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Author: 
 
 Title: 
 
 Service at cost for street 
 railways 
 
 Place: 
 
 New Yorl< 
 
 Date: 
 
 [1921] 
 
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Service at cost for street railways, 
 
 "*•».. 
 
( Columbia Wlnihtxiitp 
 
 tn ttie Cttp of ^to l^orfe 
 
 LIBRARY 
 
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 1 1 
 
SUPPLEMENT TO THE 
 
 National 
 
 Muaicipal 
 Review 
 
 Vol. X, No. 2 
 
 February, 1921 
 
 SERVICE AT COST 
 
 FOR 
 
 STREET RAILWAYS 
 
 A SYMPOSIUM 
 
 I 
 
 Four Papers by Experienced Public Officials 
 
 Answering the Question, "Is Service-at-Cost 
 
 a Panacea or Nostrum?** 
 
 PUBUSHED BY THE 
 
 NATIONAL MUNICIPAL LEAGUE 
 
 RAILROAD SQUARE, CONCORD, N. H. 
 
 EDITORIAL OFFICE, 261 BROADWAY, 
 
 NEW YORK, N. Y. 
 
 Watered as second-cUu matter April 15, 1914, at the post-office at Concord, New Hampshire, under the Act of Aocust 14, 
 
 ItU 
 
 I s''a Inir m 
 
\ 
 
 
 
 
 SERVICE-AT-COST-PANACEA OR NOSTRUM? 
 
 CONTENTS 
 
 ^ Ill 
 
 Railway Co, 
 
 126 
 
 134 
 Service at Cost Versv. ^x^^pal 0™ship ..^.^.^^^^^^^^ 
 
 Charles M. Fassett, Former Mayor oj bpomne, i^luj, 
 American City Consultants. 
 
 »«— 
 
 
 BOSTON— THE PUBLIC TRUSTEE PLAN 
 
 BY JAMES F. JACKSON 
 Chairman, Board of Trustees, Boston Elevated Railtoay 
 
 Chapter 159 of the acts of the legis- 
 lature of Massachusetts of 1918, known 
 as the Public Control Act, went into 
 effect on the first day of July in that 
 year. It arranged what is practically 
 a lease of the Boston Elevated Railway 
 for the term of ten years to the state 
 of Massachusetts representing for that 
 purpose Boston and certain suburban 
 cities and towns which the railway 
 serves. Five trustees to be appointed 
 by the governor of the state and to 
 hold office for the ten years of the lease 
 were given absolute control over the 
 management and operation of the rail- 
 way. The rental was to be paid in 
 fixed dividends upon outstanding stock 
 at 5 per cent for the first two years, at 
 5^ per cent for the next two years and 
 at 6 per cent for the balance of the 
 term. 
 
 This act grew out of the vain strug- 
 gle under private management to fur- 
 nish service upon a five-cent fare, a 
 struggle that even under pre-war prices 
 and conditions had grown more and 
 more desperate until the payment of 
 dividends was suspended and the effort 
 to maintain the property practically 
 abandoned. The problem was no 
 longer a question of profits for stock- 
 holders but of the existence of the serv- 
 ice upon a system prostrated by lack 
 of capital and revenue. 
 
 The legislature could have met the 
 situation in any one of four ways. It 
 could have allowed the railway to go 
 into the hands of a receiver with the 
 consequent expense, delay and uncer- 
 tainties; or it could come to the aid of 
 private management with relief from 
 burdens and with guarantee of credit; 
 
 111 
 
 or it could commit itself completely to 
 the theory of pubUc ownership; or it 
 could take the less radical step of an 
 e3q>eriment with pubUc control of the 
 railway under temporary lease from 
 its owners. It chose the last of these 
 courses. 
 
 WHY THE TRUSTEE PLAN WAS 
 ADOPTED 
 
 Three factors in the situation un- 
 doubtedly had influence in bringing 
 about this decision. 
 
 The first was the fact that the use- 
 fulness of the street railway had come 
 to be fully understood. It was appre- 
 ciated as never before that the street 
 car is not alone the poor man's carriage 
 but that of the pubhc official, the man 
 of business, the professional man- 
 directly or indirectly the carriage on 
 which everyone rehes and for which 
 no jitney or other kind of electric om- 
 nibus can be substituted. It must be 
 preserved. 
 
 The second was the fact that this 
 metropoUtan railway represented an 
 honest investment under a pubHe 
 supervision that had prevented exces- 
 sive issue of stock or bonds and that, 
 therefore, there was no call for reor- 
 ganization to ehminate watered stock. 
 The third was the fact that the new 
 capital which was indispensable to 
 sustain this service must be obtained 
 by buying it at market prices as other 
 necessities are bought, in other words 
 that investment must have its secure 
 return. 
 
 To the legislative mind the problem 
 for experience to solve was whether or 
 
NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 1921] 
 
 112 
 
 not a public management coidd be 
 efficient, that is conducted without 
 waste and without loss of ambition or 
 pride in achievement. It was thought 
 that a trial was worth while. 
 
 The basic plan for this experiment 
 was that which I believe is the best for 
 any street railway enterprise— a serv- 
 ice at cost— meaning of course proper 
 or necessary cost. 
 
 In assuming their duties the trustees 
 took over a railway that covered 
 535.326 miles of track, 475.717 miles of 
 it surface track, 30.080 miles in sub- 
 ways and 29.529 miles upon elevated 
 structure. Much of the surface track 
 was of hght construction and badly 
 worn, a large part of the roUing stock 
 in poor repair and of obsolete type. 
 The power plant was in process of 
 development and repair shops and car 
 bams utterly inadequate. The total 
 investment in this railway system was 
 $93,612,211.21 represented by out- 
 standing stock and bonds in about 
 equal proportion. The aggregate cost 
 of the subways and tunnels under lease 
 to this company was $35,033,506.11. 
 The Cambridge subway was then in- 
 cluded in the corporate property at its 
 cost of $7,868,000 but last winter this 
 subway was transferred to the state 
 practically at cost and leased to the 
 company as the other subways had 
 been leased at construction. 
 
 MORE REVENUE NEEDED 
 
 The act directed the trustees to rein- 
 state the railway in good operating 
 condition. To do this additional cap- 
 ital and additional revenue must be 
 immediately obtained. As a measure 
 for providing a first installment of the 
 needed capital the act authorized an 
 issue of preferred stock to the amount 
 of $2,000,000. To secure operatmg 
 revenue the act directed the trustees to 
 put in force fares that would make the 
 
 service self-supporting and provided 
 that meanwhile deficits incurred should 
 be met from taxation in the cities and 
 towns served by the railway, the 
 amounts so advanced to be repaid 
 whenever operating revenue should 
 exceed operating cost. 
 
 The new capital was inmiediately 
 used in part payment for 250 modern 
 cars. Successive advances in fare fol- 
 lowed. A seven-cent fare was put in 
 effect in August and in October gave 
 way to an eight-cent fare which after 
 a trial of seven months also proved in- 
 adequate. At the close of the year 
 ending on June 30, 1919, receipts had 
 failed to meet expenses by approxi- 
 mately five miUion dollars which 
 amount was raised by taxation in the 
 cities and towns served. 
 
 The ten-cent fare now in force was 
 introduced in July, 1919. Losses under 
 it continued in decreasing amount for 
 two months, but in September this fare 
 began to produce revenue sufficient to 
 meet expenses and eventually to absorb 
 the earlier deficits so that on June 30, 
 1920, the trustees were able to report 
 that operating receipts for the year had 
 met operating costs including all fixed 
 charges and a reserve to depreciation. 
 In summer months the expense for 
 street work is always large and receipts 
 are always smaller than in other 
 months, traffic falUng below average. 
 These conditions prevailed as usual in 
 July, August and September of this 
 year. The expected operating deficit 
 for those months was realized but 
 unless some extraordinary event inter- 
 venes this will be readily absorbed 
 before next July leaving at the close of 
 this year as at the end of last year no 
 
 deficit. 
 
 There is a natural interest about tne 
 effect of higher fares upon traffic. Our 
 experience has shown that there has 
 been a gain in total revenue but a loss 
 in the number of passengers carried. 
 
 BOSTON— THE PUBLIC TRUSTEE PLAN 
 
 113 
 
 Under the ten-cent fare this loss at 
 first amounted to 12 per cent of the 
 traffic but gradually diminished to 10 
 per cent. To use figures the number 
 of passengers carried under a five-cent 
 fare for the month of October, 1917, 
 was 32,854,047. Under the ten-cent 
 fare in October, 1920, the number was 
 29,382,315. 
 
 Had there been during this time no 
 unusually large increase in operating 
 costs over those prevailing in the days 
 of private management, receipts would 
 have met expenditures at a fare con- 
 siderably below ten cents. As every- 
 one knows, however, prices had risen 
 upon every hand at a tremendous pace. 
 This was featured most strikingly 
 through advances in wages. The av- 
 erage number of employes upon this 
 railway is 10,000. In the spring of 
 1918 an advance in wages took place 
 the effect of which was felt throughout 
 the first year of public control. In that 
 year a further advance took place and 
 last year a third. The aggregate in- 
 crease in operating cost on this account 
 has been approximately $7,000,000. 
 To-day more than half of every fare 
 goes to compensation of employes. 
 
 The higher cost of coal has been an- 
 other leading feature of increases in 
 operating cost. Owing to a favorable 
 contract that expired last July this 
 advance has been seriously felt by us 
 only during the last four months. As 
 our yearly consumption of coal ap- 
 proximates 300,000 tons the additional 
 expense this year would reach at pres- 
 ent rates $2,000,000. 
 
 One item of expenditure is a reserve 
 to depreciation amounting to $2,000,- 
 000. This is annually set aside from 
 fares to provide for renewals and re- 
 placements. Proper charges to depre- 
 ciation are made not to build up the 
 property to the full measure of original 
 investment for the benefit of stockhold- 
 ers, but to maintain it in good operating 
 
 condition for the benefit of the public. 
 This means that the old-fashioned 
 notion of maintaining a railway by 
 hand to mouth methods with large ex- 
 penditures in prosperous years and 
 small expenditures or none at all in the 
 lean years is a thing of the past. Sound 
 policy to-day takes care that out of 
 every day's receipts something is put 
 aside to meet the wear and tear that is 
 constantly taking place. The lack of 
 this precaution accounts in large part 
 for the disasters which have over- 
 taken so many street railway enter- 
 prises. 
 
 ZONE FARES OR FLAT RATE? 
 
 Boston has a single flat fare. It is a 
 tradition and also the profound belief 
 of many that this distributes the pop- 
 ulation, attracting people from con- 
 gested centers into the outlying sub- 
 urbs and that in so doing it establishes 
 more healthful living conditions. 
 Many families have undoubtedly es- 
 tablished their homes in these suburbs 
 in the confident belief that this single 
 flat fare would never be disturbed. 
 But there are in Boston enthusiastic 
 advocates of zone fares as more equi- 
 table and just in making the cost of 
 riding proportionate to some extent 
 with the distance the passenger is 
 carried. The trustees are studying the 
 comparative merits of the two systems 
 in the light of experience in this and 
 other countries. 
 
 Experiments have been recently 
 made with a five-cent fare upon lines 
 where the run is short and where prac- 
 tically no competition with the general 
 ten-cent fare is involved. Some of 
 these experiments have proved failures 
 but two of the Unes are now in success- 
 ful operation. 
 
 Nothing is more idle than an attempt 
 to compare street railway service in 
 one city with that in another without 
 
NATIONAL MUNICIPAL BEVIEW SUPPLEMENT [Feb. 
 
 1921] 
 
 BOSTON— THE PUBLIC TRUSTEE PLAN 
 
 115 
 
 l| 
 
 114 
 
 the knowledge that is nec^sary to en- 
 able one to make proper "^Ho^f ^^«^ 
 distinguishing condition that make 
 the seWice dissimilar. The^ diffmng 
 conditions vitally affect both the kind 
 and the cost of transportation, lake 
 a look at the situation m B<»ton. Ihe 
 center of business is confined to a 
 small area into and from which on an 
 average forty to fifty thousand peopte 
 daily ride upon.the street cars at about 
 the same hour in the moniing and at 
 night. The problem of furmshmg 
 proper accommodation is one that is 
 diflScult. We have here a transporta- 
 tion wheel with a hub becoming more 
 and more inadequate to receive the 
 spokes which enter it as the terminal 
 Eradiating lines. S*"** ^"^^^^ J^^i 
 long ago inadequate for general travel 
 and the street cars were dnven mto 
 subways. The first subway bu.lt m 
 this country was built in Boston The 
 cost of constructing and mainta,ining 
 these subways is borne under easting 
 law by the car rider in rentals paid from 
 fares into the public treasury. The 
 i.vartion of this tax now means an 
 ^rSpayment of nearly $2,000 000 
 or one-half of a cent upon each nde. 
 
 This is a relic from days when tolls 
 were exacted for the use of highways^ 
 ^e street car is a P«bbc conv^anoe 
 operated in Boston by P"bl'« .o^^'^;^ 
 aid the subway is a public highway. 
 The automobilist uses highways spe- 
 ciaUy adapted at great cost to his con- 
 vince Vithout contribution from 
 him to construction expense. What 
 excuse is there for this discrimination 
 in his favor and against the car r,d«? 
 
 The investment in the Boston ele- 
 vated system, including subways and 
 I^elsf is $136,500,000. The average 
 ride over this system is four and one 
 S miles while the longest di^^-^ 
 covered is nineteen miles. The aver 
 age number of passengers earned dai y 
 in 1918 was 955.245; the average m 
 
 1919 was 889.750. The »v^'^8\^^^ . 
 October of this year was 947.816 Ihe 
 budget of expenditures for 1919 was 
 $32,000,000. The budget for this year 
 is $34,000,000. 
 
