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Full text of "Service at cost plans [microform]; an identical analysis of statutes, ordinances, agreements and commission orders in effect, or proposed, together with a discussion of the essentials of local transportation franchises"

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Author: 



Clark, Harlow C. 



Title: 



Service at cost plans 



Place: 



New York 

Date: 

1920 



.A 



COLUMBIA UNIVERSITY LIBRARIES 
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MASTER NEGATIVE « 



ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 




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Clark, Harlow 0. 

Service at cost plans; an identical analysis of statutes, ' 
ordinances, agreements and commission orders in effect 
or proposed, together with a discussion of the essentials 
ot local transportation franchises. By Harlow C. Clark . 

' •• ^' .2.^^^' ^' ^'^ American electric railway asso- 
ciation, 1920. 

vi, 3-315 p. 24''". 

Reprinted in part from the Aera magazine. 

1. Service at cost (Public utilities) 2. Street-railroads-Finance. 

Library of Congress ^,^^ HD2763.C5 20-11022 j 
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SERVICE AT COST PLANS 



An Identical Analysis of Statutes, Ordinances, 

Agreements and Commission Orders in 

Effect, or Proposed, together with 

a Discussion of the Essentials 

of Local Transportation 

Franchises. 



By HARLOW C. CLARK 
Editor of Aera 



Published by 

AMERICAN ELECTRIC RAILWAY ASSOCIATION 
' 8 WEST 40TH STREET 

NEW YORK, N. Y. 
1930 



o 



O 



irt 



CONTENTS. 



FOREWORD 



Page 
3 






9 



Copyright, 1920 by 
American Electric Railway Association 



S^O^^ 



CHAPTER ONE — The Essentials op a Franchise 

The Relation of Local Transportation Service to Community Life 
and Community Development — Elements of The Electric Railway 
Problem — What Is Required to Attract and Retain Private Enter- 
prise in the Public Service — What the Public Seeks from Private 
Enterprise. 

CHAPTER TWO — Public Utility Capital 

Normal Capital Requirements of Local Transportation Enterprises 
— Present Time Requirements — From Whence to be Obtained — 
l<\inctions of Investment Bankers, Holding and Management Corpo- 
rations — The Ultimate Investor — Conditions Under Which He Will 
Loan His Capital. 

CHAPTER THREE — Risk of Supercession 13 

Risks to Which Local Transportation Investment is Liable — 
Supercession — How It Can Be Eliminated — The Advantages of a 
Transportation " System " Conducted by a Single Agency Unre- 
stricted as to the Character of the Vehicle Used — Motor Transport 
as an Auxiliary to Electric Rrailways. 

CHAPTER FOUR — Risk of Termination 17 

Risks to Which Local Transportation Investment is Liable — Ter- 
mination of Right to Conduct Business Without Provision for Re- 
covery of Investment — Franchises as a Protection to Investment — 
Effect of Term, or Period — Necessity of Amortization when Period 
Is Short — Importance of Credit — Protection of Public Interest 
with Long Term Franchises — The Indeterminate Permit Considered. 

CHAPTER FIVE — Risk op Attrition 23 

Risks to Which Local Transportation Investment is Liable — 
Attrition of Physical Property — Must Be Compensated from Reve- 
Mie — Am Operating Cost and Not a Charge Against Profits — Can- 
not be Provided For Through Current Maintenance — Necessity for 
Adequate Reserves — Public's Interest Protected by Such Reserves — 
The Position of the Industry upon Depreciation. 

CHAPTER SIX — The Investor's Requirements 27 

Return — Investor's Power to Prescribe Return — His Three Pri- 
mary Requirements — The Cost of Money — Its Effect upon the Cost 
of Service — Assurance of Return Dependent upon Revenue — Sources 
of Revenue — Public Contributions and Public Imposts — What the 
Community Owes the Car Rider — Public Subsidies. 

ill 



IV 



Contents 



CHAPTER SEVEN - The Pbovision of Revenue gg 

Return -Revenue from Upeiation - Price Dependent Upon Cost 
-- Elements of Ooi^t- Power of Ent^rpri^ to Control -A ece^aity oi 
Automatic Adjustment — Delay in Adjustment and Its Etlect — 
Determination of Proper Rate Not Difficult - Fare Systems and 
RateB of Fare -The Prevention ol Frequent Fluctuations in Kates. 

CHAPTER EIGHT — Management and Contbol ^^ 

Management as Distinct from Capital a Necessity U>' the EnteV- 
prise — Its Nature— Cannot Be Obtained wiUiout Reward — Its 
Relati.«i to the Car Rider — Provision ot Incentive - Regulation 
juwl Management - Theory of Regulation - stale and Local Regu- 
lation-Importance of Public Co-operation— Supervision versus 
Management -Authority and Responsibility Inseparable - Limi- 
tation of Public's Right to Demand Service - Control over Oper- 
ation — Maintenance — Finances — Arbitration. 

CHAPTER NINE — Existing Plans Considered 53 

Six Essential Principles Governing Relations Between Communi- 
ties and Private Enterprise Engaged in Local Transportation Service 
— Extent to Which They Are Applied in Existing or Proposed Serv- 
ice At Cost Plans — Inclusive and Exclusive Rights — Indeterminate 
Permits — Provisions for Proper Maintenance — Assurance of Re- 
turn — Flexibility in Rate of Return — Reward for Management. 

SERVICE AT COST PLANS IN EFFECT. 

iNTBODUCnON «- 

67 

General Conditions. 

Life _ 

Renewal -^ 

Forfeiture -t* 

* 1 4 

Public Pubchase. 
By the City 

When purchase can be made yg 

Terms of purchase yg 

By Licensee of City 

When purchase can be made 34 

Terms of purchase gg 

Contbol. 

Corporate autonomy g* 

Of service 

Within municipality g| 

Outside of municipality : ^^ 

Of construction, maintenance and repairs 95 

Of extensions, betterments and permanent improvements 

Defiyiitions go 

Within municipality jqq 

Outside of mundcipality ] jofi 



Contents 



SERVICE AT COST PLANS IN EFFECT — Continued. 
Contbol — Continued. 

Of oapitalization, finances and accounts PAGE 

Ordinary expenses 107 

Securities 109 

Bookkeeping Ill 

Of methods and practices 113 

Use of tracks and facilities by other companies 115 

Machinery of control 

Power, where lodged 118 

Administration 121 

Powers and duties of administrative body 125 

Arbitration 

Machinery for 141 

Powers of arbitration authorities 140 

Penalties 156 

Expenses of arbitration 158 

Retuen 

Initial value 159 

Added value 162 

Deductions from value 167 

Rate of return, normal 171 

Additional allowances 174 

Assurances of return 175 

Cost op Service 

Definition of 178 

Allowances 

OperaJting 187 

Maintenance 

Definition 189 

How fixed 191 

Depreciation 195 

Special tax and impost features 199 

Fares 

Schedules of 20.3 

How fixed 212 

Transportation op Freight, Express, etc 223 

Special Provisions 225 

SERVICE AT COST PLANS NOT IN EFFECT. 

Introduction , 229 

General Conditions. 

Life 231 

Renewal 232 

Forfeiture 232 

Public Pubchase. 
By the City 

When purchaee can be made 284 

Terms of purchase 286 



^ Contents 

SERVICE AT COST PLANS NOT IN EFFECT — Continued 
PUBUC PuBCHASE — Continued. 

By Licensee of City ^^^^ 

When purchase can be made 238 

Terms of purchase 239 

Control. 

Corporate autonomy 240 

Of service 

Within municipality 241 

Outside of municipality 242 

Of extensions, betterments and permanent improvements 

Definitions 243 

Within municipality 244 

Outside of municipality 250 

Of capitalization, finances and accounts. 

Ordinary expenses 250 

Securities 251 

Bookkeeping 255 

Of methods and practices 258 

Use of tracks and facilities by other companies 2«0 

Machinery of control 

Power, where lodged ^62 

Admanistration 263 

Powers and duties of administrative body 267 

Arbitration 

Machinery for 273 

Powers of arbitration authorities 276 

Penalties 276 

Expenses of arbitration 277 

Retubn 

Initial value 277 

Added value 279 

Deduction® from value 281 

Rate of return, normal 285 

Additional allowances 286 

Assurance of return 286 

Cost of Service. 

Definition of 287 

Allowances 

Operating 293 

Maintenance 

Definition 293 

How fixed 294 

Depreciation 205 

Special tax and import features 298 

Fabbs 

Schedules of 301 

How fixed , , 3Q4 

DmrspQBTAnoir or FUeiort, Eznomsi wo 310 

BncuL Pionsioifs , ! ! 812 



FOREWORD 



It is essential to the continuance of private enterprise in local 
transportation service that the credit of the companies engaged 
in the undertaking he re-established on such a basis as will 
attract the new capital necessary for the growth, development and 
expansion of the facilities through which the service is furnished. 

This problem of readjustment is acute in practically all Ameri- 
can cities and communities, and is receiving the attention of the 
National and various State and local governments as well as busi- 
ness and civic organizations. As a means of readjustment and for 
the purpose of assuring to the utilities such revenues as will restore 
their credit, while protecting the public from excessive charges, 
a number of communities have provided for the conduct of these 
utilities under so-called " service at cost " plans, while a number 
of other communities have such plans under consideration. 

It is in order that the public and the operators of local trans- 
portation utilities may have in convenient form the principles and 
the details of the various cost of service plans, both those which 
are now effective and those which have been prepared but which 
for various reasons have not become operative, that the following 
study was undertaken. 

It consists, first, of a consideration of the fundamentals which 
must, if private capital is to be secured, underlie any expression 
of legal right to conduct a local transportation utility and the pro- 
visions of statutes, ordinances or commission orders governing the 
relations between such utilities and the communities; second, an 
analysis of the various measures with the idea of ascertaining the 



, 



^ FOBKWOED 

extent to whicli such principles have been applied ; third, an identi- 
cal analysis of the cost of service plans now in effect, similar 
provisions being grouped together in order that the provisions 
covering any particular point may be quickly ascertained, and, 
fourth, a similar analysis of service at cost plans proposed but not 
effective. 

The section covering plans already in effect is a regrouping of 
material that has from time to time apj^ared in Aera. The 
remainder of the text is new. Although pu])lishod by tlie Associa- 
tion, the author and not the Association or any of its committees 
is responsible for the opinions expressed. 



CHAPTER ONE 

The Essentials of a Franchise 

The Relation of Local Transportation Service to Community Life and 
Community Development — Elements of The Electric Railway Problem — 
What Is Required to Attract and Retain Private Enterprise in the Public 
Service — What the Public Seeks from Private Enterprise. • 

With the exception of water and sewers, local transportation is, 
for eitios of any considerable size, the most essential of all public 
utilities. The widely spreading city, with its segregation of busi- 
ness from residential districts in order that each may in point of 
character and development best serve its own purpose and best 
meet the common need as to health, comfort and convenience, is 
jorsible only by reason of local transportation. Its extent and 
character determines the manner in which communities develop. 
Without rapid transit, cities like New York, Chicago, Boston and 
Philadelphia are impossible. Deprived of it, they would split up 
into smaller, self-contained communities, or congestion greater 
fliiiii anything now known would ensue. 

A Transpartation System the Requisite.— A transportation 
" system," and not merely the provision of transportation units, 
is one of the primary requisites of a community. The social func- 
tion of local transportation is its most important function. The 
system must extend, expand and improve in pace with community 
requirements and in conformity with a considered plan and not 
at haphazard. 

Cities develop as their local transportation facilities develop. 
Urban population conforms to transportation lines, as the growth 
of nations has followed the path, first of their waterways, then 
of their highways and finally of their railroads. 

" City planning " which involves city development along lines 
which furnish to the public the maximum of healthful living con- 
ditions, comfort, convenience and business facilities, must always 
depend upon the provisions of adequate local transportation. 

AVhat all communities require is the co-ordination into a single 
system of all means of transportation, each to perform that part 
of the service for which each is the best suited. Rapid transit in 
subways or on elevated structures, surface transportation on tracks 



M. 



Sekvice At Cost Agreements 



or on rubber tires, are facilities which can best serve in co-opera- 
tion, and not in competition, with each other. To properly serve 
communities, all of these means of transportation should be directed 
and controlled by a central agency, which has in mind, not the 
promotion of the interests of any one of them, but the furnishing 
of the best means of intercommunication to the community as a 
whole. 

In a growing city there is no such thing as a completed local 
transportation system. As the city grows so must its transportation 
system grow. The capital requirements for new construction for 
the electric railways of the United States indicate this continuing 
growth in a normal period. They are well over $200,000,000 a 
year. This is about $5 for each man, woman and child classi- 
fied by the Census Bureau as a unit of the urban population. For 
a group of 30 utilities, 25 of which were electric railways, the 
expenditures for new construction for the pre-war period 1902 to 
1913, as reported to the Federal Electric Railways Commission by 
Mr. Henry G. Bradlee of Stone and Webster, were $37 for each 
$100 of gross revenue. Between 1900 and 1910 the urban popula- 
tion of the United States increased more than 38 per cent. In 
some way, the local transportation needs of these additional city 
dwellers must be taken care of. 

The Beal Electric Eailway Problem. — It is this expansion of 
local transportation facilities to meet urban requirements that 
constitute the real electric railway problem as it affects the com- 
munities. Unless, and this involves a reversal of present tendencies 
little likely to occur, the growth of cities is halted, and population 
drifts to the country, the future social and business habits, mode 
of life, and to a certain extent the morals of the people of the 
United States, de[)end upon the manner in which local transporta- 
tion facilities meet local transportation needs. 

It is the business of communities to provide for their inhabit- 
ants the best possible living conditions, the greatest degiee of 
comfort and the largest extent of convenience, both for the trans- 
action of their business and for the conduct of their private lives. 
Neither health, comfort or convenience is compatible with con- 
gestion, and congestion can be prevented only if adequate local 
transportation be provided. 



Service At Cost Agreements 7 

Today, only the cities of ITew York, Chicago, Boston and, to a 
very limited extent, Philadelphia, have any system of rapid transit. 
There is need for such a system in many other cities and as urban 
population increases this need will increase. Today, few, if any, 
cities have entirely adequate systems of surface transportation and 
these conditions, both as to rapid transit and as to surface trans- 
portation, have been greatly aggravated by the practically total 
cessation of new construction during and after the war. In almost 
every community there is a present insistent demand for an ex- 
tensive construction and rehabilitation and for improvement in 
the facilities with which the personal service is being furnished. 
Irrespective of whether it be provided by means of electrically 
propelled vehicles or by motor buses, every urban community 
requires a transportation system which will: — 

First, expand and develop so as to permit the growth and 
development of the City along lines that will eliminate and 
prevent congestion, allow living conditions conducive to health, 
sanitation and comfort, prevent inflated real estate values, 
and afford the maximum of convenience in the transaction of 
business. 

Second, furnish safe, adequate and convenient service, 
based in the first instances on consideration of social needs, 
and, 

Third, operate at as low a cost as is consistent with the 
service furnished. 



Such a system may be secured in two ways. First, through its 
provision directly by the community, and second, through its pro- 
vision for the community by private enterprise. It is with this 
latter method that we are concerned. The question of public o^vn- 
ership and operation of utilities is a question of policy involving 
considerations which need not be here discussed. There is no 
likelihood of its immediate adoption by any considerable number of 
communities. There is, however, present and pressing need for the 
improvement of local transportation facilities, which must be 
accomplished through public use of private enterprise, 



o 



Seevice At Cost Agebements 



II 



What is Required of Private Enterprise What the communi- 
ties require has been aptly summarized as " the best possible serv- 
ice at the lowest possible cost." If this is to be furnished by private 
enterprise, then the demand of the public upon such private enter- 
prise is for 

First — Capital, and, 
Second — Management. 

Fnder what conditions can these two essentials be best obtained ? 
That is the question that most directly concerns the communities, 
and until it be answered no conception of a correct and equitable 
basis of relationship between the communities and private enter- 
prise working in their behalf can be secured. As between the 
interests of the public and of private enterprise, there can in the 
long nm be neither divergence nor conflict, since, in spite of legal 
protection, there can be no successful conduct of an enterprise 
furnishing a public service, 'using the public streets, and dependent 
in almost every detail of its operation upon public consent and 
support, without public co-operation. The public interest is 
undoubtedly paramount and when this conflicts with private enter- 
prise, experience has frequently proved that it is the latter which 
must give way. ^Nevertheless, it will be fouud upon examination 
that full prot^tion to private enterprise is one of the fundamentals 
which must underlie any agreement or arrangement by which 
private enterprise is enrolled in the public service upon terms 
most advantageous to the public itself. 

It is, therefore, proposed to discuss in the following pages the 
conditions which should properly control, in contracts providing 
for public use — 

(a) Private Capital 

(b) Private Management. 



CAPITAL 



CHAPTER TWO 

PubHc Utility Capital 

Normal Capital Requirements of Local Transportation Enterprises — 
Present Time Requirements — From Whence to be Obtained — Functions of 
Investment Bankers, Holding and Management Corporations — The Ultimate 
Investor — Conditions Under Which He Will Loan His Capital. 

Capital, as the word is used in connection with public utility 
enterprises, consists of the money, or its equivalent, invested to 
create the entei-prise, and of the money, or its equivalent, invested 
to expand, extend and improve it. It constitutes the money, or 
value, which is entitled to a return.* 

A local transportation utility, prescribed as to its rate of return 
and so deprived of the power to accumulate capital from earnings, 
has but one source from which it may derive capital, i.e., the 
investor. 

The capital required to inaugurate a transportation utility in 
the case of such utilities as serve gi-owing communities is but the 
beginning of a continuing and continuous demand for new invest- 
ment. Extensions, betterments and permanent improvements, all 
require expenditure of money, which, because no surplus over and 
above what has been decided to be a fair return is permitted, must 
be new capital. The extent of the demand for new capital has 
already been referred to. It is again shown by statistics of certain 
properties, whose security issues are and have been for the period 
covered, imder strict regulation, so that all question of improper 
accounting or improper expenditure is removed. Thus in 1890, 
the capital liabilities of the 48 electric railways then operat- 
ing in Massachusetts were $25,011,989, in 1915 they were, for 
53 companies, $221,543,802, an increase of $195,931,813, or 765 
per cent, which is an average for the 25 years of $7,837,172 
a year. This shows an increase in capital investment from 15.5 
cents per passenger carried to 29.1 cents per passenger carried, 
or nearly 100 per cent. It does not include the very considerable 

[9] 



10 



Service At Cost Ageeements 



Service At Cost AoREEME'iyTS 



11 



•I 



I 



\ 



investment by the city of Boston in subways. (Statistics hosed on 
the report of the Street Railway Investigation Commission, created 
hy the Massachusetts Legislature 1917. Pages 145 tmd 166). 

In 1907 the construction and equipment account of the railways 
reporting to the New York State Public Service Commission of 
the Second IKstrict showed as of June 30, 1907, a balance of 
$179,262,445. On I>ecember 31, 1918, the balance stood at 
$240,690,179, an increase of $61,427,734, or 32 plus per cent, 
making a yearly average of $6,466,076. (Statistics based on 
reports of New York Public Service Commission^ Second District, 
1907 and 1918.) 

As an example of the new money required by a single company 
the figures for the Cleveland Railway Co. are available. The 
Capital Account of this company has been under the supervision 
of the city of Cleveland, since the company began operation under 
the Taylor gi-ant in 1910. As of December 31, 1910, it stood at 
$21,638,100; on December 31, 1918, it was $34,211,400, an in- 
crease of $12,573,300, or 58 plus per cent, being an average of 
$1,571,662 a year. (Statistics based on wnnuod report of the 
Cleveland Railway Co, 1918.) 

For the United States, figures compiled by the United States 
Bureau of the Census show that between 1902 and 1907 the net 
capitalization (i,e., capital stock and funded debt, minus duplica- 
tion and stocks and bonds of companies conducting other business) 
of the electric railways of the country increased at the rate of 
$256,498,000 a year. Between 1907 and 1912 it increased at the 
rate of $168,700,000 and between 1912 and li917 at the rate of 
$129,400,000. 

The figures for 'Massachusetts, New York, Wisconsin, Cleve- 
land or the United States do not, however, accurately reflect the 
present capital needs of the local transportation utilities. For 
some time before and during the war, they show the amount of new 
capital that it has been possible to obtain, rather than new capital 
actually needed, and the falling oflf in capital additions indicate 
the reason for the failure of the railways t» provide the service 
demanded by the public. Adequate service is limited by the pro- 
vision of the facilities through which it is rendered, and these can 
be provided only through the expenditure of new capital. 



The three reasons why such facilities have not been furnished 
during latter years are : 

First, the reluctance of investors to provide capital. 
Second, the limitations put upon capital expenditures of all 
kinds, by the Government, as a war measure, and. 

Third, the reluctance of the managements to undertake any 
but absolutely necessary extensions, betterment and improve- 
ments during the era of high prices that has for some time 
obtained. 

In consequence, there is now an accumulation of necessary major 
expenditures, which will for some years to come increase the capi- 
tal requirements of electric railways far above the normal. If 
this normal be estimated at $200,000,000 a year for the country, 
it is not too much to say that for the next five or ten years it will 
be at least $300,000,000 a year. 

From what source is this capital to come? It is evident that 
there is but one ultimate source — the savings of the people, the 
margin between their earnings and their expenditures. 

" Wall Street," by which collective term there is expressed to 
the mind of the average man or woman the investing i>ower of 
the nation, is not an ultimate source of capital. It is merely a 
part of the machinery by which money is collected for investment, 
and through which it is distributed among the various enterprises 
which seek capital. The function which it performs is that of 
decreasing the cost, effort and time which is required to secure 
capital. 

In connection with public utilities, the term covers both invest- 
ment bankers and so-called " holding " companies, neither of which 
are final sources of investment. The investment banker buys 
securities for the purpose of later selling them to the ultimate 
investor. The holding company buys securities to serve as a basis 
for its own securities which are later sold to the ultimate investor. 

The distinction is obvious, the ultimate investor is he who buvs 
securities for the purpose of obtaining the return thereon: the 
investment banker and the holding company buys securities for 
the profit — entirely legitimate — derived from its business of 



12 



Service At Cost AoREEMinras 



Service At Cost Agreements 



IS 



f 
f 



selling them to the ultimate investor, and in the end the holders 
of the securities of local transportation utilities, or of the securi- 
ties protected by such investment will be found to be individuals, 
whose thrift and industry has enabled them to accumulate 'savings. 

In illustration, — 49 companies scattered throughout the United 
States reported to the American Electric Eailway Association, 
bonds outstanding to the par value of $240,347,825, in the hands 
of 448,775 holders, or an average par value for each individual 
of $535.92 ; 98 companies reported stock outstanding amounting 
in par value to $440,867,745, distributed among 32,788 indi- 
viduals, an average of $i;i.44(), /jar value, per individual ; 10 
companies, four in Texas, two in Michigan, and one each in Minne- 
sota, Wisconsin, Washington and Florida, report 1,273,870 shares 
of stock outstanding in the hands of 23,952 holders, of whom 
11,324 were men, 10,941 were women and 1,686 trustees of 
fiduciary institutions, an average holding of 53 shares per indi- 
vidual ; the life in«urance companies of the United States hold 
eleetiic lailway securities to the book value of $116,592,670 
{Letter of Mr. George W, Smith, Actuary, Association of Life 
Insurance Presidents July 16, 1919) ; while in 1915 of a total of 
outstanding bonds of Massachusetts electric railways amounting 
to $87,717,700, $31,414,000 or more than 36 per cent were held 
by savings banks and other fiduciary institutions. 

These statistics are given not as a plea for these investors, but 
solely to show that if local transportation securities are to be sold, 
neithtn* the investment banker, nor the holding company, have it 
within their |)ower to stipulate the terms and conditions upon 
which the sale must rest, but that such power resides in the ultimate 
investor alone, and that it is the requirements of these investors 
that must be met if the new capital needed for local transporta- 
tion is to }ye forthcoming. 

The question as to the efficiency or economy of the present 
system of disposing of utility securities through banking houses 
and :j1)S( upturn by holding companies is alien to the present dis- 
cussion, since, insofar as the teriiH and conditions of investment 
are concerned, these but act as agents of the ultimate investor, 
whose demands are the demands that must be satisfied, before he 
will consent to loan his savings for the public service 



It is then essential to determine what are the reasonable and nor- 
mal requirements of the individual whose funds are sought, the 
terms and conditions upon which he will lend his capital, and it 
may be assumed that the two factors which will at all times and 
under all conditions control, are, 

First, The degree of safety, that is, the assurance of its 
return undiminished at the expiration of the period of its 
public use and 

Second, Rate, and a-ssurance of return ; that is, the amount 
which it shall be permitted to earn during its period of public 
use, and the degree of certainty of return. 

Third, The marketability of the securities offered. 

Conclusions 

Transportation utilities have hui one source of capital — the 
investor, 

A continuing supply of new capital is necessary to the develop- 
ment of local transportation systems in pace with comnnttnity 
requirements. 

The terms upon which new capital may he obtained are dictated 
by the investor and may not be controlled by either the community 
or the utility. 

The basic conditions upon which capital may he obtained are 
that the safety of the investment and an equitable and fair rale 
of return be assured. 



CHAPTER THREE 
Risk of Supercession 

Risks to Which Local Transportation Investment is Liable — Supercession 
— How It Can Be Eliminated — The Advantages of a Transportation " Sys- 
tem " Conducted by a Single Agency Unrestricted as to the Character of 
the Vehicle Used — Motor Transport as an Auxiliary to Electric Railways. 

Money invested in local transportation is in danger of loss, par- 
tial or total, from three causes : 

First, The method of transportation which it is used to 
provide may be superseded by some more efficient or econom- 
ical method to an extent which will greatly decrease the 

2 



14 



Service At Cost AgreemfxYts 



value of the physical projjerty of the enterprise and at the 
same time render its right to conduct l)usiness valueless; 

Second, The right of the enterprise to conduct business and 
to the use of the city streets for such purpose may be with- 
drawn, without compensation for the loss sustained; 

Third, The physical property which it provides may 
become worn out or obsolete, in the public service, without 
provision for its replacement having been made from revenue. 

The first of these risks is equally liable to occur in the case of 
public ownership and operation. It is not assumed by communities 
which issue in payment for utilities purchased or cMistructed so- 
ealled " public utility " bonds secured only by a lien upon the 
property and earnings, and it can only be entirely assumed by the 
public through the pledging of the public credit, either directly in 
the case of money raised through issues of community bonds, or 
indirectly, in the case of public guarantee of securities. It may be 
mitigated through the amortization of the investment, or through 
a grant to the utility of exclusive right to provide, local trans- 
portation by any and all methods. 

It is more than a mere theoretical risk. The development of 
the motor bus, while it is extremely unlikely to furnish a substi- 
tute for a " system " of electric railways, has at least shown that 
under certain conditions and in certain localities service can be 
provided by other means than electrically propelled cars on rails. 
The unrestricted and unregulated use of such vehicles does, in 
point of fact, at the present time, threaten the safety of electric 
railway investment in many instances. It is not to be believed 
that the improvement and evolution of the motor vehicle can be 
arbitrarily prevented or to any extent hamjiered. If it can be 
made more efficient and more economical than the electric car, then 
it will undoubtedly supersede that means of transportation, as 
the cable car superseded the horse car and was in turn superseded 
by the electric car. Similarly, any other method of transporta- 
tion, if better than electric railway transportation, will in the end 
succeed it. 

From this risk investment can be protected only if the right 
of the enterprise to conduct business, be an exclusive right to 



Service At Cost Ageeemexts 



15 



furnish a transportation system, by whatever means and methods 
iire the cheapest and most efficient and if it be permitted to 
amortize from earnings such losses as may arise from supercession. 

The development of any new means of transportation, under 
competition, will in the end prove more costly than will its develop- 
ment as a part of or in conjunction with the existing transporta- 
tion system. Competition as a means of regulating public utility 
charges and service has been discarded by the public as expensive, 
temporary, inconvenient and an ultimate deterrent of both good 
service and low charges. Yet today in the case of motor transport, 
competition is being encouraged and is resulting in the decreased 
efficiency of transportation systems, whatever its effect may be 
in respect of certain parts or phases of such system. 

Thus, while the operation of motor buses in districts already 
ser\t^d by street cars may add to the facilities furnished to those 
particular sections of the communities, it deprives the street car 
lines of earnings and so lessens the system's ability to furnish 
service in other parts of the community, where because of lesser 
density of traffic or for other reasons motor buses will not operata 

It cannot be too strongly emphasized that the most pressing 
need of comnumities is for a complete system of local transporta- 
tion, and not for excess of service in particular localities. The 
development of some particular unit of transportation does not 
mean the development of a local transportation system. All 
methods of transportation may have their proper place in such a 
system but the interests of the communities require that they be 
co-ordinated in such a manner that each shall perform the task 
which it is best equipped to perform, and that none shall be devel- 
oopcd at the expense of the complete system. 

In Great Britain this principle has been recognized and made 
effective. Mr. Walter Jackson in an article in the Electric Rail- 
way Journal of February 28, 1920, states that motor buses are 
being operated, in connection with tramways, as part of the same 
system among other places, in cities of Birmingham, Liverpool, 
Manchester, Sheffield, Leeds, Edinburgh, Barrow, Barnsley, Peter- 
borough, Stoke-on-Trent, Greenock, Sheerness, East, Wrexham, 
Beading and Swansea, while application for permission to operate 



16 



Service At Cost Ar.REEAfENTS 






buses in connection with tramways has been made for Blackpool, 
Cardiff, Erith, Coventry, Huddersfield, Lowestaft, Newcastle-on 
Tyiie, Nottingham, Salford and Southampton. In the United 
States, there are isolated instances where motor buses are oper- 
ated by the same interests (but not by the same companies) as 
those which operate the electric railway service, but there is 
nowhere a rec(^ition of the principle, that if both means of 
transportation are to be employed, they should be under a single 
management, first and foremost for the purpose of providing a 
complete system, and, second, in order that the investment in the 
original enterprise may be protected. 

If, theft, privately operated public utility enterprises be granted 
the right to provide a complete and exclusive local transportation 
system for the community, not only will the communities be 
better and more efficiently served, but the risk of supercedence 
Iwrne by the investment will be reduced. 

The grant under which private enterprise is permitted to fur- 
nish local transportation service should be both inclusive anrl 
exclusive, and should cover a transportation system and not 
merely a particular method of transportation. 

Conclusions 

Money invested in local transportation is in danger of total or 
partial loss if the means of transportation it is used to provide 
he superceded by some other more convenient or economical form. 

This risk can be obviated only if the enterprise he given the 
exclusive right to provide a transportation system, by whatever 
means are the best and cheapest and is permitted to amortize from 
earnings losses occasioned by supercession. 

It is in the interest of the communities and the public that the 
provision of a local transportation system embracing all means 
of transportation be confided to one agent. 



CHAPTER FOUR 
Bisk of Termination 

Risks to Wliich Local Transportation Investment Is Liable — Termination 
of Right to Conduct Business Without Provision for Recovery of Invest- 
ment — Franchises as a Protection to Investment — Effect of Term, or Period 
— Necessity of Amortization when Period Is Short — Importance of Credit — 
Protection of Public Interest with Long Term Franchises — The Indetermi- 
nate Permit Considered. 

The second of the risks to which capital invested in electric 
railways is liable is that its right to conduct its business may be 
terminated without provision being made against the loss that 
nilist always be present when a going concern is converted into 
a mere aggregation of physical assets — the difference between 
a " business " capable of earning a return and the scrap value 
of the physical property with which the business was conducted. 

The foundation of the local transportation company's credit is 
the expression of legal right, franchise, grant or agreement by 
which it maintains tracks in the public streets and operates cars 
thereon. 

Money is obtained for these companies, not so much on the 
strength of their physical assets, as upon their ability to earn a 
return. Tracks, cars, power houses, wire and other apparatus 
have a certain value as " scrap," but this " scrap value " in no 
case equals the " value '' of the property which, for the investor, 
must be based upon the utility's earning power. 

The risk of having the " value " of the property converted from 
that inherent in a living business enterprise, to the "value" of 
commodities like rails, ties, concrete, cars, wire, power houses^ 
etc., etc., is controlled by the period or terms of its grant. 

L(»cal transportation franchises are, as to period, of three gen- 
eral classes, perpetual, term, and indeterminate. 

There is little use to discuss the perpetual franchise. There is 
no likelihood of any community making such a grant in connec- 
tion with service-at-cost and there is, perhaps even less likelihood 
m view of recent experience, of any traction company accepting 

117 



18 



Sebvice At Cost Ageeemfats 



Seevice At Cost Ageeemejsts 



19 



I 



swell a franchise with the limitations as to fares and the require- 
ments for service extending indefinitely, such as it would inevi- 
tably contain. In the present period of readjustment, the out- 
standing requirement of any plan for regulating the relations 
between local transportation companies and the cities is flexibility. 
The rigidity that must necessarily be present in any grant in per- 
petuity, if the interests of either the communities or the investors 
are to be protected, would operate to prevent the evolution of 
the transportation system in the way which will best serve both 
parties. 

An examination of 131 franchises held by companies, in all 
States of the Union except 12, and in Canada and the District of 
Columbia, shows the wide divergence in the terms of such grants. 
Thus, of the 121, 27 are in perpetuity, one is for 100 years, two 
for 99 years, 31 for 50 years, four for 35 years, two for 34 years, 
nine for 30 years, 26 for 25 years, eight for 20 years, while nine 
were indeterminate as to period. 

For all but 38 of these 121 companies, there then exists a risk 
that "value" may be reduced from the value attached to a 
" going " concern to the " value " attached to its physical prof,- 
erty mly. This risk exists in all " term " franchises, and its 
degree is marked by the length of the term. It can he eliminated 
in " term " franchises, only if during the life of the franchises, 
there be taken from the fares paid by the car riders to the com- 
pany such an amount of cash as will equal the diffei-ence tlu* 
value of the company as a " going " enterprise and the " scrap 
value " of its physical property. This process must necessarily 
include not only the amortization of the difference as it affects 
the property existing on the date when the franchise became 
effective, but every addition to the property subsequently made. 
The impractieability of any such proc^css is obvious. For 
instance, in the case of a 20-year franchise, the difference as it 
affected the original investment (i. e., the investment at the time 
the franchise took effect) would presumably be amortized in 
20 installments and later investments would \ye amortized in 
installments equal to the numW of years remaining to the fran- 
chise, so that toward the end of the life of the franchise the amount 



to be paid annually would be so great as to impose an impossible 
burden upon the car rider. 

There is, however, no good reason why, if vahie is at all times 
kept behind investment, the car rider should be called upon to 
bear any amortization charge of this character. The sole argu- 
ment, therefore, is that by such amortization the investment upon 
which return must be paid is reduced. The reduction, however, 
is at the expense of the car rider, and means if cheaper fares 
actually result, that the car rider of the present is assuming a 
part of the cost of the rides to be given to the car rider of the 
future. Equity demands that the present rider should assume 
and pay for every cost of the service furnished him, and this cost 
includes property worn out or rendered obsolescent in the service, 
thus keeping property value in step with capital value as that 
represents the amount upon which return is paid. It does not, 
however, require that he should assume any expense, the purpose 
of which is to enable service to be given to future car riders at 
lower rates. Amortization of investment in this form is, there- 
fore, simply a shifting of costs from one set of car riders to 
another and only to the extent that such amortization charges can 
be equitably distributed over the years, so that no one set of riders 
shall be subject to unjust burden, may the practice be defended. 

Amortization of investment for the purpose of purchase involves 
another principle, which is unrelated to the question here dis- 
cussed and affects more particularly the method by whicb public 
utilities should be acquired. 

The point here raised is that the risk of loss to investors 
through the termination of tenn franchises can be obviated onlv 
through amortization of part of the investment. This principle 
was recognized in the earliest of the so-called service-at-cost fran- 
chises, that in Cleveland. Under the laws of Ohio, no franchise 
can l»e granted for a longer period than 25 years, and in order to 
protect the company from the risk of loss occasioned by termi- 
nation, the grant provides, when it has less than 15 years to nm, 
that the company may charge the highest rate of fare provided, 
that control of schedules shall pass from the city to the company 
and that the surplus in excess of the cost of service shall be used 
for the purpose of amortizing the investment. The principle 



20' 



Sekvice At (>)st AGEEEMiris^rs 



Service At Cost Agbeemeats 






» 



tl 



embodied in this provision is still more clearly set forth in the 
Youngstown franchise, which, like the Cleveland franchise, pro- 
vides for only a 25-year term. When this grant has less than 
1 5 years to ran, it is provided that the company may charge such 
a rate of fare as will provide a fund which, with interest com- 
pounded at 7 per cent., will amortize the difference between 
Capital Value and Salvage Value as they may stand at the termi- 
nation of the franchise. The Westerville franchise has a pro- 
vision similar to that of Cleveland. 

With "term" franchises, whether they be short or long, the 
credit of companies can be firmly established only if provision 
for amortization is made, since without such provision, there 
must necessarily come a time, whether it be 10, or whether it 
be 90, years from the date when the agreement was entered into, 
when the risk of loss through termination becomes so imminent 
as to demoralize the entire financial structure of the enterprise. 

Moreover, provisions like those in the Cleveland and the Youngs 
town grants, while they serve to protect investment already made, 
are insufficient to induce new investment during the later years 
of the franchise period, since amortization would in all prob- 
ability necessitate a higher fare than could be profitably collected. 
It is sought in the franchises under discussion to miminize this 
objection by providing for early renewals, and by the agreement 
that in the event of such renewals, the amortization shall cease. 
Such provisions are in reality admissions of the undesirability 
of short term and have the tendency to keep the relations of the 
community and the. company in ,a more or less constant state of 
turmoil. For the period of franchise negotiations is in every 
case an unprofitable one, both for the municipalities and the com- 
panies. During its continuance and until a basis of relations 
have been re-established, extensions and betterments cease, service 
almost invariably deteriorates, hostility is engendered, co-operation 
between public and company which is the basis of good service 
suffers, and a question which should be answered from considera- 
tions of good business sense alone becomes a political question. 

The limitation of the term of franchise grants to be found 
in the constitutional or statute law of many States express, first, 



a reaction from the practice of granting franchises in j)erpetuity 
ami, second, tho desire to pro:\nde a greater degree of control over 
t!:c jjiiblic utilities than had before existed. Most of the limiting 
I »i() visions were incorporated in the law during a period when such 
. c'gulation of the utilities as existed was by virtue of franchise pro- 
viLions. These provisions attempted to govern in detail question 
(•r both ratos and sen-ice much in the manner of the plans and spec- 
ilications accompanying a contract for the consti-uction of a build- 
ing. Obviously no one had the wisdom or knowledge to draft an 
instrument in which would properly accomplish this purpose over 
any considerable time. Moreover, the popular conception of a 
fianchise pictured it not as a mere authorization to perform a 
pnblic service in the public interest, but a grant having a substan- 
tial value because it pennitted the collection of an unlimited 
amount of retuni from the jmblic, so long as its provisions as to rate 
of fare and conditions of service were complied with. Under 
t'irs(> conditions, it is not surprising that it was considered essen- 
tial to the public interest that the franchise should be limited to a 
short term in order that these terms could be frequently remolded 
!o meet changing conditions. 

These reasons for term franchises no longer exist. The regiila- 
t on of public utilities is no longer a question of the provisions of 
i'i(^ grant under which they are allowed to do business. The 
machinery of regulation has l>een extended and expanded. By 
Tmiting the return allowed, tlie '' value '' of the franchise, insofar 
as it depends upon the permission given to collect profits from the 
jiiblic, has been eliminated. Through the control of service and 
• ' fares, by either State or municipal government, the necessity of 
i ( quentlv revamping franchise provisions to meet new conditions 
1ms Ix^en obviated, and the franchise grant has been recognized for 
^ hat it now really is: namely, a peimit to conduct a public sen-ice 
P imarily and controllingly in the public interest, and but second- 
«^iily in the interest of those who furnish the capital for the 
citorprise. 

1 nder this concept, the nuijor interest of the public in the term 
"»■ period is that it may be terminated, not at stated lengthy inter- 
vals, but whenever the public interest requires its termination, and 
smce it is inconceivable that the modem community can at any 



«" 



1 



oo 



Service At Cost AgreemexVTS 



Service At (.*ost Aoeeemknts 






time do without a l(x-al transiM>rtati»>u .system, the public interest 
will rcNpiire terniiiiatioii of the franchise, only in the event that the 
comnuinily desires to purchase and operate the system, or that it 
desires that some other than the incumbent interests own and 

o|Kn'ate it. 

This is the princi|>le of the Indetenninate Permit, which is 
for no stated t<uiu and which is revocable at any time that the 
comnniiiity may elect to purchase, or to i)ermit its licensee to 
purchast*, the propei-ty under terms which the grant itself pro- 
vides. The benetits of the Indeterminate Permit may thus be 
summed up: 

Fit\sL It gives the community full power to remove a de- 
li n<iucnt or objectionable company from the operation of its 
street railway svstem, in the oidv two ways which guard 
against an intcn-ruption of the service; 

Srrmid, By removing the risk to the company of loss occa- 
sioned by termination of its right to do business, it safeguards 
the company's cnnlit, the preservation of which is essential if 
needcHl extensions and improvemints are to be provided; 

Third, Tt eliminates that twilight zone in the life of fran- 
chises, which mark the period of negotiations for renewal, 
during which service deteriorates, extensions and betterments 
cease, and animositieMS are aroused. 

Fourth, By providing a simple and easy method of public 
purchase, it puts it within the jxnver of communities to at any 
time own and ojK'rate their street railway systems and so 
does away with one prevalent i>oint of controversy. 

Conclusions 

Capital iHVfstrd In locd tramiwrlaJion is liable to partidd loss 
fhrouqh the {cnninniioii of iis right to conduct bimness, ivithoui 
l,r,>visiuii for the laifmcni of the difference between tlie value of 
(he enter prise <us a going concern, and tlie ''scrap" value of its 
phtfsicaJ propertg. ** 

Thi,^ loKs eau Ije guarded against, if its right to condmt hminess 
he termin^d}h' onJg fh rough jnirrhasr hy the community or a 
licensee of the commanity at a price representing the value of the 



enterprise as a going concern, or if provision he made, for 
amortizing during the life of its grant, the difference between ifs 
value as a going concern and the estimated scrap value of its physi- 
cal property. 

Tlie latter protection is costly to both the community and the 
enterprise, results in inferior service and is detrimenial to all 
interests. The former sufficiently safeguards the public interest by 
providing means for ouMing delinquent companies, vhile insuring 
a continuance of service. 



CHAPTER FIVE 

Risk of Attrition 

Risks to Which Loral Transportation Investment is Liable — Attrition of 
IMiysical Property — Must be Compensated for from Revenue— An Operatinjjf 
Cost and Not a Charge Against Profits — Cannot be Provided For Through 
Current Maintenance — Necessity for Adequate Reserves — Public's Interest 
Protected by Such Reserves — The Position of the Industry upon Deprecia- 
tion. 

The attrition of the physieal pro|x^rty of an electric railway, or, 
indeed, of any other pnblic utility is a continuing process. It takes 
two forms, first, the actual wearing away through use, the action 
of the elements, or by any other means which decreases its period 
of useful life, and second, obsolescence, because of service units 
being superceded by other service units which can more adequately 
fulfill their function. 

This risk of attrition is the third risk to which capital invested 
in electric railways is subject and from which it must Ik? pro- 
tected. Both the actual wearing away of the property and its 
obsolescence constitutes a proper charge against the cost of the 
service rendered and must be made good from the revenues col- 
lected on account of such service. The investor is entitled to 
have his full investment returned to him undiminished at the 
ex|)iration of the period of public use. It is, therefore, evident 
that there must be on hand at all times, either property to tlie 
full value of the investment, or funds equal to the difference 
br'tween the value of the physical property and the full value of 
the investment 



4> 



r 






See VICE At Cost Ageeemkjsts 



Service At Cost Agreements 






1 



And because it is manifestly impossible, through the medium 
of repairs, renewals and replacements, to keep any property up 
to 100 per cent, of its perfect physiea-l condition, although it is 
possible to keep it up to 100 per cent, of its perfect operating 
condition and because obsolesence cannot usually in the case of 
individual physical units, b© neutralized by gradual replacement, 
but requires complete substitution at uncalculatable periods, the 
nectssitv of accumulating reser\"c funds which will maintain the 
balance between investment and value is at once apparent. 

The principle is easy of comprehension. The wear and tear 
and obsolescence of physical property provided by the funds of 
the investor, takes place because of its public use. It is a lessen- 
ing of the investment and if allow^ed to proceed would eventually 
wijx? out practically all of the physical property back of the invest- 
ment. In an industry unregulated as to return and capable of 
earning sufficient profit, it can Ix) taken care of by reserving part 
of accumulated profits. In a regulated enterprise such as a local 
transportation company, when the return is in the last analysis 
merely interest and not profit in the sense that profit is regarded 
in uncontrolled industry, there is no margin for the absorption 
of this attrition of propeity out of excess profits, and attrition 
must consequently be considered and treated as an operating 
expense and so provided for. 

It is a charge w^hich has, in fact, no relation to profits. It is 
necessary not only to presei-ve the integi'ity of the investment, 
but to as well insure good and sufficient service. We have 
referred to the amortization necessary to protect the enterprise 
against loss through the termination of the right to do business 
as a charge assessed against the present car rider in favor of the 
future car rider. Failure to currently provide for the attrition 
of the property is, on the other hand, a bill drawn against future 
car riders for the benefit of present car riders. 

For this is true: That if there be in a single year wear of the 
property to the extent say of 6 per centum of its value and such 
wear is made good only to the extent of 2 per centum, then unless 
the property is eventually to be entirely dissipated, the difference 
between the 6 per centum loss and the 2 per centum replacement 
must be made good from future contributions of car riders. 



Wear cannot be made entirely good by current repairs and 
replacements. Thus, the life of a rail may be 20 years, in each 
of which a certain amount of wear and tear takes place. Yet 
it is not until the last of the 20 years expires that actual 
replacement is made. To assess the entire cost of this replace- 
ment upon the car rider of the year in which a new rail is sub- 
stituted for the old rail is to burden him with a charge which in 
equity should be borne equally by the riders of the other nineteen 
years. Or, as to obsolescence — a power plant by reason of 
impiovenients in the design of power generating apparatus 
becomes obsolete and must be replaced. Unless there shall have 
been accumulated during the period of use of the old plant, a 
fund which represents its deterioration, not only physical, but 
functional as well, the entire cost of replacement is borne by the 
cjir rider of the period in which the replacement is made. 

The distribution of this charge for property attrition as between 
current, repairs, renewal and replacements, and contributions to 
a- resei-ve fund, constitutes a practical engineering problem to 
be determined by actual experience under various conditions. It 
should be borne in mind, however, that although the actual opera- 
tion of the transportation system may not be affected to an appre- 
ciable extent where there be adequate maintenance without a 
reserve fund, yet both the integrity of the property and the inter- 
est of the car rider is materially affected, since in the first instance 
there cannot possibly be on hand at all times value to the full 
extent of the investment and in the second instance there is bound 
to be inequity in the distribution of this charge as between past, 
present and future users of the service. 

No attempt is being made to here discuss the intricate details 
of " maintenance " and " depreciation." What is being consid- 
ered are the reasonable requirements of the investor for the pro- 
tection of his investment in a local transportation system and it 
is evident that protection is not afforded if the value back of the 
investment is decreased through attrition. Only when this attri- 
tion is fully compensated by provision from revenue for adequate 
mamtenance and the accumulation of such a reserve as will repre- 
sent the amount by which maintenance fails to keep property at 
full investment value, is such protection forthcoming. 



i 



26 



Service At Cost Agreements 



The effect upon the imhlic interest of failure to provide ade- 
quate niaiiiteiiaiu'e and a sufficient resca-ve, is particularly evident 
in the e:Lse of conununities which may exercise their option either 
to purcha.^e or allow a licensee to purchase. The purchase price is 
in many such cases based on the capital value of the company 
without revaluation. If full value is not behind capital value, pur- 
chase by the city at such a price and under such conditions, means 
that the future users of the service, arc paying for property which 
has been ^lissipatcd in the service of past users of the service, and 
purchase by a licensee, means that the licenst^e is receiving less in 
value tlian he pays for. If, on the other hand, revaluation is pro- 
vided as a means of determining pnrclias(» price, then a large part 
of the invc^stnient is confiscated. 

The position of the industry generallly in regard to this question 
of maintenance and depreciation, was expressed in the following 
resohiti*m adopted by the American Electric Railway Asscn-iatioii 
at a me«4ing held in Cleveland, on January 8, 1920: 

Besohed: That the American Electric Railway Association 
ieconnn(^n<ls to its MemlK^r C'ompanies that, wherever jjossi- 
ble, they provide in their accounting practice, for the crea- 
tion of adequate res<*rves to insure the property in advance of 
actual replacenK'nt and abandonment, and that such reserves 
shall be provided in exist of service franchises. 

It is therefoi-e essentitd to the protection of capital invested in 
local transportation, that adetjuate provision be made for main- 
tenance j.iul that reserves be accumulated from earnings, to an 
amount that represents tlie difference between the value of the 
physical property, and the sum of the capital investment. 

Conclusions 

li is esseiUud to the protection of capital mveMed in local 
tramportatlmi thai losses because of wear and tear, oljsolescence 
and supersession he made up from revenue. 

Not only should the property he currently maintained so as to 
he in the most efficient operaiing condition hut, in addition, there 
should he currently reserved from revenues, sums sufficient to 



Service At Cost Agreements 



27 



provide for future ren^ewah and replacements, so that at all times 
the full value shall be represented, hy property or reserves. 

Adequate maintenance and sufficient reserves are required In 
the public Interest, since proper service depends U[>on nmlntenaivce, 
while inadequate reserves put an Inequitable burden upon future 
car riders. 



CHAPTER SIX 

The Investor 's Requirements 

Return — Investor's Power to Prescribe Return — His Three Primary 
Requirements — The Cost of Money — Its Effect upon the Cost of Service — 
Assurance of Retum Dependent upon Revenue — Sources of Revenue — Public 
Contributions and Public Imposts— What the Community Owfs the Car 
Rider — Public Subsidies. 

Assnred of the Integrity of the investment, that is, that money 
put into the enterprise will not disappear or shrink in amount 
during the period of its public use, the second consideration with 
which the pi-ospective investor is confronted is as to the return 
which the investment will make to him. 

He is a free agent. ^N^ot even Government can compel him to 
loan his capital, notwithstanding that the loan may be for govern- 
mental or public purposes. Government may through its powers 
of taxation impound income, but it may not requisition capital. 
In the disposal of his accunmlated savings the investor may not 
be controlled, and Government as well as private enterprise, must 
met^t his requirements before either can secure for its use his 
capital. Thus the United States Government, seeking loans for 
war purix)ses and aided by the strong ap^x^al of patriotic duty, 
was several times compelled to increase rate of interest paid in 
order to secure the funds which it required. 

Every enterprise, governmental or private, is a bidder for ciipi- 
tal to be used for its own purposes, and for this reason the money 
market is the most highly competitive mai-ket in the world. To 
It must come National, State, County and Municipal governments, 
as well as public utilities and all private enterprises which seek 



W'O 



Service At Cost Agreements 



Service At Cost Agreembtnts 



29 



I 



capital, and in it all are on the same footing as regards tlie 
indueeiiients which they have to otier. These are 

F*irst, Safety. 

Second. Assurance of return. 

Third, Rate of return. 

The rate of return is dependent upon the factors of safety and 
assuranw. To the degree that the risk of loss or interruption of 
return enters into the investment, the rate of return demanded or 
expect (hI will vary. Money for speculative purposes, where the 
risk of its 1«ksh is gi'eiit and wliere the prospecit of return depends 
ujMiii ciri lunstances not easily forecast, insists upon a high rede of 
return. Money guarded against loss and assured of its retui*n is 
eonttnit with a lower rate. These are financial fundamentals, 
illustrated hy the low rate paid U[x>n the securities of the United 
Statt^s (iovernnicnt, and the large profits reap(?d in successful 
enterprises of a s|HM'iilative nature. They must he kept in mind 
in this discussiim kn-ause the cost of money, which includes not 
only the return pa-id, but the terms upon which it is obtained, is 
an important element in the cost of providing electi'ic railway 
service and so bears directly upon the relations between the public 
and the compimies furnishing that service?. 

The cost of money is reflected in two principal ways: first, in 
the rate of return demanded and second, in the price obtained for 
the setmrities of the enterprise. In reality the second is but a 
retlex of the first, since if the rate of return be fixed upon par- 
value, it, the rate, is increased or decreased as the actual price 
paid for the security, is more or less than par value. The money 
market is a constantly changing market and it is impracticable 
to frequently alter interest on securities to meet its demands. 
The constHjuence is that variations in the cost of money is indi- 
cated not so much by the rate of interest which these securities 
bear, as by the price wdiich may be obtained for them. This is 
plainly shown by a merely casual study of the lx>nd sales on the 
New York Stock Exchange. Between January 1, 1920 and April 
12, 1920, but twenty-seven of the 397 issues of bonds dealt with on 
this exchange reached par. The rest w^ere bought and sold at prices 



having the widest possible range, although the rate of interest 
niwMi par value was the same throughout the entire period. 

The cost of money, whether it be reflected in the rate of return 
necessary to secure it, or the price at which the securities can be 
disposed of is one of the important costs in the operation of a local 
transportation system. In 1917, when the last census of electric 
railways was taken by the United States, thirty jx>r centum of all 
charges against the conduct of the enterprise were charges on 
acc<nint of capital — interest on funded debt, I'entals, dividends 
and sur2>lus. The imjK>rtance of obtaining capital upon the most 
favorable terms is plainly indicated by this statement, and the 
most favorable terms can be obtained only when, in addition to 
assurance that the integrity of the investment will bo preserved, 
there is assurance that return will be constant and that it will be 
at a satisfactory rate. 

For capital invested in local transportation, or for that matter, 
invested in any other enterprise, there can be assurance of n^tum 
only if there ho assuranco of adequate revenue, and adequate reve- 
nue, in the case of local transportation, can be secured only from 
earnings — the money collected from the users of the sei'vice — or 
from public contributions. 

The idea of public contribution towards the cost of providing 
local transportation service was unheard of a few years ago. 
Today it is being constantly put forward, not by the representa- 
tives of the companies, but by the representatives of the public, 
who, impressed with the social importance of the service furnished, 
are urging that its cost be distributed against all who benefit and 
not alone upon its users. As has l)een Ix^fore pointed out, local 
transportation permits the development of communities in the way 
In^st calculated to promote health, comfort, convenience and morals. 
This is a function that benefits every member of the community, 
irresjxictive of the extent to which he or she may use the service. 
It is a tangible, actual asset, which in part can be expressed in 
dollars and cents. In Toledo, for instance, the street car service 
was suspended for twenty-seven days. John N. Willys, the presi- 
dent of Toledo's largest industry, estimated the loss to the city's 
business, and this apart from the loss sustained by the car riders, 
at $50,000 a day, The merchants lost trade, the amusement enter* 



§ 



» I 



M 



11 



30 



Sekvice At Cost Agreemejnts 



I 



prises lost patronage, manufacturers reported substantial and costly 
interference with their operations, the real estate dealers a practi- 
cal cessation of trading, and so on through a long list, which 
showed that the interests of aJl classes of business were vitally 
affected. 

According to the report of the City Club of New York City, 
the increase in value of property in the Borough of Manhattail 
benefited by Ae construction of the Broadway subway, readjusted 
so as to eliminate the normal rise in value, amounted between the 
years 1900 and 1907, to more than six times the cost of its con- 
struction while between 1903 and 1912, the assessed value of prop- 
erty in the Borough of the Bronx, increased from $226,596,647 
to $616,521,378, an increase, due practically in its entirety, to 
the building of the Bi-onx extension of the subway. A similar 
increase in real estate values will be found to follow the opening of 
new transportation lines in any growing city and the experience of 
New York is cited only because physical conditions in that city 
are such, that its astounding growth would not have been possible 
ftt all, had it not been for the development of its transportation 
system. 

It is unnecessary to give further instances of the benefits con- 
ferred by local transportation systems upon others than the users 
of the service it furnishes. It is evident that there is no greater 
factor in the social life of communities. Yet, there has been no 
recognition of the obligation owing to this utility by the commun- 
ity as a whole, but on the contrary the operation of the local trans- 
portation system has in ihe great majority of cases been seized 
upon as an excuse for the imposition of additional burdens of tax- 
ation upon that particular part of the public which uses its sei-vice. 
The following recital of a part of the taxes and imposts which have 
been and are now being imposed upon electric railways, illustrates 
the extent to which the Federal, State and local governments are 
using these utilities as convenient bearers of the public burden of 
taxation : 

By the Federal Government — Income and excess profit 
taxes. 

\ By State Governments — Income, realty, personal prop. 

: erty and franchise taxes. 



Service At Cost Ageeemej^ts 



31 



By Local Commimities — Franchise, property, gross re- 
ceipt, school, park, pole, car, wire and rail taxes; paving 
construction, paving maintenance, street cleaning, snow and 
ice removal, street sprinkling, free current for community 
purposes, bridge and viaduct construction and maintenance, 
free transportation for community employes, payment of 
traffic police. 

In 1917 according to the United States Bureau of the Census, 
10.11 per centum of the operating expenses of the electric rail- 
ways of the country were made up of taxes. " Taxes " under this 
classification does not include what have before been referred to 
as " imposts." For 214 companies, such imposts, according to 
figures compiled by the American Electric Railway Association, 
amounted to $20,442,000 in a single year, as compared to " taxes " 
for the same year of $40,761,000, or more than one-half. Nor 
is this all, since a large portion of the imposts require capital 
expenditures, which must be added to the capital burden of the 
utilities, and upon which interest must be paid as in the case of 
other capital. This interest charge on account of expenditures for 
purely governmental purposes is not insignificant. The engineers 
employed by the special Commission appointed by the Rhode 
Island Legislature to investigate the affairs of the Rhode Island 
Company, reported in 1918 that of the $33,275,184 representing 
the reproduction value of the Company's property, $2,666,622 
represented pavement constructed for the communities by the Com- 
pany. Thus some eight per centum, of the annual interest charges 
to be earned from the fares of the car riders of this company were 
made necessary by public requirements which had little if any- 
thing to do with the efficiency of the system as a transportation 
medium. 

A conservative estimate of the charges imposed by government 
on the conduct of an electric railway is that they constitute at 
least ten per cent of the total cost of operation including pay- 
ments on account of capital, so that from each five cent fare, 
government takes one-half cent, out of each six cent fare it takes 
.60 cent, out of each seven cent fare .70 cent, out of each eight 
cent fare .80 cent, out of each nine cent fare .09, and out of each 
ten cent fare, one full cent. 



32 



Sekvice At Cost AoreemFxNts 



Service At Cost Agreements 



33 






i 



Contrast the treatment thus accorded the users of local trans- 
portation service with that received by the users of municipally 
operated water utilities, which differs only in degree from local 
transportation as a public necessity. The car rider pays rates, 
increased by the addition of all the various taxes and imposts 
enumerated, or is given servico the extent and character of which 
is affected by them, while the latter is not only not compelled to 
assume this burden, but in many instances is relieved of charges 
which should properly be included as a cost of the service he 
receives, through their assumption by other departments of 
government 

For the use of its street by the car riders, the communities exact 
large charges in the form of both taxes and imposts, while for an 
even greater use and occupancy by the users of other vehicles, 
they make no charge, or at the best a small charge as in the case 
of certain fees and licenses paid by motor vehicles and their 
drivers. For the accomodation of 30, 40, 60 or 100 persons, as 
the case may be, the street car occupies for such time as it may 
take it to progress from one end of its route to the other, a portion 
of the street in which it provides and maintains itsi own track, 
and so interferes with other traffic only for the time that it is 
actually in transit. On the other hand, the automobile for the 
accomodation of from one to six persons, not only takes up almost 
as much of the roadway while in transit, but makes use of it for 
stwage purposes for long periods of time and so adds greatly to 
the congestion, and as a consequence of its operation actually 
destroys and wears out the pavement for the construction and 
maintenance of which the car rider pays. 

In 1915, a traffic count of persons entering and leaving the 
business district of the city of Denver, showeil that of 260,181 
other than pedestrians, 201,794 entered and left by street car, 
while 58,387 were transported by other vehicles. This figure is 
fairly indicative of the use of the streets by riders in vehicles 
and shows that of these 77.5 per cent were car ridei-s. Yet public 
expenditures for street improvement on account of the car rider 
are charged to him and paid either through increased fare or 
deteriorated service, while not only is he taxed as a part of the 
general public for the improvements made in the interest of th© 



remaining 22.5 per cent, but in addition he is taxed as a car rider 
for these improvements, and conveniences. 

These taxes and imposts are relics of past regulation of profits 
under franchise contracts which fixed the rate of fare to be charged 
and which put no limit upon the total return to be earned. They 
were imposed in the belief that they were paid by the owners of 
the property and not by the car rider. They can be logically 
justified only if the transportation be regarded as a private enter- 
prise using the public thoroughfare for private gain. They can- 
not be justified if the utility be considered as performing a service 
for the public at the lowest cost consistent with good service. With 
fares regulated by the cost of the service — and under all modem 
forms of regulation, whether by State or local commissions or 
under flexible fare ordinances it is so regulated — these very sub- 
stantial costs are placed directly upon the user of the service and 
are reflected either in the fares paid or in the character of the 
service furnished. 

The idea that a transportation utility is a private business 
enterprise the profits of which should be clipped for the public 
benefit, together with disregard of its social and community func- 
tions, has led in some instances to an even further extension of its 
use as a medium for the collection of revenue for* the public 
treasury. Profit sharing as between the utility and the com- 
munities has been incorporated in some franchises and is very 
frequently urged as a measure in the public interest. Money so 
gained by tlie communities is taken from the car rider and should 
be regarded as an additional tax upon this single class of the 
public. 

The profit sharing plan as an incentive to efficiency and economy 
on the part of the operators of a public utility has much to com- 
mend it, but the sharing should be between the operators and their 
patrons and not the communities. The person who makes use of 
the streets through the medium of a street car, should be com- 
pelled to assume no charge that is not assessed against those who 
use the streets through the medium of any other kind of 
conveyance. 

This principle is fast coming into general recc^ition. The 
State Trustees (public officers), who operate the Boston Elevated 



S4 



Service At Cost Agreements 



■ 



Bailway Company, in a recent report declared that subways are 
^^ nothing more than highways under the surface " and that the 
public owes the same duty to furnish a highway for the street 
car rider that it owes to the pedestrian or other traveler." Judge 
Fielder Sanders, Street Kailroad Commissioner for the city of 
Cleveland, has taken a similar position in regard to subway con- 
struction m the Ohio city and has stated that in his opinion the 
patrons of the street railway system should bear only such expenses 
m connection with subway construction and maintenance as is 
represented by the decreased cost of operation in subways as com- 
pared with the operation upon the surface. The Public Service 
Commission of the State of Washington has assumed a position 
even further advanced and in its decision upon the application 
of the Portland Railway, Light & Power Company for an 
increased fare, decided March 15, 1^20, recommended that the 
City of Portland relieve the company of paving construction, 
paving maintenance, bridge rentals, franchise taxes, car license 
fees and the free transportation of city employes and that it 
purchase the tracks of the company and thereafter mpply the 
track upon which the cars of the ccmipany operaie. 

This relief from taxation and impost can not be' considered as 
a subsidization of local transportation service. It serves merely 
to put^the car rider on the same footing, a^ regards the facilities 
furnished him by the community, as is any other user of the 
streets. As a matter of equity and justice, the community might 
well carry the matter further and itself assume such part of the 
cost of service as represents benefits received by it from the service 
as distinct from the benefits which the car rider receives The 
difficulty of correctly assessing such benefits presents an obstacle 
but not, however, an insurmountable one. The city of Chicago' 
did propose in connection with the construction of citv owned sub- 
ways, that the cost should in part, be borne by the property bene- 
litad, the assessment to foUow much the same form used in assess- 
ing the benefit of street openings. 

Two forms of public contributions are now provided by the laws 
of Massachusetts, the first through the temporary assumption by 
the State of deficits in the cost of service to be later repaid from 
the earnings of the company; the second, direct payments by the 



Service At Cost AGRfiEMBftTtS 



35 



communities for the purpose of keeping down the rate of fare. 
In neither case, however, is the proposed relief anything more 
than an emergency measure. In the first instance it constitutes 
merely the loaning of the State's credit and funds for the purpose 
of improving the credit of the enterprise and is not a direct 
recognition of the community's obligation to the service. In the 
second instance, the basis of payment is the difference between 
pre-war and post-war costs, so that it must be considered as a 
temporary expedient to meet a particular emergency and not the 
recognition of a general principle. 

The interest of the investor both in relief from public charges 
and in the contributions towards the cost of the service, is as to 
the degree of surety given to his investment. The matter of assess- 
ments against the car rider through the medium of the transporta- 
tion company, as well as the extent to which the public shall con- 
tribute to the cost of service is primarily a question between the 
car rider and the general community. It affects the investor 
only as it gives or fails to give assurance that adequate revenues 
will be forthcoming from which his return can be paid. As thei 
cost of the service reaches a point where fares become so high as 
to prevent riding, the ability of the company to earn adequate 
revenue is affected and the necessity arises of relieving the enter- 
prise from charges which make high fares necessary, or of calling 
ujx)!! the general community to bear that part of the cost of 
service which may be equitably charged to it because of the 
benfits which it receives. 

Conclusions 

Moite of return depends in large measure upon assurance of 
return, which is only present if the revenues of the enterprise he 
sufficient, 

Revenue of local transportation enterprises comes from two prin- 
cipal sources, the user of the service and public contributions. 

Taxes, imposts and other public charges, are ultimately paid hy 
the car rider, either directly through the fare charged, or indirectly 
in decreased service. 

Local transportation enterprises perform a social and commun- 
ity service, in addition to that performed for the direct user of the 



36 



Service At Cost Agreemeotds 



service, which justifies, if mcessarij, the assumption of some part 
of the cost of servwe hj the community as a whole, amd Tnakes 
specif taxation ami the levying of specif imposts upon these 
enterprises unjustifiable. 



CHAPTER SEVEN 
The Provisioii of Bevenne 

Return — Revenue from Operation — Price Dependent Upon Cost — Ele- 
ments of Cost — Power of Enterprise to Control — Necessity of Automatic 
Adjustment — Delay in Adjustment and Its Effect — Determination of Proper 
Rate Not Difficult — Fare Systems and Rates of Fare — The Prevention of 
Frequent Fluctuations in Rates. 

It is to the fares received from -the car rider that local trans- 
portation systems must look for the gre^iter part of their revenue 
and it is therefore with the assurance that these will be sufficient 
to cover the expense of the business that the prospective 
investor is chiefly concerned. There can be no doubt as to the 
correct principle to be applied. It has been developed through the 
economic experience of the world through all time. The price 
of any commodity, whether it be material or service must be based 
upon its cost and changes in priw^ must respond to changes in 
cost The costs of conducting an electric railway enterprise may 
be thus grouped : 

Ftrst, the cost of operation, i. e., those charges whicJi arise 
because of actual operation of the cars, including the main- 
tenance of the physical property, both through current repairs 
and renewals and through reservations against wear and 
obsoleseeinee ; 

Second, the cost arising through taxes and imix)sts, which 
include all .of the various charges levied against the enter- 
prise by government ; 

Third, the cost of capital, including the return paid for its 
use and such items as discount on securities which arise from 
the expense of securing investment 



Service At Cost Agreemknts 



87 



All of these elements of cost are variable. Not one of them 
can be estimated for any considerable period. Each is cotntroUed 
by circumstances over which neither the entei*prise nor the com- 
munity has extensive control. They are affected not only by the 
purchasing power of the dollar, but by the particular conditions 
surrounding the conduct of each enterprise. Thus, cost of opera- 
tion varies with geographical conditions, the proximity of fuel 
supply, the availability of hydro-electric power, the prevailing rate 
of wages, the topographical lay-out of the community, the service 
requirements of the public, and numerous other factors. The cost 
arising from taxes and imposts varies according to the policy of 
government in its treatment of the enterprise. The cost of money 
varies with the attractiveness of the investment and the general 
conditions of the money market. 

The price of the commodity sold, transportation, must invari- 
ably in the end be governed by these costs, otherwise the enter- 
prise must cease. Economic law dictates that either the fare 
received shall be sufficient to cover the cost, or the service decreased 
so as to come within the price. There is no escape from this 
conclusion. 

It is therefore evident that assurance of return can only be given 
the investor if there be provided some method by which price can 
be quickly and automatically adjusted to meet the cost of the serv- 
ice upon which it is based. Attempts to adjust it through contracts 
fixing rate of fare have failed, because it has not been possible to 
accurately, or even approximately, determine in advance and for 
any considerable period the cost upon which the fare should in 
justice both to the public and the enterprise be based. Attempts 
to adjust it through the determination of legislative bodies, or 
through commissions to which the powers of legislative bodies have 
been delegated, have been almost equally futile, because the 
process is so cumbersome and slow and so subject to interference 
from causes alien to the issues that loss to the enterprise almost 
invariably follows. 

