Part 8

(_1_) That the naked land value is not a proper one to use in country lands, but that the going value of country lands with all improvements should be used as a basis for computing the added increment due to railway use;

(_2_) That a classification of farm land and waste land should not be made, except as a basis for arriving at the relative differences in quality of land in different sections of a county;

(_3_) That the added value for railroad purposes is due to the three elements:

(_a_) Continuity,

(_b_) Severance or damages,

(_c_) Changed earning power,

all of which the farmer or owner has cognizance of in making his price;

(_4_) That in making up land values, account should be taken of:

(_a_) The cost of acquiring the land, or expense,

(_b_) The cost of the land itself.

The reasons are:

_I_.—In making a price on a 40-acre farm, the owner does not make two prices, one on land and one on improvements. He arrives at a flat price per acre for the entire farm, and usually asks more per acre for a part than the whole. A man who valued his land at $100 per acre, with improvements, would hardly sell 5 acres from a corner of his land, even for residence purposes, at naked land prices.

The 1900 appraisal was based on naked land prices, as estimated by a number of citizens of each county, and this flat rate was used in making figures for the so-called "Market Value of Right-of-Way." It is fair to assume that a railroad company can purchase large tracts of land for gravel pits, or a narrow strip adjoining and widening its existing right of way, at about market prices, as the elements of severance, abutting damages, etc., are absent. Prices for this class of land ought to be, and usually are, lower than those paid for a new right of way.

TABLE 2.—COUNTRY LAND.—ADDITIONAL STRIP FOR WIDENING RIGHT OF WAY, GRAVEL PITS, ETC.

═════════╤════════════════════════════════════════╤══════════╤═════════ County. │ Description: Road and purpose. │ Average │ Average │ │per acre, │per acre, │ │ 1900 │transfer. │ │appraisal.│ ─────────┼────────────────────────────────────────┼──────────┼───────── Jackson │Michigan Central. Widening right of way │ $84.47│ $156.08 Kalamazoo│Michigan Central. Additional right of │ 89.41│ 140.00 │ way near Augusta │ │ Kalamazoo│Grand Trunk Western. Additional strip │ 94.59│ 120.50 │ for double tracking │ │ Cass │Michigan Central. Gravel pit │ 84.97│ 94.15 Cass │Grand Trunk Western. Additional strip │ 71.79│ 203.53 │ for double-tracking │ │ Berrien │Michigan Central. Additional right of │ 109.40│ 113.66 │ way │ │ Washtenaw│Michigan Central. Additional right of │ 49.35│ 130.68 │ way │ │ Washtenaw│Ann Arbor. Additional right of way │ 88.60│ 116.12 Ionia │Pere Marquette. Gravel pit │ 77.50│ 125.00 ═════════╧════════════════════════════════════════╧══════════╧═════════

Actual purchases are averaged from recent transfers, and represent consideration paid owners, but not cost of acquiring.

The 1900 appraisal averages show country land after fixed charges and percentages are added.

The tables given herewith are summarized from a very large mass of information introduced as evidence in a suit of Michigan Central Railroad _et al._ _vs._ Powers (The Michigan Tax Cases), and are selected as average examples of conditions throughout the Southern Peninsula.

It is evident from the figures in Table 2 that no such naked land values as those used in 1900 were considered by the farmers in placing values on their lands, as the sales covered in that table do not involve any large element of damages. All transfers are of a strip a rod or more in width adjoining an existing right of way.

_II._—It is true that in some sections of Michigan there are large tracts of barren or low-priced land. In 1900 barren land prices were used, and were much lower than farm land; in the poorer parts of the State large percentages of barren land were used. This fact brought the average per acre of country land, as applied in the appraisal, very low in many of the counties, and justified the appraiser in using the average country price of 1900 as the base price for a re-valuation. Generally, the 1900 appraisal averages for country lands were fair indices of the difference in actual value in different parts of the State.

In the 1900 appraisal, the Michigan Central was credited with having, in Jackson County, 309.1 acres of farm land (naked value, $38, average rate $93.30), and 34.35 acres of barren land at $5 per acre. The field inspectors reported that part of the district between Parma and Albion, in the vicinity of Bath Mills, was waste or barren land. The Jackson and Battle Creek Traction Company parallels and adjoins the Michigan Central Railroad right of way from Parma to Bath Mills. An investigation of records of deeds showed that they bought 25.02 acres of land in this district at $65.79 per acre, and that the average price of all their land in the county was $239.52 per acre.

While there was a marked difference in the rates of different grades of country land, no one would be justified in putting any land south of a line drawn from Saginaw to Muskegon at prices as low as $2 to $10 per acre. An average based on the 1900 classification of lands would probably eliminate all waste land classifications, without doing any injustice.

