Part 10

The Commission of Texas interpreted the law to mean the estimated cost of reproducing or duplicating the properties at the date of valuation, allowing current market prices for all material and fair valuations on all real property.

_Method of Physical Appraisal._—The Commission duly appointed engineers to make these valuations. The railroads of the State were unfavorably disposed toward the work, and were inclined to withhold information.

The Texas staff encountered the difficulty due to destruction or loss of construction records, maps, and profiles. They had for their guidance only the profiles, filed under a prior law, and were thus compelled to depend wholly on original field work to secure their data. From a paper by R. A. Thompson, M. Am. Soc. C. E.,[7] the following description is taken:

"They [the engineers] with the profiles ... in hand, made a detailed inspection of the railroads on the ground. The quantities of excavation and embankment, where the actual quantities could not be obtained, were estimated approximately from the profiles, using the center heights of the cross-sections. The classification of the materials in excavation was determined by inspection. Where original plans and estimates of cost of the bridges, buildings and structures of all kinds could not be obtained from the records of the railroads, their value was estimated from measurements taken on the ground. The extent and acreage of the right of way, the depot and terminal grounds, were determined by actual measurement, or from maps furnished by railroads, or from city and county tax records.

"After an examination of a railroad had been made by the engineers of the Commission, its valuation was prepared on estimate sheets. Upon sheets marked Estimate Sheet A ... were recorded the values of the right of way and depot grounds, roadbed, track, bridges, structures and way building for each mile, the value of ten miles being recorded on each sheet.... On these sheets space was provided for the units and prices, and columns for carrying out the values for each mile and the totals.

"The value of all rolling stock and equipment, and the value of such properties as were properly applicable and chargeable to the entire railroad, were recorded on a separate estimate sheet, only one sheet being used for a railroad."

It thus appears that the general methods of securing the data and making the field examination were quite similar to those adopted on the Michigan work. The classification of items on the sheets is rather more full than on the Michigan summary sheets, but apparently not so completely in detail as the final compilation of work. In general, however, the physical items included are complete in both cases. The form in which the results are finally put up is radically different.

The following points of variations from the practices of the Michigan appraisal are noted:

(_a_) The unit prices were current market prices.

(_b_) The value applied to right of way and real estate used for railway purposes was in accordance with the current market value of other property immediately adjoining, disregarding donations or property acquired at less than value.

(_c_) No deduction was made on account of depreciation, as it was considered that all structures must be maintained in first-class, serviceable value, and renewed when necessary, and no allowance was made for appreciation of roadbed.

(_d_) No allowance was made for franchise values of any kind, except track rights in streets.

(_e_) No allowance was made for contingencies, except as made in prices or quantities.

Their practice was in accord with the Michigan appraisal, in allowing from 5 to 6% to cover legal and engineering expenses and superintendence, and from 5 to 6% to cover interest during construction.

_The Result of the Texas Work._—The object sought in Texas was to secure a capitalization in harmony with the actual investment in the physical property; in short, to "squeeze out water."

Of course, all stock and bond issues outstanding in 1894 are still in existence, except as a few roads have been sold out or re-organized. No new issues of stock or bonds may be made on roads in excess of the valuation. Consequently, new roads are limited to issues of bonds not far from $15,000 per mile. The effect is shown by Table 8, from the Railroad Commission's Report.

TABLE 8.—MILES OF RAILWAY IN OPERATION IN TEXAS, 1894 TO 1908, WITH OUTSTANDING STOCKS AND BONDS.