Belay in adjusting price to cost prevents continuity of return 
and so decreases the rate of return. It is for this reason that the 
process of rate readjustment through the usual utilities conunission 



38 



Sekvice At Cost AoEEEMirijrrs 



Service At Cost Agreemitnts 



39 



procedure is not sufficiently responsive to meet the requirements 
either of service or of investment. By this method rates are 
increased or decreased not in step with the variations in cost of 
service, but long after such increases or decreases have occurred, 
and in the case of increases there is almost invariably a long 
period during which the enterprise has insufficient revenuei, 
either to provide the service which should be furnished, ox to pay 
the return to which the investment is entitled. 

Yet the determination of the correct price for the 'commodity 
furnished by transportation utilities presents no difficulties. The 
elements that go to make up cost are perfectly well known. The 
calculation of such costs is a matter of accounting, the principles 
of which have come to be universally recognized. Under a system 
of regulation, such as now exists in almost every State and every 
community, the methods and practices of ojx^ration are, or can 
be, controlled by the representatives of the public, the taxes and 
imposts are dictated by the public and the return to be allowed 
is a matter of the prevailing cost of money. 

The price is therefore not a matter to be based upon judgment, 
but is a matter to be based upon fact, and as such can be 
automaitcally adjusted to at all times meet cost. 

The province of judgment lies outside the question of price. Its 
business is to deal with the efficiency and economy of operation 
and with the system of fare charges through which the price of 
the commodity is collected. To ascertain the total amount of 
revenue which must be obtained to pay the cost of service is a 
question of arithmetic; to determine the system of charges by 
which this revenue shall be obtained is a question of judgment 
There is today no general agreement upon any particular system 
of local transportation fares. Flat rates, distance tariffs, zone 
systems, charges for transfers, commutation rates, rates varying 
with the class of service rendered, and a number of other forms, 
each have their advocates and each is in effect upon certain prop- 
erties. The problem is to find that system of charges which will 
induce the greatest riding at the same time that it produce* 
sufficient revenue. The answer cannot come from academic dis- 
cussion but must be reached through experimentation. The in- 
dustry has passed out of the area of a fixed flat five-cent rate into 



a period of readjustment of fare charges to meet changed condi- 
tions. No man or body of men can now say as to any particular 
system that it is the best under all conditions and for all com- 
munities. There must in the interest of everyone concerned be 
given wide latitude to those in charge of or in authority over the 
enterprise in working out a solution. For that reason it is undesir- 
able at the same time that it is unnecessary, in providing for the 
automatic adjustment of price to cost, to go further in fixing 
fares than to stipulate that they shall be sufficient to provide tlie 
cost of the service. So far as the investor is concerned the object 
sought will bo attained if the revenue produced is adequate, while 
the interest of the public will be protected if the return to the 
investor be limited by the considerations which have been set forth. 

It is manifestly undesirable that in any form of rate adjust- 
ment there should be frequent fluctuations. The use made of 
local transportation, and consequently the revenue derived there- 
from, is affected by numerous temporary changes which have a 
marked effect upon it. Weather conditions, community events 
which attract added riding and other factors, all bear upon revenue 
collected, so that were price, absolutely and at all times, to follow 
cost, almost daily changes in fare would be necessary. Frequent 
changes involve more or less expense and inconvenience. Such 
variations can be absorbed in the same way in which they are 
taken care of in unregulated business, — through the operations of 
reserves. In other words, as price fluctuation is prevented in an 
ordinary commercial business, through payments to cost from 
surplus, so it can be prevented in Uie business of local transporta- 
tion by payments from a fund set aside and dedicated to that 
purpose. 

Through the operation of such reserves, fare increases occur 
only at such periods, as give plain evidence that the increase or 
decrease is necessary because of more or less permanent causes 
and not merely passing and temporary variations in revenue. 
Moreover, they insure sufficient funds to at all times provide that 
the quality and extent of the service prescribed will.be maintained 
and that the return to the investor will be paid when it is due and 
will not be interrupted. 






Service At Cost Agreemettts 



Service At Cost Agreemfnts 



41 



I 



1 

1 



Assurance of return, upon which the rate of return which must 
be paid to attract capital for public utility enterprise depends, 
can be obtained, first through automatic regulation of price in 
accordance with cost, and second by the assumption of the com- 
munities of such sufficient portion of the cost of the service, as will 
make possible a rate of fare that will encourage, and not discourage, 
riding. 

Conclusions 

The main assurance of return upon capital medin local trans- 
portaiion must come from the provision of sufficient revenue 
derived from charges levied against the users of the service. 

Such charges should, therefore, he aiUomatically adjusted to 
provide the fuM cost of the service, including a fair return to 
capiial. 

The interests of the puhlie wMl he protected, if in this auto- 
matic adjustment of priee to cost tlie mmn consideration he tlie 
provision of sufficient revenue, leaving the system of clwrges to 
the dete7*mimUion of the maiuigement, acting urith tlie approval 
of the reguJaiory authorities. 

It is essential to efficiency that provision he made against too 
frequent fluctuation in the raies of fare, while at the same time a 
continuous return he assured. 



CHAPTER EIGHT 
Management and Control 

Management as Distinct from Capital a Necessity to the Enterprise — Ita 
Nature — Cannot Be Obtained without Reward — Its Relation to the Car 
Rider — Provision of Incentive — Regulation and Management — Theory of 
Regulation — State and Local Regulation — Importance of Public Co-Oper- 
ation—Supervision versus Management — Authority and Responsibility In- 
separable—Prescription of Public's Right to Demand Service — Control over 
Operation — Maintenance — Finances — Arbitration. 

We have discussed the conditions under which private capital 
may best in the public interest be attracted into the conduct of 
local transportation. Capital is, however, but one of the two 
things which is essential to the successful operation of the enter- 
prise. Management is equally important Indeed, the argument 



most frequently advanced in support of private operation of public 
utilities is that private management is better than public manage- 
ment, not that private capital can bo secured more cheaply. 

If a community's object be merely to secure certain sums of 
money for public utility purposes, there is ordinarily no need of 
attracting private enterprise to the business. The money may be 
more readily and more cheaply obtained by pledging the com- 
munity's credit. But experience has shown that the money once 
obtained, its expenditure to provide the service desired, and the 
conduct of that service after the facilities to produce it are pro- 
vided, cannot in the first instance be made, and in the second in- 
stance be carried on as cheaply and efficiently by the communities 
directly, as by private enterprise enlisted in the community's 
seiTice. 

Management is moro than mere direction or supervision. It 
includes business wisdom, foresight, initiative, vision, the ability 
to plan for the future as well as to provide for the present. Upon 
it depends the success or failure of all enterprise. To be success- 
ful it must bring experience, training, knowledge and executive 
ability to its assistance. The attributes which make for good 
management are those which are the most ardently sought for and 
the most amply rewarded in the commercial world, and it is idlo 
to think that they can be obtained for public service unless they 
are similarly rewarded. 

The return which mere capital demands is in the nature of 
interest, such as it may obtain if it be loaned, as to a bank, or upon 
a real estate mortgage, or to State or municipal government. If 
in addition to the furnishing of money upon good security the 
public requisitions management of the same kind that creates, 
builds up and expands private enterprise, it must furnish incentive 
as expressed in the return which management as distinct from, 
yet attached to capital, may secure in other fields of activity. 

The efficiency of management in private enterprise is in all but 
exceptional cases reflected in the profits secured and its award 
come from those profits. They constitute the yardstick by which 
efficiency is measured and at the same time are its reward. In 
the present imperfect state of human development there is no other 
practical incentive to industrial effort and industrial efficiency 



42 



Sekvice At Cost Aokeements 



than the hope of pecuniary profit, and any attempt to conduct 
an important enterprise, without a recognition of the fact that its 
successful operation, insofar as that success relies upon the quali- 
ties which make for good management, depend upon the incentive 
• in the way of profit, is unquestionably doomed to failure. 

Kestricted merely to wages, capital and management are bound 
to perform a routine job and no more. The responsibility of the 
enterprise is not theirs and will not be assumed voluntarily. It 
is only when reward depends upon the manner in which the task 
is performed that the best efforts of the performers can be secured. 
It is initiative, it is energy, it is vision, that the community wants 
from management, and for these qualities it must pay. 

Therefore, in addition to the return which capital as such must 
have if it is to be secured *for the business of local transporta- 
tion, there is the return which management must be given, and 
this return must be, not a fixed stipend to be paid irrespective 
of the service furnished, but a share in the revenue produced', 
depending in amount upon the degree to which the prime quali- 
ties of management are exercised. 

Good management creates a benefit to the car rider. It should 
be exerted in his interest and the profits which it creates should 
be shared as between the car rider and the management in such 
proportion as will provide a sufficient incentive to bring out the 
best qualities of management. If the general community receives 
a portion of the profits, it is, in theory and in fact, a contribution 
levied upon the car rider and not warranted by any privileges 
granted or task performed, in connection with the service, by the 
community. 

The failure to provide incentive to management has been ur^^ed 
as a fundamental weakness of the earlier service at cost agreements. 
Such failure is, however, an omission which can readily be cor- 
rected and it cannot be too strongly urged that reward for manage- 
ment is a proper and very necessary element in the cost of service, 
which must be paid from the revenue collected if the best service 
is to be provided. 

The right of government to control and regulate public utilities 
is beyond question. Within the restrictions imposed by the Four- 
teenth Amendment to the Constitution of the United States which 



n 



Service At Cost Agreeme-xXts 



43 



forbids the taking of property without due process of law, govern- 
ment may prescribe both rates and service and the manner in 
which money shall be secured for public utility purposes. 

Such power of regulation in the case of intra-State utilities is 
possible under the police powers of the Statb, and is to be exercised 
for the benefit of the people of the entire commonwealth. Unless 
specifically delegated by the constitution of the State to the com- 
munities, this power is vested in the State Legislature, to be 
exercised by the Legislature directly or by del^ation. These 
principles have been firmly established by the decisions of the 
Supreme Court of the United States, and have been recentlv re- 
affirmed in a number of decisions directly affecting local trans- 
portation companies. 

The theory as to local transportation lines especially is easily 
understandable. The highways of a State are in truth its arteries 
of communication. The co-ordination of the various units forming 
the State is impossible without them. The State must therefore 
control them as a measure to secure its own existence, for other- 
wise that communication and close relationship between its various 
parts would be at the mercy of local communities. The streets 
of a city are a part of the State's highways and the power of the 
State over them is as complete as are its powers over the roads 
and highways outside of cities and such authority as communities 
exercise over their streets are, except where by the State Constitu- 
tion police powers have been delegated to cities, as in the case of 
Colorado, only such as the Constitution or the Legislature has 
specifically granted to them and are at all times subject to the 
superior power possessed by the Legislature acting for the entire 
people of the State. 

As a matter of convenience, however, the delegation of the Legis- 
lature's power of regulation to some better equipped and more 
readily responsive body is essential to proper administration. 
Whether this delegation of power be directly to the communities, 
or to a State commission acting for the Legislature, and possessed 
of legislative, judicial and executive power is a question that 
should be determined by practical considerations, among which 
there may be cited these : 



44 



Service At Cost Agreemeats 



f 



' !' 



I 



Firsi, Efficiency — Can a State commission, removed 
from the influonco of local prejudices, local jealousies and 
local ambitions, and necessai*ily better equipped in the way 
of a supervising staif of experts, better regulate the practical 
operation of a local transportation system, than can a city 
officer, or officers, although the latter may be in more direct 
touch with the sj>ecific local needs and conditions 'i 

Second, Popular Confidence — Can a State commission 
secure the same degree of public co-operation, an important 
element in the operation of a transportation system, as can 
local officers? 

Third, Equity — Considering that practically all local 
transportation lines operate as a unit in one or more com- 
• munities, can control of such operation bt^ givcMi to one com- 
munity to the (exclusion of another, and if such control be 
divided among several communities will the n^ulting con- 
flict not be sufficient to interfere with the most efficient con- 
duct of the lines in any of the communities ? 

As directly aifecting the companies operating the transportation 
system the important consideration in relation to the method in 
which control shall be exercised is as to the degree which public 
co-operation may be secured. Good operation cannot be had, fares 
cannot be maintained at a desirably low level, and service cannot 
be properly provided, unless both the car rider and the local pub- 
lice authorities co-oi^erate with management. The measure of the 
co-operation forthcoming will always depend upon the extent to 
which the problems of operation are understood by the car rider 
and the local public. The close relation between cost of service 
and the latitude for efficient operation permitted by the conunuui- 
ties is evident to any student of electric railway problems. Sched- 
ule speed, for example, is one of the most important factors in the 
cost of service and depends to a very large degree upon traffic 
regulation, which in turn is in the hands of local authorities. This 
and other important operating economies are dependent not upon 
any powers which a State commission may exercise, but upon the 
action of either the car rider or the local authorities. An import- 
ant objective of local transportation management must to secure 



Service At Cost Agreements 



45 



local co-operation, so that in considering the relative advan- 
tages of State or local control, the extent to which each will bring 
about co-operation must always be kept in mind. 

So far as the principles under which regulation should be exer- 
cised or concerned, they are equally applicable to both State and 
local control. The method of detemiining fares, which has been 
here discussed, is merely the theory under which State regulation 
of rates has all along bcxjn exercised, cai'ried to its logical conclu- 
sion and so framed as to substitute rule for judgment, eliminating 
those elements, which tend in the first place to cause delay, and in 
the second place, to cause uncertainty. The method of regulating 
finances and sei-vice should be no different with local control than 
they have been with State control. 

The function of a political regulatory authority is supervision 
and direction — not management. There is a clean-cut distinc- 
tion between the two. It is the business of the public representa- 
tives to prescribe the service to bo furnished in the first instance, 
and in the second instance to see that the service so prescribed is 
furnished. They should be fully qualified and equipped to per- 
form these duties. The responsibility of furnishing the service 
prescribed is a responsibility of management, whose business it is 
to furnish it at the least cost and with the greatest degree of 
efficiency. This is a technical task requiring special skill and 
training. The responsibility to perform must be accompanied by 
the authority to perform and when regulatory authorities assume 
the functions of management, they not only deprive management 
of authority, but they relieve it of responsibility. The successful 
operation of a transportation utility is a more or less complex and 
involved performance. It requires a high d^ree of executive 
ability and judgment and it cannot be accomplished in detail by 
prescribed rules and regulation. The details as well as the broader 
policy which call for the exercise of judgment are those upon 
which the success or failure of the enterprise depends. When 
management is relieved of responsibility in connection with them, 
through the assumption of authority by regulatory officers, then 
the very purpose for which management is enlisted and rewarded 
is defeated, and the entire operation of the utility might well be 
assumed directly by the public. 



11 



4*1 



46 



Service At Cost Aubeeme"nts 



Eegulation is etfectivc, when inaiuigeiiiuiit is liold resi>ousible 
for the furnishing of prescribed service, and it is not effective 
when authority, and hence responsibility, is removed from man- 
agement. 

Under a system which provides for the automatic determination 
of fares the remaining function of regulation is, first, the prescrii>- 
tion of service and the enforcement of the prescription, second, 
the supervision and audit of the charges which make up the cost of 
servica Theoretically, there is no reason why if fares be auto- 
matically increased so as to provide revenue sufficient at all times 
to cover the cost of service, the public, acting through the con- 
stituted authorities, should not be permitted to prescribe service to 
the extent and of the quality which it may desire. Practically, 
however, an obstacle presents itself in the possibility that service 
of such an extent and quality will be i>rescribed as to make it 
impossible to meet the cost at any rate which can be collected. 
There is unquestionably a rate of faros or system of fares for each 
community, which will attract the greatest number of riders, while 
providing the requisite reveinie to cover the cost of service. It is 
this rate of fare which should logically determine the kind of 
service to be furnished. To charge a higher rate is to discourage 
the use of the facility, which is opposed to the public interest; to 
charge a lower rate means either a deficit in revenue, or a reduc- 
tion in the service below what the general public is through its 
fares willing to pay for. 

The prescription of service beyond the point where the neces- 
sary fare supplies the maximum of riders and provides the full 
cost of service puts into operation the law of diminishing return 
and it is entirely possible to require service to an extent which 
would make it impossible to collect its cost under any rate of fare, 
since the falling off in the number of f ai*es would more than offset 
the increase in the rate of fare. 

If it were possible to ascertain the rate of fare descril^ed, i. e., 
the rate attracting the maximum number of riders consistent with 
the payment of the cost of service, the prescription of service 
would be a comparatively easy matter, and a stiindard could be set 
up which would make the task of regulation simple. So many 
factors are, however, involved, including the system of charges 



Sebvice At Cost Ageeeme-nts 



47 



whether by distance, zones or under a flat rate, the merchandizing" 
of the service, the changing habits of the communities, their 
requirements as to rapid transit and other considerations, that here 
again the element of judgment enters, and it is necessary for the 
protection of the enterprise that there should be a limit put to the 
powers of the communities to require service. This limit may well 
be, so far as the interest of the enterprise is concerned, the ability 
of the system to earn the cost of the service at the fare necessitated, 
although in the general interest of the public another and much 
more stringent rule might be required. Within the limits thus 
fixed, it is entirely the province of the community to prescribe 
service, and by service is meant not only that which may be pro- 
vided with existing facilities, but also that which requires exten- 
sions, betterments and permanent improvements, and it is the 
plain duty of the enterprise to provide such service as may be so 
prescribed. 

Sinco the price which the public is required to pay for local 
transportation is based upon the cost of furnishing the service, it 
is no more than justice that the items of this cost should be under 
the supervision and audit of the public's representatives. To 
determine the form of such supervision, it is necessary to examine 
more closely into the nature of the items of cost. These are 

Operating cost. 

Maintenance cost, including not only current maintenance, 
but payments to reserves for future replacements and 
' renewals ; 

Public charges, including taxes and all imposts ; 

The cost of money, including first, return, and second, the 
expense of securing capital. 

There need be no divergence of opinion as to definition in con- 
nection with these items. Electric railway accounting has for a 
number of years been upon a stable basis. The methods prescribed 
by the Interstate Commerce Commission, are either in form or in 
substance, in general use throughout the industry. The principles 
of the Standard Classification of Accounts are universally recog- 
nized as correct and may be applied to any operation with justice 
to these concerned. The object of supervision is, therefore, to 



48 



Service At Cost AoBEEMir^rrs 



I 



check unnecessary or excessive expenditure and to prevent care- 
lessness which may arise from the practical assurance that revenue 
will be provided to pay any expenses incurred. The importance 
of this form of regulation is in inverse ratio to the sufficiency of 
provisions whereby the rewards of management depend upon the 
results of operation. If careful, economical and efficient opera- 
tion accrues to the benefit of the management as well as to the 
community, then the necessity of supervision by the public authori- 
ties is correspondingly diminished. The need of some .degree of 
control, however, remains because it is as impoi-tant to the service 
that operating expenditures should be ample as it is that they 
should not be excessive. 

Expenditures for operation, maintenance and depreciation 
should have no effect upon the return upon the property. Kegu- 
lation under so-called service at cost agreements is not regulation 
upon a "cost plus" basis. In the latter case, return depends 
upon the amount expended while in the former case the amount 
invested determines return and the amount expended has no bear- 
ing. This is an exceedingly important distinction, since the two 
principles bear no relation whatever to each other and the objec- 
tions that are urged against the " cost plus " method do not hold 
as to service at cost. 

Several methods of the supervision of the cost of operation are 
possible. One involves the fixing of allowances for operating pur- 
poses based upon operating units such as the car mile. This method 
has the virtue of flexibility insofar as it permits expansion of the 
total amount of service so long as unit costs are kept within the 
stipulated unit allowance. It does not, however, provide for 
changes in cost during the period for which it is fixed, and to th^s 
extent is in itself, if strictly adhered to, a prescription of the 
quality of the service, since the effort of management will natu- 
rally be exerted to keep the service without the bounds of what can 
be paid for by the allowance made. If these allowances be fixed bv 
the terms of the grant under which the utility conducts business, 
the result is the setting up of standards of operating cost, apt to 
prove insufficient in periods of increasing expense and too great 
in periods of decreasing expense. 



! 



Service At Cost Agreements 



49 



Another method provides for a budget system, whereby an esti- 
mate of receipts and expenses covering a fixed period is submitted 
by the utility for the approval of the public authorities, who have 
the power to fix the amounts to be expended. In these cases, the 
objection that with the total amount of expenditures fixed there 
.can be no increase of service to meet contingencies unforeseen at 
the time the budget was adopted, is overcome by provisions 
whereby supplementary budgets may from time to time be pre- 
sented, which if approved permit expansion in expenditure. 

Still another form of supervision provides for the audit of all 
expenses by the public authorities, who have the power to disallow 
or reduce items, and so prevent their payment as a part of the 
cost of servica All of these methods involve the exercise of judg- 
ment on the part of the regulating authorities and present oppor- 
tunities for disagreement, between the management and the regu- 
latory officers. 

Insofar as strictly operating costs, such as wages, the purchase 
of materials, and similar items are concerned, the likelihood of dis- 
agreement is not great. Such costs are matters of record and of 
faet, and for this reason are susceptible of proof. The question 
of the maintenance of the property, both through current repairs 
and renewals and through the operation of reserve funds for future 
replacements and renewals, is not so easy of adjustment. Here 
judgment is the controlling factor, and electric railway practice 
has not been sufficiently developed to permit the setting up of 
standards recognized as authoritativa Two objects are sought to 
be accomplished by maintenance. First, the keeping of the prop- 
erty in efficient operating condition; second, the preservation of 
the investment, by maintaining value either in property or funds 
to the full value of the investment One hundred per cent condi- 
tion is unnecessary to achieve the first object; 100 per cent con- 
dition as represented either by the physical property, or by 
reserve is essential to the second. As a part of the cost of service, 
there must be collected an amount sufficient to accomplish this 
purpose. The proportion of the amount that shall be currently 
expended and the proportion that shall be accrued for future 
expenditures is a matter of judgment and the difficulties connected 
with its determination are many. 



til 



50 



Sekvice At Cost AGBEEMin!rrs 



Sekvice At Cost Agreements 



111 






I 



Among the methods of determination, advocated or in practice, 
the most prominent are first, the fixing of a maintenaace allow- 
ance based upon the operating unit of the car mile, with the 
accrual of the balance not currently expended as reserve against 
future renewals and replacement, second, the fixing of a percent- 
age of either gross revenues or investment value to be collected 
as a cost of service and apportioned arbitrarily between current 
maintenance and reserve, third, the setting aside of arbitrary 
amounts for so-called depreciation and the fixing of current main- 
tenance expenditures by the budget system. The business of 
supervision in respect to costs occasioned by maintenance is to 
see that the car rider pays his full share of the cost of the property 
worn out in his use, but that he does not pay more than his share 
for the benefit of future car rider, while the interest of the man- 
agement is in the preservation of the property value which is 
behind the investment it represents. 

Those elements of the cost of service represented by taxes and 
public imposts are outside of the control of the enterprise. Their 
regulation is primarily a matter between the car rider and the 
general public. If the community so determines, they must be 
coUected as a cost of service without question and consequently 
they may be disregarded in the present discussion. 

The supervision of charges against service caused by payments 
on account of return to capital may be based upon either of two 
general theories: First, that the value upon which a return shall 
be allowed and the rate of that return having been fixed, the pub- 
lic interest requires only that any addition to that value shall 
receive the approval of the public authorities, thus permitting the 
enterprise to make use of any lawful method of financing and 
giving to it the entire disposal of the return ; second, that strict 
control and direction of all the methods of financing, including 
the issuance of securities, as to their nature, the price sold, and 
the return thereon, should be exercised by the public authorities. 
The advantage of the first method of control is the freedom 
allowed to the enterprise in readjusting its affairs to meet new 
conditions caused by the revaluation of its property. Under this 
plan neither the amount nor the character of the securities out- 
standing concerns the public. They may be allowed to stand as 



originally issued if this be considered advisable or desirable and 
readjustment then takes place in the distribution of the total 
return among the various classes of securities rather than in com- 
plete financial reorganization so as to adjust the face value of 
securities to the value upon which return is received. It further 
permits, as to new capital issues, the adoption of that method of 
financing which may be to them most attractive. 

The second method has the advantage from the standpoint of 
the enterprise of giving authority and stability to its securities. 
Thai: they are issued with the consent and approval of the author- 
ity upon whom the return depends undoubtedly gives them a 
better standing in the financial market. Morever, it makes easier 
the adoption of methods which gives flexibility to the rate of 
return allowed. As has already been pointed out, the rate at 
which money can be borrowed for any purpose is constantly 
changing. Under a system of regulation by which the rate of 
return is fixed for any considered period, variations in the cost 
of new capital must be absorlxxl through the sums paid to the 
enterprise on account of return. This is particularly important 
as affecting charges against the cost of money, such as discount 
on securities. t 

Unless these charges be amortized from earnings, they increase 
the rate of interest which must be continuously paid until the 
securities are retired. This must be a prime factor in determin- 
ing the rate of return allowed, and if absorbed through the allow- 
ance permitted the enterprise should have a material effect upon 
the rate. Indeed, it is to be doubted whether any community 
would ever consent to a blanket rate of return high enough to 
both absorb discount on securities and at the same time afford a 
sufficient recompense for the capital invested. 

Flexibility in the rate of return provided is as important to 
the acquisition of new capital as is flexibility in the rate of fara 
It is provided either in the interest rate or in the price at which 
the securities are sold. The mere stipulation of a rate of interest 
to bo allowed upon securities does not mean, even if they be dis- 
posed of, that the rate stipulated is the rate which the enterprise 
must pay for the money secured, since to the extent that they are 
sold under par, the interest rate is increased. 



m 



Sebvice At Cost Agreemetnts 



Service At Cost Aqreeme'xts 



5S 






It is^ therefore, important that security issues to provide new 
capital should conform as to interest rate and terms with the 
conditions of the money market at the time of their sale in order 
that the funds may be acquired at the lowest cost. The nature 
of the securities which command the largest sale sometimes 
change with the changing conditions in the financial world, and 
it is impossible to set hard and fast rules. These are some of 
the reasons why the close regulation of the issuances of securities 
is urged as a measure for the protection of the investment as well 
as in the interest of the investment. It is to be again pointed 
out that in the matter of this kind of r^ation the question of 
judgment enters to a large extent. 

Wherever r^ation rests upon judgment there is opportunity 
for disagreement and disputa The regulatory authorities, 
whether they be officers of the State or officers of the community, 
must necessarily act with a bias towards the public standpoint. 
Hence, the necessity in the interest of the enterprise, that 
there should be some form of appeal from their decision. 
They are not and should not be judicial officers. They must, to 
a certain extent at least, be partisans, and with such almost 
akolute control over the important question of service and finance, 
might very well, through unreasonable requirements, destroy both 
the integrity of the investment and prevent a fair and reasonable 
return. It is essential, therefore, that appeal either to arbitra- 
tion or to some judicial tribunal be provided. Without such 
provision, the enterprise is completely at the mercy of the regu- 
latory officers, who are charged with sufficient power to wreck 
the enterprise, either through unwise decision ox with deliberate 
intent. 

Conclusions 
^ Management as distinct from, yet attached ta, capital is essen- 
Ual ta a heal transportation enterprise and can only he seawred 
if it be aitacted by the hope of pecuniary profit. 

The reward for management slwuld depend upon the efficiency 
and economy exercised by U. If profits be considered tJie prod- 
uct of good management, they should be shared as between the 
car rider and management and not with the community. 



Begulation is distinct from management, and when it attempts 
to perforin the functions of management assumes responsibility 
to the degree that it takes away authority. 

The province of regulation is to prescribe service and to see 
that this prescription is carried mot. 

The right of com^mimities to prescribe service is limited only 
by the ability of the enterprise to collect the cost of the service so 
prescribed. 

Right of appeal from orders of regulatory authorities, eUher 
through arbitration or to the courts, is essential to tfie protection 
of capital. 



CHAPTER NINE 

• 

Existing Plans Considered 

Six Esaential Principles Governing Relations Between Communities and 
Private Enterprise Engaged in Local Transportation Service — Extent to 
Which They Are Applied in Existing or Proposed Service At Cost Plans — 
Inclusive and Exclusive Rights — Indeterminate Permits — Provisions for 
Proper Maintenance — Assurance of Return — Flexibility in Rate of Return 
— Reward for Management. 

In the preceding pages, certain fundamentals have been out- 
lined as being essential to the protection of capital invested in 
local transportation enterprises and to the attraction of money 
into this character of public service. It will be of interest to set 
up these principles one by one and apply them to existing or pro- 
posed service at cost agreements in order to ascertain the extent to 
which they are in actual practice in the regulation of the relations 
between communities and local transportation utilities as provided 
by such agreements. 

The first of the principles may be thus stated — - 

The Protection of Capital Invested in Local Transporta- 
tion Requires that it be Given an Inclusive and Exclusive 
Bight to Furnish a Local Transportation System by What- 
ever may be the Best Means. 

No recognition of this principle is to be found in any of the 
agreements or plans which we are discussing. These franchises 
are not inclusive, by which is meant that they provide for but 



54 



Service At Cost AaKEEMirirrs 



cme form of transportation, very largely for the reason that 
up to the present time there has been no adequate realization of 
the importance of the motor vehicle's part in local transportation, 
nor of the fact that this part to be really effective must be that of 
an auxiliary and adjunct to the electric railway. Only in the 
Montreal franchise is recognition given to the motor bus. Here it 
is required of the company that it shall operate buses at the 
direction of the Montreal Tramway Commission, but only if such 
operation entails no burden upon the cost of the service. In other 
words, bus routes and lines established must be self-supporting. 
Other agreements are silent as to transportation other than that 
upon rails, although in most of them the possibility of a change 
in motive power is recognized by provisions which empower the 
communities to consent to the use of motive power other than 
electricity. 

The object of both the Chicago and Philadelphia agreements 
was to secure for the respective cities a complete and unified 
"system " of local transportation, for which purpose the operation 
of rapid transit lines, both on elevated structures and in subways 
to be built with the city's money and owned by the city, was pro- 
vided for, while a similar object was set forth in the Dallas fran-^ 
chise, yet in no case was it considered of importance to include in 
the basic instrument by which a unified system was to be secured 
the operation of motor vehicles. Indeed, there are still many 
States in which motor buses have not yet been formally recognized 
as conmion carriers, subject to the statutes that control common 
carriers. The danger of this omission in franchises, as it affects 
investnient, is obvious. Controlled, regulated and restricted on 
the ground that it is properly a non-competitive enterprise, the 
street railway may be, and often is, faced with a form of competi- 
tion peculiai'ly unfair and harmful because it is not subject to 
the same control, regulation and restriction. 

It is perhaps because of lack of complete control over their own 
streets that more communities do not grant full rights to operate 
street railway systems, but confine these rights to certain specified 
lines and routes. Many State Constitutions and more State laws 
require the consent of abutting property owners to the construction 



Service At Cost AnREEMirNTs 



55 



of street railway tracks in their highways, thus removing from the 
community the exclusive right to say where and when street rail- 
way lines shall be built. Moreover, the idea or regulation through 
competition is still alive, and the possibility of competing lines 
built and operated by the city, or by an enterprise other than 
that to which the franchise has been extended, is not lost sight of. 
The right of the city to build and operate such lines is especially 
reserved in the Youngstown franchise, while in Cleveland it is 
provided that the City may, within a certain prescribed district, 
compel the company to permit the use of its tracks by other comr 
panics. The Massachusetts Acts do not extend the rights of the 
companies. The two Denver ordinances aim simply to provide an 
automatic form of rate regulation and other terms of the Com- 
pany's franchises are unaffected thereby. In Minneapolis, Cin- 
cinnati, Montreal and Westerville, the grant is for particular 
route and streets to be added to at the pleasure of the City. Tn 
Memphis, service at cost is provided for by an order of the Stato 
Utilities Commission, which does not add to the franchise rights 
of the Company. 

The Protection of Capital Invested in Local Transporta- 
tion Eequires that unless Provision be made for the Amort- 
^*io» of the Difference Between its " Scrap " Value and 
its Value as a Going Enterprise, its Right to Conduct Busi- 
ness shall be Terminable only upon Purchase by the Com- 
munity, or by a Licensee of the Community. 

All Massachusetts street railways operate under a form of 
indeterminate permit, not affected by the acts which are under' 
discussion. The Dallas franchise is terminable only upon pur- 
chase by the City or a licensee of the City, while the proposed 
Chicago franchise was terminable upon City purchase alone. Tha 
proposed Philadelphia agreement was for fifty years and that 
effective in Montreal for thirty-five years. Under the Ohio law, 
no franchise may be granted for a longer period than twenty-five 
years and the Cleveland, Cincinnati, Youngstown and Wester- 
ville grants were accordingly for this term. The proposed Min- 
neapolis franchise was also a twenty-five year grant, while in 
Denver and Memphis no new grants were involved. 



56 



Sekvice At Cost AoREEMinn^ 



In all of thjese term franchises, with the exception of that effect- 
ive in Montreal, some provision is made for the amortization of 
investment The provisions of the Cleveland, Youngstown and 
Westerville grants are much alike, and provide that when the grant 
has less than fifteen years to run, which makes them, unless 
renewed, effective in their most essential features for ten years 
only, control of rates and semce, as well as extensions, pass from 
the community to the company, which is permitted to charge the 
highest rate permitted by the grant in order that the difference 
between Capital Value as stated in the grant and salvage value 
may be amortized in the remaining fifteen years. The consequence 
is that the grant is no sooner in effect than negotiations for its 
renewal are under way, with resulting disturbance. 

While the Cincinnati grant does not contain provisions of the 
same character as those of the other Ohio franchises, it does pro- 
vide for sinking funds, to take care both of initial capital and such 
added capital as may be raised from the sale of bonds. The rejected 
Philadelphia franchise had similar provisions, both as to the 
property in the unified system owned by the company and that 
owned by the city. In the later case, however, the provisions were 
not as stringent. 

In Minneapolis, an amortization fund was created, to be accu- 
mulated by the payment into it of one-half of one per centum of 
capital value each year, until an amount, defined by the grant as 
the intangible value of the property was equalled. Thereafter the 
amount to be paid into the fund was to be fixed by the city 
council. 

The third of the principles — 



The Proteetioii of the Ihvestmeiiit from Attrition, i. e., 
its Wasting Away in the Public Service Without Replace- 
ment, Requires Adequate Provision from Revenue Both for 
Maintenance and for Reserves for Depreciation. 

In Cleveland and Youngstown, a maintenance, depreciation 
and renewal fund, is accumulated from a monthly allowance 
based on the revenue car mileage of the system for the month, 
and changing with the period of the year. Such of the Fund as 
is not expended for current maintenance goes into a reserve for 



Service At Cost Agkebmej^s 



67 



renewals and replacements, to be expended only with the approval 
of the city authorities. No special provision is made for depre- 
ciation, and as a matter of record there has during the life of the 
Cleveland grant, either been a deficit in the fund, or an 
inconsiderable balance. 

In Cincinnati, the amount to be exijcnded for current main- 
tenance, repairs and renewals is fixed in the annual budget and is 
subject to the approval of the city authorities. In addition there 
is accumulated a special fund to provide for depreciation. For 
the first five years of the grant, the amount paid thereinto, shall 
equal that formerly set aside by the company. After five years 
the amount shall be that fixed by the State Public Utilities Com- 
mission. The fund is to be used exclusively for replacements and 
renewals. In the event of purchase by the city the amount then 
in the Depreciation Fund shall be deducted from the purchase 
price and becomes the property of the company. 

By the terms of the Boston Elevated Act, the trustees operat- 
ing the property are enjoined to " make such provision for depre- 
ciation, obsolescence and rehabilitation, that, upon the expiration 
of the period of public management and operation, the property 
shall be in good operating condition." Depreciation and obso- 
lescence are specified in the Act as items in the cost of service, but 
the amount to be set aside therefor is left to the judgment of the 
trustees. It wiU be noted that the language of the Act, provides 
for nothing more than the maintenance of good " operating " 
condition, something apart from the maintenance of full invest- 
ment value, although by the practice in Massachusetts investment 
value is recognized as that upon which a retui-n shall be paid. 

In the act providing for cost of service for Massachusetts elec- 
tric railways other than the Boston Elevated and the Massachusetts 
Eastern current maintenance is included as a part of the cost of 
service and, in addition, it is provided that there shall be set aside 
such allowance for depreciation, obsolescence and losses in respect 
to property sold, destroyed or abandoned as the Commission shall 
from time to time decide upon. 

In Montreal payments on account of " maintenance, renewals, 
replacements and substitutions " are included as items in the cost 



V i 



58 



Sebvice At Cost Agbeemitnts 



of service. The allowance is fixed on the basis of revemie car 
miles operated and paid into the maintenance and renewals fund, 
from which is paid the cost of renewals and replacements. Money 
is held in the fund until expended for renewals and replacements 
or expended for additions, extensions and permanent improve- 
ments, which when so paid for are not added to Capital Value. 
The grant provides that the Tramway Commission shall make 
such allowance as will keep the maintenance and renewals fund at 
$500,000 or more, the initial value of the property being fixed at 
$36,286,295. 

In the Eastern Massachusetts Act, maintenance on the one 
hand, and depreciation, obsolescence, rehabilitation and losses in 
respect to property sold, are made separate items in the cost of 
service, the allowance for each to be such as will, in the judgment 
of the trustees, be sufficient. 

" Maintenanco, current and deferred " are made items in the 
cost of service by. the provisions of the Westerville grant, the 
determination of the amount to set aside for the purpose being 
left to the company subject to the approval of the commission. 

In the Dallas franchise the provisions for maintenance and 
depreciation reserves are elaborate. Current maintenance is pro- 
vided for as an operating expense. In addition a repairs, main- 
tenance and depreciation reserve is set up. When the highest rate 
of fare permitted by the grant is in effect, it is provided that this 
fund shall equal six per cent of property value. When any lower 
rate of fare is in effect the normal amount shall be ten per centum 
of property value. Ten per cent of monthly gross receipts are to 
be paid into the fund as the second major item of cost of service, 
and in addition, there shall be paid into the fund, such an amount 
of the gross receipts remaining after the payment of other specified 
items in the cost of service, as will bring tlie total for the year up 
to eighteen per cent of annual gross receipts. Such payments 
shall be cumulative until deficits shall be made good. Payments 
into the reserve cease when the normal amount is reached. The 
company shall receive no more than its minimum return \mtil the 
amount in the reserve shall be at normal. This grant is peculiar 
in that it makes the amount of depreciation depend upon the fare 



Service At Cost Agbeemet^ts 



59 



m effect, although wear, tear and obsolescence is in no way depend- 
ent upon rate of fare. 

In the order of the State Public Utilities Commission affecting 
Memphis ordinary maintenance is included as; an operating 
expense. In addition, a Eenewal and Keplacement Keserve is 
created to be used " for the sole purpose of providing renewals and 
replacements (other than ordinary maintenance) due to ordinary 
depreciation, obsolescence or abandonment." Expenditures from 
the fund are under the direction of the Utilities Commission. The 
fund was started with the amount that had been accumulated by 
the company for depreciation previous to the taking effect of the 
order, and there is paid into it three per cent per annum of the 
value of " depreciable '' property (stated to be $7,600,000 in a 
total Initial Value of $11,846,034) until there shall be aceunui- 
lated $500,000. Thereafter when the balance in the fund is 
between $300,000 and $500,000, the same rate shall prevail ; when 
the balance is more than $500,000, it shall be reduced to two per 
cent, and when it is less than $300,000, the rate shall be increased 
to four per cent 

In the defeated Chicago ordinance, the following distinction as 
between maintenance and repairs, and renewals is established by 
the language of the grant : " Kenewals are hereby defined to be 
the replacement of any principal part of the local transportation 
system, or its equipment or appurtenances (including pavement) 
or subways." The trustees are enjoined to classify expenditures as 
between maintenance and repairs, and renewals. An amount equal 
to six per cent of gross receipts shall be spent for maintenance and 
repairs, or if not so spent shall be set aside in a maintenance and 
repairs fund to be later so spent. In addition, there shall be set 
aside each month, an amount equal to eight per cent of the gross 
receipts of the previous month, to be accumulated in a Renewals 
and Depreciation Fund. From this latter fund shall be paid the 
cost of all renewals, except such as are charged to Capital Account, 
and the balance not expended shall constitute the reserve for depre- 
ciation. The eight per cent allowance for the fund may be 
increased when in the judgment of the trustees this seems desirable 
and necessary. 



( 



(I 



60 



Service At Cost Aoreemitxts 



1^ 



i 



I 



In the rejected Philadelphia ordinance the amount to be 
expended for maintenance was left to the judgment of the com- 
pany, subject to review by the Supervising Board. Three distinct 
depreciation funds were also established, one to cover the property 
of the city, one the property of the company used in connection 
with the operation of the city system (Note: This property was 
eventually to be purchased by the city), and the third, the 
remainder of the Company's property. The amount to be sot aside 
for the three funds was left to the judgment of the Supervising 
Board, except that the accumulation of the fund to cover the city's 
property was not to begin until ten years after the date when the 
agreement became effective. The Company's Fund was to be 
applied to payments for repairs, replacements and renewals other 
than those paid directly out of gross revenues, expenditures from 
the fund to be approved by the supervising board. 

In the rejected Denver Service at Cost Ordinance, the amount to 
be expended for current maintenance was to be fixed by the com- 
pany in the annual budget subject to the approval of the city. In 
addition a Renowals and Depreciation Reserve Fund, to provide for 
"the replacement and renewal of tracks, cars, equipment, build- 
ings and plant which hereafter shall become worn out, obsolete or 
useless, and for the general depreciation of the property," was to 
be provided, through sums taken from the revenues of the com- 
pany. The amount to be set aside was to be " adequate and rea- 
sonable " and determined by the Board of Tramway Control. As 
a measure of adequacy the ordinance provided that for the initial 
value of $20,867,750, a monthly allowance of $37,500, should be 
deemed sufficient. In the Denver Elastic Six-cent fare ordinance 
there were no provisions. 

In the rejected Minneapolis ordinance, repairs, maintenance, 
renewals and depreciation were all to be taken care of through the 
operation of the Repair, Maintenance, Renewal and Depreciation 
Fund. This was to be provided by the setting aside each month 
of one-twelfth of 2.75 per cent of Capital Value, the rate to be 
increased or decreased as the city council might determine. To tbe 
fund, there was also to be added amounts received from the sale of 
material or property sold, and from it was to be paid the cost of 



Service At Cost AoREEME'^fTS 



61 



maintaining the property, and of renewals and replacements other 
than those charged to Capital Account. The balance not so used 
was to be maintained as a reserve. 

The fourth of the principles — 

Assurance of Return is Necessary to Attract Capital into 
Local Transportation Enterprises Where Profits are Limited, 
and has a Material Effect upon the Bate of Betum Necessary. 

In the cost of service plans under consideration return is assured 
in greatly varying degrees. Even the provisions for flexible fares 
differ as to the assurance given. Thus while in Youngstown, 
Cincinnati, Boston, Massachusetts General Act, Montreal, Eastern 
Massachusetts, Memphis, Chicago, Denver and Minneapolis, fares 
may be indeffnitely increased to meet the cost of service, in Cleve- 
land, Westerville and Dallas, a top limit is fixed beyond which fares 
may not be increased without an amendment to the ordinance, 
and in Philadelphia the grant provided merely that the Supervis- 
ing Board should, when a fare increase was necessary, file a tariff 
with the State Public Service Commission, which should then act 
as in all similar cases. The importance of assuring return by 
provisions which permit a rate of fare sufficiently high to cover 
the cost of service is shown* in the case of botli Cleveland and 
Dallas, in the former of which it was necessary to amend the 
grant to permit a fare high enough, and in the latter of which 
a substantial deficit in the cost of service has been created because 
there has been no amendment of the grant, and the highest fare 
provided is insufficient. 

Even with the possible rate of fare unlimited, there remains 
the danger that the community, having the right to prescribe serv- 
ice and require extensions, betterments and permanent improve- 
ments, will impose a burden of cost upon the enterprise, which 
cannot be taken care of, under any possible rate of fare. In the 
plans effective in Cleveland, Youngstown, Cincinnati, the Mas- 
sachusetts General Act, Montreal, Westerville, Dallas, Phila- 
delphia and Denver, appeal from an order requiring service 
is provided for, either to the courts or to a board of arbitration 
erected according to the provisions of the agreement. In those 
5 



I'll 



02 



Service At Cost Aoreemkxts 



Seeviok At Cost Agreements 



m 



\ 






provided for Boston, the Massachusetts Eastern, Chicago and 
Minneapolis, no such provisions arc included. 

Direct guarantee of return is made by the provisions of the Bos- 
ton Elevated Act, where if there be a deficit in the cost of service, 
it is made good from the State tretisuiy, and an assessment to cover 
the amount is made against the communities served by the com- 
pany, the funds thus advanced to be repaid when the revenue of the 
company warrants. A similar provision as to a portion of the 
new capital raised for rehabilitation is present in the Eastern 
Massachusetts Act, while the rejected Minncaix)lis franchise pro- 
vided, as to new capital, that the city might either make direct 
loans to the company or guarantee the payment of interest on 
and principal of securities issued with the city's approval. These 
are the only sei-vice at cost plans in which provision is made for 
putting the credit of the city behind the securities of the company 
or assuring return to those who loan their money for this public 
service. 

Direct contributions by communities to the cost of service 
are possible in Massachusetts, lK>th under the provisions of the 
Massachusetts Eastern Act. and under a general statute which 
provides that communities desiring to do so may levy taxes for 
the purposes of raising contributions to the cost of service in order 
to either reduce fares or to prevent an increase therein. In no 
other case are there provisions for public contributions, although 
in the rejected Philadelphia agreement the city reserved the right 
to waive rental charges upon the subway and other facilities fur- 
nished by it, on the theory that it could properly determine what 
proportion of the interest and sinking fund charges should be 
borne by the taxpayer and what proportion by the car rider. 

In the matter of imposts and taxes, the relief afforded to the 
Eastern Massachusetts Street Railway Company by the Cost of 
Service Act, which provided that the cx>mpany should be relieved 
from the construction and maintenance of streets, bridges and 
structures in connection therewith and from obligations in con- 
nection with the abolition of grade crossings and the underground- 
ing of wires, has been further extended by an Act passed in 1920, 
which relieves for a period of two years all street railway com- 
panies from payment of the so-called Excise Tax which was in 



lieu of payments on account of highway maintenance. The Cleve- 
land franchise relieved th© company of the car license formerly 
paid, and of its obligation to repave streets, although it is still 
required to maintain pavement between its tracks and one foot 
outside thereof. Cincinnati collects a " gross earnings " tax fixed 
at $350,000 a year, which is in lieu of all paving taxes and assess- 
ments. The Montreal franchise continues the use of the trans- 
portation utility as a collector of revenue for public purposes. 
Practically all of the former taxes are retained, and the city not 
only collects a rental of $500,000 a year for the use of its streets, 
but in addition appropriates for its own use 30 per cent, of the 
profits arising from operation. The Westerville franchise neither 
waived nor added to the taxes and imposts formerly paid by the 
company. In Dallas the company was relieved by its franchise 
of the payment of all taxes except ad valorem taxes and special 
assessments for public improvements. Its obligation to pave, 
repave and maintain pavement between its tracks and two feet 
outside was continued. The Memphis order did not affect taxes 
or imposts. The rejected Chicago ordinance relieved the com- 
pany of its obligation to clean and sprinkle streets whenever the 
cost of so doing necessitated an increase in fares. All other obliga- 
tions were retained. The rejected Philadelphia agreement pro- 
vided for the payment of a lump sum annually (starting at 
$500,000 for the first 10 years and ending with $700,000 after 
30 years) in lieu of all obligations on account of paving, repav- 
ing, the maintenance of paving, snow and ice removal and all 
licenses. No provisions for waiving this charge were made. The 
Denver Service at Cost Ordinance relieved the company of the 
payment of a former franchise tax, amounting to $60,000 a year, 
and from its obligation to pave, repave, maintain pavement, con- 
struct, reconstruct, maintain or improve bridges, viaducts and sub- 
ways, except as to pavement or structures removed or damaged by 
it. The rejected Minneapolis franchise permitted the city, in 
order to reduce or to prevent an increase in fare, to waive require- 
ments as to paving construction and maintenance, street cleaning, 
sprinkling and oiling. 



t 



I s 



64 



Service At Cost Aobeemsnts 



1 



It 



li 



The fifth of the principles — 

In Order to Meet the Changing Cost of Capital the Rate 
of Betiim in Local Transportation Enterprise Should be 
Flexible. 

In the first of the cost of service agreements, that in effect in 
Cleveland, the only flexibility of return provided was that upon 
money obtained through the sale of bonds. When bonds are re- 
funded it is provided that the return allowed shall cover the rate 
of interest provided by the issue, plus such amount as will take 
care of the discount if they be sold at a discount, the total rate of 
return not to exceed 6 per cent. In the case of stock and floating 
and other debt, the rate of return was originally fixed at 6 per 
cent Because it proved to be impossible, under financial conditions 
existing after the war, to secure new capital at this rate, the ques- 
tion was in 1919 submitted to arbitration, and on the recommenda- 
tion of the Arbitration Board the rate was increased to 7 per 
cent, by an amendment to the franchise. The Youngstown agree- 
ment provides for a 7 per cent, return upon Initial Capital, and 
upon additional capital the rate fixed in the issue of stocks, 
bonds or other evidences of indebtedness through which the new 
capital is secured, such issues being subject to the approval of the 
city and the rate to be no higher than the lowest at which the 
money may be obtained. In the Cincinnati grant no raJte of return 
for Initial Capital is provided, provision being made for certain 
specified amounts. Securities issued after the taking effect of the 
grant «hall, as to character, form, the interest thereon, and the 
price at which sold, be subject to the approval of the city. The 
Boston Elevated Act provides for a fixed return, beginning with 
the taking effect of the grant at 5 pr cent, and ending, after 
four years, at 6 per cent, upon common stock. Upon bonds and 
preferred stock, the return is to be that fixed in the issue, the 
State Trustees having the power to authorize for the company such 
issues. Upon a special issue of preferred stock sold to provide 
money for rehabilitation, the rate fixed at 7 per cent. Both the 
Massachusetts Greneral Act and that applying to the Eastern Ma-s- 
sachusetts Street Railway Company have provisions as to rate of 
return similar to that of the Boston Elevated Act, except that the 



Service At Cost Ageeemfjn'ts 



05 



rate of return upon common stock is fixed at 6 per cent, from 
the time the acts become effective. The Montreal franchise, while 
providing additional return through an " operating profit " and 
by the division of surplus receipts, fixes the normal return upon 
all capital, except that obtained during the war and for two years 
aftei-wards, at 6 per cent. Upon the latter a 7 per cent return is 
allowed. While there is no flexibility of return provided for in 
the Westerville grant, the difference in the cost of money at 
different times and under different circumstances is recognized. 
Thus, the rate upon Initial Capital is fixed at 6 per cent., upon 
New Capital at 8 per cent., and upon capital to be expended in 
a certain village at 15 per cent. In Dallas, the rate of return 
changes not with the cost of money but with the rate of fare in 
effect, varying from 7 per cent., when tickets are sold at the rate 
of 22 for $1, to 9 per cent when they are sold at eight for 25 cents. 
In Memphis, the rate of return is flexible between a lower limit of 
61/^ per cent, and an upper limit of 7% per cent, but here again 
the flexibility is a device to secure managerial efficiency and the 
rate depends upon the condition of the Fare Index Fund, and not 
upon the cost of Capital. In the defeated Chicago ordinance, the 
return upon Initial Capital was fixed. For new securities issued, 
the return was to be fixed by the trustees for each issue. The same 
provisions were included in the Philadelphia agreement, except 
that new securities were to be issued by the company with the 
approval of the city. In the Denver Service at Cost ordinance, 
the return was fixed by the ordinance, increasing, in a period 
of somewhat less than two years, from 51/^ to a 7 per cent 
rate with additional allowances depending upon the rate 
of fare in effect The proposed Denver Elastic Six-cent Fare 
Ordinance did not attempt to fix the rate of return. In Minne- 
apolis, the rate of Initial Capital was fixed, while upon New 
Capital the company was to be allowed the rate of interest pro- 
vided in the issue, as approved by the city, plus 1 per cent., 
except that the additional 1 per cent, was not to be allowed upon 
money loaned to the company by the city, nor upon security issues 
guaranteed by the city. 



ii 



66 



8£BViCE At Cost Aubeemitnts 



til 



i( 






'i'^^ 



The sixth of the principles — ; 

Reward for Good Blanagement is Essential as Return upon 
Capital and should be Included as an Item in the Cost of 
Service. 

In the Cleveland, Youngstown, Boston, Massachusetts General, 
Eastern Massachusetts, Westervillo, Chicago, Philadelphia, Den- 
ver Elastic Six-cent Fare and Minneapolis plans, there is no pro- 
vision by which good management is rewarded. In Cincinnati 
surplus remaining after the cost of service is paid is divided 
between the car rider and the company in accordance with the 
rate o£ fare prevailing. For the company to benefit by this 
pro\dsion, the rate of fare in effect must be six cents or less. In 
Montreal, the company for keeping expenditures within 21^ per 
cent, of the annual budget allowances, receives an " Operating 
Profit " of one-eighth of 1 per cent, of the average Capital Value 
for the year. In addition, surplus remaining from revenues after 
the cost of the service has been paid, is divided 50 per cent, to 
the Fare Eeduction Fund, 30 per cent, to the City and 20 per 
cent, to the Company. In Dallas the rate of return varies with 
tShe rate of fare in effect. If the fare be five cents, 22 tickets 
for $1, the rate of return is 7 per cent. ; if the fare be five cents, 
six tickets for 25 cents, it is 8 per cent. ; if the fare be ^vc cents, 
seven tickets for 25 cents, it is sy^ per cent. ; if the fare be five 
cents, eight tickets for 25 cents, it is 9 per cent. By the Memphis 
order the company is assured of a minimum return of Qy^ per 
cent. Deficits therein are cumulajtive and are paid from subse- 
quent gross revenue before additions are made to the Fare Index 
Fund. If in any month the balance in this Fund Ix? $60,000 or 
more, the company receives a return of 714 per cent., unless it 
be necessary to deplete the fund below $60,000 to make the pay- 
ment. By the provisions of the Denver Service at Cost ordinance 
the company was to receive additional allowances in rate of return 
based upon the fare in effect. For any month in which a six-cent 
fare was in effect it was to receive one-twelfth of one-fourth of 
1 per cent. ; in any month during which a five and one-half cent 
fare was effective, one-twelfth of one-half of 1 per cent. ; in any 
month in which a five-cent fare was effective, one-twelfth of three- 
quarters of 1 per cent, and when a fare of leas than five cents 
was effective, ono-twelf th of 1 per cent 



SERVICE AT COST PLANS IN EFFECT 



An Identical Analysis of the Laws, Ordinances, Agreements 
and Commission Orders under which Service at Cost is 
in effect in Cleveland, Youngstown, Cincinnati, Boston, 
Montreal, Westerville, Dallas, Memphis, the cities served 
by the Eastern Massachusetts Street Railway Company, 
and is available to all Massachusetts street railways. 

" Service at cost " is a term that has come to be quite generally 
applied to a plan for the conduct of electric railways as quasi- 
private cntei-prises, by which fares arc made to automatically 
respond to the cost of providing the sen-ice, and it is in this sense 
that it is here applied. 

It is only to the extent that the regulation is automatic that the 
principle involved differs from that under which the rates of public 
utilities are regulated by State or lo(*al commissions having juris- 
diction over rates irrespective of franchise stipulations. As soon 
as government put a limit upon the return which these enter- 
prises could earn, the service at cost principle was bom, and 
later developments of regulation have but expanded and refined 
it. The primary object of all public utility regulation is to secure 
for the public the required service at the lowest cost consistent 
with the furnishing of such sei-vice. The right of the public, 
through its duly constituted authorities, to prescribe the kind and 
extent of the sei-vice to be furnished is undoubted, but it is accom- 
panied by the duty to provide sufficient revenue to pay the cost of 
providing the service prescribed. 

The adjustment of these two basic elements of regulation so as 
to bring them into harmony ; the construction of machinery for 
regulation which will work with the least possible friction; the 
adaptation of this artificial process of price regulation to bring 
it into step with the economic laws which govern unregulated 
industry, — these constitute the goal towards which the efforts^ pf 

I67J 



t 



6S 



Service At Cost Agreemf.nts 



W 



those wprking for a better relationship between the public and the 
utilities serving them should be directed. 

To avoid waste, complexity and inefficiency in the operation of 
local transportation systems, some quick, automatic, just and equi- 
table method of making the price received for public utility service 
responsive to its cost is essential. This the cost of service plans 
here discussed attempt to do. The elements of this cost are 
defined and agreed to. Included is the return to those whose 
money is being used in the public service and the rewards to those 
who furnish the managerial service that turns mere physical prop- 
erty and legal rights and privileges into a live public enterprise. 
Provision is made for the payment of the costs of service as defined, 
either from revenue received from fares directly or indirectly 
from the public treasury. Means and methods of determining 
the total of the cost are provided by methods which safeguard the 
public interest and, when the amount is so determined, the rev- 
enue is increased or decreased in amount so as to cover all costs. 
That is the theory of a service at cost plan. 

Of those considered in the following pages, that now in effect 
in Cleveland was the first. It became operative in 1910. It was 
not until some seven years later that the same principles were 
again applied, this time in Dallas, Texas, where in 1917, a some- 
what similar grant became effective. Later in the same year, the 
agreement covering the operation of the Westerville division of 
the Columbus Railway, Power & Light Company went into effect. 
Nineteen eighteen, saw the Boston Elevated, the Massachusetts 
Eastern (then the Bay State), the Massachusetts General Acts, and 
the Cincinnati and Montreal- franchises put into effect In 1919, 
Youngstown entered into an agreement with the Mahoning & 
Shenango Railway & Light Company for the operation of its 
Youngstown lines under a service at cost plan, and in 1920, the 
Tennessee Railroad and Public Utilities Commission promulgated 
an order for service at cost for the Memphis Railway Company. 
In the following pages the provisions of these various ordinances 
are grouped under the following heads, in order that the student 
of the subject may readily grasp the varying provisions covering 
the same object; 



Service At Cost Agkeemexts 69 

A. GENERAL CONDITIONS — 

1. Life: , 

2. Renewal: 

3. Forfeiture: 

B. MUNICIPAL PURCHASE — 

1. By the City: 

(a) When Purchase Can Be Made: 

(b) Terms of Purchase: 

2. By Licensee of City : 

(a) When Purchase Can Be Made: 

(b) Terms of Purchase: 

C. CONTROL — 

1. Corporate Autonomy: 

2. Of Service : 

(a) Within Municipality : 

(b) Outside of Municipality : 

3. Of Construction, Maintenance and Repairs: 

4. Of Extensions, Betterments and Permanent Im- 

provements : 

(a) Definitions: 

(b) Within Municipality: 

(c) Outside of Municipality: 

5. Of Capitalization, Financesimd Accounts: 

(a) Ordinary Expenses: 

(b) Securities: 

(c) Bookkeeping: 

6. Methods and Practices: 

7. Use of TrfiLck and Facilities by Other Companies: 

8. Machinery of Control: 

(a) Power, Where Lodged : 

(b) Administration: 

(c) Powers md Duties of Administrative Body : 



70 



Sekvice At Cost Agbeemkjsts 



a CONTROL — cow/mi^cd 

d, ArhUraiion: 

(a) Machinery For: 

(b) Powers of Arbitration Authorities: 

(c) Penalties: 

(d) Expenses of Arbitration: 

D. EMTURN — 

1. Initial Value: 

2. Added Valiie: 

3. Deduclimis From Value: 

4. Rate of Betwm, Normal: 

5. Additional Allowatices: 

6. Assurance of Return : 

E. COST OF SERVICE — 

1. Definition of: 

2. Allowances: 

(a) Operating: 

(b) Maintenance: 

(b-1) Definiiion: 
(b-2) How Fixed: 

(c) Depreciation: 

3. Special Tax and Impost Features: 

F. FARES — 

1. Schedules of: 

2. How Fixed : 

G. TRANSPORTATION OF FREIGHT, EXPRESS, 

ETC.— 

H. SPECIAL PROVISIONS -^ 



Seevice At Cost AoREEME'iSTS 



71 



A. GENERAL CONDITIONS 



1.— LIFE 

Cleveland 

The life of the franchise is 25 years. (Sec. 2.) 

Note. — The grant, amended in some slight particulars was renewed for 
25 years in April, 1919. 

YoUNGSTOWN 

The life of the franchise is 25 years. (Sec. 2.) 

Cincinnati 
In August, 1896, the Company was granted a fifty-year fran- 
chise, which provided for revision at the end of twenty years. In 
1916, the franchise was revised, but the new grant was declared 
unconstitutional in some of its features and the present grant, 
passed in 1918, takes the place of the 1916 revision. The 
original franchise runs until 1946. 

Boston 
The period of public operation specified in chapter 159 of the 
special acts of the Massachusetts Legislature of 1918 is ten years 
from the date when the act took effect, but unless terminated by 
the State continues indefinitely. (Sees. 1 and 12.) 

Massachusetts (General) 
The instrument providing for service-at-cost for Massachusetts 
railways, other than the Boston Elevated Railway Co., and the 
Eastern Massachusetts Street Railway Co., is statute law, and is 
subject, to repeal and amendment by the Massachusetts Legisla- 
ture. No other term is fixed. 

Montreal 

The agreement, entered into in 1918, expires March 24, 1953 
(Art. 24). 

Eastern Massachusetts 
The term of operation under public trustees is ten years from 
the dat« upon which the property was taken over by the new com- 
pany (on May 31, 1919). (Sec. 2.) 



LI 






i 



72 



Sebvice At Cost AoreemfxXts 



At the termination of the period of operation by public trustees, 
the Board of Directors of the New Company shall exercise all 
powers conferred upon the Trustees, not inconsistent with the 
general laws, until the General Court (Legislature) shall other- 
wise determine. (Sec. 13.) 

The IN'ew Company shall at the expiration of the ten-year period 
of operation of public trustees have all the powers and privileges 
and be eabject to all of the restrictions of a street railway com- 
pany organized under the general laws of Massachusetts, and, with 
the consent of the Public Service Commission, may exercise addi- 
tional powers conferred on the Bay State Street Railway Co., by 
the special act, subject to further action by the General Court. 
(Sec. 18.) 

NOTPE. — The Public Service Commission was abolished on December 1, 1919, 
and its franchises were assumed by a new public body — the Department of 
Public Utilities — the new department being a merger of the Public Service 
Commission and the former Gas and Electric Commission. 

Westebville 
The life of the franchise is 25 years. (Sec. 2.) 

The life of the Grant is indeterminate. Unless forfeited, or 
otherwise terminated by law, it ends only with the purchase of 
the property by the City or by a license of the City. (Sec. 38.) 

Memphis 
Service at cost was made effective by an order of the State 
Railroad and Public Utilities Commission, which order is revoc- 
able at the pleasure of the Board. 

2.— RENEWAL 

Cleveland 
When the grant has less than fifteen years to run, the Company 
shall have the right to collect the maximum rate of fare and con- 
trol of schedules passes from the City to the Company, except that 
the City retains its police power to require proper and reasonable 
service. If the Interest Fund exceeds $500,000, the surplus shall 
be applied to the reduction of capital value, by 



Service At Cost Aoreemen^ts 



73 



First, the payment of floating. indebtedness; 

Second, the retirement of such bonds as can under the 
terms of the mortgage be so paid ; 

Third, the creation of a sinking fund for the reduction of 
capital value. (Sec. 38.) 

The City may at any time, either before or after the grant has 
fifteen years to run, renew such grant, " imposing upon the Com- 
pany no substantial burden ... in addition ", and the Com- 
pany must either accept mch renewal, or be deprived of control 
over rates or schedules. "Substantial burden" is defined to 
mean that the grant shall be identical in terms with present grant, 
except as to date of expiration and as the certain provisions of its 
rights- to assign its right to purchase to a third party, or shall 
differ from present grant only in such particulars as shall be 
agreed upon by Company and City. (Sees. 39, 40, 41.) 

The right of the City to propose extensions, betterments and 
permanent improvements ceases when the grant shall have legs 
than fifteen years to run. (Sec. 27.) 

Youn^gstown 

There are no specific provisions for the renewal of the fran- 
chise. 

When the grant has less than 15 yearg to run, the Company 
shall : 

Have sole control over betterments, extension and permanent 
improvement. (Sees. 15 and 18.) 

Have the right to charge such a rate of fare, as will create an 
Amortization Fund, to consist of all surplus receipts remaining 
after operating costs, maintenance, repair and renewals and re- 
turn on capital value, sufiicient with accumulated interest at seven 
per cent, thereon, to extinguish the difference between the esti- 
mated salvage value of the property at the expiration of the grant, 
and the then capital value. The power of the Commissioner ex- 
cept as thus limited, is to continue, and disagreement as to rates 
of fare and salvage value is to be subject to arbitration (Sec 
18.) 

If the grant be renewed, the capital value, fixed therein, shall 
be the capital value fixed by the original grant, increased or de- 
creased as provided for in the original grant. (Sec. 18-A.) 



! 



■861 



74 



» 



Sebvice At Cost Agreements 



Cincinnati 
There is no provision for the renewal of the original franchise, 
but revisions are provided for at the expiration of the first twenty 
years and each fifteen years thereafter. 

Boston 

Public operation and management shall continue after the ex- 
piration of the ten-year period until such time as the Common- 
wealth shall elect to discontinue it. (Sec. 12.) 



^0 provisions. 
No provisions. 
'No provisions. 



Massachusetts (General) 



Montreal 



Eastern Massachusetts 



Westerville 
1^0 direct provisions for renewal are contained in the Grant. 
When the Grant has less than fifteen years to run, control of 
service passes- from the Commissioners to the Company, which is 
authorized to charge any rate of fare, not in excess of the highest 
named in the schedule of fares contained in the Grant. If, later 
the 6rant shall be renewed, for a period of not less than fifteen 
years, nor less than the unexpired term, so that no substantial 
changes shall be made in its provisions, control of the service shall 
revert to the Commissioners, and fares shall be regulated in ac- 
cordance with Grant. (Sec. 7.) 



No provisions. 
See A. 1. 



Dallas 

Memphis 



8.— FORFEITURE 

Cleveland 
If the Company fails to comply with the provisions of the grant 
find the general ordinances of the City, and shall continue in such 
default for six months after written notice has been served upon 
it by the City, it shall forfeit all rights and privileges under the 
grant. (Sec. 43.) 



Service At Cost Agreeme'nts 



75 



YOUNGSTOWN 

If the Company fails to comply with the terms of the grant and 
♦his failure shall continue for six months after written notice 
shall have been served by the City, the City shall have the right to 
assume charge of the property and operate it until the Company 
shall have complied with all terms and conditions of the grant. 
During such period of City operation, the surplus income derived 
shall be paid into the Stablizing Fund. (Sec. 19.) 

Cincinnati 

The Companies shall give an additional bond of $250,000 to in- 
sure the performance of their obligations under the ordinance of 
1896 and the present revision. Failure to so perform their obliga- 
tions renders the ordinance null and void, in so far as it confers 
rights or privileges upon the Companies. The sureties may be 
increased at the instance of the City. (Sec. 28.) 

Boston 
By appropriate legislation, passed not less than two years before 
the date fixed for termination, the Commonwealth may terminate 
public management, either at the expiration of the ten-year period 
or at any time thereafter. (Sec. 12.) 

Massachusetts (General) 

The law may be repealed or amended by the Massachusetts 
Legislature. 

Montreal 
No provision for forfeiture : 

For failure to comply with the terms of the agreement the Com- 
pany is liable to a fine of $40 a day for each day during which the 
noncompliance continues-. The fine is collected through the 
Recorder's Court of Montreal and, in the discretion of the Court, 
costs may be added thereto. The fines collected become the prop- 
erty of the city. In the case that the violation affects only outside 
municipalities, they may proceed through any court of competent 
jurisdiction to collect the fine, and upon collection it becomes the 
property of the municipality, where the failure to comply occurred. 
(Art. 96). 



76 



Sekvioe At Cost Agreemfxts 






Ko provisions. 
Mo provisions. 



Eastern Massachusetts 
Westervillb 



Dallas 

In the event that the City determines to purchase the property, 
or authorizes its purchase by a License, and the Company fails to 
comply with the provisions of the Grant relative to such purchase, 
the Grant shall be forfeited. (Sec. 41.) 

The Grant is forfeited, if the Company fails to comply with 
my or all of the terms of the Grant ; with the general city ordi- 
nances relative to the construction, maintenance or operation of 
street railways lawfully in force at the time of the acceptance of 
the Grant or thereafter adopted; if the Company willfully de- 
faults in the performance of the terms and conditions of the lease 
covering the property of the Northern Texas Traction Co., pro- 
vided in the Grant or collusively permits the termination of such 
lease before the term provided ; or willfully and continuously fails 
to carry out the award of any Board of Arbitration. When the 
Company is in default in any of these regards, the City may serve 
due notice upon it, specifying the default. If default continues 
for six months after the date of such notice, the Board of City 
Commissioners is authorized to declare the Grant forfeited, but 
the forfeiture shall be enforced only in the manner provided in 
the Dallas City Charter. (Sec. 42.) 



