What is Necessary to Ascertain and Fix a Just Compensation to the Railroads for Carrying the Mails? STATEMENT SUBMITTED TO THE JOINT COMMISSION INVESTIGATE THE POSTAL SERVICE. STUYVKSANT FISH, PRESIDENT OF THE ILLINOIS CENTRAL RAILROAD COMPANY, january 6, i8gg. ^ 5 ILLINOIS CENTRAL RAILROAD COMPANY. New York, January 6, 1899. To the Honorable The Commission To Investigate the Postal Service, Washington, D. C. Gentlemen: It is to be assumed that your purpose is to ascertain, and that of Congress to fix, a just compensation to the railroads for carrying the mails. To the determination of such compensation, more is needed than the mere consideration of the relation of the rates of mail pay in force to the compensation received by the railroads for other services. For if the railroads are, as some contend, now receiving such revenues as to enable them to make excessive profits, it is obviously wrong that they should be paid with equal extravagance for the mails; while, on the other hand, if the railroads are not now sufficiently paid for their services, it is equally wrong that this should be availed of to reduce their mail pay. The action of the Officers and Directors of the larger number of Railroad Companies in miscalling the sums collected by them for the transportation of passengers and property “ Earnings ”, has led to the grossest misappre hension as to what the railroads really do Earn. Some Companies have gone so far as to state what they are pleased to call “Net Earnings”, and to make dividends therefrom, without first deducting Taxes and, in whole or in part, such other necessary and unavoidable expenses of conducting the business as Interest, Insurance, Ex change and Rent. ? 20H I J Unfortunately the Interstate Commerce Commission, — which was created, in part at least, for the purpose of correcting and preventing such errors and the consequent frauds upon the public and the creditors of the railroads, and which has done so much to improve the methods of railroad accounting, — adopted and persisted in both of these errors until last year, and still persists in the latter. The Act of 1887 to Regulate Commerce, as since amended, requires: That the Commission shall, on or before the first day of December in each year, make a report, which shall be transmitted to Congress, and copies of which shall be distributed as are the other reports trans- mitted to Congress. This report shall contain such information and data collected by the Commission as may be considered of value in the determination of questions connected with the regulation of com- merce. The only information and data given at a time and in a manner which in any measure fulfils this requirement, are contained in the Preliminary Reports on the Income Account of Railways in the United States for the year ending on the 30th of June preceding, which are annually made to the Commission by their Statistician. While the Preliminary Report for June 30, 1898, has not been made and transmitted to Congress, such a report can con- fidently be expected to appear before long. It should be added that later on a fuller report, entitled “ Statistics of Railways,” is also made by the Statistician to the Commission. But as this is never published in full until eighteen months, or more, after the close of the period to which it relates, and then only as an Appendix to a long forgotten Report of the Commission to Congress, it is difficult to see how it can be “of value in the de- termination of questions connected with the regulation of commerce.” (The obvious and great improvements made by the Commission in their last Preliminary Report, and the high regard which I entertain and have so often expressed for the Members of that body, disarm me alike of power or desire to criticize their recent work, further than is abso- 5 lutely necessary in order to bring the facts to your atten- tion. It is but fair to add that the Commission claim, with some force, that they are delayed by fhe failure of certain railroad companies to report promptly, On the other hand, a simpler and clearer Statistical Report could un- doubtedly be got out in time to be of value, if all useless elaboration of detail were omitted therefrom.) The Preliminary Reports alone reach the attention of Congress and of the People in time to have