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National Transportation Conference
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PROGRAM OF REMEDIAL
RAILROAD LEGISLATION
Adopted by the National Transportation Conference
With a Series of Siaiemenis
Submitted to the Committee on Interstate and Foreign Commerce
of the United States House of Representatives by
Members of the Conference
Washington, D, C.
1919
CONTENTS.
The Conference Plan for Eemedial Eailroad Legis¬
lation. Pages
Statement by Harry A. Wheeler 3-30
Program op Eemedial Eailroad Legislation Adopted
by the National Transportation Confer¬
ence 31-39
Compulsory Federal Incorporation for Consolidated
Eailroad Systems.
Statement by Alexander W. Smith 31-40
Ee-establishment of Eailroad Credit.
Statement by Paul M. Warburg 41-56
The Conference Eule of Eate Making.
Statement by W. W. Salmon 57-85
A Federal Transportation Board—Its Powers and
Duties.
Statement by Emory E. Johnson 87-94
C, ^ U. Ö I Co I A , CO,
1^30 1 ' T
June 13, 1919.
The Conference Plan for Remedial
Railroad Legislation
AN EXPLANATORY STATEMENT
BY
HARRY A. WHEELER
Chairman of the Con/erence
The National Transportation Conference was called to¬
gether in December, 1918, by the Chamber of Commerce of the
United States "to consider the broader aspects of the transpor¬
tation problem and the formulation of a basis for the control
and operation of the transportation facilities of the United
States after the conclusion of the present government control."
At five meetings, each lasting two days, the conference has
held twenty-two general sessions and numerous sessions of
sub-committees appointed to report on special phases of the
transportation problem.
In calling this Conference the Chamber of Commerce
recognized that many different interests throughout the nation
are affected by transportation and that each important interest
should have a voice in determining what should be done with
the railroads after the present emergency is passed. The
Chamber therefore invited prominent men belonging to each
important interest—commercial and industrial, agricultural,
financial, labor, governmental, transportation, economic, civic
and social—affected by transportation, to attend the Confer¬
ence and take part in its deliberations.
All of the important plans for the solution of the railroad
problem were presented to the Conference either in the form
of printed documents or by speakers who addressed the meet¬
ings or took part in the discussions.
The shippers' and manufacturers' point of view was pre¬
sented by Walter S. Dickey, of the W. S. Dickey Clay Manu¬
facturing Company, of Kansas City; Edward J. Frost, Vice
4
President William Filene's Sons Company, Boston; George
A. Post, President Standard Coupler Company, New York;
Charles E. Lee, of Ford, Bacon and Davis Consulting Engi¬
neers, New York City; W. W. Salmon, President of the Gen¬
eral Railway Signal Company; Charles S. Keene, Vice Presi¬
dent of the American Tobacco Company; and Frederick J.
Koster, President of the San Francisco Chamber of Commerce.
The measures in which farmers of the United States are
interested were outlined by H. C. Stuart, Chairman of the
National Agricultural Advisory Committee ; R. L. Munce,
President of the Pennsylvania Good Roads Association ; and
Eugene D. Funk, of Funk Brothers' Seed Company, Bloom-
ington, Illinois.
Important financial aspects of the railroad problem were,
discussed by Paul M. Warburg, formerly Vice Governor of
the Federal Reserve Board ; Harry A. Wheeler. Vice Presi¬
dent, Union Trust Company, Chicago; Nathan L. Amster,
President of the Investors' Protective Association of .America ;
and Luther M. Walter, General Counsel of the National Asso¬
ciation of Owners of Railroad Securities.
The views of labor were presented by Frank Morrison,
Secretary, Henry Sterling, Legislative Representative, and
Martin Ryan, of the Railroad Employes' Department of the
American Federation of Labor; and those of the Railroad
Brotherhoods by A. B. Garretson, President of the Order of
Railroad Conductors ; W. G. Lee, President, and W. N. Doak,
Vice President, of the Brotherhood of Railroad Trainmen;
and S. E. Heberling, International President of the Switch¬
men's Union of North America.
Director General Hines appeared before the Conference
twice and explained the plans of the Railroad Administration
and his own personal views in regard to the desirable solution
of the railroad problem. Commissioner Winthrop M. Daniels,
of the Interstate Commerce Commission, and President
Charles E. Elmquist, of the National Association of Railroad
and Utilities Commissioners, presented their views and par¬
ticipated actively in the deliberations of the Conference.
The plans proposed by the Railway Executives' Associa¬
tion and by leading individuals among the executives were
outlined by Daniel Willard, President of the Baltimore and
Ohio Railroad ; S. T. Bledsoe, General Counsel of the Atchi-
5
son, Topeka and Santa Fe Railroad ; and E. G. Buckland, Pres¬
ident of the New York, New Haven and Hartford Railroad;
The views of the electric railway men by P. H. Gadsden,
chairman of the Committee on National Relations of the
American Electric Railway Association, and W. V. Hill,
Manager of the Washington office of the Association; and
those of the advocates of highway transport development by
John T. Stockton, President of the Joseph Stockton Transfer
Company, Chicago.
The economic aspects of the problem were discussed by
E. R. A. Seligman, Professor of Economics, Columbia Univer¬
sity; Emory R. Johnson, Professor of Transportation and
Commerce, University of Pennsylvania ; W. Z. Ripley, Pro¬
fessor of Transportation, Harvard University; John R. Com¬
mons, Professor of Economics, University of Wisconsin ;
Henry W. Farnam, Professor of Political Economy, Yale Uni¬
versity, and Frederick A. Cleveland, formerly Chairman of
President Taft's Commission on Efficiency and Economy; and
the civic and social aspects by R. G. Rhett, formerly President
of the Chamber of Commerce of the Unted States ; Alexander
W. Smith, of Atlanta, Georgia, formerly President of the
Georgia Bar Association ; Judge F. C. Dillard, of Sherman,
Texas; and Charles P. Neill, Chairman of Board of Adjust¬
ment No. I, United States Railroad Administration, and form¬
erly Commissioner of Labor under the Roosevelt adminis¬
tration.
The Conference gave careful consideration to the various
plans presented with a view to developing a program of reme¬
dial railroad legislation that would include the most desirable
features of each plan combining them with new features pro¬
posed by the Conference itself into a consistent harmonious
whole. Some of the representatives of the railroad brother¬
hoods and a few of the other participants listed above attended
only one or two meetings of the Conference for the purpose of
presenting their views, and did not take part in the resulting
action. Others attended all of the sessions and voted on all
questions brought before the Conference, occasionally reserv¬
ing the right to dissent from some particular decision with
which they could not agree. The majority of the members,
however, attended practically all of the twenty-two sessions
held and voted in favor of the program finally adopted.
6
Before presenting the complete plan and discussing its
main features in detail it may be well to summarize its pro¬
visions :
Briefly stated, the program provides for:—*
Return of the railroads to private ownership and
operation as soon as the necessary remedial legislation can
be enacted.
Consolidation of existing railroads into strong com¬
petitive systems.
Requirement that all carriers engaged in interstate
commerce subject themselves as corporations to federal
jurisdiction.
Exclusive federal regulation of the capital expendi¬
tures and the security issues of all carriers engaged in
interstate commerce.
Interstate Commerce Commission to retain its present
powers and to be given additional powers over rates.
Creation of a Federal Transportation Board, to pro¬
mote the development of a national system of rail, water
and highway transportation ; to pass upon the public
necessity for capital expenditures ; to regulate security
issues ; to administer and enforce the measures that may
be adopted for strengthening and stabilizing railroad
credit ; to determine the grouping or consolidation of rail¬
roads deemed to be in the public interest; and to carry out
plans authorized by Congress for merging all railroads
engaged in interstate commerce into strong competing
systems.
Adjustment of the wages and working conditions of
railroad employes by boards consisting of equal numbers
of representatives of railroad employes and railroad
officers, with the Federal Transportation Board as referee.
Adoption by Congress of a plan for the stabilization
of railroad revenues and credit by means of
(a) Enactment of a statutory rule providing that the
rate structure established by public authority
shall be designed to yield a net return of six (6)
per cent, per annum upon the aggregate fair value
of the property of the roads in each traffic section
of the country, such fair value to be determined
after due consideration of both physical value and
earning power.
• The plan In extenso Is appended to this statement.
7
(b) Use of the aggregate property investment
accounts of the railroads as the fair value of the
property for rate making purposes pending the
completion of the valuation now being made by
the Interstate Commerce Commission.
(c) Creation of two kinds of contingent funds—an
individual railroad contingent fund established
by each road to support its own credit ; and a gen¬
eral railroad contingent fund maintained by con¬
tributions from all prosperous roads, managed by
trustees appointed by the Federal Transportation
Board and used to support the credit of all of the
railroads of the countrv-. Any excess in the gen¬
eral railroad contingent fund above $750,000,000
is to be used for the general development of the
transportation system of the country.
Creation of a railroad reserve fund administered by
the Federal Transportation Board to facilitate the
prompt stabilization of railroad credit ; and loan
of $500,000,000 to this fund by Congress as soon
as the railroads are returned to their owners ; the
loan to be used, if necessary, in making advances
to the general railroad contingent fund, and to be
repaid with interest from moneys contributed by
the railroads to the general railroad contingent
fund.
Determination and announcement by the Federal
Transportation Board of the grouping or consol¬
idation of railroads deemed to be in the public
interest; and authorization for the Board to re¬
quire such consolidations if they shall not have
been effected or well advanced within a period of
five years after the Board has declared them to be
desirable.
Organization of the Board of Directors of each con¬
solidated railroad system with twelve members
of the Board—one to be a representative of the
employes of the system nominated for such posi¬
tion by the employes, and three to be selected by
the Federal Transportation Board to represent
the principal interests involved in the territory
served.
Return of the Railroads to Corporate Operation
Necessarily, the first question considered by the Confer¬
ence was whether it favored corporate or government owner-
8
ship and operation of the railroads. After full consideration
of the subject the Conference, with but few dissenting votes,
decided in favor of corporate ownership and operation of the
railroads in the United States, and the return of the roads to
their owners as soon as possible after the enactment by Con¬
gress of appropriate remedial legislation. The Conference was
in favor of the continuation of government operation of the
roads until such legislation had been enacted and made effec¬
tive, but felt that this legislation should, if possible, be enacted
within the present calendar year.
A Statutory Rule of Rate-Making, Without Government
Guarantee of Minimum Return to Individual Railroad
Companies
A description of the program of railroad legislation favored
by the National Transportation Conference may well begin
with a statement of its proposals regarding railroad revenue
and credit. The most fundamental problem to be solved by
the legislation that must precede the return of the railroads to
their owners is the adoption of measures that will give the
carriers reasonable assurance of revenues sufficient to enable
them adequately to perform the services required by the public.
In the interest of the carriers and the public the authority
which determines rates must adopt measures that will afford
the carriers reasonably adequate revenues.
One method of assuring to railroad companies adequate
revenues is to provide a definite government guarantee of a
fixed minimum net return. A government guarantee is not
favored by the Conference. It believes that it will be possible
for Congress to adopt a policy of rate-making and control that
will give the carriers reasonable assurance of adequate rev¬
enues without involving the government in the obligation of
guaranteeing the net return of private corporations and with¬
out imposing upon the public the burden of unreasonable
transportation rates.
Briefly stated, it is recommended that Congress adopt a
statutory rule of rate-making requiring the Interstate Com¬
merce Commission to be responsible for railroad rates and
fares designed to yield the carriers in each designated traffic
9
section not less than six (6) per cent, not upon the aggregate
fair value of the property of the railroads. The statutory rule
recommended by the Conference provides that it shall be the
duty of the Interstate Commerce Commission to authorize or
establish rates and fares that will produce, not for each rail¬
road company, but for the railroads in the aggregate in each
natural traffic section of the country, aggregate revenue suffi¬
cient to yield, after provision has been made for renewals,
depreciation and unproductive improvements not properly
chargeable to investment account, a net return (which shall
be available for interest and dividends) of not less than six (6)
per cent, per annum upon the aggregate fair value of the prop¬
erty of the railroads devoted to the public service in each of the
several traffic sections. It is recommended that "fair value"
shall be ascertained by the Interstate Commerce Commission
by giving consideration not only to physical property but also
to earning power and such elements as may properly receive
attention.
The determination of the fair value of the railroads,
whether for rate-making or for other purposes, has unavoid¬
able difficulties. When the Interstate Commerce Commission
completes the valuation it is making that will, of course, be
adopted; but during the next three to five years some tem¬
porary method of determining "fair value" must be followed.
The recommendation of the Transportation Conference, stated
in abbreviated form, is that, pending the completion of the
valuation now being made by the Interstate Commerce Com¬
mission, the fair value, for rate-making purposes, of the rail¬
roads as a whole and by traffic sections, shall be their aggre¬
gate property investment accounts ; while the fair value of the
property of an individual railroad shall temporarily be taken
to be that share of the aggregate property investment accounts
of all the railroads in the traffic section in which the road is
situated which the particular road's annual railway operating
income bears to the aggregate railway operating income of
the railroads in its traffic section—public authority having
power to make equitable adjustments in special cases.
lO
Plan for Strengthening and Stabilizing Railroad Credit
From the rates made in carrying out the foregoing statu¬
tory rule, the best situated, or most ably managed, railroads
will receive more than six (6) per cent, net, while the less favor¬
ably located or less efficiently managed roads will obtain less
than six (6) per cent, net per annum. By the plan adopted by
the Conference, each of the railroad companies that receive a
net return of more than six (6) per cent, per annum upon the
fair value of their property are to be required to put half of the
excess into a company contingent fund until that fund shall
amount to six (6) per cent, of the fair value of the company's
property, while the other half of the excess is to be turned
over to a general railroad contingent fvmd administered by
trustees appointed by government authority and maintained
and used for the benefit of all the railroads of the country.
When any railroad company has brought its own contingent
fund up to six (6) per cent, of the fair value of its property, the
company shall increase its annual contribution to the general
railroad contingent fund to two-thirds of its net income in
excess of six (6) per cent., the other third of the excess being
retained by the company for distribution among the stock¬
holders or for other lawful purposes. This plan would keep
the profits of individual railroad companies within reasonable
limits without taking away from the management of the com¬
panies the incentive to effort and efficiency. '
The purpose of the general railroad contingent fund is to
assure to the railroads in the aggregate, by traffic sections, a
return of six (6) per cent, per annum upon the fair value of
their property. The fund is to be the means of strengthening
and stabilizing railroad credit, and to do this (a) without
making the government responsible for a fixed return to indi¬
vidual railroad companies, (b) without imposing unreasonable
rates upon the public, and (c) without permitting the railroads
that have been unfortunately located or have been over-capi¬
talized or otherwise mismanaged to shift their burdens from
their own shoulders onto the government or the public or the
other railroads. The general railroad contingent fund, accum¬
ulated in the manner indicated, is to be drawn upon by all rail¬
roads of a designated traffic section when in any year the net
11
return upon the aggregate fair value of the property of all the
railroads in that section falls below six (6) per cent., due to
the fact that the rates authorized or established by the Inter¬
state Commerce Commission, in consequence of fluctuations
in volume of business or of an unexpected increase in expenses,
have not yielded the carriers the minimum net return of six
(6) per cent, provided by the statutory rule of rate making.
As has been explained, the proposed general railroad con¬
tingent fund is to be created and maintained by contributions
required from such companies as have net returns (after they
have provided for renewals, depreciation and unproductive
improvements and are keeping up their several individual con¬
tingent funds) in excess of six (6) per cent, per annum upon
the fair value of their property devoted to the public service—
two-thirds of the excess being contributed. The fund is to be
drawn upon only when, and to the extent that, the rates and
fares, which are controlled by the Interstate Commerce Com¬
mission, do not yield the railroads the contemplated annual net
return of six (6) per cent, upon the aggregate fair value of
their property,—the carriers being grouped into such natural
traffic sections as may be designated by the Commission.
When the general railroad contingent fund is drawn upon
for the purpose of bringing the aggregate net revenues of the
railroads in any traffic section up to six (6) per cent, upon the
fair value of their property, all of the railroads in the traffic
section shall share in the distribution pro rata to their gross
earnings. By this plan the weak roads, that will presumably
have contributed nothing to the general fund, will receive their
share ; but they will not be the sole beneflciaries of the distri¬
bution. It is not the purpose of the general contingent fund
to give to the properties of the weak roads values which they
do not possess; its purpose is to assure to the railroads as a
whole, year by year, a net return of not less than six (6) per
cent, upon a fair value of their property ; and thus to establish
the first condition precedent to stabilizing railroad credit as a
whole, and to securing for the public adequate railroad trans¬
portation at reasonable capital cost. It is not proposed to pro¬
vide the weak roads with a net return upon an amount in
•xcess of a fair value of their property.
12
It is proposed that the general railroad contingent fund,
by means of which railroad credit as a whole is to be strength¬
ened and stabilized, shall be built up gradually during a period
of years until the fund amounts to $750,000,000, and that it
shall be maintained at that figure. If the fund should even¬
tually amount to more than $750,000,000, the surplus may be
covered into the Treasury of the United States, or be used to
provide the public with additional transportation facilities, or
be employed to lessen the cost to the public of transportation
by reducing the capital and investment accounts of the rail¬
roads.
Consolidation of Railroads into Strong Competing Systems
The grouping or consolidation of the railroads in the
United States, within a reasonable time, into a limited number,
possibly twenty to thirty, strong competing systems, is essen¬
tial ; because railroad rates must be the same for similar serv¬
ices, whether performed by the weak, necessitous railroad, or
by the strong and prosperous one. It is in the interest of the
public that railroad charges shall be neither so high as to cause
the strong roads to profit unduly, nor so low as to force the
weak lines, upon which large sections of the country may be
vitally dependent, into bankruptcy or into such a permanently
enfeebled condition as to prevent them from serving the pub¬
lic adequately and efficiently. All sections of the country
ought in the future to be served by railroad systems managed
by companies strong enough to serve the public with progres¬
sive efficiency and economy.
It will be necessary for the government to return the rail¬
roads to the companies from which they were taken, but the
obstacles to the grouping or consolidation of railroads, under
conditions approved by the government, should be removed,
and provision should be made for bringing all of the railroads
in the country within a reasonable time into such a number of
strong competing systems as it may be iound desirable or
necessary to perpetuate in order to secure for each principal
district of the country the service of more than one system.
The grouping or consolidation should be about the present
strong systems, that is along commercial lines, and not by arbi¬
trary territorial sub-divisions of the country.
13
While presumably it will not be practicable for the gov¬
ernment to require the immediate grouping or consolidation
of the railroads into a limited number of strong competing
systems, voluntary consolidations should be permitted and
facilitated. The railroad companies should be called upon
to submit, for approval of the government, plans for the group¬
ing or consolidation of the roads, and if the companies do not
submit such plans within a reasonable time the government,
acting through the appropriate authority, should determine
and announce what permanent groupings or consolidations are
deemed to be in the public interest. Should the consolidations
thus declared to be in the public interest not have been effected,
or should they not be well advanced, at the end of a reasonable
period, say five years, power should be given the appropriate
public authority to carry through the desirable mergers by
compulsory proceedings, if in the judgment of Congress such
power can be granted, and the public interests will be thereby
advanced.
Federalizing Railroad Corporations
As the proposed strong competing railroad systems come
into existence by consolidations, approved or required by the
government, they should be owned and operated by companies
subject as corporations to the jurisdiction of the United States.
Congress will presumably provide for permissive federal incor¬
poration of railroads, but it should not stop there. Some effec¬
tive plan should be devised for changing the allegiance of the
railroad corporations from the States to the federal govern¬
ment.
It is argued by some lawyers that the United States can¬
not compel an existing railroad company to surrender its State
charter, take out a federal charter, and transfer its property
to the new corporation ; but it is also pointed out by others
that it is not necessary to adopt this method of converting
existing railroad companies from State to federal corporations.
It is said to be within the power of Congress to pass an act
similar in principle to the National Bank Act, by which rail¬
road companies may readily transfer their allegiance from the
States to the United States.
Either by compulsory federal incorporation, or, if that
14
should not be feasible, in such other manner as Congress may
determine, all railroads engaging in interstate commerce should
be brought as corporations under the jurisdiction of the United
States ; but in so doing their powers of local taxation and
police regulation should be reserved by the States. By reserv¬
ing those powers the States will retain the relation to interstate
carriers by rail which they should logically possess.
Labor Representatives and Government Directors on Railroad
Boards
It is recognized by everybody that the railroad business
is of a public nature. Railroad corporations differ from those
having to do with the management of private enterprises. The
public is entitled to information regarding the corporate activi¬
ties of railroad companies, and provision may properly be made
for participation by representatives of the government in the
deliberations and actions of the directors of railroad com¬
panies. Although it may not have been necessary in the past
that the public, through the government should be represented
upon the directorates of the multitude of railroad corporations,
it seems clearly in the public interest that the public shall have
a voice in the management of the large and powerful railroad
corporations that may be allowed to own and operate the lim¬
ited number of consolidated systems which it is proposed shall
be perpetuated. It is recommended that Congress require
these large corporations of the future to organize with a Board of
twelve directors, three of whom shall be selected by appro¬
priate authority of the Federal Government to represent the
principal interests in the several territories served by the
different systems.
The public has an especial interest in the maintenance of
harmonious relations between the railroads and their em¬
ployees. There should be mutual understanding and confidence
on the part of the employer and the employed. It is believed
that this relationship will be greatly promoted by requiring
each of the railroad corporations that are to own and operate
the large systems contemplated in this plan to include in its
directorate one member who shall be a representative of the
employes of the system managed by the Board and shall be
nominated for that position by the employes.
15
Boards of Adjustment of Wages and Hours of Service
The Conference favors the adjustment of wages, hours of
labor and other conditions of service of railroad employes by-
boards consisting of equal numbers of representatives of em¬
ployes and officers of the railroads, with appeal, in case of the
disagreement (deadlock) of an adjustment board, to an appro¬
priate federal authority as referee.
Federal Regulation of Capital Expenditures and Security
Issues of Railroad Companies
Upon one subject that must be included in remedial rail¬
road legislation there is apparently little or no difference of
opinion. Everybody seems to have reached the conclusion that
in the future the capital expenditures and the security issues
of railroad companies should be regulated by federal authority.
The States should be, and apparently are, quite willing to
retire from this field of regulation, provided the regulating
authorities of the States are officilly notified of proposed
security issues and afford an opportunity to be heard thereon.
It is recommended by the Transportation Conference that
in providing for exclusive regulation by the federal govern¬
ment of the capital expenditures and the security issues of
railroads Congress adopt the following method : Such federal
agency as Congress may designate, shall be authorized to pass
upon the public necessity for expenditures of capital (in excess
of a stipulated amount) by carriers engaged in interstate com¬
merce and to determine the amount and to regulate the condi¬
tions of the issuance of securities to obtain the funds required
to cover authorized capital expenditures ; a railroad company
applying to the federal agency for authority to make capital
expenditures, or to issue securities, shall be required to file
with the proper authorities of the States in which the railroad
is located copies of the original petition ; and the federal agency
shall be required to notify said State authorities of the hearings
upon the petition.
Regulation of Rates by the Interstate Commerce Commission
The Interstate Commerce Commission has performed a
task of great magnitude. Its work of regulating rates and of
i6
developing and supervising the bureaus connected wi'
regulation and railroad valuation has increased steadil
the Commission has come to carry a heavy load. It wc
unwise to add unnecessarily to its present duties, espec:
view of the fact that its responsibilities must unavoida
increased, should Congress by legislative enactment
upon the Commission such power over intra-state rates
and regulations affecting interstate commerce as may
tutionally be granted. It will doubtless be possible, anc
ably in the public interest, for the Interstate Commerce
mission to enlist the cooperation of existing State comm
in the regulation of intra-state rates affecting interstat
merce. The Conference recommends that the Commiss
given power to organize in the manner that it may dee
and be given authority to function through such local c
or agencies (including State commissions) as it may
necessary to create or designate.
