Omaha daily bee., 1911-01-08
Proposed Increase in Railroad Rates


A point presented by the shippers for the
consideration Of the commission was the
reduction OF railroad earnings to the basis
which the railroad people themselves are
so fond OF presenting, viz: Considering the
railroad as a manufacturer and seller Of
transportation and presenting its gross
profits from the sale Of its wares. On this
basis II was shown that the Chicago &
Northwestern railroad had done a business
Of E4Oo0,O00 in the year 1910 and, after
paying the cost Of selling its transporta-
tion had a gross profit Of 80 &c out OF every
dollar received, available for taxes, de-
probation. fixed charges, dividends, spe-
cial funds, and including a surplus of
g 100000 over all these items Upon the
same basis the Santa Fe was shown to
have sold $1O5, 100000 worth of transporta-
ton and to have left a gross profit Of 1855
out Of every dollar. The Chicago, Buriing-
ton & Quincy railroad sold sSs,oOOOOO worth
of transportation, out of which 1t had
gross profit Of SSSc on each dol
lar In addition to these profits,
It IS Of course, understood that there is
included in the operating expenses a very
large amount of money which is really
re-invested in the property by way of
maintenance charges, which, Of course,
increases the value behind the securities,
Mr. Ward testified that the Burlington
road had put about $4,000 into its
property during the year 1910. but the
account of his company for that year
showed little over S1,OOOOOO deducted
from surplus income under the heading
of additions and betterments The natural
inference is that nearly 100000 was ex-
pended for maintenance charges that in
crease value Of the property and was
charged to operating expenses
Many important facts were developed in
cidentally during the hearing of the west
ern tertmony which, from the shippers
point of view, would initiate strongly
against the claims Of the western railroads
that they needed more revenue. One in
stance Of this was the issue of S1OO,OOO,OOO
worth of Chicago, Milwaukee & st. Paul
stock which paid Z per cent or S7,0OOOOO in
dividends in 1910, in exchange for a like
amount of Chicago, Milwaukee & Puget
Sound bonds, which paid per cent to the
parent company This, of course, made
net loss of 100000 in the income account
OF the st. Paul road, which their witness
strenuously insisted was made up by the
additional business gained through the
building of the Puget Sound road, but no
definite evidence was introduced in sup
port of this claim. Another item of this
character was the exhibit Of the Santa Fe
system. which showed that that road had
charged off it's income account since 1t
reorganized in 1896, $50, 900 which was put
back into the property by way of additions
and betterments; about $S,5Oo0OO net
discount on it's bonds and $2,50O,Ooo fuel
reserve fund, a total of $41,000,o0O. In
addition this exhibit showed an existing
surplus in income account of $4,000, 900,
or total In excess of s65,000,O00 surplus
income earned by that road in addition to
operating expenses, fixed charges and
dividends. Mr.. Ripley testified that this
surplus was not enough, but that the road
should be enabled to earn at least per
cent additional on its common stock, or
about 100000. His theory was that
sound financial policy required the piling
up OF the surplus that would result. AS
against this testimony II was interesting
to note that Mr.. Gardner, president of
the Chicago g. Northwestern railway, tes-
titled that he would be satisfied with
S25,000,000 surplus to be earned in
ten years, which was exactly at the rate
Of the surplus earned by his company in
1910, under the existing rates. With respect
TO this item Of surplus earnings, Mr.. Gard
ASA ANhtoNhCN NAAAA the pOnnG6ntou VI Aoo
large a surplus tended to extravaganza
in management. During the same line
Of examination, Mr.. Gardner made the
significant remark that a basis OF earnings
which might be justice to some lesser line,
would extravagantly increase the earnings
of q road like the Northwestern, This
is precisely what the shippers contend with
reference to the present situation, viz: that
the commission ought to fix the rates based
upon the financial situation OF the strong
lines that. control the transportation situa-
ton, and let the overcapitalized and badly
managed roads take care of themselves.
From the shippers point OF view, the
strongest argument against permitting the
railroads to increase their rates, is the
argument advanced at the Chicago hearing,
that to do so would be 20 ignore the
! memorable economic law underlying ali
commercial transactions, that law which