═══════╤═══════════════╤═══════════════╤═══════════════╤═══════════════ On June│ Miles of │ Stocks │ Bonds │Total stock and 30th. │ railway in │ outstanding, │ outstanding, │ bonds │ operation. │ per mile. │ per mile. │ outstanding, │ │ │ │ per mile. ───────┼───────────────┼───────────────┼───────────────┼─────────────── 1894│ 9,154│ $15,076│ $25,726│ $40,802 1895│ 9,291│ 14,874│ 25,420│ 40,294 1896│ 9,437│ 14,647│ 25,302│ 39,949 1897│ 9,484│ 14,320│ 24,793│ 39,113 1898│ 9,540│ 14,205│ 24,036│ 38,241 1899│ 9,702│ 13,997│ 23,562│ 37,559 1900│ 9,867│ 13,724│ 23,202│ 36,926 1901│ 10,154│ 12,922│ 22,649│ 35,571 1902│ 10,617│ 12,388│ 21,779│ 34,167 1903│ 11,029│ 11,971│ 21,464│ 33,435 1904│ 11,495│ │ │ 32,400 1905│ 11,662│ │ │ 33,418 1906│ 12,056│ │ │ 32,886 1907│ 12,577│ │ │ 32,142 1908│ 12,830│ │ │ 32,305 ═══════╧═══════════════╧═══════════════╧═══════════════╧═══════════════

Total reduction, up to 1903, of stock per mile $3,105 " " " " " " bonds " " 4,262 ───────────────────────────────────────────────────── Total stock and bonds $7,367

E. L. Corthell, M. Am. Soc. C. E., speaking of results secured by the Texas law, says[8]:

"The law, and generally its just operation, has cured many unmitigated and notorious evils. Not only has the public in Texas been benefited, but also the investor in railroad securities from the outside of the State. The people of Texas now have just and uniform rates of transportation, and the investor knows what he is purchasing, and may be reasonably sure of a return on his investment."

Mr. Thompson says[9]:

"Another significant fact is that only a short time before the Stock and Bond Law became effective about 39% of the railroads in Texas were in the hands of receivers. To-day there is not a mile, of the 11,300 miles in Texas, in the hands of receivers, and, with a few unimportant exceptions, no railroad has been in the hands of receivers since the law went into effect. The fact is that there has been no piece of legislation, in this or any other State of the Union during the past decade, which has been so fruitful of results and beneficent in its action, alike to the railroads and the people."

Footnote 7:

_Transactions._ Am. Soc. C. E., Vol. LII. p. 328.

Footnote 8:

_Transactions._ Am. Soc. C. E., Vol. LII. p. 346.

Footnote 9:

_Ibid._, p. 364.

RAILROAD APPRAISAL OF THE STATE OF WISCONSIN.

The State of Wisconsin made a valuation of railroad properties of the State as of June 30th, 1903, the work being under the direction of W. D. Taylor, M. Am. Soc. C. E. The plan adopted, the methods of work, and the general result of independent studies conducted by Professor Taylor have been described so fully in various technical papers and reports elsewhere listed, that a very brief statement of points of difference between the Michigan and Wisconsin works appears to be all that is necessary here.

Professor Taylor associated with him for consultation Professor Cooley, of Michigan, made a careful study of methods used in earlier appraisals, used the Michigan blank forms as a basis for the preparation of his own, and thoroughly outlined his general plan and the scope of the information desired before actually organizing his staff or commencing work.

In connection with the earlier stages of the work, conferences were held with the officials of the principal railways of the State, and developed a thorough understanding and plans for co-operation between the appraiser and the roads. As a result of these conferences, each large railway company of the State, acting through its heads of departments, made an inventory and appraisal of its own property in the State, using therefor the forms and blanks prepared by the appraiser. At the same time, the appraiser organized a considerably smaller force than was used in Michigan, made his own office and field inspection, and secured data to complete the appraisal on the small roads, in which their own engineering or operating departments were not organized so as to do the work according to plan.

The work turned out by the large roads was then checked by this force, the various points in which they were out of harmony were checked and unified, a number of hearings were held, certain portions of the work were checked over by the appraisers' men, sundry changes in quantity and price were made, and finally, when the work was compiled and put in shape for presentation, the appraiser had reason to believe that he had secured a result which was reasonably free from error, and one in which the railroads had co-operated to such an extent that no charge of prejudice or unfairness would lie.