A Federal Transportation Board—Its Powers
To carry out the plan of legislation recommended
Transportation Conference extensive administrative ;
must be vested in some federal agency. It is believed tl
Interstate Commerce Commission ought not to be bu
by the addition to the tasks it now performs of a large r
of administrative duties. Should the Commission, as
templated, become the authority for the sole regulatior
railroad rates, rules and regulations affecting interstat
merce, its duties will necessarily be enlarged. To :
the Commission to exercise the administrative functior
templated in the proposed plan of remedial railroad legi
would be to the detriment of the public interest bee;
would seriously interfere with the prompt action of the
mission as a body for the regulation of rates, the ts
which it was especially created and for the performs
which it is peculiarly adapted.
It is recommended that a Federal Transportation
of five members be established to exercise the adminis
functions required for the enforcement of the proposed
dial railroad legislation. The following specific duties
be entrusted to this Board ;
I?
(a) To pass upon the public necessity for capital expen¬
ditures and to regulate the security issues of railroads.
(b) To act as the referee in cases of disagreement (dead¬
lock) of a board entrusted with the adjustment of wages,
hours of employment and other conditions of the service of
railroad employes.
(c) To administer the general railroad contingent fund
and to enforce the means and measures that may be provided
for strengthening and stabilizing railroad credit.
(d) To determine and announce the grouping or consoli¬
dation of railroads deemed to be in the public interest, and to
carry out plans authorized by Congress for merging all rail¬
roads engaged in interstate commerce into strong, competing
systems severally owned and operated by companies subject
as corporations to the jurisdiction of the United States.
(e) To promote the development of a national system of
rail, water and highway transportation, by providing for the
articulation of the railroads with the waterways in a traffic
sense, by bringing about the common use and construction of
terminal and transfer facilities at the larger centers of traffic,
and by such other means as may be found to be practicable
and in the public interest.
(f) To inquire into the practices of railroad management
and to propose measures for preventing abuses therein.
(g) To appoint the directors that shall represent the gov¬
ernment upon the directorates of the proposed consolidated
railroad companies.
The board which performs the duties enumerated in the
foregoing list will be entrusted with an executive task of the
first magnitude. It should be a board composed of men of the
highest character and attainments. It will equal, if not exceed,
in importance, the Federal Reserve Board, whose creation
was most fortunate and whose services have been of great
value to the public. The Federal Transportation Board should
be primarily administrative in purpose and organization. It
will have the large and exacting task of guiding and facili¬
tating the development of an adequate and efficient national
system of transportation.
i8
A Railroad Reserve Fund for Use During the Period of Transi¬
tion from Government to Corporate Management
A severe strain will be placed upon railroad credit and
upon the financial stability of the railroads during the period
of transition of the railroads from government to corporate
operation unless special precautionary measures are adopted.
At the present time the railroads are being operated with a
large and increasing deficit and it is doubtful whether the
deficit can be overcome during the remainder of this calendar
year. In all probability many of the railroads now being oper¬
ated by the government will be showing a deficit at the time
they are returned to their owners.
The several railroad companies will resume the operation
of their properties under abnormal conditions. Most rolling
stock is being used by the railroads as a whole without much
regard to individual ownership ; to some extent terminals are
being jointly occupied and used ; traffic has been largely
rerouted and the traffic organizations of the carriers have been
to a considerable extent disintegrated. It will take the corpor¬
ations some little time to readjust themselves to the new con¬
ditions and it is evident that the government will need to
assist the carriers financially until they can get going.
It has been suggested by the Hon. Charles A. Prouty.
Director of Accounting in the United States Railroad Admin¬
istration, and formerly for many years a member of the Inter¬
state Commerce Commission, that "the government should
guarantee for one year (after turning the railroads over to their
owners) a return equal to 75 per cent, of the contract compen¬
sation in all cases where contracts have been executed. And the
carrier should be required to pay over to the government in all
such cases 75 per cent, of any excess which it may make over
and above the contract compensation." If this suggestion were
adopted the United States Government would guarantee to pay
the railroad companies during the first year of private opera¬
tion 75 per cent, of over $900,000,000, and would have little
assurance that the sums which might be advanced would ever
be returned to the government.
Recognizing that it will probably be necessary for the
government to assist the carriers temporarily during the first
19
few years of corporate operation while the railroad companies
are building up their individual contingent funds and while a
start is being made in establishing the general railroad con¬
tingent fund, the Transportation Conference recommends that
Congress make an appropriation loaning $500,000,000 for the
creation of a railroad reserve fund to be administered by the
Federal Transportation Board. It is recommended that the
board be required to invest the sum thus loaned in United
States bonds or notes, the interest on the securities to be paid
annually into the United States Treasury. The fund which is
to be established for the purpose of bringing about the prompt
stabilization of railroad credit and of facilitating such consoli¬
dation of railroads as the Board shall decide to be in the public
interest, may be used as follows :
The reserve fund created by Congressional loan may at
any time during the first ten years after the enactment of the
proposed legislation, be drawn upon to whatever extent may
be necessary to enable the trustees of the general railroad con¬
tingent fund to pay over to the railroads the sums which they
may be entitled to draw in accordance with the provisions con¬
trolling the distribution of money from the general contingent
fund. The plan recommended by the Transportation Confer¬
ence provides, however, that any sum advanced by the Fed¬
eral Transportation Board to the trustees of the general rail¬
road contingent fund shall be repaid to the board with interest
as soon as the general railroad contingent fund shall reach,
and be maintained at, the amount of $500,000,000. In other
words, after the general railroad contingent fund shall, from
the contributions received from the railroads, have reached
$500,000,000 the first claim upon the fund will be the repay¬
ment to the government of the amount loaned at the time of
the transition of the roads from government to corporate
operation.
Finally it is recommended by the Transportation Confer¬
ence that the Federal Transportation Board or the War Fi¬
nance Corporation (the Act creating that corporation having
been appropriately amended) be authorized to advance public
funds (under terms that will ensure the government against
loss) to certain individual roads whose credit and financial
20
operations it may be necessary, in the public interest, tempor¬
arily to protect during the transition to normal stable condi¬
tions.
Many of the details contained in the plan of railroad legis¬
lation recommended by the Transportation Conference have
been omitted from this statement which has been confined to
a discussion of the main features of the proposed legislation.
The plan in full is as follows :
PKOGRAM OF REMEDIAL RAILROAD LEGISLATION
ADOPTED BY
THE TRANSPORTATION CONFERENCE
COMPOSED OF MEN FROM
FINANCE, COMMERCE, INDUSTRY, AGRICULTURE,
LABOR AND TRANSPORTATION; ECONOMISTS;
STATE AND FEDERAL RAILROAD COMMISSIONS;
AND THE RAILROAD COMMITTEE OF THE CHAM¬
BER OF COMMERCE OF THE UNITED STATES.
Corporate Ownership and Operation of Railroads
Section I. The Transportation Conference favors corpo¬
rate ownership of the railroads in the United States; and is
therefore opposed to government ownership of the roads and
to their operation either by the government itself or, under
lease from the government, by corporations whether organ¬
ized as regional monopolies or as large competing systems.
Prompt Enactment of Remedial Railroad Legislation
Section 2. The Conference favors the enactment of reme¬
dial railroad legislation at the earliest possible date. It favors
the continuation of the present government possession and
operation of the railroads only until such legislation can be
enacted and made effective. If possible legislation should be
enacted within the present calendar year.
Consolidation of Railroads into Strong Competing Systems
Section 3. The Conference is in favor of permitting and
facilitating the consolidation, in a manner to be approved by
the Government, of existing railroads into strong competitive
systems so located that each of the principal traffic districts
of the country shall be served by more than one system.
22
Railroad Corporations to be Brought Under Federal Juris¬
diction
Section 4. The Conference favors action by Congress that
vcill bring all interstate railroads as corporations under the
jurisdiction of the United States either by federal incorpora¬
tion or in such other manner as Congress may determine, the
matters of local taxation and police regulation to be reserved
by the States.
Federal Regulation of Capital Expenditures and Security
Issues
Section 5. The Conference favors federal regulation of
the issuance of securities by all railroads engaged in interstate
commerce. This regulation should be exclusive and should
be exercised in the following manner: Such Federal agency as
Congress may designate, shall be authorized to pass upon
the public necessity for expenditures of capital (in excess of a
stipulated amount) by carriers engaged in interstate commerce
and to determine the amount and to regulate the conditions
of the issuance of securities to obtain the funds required to
cover authorized capital expenditures ; a railroad company
applying to the Federal agency for authority to make capital
expenditures, or to issue securities, shall be required to file
with the proper authorities of the States in which the railroad
is located copies of the original petition ; and the Federal
agency shall be required to notify said State authorities of the
hearings upon the petition.
Interstate Commerce Commission to Regulate Rates that
Affect Interstate Commerce
Section 6. The Conference favors the sole regulation
by the Interstate Commerce Commission of all railroad rates
and of all rules and regulations bearing thereon affecting inter¬
state commerce. For the performance of its duties the Com¬
mission should be given power to organize in the manner it
may deem best, and be given authority to function through
such local officials or agencies as it may deem necessary to
create or designate.
23
Federal Transportation Board; Its Duties
Section 7. The Conference favors the creation of a Fed¬
eral Transportation Board of five members. It shall be the
general duty of the Board to promote the development of a
national system of rail, water and highway transportation to
inquire into and propose measures for preventing abuses
therein, to pass upon the public necessity for capital expen¬
ditures and to regulate security issues as provided by Section 5.
The Federal Transportation Board shall act as the referee in
cases of the disagreement (deadlock) of a board entrusted
with the adjustment of wages, hours of labor or other condi¬
tions of service of railroad employes. It shall, also, be the
duty of the Federal Transportation Board to administer and
enforce the means and measures that may be provided for
strengthening and stabilizing railroad credit ; it shall deter¬
mine the grouping or consolidation of railroads deemed to be
in the public interest, and carry out plans authorized by Con¬
gress for merging all railroads engaged in interstate commerce
into strong competing systems severally owned and operated
by companies subject as corporations to the jurisdiction of the
United States.
Boards for Adjustment of Wages and Horns of Service of
Railroad Employees
Section 8. The Conference favors the adjustment of
wages, hours of labor and other conditions of service of rail¬
road employes by boards consisting of equal numbers of rep¬
resentatives of employes and ofilcers of the railroads, with
appeal, in case of the disagreement (deadlock) of an adjust¬
ment board, to the Federal Transportation Board as referee.
The Conference favors the adoption by Congress of the plan
contained in the following Sections, p to ip inclusive, for the
purpose of strengthening and stabilising railroad credit of pro¬
tecting the interest of the investing public and of promoting, in
the highest degree both legal and moral accountability upon the
part of railroad directorates and of railroad executive officers,
and of bringing about as promptly as practicable the consolida¬
tion of existing railroads into such number of competitive sys-
24
tenis, ozvned and operated by eompanies subjeet as corpore
federal jurisdiction, as shall be found to be in the publie
Statutory Rule of Rate Making
Section 9. The Conference recommends that a st
rule be enacted by Congress requiring that railroad ra
fares, to be established by public authority, shall be d
to yield the railroad companies in each traffic section
United States (as shall be designated by Federal aut
aggregate revenue sufficient to produce, after proper pr
has been made for renewals and depreciation, a net
(which shall be available for interest and dividends) of 1
than six (6) per cent, per annum upon the aggregate fai
of the property of the railroads devoted to the public
in each of the several sections. The items of "renev^
depreciation" shall also include unproductive improv
not properly chargeable to investment account and
which no capital or capital obligations shall be issue
Temporary and Permanent Vcdnation as a Basis fo
Making
Section 10. The net return to be obtained by the ra
as a result of the enforcement of a statutory rule
making shall be based upon a fair value of the railroac
erty devoted to the public service, as ascertained by the
state Commerce Commission, such valuation to include
sideration of physical property, earning power, and sucl
elements as may be proper in determining fair value.
Until such valuation shall have been determined, th
ation to be adopted for the railroads in the United Stat
whole, and by traffic sections, shall, for the purpose of 1
the rates that yield the aggregate net return to be provi
statute, be their aggregate railway property inve
accounts.
For the purpose of ascertaining excess income, the
tion of any individual railroad system, pending the com
of the said Federal valuation, upon which it shall be e
to retain six (6) per cent, per annum, shall be that pro]
of the aggregate property investment accounts of all tl
25
roads of the traffic section in which it is located, which its
average annual railway operating income (computed for the
period and in the manner prescribed by the Federal Control
Act of March 21, 1918) bears to the aggregate annual railway
operating income of all the railroads of such traffic section,
computed in the same manner; provided, first, that if the use
of the above stated formula shall produce a valuation of any
particular railroad system, greater than the amount of its aver¬
age property investment account for the three year period
ending June 30, 1917, the amount of such property investment
account shall be used instead of the valuation derived by the
formula ; and provided, second, that nothing herein contained
shall operate to reduce the railway operating income which
any particular railroad system shall be permitted to retain
below its annual average railway operating income, or com¬
pensation as computed or allowed to it under the Federal
Control Act of March 21, 1918. To such valuation as shall be
derived for any railroad system in the manner above stated,
there shall be added all increases of property investment made
by such system after June 30, 1917.
The Federal Transportation Board shall be vested with
the same power to make such specific adjustments, in partic¬
ular cases, as it may deem requisite and equitable, as is con¬
ferred on the Director General of Railroads under the Railroad
Control Act, March 21, 1918.
Creation of Individual Railroad Contingent Fund
Section II. All railroad companies engaged in interstate
commerce shall be required to observe the following regula¬
tions under the direction of the Federal Transportation Board:
(a) Whenever the net railway operating income of a rail¬
way company available for the payment of interest and divi¬
dends (after provision has been made for renewals, deprecia¬
tion and unproductive improvements as defined in Section 9)
shall exceed six (6) per cent, upon the fair value of its prop¬
erty, or upon its temporary valuation as determined by Section
10 (the "fair value of property" being used in this section to
include both temporary and permanent valuation) one-half of
the said excess railway operating income above six (6) per
26
cent, shall be placed in a contingent fund of the company until
such amount to six (6) per cent, of the fair value of the com¬
pany's property. The remaining half shall be turned over to
a general railroad contingent fund as provided by Section 12.
Maintenance of Individual Railroad Contingent Fund
(b) A railroad company may draw upon its own con¬
tingent fund whenever, and to the extent that, its said annual
railway operating income shall fall below six (6) per cent, of
the fair value of the property as determined by Section 10;
but whenever the railroad's contingent fund is thus drawn
upon, the fund shall be replenished from the company's share
in subsequent excess earnings until the fund is restored to six
(6) per cent, of the fair value of the company's property.
Distribution of Excess Operating Income
(c) When any individual railroad company earns an
annual railway operating income of six (6) per cent, upon a
fair value of its property and has established and is maintain¬
ing a contingent fund of its own amounting to six (6) per
cent, on the fair value of its property, the company shall turn
over to a general railroad contingent fund, two-thirds of the
company's railway operating income in excess of six (6) per
cent., the remaining one-third of said excess to be retained by
the railroad company for distribution among its stockholders
or for such other lawful purposes as it may determine.
Creation of General Railroad Contingent Fund
Section 12. There shall be established a general railroad
contingent fund for the purpose of making good any deficiency
in any year below six (6) per cent, upon the aggregate fair
value of the properties of the railroads of a section. The
amount of such deficiency shall be drawn from the general
railroad contingent fund for distribution among the railroads
in any traffic section, upon the basis of the gross earnings
from railroad operations of the railroads within such section;
and if the result of this distribution causes the railway operat¬
ing income of any individual railroad to exceed six per cent,
this excess shall be applied as provided in Section 11.
27
Maintenance of General Railroad Contingent Fund
Section 13. In any year, following the completion of the
mergers hereinafter provided for, when the yield from rates
established by Federal authority equals six per cent, upon the
aggregate fair value of the property of the railroads in any
traffic section, and the total contribution made in any such
year to the general railroad contingent fund amounts to less
than five per cent, of the aggregate net earnings from opera¬
tion in that traffic section, then the railroads in that section
shall contribute to the general contingent fund the sum neces¬
sary tô bring the contribution for the year up to five per cent,
of the aggregate net earnings from operation—each company
being required to contribute for this purpose pro rata to its net
earnings from operation for that year.
Management of General Railroad Contingent Fund
Section 14. The general railroad contingent fund shall
be managed by trustees appointed by the Federal Transporta¬
tion Board from men nominated by the railroad companies.
Moneys turned over to the fund shall be invested by the
trustees in United States Government securities, or shall be
deposited in the Federal Reserve Banks.
Amount of General Railroad Contingent Fund
Section 15. The general railroad contingent fund shall
be accumulated by its trustees until it amounts to $750,000.000,
and be maintained at that sum for the purpose hereinbefore
provided, and any excess thereafter acquired shall be used
when and as directed by the Federal Transportation Board for
the development of the railroad transportation system of the
country, or for the increase of transportation equipment and
facilities, or for the pro rata reduction of the capital or capital
obligations and property investment accounts of the railroads,
or, if so ordered by Congress, the excess shall be turned over
to the Treasury of the United States.
Railroad Reserve Fund
Section 16. To facilitate the prompt stabilization of rail¬
road credit and such consolidation of railroads as the Federal
28
Transportation Board shall decide to be in the public interest,
it is recommended that Congress create a railroad reserve fund
and appropriate for this purpose the sum of $500,000,000. This
fund shall be administered by the Federal Transportation
Board which shall invest it in United States bonds or notes,
the interest accruing from such bonds or notes, or the earnings
upon the proceeds thereof, to be paid annually into the United
States Treasury. In case, at any time during the first ten years
after the enactment of this legislation, the general railroad con¬
tingent fund, provided by Section 12, shall not be sufficient to
make good deficiencies as described in that section, then the
Federal Transportation Board shall pay into the general rail¬
road contingent fund, as far as the Board's available funds
permit, the amount necessary to enable the trustees of the
general railroad contingent fund to make over to the railroads
the sums due them for that year under the stipulations of said
Section 12; provided, however, that any sums so paid by the
Federal Transportation Board shall be repaid with interest
by the trustees of the general railroad contingent fund from
contributions received from the railroads after the general
railroad contingent fund shall reach and be maintained at the
amount of $500,000,000.
Grouping and Consolidation of Existing Railroads
Section 17. The consolidation of railroads into a limited
number of strong competitive systems under conditions to be
prescribed by Congress is believed to be in the public interest
and should be carried out as promptly as practicable, in accord¬
ance with plans to be submitted by the carriers and approved
and announced by the Federal Transportation Board. In order
to bring about this consolidation of railroad companies, juris¬
diction of which has been perfected as contemplated in Section
4, the Federal Transportation Board shall determine for itself
and announce the grouping of railroads in case such railroads
have not within a reasonable time submitted plans for its
approval for consolidation in any given section and the Board
deems such consolidation to be in the public interest.
If the consolidations thus announced by the Transporta¬
tion Board shall not have been affected or well advanced
29
within five years after announcements the Board should be
given power to carry through such mergers by compulsory
proceedings, if in its judgment the public interest would
be thereby advanced.
Government Directors on Railroad Boards
Section i8. Any railroad corporation, that may be allowed
by the Federal Transportation Board to acquire the securities
or properties of other railroad companies and to form a consol¬
idated railroad system under the jurisdiction of the United
States, shall be required by the Board to organize with a
Board of twelve directors, one of whom shall be a representa¬
tive of the employes of the system and nominated for that
position by such employes, and three of whom shall be selected
by the Federal Transportation Board to represent the princi¬
pal interests involved in the territory served by such system.
The board of directors thus selected shall make such regular
and special reports to the Transportation Board as that Board
may require.
Temporary Aid to Certain Railroads Pending Consolidation
Section 19. Should it be found by the Transportation
Board to be in the public interest to protect the credit and
financial operations of some railroads pending the completion
of the railroad consolidations herein contemplated, it is recom¬
mended that one or the other of the following plans be
adopted :
1. That the Transportation Board be endowed with
power, and granted the necessary funds to extend
credits to such railroads during the period of consoli¬
dation ; or
2. That the existing machinery of the War Finance
Corporation be employed for this purpose.
If the second recommendation is adopted, appropriate leg¬
islation should be enacted to enable the War Finance Corpo¬
ration to advance funds to railroads under terms that may be
approved by the Federal Transportation Board.
Compulsory Federal Incorporation
FOR
Consolidated Railroad Systems
BY
ALEX. W. SMITH, Atlanta, Ga.
Opinions of learned counsel of the National Association
of Owners of Railroad Securities have been widely circulated
by that association declaring that there is no constitutional
method for the creation of federal railroad corporations and
compelling transfer to them of their existing properties with¬
out the consent of their stockholders, or of the States creating
them, and thus forcing abdication of their corporate obliga¬
tions and duties under their State charters. When we con¬
sider that this proposition rests on the premise that separate
and distinct federal corporations are to be created and that
they are to take over by transfer, either through negotiation
or condemnation, the assets of the existing railroad companies,
the legal conclusion of the eminent lawyers who have fur¬
nished or endorsed these opinions is unquestionably sound.
It must be understood at the threshold, therefore, that the
recommendation of the Transportation Conference involving
compulsory federal incorporation of the existing interstate
carriers does not take issue with the legal conclusion above
referred to, based, as it is, on the premise above stated.
The country is confronted, however, with the absolute
necessity of the federal government being vested with full
jurisdiction of interstate carriers in their corporate functions
in addition to the constitutional jurisdiction now exercised by
Congress over the activities of these carriers in connection
with interstate commerce. Unless this is accomplished, the
proposition that the government shall authorize the consoli¬
dation of these existing carriers into large systems which will
necessarily interfere with competition in local territory be-
32
comes a legal impossibility, because it will run counter to con¬
stitutional inhibitions in a large number of States prohibiting
such consolidations by the corporations they have severally
created. Being creatures of the State, they are necessarily
subject to the control of its constitutional requirements.
Aside from the insuperable legal difficulty thus indicated,
it is a wholly impracticable thing to transfer and transplant
the assets and liabilities of the existing corporations engaged
in interstate commerce into new corporations created for the
purpose. Take the Southern Railway Company as a concrete
example. It is a system made up of more than one hundred
separate railroad corporations. It owns some of them ; it con¬
trols others under long leases, and others by majority stock¬
holding. It has effected their merger by all the known methods
of putting one railroad under the operative control of another.
Their obligations, under the kaleidoscopic arrangements it has
made in bringing the system together, could not be trans¬
formed and lifted out of the several State corporations and set
down in a new federal corporation. As a business proposition,
it would be impractical.
It is respectfully submitted, however, that the problem is
not insoluble, for there lies on the surface a method to accom¬
plish the desired results in a perfectly simple way, viz. : The
passage by Congress of a general federal incorporation act
along lines parallel to the laws in corporating national banks
and nationalizing State banks. This is the basic idea of the
recommendation of the Transportation Conference on this sub¬
ject, and the idea has been developed in the draft of the Reme¬
dial Railroad Law, which will be presented by the representa¬
tives of this conference.
If Congress should adopt this bill existing railroad com¬
panies engaged in interstate commerce and operating under
State charters could take out certificates of incorporation, to
be issued as therein provided, under which they would become
federal, or national, corporations without destroying their cor¬
porate identity and existence ; without changing their officers
and stockholders ; and without disturbing the title to their
assets or the integrity of their existing liabilities ; and the con¬
tinuity of their business would not be interrupted.
The authorities conclusively establish that such a proceed-
33
ing results in a mere transition and not a new creation, and
does not destroy previous identity or corporate existence, and
simply results in a continuation of the same body, with the
same officers and stockholders, the same property, assets and
business under a changed jurisdiction. Any interstate rail¬
road thus nationalized would remain one and the same rail¬
road, and would go on doing business uninterruptedly, under
its existing liabilities and contractual privileges and obliga¬
tions.
The leading case on the subject arose out of the conver¬
sion of a State bank into a national bank. That case finally
reached the Supreme Court of the United States, and is cited
as follows :
Claggett V. Metropolitan National Bank, 4 N. Y. Supp. 15;
(Same case), 56 Hun., 578;
(Same case), 125 N. Y., 729;
(Same case), 141 U. S., 520.