See A. 1. 
1.— BY THE CITY 



Memphis 
B. PUBLIC PURCHASE 



(a) When the Purchase Can be Made 

Cleveland 

The City may at any time, upon six months' notice, purchase 
the property, franchises and all rights of the Company. (For 
terms, see B-1 (b).) (Sec. 31.) 

The City may at the expiration of the grant, purchase either the 
entire property of the Company, or that portion of its property 
located within city limits. (For terms, see B 1 (b).) (Sec. 34.) 



Service At Cost Ageeembtxts 



i i 



YOUNGSTOWN 

The City may, upon six months' notice, any time during the 
life of the grant, purchase the property covered by the grant. 
(Sec. 16.) 

The City may purchase the property covered by the grant at 
the expiration of the grant. (Sec. 16-A.) 

Cincinnati 
At any time during the term of the grant, or any renewal or 
extension thereof, upon three months' notice by the City of its 
intention to purchase. (Sec. 25.) 

Boston 

Under provisions of the act, at any time during the period of 
public management and operation; under the State's power of 
eminent domain, at any time. (Sec. 16.) 

Massachusetts (General) 
At any time. 

Montreal 
On March 24, 1953, and at the expiration of every subsequent 
five-year period, upon notice being given six months before the 
date of purchase. 

Eastern Massachusetts 
Under provisions of the Act, at any time during the period of 
operation by Public Trustees ; under the State's power of eminent 
domain, at any time. (Sec. 19.) 

Westerville 

At any time upon six months' notice in writing by the Com- 
missions. (Sec. 15.) 

Dallas 

At any time after ten yeai-s from the date when the Grant bcv 
came effective. (Sec. 38.) 



li 



Memphis 



No provisions. 



78 



Service At Cost Agreemitnts 



(b) Terms of Purchase 



Cleveland 

If the City shall purchase the property of the Company before 
the expiration of the grant, it shall assume the current floating in- 
debtedness of the ccmpaiiy, shall assume, or pay, its bonded in- 
debtedness, shall pay the difference between its bonded indebted- 
ness and its capital value, as determined by the terms of the present 
grant, and, in addition shall pay an additional ten per cent, upon 
the difference between the sum of its bonded and floating indebted- 
ness and its then capital value. If the current obligations, of the 
Company, except those incurred, for extensions, betterments and 
permanent improvements, exceed a sum equal to ten per cent of 
the gross reteipts of the Company for the next preceding calendar 
year, such excess is to be deducted from capital value. (Sec. ai.) 

If the City shall purchase the property at the expiration of the 
grant, it shall be upon the same terms- as are provided for pur- 
chase during the life of the grant, except that ten per cent shall 
not be added to any part of the capital value. (Sec. 34.) 

YOUJSTQSTOWN 

If purchased before the expiration of the grant, the City shall 
by ordinance, provide for a term of twenty-five years, for the 
operation of the interurban, suburban, freight and supply cars of 
the Mahoning & Shenango Eailway & Light Company, over the 
city tracks, at a price to be base on cost of maintenance, 
repair and renewal of tracks and power stations and return 
on investment; it shall provide by contract for the supply of 
steam to the Company from the North Avenue station and the 
maintenance of steam lines and connections thereto ; it shall pay 
for the property covered by the grant, the then capital value, 
either by cash payment or by the assumption of the bonded and 
floating debt and the payment in caeh of the difference between 
this amount and the then capital valua If the City so desires 
the Company shall turn any securities in the Stabilizing Fund 
into cash, and retain the full amount in the fund, deducting this 
from Capital value, or the fund may be retained by the City and 



Service At Cost Agreemfnts 



79 



110 deductions made from Capital value. These terms apply also 
to purchase at the expiration of the grant. (Sees. 16 and 16-A.) 
If within forty-eight months of the time that the grant shall 
take effect, the Mahoning & Shenango Railway & Light Co. shall 
nave organized a new corporation which shall purchase and 
.•perate the property named in the grant, and which shall agree to 
offer for sale to the residents of Youngstown, any securities there- 
after issued by it in accordance with the permission of the City, 
there shall be added to the purchase price ten per cent, of the 
difference between the funded debt of the Company and the Capi- 
tal value at the time of the purchase, if the property be purchased 
before the expiration of the grant, but not if it be purchased at 
the expiration of the grant. (Sees. 16 and 16-A.) 

Cincinnati 
The City may purchase the property in pursuance to the method 
provided by the constitution of the State of Ohio, or upon pay- 
ment of $26,238,950, plus. 

1. The amount required to pay and retire the outstanding Ee- 
ducible Debt. (See E. 1, Third.) 

2. The amount required to retire outstanding car trust certifi- 
cates issued after the date the grant became effective. (See E. 1, 
First.) 

3. The amount required to retire the securities issued to pro 
vide $250,000 of the Reserve Fund. (See E. 1, Eight.) 

4. The amount required to retire securities issued to provide 
for capital expenditures made after January 1, 1917. 

5. Deficiencies in payments from gross revenue required to be 
made by the terms of the grant. 

6. Interest on moneys borrowed to make up such deficiencies. 

MINUS 

1. The balance at the time of the purchase in Depreciation and 
Reserve funds accrued after January 1, 1917. 

2. Payments made after January 1, 1917, into sinking funds 
for securities and notes- issued by the Companies after January 1 
1917. 

3. The sums in the Working Capital Fund (see E. 1, Seventh) 
and the Reserve Fund (see E. 1, Eighth). 



80 



Service At Cost Acjreements 



1 



' 1! . 



I li 



4. The aggr^ate amount paid after Januaiy, 1917, for dam- 
ages and claims, accruing before that date, the City to assuiiie all 
liability for damages and claims made after the date of purchase. 

All cash on hand, and in banks, and bills and accounts receiv- 
able by the Company from its operations-, as well as money to be 
received from the sale of securities and notes to be conveyed to the 
City, which assumes responsibility for outstanding contracts and 
liabilities of the Company and agrees to pay all HUs and accounts 
payable. (Sec. 25.) 

Upon the proffer of the purchase price in gold coin of the 
United States, the Company shall convey its property, as specified 
in the ordinance to the City, assigning to the City all contracts, 
rights, privileges of all persons-, firms or corporations made or 
granted by the Company under the terms of the grant. The pur- 
chase price includes the value of the franchises owned by the Com- 
panies. (Sec. 25.) 

Boston 
Upon the assumption of the Company's outstanding indebted- 
nesg and liabilities and the payment of an amount in cash, equal 
to the amount paid in, in cash, by its stockholders for its stock then 
outstanding. (Sec. 16.) 

Readjustment of this provision in order to meet conditions 
which would arise through the purchase, the terms of which are 
already provided by law previously enacted, of the West End 
Street Railway Company, now leased by the Boston Elevated 
Railway Co., is provided for, but the principle involved is the 
sama (Sec. 16.) 

Massachusetts (General) 
The Commonwealth, city or town, shall pay in cash an amount 
equal to the Cash Investment as defined in the act, plus the amount 
paid in for preferred stock, and shall assume all outstanding 
bonds, contracts, leases and other liabilities of the Company. 
(Sec. 9.) 

The right of the Commonwealth or any city or town to acquire 
the property by virtue of their power of eminent domain is not 
*iffected by the provisions of the Act. (Sec. 9.) 



Service At Cost Agreements 



oX 



Montreal 

The City appoints one arbitrator, the Company another, and a 
third is appointed by a judge of the Superior Court sitting in the 
District of Montreal. These three, disregarding any valuation 
named in the agreement fix a valuation on the property, to which 
is added ten per cent, over and above such valuation. This figure 
constitutes the purchase price, and for it the Company shall con- 
vey to the City, all of its property both in and out the city, includ- 
ing its- franchises and privileges in communities outside the City, 
the value of which shall not, however, be included in the estimate 
of the' arbitrators. (Art. 92, Par. 8.) 

No other municipality than the City shall have the right of 
purchase. (Art. 02, Par. 8.) 

Eastern Massachusetts 
Under the provisions of the Act, upon the assoimption of the 
Company's outstanding indebtedness, and the payment, in cash, 
of an amount equal to the par value of its shares, plus any 
premiums paid in cash therefor. (Sec. 19.) 

Note. — Acquisition of the property under the State's power of eminent 
domain would be made in accordance with the general laws governing such 
acquisition. 

Westerville 

The Company is required to sell at 110 per cent, of the Capital 
Value as of the time of purchase. (Sec. 15.) 

Dallas 

If the City shall purchase at all, it must purchase all, and " not 
less than all " of the Company's property, except that if the City 
has not the legal power to purchase any part of the property lying 
outside of the City limits, it is required to purchase only such 
property as lies within the City limits, together with such prop- 
erty lying outside as it has the legal power to purchase. (Sec. 38.) 

The price to be paid shall be based upon the Property Value of 
the Company as determined by the terms of the Grant. (Sec. 38) 

Tn the event that Company shall have purchased the property 
of the Northern Texas Traction Co., the lease of which is pro- 
vided for in the Grant, the Initial and Added Value of this prop- 
erty as provided for in the Grant, shall be included in Property 



S2 



Seevice At Cost Agkeements 



I 






1;, 



Value : in cage that this property has not been purchased, the lease 
thereof shall be assigned to the City and its- Initial and Added 
Value, with certain readjustments set forth in the Grant shall be 
deducted from Property Value. (Sec. 38.) 

Extensions, Betterments and Improvements addc-l >f Property 
Value, but not paid for shall be deducted from Property Value, 
but the City shall assume obligatione so incurred. (Sec. 38.) 

Property purchased subject to mortgage, with the consent of the 
City, the mortgage upon which cannot be extinguished, shall be 
transferred to the City subject to such mortgage, the amount of 
which shall be deducted from Property Value. (Sec. 38.) 

If in the Property Value at the time of purchase, there shall 
be included Extensions, Betterments or Improvements made 
within the ten years next prior to the date of purchase, and de- 
termined by the Company and Commission at the time under- 
taken, to have been for the purpose of providing for the entrance 
into the City of an interurban road, or to which the Commission 
and the Company shall mutually agree this provision shall apply, 
and there shall not have been earned upon the capital value repre- 
sented by such extensions, a rate of return equal to that earned 
upon the rest of the Property Value, and if during the time be- 
tween the expenditures for such Extensions, Betterments or Im- 
provements, the earnings of the Company shall have been insuf- 
ficient to pay the authorized return upon total Property Value, 
then there shall be added to the purchase price a sum equal to the 
aggregate deficit between the return earned upon the Property 
Value as a whole and that earned upon the Property Value repre- 
sented by such Extensions, Betterments or Improvements (Sec 
40.) 

In the event that City does not purchase all of the property 
lying outside of City limits, the value of such property reached, 
" after taking into consideration the fact of its severance from rest 
of Grantee's property '- shall be deducted from Property Value. 
In its notice to the Company of intent to purchase, the City shall 
list specifically the property it has not the l^al power to piirchase 
and if within three months after the date of such notice. City and 
Company are unable to agree upon the amount to be deducted, the 
question shall be arbitrated. (Sec. 38.) 



Service At Cost Agreements 



83 



The City may elect to assume, in lieu of cash payment, any or 
all of the bonds and other evidences of indebtedness, secured by 
lien, on account of Property Value. If so, the amount, together 
with accrued interest, shall be deducted from Property Value. 
(Sec. 38.) 

All of the Keserves provided for in the Grant, and property 
purchased with money taken therefrom, become the property of 
the City. This includes Working Capital, except such amounts 
as are due and applicable to return on Capital Value, due to the 
Company. (Sec. 38.) 

Cash on hand, derived from securities or borrowed for the pur- 
pose of making Extensions, Betterments and Improvements, shall 
be treated as if actually expended and shall pass to the City as 
part of the property purchased. (Sec. 38.) 

Because the Reserves become the property of the City, the City 
assumes liability for all payments chargeable either to the Re- 
serves or Operating Expenses. The City assumes the Company's 
obligations, both of contract and of tort " so far as incurred in the 
ordinary and proper conduct of the Grantee's business- hereunder," 
except as to bonds or other indebtedness not assumed by the City 
as a part of the Purchase Price not a lien upon the property, or 
such additions to Working Capital as are included in Property 
Value. (Sec. 38.) 

The price to be paid by the City for the property shall equal 
the then Property Value, as determined in accordance with the 
foregoing, plus five per cent of Property Value and plus an addi- 
tional five per cent of the Property Value added during the ten 
years next prior to the date of purchase. (Sec. 38.) 

The City, electing to purchase, shall serve six months' notice 
on the Company specifying a date (not more than twelve months 
from the date of such notice) when the property shall be turned 
over to it. (Sec. 38.) 

If the Company fail? to turn over the property in accordance 
with the terms of the Grant, after such notice, the Grant is for- 
feited. (Sec. 41.) 

If the City shall elect to pay cash for the property and not 
assume any of the Company's funded debt, in part payment, it 
shall deposit with the Trustees of the first mortgage provided for 



i' 

> 1 



nm 



84 



Sebvic'e At Cost Agreements 



in the Grant, the amount of the purchase price in cas^h to be held 
for the benefit of the bondholders and the Company as their 
respective interests may appear. Such deposit shall act as a dis^ 
charge of all liens against the property under mortgages secured 
by the bond is^^iies. (Sec. 38.) 

Fnless the Courts decide that the provisions of the Grant as to 
purchase do not apply, the City may not purchase the property 
in any other manner than in that set forth in the Grant 
fSec. 88.) 

Memphis 

No provisions. 

8.— BY LICENSEE OF CITY 

(a) When Purchase Can Be Made 

Cleveland 

The City may grant its right of purchase at any time to a 
licensee, who shall agree to accept a rate of return, not lese than 
a quarter of one per cent, lower than that fixed in present grant 
Such licensee shall be designated by competitive bidding, in which 
the Company shall be allowed to participate. (Sees. 32 33 ) 

If at the expiration of the grant, the City shall not purchase 
the property, it shall have the right to grant a franchise for its 
operation to other person or persons, who shall purchase the prop- 
erty of the Company on the same terms, as are provided for Citv 
purchase. (Sec. 37.) 

YOUNGSTOWN 

'No provisions. 
No provisions. 
No provisions. 
Ho provisions. 
No provisions. 
Ko piroviiioni. 



Service At Cost Agkeements 



85 



Cincinnati 

Boston 

Massachusetts (General) 

Montreal 
Eastsbn Massachusetts 



Westerville 
No provisions. 

Dallas 

At any time after ten years from date when Grant became 
effective. (Sec. 39.) 

Memphis 
No provisions. 

(b) Terms of Purchase 

Cleveland 
If a Licensee shall acquire the property of the Company, it 
shall be upon the same terms as are provided for city acquisition 
(Sec. 33.) 

If at the expiration of the grant, a subsequent grantee, shall 
purchase the property of the company, it shall be upon the same 
forms as are provided for City purchase. (Sec. 35.) 



No provisions. 
No provisions. 
No provisions. 
No provisions. 
No provisions. 
No provisions. 
No provisions. 



Youngstown 

» 

Cincinnati 
Boston 

Massachusetts (General) 

Montreal • 
Eastern Massachusetts 
Westerville 



Dallas 
Before designation by the City, the Licensee must deposit with 
Hie City a sum equal to 10 per cent of the then Property Value 
of the Company. Should the Licensee fail to acquire the prop- 
erty of the Company within tbi-ty days after the date set in the 



86 



Service At Cost Agkeements 



notice to the Company, or, in the event of bona fide legal pro- 
ceedings or other events over which the Licensee has no control, 
within thirty days from the date of release from such restrictions, 
the Commissioners shall by resolution declare such deposit for- 
feited. In that event, 50 per cent of the amount shall be paid 
into the City Treasury for us© for general city purposes, and 50 
per cent shall be paid to the Company, which after discharging 
any expenses incurred by reason of the purchase proceedings, 
shall deposit the remainder in Surplus Eeserve. It is provided 
that the Company shall save the City harmless by reason of this 
payment. (Sec. 39.) 

The purchase of the property by any licensee of the City shall 
be subject to the same rights of purchase either by the City, or 
by a licensee of the City, as are established by the original Grant. 
(Sec. 39.) 

In the case of purchase by a Licensee, the City reserve the right 
to amend the Grant in any manner it may desire, except that the 
highest rate of fare permitted shall not be in excess of that per- 
mitted to be charged by the original Grantee. (Sec. 40.) 

In the event of purchase by Licensee the deed of conveyance 
given by the Grantee may stipulate that the conveyance is made 
subject to the assumption by the Licensee of all liabilities of 
Reserves or Operating Expenses, and all obligations of the Com- 
pany, and the Grantee may retain a lien upon the property to the 
extent of this obligation assumed by the Grantee; or, the Grantee 
may require from the Licensee a liability bond, sufficient to cover 
any loss arising from the failure of the Licensee to discharge such 
obligations. (Sec. 39.) 

In other regards, except as to the Purchase Price, the terms 
of sale are the same as that covering purchase by the City. [See 
B. 1, (a).] (Sec. 39.) 

The price to be paid by the Licensee for the property shall equal 
the then Property Value, as determined in accordance with the 
provisions* of the Grant, plus 10 per cent of the then Property 
Value and plus an additional 5 per cent of the Property Value 
added during the ten years next prior to the date of purchase. 
(Sec. 39.) 



Service At Cost Ageeements 



87 



The providon as to the addition to Purchase Price, to care for 
deficits in return on additions made during the ten years next 
prior to the date of purchase on account of the furnishing of facil- 
ities for the entrance into the City of interurbans, or on other 
additions agreed upon between the City and the Company, as it 
appears under B. 1. (a), applies to a purchase made by a Licensee. 
(Sec. 40.) 

Memphis 
"No provisions. 

C. CONTROL 

1.— CORPORATE AUTONOMY 



Cleveland 

The autonomy of the corporation is assured by the following 
provision : 

Nothing in this ordinance contained shall operate as an abridge- 
ment of the corporate rights or powers of the Company, nor of the 
discretion of its board of directors in the selection of managers 
and employes, or any one performing any duties imposed upon 
the company and its officers by law; nor shall anything herein 
contained be deemed a limitation upon the amount of capital 
stock which shall be issued by the Company, or indebtedness 
incurred by it. The Capital Value fixed by Section 16 hereof is 
for the purpose of determining the return to the Company from 
the carriage of passengers, and for the purpose of fixing, from 
time to time, the rate of fare and the price at which the purchase 
of the property of the Company may be made. (Sec. 37.) 

The Company may, without the consent of the City, issue and 
sell its capital stock, or increase its bonded or floating debt ; but 
no increase in capital stock or bonded or floating indebtedness 
by the Company shall be considered a part of Capital Value for 
the purpose of fixing the return to the Company, unless made pur- 
suant to the provisions of the Grant or with the consent of the 
City. (Sec. 16.) 

YOUNGSTOWN 

The autonomy of the corporation is assured by the following 
provision : 



( 



88 



Service At Cost Aokeeaients 



Service At Cost Agreements 



89 



N'othing in this ordinance contained shall operate as an abridge- 
ment of the corporate rights or powers of tlie Companies, nor of 
the discretion of their hoards of directors in the sdection of 
managers and employes, or anyone performing any dnties imposed 
upon said Company and its officers hy law; nor shall anything 
herein contained be deemed a limitation npon the amount of cap- 
ital stock which shall bo issued by the Company, or indebtedness 
incurred by it except to the extent limited by that part of section 
16, which applies to the segregation in a new corporation of the 
• lines and property covered by this ordinance if said Company 
shall in the terms thereof elect to so s^regate said property. The 
Capital value fixed by sections 10 and 10-A hereof is for the sole 
purpose of determining, first, the return to the Company ; second, 
for the purpose of fixing, from time to time, the rate of fare; and, 
third, the price at which the purchase of the property of the Com- 
pany covered by this ordinance shall be made. (Sec. 17.) 

Cincinnati 
No specific provision for corporate autonomy is included, 
although the jurisdiction of the City over certain specified funds 
is? waived. 

Boston 

The Company practically surrenders its corporate autonomy. 
A Board of Directors is retained, elected bv the stockholders, but 
the President, Treasurer, Clerk and all other officers of the Com- 
pany are appointed and may be removed by the Public Trustees. 
The Directors shall '* have no control over the management and 
operation of the street railway system, but its duties shall be con- 
fined to maintaining the corporate organization, protecting the 
interests of the Corporation so far as necessary, and taking such 
action from time to time as may be deemed expedient in cases, if 
any, where the Trustees cannot act in their place." (Sec. 4. ) 

The Trustees shall allow the Board of Directors from each vear 
such sum as may be deemed reasonable to provide for the cor- 
porate organization and enable the Board of Directors to perform 
itfi duties. (Sec. 4.) 



Massachusetts (General) 
The act does not directly provide for corporate autonomy. It 
does provide that the Governor shall, with the consent of his- Coun- 
cil, appoint three Directors to the Board of Directors of any Com- 
pany, accepting the act. These Directors shall have all the powers 
of any directors, and if the Board shall have any Executive Com- 
mittee, Finance Committee, or any other Standing Committee, 
one such Director shall be a member thereof. It further provides- 
that the by-laws of the Company shall provide for monthly meet- 
ings of the Board. (Sec. 10.) 

Montreal 

No direct provision for corporate autonomy, although this is 
implied by the terms of the agreement. The Company is, how- 
ever, restrained from carrying on any other kind of business- than 
that provided for in the agreement (Art. 27), and is forbidden 
to sell, lease, transfer or cede any part of its systems, or the rights 
conferred upon it by franchises* or agreements (Art. 25). 

The Company shall establish and maintain its plants, work- 
shops and principal offices within the City limits and shall build 
and manufacture within the City limits any part of the materials 
used by it, which, in the opinion of the Commission can be manu- 
factured advantageously within the City limits (Art. 87). 

Eastern Massachusetts 

The autonomy of the company is practically surrendered. Its 
shareholders elect a Board of Directors, but the Trustees have the 
right to appoint and remove, at their discretion, the President, 
Vice-President, Treasurer, Clerk and all other officers of the Com- 
pany, excepting the Board of Directors. The Trustees are author- 
ized by the Act to exercise " all the rights- and powers of the New 
Company and its Directors and shall receive and disburse its 
income and funds." (Sec. 11.) 

The consent of the Board of Directors to contracts for con- 
struction, acquisition, rental or operation of new lines-, or the 
extension, sale or lease of existing lines, is necessary, unless the 
Public Service Commission shall determine that public necessity 



90 



Service At Cost Agreements 



and convenience requires such contracts and that they do not impair 
the return upon securities issued under the authority of the Act. 
(Sec. 12.) 

The New Company, its stockholders and Directors, shall be 
presumed to have authorized any issue of securities made by the 
Trustees and are in addition required to give their formal consent 
if that he considered necessary. (Sec. 13.) 

Westerville 

There are no specific provisions in the Grant covering the ques- 
tion of Corporate autonomy. There are, however, no restrictions. 

Dallas 

"The Grantee may at any time refund its bonds, issue securities 
(stocks and bonds, or either of them), and incur such indebtedness 
(and at its option issue notes therefor) in any lawful manner, and 
to any lawful extent and secure the payment of any bonds or other 
indebtedness by a mortgage or mortgages on the property of 
Grantee, including its rights under said lease from Northern 
Texas Traction Company, or any part thereof, the City hereby 
conferring upon Grantee all necessary authority therefor ; and it 
is expressly agreed that in dealing with the Grantee, its success- 
ors and assigns, or with its property, the City shall in no wise 
(except in case of purchase by the City or a Licensee of the prop- 
erty operated hereunder and then only as hereinafter provided) , 
be in any way concerned with any of the indebtedness or securi- 
ties of the Grantee, but shall consider and be concerned only with 
the Property Value of the property of the Grantee as herein 
defined, which Property Value shall never be changed by the City 
or the Grantee except pursuant to the provisions of this ordinance; 
provided, however, that the Grantee shall not issue bonds or other 
evidences of indebtedness secured by a lien on its property exceed- 
ing in aggregate par value eighty-five per cent (85%) of the Prop- 
erty Value. The City covenants, nevertheless, that it will from 
time to time by resolution of the Board of Commissioners give 
confirmatory authority for or certificate of approval of securities 
issued or to be issued by Grantee whenever requested by Grantee ; 



Service At Cost Agreements 



91 



but no such confirmation or approval shall ever have any opera- 
tion or effect upon the Property Value, nor affect the liability or 
obligation of the City or Licensee, in case of a purchase of the 
Grantee's property." (Sec. 19.) 

The rights, privileges and franchises conferred by the Grant 
may not be sold or assigned without the consent of the Board of 
Commissioners. (Sec. 44.) 

The principal offices of the Company shall always be main- 
tained in Dallas. (Sec. 11.) 

The Company may not amend the lease provided in the Grant 
for the Dallas Terminal and may not execute a new lease. Tt may 
renew and extend the old lease. (Sec. 37.) 



Memphis 



No provisions. 



2.--0F SERVICE 

(a) Within Municipality 

Cleveland 
The control of the City over s-ervice is absolute, except that 
when it is claimed by the Company that the service required by 
the City cannot be rendered within the revenue provided by the 
highest rate of fare provided in the grant, such additional service 
may be discontinued, on the award of a Board of Arbitration. 
The language of the grant is : 

" The City reserves to itself the entire control of the service, 
including the right to fix schedules and routes, including routes 
and terminals of interurban cars, the character of the cars, the 
right to increase or diminish the service." (Sec. 9.) 

Young STOWN 
The grant reads : " The City reserves to itself the entire con- 
trol of the service, including the right to fix schedules and routes, 
character of new cars and the right to increase or diminish service 
* * *." The execution of the right is lodged in the City Coun- 
cil, but the Commissioner may temporarily approve changes, to 
be effective until the Council otherwise orders. The question as 



^^ 



92 



Service At Cost Agreements 



if 



to whether the service pres<!ribed can be carried out under existing 
rates of fare, or a higher rate of fare is subject to arbitration. 
(Sec. 6.) 

Cincinnati 
The City reserves the control of the service on all routes, 
including the right to fix schedules and stopping points, the type 
of cars, transfer regulations and the fixing, changing and exten- 
sion of routes. The prescriptions of the City shall be enforced in 
any court of competent jurisdiction and the Companies may 
defend, only on the ground that the requirements of the City are 
impossible under budget allowances if the Company is to perform 
its- corporate obligations, maintain its organization and perform 
the duties imposed upon it by the Grant. In the case of require- 
ments involving capital expenditure, the Company may defend 
upon the ground that acting diligently and in good faith it is 
unable to provide the funds required. (Sec. 8.) 

m 

w 

BOSTOH- 

The control of service lies entirely with the Board of Trustees. 
The act provides that they " shall determine the character and 
extent of the service and facilities to be fumiehed, and in these 
respects their authority shall be exclusive and shall not be subject 
to the approval, control or direction of any other State Board or 
Conmiission." (Sec. 2.) 

Massachusetts (General) 
Except as the Act provides, the Companies are subject to the 
general laws of the State relating to street railway companies. 
Control and regulation of service is, therefore, lodged in the State 
Public Service Commission. (Sec. 1.) 

Montreal 
The Montreal Tramways Commission shall determine speed of 
cars, stopping and transfer points, service and frequency of serv- 
ice, and may allow a speed in excess of that fixed by law (Art. 
54). The Company may not change its routes without the con- 
sent of the Commission (Art. 55). It may not operate combined 






Service At Cost Agreements 



9S 



passenger and freight cars without the consent of the Commission 
(Art. 57). The Commission shall determine the number of pas- 
sengers that each car may accommodate (Art. 63). The Com- 
mission may establish rules for the transportation of freight, 
determine the character of the freight to be so transported and 
order the Company to establish loading and unloading places 
(Art. 83). Establish the limits of average density per car-mile 
(Art. 92, Par. 1). The Company may not allow the use of its 
tracks by another company, or connect its tracks with those of 
another company without the cons-ent of the Commission (Art. 
28) ; width of space between tracks, radius of track curvature on 
streets, projection of ties outside rails, width of rolling stock, 
types of cars and their accessories, type and location of poles, 
location of tracks in streets, weight and type of rails, stop signs, 
lighting and heating of cars, weight of both passenger and freight 
cars, maximum permissible load of freight cars, numbering of 
cars and number of cars per train are subject to the approval of 
the Commission (Art. 53). The Commission shall locate transfer 
points at which agents are to be placed by the Company and indi- 
cate agent's duties (Art. 56). The Commission shall approve the 
placing of illuminated route and destination signs on all cars 
(Art. 61). 

The agreement itself requires that conductors and agents speak 
English and French and call in both languages the names of 
streets (Art. 59) ; shall provide each car with a gong (Art. 60) ; 
shall ventilate and keep clean its cars (Art. 62). 

Eastern Massachusetts 
The Trustees shall determine the character and extent of the 
service and the facilities to be furnished. Their authority in this 
respect is exclusive, as to joint service with connecting companies 
other than with the Boston Elevated Railway Company, in which 
instance the Public Service Commission has authority. Upon the 
request of the Mayor of a City, the selectmen of a town, or twenty 
of the patrons of- the road, the Trustees must hold a public hearing 
for the presentation of complaints as to service, but after such 
hearings they may take such action in the premises as they see it 
(Sec. 11.) 



94 



Service At Cost Agreements 



Service At Cost Agreements 



05 



Westervillb 
The Commission has control of service, including the alteration 
of schedules, the increasing and diminishing of service and the 
estahlishment of stops. The Commission shall not require service 
to an extent which will not produce revenue sufficient to make 
good loss in Working Capital. When the Grant has less than 
fifteen years to run, and until it shall he renewed for not less than 
fifteen years, control of the service shall rest with the Company. 
(Sec. 7.) 

Dallas 

The Commission shall decide the design and equipment of cars 
and has the power to order improvements therein, to the end that 
they shall he safe, comfortahle and convenient; it shall prescribe 
schedules and stops. If the Company contends that any order pre- 
scribing service jeopardize the ability of the Company to earn, 
at the highest permissible rate of fare, the return to which the 
Company is, under the Grant, entitled, the question as to whether 
such orders shall be enforced shall be arbitrated, but the decision 
of the Arbitration Board shall not prevent the City from exer- 
cising such control over service as is given to it by the provisions 
of the City Charter. (Sec. 10.) 

'No trackg, or operation thereon, shall be abandoned without 
the consent of the Board of Commissioners. (Sec. 30.) 

Memphis 

The State Eailroad and Public Utilities Commission has ex- 
clusive control of the service. The service at cost order provides 
that until further ordered the Company shall provide each month, 
not less than .155 nor more than .185 passenger car miles for each 
revenue passenger carried. 

(b) Ontdde of MnnidpaHt^ 

Cleveland 

The Company shall perform existing contracts with commu- 
nities outside of the City limits, but shall not increase service 
above, or reduce fares below the requirements of such contracts. 
In case of dispute as to such requirements, the matter shall be 



decided by arbitration if the outside community affected consents, 
the City to appoint one arbitrator, the community another and the 
third to be appointed as in the case of other Arbitration Boards. 
(See C-6-(a).) (Sec. 29.) 

YOUNQSTOWN 

The Company is given the right to operate interurban, sub- 
urban, freight and supply cars over the city tracks, upon payment 
of the actual cost per car-mile for power, maintenance, repair and 
renewal of track as determined for city cars, plus interest on 
investment and taxes. In the event of the purchase of the prop- 
erty by the city, it is agreed that provision shall be made for a 
continuance of these rights for a period of at least 25 years. The 
interurban and suburban cars of the Company, shall not carry 
passengers to and from points in the city unless directed to do so 
by the Commissioner. Damages resulting from the operation of 
such cars shall be paid by the Company, but the relative liability 
for such accidents shall be determined and the portion adjudged 
to be due to the property or employes of the city lines shall be 
paid to the Company out of operating expenses, the apportionment 
to be made by the Company, the Commissioner and the City 
Solicitor. In the event of a disagreement it shall be arbitrated. 
Repairs to cars and equipment not included in city property may 
be made by the Company in the Haselton Shops, work and 
materials to be supplied at actual cost, to be paid each month. 
At the end of each six months, the Company shall pay into gross 
receipts from city operation an agreed upon amount for overhead 
and maintenance. (Sees. 11-B and 11-E.) 

The Company agrees to permit the operation of city cars over 
the Youngstown and Sharon Line (a suburban line), at the same 
charge per car-mile as is agreed upon for the operation of inter- 
urban and suburban cars over city lines. (Sec. 11-E.) 

The type of all suburban, interurban, supply and freight cars 
used by the Company, shall be subject to the approval of the city. 

Cincinnati 
No provision& 

Boston 

Powers of Trustees extend over entire system. 



96 



Sebvice At Cost Agreements 



Massachusetts (General) 
Public Service Commision has jurisdiction. 

Montreal 
The same control is exercised by the Commission outside of the 
city of Montreal as in the city, except that the right of 
municipalities outside of the City to exact the routes and fre- 
quency of service to which they are entitled by their contract with 
the Company is provided for (Art. 34). 

Eastern Massachusetts 
Powers of Trustees extend over entire system. 

Westerville 

The cx>ntrol of the Commission is over all service in Franklin 
County. The Commission has no control over such portions of the 
Company's lines as* are situated in the city of Columbus, Ohio. 

Daixas 
Control exercised by Commissioners extends to lines outside of 
City Limits. 

Memphis 

The Utilities Commission exercises jurisdiction irrespective of 
municipal limits. 

S.— OF CONSTRUCTION, MAINTENANCE AND REPAIRS 



No provisions. 
No provisions. 
No provisions. 
No provisions. 

No provisions. 



Cleveland 
youngstown 
Cincinnati - 
Boston 

Massachusetts (General) 



Service At Cost Agreements 



97 



Montreal 

" The Company, on the order of the Commission and within 
the delay fixed by it, shall make to its lines, to the pavements 
imder its care, to its rolling stock or to anything else pertaining 
to its system, either within or without the limits of the City, all 
necessary modifications, additions, reconstructions, alterations or 
repairs" (Art. 38). 

The Commission is empowered to adjudge that a line or a part 
of a line is useless and order the Company to remove track, line 
and other appurtenances' and to reconstruct pavement and side- 
walks. If the Company is negligent in carrying out such order, 
the municipality affected may, with the consent of the Commis- 
sion, do the work and charge the cost to the Company (Art. 39). 
The Commission shall approve the type of rail, other than T-rail 
(the use of which is forbidden) to be substituted in streets about 
to be paved with any other than plain macadam pavement (Arts. 
43, 52). The Commission shall direct the resetting of poles and 
tracks, in the case of street widening (Art. 44). 

The City Engineer shall set the grades to be used in track con- 
struction in conformity vsdth the street grades (Art. 39). The 
City shall specify the kind of pavement to be used replacing pave- 
ment torn up for track construction or reconstruction, except that 
if the pavement specified exceed in cost that removed, the Com- 
pany may recover the difference from the City (Art 41). The 
Company is compelled to provide drainage for its tracks, subject 
to the approval of the City Engineer (Art. 50). 



No provisions. 



No provisions. 



No provisions. 



No provisions. 



Eastern Massachusetts 



Westerville 



Dallas 



Memphis 



98 



Sebvice At Cost Agbbements 



f 



4.— OP EXTENSIONS, BETTERMENTS AND PERMANENT IMPROVE- 
MENTS 

(a) Deflnitioiis 

Cleveland 
Extensions, Betterments and Permanent Improvements, in con- 
tradistinction to Maintenance, Kenewals and Replacement are 
defined to mean : 

The acquisition, construction and equipment of additional Imes 
of street railway, power housee, switches, sidings, car houses, 
shops, rolling stock, machinery and other property, or additions 
to existing equipment, or difference between new cost of new 
sources of power, or new methods of propulsion, and the cost of 
the source of power or method of propulsion replaced, if new at 
the time of replacement, and all expenses incident to such con- 
struction and acquisition ; and also, whenever any property of the 
company is replaced by other property at a greater cost than would 
be the first cost of such property, if purchased at the time of 
replacement, then such excess cost shall be deemed an Extension, 
Betterment or Permanent Improvement within the meaning of 
those words as used in this ordinance. (Sec. 26.) 

Toitngstown 
Betterments, Extensions and Permanent Improvement in con- 
tradistinction to Maintenance, Repairs and Renewals are defined 
to be: 

The acquisition, construction and equipment of additional lines 
of street railway, switches, power houses, sidinge, car houses, 
shops, rolling stock, machinery, stations and other property or 
additions to existing lines and equipment. It ehall also be held 
to mean and include the difference between cost of new sources of 
power and method of propulsion, and the cost of the sources of 
power and method of propulsion replaced as if the same were new 
at the time of replacement, and all expense? incident to such con- 
struction and acquisition, and also whenever any property of the 
Company is replaced by other property at a greater cost than 
would be the cost of such property so superseded or replaced, if 



Service At Cost Agreements 



99 



purchased at the time of replacement, then such excess cost shall 
be deemed a Betterment, Extension of Permanent Improvement 
within the meaning of those words as used in this ordinance. 

Cincinnati 
The grant contains no definition of Extensions, Betterments and 
Permanent Improvements, excepting that the I. C. C. Uniform 
System of Accounts is prescribed. 

Boston 

The act contains no definition of Extensions, Betterments or 
Permanent Improvements. 

Massachusetts (General) 

The Act contains no definition of Extensions, Betterments and 
Permanent Improvements. 

Montreal 
There is no definition of either Extensions, Betterments or 
Permanent Improvements contained in the agreement. 

Eastern Massachusetts 
The Act contains no definition of Extensions, Bettermer.t« and 
Permanent Improvements. 

"Westerville 

The Grant contains no definitions of Extensions, Betterments 
and Permanent Improvements. 

Dallas 
" The words ^ extensions, betterments and improvements * are 
used in contradistinction to repairs to and maintenance, renewals 
and replacements of property. They shall be held to mean and 
include additions to or betterments of existing, and acquisitions, 
construction, additions to or betterments of new lines of street 
railway tracks, switches, sidings, overhead trolley and feeder sys- 
tems, signal systems, street paving, street, sidewalk and other 
special or local improvements, power houses, substations, eai 



100 



Sebvice At Cost Agreements 



bmses, shops, machinery, rolling stock, tools, appliances, miscel- 
laneous equipment, transmission lines, real estate, buildings and 
oUier property, including additional track, or tracks on streets or 
places at any time occupied by track or tracks operated hereunder:- 
and w.tho,,t hmitation by the preceding enumeration, general^ 
shall include all expenditure, not properly chaigeable to operating 
^penses or not properly chargeable to or paid out of the Repair 
Maintenance and Depreciation Reserve, but shall not include any 
interest on the Grantee's indebtedness other than interest during 
construction as herein provided." (See. 1.) 

« The word ' extensions ' (as distingiiished from betterments 
and improvements) shall be held to mean and include new or ad- 
nitional street railway lines." (Sec. 1.) 



Sebvice At Cost Aobbembnts 



101 



No definition. 



Memphis 



(b) Within Mnnicipalil^ 

Cleveland 
Extensions, Betterments and Permanent Improvements, may be 
proposed by either the City or the Company. If proposed by the 
Company, they must be approved by the City, if the Cost ie to be 
added to Capital Value. If proposed by the City, thev must be 
earned out by the Company, unless a Board of Arbitration shall 
decide that the ability of the Company to earn its fixed return is 
J«.pard,zed, or that the Company is unable to finance them, 
(oec. 27.) 

The City has the right of supervision over the construction of 
all eTtensions, betterments and permanent improvements. (Sec. 

YoUNGSTOWir 

The Companj agrees to provide and spend within Rye years 
for aich Extensions, Betterments and Permanent Improvements 
as tue iAtj may designate the sum of $750,000. (Sec IS-A ) 

Betterments, Extensions and Permanent Improvements may be 
proposed by either the City or the Company. If the cost of those 
proposed by the Company is to be charged to Capital Value, they 
must be approved by the City. If proposed by the City, or ap- 
proved by the Cily, they shall be carried out by the Company S 



the Company can procure by the sale of its securities, or by an 
increase in its floating debt, the necessary funds ; unless, the Com- 
pany shall claim that the carrying out of the plans will impair its 
present or future ability to earn the return stipulated in the grant, 
or that it is unable to finance the plan at the return allowed by the 
City. These contentions are subject to arbitration. (Sees. 15-B 
and 15-C.) 

The Commissioner shall have the right to check all estimates 
made by the Company for Extensions, Betterments and Improve- 
ments and shall supervise the work of carrying out the plans. 
He may incur any necessary expenses in preparing estimates for 
the City. If the plans are actually carried into effect, the ex- 
penses so incurred shall become a part of the capital cost of such 
undertaking and shall be paid by the Company, provided they do 
not exceed one-half of one per cent of the total cost. If the en- 
terprise is not carried out such expenses shall be paid as an 
operating cost. (Sec. 15-D.) 

Cincinnati 

The provisions of the Grant covering the making of Extensions, 
Betterments and Permanetnt improvements, reads: 

" Changes of routes and extensions- thereof and new and addi- 
tional lines of roads or routes shall be made by the Companies 
when ordered by ordinance of the Council if and when Council 
may be empowered to require the same under the terms of this 
Ordinance, Charter of the City and Laws of the State of Ohio." 
(Sec. 8.) 

"All new construction, reconstniction, renewal, replacement and 
repair of routes made by the Companies in or upon the streets, 
avenues, alleys, public ways and grounds of the City shall be done 
in conformity with the ordinances of the City now in force and 
effect or which may hereafter be passed and enacted regulating or 
respecting the opening, closing and repairing of the streets, etc., 
tracks and other construction made after the taking effect of the 
grant, shall be of a type approved by the proper boards of officers 
of the city, before permits for such construction or reconstruction 
shall be issued." (Sec. ^,) 






Sebvice At Cost Agbeements 



t • 



1 1 



9; 



]{■ 



I 



Service prescribed by the City, which involves capital expendi- 
ture, may be objected to by the Companies, in which case the City 
may prosecute an action in any court of competent jurisdiction, 
for enforcement of its orders, and the Companies may defend only 
upon the ground that in good faith and using all usual means it 
's unable to finance the preecribed expenditures. (Sec. 8.) 

Boston 
The State's control is complete, except that contracts for the 
operation or lease of subways, elevated or surface lines, or exten- 
sions thereof beyond their present limits, may not be made if they 
involve the payment of rentals or other compensation by the Com- 
pany, after the period of management and control by the State, 
unless consented to by the Company's Board of Directors. How- 
ever, surface lines may be constructed, or purchased, beyond the 
limits of existing lines even should the Board of Directors refuse, 
if after a public hearing, the Board of Trustees decide that pub- 
lic necessity and convenience requires their construction or opera- 
tion. This power lapses, when the Commonwealth has passed 
legislation providing for the termination of public control and 
operation. (Sec. 3.) 

Massachusetts (General) 

(This Act provides for State control, regardless of municipal 
boundaries) : 

Except as the Act provides, the Companies are subject to the 
general laws of the State relating to street railway companies. 
Therefore, there is only such control over extensions, betterments 
and improvements as was lodged in the Commission, previous to 
the passage of the Act (Sec. 1), except as to improvements made 
under the provisions for a special Improvement Fund, in amount 
required by the Public Service Commission, but not to exceed five 
per cent, of Capital Investment, raised through the sale of bonds, 
«tock, or preferred stock, and fully subscribed within sixty days 
after the determination of Capital Investment. The plan for the 
expenditure of this fund shall be prepared by the Company and 
submitted to and approved by the Commission. (Sec. 8.) 



Service At Cost Agreements 



103 



Montreal 

" In its operation, the Company shall be on the look-out for all 
improvements and betterments relating to any part whatever of its 
system, both within and without the limits of the City, including 
its rolling stock, as may prove to be of recognized advantage, and 
it must adopt the same when so ordered by the Commission and 
within the delay fixed by it " (Art. 32). 

The Company was compelled to construct certain specified 
double-track lines during the first year in which the agreement 
was in force (Art. 33). 

The Company is compelled to build and operate any lines, pro- 
posed by the City, by any municipality outside the City, or by 
itself, if the Commission decides that such lines are required by 
the needs of population and of traffic and if general financial con- 
ditions permit. The Commission of its volition may require the 
construction and operation of any new line, which it deems neces- 
sary, if general financial conditions permit. In each case the 
Commission shall fix the time within which the work shall be com- 
pleted (Art. 34). The Company may not construct any new line 
without the authorization of the Commission (Art. 35). The 
Commission may order modifications, additions, alterations, re- 
constructions or repairs to lines, pavement, rolling stock, or any- 
thing else pertaining to the Company's system (Art. 38). 

Eastern Massachusetts 
In the case of contracts for the construction, acquisition, rental 
or operation of new lines, or the extension of existing lines, the 
consent of the Board of Directors of the Company is necessary, 
unless the Public Service Commission shall decide that public 
convenience and necessity require the extension and that the re- 
turn upon securities, issued under the authority of the Act, will 
not be impaired. The right of appeal to the Supreme Judicial 
Court of Appeals rests with the Company. (Sec. 12.) 

Westervilxb 
^ The Company is required to rebuild a certain portion of its 
line, in accordance with the specifications for "boulevard con- 
struction," as set forth in the Grant, at such time as the Commis- 
sions shall improve the highway in which the tracks of the Com- 
pany are located. (Sees. 6 and 14.) 






104 



. Sebvice At Cost Agbeements 



All other Extensions, Betterments and Permanent Improve- 
ments, may be proposed by either the Commissioners or the Com- 
pany. If proposed by the Company, they must be approved by 
the Commissions, if the cost is to be added to Capital Value. If 
proposed by the Commissioners they must be carried out by the 
Company, unless a Board of Arbitration shall decide that the 
ability of the Company to earn its fixed return is jeopardized, or 
that the Company is unable to finance them. (Sec. 14.) 

Dallas 
Extensions may be ordered by the City or proposed by the Com- 
pany. The order or proposal shall be accompanied by a requisi- 
tion, setting forth in reasonable detail the cost of the proposed pro- 
ject, and if necessary to a dear understanding the Grantee ehall 
furnish specifications and plans in further detail. In the case of 
" Extensions," as distinguished from " Betterments and Improve- 
ments,'* approval must be given by the Board of Commissioners. 
In the case of « Betterments and Improvements," the Supervisor 
may act if he so desires without approval of the Board. The 
Supervisor or Commissioners, as the case may be, must within 
thirty days from the receipt of the requisition, either approve or 
disapprove it. Failure to act within thirty days shall be taken as 
approval. The Company, before proceeding with work, is re- 
quired, if necessary, to secure the approval of abutting property 
owners. If the Company contends that any Extension, Better- 
ments or Improvement ordered by the City with jeopardize its 
ability to earn the stipulated Return under the highest fare 
allowed by the Grant, the matter of making the proposed Exten- 
sion, Betterment or Improvement shall be arbitrated. Ko decision 
of an Arbitration Board shall, however, relieve the Company from 
its obligation to constnict, not to exceed two miles of line per 
year, when ordered so to do by the City under a State law cover- 
ing the question, nor to relieve the Company from its obligation to 
expend under the direction of the City $1,000,000 for Extensions, 
Betterments and Improvements within eighteen months after the 
taking effect of the Grant as required by the Grant. (Sees. 2 and 
27.) 



Service At Cost Agreements 



105 



When in case of accident or emergency it is impracticable to 
submit requisitions prior to the making of Extensions, Better- 
ments and Improvements, the Company shall within sixty days 
after the work is completed file in complete detail a requisition 
therefor. This shall be approved or disapproved by the Super- 
visor or Commission within fifteen days, and of the City and Com- 
pany fail to agree thereon shall be submitted to Arbitration. 
(Sec. 27.) 

When the City limits are extended, so as to bring within the 
same, portions of the Company's lines formerly outside, the con- 
struction, maintenance and operation of the lines so included shall 
be under the terms of the Grant subject to existing mortgages and 
other liens, and the Company shall surrender its rights to operate 
under and other franchise. (Sec. 2.) 



Memphis 

The Utilities Commission has the control granted it by the 
general statutes of the State. 

* (c) Outside of Muxdcipality 

Clevelaistd 

The cost of Extensions, Betterments and Permanent Improve- 

• ments to Suburban Lines, can be added to Capital Value, only by 

agreement with the City, and when such extensions, betterments 

and permanent improvements will be self sxipporting. (Sec. 29.) 

YOUNGSTOWN^ 

There is no provision in the grant covering Extensions, Better- 
ments and Improvements outside of the Municipality, these being 
within the discretion of the Company. 



CiNCINH'ATI 

There is no provision in the grant 



BOSTOIT 

Powers of Trustees extend over entire system. 



loe 






1 1 



Lit 



i 



Sebvicb At Cost Agreements 



Massachusetts (General) 

The act provides for State control, regardless of municipal 
boundaries. 

MONTBEAL 

Tlie powers of the Commission, in regard to extensions, better^ 
ments and permanent improvements, extend over the entire sys- 
tem, witli the proviso that outside of " Uniform Tariff " territory 
(eee F-1) " the cost of construction of any new line or the exten- 
eion of any existing line, or of their operation^ shaU not be a 
burden on the revenues of the Company in the sense that the 
revenues of such lines must be sufficient so as not to affect unjustly 
the passenger and freight tariff on the other parts of the Com- 
pany's system" (Art. 36). 

Eastern Massachusetts 
Powers of the Trustees extend over entire system. 

Westebville 
Commission has no control outside Franklin County. 

Dallas 
" No Extensions, Betterments and Improvements outside of the 
then City limits, unless required by law, shall be made, except 
with the formal consent of the City expressed by ordinance or 
resolution of the Board of Commissioners ; and in any event the 
same shall be made under the supervision of the City, as pro- 
vided herein for Extensions, Betterments and Improvements 
within the City limits. In the event that such Extensions, Bet- 
terments and Improvements outside of the City limits are required 
by law, the Grantee shall have the right to add the cost thereof to 
Property Value." (Sec. 27.) 

Memphis 

The IJtilities Commission has the control granted it by the 
general statutes of the State. 



Service At Cost Agreements 



107 



5.— OF CAPITALIZATION, FINANCES AND ACCOUNTS 

(a) Ordinary Expenses 

Cleveland 

The operating allowance. Maintenance, Depreciation and Ee- 
newals allowance and return upon Capital value is fixed by the 
grant. (Sees. 15, 18, 19.) 

No expenditure for renewals and replacements may be made 
from the Maintenance, Renewals and Replacement funds, without 
the approval of the City. (Sec. 20.) 

YOUNGSTOWN 

The allowances for Operation, Maintenance, Repair and Re- 
newals, and for Return upon Capital Value are fixed by the grant. 
(Sees. 11, 11-A, 12, 12-A, and 10-E.) 

No renewal or replacement charge to the Maintenance, Repair 
and Renewal Account shall be made without the consent of the 
City Council, or the Commissioner when authorized to approve 
puch charges by the City Council. Disagreements are subject to 
arbitration. (Sec. 12-a.) 

The salaries of all officials, the whole or any part of whose 
salary is paid from the receipts of the City system, are subject to 
the approval of the Commissioner. In case of disagreement the 
dispute shall be settled by arbitration. (Sec. 11-Da.) 

Cincinnati 
The operating expenses are fixed in a budget, which is subject 
to the approval of the City. (Sec. 8.) Other items of expense . 
are fixed by the teims of the grant. 



>l 



1' 



i( 



Boston 
Control complete (Sec. 2.) 

Massachusetts (General) 
The Act provides for no further supervision and control over 
expenses than is now exercised by the Public Service Commission. 



I 



108 



Service At Cost Agreements 



Service At Cost Agreements 



109 



Montreal 
The Commission has no direct jurisdiction over the ordinary 
expenses of the Company. If the operating allowance be ex- 
ceeded hy more than two and one-half per cent, the Commission is 
empowered to disallow any expenses which it considers to have 
Keen unnecessary, and the amount so disallowed shall be taken 
from the guarantee fund (See H-2) (Art. 92, Par. 1). 

Eastern Massachusetts 
Control complete. (Sees. 11, 13.) 

Westervillb 

The Commissioners, if they consider the proportion of expenses 
for salaries and other expenses, charged to the Westerville di- 
vision hy the Company to be excessive, may demand that the ques- 
tion be submitted to arbitration, in which event the award of the 
Arbitration Board shall prevail. (Sec. 13-c.) 

There is no other provision for direct control of expenses, ex- 
cept that the items which shall constitute the cost of the service 
are defined. (Sec; 13.) 

Daluis 

It ie the duty of the Supervisor to keep informed as to the ex- 
penditures of the Company for salaries, supplies and other costs 
of operation and if in his opinion the methods of the Company 
are wasteful, he shall notify the Company that wastefulness exists 
in the purchase or use of materials or employment of persons or 
their compensation or in any other matter connected with the 
business, and after an investigation, the cost of which shall be 
paid by the Company, he may further notify the Company as to 
the ways in which such wastefulness occurs and his suggestions 
for ite correction. In the event of a disagreement between the 
Supervisor and the Company, as to the existence of such wasteful- 
ness or the method of its correction, the matter shall be submitted 
to Arbitration. (Sec. 29.) 

Memphis 
The Utilities Commission has such jurisdiction as is granted it 
by the general statutes of the State. 



(b) Seciuities 

m 

Cleveland 
The sale of stocks and bonds, to be added to Capital value, may 
be made only with the consent and approval of the City. (Sec. 
15.) 

Youngstown 
The sale of stocks, bonds and the incurring of floating debt, to 
be added to capital value, shall be subject to the approval of the 
city. (Sec. 10-B.) 

Cincinnati 
The City shall approve the amount and character securities, the 
rate of interest or dividend, sinking fund provisions, and the price 
at which such securities may be sold. (Sec. 22.) 

Boston 

The Trustees have authority to make contracts in the name of 
the Company and to issue stocks, bonds and other evidences of in- 
debtedness in its behalf. (Sec. 3.) 

In spite of the fact that the Company, by the acceptance of the 
act, have consented to this power being lodged in the Board of 
Trustees, the Board of Directors are required by the provisions 
of the act to take such action, as they may be requested to by the 
Board of Trustees to validate its acts in relation to the issuance 
of securities. (Sec. 4.) 

Massachusetts (General) 
The investment upon which return is allowed is fixed by the 
Public Service Commission. (Sees. 2, 4.) Existing law pro- 
vides the conditions under which new securities may be issued and 
includes supervision and control by the Public Service Commis- 
sion. 

Montreal 
N'ew Capital, upon which return is allowed, needed for pur- 
poses, approved by the Commission, shall be borrowed, if, in the 
judgment of the Commission, their condition permits, from the 
Contingent Keserve Fund (see F-2) and from the Maintenance 
and Renewals Fund (see E-3-b-61), and from the Tolls Reduc- 
tion Fund (see F-2). Moneys so borrowed shall be reimbursed 
8 



110 



Seevice At Cost Agreements 



by the Company when and as ordered by the Commission (Sec. 
ii2, par. 3). When it is not possible to borrow from these funds, 
money shall be obtained in the usual manner, but it is provided 
that, except in the case of certain trust deeds now in existence 
covering $1,500,000, mortgages or issues of mortgage bonds or 
debenture stock shall not aggregate more than seventy-iive per 
cent, of the total additional new capital. (Art. 92, par. 3.; 

Eastebn Massachusetts 

The Trustees have the authority, with the approval of the Pub- 
lic Service Commission, to issue stocks, bonds and other evidences 
of indebtedness of the Company. The acceptance of th« act is 
deemed to have given the assent of the stockholders and Directors 
of the Company to such issues, but if it becomes necessary, the 
Directors are required to take such action as may be requested 
by the Trustees in r^ard to security issues. (Sec. 13.) 

Securities may be issued, for the purpose of refunding existing 
obligations, or for the purpose of constructing, or acquiring, new 
lines, for the extension of old lines, for the improvement of the 
property, for the purchase of new equipment or for any other pur- 
pose, only with the approval of the Public Service Commission. 
(Sees. 5, 7.) 

Westebville 
There is no provision for the control of security issues. 

Dallas 
The City assumes no control over the issuance of securities by 
the Company, other than to require that the amount of bonds is- 
sued shaU at no time exceed 85 per cent, of the then Property 
Value. The Company is given, with this exception, express per- 
mission to issue securities as it may see fit, while the City, in ad- 
dition, agrees to approve and certify security issues when it is 
requested so to do by the Company. The basis of the control exer- 
cised by the City, is the Property Value of the Company as fixed 
by the Grant and the City is not concerned with the amount of 
outstanding securities, except as they affect the terms of purchase. 
(Sec. 39.) 



Sbbvice At Cost Agreements 



111 



Memphis 

The Utilities Commission has such jurisdiction as is granted it 
by the general statutes of the State. 

(o) Bookkeeping 

Clevelaito 
The City, acting through the Street Railroad Commissioner, 
has general supervision over the bookkeeping and accounting 
methods of the Company, subject to arbitration by the Committee 
on Standard Classification of Accounts of the American Electric 
Railway Accountants' Association. (Sees. 10, 15.) 

YOUNOSTOWN 

The Commissioner shall have supervision over the book-keeping 
practices of the Company. In case of dispute, disagreement shall 
be submitted to the arbitration of the Committee on a Standard 
Classification of Accounts of the American Electric Railway Ac- 
countants' Association, or to any other person, or persons to whom 
the regulation of accounts may be delegated by law. (Sec. 8.) 

Cincinnati 
The City, acting through the Director of Street Railroads, has 
general jurisdiction over the method of keeping books and ac- 
counts. If the Director disapprove of such methods, he shall 
notify the Companies, and if a dispute arises the matter shall be 
referred to the authorities with whom the regulation of such mat- 
ters may rest (Presumably the Ohio Public Utilities Commis- 
sion). The Director is empowered to audit receipts, disburse- 
ments, vouchers, prices, pay rolls, etc. (Sec. 8.) 

Boston 

Control in hands of Trustees. 

Massachusetts (General) 
The act provides for no further supervision and control over 
bookkeeping than is now exercised by the Public Service Commis- 
sion. This is, however, extensive. 



112 



Seevicb At Oost Agreements 



Service At Cost Agreements 



113 



In addition to the powers already exercised by the Public Serv- 
ice Commission over accounts, it is provided that the Companies 
shall each month furnish the Commission with such statements, 
as the Commission may direct, showing the condition of the re- 
serve fund, the income and expenditures of the previous month, 
and such additional information as the Commission may require. 
(Sec. 11.) 

Montreal 

The Commission has the right, " by itself or it& employes, at 
any time, to examine all the Company's records or other docu- 
ments, ^and to inspect the Company's property, but for the ex- 
amination, verification and audit of the Company's accounts, the 
Commission, unless it does so itself, shall employ a chartered ac- 
countant." (Art. 18.) 

Within thirty days after the expiration of each year of opera- 
tion the Company is obliged to furnish to the Commission detailed 
statements of its expenditures for operation, maintenance and re- 
newals, and return upon capital value. (Art. 92, Par. 9.) 

Eastern Massachusetts 
Control in hands of Trustees. (Sec. 11.) 

Westerville 

The Commission is given access to the books, records and ac- 
counts of the Company, to the ex-tent necessary for the ascertain- 
ment of all facts in connection with the operation of the Division 
and the carrying out of the terms of the Grant. (Sec. 16.) 

The Commission is not given power to prescribe or supervise 
the bookkeeping or accounting methods of the Company, nor are 
there any provisions in the Grant, covering the methods in which 
books and accounts shall be kept. 

Daluls 

The method of vouching expenditures, or of keeping accounts 
may be disapproved by the Supervisor, in which case the decision 
of the Commissioners shall be final and not subject to arbitration. 
It is stipulated, however, that the system of accounts promulgated 
by the American Electric Eailway Accountants' Association, the 



Interstate Commerce Commission, or by any law of the State of 
Texas, or authority granted thereunder, shall be satisfactory. 
(Sec. 11.) 

Memphis 
Under the jurisdiction given it by the general statutes of the 
State, the Commission requires that the accounts of the company 
shall be kept in accordance with the Standard Classification of 
Accounts of the Interstate Commerce Commission, subject to such 
modifications as the Utilities Commission may from time to time 
make. 

The Company is required to furnish to the Commission its 
regular monthly statements and such other statements as the Com- 
mission may require, showing the condition of the Fare Index 
Fund, various other reserves, its revenue and details of the cost' 
of the service for the previous month, and such other information 
as the Commission may desire. The Commission may make such 
investigation of the accounts of the Company as it may deem nec- 
essary, the cost to be borne as a part of the cost of service. 

(6) METHODS AND PRACTICES 

Cleveland 
The City Street Railroad Commissioner is charged with the 
duty of seeing that the Company uses due diligence in the col- 
lection of its revenue, and in enforcing the rules against the grant- 
ing of free transportation. He is to require the Company to 
adopt such methods in this respect as he may prescribe. (Sec. 
30.) ^ 

YOUNGSTOWN 

1^0 settlement for claims and damages shall be paid unless ap- 
proved by the City Solicitor, who is privil^ed to appear in all 
actions for damages, involving City lines. (Sec. 10-Ca.) 

Cincinnati 

The Director must approve contracts for use or sale of power, 
and new and additional leases of street or interurban railways. 
(See; S.) r . V ■■ ■ 



I 



114 



Sebvice At Cost Aobeembnts 



No transfer of franchises or grants shall be made without the 
approval of the Director. (Sec. 8.) 

Boston 
Control in hands of Trustees. 

Massachusetts (General) 
" The Commission may require such changes in the manage- 
ment and operation of any company which has accepted the pro- 
vision of this act, as in its opinion, may be necessary for the 
e^cient conduct of the business of the company in the interest of 
the public." (Sec. 11.) 

" Tn case any special investigation of any company is deemed 
necessary by the Commission, the Commission may order such 
investigation, the expense thereof to be paid by the Company." 

In addition, the Public Service Commission is by the general 
UwB of the State already clothed with extensive powers of supei- 
Vision and control. 

Montbsal 

Certain methods and practices are provided for in the agree- 
ment, as: ° 

The use of T-rails is forbidden, except in streets that are un- 

paved or paved with plain asphalt. (Arts. 42, 52.) 

The use of iron trolley poles is required. (Art. 45.) 

Conductors and agents must speak both French and English 
(Art. 59.) ^ 

Cars must cariy illuminated route and destination eigna 
(Art. 61.) 

Eastebn Massachusetts 
Control in hands of Trustees. (Sec. 11.) 

Westerville 
No provisions. 

Dallas 

Methods of construction, maintenance and operation, including 
location, character and type of tracks, and the location of all polej 



Service At Cost Agreements 



115 



wires and other appurtenances in the street are subject to City 
ordinance, rules and regulations. (Sec. 3.) 

Rails- shall be maintained flush with the street. (Sec. 3.) See 
also C.-4, (a). 

Memphis 

The Utilities Commission has such jurisdiction as is granted 
it by the general statutes of the State. The order provides that it 
may make such investigation of the character of the service as 
it deems necessary, the cost to be borne as a part of the cost of 
service. 

7.— USE OP TRACKS AND FACILITIES BY OTHER COMPANIES 



Cleveland 



No provisions. 



Youngstown 
No provisions. 

Cincinnati 
The Company is required to permit the use of its track by 
suburban, interurban, elevated or underground electric railways, 
or union interurban terminal railways, for access to terminals of 
such railways within the city, or for access to any rapid transit 
railway which the city may build, upon terms and conditions in- 
cluding a reasonable return upon the investment of the Company. 
Tn the event of a disagreement, the decision of the Director of 
Street Railroads shall be final, except that the Company may 
appeal to any court of competent jurisdiction on the ground that 
the conditions are inequitable, or that the compensation fixed does 
not provide cost and a proper return to the Company. (Sec. 8.) 



t I 

I 



Boston 
No provisions covering these matters in the act, but as Sec. 2 
take? jurisdiction away from the Public Service Commission, that 
body is now without power to order joint use of track. 



li 



No provisions. 



Massachusetts (General) 



116 



Service At Cost Agreements 



Service At Cost Agreements 



117 



Montreal 
With the acceptation of the use provided Tby the agreement be- 
tween the Company and the Southern Counties Railway Co., in 
edstence at the time the agreement took effect, the Company is 
lorbidden to permit the use of its tracks by another company, or 
> connect its tracks with tho^e of another company without the 
'msent of the Commission. (Art. 28.) 

Eastern Massachusetts 
Ko provisions except that the Company is especially authorized 
to dispose of surplus electricity, at rates and charges to be fixed 
by itself, subject to the approval of the State Board of Gas and 
Electric Light Commissioners which shall first determine that 
public necessity and convenience requires the same. (Sec. 20.) 

Westerville 
1^0 provisions. 

Dallas 
The Company upon which the Grant was conferred was organ- 
ized to acquire, among other properties, the Interurban Terminal ' 
owned by the Dallas Interurban Terminal Association, and to 
execute leases with the interurban companies entering Dallas for 
its use by them. 

Fnder the Grant, the Company is required to permit the use 
of Its tracks for the purpose of reaching the terminal, by any 
interurban which may secure the consent of the City to enter 
tl P City. In the event of disagreement as to the compensation 
tA be paid the matter shall be submitted to arbitration. The 
award of the Arbitration Board shall be binding, unless disap- 
proved by the Board of Commissioners, which may then decide 
upon the compensation to be paid and such decision shall then 
be binding. (Sec. 37.) 

During the first ten years after the taking effect of the Grant, 
the Company is required to pprmit the use of the terminal by at 
least foiir new interurban companies and to permit their partici- 
pation in the lease, regardless of the effect upon the ability of the 
Company to earn its stipulated rate of return, provided that the 



consent of the Commissioners' is obtained, and the Company shall 
further provide facilities for such Companies. (Sec. 37.) 

After ten years, or after four new interurbans have been given 
entrance to the terminal, the question of the admission of any 
new interurban shall be subject to arbitration. If any inter- 
urban, party to the lease, shall object to the entrance of a new 
interurban on the grounds that the Terminal would be over- 
crowded, the Board of Arbitration shall diecide whether the Ter- 
minal would be so overcrowded, and whether the furnishing of 
any additional facilities needed would jeopardize the Company's 
ability to earn its stipulated return under the highest fare 
allowed by the Grant. If the Board decides that the Terminal 
would not be overcrowded the new interurban shall be admitted. 
If it decides that it would be overcrowded and that the furnish- 
ing of additional facilities' would jeopardize the Company's 
return the new interurban shall not be admitted. (Sec. 37.) 

The City may order, or the Company may propose, subject to 
the City's approval, addition to Terminal facilities. In case of 
disagreement as to the jeopardy of the Company's return because 
of such expenditure the matter shall be arbitrated. (Sec. 37.) 

Grantee may provide storage facilities in connection with the 
Terminal, and the use of such facilities including track connections 
by interurbans shall be permitted by City. (Sec. 37.) 

If Grantee elects not to renew lease of any interurban and such 
interurban elects to purchase under terms of lease, the price shall 
be subject to the approval of the City, and the Grantee shall sub- 
mit to arbitration any disagreement as to the price fixed by City. 
(Sec. 37.) 

When the ownership of the Terminal by the Grantee ceases the 
provisions of the Grant relative to its use cease to be operative. 
(Sec. 37.) 

The Grant does not abridge or interfere with existing con- 
tracts affecting the operation of interurban or suburban cars, or 
interurban express cars. Copies of such contracts must be filed 
with the City. (Sec. 37.) 

The City may require the Company to permit the attachment 
to its poles of the wires of other persons or corporations, provid- 
ing that it can be shown that such attachment is safe, and that 



118 



SxBviCB At Oost Agreements 



it does not subject the Company to increased risk? of interrup- 
tion, and only if the wires and appurtenances to be attached con- 
form with the modem practice. (Sec. 3.) 

The City may grant to the Company under like conditions the 
right to attach its wires to the poles of other corporations or per- 
sons. (Sec. 3.) 

Memphis 

The Utilities Commission has such jurisdiction as is granted to 
it by the general statutes of the State. 

S._]IACHI1IEST OF CONTROL 

(a) Powor; Where Lodged 

Cleveland 
Such control over the affairs of the Company ae is provided in 
♦he grant, is exercised by the City acting through its City Council. 

YOUNOSTOWN 

The general power of control is lodged in the city of Youngs- 
town, acting through its City Council. Certain details of admin- 
istration are assigned to the Commissioner. (Sec. 6.) 

Cincinnati 

The approval of type and character of construction ie with 
the boards and officers of the City having jurisdiction under law 
and ordinance. (Sec. 6.) 

The power to order changes and extensions of routes and addi- 
tional lines of road is lodged in the City Council, which shall act 
by ordinance. (Sec. 8.) 

The approval of the issuance of securities- is lodged with the 
Director of Street Railroads and the Public Utilities Commis- 
sion of Ohio. (Sec. 22.) 

The control of service is vested in the Director of Street Rail- 
roads. (Sec. 8.) 