 Up^n .Assuming office the trustees 
 immediately worked out a general plan 
 of improvement involving a total out- 
 lay during a period of five years of 
 about eighteen million dollars charge- 
 able in about equal P^Pof f "^ ,.*" 
 capital and replacement. Substantial 
 progress has been made toward the 
 consummation of this program bnnging 
 with it modem cars, improved traxjk, 
 larger accommodation and more fre- 
 quent service. . ,„n,„ 
 The trustees make no claim as to the 
 success of the experiment m pubhc 
 control which is in their charge. One 
 reason for saying little or nothing about 
 what has been done is the ever present 
 knowledge on their part that whatever 
 it may be it is only a step toward the 
 goal which they hope the service will 
 
 finally reach. . . 
 
 The board is organized with chair- 
 man and recording secretary, the 
 former assuming the ^l^ties %dinari y 
 performed by the president of a rail, 
 way and the latter those ordinarily 
 performed by the clerk of a board of 
 dkectors. Committees of two are 
 assigned to administrative depart- 
 3 and report from their severa 
 spheres of activity at the stated or 
 special meetings of the board. The 
 t^tees in this way are keeping m close 
 touch with all matters of administra- 
 tion The operating staff has at its 
 head our general manager, Edward 
 Dana, who was appointed to that posi- 
 tion in recognition of his fitness for its 
 Jes^LibiUtlTs. The confidence re^ 
 posed in him has been amply justified 
 in what he has accomphshed, and his 
 abiUty, energy and untiring devoUon 
 to the work and his harmomous rela- 
 tions with the trustees and with sub- 
 
 ordinate oflGlcials and employes have 
 proved invaluable. 
 
 GUIDING PRINCIPLES OF ADMINISTRA- 
 TION 
 
 There are certain principles of ad- 
 ministration that the trustees have 
 adopted to which I will briefly refer. 
 
 Roosevelt, as we know, was fond of 
 referring to the square deal. K men 
 would oftener take the trouble to get 
 below the surface of life they would 
 find that there is something in every 
 one that responds to the call for it, for 
 even handed justice. It is the saving 
 grace in the world. But we can be sure 
 that no such thing is possible where 
 ignorance rules instead of knowledge. 
 Every effort then should be made to 
 give out the truth, the whole truth and 
 nothing but the truth with respect to 
 all matters that are of interest to the 
 travelling public. 
 
 Nothing hinders the approach of rail- 
 way service to the standard which it 
 ought to reach so much as the lack of 
 patience. We all fail to exercise it. 
 We jump to conclusions without know- 
 ing the facts; we hand in our verdict 
 without waiting for the evidence. 
 How can we secure patience on the 
 part of the public? In only one way, 
 by publication of facts. Plain and 
 complete and frequent information 
 makes for the sound public opinion 
 which is the safeguard of manage- 
 ment. 
 
 Street transportation must always 
 be subject to unavoidable interruption. 
 A car loaded with passengers anxious 
 to reach office or home stops, and an- 
 other car stops, and another, and an- 
 other until the Une is choked with cars 
 carrying hundreds of impatient men 
 and women. The use of every effort 
 to let the crews and the passengers 
 know perhaps that a truck has fallen 
 across the track, or that a drawbridge 
 
 is up, or that a rail is broken, or some- 
 thing wrong with the p>ower is worth 
 the cost at almost any price. With the 
 information conductors can cope with 
 the emergency and passengers will be 
 as patient as we can fairly ask. 
 
 Financial interests are entitled to 
 know the whole truth. Credit cannot 
 live without frank information. If this 
 is given credit will follow as far as it 
 ought to follow. 
 
 Close relations should be established 
 between management and employes. 
 Acquaintance on the part of the men 
 with receipts and expenditures with 
 the reason for existing conditions and 
 plans for their improvement and op- 
 portunity to make suggestion about 
 them will tend to lessen indifference, 
 create mutual confidence and awaken 
 ambition and pride in work. 
 
 Street car service for the most part 
 is a personal undertaking. Its standing 
 in the community depends chiefly upon 
 the men who operate the cars. Direct- 
 ors or trustees or general managers 
 may be wise in their day and genera- 
 tion and yet if their wisdom fails to 
 estabUsh team work with their em- 
 ployes it will be of little avail. 
 
 Co-operation between the public and 
 employes is vital to success. Both 
 must contribute to it. Bad work by 
 the employe is quickly condemned. 
 Why not commend good work? The 
 automobile is the carriage of the indi- 
 vidual. The car is the carriage of a 
 group of individuals, practically their 
 automobile. If your chauffeur shows 
 skill you compUment him. Why not 
 say a word in commendation to motor- 
 man or conductor who does good 
 work? 
 
 Everyone knows the difference be- 
 tween the motorman whose skill makes 
 the journey safe and agreeable and the 
 motorman who stops and starts his 
 car in a way that throws his passen- 
 gers about or drives it at a pace that is 
 
NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 1921] INDIANAPOLIS RETAINS THE FIVE-CENT FARE 
 
 117 
 
 ■II 
 
 > 
 
 116 
 
 disagreeable if not dangerous. Every- 
 one appreciates the conductor who is 
 alert, helpful and pleasant Why 
 should passengers refuse to heed the 
 request he makes of them in their own 
 interest and that of all who nde? 
 
 I have a last personal word. 1 have 
 long been acquainted with the men who 
 have had charge of the railways in 
 Massachusetts and in New Englajid. 
 They have been men who are held in 
 the highest esteem in the commumties 
 where they live. Through the stress of 
 all these years they have kept at their 
 posts undismayed. The record is one 
 of ability, loyalty to pubUc interests 
 and unblemished honor. Nor are they 
 
 unUke the men who have managed 
 street railways elsewhere. 
 
 Under the conditions which prevail 
 to-day we may all of us feel a new zeal, 
 a new confidence in the success of the 
 work at which they have labored so 
 long. My last word then is one of 
 optimism. But the struggle is not over. 
 Fares are not yet adjusted. There is 
 the fight against the jitney and the 
 contest with the private automobile; 
 the search for new economies to meet 
 higher costs of operation; the effort to 
 restore credit and inspire new conh- 
 dence in capital. So it is an up grade 
 and a long pull that lies ahead, but 
 the street car is bound to win. 
 
 INDIANAPOLIS RETAINS THE FIVE 
 
 CENT FARE^ 
 
 BUT REJECTS SERVICE-AT-COST 
 
 BY E. I. 
 
 ChaxTman, PuUic Service 
 
 Your convention meets in Indian- 
 apohs, a community that believes m a 
 five-cent street carfare. It hopes to 
 
 retain it. 
 
 Those of you who have come from 
 Portland, Maine, and Portland, Ore- 
 gon, from New Orleans and the Twin 
 Cities, and from cities between, may 
 experience in IndianapoUs the pleasant 
 reminiscence of the good old days of 
 
 1 Editor's Note: At the time of the National 
 Municipal League meeting in Indianapolis, there 
 was pending before the Indiana Commission, as 
 commented on by Mr. Ix^wis in his addr^, a 
 petition of the Indianapolb Street Ra Jway Com- 
 Uny for a two cent transfer charge. This petition 
 ^ acted upon December 18. 1920 and a one 
 cent transfer charge was granted, the five cent 
 basicfarebeingretained. The question of retain- 
 ing or increasing this charge in the future will be 
 a^wered in accordance with the anticipa^ 
 changed conditions affecting both costs and rev- 
 enue toing Wh as their effecU are discerned. 
 
 LEWIS 
 
 Commission of Indiana 
 
 five-cent street car rides. With the 
 desertion of Cleveland, the list of 
 places where the all but forgotten 
 sensation of buying a street car ride 
 with one coin— unless it be a ten-cent 
 piece— is approaching the point of near 
 
 extinction. « , j *u« 
 
 Delegates from Portland on the 
 Atlantic Coast paid a ten-cent street 
 carfare to get to the raibroad station. 
 K they stopped at any cities enroute, 
 except New York whose five-cent fares 
 are causing heavy deficits that cannot 
 continue, they have paid seven, eight 
 or ten cents for street car rides. In 
 Boston it was ten cents, in Providence 
 six in Albany seven, in Buffalo seven, 
 in Newark seven, in Philadelphia seven, 
 in Baltimore seven, in Washington 
 eight, in Pittsburgh ten, in Cleveland 
 six in Detroit six, in Toledo seven, m 
 
 Columbus six, in Cincinnati eight 
 cents. 
 
 Those coming from Portland on the 
 Pacific Coast paid eight cents to get 
 to their station. If they stopped off 
 enroute they paid a ten cent fare in 
 Seattle, in Tacoma ten cents, in Spo- 
 kane six, in San Francisco five, in Los 
 Angeles five, in Salt Lake seven, in 
 Denver six, in Topeka eight, in Omaha 
 seven, in St. Paul six, in MinneapoUs 
 six, in New Orleans eight, in Louisville 
 five, in Kansas City eight, in St. Louis 
 seven, in Milwaukee seven, in Chicago 
 eight cents. 
 
 On July 1, 1920, I do not have the 
 numerous changes upward since that 
 date, if you had stopped off for a street 
 car ride in any one of 69 municipalities, 
 including such cities as Boston, Pitts- 
 burgh and Seattle, you would have paid 
 ten cents for a street car ride; if in any 
 one of 32 cities, eight or nine cents; if 
 in any one of 178 cities, seven cents; if 
 in any one of 176 cities, six cents; and, 
 generally, there would have been extra 
 charge for transfer or for continuation 
 of ride from one zone into another 
 zone. To-day 600 cities have street 
 car cash fares in excess of five cents. 
 
 While discovery of a place where one 
 can actually buy 18 miles of riding for 
 five cents is notable, it is not as re- 
 markable as the discovery that the 
 company is solvent and full of hope. 
 Returning confidence in its future is 
 indicated by higher bid prices for its 
 securities. 
 
 On July 1, 1920, there were 118 
 companies, with a total of 7,820 miles 
 of track in receivership. Since July 
 1 there have been a number of receiver- 
 ships added to this depressing total. 
 Other companies, some of which have 
 exhausted possibilities of eight- and 
 ten-cent fares, are showing hopeless 
 tendencies. Fifty-six of those 118 
 receiverships occurred between June 
 1, 1919, and July 1, 1920.. Obviously 
 
 the departure from the five-cent fare 
 has not been a complete success. As 
 an institution the street railroad has 
 the pallor of bankruptcy. 
 
 A great deal of attention has been 
 directed to rehabihtation, or one might 
 say resuscitation, of the national sys- 
 tem of steam railway transportation. 
 Our congress has given its best efforts 
 to that solution. Important as is the 
 problem of the steam railroads, the fact 
 remains that while they transport 
 approximately one billion persons 
 annually, the street railways transport 
 fourteen or fiif teen persons to every one 
 carried by the steam roads. 
 
 The day is past when financial 
 distress of the street railway industry 
 could be looked on as being only of 
 concern to the industry. The growth 
 of cities is, as never before, insistently 
 demanding money for extensions. The 
 fact that the voice calling for that 
 money generally does not inspire con- 
 fidence constitutes one of our most 
 important municipal problems. 
 
 THE company's ATTITUDE TO THE 
 FIVE-CENT FARE 
 
 When I was invited to appear on 
 your programme it was to speak on 
 "The Success of the five-cent fare in 
 Indianapolis." I suggested change of 
 title to "The Five-Cent Fare in 
 Indianapolis." That does not imply 
 that the five-cent fare has not been a 
 success, but I believe that no one should 
 speak of accomplished success until the 
 war's readjustment period is past. 
 We hope, and there seems to be good 
 reason to expect, that two or three 
 years from this time IndianapoHs» 
 when called on at one of your meetings, 
 can respond to the toast "IndianapoHs, 
 the Five-Cent Street Carfare City." 
 I proceeded after making the change 
 in title to block out what I would say. 
 Since then, however, a changed condi- 
 
118 
 
 NATIONAL MUNICffAL BEVmW SUPPLEMENT IP*. 
 
 II 
 
 tion has come. The local street car 
 company, by formal petition has come 
 to the Commission saying that the 
 frenzied price raising in coal has caught 
 irand reversed, with the beginmng of 
 fall the favorable financial showings 
 ie up to that time. The company 
 Talking for temporary rehef a transfer 
 Se Ld readiustment of pay^^^^^^ 
 by interurban companies ^or trackage 
 ^d terminal facilities, to tide them 
 over this coal crisis. 
 
 The significant feature of the peti- 
 tion, however, is that there is indicated 
 no desire for a higher basic fare than 
 
 ^"m^can be more remarkable than 
 the experience of a pubhc utihty com- 
 'i:^rer having gentlemen who two 
 years ago sat on the front steps be 
 moaning the denial of a six-cent fare 
 ^S coming around and ^ymg 
 "We need some temporary rehef to 
 get us past the exorlntant coal pnce 
 L, but we want to hold fast to this 
 
 '^S'Si^-narenotinbus^^^^^^ 
 for pleasure. They are intent J.n 
 making money^a most commendable 
 ^S for pubhc utihties notwith- 
 Sng occasional short-sighted com- 
 S fo the contrary. Why do not 
 these gentlemen who now say a t^em- 
 ^r^ry emergency faces them, petition 
 CaTix-centfare? Because they have 
 experienced a great awakemng. It 
 may all prove to be a mistake, but they 
 now are of the opinion that a higher 
 b^c fare than five cents, at least in 
 
 Sanapolis, would result in cutUng 
 down the most profitable Vftd^^ 
 street railway company s business 
 th^ is, the short-haul patronage for 
 w£.h there is always the potential 
 rS^tition of that patronage's own 
 S^as well as the appeal of Jitneys- 
 
 Fax^ing the fact that within two 
 
 week^ I shaU sit as one of the judges m 
 
 ■ Z matter, I may not, with propriety, 
 
 go into some details that Y?" niigbt 
 desire. However, I am entirely free 
 J:Tummarize the historic background 
 of low fares in Indianapolis From 
 my angle of view it covers the sub- 
 stantial and f midamental phases of the 
 
 subject. It is ^^^,^^^^1^^^.^^^^^^^ 
 further back than the year 1918 when 
 on a decision of the supreme court of 
 Inchana, the Public Service Commi - 
 sl^n assumed jurisdiction and ehm^ 
 nated fares of less than five cents^^ 
 December, 1918, the company came to 
 the Commission for a six-cent fa^^ 
 The Commission rejected the plea 
 chiefly on four revelations that re 
 suited from pubhc hearings. 
 