Suit by holders of some of the bills of this bank issued by
it as a State bank and outstanding when it became a national
bank under the act of Congress. At the time of the conversion
of the bank it deposited with the Superintendent of Banks of
the State of New York a sum of money equal to its outstand¬
ing circulation, and the Superintendent of Banks pursuant to
the State law published notice that the circulating notes of said
bank would be redeemed at par at any time within six years
from the date of notice, and thereafter cease to be a charge on
the redemption fund placed in the hands of the superintendent
for that purpose. The bank notes sued on were not presented
for redemption within the time limited and the bank (then a
national bank) was sued to recover their value, and plead ex¬
emption from liability under Chapter 236 of the New York
Laws of 1859, as amended, on the ground that its liability
ceased because of the deposit of the redemption fund, the
notice of the Superintendent of Banks, and the failure to pre¬
sent said bills for redemption within the time limited.
The court held that the act of 1859 was passed in order
to facilitate the liquidation of State banks, and was not in¬
tended to affect banks whose business was to go on continu-
34
ously. That if the Metropolitan Bank did close business by
becoming a national bank the act of 1859 would be applicable
and the defense would be unanswerable.
It thus appears that the exact question involved was : Did
the conversion of the State bank into a national bank close its
business ?
The court held it did not, and cited the case of Bank v.
Phelps, 97 N. Y., 44, where it was held that:
"The general scheme of the national banking act is
that State banks may avail themselves of its privileges,
and subject themselves to its liabilities, without abandon¬
ing their corporate existence, without any change in the
organization, officers, stockholders, or property, and with¬
out interruption of their pending business or contracts.
All property and rights which they held before organizing
as national banks are continued to be vested in them under
their new status," and, "although in form their property
and rights as State banks purport to be transferred to
them in their new status of national banks, yet, in sub¬
stance, there is no actual transfer from one body to an¬
other, but a continuation of the same body under a change
jurisdiction. As between it and those who have con¬
tracted with it, it retains its identity, notwithstanding its
acceptance of the privilege of organizing under the na¬
tional banking act."
"When that case was decided in this court, Gilbert, J.,
whose view is indorsed by the Court of Appeals, said (16
Hun., 158) : 'The change from a State to a national bank
did not destroy either the existence or the identity of the
corporation. Such change conferred new franchises, and
imposed new duties and liabilities, on the corporate body
in addition to those which it previously had, but nothing
more There was a slight change in the corporate name,
but the new name designated the same entity. In short,
the legal effect of the change was merely the acceptance of
a new charter by the corporation. It remained to every
intent and purpose as it did before, though its name was
altered, its new charter was granted by the national in¬
stead of the State Legislature.'
35
"The necessary result of this view of the law is that
the change or conversion of the Metropolitan Bank to the
Metropolitan National Bank did not result in a close of its
business. It remained the same bank, and went on doing
business continuously; and a mere passing of a resolution
that it intended to close business could not have the eflfect
now claimed, as the intention manifestly was simply to
prosecute its then "pending business,' and to conduct busi¬
ness thereafter under the changed jurisdiction."
The defense in the Claggett case, supra, was stricken and
the plaintiff recovered.
This judgment was affirmed at the general term (56 Hun.,
578) and by the New York Court of Appeals without opinion
(125 N. Y., 72g) and by the Supreme Court of the United
States (141 U. S., 520). In thus affirming the Supreme Court
says :
"This decision is so manifestly correct that it needs
no argument to sustain it."
The affirmance of the case of Claggett v. Metropolitan
Bank is controlling on the subject, but several of the courts of
last resort in States other than New York have ruled the same
way.
"Under the provisions of act 1865, c. 144, a State bank
organized as a national bank in June, 1865 ; and in 1874 it
sued out, in its old corporate name a scire facias on a judg¬
ment obtained in 1864. Held, that the new bank was sub¬
stantially the plaintiff, and, as such, was therefore liable
for costs in case of judgment for the defendant."—Thomas
V. Farmers' Bank, 46 Md., 43.
"When a State bank reorganizes as a national bank,
under the act, 13 Stat. 112, c. 106, Sec. 44, the change does
not relieve it from any former liabilities to individuals
with whom it had dealings. It passes from one jurisdic¬
tion to another ; but its identity is not thereby necessarily
destroyed. It remains substantially the same institution
36
under another name. The transition does not disturb the
relation of either stockholders or officers of the corpora¬
tion, nor enlarge or diminish the assets of the institution.
These all remain the same under the national as they were
under the State organization."—Coffey v. National Bank,
46 Mo., 140, 2 Am. Rep., 488.
The bank neither lost any of its assets nor escaped any of
its liabilities by the change. The change was a transition, and
not a new creation. Coffee vs. National Bank, 46 Mo., 140; 2
Am. Rep., 488. See also ;
Grocers' National Bank v. Clark, 48 Barb., 26;
Thorp V. Wegefarth, 56 Penn., 82.
"A national bank is responsible for all the liabilities
incurred by it while a State institution." Kelsey v. Na¬
tional Bank of Crawford Co., 6g Pa. St. (19 P. F. Smith),
426.
The principle thus settled by the authorities is applicable
alone to corporate characteristics and is not in the least affected
by the character of the business transacted, save only that the
business must be such as to come within some of the delegated
powers of the Congrss and thus confer jurisdiction upon it to
grant corporate power to transact such business.
Since no one questions the power of Congress to incor¬
porate interstate railroads, it follows that it can authorize the
conversation of such a railroad company from a State corpora¬
tion into a national corporation. When it does so, the princi¬
ple referred to necessarily applies. By applying it as indicated
in the bill it presents the recommendation of the Transporta¬
tion Conference that action be taken by Congress to bring all
interstate railroads as corporations under the jurisdiction of
the United States becomes simple and practical.
While Congress has no power to compel a State bank to
become a national bank, because a State bank is no part of the
fiscal machinery of the Nation, it is submitted that it does
have the power to compel a railroad system that is now en¬
gaged in interstate commerce to become a federal corporation.
37
The power of Congress to create a bank at all was con¬
tested until it was settled by the Supreme Court that such
power was implicit in the power delegated to Congress to issue
money and handle its finances. Jurisdiction of Congress over
a railroad engaged in interstate commerce is delegated in a
specific, plain, explicit, all-inclusive, and plenary paragraph
of the Constitution committing to it control over interstate
commerce and all its instrumentalities.
If it be true that Congress has only implied power to char¬
ter a bank as a piece of machinery in its fiscal system, it must
be true that if Congress finds in the development of transporta¬
tion that State lines have been wiped out, and that commerce
disregards artificial obstructions, and that necessary machinery
in carrying on interstate commerce is a railroad corporation,
the express grant of exclusive jurisdiction over such commerce
carries with it the power to create such a corporation.
If that is true, can it compel a State railroad company en¬
gaged in interstate commerce to become a federal corporation ?
No one questions its power to create such corporations, ab
initio.
It has been decided by the Supreme Court of the United
States that no single State can create a railroad company and
endow it, as a matter of law, with the right to operate its lines
in any other State. Indiana and Ohio tried to do this con¬
jointly. They created two railroad companies, each endowed
with the same name, and having the same officers, directors
and stockholders. The tracks owned by these two companies
came together at the State line. Every effort was made to
create a single corporation with the right to do business in
States. The Supreme Court held that there were two separate
and distinct corporations and that in the very nature of the
case, one State could not give the power to its creature to go
into the domain of another sovereignty of equal dignity and do
business there, except by permission of the other State. Hence
it is that all roads that cross State lines do business outside
their native State by comity between the States. Comity is a
privilege merely and not a legal right. (O. & M. R. R. Co. v.
Wheeler, i Black, 286).
The Southern Railway Company was able to merge its
constituent lines running through eleven States by reason of
38
the voluntary, but not necessarily concurrent, action of the
several States and their corporate creatures. First, the States
either by special acts or by general laws gave statutory per¬
mission for the railroad corporations to combine. Second, all
constituent corporations had to take appropriate corporate
action, through stockholders and directors according to by¬
laws and charter provisions, authorizing the particular step
necessary to a merger. So that each of the constituent cor¬
porations was put into the combination by virtue of its own
action taken by permission of its creator. Thus, by virtue of
the express consent of the several corporations and of the ex¬
press legislative sanction of the eleven States in which the
Southern Railway system operates, something was created
different from the aggregate of corporate powers previously
vested in the subsidiary companies. The Virginia corporation
known as the Southern Railway Company because an instru¬
mentality of interstate commerce, not by virtue of comity
among these eleven States, but because it crosses the lines of
said States and hauls interstate commerce through them as a
single entity and by virtue of the action of each of the States,
and of the concurrent or supplemental action of the owners of
each of the properties. Whether they intended it or not, it is
a fact that every one of those States, and every one of those
corporations, by such action, voluntarily submitted themselves
to the jurisdiction of Congress through its exclusive control of
interstate commerce, whenever it sees fit to act.
Congress has never exercised that power, but with all due
respect to the eminent counsel who have raised legal objection
to compulsory federal incorporation, no satisfactory reply has
yet been made to the legal conclusion involved, viz., that Con¬
gress has the power, if it chooses to exercise it, to say that
every system of railroads engaged in interstate commerce by
virtue of consolidating constituent lines (and no other such
system can legally exist unless originally created by Con¬
gress); "You are now an instrumentality of interstate com¬
merce, and in the development of the commerce of this country
it has become necessary that full jurisdiction of your functions
shall be vested in the federal government. Therefore, you are
required to transfer your allegiance from the State of your
incorporation to the United States of America, in order that
39
the federal government may take such steps hereafter in the
control of your business and in the promotion of the interests
of interstate commerce as from time to time it sees fit." Con¬
gress could then establish consistent and uniform control of
all systems of interstate carriers.
If federal incorporation is made permissive only it is ques¬
tionable whether Congress will not be embarrased by some of
the lines declining to accept federal charters. Many of them
have tax exemptions and special charter privileges which they
would hesitate to imperil. Voluntary action would certainly
destroy these privileges, while, under compulsory action, these
property rights might be preserved under other provisions of
the Constitution not necessary to be here elaborated.
It should be repeated that this argument is confined to
those lines which, by voluntary action, have been consolidated
into interstate systems. They have thereby waived the right
(if it exists) to object to Congress doing anything with them
that it may desire to do if they expect to continue in interstate
commerce.
.^s to the necessity of federal incorporation, there does not
seem to be any room for argument. If the federal government
is to vise and control the issuance of railroad securities, upon
what principle, without the voluntary cooperation of the State
corporation, can Congress interfere with its issue of stocks and
bonds expressly authorized under its State charter? They may
be not necessarily connected with its interstate commerce.
Their proceeds may be needed for other purposes. Many rail¬
road corporations engaged in business other than transporta¬
tion. The exercise of control over the securities of a State
corporation by Congress is much harder to justify under exist¬
ing law than the power to compel federal incorporation by
interstate systems. The basis of the securities, especially the
original issues, is the charter of the constituent companies,
and not of the holding or operating company. Rights in these
are vested and protected by the federal Constitution itself.
But when the corporation operating the interstate system is
compelled to transfer its allegiance to the federal government,
subsequent issues of its capital stock and bonds may be regu¬
lated as Congress directs.
40
The contractual relation between a State and its corporate
creature presents no obstacle to compulsory federal incorpora¬
tion of interstate systems hereinbefore described, because the
State has consented in advance that that may happen. When
the State gave permission to its corporation to become a part
of the instrumentalities of interstate commerce by virtue of its
legal merger into an interstate system, it relinquished its right
to object to any sort of control over that corporation which
Congress might choose to exercise. Of coimse, until Congress
exercises control the allegiance of the corporation remains
with the State that created it. The argument is that both the
States and the corporations, by virtue of the necessities of the
consolidation that produced the interstate system, have con¬
tracted in advance that Congress may exercise jurisdiction
over this legally established instrumentality of interstate com¬
merce if, in its discretion, such action will promote the inter¬
ests of interstate commerce. Such jurisdiction has been exer¬
cised in numberless ways. If, without destroying the corpora¬
tion itself, it may be converted from a State corporation to a
federal corporation, there is no legal reason why Congress may
not constitutionally require it to make the change.
41
RE-ESTABLISHMENT OF
RAILROAD CREDIT
By PAUL M. WARBURG
The National Transportation Conference, in approaching the
subject of remedial railroad legislation, was guided by the funda¬
mental thought that transportation should pay its own "board";
i. e., that the yield of transportation rates, both freight and pas¬
senger, should be suflBcient to pay for the transportation cost, in¬
cluding a reasonable return on the value of the railroad properties
devoted to the public service. If by paying higher prices for all
necessaries of life the consumer bore the cost of increased wages
involved in the cost of production of these articles, there is no
reason why, quite arbitrarily, in the case of freight charges the
principle of cost should he abandoned. There appeared no reason
why this cost of transportation, forming a fraction only of the
total cost of things, should be furnished at a loss, to be made good
by taxation levied indiscriminately from all instead of having the
transportation paid for by those directly served. There is no
reason why the man paying a high rent for dark and narrow quar¬
ters in crowded city tenements should pay the transportation for
the commuter who lives in healthier and more commodious quar¬
ters and pays a lower rent. There would be no reason why a fairly
self-sufficient farmer should pay taxes in order that the manufac¬
turer may receive coal or ores at a transportation charge below cost.
The problem of raising through taxation the gigantic sums re¬
quired by the country, for interest charges and other matters affect¬
ing the national welfare, is perplexing enough in itself, and I be¬
lieve the Transportation Conference made no mistake in assuming
that the public interest would best be served by not unnecessarily
increasing the burden of taxation by arbitrarily adding to it defi¬
ciencies caused by transportation to be furnished below cost.
42
In the opinion of the Conference, it is the object of remedial
legislation to establish conditions under which the carriers as groups
are certain to receive a return sufficient to cover the cost of opera¬
tion, including a reasonable adequate return on the fair value of
their properties; while, on the other hand, such legislation must
safeguard the public's interests in assuring adequate service at
charges which are not excessive. Transportation must be furnished
at the lowest possible price, but under conditions generous enough
to preserve a healthy spirit of competition and enterprise imperative
for the further development of the country.
The first question to be determined by the Conference was. What
shall be considered a fair value of the railroads ? It is evident that a
physical valuation, that is, reproduction value of the railroads, if
taken as the sole standard, for many reasons, which it is unneces¬
sary to elaborate, would produce an entirely misleading and un¬
satisfactory result. As one of the experts stated to our Conference,
"It isn't the cost of some tons of dirt dumped somewhere that con¬
stitutes the value of a railroad investment. It is the question of
whether or not they were dumped intelligently and what they
produced after they had been dumped."
The Conference understands that it is the purpose of the Inter¬
state Commerce Commission in the near future to define what prin¬
ciples it will apply in establishing the value of a railroad as a whole.
It is believed that such definition will provide that a consideration
of the average earning power of a railroad, for a given period of
years, should be given at least the same weight as the physical value
of a railroad, and that the Commission's definition will take into
account such other elements as may be proper in determining fair
value, leaving room for adjustments in individual exceptional cases.
The report of the Conference assumes that a definition on these
lines will be given in the near future by the Interstate Commerce
Commission, or that, failing that, a proper direction will be laid
down in the law.
For the purpose of discussing the final stage of the plan the
Conference assumed that the value of the railroads will be satis¬
factorily determined under due consideration of these various
factors, and that a "final valuation" will have been established.
The second question before the Conference then was. What shall
constitute an adequate return on this "final valuation."
It has been the consensus of opinion of members of the Con¬
ference that if private capital is to enter freely upon the venture
43
of further developing the railroads, and if railroad credit is to be
re-established on a solid basis of genuine confidence, that 6 per cent,
on the final valuation plus a modest share in earnings in excess of
this percentage would constitute the minimum required. The
chances for profitable investments in other industries are so much
more attractive that the offer of a lower return would he certain to
defeat the very objects to be accomplished by remedial legislation.
The plan, therefore, proposes that a statutory rule be enacted by
Congress requiring that rates and fares to he established by public
authority shall be designed to yield the railroads of each traffic
section of the United States revenue sufficient to produce, after
proper provision for renewals and depreciation, a net return
available for interest and dividends of not less than 6 per cent, on
the aggregate final valuations of the property of the railroads de¬
voted to the public service in each of the several sections.
It is furthermore proposed that each railroad netting earnings in
excess of 6 per cent, on its final valuation shall turn over one-half
of such excess into a contingent fund of its own and the other half
into a general contingent fund, until its own contingent fund
amounts to 6 per cent, on the fair value of its property, after which
(as long as this company contingent fund is maintained at 6 per
cent.) two-thirds of the railroad company's earnings in excess of 6
per cent, would go into the general contingent fund, while one-
third would be retained by the railroad company for distribution
amongst its stockholders or for such other lawful purposes as it may
determine.
The payments into the general contingent fund, it is proposed,
shall be accumulated until it amounts to $750,000,000, and be
maintained at that sum, and any excess shall be used when and as
directed by the Transportation Board for the development of the
railroad transportation system of the country, for the increase of
transportation equipment and facilities, or for the pro-rata reduc¬
tion of the capital obligations and property investment accounts
of the railroads; or if so ordered by Congress, the excess shall he
turned over to the Treasury of the United States.
In formulating this plan the Transportation Conference was
guided by the thought that in order to attract capital for the future
development of our transportation system it was neither desirable
nor necessary to erect a structure of speculative investments, but
rather to lay so strong a foundation for railroad securities that they
would prove attractive to the investor on account of their solidity
rather than on account of their speculative possibilities.
44
The plan does not propose to give railroad security holders much
more than they get today ; the increase in return necessary to bal¬
ance the very delicately poised scales, when measured in dollars, is
comparatively insignificant. The benefits of the plan would result
primarily from the better organic structure of the whole system
and from the greater confidence that it would inspire.
Through the contemplated consolidations the inequalities of dis¬
tribution of earnings and profits are removed and the rate-making
problem is simplified, greater clarity and a definite assurance are
provided as to what once and for all shall be the return to which
as a matter of acknowledged right private capital shall be entitled;
and, finally, the machinery of the contingent funds is designed to
give such solid stability to railroad credit that private capital may
be expected to be satisfied with the prospect of an assured though
not over-generous return—but one that promises to be free from
the vicissitudes and uncertainties of the past.
The realization of the power of practically unrestricted regulation
vested in the government naturally engendered the thought that pri¬
vate capital could not possibly be expected to venture freely into the
field of railroading unless it were assured that this power of regu¬
lation could not be wielded in a manner to reduce the return beyond
a reasonable limit.
This consideration led to the demand, by some of the most
prominent students of the question, for a guarantee of a minimum
return to be granted by the very government that exercises the
power of regulation and of determining the return. Serious fears
are, however, entertained by others lest the granting of such a
guarantee might lead to incompetence on the part of individual
railroads, while on the other hand it is apprehended that the in¬
curring of a direct liability on the part of the government ulti¬
mately might lead to direct government operation, a result abhorred
by the vast majority of the people.
It appears to be the general desire of the country to see the
government withdraw from active business as fast and as far as
possible, and the Transportation Conference plan proceeds on this
hypothesis. It avoids direct guarantees given to any individual
railroad. It recommends a rate-making structure producing no less
than 6 per cent, upon the aggregate final valuation of all the rail¬
roads of a traffic section. It assures the railroads against failure
on the part of the rate-making body to produce the minimum 6 per
45
cent, yield to be prescribed by the statute; but it leaves the rail¬
roads free to compete within this assured statutory minimum return
for a section. Conceivably one railroad might secure a return of
6^/2 per cent, on its valuation, while the other might secure 5^2 per
cent. It is left to the energy, ability and spirit of enterprise of
each railroad to secure its maximum share of the aggregate assured
for all. The statute would protect the carriers as a group, not as
individual corporations, and this, it is believed, is one of the
strongest features of the plan.
We must contemplate the project, however, in its completed
form, and this would show us in each section a small number of
competing consolidated railroads; the weak sisters having been
merged with some of the so-called strong companies. In these cir¬
cumstances a 6 per cent, rate structure for a traffic section is not
likely to leave discrepancies between competing companies as
marked as in the past. It would seem likely that most of the con¬
solidated railroads would come reasonably near earning their full
share of the minimum.
It should be borne in mind, however, that such minimum rea¬
sonable return is to be figured on the valuation, as finally to be
determined by the Interstate Commerce Commission, and not on
actually outstanding securities. In the case of conservatively
managed and strong railroads the final valuation no doubt will in
some cases produce a value in excess of the present capitalization;
in others the final valuation may prove to be much lower than the
capitalization—indeed, it may wipe out the entire stock and possibly
some of the bonds. The latter companies, it is to be assumed, will
be merged with the stronger companies by an exchange of securi¬
ties on a basis to be approved by the proposed Federal Transporta¬
tion Board, and presumably on a basis approximating the relation
established by the valuations, or they might first adjust their capital
and obligations by a process of reorganization. It is imperative that
the mergers result in establishing consolidated companies whose
stock will sell substantially above par, because any future plan of
rehabilitating railroad credit under private ownership and private
operation will fail unless the plan establishes for the railroad stocks
of the future values well above par and sufficiently attractive to
enable the railroads to finance themselves through sales of their
stocks on such scale as is necessary to preserve a proper proportion
between their outstanding bonded indebtedness and capital stock.
46
The strongest railroad would naturally furnish the best backbone
for a new consolidated system.
In hoping that the plan as proposed will furnish a foundation
strong enough to sustain the future credit of the railroads, the
Transportation Conference places great faith upon the effect to be
produced by the two contingent funds.
The company's own contingent fund to be maintained by each
railroad is devised for the purpose of protecting the carriers against
adverse circumstances unexpectedly affecting an individual company.
The general contingent fund, on the other hand, which is to
accumulate to an amount of $750,000,000, is designed to make good
a deficiency arising in any year when the rates fixed by the Inter¬
state Commerce Commission do not produce a minimum return of 6
per cent, on the aggregate final valuation of the railroads composing
a traffic section.
To illustrate, if the aggregate valuation of railroads of a section
amounted to $7,000,000,000, and if the earnings available for dis¬
tribution for interest and dividends during any one year amounted
to only 5 per cent., or $350,000,000, instead of the statutory mini¬
mum of 6 per cent., or $420,000,000, the deficiency of $70,000,000
would be taken out of the general contingent fund and would be
distributed amongst the railroads of the section on a pro-rata basis
of their gross earnings—the underlying thought being that, if the
rates had been fixed in accordance with the statutory rule, each
railroad would have earned so much more on its gross business. A
company having earned, including such contribution received from
the general contingent fund, in excess of 6 per cent, on its valua¬
tion, would be permitted to retain one-third of the excess, the other
two-thirds going back into the general contingent fund. Or in case
it had not yet completed its own contingent fund, one-half of the
excess over 6 per cent, would go into its own contingent fund and
one-half into the general contingent fund, in the same manner
as if these earnings had originally been made through rates aggre¬
gating the statutory minimum of $420,000,000.
The plan thus provides for two shock absorbers; one against ad¬
verse circumstances affecting individual roads, and the other against
miscalculations on the part of the rate-fixing body, or against unex¬
pected emergencies bringing about such reduction in tonnage or
such extraordinary conditions of operation as would render impos¬
sible a prompt readjustment through increases in rates.
47
It is of the greatest importance, however, that the investing public
should feel reasonably assured against such eventualities.
The weakness of the situation in the past was due to the fact that
•the Interstate Commerce Commission could neither know the true
value of the railroad properties nor what constituted an adequate
return, and thus was put in the predicament that if it granted
adequate rates to weak roads it would be over-feeding the strong
ones. It was not surprising that this lack of clarity with regard to
the rate-making basis had a very unfavorable effect on the public
mind. The shipper was ready to believe at all times that he was
the victim of e.xtortionate rates due to excessive capitalization and
over-generous return to the railroads. The obscurity as to values
and reasonable returns thereon stood in the way of the clear recog¬
nition of a just course, and, in the long run, created a hostile
attitude toward the railroads which resulted disastrously to rail¬
road credit.
Under the plan recommended the rate-making body would not
need to fear that adequate rates would place the strong roads in a
condition of excessive or unjustifiable affluence. When once the
valuations are definitely determined there cannot be any reasonable
objection to industrial enterprises earning a minimum of 6 per cent,
and a third of moderate earnings in excess of that limit. That
is less than would be required to satisfy any other industrial venture.
The rate-making body could thus act with greater independence,
knowing that two-thirds of the excess would go into a general con¬
tingent fund, designed to protect the general situation. The Inter¬
state Commerce Commission, moreover, would soon realize that the
general contingent fund would prove an invaluable protection for
the rate-making body itself, and that it would be wisdom on their
part to build it up as promptly as possible.