Boston 
All control is lodged in a Board of five Trustees, appointed by 
the Governor, with the advice of his Council. Their term is ten 
years, the fixed period of public management and control. If 



Service At Cost Agreements 



119 



this period is extended, their successors may be appointed for a 
like term but not for longer than public management and control 
shall continue. They shall own no stock, or other securities of 
the Company, or companies leased or operated by it. They 
receive $5,000 a year, each, paid by the Company. They may 
be removed for cause by the Governor, with the advice and 
consent of the Council. Vacancies are filled by the Governor 
with the consent of the Council. 

The Trustees are relieved by the act from the legal inhibition 
against the employment by the Company of any person at the 
instigation of public officers, in so far as it might apply to them 
as public officers. In other respects they are subject to the laws 
of the State governing public officers as are the Directors of the 
Boston Elevated Railway Company. (Sec. 1.) 

In the management and operation of the company, the Trus- 
tees shall be deemed to be acting as agents of the Boston Elevated 
Railway Company and not of the Commonwealth and the Com- 
pany is liable for their acts as if they were in Company employ, 
but the Trustees shall not be held personally liable. (Sec. 2.) 

A majority of the Board constitutes a quorum for the trans- 
action of business. (Sec. 2.) 

Massachusetts (General) 
Control of the affairs of the Company is exercised in two ways. 
First, through three trustees appointed to the Board of Directors 
of the Company by the Governor who are in intimate touch with 
its corporate affairs. (See C-1), and, second, by the State Pub- 
lic Service Commission. (Sees. 2, 4, 6, 7, 8, 11, 12, 13, 14.) 

Montreax 
Two Commissions have jurisdiction over the affairs of the Com- 
pany. The agreement does not change the jurisdiction already 
possessed by the Quebec Public Utilities Commission, but con- 
fers certain powers and duties upon the Montreal Tramways 
Commission, and it is agreed as between the Company and the 
City, that in all matters in which the Montreal Commission has 
jurisdiction, demands and complaints shall be initiated before it. 



M 



n 



120 



Service At Cost Agreements 



1 

Sebvice At Cost Agreements 



121 



f f 



although tinder the law, they might he taken directly to the Que- 
bec Public Utilities Commission. When an appeal from the deci- 
sion of the Montreal Commission to the Quebec Commission is 
not authorized under the agreement, or when an appeal is author- 
ized but not made and the Company refuses or neglects to carry* 
out the orders of the Montreal Conmiission, the matter is reported 
to the Quebec Commission, which shall issue and enforce such 
orders in the premises as it deems necessary. In other words the 
Quebec Commission acts as a court of appeals in matters in 
which the Montreal Commission has jurisdiction, and its powers 
may be invoked by the Montreal Commission in matters over 
which the latter has no jurisdiction. (Art. 20.) 

When the Commission shall refuse or neglect to act in any 
matter within its jurisdiction as established by the agreement, 
within the period therein allowed for delay, or if no such period 
is fixed, within a reasonable time, upon the request of any inter- 
ested party, the Quebec Public Utilities Commission shall act in 
its stead. (Art. 91.) 

In addition certain power is lodged directly with the City: 
Grades of tracks in streets shall be fixed by the city engineer 
(Art. 40) ; the pavement to be used between the tracks shall be 
specified by the city (Art. 41) ; the city engineer shall specify 
the system of track drainage to be used (Art. 50) ; the City may 
specify the manner in which snow and ice shall be removed from 
tracks (Art. 66) ; the City may, if in the opinion of the Com- 
mission, the work will not interfere with the traffic, require the 
Company to flush, sprinkle or sweep streets and to carry garbage, 
waste, rubbish and snow for the city, at a price which shall 
include a profit of ten per cent, over cost. (Art. 68.) 

Eastebn Massachusetts 

Control is lodged in a Board of Five Trustees, appointed and 
removable by the Governor with advice and consent of his Coun- 
cil. Their term of office is ten years, the full period of public 
control. The salary is $5,000 a year each, to be paid from the 
receipts of the Company. 

The Trustees elect their own Chairman. The affirmative action 
of not less than three members present at any stated or special 



meeting is necessary or required for the action of the Board. 
(Sec. 11.) 

In the management and operation of the Company, the Trus- 
tees shall be deemed to be acting as the agents of the Company, 
and the Company is liable for their acts, as if they were in the 
employ of the Company. The individual Trustees are not to be 
held personally liable, except for malfeasance in office. (Sec. 
11.) 

Westebville 

Control is lodged in the Board of County Commissioners of 
Franklin, or in the event that the Board is abolished, then in 
such other public officers as may be assigned its duties. (Sees. 6 
and 7.) 

Daltjis 
By the provisions of the Grant, certain specific authority is 
given both to the Supervisor of Public Utilities and to the Board 
of Comissioners (i.e., Board of City Commissioners, Dallas hav- 
ing a Commission form of Government). In general, however, 
the powers of the Supervisor are largely administrative and the 
actual control is lodged with the Board of Commissioners. 

Memphis 
Lodged in the State Kailroad and Public Utilities Commission. 

(b) Adminigtration 

Cleveland 
A City Street Kailroad Commissioner is appointed by the 
Mayor, with the approval of the City Council, and is removable 
at the pleasure of the City. His salary and expenses are paid 
by the Company. (Sec. 10.) 

YOUNGSTOWN 

A Street Railroad Commissioner is appointed by the Mayor 
subject to the confirmation of the City Council. He is subject 
to removal by the Mayor, who is authorized to appoint his suc- 
cessor. (Sec. 8.) His salary, not to exceed $600 a month, is 
paid as an Operating Expense. His administrative expenses, 



»" <i 






122 



Sbbvice At Cost Aokbembnts 






including assistants, etc., not to exceed $900 a month, are charged 
as an operating expense. His expenses in connection with the 
preparation of plans and estimates for, and supervision over, 
Betterments, Extensions and Permanent Improvements are a 
charge against Capital Value, if the improvements be carried out, 
but against Operating Expense, if they be not carried out. 
(Sees. 8-A and 15-D.) 

Cincinnati 
The office of Director of Street Railroads was in existence at 
the time of the passage and acceptance of the present agreement, 
which simply specifies his duties under the terms of the grant, 
and does not provide for his appointment or compensation. As 
ft matter of fact he is appointed by the Mayor and his salary and 
expenses paid by the City. 

Boston 
The affairs of the Company are administered by the Board of 
Trustees, a majority of whom shall constitute a quorum. 
(Sec. 2.) 

IMassachusetts (General) 

The Public Service Commission is directed to divide the 
State into " Street Railway Districts," and to appoint for each 
such district, in which is located one or more companies, which 
have accepted the provisions of the Act, one or more Resident 
Supervisors, whose term of office shall be three yeare and whose 
salaries and expense allowances shall be fixed by the Commis- 
sion, and paid by the Company or companies to the supervision 
of which they ar^ assigned. (Sec. 11.) Such Commissioners 
report to the Public Service Commission. (Sec. 11.) 

The administration of the Act lies with the Public Service 
Commission, which is authorized to enforce its orders, rules and 
regulations in the manner already provided by statute for the 
enforcement of Public Service Commission orders. (Sec. 15.) 

Monteeal 
There is created the Montreal Tramways Commission, con- 
sisting of three members, to be appointed by the Lieutenant-Gov- 
ernor in Council, who shall also designate the chairman and act- 
ing chairman. Appointees shall reside in the territory under the 



Service At Cost Ageeembnts 



123 



Commission's control (Arts. 2, 3); the term of office of each 
Commissioner is ten years, but he may be dismissed for cause by 
the Lieutenant-Governor (Art. 5), and the City or the Company 
may bring quo warranto proceedings in the Superior Court for 
the District of Montreal to oust any Commissioner, on the ground 
of fraud, bribery, refusal or neglect to carry out in good faith the 
powers and duties assigned by the agreement, or if he is dis- 
qualified because of his being a member of the City government, 
or of any of the municipalities interested, or in the employ of 
any of the parties or municipalities interested in the agreement, 
or hold any of the securities of the Company, or be interested 
directly or indirectly in any contract with one of the parties or 
with any of the municipalities, or be interested in any patented 
article used by the Company, or be a holder of the securities of 
any company having a contract with the City, Company or any 
of the municipalities ; or be a member of the Legislative Assem- 
l:ly or of the Legislative Council of the Province. (Arts. 6, 7.) 
Vacancies are filled by the Lieutenant-Governor; the compensa- 
tion of the Commissioners is fixed by the Lieutenant-Governor 
and paid by the Company. (Art. 9.) The Commission makes 
the rules for its internal government and for procedure in mat- 
ters brought before it, which rules must be approved by the Que- 
bec Public Utilities Commission. (Art. 10.) Every decision of 
the Commission to be effective must have the votes of at least 
two members (Art. 8), and cannot be rendered until all inter- 
ested parties shall have been notified. (Art. 12.) The Commis- 
sion may appoint a secretary, such employes as it may require, 
and ^x their salaries, engage and pay experts and lawyers, pro- 
vide itself with suitable offices and whatever it may need to 
enable it to perform its duties, and the Company shall pay all 
such expenses at the request of the Commission, except that it 
may appeal to the Quebec Public Utilities Commission for a 
revision of such expenses. (Art 17.) 



!lfl 



Eastern Massachusetts 

The affairs of the Company are administered by the Board of 
Trustees. (Sec. 11.) 



lU 



Sebvicb At Cost Agbeembnts 



VI 



Westerville 
The Commissioners may appoint a Street Railway Commis- 
sioner, remove such Commissioner and fill vacancies in the office. 
(Sec. 8.) 

The Street Railway Commissioner shall represent the Com- 
inissioners in all matters relating to service, schedules and opera- 
Hon of ears. He shall he paid a salary of not more than $50 a 
month, unless a higher sum is mutually agreed upon by the Com- 
missioners and the Company. His salary and necessary expenses 
shall he included as part of the cost of operation. (Sec. 9.) 

Dallas 

The administrative officer, the Supervisor of Public Utilities, 
is appointed by the Board of Commissioners for an indeterminate 
term, is removable at the Board's pleasure, and if found to be 
incompetent or dishonest must be so removed. (Sec. 11.) 

If at any time the provisions of the act relative to the author- 
ity of the Supervisor are found to be invalid, the Board shall 
appoint one of its members to act a& Supervisor ex-offlcio. CSec. 
43.) ^ 

In the case of the ten»porary absence or the disability of the 
Supervisor the Board of Commissioners may appoint some one 
to act in his stead, and until such appointment is made the Mayor 
ehall so act. (Sec. 11.) 

The Company shall, at the request of the Board, furnish, not 
to exceed two rooms as offices for the Supervisor, together with 
needed furniture and supplies. (Sec. 11.) 

The Supervisor may employ such assistants, including engi- 
neers, accountants and clerks, as may be authorized by the Board 
of Commissioners. (Sec. 11.) 

The salary of the Supervisor shall be fixed by the Board of 
Commissioners. The Company shall pay such proportion of the 
salary and of the expenses of administration, including the sal- 
aries of his assistants, as its total gross receipts bear to the total 
gross receipts of all utilities supervised by him, except that it shall 
not be required to pay in any one month more than one-half of 
one per cent of its average monthly gross receipts for the preced- 
ing twelve months. The salaries paid shall in no case be unreason- 
able in amount (Sec. 11.) 



Sebvice At Cost Agkeemexts 



125 



The Supervisor may further employ such assistants as may be 
necessary to permit the checking of estimates for Extensions, 
Betterments and Improvements, and for checking materials, lal)or 
and other costs of such Extensions, Bettennents and Improve- 
ments, and in the event that the Extensions, Betterments and 
Improvements are made such expenditures shall be charged 
against them and added to Property Value, while, if they are not 
made, the expenditures shall be charged to Operating Expenses. 
(Sec. ?7.) 

Memphis 

Administration is by the State Railroad and Public Utilities 
Connnission. 

(c) Powers and Duties of Administrative Body 

Cleveland 

The City Street Railroad Commissioner is the technical ad\4sor 
to the City Council, in matters affecting the interpretation of the 
grant, and in matters affecting the quantity and quality of the 
service, its cost, and the rate of fare. He is to keep informed 
as to 

The cost, quality and quantit;^^ of service. 

The receipts-, disbursements and property of the Company, 

The rate of fare. 

The vouchering of expenditures, 

The keeping of accounts. 

Other bookkeeping methods (Sec. 10). He is to require and 
secure from the Company monthly reports of car-mileage and 
earnings, and such other reports as he may deem necessary. He 
has authority to inspect, examine, audit and verify the account?, 
vouchers, documents, books and property of the Company, relat- 
ing to the receipt and expenditure of money, and the operation 
of the Company. (Sec. 15.) 

He has power, pending action of the City Council and to meet 
emergencies to approve changes in schedules and routes. (Sec. 
12.) 

9 



I 



^11 



12( 



Service At Cost Agreements 



Service At Cost Agreements 



41 



When authorized so to do by the City Council he shall exercise 
the Council's power to pass upon expenditures for renewals and 
replacements, made from the Maintenance, Renewals and 
Replacement Fund. (Sec. 20.) 

He shall prepare estimates of Extensions, Betterments and 
Permanent Improvements, to be proposed by the City, and shall 
check estimates for the same purpose proposed by the Company. 
(Sec. 27.) 

He shall inform, himself as to the methods and practices of the 
Company, in the matter of collection of revenue and the granting 
of free transportation, and if these methods are in his judgment 
wasteful, he shall notify the Company and secure their correc- 
tion. (Sec. C-4-(d).) (Sec. 30.) 

Younostown" 
The Street Railroad Commissioner is the technical adviser to 
the City Council as to the interpretation of the grant, and as to 
matters affecting service, its cost or the rate of fare. 

He shall keep informed as to: 

The cost, quality and quantity of service, 

The receipts, disbursements, property and equipment of the 

Company, 
The rate of fare, 
The vouchering of expenditures, 
The keeping of accounts and other bookkeeping methods. 

(Sec. 8.) 

Shall have authority over the carrying of city passengers on 
interurban and suburban cars. (Sec. 11-E.) 

Shall, with the City Solicitor, act in the allotment of damages 
as between the City system and the interurban and suburban sys- 
tem for accidents on interurban and suburban cars. (Sec 
11-E.) 

Shall require and cause to be made by the Company monthly 
reports of car mileage and earnings and such other statements as 
he or the City Council may require. (Sec. 7.) 



127 



Shall, in emergencies, and pending action by the City Council, 
have power to approve changes in routes and schedules. (Sec. 6.) 

Shall have the power to inspect and audit receipts, disburse- 
ments, vouchers, payrolls, time cards, shop cards, papers, books, 
documents and property of the Company. (Sec. 8- A.) 

Shall approve all salaries paid officials, who receive all, or part 
of their salaries from receipts of City lines. (Sec. 11-Da.) 

Shall, when authorized by the City Council, have jurisdiction 
over all charges for replacement and renewals proposed to be 
made from the Maintenance, Repair and Renewal Account. 
(Sec. 12-A.) 

Shall supervise methods of fare collection and enforce the 
rules regulating free transportation and shall prevent wasteful 
expenditures for materials or in the employment of persons. 
(Sec. 14-A.) 

Shall prepare for the City estimates and plans for Extensions, 
Betterments and Permanent Improvement?, proposed by the City, 
and shall supervise the work of carrying out such Extensions, 
etc., whether proposed by the City or the Companv. (Sec. 
15-D.) 

May require the Company to place at interest moneys raised 
for Betterments, Extension and Permanent Improvements when 
same are not to be used for at least one month. (Sec. 10-B.) 

■ 

Cincinnati 

The Director of Street Railroads — 

He is technical adviser to the Council in all matters affecting 
the interpretation of the Grant, and in matters affecting the 
quantity and quality of the service, its cost and the rate of fare. 
He is vested with such control of the service as is- reserved to 
the City. He shall keep informed as to — 

The cost, quality or quantity of the service; 

The receipts, disbursements, leases-, rentals and property of 
the Company; 
Transfers, transfer regulations and rules; 

Vouchers of expenditures and payments to the City pro- 
vided by the grant ; 






{ 



h 



128 



Service At Cost Agreements 



ServiOe At Cost Agreements 



129 



I 



41 



Tlie manner of compliance by the Compny with the terms 
of the Grant, or rules made, orders issued and decisions 
rendered. (Sec. 8.) 

He is empowered to inspect and audit all receipts, disburse- 
ments, vouchers, prices, pay rolls, salaries of officers, time-cards, 
papers, books, documents and property of the Companies l)ear- 
ing upon the performance of their duties and obligations. 
(Sec. 8.) 

Contracts for the use and sale of power and the leases of new 
and additional lines of street and interurban railways are sub- 
ject to his approval. (Sec. 8.) 

Neither franchises of the Company, nor grants made to the 
Companies may be transferred without the approval of the 
Director. (Sec. 8.) 

The Budget of Operating Expenses, by General Accounts, is 
subject to his approval, and may not be exceeded except upon the 
submission and approval of a supplementary estimate. (Sec. 8.) 

Contracts for the use of the tracks and other facilities of the 
Companies, by other railways are subject to his approval and in 
the event of a disagreement between the Companies and railways 
desiring to use such facilities, he may fix the compensation, sub- 
ject to review by a court of competent jurisdiction. (Sec. 8.) 

He may change and revise the rules issued by the Company 
for the regulation of transfers. (Sec. 8.) 

He is empowered to require the Companies to display in their 
WITS copies of transfer regulations. (Sec. 11.) 

The rules of the Companies regulating the sale of tickets ar« 
subject to his approval. (Sec. 20.) 

He shall approve, or in the event of his disapproval, fix rates 
for the carrying of freight, express matter and packages, subject 
to review by a court of competent jurisdiction. (Sec. 20.) 

He shall direct the depositing, or investment of Depreciation 
Funds, accumulated in accordance with the terms of the Grant. 
(Sec. 22.) 

He shall certify the expenses and court costs incurred by the 
City in actions relative to the enforcement of the terms of ordi- 
nances, franchises and grants, which expense shall be paid as an 
Operating Cost. (Sec. 22.) 



The payments provided in any new lease or agreement between 
the Cincinnati Traction Co. and the Cincinnati Street Railway 
Co., to be paid out of gross receipts are subject to his approval. 
(Sec. 22.) 

Floating debt and the interest thereon, the proceeds of which 
are to be used for Capital Expenditures, or for producing the 
Company's share of the Eoserve Fund are subject to this 
approval. (Sec. 22.) 

He shall direct the accrual of a Working Capital Fund from 
gross- receipts at such time as he may deem proper. (Sec. 22-G.) 

He shall direct the depositing or investment of the Reserve 
Fund. (Sec. 22.) 

Boston 
The Board of Trustees shall: 

If an age and operate the Company, and the properties owned, 
leased or operated by it. (Sec. 2.) 

Exercise all the rights and powers of the Company and its 
directors. (Sec. 2.) 

Appoint, and remove at its direction, the President, Treasurer, 
Clerk, and all other officers of the Company. (Sec. 2.) 

Fix and regulate fares, including the issue, granting and with- 
drawal of transfers and the imposition of charges therefor. (Sees. 
2, 6, 7, 10.) 

Determine the character and extent of the service and the facili- 
ties to be furnished. (Sec. 2.) 

Receive and disburse the income and funds of the Company. 
(Sec. 2.) 

Make contracts in the name of and in behalf of the Company. 
(For limitations, sec. C, 4 (b).) (Sec. 3.) 

Issue stocks, bonds and other evidences of indebtedness for the 
Company. (For limitations, see C. 4 (b).) (Sec. 3.) 

Collect from the Commonwealth, at stated intervals, sums suf- 
ficient to make up deficiencies in the Reserve Fund, caused by the 
failure of revenue to pay the cost of service. (Sec. 11.) 

Repay to the Commonwealth, when the condition of the Reserve 
Fund permits it, moneys received to make up deficiencies. (Sec. 
11.) 



130 



Service At Cost Agreements 



t 



Borrow needed sums in anticipation of payments by the Com- 
monwealth to make up deficiencies in Reserve Fund. (Sec. 11.) 

Maintain the property of the Company in good operating con- 
dition and provide for depreciation, obsolescence and rehabilita- 
tion. (Sec. 13.) 

Massachusetts (General) 
The Public Service Commission shall: 

Determine the amount of " capital investment '' of companies 
accepting the provisions of the act. (Sec. 2.) 

Determine the status of the funded debt of any Company seek- 
ing to come under the terms of the act, in order to determine the 
amount of such debt, interest upon which shall be included in the 
cost of service. (Sec. 4.) 

Direct the amount of and time of payment of the funds to be 
provided by the Company, for the Reserve Fund, and pass upon 
the proposal of the Company for its increase. (Sec. 3.) 

Approve or disapprove of the schedule of fares, submitted by 
the Company, and if it disapprove, establish schedule in lieu 
thereof. (Sec. 6.) 

Pass upon proposals by the Company to change fare schedules, 
either in regard to basis of fares or transfer privileges, or in re- 
gard to "steps," between the different rates. (Sec. (J.) 

Pass upon proposals by the Company to make effective higher 
or lower grades of fare (when the Reserve Fund is above or below 
normal) at other times than those provided in the Act. (Sec. 7.) 

Pass upon the Company's plan for making improvements 
through the expenditure of a special improvement fund, which 
the Company is obliged to provide before it is permitted to ac- 
cept the provisions of the Act. (Sec. 8.) 

Require from the Company monthly statements, covering the 
condition of the Reserve Fund, income and expenditures and such 
other matters, as will enable it to protect the public interest 
(Sec. 11.) 

Divide the State into Street Railway Districts and appoint one 
or more Resident Supervisors for each District. (Sec. 11.) 

Make such special investigations of the affairs of the Company 
as it may consider necessary. (Sec. 11.) 



Service At Cost Agreements 



131 



Order such changes in management and operation of the Com- 
pany as are, in its- opinion, necessary for the efficient conduct of 
the business in the public interest. (Sec. 11.) 

Require aii}^ foreign company furnishing electric light or power 
to the Company to file with it a schedule of all rates charged and 
such other information as the Commission may require and to 
pass upon the reasonableness of such charges to the Company. 
If the foreign company or companies refuse to furnish the in- 
formation, or the Commission holds their charges to l)e unreason- 
able, the State Gas and Electric Light Commission is authorized 
by the Act, to prohibit the transmission by the foreign company 
or companies of electric current for light or power. (Sec. 11.) 

Order the Company to dispose of property no longer of service 
to the Company and provide for its amortization over a period 
not to exceed ten years. (Sec. 13.) 

Permit the Company to set aside durinsr the war and for one 
year thereafter, a smaller amount for depreciation than would be 
considered adequate in normal times. (Sec. 13.) 

The Resident Supervisors shall : 

" Keep in constant touch with the operation of the companies, 
and inform the Commission of all complaints and criticisms of 
the service rendered." (Sec. 11.) 

Tn addition to these specific powers and duties, the Public Ser- 
vice Commission retains all of the powers and duties conferred 
upon it by the general street railway laws of the State. (Sec. 1.) 

Montreal 

The Montreal Tramways Commission — 

Has the power and jurisdiction over service enumerated in C-2 ; 

Has the power and jurisdiction over construction, maintenance 
and repairs, enumerated in C-3 ; 

Has the power and jurisdiction over extensions, betterments 
and permanent improvements enumerated in 0-4; 

Has the power and jurisdiction over capitalization, finances and 
accounts enumerated in C-5 ; 

Has the power and jurisdiction over the use of tracks and 
facilities by other companies enumerated in C-6 ; 

Shall hear and decide all complaints made either verbally or in 
writing by any person whatsoever (Art. 13) ; 



132 



Service At Cost Agreements 



I 



§ 
■I. I 



• f 



Shall make a report each year to the City, covering the Com- 
pany's capital and other accounts relative to the maintenance and 
renewals, reserve and toll reductions fund? (Art. 19) ; 

May revoke or change any decision made by it, unless an appeal 
to the Quebec Public Utilities Commission has already been taken 
(Art. 21) ; 

May decide whether it is necessary to remove and replace the 
tracks of the Company, in order that the City may carry on street 
improvements (Art. 48) ; 

Shall supervise any work imposed upon the Company by the 
agreement (Art. 70); "^ ' 

Shall pass upon any contract made by the Company involving 
an expenditure of more than $.50,000, unless such expenditure is 
to be charged to the money available for distribution to the Com- 
pany's stockholders, or which would be available if the dividends 
to be paid upon stock was not limited by the agreement to ten per 
cent (Art. Tl) ; 

Shall fix and amend the passenger tariffs of the Company f Art 
70); r . V • 

Shall decide whether or not a charge shall be made for transfer* 
(Art. 77) ; 

Shall pass upon the equity of agreements made the Federal 
Government for the carrying of mail (Art. 82) ; 

Shall decide whether the Company shall be allowed to carry 
freight, and if it permits the carrying of freight, shall designate 
routes and the hours of the day and night during which freight 
may be carried (Art. 83) ; 

Shall fix the freight tariffs of the Company (Art. 83) ; 

Shall establish, with the approval of the Quebec Public Utilities 
Commission rules for freight transportation, the kind of commodi- 
ties that may be transported and designate loading and unloading 
places (Art. 83) ; 

May require the Company to establish autobus service, when 
and where, in its opinion the conditions of traffic warrants and the 
financial conditions permit (Art. 89) ; 

Shall ^x the operating allowance each year (Art. 92, Par. 1) ; 

Shall ^x the permissible average car-mile density each year 
(Art. 92, Par. 1) ; 



^w *- 



Service At Cost Agreements 



133 



Shall decide whether any part or all of expenditiH-es in excess 
of 102% P^r cent, of the operating allowance shall be charged to 
gross revenues or taken from the guarantee fund (see H-2) (Art. 
92, Par. 1) ; 

May increase or decrease the maintenance allowance (see E-2- 
b-61), except that it may not be decreased below an amount which 
will insure a minimum of $500,000 in the maintenance and re- 
newals fund (see E-2-b-61) (Art. 92, Par. 2) ; 

Shall direct the disposal of worn out or obsolete property, sub- 
ject to the provisions of any existing trust deed (Art. 92, Par. 2) ; 

Shall supervise the extensions, betterments and permanent im- 
provements, made by its orders or with its consent (Art. 92, 
Par. 3) ; 

Shall require the Company to provide working capital, as and 
when needed (Art. 92, Par. 3) ; 

Shall administer the tolls reduction fund (ese F.2) (Art. 92, 
Par. 6) ; 

Shall recover by proceedings before the Eecorder's Court of 
Montreal, fines and penalties incurred by the Company for failure 
to obey its orders (Art. 96). 



■It 



^!l 



,! 



Eastern Massachusetts 
The Board of Trustees shall : 

^lanage and operate the company, including the receiving and 
disbursement of its funds. (Sec. 11.) 

Exercise all the rights and powers of the Company and its 
oflicers. (Sec. 11.) 

Appoint and remove in their discretion the officers of the Com- 
pany. (Sec. 11.) 

Eix and regulate fares, including the issue, and withdrawal of 
transfers and the imposition of charges therefor. (Sec. 11.) 

Determine the character and extent of service and facilities to 
be furnished. (Sec. 11.) 

Contract for the construction, acquisition, rental or operation of 
new lines, and for the extension, sale or lease of existing lines, 
subject to the consent of the Board of Directors of the Company 
except when the Public Service Commission shall determine that 
public necessity and convenience require such action and that the 



ii 



r< 



I 'M 



134 



Service At Cost Agreements 



I 



jM. 



f 



return upon securities authorized bj the Act will not be impaired. 
(Sec. 12.) 

Make such other contracts as may be necessary for the opera- 
tion of the property. (Sec. 13.) 

Issue, stock, bonds and other evidences of indebtedness, for and 
in behalf of the Company. (Sec. 13.) 

Make such allowances to the Company's Board of Directors- for 
corporation expenses as it may consider necessary. (Sec. 13.) 

Distribute among the security- and stockholders of the Com- 
pany, as their interests may appear, any income applicable to in- 
terest and dividends. (Sec. 14.) 

Fix the initial rate of fare to be charged and maintain at all 
times a schedule of at least four grades of fare, two above and two 
below the rate of fare in effect. (Sec. 15.) 

Adjust fares to meet the cost of service, in accordance with the 
state of the Reserve Fund. (Sec. 17.) 

Create within the two main Fare Areas, provided by the Act, 
such other smaller Fare Areas as in its judgment is"^ required! 
(Sec. 15.) 

Provide for cities or towns, desiring to contribute to the cost of 
service in order to reduce fares, a statement of the increase in the 
cost of wages, supply and fuel over the average maintaining for 
the year ending July 1, 1914, and make such reasonable adjust- 
ment of fares- in cities and towns making such contributions as 
seems to it equitable. (Sec. 15.) 

Allocate the cost of service as between the different Fare iVreas, 
both those instituted by the Act, and those instituted by itself! 
(Sec. 15.) 

Increase the amount of the Reserve Fund by accretion? from 
the sale of stocks or bonds, if it deems it advisable so to do in 
order to prevent too frequent fluctuations in fares. (Sec. 17.) 

Suspend, during the period of the war and for two years after, 
with the approval of the Public Service Commission, amortization 
and depreciation charges. (Sec. 17.) 

Provide the period of amortization of discount on bonds au- 
thorized by the Act and sold under its authority. (Sec. 7.) 

Agree with the purchasers of $4,000,000 of the $5,000,000 
special issue of serial bonds, authorized by the Act, that if the 



14. 



Service At Cost AoREEArENTs 



135 



earnings of the Company is- insufficient to meet the installments 
of principal, when due, that such installments shall be paid by the 
State, which acting for the cities and towns served by the Com- 
pany, shall purchase bonds of a par value sufficient to cover the 
amount of such payment by the State, and shall hold such bonds 
on account of the cities and towns, against whom their cost shall 
be assessed. Bonds so held shall be repurchased as income of 
Company permits. (Sec. 9.) 



.Ill 



'III 



Westerville 
The Commission shall: 

Approve changes in motive power. (Sec. 3.) 

Have power to grant permission for the construction of double 
track, switches and turnouts, reasonably necessary in the opera- 
tion of the property. (Sec. 4.) 

Establish grades to which the Company shall conform, (Sec. 
5.) • 

In the event that the Company shall within thirty days after 
the receipt of written notice, fail to perform the work in connec- 
tion with construction, maintenance or repair road improvements 
specified in the Grant, proceed with such work, the cost of which 
shall be charged against the Company and become a lien upon its 
property and franchise, (Sec. 6.) 

Fix and alter schedules, increase and diminish service and es- 
tablish stops, subject to the provision that service shall not be 
required to an extent that would affect the Company's ability to 
earn its fixed return, and subject to the further provision that 
when the Grant has less than fifteen years to run control passes 
from the Commissioners to the Company. (Sec. 7.) 

Approve, overlapping fare zones proposed by the Company, or 
proposed overlapping zones to be approved by the Company, in 
addition to the fixed fare zones provided by the Grant, subject to 
the reference of their decision to a Board of Arbitration. (Sec. 

n.) 

Pass upon commuters' rate? proposed by the Company. Such 
rates can be established only if the Commissioners approve. 
(Sec. 12.) 



( < 



J , 



*» 






f 



136 



Service At Cost Agreemexts 




i 



fllif! 



Lower the rate of fare at any monthly period when thq Work- 
ing Capital shall equal or exceed $35,000. 

Pass npon the apportionment of salaries and other expenses as 
betwc-en the Westerville division, and other portions of the Com- 
pany's lines, and if of the opinion that such apix)rtionment is un- 
fair, submit the question to a Board of Arbitration. (Sec. 13.) 

Propose such Extensions, Betterments and Permanent Im- 
provements, as they believe are required, and pass upon such pro- 
posals for the same purpose as may be made by the Company. 
(Sec. 14.) 

If at any time the County, or any governmental division 
thereof, shall decide to purchase the property, serve six months' 
notice upon the Company of such intention to purchase. (Sec. 
15.) 

Have access to the books, records and accounts of the Company, 
for the purpose of ascertaining all facts in connection with the 
operation of the property or the carrying out of the provisions of 
the Grant. (Sec. 16.) 

In the event of arbitration, select the arbitrator who shall repre- 
sent the County on the Board of Arbitration. (Sec. IS.) 

Baixas 

The Supervisor is charged with : 

The supervision of the construction, maintenance and operation 
of the Company, subject to City ordinances enacted prior to or 
after the taking effect of the Grant. (Sees. 3 and 4.) He must 
keep informed as to all matters in connection with the construc- 
tion, maintenance and operation of the Company, including the 
property leased from the Northern Texas Traction Co. (Sec. 1) ; 

The supervision of the expenditures and methods of the Com- 
pany in regard to contracts for supplies, the employment of labor 
and other matters, and if he regards such expenditures and 
methode wasteful he must so notify Company and make sugges- 
tions for their correction (Sec. 29) ; 

The supervision of the Company's methods of vouching ex- 
penditures and the keeping of accounts; the inspection and audit- 
ing of records and accounts; ^he inspection of the Company's 
propei-ty and its property records (Sec. 11) ; 



Service At Cost Agreements 



137 



The approval or disapproval of the monthly operating and 
financial statements required of the Company under the terms of 
the Grant (Sec. 12); 

The approval or disapproval (except in the case of Extensions, 
or of Extensions, Betterments and Improvements submitted by 
him to the Board of Commissioners) of all requisitions prepared 
by the Company in reference to Extensions, Betterments and Im- 
provements, whether, in the case of ordinary proposals, submitted 
before the actual work has- begun, or, in the case of emergency 
construction, submitted after the work (Sec. 97) ; 

The preparation of requisitions for Extensions, Betterments 
and Improvements, in case that the Company fails to prepare 
them (Sec. 27) ; 

The checking of all estimates for Extensions-, Betterments and 
Improvements, and the checking of all materials used, labor em- 
ployed and other cost of the same (Sec. 27) ; 

The decisions as to whether the Company shall be allowed to 
submit blanket requisitions- for Extensions, Betterments and Im- 
provements (Sec. 27) ; 

Papers and records may not be removed from the Dallas office 
of the Company without the consent of the Supervisor (Sec 11) ; 

The Supervisor is- required to secure from the Company from 
time to time certified lists of its stockholders (Sec. 11) ; 

The Board of Commissioners 

Is in control of the design and equipment of cars, and the kind 
of improvements to be used thereon (Sec. 10) ; 

Fixes schedules, designates stops and promulgates rules and 
regulations for the running of cars (Sec. 10) ; 

Regulates method of selling tickets provided for in schedule of 
rates provided in Grant (Sec. 23) ; 

Passes upon rates proposed by Company for special car and 
other service (Sec. 23) ; 

Passes upon transfer regulations proposed by the Company 

(Sec. 23) ; 

Passes upon applications of Interurbans for permission to use 
Company's tracks, and in case of disagreement as to compensa- 
tion to be paid therefor, may dissent from award of Arbitration 
Board and fix a sum, which must be accepted by both parties (Sec. 

8); 



II" 



I I 



It 



I 



ns 



Servk E At Cost Agreements 



Passes upon the application of the four interurban Companies 
which the Grant requires the Company to permit to enter into 
Terminal and to participate in lease thereof during the first ten 
rears after Grant takes effect irrespective of the effect upon the 
Company's ability to earn its stipulated return. (Sec. 37.) 

Passes upon the application of any interurban to use the Termi- 
nal after the expiration of ten years, or the admission of four in- 
tenirban companies thereto. (Sec. 37.) 

May order additions to the facilities of the Terminal. (Sec 
37.) ^ ' 

Must pass upon any proposed changes in Terminal lease; must 
approve price to be paid for Terminal in the event that it is sold 
under the option granted to lessees in lease, and the price to be 
paid for any remaining property in the event of its destruction bv 
fire or other calamity. (Sec. 37.) 

Passes upon applications of the Company, or other Companies 
or individuals in the matter of joint use of poles and fixes com- 
pensation. (Sec. 3.) 

Must approve any change in motive power. (Sec. 3.) 
May authorize the abatement or removal by the Supervisor of 
any Company building which it deems to be dangerous to life or 
property, without incurring liability on the part of the City 
(Sec. 4.) 

Order changes in tracks or wires of the Companv, to permit of 
^alterations in location of water pipes and other underjrround 
stTTietures. Such changes shall be made without cost to City. 
In the case of persons or corporations other than the City, com- 
pensation for the expenses involved shall be made. (Sec. 5.) 

Decides where and when paving shall be done in the streets by 
the Company, except that the Company may not be required to 
pave any part of the street unless the full width of the street is to 
be paved. This authority to order pavement applies to rights of 
way claimed to be owned by the Company, in the case of which, 
however, the Company may, in lieu of pavement, construct what is 
known as " park space." (Sec. 6.) 

Shall select sites for power houses, car barns, substations, shops 
and other buildings which the Company may desire to construct. 



Service At Cost Agreements 



139 



After buildings are erected on the sites selected by the Commis- 
sioners they shall not be ordered moved by the Commissioners, 
unless the Company is compensated for the expenses involved. 
(Sec. 30.) 

Must give its approval before the removal to other locations of 
existing structures. (Sec. 30.) 

Must give its approval before track, or service upon track may 
be abandoned. (Sec. 30.) 

May require the removal of tracks from one street to another if 
conditions of traffic require. No changes in track location may 
be made without its approval. (Sec. 30.) 

May direct the Company to sprinkle streets and fix the com- 
pensation therefor. (Sec. 34.) 

^lay permit the carriage of freight and express by the Com- 
pany. (Sec. 32.) 

Supervise and directs the expenditure of the $1,000,000 which, 
under the terms of the Grant, the Company agrees to expend for 
Extensions, Betterments and Improvements, within 18 months 
after Grant takes effect. (Sec. 28.) 

Passes upon all requisitions for Extensions. (Sec. 27.) 

Passes upon all requisitions- for Extensions, Betterments and 
Improvements which may be submitted to it by the Supervisor. 
(Sec. 78.) 

May allow or disallow proposals for Extensions, Betterments 
and Improvements outside of City, except when such Extensions, 
Betterments and Improvements are required to be made by law. 
(Sec. 27.) 

Shall agree with Company as to designation of any Extensions, 
Betterments and Improvements which shall be allowed a cumula- 
tive return in the event of the purchase of the property by the 
City or a license of City. (Sec. 40.) 

Passes upon the use of proceeds from the sale of abandoned or 
obsolete property, whether it may be used for Extensions, Bet- 
terments, or Improvements or for the reduction of the Company's 
indebtedness. (Sec. 20.) 

Shall act for the City in case of Arbitration demanding arbi- 
tration on behalf of the City, appoint the City's Arbitrators and 
fix the fees of Arbitrators. (Sec. 13.) 




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Service At Cost Agreements 



Confirms and certifies security issues when requested so to do 
by the Company. (Sec. 19.) 

Shall require the Company to keep its property insured and 
passes upon the distribution of insurance payments received 
among the Company's creditors. (Sec. 20.) 

May by agreement with the Company revise the provisions of 
the Grant which fix the " normal condition " of Accident, Surplus 
and Repairs, Maintenance and Depreciation Reserves. (Sec 
22.) 

Decides as to the investment of the money in these reserves. 
(Sec. 22.) 

Passes upon proposals to increase the amount of Working 
Capital. (Sec. 27.) 

Prescribes the manner and time in which depreciation required 
to be paid upon leased property shall be so paid. (Sec. 46.) 

Is authorized, under the conditions prescribed, to declare the 
Grant forfeit. (Sec. 42.) 

Must give its approval before the Grant may be assigned by the 
Company. (Sec. 44.) 

Appoints and removes Supervisor. (Sec. 11.) 

Audits bills of Supervisor in connection with the checking of 

Extensions, Betterments and Improvements. (Sec. 27.) 

ShaU appoint one of its members to act as ex-officio, in case the 

provisions of the Grant relative to the Supervisor are held to be 

invalid. (Sec. 43.) 



The Commission: 



Memphis 



May provide the amount of the Renewal and Replacement and 
the Injuries and Damages Reserves ; 

Shall modify from time to time as is in its judgment required 
the method of keeping accounts; 

Shall prescribe the standard of service; 

Shall approve all additions to or deductions from Capital Value • 

Must approve all investments of funds in the Renewal and 
Replacement Reserve; 

Must approve all expenditures from the Renewal and Replace- 
ment Reserve; 



Service At Cost Agreements 



141 



Must approve all investment of funds in the Injuries and Dam- 
age Reserve; 

Must approve the amount and determine the method of making 
payments to the Injuries and Damage Reserve; 

May make investigation of the Company's aecounts, the seiTice 
furnished by it, or the character or cost of the service. 

Shall consider a traffic survey, which the order provides shall 
be made if the City so desires and shall base recommondations as 
to service thereon. 



9.— ARBITRATION 

(a) Machinery for 

Clevelai^d 

Disputes' connected with accounting methods are arbitrated by 
the Committee on Standard Classification of Accounts of the 
American Electric Railway Association. (Sec. 10.) 

Disputes arising from the interpretation of the Company's con- 
tracts with municipalities, other than the City of Cleveland, are 
arbitrated by a Board consisting of one representative of the City 
of Cleveland, one representative of the other municipality 
aifected, and a third to be appointed as provided for general 
arbitration Boards. (See next below.) (Sec. 29.) 

All other arbitrable disputes are submitted to a Board consist- 
ing of one representative of the City, one representative of the 
Company, and a third member to be selected by agreement be- 
tween the two, or in the event that they are unable to agree, by the 
United States District Judge for the District in which Cleveland 
is located, or in the event of his disqualification, or refusal to act, 
by the United States Circuit Judge for the Cleveland District. 
The party seeking arbitration, shall notify the other party of the 
selection of its arbitrator and shall at the same time furnish a 
statement of the question. If the party so notified does not within 
ten days appoint its arbitrator, he shall be appointed by the first 
party. If the third arbitrator is appointed by a United States 
Judge, such judge shall give at least three days' notice of his 
selection to both the City and the Company, who may file ob- 
jections- to such selection. A majority of the three arbitrators 



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decide the questions submitted. Unless the Board unanimously 
agrees to extend the time, they must render a decision within 
thirty days from the time of the appointment of the third arbi- 
trator. If the decision is not so rendered, either party at interest 
may apply to the Federal Judge for the removal of the third arbi- 
trator and the appointment of a new arbitrator. The expenses of 
arbitrator shall be paid by the Company as an operating expense, 
unless in any six months, they shall exceed $5,000, in which case 
the excess shall be paid from the Interest Fund. (Sec. 11.) 

YoUNfiSTOWN 

Disputes connected with book-keeping and accounting methods 
shall be arbitrated by the Committee on A Standard Classification 
of Accounts of the American Electric Railway Accountants' As- 
sociation, or other persons to whom supervision of accounting 
methods may be delegated by law. (Sec. 8.) 

All other arbitrable disputes shall be arbitrated by a Board of 
Arbitration consisting of one representative of the City, one repre- 
sentative of the Company and a third to be selected by the two, or 
in the event of their failure to agree by the United States District 
Judge for the District in which Youngstown is located ; or in the 
event of such Judge's refusal or disqualification to act, by the 
United States District Judge of any other District. 

The party seeking arbitration shall notify the second party of 
its selection of an arbitrator and at the same time submit a con- 
cise statement of the question to be arbitrated. If the party so 
notified does not within three days appoint an arbitrator, then on 
the fourth day, the party seeking arbitration may select the second 
arbitrator. Within three days after the selection of the second 
arbitrator, by one of these methods, the two shall select the third. 
Upon failure to agree, application shall be made to the United 
States Judge, as explained above, a statement of the matter to be 
arbitrated, being furnished to the Judge at the time of the applica- 
tion. Five days l>efore making an appointment, the Judge shall 
notifv^ of his selection both the City and the Company, and either 
of the parties may file objections. (Sec. 9-A.) 



Service At Cost Agreements 



143 



A majority of the three arbitrators shall decide the question 
submitted. Unless the Board unanimously agrees to extend the 
time, the Board's decision shall be rendered within 20 days from 
the date of the appointment of the third arbitrator. Upon failure 
to agree within 20 days, either party may apply to the District 
Judge for the removal of the third arbitrator and the appointment 
of another person in his place. (Sec. 9-A.) 

The same question shall not again be submitted to arbitration 
for a period of three months from the date of the decision of the 
Board. (Sec. 9-A.) 

Cincinnati 

Orders of the Director prescribing service may be objected to by 
the Companies within ten days of the date of the order. The 
Director shall give a public hearing upon such objections. His 
decision after such a hearing shall be final. • In case the Company 
refuses compliance, the City may bring action in a court of com- 
petent jurisdiction, and the Company may defend : in the case of 
orders involving Operating Expenses only on the ground that the 
Budget allowances are insufficient to enable them to perform their 
corporate obligations, maintain their organization and perform 
the duties imposed by the Grant; and, in the case of orders in- 
volving Capital Expenditure, only on the ground that it is unable, 
using due diligence, to secure the necessary capital. (Sec. 8.) 

In case the Company refuses to obey the orders of the Director 
as to bookkeeping and accounting measures the dispute shall be 
referred to the authorities upon whom the regulation of such mat- 
ters may from time to time devolve. (Presumably to the Ohio 
Public Utilities Commission.) (Sec. 8.) 

In case of disagreement between the Company and the Director 
as to the amount of the Annual Budget and the Supplements 
thereto, the Companies shall choose one Arbitrator and the Di- 
rector one Arbitrator, within five days of the notice by the 
Director of his disapproval, or in the event that either party fails 
to appoint an Arbitrator, the party who has appointed an Arbi- 
trator shall notify the Trustees of the Sinking Fund of the City of 
Cincinnati, who shall within five days of such notice fill the 
vacancy. The two so chosen shall within five days appoint a third 



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Arbitratorj and upon their failure so to do, either party may re- 
quest the Arbitration Committee of The Cincinnati Chamlx^r of 
Oomnieree to make such appointment. The Board thus appointed 
Fhall he governed by the rule that the Company shall be allowed 
sufficient funds to perform its corporate obligations, maintain its 
organization and perform all duties of operation and maintenance 
imposed by the Grant. The decision of a majority of the Board 
shall l>e final, Init if such decision l>e not renderc^i within 45 davs 
after the submission of the Annual Budget or Supplement thereto, 
the expenditures of the Companies shall be in accordance with 
such Budget or Supplement. (Sec. 8.) 

In the event that the Companies and railways seeking the use 
of their facilities, fail to agree as to the compensation to be 
charged for such use, or the Director fails to approve of such 
agi'cement, and fix the com])ensation to be paid, the right to use 
sucli facilities upon the terms prescribed by the Director, may 
be enforced bv the railwav seekinij the ric:ht, in anv court of com- 
petent jurisdiction and the Companies may defend upon the 
ground^ that the compensation fixed by the Director does not pro- 
vide the total cost of such use and a reasonable return upon the 
investment of the Companies. (Sec. 8.) 

Tf the Companies object to any revision of their rules regu- 
latinc; the issuing of transfers, made by the Director, they may 
within ten days of the date of the publication of such revision, 
file objections' with the Director. The Director shall then hold a 
publi'* hearing. His decision after such hearing shall become 
effective at the time specified in the decision. (Sec. 8.) 

Objections to schedules of charges for the carriage of 
freight, express matter and packages filed with the Director by 
the Companies, may be made by any person, firm or corporation 
interested. Within 30 days after the Companies have been served 
by the Director with notices of such objection, the Director shall 
hold a public hearing thereon. His decision, after this hearing 
shfill become effective at the end of 30 days, unles? the Com- 
panies shall file objections with the Director and begin proceed- 
ings in a court of competent jurisdiction on the grounds that the 
rates fixed by the Director are unreasonable. (Sec. 20.) 



Service At Cost Agreements 



145 



Boston 
'No provision is made for arbitration. In the event that the 
Trustees desire to make extensions to, construct, or purchase sur- 
face lines, beyond the limits of existing lines and the Board of 
Directors of the Company refuses consent, on the ground that it 
entails rentals, or other obligations, upon the Company after the 
period of public management and control, the Trustees are 
required to hold a public hearing. After such hearing they may, 
however, decide that pul)lic necessity and convenience requires 
the construction of tlie proposed line, under which circumstances 
they may proceed with its extension, construction or purchase, 
despite the failure of the Board of Directors to consent. (Sec. 3.) 

Massachusetts (General) 
If a majority of the State Directors of a Company believe that 
a particular order or decision of the Public Service Commission, 
would impair the ability to pay the six per cent return on its 
stock investment, they shall so advise the Public Service Com- 
mission, and if after reconsideration, the Commission persists in 
its order, the Company may apply to the Supreme Judicial 
Court of the State, for a reversal or a modification of the order 
or regulation. The Court may appoint three commissioners to 
determine the facts and questions at issue, and their report, when 
confirmed by the Court, shall be final. (Sec. 14.) 

Montreal 

The right of appeal to the Quebec Public Ttilities Commis- 
sion, from any decision of the Commission on any question of 
law or jurisdiction, lies with any party to the agreement, the 
Company, City, or any municipal corporation interested. Deci- 
sions affecting -the following matters are specifically subject to 
appeal: the expenses of the Commission to be paid by the Com- 
pany for payment ; agreements relating to the use of tracks and 
facilities by other companies and the connection with tracks of 
other companies; the adoption or improvements and betterments 
to track, rolling stock and other equipment; modifications, addi- 
tions, reconstructions, alterations and repairs to pavements, roll- 
ing stock and other things pertaining to the system ordered by 



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Service At Cost Agreements 



Service At Cost Agreements 



147 



the Commission, when the expenditure involved is more than 
$50,000 ; the Commission's decision as to the time in which spe- 
cific additions and extensions provided for in the agreement shall 
be made; orders of the Commission requiring the Company to 
build and operate new lines; Commission decisions involving 
contracts made by the Company when the expenditure is more 
than $50,000; decisions of the Commission as to passenger tar- 
iffs ; decisions of the Commission involving freight tariffs ; deci- 
sions of the Commiss^ion requiring materials used by the' Com- 
pany to be manufactured in Company shops within the limits 
of the City of Montreal; decisions of the Commission affecting 
the giirantee fund, the disposition of gross revenues, the fixing 
of operating and maintenance allowances and the permissible 
average density of traffic per car-mile, the maintenance and renew- 
als fund ; the return upon capital value, the contingent reserve 
fund, the division of surplus, the infliction of penalties. (Art. 

Hotice of every appealable decision must be given by the Cora- 
mission without delay, to the City, Company and to any other 
party in the case, by serving a copy of such decision either by 
registered mail or by a bailiff of the Superior Court (Art. 11) ; 
appeal shall be made within 15 days of the serving of such notice! 
(Art. 15.) 

Eastern Massachusetts 
While there is no specific provision for arbitration, the Act 
provides that in ease the Board of Directors refuses to give its 
consent to contracts for the construction, acquisition, rental of 
operation of new lines, or the extcAsion, sale or lease of existing 
lines, the Public Service Commission shall decide, whether such 
action is dictated by public convenience and necessity, and 
whether the return on the securities authorized by the Act is 
impaired. If the Company disagrees with the decision of the 
Commission, it may appeal to the State Supreme Judicial Court 
(Sec. 12.) 

Moreover, the State Supreme Judicial Court has jurisdiction 
to review, annul, modify, amend or enforce rulings, or orders of 
the Trustees, to the same extent that it has jurisdiction over the 
orders and rulings of the Public Service Commission. (Sec. 22.) 



Westerville 

In the event of a dispute between the Commissioners and the 
Company involving a matter which may be legally arbitrated, 
either party desiring arbitration shall serve notice in writing 
upon the other party, stating the question upon which arbitration 
is desired and naming its representative upon the Arbitration 
Board. Within ten days thereafter, the party so notified shall 
name its representative upon the Board and so notify the first 
pai*ty. Within ten days after the appointment of the second arbi- 
trator, the two arbitrators- thus selected shall agree upon the third 
member of the Board. If they shall within ten days fail to 
agree, or if either party shall fail or refuse to name an arbitrator, 
either may apply to a judge of the Court of Appeals of 
Franklin County, and such judge shall have power to designate 
such arbitrator, provided that the party making the application 
must give not less than five days' noti<?e to the other party, and 
if this party 1^ in default, it may within the five days- name an 
arbitrator, as originally entitled. 

Dallas 

In the event of disagreement as to any of the matter's covered 
by the Grant which may be lawfully arbitrated and which are not 
excluded from arbitration by the terms of the Grant, either the 
City or the Company may demand arbitration. The party so 
demanding arbitration shall notify the opposing party, giving 
the name of an arbitrator selected by it, and a statement of the 
matter upon which arbitration is desired. Within fifteen days 
after such notice, the party so notified shall select and notify the 
other party of the selection of its arbitrator. If it shall not so 
select and notify within the fifteen days, the first party may name 
the second arbitrator. Within fifteen days after the selection of 
the second arbitrator, the two shall select the third arbitrator. If 
they are unable to agree, either party may apply to the Chief 
Justice of the Supreme Court of Texas, stating the matter to be 
arbitrated and notifying the other party to the arbitration. In 
the event of the disqualification, absence from the State or fail- 
ure to act of the Chief Justice, application may be made in the 
same manner to the Associate Justices of the Supreme Court in 



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Service At Cost Agreements 



tile order of their seniority; in the event of disqualification, etc., 
to the Chief Justice of the Court of Civil Appeals for the Fifth 
Supreme Judicial District of Texas; in the event of his disquali- 
fication, etc., to the Associate Justices of said Court in order of 
seniority; in the event of their disqualification, etc., to the 
Judges of the District Courts of Dallas County, in the order of 
their seniority, and in the event of their disqualification, etc., to 
the Judge of any District Court of Texas. (Sec. 13.) 

The arbitrators shall be persons of skill and ability in the mat- 
ter to be arbitrated and not pecuniarily interested. The third 
arbitrator, imless selected by the other two, shall not be a resi- 
dent of Dallas. In the event that the matter submitted for arbi- 
tration involves the legal interpretation of the Grant, the arbitra- 
tors selected shall be attorneys entitled to practice in the Courta 
of Texas. (Sec. 13.) 

If during the course of an arbitration, there shall arise ques- 
tions involving the legal interpretation of the Grant, such arbi- 
tration shall be suspended untU the legal question shall be 
decided in the manner provided in the Grant (i. e., by arbitra- 
tion). (Sec. 13.) 

Before makins? appointment of the third arbitrator, the Judije 
making such appointment shall give ten days' notice to both par- 
ties of his selection, and either party shall have the right to 
object to such selection. (Sec. 13.) 

Before entering upon their duties, arbitrators shall take oath 
before a JSTotary Public to faithfully and impartially perform 
the duties of their office. (Sec. 13.) 

In the event of the death, disqualification, or failure to act of 
an Arbitrator, another shall be appointed within 30 days from 
the date of such event, in the manner prescribed for the original 
appointment. (Sec. 13.) 

Unless the time shall be extended by unanimous agreement, 
the Board of Arbitration shall announce its decision, within 30 
days of the date of the appointment of the third Arbitrator, fail- 
ing to do so, the third Arbitrator shall ipso facto cease to be a 
member of the Board, and a new third arbitrator shall be 
appointed in the manner provided. (Sec. 13.) 



Service At Cost Agreemexts 



149 



The lease, which by the terms of the Grant, the Company is 
authorized to make such interurban companies, using the Ter- 
minal, the purchase of which is also authorized by the Grant, 
contains provision for the arbitration of matters arising under 
its terms, and the Grant designates certain matters to be thus 
arbitrated. The following matters are thus provided for: 

The price to be paid for the Terminal by any Lessee exercising 
its option to piirchase thereunder. Such arbitration to be con- 
ducted in the manner provided in the lease, and the Company to 
select as its Arbitrator, such person as may be selected by the 
City. (Sec. 37.) 

Memphis 
"No provisions. 



II 



(b) Powers of Arbitration Authorities 

Cleveland 

The Board is empowered to determine all questions arising 
between the City and the Company, except those expressly 
exempted by the terms of the Grant. (Sec. 12.) 

Such exemptions are: 

Questions affecting the right of the City to control service, and 
the fixing of schedules or routes, except where the Company 
alleges that the City requirements would jeopardize the return to 
the Company, even under the highest rate of fare provided in the 
Grant. (Sec. 9.) 

The right to include certain expenditures for the extension, 
betterment and improvement of suburban lines, which is to be 
determined by agreement between the City and the Company. 
(Sec. 29.) 

In addition to the general subjects for arbitration it is specifi- 
cally provided for in the following cases: 

When the Company claims that it cannot provide the service 
required by the City under the highest rate of fare provided in 
the Grant, without jeopardizing return. (Sec. 9.) 

When the Company claims additional car-mile allowance for 
the operation of rush hour service. (Sec. 18.) 



150 



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ii 



In the event of a dispute over the necessity of increasing or de- 
creasing the Operating Allowance. (Sec. 19.) 

In the event of a dispute over the necessity of increasing or 
decreasing the Maintenance, Renewals and Replacement Allow- 
ance. (Sec. 19.) 

In the event of a dispute as to the necessity of increasing or 
decreasing the rate of fare, otherwise than provided in the Grant. 
(Sec. 23.) 

In the event of a dispute as to proper charges against " exten- 
sions, betterments and permanent improvements." (Sec. 26.) 

In the event as to a dispute as to whether extensions, he'ter- 
ments and permanent improvements proposed, can he made with- 
out jeopardizing Company's return, or a dispute as to the ability 
of the Company to raise the capital required for such purpose. 
(Sec. 27.) 

In the event of a dispute as to whether the methods and prac- 
tices of the Company in the collection of revenue and in the grant- 
ing of free transportation is wasteful. (Sec. 30.) 

All matters affecting the Grant, not especially excluded from 
arbitration by the terms of the Grant, may be arbitrated. (Sec. 
9.) The exclusions are: 

The sum fixed as Capital Value and the addition of the item-s 
provided by the terms of the grant. (Sec. 9.) 

The rate of return allowed to the Company under the terms 
of the grant. (Sec. 9.) 

The method of accounting, arbitration of which is provided for 
otherwise. (Sec. 9.) 

The right of the City to prescribe the service, except where it 
is claimed that any rate of fare provided in the grant will not 
cover the cost of the senice demanded. (Sec. 9.) 

The question of putting in force intermediate rates of fare not 
provided by the grant, which many only be done by agreement 
between the City and the Company. (Sec. 14.) 

The duty of the Company to expend within a period of five 
years, the sum of $750,000 for Extensions, Betterments and 
Permanent Improvements. (Sec. 15-C.) 



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151 



The arbitration of the following matters is specifically pro- 
vided for: 

Disagreement as to whether service prescribed by the City will 
interfere with the rate of fare in effect, or any higher rate pro- 
vided in the gi'ant. (Sec. 6.) 

The amount of the Operating Allowance. (Sec. 11- A.) 

The amount charged as rental for the Company's Offices in the 
building of the Mahoning & Shenango Railway & Light Co. 
(Sec. 11-C.) 

The proportion of the salaries of Officers of the Mahoning & 
Shenango Railway & Light Co., to be charged to the City system. 
(Sec. 11-Da.) 

The allocation of damages as between interurban and suburban 
lines and the City System, when interurban and suburban cars 
are operated over the City tracks. (Sec. 11-E.) 

The amount of the Maintenance, Repair and Renewal Allow- 
ance. (Sec. 12- A.) 

Charges to the Maintenance, Repair and Renewal Account. 
(Sec. 12-A.) 

Disputes as to methods of fare collection, purchase of materials 
and supplies and compensation of employees. (Sec. 14- A.) 

Disputes as to what expenditures of the Company are to be 
charged as Betterments, Extensions and Permanent Improvements. 
(Sec. 15.) 

Claims by the Company that Betterments, Extensions and 
Improvements proposed by the City, will impair the ability of the 
Company to earn the return stipulated in the Grant, or that it is 
unable to finance such, Betterment, etc., at the rate of return 
allowed by the City. (Sec. 15-C.) 

Disputes as to rates of fare to be charged, or salvage to be 
allowed when Grant has less than 15 years to run. (Sec. 18.) 

Disputes as to the allocation of funds in Amortization Fund, as 
between reduction in Capital Value and Betterments, Extensions 
and Permanent Improvements, in the event that an extension of the 
Grant shall be made after the accumulation of an Amortization 
Fund, under the provisions of the Grant applying when the Grant 
has less than 15 years to run. (Sec. 18.) 



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Cincinnati 
See Cincinnati C-7-(a). 

Boston 

Ko Arbitration Boards provided for. 

Massachusetts (General) 
See Massachusetts (General) C-7-(a). 

ilONTREAL 

The decision of the Quebec Public Utilities Commission in all 
matters except that of law is final. (Art. 15.) 

The Quebec Public Utilities Commission may confirm, reverse 
or modify the decision of the Commission on appeal, and render 
such decision as should, in its opinion, have been rendered by 
the Commission. (Art. 15.) 

When an appeal is not authorized under the agreement, or 
when an appeal is authorized but not lodged, if the Company neg- 
lects or refuses to comply with the decision of the Commission, 
the latter shall report to the Quebec Public Utilities Commission, 
which shall take any measure it may deem necessary to carry out 
the order of the Commission, in the same manner as if the deci- 
sion had been given by the Quebec Public Utilities Commission. 
(Art 20.) 

See C-7-(b)-2. 

Eastern Massachusetts 
'No Arbitration Boards provided for. 

Westerville 

A majority of the three arbitrators has power to decide the 
question submitted. A decision must be rendered within thirty 
days, unless there is unanimous agreement to an extension. The 
decision of the Board is binding upon both parties. (Sec. 18.) 

Specific provision is made for the submission of questions to 
arbitration as follows: 

Disagreement as to the institution, or limits of the overlapping 
fare zones provided for by the Grant. (Sec. 11.) 



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Service At Cost Agreements 



153 



The proportion of salaries and general expenses of the Com- 
pany to be charged to the operation of the Westerville division, 
covered by the Grant. (Sec. 13.) 

The question as to whether the Company is able to finance 
Extensions, Betterments and Permanent Improvements, proposed 
by the Commission, or whether such Extensions, Betterments and 
Permnnent Improvements, will impair the ability of the Company 
to earn its fixed return. (Sec. 14.) 



Dallas 

Questions submitted shall be decided by a majority of the 
Board of Arbitration. (Sec. 13.) 

The Board shall have the power to Rx dates for hearing; to 
prescribe rules for procedure, and to say when and how testi- 
mony of witnesses shall be taken, except that either party to the 
arbitration, may upon notice, take evidence of witnesses either 
within or without the State by oral or written interrogatories, 
and the procedure for such interrogatories shall follow as- closely 
as possible that prescribed by the laws of Texas. (Sec. 13.) 

Subject to the limitations contained in the Grant, all questions 
of everjr kind, character and description arising between the City 
and the Company in carrying out the provisions of the Grant 
** or in the exercise by the City or the Grantee of any of its 
authorized powers • and whether or not expressly committed to 
determination by arbitration by the provisions of this ordinance 
shall be subject to arbitration under the provisions hereof except, 
however, matters relating directly to the police powers of the city 
which shall not be abridged by anything herein contained." 
(Sec. 14.) 

The findings of a Board of Arbitration, except as to service 
and extensions, which decisions are subject to the provisions of the 
ordinance, shall be final and binding on both parties. (Sec. 14.) 

The finding invalid of any provision of the Grant, relative to 
arbitration, shall not affect any other provision of the Grant rela- 
tive to arbitration. (Sec. 14.) 

If any of the subjects designated for arbitration are found to 
be improper subjects therefor, the Commissioners retain the 



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authority over such matters prescribed by the City Charter, and 
the Company is entitled to apply for review to the Courts. (Sec. 
14.) 

The Board of Arbitration shall have the power in any order 
filed by it to fix or change the time any requirement thereof shall 
be performed. (Sec. 16.) 

The following matters are specifically excluded from arbitra- 
tion : 

The decision of the Board of Commissioners as to the amount 
to be added to property value on account of the purchase or acquisi- 
tion by the Company of the property of any other railway com- 
pany. (Sec. 2.) 

Kequirements of the Board of Commissioners, under the Grant, 
as to grading and paving. (Sec. 6.) 

Refusal of the Board of Commissioners to allow proceeds from 
the sale of property to be applied to the reduction of indebtedness. 
(Sec. 20.) 

Refusal of the Board of Commissioners to allow the Company 
to pay to creditors, monies received on account of insurance cover- 
ing losses. (Sec. 20.) 

Order of the Board of Commissioners requiring the removal of 
tracks in the so-called *' Fair Park Terminal." (Sec. 30.) 

Order of the Board of Commissioners as to the use of the Termi- 
nal by at least four intenirbans, within the ten years next after 
the taking effect of the Grant. (See. 37.) 

An order of the Board of Commissioners, requiring the Com- 
pany to return to the method and basis of selling tickets provided 
in the Grant, after a change has been made in such basis and 
method by agreement between the Commissioners and the Com- 
pany. (Sec. 24.) 

Arbitration is specifically provided for as- to the following mat- 
ters : 

The amount of compensation to be paid the Company for the 
use of its tracks by interurban railways entering the City, with 
the permission of the Board of Cofnmissioners. In this case, the 
interurban is substituted for the City as a party to the arbitration, 
and the award of the Board of Arbitration is subject to review by 



i 



Service At Cost Agreements 



155 



the Board of Commissioners, which may finally fix the compensa- 
tion to be paid. (Sec. 8.) 

The jeopardization of the Company's ability to earn, under 
the highest fare allowable, the return stipulated in the Gram, by 
requirements of the Board of Commissioners as to Service. The 
provision for arbitration does not, however, bar the City's right 
to require service under the provisions of the Dallas City charter. 
(Sec. 10.) 

The jeopardization of the Company's ability to earn, iinder the 
highest fare allowable, the return stipulated in the Grant, by 
requirements of the Board of Commissioners, or Supervisors as to 
the making of Extensions, Betterments and Improvements. (Sec. 
27.) 

The propriety of work done in the way of Extensions, Better- 
ments and Improvements, under the Emergency provisions of the 
Grant. (Sec. 27.) 

The action of the Board of Commissioners upon proposals of 
the Company for increase of working Capital. (Sec. 28.) 

Disagreement with the Supervisor^ as to wastefulness in 
expenditures or methods, or the means suggested by the Super- 
visor for the correction of such methods. (Sec. 29.) 

Orders of the Commission requiring the change of tracks from 
one street to another. (Sec. 30.) 

The question as to whether the cost of removing tracks in the 
so-called " Fair Park Terminal " shall be added to Capital Value. 
(Sec. 30.) 

The question as to whether the admission of any new inter- 
urban, other than the four whose admission is required by the 
terms of the Grant within ten years, will overcrowd the Terminal, 
and as to whether the provision of facilities to prevent such over- 
crowding will jeopardize the ability of the Company to earn the 
return stipulated in the Grant, under the highest fare allowable. 
(Sec. 37.) 

The allocation of the value of property outside the city, which 
the City may not have legal authority to buy, in case of the pur- 
chase by the City of the property of the Company. (Sec. 38) 

Orders of the Commission requiring the furnishing of addi- 
tional facilities in connection with the Terminal. (Sec. 37.) 



'I. 



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156 



Service At Cost Agreements 



Memphis 



No provisions. 



(c) Penalties 

Clevelaxd 
In the event of the failure of the Company to abide hj the deci- 
sion of a Board of Arbitration, or to carry out the orders of such 
Board, the return upon the stock of the Company may be reduced, 
but not more than one per cent, until such time as the Company, 
shall have in the opinion of the Board, carried out its orders. 
(Sec. 14.) 

YotJNGSTOWN 

Upon failure of the Company to fulfill the award of a Board of 
Arbitration, the rate of return allowed to the Company shall be 
reduced in such amount as the Board may decide, but not to 
exceed one per cent. In the event of the failure of the City to 
comply with the award of the Board, such rate shall be increased 
in such amount as the Board may decide, but not to exceed one 
per cent. Such increase* or decrease shall continue in force until 
the Board shall have decided that its award is being complied with. 
(Sec. 9-E.) 

CiNCINNITI 

Wo provision except as specified in C. 7 (a). 

BosToir 
1^0 arbitration Board provided for. 

Massachusetts (General) 
No provisions. 

MONTHEAL 

For failure to conform to the decisions, or for infringement of 
the orders of the Commission, the Company is liable to a fine 
of $40 a day, and, in the discretion of the Recorder's Court of 
Montreal in which such penalty is to be recovered in the manner 
provided for, the collection of other fines imposed by municipal 
ordinances, to the payment of costs, for each and every day during 
which it shall fail to conform or continue the infringement of 



Service At Cost Acreemexts 



157 



orders. In the case of infractions within the City limits, suits 
may be brought by the City or any officer thereof, and the fines 
so collected become the property of the City. In the case of 
infractions outside of City limits, suits may be brought by the 
municipalities affected, or by their officers, before any court of 
competent jurisdiction and the fines so collected become the 
property of the municipality (Art. 96). Fines levied against the 
Company are paid from the guarantee fund (see H-2) (Art. 92). 

If the provisions of the contract are infringed, by any person 
other than the Company, such person shall be liable to a fine 
of $40, or in the event that the fine is not paid to imprisonment, 
until it be paid, but for not more than 30 days. If the offense be 
committed within the City limits, the fine becomes the property 
of the City ; if committed outside the City limits, it becomes the 
property of the mimicipality in which the offense is committed. 
The method of its collection is the same as in the case of an offense 
hj the Company. (Art. 97.) 

