New-York tribune., 1919-02-14
Five-Year Operation by Gov
ernment Means Federal
Ownership, He Declares
Favors Profit Sharing
Cites New York INTERIOR
ough TO Prove Guarantee
Of Returns Is a Failure
New York Tribune
it70fO11 Bure0u


WASHINGTON, Feb. 13.-The ex-
perience of the City of New York with
its investment in the Interborough was
cited before the Senate Interstate
Commerce Committee to-day by S.
Davies Warfeld to prove his conten-
tion that under government ownership
in any form the taxpayers are made to
carry an undue burden because of
financial Encouragement.
Mr.. Wartield, who is pres dent Of the
National Association of Owners of
Railroad Securities, returned to the
witness stand for purposes of cross
examination on the plan submitted by
him several weeks ago for a solution
of the railroad problem
He submitted a further prepared
statement, in which he took vigorous
exception to the plan of regional con-
solidatlons of the roads suggested by
Director General Hines and the feat
ures of government guarantee CON
tanned in the proposals of the railroad
executives. He said:
"The regional method means govern
ment ownership. for in any event. if Il
governmental guarantee on railroad
securities is to be thought of, it must
necessarily carry with it, if not at
first, eventually, the complete control
and management of the companies
whose securities it guarantees. Incen-
tive and initiative cannot be continued
under this method Of dealing with the
subject. For as you exchange your
bonds or stocks for bonds or stocks
guaranteed by the government of
larger regional companies organized
under Federal Incorporation, whether
permisslve or compulsory, or under a
Federal franchise with Federal manage
ment, IN whole or in part. you have
entered government ownership. Let US
not be deluded with the idea that we
have not.
Limited to Guarantees
Experience has proven that the re-
turn in interest or dividends on bonds
or stocks would be limited to the
guaranteed bonds or other senior Sc
curltles issued in exchange and in
tended to represent the main part of
the supposed value of your property.
What would represent so-caled equity
would likely never be reached in the
he lntorborough Railroad of New
York furnishes an example of this.
there the city has an interest Of $780,
100000. The city never has vet re-
ceived any return on this investment.
The figures clearly show that the fares
shoulc be raised, but it prefers to ar
range through taxation of the people
TO take care of the loss of interest on
TINS investment rather than increase
the fares.
IF this is done in the case where the
city itself has this great investment,
what would happen in the case of the
government having guaranteed secur-
ties OF the railroads in the hands of
y o
1t would so regulate the affairs of
these regional railroad companies that
the return would equal the require
ments of the guarantees, but no more.
Ihus the securities that represent part
ly equity exchanged for other securi-
ties would likely mean nothing in the
way of divdends'
Mr.. Warfield submitted elaborate cx-
hlblts to illustrate the working out of
his plan, the outstanding feature of
which is a profit sharing scheme laid on
this basis: The government, taking the
roads IN the aggregate. would fix it as
policy that the railroads be allowed
to earn at least 6 per cent on their ag-
gregate investment. though there would
be no guarantee for individual roads
in this respect. All earnings above
per cent would be split three ways. one
third going to the stockholders, one
lhird to the employees and the final
third to fund to be maintained by
Federally incorporated association. to
be used to assist roads in the financing
of equipment purchases.
The tendency of the scheme, as the
tables submitted showed, would be to
curtall the earnings of the roads now
earning more than per cent, while
raising the level of returns for those
now earning less.
Mr.. Warfeld was preceded on the
stf nd by c. w. Bum, of St. Paul, gen-
eral counsel of the Northern Pacific
Railway, who filed brief in behalf of
an enlargement of the powers of thc
Interstate Commerce Commission, 50
that it might have absolute authority
to harmonic with the interstate rates
not only intrastate rates fixed by state
commissions, but by state Legislatures
as well. lie argued for return of the
roads to private ownership
Although Mr.. Warfield was requested