It is noted that the average cost of reproduction and the present value per mile in Wisconsin are higher than in Michigan, which is probably as it should be, as Michigan has a less mileage of high-class main trunk line road than Wisconsin.

In general, the two appraisals were very similar. The determination of unit prices, the placing of depreciation, the apportionment of locomotives, freight, and passenger equipment, and other rolling stock, the use of the Interstate Commerce Commission's construction classification, the application of percentage values for engineering, interest during construction, administration, legal expenses, and contingencies (this latter fixed at 5.5%), all were along lines similar to those developed in Michigan.

The work of the Wisconsin appraisal was carried on at the same time as the second Michigan appraisal. The investigations made by Mr. Van Ranst Pond and the writer, as to the actual sale prices of right of way, fully discussed heretofore, were conducted at the same time as Professor Taylor's work in Wisconsin was being done, and neither party had any knowledge of the work of the other. The prior discussion relative to this phase of the Michigan valuation is practically a revision of a memorandum submitted by the writer to the Attorney-General in January, 1904. The tables are abstracted from much more extensive ones which, supported by the evidence of Registers of Deeds of some ten counties of Michigan, are part of the record of evidence in Michigan Central Railroad _vs._ Powers. It is, therefore, not only of great interest, but great value, as supporting Professor Cooley's right-of-way valuations, to note the following extract[10] from Professor Taylor's discussion of the paper by Mr. R. A. Thompson on the Texas railroad valuations:

"In the Wisconsin appraisal, the method followed for valuing the right of way and terminal lands was about as given below. Parts of the right of way of some of the larger systems are estimated at higher ratios than this, but in such cases the roads themselves fixed the right-of-way value.

"The market value for other purposes of the right of way and terminal lands was judged to be the same as that of contiguous property.

"In farming lands, small towns, and suburban and residence property, the right-of-way value was taken to be 250% of the market value for other purposes.

"In city property, the right-of-way value was taken to be 133% of the market value for other purposes, where the land was owned in strips of 100 ft. width or less, and 110% of the market value for other purposes, where the land was owned in blocks, or in widths greater than 100 ft."

No effort whatever was made in the Wisconsin valuation to determine any non-physical or intangible values, the report covering only cost of reproduction and present value of the physical properties.

The Wisconsin work is noteworthy as the first appraisal in which the hearty co-operation of the railroads was secured from the outset. In Michigan the roads at the inception viewed the work with distrust, but by the completion were in hearty sympathy with the efforts of the appraiser to use just and honorable methods, and the managements extended every courtesy in the way of access to records for verification purposes.

Footnote 10:

_Transactions_, Am Soc. C. E., Vol. LII. p. 359.

THE MINNESOTA STATE RAILWAY APPRAISAL.

The valuation of railway properties in the State of Minnesota was undertaken with a view to establishing a basis for rate-making. The work was in charge of Mr. Dwight C. Morgan, Engineer of the Railroad and Warehouse Commission of the State, whose full and complete report is a very valuable addition to the literature of valuation practice. This work was undertaken after the completion of that in Michigan and Wisconsin, and advantage was taken of the experiences of the appraisers in these two States. The Wisconsin plan of co-operation with the railroads was adopted, and each company scheduled and appraised its own lines.

The "cost of reproduction," and "present value of physical properties" were the two sets of figures shown in the final results.

Unit prices were fixed on the basis of current prices in 1905, in preference to an average of 5 or 10 years.

Apportionment of locomotives and rolling stock was made on an engine- and car-mileage basis. The organization of an office force was undertaken, and special study was made of the subjects of unit prices and the various local conditions surrounding the different properties, checking of quantities of earthwork, rails, etc., and preparing to harmonize and unify the estimates as they should be received from the railroads.

The greatest difference between this work and that in the other States was the fact that the field inspection, instead of being made by many men, was made by Appraiser Morgan, accompanied by two assistants, inspection being made in a special train, which was paid for by the State.

