on quite another
question, the competence of administration of compensation laws
and increases in rates, which have been quite general in all the com-
pensation States, and various other matters.

Mr. MORTIMER. But, Mr. Commissioner, the injuries and damages
to which I refer and upon which these calculations are based relate
to injuries and damages to the public and have no relation to work-
men's industrial injury compensation.

The CHAIRMAN. Mr. Mortimer, yesterday afternoon the commis-
sion assigned the hour of 12 o'clock to hear Gov. Foss.

Mr. MORTIMER. Yes, I remember that.

The CHAIRMAN. I understand that he is here now, and you may
resume at the conclusion of his testimony.

(Witness excused.)

The CHAIRMAN. Gov. Foss, we are ready to hear from you.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 791

STATEMENT OF MR. EUGENE N. FOSS.

Mr. Foss. Gentlemen, you will understand that I am here in a
private capacity. I do not represent any corporation. But I have
been and am still a large holder of street railroads and quasi-public
corporation stock. I have been a great believer in quasi-public cor-
porations. I have been a director in many street-railroad corpora-
tions in Massachusetts and also in New York — in the two leading
systems of New York, the Brooklyn Rapid Transit and the Manhat-
tan Elevated ; and I have been more or less acquainted with this class
of investment and have followed it for a good many years.

I have come to the conclusion, somewhat reluctantly I admit, that
public ownership is the only true solution of this railroad question,
whether it be the railroads or the electric railways. Of course,
private ownership is out of the question. Private ownership with
public regulation has fallen down. There is nothing else left, in my
judgment, except public ownership and operation or else public
ownership with private operation. Public or private ownership and
public regulation is wrong in principle. You never can make it
work successfully. The man who owns these properties has got to
run them.

Now I am interested in this proposition primarily because it
means a better democracy, and we have got to democratize our trans-
portation system in this country. That, is the first thing we have
got to do. And then we have got to democratize our industries to a
greater extent than they have been, otherwise we are going to be in
the condition that they are abroad in some places. So I say, pri-
marily I am for this thing because it means a better democracy.

There are a great many reasons. Of course, it has been stated —
you read the public press and you would think that we had public
ownership in this country of the railroads. We have not public
ownership in this country. We do not know anything about public
ownership in this country. We have not tried it. What we have
in this country is a lease by the Federal Government of the railroads
of the country. But when was that lease made? That was made
under the stress of the war, when the railroads fell down and could
not function. And what was that lease? That lease was forced
upon the Government at a rental of $980,000,000 a year, which is
from $130,000,000 to $150.000,000 more than the Government ought
to pay as a fair return. The Delaware, Lackawanna & Western get
under this thing something like 32 per cent on their stock, I think;
the Pennsylvania Railroad gets about 12 per cent. Some of the
weaker roads do not get as much. Now this deficit of $200,000,000
in 1918 was not properly chargeable to inefficiency on the part of the
Government. Practically the same people are operating these rail-
roads under the Government that there were prior to the Govern-
ment taking hold of this question. It was chargeable directly to the
war, just as much as the billion dollars we lost in making aeroplanes
is chargeable directly to the war.

Now a proposition as large as this, as Director General McAdoo
says, takes five years to work it out and effect the economies that
could be effected under Government ownership; no question about it.
It takes time. Director General Hines says give us time and we
can show you wonderful economy. Talk about efficiency. You can

792 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

get just as good efficiency — I will not concede for a single moment
that you can not get just as good efficiency under Government owner-
ship as you can under private ownership — just exactly as good.

We have had cases in Massachusetts — for instance, our metropoli-
tan water system if you please, created 25 years ago, in which a com-
mission, a nonpartisan commission, appointed by the governor has
spent $40,000,000 on a water system for Boston, one of the best in
the country. It gives us the cheapest water. That commission paid
off $20,000,000 indebtedness to-day, and we will have it all paid off,
and there has not been a word of scandal about the management, no
graft or anything of that sort. I had no trouble when I was governor
of Massachusetts for three terms to find the best patriotic men in
the State to take these Government positions. It fell to my lot
to rebuild the court of Massachusetts, both branches, and I did not
have any trouble about getting the best men in the State at the very
moderate salaries paid by the State of Massachusetts to its judiciary;
no trouble about it at ail.

It is a reflection upon our intelligence and upon our business
capacity. I am not willing to admit that the Post Office is not well
handled, economically and efficiently handled. I know you can put
a package in the mail in Boston and get it here to Washington
quicker than you can by express. I am not going to stand for that
sort of thing. We can do just as efficient work under Government
ownership as we can any other way; no doubt about it at all.

And there is the question, gentlemen, of the capital. How are
we going to get capital for this purpose, for these railroads? You
can not turn them back; it is utterly impossible. If you gentlemen
will read the indictment of the Interstate Commerce Commission of
the New Haven Railroad and Mr. Mellen, I do not believe there is
a man in this room who ever read it who can stand up and say he is
in favor of turning these railroads back to the crowd that wrecked
them. We never will do it in the world. In the first place they can
not take them back, and they ought not to take them back. Banker
management has got to cease from all of these railroads and public-
service corporations. It is a failure. Why? Because the tempta-
tion to wreck these roads and reorganize them is too great. They do
it every 10 years or thereabouts; that is what happens. Do these
railroad presidents and these railroad managers, who own very little
of the stock of the companies you will find — do they ever consult
their directors or stockholders in reference to any measure? No;
they go right down to Wall Street and talk with the banker who is
running the proposition. That is the man who appointed them — the
banker, not the directors. Mr. Mellen did not use to know his di-
rectors when he met them on the street ; he never knew them. Some
of the directors have told me that they did not speak to him. Where
did he go? He went down to Morgan's office. When Mr. Morgan
said that so and so was all right, he went right ahead. That is what
happened. They have got to take their hands off. The country is
going to demand it and say we are going to democratize these things.
Labor and these other forces are going to have more to say.

Again, we tried in Massachusetts everything. We were the first
State in the Union to have a public-service commission, or a rail-
road commission — right there in Massachusetts. And our railroad
stocks, you know, for years have been sold there by the companies

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 793

at a price fixed by the railroad commission, and our investors have
bought those securities. Widows and orphans and trustees have put
their money in these railroad securities and quasi-public corpora-
tion securities in Massachusetts, because they thought they were the
next thing to Government bonds, because they considered that noth-
ing could happen to them, since the State fixed the price at which
the stock should be put out and also fixed the tariffs on the railroads.
But we saw New York, New Haven & Hartford stock go from 250
to 25, while the commission could say the New Haven stock should
not be put out at less than $200 a share, which it was worth, and
Boston Elevated, selling at 155, some of it — and .really $135 to-day
represents every dollar put in the property — still this stock sold
down to 27 or 28. Thousands of people were ruined. I know of
women in Massachusetts who are working to-day who had a small
competence put away in these stocks which has all been wiped out.

Now, this thing has got to stop. The State is morally responsible
for that condition to-day and ought to be responsible in equity, and
the people are going to see to it that they are. These quasi-public
corporation stocks have got to cease being speculative footballs.
That is my judgment about it..

Now this question of labor: It is a very big question, as we all
know. Who can settle it better than the Government? Who can
handle this labor proposition in an equitable, fair, and just way to
all concerned more than the Government? We have got to appeal
to the Government. Did not the railroads come to the Government
and appeal to the President to settle the railroad strike prior to
the war ? It is the same thing ; they can not do it otherwise. Labor
is going to make these demands, and whether they be just or whether
they be unjust, let the Government settle it. It is a Government
proposition. Let them settle it.

Now I say we tried almost everything in Massachusetts. We have
a scheme there on the street-railroad question and the whole State
it stirred up about it, of a service-at-cost plan. It was created a
year ago, in 1918, by an act of the legislature, by which the governor
appointed five trustees to run the Boston Elevated Railroad, which
is the entire street-railway system, both the surface, subway, and
elevated lines, of the whole city of Boston and its suburbs. They
have been running the roads, they have advanced the fares steadily
until they are now 10 cents. They were put at the 10-cent rate about
a week ago or thereabouts. A strike by the employees immediately
followed which has been adjusted after the railroad was closed up
for four days and the public suffered a great inconvenience. But
what has been the result? The result has been this — that 25 per
cent less people patronized the railroad because the fare was 10 cents.
Now that railroad is not serving the people as it ought to, if 25 per
cent of them can not ride on account of the price. The revenue has
fallen off about $4,000 a day. That act is abortive; it is a make-
shift; it is doomed to failure. It is neither satisfying the riding
public nor will it result in increased revenue.

I want to ask you this question : P^verybody is taxed to make this
street out here safe for the autcmobile. The Supreme Court said
that a railroad is a part of the highway. Why should not every-
body be taxed to make the people's automobile, the electric car, safe?
Answer that question for me, if you can. If that is socialism, then I

1C(XJ430— 20 51

784 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

am a socialist. That is what we have got to come to in this country,
and it is right that we should come to it, too.

The street railroad is a necessity, it is a part of our social and
industrial life. Now I am the head of a manufacturing establish-
ment employing 2,000 operatives in the suburbs of Boston. It is
not possible for those operatives all to live within walking distance
of that plant, neither is it possible for their children to be within
walking distance of those schools that they must attend. We have
got to have that means of conveyance and we have to make that
means of conveyance as cheap and reasonable as possible, I say, in
the interest of a better democracy.

We used to have post roads in this country. We used to have
toll bridges. They have all been wiped out. Now that thing is all
covered by general taxation, and we have got to cover a great deal
of the operation and the construction, if you please, of these street
railroads by taxation — no doubt about it in my judgment; you can
not get around it. These street railroads in Massachusetts have
abandoned, within the last few years, miles of these tracks in the
suburbs. People have built houses along these tracks supposing that
these tracks were laid there under the direction 'id approval of the
public-service commission as a public necessity. Are these people
now to be cut off from all forms of transportation? Is the State
liable? I say they are; they ought to be liable. That construction
ought never to have been permitted if it is not going to be maintained.

Now, we are going to have a campaign in Massachusetts this fall
and determine some of these questions. It is right on now, in fact it
has reached such a crisis that the governor of the State sent a special
message to the legislature yesterday in which he asked to be per-
mitted to appoint a commission of seven to make an investigation
of the street-railroad question, and have a special session of the legis-
lature from the loth of November to consider the question and that
question alone. We are going to do something there in Massachu-
setts, and I predict that we are going to come to government owner-
ship as the only thing. I know that I could work out a plan, and I
could find a body of men in Massachusetts or any other State in the
Union honest and patriotic enough to conduct these street railroads
just as honestly and just as fairly and just as economically for the
State as they could for the Standard Oil Co. or any other organiza-
tion there is in the country. There is no reason why our young
men and boys should not work for the State and Government just as
efficiently and just as honestly as they would for any other corpora-
tion. And it is a great mistake not to admit it. I will not admit for
a single moment but what, when we get Government ownership in
this country — as w-e are going to get, in my judgment, and we ought
to have it, as applying to all these railroads — you are going to see
marked and wonderful economies in all respects. The public can not
get a square deal through a private corporation, even if it is pub-
licly regulated. It can not do it ; it is utterly impossible. And I do
not see, as I say, any other solution.

The people say, " Oh, we must keep these railroads out of politics."
Good heavens, have they not been in politics ? Are they not in poli-
tics? They have been in politics for 50 years. What did I find on
Beacon Hill in Boston? I found out that the greatest lobby of the
State was maintained by the quasi-public corporations. The king of

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 795

the lobby who was employed by the Boston Elevated Railroad
received a salary of $25,000 a year. One corporation paid that
amount for one man, and he had a train of followers. And it is the
quasi-public corporations who have done more than any other force
in this country to debauch legislatures. They have made legislatures
and unmade legislatures and unmade men. They have created the
legislatures. Now what we have to do is to take these street railroads
over and keep them out of politics. That is what we have to do. We
have got to take them over to keep them out. That is the proposition
as I see it.

I should be very glad indeed, Mr. Chairman, to answer any ques-
tions that I can. I do not pretend to be an expert, but any questions
you should like to ask I should be very glad indeed to answer in the
best way I can.

The CHAIRMAN. Mr. Warren, do you wish to ask the governor any
questions ?

Mr. WARREN. I do not think I dp. I think the governor has de-
scribed the street railway situation in Massachusetts about right.

Commissioner SWEET. You have expressed your opinion very
clearly and I think we all understand what your view is on this sub-
ject, but there are a few points that I would like to ask some ques-
tions on with regard to government ownership. In the first place,
have you any figures or data or statistics upon which you base your
opinion, or is it rather evolved from your own consciousness as to
what you think is right?

Mr. Foss. I have no figures, neither have I attempted to make any.
My opinion is entirely from my own experience in the last 25 years
as on boards of directors and as owner of street-railroad securities
and railroad securities generally.

Commissioner SWEET. Would you apply the same reasoning to all
public utilities that you apply to street railroads?

Mr. Foss. Yes, I would. The gas companies, electric companies,
water companies — water companies are almost wholly taken over
now. I think we have to take over all the gas and electric-light com-
panies.

Commissioner SWEET. And steam railroads ?

Mr. Foss. And steam railroads — the whole business.

Commissioner SWEET. And the telegraph and telephone?

Mr. Foss. Yes, the telegraph and telephone.

Commissioner SWEET. I suppose you have given consideration to
the fact that that would mean a tremendous number of people under
Government employ ?

Mr. Foss. Yes, I. do.

Commissioner SWEET. And I presume you would admit that that
miffht have some disadvantages and perhaps some advantages)

Mr. Foss. I do not see any menace in that proposition at all. You
take your postal authorities to-day ; I can not tell you how many we
have, but ti*ey are no menace as I see it. Some of them are Republi-
cans, some of them Democrats, some Prohibitionists, some Socialists
and what not.

Commissioner SWEET. The postmasters are almost invariably of
the same party as the appointing power.

Mr. Foss. Yes, of course. Our civil service is very properly ex-
tending its duties and service and I think will do more so as our

796 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Government gets better and stronger, as we get to be a better
democracy. As I say, I am talking about a better democracy.

Commissioner SWEET. You think a properly enforced civil-service
system would obviate the objections which might be raised?

Mr. Foss. Entirely. When the changes of administration come we
are not going to change the managers of any of these railroads; no
president, no general manager, no engineer is going to change his
position at all. He does not change with the administration.

Commissioner SWEET. Has it not been your experience, Governor,
in public life, that governmental officials are usually very poorly
paid ?

Mr. Foss. Yes, that is true, they are poorly paid.

Commissioner SWEET. Don't you think the public will require con-
siderable education before it will consent to pay for the kind of serv-
ice which it ought to have to run these utilities?

Mr. Foss. No, sir; I do not. I will tell you, I have dealt with the
public a good deal all my life. I have been close to the public. I
have been a large employer of labor all my life. I have been close
to that labor. I have not had labor troubles. And I think I know
something about the public. My theory is this, that when you tell
the public the whole truth you never have any trouble. They are the
most reasonable thing to deal with that there is on earth, the great
public, when you just tell them all the truth. But when you tell them
only half of it or a part of it or cover something up, then the
devil is to pay, and properly so, too. But when you tell them all the
truth they do not object to a large salary. Let them understand they
can come right up from the ranks the same as they can in our Gov-
ernment, and if they have the qualities to become general managers
and presidents of these railroad corporations that position shall be-
long to them and to nobody else. How are these presidents created
to-day ? How are these general managers created to-day ? They, are
created by the bankers that control these roads. A great many of
them are inefficient and have been for years. Perhaps we are getting
more efficiency to-day than we have got before, but I tell you you will
not have any trouble if you tell the public the whole truth. But the
trouble is we lie to the public and deceive the public and only tell
them part of it ; and you can not get along that way.

Commissioner SWEET. In Massachusetts while you were governor,
did you think public officers were properly compensated for the work
they did and the brains they put into the work ?

Mr. Foss. No.

Commissioner SWEET. Why did you not explain that to the public
and get the change made?

Mr. Foss. I did so far as I could.

Commissioner SWEET. But you could not do it; could you?

Mr. Foss. I got the State to advance the salaries of all the judges.
We have an appointive system of judges in Massachusetts, and I got
the State to increase their salaries.

Commissioner SWEET. Are you familiar with the situation in the
smaller cities of the country with regard to public employees?

Mr. Foss. I think I am to some extent, but I am particularly in
Massachusetts. I do not know so much about the other States.

Commissioner SWEET. Let me state to you an experience which I
think is typical of a great many of our cities of the smaller size. I

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 797

was connected with the city government of a city of a little over
100.000 inhabitants. We employed a general manager of our board
of public works and, under the city charter, the maximum price we
could pay him was $4,000 a year. That man was a very public-spir-
ited man and a very competent one, and he made an excellent show-
ing in the way of saving for the city in economies of various kinds
and in efficiency. A private corporation offered him six or seven
thousand dollars a year. There was no way in which the city could
pay him more, although he was admitted by all intelligent people of
the city to be worth more, and finally against his own wishes — for he
would have preferred to stay with the city government — his financial
situation practically demanded that he resign his public employment
and accept the private employment. Now then, I believe, Governor,
that that is the situation that you will find in a great many of our
cities of moderate size and that the public, at the present time at least,
is not willing to properly compensate for real first-class service.

Mr. Foss. Oh, I will admit that is so to some extent, but I will
tell you that if the public believed that they were getting a square
deal you would not have any trouble about advancing that fellow's
salary.

Commissioner SWEET. Now, to come to the street-railway situation,
is it not a fact that labor — that is, wages and the cost of material
and everything that street-railway companies have to buy — has ma-
terially advanced in price?

Mr. 'Foss. Oh, doubled.

Commissioner SWEET. And can you name a single industry in the
United States that could stand that without an increase in income ?

Mr. Foss. Of course not; certainly not.

Commissioner SWEET. Then this situation as it exists to-day with
the street electric railways is one which any intelligent man would
expect it to be ; is it not ?

Mr. Foss. Surely.

Commissioner SWEET. It could not be otherwise.

Mr. Foss. No, it could not be otherwise. But I want to tell you
why it is due to that fact. You see, these public-service commis-
sions in the States and in the Nation have not got courage enough to
advance these fares. They are honest men. I appointed some of
them

Commissioner SWEET. Are they not prevented by law in many
cases ?

Mr. Foss. They may be to some extent, but they are not in Massa-
chusetts, I appointed the railroad commission in Massachusetts,
most of them who are serving to-day; five splendid men, who have
not courage enough to do it. Why haven't they courage enough to
do it? Because the railroads have grafted and they have stolen
and have wrecked their properties and have lost- the confidence of
the public to that extent that there is no railroad commission that
can stand up for a single moment against the public and do what
they ought to do and what they know they ought to do. You talk
with any one of these public-service commissioners in that State or
in the Nation and they will tell you these fares ought to be doubled;
if these roads go back to private ownership the rates have to go up,
not 25 per cent, but 50 per cent.

798 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. Are you not aware in most States the right
to raise fares is under the control of the State commissions?

Mr. FOBS, Certainly.

Commissioner SWEET. Are they not under governmental orders?

Mr. FOBS. Certainly.

Commissioner SWEET. Are they not under governmental officials?

Mr. Foss. Yes.

Commissioner SWEET. Just the same as they would be if the whole
thing was under the control and operation of the Government?

Mr. FOBS. Yes.

Commissioner SWEET. Are not the companies as a rule anxious to
raise fares and are they not in many cases obstructed by these pub-
lic service commissions?

Mr. FOBS. I think the public-service commissions are ready if they
felt that public sentiment was behind them, but the public will not
stand for it, because they feel that they do not know the whole truth,
they have not been treated right. That is the condition in Massa-
chusetts. I have talked with the public-service commissioners and
they openly say so.

Commissioner SWEET. Is not this condition of not having been
treated right rather a tradition from years ago rather than a condi-
tion that exists at the present time ?

Mr. Foss. Well, I think that is true. I think the condition in the
country to-day is better than it ever has been as to integrity and
honesty.

Commissioner SWEET. Then you think if the public fully under-
stood the situation as it is to-day and realized the fact that these
companies can not do business unless they can increase their income
and that they are at the present time being for the most part honestly
and capably managed, do you think if the public were convinced
of the truth as it stands that it would readily acquiesce in an in-
crease of fares and would pay them without demur?

Mr. Foss. Xo; I do not put it so broadly as you put it. They
would to some extent, but the public have got the idea which I have
advanced here, and very properly in my judgment and the right
idea too, that a portion — not all, but a portion — of this expense must
go into general taxation.

Now we are making the car rider pay the whole bill. I will illus-
trate. In my own family there are 10 adults and we have 8 grand-
children, the oldest one only 6 years old. We have 9 automobiles
to carry those 10 people around. I am the .only fellow who ever
uses the electric car. Every one of my sons and daughters and my
wife never step into one. I do not believe they have been in an
electric car for five years. When they want to go any place, the
automobile is standing at the door and they go in that. When we
get around the dinner table at night, as we do once in a while, the
first thing they will do is to kind of touch the old man up about
prohibition and then they will start to talk about the roads. One
of the boys has been out here and he struck the damnedest roads he
ever saw in his life, and he begins to score the State commission and
the selectmen of the town and everybody all down the line because
we have such poor roads. Should not he be taxed as everj^body is
taxed? The poor man in my factory is taxed to make that road

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 799

safe so that fellow can ride on it. Should not the rest of them be taxed
so as to make these street railroads safe? It is part of the high-
way. There is no reason why that track down there should not be
"laid and maintained and supported by the taxpayers or why another
corporation should not own the equipment and operate it under
Government ownership. We do not necessarily have to have Govern-
ment operation. You may have private operation if you please,
but that is the way this thing has to be divided.

We have a system of subways in Boston which is equivalent to
streets. All of Washington Street and Xremont Street and under
the common is made into an underground street, and we enter the
stores in the basement from these subways, and that is all taxed
upon the car rider and the car rider is decreasing all the time because
the number of automobiles is increasing and the people buy those
whether they can afford a house or not. They buy an automobile
and ride in it. Now they are putting all that burden on them and
it should not be on them at all. It all belongs to the public — every
bit of it. You have to recognize it. It is foolish for us to stand up
and not recognize these things in the interest of a better democracy,
as I say.

Commissioner SWEET. Is it not possible to make a great many
changes and improvements in our taxation system and various other
matters without going to the full extent of public ownership and
operation of these railroads?

Mr. Foss. I do not believe you can do it.

Commissioner SWEET. Is it wrong, in your judgment, that the
street railroad companies should be required to pave between the
tracks ?

Mr. Foss. Yes; it is. I think

Commissioner SWEET. Very well. Could not that be changed by
legislation, by the public?

Mr. Foss. You may do that. That is right.

Commissioner SWEET. Is it wrong, in your judgment, for the
public to expect twice as many miles for a nickel as they got 15
years ago?

Mr. Foss. No; it is not right.

Commissioner SWEET. They ought not to expect it?

Mr. Foss. Oh, no. They ought to expect higher rates. I agree
with you. Somebody has to pay it.

Commissioner SWEET. They ought to expect to pay in proportion
to their use of it?

Mr. Foss. Somebody has to pay it; yes.

Commissioner SWEET. They ought to expect to pay in proportion
to the service they receive.

Mr. FOKS. Yes; some one has to pay it.

Commissioner SWEET. Are they doing it to-day?

Mr. Foss. Xo; they are not.

Commissioner SWEET. Then it is not a fact that the street-railway
companies are attempting to give the people too much for what
they receive in compensation?

Mr. Fosa. They are. of course; no doubt about that. They are
giving them too much. They are bankrupt — the whole thing is
bankrupt.

800 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Commissioner SWEET. If you had Government ownership and
operation your idea would be, I take it, to adjust that upon just as
equitable a basis as could be?

Mr. Foss. That is right.

Commissioner SWEET. Ought not the same thing to be done under
private ownership and operation?

Mr. Foss. I do not think 3^011 can do so.

Commissioner SWEET. Whether you can or not, ought it not to bo
that way?

Mr. Foss. Yes. «

Commissioner SWEET. And if they are to remain under private
ownership then the public ought to be educated up to the point of
willingness to do what is fair and square and compensate the rail-
road companies properly for what they receive; is not that true?

Mr. Foss. We have been trying to do that all this time, under pri-
vate ownership with public regulation; and I say it has fallen down
and gone to pieces and you can not revive it.

Commissioner SWEET. You believe it is hopeless ?

Mr. Foss. Hopeless, perfectly so ; -because it is wrong in principle.
If you own a piece of property, are you going to let John Jones
come in and tell you how you shall run it ? Not on your life. You
will run it as you want to; it is your property. Now these stock-
holders own these street railroads and the railroads of the country.
Now they ought to run them. I believe the Government had better
turn them back without any strings on them if you are going to
have private owners and let them live like any other private cor-
poration— let the survival of the fittest exist, if you please. We did
that in the early days. What did it result in ? In paralleling a lot
of lines and bankruptcy and everything of that sort. A street
railway is not a thing of competition; it is a monopoly, just remem-
ber that. You can not do it that way.

Now that has fallen down and we have got to come right back to
the thing that the Supreme Court said — that these railroads afe
highways and that no profit should come from them other than a
fair return upon actual money invested. Anything above that
should go to the people, either in reduced fares or in some other way,
in building up the property. Some of these railroads have only paid
out a portion of their earnings. They are strong and they have ac-
cumulated tremendous surpluses to-day. As I say, the Delaware,
Lackawanna & Western are getting 312 per cent allowed them by the
Government because they have piled up this great surplus and
charged these rates, and which ought to have gone by all justice and
right to the people.

WTe have got to reverse our policy — we have to reverse this thing,
as I see it, in the interest of the Nation and in the interest of a
happier Government. We have got to do it.

Commissioner SWEET. I do not want you to infer from the ques-
tions I have asked you that I am altogether at variance with your
views.

Mr. Foss. No.

Commissioner SWEET. But whether I am or not, I thought perhaps
some of the points I have asked you about ought to be elucidated a
little further.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 801

Mr. Foss. Yes.

COMMISSIONER SWEET. So far as I am concerned, I have no further
questions to ask.

The CHAIRMAN. Governor, this commission has been appointed to
make a study of the street-railway situation, because it is -assumed to
be in a very critical situation. You offer as a remedy public owner-
ship. Is it not true that it would take a long time to bring the coun-
try to the point where it will take over these utilities and operate
them as public institutions?

Mr. Foss. I think we are right ready for it this minute. I think
we shall do it in Massachusetts before the snow flies, almost — we can
not do it as fast as that, but we are going to do it in Massachusetts
right away. We have reached a crisis in Massachusetts; we are
in the worst condition. I got in the car here to come from the sta-
tion, and they only taxed me 5 cents. In Boston if you ride two
blocks they tax you 10 cents. They are up in arms.

The CHAIRMAN. Are there not some States where the constitution
would have to be changed before you took over these properties?

Mr. Foss. That may be; I do not know about that, but I think we
can do it in Massachusetts, and we are going to. We have tried out
everything else, service at cost and everything we can think of, and
we have got to come to it.

The CHAIRMAN. In the States where the constitution forbids it,
your remedy would be rather hopeless, would it not?

Mr. Foss. Certainly. We have a constitutional convention in
Massachusetts which has been working the last year, and they come
into session immediately when the legislature adjourns next week;
and that proposition is going to be put right up to them.

The CHAIRMAN. Are there not also a great many municipalities in
the country that are bonded now to the limit of their capacity and
it might be very difficult for them to take over these properties?

Mr. Foss. Well, I will tell you I do not agree with you on that.
It is surprising — when the war broke out we did not know we had
so much money. We did not know we could raise $30.000,000,000
in this country^ and loan $10,000.000,000 to other countries. Nobody
knows where it came from, but there is more money in the savings
banks than before the war; and we have loaned all this money and
I guess we are so rich it would not make a particle of difference.

The CHAIRMAN. Well, it is true, is it not, that where those condi-
tions exist you would have to have new legislation?

Mr. Foss. Undoubtedly.

The CHAIRMAN. And is it not also true that before any of these
municipalities could take over these properties there would have to
be new legislation by the State?

Mr. Foss. Yes.

The CHAIRMAN. That all speaks for time; does it not?

Mr. Foss. Yes.

The CHAIRMAN. During the working out of this scheme of public
ownership what is to be (lone with these utilities, assuming that they
are in a desperate condition?

Mr. Fos.s. I say, go to it immediately.

The CHAIRMAN. Well, what?

802 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. Foss. Well, go to it right off. We are going to get it in Massa-
chusetts, we are going to take it up there. We are not going to
wait for the Nation to act.

The CHAIRMAN. Your solution, then, is Government ownership?

Mr. Foss. Yes.

The CHAIRMAN. That is the only thing you have to offer?

Mr. Foss. That is the only thing I have to offer; or Government
ownership and Government operation or Government ownership and
private operation, but Government ownership first.

The CHAIRMAN. Then do you believe that the one function of this
commission which has been appointed by the President is to make
a recommendation to the country in favor of Government owner-
ship of these utilities?

Mr. Foss. I think that would be the greatest report you could
make. It would mean more to the people of this country than any
report that has been made in my memory, because this is the greatest
question in the country. It affects the food question. Transporta-
tion is a great question which enters into the cost of everything, and
into the cost of food to-day. Now, you are talking about these pack-
ers and the conditions existing now. It is on the public mind. You
ride on these street-cars and see what people are talking about.
Transportation plays a very important part, and these rates have
to be very materially advanced right away, whether the Government
holds the ropes or not.

The CHAIRMAN. You have spoken about the Massachusetts situa-
tion.

Mr. Foss. Yes.

The CHAIRMAN. You say they are going to take some action in
November ?

Mr. Foss. Yes.

The CHAIRMAN. In your judgment will the State decide in favor
of State ownership of those utilities or municipal ownership ?

Mr. Foss. In Massachusetts, you see, Boston — within 10 miles from
Boston — is half the population of the State. We have a population
in Massachusetts of about 3,500,000 and about 1,500,000 are within
10 miles of the State House. We do a great many things by the
State in Massachusetts that are done by municipalities in other com-
munities, because our metropolitan center of Boston with its suburbs
is such a large part of the State. But I think — as I sa.y — when I
say public ownership I mean municipalities or States.

The CHAIRMAN. But in most cases it would mean by the State?

Mr. Foss. Well, it would be in a great many instances. Probably
in cities like Springfield and Worcester and Boston it would be the
municipality. In the smaller towns — you see we have a great chain
of suburban roads all through the State and a good many miles of
them have been abandoned because they can not pay under this
present condition, and the State has to do something about them.
They can not abandon these roads that are a public necessity.

The CHAIRMAN. Let us assume the State took over all those utili-
ties, what fare would you charge for the service?

Mr. Foss. I do not know. That has to be worked out. My judg-
ment is here that the 5-ceiit unit fare in our large cities has got to
stand.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 803

Tho CHAIRMAN. Then you believe the State should operate these
companies and charge a 5-cent fare and make up the deficit from an
appropriation ?

Mr. Foss. Not in all cases; do not misunderstand me. It has to be
worked out in separate cases. I say in all our large centers like Bos-
ton, New York, Washington, they have to hold to the 5-cent fare be-
cause that is the unit that we have been accustomed to, and I think
that is what will satisfy the public, but it would not apply over a
road running from here to Georgetown or Richmond. That is an-
other kind of service.

The CHAIRMAN. But under the present standard of wages and
operating costs those companies could not afford to operate on a
5-cent fare.

Mr. Foss. Oh, no.

The CHAIRMAN. Then there would be a large debt which would
have to be taken care of by taxation?

Mr. Foss. Surely.

The CHAIRMAN. And now do you think it is just to the property
owner and citizen living remote from the city of Boston that he be
taxed to pay for service which is given to the people who ride upon
the streets in the city of Boston ?

Mr. Foss. Yes, I do.

The CHAIRMAN. Upon what theory do you say that?

Mr. Foss. Upon the theory that the street railroad is a necessity, an
absolute necessity to o«lr social and industrial life, and as such he
should be taxed to maintain that necessity just as much as he is taxed
to maintain that highway without the street railroad on it.

The CHAIRMAN. Would you apply the same principle in the opera-
tion of a lighting company?

Mr. Foss. Yes.

The CHAIRMAN. Or a water company?

Mr. Foss. Yes,

The CHAIRMAN. Or a gas company ?

Mr. Foss. Yes; the same thing.

The CHAIRMAN. So then you would wish the city generally to
maintain a service which is of a peculiar benefit to the citizens of a
city ?

Mr. Foss. Yes, that is right where these quasi-public corporations
have got to be.

The CHAIRMAN. What is the length and breadth of Massachusetts?

Mr. Foss. Well, it is about 225 miles long, I think, and about •

Mr. WARREN. Fifty miles wide, is it not?

Mr. Foss. Fifty miles wide?

The CHAIRMAN. Apply that same principle to the State of Min-
nesota, where I come from, where the State is over 400 miles long
and over 200 miles wide.

Mr. Foss. As big as all New England.

The CHAIRMAN. Yes. We have counties in our State that are
larger than some of your Eastern States.

Mr. Foss. Yes.

The CHAIRMAN. Now in that State the street-cars are operated in
Minneapolis, St. Paul, and in Duluth. It so happens that the Twin
Cities are located, and Duluth also, all the way from 200 to 800
miles from some of the largest agricultural and mining communi-

8C4 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

ties in our State. Large numbers of people never ride upon those
street-cars. Is it fair to ask the farmer of Minnesota and the miner
up in northern Minnesota and the stock raisers generally all over
that country for a service that is a peculiar benefit to the citizens
of St. Paul, Minneapolis, and Duluth?

Mr. Foss. I am not going to say — I do not understand your whole
system of taxation, but if your system of maintaining highways is
that you tax the whole people of the State to maintain them — for
instance, you tax the people of Minneapolis and St. Paul to main-
tain the highways in the southern part of Minnesota — why should
not the people be taxed

The CHAIRMAN. We have what we call a 1-mill tax. The State
raises 1 mill by general taxation and that is distributed upon some
ratable basis to all of the counties in the State.

Mr. Foss. Well, we are trying to get that same system in Massa-
chusetts, which is a very good system, I think. Now, I honestly
think if you tax the people of southern Minnesota to maintain the
streets of St. Paul and Minneapolis, then it is no more than right
to tax the people of southern Minnesota to maintain those street
railroads.

Mr. WARREN. If you followed up in Massachusetts that analogy,
you would not have to tax the whole State.

Mr. Foss. No; I do not think you would.

Mr. WARREN. We tax the cities and towns for local highways, the
counties for intertown highways and the State for State highways.

Mr. Foss. Yes.

Mr. WARREN. In Boston you have your metropolitan district.

Mr. Foss. In Boston we have our metropolitan district to take
care of it. My idea is to take the metropolitan district of Boston
which these railroads serve.

Mr. WARREN. You spoke of the water system there. The same
method of taxation and operation applies to the sewer system?

Mr. Foss. Yes : and it has worked out well.

Mr. WARREN. But you do not tax the western part of the State
for the metropolitan region?

Mr. Foss. No ; only that region through there.

Commissioner GADSDEN. The condition of electric railways
throughout the country is admittedly very bad, is it not ?

Mr. Foss. Yes, very bad.

Commissioner GADSDEN. Pending the working out of a compre-
hensive plan such as you advise, do you not think in all justice and
fairness to the companies that there should be an immediate in-
crease of their rates of fare?

Mr. Foss. No ; I am not sure that there should be. I do not think
that. We have to meet the situation, of course, in some way as
quickly as possible. I say just go to it as quickly as possible. It
may be necessary in some cases to do that temporarily.

Commissioner GADSDEN. I am not talking about your roads in
Massachusetts

Mr. Foss. We have done it in Massachusetts.

Commissioner GADSDEN. Throughout the country there are a great
many roads who have had no relief at all.

Mr. Foss. No.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 805

Commissioner GADSDEN. I say pending the eventual working out of
this problem, do you not think that those roads which have not had
any relief should be relieved at once?

Mr. Foss. They should be, but the people should be told that it
is only temporary, and if you tell them the whole truth and do not
go to make it permanent instead of temporary-
Commissioner GADSDEN. I mean as an expedient.

Mr. Foss. That is right, if you make it purely temporary, yes ; but
if you are going to make that temporary business permanent, then
you are up against it, because that is only half the truth.

Commissioner GADSDEN. Don't you think this commission would be
well advised if it should take the position that, pending this further
investigation of this subject and a permanent solution of the problem,
it should recommend to the American people that some relief should
be given to this transportation system to keep it alive until you can
remedy it ?

Mr. Foss. Yes; if you say public ownership is the thing and we
are going to write about it and recommend it, then I say yes. But if
you wait until the next 60 days or 90 days we will have a higher fare,
but at the end of 60 or 90 days we will have it changed.

Commissioner GADSDEN. Suppose the American people are not pre-
pared for Government ownership

Mr. Foss. They are.

Commissioner GADSDEN. Well, you may be mistaken.

Mr. Foss. I believe they are. I do not believe they are prepared for
anything else.

Commissioner GADSDEN. A good many of us who have been riding
on the steam railroads during the war have heard a great many peo-
ple express the opinion that if that is an example of governmental
ownership we do not want anything more of it.

Mr. Foss. My dear sir, we have not had any yet.

Commissioner GADSDEN. The people think it is Government owner-
ship.

Mr. Foss. They ought to be disabused.

Commissioner GADSDEN. How long will it take them to be dis-
abused ?

Mr. Foss. You have to tell them they have not had it. They have
had a lease of the roads and the same crowd is managing them as
managed them before the Government took them over.

Commissioner GADSDEN. But don't you think governmental owner-
ship in the public mind has had a set-back from the experience of
the war?

Mr. Foss. This propaganda which has been put forward by the
railroads themselves — by Wall Street, if you please, by those vested
interests which have got the newspapers and have got the press —
that kind of stuff has been going around the country and many peo-
ple believe we have public ownership in this country and that we
have tried it out and it is a failure. We have not had it; there is no
failure about it. We are going to have it, and it is going to succeed
and we are going to effect wonderful economies of terminal charges
and everything of that sort.

The CHAIRMAN. There is one other thought I would like to discuss
with you for a moment or two. It is stated there are about $6,000,-
000,000 in bonds and money invested in these utilities throughout

806 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

the country. It has been freely stated here that a good deal of
watered stock has been permitted to be issued to the public and it is
now in the hands of innocent purchasers. Do you believe that the
net result of Government or municipal ownership of all of these
utilities would be that the investor would get his actual money back ?

Mr. Foss. Yes ; absolutely, with interest.

The CHAIRMAN. With interest?

Mr. Foss. Yes. I think he ought to have his actual money back
with interest. If there is any watering done, it ought to be squeezed
out. You understand a security which is privately owned of a pri-
vately owned corporation does not sell nearly as high as a Govern-
ment security. The last money we got for the Boston Elevated Kail-
road we had to have a year ago and it was $3,000,000 that the stock-
holders put up on a guaranty by the State that they would see the
interest paid for 10 years, and we had to pay 7 per cent for it. Now,
if the city of Boston had issued that $3,000,000, what would they have
had to pay ? Four and a half per cent, possibly, or 4^ for it. The
State would have had to pay 4^ or 4j. See the difference in the in-
terest, see what you are going to effect in the cost of these railroads,
in the cost of carrying on this property, if you get your money at 4
per cent instead of paying 7 for it. That is what you are going to
save. It is going to make a tremendous difference. We can do it
over here

The CHAIRMAN. In reaching your conclusion favoring Govern-
ment ownership, have you been influenced at all in the belief that
that plan would result in paying back to all of the investors the
money which they had put into these properties?

Mr. Foss. Yes ; it ought to.

The CHAIRMAN. That is one of the reasons you favor Govern-
ment ownership?

Mr. Foss. Yes. Well, I believe that is justice. I do not believe in
the confiscation of any man's property. He should be paid back
with good liberal interest, and the public are willing to do it. The
public do not stand on that. They are in favor of every man getting
his money back, but not a factitious price or water.

The CHAIRMAN. Do you believe if we should attempt to buy all
these properties at the same time that it might result in the people
paying a great deal more for these properties than actually was put
into them and thereby capitalizing a good deal of water that is in
the stock?

Mr. Foss. No ; I think that could all be fairly found out. I think
an investigation, a commission to find out what these properties
were severally worth, what had been put into them and to see that
nobody was harmed in any way — an exchange of securities could be
effected for a Government security. Of course, a Government se-
curity at par would offset, you see — at par it would be worth 130 or
150, possibly.

The CHAIRMAN. But in all these cases the property should be duly
valued by some State tribunal ?

Mr. Foss. Yes.

The CHAIRMAN. According to the settled principles of law?

Mr. Foss. Yes.

The CHAIRMAN. It ought not to be a purchase and sale proposition ?

Mr. Foss. No ; I do not think so at all.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 807

The CHAIRMAN. That method would be just to the public as well
us the investor?

Mr. Foss. Yes, but my theory is to very liberally deal with the
people. We owe something to the people who put their money into
these corporations and developed them ; no doubt about that.

The CHAIRMAN. Xow then, do you want to apply your principle
to all forms of public-service corporations?

Mr. Foss. Yes, all quasi-public corporations.

The CHAIRMAN. The present bonded indebtedness of this country
is around $24,000,000,000— is it not— growing out of the war?

Mr. Foss. Yes.

The CHAIRMAN. Xow if we should ask, say $15,000,000,000 for
the steam railroads and $6,000,000,000 more for the utilities and we
will say $6,000,000,000 more for all of the other utilities, how is all
that money to be financed?

Mr. Foss. I do not think it would bust us at all. But we have
not got to do that. Your bonded indebtedness on these railroads is
all fixed. You do not need to disturb those bonds at all. Now,
those can be adjusted so that they will receive a Government guar-
anty. We have not got to do this thing that way at all. These
owners — I speak from knowledge — of these railroads are very willing
indeed to turn them over to the Government at a fair and reason-
able price, not what they cost —

The CHAIRMAN. Let me give you an illustration of that: The
Kansas City Southern Railroad, which operates from Kansas City
down to Fort Arthur or the Gulf, has been valued or is being
Valued by the Interstate Commerce Commission.

Mr. Foss. Yes.

The CHAIRMAN. In that proceeding it is stipulated between the
Government and the railroad that the original cost was $50,000,000.
The Interstate Commerce Commission found that the cost of re-
production new less depreciation would be about $46,000,000. The
capitalization of that railroad is $99,000,000. Now the railroad has
Ven earning very fair returns during the past six or eight years,
and the railroad claims that the value of that property based upon
the capitalized earnings would be all the way from $77,000,000 to
$80,000.000. Xow with those figures before you and with the thought
of being fair to the public as well as to the investor, what should bo
the value of that railroad property if purchased by the Government?

Mr. Foss. I can not say arbitrarily, but I simply say if that
property — they should not receive what they claim on earning value
of the property. That may enter, if you please, somewhat into the
value of that property, but I think a safe proposition is to say this,
that they should pay for that property all it cost plus the interest.

The CHAIRMAN. Well, suppose they had boon getting the interest
right along, you would not want to compound that interest, would
you ?

Mr. Foss. I do not know as I would compound it, but I would see
that they got an honest and fair return. Of course, these stocks of
railroads are manipulated; you understand that.

The CHAIRMAN. Oh, yes.

Mr. Foss. They do not all represent actual value. There are pool.*,
in Wall Street that see that certain shares of stock sell at certain
times at certain figures and that ut other times they sell lower.

808 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. The railroads in these valuation proceedings are.
contending for a great many different items that will add many,
many billions of dollars to the value of their property; increment
to land, present value of land which has been donated by the Govern-
ment, contingencies and overhead expenses and all those things;
no one to-day knows just what the Supreme Court will finally say
upon the disputed points. Now, those questions do involve billions
of dollars. Xow, do you think that this country at this time should
decide to buy those railroads before any of us know anything about
what those railroads are worth ?

Mr. Foss. It is not necessary — yes, we should decide to buy them,
no doubt about that, and take them right over, and we will deter-
mine the value afterwards.- But I want to pay them what it is
worth. Whether they should be recompensed for increment of
value which has come to them through a period of years through the
fact that they have occupied them and business has grown up around
them is a thing that I do not admit.

By the way, Mr. Prince, a prominent banker in Boston, is here,
and he calls my attention to the fact that the public will furnish the
money with a Government guaranty. You are speaking about the
Government issuing these securities in great quantities and flooding
the market with Government securities. That would be unnecessary.
And as I said with respect to the bonds, and as Mr. Prince very
properly says, the public will furnish the money under a Govern-
ment guaranty. So we are not going to throw a great quantity of
Government bonds onto the market if we take these things over.

The CHAIRMAN. That is all.

(Witness excused.)

(At 1 p. m. a recess was taken until 2 p. m.)

AFTER RECESS.

I . .

The hearing was resumed at 2 o'clock p. m.

The CHAIRMAN. You may proceed, Mr. Warren.

Mr. WARREN. Mr. Mortimer, will you take the stand again?

STATEMENT OF MR. JAMES D. MORTIMER (Resumed).

Mr. MORTIMER. The electric-railway industry for a great many
years past has been gradually losing its commercial aspects. It has
become an industry that is regulated in the extreme by the govern-
mental authorities, and it, of course, has been one where the net earn-
ings have been declining.

It appears that the railway industry has not been increasing its
volume of business as rapidly as has been the general business in
community life of the territory served. The causes for that are com-
paratively well known. They have found themselves unable to at-
tract additional capital to expand facilities, to keep the railway utili-
ties in line with the growth of business and expansion of territory,
partly because of the imposition of unremunerative expenditures,
both for capital and for operating expenses, and partly because the
business has been regarded as an exceedingly hazardous one. Ex-
penses have risen so rapidly in the last two years that it is not at all
clear that there is any uniform solution for the problem. In fact, as

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 809

I indicated in my earlier testimony, there are a great many of the
smaller communities served by track mileages running up 10 or
15, or possibly as high as 20, and in placing the population
as high as 50,000, where it is doubtful, at present wage levels and
commodity prices, that the business can be made remunerative at all.

There are a good many of our fundamental conceptions respecting
the railway business that will probably have to be modified. We may
have to change from a flat form of fares to a distance-tariff plan. In
any event, if we are going to commercialize the business we have to
be placed in a position where we can manufacture our product —
namely, seat miles — at the lowest possible cost, and then be accorded
the necessary freedom so that we can sell those seat-miles to our
customers. Just what form the commercial aspect of the sale of
our service is going to take is very difficult for any electric-railway
operator to state at this time. In fact, the changes in the funda-
mental economic basis of street-railway operation have been so im-
portant in the last two years that it is not improbable that we will
nave to go through a two-year experimental period. Of course, an
experimental period of two years would ruin every electric railway,
and present operators would not care what would happen to the rail-
ways at the end of the two years. Present conditions are such that
emergency relief has to be granted, and we have not conducted the
experiments to that fine point to take sufficient time to try to restore
it to a commercial basis, if such a restoration is at all possible.

Any business that is of a shrinking nature, where the volume of its
market is decreasing, is necessarily not attractive to private investors,
and the changes in fare agreements that have been general!}7 made
throughout the United States have, of course, produced a very great
reaction upon the riding habit.

There has been, in every case, after the lapse of a short period of
time, an increase in revenues as the result of an increase in flat rates
of fare. That is true. The increase has not in all cases been equal
to the estimated increase resulting from the application of the new
fare to the previous number of passengers.

All important industrial centers are growing at a rapid rate. The
riding habit ought to increase likewise at a rapid rate, but the in-
crease in riding habit has been somewhat influenced by the increases
in the flat rate of fare.

Now, what the railway business needs is more business rather than
less. If you liken the railway business to a manufacturing institu-
tion, with a relatively large overhead, the analysis of the manufac-
turer would be along the following lines: I have a large overhead.
That overhead, distributed over my present volume of output, is too
high per unit to permit me to sell in competition with other com-
modities of like use.

The electric-railway operator is faced with the proposal of increas-
ing his selling price so high that competition from walking becomes
most severe. The principal competitor of the electric-railway busi-
ness is walking. The number or cars to be operated by an electric
railway in any given time should, in point of fact, be determined
more nearly by tne movement of people that are on the street, rather
than by the number of people that are on the cars.

So I know, with respect to the companies in which I am interested,
that we are anticipating a period of experimental development for
100043°— 20 52

810 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

the next two years, but we have got to be granted emergency relief
in order that we may have a restoration of earning power, to the
end that the proper wages may be paid, that the existing physical
property may be adequately maintained, and that we may be placed
in a position to invite the additional capital at the end of the two-
year period.

Mr. WARREN. Did you refer to the British experience during the
war period?

Mr. MORTIMER. No ; I said nothing about that.

I recall a series of articles appearing in the Electric Railway Jour-
nal that purports to show that under the distance tariff or zone system
of fare in operation of most of the British street-railway systems
they have been able to increase their revenues to substantial accord
with the increase in expenses; that their traffic has not fallen off,
except to the extent that they were not able to provide the service
because of the shortage of operators; that while there were a large'
number of men who went into the service, there were likewise large
numbers of women who took their places, and women ride to a
greater extent than do men ; that the increases in revenues on all the
British tramways where they endeavored to keep the revenues in
accord with the increase in expenses have been satisfactory; that
there has been no decrease in riding habit or traffic as the result of
their increase in fares, except to the extent that the shortage of oper-
ators prevented them from running prewar service.

Mr. WARREN. I think that is all I want to ask Mr. Mortimer, Mr.
Chairman.

Commissioner MEEKER. I would like to get your idea about the
proper way of accounting. You mentioned some things that are
rather obscure to me. Will you state a little more completely your
idea of how depreciation should be cared for and how obsolescence
should be cared for?

Mr. MORTIMER. The purpose of accumulating a reserve for so-
called depreciation is fundamentally to create a reserve out of earn-
ings so as to insure the future replacement of the element of physi-
cal property at the end of its probable lifetime. No elements of
physical property of the same class have all equalized. The lives
of cedar trolley poles may vary from 8 to 20 years. There are, of
course, as the statisticians know, one certain year in each class of
property where the number of replacements is at a maximum. Re-
placements or abandonments invariably begin within a very short
time after the initial construction takes place. The curve of mor-
tality of the elements of physical property, to the extent that such
mortality curves have been computed or arranged, are quite similar
to the curves of mortality of human lives. The problem of provid-
ing for so-called depreciation is not to provide for the wearing out,
so much as it is to provide for the replacement. I am speaking now
from the utility standpoint. Every utility is presumed to operate
in perpetuity. Its obligations to operate and conserve its capital
account do not necessarily terminate at the expiration of its de-
terminate franchise, if it has such a thing. No rates of fare have
ever been allowed which will amortize the value of physical property
to its scrap value within the life of the determinate franchise. All
the rates of fare provided for in any plan never make an allowance
in amount greater than what will insure the replacement of the
elements of physical property at the end of their probable lifetime.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 811

Xow, we have a piece of track which, for simplicity in calcula-
tions, we will assume has a life of 15 years. It is the duty of the
utility to appropriate a sufficient amount of money out of its earn-
ings with which, with equal increments, if you please, each year,
together with the interest upon the reserve balances, will provide a
sum at the end of 15 years which will enable the utility to replace
that element of property — a piece of track — to the extent of the
original cost thereof.

Now, that will apparently result in the creation on the balance
sheet of the corporation of a liability very much larger than the
amount that the corporation can use in any one year, but the recogni-
tion of that liability is essential if the balance sheet of the corpora-
tion is to fairly show the assets and liabilities, because the balance
sheet purports to represent fundamentally the liability of the corpo-
ration as a group of shareholders to the various creditors and tho
public, to the extent that the public in interested in the continued
operation of the utility. By that I mean that the depreciation or
replacement reserve created by the methods that I have generally
indicated records the liability of the corporation to the utility to
effect these replacements at the end of the probable lifetime of the
physical property.

Commissioner MEEKER. Suppose, in this case that you cite, that
some exigency should arise whereby it was necessary to replace a
piece of track at the end of 5 years instead of at the end of 15 years,
with absolutely new track that would cost, perhaps, twice as much
as the original track cost. Or you could take a more specific
example

Mr. MORTIMER. I will take that example. That is sufficientlv spe-
cific, and the question which you ask, Mr. Commissioner, consists of
two parts: One, how are we going to treat life that corresponds to
the remaining 10 years normally, the difference between the probable
life of 15 years and the actual life of 5 years; and the other question
is, how shall we treat increased capital cost?

When the property is abandoned, the original cost should be re-
moved from the capital account. If it were 1 mile of track and cost
$25,000, we would take $25,000 out of capital account, crediting
capital account with that amount, and debiting the replacement re-
serve with a corresponding amount, provided we are going along on
the assumption that our depreciation reserve has been credited with
a sufficient reservation to take into account the varying lives that
equipment and physical property are subject to.

Now, the rule of the Interstate Commerce Commission for ac-
counting of that class requires that an amount be debited to deprecia-
tion reserve equal to the proportion that the expired life bears to tho
probable life; in other words, one-third; and that tho remaining
two-thirds will be charged into ordinary current operating expenses
of the railway. Whether it would be in one month or six months is a
matter that is left, as a rule, to the discretion of the operating officers.
If it is not charged to depreciation reserve and is to be charged into
operating expenses during a period of six months, it is carried as a
suspended asset and written off in equal monthly installments.

Commissioner MEEKER. And if earnings are not sufficient to take
care of it within six months, you still further suspend it?

812 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. MORTIMER. That is a matter of discretion. Now, if you were
to ask me what our practice is, I would say that only the amount that
corresponds to the expired life is charged against the depreciation re-
serve, and the remaining amount is charged to operating expenses for
the month in which the order for property removal comes through
into the accounting department.

That was the practice and recommendation of the Railroad Com-
mission of Wisconsin prior to 1915 or thereabouts. With a changing
personnel, they changed the basis, and \vere thereby able to make a
reduction in maintenance expenses, requiring, according to their cal-
culations, that these unexpired lives of elements of physical property
should all be charged to depreciation reserve.

In other words, in the case that you cite, the entire original cost of
the item of physical property — namely, the mile of track — should be
debited to depreciation reserve at the same time that the property ac-
count is credited with its original cost.

Now, taking up the question of how the additional expenditure is
to be taken care of, it is this: We have taken out of the plant and
property account the original cost of the element of property that has
been abandoned. We should accordingly write on, that is, into prop-
erty account, the cost of the property that has been constructed. The
costs of the removal of the old property should be charged to operat-
ing expenses.

Commissioner MEEKER. What percentage of earnings should be set
aside, do you think, in order to take care properly of replacements?

Mr. MORTIMER. I am unable to answer that question for the fu-
ture, because the levels are, of course, changing. Operating ratios
are on an entirely different basis from what they formerly were,
but more particularly the ratio of capital, utility capital, to oper-
ating revenues, is changed, due to rise in rates of fare.

We have, by the practical setting up of 22 per cent of the operat-
ing revenues of the urban and surburban system, been able to accu-
mulate, in the case of the Milwaukee Electric Railway & Light Co.,
a replacement reserve approximately equal to the estimated accrued
depreciation, or the difference between reproduction cost ned and so-
called depreciated value; so that, so far as utility capital accounts
are concerned, the utility has been maintained intact; and we have,
as a rule, carried through that practice, irrespective of the return
we were actually earning on this utility. We have shaded it in some
years. That is, in the last year we did so, when it was necessary to
show a sufficient margin over bond interest.

Commissioner MEEKER. Have the street railways under your di-
rection ever been solvent on a 5-cent fare ?

Mr. MORTIMER. We have never had a straight 5-cent fare on any
of our electric railways at a time that they were solvent. They
always had to get insolvent — the utility had to become insolvent
before it could get a 5-cent fare.

Mr. WARREN. You are speaking of the Milwaukee company?

Mr. MORTIMER. I am speaking of the Milwaukee company. Keno-
sha had a 5-cent fare, and the advent of the 5-cent fare did not re-
store the solvency of the utility, if we recognize the liability that
the utility has because of the unpaid return, the unpaid reasonable,
return.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 813

Commissioner MEEKER. Could they have operated solvently it
they had started anew on a 5-cent fare ?

Mr. MORTIMER. No; they could not have.

Commissioner MEEKER. This proper reserve fund — depreciation
and replacement fund, and all of the other elements — if taken care
of, would not enable the railways to operate on a solvent basis with
a 5-cent fare?

Mr. MORTIMER. Xo; not during the period of time that we have
under review.

Commissioner MEEKER. How far back would that extend?

Mr. MORTIMER. Well, I am going back to 1896. On the Mil-
waukee Electric Railway & Light Co. there were periods of time
when the return earned upon the fair measure of the utility capital,
after providing for depreciation, was 7 or 8 per cent possibly; but
that was in times before we had a regulation of rates by a regulat-
ing commission.

Commissioner MEEKER. But since the regulation of rates, the
5-cent fare has never been a sufficient fare?

Mr. MORTIMER. Well, if we had had a 5-cent fare in 1913 and
1914, it would probably have been remunerative; but, of course,
that assumes a static condition with respect to the other factors of
operating expenses; and with an increase in rate of fare, there
would probably have been a synchronous increase in certain other
items of operating expense, possibly wrages, etc. It wyould cer-
tainly have increased our taxes, because combined railway and
electric utilities in Wisconsin are virtually on an income-tax basis.

The Milwaukee Electric Railway & Light Co., as a corporation.,
has, of course, been solvent. It enjoys a favorable reputation in
that respect, but that has not been due to the railway business. Its
electric business has been rapidly developed, and is growing at a
very rapid rate. It has tended to assist the railway business very
materially, because it is taking over portions of the reserve power
station facilities and absorbing them by absorbing their output and
thus reducing the rate of increase of capital expenditures in the
case of the railway.

Commissioner MEEKER. What would you say in answer to the
accusation that the street railways have been addicted to issuing
watered stock and that they have been trying to pay dividends upon
water?

Mr. MORTIMER. I would say, in the first place, speaking general ty,
it is an attack that is made primarily for the purpose of confusing
the issues. . The figures that I have presented to you applicable to
the Milwaukee Electric Railway & Light Co. have no bearing what-
ever with respect to capital stock and bonded debt, but represent only
the appraised value of the physical property ; and if any one of such
persons to whom you refer should say that the system can be satis-
factorily operated and produce an 8 per cent return, a reasonable
return upon the fair measure of utility capital, whereas we are able
only to operate it at a 2 or J3 per cent return on the present rate of
fare, then I should tell him he is losing his time, that he should be
in the street railway business, and I have a job for him.

Commissioner MKEKER. Has any part of the value of the plant
been paid for out of earnings?

814 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. MORTIMER. There have been substantial additions to the plant
and property account through reinvestment of depreciation reserve,
through reinvestment of earnings specifically appropriated for that
purpose; but the amount that the company has earned over and above
a reasonable return has been negligible.

Commissioner MEEKER. Even including these amounts turned back
into plant, the returns on a fair valuation have been modest?

Mr. MORTIMER. They have been low; in fact, and of course, rela-
tively low during the last two or three j'ears.

Commissioner MEEKER. I think that is all.

Commissioner SWEET. Did you finish what you had to say about
Kenosha? As I recollect it, you said this morning that you got a
change in the law, which made a different provision for third-class
cities.

Mr. MORTIMER. Yes.

Commissioner SWEET. Enabling you to do certain things there, but
not including Milwaukee and Superior?

Mr. MORTIMER. That is correct.

The CHAIRMAN. Did you take advantage of that new law in
Kenosha ?

Mr. MORTIMER. Well, we now have in process of preparation a
contract to submit to the officials of the city of Kenosha, under which
\ve propose to give them additional railway facilities.

Commissioner SWEET. Does that involve an increase of fares?

Mr. MORTIMER. This does not involve any increase in fares as a

Eart of the contract, but it will require that the rate of fare shall
e determined by the company and shall be in such form as will
produce the maximum net earning power for the street-railway
utility has expanded. We will, or course, have to secure the ap-
proval of this contract by the railroad commission and assurance
from the railroad commission that they will accept our filings
of the rates of fare.

Commissioner SWEET. Is the Kenosha account kept entirely
separate from other accounts?

Mr. MORTIMER. Yes; from the Milwaukee Electric Railway &
Light Co., and the other utilities of the Wisconsin Gas & Electric Co.

Commissioner SWEET. Do the Kenosha accounts include any
suburban districts?

Mr. MORTIMER. None whatever. The service is confined wholly
within the city limits of the city of Kenosha.

Commissioner SWEET. You have been charging a 5-cent fare?

Mr. MORTIMER. Yes ; we have had a 5-cent fare, and the return on
this very high earning per car-mile has been on the order of 3 per
cent per annum. In other words, we had at the rate of about G per
cent for allowances for future replacements and for return, and that,
in turn, is referring to the actual bare bones of the physical property
value.

Commissioner SWEET. And you divided that amount in two, in the
middle, and devote half of it to returns upon the investment and the
other half to replacements?

Mr. MORTIMER. In that particular case, I do not recall how the
distribution was made. It is my recollection that there was not
appropriated for depreciation an amount equivalent to 3 per cent. I

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 815

think it was appreciably under 2 per cent. So that our return actu-
ally shown during the last, say 10 months, was at the rate of 4 per
cent, the return as per books, whereas, on computing the return upon
the commission's formula, it would be on the order of 3 per cent.

Commissioner SWEET. How did the valuation upon the basis of
the physical property compare with the issues of bonds and stocks in
the book charges?

Mr. MORTIMER. Well, in the case of the Milwaukee Electric Rail-
way & Light Co. and the Milwaukee Light & Traction Co., the re-
production costs of the physical property was $2,000,000 in excess —
the reproduction cost of the physical property, plus materials and
supplies, plus working capita], like accounts receivable, cash, etc.,
was on the order of $2,000.000 in excess of the par value of the pre-
ferred and common capital stock, plus the present value of the lia-
bility on account of funded debt; and when I say "the present value
of the liability on account of funded debt," I mean the par value of
the funded debt and securities, less the unamortized portion of the
discount at which they were sold.

So there was a straight case where, on the face of it, there was no
water in its securities, as compared with the reproduction cost of
the property and assets.

Commissioner Sw EET. Had common stock been issued ?

Mr. MORTIMER. Yes.

Commissioner SWEET. What became of that ?

Mr. MORTIMER. I am counting that. That is included in the par
value of the preferred and common stock. We found in our prop-
erties there that it was absolutely impossible to make any reference
to the security issues, because they have gone back over a very long
period of time, and the Railroad Commission in its early stages sub-
stituted physical valuation for any attempt at stock valuation or
security valuation.

Commissioner SWTEET. Was there any value attached to }Tour fran-
chise?

Mr. MORTIMER. We have no allowance for franchise value whatever,
and no allowance in these valuations for superseded property of any
kind.

Commissioner SWEET. Did you have a dispute with the State com-
mission in regard to the basis of valuation?

Mr. MORTIMER. We were not satisfied with the valuation that was
made as of 1907, but we were fairly well satisfied with the valuation
made as of January 1, 1914; so the dispute was not so serious be-
tween us that we have hesitated to use the figures. In fact, we have
accepted them for the purpose of rate-making.

Commissioner SWEET. Was there a basic difference between those
two valuations, or simply a difference of opinion as to what the
values were?

Mr. MORTIMER. Xo; there was no difference between us as to the
quantity of property. There was sonic difference, to begin with,
between our engineers and the commission's engineers respecting unit
prices, and there was also some difference with respect to some
amount to be allowed as overhead, but the differences were largely
minimized.

Commissioner SWEET. The last valuation was of 1914?

8 IS PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. MORTIMER. January 1, 1914, made as of that date, and begun
in the early part of that year, and completed as of January 1, 1914,
in the month of August, 1917.

Commissioner SWEET. That was before prices had begun to go up
very much?

Mr. MORTIMER. Yes.

Commissioner SWEET. Suppose you were to take a valuation of the
railway property now ; do you think that the reproduction cost, the
cost of reproducing, upon tlie present high prices of steel and equip-
ment of all kinds, ought to be taken into account ?

Mr. MORTIMER. I think that is an element that would have to be
given consideration, just like the estimated cost of reproduction is
only one element in valuation. We have not needed in any of our
calculations to show that regulation as practiced in Wisconsin was
unreasonable.

Commissioner SWEET. I do not know whether you have expressed
the opinion that your maximum revenue would be reached by an
increase of fare; in other words, whether the patronage would fall
off as your fares advanced, so that you could not get much more
revenue than you are getting now.

Mr. MORTIMER. I feel almost sure that almost any change in rate
of fare upward would increase revenues. I am confident of that.

Commissioner SWEET. The falling off in revenue would not equal-
ize the gain in fare?

Mr. MORTIMER. No; I am very sure of that.

Commissioner SWEET. You think the increase in fares would be,
at present, at least, very helpful to the companies throughout the
country ?

Mr. MORTIMER. There can be no doubt about it.

Commissioner SWEET. Do you see any other means of awarding
immediate relief?

Mr. MORTIMER. Well, as emergency measures, it would be highly
advantageous to the railway industry if. first, the unremunerative
capital ani operating expeditures could be eliminated. I refer
primarily to paving and the other contributions which street-rail-
way utilities indirectly make to taxes, sprinkling, etc.

The second thing is to abandon the operation of the service over
lines which can not be made remunerative, or which can not other-
wise be supported.

The third would be .to impose a distance-tariff plan on the outlying
sections of long lines or lines of modest length, so as to increase the
revenues and minimize the losses; and the fourth thing would be an
immediate and large increase in the flat rate of fare. An immediate
and large increase in the flat rate of fare is essential, for two rea-
sons : First, it is necessary in order to restore equality between operat-
ing revenues and operating expenses ; and second, it is important that
a large increase in fare be allowed to take care of increased expenses
that the street railways will meet in the next few months, because
of rate increases and probably coal costs, and to return the net earn-
ing power of the railways to a relatively high level, so that their
credit at the end of two years may be reestablished and that they may
be able to go into the money markets and procure the additional
capital that will Be needed at that time.

The CHAIRMAN. You are excused, Mr. Mortimer.

Mr, WARREN. Mr. Quackenbush.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 817

STATEMENT OF MR. JAMES L. QUACKENBUSH.

Mr. WARREX. Mr. Chairman, I am calling Mr. Quackenbush with
reference to his experience with public supervision and control in
New York State and New York City.

Mr. Quackenbush, you are a lawyer by profession ?

Mr. QUACKENBUSH, Yes, sir.

Mr. WARREX. You are counsel for the Interborough Rapid Tran-
sit Co.?

