Part 6

The fact that such a staff of engineers, of wide experience in railroad construction and maintenance, had been assembled, made it feasible to carry out a plan of the appraiser which proved to be of great value. At frequent intervals, during the progress of the work, conferences were held which were attended by all the heads of departments and by many of the older and more experienced engineers. Matters of policy, details, general principles, and rules and methods for conducting the appraisal, were fully discussed, and stenographic records were made of the discussion and conclusions. These conferences covered practically every question that arose; they were of such a nature as to draw out the opinions of the men fully and freely; and their effect was to eliminate the error due to individual judgment, and harmonize and unify the methods and results of the appraisal.

Special emphasis has been laid on the organization of the staff, because the criticism has been made that this work was lacking in care, was hurriedly done, and was unreliable. The work must be judged by its results, but the criticism that it did not receive proper care is absolutely unjustified in fact. The men engaged were of the highest type of experienced, technically educated, and highly qualified engineers; they entered the work unreservedly, and gave the best there was in them. The Michigan appraisal was not a one-man job; it was the work of many men, and all are entitled to credit.

That some men in an organization such as this, gathered from all over the United States, should prove to be lacking, and should fail to hold their place with their fellows, was to have been expected. That the number of such men should not exceed half a dozen was remarkable. In fact, almost every such case was found when the first notes were returned to the office, and in only two or three instances was it necessary to send a second man to do work which had been once covered. In several cases men were sent over certain sections which had been inspected by some one else, with a view of getting an idea of the personal judgment of the different men, but in such cases the results were astonishingly close, and created the greatest confidence in the figures of depreciation which were being received.

Looking back on this work, after the lapse of 10 years, after having fully reviewed it twice, and examined all records, after having heard the men engaged on it testify in court, and knowing the record of these men since the completion of the work, the writer believes himself fully justified in stating that, no matter what opinion may be held as to the accuracy, reliability, or value of the result, no charge of carelessness, neglect, undue haste, or lack of consideration can be sustained as against the staff.

To strengthen the work further, to eliminate the element of personal error, to guard against the danger of dulled perceptions due to constant application to the work, and to forestall, if possible, every point of objection to methods, a Board of Review was chosen by Appraiser Cooley to whom were referred:

(_a_) The methods of inventory and valuation, as determined by the staff;

(_b_) All points on which special discussion or difference of opinion were noted in the working conferences;

(_c_) Questions as to elements of value in the physical property which were in themselves not tangible or capable of inventory; and finally,

(_d_) The results of the whole work.

The members of this board were chosen on account of pre-eminent standing in the Profession, and on account of experience and prominence in railway engineering. The board was composed of four men, as follows:

Chairman, Octave Chanute, Past-President, Am. Soc. C. E., former Consulting Engineer, Atchison, Topeka, and Santa Fe Railway, but at the time not engaged in active railway work.

George W. Vaughn, M. Am. Soc. C. E., Engineer in charge of Track Elevation in Chicago.

Charles E. Greene, M. Am. Soc. C. E., Dean of the School of Engineering, University of Michigan.

Charles Hansel, M. Am. Soc. C. E., former Engineer, Wabash Railroad, former Chief Engineer, Illinois Railway and Warehouse Commission, and at that time General Manager of the National Switch and Signal Company.

These gentlemen were not engaged in any detailed work on the appraisal; they came to the work for one week each month with minds entirely clear of all confusion raised by issues of detail, and were thus enabled to pass as a court upon all matters laid before them. Their association was of inestimable value in giving confidence to the members of the staff. The many years of railway service of Messrs. Chanute and Vaughn, and their unquestioned ability in that special field of engineering, gave the stamp of finality to points decided by them. The special knowledge of Mr. Hansel in the field of signal engineering, and his known ability as an expert in organization and administration, were of the greatest value. The service of Professor Greene was that of the analyst and logician; his clear and judicial mind enabled him to formulate the final arguments in many cases under consideration.

The writer wishes to make it perfectly clear that he has not attempted to minimize the work of Professor Cooley by stating the exact relation of the many engineers on the staff to this work, but to bring out and emphasize the fact that no one man, or no two or three men, were responsible for any single part, but that the whole represents the best efforts of sixty or seventy experienced men working to secure a fair, honest, unprejudiced, engineering estimate along such lines as would eliminate, as far as possible, all errors of individual judgment.