either value or interest. The first ten Annual Reports of the Interstate Com- merce Commission, down to and including the one made under date of December 1, 1896, and each of the Prelimi- nary Reports which accompanied them, can be read throughout, without discovering that any railroad in the United States had ever paid any taxes. It took me a long while to discover that in the belated “ Statistics of Railways,” Taxes had been persistently hidden away under the heading of “ Fixed Charges,” and so used to swell that which, as ail the world knows, forms a part of the hire of borrowed capital, i. e ., Interest and Rent. It is due to the Interstate Commerce Commission to say that in their last, the Eleventh Annual Report, and in the Preliminary Report which accompanied it, as well as in the brief Abstract of Statistics of Railways for the year ending June 30, 1897 (published August 18, 1898), the fact that the railroads paid taxes was clearly brought out, and the amount paid, $43,137,814, was plainly stated. But the Commission persist in stating Net Earnings, without even deducting Taxes, leave alone Interest and Rent. The last Preliminary Report also made a clear and very necessary distinction between the income of the Operating Railroads, which are those “ common Carriers engaged in the transportation of passengers or property ” (see Act of 1887 to Regulate Commerce, Sec. 1), and the income of Operated Railroads, which are those which have ceased to deal with the public as common carriers in consequence of having leased their franchises and facilities to one or other of the Operating Railroads. 6 Taken as a whole, the Operating Companies have two sources of revenue: First. — The money which they receive, as common carriers, for the transportation of passengers and freight, including therein the mails. This is common to all of the Operating Companies. Second. — The money which certain of them receive from other sources. The Receipts of all the Operating Companies from transportation, however, comprise the sum total of all that is paid in the United States for transportation by rail. Their Receipts from other sources consist mainly, if not entirely, of the Rent of Railroad Property and of Interest and Dividends on Investments in Railroads. All of this must, however, come from the money which the Operat- ing Railroads, as a whole, have taken for transportation. That is to say, in considering, as we must, the railroads as a whole, the second source of revenue above set forth is in no sense an addition to the first, but merely the dis- tribution of a part of it to such of the Operating Com- panies as are by contract entitled thereto. No one will question that if those Companies should sell, or divide among their shareholders, all the property and securities from which such rents and interest come, their income would thereafter be confined to the first source of revenue alone. While no one can object to the revenue from the second source being stated in detail, with respect to each Com- pany, in the reports of the Interstate Commerce Commis- sion, as a matter of general information, it should not, and, it is fair to assume, it is not, included in those re- ports as having any value in the determination of ques- tions connected with the regulation of commerce, much less in ascertaining the just compensation of the carriers. Least of all should this second source of revenue be added to the first, as has been attempted by some in order to make the pay received by the railroads, for services rendered, appear larger than it is. 7 From the fact that certain corporations have for years been thrifty, forehanded and self-denying in the division of profits, while others have been wasteful and improvi- dent, it results that the latter are debtors to the former, but this does not in any way swell the charge made by the railroads, as a whole, for the services rendered by them. In what follows, the term “ Gross Receipts from Trans- portation,” or for brevity, “ Gross Receipts,” is substituted for that which the Interstate Commerce Commission, in their Reports heretofore published, have called “ Gross Earnings,” because the Earnings of a Railroad Company are precisely what the Earnings of any other corporation for gain are, to wit, that which is left of the Gross