Mr. QUACKEXBUSH. Yes, sir.

Mr. WARREX. And also for the New York Railways Co.?

Mr. QUACKEXBUSH. Yes, sir.

Mr. WARREX. How long have you been connected with the com-
panies professionally ?

Mr. QUACKEXBUSH. Fifteen years.

Mr. WARREX. That is about as long as you have had a public-serv-
ice commission in Nsw York?

Mr. QUACKEXBUSH. Longer.

Mr. WARREN. Longer?

Mr. QUACKEXBUSH. We have had it 12 years.

Mr. WARREX. You have two commissions there, one the so-called
up-State commission, and the one with particular control in New
York City and the immediate vicinity, I believe?

Mr. QUACKEXBUSH. Just New York City.

Mr. WARREX. Have you had experience with both commissions?

Mr. QUACKEXBUSH. A slight experience with the up-State commis-
sion, and a very large experience with the city commission.

Mr. WARREX. Will you please tell us what changes are necessary,
in your opinion, Mr. Quackenbush, in the commission laws or prac-
tices to make them more effective and more efficient in the present
situation of the street railways and properly to control in the future
the street railways? In that, I include, of course, the railways
operating the subways and the elevated ?

Mr. QUACKEXBUSH. Fundamentally, I think the laws of New York
are satisfactory. The trouble in New York has not been with tha
law. but with its administration.

The first time that anything has been done by the public-service
commission in the first district, which is the New York City district,
of the slightest benefit to the railroads, was done last week by Com-
missioner Nixon. Since the 1st day of July, 1907, down to the 1st
day of July, 1019, I have been in daily contact with the administra-
tion of the public-service commission in the first district, and I can
not now recollect a single transaction that has been of the slightest
benefit to the railroads under their jurisdiction.

Now, the trouble has been that, instead of the members of the-
commissions carrying out the theory of Gov. Hughes in the session
of 1907, when the public-service commission law was first enacted,
namely, that the commission would be a tribunal, impartial and
fair, between the industry and the public; that it would be a means
of the prevention of any further prejudice against the industry on
the part of the public; that it would ascertain the truth and toll tho
people the truth ; that the people, learning the truth, would be edu-.

818 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

cated up to carrying out what is always the desire of the people — to do
justice — that function completely and absolutely failed.

Now, that you do not need to take my statement about it — and I
might be supposed to be a prejudiced witness — I call your atten-
tion to the fact that there has been no question of politics entering
into the matter. During the 12 years beginning with Gov. Hughes,
the majority of the commission was of his party, the Republican
Party. Political changes in the State of New York succeeding
his administration resulted in the majority of the commission, for
a period of years, being of the Democratic Party. Then it swung
again to the Republican Party ; and this present year, with a Eepub-
lican legislature and Democratic governor in the State, it was agreed
that something had to be done. So they both agreed on the enact-
ment of a law, which practically legislated out of office the remain-
ing commissions and legislated into office a single commissioner, Mr.
Louis F. Nixon, and took from the public-service commission the
duties of supervising the reconstruction work of the subways, in
which the city is financially interested, and all the contracts between
the Interborough Rapid Transit Co. and the city on the one hand,
and the Brooklyn Rapid Transit Co. and its subsidiary companies,
and the city, on the other side of the river. The changes in tlie law
were practically all that I have stated.

The public-service committee of the New York Senate three
years ago carried on an investigation of the whole matter of trac-
tions, of public utilities. That investigation began four years ago;
it began in 1915, and ran through 1916, and continued through
1917 and 1918. It consumed months of time. I attended the senate
committee. It was a joint committee. I was mistaken in saying
it was a senate committee. The chairman was a senator. It was
a joint committee of both houses.

The law was completely revised. The substantive portions of the
law remained unchanged, but the procedural part was changed.
I will not go into that now, because I think whether it was as
it was proposed by the so-called Thompson Law, or as at present, is
of no consequence to the problem confronting 3^011 at the present
moment.

The bill passed the senate two years. It did not pass in the as-
sembly. I think it is fair to say from that that my conclusion that
the law itself is satisfactory is warranted.

The main change suggested was to get quicker action by the com-
mission, and if you care to know about that, I might spend a moment
in explaining it. The idea was to get rid of the practice that the
commission had fallen into of failing to recognize that it was an ad-
ministrative body, instead of treating everything as though it
were a court, with long-drawn-out examinations and cross-examina-
tions and the usual number of adjournments and postponements,
and to have matters heard, in the first instance, by so-called regula-
tory commissions, who would decide the ordinary routine matters
promptly and provide then for a hearing commission. The idea was
to abolish the two separate commissions, and to have one commis-
sion, the hearing commissioners to sit in Albany and take up mat-
ters that might be referred to them by the regulatory commissioners,
or that might be brought to them in an appeal from the utility, with
a further provision that decisions could be summarily reviewed by

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 819

the appellate division in the third department sitting in Albany, and
not go to the court of appeals except on a certified question of law
of the highest importance.

I believe that that bill, which already passed the senate on two
occasions, would make for celerity; but, so far as we are concerned
— and by " we," I mean the companies operating largely on ISIan-
hattan Island — we could get along with the existing law if we
could get it administered in the manner that was first intended.

In other words, it has been a failure on the part of individuals to
recognize that they were there as protectors of the people who had
their investments there. I go further than that : I say that the pub-
lic-service-commission regulation in New York City failed because
it did not courageously put a stop to the prejudice that was shown
by the former governor of Massachusetts here this morning.

Now, I challenge, so far as it relates to the city of New York, the
accuracy of every statement made by that gentleman. There is no
warrant for it, and yet it exists, and it exists solely and only because
those men who were in a position all those years to know the truth
and did know the truth kept the truth to themselves and did not con-
vey it to the public whom they represented.

From the time that the commission took office, on July 1, 1007,
down to this act of Commissioner Nixon, the whole problem was to
control the outgo of utilities, and no heed or regard was paid to
their income whatever. Notwithstanding that the surface lines of
the New York Railways Co. were going down hill, were going fast
toward a receivership last year; notwithstanding that we warned
them of it, advised them of it, that our monthly reports, quarterly
reports, annual reports, frequent hearings under oath showed the
fact, they continued to make orders to increase service. They took
the view, and both commissions took the view that they were not
concerned with the question of how we were going to get the money to
provide the service — and when I said awhile ago that I was slightly
familiar with the operation of the so-called up-State commission I
meant by actual appearance before them, although I represent two
roads that are within their jurisdiction; but I do1 know about their
operations, because it is my business to watch the operations of both
commissions.

That commission in Buffalo last year, when the men struck for
higher wages, took the position that they must go on. The lower court
also took that position, but the court of appeals, with some sanity,
said no, that they could not operate without income, and if it was
a fact that they did not have income sufficient to pay the wage of
the War Labor Board that that was a question of fact to be tried out.

I think it is only fair to say that the commission in the Albany
district has shown a greater disposition to function in accordance
with the fundamentals than the one in New York City.

Now, the New York City Commission took office in July, 1907,
when the surface lines were tottering toward bankruptcy and became
bankrupt in September. They were getting an inadequate fare there
at that time through excessive use of free transfers. The average
fare had been descending until at the time of the insolvency in Sep-
tember, 1907, it was roughly 3.5 cents.

The receivers of the. New York City Railway Co., which then oper-
ated all the lines on Manhattan Island, found the leases of the Third

820 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Avenue and many of the others unprofitable and returned them to
their owners, under (' o instructions of the United States court. That
meant that the duty to exchange transfers ceased, because the law
of New York did not require transfers from otherwise independent
and competing lines.

The public-service commission knew Avhat the rate of fare was,
but the public-service commissioners made speeches in various por-
tions of the city announcing that they would restore the transfers;
and during the years 1907, 1908, 1909, 1910, and 1911 we were en-
gaged in efforts to persuade them not to do that.

The matter went along —

The CHAIRMAN. To do what — to make speeches or to restore the
transfers ?

Mr. QUACKENBUSH. Oh, no. I tried in my humble way to reason
with them as brethren not to make the speeches, but that was unavail-
ing, and so I resorted to the courts and succeeded in getting the. courts
to prevent their carrying put their nefarious purpose of restoring the
transfers ; and being unwilling to leave their record to be determined
by the courts finally, and wanting to get quick action, these gentle-
men went to the legislature in 1912 and succeeded in securing the
passage through both houses of the legislature of a bill which en-
acted into law, in extenso, their order for the restoration of the
transfers.

Mr. WARREN. You mean the restoration between the —

Mr. QUACKENBUSH. Between the independent foreign lines that
had been separated.

They knew, of course, as I knew, that the order could not be sus-
tained, because it was confiscatory, and instead of leaving it as a
judicial question, it was sought to make it a legislative one. Former
Gov. John A. Dix vetoed that bill.

Then, in the latter part of 1912, the independent companies and
the commission arranged a modification of the transfer free across
Fifty-ninth Street; and they waived the others, and that is the sit-
uation down to the present time.

Now, I mention that as proof of the correctness of my indictment.
They knew better. They knew that they were not protecting the
property or the service in doing that.

Now, let us pass that and come to the last few years. It was ap-
parent in 1917, early in 1917, as soon as we got into the war — it was
apparent before we got into the war, that we were going onto a new
price level. It was perfectly apparent that the 5-cent fare, with free
transfers on the surface lines, would be inadequate to keep them
going. I am not talking now about return. I am talking about
keeping them going in the interest of the public, keeping the equip-
ment up, so that it could render that safe and adequate service that
the statute requires; and transfers having been the principal cause
of the lowering of the average rate of fare — rather than to ask for
a flat increase of fare in the first instance, the surface companies made
application to the commission, in May, 1917, for the privilege of
abandoning the transfers, as the commission might direct.

We had procured changes in the law, I might say, parenthetically,
in 1910, which left the whole matter with the commission.

Mr. WARREN. The whole matter of transfers?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 821

Mr. QUACKENBUSH. Of transfers — either to abolish them entirely,
or to limit their use, also in the matter of transfers upon transfers;
in other words, to deal with the whole subject.

Those proceedings were begun in May, 1917, and when Commis-
sioner Nixon took office on the 8th day of May, 1919, he found them
pending undecided. In the meantime, the New York Railways Co.
had gone into the hands of a receiver.

The Second Avenue Railway Co. in New York has never come out
of the hands of a receiver since it started there in 1907. And now
the receiver is unable to earn interest on the certificates issued by him
under the orders of the court, and, rather facetiously, he is consid-
ering whether there won't be a receivership of the receiver. [Laugh-
ter.]

Now, that condition confronting that particular line of railway
on Second Avenue alone condemns the action of the gentlemen that
held those positions during those years.

Now, there is another thing: A number of public-spirited gentle-
men in Brooklyn conceived the idea that it would be a good thing to
have a 3-cent fare in New York City, and so they organized a cor-
poration to operate the cars on the Manhattan Bridge, and they called
it the Manhattan Three-Cent Fare Line. We opposed it, naturally.
We opposed it because it was economically unsound, and everybody
knew that it was. But they were received with open arms, and they
got their franchise, a short haul across the bridge.

Across the Williamsburg Bridge in 1904, an arrangement was
made for a ten-years' term to operate, a number of the companies en-
tering into the thing jointly. They organized the so-called Bridge
Operating Co. and agreed to operate for a 3-cent fare. Just as soon
as it became apparent that that 3-cent fare for the short haul across
the bridge was earning a little more than an ordinary rate upon the
low capitalization of the line, being entirely an instrumentality for
joint operations of several lines, the public-service commission re-
duced that rate to 2 cents, ignoring entirely the fact of the long haul
of the lines feeding into the short-haul line.

In 1917, when the transfer hearing was started, it was only neces-
sary to show the difference between operating expenses and income to
show that some emergency relief was needed. The facts were there,
but they wanted a valuation; and the thing went along — examination
upon examination of the accounts, and all the various things.

Counsel for the commission was nominated for district attorney
that fall and, among the reasons that he gave the people why he
should be elected district attorney, was that he had prevented the
abolition of the transfers, or any charge for the transfers. lie did
not get elected on that issue, but he ran on it.

I am speaking of facts as they are, because I suppose that is what
you want to know. These gentlemen are all friends of mine. I
have gotten along with them pleasantly. I do not enjoy stating what
I do; but the truth is the truth, and it was about time it should be
told somewhere by somebody, and I propose to tell it as long as you
want to listen to it.

Now, I say that for the commission, for one day, to keep Judgo
Ransom in office after he made that a campaign issue — and it is in the
public prints that he did it — they convicted themselves of an utter
lack of appreciation of their duties under the law.

822 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

That has been the trouble in New York.

Now, that is the surface situation. Let us take up now the Inter-
borough Rapid Transit Co,, operating the elevated lines and sub-
ways.

The only rapid transit available to the people of New York, Man-
hattan Island and the Bronx was the Manhattan Elevated, and this
had become utterly inadequate to meet the terrific congestion of
traffic afforded to it. For years the matter was discussed in New
York as to what relief should be given to the public. The rapid-
transit act was amended. Efforts were made to get subways built,
and franchises for 20 years were prepared.

The legislature is to blame now. There was not any commission
at the time I am speaking of.

They could not find anybody, of course, that could go into the
investment of the millions upon millions required to construct and
operate subways on any 20-year franchise, or 25 years — I do not re-
call just exactly which, but I think is was a 20-year arrangement —
because you could not amortize any such investment in that time.

That remained the law for some time.

The franchise was peddled upon the steps of the city hall, and no
takers.

Finally the law was changed, and a number of gentlemen or-
ganized the Interborough Rapid Transit Co. and took the chance of
equipping and operating it. The city put its own money in, because,
of course, that was the economic thing to do, for the reason that
Gov. Foss mentioned here this morning — public credit is always
cheaper than that of private corporations. And the city then had
credit, the company agreeing to pay the interest and sinking fund
on the investment of the city.

The subway began operation in the fall of 1904. It was not very
long before it was apparent that extensions must be had. By the
way, I might say — and you probably know it, or probably I know
you all do know — that the original subway was a Z-shaped line. It
came up the eastern side of the city to the Grand Central, went
westerly across Forty-second Street, until it met Broadway, and
then went on up Broadway on the westerly side of the city. That
was laid out that way not because it was considered the scientific
way to lay out a railway, but because the limitations of the city's
credit were such that the city could not at the time finance a line
tip and down the east side of the island, and up and down the west
side. They laid it out that way with the idea that, as soon as we
got going, naturally the extensions up the east side would be built
and the extensions down the west side would be built, and would
be financed out of the earnings and the established credit of the
city, from the original plan.

As I was saying, after 1904 it became apparent that they had to
build those extensions. The congestion was increasing. It was pay-
ing. Nothing was done by the old Board of Rapid Transit Commis-
sioners, who had charge of it prior to the 1st of July, 1907 — nothing
of any great consequence. I do not mean this to be as criticism of
them, because the period from 1904 to 1907 was the period of the up-
building of the subway; but by 1907 it had become apparent that
something had got to be done.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 823

Now, what was done by the commission, of which Mr, Wilcox was
chairman in 1907 and succeeding years?

The fundamental theory of the public-service commission law in
New York, and of course throughout the United States is, as Gov.
VQSS has said, monopoly — not competition, but regulation and mo-
nopoly. It was the commission's duty to regulate it. It had all the
powers of regulation.

Instead of undertaking to accept any one of the several offers that
the Interborough Rapid Transit Co. made to the city to build those
natural extensions that I have mentioned, with their own money, the
commission thought they had to have competition, they had to have
public operation; and they proceeded with a plan of building an
independent subway, and that was to have another Z, coming down
Lexington Avenue and crossing below Forty-second Street, and then
coming down the west side. They called that the Triborough Sub-
way, and they spent several million dollars in actually constructing
it. That has no justification in finance, economics, railroading, or
common sense.

It was not the fault of the law.

Tenders were requested from people to build these lines in com-
peting with us, and they did not succeed in getting them.

The next thing was the encouragement of the Brooklyn Rapid
Transit Co. to come in, and they laid out this so-called dual system,
•which is now in process of completion, and they had so many railways
in Manhattan Island, as a result of that, that of course it was im-
possible for any of them to be sure of earning the fixed charges dur-
ing the first few years of operation ; and that was recognized.

Now the city's credit in the meantime had become so narrow that
it could not build these things. It had to have private capital. The
private capital could not be gotten on any plan that was so sure to
result in thin traffic in the first years, and therefore these present
contracts were prepared, and if you will pardon me, I will dwell a
moment on those contracts, because I think concerning them the
truth has not permeated very many places.

The city did not have the capital, and I will confine myself to the
Interborough side of it with which I am familiar, although the
Brooklyn plan is identical in principle. The city did not have the
capital. It invited the Interborough Rapid Transit Co. to raise the
capital necessary to construct, equip, and operate its part of the plan
that the city laid out — not our plan; their plan — the plan we ad-
vised against. We did not have it in our treasury anywhere. It
required $80,000,000, the original plan, of new capital, of which we
were to contribute $58,000,000 for. const ruction and $22,000,000 for
equipment. It was provided that we should not go beyond the
$58,000,000 for construction; that the city would contribute $58,000,-
000 for construction, and more if needed, and we would contribute
$22,000,000 for equipment, and more if needed.

We had to refund the bond issue which we had against the original
cost of all of our equipment of the old subway, and we therefore had
to get out an issue of $100,000,000 of bonds, which we got out.

These contracts were finally executed in 1913, after negotiations
extending from 1907 to 1913. All the terms of the contracts were
incorporated into acts of the legislature, so that there would be no

824 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

question about the power of the commission. The matter was deter-
mined by the court of appeals to be constitutional or legal, and
investors generally were invited to take the Interborough Rapid
Transit Co.'s fives in the aggregate amount of $160,000,000, for
refunding purposes, and the others that I have mentioned.

At the same time, the city was issuing bonds for its contribu-
tions. These are 5 per cent bonds, and the contract provided that
we were to have a 1 per cent sinking fund, so that they would be
amortized in about 38 years.

Now, when that proposition was made, it was perfectly apparent
to anybody with the simplest knowledge of finance that you could
not get the individual investors to put money to the extent of
$160,000,000 into that venture unless they were guaranteed by the
city or unless they had first call on the revenues of the joint enter-
prise.

The city could not guarantee — and may I be pardoned for a
moment now in digressing, because I deal with facts, and not with
theory.

The discussion of Gov. Foss this morning about public ownership,
that we are going to do it right off, so far as the State of New York
is concerned — if I may be pardoned the use of a remark concerning
the distinguished gentleman from Massachusetts — is nothing but
stuff and nonsense.

Under the constitution of the State of New York, the city of
New York has absolutely no power to lend its credit to any cor-
poration, or to guarantee anything, or to become the owner of stock
in any corporation; but before the measure suggested by the ex-
governor of Massachusetts can be carried out in the State of New
York, an amendment to the constitution must be obtained. This
may seem like a law lecture, and probably it is familiar to you, but,
very briefly stated, under our constitution, you can amend it only
by a constitutional convention, or by an amendment passing the
legislature; then the same amendment, as passed, being submitted to
the next succeeding legislature, made up of the senate, which has,
since the first enactment, been newly selected from the people; ana
then, after those two successive legislatures have passed the amend-
ment, it is submitted to the people at the next annual election, and
on the time-table as of to-day of the governor's program — mind you,
I am not talking about whether public ownership is the thing or not;
I am talking about whether you can do it now — we could not get
anything through in New York State for our relief until the legis-
lature next year passed it, in 1920: and then, there being an election
in 1920 for" senators, the senate of 1921 would be a new one, and
they could pass it in the fall of 1921. If the people approved it, it
would be in shape for the legislature of 1922 to pass the requisite
legislation through by constitutional amendment. So that on the
time-table

Commissioner MEEKER. Has not the legislature authority, how-
ever, to amend the charter of New York City, so that New York may
do it?

Mr. QUACKENBUSH. No, sir; it is absolutely prohibited by the con-
stitution— no city. It is in the constitution. Not the city itself, nor
any city or other political subdivision in the State, can do it. That
is because, in the very early days, when I lived up in the central

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 825

part of the State, they came along and bonded my town to build
the steam railroad out there. You all know the history of the early
days of that. That was put in the constitution, so that no misguided
gentlemen of the notions of the distinguished former governor of
Massachusetts would use public moneys for any such things, for you
can not put his ideas into effect until you have had the approval of
two successive legislatures and have gotten the majority vote of the
voting population of the State of New York.

The CHAIRMAN. Assuming that public sentiment in Xew York was
ready for public ownership, what are the steps possible to be taken
by which the properties in New York could be taken over, after the
constitution had been amended and had been ratified?

Mr. QUACKENBUSH. If the legislature, convening on the first Wed-
nesday of January, 1922, passed a bill and it was signed by the
governor, the law would be there. Then would come the question
of condemnation or purchase. By no possible stretch of my imagina-
tion can I conceive of the carrying out of anything that would pro-
tect my clients in less than three years from to-day. I think you
can see that that would be so. That is moving pretty fast, too. So
that that is not available.

Now, I digressed there, because that condition existed when you
made the contract, and therefore the people who were to take out
the $100,000,000 of bonds, could not get any of the guaranty. They
could not fall back on taxation or on the public treasury, and so
it was provided that the private investor in the new enterprise
should have the first call on earnings, and the city subordinated in
the interest and sinking fund on its investment until the interest and
sinking fund charges on our investment were paid.

Mr. WARREN. How much did you say the city's investment was?

Mr. QUACKENBUSH. Practically a hundred million.

Mr. WARREN. As against your $160.000,000?

Mr. QUACKENBUSH. I had not come to that yet, but answering
your question, the increased cost of equipment and additional equip-
ment due to the enlarged system required $40,000,000 of additional
capital, which we procured last year through a note issue: so
that our capital outstanding is $200,000,000, as against the city's
$100,000,000, in round numbers.

Mr. WARREN. Yes. Will you resume. Mr. Quackenbush?

Mr. QUACKENBUSH. Yes. Now, I think I was about to speak of
the obtaining of the $100,000,000. which became last year $200,000,000.
I want to make this point about it, bearing on something I am com-
ing to a little later, about the attitude of public officials.

Mr. Warren asked me about the city's investment and I said
$100,000,000. I want to call attention to the character of the so-
called city's investment. The people of New York City have been
told in the last few years how " they " have $100,000.000 invested in
the Interborough subway, and $1"»0 ,000,000 invested in the Brooklyn
Rapid Transit subway, as if it came from the treasury of the city of
New York.

Now, as I have said, it did not come from the treasury of the
city of New York, because they did not have it, and all that they
got was from the investors throughout the United States and Europe;
probably the same individuals who bought our 5 per cent bonds
bought the New York city bonds in the same enterprise to average

1GOG4H0— 20 53

826 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

up their rates and sense of security. So that the enterprise, the
subway enterprise in New York City, was put on its feet by the in-
vesting public of the civilized worlcf.

The CHAIRMAN. Is the city obligated to pay those bonds?

Mr. QUACKENBUSII. The city is obligated to pay those bonds, but
the money come from the investing public, and under the contract we
are required to amortize that investment and it will go back to the
people at maturity without the city treasury being the gainer or
the loser. So that the thing to do is to consider it as an en-
terprise in which city credit is coupled with corporation credit and
the money all the time is the money of the honest investor who
put it in in good faith, and he put it in in good faith on the holding
out to him of a contract which has been authorized by the legislature,
sustained by the court of appeals, entered into by the city of New
York, which provided that his investment would be a first call
upon the earnings.

Now is there anybody that supposes for a moment that in 1913
when we raised $160,000,000 that a single one of those people could
think for a moment that a time would come when the city with
$100,000,000 of investment junior to ours, with a provision that so
long as the interest and sinking fund on our investment was not
earned it became cumulative with compound interest before the
city was permitted to take anything out of the earnings for its
interest and sinking fund — did anybody suppose that the time would
come when such an investment would be in jeopardy ? That the city,
having the power at any time and the public-service commission
representing the city having the power at any time to modify that
contract so that if the revenues were not sufficient that they would
be made sufficient to take care of the city's investment?

So that I say that morally the public authorities in the city and in
the State of New York are estopped from doing anything to pre-
vent that investment made under those circumstances from being
self-sustaining. And yet we have been endeavoring for the last year,
as the Interborough has suffered the fate of all tractions, to per-
suade the city administration and the public-service commission
and the legislature to change that rate of fare so that that invest-
ment will be self-sustaining not only for us but for the city.

Now, bear in mind there can not be any talk .of water about that,
there can not be any of the distinguished governor's talk about
fooling or half truths about what I am saying, because the records
are all there to substantiate what I am saying. It is a question of
$200,000,000 which we raised ; and $100,000,000—1 am now speaking
of the completion of the plan — starving to death to-day.

Now, there are two hundreds of millions of new money put in in th<*
last six years. There can not be any talk about water so far as that
venture is concerned ; because when we made the contract the question
arose as to what was to be done to conserve our earnings in the old
subway, which, as you know, had become prosperous, and it was
agreed that we had built it up — we had taken the risk when, as I say,
nobody else would — and we said. " Find out what our investment is,"
and Lhe city mayor then, being the late Mayor Gay nor, appointed a
committee of engineers and accountants, and they determined that
our investment at that time in the original equipment of the old sub-
way was, in round numbers, $48,000,000.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 827

Now, so that there can not be any question of the accuracy of what
I say to you, you examine the contract and you will find that it is
provided in the contract that after our bond interest comes out and
sinking fund that we shall take out of the subway earnings $6,335,000
a year and then after that, the city shall take out 8.76 per cent upon
its investment, after which we divide equally. Now, of course, the
city's bond interest and sinking fund averages 5£ per cent, and where
does the 8.76 come from? The 8.76 was arrived at by adding the
48,000,000 which was conceded to be our investment, to the $80,-
000,000 which we were to put in, making in round numbers one
hundred and twenty-odd millions of dollars, $3,000,000 coming out
for a special reason, so it is $125,000,000 — and the special reason was
that we contributed the tunnel under East River for $3,000,000, which
cost us eight or ten million dollars, but it was calculated at $125,-
000,000. Six per cent on the 80,000,000 that we were to put in plus
the $6,335,000 produces $10,000,000 or, which divided by 125 pro-
duces 8.76, which was what was contracted that we were to receive
on the terms then under consideration. And it was said, "Well, you
get that, the city must get that on its investment," so that the city of
New York is in that venture, not as an exercise of sovereignty, but as
a railrdad corporation, engaged in profit, and the profit is the differ-
ence between 5J per cent and 8.76 per cent plus the 50-50 that we
divide after those things are taken care of. So that our investment
to-day can not be disputed by anybody representing the public or
anyone else for that matter, that it is the 200.000,000, 160,000.000 of
bonds, 40,000,000 of notes secured by sixty-odd millions of bond —
but I am speaking now in terms of money — $248,000,000 standing
there being starved to death.

Commissioner MEEKER. The fixed charges, then, are excessive be-
cause of this element of profit that the city gets over and above the
5^ per cent return on the investment?

Mr. QUACKENBUSH. They have not come within sight of that,
Mr. Commissioner. But what I point out is that the enterprise is
absolutely on a parity; and I want to make that plain to you, be-
cause there has been a good deal of talk that we had some advantage
over the city of Xew York. Now we are absolutely mathematically
down to a fraction on a parity with the city except that our invest-
ment is senior and their is junior in point of time of coming out
of the earnings; that is all.

Now, on a 5-cent fare on the calculations made in 1913, it was
agreed by the city and by us that probably for the first three, four,
or five years the enterprise would not take care even of our fixed
charges, because it would take time to build it up. And to provide
against that, when our earnings were large on the old subway we
accumulated a cash surplus of over $10,000,000, and we had a book
surplus of about $18,000,000, the other portion of it being invented,
however, in subsidiary lines whose credit has been so impaired that
of course they can not now pay it back to us. To-day our situation
is that we have exhausted that cash surplus. Our requirements are
very heavy, as you know, and the last of our surplus went the 1st
day of this July to meet our fixed charges, and now we are living
from hand to mouth. We will be $5.000.000 short on the, 1st ot
January of meeting our fixed charges. The best possible estimate
of earnings on a 5-cent fare, if the 5-cent fare continues, the deficit

828 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

from operations under fixed charges for the next three or four or
five years will continue in sums of five, four, three, along there. It
is the most hopeful view to take of it. Unless we get an increase
__in the fare between now and the 1st day of January it means a
receivership for the Interborough Rapid Transit Co., unless some
of the large owners are willing to take it on their backs and tide
it over the 1st of January in the hope that the governor and the
legislature may take it into their heads to do something. Our
borrowing capacity is gone; we have not anything beyond possibly
$2,000,000, if we scrape the box, anywhere.

That is the condition of the Interborough Rapid Transit, and that
is the condition facing the people who have got the $200,000,000 at
stake here. And the city in the meantime is facing the payment
annually upon its investment in our subway of $100,000.000 and
$150,000,000 in the Brooklyn Rapid Transit subway of thirteen and
one-third millions of dollars.

Commissioner SWEET. The only remedy you see is in the raise of
fare?

Mr. QUACKENBUSH. That is the only thing possible for this system.

Commissioner SWEET. How large a raise would be required?

Mr. QUACKENBUSH. An 8-cent fare.

Commissioner SWEET. To 8 cents?

Mr. QUACKENBUSH. Yes; 8 cents on the rapid-transit line, and
of course in the city of New York you can not in fairness to the
surface lines have any fare that is different on the rapid-transit line.

The whole solution of the thing should be an arrangement by
which a universal 8-cent fare is charged for transportation in New
York City with reasonable adjustments and provisions that if on
the numerous independent surface lines that are in the greater
city that produces an inordinate return there shall be a provision
that it shall go into the property or, if you please, into the treasury
of the city, because you have got to have them on an equality
in order to carry out the proper theory of governmental regulation.

Now these facts are all known, and have been all known — —

Commissioner SWEET. Would Commissioner Nixon have authority
now to grant that raise if he wanted to ?

Mr. QUACKENBUSH. There is one view in which he might have.
The trend of judicial decisions in our State and in the United States
Supreme Court is such that I am not prepared to say that he would
not have it; but candor requires me to say to you that I would be
facing long years of litigation, which of course would have to go
to the Supreme Court of the United States, if he did not have
additional legislative power.

Commissioner SWEET. Then you think that the legislature of
New York should be called upon to give him that authority?

Mr. QUACKENBUSH. They certainly should; and we had a bill for
that purpose there in 1918, and it did not get beyond committee in
either house. The same bill was there last year. It passed the
assembly and failed in the senate; both times failed because the two
governors — Gov. Whitman in 1918, and Gov. Smith in 1919 — were
not able to see their duty requiring them to recommend anything to
the legislature.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. S293

Mr. WARREN. Is there anybody who could grant that increase-
now but the city ?

Mr. QUACKENBUSH. It could be done to-morrow by joint action of
Commissioner Nixon, Transit Commissioner Delaney, and the board
of estimate. I do not say now, because I want to be cautious on this
subject, because my words may be quoted against me — I do not say
that it is not possible to work out a legal theory which can ultimately
be sustained which does not require the joint and concurrent action of
those three bodies, but I do saj" that that gets rid of litigation. If
Commissioner Nixon with the concurrence of Commissioner De-
laney— and I will digress to explain that he is the commissioner in
charge of construction work and has succeeded to the powers of the
old Board of Rapid Transit Railroad Commissioners who were the
contracting agents as to the rapid transit — if those two commis-
sioners and the board of estimate and apportionment, consisting of
the mayor — you know their composition — and the borough presi-
dents and the president of the board of aldermen and the comptroller
of the city would concur, that could be brought about within 24 hours''
time.

Mr. WARREN. Without the need of any legislation?

Mr. QUACKENBUSH. Without legislation ; and if that could be done,
that ought to be done because, as I pointed out to you, we can not
live beyond the 1st of January unless we get help. And when I say
help — our credit will not stand it — I mean as a business proposition,
not as it did last year. Last year we were able to get through with
the aid of the War Finance Corporation, and but for them we never
would have got through with our new capital requirements. But
they took a part of our loan. The bankers who had placed the
original one hundred and sixty millions spread the rest of it. And
I doubt myself whether that was entirely a loan .taken on an in-
vestment basis, but probably taken by the then owners of the same
securities who did not want them to go through a receivership. And
I do not know that anybody after listening to what I say here will be
very likely to buy any of our bonds on the 1st of January. And I
am saying what I sa.\ with a due sense of my responsibility, too.
And the War Finance Corporation will not loan any more — and
there you are.

Now the problem and the reason I am so vehement and so critical
in my statement is that if this tribunal can do anything that will
energize those gentlemen into concurrent action — I do not say mine
is the only plan, but anything that will increase the revenue, then
we can be saved from bankruptcy and the people who have not only
the $200,000,000 of notes and our stock, but all the other securities
that I have not yet mentioned, because the companies that I repre-
sent have out approximately five hundred millions of securities, anct
that is one-twelfth of the whole problem you have got before you.

The CHAIRMAN. Delaney and Nixon were appointed by the gov-
ernor ?

Mr. QUACKENBUSH. Yes.

The CHAIRMAN. How many members constitute the board of esti-
mate?

Mr. QUACKENBUSH. Five boroughs each have the president of the
borough upon the board.

830 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION1.

The CHAIRMAN. How are they appointed?

Mr. QUACKENBUSH. They are elected by the people; and then the
mayor, the comptroller, and the president of the board of alder-
men sit on the board of estimate, all elected by the people. They
have different voting powers. The mayor, tne president of the
board of aldermen, and the comptroller each have three votes. The
Borough of Brooklyn and the Borough of the Bronx each have two
votes. The Borough of Queens and Staten Island have one vote
each.

The CHAIRMAN. Would a majority vote of the board of estimate
control the situation?

Mr. QUACKENBUSH. Yes, sir. So far there has been a sort of
gentlemen's agreement over there that whatever is done is going to
be unanimous.

The CHAIRMAN. The mayor is for municipal ownership, is he
not?

Mr. QUACKENBUSH. The mayor is for municipal ownership.

The CHAIRMAN. And he has a vote?

Mr. QUACKENBUSH. He has three votes. His votes count 3 out
of 16. I trust I have enumerated them correctly; but there are 10
votes, of which the mayor and the comptroller have 6 and the presi-
dent of the board of aldermen 3, making 9 out of the 16, and then
the presidents of the boroughs.

Commissioner SWEET. Those three men have a majority of all ?

Mr. QUACKENBUSH. Yes, sir; those three men have a majority
of all.

Commissioner SWEET. Why should the mayor, if he is in favor
of municipal ownership, be opposed to a proper readjustment here?

Mr. QUACKENBUSH. Well, now—

Commissioner SWEET. I do not think Gov. Foss, according to what
he said here this morning toward the last, under examination, would
oppose. He said he was in favor of a square deal to the people who
had already made investments.

Mr. QUACKENBUSH. Well now, so that what I say here may not
be challenged in any quarter, before my answer I will refer you to
a statement made on behalf of the board of estimate in January of
this year by Comptroller Craig, in which was expressed the idea
that they would not do anything so long as the existing contracts
remained imchanged. They want to rewrite the contracts. The at-
titude— and mind you, now, I am speaking from memory and I
mean to be accurate, but I want what I say checked up by the writ-
ten document, because it is my intention not to go without its
bounds — the theory is that if we are dissatisfied with our bargain,
turn the roads over to them and they will operate them on be-
half of the public. They will raise the fares, they will pay the in-
terest and sinking fund on the city's investment and they will hayo
due regard to the real investment, as they say, that is in the property.

Xow. if you desire to know further concerning the attitude of the
city officers, it might be well to ask the members of the War Finance
Corporation to give you some information concerning their attitude
when our application was before them for a loan a year ago, when the
whole membership of the War Finance Corporation, Gov. Harding
leading them, called upon the mayor and his colleagues. They went
into executive session and I was not present, and I am not able to tell

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 831

you of my own knowledge what took place. Probably Gov. Harding
could tell you. I have heard rumors that the view is that a receiver-
ship of the Interborough Eapid Transit Co. would not be regarded
by the city administration as an unmixed evil (I trust that I am
quoting accurately the statement), the theory being that, if we arc
busted, the owners will take the attitude probably of the distin-
guished former governor of Massachusetts who frankly said that he
also had investments in tractions and would be glad to sell out on the
best terms obtainable, and then they would have municipal ownership
and operation.

The CHAIRMAN. Can that be done until the constitution has been
amended ?

Mr. QUACKENBUSH. Oh, they could operate, perhaps as an emerg-
ency measure. Suppose we decamped and ran away — suppose we
fell down completely, they have under the contract the right, the
public-service commission, to operate it instead of a receiver. Of
course what will happen — a receiver will be appointed ; and you have
hit upon it, because I am answering Commissioner Sweet's question.
I do not want to be understood as agreeing with their conclusions,
because they also are born of complete ignorance of the law and of -
the contracts and of what will be done; but that is the theory, that
they are going to starve the Interborough into surrendering its rights,
surrendering the custody of the property. And these statements that
I mentioned are in the public press at various times, coming from
some of the officials, and I assume with the authority of all of them.
Now, they can not do it, because if we are not able to pay our fixed
charges, as you know, the mortgage securing the first 5 per cent bonds
that I am talking about will be foreclosed, a receiver will be ap-
pointed and it will be the duty of that receiver under the instruc-
tions of the court to preserve the equities of the contract for the bene-
fit of those bondholders. In other words, the contract will be carried
out by the courts instead of by us, and the city of Xew York will be
no forwarder. That is the truth of it. But the people of the city
of Xew York do not seem to appreciate that, and unless you gentle-
men are able to find out by checking up my statements that they are
truthful and correct, and tell them, they will never know. Unless
Commissioner Xixon tells them or the new commissioner, Delaney,
and I have great hopes — the only thing that has cheered up my other-
wise sad and desolate existence of the last few years was the action
of Commissioner Xixon last week in ordering those transfers and his
request to know what the conditions of the company are. So pos-
sibly he will state the facts, but he can not alone do the thing, except,
as I say, in a possible theory that might be sustained.

Xow, when we were undertaking to get that loan from the War
Finance Corporation, we sought the cooperation of the city as the
junior investor in that enterprise. We were not able to get it; and
that is why I say the War Finance Corporation is able to tell .you,
if you are interested, why the city representatives would not turn
their hands over to save us last year from bankruptcy. Because we
had invested — I forgot to state that to you — in absoluate good faith
we had invested our entire cash surplus in construction account and
a year ago this time we we're right on the ragged edge, not able to
meet current bills for supplies which were coining in from the Pull-
man Co. and from everybody, and we were on the rocks; and then

832 PROCEEDINGS OF FEDERAL ELECTRIC. RAILWAYS COMMISSION.

it was, as I say, that I heard it has been expressed as not being an
unmixed eA'il if we did have a receivership.

Now, there is another phase of this matter, and I think I have
covered it sketch ily, that a good deal has been said about, and that
is this question about the holding company, and that is where the
old history comes in, and it is freshened up every now and then;;
that is, the Interborough Consolidated Corporation.

In 1906 the Interborough Rapid Transit Co., the operating com-
pany of the subway and the elevated, and the New York City Rail-
way Co., the lessee of all the lines on Manhattan Island and the lines
in the Bronx, formed a consolidation, not a merger, turned in their
respective stocks in exchange for proportions of stock and bonds of
the Interborough-Metropolitan Co. — as it was then called, since by
reorganization, now called the Interborough Consolidated Corpora-
tion, which, bv the way, went into the hands of a receiver on the 21st
day of March, 1919.

Xow the Interborough Consolidated Corporation took the thirty-
five millions of capital stock of the Interborough Rapid Transit Co.
and for that exchanged seventy millions of its 4£ per cent bonds.
That was equivalent to a 9 per cent annual dividend upon the Inter-
borough Rapid Transit Co.'s stock. At the time we made the con-
tract with the city in 1913, the Interborough-Metropolitan Co. was
in existence, and through its ownership of this stock controlled
through voting power the action of the operating company in mak-
ing the contract. It was known by everybody at the time that the
Interborough-Metropolitan Co. had in addition to the $70,000,000
of bonds $45,000,000 of preferred stock. Now, the $6,335,000, which
has come to be called a preferential, that wre are entitled to take out
of the subway earnings represented our average net profits of the
years 1910 and 1911. They were taken as a fair test and agreed to.

I have not said anything so far about the elevated features of the
contract, because the city did not have any investment there. I
wanted to impress upon you first the fact that the city's own invest-
ment is not being taken care of intelligently or faithfully by any-
body.

Now we put many millions of dollars in the improvements of the
elevated lines and added and extended the lines and third-tracked
them and made an agreement with the city by which it shared in
the profits above our average profits of 1910 and 1911, which in that
case were $1,590,000. Now the sum of those two which have been,
called preferentials was known to everybody to be sufficient, with
other nonoperating income which we had, to pay a dividend on
our preferred stock.

Now, I say that when those facts were known and when it was
known to the people with whom we were in daily conference for three
years of time that the Interborough-Metropolitan Co. permitted
the Interborough Rapid Transit Co. to make this contract and they
knew that that was done on the strength of these preferentials and
that those preferentials were sufficient to pay the interest on the 4£
per cent bonds plus a return on the preferred stock, that it is wicked,
immoral and unjust and nothing but simple repudiation morally for
anybody who took part in that transaction or who succeeded those
who did take part in it, to starve us now into the destruction of tha
values of that preferred stock and of those bonds.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 833

Now, that is the elevated and subway part of that holding com-
pany. In addition to that, we had the securities of the New York
Railways Co., which had come through a four years' receivership
from 1907 to 1912, during which time, as I think Gen. Tripp has
told you — he was the chairman of the joint reorganization committees,
and I imagine he gave you in a general way the facts about how the
capitalization was written down. At any rate, when we took the
properties over after the examinations of the reorganization com-
mittees and of the public-service commission, the commission it-
self found that there were warranted at that time an issuance of
$85,000,000 plus of securities. That was for capital purposes.

Mr. WARREX. That is the surface railways?

Mr. QUACKEXBUSH. The New York Railways.

The actual capital outstanding after the reorganization and to-
day was less than $100,000.000. I think the view that the commis-
sion took at the time was that the margin between values and capi-
talization was about $16,000.000, and they directed an amortization
fund of $108,000 a year to be set aside out of earnings to take care
of that difference. We did not agree with them at that time that
they had that power, and subsequently without litigation they
agreed that they did not have it and rescinded it. I mention it as
an evidence of value that they regarded as there.

Now, in 1917 — I am coming back now to where I quit about the
transfers, and I am talking now about the surface lines and the hold-
ing company's investment in the surface lines — I had this property
appraised by Ford, Bacon & Davis. And I told those gentlemen—
and when I say these " I's " I am doing it for brevity and not because
I am the whole thing: I do not want to appear here to be immodest,
but to be brief; everything that I have done has been with the con-
sent and knowledge and conference with the president and executive
committee, and I am the lawyer of the concern — I said " I want an
appraisal now that we can get quick action. I do not want any-
thing to be put in here that is going to be arguable even, because we
want emergency action. You appraise it on the cost to reproduce
less depreciation on the straight-line method. Never mind what
your views are about it; you appraise it on prewar prices and you
leave out any question of franchise value, any question of superseded
value, any question of going value, any questions of the many things
that you gentlemen knowr are perfectly proper in a rate case, and
make a report to the owners on which we can ask for emergency
relief." And they found the property was worth in round numbers
on these eliminations and others which occur to you, $70,000,000.

Now, we have been paying taxes for years on a special franchise
tax valuation of $16,000,000, leaving out all the other questions. Now
there we have $70,000,000 on which we have not earned one penny
for our stock, and on the reorganization it was reduced to $17,r>00,000
of which, in round numbers, $16,000,000 is in our treasury and some
of the rest of it in the hands of the public. We have not earned a
dollar on that from the day we took it over on the first of January,
1912.

Now, th.^ physical valuations made by the public-service commis-
sion in 1910 on which they made their order allowing our capital
issues in 1911 and 1912 indicated at least $r>0,000,000 of tanjriblo

834 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

property. On that reorganization were issued at $30,000,000 of in-
come 5 per cent bonds and at no time since the first of January,
1912, did they receive their full 5 per cent interest in their six
months' periods. Taking the calendar year — in the year 1916 they
either received it or so near to it that it was regarded as practically
5 per cent. Since June 30, 191G, nothing was paid on them.

Now, underneath tho.se bonds the only securities on the New York
Eailways Co. lines were— I speak more in round numbers — $9,000,000
and odd of underlying liens on the various owned companies, $21,-
000,000 of securities on the 12 leased lines, and $18,000,000 of the
first fours. In other words, the funded debts on that property were
only $48,000,000, and yet that property went into the hands of a re-
ceiver on the 20th of March last and the first mortgage of $18,000,000
is now under foreclosure.

Now, there is something wrong when that situation arises and when
under such conditions there is any talk about water. I never have
mentioned the question of the securities except as I have mentioned
them here on the theory that everybody knew they were out and made
a bargain knowing that they were out, and when people make bar-
gains under those conditions they or their successors ought to be
ashamed of themselves to repudiate them.

But the holding company has nothing to do with it. I do not need
to say that to the gentlemen sitting here. The question is the invest-
ment; and under the statutes of the State of New York it is the value
of the property devoted to the public service that is entitled to a fair
average return, having due regard among ether things to the neces-
sity of reserving out of earnings a provision for surplus and con-
tingency. Now, that is a queer phrase, but I am the author of it.
I have sat with the legislature in every revision of the public-service-
commission law year after year, and I will tell you for a moment
just how that came about.

The law of the State of New York from 1850 to 1910 provided that
rates would not be reduced unless during the preceding year the
company had earned more than 10 per cent upon the capital actually
expended. Now, the gentlemen who were on earth during that time
I think knew a great deal more than some of the highbrows that
have come around since, and I think you will agree with me. Gov.
Hughes in 1909 refused to approve the consolidated report of the
revision commissions on the railroad law because they left that 10
per cent provision in. He insisted on its coming out. And' in 1910
the matter came up and we had a general revision of the law. And
I said at that time, and with all due regard to the governor, that that
was not good business, and this phrase that I mentioned to you was
the best that we could get as a compromise.

Now, that meant Smythe versus Ames; that is what that meant.
It did not mean G per cent. It meant all the things that the gentle-
man who preceded me has said, and I indorse everything he has said.
It means, of course, you have got to have something to attract capital.
You have got to keep the industry going, and you have got to have
provision for reserve, and we have not been able to get those things.
So I say to you it is not the fault of the law.

And one thing which I should have said to Mr. Warren in the be-
ginning in this rather rambling statement I will say now. Possibly

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 835

if the provision which obtains in many of the States for filing sched-
ules and having a hearing afterwards had been put into the law of
1910 we might have been a little further along, and when we get the
next crack at the public-service-commission law something of that
sort I think ought perhaps to be put in. But that is not the thing.

Now, I have told you I have eliminated water. I have shown you
the values of our main leading property. We have got others which
I will not go into here. I am not saying that we are entitled to re-
turns on the lines perhaps over on Long Island in which we invested
our good money, but we invested there with the idea that we would
wait until that borough grew up. That is a business venture and we
can not squeal much about that. So I merely mention it to call 3-0111*
attention to the fact that we have other things Under our outstanding
securities than the things I have specifically mentioned.

Commissioner SWEET. Suppose you laid aside all interest in the
investment and simply looked at this question in New York from
the standpoint of a citizen who needed this service, the same as all
citizens do ; what would you say was the best policy — I am eliminat-
ing now the question of morals, arid honesty is always the best policy,
but the best policy from the standpoint of the citizen — for the city
to take or the State so far as it has control ?

Mr. QUACKEXBUSH. Xow, Mr. Sweet, I want to say before I answer
that question, lest I be thought to be absolutely poisoned with
prejudice on one side, that I began my career serving the public •

Commissioner SWEET. You see, I am absolving you from prejudice.

Mr. QCACKEXHUSH. I know you are, but I want to make it clear
for emphasis, that years ago I was city attorney of the city of Buf-
falo. X. Y., and I think I can still divest myself of my experience
and give a fair answer to your question. And there is not any doubt
in my mind that even if there be a receiver appointed of the Inter-
borough and all these line, you can not get the service the people are
entitled to until you solve this question by increasing the rate of
fare.

Xow, in Xew York City the congestion — or density of traffic is a
better word — is such that the troubles in Boston and other places
won't count. And the direct answer to your question, without cir-
cumlocution, is that the best thing for the citizens generally, par-
ticularly for the riders, is to impose at once an 8-cent fare. l\o\v,
we are perfectly willing that the city shall take 1 cent out of that 8
cents to insure it gets a return on its investment. Our president, be-
fore he became ill, went l>efore the board of trade and transportation
and authorized them to transmit to the board of estimates through
their committee an offer to the effect that, if they would increase the,
fare to 8 cents, we would agree that they should take 1 cent out
of the 8. Xow, 1 cent out of 8 will take care of their interest; and
that we would waive a lot of things which you are not interested in.
The comptroller did not receive the communication and said that they
had closed the situation, so I am informed, when they denied our
application of December 31, 1918.

Xow, that railroad, just like any other railroad, can not render tho
kind of service that is nmled unless it has an adequate return.

Commissioner SWEET. Are you figuring that there would be any
falling otf of patronage 'i

836 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. QUACKENBUSH. Yes; we are figuring — and in this we have
the advice of distinguished engineers like Stone & Webster, Day &
Zimmerman, Barclay, Parsons & Clapp

Commissioner MEEKER. The falling off would be very slight in
New York?

Mr. QUACKENBUSH. Well, we have made our estimate which war-
rants my statement to you that it would be perhaps 13 per cent the
first year and 12, 11, and so forth, because conditions in New York,
as you know, are unique — I mean, particularly, Manhattan, and

Commissioner SWEET. Of course, you understand, Mr. Quacken-
bush, that this commission can not enter definitely and distinctly
into local problems.

Mr. QUACKENBUSH. No ; I do not expect you will, but on the other
hand

Commissioner SWEET. We are looking into it, and we are listening
to you with a great deal of patience, and we are glad to hear these
local problems with a view of formulating a general idea of the
situation throughout the country, and that is all anybody can expect
of us.

Mr. QUACKENBUSH. I appreciate you can not take up our quarrels ;
but on the other hand if you do not know the facts, you are not in-
formed.

Commissioner SWEET. No.

Mr. QUACKENBUSH. And you are going to hear some other side of
these facts and I wanted you to hear my side.

Commissioner SWEET. Of course, you understand the situation gen-
erally throughout the country?

Mr. QUACKENBUSH. I do.

Commissioner SWEET. And do you think that there is a function
that can be performed by this commission which will be useful to the
general public?

Mr. QUACKENBUSH. This commission can perform the function of
pointing out that the duty of public-service corporations or of the
local authorities of the municipalities is

Commissioner SWEET. To represent the public?

Mr. QUACKENBUSH. To represent the whole public; that is this, to
be courageous, to tell them the truth : That rates should be determined
not by ancient history but by what is devoted to the public use; to
tell them that the public can not have good service or safe service or
convenient service, no matter who owns the instrumentality, unless
the public or the public treasury pays an adequate price for the
service rendered, so that you can keep it up.

Commissioner SWEET. Just as they have to pay for commodities
which they buy for the table or anything else.

Mr. QUACKENBUSH. Of course, it is the same thing. We are not
dealing with anything else. And then, and the main thing, and if I
may be pardoned for an expression, but I think it will be interesting,
I remember perfectly well when the question was whether we were
going to get into the war, being present at a meeting at which Joseph
H. Choate and Mr. Root and others discussed the question. And I
remember also being present at a later date, and a day or so before
Mr. Choate died, at a meeting in which the former prime minister of
France was present, and I remember that what Mr. Choate said was,
** If you are going to do something, for God's sake hurry up." Now,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 837

that is what we are asking, and that is the message that I think you
can convey to these public bodies. If you are going to do something,
do not take the advice of the governor of Massachusetts but hurry up.
Put a little oxygen into the patient and then build him up ; and then,
if a major operation is needed, perform it.

Now, those are the things that ought to de done ; and the only thing
that you can do, in my judgment, that will be of any value to us and
to the industry generally is to put a stop to the cheap talk, what
Governor Smith in his campaign facetiously said was "old stuff."
Now, our laws recognize the statute of limitations on a great many
things, and with the history that I have given you of our negotiations
with the appointees of Governor Hughes, whom I have criticized —
and the time is never going to come when public servants are not go-
ing to be subject to criticism, I hope, but whom I have always said
were well-intentioned men and certainly were absolutely above any
suspicion as to their integrity — those men made a contract with us.
It was ratified by Mayor Gaynor and his board of estimate after he
had made a campaign against having anything to do with us. Now,
if we were good enough to contract with in 1913, and if it was all right
for us to be the instrumentality of getting $200,000,000 put into this
enterprise, it is about time to have the statute of limitations run on
matters which were done by William C. Whitney and his colleagues
in the late eighties or early nineties.

We have gone through the public-service commission fire on re-
organization; we have been through a receivership on the surface
lines, and we are back again; and the thing is not to talk buncombe
but to recognize facts; and I say you can help on that.

Now, MS to the other thing-^and I think that I will mention this
because at a meeting at which I was present, among some of the
gentlemen who are here in this room, one of the members said that
what troubled him in dealing with this whole matter was how to
meet the constant statement that you are seeking to repudiate your
contracts, and, of course, that view does prevail. And I think there
this body may dp a service if you will get the public to see that after
all it is the public that is interested in the question of rate; it is their
business, and that no matter if 20 years ago with conditions entirely
different the local authorities of some little village or some big city
and some well-intentioned but ill-advised corporation managers made
contracts that no longer fit the case, that the interest of the people is
the supreme law, and that if the time comes that the interest of the
people requires a modification of the rate, and the carrier is ready
on its part to modify them, and the people represented by their
sovereign representatives in the legislature, for instance, or their dele-
gated bodies are ready to do it and the local authorities of the little
town or the village or small city or medium-sized city or the big city
come up and say, "We make a contract," the answer is that the
sovereign people represented by the legislature or its delegated com-
mission will say to the local authorities: " That contract was all right
as between you and that carrier, that contract probably to-day will
be recognizecl in the courts as a judicial matter, but now the principals
are dealing face to face, and I, the people of the State, do not any
longer need your service, Mr. Agent, city, town, or village; now you
just step aside and you forget your little petty and short-sighted
vision of this question, and I will make a bargain with the carrier that

838 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

will be in the interest of the general public, whose interest after all
is the only concern of anybody."

Now, that view has not been, so far as I know, very much stated. I
think that its general expression — it is well founded in law — its gen-
eral elucidation will be very helpful in educating public opinion,
which is what I believe is the function of this body, and it will help
those local authorities and those courageous public-service commis-
sions and members of legislatures and governors who want to do
their duty over troublesome hurdles.

Now, I have lots more ideas but I think my time has expired. If
there are any questions, I want to be very free in answering them.

The CHAIRMAN. Mr. Quackenbush

Mr. QUACKENBUSH. Oh, may I add — I hate to interrupt you, Mr.
Chairman, but my talk, I quite appreciate, has been rather vehement.
Lest you should think that I have lived a quarrelsome life with the
public-service commissioners I want to say to you that with all the
companies that I have represented during the whole period of the
life of the public-service commission, we have had one case against
us, against the Interborongh Rapid Transit Co., for penalty for
failure to render service, in which we succeeded at the trial court.
We have had one or two differences of opinion in which, with the
exception of the 2-cent fare rate, we have succeeded in the courts. We
have been represented in all these years as defiant of the public-
service commission. We have been represented, not by them alto-
gether but generally by public officials, by public-spirited citizens, by
some of the newspapers, as defying their orders.

We took the New York Railways Co. on the 1st day of January,
1912, under the orders that had been made by the commission when
the receivers had it in 1908 and 1909. They never made a new order.
We operated it without an order as to service, and there was no
order made until last September, when the commission was stam-
peded into making an order by the district attorney of the county,
who said — when we could not get enough men and were hiring women,
and everybody knows the conditions in the middle of the summer —
that if they made an order he would see that somebody went to
jail if they did not get more cars, so they made an order. I want you
to keep that in mind in connection with what I have said ; and it is
that we have rendered -such service in the city of New York on the
surface lines that they did not make an order, and we have rendered
such service on the elevated and subway lines that they have never
had to make an order. They have made a general order and we
have had conferences and we have agreed, with one single exception,
and my personal relations with the gentleman whom I have criti-
cized are agreeable and satisfactory. Whether they will continue
so I do not know and I do not care.

Now, Mr. Chairman.

The CHAIRMAN. In a general way, Mr. Quackenbush, your testi-
mony this afternoon has been quite a serious indictment of the ad-
ministration of the law in New York City.

Mr. QUACKENBUSH. Yes.

The CHAIRMAN. Has that criticism been directed toward the
public-service commission particularly or all of the different officers
who have to deal with your public problems ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 839

Mr. QCACKENBUSH. The public-service commission and board of
estimate, combined.

The CHAIRMAN. Combined?

Mr. QUACKENBUSH. Yes.

The CHAIRMAN. Has it not been a well-accepted fact hi New York
City that you had a 5-cent contract — I mean a o-cent-fare contract—
and that that imposed an obligation which the city could force you
to live up to?

Mr. QUACKENBUSH. That has been preached but it has not been
an accepted fact. Every intelligent newspaper has not accepted
that as the fact. They have recognized what I undertook to say
here a few minutes ago — that a bargain made under the circum-
stances which I have described, which produced no return to the
city's investment required revision in the interest of the taxpayers
of the city, leaving out entirely

The CHAIRMAN. But has it not been the law as interpreted by the
courts of that State, at least up to a recent date, that a franchise of
that kind was an established affair?

Mr. QUACKENBLSH. That contract regarding the rapid-transit
lines has never been the subject of litigation in any court in the
State. What you have in mind is the decision of the court of ap-
peals in the Rochester case.

The CHAIRMAN. Yes.

Mr. QUACKENBUSH. Which has no relation whatever to the rapid-
transit situation.

The CHAIRMAN. But did not the Rochester case decide that the city
had no right to relieve the company of a 5-cent charge?

Mr. QUACKENBUSH. No. The Rochester case decided that the act
of 1910 did not definitely and clearly convey to the commission
jurisdiction to fix rates of fare in controvention of the terms of
a franchise granted since the amendment of the constitution in
1875. They did not say that they had no right to dp it. They
simply said that in precise language they had not done it, and then
immediately the legislature was requested to do it, and since that
time several decisions of the court of appeals have been handed
down clearly showing that they would hold that the legislature
had the power. Now that is all there was in the Rochester rase.
And Judge Hughes made the argument before the joint committee
of the senate and the assembly on the 12th day of March of this year
right along the lines I am now stating to you and expressed as
his own opinion — and he was the author of the law — that the
court of appeals had clearly irlfcimared to the legislature that, if
they acted, they did not possess the power to act; and their last
decision within this week I have in my pocket, and I suppose }rou have
seen it.

The CHAIRMAN. But until a recent date the public-service com-
mission has been of the opinion that they did not have the right to
modify that contract; is not that so?

Mr. QUACKEXBUSII. No. I am glad you asked that question. As
soon as that decision came down, they wore of the opinion in New
York that they could not take any action on anything, and I con-
vinced them that right within the terms of that opinion they had
power over transfers, because they were of statutory origin; and

840 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

they wrote an opinion that they did have the power, and it is a mat-
ter of record, but they never exercised the power.

The CHAIRMAN. When was that opinion written?

Mr. QUACKENBUSH. The decision in the Rochester case came down
on the 5th of April, 1918, and I immediately presented the thing
to the public service commission the latter part of April or May,
1918, and it is in the Third Avenue case, and you will find it cited
in the report. I should say within a couple of months. It took some
time to figure it out, but within a couple of months they reached
that conclusion and made their decision. But they said — and with
this I agree — that it would be much better if, instead of their trying
to give an unbalanced relief by eliminating transfers here and
there, we could get the consent of the board of estimate, to let them
decide the whole question. And we immediately applied for their
consent, which they declined; and then we went back to the commis-
sion, and I said to them in language that is as plain as I have
said here to-day, " Do something. We are on the rocks ; we are
going to be broke. Give us a charge for transfers that will help us
along." And the last commission went out of office. The case closed
in November and they went out of office on the 8th day of May with-
out its being decided.

The CHAIRMAN. You claim you have been very closely in contact
with the commission from 1907 up to date?

Mr. QUACKENBUSH. I do not believe anybody has been any closer
except their own organization.

.The CHAIRMAN. When was the first time your railroads asked to
have the fares increased ?

Mr. QUACKENBUSH. In May, 1917, as soon as we got into the war.

The CHAIRMAN. Up to that time you had been operating upon
favorable terms ?

Mr. QUACKENBUSH. We had been as to everything except the
transfers. Now as to the transfers, we started the education of the
commission in 1907, and had a struggle with them right straight
along, so that the fare question — and by that I mean the rate ques-
tion, our 3^-cent rate which we had — has been a subject of testi-
mony— well, going from here up there [indicating], 3 feet of it,
extending over months and months at a time, and they all the time
were going to extend the transfers. Does that answer that question ?

The CHAIRMAN. Yes.

Commissioner BEALL. You are familiar with that decision given
last week in Buffalo?

Mr. QUACKENBUSH. Yes. You will find I am on the brief in-
tervening.

Commissioner BEALL* Some people think that will apply to New
York and others do not.

Mr. QUACKENBUSH. Well, I think that it indicates the need of
additional legislation and that the legislation will be sustained.

Commissioner BEAIX. Do you think it applies to New York City
or do you not care to express an opinion ?

Mr. QUACKENBUSH. Oh. I am willing to express an opinion on
anything you ask me. I think it applies, but not to the extent of
giving the adequate relief that we ought to have. I think it en-
larges considerably the limited jurisdiction possessed by Commis-
sioner Nixon, and I hope to be able to persuade him and his advisers

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 841

as to the correctness of my views, but it is not going to solve the
thing.

The CHAIRMAN. I presume regulation is not in a finished state yet.
In New York you have one public-service commissioner, Mr. Nixon.

Mr. QUACKENBUSH. Yes.

The CHAIRMAN. In view of the great mass of detail work which
must come before the commissioner for his judgment, do you think
it possible for one man to successfully and properly officiate as the
commissioner to regulate those large transportation and other utility
questions ?

Mr. QUACKENBUSH. Well, I would say immediately, no; but you
must bear in mind, Mr. Chairman, that the amendment of this year
created a single commissioner, but authorized him to appoint depu-
ties, which he has done, and those deputies fulfill exactly the func-
tions that were fulfilled by the associate commissioners under the
old act. It is the same thing under a different form of organization.

Commissioner MEEKER. How many deputies have been appointed ?

Mr. QUACKENBUSH. He has appointed Mr. Glennon and Mr. Bar-
rett so far. "I do not recall any others. My recollection is that he
has authority to appoint at least three. But the idea of it was to
economize. Commissioners' salaries, as you know, before were
$15,000 a year for five, making a salary list of $75,000, and the salary
of the commissioner himself was cut down and the deputies' cut
down to $7,500.

Whether that is wise remains to be seen. I do remember on that
subject — and it is pertinent to a question which was asked the gov-
ernor of Massachusetts — that when the question of the salaries of
the original commission was under discussion in the legislature in
1907. it was pointed out by some opposed to so high a salary as
$15,000, which meant $150.000 for the two commissions, that Gov.
Hughes recommended that because, notwithstanding that the sal-
aries of the judges of the court of appeals of the State were only
$12,000, Gov. Hughes would appoint to the commissions men of
such standing and ability that their decisions would be accepted
by the carriers, the utilities, and by the public as final and it would
be unnecessary to go into court to review them ; he was going to get
men of the highest grade, and I have no doubt the governor in-
tended to do so, and as I have said, so far as character, integrity, and
intelligence, he succeeded, but he did not succeed in getting men who
held the scales even.

The CHAIRMAN. If the railroad and the public officers should
modify the contract to an 8-cent fare, is there any appeal from that
contract on the part of the public?

Mr. QUACKENBUSH. No ; not if it is by agreement.

The CHAIRMAN. That forecloses the question; they can not even
attack the legality of the rate in court?

Mr. QUACKENBUSH. Oh, yes; I am very glad you asked that ques-
tion.

The CHAIRMAN. I wanted to know that.

Mr. QUACKENBUSH. Yes ; I can answer that in a minute. Since the
separation of the functions of regulation and of construction and con-
tracting, which formerly had been combined in the public-service
commission, Mr. Nixon now is vested only with jurisdiction to
regulate — that is the rate-making power of the State of New York.
100043°— 20 54

842 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. Delaney is the contracting agent of the cit}r, and an amendment
to the contract would be made by Mr. Delaney ; and assuming now the
general view that prevails, but not conceding its correctness, with
the approval of the board of estimate and apportionment and our-
selves. That is the contract part. Then we must go in on the rate-
making feature and have its fairness determined by Mr. Xixon in an,
ordinary rate case, which is subject to review on the complaint of
anybody in the appellate division on certiorari.

The CHAIRMAN. So there is some remedy in court?

Mr. QUACKENBUSH. Yes ; I was hurried in my answer, because for
the moment I forgot about the fact that a person could intervene, as
you know, under the State and make a complaint that the rate is
unduly burdensome upon the public and have an ordinary rate case
heard and have his da}r in court on certiorari. There is not any
clanger of any job, in other words.

The CHAIRMAN. I do not care to examine on the mass of figures
you have presented.. It is rather an intricate situation involved in
New York.

Mr. QUACKENBUSH. "Well, I did not mean to go into a mass of
figures, but I wanted you to see that there are certain principles un-
derlying it.

The CHAIRMAN. I am very glad to have them in the record.

Mr. QUACKENBUSH. If I have made that clear, I have done what
I sought to do.

Mr. WARREN. We are very much obliged, Mr. Quackenbush.

(Witness excused.)

Mr. WARREN. I trust the commission fully understands that in
putting on evidence with respect to particular situations, we are not
doing it with the expectation that the commission will endeavor to
cure them, but simply as isolated instances of the general situation
we want to bring before you.

At this point, if I may, I should like to put in a letter from Mr.
Thomas A. Edison. It happens to bear on the very question of con-
tract that the last witness discussed :

ORANGE, N. J., July 22, 1919.
FEDERAL ELECTRIC RAILWAYS COMMISSION,

Washington, D. C.

GENTLEMEN : I have been very much interested in the progress made by the
electric railways since I first built one at Menlo Park, N. J., in 1880.