TABLE 3.—AVERAGE VALUES PER ACRE OF COUNTRY LANDS, OF THE 1900 APPRAISAL, OF THE JACKSON, LANSING AND SAGINAW RAILROAD, AFTER ALL THE PERCENTAGES AND FIXED CHARGES WERE ADDED.

════════════╤═══════ County. │Price. ────────────┼─────── Jackson │ $75.71 Ingham │ 74.90 Clinton │ 42.38 Shiawassee │ 67.18 Saginaw │ 40.80 Bay │ 38.69 Arenac │ 32.47 Ogemaw │ 8.69 Roscommon │ 10.74 Crawford │ 8.41 Otsego │ 15.62 Montmorency │ 12.38 Cheboygan │ 17.13 ════════════╧═══════

Table 3 illustrates quite clearly the extremely low figures applied in many counties in the 1900 appraisal, and also represents quite well the relative difference in value in the different counties.

That the 1900 rate varies about as the purchase price, is shown by the fact that the Pere Marquette Railroad built a line in Montcalm County, buying 155.3 acres at an average price of $135.19 per acre, while the 1900 appraisal showed an average of $29 on the 918 acres appraised. The purchase price was 4.66 times the 1900 appraisal.

In Calhoun County, the Grand Trunk Railroad bought 63.2 acres at $491.13 per acre, while the 1900 appraisal was $61.44 on all the country land in the county, or only one-eighth of the actual purchase price.

_III._—There can be no doubt that a railroad right of way costs much more than an equal acreage of farm lands. The writer has always been inclined to hold the view that an ordinary right of way through good farming country would cost from two to three times farm prices, no matter how much care is used in the acquisition of the land. In recent years the price of right of way has been greatly increased. The Newton and Northwestern Railroad right of way, in Iowa, cost $267 per acre, on a line 80 miles long. This is nearly all country land, about 1 mile in the outskirts of Boone (population 12,000), and about ½ mile in Newton (population 6,500), being the only city land to increase the average. The Rock Island System and the Chicago Great Western paid higher country prices in the same territory. This line is in such country as Southern Michigan, and land is held at from $65 to $100 per acre.

The Toledo Urban and Interurban right of way, in Lucas County, Ohio, was bought by the writer in 1901 at an average net price of $329.21 per acre. The average assessed valuation is $55 per acre. The going value of farm lands will range from $100 to $225; probably a fair average is $135 per acre. The prices paid by Michigan railroads are fully sustained by these personal experiences.

The figures in Table 4 show that the actual average price paid for new right of way is greater than the average of the 1900 appraisal, after the 125% and fixed charges are added, by from 230 to 726 per cent.

The argument that a change of line costs more than a new line is not sustained by Table 4. In Jackson County, the Michigan Central Railroad changed its line at an average cost of $165.67 per acre. The Jackson and Battle Creek, a new line, parallel with and adjoining the Michigan Central, paid $239.53; the Jackson and Suburban, a new electric line, paid $293.34, and the "Ypsi-Ann" Electric paid $393.74. All the new lines in Monroe County are higher than any changes of line in similar country. The Ann Arbor change in Washtenaw County, located by the writer, is at one point 3 miles from the old right of way, and only at the two ends of the 7-mile line does it run on farms owned by parties crossed by the old road; therefore, to all intents and purposes, it is a new line.

The naked land values used in 1900, being clearly too low, were of no use and were dropped. The so-called market price of right of way as given in 1900 was misleading.

TABLE 4.—COMPARISON OF COUNTRY LAND VALUES.

The actual purchases are averaged from recent transfers, and represent consideration paid to land owners, but not the cost of acquiring.

The 1900 appraisal averages show all country land after fixed charges and percentages were added, per rule of 1900.

