Part 3
Many properties have been built in the United States, representing large investments of capital, which are not, and some of which can never be, profitable business investments. In all such the physical valuation will exceed the final value where the property is considered as an operating concern, and a negative factor to cover improper location, uneconomical design, ill-advised investment, or whatever the trouble may be, should be applied.
The physical property is that which enables the corporation to do business. Without physical property it could not produce the commodity which it sells. The amount of money actually invested in acquiring that physical property represents the measure of capital on which it is morally entitled to earn interest and profit; and, in the stage of promoting and financing the enterprise, all hope of earnings is based on the amount of money required to construct the property. These considerations lead the writer to contend that the true method of valuing a corporate property is first to determine the cost of reproduction of the property and its depreciation, and modify this figure by any applicable positive or negative non-physical elements of value.
Footnote 3:
The term "present value," as used in this paper, should not be confounded with its use by bankers or accountants, or with the present worth of a sum of money due at some future time.
Footnote 4:
In this case, traffic as to Line "B" is limited, and as it is feasible to double-track Line "A" at less cost than Line "B," no advantage can be assigned to Line "B" on account of development of future business.
THE MICHIGAN STATE APPRAISALS.
Organization.
The State Legislature of Michigan, at the session of 1899, passed an act creating a Board of State Tax Commissioners and outlining and prescribing their duties. This act authorized the board to "inquire into and ascertain the value of the property of corporations paying specific taxes under any of the laws of this State."
The object of this valuation was to determine the rate at which the corporations were paying taxes, to the end that necessary laws should be passed so that all taxable properties in the State might be taxed uniformly.
On September 1st, 1900, the Board of Tax Commissioners appointed Professor Mortimer E. Cooley Appraiser of Properties. Immediately thereafter the general organization was mapped out along the following lines of division of labor and responsibility:
_1.—Administration._—All matters of general policy in regard to the conduct of the work, all matters relating to negotiations and conferences with officials of corporations, all transactions with the State Tax Commission, the Governor, or the Board of State Auditors, and the entire direction of all relations with the public through newspapers and other channels, were retained by the appraiser, who was the final arbiter on all matters referred to him regarding the details of the work.
_2.—Civil Engineering._—The appraisal of all property which in the course of construction would fall under the supervision of the civil engineering department of a road, including land, roadway, bridges, and structures, was in charge of the writer.
_3.—Mechanical Engineering._—The appraisal of all motive power, rolling stock, and property which in the course of construction would fall under the supervision of the mechanical engineer, including power and electric plants, shop tools and machinery, water stations, etc., was in charge of Mr. Theodore H. Hinchman, Jr., of Detroit, Mich.
In the matter of the final assembling of figures, computation of percentage values, and compilation of final results, Mr. Hinchman and the writer worked together with joint general supervision.
_4.—Telegraphs._—The inspection and appraisal of all telegraph properties was under charge of Mr. William S. Conant, of Detroit, Mich.
_5.—Telephones._—The appraisal of all telephone properties was directed by Mr. William J. Rice, of New York.
_6.—Vessel Properties._—All vessels belonging to companies whose property was involved by the appraisal were inspected and appraised by Herbert C. Sadler, Professor of Naval Architecture and Marine Engineering at the University of Michigan.
In the following narrative, no special mention is made of the work executed under the direction of Messrs. Conant, Rice, and Sadler, because they really had charge of independent appraisals which were conducted on lines similar to those adopted in the railroad appraisal, and their methods were not different from those of the latter; hence any description of their work would be in a large measure repetition. This omission is in no wise to be construed as any reflection on the importance or high character of their work.
The organization as just outlined, while necessarily touching and overlapping at points, was generally defined so clearly that there was no duplication of work. Each head of department was responsible for the work of his special division, and directed the laying out and execution of the work done by his men.
The first task, after deciding on the general organization, was to determine the general methods to be adopted and the manner of getting the necessary detailed information. The magnitude of the work was appalling. There were seventy-eight different incorporated companies, owning some 10,000 miles of railroad, scattered over 54,000 sq. miles of territory. In addition, there were a number of small unincorporated railroads, telegraph, telephone, plank road, and other corporations, many of which had no records, no complete inventory, and no department organized so that the information could be readily secured. It was determined:
(1) To make or secure a complete detailed inventory of every piece or parcel of property belonging to each company;
(2) To examine each separate thing, place on it an estimate of cost of reproduction and depreciation;
(3) To prepare, as a basis for the final figure of value, an estimate of the present value, being the cost of reproduction less the depreciation.