The systems, operation, and apparatus have now reached great perfection.
Some of the greatest engineers in the country have given almost the whole of
their lives to attain this end. The end is not yet reached. The great trunk
lines will, in time, be added to the electric domain. It is to the greatest ad-
vantage to the public that every encouragement be given to those who have
and will still further act as pioneers in the further perfection of this flexible
and highly economical system of power distribution, whereby our natural
fuels are conserved to a greater extent and all the power of waterfalls utilized.

At the present time the electric-railway industry has reached a serious stage.
Everything has stopped advancing. Countless millions of securities based on
this industry are held by conservative investors, families, etc., who are pos-
sessed of a dread for the future. No more capital can be obtained, except in
special cases.

The ironclad contracts between the roads and the cities made in the pioneer-
ing days under normal conditions have no protective clause against the greatest
change that has taken place in centuries, due to the World War. The munici-
palities can exact their pound of flesh if they so desire, with the ultimate
bankruptcy of these organizations, but the spirit that is now abroad in the
world is against this. We are now all trying to play fair. If suffer we must,

PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION. 843

let us all suffer alike. If prosperity comes, all should participate in a like
manner.

I hope the commission will succeed in placing this industry on its feet again.
This, in its turn, will stop stagnation ; give the roads stability to raise plenty
of capital; new extensions will go on; new things will be perfected and intro-
duced. The restless Americans who work all day and far into the night are
forever pushing, higher and higher that great line of 30° angle, illustrating the
rise of the American Nation in wealth and power.
Yours, very truly,

THOS. A. EDISON.

STATEMENT OF MR. JAMES 0. CAKE.

Mr. WARREN. Your full name is James O. Carr, I think?

Mr. CAKE. Yes, sir.

Mr. WARREN. Ami you reside where, Mr. Carr?

Mr. CARR. Pittsburgh, Pa.

Mr. WARREN. And you were one of the public-service commis-
sioners in New York of the up-State district between what dates?

Mr. CARR. May 1, 1915, to February 1, 1918.

Mr. WARREN. And before that in what were you engaged?

Mr. CARR. Well, for about 20 years I was very actively engaged
in the operation, construction^ and reorganization of public utilities,
street railroads, electric light and gas companies.

Mr. WARREN. And for about how long^Mr. Carr?

Mr. CARR. For about 20 years.

Mr. WARREN. So that your experience ran back pretty nearly to
the electrification of horse railroads and the construction of new
electric railways; did it not?

Mr. CARR. The electrification generally of street railroads began
about 1890, as I recall it.

Mr. WARREN. And your connection with the work began about five
years later?

Mr. CARR. No; I was connected with it before that time, but not
so actively.

Mr. WARREN. There is only one point on this that I want to get
from Mr. Carr, and that is as to the extension of rides in the earlier
days of the business.

Mr. Carr, did the electrification of street railways generally in-
volve the construction of extensions affording the public longer rides
for the old nickel fare than they had formerly enjoyed?

Mr. CARR. Very much so.

Mr. WARBEN. Would you give the commission any particular
example of that which you may recall?

Mr. CARR. Why, I think that is true of practically every city in
the country; and I imagine every man on this commission recognizes
that fact. * I recall very specifically one case, and that was the city
of Schenectady, N. Y.

Mr. WARREN. Won't you tell briefly just Ayhat happened there?

Commissioner BKAF.L. Are you the man who used to be with the
Schenectady company ?

Mr. CARK. I am the same man ; yes.

Commissioner BEAU,. I have not seen you for a good many years.

Mr. CAKR. You remember the Schenectady property also?

Commissioner BE ALL. Yedi

844 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CAKR. At that time, in 1890, the Schenectady Railway con-
sisted of a horse road about — I think, all told, less than 3 miles long —
just one line of road, no branches or extensions; and the fare on that
road was 5 cents, fixed, I believe, by the original franchise which
was granted in 1886. That road was electrified in 1890. It con-
tinued to operate as an electric road from 1890 to 1900, at which
time the property was acquired by the General Electric Co. in con-
nection with its development at Schenectady.

It was absolutely essential for it to have transportation facilities
for the employees in that city. The road was developed from that
time, from 1900 to 1905, from around 3| miles of track to 110 miles.
That, of course, included interurban lines, but the city lines com-
prised, as I recall them, about 26 miles of track. And, of course,
the city lines as they were extended formed a part of the interurban
lines. So that the result was that in that city in particular, where
the passenger had a ride of around 3 miles if he took the entire ride
in 1900, in 1905 and since that time, he had a ride if he desired it of
10 miles, and in some instances — well, approximately 10 miles for a
nickel, and he could not only take it in one direction, but he could
take it in half a dozen directions.

Xow that is one concrete illustration of the extension of service
with no increase of fare, and that has been true all over the country.
The 5-cent fare wras a — well, it was a motto, almost a household
motto ; you can ride on the street-cars for a nickel.

Mr. WARREN. Do you remember the Boston situation?

Mr. CARR. Yes ; I used to live in Boston.

Mr. WARREN. I thought you did. That consisted before electrifi-
cation of a number of different horse-railroad lines, did it not?

Mr. CARR." Yes. I remember in the old days of riding to Brighton
on the horse-car from Boston and nearly freezing, and its taking a
period of one and a half to two hours.

Mr. WARREN. -And keeping your feet warm if you could ?

Mr. CARR. In the hay ; yes.

Mr. WARREN. Before they were merged, the rate in Boston was 5
cents with a 3-cent charge if any person went from one of the radiat-
ing lines to another ; is that the fact ?

Mr. CARR. I do not recall the fact as to the transfers on the horse
lines, but after the lines there were electrified, there was a 3-cent
charge for transfers.

Mr. WARREN. And that was subsquently removed, after electrifi-
cation ?

Mr. CARR. I do not remember, because I moved away from Boston
in 1894.

Mr. WARREN. But do you know that the lines were extended very
greatly within the city ?

Mr. CARR. Oh, very greatly, all over the suburbs of Boston.

Mr. WARREN. Now you have been a public-service commissioner
and have had experience in that position. Will you briefly — and this
is the onty other subject on wrhich we have called Mr. Carr, Mr. Chair-
man— state to the commission what effects you have observed either
on the system or on the administration of supervision, and what
changes you would suggest better to meet the situation which I sup-
pose you with others would say exists to-day in the street-railway
world.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 845

Mr. CARR. Well, when I left the public-service commission I left
it, as I assumed, for good ; and I have not given any thought to the
subject since that time. I assume I may be somewhat different from
a good many men who sit on public-service commissions. I have
rather positive ideas about a great many things, and my idea about a
commission is that the commission should have full power to exer-
cise the law.

I had the good fortune — as I thought at the time, but my pride
has taken a fall since — to have written the decision in the State of
New York in the second district commission, giving authority to
railroads to increase any fare, and I thought I had done a very re-
markable piece of work. I spent the whole summer on it, and the
commission was unanimous on the proposition. It arose out of the
plight which a very small street railroad found itself in down on.
Long Island.

Mr. WARREN. May I interrupt there with just one question? Is
it your experience or observation or judgment that small companies,
are in just the same plight?

Mr. CARR. Oh, they are all the same.

Mr. WARREX. There is no difference between the small companies,
and the city companies. Now, you may go on with that case.

Mr. CARR. As I recall it, we had this matter before us all of the
summer of 1017. There was an association of the railway companies
in New York, in which, I think, some of the companies in the first
district participated, endeavoring to impress upon our commission
the necessity for relief to the corporations. It was an organized
propaganda or an organized effort on the part of the corporations,
to make us know or realize that more money was required or would
be required by the street railroads to enable them to perform their
service. And after the hearings were given during the summer
to the street railroad committee presenting general propositions^
no specific data with relation to the operations of any particular
company, but conditions in general with respect to wages, cost of
material and things of that sort, we were able to get down to the
consideration of certain specific cases which had been filed by the
various companies with the commission. In fact, at that time I
think the companies in Rochester, Syracuse, Utica, Albany, Ithaca,
Binghamton, Elmira, Buffalo, Poughkeepsie, Kingston, and some
other roads in the lower district had filed applications for in-
creased rates. And as the result of the hearing which we had—
we started in immediately with hearings after the committee had
finished with its presentation of facts — I was able to bring to a
point where it was ready for determination several of the cases
that involved the fewer intricacies — that is, the smaller companies
had a concrete state of facts as to which there was no dispute and
as to which the valuations could be readily determined, which,
of course, did not apply with the larger cities. And we made one
case the case upon which to rest our determination, which was
known as the Iluntington case; and we decided in that case that not-
withstanding the statutes in the State of New York, we had the
right and the right had been delegated to us by the legislature to.
increase the rate of fare to the corporation if it was entitled to an.
increase in order to live.

845 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. And that notwithstanding a fixed 5-eent fare in the
franchise?.

Mr. CARR. And that notwithstanding a fixed 5-cent fare. My
view of that apparently, in which I am alone, except the four com-
missioners who stood with, me in that case, was that the statute did
not mean that the municipality had a right to fix a fare for all
time as a condition for giving its consent to the operation by a
street railroad in the streets of a municipality as against the State
itself, In other words, we held that the State was supreme when
it came to the question of determining what rate a public utility
should charge. We then decided on that state of the law from our
standpoint, from all the decisions of the courts, with one exception,
the Westchester case, and basing our position on the cases that had
been decided by the Supreme Court of the United States in some
instances, that we had the power to grant an increase, and we did
grant the increase in that case and numerous others.

Mr. WARREN. Well, the court sustained your view that the legis-
lature was supreme?

Mr. CARR. No.

Mr. WARREN. Oh, I thought they held simply that the legislature
had not in your public-service law clearly delegated that authority.

Mr. CARR. I do not know what the real decision was because I
left the commission before the case was -decided, and I have never
seen it.

The CHAIRMAN. The commission will adjourn at this point until
8 o'clock to-night.

Mr. CARR. I have to leave here at 9.2.5.

Mr. WARREN. I think we can get you off on that train.

(At 5 p. m. an adjournment was taken to 8 p. m.)

EVENING SESSION.

The hearing was resumed, at 8 o'clock p. m.

STATEMENT OF MR. JAMES 0. CARR— Continued.

Mr. WARREN. I judge from what you were saying, Mr. Carr, be-
fore the recess, that one thing you think should be remedied is the
law under which the commissions act, so that in cases where they
have not jurisdiction, either because of contractual franchises or
otherwise, they should be given that jurisdiction over rates, and if
the constitutions of the States interfere with the giving of such
jurisdiction, you think the public interests would be served by chang-
ing the constitutions, so that authority might be given the commis-
sions; is that so?

Mr. CARR. I believe that if public-service corporations are to be
regulated by regulating; commissions, they should have full power to
regulate them. I have in mind particularly the New York law under
which we were operating, wrhich gave the commission every power
that a regulating body could possibly have, so far as service was con-
cerned. There was 110 limit, practically, to what could be required,
but going along with that there was not the same power to provide
the means for the corporation to get the money to make those iin-

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 847

provements, if improvements were required, or to provide such other
expenses as might be necessary to give the service that the public was
entitled to, and which it demanded.

Mr. WARREN. That,, in your judgment, is just as essential — the pos-
session of that power is just as essential as the power over service;
that one without the other

Mr. CARR. One without the other makes it absolutely incomplete.

Mr. WARREN. Yes.

Mr. CARR. That law, as it now stands, gives every power to the
commission to reduce fares, but it does not give them power to in-
crease fares when increases are necessary, and absolutely required in
order to enable the corporation to perform its functions.

Mr. WARREN. Now, in view of the present emergency, which has
been testified to by various people here, do you think it is essential
that some immediate relief should be furnished to many of these
street railway companies?

Mr. CARR. That is a very broad question.

Mr. WARREN. Well, you qualify it in your answer.

Mr. CARR. Of course, whether or not there should be immediate
action is a question of fact ; and that fact, I believe, is easily demon-
strated in most cases to prove that the street railways throughout
the country to-day, in most instances, are barely able to earn their
operating expenses. I do not believe there is hardly any in the
country that is able to earn a return on its capital invested.

Mr. WARREN. Do you think that many of them are really not
earning their operating expenses, properly defined, including a
proper allowance for depreciation of the plant?

Mr. CARR. I think there is no question about that.

Mr. WARREN. Well, under those circumstances, it would seem to
be necessary that they should get some kind of quick relief, even
though of a temporary character; would it not?

Mr. CARR. Yes; I think that is true; and I also believe that a great
many of the States have the facilities for affording quick relief.

Mr. WARREN. You do?

' Mr. CARR. I think the State of Xew York, in so far as its second-
district commission is concerned, acted with reasonable promptness
on matters of that sort. At least, it did when I was there. We mado
it a point to expedite action wherever it seemed to be urgent, and it
was expedited; but, of course, it must be borne in mind that there
are certain provisions in the law which can not be ignored, and
which make it obligatory upon the commission to satisfy itself that
the company is not earning a fair return before it can increase the
rate. But in most instances to-day T do not think the company would
have .very much trouble in satisfying a commission on that point.

Mr. WARREN. And satisfying them speedily?

Mr. CARR. And satisfying them speedily.

Mr. WARREN. So as to justify a speedy decision by the commission?

Mr. CARR. That is so.

Mr. WARREN. And if such decisions could be rendered, it would
go far, would it not, to afford temporary relief for the situation,
pending some more permanent form of relief?

Mr. CARR. Well, it all depends upon how they must apply the
money that they get on the increase.

848 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Well, if they are not earning operating expenses, it
would be a pretty simple thing to determine how the money should be
spent ; would it not ?

Mr. CARR. Yes; but nowadays there seems to be a very decided
fluctuation in certain elements of operating expense.

Mr. WARREN. Do you think the commissions should in any way
control the expenditure of the money if they gave this emergency
relief?

Mr. CARR. That is all provided for in the system of accounting;
which is required of these corporations under the State regulations.

Mr. WARREN. So that the commission could control the expendi-
ture of the money to such an extent to see that it was applied as it
should be?

Mr. CARR. I do not think any commission goes as far as that — that
rs, not so far as to attempt to dictate as to the actual disbursement of
income for expenses. The most they attempt to do, so far as I have
been informed, is to make their order, setting forth what the money
that is derived from capital can be expended for. Of course, if the
company attempts to expend money derived from capital for oper-
ating expenses, there is certain provision made for that. It shows
up in their accounting.

Mr. WARREN. Yes, of course. This increase, of course, would be
income, would it not?

Mr. CARR. That would be income, absolutely.

Mr. WARREN. Well, the commission, I think, probably in every
case, has a right to call for reports periodically from the company.

Mr. CARR. Oh, yes.

Mr. Warren. And if the commission should be satisfied that the
money was being improperly spent, say for dividends, when the
dividends should not be paid, the commission could easily reduce the
emergency rate, could it not ?

Mr. CARR. Undoubtedly.

Mr. WARREN. So that it

Mr. CARR. I think that is a very remote possibility.

Mr. WARREN. Do you mean the improper expenditure of the
income ?

Mr. CARR. I think you would have great difficulty in finding a
street railway to-day that would attempt to pay dividends when they
were not having earnings enough to cover operating expenses.

Mr. WARREN. I agree with you. I think any emergency relief that
they might obtain would be fully absorbed in taking care of the
property.

Mr. CARR. That is it absolutely.

Mr. WARREN. But the delays that have been incident to some cases
in that case would be more prejudicial to furnishing the relief which
is needed at this time? I am not speaking of New York particularly ;
but in many cases in the past it has taken a long time to get decisions
on rate increases, has it not ?

Mr. CARR. Yes ; it has, in many instances, where complicated ques-
tions arose, and as a rule, those delays were largely incident to the
action of the municipality in which the corporation was located.

Mr. WARREN. They opposed it?

Mr. CARR. They invariably opposed any rate increase.

Mr. WARREN. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 849

Mr. CARR. And the commission had to pass on questions of law
and questions of fact ; and I think it is the history all over the coun-
try that each locality, as a rule, fights any increase in fare. It ap-
pears to be human nature.

Mr. WARREN. But if the localities were convinced, or, at any rate,
seriously impressed with the importance to the street railway of some
increased revenue, as a result, possibly, of a report of this commis-
sion, if the commission should take that view, then it would be pos-
sible for the commissions, in a great many cases, to afford very imme-
diate relief, would it not? That is, I mean within a few weeks.

Mr. CARR. It would. Yes, indeed.

Mr. WARREN. Instead of its being a matter of months?

Mr. CARR. The great trouble is that the people, as such, are not let
alone. I believe the public — and by that I mean the people as a
class — will decide fairly on any public question that is put up to
them ; but there are always certain people in the community that feel
it incumbent upon them to advise and lead the public, with the re-
sult that there is always trouble, that opposition does develop in that
way, and that is what has to be overcome before you can reason it and
argue it out with the public, so as to make them actually believe what
you are trying to tell them, that you are in trouble and you need
help. Now, if you leave out the third party, your public will come
to the front very quickly, but it is always a public benefactor that
comes across and is trying to help the people who causes the trouble.
That has been my experience, and I think I am right in saying it.

Mr. WARREN. But notwithstanding that, would not the commis-
sions, in many instances, be justified, in this present emergency, in
furnishing relief of a temporary character?

Mr. CARR. With respect to those commissions of which I have any
knowledge, I have no doubt that every one of them would give relief
to-day if a plain statement of facts was furnished them, if they
thought it correct, without waiting for any great length of time to
get a mass of evidence in front of them' that they would have to pore
over and spend their nights and Sundays in digesting. The pur-
pose of every one of these commissions to-day is to aid the corpora-
tion that needs help, but where they are bound around with statutes
and with constitutional provisions and other things that prevent
them from giving that aid, they are absolutely helpless, no matter
how much they may desire to help the corporation ; and the best evi-
dence of that is what has happened in New York.

Mr. WARREN. Yes, I appreciate that. But in cases where they
have jurisdiction, you feel that many of the companies could furnish
such a prima facie case as to justify immediate relief, and the com-
missions would be willing to give it, of a temporary character?

Mr. CARR. In the average case, where a corporation is required to
keep its accounts as prescribed by the commission, a plain operating
statement put in front of a commission would demonstrate whether
or not they were entitled to any relief. That lias the facts right
in it. They do not need to go around it and to present any argument
to show whether or not they are earning enough to pay expenses.

Mr. WARREN. That would be enough for the commission ?

Mr. CARR. That would be enough for the commission, temporarily.

Mr. WAHREN. Yes; I mean that.

850 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CARR. It should be enough to show, taking a period of six
months or a year, exactly what that company is doing with respect
to its earnings, and as to whether or not it is making enough to take
care of its operating expenses and any return on its investment.

Mr. WARREN. And in a period like the present, with costs going
up as rapidly as they are, and with wages going up by leaps and
bounds, as they have been doing in the last few weeks, the delays
which would be incident to the ordinary procedure of the commis-
sions would involve very serious injury to the companies; would
they not?

Mr. CARR. Well, if there was any very long, delay, I would say it
would.

Mr. WARREX. Yes.

Mr. CARR. Of course, it is difficult to say how long you can keep
a corporation that is on the down grade from becoming bankrupt,
so that it can not continue any longer.

Mr. WARREX. Well, for example, a company whose wages are
increased to-day from 40 or 45 cents to 60 or 62 cents wyould be pretty
seriously affected by a delay of a month or two.

Mr. CARR. I should think that would be very serious. Another
proposition: You can not very well pay things unless you have
money to pay them with, whether wages are increased from 40 to
60 cents or 50 cents.

Mr. WARREX. If you do not have the money

Mr. CARR. It is very essential to get it.

Mr. WARREN. Yes; without very much delay.

Mr. CARR. Well, you will have very hard work to get it, if that
is your financial status.

Mr. WARREX. You say wre will not find it very difficult to get
money ?

Mr. CARR. I say you will find it difficult to get money, if that is
your financity status.

Mr. WARREX. I am only speaking about increased rates.

Mr. CARR. Oh, yes.

Mr. WARREX. I think that is all I want to ask Mr. Carr, unless
you have something further that you want to say to the commission,
Mr. Carr.

Mr. CARR. There is one statement that I thought I would like to
allude to, not so much because of my loyalty to the New York
Commission, but because I think it is a thing that ought not to go
unchallenged.

Ex-Gov. Foss who testified there made the statement that — as
I understood it, it was to this effect — that these so-called quasi-public
corporations, as he termed them, spend most of their time in the
halls of the various State capitals and elsewhere, lobbying for their
interests and endeavoring to obstruct the laws wherever they
could, and to prevent the appointment of capable men on the com-
mission that would see that the rights of the public were protected.

Now, I think that is a statement that ought not to go unchallenged,
as I say, because it is far from the fact. The trouble is that the
appointing power, as a rule, where the commissions are appointed —
in many of the States they are elected — but where they are appointed,
I believe the public-service corporations are more interested than
anyone else to have clean, able, upright men on the commission,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 851

because it is to their best interests to have men of that, character,
yet in all cases the trouble with the appointing power is the politi-
cian. He is always there to see that a politician or someone who is
selected by the politician is put on the commission, because it is con-
sidered a political plum.

Xow, that is the fact as distinguished from what the governor said,
and I think you will find that if you keep the politician away from
the appointing power you will have no trouble in getting good men.

But there is this further fact to be considered: It is difficult to
get a competent man unless he happens to be of independent means
to be willing to assume the burdens of public-service commissioner,
because he does not like to be hounded and blackmailed, if you
please — accused of everything in the calendar, and work himself
night and day to do the best he can. for his State, with the knowledge
all the time that a change in. the political power or the expiration
of his term of office means that he goes forth without honor.

And what is the result ? His innermost pride is affected, because he
feels that if he has done his duty well, the least reward that he could
have would be a reappointment to that office, and 3rou will find that
that is very seldom done.. I did not have an opportunity to meet
that experience, but I presume I might have had it, just: the same
as many other men have had it; and that is the reason why it should
be eliminated from politics. If you have a competent man there,
keep him on the job. That is what I was taught in the good old days
in New England, where I came from, in eastern Xew England — that if
there was a good man in the office he was kept there as long as he
lived, and if he was not good he was thrown out, and that applies
to the public-service commissions.

Mr. WARREN. That is the practice of our public-service commis-
sion, I. am happy to say, in Massachusetts, with very few exceptions.

Mr. CARR. I would not. like to have the public feel that, in these
days at least, the public-service corporations were using their efforts
all the time to prevent good men from getting office, or that they
spent their time in the halls of, the legislature trying to frame up
laws for their benefit, because it is not so; and I know, because I
have represented corporations.

Mr. WAKKEN. I agree with you absolutely on both of those propo-
sitions.

That is all, Mr. Chairman.

Commissioner SWEET. What is your business now, Mr. Carr?

Mr. CAKK. I am in the steel business.

Commissioner SWEET. In Pittsburgh?

Mr. CARR. Pittsburgh.

Commissioner SWEET. You are not connected with any street-rail-
way enterprise?

Mr. CARR. I have no interest in any street railway.

Commissioner SWEET. You know something about the Pennsyl-
vania Commission, I suppose?

Mr. CAKR. Nothing whatever, except by hearsay.

Commissioner SWEET. Is it not. generally conceded that they have
a good commission up in Pennsylvania?

Mr. CARR. I have no knowledge of it.

Commissioner SWEET. You made a comparison between the horse-
car days and the electric-car days?

852 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CARR. Yes, sir.

Commissioner SWEET. And I think you said that for a nickel, in
the horse-car days, a man could ride approximately 3 miles.

Mr. CARR. If he went from one end of the road to the other.

Commissioner SWEET. If he went from one end of the road to the
other?

Mr. CARR. Yes, sir.

Commissioner SWEET. He was entitled, if he wanted to, to ride 3
miles for a nickel?

Mr. CARR. Yes.

Commissioner SWEET. And after the roads were electrified, he
could ride about 12 miles for a nickel?

Mr. CARR. Yes.

Commissioner SWEET. From the standpoint of the rider on the
street-cars, that would seem, certainly, that he was getting about 4
times as much for his nickel under the electric system as under the
horse-car system?

Mr. CARR. He was getting a great deal more than 4 times as much,
because he was getting a better service in the way of equipment and
time and every other respect.

Commissioner SWTEET. But in miles of travel, he was getting 4
times as much?

Mr. CARR. In miles of travel, he was getting 4 times as much, if he
wanted that.

Commissioner SWEET. If he wanted it.

Mr. CARR. Yes.

Commissioner SWEET. Now, I would like to call your attention to
the other side of that question — not from the standpoint of the street-
car patron or rider on the street-car, but from the standpoint of the
company operating under the two systems. What would be the rela-
tive expense to the operating company to run the 3 miles of horse
car or 12 miles with electric power?

Mr. CARR. I do not know that I ever saw any statistics on horse-car
traffic. I could not say how much it might cost them. It is all
figured out in car-miles, in passenger-miles.

Commissioner SWEET. From that standpoint, the difference would
not be anything like it would be from the standpoint of the rider on
the street-car; would it?

Mr. CARR. The cost?

Commissioner SWEET. Yes.

Mr. CARR. I would say that the cost of the 12 miles on an electric
line would be certainly more than 4 times as much as 3 miles of
horse-car line.

Commissioner SWEET. Then, the cost per mile of electric power
•would be greater than the cost per mile of horsepower ?

Mr. CARR. Oh, there is no question about that. There is no ques-
tion about it.

Commissioner SWEET. So that, from the standpoint of the street-
railway company, then, more than 4 times as much would be fur-
nished for the nickel than in the horse-car days ?

Mr. CARR. Absolutely.

Commissioner SWEET. So that, then, from both standpoints — the
standpoint of the rider, he would get more than 4 times as much for

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 853

his nickel, and from the standpoint of the company, which would
furnish more than 4 times as much for the nickel — there would seem
to be a tremendous change after the roads were electrified?

Mr. CARR. In what way?

Commissioner SWEET. I say, from both standpoints.

Mr. CARR. Well, there would hardly be any comparison as be-
tween the two.

Commissioner SWEET. The company is furnishing four times as
much for the nickel, and the rider would be getting four times as
much for the nickel.

Mr. CARR. He certainly would; and of course it should be borne
in mind that the capital invested per mile was almost nothing in
the horse-car days in comparison with the electric roads.

Commissioner SWEET. So that when the street railroads of the
country were changed over from the horse-car system to the electric
system, there really was no logic or fairness, when you come right
down to it, real inherent justice, in maintaining the nickel fare;
was there ?

Mr. CARR. Well, there was in some respects, and I think in many
respects it worked satisfactorily, and the companies did get a fair
return on their capital, because, with better equipment and more
speedy operation and larger cars, they were able to carry a great
many more passengers per car-mile, and in that way they were able
to increase their earnings per car-mile; but it was the constant
growth of the main body or the company — that is, the constant ex-
tension of tracks, here and there and elsewhere, to meet the expand-
ing development of the community that began to pull the companies
down. It reached a certain peak, and then it passed over that peak,
on the way down. It began to give more and more and more for less
money, and then the transfer system came in on top of that in many
places. For instance, in the city of Albany they did not have any
transfers until, I think, after 1905. They even had to go to the
legislature to get transfers in the city of Albany.

Commissioner SWEET. Would it be a fair statement to say that
from the inception of the electric street railways, there had been a
constantly increasing service, without a proportionate increase of
remuneration ?

Mr. CARR. Absolutely. The nickel fare was in force in the State
of New York, as I recall it, as far back as 1848. I may be wrong
in my history, but I went into the thing very exhaustively, and it
has been on the books for a great many years, originating in the
city of New York.

Commissioner SWEET. And no jump was taken when the roads
electrified ?

Mr. CARR. Yes.

Commissioner SWEET. But from that time on, if I understand
you correctly, there has been a tendency, as the roads have ex-
tended out and made lateral lines and have given transfers — there
has been a continuous tendency to give more and more and more for
the nickel?

Mr. CARR. Absolutely.

You have*here the reports of the New York Commission, and if
you are interested in connection with your investigation here to

854 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

read the opinion sometime that I wrote in the Huntingdon case, you
will find a history of fares in the State of New York, going back
as far as 1848 — and I do not know but what it is longer — showing
how the legislature, at different times, created corporations, street
railway corporations, and fixed the fare when the charter was
granted. That case gives the history of street railways in the State
of New York, and it is very illuminating, showing that even in
the old days it was considered that a universal fare was not really
intended to be universal, if there were other conditions that made
it desirable to fix a different fare, and the mere fact that that was
stuck into the statute in later years was not, to my mind, with the
intention that every street railroad throughout the State of New
York and the city and the municipality should be limited to a
nickel fare, no matter how much it might extend its lines in that
community, but the courts have held it was so, provided that they put
it in the franchise.

Commissioner SWEET. It is quite evident from what you say that
you have been quite a student of this question for a number of
years.

Mr. CAKR. Well, many who have been in the public-utility busi-
ness can answrer that better than I can. They know. I have been
in it a good part of my life, and until I quit the New York Commis-
sion I made a speciality of it.

Commissioner SWEET. Well, it would be, perhaps, immodest for
you to admit what I have just said, but it is quite evident that that
is the fact just the same, and on that supposition I want to ask you
this: During the period of your acquaintance with the street-railway
companies have you observed a tendency to antagonism, a sort of
conflict, between the general public and the street railways on the
one side, trying to get more and more for the nickel, and on the
other side in trying, perhaps, in a defensive attitude, to prevent the
public's carrying it too far?

Mr. CARR. I think you will find that this has been the experience,
that the initiative in the development of the street railways has usu-
ally come from the corporation, which has showed a disposition to
develop and extend its lines. In some instances, the initiative has
been taken by the community, but in most instances I think you will
find that the initiative came first from the corporation, and then
there was a struggle for a franchise. I do not say that there has
been antagonism, because I do not think, in the average instance,
there has been antagonism. The people have wanted the street-rail-
way lines extended, and unless there was a good deal of politics in-
volved, as a rule the franchise for the extension was granted. In
the good old days when there was a good deal of graft, so the}7 say —
I don't know anything about that — in connection with the street
railway franchises; but that, as a rule, wfas in the initial stage
of the development and before the road had been built, not so far as
related to extensions, but the existing road. The municipalities
usually endeavored to throw as many conditions around the construc-
tion of an extension or a new line as they possibly could, but ordi-
narily they set forth in the franchise the conditions that are set
forth in the statutes ; and I think you will find throughout the State
of New York that the bulk of the franchises that have been granted

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 855

in the past 25 years, outside of the greater city, do not embody much
more than the conditions attached to the franchise than are eon-
tamed in the statute itself.

Commissioner SWEET. You have alluded to the political pressure
that is brought to bear upon the appointing power with regard to
State commissions. Under the plan advocated by ex-Gov. Foss of
public ownership have you any reason to think there will be any less
pressure brought to bear upon the appointing power in connection
with the choice of managers and thousands of others who would be
outside of the civil service or a great number who would be employed
in connection with street-railroad operation?

Mr. CARR. I firmly believe that public ownership in this country
will never be successful, so long as we have our present form of
government.

Commissioner SWEET. You think that those charged with the duty
of appointing would have pressure brought to bear upon them to
such an extent that they would appoint political friends?

Mr. CARR. Well, they might not appoint a political friend so much
as they would appoint men that they were urged to appoint by po-
litical friends, and then what would be the incentive ? The average
man that holds a political job knows that sooner or later he is going
to get out.

Commissioner SWEET. That is all.

Commissioner MEEKER. How about public regulation under our
present system ; is it possible to work that ?

Mr. CARR. I think public regulation can work, and it has worked
veiT well. Of course, it has its evils.

Commissioner MEEKER. We have heard some pretty severe bumps
handed to it to-day.

Mr. CARR. Of course, you have always to consider that some of the
people that do the bumping also have their grievances.

In 1907, when the New York Commission was formed, I might say
that a great many people with whom I was associated were opposed
to it, but I was very much in favor of it, because I felt I saw what
was coming, and I tried all I could to help make it a law in my feeblo
way, and I believe if you would put it to a vote of the public-service
companies in the State and ask them whether they would go back to
the old days, they would tell you that they would prefer to have the
regulation exactly as they were having it to-day. Now, I may be
wrong, but that is what they have told me.

Commissioner MEEKER. What is the difference between the politics
that affects the public regulators to-day and the politics that would
affect the public operators in case of public ownership and operation,
or the public regulators under public ownership and private opera-
tion?

Mr. CARR. Well, all I can speak for is the commission I was with.
We, in the words of the President, adjourned politics. We elimi-
nated politics entirely from our operations.

The CHAIRMAN. Is it not true, Mr. Carr, that although some of
the public service commissioners may be politicians, and they may
be appointed for political purposes, yet, when it comes to the ques-
tion of appointing their expert men. their expert rate men, engineers,
etc., they always look for the best men in the field that can be se-
cured?

856 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CARR. I think that it true.

The CHAIRMAN. And is it not also true that these public commis-
sioners very generally respect the recommendations and follow the
recommendations of their expert forces in matters coming before
them ?

Mr. CARR. I think it is.

The CHAIRMAN. Is not that the answer to the situation? '

Mr. CARR. It is largely, except that I do not like to see a man in
a regulating position that relies on his subordinates for his knowl-
edge or for his action. I think a man who is a commissioner and
holds that important position should be the man that takes the re-
sponsibility.

The CHAIRMAN. Oh, sure. There is evidence on both sides; but
where there is a conflict of testimony he has to pay a good deal of
attention to the recommendations made by the men he hires and who,
in his judgment, he can absolutely depend upon.

Mr. CARR. That is absolutely true.

Commissioner MEEKER. Would it work any differently under public
ownership? Is the difference really one of decree or one of the size
of the job, or is there some sort of difference between public owner-
ship and public regulation?

Mr. CARR. Well, that is a very difficult question for me to answer.

Commissioner MEEKER. Well, you have had more particular ex-
perience on that particular point than anybody that has yet appeared
before us. You have served on a public-service commission, and you
have been actually engaged in operating public utilities, as I under-
stand.

Mr. CARR. Well, there is a difference, as you can readily see. If
there was a question of public ownership, what would enter into it?
What would be the function of the regulator then? And what
would bring up the questions as to regulation; who would bring
them up ?

Commissioner BEALL. Is it not one of the answers, Mr. Carr, that
in a large or fairly large city, instead of five commissioners or three
or seven, or whatever it may be, you have a certain commission of
regulators, and they perhaps employ thousands of men?

Mr. CARR. Yes.

Commissioner BEALL. Each one of those thousands of men have
members of their family and friends who are all pulling for their
relative's advance, so that the men who regulate under municipal
control would be harassed by people wanting some friend appointed
or his pay increased, or some favor granted, and that is a hundred
times more influence than there would be in the case of a public
service commission, is not that true?

Mr. CARR. Yes ; I think that would be so.

Commissioner BEALL. That is just one basis of the difficulty ?

Mr. CARR. The whole thing is so interwoven that when you make
an analysis of it, it opens up such a tremendous subject that it is
extremely difficult for me to say what would or would not happen.
I draw my conclusions from my observations.

Commissioner BEALL. Well, is it not true that if you were on a
commission and were running a property, for instance, for a, large
city, instead of having just one assistant secretary to appoint, as

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 857

happened at one time, there might be a thousand positions to be
filled?

Mr. CARR. That would all depend upon how large the community
was.

Commissioner BEALL. Well, I am considering everything, of
course — conductors and motormen, and clerical force.

Commissioner MEEKER. You may have civil service with public
ownership and operation.

Mr. CARR. Civil service is all right, as far as it goes, as long as it
gets the man to do the work he is supposed to do, but he does not
seem to have the initiative that he does when he works for a private
corporation

The CHAIRMAN. You are excused, Mr. Carr.

Mr. WARREN. I am much obliged to you, Mr. Carr.

STATEMENT OF MR. RICHARD SCHADDELEE.

Mr. WARREN. Will you give your full name, Mr. Schaddelee ?

Mr. SCHADDELEE. Richard Schaddelee.

Mr. WARREN. Are you in the street-railway industry ?

Mr. SCHADDELEE. Yes, sir.

Mr. WARREN. And what position and with what company ?

Mr. SCHADDELEE. Well, I have the general supervision of the man-
agement of several street-car companies and interurban companies.

Mr. WARREN. Where are they located ?

Mr. SCHADDELEE. They are located in Illinois, in Ohio, and in
Michigan.

Mr. WARREN. Is there a public-utilities commission or regulating
commission in each of those States?

Mr. SCHADDELEE. No ; only in Illinois and Indiana. Well, there is
one in Michigan also, but the commission of Michigan has no juris-
diction of rates of utilities, except where there are no existing fran-
chises.

Mr. WARREN. And have you any existing franchises in connection
with your companies in Michigan?

Mr. SCHADDELEE. Well, we have no street railways in Michigan;
only interurbans. Now, in Michigan, the legislature has not the
power to regulate the rates of interurban railroads.

Mr. WARREN. The commission has not?

Mr. SCHADDELEE. No, sir; because the constitution of Michigan has
a provision that does not permit the legislature to delegate to any
commission the power to regulate the charges for the transportation
of persons.

Mr. WARREN. Then we will drop Michigan.

Mr. SCHADDELEE. Yes.

Mr. WARREN. Because that is not in the case. Now, in Illinois the
commission has authority to regulate rates?

Mr. SCHADDELEE. Yes, sir.

Mr. WARREN. And in Indiana it has authority to regulate rates?

Mr. SCHADDELEE. Yes, sir.

Mr. WARREN. Have you had occasion to appear before both of
these commissions on matters of rate regulation?

Mr. SCHADDELEE. Yes, sir.

IOOC430— 20 55

858 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. WARREN. More than once ?

Mr. SCHADDELEE. Yes, sir.

Mr. WARREN. And what has been your experience with the regu-
lation of rates in each of those States? Take them up in any order
you please, with particular reference to the length of time that it
lias taken to get decisions, and anything else that you think ought to
be called to the attention of this commission.

Mr. SCHADDELEE. Well, Mr. Warren, I have prepared a paper here
wherein I cover that. Possibly I had better read that to the commis-
sion. Then they will know just what the experience has been. Other-
wise we might have repetition here.

Mr. WARREN. Well, if it is not long. If it is, I would like to ask
you to summarize it, taking the prominent features of it. You can
do it better than I.

Mr. SCHADDELEE. Well, I think I can read it here, and I think
everybody will know something about our experience and also some-
thing about our ideas about commission regulation.

Mr. WARREN. All right ; you may go right ahead.

Mr. SCHADDELEE. Mr. Chairman and members of the commission,
I have never held public office. I do not aspire to have public office.
Hence, I will address myself to you and not to the proletariat on the
floor, because they know more about these matters than. I do.

Mr. WARREN. I hope you are not reflecting on any fellow-citizens
of mine from Massachusetts, Mr. Schaddelee. [Laughter.]

Mr. SCHADDELEE. During February, 1918, the President, the Sec-
retary of State, and the Comptroller of the Currency of the United
States issued an open letter urging the various rate-regulating bodies
to give prompt and adequate relief to the utilities under their juris-
diction, where need for relief was reasonably shown. The primary
purpose of these appeals by the Government was to enable these
utilities to function efficiently and adequately in response to the
enormous increased demand for utility service caused by the condi-
tions created by the war. The Government realized the vast im-
portance of this in its prosecution and winning of the war.

Previous to this time the utilities as a whole had patriotically and
enthusiastically responded to the demands for increased service and
facilities, and many had strained their credit to or beyond the break-
ing point in raising the vast sums needed for additional service,
facilities, and equipment. The interests of the investors were rele-
gated as of secondary importance to the winning of the war and to
patriotic duty.

In August, 1918, a street-car company filed with a State com-
mission a rate schedule providing for a 6^-cent car fare to replace the
existing 5-cent fare. After a so-called valuation of the visible physi-
cal assets of the company by the engineers, a long-drawn-out audit of
the books by the auditors, and after several hearings the commission
finally decided, on July 9, 1919, that the company did not need relief.

Mr. WARREN. When was the petition filed ?

Mr. SCHADDELEE. The petition was filed in August, 1918.

Mr. WARREN. That was about 11 months back?

Mr. SCHADDELEE. Yes; a little over 11 months. Thus the idea of
promptness of this commission in a decision in one year's time from
filing of application, and its idea of adequate relief is no relief at

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 859

all. This is given merely as a very recent illustration of the failure
of some commissions to be responsive to even national emergencies.
The street railway company in question, however, spent during 1917
and the first six months of 1918 a quarter of a million dollars for
new cars and additional equipment to take care of the war needs of
the community, which resulted in the manufacturers being able to
take on all war contracts secured. The company considered the needs
of the Government and the community first, trusting in the fairness
and justice of the commissions to give it prompt and adequate relief
in the matter of rates. Some commissions' laws make it mandatory
for the commissions to inquire into the reasonableness of rates and
the conditions of utilities, on their own initiative, while others em-
power the commissions to initiate investigations. I do not know
of a single case where a commission has ever exercised this initiative
power.

The failure of commissions and other rate-regulation bodies to ad-
equately protect utilities and grant them the relief necessary to
enable them to maintain good and adequate service, as exemplified
by the present condition and future prospects of the electric rail-
way's is, in my opinion, due to the personnel of these commissions,
their manner of appointment, and the influences they are subject to
much more than the laws themselves. The object of the people in
passing these laws through the legislatures of. the various States
was to insure the public good and adequate service at rates reason-
able and fair to both the customers of and the investors in these
utilities. Ultimately, a fare that is not adequate or fair to the
utility is not fair or adequate to the public, for the reason that
an inadequate fare results ultimately in inadequate service and
facilities.

I am sure the American people desire that the utilities serving
them shall be empowered to collect a charge or fare that will enable
them to earn their fair and reasonable operating expenses, taxes,
depreciation, etc., and in addition a sufficient rate of net return
on their investment to make the investment in street railways at-
tractive to the investor. The people know that only on that basis
will the street railways be able to extend and improve their prop-
erties, and have them keep pace with, or abreast of, the growth of
the communities, and the increasing demands of the public for more
adequate and superior service.

Previous witnesses have given your committee a comprehensive
statement of the present deplorable conditions existent in, and the
even more alarming future confronting the electric-railway industry.
They have reviewed the many factors that are responsible for this
present status.

The program committee, as I understand it, desires me to analyze
the basic reasons as to why the various regulating bodies, especially
the State commissions, have failed to accomplish the objects for
which they were created, viz :

First. To regulate these companies in such a manner as to enable
them to continue to render reasonable and satisfactory service to
the public.

Second. To enable them to obtain the monev needed to make ex-
tensions and improvements required by the growth of the communi-
ties and the increasing use of service by the public.

860 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Third. To enable them to earn a reasonable return on their invest-
ment.

Of all the factors to which the present critical condition of the
electric lines has been attributed there is only one against which the
commissions can not afford us protection. This single exception is
the competition of the private automobile, and this factor is the one
that, in my opinion, is least responsible for our critical illness. The
automobile has fastened the riding habit on the public, has accus-
tomed it to rapid transit and thus has been rather beneficial to us
than otherwise.

The electric lines which I am connected with or have knowledge of
are collecting more street-car fares now than ever before. Our gross
business is very satisfactory and will continue to increase if we re-
ceive enough money to restore our credit with the investors.

The electric railways are not sick and will not die by reason of
being economically or evolutionarily obsolete, or superannuated, nor
by reason of natural decay. If these were the causes of our illness,
or if we were threatened with extinction by a superior mode of loco-
motion that can better perform our functions under the same restric-
tion as to fares, and under the same requirements as to service, taxes,
etc., then in that case it would be useless to ask or request for relief.
For no private interests can successfully resist real economic
evolution.

Electric railways are now more necessary to, and enter more inti-
mately into the social and industrial life of our urban, suburban, and
interurban population than ever before, even if a small percentage of
this population is not now as exclusively dependent upon electric-
railway transportation as it was 10 or 20 years ago.

The automobile has been a great factor in relieving congestion in
cities by encouraging suburban and interurban residence. These
people feel that the automobile makes them independent of the elec-
tric lines, yet they will use them habitually, using their car or our
cars as their convenience or caprice dictates.

No, gentlemen, the present critical illness and the impending death
of the electric lines are not due to natural causes.

We are ill, even unto death, entirely by reason of an artificial cause
and that is : Insufficient financial nourishment.

If you agree with me so far, especially as to my diagnosis, then you
will also agree with me that there are two remedies that can effect a
permanent real cure, viz :

First. An adequate increase in the quantity of our financial nour-
ishment, or,

Second. An adequate decrease in our output of energy, which
means in our service.

A cure is possible by an adequate increase in our fares alone, but if
a decrease in service is to be employed as a remedy, it must be admin-
istered in combination with an increase in fares in order to effect a
real cure.

A man who suffers from lack of sufficient food does not need medi-
cine. He needs a sufficient quantity of food. That is what we need
and must have if we are to survive.

State commissions were established because the people were dis-
satisfied with the results of utility operation under franchise restric-
tions or under regulation by local municipal councils.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 861

The people did not enjoy the spectacle of these franchises or the
regulating ordinances of their councils being made and dictated
largely by local political and factional interests. The American
people, especially the American worMngmen, are intelligent and have
a passionate desire for fairness, justice, and fair play, and they can
be depended upon to be on the side of right and justice once they
thoroughly understand the merits of a controversy or proposition.

They do not like to see a purely economic problem, affecting their
personal and vital interests, degenerate into a political problem and
become a political football.

Whatever the intent or motives were of the legislature who enacted
these laws, I am convinced that I have stated accurately the motives
and intent of the large majority of the people.

The people knew that the political manhandling of utility prob-
lems nearly always inflicted injustice upon either the public or upon
the utility and often upon both.

They were convinced that no modus vivendi could be thus estab-
lished that would be fair and equitable to both parties.

Regulation of utilities was n-eessary, the people felt, not only for
their own protection but also for the protection of the utilities.

The people were convinced that such regulation must be done by
men possessing the experience, education, judicial temperament, in-
tegrity of character, and absolute fearlessness necessary to intelli-
gently and justly exercise such regulatory power. Therefore, the
people established these State commissions with practically unlim-
ited power and authority over the utilities.

I am sure that your committee is now convinced that these com-
missions as a whole have wholly failed to live up to expectations and
the intent of the people in establishing said commissions.

Inasmuch as the commissions were given unlimited authority, they
must now assume full responsibility fqr their failure. Xo man
accepting authority can escape or deny responsibility. The one
implies the other.

We must now examine into the reasons of the failure of these
commissions to attain the object for which they were established.

The CHAIRMAN. The commission feels that it will derive just as
much benefit from your testimony if you will file your statement.

Mr. SCIIADDELEE. All right.

The CHAIRMAN. And then just tell us briefly what your experi-
ences have been in dealing with the commissions.

Mr. SCIIADDELEE. All right. That is very satisfactory.

The CHAIRMAN. I think that will work out very well and give
you a double whack at it.

The statement continues as follows:

Before doing so, allow me to emphasize that throughout my entire paper I
have in mind those companies that are well operated, economically managed,
and honestly financed. It is not my intent to hold the commissions responsible
for utility companies' ills that are due to inefficient management or reckless
financing.

The results of these must he borne by the companies themselves, and it is
the duty of the commissions to see that the people are not made to suffer from
them. If there are any such companies, I am sure they are very few in number
and need not be considered here.

The failure of the commissions to function effectively is due to many and
widely different causes.

862 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

All commissions have done some good work and there are many able,
conscientious, capable, and fearless members on these commissions.

I have no grudge against any individual member of a commission nor are
my criticisms or remarks addressed to the commissioners as individuals.

I am considering each commission as a separate body and all the commis-
sions together as one unit.

Also, I am convinced that the failure of the commissions can not be laid at
the door of any individual commissioner. We are not dealing in personalities.
We are dealing with complete governmental bodies or departments, if you will.

The main reason for the failure of the commissions to function effectively
is the fact that they have not been immune from political influence as the
people expected they would be.

This summer, in at least two States, to my personal knowledge, numerous
bills were introduced to either abolish these commissions or otherwise to
greatly curtail their power. In one State the commissioners were compelled
to defend themselves against the most ridiculous charges prepared against
them by municipal officials and contemptible, self-seeking politicians.

The mayor of one city bitterly and unjustly attacked the commissioners,
and then sought reelection as mayor shortly afterwards, appealing to the
people to vote for him and he would see to it that the commission would be
abolished, that car fares would not be raised, etc.

In the primaries this man was snowed under, being the low man of three
candidates. Which indicates how the people feel about these matters.

These commissioners are but human. As a rule they like to retain their
positions, and under the conditions cited they can not be expected to make
purely judicial decisions, without fear or favor.

If they are to function effectively, they must be absolutely removed from
political influence and they must be secure in their tenure of office as long as
they execute their duties ably, justly, and fearlessly.

Under present conditions the commissions have no backbone, they have no
courage, they are not free agents. They are much more influenced by what
the local politicians and officials are saying than by what the people are
thinking.

They hear the vaporings of designing politicians, but they do not know
what the people are thinking.

The local politicians themselves are usually entirely wrong as to what the
people desire in these matters, as they are much more influenced by what
50 people tell them than by what 50,000 people do not tell them. The great
majority of the American people do not spend their time telling local poli-
ticians what their ideas are on these subjects.

The local politicians are usually wrong in their interpretation of the
people's attitude on these matters and the commissioners are unduly in-
fluenced by the local politicians.

The commissions show by their actions and decisions that they are con-
sciously or unconsciously dominated by the theory that their duties are much
more largely toward the people than toward the company, and that the people
established them mainly as rate-reducing bodies instead of rate-regulating
bodies.

Rate increases were practically unknown before the war and the habit of
reducing rates like other habits is not easy to break.

Rate reductions have been made with more alacrity than rate increases.

Reduced rates are put in effect for indefinite periods. Rate increases are
authorized for one year or for six months, and the companies are required
to file quarterly or monthly statements with the commissions and with the mu-
nicipalities, so that as soon as the company shows its head above water, a
properly administered kick will again submerge it.

These conditions have paralyzed all incentive to economy in the utility
business, and no staple financial conditions can be created until they are
remedied.

The biggest handicap to a utility is to appear before a utility commission
with a record and data showing effective operation and careful, economical
management.

You will receive verbal commendation but a lower rate than another com-
pany not so well operated or managed.

There is really now no incentive to economy, nor any incentive to spend
efforts and money to stimulate expansion of the business.

If you spend money in improved equipment to effect material economics in
operation, and thus increase your rate of return over the 6 per cent or 7 per

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION, 863

cent allowed you, the commission will eventually confiscate this excess and
maybe more, and will also confiscate part of the capital you have invested to
procure these economics, fixing a so-called depreciated value on the property
representing this capital.

In applications for increased fares or rates the commissions examine too
much in the past and not enough in the future or present.

They are willing to base their decisions on anticipated decreases in the cost
of labor and material, but never on anticipated increases in the cost of these
items.

They apparently do not realize that a man's condition during the last
year or last five years does not affect his need for prompt treatment and
relief if he is sick now. If a man is hungry to-day you can not withhold food
from him, while you spend six months or longer investigating whether he
had sufficient food during the last year or last five years.

Yet. that is the usual method of commission procedure. That was the basis
of the decision I mentioned at the beginning of my paper.

Neither they nor the War Labor Board seem to understand that there is a
physical law which is also an economic law, viz, that the total outgo can not
be in excess of the income. That is the reason we denied the right of the War
Labor Board to fix the wages we shall pay unless they or some other authority
can at the same time regulate our income to enable us to pay the increased
wages.

Yet my sympathies are all with our workingmen. They have been and are
now in the same position as we are, or nearly so.

The local authorities and the commissions must be made to realize that
if they withhold prompt and adequate relief from us, they are also withhold-
ing prompt and adequate relief from our workingmen and all of our employees.

They must be made to realize that commodity prices have not yet reached
the top, and that, under our economic system, the price of labor follows the
upward trend of commodities and does not precede it, while on the downward
trend the reverse is true. So we are facing increases in the cost of labor ;
labor must have and is entitled to increases, and both the people and their
representatives, as well as labor itself must recognize that the real em-
ployers of labor who must pay these increased wages are the patrons of these
utilities.

The duties of commiasions to the utilities and to the people are not fulfilled
if they allow them enough to keep the breath of life in them ; if they allow
them not enough to live and too much to die.

They must be liberal in the rate-making basis they fix for them, liberal in
the rate they allow them ; prompt in granting relief where reasonably shown
it is needed, and then exact first-class service and aJl necessary improvements
and extensions.

The utilities and capital will respond to this kind of a program and the
people will support it. The fact that a commission decides that a 6 per cent
or 7 per cent investment is reasonable does not compel an investor to accept
that view and cause him to invest his money on that basis.

Commissions have apparently acted on the theory that if they say a 6 per
cent or 7 per cent is reasonable that this became law to the Investor.

Neither the commissions, nor the legislatures, nor Congress, nor the courts,
nor the President, can compel the flow of capital in directions where capital
does not desire to go.

This is also nn economic Inw that the commissions must take cognizance of
and act upon. The solution of our problem lies in the establishment of mutual
confidence between, not only the people and the utilities, but also between the
commissions and the people. The spirit of mutual confidence must pervade the
relations of all fhese three parties.

If both the companies and the commissions will cultivate closer relations
with the people and take them into their confidence our problems will be finally
solved and solved right.

I have great confidence in the common people and their high sense of .justice
and fair piny, but very little in the political demagogues that infest every com-
munity in H more or less degree, either holding or aspiring to office.

Where there Is real antagonism on the part of the people against the utilities,
the blame can be put usually on political demagogues or on the companies
themselves, or on both.

The politicians, demagogues, nnd newspapers often succeed in inciting hos-
tility In the people against Certain utilities when there is no real reason for

864 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

such hostility. This Is because they talk to the people very much ami the
utilities talk to the people very little.

The utilities and the commissions are more influenced by the politicians than
by the people, because the people in these matters are inarticulate, while the
politicians are very much articulate.

Mr. WARREN. What was the name of the company that you refer
to, Mr. Schaddelee ?

Mr. SCHADDELEE. Of the railway company ?

Mr. WARREN. Yes.

Mr. SCHADDELEE. They were the Tri-City Eailway Co. of Illinois
and also — there are two companies involved, although they are owned
by the same people, the Moline Eastern & Rock Island Traction.

Commissioner BEALL. Were you with the company when it was the
old Davenport, Rock Island & Moline?

Mr. SCHADDELEE. No.

Commissioner BEALL. Now called the Tri-City ?

Mr. SCHADDELEE. No. There are two companies existent now. I
am talking about two companies now.

Commissioner BEALL. The Tri-City used to be the Davenport,
Rock Island & Moline, years ago.

Mr. SCHADDELEE. That was before I had any connection with it.

Mr. WARREN. How long have you been connected with these com-
panies ?

Mr. SCHADDELEE. We have owned those companies since 1912.

Mr. WARREN. And the commission to which you referred was the
Illinois Commission?

Mr. SCHADDELEE. Yes.

Mr. WARREN. Have you had any other similar experience with the
Illinois Commission involving what seemed to you unreasonable de-
lay in a rate question ?

Mr. SCHADDELEE. Yes. We have had questions of increased rates
on gas and electricity that were, in our opinion, unnecessarily
delayed.

Mr. WARREN. How long were they delayed ? I mean how long did
it take to get the decision from the time you filed the petition ?

Mr. SCHADDELEE. Well, I do not remember in the gas case. It must
have been over six months.

The CHAIRMAN. Has that been during the war time ?

Mr. SCHADDELEE. Yes.

The CHAIRMAN. Is it not a fact that most all gas and electric and
railway utilities have been applying for increased rates from the
Illinois Commission and other commissions during the war?

Mr. SCHADDELEE. Yes, sir ; a good many of them have.

The CHAIRMAN. And do you know whether they have been simply
overwhelmed with the number of applications and hearings ?

Mr. SCHADDELEE. That is true.

The CHAIRMAN. In view of that fact, do you think that they have
been unduly tardy in making the decisions in which 3rou have been
interested ?

Mr. SCHADDELEE. Yes, sir. I believe that under the emergency ex-
isting that the utilities commissions could very well and properly
have got us rates without going into all this question of physical
valuation, and in this case they spent months and months.

The CHAIRMAN. Did the Illinois Commission make a valuation of
your properties before they decided it ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 865

Mr. SCHADDELEE. Yes.

The CHAIRMAN. In the war times?

Mr. SCHADDELEE. Yes.

The CHAIRMAN. In each case?

Mr. SCHADDELEE. Yes.

The CHAIRMAN. How long did it take them to fix the value of your
property ?

Mr. SCHADDELEE. Well, we had our hearing in our railway-fare
case completed in about six months, and then it took them six months,
apparently, to digest the information and write up the opinion.
Xow, the question is, you know : What would you think of a doctor
who would take a year for him to find out whether you were sick
or not when you applied for relief and medicine ?

The CHAIRMAN. What relief did the commission grant you ?

Mr. SCHADDELEE. None at all ; and the reason they did not grant us
relief, they found that, during the last five years and during the
calendar year 1918, taking the year as a whole, that we had been
in fairly good condition.

The CHAIRMAN. Had you laid up a large surplus?

Mr. SCHADDELEE. No; not a surplus; but they said that we had
earned — the first thing they did, they reduced our valuation. They
cut down the depreciation that their own engineer had figured and
gave us 2 per cent depreciation on a street-railway company. And
notwithstanding the present high cost of materials and lat>or; and
of course, by sufficiently reducing the depreciation allowance and re-
ducing the valuation of the property, you know, you can always
finally arrive at a figure where you earn nothing on it.

Now I tell you, I don't blame these commissioners so very much
for that; but the trouble, you know, with these commissioners is
that they are not secure in their tenure of office. In my opinion these
commissions can never function properly unless they are ap-
pointed for life like Supreme Court judges are, so they will not be
afraid of losing their job. Unless they are financially independent
they can not help but be subject to local political influence, and in
my opinion these commissioners as a rule, as bodies, are much more
influenced by what they hear from local politicians than what they
can learn from a stack of evidence you present to them a mile high.

The CHAIRMAN. Is it true that there was a very considerable
agitation sprung up in Illinois during the last year for the abolish-
ment of the commission, due to the large number of increased fares
that they had granted to the companies ?

Mr. SCHADDELEE. No; I do not believe that had so much to do with
it. There has not been so much increase in fares. The only thing
they have given us is a small increase in gas rates and no increase
in street-railroad rates at all. No ; the trouble with the commissions
down there is some of the contemptible politicians and demagogues
who had made unwarranted charges and attacks against some of the
members of that commission which were entirely untrue and false.
And I want to say that those commissioners were called upon to
defend themselves before the Legislature of Illinois against those
charges of these men. These men are not free agents in considering
the question of regulation any more.

866 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Another thing, in Illinois there is to be a constitutional convention
next October, and the home-rule advocates are just laying for that,
and their idea is to frame that constitution in such a way as to
abolish the commission; and the commissioners know that, and are
afraid they are going to lose their jobs.

The CHAIRMAN. The home-rule people are going to insist upon
franchises with a maximum fare of 5 cents; are they not?

Mr. SCHADDELEE. I do not know about what their idea of the
maximum fare is to be at all. But now that is the situation. You
can not blame them. You take a man that is not financially inde-
pendent, with a fairly decent job, and a family to support; he
knows that if he does his duty fearlessly he is in danger of losing
his job by the machinations of those politicians. You can not
blame him if he is a little bit careful about the exercise of his power.
I would not blame him very much. But that is the proposition.
You have to put these men in for life, in my opinion, and it would
be still more desirable if you could appoint men on these commis-
sions if they were from some other State.

Mr. WARREN. Your remedy would be to appoint them from an-
other State for life and the opposition want to abolish them alto-
gether ?

Mr. SCHADDELEE. Altogether; yes, sir.

Mr. WARREN. Which do you think is more likely to prevail?

Mr. SCHADDELEE. Well, I am not telling you which is more likely
to prevail. I am just telling you something of the things that are
necessary if you are going to have courageous and fair and just
regulations.

Mr. WARREN. Supposing that you can not get the appointment for
life, is there any other suggestion you could make that would pro-
duce what you consider a more satisfactory situation?

Mr. SCHADDELEE. Well, it is pretty hard to suggest any other way
than by removing the political factor.

Mr. WARREN. Are they appointed by the governor?

Mr. SCHADDELEE. Yes.

Mr. WARREN. They are not elected by the people?

Mr. SCHADDELEE. No ; they are appointed by the governor.

Mr. WARREN. What is their term ?

Mr. SCHADDELEE. I think their term is four years, as I remem-
ber it.

Mr. WARREN. Now, this is the Illinois Commission you are dis-
| cussing?

Mr. SCHADDELEE. Yes.

Mr. WARREN. Have you had any other street-railway case before
that commission ?

Mr. SCHADDELEE. No.

Mr. WARREN. How about Indiana — 'have you had any rate case
there?

Mr. SCHADDELEE. We had electric rate cases there, but no street-
railway cases in Indiana.

Mr. WARREN. What was your experience there?

Mr. SCHADDELEE. Well, our experience has been a good deal like it

has been in Illinois ; that the first thing when you tell them you are

{ sick they say, " We will have to investigate and see whether that is is

true or not." Then it takes them a long time to find out whether you

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 867

are sick or not; and in the meantime the patient is getting worse all
the time and it takes more medicine to make him well again, and the
longer you wait the worse it gets.

Mr. WABSEN. Have you had any rate cases in any of these States
during the war in which relief was given you without any valuation
and appraisal?

Mr. SCHADDELEE. No.

Mr. WARREN. You had had an appraisal in every case?

Mr. SCHADDELEE. YeS.

Mr. WARREN. Could you tell this commission what the shortest
time was in which any decision was rendered ?

Mr. SCHADDELEE. Well, I do not remember, but I am sure we never
had any decision in less than six months' time.

Mr,. WARREN. Nothing less than six months?

Mr. SCHADDELEE. Xo.

Mr. WARREN. Is there anything else you want to suggest apart
from what is in your paper ?

Mr. SCHADDELEE. Yes. There are some things I would like to call
to the attention of the honorable commission.

One of the wrong policies of these commissions, you know, is the
fact that when they are asked to increase the rates they are concerned
a whole lot with the past but very little with the future, and very
little with the present. Now, you know a man's present needs are
practically not influenced by his past condition. Because a man was
a millionaire six years ago, if he is hungry to-day he has got to have
food now, and the fact that he was a millionaire two or three years
ago will not appease his hunger now. They do not realize that,
apparently. They also do not seem to realize the very simple eco-
nomic law, which is also a physical law, that the outgo can never
exceed the income. But they seem to have the idea that the public
utility men are much smarter than anybody else and that thev can
evade those laws.

There are some things that were said here that I do not agree with,
and I just want to give you gentlemen some other ideas and some
new ideas about a few things.

You have heard a lot about the jitney competition. Well, we have
had jitney competition in past years, too, and the only reason that we
had that competition is because the politicians and the public officials
allowed those jitneys to compete with us on an uneven and unfair
basis. I am not afraid of jitney competition if you put on those
jitneys the same burdens you put on us; not a bit. I told one of
our council when they had the jitney competition up, I says, " I will
stop the street-cars for a month if you say so, and let the jitneys do
all the business. Then we will stop the jitneys a month and we will
do it all. You can be your own judge as to which is the better mode
of transportation.

You know what we want is justice and fairness, and jitneys or any
other mode of locomotion is a revolutionary mode over our system
of transportation. We can not prevent that going into effect. There
is no private enterprise that can oppose or retard to any extent the
working of an evolution in transportation. We might just as well
lay down, but I do not want to lay down unless the competition is
fair.

868 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. Is there any regulation of jitneys there?

Mr. SCHADDELEE. Well, the court has regulated them out of busi-
ness.

Mr. WARREN. The courts have?

Mr. SCHADDELEE. Yes; and that is another thing where the com-
mission failed to do its plain duty under the law. The Illinois law
says that nobody engaged in the transportation of persons in Illinois
can engage in that unless they first have a certificate of convenience,

Mr. WARREN. From the commission ?

Mr. SCHADDALEE. Yes, sir ; and that is the duty of the commission —
to enforce that law. They never made any effort to enforce it.
Finally we got them after long work, and after keeping at it all the
time; they finally issued an order teljing them to desist. Do you
suppose they desisted? Not a bit. They increased. They did not
care for it — they were nothing but a lot of outlaws — and as long as
they could operate as outlaws they could stay. The minute they
were compelled to abide by the law they could not live. Any outlaw
can live as long as nobody interferes with him.

Mr. WARREN. What did you do — go to the court and get an order
to enforce the commission's order?

Mr. SCHADDELEE. Yes; we got a blanket order. I do not know if
any court has ever issued an order of that kind, but we got it. And
there are no jitneys now and there won't be any more down there.
If they do come, we will take care of them.

The CHAIRMAN. Do you not think it was a good thing for the
people to be fed on jitneys for a while so as to have the full experi-
ence?

Mr. SCHADDELEE. Well, I had no objection to their being fed, but
we had objection to the nourishment to feed them being withdrawn
from us; that is what we objected to. Those jitneys, you know, in
the wintertime when the snow was on the ground — there would be 2
feet of snow on the ground and the jitneys would not run until
we had cleared the snow from the streets, and then the jitneys would
go right ahead of our street-cars and take all our business away from
us, and then they say the street-car company has a competitor. That
is a fine competitor, that is.

Now, another fallacy that a lot of people seem to be laboring under
is that the people of the United States are opposed to increased rail-
way fares, increased gas and electric rates. There is no such thing
at all ; it is not true at all. They are not opposed to it. The poli-
ticians are opposed to it. We had a case or a popular election to
get a 6-cent fare, and carried it in Grand Rapids, Mich. I am not
connected with the railways there and have no interest except to pay
my fare when I use their cars ; but the commission down there hap-
pened to have some courage, and when the company made application
for an increased street-car fare they had a perfect right to pass the
buck on to the people, but they said, " No, the price of coal has been
raised, the price of everything, of furniture, of meat, of bread,
everything has been raised, and the people did not have to vote on
that. The utilities did not have a vote when the price of coal was
raised, not at all." So this commission said, " Well, why should this
poor street-car company go to the people and have the people vote
whether they shall have an increase ? " So they said, " We will do it

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 869

ourselves," and passed an ordinance giving the street-car company
a 6-cent fare. All right. Then some of these municipal-ownership
fellows got busy ; they started a petition. They wanted to have that
under the referendum provision of the Grand Rapids home charter
referred to the people, but they could not get enough people to sign
it, so they dropped their petition.