═════════╤═══════════════════╤══════════╤═══════════════════╤═════════ County. │ Railroad. │ 1900 │ Railroad. │ Actual │ │Appraisal,│ │transfer, │ │ average │ │ average │ │per acre. │ │per acre. ─────────┼───────────────────┼──────────┼───────────────────┼───────── Jackson │Michigan Central. │ $71.36│Michigan Central │ $165.67 │Air Line │ │Air Line. New Line │ │Michigan Central. │ 88.47│Jackson and Battle │ 239.53 │ │ │Creek. Average │ │ │ │entire county │ │Michigan Central. │ 5.00│Jackson and Battle │ 65.79 │Waste land │ │Creek. Wasteland │ │Michigan Central. │ 93.30│Jackson and Battle │ 298.51 │First-class farm │ │Creek. First-class │ │ │ │farm │ │Jackson, Lansing │ 75.72│Jackson and │ 293.34 │and Saginaw. │ │Suburban. │ │Average country │ │ │ │values │ │ │ │ │ │Detroit, Ypsilanti │ 393.74 │ │ │and Ann Arbor │ Monroe │Flint and Pere │ 93.30│Flint and Pere │ 215.21 │Marquette. │ │Marquette. Monroe │ │ │ │to Toledo │ │Michigan Central. │ 93.30│Toledo and Monroe. │ 461.13 │ │ │Electric │ │Lake Shore and │ 93.30│Detroit and Toledo │ 214.38 │Michigan Southern. │ │Shore Line. (Duffy)│ │ │ │Detroit and Toledo │ 262.49 │ │ │Shore Line. (Burt) │ Kalamazoo│Michigan Central. │ 89.41│Michigan Central. │ 236.22 │ │ │Kalamazoo to │ │ │ │Mattawan │ Van Buren│Michigan Central. │ 66.54│Michigan Central. │ 196.00 │ │ │Kalamazoo to │ │ │ │Mattawan │ Cass │Michigan Central. │ 84.97│Michigan Central. │ 260.61 │ │ │Cut-off near │ │ │ │Pokagon │ │Michigan Central. │ 10.00│Michigan Central. │ 60.00 │Wasteland │ │Waste on cut-off │ Genesee │Grand Trunk │ 98.10│Grand Trunk │ 337.56 │Western. │ │Western. Improved │ │ │ │line │ Genesee │Pere Marquette. │ 80.81│Flint and Pere │ 234.00 │ │ │Marquette. Change │ │ │ │of line │ Montcalm │Pere Marquette. │ 29.00│Pere Marquette- │ 135.81 │ │ │Greenville-Stanton.│ Calhoun │Grand Trunk │ 61.44│Grand Trunk │ 491.13 │Western. │ │Western. Change of │ │ │ │line west of Battle│ │ │ │Creek │ Calhoun │Michigan Central. │ 74.38│Jackson and Battle │ 218.74 │ │ │Creek. Electric │ Tuscoia │Michigan Central. │ 60.75│Michigan Central. │ 73.04 │ │ │Caro-Owendale │ St. Clair│Pere Marquette. │ 43.18│Rapid. │ 287.05 │ │ │Anchorville-Marine │ │ │ │City │ Washtenaw│Ann Arbor. │ 38.60│Ann Arbor. Change │ 285.50 │ │ │of line near Ann │ │ │ │Arbor │ Ionia │Pere Marquette. │ 77.50│Pere Marquette. │ 112.30 │ │ │Lowell-Belding │ Manistee │Ann Arbor. │ 25.40│Ann Arbor. Change │ 47.33 │ │ │line near Harlan │ Osceola │Pere Marquette. │ 40.03│Pere Marquette. │ 57.93 │ │ │Change line near │ │ │ │Evart │ ═════════╧═══════════════════╧══════════╧═══════════════════╧═════════

Having shown that there is an increase in cost of railroad over farm land, the question arises: Is it legitimate? If it is a proper item of cost, has it a place in the present value column?

In building a new railroad, engineers prepare their estimates of cost, including grading, rail and fastenings, ties, bridges, and, among other items, right of way. Their clients provide funds to build the line, and furnish, among other items, cash for the right of way. The right-of-way account in no wise differs from that of any other item of physical cost. The right of way, with all its hold-ups, items for damages, court costs, legal expenses, bills for personal services and expenses in securing it, abstracts and recording of deeds, is just as much an element of physical cost as the rails. The cost of acquiring the right of way is as proper an element as charges for inspecting the rails, freight charges on them, the loading and unloading, or any other charges that enter into the cost of rails delivered to the track-laying contractor.

Should the cost of reproduction of right of way be carried to the present value column? Clearly, yes. If a road is unfortunate enough to buy its rails when they are at a price of $60 per ton, the full price is charged to capital account; and when the line is sold to some large corporation, no reduction is made, even though the price of rails be much less at the time, but the selling price is based on the construction account as a whole.

The same is true of the right of way. In no case which has come under the writer's notice has a new company, or a set of promoters disposing of a new line or a new right of way, ever consented to deal except on the basis of construction account, plus promoters' profit. The cost of a right of way is increased on account of continuity. A farmer is justified in increasing his price per acre by reason of the fact that the road must have a continuous line, regardless of how it affects the individual. He must rearrange his fields, replant his orchard, change his fences, ditches, and tile lines, and re-adjust his entire property to accommodate the necessity of the road. He must also take into account severance or damages. He is compelled to cross the line at an inconvenient place, open and close two gates in every lane or at every crossing, drive his cattle back and forth to water, haul his produce over a short heavy grade across the track, and he must not interfere with the railroad. He is in constant danger of loss of property from fire or from accident, and he is in personal danger every time he passes from his own land on one side of the railroad to his own land on the other side. Every one who has bought right of way knows these arguments, and is aware that the farmer knows them and charges extra on account of them.