Re- ceipts or Gross Sales after paying the expenses of con- ducting the business, including therein Taxes, Rent and Interest. With a view to showing just what the Railroads of the United States, taken as a whole, have earned from trans- portation since the Interstate Commerce Commission be- gan to make full Statistical Reports, and of exhibiting, as tendencies of the business, the enormous increase, both in the amount of Taxes and the relation of Taxes to the Earnings, permit me to invite your careful attention to the four tables following: Four Tables Compiled from Interstate Commerce Commission Reports on Statistics of Railways in the United States. No. 1. 8 8 Si e ii CO <55 s CO c Si .O Si *2 e ■£ o £ si ^ 55 e F>* o H s. g e o < ® co *si ho Ho •S' <» o o <» CO 05 CO co O CO L S o ^ A3 Pi Si ■ £ O CO ■so Si 05 <3 I— • £4 • J- OCOiOHfO 05 jL> H^*o coo ?>- O H . ® "QO ! I I Cp' r-T oT CO SvT lO <« ffl m ®pa . . • £: O* £- *0 O 50 0 C « $ S.2-$ . . . 0^10 °^G0 00^ • • • oT ?C Hj co' zo rH Q) ^ ^ ^ ^ H H O? “HOoh^ rH m i>0? C5 O* J> CO „ ow^ 2> s> § $33 fg GO O CO' GO *0 CO X 0 O.’S S Ps O J> H ^ rh '® H ® < O 0 ^ a,pq CO i5— CO X* 5OC0HlHl5Ot~?>CO rH <8 oc^ooocooi:- CO OQ 05C0^05COCO£-COHl i> § *2 oo co 50 co' cT io'of icT x’© coOj>woo'OWQ tH H-tf OOO^OOOO^ O^GO •H of »o of 0 0 nf 00 CO 00 03 fL, h^'og^coojcoco 0 C^r-H NHHHH 0 H r- 1 »H H H 1 — 1 H H H GO oT €©■ 50 50COC00505Cv*00 3> a> CO CO H H 50 H CO CO CO ^CO^COt-C^iOCO 05 ?> «> of of co 2 > 50 of CO 1—1 0 OOCOg\*GOHH05COC<* J> *0 00 O^ co CO CO 0 0 ^ CO' O .2 CS CS H co o' »d H rf H CO r-T CH ^WiOCOcoiOiOH J> a COCOCOCOCOCOCOCO i> a> P$ GO of $©■ ■4J O5lO5OO5HIC0rHHI O CO Oi Cl GO i> CO O H 05 hiohcoo*hi£-cx> O •5 ^o'co^»cwds> of p , OCOiOHiNCO^CO O? W WO^HOOOH rH 05 05 05 N H Tt< CO O w § 0^00 05 O* CO 'H O J>- H3 CcT?>or T H^Ho'c5^H' 05“ o ‘S 05>000^»0 50 •*2 00 o3 a> J- GO C*05COt'-i>' 50 Ph .o CO CO CO 00 i>- H^CO J> CO "53 *-? o' Sat J>COOiOCOJ>COOO 05 pi 0 0 oo 2 > co co h 0 i> <*£ » rH CO* r-T o' CO 50 0 of rH 0 5 1C 05 j> W f- i!> 0 W CO 2 g 0 0 rH 0^0 O r— 1 1 — < HHHHrlHrlH 05 ^ EH ©o' irs ended une 30. , OH«COHlCCO?> r c3 -u O 0505050505050505 Eh £ 0000000000000000 1 — ( t- ( rH rH rH rH rH rH 9 a* CO <£> co co O 5 ^ © Co ©5 . S © s 2 c*. ^ "S °o I e ~ s CO ^ © a? *2 2 s © a. co R |6 $ 1 © co' fis .a,’§ s* ft? co co © Cb ©5 * rs> § © co S*i 5 s CM <5i d 5 25 CO Excess of Total Expenses per mile over Gross Receipts per mile, being the LOSSES per mile. i i i • ■ ■ • i « 1 1 • CO lO €/> 327 252 CO 91 Excess of Gross Receipts per mile over Total Expenses per mile, being the EARNINGS per mile. iO hH m 49 38 1 1 1 I l I 1 1 1 1 1 l Total Expenses per mile. $6,680 6,752 io> ■b- rH CO hH Ol Nf 6,436 Ol o CO cd 6,396 6,213 a •— ~ a CO CO Ol co 30 05 Ol r 3 - 1C o 50 lO 50 05 Ol b- a v o rH rH o 05 Oj oo of oT of of of rH rH rH g s © - 4-3 u © OS CO 05 jO b- 05 30 0) 05 — ’ OS o o i—i rH Ol rH CO ® ’a rH Ol Ol Ol Ol Ol Ol Ol x a -5 1 1 1 1 • 1 1 H 3 . 1 1 1 1 1 1 1 1 © 43 | 1 1 l • 1 1 no 1 | 1 | fl O a> co 1 % 1 1 u S3 Q) o rH Ol CO ’rH *0 CO Ob Ob Ob Ob Ob Ob Ob Cb CO OD CO CO QO CO CO rH rH rH rH iH rH rH rH Statement showing the relation of the Expenses and of the sums Earned or Lost by the Railroad Companies , taken as a whole , to their Gross Receipts. 10 op „ • §*§ ffl M ® o Ph *- O CO 30 CM «* u . ° .PTQ OH P o> O & S 4^ -p h a> 30 CO 05 05 CO 05 lO o p cd = ® a> ^ o *3 h O 03 fl ® ® 2 '3 HH © 05 05 05 CO* cm © ©* CO CM CM CM CO CO CO CO Xo A a> o « P-. t; ^ O . cd ^ . 4J O 00 CO o 05 30 O •t- fl 0) p » ajpi o X 05 © 05 05 30 iH* hH OO o _ p . tn'C Sh 03 .p ~ CM* CO* CM CM* CO* CO CO* CO a a> Ph O a> a> Ph h £.h JX M ® o 03 O Ph ^ Ph o 00 lO co CO CO co CO 00 00 CO •fc- CO CM CO CO 1 1 1 1 l 1 1 1 i i i i i i i i i l I i i i i i • i 1 i i » i i "3 o CO 1 1 1 1 1 « i • i i i i i i i i i l i i i i i i 03 1 1 i « i l i i *H 03 V 1 1 1 1 i i i l • 9 i l i i i i • o tH cq CO lO CO b- 05 CD CD o CD CD O* ao GO OO 00 OO 00 00 OO rH tH rH rH tH tH rH rH Statement showing the relation of the Taxes paid by the Railroads , taken as a whole , with the Earnings or Losses made by them. 11 00 fcJD cs a ei cm CO CO 05 Ol 00 Ol fe- rH Ol IO i—l CO CO rH rn CO rH 00 b- 00 »o go rH o' OO r-T cf cT rH Ol Ol 00 rH CM rH Ol iO 05 IO CO b- 00 05 rH iO 1^ iO io rH CO 05 CM Ol CM 05 00 iO iO 05 co T—i ■t- co €£= a ® a> c, Q >-H . w ^ co n Eh OhI oO W> ® S ‘3 0 ) t* jO S ° w o 00 iO rH CO CO IO o Ol o -H io CO o of T-T of CO of t— Ol iO o co iO OO 00 00 of if rf of cf IO rH 1—1 rH 05 !