 WHY A PETITION FOR INCREASED FARE 
 WAS REFUSED 
 
 The first revelation was that the 
 company was not collecting its earned 
 'r^^. The Commission reached 
 this decision as a result of putting 
 trained check^son^ cars. T^^^ 
 
 presence was not fuspectea. 
 ^f the company had ^e^f ^ J.^^^^^^ 
 of earned revenues did not exceed ^ 
 T>er cent, and were more nearly 1 per 
 ^nt The Commission's inspectors 
 Xwed a loss of 13.6 per cent on cars 
 checked during a six day penoj. Jhe 
 Commission held that "It ^^ ^^^^^? 
 provide increased revenues for peti 
 C^r if it does not collect revenues 
 Seady provided." The introduction 
 Jpa Wou-enter cars was the result 
 of this investigation and decision 
 
 The second revelation was that the 
 value of petitioner's Property did not 
 warrant its financial obligations. iHe 
 Company presented an inventory and 
 Xation tetaling f^^^^f^'^^.J 
 the Commission had ever let that val 
 nation get by, I^dianapohs would have 
 been paying a seven-or eight-cent fare. 
 J^m'Ve'^^y certain that officers of ^e 
 company now wiU agree that the 
 
 1921] INDIANAPOLIS RETAINS THE FIVE-CENT FARE 
 
 financial outlook under such conditions 
 would not be as favorable as it is now. 
 The hearing revealed values only a 
 little in excess of half the twenty-eight 
 million six hundred thousand dollars. 
 No one, except local taxing officials, 
 who have assessed the company at 
 almost twenty million dollars, is now 
 claiming a value in excess of $16,000,000 
 or $16,500,000. When a service-at- 
 cost proposal was laid before the Com- 
 mission this year the city and company 
 practically agreed to a valuation of 
 $15,000,000. 
 
 From the date of its decision, the 
 Commission has had the co-operation 
 of officers and various groups of stock 
 and bond holders in working out a 
 voluntary reduction of obligations to 
 a proper basis. A superimposed hold- 
 ing and operating company, the In- 
 dianapolis Traction and Terminal Com- 
 pany, was eliminated. Four million 
 dollars of common stock for which 
 there was no substantial background 
 was wiped out, and two million one 
 hundred and eighty of interest bearing 
 bonds, held in sinking funds, were can- 
 celled, thus reducing securities approxi- 
 mately $6,180,000. Also $1,000,000 of 
 stock was made junior to such an extent 
 that it cannot be considered a liability. 
 Securities were thus reduced approx- 
 imately 30 per cent. Indianapolis 
 Street Railway stockholders who had 
 been slumbering in comfortable berths 
 with the assurance of guaranteed stock 
 dividends, were called forth to operate 
 their property and to assume the 
 hazards of preferred stockholders. 
 
 The third revelation was of a 
 device that was not uncommon in 
 the profitable days of unregulated 
 street railroading. This device was a 
 sinking fund for the retirement of 
 bonds. The street car riders were not 
 only to guarantee dividends to a non- 
 operating company, but were also to 
 wipe out the bonded indebtedness. 
 
 119 
 
 One hundred twenty thousand dollars 
 annually was going into this sinking 
 fund. Also, the bonds which, it 
 would seem, should have been annually 
 retired were continuing to draw in- 
 terest. Payments to the sinking fund, 
 and payment of interest on bonds held 
 in the sinking fund, were amounting 
 annually to almost $200,000 of money 
 that was badly needed for property and 
 service. 
 
 When the Commission pointed out 
 that this plan, simply analyzed, meant 
 that the public was placed in the 
 position of giving to the company not 
 only sufficient fares to maintain and 
 operate service, but also ultimately to 
 give the company its property, and 
 that such a plan was not at all consist- 
 ent with regulation which, for emer- 
 gency relief, the company was seeking 
 to come under, there again was fine 
 co-operation on the part of the bond 
 and stockholders and officers. At 
 least temporarily the sinking fund 
 provisions are waived. Most advan- 
 tageously to all concerned, the waiver 
 provides that this money go into bet- 
 terments. This means better security 
 for bond and stockholders; better 
 service for the rider. 
 
 The fourth controlling revelation 
 was that the community was drained 
 dry of its young men, who were among 
 the 4,000,000 away to war; that the 
 absence of this vital part of the popula- 
 tion, together with the absence of 
 naany young women and the depres- 
 sions of war, had very nearly stopped 
 social activities; that influenza epidem- 
 ics, sweeping the nation, had all but 
 suspended local shopping, theatre and 
 moving picture traffic; and that locally 
 industrial activity was not normal. 
 
 The Commission, in its denial, took 
 all these conditions into consideration. 
 It accurately forecasted reassumption 
 of normal life and greater traffic. The 
 change came with a rush. In 1918 
 
120 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 justment has come, it is naturally to be 
 presumed that this area will be least 
 and last, affected. 
 
 When the company came to the 
 Commission its plea was that it was at 
 bankruptcy's door. Its tracks and 
 pavements were in bad condition; the 
 condition of its rolling stock was ag- 
 gravatingly proclaimed by flat wheels; 
 its finances were such, it was repre- 
 sented, as not even to permit the 
 installation of rather inexpensive fare 
 collecting boxes, or pay-as-you-enter 
 equipment; its operating forces were 
 not good; four much needed extensions 
 were not forthcoming. 
 
 There are, of course, critics and the 
 impatient. Everything that is de- 
 sired has not been accompUshed. Cars 
 are crowded during rush hours. But 
 those who will stop to survey the situa- 
 tion, must agree that, under the reor- 
 ganization, with a five-cent fare and 
 universal transfer, and in face of the 
 most adverse conditions the country 
 has ever known, there has been in the 
 short period of two years a decided 
 change. All cars have been made 
 pay-as-you-enter; new cars have been 
 purchased and open cars have been 
 converted into closed cars, and some 
 of these are of exceptionally good type; 
 the operating force is of higher stand- 
 ard; flat wheels have disappeared and 
 general maintenance has greatly im- 
 proved; three of the four extensions, 
 the College avenue, the Shelby street, 
 and the Premier motor car plant ex- 
 tensions, have been made, and the 
 fourth, the Illinois street extension, is 
 scheduled for next spring, unless the 
 world upsets again. Diu-ing this pe- 
 riod the city has done a great work in 
 street reconstruction and the street car 
 company is struggUng along with that. 
 No one would presume to say all 
 things are 100 per cent good, or even 
 90 per cent good. I am, however, 
 asking you who five in six, eight and 
 
 1921] INDIANAPOLIS RETAINS THE FIVE-CENT FARE 
 
 121 
 
 the Indianapolis street cars transported 
 70,003,795 revenue passengers; in 
 1919 the trafl&c jumped to 84,051,850 
 passengers; in 1920 it will probably 
 pass the 94,000,000 mark. 
 
 Briefly then, in answering to my 
 subject "The Five-Cent Fare in In- 
 dianapolis," I would summarize by 
 saying that its foundation Ues in: 
 
 (1) Elimination of unwarranted financial obli- 
 gations; 
 
 (2) Elimination of a holding company— and, 
 incidentally, the elimination of absentee land- 
 lordism; 
 
 (3) Awakening to the fact that the short 
 haul passenger is the profitable passenger; 
 
 (4) Collection of earned revenues; 
 
 (5) Taking into calculation subnormal traffic 
 conditions in the war period and correct fore- 
 casting of increased volume of traffic after 1918. 
 
 (6) A healthy spirit of co-operation; 
 
 (7) An intelligent handling of the whole 
 situation by the city; 
 
 (8) Better public relations. 
 
 ADVANTAGES POSSESSED BY INDIAN- 
 APOLIS 
 
 It is true that there are other condi- 
 tions which contribute fundamentally 
 to make it possible for Indianapolis to 
 be, when the readjustment is past — 
 "The Five-Cent Street Carfare City." 
 These advantages are geographical and 
 
 social. ^ J 
 
 The street car company mines a 
 large amount of its own coal in fields 
 located near to Indianapolis and this 
 means cheaper fuel costs than those 
 faced by most companies. Wages and 
 cost of hving all through the war 
 period have been at somewhat lower 
 levels in Indianapolis than those 
 prevailing in the zone of greatest war 
 activities and excesses which reached 
 back from the Atlantic seaboard 
 through Buffalo, Pittsburgh, Youngs- 
 town, Cleveland, Detroit, to Chicago. 
 This applied to street raihoading. 
 Now, that the national period of read- 
 
 ten cent street car cities and who have 
 well in mind what your own cars and 
 service and extension inadequacies are, 
 do you really think there is very sub- 
 stantial ground for complaint from the 
 five-cent car riders of Indianapolis or 
 the city itself? 
 
 I desire specifically to disavow any 
 intention of saying that continuation 
 of the five-cent fare would have been 
 possible for all companies and cities. 
 I am fully aware that it could not, for 
 it has been our duty, as a public 
 service commission, to put higher than 
 a five-cent base fare into six Indiana 
 cities. I do believe, however, that 
 many cities did not try out the possi- 
 bilities of the five-cent fare. 
 
 Looking at the street car situation 
 nationally, it appears that the peak 
 has been reached in operating costs, 
 and that the break is near at hand. 
 Still the skies are not clear. Industrial 
 letting down will likely increase any 
 baneful effect of high fares which may 
 fundamentally, but not now obviously, 
 exist. High fares are not going to get 
 some street car companies past the 
 sheriff for the reason that there have 
 not been fundamental readjustments 
 of financial obligations and elimina- 
 tion of needless superimposed operat- 
 ing companies. 
 
 The aftermath of the war also is 
 generally marked by heavy increases 
 in local taxation. Papers last week 
 announced the inauguration of the 
 six-cent fare in Cleveland and gave as 
 one of the reasons for the increase, at a 
 time when prices are falUng, a $150,000 
 increase in local taxation falling on the 
 company. In Indianapolis at just the 
 time when we began to look on favor- 
 able operating sheets the same burden 
 fell. 
 
 The whole subject of taxation — di- 
 rect and indirect — of the conveyance 
 of the masses of urban population 
 loudly cries for careful study. Direct 
 
 taxation, franchise tax and paving 
 streets will, during the coming year call 
 for almost eighteen per cent of the fare 
 paid by Indianapn^Us street car riders. 
 
 I would make a general observation 
 that is applicable to the IndianapK>lis 
 situation: When the water has been 
 squeezed out, and securities represent, 
 and are warranted by values of prop- 
 erty put to pubHc service, those finan- 
 cial obhgations must be protected. 
 Occasionally the shortsighted demand 
 that these legitimate demands be 
 passed or deferred. 
 
 Laying aside all moral considerations 
 what — especiaUy to-day when all the 
 world wildly is bidding for money for 
 rehabilitation — can be so detrimental 
 to a community as such a course? 
 
 IndianapoUs is typical of all cities. 
 It is growing with marvelous rapidity, 
 ten per cent every three years. Street 
 car lines must be extended so it can 
 expand. More and better cars must be 
 provided to carry more citizens. More 
 power house capacity must be had to 
 move these cars. The chairman of 
 the board of works of this city says 
 that $1,500,000 to $2,000,000 must be 
 sj>ent by the local company next year 
 to keep transportation apace with 
 city growth. In this and all other 
 cities, such heavy expenditures must 
 constantly continue year after year. 
 The great need of the street railway 
 industry is credit. 
 
 Where is this money to come from? 
 From security holders who are unfairly 
 dealt with? From bankers and other 
 custodians and trustees of money who 
 see legitimate obligations ignored? Or 
 are the cities in a position to furnish 
 the capital needed to keep local trans- 
 portation abreast with their growth? 
 
 SERVICE AT COST 
 
 In April this year, the city of 
 Indianapolis laid before the Commis- 
 
120 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 1921] INDIANAPOLIS RETAINS THE FIVE-CENT FARE 
 
 121 
 
 1^ 
 
 the Indianapolis street cars transported 
 70,003,795 revenue passengers; in 
 1919 the traffic jumped to 84,051,850 
 passengers; in 1920 it will probably 
 pass the 94,000,000 mark. 
 
 Briefly then, in answering to my 
 subject "The Five-Cent Fare in In- 
 dianapolis," I would summarize by 
 saying that its foundation Ues in: 
 
 (1) Elimination of unwarranted financial obli- 
 gations; 
 
 (2) Elimination of a holding company— and, 
 incidentally, the elimination of absentee land- 
 lordism; 
 
 (3) Awakening to the fact that the short 
 haul passenger is the profitable passenger; 
 
 (4) Collection of earned revenues; 
 
 (6) Takmg into calculation subnormal traffic 
 conditions in the war period and correct fore- 
 casting of increased volume of traffic after 1918. 
 
 (6) A healthy spirit of co-operation; 
 
 (7) An intelligent handling of the whole 
 situation by the city; 
 
 (8) Better public relations. 
 