The law provides that, in condemnation, the jury shall take into account two elements, the value of the land, and damages. The railroad pays them, and very promptly charges the entire cost to the right-of-way account. No one will question the propriety of the farmer taking them into account in fixing his price. The value of continuity to the railroad can hardly be measured in dollars and cents.

A fair illustration of continuity may be found in coal lands. A promoter will secure option on a large acreage. As long as his holdings are disconnected and widely separated they are of no more value than adjoining lands, but let him close options on a large block of land all in one body, and immediately he can add from 100 to 200% to the value of his land for mining purposes. This added percentage is due to continuity.

The conditions surrounding the purchase of railway lands in Michigan have changed materially in the past few years. In a new country, without means of transportation, land values are low, and, in order to open new markets, land owners can afford to donate the right of way. Undoubtedly, a very large percentage of the total right of way on the older lines was either donated or bought at very low prices. As a community grows and develops, acquires new industries, and receives new improvements, property values increase; and, along with a general appreciation of other values, those of railroad property must increase. It would certainly be true that the present value of the site of the Majestic Building, in Detroit, is not the same as it was in 1850; the argument that its actual cost in 1850 was, say, $200, would not be any justification for such a value to-day. Equally is it true that the value of property owned by the Michigan Central Railroad is not to be measured by the price paid for it 50 years ago. The greater business, and the larger income derived from that business, make the Detroit of to-day a much more valuable terminal for the road than the Detroit of 50 years ago.

The same argument will apply to any city which has grown up after the construction of railroads. The original right of way was farm land and may have been a donation, but the change from farm to city certainly increases the value of the railroad land just in proportion as the surrounding land increases.

The same reasoning is properly applicable to lands which decrease in value. Where a railroad buys right of way to gain access to valuable timber lands, and, after the removal of the timber, the land is too poor to support a population, the present value should depreciate in the same ratio as the surrounding land, and immediately on its abandonment as a right of way it would cease to have a railroad value.

In an appraisal, it appears to be fair to base the cost of reproduction on the cost of building a new line on the location of the road under appraisal, all other means of transportation remaining as they are to-day, so as to secure as nearly as possible the conditions that would be encountered by a new company building a new line on this location.

The argument was made in 1900, and reiterated frequently, that railroad companies secure many donations. It may safely be said that, in a developed country, such as in the south half of the Lower Peninsula, the donations are of little account. Few donations were found in an examination of records of deeds covering 10 years; and in some cases the conditions were so burdensome that it may be said that the gift land was the most expensive. A condition for a cattle-pass costing from $400 to $600, a side-track costing from $1 to $1.50 per ft., and other like specifications are found; and in many deeds where a liberal consideration is named conditions which add greatly to the cost are not infrequent.

The recent new lines in Southern Michigan secured but few donations, although all considerations of $1 and other good and valuable considerations were classed as donations unless the contrary was susceptible of proof. In the case of the Ann Arbor Railroad, in Washtenaw County, the $1 consideration represents a higher price than the average, this being known by the writer, as he bought it. The same is true of the Detroit and Toledo Shore Line, in Monroe County. In making an appraisal, no deductions should be made for donations, if there are any, as the fact that land is donated does not indicate absence of value; nor should an addition be made to the appraisal value on account of the fact that a road has been held up and compelled to pay exorbitant prices in certain localities.

In some counties the base values of land in villages and small towns were given at ridiculously low prices in 1900; some are as low as from $50 to $100 per acre in towns of from 1,000 to 3,000 population. When one stops to consider that a lot 4 by 8 rods contains ⅕ acre, and that such lots in a town of considerable size range from $50 to $300 each, it is readily seen that from $250 to $1,500 per acre are not excessive figures. The figures for an adjoining county were often very high, and village values were put up to substantially full value. The result of adding percentages in 1900 was to magnify discrepancies, and little villages of from 200 to 500 population in one county were appraised at a higher rate than towns of from 2,000 to 5,000 in the next.

In 1902 the appraiser undertook to equalize all such discrepancies, and found that no hard-and-fast rule would apply. A comparison of village values, as determined by actual purchase, with the 1900 appraisal, is given in Table 5.

The 1900 appraisal for city lands, outside of Detroit and Grand Rapids, was generally very conservative or low. In some cases the figures were extremely low.

TABLE 5.—AVERAGE PRICE PER ACRE FOR VILLAGE LAND.

Actual purchases are averaged from recent transfers. The 1900 appraisal averages are averages of prices as applied after all percentages and fixed charges are added.