Commissioner BEALL. No ; they reduced the fare, did they not ?

Mr. SCHADDELEE. No ; that was later on. The present commission
has had some changes since that happened last fall. I live in Grand
Rapids. I know what is happening in Grand Rapids.

Now another thing I want to tell you. In Cadillac

Mr. WARREN. When you refer to the commission in Grand Rapids
do you mean the State commission?

Mr. SCHADDELEE. No.

Commissioner BEALL. This was the State commission. They re-
duced it afterwards.

Mr. SCHADDELEE. For a month only, as a trial.

Commissioner BEALL. Well, we do not know what it will be.

Mr. SCHADDELEE. Well, I know what they did. They said it was
for a month, they were going to try the 5-cent fare in order to see
whether the theory that under a 5-cent fare people would ride much
more often would be true, or the increased riding would compensate
enough to take care of the earnings that they got under a 6-cent fare.
That is what they are trying out. They are going

Mr. WARREX. Was this the same commission that raised it?

Mr. SCHADDELEE. Well, it was somewhat the same commission,
but there have been sorae changes which have taken place.

Mr. WARREX. There has been an election between?

Mr. SCHADDELEE. Well, there has not been an election, but there
are commissioners down there and they have some rights among
themselves to change the powers of the commission. One of the
men who is quite dominant down there has always been opposed to
public-utility companies, and I think he is responsible for it. But
the people would not sign in sufficient numbers to have it subjected
to the referendum.

We had another experience in Cadillac, Mich., where we had a
franchise for $1 gas. A year ago the people voted us a new fran-
chise for 30 years giving us 25 per cent increase in gas rate, and we
carried that franchise 9 in favor to 1 against that franchise. That
gives another indication how the people think about it. And last
week, or two weeks ago, the city commission of Cadillac gave us
another 25-cent increase in gas rate, passing an ordinance giving us
another 25-cent increase in gas rate, and the commission had adver-
tised and invited everybody who was opposed to giving us another
increase to appear before the commission and voice their objections
to it; and when they had their meeting there was one man appeared,
and he had no objections, so they passed it.

The American people — you know, I have an awful lot of faith in.
the American people. If you leave them alone, the American
people will never knowingly do an injustice to you or anyone else.
And if the idea of the commissions is that the way they have treated
these utilities is in line with the desires of the American people,,
then I say that that is a libel on the American people. The Ameri-
can people are all right, but when they are debauched by a lot of

870 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

designing politicians who are used to having too much vocal exer-
cise and not enough physical exercise then there is no telling what
those American people may do; but they will never do you an in-
justice knowingly or designedly — I don't believe. They have never
done it to me.

Now, we had here in the Michigan Legislature — I want to relate
to you some of my experiences there and my views on that in op-
position to some other views I have heard here expressed. In Michi-
gan, the interurbans were confronted with the fact that they were
limited to 2 cents a mile under the State law that was passed many
years ago, so that the only way that those interurbans could get
relief was by a direct action of the legislature itself. When the
legislature met last fall we went down to Lansing — I went down
to Lansing, and that was the first time I had ever been in the State
Capitol in Lansing. We had operated utilities for many years in
that State, and it was with great deprecation that I went down there
to talk to these men. But when I came there, the first thing I saw at
night was a sign in big electric letters, " Welcome." That shows
you how they received me. Well, later on I found that the " wel-
come " was meant for the soldiers, but it encouraged me anyhow.

Well, I went right to the legislature. I appeared before the house
committee, and everybody said, " You can not pass a 2.5-cent fare or
any increased fare through this legislature against these home-rule
men. It can not be done." When I said that we intended to pass a
2.5-cent-fare law and also intended to have the legislature relieve
us from some of these franchise contracts, you know, like 1.5 cents
and 2 cents, they said that could never be done ; but it has been done,
and it is done now, and the legislature not only pussed the 2.5-cent
law in Michigan with a great majority in both house and senate,
but they have also passed a law7 specifically repealing all these fran-

chises and what they call contractual provisions.
When I was talkin

g to the house committee they said, well they
were all convinced that we needed the relief, the interurbans did,
but they said it would be impossible to pass that law and abrogate
and void those contracts. Well, I says, "That is schoolboy talk.
For if you say that we need the relief, if you are convinced of that,
then it is your duty to give it to us. And now you say you propose to
pass a law that will make it impossible for us to get that relief."
Now, you know no sensible men would talk that way, and they were
sensible men and they put it through.

Now those men needed information, and we gave them informa-
tion and I did not apologize to anybody for appearing on the floor
of that legislature, and I don't intend ito do so either. It was our
duty to protect our investors, and no man need to be ashamed of
going to any legislature to protect his company and the interests
that are entrusted to him. It is his duty to do it and no legislature
will be mad at you if you do it; don't you worry about that. They
all listened to me and they got a lot of information ; and that is what
they needed and that is what the commissions need. Here is what
they have said : They say the public-utility people must get in closer
touch with the people. That is true, but the commissions must get
in closer touch with the people and not listen so much to the vaporing
of those politicians, but listen to the people themselves.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 871

We had an occasion in Rock Island where the mayor, who had
been mayor for many years, so many at least that my memory is
not long enough to remember when he was not — but he had been
mayor for a good many years, and he was the main man in attacking
this company because we had an application asking for increased
.rates, and he attacked it most violently. Then he had to run for
mayor and he was on the platform that " if you will elect me I will
see that the street-railway company gets no increase of fare and no
increase in electric rates and no increase in anything, and that they
will spend a lot of money in extending the line/' That is the kind of
a platform he ran on. And in the primaries he was low man of three
men running. That shows you how the people resent that. The peo-
ple are changing their minds about some of these things. If you
can convince the people that you are honest, that you are true to
them, that you are running your business in an economical way like
every business ought to be run, and if they believe that they will
stand by you. But I want to say it is a very hard thing to make them
believe that sometimes, and the reason it is hard to make them be-
lieve that is because a lot of the other fellows are telling them just
the opposite way, and it is true that these men talk very much to
the public and usually the utilities people talk very little to the pub-
lic, so they get a whole lot more in their ears from the other side
than they do from the public-utilities side.

Mr. WARREN. Is there anything else on your list about street rail-
ways that you want to call to the commission's attention ?

IVIr. SCHADDELEK. There are some other items I can touch upon.
Our street-car business is not going to pot, yoii know. The people
are more dependent upon street-car transportation than ever before,
and I think the automobile has been a lot of help to us on that. The
automobile has given people the habit not to walk, and that is the
reason they use street-cars when automobiles are available. Our
gross business is all right. We have no doubt about our gross busi-
ness, but what we need is a higher rate of pay for the business,
because we are not like the Jews — that can run a big business at a loss
because they do so much of it.

Another reason a good many street-railway companies are not yet
in bankruptcy is due to the fact that there are some strong holding
companies standing back of them and they are putting the credit
behind those companies; that is, they are holding a lot of them up,
and if they were standing on their feet there would be a whole lot
more bankrupts than there are now. That is another thing you have
to consider.

In regard to municipal ownership, I might say this. You know
that this gentleman this morning — I was afraid he was going to be
so enthusiastic that he was going to advocate municipal ownership
of his own business, but. as usual, he stopped before that But he
is not very radical. Lenine and Trotsky are very much more radical
than he is. They are not only advocating municipal ownership of
our business but of his business and also of his Automobiles.

Mr. WAKREX. Who is advocating that?

Mr. SniADDELEE. Lenine and Trotsky. He is not radical at all
compared to those men. They would take his nine automol »iles.

Another fallacy that is prevalent among even the railway men is
that people ride because it costs a nickel and that if it costs more than

872 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

a nickel they are not going to ride. Have you ever heard of an
American citizen foregoing a convenience because it cost more? I
never have. The effect of the increased cost of the ride is going to
be very short lived in my opinion. If you gentlemen give ns the
increased rates, we will take, chances on the people not riding.

In conclusion, I mention just this to your honorable commission-
there are a lot of things I might talk about, but there is no use in
making it too long — but here is one thing I might put up to you :
I think we will all agree that a 5-cent fare was a fair rate generally
five years ago and that was generally five years ago an accepted
street-car fare. All right; the people paid that and nobody kicked
about that. Now I think anybody will agree, without any examina-
tion of physical properties, books, or anything else, that if you start
from the basis that 5 cents was fair five years ago that the estab-
lishment of a 6 or 7-cent fare at the present time generally through-
out the whole country would be just as fair and would not be any
more unfair now that the 5-cent fare was five years ago. And if you
gentlemen could through your influence persuade these commissions
or these legislatures to establish now generally a 6 or 7-cent fare as
a maximum fare, and then let the people, the patrons of any of these
companies, who object to that and think that is too high, lot them
go to their commissions and ask them to investigate whether it is too
high and lower it if it is ; and if the companies are not satisfied with
the 6 or 7 cents, if it is established, if they feel it is not correct, then
let them go to the commission and ask for a higher one. But if you
could do that you could give at least some prompt general relief to
the general situation.

Mr. WARREN. I forgot to ask your position with this street-railway
company. Did you state it?

Mr. SCHADDELEE. Well, I am vice president and general manager
of the United Light & Railways Co., which controls —

Wr. WARREN. You have been with the company since 1912?

Mr. SCHADDELEE. I have been with the company since its organiza-
tion and I have been in the public-utility business since 1891.

Mr. WARREN. Have you been in the street-railway and public-
utility business since 1906 ?

Mr. SCHADDELEE. I have been connected with the street-railway
business since 1906.

Mr. WARREN. Do you know whether the street-railway fares of the
companies with which yon have been connected have been extended
so as to include a longer ride since you have known them ?

Mr. SCHADDELEE. Yes.

Mr. WARREN. Rather generally has that been so ?

Mr. SCHADDELEE. Yes, and the old street-cars have been scrapped
and new ones bought

Mr. WARREN. I do not care about that, but I wanted to cover the
distance they could ride.

Mr. SCHADDELEE. Yes.

Mr. WARREN. Either by building lines or giving transfers and. by
merging different lines?

Mr. SCHADDELEE. Yes.

Mr. WARREN. That is all.

(Witness excused.)

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 873

STATEMENT OF MR. HENRY J. PIERCE.

Mr. WARREN. Your name?

Mr. PIERCE. Henry J. Pierce, Seattle, Wash.

Mr. WARREN. Are you interested in any street railways now ?

Mr. PIERCE. No, sir.

Mr. WARREN. How long since von have been?

Mr. PIERCE. I severed my connection with the street railroad busi-
ness in 1909 ; 10 years ago.

Mr. WARREN. And before 1909 with what street railway com-
panies were you connected?

Mr. PIERCE. I was president for some years of the International
Railway Co. of Buffalo, which serves western New York with street
railroad transportation. I Avas also president of the Netherlands
Tramways Corporation, which owned and operated several street
railroads in Holland — in Haarlaem, one from Haarlaem to Amster-
dam and from Amsterdam to Zantfoordt.

Mr. WARREN. I understand you have suggestions to make, and that
you can state them more quickly without my questioning you. Is
that so?

Mr. PIERCE. Yes.

Mr. WARREN. Will you gc ahead?

Mr. PIERCE. Mr. Chairman and members of the commission, while
I have not been in the street-railroad business for 10 years, as I have
said in reply to Mr. Warren, and while, to use a quotation of Mr.
Quackenbush this morning, what I am to say for that reason is " old
stuff," yet at the same time I have kept in pretty close touch with my
friends in the street-railroad business, more especially so because of
the great interest I took in it previous to 1909, and I have some sug-
gestions \vhich I wish to convey to you, very briefly.

These suggestions relate only to the city street railroads of the
country and not to the subways and elevated of New York or to the
interurban roads.

For over a quarter of a century the people who have ridden on
street-cars have been accustomed to pay the 5-cent fare and they
have come to believe that 5 cents is the value and the proper value
of a street-car ride. And when attempts have been made to raise
the fare to 6, 7, 8, or 9 cents the public have resented it, there is
not any question about that. I ride on the street-cars myself and
have ridden on the street-cars in cities where the fare had been raised,
and I know there is a lot of resentment on the part of the public
because they do not understand it. They have been educated along
the lines of a o-cent rate. Therefore if it is a possible thing to keep
the street-car fare at 5 cents it should be done. I am inclined to
think that it can be done through some readjustment of the relations
that now exist and which have existed between the municipalities
and the street-railroad corporations, and it is along those lines that
I wish to convey these suggestions to you.

I would have the fare a straight 5-cent cash fare, no tickets. I
would abolish transfers absolutely. I would have the municipalities
remit all taxes and I would have the municipalities do the paving.
If that is not enough — I think it would bo enough in very many
cases to settle these difficulties, these very serious difficulties which
1GOC430— 20 56

874 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

confront this industries — but if it were not sufficient then I would
charge an extra 5-cent fare outside of a central zone 3 miles in
diameter.

I would then allow the street-car company 8 per cent upon its
investment, and by its investment, I mean its cost in money that they
have invested, not in any event to be greater than reconstruction
cost, and in that cost I would include as a matter of fairness what
might be termed the replacements of obsolescence in machinery and
equipment which had been made necessary through improvement of
the art.

In 1890 the horse street-cars were scrapped and the electric opera-
tion of street-cars was begun. But the motors were small, the rails
were light, the street-cars were small. In 1895 the original electrical
equipment had pretty much all to be scrapped — it was obsolescent.
Better machinery and better equipment had come in. It had to be
replaced. The same thing took place along about 1900 to 1902. The
street railroads have had to be rebuilt about three times.

Now, those who have invested in street-railroad securities should
not be penalized on that account, and any money which has not been
returned to them which they have still invested in the property
through replacements of that kind should be included in the value
upon which they are entitled to earn.

Then I would have all money, all further surplus beyond that 8
per cent, go back into the city treasury.

I believe that in this way this difficulty would be solved. I
believe that the street-car companies could finance and refinance
their property. I think that they could deal with the bankers. I
think that the people's interests would be protected, the investors'
interests would be protected and everybody would be treated fairly.
I do not think any other way

The CHAIRMAN. The general complaint here for the past 10 days
is that a 5-cent fare will not even pay operating costs.

Mr. PIERCE. Yes.

The CHAIRMAN. How are you going to pay 8 per cent on the capi-
tal and turn something over to the others with a 5-cent fare ?

Mr. PIERCE. Through the abolition of transfers, through the aboli-
tion of taxes, and through the municipality's paying for the paving,
and if that is not enough, through the 5-cent extra fare outside of a
3-mile zone, Mr. Chairman. I do not think it is right, anyway, for
the street-car company to pay for paving in the street, because these
streets or roads came down to us from the olden times as the king's
highway through which the people might ride and walk. The street-
car is the poor man's vehicle, and I suppose 90 per cent of the people
who ride on street-cars are not well enough off to own horses and
automobiles, therefore they have to ride. But the man who has a
horse or an automobile may go through streets without paying taxes.
I think it is only fair in any event that the paving should be clone
by the city.

Now, the only alternative to this, to my mind, would be for the
municipalities to take over and operate the street railroads of the
country. That I consider un-American. That I should very much
dislike to see.

I think the function of government is to govern and regulate, not
to own or operate public utilities. I have lived, in all, perhaps 10

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 875

years of my life in Europe. I have ridden on their railroads which
were operated by government or by municipalities, and I tell you
that I have met a good many czars and a good many kaisers on those
cars. They do not treat the people with the courtesy that our pri-
vately operated street railroads and railways treat them here. It
is un-American and I am totally opposed to it and hope we will never
see it in this country.

I think that is all, Mr. Chairman and gentlemen, that I have to
say.

Mr. WARREN. Mr. Pierce, I am afraid your factors would not be
sufficient if the census figures are reliable ; and assuming that the re-
mission of the taxes and these burdens, although they would furnish
relief, did not prove sufficient, then I understand that your principle
would be instead of trying to raise the fare by a flat increase in the
5-cent territory as at present to 6, 7, or 8 cents, and, as has been done
in Boston, to 10 cents, you would divide the territory into two parts ?

Mr. PIERCE. I would.

Mr. WARREN. You would contract the 5-cent territory to a section
of about 2| or 3 miles — 3 I think }TOU said — in radius.

Mr. PIERCE. I would.

Mr. WARREN. And in the rest of the present o-cent territory you
would make a new 5-cent fare ?

Mr. PIERCE. Yes.

Mr. WARREN. So that the 10-cent fare would apply to the longer
ride and the shorter ride would remain as at present at 5 cents,
whether in the inner or the outer zone ?

Mr. PIERCE. Yes.

Commissioner GADSI>EN. What you really suggest is, in addition to
relieving the companies of these imposts, instead of raising the price
you would cut down the ride ?

Mr. PIERCE. Yes.

Commissioner GADSDEX. Just a commercial proposition?

Mr. PIERCE. Yes.

Commissioner GADSDEX. Instead of a merchant raising the price
of his goods he gives you less of them?

Mr. PIERCE. Yes; and then in abolishing transfers, as I recall, in
1909, and previous to that, about 45 per cent of the street-car rides
in Buffalo were on transfers, and that, of course, would help a
great deal, the abolition of the transfer.

Mr. WARREN. Your suggestion, as a matter of fact, is very much
like what the city of Springfield, Mass., has tried with very satis-
factory results and very little loss of riding, confirming your im-
pression. I am very much obliged to you.

(Witness excused.)

STATEMENT OF MR. FREDERICK DE BERARD.

Mr. WARREN. Your full name?
Mr. DE BERARD. Frederick B. De Berard.
Mr. WARREN. You reside in New York?
Mr. DE BERARD. I do.

Mr. WARREN. Will you tell the commission your connection and
experience ?

876 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. DE BERARD. I am director of research for the Merchants'
Association of New York. My function is the study and examina-
tion on behalf of the association of the very numerous economic
questions of all kinds that come before them for consideration, for
the information of their various committees. My work involves
investigation and study of the legislation which is proposed at
Albany, much of that which is proposed at Washington and very
many of the larger business affairs of the city. We take no cogni-
zance whatever of political questions, except as they are inseparably
connected with economic questions. I have been engaged in that
work for 22 years.

Mr. WARREN. And have you any interest in or connection with
street railway companies or any street-railway company ?

Mr. DE BERARD. None whatever; nor with any public utility of
any kind.

Mr. WARREN. Have you had occasion for the Merchants' Asso-
ciation to study this street-railway question in its relation to the
community ? *

Mr. DE BERARD. I have given considerable study to the street-
railway question, but in connection with other public utilities of
various kinds and in connection with the general study of the rail-
way situation.

Mr. WARREN. Including the steam railway situation?

Mr. DE BERARD. The steam-railroad situation.

Mr. WARREN. And have you arrived at any conclusions, Mr.
De Berard, particularly with reference to street railways which you
think would be of interest or help to this commission ?

Mr. DE BERARD. I have given particular attention to the relative
merits of private and commercial operation of all classes of public
utilities, the principles which govern them all being substantially
identical, and conclusions that may be reached as to one will apply
with practically equal force to all the others.

Commissioner GADSDEN. Before you go into that, you are a mem-
ber of the public-utilities committee of the United States Chamber
of Commerce?

Mr. DE BERARD. I am.

Commissioner GADSDEN. And that committee has had hearings on
street-railroad questions — public hearings; has it not?

Mr. DE BERARD. Yes.

Commissioner GADSDEN. Some three or four?

Mr. DE BERARD. I have attended those various hearings and have
received the benefit of the knowledge of numerous gentlemen, tech-
nical experts, and students of economics who have appeared before
that committee.

The Merchants' Association in the latter part of 1916 directed me
to make a careful study of the question of government ownership, by
reason of the fact that that subject was to be considered by the New-
lands Commission in connection with legislation which was then
proposed for the rehabilitation or change in form of management
of the railroads of the country.

I prepared a rather extensive monograph as the result of the pro-
tracted study which I gave to that subject, in which I developed
somewhat fully the principles relative essentially to efficiency and

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 877

economy as between private ownership and governmental ownership.
That was embodied as a part of a report adopted by the Merchants*
Association and filed with the Newlands Commission, in which re-
port the association took very strong ground against government
ownership, specifically of railroads at that time, but as against gov-
ernment ownership in any form of public utilities.

More recently, in the early part of this year, another special com-
mittee composed of men of very high business and professional at-
tainment was appointed by the association to reexamine the subject
and to report whether in view of the changes brought about by the
war there was any reason for the association to modify the previous
position. That committee made a further careful study of the sub-
ject in which my work was requisitioned and likewise made a report
reaffirming the previous position of the association. Botk of those
have been printed in the form of monographs and I have copies
here that are available for the use of this commission.

Mr. WARREN. Have you given any attention to the subject of the
importance of street railways to the prosperh'y and development and
health of communities?

Mr. DE BERARD. The Merchants' Association has given attention
to that subject but has not made it the subject of specific study ex-
cept in so far as it relates to the industrial prosperity of the city
of New York, and it has examined into the question to some extent
with relation to other communities to supply instances for use in
our study of that subject in New York. The general situation de-
veloped as to that is along these lines: That fully efficient local
transportation is essential to the welfare both social and industrial
of any community. It is essential to the social welfare of the com-
munity that its population be not extremely congested but that it
be distributed over a reasonably wide territory; for several reasons,
both for the sanitary and social well-being of the inhabitants, and
likewise for the industrial prosperity of the business enterprises that
are located there, in order that they may be located in the outskirts
and at the same time have reasonably cheap and regular and efficient
transportation for their working people to reach their places of
employment.

The public-service commission of the first district made a very
considerable study of that subject, particularly, with the result that
its policy was dircted very largely toward the development of a
radial, as distinguishd from a longitudinal, transportation in the
city of New York, in order to make accessible the very large areas
and unimproved lands in the boroughs and in the outskirts of
Brooklyn that were not at that time accessible, and therefore were
industrially useless because the working population could not obtain
access to the areas, nor on the other hand could the industries obtain
sites in the congested parts of the city at a reasonable cost, with the
result that industrial enterprises were locating in other cities where
the economic conditions as to transportation and cheap lands were
most favorable.

So our general conclusion on that subject — although, as I have
said, it has not been the subject of a subject report — our general
conclusion in connection with our study of general conditions was
that efficient and regular and cheap urban transportation is indis-
pensable to the welfare of any growing community.

878 PROCEEDINGS OF FEDERAL ELECTEIC RAILWAYS COMMISSION.

Mr. WARREN. What section did you say the commission had given
attention to in order to reach it ?

Mr. DE BERABD. The outlying territory in the Borough of Queens,
which is very largely undeveloped by reason of its lack of ef-
fective transportation facilities.

Mr. WARREN. That is on Long Island ; is it not ?

Mr. DE BERARD. On Long Island, and large areas in the outskirts
of Brooklyn which could not readily be reached for the same reason.

Mr. WARREN. Have transportation lines been built to that ter-
ritory ?

Mr. DE BERARD. A new system of subways and the extensions of
the elevated lines lying in the Boroughs of Queens and Brooklyn
were built for that specific purpose, for the purpose of bringing into
industrial, and domestic use for habitation areas that were much
nearer the center of Manhattan than were otherwise available.

Mr. WARREN. Have those lines been put in operation, or some of
them ?

Mr. DE BERARD. They are just coming into operation now. They
are in process of construction and the construction has been delayed
by the war, but they are in operation to a considerable extent and
probably all will be in operation within the coming year.

Mr. WARREN. And those lines, as I understand you. have been
built in advance, either of industrial or population development
merely for the purpose of furthering the interests of the city in
further industrial development and in securing housing territory for
the employee.

Mr. DE BERARD. That motive was a very important and possibly
a controlling motive, but not the sole motive. Of course in laj'ing
out the new subways they had to have regard to the existing
population and its demands for better and further transit; but like-
wise studies were made of the undeveloped areas and several of the
lines were run into territory that was practically undeveloped at that
time.

Mr. WARREN. And almost without population?

Mr. DE BERARD. Well, with very scant population.

Mr. WARREN. Yes, I mean compared with New York generally.

Mr. DE BERARD. Yes.

Mr. WARREN. And that was done largely at the suggestion of the
transit commission ?

Mr. DE BERARD. It was made the subject of a very careful study
particularly by Commissioner Bassett, who visited Europe and made
a personal examination and very careful study af the existing transit
system in the principal industrial centers in Europe, particularly
those that are supplied with more modern means of transportation.
I have had frequent conversations with him on that subject, and
although I speak without his authority, I believe that I reflect the
results of the studies which he made and which were an important
element or factor in determining the new rapid transit routes in
which the cities and the companies are investing in the neighborhood
of $300,000,000.

Mr. WARREN. Do you know whether it was proposed to transport
people to and from that territory at the same fare as elsewhere ?

Mr. DE BERARD. The question of advanced rates of fare had not
at that time assumed acute proportions.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 879

Mr. "WARREN. But I mean was the idea to make the fare the same
there as it was then on other parts of the system?

Mr. DE BERARD. I can not speak for the commission in that re-
spect, but I assume that it was tacitly expected that a 5-cent rate
of fare would continue to be universal, because the contracts under
which the new subways were built

Mr. WARREX. Were to be 5 cents?

Mr. DE BERARD. Were to be 5 cents. That is one of the considera-
tions of the contract. But as I have stated, the economic fallacy in-
volved in a universal 5-cent fare, although pretty well understood
by the street-railroad men, had not assumed any very important pro-
portions in the public mind.

Mr. WARREN. I think you said you lived in New York.

Mr. DE BERARD. I do ; I live in Brooklyn.

Mr. WARREN. And you have been a long-time resident of New York
or Brooklyn?

Mr. DE BERARD. Thirty years.

Mr. WARREN. Do you happen to know, as a resident of Brooklyn,
whether since the roads were electrified — do you remember when
they were changed from horse cars to electricity ?

Mr. DE BERARD. Yes.

Mr. WARREN. Was there in connection with that change or follow-
ing it a great enlargement of the possible ride which a passenger
could take in Brooklyn ?

Mr. DE BERARD, Well, I have not made any personal study of
that aspect of the case, but I know, and I believe I may state it
for a generally accepted fact, that as the result of the consolidation
of the numerous small companies in the eighties or early nineties,
the length of haul for a single fare was very greatly increased,
and at the present time one can ride on the surface cars from the
Battery to the upper part of Manhattan, a distance of 13 miles, for
5 cents, and I tliink that on the later extensions of the subway, which
reach from the Battery to Yonkers, some 18 miles.

Commissioner GAD'SDEN. Twenty-nine miles.

Mr. DE BKRARD. Is it?

Commissioner GADSDEN. There is an advertisement in the subway
cars about riding 29 miles for a nickel.

Mr. DE BERARD. Well, they have recently made extensions on the
south ends of the subways which penetrate several miles into Brook-
lyn. I have not had occasion to go into that specifically, but I know
that in former years, 30 years ago, you could get a ride, perhaps the
longest possible ride over a single line of 5 or 6 miles.

Mr. \\ ARREN. That was in Brooklyn or New York ?

Mr. DE BERARD. Either.

Mr. WARREN. Either?

Mr. DE BERARD. Yes; I do not think you could get a 6-mile ride in
Brooklyn at that time, not for a 5-cent fare.

Mr. WARREN. So that there has been an immense extension of the
possible riding since the roads were electrified 25 or 30 years ago?

Mr. DE BKRARD. Yes; primarily as the result of the consolidation
of the numerous very small companies that were attended with very
gvave financial scandals, but which, especially since the reorganiza-
tion of the companies, have been u very great addition to the public
convenience.

880 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. So much so that even if a 10-cent fare were now
charged, it would be possible to ride for the 10 cents much further
than it would have been possible to ride for 10 cents under the old
system of separately operated companies?

Mr. DE BERARD. I think that is true ; but as to the exact measure,
we are very likely within the next few weeks to have a very concrete
object lesson in New York by reason of the. dissolution through re-
ceivership of the consolidation, so that the numerous separate lines
will each be charging a 5-cent fare for passage over their lines; so
if anybody wants to go by the surface lines from the Battery to the
upper part of the island he will have the privilege of paying perhaps
15 cents where he now pays 5.

Mr. WARREN. Is a similar separation of lines threatened in Brook-
lyn, do you know?

Mr. DE BERARD. Yes; the Brooklyn system is made up of quite a
number of separate lines.

Mr. WARREN. Whose legal existence is still continued?

Mr. DE BERARD. They are under lease to a holding company. The
holding company is in the hands of a receiver and the underlying
lines have just likewise gone into the hands of a receiver, so there
is likely to be a dissolution of the companies there.

Mr. WARREN. And the benefit secured a good many years ago may
now disappear?

Mr. DE BERARD. Yes.

Mr. WARREN. I think that is all, Mr. Chairman, that I want to
ask Mr. De Berard.

Mr. DE BERARD. I should like to say a little more, gentlemen, on
the subject of government ownership, if you care to listen to it.

The CHAIRMAN. Five minutes?

Mr. DE BERARD. Well, I can say a little in five minutes but I can
not exhaust the subject.

Commissioner MEEKER. Well, you have a pamphlet here on the
subject.

Mr. DE BERARD. In view of what Gov. Foss said this morning, I
do not think his statement should be permitted to go unchallenged.
There are certain assumptions in the governor's statement which to
me seem entirely unwarranted. Like most advocates of govern-
ment ownership, he assumes that such ownership is the haven and
the relief for the assumed or alleged hardships under which the
public is suffering. Personally I am inclined very strongly to dis-
count the public's statement and its beliefs as to the extent of the
hardships. As Mr. Warren's questions have indicated, the public
have very substantially benefited during recent years by the major
operation of street-railway lines — in the city of New York, at any
rate — through consolidations and extensions whereby the public gets
very much more for its money than it formerly got. There are un-
doubtedly justified complaints as to service, sporadic here and there,
but those are subject to cure by the existing commissions.

But that was not the point that I wanted to make. I do not think
that Gov. Foss's assumption that government ownership is going to
effect a cure for any evils, whether real or imaginary, is correct. On the
contrary, it is going to create a new class of evils. Whether under gov-
ernment ownership or private ownership, the operation of a street -rail-
way is a business undertaking as distinguished from a political func-

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 881

tion, and whether under private or government ownership, it must be
subjected to the same rules that prevail in well-managed business un-
dertakings. It must meet all economic costs that are involved. The
public must pay those economic costs in one form or another. So
the question to be considered is whether those economic costs will be
less under government ownership than they will under private owner-
ship ; whether government ownership will produce equal or superior
efficiency ; whether it will produce equal or superior economy. And
the result of my study as to the application of the principles that
govern both cases is that government ownership will inevitably and
unescapably result in greatly increasing the economic costs of oper-
ating the business propositions that are under consideration.

The CHAIRMAN. Have you set forth your conclusions and the rea-
sons upon which you base them in this pamphlet of yours ?

Mr. DEBERARD. Yes; I have analyzed the question with consider-
able fullness there and have given such illustrations as are pertinent
to the subject. There are other illustrations, however, which could
be adduced, which will show the uniform inefficiency of government
agencies when they undertake to conduct economic undertakings,
by reason of the fact that the methods that are inherent in political
government and which are perfectly sound w:hen applied to political
government do not apply, are not adapted and can not be adapted
to the necessities of economic undertaking. Waste and inefficiency
to a high degree are inseparable from government ownership, pri-
marily by reason of the method of selecting the personnel. And it
comes down to a question of management, and under the methods
of political selection the personnel to which the management is
entrusted is not. and can not be as efficient as that of private manage-
ment, the reason being that the motives that govern the selection are
different in the case of private management. Those motives result
in the retention of the highest capacity of trained skill, of experience,
or long, careful and constant contact with the particular industrial
problems that are concerned and the bringing to bear upon those of
the highest attainable degree of professional expert ability. Whereas
in the case of government selections, other motives always enter into
the selection. I venture to say that Governor Foss would not apply
to the management of his own private business the method of selec-
tion that he applied to the selection of the public service commis-
sion of the State of Massachusetts. If he did so apply it he would
not be running a factory but he would be seeking a job.

The CHAIRMAN. I am sure we would be very glad to hear you
at length on that, but the commission has been here under pretty
steady pressure and we would like to adjourn now until 10 o'clock
to-morrow morning.

(Whereupon, at 10 p. in. the hearing was adjourned to Friday,
July 25, 1919, at 10 a. m.)

WASHINGTON, D. C., July 25, 1917.
Met pursuant to adjournment at 10 a. m.
Present: Parties as before.

The CHAIRMAN. You may proceed, Mr. Warren.
Mr. WARREN. Mr. Chairman, I want to put in, if I may, a letter
from Mr. Samuel Insull, of the Chicago Elevated Railways who,

882 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

owing to certain situations in Chicago, is not able to be present as
lie expected, to address the commission :

CHICAGO ELEVATED RAILWAYS,
OFFICE OF THE CHAIRMAN OF EXECUTIVE COMMITTEE,

Chicago, III^, July 23, 1919.
To THE FEDERAL RAILWAYS COMMISSION,

Washington, D. C.

GENTLEMEN : The demands for increased wages by the employees of the Chi-
cago Elevated lines (of whose board I am chairman) has produced a serious
situation in this city, and as it is impossible for me to leave here to appear
before your commission, I should like to set forth briefly the situation in re-
gard to this property, which serves, together with the surface lines, the trans-
portation needs of the second largest city in the United States.

The increased cost of operation, due to labor and material, has decreased
the earning power to such an extent that the Chicago Elevated lines are barely
able to cover the interest charges on the underlying companies. The Chicago
Elevated Collateral Trust, which owns the stock of the operating companies,
had $14,000,000 notes maturing July 1, 1919, which could not be refinanced and
on which we were unable to meet the interest payment due on the same date.

The Chicago Elevated lines have been a very important factor in the develop-
ment of Chicago and have never earned but a small return on the actual money
invested. The rising costs produced by the war have not been offset by an ade-
quate increase in fare, although the fare was increased from 5 to 6 cents, going
into effect November 22, 1918.

We are faced with the problem of meeting the demands of the men for a
further increase in wage and'changed working conditions at the present time.
The condition which confronts us is illustrative of the electric-railway industry
throughout the countiy, the earning power being curtailed to such an extent
as to destroy the ability of the companies to obtain money or to even maintain
the integrity of their present securities.

Your commission can, I feel sure, perform a signal service to the Nation
as a whole by bringing to the attention of the public the present deplorable
conditions obtaining in the industry and by recommending as an immediate
measure of relief such increase in fares as will prevent the ruin of this neces-
sary public utility and by recommending a comprehensive plan for readjust-
ing relations between the company and the public on a basis that will secure
good service for the public, adequate maintenance of the physical property, and
such a return to capital as will attract it into the business.
Yours, truly,

SAMUEL INSTTLL, Chairman.

Mr. WARREN- I should like to call Mr. Pardee, the president of the
association, for a few minutes to see about the situation of the smaller
companies, many of which are members of the association but,
because of their relatively small size, are unable to come here per-
sonally to state to you their condition, which is very serious.

STATEMENT OF MR. JOHN H. PARDEE.

Mr. PABDEE. Mr. Chairman, I have been requested to present the
question of the small railways, as there are a large number of them
in the United States. Representatives of certain groups have been

E resent here and they have prepared a little statement which they
ave asked me to present to you, representing the small roads :

A considerable part of the electric-railway business in the United States is
located in the smaller cities.

The conditions governing the operation of street railways in these smaller
cities are in general identical with those governing the operation of street rail-
ways in the larger communities.

There are, however, some inherent differences due to the size of the communi-
ties served which make the electric-railway problem in the small cities particu-
larly difficult. Distances of travel being shorter result in fewer rides per capita

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 883

of population. Also, in order to compete with other methods of getting about
and satisfy demands of the public for frequent service even in outlying
sections, it is necessary to operate cars on a more frequent schedule than is
warranted by the number of passengers to be carried. Under the traffic con-
ditions which prevail in small cities it seems that the one-man car can be oper-
ated to particular advantage. All the suggestions made during this hearing for
the general relief of electric railways are applicable to the small railways.
Prompt increase in rates, relief from all unjiist burdens and service requirements,
prompt action by public authorities on applications of the railway company,
cooperation on the part of public authorities, labor and the general public in
the institution of safety cars and other equipment and other methods which
will contribute toward the solution of the difficulties now being faced are urged.
Public authorities and the public should recognize that It is absolutely neces-
sary to eliminate all unjust public and franchise requirements, in order that the
rate of fare may be kept within limits which permit its greatest possible use.

Mr. WARREN. I should like to file with the commission a copy, not
authenticated, but I believe it to be correct, of the State of New
Hampshire law relating to the exemption from taxation of public
utilities, if I may. I will not read all of it, but I want to read section
2, which applies to this particular matter more specifically.

After providing that any company may apply to the public-service
commission for determination, section 2 proceeds as follows :

If said public-service commission shall on or before the 15th day of September
in any year file with the State tax commission a certificate that any such
street-railway property has failed during the preceding calendar year or later
period of 12 months to earn sufficient money to pay its operating expenses and
fixed charges, including taxes and excluding interest on its indebtedess, and to
provide for the necessary repairs and maintenance of its properties and adequate
reserves for depreciation, and that in the opinion of the public-service commis-
sion such property is incapable during the current calendar or fiscal year to earn
sufficient money to pay such expenses and fixed charges, and to provide for
such repairs, maintenance, and depreciation ; then in such case the property
and estate within this State owned or operated by such corporation on its
ordinary business as a street railway shall be exempt from taxation and no tax
shall be assessed against the same for the tax year in which such certificate
Khali be filed.

Then there is a provision for a speedy determination. Section 3 :

It shall be the duty of the public-service commission to determine before the
10th day of September the facts upon any petition filed under the provisions of
this chapter prior to the 1st day of May in any year.

I will hand the whole statute to the secretary.

Commissioner SWEET. What are you reading from, Mr. Warren?

Mr. WAKREN. This is a copy of house bill No. 154, State of New
Hampshire, and I understand that has been enacted.

Commissioner SWEET. It has not yet become a law?

Mr. WARREN. I think it has become a law. I think we should
check that up and get a verified copy of the act, but we will put this
in de bene, assuming my impression is correct.

STATEMENT OF ME. W. E. CREED.

Mr. WAR-KEN. Your full name?
Mr. CREED. W. E. Creed.

Mr. WARREN. You are a lawyer, I think, Mr. Creed ?
Mr. CREED. Yes.

Mr. WARREN. Are you counsel for the California Trans-Bay Elec-
tric Railway Association?

884 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CREED. For the San Francisco-Oakland Terminal Railways,,
•which operate the traction lines in nine cities on the east side of
San Francisco Bay, from Oakland, and also the Trans-Bay service
between Berkeley, Alameda and San Francisco.

Mr. WARREN. Will you state to the commission the electric-railway
situation in California, with special relation to the regulation and
supervision and its effect in this emergency ?

Mr. CREED. I speak with particular reference to the situation on
the east side of the bay. The San Francisco-Oakland Terminal Rail-
ways operate two divisions : One division known as the key divisionr
which runs trains connecting with the ferry system which carries
passengers to and from San Francisco, Oakland, Alamenda, and
Berkeley and outlying territories on the east side of the bay; the
other division is known as the traction division and operates traction
lines in nine cities and the intervening territory.

The position of that company is worse to-day than it was in 1914.
In 1914 the necessity for reorganization was seen and a committee
on reorganization appointed and the work of reorganization has
been going on ever since, the delay being due very largely to the
necessary delay in securing what we call a resettlement franchise,
there being a great many negotiations and some legislation necessary.

Now, I could perhaps best state the situation there by saying the
California Railroad Commission in August of last year granted the
traction division a 6-cent fare, an increase of 20 per cent over the
theretofore fare charged. The gross revenue of the traction division
was approximately $3,000,000 per annum. There was no loss of short
siders as the result of that increase of fare, and the company received
at the rate of $600,000 per annum increase.

Mr. WARREN. You got the full theoretical increase?

Mr. CREED. Yes, substantially the full; in fact, there was an un-
usual situation there. The granting of that increased fare was
thrown on the screens in moving picture theaters and was cheered
by the audiences in several theaters.

Now, the increase from labor alone in two years has been over
$600,000 in the two divisions, and the only increase in revenue which
the company has had has been the increase from 5 to 6 cents and the
10 per cent increase in the key division fares. Instead of a 10-cent
one-way fare, they now have 11 cents, and instead of a $3 commuta-
tion rate they now have a $3.30 commutation rate — that 10 per cent
increase coming through the commission to meet the 10 per cent
increase given to the railroads and to put the key division on a par
with the Southern Pacific Trans-Bay service. Of course in addition
to that labor increase there has been the increased cost of materials
and the increased cost of power, so that the company is showing less
revenue over and above direct operating expenses than it did a year
ago or two years ago or four years ago. Its position has steadily
.'decreased in strength.

I regard the situation there on the east side of the bay as extremely
hazardous for the continuance of the service. I feel the death rattle
is in the throat of those companies and that the only relief which will
be of any service is immediate relief. The company can not wait for
a complete final and perfected solution. It must have more money
to continue that service.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 885-

The difficulties on the east side of the bay under which the com-
pany has struggled are common to all of California. These diffi-
culties as I see them are, first, the 5J per cent State franchise tax on
gross revenues, and that 5^ per cent of course acts as a reducer of
every increase in revenue. Secondly, the old franchise taxes — which
we call under the Broughton Act, which I should say approximately
averaged around 2 per cent — they amount to 1 per cent under exten-
sions, but I think on an average they would amount to 2 per cent, tak-
ing in all cases.

Then the paving tax. This situation has occurred in several places
in California: The pavement which is perfectly good for 10 years
has been changed by the municipal authorities to very high-class
pavement. The pavement being ordered is the very best class of
pavement. Now, that has resulted in abandonment of pavement
which had been paid for by the traction companies, the investment of
a far larger sum of money in the most modern approved pavement.
That has been a very serious burden to the traction division on the
east side of the bay, and also to the key division, because there never
was any reserve to take care — call it depreciation reserve or whatever
you want to — of that abandonment of pavement which had an as-
sumed life, we will say, of 10 years to run, and yet it has been re-
placed by more expensive pavement and an absolute loss of the 10
years of service of the old pavement borne by the company, and it
was an absolute capital loss.

The next difficulty

The CHAIRMAN. What per cent of your operating expenses is paid
out for your paving requirements?

Mr. CREED. I have not looked at those figures for some time.

The CHAIRMAN. I wish you would supply it.

Mr. CREED. I can get them and will have them filed.

Commissioner SWEET. It probably would vary with different years.

Mr. CREED. It would vary with different years; and it affects the
credit of a company so to have these big blows come; there is no
uniformity in it.

The next difficulty, as I see it, has been in the practice out there
of assessing franchises to pay for public improvements like street
widening, and there is some litigation over that; but at any rate the
right is asserted, and that increases the taxes unduly and there must
be some change in that.

Another difficulty is the failure to more rigidly enforce traffic
regulations with regard to automobiles and cut down the accidents.
I believe that with a more strict enforcement of traffic regulations in
the congested areas of the city of Oakland that the expense of ac-
cidents would be materially cut down. I do not think that traffic
regulation has been worked to as high a degree of perfection as it
ought to be.

Commissioner GADSDEN. You would get better dispatch on your
cars, too, would you not?

Mr. CREED. Yes. Another difficulty — and this I regard as a very
serious one — is the demand of municipal authorities for service
beyond the revenue on particular lines and the refusal to permit the
abandonment of lines which have not been justified, thus throwing
a burden on the more profitable lines and a burden upon the system

886 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

as a whole. Because the traction division represents the consolida-
tion of some 9 or 10 companies and the service rendered on that
side of the bay was greatly improved by this consolidation. The
consolidation involved the cost of many heavy abandonments, but
it did give a much better service due to unity of operation and also
a better service for less money.

Under the old condition there people sometimes had to pay 20
cents to get where they can now get for 5 cents or 6 cents under the
increased rate. That was a tremendous advantage to the com-
munity, and the community has built up; the population has fol-
lowed the transportation and the lines, but there are some lines
which ought to be abandoned, and I think the insistence upon too
.much headway on lines which have not an adequate revenue to jus-
tify it is a serious difficulty there.

In a general way I have pictured the situation as I see it. I
think, too, that — if I may go on with just this one other thought
that I have — in California it is essential that there be an adjust-
ment of the entire franchise situation. We have expiring franchises
with forfeiture clauses in them, and it is essential to the reorganiza-
tion of the San Francisco-Oakland Terminal Railways, and that is
now in process of financial reorganization, that the company have
franchises which do not expire on definite periods; and it can not
be soundly reorganized until those resettlement franchises are
adopted. The community has already at a public election expressed
its approval of the idea and progress is being made.

The CHAIRMAN. What is the maximum life of a franchise under
your law?

Mr. CKEED. Fifty years is the longest they have had on that side
of the bay ; some 20 and some 25.

Now, I feel it is essential if that service is going to continue there,
either under the reorganization committee or a private company or
under a receiver, no matter who is going to be responsible for it;
that there be immediate relief in the increase of income.

Commissioner GADSDEN. How much? You have 6 cents now?

Mr. CKEED. Yes, but I do not believe that 6 cents is going to carry
the situation.

Commissioner GADSDEN. How much more would you have to have
in Oakland?

Mr. CREED. I think that the traction company will require 7 cents,
and I feel that the key division must have an increase of approxi-
mately 5 cents for one-way fares and a commutation rate between
$4 and $5.

Let me tell you about that commutation rate. The average haul
by rail and wyater between the east side of the bay and San Fran-
cisco in 9 miles; that is the average. Our commutation rate has
been $3 up to the 10 per cent increase put in by the Railroad Admin-
istration, not applicable to us, but given us to put us on a parity
with the Southern Pacific.

Mr. WARREN. Three dollars would mean how much for the 9-mile
ride?

Mr. CREED. Well, very close to half a cent a mile.

The CHAIRMAN. What do you mean by $3?

Mr. CREED. Three dollars per month.

50ttVC>CEEDIXGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 887

Commissioner GADSDEN. A little over 10 cents a day?

Mr. CREED. A little over 10 cents a day. It is 5 cents each way.

Mr. WARREN. You mean the cash fare is 5 cents?

Mr. CREED. No, the commutation fare; and the cash fare is 10
cents under the old rate. The average distance is 9.1 miles.

Mr. WARREN. And that includes both the traction line and the
boat?

Mr. CREED. Yes. Now, that is the lowest interurban service any-
where in the country that I know of, and the service out there has
been in the past as good as any in the country and it was equaled by
very few. Any of you who have traveled over those suburban or
trans-bay lines have realized it is a very high class of service, and
yet there is, say in round numbers, half a cent a mile for that service.

Mr. WARREN. Now you say you need immediate relief by way of
higher fares, and I should think you did. Why can not you get it?

Mr. CREED. Well, our commission out there has acted with com-
mendable courage with regard to the traction company, and we fin-
ished the case which involved the question of an increased fare in
July or about the 1st of July last year, and in August the commis-
sion granted the 6-cent fare — on the 14th of August. We have not
yet gone to them on the 7-cent fare, but we have pending an applica-
tion for an increase of fares on the key division, and that decision
has not yet come down.

Mr. WARREN. How long has that been pending?

Mr. CREED. Since July of last year.

Commissioner SWEET. The commission you speak of is the State
public-utility commission?

Mr. CREED. Yes; of State-wide jurisdiction.

Mr. WARREN. They have jurisdiction to do it?

Mr. CREED. Yes; they have met the situation in California very
well. Of course, there are a good many complications in connec-
tion with the increase in the trans-bay fare. The question is what
the Southern Pacific, which is a competing service, will do, and
whether the Railroad Administration will go to the same figure, and
also the question of whether we would dare to operate at an increased
fare. I have said we would ; I have taken that position very frankly,
and I do not recede from it. I would rather take the cream of the
business, which we would get at a higher rate, and let the Southern
Pacific Company go on at a lower rate than to continue as we are.
It is better business and also better for the company.

Mr. WARREN. Now regarding these taxes and burdens in the nature
of taxes that cost you money ; suppose they were all removed, that you
have mentioned; you would still need additional fare, or not?

Mr. CREED. Well, that would depend upon what the purchasing
power of the dollar is going to be. I think under present con-
ditions we would need a higher rate of fare than we had in 1014;
yes. But the removal of these burdens I speak of would be a very
material help in maintaining fares toward the old standards of
fares — there is no question about that.

Mr. WARREN. Many of these burdens and taxes I assume, like the
5£ per cent tax, are imposed under statutes?

Mr. CREED. Yes; and constitutional provisions.

Mr. WARREN. So there is no hope of any immediate relief through
that?

888 PKOCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSHJft.

Mr. CREED. No ; it is going to require a great deal of study to work
out the permanent solution for the railway situation there.

Mr. WARREN. Could any substantial portion of those burdens be
immediately removed by the action of any governmental authority?

Mr. CREED. No, sir.

Mr. WARREN. So that for immediate relief those may be dismissed
from consideration, may they?

Mr. CREED. Yes.

Mr. WARREN. And that brings it back to the fare?

Mr. CREED. Yes.

Mr. WARREN. And unless the relief is forthcoming in fares you
think the situation is a very serious one

Mr. CREED. Oh, it is; I know it.

Mr. WARREN. For the continuance of the service?

Mr. CREED. Yes.

Mr. WARREN. What in your opinion could this commission do to
assist the situation of these companies, assuming that it wished to
assist them?

Mr. CREED. Well, if the commission has the power they could
assist us by seeing we get more revenue.

Mr. WARREN. Well, they have not the power to order anything.

Mr. CREED. I know, and using whatever means they have to edu-
cate the people generally as to the necessity of an increase in fare
to save the situation. Now I

Mr. WARREN. Let me ask one other question there. You have de-
scribed the condition of the two particular companies. Is it practi-
cally one interest?

Mr. CREED. Yes; it is a consolidation of a trans-bay service and a
traction service.

Mr. WARREN. Should you say to this commission that substantially
that represented the situation over the State ?

Mr. CREED. I think so ; yes. I think it does in Los Angeles.

Mr. WARREN. So that most of your companies are in need of some
form of immediate relief?

Mr. CREED. Yes.

Mr. WARREN. And the only one you can suggest to the commission
from your acquaintance with the laws and the situation regarding
franchises in California is an immediate relief through increased
revenue ?

Mr. CREED. Yes. There is one other thing I would like to volunteer
to the commission, and that is, I think it would be desirable if the
commission could make some studies and findings regarding the
future rate fixing policies of State commissions regarding utilities
in general or street railways.

I feel, as everyone does, that it is desirable to have compensation
and the rate of fare as low as is consistent with maintaining the
credit and service, but I do think that it is essential that a rate-fixing
policy making adequate provision for depreciation and contingencies
be adopted. I think it requires some educational work to do that. I
think it particularly desirable in particular communities that there
be a uniform fare over a considerable period. I do not assume that
there should be uniformity of fares over the country as a whole, but
I think it desirable that there should be no fluctuation in charges for

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 889

public-utility service over any particular number of years in any
particular zone in the country. The only way to accomplish that, it
seems to me, is to allow these companies to have reserves to take
care of the fluctuation. They must have them. I believe very
strongly in State-wide regulation. I believe the great service that
that has clone has been to control the issuance of securities, and I
think it was essential that that be done, but I think the tendency in
State-wide regulation has been to require companies to give service
substantially at cost. That is, when 3rou take most of the rate cases
which have been decided by commissions, you find they build up the
operating expenses, whatever allowance they make for depreciation,
bond interest and the dividends to the stock which is used for financ-
ing, and then there is a little margin or surplus over, but that margin
has not been big enough to take care of fluctuations in conditions.
And I feel there ought to be very careful thought and study given
to the future policy with reference to reserves and depreciation re-
serves for public utilities and particularly street railways.

These reserves, of course, would be under the direct control of pub-
lic-utility commissions and would be in the nature of trust funds
and their disposition could be controlled by public authority.

Mr. WARREN. That relates to the permanent solution?

Mr. CREED. To the permanent solution, I am talking about. I
think one of our difficulties has been that we have not had those
reserves. Now you take this question of abandoning a street which
has a 10 years' life, and a good useful life of 10 years, and repre-
sents, say '$200,000. That is wiped out and you put in $500,000 in
a better class of pavement. If you had a reserve to take care oi;
those things that loss would not occur, and it seems to me those things
are a part of the cost of what the community is demanding in the
way of service.

Commissioner MEEKER. May I ask « question there? Would you
favor building up a reserve sufficient to take care of the whole
$200,000 which is abondoned before you abandoned the old pavement
for the new pavement ?

Mr. CREED. I do not know that you could make your reserve —
you could not tell what the public authority was going to do; but
there should be a substantial reserve based upon an intelligent judg-
ment of what was likely to be required ; and if it was $400,000 or
whatever it was, the companies ought to be reimbursed for that out
of the revenue, out of the business. They certainly can not main-
tain their credit and stand losses of that sort many times.

Now you see the utilities have been running on a fixed revenue
without much fluctuation until recently, and the operating end of it
has been fluctuating and the burdens of it have been fluctuating
against them — or not fluctuating, but they have been on an increas-
ing scale.

Mr. WARREN. They have been fluctuating up all the time?

Mr. CREED. Yes, not fluctuating but steadily going up. In other
words, I feel the same principles would govern the maintenance of
credit of a utility as would govern the maintenance of credit of any
other business concern. Take the life insurance companies: they
SHved themselves by their reserves, and I remember very well when
those reserves were very bitterly criticized; but yet they are the very

100043°— 20 57

890 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

thing that has saved those companies at this time. And it was with
reluctance that they were allowed to retain them.

Commissioner MEEKER. The reserves should be sufficient so that
the major portion of any replacement should be paid for immediately
out of the reserve : is that your idea ?

Mr. CREED. Yes, sir.

Commissioner MEEKER. And the fare should be so regulated as to
give a sufficient increment to reserve, so that any deficiency not im-
mediately paid for out of reserve could be speedily made up.

Mr. CREED. Yes, and the reserves of course should be treated as
trust funds, quite differently from the other funds of the company.
I mean, they should be impressed with a trust, to be used under the
regulatory body; and if these reserves built up higher than experience,
showed it necessary, they should be used for additions to service
which were not capitalized or for the benefit of the public. But the
possession of those reserves is a protection, it seems to me that is ab-
solutely necessary, or in lieu of that you have to have something
which means a fluctuating charge.

Commissioner MEEKER. Is not that one of the vital points in the
permanent solution of the whole thing?

Mr. CREED. I think so; yes.

Commissioner MEEKER. And is not a great deal of public educa-
tion needed in order to understand just plain bookkeeping?

Mr. CREED. Yes.

Commissioner MEEKER. Or which is sometimes dignified by the
term accounting?

Mr. CREED. Yes.

Commissioner MEEKER. Is it not true — I will put it that way — •
that the public needs to be educated to the fact that these reserve
funds are not the private property of the traction companies but
they are, as you have expressed it, merely held in trust?

Mr. CREED. Trust funds for the protection of the credit and the
service of the agency performing the service, is my idea.

Commissioner MEEKER. And that should be taken into account in
any cost-of-service plan adopted?

Mr. CREED. Yes.

The CHAIRMAN. It has been generally considered, Mr. Creed, that
the California Commission has been a very efficient body.

Mr. CREED. It has — I feel it has.

The CHAIRMAN. And, in studying the different cases that have
came before it, it has attempted to work out economies in service and
secure a rate which would bring in a fair return upon the capital
invested, set aside a proper depreciation fund and things of that
kind. Now during the normal years did not its practice conform to
good regulative experience?

Mr. CREED. I think so. I have a very high opinion of the work
of the California Commission.

The CHAIRMAN. And did not the utilities have a very fair measure
of prosperity in that State?

Mr. CREED. I think so.

The CHAIRMAN. The difficulty you speak of has largely grown out
of the war?

Mr. CREED. Yes.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 891

The CHAIRMAN. With the rapidly increasing cost of labor and
wages?

Mr. CREED. Yes.

The CHAIRMAN. Now, I presume it has been quite difficult for regu-
lating commissions to meet all these applications for advancing
rates because the prices have been shifting so rapidly.

Mr. CREED. It has been extremely difficult.

The CHAIRMAN. Xow the question you mentioned there at Oak-
land: Your railroad is in competition there with the Southern
Pacific ?

Mr. CREED. On the trans-bay service; yes.

The CHAIRMAN. And the Southern Pacific is being guaranteed
a fixed return by the Government?

Mr. CREED. Yes.

The CHAIRMAN. And that particular railroad during the war
period has been actually earning its guaranty, has it not ?

Mr. CREED. You mean the trans-bay service? The trans-bay serv-
ice of the Southern Pacific has been operated—

The CHAIRMAN. Xo; I mean of the Southern Pacific as a whole.

Mr. CREED. Well, I do not knoAv of my own knowledge about it,
but I know their trans-bay service is operated at a loss in Oakland,
and the balance of the railroad service is carrying the trans-bay serv-
ice with which we are in competition. But the Southern Pacific has
been doing very well as a whole.

The CHAIRMAN. The real problem is whether the Railroad Ad-
ministration can increase that trans-bay service and add an addi-
tion to the burden on the people there when the railroad as a whole
is earning a good deal of money?

Mr. CREED. Yes.

The CHAIRMAN. Can you operate on a higher basis than the
Southern Pacific and keep the travel ?

Mr. CREED. I think so. I think there are some territories where
we are not in competition. We lose money on every passenger \ve
carry, and if we carry less passengers we lose less money. I am
not afraid to do it. We will get a selected business, and we will
not lose any money on it. We can give certain service that will
appeal to people and they will pay. We have some business out
there.

Xow, there is just one other thing. You were speaking about the
California Commission, and I think this thing is true all over the
country. We have had an inconsistent situtation in public regula-
tion, due to the fact that the commissions came into existence very
largely after 1907 and they found utilities, street railroads, and
others had been issuing securities on that theory, you see; and the
commissions came in and took control of the issuance of securities
and they fixed rates with reference to companies which had securi-
ties issued in largo part on a different theory from theirs, on the
theory on which the commissions themselves issue securities. And
I have always thought the only thing to do was to treat rate fixing
as a financial question purely and simply, and as an action by
public authority to maintain credit and service and that if they
were unwilling to support the securities which were already out — •
in other words, if they were unwilling to permit the credit of the

892 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

company to go on — that the commissions might just as well frankly
force reorganizations in those securities and cut down the securi-
ties to where they could handle the thing as a whole. Now, we
have had that inconsistency in regulation which I think has been a
very bad thing. I found it in several other classes of utilities where
we have had securities issued and put out in good faith and our
credit depended upon the maintenance of revenue to support those
securities. Now, if you fix rates upon an entirely different theory
and do not kick out those securities you have an entirely different
situation.

The CHAIRMAN. The California Commission has sought to regu-
late the rates so as to bring a fair return on the value of the
property ?

Mr. CREED. Yes.

The CHAIRMAN. And have proceeded to value the property in
very many cases?

Mr. CREED. Yes.

The CHAIRMAN. Do you think that to be a proper basis?

Mr. CREED. Yes; I approve of that; but I think it is merely pro-
ducing a slow death to go on without removing that inconsistency.

Commissioner MEEKER. Do you think the same authority should
regulate the issuance of securities that regulates rates?

Mr. CREED. Yes, sir.

Commissioner MEEKER. Will you explain why?

Mr. CREED. Well, because the credit of a company depends upon
what it earns and its management; and it requires its earnings to
pay its operating expenses, take care of its depreciation, and pay
the obligations on its securities, and I think there is an absolute
close connection between the securities out and the revenue. And
I would go even further than that. I would give the State regulat-
ing authorities the power to control financial structures of com-
panies and control reorganizations. If you are going to have regu-
lation you might as well have it 100 per cent, because those three
things are so intimately connected that you have a constant struggle
unless you have cooperation 'in the issuance of the securities, ap-
proval of the securities already out, and regulation of the revenue
in harmony with those securities.

Commissioner MEEKER. It has been stated to the commission that
the function of protecting the public and the traction company was
something different from the function of protecting the investors.
You think that there is no conflict there, that it is really part of
one function.

Mr. CREED. I do; yes. I do not agree with that other theory. I
have heard of it, but I do not agree with it. That is a personal view
only of my own. I think we have, in most cases, too much duplica-
tion and lapping over. I think the more consolidation you have in
regulation, the better.

Mr. WARREN. That is all.

Commissioner SWEET. I Avant to ask a question. How is .your
State commission appointed ? By the governor ?

Mr. CREED. By the governor; yes.

Commissioner SAVEE.T. How many are there on the commission?

Mr. CREED. Five, and several examiners.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 893

Commissioner SWEET. And if you wanted to have an increase of
fares, what do you have to do?

Mr. CREED. File a petition, the matter is set for hearing, and you
have a hearing, and the commission's engineers investigate and
make a valuation of the road and you present evidence orally and
in writing; the usual procedure.

Commissioner SWEET. Pending the action of the commission, does
the old rate continue ?

Mr. CREED. Yes; it always has so far in California.

Commissioner SWEET. Do you know what the arrangement is in
Pennsylvania?

Mr. CREED. What is that ?

Commissioner SWEET. Are you familiar with the arrangement in
Penns}rlvania in that regard?

Mr. CREED. No; I am not.

Commissioner SWEET. Do you think it would be an advantage or
better, on the whole, that the proposed rate should be the one that
should be in operation while the matter is under consideration by
the commission?

Mr. CREED. I think it would be in the interest of both the company
and the public to have that done.

Commissioner SWEET. That, as I understand it, is the Pennsyl-
vania law.

Mr. CREED. Yes.

Commissioner SWEET. You said you were the counsel for the
companies whose business you have been describing.

Mr. CREED. Yes — well, I handle rate matters and other matters.

Commissioner SWEET. Their legal adviser?

Mr. CREED. Yes.

Commissioner SWEET. Of course, you recognize the fact that so
far as the trans-bay — I think that is what you call it — the across-
the-bay company is concerned, that nothing could be done legally,
no advice or suggestions could be made by this commission that
would be helpful, so far as competition of the Southern Pacific is
concerned? That is an entirely outside matter; is it not?

Mr. CREED. Well, I do not quite understand you, Mr. Commis-
sioner.

Commissioner SWEET. What legal authority could render assist-
ance in a matter of competition between two private corporations?

Mr. CREED. If the Railroad Administration had jurisdiction of
both lines it could; yes.

Commissioner SWEET. Oh, yes.

Mr. CREED. But it has not jurisdiction of the Southern Pacific lines
now, although it did have formerly.

Commissioner SWEET. If you were permitted to raise your rate and
should raise it beyond a certain point, it woidd cut off a very large
proportion of your business across the bay; would it not?

Air. CREED. Some.

Commissioner SWEET. But if I understood you right, you think
even that would be better than the present situation?

Mi-. CIJK.ED. Anything, I think, would be better than the present
situation. I^ct me loll you something. Do you know that tlit- key
ciivibion is earning less than one-half of i per cent on the ruilroad

894 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

commission's valuation, without any depreciation fund for unmatured
depreciation, I mean depreciation which might mature in the future.

Commissioner SWEET. Well, that situation is pretty near as bad as
it can be.

Mr. CREED. Xow, there is no question of capitalization there at all.
It was 0.49 per cent. In other words, it is just barely taking in the
outgo.

Commissioner SWEET. In your complaint in regard to street pav-
ing you particularly stressed the point that sometimes the railroad
corporation is required to put down a new pavement in place of one
that lias not worn out.

Mr. CREED. Yes.

Commissioner SWEET. Do you not think you could reasonably go
a good deal further than that and claim that it is unjust and unfair
and unreasonable for a street-railroad company to be required to <lo
any paving?

Mr. CREED. Oh, yes. I thought I did that. I intended to. Of
course, that is a relic, as everyone knows, of old days. I thought I
did point that out.

Commissioner SWEET. Well, perhaps you did ; but I did not hear it.

Mr. CREED. Yes ; I think they should be relieved absolutely of that
burden. But I was pointing out that not only did the street railway
company on the east side of the bay have the burden of carry ing. the
original paving but it has also had thrust upon it the burden of
abandoning a pavement before it is worn out and while it is still
in serviceable condition to make way for some municipal notion of a
new kind of pavement, costlier and better.

Commissioner SWEET. Please describe this 5£ per cent tax you
spoke of.

Mr. CREED. That is a constitutional tax of the State of California
applicable to street railways which is called a State franchise tax and
amounts to 5:} per cent of the gross revenue from operative properties.

Commissioner SWEET. Does that apply to other public-service cor-
porations?

Mr. CREED. It applies to some others, yes ; but not to all.

Commissioner SAVEET. What others ? Light ?

Mr. CREED. Yes; gas, light, and power companies and to railroads.

Commissioner SWEET. Steam railroads.

Mr. CREED. Yes. It does not apply as to local property. It does
not apply to water companies, for certain constitutional reasons.

Commissioner SWEET. Is that 5| per cent upon the entire capital
stock?

Mr. CREED. No ; on the gross revenue.

Commissioner SAVEET. On the gross revenue each year?

Mr. CREED. Yes; on the gross reA7enue each year. Now that 5|
per cent is not the only tax. If the company has any nonoperating
property it pays in addition the municipal, county, and State taxes
upon nonoperative property.

Commissioner SAVEET. But if the property is in actual use those
factors are remitted ?

Mr. CREED. There is no direct tax of the property as such, Avhich is
operative property.

Commissioner SAVEET. You mean no local taxes?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 895

Mr. CREED. Xo, no local. That is of long standing. There was
an attempt to increase that at the last session of the legislature in
1919 — but the increase was not made — or there was a suggestion
made.

Commissioner SWEET. Has there ever been any attempt made in
California to get the constitution changed with regard to that 5£
per cent tax on gross revenue?

Mr. CREED. There has been a great deal of discussion about it.
I do not know that you can say an attempt has been made.

Commissioner SWEET. There is no sentiment there for the change ?

Mr. CREED. I would not want to state as to the sentiment. There
might be some doubt as to whether it can be changed now, but that
sentiment might change. I think this, that this indirect taxation
we have had in California has been a very bad tiling; I will be per-
fectly frank about it. We have thrown there the burden of taxa-
tion on large corporations through this State franchise tax, and that,
theoretically, is in lieu of all State taxation. The result is that your
taxes are removed from the great mass of the people and the cost of
government has run up very rapidly, just as some of us predicted it
would do, but that is quite apart from what we are discussing here.
Personally, I would like to see that entire system of taxation re-
moved and have taxes brought directly home to the bulk of the peo-
ple.