'No action for the recovery of a fine against a person other 
that the Company may be brought after the expiration of six 
months after the date of the offense. (Art. 97.) 

Eastern Massachusetts 
ISTo Arbitration Board provided for. 

Westervillb 
"Ko penalties provided. 

Dallas 
Upon the failure of the Company to comply with the terms of 
any award made by a Board of Arbitration, such Board may, 
as a penalty, reduce the rate of return, which the Company is 
under the terms of the Grant entitled to earn upon its Property 
Value, in any amount, not exceeding 1 per cent, per annum of 
the Property Value, and such diminution in the rate of return 
shall continue, until the award has been complied with, or until 
modified or vacated by the Board. Whatever the number of 
co-existent defaults may be, the penalty shall not exceed the 
limit prescribed. For the purpose of seeing that its awards are 
complied with, or to modify, or vacate its orders, the jurisdiction 
11 



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158 



Seevice At Cost Agreements 



Seevice At Cost Agreements 



159 



of the Board of Arbitration shaU continue, until all matters 
arising from its award shall have been disposed of. In the case 
of a vacancy, it shall be filled in the manner provided for consti- 
tuting an original Board. (Sec. 11.) 



^0 pr' 



Memphis 



ovisions. 



(d) Expenses of Arbitration 

Cleveland 
Paid as part of cost of semce. 

YOUNGSTOWN 

The expenses of arbitration shall be fixed by the Board and 

«i Z /" ^P"™*'°S ^'^'' ^^«^Pt that any expenses in excess of 
?1,000 for any six months' period shall be paid from the Stabil- 
izing Fund. (Sec. 9-B.) 

Cincinnati 
The expenses of each arbitration shall be fixed by the arbitrators 
m their decision and shall be included as an item in the Budget 
or Supplementaiy Estimate and be paid by the operating com- 
pany from the gross receipts. (Sec. 8.) 

Boston- 
Xo Arbitration Board provided for. 

Massachusetts (General) 
Xo provisions. 

Montreal 
^ Xo provision is made for the expenses of arbitration, such pro- 
vision being unnecessaiy because no special arbitration boards are 
provided for. 

Eastern Massachusetts 
^0 Arbitration Board provided for. 

Westerville 
Expenses of arbitration shall be fixed by the Arbitration Board 
and charged as an operating expense. (Sec. 18.) 



Dallas 

All expenses of arbitration including the fees of Arbitrators, 
which shall be fixed by the Board of Commissioners, shall be 
presented by the Arbitrators in their award and paid (except as 
to expenses of arbitrations involving Extensions, Betterments and 
Improvements to be paid as a cost of the same) from Operating 
Expenses. (Sees. 13 and 27.) 



No provisions. 



1.— INITIAL VALUE 



Memphis 



D. RETURN 



Clevelat^d 

The initial capital value was fixed by agreement. (Forty-five 
per cent of the par value of the outstanding stock was wiped out 
by the settlement.) It consisted of 

(a) The bonded indebtedness of the company. 

(b) The floating indebtedness of the company and certain 
specified obligations of underlying companies, and the sum of 
$500,000, contributed to the Interest Fund. 

(c) Such remaining amount as brought the total to the agreed- 
upon initial value. (Sec. 16.) 

YOUNGSTOWN 

The Initial Capital Value was fixed by agreement. In general 
the property included is that used for the operation of the City 
System, including the Company's Haselton Shops, located in East 
Youngstown. The Company's City Power is included, as well 
as the steam heating plant, and the direct current distribution 
lines. Arrangement for interchange of current between the Com- 
pany's Youngstown power house and its power houses outside the 
city, as well as for the furnishing of steam for the steam heating 
lines, is provided for as previously explained. 

The value of this property is placed at $3,900,000. (Sec. 10.) 
In addition the following amounts were added to Initial Cap- 
ital Value: 



M 



160 



Service At Cost Agreements 



1 



The value of the stores, an inventor)^ of which having Ijcen fur- 
nished by the Company, the Commissioner decided were neces- 
sary to the administration of the property; the sum of $100,000 
set up as a Stabilizing Fund ; the sum of $50,000 to be used in pay- 
ment of claims and judgments arising before the taking effect of 
the Grant, and the sum of $50,000 to be used in payment of 
increased wages, from September 1, 1918, until the ordinance 
became effective. (Sec. 10.) 

wI^wiT'^^® total valuation of the property as allowed hv the citv and on 
h^ng5sirmn^^ '^ ^^* * ''^'*^*" '''^"'■" *' $4,370,480.37, the car mileage 

Cincixxati 
No specific value for purposes of allowing return is placed upon 
the property by the terms of the Grant. Certain rentals, and other 
returns are allowed, which amount to approximately six per cent 
on a value of $30,000,000, which is practically the amount of a 
tentative valuation made in 1916, plus the capital put into the 
property after that data 

Boston 
1^0 initial value is fixed. The act provides for the payment of 
rentals, interest on all indebtedness, fixed dividends on preferred 
stock, and dividends on common stock at stipulated rates. The 
capitalization of the Company at the time of the taking effect of 
the act was thus recognized. (Sec. 6.) 

Massachusetts (General) 
The Initial Value of the property upon which return is to be 
allowed is fixed by the Public Service Commission in accordance 
with the provisions of the Act. " Capital Investment '' is defined 
as " the amount of cash or fair value of the property paid in for 
stocks, bonds and other evidences of funded indebtedness and prop- 
erly expended for capital purposes," as determined by the Com- 
mission. It is, however, provided " that if the Commission has 
heretofore approved the issue of any such securities, no further 
determination in regard to the ' Capital Investment ' represented 
by such securities shall be necessary.*' (Sec. 2.) 



Service xIt Cost Agreements 



161 



In addition, before the Company can secure the benefits of the 
Act, its unfunded debt must be passed upon by the Commission. 
Interest upon that portion of the unfunded debt, allowed by the 
Commission, is to be considered as a part of the cost of service. 
Interest upon that portion disallowed by the Commission must be 
paid from the return allowed upon the " Stock Investment." 
(Sec. 4.) 

Montreal 
The initial value of the property is fixed at $36,286,295, as 
of June 30, 1917; being the sum found by a valuation made by 
L. A. Herdt, D. W. Ogilvie and A. H. Lapierre. (Art. 1, d, e.) 

m 

Eastern Massachusetts 
The Act authorizes the organization of a new Company to take 
over the property of the Bay State Street Railway Co. (The 
New Company is called the Eastern Massachusetts Streets Rail- 
way Co.) For the purpose of this purchase, the New Company 
is authorized to issue stocks, bonds and other evidences of indebted- 
ness in such amount as will represent a capital, bearing an annual 
interest and dividend charge (dividends on common stock being 
computed at six per cent), not in excess of six per cent or $42,- 
282,340 (which is the investment value placed upon the property 
by the Public Service Commission, as of August 1, 1916), and, 
in addition, such further amounts as the Public Service Commis- 
sion determines, were added to the property in the way of better- 
ments and improvements between August 1, 1916, and the date 
of purchase, except that additions and improvements paid for 
from the proceeds of Receiver's certificates, provisions for the 
retirement of which are made by the Act, shall not be so included, 
while the value of property sold or disposed of by the Receiver 
before the organization shall be deducted. The Public Service 
Commission is further directed to adjust Initial Capital Value, 
so that rentals paid by the Company, for the lease of lines not 
owned by it, shall represent the present value of such properties 
on a six per cent basis. (Sec. 4.) 



tr 



162 



Service At Cost Agreemexts 



Westerville 
The value of the property coming under the terms of the Grant 
is fixed by agreement and the Grant at $350,000. This is exclu- 
sive of Minerva Park, and embraces but 15 per cent of the value 
€f roadbed, track and overhead distribution system and equip- 
ment between 17th Avenue in the City of Columbus and the ]^orth 
Corporation line of the Village of Linden Heights as it was con- 
stituted at the time of the passage of the Grant. For the first ten 
years of the Grant, the Company waives right to earn interest on 
$75,000 of this $350,000 Initial Value. (Sec. 12.) 

Dallas 

The Initial Property Value fixed for the purpose of determin- 
ing fares and purchase price, was by the terms of the Grant placed 
at $4,100,000, exclusive of the value of the property leased from 
the I!^orthem Texas Traction Company and the property to be 
acquired from the Dallas Interurban Terminal Association. 
(Sec. 18.) 

Memphis 
The order of the State Railroad and Public Utilities Commis- 
sion, fixes the initial " investment '' as of July 1, 1919, upon 
which a retui-n is to be allowed at $11,846,034. Engineers em- 
ployed by the Commission, the City and the Company airreed 
upon $9,305,042 as the value of the physical property, overhead, 
working capital and cost of financing. There was disagreement as 
to the cost of development, and the vnlue to }>e al]<)we<l for super- 
ceded property. The final figure represents the judgment of the 
Commission after a consideration of the reports of the engineers 
representing the three difierent interests. 

2.— ADDED VALUE 

Cleveland 

Additions to capital value, consist of the par value of bonds and 
stocks, issued and sold with the approval of the City, for exten- 
sions, betterments and permanent improvements. (Sec. 17.) 

YOUNGSTOWN^ 

The par value of stocks and bonds sold, or debts created, with 
the approval of the City, for new lines, tracks, cars, buildings, 



Service At Cost Agreemexts 



163 



r 



lands or construction of any kind, Extensions, Betterments and 
Permanent Improvements shall be added to Capital Value. (Sec. 
10-B.) 

If bonds or stock are sold at a premium, such premium shall 
not be added to Capital Value. (Sec. 10-B.) 

The expense incident to the floating of new capital shall be 
added to Operating Cost. (Sec. 10-B.) 

The cost of paving, necessitated by the extension of the system. 
(Sec. 5.) 

Seventy-five per cent of the cost of rebuilding certain new cars 
as provided by the Grant. (Sec. 15-A.) 

Cincinnati 

No provision is made for added value, other than the provisions 
covering the amount of return to be allowed upon securities issued 
hj the Company, with the approval of the City, after the date 
when the Grant became effective. 

Boston 

No provision is made for added value. The Trustees h?ve the 
power to issue stocks, lx)nds and other evidences of indebtedness 
and may fix the rate of return thereon, excepting that the return 
on common stock is limited by the provisions of section 6. (See 
D. 4, Return on Common Stock.) (Sec. 3.) 

ILissACHFSETTS (General) 

There is no direct provision covering added value. Under 
existing laws, the Commission has complete control over the 
issuance of securities by electric railways, and it is to be pre- 
sumed that added value will consist of the amount of such securi- 
ties as are issued with the approval of the Commission. 

In addition, the Commission is directed to pass upon the un- 
founded debt of the Company, and interest as a part of the cost 
of service is allowed only upon that portion, which has the 
approval of the Commission. (Sec. 4.) 

Montreal 

There shall be added to initial value (knowTi as Capital Value), 
from time to time, such money, except that payable from thij 



II 



^ t 



l» 



164 



Service At Cost Agreements 



Maintenance and Renewals Fund, as shall be supplied by the 
company, and expended under the supervision of the Conmiis- 
sion, for bettenncnts, additions and extensions of plant, required 
by the contract, or approved by the Commission, together with net 
interest during construction. (Art. 92; Par. 3.) 

The amount, as ascertained by the Commission, expended by 
the Company for physical assets added to its system between. 
December 31, 1917, and the date that the contract became eifec- 
tive. (Art. 02; Par. 8.) 

Such working capital as is required by the Coimnission and 
furnished by the Company. (Art. 92; Par. 3.) 

Money furnished by the Company, to make up the difference 
between the actual cost and the reproduction cost of any unit or 
article replaced, or for which a substitute is provided. (Art. 92 ; 
Par. 2.) 

Eastern Massachusetts 

The Xew Company is authorized to issue $5,000,000 of serial 
bonds, secured by a mortgage of the entire property, subject only 
to certain mortgages securing the bonds of companies purchased 
by, or consolidated with the Bay State Street Railway Company. 
Such mortgage may further cover property to be acquired by the 
Company, with the exception that additional property may be 
acquired subject first to purchase money mortgages, conditional 
sale agreements and equipment trusts. The annual installments 
of such serial bonds, shall constitute a lien upon any surplus of 
the ]N"ew Company, applicable to dividends. (Sec. 5.) 

To the extent that revenue applicable to dividends is used in 
payment of installments on the serial bonds, or other evidences of 
indebtedness, it shall be capitalized, stock at par to be issued to 
the stockholders to take the place of bonds and other evidences of 
indebtedness, to the extent that revenues applicable to dividends 
were used in retiring such securities. (Sec. 6.) 

The expenses of the organization of the 'New Company and of 
transferring the property of the old company to the new shall be 
capitalized to the extent approved % the Trustees and the Pub- 
lie Service Commission, providing that such expenses shall be 
amortized within fifteen years from the date when thev were 
incurred. (Sec. 6.) 



Service At Cost Agreements 



165 



I 



The Trustees are further authorized, with the approval of the 
Public Service Commission, to issue such bonds, stocks and other 
evidences of indebtedness, as may be necessary to provide for 
extensions, improvements and betterments (See. 13), and upon 
the securities thus issued are directed to pay a return. (Sec. 14.) 

Westerville 

The sum of $25,000 to be used as Working Capital is added to 
Initial Value. (Sees. 12 and 13.) 

Sums invested for Extensions, Betterments and Permanent 
Improvements, " including highway improvements, equipment 
and other investments properly chargeable to Capital Account." 
(Sec. 12.) 

Dallas 

Under the Grant, the Company was to lease certain property 
of the Northern Texas Traction Co. and to purchase the property 
of the Dallas Interurban Terminal Association. Accordingly, 
provision was made for the addition to Property Value of the 
following items: 

Item 1: 

(a) One Hundred Thousand dollars of working capital pro- 
vided by the Company ; 

(b) Sums expended in organizing the new Company, as deter- 
mined bv the Board of Commissioners and exclusive of the cost 
of acquiring the money; 

(c) Sums expended on account of Extensions, Betterments and 
Improvements, subsequent to September 30, 1915. (The date of 
the original valuation) ; 

(d) The cost of Extensions (as distinguished from Better- 
ments and Improvements) made to the property of the Northern 
Texas Traction Co.; 

(e) Additions to Working Capital authorized by the Board of 
Commissioners. (Sec. 18.) 

Item 2 : 

(a) $1,301,516, being the value as of September 30, 1916 of 
the Terminal of the Dallas Interurban Terminal Association to 



II' 



•H 



166 



Service At Cost Agreements 



Service At Cost Agreements 



167 



the extent that the property had been paid for on that date by the 
Terminal Association ; 

(b) Payments made on account of construction by the Dallas 
Terminal Assoination, subsequent to September 30, 1016; 

(c) Payments on account of Extensions, Betterments and Im- 
provements to the terminal. (Sec. 18.) 

Item 3 : 

(a) $1,665,607.14, being the value of the property leased from 
the Xoi-thern Texas Traction, as of September 30, 1015. (Sec. 

18.) 

Item 4: 

(a) The cost of completing the viaduct over the Trinity river 
and bottomlands, the completion of which is provided for in the 
lease between the Company and the Northern Texas Traction Co. 
(Sec. 18.) 

Item 5 : 

(a) All sums expended by the Northern Texas Traction Co., 
subsequent to September 30, 1915, for the Betterment and 
Improvement (as distinguished from Extensions) of property 
leased to the Company ; 

(b) All sums exi>ended by the Northern Texas Traction Co., 
for the construction of the Trinity River viaduct, on or before 
September 30, 1916; 

(c) All sums exj^ended by the Company for Betterments and 
Improvements (as distinguished from Extensions) to the prop- 
erty leased from the Northern Texas Traction Co. (Sec. 18.) 

Item 6: 

(a) The difference between the cost of obsolete or worn out 
property (cost to l>e reckoned as cost new at the time of replace- 
ment) and the cost of the property with which it is replaced, 
should such cost be in excess. (iSec. 26.) 

(b) In the case of obsolete ^nd worn out property, acquired 
previous to September 30, 1915, and replaced within two and one- 
half years from the date when Grant took effect, the difference 
between the value of such property as of September 30, 1915 and 
the cost of the property w^th which it was replaced. (Sec. 26.) 



(c) The total amount of expenditures made under the pro- 
visions of the Grant requiring the Company to expend $1,000,000 
in Extensions, Betterments and Improvements within 18 months 
after the taking effect of the Grant. (Sec. 28.) 

(d) The cost of moving tracks from one street to another, when 
ordered by the Board of Commissioners, and if the Board of 
Commissioners agree, or a Board of Arbitration shall order it. 
(Sec. 30.) 

(e) The cost of removing tracks from " Fair Park Terminal." 
(Sec. 30.) 

(f ) Any items of Property Value covering the property of the 
Northern Texas Traction Co., which may have been deducted 
from Property Value, because of the termination of the lease, shall 
be restored in the event that the lease is renewed. ('Sec. 36.) 

Memphis 

The amounts to be added to Initial Value from time to time in 
order to ascertain the ]>asis of return, is determined in accordance 
with accounting methods to l)e prescri])ed by the Commission. 
For the present the I. C. C. Classification of Accounts is in use. 

8.— DEDUCTIONS FROM VALUE 

Cleveland 

From the Capital Value shall be deducted all the proceeds re- 
ceived from the sale of property included in capital value, except 
tuch portion as is used in the making of extensions, betterments, 
or permanent improvements, or deposited with trustees to secure 
mortgages. (Sec. 17.) 

YoUNGSTOWIJf 

Proceeds from the sale of property included in Capital Value, 
unless used for Extensions, Betterments and Permanent Im- 
provements, shall be deducted from Capital Value. (Sec. 10-D.) 

If any property included in Capital Value be sold for or super- 
seded by pro])erty of less cost, the difference shall be paid from 
the Maintenance, Repair and Renewal Account over such a period 
as may be agreed upon by the City and the Company, the amount 
to be amortized before the date for the expiration of the Grant. 



i^i 



I! 



\ . 



Service At Cost Agreements 



1' 



lidi 



If the amount so received shall be used for any other purpose than 
Extensions, Betterments and Permanent Improvements, it shall 
be deducted from Capital Value. (Sec. 10-D.) 

There shall be no revaluation of the Company's property. 
(Sec. 10-E.) 

CmcmNATi 
Xo provisions are made for deductions from value. Through 
the operation of certain sinking funds, values upon which return 
is allowed automatically decrease. 



Ko provisions. 



BosToiq- 



Massachusetts (General) 
" The Commission may order any Company accepting this 
Act to dispose of any property no longer of service to the Com- 
pany. Any loss thereby incurred may be distributed over a 
period not exceeding ten years, as provided for in Section four, 
Part IT, of Chapter three hundred and seventy- three of the Spec- 
ial Acts of A^'ineteen Hundred and Seventeen." (Sec. 13.) 

Montreal 

Proceeds from the sale of abandoned or obsolete property except 
real estate, sold, listed in the schedule upon which initial value 
is based, if not paid into the Maintenance and Renewals Fund, 
with the consent of the Trustees for the bondholders of the Com- 
pany, shall be deducted from Capital Value. (Art. 92; Par. 2.) 

The proceeds from land and buildings sold shall be deducted 
from Capital Value. (Art. 92; Par. 2.) 

The Company is required within five years from the coming 
into effect of the Agreement to sell certain specified real estate 
covered in the schedule upon which Initial Value was based, and 
the selling price is to be deducted from Capital Value. If, within 
the five years, this is not done, the value of such real estate as 
shown in the schedule shall be deducted from Capital Value. 
(Art. 90.) 

Eastern Massachusetts 
¥o provisions other than as stated under added value. The rule 
laid down by the Massachusetts Public Service Commission, is 



Service At Cost Agreements 



1G9 



that investment shall fix the value of electric railway pro^^erties 
and this investment is represented by the outstanding securities. 
As these securities are retired, the value decreases. 

Westerville 

The fair value of all proj^erty withdrawn from the public use. 
(Sec. 12.) 

Dallas 
A sum equal to the proceeds of property sold, if applied, with 
the consent of the Board of Commissioners, to the reduction of the 
Company's indebtedness, shall be deducted from Property Value. 
If the price received for property so sold shall be less than its 
actual cost, the difference shall be made good out of the Repair, 
Maintenance and Depreciation Reserve, or the Surplus Reserve, 
and if not so made good shall be deducted from Property Value 
(Sec. 20.) 

In the case of property acquired prior to September 30, 1915 
(date of original valuation), and sold within two and one-half 
years of the date when Grant became effective, any deficit as l)e- 
tween the value of such property on September 30, 1915, and the 
price received upon sale, shall be made good out of the Repair, 
Maintenance and Depreciation Reserve, or the Surplus Reserve, 
and if not so made good shall be deducted from Property Value 
(Sec. 20.) 

If in the case of the sale, by permission of the Board of Com- 
missioners, of any or all of the property embraced in the Terminal, 
the proceeds shall be used to pay the indebtedness of the Com- 
pany, a sum equal to such proceeds shall be deducted from Prop- 
erty Value ; in case the whole of the property is sold any deficit 
as between the value of the Terminal as set forth in the Grant, 
or, in case of the sale of part of the Terminal property, any deficit 
as between its cost and the sale price, shall be made good out of 
Repair, Maintenance and Depreciation Reserve, or Surplus Re- 
serve, and if not so made good shall be deducted from Property 
Value. (Sec. 20.) 

If property mortgaged in any other way than under a general 
mortgage, or acquired subject to a mortgage, is sold under fore- 
closure, or at a judicial sale, any deficit as between the amount at 



•Jl 



ii 



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170 



Service At Cost Agreements 



which such property is included in Proi)ei-ty Value, and the sum 
received at such sale shall be deducted from Property Value, and 
the proceeds of such sale shall be used for Extensions, Better- 
ments, or Improvements. (Sec. 20.) 

In the case of the destruction of or loss to pro|)erty insured, 
amounts received on account of such insurance may, with the con- 
sent of the Board of Commissioners, be use«l to pay oli" the indeb- 
tedness of the Company, and in such case shall be deducted from 
Property Value. Losses sustained through the destruction of 
projjerty, whether or not insured, shall be made good from the 
Repair, Maintenance and Depreciation Resei-ve, or the Surplus 
Reser\^e, and if such Reserves are insufficient to make good such 
losses they shall be held in suspense until they can be amortized 
out of Gross Earnings, (Sec. 20.) 

In the event that the lease of the property of the Xorthern 
Texas Traction Company shall be terminated, the value of all 
property includc^d in Property Value, on account thereof, shall be 
deducted from Property Value. (iSec. 36.) 

In the event of the purchase of the Property of the Company 
by the City, there shall be deducted from Property Value, the 
value of such property lying outside the City limits, as the City 
may not have the legal right to purchase. (Sec. 38.) 

In the case of purchase by either the City or Licensee of the 
property of the Company, and in the event that the Company shall 
not have acquired the property of the Northern Texas Traction 
Co., leased by the Company, the value of such leased property 
included in Property Value, shall be deducted from Property 
Value. (Sees. 38 and 39.) 

Property included in the value of the property leased from the 
Northern Texas Traction Co., as fixed by the Grant, sold and not 
replaced by property of equal value shall be deducted from Prop- 
erty Value. (Sec. 46.) 

Mempjiis 
The amounts to be deducted .from Initial Value from time to 
time in order to ascertain the basis of return, is determined in 
accordance with accounting methods to be prescribed by the Com- 
mission. For the present the I. C. C. Classification of Accounts is 
in use. 



Service At Cost Agreements 



171 



4.— RATE OF RETURN, NORMAL 



Cleveland 
Upon the bonded indebtedness of the Company (see (a) supra) ^ 
^ve per cent. When such bonded indebtedness is refunded such 
interest as the new bonds may bear, plus such rate as will amor- 
tize the discount, if the bonds be sold at a discount, the total 
not to exceed six per cent. (Sec. 16.) 

Upon the other indebtedness of the Company (see (b) supra), 
six per cent. 

Upon the capital stock of the Company six per cent. (Sec. 16.) 

Note: As the result of the decision of a Board of Arbitration this rate 
\»a8 in 1920, increased to seven per cent. 

It is further provided that there shall be paid from the Interest 
Fund, all taxes assessed, by the United States, the State of Ohio, 
or any County, Municipal or Township authorities in that State, 
against such stock, so that the six per cent shall be tax free 
(Sec. 17.) 

Youngstown 

Upon Initial Value, seven per cent per annum, paid in twelve 
monthly instalments. 

Upon added Capital Value, the rate of return fixed in the 
resolution authorizing the issuance of stocks, and bonds or the 
creation of floating debt, which shall in all cases be the lowest 
rate at which the capital can be secured. (Sec. 10-E.) 

Cincinnati 
Xo rate of return is specified. The Company is allowed cer- 
tain sums fixed in the Grant, covering rentals, interest and prin- 
cipal upon equipment notes and return upon moneys invested in 
the property. (See E. 1.) 

Boston 
On Rented Property — rents stipulated in lease. (Sec. 6.) 
On Indebtedness— interest fixed by securities or other evi- 
dences of indebtedness. (Sec. 6.) 

On preferred stock — fixed dividends. (Sec» 6.) 
On special issue of preferred stock, authorized by act to pro- 
vide $2,000,000 for betterments and improvements and $1,000,000 
to provide a Reserve Fund — fixed dividends not to exceed seven 
per cent. (Sec. 6.) 



172 



Service At Cost Agreemei^ts 



^ 



On Common Stock — five per cent, for the first two years of 
the ten-year period of public management and control; five and 
one-half per cent, for the next two years, and six per cent there- 
after. (Sec. 6.) 

Massachusetts (General) 
On Kented Property — rents as fixed in the lease. (Sec. 2.) 
On Indebtedness — interest fixed in securities or other evi- 
dences of indebtedness. (Sec. 2.) 

On Preferred Stock — dividends fixed at the time of issuance. 
(Sec 2.) 

On Stock Investment (defined as the difference between the 
sum of the "Capital Investment" (see D-1) and the amount 
paid in for outstanding preferred stock, bonds and other evidences 
of funded indebtedness) — On Stock Investment included in 
original value, six per cent; on stock investment hereafter issued 
with the Commission's approval, six per cent. (Sec. 2.) 

MoNTBEAJL 

On Initial Value — six per cent. (Art. 92; Par. 3.) 

On Added Value — six per cent (on money borrowed by the 
Company from Maintenance and Eenewals Fund, from Contin- 
gent Reserve Fund and from Tolls (Reduction Fund, the Company 
is required to pay six per cent interest into such funds). 

On new capital supplied during the war and for two years 
thereafter (the additional return to be paid for a period of five 
years after the close of the war, only) — six per cent, plus an 
additional one per cent. (Art. 92; Par. 3.) 

On working capital supplied by the Company under the direc- 
tion of the Commission — six per cent. (Art. 92; Par. 3.) 

Easteiin Massachusetts 
On Bonds, and other Evidences of Indebtedness — stipulated 
interest. (Sec. 14.) 

On Preferred Stock — stipulated dividends. (Sec. 14.) 
On Common Stock — six per cent. (Sec. 14.) 



Service At Cost Aoreemexts 



173 



Westerville 

Six per cent on Initial Value, including $25,000 of Working 
Capital, and excluding, for the first ten years of the Grant, 
$75,000 of the agreed upon value of $350,000 ; 

Eight per cent on additional capital in general; 

Fifteen per cent on new capital invested in the part of the 
enterprise located in the incorporated Village of Linden Heights. 
(Sec. 10.) 

Dallas 

The return allowed the Company is based on the Property 
Value as fixed by the Grant, irrespective of securities and varies 
as the rate of fare varies. 

AVhen the base fare rate is five cents, 22 tickets for $1, the 
allowable rate of return is seven per cent; 

When the base fare rate is five cents, six tickets for 25 cents, 
the allowable rate of return is eight per cent; 

When the base fare rate is five cents, seven tickets for 25 cents, 
the allowable rate of return is eight and one-half per cent; 

When the base fare rate is five cents, eight tickets for 25 cents, 
the allowable rate of return is nine per cent. (Sec. 23.; 

Memphis 

The return upon the investment shall not l>e more than 71/^, 
nor less than 6^/^ per centum, per annum. 

For any month in which the Fare Index Fund balance is less 
than $60,000, the return shall not be greater than at the rate of 
^V2 P^i* centum per annum. 

In any month when the Fare Index Fund balance is more than 
$60,000, the return may be at any rate, between 6^ and 71^ per 
centimi per annum, which the Company is able to pay after pro- 
viding the remaining costs of service, without reducing the Fare 
Index Fund below $60,000. 

If in any month, it is not possiblo to pay the minimum return 
of 6 14 per centum per annum to the Company, then such deficit 
shall be accumulated, and with interest at 6^^ per eentiun per 
annum, paid to the Company from future earnings l)efore any 
amounts are added to the Fare Index Fund. 



174 



Service At Cost Agreements 



5.~ADDITI0NAL ALLOWANCES 



Kona 



E'one. 



Cleveland 



YOUNGSTOWN 



Cincinnati 
When fare is six cents, twenty per cent of surplus receipts 
remaining after payments specified in E 1 (Sec. 22 of Grant) 
shall be paid to Company. 

When fare is &ve and one-half cents, thirty per cent shall be 
paid to Company. 

When the fare is five cents or less, forty-five per cent shall be 
paid to Company. (Sec. 22 H.) 



None. 



None. 



Boston 
Massachusetts (General) 



Montreal 

If, during the year, the Company keeps within 102i/^ per cent 
of the Operating Allowance (see E-2), fixed by the Commission, 
or if, upon decision by the Commission after examination of a 
statement to be filed by the Company during the year, or imme- 
diately after the close of the year, that any excess expenditures 
were unnecessary and unavoidable— one-eighth of one per cent 
of average capital value for the year (known as Operating Profit) 
shall be allowed the Company, except that in the case the Com- 
mission shall find any part of any excess to have been the result 
of unnecessary and avoidable expenditures, then such part as it 
finds to have been unnecessary and avoidable shall be deducted 
from the Operating Profit. (Art. 92; Par. 1.) 

For expenses incurred in securing new capital, including dis- 
counts, commissions, printing and engraving, exchange, legal and 
other expenses in connection ' with the issuing of bonds; and 
printing, engraving, transfer and registration fees, and the listing 
on stock exchanges, of stock — annually, $181,431.37 (being one 
half of one per cent of initial value), provided that this money 



Service At Cost Agreements 



175^ 



is to be used for no other purpose and the surplus kept in a special 
account, not to be disturbed until the termination of the contract. 
(Art. 92; Par. 3.) 

After the payment of all charges provided for in the contract^ 
the surplus of gross revenues remaining (known as the Divisible 
Surplus) are divided, thirty per cent to the city, twenty per cent 
to the Company and fifty per cent to the Tolls Reduction Fund* 
(Art. 92; Par. 6.) 



'None. 

None. 

No provisions. 

No provisions. 



Eastern Massachusetts 

Westerville 

Dallas 

Memphis 



6.— ASSURANCE OF RETURN 

Cleveland 
The only assurance of return contained in this grant, is the- 
provision for the automatic regulation of fares. If the Company 
believes that the service demanded by the City, is so great as to 
jeopardize the return to the Company, even though the highest 
rate of fare be in force, it may appeal to a Board of Arbitration^ 
which shall decide the question. (Sec. 9.) See also under A, 2, 
provisions for control of rates and service, when grant has lesa 
than fifteen years to run. 

Youngstown 

Only such assurance of return as is given by the automatic regu- 
lation of fares. If the Company believes that the service prescribed 
by the City is so great as to jeopardize its return under any rat& 
of fare stipulated in the grant, or that the proposals for Extensions^ 
Betterments and Permanent Improvements made by the City, 
jeopardize such rate, it may submit the question to a Board of 
Arbitration. (Sees. 6 and 15-C.) 

Wlhen the Grant has less than 15 years to run, the Company maj 
charge such rate of fare as will insure its stipulated return, and a 



I ♦!!' 



H' 



•SwncE At Cost AoREEirEWTs 



'i™ 



mliewitt adclitioiial amount to amortize the entire value of the 
property iJiirrag the remaining life of the franchise. (See. 18.) 

ClXClNXATI 

f he assurance of return given is that provided b^ the automatic 
regulation of fares. If the Company believes that the service pre- 
scribed by the city cannot be performed under the budget allow- 
ance, the determination is left to a court of coinj^etent jurisdiction. 
Similarly orders of the City providing for capital expenditures 
may be disputed by the Company. ( Sec. 8. ) 

The obligation of the City is further limited by the following 
paragraph : « I^othing in this Paragraph 22 shall l>e construed 
to make any payment or payments, or cumulative payment or pay- 
ments obligations of the City or to make any cumulative payment 
or payments obligations between the City and the Companies pay- 
able from any source other than gross receipts and the sum or sums 
from time to time in the aforesaid Keserve Fund. (Sec. 22.) 

BOSTOX 

If, on the last day of June, or the last day of December, in any 
year, the amount in the Beserve Fund, shall be insufficient to make 
good any deficiency in the cost of service, the Trustees shall notify 
the Tieasurer and the Keeeiver General of the State of the amount 
of such deficiency, less any amount remaining in the Reserve Fund, 
and the State shall thereupon pay over to the Trustees the amount 
so ascertained, which shall be used for the purpose of paying such 
cbficiency. (Sec. 11.) 

Pending the payment of this sum by the State it shall be the 
duty of the Tnistees to borrow such sums as will enable them to 
meet all deficiencies, including dividend payments. (Sec. 11.) 

If on tlie last day of June, or the last day of December of any 
year, the Reserve Fund shall exceed the original $1,000,000, the 
Trustees shall apply the excess, bo far as necessary, to the reim- 
bursement of the State for the money advanced to the Trustees to 
meet deficiencies. (Sec. 11.) ' 

The Treasm-er and Receiver General of the State may borrow 
if necessary the money with which to pay the deficiencies ascer- 
tained by tfee Receiver "General. (Sec. 11.) 



Service At Cost Agreements 



17T 



The amounts so paid to the Trustees shall be assessed upon the 
cities and towns in which the Company operates by an addition 
to the State tax next levied, in proportion to the luimber of persons 
in said towns and cities using the service of the company at the tinie 
of the payment, this proportion to be ascertained by the Trustees 
and certified to the Treasurer and Receiver General. (Sec. 14.) 

Massachusetts (General) 

Only such as is afforded by a scale of fares, automatically ad- 
justed to cover the cost of service. 

Montreal 
Assurance of return is given through provisions making it 
mandatory upon the Commission to increase rates of fare in such 
amount as will provide for the payment of all charges set forth in 
the agreement. (Art. 92; Par. 6.) 

Eastern Massachusetts 
The I^ew Company is authorized to issue $5,000,000 of serial 
bonds, to provide for the retirement of Receiver's Certificates, and 
other evidences of indebtedness, a Reserve Fund of $500,000, and 
the improvement and betterment of the property. Of this amount 
$1,000,000 was provided by the stockholders of the old Company^ 
with no special assurance of return. For the remaining $4,000,000, 
the Trustees were authorized to enter into an agreement with the 
purchasers, whereby, if the earnings of the Company applicable to 
dividends were insufficient to pay installments falling due, the 
State Treasurer should advance the necessary money, taking in 
exchange serial bonds to the amount thus advanced. ' These bonds 
are thus purchased by the State on account of the various cities 
and towns served by the Company, in proportion to the number 
of persons in such cities and towns using the service of the Com- 
pany. The Trustees may borrow sufficient money to pay install- 
ment of serial bonds due in anticipation of purchase by the State - 
the State Treasurer may borrow in anticipation of contributions 
from the cities and towns, and the cities and towns may borrow 
in disregard of their debt limit for this purpose. If on June 30,. 
or December 31, of any year, earnings of the Company applicable 



ii 



n 



178 



Service At Cost Agreements 



Service At Cost Agreements 



179 



to dividends are in excess of any sums needed to pay installments 
due on serial bonds, such excess shall be used in purchasing 
serial bonds held by the State on account of cities and towns 
(Sees. 9, 10.) 

Further assurance of return is afforded by a flexible, automatic 
system of fares, adjusted by the Trustees to\he cost of the service. 
(Sec. 17.) 

Westebville 
Assurance of return is provided by the automatic regulation of 
fares (Sec. 12) ; by the provision that when the Grant has less than 
fifteen years to run, control of service and fares passes to the Com- 
pany (Sec. 7) ; by the prohibition against the Commissioners 
requiring service that jeopardizes the return upon the investment 
(Sec. 7) ; and by the prohibition of requirements for Extensions, 
Betterments and Permanent Improvements that would do the same 
thing. (Sec. 14.) 

Dallas 

There is no other assurance of return than that provided by the 
sliding scale of fares, and the authority given the Company to 
demand arbitration in regard to requirements for Service, or Exten- 
sions, Betterments and Improvements which it believes will 
jeopardize its ability to earn the stipulated return, under the 
highest fare permitted by the Grant. 

Memphis 

There is no assurance of retui-n, other than the provision for a ' 
fiexible rate of fare. 

E. COST OF SERVICE 

1.— DEFINITION OF 

Clevelai^d 

There is no separate definition of the elements of the cost of 
service in grant. Authorization for the following payments, are, 
however, found in various provisions of the ordinance: 

Operating expenses (including insurance, payments of claims, 
salary and expenses of City Street Railroad Commissioner, which 
:ahall not exceed one per cent of operating allowance for the year ; 



expenses of Commissioner in supervising plans for extensions, 
betterments and permanent improvements, when such are not 
actually made, (if made such expenses are charged to construc- 
tion) ; the expenses of Boards of Arbitration, not to exceed $5,000 
in any six months (excess expenses are charged to the Interest 
Fund), and transportation provided for employes of the Company 
other than office employes) ; 

Maintenance, depreciation and renewals; 

Rentals ; 

Taxes ; 

Interest ; 

Dividends. 

There is no recital of the elements which go to make up the 
cost of service in the grant. Provision is made for the payment 
of: 

Operating Cost (inasmuch as the method of keeping accounts 
prescribed by the American Electric Railway Accountants' Asso- 
ciation is adopted, it may be taken for granted that the provisions 
of the I. C. C. Standard Classification of Accounts is followed). 
(Sec. 1.) 

Return to capital. (Sec. 13.) 

Specific provisions are made for the payment of the following 
items as Operating Costs: 

The cost of paving, repaving and street repairs other than that 
necessitated by the extensions of the present lines. (Sec. 5.) 

The salary of the Commissioner, not to exceed $600 a month. 
(Sec. 8.) 

The ordinary expenses of the Commissioner, not to exceed 
$900 a month. (Sec. 8.) 

The expenses of the Commissioners in preparing plans for 
Extensions, Betterments and Permanent Improvements, proposed 
by the City, and in checking similar plans proposed by the Com 
pany, when such plans are not carried out When they are 
carried out they become part of the cost of the improvement. 
(Sec. 15-D.) 



180 



Service At Cost Agreements 



I 



The expenses of Boards of Arbitration, except that expensee 
m e^^ of $1,000 for any period of six months, shall be paid 
iBom the Stabilizing Fund. (Sec. 9-B.) 

Expenses incident to the i«ue and sale of stock and bouas or 
the creation of floating debt. (Sec 10-B.) ' 

The difference between the estimated value of any property 
as n appears in Original Capital Value, and the price at which 
n IS 80ld, ,f It be sold. (This difference to be amortized over a 
pmod of time, to be completed before the expiration of the grant.) 

The rental agreed upon, for the Company's offices in the build- 
ing^ the Mahoning &Shenango Railway* Light Co. (Sec 11-C ) 

The expenses of the Commissioner in investigating the Com- 
pany s methods of fare collection, purchases and the compensation 
paid to employes. (Sec. 14- A.) 

Twenty-five per cent of the cost of rebunding certain of the 
Company s cars as provided for in the grant. (Sec. 15-A.) 

CmcxasA-n 
Tkwc is no reeital of the elements of cost of service but pro- 
vision ,8 made for the payment from gross receipts of the f oUow- 
ing Items, in the order named : 

First.— Operating expenses and maintenance, including taxes 
«cept the special Percentage Tax on gross earnings; Deprecia- 
tion (until 1922 at the. rate which was formerly charged bv the 
Company and after 1922 at a rate to be fixed by the Ohio Public 
Ltilities Commission). From the amount allowed for l>epre- 
muon 8haU be paid, until the Ohio Public Utilities Commission 
shall otherwise order, the principal payments on $1,159,000 of 
equipment notes, outstanding at the time the Grant became 
effective. During the period of six years from April 1 1919 
m quarterly installments, to the City and the Company, the costs 
ofraluation proceedings and a traffic survey formerly made. 
C«tam rentals for tracks, poles and other construction on three 
eity viaducto, amounting to $6,500 a year. The payment of the 
legal «xp««,s of both the City and the Company in cases grow- 
ing out of the resistance or enforcement of ordinances, orders 
or decisions in connection with the provisions of the Grant. 



Service At Cost Agreements 



181 



Second.— The payment to the Cincinnati Street Eailway Co., 
of the sum of $1,134,337, annually, being the amount of rental 
provided for in its lease to the Cincinnati Traction Company, 
or suck otker rental as may be later agreed upon between the two 
companies, subject to the approval of the Director of Street Eail- 
roads. The payment to the Cincinnati & Hamilton Traction Co., 
of $100,600 annually, being the amount of rental paid for the 
use of the tracks of the aforesaid company. (Sec. 22.) 

Third.— The payment to the Company, annually of $215,000 
interest and $82,445 sinking funds on $4,000,000 expenditures 
made by the Company prior to 1917, and interest on the equip- 
ment notes, provision for the payment of the principal of which 
is made in paragraph first The $4,000,000 above referred to 
and the $1,159,000 Equipment notes are to be known as the Re- 
ducible Debt, and payments on account thereof shall cease when it 
is fully retired. (Sec. 22.) 

Jourth.- The payment of the annual interest, dividend, sink- 
ing fund or retirement payments on securities issued with the 
approval of the City, for capital expenditures, ait^r the taking 
eifeet of the ordinanca The payment of interest on loans made 
by the Company after the taking effect of the Grant, until such 
loans shall be paid from gross receipts, or from the sale of securi- 
tiw issued with the approval of the City. The payment of inter- 
est on floating debt and for money borrowed to produce the Com- 
pany's portion of the Reserve Fund. The payment of interest on 
equipment notes issued after the taking effect of the Grant, pro- 
vided such notes are issued with the approval of the City. The 
payment of principal on equipment notes provided for in the 
first paragraph, if the Ohio Public Utilities Commission shall 
decide that they may not be paid from depreciation reserve. The 
payment to the City of expenditures in connection with the 
placing of tracks and poles on the Hopple street viaduct. (Sec 
22.) 

Fifth. — The payment annually to the Company of $416,000 
return on capital invested by it, between the time of the taking 
effect of the leases, given to the Cincinnati Traction Co., by the 
Cincinnati Street Railway Co. and the Cincinnati & Hamilton 



) 



182 



Service At Cost Agreements 



Service At Cost Agreements 



183 



Traction Co., and the time the Grant took effect. This Capital 
is considered to be in addition to that known as the Reducible 
Debt. (Sec. 22.) 

Sixth. — The payment to the City annually of a Gross Earnings 
Tax of $350,000. The payment to the City of certain arrears in 
the Gross Earnings Tax. (Sec. 22.) 

Seventh. — The accumulation of a Working Capital Fund. 
This shall be accrued under the direction of the Director of 
Street Railroads at such time and in such amount as he shall 
approve, and shall be sufficient for the usual purpose of such a 
fund. It shall be increased or decreased at his direction, upon 
notice being given at least 45 days before the end of any calendar 
year, and if decreased, the amount taken shall be expended for 
improvements and betterments, or extensions. 

Eighth. — The payment into the Reserve Fund, of such an 
amount as will, added to the $250,000, provided by the Company 
from capital, bring the amount up to $400,000, which shall be 
known as the IS'ormal Condition of the fund. (Sec. 22.) 

When the rate of fare shall be more than six cents, the payment 
into the Reserve Fund of all surplus remaining after the items 
heretofore mentioned have been paid. 

When the rate of fare shall be six cents, the payment into the 
Reserve Fund of eighty per cent of the surplus and to the Com- 
pany of twenty per cent. 

When the rate of fare shall be five and one-half cents, the pay- 
ment into the reserve fund of seventy per cent of the surplus and 
to the Company of thirty per cent. 

When the rate 9f fare shall be five cents or less, the payment 
into the Reserve Fund of fifty-five per cent of the surplus and to 
the Company of forty-five per cent. (Sec. 22.) 

Boston 
The cost of the service includes : 

Operating expenses, 

Taxes, 

Rentals, 

Interest on indebtedness, 



Depreciation, 

Obsolescence, 

Losses in respect to property sold, destroyed or abandoned, 

All other expenditures and charges which, under the laws of the 
Commonwealth now or hereafter in effect, may be properly charge- 
able against income or surplus. 

Fixed dividends on preferred stock. 

Dividends on par value of common stock, at five per cent, for 
first two years of period of public control and management, five 
and one-half per cent, for next two years and six per cent there- 
after. (Sec. 6.) 

Massachusetts (General) 
The Cost of the Service shall include: 

Operating expenses, 

Taxes, 

Rentals, 

Interest on all indebtedness approved by Public Service Com- 
mission, 

Dividends on preferred stock. 

Interest at six per cent on stock investment. 

Such allowance for depreciation, obsolescence and for losses in 
respect to property sold, destroyed or abandoned as may be fixed 
by the Commission, 

All other expenditures and charges recognized under I. C. C. 
Classification of Accounts, and the Laws of Massachusetts, as 
proper charges against income or surplus. (Sec. 2.) 

Montreal 

The term " cost of service '' is not used in the grant, but pro- 
vision is made for the payment of the following charges in the 
order given. (Art. 92.) 

Operating expenses, including, among other things, the expenses 
of the Commission, insurance, payments for claims and damages 
and a reserve, fixed by tin; Commissioner, to recover claims and 
damages liabilities. (Art. 92; Par. 1.) 

Taxes. (Art. 92; Par. 1.) 

Operating Profit. (Art. 92; Par. 1.) 






184 



Service At Cost Agreements 






ii. 



♦ 



Maintenance, renewals, replacements and substitutions. 

(Art. 92; Par. 2.) 
Eetuni on Initial Value. (Art 92; Par. 3.) 
Return ou Added Value. (Art 92; Par. 3.) 
Eetum ou Working Caprtal. (Art. 92; Par. 3.) 
Allowance for the expenses of securing new capital ($181,- 

431.47). (Art. 92; Par. 3.) 

Rental to the City at $500,000 a year. (Art. 92; Pai\ 5.) 

EasTEKN MASSACHUSETTa 

The cost of the service includes: 

Maintenance, 

Other operating expenses, 

Taxes, 

Rentals, 

Interest on bonds, serial bonds and other interest payments. 

Stated dividends on preferred stock, 

Six per cent on common stock, 

Allowance for depreciation, obsolescence, rehabilitation and 
losses, as deemed adequate by the Trustees, 

Other expenditures and charges, which, under the Massachu- 
setts laws, now or hereafter in effect, may be chargeable against 
income or surplus. (Sec. 14.) 

Westekvilxe 
There is no formal definition of the cost of service. Provision 
is made, however, for the payment of the following items: 

(a) Each month, one-tweLfth of the estimated annual cost of 
all taxes, to be accrued until due; 

(b) Each month one-twelfth of annual interest to be retained 
by the Company, on the then Capital Value; 

(c) Wages, 
Salaries, 

Power costs, ' 

Current repairs, 

Maintenance (current and deferred), 



Service At Cost AoREE^rENTs 



185 



Damage claims, due to operation of passenger service on West- 
erville line north of Seventeenth avenue, or of freight line at any 
point, 

Proportionate share of expenses of Company's Claim 
Department, 

All other expenditures properly chargeable to operating costs, 
Interest on indebtedness incurred in the construction, main- 
tenance or operation of the line. 

Dallas 

It is provided that the monthly Gross Receipts (defined as 
including all sums received from the conduct of the business car- 
ried on under the Grant and from the Terminal, profits derived 
from the sale of merchandise, rentals from real estate, buildings, 
tracks, sidings and equipment, and miscellaneous revenues from 
whatever source (Sec. 1) shall be devoted to the following pur- 
poses and in the following order : 

1. Payment of Operation Expenses, defined as including all 
expenditures usually so classified by the American Electric Rail- 
way Accountants Association, but in any event all expenditures for 
Labor and materials used in repairing, maintaining, preserv- 
ing, renewing, replacing and operating Company's property, 
including that held under lease, insofar as they are not chargeable 
to Property Value, or paid from Repair, Maintenance and Depre- 
ciation Reserve; 

Insofar as they are not chargeable to Property Value, all insur- 
ance premiums, legal expenses, accounting and office expenses, 
rentals for property or rights, except rentals paid under lease 
from Northern Texas Traction Co., losses, taxes and charges 
imposed by governmental authorities, expenditures and liabilities 
(insofar as they are not paid out of Accident Reserve) fox 
injuries and damages to persons and property; 

Officers' salaries and expenses; 

Expenses for advertising; 

All expenses not chargeable to Property Value, properly made 
and incurred; 

Interest on Working Capital. (Sec. 1.) 



I 



m 



186 



Service At Cost Agreements 



2. Ten per cent of Monthly Gross Receipts to apply to the 
creation and maintenance of the Repairs, Maintenance and 
Depreciation Reserve; 

3. Until there has been accumulated an amount equal to six 
per cent of Railway Gross Receipts for the twelve months, then 
next preceding (with which amount the Reserve shall be con- 
sidered as " normal " unless the Company and the Board of Com- 
missioners otherwise agree), six per cent of the monthly Railway 
Gross Receipts, to constitute the Accident Reserve; 

4. Payment to the Company of five-twelfths of one per cent of 
the Property Value, on account of stipulated return. This is at 
the rate of five per cent per annum; 

5. Further payments to the Company on account of stipulated 
return, it being provided that for every one-twelfth of one per 
cent on Property Value so paid to the Company, there shall be 
paid into the Repair, Maintenance and Depreciation Reserve, in 
addition to the payments provided by 2 three per cent of Rail- 
way Gross Receipts of the month ; 

6. The balance of Gross Receipts, remaining after the pay- 
ments in 1 to 5, inclusive, shall be paid into the Repair, Main- 
tenance and Depreciation Reserve, until that Reserve shall for 
the calendar year equal eighteen per cent of the total Railway 
Gross Receipts for the year; 

7. If in any calendar year, subsequent to the taking effect of 
the Grant, there shall have been less than eighteen per cent of 
Railway Gross Receipts paid into the Repair, Maintenance and 
Depreciation Reserve, then after the monthly payments provided 
in 1 to 6, inclusive, shall have been made, the balance of Gross 
Receipts shall be paid into the Repair, Maintenance and Deprecia- 
tion Reserve, until such deficits shall have been made good. 

8. Any balance remaining of Gross Receipts, after the pay- 
ment of 1 to 7, inclusive, shall be paid into Surplus Reserve^ 
when the amount in the Surplus Reserve shall equal eight per 
cent of the then Property Value, its condition shall be considered 
"normal," unless the Company and the Board of Commissioners 
shall agree upon another percentage; 

Payments into the Repair, Maintenance and Depreciation 
Reserve may cease when the amount of the Reserve is '^ normal.'^ 



Service At Cost Agreements 



187 



When the highest rate of fare provided in the Grant is in effect, 
the Reserve shall be considered "normal," when it amounts to 
six per cent of the then Propertv Value. When the next highest 
fare is in effect, it shall be considered normal when it amounts 
to ten per cent of the then Property Value. When the condition 
of the Reserve is "normal," the Company may pay to itself, 
from Gross Receipts, the full return allowed it by the Grant. 
(Sec. 22.) 

Memphis 
The cost of service shall include — 

Operating expenses, including allowances for both a Renewals 
and Replacement Reserve and a Injuries and Damage Reserve; 
Taxes ; 
Return on investment. 



8.— ALLOWANCES 

(a) Operating 

Cleveland 

The Operating Allowance is fixed by the original grant at 111/4 
cents per revenue car mile, exclusive of car-house and car-yard 
miles, and of cars used in carrying materials for the construction 
and repair work of the Company, for each motor car, and of 60 
per cent of lli^ cents, for each revenue car mile made by trailer 
cars. (Sec. 18.) In the Renewal Grant the operating allowance 
was fixed at 191^ cents. 

The Operating Allowance may be decreased or increased by 
agreement between the City and the Company, or by the action 
of a Board of Arbitration. (Sec. 20.) 

Youngstown 

* The Operating Allowance is fixed by the Grant at 22 cents per 
car mile, for cars equipped with motors and 60 per cent, of 22 
cents for trailer cars. (Sec. 11.) 

The Operating Allowance may be changed by agreement between 
the City and the Company, or by a Board of Arbitration. (Sec 
11-A.) 



* Note : The operating allowance has already been increased, effective May 
Ist, 1919, to 27 cents per car mile. 



188 



Sertice At Cost Agreemekj^ts 






ClNCnSTKATI 

A budget plan is provided by the terms of the Grant. Forty- 
five days before the end of each year, the Company shall submit 
to the Director of Street Railroads, an estimate of gross receipts 
and operating expenses covering the ensuing yesiT, The form pro- 
vided by the I. C. C. Uniform System of Accounts for Electric 
Railways to be followed. The Director shall within ten days, 
either approve or disapprove such Budget. In case of disagree- 
ment, the controversy shall be submitted to arbitration. (See C6 
(a), Par. 3. Sec. 8 of Grant.) 

At any time during the year the Company may submit a Supple- 
mentary Budget or estimate, which follows the same course as the 
original Budget. (Sec. 8.) 

Expenditures for operation shall not be made except under the 
General I. C. C. accounts, and shall not exceed the amounts under 
each account named in the Budget, except that with the approval 
of the Director transfers may be made from oiie aecount to 
another. (Sec. 8.) 

Boston 

Ko allowances are fixed by the Act. Expenditures are made in 
the judgment of the Trustees. 

Massachusetts (General) 

1^0 allowance provided for in the Act. Under general laws, 
Public Service Commission has extensive jurisdiction. 

Montreal 
The Operating Allowance is a sum fixed by the Commission for 
each revenue ear mile, exclusive of car-house and car-yard miles, 
operated by motor cars, except Company cars, with additional 
sums for revenue car miles run by trailers, and freight cars, 
again exclusive of car-house and car-yard miles. The Operating 
Allowance is fixed each year by the Commission in connection 
with its fixing of the permissible average density of traffic per 
car-mile, and the agreement provides that it shall be based upon 
the actual and necessarj^ expenses of operation for the previous 
year, and modifications of service, changing costs, or any circum- 
stances which influence the cost of operation. If in any jear 



•r I 



Service At Cost Agreements 



189 



there shall be an excess in cost of the Operating Allowance, which 
shall be determined by the Commission to have been necessary, 
such fact shall be taken into consideration in fixing the allowance 
for the following year. (Art. 92; Par. 1.) 

Eastern Massachusetts 

No allowance fixed by the Act. It is left to the judgment of 
the Trustees. 

Westerville 

Operating expenditures are left to the judgment of the Com- 
pany, except that the Commissioners may object to the propor- 
tion of salaries and other expenses, allocated to the Westerville 
line, in which case the dispute is arbitrated. (Sec. 13.) 

Dallas 

No operating allowance is provided for in the Grant. 

Memphis 

There is no provision for an operating allowance. The Injuries 
and Damage allowance is fixed by the Commission, and is paid into 
the Injuries and Damage Reserve, minus only such amounts as may 
be expended on account of payments for injuries and damages as 
prescribed in the I. C. C. Standard Classification of Accounts. 
The Injuries and Damage Reserve, which shall consist of the 
amount in the Company's reserve for this purpose at the time 
the order became eifective, plus the monthly credits on account 
of the allowance for injuries and damage as directed by the Com- 
mission. The balance in the fund shall be deposited or invested 
in the bonds of the Company as prescribed by the Commission. 

(b) Maintenance 

(&-i) Definition 

Cleveland 
There is no attempt to define the dividing line between Main- 
tenance and Depreciation and Renewals. A " Standard of 
Repair " is, however, established as follows : 

la 



I 



f I 



Service At Cost Agreements 



" The intent ... is to enable the Company to maintain, 
renew, replace, preserve and keep its railway system and property, 
and every part thereof, and all extensions, betterments and per- 
manent improvements . . . in good condition, thorough repair 
and working order, the standard of such condition, repair and 
working order being an average for the entire system of 70 
per cent, of its reproduction value. (Sec. 20.) 

YOUNOSTOWN 

A " Standard of Repair " is set up as follows: 

The intent hereof with r^ard to the sum authorized by Sec- 
tion 12 to be set aside fro Maintenance, Repair and Renewal is to 
enable the Company to maintain, repair and renew, replace and 
preserve, and keep its railway system and property enumerated 
in Section 10 and schedules thereof, and all extensions, better- 
ments and permanent improvements hereafter made pursuant 
hereto, in good condition, thorough repair and working order " 
(Sec. 12-B.) 

Disputes as to the definition of Extensions, Betterments and 
Permanent Improvements in distinction to Maintenance, Repair 
and Renewal shall be arbitrated. (Sec. 15.) 

Cincinnati 
The Company is required by the terms of the Grant to keep its 
property " in such repair and condition as shall be sufficient at 
all times for the safe and convenient operation of cars and traffic 
therein and thereon and for the safety and accommodation of 
passengers and property carried and for the protection of the 
City from liability to the public and shall restore and replace 
every necessary part which may wear out or cease to be useful." 
(Sec. 8.) 

Inasmuch as the Grant provides for the submission of the 
Budget under the form set forth in the I. C. C. System of 
Accounts, the definitions used therein may be considered to hold. 



Boston 



'No allowance provided for. 



Service At Cost Agreements 191 

Massachusetts 
No allowance provided for. 

Montreal 
The agreement provides that "the entire plant and property 
of the Company used and necessary to provide the public trans- 
portation service shall at all times be maintained at the highest 
practicable standard of operating efficiency." The Maintenance 
Allowance shall be used " for the purpose of maintenance, renewals, 
replacements and substitutions made necessary by wear and tear, 
age, obsolescence, inadequacy, accident or other cause." (Art 
92; Par. 2.) 

Eastern Massachusetts 
Act contains no definition. 



II 



^ 



Westerville 
Grant contains no definition. 

Dallas 
See C. 3. (a). 

Memphis 
The order contains no definition of maintenance in contra- 
distinction to Renewals and Replacements, but provides, as to 
the Renewal and Replacement Reserve, that it " shall be used for 
the sole purpose of providing renewals and replacements (other 
than ordinary maintenance) due to ordinary depreciation, obso- 
lescence or abandonment, as may be prescribed by the Commis- 
sion from time to time, and in accordance with the accounting 
methods prescribed herein." 

(h-2) How Fixed 

Cleveland 

The Maintenance, Depreciation and Renewal Allowance was 
fixed by the terms of the original grant, upon the basis of revenue 
car mileage, as for the operating allowance, as follows : 

In January, February, March, April, May and December, four 
cents per oar mile for motor cars ; 60 per cent of four cents a car 
mile for revenue trailers. 



192 



Service At Cost Agreements 



t 



In November, five cents a car mile, for motor cars; 60 per cent 
of ^Ye cents a car mile for revenue trailers. 

In June, July, August, September and October, sLx cents a car 
mile for motor cars; 60 per cent of six cents per car mile for 
revenue trailers. (Sec. 19.) In the Kenewal Agreement one cent 
per car mile was added for each month. 

The Maintenance, Depreciation and Renewal Allowance may 
be decreased or increased by agreement between the City and the 
Company, or by the action of a Board of Arbitration. (Sec. 20.) 

The allowance for Maintenance, Depreciation and Renewals 
is credited to a separate fund. No expenditures from this fund, 
can be made without the approval of the City. (Sec. 20.) All 
amounts not needed for maintenance or renewals, are accumulated 
and invested in the bonds of the Company, or in such of its float- 
ing indebtedness, as forms part of its capital value. If any part 
of the amount so invested is needed for maintenance and renewals, 
the Company may issue new bonds or floating indebtedness to the 
amount of such investment, which bonds or floated indebtedness 
becomes a part of capital value. (Sec. 20.) 

The Maintenance, Depreciation and Renewals Allowance, shall 
not be diminished, until such time as the value of the Company's 
property together with the amount accumulated in the Mainte- 
nance, Depreciation and Renewals fund, shall equal 70 per cent of 
the reproduction value of the value of the entire system. (Sec. 
20.) 

YOUNOSTOWN 

The Maintenance, Repair and Renewal Allowance is fixed by 
the Grant at eight cents a car mile for motor cars and 60 per cent 
of eight cents for trailers. (Sec. 12.) 

The Maintenance, Repair and Renewal Allowance may be 
changed by agreement between the City and the Company, or by a 
Board of Arbitration. (Sec. 12-a.) 

Changes to the* Maintenance, Repair and Renewal Account, 
must be approved by the City. In the event of disagreement, 
arbitration shall be resorted to.' (Sec. 12-A.) 

Cincinnati 

Allowances for Maintenance, Repairs and Renewals are fixed 
by the Company in the Budgets and supplements thereto, subject 
to the approval of the Director of Street Railroads. (Sec. 8.) 



Service At Cost Agreements 



I9:i 



Boston 
No allowances fixed by the Act. Expenditures are made in the 
judgment of the Trustees. 

Massachusetts (General) 

No allowance provided for in the Act. Public Service Com- 
mission now has certain jurisdiction. 

Montreal 

The Maintenance Allowance is a sum fixed by the Commission 
for each revenue car-mile, exclusive of car-house and car-yard 
miles, operated by motor cars, with additional sums for revenue 
car-miles operated by trailers and freight cars, again exclusive of 
car-house and car-yard miles. (Art. 92 ; Par. 2.) 

The Maintenance Allowance is paid into the Maintenance and 
Renewals Fund. To this fund is also added moneys received from 
the sale of property listed in the schedule upon which the Initial 
Value was based, when the Trustees for the Bondholders give their 
consent to such addition. (Art. 92; Par. 2.) 

In the case of property replaced subsequently to the date of 
Initial Value, when the cost shall be less than the actual, or the 
reproduction cost, or when any such property is sold and not 
replaced, moneys so received shall be credited to the Maintenance 
and Allowance Fund, and expended for the making of additions, 
betterments and extensions, and that proportion of the cost of 
such additions, betterments and extensions paid for by such 
moneys shall not be charged to Capital Value. (Art. 92 ; Par. 2.) 

In addition there shall be paid from the Maintenance and 
Renewals Fund : 

The actual and necessary expenses of maintenance and renew- 
als. (Art. 92; Par. 2.) 

The cost of the replacement or substitution of any unit of the 
property listed in the valuation upon which Initial Value is based, 
up to the full reproduction cost of said unit. (Art. 92; Par. 2.) 

The actual cost of the replacement or substitution of any item 
added to the property subsequent to the valuation upon which 
Initial Value is based. (Art. 92; Par. 2.) 



194 



Service At Cost Agreements 



> 



Money not required for these purposes shall be held in the 
Maintenance and Eenewals Fund, until it is required, or for 
investment in additions, betterments and improvements. (Art. 
92; Par. 2.) 

The Commission may, from year to year, increase or decrease 
the amount of the Maintenance Allowance as is required to pro- 
vide such an allowance ajs will keep, except temporarily, the 
Maintenance and Renewal Fund at $500,000, or more. (Art 
92; Par. 2.) 

The Fund is under the control of the Commission, and money 
therein may not be paid out, loaned, or invested, except with the 
Commission's permission. Bank or other interest thereon, is 
added to and becomes a part of the fund. (Art. 92 ; Par. 2.) 

If, in the judgment of the Commission, the condition of the 
fund warrants the loan, the Company, when it is compelled to 
furnish new capital, must first borrow from the Maintenance and 
Renewals Fund, in which case the return of six per cent, received 
by the Company thereon, is paid into the Maintenance and Renew- 
als fund. (Art. 92; Par. 3.) 

In case the City acquires the property of the Company at the 
termination of the agreement, the Maintenance and Renewals 
Fund becomes the property of the City, and its amount shall not 
be added to the purchase price. Any money borrowed by the 
Company from the fund and due at the time of purchase, if not 
be repaid by the Company, shall be deducted from the purchase 
price. (Art. 92;Pai-. 2.) 

Eastern Massachusetts 

Ho allowance fixed by the Act. It is left to the judgment of 
the trustees. 

Westerville 

Ko allowance fixed by grant. 

Dallas 

See provisions for Repair, Maintenance and Depreciation 
Reserve, under E. 1. 

Memphis 

* 

1^0 provision for Maintenance allowance. 



J I 



Service At Cost Agreements 195 

(c) Depreciation 

Cleveland 
Included in Maintenance and Renewals. 

YOUNGSTOWN 

Included in Maintenance and Renewals. 

Cincinnati 

Provision is made for the accumulation of a Depreciation 
Reserve, the amount to be paid into such reserve for the first five 
years of the Grant, being fixed as that previously allowed by the 
Companies themselves. After five years the amount of Depre- 
ciation allowance is to be fixed by the Public Utilities Commission 
of Ohio. Until the Commission shall otherwise order, payments 
sufficient to retire $1,159,000 of Equipment notes, as th^ mature, 
shall be paid from the Depreciation Reserve. (Sec. 22.) 

Depreciation funds shall be invested or deposited by the Com- 
pany as approved by the Director of Street Railroads and shall 
be used for renewals and replacements. (Sec. 22.) 

Boston 

The allowance for depreciation is specifically left to the judg- 
ment of the Trustees. They are, however, required to provide for 
obsolescence and " losses in respect to property sold, destroyed or 
abandoned." (Sec. 6.) 

The Trustees are further required to maintain the property in 
" good operating condition and to make such provision for depre- 
ciation, obsolescence and rehabilitation, that, upon the expiration 
of the period of public management and operation, the property 
shall be in good operating condition." (Sec. 13.) 

Massachusetts (General) 

Allowance for " depreciation, obsolescence and losses in respect 
to property sold, destroyed or abandoned," fixed from time to time 
by the Public Service Commission. (Sec. 2.) 

During the period of the war and for one year thereafter, the 
allowance may, in the discretion of the Commission, be smaller 
than would be considered adequate in normal times. (Sec. 13.) 



ii 



196 



Service At Cost Agreements 



Service At Cost Agreements 



197 






The Public Service Commission may order Company to dispose 
of property no longer useful, the loss +o be amortized over a period 
of not more than ten years. (See 1^^ 

Montreal 
See Montreal (E-2-(b-2) 

Eastern Massachusetts 
Fixed by the Trustees. (Sec. 14.) Subject to the approval 
of the Public Service Commission the Trustees are authorized 
for the period of the war, and for a time, not exceeding one year 
thereafter, to waive the setting aside of any depreciation allow- 
ance. (Sec. 17.) 

Westerville 

There is no direct provision for the accumulation of a Depre- 
ciation Reserve. In the cost of the service, Deferred Mainten- 
ance is one of the items provided for. 

Dalias 
" The Grantee covenants that it will at all times keep all its 
property, including the property embraced in said lease from 
JJ^orthern Texas Traction Company, in good and businesslike order 
and repair and as a whole in condition to give effective service. To 
this end, and to the end also that replacements and renewals may 
be made from time to time as necessary to maintain the property 
in such condition and to offset depreciation in the physical con- 
dition of the property as a whole, and that new types of equipment 
may be introduced to supersede those that become antiquated or 
obsolete according to commonly accepted commercial standards in 
the business, the Grantee will set up in the manner hereinafter 
provided, a Repair, Maintenance and Depreciation Reserve, and 
will use the same when and to the extent necessary for such pur- 
poses and for those purposes only, save as herein otherwise pro- 
vided." (Sec. 17.) ' 

The Grant sets up three Reserves — " Repair, Maintenance 
and Depreciation," "Accident " and " Surplus." 



In addition to the general provision for the use of the Repair, 
Maintenance and Depreciation Reserve, just quoted, the Grant 
provides for the following uses: 

In case any property included in Property Value is sold for 
less than its cost (or in the case of property acquired prior to the 
date of the valuation of the Company's property and sold within 
two and one-half years of the- taking effect of the grant, its value 
as of that date, the loss so incurred may be made good out of the 
Repair, Maintenance and Depreciation Reserve. (Sec. 20.) 

In case any of the Company's property is destroyed by fire, or 
other calamity, the loss sustained, may be made good out of the 
Repair, Maintenance and Depreciation Reserve. (Sec. 20.) 

When old or worn out property, including pavement and street 
improvements but not repairs thereto, is replaced by new prop- 
erty such difference between the cost of the new property and 
that of the old property, as cannot be charged to Extensions, 
Betterments and Improvements under Section 26 of the Grant, 
shall be charged to the Repair, Maintenance and Depreciation 
Reserve, or to Operating Expenses. (Sec. 26.) 

If at the expiration or termination of the lease of the property 
of the I^orthem Texas Traction Co., the Company is obligated to 
make good any depreciation, the amount thereof shall be paid 
from the Repair, Maintenance and Depreciation Reserve, or from 
the Surplus Reserve, or shall be amortized from Gross Receipts. 
(Sec. 46.) 