 ADVANTAGES POSSESSED BY INDIAN- 
 APOLIS 
 
 It is true that there are other condi- 
 tions which contribute fundamentally 
 to make it possible for IndianapoUs to 
 be, when the readjustment is past — 
 "The Five-Cent Street Carfare City." 
 These advantages are geographical and 
 
 social. ^ , 
 
 The street car company mines a 
 large amount of its own coal in fields 
 located near to Indianapolis and this 
 means cheaper fuel costs than those 
 faced by most companies. Wages and 
 cost of living all through the war 
 period have been at somewhat lower 
 levels in Indianapolis than those 
 prevaiUng in the zone of greatest war 
 activities and excesses which reached 
 back from the Atlantic seaboard 
 through Buffalo, Pittsburgh, Yoimgs- 
 town, Cleveland, Detroit, to Chicago. 
 This applied to street raibroading. 
 Now, that the national period of read- 
 
 justment has come, it is naturally to be 
 presumed that this area will be least 
 and last, affected. 
 
 When the company came to the 
 Commission its plea was that it was at 
 bankruptcy's door. Its tracks and 
 pavements were in bad condition; the 
 condition of its rolling stock was ag- 
 gravatingly proclaimed by flat wheels; 
 its finances were such, it was repre- 
 sented, as not even to permit the 
 installation of rather inexpensive fare 
 collecting boxes, or pay-as-you-enter 
 equipment; its operating forces were 
 not good; four much needed extensions 
 were not forthcoming. 
 
 There are, of course, critics and the 
 impatient. Everything that is de- 
 sired has not been accomplished. Cars 
 are crowded during rush hours. But 
 those who will stop to survey the situa- 
 tion, must agree that, under the reor- 
 ganization, with a five-cent fare and 
 universal transfer, and in face of the 
 most adverse conditions the country 
 has ever known, there has been in the 
 short period of two years a decided 
 change. All cars have been made 
 pay-as-you-enter; new cars have been 
 purchased and open cars have been 
 converted into closed cars, and some 
 of these are of exceptionally good type; 
 the operating force is of higher stand- 
 ard; flat wheels have disappeared and 
 general maintenance has greatly im- 
 proved; three of the four extensions, 
 the College avenue, the Shelby street, 
 and the Premier motor car plant ex- 
 tensions, have been made, and the 
 fourth, the lUinois street extension, is 
 scheduled for next spring, unless the 
 worid upsets again. During this pe- 
 riod the city has done a great work in 
 street reconstruction and the street car 
 company is struggling along with that. 
 No one would presume to say all 
 things are 100 per cent good, or even 
 90 per cent good. I am, however, 
 asking you who Uve in six, eight and 
 
 L> 
 
 ten cent street car cities and who have 
 well in mind what your own cars and 
 service and extension inadequacies are, 
 do you really think there is very sub- 
 stantial ground for complaint from the 
 five-cent car riders of Indianapolis or 
 the city itself? 
 
 I desire specifically to disavow any 
 intention of saying that continuation 
 of the five-cent fare would have been 
 possible for all companies and cities. 
 I am fully aware that it could not, for 
 it has been our duty, as a pubUc 
 service commission, to put higher than 
 a five-cent base fare into six Indiana 
 cities. I do believe, however, that 
 many cities did not try out the possi- 
 bilities of the five-cent fare. 
 
 Looking at the street car situation 
 nationally, it appears that the p>eak 
 has been reached in operating costs, 
 and that the break is near at hand. 
 Still the skies are not clear. Industrial 
 letting down will likely increase any 
 baneful effect of high fares which may 
 fundamentally, but not now obviously, 
 exist. High fares are not going to get 
 some street car companies past the 
 sheriff for the reason that there have 
 not been fundamental readjustments 
 of financial obligations and elimina- 
 tion of needless superimposed operat- 
 ing companies. 
 
 The aftermath of the war also is 
 generally marked by heavy increases 
 in local taxation. Papers last week 
 announced the inauguration of the 
 six-cent fare in Cleveland and gave as 
 one of the reasons for the increase, at a 
 time when prices are falling, a $150,000 
 increase in local taxation falling on the 
 company. In Indianapolis at just the 
 time when we began to look on favor- 
 able operating sheets the same burden 
 fell. 
 
 The whole subject of taxation — di- 
 rect and indirect — of the conveyance 
 of the masses of urban population 
 loudly cries for careful study. Direct 
 
 taxation, franchise tax and paving 
 streets will, during the coming year call 
 for almost eighteen per cent of the fare 
 paid by IndianapoUs street car riders. 
 
 I would make a general observation 
 that is appUcable to the IndianapoUs 
 situation: When the water has been 
 squeezed out, and securities represent, 
 and are warranted by values of prop- 
 erty put to pubUc service, those finan- 
 cial obligations must be protected. 
 Occasionally the shortsighted demand 
 that these legitimate demands be 
 passed or deferred. 
 
 Laying aside all moral considerations 
 what — especiaUy to-day when aU the 
 world wildly is bidding for money for 
 rehabiUtation — can be so detrimental 
 to a community as such a course? 
 
 IndianapoUs is typical of aU cities. 
 It is growing with marvelous rapidity, 
 ten per cent every three years. Street 
 car Unes must be extended so it can 
 expand. More and better cars must be 
 provided to carry more citizens. More 
 power house capacity must be had to 
 move these cars. The chairman of 
 the board of works of this city says 
 that $1,500,000 to $2,000,000 must be 
 spent by the local company next year 
 to keep transportation apace with 
 city growth. In this and all other 
 cities, such heavy exp>enditures must 
 constantly continue year after year. 
 The great need of the street railway 
 industry is credit. 
 
 Where is this money to come from? 
 From security holders who are unfairly 
 dealt with? From bankers and other 
 custodians and trustees of money who 
 see legitimate obUgations ignored? Or 
 are the cities in a position to furnish 
 the capital needed to keep local trans- 
 portation abreast with their growth? 
 
 SERVICE AT COST 
 
 In April this year, the city ci 
 Indianapolis laid before the Commis- 
 
 6 
 
in 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 1921] INDIANAPOLIS RETAINS THE FIVE-CENT FARE 
 
 123 
 
 :. H 
 
 ! i 
 
 sion a service-at-cost plan. It was 
 designed to strengthen the credit of 
 the local company. Officers of the 
 company were most favorable to the 
 plan. Most of the members of the 
 Commission thought that at last the 
 formula for the solution of the local 
 street railway problem had been offered. 
 I was enthusiastic. Mr. Samuel Ash- 
 by, corporation counsel for the city, 
 had made a study of the Cleveland, 
 Montreal, Boston and other service-at- 
 cost plans that — especially the Cincin- 
 nati plan — ^had been nationally pro- 
 claimed as being the latest and best 
 thought. He had particularly studied 
 the great problem of inspring incentive 
 and initiative in the operating com- 
 pany. His plan incorporated — and 
 I beUeve improved upon — the Cin- 
 cinnati idea of giving the company 
 higher retiu-n for lower fares. Effi- 
 ciency was to be rewarded by maximum 
 returns; inefficient operation was to 
 be penahzed. The plan suggested just 
 what rate of return should apply to 
 each step of fare. Mr. H. H. Horn- 
 brook, attorney for the street car com- 
 pany, thought, with possible minor 
 changes, the plan was good. 
 
 It was agreed that it would be well 
 personally to make the rounds of some 
 of the nearby service-at-cost cities for 
 the purposes of picking up suggestions 
 and perfecting the plan so that when 
 it was put into effect " The Indianapolis 
 Service-at-Cost Plan" would supplant 
 the Cleveland and Cincinnati plans as 
 a national model. With high spirits 
 we began our journey — ^Ashby, Horn- 
 brook, and myself — all service-at-cost 
 advocates. We did not Umit ourselves 
 to interviews with the companies, or 
 the cities. We checked statements of 
 one against the other, and then made 
 independent investigations. It was 
 not long until we began to be less as- 
 sured that we had found a panacea. 
 We came home to think it over. It 
 
 was mutually agreed to wait imtil 
 business trips carried us, individually, 
 within striking distance of more dis- 
 tant points for further investigation. 
 In the meantime the Commission was 
 being subjected to criticism, together 
 with some hammering, for delaying the 
 adoption of service-at-cost. The term 
 had, as usual, made its popular appeal. 
 After the three friendly investiga- 
 tors had come to a unanimous decision 
 there still remained different points of 
 view among the public service com- 
 missioners which, with sickness, re- 
 sulted in further delay. The first of 
 this month Mr. Ashby, author of the 
 original projwsal, filed with the Com- 
 mission a motion to withdraw it. The 
 company did not object. Recently 
 the Commission, without a dissenting 
 vote, acted in the affirmative on the 
 motion. In his motion for withdrawal 
 Mr. Ashby says: 
 
 We have been unable to find or agree upon 
 any plan of operation on the basis of serv- 
 ice-at-cost which would furnish'^the incentive of 
 private ownership in an operation of service-at- 
 cost. The result of our investigations gener- 
 ally has been to raise a most serious question and 
 doubt as to the wisdom of the service-at-cost 
 plan. The inevitable tendency seems to be for 
 the operator or company readily to accept in- 
 creased cost of operation with the view that it 
 can be passed on to the public by higher fares. 
 Such a course results in only adding to the 
 burden of the public. 
 
 Experience has demonstrated that any in- 
 crease in fare above the normal fare, results in 
 a very substantial reduction in the number of 
 passengers carried, and has a tendency at the 
 same time to increase the cost of operation, so 
 that the financial results of the company under 
 such a plan is unsatisfactory and in some cases 
 disastrous. 
 
 The experience of Cincinnati is a good il- 
 lustration of the operation of the plan. The 
 fare was increased from five cents to six cents 
 and from six cents to seven cents, and from seven 
 cents to eight cents, and during the compara- 
 tively short time in which the plan has been 
 in operation the company has accumulated a 
 
 ,''^ 
 
 very large operating deficit of over $2,000,000. 
 During practically the same time the In- 
 dianapolis Street Railway Company has been 
 operating under the emergency order of the 
 Commission at five cents. It has been able, as 
 heretofore stated, to operate without a loss, its 
 revenues have been more than its operating ex- 
 penses and sufficient to pay a reasonable return 
 on the fair value of its investment. 
 
 I have little to add to his brief 
 summary. The Commission does not 
 pronounce the verdict of nostrum on 
 service-at-cost, nor dogmatically cast 
 it out of all future consideration. 
 
 DANGERS AHEAD 
 
 It must, however, be confessed that 
 it is suspicious of it. We, at least, will 
 wait to see whether it proves to be 
 panacea or nostrum. Personally, I 
 am apprehensive. I have heard popu- 
 lar acclaim of other epigrammatic 
 panaceas. " Let the people rule " gave 
 us the direct primary which seems not 
 to have met all the exi)ectations of its 
 friends, or the expectations of all of its 
 friends; "cost-plus" has been repudi- 
 ated; "he kept us out of war," only 
 won an election. 
 
 The remarkable thing to me is that 
 service-at-cost did not appeal to every 
 one. I recall numerous adverse com- 
 ments. One is sufficient. When the 
 hammering of the Conmiission to " save 
 the company" by adopting the service- 
 at-cost proposal was at its height, an 
 elevator operator said to me "What 
 is the Commission going to do, 
 Mr. Lewis?" I repUed that I did 
 not know. His answer surprised me: 
 "Service-at-cost is the Umit — ^put that 
 in and the company can do anything 
 and charge it up to the riders." My 
 elevator operator hit on the head one 
 of the chief defects, and one which it 
 seems to me is fundamental. 
 
 For example: Coal is hard to get 
 and the price is very high. A service- 
 
 at-cost street car operator who already, 
 as in most places, finds it imj)ossible 
 to earn the maximum return and is 
 assured of the minimum which will 
 cover fixed charges, is called on by a 
 representative of a coal company. 
 He has plenty of coal for sale — good 
 coal at that. Why should this street 
 car executive worry about its price? 
 Why should he join in the night and 
 day scramble of other public utility 
 operators who do not have his sinecure, 
 and who are struggling to get coal for 
 a low price in order to pull them through 
 and give their people some return on 
 their investment? It is true that they 
 may be able to buy coal at $4.00 a ton, 
 but here is coal offered to him in his 
 nice warm office at $6.00. It goes into 
 operating costs. All right — service- 
 at-cost covers all operating costs. I 
 fear that service-at-cost simply means 
 that the lid is taken off. 
 
 It is possible that some time in the 
 f utiu-e some workable plan incorporat- 
 ing incentive for efficiency and ini- 
 tiative will be worked out. While the 
 Commission does not pass finally on 
 service-at-cost, nevertheless it seems to 
 most of us to run contrary to human 
 nature, which, at least in business, 
 requires opportunities of a struggle 
 for gain. Psychologically, the blocking 
 out of rates which shall apply if 
 operating expenses increase, threatens 
 to become an open invitation for 
 laxity. 
 
 There is still another possible defect. 
 Service-at-cost is closely connected 
 with city halls. Quite often city halls 
 are closely connected with poUtical 
 organizations. Again, quite often po- 
 litical organizations are connected with 
 various interests. When one ventures 
 into the field of speculation of what 
 may happen to service-at-cost after the 
 novelty wears off, and after changes 
 in management supplant men who 
 may have pride in keeping their plants 
 
 I 
 
124 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 up and their operating costs down, 
 one finds that the possibiUties rival 
 those which have brought cost-plus 
 into disrepute. 
 