When once the contingent fund reaches the amount of $750,-
000,000 (which, on the basis of the tabulations made for the Trans¬
portation Conference, may be assumed to take place in less than
fifteen years) it is proposed that contributions to the fund bringing
its total above that limit could be used either for providing addi¬
tional transportation facilities for the benefit of the country (be
they equipment or permanent improvements) or for amortizing the
cost of the railroads. The latter process could be carried out by a
pro-rata purchase of obligations of the various railroads and by a
corresponding reduction in their property investment accounts. To
the extent that in this manner the property investment accounts
48
would be written down, transportation charges would be correspond¬
ingly decreased. Liberal earnings would thus strengthen railroad
credit and at the same time redound to the advantage of the whole
country.
While the contingent funds when completed will thus render an
invaluable service in safeguarding railroad credit, the plan would
show a fatal weakness in that it would not provide against the
emergency of the most critical years, being those immediately ahead
of us. During that period the contingent funds would as yet be
practically non-existent. For this reason the Transportation Con¬
ference, very reluctantly, has reached the conclusion that it is im¬
perative to recommend to Congress the establishment of a railroad
reserve fund of $500,000,000, to be placed in the hands of the
Transportation Board. From this fund it is contemplated such
sums are to be advanced to the general contingent fund as may be
necessary to make up deficiencies in case rates fixed by the Inter¬
state Commerce Commission fail to produce in any one year, during
the first ten years after the enactment of the proposed legislation,
the statutory minimum yield of 6 per cent, on the aggregate valua¬
tions of a traffic section and in case the funds in the general con¬
tingent fund are insufficient to make up the shortage. Such pay¬
ments from the Federal reserve fund would, however, be treated as
advances only ; they would be paid back with interest from railroad
contributions as soon as the general contingent fund had accumu¬
lated and remained at an amount of $500,000,000. It is obvious that
without such Federal reserve fund railroad credit could not be re¬
established to a degree sufficient to permit a generous development
of the railroads as required in the best interest of the country.
It is very important to bear in mind that this fund may be
drawn upon only in case rates determined by the Interstate Com¬
merce Commission should not yield the statutory minimum of 6
per cent, return for a traffic section, and that it is, therefore, entirely
within the power of the Commission, unless some unforeseen events
occur, to protect the situation and to avoid the necessity of pay¬
ments from this reserve fund into the general contingent fund.
But even if such payments should be made, they would be certain
to be repaid, because the plan provides that when the railroad con¬
solidations are completed a minimum of 5 per cent, of the annual
net earnings of all the railroads (that is, on the contemplated basis
of annual net earnings of approximately one billion dollars,
$50,000,000 per year) shall be paid into the general contingent
fund in any year when the carriers receive the statutory minimum
49
of 6 per cent. There cannot, therefore, be any doubt as to advances
being repaid in the end. For the period of transition, however, this
Federal reserve fund would form the keystone, without which the
main strength and benefits of the plan would be lost.
An appropriation of $500,000,000, even in the form of an abso¬
lutely safe loan to be repaid to the United States with interest, is
not likely, at first blush, to meet with a very cordial reception on
the part of Congress. But it would appear an almost paltry com¬
mitment as against the amounts involved in present guarantees and
advances. And if through the plan here proposed the present per¬
plexities could permanently be solved, it would appear anything but
an excessive demand. Indeed, it may be doubted whether the
amount of $500,000,000 may really be sufficient. Uay we ask,
therefore, that your Committoe give this feature of our plan their
most earnest consideration?
Perhaps I should say a further word of explanation concerning
the stipulation of compulsory contributions pro-rata to net earnings
on the part of all railroads to the general contingent fund. This
proviso is contemplated to go into effect only after the mergers
approved by the Transportation Board are completed. The under¬
lying thought is that as long as there are weak and strong roads the
contributions into the fund may be expected to be forthcoming
from the excess earnings of the strong roads. When once the
mergers are completed and the weak roads are absorbed by the
strong roads, there will be a greater equalization of earnings and,
conceivably at least, if all consolidated railroads earn their 6 per
cent, (and the rate-making body fixes rates providing no more than
the statutory minimum) there would not be any excess earnings
from which contributions into the general contingent fund could
be made.
It is thought that when that time comes it would not be any hard¬
ship for these large consolidated companies to pay into the general
contingent fund their pro-rata share (to the extent that excess earn¬
ings have not provided it) so as to make the total contrihution into
the fund 5 per cent, of the aggregate net earnings of a section, i. e.,
at present approximately $50,000,000 per annum.
Under the Conference plan the total increase which would go to
the railroads by the adoption of a 6 per cent rate-making basis is
figured to amount to about $137,000,000, and of this it has been
calculated that about $51,000,000 would go into the contingent
fund from excess earnings of the railroads as at present consti-
50
tuted, so that the total increase retained by the railroads would
only amount to approximately $86,000,000 per annum, on the basis
of the present standard return.
The Transportation Conference has not left unconsidered the
puzzling question of whether or not in the long run a return of 6
per cent, on the final valuation might prove to be too high or too low.
It has been suggested that it would be a mistake for Congress to
determine a fixed basis of return and that it should be left flexible.
Were the question left open, it is to be feared, however, that the
uncertainty of the past might continue to prevail and credit might
not be re-established. A definite assurance seems to be necessary
so that the stockholder and the bondholder will know for a certainty
what their position will be in the future. It has been suggested
that the law might contain a provision whereby within given periods
of, let us say, ten or fifteen years, upon the certification of the
Federal Eeserve Board as to the relative changes of values of secur¬
ities and of money, a revision might be made by the Transportation
Board of what should constitute an adequate return; the decisive
element being tliat no adjustments should be made which would
bring the average of then existing railroad stock so nearly down to
par that financing through further issue of stocks would thereby
become jeopardized.
While it is possible to insert a clause of this nature, and while
much is to be said in its favor, it was the feeling of the Conference
that a provision of this character would be very difficult to formu¬
late and might add to the complexity of the problem; that credit
would be more solidly established by providing a definite basis of
rate making, leaving it to the future, in case of need, to take care
of itself. It was thought that any fear that the arrangement might
turn out to be too favorable for the railroads might be disregarded,
inasmuch as after all it was within the power of the Interstate Com¬
merce Commission ultimately to keep the return pretty close to
6 per cent, on the actual value of the properties less the 5 per cent,
going into the general contingent fund, i. e., a net return of 5.70
per cent. If, on the other hand, the return should prove too mod¬
erate to attract new capital, the Interstate Commerce Commission
could meet the situation by greater liberality in rate making, or
Congress might step in and make the necessary adjustment.
It was also discussed whether any future saving in interest on
the funded debt should redound to the advantage of the country
at large or the owners of the railroads. In other words, if owing
51
to the better credit of the railroads they should be able to place
their new bonded indebtedness, or to refinance maturing obligations,
on a lower interest basis than 6 per cent., should the benefit of such
saving accrue to the stockholder ?
While if such a course were desired the statutory rate could be so
fixed as to yield 6 per cent, on the aggregate final valuation of the
railroad properties less their funded and fioating debts, and the
net yield available for the railroads in that case would have to
provide only for the dividends and not for the interest charges, such
change seemed unwise to the Conference for the following reasons :
According to the statement of the Interstate Commerce Com¬
mission for the year 1916, the interest paid (leaving aside amortiza¬
tion or discount written off and charged to profit and loss account)
was about $474,000,000 on about $11,000,000,000 of outstanding
funded debt, that is at the rate of approximately 4.30 per cent.,
and on this present basis the amount available for dividends
amounted to only $342,000,000 on outstanding stock of $8,250,-
000,000, or less than 4)4 per cent, on the amount outstanding and
approximately 6)4 per cent, on the dividend-paying stocks, which
amount to about 60 per cent, of all the outstanding stock, according
to the statement of the Interstate Commerce Commission.
These results were secured in a year when the return on the total
railroad property investment account was 5.90 per cent., the highest
on record, which almost equals the proposed future statutory rate-
making basis of 6 per cent., and is in excess of this return, if we
take into account the contribution to the general contingent fund,
which would reduce the 6 per cent, return to 5.70 per cent. net.
Under present conditions it is doubtful whether a substantial
number of railroads could sell large amounts of bonds on an interest
basis netting less than 6 per cent.; many, indeed, have recently
financed on a very much higher basis. It is to be assumed that, if
ever, it will take many years before maturing railroad bonds could
be renewed on a basis better than the present average charge of 4.30
per cent. In other words, as bonds mature and as more bonds are
issued, the position of the stockholder is likely to depreciate rather
than improve. Inasmuch, however, as the present condition of earn¬
ings and values of stocks and bonds is such as to have brought rail¬
road development to a standstill, it is clear that it would be fatal
to cut down the very limited opportunities that have been preserved
for the stockholder under the present plan. It is felt that it is the
minimum below which no attempt should be made to cut his chances.
52
Indeed, the plan may already have gone too far in this respect. As
has been stated before, if stocks of the consolidated railways do not
sell above par railroad development will come to a stop. And hope
for success in present circumstances is predicated upon the thought
that in each section there will be found some companies the
final valuations of which will exceed their capitalization, so that
the percentage return on their outstanding stock may be in excess
of the percentage return on the valuation. Against stocks and
bonds of such companies the securities of the weak sisters would
be exchanged on the basis of their respective valuations, and strength
accumulated in the past will thus be used to benefit and protect the
future.
The alternative would be a direct government guarantee of rail¬
road securities, which, if extended over $18,000,000,000 of stocks
and bonds, would tend most dangerously to depreciate our govern¬
ment credit. It is doubted whether under present circumstances a
5 per cent, government bond offered on so large a scale would sell at
better than par, particularly if it were subject to full taxation and
if every year—for additions, betterments and improvements—an
additional amount approximating $1,000,000,000 were issued.
The government could not today refund the outstanding obliga¬
tions of the railroads without paying a substantially higher interest
charge than the carriers pay today on the outstanding debt. If the
government guaranteed a certain minimum return on the stock of
the new Federal corporations of, let us say, 4V2 per cent., the rate-
making body would have to provide an adequate margin above that
in order to preserve the incentive of competition, and so as to safe¬
guard the liability incurred by the government. In other words, if
the government guaranteed per cent, the Interstate Commerce
Commission would have to try to establish rates providing 6 per
cent, in order to protect the government against all hazards. The
saving to the country would, therefore, be unimportant, while the
loss in the government's credit would make itself felt all along the
line.
It is barely possible that if consolidations should not materialize
on the basis of voluntary action on the part of the railroads in¬
volved, it may prove necessary to have the Transportation Board
itself organize new holding companies, with power to acquire by
condemnation proceedings the railroads to be merged into a consoli¬
dated concern, and that in order to make these mergers possible
such new Federal holding company would have to issue a stock
53
endowed with a government guarantee. Let us hope, however, that
such eventuality may be avoided.
The plan of the Transportation Conference has the distinct ad¬
vantage that within a reasonable number of years it will free the
government from any financial liability and will take it out of
actual business, while on the other hand plans contemplating indi¬
vidual railroad guarantees are considered by many as likely to lead
the government into direct and permanent railroad operation.
The Interval Düring Which Consolidations are Being
Effected and the Interstate Commerce Commission
is Completing Valuations
It is obvious that ample time must be given to devise and perfect
the contemplated consolidations and that a modus vivendi must be
found for the operation of the railroads during the interval. As
the Federal Eeserve Act provided for an Organization Committee
which was charged with the duty to divide the country into no less
than eight and no more than twelve districts, so our plan provides
for a Transportation Board that shall approve or determine the
number of consolidated systems and their groupings.
It shall give the railroads an opportunity, and all possible as¬
sistance, to carry them into effect. If the mergers cannot be per¬
fected by voluntary agreement, the Board, after five years, shall
have power to complete them by compulsory proceedings. The
Board shall also have power to sustain railroad credit pending this
period of consolidation.
But how are rates to be fixed and profits to be divided during the
interval when valuations are not yet completed and not available
to serve as a basis for rate making and division of excess earnings?
It is conceded that any basis during this period will have to be some¬
what arbitrary and cannot be entirely satisfactory. But the report
appears to have established a method as fair and equitable to all as
possible in the circumstances. As a general basis for rate making it is
proposed to use the aggregate property investment accounts of the
railroads of each traffic section, as at present carried by the Inter¬
state Commerce Commission. While it is admitted that these
property accounts, taken individually, in some cases are too high
and in others too low, it is generally assumed that considered as a
unit they may be accepted as furnishing a fairly accurate basis to
be used as a temporary yard-stick.
54
When dealiiiEf with individual roads, however, the often highly
arbitrary investment account cannot be safely accepted as a basis
for determining excess profits. The report, therefore, recommends
that for the purpose of ascertaining e.xcess income the valuation of
any individual railroad system, pending the completion of the final
valuation, shall be that proportion of the aggregate property invest¬
ment accounts of all the railroads of the traffic section in which it is
located which its average annual railway operating income (com¬
puted for the period and in the manner prescribed by the Federal
Control Act of March 21, 1918) bears to the aggregate annual rail¬
way operating income of all the railroads of such traffic section,
computed in the same manner.
In other words (taking entirely arbitrary figures for the purpose
of an illustration) if the aggregate property investment accounts
of all Eastern railroads amounted to approximately $7,000,000,000
and their total net railway operating income during the test period
amounted to $350,000,000, if a railroad company's net operating
income (standard return) in that period was $35,000,000, or 10 per
cent, of the total income, then, subject to the adjustment provided
in the plan, its earning valuation would be 10 per cent, of
$7,000,000,000, that is, $700,000,000, and the railroad company
would divide excess earnings above 6 per cent, on that amount, i. e.,
above $42,000,000. Discretionary power would be vested in the
Transportation Board to make adjustments in particular cases in¬
volving undue hardships. It is furthermore provided, first: that
if the'use of the above-stated method shall produce a valuation of
any particular railway system greater than the amount of its
property investment account for the three year period ending June
30, 1917, the amount of such property investment accounts shall be
used instead of the valuation derived by the formula; second, that
the use of the formula shall not operate to reduce the railway
operating income of any particular railroad system below its annual
average railroad operating income,* as computed under the Federal
Control Act of March 21, 1918-; third, that to such valuation as
shall be derived for any railroad system, in the manner above stated,
there shall be added all increases of property investment made by
such system after June 30, 1917.
It has been figured if the law as proposed went into effect, that
on a basis of one-third to the railroads and two-thirds to the general
•This proviso appeared as more than equitable in view of the fact that the
railroad had demonstrated Its ability to make these earnings upon a basis of
rates which have stood the various tests and were admittedly not too high, and
In some Instances have been decreed to be too low.
55
fund (after the individual contingent fund had been filled) the
result would be approximately as follows (in million dollars) :
Retained by
Railroads
Turned
Increase to
After Turning
Present
6% on Agere-
Over Two-
Increase
Into
Standard gate Inrestment
thirds to Gen.
to
General
Section
Keturn
Accounts
Increase
Ctg. B^und
Railroads Ctg. B und
Eastern
351
408
54
31)0
36
18
Southern
139
156
17
149
10
rv
Í
Western
402
468
66
442
40
26
895
] .032
137
981
86
51
To these figures there would have to be added the return of 6 per
cent, on additional investments (since June, 1917) not compensated
for by the present standard return, and such adjustments as the
Transportation Board would make.
In this manner a capitalization of earnings has been substituted
for the highly arbitrary basis of individual property investment
accounts. The only use of that account is made in this plan by
providing that where the temporary earning valuation is higher than
the existing property investment account, that account is to be
used as the basis for determining excess income.
It is believed that the provisions of the plan proposed by the
Transportation Conference will afford railroads during the ensuing
years of the interval a sufficient strengthening of their credit to
enable most of them to carry on their financial and physical opera¬
tions until the mergers are completed.
Where immediate financial assistance by the government is re¬
quired the report recommends that provision be made to enable the
Transportation Board, directly or indirectly, through the War
Finance Corporation, to extend temporary support to particular
systems.
I cannot help feeling that in the public mind a mistaken em¬
phasis generally is being placed both upon the effect of cost of
transportation upon the cost of living, and also upon the part played
by the cost of capital as a factor contributing to the cost of trans¬
portation.
If, quite arbitrarily, we assume that the cost of things produced
per year in the United States amounted to something like $60,000,-
000,000 or $70,000,000,000, the total cost of transportation would
amount to only 5 per cent, of the cost of all things produced. An
increase of 20 per cent, in the cost of transportation would, there¬
fore, represent an item of no more than approximately 1 per cent.
56
of the cost of things in general, even though in the case of certain
articles transportation constitutes a much larger share of the cost
of production. I cannot follow the theory propounded by some
that the cost of living would be raised to an extent equaling four
times the amount directly involved in the increased cost of trans¬
portation. If the price of coal rises due to increased M'ages both
in mining and transporting, why should one increase in wages have
a different effect than the other ?
It would be well for us, however, to bear in mind that in a period
during which the index prices for commodities show an increase of
SOO per cent., the rates charged for the transportation of passengers,
according to recent statements, increased only 40 per cent, and of
freight only 20 per cent., or, as it has been cogently expressed, "a
ton of any given commodity will at present purchase more transpor¬
tation than it could at any previous time."
Finally, when we remember that the annual increase in return
contemplated in our plan equals about one-tenth of the increase in
wages authorized by the railroads since the beginning of the war,
we cannot escape the conclusion that the adequate return to be
allowed to the investor plays only a comparatively unimportant part
in the whole situation.
May I venture to remind you, moreover, that it would be a mis¬
fortune if remedial legislation were passed which did not go to
the root of the evil—legislation of a palliative character, or that
was but temporary patchwork, and would leave unsolved a question
certain to grow increasingly difficult.
Twelve years ago a situation similar to the present railroad prob¬
lem existed with respect to banking reform. After the panic of
1907 there were numberless suggestions for monetary reform con¬
templating nothing but the patching up of the situation by new
sorts of note issues against government bonds or asset currency or
clearing house certificates. Successful financial reform, the bless¬
ings of which the country has enjoyed during these critical times
of war and stress, could only be accomplished after it was clearly
recognized that the remedy needed was one that would reach the
root of the evil, and not deal merely with its symptoms. It is sin¬
cerely to be hoped that the measures of reform to be applied by
Congress in dealing with railroad reform will be as thorough and
as courageous as was the legislation with respect to banking. We
may then hope for as signal a success in the momentous task before
us at this juncture.
57
THE NATIONAL TRANSPORTATION CONFER¬
ENCE'S PROPOSED RULE OF
RATE MAKING
By W. W. SALMON
The National Transportation Conference, having declared itself
favorable to private ownership and operation of the railroads, con¬
solidated into strong competitive systems, subject to federal juris¬
diction and to federal regulation of their rates and security issues,
was immediately face to face with the perplexing problem of what
can be done, what new element of policy be found and adopted that
will so strengthen and sustain their credit as to enable them to secure
from private investors the moneys without which it will be impos¬
sible for them to realize the above stated program and thus to satisfy
the transportation needs of the country.
It was felt that amongst the things essential to restoration and
maintenance of railway credit, two of the most important are, first,
an authoritative governmental declaration as to what shall be deemed
a reasonable minimum rate of net earning upon the aggregate
value of railroad properties devoted to public service and, second, a
recognition and assumption by the government,—which regulates
the rates and, in large degree, determines the expenditures of the
railroads,—of its obligation in fixing rates to so fix them that they
shall produce revenues adequate to yield the declared reasonable
minimum rate of net earning upon the aggregate value of the rail¬
road properties devoted to public service.
In discussing what might be regarded as a reasonable minimum,
attention was strongly directed to the facts that in the three years
ended June 30, 1917 (hereafter referred to as the Test Period), the
aggregate net earnings from operations of all of the Class 1 Eail-
roads of the United States were approximately 895 millions of dol¬
lars, or approximately 5.3% upon their aggregate property invest¬
ment accounts amounting to 17,193 millions of dollars ; that during
this period of relatively good average earning, the railroads were un¬
able to secure needed funds on such terms as would warrant the
emission of their securities for equipment, improvements and exten¬
sions required in the public interest,—though industrials were at the
same time able to sell their securities on favorable terms, by which it
is meant that the funds procured from the sale of such securities
58
would earn, in iudustr3', a profit over and above the interest charges
thereon. The Conference discussion developed the fact that, in its
opinion, the net earnings from railroad operation during the Test
Period were insufficient to attract the capital that must be had if the
Railroads are to be organized and equipped to adequately serve the
needs of the country and that they would continue insufficient unless
increased in an amount at least equaling the difference between
5.2% and 6% on the aggregate property investment accounts.
Out of these and other important considerations grew the follow¬
ing recommendation of the Conference
"Section 9.—The Conference recommends that a statutory rule
be enacted by Congress requiring that railroad rates and fares, to be
established by public authority, shall be designed to yield the rail¬
road companies in each traffic section of the United States (as shall
be designated by Federal authority) aggregate revenue sufficient to
produce, after proper provision has been made for renewals and de¬
preciation a net return (which shall be available for interest and
dividends) of not less than six (6) per cent, per annum upon the
aggregate fair value of the property of the railroads devoted to the
public service in each of the several sections. The items of 'renewal
and depreciation' shall also include unproductive improvements not
properly chargeable to investment account and against which no
capital or capital obligations shall be issued."
It should be carefully noted that the Conference does not recom¬
mend that the rates and fares to be authorized shall yield six (6)
per cent, upon the value of the property of each railroad or of any
particular railroad.
It is the view of the Conference that while the Railroads as a
whole must earn from operations an average aggregate annual net
return of not less than six (6) per cent, upon the aggregate fair
values of their properties devoted to the public service, if they are
to be able to command the capital required for their needed develop¬
ment, there will doubtless be in the future, as now, substantial differ¬
ences between the rates of net return of the several railroads.
•Therefore, in this recommendation the railroads of the country are
referred to in the aggregate in each of the traffic sections designated
by Federal authority and it is the belief of the Conference that in
this, as in its further recommendations, nothing will be found that
will cause lessening of zeal on the part of any railroad officer or
employee to so conduct the affairs entrusted to him that his railroad
may properly earn the greatest possible share of the aggregate net
return of the group of railroads of which his is a part, for the Con-
59
cognizes that any rule which has such an effect inevitably
the efficiency and increases the cost of service to the public.
)nference discussed at length the elements that should
3e considered in arriving at a determination of the fair
ailroad property and, recognizing that a considerable time
ecessity elapse before such value can be ascertained for all
Iroads of the country, sought to find a basis of valuation
nding an authoritative, permanent fair valuation, may
fairly satisfactory temporary basis in establishing rates,
the conclusion that while doubtless the fair value of the
if certain railroads will be found to be much less than the
lown by their property investment accounts, the reverse
ind to be true of many other large systems which in the
^ed to operating expense large sums which, under the
ccounting rules prescribed by the Interstate Commerce
)n, would have been charged and are properly chargeable
Account. It is the belief of the Conference, based upon
ion of the book valuation of our railroads as a whole, with
le railroads of other countries, where labor was much
lat it will be found when the Federal valuations are com-
t the aggregate property investment accounts of all the
if the United States and in each of the existing traffic dis-
ïctions amount to less rather than more than the Federal
will show. The Conference therefore adopted the follow-
;ion
10 (in part).—"The net return to be obtained by the
IS a result of the enforcement of a statutory rule of rate
lall be based upon a fair value of the railroad property
the public service, as ascertained by the Interstate Com-
nmission, such valuation to include a consideration of
roperty, earning power, and such other elements as may be
determining fair value.
mch valuation shall have been determined, the valuation
ted for the railroads in the United States as a whole, and
sections, shall, for the purpose of making the rates that
aggregate net return to be provided by statute, be their
property investment accounts."
! belief of the Conference that while a great majority of
of the United States should and will approve of a rule of
ig designed, in their interest, to yield a minimum aggre-
turn adequate to attract private capital in quantities suflS-
able the railroads of the country to economically furnish
60
the facilities required to meet the needs of our great and constantlj
increasing commerce, there should and would be a vigorous protest
against, any rule, the effect of which is deemed likely to unduly
increase the earnings of railroads whose earnings in the past are
quite generally believed to have been ample. The Conference there¬
fore considered most carefully what could be done to satisfy this
most natural and reasonable view, it being quite certain that if the
average net return of all of the railroads of the United States should,
in consequence of the proposed rule of rate making, increase from
the 5.2 per cent, of the Test Period to six per cent, per annum on
their aggregate property investment accounts, certain railroads,
whose earnings in the Test Period were greatly in excess of 6 per
cent., would have a substantial increase over their earnings in the
Test Period and that, so far as they alone are concerned, neither
the Conference nor the country at large would deem it necessary to
fix rates designed to obtain a greater yield than that of the Test
Period.