The Surplus Reserve is created as an equalizing fund " to pro- 
mote the orderly and economical operation and development of 
the Grantee's business and to provide for any unexpected or 
unusual contingencies or reverses therein." (Sec. 21.) The Grant 
states the following specific purposes for which it may be used : 

1. Temporarily carrying the charges or burdens, except inter- 
est and charges during construction, of the unprofitable stages of 
extensions or additions (Sec. 21.); 

2. Carrying the burdens incident to reduction of fares or other 
changes seriously affected profits of the business for the time 
being (Sec. 21) ; 

3. Preventing frequent or violent fluctations in fares (See 
21); 



198 



Service At Cost Agreements 



i 



4. Promoting the periodic payment of return to the Company 
(Sec. 21) ; 

5. To bring either the Accident Reserve, or the Repair, Main- 
tenance and Depreciation Reserve, up to " normal," when either 
or both shall be below " normal " and the Surplus Reserve, is 
more than ten per cent above "normal." (Sec. 25.) 

6. In case any property included in Property Value is sold for 
less than its cost (or in the case of property acquired prior to 
that date of the valuation of the Company's property and sold 
within two and one-half years of the taking effect of the Grant, 
its value as of that date), the loss so incurred may be made good 
out of the Surplus Reserve. (Sec. 20.) 

7. In case any of the Company's property is destroyed by fire, 
or other calamity, the loss sustained may be made good out of the 
Surplus Reserve. (Sec. 20.) 

8. If at the expiration or termination of the lease of the prop- 
erty of the Northern Texas Traction Co., the Company is obli- 
gated to make good any depreciation, the amount thereof may 
be paid from the Surplus Reserve. (Sec. 46.) 

The Accident Reserve is established as an equalizing fund, for 
the purpose of meeting losses, not charged to Operating Expenses, 
on account of persons killed or injured and property damaged 
and destroyed, where such losses are not covered by insurance as 
provided by Section 20 of the Grant, as well as the legal expenses 
involved. Losses occuring from these causes in Connection with 
Extensions, Betterments and Improvements, are a charge against 
such Extensions, Betterments and Improvements and may not 
be charged to Accident Reserve. (Sec. 21.) 

Moneys in any of the three Reserves, may be used for increas- 
ing the facilities for serving the public (in which case the amount 
shall not be added to Property Value), or may with the approval 
of the Board of Commissioners be invested in high grade Texas 
securities. Earnings of these funds shall be applied at the dis- 
cretion of the Company either to increase the Accident Reserve 
or the Repair, Maintenance and Depreciation Reserve, if either 
is below " normal," or as a credit to Operating Expenses. (Sec. 
B2.) 



Service At Cost Agreements 



199 



Memphis 

A Renewal and Replacement Resei^e is provided for. This 
consists of the amount reserved for renewals and replacements at 
the time the order took effect (April 1, 1920), plus allowance paid 
into the fund monthly as a cost of the service. This allowance 
is based on the Company's investment in depreciable property, 
which is declared to be, as of July 1, 1919, the date of the Initial 
Investment, $7,600,000 as compared to total investment of $11,- 
846,034. Until there shall be accumulated in the Renewal and 
Depreciation Reserve the amount of $500,000 and thereafter, 
when the balance in the fund shall be more than $300,000, but 
less than $500,000, there shall be paid into the Fund monthly 
as a part of the cost of service, one-twelfth of 3 per centum of the 
investment in depreciable property. 

When the balance in the Renewal and Replacement Reserve 
shall be more than $500,000, the monthly payments shall be one- 
twelfth of 2 per centum, and when it shall be less than $300,000, 
the monthly payments shall be one-twelfth of 4 per centiun. 

The Renewal and Replacement Reserve shall be used only for 
the purpose of providing renewals and replacements, other than 
ordinary maintenance, and payments therefrom are to be made 
with the approval of the Commission, in accordance with the 
methods prescribed by the I. C. C. Classification of Accounts. 
The balance in the fund shall be invested in the bonds of the 
Ccinpany, or deposited as the Commission may approve and 
intei'est thereon shall be credited to the Reserve. 

8.— SPECIAL TAX AND IMPOST FEATURES 

Cleveland 

By the terms of the grant the Company is exempted from the 
payment of the " car-license fee " which was before exacted from 
street railway companies. (Sec. 6.) 

The Company is required to maintain the pavement between 
its tracks and one foot outside thereof, but is not required to 
repave. (Sec. 7.) 

The Company is required to carry free, firemen and policemen 
in uniform, while on duty. (Sec. 30.) 



^1 



I 



300 



Service At Cost Agreements 



% 

I 'I; 

■ t : 

r ! 

I 

I;' 



The Company is required to operate hospital, supply and other 
special cars for the City. The City supplies and maintains the 
cars, and pays the wages of employes in charge thereof, and for 
current, but no fixed charges, or track maintenance or renewals, 
(Sec. 23.) 

YOUNGSTOWN 

The Company is required to pave, repave, and maintain pave- 
ment between its tracks and one foot outside thereof, on all streets 
and bridges with the same material as the rest of the street is 
paved with, except that it is not required to use sheet asphalt, the 
City having the privilege to designate some other material, no more 
expensive. (Sec. 5.) 

The Company is required to sprinkle the space between its tracks 
and one foot outside. (Sec. 5.) 

The Company is required to transport free, policemen, firemen 
and sanitary policemen of the City. (Sec. 14-D.) 

The Company is obliged to provide and operate, at actual cost, 
cars for municipal purposes. (Sec. 14r-E.) 

Cincinnati 

(a) Taxes: 

The Company is required to pay an annual Gross Earnings Tax 
of $350,000. (Sec. 22-F.) 

'(Note. — This is in lieu of paving taxes and assessments, excepting that 
the Company is required to replace paving which it disturbs.) 

(b) Imposts: 

The Company is compelled to carry free, policemen and firemen, 
when in uniform. (Sec. 12.) 

The Company shall operate cars for such exclusively municipal 
purposes on such terms, conditions and compensation as shall be 
authorized by Council and agreed upon between the City and the 
operating company. (Sec. 20.) 

Boston 

'No special taxes or imposts are provided for but the Act contains 
the following declaration: "Nothing herein contained shall be 
held to affect the right of the Commonwealth or any subdivision 



Service At Cost Agreements 



201 



thereof to tax the Company or its stockholders in the same manner 
and to the same extent as if the Company had continued to manage 
and operate its own property." (Sec. 2.) 

Massachusetts. (General) 
No provisions. 

Montreal 

An annual rental of $500,000 is paid from gross revenues to 
the City. (Art. 92; Par. 4.) 

The City receives 30 per cent of surplus remaining after costs 
provided for in the Agreement are paid. (Art. 92 ; Par. G.) 

The Company shall pay for the cost of pavement between its 
tracks and eighteen inches outside thereof. (Art. 42.) 

The Company shall maintain pavement between its tracks and 
eighteen inches outside thereof. (Art. 46.) 

The Company must renew wooden poles with iron poles, and 
in new construction use iron poles. (Art. 45.) 

The Company is forbidden to use T rails, in streets paved with 
permanent pavement, including asphalted macadam. (Art. 52.) 

The City shall have the right to use the Company's poles for 
stringing City wires and for signs giving information of public 
interest. (Art. 65.) 

The Company is required to keep its tracks free from snow and 
ice, and if the City itself elects to remove the snow and ice from 
the entire street the Company shall pay one-half the cost thereof. 
(Art. 66.) 

If the City elects to open a street across the Company's right of 
way, it may cross the lands of the Company, without being liable 
for damages and without payment for such land. (Art. 67.) 

The Company shall make connections between its tracks and 
sidings and municipal establishments and yards at cost price. 
(Art. 69.) 

In the case of firo, the wires of the Company may be cut on the 
order of the Chief of the Fire Department, and the Company may 
not claim damages therefor. (Art. 73.) 

Policemen and firemen, employed by the City or by any munic- 
ipality served by the Company, shall be transported free, as shall 
the members of the Commission and its employes. (Art. 80.) 




»t 



202 



Service At Cost Agreements 



Service At Cost Agreements 



203 



The Company shall at the request of the City have special tickets 
printed to he used exclusively by City employes. The regular 
price shall be charged therefor. (Art. 81.) 

Eastern Massachusetts 
For the period of the war and for two years, thereafter, the 
Company is relieved, unless the Public Service Commission after 
a hearing decides otherwise, from paying the cost of the construc- 
tion, alteration, maintenance, or repair of streets, bridges, or of 
structures in connection therewith ; for the abolition of grade cross- 
ings, or the undergrounding of wires, except that it must restore 
street surfaces disturbed by it in connection with railway work 
and shall not be relieved from certain obligations incurred before 
the passage of the Act. It is provided further, however, that any 
work of construction for which the Company may have been obli- 
gated shall be postponed for two years after the war, unless in the 
opinion of the Trustees public necessity requires the continuance of 
the work covered by such obligations. (Sec. 20.) 

Westerville 

The Company is required, where its tracks are in an improved 
highway located south of the Corporation of Linden Heights to 
maintain the roadway between its tracks and one foot outside, in 
the same manner as the rest of the highway is maintained. 
(Sec. 6.) 

When the highway in which the tracks of the Company north 
of the Corporation of Linden Heights is improved, the Company 
is required to construct and maintain between its rails and one 
foot outside " boulevard construction." (Sec. 6.) 

The Company is required to maintain and keep in repair all 
culverts and drains beneath its roadbed and one foot outside its 
tracks. In the case of new drains and culverts it shall pay for 
the construction of that portion under its roadbed and one foot 
outside its rails. (Sec. 6.) 

Dallas 

By the terms of the Grant the Company is relieved from all 
municipal charges, fees, rentals, pole rentals, wire taxes, inspection 



or other charges, and taxes of every kind, except ad valorem taxes 
and special assessments for public improvements. (Sec. 47.) 

The Company is required to make any changes in traeks and 
wires, ordered by the Board of Commissioners, to permit the con- 
struction or alteration in pipe lines or cables owned by the City, 
and shall assume the expenses thereof. (Sec. 5.) 

The Company is obliged to pave and maintain paving between 
its tracks and twenty-four inches outside. (Sec. 6.) 

The Company is obliged to furnish free transportation to police- 
men and to firemen when required by the City, to the extent per- 
mitted by law. (Sec. 24.) 

The City is given the right to string its wires upon the poles 
of the Company, providing the use of the poles is not interfered 
with by the City, and no expense to the Company is involved. 
(Sec 3.) 

Memphis 
^o provisions. 

F. FARES 

1.— SCHEDULES OP 

Cleveland 

The Schedule of Fares as amended by action of the City Coun- 
cil, August 3, 1918, follows: 

1. Six cents cash ; nine tickets for fifty cents ; one cent transfer, 
no rebate. 

2. Five cents cash ; five tickets for twenty-five cents ; one cent 
transfer, no rebate. 

3. Five cents cash ; eleven tickets for fifty cents ; one cent trans- 
fer, no rebate. 

4. Five cents cash; six tickets for twenty-five cents; one cent 
transfer, no rebate. 

6. Four cents cash; five tickets for twenty cents; one cent trans- 
fer, no rebate. 

, It is provided by the Grant that the Company shall under any 
rate of fare in force sell reissuable tickets. (Sec. 21.) 

Provision is made for the sale or issuance of transfers good 
between all routes of the Company, except those in an opposite 
direction, or parallel or substantially parallel. Such transfers are 



\ 



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2'04 



Service At Cost Agreements 



It 



good only on the next car, or within five minutes of their issu- 
ance. Pas&engers are required to use sudh transfers upon lines, 
which will take them most directly to their destination without the 
use of a second transfer. (Sec. 21.) 

A child under six years of age, is carried free, hut two children 
under six years of age travelling with a single passenger, are 
charged a single fare, for hoth. (Sec. 21.) 

The fares provided for by the schedules provided for in the 
Grant, are for rides within the limits of the City of Cleveland, as 
they existed at the time of the adoption of the schedule. (Sec. 21.) 

Younostown 

Kate A. — Three cents cash, nine tickets for 25 cents, one cent 
for transfer. 

Rate B. — Five cents cash, eight tickets for 25 cents, one cent 
for transfer. 

Eate C. — Five cents cash, seven tickets for 25 cents, one cent 
for transfer. 

Rate D. — Five cents cash, six tickets for 25 cents, one cent 
for transfer. 

Rate E. — Five cents cash, no tickets, one cent for transfer. 

Rate F. — Six cents cash, nine tickets for 50 cents, one cent 
for transfer. 

Rate G. — Seven cents cash, eight tickets for 50 cents, one cent 
for transfer. 

Rate H. — Eight cents cash, seven tickets for 50 cents, one cent 
for transfer. 

Rate I. — E^ine cents cash, six tickets for 50 cents, one cent for 
transfer. 

When Rate B becomes effective the City shall establish a rate 
of fare lower than Rate A and bearing the same relation to 
Rate A that Rate A bears to Rate B. When Rate H becomes 
effective the City shall establish a rate of fare higher than Rate I, 
and bearing the same relation to Rate I that Rate I bears to 
Rate H. (Sec. 14.) 

School or special tickets, not good before 7 a. m. or after 5 p. m. 
on week days, or at all on Sundays or legal holidays, shall be sold 
at a price to be agreed upon between the City and the Company. 



Service At Cost Agreements 



205 



The holders thereof shall pay one cent additional for transfer. 
(Sec. 14-A.) 

Children under six years of age accompanied by a person pay- 
ing fare shall be carried free. (See 14-A.) 

The City and the Company may agi-ee upon any rate of fare 
not specified in the schedule, but the matter of the installation 
of such a fare is not subject to arbitration. (Sec. 14.) 
. Tickets shall be sold upon all cars. Tickets sold under a 
different rate of fare than that at the time in force shall not be 
accepted, but shall be redeemed at any office of the Company for 
the price paid therefor. (Sec. 14-A.) 

Transfers shall be issued from one route of the system to any 
other routes, except in a substantially opposite direction, or to a 
route substantially parallel. They are good on the car of the 
second route next passing the point of transfer. The Company 
shall, subject to the approval of the City, make reasonable rules 
for the issuing of transfers. (Sec. 14-A.) 

The Grant provides that Rate E, five cents cash, no tickets, 
one cent for transfer, becomes effective upon the taking effect of 
the Grant. (Sec. 14-B.) 

The fares provided for and the transfers to be issued are for a ride within 
the City limits of Youngstown and within certain specified limits outside 
thereof. (Sec. 14-B.) 

Cincinnati 
The schedule of Fares provided in the Grant is as follows: 
a. Initial fare: 

For passengers over ten years of age, five cents. 

Children under ten years, two and one-half cents. 

Children in arms, free. 

Passengers on inclined plane, two and one-half cents. (No 
transfers issued.) (Sec. 20.) 

Fares to be increased or decreased as cost of service varies, as 
follows : 

For passengers over ten years of age, by one-half cent stage. 

For passengers under ten years of age, by one-half the amount 
of increase provided for passengers over ten years of age. 

For passengers on inclined plane, by one-half the amount of 
increase provided for passengers over ten years of age. (Sec. 20.) 
14 



I 



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206 



Service At Cost Agreements 



Tickets shall be sold at all times — For passengers over ten 
years of age, in strips of six at six times the fare then m force 
and for passengers less than ten years old in strips of four at 
four times the single fare then in force. (Sec. 20.) 

When the fare in force produces a fraction of a cent, the cash 
fare shall be the whole number above the rate of fare producing 
the fraction. (Sec. 20.) 

When fare is decreased or increased outstanding tickets shall 
be void, but shall be redeemed by the Company at the price paid 
therefor. (Sec. 20.) 

The Company is authorized, subject to the approval of the 
Director of Street Railroads, to make rules and regulations for 
the collection of fares and the issuance of tickets. (Sec. 20.) 

The Grant provides that passengers shall not be carried for 
a less fare to points outside the city than to points within. 
(Sec. 20.) 

The Grant provides that the Company shall issue free transfers 
under rules and regulations made by it, subject to the approval 
of the Director of Street Railroads, who may order changes and 
revisions therein. Such rules and regulations, including the 
fixing of transfer points and the designation of transfer routes, 
shall become effective within ten days, after being approved by 
the Director, unless the Company shall file objections, in which 
case the Director shall hold a public hearing. His decision after 
such hearing shall be final, and the Company shall issue transfers 
to all destinations "on each and all of the routes and all new, 
changed and extended routes," as the Director shall decide. 
(Sec. 9.) 

Transfers are not transferable and shall be used within five 
minutes of the time that passenger arrives at the transfer point. 
(Sec. 10.) 

Boston 
The Trustees were required, within sixty days of the taking 
effect of the Act, to put. into operation rates of fare, which in 
their opinion were sufficient to pay the cost of the service, and 
within sixty days thereafter to adopt a schedule of eight different 
grades of fare, four above and four below the rate first established, 
and to at all times keep the schedule so that there shall be four 



Service At Cost Agreements 



207 



grades above and four below the rate in effect at the time 
(Sec. 7.) 

The Trustees may at any time change the schedule so as to 
alter the rates, or the method and basis of charges for fares and 
transfers. (Sec. 7.) 

Massachusetts (General) 

A Company accepting the Act, files with the Public Service 
Commission a schedule of nine different grades of fares. One 
of these it shall designate as the initial fare, as being, in its 
opinion, sufficient to meet the then cost of the service. Of the 
remaining fares, four shall be above and four below the initial 
fare. Each fare shall be so fixed in relation to the fare above 
or below, as to provide, so far as possible, for an increase or 
decrease of thirty per cent, in the (Reserve Fund. The Com- 
mission shall either approve the schedule so filed, or shall estab- 
lish a schedule of its own, in place thereof. If by reason of 
changes from the initial fare, there shall be at any time less 
than four fares above or below the fare effective, then the Com- 
pany shall file an additional grade. This is also subject to the 
approval of the Commission, which if it does not approve, shall 
establish a grade of its own. (Sec. 6.) 

If at any time, the interest of the public or the Company 
demands, the Company may, with the approval of the Public 
Service Commission, change the schedule of fares either in re- 
gard to the method of establishing fares and transfers privileges, 
or in regard to the steps between the different grades, or in other 
respects. (Sec. 6.) 

" Except as thus provided, the Commission shall have power 
to modify such schedule only after it has been in effect for a period 
of one year; provided, however, that no modification of the 
schedule which diminishes the rate of return on the Stock Invest- 
ment provided for in Section 2 shall be continued in effect for a 
period exceeding four months." (Sec. 6.) 

Montreal 
No schedules of fares are provided for in the Agreement. The 
Commission is authorized to fix fares from time to time in accord- 
ance with the provisions of the agreement. 



fl 



208 



Service At Cost Agreements 



For this purpose, the territory is divided into "Uniform- 
Tariff Territory," comprised of the City as it existed at the time 
of the taking effect of the Agreement, six towns immediately 
adjacent and portions of two parishes, also immediately adjacent, 
and " Territory Outside Uniform Tariff Territory," comprising 
such territory lying outside of Uniform-Tariff Territory as is 
served by the Company. (Art. 76.) 

For Uniform Tariff Territory, the Commission must establish 
and maintain uniform rates. (Art. 70.) : 

For territory outside, the Commission may establish different 
lariffs for different municipalities and traffic between, it being 
provided, however, that such tariffs must not burden the rest 
of the system and that any municipality, or municipalities, may 
assume part of the cost of service for the sake of securing low 
rates. (Art. 76.) 

The Commission has the power of establishing different rates 
for travel at certain hours of the morning or evening, or both, 
and higher fares to be .charged between midnight and 5 a. m. 
(Art. 76.). i i, . 

The Commission may put into effect reduced rate tickets for 
school children and apprentices on week days, but for school chil- 
dren such rates will apply only from 8 a. m. to 6 r. m., and for 
apprentices from 6 a. m. to 7 p. m. (Art. 76.) 

Children under five years of age shall be carried free. 
(Art. 76.) 

The Company is compelled to sell tickets of denominations 
fixed by the Commission. (.Art. 76.) 

When a new tariff becomes effective, tickets sold under the old 
tariff are not usable, but must be redeemed bv the Companv. 
(Art. 76.) 

Tariffs become effective eight days after publication, for two 
consecutive days, in one English and one French newspaper 
(Art. 76.) 

Tariffs shall provide for the issue of transfers, either free or 
at a charge as determined by the Commission (Art. 77), under 
the usual restrictions, and it is forbidden to sell, exchange or 
give away a transfer, to receive, offer or 'to use for passage a 
transfer not regularly issued to the holder, or to throw away a 
transfer without first having destroyed it. (Art. 78.) 



Servjce At Cost Agreements 



209 



No other persons, than the policemen and firemen of the City 
cr of any municipality served by the Company, members and 
employees of the Commission, and officers and employees of the 
Company shall be carried free. (Arts. 79, 80.) 

The Company may, with the approval of the Commission, con- 
tract with the Federal Government for the carriage of letter car- 
riers and mail, and with the Provincial Government for the trans- 
portation of its officers and for service to and from the Bordeaux 
jail. (Art. 82.) 

Eastern Massachusetts 
The Trustees are required, within sixty days after the A^ew 
Company has acquired the property of the Old Company, to estab- 
lish rates of fare which in their opinion will provide sufficient 
revenue to pay the cost of the service, and thereafter to maintain 
flt all times at least four grades of fare, two of which shall be 
above and two of which shall be below the grade in effect. 
(Sec. 15.) 

Westerville 
Three Fare Zones are fixed by the Grant. In addition, there 
shall be established by the Company, with the approval of the 
Commissioners, or by the Commissioners, with the approval of 
the Company, overlapping zones, providing that the establishment 
of such overlapping zones shall not jeopardize the interest 
on the Company's investment. If the Company so thinks, it 
may submit the question to arbitration. If the decision is against 
its contention the overlapping zones shall be immediately estab- 
lished, but the Company at the end of three months may again 
protest to the Commissioners and again submit the question to 
arbitration. (Sec. 11.) 

The fare collected in any zone shall be for a single ride to the 
end of that zone. (Sec. 11.) 

The fare for all zones shall at all times be equal. (Sec. 11.) 
^ The fare for the part of the trip, south of I7th Avenue (on 
city lines) shall always be the same as the city fare with the 
same transfer privileges. (Sec. 11.) 

The following schedule of rates of fare by ticket, is established 
in the grant: 

(a) Four tickets for 10 cents, or 2%-cent fare. 

(b) Five tickets for 15 cents, or 3-cent fare. 



,ij 



If 



210 



Service At Cost Agreements 



(c) Ten tickets for 35 cents, or 3V^-cent fare. 

(d) Five tickets for 20 cents, or 4-cent fare. 

(e) Ten tickets for 45 cents, or 4V2-cent fare. 

(f) Five tickets for 25 cents, or 5-cent fare. 

(g) Ten tickets for 55 cents, or 514-cent fare. 

(h) Five tickets for 30 cents, or 6-cent fare. (Sec. 12.) 

Each ticket sold shall be good for one continuous ride in any 
one zone. (Sec. 12.) 

The maximum fare in any one zone shall be six cents. (Sec. 
12.) 

When the ticket fare is 4 1-2 cents or less, the cash fare shall 
be five cents. When the ticket fare is more than 4 1-2 cents, the 
cash fare shall be six cents. (Sec. 12.) 

Commuters' rates may be established. (Sec. 12.) 

Dallas 
Four rates of fare are provided by the Grant as follows: 

A. Cash fare, five cents, 22 tickets for $1 ; 

B. Cash fare, five cents, six tickets for 25 cents ; 

C. Cash fare, five cents, seven tickets for 25 cents; 

D. Cash fare, five cents, eight tickets for 25 cents. (Sec. 24.) 

When Fare A. is in effect tickets shall be sold at the Company's 
office in the City of Dallas ; when any of the other specified fares 
are in effect, they shall be sold on the Company's cars as well as 
at its office. The manner, time and place of selling tickets, may, 
however, be changed by agreement between the Company and the 
Board of Commissioners ; • 

Under all rates of fare, children under five years of age shall 
be carried free; 

Children not more than twelve, but more than ^ve years of age 
shall be carried at two and one-half cents, and children's tickets 
shall be sold on all Company cars ; 

Students in any institution of learning as defined by the laws 
of Texas, not more than 17 years of age, shall be carried at two 
and one-half cents, upon tickets purchased at Company's office 
upon presentation of certificates of indentification ; 



} I 



Service At Cost Agreements 



211 



Special rates for charted cars and special service may be made 
by the Company with the approval of the Board of Commission- 
ers; 

The Company is obligated to give universal transfers, under 
rules and regulations made by it and approved by the Board of 
Commissioners, which shall prevent their abuse ; 

If at any time territory is annexed to the City, and the Com- 
pany shall operate a line therein, the City may, in accordance with 
the provisions of the City Charter, establish reasonable fares, 
thereon, which in no event shall be less than those charged in the 
rest of the city. (Sec. 24.) 

Memphis 
The following schedule of rates of fare is provided: 
No. 1 — Eight cents cash ; 

No. 2 — Eight cents cash, 10 tickets for 75 cents ; 
No. 3. — Seven cents cash ; 

No. 4 — Seven cents cash, 10 tickets for 65 cents ; 
No. 5 — Six cents cash ; 

No. 6 — Six cents cash, 10 tickets for 55 cents^ 
No. 7 — Five cents cash. 

Whenever fare Number 2 or fare Number 6 is put into effect 
the Commission will extend the list of fares upwards or down- 
wards as the case may be and will at all times provide in the 
schedule two rates of faro which shall be below or above that 
which is in effect. 

Children five years old or less may be carried free when accom- 
panied h)^ a fare paying pa-ssenger. Transfers shall be given in 
accordance with regulations in effect at the time the ojder took 
effect. 

The initial rate of fare was fixed at seven cents, 10 tickets for 
65 cents. 

Note. — ^At the instance of the City authorities, the Receivers of the Com- 
pany consented, with the approval of the United States District Court having 
jurisdiction, to a trial period of three months from April 1, 1920, under a 
six-cent fare, it being provided that if insufficient revenue was secured under 
such rate then at the end of the three-month period the fare should go to 
seven cents, ten tickets for sixty-five cents, and if at the end of the next three 
months such fare provided insufficient, the regulation of fares under the terms 
of the order should proceed. The order of the Commission was accordingly 
modified to this extent. 



n 



11 



m 



II 



212 



2.— HOW FIXED 



Service At Cost Agreements 



I ■' 



Cleveland 

The rate of fare, within the limitations fixed by the Grant, is 
regulated by the Condition of the Interest Fund, except when the 
City and Company agree, or a Board of Arbitration decides, that 
the fare should either be increased or decreased, irrespective of 
the condition of the Fund. (Sec. 22.) 

The Interest Fund, was inaugurated by the Company provid- 
ing the sum of $500,000, made by the terms of the Grant a part 
of Capital value and maintained separately from the other funds 
of the Company, being credited with such interest as it may earn 
(Sec. 16 (b), Sec. 18.) 

To this fund is credited monthly all of the gross receipts of the 
Company remaining, after the payment of the Operating Allow- 
ance and the Maintenance, Renewals and Depreciation Allowance. 
(Sec. 18.) From the fund shall be paid: 

Taxes ; 

Rentals ; 

Return upon Capital Value; 

Federal, State and Municipal Assessments against the stock of 
the Company; 

Expenses of Arbitration in excess of $5,000 for any six months' 
period. (Sees. 16, 17, 22.) 

Payments from the Interest Fund for return upon Capital 
Value are Cumulative, and shall be paid without any deductions 
for any purpose. (Sec. 17.) 

It is the intention of the Grant to keep the Interest Fund al- 
ways at the normal sum of $500,000. In Determining the 
amount in the Fund at any time, the accrued obligations for 
taxes and dividend payments, shall be proportioned over the var- 
ious months as follows ; 

For January, seven per cent of the total payments ; foi Feb- 
rmij, six; for March, seven; for April, eight; for May, nine; for 
June, nine; for July, ten; for August, ten; for September, nine; 
for October, nine; for November, eight; for December, eight. 
(Sec. 22.) 



Service At Cost Agreements 



213 



If 



Whenever the amount in the Interest Fund, less the propor- 
tionate accrued payments to be made therefrom, shall be less than 
$250,000, this fact shall be prima facie evidence of the necessity 
of raising the fare to the next highest rate provided in the Sche- 
dule. (See F.l.) 

Whenever the amount in the Interest Fund, less the proportion- 
ate accrued payments to be made therefrom shall be more than 
$750,000, this fact shall be prima facie evidence of the necessity 
of lowering the rate of fare to the next lowest rate named in the 
Schedule. (See F. 1.) (Sec. 22.) 

YOUNGSTOWN 

The rate of fare in effect is controlled by the condition of the 
stabilizing Fund. (Sec. 14-C.) 

The Stabilizing Fund was inaugurated by the Company's pro^ 
vidmf^ the sum of $100,000, less certain stipulated deductions for 
expenses m connection with the passage of the Grant This 
$100,000 is charged to Capital Value. To this sum is added the 
interest received thereon, either from the banks in which it is 
deposited, or the securities in which it is invested, and the sum 
remaining each month after the deduction from the GVoss Re- 
ceipts of the Company, the Operating Allowance, and the Main- 
tenance, Repair and Renewal Allowance. 

From it shall be deducted each month the monthly return on 
Capital Value and one-twelfth of the estimated yearly taxes. 
(Sec. 13.) 

Also, such amounts as are needed to make up deficits in Gross 
Revenue, sufiicient to cover the Operating Allowance and the 
Maintenance, Repair and Renewal Allowance. (Sec. 11.) 

Also, the expenses of arbitration, in excess of $1,000, for any 
period of six months. (Sec. 9-B.) 

The Initial Rate of Fare provided in the Grant, shall remain 
effective, until at the end of any calendar month, the amount in 
the Stabilizing Fund shall either be in excess of $150,000, or less 
than $50,000. In the former event the next lowest rate of fare 
shall become effective, and successive lower rates shall become 
effective at the end of each calendar month, until the amount in 



tl > 



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214 



Service At Cost Agreements 



the Stabilizing Fund shall be below $150,000, in which event the 
rate then in effect shall remain effective, until the amount in the 
Fund shall be less than $50,000, or more than $150,000, a lower 
or a higher rate, as the case may be, shall become effective. 

In the latter event, the rate shall be successively increased at 
the end of each calendar month until the amount in the stabiliz- 
ing fund shall be in excess of $150,000, in which case the fare 
shall be decreased. The operation of the Stabilizing Fund is 
thus described in the Grant: 

It being the intent of these provisions that by a regular and 
orderly monthly decrease of fare the amount in the Stabilizing 
Fund shall not be permitted to remain above $150,000, and by a 
regular and orderly monthly increase of fare the amount in the 
Stabilizing Fund shall not be permitted to remain below $50,000, 
and it being the further intent and purpose that the fare in effect 
at the time said Stabilizing Fund does not show an increase over 
$150,000 shall remain in effect until such Stabilizing Fund is 
reduced to $50,000, and that the fare in effect at such time as the 
Stabilizing Fund does not show a decrease under $50,00(> shall 
remain in effect until the Stabilizing Account shall exceed $150,- 
000. (Sec. 14-C.) 

Free transportation is limited to motormen, conductors, line- 
men, shopmen, trackmen going to or returning from work, and all 
policemen, firemen and sanitary policemen of the city. (Sec. 
14-D.) . 

Cincinnati 

The rate of fare in effect is controlled by the condition of the 
Reserve Fund. The intention of the Grant is to establish a fund, 
consisting of $250,000, contributed by the Company and charged 
to capital account, together with such payments from Grosi Earn- 
ings as will bring it up to $400,000, which amount is known as 
the " l^ormal " condition of the Fund. Into the Reserve Fund is 
to be paid all surplus remaining after the payment of the items 
set forth in E-1 (Sec. 22 of Grant), and from it is to be paid any 
amount needed to make up any deficiency in these items, which 
deficiency is cumulative in the order named in the Grant. (Sec. 
22-H.) 



t I 



Service At Cost Agreements 



215 



Two provisions are made for the regulation of fares, as fol- 
lows : 

Before the accumulation of the Normal Sum of the Keserve 
Fund : 

If at any time the Gross Eeceipts shall not be sufficient to pay 
the Items named in Section 22 of the Grant, together with any 
accruafs of such expenses, fares shall be increased in accordance 
with the first step of the Fare Schedule. (F. 1 ; Sec. 20 of Grant.) 
If at the end of the next two months, or at the end of any subse- 
quent period of two months, the Gross Receipts shall still be 
insufficient to pay such items, the fare shall each time be increased 
one step of the Fare Schedule. Such Increases shall continue 
at the intervals stated, until the Gross Receipts shall be sufficient 
to pay the aforesaid items, together with all accruals therein. 
(Sec. 22-H.) 

After the Accumulation of the Normal Sum of the Reserve 
Fund: 

If the amount in the Reserve Fund be increased to $650,(»00 the 
next lowest fare of the schedule shall be put in force, and if 
at the end of the first two months thereafter, or at the end of anv 
subsequent two months, there shall still be an accumulation in 
the Reserve Fund, the fare shall be reduced by like steps in the 
a are Schedule until such accumulation ceases. (Sec. 22-H) 

If the amount in the Reserve Fund be decreased to $250 000 
then the next highest fare in the Fare Schedule shall be put in 
force, and if at the end of the next two calendar months, or at the 
end of any two calendar months thereafter, the Reserve Fund shaU 
be still further reduced, the fare shall be increased by like suc- 
cessive steps until no further drafts from the Reserve Fund for 
payments on account of the items mentioned, or accruals thereof 
are necessary. (Sec. 22-H.) ' 

Boston' 
The Company was required, before the act took eflFect, to provide 
the sum of $1,000,000, through the sale of its preferred stock 
to be used as a Reserve Fund. (Sec. 5.) This fund can be used 
only for making good any deficiencies in cost of service or for 
reimbursing the Commonwealth for moneys advanced to meet 
such deficiencies. (Sec. 8.) 



It 



216 



Service At Cost Agreements 



1 4 



Into the fund is paid any surplus remaining after the cost of 
service is paid and from it is taken any amount needed tc meet 
deficiencies in the cost of service. (Sec. 9.) 

If at the termination of the period of public management and 
operation, the Keserve Fund shall contain less than the amount 
contributed thereto by the Company, the State shall pay to the 
Company the deficiency. If, on the other hand, there is a surplus 
in the fund, it shall become the property of the State, which 
shall distribute among the cities and towns served by the Company 
in proportion to the number of people in such cities and towns 
using the Company's service at the date of the termination of the 
perioii of public management and operation. (Sec. 13.) 

If on the last day of any September, December, March, or 
June, the amount in the Reserve Fund shall exceed by thirty 
per cent, the amount originally established, and for the preceding 
three months income shall have exceeded the cost of service, the 
Trustees are required to put into eifect the next lowest rate of 
fare in the fare schedule, and if on the same dates the amount in 
the fund shall be less than seventy per cent, of the original sum, 
and for the preceding three months income shall have been less 
than the cost service, they are required to put in effect the next 
higher fare. In like manner the fare shall continue to be increased 
or decreased, as the case may be, on succeeding quarterly dates. 
In determining the state of the Reserve Fund, money received 
from the State and paid thereinto, and for which the State has 
not been reimbursed, shall first bs deducted. (Sec. 10.) 

Massachusetts (General) 
Before they are permitted to accept the Act, Companies are 
required to provide, through the sale of bonds, stock, or preferred 
stock, a Reserve Fund in amount not less than six per cent., nor 
more than twelve per cent, of the Company's gross earnings for 
the preceding year; the amount of the fund to be paid in over 
a period not exceeding two years, as the Public Service Commis- 
sion may direct. The fund may be increased with the consent of 
the Commission. Until it is used, it may be invested in the bonds 
of the United States, Massachusetts, or any city or town thereof. 
(Sec. 3.) 



«■ 



Service At Cost Agreements 



217 



The Reserve Fund as originally provided or afterwards in- 
creased is considered the " N^ormal " Reserve Fund. (Sec. 3.) 

Into it is paid any surplus remaining after the cost of service 
has been paid, and from it shall be taken any deficit in the cost 
of service. (Sees. 3, 5.) 

If on the last day of any March, June, September or December, 
the Reserve Fund shall exceed by thirty per cent, the IN'ormal 
Reserve Fund, and during the preceding three months, income 
shall have exceeded the cost of service, fares shall within 30 days, 
by the Company be reduced to the next lower grade below the fare 
then in effect. (Sec. 7.) 

If on the last day of any March, June, September, or December 
the Reserve Fund shall be less than seventy per cent, of the 
Normal Reserve Fund, and during the preceding three months, 
the income shall have been less than the cost of service, fares, 
shall, within 30 days, by the Company, be increased to the next 
higher grade above the fare then in effect. (Sec. 7.) 

The Company, with the consent of the Public Service Com- 
mission, may put into effect the next higher or lower grade of fare 
at any time when the Reserve Fund is above or below the normal 
amount. (Sec. 7.) 

Montreal 

A Contingent Fund is established by the setting aside annually 
of one per cent, of gross revenues until $500,000, is accumulated, 
at which time such accumulation shall stop, to be resumed when- 
ever, by reasons of payments for the purpose for which it is cre- 
ated, the amount in the Contingent Fund shall be below $500,000. 
From this fund is taken any sum necessary to meet the payments 
for cost of service as enumerated in E-1, when Gross Revenues 
are insufficient, payments to be cumulative and in the order named. 
(Art. 92; Par. 5.) 

If, in the judgment of the Commission, the condition of the 
Fund warrants the loan, the Company, when it is compelled to 
furnish new capital, must first borrow from this Fund, in which 
case the return of six per cent received by the Company for the 
money is paid into. the fund. (Art. 92 ; Par. 3.) 

Upon the termination. of the Agi-eement, the Company shall 
repay any money so borrowed, and the Fund shall be divided, 



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Seevice At Cost Agreements 



Service At Cost Agreements 



219 



I 



i 



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30 per cent to the City, 20 per cent to the Company and 50 per 
cent to the Tolls Reduction Fund. (Art. 92; Par. 5.) 

A Tolls Reduction Fund is established, by the setting aside 
of fifty per cent of the gross revenue, remaining after the payment 
of charges enumerated under E-1, and the one per cent of gross 
revenue provided for the Contingent Fund. When the Tolls 
Reduction Fund shall exceed $1,000,000, the Commission may, 
and when it shall exceed $2,500,000, the Conmiission must, 
reduce fares on the system. This is to be done by taking from 
the Tolls Reduction Fund an amount equal to one-quarter of the 
total amount in the fund at the end of the year preceding that in 
which the reduction is made, and adding it to Gross Revenue. 
Tolls shall thereupon be so reduced that gross revenue earned 
shall be lessened by an amount equal to the sum paid from the 
Tolls Reduction Fund into gross revenue, but not so as to prevent 
there being accumulated in Divisible Surplus an amount equal to 
seventy-five per cent of that accumulated during the preceding 
year. Annually thereafter, an amount equal to the first amount 
so taken shall be transferred from the Tolls Reduction Fund 
to Gross Revenues, until the amount remaining in the Tolls 
Reduction Fund shall be less than the amount taken, when such 
process shall cease. Fares shall not, however, be increased until 
it shall become necessary, as indicated in the following paragraphs. 
(Art 92; Par. 6.) 

If, in spite of its depletion, under the process described above, 
the Tolls Reduction Fund shall again increase until it shall con- 
tain in excess of $2,500,000, there shall be a further reduction of 
tolls made in the same manner. (Art. 92; Par. 6.) 

If in any year the Gross Revenues are insufficient to pay the 
charges enumerated under E-1, together with the one per cent pro- 
vided for the Contingent Fund, and if that Fund be at the time 
less than $300,000, the Commission shall transfer from the Tolls 
Reduction Fund to the Contingent Fund a suflficient sum to bring 
it up to $500,000, including the payments of any accumulated 
deficits in the payments enumerated under E-1, or if there be 
not sufficient money in the Tolls Reduction Fund, to accomplish 
this purpose, then the fares shall be immediately increased in 
order to provide sufficient revenues to make the payments 



enumerated under E-1, together with the one per cent of Gross 
Revenues paid to the Contingent Fund. (Art. 92; Par. 6.) 

The Tolls Reduction Fund shall be held in trust for the patrons 
of the Company for the reduction of tolls and shall be admin- 
istered by the Commission as provided in the Agreement. (Art 
92; Par. 6.) 

If, in the judgment of the Commission, the condition of the 
Fund warrants the loan, the Company, when it is compelled to 
furnish new capital, must first borrow from this fund, in which 
case the return of six per cent received by the Company on the 
money is paid into the fund. (Art. 92; Par. 3.) 

At the termination of the Agreement, the Tolls Reduction Fimd 
shaU become the property of the City, and the City shall repay 
any money borrowed therefrom if the City demands, and in the 
event that moneys are still due from the Company to the Fund 
it be deducted from the purchase price. (Art. 92; Par. 6.) 

Eastern Massachusetts 
The Act provides for two Fare Districts, the first consisting 
of the Company's lines north of Boston and the second of its lines 
south of Boston. The Trustees are further authorized to create, 
after hearings, further Fare Districts, within the two major divi- 
sions. They must allocate the cost of the service as between these 
various Fare Districts, on a basis which fairly distributes the cost 
and avoids the levying upon any such Fare Districts of costs 
incurred outside thereof. They are further authorized from time 
to time after hearings, to revise the boundaries of such Districts. 
(Sec. 15.) 

During the war and for two years thereafter any City or town, 
by the action of a majority of its electorate, may, for the purpose 
of securing lower fares, assume all or any part of the difference 
in the cost of operation due to increased wages, supplies, or coal, 
over the average prevailing .for the year ending July 1, 1914, as 
determined and allocated by the Trustees. In case a part but 
not all of tfie cities and towns in a Fare District, shall decide upon 
such contribution, the Trustees shall make such readjustment of 
fares as they shall consider equitable under the circumstances. 
No town may contribute for any one year an amount in excess of 



220 



Service At Cost Agreements 



one dollar for each $1,000 of its preceding year's assessed valu- 
ation, and no city may contribute an amount in excess of fifty 
cents for each one dollar of its previous year's assessed valuation. 
(Sec. 15.) 

From the $1,000,000 which the Act provides shall be paid in 
for new securities by the holders of the securities of the Old 
Company, $500,000 is set aside as a Reserve Fund (Sec. 8), to 
be used only for the purpose of making good any temporary 
deficiency in income pending an increase of fares. (Sec. 16.) 
Pending such use, the fund may be invested, in the discretion of 
the Trustees, in income producing securities, and income there- 
from received shall be treated as a part of the general income of 
th)^ Company. (Sec. 16.) Any surplus remaining in the revenue 
of the Company after the full cost of service has been paid shall 
be credited to the Reserve Fund. (Sec. 16.) In the discretion 
of the Trustees, the Reserve Fund may be increased from time 
to time, by the sale of the Company's Stocks, bonds and other evi- 
dences of indebtedness. (Sec. 17.) 

If on the last day of any December, March, June or September, 
the amount in the reser\^e fund shall exceed by fifty per cent the 
sum of $500,000, plus any increase made in the fund by the 
Trustees through the sale of the Company's securities and the 
income of the Company shall have exceeded the cost of the service 
for the preceding three months, the Trustees shall, within thirty 
days, put into effect a lower grade of fares. If at the same periods 
the reserve fund shall be less than half the sum of $500,000, plus 
additions made by the sale of the Company's securities, and the 
cost of the service for the preceding three months shall have been 
more than the income of the Company, the Trustees shall, within 
thirty days, put into effect a higher grade of fares. The Trustees 
shall continue to increase or decrease fares, thereafter, in accord- 
ance with the condition of the Reserve Fund, as stated above. 
YSec. 17.) 

Westerville 

The Rate of Fare is fixed "by the condition at the end of each 
month of Working Capital. (Sec. 12.) 

This fund is established by the provision by the Company of 
the sum of $25-000 which is a part of Capital Value. Into the 



Service At Cost Agreements 



221 



fund is paid all receipts from passenger service, and all propor- 
tional receipts for freight originating or terminating on the 
Westerville line, as well as other receipts arising from the opera- 
tion of this line. From it shall be paid all expenses enumerated 
under " Cost of Service." (See E-1.) (Sec. 13.) 

The initial fare under the Grant was fixed at Grade (d), five 
tickets for 20 cents, 4-cent fare. A monthly report of the condi- 
tion of Working Capital is submitted to the Commissioners bv 
the Company. Upon the receipt of such a report showing that 
the amount in Working Capital equals or exceeds $35,000, the 
Commissioners shall lower the fare. If the report so filed with 
the Commissioners, shows that Working Capital is $15,000 or 
less, the Company may order an increase in fare. (Sec. 12.) 

Dallas 

The Grant provides that whenever, the rate of return permitted 
has l)een paid and the Accident Reserve and the Repair, Main- 
tenance and Depreciation Reserves are not less than "normal," 
and the Surplus Reserve shall exceed " normal " by fifty per cent., 
then the next lowest item of fare provided in the schedule of 
fares shall be put in effect. If at the end of six months, the 
return having been paid and the Accident and Repair, Mainten- 
ance and Depreciation Reserves being at not less than " normal," 
the Surplus Reserve, still exceeds normal by at least thirty per 
cent., then the fare shall be further reduced to the next rate in 
the schedule ; and fares shall be reduced at six months' intervals, 
thereafter, providing rate of return has been paid and the Acci- 
dent and Repair, Maintenance and Depreciation Reserves are 
at " normal," until the Surplus Reserve shall be 4ess than ten per 
cent in excess of "normal." The return provided for in the 
Grant is cumulative to the extent that fares cannot be reduced 
until arrears in return have been made up. (Sec. 25.) 

Whenever the Surplus Reserve is less than fifty per cent of 
" normal," the Company may increase its fares to the next high- 
est rate in the schedule of fares provided in the Grant, and if 
at the end of six months the Surplus Reserve is less than eightv 
per cent of. " normal," it may put the next highest fare in eflFect, 
and so continue to increase fares (but, for rides within city 

15 




ju22 



Service At Cost Agreements 



Service At Cost Agreements 



223 



limits, not higher than the highest rate named in the schedule) 
at six-month intervals until the Surplus Keserve equals ninety 
per cent of "normal/' after which it may not again increase 
fares, until the Surplus Eeserve is less than fifty per cent of 
"normal"; except that where the Company, after protesting 
that extensions, or service ordered by the Board of Commissioners 
will jeopardize its ability to earn its stipulated return at the 
maximum fare, has been ordered by a Board of Arbitration to 
make such extensions, or perform such service, it shall, if less 
than the maximum fare be in effect, have the right to put the 
maximum fare in effect, and such maximum shall not be reduced 
for at least six months and then only in the manner provided for 
other reductions. (Sec. 25.) 

Memphis 

All revenues of the Company remaining after the cost of the 
service as defined by the Commission's order have been paid, are 
placed in the Fare Index Fund. From this Fund shall be paid 
all deficits as between revenue and the cost of the service. 

Whenever on January 1 or July 1 of any year, there shall be 
a balance in the Fund in excess of $200,000, and such balance 
shall have been increasing during the preceding two months, fares 
shall be reduced to the rate in the schedule next lower to that in 
effect: if on the same dates the balances in the Fare Index Fund 
shall be less than $60,000, and such balance shall have been 
decreasing during the preceding two months, fares shall be 
increased to the rate in the schedule next higher to that in effect. 

In the event that the balance in the Fare Index Fund continues 
to increase for two successive months after a decrease in the rate 
of fare, or continues to decrease for two successive months after an 
increase in fares, then the Commission may put into eff'ect an 
emergency change of rate without waiting for the succeeding 
regular date of January 1 or July 1. 



0. TRANSPORTATION OP PREIGHT, EXPRESS, ETC. 

Cleveland 
!N^o provisions. 

YOUNGSTOWN 

Permission is granted to carry freight upon the interurban and 
suburban cars of the Company, which may make "reasonable 
charges" therefor. It may carry mail for the United States 
Government. It may operate funeral, observation and other spe- 
cial cars and express passenger service, the rates therefor to be 
fixed by agreement with the City, but no lower than the rates 
provided in the ordinance, and it may transport such supply cars 
for its own use as are needed in the maintenance, construction 
and operation of its road. Freight cars shall be of a type 
approved by the City, and operated at such times of the day and 
night as the City may direct. 

Cincinnati 

The language of the Grant, relative to the transportation of 
freight and express, is as follows: 

" If and when the Companies may be authorized by law so to 
do, they may transport along and upon the routes, and all new, 
additional, changed and extended routes, freight, express matter 
and packages, and charge and collect, from time to time, reason- 
able rates therefor, but such transportation shall not be permitted 
to interfere with or delay passenger traflic. (Sec. 20.)'' 

The Company is required to file a schedule of rates for freight 
and express service with the Director of Street Railroads, and 
may change such schedule from time to time, filing new schedules. 
Schedules become effective 30 days after the date of filing, except 
that the Director may, for good cause, allow them to become 
effective sooner. When objection is made by any person or persons 
to the Company's schedule, the Director shall upon notice to the 
Company hold a public hearing, and shall decide thereafter the 
charges to be made. The charges so fixed shall be binding upon 
the Company, at the end of thirty days, unless within that period 



1 

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Service At Cost Agreements 



Service At Cost Agreements 



225 



^ t 



the Company shall begin in a court of com|)etent jurisdiction pro- 
ceedings to enjoin such charges on the ground that they are un- 
reasonable. (Sec. 20.) 

Boston 

Ko provisions are made for the transportation of freight, 
express, etc., such matters being under the jurisdiction of the 
Trustees. (Sec. 2.) 

Massachusetts (General) 
No provisions. 

Hontreai. 

" The Commission may allow the Company to carry freight 
over all or any part of the territory of the City as it now exists 
f»Jid as it may hereafter be enlarged, as well as over all or any 
part of the territory outside of the City, provided that such 
transportation of freight shall not, in any way, interfere with nor 
hinder the transportation of passengers, or the carrying out of 
any work, or the transportation of garbage, waste, rubbish or 
snow, which the Company may be called upon to undertake for 
the City under the present contract." (Art. 83.) 

If permission to carry freight is granted, the Commission shall 
determine the routes on which freight shall be transported, specify 
the hours during which freight cars shall run, fix the tariffs, so 
that they shall not burden the passenger tariff, establish rules for 
the transportation of freight, which when approved by the Que- 
bec Public Utilities Commission shall be binding, determine the 
commodities which may be transported and order the establish- 
ment of loading and unloading places. (Art. 83.) 

The transportation of live stock, carrion or manure or other 
offensive substances can be effected only in cars approved by the 
Board of Health of the Province of Quebec. (Art. 83.) 

The Company is granted the right, irrespective of the Com- 
mission, to transport for itself or for the City, material used in 
the construction of its lines, or for construction work being done 
by the City or any municipality served, including surplu? from 
excavations made in the pursuance of such work. (Art. 83.) 

The Commission may not authorize the Company to permit its 
freight car& to remain stationary in the streets for the purpose of 



unloading or loading, except when used in the work of the Com- 
pany, City, or any municipality served by the Company. (Art. 
83.) 

Eastern Massachusetts 
Ko special provision is made for the transportation of freight, 
express, etc., the matter being within the jurisdiction of the 
Trustees and the Public Service Commission. 

Westervillb 

There are no provision? as to the transportation of freight and 
express, except that receipts from freight originating or termi- 
nating on the Westerville line, shall be credited to Working Capi- 
tal. (Sec. 13.) 

Dallas 

" No cars for the carriage of freight or express (other than 
for the use of the Grantee) shall be operated by the Grantee over 
any part of its system, unless formal consent be given by the 
City by resolution or ordinance of the Board of Commissioners. 
Such resolution or ordinance may provide such regulations relat- 
ing thereto as the Board of Commissioners may deem necessary." 
(Sec. 32.) 

Memphis 

No provisions. 

H. SPECIAL PROVISIONS 

When Grant Expires: 

Boston 

• 

When the period of public management and operation expires, 
the Company is given the right to fix its own fares, so as to pro- 
vide for the cost of service, including a six per cent, return upon 
the par value of its common stock outstanding, and may establish 
an automatic scale of fares, but the Commonwealth is released 
from its obligation to make up deficiencies in the cost of service. 
The Company shall under such conditions be subject to such reg- 
ulation as! the Legislature may decide upon, but such regulation 
shall not be exercised so as to reduce its income below the rea- 
sonable cost of the service as defined in the Act. (Sec. 15.) But 



III 



226 



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Service At Cost Agreements 



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this provision is declared not to be a contract binding upon the 
Commonwealth. (Sec. 18.) 

Massachusetts (General) 
Acceptance of Act: 

A Company desiring to accept the Act, applies to the Public 
Service Commission, for a determination of its Capital Invest- 
ment, and the approval of its unfunded debt. Upon the determi- 
nat'on of Capital Investment and approval of unfunded debt, 
the Act may be accepted by the filing with the Commission, an 
acceptance, authorized by a vote of at least a majority of its capi- 
tal stock, and evidence that the Reserve Fund and Improvement' 
l?und has been raised or will be raised. (Sees. 4, 12.) 

The Public Service Commission may permit \ Company to 
hogin operation under the Act before its Capital Investment has 
been determined, provided the other provisions of the Act have 
been complied with, but there shall be no distribution of dividends 
on common stock, until such detennination of Capital investment 
has been made. (Sec. 12.) 

Montreal 
Control Outside City: 

The present agreement annulled the privileges, rights and 
franchises which the Company held in the City, and ''the 
privileges, rights and franchises which it possesses or will possess 
in other territories for the same purpose shall be annulled by the 
mere fact of the annexation of such territories to the City, which 
territories shall then be subject to the present contract." ' (Art 
24.) ^ 

"All provisions of the contracts, compacts or agreements passed 
between the Company and any municipal corporation outside of 
the City, inconsistent with the provisions of this contract, shall be 
and shall remain without effect from the coming into force of the 
present contract." (Art. 95.) 

In specific provisions, the Commission is given control of fare?, 
w^rvice, betterments, extensions and improvements outside of City! 




Service At Cost Agreements 



227 



Gvarantee Fund: 

Within five yeiars after the coming into effect of the agreement, 
the Company is compelled to provide out of its own resources, by 
which is meant those outside the jurisdiction of the Commission, 
the sum of $500,000 in yearly installments of not less than 
$100,000, the total to be known as the guarantee fund. This 
is- to be used to meet all liabilities and debts, other than mortgage 
debts, incurred by the Company before the agreement took effect, 
to pay for any excess in expenditures over 1021/^ per cent, of the 
operating allowance, when required by the Commission; to pay 
imy penalties inflicted upon the Company for failure to conform 
with the Commission's orders and to guarantee the fulfillment of 
the terms of the agreement. The fund is at all times to be main- 
tained by the Company at $500,000, and shall be deposited in 
some bank or chartered trust company, so as to be readily avail- 
sble. The interest on the fund is the property of the Company, 
nnd at the termination of the agreement the amount in such fund 
shall be the property of the Company. (Art. 92.) 

Labor: 

"The C Company shall not, directly or through any other person, 
do anything to prevent its employes from organizing a labor union 
authorized by law. Each class or category of employes may form 
a separate union. (Art. 88.) 

" The employes of the Company shall be entitled to one day's 
rest per week, the same to be fixed by the regulations of the Com- 
pany." (Art. 88.) 

Eastern Massachusetts 

At Expiration of Public; Management: 

"After the expiration of the ten-year period of management and 
operation of Trustees as herein provided for, the New Company 
shall have all the powers and privileges and be subject to all thb 
liabilities and restrictions of a street railway organized under the 
general laws now or hereafter in force, and with the consent of 
the Public Service Commission, may exercise any additional 
powers and privileges conferred by special acts applicable to the 
Bay State Street Eailway Company, until the General Court shall 
othervN'ise provide." (Sec. 18.) 



nil 



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228 



Service At Cost Agreemen 



TS 



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Apportionment of Stock and Bonds: 
The general laws of Massachusetts provide that a street rail- 

stock. In the case of the special issue of serial bonds, authorized 
by the Act, and ,n the case of equipment, notes, payable serially 

^ond Discmini: 

c^^^V""^"^"" ?' *^' '"'" "f ^""^ «* « 'J'^^"""*. «««* diB- 
mm to be amortized as the Trustees, with the approval of the 

dial! be deducted from the amount of bonds outstanding for the 
purpose of detennining the proportion between bonds and stock, 

otitr n '^' ^r"' '"^' "^ Massachusettes, must, in the case 
of street railways, be equal. (Sec. 7.) 

Hemphis 
Traffic; Survey: 

The Company is directed, if the city of Memphis so elects to 
co^rate m the making of a traffic survey, the cost of which is 
to be borne, on^half by the city and one-half as a cost of the ser- 
vice. The purpose of such survey is to determine if service can be 
improved and its cost lessened and the report is to be submitted to 
the^omm,ss,on for such action as it may decide to take in relation 

Skip-stop: 

r;f"^'T!.*V'' niodifications as may be agreed upon by the 
City and the Company, the order directs that the skip-stop plan in 
force previous to the making of the order be continued 



SERVICE AT COST PLANS NOT IN EFFECT 



An ldent.^1 Analysis of Ordinances and Agreements which 
Have Been Proposed in the Cities of Chicago, Phila- 
delphia, Denver and Minneapolis, but which for 
Various Reasons Have Not Became Operative. 

In addition to the cost of service agreements at preset effec- 
tive m ten cities of the United States and Canada, similar agree- 
ments have been prepared to cover the operation of electric rail- 
way systems in several other cities, but for various reasons have 
not been put into effect. 

Agreements proposed in Chicago, Philadelphia, Minneapolis 
and Denver are analysed a^d summarized in the following pages 

The object of the Chicago ordinance was to provide for Theln- 
struction by the City of a subway system, the consolidation of the 
surface and elevated lines into a unified system and the operation 
of all local transportation lines, including the Citv^wned sub- 
ways by a single company, organized for that pur'pose and not 

rf. l^r'^^f P'"*^*" "' "^ "^J^*- The Ordinance was 
adopted by the Chicago City Council on August 14, 1918 by a 
vote of 48 to 20 and was vetoed by Mayor Thompson a few dlys 
later. On August 22, 1918, it was respassed over the Mayoi 
vetoe by a vote of 51 to 19. It was submitted to a vote of the 
people on November 5, 1918, and defeated. Opponents of the 
ordmance were recruited from public ownership advocates, from 
those who favored extension of elevated lines rather than the 
building of subways, as well as those who believed that the Initial 
Value of the property wa^ too high and that the rate of return 
was too great. The cry that the adoption of the ordinance would 
mean an immediate increase in fares was also raised 

The Philadelphia ordinance which aimed to provide a unified 

^stem of local transportation for the City of Philadelphia, and 

ts operation by the Philadelphia Rapid Transit Companv, wa, 

supplementary to a contract entered into between the Ciiy and 

[229J 



230 



Service At Cost Agrxements 



Service At Cost Agreements 



the Company in 1907. It provided for the construction of tran- 
sit facilities both by the City and the Company and the furnishing 
of equipment for both City and Company lines by the Company. 
It was adopted by the City Councils and approved by the Mayor 
on January 3, 1918. Approval by the Pennsylvania Public Serv- 
ice Commission was, however, necessary before the contract 
became effective. On January 15, 1919, the Public Service Com- 
mission disapproved the contract, mainly on the gi'ound that it 
established a fare basis, and conceded certain preferentials to 
the Company, without a valuation of its property. 

The Denver Service at Cost ordinance was drafted by a Com- 
mittee of fifty-five, appointed by Mayor Mills in January, 1919, 
and representing all of the business, civic and labor organizations 
of the City. The appointment of the Committee was inspiied by 
the desire to secure a satisfactory plan for determining rates and 
service, after the Colorado Public Utilities Commission had 
granted the Company a seven-cent fare as an emergency measure. 
A few days after the Committee was named the Colorado 
Supreme Court handed down a decision denying the Commission 
jurisdiction over the rates or service of public utilities in so-called 
" Home Kule " cities, of which Denver is one. The City Coun- 
cil, afterwards permitted the Company to charge a six-cent fare, 
which was insufficient and owing to wage awards made by the 
National War Labor Board an acute situation was presented. 
On August 22, 1919, the Committee of Fifty-five filed with the 
City a petition embodying the Ordinance, with the signatures of 
16,150 citizens. The ordinance was passed by the Council and 
submitted to a vote of the people on October 22, 1919, when it 
was defeated by 235 votes in a total of 21,245. 

At the same election, the Denver Elastic Six-cent Fare Ordin- 
ance, proposed by City Auditor Stackpole, which aimed to base 
fares upon the wages paid to its employes by the Company was 
defeated by 6,304 votes out of a total of 15,461. Some 100,000 
were entitled to vote on these two propositions and the small vote 
recorded may be taken as indicative of the lack of interest mani- 
fested by the ordinary citizen in matters of the kind. 

The Minneapolis Ordinance was an attempt to adjust transit 
conditions in Minneapolis in advance of the expiration of some 



231 



of the Company's franchises. It was fathered by the Street EaU- 
way Committee of the City Council and prepared by City Attor- 
ney C. D. Gould and Stiles P. Jones. It was passed by the City 
Council in September, 1919, and submitted to the voters on 
December 9, 1919, when it was defeated by a vote of 22,977 for 
and 30,549 against. The opposition to the ordinance was led by 
Mayor Meyers and the Socialist party. The Mayor announced 
himself in favor of service at cost, but disagreed with the valua- 
tion placed upon the Company's property, although this valuation 
was based on the estimates of the City Engineer. 



1.— LIFE 



A. GENERAL CONDITIONS 



Chicago 

The Grant expires only when the property of the Company is 
purchased by the City. 

Philadelphia 
The Grant continues until July 1, 1957, unless — 
Terminated by the City on account of default by the Company. 
Terminated by reason of the purchase by the City of the prop- 
erty of the Company. (Art. 37. ) 

Denver Service at Cost Ordinance 
The Denver Ordinance was neither a Grant nor a Franchise. It 
was an ordinance giving the City certain control over the service 
of the Company and prescribing a method for fixing fares. By 
Its provisions it was declared to be binding upon both the City 
and the Company " for the remaining life of any of the Com- 
pany's franchises," (Art. 17.) 

Denver Elastic Six-cent Fare Ordinance 
For the remaining life of the Company's franchises. (Sec. 5.) 

Minneapolis 
Twenty-five years from January 1, 1920. (Sec. 2.) 



232 



Sebvice At Cost Agreements 



n 



S.— RENEWAL 

Chicago 
No provisions. 

Philadelphia 
Upon sLx months' notice, prior to the date of expiration, the 
City may renew the Grant as well as the 1907 Contract to which 
it is supplementary, for a ten-year period and may again renew 
it for a like period prior to the termination of any such exten- 
sions, by giving six months' notice. (Art. 38.) 

Denver Service at Cost Ordinance 
No provisions. 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 

There are no specific provisions covering the renewal of the 
Orant. The power to renew the Grant rests in the City Council, 
however. The Company is required by the terms of the Grant 
to continue to operate its City System after the Grant has expired 
under such reasonable terms and conditions as the City Council 
may impose. Such continued operation does not extend or renew 
the Grant, but the obligation of the Company to sell to the City 
at any five-year period is continued. (Sec. 2.) 

8.>-F0SF£ITUS£ 

Chicago 
No provisions. 

Philadelphia 

If the Company defaults in performing its obligations under 
the Grant, the Citv mav — 

Operate the Unified System under rates of fare provided by 
the Grant for the remainder of the life of the Grant on such 
terms as may be decided by the Court, such operation to be under 
the terms of the Contract, and by orders of the Court pending a 
determination of the rights of the parties or the curing of the 
default, and the property shall be restored to the Company as soon 
as the default shall have been cured or the Court shall so order ; or 



Service At Cost Agreements 



233 



Enter into a contract with some third party to operate the Uni- 
ded System, subject to the same conditions, as if operated by the 
City; or 

Apply for the appointment of a receiver to operate the Unified 
System and at the same time ask for an order of the Court to 
protect the rights of the parties to the Grant ; or 

Apply for a cancellation of the Grant and the lease which is 
a part thereof; or 

Avail itself of such other remedies as may be legally possible. 

Any of these actions shall not invalidate*^ the lien of bonds or 
other securities which the Company may have issued under the 
terms of the Grant. (Art. 30. ) 

Denver Serice at Cost Ordinance 
No provisions. The instrument if merely a rate regulation 
would presumably be revocable at the pleasure of the City Council. 

Denver Elastic Six-cent Fare Ordinance 
No provisions. The instrument if merely a rate regulation 
would presumably be revocable at the pleasure of the City Council. 

Minneapolis 
If the Company shall fail to comply with any of the terms and 
conditions of the Grant, and if such default shall continue for 
a period of ninety days (exclusive of all times during which the 
Company may be delayed or interfered with, without its con- 
nivance, by unavoidable accidents, strikes or court actions) after 
written notice of such default has been served upon it by the 
City, then the City Council may declare the Grant forfeited. In 
case, however, there shall be outstanding bonds issued in com- 
pliance with the provisions of the Grant secured by a lien against 
the property of the Company including the rights and privileges 
granted by the ordinance, the owners thereof shall be privileged 
to foreclose on the property, including such rights and privileges. 
The purchasers at such foreclosure sale shall be entitled to con- 
tinue the operation of the property under the terms of the Grant 
including the right of the City to purchase and to forfeit the 
Grant for failure to comply with its terms, which forfeiture shall 



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Service At Cost Agreements 



^1 



be conclusive and shall terminate the rights and privileges of the 
purchaser thereunder as well as those of parties claiming there- 
under. If the Company is unable to comply with the terms of 
the Grant for reasons beyond its control such as acts of God, 
strikes, war, riots or inability to obtain materials and supplies 
within the time specified, " if all reasonable diligence is exercised 
in ordering and purchasing the same," it is relieved of obligations 
under the Grant as to time of performance. (Sec. 32.) 

B. MUNICIPAL PURCHASE 



1.— BY THE CITY 



If 



I 



N 



^i|> 



I 



(a) When Purchase Can Be Made 

Chicago 
On the first day of January, or the first day of July of any 
year after the Grant becomes effective, upon giving six months' 
notice in writing of intention to purchase. (Sec. 24.) 

Philadelphia 

Under the 1907 Contract upon July 1, 1957, or upon any July 
1, thereafter, provided that six months' notice be given to the 
Company. (Sec. 11, 1907 Contract; Sec. 37 of Grant.) 

Under the additional rights conferred by the Grant, at any time 
after July 1, 1927, upon six months' notice to the Company of 
its intention to purchase. ( Art^ 27.) * 

Denver Service at Cost Ordinance 
At any time after the taking effect of the ordinance upon six 
months' notice to the Company. (Art. 12; Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 
Ko provisions. 

Minneapolis 
During the life of the Grant, any extension thereof, or any con- 
tinued operation of the system under the terms of the Grant, but 



Service At Cost Agreements 



235 



without an extension thereof, the City shall, upon giving one 
year's notice in writing of its intention, have the right to purchase 
at the end of each five or ten-year period. (Sees. 2 and 18.) 

During the life of the Grant and any extension thereof the 
City shall have the right to purchase on January 1, of any year, 
providing that it has given the Company one year's notice of its 
intention so to do. (Sec. 18.) 

Under its right of eminent domain, the City shall have power 
to purchase at any time. (Sec. 18.) 

(b) Terms of Purchase 

Chicago 

The purchase shall include all property of the Company, includ- 
ing money and securities in the Special Funds created by the 
Grant, all receipts of the system, including amounts reserved for 
taxes and other operating expenses, less any amount needed to 
pay the items constituting Cost of the Service. (Sec. 24.) 

The purchase price shall be the amount of the then Capital 
Account of the Company, less the amount of any outstanding and 
unpaid liens (except liens then callable, which shall be called and 
paid by the Company) subject to which the Company acquired 
the property, franchises and rights of the surface or elevated lines 
which comprise the system, which liens shall be assumed by the 
city. (Sec. 24.) 

Upon the payment in cash to the Company, or the deposit of 
the purchase price in cash in the depositories named in the Grant, 
the City shall have the right to take over and possess the property. 
Liens under mortgages, deeds of trust or other instruments, made 
subsequent to the taking effect of the Grant, and rights of the 
holders of debentures or other obligations issued in part payment 
for the surface or elevated lines comprising the property, shall be 
paid out of such purchase price, such debentures or other obliga- 
tion being subject to the lien of the aforesaid mortgages, deeds of 
trust or other instruments. (Sec. 24.) 

Philadelphia 
The property, leaseholds and franchises of the Company, sub- 
ject to its indebtedness, may be acquired by the City, upon the 



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Service At Cost Agreements 



payment to the Company by the City of an amount paid in upon 
its capital stock at the date of purchase, plus — 

First, unpaid dividends on New Capital issued under the terms 
of the Grant, and 

Second, accumulated unpaid dividends at five per cent per 
annum on all Capital Stock. (Art. 27.) 

Denver Cost of Service Ordinance 

The City may at its own election, purchase either the City lines 
of the Company, alone, or its City and interurban lines together. 
In the event that the City lines alone are purchased, the Com- 
pany shall be awarded severance damages, fixed either by agree- 
ment between the City and the Company, or by arbitration, and 
in addition existing arrangements, for the use of tracks and facili- 
ties as between the interurban and City lines are continued. 
(Art. 12.) 