 It is possible, for example, that 
 a coal operator, standing in with a 
 highly politicalized city hall crowd, 
 could obtain a contract for supplying 
 coal to the service-at-cost utiUty at a 
 price considerably in excess of a fair 
 price. It is possible that real estate 
 developers, operating through such a 
 city hall, could cause the construction 
 of losing lines to their projects. A tie 
 between a political machine and the 
 street railway would open the door 
 to every sort of a demogogue and 
 agitator. These are only a few of the 
 possible diseases that may attack 
 service-at-cost in its maturity. I do 
 not beUeve that, up to this time, they 
 have developed to any great extent. 
 I sincerely hope they will not develop. 
 
 During the last campaign we have 
 seen, notably in New York and 
 Chicago, the street carfare made the 
 football of poUtics. My incUnations — 
 I am not saying that they may not be 
 wrong, but nevertheless they are my 
 incUnations reached after a study of 
 pubhc utilities on four continents 
 during a period of twenty years — are 
 that it is very desirable that public 
 utiHties be removed just as far as 
 possible from the very conditions 
 which I fear service-at-cost invites. 
 
 I strongly believe in the poUcy 
 of delegating regulation to men who 
 will give their time and best thought 
 to the subject and who are selected 
 
 because of fitness for their work, and 
 to the removal of such supervision and 
 regulation from too close contact 
 with local influences and prejudices, 
 which we know by experience are some- 
 times narrow, bUnd and dogmatic. 
 Such regulation permits of the accom- 
 plishment of those things enumerated 
 herein, which have resulted in both 
 the five-cent fare and solvency of the 
 street car company in Indianapolis, 
 and in Indiana, while all around are 
 higher fares and wreckage. 
 
 As a final thought, the theory of 
 regulation of public utilities is service- 
 at-cost. Regulatory bodies determine 
 rates by making them only sufficient 
 to cover: 
 
 1. Operating costs. 
 
 2. The replacement of the wear and 
 tear of the plant — depreciation. 
 
 3. Taxes — but not individual income 
 taxes. 
 
 4. A fair and reasonable return upon 
 the fair value of property used and 
 useful in performing the pubUc service. 
 
 When you have based your rate on 
 those foundations you have a service- 
 at-cost. 
 
 In behalf of such control, I would 
 point to the fact that not one of the 
 118 electric railway receiverships in the 
 coimtry is in Indiana; that only six of 
 the 600 cities having more than a five- 
 cent fare are in this state, and that the 
 electric railways in this state emerge 
 from the trying ordeals of the war 
 period and the more trying ordeals of 
 the post-war period, solvent and full 
 of hope. 
 
 CLEVELAND— SERVICE-AT-COST AND 
 EFFICIENT MANAGEMENT 
 
 BY FIELDER SANDERS 
 
 City Street Railroad Commissioner, Cleveland 
 
 On Sunday, November 14, 1920, the 
 rate of fare in Cleveland was auto- 
 matically raised, under the Tayler 
 "Service-at-Cost" grant, to a six-cent 
 <;ash fare, nine tickets for fifty cents, 
 one cent for transfer and no rebate. No 
 objection was made by the city, be- 
 cause the stabilizing fund being below 
 $300,000, under the franchise the com- 
 pany had the absolute right to raise 
 its charges. The fare on March 1, 
 1910, at the inception of the Tayler 
 grant was three cents cash, five tickets 
 for fifteen cents, one cent for transfer 
 and no rebate. It is, therefore, the 
 fact that after more than ten years of 
 operation under the Tayler grant, the 
 fare paid by the car riders has almost 
 doubled, the exact figure being the 
 difference between 3.33 cents, the aver- 
 age fare paid in 1910 in Cleveland, and 
 5.90 cents, the average fare which will 
 be paid under the present rate, an 
 increase of 77 per cent. 
 
 This makes an examination of the 
 franchise and a survey of the operation 
 of the railway company, thereunder, 
 peculiarly fitting at this time in deter- 
 mining whether service-at-cost has 
 been a success or a failure, or to what 
 extent it has been either. In my judg- 
 ment it has certainly not proved a 
 *' Nostrum" "a quack medicine," but 
 possibly has not quite approached a 
 '* Panacea'' or "an absolute cure for all 
 ills." 
 
 The street-railway situation in Cleve- 
 land for many years prior to 1910 was 
 that of operation by private companies 
 with the usual competition, and five- 
 
 125 
 
 cent fare, with a slightly reduced ticket 
 rate. These companies consolidated, 
 the fare remaining at five cents on all 
 lines, but with added transfer privileges 
 for which no charge was made. This 
 was followed by a bitter fight on the 
 part of the city authorities for a lower 
 fare, which after much warfare cul- 
 minated in the present settlement. At 
 the time of the adoption of the fran- 
 chise, as for many years before, the car- 
 riders were paying five cent fare, eleven 
 tickets for fifty cents with universal 
 free transfers. It was claimed that, 
 under proper management, with the 
 proper franchise, the car riders could be 
 carried for three cents. As a result of 
 all the dickering back and forth it was 
 determined that the car riders should 
 not be carried at five cents nor at three 
 cents, but at actual cost, whatever that 
 might prove to be. The conclusion, 
 therefore, of success or failure of the 
 plan, must be predicated upon the pur- 
 poses which the plan was intended 
 to carry out, and be a finding as to 
 whether those purposes have been car- 
 ried out. 
 
 The franchise boldly states in its 
 preamble an ambitious progranmie, to 
 wit: "^ 
 
 It is the common desire of the city and the 
 company to have all the grants of street-railway 
 rights then outstanding surrendered and renewed 
 upon terms thereinafter recited, to the end that 
 the rate of fare may be reduced, the transfer 
 privileges made definite, and the right of the city 
 as to regulation and possible acquisition made 
 definite and certain, and that a complete read- 
 justment of the street-railway situation should 
 
 1 
 ■I 
 
NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 II 
 
 1 ) 
 
 I I 
 
 126 
 
 be made, upon terms that would secure to the 
 owners of the property invested in the street-rail- 
 way security as to their property, and a fair and 
 fixed rate of return thereon, at the same time se- 
 curing to the public the largest powers of regula- 
 tion in the interest of jniblic service, and the best 
 streetrraUroad transportation at cost, consistent 
 with the security of the property, and the cer- 
 tainty of & fixed return thereon, and no more. 
 
 It will not be claimed by anyone that 
 any of these declared objects of the 
 franchise is or was anything but desir- 
 able and laudable, except that possibly, 
 in view of the developments of the last 
 two or three years, some may claim 
 that a fixed rate of return, and no 
 more, is not now in the best interests of 
 the company and the public. I wiU 
 refer to this particular claim agam. 
 It will also be admitted that, if these 
 objects of the grant have been substan- 
 tially carried out, a great civic benefit 
 
 has resulted. 
 
 The questions therefore before us 
 are. Has the rate of fare been reduced, 
 the transfer privilege made definite, the 
 city's regulation effective? Have the 
 owners had security for their property, 
 and have they had a fair and fixed rate 
 of return, have the car riders had the 
 best street-railway transportation at 
 cost? If so, haw has it been done, and 
 what is there about the franchise, or the 
 management, or the surrounding cur- 
 cumstances that has made such a con- 
 clusion possible? 
 
 ARBITRATION BOARD ENDORSES TAYLER 
 
 GRANT 
 
 The question of the failure or success 
 of a contract is ordinarily determined 
 usually by the facts themselves, but 
 sometimes by the opinion of experts 
 who have gone over the facts and have 
 drawn conclusions therefrom in the 
 light of testimony and their experience. 
 I desire to present in evidence an opin- 
 ion first, which combines the two 
 
 methods. During the last half of the 
 year 1919 and the first half of the year 
 1920, the city of Cleveland had a very 
 lively controversy with the Cleveland 
 Railway Company to determme the 
 question whether the fixed return of 6 
 per cent provided in the original fran- 
 chise should be changed to 7 per cent. 
 This finally developed into a popular 
 vote at a referendum, which resulted 
 unfavorably to the company, as such 
 matters usually do when placed before 
 the public. But in the middle of the 
 controversy a very extended hearmg 
 was had before a board of arbitrators. 
 This board of arbitrators went into 
 the financial condition of the company 
 and all matters surrounding it very 
 thoroughly. The hearing consumed 
 many weeks. Financial and street- 
 railway experts from all over the coun- 
 try testified, both in behalf of the city 
 and in behalf of the company. The 
 city lost the arbitration so far as the 7 
 per cent question was concerned, but in 
 the decision of the board, the franchise, 
 the management of the company and 
 the actions of the city in its regulating 
 capacity received a very illuminating 
 commendation. The board said: 
 
 The franchise and the amendments thereto 
 have been shown by ten years of trial to be sound 
 in principle, practical in operation, and of great 
 benefit to the Cleveland Railway Company and 
 its stockholders and to the public. It has kept 
 the Cleveland RaUway Company from exposure 
 to the dangers and misfortunes that have over- 
 taken other railway properties in most other 
 large cities. The protective features of the 
 franchise, together with the high standard of 
 raUway management and intelligent municipal 
 supervision which the Cleveland Railway has 
 had, have resulted m giving to Cleveland the 
 best street-railway service at the lowest cost of 
 any city in the United States. The testimony 
 has taken a wide range. . . • The city street 
 raihoad administration has always been efficient 
 and keen to the pubUc interest, and there is no 
 reason to believe that it will be otherwise in the 
 future. . . . The evidence shows that this 
 
 1921] 
 
 CLEVELAND— SERVICE-AT-COST 
 
 127 
 
 railway property has been maintained at a high 
 standard, that it justly enjoys the reputation of 
 being the best managed, best equipped and most 
 successful street-car enterprise in the country. 
 We have been shown that a higher percentage of 
 expenditure for maintenance and upkeep has 
 been in force here than in any other cities. Ex- 
 perts have analyzed the situation and presented 
 the conclusions to us, that by reason of efficient 
 and intelligent executive management, and by 
 reason of the high rate of upkeep and mainte- 
 nance, a large appreciation in the value of the 
 property has resulted. . . . The most im- 
 portant result of this hearing is the full and com- 
 plete illumination of the question of the safety 
 of the Cleveland Railway stock as an investment. 
 A right understanding of the franchise discloses 
 that the stock of the Cleveland Railway Com- 
 pany is safeguarded and protected so as to be- 
 come a quasi-municipal investment. . . . 
 We have no difficulty in reaching the conclusion 
 that this stock is protected and safe to the 
 investor. . . . 
 
 This was the decision of an unbiased 
 court on the facts before it. 
 
 THE TESTS OP FARES AND SERVICE 
 
 Let me now briefly examine the facts 
 themselves, of ten years of operation, 
 to see if they show that the franchise 
 has carried out its objects, if this par- 
 ticular service at cost has made good. 
 Considering increased fare first, the ob- 
 jection that the fare has almost 
 doubled under service at cost might be 
 dismissed with the statement that 
 every other commodity has doubled in 
 price in the last ten years, and that it is 
 only in accordance with the general 
 economic trend of the last ten years 
 that the price of a ride in Cleveland is 
 now almost twice what it was in 1910. 
 The wages of the trainmen operating 
 the cars, for instance, have increased 
 188 per cent since 1910. 
 
 But if that alone were said, we would 
 be justified in concluding that the 
 franchise has not been a moving factor 
 in improving matters, but has simply 
 ridden with the general trend of events. 
 
 The fare at its inception was about 
 two cents lower than the fare in other 
 cities through the country, with one or 
 two possible exceptions; it has stood 
 through the years at the same ratio to 
 rates general elsewhere, and, notwith- 
 standing this last raise, it is still lower 
 than most, and possibly still at the 
 same ratio to the fares in other cities. 
 One tremendous result of this low fare 
 in Cleveland not to be forgotten is the 
 fact that its car riders in eight years 
 between 1910 and 1918 have saved 
 more than thirty million dollars, over 
 and above what they would have paid 
 if the fare had continued to be five 
 cents under the pre-existing private 
 management as in other cities; or, in 
 other words, they have saved for their 
 own use an amount which, if it had 
 been put in a sinking fund, would have 
 purchased all of the railway company's 
 property in September, 1918. From 
 the public's standpoint, this one fact 
 alone has justified the Tayler franchise. 
 But that fact is only the more obvi- 
 ous of results obtained for the car riders. 
 Examining further, notwithstanding 
 the low price of our service, statistics 
 show that from 1910 to 1920, while the 
 population in the city and suburbs 
 increased 40 per cent and the number 
 of fares paid increased 75 per cent, the 
 service given in Cleveland has doubled. 
 The Broadway, Euclid, Payne and St. 
 Clair lines east of the river, and the 
 Lorain and Detroit lines west of the 
 river, the six heaviest trunk lines of the 
 system, show in their headways that 
 during 1910, in the morning rush 
 period, 7,790 seats per hour were fur- 
 nished; 3,192 seats per hour on the base 
 tables and 9,690 seats per hour in the 
 evening rush period. The present 
 headways on the same six lines furnish 
 15,700 seats per hour in the morning 
 rush, 5,590 seats hourly on the base 
 tables and 19,300 seats per hour in the 
 evening rush, an increase of 102 per 
 
 
 V 
 
 ■■>i 
 
128 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 II 
 
 cent in the morning rush, 75 per cent 
 on the base tables and 99 per cent in 
 the evening rush. I am giving seats 
 rather than headway because of the 
 difference in the equipment . 
 