Having determined on a detailed physical inventory and appraisal, the next step was to outline the work so as to secure absolute uniformity. The difficulties which confronted the appraiser at this period were many, chief among which were:
(a) _Lack of Complete Understanding on the Part of the State Officials._—The Governor and Board of Tax Commissioners rendered every possible assistance, but the Board of State Auditors was not at first fully committed to the work, and the uncertainty as to whether or not bills would be paid, delayed seriously the employment of men and the full commencement of work for 3 or 4 weeks after the first organization was made.
(b) _The Attitude of the Railroad Corporation Managers._—While this was not actively hostile, it was a serious cause of delay, as they could not foresee what effect the work might have on the interests in their charge, and, while not refusing access to their records, they delayed and held back information; in fact, a long time elapsed before all the companies opened their records to the appraiser and his staff.
(c) _The Confused Condition of the Records._ Many small corporations had absolutely nothing in the way of records of buildings, bridges, land, or other properties. Others had very complete records in certain departments and very imperfect ones in others; still others had records which had every appearance of being complete, but they were not up-to-date.
Facing an appraisal of this magnitude, with a time limit of only 4 months for the entire work, with delays at the outset which seriously hampered the organization for 2 or 3 weeks, the appraiser was compelled to occupy this time in preparing the blank forms to be used on the work, and in conducting correspondence with the men who were to make up the working force, investigating their references, etc.
The blank forms, Figs. 1 to 10, were the result of a series of conferences between the members of the staff. By this time it was quite evident that no great amount of help could be hoped for from the corporations. Had it been possible to secure access to the records of such railroad companies as the Michigan Central or the Lake Shore and Michigan Southern before the final drafts of the forms were prepared, the writer believes that several might have been simplified and many improvements could have been made. However, this was not possible, and the forms were prepared and printed before access to any railroad office had been granted.
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T. C. Form R.R.9 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad ALIGNMENT AND PROFILE IN _________________│ │Date ______ MICHIGAN _Field Inspector_│
╒══════════╤═════════════════════════════════════════════════ │DIVISIONS │ ALIGNMENT │ OF ROAD │ ├─────┬────┼──────┬──────┬─────────┬───────┬─────────┬─────── │FROM │ TO │Length│Number│Aggregate│Number │ Total │What is │ │ │Miles │ of │Length of│ of │Curvature│Degree │ │ │ │Curves│ Curved │Curves │ over 3 │ of │ │ │ │ │ Line │over 3 │ Degrees │Maximum │ │ │ │ │ Miles │Degrees│ │Curves │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ├─────┼────┼──────┼──────┼─────────┼───────┼─────────┼─────── │ │ │ │ │ │ │ │ ├─────┼────┼──────┼──────┼─────────┼───────┼─────────┼─────── │ │ │ │ │ │ │ │
╤════════════════════════════════════════════════╕ │ PROFILE │ │ │ ┼─────────┬───────┬────────┬──────┬──────┬───────┤ │Aggregate│Sum of │ Sum of │Number│Number│What is│ │Length of│Ascents│Descents│ of │ of │ rate │ │ Level │ Feet │ Feet │Miles │Miles │ Your │ │ Grades │ │ │Grade │Grade │Maximum│ │ │ │ │ 0.4% │ Over │Grades │ │ │ │ │to 1% │ 1% │ and │ │ │ │ │ │ │ what │ │ │ │ │ │ │ their │ │ │ │ │ │ │length │ │ │ │ │ │ │ Miles │ ┼─────────┼───────┼────────┼──────┼──────┼───────┤ │ │ │ │ │ │ │ ┼─────────┼───────┼────────┼──────┼──────┼───────┤ │ │ │ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T. C. Form R.R.4 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad RIGHT OF WAY AND REAL ESTATE _________________│ │Date ______ _Field Inspector_│ │IN FILLING OUT STATEMENT KINDLY SEPARATE LANDS AND RIGHT OF WAY BY │ │COUNTIES AS FAR AS POSSIBLE │