The purchase price is the Stipulated Fair Value of the Com- 
pany's property at the time of Purchase. (Art. 12.) 

Stipulated Fair Value is defined as meaning the Basic (Initial) 
Value plus the total cost of additions, betterments and improve- 
ments made after the date of Basic Value, minus the value of 
property retired, both as defined by the Rulings and Uniform 
System of Accounts of the Interstate Commerce Commission, 
and determined from the records of the Company, authenticated 
by the Board of Tramway Control. (Art. 4, Sec. 2.) 

Included in the property covered by the purchase price, are 
all amounts in the Renewal and Depreciation Reserve Fimd and 
all surplus above the " normal " amount in the Fare Control 
Fund. If, however, the Fare Control Fund, shall be less than 
"normal," the amount of the deficit shall be added to the pur- 
chase price and paid to the Company. (Art. 12.) 

In the event of purchase the property may be delivered to the 
Citv free and clear of all liens or incumbrances, in which case 
the full amount of the purchase price shall be paid to the Com- 
pany in cash, or the City may assume certain mortgage liens, the 
face or par value of securities thereunder not to exceed the Stipu- 
lated Fair Value, and in such case only the difference between 
the value of such securities and the Stipulated Fair Value of the 



Service At Cost Agreements 



237 



Company shall be paid to the Company, while the value of such 
securities shall be set aside to discharge said mortgage liens. 
(Art. 12.) 

In the event of purchase the City shall assume and carry out 
all contracts with other railway companies for the joint use of 
tracks and existing agreements for the purchase of supplies and 
equipment contracted for, and undelivered. (Art. 12.) 

* Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 

The giving of notice by the Company of its intention to pur- 
chase constitutes an obligation upon the part of the City to buy 
and on the part of the Company to sell, which obligation may be 
enforced by mandamus or other appropriate legal proceeding. 
(Sec. 18.) 

Upon the purchase of the property, the City shall assume and 
carry out all contracts for the joint use of tracks and for the pur- 
chase of undelivered equipment and supplies. (Sec. 18.) 

The property shall be transferred to the City free and clear of 
liens or all other incumbrances. If, however, the City shall 
purchase the property prior to the retirement of any existing 
mortgage, the Company shall furnish satisfactory security that 
such mortgage shall be retired. If the City elects to require cash 
security, it shall assume the payment of the difference in interest 
charges as between the interest paid on the mortgage bonds and 
that required for the cash deposit, and such difference shall be 
charged as an operating expense. (Sec. 18.) 

All unexpended balances in any Funds created under the pro- 
visions of the Grant, as well as cash on hands and bills and 
accounts receivable become the property of the City. (Sec. 19.) 

The City assumes and shall pay all liabilities on account of 
damages and injuries to persons and property occurring subse- 
quent to the taking effect of the Grant and prior to the conveyance 
of the property. The City shall fulfill all outstanding obliga- 
tions and contracts of the Company and pay all bills and accounts 
payable, providing that such obligations have been incurred with 
lo 



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238 



Skevice At Cost Agreements 



the approval of the City Council and further providing that it 
shall pay nothing on account of any sums claimed hy the Company 
on account of payment of return. (Sec. 19.) 

The price to he paid hy the City to the Company for the prop- 
erty shall be: 

The sum of $24,000,000 (Value of property as of January 1, 
1919) J plus-- 

The sum necessary to retire securities issued, or debt incurred 
on account of the Stablizing Fund, and Capital Expenditures, and 

Any accumulated deficiency in the items constituting the Cost 
of Service, except payments to the Company on account of return, 
and minus — 

Capitalization retired with sums taken from the Amortization 
Fund, and 

Loans made to the Company by the City or bonds guaranteed 
by the City and used for Capital purposes. (Sec. 19.) 

H at the time of purchase the City shall have the legal power 
to assume the payment of existing mortgages or other liens upon 
the property, or to purchase the proj^erty subject to such 
mortgages or liens, it may elect to assume such mortgages or liens, 
in which case their amount shall be deducted from the purchase 
price. (Sec. 19.) 

1.— BY LICENSEE OF QTY 

(a) When Purchase Can Be Made 

Chicago 
1^0 provisions. 

Philadelphia 

At the same periods provided for purchase by City. (Sec. 11 
of 1907 Contract.) 

Denver Sebvice at Cost Ordinance 
1^0 provisions. 

Denver Elastic Six-cent Fare Ordinance 
IsTo provisions. 



Service At Cost Agreements 



239 



Minneapolis 
After January 1, 1925 (five years after taking effect of grant) 
at the same periods provided for purchase by the City. (Sec. 18.) 

(b) Terms of Purchase 

Chicago 
K'o provisions. 

Philadelphia 

The City's right to purchase may be assigned to an individual, 
firm or corporation, and may be put up at auction and sold to the 
highest bidder, in which case the Company shall have a right to 
bid. The purchase by an assignee of the City shall be made 
under the same terms as those provided for purchase by the City. 
(Sec. 11 of 1907 Contract.) 

Denver Service at Cost Ordinance 
"No provisions. 

Denver Elastic Six-cent Fare Ordinance 
"No provisions. 

Minneapolis 

The Licensee must have lawful authority to acquire, own and 
operate street railways in the city of Minneapolis. (Sec. 18.) 

The City may designate the Licensee only after receiving bids 
for the right to purchase said property, which bids may be based 
upon a lower rate of return, a reduction in Capital Value, or a 
cash bonus to the City. Bids may be received for operation 
under the tei-ms of the existing contract or such contract as modi- 
fied, but in the absence of a new contract, the bidder shall agree 
to take over the property subject to all existing terms and obliga- 
tions, including the right of the City to purchase or to designate 
a purchaser. The City may reject any or all bids. (Sec. 18.) 

A Licensee so designated shall acquire the right to purchase the 
property under terms and conditions provided for its purchase 
by the City, except that ten per cent shall be added to the pur- 
chase price as well as an amount that shall take into account the 



240 



Service At Cost Agreements 



sum or sums transferred to tlie Company or to the holders of its 
securities from the Amortization Fund. Licensee shall not add 
the ten per cent to Capital Value, but it shall be considered as a 
bonus to the City. (Sec. 18.) 

C. CONTROL 

1.— CORPORATE AUTONOMY 

Chicago 
The Orant provides for the organization of a Company for the 
purpose of consolidating the surface and elevated lines of 
Chicago, the building of additional surface and elevated lines 
and the construction of subways as well as the operation of sub- 
ways built by the City, and the management and operation of 
the system so created, " not for pecuniary profit.'' The original 
Board of Nine Trustees is to be constituted by ordinance of the 
City Council approving previous selections and at the expiration 
of the term of office of each his successor is to be named by the 
Board from nominations made by the City Council. Practically 
all of the acts of the Board are prescribed by the terms of the 
Grant (Sec. 1.) 

Philadelphia 

"Nothing in this article (providing for a supervising Board) 
shall deprive the Company's officers and directors of the manage- 
ment of the Company's properties, nor shall anything herein con- 
tained be deemed a delegation to the Board of any of the powers 
vested in the Director (Director of the Department of City 
Transit) or the Commission. (Pennsylivania Pvhlic Service 
Commissi4)ii,) * * *" (Art. 31, Par. 7.) 

The Mayor, ex officio, and two citizens of Philadelphia to be 
chosen from time to time by the Councils, to serve for four years 
and tiU their successors are appointed, shall, as representatives of 
the City, be members of the Board of Directors of the Company, 
and as such exercise all the powers of directors, and vote upon 
all questions which may come before the Board, as if they had 
been elected by the stockholders of the Company, but without 
incurring any liability as directors. (Sec. 4, 1907 Contract.) 



Service At Cost Agreements 



241 



Denver Service at Cost Ordinance 
No surrender of corporate autonomy is required by the terms 
of the ordinance. It is specifically provided that the purpose of 
the ordinance is "without prejudice or waiver of any conten- 
tions by the City and County of Denver or the Denver Tramway 
Company as to the validity, scope or duration of any franchise, 
grant or right of way." (Art. 14, Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
There are no specific provisions relative to Corporate 
Autonomy. The restrictions put upon the Company by the terms 
of the grant are concerned only with the operation of the Com- 
pany as it affects the City of Minneapolis. 

2.— OF SERVICE 

(a) Within Municipality 

Chicago 

" The Company by accepting this ordinance agrees to comply 
with all lawful regulations of the service of the said local trans- 
portation system which may be prescribed from time to time bv 
the City." (Sec. 9.) 

Certain enumerations of matters in connection with service 
are contained in the Grant and in addition the City reserves its 
full police power and the right to make regulations to secure the 
comfort, health, safety, welfare and accommodation of the public 
(Sec. 9.) 

Philadelphia 
Except as to stopping places, the establishment, omission or 
changing of which is placed entirely in the hands of the Super- 
vising Board, the initial control of " rules and standards of main- 
tenance, service, routing and adequacy and suitability of equip- 
ment " is with the Company, but the Supervising Board is em- 
powered to "pass upon, adopt, and alter" the acts of the 
Company relative thereto. (Art. 31; Pars. 4 and 5.) 



rtj 



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242 



Service At Cost Agreements 



Denver Service at Cost Ordinance 
The ordinance gives the City " control, regulation and super- 
vision of the Tramway service on all routes of the City system, 
including the right to fix the schedules, transfer regulations and to 
^Xy change and extend routes." It should be noted, however, that 
this control is vested in a body upon which the Company is 
represented. (Art. 3; Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 

The City reserves the right to control and regulate service and 
specifically to 

Fix the type of caJrs, 

Fix and amend schedules, 

Control stops, routes, headway and speed, 

Provide rules and regulations for heating, lighting, ventilation 
and sanitation. (Sec. 4.) 

(b) Outside MnnicipaHty 

Chicago 
The rights conferred upon the Company by the Grant cover 
lines in the City of Chicago and suburban territorv^ (but not out- 
side the State of Illinois) extending not more than 20 miles from 
the City limits. (Sec. 1.) Before the Grant became effective, its 
confirmation by the Illinois State Legislature wajs necessary 
(Sec. 34) so that the control of the City would have extended to 
all lines operated by the Company. 



Service At Cost Agreements 



243 



Philadelphia 



'No provisions. 



Denver Sekvice at Cost Ordinance 
No provisions, but the " City System " is defined by the ordi- 
nance to include certain lines extending beyond the City limits. 
(Art. 1; Sec. 2.) 



Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
The City exercises no control outside of City limits, except as 
to that part of the system in the village of Columbia Heights and 
on the Fort Snelling Military Keservation, which are included. 
Tracks on Park property are . subject to reasonable niles and 
regulations of the Board of Park Commissioners. (Sec. 2.) 

I.— EXTENSIONS, BETTERMENTS AND PERMANENT IMPROVEMENTS 

(a) Definitioiis 

Chicago 
Betterments and Extensions are defined to "designate and 
include all betterments, extensions, additions, equipment and 
other property (including original pavement of the right of way) 
acquired by the Company after the effective date of this ordi- 
nance, through construction, reconstruction, alteration, purchase 
or otherwise, as a part of or for use in connection with its local 
transpoitation system.'^ (Sec. 3.) 

Philadelphia 
There is no general definition. The Company was not removed 
from the control of the Pennsylvania Public Service Commission 
by the term of the Grant, so that the rulings of the Commission 
as to what constituted capital expenditures would prevail. The 
Grant was for the purpose of securing the operation by the Com- 
pany of the rapid transit system to be built by the City, for its 
equipment by the Company and for the building of certain new 
facilities by the Company. There are in the grant specific pro- 
visions describing such facilities. 

Denver Service at Cost Ordinance 
It is provided that "Additions, Betterments and Improve- 
ments " shall be defined by the rulings and the Uniform System 
of Accounts of the Interstate Commerc Commission. (Art. 4; 
Sec. 2.) 



344- 



Service At Cost Agreements 



1 1 



Denver Elastic Six-cent Fare Ordinance 

Ko provisions. 

Minneapolis 

The Uniform System of Accounts of the Interstate Commerce 
Commission, except as they may he modified hy the Grant or by 
subsequent City ordinances shall govern. The Company is obli- 
gated to set up in its books of accounts, the Standard Property 
Accounts of such I. C. C. System and with the advice and 
approval of the City Council allocate all expenditures for 
additions to property value among them. (Sec. 16.) 

(b) Within MunicipaUtj 

Chicago 

The Grant and the Exhibit attached thereto (Exhibit B.) 
specify a number of Extensions, Betterments and Permanent 
Improvements which the Company is obligated to make to its 
System. A portion of these are specified to be made within a 
period of three years after the taking effect of the Grant, another 
portion in a period of three years after the first period of three 
years and others thereafter. They included additions to surface 
and elevated lines, subways for surface lines and other rapid 
transit facilities. 

In addition the Company shall construct such additions to and 
extensions, both of rapid transit and surface lines as may " be 
required for furnishing adequate local transportation facilities and 
service under the principles and provisions of the ordinance." 
(Sec. 5.) 

The Company need not, however, provide money either for the 
Extensions, Betterments and Permanent Improvements specified 
in Exhibit B, or others, if the Gross Receipts of the Company 
during the previous fiscal year have been insufficient to pay the 
Cost of the Service. (Sec. 10.) 

Any work in connection witl^ Extensions, Betterments, and 
Permanent Improvements involving an expenditure of more tha^i 
t$5,000 shall be let by contract to the lowest responsible bidder, 
upon plans and specifications furnished by the Trustees and after 
30 days advertising, bids to be publicly opened. (Sec. 6.) 



Service At Cost Agreements 



245 



The cost of Extensions, Betterments and Permanent Improve- 
ments shall include payments on account of injuries to persons 
or property occurring in connection therewith, as well as charges 
for the use of Company equipment, engineering and supervision. 
♦(Sec. 6.) When the Traction Fund is exhausted, all subway con- 
struction, both of those provided for in Exhibit B and others, be 
paid for by the Company and added to Capital Account or by the 
City through special assessment against property owners benefited. 
(Sec. 7.) 

Plans, specifications and estimates for subways shall be pre- 
pared by the Trustees and the work done under their supervision, 
but contracts therefor shall be let by the City and payments there- 
for made by the City. If subways in addition to those specified 
in Exhibit B shall be deemed necessary by the Trustees they (the 
Trustees) shall submit plans, specifications and estimates therefor 
to the City Council, which may authorize such construction. 
(Sec. 7.) 

After the City shall have expended the sums in the Traction 
Fund, the Company is required to furnish to it such sums as it 
may require for subway construction. The money so furnished 
shall be taken from Capital Account and shall be treated as a 
Capital Expenditure. (Sec. 7.) 

The City may authorize the provision in specifications for sub- 
ways the inclusion of galleries, corridors or other facilities for the 
use of City utilities, or utilities authorized to use such facilities 
by the City, but the Company shall not be required to furnish 
money for such construction, and no party shall have authority to 
use them unless it be granted by City ordinance. (Sec. 7.) 

Upon the completion of any subway, or of a portion of a sub- 
way, which in the judgment of the Trustees may be advantage- 
ously used for operation, the Company shall proceed to operate 
trains in such subway and shall pay to the City an annual rental 
of six per cent on the cost of construction. Included in such cost 
shall be an allowance of three per cent upon all amounts paid by 
the City for construction, until operation begins, but the amounts 
furnished by special assessment of property owners, or by the 
Company, or for the construction of, or on account of the con- 
struction of galleries or facilities for other utilities shall not be 
included in the cost. (Sec. 7.) 



I 



246 



Service At Cost Agreements 



The Company is required to renew, repair and maintain all 
subways or portion of subways used by it, and shall acquire no 
ownership therein, by reason of any payments made by it towards 
the cost of construction. (Sec. 7.) 

The City Traction Fund has been accumulated through the 
division of receipts of the surface lines provided for in the Trac- 
tion ordinances of 1907. It is defined by the Grant as consisting 
of the money that has, on the effective date of the Grant been paid 
into such Fund, any payments made into it thereafter under the 
Traction Ordinances, and payments made thereinto on account of 
subway rentals paid by the Company. It may be expended only 
for subway construction, including the provision of galleries and 
facilities of other utilities, and for the assessment against the 
city of public benefits arising from the opening and extension of 
two streets, which by the provisions of Exhibit B. are to be opened 
or extended. (Sec. 13.) 

Philadelphia 
The principal object of the Grant is to secure a Unified Trans- 
portation System for Philadelphia. To this the City is to con- 
tribute certain subways and elevate<l lines and the Company its 
existing subway and elevated line as well as surface lines, the 
electrical equipment for the City system to be provided by the 
Company. The method in which the City lines, the Company 
lines and the equipment therefor shall be provided are set 
forth in considerable detail in the Grant (Art. V-2.) The 
building of City lines is at the pleasure of the City. If they 
are built the Company must provide electrical equipment there- 
for, and if the City is unable to provide capital for cars, yards, 
shops, etc., the Company shall furnish such equipment, to the 
limit of $3,000,000, provided it can secure money on terms 
approved by city councils and provided that the City shall (if 
legal) agree to purchase same from the Company out of the first 
money available, the expenditure to be later repaid by the 
Company. 

The determination of what Extensions, Betterments and Per- 
manent Improvements the Company shall build is left to the 
Pennsylvania Public Service Commission, the Company waiving 



Service At Cost Agreements 



247 



any objection to the jurisdiction of the Commission. In the event 
that the Commission refuses to assume jurisdiction, the Company 
shall obey the recommendations of the Supervising Board, sub- 
ject only to its ability to finance them under the terms of the 
Grant. (Art. 4.) 

The Company shall reasonably anticipate the growth of traffic 
and provide therefor. The facilities to be furnished shall be the 
best known to the art and replacements and renewals shall at least 
provide facilities equal to those replaced or renewed and shall in 
addition include such improvements as the state of the art may 
have developed. (Art. 6.) 

Extensions, Betterments and Permanent Improvements shall be 
made in accordance with plans and specifications approved by the 
Supervising Board. (Art. 6.) 

The cost of Extensions, Betterments and Permanent Improve- 
ments shall include the following: 

Net cost in money of purchase or construction ; 

Net cost in money of administration, engineering, superin- 
tendence, legal services, insurances and damages ; 

Taxes, assessments and other governmental charges, paid or 
accrued before the beginning of its operation and such assess- 
ments for benefits during its operation as are in the opinion of 
the Board not chargeable to Gross Revenue ; 

Interest or dividend and sinking fund charges upon money 
used or securities issued to pay for the Extension, Betterment or 
Permanent Improvement, incurred prior to operation ; 

Cost of securing capital, including engraving and printing of 
securities, advertising, taxes, expenses of selling, and trustees' 
expenses in connection with the original issue of securities ; 

Expenditures for repairs, replacements or renewals made 
during construction, or after operation, which in the judgment of 
the Supervising Board, shall have been necessitated by faulty 
construction or design. (Art. 9; Par. 1.) 

It is the duty of the Supervising Board to report to the City 
Councils as to the advisability, reasonableness and necessity of 
new lines, extensions, or equipment, and to review or compile 
estimates covering construction, operation and method of finan- 
cing and to bring proceedings before the Pennsylvania Public 



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248 



Service At Cost Agreements 



III 



Service Commission to require the undertaking of Extensions, 
Betterments and Improvements by the Company. (Art. 31; 
Par. 3.) 

The Supervising Board shall give hearings on all petitions for 
Extensions, Betterments and Improvements. (Art. 31 ; Par. 4.) 

The Board is charged with the duty of inspecting all work and 
materials in connection with both construction and operation and 
must be afforded the facilities for such inspection by the Com- 
pany. (Art 34.) 

Denver Service at Cost Ordinance 
Capital expenditures exceeding in any one calendar year one- 
half of one per cent of the Stipulated Fair Value, may not be 
added to Stipulated Fair Value as affecting the cost of service, 
unless approved by a majority of the Board of Tramway Control. 
(Art. 3; Sec. 7.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 

The Company is required by the terms of the Grant to con- 
struct and put into operation during the first year in which the 
Grant is effective certain specified extensions. In addition it is 
required within the time determined by the City Council to con- 
struct and put into operation certain other specified extensions. 
(Sec. 7.) 

Either the City or the Company may propose Extensions, Bet- 
terments or Permanent Improvements. If proposed by the Com- 
pany they shall not be carried out unless approved by the City 
Council. Before they shall be ordered by the City Council or 
constructed by the Company, there shall be made under the direc- 
tion of the Street Kailway Supervisor, a careful survey of all 
material facts, including 

The number of people to be served by such line or extension ; 

The estimated expense of construction and equipment; 

An estimate of earnings for the immediate year and years; 

An estimate of the effect upon the gross, net and surplus earn- 
ings of the entire railway system. (Sec. 7.) 



I 



Service At Cost Agreements 



249 



When estimates of the cost of plans and specifications for Exten- 
sions, Betterments and Permanent Improvements have been 
approved by the City Council and filed with the Company, the 
Company may object on the ground that their carrying out would 
impair the payments of the cost of service, and the Company shall 
be entitled to a hearing before the City Council upon ten days' 
notice before any Extensions, Betterments or Permanent Improve- 
ments shall be ordered by the City Council. (Sec. 7.) 

Within one year, or such other time as the City Council may 
decide, from the date of approval by the Council, the Company 
shall construct and operate the Extensions, Betterments or 
Improvements as ordered. (Sec. 7.) 

If the Company refuses or neglects to construct extensions as 
ordered by the City Council, the City may itself make such 
extensions, under the direction of the City Engineer, the stand- 
ard of the construction to be equal to that adopted by the Com- 
pany for lines in similiar territory and for similiar service. The 
Company is required to equip and operate such extensions, the rate 
of fare, service and maintenance to be in conformity with that 
provided by the Grant for the rest of the System, compensation to 
be made to the Company on terms equitable both to the City and 
the Company. (Sec. 7.) 

Upon Capital invested in such extensions the City shall receive 
the same rate of return, and under the same conditions, as is pro- 
vided by the Grant for capital invested by the Company. 
(Sec. 7.) 

The right of the City thus to construct and compel the Com- 
pany to operate Extensions, does not release the Company from 
its obligations to construct Extensions, Betterments and Per- 
manent Improvements, when ordered so to do bv the City. 
(Sec. 7.) 

After the first year of operation under the Grant, the Company 
may not be required to construct street railway tracks in a street 
that is less than 40 feet in width. (Sec. 7.) 

Disputes between the City and the Company arising in regard 
to Extensions, Betterments and Permanent Improvements may 
be arbitrated. (Sec. 7.) 



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I!; 



II 



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Service At Cost Agreements 



(c) Outside of Municipality 



Chicago , 
No provisions. 

Philadelphia 

The Councils are empowered to stipulate the terms and condi- 
tions under which the Company may lease or operate lines out- 
side the City and the Supervising Board is charged with the duty 
of recommending to the Councils terms and conditions in con- 
nection with such leases and operation. (Art. 31, Par. 11.) 

There are no other provisions in the contract affecting control 
of Extensions, Betterments and Permanent Improvements out- 
side the municipality, except that certain parts of the system 
extend outside, and over these the City exercises such control as is 
provided in the Orant for all lines. 

Denver Service at Cost Ordinance 
1^0 provisions. 

Denver Elastic Six-cent Fare Olt^t nance 

^o provisions. 

Minneapolis 

City exercises control over certain specified lines outside of 
City and no others. 

4.— CAPITALIZATION, FINANCES AND ACCOUNTS 

(a) Ordinary Expenses 

Chicago 
No provisions in the Grant. The Trustees have control. 

Philadelphia . 

Contracts covering the leasing of car and station advertising, 
news stands and other vending privileges, are subject to the 
approval of the Supervising Board. (Art. 17.) 

Contracts for power are subject to the approval of the Super- 
vising Board. (Art 31, Par. 5.) 



Service At Cost Agreements 



251 



Terms and conditions under which the Company may grant 
permits for show windows, entrances or other easements, or privi- 
leges in connection with the operation of the system are subject 
to the approval of the Supervising Board. (Art, 31, Par. 5.) 

Such control as is provided by the laws of the State is exer- 
cised by the Pennsylvania Public Service Commission. 

Denver Service at Cost Ordinance 
The Company shall submit prior to the last day of each calen- 
dar month, an estimate of the cost of service, total operations and 
gross revenues for the ensuing year. (Art. 3, Sec. 8.) 

No operating expenses for any year, exceeding three per cent 
of the operating expenses for the preceding year, shall be added 
to the cost of service, unless they be approved by the Board of 
Tramway Control. (Art. 3, Sec. 7.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 

The City Council has the right to require the submission of an 
annual budget and supplements thereto, in wbich case no expendi- 
tures other than those detailed in such budgets as approved by the 
City Council shall be made. (Sec. 5.) 

It is provided that the Company shall pay its general officers 
no higher compensation than that paid by other street railway 
companies " or other enterprises " of equal magnitude for work 
of the same general character. Diiferences between the City and 
the Company as to salaries may be arbitrated. (Sec. 30.) 

The City Council may exercise such " reasonable control " 
over contracts for and purchase of supplies and payments on 
account of injuries and damages as will afford it protection 
(Sec. 5.) 

(b) Securities 

Chicago 
For the purpose of acquiring the surface and elevated line? 
as provided in the ordinance, the Company is authorized to 
assume liens against such property to the amount of not more 






III 



252 



Service At Cost Agreements 



than the Capital Account of the Company as fixed by the Ordi- 
nance, (Note: The Capital Account fixes, in effect, the price at 
which such property shall he acquired), and to issue (to pay the 
difference between the amount of the liens assumed and Capital 
Account, which difference shall not be more than 40 per cent of 
Capital Account), debentures or other obligations, which shall not 
have the right of foreclosure nor bear any date or time of redemp- 
tion, but shall be subject to call for payment under the provi- 
sions of the Grant, or, subject to the rights of lienors, at the time 
of purchase by the City. The manner of acquiring each of the 
properties is separately provided for. (Sec. 2.) 

The Company is authorized to place upon its property a First 
and Refunding Mortgage or Trust Deed to secure bonds or interest 
bearing obligations to be issued for capital expenditures. In addi- 
tion, such mortgage may secure (a) refunding bonds or interest 
bearing obligations, issued after the date when the Grant becomes 
effective; (b) refunding bonds or interest bearing obligations 
which were a lien upon the property at the date when Grant 
became effective, and (c) provide the Emergency Fund. In 
addition, the Company may place upon its property a mortgage 
or trust deed, subordinate to the First and Refunding Mortgage 
or Trust Deed, to secure bonds or interest bearing obligations 
which shall be used only for refunding or retiring (by payment 
or exchange) bonds or interest bearing obligations which were a 
lien upon its property at the time Grant became effective. No 
other lien shall be placed upon the Company's property. 
(Sec. 11.) 

All New Capital obtained by the Company shall be through 
the sale of bonds, debentures or other obligations of the 
Company, to be sold after public advertisement and on the terms 
most advantageous to the Company. (Sec. 2.) 

The return upon debentures issued for the payment of 
acquired property is fixed at eight per cent from the date when the 
Grant becomes effective until eluly 1, 1932, and thereafter at 
seven per cent. (Sec. 2.) 

The interest to be paid on new bonds, debentures and other 
obligations of the Company is on the basis of the most advan- 
tageous returns obtainable after public advertisement and com- 
petitive bidding. (Sec. 2.) 



Service At Cost Agreements 



253 



Philadelphia 
* 

When the Company desires to make capital expenditures, it shall 
submit to the City Councils a plan for raising such capital, and 
shall issue no bonds, stocks, or incur any guarantee or liability for 
carrying out such plan, until the plan shall be approved by the 
City. (Sec. 2, 1907 Contract.) 

Funds for New Capital requirements shall be raised when 
I>ossible from the sale of bonds, and stock shall not be issued 
except when bonds cannot be disposed of and then, only with the 
approval of the City. Such stock shall be fully paid for in ca-^h 
at par. (Sec. 3, 1907 Contract.) 

In case that preferred stock is issued, payments for the amor- 
tization thereof (amount of such payments not specified, but pre- 
sumbly to be controlled by City Council) to be made to the Sink- 
ing Fund Commission (See D-3.) to be held for the purpose of 
retiring said stock, and to be invested in such stock. (Art. 12.) 

In case that bonds, debentures or notes are issued, payments for 
the amortization thereof (amount of such payments not specified 
but presumably to be controlled by City Councils) to be made to 
trustees for the issue, to be invested by them in the issue, pro- 
vided that the same can be purchased in the market at a cost of 
not more than 105 per cent of the par value with accrued inter- 
est (Art. 12.) 

If securities cannot be purchased in accordance with the above 
provisions, the sinking funds shall be invested in such securities 
as may be legal investments for Trustees under the laws of Penn- 
sylvania. (Art. 12.) 

The Company shall not be held to be in default if it cannot 
secure capital under the terms approved by City Councils. 
(Art. 12.) 

Subject to the approval of the Supervising Board, the Com- 
pany may use Initial Surplus (See F-2,) for Extensions, Better- 
ments and Permanent Improvements, for refunding or other capi- 
tal requirements. (Art. 16.) 

Denver Service at Cost Ordinance 
No provisions. 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 
17 



III 



' 



I 



It 



^54 



Service At Cost Agreements 



Minneapolis 
The City's control over the issuance of securities by the Com- 
pany is practically absolute as to securities protected by mortgage. 
It is provided that the Company may place upon its property 
and rights a blanket mortgage or deed of trust, to secure bonds to 
be used. 

First, For refunding bonds or other interest bearing obliga- 
tions which constituted a lien upon the property as of the date 
that the Grant became effective, and for providing for the 
Stablizing Fund ; 

Secmd, In such par value and amount as may be approved by 
the City Council, for the purpose of providing new capital (Sec 
15.) ^ * 

The indenture of mortgage or deed or trust shall not be lim- 
ited as to the amount of bonds or other evidences of indebted- 
ness that may be issued thereunder and shall provide that each 
series of bonds issued thereunder shall be co-ordinately secured. 
It shall further provide that bonds issued shall bear such rate of 
interest as the City Council may fix, and be sold at not less than 
the minimum price fixed by the City Council. (Sec. 15.) 

Bonds issued under the blanket mortgage shall be issued in 
alphabetical series and each series numbered consecutively. A 
stipulated number of Series A. is set aside for the purpose of pay- 
ing off the prior liens upon the property. If not so used they 
shall he cancelled and destroyed by the Trustee of the mortgage. 
(Sec. 15.) 

If the bonds provided to be set aside for the retirement of prior 
liens cannot be sold at a rate of interest and a cost to finance, or 
exchanged for such prior lien bonds on a basis satisfactorv to 'the 
City and the Company, then the Company mav refund such prior 
bonds either before or at maturity, if it be advantageous so to do 
and the refunding shall not disturb the. lien by which such prior 
bonds or other evidences of inedebtedness are secured. (Sec. 15.) 

In case the prior bonds or other evidences of indebtedness are 
refunded,Tetired or refinanced through the bonds (Series A), pro- 
vided by the Grant, then no securities shall be issued by the Com- 
pany which shall be prior to the lien of the mortgage or trust deed 
securing such bonds. (Sec. 15.) 



Service At Cost Agreements 



255 



Stocks, bonds, notes, or other evidence of indebtedness, running 
for a longer period than one year, issued by the Company after 
the Grant takes effect, shall provide that they shall be callable on 
any annuity or interest payment date, upon terms and price to be 
recommended by the Company and approved by the City Council. 
(Sec. 15.) 

Any mortgage or trust deed and securities issued thereunder, 
shall be subject to the provisions of the Grant, including the right 
of municipal purchase. (Sec. 15.) 

The City Council may require the Company to sell its securi- 
ties at public sale, and in any event they shall be sold in the man- 
ner and upon the notice prescribed by the City Council. (Sec. 15.) 

In addition to the securities specifically authorized by the 
Grant, the Company may, with the approval of the City Council, 
issue equipment trust certificates in such amounts and on such 
terms as may be necessary to finance the operations of the Com- 
pany. (Sec. 15.) 

If the City and the Company cannot agree as to the rate of 
interest and cost of refinancing or refunding the prior bonds, or 
upon the terms upon which Series A bond shall be exchanged 
therefor, the matter shall be arbitrated. (Sec. 15.) 

(c) Bookkeeping: 

Chicago 

The Company is required to submit to the City Comptroller 
on or before the 10th day of March of each year, an annual report 
covering the preceding year ending December 31. Such report 
shall be in writing, shall be sworn to by the Auditor of the Com- 
pany and shall set forth in reasonable detail, the amount of 
business done by the Company, the receipts from and the expenses 
of conducting the Company's business. The City Comptroller 
or accountants authorized by him, acting under the direction of 
the Mayor or City Council shall have at all reasonable times access 
to the books, vouchers and records of receipts and expenditures 
of the Company for the purposes of verifying such reports and 
the rights of the City under the Grant. (Sec. 16.) 

In addition there shall be an annual audit of the accounts of the 
Company by certified public accountants selected bv the Citv 



\i 



256 



Seevicb At Cost Agreements 



Service At Cost Agreements 



257 



Comptroller and the Company and such accountants shall make 
a formal written report thereon, the expense of such audit to 
be paid as an operating expense. (Sec. 16.) 

Philadelphia 

The method of keeping accounts is prescribed by the Pennsyl- 
vania Public Service Commission. 

The Supervising Board shall prescribe the form of statements 
to be submitted at three-month periods in which shall be set 
forth — 

Gross Revenues and deductions therefrom exclusive of expenses 
or fixed charges incurred prior to the date that the Grant shall 
become effective; 

The amount of New Capital upon which the Company is 
entitled to a return, together with Sinking Fund payments for 
the period covered by the reports ; 

The Cost of Transit Facilities owned by the City upon which 
the Company shall pay rental, and the amount of such rental, as 
well as Sinking Fund charges, less any portion of such Transit 
Facilities withdrawn from rental and the amount of rental and 
Sinking Fund charges thereon ; 

The amount of Capital Stock of the Company authorized and 
issued, less any installments remaining unpaid on any shares. 

Such statements must be certified by the Supervising Board 
and delivered to the City Comptroller. (Art. 23; Sec. 1.) 

A complete audit of all of the accounts of the Company in the 
form prescribed by the Director of City Transit, shall be made by 
auditors appointed and paid by the City, as of the date when the 
Grant becomes effective, and thereafter the books and accounts 
of the Company shall be audited annually by accountants mutu- 
aUy agreed upon by the City and the Company, and such audit 
ihall be published and submitted both to the City and the Com- 
pany, the cost thereof to be paid out of Gross Revenues. For 
the purpose of the audit the City shall have access to the books, 
records apd memoranda of the Company and may examine offi- 
cers and employees of the Company under oath. (Art. 23, Sec. 2.) 
If the public accountants or the City object to any charges 
appearing in the books of the Company, or the public account- 
ants or the Company object to any charges appearing in the 



accounts of the City as to the cost of the City's Transit Facili- 
ties, the Supervising Board shall have the power for the pur- 
pose of the contract, to determine the propriety of such charges. 
(Art. 23, Sec. 2.) 

Denver Service at Cost Ordinance 
All general accounts shall be kept in the manner prescribed by 
the Uniform System of Accounts of the Interstate Commerce 
Commission. (x\rt. 3; Sec. 9.) 

The Board of Tramway Control may inspect and audit all 
receipts, disbursements, prices, payrolls, salaries of all officers, 
time cards, papers, books, documents and property of the Com- 
pany "used and useful in the public service." (Art. 3; Sec. 5.) 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 

The Company shall keep its accounts in the manner prescribed 
by the Uniform System of Accounts of the Interstate Commerce 
Commission, as modified to meet the requirements of the Grant or 
subsequent ordinances. (Sec. 20.) 

The Company shall furnish to the City Council sworn monthly 
report of earnings and expenses, and such other statements as the 
City Council may direct, and such statements shall be received as 
prima facie evidence before any court or other tribunal in any 
controversy between the City and the Company. The Company 
shall also furnish annual reports of operation and additions to 
Capital Value. (Sec. 20.) 

The receipts and expenditures of the Company shall be audited 
annually by a certified public accountant selected by the City who 
shall submit a written report thereon, the expense of such audit 
to be borne by the Company and paid from the Gross Receipts. 
(Sec. 20.) 

The books, records and accounts, of the Company shall at all 
times be open to the Street Railway Supervisor for the purpose 
of verifying statements and reports made by the Company to the 
City under the terms of the Grant. (Sec. 20.) 



ti 



ii 



258 



Sekvice At Cost Agreements 






If either the Street Eailway Supervisor or the certified Public 
Accountant disapproves of any voucher or expenditure, the man- 
ner of keeping accounts or other matters effecting the keeping of 
the books or records of the Company or the manner in which the 
. Company complies with the provisions of the Grant, and the mat- 
ter 18 not adjusted by the Company to their satisfaction, the mat- 
ters m dispute shall be submitted to arbitration. (Sees. 5 and 20.) 

S.— METHODS AND PRACTICES 

Chicago 
Expenditures for Extensions, Betterments and Permanent Im- 
provements of more than $5,000 shall be let by contract. (Sec. 
6.) 

The Company is required to keep such of its property fully 
insured in responsible insurance companies as is usually kept 
insured by similar companies. (Sec. 21.) 

It is provided that the Company shall develop the " zone system 
of car operation " by means of which service on long through 
lines may be tapered off according to the traffic demands, by estab- 
lishing short line terminal routes. (Exhibit B.) 

The Company shall establish the skip-stop wherever possible. 
(Exhibit B.) 

It is recommended that distance between the center lines of 
surface tracks be nine feet eight and one-half inches and that when 
transit tracks are laid on the surface the distance should be 
twelve fetft. (Exhibit B.) 

Grooved rails weighing 129 pounds to the yard shall be used 
on all new construction, except in streets not occupied by track 
at the time that Grant takes effect, where if the Commissioner 
of Public Works approves, high Tee rails may be used, but may 
not extend beyond the level of the pavement. (Exhibit B.) 

Cast welded or electrically welded joints or a type which will 
give an equally smooth joint shall be used. Joints must have a 
current carrying capacity equaLto that of the rail. (Exhibit B.) 

A method of providing against electrolysis is provided. (Ex- 
hibit B.) 



Service At Cost Agreements 



!5D 



Detailed specifications as to paving are provided. (Exhibit B.) 

General plans for the construction and equipment of power 
houses and auxiliary buildings are provided. (Exhibit B.) 

All cars shall be of the double-tnick type with a carrying 
capacity of at least 40 passengers, (Exhibit B.) 

Kules and regulations for car heating and for car equipment 
are provided. (Exhibit B.) 

Philadelphia 

The Supervising Board has the right to limit and revoke the 
right of the Company to permit the use of the City's cars and sta- 
tions for advertising and vending purposes, and shall approve 
all contracts for such privileges. (Art. 17.) 

The Company is obliged to keep insured against fire and other 
usually insurable accident or contingency, all property of the 
City's system to an extent to be determined by the Supervising 
Board and this may be effected, with the approval of the Board 
by establishing an Insurance Fund out of Gross Revenues. 
(Art. 25.) 

The Supervising Board is given complete authority to inspect 
work and materials in connection with the operation and main- 
tenance of both the City's and the Company's system. (Art. M.) 

Denver Service at Cost Ordinance 

" The Board shall hear, determine and act upon all complaints 
criticism and suggestions as to Tramway service on the City 
lines which may not have been disposed of by the the Company." 
(Art. 3, Sec. 6.) . 

Denver Elastic Six-cent Fare Ordinance 
Ko provisions. 

Minneapolis 

The Grant covers the operation of surface cars on tracks only. 
(Sec. 2.) 

The system shall be operated by overhead trolley or such other 
system as the City Council may approve. (Sec. 2.) " 

All construction work in streets, alleys and public places shall 
be done under the supervision of the City Engineer under regula- 
tions adopted by the City Council. (Sec. 2.) 



» 



260 



Sebvice At Cost Agreements 



Service At Cost Agreements 



261 



The City Council may require the elimination of trolley poles 
and the siis|>ension of trolley wires from wires attached to build- 
ings, when perniii-sion can be secured from the owners thereof. 
(Sec. 2.) 

The Company is required to construct and reconstruct its pay- 
as-you-eiiter cars, so that there shall be exits and entrances at 
both ends and through the sides. (Sec. 2.) 

Tracks shall be laid substantially in the center of the streets 
and when but one track is laid it shall be placed in proper position 
for dou])le track construction. (Sec. 27.) 

Tracks in unpaved streets shall be laid with modern low tee 
rails weighing not less than 80 pounds to the yard and in paved 
streets with modern high tee rails weighing not less than 90 
pounds to the yard. On curves and in special work, approved 
standard girder rail may be used. (Sec. 27.) 

The Company shall at all times keep buildings, cars and other 
insurable property insured against fire in responsible insurance 
companies, or may with the approval of the City Council main- 
tain an insurance fund for the purpose. (Sec. 29.) 

The location of ear barns, shops, waiting rooms and terminals 
shall be subject to the approval of the City Council. (Sec. 4.) 

«.— USE OF TRACKS AND FACILITIES BY OTHER COMPANIES 

Chicago 
The Company may enter into contract with connecting sub- 
urban and intenirban companies for the operation of freight and 
express cars of such companies over the Company's tracks, such 
contracts to be subject to the approval, by ordinance of the City 
Council (Sec. 20.) 

Philadelphia 
The City shall have the power to fix and the Supervising 
Board shall recommend, the terms and conditions upon which 
lines outside the City constructed by private capital may be leased 
or operated 4)y the Company, and upon which such companies 
may use the Transit Facilities operated by the Company. (Art. 
31, Sec. 11.) 



Denver Service at Cost Ordinance 

The ordinance contains no provisions as to the use of tracks 
and facilities by other companies, except that in the event of the 
purchase of the Company's property by the City, agreements 
for such use made by the Company and then effective shall be 
continued. (Art. 12, Sec. 8.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 

The City reserves the right to authorize tlie use of the Com- 
pany's track and overhead by any suburban railway and to compel 
the Company to furnish power for its operation. Routes and 
schedules shall be fixed by agreement between the Company and 
such surburban railways. If they cannot agree, the City Council 
shall fix such routes and schedules. (Sec. 21.) 

Compensation " representing not less than the reasonable value 
of the power furnished by the Company and a fair share of the 
cost of maintenance of the tracks and equipment, taking into ac- 
count the advantages and disadvantages of the entry of said line 
into the city,'' shall be fixed by agreement between the Company 
and the suburban railway. If they cannot agree, the City Coun- 
cil shall ^x it, and if either the Company or the suburban rail- 
way dissents from the amount fixed by the City Council, the mat- 
ter shall be determined by arbitration, as shall other disputed 
questions arising over the use of such tracks and facilities. (Sec. 
21.) 

The City Council may at any time reroute cars of suburban 
railways so admitted and control and regulate the carrying of 
freight and express by such suburban companies. (Sec. 21.) 

The Company is given the right to sell power to any of the 
properties included in the Twin City Rapid Transit Co., or to 
other suburban and interurban railways, at a price which shall 
at least equal the cost, including all overhead charges as specified 
by the Grant. (Sec. 25.) 

The Company has the right to have its cars repaired in the car 
shops of the St. Paul City Railway Company, and shall pay for 



If 



262 



Sehvice At Cost Agreements 



such work the actual cost thereof, including a fair allowance for 
overhead. (Sec. 25.) 

7.-- MACHINERY OF CONTROL 

(a) Power, Where Lodged 

Chicago 
The control and management of the Company is lodged in the 
Board of Trustees subject to the provisions of the Grant and 
certain powers and authority remaining with the City Council, 
with the City Engineer and the Commissioner of Public Works 
of the City. * 

Philadelphia 
Control, under the Grant, is variously distributed. The Penn- 
sylvania Public Service Commission has control over fares and 
over Extensions, Betterments and Permanent Improvements to 
Transit Facilities owned by the Company; The City Council 
has control over Extensions, Betterments and Permanent Im- 
provements connected with the Transit Facilities owned by the 
City; the Supervising Board has control over service, mainte- 
nance and the details of operation. (Art. 31.) 

Denver Service at Cost Ordinance 

Control is lodged in the City, to be exercised by the Board of 
Tramway Control. (Art. 3, Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 
Power to increase or decrease fares in relation to increases or 
decreases in wages, is lodged in the City and exercised by the 
Board of Control. 

Minneapolis 
The power of control and regulation is lodged in the City, to 
be exercised as to matters connected with work in the streets by 
the City Engineer, with the operation of the system through 
parks by the Board of Park Commissioners, and as to all other 
matters by the City Council. The City iStreet Eailway Super- 
visor acts in an advisory and administrative capacitv only (Sec** 
2, 4, 5, 27, etc.) 



Service At Cost Agreements 



263 



if 



(b) Administration 

Chicago 

The affairs of the Company, which company shall not be for 
" pecuniary profit," are administered by a ' Board of nine 
Trustees. These shall be residents of Chicago or the suburban 
territory in which the Company is permitted to operate, shall be 
men of business ability, public spirit and qualified to direct the 
affairs of the Company, shall not own any of the bonds or other 
obligations of the Company or be financially interested in it except 
in a fiduciary capacity and shall receive no other salary than that 
provided and permitted by the Grant. The first Board shall be 
named in a resolution of the City Council and shall hold office 
without classification until December 31, 1927. Prior to that 
date, however, they shall be divided, by lot or otherwise into 
three classes of three each. The first class shall hold office until 
December 31, 1928; the second class until December 31, 1929, 
and the third class until December 31, .1930. Their successors 
shall be elected for terms of three years. The election shall be 
by the Company from a list persented by the City Council. 
Vacancies by death, resignation, removal, or otherwise than by 
expiration of the term of office shall be filled by the Board. 
(Sec. 1.) 

The Company agrees not to change its charter or method of 
selecting Trustees, without the consent of the City. (Sec. 1.) 

The salaries of the Trustees shall be $5,000 each, annually, 
but in addition to their salaries as trustees they may receive other 
compensation for acting as officers of the Company, or members 
of the Executive Committee of the Board, which Board shall have 
direct charge of the operation and management of the System. 
(Sec. 1.) 

Philadelphia 

The Supervising Board shall consist of three members, the 
Director of City Transit, who shall represent the City, a member 
to be appointed by the Company, and a Chairman to be appointed 
by the Mayor of Philadelphia and the President of the Com- 
pany, for a term of four years. If the Mayor and the President 
fail to agree upon Chairman, the Board shall function with two 
members, and in case of disagreement, a temporary arbitrator 



264 



Sebvicb At Cost Agreements 






iii 



I 



shall be appointed by the two members of the Board. If these 
fail to agree upon the appointment, either the City or the Com- 
pany may upon five days notice apply to the Pennsylvania Public 
Service Commission, which shall then make the appointment. 
The arbitrator shall be skilled in the matter concerning which 
there is disagreement. The Board shall maintain an office in the 
City of Philadelphia, shall employ necessary assistants and incur 
necessary expenses, and ^x the salaries of such assistants and 
employees. The salaries of Board members shall be fixed at the 
time of their appointment, that of the City Member to be fixed 
by the City Council, that of the Company Member to be fixed 
by the Company and that of the Chairman to be fixed by the 
Mayor and the President of the Company. The salary of the 
City Member shall be paid by the City; all other salaries and 
expenses shall be paid, either out of Gross Revenues as an operat- 
ing expense or out of Capital Account, in a proportion to be deter- 
mined by the Supervising Board. (Art. 31, Sees. 1 and 2.) 

Denver Service at Cost Ordinance 
The Board of Tramway Control consists of three members, one 
appointed by the Mayor, for a term coincident with that of the 
Mayor, one appointed by the City Council for a term of five 
years, and one appointed by the Company to serve at the Com- 
pany's pleasure. The members appointed by the Mayor and the 
City Council shall be taxpayers in and residents of Denver for at 
least ^we years, shall own none of the securities of the Company 
or its affiliated or subsidiary companies, shall not have any busi- 
ness connection with the Company and shall be qualified by edu- 
cation, training and experience to discharge their duties. Vacan- 
cies shall be fiUed in the manner of the original appointment 
within fifteen days of the date of such vacancy and if not so filled 
by the party having the appointment, shall be filled by the other 
two members of the Board. The Mayor, City Council and the 
Company shall detei-mine the amount of compensation of the 
members, of the Board to be pdd together with the expenses of 
City supervision, as a cost of service, but such compensation shall 
not exceed $500 a month. The decision of any two members shall 
be the decision of the Board. (Art. 3.) 



Service At Cost Agreements 



265 



Denver Elastic Six-cent Fare Ordinance 
A Board of Control consisting of three members, each with a 
term of four years, subject to removal by the appointing power 
shall be appointed as follows : One by the Mayor, one by the City 
Council and one by the Company. Vacancies to be filled in the 
manner of the original appointment. If compensation is to be 
paid, each of the appointing powers shall determine and pay the 
compensation of the member appointed by it. The appointees of 
the Mayor and the City Council may be City officers, if the 
appointing power so desires. The Board may at all times act by 
a majority of its members. (Sec. 4.) 

Minneapolis 

All orders or requirements of the City Council as to matters 
affecting the service of the Company, shall be made in writing, 
and shall become effective twenty days after notice has been served 
upon the Company, unless within ten days after the serving of 
such notice, the Company shall file with the Street Railway Super- 
visor, or other City officer designated by the City Council, objec- 
tion thereto. In case such objection is filed, the City Council 
shall at the end of ten days or as soon thereafter as convenient, 
hold a public hearing at which the Company shall be heard. 
Orders made after such hearing and all orders to which the com- 
pany files no objection shall be binding upon the Company 
and enforceable. Objection may be made to orders of the City 
Council by the Company, on the grounds that they impair the 
cost of service. (Sec. 4.) 

Pending action of the City Council, the Street Railway Super- 
visor may temporarily approve changes in schedules and routes, 
but such changes shall remain in force until changed by the City 
Council. (Sec. 4.) 

The City Council may require the Company to submit 45 days 
prior to the first day of any year, a budget of operating expenses, 
and the Company may thereafter any time file supplementary 
budgets thereto. The City Council is required within 20 days 
after the receipt of such budget or supplements to approve or 
disapprove them and in case of disagreement the matter shall be 
arbitrated. (Sec. 5.) 



Ml 



<("l"1[Pf»BfH" 



266 



Service At Cost Agreements 



Service At Cost Agreemexts 



In relation to Extensions, Betterments and Permanent Improve- 
ments see C.-3.-(b). 

The City Council shall appoint a City Street Railway Super- 
visor who shall act as the technical advisor to the Council, and 
who shall either be experienced in the operation of street rail- 
ways, or have a " broad general knowledge of the business " and 
other special qualifications for the work. The salary and 
expenses of the Supervisor shall be paid by the City, and the 
Company shall reimburse the City therefor. lie is authorized 
to appoint such assistants as he may deem necessary-, subject to 
the approval of the City Council. His salary and \hose of his 
assistants shall be fixed by the City Council, which shall also pro- 
vide him with suitable quarters. Vacancies in the office are filled 
by the Council, which may designate any officer or employee of the 
City to act in his stead, pending the filling of the vacancy. 
(Sec. 5.) 

The City may enforce its orders as to service by a^y suitable 
proceedings and is specifically empowered to impose penalties by 
fine and imprisonment and to enforce its orders by mandamus and 
injunction. (Sec. 4.) 

In the case that the Company fails, neglects or refuses to com- 
ply with any order of the City Council, requiring it to continue to 
operate any existing line, or to construct, equip or operate any 
mew line, the return to the Company on Initial Value shall be 
reduced to six per cent and the return over and above the actual 
interest on Added Value shall be withheld from the date of com- 
pletion fixed in the order until such time as the order shall be 
complied with, not including, however, such time as may have 
been consumed in arbitration. If the Company shall have acted 
tmllfuUy or in had faith in such refusal, failure or neglect, then 
the time consumed in arbitration shall not be deducted from the 
time during which the reduction in return shall prevail. Sums 
so deducted from return shall be paid into such of the funds pro- 
vided by the ordinance, as the City Council may direct. Deduc- 
tions so niade shall be considered by both the City and the Com- 
pany, as liquidated damages for such refusal, failure and neglect 
(Sec. 10.) 



267 



For provisions as to forfeiture of the Grant, upon neglect of the 
orders of the City Council see A.-3. 

It is provided that the provisions of the Grant providing for 
enforcement shall be additional remedies only and shall not pre- 
evnt the City or the Company from resorting to the Courts and 
enforcing rights, duties and obligations by mandamus, injunction 
or other appropriate legal measures. (Sec. 33.) ' 

(c) Powers and Duties of Administrative Body or Officers 

Chicago 
The entire control and management of the Company and its 
affairs .s vested in the Board of Trustees, which Board is gov- 
erned and restricted by the provisions of the Grant and general 
police powers of the city. (Sec. 1.) 6 " «" 

Philadelphia 
The Supervising Board 
ShaJl reiH>rt to Councils on the advisability, reasonableness and 
nece sity of Extensions, Betterments and Permanent Improve- 
ments, including the review of cost estimates presented by the 
Company, or the compilation of such cost estimates, and the 
review or preparation of plans covering the financing of the cost 
of Transit Facilities provided by the Company ■ 

reatir!Il'TJ° p'"*^ '"'''^^ ^ tri-monthly financial statements 
required of the Company. (Sec. C.-4.-(c)); 

Shall take proceedings before the Public Service Commission 
to conipel the construction of Extensions, Betterments .uIfZZ 
nent Improvements in connection with the Company's system- 

Tra!; f'^T^ '" .•^•^^PP'-^^^ Pl«»« for the construction of 
Transit Facilities either by the City or the Company, and shall 

inspect work and materials provided by the Company therefor 
except that the Board may not alter the location or curtail or p^^ 
pone the construction of any line which has been authorized bv 
the Uty, by a vote of the people, or ordinance of the City Coun- 












268 



Service At Cost Agreements 



Shall pass upon, adopt or alter, rules and standards for 
maintenance, routing, and adequacy and suitibility of equipment ; 

Shall approve the terms of contracts for power; 

Shall approve the term under which the Company may grant 
permits for show windows, entrances and other easements, or 
privileges in connection with the operation of Transit facilities; 

May establish, omit or change stations and stopping places ; 

Shall file with the Pennsylvania Public Service Commission 
schedules of fares and charges in compliance with the terms of 
the Grant; 

Shall decide upon the amount and the investment of Deprecia- 
tion Funds; 

Shall check and approve the amount to be set aside from gross 
revenues annually for damages incurred by the Company, which 
amount shall represent the damages paid and for which the Com- 
pany is liable ; 

Shall require the Company to have legally determined its lia- 
bility for any item concerning which the Board is in doubt, in- 
cluded* in operating expenses, taxes and other public charges, or 
fixed charges, which are to be paid from Gross Revenue. In such 
determination the City is empowered to intervene, or to make the 
original application, in which application the Company agrees 
to join; 

Shall act as a Board of Arbitrators in case of disagreement be- 
tween the City and the Company, under the provisions of the 
Grant ; 

Shall recommend to City Councils, the terms and conditions 
upon which the Company shall lease or operate lines constructed 
by private capital outside the City, and the terms and conditions 
which outside companies may use the facilities of the Company. 
(Art. 31; Sec. 3.) 

Shall hold public hearings on all petitions for new lines and 
extensions, additions to Transit Facilities, proposals to change 
fares, petitions for routing, re-routing or through routing, and 
such other matters as the Councils may direct. (Art. 31 ; Sec 
4.) 

Shall select the depositories for the Trust funds over which 
the Board has control, which funds shall be annually audited by 



Service At Cost Agreements 



269 



public accountants selected by the City and the Company. (Art, 
31; Sec. 5.) 

The Board shall act through the decision of two of its mem- 
bers, except that if there be no Chairman and an Arbitrator be 
appointed, the decision of the Board in the matter to consider 
which the Arbitrator was appointed may be by one member and 
the Arbitrator. (Art. 31; Sec. 4.) 

The decision of the Board in matters assigned to it by the 
Grant, shall be final except that in the event that either the City 
or the Company may claim that the questions is one for the 
determination of the Pennsylvania Public Service Commission, 
either may appeal to such Commission, but until the Commission 
decides the issue, Company is required to obey the orders of the 
Board. (Art. 31; Sec. 6.) 

Denver Service at Cost Ordinance 

The Board of Tramway Control — Shall control, regulate and 
supervise the City service of the Company, including the fixing of 
schedules, the regulation of transfers, and the fixing, changing and 
extension of routes. (Art. 3; Sec. 1.) 

Keep informed as to the cost, quantity and quality of service 
furnished, receipts and disbursements, vouchers of expenditures, 
leases and rentals. For this purpose the Board of Tramway Con- 
trol is given access to the books and records of the company for 
the purpose of auditing and inspecting receipts, disbursements, 
leases, contracts, property, and other relevant matters. (Art. 
3; Sec. 5.) 

The Board shall hear, determine and act upon, complaints, 
criticism and suggestions not disposed of by the Company. (Ai*t. 
3; Sec. 6.) 

Must approve upon all expenditures for Extensions, Better- 
ments and Improvements, if they exceed, in any one year, one- 
half of one per cent of Stipulated Fair Value, before such ex- 
penditures can be added to Stipulated Fair Value. (Art. 3 ; Sec. 

7.) 

Must approve expenditures for Operating Expenses which 
exceed for the year, by 3 per cent, the cost of the service, for the 
18 



t 



I t 



270 



Service At Cost Agreements 



Service At Cost Agreements 



2X1 



l> 



preceding six months, if such excess is to be added to the cost of 
the service. (Art. 3 ; Sec. 7.) 

Shall determine^the amount and the disposition of Renewals 
and Depreciation Keserve Fund, and if the Company desires to 
mvest any unexpended balances in such fund, must approve the 
negotiable securities in which such balance is invested fArt 
•>; See. 1.) ^ * 

Shall increase or decrease the fares in effect in accordance with 
the condition of the Fare Control Fund and in the manner 
provided in the Ordinance. (Art. 7; Sees. 3 and 4 ) 

Shall decide as to the carriage of materials and supplies bv 
the Company for the City and the public, approving the time 
at which such transportation can be carried on, and the routes 
which n.ay be used for the purpose, and the charges to be made 
therefor. (Art. 9; Sec. 1.) 

Sh.ll at all times have access to the books and records of the 
Company, relating to Interurban lines. (Art. 12; Sec. 7.) 

Denver Elastic Six-cent Fare Ordinance 
The Board of Control shall have the power to increase or 
decrease the fares charges by the Companv in accordance with 
wages paid as provided b:^' the Ordinance. (Sec. 4. ) 

The records and accounts of the Company relative to wages paid 
and fare receipts shall be open to the Board of Control, .nd the 
Company shall furnish to such Board all information concerning 
wages paid and fare receipts. (Sec. 4.) 

The Board is empowered to investigate and shall keep itself 
mformed as to wages paid to street railway employees in the cities 
of ht Louis, Omaha, Kansas City, Minneapolis and St Paul 
(hee. 4.) * ' 

Minneapolis 
The City Council — 

May designate additional streets in which Companv may 
operate. (Sec. 2.) ' ^ 

May authorize changes in motive power or methods of electrical 
transmission. (Sec. 2.) 

May regulate carriage of mail and packages. (Sec. 2.) 



May require elimination of poles and attachment of suspension 
wires to buildings. (Sec. 2.) 

Shall determine the terms under which the Company shall 
continue to operate after the grant has expired. (Sec. 2.) 

Controls and regulates the service. (Sec. 2.) 

Appoints, removes and controls the Street Railway Supervisor. 
(Sec. 5.) 

Must approve or disapprove the Operating Budget and sup- 
plements thereto. (Sec. 5.) 

Exercises jurisdiction over purchases and contracts therefor 
and payments of account of damages. (Sec. 5.) 

Orders at its own volition, or approves proposals by the Com- 
pany, for Extensions, Betterments and Permanent Improvements. 
(Sec. 7.) 

Must authorize all additions to Capital Value, and securities 
issued on account thereof, both as to interest paid and as to terms. 
(Sees. 9, 13, 14, 15 and 16.) 

Administers Amortization Fund, decides upon the amount to 
be paid into Fund from Gross Revenues, and from surplus in the 
Stablizing Fund, payments out of Amortization Fund and fixes 
intangible values. (Sees. 9, 12, 13 and 17.) 

Decides on the payments from Gross Receipts to the Mainte- 
nance Reserve Fund. (Sec. 11.) 

May, when authorized by State Legislature, loan City funds 
to the Company for Extensions, Betterments and Permanent Im- 
provements, or guarantee the Company's security issues made on 
account thereof. (Sec. 14.) 

Supervises the refunding of securities, secured by liens on the 
Company's property made prior to the taking effect of the Grant. 
(Sec. 16.) 

Acts for the City in the event of the purchase of the property 
of the Company by the City or a licensee of the City. (Sees. 18 
and 19.) 

Controls the use of tracks and facilities by other companies. 
(Sec. 21.) 

May construct for the City, or authorize to be constructed a 
central passenger station and require and regulate its use. 
(Sec. 22.) 



•WHW" l»i"l 



272 



Service At Cost Agreements 



May require the Company to sweep, clean and oil the pavement 
between its tracks. (Sec. 26.) 

May, for the purpose of reducing fares, waive requirements as 
to street cleaning, oiling, sprinkling and paving. (Sec. 26.) 

Shall require the Company to keep its property insured against 
fire. (Sec. 29.) 

Shall appoint the City member of the Arbitration Boards pro- 
vided for by the Grant. ( Sec. 31.) 

Shall act for the City in the enforcement of the provisions of 
the ordinance and in case of its forfeiture. (Sees. 4, 10, 32 
and 33.) 

The Supervisor of Street Railways — 

Is the technical advisor of the City Council. (Sec. 5.) 

He shall keep informed as to the character of the service ren- 
dered, the condition of the property, the need of new lines and 
extensions, improvements in the service and all matters coming 
within the jurisdiction of the City Council and shall report to 
the City Council thereon. (Sec. 5.) 

He shall perform such additional duties as may be imposed 
upon him by the City Council or by subsequent ordinances, not 
inconsistent with the terms of the Grant. (Sec 5.) 

He shall keep informed as to all matters affecting the cost, 
quantity and quality of service, the receipts and disbursements' 
property and equipment, rate of fare, vouchering of expenditures 
and the manner of keeping accounts under the Uniform System 
of Accounts of the Interstate Commerce Commission. (Sec. 5.) 

He shall have access at all reasonable times to the books and 
records of the Company, necessary for use in connection with the 
performance of his duties. (Sec. 5.) 

He shall, with the approval of the City Council, appoint such 
assistants as he may deem necessary. (Sec. 5.) 

He shall make, in connection with any Extension, Betterment 
and Permanent Improvement, the surveys preliminary thereto 
as provided by the Grant. (Sec. 7.) 

He ghall receive and certify to the City Council if he finds it 
to be correct the monthly statement of Capital Expenditures 
required to be made by the Company under the terms of the Grant, 
and may within 90 days after such certification make necessarv 



i 



Service At Cost Agreements 



273 



corrections therein, and may annually after the audit of the Com- 
pany's books and records may make such further corrections as 
are shown to be necessary by such audit. (Sec. 16.) 

He shall have the right to examine the books and records of 
the Company for the purpose of verifying the reports required to 
be made by the Company to the City under the terms of the 
Grant. (Sec. 20.) 

If he disapprove of any voucher, the manner of keeping ac- 
counts, or the bookkeeping methods of the Company and the mat- 
ter is not adjusted by the Company, the dispute shall be arbitrated. 
(Sec. 20.) 

7.— ARBITRATION 

(a) Machinery For 

Chicago 
No provisions. 

Philadelphia 
If either the Company or the City shall desire to arbitrate any 
matter arising under the Contract, such matter shall be submitted 
to the Supervising Board, sitting as a Board of Arbitration. 
(Art. 35.) 

Denver Service at Cost Ordinance 
Any matter of difference arising under the provisions of the 
ordinance may be submitted to arbitration, by either the City or 
the Company. The party desiring arbitration, shall notify the 
other party, stating the matter upon which arbitration is desired, 
and naming its member of the Arbitration Board, which when 
completed shall consist of three members. Within five days of 
such notice the party so notified shall select its arbitrator, and in 
case it fails to do so, the party demanding arbitration may do so. 

The two thus selected shall name the third arbitrator, or if 
within five days they fail to do so, then either the City or the Com- 
pany may apply to the Judge of the District Court of the United 
States for the district in which the City and County of Denver 
is located, for the appointment of such third arbitrator. In case 
such judge is disqualified or refuses to act, then any Judge for 
the Circuit Court of Appeals of the United States for the circuit 



2T4 



Service x\t Cost x\greements 



1 1 



Lt: 



If f 

J i; 



in which the City and County of Denver is located may upon 
application of either the City or the Company make such appoint- 
ment. (Art. 13; Sees. 1 and 2.) 

Denver Elastic Six-cent Fare Ordinance 
1*^0 provisions. 

Minneapolis 
All disputes arising between the City and the Company over 
the interpretation or the application of the provisions of the Grant, 
except matters falling within the police power of the City, and 
those especially exempted by the Grant shall be arbitrated, on the 
demand of either the City or the Company, and no other action 
for the enforcement of the rights of either party, shall be taken 
until the question has been arbitrated. Submission to arbitra- 
tion must be made in the case of any order or demand of the City 
Council, within 30 days of the date of such order or demand, and 
in the case of any other dispute within 30 days of the date when 
such dispute arises. (Sec. 31.) 

The party demanding arbitration shall submit the name of one 
arbitrator selected by it, together with a statement of the matter 
to be arbitrited, to the other party, who shall within ten days of 
the receipt of such notice select its Arbitrator and so notifv the 
first party. The two shall within ten days select the third Arb> 
trator and if within twenty days they are unable to agree upon 
such third Arbitrator, he shall be named by a majority of the 
members of the District Court of Hennepin County or any court 
which may succeed it and exercise like jurisdiction. The Board 
by a majority shall determine the question submitted to it within 
thirty days, unless its members unanimously agree upon an exten- 
sion oi time. If the Board fails to determine the matter within 
a reasonable time, either party may apply to the District Court 
for the removal of the third Arbitrator and the appointment of 
a new third Arbitrator, who shall be selected in the manner of the 
original appointment. In the event of the death or disqualifica- 
tion of any of the arbitrators his successor shall be appointed in 
the manner of the original appointment within thirty days from 
the date of such event. (Sec. 31.) 

The decision of the Board shall be made in writing and copies 
forwarded to both the City Council and the Company. Either 



^p* 



Service At Cost Agreements 



275 



party may then appeal to the Courts, which shall try and deter- 
mine the case de novo, (Sec. 31.) 

The Arbitrators selected by the City and the Company shall be 
disinterested and reasonably qualified to pass upon the question 
in dispute. The third Arbitrator shall be disinterested and 
qualified by study and experience. Each Arbitrator shall before 
assuming his duties to take oath that he will fairly and impar- 
tially decide the question according to the evidence and the law 
and equity applicable, and in accordance with the terms and con- 
ditions of the Grant. (Sec. 31.) 

Control of service involved in the fixing of headway, speed, type 
of cars, their lighting, heating and sanitary conditions as well as all 
other matters falling within the police power of the City are 
exempt from arbitration. (Sec. 31.) 

Arbitrated is specifically provided for in connection with certain 
matters as follows : 

In disputes between the Street Railway Supervisor and the 
Company involving the vouchering of expenditures and the 
method of keeping accounts under the Uniform System of Accounts 
of the Interstate Commerce Commission. (Sec. 5.) 

In the event of the disapproval by the City Council of the 
Budget of Operating Expenses or supplements thereto. (Sec. 5.) 

At the request of the employes in case of a dispute over wages or 
working conditions. (See H.-l.) 

In disputes respecting the making of Extensions, Betterments 
and Permanent Improvements. (Sec. 7.) 

In disputes as to the rate of interest and cost of refinancing or 
refunding bonds issued to retire bonds issued under mortgages 
placed upon property prior to the taking effect of the Grant or the 
terms of exchanging for such prior securities new securities issued 
under the provisions of the Grant. (Sec. 16.) 

Refusal of the Company to make changes suggested either by 
the Street Railway Supervisor or the Certified Public Accountant 
who shall each year audit the books and accounts of the Companv, 
in its manner of keeping accounts, other matters relating to book- 
keeping, or the manner of its compliance with orders of the City 
Council. (Sec. 20.) 



276 



Service At Cost Agreements 



Disputes as to the approval or disapproval of any voucher or 
expenditure by the Street Railway Supervisor or the Certified 
Public Accountant (Sec. 20.) 

Disputes as to the use of the Company's tracks and facilities by 
suburban railways and the compensation to be paid therefor. 
(See. 21.) 

Disputes as to the salaries paid to general officers of the Com- 
pany. (Sec. 30.) 

« 

(b) Powers of Arbitration Board 

Chicago 

1^0 provisions. 

Philadelphia 
See powers of Supervising Board (C.-6.-(6)). 

Denver Service at Cost Ordinance 
The decision of an Arbitration Board is final and binding upon 
both parties, subject to the right of either the City or the Com- 
pany to appeal to the Courts. (Art. 13; Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 

It may adopt such procedure governing hearings as it may 
deem proper. (Sec. 31.) 

It shall give duo notice to each party of all hearings and each 
party shall be entitled to be represented by counsel. (Sec. 31.) 