Mr. WARREX. If you are going to tax the car rider you would
rather tax him so he would know he is being taxed rather than
through his car fare?

Mr. CREED. Yes.

Commissioner SWEET. Just one general question. Do you see any
prospect of solving your California problem through the medium of
reducing expenses — I mean for immediate relief?

Mr. CREED. Well, when we had that hearing before the California
Railroad Commission which resulted in a C-cent fare for the traction
division one of the high officials of the Southern Pacific Railroad
Co. said, ;i You people remind me of the ^ons of poor men; you know
how to economize and how to make a dollar go a long way."

I believe that that company is operated down to the bare bone.
Their executive officers are paid ridiculously low salaries, and so is
their entire office force. Their salaried people are paid very low
wages and they are operating on as low a cost as they can operate,
except that the skip-stop -plan was put back: we had that during
the war and it has now been removed. There are some things of that
sort that might be done: and the installation of a few more one-man
cars on some of the outlying lines. I think they have 22 one-man
cars now. Hut the economies that could be made would l>c inconse-
quential in the general situation if you maintain the service that the
community demands.

Commissioner SWEET. Recognizing the fact that the present situa-
tion requires either an increase of income or a decrease of expendi-
tures, you see no relief, if I understand you right, in the latter and
you look entirely to an increase of income for relief?

Mi-. CREKD. Yes.

Commissioner SWEET. And yon think that the proper way to give
that relief is an increase of farcsj^

896 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CREED. Yes.

Commissioner SWEET. As quickly as it can be done ?

Mr. CREED. Yes.

Commissioner SWEET. And in your judgment that would give im-
mediate relief pending a more complete and thorough readjustment
of the situation upon conditions that exist to-day and did not exist
10 or 15 or 20 years ago?

Mr. CREED. Yes.

Commissioner SWEET. Is that your idea?

Mr. CREED. That is my idea exactly.

(Witness excused.)

STATEMENT OF MR. HARLOW C. CLARK.

Mr. WARREN. Your full name?

Mr. CLARK. Harlow C. Clark.

Mr. WARREN. Where do you reside?

Mi-. CLARK. New York City.

Mr. WARREN. What is your present occupation?

Mr. CLARK. I am the editor of Aera.

Mr. WARREN. That is a street-railroad journal?

Mr. CLARK. Yes.

Mr. WARREN. Circulating among street-railway men principally?

Mr. CLARK. Yes.

Mr. WARREN. How long have you been editor of that journal?

Mr. CLARK. Since 1913.

Mr. WARREN. What was your occupation before that?

Mr. CLARK. I have had various occupation.

Mr. WARREN. I mean just before that.

Mr. CLARK. Just before that I was with the firm of Allen & Peck
who are public-utility operators, for about a year. Before that I
was located in the city of Syracuse, where I was secretary of the
chamber of commerce for one period and commissioner of public
safety for another period.

Mr. WARREN. What are the duties of the commissioner of public
safety?

Mr. CLARK. In New York State in the cities of the second class
they have single-headed commissions. The commissioner of public
safety is in charge of the police, fire, and health departments; and
in the city of Syracuse I was in charge of the building department
and the bureau of gas and electricity.

Mr. WARREN. So that your duties brought you more or less in
contact with the public utilities of the city, I suppose?

Mr. CLARK. Yes.

Mr. WTARREN. And as the editor of the Aera have you had occasion
to make a study of this question of the actual relation of street rail-
ways to the communities which they serve and also to changes in
those relations which might be desirable?

Mr. CLARK. I have had almost continuous study of it from the
time I was connected with Aera.

Mr. WARREN. You have heard all the testimony which has been
given here in the last few weeks?

Mr. CLARK. Yes, sir.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 897

Mr. WARREN. And you have discussed it with various street-rail-
way men at different times, I suppose?

Mr. CLARK. Yes.

Mr. WARREN. As a result of your studies and perhaps with what
you may have heard here, have you formed any opinion of your
own as to the probable proper solution of that situation and of any
changes in the situation between the public and the utilities, so far
as they are street railways?

Mr. CLARK. I have, and I put them on paper rather briefly, if I
may be permitted to read them.

Mr. WARREN. I should like to have you read them to the com-
mission.

Mr. CLARK. The continued furnishing of efficient and sufficient
urban and interurban transportation is a recognized vital necessity
of modern community life.

It is recognized to be a function of the government of each State to
provide that such service shall be performed.

Heretofore the custom, with few exceptions, has been that these
necessary facilities should be provided by private agencies, with the
use of private capital, and subject to such regulations by govern-
mental agencies as would insure that the service should be con-
tinuous, reasonable, sufficient, and efficiently rendered.

To provide a service of this character by private capital, it is neces-
sary that the terms and conditions prescribed by the authorities shall
make such investments safe and enable them to secure a return which
will induce private capital to select investment in the utility to such
an extent as will provide the necessary funds for capital purposes.
Such further return should be allowed as would stimulate the operat-
ing utility to the greatest measure of economy, efficiency, and initia-
tive, and thus insure the development of the art and the maintenance of
the public service at the high standard demanded by the American
public; otherwise, private capital will elect to seek other investments,
the standard of service will be depreciated, and the maintenance and
improvement of these properties will have to be provided for from
State or municipal sources, and deficits in operation made up by
taxation, or the service permitted to deteriorate and finally terminate.
As the last alternative is impossible in modern life, the actual ques-
tion is: Shall the service be provided by the use of private capital
or by the use of public credit and resources?

As existing laws and conditions in the different States dp not make
a general adoption of the principle of municipal ownership or oper-
ation feasible at this time, the industry must be -conducted by the use
of private capital, whatever final policy the public may adopt in this
respect.

This is feasible if the following suggestions for emergency relief
and for a permanent plan are followed:

Emergency relief: Such an immediate temporary increase in the
charges for transportation (subject to revision by the subsequent
permanent plan) as is necessary to meet the present crisis and to
prevent that financial disaster which is imminent to a large majority
rf the industry. This would maintain the service during the de-
velopment and formulation of the permanent plan by which also
any suitable revision in such emergency increase could be made.

898 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Permanent plan: A plan for the permanent conduct of the busi-
ness, under State or municipal regulation, capable of automatically
adjusting itself from time to time to varying conditions.

The machinery for such permanent plan should include:

(a) The ascertainment of the amount upon Avhich the enterprise
should, in fairness and justice to both the investors and the public,
be allowed to earn a return.

(b) The establishment by the authorities of a system of charges
for service by which rates will automatically increase or decrease
above or below the initial rates named in the permanent plan by a
defined method and schedule so as to yield at all times sufficient
revenue to meet all the payments contemplated by the plan, including
such protective reserves as should be established, and also sufficient
opportunity for participation in benefits resulting from economy,
efficiency, and initiative to induce the greatest efforts by the utility.

(c) Power of regulation, either by State or municipal authorities,
in respect to all matters affecting conditions and character of service,
including extensions, improvements, and betterments.

(d) The utility to be conducted on the so-called indeterminate
franchise principle and to be subject to such regulation as may be
prescribed by law in respect to accounts, to capital investments, and
other matters.

(e) The establishment of the right of the municipality or other
governmental agency to purchase, as shall be set forth in the plan,
which shall in particular establish the price or the method of ascer-
taining the price.

(/) All special taxes and all special charges and assessments paid
by the utility are in fact paid by the car rider, being a part of the
cost of transportation. Car riders as a class should not be sub-
jected, to such indirect or special taxation and should, so far as the
particular circumstances in each community will permit, be relieved
therefrom.

Mr. WARREN. How important do you think it is that these com-
panies should be afforded emergency relief pending the determina-
tion and adoption of some permanent plan for establishing their
relations to the public?

Mr. CLARK. I think it is absolutely essential. I think, from the
testimony brought out before this commission and from a general
knowledge of the situation, it is apparent that a crisis exists in street
railway affairs; that this crisis is in the nature of an emergency such
as is provided for and described in many of the public-service laws,
and in which the commissions are authorized to waive the usual provi-
sions as to increasing rates and make an emergency rate. I believe
that this emergency should be considered not alone as affecting the
investors in the properties, but particularly as affecting the public
which, in my opinion, is in a great many cases threatened with an
entire loss of its service and in many more is threatened with a great
deterioration of service.

If I may be permitted to add to that this suggestion, if this com-
mission after hearing this testimony, representing the President and
the Federal Government, should declare that in its opinion such an
emergency as I have described exists, it would have a tremendously
helpful effect upon public opinion and public sentiment all over the
country.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 899

Mr. WARREN. And that you say is a result of your study of the at-
titude of the public toward these utilities?

Mr. CLARK. Yes.

Mr. WARREN. And do you think that effect would result not only
as regards the public-service commissions, the state regulatory bodies,
but also as regards the municipal bodies^ in those cases where
the authority rests with the municipal authorities?

Mr. CLARK. I believe it would have a very great effect.

Mr. WARREN. That is all I want to ask, Mr. Clark.

The CHAIRMAN. How many years have you been a student of this
problem ?

Mr. CLABK. Well, indirectly for a great number of years. While
I was secretary of the chamber of commerce, there were a great
many public-utility problems coming up to which I gave more or
less attention, but directly, since I became connected with the publi-
cation Aera in 1913.

The CHAIRMAN. And do you feel that your experience and study
qualify you to outline a program that would be beneficial to the
industry ?

Mr. CLARK. Why, I can not answer that question, Mr. Commis-
sioner, without appearing immodest, but I think I have given a
great deal of attention to the matter. I think I have a fairly good
knowledge of the facts.

The CHAIRMAN. Do you believe that the adoption of this program,
if it could be consummated, would give the immediate relief to the
utilities which they need?

Mr. CLARK. The part of the plan which discusses the emergency
measures, I think, would give the emergency relief to a large extent.

The CHAIRMAN. And do you think that the permanent plan which
you have outlined would be one upon which all utilities and the
public could safely depend?

Mr. CLARK. I believe so.

The CHAIRMAN. Now, as to the emergency relief, you have got to
deal with State commissions or with municipal authorities. In
many cases the rate is fixed either by law or by contract. How do
you think that a recommendation by this commission can be of any
assistance to utilities where they are dealing with municipal
authorities?

Mr. CLARK. Only by the effect that a pronouncement coining from
a board of this character would have upon public opinion and as
ammunition, as it were, for men who are now partly convinced that
this relief should be granted and who would like to have their hands
held up and fortified.

The CHAIRMAN. In other words, a report from this commission
could be used as sort of an educational medium?

Mr. CLARK. Exactly.

The CHAIRMAN. Do you know if there have been many increases
in rates allowed during the war by municipal authorities?

Mr. CLARK. I know of a number. I think, if it would interest
the commission, that we have a study of that question made and can
divide the total number of increases allowed into those allowed by
commissions and thc.se allowed by local authorities.

The CHAIRMAN. I think it would be very helpful to them to have
that in the record.

900 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. CLARK. Well, I will see that you get it.

The CHAIRMAN. That can be filed as part of your testimony.

Mr. CLARK. Yes.

The CHAIRMAN. Generally speaking, have you found the muni-
cipal authorities fairly receptive in these rate cases?

Mr. CLARK. Why, I think it is almost impossible to make any gen-
eral statement to that effect. In some cases they have been. I know
that in the State of New York, with which I am perhaps more fa-
miliar than any other State, in the cities of Albany and Utica, which
are fairly large cities, and including my own home city of Syracuse
and several others, the city councils have waived the provisions of
their franchise and allowed the public-service commission to deter-
mine a higher rate of fare.

The CHAIRMAN. What has been the attitude of the State regulating
commissions in the States Avhere they had control of the rates during
the war period?

Mr. CLARK. I think generally sympathetic, Mr. Commissioner.

The CHAIRMAN. Have they in a large majority of the cases granted
the applications prayed for in the petitions?

Mr. CLARK. I think so.

The CHAIRMAN. Broadly speaking, the industry has no real com-
plaint of the service given by the State commissions during the war;
Inn it?

Mr. CLARK. Only so far as delays have occurred, Mr. Commis-
sioner, in administering the law. Whether those result from the
perhaps unnecessarily cumbersome procedure or not, I think you can
only discuss in individual cases.

The CHAIRMAN. Now, with respect to emergency relief, that means
«n increased rate?

Mr. CLARK. Yes.

The CHAIRMAN. Is it your thought that the rate should be estab-
lished as an emergency rate for a certain definite period of time,
leaving to the municipality or a State commission the power to ex-
tend that time upon a showing made by the industry that there has
not been a sufficient change in conditions to warrant a resumption to
the basis of the old rate ?

Mr. CLARK. My idea, Mr. Commissioner, was that the emergency
rate Avhich might be put into effect in accordance with the recom-
mendations I have made to you would stay in effect until a perma-
nent plan for regulating those rates should be adopted.

The CHAIRMAN. So it is not an emergenc}7 war rate that you want ?

Mr. CLARK. No.

The CHAIRMAN. But simply a rate to tide oA^er until a permanent
solution is worked out?

Mr. CLARK. Yes.

The CHAIRMAN. Then perhaps your word " emergency " is not
strictly accurate.

Mr. CLARK. Well, I doubt if I am prepared to admit that, because
I think that this emergency is going to continue, at least until a per-
manent plan is adopted.

The CHAIRMAN. Well, we will not quibble over the term, Mr. Clark.

Mr. CLARK. Yes.

Mr. WARREN. Some of us think the emergency is increasing. I
received a Bcston paper this morning which created that impression.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 901

The CHAIRMAN. During the war quite a number of commissions
granted emergency relief?

Mr. CLARK. Yes.

The CHAIRMAN. By fixing the rates for a definite period?

Mr. CLARK. Yes.

The CHAIRMAN. Subject to an extension on the showing made by
the industry that the conditions had not changed. Would not that
be entirely satisfactory to the industry, and would it not pacify
public feeling a good deal better than to have a rate put in without
any limited time?

Mr. CLARK. I think perhaps so, except that in a great many of
those cases — I say a great many, at least, in some of the cases — the
commissions have since decided that their powers under the emer-
gency act of the constitution have ceased by the signing of the armis-
tice and that they are now without the power.

The CHAIRMAN. What commissions have so ruled?

Mr. CLARK. Well, if I am not mistaken, the Indiana Commission
has so ruled ; at least, the increase granted to the Indianapolis com-
pany, if I am not mistaken, was withdrawn because of that reason.

The CHAIRMAN. Well, I presume they have construed the statute
that way.

Mr. CLARK. Yes.

The CHAIRMAN. Now, when you come to your permanent plan,
that permanent plan suggests either State or municipal regulation?

Mr. CLARK. Yes.

The CHAIRMAN. You have given a good deal of study to the ques-
tion of regulation, have you not?

Mr. CLARK. Yes.

The CHAIRMAN. We have the two theories: The home-rule theory
and the State regulation?

Mr. CLARK. Yes.

The CHAIRMAN. Now, in your judgment should regulation be
exclusively in the municipality or in the State, or should there be
some soil of a happy middle ground whereby you can work out
proper cooperation between both?

Mr. CLARK. I think the advantages of the two systems might be
stated in this way, that when you have State regulation it is more
stable, it is less likely to be affected by prejudice, and on the whole
it is perhaps fairer both to the company and to the public in the
long run. That when you have municipal regulation such as is ex-
tant in Cleveland, you secure perhaps a greater degree of coopera-
tion from the public than you do when the State commissions arc in
charge of the regulation. I believe that your suggestion would
make an ideal system of regulation if it could be put into effect, if
some way of combining the two could be devised.

The CHAIRMAN. Do you think that the State as such should attempt
to regulate the service within a village or city?

Mr. CLARK. Well, there are a great many questions entering into
that, Mi-. Commissioner.

The CHAIRMAN. When I speak of service I refer to speed, stops,
and to the ordinary regulations which are so closely identified with
the welfare of the city itself.

Mr. CLARK. In a modern city the systems extend usually beyond
the city limits, the suburban lines are part of the city system, the

902 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

interurban lines are part of the city system. The authority of a
city regulatory commission would cease with the city limits.

The CHAIRMAN. Yes.

Mr. CLARK. I refer particularly to Boston, where they have what
I think is known as the metropolitan district, where the service ex-
tends for miles beyond the city limits of Boston; and while Boston
city has no particular jurisdiction over those communities, it is really
part of the community life of Boston; and service on those proper-
ties should be regulated as a whole, and not allow the city of Boston
to regulate the service within the well-defined limits of the city
itself and allow the other municipalities to regulate it within their
limits; there should be some general regulation of that system Avhich
would make it mast efficient nnd the best for all the people served.

The CHAIRMAN. Well, referring now to this Boston situation, do
you think it would be fair to the public, as well as to the utility, to
permit the municipal authorities in Boston to have jurisdiction over
the service and extensions of street -cars subject to an appeal to the
State commission by either party?

Mr. CLAKK. I believe that in that particular instance it would not
be very workable.

The CHAIRMAN. Why not?

Mr. CLARK. For the reason that each of these other communities
would also have the right of appeal to the commission and that,
as I say, it \\-ould be difficult to coordinate the entire system of serv-
ice to one whole that, would most efficiently serve all the commu-
nities. I think it might be possible to create a metropolitan district
which would have that right of an appeal to the public-service com-
mission.

The CHAIRMAN. Do you believe if the right of appeal by these dif-
ferent municipalities to the State commission were granted it would
promote confusion and delay and uncertainty rather than stability?

Mr. CLARK. I am inclined to think so ; yes, sir.

The CHAIRMAN. But you would have a final body to determine the
question?

Mr. CLARK. Yes.

The CHAIRMAN. And establish the general rules which munici-
palities must obey?

Mr. CLARK. Yes.

The CHAIRMAN. Now would not that result finally in the estab-
lishment of a general code of rules for the service, the speed, and
stops and extensions and things of that kind which would be con-
trolling upon municipal authorities and thus stabilize the whole
industry ?

Mr. CLARK. Well, I am not an operating electric official, and I do
r:( 1 believe that I am prepared to answer that question, because
it seems to me that that is a question of operation and a very se-
rious question, whether any code or standard or set of rules could
be adopted that would apply indiscriminately to all services rendered
under various conditions and in various cities.

The CHAIRMAN. Well, that may be so.

Mr. CLARK. Yes.

The CHAIRMAN. But generally speaking they could be adopted?

Mr. CLARK. I suppose general principles could be laid down.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION". 903

The CHAIRMAN. Now, do you think in Boston it is better to have
the State commission regulate all the affairs of the utility ?

Mr. CLARK. It would seem to me that in that, particular situation
it would be better either to have the State regulate them or, if it
were possible to combine the territory that they serve into some dis-
trict, to have such a district regulate them.

The CHAIRMAN. Do you feel that the Massachusetts situation is
typical so that it could be applied to all the States of the Union, or
is it rather an exception?

Mr. CLARK. I think that is rather exceptional.

The CHAIRMAN. Then we have to look somewhere else for experi-
ence that will enable us to develop a plan which can be useful
throughout the country?

Mr. CLARK. Yes, sir.

The CHAIRMAN. Now then apply the same questions I have asked
you to some of the other States. Take my own — Minnesota. Do you
think that plan of cooperation would work there ?

Mr. CLARK. Between a State commission and a local commission?

The CHAIRMAN. And the city, yes.

Mr. CLARK. I would have to ask a question first.

The CHAIRMAN. Yes.

Mr. CLARK. I would have to know how closely the system, say,
of St. Paul and Minneapolis are coordinated, how the schedules for
instance in one city affect the scedules in the other city.

The CHAIRMAN. You have got several corporations, but they are
all owned by the same persons and they intertwine and it is practi-
cally one service.

Mr. CLARK. Would it be possible to get the city of St. Paul and the
city of Minneapolis to agree upon one regulating commission to
regulate the service on both systems?

The CHAIRMAN. I do not think so.

Mr. CLARK. I am rather inclined to doubt whether such a plan
would be feasible, Mr. Chairman, in that particular situation. I
believe that within a self-contained community that it would be en-
tirely feasible.

The CHAIRMAN. Do you not think that there is a very strong
sentiment throughout the, country in favor of home rule of these
utilities?

Mr. CLARK. Yes.

The CHAIRMAN. And that if you can not have some measure of
local control the sentiment will demand local ownership and opera-
tion?

Mr. CLARK. I might say in regard to that that I do not know
how far a sentiment of home rule goes in that respect.

The CHAIRMAN. Well, it is mighty strong there.

Mr. CLARK. Perhaps in Minnesota. But T am referring particu-
larly to one case in Xew York where Gov. Smith, who was elected on
a home-rule platform and who Avas, I understand, an ardent advocate
of homo rule, vetoed the cost-of-service bill for the city of Buffalo
on the ground il interfenvd with the jurisdiction of the public
service commission and withdrew tho Internntionl Railway of Buf-
falo from the jurisdiction of the public-service commission. It is

904 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

evident there, in the mind of one man at least, that the two theories
are not incompatible.

The CHAIRMAN. Speaking for the industry, of course you have
talked to a great many men in this business. Does it prefer State
to local regulation?

Mr. CLARK. I do not believe that I could answer that question. I
know a very large number of men who prefer State regulation. I
know a few men who prefer local regulation.

The CHAIRMAN. But the industry is very rapidly growing and
expanding from city to city?

Mr. CLARK. Yes.

The CHAIRMAN. One corporation may utilize the streets of a large
number of cities?

Mr. CLARK. Yes.

The CHAIRMAN. Does not that in and of itself establish the fact
that you have got to have a central organization or a central control
over the rates and service and capitalization of these industries?

Mr. CLARK. Personally, Mr. Commissioner, I believe that, as a
mere matter of economy and efficiency, in the majority of cases
State regulation is necessary. If you are going to add to the
burdens of the street railways, which are very large at the present
time, the additional burdens of providing the machinery for regula-
tion it is going to make a 'considerable difference in the receipts of
the companies.

The CHAIRMAN. Now your paragraph (a) says: "The ascertain-
ment of the amount upon which the enterprise should in fairness
and justice to both the investors and the public be allowed to earn
a return."

Mr. CLARK. Yes.

The CHAIRMAN. That presupposes that, before you can establish
rates and stabilize credit, the utility as well as the public must
know what a property is worth. Of course the general scheme to-
day is to value the plant; in some places that is clone simply by
agreement with municipal authorities and in other cases it is done
by the State. No\v, looking at it in the broad way, which is the
best method: To have this done by agreement with the municipal
authorities or to have the State investigate the property and fix
the value?

Mr. CLARK. I would say that the method by which you can best
invite the confidence of the public in the value as fixed is the method
that should- be adopted.

The CHAIRMAN. Now, wyhich of those methods would invite that
confidence ?

Mr. CLARK. Depending upon the confidence which the community
has in the public-service commission. I have no doubt that, in
States where the public-service commission has been established long
enough and has so conducted itself that it is firmly fixed in the
confidence of the public, a valuation of the property made up by it
would secure exactly what I said.

The CHAIRMAN. Is it not a fact that the State commissions are
equipped with expert engineers and statistical men who are qualified
to make an impartial study of a plant and to fix a fair valuation bet-
ter than a municipality, which must go into the market and purchase

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 905

experts and engineers to make a proper study for a particular pur-
pose ?

Mr. CLARK. Oh, yes; no doubt about that.

The CHAIRMAN. In other words, is there not a larger element of
fairness in having the State, which is an impartial body, determine
the value of the plant which the public is going to buy rather than
have a particular community itself do that thing?

Mr. CLARK. Personally, I should think so; yes.

The CHAIRMAN. Then you would generally favor valuations made
by the State rather than by municipal authorities for these agreed
values?

Mr. CLARK. Except under the limitations I made in my first state-
ment.

The CHAIRMAN. Your paragraph (b) suggests a scheme of rates
which will automatically increase or decrease above or below the
initial rates according to operating conditions?

Mr. CLARK. Yes.

The CHAIRMAN. The essence of that plan is the cost of service?

Mr. CLARK. Yes. I believe the cost-of -service plan is perhaps a
misnomer, because I believe that ever since the State has taken over
the regulation of public utilities, the theory of cost of service has
been established. I do not know what else to call the plan —

The CHAIRMAN. I presume that paragraph, or the suggestion con-
tained in that paragraph, is predicated upon the experience wrhich
has been had in Cleveland, Cincinnati and some other places with
what is known as the cost-of-service plan ?

Mr. CLARK. Yes.

The CHAIRMAN. From your study of the industry do you believe
that that plan produces the largest degree of satisfaction to the
communities?

Mr. CLARK. I am inclined to think so. The trouble with making
an answer to a question of that kind, Mr. Commissioner, is that in
no instance except Cleveland has it been in practice long enough to
get a true reflex of public opinion on it, in my opinion.

The CHAIRMAN. Well, is it still experimental?

Mr. CLARK. Yes — well, I would not say experimental, no; because
it has proven itself in Cleveland.

The CHAIRMAN. It has proven itself to be very effective during the
rapidly changing operating conditions during the war?

Mr. CLARK. Yes.

The CHAIRMAN. But would the cost-of-service plan in Cleveland
give real satisfaction during a normal period covering a good many
years?

Mr. CLARK. As I remember it, it was put into effect in Cleveland
in 1911 or the latter part of 1010 and, as near as I can judge, so far
as the public is concerned it has given satisfaction during all that
period.

The CHAIRMAN. But considering the industry as a whole, there
being large companies as well as small companies operating in large
as well as small cities, do you think that a plan by which the State
commission should have the right to fix the rates upon investigation
or upon complaint would give more general satisfaction and a greater
measure of security to capital than your cost-of-service plan now
used in Cleveland?

160643°— 20 58

906 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. CLARK. I doubt it, Mr. Commissioner, because I believe that
the fixing of a rate should or ought to be a matter of arithmetic.
Your expenses are so much, your receipts are so much, and those
receipts should be regulated automatically to cover your cost. Now,
I can see no good reason why that should be left to the judgment of
anybody, having decided on the principles or the elements which go
to make up your service or your cost of service.

The CHAIRMAN. But if the value of a property is established and
built up as extensions and betterments are added to it, then the
commission always has the value and knows what the base must be
for return purposes?

Mr. CLARK. Yes.

The CHAIRMAN. It simply requires a study of the operating sheet
to determine whether or not you must have an increased rate; does
it not?

Mr. CLARK. That is all.

The CHAIRMAN. Then the value having once been established, the
commission having the power to fix rates either upon its own motion
or upon petition, have you not got all that the industry needs?

Mr. CLABK. No; because I think there is still the element of delay
which is very costly — costly'both to the company and to the public.

Th& CHAIRMAN. Don't you think a large part of that delay grows
out of the fact that there is a very considerable prejudice against the
capitalization of companies and a feeling in the public mind as well
as in the minds of many of the commissioners that the utilities are
trying to get a return upon a lot of stock which is either fictitious or
not represented by capital?

Mr. CLAEK. I think that is probably true.

The CHAIRMAN. And when you have your properties valued by the
State have you not removed every element of suspicion against the
company and reduced the whole proposition to a plain dollars and
cents question ?

Mr. CLARK. Undoubtedly.

The CHAIRMAN. And will not that result in expedition in the de-
termination of these rate cases ?

Mr. CLARK. It might.

The CHAIRMAN. Don't you think it would ?

Mr. CLARK. Yes ; I think it would.

The CHAIRMAN. Then, don't you believe that as far as the industry
is concerned you are entirely safe to have either a cost-of-service
plan or a scheme of State regulation, wherein the State can fix the
rates ?

Mr. CLARK. I think the industry as a whole would feel very much
better than it does now if it was possible to conduct State regula-
tion under those conditions, but I doubt if it would feel as well as it
would under an automatic system, by which they were absolutely
assured of these increases as they came up, and in which situation
the judgment of no man or no set of men intervenes.

Mr. WARREN. May I interrupt for just one moment there, because
I think it 1ms a bearing on that Cleveland experience. Don't you
think it may have this advantage, Mr. Clark, that as to any auto-
matic rate the public knows that rate will depend upon demands for
service; and therefore it affects just what the utility might consider

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 907

unreasonable demands; it tends to restrict unreasonable demands, be-
cause the rate is going to reflect the cost of this extra service?

Mr. CLARK. I think that is undoubtedly true.

Commissioner BEALL. Mr. Clark, don't you think that one of the
things that worries the investor most now is that he does not know
what he is going to get?

Mr. CLARK. Yes, sir.

Commissioner BEALL. And don't you think that the average in-
vestor would infinitely prefer an automatic rate — that is, under
well-prescribed conditions, where it is not left to the judgment or
whims or views of any men or any board of men?

Mr. CLARK. That is my idea exactly.

Commissioner BEALL. And he wants to feel sure of a proper
return on his investment?

Mr. CLARK. Yes.

Commissioner BEALL. And a great many investors, I take it, feel
that they can not leave that to any man; they must know what the
conditions are.

Mr. CLARK. I think that is true, Mr. Beall.

Commissioner BEALL. I do not know, but it seems to me that the
companies would infinitely prefer a State board to an individual
man.

Mr. CLARK. Yes.

Commissioner BEALL. I do not think there is any room for argu-
ment on that, under the general conditions pertaining to securities.

The CHAIRMAN. Paragraph (d) suggests an indeterminate fran-
chise. One of the large difficulties now concerning the utility is the
limited franchise, with its many limitations,

Mr. CLARK. Yes.

The CHAIRMAN. How many States to-day permit an indeterminate
franchise ?

Mr. CLARK. That I can not tell you.

The CHAIRMAN. Wisconsin and Indiana?

Mr. CLARK. I know those two.

The CHAIRMAN. Do you know of any others?

Mr. CLARK. I do not. I think that information could be obtained
for you, though.

Air. WARREN. Most of the Xew England States,

The CHAIRMAN. Most of the Xew England States?

Mr. WARREN. I should say most of them.

The CHAIRMAN. I believe Massachusetts was the first oi>e to
consider it.

Mr. WARREN. Yes; unless I am mistaken, Maine, Xew Hampshire,
Connecticut, Massachusetts* and I think Rhode Island, too; but I
am not sure.

The CHAIRMAN. Of course, legislation has to be secured. Do you
think that this commission would be performing a proper service
if it recommends the use of an indeterminate franchise?

Mr. CLARK. Yes, sir.

The CHAIRMAN. Assuming that that was done, should the report
simply contain a broad statement favoring the principle, or should
it suggest the reasons why the indeterminate form of franchise is
preferable to the limited franchise?

908 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CLARK. I think a discussion of the subject would help im-
mensely, undoubtedly.

The CHAIRMAN. Well, are there any substantial objections to that
form of franchise, so long as the public is permitted, at any time,
to purchase the plant at a fair value?

Mr. CLARK. I think not.

The CHAIRMAN. The right given to the public to purchase at any
time would not affect the stability of the credit; would it?

Mr. CLARK. Depending, of course, on the terms under which they
are permitted to purchase. I think that is a matter of detail, but
we have got to assume that the terms of purchase as set forth in
the franchise are fair and just.

The CHAIRMAN. Well, it presupposes the purchase on a fair value.

Mr. CLARK. Yes, sir.

The CHAIRMAN. Of course, no investor is going to put money into
securities where they exceed the value of the plant; will he?

Mr. CLARK. No.

The CHAIRMAN. If he does, he is not entitled to very much sym-
pathy from the public or community?

Mr. CLARK. No ; I do not believe so.

The CHAIRMAN. Then, the investor would be entirely protected,
under that plan ?

Mr. CLARK. You mean if a paragraph was included in the inde-
terminate franchise saying that it could be purchased at a fair value ?

The CHAIRMAN. To be fixed by the State.

Mr. CLARK. To be fixed by the State?

The CHAIRMAN. Yes.

Mr. CLARK. I think that would depend again on the confidence
which the investor had in the particular State commission in which
the indeterminate franchise was in effect.

The CHAIRMAN. Well, you are perfectly familiar with the fact
that a corporation is protected by the Constitution ; its property can
not be condemned for less than its valuer?

Mr. CLARK. That is true. That, however, is under the general
law of the State, but if you put a clause in the statute saying that the
franchise shall be fixed at a price set by any particular commission —
I am not lawyer enough to know, but it seems to me that that would
be a waiver of the rights to protection under the general State law.

The CHAIRMAN. I do not think so. That is subject to the right of
appeal to the court, of course,

Mr. CLARK. Yes.

Commissioner BEALL. May I ask a question right there, Mr. Chair-
man?

The CHAIRMAN. Yes.

Commissioner BEALL. In all of these indeterminate permits and
other forms of franchises wyhich permit purchase by the city on a
valuation, is it not true that in practically all of them, just for the
reason that Ave have described, they provide very carefully for the
method of arriving at such a valuation ?

Mr. CLARK. Yes, sir.

Commissioner BEALL. In other words, as I understand it, it is
deemed by the investors and companies that it is absolutely necessary
to define how that valuation shall be arbitrated and found ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 9C9

Commissioner GADSDEX. Or it is fixed in advance.

Commissioner BEALL. Yes ; but that is the same thing.

Commissioner GADSDEX. Fixed at the time.

Mr. CLARK. Yes.

The CHAIRMAN. Your paragraph (/) suggests the elimination of
taxes and special assessments.

Mr. CLARK. Yes, sir.

The CHAIRMAN. Of course, these taxes and special assessments
have proven extremely irksome during the war period. Prior to
that, during the normal years, did they impose a large burden upon
the industry?

Mr. CLARK. I think so; and I think there is one feature that has
not often been thought of. If you will look into the capitalization
account of those companies you will find a very large amount of
capital which is there because the investment in paving and other
municipal requirements, and which are fixed charges, are now paid
by these companies. I have in mind that when the Rhode Island
Co. was valued by a commission appointed by the legislature, it
was discovered that almost one-tenth of its capitalization was due to

Cayments made on account of paving and other requirements of that
ind. So there is a charge that was saddled on that company, as I
think, unjustly, and which to-day is keeping up the rate of fare in
the cities of Rhode Island.

The CHAIRMAN. Now, under your cost-of -service plan, where your
return is practically guaranteed, how can the paving assessment or
tax matter affect you?

Mr. CLARK. It can not. I think that is largely a question be-
tween the car rider and the public as a whole. If the car rider cares
to be indirectly taxed for the benefit of the property owner, that is
a matter as between him and the property owner, except that I
think it is particularly desirable, from the company's standpoint
and from the public standpoint — from every standpoint — to keep
those fares as low as possible, and therefore these imposts should
be taken away.

The CHAIRMAN. Of course, the municipality has to have a certain
amount of money to do business with.

Mr. CLARK. Yes, sir.

The CHAIRMAN. And it is a question of the most convenient way
of getting it.

Mr. CLARK. Yes, sir.

The CHAIRMAN. So that, under the cost-of-service plan, the as-
sessment does not do you any harm.

Mr. CLARK. Except that it may raise fares above a point where it
would be impossible to get business to sustain them.

The CHAIRMAN. I suppose that is a matter that you will have to
leave to the judgment of the regulating officials, as well as the city
officers.

Mr. CLARK. Yes, sir.

The CHAIRMAN. Wherein can your assessments and tax features
be harmful if the State commission has a right to fix the rate?

Mr. CLARK. I would not say that it enters into that phase of the
matter. I mean that the question of impost did not affect tho
method of regulation at all.

910 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

The CHAIRMAN. All of these matters are items deducted from the
revenue, and the commission has to take them into consideration.

Mr. CLARK. Yes, sir.

The CHAIRMAN. Then, do you believe that if you had either the
cost-of-service plan or commission regulation of rates it would be
necessary to the industry to have these special assessments and taxes
eliminated?

Mr. CLARK. You mean, Mr. Commissioner, if you had city
regulation ?

The CHAIRMAN. Yes; or cost of service.

Mr. CLARK. As I said before, I think I have answered that ques-
tion when I said that that is a question which, in my opinion, should
be decided between the car rider and the taxpaper. Personally, I
see no justice in assessing the car rider for something that somebody
else benefits from.

The CHAIRMAN. Then, your paragraph (A), dealing with special
taxes and assessments, was put in there with some qualifications,
was it not?

Mr. CLARK. Xo; I do not believe it is put in there with any qualifi-
cations, Mr. Commissioner, because that is my opinion.

The CHAIRMAN. Yes; but it is not essential to the welfare of the
industry, is it, that these taxes and special assessments be eliminated?

Mr. CLARK. It is not essential, but very helpful, because it keeps
the cost of service down, and thus keeps your fare low ; and I think
a low fare is very essential, wherever it can be put into effect.

Commissioner BEALL. I just wanted to bring out the point, Mr.
Clark, that for the success of the cost-of-service plan, or any other
plan, the majority of the people, being, in a sense, of the poorer class,
consequently the majority of the citizens of any town, being riders,
would feel better if they felt that the taxation was scattered, that
they were not burdened with something that increased their fare, and
that the property owners and the automobilists and others were not
paying their fair proportion of it? Would it not tend toward a
better feeling if they thought that taxation was better distributed?

Mr. CLARK. Undoubtedly.

The CHAIRMAN. Taxation is a matter of local law, and it depends
very much upon the conditions pertaining to the proper upkeep of
the city. Do you think it wise for a Government commission to come
in and recommend the removal of all taxes and special assessments?

Mr. CLARK. I think it would be very wise for yon gentlemen to say
these two things: First, that it is a question as between the car rider
and the general public, and second, that it has a direct effect upon
the rate of fare to be charged.

Let me give you an instance where that was very concretely shown.
In a city in central New York, a paving program for this year called
for an expenditure of some $500,000 on the part of the city company
in laying pavements, reconstructing its track, and so forth. The
company did not have the money and did not have the credit. It
could not borrow money. It went to the city arid said, " If you will
allow us to charge a cent for a transfer in addition to the fare that
you are now paying, we will devote all of that money to paying
these charges." Xow, there was the situation that was thus created.
The proposition was to take a cent out of each person that used the

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

transfer, and to use it for the benefit of the man who might or might
not be a car rider, but it was very much more apt to be an automobile
owner, iu order to pay for that improvement.

I think that that .concretely points out what I wanted to show you,
Mr. Commissioner.

The CHAIRMAN. I have no further questions.

Commissioner SWEET. Mr. Clark, this statement that you made
here is brief and right to the point, and it is based, I judge, from
looking it over, upon what you have heard said by the witnesses that
have been introduced up to this point in this case, largely.

Mr. CLARK. Yes, sir.

Commissioner BEALL. Which paragraph is that, Mr. Sweet?

Commissioner SWEET. Xo particular paragraph, the whole of it.

And it represents what you consider, at least, the best thought, the
best suggestion, the best recommendations that have been made here,
in view of the facts that have been disclosed ?

Mr. CLAKK. Yes, sir.

Commissioner SWEET. Has there been, so far as you know, any-
thing said here with regard to the paving question that distinguishes
between the general public and the abutting-property owner?

Mr. CLARK. Xo, sir.

Commissioner SWEET. Is there not something to be said on that
point? Is there not the thought, for instance, or the argument that
might be presented, that the street-railway track in the street is a
burden upon that street and perhaps an inconvenience and an annoy-
ance, both, to the people residing upon the street, and that the relief
that is given by requiring the street-railway company to pave ba-
twecn the tracks is a relief to the property owner upon that street,
rather than to the general public, under the usual provisions in
street-car charters with regard to taxation and street building?

Mr. CLARK. Well, Mr. Commissioner, what you say about its be-
ing- perhaps, an annoyance as well as a benefit I think is true, in
general, and as reflected in the mere matter of finance I am con-
vinced that the presence of a street railway on most streets — not all
streets, but on most streets — is a direct benefit to the financial in-
terests, at least of the property owner.

Commissioner SWEET. It is an asset and not a liability?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Do the facts with regard to property values
justify that statement?

Mr. CLARK. I think so. I would not say so in every case, be-
cause I do not know enough, and I have never gathered statistics,
but it is unquestionably true that real-estate values increase where
extensions of lines are made or where railroad tracks exist. If yoji
are now considering whether the abutting-property owner or the
public in general should pay for all of the pavement, I think that
is an entirely ditl'erent point; and if you say that it is a general
charge against the public, or should be a general charge against the
public instead of the abutting-property owner, I am rather inclined
to agree with you, although in the city with which I have had some,
experience it was entirely different.

Commissioner SWEET. Is it not ;' fact, under most of the city
charters throughout the country, that it is charged against the
abutt ing-property owners?

912 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

Mr. CLARK. Well, I don't know that. I know in some cities it is
not, and it is paid for from the city tax budget.

Commissioner SWEET. Most of the cities with which I am familiar
make that a charge upon the abutting properly owner.

Mr. CLARK. Yes, sir.

Commissioner SWEET. Not only the original construction cost but
subsequent repairs or reconstruction. Upon that point I am inclined
to think that, if the original construction is charged to the abutting-
property owner, that ought to end at least any charge or assessment
that could be made against him for that street paving, and repairs
should be entirely made by the city. I think that would result in
better continuous repairs and pavements, and not let them go into
absolute scrap, you might say, and require the rebuilding of the pave-
ment, because it will place then upon the city government the re-
sponsibility of keeping that in repair, or else, by general taxa-
tion, rebuilding it. In that event, I think the city generally would
take more pains to keep the street in better repair; and I think it
would be more just; and I am not prepared to say that I would not
be willing to go this far — no matter what the situation may be now,
the charge should be on the general public from the beginning for
construction and repairs; but, in any event, this is true, and evi-
dence has been adduced which confirms it ; and I think it is a matter
of good judgment that the burden should not be placed upon the
street-car rider. If you recognize the fact that the street-car is what
it professes to be — a public utility — and that it performs valued serv-
ice in the economics of our municipalities, with its tendency to diffuse
population, and as a convenience, so that the people can live in the
suburbs and have their little gardens and plenty of breathing space,
and still do business in the city — if we recognize that feature of it,
no one can deny the benefits of a street-railway system. Then it
would seem to be logical that every extra burden ought to be removed
from the street-car rider and, so far as may be, placed upon the
general public, which really gets the benefit of the street-car service,
thereby keeping fares down not purely, as you, I think, have rather
intimated, for the benefit of the street-railway companies and in order
to prevent public criticism on account of high fares, but for the
general good. Perhaps I misunderstood you.

Mr. CLARK. Yes, sir. Mr. Commissioner, I did not intend to con-
vey any such idea. My idea was this, in relation to low fares, that
it is distinctly for the benefit of the car rider to give low fares. It
is distinctly for the benefit of the community to give low fares; and
it is also for the benefit of the stability of the industry that these
low fares should be in effect, if it is a profitable thing.

Commissioner SWEET. Then, the fact that the State commission
did automatically arrange, under the service-at-cost plan, for a higher
cost to the rider, as it naturally would — it would not entirely meet
the situation, if we wanted to readjust matters completely so as to
bring about a better situation on the whole; would it?

Mr. CLARK. I do not know that I got your question, Mr. Sweet.

Commissioner SWEET. Well, a broad consideration of the whole
subject, for the benefit of the whole community, would not be satis-
fied with merely protecting the operating company by having all of
its cost taken eare of by the service-at-cost plan or by an intelligent

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 913

commission that might give it the benefit of raising its rates to meet
the extra cost of riding.

Mr. CLARK. Yes.

Commissioner SWEET. So that of itself would not meet the situa-
tion with regard to the entire community, although it might as re-
gards the operating company?

Mr. CLARK. You mean there might be a question as to whether,
under the rates of fare granted by the commission or by this auto-
matic plan, the service would be sufficient to serve the community?

Commissioner SWEET. I mean that, so far as the company is con-
cerned, as Mr. Elmquist indicated to you in the question he asked
you, it would not make any difference what the actual cost was, what
the fares might be, provided they produced enough revenue to meet
the requirements of the company.

Mr. CLARK. Yes, sir.

Commissioner SWEET. Now. as between the car riders and the bal-
ance of the community, it Avoulcl make a difference?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Whether the whole community bears that
paving expense or the riders bear it ?

Mr. CLARK. Yes, sir.

Commissioner SWEET. And I say that, taking a broad view of the
interests of the entire community — the car rider and all the rest of
the community — it would be better, would it not, to have the fares
low, thereby putting a premium upon diffusion of population, than
it would be to have them high, even though they be met just as well
if they were high as if they were low ?

Mr. CLARK. Undoubtedly, Mr. Commissioner.

Commissioner SWEET. Is the' distinction between the car rider and
the balance of the community properly understood at the present time
throughout the country?

Mr. CLARK. I doubt it.

Commissioner SWEET. With regard to these taxes?

Mr. CLARK. I doubt it.

Commissioner SWEET. Do you consider there is a very great pro-
portion of the people at the present time who realize that this burden
is placed upon the car rider — the paving burden?

Mr. CLARK. I think it developed in the testimony of Mr. Culkins
here the other day, when he talked about the insistence on the part
of the city of Cincinnati in the collection of this sum of $300,000,
and in the higher cost of service in Cincinnati, simply because it was
impossible to explain in the limited time that they had that this was
to be a charge on the car rider.

Commissioner SWEET. Don't you know that in the matter of water
supply it is quite a common custom in cities "for a board of public
works to furnish water for parks and cemeteries and for fire pro-
tection without any charge?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Do you think that is a good practice?

Mr. CLARK. I do not.

Commisioner SWEET. Does it not involve precisely this question
that we are talking about?

Mr. CLARK. Yes, sir.

914 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Is it not throwing upon the water users the
burden that ought to rest upon the entire community?

Mr. CLARK. Exactly.

Commissioner SWEET. And in some of these communities where
there are private corporations furnishing water in competition with
the city, which is sometimes the case, might it not result in a user
of water furnished by the private corporation getting the benefit of
fire protection and other benefits that he did not pay a cent for?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Through the city system?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Is not that an evil that ought to be cor-
rected?

Mr. CLARK. I think so.

Commissioner SWEET. Of course, we have nothing to do with that,
but the principle involved is precisely the same, is it not?

Mr. CLARK. I think so.

The CHAIRMAN. May I ask a question there, Mr. Sweet ?

Commissioner SWEET. Yes.

The CHAIRMAN. If that principle were to be adopted, would it not
result in New York City in eliminating, perhaps, 90 per cent of the
population from the payment of any direct or indirect taxes for the
support of the city? In New York there is a very large number of
people who live in tenement houses. They do not own their own
homes. They have very little taxable property. The great mass of
them have no taxable property. They do not pay a cent in support
of the water system ; they do not pay a cent in support of the school
system; and they would not pay a single penny in the way of tax
for the paving or other things if that be paid by the city from taxes.
Now, it would not be fair to relieve this great body of untaxable
people from any contribution to the upbuilding of the city, would it?

Mr. CLARK. My experience in New York has been this. Mr. Com-
missioner, that while the taxes are assessed against the owners of
these properties they are paid by the tenants in the matter of
rentals.

Commissioner MEEKER. Is it not a fact that everybody on the right
side of the walls of penal and other institutions pay taxes ?

Mr. CLARK. I think so; directly or indirectly.

Mr. SULLIVAN. Let me suggest there that the man who pays the
rent pays the taxes.

Commissioner SWEET. Now, Mr. Clark, one other point: Whether
the service-at-cost plan be adopted, or regulation by the commission,
municipal or State, be adopted, do you regard that as a matter of
importance that the actual cost, with the rates and the fares and
everything else, should be kept as low as possible ?

Mr. CLARK. I do.

Commissioner SWEET. You agree, I presume, with the testimony
that has been presented here, that the maintenance of the street rail-
ways requires the constant increase of capital, the influx of new
capital?

Mr. CLARK. Undoubtedly.

Commissioner SWEET. And that these companies can not continue
to exist and perform their proper function without new capital. Is
not that true,?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 915

Mr. CLARK. Yes, sir.

Commissioner SWEET. Then anything that increases the cost of
obtaining new capital is a burden which ought to be removed if
it can be. Is not that right?

Mr. CLARK. Yes, sir.

Commissioner SWEET. Is not the certainty of return a very im-
portant element in connection with the investment of new capital
in any enterprise?

Mr. CLARK. Oh, yes.

Commissioner SWEET. Do you consider that the certainty of re-
turn is greater under an automatic plan, where the whole thing is
mapped out in advance, than where it is left to any human inter-
ference, as would be the case in State or municipal commission
regulation 9

Mr. CLARK. I think there can be no question as to that, Mr. Com-
missioner.

Commissioner SWEET. If that is true, would it not be then an
argument worth considering in favor of the service-at-cost plan as
it has been outlined here?

Mr. CLARK. I think so.

Commissioner SWEET. Where the rates would go up or down ac-
cording to the actual needs?

Mr. CLARK. Yes. sir.

Commissioner SWEET. Do you think so?

Mr. CLARK. Yes, sir; I think so.

Commissioner SWEET. I think that is all.

Commissioner GADSDEN. Mr. Clark, I want to ask you just one
question.

What do you consider the pressing need of the situation?

Mr. CLARK. The immediate need?

Commissioner GADSDEX. Yes.

Mr. CLARK. Increased revenues for the companies that need them ;
and that means practically every company in the country.

The CHAIRMAN. The long green?

Mr. CLARK. Yes, sir.

Commissioner GADSDEX. Unless that immediate need can be prop-
erly taken care of, do you see any advantage in our continuing this
discussion as to a permanent solution? Would it not be largely
academic?

Mr. CLARK. I think so, Mr. Commissioner, because, although I
am rather familiar with the Xew York City situation. I was very
much surprised and shocked to hear Mr. Quackenbush say that,
unless they have some relief of some sort, the Intorborough Rapid
Transit Co.. operating the subway and elevated systems in the
Greater City of Xew York would be in bankruptcy after January
1. I think that epitomizes the situation with regard to the street
railways of the country.

Commissioner GADSDEX. If the credit of the Interborough of Xew
York is destroyed, what is to become of some of the little fellows?

Mr. CLARK. Yes. sir.

Commissioner ( i ADHDEN. 1 have no further questions.

Mr. WARREX. AVell. really nearly every company that has any
bonds accruing, even if it is getting along with operating expenses,

916 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

would be in the same position as the Interborough, unless relief is
brought to restore its credit.

Mr. CLARK. I think so, Mr. Warren.

Mr. WARREN. And that relief, you believe, should come through
an immediate increase of fares?

Mr. CLARK. Yes, sir.

Mr. WARREN. Laying aside the ordinary delay in ordinary rate
cases, and perhaps quite appropriate ordinarily —

Mr. CLARK. I think an emergency exists, and it should be treated
as such.

Mr. WARREN. And rely on the power of the commission to correct
any overliberality of which they may be guilty?

Mr. CLARK. Yes, sir.

Commissioner SWEET. I would like to ask another question. In
the plan that you have outlined here, you seem to be looking forward
to a new day and one of cooperation between the general public
and the corporation, rather than one of antagonism. In order to
carry out that idea more completely, does it not seem to you as if the
immediate community concerned ought to have some voice, either
through a commission or some other way, with regard to the con-
tinuing arrangement that might be made, rather than to have the
matter taken immediately to a State commission — either as Mr.
Elmquist suggested, through a local commission, from which an
appeal might be taken, or in some other way — that the immediate
locality would feel more in accord with the general proposition and
cooperate better if the subject were not removed from the immediate
community and carried right on to the State-?

Mr. CLARK. I will answer that by saying this, that my thought is
that the immediate interests of the man that uses the street-car serv-
ice are in the service, and what he wants is to be carried comfortably
and expeditiously from one destination to another ; that if that serv-
ice is provided by whatever means, he is going to be fairly content
writh the good service, and that will do more toward reconciling the
public and the companies than any other one thing. Now, I be-
lieve that, in some way, if the alternative of commission regulation is
accepted, the city should have some way of expressing its wants and
needs in the matter of service. I believe that the other matters
connected with the regulation might properly be left to the State
commissions, and even this question of service might find in the com-
mission its ultimate decision.

Commissioner SWEET. Do you think that having a director rep-
resenting the public, as they have in Cincinnati, fills the bill? Does
that answer the necessary requirements of the case?

Mr. CLARK. This, in my opinion, Mr. Sweet, is a new thing. I do
not think it has ever been put into practice, this cooperation between
the city and the State in the regulation of utilities, and therefore I
am not competent to tell you in detail how the thing should be
effected.

Commissioner SWEET. But, as a matter of judgment, does it not
seem to you to carry out the general idea of this plan, which is one
of friendly cooperation, that there should be a sort of working to-
gether of the city and the company ?

Mr. CLARK. Yes, sir; I believe so.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 917

Commissioner SWEET. Now, would that idea be encouraged and
carried out if you had a large representation on the board of direc-
tors of the company from local citizens?

Mr. CLARK. I think the two principles are not the same. If you
are putting representatives of the public on a board of director's, you
are dividing the responsibility for the performance of the service
as between the community and the company itself. If you are per-
mitting the public to specify the service, you are putting all the
responsibility on the company where, I believe, it belongs.

Commissioner SWEET. Well, one of the witnesses suggested that a
part of the prejudice against the street-railway corporations was
because they were usually owned by nonresidents.

Mr. CLARK. Yes, sir.

Commissioner SWEET. Or practically owned by nonresidents.

Mr. CLARK. Yes, sir.

Commissioner SWEET. Did you hear that?

Mr. CLARK. Yes, sir.

Commissioner SWEET. You think that is true; do you not?

Mr. CLARK. I think, Mr. Commissioner, that that, like everything
else, is one of the excuses or one of the means of combating a street
railway, seized on after something other than the mere fact that it
is owned by somebody else, which has caused disturbance between
the company and the public.

Commissioner SWEET. I think Mr. Clark made that statement;
did he not?

Mr. CLARK. Mr. W. J. Clark?

Commissioner SWEET. Mr. W. J. Clark.

Mr. CLARK. I don't know. I didn't hear it if he did.

Commissioner SWEET. That is all.

Commissioner BEALL. There is just one point that I would like to
take up. I am not sure, Mr. Clark,, that this has been thoroughly
brought out in any of the hearings — but is it not true that the aver-
age investor nowadays, unless there is a continuing right, such as an
indeterminate permit, coupled with the right of purchase, will not
invest; that is, that the investor is not only concerned with a good
rate of return, agreed on, but above all the final return of the prin-
cipal of his investment?

Mr. CLARK. Yes, sir.

Commissioner BEALL. And unless he knows that one of two things
will happen — either he will get a continuous right to operate the
property, or else, if it is bought, it will be at a price that will leave
him whole as regards his principal?

Mr. CLARK. Yes, sir.

Commissioner BEALL. And is it not true that for many years
now, one of the greatest difficulties with all public utilities in raising
new money or in refunding an old debt that comes due has been on
account of the fact that in too many States there was a provision
limiting the franchise by State law to "20 or 30 years, or whatever it
may be, and that if they had an obligation coining due and a fran-
chise maturing at that time, or a few years later, or even five years
later, the company could not refund, except at a very short-time
obligation, at a very high rate of interest?

Mr. CLARK. I think that is true. That is the way I would look
at it if I were an investor.

918 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Commissioner SWEET. Do you think, Mr. Clark, that with these
rather short-term franchises, as the end approaches, a consideration
of the granting of a new franchise becomes prominent in the public
mind, and do you think that that has anything to do with the foster-
ing of the spread of antagonism between the company and the com-
munity ?

Mr. CLARK. Oh, undoubtedly.

Commissioner SWEET. And the indeterminate franchise would tend
to do away with that?

Mr. CLARK. Yes, sir.

Commissioner BEALL. The politician takes advantage of it.

Commissioner SWEET. Sure.

Mr. WARREX. Prof. Jenks, will you take the stand?

STATEMENT OF MR. JESEMIAH W. JENKS.

Mr. WARREX. Your full name. Prof. Jenks?

Mr. JENKS. Jeremiah W. Jenks.

Mr. WARREX. And your occupation?

Mr. JEXKS. I am research professor of government, New York
University.

Mr. WARREX. And in that position you have had occasion, I sup-
pose, to study almost all phases of government, particularly of these
utilities and their relation to the Government ?

Mr. JEXKS. I have made no special study of the electric railways,
but in a number of cases in connection with my university work
and in connection with some Government work, I have been called
upon to look right carefully into the relations of government and
business in general.

Some years ago, for example, I had charge of a Government in-
vestigation into the larger corporations and trusts for the United
States Industrial Commission, and later I made other minor investi-
gations in connection with the relation of government to business.

Mr. WARREX. You are familiar with the appointment of ' this
commission and with the problem with which they are confronted
here ?

Mr. JEXKS. Yes. I have understood from the public press and
from information gathered in various places that the electric rail-
ways have been in very serious financial condition indeed, and that
the President thought it wise to appoint this commission to make
a particular investigation and see if they could suggest remedies.

Mr. WARREX. And can you, and will you. be good enough to state
to the commission your views on this question and on this situation ?
And would you rather do so without the interruption of questions
from me ?

Mr. JEXKS. It will be just as well, perhaps, to begin with, and
then I should be glad to have any questions later on.

Mr. WARREX. I will ask you any that will help matters.

Mr. JEXKS. It had seemed to me that, inasmuch as I am not a
technical expert on these railway questions, I perhaps should begin
by stating very briefly what my views are as to the relation of
government and business, for two or three minutes, and then take
up more specifically these things.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 919

I have felt for a long time— from the public press and elsewhere
one gathers the impression — that the real social significance of busi-
ness as business is not understood and appreciated. When one con-
siders the problems that managers of business have to consider, not
merely as regards earning dividends for their stockholders but prob-
lems with their wage earners and customers of all kinds, the fact
that almost everybody in the community is engaged in business in
tome capacity or other, that is, he is attempting to render some
service and get paid for it, business after all is the greatest and
perhaps most difficult social science that there is.

An attempt to formulate the general principles upon which busi-
ness is to be done needs to be based absolutely upon the actual facts
of business, the main fact, perhaps, l>eing the business man himself,
his character, his ideals, and his purposes. That concerns all of us
from that point of view.

Xow, on the other hand, as I understand it, the Government, Avhen
you speak of it specifically, regardless of the men who are doing the
work for the city, is a sort of grand committee that under our laws
we have picked out to do our work for us.

The consequence is that when we are speaking of government and
business and the relations of government and business we are, after
all, largely speaking of the same people doing things from different
viewpoints, one from the regulating end and the other the people
who are actually doing work; so that there ought not to be in reality,
as in essence, any conflict. It should be the business of the Govern-
ment, as representing the people, to help on business. As long as
it is helping it in ways to promote the best interests of the -people
as a whole, any special feeling of antagonism that some people seem
to have, or wish to set up, is really out of place in any proper view
of government and business.

It has been suggested that the electric railways have not been pay-
ing proper expenses, generally speaking. That, to my mind, is a
public calamity, not merely to the owners of the stocks — and in
many cases this condition is apparent to the bondholders — but also
of course to the traveling public, as we found out during the war.

If we are going to find a remedy, the first thing, of course, is to
find exactly what the facts are; and that is what this commission is
appointed for, I suppose.

The causes, as they develop, seem to begin with, I should say,
the increased expenses that necessarily have come from high prices
of all kinds and from high wages, which have normally developed
out of the present conditions and the war conditions.

Another way of putting it is that it is the inflation, if you like,
of our currency and credit. That has been the fundamental cause
of this increased cost of living, while the fixed fares have not gone
up correspondingly. There was no other way out. The trouble must
come.

The offhand remedy, one would say, to begin with, would be,
of course, to raise the fares proportionate to the increased expenses;
aiiil there is where, of course, we get into difficulty at once.

It has seemed to me from a study of similar questions along other
lines that where the public really understands the question it is not
prejudiced against a reasonable, moderate return to capital, and I

920 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

believe that if this commission can get itself clearly before the
public, so that the public knows what the facts are along this line,
there will be no special objection on the part of the patrons to paying
a higher rate of fare. Of course, they will regret it, but it is a part
of the normal business, and they are getting it back in higher wages
and in other ways. There will be objections, of course. We have
had plenty of experience, if one may judge by some of our papers in
New York and elsewhere. Where anything of that kind is at-
tempted, it is looked upon by many — and they seem to wish to pro-
mote that idea among the voters in general — that the people that are
owning and managing these public-service corporations are trying to
get something extra out of the people, more than they have had be-
fore, and it is a burden on the people, or a burden on the working-
men. It depends on how they are putting it.

It seems to me that where that is apparently a deliberate attempt
to mislead, as it often is, for special political purposes, an attempt
to furnish some kind of political propaganda, it should be met di-
rectly by telling the facts officially to the people ; and I see no reason
why it is not a very wise policy for the public corporations them-
selves to give the facts. Of course, AVC know that as to facts given
by the public corporations, they would be considered to be interested
parties, and are often discounted by a good many ; but after all, facts
are facts, and they do carry weight. Some of the railways have done
admirably along that one line, and it has had some weight, as in the
case of the telephone companies; and if the real facts would come
from this commission it would help a great deal more.

There doubtless have been at times great difficulties that have been
caused either by earlier mismanagement or perhaps by present mis-
management in individual cases. I think there is no question that
in the early days, more particularly when franchises were given away
very freely, there was often a good deal of watered stock, and so
forth, and attempts were made to pay dividends on a larger capitali-
zation than was for the good of the public. That is a matter for in-
vestigation into the individual cases wherever that is found. The
remedy in most cases, I suppose, would be in due time, at any rate,
in the hands of the commissions and courts. At any rate, when an
attempt was made to develop further along that line, it clearly
would be.

I have felt also that some very simple principles of business should
be developed among the public, as far as possible.

For example, all of us have doubtless heard hundreds and hun-
dreds of times statements made by people that are promoting the in-
terests of the laboring men that implied that wages could be raised,
and that as a permanent thing, out of the profits, out of the wages of
the managers, and so forth, and not realizing the fundamental fact
that in any business it is out of the value of the product that the
wages and interest on the capital and the wages of the management,
in case there is to be any special benefit to the consumer from lower
prices, has to come. It is out of the product itself.

Now anything, then, that can be done to increase the value of that
product — in this case, of course, as I say, the remedy is to raise the
fares — produces a fund from which all of these things can be
handled.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 921

If, on the other hand, through great skill in management, the costs
can be lessened along any line, that, of course, increases the fund out
of which wages can be paid, and interest, and so forth.

So that fundamental idea, which is certainly not in the minds of
hundreds and thousands and millions of laboring men, I think, is
one of the first things to be driven into the heads of the American
public, as far as possible — that we have to look after the value of
the product, and these things are to be taken out of that, and no one
of these groups in business can permanently go ahead at the expense
of another group. The business can not stand for that at all, and
won't do that.

I think the difficulties that have come along that line, and a good
deal of the trouble that has come to the street railways, as well as to
others, has come from the advocates of certain special political ele-
ments, the extremists in favor of municipal ownership, the socialists,
and others.

I perhaps may, in just a word, express my own view on that ques-
tion now of municipal ownership.

I have no doubt that there are certain localities, particularly the
smaller towns, where everybody knows everybody, and particularly
where an opportunity could be had for combining the street-railway
system — the power there with the electric lights, and things of that
kind — where municipal ownership might work, and work to advan-
tage; but, speaking generally, the experience, not merely of this
country, but of the best of Europe, is against municipal management
' generally.

I think my own experiences along that line have been most marked
in work that I have done from time to time in association with dif-
ferent departments of the Government. .

But the reason for it, to my mind, is absolutely fundamental in
human nature. When we have a business carried on primarily for
the purpose of normal profits, under conditions, of course, implying
honesty of management and things of that kind — we had the man-
agement— and if the workingmen are properly treated and properly
handled, they should recognize the fact that they need to put forth
their best energies and their best intelligence, their interest in the
business, and stick right on the job and not waste time. I have
known some very striking cases, for example, of individuals, abso-
lutely unskilled workers, who, when they got a change of heart along
that line, increased their output amazingly. I know one specific case,
for example, where a young man in a shop was simply feeding an
automatic machine, stamping up triggers in a gun shop. His normal
output, which was as good as that of the average of the shop, was
about 260 a day. The boss came along one day and told him that
he was going to raise his wages 2i> cents a day. He was a faithful
sort of a fellow and got to thinking the matter over. He realized
that, perhaps, he had gone to get a drink a little oftener than was
necessary, looked aside to other people a little oftener than was neces-
sary, and he said to himself, "Old (ieorge has been pretty good to
me; I will see what I can do for him/' 80 he got on the job the
next day and did not waste a minute of the day, all day long. He
did not work any overtime, but he simply worked carefully and
faithfully, and he turned out that day instead of 2GO, 400 pieces,
and he said, " I can easily average 400."
10W430— "20 09

922 j PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

There is an example of what an absolute change in spirit only
will do.

Now, it does seem to me that, in connection with private manage-
ment, you can get that spirit all through the organization from top
to bottom much more easily than you can in the case of Government
management of any kind.

As I have said, I have had more or less experience in connection
with Government management, and it is a necessity in many cases,
but I believe it is much more difficult to get that spirit in the first
place. In the second place, you can not pick and control your men
nearly so well. I have been for many years an advocate of civil
service reform all along the line, not because I thought it was the
ideal thing at all, but because it was the lesser of two evils. Under
civil service, the difficulty is not so much in getting the man, but the
difficulty is in getting rid of him. Anyone who has had any ex-
perience with it knows that it is absolutely impossible to get rid of
those people that you do not want. I know of a case where, for threa
or four months, they had been trying to get rid of people whom they
knew were dishonest. Now, in a private establishment that would be
done easily and pleasantly.

So it seems to me there are those two things.

The third thing, which is not along the same line, is this: In the
case of public management the idea of a profit or a tax does not
come in at all. That is where I think we have been making very
many fallacious conclusions with reference to our war work. The
war work, in many cases, was done remarkably well, but it was done
regardless- of cost. It was simply to get the biggest output possible,
regardless of cost. When peace comes we can not run on that basis
any longer. We have an example of that in some of this beautiful
printing in Government reports. It is done absolutely regardless of
cost. You can not do that in private work. You have to hold the
costs down. On the other hand, if in all private enterprise you clo
not give excellent service, you can not get your price.

Now, it is doubtless true that when people are working equally
conscientiously in both cases, the Government on the one hand and
the private individuals on the other, they will come pretty nearly to
getting results, but that is assuming the ideal in both cases, and you
do not get it in both cases.

Another difficulty that has. come in has been the very slow action
on the part of the commissions where they have had to make decisions
and of the courts when they have had to make decisions. I do not,
feel that I am really competent to express a very definite opinion on
that, because I have not investigated the cases; but, generally speak-
ing, we know our courts have been very slow, and one of the chief
movements among the lawyers has been to expedite the work of
the courts by a reformation in methods of procedure. I have no
doubt that that would run all through this work, as well as elsewhere.