╒══════╤════════╤═══════════════════════════════════╤═══════╤═══════ │COUNTY│Trackage│ WIDTH OF RIGHT OF WAY IN FEET │ Total │ Total │ │ Right │ │Acreage│Acreage │ │ only │ │ of │ Lands │ │ Miles │ │ Right │ own'd │ │ │ │of Way │ by │ │ │ │ │Company │ │ │ │ │ other │ │ │ │ │ than │ │ │ │ │ Right │ │ │ │ │of Way ├──────┼────────┼─────┬─────┬─────┬─────┬─────┬─────┼───────┼─────── │ │ │Less │40 to│60 to│70 to│ 100 │Over │ │ │ │ │than │ 60 │ 70 │ 99 │Miles│ 100 │ │ │ │ │ 40 │Miles│Miles│Miles│ │Miles│ │ │ │ │Miles│ │ │ │ │ │ │ ├──────┼────────┼─────┼─────┼─────┼─────┼─────┼─────┼───────┼─────── │ │ │ │ │ │ │ │ │ │ ├──────┼────────┼─────┼─────┼─────┼─────┼─────┼─────┼───────┼─────── │ │ │ │ │ │ │ │ │ │
╤══════╤═╕ │TOTAL │ │ │ REAL │ │ │ESTATE│ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ┼──────┼─┤ │ │ │ │ │ │ │ │ │ │ │ │ ┼──────┼─┤ │ │ │ ┼──────┼─┤ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T. C. Form R.R.8 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad MILEAGE, RAIL AND TIES _________________│ │Date ______ _Field Inspector_│
╒════════╤══════╤══════╤══════╤══════╤═════╤═════╤═════╤═════╤═════ │ │Total │Total │ Yard │Double│Rail │Rail │Rail │Rail │Rail │ │Length│Number│Tracks│Track │ 40 │40 to│40 to│60 to│70 to │ │Miles │ of │Miles │Miles │lbs. │ 49 │ 49 │ 69 │ 79 │ │ │ Side │ │ │ per │lbs. │lbs. │lbs. │lbs. │ │ │Tracks│ │ │yard │ per │ per │ per │ per │ │ │ or │ │ │Miles│yard │yard │yard │yard │ │ │Spurs │ │ │ │Miles│Miles│Miles│Miles ├─────┬──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── │Main │to│ │ │ │ │ │ │ │ │ │Track│ │ │ │ │ │ │ │ │ │ │from │ │ │ │ │ │ │ │ │ │ ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── │ " │" │ │ │ │ │ │ │ │ │ │ " │ │ │ │ │ │ │ │ │ │ │ " │ │ │ │ │ │ │ │ │ │ ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── │ │ │ │ │ │ │ │ │ │ │ ├─────┼──┼──────┼──────┼──────┼──────┼─────┼─────┼─────┼─────┼───── │ │ │ │ │ │ │ │ │ │ │
╤═════╤═════╤═════╤══════╤══════════╤══════════╤══════════╕ │Rail │Rail │Rail │Number│Percentage│Percentage│Percentage│ │80 to│90 to│over │ of │ of Oak │of Hemlock│ of other │ │ 89 │ 100 │ 100 │ Ties │ Ties │ Ties │ Ties │ │lbs. │lbs. │lbs. │ per │ │ │ │ │ per │ per │ per │ mile │ │ │ │ │yard │yard │yard │ │ │ │ │ │Miles│Miles│Miles│ │ │ │ │ ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ │ │ │ │ │ │ │ │ ┼─────┼─────┼─────┼──────┼──────────┼──────────┼──────────┤ │ │ │ │ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T.C. Form R.R.18 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad INTERLOCKING PLANTS IN MICHIGAN _________________│ │Date ______ _Field Inspector_│ │Include all Electric Crossings having full Interlockers. │
╒═╤════════╤════════╤═══════╤═════╤════════════╤═══════════════════ │ │LOCATION│Crossing│ Style │Wheel│Connections,│Number of Levers or │ │ │ with │ of │ or │ Pipe or │ Wheels │ │ │ │Machine│Lever│ Cable │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ├─┼────────┼────────┼───────┼─────┼────────────┼───────┬─────┬───── │ │ │ │ │ │ │Working│Space│Total ├─┼────────┼────────┼───────┼─────┼────────────┼───────┼─────┼───── │ │ │ │ │ │ │ │ │ ├─┼────────┼────────┼───────┼─────┼────────────┼───────┼─────┼───── │ │ │ │ │ │ │ │ │
╤═══════╤═══════╤══════════╤═══════════╤═╕ │By Whom│ Date │Proportion│Proportion │ │ │Erected│Put in │ of Cost │ of │ │ │ │Service│ Paid by │Maintenance│ │ │ │ │ this Co. │ Paid by │ │ │ │ │ │ this Co. │ │ ┼───────┼───────┼──────────┼───────────┼─┤ │ │ │ │ │ │ ┼───────┼───────┼──────────┼───────────┼─┤ │ │ │ │ │ │ ┼───────┼───────┼──────────┼───────────┼─┤ │ │ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T. C. Form R.R.8 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad STATEMENT OF CROSSING _________________│ │Date ______ PROTECTION IN MICHIGAN _Field Inspector_│