With this in mind the Conference sought to find an equitable
basis for determination of what might properly be regarded as excess
income from railroad operations under the proposed rule of rate
making and what disposition might be made of such excess income
which would be just and useful and would not tend to discourage
initiative and efficiency or operate to encourage or reward incom¬
petent or inefficient management.
The Conference is of the opinion that all income in excess of six
per cent, "per annum upon the fair value of the railroad property
devoted to the public service, ascertained as set forth in above
quoted extract from Section 10 of the Conference resolutions, should
be regarded as "excess income but, in order to provide a temporary
basis for determining what shall be held to constitute "excess
income" until the completion of the Federal valuation, the Confer¬
ence adopted the following ;
Section 10 (in part).—^"For the purpose of ascertaining excess
income, the valuation of any individual railroad system, pending the
completion of the said Federal valuation, upon which it shall be
entitled to retain 6 per cent, per annum, shall be that proportion of
the aggregate property investment accounts of all the railroads of
the traffic section in which it is located, which its average annual
railway operating income (computed for the period and in the
manner prescribed by the Federal Control Act of March 21, 1918)
bears t© the aggregate annual railway operating income of all the
railroads of such traffic section, computed in the same manner;
61
provided, first, that if the use of the above stated formula shall pro¬
duce a valuation of any particular railroad system, greater than the
amount of its average property investment account for the three
year period ending June 30, 1917, the amount of such property in¬
vestment account shall be used instead of the valuation derived by
the formula; and provided, second, that nothing herein contained
shall operate to reduce the railway operating income which any par¬
ticular railroad system shall be permitted to retain below its annual
average railway operating income, or compensation as computed or
allowed to it under the Federal Control Act of March 21, 1918. To
such valuation as shall be derived for any railroad system in the
manner above stated, there shall be added all increases of property
investment made by such system after June 30, 1917.
"The Federal Transportation Board shall be vested with the same
power to make specific adjustments, in particular cases, as is con¬
ferred on the Director General of Eailroads under the Eailroad Con¬
trol Act of March 21,1918."
It is an exceedingly simple matter to understand how excess in¬
come will be determined when the Federal valuation of the railroads
shall have been completed since any and all earning over six per
cent, on the ascertained valuation of any individual railroad system
will constitute excess income. But the Conference formula and
provisos, above quoted, for ascertaining excess income, pending com¬
pletion of the Federal valuation, are not equally simple and, for clar¬
ification, the following illustrations are cited from accompanying
table No. 2 :
The amount of the average aggregate property investment ac¬
counts of the 32 Class 1 Eailroads of the Southern District for the
three year period ending June 30, 1917, was $2,589,615,640; the
average aggregate railway operating income of all these railroads for
the same period was $138,820,918. For the same period the average
railway operating income of the Tennessee Central was $163,753,
equal to 0.11815 per cent, of the aggregate like income of all the
railroads of the Southern District. Under the Conference formula,
the temporary valuation of the Tennessee Central, for the purpose
of ascertaining excess income, equals 0.11815 per cent, of $2,589,-
615,640, or equals $3,058,341, instead of the $19,717,592 shown as
the average amount of its property investment accounts in the
period named. All of its net railway operating income over six
per cent, per annum on this $3,058,341 valuation, or over $183,500,
would constitute excess income, unless in the Test Period its average
annual railway operating income exceeded $183,500 and as such
was not the case in the Test Period, any income in excess of $183,500
would actually constitute excess income.
62
Take from the same Table another and extremely different illus¬
tration, that of the Norfolk and Western. Its average net income
from operations for the Test Period were $20,893,498, equal to
15.05132 per cent, of the aggregate of such earnings for all of the
railroads of the Southern District during that period. Under the
Conference Formula the temporary valuation derived for that road
would be 15.05132 per cent, of the aggregate property investment
accounts of all of the Railroads of the District, or $389,771,475;
but, under proviso 1, this derived valuation cannot be used, since
it exceeds the amount of the average property investment account of
the Railroad, which was $204,792,196. On the other hand, six (6)
per cent, upon this last named amount would be only $15,887,532,
and as this is less than its average net railway operating income for
the Test Period, amounting to $20,893,498, only income exceeding
this latter amount will be regarded as excess income.
The effect of proviso 2 is thus seen to be that whereas, pending the
completion of the Federal valuation of railroad property, no net
railway operating income not in excess of the average of the Test
Period shall be regarded as excess income, all railway operating
income in excess of such average is treated as excess income when
earned by a railroad that earned six per cent, or more on its prop¬
erty investment account during the Test Period. The purpose of
this provision is that no such railway, whose earnings during the
Test Period were six per cent, or over, shall even temporarily un¬
duly profit from its increase of earning, growing out of the opera¬
tion of the proposed rule of rate making.
Upon a careful review of the various plans suggested as to the
disposition to be made of excess income, it was the opinion of the
Conference that it should be used wholly or in major part to estab¬
lish and maintain certain Railroad Contingent Funds. It is obvious
that no matter how honestly and ably the governmental rate fixing
agency shall perform its task, there will inevitably be years when, for
one or another uncontrollable cause, net railway operating income
will fall below the desired and requisite percentage. It was therefore
deemed wise that out of its excess earnings each railroad should
contribute a part to the establishment of its own Individual Railroad
Contingent Fund, upon which it may draw in any year when its
net railway operating income shall fall below six (6) per cent, of the
fair value of its property; and that it shall also contribute a part
to a General Railroad Contingent Fund which can be drawn upon
63
only when the aggregate net operating income of all of the railroads
of ä traffic section falls below six (6) per cent, upon the aggregate
property investment accounts of the railroads of that traffic section.
In this way all earnings from railway operations are available for
tlie maintenance of the credit of the railways.
The Conference therefore passed the following resolutions :
"Section 11.—All railroad companies enga^d in interstate com¬
merce shall be required to observe the following regulations under
the direction of the Federal Transportation Board :
"(a) Whenever the net railway operating income of a railway
company available for the payment of interest and dividends (after
provision has been made for renewals, depreciation and unproductive
improvements as defined in Section 9) shall exceed (6) per cent,
upon the fair value of its property, or upon its temporary valuation
as determined by Section 10 (the 'fair value of property' being
used in this Section to include both temporary and permanent val¬
uation) one-half of the said excess railway operating income above
six (6) per cent, shall be placed in a contingent fund of the company
until such amount to six (6) per cent, of the fair value of the com¬
pany's property. The remaining half shall be turned over to a
general railroad contingent fund as provided by Section 12.
"(b) A railroad company may draw upon its own contingent
fund whenever, and to the extent that, its said annual railway oper¬
ating income shall fall below six (6) per cent, of the fair value of
the property as determined by Section 10; but whenever the rail¬
road's contingent fund is thus drawn upon, the fund shall be re¬
plenished from the company's share in subsequent excess earnings
until the fund is restored to six (6) per cent, of the fair value of
the company's property.
"(c) When any individual railroad company earns an annual
railway operating income of six (6) per cent, upon a fair value of
its property and has established and is maintaining a contingent
fund of its own, amounting to six (6) per cent, on the fair value of
its property, the company shall turn over to a general railroad con¬
tingent fund, two-thirds of the company's railway operating income
in excess of six (6) per cent., the remaining one-third of said excess
to be retained by the railroad company for distribution among its
stockholders or for such other lawful purposes as it may determine.
"Section 12.—There shall be established a general railroad con¬
tingent fund for the purpose of making good any deficiency in any
year below six (6) per cent, upon the aggregate fair value of the
properties of the railroads of a section. The amount of such defi¬
ciency shall be drawn from the general railroad contingent fund for
distribution among the railroads in any traffic section, upon the
basis of the gross earnings from railroad operations of the railroads
64
within such section ; and if the result of this distribution causes the
railway operating income of any individual railroad to exceed six
per cent, this excess shall be applied as provided in Section 11."
In the accompanying Tables, Xos. 1, 2 and 3, are shown the esti¬
mated contributions of each of the Class 1 Eailroads in each traffic
section to each of the contingent funds in a year when the aggre¬
gate net railway operating income of the railroads of each traffic
section equals six (6) per cent, upon the average aggregate property
investment accounts of the Test Period.
These contributions in such a year, while the Individual Contin¬
gent Funds are in process of creation, and prior to the effecting of
the proposed consolidation of existing roads into a limited number of
competing systems, are estimated as follows :
Individual General
District Contingent Fund Contingent Fund Total
Eastern $13,676,562 $13,676,563 $27,353,125
Southern 4,881,539 4,881,539 9,763,078
Western 19,765,944 19,765.944 39,531,888
Totals $38,324,045 $38,324,046 $76,648,091
Upon the completion and maintenance of all the Individual Eail-
road Contingent Funds, contributions thereto would cease and there¬
after, in a year of six (6) per cent, railway net operating income
upon the aggregate property investment accounts, as shown in ac¬
companying Tables, the aggregate contributions to the General
Eailroad Contingent Fund are estimated as follows :
Eastern District $18,235,413
Southern District 6,508,719
Western District 26,354,589
$51,098,721
While the aggregate of contributions to the Contingent Funds, as
above shown, are substantial and will serve greatly in the needed
establishment and maintenance of railroad credit, it was realized by
the Conference, that upon the consolidation of existing railways
into such limited number of competing systems as may be deemed
by the Transportation Board to be in the public interest, there will
of necessity be a great reduction in the amount of such contributions
for the reason that as the railroads which have a large rate of net
railway operating income and are the chief contributors to the Con¬
tingent Funds, are merged with lines of much smaller earning, there
will be greatly reduced excess earnings, out of which contributions
65
can be made. Realizing the need of creating and maintaining such
Contingent Funds, the Conference adopted the following resolution :
"Section 13.—In any year, following the completion of the
mergers hereinafter provided for, when the yield from rates estab¬
lished bj Federal authority equals si.x per cent, upon the aggregate
fair value of the property of the railroads in any traffic section, and
the total contribution made in any such year to the general railroad
contingent fund amounts to less than five per cent, of the agrégate
net earnings from operation in that traffic section, then the railroads
in that section shall contribute to the general contingent fund the
sum necessary to bring the contribution for the year up to five per
cent, of the aggregate net earnings from operation—each company
being required to contribute for this purpose pro rata to its net
earnings from operation for that year."
The management and amount of the General Railroad Contingent
Fund are provided for by the Conference as follows :
"Section 14.—The general railroad contingent fund shall be man¬
aged by trustees appointed by the Federal Transportation Board
from men nominated by the railroad companies. Moneys turned
over to the fund shall be invested by the trustees in United States
Government securities, or shall be deposited in the Federal Reserve
Banks.
"Section 15.—The general railroad contingent fund shall be ac¬
cumulated by its trustees until it amounts to $750,000,000, and be
maintained at that sum for the purpose hereinbefore provided, and
any excess thereafter acquired shall be used when and as directed
by the Federal Transportation Board for the development of the
railroad transportation system of the country, or for the increase
of transportation equipment and facilities, or for the pro rata re¬
duction of the capital or capital obligations and property investment
accounts of the railroads, or, if so ordered by Congress, the excess
shall be turned over to the Treasury of the United States."
If it were certain that for several years following the adoption of
the National Transportation Conference plan for the creation of the
Individual and General Railroad Contingent Funds, there would be
no year in which the aggregate railway operating income of the
raikoads of any traffic district would fall below six per cent., these
funds themselves would amply take care of such a year when it
comes; but it is impossible to know that such will be the case and
for this reason, as well as to facilitate such consolidation of railroads
as the Federal Transportation Board shall deem in the public
interest, the Conference adopted the following resolution ;
"Section 16.—To facilitate the prompt stabilization of railroad
credit and such consolidation of railroads as the Federal Transpor¬
tation Board shall decide to be in the public interest, it is recom-
66
mended that Congress create a railroad reserve fund and appropriate
for this purpose the sum of $500,000,000. This fund shall be ad¬
ministered by the Federal Transportation Board, which shall invest
it in United States bonds or notes, the interest accruing from such
bonds or notes, or the earnings upon the proceeds thereof, to be paid
annually into the United States Treasury. In case, at any time
during the first ten years after the enactment of this legislation, the
general railroad contingent fund, provided by Section 12, shall not
he sufficient to make good deficiencies as described in that Section,
then the Federal Transportation Board shall pay into the general
railroad contingent fund, as far as the Board's available funds per¬
mit, the amount necessary to enable the trustees of the general rail¬
road contingent fund to make over to the railroads the sums due
them for that year under the stipulations of said Section 12 ; pro¬
vided, however, that any sums so paid by the Federal Transporta¬
tion Board shall be repaid with interest by the trustees of the general
railroad contingent fund from contributions received from the rail¬
roads after the general railroad contingent fund shall reach and be
maintained at the amount of $500,000,000."
In the accompanying Tables, Xos. 1, 2 and 3, are shown for each
Class 1 Eailroad in each of the three traffic districts : miles operated;
amount of its property investment account and its percentage of
total property investment account of the district averaged for the
Test Period; the average net railway operating income of each
railroad during that period ; the percentage of such earning on its
iiroperty investment account, and of the aggregate net railway
operating income of all the railroads of the district.
The same tables show temporary property valuation of each rail¬
road for determining excess income as derived by the Conference
Formula and provisos for arriving at such valuation ; the estimated
net railway operating income of each railroad in a year when the
yield equals six (6) per cent, upon the aggregate property invest¬
ment of all the railroads of the district; the amount of such net
operating railway income retained by each railroad for interest
and dividends ; and the amount, if any, contributed by it to both
or either of the Contingent Funds.
The purpose of Charts Nos. 1, 2 and 3 is to graphically illustrate
and compare certain conditions existing in the Test Period with
the conditions that it is estimated would grow out of the application
of the Conference Rule of Rate Making and out of its proposed
temporary method for determination of excess profits and of con¬
tributions thereof to the contingent funds proposed by it.
The order in which the various railroads are shown in the
67
Tables and Charts is determined by the percentage of operating
income of each on its property investment accounts during the Test
Period, the road showing the smallest percentage of such income
heading the list in each district and the road showing the gTeatest
percentage being the last shown.
Under the method proposed by the Conference for arriving at the
Valuation of each railroad, to serve as a basis for determination of
its excess profits, pending ascertainment of its true property valua¬
tion by the Interstate Commerce Commission, a minus valuation is
shown for the first named road of Table and Chart No. 1 and for
the four roads first named in Table and Chart No. 3, this growing
out of the fact that these roads showed deficits for the Test Period.
Though certain of these "five roads are shown by the Tables and
Charts as making contributions to the Contingent Funds (this
being the result that would obtain from an application of the Con¬
ference Formula and provisos), it was the idea of the Conference
that in just such special and rare instances the Federal Transporta¬
tion Board would exercise the powers set forth in the last para¬
graph of Section 10 of the Conference resolutions to the end that no
unmerited hardship should be permitted to result even temporarily
from a hard and fast application of the proposed Conference
Formula.
In order that the meaning of Charts 1, 2 and 3 may be readily
understood, the following e.xamples are cited :
Take the Erie, Chart No. 1 (E.E. 20) : At the left of the name
of the railroad are two symbols or graphs—the upper one showing
the percentage relation between that railroad's average property in¬
vestment account in the Test Period with the average aggregate
like accounts of all of the railroads of the Eastern District in the
same period ; the percentage shown being approximately 7 per cent.
The unshaded symbol immediately thereunder shows the percentage
of that railroad's temporary valuation, as derived by the Conference
Formula and Proviso 1, to the aggregate of such valuations for all
the railroads of the Eastern District, this percentage being approxi¬
mately 5.4 per cent.
Thus the relative length of the upper and lower symbol graphic¬
ally conveys information as to whether, under the Conference
Formula and proviso, there is an increase or decrease in the tem¬
porary valuation of each of the several railroads, over or under the
value shown by the property investment accounts—and the amount
of such increase or decrease is indicated at a glance.
68
For example, while a glance at the Erie shows a decrease and
indicates the amount of such decrease, a glance at the P. E.R.
(Chart No. 1, R.E. 44) shows that its derived temporary valuation
forms a larger percentage of the aggregate of such valuations of all
the railroads of the district than its property investment account
showed to the aggregate property investment accounts of all the
railroads of the district.
Taking now the symbols to the right of the names of the rail¬
roads in Charts Nos. 1, 2 and 3 :
The s}Tnhols are shown in groups of three, opposite the name of
each railway. The top symbol shows the average percentage, during
the Test Period, of net railway operating income upon the average
property investment account of each railroad for the Test Period.
The middle symbol, as a whole, shows estimated percentage of net
railway operating income upon property investment account, in a
year when the average of such income is 6 per cent, for all the
railroads of the district. The unshaded portion of this middle
symbol shows the part of such income that may be retained by the
railroad for interest and dividends and the shaded part shows the
part of such income to he turned over to the two contingent funds
in the period while its Individual Contingent Fund is being built up.
The lowest symbol, as a whole, shows the same that is shown by
the middle symbol, as a whole; hut its unshaded part shows that
part of its net operating income which it may retain for interest
and dividends and the shaded part shows the part of such income
to be turned over to the General Railroad Contingent Fund after
its individual Contingent Fund is built up and maintained.
Again taking the Erie (Chart 1, Railroad 20) : The upper symbol
to the right of the name of the railroad shows that its average rail¬
way operating income for the Test Period was approximately 3.6
per cent, upon its property investment account. The middle graph,
as a whole, shows that in a year when the aggregate net operating
income of all the railroads of the Eastern District equals 6 per
cent, upon their aggregate property investment accounts, the Erie
would earn approximately 4.2 per cent., an increase of approxi¬
mately 0.6 per cent., of which it contributes a small part (indicated
by the shaded part of this symbol) to the two contingent funds,
during the period before its own Contingent Fund is created and
maintained. The lowest symbol, as a whole, shows the same earning
as is shown by the middle symbol, and the shaded part of this lowest
symbol shows that it would contribute a small part of its increased
69
er cent, earning to the General Eailroad Contingent Fnnd
! period after its Individual Contingent Fund is created and
ained. The unshaded portion of both the middle and lowest
lis show that the Erie should have available for interest and
■nds a substantial increase of earnings over those of the Test
Î, as a result of the realization of an increase of yield for the
of the Eastern District from the 5.21 per cent, average of the
Period to 6 per cent.—and that, at the same time, it would
bute a substantial sum to the Contingent Funds, thus tending
mgthen its own and the general railroad situation,
the Erie is a railroad whose net railway operating income was
the 5.21 per cent, average of the railroads of the Eastern
ct, it may be well to refer to a road whose earnings are well
this average. Taking the D., L. & W. (Chart 1—Railroad
s an example, the upper symbol to the right shows a Test
1 percentage of approximately 7.5 per cent, on its property
ment account; the middle symbol shows that in a year when
eld for the railroads of the Eastern District averages 6 per
the D., L. & W. yield would be approximately 8.4 per cent.,
mease of 0.9 per cent, over the yield of the Test Period. It
, under the Conference Formula and provisos, be permitted
lin for interest and dividends, as shown by the unshaded por-
)f the middle symbol, exactly the same percentage that it
1 in the Test Period (as shown by the upper symbol) ; but,
its Individual Contingent Fund is fully created and main-
l, it would turn over to such fund one-half of the 0.9 per cent,
sed earning and would turn over the other half to the Gen-
lailroad Contingent Fund, the sum of these two contributions
represented by the shaded portion of this middle symbol.
3 Charts show that the part of the net railway operating in-
retained by each railroad is in no instance less than the
je amount of such income earned in the Test Period; but it
e noted that all of the increased earning of the D., L. & W.
ng out of the operation of the statutory rule of rate making
sed by the Conference is shown by the chart as being turned
0 the two Contingent Funds, whereas only a small part of such
ised earning of the Erie is so shown and this may, upon a
1 review, seem inequitable. But it is the opinion of the Con-
:e that this is equitable and as it should be, because it is certain
he people of the United States would not consent to the enact-
of the rule of rate making proposed by the Conference if all
70
of the railroads were normally in the enjoyment of such railway
operating income as is shown for the D., L. & W. The object sought
by the Conference on it< proposed rule of rate making is to aid in
the creation of a situation which will enable the railroads to meet
the reasonable transportation requirements of the people of the
United States—and this does not call for largely increased net
earnings for roads now having the largest net earnings. The Con¬
ference believes that any increase accruing to such a railroad as a
result of its proposed rule of rate making should therefore go
wholly into the creation of the two contingent funds until its In¬
dividual Contingent Fund is created and maintained—and that
thereafter two-thirds of such increase should go into the General
Contingent Fund, as indicated by the shaded jjortion of the lowest
symbol, the railroad retaining the remaining one-third as an incen¬
tive to efficient economical operation.
In looking at the large percentages shown by the middle symbol
as being contributed by the most prosperous railroads to the two
contingent funds, it should be remembered that one-half of the per¬
centages so shown goes into the railroad's own contingent fund and
is available for its own individual use at any time when its own
earnings from railway operations fall below G per cent, upon the
value of its property. Therefore contributions to this fund should
not be regarded as being actually taken away from tbe railroad
making them. They are, in fact, just as much the property of the
individual railroad as any other part of its earnings; but they are
required to be set aside for a rainy day, and the Conference believes
the provision to be a wise and equitable one which will meet with
general approval when understood.
Having shown how contributions are made to the General Rail¬
road Contingent Fund, and the estimated amount of contribution
by each Class 1 Railroad in a year when the aggregate net railway
operating income equals six (6) per cent, upon the aggregate
property investment accounts of all the railroads of each district,
it will now be interesting to illustrate the mode of distribution
from such fund in a year when the aggregate net operating income
is less than 6 per cent. For the purpose of illustration, the Southern
District is chosen and it is assumed that in a certain year the aggre¬
gate net railway operating income of the district falls below the
six (6) per cent, in an amount equaling $6,508,719 (which is
exactly equal to the estimated excess income of all of the railroads
of this district in a six per cent. year). It is also assumed that
71
in this year when the lessened earning is had, the operating rev¬
enues of each Class 1 Railroad of the district are in exactly the
same relation to each other as they were for the year ending
December 31, 1917.
In the accompanying Table, No. 4, are shown the amount and per¬
centage of such operating revenue for each railroad of the Southern
District. The percentage thus shown establishes for each railroad
the percentage which it is entitled, under the National Transporta¬
tion Conference rule, to receive of the $0,508,719 to be drawn from
the General Railroad Contingent Fund and the amount so to be
received is shown in the table. It is, however, provided in the Con¬
ference rule that "if the result of this distribution causes the rail¬
way operating income of any individual railroad to exceed 6 per
cent., this excess shall be applied as provided in Section 11." In
consequence of this provision, certain of the railroads are obliged to
return a part of the moneys received from the fund—and this is
shown in the table (as would occur at a time after each Individual
Contingent Fund is fully created), as is also the net amount
remaining in the hands of each railroad out of the distribution.
As broadly illustrating the operations of the Conference plan of
contribution to and distribution of the General Railroad Contingent
Fund, the following facts are enumerated.
In a year of 6 per cent, average net railway operating earnings,
the first named fifteen of the 33 Class 1 Railroads of the Southern
District, each of which 15 earns less than 6 per cent, on its
property investment account, would contribute an aggregate of
$166,966 to the General Railroad Contingent Fund, whereas they
would receive from it in the year of lessened earnings $1,931,371,
and of this would retain $1,786,333, returning the remaining
$144,938 to the fund.
The other seventeen Class 1 Railroads, each of which earns 6 per
cent, or more on its property investment account in a year of 6
per cent, average earning, would contribute an aggregate of
$6,341,753 to the General Railroad Contingent Fund, whereas,
while in the year of less than 6 per cent, earnings, they would
receive from it $4,577,418, they would retain of this amount only
$1,573,795, returning the other $3,004,653 to the fund from which
it was drawn, together with $3,337,099 of other excess profits of
the year, leaving the fund larger than at the beginning of such a
year of less than 6 per cent, average net railway operating income.
