The Washington times., 1912-10-25
REORCANIZING THE ROCKVILLE RAIL
WAY

The Public Service Commission Of Maryland has
granted its authority for the increase Of the CAPT.
talizaton Of the Washington and Rockville Electric
Railway, from $4,000 stock and $95,00o bonds, to
100000 stock and 100000 bonds. The former
issues Of stock and bonds we're all held by the WASH
ington Railway and Electric Company, and that COM
pany is also the one important creditor Of the Rock
vile line. So that the situation remains entirely
unchanged in practical effect save that the parent
company WILL under the reorganization, hold author
lied securities instead Of doubtful current obliga
tons Of the subsidiary company.
The whole proceeding by which this little inter-
urban dependent Of the Washington Railway Com
pany has thus had its capital inflated, ought to reach
a lesson in management Of utilities. The gross an
nual revenues Of the company we're S24 4s0 in 1900
and operating expenses were 6e5 per cent Of this.
The ratio Of operating expenses to gross revenue
got down to s6l per cent in 1902. After that this
ratio steadily increased till it got to 81 per cent in
1911. For 1912 gross revenues are set down as
$62,722. That is while the revenues were increas-
Ing l56 per cent the operating cost managed to in
crease at startling rate; in fact, the Public Service
Commissions figures would indicate that they we're
$4,000 in 1900, and went up to about $4,000 in
1912. This suggests strongly a manipulation Of
some Sort which was calculated to make the operat-
ing expense keep pace with increased business, and
afford chance for the very recapitalization that is
now to be effected.
That there is good ground for this view, is indi-
Gated by the fact that since the road has been in
receivers hands the operating ratio has been re-
duced from 81 per cent to 66.33 per cent. This
strongly suggests that il the road we're to be left in
the hands Of the court instead Of being turned back
to the control Of the expert financial inHationsts of
the Washington railway group, it might in time get
out Of its difficulties without any increase Of stock
at all. But, Of course the business Of issuing Sc
curities is such an important part Of the program
Of the Washington railway interests just now that
it would be cruel to suggest interference.
| The Maryland commission takes one position
which is certainly curious, and may one day be a
serious matter in that State. Maryland law forbids
railway company to incur debts in excess Of the
amount Of its capital stock. This company incurred
debts of 1881 900 stock of $50 900; yet the COM
mission finds that this is not illegal provided the
stockholders are willing to authorize the increase oil
the stock" The only risk creditor takes in loaning
to railroad in excess Of its capital stock is that oil
having the directors and stockholders refuse to au
thorize increase of stock sufficient to cover the
excess" So AYERS the commission. Now, in this
case the stockholders and the creditors are the same
people, and have been at all times! The Washington
railway was both stakeholder and creditor 1t woult
not appear to have taken any risk at all. What il
did do, seemingly, was to conduct the railroad on
plan that inevitably paved the way to this reorgani
cation and imitation. The Maryland decision amounts
to wide-open invitation to holding organi
cations to come into that State, manipulate thei
propertes in this fashion, and initiate their capta
as much as they like.