It has never been claimed for the work that it was perfect, or that it was entirely free from errors. It has been and is claimed for it that it probably represents as close and conservative an estimate of cost of reproduction and depreciation as it would be possible for any set of men to make under the conditions then existing.

Professor Cooley was in constant touch with the work, knew its every detail, passed upon and approved every rule and order, presided at every conference, and nothing more than his activity, optimism, and constant watchful care and tireless energy kept the force at work day and night and brought about the prompt completion of the details. His recognized high standing, his remarkable ability as an executive and organizer, and his powers of diplomacy, more than anything else, brought about the final acquiescence of the railroad managers and kept up the confidence of the State authorities; his personality pervades the entire work. After giving all due credit to the staff, and they were entitled to much credit, the real honor must go to Professor Cooley. It was his conception, his plan, and the brunt of the battle was his.

Office and Field Methods.

The preliminaries of the organization having been completed, and the forms prepared, a portion of the working force was brought on the ground, and the work was actively commenced. It was subdivided into four parts:

(_1_) Office inspection, or inventory;

(_2_) Field inspection;

(_3_) Computation;

(_4_) Compilation for the permanent record.

The men chosen as field inspectors were old and experienced railroad engineers. As far as possible, they were assigned for a short period to office inspection, then they were sent into the field, after which they worked at the computation of values; so that each man was engaged on many different phases of the work, and handled the notes of many of his fellows, and no one man made up one complete appraisal, except as specially noted.

_Making the Inventories._—Office inspection, or the preparation of inventories, was assigned to parties usually of one or two experienced men with from two to four younger engineers as assistants in the computing-room. These men went to the general offices of the railroad companies and made a complete examination of maps, profiles, bridge and building records, records of motive power, rolling stock, etc. In short, they prepared, as far as it was possible to do so, a complete inventory of every building, structure, or piece of property owned by the road; they took off complete abstracts of real estate and right-of-way records; they noted principal yards and terminals, and secured maps of such as were most complex, or furnished lists of such maps and records as were most essential for the field men, and they made as complete a report as possible of the corporate history of the road and the general condition of its engineering records. No effort whatever was made to examine or audit the financial books of any company, or to secure from such books any data as to cost of property; the work was entirely limited to the listing of physical property.

Most of the railroad companies co-operated, and gave access to their records; one or two filled in the forms; a number had practically no records, and only one or two companies withheld information. Requests for blue prints of large yards and terminals, and of plans of standard structures were generally granted cheerfully, and, although there was no such spirit of co-operation as was shown later by the Wisconsin roads, much labor was saved by the data furnished.

The result of the office inspection was the filing of inventories, which were generally quite complete, the securing of maps and plans, the gathering of data as to prevailing prices of labor and material, and the securing of some very valuable cost data as to special structures and classes of structures. All inventories were made up for roads, or for divisions of roads, with each class of property listed separately, for example, station buildings, interlocking plants, bridges, etc., so that, if necessary, any special class of inspection might be assigned to one man, while to others could be assigned the remainder of the work on that particular road or division.

_Office Inspection as a Check on Field Work._—The office inspection furnished many valuable data for checking the judgment of the field men. For example, the number of cubic yards of excavation and embankment on probably the greater part of the mileage had to be secured by the field inspectors, either because the records had not been kept or the changes of line and grade had been so extensive as to destroy their reliability. Every field inspector, therefore, made his own estimate of the yardage of pay earth. The office inspection reports, however, gave reliable data (from profiles or original contract estimate files) of the actual yardage on possibly 2000 or 3000 miles of line, so widely scattered that it constituted a check on the work of a majority of the field men.

This work of office inspection disclosed the following points, which will be practically common to all large valuation jobs:

(_a_) There was no uniformity of method in the keeping of records of permanent way and structures;

(_b_) There was a vast amount of carelessness in keeping records up to date, even on the larger roads;

(_c_) The smaller roads, not only had little or nothing in the way of records, but had in many cases no department with employees qualified to make or keep such records;

(_d_) The purchase of new equipment, the construction of new buildings and bridges, and the destruction, sale, or removal of old property, create a condition of continuous change which is seldom recorded by either operating or accounting officials, and makes book inventories derived from the roads of very doubtful value for use in an appraisal.

_Field Inspection._—The decision had been reached, after careful discussion, not to permit the field inspectors to place a money value on any structure, but to examine it, make a full description of it in all particulars, and assign to it a percentage which should represent the present value, or the depreciation from a similar new structure rated at 100 per cent.