Other difficulties have been due at times to differences of opinion
as to the proper method to be applied, the proper theories, if you like,
that should be applied, as to division of earnings, or as to the amount
of return on the capital invested, and as to the area in which you are
to fix the amount of capital upon which you should pay the return,
and so forth.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 923

There is a real legitimate basis for a difference of opinion there,
and in thrashing these differences out, as I am informed, also in at-
tempting to harmonize the views at times of courts and commissions,
there have been very serious delays.

Now, I suppose that there is an opportunity for the commission's
recommendations to be of great service. If the commission can make
definite, positive recommendations as to the basis on which the re-
turns should be calculated and as to the general methods that would
be followed that can be made as nearly automatic as possible, it will
save a lot of time along those lines, and I imagine in a good many
cases also, as it has been the opinion about the Interstate Commerce
Commission, too much work has been loaded upon commissions. I
have no doubt that that is true in other cases. There, again, Govern-
ment can help by providing the right kind of commissions properly
equipped, all the way through.

Xow, I should suppose that the work of the Federal Government
would be primarily this advisory work. We know that in the dif-
ferent States there are many cases where we have State commis-
sions, for two or three reasons. In the first place, when it comes to
questions of accounting, it is very desirable that therS should be some
uniform system of accounts, for the keeping of costs and things of
that kind. That would be determined by the State commissions.
You are not very likely to get the different municipalities to be
working together so that they will keep their accounts in the same
way, so that comparisons can be made, unless you do have some cen-
tral power. I think something should be done along that line.

I speak with some hesitancy with reference to expressing any
opinion as to the proper basis; but many years ago, in connection
with certain European contracts, it had seemed to me that the sug-
gestion was an excellent one that, when contracts were made with
these corporations providing for rates of fare, returns, and so forth,
perhaps the most satisfactory work as it would occur to me — a theory,
without practical experience — was to provide that rates of fare or
income from whatever source be large enough, so that there would
be no possibility of not earning a minimum amount, a minimum
return on the investment. Then, as would be expected in most cases,
there would be a return above that, and that methods should be had
for a proper division of the surplus return between the corporation
concerned and the municipality, with an increase in the proportion
to the municipality as the profit increased. There are two or three
reasons for that. If you give the municipality a portion above a
certain minimum, then at once the incentive is gone to kcop up
efficiency. If. on the other hand, you give the corporation ;\ con-
tinual likelihood of greater earnings, no matter how good its service
is, it will keep that stimulus on them; and the probability will be
that with that stimulus there the city will get more, too, on account
of the more efficient work than it otherwise would. For example,
take 5 or G per cent. I do not want these figures to be understood
as one that would have my final judgment. I have not studied the
question enough. Then, we will say from 5 to 8 per cent, the division
is half and half, and above 8 two-thirds or three-quarters to the city.
You still would have the stimulus to the corporation, and in that
way I think you would get a better arrangement.

924 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Let me repeat that I speak with great hesitation on these things,
because it is not my real field, but I was interested in the subject for
years, and I have read a good deal on it.

I have felt also that it is very desirable that some method of
calculating these returns be made that can be flexible, that can be
uniform, that can be adaptable, so that one does not need to be
changing rules all the time.

I wonder if I might be permitted to give an illustration from
another field that I am rather more familiar with.

There came into my own experience three or four years ago a ques-
tion of this kind. One of the governments in the Far East wanted
to buy some millions of ounces of silver, which had been tied up in
Europe and practically speculated on in the limited market. More-
over, the rates of freight from London or from anywhere in Europe
to the Far East are higher than they are from San Francisco. A
very large part of the American silver is shipped to London, to begin
with. So the suggestion was made that the Government make a con-
tract with our biggest American producer of silver to be allowed to
take as long as it wanted to a certain number of thousands of ounces
a month at a rate based on the London market price. The London
market price was to be taken as the average, if I recall rightly, of
the preceding two weeks. That took the element of speculation out
of it entirely. On account of the lower freight rate, it assured the
Government something like, if I recall right!}', a quarter of a cent
an ounce, at least, with the cheaper rates, than they could buy in
London on. Then another article of the contract said that this is a
self-perpetuating contract that may be suspended temporarily by
either party, and then may be renewed again by consent of both
parties. The idea was that that kind of a contract, based on the
London market and, for that matter, the rate of interest also made
flexible and depending upon the rate of the Bank of England, was
successful and adaptable to market conditions, and there was no
reason why that should not be run for 20 years.

It seems to me that in any of these cases where we are making
contracts with the corporations and the Government it is difficult
to get those things through, and if, when they are made -\ve could
put them through in some form that would be more or less self-
adapting to varying conditions, it would have a great deal of time.
In the long run it would doubtless be much more satisfactory, and
much help all along the line could be done there. Now, how it
should be done is, of course, something that I do not know anything
about.

It might also very well be that, in making contracts of that kind,
the franchise — I think normally they should be limited, because we
cannot foretell the future long enough — would become practically a
perpetual franchise. I am against perpetual franchises, on principle.

The CHAIRMAN. On that point, let me ask you one question.

Mr. JENKS. Yes. sir.

The CHAIRMAN. Do you believe in the indeterminate franchise,
subject to the right of the cit}^ to buy the plant ?

Mr. JENKS. To buy the plant?

The CHAIRMAN. Yes.

Mr. JENKS. Yes; I have advocated that a good many times,
especially of late years. The more I go into these questions, the more

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 925

I put emphasis upon the fact that, while it is worth while, perhaps,
to retain the option to buy, you had better not buy unless the cases
are very exceptional.

There again, let me repeat what I said before. I think your public
ownership with private management is often a very good combina-
tion. When I was thinking of buying, and when I spoke so em-
phatically against buying, it was with the idea of municipal manage-
ment also.

Commissioner BEALL. Professor, let me ask you there whether one
of the principal things that a company has to do is to continue to
nuse money.

Mr. JENKS. Yes, sir.

Commissioner BEALL. Would you put any money in a street rail-
way of your own? For instance, suppose I wanted to sell you a
20-year franchise — and they do have 20-year franchises — would you
put 3*our money in it ?

Mr. JENKS. I think that, so far as that is concerned, if you have
your proper contract, your proper supervision by the State commis-
sion, and so forth, then that is not so serious a difficulty.

Commissioner BEALL. Well, but it has been. That is just what
comes up. What happens at the end of 20 years?

Mr. JENKS. I wonder if that does not depend upon the character
of the franchise there in the first place?

Commissioner BEALL. Well, but that franchise is ended. You
have no further right. Would you take that risk?

Mr. JENKS. Oi course, this is true. The bonds that were issued
under that franchise are good.

Commissioner BEALL. They are not good if you have not the right
to operate.

Mr. JENKS. Well, that is true.

Commissioner BEALL. Would you put your money in it?

Mr. JENKS. Yes; I would.

Commissioner BEALL. On what theory?

Mr. JENKS. On this general theory, which I think is perfectly
sound, that if you have been able to get a good franchise, particularly
of the type that I have had in mind, the chances are speculative;
but speculation is not a very serious difficulty. The chances are
reasonably good, just as good as the contract's being continued.

Commissioner BEALL. Would you put your money in anything like
that when you have a lot of other things offered to you that will pay,
perhaps, just as well or better, and where you do not have to tako
that risk?

Mr. JENKS. Well, yes. I know that.

Commissioner BEALL. There are a number of things where you
do not have to take that risk.

Mr. JENKS. No.

Commissioner BEALL. Why take that risk if you do not have to?

Mr. JENKS. Your rate of return may be a little higher.

Commissioner BEALL. Well, it is not.

Mr. JENKS. You doubtless will find many individual cases of that
kind. Now, let me reply on the other side. The reason for a some-
what shorter permit — I had not suggested 20 or 25 years as the
lowest; I had suggested 25 or 30 years as the lowest that I had in
mind, but that is immaterial.

926 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Commissioner BEALL. Let me ask you right there: You are fa-
miliar with the fact that where a company has a 25-year franchise,
or whatever term it be, and it is about to expire, and the securities
are coming due, either at the same time as the franchise expires or
maybe some years previously, it is very often the case that it is
practically impossible to renew those obligations?

Mr. JENKS. I should think it would; yes. The other conditions
are aside from these very abnormal conditions.

Commissioner BEALL. But to a very great extent that has alwayr;
been true in good times.

Mr. JENKS. Doubtless it has.

Commissioner BEALL. This thing would have to be handled for a
very short time at a very high rate.

Mr. JENKS. May I give in just a word my reason for suggesting
that alone and not a perpetual franchise ?

The conditions in every community are pretty rapidly changing
all along the line. I do not think we can foretell conditions very
far ahead, and I should say that if we were to go back 50 years —
now, I have not gone through the books on it, but from the general
information that one has — I should say that if we were to go back
50 years we would find that the difficulties that had arisen in many
cases — of course, I am not saying in all, but as a general thing — have
been, in the first place, clue to a franchise .given that was very valu-
able, or else it had been overcapitalized, or else the corporation had
conducted its affairs in such a way that there was some real legiti-
mate cause of complaint against it that had stirred up a hostility
that was more or less justified.

Now, along the lines that I have suggested, if the corporation luvs
managed its business in the right way, and the public has been prop-
erly informed, I do not think there is any special likelihood of the
corporation's being plundered by the public. I grant there are ex-
ceptional cases, and I am as afraid of the politicians as you are.

Commissioner BEALL. Unfortunately, it is the politicians that do it.

Mr. JENKS. I am as afraid of the politicians as you are.

Commissioner BEALL. Now, is not this true that, all things being
equal, you are going to put your money in the thing that offers the
best security?

Mr. JENKS. Oh, surely.

Commissioner BEALL. And if a street railway, through having a
short franchise, or a limited term, has to compete against something
which is very much better, with another form of security, the street
railway is going to suffer.

Mr. JENKS. It will have great difficulty in getting it.

Commissioner BEALL. Is it not just as important to the street rail-
way as to any other form of investor to get that money as constantly
and as cheaply as pssible? It is really vital; is it not?

Mr. JENKS. Other things equal, I grant that.

Commissioner BEALL. The minute you look into the term of your
franchise, are you not putting a great big handicap on the company?

Mr. JENKS. Not if the other things are carried on as your question
implies.

Commissioner BEALL. Have you ever tried to raise money for a
street railway?

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 927

Mr. JENKS. No.

Commissioner BEALL. Have you ever tried to raise any money for
any other kind of an industry?

Mr. JENKS. No, sir; that is not my business. I have been rather
familiar with a great many of these things, but what you say is true.

The CHAIRMAN. We will resume at 2 o'clock.

(Whereupon, at 1 o'clock p. m., a recess was taken until 2 o'clock
p. m.)

AFTER RECESS.

The hearing was resumed at 2 o'clock p. m.

Mr. WARREN. I would like to introduce some documentary testi-
mony here.

Mr. Chairman, you asked Mr. Clark when he was on the stand
for certain information about increases of fares.

The CHAIRMAN. Yes, sir.

Mr. WARREN. And I have a summary of those figures here.

The increased rates of fare granted, as was found in the June,
1919, Aera, page 1078. have been as follows: By commissions, 133;
by cities, 52 ; operation of service at cost, 9. Those increases include
increases of all kinds, whether a charge for a transfer or in any other
way. The number of cities with increased fares was 388, as appears
from the May, 1919, Aera, at page 973. The number of companies
to which increases have been granted in rates of fare are 260.

The CHAIRMAN. Does that statement, Mr. Warren, show the num-
ber of applications that were made for increased fares during the
same period?

Mr. WARREN. This summary does not, Mr. Chairman. The article
shows applications pending before commissions, 36; before courts,
3; and before city authorities, 27. It also shows applications re-
fused, by commissions, 4; by local authorities, 18.

The CHAIRMAN. Is not that quite a remarkable statement?

Mr. WARREN. I think it is.

The CHAIRMAN. It shows that they have been pretty generally
granted increases,

Mr. WARREN. Yes; I think the only criticism that could be made
would be as to the length of time.

Commissioner GADSDEN. There are only about 300 companies in-
volved out of the whole industn*. Lots of them did not apply be-
cause they knew they could not get anything.

Mr. WARREN. That may be so.

Commissioner GAIXSDEN. Yes; but as far as the industry is con-
cerned, it does not show that.

Mr. WARREN. It appeared in a special report of the commission
investigating this general subject in Massachusetts, which reported
a year ago last January, as I recall the statement, that the average
time before the Massachusetts commission had been four months.
Under normal conditions I do not think that could be criticized, but
under the war conditions four months is a long time. The wages
on the Boston Elevated, as I have just been reading in this morning's
paper, have, been raised 25 per cent since the 1st of August, and
they have been rate increases retroactive to the 1st of May; so that
the 25 per cent for May, June, and July, three months, must bo

928 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

paid, although during those three months the rate of fare, most of
it, was at the old rate.

Do 3'ou care to have these magazines filed with the commission,
showing those increases in detail?

The CHAIRMAN. Well, you might as well file one, if you will.

Mr. WARREN. It is in two parts, some in one and some in the other.

Commissioner GADSDEN. Why not .just tear the page out and put
it in evidence, instead of the whole magazine?

The CHAIRMAN. That can be done, Mr. Warren.

Mr. WARREN. Yes.

I have here also copies of replies made to an inquiry by the Secre-
tary of Labor as to the permanence ot the range of prices for necessi-
ties of life. They are statements of Julius Rosenwald, John D.
Ryan, Darwin P. Kingsley, W. L. Douglas, A. Barton Hepburn, J.
Ogden Armour, James B. Forgan, of the First National Bank of
Chicago, and Jacob H. Schiff. Those I should like to have inserted
in the record, if I may.

The CHAIRMAN. That ma}^ be done.

The statements referred to by Mr. Warren are as follows :

STATEMENT BY JULIUS ROSENWALD.

It is my belief that the range of prices for the necessities of life will average
little, if any, lower than at the present time. Of course, there will be some
exceptions, but I do not look for a sudden or violent reduction in the near
future aside from those which have been artificially stimulated.

There exists a tremendous demand in our own country for all kinds of
commodities. This demand will not diminish materially until war-wrecked
Europe firmly reestablishes herself on a peace-time-production basis. I fully
agree with those who believe that the reconstruction is going to tax" our
efforts perhaps even harder than did the war, and that there is cause for
rejoicing in these conditions even though accompanied by high prices, for,
after all, it is not a question so much of the price one has to pay, but as to
what relation this price bears to one's own income.

STATEMENT BY JOHN D. RYAN.

I am rather a firm believer in the natural economic laws and I do not find
myself in accord with the impression that many people seem to have that the
level of prices is not likely to be radically changed over the decade. I believe
that prices must be made that will equalize consumption and production.

We have seen some sharp adjustments already from war prices, and in every
product in which the companies with which I am connected are interested
prices have gone back to prewar averages, and in some cases lower. These
products are copper, zinc, lead, and manganese.

I do not believe that the level of prices will fall permanently as low ns
before the war, but I am convinced that we can now look for gradual adjust-
ments in most staple products. I think prices will have to be put where build-
Ing and development of all kinds must be encouraged before we will see con-
sumption approach production of the staples.

I think in the adjustments which are necessary labor will have to contribute
its share or unemployment on a very serious scale is bound to result. I hope,
however, that the intelligence and foresight of those who have to settle these
questions will be such that every consideration of the needs of those who work
for wages and salaries will be considered before profits, and that reductions
in wages will take place only where it is imperative.

STATEMENT BY DARWIN ?. KINGSLEY.

We have undoubtedly reached a new price level. For some years food will
bo higher. Europe has been so stripped of every sort of food that it will take
more than the harvests of 1919 to restore an equilibrium.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 929

Food will remain high because wages will not go back to the prewar level.
Wages will fall at some points where production was overforced during the
war; but unless our whole industrial and financial fabric falls into chaos —
find nothing like that seems possible now — the postbellum readjustments mean
continued high wages and, of course, a higher cost for everything into which
wages enter.

How "far discoveries In science, inventions, improved methods, etc., may go
toward overcoming this increased cost through increased efficiency and in-
creased production is a question. These will be a factor, possibly a surprising
factor, because the rewards will be large, and few things so quicken invention
ai d efficiency as the incentive of large returns.

Carry the message to the Bolsheviks.

STATEMENT BY W. I. DOUGLAS.

Tf you will call it to mind, the per capita in the United States in 1914, in
round numbers, was about $34. Recently I have noticed that the per capita is
about $57, which is an increase of a little over 57 per cent. While the per
capita remains at this high level the cost of commodities and labor will remain
about the same. I am of the opinion that prices will be governed to a great
extent as the per capita rises or falls.

STATEMENT BY A. BARTON HEPBURN.

Seventy-five to eighty per cent of the cost of all products represents labor;
and as long as the minimum price of wheat is fixed by the Government at $2.25
a bushel and other necessities of the wage earner are approximately as high in
proportion, there is every reason why labor should contend against reduction.
With a recession in the cost of living there should be a corresponding reduc-
tion in the cost of labor. The employers of labor can not go on paying present
wages nor, indeed, any wages, unless their business continues, and it has seemed
to me that the closing of certain industries would throw labor out of employ-
ment. In seeking new employment they would accept the reduction in accord-
ance with what industry could afford to pay.

I understand that this is what you are contending against ; and you seek to
induce manufacturers, wholesalers, retailers, and consumers to accept the
present prices for goods and commodities and continue business, thereby assur-
ing the employment of labor at the present level of wages. You very likely
will be successful as to the large industries, but I think there will be more or
less readjustment of the wage scale on a lower level in the smaller industries
and in various localities.

STATEMENT BY J. OGDEN ARMOUR.

The greatest danger to our economic structure to-day arises from the failure
of many to recognize a new and higher level of prices, based on permanently
increased cost of labor and higher taxation.

Those who postpone building or buying in the hope of materially lower prices,
are sjieculating in the future misfortune of the Nation. For falling prices, when
reaching the point where profit is eliminated, mean panic, depression, unem-
ployment, and other troubles.

In the final analysis, 75 per cent or more of the cost of most commodities con-
sists of labor, and reductions in the market price of commodities are, therefore,
inevitably reflected in the compensation of labor.

Nothing in the labor situation warrants anyone in expecting materially lower
cost of commodities in general, and building in particular. Wages will not
be less for several fundamental reasons ; viz :

1. The practical stoppage of immigration since 1014, depriving America of
the several million workers who would normally have come to our shores.

2. The retention by the Nation's military and naval establishments of nearly
2,<MX),(HK) workers, which may continue for an indefinite period.

:j. The creation of new Industries, such as shipbuilding and manufacture of
chemicals and dyes, requiring hundreds of thousands of workers.

4. The urgent dcMiiand for building and construction of every class due to
their having been forcibly held back for several years.

930 PROCEEDINGS OP FEDERAL, ELECTRIC RAILWAYS COMMISSION.

5. The shortage of the world's supply.

G. The proportionately higher levels of commodity prices existing practically
all over Europe.

On the one hand then, we are facing a serious shortage of labor as soon
as we approach normal industry activity, and on the other hand there is con-
fronting us a tremendous, unsatisfied demand for many necessities which it
was difficult or impossible to obtain during the war.

Normally, under such conditions we could have expected a flood of low-
priced goods from the Old World, while now we find that prices in Europe have
risen proportionately much higher than in America, and the demand for com-
modities and labor, to make up for the wastage of war, is even more keenly
felt there than here.

The manufacturer who now quotes the lowest possible price consistent with
the high cost of labor and guarantees this to be so, doing his buying freely on
the same basis, ranks as our highest type of patriotic citizen. A new level
of prices has been established from which there can be no material recession
until inventive genius succeeds in correspondingly increasing labor's productive
capacity by mechanical means.

STATEMENT BY JAMES B. FORGAN, FIRST NATIONAL BANK, CHICAGO.

While it is my belief that the general trend of prices during the next decade
may be downward, I clo not anticipate any sudden or violent tumble in the
near future beyond the elimination of war prices made necessary to stimulate
production in high-cost plants. We can not eat oiir cake and have it. We can
not immediately have low-priced products with high-cost lalx>r.

At no time was honest labor more indispensable than during the war, and
during that period the average weekly wage of all workers was greatly in-
creased.

Out of the war has come a strong realization of the value of labor to
civilization, and we must actnistom ourselves to the evident- fact that a per-
manently higher scale of wages or compensation has been established for the
world's worker, both skilled and unskilled.

In all lines of industry, to make a fair profit, selling prices must be in pro-
portion to the cost of production, including the enhanced cost of labor. This
fact should be recognized in buying as well as selling.

There exists in the world to-day, and there will exist for some time to come,
a tremendous latent demand for goods and service and a relative shortage of
workers caused by the war. The high cost of living has not yet begun to recede,
and it would be an erroneous policy at present to cut prices at the expense of
labor.

STATEMENT BY JACOB H. SCHIFF.

In the period from May. 1918, to October, 1918, commodity prices in the
United States had advanced about 107 per cent above the 1917 level; in Canada
115 per cent; in Great Britain 133 per cent, and in France 235 per cent From
October, 1918, until March this year, in spite of the most violent cry for lower
prices, even by those who are undoubted beneficiaries of high prices, the de-
cline, according to Dun's figures, averaged only 6.9 i>er cent. During April, in
spite of the agreement to lower steel prices, other commodities rose to such
an extent that the average price on April 1 was only 5.7 per cent below the
high point for October 1 last year.

The reason for this tenacious grip which high prices apparently have taken
on the world is obviously to be found in the immutable law of supply and de-
mand. The cost of labor is the most important factor in the price of com-
modities, as it makes up 75 per cent or more of their price. It starts with the
cost of food and raw materials, which is largely represented by labor, goes on
to the manufacture of semifinished and finished products, which again is labor
heaped upon labor, and is frequently punctuated between or after these various
stages or processes with transportation and distribution, which, when analyzed,
turn out to consist of a high percentage of labor in its broadest sense.

The v.-astage of war, both in men and materials, again is largely responsible
for shortage of labor, especially . past and prospective. For four years the
orderly production and maintenance of peace-time activity has been most

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 931

violently interrupted throughout the civilized world, causing on the one hand
a lietivy depreciation of property and on the other hand an appalling destruction
of all those things which are vital to human happiness, life and activity. The
reconstruction is going to tax our efforts perhaps even harder than did the
war. the latent demand for labor and commodities being tremendous.

There is cause for rejoicing in these conditions, for intense activity, even
though accompanied by high prices, is far to be preferred to (he blight of
inactivity, stagnation, idleness, and suffering attendant upon unsound, un-
balanced production and rapidly falling prices. After all, it is not a question
so much of what price each of us has to pay for what we want but as to what
relation this price l)ears to our own income. These millions of men whose
incomes have grown apace with, or ahead of, the general price advance have
abundant canst? fr.r satisfaction. Yet how often do we hear these same
people unwittingly complain of high prices, their attitude being that high prices
is a privilege that belongs to themselves only, in the selling of their own labor
or wares, but has no place in their scheme of buying.

Mr. WARREN. Then, earlier in the session—

The CHAIRMAN. Just a moment. Can you state for the record
what the substance of those replies is?

Mr. WARREN. I think the substance of it is that the price level is
going to be maintained for a long time.

The CHAIRMAN. That is all I wish to ask on that.

Mr. WARREN. Then we referred in some of the earlier testimony
to the history of prices during the war, international price com-
parisons issued by the Department of Commerce. I would like to
file that as a memorandum. It might assist the commissioners.

I should also like to file the Review of Economic Statistics for
June, 1919, monthly supplement, the post-war level of commodity
prices, which is issued by the Harvard University Committee on
Economic Research, at Cambridge, Mass.

The CHAIRMAN. AVould it be convenient for you to get a sufficient
number of copies so that each and every commissioner could have
one of them ?

Mr. WARREN. I will endeavor to do that, Mr. Chairman.

The CHAIRMAN. Thank you.

Mr. WARREN. There are many things we have promised, and which
I want to file, but which I should like to have an opportunity to
look at the record for; because while we have kept a memorandum,
I am afraid it is not complete, and I want to run through the steno-
graphic record, when finished, to see what we should furnish that
we have not furnished.

The CHAIRMAN. Yes.

Mr. WARREX. The commission has asked for data as to the power
generated and purchased by the electric railways of the United
States, with the cost of each, for the census year. They are referred
to in Table 104, 1912, and Table 104 of Advance Statistics, 1917
census, and that I will file.

932 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The information thus referred to by Mr. Warren is as follows :

Power generated and purchased 677 electric railways of United States tdf/t the
cost of each for the census years.

(Table 104, 1912, and Table 104, Advance Statistics, 1917 Census.)

Kilowatt hours.

Percent
of total.

Cost.

Percent
of total.

1917.
Power generated

7,240,502,783

59.4

$54,494,814

59 1

Power purchased ....

4, £47,348,042

40 6

37 757 963

50 9

Total . . .

12,187.850,831

100 0

92 352 777

100 0

1912.
Power generated

6,052,699,008

67 1

35 788 270

59 2

Fo'.ver purchased

2,967,318,781

32.9

24 6% 647

40 8

Total

9,020,017,78-)

100 0

60,484,917

100 0

1907.
Power eenerate J

4 759,130 100

31 235 005

71 1

Power purchased

(')

12 342 258

28 9

Total

43,577,268

100.0

1902.
Power venerated
Power purchased

2,261,481,397
(i)

19,190,810
3 871 518

83.2
16 8

Total

23 082 328

100 0

1 Not available.

Mr. WARREX. The commission also asked that the ratio of tax to
net capitalization for the census years 1902 to 1912, which is made
up from Table 5, 1912 census, and Table 5, Advance Photostats, 1917
census, and that I will file. The ratio appears to have 0.935 per cent
in 1917, as against 0.826 per cent in 1912.

The information thus referred to by Mr. Warren 'is as follows:
Ratio of taxes to net capitalization for the census years 1902-1912.

(Table 5, 1912 census, and Table 5, Advance Photostats, 1917 census.)

1917

1912

1£07

1£02

$4, 881, 962, 096

$4,243,317,727

$3, 400, 107, 839

$2 155 768 102

45,756,695

35,027,965

19,955,602

13 078 8J9

Ratio taxes to net capitalization (per

0.935

0.826

0.58

0.607

Mr. WARREX. Our statistician was asked, when on the stand — as
to the segregation of electric-railway companies relating to power
statistics — where the companies were combined companies, as re-
ported in the Special Electric Bailway Census ; and I am advised as
follows by him :

In answer to questions of Commissioner Wehle regarding the ex-
tent to which the United States census reports segregate power
statistics as between strictly electric-railway properties and those
doing a combined electric-railway, lighting and power business, it
has been found that complete separation has been made by the United
States Census Department.

This is included in the 1912 census report under the discussion of
power-plant statistics.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 933

We are advised by the Census Department that the same segregation
has been made in the 1917 census, and where possible, an even greater
refinement has been made in the attempt to segregate as completely
as possible electric-railway properties from those doing a combined
power and lighting business. As a result, the amount of power and
lighting business included in the electric-railway statistics is in-
significant. This applies to all statistics, including the number of
employees and the capacity of equipment in use.

One of the witnesses was also asked as to double-decked cars; and
we have the following replies:

The first one is by Mr. Tome, receiver of the Pittsburgh Railways
Co., dated July 23 :"

Mr. E. B. BURRITT,

Secretary American Electric Railway Association.

Washington, D. C.
(Re double-dock cars \ised by Pittsburgh Railways Co., Pittsburgh, Pa.)

DKAR Mr. BURRITT. The operation of double-deck cars in Pittsburgh has been
in effect since the summer of 1912, at which time a double-deck car constructed
in the company's shop was put in service. This operation' proved sufficiently
successful to warrant the purchase of five additional cars from the car builder.
So, therefore, for the last five or six years we have been operating a total of
six cars of this type in regular passenger service from the center of the city to
the residential districts. These cars were designed primarily to meet a demand
from the public an.l in response to a campaign of certain complainants for a
greater proportion of seats per passenger during the rush hour.

These cars are the center-entrance type with double doors and two stairways
at the center, thus facilitating the collection of fares.

The seating capacity of the cars is 112 persons, and they take the place in
the schedule of a regular motor car and trailer, having a combined seating
capacity of 120. In other words, the double-deck car is used in the same service
with two-car trains. They have not noticeably slowed up the schedule, although
there is no doubt that some additional time, is required for loading these cars
as compared with the other cars on the system.

Of course, these cars are not so well suited for midday service, since the
larger capacity is not needed except in the rush hour, and this involves some
additional weight and wear and tear during the nonrush-hour periods. As a
matter of fact, however, these cars have been so closely designed that they do
not weigh more than the standard double-truck end-entrance cars largely used
on the system. It Is only in comparison with the modern center entrance, low-
floor cars, now adopted as standard on the system, embodying the same prin-
ciples as these double-deck cars, that a saving in weight may be secured.

Owing to narrow streets, sharp curves and clearance in passing overhead
structures, the interior design and dimensions of these cars were necessarily
limited, resulting in some loss of comfort and convenience to the passengers.

In view of the above considerations, we do not believe that we would care
to extend the use of this type of car, as its economies are somewhat doubtful
In view of the limitations in schedule speed, the carrying of extra weight in
the nonrush-hour periods, and the limited dimensions of the car.
Yours very truly,

(Signed) S. L. TOMK.

Rcccircr, J'Htxbiirali lfnilir<n/>t Co.

A telegram from Mr. A. M. Rol>ertson, vice president of the Twin
Cities Rapid Transit Co., Minneapolis, Minn.:

MIXNKAPOI.IS, MINN., ,/»/// ^, 1UI9.
HKISHKKT WAKRKN,

it'tO Mnnscy nuiltliin/, Wa*?iinaton, 7). C.:

Telegram received. Experience of Twin City Co. with double-deck cars was
not of sufficient duration to go to the real merits of their operation. During
pleasant weather all passengers wanted to ride on upper decks, during bud
weather they wanted to ride below.

A. M. RODKBTSON.

934 PROCEEDINGS OP FEDERAL ELECTRIC RAILWAYS COMMISSION.

Telegram from Horace Lowry, president of the Twin Cities Rapid
Transit Co., Minneapolis, Minn. :

MINNEAPOLIS, MINN., July 23, 1919.
JOSEPH K. CHOATE,

American Electric Railicay Association,

9~)0 Mtinsey Building, Washington, 7). C.:

Yesterday we wired Warren of Duluth Co. in regard to double-deck cars.
Our experience not of much value as equipment was too heavy on account of
attempt to build upper deck on standard cars. Upper deck was not closed in
and was very unpopular in bad weather and over-crowded in good weather,
iraking cars top-heavy. Do not believe our experience of any value in dis-
cussion. We only built three cars and only used them a short time.

HORACK LOWHY.

Telegram from Frank Hedley, vice president and general manager
of the Interborough Rapid Transit Co. of New York, saying :

NEW YORK, N. Y., July 23, 1919.
JOSEPH K. CHOATE, Esq.,

American Electric Railway Association,

9i)0 Munsey Builainy, }\'asliin'gton, D. C.:

Oi>eration of double-deck car has been successful and popular here. Built
before war. not practicable to build and operate such equipment at present
prices of labor and material on 5-cent-fare basis.

FRANK HEDLKY.

I would like to file a letter from Mr. H. H. Westinghouse, of the
Westinghouse Air Brake Co., on the cost of materials. Other mate-
rial of that kind was filed, and I do not think I need to take your
time to read it:

NKW YORK, N. Y., July 23, 1919.
COMMITTEE ON PRESENTATION,

American Electric Railway Association.

GENTLEMEN : The Westinghouse Traction Brake Co. specializes in furnishing
material and expert service for the safe and effective braking control of elec-
trically propelled vehicles. Its business forms a substantial proportion of
the product of the parent company, Westinghouse Air Brake Co., the largest
manufacturer of power brakes for steam locomotives and cars.

During the period of the war practically the entire output of the Wer.ting-
house Air Brake Co. was oil Government orders, and our raw material and
labor costs, as well as personnel, were affected in almost exact ratio to the
large steel mills and other industries in the vicinity of Pittsburgh, where our
works are located. The increased cost and scarcity of material and labor has
resulted ill a continual rise in cost of production, and therefore in the price
to our customers, the electric railways, as shown by an approximately increase
in price of standard brake apparatus in 1919 over 1914 of 78 per cent. Not-
withstanding this condition, the rate of profit has remained practically the same
ns in 3914, being in some cases somewhat less.

The art of brake manufacture has been so completely developed that there
is little prospect of reduced costs due to improved methods ; and as there
seems to be no immediate reasons to expect a reduction in either wages or
cost of material, it is believed that the present scale of prices can not be re-
duced within the near future. We, of course, hope that conditions will so
change that we can readjust prices for the benefit of our customers, -but
circumstances over which we have no control must necessarily govern what
may be done in that direction.
Truly, yours,

H. H. WESTINGHOUSE.

Mr. WARREN. A question was asked the other day about British
conditions. The Electric Railway Journal has published numerous
articles on the situation in Great Britain, in which it appears that
there have been increases in wages, and that fares have been in-
creased in many cases from 50 to 100 per cent.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 935

There is also included in these articles a statement of increased
cost in the city of Sheffield, and if I may file those — not to be copied
into the record, but as possible useful information for the commis-
sion— I would like to do so.

I should also like to have go into the record, if I may, without
taking the time to read it, a letter from Congressman W. B. Mc-
K in ley. who is president of the Illinois Traction S3rstem, on the street-
railway situation. I should like to have that copied into the record.

The letter thus referred to by Mr. Warren is as follows:

CHAMPAIGN, ILL., July 23, 1919.

PEAK SIR : I inclose herewith sundry data in connection with the electric
railways and collected from our experience in operation.
Yours, very truly,

W. B. MCKINLEY, Prcaulent.
FEDERAL ELECTRIC RAILWAYS COMMISSION,

Interstate Commerce Building, Washington, J). C.

There are so many dependent considerations to be considered in a discussion
of the financial crisis in which the street-railway systems find themselves that
it can not be covered in any short discussion. The following subdivisions will
furnish a basis of suggestion, from which may be selected the particular
branch of the subject which one may wish to present.

STREET RAILWAY DATA — DEVELOPMENT AND EVOLUTION.

Facilities: (a) Cars, (h) track and roadway, (c) wages, (d) power houses.
(c) competition, (/) saturation or service.

(a) Cars. — If we iregin in the year 1895 and take steps in five-year periods
down to the year 1919. we find that there has been a complete evolution and
change in the type, construction, electrical equipment, size, and appliances in
use in street-railway-transportation systems.

About 1895 the electric street railway became a reality, although the earliest
experiences and development in that utility preceded that date by probably
fivo years.

The first cars were constructed with open vestibules, without any protection
for the trainmen, with the most simple operating devices; hand brakes, single
motors, light weight and cheap .construction. They were single-truck cars
without any improved fare-collecting or registering devices, with the most
simple electrical equipment and heated by stoves.

The present electric street-car is usually of the double-truck type, multiple
motors, large seating capacity, vestibules completely inclosed and electrically
heated.

The electric equipment on the present typo of car costs more than the entire
car complete cost originally.

From a car costing prol>ably $3,500 fully equipped, we now pay $5,000 to
$10,000 for a single car.

(b) Track and roadicuy. — The original electric street railway was usually
run on 30-i>ound steel rails; over light social work; little, if any ballast;
no pavement, light bonding, without crossing signals or devicts, and without
any modern safety appliances.

To-day the track is laid of 90-pound steel rails, sometimes 125 pounds (heavier
than in use on the steam railroads), rails of special type; the special work of
the heaviest construction obtainable; track usually laid on concrete base, and
pavements of expensive and permanent character. Where street is unsafe,
the track is heavily ballasted. The cost of installing and maintaining crossing
signals and devices is a material element; the rail joints are frequently welded
and connected with heavy and expensive bond.

A comparison of the installation of the track and roadway of the year 1900
with the present time shows from 100 per cent to 200 per cent increase in the
cost of this part of the property.

Likewise in similar ratio the maintenance costs have increased.

(c) Wages. — From n 15 or 20 cents per hour wage to platform men, the
street railways are paying from 30 to 70 cents per hour, and demands are being
seriously urged for additional increase.

936 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The wages of all the trackmen has increased from approximately $1.35 per
day of 32 hours to approximately $4 per day for 8 hours.

Shop labor and power-house labor has increased in like proportion. Linemen
are receiving $1 per hour.

(d) Power houses. — The development of the generating plants of the electric
street railways has undergone a complete evolution within the last decade.
From small 100 kilowatt belt, or direct-connected units, we have advanced to
noncondensing steam turbines of from 500 to 10,000 kilowatt capacity.

(e) Competition. — In the face of these advancements, street railways to-day
comi>ete with gas-engine vehicles in the form of jitneys or taxicabs, to say
nothing of the privately owned automobile which carries a large per cent of
the population which used to use the tram cars.

(/) Saturation and service. — The street-railway systems 10 years ago aver-
aged a population of 1,000 per mile of track in the cities served ; with the
doubling and redoubling of population, to-day the electric-railway mileage is
on a ratio of probably 2,500 people per mile of track, in smaller communities
with much larger ratio of population than in the larger cities.

Originally the electric car carried the passenger on comparatively short hauls
for a 5-cent fare; while to-day the electric-railway utility is expected to carry
passengers as far as 20 miles for the same nickel.

A bare suggestion of the above historical facts is enough to prove the im-
possibility of the future development or success of the electric street railway
on the old basis of a 5-cent fare.

Probably one of the fundamental errors in the evolution of street-railway
business has been the effort to extend the length of haul without any reference
to a zoning system and without any proportionate or compensatory increase in
fare.

There can be no justification for charging one passenger 5 cents for a ride
of two or three blocks and another passenger on the same car only 5 cents for
traveling a distance of 10 miles.

There can be no defense of the regulating practices which are being applied
to the street-railway business by the commissions and regulating bodies at the
present time.

The single aim of the regulating bodies seems to have been directed to an
effort to justify a continuance of the 5-cent fare in the face of the conditions of
evolution and development of the service.

One of the false methods by which it has been attempted to justify the nickel
fare under impossible conditions is for the regulating body to ascertain an esti-
mated original cost of the physical property remaining in the service of a par-
ticular utility, entirely ignoring the property that had been retired without hav-
ing served its useful life and without any effort to reward the utility for losses
from functional depreciation in the units replaced with improved types and
structures.

Thus by this process of unfair appraisals, the regulating tribunals 'have con-
fiscated millions of dollars of invested capital, wholly without any effort to
compensate for the loss or recognition of the destruction of the industry.

There has also apparently been no effort to harmonize or reconcile the
various classes of patronage which support the street-railway service.

The man who rides on the car once a month and to whom it is nothing but a
luxury and who does the loudest complaining at any discomfort in the service
pays the same fare as the laboring man who rides on the same car four times a
day and who really supports the service.

If a service is maintained to accommodate the transient rider he would
probably have to be charged from 50 cents to a dollar per tiip; while the
maintenance of a service to accommodate a daily user could probably afford
it at 5 cents per ride.

There is also apparently no recognition of the necessity for a tremendous
investment to meet peak-load business during the rush hours of the day or
upon the occasion of unusual gatherings such as county fairs, circuses and the
like ; and the street railway is expected and required to maintain sufficient
equipment to conveniently handle tremendous crowds for probably three or
four days in the year, and 50 per cent of this equipment lies idle the rest of the
time with no thought of the interest upon the investment necessary to provide
the same.

During the rush hours the passenger complains of the crowded condition
of the cars, and the public is entirely forgetful of the remaining four-fifths of
the day when the cars are rattling over the system without passengers and at
an actual operating loss to the company.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 937
SUGGESTED REFORMATIONS.

1. There should be a zoning system put into practice on every street-railway
system, by which the long-haul passenger pays for the additional service in
some degree of proportion to the short-haul passenger who probably pays ail
excessive fare.

2. A basic 10-cent fare would be less in proportion to the present-day invest-
ment and operating and maintenance costs than was a 5-cent fare when the
thing became generally operative.

3. With a basic 10-cent cash fare, provision should be made for the accommo-
dation and recognition of the value of the daily patron by a sliding scale of
reduced fares in proportion to the frequency of patronage by the individual or
his family.

4. The street-railway company should be encouraged to inaugurate' the
practice of one-man car operation and to purchase specially designed and con-
structed equipment for that character of operation.

This, however, requires as a condition precedent that the retirement from
service as obsolete of the present character of equipment should not operate
to deprive the investor of the value of the remaining useful life of such equip-
ment and the original investment therein, but the same should continue and be
made a part of the fair value of his property upon which subsequent rates are
predicated and return allowed.

Unless the regulating bodies do allow as a part of the appraisal of street-
railway systems the property which the company elects to retire and treat as
functionally obsolete, it will be financial suicide to attempt this improvement
and economy when operating street railways.

5. If the patron of the street railway company is to be required to furnish
the money to pay a compensation to the city for the use of the street by the
street-railway system, it should be laid as a direct charge and not camouflaged
by assessments for pavements for which there can be no present-day apology.

The theory of assessing a street-railway company for street paving may have
been justified when the mules trod down the middle of the street and wore out
the roadway, but it can not be justified with electrically operated cars, where
the surface of the pavement is usually better than in the adjoining portion of
the street upon which vehicles are supposed to preferably travel.

Under present conditions the patron of the street-car who supports the service
pays for the construction and maintenance of a pavement in the streets for the
use of the automobile driver, who does not patronize the street-car but who uses
the facility provided by the revenues furnished by the street-car passenger.

The CHAIRMAN. Mr. Warren, will you kindly indicate to the re-
porter the documents filed that you desire to have made a part of the
transcript of the record ?

Mr. WARREN. I will do that afterwards; yes. sir.

The following statement was also submitted by Mr. Warren :
Electric raihcayx — lialance xhcet, operatiny and lessor companies, 1917.

Number of companies 1,307

Profit and loss, surplus 732

Profit and loss deficit 394

Balanced statements (neither surplus nor deficit) 181

Total assets or liabilities $0.272.017,041

Assets :

Hoad and equipment 5,13(5.441,509

Other physical property 79, 008. 323

Stocks and bonds of other electric railway companies 312. (500. 03(5

Stocks and bonds of companies other than electric railways 03. 305, 213

Treasury securities 77, 883,055

Stock 17. 254. 917

Honds (50, 028, 138

Other |H>riiiuiient investments • 108, 7(59. 01M5

Materials and supplies.. 59.1(58,287

('ash and notes and accounts receivable 140,191,981

Stock and bond dim-mint 101.483.071

Sinking and other special funds 71,454,040

160043°— 20 CO

938 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Assets — Continued.

Interest, dividends, and rents receivable $3, 208, 174

Sundries 39, 047. 487

Profit and loss, deficit 78, 740. 080

Liabilities:

Capital stock 2, 473, 840. 051

Common '. 2, 012, 189, 294

Preferred 401, 057, 357

Funded debt • 3, 051, 179, 272

Real estate mortgages 7, 197, 895

Floating debt (loans and notes) 100,592,228

Reserves , 75, 744, 518

Accounts payable 87, 947, 134

.Interests, rents, and taxes due and accrued ; dividends

due 102. 999, 990

Premium on capital stock and funded debt 12, 224, 098

Accrued depreciation 73,933. 750

Sundries 04, 138, 284

Profit and loss, surplus 150,812.709

Net surplus—, 78,072, 029

Condensed income accounts, year 1911.

Operating companies :

Income from all sources $730, 108, 040

Operating revenues —

Railway operations 050, 149, SOG

Auxiliary operations 59, 075, 280

Total operating revenues 709, 825, 092

Operating expenses 452,594, 054

Net operating revenue 257, 230, 438

Taxes 45, 750, 095

Operating income 211,473. 743

Nonoperating income 20, 282, 948

Gross income 231, 750, 091

Deductions from gross income :

Rent for leased roads (lines and terminals) 48,302,823

Interest on funded and unfunded debt 119, 113, 018

All other__ 7,889,920

Total deductions 175, 305, 701

Net income 50,450, 930

Dividends 48, 337, 435

Surplus 8,113, 495

Opehftinr/ expenses ?>?/ detailed account, United States, 1917.

Number of companies 943

Operating expenses $452, 594, 054

Railway 421, 250, 838

Auxiliary 31, 343, 810

Way and structure 55,754,859

Superintendence of way and structures 3, 110, 073

Maintenance of way 35,717,257

Maintenance of electric lines 0,023,513

Buildings, fixtures, and grounds 2,912,025

Dapreciation of way and structures G, 800, 348

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 939

Way and structure — Continued.

Other operations $591.643

Other operations, credit 2:14, 440

Railway operations, net total 55, 470, 419

Equipment 49, 48Tn 880

Superintendence of equipment 2,039,273

Maintenance of equipment 35, 91G, G95

Miscellaneous equipment expenses 4, 249, 992

Depreciation of and retired equipment 6. 83G, 836

Other operations 443, 057

Other operations, credit 504, 320

Railway operations, net total 48, 981. 554

Power 92. 352. 777

Superintendence of power 934. 311

Power-plant buildings, fixtures, and grounds 408, 321

Maintenance of power equipment 4, 128. 435

Depreciation of power plant, buildings, and equipment 2. 270, 295

Power-plant employees 6, G59, 758

E'uel for power 30,167,325

Water for power 504. 1.32

Other power supplies and expenses 1. 475, 390

Substation employees— 2, 634. 5(>7

Power purchased and exchanged, credit 4.259,812

Other operations, credit 11, 134, 504

Railway operations, net total 7G, 958. 461

Conducting transportation 174,972, 645

Superintendence of transportation 9, 839, 230

Conductors, motormen, and trainmen 131,052,689

Miscellaneous transportation expenses 34, 080, 726

Traffic expenses 2, 301, 817

General and miscellaneous 64.185,308

Salaries and expenses of general officers 7, 013. 752

(ieneral expenses 22, 794, 005

Injuries and damages 23, 743. 431

Insurance 3, 101, 407

Kent of tracks, facilities, and equipment 7,152,823

Other operations 379, S90

Other operations, credit 1,447.043

Railway operations, net total 62,738,255

Transportation for investment 172, 323

Mr. WARREN. Prof. Jenks, will you resume the stand?

STATEMENT OF MR. JEREMIAH W. JENKS— Continued.

Mr. JENKS. Yon had been asking me some questions, Mr. Com-
missioner.

Commissioner BEALL. Yes, sir; I had finished with those.

Mr. JENKS. Some questions have been asked with reference1 to the
effect of the short-term franchise on the securities. I had spoken
of the desirability of th« short-term franchise, 25 or 30 years perhaps,
the reason for the term submitted being that there arc very many
changing conditions that, can not he expected.

I recall to my mind, for example, a specific instance that I remem-
l>er being told me in Washington here some years ago, when I was
engaged in a Government investigation. It was the case of a gas
comjKiny. One of the directors told me that the chief problem be-
fore them for some little time had lx»en to find ways to cover up
their profits, so that they would not get in difficulties with the taxing
authorities.

Mr. WARREN. That was not a street-railway company.

940 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION".

Mr. JENKS. That was not a street-railway company ; no. The prin-
ciple, as to the franchises, of course, may be the same in general.

He said that it had to seek new ways to get securities out, so as
to not have their profits appear so high that the public would not
stand for it.

That, of course, was an exceptional case, and under present condi-
tions I am quite prepared to believe it would not apply to any one
of the electric railways.

Notwithstanding, we do know perfectly well that in the early days
street-car franchises in many cities that were rapidly growing were
given on' such terms that within a few years they did become unjust
to the public.

No\v, as regards this question of securities, I am quite in sym-
pathy with the suggestion that was made that they had to be taken
care of. I believe, as I said to begin with, that business is as much
a care of the public — property, I mean, is as much a care of the
public — as anything else. We are all one. It is the difference in
the point of view ; but I should think there might be different ways
of meeting that objection. . If we are going to have any specific
term, 50 years, 75 years, the same difficulty is likely to arise.

Mr. WARREN. The idea of the indeterminate franchise is to have
no definite term.

Mr. JENKS. Yes ; that is understood.

Mr. WARREN. It simply continues until the city chooses to buy on
an agreed price, based on the actual value of the property.

Mr. JENKS. Yes; I understood that was the case.

Mr. WARREN. And in Cleveland it goes a step further than that,
and provides that the city can arrange for the sale to some other
company, and the city does not necessarily have to buy it iself.

Mr. JENKS. In a great many cases at the present time in the sales
of bonds of public-service corporations — and I think it should be
generally the custom, when the bonds are issued — rigid provisions
are made for either a sinking fund or issues of term bonds that will
take care of themselves as they go on. My own feeling is that they
should be included in the cost-of-service idea and be taken care of
in the permanent obligations of that kind, as I think there should
be taken care of a proper depreciation and maintenance of the road
and things of that kind. I see no reason why that is not one of the
regular proper charges to take care of in that way, and that would
include amortization.

Commissioner BEAUL. That is all right, if they will allow you to
earn enough to do it ; but they do not.

Mr. JENKS. Well, there again, that will come in under the prin-
ciple that I have laid down at the beginning — that if we are going
to have that, the rate should be fixed high enough so that there would
be no question about taking care of the proper legitimate charges.
I am quite in sympathy with that, that they should take care of the
securities.

Commissioner BEALL. So an essential feature of the term fran-
chise, in your judgment, would be to take care of, in some way, any
bond issues that would have to be made ?

Mr. JENKS. Yes, of course. Personally I would not like to be
understood as opposing an indeterminate franchise along the line
you are suggesting, but I would like to have that developed in such

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. £41

a way as to adapt itself to the changing conditions, and of course
we should take care of what I think is a perfectly legitimate charge,
such as depreciation is.

Commissioner BEALL. Yes.

Mr. JENKS. May I' add just one or two words more, and then I
have nothing further to say, as far as I nrvself am concerned.

We have spoken of the control "by State commissions and of the
control by the city governments themselves. It seems that it is a
little difficult to lay down any hard and fast rule. As I intimated to
begin with, the conditions in different cities vary so that each case
should be considered by itself. In the case of many large cities, for
example, if you do not have the city itself exerting a considerable
measure of control and discretion, they are likely to lose the interest
in it that the}' have. Of course, I recognize the dangers. Generally
speaking, the tendency has been to give the State commission more
control, and that is doubtless right.

It would be very advantageous, it would seem to me, if the com-
mission, in the very beginning, would seek remedies for this difficulty,
aside from the question of raising fares. I am not in a position to
recommend definitely very many, but I recall, for example, that in
Xew York City at the time of the most congested period, which was
one of the greatest difficulties there, arrangements were made by
which — and I can see no reason why it should not be applied here —
various business houses might change their opening and closing hours
in such a way as to prevent the very great overcrowding.

That, might be done by a sort of an agreement, if you like, or by
the city authorities; and in that way you can escape the peak load
to a considerable extent, and thereby get relief from that difficulty.
Of course, the trouble with the electric roads is that very largely
their cars are often run only half full, and at other times they can
not possibly take care of the traffic, and if you could spread this over
more time it would be helpful.

Then it has been suggested, I believe here, that a very customary
plan is to compel the electric lines to pave between the tracks, and
that they might possibly be relieved from such taxation in an emer-
gency, although the latter, it seems to me, ought to be avoided if
possible. I do not want to make exceptions along those lines if it
can be avoided. Those things, I should think, in a good many cases
might be worked out. but I am not competent to state how.

That is all I have to say, Mr. Chairman, unless you wish me to
answer some questions.

The CHAIRMAN. We are much obliged to you.

Mr. WARREN. I want to introduce Prof. Con way in reference to
the increases of fare, and particularly in reference to the zone
system.

STATEMENT OF MR. THOMAS CONWAY, JR.

Mr. WARREN. Will you give your full name?
Mr. CONWAY. Thomas Conway, jr.
Mr. WARREN. Where are you located?

Mr. CONWAY. I hold the chair of finance of the University of
Pennsylvania.

942 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mi-. WARREN. And have you given a good deal of study to the
street-railway situation ?

Mr. CONWAY. I have ; yes, sir.

Mr. WARREN. And a good deal to the question of increased fares
and different methods of accomplishing it?

Mr. CONWAY. That is correct.

I might say — and I think perhaps it would help the commission,
to know how far my study of this question has gone, in order that
they may tell to what extent my views are worth while

Mr. WARREN. Yes; I will be glad to have you do that.

Mr. CONWAY. If I should just go into that a little?

Mi-. WARREN. Yes.

Mr. CONWAY. For a great many years — that is, for over 10 years —
I have studied the public-utility question, first as a university
teacher, and later from a more intimate connection, in the examin-
ing and reporting upon public-utility properties for investment
bankers. Included in that, of course, were street-railway properties.

When the European war broke out and the price situation had
begun to be acute, I was requested by some of these firms to study
the matter of protecting the securities which, in past years, had been
sold to investors. In that way I became intimately interested in
the matter of endeavoring to reestablish a sound economic basis for
these enterprises.

The electric railways of the State of New York, through their
association — the New York State Electric Railway Association — I
believe, were the pioneers in calling the attention of the public and
the commissions to the problem; and through a special committee
which was created in 1916, of which Mr. Choate was chairman,
general testimony in form very similar to that which has been pre-
sented here, was laid before the New York Commission, especially
the up-State commission, so called. Mr. Carr at that time wras a
member of the commission.

I testified in that proceeding and assisted the committee in bring-
ing out the facts as they then existed, largely from the records of
the commission itself and the reports of the companies to the com-
mission.

Subsequent to that time I have given a great deal of attention to
the matter of endeavoring to work out an equitable solution of the
problem of readjusting rates to bring about the necessary readjust-
ment of revenues, and in connection with that matter have made
careful studies of the possibility of rate readjustment on a number
of properties. These properties, I think, present practically every
condition which you would encounter, at least in the eastern part
of the United States. I have in mind particularly certain proper-
ties in which these various phases are illustrated, such as the Wilkes-
Barre Eailway Co., which serves the territory in and around the
city of Wilkes-Barre ; the Lehigh Valley Transit Co., which serves
a large part of the territory lying to the north of Philadelphia and
including the eastern end of the Lehigh Valley.

Subsequent to that time, when these matters were investigated and
I made a report upon questions of revisions of fares and rates, I was
privileged to participate in two very interesting studies, one made at
the direction of the New Jersey Utilities Commission, which ordered
the Public Service Eailway Co. to work out, if possible, a plan for

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 243

a zone system of fares. (I might say that the Public Service Railway
Co. operates practically all of the electric-railway lines in the State
of Xew Jersey, excepting those in the seashore resorts and in the city
of Trenton. So that you had practically all of the conditions which
you would encounter in a State, from the rural lines to the lines in
thickly settled cities).

At about the same time the president and trustees, the latter ap-
pointed by the United States court, operating and controlling the
Connecticut Co. property (which serves practically all of the State of
Connecticut, including not only cities but the rural districts) re-
quested me to make a study of the whole question of a readjustment
of rates to meet the necessities of the situation.

Mr. WARREN. Just a moment, Professor. Those trustees have no
personal interest in the Connecticut Co. at all, have they ?

Mr. CONWAY. Xo. They were appointed by the Federal court to
administer the property in connection with the dissolution of the so-
called trust affected by the court when they divorced the trolley line
from the control of the Xew York, New Haven & Hartford Railroad.

Mr. WARREN. They are merely trustees to dispose of the property ?

Mr. CONWAY. Yes, sir; and administer it until such time as that
can be accomplished.

Mr. WARREN. Yes.

Mr. CONWAY. Xow. it was my good fortune to have in connection
with those two matters every measure of cooperation and assistance
which it was possible to secure. The studies were most elaborate, and
without going into detail at this time regarding them, I think that,
in connection with these questions, I was able to get a very clear pic-
ture of at least some of the difficulties in readjusting rates and some
measure, perhaps, of the possibilities of the various methods of read-
justing rates to secure additional revenues; because, as I say, you had
practically every situation which existed in the two States, from the
thinly settled rural lines, with hourly service, as in Connecticut, to
cars operating on '20-second headway in the rush hours in the city of
Newark.

Xow, in addition to that, I have been requested to report on
various other properties; in each case, the report along the lines of
endeavoring to work out or point out an equitable method of increas-
ing the revenues by the readjustment of fares to meet the increased
operating expenses.

Mr. WARREN. Do you care to say anything about the rapidity of
the increase of operating expenses?

Mr. CONWAY. Well, I have not .been here regularly at these
sessitns — I got in last evening — but I assume that the commission is
well aware of the general course of these increases in operating costs.

In the first place, in my mind, they divide themselves into certain
periods. The real increase in operating cost began many years ago,
and it went along gradually. The situation from a broad point of
view, as I see it, was one in which increased costs were offset to a
considerable extent in that first stage by various improvements in
tho art, which were effected by the managers of the properties; but
I think, on the whole, speaking now of the prewar period, the man-
agers of the properties were steadily but slowly losing ground. The
investors in securities were very uncertain about the ability of the

944 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

manager to meet these increased costs, and, in consequence, the street-
railway securities were in disfavor.

Now, when the war came, this gradual progress was suddenly
changed into an acute crisis. In 1916 there was a large increase in
operating costs, resulting at that time in most cases from an increase
in the cost of materials, largely due, no doubt, to the demands of the
Allies for supplies of all kinds. In these stages there was little or no
increase in labor cost.

Then the labor phase of the situation became acute ; and what I call
the first crisis in the labor element was reached last summer, when
the War Labor Board was called upon to readjust wages in order to
offset the increased cost of living.

Now, as you doubtless know, the greater part of the expenses of
an electric railway is labor. My recollection is that the census of
1912 shows that over 60 per cent of the total operating expense of
electric railways were wages and salaries, and that only a little over
1 per cent represents the salaries of officers. A recent careful study
of the cost of operation of the Public Service Railway Co. for the
12 months ending July 1 of this year showed that over 75 per cent
of the operating expenses were labor, and since that time the War
Labor Board has raised wages. I have not figured it out, but it must
be practically 80 per cent now of the operating expenses of that
company are labor.

The increased wages which the War Labor Board granted to the
men, beginning last summer and extending through the fall and
winter, brought a very serious problem; and, as I see it, the com-
panies have not even yet been able to readjust their fares and their
income to take up these increased expenses represented by the in-
creased wages granted to the men last summer and fall and early
winter.

Now we are about to enter, in my opinion, the third phase. It is
here. It is on us. We are just coming into it, and that, from the
standpoint of the companies, is the most serious of all, on the theory
that it is the last straw that breaks the camel's back.

You know the wages of -trainmen, and they carry with them col-
lateral increases for other classes of empk>3rees, have recently been
increased, by one method or another, and the process, as I see it, of a
second general readjustment is here.

I call attention to the recent increase, in Detroit from 48 cents to
60 cents an hour, and in Cleveland 48 cents to 60 cents an hour.

There are pending before the National War Labor Board cases
involving the Bay State Street Railway Co., or, as it is now called,
the Eastern Massachusetts Street Railway Co., and the Pittsburgh
Railways Co.

Mr. WARREN. You do not mention the Boston

Mr. CONWAY. I was just getting to Boston.

Mr. WARREN. Oh, I beg your pardon.

Mr. CONWAY. The Boston case was pending before the War Labor
Board, but the men were not willing to wait for that answer. The
consequence was that it had to be settled by a quicker tribunal ; and
62 cents, I think, was the amount granted to the men in order to re-
establish service.

The Chicago situation is, at the moment, very acute. The men
are asking 85 cents an hour, with an eight-hour day.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 945

Mr. WARREX. I ought to state that -I do not know which is cor-
rect. The telegraphic dispatches stated the rate in Boston at 62 cents,
and the Boston paper which I received this morning, in giving an
account of the celebration on the common when the result was an-
nounced, indicated that 60 cents was the rate for the surface men
and 62 cents for the men on the subway and elevated cars. So, as I
say, I do not know which is correct.

Mr. COXWAY. Probably that is correct.

Mr. WARREN. Yes. They usually have a slight differential.

Mr. COXWAY. Yes. Now, my information on the Chicago situa-
tion that I am about to relate now is all from the newspapers; but
the clippings which I received, taken from the Chicago papers, just
before I came to Washington yesterday, indicated that the company
had offered the men operating on the surface cars 60 cents an hour
and those operating on the elevated 62 cents an hour. The men had
rejected the offer and had demanded 85 cents, their original demand.

Xow, as I say, the War Labor Board advanced the wages of the
trainmen of the Public Service Railways from 45 cents to 50 cents.
These increases are far more important than would be indicated by
the enumeration of the companies which are affected, because the
War Labor Board had, practically speaking, standardized wage rates,
dividing the companies into three groups. The first group embraced
those properties in the large cities where the cost of living was
highest. In the original awards they gave the men 48 cents an hour
as the maximum in these cities. That 48-cent rate has gone to 60
cents an hour, an increase of at least 25 per cent.

The second group of companies established by the War Labor
Board were what was known as the 45-cent group, the companies
operating in the smaller cities, where the cost of living was less;
and then there was a third group, representing properties operating
in the thinly settled districts, where the cost of living was still less.

Now, with a well-organized unit of men, such as is the case in the
street-railway business, the establishment by a number of companies
of the 60-cent rate practically means — I am certain of this in my
own mind — that all of the other companies, under like conditions,
are going to have to follow suit, and the establishment of rates for
such companies as are typical of the old 45-cent group, such as the
Public Service Railway, the Bay State system, and the Pittsburgh
Railways Co., is going to mean that all of those companies will be
elevated, and then the rural lines — if I might so term them: those
with the cheapest rates — will have to follow suit.

You have therefore, as I say, a situation in which the industry
is now called upon, or will be within a very short time, to take on at
least a 25 per cent increase in wages. I think that is the outstanding
fact of the moment.

We have been talking largely, all of us, about where we were
yesterday and last mouth and last winter. The real problem is where
are we going to be this fall and this winter with these increased
wages; and the statistical record is before you. You know how little
there is in the way of surplus revenue to carry these increases, and
yet they are here, and they must be met somehow or other.

I have in mind an intern rban road in the Middle West, the bond-
holders of which asked me to advise them. They have a protective

946 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

committee. That company is in receipt of demands from their men
for wage rates based on these Chicago demands, and if those wages
are granted the total revenue of that property on the rates now
charged will not be sufficient to pay the wages; and yet that prop-
erty, for many years, paid dividends, and has a value fixed by the
commission of some $14.000,000. They earned within a hundred
thousand dollars of their fixed charges last year. There you have a
condition which I do not think can be paralleled in this country—
in the history of this country — and one the seriousness of which is
in the immediate future, rather in the present or in the late past.

Xow, therefore, to talk about, as I see it, the increased rates which
had been granted in the past by commissions, or the increases which
are now being asked for in cases pending and undecided, is to discuss
the affairs of yesterday and not the questions which are the live mat-
ters of to-day. It is true that a large percentage of the companies
in this country have, in some measure, received increases.

I took a computation made by the American Electric Railway
Association and endeavored to bring it up to date by adding com-
panies which had increased fares, and classified those companies
according to the recent changes. On that basis I find — that is, by
bringing their figures up to date — that there are, according to their
statement, 273 cities in the United States, having a population of
25,000 or more. In over 200 of these fares have been increased from
those which prevailed before the war. Of these increases, 135 were
granted by public-utility commissions, and 52 by local authorities,
11 became effective under service-at-cost plans, 1 was put into effect
by order of a United States court, and 1 by action of the company.

In 24 cities, applications for increases have been refused. In 20
of these cases, the refusal came from local authorities, and in 4 cases
from the commissions.

Forty -two States and the District of Columbia have cities of more
than 25,000. In 36 of these States, increases have been granted. In
Connecticut, Delaware, the District of Columbia. Idaho, Maine,
Maryland, Massachusetts, Mississippi, Montana, Xew Hampshire,
Xew Jersey, North Carolina, Oregon and Rhode Island, increases
have been granted in all cities of more than 25,000. In Arkansas,
Florida, Kansas, Oklahoma, South Carolina and Tennessee, no in-
creases have been granted in such cities.

A 10-cent fare is being charged in 29 cities; an 8-cent fare in 8;
7 cents, plus 1 cent for transfer, in 13 ; C cents, plus 1 cent for trans-
fers, in 2 ; and a 7-cent fare in 20, and a G-cent fare in 94.

Thirty-six applications are pending before commissions, 27 before
city authorities, and 2 before courts.

Municipal ownership has been proposed in three cities — San Fran-
cisco, Detroit and Omaha. Service-at-cost plans are being considered
in Philadelphia, Xew Orleans, Minneapolis. Denver, Louisville, Oak-
land, Berkeley and Muskogee.

In six cities, the service is being operated by the State, while
State operations will be shortly under way in 12 more.

In 31 cities railway companies are in the hands of receivers.

In addition to these increases affecting urban systems, a large
proportion of the interurban electric lines in the country have ma-
terially increased their fares.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 947

Mr. WARREX. Has that been compiled up to date, Professor?

Mr. COXWAY. The compilation made by the officers of the Ameri-
can Electric Rail-way Association 13 as of April. I searched the files
of the Electric Railway Journal and the Commercial and Financial
Chronicle, and where a company had increased fares from 6 to 7
cents, I reduced the number of companies on which 6-cent fares pre-
vailed by oney and added one to the 7-cent cities. In that way I
endeavored to bring it up to date. I am quite certain it is not full}7
complete, but perhaps it errs on the side of understating recent
changes, especially with reference to small communities: but that
was as near as we could get any kind of an accurate picture of the
situation as it prevailed.

Xow. if I am correct in my assumption that these increases in
wages which have come about in the last few days are the fore-
runners of another general advance, such as occurred in the late sum-
mer, then all of these increased rates are going to be as inadequate,
or almost as inadequate, as were the rates prior to the time of the
last increases. We have got to get over another mountain.

Therefore, as I see it. the record of increases in the past is of
significance in pointing out the communities in which a recognition
has thus far occurred of the economics of the situation, and probably
the whole \vork has to be done over again in a few months to take
up these labor increases, or if you do not, your companies will be
back where they were, say, a year ago, if no increases whatever had
been granted.

Xow, as I talk to the ordinary man on the street — and after all
his view, I think, is very important — he fails to appreciate the ex-
tent to which costs of operation have increased.

