Perth Amboy evening news., 1911-04-27
VALUATIONS OF
THE RAILROADS
Expert Tells Method al Hear
ing Before Assessors.
(SneciaI Correspondence.

present at a hearing yesterday, when
further argument was heard before
the State Board Of Assessors on what
is known as the fourth division.
Charles Hansel, the expert on rail
road valuations, was present. He
gave an illustration of the applica-
tlon of the formula which he used
for determining the valuation of
the remaining property, including
the franchise as follows:
1--WE first find the value of the
gross investment of the physical
property. This is determined by
taking the present values Of the
railroad lands used for railroad pur-
poses and adding the present cost of
producing the rOadbed, track and APP
purtenances of RICH of way, plus the
value Of the tangible, personal prop
erty and the abandoned property, if
any. After taking these things into
consideration, we find that the gross
investment represents q valuation of
$4,000, 900.
Then we take the present value
Of the real estate and the tangible,
personal property; which means the
original investment as shown above
less depreciation by reason of de-
creptitude and obsciescence. This
we find to be 100000 600. So we
Nave two values, the $4,000, 900,
representing the gross investment.
and the S60,00O,0 900 representing the
I present, physical value Of the prop
erty on which taxes are to be paid.
eve then come to the gross earn
ings, which we find to be SIS, 0OO,-
600. By deducting from this amount
all operating expenses, 1S,000,0 900
exclusive of taxes) we find that the
available, corporate income is S10,-
100000. From this available, cor
porate income, the following deduc-
lions are made:
The Deductions Made.
CAS- annuity of five per cent. on
the gross investment of ~S7G,O00,-
600, which amount to $500, 900;
taxes on the present value of the
physical property (S6O,000,0 00)
amounting to $1,%2O0,O0O; income
from properties not covered by the
appraisal $500, 900; interest, ex-
change, discount. etc, $500, 900; and
interest on bonded debt incurred in
operation, $400,OO0; making total
deductions from the available, cor
porate income Of $4,000, 900. This
leaves a surplus available for divi-
dents Of $3,8O0,0O This available
surplus capitalized at eight per cent.
results in a total of 600,
which represented the value of the
remaining property including the
franchise.
adding to the present value
&60,000, 000) of the physical prop
erty the total value of both physical
and the non-physical properties of
the railroads is made the sum of
S107, 5000 00. By capitalizing the
net surplus at eight per cent, the
value of subdivision ". yields a net
income of six per cent, as two per
cent will have to be paid in taxes.
Thar apportionment of the value
OF subdivision ", to interstate rail-
roads or systems will be made on the
basis that all-track miles within the
state bear to all tracks in the entire
system. The apportionment to sub
sidiary or leased and operated com
panies within the state will be the
ratio which the physical value of
such lines bears to the physical value
of the system within the state"
Objection By The Railroad.
Some objection was made by the
roalroad representatives to the eff
feet that the annuity of five per cent.
Is not sufficient. These representa-
ttves also claim that additions and
betterments should be taken from
the surplus.
These claims, however, are dis
puted by Mr.. Hansel, who said that
the annuity of five per cent. is to
cover the fixed charge or interest on
all money invested in the property,
whether in construction, in the sale
of bonds or additions and better
ments taken from the surplus. Ev-
cry dollar that is expended in the
physical property is represented in
the land, permanent way, personal
property and rolling stock; and, up
on this sum, five per cent is allowed
before the net surplus is found.
Taxes on this same physical property
or investment is also allowed.
ut is the general practice of pros
porous railroads." he said, to make
additions and betterments from a
surplus gained from earnings, and,
In addition to the making of such
betterments, dividends are paid. The
amount expended in additions and
betterments, from income may,
therefore be properly classified as fat
or Increment; and it is absurd to al
low the railroads to capitalize this
fat and then expect the public to pay
dividend on this increased capital.
which was made possible through
the surplus gained in operation, CON
sequently, taken from the people for
services rendered.
1T has been argued by some that
the amount expended for additions
and betterments from income should
be deducted from the corporate in
come before the net surplus is de-
ciared. This is a reduction ad alb
surdum, for the reason that it is ev-
1dent that the property is more val
liable by reason of the fact that II
earned the amount expended in ad-
ditions and bettermeuts; and more
valuable for the reason that addi-
lions and betterments have been
made. instead Of less valuable, which
would be the result, if the addi-
tons and betterments were deducted
from the corporate income before
the net surplus was declared. Fur
Their, such additions and betterments
n discovered In the physical prop
erty and the annuity of five per cent.
is allowed in the same manne if the
money had been borrowed.
ut is a question whether or not
we should allow this five per cent. an
nuity on the amount expended for
additions and betterments since that
amount was gained from operation.
n has been a tax upon the ship