The field inspectors were furnished with the records of the office inspection covering the district assigned. They were given notebooks, tape lines, and various blanks for reporting progress and recording original estimates in the field. Provision was made for inspection by the field men, either by the use of hand-cars, gasoline inspection cars, or velocipede cars, although, with one or two of the roads, no satisfactory arrangement could be made, and the men were compelled to go on foot. A careful inspection of every structure was made. If any correction to the office inspection record was necessary, it was made; if the structure was new, it was carefully measured and described, and everything noted which would be of service in estimating its value. Side-tracks were measured, and the weight and type of rail noted. All culverts and bridges were examined, described, and their condition noted. Estimates were made of excavation and embankment, clearing and grubbing, etc. (based on the standing timber at the time of the examination), and careful estimates were made of classifications of material. The records of the field inspector generally contained only the description and the percentage, but, occasionally, when apparently valuable information as to cost of any particular structure was available it was noted, as was special information of local matters affecting the value of any part of the work.

It was the plan (carried out with but few exceptions) to complete the record with the field inspector so that from his notes a full and accurate descriptive inventory might be made. There were a few exceptions to the general method of field inspection work as outlined, which were:

_Special Work on the Chicago and Northwestern Railway._—The Chicago and Northwestern Railway had no records of any sort, all construction papers having been destroyed by fire. This company organized and placed in the field four complete engineering parties, each under one of its own engineers, and with each party was sent one field inspector. The line was carefully surveyed and cross-sectioned, and complete records of every building and structure were made, side-tracks were measured, and data taken for rail and ballast charts, etc. All work was done in the presence of the field inspector, and he was given copies of all notes. He placed his own percentage of depreciation on everything. The estimates, made up independently by the Chicago and Northwestern engineers and the appraisal staff, using in the latter case the same unit prices as applied elsewhere in the Upper Peninsula, varied less than 2 per cent.

_Special Valuations._—Certain special structures, such as ore docks and ore and coal handling machinery, were of such a character as to require expert appraisal. These were examined in the field, appraised, and valued by G. H. Hutchinson, M. Am. Soc. C. E., whose special training and experience in such work had qualified him perhaps better than any other man. Interlocking and signaling plants were specially appraised by the late Elliot F. Moore, who for 10 years had been Engineer of the Michigan Railroad Commission, and whose intimate personal knowledge of almost every plant in the State specially qualified him for this work.

Some of the bridges were of such a character as to require expert knowledge, and this inspection was assigned to William Dunbar Jenkins, M. Am. Soc. C. E., a man of ripe experience and sound judgment. The larger and more elaborate station buildings were examined and appraised, and values finally placed by Mr. F. G. Susemihl, Chief Architect of the Michigan Central System, whose special work in railway buildings made him thoroughly familiar with these values.

Work equipment and special equipment were appraised by Mr. G. L. Lewis, who had been connected with the Marion Steam Shovel Company for many years.

Except for these special assignments, all the field inspection was handled in accordance with the appraiser's plan.

As stated previously, in only two or three cases was it necessary to re-inspect, and, while several sections were intentionally gone over a second time, without letting the field inspector know who had done the work previously, or what his percentages had been, the result of all these checks was to justify the figures in the earlier inspection and to strengthen confidence in the work.

The field inspection of the Mechanical Department involved examining and placing a percentage value on each locomotive, passenger car, and piece of special equipment, and on all shop machinery. Inasmuch as several points of special interest are involved in this inspection, it will be discussed at more length in the section of the paper relating to the methods of work of the Mechanical Department.

_Computation._—After the completion of the field inspection, all notes were placed in the hands of the computing force. This organization consisted of two classes of men, engineers brought in from field inspection, and younger engineers. All computations were made independently by two men, and all work was checked carefully.

Every man in the computing room was furnished a large bound blank-book, in which he was required to make all his notes and computations, no figures of any sort being made on loose paper. The name of each man was placed on his notebook, and each set of field and office inspection notes worked upon by him was signed with his initials. It was easy to trace the work of every man, and in the subsequent trial of the Tax Cases, every man in the service returned, and, not only testified as to his office and field inspection, but was able to turn to and identify all the computations made by him, and produce his original figures and memoranda.

Very soon it became evident that such a volume of reports, notebooks, memoranda, maps, plans, pamphlets, and other data was being accumulated that, unless a special system was developed for filing and handling in the office, the confusion would be serious and costly.