The facts set forth in Table 4 are graphically illustrated in the
72
accompanying chart in which the upper symbol shows each rail¬
road's contribution to the General Eailroad Contingent Fund in
the average 6 per cent, year, and the lower symbol, as a whole, what
is received by such railroad in the year of less than 6 per cent,
earnings. The shaded portion of this_ lower symbol shows the
part retained by the railroad and the unshaded part the part re¬
turned by it to the General Contingent Fund.
Having shown in the Tables and Charts the results of the Con¬
ference Eule of Eate Making, as applied to the Class 1 Eailroads
in a year of 6 per cent, yield on the aggregate Property Investment
Accounts; the amounts retained by the railroads; the amounts con¬
tributed by them to create needed contingent funds and the mode
of distribution of such fund, it is believed that a way is indicated
whereby, with fairness to the people of the United States and
without burdening them, they may have reasonable railroad facili¬
ties which they cannot have unless this or some equally compre¬
hensive and equitable plan be adopted.
T
TABLES AND CHARTS
Illustrating
THE CONFERENCE RULE OF RATE MAKING
TABLE No. 1—EASTERN DISTRICT
AVERAGES OF TEST PERIOD—JULY 1, 1914, to JUNE 30, 1917
1
3
3
4
6
6
7
8
9
10
11
12
13
14
16
16
17
18
19
20
Property Investment Acct.
No.
ROAD
Miles
Operated
Amount
Percentage of
District
Total
Atlantic & St. Lawrence
Pittsburgh & West Virginia
Detroit, Toledo & Ironton
Baltimore, Chesapeake & Atlantic.
Manistique & Lake Superior
Detroit, Grand Haven & Milwaukee.
Pittsbmgh, Shawmut & Northern—
Cincinnati, Hamilton & Dayton
Ulster & Delaware
Wheeling & Lake Erie
New York, Ontario & Western.
Atlantic City
Toledo, St. Louis & Western...
Western Maryland
Wabash
21
22
23
24
26
26
27
28
29
30
Ann Arbor
New York, Chicago & St. Loms.
Grand Trunk Western
West Side Belt
Erie
Lake Erie & Western
Chicago & Eastern Illinois
Long Island
Chicago, Terre Haute & Southeastern.
Grand Rapids & Indiana
31
32
33
34
36
Toledo & Ohio Central
Pere Marquette
Chicago, Indianapolis & Louisville.
Staten Island Rapid Transit
West Jersey & Seashore
Central Vermont..
Rutland
Port Reading
Baltimore & Ohio.
Monongahela.....
Raiiway Operating Income
Amount
Percentage on
Property
Investment
Account
Percentage of
Total
Railway
Operating
Income of
District
NA TIONAL TRANSPORTATION CONFERENCE PLAN
Temporary Valuation
for Determining
Excess Income
Amount
Percentage
of
District
Total
Estim.
170
63
441
88
66
190
220
943
129
512
568
167
455
775
2,519
296
523
347
23
2,543
900
1,131
397
375
575
436
2,250
638
24
359
411
468
21
4,545
108
$ 9,007,097
46,707,119
21,730,991
4,1.86,783
1,438,417
7,036,727
35,603,331
55,238,687
5,772,995
69,628,331
90,469,116
9,527,352
39,501,310
119,767,915
200,052,150
17,404,824
66,965,760
34,239,735
5,333,644
472,579,990
.132
.687
.320
.062
.021
.104
.524
.813
.085
1.024
1.331
.140
.581
1.762
2.943
-8 2,069
299,728
216,459
48,416
21,,557
125,234
682,580
1,076,587
129,794
1,601,897
2,104,525
226,997
1,000,761
3,084,939
5 ,817'38
.256
.985
.504
.078
6.952
43,680,573
80,749,949
80,304,108
24,861,261
23,113,776
26,875,338
91,618,914
39,925,178
7,580,786
21,627,178
17,008,834
23,080,440
4,816,136
547,842,127
12,.353,471
.643
1.188
1.181
.366
.340
.395
1.348
.587
.112
.318
.250
.340
.071
S.059
.182
f 53^ 583
'Í,134.612
11.1836
18.4953
16,846'-.350
1,560,570
2,998,062
2,994,299
931,342
944 743
■ .02
.64
.99
1.16
1.50
1.78
1.92
1.95
2.25
2.30
2.33
2.38
2.53
2.58
2.91
3.05
3.19
3.26
3.52
3.56
3.57
3.71
3.72
3.75
4.09
1,098,284
3,758,869
1,645,644
317 420
92! 616
4.09
4.10
4.12
4.19
4.30
.0005
.085
.061
.014
.006
.035
.193
.304
.037
.452
.594
.064
.283
.871
1.640
.150
.603
.315
.053
4.755
.441
.846
.845
.263
.267
.310
1.081
.465
.089
.262
75.',029
1,()'>,289
221,235:
25,5fñ,519'
581.559
4.41
4.46
4.59
4.67
4.71
.214
.290
.062
7.219
.164
1—At. & St. L.
2—P. & W. Va.
3 -D., T. & L.
4—B., C. & A.
5—M. & L. S.
6—D., G. H. & M.
7—P., S. & N.
8—C., H. & D.
9—D. & D.
10—W. & L. E.
11—N. Y., O. & W.
12—A. C.
13—T., St. L. & W.
14—W. M.
16—Wab.
16—A. A.
17—N. Y., C. & St. L.
18—G. T. W.
19—W. S. B.
20—E.
21—L. E. & W.
22—C. & E. I.
23—L. I.
24—C. T. H. & S. E.
25—G. R. & I.
26—T. & O. C.
27—P. M.
28—C. I. & L.
29—S. I. R. T.
30—W. J. & S. S.
31—Cen. Vt.
32—R.
|33—P. R.
j34—B. & O.
36—Mon.
-$ 40,790
5,758,320
4,147,078
917,796
421,506
2,399,866
13,107,486
20,667,406
2,495,045
30,742,767
40,396,621
4,357,831
19,205,731
59,201,242
111,529,212
10,211,3.30
40,967,694
21,415,240
3,609,997
323,261,353
29,954,142
57,528,813
57,454,030
17,866,429
18,131,570
21,068,517
72,131,968
31,585,779
6,084,647
17,846,033
14,528,370
19,742,812
4,242,257
490,782,920
11,169.917
.000684
.096026
.069159
.015309
.007038
.040025
.218584
.344661
.041609
.512698
.673697
072678
.320297
.987289
1.859958
.170288
.683219
.357136
.060204
5.390991
.499540
959405
.958155
.297949
.302386
.351366
1.202938
526757
.101479
.297616
.242282
.329252
.070743
8.184739
.186281
ited Net Railway Operating Income in a Year When the Yield Equals
6% upon the Aggregate Property Investment Accounts of all
of the Railroads of the District
Amo mt
$ 6 2,662
34 1,073
30 8,538
9 6,898
2 7,977
22 8,070
77 2,141
1,54 1,074
15 9,303
1,89 2,136
2,44 5,278
27 5,285
1,24 6,521
3,54 1,593
7,0e 3,445
63 1,813
2,72 9,877
1,42 5,032
21 2,935
19,74 1,669
1,85 0.961
3,62 8,728
3,21 6,366
1,05 4,549
1,13 3,424
1,35 1,386
4,51 9,823
1,91 0,129
34 8,069
1,04 5,372
91 1,745
1,14 4,175
29 5,506
29,87 9,620
65 0,905
Percentage
of
District
Total
.015438
.083593
.075748
.023779
.006864
.055892
.189248
.377761
.038977
.463805
.599367
.067414
.305690
.868286
1.731424
.154928
.669232
.349325
.052215
4.839554
.453754
889613
.788370
.258623
.277744
.331184
1.108033
.468217
.085309
.256171
.223568
.280440
.072561
7.324783
. 159.586
Percentage
on
Property
Investment
Account
.70
.73
1.42
2.31
1.94
3.18
2.17
2.79
2.76
2.72
2 70
2.89
3.16
2.96
3.53
3.63
4.08
4.16
3.99
4.18
4.24
4.49
4.00
4.24
4.90
5.03
4.93
4.78
4.59
4.83
5.36
4.96
6.14
5.45
5.27
Disposition of Net Operating Income
In Period While In¬
dividual Contingent
Fund is Being
Built Up
In Period After In¬
dividual Contingent
Fund is Built Up and
Maintained
Retained by
Railroad Co.
-$ 2,069
341,073
248,825
55,068
25,290
143,992
772,141
1,240,044
149,703
1,844,566
2,423,797
261,470
1,152,344
3,541,593
6,691,753
612,680
2,458,062
1,284,914
212,935
19,395,681
1,797,249
3,451,729
3,216,366
1,054,549
1,087,894
1,264,111
4,327,918
1,895,147
348,069
1,045,372
871,702
1,144,175
254,535
29,446,975
6.50.905
Contribu¬
ted to Con¬
tingent
Funds
$64,731
59,713
41,830
2,687
84,078
301,030
9,600
47,570
21,481
13,815
94,177
371,692
19,133
271,815
140,118
Retained by
Railroad Co.
Contribu¬
ted to Gen¬
eral Con¬
tingent
Fund
$ 19,508
341,073
268,729
69,011
26,186
172,018
772,141
1,340,387
152,903
1,860,423
2,430,957
266,075
1,183,736
3,541,593
6,815,650
345,988
53,712
176,999
45,530
87,275
191,905
14,982
40,043
40,971
432,645
619,058
2,548,667
1,331,620
212,935
19,511,010
1,815,153
3,510,729
3,216,366
1,054,549
1,103,071
1,293,203
4,391,886
1,900,141
348,069
1,045,372
885,050
1,144,175
268,192
29,591,190
650.90.=
143,154
39,809
27,887
1,791
56,052
200,687
6,400
31,713
14,321
9,210
62,785
247,795
12,755
181,210
93,412
230,659
35,808
117,999
30,353
58,183
127,937
9,988
26,695
27,314
288,430
1—At. & St. L,
2—P. & W. Vá
3—D., T. & L.j
4—B., C. & A. i
6—M. & L. S. '
1.
6—D., G. H. dj
7—P., S. & N.^
8—C., H. & D,
9—U. & D.
10—W. & L. E.
11—N. Y., O. ai
12—A. C.
13—T., St. L. ajj^
14^W. M.
16—Wab. r
16—A. A.
17—N. Y., C. ai
18—G. T. W.
19—W. S. B.
20—E.
21—L. E. & W.,
22—C. & E. I.
23—L. I.
24—C. T. H. &
25—G. R. & I.
26—T. a O. C.
27—P. M.
28—C. I. a L. ]
29—S. I. R. T. ,
30—W. j. a S. ^
f
31—Cen. Vt.
32—R.
33—P. R.
34—B. a O.
35—Mon.
Eastern District continued on page 76.
Table prepared for the National Transportation Conference by W. W. Salmon, Rochester '
75
CHART No. 1—EASTERN DISTRICT
f»
td
I 0-^PERCENTAGE—^0 I 2 3
Kantoru District continued on page 77.
5 ( 7 • 9 to 11 12 13 14 IS 16
Chart prepared for the National Transportation Conference by W. W. Salmon, Rochester, N. Y.
EXPLANATION
Of the Two Graphs Used for Each Railroad
UPPER GRAPH shows percentage of Aggregate Proper¬
ty Investment Accounts in Test Period.
LOWER GRAPH shows percentage of the Aggregate
Valuations derived by use of National
Transportation Conference Formula, as
a temporary basis for determining Ex¬
cess Income.
EXPLANATION
Of the Three Graphs Used for Each Railroad
UPPER GRAPH shows each railroad's percentage of
railway operating income on its proper¬
ty investment account averaged for the
Test Period.
MIDDLE GRAPH, as a whole, shows each railroad's es¬
timated percentage of railway operat¬
ing income on its property investment
account when yield for all railroads of
District equals 6 per cent, on their
aggregate property investment ac¬
counts.
L^nshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Con¬
tingent Funds while Individual Contingent Fund is being
created.
LOWER GRAPH, as a whole, shows same as Middle
Graph as a whole.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to General
Railroad Contingent Fund after Individual Contingent
Fund is created.
76
TABLE No. 1—EASTERN DISTRICT—Continued
AVERAGES OF TEST PERIOD—JULY 1, 1914, to JUNE 30, 1917
Property Investment Acct.
Railway Operating Income
No.
ROAD
Miles
Opebated
Amount
Percentage of
District
Total
Amount
Percentage of
Property
Investment
Account
Percentage of
Total
Railway
Operating
Income of
District
36
Boston & Maine
2,305
$204,413,544
3,007
$9,820,253
4.80
2.772
37
Detroit & Mackinac
383
6,505,053
,096
313,325
4.82
.088
38
Philadelphia, Baltimore & Washington
718
75,115,111
1.105
3,708,140
4.94
1.047
39
Pittsburgh, Cincinnati, Chicago & St. Louis
2,399
224,457,345
3.302
11,299,493
5,03
3.189
40
Maine Central
1,220
57,715,375
,849
2,954,684
5,12
.834
41
Lehigh Valley
1,443
204,188,112
3.004
10,630,724
5,21
3.001
42
Cleveland, Cincinnati, Chicago & St. Louis
2,387
190,016,828
2,795
10,034,247
5,28
2.832
43
Bangor & Aroostook
632
29,591,332
.435 '
1,564,846
5.29
.442
44
Pennsylvania Railroad
4,536
846,823,668
12.457
45,363,608
5,36
12.804
46
Michigan Central
1,862
146,135,571
2,150
8,040,609
5.50
2.270
46
Buffalo, Rochester & Pittsburgh
587
59,535,704
,876
3,275,017
5,50
.924
47
Central New England
301
26,631,839
,392
1,481,654
5.56
418
48
Buffalo & Susquehanna R.R. Corporation
237
10,652,427
.157
596,902
5.60
.166
49
Chicago, Detroit & Canada Grand Trunk Junction
60
3,481,350
.051
194,798
5,60
.055
50
New York, New Haven & Hartford
1,997
291,143,332
4.283
17,342,329
5.96
4.895
61
Hocking Valley
350
43,954,788
.647
2,668,017
6,07
.753
62
New York Central
6,083
919,502,503
13.526
56,027,121
6,09
15.814
63
Pennsylvania Company
1,755
236,489,892
3,479
14,802,055
6,26
4.178
64
Kanawha & Michigan
177
20,016,639
.294
1,305,228
6.52
.368
66
Elgin, Joliet & Eastern
801
41,989,323
.618
2,847,454
6.78
.804
66
Central Railroad of New Jersey
684
132,777,668
1,953
9,363,566
7,05
2.643
67
Cincinnati Northern
246
4,532,019
,067
325,612
7,18
.092
68
Delaware & Hudson
879
103,022,797
1.515
7,505,358
7 29
2.118
69
Delaware, Lackawanna & Western
955
212,033,141
3.119
15,989,315
7.54
4.513
60
Philadelphia & Reading
1,127
195,345,643
2,874
16,013,955
8.20
4.522
61
Lehigh & New England
296
13,772,892
,203
1,154,358
8.22
.326
62
Lehigh & Hudson River
97
6,213,194
,091
525,314
8.45
.148
63
New York, Philadelphia & Norfolk
112
10,866,687
,160
999,098
9.19
.282
64
Detroit & Toledo Shore Line
81
4,632,233
,068
461,370
9.96
.130
66
Bessemer & Lake Erie
205
46,967,219
.691
4,744,143
10.10
1.339
66
Cumberland Valley
164
10,420,968
,153
1,275,942
12.24
.360
67
Pittsburgh & Lake Erie
225
61,834,965
,910
9,068,954
14.67
2.560
Total
58,980
$8,798,489,506
100.011
$354,288,746
5.21
100.000
NATIONAL TRANSPORTATION CONFERENCE PLAN
Temporary Valuation
for Determining
Excess Income
Estimated Net Railway Operating Income in a Year When the Yield Equals
6% upon the Aggregate Property Investment Accounts op All
of the Railroads of the District
Amount
Percentage
of
District
Total
Amount
Percentage
of
District
Total
Percentage
on
Property
Investment
Account
Disposition of Net Operating Income
In Period While In¬
dividual Contingent
Fund is Being
Built Up
In Period After In¬
dividual Contingent
Fund is Built Up and
Maintained
Retained by
Railroad Co.
Contribu¬
ted to Con¬
tingent
Funds
Retained by
Railroad Co.
Contribu¬
ted to Gen¬
eral Con¬
tingent
Fund
36—B. & M.
37—D. & M.
38—P., B. & W.
39—P., C., C. & St. L.
40—M. C.
$188,440,518
6,003,065
71,152,983
216,817,411
56,706,196
3.142612
.010056
1.186611
3.615835
.945680
$11,437,145
354,756
4,325,875
13,378,668
3,385,077
2.803666
.087025
1.060476
3.279728
.829799
5.60
5.45
5.76
5.96
5.86
$11,306,431
354,756
4,269,179
13,009,045
3,385,077
$130,714
56,696
369,623
$11,350,002
354,756
4,288,078
13,132,253
3,385,077
$87,143
37,797
246,415
36—B. & M.
37—D. & M.
38—P., B. & W.
39—P., C., C. &
40—M. C.
41—L. V.
42—C., C,, C. & St. L.
43—B. & A.
44—P. R.R.
45—Mich. Cen.
204,002,259
190,016,828
29,591,332
846,823,668
146,135,571
3.402121
3.168895
.493486
14.122399
2.437095
12,756,019
11,523,731
1,737,600
53,163,486
9,363,125
3.127006
2.824993
.426053
13.032378
2.295246
6.25
6.06
5.87
6.28
6.41
12,240,136
11,401,010
1,737,600
50,809,420
8,768,134
515,883
122,721
12,412,097
11,441,917
1,737,600
51,594,109
8,966,464
343,922
81,814
41—L. V.
42—C., C., C. &
43—B. & A.
2,354,066
594,991
1,569,377
396,661
44—P. R.R.
45—Mich. Cen.
46—B., R. & P.
47—C. N. E.
48—B. & S. R.R. C.
49—C.,D. & C. G. T. J.
60—N. Y., N. H. & H.
59,535,704
26,631,839
10,652,427
3,481,350
291,143,332
.992876
.444139
.177642
.058052
4.855363
3,773,902
1,694,020
675,215
233,776
19,215,239
.925158
.415267
.165470
.057363
4.710365
6.34
6.36
6.34
6.72
6.60
3,572,142
1,597,910
639,146
208,881
17,468,600
201,760
96,110
36,069
24,895
1,746,639
3,639,395
1,629,947
651,169
217,179
18,050,813
134,507
64,073
24,046
16,597
1,164,426
46—B., R. & P.
47—C. N. E.
48—B. & S. R.l
49—C.,D. & C. (
50—N. Y., N. E
51—H. V.
52—N. Y. C.
53—Penn. Co.
54—K. & M.
55—E., J. & E.
43,954,788
919,502,503
236,489,892
20,016,639
41,989,323
.733033
15.334460
3.943920
.333821
.700246
2,982,032
62,255,094
17,175,271
1,449,314
3,364,522
.731007
15.261191
4.210280
.355208
.824896
6.79
6.77
7.26
7.02
8.01
2,668,017
56,027,121
14,802,055
1,305,228
2,847,454
314,015
6,227,973
2,373,216
144,086
517,068
2,772,690
58,103,112
15,593,127
1,353,257
3,019,810
209,342
4,151,982
1,582,144
96,057
344,712
51—H. V.
52—N. Y. C.
53—Penn. Co.
54—K. & M.
55—E., J. & E.
56—C. R.R. of N. J.
57—C. N.
58—D. & H.
59—D., L. & W.
60—P. & R.
132,777,668
4,532,019
103,022,797
212,033,141
195,345,643
2.214325
.075580
1.718104
3.536053
3.257766
10,630,389
405,102
8,617,552
17,835,409
18,334,913
2.605838
.099282
2.112617
4.372072
4.494642
8.00
8.94
8.37
8.41
9.39
9,363,566
325,612
7,505,358
15,989,315
16,013,955
1,266,823
79,490
1,112,194
1,846,094
2,320,958
9,785,841
352,109
7,876,089
16,604,680
16,787,608
844,548
52,993
741,463
1,230,729
1,547,305
56—C. R.R. of
57—C. N.
58—D. & H.
69—D., L. & W
60—P. & R.
61—L. & N. E.
62—L. & H. R.
63—N. Y., P. & N.
64—D. & T. S. L.
65—B. & L. E.
13,772,892
6,213,194
10,866,687
4,632,233
46,967,219
.229691
.103614
.181228
.077247
.783264
1,302,940
621,975
1,183,741
547,911
5,235,743
.319417
.152477
.290246
.134337
1.283553
9 46
10.01
10.89
11.83
11.15
1,154,358
525,314
999,098
461,370
4,744,143
148,582
96,661
184,643
86,541
491,600
1,203,886
557,534
1,060,646
490,217
4,908,010
99,054
64,441
123,095
57,694
327,733
61—L. & N. E.
61—L. & H. R.
63—N. Y., P. &
64—D. & T. S.
65—B. & L. E.
66—Cum. Val.
67—P. & L. E.
10,420,968
61,834,965
.173790
1.031216
1,409,040
9,855,350
.345402
2.415855
13.52
15.94
1,275,942
9,068,954
133,098
786,396
1,320,308
9,331,086
88,732
524,264.
66—Cum. Val.
67—P. & L. E.
S5,996,.397,989
99 912658'$407,908,010
99.994809
6.00
$380,554,885
$27,353,125'$3S9,672,597
$18,235,413
Table prepared for the National Transportation Conference by W. W. Salmon, Hochester
15 U U
Jim
U M
EXPLANATION
Of the Two Graphs Used for Each Railroad
UPPER GRAPH eliows percentage of Aggregate Proper¬
ty Investment Accounts in Test Period.
LOWER GRAPH shows percentage of the Aggregate
Valuations derived by use of National
Transportation Conference Formula, as
a temporary basis for determining Ex¬
cess Income.
S ( 7 • 9 10 tl 12 13 M 15 1(
Chart prepared tor the National Transportation Conference by W. W. SalhoNj Bochester, N. T.
77
CHART No. 1—EASTERN DISTRICT—Continued
4 3 2 1 0-*-reRC«ITAGE->-0 1 2 3 4 5
51 H. V.
52 N.Y.C.
"153
54 K.& M.
55 E.J.& E.
C. N.
D.6 H.
D.L.& W.
RSc R.
L.& N.E.
L.& H.R.
N.Y.R&N.
0.T.6 8.L.
EXPLANATION
Of the Three Graphs Used for Each Railroad
UPPER GRAPH shows each railroad's percentage of
railway operating income on its proper¬
ty investment account averaged for the
'Test Period.
MIDDLE GRAPH, as a whole, shows each railroad's es¬
timated percentage of railway operat¬
ing income on its property investment
account when yield for all railroads of
District equals 6 per cent, on their
aggregate property investment ac¬
counts.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Con¬
tingent Funds while Individual Contingent Fund is being
created.
LOWER GRAPH, as a whole, shows same as Middle
Graph as a whole.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Genera!
Railroad Contingent Fund after Individual Contingent
Fund is created.
P. & L.E.
PERCENWGE—^
19 W
TABLE No. 2—SOUTHERN DISTRICT
AVKBAQES OF TEST PERIOD—JULY 1, 1914, to JUNE 30, 1917
No.
ROAD
Miles
Operated
Property Investment Acct.
Amount
Percentage of
District
Total
Railway Operating Income
Amount
Percentage of
Property
Investment
Account
Percentage of
Total
Railway
Operating
Income of
District
NATIONAL TRANSPORTATION CONFERENCE PLAN
Temporary Valuation
for Determining
Excess Income
Amount
Percentage
of
District
Total
Estimated Net Railway Operating Income in'A Year When the Yield Equals
6% upon the Aggregate Property Investment Accounts of all
of the Railroads of the District
Amount
Percentage
of
District
Total
Percentage
on
Property
Investment
Account
Disposition of Net Operating Income
In Period While In¬
dividual Contingent
Fund is Being
Built Up
In Period After In¬
dividual Contingent
Fund is Built^Up and
Maintained
Retained by
Railroad Co.