The detailed reports of the railroad companies were completed and in the hands of the appraiser, maps and profiles of the road were prepared and available, the train was run at slow speed, and many stops were made for examination of bridges, culverts, and structures. About 100 miles per day were covered, but this did not include the larger terminals of St. Paul, Minneapolis, and Duluth, which were given many days.

In the preparation of final summaries, percentage values were placed as follows:

Engineering, superintendence, and legal 4½ per cent.

Contingencies 5 " "

Interest, time of construction varying according to 4 " " mileage from 1 to 8 years

In addition to these three items, the item of "adaptation and solidification of roadbed" was given a large place, being, for all the roads of the State, $11,743,007.15. This feature was novel to this class of valuation, and it is to be regretted that, in his report, the appraiser did not narrate more fully the detailed methods by which he arrived at his resultant figure.

_Land Valuation._—The vexed question of a proper value to give to lands owned by a railway company, was treated by Appraiser Morgan in a different way than it had been in Wisconsin or Michigan. A number of special agents were appointed, who made an exhaustive study of the transfers and assessed values throughout the State. The discussion of this subject in Mr. Morgan's report is exhaustive, and of great interest. The conclusions are quoted. It is regretted that the discussion of methods of valuation can only be given in brief form.

"Careful and full consideration of all information made available for establishing the value of the right of way owned and used by the railway companies for railway purposes, led to the conclusion that in the state at large exclusive of the three terminals of St. Paul, Minneapolis and Duluth, a multiple of three (3) applied to the true value or normal value of lands, as obtained from the transfers, would in general satisfy the conditions.

"During the period referred to, the railway companies paid for the property acquired by them, over and above its normal value, an amount sufficient to justify the use of the following multiples: St. Paul, one and three-fourths (1¾); Minneapolis, one and three-fifths (1⅗), and Duluth, one and one-fourth (1¼), which when applied to the normal value of the lands as established from contiguous and surrounding property, formed the basis for measuring the cost of reproducing the existing terminals of the railway companies."

In the final compilation of results, two sets of schedules were rendered:

(_a_) Those which gave the land values with added increment,

(_b_) Those which omitted the increment.

The cost of the engineering work was about $70,000; this covered 7,596.4 miles of main track, 427.4 miles of second track, and 2,414 miles of side-track, or a total of 10,437.8 miles of all tracks. As yet there has been no decision by the Courts on the Minnesota rate cases.

_Forms Used in the Compilation of Information._—The forms used in the Michigan appraisal have been described and fully illustrated. They were all printed on 8½ by 11-in. sheets.

The Wisconsin appraisal used the Michigan forms as a basis, twenty of them being practically identical with the corresponding Michigan forms. The forms shown by Figs. 11 to 21 are materially different from those used in Michigan.

The forms used in Minnesota in 1906 were based on those of Michigan and Wisconsin, and were printed on 14 by 18½-in. sheets. They were remodeled and elaborated to such an extent, however, that the writer believes himself justified in submitting reproductions of the entire set, as representing the most complete form for inventory yet used on any of the State appraisals.

The appraiser in Nebraska in 1909, and Mr. Hansel in New Jersey in 1910, have both returned to the 8½ by 11-in. sheets, and, while both clearly followed earlier precedent in general, both have modified the details to suit the requirements in their respective States.

THE WASHINGTON STATE APPRAISAL.

The State of Washington, through its Railroad Commissioners, made an appraisal of railroad properties within its borders, the work being under the direction of Halbert P. Gillette, M. Am. Soc. C. E.