 The number of passenger cars has in- 
 creased from 955 in 1910 to 1,515 in 
 1920. Great changes in the character 
 and size of the cars have been made. 
 The average seating capacity of the old 
 cars was about 38; the newest cars seat 
 58 and 60. The total seating capacity 
 of the 1910 equipment was 36,100, of 
 the 1920 equipment 74,800. The total 
 standing capacity was 44,000 in 1910; 
 in 1920 it is 80,460. So that while the 
 number of cars has not doubled, the 
 seating capacity has more than doubled, 
 and the combined seating and standing 
 capacity is almost double. In these ten 
 years 375 of the 955 cars owned in 
 1910, nearly 40 per cent of the total, 
 have been retired, so that there are 
 now on the system, of 1,515 cars, only 
 580 that are more than ten years old. 
 In the same period of time, the com- 
 pany has developed a large number of 
 additional lines within the city (a 
 smaller number outside). In 1910 the 
 railway operated 246 miles of track, 
 exclusive of special work, track in car 
 yards, etc. Today it operates 303 
 miles, an increase of 23 per cent . Most 
 of this increase is in new trunk lines 
 and new cross-town lines within the 
 original Hmits of the city of Cleveland, 
 although some of it represents pushing 
 out into the country. In addition al- 
 most the entire layout of car houses, 
 shops and power stations has been 
 completely renewed. Many new most 
 modern car stations have been built. 
 The various power-generating stations 
 have been abandoned, except one, 
 which is on the programme for disman- 
 tling in the near future. Power is 
 being purchased, and many new sub- 
 stations have been built or are under 
 way for distributing purposes. The 
 
 finest street-railway shops in the world 
 have been built, at a cost of $1,300,000. 
 The company has developed in the last 
 three years an extensive plant for han- 
 dling materials in its maintenance-of- 
 way yards, and has added all kinds of 
 improved conveyors, trucks and labor- 
 saving machinery for doing its work. 
 The 935 cars added to the system since 
 1910 have been in each instance of the 
 latest and most efficient type, some of 
 them built in the shops of the company 
 by direct labor, others purchased. Of 
 the original 246 miles of track existing 
 in 1910, 162 miles have been renewed, 
 about 66 per cent of the original track- 
 age, and the average age of all the pres- 
 ent tracks on the system is very close to 
 nine years . The number of cars owned 
 per mile of track has increased from 
 3.9 in 1910 to 5.05 in 1920. The fare 
 remained at 3.33 cents until December 
 15, 1917, and since that time has been 
 at varying rates, most of the time 
 5.33 cents. 
 
 It is apparent from the foregoing 
 brief summary, without going into de- 
 tail, that the fare has been low, the 
 service has been high, and that the 
 property has been well kept up and 
 highly improved, under service at cost 
 a real railway has been developed, to an 
 extent so noticeable as to merit and re- 
 ceive the commendation of every 
 street-railway man who surveys it, and 
 so different from practice general else- 
 where that many public addresses on 
 this subject have summarized it by 
 saying, "The railway has grown from a 
 scrap heap in 1910 to the finest prop- 
 erty in the United States in 1920." 
 
 ARE ALL PARTIES SATISFIED? 
 
 Another and third way of testing 
 whether a contract has carried out its 
 purpose, in addition to the opinion of 
 experts and the actual facts hereinbe- 
 fore detailed, is to analyze the effect 
 
 1921] 
 
 CLEVELiVND— SERVICE-AT-COST 
 
 129 
 
 which the contract has had upon the 
 parties interested, with particular refer- 
 ence to their conduct under and general 
 satisfaction with the contract. Satis- 
 faction with an arrangement by all par- 
 ties to it does not always prove that the 
 arrangement is a good one calculated 
 for their mutual advantage, but satis- 
 faction with an arrangement after a 
 thorough trial over a period of years, 
 after an exposition and public demon- 
 stration of claimed defects, is proof of 
 the inherent soundness of the contract. 
 The Tayler franchise has been crit- 
 icized at various times because of the 
 so-called lack of incentive in it, and 
 possibly on lack of other matters, al- 
 though no critic has ever been able to 
 frame a franchise which in practice has 
 worked better. I have at times made 
 the same criticism myself. But not- 
 withstanding the criticism, the people 
 of Cleveland are satisfied. We know 
 that to be so, because it happened that 
 the first period of the grant expired on 
 May 1, 1919, and it was necessary be- 
 fore that time for the city government 
 either to renew the franchise for a 
 further period of twenty-five years, 
 thereby extending the expiration date 
 ten years, or to permit the property to 
 continue in the hands of the company 
 without city control of the service, or 
 to exercise itis option to buy it and put 
 in force municipal ownership. A series 
 of meetings was held in the city council 
 chamber over a period of six or seven 
 weeks by the committee of council 
 having the decision to make. The 
 matter was widely advertised in the 
 newspapers, and especially the fact 
 that the grant was about to run out. 
 Nevertheless, all the amendments that 
 were offered to the grant as being de- 
 sirable were suggested by the city 
 street railroad commissioner. There 
 was no public sentiment manifested for 
 municipal ovmership, or for any partic- 
 ular change in the grant, except on 
 
 the part of a few councilmen and a few 
 public officials who had been in very 
 close relationship with the railway 
 company and its day to day operation. 
 No amendment was offered by any 
 civic society of Cleveland, of which 
 there are many and active, nor any 
 newspaper, nor by the chamber of 
 commerce, or any of the various clubs 
 interested in public matters. The rail- 
 way company refused to accept the 
 amendments, said that it was satisfied 
 with the franchise as it stood. It be- 
 came immediately evident that the 
 public also was satisfied with the fran- 
 chise and the service under it. The 
 result was that the council renewed the 
 agreement in identical terms for a 
 further period, and we are now operat- 
 ing thereunder. 
 
 THE SIX PER CENT FIXED RETURN 
 
 There is one serious problem now 
 pending, arising in connection with the 
 fixed return of 6 per cent for the stock- 
 holders, — a problem which is entirely 
 likely to face the operators of the vari- 
 ous new service-at-cost franchises, now 
 being adopted. It is the difficulty of 
 finding new money with which to fi- 
 nance extensions, betterments and per- 
 manent improvements. Extensions in 
 Cleveland have always been financed 
 by the sale of new stock. For more 
 than a year it has been impossible to 
 sell Cleveland Railway 6 per cent stock 
 at par in Cleveland, and the franchise 
 forbids its being sold at less than par. 
 The fate of all public utility stocks has 
 .been largely reflected in the market on 
 Cleveland Railway stock, through no 
 fault of its own. The management of 
 the railway made an effort to raise the 
 dividend rate on all their stock to 7 
 per cent, and failed at a popular vote. 
 Although extensions are needed in 
 Cleveland, the people evidently thought 
 the 7 per cent remedy too drastic and 
 
NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 •I 
 
 130 
 
 far-reaching. So for the present we 
 are standing still— just finishing the 
 programme laid out a year and a half 
 ago. Many solutions for the future 
 needs of the company and city have 
 been suggested and debated, and I have 
 no doubt the problem will be worked 
 out satisfactorily in a mutual spirit of 
 co-operation, as have so many of our 
 previous difficulties. 
 
 THE SUCCESS EXPLAINED 
 
 The question now arises, What is the 
 reason for the obvious success of this 
 plan? There are many reasons. The 
 low capitaUzation at which the railway 
 was taken over has had some effect, of 
 course, but that effect has been very 
 largely overrated. The added expense 
 of a few millions to its aggregate cap- 
 ital value, with a return of 6 per cent 
 thereon, distributed among the number 
 of fares paid would have made an m- 
 crease in the rate of fare so small as to 
 be hardly noticeable. It would be 
 expressed in tenths of a cent, less than 
 a mill a ride. At the beginning of the 
 grant, an addition of ten miUion dollars 
 to the capital value would have made a 
 difference of only three tenths cent in 
 each fare paid, and this, of course,would 
 have decreased each year since. The 
 low capitalization was /ar more efeclive 
 in developing public confidence in the 
 honesty of the management and in the 
 honesty of the arrangement than m 
 any financial way. The whole secret 
 of the success of the scheme has been 
 the admirable combination of efficient 
 and jealous management of the part of 
 the company and its officials, of close 
 municipal supervision, of harmony be- 
 tween the company and the public, of 
 the confidence which the pubUc has in 
 the arrangement, and the ultimate fact 
 resulting from all of these, that the 
 company is financially strong, and able, 
 up to a short time ago, to market any 
 
 amount of its securities with which to 
 carry out the object of the street rail- 
 way. All of these have been deciding 
 factors in the success of the plan. 
 
 THE city's part 
 
 The city, through the council and 
 the commissioner's office, also guards 
 its rights carefully. It maintains a 
 complete department for the super- 
 vision of the company's expenses of 
 all kinds. It prescribes the quality 
 and quantity of service. In the com- 
 missioner's office a traffic department 
 maintains, through a large force of in- 
 spectors, a continuous check of^^® 
 traffic loads on the various lines of the 
 city, and from time to time makes 
 changes in the headways, in the run- 
 ning time, and in the cars on the vari- 
 ous lines to more closely balance the 
 service rendered with the service re- 
 quired. It makes all the studies and 
 investigations for determining any 
 changes necessary. The results are 
 tabulated, and graphs are drawn show- 
 ing the necessity or non-necessity for 
 any changes. Changes are being made 
 almost daily by orders to the company 
 to put in force new headways and new 
 schedules. In so doing the commis- 
 sioner is able to tell from day to day 
 whether the schedules which he pre- 
 scribes are being run, and to see that 
 the company does no more nor less 
 than run the service prescribed. The 
 traffic department also makes the 
 seasonal changes due to the closing of 
 parks and the opening and closing of 
 factories, makes the changes in places 
 of stopping necessitated by new condi- 
 tions, makes changes in routes neces- 
 sary to relieve congestion and to speed 
 up service, and also advises with the 
 operating department daily in the col- 
 lection of fares, loading and unloading 
 of passengers, the stationing of men to 
 sell transfers outside the cars, the pre- 
 
 1921] 
 
 CLEVELAND— SERVICE-AT-COST 
 
 131 
 
 payment areas, and all the details 
 which make for excellency of service. 
 The street railroad commissioner's 
 office, also, through its engineering 
 department, keeps close supervision 
 over the cost of improvements, renew- 
 als and ordinary repairs, and approves 
 them in advance of expenditures. Not 
 a bottle of ink is bought without the 
 city passing on it and approving it 
 first. In those matters we not only 
 authorize and supervise the railway 
 company from day to day, but we also 
 advise with its officers and suggest 
 changes and improvements. We main- 
 tain a day to day continuous audit. 
 
 the railway's part 
 
 The railway officials have also had at 
 heart not only the preservation and 
 development of the property, but pride 
 in themselves as successful managers. 
 They have co-operated in every way in 
 increasing the efficiency of the service. 
 They have largely initiated a great 
 many of the reforms which have made 
 Cleveland street-car service a model of 
 the country. They have adopted and 
 carried out many of the suggestions 
 made by the city. The result has been 
 the employment of almost every new 
 idea in street-railway operation, usually 
 some years in advance of the rest of the 
 country, such as the skip-stop, the 
 speeding up of schedules, short-routing, 
 cross-town fines, prepayment areas, 
 pay-enter and pay-as-you-leave fare 
 collection, the most modern — the-pay- 
 as-you-pass — street car; the purchasing 
 and distribution of power instead of 
 costly generating plants; modern car 
 shops, car stations and automatic power 
 sub-stations; scientific and exactly 
 sufficient schedules of service, the last 
 word in maintenance-of-way equip- 
 ment, materials and yards, labor-sav- 
 ing machinery of every kind, the scien- 
 tific training of employes in a separate 
 
 school and department equipped with 
 machinery and instructors for that pur- 
 pose, careful and strict discipline of the 
 employes; in short, most of the ad- 
 vancements and improvements in 
 street-railway management of the last 
 ten years have originated or been tried 
 in Cleveland. The peculiarly close 
 combination of company management 
 and city supervision has enabled Cleve- 
 land to devise and put in force every 
 possible economy which tends to 
 efficiency. 
 
 DOES THE PLAN LACK INCENTIVE? 
 
 I think that most of the criticism of 
 the service-at-cost plan as developed 
 in Cleveland in the last ten years, as to 
 the lack of incentive, is really directed 
 at the conditions of the franchise and 
 not at the working out of the same as 
 shown in actual operation. Cleveland 
 is not under absentee ownership. 
 Clevelanders own the company. The 
 management in Cleveland are all 
 heavy stockholders in the company 
 and are directly interested; therefore 
 it is not really management of paid 
 service alone, but it is a management 
 largely by stockholders themselves. 
 Some of its success is due to that. In 
 this management they have also the 
 benefit of daily counsel and criticism, 
 not monthly or annually such as is 
 granted by public state commissions. 
 Nor has the criticism been selfish, 
 partisan or political criticism, such as 
 has so often developed at the hands of 
 political bodies and newspapers in 
 other cities. 
 
 TOM JOHNSON OPPOSED THE SLIDINO 
 
 SCALE 
 
 In the meetings in March, 1909, 
 between Tom L. Johnson, mayor of 
 Cleveland, and Horace E. Andrews, 
 president of the Cleveland Railway 
 
II 
 
 132 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 Company, and various councilmen, one 
 of the councilmen suggested a slidmg 
 scale of interest, namely, that the 
 lower the rate of fare the more mterest 
 could be paid on the investment. He 
 said he thought there would be an 
 incentive then for the stockholders to 
 make the fare as low as possible, a saymg 
 which sounds very familiar now after 
 eleven years. Mayor Johnson then 
 replied, "And also quite an incentive 
 to skimp the service; wouldn t it.'' 
 Mr. Andrews suggested the well-knomi 
 gas company arrangement in England, 
 and thought that it would be a fairly 
 good arrangement, but Judge Tayler 
 was firmly of the opinion that the 
 company should have only a fair return 
 on the money for the privileges granted 
 by the city, and that it should not be 
 subject to the hazards of operation. 
 He was of the opinion that the railway 
 company was entitled to earn only a 
 fair return for the use of the streets, 
 and that if by ingenuity and econom- 
 ical devices adopted by the operators a 
 re4uction in fare was accomplished, 
 and if thereby they obtained more 
 than a fair return on the money, or, 
 as he expressed it, an abnormal rate on 
 their investment, there was something 
 wrong somewhere. 
 