Contribu¬
ted to Con¬
tingent
Funds
Retained by
Railroad Co
Contribu¬
ted to Gen¬
eral Con¬
tingent
Fund
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Tennessee Central
Atlanta, Birmingham & Atlantic.
Gulf, Mobile & Northern
Carolina, Clinchfield & Ohio
Coal & Coke
New Orleans & Great Northern.
Seaboard Air Line
Virginian
Norfolk Southern
Southern (Inc. Va. & S. W.)
Georgia Southern & Florida
Gulf &« Ship Island
Louisville, Henderson & St. Louis.
Central of Georgia
Western Ry. of Alabama
Illinois Central
Mobile & Ohio
Chesapeake & Ohio
Charleston & Western Carolina.
Atlantic Coast Line
Florida East Coast
Washington Southern
New Orleans & Northeastern.
Alabama & Vicksburg
Yazoo & Mississippi Valley...
Louisville &.Nashville
Atlanta & West Point
Alabama Great Southern
Norfolk & Western
Nashville, Chattanooga & St. Louis.
Cincinnati, New-Orleans & Texas Pacific.
Richmond, Fredericksburg & Potomac....
Total
295
640
402
291
197
285
3,458
513
908
6,983
402
308
200
1,919
133
4,766
1,160
2,380
343
4,764
759
36
204
143
1,382
5,070
93
312
2,085
1,236
337
42,092
$19,717.592
38,467,001
23,220,541
58,552,913
8,311,032
16,071,807
176,523,516
87,747,661
31,023,401
456,881,423
12,513,877
14,168,200
7,666,826
68,854,256
5,828,025
301,361,500
46,264,795
231,563,981
8,380,405
179,819,029
47,826,901
8,330,187
16,974,917
5,537,571
62,904,315
278,070,522
3,798,879
22,643,315
264,792,196
37,583,962
39,368,961
8,846,133
$2,589,615,640
.761
1.485
.897
2.261
.321
.621
6.817
3.388
1.198
17.643
.483
.547
.296
2.659
.225
11.637
1.787
8.942
.324
6.944
1.847
.322
656
.214
2.429
10.738
.147
.874
10.225
1.451
1.520
.342
100.001
$16-3,753
359,289
563,378
1,631,171
281,251
577,355
6,491,333
3,269,630
1,178,253
18,843,308
521,088
604,249
341,404
3,388,224
294,736
16,529,350
2,590,125
13,268,079
481,146
10,349,188
2,858,139
499,249
1,017,734
342,983
3,900,353
17,577,036
259,838
1,742,602
20,893,498
3,212,320
3,596,308
1,194,548
$138,820,918
.83
.93
2.43
2.79
3.38
3.59
3.68
3.73
3.80
4.12
4.16
4.26
4.45
4.92
5.06
5.48
5.60
5.73
5.74
5.76
5.98
5.99
6.00
6.19
6.20
6.32
6.84
7.70
7.89
8.55
9.13
13.50
5.36
.11815
.25862
.40559
1 17497
.20243
.41567
4.67612
2.35571
.84863
13.57450
.37533
.43512
.24566
2.44072
.21252
11.90749
1.86584
9.55827
.34651
7.45542
2.05890
.35948
,73337
.24710
2.80956
12.66247
.18730
1.25566
15.05132
2.31393
2.59056
.86088
100.00380
1—Ten. Cent.
2—A. B. & A.
3—G., M. & N.
4—C., C. & O.
5—C. & C.
6—N. O. & G. N.
7—S. A. L.
8 -Vir.
9—N. & S.
10—So. Ry.
11—G. & S. F.
12—G. & S. I.
13—L., H. & St. L.
14—Cent, of Ga.
15—W. Ry. of Ala.
16—111. Cent.
17—M. & O.
18—C. & O.
19—C. & W. C.
20—A. C. L.
21—F. E. C.
22—Wash. Sou.
23—N. O. & N. E.
24—A. & V.
26—Y. & M. V.
26—L. & N.
27—A. & W. P.
28—A. G. S.
29—N. & W.
30—N., C. & St. L.
31—C., N. O. & T. P.
32—R., F. & P.
$3,058,341
6,696,757
10,503,499
30,428,035
5,241,391
10,765,050
121,093,221
61,103,678
21,975,515
351,527,967
9,718,844
11,267,437
6,362,696
63,204,855
5,502,942
301,361,500
46,264,795
231,563,981
8,380,405
179,819,029
47,826,901
8,330,187
16,974,917
5,.537,571
62,904,315
278,070,522
3,798,879
22,643,315
264,792,196
37,583,962
39,368,961
8,846,133
.133980
293416
.460169
1.333145
.229624
.471648
5.305460
2.677156
.962837
15.401531
.425820
.493642
.278783
2.769207
.241103
13.203603
2.027013
10.145536
.367154
7.878427
2.095449
.364963
.743727
.242637
2.756019
12.183153
.166446
992060
11.601358
1.646672
1.724878
.387571
$2.282,417,7971100.004187 $155,795,922 99.998303
$220,031
460,826
643,696
1,738,072
322,742
645,406
7,276,535
3,531,720
1,318,623
21,162,541
591,923
673,696
389,943
3,823,302
333,449
18,961,120
3,103,837
15,446,915
557,476
11,507,663
3,003,467
522,259
1,162,032
395,273
4,389,878
19,594,846
292,265
1,927,729
22,902,319
3,624,149
3,996,673
1,275,516
.141207
.295893
.413351
1.115535
207318
.413993
4.670742
2.267014
.846600
13.583472
.379975
.432607
.250321
2.453793
.213736
12.170118
1.992302
9.914657
.357510;
7.386410
1.927475
.335046
.745830
.253531
2.817721
12.577051
.187420
1.237487
14.699649
2.326064
2.565474
.819001
1.12
1.20
2.77
2.97
3.88
4.02
4.12
4.02
4.25
4.63
4.73
4.75
5.09
5.55
5.72
6.29
6.71
6.67
6.45
6 40
6.28
6.27
6.86
7.13
6.98
7.05
7.69
8.51
8.65
9.64
10.15
14.42
6.00
$183,500
401,805
630,210
1,738,072
314,483
645,406
7,265,593
3,531,720
1,318,531
21,091,678
583,131
673,696
381,762
3,792,291
330,177
18,081,690
2,775,888
13,893,839
502,824
10,789,142
2,869,614
499,811
1,018,495
342,983
3,900,353
17,577,036
259,838
1,742,602
20,893,498
3,212,320
3,596,308
1,194,548
$36,531
59,021
13,486
8,259
10,942
92
70,863
8,792
8,181
31,011
3,272
879,430
327,949
1,553,076
54,652
718,521
133,853
22,448
143,537
52,290
489,525
2,017,810
32,427
185,127
2,008,821
411,829
400,365
80,968
$195,677
421,479
634,705
1,738,072
317,236
645,406
7,269,240
3,531,720
1,318,562
21,115,299
586,062
673,696
384,489
3,802,628
331,268
18,374,833
2,885,204
14,411,531
521,041
11,028,649
2,914,232
507,294
1,066,341
360,413
4,063,528
18,249,639
270,647
1,804,311
21,563,105
3,349,596
3,729,763
1,221,537
$146,032,844 $9,763,078 $149,287,203 $6,508,719
$24,354
39,347
8,991
5,506
7,295
61
47,242
5,861
5,454
20,674
2,181
586,287
218,633
1,035,384
36,435
479,014
89,235
14,965
95,691
34,860
326,350
1,345,207
21,618
123,418
1,339,214
274,553
266,910
53,979
6— N. O. & G. N.
7—S. A. L.
8—Vir.
9—N. & S.
10—So. Ry.
11—G. & S. F.
12—G. & S. I.
13—L., H. & St. L.
14—Cent, of Ga.
15—W. Ry. of Ala.
1—Ten. Cent.
2—A., B. & A.
3—G., M. & N.
4—C., C. & O.
5—C. & C.
16—111. Cent.
17—M. & O.
18—C. & O.
19—C. & W. C.
20—A. C. L.
21—F. E. C.
22—Wash. Sou.
23—N. O. & N. E.
24—A. & V.
26—Y. & M. V.
26—L. & N.
27—A. & W. P.
28—A. G. S.
29—N. & W.
30—N., C. & St. L.
31—C.. N. O. & T. P.
32—R., F. & P.
Table prepared for the National Transportation Conference by W. W. Salmon, Rochester, N. Y.
79
SOUTHERN DISTRICT
II
EXPLANATION
Of the Three Graphs Used for Each Railroad
UPPER GRAPH shows each railroad's percentage of
railway operating income on its proper¬
ty investment account averaged for the
Test Period.
MIDDLE GRAPH, as a whole, shows each railroad's es¬
timated percentage of railway operat¬
ing income on its property investment
account when yield for all railroads of
District equals 6 per cent, on their
aggregate property investment ac¬
counts.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Con¬
tingent Funds while Individual Contingent Fund is ieing
created.
LOWER GRAPH, as a whole, shows same as Middle
Graph as a whole.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to General
Railroad Contingent Fund after Individual Contingent
Fund ir ereated.
4 S C 7 i f 10 11 II 13 I« IS
Chart prepared for the National Transportation Conference by W. W. Salmon, Rocbeeter, N. Y.
80
TABLE No. 3—WESTERN DISTRICT
AVERAGES OF TEST PERIOD—JULY 1, 1914, to JUNE 30, 1917
No.
ROAD
Miles
Operated
Property Investment Acct.
Amount
Percentage of
District
Total
Railway Operating Income
Amount
Percentage of
Property
Investment
Account
Percentage of
Total
Railway
Operating
Income of
District
NATIONAL TRANSPORTATION CONFERENCE PLAN
Temporary Valuation
por Determining
Excess Income
Amount
Percentage
of
District
Total
Estimated Net Railway Operating Income in a Year When the Yield Equals
6% upon the Aggregate Property Investment Accounts of all
of the Railroads op the District
Amount
Percentage
of
District
Total
Percentage
on
Property
Investment
Account
Disposition of Net Operating Income
In Period While In¬
dividual Contingent
Fund is Being
Built Up
Retained by
Railroad Co.
Contribu¬
ted to Con¬
tingent
Funds
Retained by
Railroad Co.
In Period After In¬
dividual Contingent
Fund is Built Up and
Maintained
Contribu¬
ted to Gen¬
eral Con¬
tingent
Fund
1
2
3
4
6
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
26
26
27
28
29
30
31
32
St. Louis, San Francisco & Texas.
Trinity & Brazos Valley
Beaumont,iSour Lake & Western.
Missouri,'Oklahoma & Gulf
Fort Worth & Rio Grande
Kansas City, Mexico & Orient..
Colorado Midland
Missouri & North Arkansas
Quincy,;Omaha & Kansas City.
Fort Smith & Western
San Antonio, Uvalde & Gulf
Denver & Salt Lake
Duluth,'South Shore & Atlantic.
New;Orleans, Texas & Mexico..
San Antonio & Arkansas Pass..,
Toledo, Peoria & Western
Louisiana Ry. & Navigation Co...
Chicago Great Western
St. Louis Southwestern of Texas.
Spokane International
Chicago, Peoria & St.. Louis.
St. Joseph & Grand Island..
Northwestern Pacific
Texas Midland
Western Pacific
Midland Valley
Chicago & Alton
Missouri, Kansas & Texas...
Colorado & Southern
Spokane, Portland & Seattle.
Louisiana & Arkansas
International & Great Northern.
240
369
180
332
235
738
338
365
257
254
317
225
600
191
724
248
342
1,496
811
164
255
258
507
125
950
384
1,053
3,536
1,103
555
291
1,160
$10,314,420
11,663,611
4,229,378
11,737,164
8,097,543
28,556,567
15,041,472
18,001,294
6,468,954
11,662,042
4,757,513
26,945,119
48,349,534
15,556,398
24,212,173
10,029,946
20,849,415
167,836,512
30,029,113
10,198,633
8,267,715
18,425,401
60,905,531
2,751,264
83,078,292
17,541,228
121,610,372
235,848,860
82,238,700
61,125,699
12,086,769
39,460,201
.132
.149
.054
.150
.104
.366
.193
.231
.083
.149
.061
.345
.620
.199
.310
.129
.267
2.151
.385
.131
.106
.236
.781
.035
1.065
.225
1.558
3 022
1.054
.783
.155
.506
-$319,688
- 238,883
- 33,489
- 83,713
1,903
16,023
18,770
13,775
29,615
82,164
56,082
320,707
594,780
220,979
372,457
159,029
361,697
2,976,371
561,541
192,604
160,134
369,024
1,224,164
59,531
1,897,506
440,928
3,211,453
6,617,206
2,502,493
1,877,502
408,716
1,423,702
-3.10
-2.05
- .79
- .71
.02
.06
.12
.19
.46
.70
1.18
1.19
1.23
1.42
1.54
1.59
1.73
1.77
1.87
1.89
1.94
2.00
2.01
2.16
2.28
2.51
2.64
2.81
3.04
3.07
3.38
3.61
.080
.060
.008
.021
.001
.004
.005
.003
.007
.020
.014
.080
.148
.055
.093
.040
.090
.741
.140
.048
.040
.092
.305
.015
.473
.110
.800
1.648
.622
.468
.102
.355
1—St. L., S. F. & T.
2—T. & B. V.
3—B., S. L. & W.
4—M., O. & G.
5—Ft. W. & R. G.
6—K. C., M. & O.
7—Col. Mid.
a—M. & N. A.
9—Q., O. & K. C.
10—Ft. S. & W.
11—S. A., U. & G.
12—D. & S. L.
13—D., S. S. & A.
14—N. O., T. & M.
15—S. A. & A. P.
16—T., P. & W.
17—L. R. & N. Co.
18—C. G. W.
19—St. L. S. W. of T.
20—S. I.
21—C., P. & St. L.
22—St. J. & G. I.
23—N. W. Pac.
24—T. M.
25—W. P.
—Mid. Val.
27—C. & A.
28—M., K. & T.
29—C. & S.
30—S., P. & S.
31—L. & A.
32—1. & G. N.
-$6,219,857
- 4,643,431
- 639,935
- 1,631,054
39,020
.091356
.068193
.009400
.023956
.000573
312,163
366,792
273,143
577,502
1,592,033
1,084,768
6,235,465
11,557,852
4,292,247
7,226,584
3,090,418
7,031,482
57,828,284
10,917,917
3,753,765
.004583
.005390
.004010
.008489
.023383
.015936
.091577
.169758
.063039
.106147
.045384
.103268
.849349
.160358
.055137
3,106,026
7,171,955
23,786,857
1,162,808
36,882,115
8,568,887
62,393,675
128,580,137
48,619,462
36,491,910
7,944,560
27,673,292
.045619
.105339
.349372
.016980
.541704
.125857
.916412
1.888519
.714092
.535976
.116692
.406447
-$259,586
- 182,226
48
- 8,162
40,875
16.9,647
121,287
73,324
72,306
116,077
80,553
422,663
747,672
313,923
572,932
211,453
491,951
3,754,127
770,382
236,890
259,736
462,127
1,338,219
89,604
2,235,683
520,739
3,975,660
8,314,050
2,971,836
2,088,976
520,927
1,955,056
.055531
.038872
2.52
1.56
.001709
.008757
.07
.50
.036309
.025843
.015591
.015378
.024775
.59
.81
.41
1.12
1.00
.017300
.090344
.159758
.067064
.122381
1.69
1.57
1.55
2.02
2.37
.045065
.104868
.801779
.164457
.050618
2.11
2.35
2.24
2.57
2.32
.055531
.098674
.285770
.019222
.477565
3.14
2.51
2.20
3.26
2.69
.111275
.849194
1.775704
.634760
.446169
2.97
3.27
3.53
3.61
3.42
.111275
.417549
4.31
4.95
-$319,688
- 238,883
- 33,489
- 83,713
2,341
$60,102
56,657
33,441
75,551
38,534
-$299,654
- 219,997
- 22,342
- 58,529
15,186
$40,068
37,771
22,294
50,367
25,689
1—St. L., S. F. & T.
2—T. & B. V.
3—B., S. L. & W.
4—M., O. & G.
5—Ft. W. & R. G.
18,730
22,008
16,389
34,650
95,522
150,917
99,279
56,935
37,656
20,555
69,036
55,101
35,367
47,202
102,374
100,611
66,186
37,957
25,104
13,703
6—K. C., M. & O.
7—Col. Mid.
8—M. & N. A.
9—Q., O. & K. C.
10—Ft. S. & W.
65,086
374,128
693,471
257,535
433,595
15,467
48,535
54,201
56,388
139,337
70,242
390,306
711,538
276,331
480,041
10,311
32,357
36,134
37,592
92,891
11—S. A., Ü. & G.
12—D. & S. L.
13—D., S. S. & A.
14—N. O., T. & M.
15—S. A. & A. P.
185,425
421,889
3,469,697
655,075
225,226
26,028
69,062
284,430
115,307
11,664
194,101
444,910
3,564,507
693,511
229,114
17,352
46,041
189,620
76,871
7,776
16—T., P. & W.
17—L. R. & N. Co.
18—C. G. W.
19—St. L. S. W. of T.
20—S. I.
186,362
430,317
1,338,219
69,768
2,212,927
73,374
31,810
19,836
22,756
210,820
440,920
1,338,219
76,380
2,220,512
48,916
21,207
13,224
15,171
21—C., P. & St. L.
22—St. J. & G. I.
23—N. W. Pac.
24—T. M.
25—W. P.
514,133
3,743,621
7,714,808
2,917,168
2,088,976
6,606
232,039
599,242
54,668
516,335
3,820,967
7,914,555
2,935,391
2,088,976
4,404
154,693
399,495
36,445
26—Mid. Val.
27—C. & A.
28—M., K. & T.
29—C. & S.
30—S., P. & S.
476,674
1,660,398
44,253
294,658
491,425
1,758,617
29,502
196.439
31—L. & A.
32—1. & G. N.
Western District continued on page 82.
Table prepared for the National Transportation Conference by W. W. Salmon, Rochester, N. Y.
CHART No. 3—WESTERN DISTRICT
EXPLANATION
Of the Two Graphs Used for Each Railroad
UPPER GRAPH shows percentage of Aggregate Proper¬
ty Investment Accounts in Test Period.
LOWER GRAPH shows percentage of the Aggregate
Valuations derived by use of National
Transportation Conference Formula, as
a temporary basis for determining Ex¬
cess Income.
«TUUrftTF
1
1
-reilCENTAIC-»0
3 2 I
rr
2 T.6 B.V,
1 ■.SL.6W.
4 M.O.&O.
s P.W.6R.0.
« K.C.M.fiO.
I COL. MID.
• M.fi N.A.
• O.O.AK.C.
10 FT. 8.6 W.
II S.A.U.6 0.
12 D.6S.L.
13 D.S.S.&A.
14 N.O.T.&M.
15 S.A.6 A.P.
14 T. P. 6 W.
17 L.R.& N.CO.
w C.O.W.
I3ST.L.SW.-T.
20 SPOK. INT.
21 C.P&ST.L.!
22ST.J.& O.i.
23 N.W.PAC.
24 TEX. HID.
2SWEST. PAG.
24 MID. VAL.
27 G. 6 A.
2* M.K. 6 T.
29 G. 6 S.
30 S.P 6 S.
31 L.6 A.
32 I.& Q.N.
l-.-P£RCEHT*SE-*
3.
.-i) i 2 3 4
Western District continued on page 83.
EXPLANATION
Of the Three Graphs Used for Each Railroad
UPPER GRAPH shows each railroad's percentage of
railway operating income on its proper¬
ty investment account averaged for the
Test Period.
MIDDLE GRAPH, as a whole, shows each railroad's es¬
timated percentage of railway operat¬
ing income on its property investment
account when yield for all railroads of
District equals 6 per cent, on their
aggregate property investment ac¬
counts.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Con¬
tingent Funds while Individual Contingent Fund is being
cheated.
LOWER GRAPH, as a whole, shows same as Middle
Graph as a whole.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to General
Railroad Contingent Fund after Individual Contingent
Fund is created.
¡9 M ti a o u s N n w » 20
Chart prepared for the National Transportation Conference by W. W. Salmo», Bochester, N. T.
TABLE No. 3—WESTERN DISTRICT—Continued
AVERAGES OF TEST PERIOD—JULY 1, 1914, to JUNE 30, 1917
No.
ROAD
Miles
Operated
Property Investment Acct.
Amount
Percentage of
District
Total
Railway Operating Income
Amount
Percentage on
Property
Investment
Account
Percentage of
Total
Railway
Operating
Income of
District
NATIONAL TRANSPORTATION CONFERENCE PLAN
Temporary Valuation
for Determining
Excess Income
Amount
Percentage
of
District
Total
Estimated Net Railway Operating Income in a Year When the Yield Equals
6% upon the Aggregate Property Investment Accounts of all
of the Railroads of the District
Amount
Percentage
of
District
Total
Percentage
on
Property
Investment
Account
DispoiäiTioN of Net Operating Income
In Period While In¬
dividual Contingent
Fund is Being
Built Up
Retained by
Railroad Co.
Contribu¬
ted to Con¬
tingent
Funds
33
Texas & Pacific
1,944
$110,182,255
1.412
$4,138,785
3.76
1.031
34
Minneapolis & St. Louis
1,647
67,879,614
.870
2,643,047
3.89
.658
35
Vicksburg, Shreveport & Pacific
171
9,013,267
.115
356,412
3.95
.089
36
Minerai Range
120
3,523,119
.045
147,324
4.18
.037
37
Kansas City Southern
836
81,19.",069
1.040
3,546,351
4.37
.883
38
Los Angeles & Sait Lake
1,154
77,693,910
.996
3,414,343
4.39
.850
39
Missouri Pacific
7,434
324,208,653
4.154
14,352,572
4.43
3.574
40
Chicago, Milwaukee & St. Paul
10,216
580,348,423
7.436
27,343,309
4.71
6.808
41
Chicago, Rock Island & Pacific
7,645
319,181,430
4.090
15,079,955
4.72
3.755
42
Denver & Rio Grande
2,578
175,913,464
2.254
8,341,050
4.74
2.077
43
St. Louis & San Francisco
4,778
286,113,393
3.666
13,610,028
4.76
3.389
44
Cripple Creek & Colorado Springs
117
10,544,953
.135
502,720
4.77
.125
45
St. Louis Southwestern
943
70,950,212
.909
3,398,024
4.79
.846
46
Southern Pacific
11,066
956,211,005
12.253
47,727,330
4.99
11.884
47
Chicago, Rock Island & Gulf
477
17,439,594
.223
971,267
5.57
.242
48
Minneapolis, St. Paul & Sault Ste. Marie
4,228
182,018,693
2.332
10,568,091
5.81
2.631
49
Chicago & Northwestern
8,108
381,542,655
4.889
23,404,272
6.13
5.828
50
Atchison, Topeka & Santa Fe
11,270
688,749,805
8.826
42,405,059
6.16
10.559
51
Northern Pacific
6,514
489,457,224
6.272
30,690,489
6.27
7.642
52
St. Louis, Brownsville & Mexico
548
15,544,731
.199
992,580
6.39
.247
53
Chicago, St. Paul, Minneapolis & Omaha
1,753
76,267,674
.977
4,973,399
6.52
1.238
54
Great Northern
8,173
433,599,261
5.556
29,063,531
6.70
7.237
65
Wichita Valley
257
5,478,677
.070
367,389
6.71
.091
56
Arizona & New Mexico
112
4,504,258
.058
302,652
6.72
.075
57
Union Pacific
7,982
573,885,057
7.354
38,566,152
6.72
9.603
58
Chicago, Burlington & Quincy
9,372
484,507,951
6.208
33,991,042
7.02
8.464
59
Fort Worth & Denver City
454
25,245,533
.324
1,904,241
7.54
.474
60
El Paso & Southwestern
1,028
52,833,436
.677
4,247,681
8.04
1.058
61
Duluth & Iron Range
273
27,329,825
.350
2,400,382
8.78
.598
62
Duluth, Missabe & Northern
413
37,975,004
.487
5,374,561
14.15
1.338
63
Bingham & Garfield
36
6,872,337
.088
1,300,507
18.92
.324
Total
130,250
$7,804,087,319
100.000
$401,619 624
5.15
100.005
In Period After In¬
dividual Contingent
Fund is Built Up and
Maintained
Retained by
Railroad Co.