_Filing in Office._—The system of filing and record keeping had the merit of being simple and inexpensive. There was borne in mind, in devising this plan, the necessity of keeping all papers connected with one division of any road together, the need for reducing to a minimum the labor of filing and indexing, the constant use of papers, and their frequent withdrawal from the files, making it necessary that they could be at once located when they were not in the files.

The vault in the appraisers' office was arranged so that large manilla envelopes, each of sufficient size to hold all the reports, notes, maps, etc., of each road or division, could be filed vertically. Each road was given a number; if there were several divisions, each division was given a letter, as "15-_A_," "15-_B_," etc., and each division was filed separately.

Every report, book, map, or other paper was stamped with its road or division number and letter, and given a sheet number. In this manner every paper was identified, and could be at once placed. A record was kept in a book, describing every paper filed in each envelope.

In issuing papers for work, the entire file was taken and kept together at all times.

One man had charge of the filing and recording, and no one else was permitted to enter the vault. When a file was withdrawn, a receipt was taken, and was put in the place of this file; and when the papers were restored to the vault the receipt was destroyed.

The system proved adequate, and was much less cumbersome than a more elaborate system of card indexing of separate papers could possibly have been.

The net result of office and field inspection had been an inventory based on the railroad records, checked by a man in the field, with a percentage representing the field inspector's judgment as to depreciation, together with a considerable number of special data as to original cost, etc. It was now necessary to place figures of estimated cost of reproduction and depreciation in terms of money.

The State of Michigan is made up of two peninsulas, widely separated, with radically different conditions prevailing as to certain items of the cost of construction.

_Computation Tables._—This appraisal involved seventy-eight incorporated and forty-seven unincorporated railroads. It was necessary to adopt such a system as would apply uniform methods and prices to all like property. Accordingly, the field inspectors were assembled, and, after conference, it was determined to prepare a set of tables, covering all classes of railway construction, material, and structures, values being computed for 100% value, and for each 10% depreciation. These tables covered different weights, sizes, and types of structures and material, and were all computed on the basis of the agreed estimated cost.

_Unit Prices._—The unit prices were the result of a most careful study and discussion. For many items, such as clearing, grubbing, earthwork, masonry, etc., the price was fixed by agreement during the discussion at a figure which represented the fair average cost of this particular item during the 5-year period preceding the appraisal.

For rails and rail structures, an average price was secured from market quotations for a period of 10 years, a price was determined as the value of scrap, and the percentage of depreciation was applied to the wearing value of the rail. The unit price was $28; the agreed scrap value was $12, leaving $16 as the wearing value of the rail. If an inspector reported rail at 90%, or at 30%, this percentage was taken from the $16 wearing value and to this was added the scrap value. The tables were arranged so that, for any weight of rail and any percentage, the cost of reproduction and the present value could be taken from the tables in dollars per mile. The same was true of bolts, spikes, angle-bars, fish-plates, and frogs and switches.

In the case of material such as ties, where no scrap value could be attached, the percentage was applied directly to the first cost.

In the case of bridges, the tables gave weights per foot and per span for various lengths, types of structures, and loadings, and only the cost of reproduction was estimated.

Estimated costs per cubic foot were deduced for buildings of various standard railroad types and per square foot for depot platforms. These figures were obtained by reducing to this basis the cost of a large number of buildings of known cost, by comparison with data obtained from railroad companies and from a number of engineers who had kept such records, and by consultation with architects. These building tables did not apply to the more elaborate and costly structures, all of which were appraised specially.

Ballasting, track laying, and surfacing were divided into three and four classes, in order to cover the different general types of railroads, and prices per mile were fixed. On Upper Peninsula roads ballasting was estimated at a higher price than on Lower Peninsula roads, while ties and timber construction were estimated at a lower figure.

In addition to these prices, secured by averaging several years' quotations, or by agreement of experienced construction engineers, many valuable figures were obtained from manufacturers of locomotives, cars, mechanical equipment, and bridges; and in several cases access was given to the mechanical cost data of the larger roads. Specifications for locomotives, cars, and shop tools were sent out to builders with a request that they give average prices for a period of years.

From all this mass of data the unit prices for the valuation were determined. For locomotives, values were plotted for engines of different weights, in order to establish a curve, and curves representing deterioration, scrap value, and major repairs were also plotted, so as to ascertain diagrammatically the value of an engine of given weight and stated condition.