 It seemed to the judge that it was 
 fundamentally wrong to pay a man a 
 bonus for doing that for which his 
 salary is supposed to compensate him; 
 that a bonus could not be a legitimate 
 part of the cost, and that, therefore, 
 this sort of an arrangement was service 
 at m(yre than cost; that the people are 
 entitled, for the salary that they pay to 
 the officers of the railway, to intelligent 
 and efficient management, and that 
 they ought not to be taxed any more. 
 My own notion is that the idea is not 
 only fundamentally wrong, but that 
 practically it would not work because 
 it creates an incentive on the part of 
 the railway company to keep down 
 
 their expenses by skimping the service. 
 Under the present service-at-cost plan 
 the company has no desire and no 
 incentive to skimp the service. They 
 do not interfere in the slightest way 
 with the full latitude of the city m 
 exerting its power, and there is no 
 desire on their part to do so, because it 
 makes no difference to them, within 
 the limits of their power to earn 6 per 
 cent, how much or how little service is 
 run. But I believe any temptation of 
 an added dividend before their eyes, 
 resulting from a reduction of cost which 
 would make it advisable for the com- 
 pany to reduce its operating expense, 
 would create a tendency on its part to 
 encroach on the city's prerogative as 
 to service, by hampering and reducing 
 the service in the many small ways by 
 which they could do so without being 
 caught by even an elaborate system 
 of watching, and to render a cheaper 
 and more unsatisfactory service even 
 while ostensibly complying with the 
 city's order. Such an objective is bad. 
 From the stockholder's standpomt 
 it is an incentive for the management 
 not to keep the property up, because 
 the lower the maintenance charges, of 
 course, the lower the rate of fare and the 
 higher the return to the stockholders. 
 It is also an incentive to keep down the 
 maintenance by increasing the capi- 
 talization by charging repairs and 
 replacements to capital, which could 
 easily be done, thereby tending to make 
 the enterprise top-heavy and reduce 
 the physical value of the security 
 which the stockholders have. This 
 same thing would strike largely at the 
 service given the car riders, because 
 the first requisite of good service is a 
 high class raih-oad, sufficiently mam- 
 tained. Further than that, it increases 
 the price which the city would have to 
 pay on purchase and reduces the con- 
 sideration for the price. 
 A sliding scale of return based on a 
 
 1921] 
 
 CLEVELAND— SERVICE-AT-COST 
 
 133 
 
 sliding scale of fares, in my judgment 
 is also theoretically wrong, because the 
 stockholders of the company are com- 
 pensated by dividends, the manage- 
 ment of the company is compensated 
 by salary; in other words, the price of 
 money is one thing and the price of 
 service is another. They have no 
 immediate necessary connection. But 
 if you are going to vary the price of 
 money which the stockholders put 
 into the company in the ratio of the 
 rate of fare, or, in other words, the cost 
 of service, the law of economics would, 
 it seems to me, command the reverse 
 of the suggested arrangement. I have 
 heard it argued by financial experts 
 (especially in the last arbitration) that 
 there is no connection between a fair 
 return on money, in other words, the 
 price of the same, and the price of 
 other commodities. Others have ar- 
 gued that they rise and fall together. If 
 there is any truth in the last argument 
 that the price of money goes down and 
 up as the price of commodities goes 
 down and goes up, then as the cost of 
 labor and materials used in the street 
 railways, which largely determines the 
 rate of fare, goes down, the return on 
 the money invested should not go up. 
 But, under the present incentive 
 franchises, the return to the stock- 
 holders does go up as the fare goes 
 down, instead of going down as it 
 should if the above rule is correct. 
 
 It is also likely to be a bad arrange- 
 ment from a practical standpoint for 
 the public. According to the judg- 
 ment of almost everyone we have 
 reached the peak of high prices . There 
 is bound to be a decrease in the next 
 five or ten years. They may not drop 
 to the point at which they were in 
 1914. They may stay at a slightly 
 higher level. After the Civil war it 
 took from ten to fifteen years to bring 
 the prices of everything down to where 
 they were before the war. The same 
 
 condition obtained after the Napoleonic 
 wars in Europe. If history repeats 
 itself, by 1930 we shall be back where 
 we were in 1914. But even if that is 
 not so, it is admitted that prices must 
 decrease even if they do not come to 
 the low level of 1914. If they do 
 decrease, street-railway fares must 
 and should go down. But under the 
 sliding scale, what is the result from 
 the public's standpoint? As the costs 
 go down, the expense of operating is 
 going up by the extra amount which 
 the stockholders secure, which tends 
 again to keep the fares up. 
 
 The fare in the last five years went 
 up largely without the fault of the 
 railway companies of the country, due 
 to economic conditions, and I am satis- 
 fied that, without their action, without 
 any credit to them, they will, by reason 
 , of the same law, go down in the next 
 five to ten years. But even if you grant 
 that all these conclusions are wrong, I 
 think that any scheme of incentive so far 
 suggested is open to the criticism of 
 lack of effectiveness, because of the 
 remoteness from and lack of direct 
 application to the actual executives. I 
 cannot help thinking from my experi- 
 ence of service at cost, from my knowl- 
 edge of what has happened in the last 
 five years, that after all the real in- 
 centive to efficient management is to 
 give the man at the wheel, the man who 
 actually operates, sufficient compensa- 
 tion to keep his best interest in his 
 work, and then to have an efficient city 
 administration to act as the watchdog, 
 to criticize, advise and sit on his neck 
 day by day, as is done in Cleveland, to 
 see that he earns his salary. 
 
 To recur to the question originally 
 asked Panacea or Nostrum? We offer 
 the Cleveland franchise, as a practical 
 success, a sufficient remedy under its 
 circumstances. Experience in Cleve- 
 land shows, in my judgment, that 
 service at cost is not perfection, neither 
 
 M 
 
V- 
 
 134 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 is it a nostrum or quack medicine, 
 that whether it is a panacea or not, 
 or how closely it approaches being a 
 panacea, depends partly upon the 
 franchise, but much more upon the 
 development of it, upon the people 
 who are charged with executing it, in 
 
 whose hands it rests, and upon the 
 public, who, if they have confidence in 
 the arrangement, will make it a suc- 
 cess or a failure. Many criticisms of 
 the Cleveland plan can be made, per- 
 haps justly, but, as for Cleveland, 
 Cleveland is satisfied. 
 
 SERVICE AT COST VERSUS MUNICIPAL 
 
 OWNERSHIP 
 
 SEATTLE'S EXPERIENCE 
 
 BY C. M. FASSETT 
 
 Former Mayor of Spokane, Staff Member American City Consultants 
 
 The latest Imk in the constantly 
 tightening chair of public regulation of 
 utiUties is found in the service-at-cost 
 franchise. Beginning with the passage 
 of the interstate commerce law by 
 congress in 1887, pubUc regulation has 
 steadily, if slowly, increased the power 
 of government over public utility cor- 
 porations, gradually lifting them out 
 of the class of private business which 
 may be operated to suit the purpose of 
 its owners, and enforcing in increasing 
 measure a consideration of the needs 
 and the purses of their patrons, the 
 pubUc. As in the case of the steam- 
 raihoads, this progressive regulative 
 effort in the pubUc utiUty business has 
 grown up in response to the demand for 
 the abolition and curtailment of cer- 
 tain specific practices of the owners 
 and managers of utihty properties, 
 which an awakening sentiment had 
 condemned as contrary to the interests 
 of the public. 
 
 PRIVATE MISMANAGEMENT 
 
 Only in recent years has it been 
 recognized that a public utihty is a 
 natural monopoly. In fact when utiU- 
 ties were unregulated, the only hope of 
 
 the consumer for reasonable rates and 
 tolerable service was in competition. 
 The great municipal utilities which op- 
 erate in the streets of American cities 
 to-day are almost without exception, 
 consolidations of companies which were 
 originally started or soon developed as 
 competitors. The growth of urban 
 population was extremely rapid, but 
 the demand for utility service was in 
 greater ratio. In the decade 1900 to 
 1910 population in the continental 
 United States increased 21 per cent, 
 while the number of passengers carried 
 one mile by the steam raihoads more 
 than doubled, and a Uke condition pre- 
 vailed in municipal utihties. The pio- 
 neers in the utiUty business soon found 
 that competition was the only inter- 
 ference with their profits, and consoli- 
 dation of the competing companies 
 was the logical answer. 
 
 With their utilities consolidated the 
 pubUc soon felt the pressure of rate 
 increases and service deterioration, 
 complaints began to find their way 
 into legislative bodies, and public 
 regulation began to be attempted. 
 Consolidation had not increased physi- 
 cal assets but had greatly increased 
 capitalization, for not only had enor- 
 
 1921] 
 
 COST VERSUS MUNICIPAL OWNERSHIP 
 
 135 
 
 mous prices been paid for the control 
 of competing companies, but large 
 bonuses went to pay the promoters 
 and financiers who had brought the 
 consolidation about. Then if the new 
 concern showed profits above a fair 
 dividend, further issues of stock ap- 
 peared, the total capitalization being 
 based upon the earning power of the 
 utility in its years of greatest prosper- 
 ity. It was not considered good busi- 
 ness to apply excess profits to debt re- 
 tirement, nor to large dividends on 
 stock already issued. Either of these 
 practices, if they became known, 
 would have been the basis for a public 
 demand for reduced rates or better 
 service. Depreciation reserves were 
 neglected, or if they were set aside at 
 all it was merely as a ledger account, 
 and the actual money was used for 
 dividends on the heavily watered 
 stock. The rates were all the traflSc 
 would bear and the service was as lit- 
 tle as could be given without too much 
 public protest. Growing cities suf- 
 fered for much needed extensions of 
 utility service which were not made 
 because they would not show an imme- 
 diate profit. Street cars were designed 
 to carry the greatest number of stand- 
 ing passengers, and the arrogance of 
 the utility magnate was reflected in 
 the conduct of his lowest employe. 
 His responsibiUty was to his stock- 
 holders. His goal was more profits. 
 
 In order to ward off further compe- 
 tition and to defend themselves from 
 attack, the utilities were forced to 
 maintain lobbies in constant attend- 
 ance upon legislative bodies, and to 
 corrupt legislatures and city councils, 
 and the story of these activities fur- 
 nishes one of the saddest chapters in 
 the history of municipal government 
 in America. Extensive and expensive 
 propaganda was used to influence pub- 
 lic oflicials and leading citizens against 
 
 public ownership and in favor of in- 
 creases in rates, and the wells of public 
 opinion were persistently and system- 
 atically poisoned. 
 
 Occasionally there has existed an 
 honestly managed and efficiently op- 
 erated public utility in private owner- 
 ship, and to these I apologize for the 
 company in which I have found them. 
 Of all the different utilities, street rail- 
 way interests have been the chief of- 
 fenders. Ten years ago a proposal to 
 guarantee them net earnings of 6 per 
 cent on the actual value of their prop- 
 erties would have met with derision; 
 now it is the straw which they hope 
 will save them from drowning. Ten 
 years ago one might search the files of 
 their trade journals in vain for ad- 
 vocacy of public ownership; now you 
 find it on every page. Ten years ago 
 the proposal that a representative of 
 the public should be admitted to the 
 counsels of the management of the 
 business would have been intolerable; 
 to-day it has become an accepted part 
 of the regulative scheme. 
 
 Regulation began with the imposi- 
 tion of a franchise tax, usually based 
 on gross earnings. This was wrong in 
 principle in that it took revenue from 
 citizens in proportion to their use of 
 the utility, for the benefit of citizens in 
 proportion to their taxes; it was justi- 
 fied only because we had not learned 
 any better. We knew that the profits 
 of the utilities were too great, and 
 were groping to find the proper way in 
 which to curtail them. The sharp ad- 
 vance in the cost of labor and materials 
 brought about by the war, the com- 
 petition of the automobile and jitney, 
 and past methods of frenzied finance 
 by which the street railways were held 
 at the verge of bankruptcy, have now 
 forced them into a desperate situation. 
 Increased fares are a palliative which is 
 Ukely only to postpone the crisis. 
 
136 
 
 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 1921] 
 
 COST VERSUS MUNICIPAL OWNERSHIP 
 
 137 
 
 III 
 
 THE EFFICACY OF SERVICE AT COST 
 
 Two alternatives will save them 
 from destruction: municipal owner- 
 ship or service at cost. Both are now 
 being tried and we will be better able 
 to judge their comparative merit ten 
 years from now than we are to-day. 
 But the situation presses. 
 
 The modern service-at-cost fran- 
 chise puts an end to the evil practices 
 of utility management which I have 
 already outlined. It restrains finan- 
 cial sky rocketing, gives a reasonable 
 control over management, provides for 
 extensions and betterments, recog- 
 nizes the street railway business as a 
 natiu-al monopoly, gives the public 
 a little authority in the directorate, en- 
 forces adequate accounting, and re- 
 tains to at least a small extent the al- 
 leged advantage of leaving the business 
 in private management. But only to 
 a small extent. The dominating mo- 
 tive of private ownership is a desire for 
 profit, and business undertakings are 
 attractive to business men largely in 
 proportion to the chances of earnings 
 beyond the legal rate of interest. If 
 they can only earn 6 or 7 per cent they 
 might as well invest in mortgage loans 
 and go on a camping trip. Just now, 
 however, the question with them is not 
 future earnings, but the salvaging of 
 the miUions of capital which is threat- 
 ened with obliteration. 
 