- O if lO CM •s Sen 8 SO <3 8.5 ao X >Z 2 ow be * h a S ®'S CJ > _o X o ^ W •b- Ol 05 CM b- CO b- -H OO OO 05 co' lO i<0 ■t— co 05 CO rtl o CM I— I CO CO CO m i- 05 05 CO CO GO GO 00 OD CO CO rH rH rH rH rH tH rH rH 12 During these eight years the railroads of the United States paid out in the conduct of their business $121,- 255,079 more than they took in. In no single year have they ever earned one per cent, of that which they received. In each year their Taxes have been at least three times as great as their Earnings, and in no one of the last five years have the railroads, taken as a whole, earned anything whatever. While the Interstate Commerce Commission may not have said so in so many words, no one can read the Re- ports made to them by their Statistician without becom- ing convinced that the railroads of the United States, taken as a whole, have not, in recent years, earned any- thing whatever, but have been losing money constantly and very rapidly. As bearing on this, your attention is invited to “ Statis- tics of Railways ” for 1894, page 10, where, after report- ing that the Companies owning 40,818 miles of railroad were then in default, it is said that “ The total capitaliza- tion of railroads in the hands of Receivers was about $2,500,000,000 — that is to say, one- fourth of the total rail- way capitalization of the country.” “Statistics of Railways,” 1895, page 10, likewise shows that the 37,855 miles of railroad then in the hands of Re- ceivers represented an investment of $2,439,144,503. See also “Statistics of Railways,” 1894, where, after giving a comparison of conditions with those prevailing in 1893, which revealed that the number of men employed had, within that year, been lessened by 93,944, the Statis- tician says, at page 73: Comment upon the facts in the above summary would be superfluous. Railway construction was arrested, development of railway equipment was nearly stationary, railway employees were reduced, and that after a series of years which showed an average annual increase in the pay roll of 42,215 employees. 13 In order that there shall be no ground for saying that the deductions necessarily to be made from the four tables above set forth on pages 8 to 11, depend either upon the question of calling the money taken by the railroads “Earnings” or ‘‘Receipts,” or upon that of counting over a second time the income which certain railroads derive from investments in others, and in order to establish beyond cavil that the official figures printed by the Interstate Commerce Commission demonstrate that during the whole period for which they have pub- lished Statistics, from 1890 to 1897, the railroads, taken as a whole, have not earned anything whatever— let me ask you to take the General Balance Sheet set forth on page 74 of “Statistics of Railways,” 1890, and compare it with the Balance Sheet given on page 83 of “ Statistics of Railways,” 1896, as is done below. Comparison of the Earliest with the Latest General Balance Sheet of all the Showing increase and decrease between June 30, 1890, and June 30, 1897. 14 X Q < O M J ►H < P4 Decrease. $120,229,656 108,267,649 j ; 13,988,661 74,888,893 1 | OOH 4- CM ©1 1 05 05 O rH o © rH — < *D ■ rH © -H ■ i f’ >C lOH* XD i t- CO O D 1 t— O -I© * 1 XD XD ©J rH 00 • • XD gq CD rH 05 O i *D GO ©^ i o' co' co co" c7 ! ! ©" xo O CO ir— , GO ID •£-* , j CO O O GO rH , , CO rH GO rH CD , © © CO , 1 rH rH rH ID 05 , , CD GO ' 05 1 CCT r7 xq" 1 1 CO" ID © ©7 co ' 1 CO* o 05 rH jo CO 1 ©1 r ©U- ©J 2; iO ^H CO ©5 05 ©5 rH © 1 — 1 rH 1 rH 1 1 \ 1 rH €€> 1 1 ©CO©C©iD©l©-t- ID 05 05 CO rH O © XD 1>CDHOCOH<(MGO rH rH ©* O rH rH 00 rH t-a©cq©oi>co rH xD CO rH OO D N r-H o I - 05 © o' 05*' rH go" ©7 ©" iD" © i© rH 05" ©7 ©" CD © ©1 GO ©1 ID P © CO rH CD GO ©5 D(NH rH 00 00 rH GO lO t© rH O t- )D CD O OJ ©5 *©©rH©CO© rH 05 00 rH ©5 00 rH rH © ID © CO CO rH CD CD O CO CD CO rH 00 rH xD ID T — 1 €£« t-H rH m m O rH ID ©5 GO O -t-* CD CD i o ©5 ©;■ rH rH CO CD COOCDOQOlOGOCO CD | ©5 G ©i © © ■t'- © 1 rH ©5 CD <00 rH ©5 © XD x© ‘©5 O CD ©5 ©} CD XD rH CD © iO ©5 rH XD iD~ O' ! 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