╒═╤═════════╤═══════════╤═════════╤═════════╤═════════╤═════════ │ │DIVISIONS│ Total │ Number │ Number │ Total │ Total │ │ OF ROAD │ Number │ Grade │ Grade │Number of│Number of │ │ │Unprotected│Crossings│Crossings│ Highway │ Highway │ │ │ Grade │Protected│Protected│ Under │ Over │ │ │ Crossings │by Alarm │by Gates │Crossings│Crossings │ │ │ │ Bells │ What │ │ │ │ │ │ What │Device is│ │ │ │ │ │Device is│ Used │ │ │ │ │ │ Used │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ │ ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── │ │ From │ To │ │ │ │ ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── │ │ │ │ │ │ │ ├─┼─────────┼───────────┼─────────┼─────────┼─────────┼───────── │ │ │ │ │ │ │
╤═══════════╤═════════╤═════════╤════════════╕ │ Total │Number of│Number of│ What │ │ Number of │Electric │Electric │ Proportion │ │Unprotected│ Railway │ Railway │ do You Pay │ │ Electric │Crossings│Crossings│ of │ │ Railway │Protected│Protected│Installation│ │ Crossings │ by │ by │ or │ │ │Derailer │Derailer │Maintenance │ │ │ without │ with │of Electric │ │ │ Signals │ Signals │ Railway │ │ │on Steam │on Steam │ Crossings │ │ │ R.R. │ R.R. │ │ ┼───────────┼─────────┼─────────┼────────────┤ │ │ │ │ │ ┼───────────┼─────────┼─────────┼────────────┤ │ │ │ │ │ ┼───────────┼─────────┼─────────┼────────────┤ │ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T.C. Form R.R.1 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad ENGINE HOUSES AND TURN TABLES _________________│ │Date ______ _Field Inspector_│
╒═╤═════════╤════════════════════════════════════════ │ │LOCATION │ ENGINE HOUSES ├─┼─────────┼─────────┬──────┬────┬──────────┬─────┬─ │ │ │ Kind of │ No. │No. │ Pit │When │ │ │ │Structure│Stalls│Pits│Dimensions│Built│ │ │ │ │ │ │ Feet │ │ ├─┼─────────┼─────────┼──────┼────┼──────────┼─────┼─ │ │ │ │ │ │ │ │ ├─┼─────────┼─────────┼──────┼────┼──────────┼─────┼─ │ │ │ │ │ │ │ │
╤═══════════════════════════════════════╕ │ TURN TABLES │ ┼──────┬─────┬──────────┬───────┬─────┬─┤ │Length│KIND │Foundation│CURBING│When │ │ │ Feet │ OF │ │ │Built│ │ │ │TABLE│ │ │ │ │ ┼──────┼─────┼──────────┼───────┼─────┼─┤ │ │ │ │ │ │ │ ┼──────┼─────┼──────────┼───────┼─────┼─┤ │ │ │ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T.C. Form R.R.2 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad FIELD INSPECTION REPORT │ │Date ______ │ │_Between ______ and ______ Miles ______ Number of Tracks ______ Ties,│ │C. to C. _______ │ │_Highest schedule passenger train ______ miles per hour, │ │Freight ______ miles per hour, ______ Inspector_ │
╒═╤════╤══════════════════════╤══════════════╤════════════════ │ │MILE│ GRADE │ TIES │ RAIL ├─┼────┼───────┬──────────────┼────┬─────────┼──────┬───────── │ │ │Yardage│Classification│Kind│Condition│Weight│Condition ├─┼────┼───────┼──────────────┼────┼─────────┼──────┼───────── │ │ │ │ │ │ │ │ ├─┼────┼───────┼──────────────┼────┼─────────┼──────┼───────── │ │ │ │ │ │ │ │
╤══════════════╤══════════════╤═════════════════════╤════════════════ │ BALLAST │ FENCE │ FROGS AND SWITCHES │ CROSSINGS ┼────┬─────────┼────┬─────────┼──────┬────┬─────────┼──────┬───────── │Kind│Condition│Kind│Condition│Number│Kind│Condition│Number│Condition ┼────┼─────────┼────┼─────────┼──────┼────┼─────────┼──────┼───────── │ │ │ │ │ │ │ │ │ ┼────┼─────────┼────┼─────────┼──────┼────┼─────────┼──────┼───────── │ │ │ │ │ │ │ │ │
╤════════╤═════════╤═══════╕ │DRAINAGE│ALIGNMENT│REMARKS│ ┼────────┼─────────┼───────┤ │ │ │ │ ┼────────┼─────────┼───────┤ │ │ │ │ ┼────────┼─────────┼───────┤ │ │ │ │
┌─────────────────────────────────────────────────────────────────────┐ │MICHIGAN RAILROAD T. C. Form R.R.7 __________________│ │APPRAISAL _Office Inspector_│ │______ Railroad BRIDGES _________________│ │Date ______ _Field Inspector_│ │Include all wooden, steel or combination trusses, all girders and I │ │beams spans - if solid floor and ballast please so state. │