Both parties are required to furnish such information to the 
Board as it may require and as is in the possessim if such partv 
(Sec. 31.) ^ •' ■ 

It may extend the time within which it is required to determine 
any case submitted but for not more than 30 days. (Sec. 31.) 



(c) Penalties 

Ko provisions. 



Chicago 



Service At Cost Agreements 



277 



Philadelphia 
See powers of Supervising Board (C.-6.-(c)). 

Denver Service at Cost Ordinance 
No provisions. 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
If the Company fails to comply with an order of the City 
Council as sustained by a Board of Arbitration the return to the 
Company shall be reduced to six per cent on Initial Value and it 
shall receive no further return on Added Value than the interest 
fixed on securities by the City Council at the time of their 
issuance. (Sec. 10.) 

(d) Expenses of Arbitration 

Chicago 
No provisions. 

Philadelphia 
See Supervising Board (C.-6.-(b)). 

Denver Service at Cost Ordinance 
The City and the Company shall each bear the expenses of their 
own Arbitrators. The expenses of the third Arbitrator shall be 
borne equally by the City and Company. (Art. 13; Sec. 3.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
Paid as an operating expense. (Sec. 31.) 

D. RETURN 

1.— INITIAL VALUE 

i Chicago 
The Original Capital Account (Initial Value), as set up by 
the Grant as of the date when the Grant becomes effective is mado 
up as follows: 



278 



Service At Cost Agreements 



I 



First, the sum of $220,114,428.46 (being the Capital Vahie of 
the Chicago Surface Lines as of June 30, 1916, plus the appraised 
value of the Elevated Companies as of the same date as appraised 
by the Chicago Traction and Subway Commission), plus addi- 
tions to the property between that date and the time the Grant 
becomes effective, minus deductions from the property during the 
same period, both as determined by the Board of Supervising 
Engineers ; 

Second, such sum as the Trustees shall determine shall be the 
value of the property acquired by the Elevated Companies 
between June 30, 1916, and the date when the Grant becomes 
effective, minus such sum as the trustees shall determine to have 
been the value of property lost, destroyed, abandoned, sold or dis- 
posed of and the amount of impairment to the property (ordinary 
wear and depreciation expected) during the same period; 

Third, the amount of any moneys or securities on deposit with 
the trustee of any mortgage assumed by the Company, represent- 
ing the proceeds from the sale of property mortgaged, which 
amount is required to be paid to the reduction of the debt under 
such mortgage. (Sec. 24.) 

Philadelphia 

The Capital Value of the Company's property is not formally 
fixed. Payment of fixed charges on mortgages, as well as rentals, 
is provided for and a special audit of the Company's accounts is 
provided in order to ascertain the amount of such charges. One 
of the objects of the 1907 Contract, as set forth in the preamble, 
was to provide that the securities, of the Company and its under- 
lying properties, should be " unquestioned." The investment of 
the Philadelphia Rapid Transit Company itself, irrespective of 
the underlying properties, is fixed at $30,000,000, less any 
installments on underlying shares remaining unpaid. (Art. 20.) 

Denver Service at Cost Ordinance * 

The basic value of the property coming under the provisions 
of the ordinance, both for the purpose of regulating fares and for 
the fixing of a purchase price, is placed at $20,867,750, as of 
January 1, 1918. This is the value placed upon the property by 



^r 



Service At Cost Agreements 



279 



the Public Utilities Commission of the State of Colorado, and 
accepted, after investigation, by a committee of 55 representative 
citizens of the city of Denver appointed by the Mayor to investi- 
gate and report upon the street railway problem. (Art. 4 ; Sec. 1.) 

Denver Elastic SiX-cent Fare Ordinance 

No provisions. 

Minneapolis 

For the purpose of fixing the return to the Company and for 
purchase by the City, the Original Capital Value (Initial Value) 
as of January 1, 1919, is fixed by the Grant at $24,000,000, 
which is the value as of January 1, 1916, fixed by F. W. Cap- 
pelen. City Engineer, plus the value of property acquired between 
January 1, 1916, and December 31, 1918, as determined by 
Bion J. Arnold. (Sec. 17.) 

The Original Property Value, as of January 1, 1919, is also 
fixed at $24,000,000. (Sec. 16.) 

2.— ADDED VALUE 

Chicago 

The par value of bonds, debentures, or other obligations issued 
for new capital funds or other capital expenditures authorized 
by the Grant, shall be added to Initial Value at the time sold and 
when added to the Capital Account. (Sec. 24.) 

Philadelphia 
There is no formal definition of Added Value in the Grant, the 
Company is permitted to earn a return upon new capital fur- 
nished by it, and provision is made for the certification at three- 
month periods of such new capital furnished. (Arts. 20 and 23.) 

Denver Service at Cost Ordinance 
There shall be added to basic value the total cost of Additions, 
Betterments and Improvements (as defined by the rulings and the 
Uniform System of Accounts of the Interstate Commerce Com- 
mission and • determined from the records of the Company, 
authenticated by the Board of Tramway Control) made subse- 
quently to January 1, 1918. (Art. 4; Sec. 2.) 



280 



Service At Cost Aoeeements- 



Dbjiveb Elastic Six-cent Fare Ordinanc 



E 



i 



I 



No provisions. 

Minneapolis 

There shall be added to Capital Value the par value of all 
securities sold or debt created by the Company either for the pur- 
pose of creating the Stabilizing Fund, or for Capital Expendi- 
tures made after January 1, 1919, as approved by the Citv 
Council (Sec. 17.) 

The Company agrees to obtain new capital for the purpose of 
creating the Stabilizing Fund and for Extensions, Betterments 
and Permanent Improvements required by the ordinance, the City 
Council to approve the amount and character of the securities to 
be issued or debt created, as to rate of interest, sinking fund, 
method of retiring same, if any, and the price at which thev shall 
be sold; providing that the Company acting <liligcntly and in good 
faith can sell such securities or incur such debt. The par value 
of securities and the amount of indebtetlness shall constitute a 
capital expenditure and shall he added to Capital Value as of the 
date they begin to draw interest. If securities arc issued for a 
debt included in Capital Value tk-y shall bo included at par value 
in Capital Value in lieu of such debt. Funds secured by the sale 
of such securities or from such debt, if not used within a month, 
shall be placed at interest which shall be added to Groes Receipts. 
Premiums received from the sale of securities shall be used for 
Extensions, Betterments and Permanent Improvements, but not 
added to Capital Value. Usual and necessary costs of financing 
the sale of securities, approved by the City Council, shall h] 
included in the amount of capital funds for which such securities 
are issued. (Sec. 14.) 

Fpon the failure, neglect or refusal of the Company to pro- 
vide the necessary new capital for Extensions, Betterments and 
Permanent Improvements, the City may, if authorized by the 
State Legislature, provide such funds, either by direct loan to 
the Company, or by guaranteeing the payment of the Company's 
securities or obligations, and such amount shall be added to 
Capital Value. (Sec. 14.) 

There shall be added to Property Value, the cost of new prop- 
erty or betterments added from January 1, 1919 to the date when 



Service At Cost Agreements 



281 



the Grant became effective and there shall be added thereafter the 
cost, including the cost of construction of the property in place 
engineering, supervision and legal expenses incident to construe-' 
tion and the cost of obtaining the money, such as bond discount, of 
all Extensions, Betterments and Permanent Improvements, author- 
ized or required by the Grant or built by the Company with the 
approval of the City Council. (Sec. 16.) 

In the replacement of any principal part of the Company's 
property there shall he charged to Property Value the excess cost 
of the new property over the property displaced, as it appears in 
the allocation of value set up as provided by the Grant. If the 
Company is required to construct, or reconstruct any of its track 
equipment or roadbed in any street, before sewer and water pipes 
are laid therein, and shall thereafter be required to reconstruct 
on account of the laying of such pipes, the Expense shall be 

deemed a capital, expenditure and allocated as an intangible value. 
(Sec. 16.) 

3.— DEDUCTIONS FROM VALUE 



Chicago 
Payments to the holders of the Company's bonds, debentures, 
or other obligations or on account of the liens or claims, or obliga- 
tions secured thereby upon or against the Company's property 
shall be deducted from Initial Value. (Sec. 24.) 

Philadelphia 
A Sinking Fund, under the control and in the custody of a 
Commission consisting of the Mayor, the President of the Com- 
pany and the President of the Board of Directors of City Trusts 
was established by the 1907 Contract. Into this Sinking Fund 
the Company is required to make the following payments: 

Beginning with July, 1912, and annually for ten years after 
at the rate of $10,000 a month; 

For the next ten years at a rate of $15,000 a month ; 
For the next ten years at the rate of $20,000 a month ; 
For the next ten years at the rate of $25,000 a month; 



<t* 



282 



Service At Cost Agreements 



Service At Cost Agreements 



283 



1 



n 



For the remaining period of the Contract (until 19'57) at the 
rate of $30,000 a month. (Sec. 9, 1907 Contract.) 

Such payments are treated as fixed charges and deducted from 
income before any payments of dividends are made to stockholders 
and before any payments on account of dividends are made to the 
City. No such dividends shall be paid as long as Sinking Fund 
payments are in arrears. The money in the Sinking Fund may be 
invested in such securities as are legal for Trustees, or in the stock 
of the Company, which may be purchased at a price not above par, 
or in the bonds and underlying securities of the Company pur- 
chased on a four per cent income basis. Stock or bonds so acquired 
shall not be resold or re-issued. At anv time after the fund shall 
have accumulated $5,000,000, the City may require that it be 
paid into the City Treasury and that the City acquire absolute 
title thereto and that future payments be made directly into the 
City Treasury. (Sec. 9, 1907 Contract.) 

In the ease of New Capital secured by issues of preferred stock, 
provision for the amortization thereof shall be made as approved 
by the City Councils, and payments on account of such amortiza- 
tion shall be made to the Sinking Fund Commission, which shall 
hold monies so received for the retirement of, and shall invest it 
in such preferred stock. (Art. 12.) 

In the case of New Capital secured by debentures, or notes, 
similar provision shall be made for amortization and payments on 
account thereof shall be made to the trustees for such issue and 
shall be invested by them in such issue, if it can be obtained at 
a price not to exceed 105 of par value with accrued interest. 
(Art. 12.) 

Denver Service at Cost Ordinance 

There shall be deducted from Value, the value of property 
retired as defined by the rulings and the Uniform ^System of 
Accounts of the Interstate Commerce Commission. (Art. 4; 
Sec. 2.) • 

The Stipulated Fair Value o£ the Property, both for the pur- 
pose of computing return and for computing the purchase price 
shall consist of Basic Value, plus the cost of Additions, Better- 
ments and Improvements, and minus the value of property- 
retired. (Art. 4; Sec. 2.) 



Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
There shall be deducted from Capital Value, all payments to 
Company, or to the holders of securities or evidences of indebted- 
ness that have been created on account of Capital Expenditures, 
made out of the Amortization Fund, and the right is reserved to 
the City Council to amortize such part of Capital Value as it 
may see fit. (Sec. 17.) 

The Grant provides for the accumulation of an Amortization 
Fund, to be used for the purpose of amortizing any intangible 
values, either in the original $24,000,000 value or arising from 
refinancing or from other causes. The Amortization Fund shall 
be accumulated, first, by payment thereinto annually from 
Operating Revenue, of an amount equal to one-half of one per 
cent cumulative, of Capital Value at the beginning of the year ; 
second, by any payments provided for sinking or retirement funds 
in securities issued with the approval of the City Council, and, 
third, by transferals from the Stablizing Fund, when there shall 
be an excess therein, as provided by the Grant. The whole 
or any part of the Amortization Fund may be paid to the 
Company or the holders of bonds or interest bearing obligations 
of the Company that have been created for Capital Expenditures 
for the purpose of extinguishing such obligations and Capital 
Value shall be reduced to the extent of such payments; or the 
City may direct the Company to use the amounts so paid for 
Extensions, Betterments or Permanent Improvements, in which 
case the amount so used shall not be added to Capital Value, but 
shall be added to Property Value. When the intangibles for the 
elimination of which the Amortization Fund was created have 
been so eliminated, the City Council may order discontinuance of 
payments into the Fund from Operating Receipts, or may order 
the Company to set aside and pay into the Fund any other amount 
that the amount so provided in the Grant to be used to reduced 
Capital Value. (Sec. 13.) 

" Intangible values in Capital Value shall be taken and deemed 
to be such elements in Capital Value as are not reflected in or 



ft 



284 



Service At Cost Agreements 



repreWMtei by values of the existing physical property in agreed 
valuation as of January 1, 1919, together with additions thereto. 
The Intangible Yahies shall be allocated by direction of the City 
Council." (Sec. 9.) 

There shall be deducted from Property Value first the cost 
assigned in the inventory of January 1, 1916 or in the Arnold 
analysis of additions between January 1, 1916 and December 
31, 1918 of withdrawals of property from January 1, 1919 to 
the date when the Grant becomes effective; and second the value 
of any property withdrawn from Property Value, as it appears 
in the valuation of January 1, 1916, in the Arnold analysis, or 
in the case of property added after January 1, 1919, at actual 
cost. (Sec. 16.) 

At the time the Grant takes effect, the Company shall set up 
in its books Standard Property Accounts as prescribed by the 
Uniform System of Accounts of the Interstate Commerce Com- 
mission modified to meet the provisions of the Grant or subse- 
quent ordinances, and shall allocate, with the advice and approval 
of the City Council, the full value of the property as agreed upon 
in the Grant, and shall thereafter allocate to these accounts all 
additions to property value. On or before the 20th of each month 
the Company shall report to the Street Railway Supervisor, all 
Capital Expenditures for the previous month. If correct, the 
report shall be certified to the City Council by the Supervisor, and 
the Council shall approve or disapprove of the same. If approved 
it shall be final and binding upon the City, except that within 
ninety days of the date of the report, or after the annual audit of 
the Company's books, he may correct any error. Such corrections, 
however, shall not affect or impair any report theretofore certified 
but shall be adjusted in the first certificate issued after the end 
of the year. (Sec. 16.) 

Upon the removal of any property which is not replaced from 
the Maintenance Reserve Fund, an amount which represents the 
unreplaced value thereof, as it appears in the valuation of January 
1, 1916, the Arnold analysis, or in the case of property added 
subsequent to January 1, 1919, actual cost, shall be transfered 
to a suspense account and amortized from the Amortization fund. 
(Sec. 16.) 



Service At Cost Agreements 



285 



4.— RATE OF RETURN 

Chicago 

Upon bonds and other obligations secured by liens against the 
property, rights and franchises of the Company — the interest 
stipulated in such bonds and other obligations; (Sec. 16) 

Upon debentures issued in part payment of the property of the 
Chicago Surface lines and Elevated Railways required under the 
terms of the Grant to be acquired by the Company — eight per 
cent per annum until July 31, 1932 and seven per cent per 
annum thereafter. (Sec. 2.) 

Upon debentures issued by the Company to obtain l^ew 
Capital-return as fixed by the Trustees, at the time such debentures 
shall be sold. 

Philadelphia 

Fixed charges on obligations of the Company — either mort- 
gages, leases or operating contracts — assumed before the Grant 
took effect or mortgages refunded, at the rate contracted for; 

Interest and sinking fund charges on New Capital, as approved 
by City Councils at the time of their issuance ; 

Sinking Fund Charges as provided in the 1907 contract; 

Five per cent, on the Company's investment ($30,000,000, less 
any unpaid installments on outstanding stock). (Arts. 20 and 
24). 

Denver (Service at Cost Ordinance 

The Rate of Return upon the Stipulated Fair Value of the 
property shall be as follows: 

From the date the ordinance becomes effective, until April 30, 
1920, at the rate of five and one-half per cent per annum; 

From May 1, 1920, to October 31, 1920, at the rate of six per 
cent per annum ; 

From November 1, 1920, to April 30, 1921, at the rate of six 
and one-half per cent per annum; 

After April 30, 1921, at the rate of seven per cent per annum. 
(Art. 8; Sec. 2.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 
19 



I 



I 



\ III 



28C 



Service At Cost Agreements 



Minneapolis 
Seven per cent per annum cumulative upon Original Capital 
Value (Initial Value) as of January 1, 1919. Upon securities 
issued and debt incurred with the approval of the City Council and 
added to Capital Value thereafter, the interest as approved by the 
City Council plus one per cent per annum cumulative, except that 
upon money loaned or securities issued by the Company and 
guaranteed by the City, there shall be paid no return over and 
above the actual interest. (Sees. 9 and 14.) 

5.— ADDITIONAL ALLOWANCES 

Chicago 
'No provisions. 

Philadelphia 

No additional allowances. 

Denver Service at Cost Ordinance 

Allowances in addition to the regular rate of return are pro- 
vided by the ordinance as follows : 

In any calendar month in which the adult fare shall be six 
cents, one-twelfth of one-fourth of one per cent ; 

In any calendar month in which the adult ticket fare shall be 
five and one-half cents, one-twelfth of one-half of one per cent ; 

In any calendar month in which' the adult fare shall be five 
cents, one-twelfth of three-fourths of one per cent ; 

In any calendar month in which the adult fare shall be less 
than five cents, one-twelfth of one per cent. (Art. 8 ; Sec. 2.) 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 
None. 



^'T 



6.— ASSURANCE OF RETURN 



Chicago 

There is no other assurance of return than that provided by the 
regulation of fares to cover the cost of service. 



Service At Cost Agreements 



287 



Philadelphia 
No other assurance of return is given than that provided by a 
system of fares, which, subject to the Pennsylvania Public Service 
Commission, is intended to respond to the cost of the service. 

Denver Service at Cost Ordinance 
No other assurance of return is afforded than that given by the 
automatic regulation of fares to cover the cost of the service. 

Denver Elastic Six-cent Fare Ordinance 
No assurance of return provided. There is partial assurance 
that fares will be sufficient to pay wage increases. 

Minneapolis 

;No assurance of return is provided other than by the automatic 
regulation of fares and by the right given to the Company to 
object to requirements of the City as to service and extensions 
which would impair the ability of the Company to earn the cost 
of the service. 

On the other hand it is provided that " nothing in this ordi- 
nance contained shall constitute an obligation or iniarantv on the 
part of the City to pay to the Company the seven per cent per 
annum on the Capital Value or the amount of interest plus one 
per cent per annum on new capital as above providtxl, and further, 
that in no event shall any taxes be levied or other appropriations 
be made by the City Council to provide for the payment of said 
seven per cent cumulative or the one per cent cumulative on new 
capital or for any deficiency in the said payment which may here- 
after accumulate or hereafter be accumulated under the terms of 
this ordinance." (Sec. 9.) 

E. COST OF SERVICE 

1.— DEFINITION 

Chicago 
There is no definition of the Cost of Service. The Grant pro- 
vides for the payment of the following items out of Gross 
Receipts : 



i 



» 



288 



Service At Cost Agreements 



Item First: (a) All expenses of operation, including mainte- 
nance, repairs and renewals (except such payments as are made 
from the Maintenance and Repair Fund, the Eenewal and Depre- 
ciation Fund and the Damage Claim Fund), including all pay- 
ments required to be made by the Company under any lease or 
operating agreement; 

(b) PajTnents into the Maintenance and Repairs, Renewals and 
Depreciation and Damage Claims Funds. (Sec. 16.) 

The Trustees shall set aside from Gross Receipts a sufficient 
fund to meet all claims from damages arising out of the operation 
of the Surface lines subsequent to February 1, 1907 (date of the 
so-called Settlement Ordinances) ; damages arising from the 
operation of the Elevated Lines previous to the taking effect of the 
Grant and damages arising from the operation of the System sub- 
sequent to the taking effect of the Grant. The amount that shall 
be annually deducted is left to the judgment of the Trustees, except 
that the Fund shall at the time of purchase by the City be suffi- 
cient to meet all claims against the Company at that time out- 
standing. The monies so set aside shall constitute the Damage 
Claims Funds and may be invested by the Trustees in interest- 
bearing securities, other than those of the City or the Company, 
which securities may be sold from time to time as occasion re- 
quires for the benefit of the Fund. Interest and earnings thereon 
shall be added to the Fund. At the time of the sale of the prop- 
erty of the Company, the Fund shall pass into possession of the 
City, which shall hold the Company harmless on account of all 
claims for damages. (Sec. 15.) 

For information as to Maintenance and Repairs and Renewals 
and Depreciation Funds see E.-(b)- (b2) and E.-2.-(c). 

(c) Payments on account of taxes, assessments and other gov- 
ernmental charges, including franchise, excise and income taxes 
and city license fees, if any. (Sec. 16.) 

Item Second, payments on account of interest on bonds and 
other outstanding obligations, secured by a lien on the Company's 
property in accordance with the terms of the Grant. (Sec 16.) 

Item Third, payments to the City on account of the use of sub- 
ways or portions thereof. (Sec. 16.) 

Item Fourth, payments into the Amortization Fund. ( Sec. 16. ) 



Service At Cost Agreements 



289 



The Amortization Fund is established for the purpose of pro- 
viding a substitute for new capital for Extensions, Betterments 
and Improvements and to provide for the amortization and retire- 
ment of the Capital Account. There shall be paid into it : 

(a) The amount required to be set aside under the sinking fund 
provisions of mortgages or deeds of trust assumed by the Company 
as part of the purchase price of the Surface and Elevated Lines ; 

(b) After five years from the effective date of the Grant, each 
year, one-quarter of one per cent of the then outstanding Capital 
Account of the Company, to be increased at the end of five years 
to one-half of one per cent, to be increased at the end of the next 
^ve years to three-quarters of one per cent, to be increased at the 
end of the next five more years to one per cent, at which rate it 
shall thereafter stand. The amount to be paid into the Fimd in 
any year under this provision, shall never be less than the amount 
paid in the previous year, despite any decrease in Capital Account 
caused by payments from the Amortization Fund (Sec. 14) ; 

(c) The Surplus Receipts of the Company. (Sec. 14.) 
Whenever money is needed for Extensions, Betterments and 

Permanent Improvements not including subways and the con- 
dition of the Amortization Fund permits, such money shall be 
taken from the Amortization Fund, and there shall be no addition 
to Capital Account on account thereof . (Sec. 14.) 

Whenever, in the opinion of the Trustees, the condition of the 
Amortization Fund \\ ill permit, money therein may be used for 
the retirement of the outstanding bonds, debentures or other obli- 
gations of the Company, or for sinking fund payments under the 
terms of mortgages and trust deeds assumed by the Company in 
part payment of the Surface and Elevated lines, but no payment 
shall be made on account of debentures issued in payment for such 
property, until all other bonds, debentures and obligations of the 
Company constituting a lien upon the Company's property have 
been paid. The amount so paid for the purpose set forth herein 
shall be deducted from Capital Account. (Sec. 14.) 

In case the First and Refunding Mortgage provided for by the 
Grant shall contain sinking fund provisions, approved by the City 
Council by ordinance, sinking fund payments thereunder may be 



I 



290 



Sekvice At Cost Agreements 



made from the Amortization Fund and the Capital Account cor- 
respondingly reduced. (Sec 14.) 

Item Fifth, payments on account of annuity or interest on out- 
standing debentures and other obligations or agreements of the 
Company, not secured by liens on the property, franchises and 
rights of the Company. (Sec. 16.) 

All payments under any of the items are culmulative, and if 
not paid during the fiscal year, shall be paid out of the Gross 
Keceipts of the next, or the following fiscal years in the order 
named. Any surplus Gross Receipts remaining after the payment 
of the items specified shall be paid into the Amortization Fund. 
(Sec. 16.) 

Philadelphia 
The cost of service is not defined, but provision is made for 
the payment of the following items out of Gross Revenue : 

First, Operating expenses, including maintenance and damage 
claims ; 

Second. Taxes, both those assessed directly against the Com- 
pany and those assessed against the Company on account of its 
ownership of Transit Facilities, as well as taxes, licenses and 
imposts assessed against underlying companies, except taxes due 
from such companies to the city on dividends; 

Third. Fixed charges, including interest on mortgages, rentals, 
payments on account of operating agreements or other contracts, 
which were in effect at the time of the taking effect of the Grant, 
and any renewals or refunding thereof; 

Fourth. Interest and sinking fund payments on new securities, 
and dividends and sinking fund payments on capital stock, issued 
for New Capital ; 

Fifth. Payments into the Depreciation Funds provided by 
the Grant ; 

Sixth. Sinking Fund payments required by the 1907 Contract ; 
payments due City on account of taxes on dividends to holders of 
the securities of underlying companies as imposed by the charters 
of such companies. The payment to the City of the sum provided 
in lieu of paving, repaving and repair of paving, snow removal 
and license fees (See E.-3) ; 



Service At Cost Agreements 



291 



Sevenlh. Payments to both City and Company of a return 
equal to 5 per cent of their respective investments.^ Such invest- 
ment is for the Company fixed at $30,000,000, less any unpaid 
installment on outstanding stock, and for the City is certified in 
the three-month statements provided by the Grant ; 

Eighth, Payment to the City of the difference between its 
gross interest and Sinking Fund charges upon its investment and 
the 5 per cent return upon investment provided in the previous 
Item. (Art. 20.) 

All of the payments provided for are cumulative. Items First 
to Fifth, inclusive, shall be cumulative in order and shall be made 
up before Gross Revenue of subsequent years is applied to current 
payments. The other items shall, however, not be made up in 
subsequent years until after current payments shall have been 
made and the Company's Initial Surplus shall have been restored 
to the extent that it has been depleted to make up deficiencies 
Thereafter deficits in return to the City and the Company shall bo 
made up before Items Sixth and Eighth shall be made up. (Art 
.iO ; oec. 2. ) 

Denver Service at Cost Ordinance 
The following items are defined to be the cost of the ser^ ice, to 
be paid from Gross Earnings in the order named : 

(a) Cost of wages and compensation to employees; 

(b) Cost of materials used in the operation of the City system ; 

(c) Cost of renewals and depreciation of the property ; 

(d) Cost of taxes and other governmental charges, including 
the expenses of City supervision ; 

(e) Cost of such other operating expenses as are authorized 
under the rulings and Uniform System of Accounts of the In- 
terstate Commerce Commission ; 

(f ) Cost of money invested in the property, being the reason- 
able return upon the Stipulated Fair Value of the Citv Svstem 
(Art. 2; Sees. 1 and 2.) 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Piiiladelpttia 
Xo provisions. 



1 



I 



292 



Service At Cost Agreements 



Minneapolis 

It is provided that the following payments shall be made from 
Gross Keceipts, in the order named: 

First, expenses of management and operation, including sal- 
aries, wages and reasonable pensions and benefits to employees 
in amount to be approved by the City Council. (See. 9.) 

Second, an amount monthly equal to one-twelfth of 2.75 per 
cent of Capital Value as of January 1, of the current year, plus 
9 per cent of the gross earnings of the month, to create a Repair, 
Maintenance, Renewal and Depreciation Fund, from which shall 
be paid all expenses, necessary "to put, maintain, repair and 
keep said railway system in first class condition." The amount 
taken from Gross Earnings can be increased or decreased as the 
City Council may determine is the need. (Sees. 9 and 11.) 

Third, payments on account of liabilities for damages to per- 
sons and property. (Sec. 9.) 

Fourth, payments on account of taxes and public charges, in- 
cluding all earnings and income taxes. (Sec. 9.) 

Fifth, return to the Company. (Sec. 9.) 

Sixth, an amount equal to one-half of 1 per cent, of Capital 
Value as of January 1 of the current year, per annum cumulative, 
plus such additional sums to provide sinking or retirement funds 
as may be authorized by the City Council in connection with the 
issuance of new securities to be paid into the Amortization Fund. 
Payments of one-half of 1 per cent of Capital Value into this fund 
shall continue until the amount thereof equals the amount of all 
elements of intangible value contained in Capital Value. There- 
after only such payments shall be made into the Amortization 
Fund from Gross Receipts, as the City Council shall determine. 
(Sec. 9.) 

Seventh, payment into the Stabilizing Fund, of the amount 
remaining after payment of these items, which amount shall be 
known as " Surplus Earnings." (Sec. 9.) 

Accounting for the purpose of determining fares shall be on 
the basis of monthly credits and charges and liabilities shall be so 
allocated, that a suflScient amount shall be set aside each month to 
meet deferred liabilities when they fall due. (Sec. 9.) 



Service At Cost Agreements 



293 



2 — ALLOWANCES 



(a) Operating 

Chicago 

No provisions, the. matter being left to the judgment of the 
Trustees. 

Philadelphia 
N^o operating allowance provided for. 

Denver Service at Cost Ordinance 
jSTo actual Operating Allowance is provided for. The Com- 
pany is, however, required to present to the Board of Tramway 
Control prior to the last day of each calendar year, a budget esti- 
mating the cost of service for the ensuing year, and any increase 
in operating expenditure over the previous calendar year, amount- 
ing to more than three per cent, cannot be added to cost of service, 
unless it be approved by the Board of Tramway Control (Art' 
3; Sees. 8 and 9.) 

Denver Elastic Six-cent Fare Ordinance 
^0 provisions. 

Minneapolis 
While no operating allowance is provided, the City retains con- 
trol over the operating expenditures by a provision which Permits 
the City Council to require the Company to submit at least 45 
days before the beginning of each calendar year a Budget of 
operating expenditures and receipts and further to submit supple- 
mentary budgets for expenditures other than those provided in 
the original Budget. :N'o expenditure not provided for in the 
Budget or a supplement approved by the City Council thereto 
may be met from Gross Receipts. (Sec. 5.) 

(b) Maintenance 

(bl) DEFINITION 

Chicago 
The Grant establishes a distinction between Maintenance and 
Repairs, and Renewals. "* * * Renewals are hereby defined 



ill 



*.1 



^t/TT 



Service At Cost Agreements 



to be the replacement of any principal part of the local trans- 
portation system or its equipment or appurtenances (including 
pavement) or subways; and the Trustees shall determine by 
classifications made from time to time what particular items of 
expenditure shall be considered as Maintenance and Repairs and 
what particular items of expenditure shall be considered as 
Kenewals under the provisions of this ordinance." (Sec. 8.) 

Philadelphia 
The Grant contains no definition. 

• Denver Service at Cost Ordinance 

The rulings and the Uniform System of Accounts of the Inter- 
Btate Commerce Commission govern. 

Denver Elastic Six-cent Fare Ordinance 
The Grant contains no definition. 

Minneapolis 

The Grant contains no definition of Maintenance, Repairs, 
Renewals, or Depreciation. 

(b2) HOW FIXED 

Chicago 

The Company is obligated by the terms of the Grant to keep 
its property in such condition as to give to the public the best pos- 
sible transportation service, and agrees, irrespective of any of the 
provisions of the Grant as to amounts to be spent for maintenance 
and repairs, to spend such sums as will so maintain the property. 
(Sec. 8.) 

The Company shall spend for maintenance and repairs an 
annual amount at least equal to six per cent of its Gross Receipts 
for the year. If in any one year such amount is not spent, it shall 
be set aside in a special fund (The Maintenance and Repairs 
Fund) to be used when and as necessary for such maintenance 
and repairs. (Sec. 8.) " 

Philadelphia 

The Supervising Board shall pass upon, adopt and alter rules 
and standards as to Maintenance. (Art. 31; Sec. 3.) No actual 
allowance is provided. 



Service At Cost Agreements 



205 



Denver Service at Cost Ordinance 

By the Company subject to the approval of the Board of Con- 

trol m case the total operating expenses for anv one year exceed 

those of the previous year by more than three per cent. (Art 3 • 

Sec. 7.) , A V > 

Denver Elastic Six-cent Fare Ordinance 
No provisions. 

Minneapolis 
Repairs, maintenance, renewals and depreciation are to be met 
out of the same fund — the Maintenance Reserve Fund This 
IS provided by payments from Gross Receipts as set forth in E -1 
and by receipts from the sale of material or property that may 
become unnecessary or is unadapled to the use of the Company 
and from interest received on such part of the fund as may be 
invested or put on deposit. (Sec. 11.) If, however, such unneces- 
sary or unadaptable property be rented, the rentals shall be added 
to Gross Receipts. (Sec. 28.) 

When property is replaced, the excess of cost of the new prop- 
erty over the property displaced shall be charged to Capital, while 
the value of the property displaced shall be charged to the Main- 
tenance Reserve Fund. (Sec. 11.) 

The creation and use of the Maintenance Reserve Fund does 
not relieve the Company from the obligation to keep its property 
in first-class condition by expenditures from Gross Earnings. 

(c) Depreciation 

Chicago 
There shall be set aside each month from Gross Eeceipts, an 
anmount equal to eight per cent of the Gross Eeceipts of the 
previous month and the sums so accumulated shall constitute the 
Renewal and Depreciation Fund. Moneys in such fund shall be 
used to take care of the renewal and depreciation of the Com- 
pany's property, including subways. There shall be paid from 
the Fund such amounts as are necessary to provide for renewals 
and the balance shall constitute a fund to provide against the 
depreciation of the property. The Trustees are empowered to 



a96 



Service At Cost Agreements 



increase the amount set aside for this fund, as in their judgment 
seems desirable and necessary. (Sec. 8.) 

When replacements are made there shall be charged to Capital 
Account, the excess cost of new property over the original cost of 
the property displaced, except that in the case of property 
acquired from the Surface and Elevated lines in accordance with 
the provisions of the Grant, the inventory value instead of the 
original cost shall be used in reckoning excess. The balance of 
the cost of such replacements shall be taken from the Renewals 
and Depreciation Fund. (Sec. 8.) 

As long as the Company purchases its power, there shall be 
charged to the Renewals and Depreciation Fund, such part of the 
cost of such power as represents the allowance made for Renewals 
and Depreciation by the seller, if such allowance is made. 
(Sec. 8.) 

The Trustees may invest any moneys in the Fund in bonds or 
other interest bearing securities, except those of the City and the 
Company, and may from time to time sell the securities so pur- 
chased and deposit the market price thereof to the Credit of the 
Fund. (Sec. 8.) 

In the event of purchase by the City any balance in the fund 
becomes the property of the City. (Sec. 8.) 

Philadelphia 
The Grant provides for the setting up of three distinct Depre- 
ciation Reserve Funds — 

A. To provide for Transit Facilities owned by the City; 

B. To provide for Transit Facilities furnished by the Com- 
pany in Connection with the City System ; 

C. To provide for Transit Facilities owned by the Company. 

(Art. 22; Sec. 1.) 

The Supervising Board may classify Transit Facilities and 
apportion depreciation among the several Funds in accordance 
with such classification. Fund C. shall be started on the date 
when the Grant becomes effective. Funds A. and B. at the same 
time as the time that the first section of the City System begins 
operation or as soon thereafter as the Supervising Board may 
determine. Nothing shall, however, be set aside for depreciation 



Service At Cost Agreements 



297 



of permanent structures of the City's Transit Facilities, until ten 
years after the date when they shall be first operated, and then the 
appropriation for such purpose shall not exceed one-half of one 
per cent, annually. (Art. 22; Sec. 1.) 

The amount to be set aside for depreciation shall be determined 
by the Supervising Board and Funds A. and B. shall be in the 
control and custody of the Board. Fund C. shall be in the custody 
and control of the Company, and shall be held for and applied to 
repairs, replacements and renewals, other than those paid for out 
of Gross Revenue, but such use of the fund, must be approved by 
the Supervising Board. (Art. 22 ; Sees, 1 and 3.) 

At the time that the Contract takes effect, such amount as equals 
the excess of the amount in the company's Renewal Reserve over 
its Reserve Fund for Renewals, as determined by the special audit 
provided by the Grant, shall constitute the Company Depreciation 
Fund. (Art. 16.) 

Salvage from Transit Facilities retired from service shall be 
credited to the appropriate Depreciation Fund. (Art 22- 
Sec. 2.) 

Whenever a Transit Facility or a principal part thereof shall 
be retired from service, an amount equal to its cost shall be taken 
from the appropriate Depreciation Fund, upon the requisition 
of the Company approved by the Board and be expended for a 
new Transit Facility or a principal part thereof for which the 
Fund shall have been set aside. (Art. 22; Sec. 3.) 

Amounts in Depreciation Funds not currently needed shall be 
invested by the custodians of the Funds (in the case of Fund C, 
the Company shall, however, secure the approval of the Super- 
vising Board to such investment) in the bonds, notes or other 
securities of the Company, providing they can be purchased at not 
more than par value, or in such other securities as may be legal 
investment for Trustees. (Art. 22; Sec. 3.) 

At the termination of the lease. Funds A. and B. shall become 
the property of the City, while Fund C. becomes the property of 
the Company. In case the City exercises its right of recapture 
(See B-l.-(a) and (b) ) all three Funds shall become the property 
of the City. (Art. 22; Sec. 4.) 



298 



Service At Cost Agreements 



Denver Service At Cost Ordinance 

" The physical property of the City system shall always be well 
and thoroughly kept up in first-class serviceable operating condi- 
tion. Therefore, as distinguished from and in addition to the 
ordinary day to day repairs, constituting current maintenance, 
and in order to adequately provide for the replacement and 
renewal of track, cars, equipment, buildings and plant, which 
hereafter shall become worn out, obsolete or useless and for the 
general depreciation of the property when and as necessary and 
needed for the proper upkeep in the interest of the best service to 
the car riders, there shall be set aside out of earnings and as a 
part of the cost of service as hereinbefore defined, a sum monthly 
consecutively and cunmlatively to be known as the " Renewals and 
Depreciation Reserve Fund." This fund as to its amount shall 
be reasonable and adequate in relation to the Stipulated Fair 
Value and its determination and disposition shall be by and 
under the supervision of the Board of Tramway Control, pro- 
vided always that permanent expenditures out of this fund shall 
be made only for the purpose in this section set forth, and that 
this Fund or any part thereof shall not in any way afi'ect or 
change the Stipulated Fair Value. Temporary' unexpended bal- 
ances may be invested by the Company in negotiable securities 
approved by the Board of Tramway Control and interest thus 
earned shall be credited to the Funds." (Art. 5 ; Sec. 1.) 

As a measure for the adequacy of the Renewals and Deprecia- 
tion Reserve Fund, the ordinance states that for the Basic Value 
of $20,807,750, set up therein, an addition of $37,500 monthly 

to the cost of service shall be considered sufficient. (Art. 5; 
Sec. 3.) 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 
Depreciation is taken care of through the operation of the 
Maintenance Reserve Fund.. (Sec. 11.) 

S.— SPEOAL TAX AND IMPOST FEATURES 

Chicago 

The Company shall pave, repave and keep in repair pavement 
on the portion of streets, viaducts and bridges occupied by its 



Service At Cost Agreements 299 

The Company shall fiU, grade, pave, clean, sprinHe and keep 
in repair eight feet of such streets as it occupies with single track 
and 16 feet of such streets as it occupies with double trad. The 

made or other work done by the City in connection with its sewer 
and water pipes. (Exhibit B.) w m us sewer 

JV^' '"'"' *'''* '^' ^""'P'^y ^«y^ it« t'-^l^ i» streets before 
water or sewer p.pes are laid therein, or before the street shaH 

be g.-aded or paved, and is later comj^elled to reconstruct such 
track, he expense thereof shall be borne by the Com^^y and 

Cul )T *? *«' P«f °™«"«« »f the work by the Company, the 

21' Z I ''•^\^^%^^-^ ^^- th« «r-t becomes 'effiire 
shall clean the r.ght of way of the Company, including snnw 

zzzf'u^T ^'^TY/r '-' ^^ ''^ cit;thtir,T 

sum of $51.50 per mile of double track surface line per m;nth 

(SibUB )" ""'"*'' "' '"'' "' *'' ''°^'' '' '^""^'^ *^-''' 
If at any time there shall be a deficit in the cost of service to 
meet which an increase in fares would otherwise be necil'rl 
the Company shall be relieved from its obligation to ckan a7d 
sprinkle streets, and such exemption shall continue, untU t^e 
d^cit shall have been made up from Gross Receipt and sueh 
Receipts shall warrant, in the opinion of the Trustees the IZp- 
tion of such obligation. (Sec. 22.) resump- 

lloalth Inspectors, Firemen and Police employed by the City 
shall when m full uniform, be permitted to ride free. (Sec. lof)' 

The City may by ordinance provide for the use without pay for 
he private right of way of the Company underthe IvaS 
structure for public comfort stations. (Sec. 20.) 

The Company shall pay the cost of* altering any bridge or via 
duct owned by the City, in order to permit its'use by r pfd 3" 
li.es and in the case of new bridges and viaducti, which ZJ 



300 



Seevice At Cost Agreements 



\ s 



he so constructed as to provide for their use in connection with 
the rapid transit system shall pay one-third of the cost. The Com- 
pany shall pay to the City one-third of the cost of maintaining, 
repairing or renewing bridges or viaducts used by the rapid tran- 
sit lines, but full cost in connection with maintenance of pave- 
ment on right of way over viaducts or bridges used by surface 
lines. (Sec. 23.) 

Philadelphia 

In lieu of charges for paving, repaving and repair of streets 
for the removal of snow and in lieu of license fees for operation 
of cars through streets or over bridges, the Company shall pay 
to the City: 

For the first ten years after the date of the 1907 Contract — 
$500,000 annually; 

For the next ten years, $560,000 annually; 
For the next ten years, $600,000 annually ; 
For the next ten years, $650,000 annually; 
For the next ten years, $700,000 annually. 

In addition there shall be added for each additional street in 
which tracks of the Company are laid, seven cents for each square 
yard if paved with macadam; eight cents if paved with asphalt 
and six cents if paved with any other kind of material. 
Similarly, there shall be deducted from payments made by the 

Company on this account, like sums for streets in which tracks 
are abandoned. 

If taxes other than those on real estate or dividends are imposed 
upon the Company after the date of the 1907 Contract, the 
amount paid in accordance with the provisions here set forth 
shall be credited upon such assessmenta (Sec. 10, 1907 
Contract.) 

Denver Service at Cost Ordinance 

By the provisions of the ordinance, the Company is relieved 
from the payment of a franchise tax of $5,000 per month, for 
which it is liable and from any obligation to " pave or surface or 
maintain any paving or surfacing on any street, road, alley or 
highway, or to construct or reconstruct, maintain or improve any 
public bridge^ viaduct or subway within the City and County of 



Service At Cost Agreements 



301 



Denver." It is, however, required to replace any pavement or 
structure removed or damaged by it. (Art. 11; Sec. 1.) 

The Company is required to carry firemen and policemen of the 
City and County of Denver, when in uniform, free. (Art. 10; 

Sec. 1.) 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 

The Company is, at the time that any street shall be paved, 
required to pave with granite block or other material agreed upon 
the space between its tracks and keep such pavement in repair. 
In addition, it is required to defray one-half of the cost of the 
paving foundation for a space two feet on the outside of its tracks 
and keep the pavement in such space in repair. There is no pro- 
vision relative to repaving. (Sec. 27.) 

The Company is required to keep free from snow and ice that 
portion of the street occupied by its tracks. It shall oil, or 
sprinkle with water such portion of streets occupied by its tracks 
as the City Council may require. (Sec. 26.) 

In order to reduce the rate of fare, the City may, if it so elects, 
relieve the Company from obligations to pave and maintain pave- 
ment, or to clean, oil or sprinkle streets. (Sec. 26.) 

If the State laws require, reduced rates shall be provided for 
Firemen and Policemen. (Sec. 8.) 

F. FARES 

l.__ SCHEDULES OP 

Chicago 

The Grant prescribes an initial rate of fare for rides within 
present or future city limits of five cents for adults, three cents 
for children under twelve years of age, and free rides for chil- 
dren less than seven years of age when accompanied by a fare 
paying passenger. Transfers between cars on the surface lines, 
and between trains on rapid transit lines to be free, but, if in the 
judgment of the trustees such a charge is necessary, a charge 
not exceeding two cents to be made for transfers between surface 
and rapid transit lines. (Sec. 17.) 

^ 20 



302 



Service At Cost Agkeements 



For rides between points outside of City limits, or between 
points inside City limits and those outside, present fares shall 
maintain, until changed by the Trustees, with the consent of 
authorities having jurisdiction. (Sec. 17.) 

If required, fares shall thereafter be increased or decreased 
by such stages as the Trustees may decide. In this connection 
such charge for transfers as may seem expedient to the Trustees 
may be imposed. The action of the Trustees in increasing or 
decreasing fares is subject to such control or regulation as may 
be pi-escribedby law. (Sec. 17.) 

General regulations for the issuing of transfers are contained in 
the Grant. (Sec. 17.) 

Health Inspectors, Firemen and Policemen of the City, when 
in full uniform are carried free. (Sec. 19.) 

ISTo passes shall be issued, but employees of the Company may 
be carried free, either upon tickets issueil by the Company, a 

record of which shall be kept, or when wearing an official badge 
to be furnished by the Company. (Sec. 19.) 

The Company may make with the approval of the City Coun- 
cil an arrangemait with the United States Post Office Department 
for lump compensation, so that "Mail carriers shall be carried with- 
out payment of fares. (Sec. 19.) 



Philadelphia 

The initial fare was fixed by the Grant at five cents, with free 
transfers between all parts of the system, including both rapid 
transit and surface line and the Company's and the City's lines 
except in the Delivery District (that portion of the City lying 
between Arch street on the north and Locust street on the South, 
l>oth inclusive, and between the Delaware and Schuylkill rivers). 
Exchange tickets, for which a three-cent charge is made were 
abolished, except as to the Deliveiy District, in which the charge 
was to be abolished upon the opening of the first section of the 
Frankford line, the Board however, being authorized to desig- 
nate eertain points within such District as non-transfer points, 
if necessarv' to relieve congestion. (Art. 21.) 

No further schedule of fares is provided, it being the duty of 
the Supervising Board to prepare such schedule for presentation 



Service At Cost Agreements 



303 



to the Pennsylvania Public Service Commission, if a revision of 
fares either upward or downward is contemplated. (Art. 21.) 

Denver Service at Cost Ordinance 

The ordinance contains no schedule of fares. It is provided 
that fares for adults shall l>e decreased or increased in the method 
provided in the ordinance, by steps of one-half cent each, and that 
fares for children more than six and less than 12 years of age 
shall be one-half the adult cash fare, and that upon the taking 
effect of the ordinance, the Board of Control shall arrange and 
promulgate schedules of fares to conform to the provisions of 
the ordinance. In cases where an increase or a decrease of fare, 
results in a fractional fare, tickets shall be sold on cars, and the 
cash fare shall be the next highest exact number of cents. There 
?hall be no charge for transfers. (Art. 6; Sees. 2, 3 and 4.) 

Children under six years of age, trainmen of the Company and 
firemen and policemen of the City of Denver, when in uniform, 
shall be can-ied free. (Art. 10; Sec. 1.) 

The ordinance provides that the rate of fare to be put in effect 
when the ordinance becomes effective, shall be six cents for adults 
and three cents for children. (Art. 6; Sec. 5.) 

Denver Elastic Six-cent Fare Ordinance 

It is provided that upon the taking effect of the ordinance, the 
Company may charge an adult fare of six cents, childreri more 
than six years of age and less than 12 years of age half price, 
tickets to be sold by conductors on all cars, until the fare is 
changed in accordance with the provisions of the ordinance. 
(Sec. 1.) 

At all times free transfers shall be given, under no greater 
restrictions than prevailed at the time the ordinance takes effect. 
(Sec. 2.) 

Minneapolis 

The initial fare for passengers more than six years of age. 
shall be five cents. (Sec. 8.) 

Fares shall thereafter be increased, or decreased, in accordance 
with the method prescribed in the Grant, by stages of one cent, 
except that when the fare is more than five cents, tickets shall be 



304 



Service At Cost Agreements 



sold in lots of five at a discount of ten per cent from the fare then 
in effect; provided, however, that if at any time when such 
reduced rate tickets are sold, the earnings are insufficient to pay 
the cost of the service, the sale of such tickets may be suspended 
until the earnings are sufficient to pay the cost of service. 
(Sec. 8.) 

Tickets shall be on sale at convenient places in the City. If 
fares shall be increased or decreased outstanding tickets shall be 
void, but shall be redeemed by the Company at the price paid 
therefor. (Sec. 8.) 

Under reasonable rules and regulations made by the Company, 
it shall issue free transfers, unless it is mutually agreed upon by 
the City and the Company that a charge shall be made for trans- 
fers. (Sec. 8.) 

Children (not more than two for each paying passenger, babes 
in arms one year and under not included) under six years of 
age shall be carried free. No passes shall be issued to any except 
Company employees. Reduced rates for Firemen and Policemen 
may be made subject to State statute. The Company may con- 
tract with the United States Government for the transportation of 
letter carriers. ('Sec. 8.) 

The Company may operate chartered and special cars at rates 
uniform, compensatory and reasonable, to be approved by the 
City Council. (Sec. 8.) 

Despite the provisions of the Orant, the City and Company 
may enter upon an agreement providing a different schedule or 
arrangement of fares. (Sec. 8.) 

t.— HOW FIXED 

Chicago 

The Company shall provide an Emergency Fund of $2,000,000, 
from the sale of its bonds, the par value of which shall be added 
to Capital Account. In case the receipts of the Company are 
insufficient to meet the Cost of Service, such deficit shall be paid 
out of the Fund, and monev so withdrawn shall be restored from 
Gross Receipts, as soon as it is practicable to do so. Moneys in 
the Fund may be invested in bonds and other interest-bearing 
securities other than those securities of the City or Company, as 



Service At Cost Agreements 



305 



the Trustees may see fit, and the Trustees may sell such securities 
and add the market value thereof to the Fund. Interest received 
from moneys in the Fund shall be added to Gross Receipts. 
(Sec. 18.) 

Whenever, by reason of withdrawals from the Fund, on 
account of deficits paid to make good the cost of service, it shall 
be reduced below $1,000,000, the Trustees shall immediately 
make such increases in fares or transfer charges or both as will 
not later than the end of the following fiscal year restore the 
amounts withdrawn from the fund and prevent the recurrence of 
such deficits during the following fiscal year. When such deficits 
have been made up, if in the opinion of the Trustees, a new deficit 
will not be created thereby, fares and transfer charges shall be 
reduced, or transfer charges abolished, as the Trustees may deem 
proper. (Sec. 17.) 

If at the time of any annual report, the Surplus Receipts war- 
rant, in the opinion of the Trustees, such action, fares shall be 
reduced, or transfer charges reduced or abolished. (Sec. 17.) 

Any increase or reduction in fares or transfer charges outside 
of the City or to and from outside points shall be subject to such 
control and regulation as shall be prescribed by law. (This 
means that the Public Utilities Commission of Illinois might have 
jurisdiction.) (Sec. 17.) 

Philadelphia 

Initial Surplus is defined to be the surplus on hand at the date 
the Grant takes efi^ect, as determined by the special audit provided 
by the Grant (See C.-4.-(c)) (Art. 1 ;*^Sec. 26). IN'ew Surplus is 
the amount remaining and accumulated after the payments of the 
items of cost of service provided by the Grant. (See E.-l.) (Art. 
20; Sec. 3.) 

If in any year Gross Revenue shall be insufficient to provide 
for the payment of the items of cost of service as provided for 
in the Grant, such deficits shall be made up from ISTew Surplus 
until that be exhausted, and then from Initial surplus to the 
extent of $2,000,000. Should there still be a deficit, it shall be 
accumulated and paid from later Gross Revenue. (Art. 20; 
Sec. 3.) 



30G 



Service At Cost Agreements 



In case of the destruction of or serious damage to the system, 
or a continued interniption of noimal operation, which results in 
the suspension or curtailment of payments on account of Depre- 
ciation Funds, sinking fund payments provided by the 1907 con- 
tract, payments on account of the taxation of dividends of under- 
lying companies, payments in lieu of paving' and license assess- 
ments, return on the Company's or City's investment, or the fur- 
ther payment provided on account of the City's investment, the 
Company is not required to make up such deticits out of Initial 
Surplus, if such surplus has been depleted to the extent of 
$500,000 or more and not restored, nor shall the Company he 
required to at any time make good deficits from such causes to an 
extent of more than $500,000, if the total depletion of the Initial 
Surplus is caused thereby. (Art. 20 ; Sec. 8.) Fares shall not be 
increased to make up such deficits, nor shall they be made up 
unless the Supervising Board shall sanction payment out of after- 
acquired New Surplus resulting from "normal and reasonable 
fares." (Art. 20 ; Sec. 3.) 

If all the payments provided under cost of service cannot be 
currently met, New Surplus shall be eliminated and Initial 
Surplus depleted to the extent of $500,000, fares shall be revised 
upwards, so as to provide Gross Revenue sufficient to provide such 
cost of service, restore within a reasonable time, Initial Surplus, 
and any deficit in the items of cost of service. (Art. 21.) 

Within thirty days after the Initial Surplus shall have been 
depleted to the extent of $500,000, the Board shall prepare and 
file with the Pennsylvania Public Service Commission a schedule 
of fares, which in its opinion, will produce the needed amount of 
Gross Revenue. If for two quarterly periods under such new 
schedule the Gross Revenue shall be insufficient to pay the 
cost of service, and provide a surplus sufficient within a reason- 
able time to make up money taken from Initial Surplus and pay 
any deficits accumulated in cost of service, or if Initial Surplus 
having been restored shall. be again depleted to the extent of 
$500,000 by reason of pa^Tuents of account of current deficits 
in cost of service, the Board shall file a new schedule of fares 
which, in its opinion, will provide sufficient Gross Revenue. 
(Art. 21.) 



Service At Cost Aqueements 



307 



If during the first year of operation of any section of the 
City's Transit Facilities, (during which first year no return is 
paid to the City on account of its investment), it shall develop 
to the satisfaction of the Board, that fares then in efl^ect will not 
be sufficient during the ensuing year to provide Gross Revenues 
sufficient to meet the cost of the service, the Supervising Board 
may prepare and file with the Public Service Commission a new 
schedule of fares to take effect, on the date from which the City 
begins to receive a return upon its investment. (Art. 21.) 

The power to permit increases of rates rests with the Pennsyl- 
vania Public Service Commission, which may suspend schedules 
filed by the Board. In case of such suspension, and if rates are 
not effective within thirty days from the time that tariffs are 
filed, the Company, may suspend payments to the City on account 
of the remission of paving assessments and licenpes, to such an 
extent as will make possible the payment of the return to the City 
and the Company and the additional payment on account of the 
City's investment, and such suspension shall continue until rates 
sufficient to provide the cost of service shall be made effective. 
(Art. 21.) 

If for two consecutive years, the surplus shall increase a sub- 
stantial amount annually, and New Surplus shall equal or exceed 
$2,000,000, fares shall be revised downwards. The Supervising 
Board shall within thirty days after reports showing this state of 
affairs, file a schedule of rates and charges which, in its opinion, 
will reduce Gross Revenue, but which will at the same provide 
revenue enough to meet the cost of service, after applying thereto 
each year, one-third of the New Surplus, accumulated at the time 
the schedule is filed, such schedule to take effect within thirty 
days. Fares shall be further reduced whenever New Surplus shall 
have again accumulated to the extent above described. (Art. 21.) 

If any part of the City's Transit Facilities are withdrawn 
from the system operated by the Company and the operations of 
the previous year indicate that the existing schedule fares will 
produce more revenue than is sufficient to meet the cost of the 
service, the Supervising Board shall prepare and file with the 
Public Service Commission forthwith, a schedule of fares and 
charges which in the opinion of the Board will reduce Gross 



308 



Service At Cost Agreements 



Revenues to the extent of the interest and sinking fund charges 
upon that portion of the Transit Facilities so withdrawn, except 
that Oross Revenues shall not he reduced below the point neces- 
sary to provide the cost of service on the remaining system. 
(Art. 21.) 

Denver Service at Cost Ordinance 

The Company is obliged to provide a fund of $300,000 to be 
known as the Fare Control Fund. The " normal '' amount of 
such Fund shall be $300,000. (Art. 7; Sec. 1.) 

Into the Fare Control Fund shall be paid monthly any surplus 
remaining from Gross Earnings after the cost of service has been 
paid; from it shall be taken monthly any deficit in the cost of 
service. (Art. 7; Sec. 2.) 

If by reason of payments into it from Gross Earnings, the 
Fare Control Fund shall at any time amount to $500,000, which 
amount shall be known as the " upper limit '' of the Fund, fares 
shall be reduced to the next lower rate in the schedule. If in 
spite of the reduction in fares, the Fare Control Fund again 
reaches the " upper limit," fares shall again be reduced, and this 
process shall continue until Fund remains at the " Upper Limit " 
or below. (Art. 7 ; Sec. 3.) 

When by reason of withdrawals from the Fare Control Fund., 
it shall be reduced to $100,000, which sum shall be known as 
the " Lower Limit " of the Fund, the fare shall be increased to 
the next higher rate in the schedule. If after such increase fur- 
ther withdrawals are made from the Fund to meet the cost of serv- 
ice, fares shall be increased again, and such increases shall con- 
tinue to be made until payments into the Fund out of surplus are 
made. The ordinance states that the Fare Control Fund " shall 
be maintained as nearly the " normal " amount as possible consist- 
ent with the purpose to render service to the public at actual 
cost." (Art. 7; Sec. 4.) 

Denver Elastic Six-cent Fare Ordinance 
The initial fare permitted by the ordinance is conditioned on 
the payment by the Company of the wages fixed in the award of 
the ]?^atictnal War Labor Board, dated November 20, 191S. 



Service At Cost Agreements 



zm 



If at any time wages paid employes are increased or decreased, 
the Company shall so notify the Board of Control, and the Board 
may increase or decrease fares to take care of such increase or 
decrease in wages. If increased they shall not be increased more 
than will produce revenue sufficient to provide the increase in 
wages, and if decreased they shall not be decreased more than the 
difference in the sum total of wages paid before such decrease 
and the sum total paid after such decrease. In no event shall fares 
be increased to meet any increase in wages, which will provide a 
scale higher than the average hourly scale paid in the cities of St. 
Louis, Omaha, Kansas City, Minneapolis and St. Paul. If at any 
time the Board of Control should ascertain that the wage schedule 
of the Company is in excess of the average schedule paid in the 
above named cities and higher than the scale fixed bv the National 
War Labor Board as of November 20, 1918, the Board of Con- 
trol shall determine the fare to be charged to meet such schedule 
The Board of Control shall act upon any notification of wage 
mcreases or decreases within ten days of the receipt of such notifi- 
cation and the Company shall put into effect fares determined by 
the Board of Control, within ten days of the receipt of notification 
of change. (Sees. 3 and 4.) 

Minneapolis 
A fund for Stabilizing Fares is established by the provisions of 
the Grant, to consist of the sum of $250,000 furnished bv the 
Company and added to Capital Value. From this Fimd all 
deficiencies in the Cost of Service are met, except that when the 
sum therein is insufficient to make up such deficits, they shall be 
paid from subsequent Gross Receipts, or from the proceeds of 
loaiis made by the Company to be repaid from subsequent Gross 
Receipts at the rate of one-twelfth and interest thereof each 
month. To the Fund shall be added all Surplus Earnings. 
(Sec. 12.) 

If at the end of any fiscal year the Fund shall amount to 
$450,000 or more, the excess in the Fund to the amount of not 
less than $100,000 or more than $200,000 as directed bv the City 
Council shall be paid into the Amortization Fund. (Sec 19 ) 

If the Fund be increased to $500,000 and the Company esti- 
mates that the next. lower fare will produce sufficient revenue to 



310 



Sekvice At Cost Agreements 



Service At Cost Agreements 



311 



provide for payment from Gross Receipts into the Fund, the next 
lower fare shall be put in effect. If at the end of three months 
after the time when the lower faro goes into effect, the Fund shall 
have accumulated an additional sum, the fare shall be reduced to 
the next steps and such reductions shall continue at three month 
intervals, until accumulations in the Fund shall have ceased. 
(Sec. 12.) 

If at any time the amount in the Fund shall be reduced to 
$150,000 by reason of payments on account of deficits in the Cost 
of Service, the fare shall be increased one step, and if at the end 
of three months, the Fund shall be further reduced for the same 
cause, the fare shall be increased another step and if at the end 
of three months, payments are still required from the Fund, 
increases by successive steps shall be continued at three month 
intervals, until payments from the Fund on account of deficits in 
Cost of Service are no longer required. (Sec. 12.) 

Notice of increase or decrease of fare shall be given by the 
Company through publication in one paper of general circulation 
in the City and by the posting of notices in the Company's car* 
on or before the 15th of the month, prior to the month upon the 
first day of which such increase or decrease shall be effective. 
(Sec. 8.) 

The Stabilizing Fund shall be deposited at interest and such 
interest shall be added to Gross Receipts. (Sec. 12.) 

O. TRANSPORTATION OF FREIGHT, EXPRESS, ETC. 

Chicago 

" No part of the local transportation system shall be used for 
any purpose but the transportation of passengers except as herein 
expressly provided." (Sec. 1.) 

The Company may carry and handle express matter, baggage, 
mail, milk, parcels and such other package freight as may be des- 
ignated by the Trustees, and at rates to be fixed and regulated by 
the Trustees. It may enter into contract, with the approval of the 
City Council, with suburban and interurban companies, for the 
operation of freight or express cars of such companies over its 
tracks, such cars to be approved as to design and equipment by the 
Trustees. (Sec. 20.) 



Philadelphia 
Subject to such restrictions as the City may impose, the Com- 
pany may use the Unified System for the transportation of freight, 
mail, express and other unobjectionable matter, except that the 
use of the system for the transportation of passengers to its fullest 
capacity shall not be interfered with. Within these limits the 
City may require the Company to carry freight, mail and other 
unobjectionable matter. (Art. 17.) 

Denver Service at Cost Ordinance 
*' The Company is authorized to carry United States mail and 
light parcels, besides those in possession of the passengers, if not 
interfering with the convenience and safety of passengers. The 
Company shall also, by and with the consent of the Board of 
Tramway Control, have the right to haul or transjwrt in suitable 
cars, such materials and supplies for and on l^ehalf of the City 
and the public, at such times and over such routes as the Board 
of Tramway Control may approve. All charges for such service 
shall be compensatory, uniform and reasonable and shall be 
subject to the approval of the Board of Tramway Control." (Art 
0;Scc. 1.) 

Denver Elastic Six-cent Fare Ordinance 

No provisions. 

Minneapolis 

The Company may carry on its cars mail and light parcels 
besides those in the possession of passengers, under rules and 
regulations approved by the City Council and at charges which 
shall be uniform, reasonable and compensatory. (Sec. 2.) 

The Company is required when ordered by the City Council to 
transport over its lines materials for municipal construction and 
other purposes at a reasonable compensation, and the City may 
construct or require the Company to construct at the City's 
expenses., tracks connections between the City's warehouses and 
the Company's tracks, but the transportation of material for City 
or for Company use shall not be allowed to interfere with the use 
of the tracks and facilities of the Company for passenger trans- 
portation. (Sec. 2.) 



1 



312 



Service At Cost Agreements 



H. SPECIAL PROVISIONS 

Chicago 
Labor: 

Hours of labor and working conditions shall conform to just 
and reasonable standards of safety, health, comfort and efficiency. 
Wages shall be just and reasonable and not less than customarily 
paid for services of like character under substantially similar 
conditions. (Sec. 27.) 

Intervention and Enforcement: 

The City may intervene in any suit brought to enjoin, restrain 
or interfere with the Company in the doing of any work called 
for by the Orant, in the observance of the terms of the Grant, 
or in an action to foreclose under any lien, mortgage or trust deed. 
The City may by mandamus, injunction or other appropriate 
legal proceedings, compel the performance of their respective 
duties and obligations by the Company or the Trustees and the 
Company may likewise proceed against the City. (Sec. 29.) 

Lease or Assignment: 

The Company may make no lease or assignment, or operating 
agreement without the consent of the City. (Sec. 31.) 

Philadelphia , 

Right to Dissolve Unified System: 

It is provided by the Grant that the Transit Facilities owned 
by the City shall be combined with those owned by the Company 
and operated as a unified system. At the termination of the 
Grant, the City may dissolve the Fnified System and reacquire 
its property. In this event the Company shall : 

Surrender to the City the City's Transit Facilities in good 
condition and repair, except for natural deterioration, but it shall 
not be required to make good damage or destruction caused by 
war, riot, earthquake or other extraordinary occurrence not 
insurable, " and generally comprehended under the term of God 

or vis major "j (Art. 26; Art. 28; Sec. 1.) 



Service At Cost Agreements 



313 



Surrender to the City all Transit Facilities furnished by it for 
the City, provided that the City shall pay to the Company an 
amount equal to the cost of such facilities, less — 

Any repayment of such cost which the Company shall already 
have received through the operation of any Amortization Fund, 
or otherwise, 

The amount of securities issued for such cost, if the same have 
been fully amortized, or if the City shall assume the same. 

The amount of amortization of securities issued in payment for 
such Transit Facilities which shall not be assumed by the City; 

Nora: If securities have been issued which cover expenditures on accoJnt 
of both City and Company Transit Facilities, the Supervising Board shall 
determine the proportion to be assigned to each. (Art. 28; Sec 1.) 

Pay to the City the City's share in the then existing IN^ew Sur- 
plus, which share shall be apportioned upon the same basis as 
that provided for calculating the return to the City and Company. 
(See E.-l.) (Art. 28; Sees. 1 and 2.) 

Initial Surplus shall remain the property of the Company 
(Art. 28; See. 2.) ^' 

If the Unified System be dissolved by reason of any default 
upon the part of the Company, then the Initial Surplus and the 
Company's share of ISTew Surplus shall be available for any 
damages awarded to the City by the Court. (Art. 28 ; Sec. 2.) 

Assignment: 

The contract shall not be assigned, sublet, or mortgaged without 
the consent of the City expressed by ordinance. The appointment 
of a Receiver for the Company shall not be considered an assign- 
ment or cause for termination of the Contract. (Art. 32.) 

Public Svhsidy: 

" The City reserves the right from time to time to determine 
what portion of the interest and sinking fund charges upon its 
investment in Transit Facilities shall be borne by the car-riders 
and what portion shall be borne by the taxpay^ir * * ♦." 
Accordingly the City may withdraw any or "all of its in- 
vestment from the rental requirements of the Contract, in which 



314 



Service At Cost Agreements 



case no return shall be paid on the portion so withdrawn and this 
fact shall he taken into consideration in computing schedules of 
fares. (Art. 18.) 

Extraordinary Repairs: 

In case of damage to or desti-uction of any of the City's Transit 
Facilities by war, riot, earthquake or other extraordinary occur- 
rence not ordinarily insurable, and generally comprehended under 
the term act of God, or vis major, the same shall be repaired or 
replaced by the City and charged to the cost of the City's Transit 
Facilities. (Art. 26.) 

Denver Service at Cost Ordinance 
No special provisions. 

Denver Elastic Six-cent Fare Ordinance 
No special provisions. 

Minneapolis 

Wages and Worlcing Conditions: 

The hours of work and working conditions shall conform to 
just and reasonable standards of safety, health, comfort and 
efficiency. Employes shall not be required to work more than 54 
hours in any one week. Wages " shall be just and reasonable and 
not less than shall be customarily paid for services of like char- 
acter under substantially similar conditions." (Sec. 6.) 

Any properly accredited committee representing fifty per cent 
of the employes of any department, with or without counsel, shall 
be entitled to a hearing from the Company and the Company 
shall take up for adjustment any matter of wages, hours of lal)or 
or working conditions presented by such committee. If the Com- 
pany and the Committee are unable to agree, and the employes 
ask for arbitration of the matter in dispute, then the Company 
shall consent to such arbitration, which shall be conducted in the 
same manner as is provided in the Grant for the arbitration of 
other questions, except that the employes shall select one of the 
arbitrators in place of the City. (Sec. 6.) 



Service At Cost Agreements 



315 



Central Passenger Station: 

The City may construct, or may authorize any other person, 
corporation or association, including the Company, to construct, 
a central passenger station for the handling of suburban and 
interurban passengers. United States mail and express, and for 
the storage of Company cars to be used in rush hour periods, and 
compel the use of such station by suburban companies. The 
station shall be located in the retail business district of the City, 
and its location may be decided upon by agreement between the 
Company and the interurban and suburban companies, approved 
by the City Council, or, failing agreement, by the Council itself. 
The City may require the Company to use such station for the 
storage of cars to be used for rush hour purposes and shall approve 
plans and specifications for its construction. (Sec. 22.) The 
compensation to be paid by the Companies using the station shall 
be fixed by the City Council in the manner provided for fixing 
the compensation for the use of Company tracks by suburban 
companies. The Company shall construct such tracks as will 
permit of the tracks of the station to be connected with those of 
the Company, but the owner or owners of the Station shall con- 
struct all tracks in the station and connections with the Company's 
tracks. (Sec. 22.) 

Division of Revenues of Inter-City Lines: 

The Company operates in connection with the St. Paul City 
Railway Company inter-city lines between St. Paul and Minne- 
aix)lis. The Grant provides that fares collected on such lines, 
within the City limits on trips to St. Paul, shall be credited to 
the St. Paul Company, and that fares collected within the City 
limits of St. Paul on trips to Minneapolis shall be credited to the 
Minneapolis Company. Expenses of the inter-city lines, including 
interest and maintenance, incurred east of a point midway 
between the two cities, shall be borne by the St. Paul Company ; 
those incurred west of such a point shall be borne by the 
Minneapolis Company. (Sec. 24.) 



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