I well remember when the present Public Service Railway Co. ap-
peared before the Camden Board of Trade, in Camden, N. J., com-
posed of business men, who were acquainted with the changes in price
levels, the gasp that went around the room when they were told that
to haul within 2 per cent of the same number of people which the
company carried in 191f> would cost in the year 1919-20, the year
ending June 30, 1920, 80 per cent more. That gasp, as I say, in-
dicated to my mind that they were taken off their feet. They could
not believe the facts.

Xow, if the 5-cent fare was adequate in the days when costs were
as they were in 191G, anyone will readily admit that on the basis of
averages an 8 or 9 cent fare will be required to-day to put the com-
pany where it was in 1916.

I think one of the problems which the industry must solve, and
which I think this commission can perform a great national service
in" assisting in the solution of, ks to get the people to understand the
extent to which costs have increased. That is the first thing. The
public are behind the times in this thing. They do not understand
the relation of income and outgo.

Xow, the second fact I think is quite evident, and that is the matter
for which, perhaps, the commissions are in part responsible, and I
do not except the companies. They have been shortsighted in talking
about an emergency, to get through the war.

Mr. WARIIKX. He fore you take up tlie question of emergency — you
say the commission can do a great deal of good in educating the
public as to increased operatimg costs?

948 PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION.

Mr. CON WAY. Yes.

Mr. WARREN. How should that be done?

Mr. CONWAT. I had in mind more particularly this commission
setting here. The average commission's opinion, from the standpoint
of the requirements of the law, must of course meet certain require-
ments, but I notice that if you take even a college student and give
him an opinion to read, he does not see the homely truths that lie at
the bottom of the whole thing. He does not get the ordinary common
denominator comparisons. The average commission does not point
cut the things in their opinions in a way that the man on the street
can understand them. It is over his head, just like a decision of the
Supreme Court of the United States. That is doubtless necessary
from a legal point of view, but I have often felt that if there were a
few paragraphs in the opinion which an ordinary man could under-
stand, because they stated the truth in a homely way, and by the use
of a few simple comparisons which he would understand, he would
get the measure of the thing.

Mr. WARREN. Then, I take it, you think we should set out the
figures ?

Mr. CONWAT. It is not so much stating how many millions of
dollars are required as it is stating the fare which is required. A man
reasons in his terms of a nickel. The commissions' decisions deal
with millions or hundreds of thousands, depending on the size of the
company. To the ordinary man the difference between $100,000 and
$150,000 or $200.000 is not very great.

Mr. WARREN. But if you raise the motorman's wages* from 40 to 65
cents an hour —

Mr. CONWAY. He understands that.

Mr. WARREN. He understands that?

Mr. CONWAY. Yes.

Mr. WARREX. Because it takes five more fares per hour to pay
that, man's wage ?

Mr. CONWAY. That is the idea exactly.

Mr. WARREX. If you divide it up in that way, the ordinary reader
could understand it; could he not?

Mr. CONWAY. That is right.

Mr. WARREN. Is that the idea you have?

Mr. CONWAY. That is the idea I have, or, stated in another way,
that a car ride, according to the commission's finding, costs so much
to-day, and say, five years ago, that same car ride cost so many cents.
The commission goes through ,a lot of calculations, involving hun-
dreds of thousands of dollars and a hundred operating accounts and
valuations and a lot of things, and then says that the rate is fair,
but it does not say what it cost the company, in cents, to furnish a
car ride.

Now, the commission's opinion after all is justification for its
finding, that is to justify its finding to a court of review, and I
think it is just as important to justify it to the man on the street.
It takes the language of the court of review. It apparently forgets
the man on the street.

Commissioner SWTEET. You think homeliness is a virtue ?

Mr. COXWAY. Yes ; in these opinions —

Commissioner SWEET. And homeliness is one of the character-
istics of this commission. [Laughter.]

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 949

The CHAIRMAX. We need no evidence to prove that.

Commissioner MEEKER. As you stated, the increase in wages was
the prime question, the prime question involved in the immediate
problem, so that the determination of the labor policy is of the first
importance, I take it, in your mind ?

Mr. COXWAY. Do you mean from the standpoint of this commis-
sion or from the standpoint of the company ?

Commissioner MEEKER. From the evidence that you yourself have
adduced.

Mr. CON WAY. Yes; the result of the demands of labor, as I see
it, is the controlling factor.

Now the public have a peculiar attitude on this labor question. I
do not say this in any criticism, but as an explanation of the facts
as I see them at this moment — that the extent to which operating
expenses will be increased and the extent to which the fare must be
increased, if possible, is determined, you might say, by the enlight-
ened self-interest of labor.

Commissioner MEEKER. And the all-important thing is to stabilize
so far as it is possible, the labor bill?

Mr. COXWAY. Yes.

Commissioner MEEKER. Have you any suggestion to give us along
that line?

Mr. COXWAY. I think that is the great unsolved question that the
world has got to solve.

Commissioner MEEKER. You are familiar with the so-called Plumb
bill?

Mr. COXWAY. In a general way; yes.

Commissioner MEEKER. Do you advocate any such treatment as
that to cure the street-railway troubles ?

Mr. COXWAY. Well, I must confess that I. have not been able to
think out a practical solution of this labor question. The companies
make a great mistake in each thinking in terms of itself. Without
mentioning any names — a certain company will make an agreement
with a labor union that they will give them a certain wage increase
if the laboring men will help them force the fare up. Now they
do not realize that whatever they do affects the entire industry. I
do not know that you can change that situation; I do not know
that it would be advisable to change it.

Mr. WARREN. But you do not think that any company often agrees
to pay a higher fare than the best judgment of its managers would
justify, in order to avoid a strike?

Mr. COXWAY. Well, that is it. I think the public-utility operators
are like any other class of managers in that, as a practical matter,
they can not afford a strike.

Commissioner OADSDEX. Don't you think it would be helpful to
this commission and to the public if the representatives of organized
labor in the street-railway field would come before the commission
and give us their views on the subject?

Mr. COXWAY. I certainly do. If they would tell you frankly what
their terms are, then you would know.

Commissioner MEEKER. Do you think it might be possible to bring
on the street-railway men and the workmen, not merely the platform
men, but the workmen generally — that if they were given some
responsibility, a voice in the management of the industry, whether

950 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

it goes so far as the Plumb bill or not, if they could be made to
realize that every time their wages are increased 5 cents per hour,
it means so much increase in the cost of operation, which must be
met by charging the riding public an increased fare?

Mr. CONWAY. I think there is no doubt of that. I think if they
have to come to the point where in some fashion labor must take ti
responsible share — not in the management of the company, becaus-j
I do not believe that we are far enough along for that, but you have
got to the point where labor must feel that they are not dealing with
an alien enemy, and that is their attitude with most companies. They
have no interest in common with the company. They feel that every-
thing they get is the fair spoils of war.

Commissioner MEEKER. They must be made to realize that they
have an investment in the industry, the employees have?

Mr. CONWAY. They have got to realize that there is only a certain
amount of money in the business, because in my judgment in many
cases you have reached very close to the maximum under p'rivate
operation. Now if they want to deliberately force the industry on a
basis which it can not survive, as a private enterprise, and take then-
chance of Government control, or whatever may be involved, they
ought to make that choice with their eyes open and a full under-
standing of the facts as they exist.

Commissioner MEEKER. Well, do you regard the labor question as
the question for the immediate solution of this problem, and not
merely as the ultimate solution, as I take it from your testimony?

Mr. CONWAY. I do not go quite that far, Dr. Meeker, because I
feel that the street-railway industry prior to the war was on an
unsound basis, in that they were not paying their men as much as
they ought to pay them. I remember your study, as Commissioner
of Labor, of the turnover of the men. Now, an industry where you
have in prewar times as much a turnover as there was in the street-
railway business is an industry in which there must be some degree
of unhealthiness. The companies were up against the fixed, inflexible
5-cent fare. They were paying all they could pay their labor, but it
was a rate which did not attract and hold the best class of men.
Now the pendulum is swinging the other way perhaps. This union
movement has swept over the world. The men have gotten together.
They are recognizing and feel their power, and they are exerting it.

Commissioner MEEKER. You are not afraid that the apparent turn-
over will be reduced too low for the health of the industry, are you ?

Mr. CONWAY. I do not think, if you have a desirable thing, there
is such a thing as getting it too low. I believe in a man getting in a
business and staying in that business. We all know that the street-
railway job is a sort of a makeshift job. It is a young man's job,
and it must be a young manrs job in the nature of things.

Commissioner MEEKER. There is one thing in regard to the turn-
over in the street-railway industry, and that is the very undesirable
Hours that the men must necessarily work in order to serve the public
and give it the service that it demands.

Mr. CONWAY. That is true.

Commissioner MEEKER. No matter how high the wages must be
made, that can not be avoided.

Mr. CONWAY. There is no doubt that that is true, but you would
not call the work of the motorman a skilled occupation. I think you

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 951

would call it semiskilled, but their wages and the continuity of em-
ployment can be brought up, I believe, to such a point that the indus-
try will eventually attract and hold the higher type of men in years
to come, a higher type than they enjoyed in the prewar days.

I have been interested, in looking over the pay rolls of some of
these companies, to see what these men are making. Xow, when a
man can make from $GO to $80 a week — that is, $80 every pay day,
which is about $30 to $40 a week — that is good pay, even in these
days, for semiskilled labor; and when you remember that he is not
like the man employed outdoors, who only works eight months in
the year, but that the street-car employee is working throughout the
year, and that therefore his yearly earnings are much more — a com-
parison of his wage with, say, that of the bricklayer or stonemason,
would indicate that you have a situation which, I think, in the future
is going to be able to attract and hold the better class of labor, who
will give better service to the public.

Commissioner MEEKER. Let me repeat my question: Is not the
labor question, then, right in the forefront? Must we not solve the
labor problem in the street-railway industry before we have made a
beginning ?

Mr. CONWAY. Xo ; I should say you must make the beginning l>e-
fore you come to the final ending, and you will have to consider the
wage.

Commissioner MEEKER. What is the use of raising rates to increase
your income if it all has to go out in an advance in wages?

Mr. CONWAY. That, of course, is a matter which I am not prepared
to form an intelligent opinion on, whether the wage rates now pre-
vailing are exceptionally high.

Xow, I infer from the recent findings of the War Labor Board
that, in their judgment, a further advance in wages is clue to the men.
If such is the case, then I submit that they ought to get it when the
industry gets the money to pay them. Xow, when wages begin to
go above a point which represents a fair living wage, then I agree
\vith you; but this industry, my point is, has reached the stage where
what it needs is a lifebuoy, and after you have saved the drowning
man, we can then inquire why he fell overboard, and I am afraid that
if we are going to try to regulate wages before we get the companies
more revenue that while we are regulating the wages the patient
will die.

Xow, in order that I may bring clearly before you my feeling
about the matter of increased fares, which I have been asked to
discuss, I want to call your attention to some of the recent cases or
proposals for fare increases.

The Kansas City Railways Co. in Kansas City, whose property
was recently valued by the United States court and its capitalization
fixed, has made application to the State commission for 10-cent
fares, or two tickets for 15 cents; that is, a commutation rate of 7^
cents and a cash fare of 10 cents.

The Middlesex & Boston Street Railway Co., in Massachusetts,
whose capitalization for a generation, as in the case of the other
Massachusetts companies, has been subject to regulation, has filed a
schedule, effective August 1, which puts the system on practically a
10-cent basis, with a 3-cent charge for transfers.

952 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The Eastern Massachusetts Street Railway Co. (the old Bay
State system), whose property has just been valued by the Massachu-
setts Commission and the company reorganized under the service-at-
cost law in accordance with the findings of the commission, and is
operating under public trustees, instituted a 10-cent fare on the 1st
of July.

The Boston Elevated Railway Co., also operating under public
trustees, instituted 10-cent fares from the 1st of July.

The president of the Chicago surface lines has announced that the
rates of wages demanded by the men mean either a 9-cent or a 10-cent
fare in that city.

The Pittsburgh Railways Co. will on August 1 institute a 10-cent
fare, with 7^-cent tickets.

These 10-cent fares are to my mind the serious question. We have
heretofore talked in terms of 6-cent fares and 7-cent fares, and
latterly 8-cent fares, but these new wages mean 10-cent fares if you
are going to stick to the straight cash fare.

Now, a 6-cent fare was a comparatively easy matter, but when you
get to 10-cent fares, you are getting into deep water; and if the large
cities must charge 10 cents, the rate of fare in the small towns is going
to be one which is practically prohibitive. In fact, the whole matter,
I am afraid, would become impracticable on the basis of getting the
full cost of operation, under present conditions, out of the car rider.

I sat here this morning and listened to various gentlemen express
their views on taxes — paving, for instance.

My belief is that, taking the companies as a whole, all the things
that you can suggest of relieving them of taxes and of paving re-
quirements and all of the other obligations which represent an in-
direct tax on the car rider, a necessary addition to his fare, will not
meet the situation by offsetting these increased costs ; but all of that,
if given to them, still means for many properties a rate of fare which
is almost prohibitive, as a practical question.

Therefore, as I see it from the commission's point of view, you
start by these abatements as a necessary element, because without
them there will be hundreds of electric railways that will have to go
to the junk heap, unless they are to be taken over and operated by
the public, who bear the deficit, through taxation.

Now my feeling about this matter is that this situation is so serious,
due to the sudden addition of these wages, first last summer and
fall, and now to make these new additional demands, that I do not
believe that even the commissions themselves are fully aware of the
crisis presented.

I have lived in the State of Pennsylvania. As I say, I have been
in intimate touch with the situation in Connecticut. I have had
the good fortune of being well acquainted with the commissions in
both States. My work has brought me in close contact with their
work, and with their staffs.

Now I think the public utilities laws of most States are funda-
mentally at fault. The Pennsylvania law and the Connecticut law —
and perhaps other States have the same law, but I am not aware of
the instances, if there are such — that have one tremendous advantage,
and that is that in those States the companies can initiate rate in-
creases or rate reductions, to make a change and put it into effect.
The commission has the privilege of ordering the companies, if it

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 953

seems wise, to give some sort of a rebate, a slip or certificate for the
amount of the increase.

To illustrate, if a company increased its fare from 5 cents to 7
cents, the commission, if they feel that there is any doubt about the
justice of the matter, authorizes and diret-ts the company to give
every passenger a 2-cent rebate slip as he pays his fare. Those are
carried as liabilities.

The commission in Pennsylvania or in Connecticut does not have
the power of suspension without a hearing and determination of
the matter, but if anyone complains about the rate the commission
must go ahead and make an inquiry. The law requires the companies
in Pennsylvania to post the increases conspicuously.

The CHAIRMAN. The Pennsylvania law has been described here by
two witnesses, Prof. Cdnway, and you need not spend any time on
that.

Mr. CONWAY. I did not know that. The point I want to make is
that in Pennsylvania and Connecticut the companies have the right
to increase their rates, and the commissions have the power to ratify
and, so far as I can see by studying the opinions of the commissions,
there have been no serious abuses to develop because of that condition.

Now the great advantage of that is, as I see it, that the companies
are able to try experiments.

Let me illustrate some of the instances where it has worked ad-
vantageously. This rate situation, gentlemen, is not one of arithmetic
or one in which there is any golden rule that you can arrive at
mathematically. I am frank to say to you that this industry is in the
experimental stage, so far as rates are concerned, and that these ex-
periments are largely ahead of us.

The Pittsburgh Railways Co., for example, about a year ago last
December, when the war costs hit them, increased their fare from 5
cents to 6 cents cash, or 5^-cent ticket. The War Labor Board then
increased their wages. They then tried a so-called zone system,
which I think can be called such only by courtesy. It is really two
superimposed flat-fare areas. The commission held hearings on the
matter, and it did not interfere. Now after a few months of that,
they are going to abandon that system and go to a 10-cent fare.

The Wilkes-Barre Railways Co. tried a G-cent fare, and then when
wages went up they tried a 7-cent fare, and then an 8-cent fare. The
matter is now being heard on its merits by the commission.

The Lehigh Valley Transit Co. first tried to keep the 5-c.ent fare by
shortening up the zone, the distance you could ride for 5 cents, and
the War Board said its say. Instead of again redividing the prop-
erty into zones, the 6-cent fare was put in.

Those are simply typical instances of what has occurred. If that
commission had been called upon to pass upon every application for
an increased rate and decide whether or not it should be granted be-
fore it was actually granted or became effective, there would be utter
chaos. I heard the chairman of the commission state that his men
had averaged, according to the time sheets, which are accurately kept,
over 14 hours a day in the last six months. He stated that to the
legislature. And there were 700 cases on the calendar to be tried.
Now, if each company's necessities required three trials, they would
have been absolutely swamped.

160043°— 20 Gl

954 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Now, I want to say that I think part of the delay in many of these
commissions in deciding these cases, which has been very unfortunate
and very unfair, has been due to overwork. It has been due to this
requirement of the law, or at least the interpretation of the law, by
these commissions, that they must hold long hearings and go into
valuations — the procedure of a regular rate case — before they do any-
thing. I think that is a mistaken idea, and I think any requirement
which imposes that duty upon a commission is a very shortsighted
public policy. With the industry as it stands to-day, the crying im-
mediate need, in my judgment, is to give the commissions liberty of
action, freedom to put in almost any rate that they think will meet
this exigency, and then, as in the case of Pennsylvania and Connecti-
cut, let the commission observe the actual result and make the changes
as seem necessary.

Mr. WARREN. Prof. Conway, may I ask you at this point — I as-
sume you are through with your discussion of the specific labor ques-
tion. You have said nothing about the 8-hour day.

Mr. CONWAY. No; I forgot that.

The electric railway industry is face to face with a world-wide
demand for an eight-hour day. Now, in some businesses, I believe it
is possible, to a large extent, at least, to offset the apparent increase
in labor costs resulting from an eight-hour day, involving, as a rule,
10 hours' pay, under the old plan, for eight hours of work, on the
theory that the old wage was a living wage, and the men must get a
living wage with a shorter day, to offset that by a speeding-up
process. The possibilities of such economies in the electric-railway
industry are very limited. The motorman and conductor, who con-
stitute the most important class of labor, can not increase their pro-
ductive power in this fashion, for the speed of the car is determined
by the track construction, as well as the matter of safety and con-
venience of the public requiring numerous stops. The size of the
car can not be profitably increased so that he hauls more fares per
trip. As a matter of fact, the tendency is in the opposite direction,
smaller cars and more frequent service.

Therefore, the extent to which the companies can, by a speeding-up
process, take up the cost of the eight-hour day is probabty less than
in any other business in the whole round of business enterprise in
this country.

Now, I do not argue against the eight-hour day. I am not dis-
cussing the merits of what the men should get in the matter of wages
or what the working day should be, but if we have an eight-hour
day, we have not only an increase in the pay of the men on the
hourly basis, but we have a large increase in the cost of operation.

The chairman alluded some time ago to the nature of the business.
You must have considerable spreads, because the working day of
the usual street-railway employees must be longer than that of other
people in the community. To state the matter simply, they must be
there to take other workmen to work, and they must be working after
the other men have quit to bring them home ; so their working day is
considerably longer than that of other members of the community,
who represent their patrons.

Now, with the eight-hour day literally applied, you have, on many
properties, most difficult operating conditions, and in the application
of that requirement to the service you have a great deal of lost man

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 955

hours, if such it may be termed, to meet the eight-hour da}', and to
get their working da}7 within the certain limits of the spreads you
have to pay for labor which is not very productive.

So it is not only the immediate matter of an hourly rate of wage
that this business has to confront, but it is a matter of the readjust-
ment of the hours of employees on a basis which raises the cost of
operation; and I say, that — and I want to emphasize it — would
prejudice to the rights of the workers, either to wages or to shorter
hours; that is not a matter that I am here to discuss, but assuming
that they are entitled to higher wages, and assuming that they are
entitled to shorter hours, the industry, somehow or other, must bear
the cost of both of those changes.

Commissioner GADSDEN. Doctor, the eight-hour day would impose
greater costs for overtime ; would it not ?

Mr. CON WAY. Oh, yes. Let us take, for instance, the morning
rush. On many properties it begins at C to 7 o'clock, bringing the
factory worker to his plant, depending somewhat on the customs in
the community. The rush-hour service in the evening must run up
until approximately 7 o'clock, G to 7. It begins to taper off after G.
You have 12 hours in there. The requirements for rush service are
anywhere from 140 to 160 per cent of the base schedule; that is, you
have to have from 140 to 1GO per cent of the normal service in these
rush hours to take the workers to and from their work. That means
that whatever may be the standard, you either have to have two sets
of men, one set running the morning rush hour, and the other the
evening rush hour, the cost of which would be prohibitive absolutely ;
or you have to pay the same set of men overtime to run in the morn-
ing and evening rush hours, and after they have been working an
eight-hour day. They may work eight hours, but their working day
covers 12 hours, perhaps, or 11 hours, and they get paid overtime for
a good part of that time, especially if there is a requirement as to
straight runs or swings between the various parts of the day's work.

Mr. WAKKEX. I might say on this point, Mr. Chairman, that the
association is endeavoring to get some figures and estimates from
those companies whose wages have been materially increased. Them
are certain companies which are making estimates as to the effect of
both increased wages and the eight-hour day upon the pay roll, and I
would like to file that, but the work is in process at the present time.

The CHAIRMAN. It may be of interest to know that the commission
will have before it the representatives of the employees, so that we.
will hear fully from their side of the case also.

Mr. WAKKRX. I am very glad to hear you are going to do that.

Mi1. CONWAY. I was asked particularly to endeavor to present
.to you the possibilities and limitations of increasing revenues from
higher fares. It is a very large subject, and I would be grateful for
anv questions which may bring out any points that I can help you on.

From my observation and experience, I am fully convinced that
there are very definite practical limitations on most properties of
increasing rates. The theory whioh exists in the minds of many
people that a street railway enjoys a complete monopoly is. in :i
limited sense, true, of course — if there are no other street railways in
the community: but. as a practical matter, there are very few elec-
tric railways which, in a positive sense, enjoy a monopoly, and that
fact is being developed in rather painful fashion to many electee-

956 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

railway operators as they endeavor to get their revenues by higher
fares.

Now, I want to make it clear before I begin this discussion that
I am absolutely convinced, as I feel certain anyone must be, that,
with private ownership and operation, the electric-railway business
must, in some fashion, get sufficient revenues to equal its operating
expenses, to set up a proper amount for maintenance and deprecia-
tion, and to give a fair return upon the value of the property, be-
cause, as one of you said this morning, these properties are never
finished, new capital is required from day to day and from year to
year. To get that new capital and to provide the facilities which
the public demand and have a right to expect, it is necessary to give
these companies a fair return. It is not a matter necessarily of
equity, as I see it, from the public standpoint. It is a matter of
self-interest. The average man will have to realize that the giving
to the owner of the street railway a fair return is not a gratuity or
charity, but it is just as much to his interest as it is to the owner's
interest, if he wants to get good car service or, indeed, for any
length of time, any car service worthy of the name. He has to do
that. The ordinary man thinks to give the owner a raise of fare is
the same thing as giving a beggar a quarter. At least, many people
feel that way. They do not realize that their interest is fully as
great as that of the security holder.

Therefore, I heartily agree with the view that the companies must
get sufficient revenues, but what I want to point out. if I can, is that
in getting these revenues there are practical difficulties, and without
wearying 3'ou, I hope, with the details of these difficulties, I want to
develop, if I can, the extent to which they enter into the problem
that you are considering.

To begin with things which, perhaps, are well known to all of us,
when 6-cent fares were instituted, we had a theoretical increase of
20 per cent in the rate, but very few companies got a 20 per cent
increase in revenue. The revenue increase that you can generalize — •
and the value of generalizations about increases is very limited,
except as indicating a trend — but if you can generalize, the increase
in revenue, from a 20 per cent increase in rates, was about 10 per cent,
the difference is due to the falling off in riding.

The CHAIRMAN. Have you studied the comparative results of a
sufficient number of companies to form that conclusion ?

Mr. CON WAY. I think I have; yes, sir.

Some time ago I collected all of the data that I could get together
and published an article in the Electric Railway Journal at their
request for a review on the special results on the 6-cent fares.

The CHAIRMAN. What was the date of that article?

Mr. CONWAT. It was printed about a year ago, or a little more,
perhaps. It was based upon the commission's reports largely.

The CHAIRMAN. How many plants did you study for the purpose
of making that report?

Mr. CONWAY. My recollection is that it was something over 75
companies for which I could get official statistics.

The CHAIRMAN. All right. You may proceed.

Commissioner MEEKER. Over what length of time did your studies
run ?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 957

Mr. Cox WAT. Of course, that varied, depending on the company.

I took the first increases in Massachusetts, where the 6-cent move-
ment began, and then followed it through, taking the experience of
the companies, one after another, which raised fares.

Commissioner MEEKER. Do you think the time was long enough
so that the first resentment against the raise in fare was done away
with, so that they could get it back to normal conditions ?

Mr. Cox WAY. That was true to some extent. Of course, in refer-
ence to later cases, it was not so.

Commissioner SWEET. Would you not admit that your figure may
be a little bit low if you brought it down to date, because of the
tendency on the part of the public to become accustomed to the
change and. for that reason, might acquiesce in the arrangement ta
get more revenue?

Mr. Cox WAY. There are so many things that enter into these com-
parisons, Mr. Commissioner, that any comparison concerning the
influence of a rate of fare over a period of months is very dangerous..
For instance, you have the influence of the war, or the cessation of
the war; you have the influence of the influenza epidemic; a com-
parison of the severe winter year before last with the mild winter
of last year; you have the presence or the absence of the soldiers,,
which has an effect upon evening riding, by girls going out, etc.
I have heard many street-railway operators say, and I think there
is a great deal of truth in it, that the only one true comparison is.
what happened just before the rate was raised and what happened
lust after, because, when you get away from there, there are a lot of
influences that you can not measure.

Xow, we all know, taking, I suppose, the average of the companies,,
there is about a 5 per cent increase in travel, as a normal increase.
That is true of the country as a whole, as shown by census figures.
It runs pretty nearly true to form with a lot of the properties that
I have studied. In two years you will have a 10 per cent increase
in traffic, comparing the receipts of to-day with the 6-cent fares,,
with the receipts of two years ago with 5-cent fares.

Commissioner SWEET. In 1918, instead of there being any increase
in travel, there was an actual dropping off?

Mr. Cox WAY. In some companies that was true. In other cases,,
there was a tremendous increase of riding.

Commissioner SWEET. It has been a very unfortunate period in
which to measure accurately the effect of increased fares, has it not f

Mr. COXWAY. That is absolutely correct.

Xow, take the matter of the 7-cent fare. As a general rule, a 7-cent
fare, with a large group of lines, would give you from 15 to 25 per
cent increase. Xow. how is that increase made up? It is an average,
and it is a good deal like the life of a man. When you say the average
life of a man is 05 years, we include the fellow who dies at 21 and the
man who dies at M), and all those who died at intervening ages.

I made a very careful study concerning the effect of 7-cent fares
on the Public Service Railway Co. That property, as I say, covers
practically the whole State of Xow Jersey. You have every condition
there and all sorts of lengths of riding, differing widely as regards
the length of the ride, and their average was about 15 to 10 per cent
for the property; but when you come to study that, in so far as it
affects particular routes, you find the widest divergent conditions,

958 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

and if each of these separate routes had been a separate company,
you could have found instances where the increase had been nothing,
where there had been an actual loss in' travel; so with a line earning
less money on 7 cents than it did on 5 cents, it would offset some other
line where they would earn a theoretical increase of 40 per cent.

That is why I say generalizations are dangerous. I took two
months which, after a careful study of all the surrounding facts and
previous history of the company, were found to be typical. I found
that lines under 1 mile in length showed not only a loss in travel, but
the loss was so great it showed a loss in money. I found that lines
operating from 1 to 2 miles showed a lower ratio of loss than those
which were shorter, except where there was active jitney competition.

Twelve lines out of the thirteen lines falling within this group
showed an increase of revenue

Commissioner SWEET. That is, from 1 to 2 miles?

Mr. CON WAY. From 1 to 2 miles, although the increases in most
cases were slight.

Lines varying from 2 to 3 miles in length show mixed results. An
analysis of the figures seem to indicate that the variation is due to
differences in the average length of ride and to the presence or ab-
sence of jitney competition. Taken as a whole, these lines show 'up
no better than the shorter lines.

In this comparison, I had the advantage of a very accurate pas-
senger count, which was taken at considerable expense, and which,
in substance, showed the exact length of the journey of the pas-
sengers on the line. Each passenger getting on the cars wras given
a slip, on which was noted where he boarded the car, and he wrote
down where he was going to leave the car, and where he was going
to ride on a transfer if he got a transfer. So we not only knew what
happened, but we were able to ascertain the proportion of people
riding a half mile, three-quarters of a mile, a mile", a mile and a
quarter, etc.

Commissioner SWEET. If you had crowded cars, how could you
get people to do that ?

Mr. CONWAY. We had no trouble. During the war we had as
many as 180 people on one car, and we got over 95 per cent of the
people to fill out the slips. We were taking this check at the order
of the commission, and the public felt it was their duty to cooperate.
It sounds almost unbelievable, but it can be done. The reason they
took the check was to work out the zone system and get data relating
to the traffic; but I used the opportunity to study the 7-cent fare
question, and to see what the possibilities of the flat increases were.

In general, on these lines which I have just described, from 2 to 3
miles in length, \vhere the average ride exceeded 1£ miles, and where
jitney competition was not present, the net results were a considerable
increase in revenues.

When the group of lines ranging from 3 to 4 miles in length is
reached, a distinct improvement is noticed. Certain lines in this
Igroup, as, for example, the First line (central division), are not
comparable, because of rerouting. The gains secured on Harrison,
Park Avenue, and a number of other lines, are minimized because
of active jitney competition ; but, taking all things into consideration,
the loss of riding on these lines was not nearly as great as on the

PKOCEEDIXGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 959

shorter routes, and the reason was that there was a larger propor-
tion of people taking rides of a mile or more.

When we got to the lines of 4: miles in length, we found a still
greater improvement, and so on, as the length of line increased and
the average length of line increased.

Xow, generally speaking, the result seemed to show that the 7-cent
fare was driving most of the passengers riding a mile or less off the
cars. On a particular day we checked some lines under 5 cents, and
then we checked the same lines under 7 cents, and got some data and
compared the results. The long riders stayed with }rou and the
7-cent fare drove away a considerable part of the short-distance
riders, especially those riding less than a niile.

The CHAIRMAN. Does that hold true more fully in these congested
areas?

Mr. CON WAY. Yes. In the rural districts they rode, I suppose,
because the sidewalks were not there, and you had less jitney com-
petition, although in the smaller towns, such as Plamfield and some
of the other smaller communities, like New Brunswick, and towns
of ten or fifteetn or twenty thousand people, the results were rather
disappointing. People walked.

The most disquieting thing in many respects was the effect of the
7-cent fares on the jitnevs. The 7-cent fare became effective October
15. 1018. From the 1st of October, 1918, to the 1st of June, 1919,
the jitney business increased 100 per cent in the actual number of
passengers handled by jitneys, as shown by our checks.

In the city of Bridgeport you have the most hopeless condition
I have ever seen with reference to the jitneys. The jitneys in
Bridgeport, in April of this year, when we made a very careful
check of the matter, were handling just a little under two-thirds of
the total people riding, either on trolleys or jitneys, in the city.
They have a G-cent fare there. The jitneys are charging 5 cents.
With the jitneys you have a large amount of short-distance travel
in the city.

The figures on Waterbury, Hartford, and New Haven, where the
average journey is greater, shows a much more healthy condition;
but my point is that, with a 1-cent differential throwing more than
htilf of the total business of the city to the jitneys, it is idle to talk
about 7. 8, 9, or 10-cent fares. It is just an exercise in arithmetic.
Yon might as well close up shop and stop operating, and let the jit-
IWYS haul all the business.

Mr. WAKEKX. That is a flat fare?

Mr* Cox WAY. A flat fare; yes.

This Connecticut company, operating over the whole State of
Connecticut, sliowed less than 0.8 of 1 ]>er cent passenger revenue
under increased fares for the first 12 months of operation uuder
Mich fares.

Mr. WAJRREX. What were those 12 months?

Mr. CONWAY. The fare, was put in effect in October, 1917. That
would carry it up to the fall of 1918.

Commissioner GADSDEX. That was very much unproved later,
though, according to the testimony of their expert, Mr. Storrs, before
tho commission.

Mr. Cox WAY. That is true.

960 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. WARREN. In Massachusetts, in that same relative period,
•where fares were not changed, as I recall the figures, in communities
similar to those in Connecticut, like Worcester, and cities in the
western part of the State, it showed an actual decrease in traffic.

Mr. CON WAY. Yes; but those companies with 6-cent fares, as I
remember it, did not show any increase in revenue.

Mr. WARREN. Well, take Springfield. Their fares were increased
on a different plane, and they showed a very gratifying increase.

Mr. CON WAY. The point I want to make is this: You have various
factors that have to be considered, which I want to lay before you
as controlling elements, I think, in helping to work out a solution
of this question. •

In the first place, there is a large amount of the street-railway
business which is what I call convenience riding. It is not necessity
riding. I refer to the man whose journey is less than a mile. He
can walk, and he will walk, when you get to a certain point with your
fare.

In some cities, taking the country as a whole. I think you now get
better results from the 6 cents than you did two years ago. People
are used to it ; they expect it, and they think it is fair. There is not
any of that spit* walking, as I sometimes call it — walking to spite the
company. Six cents does not mean much. Men wrill pay 6, 7, 8, 9,
or 10 cents for cigars and everything else, and they are used to it.

The city of Sehenectady, for example, showed a theoretical in-
crease of 20 per cent when they put the 6-cent fare in, while some
cities very similar to that, in New York State, did not show anything
like that wrhen they put the 6-cent fare in. But I am not talking, in
most cases, for the immediate future, about 6-cent fares. They are al-
most as out of date as 5-cent fares are. The thought that I want to
leave in your minds is what is going to be the effect of the 10-cent fares
and the 9-cent fares. That is where the fare equation is being carried
by this labor development that is here and ahead of us. What is
that going to do with the companies in the little towns, where every-
body lives within 15 minutes of their work, and walking is easy, and
what is going to be the effect of it on the amount of riding in the
big cities?

I have some interesting figures, which I got just before I left Phil-
adelphia, from Boston, concerning the effect of various raises there.
Their lines, in the first few days of 10-cent fares, showed approxi-
mately 60 per cent increase over the 5-cent revenue. Eight-cent fares,
which were in effect in December, 1918, to June, 1919, showed from
36 to 46 per cent increase over the 5-cent revenues. The 7-cent
averages ran from — well, I will leave out October, when they had
the influenza epidemic — from 12 to 21 per cent increase over the 5-
cent fares.

Xow, Boston, from my knowledge of the property, and from gen-
eral knowledge of other cities, ought to show much better results
with these high fares than any city I know of, because of the fact
that there is very little riding in the shopping district of Boston, the
cars are all run underground, a large part of the surface tracks are
pulled up in the center of town, and yet there they do not get a
theoretical increase.

Mr. WARREN. There is no jitney competition there.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 961

Mr. CON WAY. There is no jitney competition there. The long-
distance riders are flocking to the railroad trains, to a point where
they are embarrassing the railroads, taking advantage of the com-
mutation rates, and a great deal of walking has developed.

Now, these are facts which we can not ignore. The increase in
fares drives a continually larger number of people away, and I
think it would be unfortunate if the impression grew up in your
minds that it is a matter of an arithmetical average — that by divid-
ing the operating expenses by the number of people and getting a
result, and saying that all you have to do is put the fare up to
that level and you solve the problem. It is very far from being
that, with the high costs of the immediate future, as I see it.

Now, on the other hand, if I am correct in my belief that the com-
panies should be allowed to quickly readjust their fares to take care
of these increasing expenses, the halter should be taken off, and
they should be told to go ahead and try to work this out, put in any
change in rates, and allow the commissions to revise and corrert any
inequalities later on.

I do not mean to infer that the companies should not increase
their rates by increasing the flat unit of fare. There are only two
ways to get this. One is a flat increase in the unit of fare, and the
other is some sort of a zone system.

Now. speaking generally, if you are to face that emergency, you
will have to have a simple remedy; and a simple remedy is to
increase your flat unit of fare ; and that, I think, is what the indus-
try will nave to do.

Now, whether that will solve the question is a far more serious
matter. Whether 10-cent fares, with loss of riding that it occa-
sions, is the answer, is, in my opinion, a far less settled question ; but
this much I am certain about: A zone system, applied under condi-
tions of heavy urban traffic, such as you have in our large cities, is
in this country still in an experimental stage.

Last fall and winter I visited every city in the United States
in which there was anything approaching a zone system. The zone
system was successfully applied on interurban and suburban lines,
but when you came to putting it in under strictly urban conditions,
such as travel in the large cities, you have to answer that it has
never been successfully done.

The CHAIRMAN. Not even in Europe?

Mr. COXWAY. It has been done in Europe: yes. sir.

Mr. WAKUEX. But not in this country?

Mr. COXWAY. Not in this country. And I want to make this
point: There is a vant difference between operating conditions, such
as I understand them to be. in Europe, and as they are in this
country.

In the Public Service Railway investigation we had an unusual
opportunity to get a comparison. Sir Robert Stanley, the first presi-
dent of the British Board of Trade and a member of the British
Cabinet, left the general managership of the Public Service Railway
Co. to go to England and manage the London omnibus, tramway,
and underground system. lie knew the Public Service property,
which is typical, I think, of citv properties: he had operated suc-
cessfully with a zone system. But Sir Robert Stanley would not

962 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

say, when the question was put up to him, that that method of fare
collection, which successfully worked in London, would work in
Newark, or Jersey City. There are differences which have- to be
dealt with.

Now, there is another thing: I heard a gentleman say here last
night that he would solve this matter by taking these street railways,
and he would shorten the 5-cent ride to a radius of 3 miles, and then
if you ride beyond that 3 miles you would pay another 5 cents. Now,
without considering the sociological features at all, he probably had
in mind one instance; but from my knowledge of the Connecticut
properties in places like Hartford, New Haven, Waterbury, and
Bridgeport, I sat here and smiled, because I realized that that was
no solution at all for those properties. Practically the whole town
comes within the 3-mile radius; and to say that it should be 3 miles
for 5 cents is just as foolish as to say you ought to haul a man over
the municipal area for 5 cents. There is no relation whatever to it.
The cost of operation of a property, as the chairman knows, differs to
a considerable extent from other properties under the same commis-
sion jurisdiction.

Now, the zone system, to be applied, must not be ready-made and
put on as he suggested. It is the result of a careful study of the
riding habit of the community, of the number of people taking rides
of varying lengths. Some idea of the amount of work that is involved
is conveyed by the experience in this Public Service Raihvay inves-
tigation. That investigation was begun on the last day of July, 1918.
The company was ordered to present its report on or before January
1, 1919, four months later. The traffic engineers of the commission
worked with us in this investigation. We invited them in. We asked
their help. We wanted them to know what was being done, and
wanted their advice. We had over 175 people at one time working
there, trying to get it done, and the best we could do was to present
the report on the llth day of March, the commission having extended
the time twice. That was about eight months. Now, when we have
a 25 or 30 or 40 per cent wage increase to face, you can not work out
something that is going to take eight months before you have the
answer. That is why I say the immediate answer is to give the com-
panies latitude, to let them put in anything which seems to be fair
and which meets the emergency. That is the first thing that must be
done as an emergency solution, and then, if the commissions want to
value the properties — which I think they should, if they have any
doubt about the value of the properties — and investigate the fairness
of this proposal, assuming that the companies make it a permanent
scheme, let them do it afterwards. If a better solution, such as the
zone system, can be worked out, let that be done; but, in the mean-
time, allow the company to live.

Now, I have confidence that eventually a solution will be found.
I do not believe that anybody understands or clearly sees the exact
lines of that solution of the fare question to-day. My judgment is
that if the matter of fare collections can be solved, I think we will
have gone a long way toward the solution of it. Some sort of zone
system is going to be the eventual solution, but that is in the future.
It is not an accomplished fact. In the meantime, the companies must
be allowed to get this money as best they can.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 963

The CHAIRMAN. You think the zone system requires a long study
of each particular plan?

Mr. CON WAT. Exactly. You can not have any made-to-orcler solu-
tion of it.

Mr. WARREN. Well, a flat rate could be put into effect at once;
could it not ?

Mr. CON WAY. That is something that the public understands.

Mr. WARREN. And whether the Boston trustees have treated the
situation in the wisest way or not — and personally, as a Boston man,
I have a great deal of doubt as to whether they have, as to whether
a study of the situation would not have developed a plan to bring in
more revenue — yet it is a fact that in the first two days of the 10-cent
fare, involving a raise of 2 cents on top of the previous raises, and
in the very daj's when whatever spite walking must be evidenced was
in effect, they were increasing the revenue 60 per cent over the old
5-cent fare.

Mr. CONWAT. That is the statement that is made.

Mr. WARREN. And appreciably over the 8-cent fare also?

Mr. CONWAT. Yes, sir.

The CHAIRMAN. Gov. Foss said yesterday that the 10-cent fare
caused a loss of $4,000 a day. Where did he get those figures?

Mr. CONWAT. I don't know.

I have here, and perhaps it would be well to read it into the record,
this letter, dated July 18, from the general auditor of the Boston
Elevated Eailway Co. I wrote to Mr. Neal, the president of tho
company, asking him for figures concerning the effect of various
increases in fares, feeling that it might be of interest to you. The
general auditor, Mr. Reed, writes me as follows:

As Mr. Neal has been very busy in connection with the strike of our em-
ployees he has asked me to answer your letter of July 16. I believe the in-
closed statement will give you the information desired.

Regarding the rates of fare I would say that up to July 31, 1918, we had a
universal 5-cent fare; from August 1, 1918, to November 30, 1918. a 7-cent
fare; from December 1, 1918, to July 9. 1919, an 8-cent fare, and from July
10, 1919, a 10-cent fare has been in operation. It is too early to determine the
real effect of the 10-cent fare, as it was in operation but a few days before
the strike, and because of unusual conditions. Opinions vary as to what the
result will be, hut we eventually hope for an increase of GO to 65 per cent as
compared with the 5-cent fare.

As you probably know, our universal fare allows a transfer without charge
iH'tween surface and surface cars and between surface and rapid transit, or
vice versa.

Now, if we take this Boston illustration, as I read this letter, from
July 31, 1918, to the 10th of July, 1019, they had 5 cents, then 7
cents, then 8 cents, and then 10 cents. Now, they were already under
public trustees, and they ran a big deficit that had to be assessed to
the community under the service -at -cost act. Is it not clear to every-
one's mind that you can not expect the Public Utilities Commission
to reconsider a ca.se four or five times in a year? And yet that is
what has to l>e done. This industry, as I said, and I think some of
you thought, perhaps, I was overstating it, is in tho experimental
stage. To my mind, the immediate trouble is more serious than that
which confronted the industry in the early nineties and late nighties,
when the agitation was on as to whether you should have horse cars
or electric care. That was a mechanical problem. If one person
solved it, it was solved for evetybody, but as the chairman has said,

964 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION

the solution here differs with almost every property. You have here
an economic question to solve. And the thought I want to leave-
with you is that there is a very serious doubt in my mind with refer-
ence to at least a large percentage of these companies, whether it
is practicable to get a rate of fare which will give you enough money
to pay all of these costs and to carry this tax burden, this paving
burden, and all these other things. This industry, in other words,
has to reorganize itself, and in that process of reorganization it has
to have a chance to thrash around, to try a lot of experiments, just
as is being done everywhere — put in a rate, and if it does not workr
take it out and put another one in, because it is only by these ex-
periments that we are ever going to get the information which is
necessary to work out a solution. If the commissions are going to
be required by public opinion to hold hearings lasting four or five
months, to make valuations and take a year's time to make one
change, why, gentlemen, the situation is hopeless.

The CHAIRMAN. Now, assuming that a great many commissions
do raise rates and that the people are induced to travel, and it does
not bring in revenue enough to pay the operating expenses and fixed
charges, then what have you got to do?

Mr. CONWAY. Then you have pretty nearly reached the end of
private ownership and private operation of the business.

Mr. WARREN. Do you mean if, after experimenting, they can find
no wa}r?

Mr. CONWAY. That is what I understood him to mean.

The CHAIRMAN. Do you believe in public subsidy of a private
corporation ?

Mr. CONWAY. I do not. I think in principle it is vicious.

The CHAIRMAN. Then, if these public utilities can not maintain
themselves, the solution is government ownership?

Mr. CONWAY. I would not go that far; but I do say we ought to
give the matter of private ownership a thorough trial, and private
operation. Let the initiative of the operator have free play. If he
can not work out a problem, then he has a property for sale. I do-
not think it makes any difference to him whether the buyer is to be
the junkman or whether it is going to the municipality, if he is
satisfied he is through and he can not W7ork it out; but that is the last
resort, in my opinion — public ownership. I think a substitute, in
general principle, is bad, because I am a believer in individual
initiative, and in giving a reward for efficiency, and in giving the
railroads freedom to work out the best methods.

Mr. WAKREN. But don't you think it may be of such importance
to maintain the service that the company can not work out its prob-
lem, and yet it is a case where the road ought not to be discon-
tinued, and that in the interest of the public a subsidy might be
advisable pending a determination of whether the public would in
some way take over the property?

Mr. CONWAY. I think that is true ; yes. In other words, during
these critical days, in which, perhaps, discouragement may come
because a solution has not yet been found, it would pay the public
to support the companies, at least for a sufficient period of time^
that the entire problem be understood by all parties and the most
advantageous solution found, no matter what may be the solution
determined upon.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 965

Mr. WARREN. Could you say just a word — I do not want to pro-
long your examination unduly — but from your study of rate regula-
tion as applied by municipal authorities and State authorities, what
would you consider the better method of treating that subject?

Mr. CONWAY. Oh, generally speaking, there is no doubt in my
mind that State regulation, through a utility commission, is better
than municipal regulation.

In the first place, the State commission, assuming the same set
of men are doing the regulating, will do better work than those
men would as municipal commissioners. The State commissioner, if
he gets in there knowing nothing about the business, and unfor-
tunately many of them do come to their positions in that way, is
educated ; he can not sit there day after day and listen to cases and
to witnesses dealing with these matters without getting a pretty
good education in the course of a few years on the question. Now,
you take a councilman or a mayor. There is only one out of three
or four or a half dozen of them that ever has a rate matter to
consider. They come there without very much knowledge — and it
is certainly true that in that respect a little knowledge is a dangerous
thing — when they have any, and they have no trained advisers, such
as the engineers and accountants of the commission. The cities have
no trained lawyers, such as counsel of the commission, that can bring
out the facts: and the consequence is that justice is not done because
of a lack of knowledge of the judges. You might as well put a
layman on the bench and expect him to administer justice in muni-
cipal regulation.

Commissioner SWEET. I would like to ask a few questions. Prof.
Conway. I think you have given us some very valuable informa-
tion, but really it is very discouraging as a whole, especially your
final conclusion ; at least, it would seem so to me.

Do you think it" would be possible to induce the public authorities
of the various municipalities of the United States, or State com-
missions, to throw the doors open as wide as you suggest and give
the companies a free hand to place the fares wherever they please,
right off, as an immediate measure?

Mr. CONWAY. It certainly will never be done unless somebody
suggests it to them.

Commissioner SWEET. Well, would it be done if it were suggested?

Mr. CONWAY. Perhaps not, but this far, Mr. Commissioner. I
think it will help: The average commissioner, I believe, except,
perhaps, where it affects his own home town, his own neighbors,
wants to (lo the right thing. Now, if they hold these cases up, you
go in and talk to them in their private offices, or you meet thorn on
the street, and they will freely admit that these prolonged hearings
are not fair to the company, but they will say to you, " We must give
everybody in the community all the time he wants to talk himself to
death, or he will go out and howl that the commission sat on him
and would not give him a fair hearing."

Commissioner SWEET. That is true, isn't it?

Mr. CONWAY. Yes, sir; and it moans hundreds of volumes of
testimony.

Commissioner SWEET. Yes.

Mr. CONWAY. Most of which is utter nonsonso. Now. his time
is frittered away on these things. My observation is that the moment

966 PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION.

the rate goes in it is a nine-day wonder if it does not outrage the
community because it is so ill-advised and poorly conceived. When
you come to the trial of the case, the newspapers in Pennsylvania
give it very little notice. My observation is that most of the time
is taken up with the disputes about facts, where you have no guide.
In one city a 6-cent fare is going to give you an 18 per cent increase
and in another city an 8 per cent. Instead of spending time on those
questions, why not put it in and see what it gives you ?

Commissioner SWEET. As I understand it, in Pennsylvania, where
the rate can be changed practically at the option, temporarily at
least, of the company, by putting it in

Mr. Cox WAY. Filing a new tariff.

Commissioner SWEET. Pending a decision?

Mr. COM WAY. Yes.

Commissioner SWEET. Even there an effort has been made in every
case that has arisen so far to make a specific rate, and it must be.
There has been no instance, has there, where the door has been
thrown wide open and the company allowed, at its own sweet will,
to place the fare wherever it pleased?

Mr. CONWAY. Yes; that is the situation. Take the case of the
Pittsburgh Railways Co. Before the 6-cent fare wTent into effect
the commission held hearings and allowed the 6-cent fare to go in
but required the company to sell two tickets for 11 cents, instead
of 11 tickets for 55 cents, as they wanted to do. Now, since then
the company has twice changed the rate, and the matter has not yet
been decided.

Commissioner SWEET. But if I understand you right, the State
commission, of its own motion, could put a veto on that?

Mr. CONWAY. No ; except it went through the process of determin-
ing the justice of the rate. What the State did was to immediately
begin a valuation of the property.

Commissioner SWEET. It goes into effect immediately?

Mr. CONWAY. Yes.

Commissioner SWEET. But could not the State commission, with-
out waiting for a complaint, decide against it?

Mr. Cox WAY. Not without getting the facts. In other words, they
can not just arbitrarily say that the rate is excessive. They have to
have evidence to support it.

Commissioner SWEET. But still that could be done in a very formal
and brief way, could it not?

Mr. CONWAY. Well, you would have to satisfy the courts.

Commissioner SWEET. Well, laying aside the situation in Penn-
sylvania and Connecticut, and taking other States where' they have
no provision of that kind

Mr. CONWAY. Yes.

Commissioner SWEET. Don't you anticipate that it would be a very
difficult thing, indeed, to bring about a situation that would permit
the companies to place their fares wherever they saw fit ?

Mr. CONWAY. Mr. Commissioner, my owrn judgment is that the
commissions themselves are coming to this view. Let me illustrate :

The last issue of Public Utilities Reports, annotated, contains the
opinion of the Illinois Commission denying the application of the
surface lines in Chicago for 6-cent fares. These newspaper clippings
that I received before coming to Washington yesterday contain what

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 967

represent to be an interview with the chairman of the Illinois Com-
mission, in which he says that, without any hearing, he is indi-
vidually prepared to allow the companies to advance their fares
enough to take up these extra wages.

Mr. WARREN. Who said that?

Mr. CON WAT. The chairman of the Illinois Commission is quoted
as saying it by two newspapers.

Commissioner SWEET. As related to what point?

Mr. CONWAT. To Chicago.

Commissioner SWEET. To what point have they raised the fare ?

Mr." CONWAT. He does not know yet, because they have not gotten
the wages. He is willing to give the companies immediate relief to
the extent of the raise in wages, but he is careful to say that that is
his individual view.

Commissioner SWEET. As a measure of relief, don't you think some-
thing should be done to prevent jitney competition?

Mr. CON WAY. It should be done; yes, sir. I do not know how far
you can go with it. The Connecticut company, as an instance, con-
cerning which I think there is no more friendly public feeling any-
where than is found by that company in the State of Connecticut;
it is surprising how little animus there is to that company, probably
because the trustees are operating it-
Commissioner SWEET. Do you think the State should regulate
them, the same as a street railway ?

Mr. CONWAT. That would do it.

I might tell you what happened in that Connecticut case, showing
how difficult it is to manage the jitney situation. The Legislature
of Connecticut, at the instance of the governor, appointed a special
committee to study the problem of the street railways in Connecticut,
and they recommended various forms of relief. Among others was
the putting of the jitneys under the control of the utility commis-
sion. Xow, the legislature considered all of these measures, and gave
them nothing. They did report out a jitney bill which had teeth
in it, and which put the jitneys under the control of the utility
commission. The Street Railway Union; the American Federation
of Labor, with which the street-railway men were affiliated; the
jitney operators ran excursions from the sister cities in Connecticut;
they rode in jitneys from Bridgeport and Hartford, and they got a
clique, and they took the galleries the day that bill came up for con-
sideration, anfl they made so much noise that you could hardly tell
what was going on. The legislature evidently thought that this was
aroused public opinion. The bill was emasculated. The value of it
is very debatable.

Commissioner SWEET. I have nothing further.

Mr. WARREN. Thank you very much. Prof. Conway.

I have one other witness, Mr. Chairman.

STATEMENT OF ME. HALFORD ERICKSON.

Mr. WARREN. Your full name, Mr. Erickson, is Hal ford Erickson?
Mr. ERICKSON. Yes, sir.

Mr. WARREN. You wore formerly chairman, I think, of the Wis-
consin Railroad Commission!

968 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

Mr. ERICKSON. I was a member of the commission for 11 years,
and chairman part of the time.

Mr. WARREN. Yes. That is, as a matter of fact, the Public Utility
Commission or the Public Service Commission of the State of Wis-
consin ?

Mr. ERICKSON. Yes.

Mr. WARREN. Otherwise called the railroad commission?

Mr. ERICKSON. It has jurisdiction over railroads and all other
public utilities, including street railways.

Mr. WARREN. Now, you have made a pretty thorough investiga-
tion of the street-railway situation, have you not ?

Mr. ERICKSON. I have had occasion to go into it from time to time
quite fully, as fully as I was able to under the circumstances, both
on the commission and since.

On the commission we had to appraise, prescribe accounting, audit
the books of every street-railway company, and make rates for every
street railway in the State. Since I got out of the commission we
have appraised about seven or eight hundred millions of dollars of
utility property, audited their books, and made rates for a large pro-
portion of them. I suppose of that, 15 or 20 properties represent
street-railway properties.

Mr. WARREN. As a matter of fact, have you not made a very care-
ful preparation or statement on this situation in reply to a question-
naire from the Chamber of Commerce of the United States ?

Mr. ERICKSON. Some time ago the Federal Chamber of Commerce
asked me to testify in some hearings that they had here in Wash-
ington. I was not able to get there, but I prepared a rather lengthy
statement on the street-railway situation, based upon the analysis
of the accounts, valuations, etc., of some 30 or 35 roads or more, part
of which we had to appraise ourselves, and based upon as many
other facts as I could get hold of. The greater portion of the paper,
however, was devoted to the indeterminate permit, which I was re-
quested to testify on, in addition to a sort of survey of the situation
as a whole.

Mr. WARREN. I propose, if I may, to leave a copy of that with the
commission, because I think, in view of Mr. Erickson's broad ex-
perience and varied experience, it would be a very valuable contribu-
tion to this investigation.

You have also prepared some data for this investigation, Mr.
Erickson ?

Mr. ERICKSON. Yes ; I have. I have had a very short time on that,
but I used the facts as to the conditions of the railroads which I dug
up at the previous hearing and presented them in a different light,
and then, in this case, I went into State versus local regulation.

Mr. WARREN. Which we asked you especially to consider?

Mr. ERICKSON. Yes. In addition to that, I have also summarized
the results of very extensive investigations as to the cost upon which
capital can be had. Part of that investigation was carried on in con-
nection with the work of the Newlands committee — I mean the con-
gressional committee — and part of it has been carried on in connection
with other rate cases. That investigation embraced practically every
railroad in the country, and public utility, the securities of which
were listed, and the leading manufacturing plants throughout the
country.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 969

Mr. WAKREX. You have a memorandum of this last study; have
you ?

Mr. ERICKSOX. Yes.

Mr. WARREX. "Will you give the commission briefly, and still so
that you will do the matter justice, what you found with reference
to the street railways and with reference to the cost of capital, be-
fore you take up the question of the study of municipal control ?

Mr. ERICKSOX. I took the operating results of some 35 roads rep-
resenting the conditions before the war, or 1914 and 1915. I also
went back several years, as far as to 1894.

Without going into detail, I might say that in 1915, the cost per
ride, per passenger, without anything for return, without anything
for depreciation, amounted to 3.6 cents. Eight per cent on the value
of the property amounted to 2.5 cents, making at that time the cost
of every ride over 6 cents, if tlie road should have received reasonable
returns. That was before the war.

From 1910 to 1915, the net earnings fell 33 per cent, approximately
34 per cent on these 35 or 40 leading roads. The reason for the bad
condition, of course, in 1914 and 1915, is almost entirely due to. high
prices. Prices have been steadily rising. They had increased about
50 per cent from 1896 to 1915; that is, for commodities alone, and
about 40 or 45 per cent for labor. Those increases had been gradually
going down. The conditions of the street-railway companies were
fairly good up to 1910 from 1900, but at that time the increase in
prices worked very fast. Since that time, conditions began to grow
worse. From 1915 to 1919, of course, we know what the situation has
been. During the intervening time, prices have doubled for both
labor and materials and supplies. As a matter of fact, on many of
them they have more than doubled since 1915. In 1918, the cost per
passenger per ride was 4.8 cents, without including enough for depre-
ciation, without including anything for return on the investment.
If you add 2.5 cents for return on the investment, you have a cost per
passenger of 7.3 cents. That represents the conditions of about 35 or
40 leading roads in the country.

Mr. WARREX. In 1918?

Mr. ERICKSOX. In 1918.

Commissioner SWEET. It is still worse now; is it not?

Mr. ERICKSOX. It is still worse now, because prices have kept on
increasing. Since that time, however, a few reliefs have been gotten
through occasional increases in rates; so that the average rate now
is slightly more than 5 cents, not a great deal more, but slightly
more. At that time, it stood at about 5 cents per ride.

Mr. WARREX. But, as far as costs are concerned, conditions are a
great deal worse ?

Mr. ERICKSOX. The costs are now higher than they were in 1918
by perhaps as much as 7 or 8 per cent.

Mr. WARREX. And that is regardless of this 60 cents an hour
wage scale?

Mr. ERIC-KSOX. Yes, sir.

Mr. WARREX. Which has been adopted in the case of a few com-
panies?

Mr. ERICKSON. Since my figures were made, most of the increases
in wages authorized by the Federal Labor Board have been put into
effect— not all of them, but a great many of them — some of the

160G430— 20 C2

970 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

greatest ones, because my figures ended partly with July, 1918. For
some of the 15 roads they were carried up to January 1, 1019.

Mr. WARREX. Those roads, you think, were fairly typical of the
industry ?

Mr. ERICKSON. They were fairly typical. They were located in
Minnesota, Wisconsin, Illinois, Indiana, Ohio, and a great many in
Massachusetts, many in New York, many in the South, some west of
the Mississippi River, including Omaha, St. Louis, Kansas City, and
many of the other leading cities in the> country.

The CHAIRMAN. Do you include the lines of the Twin Cities and
Milwaukee ?

Mr. ERICKSOX. Yes, sir; those were all included. Duluth, also —
not Superior, but Duluth.

Commissioner SWEET. Are they strictly city service, or do they
include interurbans?

Mr. ERICKSOX. There is hardly a railroad in the country that does
not have a suburban business besides the city business.

Commissioner SWEET. Yes.

Mr. ERICKSOX. Almost every road; I suppose three-fourths of the
lines 'go beyond the city limits into the suburbs and into adjoining
towns and cities. Of course, they include the entire line, the city part
as well as the suburban part. I did not have time to separate the
figures by political units or divisions. They do not include inter-
urban roads, however.

Commissioner SWEET. That is what I mean.

Mr. ERICKSOX. They include urban and suburban roads.

Commissioner SWEET. Yes.

Mr. ERICKSOX. In 1915 the roads were earning about half as much
for returns as it was necessary to earn in order to secure capital,
based upon market conditions. In 1919, or 1918, the roads were earn-
ing very little more than the operating expenses. Some roads were
earning some more, but others less, and on the average not much
more than perhaps a fraction of a cent, on the average, than the
operating expenses.

Commissioner SWEET. Without allowing anything for deprecia-
tion or interest on investment?

Mr. ERICKSOX. Without allowing any more for depreciation than
was included in the accounts, which I would say was about half, but
nothing on return whatever. Perhaps 35 per cent was included in
the accounts for depreciation— not more than that — of what should be
allowed.

Commissioner SWEET. Then, Mr. Erickson, the street railways of
the country as a whole, taking these typical roads that you have ex-
amined, have in their physical properties been getting in worse and
worse condition as time has progressed?

Mr. ERICKSOX. Since 1910 ; yes. Their condition was bad from 1890
to 1900 because the industry was in its infancy, but it grew better up
to 1900. It kept growing still better up to about 1908 and 1910.
Then the situation was again reversed; and owing to the high prices
of labor and material, and owing to the increases in the length of line,
and owing to demands for better service which were made, it has been
growing worse.

Commissioner SWEET. Are you speaking now of the financial condi-
tion?

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 971

Mr. ERICKSON. I am speaking of the financial condition exclusively.

Commissioner SWEET. What about their physical condition during
this period ?

Mr. ERICKSON. Their physical conditions have been fairly well kept
up. They were until 1914 and 1915. The necessary improvements
have been made since, of course. They have had to be made, but
the full improvements have not been made since 1914 and 1915. They
have slumped wherever they could. That is the size of it. They
have had to, and there are a great many deferred maintenance charges
to be taken care of as soon as they get on their feet again.

Commissioner SWEET. If that process should have continued for
several years, would it have had any bearing upon the question of the
safety of the public ?

Mr. ERICKSON. Yes ; and the service would go to pieces. If it con-
tinues very much longer, you will have little or no service at all. It
will go to pieces. The cars will be in such condition that they will
not be safe. Power houses will not be able to furnish the necessary
power for the driving of the cars.

Mr. WARREN. Did you mention the decrease in net earnings between
1910 and 1915, Mr. Erickson?

Mr. ERICKSON. Yes; I stated that the decrease at that time in net
earnings amounted to about 33 per cent; in fact, nearly 34 per cent.

Mr. WARREN. And did you state the increase in the investment per
revenue passenger ?

Mr. P^RICKSON. Showing the effect of the increase in the price of
labor and material, and showing the effect of the unproductive im-
provements, from 1910 to 1915, I have a few figures here that I hap-
pened to get together on that question.

For instance, the investment per passenger ride, in 1910 or there-
abouts, was about 20 cents. In 1915 it had increased to very nearly
28 cents, showing that the fixed charges per passenger have had to
increase because you had more property per passenger to take care of.
That is due to increases in prices. It is due to improvements de-
manded, but it did not bring in any proportionate amount of returns.

The cost of getting capital —

Mr. WARREN. Yes; I wish you would take that up and say some-
thing on the cost of capital.

Mr. ERICKSON. Yes; I will briefly state what we found.

Utilities before the war had to earn about 8 per cent on the full
value of the physical property, including the going value, in order to
attract the necessary capital. Bonds, for instance, if they bore f> per
cent, would not sell at par unless there was more property by a good
doal behind thorn than their par value. And unless they woiv pro-
tected by net earnings that amounted to at least twice as much as
the interest charges. Stocks were in the Kami' position. They had
to have property behind them. Six per cent, stock had to sell at par.
They had to have net earnings behind them that amounted to 10 or
12 or 14 per cent. If they did not have those earnings behind them,
neither bonds nor stocks would sell at par; that is on, say, a (> per
cent, basis.

That means this — that the cost of capital in the utility field is
measured not by the income basis upon which the securities are sell-
ing, but the cost is measured by what you must have iu the way of

972 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

net earnings behind the securities, in order that they may sell on
a normal basis.

I investigated also from time to time, and particularly in 1914,
1915, and 1916, the income basis on which mortgages were selling, in
some of our leading cities. A farm mortgage on a good farm, well
located, could not cover more than one-half of a good farm, in order
to sell on 6 per cent income basis. That may be likened to the bonds
covering half of the property. A second farm mortgage, covering
at least the investment, would not sell on a 6 per cent basis, unless
they received 10 or 12 per cent as interest. In other words, the
security was not good and demanded compensation for the risk.
That may be likened to the stocks that come on top of the bonds.

The result was that the cost of money on a farm, up to the
full value of the farm, was over 8 per cent on the full value, the
same as the cost of money or capital in the public-utility field
amounted to over 8 per cent.

Those investigations were carefully made, based upon thousands
of illustrations, covering not only the income accounts and the value
of the property, but upon their market price for five or six years.
I had at least eight or nine men working on this investigation alone.
I realized that the cost of capital in the utility and railroad field
was measured by what you had to have in order to get capital, and
I tried to ascertain that; and it is for that purpose that that in-
vestigation was carried on. The results that I gave you are in sub-
stance what I found. Of course they cover files of routine matter
which I have not here, but which I have in my files in my Chicago
office.

The CHAIRMAN. Did the data which you filed with the United
States Chamber of Commerce contain the same details on that
matter ?

Mr. ERICKSON. The details are given fairly closely here in this
brief statement that I will hand you, and also somewhat more fully
in the statement made to the chamber of commerce, but more fully
still in the report I made to the attorneys before the Newlands
committee. I do not think those figures are available, but I will
furnish you a more detailed summary, if you would want to have it.

The CHAIRMAN. I have the report of the Newlands committee.

Mr. ERICKSON. Oh, you have? Well, that is in that report. It
covers in detail practically all of the leading railway systems, all
the leading utilities and, besides that, I have a fairly full record of
practically all the leading manufacturing industries. I have a de-
tailed report covering 100 typewritten pages; and I should be glad
to send you a copy of it if you would like to have it.

The CHAIRMAN. Thank you.

Mr. ERICKSON. I have not that here, though, but I have it in
Chicago, and would be glad to forward it to you.

The CHAIRMAN. I think it would be useful, and we would appre-
ciate it, if it is convenient for you.

Mr. ERICKSON. Yes ; I will send it in to you.

The street-railway situation is such that something will have to
be done, and it will have to be done, in my judgment, through the
action of the State. Owing to regulation of utilities, the street rail-
ways themselves can not remedy the situation. They are powerless

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 973

to do what should be done. It can only be done by permission of the
State and, in some cases, of the city authorities.