┌─────────────────────────────────────────────────────────────────────┐ │WISCONSIN RAILROAD W.B.A. Form 1 __________________│ │APPRAISAL OF 190__ _Office Inspector_│ │Name of Road ____ ROADBED REPORT _________________│ │ _Field Inspector_│ │Between __ and __ PART I Date ______ 190__│

╒════════╤════════╤═════════════════╤═════════════════════ │LOCATION│ ACRES │TOTAL EXCAVATION │ TIES │ │ │ AND EMBANKMENT │ ├────────┼────────┼─────┬─────┬─────┼──────┬────┬───────── │ │Clearing│Earth│Loose│Solid│Number│Kind│Condition │ │ and │ cu. │Rock │Rock │ │ │ │ │Grubbing│yds. │ cu. │ cu. │ │ │ │ │ │ │yds. │yds. │ │ │ │ │ │ │ │ │ │ │ ├────────┼────────┼─────┼─────┼─────┼──────┼────┼───────── │ │ │ │ │ │ │ │ ├────────┼────────┼─────┼─────┼─────┼──────┼────┼───────── │ │ │ │ │ │ │ │

╤════════════════╤═══════════════════════╕ │ BALLAST │ RAILS │ │ │ │ ┼──────┬─────────┼──────┬──────┬─────────┤ │ Kind │Condition│Length│Weight│Condition│ │ and │ │ of │ │ │ │Amount│ │Single│ │ │ │ │ │Track │ │ │ │ │ │in ft.│ │ │ ┼──────┼─────────┼──────┼──────┼─────────┤ │ │ │ │ │ │ ┼──────┼─────────┼──────┼──────┼─────────┤ │ │ │ │ │ │

┌─────────────────────────────────────────────────────────────────────┐ │WISCONSIN RAILROAD W.B.A. Form 2 __________________│ │APPRAISAL OF 190__ _Office Inspector_│ │Name of Road ____ ROADBED REPORT _________________│ │ _Field Inspector_│ │Between __ and __ PART II Date ______ 190__│

╒════════╤═════════════════════╤═══════════════════════ │LOCATION│TIE PLATES AND BRACES│ FASTENINGS ├────────┼──────┬────┬─────────┼──────┬──────┬───────── │ │Number│Kind│Condition│Number│Weight│Condition │ │ │ │ │ │ per │ │ │ │ │ │ │ foot │ ├────────┼──────┼────┼─────────┼──────┼──────┼───────── │ │ │ │ │ │ │ ├────────┼──────┼────┼─────────┼──────┼──────┼───────── │ │ │ │ │ │ │

╤═════════════════════╤═══════════════════════╕ │ FROGS AND SWITCHES │ R.R. CROSSINGS │ ┼──────┬────┬─────────┼──────┬──────┬─────────┤ │Number│Kind│Condition│Number│ Rail │Condition│ │ │ │ │ │Weight│ │ │ │ │ │ │ │ │ ┼──────┼────┼─────────┼──────┼──────┼─────────┤ │ │ │ │ │ │ │ ┼──────┼────┼─────────┼──────┼──────┼─────────┤ │ │ │ │ │ │ │

┌─────────────────────────────────────────────────────────────────────┐ │WISCONSIN RAILROAD W.B.A. Form 6 __________________│ │APPRAISAL OF 190__ _Office Inspector_│ │Name of Road ____ SIGNAL APPARATUS _________________│ │ _Field Inspector_│ │Between __ and __ Date ______ 190__│

╒════╤═══════════╤══════════════╤═══════════╤═══════╤════════════╤════╕ │ │ LOCATION │ NAME AND │ No. Miles │ Cost │ Condition │ │ │ │ │ DESCRIPTION │Single Line│ New │ Per Cent │ │ ├────┼───────────┼──────────────┼───────────┼───────┼────────────┼────┤ │ │ │ │ │ │ │ │ ├────┼───────────┼──────────────┼───────────┼───────┼────────────┼────┤ │ │ │ │ │ │ │ │

┌─────────────────────────────────────────────────────────────────────┐ │WISCONSIN RAILROAD W.B.A. Form 8 __________________│ │APPRAISAL OF 190__ _Office Inspector_│ │Name of Road ____ MISCELLANEOUS _________________│ │ _Field Inspector_│ │Between __ and __ ROADWAY ITEMS Date ______ 190__│