 The crucial point in a service-at-cost 
 franchise is the valuation of the prop- 
 erty of the utility, and this is true also 
 of proposals for municipal ownership. 
 Here is a decaying business, but one 
 which it is essential to the public good 
 to keep going, at least until its suc- 
 cessor has been developed. Here is a 
 property with securities outstanding 
 far in excess of any reasonable estimate 
 of its real value. It is in much the 
 same condition as a manufacturing 
 concern whose processes are obsolete 
 
 and whose product is losing hold on 
 public favor. What is it worth .?* It is 
 not diflScult for engineers to arrive at 
 the value of property of a going con- 
 cern, one with a future, but to fix a fair 
 value of a street railway at the present 
 time is a task which staggers the ablest 
 expert in the business. A trolley pole 
 may be worth what it costs as a trolley 
 pole, but what if it is only an encum- 
 brance to the street? Are we taking 
 an unjust advantage in offering its 
 owner its junk value? The American 
 public wants to be fair to the public 
 utility interests, but it does not want 
 to be cheated. It does not want to buy 
 a work horse and get a dead carcass 
 which has no value except the hide. 
 
 DIFFICULTIES IN MUNICIPAL OWNERSHIP 
 
 Some cities have determined that 
 they will themselves own and operate 
 their street transportation business and 
 are having a very interesting time. 
 Many difficulties must be met and 
 overcome. When the most of our state 
 constitutions were written it was con- 
 sidered unsafe to allow much freedom 
 to city governments. Honest men 
 feared the entrance of the political unit 
 into business, even the business of sup- 
 plying the collective needs of its citi- 
 zens, and the selfish interest of the util- 
 ities had an easy victory in denying 
 the cities the right, or closing the 
 avenues of opportunity, to engage in 
 other businesses than those which did 
 not offer profit to private operation. 
 In fixing constitutional debt limits^ 
 even in some so-called home rule states, 
 the full debt limit could not be reached 
 excepting for water supplies and sew- 
 ers, or less frequently, for sewers, 
 water and light plants. And behind 
 the constitution stood the legislature, 
 usually dominated by a combination of 
 interests in which the utility corpora- 
 tions were fully protected. 
 
 y 
 
 > 
 
 But even if the law gave authority 
 and opportunity, the very structure of 
 city government, up to the last ten or 
 fifteen years, was not adapted to the 
 new proposal of public ownership. 
 The public mind was not open to such 
 business undertakings nor were the 
 usual public officials competent to op- 
 erate them or willing to undertake the 
 new burden. A new light is dawning 
 upon American municipal life, but the 
 dawn comes slowly, and the greater 
 number of cities are to-day in the con- 
 dition I have just outlined. The elec- 
 torate is heedless, the government is 
 cumbersome and unresponsive, the of- 
 ficials are frequently changing, poorly 
 paid and unexpert, employes receive 
 appointment and hold jobs on account 
 of election day services, wages and 
 standards of efficiency are low, and 
 "politics" is not the science of govern- 
 ment but a disreputable game for 
 spoils. For such a city public owner- 
 ship of utiHties is unthinkable as a 
 hopeful business undertaking. Public 
 regulation of privately owned utilities, 
 having as its latest development the 
 service-at-cost franchise, is as far as such 
 a city should attempt to go. 
 
 But no city government is as good or 
 as bad as it might be. Extreme ex- 
 amples are rare. Cities are Uke the 
 human beings which build them and 
 inhabit them, containing much good in 
 the worst, and some evil in the bsst of 
 them. Bad impulses, in a city govern- 
 ment as in the individual, are not only 
 immoral, they are unintelligent, and 
 when that fact is discovered and both 
 reason and moral impulse get to work 
 there is sure to be a change for the 
 better. The decision between service 
 at cost and municipal ownership in 
 any city cannot be made on the basis 
 of right and wrong; it must be influ- 
 enced by local conditions, and par- 
 ticularly by the character of the city 
 government. 
 
 SEATTLE ACTS HASTILY 
 
 Seattle has chosen to own and oper- 
 ate its street railways; it took them 
 over by purchase on April 1, 1919, at 
 a price of fifteen miUions, paying for 
 them with utility bonds, pledging the 
 first application of the gross earnings 
 to the payment of the interest and the 
 gradual retirement of the principal in 
 the term of twenty years. Seattle is a 
 thriving city of 315,000 population. 
 Its growth during the last decade 
 was 33 per cent. Its population con- 
 tains an imusually large proportion of 
 intelligent, progressive, wide-awake 
 Americans. Its government is the 
 mayor-council form, the voters having 
 defeated a city manager charter a few 
 years ago. In addition to the recent 
 purchase of its street railways it has 
 owned and operated for many years its 
 water works and an electric light and 
 power plant, both of which have been 
 very well managed and successful, and 
 its Port district has splendidly equipped 
 ocean terminals, warehouses, grain ele- 
 vators and cold storage plants, all pub- 
 licly owned and operated. The citizens 
 are proud of their municipal under- 
 takings, and when the question of 
 buying the street railways came up in 
 November, 1918, they voted for the 
 purchase by about three and a half to 
 one. 
 
 The deal was a hasty one and did 
 not allow time for a thoroughgoing 
 valuation of the property, but a valua- 
 tion by accountants of the Public 
 Service Commission, begun but not 
 completed, showed it to be worth in 
 the neighborhood of the purchase price, 
 and the city officials, in a statement to 
 the voters just previous to the election, 
 gave its value as $16,102,946. I am 
 inclined to beUeve that, considering the 
 state of the business at that time and 
 the growing difficulties in which trac- 
 tion interests all over the country 
 
I 
 
 138 NATIONAL MUNICIPAL REVIEW SUPPLEMENT [Feb. 
 
 found themselves, the price paid was 
 too high, but I approve the judgment 
 of one member of the Seattle city coun- 
 cil, quoted as asserting that he could 
 not see that the lines exceed eight mil- 
 lions in value, but that he believed the 
 elimination of the traction company 
 from local affairs was worth the dif- 
 ference and he would vote for the pur- 
 chase. The price was probably lower 
 than any valuation which could have 
 been agreed upon as a basis for a serv- 
 ice-at-cost franchise. 
 
 1921] 
 
 COST VERSUS MUNICIPAL OWNERSHIP 
 
 1S9 
 
 THE COURSE OF MUNICIPAL OPERATION 
 IN SEATTLE 
 
 Had the railways remained in the 
 hands of their former owners, a raise in 
 fares was imminent, and fares had been 
 advanced in all other larger cities in 
 the state. The Seattle railways under 
 municipal ownership are burdened with 
 a heavy obligation of debt liquidation 
 which private ownership would not 
 have entailed, but the new manage- 
 ment, instead of raising rates at once, 
 allowed their optimism to get the bet- 
 ter of their judgment, asserting that 
 their new utility would meet its obU- 
 gations with a five-cent fare. Their 
 system is virtually capitaUzed at 
 $17,215,000, of which $16,440,000 is 
 represented by utility bonds which are 
 a first lien upon receipts, and not only 
 must they pay 5 per cent interest on 
 this sum, but they must also meet the 
 principal in a series of annual pay- 
 ments of $833,000, beginning March 1, 
 
 1921. 
 
 It soon became evident that in spite 
 of a number of economies, fares would 
 have to be advanced, and while this 
 subject was being discussed a munici- 
 pal election came on. The manage- 
 ment of the street railways was the 
 chief issue and the result was a change 
 of administration. The report of op- 
 eration issued at the close of 1919, 
 
 covering the first nine months of mu- 
 nicipal ownership, showed that with a 
 rather Uberal allowance for deprecia- 
 tion the lines had run behind $517,000. 
 The cash fare was raised to ten cents,^ 
 with metal tokens sold on the cars at 
 four for a quarter. The mayor in 
 signing the ordinance said he believed 
 the advance was not suflScient. Wages 
 of carmen have advanced from 64 to 80 
 per cent over those paid in 1918, under 
 private ownership. The gross loss for 
 the first four months of 1920 including 
 depreciation, was $468,000. There are 
 rumors afloat that illegitimate means 
 were used to influence the sale and the 
 city council, at the request of the new 
 mayor, has voted $10,000 as a fund for 
 probing the transaction. 
 
 It is too soon to make a reasonable 
 forecast of the outcome of Seattle's 
 latest experiment in municipal owner- 
 ship. Inadequate financing was forced 
 upon the city by reason of constitu- 
 tional debt Umitation. It must pay for 
 its purchase in eighteen years and at 
 the same time build up a depreciation 
 reserve of over twelve millions, thus 
 placing an enormous burden upon its 
 street car patrons in this generation in 
 order to turn over to the citizens of 
 twenty years hence a street railway 
 fully paid for and adequately main- 
 tained. It is a feat which no private 
 company would undertake. A service- 
 at-cost franchise would have called 
 only for the payment of operation, 
 depreciation and interest, and unless 
 there is careful management the fares 
 may be higher during this twenty-year 
 period than they might have been un- 
 der service at cost. Seattle has not an 
 ideal form of government for carrying 
 on the business of utility management, 
 yet its pubUcly owned water-works 
 and electric light and power plant have 
 been efl&ciently managed, and the high- 
 class men who are at their heads as 
 superintendents, have been there many 
 
 ,1 
 
 years, through many changing political 
 administrations. The civic spirit in 
 Seattle is high and I believe that public 
 ownership has a better opportunity 
 there than in many cities which have 
 more modern forms of government. 
 
 CAN PUBLIC OPERATION BE EFFICIENT? 
 
 We are inclined to base our judg- 
 ment on public ownership upon the 
 presumption that privately owned 
 utilities are always well managed, and 
 that the reverse is true of all municipal 
 undertakings. That this is a fallacy 
 any intelligent student who is open- 
 minded will aflfirm. Many of the mu- 
 nicipally owned utilities have passed 
 through this post-war period without 
 asking for rate increases and are sol- 
 vent. I know of no city which has 
 owned and operated any utility for ten 
 years or more, in which there has not 
 been a great saving to its people by 
 reason of reduced rates, not only for its 
 own service, but by reason of its com- 
 petition with privately owned utilities 
 which have thereby been induced to 
 reduce their rates. Municipal owner- 
 ship is not often credited with any 
 advantage for this reason, and yet I 
 can name cities in which pubUc owner- 
 ship would have been of the greatest 
 advantage even if the publicly owned 
 plant had never turned a wheel. The 
 tendency in municipal plants is to pay 
 off and cancel funded debt obligations; 
 that of privately owned plants is to in- 
 crease them. Under municipal owner- 
 ship the chief incentive of operation is 
 
 to give service; imder private owner- 
 ship it is to make profits. The tend- 
 ency imder private ownership is to a 
 brand of political activity that, in my 
 opinion, is infinitely worse than any 
 "politics" that may creep into man- 
 agement under public ownership. The 
 people in every city in the state of 
 Washington will be heartily thankful 
 for any curtailment of the evil political 
 domination of the state legislature by 
 the former Seattle traction interests 
 which results from mimicipal owner- 
 ship in that fine city. 
 
 It is my firm opinion that service at 
 cost is a transition state, a temporary 
 expedient, and one which will be in the 
 long run unsatisfactory to both the 
 owners of street railways and the pub- 
 lic. To the owners, it will be just a 
 tightening of the chain of public r^u- 
 lation which curtails more and more 
 their freedom of operation, but it will 
 be sought in order to fix a value which 
 may form a basis for public purchase 
 later. The voters will ultimately 
 awaken to the necessity of a better 
 form of city government, in which the 
 officials have more authority and more 
 responsibility, and of a more lively in- 
 terest in government on their own part, 
 and when these things have been ac- 
 complished, they will insist upon the 
 ownership of their public utilities and 
 their operation on the basis of the 
 greatest good to the greatest number, 
 and the banishment from municipal 
 life of those evil forces, which have 
 done so much to corrupt city govern- 
 ment in America. 
 
 -f 
 
I 
 
 TECHNICAL SUPPLEMENTS of the 
 
 National Municipal Review 
 
 1. The Assessment of Real Estate 24 pages 
 
 • By LAWSON PURDY 
 
 For eleven years President, Dept, of Taxes and Assessments, 
 City of New York 
 
 2. Administrative Consolidation in State Governments 
 
 By A. E. BUCK 32 pages 
 
 New York Bureau of Municipal Research 
 
 3. The Coming of Centralized Purchasing in State 
 
 Governments 24 pages 
 
 By A. E. BUCK 
 
 New York Bureau of Municipal Research 
 
 4. A Correct Public Policy Toward the Street Railway^ 
 
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 A Report of the National Municipal League Committee on Public 
 UtiUUes. 
 
 t 
 
 5. Zoning 32 pages 
 
 By EDWARD M. BASSETT 
 
 Counsel of Zoning Committee of the City of New York; former 
 Chairman of Districting Commission of the City of New York 
 
 6. Employment Standardization in the Public Service 
 
 By WILLIAM C. BEYER 16 pages 
 
 Assistant Director, Bureau of Municipal Research of Philadelphia 
 
 7. The Presidential Primary 
 
 By RALPH S. BOOTS 
 
 Columbia University 
 
 8. The Law of the City Plan 
 
 By FRANK B. WILLIAMS 
 
 Counsel for American City Consultants 
 
 24 pages 
 
 30 pages 
 
 9. Administrative Reorganization in Illinois 
 
 By JOHN M. MATHEWS 20 pages 
 
 University of Illinois 
 
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 NATIONAL MUNICIPAL LEAGUE 
 
 261 Broadway 
 
 NEW YORK, N. Y. 
 
 V 
 
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 fieri 9S94 
 
 Date Due 
 
 9 
 
 S«6 
 
 Service at cost for street railways i' 
 a synposium, four papers by experi- 
 enced public officials... . 
 
 
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