Contribu¬
ted to Gen¬
eral Con¬
tingent
Fund
33—T. & P.
34—M. & St. L.
35—v., S. & P.
36—M. R.
37—K. C. 8.
38—L. A. & S. L.
39—Mo. Pac.
40—C., M. & St. P.
41—C. R. I. & P.
42—D. & R. G.
43—St. L. & S. F.
44—C. C. & C. S.
46—St. L. S. W.
46—So. Pac.
47—C., R. 1. & G.
48—M.St.P.&S.S.M.
49—C. & N. W.
50—A., T. & S. F.
51—No. Pac.
52—St. L., B. & M.
53—C. St. P., M. & O.
54—Gt. Nor.
55—W. V.
56—A. & N. M.
57—Un. Pac.
58—C., B. & Q.
59—F. W. & D. C.
60—E. P. & S. W.
61—D. & 1. R.
62—D., M. & N.
63—B. & G.
$80,428,920
51,358,696
6,914,421
2,856,295
68,910,088
66,342,543
278,910,265
531,333,459
293,035,662
162,083,082
264,472,704
9,770,716
66,030,380
927,437,699
17,439,594
182,018,693
381,542,655
688,749,805
489,457,224
15,544,731
76,267,674
433,599,261
5,478,677
4,504,258
573,885,057
484,507,951
25,245,533
52,833,436
27,329,825
37,975,004
6,872.337
$6,808,563,487
1.181301
.754335
.101549
.041948
1.012116
.974413
4.096491
7.803953
4.303966
2.370484
3.884447
.143512
.969816
13.621746
.256150
2.663394
5.603913
10.116016
7.188900
.228317
1.120186
6.368485
.080473
.066153
8.428936
7.116211
.370801
.775985
.401409
.557758
.100933
99.980582
$5,139,652
3,254,411
423,189
214,161
4,164,341
3,909,689
17,896,666
32,620,691
18,734,004
9,644,265
15,918,254
591,462
3,838,382
54,412,263
1,140,055
12,250,857
27,667,018
48,978,703
34,378,970
1,107,664
5,908,646
33,032,743
420,290
345,159
43,553,570
39,104,355
2,195,622
4,763,081
2,782,128
5.928.908
1.418.909
$468,215,761
1.097801
.694989
.090344
.045706
.889347
.835098
3.822441
6.967193
4.001208
2.059766
3.399766
.126226
.819720
11.621131
243481
2.616569
5.909118
10.460935
7.342667
.236647
1.262044
7.055188
.089704
.073685
9.302263
8.351832
469022
1.017282
.594180
1.206316
.303070
99.839602
4.66
4.79
4.70
6.08
5.13
5.03
5.52
5.62
5.87
5.48
5.56
5.61
5.40
5.68
6.54
6.73
7.25
7.11
7.02
7.13
7.74
7.62
7.68
7.66
7.59
8.07
8.70
9.02
10.17
15.61
20.64
6.00
$4,825,735
3,081,522
414,865
171,378
4,134,605
3,909,689
16,734,616
31,880,008
17,582,140
9,644,265
15,868,362
586,243
3,838,382
54,412,263
1,046,376
10,921,122
23,404,272
42,405,059
30,690,489
992,580
4,973,399
29,063,531
367,389
302,652
38,566,152
33,991,042
1,904,241
4,247,681
2,400,382
5,374,561
1,300,507
$428,683,873
$313,917
172,889
8,324
42,783
29,736
1,162,050
740,683
1,151,864
49,892
5,219
93,679
1,329,735
4,262,746
6,573,644
3,688,481
115,084
935,247
3,969,212
52,901
42,507
4,987,418
5,113,313
291,381
515,400
381,746
554,347
118,402
$39,531,888
$4,930,374
3,139,152
417,640
185.639
4,144,517
3,909,689
17,121,966
32,126,902
17,966,095
9,644,265
15,884,993
587,983
3,838,382
54,412,263
1,077,602
11,364,367
24,825,187
44,596,274
31,919,983
1,030,941
5,285,148
30,386,602
385,023
316,821
40,228,625
35,695,480
2,001,368
4,419,481
2,.527,631
5,5.59,343
1,339,974
$441,861,172
$209,278
115,259
5,549
28,522
19,824
774,700
493,789
767,909
33,261
3,479
62,453
886,490
2,841,831
4,382,429
2,458,987
76,723
623,498
2,646,141
35,267
28,338
3,324,945
3,408,875
194,254
343,600
254,497
369,565
78,935
$26,354,589
33—T. & P.
34—M. & St. L.
35—V., S. & P.
36—M. R.
37—K. C. S.
38—L. A. & S. L.
39—Mo. Pac.
40—C., M. & St. P.
41—C., R. I. & P.
42—D. & R. G.
43—St. L. & S. F.
44—C. C. & C. S.
46—St. L. S. W.
46—So. Pac.
47—C., R. I. & G.
48—M.St.P.&S.S.M.
49—C. & N. W.
50—A., T. & S. F.
51—No. Pac.
52—St. L., B. & M.
53—C. St. P. M. & O.
54—Gt. Nor.
55—W. V.
56—A. & N. M.
57—Un. Pac.
58—C., B. & Q.
59—F. W. & D. C.
60—E. P. & S. W.
61—D. & I. R.
62—D., M. & N.
63—B. & G.
Table prepared for the National Transportation Conference by W. W. Salmon, Eochester, N. T.
83
CHART No. 3—WESTERN DISTRICT—Continued
n
tt
11
to
II
M
»
l(
IT
30
EXPLANATION
Of the Two Graphs Used for Each Railroad
UPPER GRAPH shows percentage of Aggre¬
gate Property Investment Accounts in
Test Period.
LOWER GRAPH shows percentage of the Aggre¬
gate Valuations derived by use of the
National Transportation Conference
Formula, as a temporary basis for de¬
termining Excess Income.
EXPLANATION
Of the Three Graphs Used for Each Railroad
UPPER GRAPH shows each railroad's percentage of
railway operating income on its proper¬
ty investment account averaged for the
Test Period.
MIDDLE GRAPH, as a whole, shows each railroad's es¬
timated percentage of railway operat¬
ing income on its property investment
account when yield for all railroads of
District equals 6 per cent, on their
aggregate property investment ac¬
counts.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to Con¬
tingent Funds while Individual Contingent Fund is being
created.
LOWER GRAPH, as a whole, shows same as Middle
Graph as a whole.
Unshaded portion shows part of income retained by
railroad and shaded portion, part turned over to General
Railroad Contingent Fund after Individual Contingent
Fund is created.
1
10 II 12 13 M 15 It IT n 19 20
Chart pr paroJ for thr National Transportation Conference by W. W. Salmon, Rochester, N. T.
84
TABLE No. 4—SOUTHERN DISTRICT
Table illustrating distribution of part of General Contingent Funá in a year when aggregate net operating income of railroads of a district
is lass than 6% on their aggregate property investment accounts and also showing what part of the moneys received in such distribution is
turned back to General Contingent Fund by certain of the Railroads.
No.
ROAD
Assumed operating revenues in
year when shortage of net
income for district equals
$6,508,719
Amount
Percentage
Receipt from
General
Contingent Fund
Returned to
General
Contingent Fund
Net receipt from
General
Contingent Fund
Tennessee Central
Atlanta, Birmingham & Atlantic
Gulf, Mobile & Northern
Carolina, Clinchfleld & Ohio
Coal & Coke
New Orleans & Great Northern
Seaboard Air Line
Virginian
Norfolk Southern
Southern (Inc. Va. & S. W.)
Georgia Southern & Florida
Gulf & Ship Island
Louisville, Henderson & St. Louis
Central of Georgia
Western Ry. of Alabama
Illinois Central
Mobile & Ohio
Chesapeake & Ohio
Charleston & Western Carolina
Atlantic Coast Line
Florida East Coast
Washington Southern
New Orleans & Northeastern
Alabama & Vicksburg
Yazoo & Mississippi Valley
Louisville & Nashville
Atlanta & West Point
Alabama Great Southern
Norfolk & Western
Nashville, Chattanooga & St. Louis
Cincinnati, New Orleans & Texas Pacific
Richmond, Fredericksburg & Potomac...
$1,797,252
3,983,368
2,322,650
4,063,267
1,290,665
.2986
.6618
.3860
.6751
.2145
$19,435
43,074
25,123
43,940
13,961
$12,957
28,716
8,991
5,506
$6,478
14,358
16,132
43,940
8,455
6
7
8
9
10
1,916,218
30,345,146
10,242,473
5,299,914
92,025,691
.3184
5.0421
1.7018
.8806
15.2910
20,724
328,176
110,765
57,316
995,248
7,295
61 !
47,242
20,724
320,881
110,765
57,255
948,006
11
12
13
14
16
2,983,428
2,328,741
2,226,650
16,024,537
1,725,860
.4957
.3870
.3700
2.6627
.2868
32,263
25,189
24,082
173,308
18,667
5,861
5,454
20,674
2,181
26,402
25,189
18,628
152,634
16,486
16
17
18
19
20
87,144,786
13,604,506
54,643,794
2,401,444
44,063,331
14.4800
2.2606
9.0796
.3990
7.3215
942,463
147,136
590,966
25,970
476,536
586,287
98,091
393,977
17,313
317,691
356,176
49,045
196,989
8,657
158,845
21
22
23
24
26
8,140,167
2,763,407
4,969,265
2,139,316
18,152,123
1.3525
.4591
.8256
.3554
3.0161
88,030
29,882
53,736
23,132
196,310
58,687
14,965
35,824
15,421
130,873
29,343
14,917
17,912
7,711
65,437
26
27
28
29
30
76,907,387
1,770,250
7,151,055
65,910,242
15,194,755
12.7789
.2941
1.1882
10.9516
2.5248
831,743
19,142
77,337
712,809
164,332
554,495
12,761
51,558
475,206
109,555
277,248
6,381
25,779
237,603
54,777
31
32
13,051,819
5,249,407
2.1687
.8722
141,155
56,769
94,103
37,846
47,052
18,923
Total
$601,832,914
100.0000
$6,508,719
$3,149,591
$3,359,128
Note.—Aggregate deficiency assumed is $6,508,719 (an amount equaling total excess income of district in a 6% year),
are assumed to equal those of year ending December 31,1917.
Railroad Operating Revenues
Table prepared for the National Transportation Conference by W. W. Salmon, Rochester, N. Y.
85
CHART No. 4—SOUTHERN DISTRICT
PERCENTAGE—>-0
1 TEN.CENT.
2 A.B.& A.
3 G.M.& N.
*■ C.C.&0.
sCOAL&COKEtb
6 N.a& G.N.
7 S.A.L.
8 VIRGINIAN
9 N.&'8.
10 SOUTHERN
« G.S.& F.
12 G.& S.I.
13 L.H.& ST. L. ^
« CENT. OF GA.
15 WRY. OF ALA
16 ILL. CENT.
10
It
12
13
U
IS
16
17
18
I»
20
21
EXPLANATION
Of graphs showing relation between Contributions
to and Distributions of General Railroad
Contingent Fund.
UPPER GRAPH shows percentage of total Contribu¬
tion.
LOWER GRAPH, as a whole, shows percentage of
total Distribution. Shaded portion
shows part retained by Railroad and
unshaded portion, part returned to Gen¬
eral Railroad Contingent Fund.
For fuller explanation see accompanying table.
13 14 15 16 17 18 19
Cbart prepared for the National Transportation Conference by W. W. Salmon,
87
A FEDERAL TRANSPORTATION BOARD
Its Powers and Duties
By EMORY R. JOHNSON
The regulation of railroads by the federal government will be
more comprehensive and detailed in the future than it has been
in the past. Prior to the period of government operation, the
chief concern of the government was to protect the public against
unjust rates and fares and to correct the abuses that had devel¬
oped during the period of intense railway competition ; but, when
private operation is resumed, the government's relation to the rail¬
roads will be much more than corrective in aim, it will be cooper¬
ative. Regulation must become increasingly constructive—posi¬
tive rather than negative in purpose and method.
The people of the United States are looking forward to an even
better railroad service than they have enjoyed in the past. They
believe it will be possible for all railroads to render a service as
excellent as that which has been performed by the strongest and
most efficient systems. To make this possible, however, the num¬
ber of railroad systems must be reduced by the grouping and con¬
solidation of existing roads in accordance with plans approved by
public authority. Competition is not to be abandoned, but it is
no longer to be a struggle of weak roads to maintain themselves
alongside their strong and jealous neighbors ; it is to become the
service rivalry of a limited number of vigorous systems of approxi¬
mately equal strength.
The strong railroad systems formed by the grouping of exist¬
ing railroads ought not to be owned and operated by corporations
subject to the authority of the several states. These powerful
corporations must in the public interest be brought under the
jurisdiction of the United States. It is believed by the Transpor¬
tation Conference that this seemingly difficult task can readily be
accomplished by the enactment and enforcement of a federal rail-
88
road ineorporation act similar in principle to the National Bank
Act by means of which state banks are converted into federal in¬
stitutions.
The capital expenditures and the security issues of the con¬
solidated railroad companies of the future are certain to be regu¬
lated by the United States government. The agency that performs
this task will render the country a great service. In passing upon
capital expenditures of the railroads, public authority will sit in
judgment upon the wisdom or unwisdom of proposed railroad im¬
provements or extensions and will in effect determine the lines of
development of the American railway system as a whole. Through
the exercise of this authority it will be possible for the government
to bring about gradually the unification and the economic develop¬
ment of railroad terminal facilities and services, to prevent the
unnecessary construction of new lines, to require the physical con¬
nection of railroads and, if Congress so wills, the connection and
joint use of railroads and waterways.
Through its regulation of rates and fares the government has
already come to determine the revenues of the railroads. In the
future, in larger measure than in the past, the expenses of the
railroads will depend upon the requirements made by the regu¬
latory authorities of the government. It is obvious that Congress
and the administrative agencies it creates must assume responsi¬
bility for the adoption and enforcement of measures that will not
only assure the financial stability of the railroads, but will also
enable the companies to acquire and maintain such credit as will
enable them to secure from the investing public the funds re¬
quired for the adequate development of the country's railroad
transportation system. Unless the private railroads under govern¬
ment regulation can thus secure capital from private investors,
government ownership must necessarily follow.
Broadly speaking, there are three tasks of major importance that
must be accomplished to bring about the permanent solution of the
railroad problem and to insure the success of government regula¬
tion of railroads. The existing railway systems, many in number,
and of varying degrees of weakness and strength, must be brought
together into an appropriate number of vigorous competing sys¬
tems; the corporations which control these large systems must
owe their allegiance to the federal government and observe its re¬
quirements as to expenditures, capitalization and corporate prac¬
tices; and laws must be enacted and enforced that will assure to
89
the railroads adequate revenue, financial strength and harmonious
relations with their employes and with the public.
These tasks can not be accomplished unless Congress provides
appropriate and efïective machinery for giving effect to legislative
policy. Eailroad regulation is an executive problem. Its success
depends upon the creation of an administrative agency with re¬
sponsibilities and powers commensurate with the magnitude of the
work to be done and vested with that freedom of initiative and
action that will cause it to organize and to function as an effective
executive body.
The plan of railroad legislation, that has been developed by the
National Transportation Conference with the hope that the delib¬
erations and conclusions of the Conference may be helpful to Con¬
gress in its search for a permanent solution of the railroad ques¬
tion, calls for the establishment of an administrative agency of
large powers and heavy responsibilities. The Conference does not
favor placing those powers and responsibilities in the hands of a
cabinet officer. The members of the President's Cabinet hold office
for a comparatively few years. They are inevitably selected in
large part because of the prominent place they occupy in the
counsels and activities of the political party in power. They are
political appointees and their administration of the railroads
would almost certainly be political. The adequate development
and the technical efficiency of the railroads and other agencies of
transportation are of such vital consequence to the people of the
United States that it would be a public misfortune to allow
political methods and party politics to control or even largely to
influence the regulation of transportation agencies.
The Transportation Conference has, moreover, after very care¬
ful consideration of the subject, reached the conclusion that it
would be unwise to require the Interstate Commerce Commission
to exercise the administrative functions that must be performed to
insure the success of railroad regulations. As Mr. Harry A.
Wheeler says in his Explanatory Statement regarding the Con¬
ference Plan of Railroad Legislation:
"It is believed that the Interstate Commerce Commission ought
not to be burdened by the addition to the tasks it now performs
of a large number of administrative duties. Should the Commis¬
sion, as is contemplated, become the authority for the sole regula¬
tion of all railroad rates, rules and regulations affecting interstate
commerce, its duties will necessarily be enlarged. To require the
90
Commission to exercise the administrative functions contemplated
111 the proposed plan of remedial railroad legislation would be to
the detriment of the public interest, because it would seriously in¬
terfere with the prompt action of the Commission as a body for
I he regulation of rates, the task for which it was especially created
and for the performance of which it is peculiarly adapted."
The Conference recommends that a Federal Transportation
Hoard be established. It should be an executive board, of at least
five memliers, and should he charged with the responsibility both
of administering the act which Congress shall adopt for the regu¬
lation of railroads and of bringing about the coordinated devel¬
opment of a national system of rail, water and highway transpor¬
tation. The proposed Board should not be entrusted with the
regulation of rates—that should be left with the Interstate Com¬
merce Commission ; nor should the proposed Board be concerned
with the construction of waterways and highways, which work
should be done by appropriate agencies especially created by Con¬
gress. The following specific duties should be performed by the
Federal Transportation Board :
1. The Board shonld determine and announce the grouping or
consolidation of railroads deemed to be in the public interest. An
opportunitv and incentive should be given existing railroad com¬
panies to effect the desired consolidations upon their own initia¬
tive; but if the desired mergers are not thus accomplished by the
railroads within a reasonable time, the Transportation Board
should have the power to carry out the plans authorized by Con¬
gress for merging all railroads engaged in interstate commerce
into a limited number of strong systems so located that each im¬
portant traffic district of the United States shall be served by
more than one system.
'¿. The Board shonld have the authority to require, if compul¬
sion is found to be necessary, the railroad companies, as a condi¬
tion precedent to the formation of consolidated railroad systems, to
become federal corporations, either hy the organization of new
companies under federal charters or by changing from state to
federal corporations in the manner suggested by the Transporta¬
tion Conference.
3. The Transjjortation Board should be given authority to pass
upon the public necessity for the expenditure of capital (in excess
of a minimum amount stipulated by statute) by all carriers by
rail engaged in interstate commerce. This power should be so ex-
91
ercised as to prevent unnecessary duplication of line or terminal
railroad facilities and as gradually to bring about the unification
of railroad terminal facilities and to accomplish that degree of
coordination of rail, highway and water terminal facilities that
may be found to be in the public interest.
4. The Board should administer the general railroad contingent
fund or funds which, as the Conference has pointed out, must be
built up and maintained as a means of strengthening and stabiliz¬
ing railroad credit. The Conference does not favor a government
guarantee of a fixed return upon the property of individual rail¬
road companies. Instead of the fixed guarantee by the govern¬
ment, the Conference favors a statutory rule of rate making that
will yield the railroads, as a whole, a fair return upon the value
of their property devoted to the public service; and, in order that
railroad credit may really be put upon a sound basis without im¬
posing unreasonably high rates upon the public, the Conference
recommends that railroads be required to turn over the large part
of their excess profits into contingent funds which shall act as
financial shock absorbers. These funds should be administered by
the Federal Transportation Board ; and, of the many duties to be
performed by the Board, none will be of greater immediate value
both to the carriers and to the public.
.5. The Transportation Board should act as a referee in cases of
disagreement resulting in a deadlock of any of the boards which
it is proposed by the Transportation Conference shall be entrusted
with the adjustment of wages, hours of employment and other
conditions of the service of railroad employes. It is the hope of
the Transportation Conference that the disputes between the rail¬
road companies and their employes, which have in the past on
more than one occasion threatened to paralyze the industries of
the country, may be avoided in the future by continuing the
method of adjusting wages, hours of labor and conditions of service
that was adopted in 1917, and has been continued and developed
by the Railroad Admini,stration. These boards which have to do
with the adjustment of wages, hours of labor and conditions of
service, are made up of equal numbers of representatives of the
carriers and their employes. It is proposed that the Transporta¬
tion Board act as referee in case of a disagreement amounting to
a deadlock in any of these boards.
6. The Transportation Conference recommends that each of the
corporations owning and operating the proposed consolidated rail-
92
road systems shall organize with directorates of twelve members,
"one of whom shall be a representative of the employes of the sys¬
tem, and nominated for that position by such employes, and three
of whom shall be selected by the Federal Transportation Board to
represent the principal interests involved in the territory served by
such system." The directors thus selected are to make regular
and special reports to the Transportation Board in accordance with
the rules laid down by that Board.
7. The Transportation Board should be authorized and required
to inquire into the practices of railroad management and to pro¬
pose measures for preventing abuses therein. Because of the in¬
completeness of past regulation of railroads, the financial and
other practices of those irresponsible and unscrupulous men who
unfortunately are to be found in limited number in practically
every line of business, have brought ruin upon some American
railroad .systems and have injured the security of all railroad com¬
panies in the mind of the investing public. It should be the aim
of the Transportation Board to promote the legal and moral re¬
sponsibility of railroad directorates and railroad executive officers
with a view to protecting the funds that have been invested by the
public and to make railroad securities safe and attractive invest¬
ments for the accumulating wealth of the nation.
8. The plan adopted by the Transportation Conference pro¬
vides that "It shall be the general duty of the (Transportation)
Board to promote the development of a national system of rail,
water and highway transportation." The United States, as a re¬
sult of the initiative of its business men, has an excellent system
of railroads. Highway development, although long neglected, is
now proceeding rapidly and motor transportation is being organ¬
ized on a large scale. The country is supplied with numerous
waterways capable of large traffic uses when systematically de¬
veloped and properly coordinated with the railroads. What is now
needed is a transportation board vested with the power, and
charged with the duty, of bringing the railroads, the waterways
and the highways together into a national transportation system.
The railroads and waterways must be connected at river, lake and
ocean terminals, through routes must be established, through rates
provided, and opportunities afforded shippers to dispatch their
goods on through bills of lading by such a combination of rail,
water and highway carriers as will be most efficient and economical.
This integration of the different parts of the national transporta-
93
tion system can be brought about only by creating some single
agency with authority over the use of railroads, waterways and
highways.
In creating the Federal Transportation Board it will he desir¬
able to provide against conflict of jurisdiction between that Board,
the Interstate Commerce Commission and the Shipping Board. It
would not be desirable to create a board that will encroach upon
the work now performed by the Interstate Commerce Commission
or that will interfere with the activities of the United States Ship¬
ping Board. What is needed is a board that will supplement and
coordinate the activities of the Interstate Commerce Commission,
the Shipping Board and certain other agencies of the government.
The mind of the Interstate Commerce Commission is now, and
should continue to be, upon the regulation of railroad rates and
the determination of the value of railroad property. The Shipping
Board is temporarily devoting itself mainly to the construction of
vessels, but when war conditions end it will seek to apply to the
business of ocean transportation the general principles of regula¬
tion that have been applied to railroads with such modifications
as are made necessary by the differences between ocean and rail
transportation.
The necessity for a Federal Transportation Board may he
clearly indicated by a reference to the present regulation of ter¬
minal facilities and services. The Interstate Commerce Commis¬
sion has certain authority over railroad terminals and the Ship¬
ping Board has limited powers over persons engaged in the per¬
formance of terminal services at ocean ports ; but neither body has
adequate power at the terminals where water and rail carriers
come together. There is no authority that can unify terminal
operations, that can bring about the physical connection and the
traffic articulation of rail and water carriers.
There is no authority having the responsibility of formulating
plans for the systematic development of transportation facilities
by rail and by water. We shall always have a disconnected and
uneconomical system of transportation in the United States until
we create a Board whose mind shall he upon the whole transpor¬
tation problem.
The Board entrusted with the duties that have been briefly
enumerated should be composed of men of the highest character
and attainments. Their responsibilities will equal, if not exceed,
those of the Federal Eeserve Board, whose creation at a critical
94
period in the history of the United States has proven to have been
of incalculable benefit. The proposed Transportation Board will
have an opportunity to perform an even greater service. Its duty
will be to guide and facilitate the development of a truly national
system of transportation.