Xow, that means that the State will have to take action ; the regu-
lating powers will have to take action. It means further that if the
powers of the State commissions are not sufficient now they will have
to be broadened out, and perhaps temporary assistance will have to
be granted, subject to what may have to be done later on; but, in
my judgment, it has to be done through the State commission or
through the supervision of a State commission.

I was asked to say something on State versus local regulation.
I have prepared something on that, and I suppose I can give you a
synopsis of it. I can omit the details and refer to my notes, and give
you what has been my experience in that matter while I was on the
commission and afterwards. In doing so, in order to show the
necessity of State regulation I, of course, have gone into details as
to what is necessary in order to provide adequate service at reason-
able rates, and perhaps I could as well omit that since it is in the
report, anyway, and confine myself to comments.

Mr. WARREN. I should like to have the report, if that could go
into the record, and have Mr. Erickson now cover some of the im-
portant points.

The CHAIRMAN. Whatever contribution Mr. Erickson makes to
this subject is valuable.

Mr. WARREN. I expect so, and I feel it should be in the record.

The report of Mr. Erickson is as follows :

STKEHT RAILWAY SITUATION.

Electric street-railway transportation is of comparatively recent develop-
ment.

In 1900 it comprised only 1C per cent of the track mileage and 7 per cent
of the traffic.

In 1894, when long-distance transmission was more fully perfected, it began
to develop very rapidly, and soon became the prevailing method of street railway
transportation.

The financial situation of the street railways during the past 25 years has
varied from doubtful up to fair and down again to doubtful or bad.

I Hiring the first part of this transition period much property had to be
destroyed or discarded and replaced by new and different equipment. The
investment grew faster than the earning. All this tended to keep investors
away. About 1900 this had changed somewhat, and for some years the earn-
ings grew somewhat faster than the investment. This had a strong tendency
to draw capital into the street-railway field. Many of the underlying bonds
even advanced into the investment class.

About 1910, however, the conditions again began to change in the opposite
direction. Since about that time the investment and the operating expenses
have increased faster than the earnings. At the outbreak of the war most
roads were earning less than it was necessary to earn to attract all the new
capital that was needed.

A close analysis of the income accounts and of the operating and other sta-
tistics of many leading street railways discloses some of the main reasons for
the serious financial straits in which most of the electric street railways now
find themselves.

From 1910 to 191H, owing to the fact that the operating expenses increased
faster than the gross earnings, the net earnings declined about '.K\ per cent.

During this period, further, the investment per passenger advanced from
nearly 20 cents to close to 28 cents. This increase of about 40 per cent In
the Investment per passenger is largely due to increases In prices of material
and labor and to the fact that during this period many improvements in the
service have been required, the cost of which has uot been offset by increases
in the density of traffic.

974 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

In 1914-15 the operating expenses alone, without including sufficient amounts
for depreciation, averaged about 3.6 cents per passenger. During the same
period, 8 per cent on the investment for interest and profits averaged about 2.5
cents per passenger. This made the total cost per passenger about 6.1 cents. The
average rate of fare per passenger during this period averaged 5 cents or slightly
]esa

The principal reason why, for electric street railways, the expenses and charges
have thus increased, is found in the increases that have taken place in prices of
material and labor. From 1897 to 1915 the wholesale price on commodities in-
creased about 50 per cent, while the prices on labor increased about 43 per cent.

The situation arising from such increases in the operating expenses and
charges was also greatly aggravated by the fact the length of the haul increased
and by the further fact that, as time went on, continually increasing demands
for better and more comfortable service had to be met. Long hauls are more
costly than short hauls and good service is more costly than poorer service. In
the face of such increases in the cost of the service the number of passengers
per car-mile decreased rather than increased. The rate of fare also remained the
same as it was.

The facts just given apply mostly to conditions that existed for some time up
to the beginning of war. Since the war started the conditions in the street-
railway world have steadily grown worse. From 1914 to 1919 the prices on
commodities and labor have about doubled, the length of the hauls have kept
on increasing and so have the operating expenses and fixed charges. In the face
of all this it is only recently that a few of the worst situated roads were
reluctantly granted certain small increases in the rate of fare.

The operating expenses alone increased from 3.6 cents per passenger in 1914
to 4.8 cents per passenger in 1918. This is an increase of 1.2 cents, or about 33
per cent in the operating expenses per passenger. The cost of the capital has also
increased. But if no allowance is made for this increase in the cost of the capital,
and if it, therefore, is placed at the prewar figure of 2.5 cents per passenger, the
total cost per passenger in 1918 was about 7.3 cents for each ride.

During the war the situation became, in fact, so bad that road after road had
to be granted increases in rates in order that they would be able to keep \ip the
service.

The conditions which created the bad situation before the war, and especially
during the war, are still with us.

Prices of labor and material are not declining greatly, nor are they likely to
fall much as long as our supply of money and credit remains as great as is now
the case. Gold production is about as great as ever. During the war the imports
of gold exceeded the exports by over one billion dollars. The available credit and
asset currency supplies are twice as great now as before the war.

It is true that these increases in the prices of materials and labor applies to
other industries as well as to street railways and other public utilities. Here,
however, the resemblance ends. Public utilities, like other industries, have not
often been able to meet increasing costs on what they buy by increases in the
prices on what they sell.

Public utilities have to buy all the capital, material, supplies and labor which
they use in the open competitive market. But the prices on the service which
these utilities sell is subject to regulation. Their prices are fixed by the gov-
ernment. In many cases, these prices are the same now as before the war.

When all the facts are considered it will be found that at present and for
several years in the past the street railways have not, as a rule, been earn-
ing a fair living.

They have had to pay the ruling wage. They have also had to meet the
most urgent repairs and renewals, but few roads have been able to keep up
their equipment as well as they would have done had the earnings been ade-
quate. Few, if any, roads have beside these and other necessary outlays been
able to earn fair returns on the investment.

It is often said that low prices increase the sales and that the cost per unit
of service decreases as the volume of business increases. It is further said
that this applies with special force in the street railway field, because in
this field only a part of the expenses tend to vary with variations in the amount
of business done.

It is true that the law of increwsing returns or decreasing cost applies to
the street-railway traffic the same as it does to other industries where rela-
tively large investments are required. But this law while important is sub-
ject to many qualifications. In such industries the fixed charges and other

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 975

costs per unit of service are rapidly increasing as long as the investment
remains the same. But when the capacity of the existing equipment is reached
and when additional investments are needed for handling the growing tniffic.
then it is usually found that the cost of the additional equipment is out of
proportion to the aiiHHiut of traffic that can be had. The amount of traffic,
for instance, that has grown too great for one track is not often even nearly
large enough for the full use of two tracks. Yet the second track has to hip
put in ; and it is also well known that two tracks cost nearly twice as much as
one track. When the second track has been put in, the interest charges prr
unit of service become much greater than they were while only one track wa ?
used. This increase in the interest charges per unit is also likely to become
permanent even after the traffic has so grown as to fully utilize both tracks,
for it is well known that double-track lines do not or can not as a rule handle
twice as much traffic as single-track lines.

Troubles of this nature have greatly aggravated transportation conditions
in this country during the past decade. While there was too much traffic for
the existing facilities, there was not enough traffic to equally fully occupy the
facilities after they had l>een extended. New extensions must always be some-
what out of proportion to the amount of business that is immediately available.

Adequate street-car service is a necessity. Without it no city of any con-
siderable size can possibly grow and prosper. Good street-car service, how-
ever, can not in the long run be had unless the earnings are high enough to
bring the necessary capital into the street-railway field. When the choice lies
between good service at reasonable rates, on the one hand, and poor service
at too low rates on the other, it is to the best interest of all that the former
should be preferred.

A living wage in any industry consists of earnings that are high enough to
attract all the capital and all other factors of production that are required in
the business.

In the street-railway and public-utility fields this means that under normal
conditions the earnings must be high enough to yield reasonable returns for
the operating expenses including taxes, depreciation, and interest and profit
on the fair value of the plant and the business. Reasonable returns are rep-
resented by fair prices of all the labor, services, materials, supplies, and other
things that are needed, as well as by fair prices for the capital employed and
for the enterpriser or employer.

For several years up to the time of the war such reasonable returns were
ordinarily covered by earnings that were high enough to meet all other ex-
penses and charges and leave a balance of about 8 per cent on the fair value
of the plant and the business for interest and profits thereon.

During the war the cost of the factors of production including the capital
was as stated greatly increased, and these costs still remain at high levels. It
is possible, however, that during the near few years there will be some fall in
the cost of investment 'capital, although it is doubtful whether for many years
this cost will fall as low as to the prewar point.

The conditions upon which capital can be had or securities sold are about as
follows :

The property and earnings behind the investment must be sufficient to afford
the necessary protection against risks, and to also constitute adequate com-
pensation for the use of capital employed, and for the work and responsi-
bilities assumed by the employer and investor.

Investments in bonds, in order to be safe, n,ust have behind them much more
property than their par value, and much greater net earnings than the interest
charges on the bonds.

Stocks, in order to be fairly safe or to come in the investment class, must
have behind them at least as much property as their par value, and much
greater net earnings than the ordinary G per cent of 7 per cent dividends that
may be paid thereon.

Without such margins of safety as these, the securities are speculative rather
than investment propositions.

The fact that Investment securities must be protected by more property than
their par value and by much greater net earnings than the ordinary interest
and dividend charges shows:

1. That the cost of capital is represented by the amount of the net earnings
that are required in order that the securities thus representing the capital may
sell on the ordinary investment or income basis, and

2. That the rates charged by a utility for the service it furnishes must in
the long run be high enough to yield such net earnings.

976 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

The investment conditions in these respects, which prevailed for several
years prior to the war, may be further summarized as follows:

Investors, in order to purchase 5i per cent to 6* per cent bonds at par, re-
quired among other things:

1. That such bonds should not amount to more than about two-thirds of the
value of the assets behind them.

2. That the net earnings of the issuing company should amount to not less
than twice as much as the interest charges on such bonds.

3. That the past record and future prospects of the utility should be good or
at least very fair.

4. That, in taking the securities on such income bases as those given, the
investors would not assume the cost of such discount, commissions, and other
selling and issuing expense as had to be met when the securities were first put
on the market.

Such bonds as these represent for the most part the class of investment bonds
which were available for new capital at the time.

The comparatively few available underlying issues which were better pro-
tected than this were selling at somewhat higher prices and lower yields.

The many junior issues bearing the same rates of interest but which were
less well protected than this were selling at lower prices, and higher yields or
often much below par.

Investors in order to purchase 6 per cent to 7 per cent stocks at about par at
that time required :

1. That the par value of such stocks should not amount to more, or as much
as, the amount by which the value of the assets exceeded the par value of the
bonds which come ahead of such stocks.

2. That the net earnings of the company which were available for returns or
dividends on such stocks should amount to from more than half again to fully
twice as much as the regular dividends.

3. That in addition to this the amount by which the net earnings for the
stock exceeded the regular dividends be used for strengthening the equities
behind the stock and for occasional extra dividends thereon.

4. That the future prospects of the company appear to be good or at least
fair.

In taking the stock on these bases the investor did not assume the cost of
discounts, commissions, or other selling expenses.

Less well-protected stocks than this bearing the same rates of dividends sold
at lower prices and higher yields or below par. Better protected stocks with
similar dividend rates sold at higher prices and lower yields, or sometimes
above par.

AVhen both bonds and stocks are outstanding, the bonds are, of course, much
safer than the stocks. Among the reasons for this are that bonds have the
first claim on the entire property and on the entire net. earnings; that all just
claims of the bondholder must be satisfied before the stockholder gets anything ;
that the bonds have foreclosure privileges when the interest charges thereon
are not paid.

The facts thus given represented normal investment conditions in the utility
field for the period involved. For a plant earning 8 per cent on its fair value,
of which 60 per cent was represented by bonds, and 40 per cent by stocks, the
situation was as follows :

Assets.

Rate,
earned.

Rate,
paid.

Interest
dividends.

Par
price.

Bonds

$60,000

Per cent.
13.3

Per cent.
6.0

$3,600

$100

40,000

11.1

4,400

100

Total

100,000

8.0

8,000

100

Farm mortgages bearing interest at from 5* to 6i per cent will not often
sell for as much as par if they amount to more than one-half as much as the
value of the farm, and if the farm is not well located and well managed.

Second farm mortgages, covering the remaining half of the value of the
farm, will not sell at par unless the interest received thereon amounts to from
10 per cent to 12 per cent

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 977

First mortgages of this kind on farms resemble the bonds which were, say,
one-half the value of a utility.

Second farm mortgages of the kind mentioned resemble the second-mortgage
bonds or even stock, which cover the remaining half of the value of a utility
plant.

The cost of obtaining capital in the public utility for several years up to
the beginning of the war may be further illustrated.

Twelve representatives 20 to 30 year first-mortgage bond issues covering
gas. electric, and street-railway plants brought out before the war and bearing
interest at the rate of 5 per cent were placed on the market at prices under
which they yielded the investors from something over 5$ per cent to more
than 6 per cent. The cost to the issuing companies, when discounts, com-
missions, and other expenses averaging about 7 per cent are included, amounted
to about 6i per cent. These issues did not cover more than about one-half
of the book values of the property and were protected by net earnings that
averaged considerably more than twice as much as the amounts required for
interest on the bonds.

During the same period fifteen 25 to. 30 year representative second-mortgage
bonds covering similar properties bearing rates at 5 and 6 per cent were offered
at prices which would net investors about 6.7 per cent. On these bonds the
discounts and selling expenses amount to about 8 per qent on the par value
of the bonds. These costs when pro rated on the life of the bonds brought the
cost of the capital to the utilities up to over 7 per cent. These issues were
protected by half again as much property as their par value and by net earn-
ings that amounted to about twice as much as the interest charges.

The situation with respect to older Issues is about as follows: A group of
twenty-seven 5 per cent first-mortgage bonds, most of which are underlying
liens upon the whole property and all of which are underlying liens upon at
least a part of the property, were taken in the 1916 markets by investors at
prices upon which the approximate yield was 5i per cent. There was out-
standing about $170,000,000 of these securities, back of which stood a book
value of nearly $420,000,000. It is clearly indicated by these figures that these
issues cover much less than one-half of the book value of these properties.
Net earnings available for these issues amounted to over $27,500,000, of which
sum only $10,320,000 was absorbed by interest and sinking-fund charges,
leaving an excess for safety of $17,180,000. Interest charges on these bonds
were thus earned 2.7 times over, and the margin of safety was 63 per cent.

A small group of long-term 4 per cent bonds whose security is rated highly
were similarly demanded by investors at a price to yield approximately 5.09
I«r cent. The average income available annually for the past five years was
three times the interest requirements.

Another group of about 40 utility bond issues, protected on the average by
not far from twice as much property and earnings as the face value of the
bonds and interest charges thereon, have sold at prices on which the yield
averaged over 6 per cent. The cost to the utilities, however, when all dis-
counts, commissions, outlays, and deductions of about 8 per cent are included,
increased this figure considerably, or to about 7 per cent.

A group of 11 collateral trust securities, 8 bearing 5 per cent interest, 2
bearing 4 per cent, were issued to the extent of nearly $120,000,000. The
security of these issues is rated high by Moody. These issues yield approxi-
mately 5.84 per cent on an average price, and the interest is covered three
times by the income available on a five-year average basis.

A great many five-year note issues have of late years been offered at prices
which would yield Investors from 6 per cent to 7.5 per cent. In many of these
cases the issues bear interest at 6 per cent. The discounts and other expenses
amounting to about 10 per cent make the cost to the utilities in practically
all cases more than 8J per cent per annum. Many such note issues were
undertaken for the purpose of postponing comprehensive refinancing plans to
a time when long-time securities would find a market, and when it is exj>ected
that the money market will be easier so tht permanent long-time mortgages
or bonds could be offered at a less financial sacrifice.

Several preferred stocks protected by ample assets and by net earnings
amounting to from 10 per cent to 30 per cent thereon have sold at prices on
which they yielded from a little less than 7 per cent to about 8 per cent. With
discounts and other expenses the capital obtained on these issues cost the
utilities at least 1 per cent more than this. Twenty-nine preferred stocks

978 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

amounting to about $170,000.000, protected by earnings that amounted to 2$
times the ordinary direct dividend charges sold on a 7 per cent to an 8 per
cent income basis.

The public-utility securities which have thus far been discussed belong in
large part to these large utilities which are fairly well known and for whose
securities there is a fairly well developed market. They represent the leading
listed and unlisted securities in all stock exchanges and prominent markets
upon which reliable data can be secured. They are mainly of an active class,
although some are included which, though somewhat active, are of proven
worth.

All of these facts clearly show that for several years up to the earlier years
of the var the utilities, as has been stated, could not obtain all the capital
they needed on normal terms and conditions unless the net earnings for re-
turns on the investment amounted to at least 8 per cent on the fair value of
the plant and the business.

These facts show further that during the same years the net earnings for
returns did not on the 'average amount to much more than about half of this
or to only about 4 per cent.

It is further disclosed that the unsatisfactory conditions in which the street
railways found themselves at the beginning of the war have steadily grown
worse since then. During the past two years they have earned but little more
than enough to cover the operating expenses.

It is clear to all that this is a situation that can not last. No one will con-
tinue to render service at a loss. Unless the street railways are allowed to
earn reasonable returns, the service is certain to become so bad as to be un-
bearable. The choice therefore lies between good service at reasonable rates
and poor service that is gradually growing worse at the existing rates. As
good street-car service is indispensable in all growing cities the choice is plain.

As the street railways are subject to government regulation and have but
little control over the growing costs of operation, they are themselves utterly
unable to remedy the situation without the active and comprehensive assist-
ance from the regulating commissions or bodies. Such assistance is not easily
obtained. Some of the principal reasons for this are found in the attitude
of the city authorities in these matters, and in the conflicting powers and other
relations that often exist as between the State commissions and the local
authorities. It is highly important that these obstacles be removed and that
full power to deal with the situation be placed in the hands of whatever body
or commissions which from every point of view is in the best position to most
promptly, most fairly, and most effectively straighten out the situation. If
State regulation through utility commissions is the best agency for this pur-
pose, this is also the means that should be adopted. If local regulation is a bet-
ter medium then this should be chosen. In order to shed some light on these
matters these two methods of regulation will be discussed at some length.

STATE VERSUS LOCAL REGULATION.

The power to regulate service, prices, and other conditions is vested in the
State and not in the municipality or in any subdivision of the State. Such
State regulation may take the form of specific legislation to be enforced, if
need be, either through the regularly established legal machinery or through
such administrative bodies as the railroad and public-utility commissions.
The State may also delegate such regulation to any of the local units of which
the State is made up, such as cities, etc. When the regulation of public utilities
is delegated to the local units it is usually carried out through franchise and
ordinary provisions mostly without any regular department for administering
f.uch regulation.

The purpose of the regulation of public utilities is mostly to see to it that
r.uch utilities furnish adequate service at reasonable rates, and that excessive
amounts of securities are not issued by them.

While it is generally admitted that such regulation of public utilities is neces-
sary in public interest, there are differences of opinion as to what form of regu-
lation is preferable or best from this point of view. Some prefer regulation
through State legislation and commission ; others hold that such regulation
shotild be delegated or intrusted to the municipality actually served by the
utility.

The purpose herein is to present a few facts which may throw some light upon
whether State or local regulation is the best or most advantageous from the

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 979

point of view of public interest. To this end the nature of regulation, and the
kind of work that is required in properly administering it will be briefly out-
lined. The past experience under the two methods of regulation and other facts
and conditions will also be touched upon.

The service, in order to be adequate, must, as a rule, conform to certain
standards which have been developed from experience and which are subject
to change with changes in the conditions.

In the street-ralway service the tracks must be safe and well maintained.
They must also be located on the streets where most needed and extended from
time to time with the growth of the city. Other street-railway equipment must
be up to date and well kept up with respect to both the safety and the comfort
of the public. (Jars must be run as often as necessary to accommodate the
traffic. The routing, loading, and headway of cars as a whole as well as at
different times of the day, are matters that can not be safely passed upon with-
out elaborate traffic and other studies or investigations.

The gas used for cooking, lighting, and heating must have the proper heating
value or qualities, be comparatively free from sulphur, and be delivered under
proper pressure. The meters by which the gas is measured, in order to be
accurate, must also be tested at frequent intervals.

In the case of electric utilities the voltage must be comparatively constant,
the meters frequently tested and the lamps renewed whenever necessary. The
equipment generally must also be well kept up and provided with many neces-
sary safety devices.

The telephone equipment must be adequate, up to date, and well kept up. The
operators must be competent and numerous enough for good service. Telephone
companies must also be made to keep pace with the progress in the art and with
the growth of the community served.

Waterworks must have sufficient pressure for both tire and domestic service.
The water must be pure and the meters accurate. Tbe supply of water must also
l>e adequate. The mains must be properly extended and the equipment up to
date and well maintained.

All of the requirements for good service which have thus been outlined and
a great many other requirements to that end as well, must be determined by ex-
haustive and careful investigations, developed into proper rules and standards
and then carefully explained to all concerned. Wlieu these service rules nnd
standards are put into effect they must also be enforced by competent Inspectors,
aided by proper recording and other scientific instruments. To develop and pro-
mulgate such standards and rules and to properly enforce them when put in
effect requires technical training and experience.

Service standards and rules of this kind vary with the size of the city, tho
state of the art, and with other conditions. The standards required for good
service must be much more comprehensive and much more or carefully en-
forced for the larger cities than for tlie smaller ones. The standards and rules
thus required at one stage in the progress of the industry are often out of place
when the next stage is ushered in. As the cities keep on growing and as new
inventions and new methods are constantly appearing, it also follows that the
standards of service must be almost constantly modified or changed. In the
State where I hapi>encd to l>e connected with this work, many rnles, for such
reasons as those given, had to he changed by the end of tin* second year after
their adoption. These clianges tend to considerably increase the work and dilii-
culties involved in keeping up and enforcing good service.

In order to determine what constitutes reasonable rates or charges for utility
service, it is, among other things, necessary to determine the fair value of th«
l»ant and its business, what constitute reasonable returns for interest and de-
preciation thereon, as well as what constitutes fair allowances for the rest of
the operating expenses and charges, and many other facts.

Among the facts and evidence that must be obtained nnd considered in de-
termining the fair value of the plant is the original cost and the cost of re-
production of the so-called physical property, and the amount of deprecia-
tion that has accrued therein. The fair value of the business of the plant is
usually determined from the original cost of developing the Mime ns well as
from the estimated cost of reproducing the business at the time of the appraisal.
In addition to this there are also many other faicts and conditions that must
be given consideration.

In order to ascertain the original Investment in the plant and the original
cost of developing its business, engineering and accounting analysis of the
property and books of the plant are neeeswiry. Investment outlays must be

980 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

separated from renewals and repair items. Information must be obtained as
to what the prices of labor and material were at the time the different units
were put into the plant. In fact, all investment and operating accounts must
be carefully examined and analyzed as well as measured in the light of what
is reasonable under the circumstances.

The work of ascertaining the cost of reproduction and the amount of de-
preciation that has accrued in the physical property requires complete inven-
tories of the property, and careful pricing of each part or item thereof, as
well as full data as to the age, service life, and actual condition of such prop-
erty. To this end further complete price lists of all elements of cost and de-
tailed inspection of the property as well as full information as to the char-
acter of its use and upkeep and as to the state of the art are also needed.

In order to determine the original cost of developing the business of the
plant and the probable cost of reproducing the same under existing conditions,
much information and many facts are necessary. The financial history of the
company as disclosed by its books and records and in other ways must be
known. This is also true of what constitutes reasonable allowances for the
operating expenses and charges including interest and profits on the investment
at the different stages during the development of the business. Facts must
also be had which show how long it would take to reproduce the plant and the
business at the time of the appraisal, and what would be the relation between
the expenses and the earnings at each stage during the time required for the
reproduction of the business, and numerous other facts and conditions.

In order to know what are reasonable amounts for the operating expenses
including depreciation and returns for interest and profits on the investment a
great deal of information is needed. Statistics showing the cost of operation
of different plants under varying conditions ; familiarity with operating con-
ditions and equipment, experience with or a thorough understanding of operat-
ing methods and practices enables one to properly pass upon the operating
expenses. Information as to the cost and probable service life of the depreci-
able property, the nature of its use and upkeep, and the state of the art
places one in position to say how much should be set aside annually for the
renewal of worn-out or discarded property. Knowledge of financial, industrial,
and investment conditions and of the general trend of events enables one to
estimate the amounts, or rates, or prices at which capital and the enterprise
can be had.

When the total cost of the service has thus been ascertained and adjusted
to probable future conditions, it is necessary to so apportion the various items
of which this total is made up that proper costs per unit of service for each
class of customer can be obtained and equitable rate schedules built up.

In order that the facts ne ded to pass upon the cost value of the plants and
their business and the cost of the service performed may be available, it is
necessary that the accounts and records kept by the utilities be as complete
and correct as w^ll as uniform throughout the State. It is further necessary
that such accounts and records should be regularly audited and inspected.
Without proper groupings of the different expense items the total cost can not
be properly apportioned between the different branches and classes of the
service. Without uniformity in such groupings the figures for dffferent
plants can not be fairly or accurately compared. Without audits irregulari-
ties of one kind or another are certain to creep into the results. Until uni-
form and correct classifications of accounts are made effective, those are few
who so group their expenses and charges that they become safe basis for rates
for the service.

The conditions which affect the charges for the service, like the conditions
which affect the quality of the service, are almost constantly changing. Changes
in prices of material and labor affect the value of the plant as well as the
cost to it of furnishing the service. The cost per unit of the service may also
be greatly affected by changes in the volume of the business. New inventions,
the adoption of new methods, and variations in municipal and other re-
quirements may also lead to similar results. Competitive and commercial
conditions also play their part in affecting the rates; and this is even true
of the different seasons of the year.

Much of the information that is needed in rate making Is also required in
connection with new security issues. When new securities are issued in
order to provide for new extensions, it is necessary to correctly estimate in
advance the cost of such extensions. In this connection, further correct esti-
mates of the effect upon the earnings and the operating expenses of such

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 981

additions to the property or plant are also necessary. If the extension is not
in line with public policy it should not be built. All this requires much
knowledge, a wide experience and some judgment. This is also true of the
work involved in fixing all other conditions and terms that are connected with
security issues.

Experience has taught us that the problems of regulation are so complex
in their nature, so far-reaching in their effejet, so persistent in their tenden-
cies that they can not be successfully handled by any but the strongest and
best-equipped commissions. Such commissions should be backed up by com-
prehensive laws and strong government as well as by adequate appropriation
for the employment of the necessary engineering, accounting, statistical, and
other expert services, and for the inspection of the service and other condi-
tions and practices. Less well-equipped departments than this will not be
able to properly cope with this work. Poorly equipped departments may cause
more harm than good. For lacking the necessary information, their orders
are likely to go either too far or else not far enough, and in these and other
ways seriously disturb many sensitive industrial and commercial relations.

It is apparent from what has been said that the work of regulation is by
no means a simple task. To promulgate and administer proper rules or stan-
dards of service, and reasonable rates which are not unjustly discriminatory,
should be the task of technically-trained men of wide experience. It is work
that requires detailed information and a full understanding of the physical
parts and condition of the plant, and of both local and general industrial and
financial conditions. It requires familiarity with operating matters and the
progress of the industry. It requires familiarity with values, the cost of the
service, both as a whole and per unit, for the entire plant as well as for
each class of its customers. It requires scientifically kept accounts and records,
uniform for the state and even for the country. It requires knowledge as
to the conditions and terms upon which each factor of production can be
had and the probable future tendencies of these terms. It requires much other
information that can only be acquired through special facilities, preparation,
and long experience. The need for all this is not limited as to time, but is
constant. It must be available when the work of regulation first begins. It
is needed for the readjustments that are necessary with each of the changes in
conditions that take place so frequently, especially in growing industries.
Much of it is also required for inspection and for other administrative work.

This work can also be carried on much more cheaply and much more effec-
tively on a large scale by the State than on small scales by each local unit
or city. The State can employ service experts, appraisers, accountants, sta-
tisticans and other assistants at moderate salaries and keep them constantly
employed. None but the largest cities can very well do or afford this. Most
of the cities can not even afford, or feel they can not afford, even occasional
service of such experts. The State has broad powers and wide jurisdiction.
The information it obtains covers large areas and many plants, and so does
the uniform practices and rules which it puts into effect and enforces. Its
powers are State wide. The activities of the city, on the other hand, can
not extend beyond the city limits. Its powers therefore are limited, the in-
formation it can obtain is restricted, and so are the rules it can put into
effect and enforce. It is in its very nature debarred from doing and seeking
most of those things which are essential to effective regulation, economically
administered.

State public-service commissions are usually equipped with well-eq nipped
assistants. They develop, prescribe; and put into effect proper standards and
rules of service, and through regular inspections see to it that these standards
are lived up to. They are constantly engaged in investigating the prices of
construction material, operating supplies, labor and other services. They in-
quire into the cost of capital and the enterprise as well as Into the cost of the
service, both as a whole, and by classes of customers. In appraising the plant
and its business they examine the books, records, and other sources for evidence
as to the original cost of the same. They cause the property and other elements
to be carefully inventoried and priced in order to determine the cost of repro-
duction of the same such property and business. For the purpose of deter-
mining the questions connected with the depreciation of the property, they obtain
full data as to the cost, age, condition, service life, the state of upkeep ami
other facts of the property involved. They audit the earnings and operating
expenses of the plant and see to it that the uniform accounting systems which
they have prescribed are adhered to. They study general and local condi-

982 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

tions, operating methods, construction projects, and other facts and practices.
The facts thus gathered and the knowledge thus obtained become the basis upon
which the work of regulation is carried on.

Under local regulation such work is not often carried on. It is mostly
regarded as too costly. For all but perhaps the very largest cities this is also
true. Franchise and ordinance provisions alone do not mean much. They
are either out of date and unenforcible soon after enacted, or the means for
enforcing them are lacking. Legislation, in order to be of value, must be prac-
tical as well as enforced. Franchises run for long periods of years. The regu-
lating provisions therein, even if proper at the time the franchise is enacted,
are usually out of date in a year or two thereafter. Even when these pro-
visions are subject to revision from time to time the situation is not greatly
improved. For it is usually found that such revisions are neither as frequent
as is necessary, nor properly made when it is attempted to make them. Local
regulation therefore mostly means no regulation.

That legislation alone, without proper supervision and enforcement, will not
accomplish all that is needed in the way of regulation is fully shown by experi-
ence. When the need for railway regulation first appeared, the States tried
to meet this demand by direction legislation without provisions for the enforce-
ment of these laws. The results were far from satisfactory. It was soon dis-
covered that the laws could not be made flexible enough to meet every changing
condition. It was also found that these laws, even when just, would not be
lived up to unless enforced through inspection. These and other conditions
ultimately led to the establishment of fully-equipped railroad commissions.

This experience has also been repeated in the rest of the utility field outside
of the steam railways. When the need for regulation of municipal utilities was
first felt, the State usually delegated the power of such regulation to the munic-
ipality. These units in turn attempted to bring about better conditions through
franchise and ordinance provisions without adequate provisions for their
enforcement. These efforts fell short of their purpose. When the question of
adequate regulation and its proper enforcement was fully inquired into it was
found to be too costly and too complicated to be undertaken by single mu-
nicipalities. As the situation grew worse it finally came to such a pass that
the State had to step in and take full charge. The State then did in the
municipal utility field what it had already done in the railway field. It
enacted proper utility laws and provided for their administration and enforce-
ment through State utility commissions.

The failure of franchise or local regulation is not only shown by the causes
which led to the establishment of State commissions, but it is further emphasized
by the conditions which the State commissions found when they took hold of
the work. When the State commissions thus took hold, the standards of serv-
ice, if any such standards existed at all, were mostly either bad or out of date.
The service itself was usually bad either as a whole or in spots. It would have
been much worse than it was had ths standards and rules laid down been com-
plied with. The rates were in the same fix. They were seldom adjusted upon
any scientific basis. Unjust discriminations were often encouraged, if not
demanded by the cities themselves. Favored customers received either free
or reduced rates.

The cities as such often paid nothing, or else much less than they should
pay, for such street-railway, water, light, power, and phone service as they
used, thus throwing an undue burden upon the rest of the customers. Little
or no efforts were made by the city toward having such rates established as
would tend to develop the service and reduce its cost. The result was that
the rates in effect were often such as to retard rather than promote proper
business developments.

State regulation is not perfect— no human institution is. State commissions
have made mistakes. In their work they have often gone too far in construing
every doubtful point in favor of the public. They have often misjudged or"
failed to give sufficient weight to the long-continued upward tendency in the
prices of both material and labor. The result is that many of their orders
have been unjust and have bordered upon confiscation. There have also been
mistakes the other way. For it is no doubt possible to pick out orders in
which the commissions may have been more liberal to the utility than to
the public. Occasional shortcomings of this kind, however, must be expected.
On the whole, State regulation has been much fairer and much more equitable
than local regulation. This conclusion is so well sustained by experience and
public records that further details here are superfluous.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION". 983

But the heavy cost and lack of requisite facilities and the other shortcom-
ings that have thus been mentioned are not the only obstacles in the way of effec-
tive and fair local regulation. ' There are also important questions of juris-
diction to be considered. Cities and other units have no jurisdiction beyond
their boundaries. One city can not interfere with conditions in another city
or unit, even when they adjoin each other and are served by the same utilities.

Utilities, on the other hand, often operate in more than one municipality. In
nearly all cities many of the street-car lines extend beyond the city limits
into the suburbs, villages or towns. Intemrban lines operate over the tracks
of urban and suburban lines and handle business thereon. Over 90 per cent
of the telephone companies and not far from one-half of the gas and water
plants serve more than one local unit. Electric transmission lines? fed by
hydraulic and other electric-power stations extend all over most of the States
and serve from one to as many as 50 or more communities.

As local units have nothing to say beyond their boxindaries, many utilities
would have to be regulated by as many bodies as the units they serve if the
local principle of control should be carried out. This would obviously be so
impracticable that even the most ardent supporters of local control shrink from
advocating it.

A State commission, on the other hand, not only has the necessary jurisdic-
tion over each of the units served, but it is in position to view the situation
in a much broader light, and is better equipped for such regulation from every
other point of view than local units.

Regulating bodies representing the smaller units are also much more likely
to be influenced in their work by political considerations than is the case with
commissions which represent the entire State. The first and principal duty
of a regulating body is to do equal justice to all without special favors to any-
one. This principle is sound. But it is not always in harmony with the interest
of politicians or political groups and factions. Servility to political 'nterests
is as bad as servility to financial or other special interests. Few decisions are
likely to be sound that are based on political considerations. It is the duty of
the State to do its best to keep undue influences away from the commissions;
and this is much more easily, accomplished under State than under local systems
of regulation. If the principle is sound that only such duties should be dele-
gated to the local unit as such unit can do better than the State, then it is
also clear that the regulation of utilities- is a function that should not be dele-
gated to local units.

The local imits do not often use their power of such regulation even when
they have it. This is well illustrated in Wisconsin where in the premises the
locality has about as 'much power in such matters as the State commission.
In this State, in the face of this, the cities or units themselves seldom endeavor
to make any use of this power. Whenever they have occasion to complain of
company utility practice they usually bring their case to the State commission.
Whether this course is taken because it is felt that the State commission, which
is fully equipped for such work and much more free from local prejudices, can
best straighten out the trouble, or whether it is done merely in order to avoid
work and expense is not always disclosed. The chances are that when actu-
ally faced with complicated and laborious work involved the local authorities
do not find it to their liking and hence prefer to shift it to the State commission.
Many local authorities take this course, even at the very time they are ac-
tively engaged in denouncing State interference in what they choose to call local
questions.

It is often said that the regulation of municipal utilities through a State
commission is undemocratic and deprives the i>eople of power which is theirs by
right. This charge is baseless. All power of government, and consequently of
regulation, is vested in tlie State. The city is simply a creature of the State,
given certain powers for the purpose of aiding the State in its functions. The
duty to regulate r-^sts In the State and must be carried out through the State
legislature. This legislature may delegate this duty to either the city council or
to a State commission. It will so delegate it to the one of these two bodies that
Is expected to give the best service and render the most assistance. If regula-
tion is delegated to or carried out through a State commission, this course is
taken because this method has been bound to be the best. Tan anyone truth-
fully say that a city council Is more democratic than a State legislature? Both
nre elected by the people and roHjxmsible for their acts to the people.

In thus considering the source and nature of regulation, the character and
scope of the work involved therein, the cost of properly administering it, the

984 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

equipment that is necessary to that end, the jurisdiction required, past experi-
ence in these matters, and other conditions, the Conclusion would seem inevitable
that from the point of view of public interest State regulation is better and more
advantageous than local control.

It has been found that for several years prior to the earlier years of the war,
owing to increasing cost of operation, to increasing length of the hauls, and to
improvements in the service, the net earnings in the street-railway field had
been gradually declining until, on the whole, they did not amount to more than
about one-half as much as the cost at which the capital could be had ; that the
situation since that time has been rapidly growing worse until it has reached
a point where these roads were not earning much more than the operating ex-
penses ; that since these conditions have only been partially relieved through in-
creases in rates or otherwise, the electric street-railway situation is now such
that public interest demands that drastic measures be adopted or steps taken
that will place these roads in such a financial position that they can obtain
such capital as they need on normal terms and be placed in position to continue
to render good service ; that because they are subject to regulation, the existing
situation can not be remedied by the roads themselves without active and com-
prehensive assistance from the government itself through its regulating agen-
cies; that because of the nature of such regulation and of the character of work
involved therein and because of many other conditions, the best fitted for this
important work is the State public-utility commission.

Assuming that the utility commissions have or are given all the power and
all the facilities that are necessary in order to straighten out the street-railway
situation, the question immediately arises as to just how to proceed in this work.
Several courses may suggest themselves. They may adhere tc the usual prac-
tice in rate cases, and proceed to investigate the service and determine its
needs ; to determine the value of the plant and its business ; what constitutes
reasonable allowances for the operating expenses, including depreciation and
interest and profits on the fair value of the plant and the business ; to determine
whether a flat or uniform rate or whether zone rates will best meet the situa-
tion ; to investigate all other facts and conditions that are involved in the situa-
tion or have a closer bearing upon it. When this, work has been completed it
should put into effect and enforce such rates as are reasonable xmder the cir-
cumstances, and which, under normal conditions and for adequate service, are
high enough to encourage the necessary capital and other factors of production
to come into the electric-railway field. The rate fixed in this way would just
about cover the cost of the service. It would, in fact, be a service-at-cost rate.
Hates which are higher than necessary to obtain the capital and other factors
of production are, m fact, the lowest service-at-cost rates at which, in the long
run, the service can be had.

While this is the usual way in which the commissions proceed in rate cases,
and in which service-at-cost rates are established, the work involved therein is
so comprehensive as to require more time than can always be safely allowed
for this purpose. This is especially true of such readjustments in the rates
once established in above manner which becomes necessary, because of the
changes that take place in the cost of the service and in other conditions. In
order to avoid such delays, the order of the commission might go far enough to
provide for a so-called sliding scale of rates, which rates would automatically
change with changes in the cost of the service. When the operating expenses
increased so as to leave less for depreciation and interest than the amount de-
termined upon, the rates would go up. When the operating expenses fell so
as to leave more for depreciation and interest than the amounts determined
upon for these purposes, the rates would move downward.

Such rates would be true cost-of-service rates. The rates first established in
this manner would cover the cost of the service as it stood at the time. These
rates would remain unchanged as long as they yielded the prescribed returns.
They would automatically rise when the cost increased and the net earnings
for returns declined below the prescribed level. They would automatically
fall when the cost of operation fell and the net earnings rose above the pre-
scribed level. Such rates, if fairly applied, would automatically and fairly
meet all necessary changes in the cost of operation, whether these changes were
brought about by changes in the prices of labor and material or by additions to
the plant and the amount of business obtained from new extensions of the lines.
Such an arrangement further would relieve the commissions from at least a part
of the work, controversies, and other complications that are certain to arise
in connection with all rate changes that are made under prevailing methods.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 985

It would operate promptly as well as automatically and would therefore
prevent many unjust and embarrassing delays. Through proper examinations
and supervisions of the accounts, records, and other practices, such sliding-
scale service-at-cost-rate arrangements can also be equitably applied without
any material increases in the cost of regulation.

The additional amount of work involved in so extending and broadening
the orders of the commission that, besides provisions for a service-at-cost rate
to apply under existing conditions, these orders would also provide for such
sliding scales of .rates as those outlined is not great. This extra work would
largely consist of determining how much the rates should be changed with
changes in the cost. Under zone rates and ticket systems, this extra work
would also have to be extended so as to cover the form of the rate schedules
or the proportion in which each specific rate or part of a rate should be
effected by the change in the cost. This extra work might also have to in-
clude a somewhat closer supervision over the accounts and records of the
plants, and over certain other practices and rules than would otherwise be
necessary. Such work as this, however, the commissions are already equipped
for doing.

All other questions involved in rate making, such as the valuation of the
plant and its business; the determination of what constitutes fair allowances
for the operating expenses, including depreciation and the returns upon such
valuation ; the cost, as a whole and per unit, for each branch and class of
service ; the forms of rates under which the varying cost can best be met, and
under which the service can best be expanded, are about the same in all rate
investigations. Owing to the experience obtained under regulation the work
of determining such values, costs including returns, and rates is also well
understood, and so are the conditions and facts upon which such values, costs
and rates are founded. There is no part of the work involved in developing,
applying and operating such sliding rate schedules as those outlined above that
can not be safely entrusted to the State commission. In fact, such State com-
missions, through experience in such matters and because of their facilities for
dealing with them, are not only the best equipped but the most logical bodies
for promulgating such rates, and for supervising of their operation.

Whenever this is deemed advisable, service-at-cost arrangements, in which
such sliding scale provisions as those outlined above are embodied, can also be
so extended that the cities themselves become parties thereto. Under the super-
vision of the State commissions, the city and the company can enter into a
contract in which rates are agreed upon that will yield such amounts for the
operating expenses and for depreciation and interest upon the fair value of the
plant and the business as are necessary to attract all the factors of production,
including capital ; that in order that the amounts or rates for depreciation and
returns agreed upon may be maintained, will automatically rise and fall with
rises and falls in the operating expenses. Under such agreements, such ques-
tions as the value of the plant and the business ; the cost of the operations ;
the rates to be allowed for depreciation and interest on a fair valuation ; the
specific rates to be put into effect: the relation between the changes in these
rates and changes in the cost; the form of the rate schedules, and other facts,
can be determined either by the State commission alone or jointly by the
State commission, the city and the company. Under such agreements the city
is expressly made one of the parties to both the service-at-cost-rate schedules
and the sliding-scale arrangements therein. Whether this would be of any ad-
vantage depends very largely upon the attitude of the city. Where the* city
authorities desire to take a hand in the making of such contract and to be-
come direct parties of the same it may be a plan that is worth trying.

It is obvious that service-at-cost rates of this kind which embody sliding-
scale provisions such as those outlined may offer many advantages. Such ar-
rangements, if carefully entered into and strictly complied with, would greatly
reduce the risks involved in the business and would therefore also tend to lower
the cost at which capital can be had. When once fully understood and entered
into, it is also likely that such agreements would be more cheerfully complied
with than is the case with agreements and orders in which sliding-scale provi-
sions of this kind are not included.

Mr. EKICKSON. The power to regulate is vested in the State. It is
inherent in the State. It may be delegated by the State either to a
State commission, or it may be delegated to a local unit, but it is
State regulation in either case. It must come from the State.
1(50043°— 20 03

986 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

The question, as I understand it, in most cases, is whether State
regulation or local regulation is preferable, whether the State should
grant this power to a State commission or to the local unit. A careful
analysis or what is required of regulation, the equipment you must
have to properly provide for adequate service, to properly provide
for reasonable rates, and have it when you need it, is so complicated
and so costly as to be really out of the question for a local community.
It is a matter that must be in the hands of a larger unit, where you
can keep people constantly employed, where you have all past expe-
rience to be guided by, in order to have it done properly. I have
commented on that, and I do not know but what I may be pardoned
for reading from my notes briefly, as I think I can shorten the matter
up if I may be permitted to do that.

The CHAIRMAN. Do it in your own way, Mr. Erickson.

(Mr. Erickson herewith read part of statement above recorded.)

Mr. ERICKSOX. But the heavy cost and lack of requisite facilities
and the other shortcomings that have thus been mentioned are not
the only obstacles in the way of effective and fair local regulation.

It has been found in Wisconsin, and many other States where I
have investigated it, that most of rlie street-ear lines in the cities go
beyond the city lines, into the suburbs. The city, of course, would
not have jurisdiction except within its boundaries, leaving the other
out of the question, unless some outside body took hold of the out-
lying property.

Ninety per cent of the telephone companies operate in more than
one unit; over one-half, or very nearly one-half, of the water and
gas companies extend beyond the city limits into the suburbs; trans-
mission lines are now operating all over the State in often as many
as 50 towns. Now, to have local regulation in each one of these units
seems almost absurd. One company, for instance, might have to be
regulated by 50 local commissions or bodies. That, of course, is out
of the question.

Political influences also cut much more of a figure in local regula-
tion than in State regulation. In almost every city, you have fac-
tions which are very powerful within the city but are not so when
they come to affect State conditions.

The first and principal duty of a regulating body is to do equal
justice to all without special favors to anyone. This principle is
sound. But it is not always in harmony with the interest of poli-
ticians or political groups and factions. Servility to political in-
terests is as bad as servility to financial or other special interests.
Few decisions are likely to be sound that are based on political con-
siderations. It is the duty of the State to do its best to keep undue
influences away from the commissions, and this is much more easily
accomplished under State than under local systems of regulation.
If the principle is sound that only such duties should be delegated
to the local unit as such unit can do better than the State, then it is
also clear that the regulation of utilities is a function that should not
be delegated to local units.

(Mr. Erickson again read from statement as above recorded.)

Mr. ERICKSON. Local regulation very often fails to do equal justice
to all parts of the city., and particularly as between the utility and the
public.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 987

In the State of Wisconsin, the local units, in the first instance,
have as much power as the State commission. Nevertheless, hardly
any of them ever attempt to exercise it. When they have a com-
plaint, it always comes to the State commission.

The CHAIRMAN. Do you think under your law the State commis-
sion and the local tribunals have concurrent jurisdiction ?

Mr. ERICKSON. Concurrent jurisdiction.

The CHAIRMAN. But as a matter of fact they always refer the
questions to the State commission ?

Mr. ERICKSON. I know of very few cases where the local unit
attempted to do anything for itself, without throwing the burden
upon the State commission. The reasons probably were these — that
they wanted to avoid the work, that it looked too big for them; it
felt they could not afford experts to do the work, and hence it had
to be done by the State commission. In a few cases they did some-
thing, like ordering wires underground, or extensions, which after-
wards was found to be unconstitutional and thrown over by the
courts, but even such cases as those are not numerous. The work was
always thrown on the State commission.

Mr. WARREN. Suppose the local tribunal did take up the work,
there would still be a finding of the State commission?

Mr. ERICKSON. Yes.

Mr. WARREN. While concurrent, it was not final?

Mr. ERICKSON. It had tjiis advantage in favor of the State com-
mission, that the State commission could pass, in the first instance,
upon the act of the local unit, and offset it, if it found it to be un-
reasonable. We have a few cases where that was done, but not very
many, and in all cases where the State commission overturned the
ruling of the local body, the State commission was upheld by the
co i ills.

The CHAIRMAN. Does your law specifically provide that an appeal
can be taken from an order of regulation or an ordinance of a local
tribunal to the State commission?

Mr. ERICKSON. It provides that if it comes to the State commission,
it can pass upon it.

The CHAIRMAN. But there is no machinery provided by which they
could take a direct appeal?

Mr. ERICKSON. No.

The CHAIRMAN. To the State?

Mr. ERICKSON. Yes; an appeal can be taken by the aggrieved city
to the commission.

The CHAIRMAN. Oh, it can?

Mr. ERICKSON. Yes. It has also been said that State regulation is
undemocratic. Well, State regulation, of course, must be exer-
cised through the State legislature, the same as local regulation ha?
to be exercised through the city council. Both the State legislature
and the city council are elected by the people ; and I do not see how
they can be any different in the point of view of one thing — on?
more undemocratic than the other. The local commission would ho
responsible to the city council. The State commission is responsible
to the State legislature, and both are elected by the people. The
commissions in both cases are responsible to the legislative body for
their acts. I do not see that there can be anything in that statement,
that one is more democratic than the other. I looked into it very

988 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

carefully from that point of view, because that argument was raised
very frequently in our State, but it does not seem to me to have any
foundation. So that, on the whole, State regulation is not only more
in line with public interest, but State commission regulation has
behind it the necessary equipment, the necessary power to do what
ought to be done, not only in reducing rates if that is necessary, but
in raising rates if that is necessary, which is the case to-day.

Assuming that the utility commissions have, or are given, all the
power and all the facilities that are necessary in order to straighten
out the street-railway situation, the question immediately arises as
to just how to proceed in this work. Several courses may suggest
themselves. They may adhere to the usual practice in rate cases,
and proceed to investigate the service and determine its needs; to
determine the value of the plant and its business; what consti-
tutes reasonable allowances for the operating expenses including
depreciation and interest and profits on the fair value of the plant
and the business; to determine whether a flat or uniform rate or
whether zone rates will best meet the situation; to investigate all
other facts and conditions that are involved in the situation or have
a closer bearing upon it.

When this work has been completed it should put into effect and en-
force such rates as are reasonable under the circumstances, and which
under normal conditions and for adequate service are high enough
to encourage the necessary capital and other factors of production to
come into the electric-railway field. The rate fixed in this way would
just about cover the cost of the service. It would in fact be a service-
at-cost rate. Rates which are no higher than necessary to obtain the
capital and the other factors of production are in fact the lowest
service-at-cost rates at which, in the long run, the service can be had.

Now, as you know, wages have increased, as well as the prices of
material. You will require quick remedies to meet those conditions.
A sliding-scale arrangement Avould seem to be the fairest method of
meeting them. The commission could extend its order so as to include
a sliding-scale-rate arrangement, by which the rates rose when the
cost rose, and fell when the cost fell. Of course, there is a little work
in working out that, but that is not very difficult to rate makers or
to commissions, with all the help they have.

The CHAIRMAN. Do you think the State commissions, under the
laws as they now stand, have the power to make an order for the
sliding scale of rates?

Mr. ERICKSON. Some of them have. Most of them have npt.

The CHAIRMAN. How about Wisconsin?

Mr. ERICKSON. Wisconsin could do it in a way; but it is not ex-
pressly granted to us.

The CHAIRMAN. Ordinarily, the obligation of a commission is to fix
a just and reasonable rate?

Mr. ERICKSON. Yes,

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 989

The CHAIRMAN. Based upon the conditions then before the com-
mission ?

Mr. ERICKSON. Yes.

The CHAIRMAN. Under those conditions and under that State law,
how can the commission go to work and make an order the way you
suggest?

Mr. ERICKSON. The commission will have to make a subsequent in-
vestigation to be within the law, but the Wisconsin Commission has
the power to make a sliding-scale arrangement of another sort. That
is a profit-sharing arrangement. That is an arrangement under which
the rates may be fixed. All earnings above a certain amount, it has
been regarded as reasonable, should go to the State or to the city, and
under that they can probably make such an arrangement as we have
in mind, but most conditions will have to be given additional power,
I think.

The CHAIRMAN. That is what I thought.

Mr. ERICKSON. Some commissions could, under the arrangement I
speak of, probably, but the safer thing would be additional legisla-
tive powers; and still I am not entirely certain or clear on that. That
will have to be looked up. Well, such sliding-scale arrangements have
many advantages. They operate automatically. They relieve the com-
mission of a great deal of work — that is, actual work, not of super-
vision— and, of course, it throws upon the commission a certain amount
of additional work, on the other hand. It is also possible that ar-
rangements of that kind, once having been made and bound fair, rate
changes occurring under them would be more generally accepted by
the public than otherwise would be the case. That is particularly true
in some cases, if it should be found necessary — I do not advocate it
or urge it — to make the city a party to the arrangement. The city,
under the final say of the commission, in some cases, might be a party
to the contract, in case contracts are necessary to carry it out, but that
seems superfluous. However, it might be necessary in some cases, and,
if necessary, it might avoid a good deal of trouble. It will give the
city what it sometimes cherishes. It will give them a voice in the mat-
ter, though not a final decision.

The situation is such that something will have to be done fairly
promptly, and it seems that recommendations along these lines
might be a great deal of help to the State commissions in working1
out those problems, particularly as to a sliding-scale arrangement;
and if prices are going to continue to rise, or even if they fall, some-
thing of that kind is probably needed as a safeguard, because a full
investigation before each rate change requires too much time. Even
the readjustment of a value requires too much time.

State commissions, of course, while they are better than local com-
missions, are not perfect in every way. Many have made serious
mistakes. The Wisconsin Commission did. We felt in 1908, 1909,
and 1910 that prices had risen about as far as they would. We used
the prices of that time as a basis for decisions. It was found that
by 1912 and 1913 the rates we made were too low. They did not
yield the requisite return. That was true in 1912, one or two years
after we had made the decisions. Well, local conditions were such
that it was difficult for us to amend our orders without rather long
drawn investigations. In the meantime the utilities were earning
less than they should earn. Capital began to draw away from these

990 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION".

utilities. The cost of getting capital increased, the service was en-
dangered, although it was upheld in many cases by allowing capital
to suffer. So I say the State commissions are not free from errors.

There may also be instances where they have gone too far in favor
of the utility; so, though I think there are very few, there may be
some. No human institution is perfect; but a State commission is
safer than local regulation, because it has the jurisdiction, it has
the power to do things, it has a broader view of the field and is able
to look at matters upon a very much wider scale than the local unit.

The local unit stands in the forest and sees the trees around it.
The State commission is up on the knoll, and can see the whole
forest from it; and if the State commission wants to do justice, it
is in position to do it. That .is not very often true of the local
unit. It has not the facilities. It has not the nfoney. It has not
the equipment for it.

Mr. WARREN. Mr. Erickson, I judge from what you have said,
and also from the memorandum which I took the opportunity to
examine, that you are of the opinion that street railways, generally
speaking, are in a very desperate situation at this time ?

Mr. ERICKSOX. Yes, sir ; 35 of the leading roads are not now earn-
ing more than operating expenses — very little more, if any.

Mr. WARREX. I judge also that you think the sliding scale could be
administered sometimes, in some cases, only after further legisla-
tion by the State commissions ?

Mr. ERICKSOX. I think, perhaps, further legislation would be
necessary. I am not entirely clear on that, but the chances are that
the action of most commissions might be questioned, unless their
power was broadened or extended.

Mr. WARREX. And if further legislation is necessary, and even
if it is not, the adoption of such a sliding scale would involve con-
siderable time, would it not ? Or. let me put it in another way : Do
you think that those States, where the authority of the commissions
to adopt the sliding scale is questioned, could adopt it quickly enough
to afford the relief which many of these companies need ?

Mr. ERICKSOX. Well, I think a reasonable rate should be put into
effect — what is estimated to be a reasonable rate — first, and allowed
to stand while all these other matters are being worked out. A
sliding-scale arrangement does not require a long time. It is pos-
sible that very few commissions would need very much equipment
or additional representation to carry it out. Some, I know, would
need it.

Mr. WARREX. About the only sliding stale that could be adopted
and put into effect quickly would be one which was based on the
present 'rates of fare; would it not?

Mr. ERICKSOX. I think not. " Reasonable rates " is a broad term.
Maybe I did not understand you.

Mr. WARREX. I say, would not any sliding scale, in order to be
adopted quickly, have to be made up on whatever a particular com-
pany's present scheme of fares happened to be ? If the company to-
day is charging 6 cents, they could file a sliding scale going up
Cx. 7, 8, 9, and 10, or going down, but they could not adopt a sliding
scale for a zone system without taking more time than is available ?

Mr. ERICKSOX. Before the sliding scale can be made operative, you
will have to have a reasonable scale based upon existing conditions.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 991

That is absolutely necessary. Then, when the reasonable rate is estab-
lished, you can supplement it by sliding-scale provisions, and not
before, very well.

The CHAIRMAN. Does your sliding scale presuppose a determination
of the fixed charges? In other words, does the sliding scale about
which you are speaking provide for a certain amount to be paid upon
bonds and upon the stock ?

Mr. ERICKSOX. The sliding scale such as I have in mind provides
for a reasonable return upon the fair value of the property.

Mr. WARREX. That is, for the cost of service ?

Mr. ERICKSOX. That represents the cost of service. The cost of
service in any business is a reasonable return after all the factors for
labor, for material, for depreciation, for returns upon investment,
such as will bring these factors into the business, such as will bring
you what additional capital you need.

The CHAIRMAX. But in the Cleveland plan, the money to be paid
for the bonds and stock is definitely fixed ?

Mr. ERICKSOX. Yes.

The CHAIRMAX. And it can not be changed unless the contract is
changed. Now, does your sliding-scale plan contemplate such an ar-
rangement as that ?

Mr. EEK KSOX. The sliding scale that I have in mind means this :
You first have to determine what is a fair return upon the invest-
ment and for depreciation, as conditions now exist. Then provide
for as much as, on account of changed conditions, you fail to enable
the company to earn the returns which you had agreed uptm.

The CHAIRMAX. But under your plan, the amount of the returns-
may vary according to the conditions, according to the cost of money,
the interest rate, in certain territory, and things of that kind?

Mr. ERICKSOX. It may be that it will come to that, and it could bo
made to include that. However, if you have a rate to-day it would
yield \vhat was deemed to be a fair return, and if you found because
of a sliding-scale arrangement the money could be had at a lower cost,
those facts could be determined and the rate adjusted to cover that,
as well as to cover such additions to the capital as are required for
new extensions, and such extra costs of the service as were brought
about by the new extensions. Those are questions to be determined by
the State commission, the same as the cost of the operation, and they
can be. It is a question of work in either case, but it is not \vork
that can not be done, but it can not be done safely, I think, without
a fairly close study and by a strong commission.

Mr. WARREX. Do I understand that before that is done, you think
some sort 'of immediate relief ought to be given the companies in the
wnv of an increased rate?

Mr. ERICKSOX. Well. I think that is absolutely necessary in perhaps
00 per cent of the cases in the country, because they are now earning
very little more than the operating expenses, and that can not go on
except at the expense of the service and of the company.

Mr. WARRKN. I am very much obligated to you, Mr. Erickson.

T will file this with the reporter, Mr. Chairman [referring to Mr.
Erickson's report before the United States Chamber of Commerce].

The CHAIRMAN. If you please.

Mr. WARREX. I have a few documents that I would like to put in
the record, to close, so far as I can.

992 PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION.

There is a list of companies used in the wage rates in reference
to the cost of labor, Chart C-133. There are sufficient copies for
all members of the board. I will hand them around [handing copies
to the members of the commission].

Mr. ETJICKSON. I have summarized most of the things, because my
time was so short, and I did not want to take any more time than
was necessary.

Mr. WARREN. Then I have here a document that I have referred
to before three or four times. It is a statement from the secretary
of the Public Service Commission of Massachusetts, showing the
balance sheet at the end of 1918, with a deficit of over $4,000.000 on
the aggregate street railways, showing the revenues and operating
expenses and other charges, with a deficit for the year of $5,000,000,
and miscellaneous data, such as mileage.

I would like to have that go into the record.

The CHAIRMAN. Yes.

The statement thus referred to by Mr. Warren is as follows:

The attached statement of assets and liabilities, revenues and expenses and
miscellaneous data, pertaining to street railways in Massachusetts, is a true
copy of the figures on file in the office of the commission.

Attest :

[SEAL.] ANDREW A. HIGHLANDS, Secretary.

Assets and liabilities of street-railway companies in Massachusetts as of De-
cember 31, 1<J16.

ASSETS.

Cost of railway $118, 837, 985. 29

Cost of equipment 41,707,159.13

Cost of land and buildings 50,739,028.03

Cost of other permanent investments 1,582,552.45

Total cost of permanent investments $212,866,724.90

Sinking funds 317. 686, 80

Miscellaneous physical property 1, 274, 899. 38

Investments 2, 293, 782. 40

Current assets . 14, 701, 154. 01

Deferred assets 1, 043, 715. 54

Unadjusted debits 9, 162, 773. 73

28, 794, Oil. 86

Grand total 241, 660, 736. 76

LIABILITIES.

Common stock 88,217,375.00

Preferred stock 18..673, 500. 00

106, 890, 875. 00

Premium on capital stock - 6. 675, 651. 04

Funded debt 91, 547, 200. 00

Nonnegotiable debt to affiliated companies 1,214,948.88

Current liabilities 27, 178, 978. 73

Deferred liabilities 407, 135. 17

Unadjusted credits 11, 846, 869. 19

— 39, 432, 986. 09

Appropriated surplus 267, 567. 40

Profit and loss__ //, 368, .',91, 65

Grand total 241, 660, 736. 76.

PROCEEDINGS OF FEDERAL ELECTRIC RAILWAYS COMMISSION. 993

Revenue* and expenses of street railways in Massachusetts for year ended

December 31, 1918.

Revenues :

Passenger revenue $43, 092, 044. 59

Parlor and special car revenue 75, 157. 28

Mail revenue 41, 852. 84

Express and baggage revenue 175, 625. 72

Milk revenue 15, 437. 86

Freight revenue 1, 072, 329. 69

Miscellaneous transportation revenue 20, 811. 87

Total from transportation ?44, 493, 259. 85

Total revenue from operations other than transportation 1, 245, 835. 50

45, 739, OD5. 35

Operating expenses :

Way and structures $4. 876, 039. 34

Equipment 6, 358, 450. 94

Power 7. G21, 089. 19

Conducting transportation 16, 332, 111. 33

Traffic 41, 630. 15

General and miscellaneous 4, 978, 561. 31

Grand total 40, 217, SS2. 26

Net revenue railway operations 5,521,213.09

Net revenue, auxiliary operations 127, 845. 73

Net operating revenue 5, 649. 058. 82

Taxes assignable to railway operations 2, 018, 432. 13

Operating income 3, 630, 626. 69

Income from lease of road 2, 651, 675. 58

Miscellaneous iionoperating income 176,549.63

2, 828, 225. 21

Gross income 6, 458, 851. 90

Deductions :

Rent of lease of roads 3, 022, 873. 70

Interest on funded debt 4, 143, 930. 47

Interest on unfunded debt 991, 309. 89

Amortization of discount on funded debt 58, 172. 48

Maintenance of organization 10,355.94

Miscellaneous debits 1,091,126.42

Total deductions 1 9, 317, 768. 90

Net income 2, 858. 917. 00

Dividends declared • 2, 440, 834. 24

Deficit for year.. 5,299,731.24

Miscellaneous data.

Railway owned 2, 311. 518

Second main track owned 535. 447

Total main track owned . 2,846.965

Sidings and switches owned 204.692

Total track owned 3,051.657

Leaised main truck ami trackage rights 596. 525

Total main track oi>erated 2.913.293

994 PROCEEDINGS OF FEDEEAL ELECTRIC RAILWAYS COMMISSION".

Number of revenue passengers carried 583, 485, 256

Number of free transfer passengers carried 340, 394, 004

Total passengers carried 923, 879, 260

Passenger car-miles 117, 746, 278

Other revenue car-miles 2, 102, 478

Total revenue car-miles 119, 848, 756

Passenger car-hours 11, 815, 191

Other revenue car-hours 313, 152

Total revenue car-hours 12, 128, 343

Operating revenue per car-mile _ cents 38. 17

Operating expenses per car-mile do 33. 56

Operating revenue per car-hour , $3.77

Operating expenses per car-hour $3. 31

Itutio of operating exi>enses to operating revenues per cent 87. 93

Percentage of dividends declared do 2.28

The CHAIRMAN. Was it your thought that Mr. Erickson's contri-
bution to the chamber of commerce should go into the record or
simply be filed with the commission?

Mr. WARREN. I thought that it might go into the record in con-
nection with that balance sheet, which was taken from the census
report for all of the companies of the country, but if you think it
would encumber the record, it might as well be filed.

The CHAIRMAN. I do not want to have the record too large, of
course.

Mr. WARREN. No; and I do not.

The other two documents are the combined balance sheet of the
electric railways of the country, made for the census.

The CHAIRMAN. They ought to go into the record.

Mr. WARREN. Yes, sir.

The CHAIRMAN. And also the operating expenses?

Mr. WARREN. Yes, sir.

(The documents thus referred to will be found incorporated in
this record, at pages 973 to 985, and 992 to 994.)

Mr. WARREN. Then, we were asked for the classification of ac-
counts for electric railways, and we have six copies of those.

We were also asked for a list of the 345 companies responding to
the American Electric Railway Association's data sheet, No. 186.
This is shown on Chart C— 100, and I have five copies of that.

We were also asked for copies of the questionnaire which was sent
to the member companies of the Association for information concern-
ing taxes and other State, municipal, and Federal requirements; and
I have a large number of copies of that.

That concludes our evidence, Mr. Chairman, and we wish to thank
you very sincerely for your kindness, your attention and your pa-
tience in hearing us during this hot, muggy weather, and at such
great length. We would not have thought of trespassing upon your
time if we had not felt the very desperate condition in which our
companies are placed.

I assume that after the close of the hearing we shall have an
opportunity to present a summary of our views of the evidence, and
submit a brief.

The CHAIRMAN. Surely.

PROCEEDINGS OF FEDERAL, ELECTRIC RAILWAYS COMMISSION. 995

The commission is very grateful to you, Mr. Warren, and to your
associates for your patient attendance and close attention to the very
important business before us. We feel like apologizing for having
been with you from 10 o'clock in the morning until 10 o'clock at
night, but we think the magnitude of the problem rather justified
the action.

We now stand adjourned until August 4, unless otherwise advised.

(Whereupon, at 5.30 o'clock p. m., on July 25, 1919, the further
hearing of this case was adjourned until Monday, Aug. 4, 1919, at
10 o'clock a. m.)

UNIVERSITY OF CALIFORNIA LIBRARY

Los Angeles
This book is DUE on the last date stamped below.

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Full text of "Proceedings of the Federal electric railways commission. Held in Washington, D.C., during the months of July, August, September, and October, 1919"

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