Evening star. [volume] (Washington, D.C.) 1854-1972, 1919-08-24
EARLY DISPOSITION
OF STREET RAILWAY DEFECTS
Expert Accountant Discusses Cost, Depre-
citation and Return and the Necessity for
Finding Solution to Problem.

IN to Problem.
we appoint to check up
ana regulate street car traffic. costs.
pronts, ETC., have evidently missed the
trend of things. Is it possible they
nave not reckoned with the rising
cost of materials and labor during
the past four years and have permit
tea US, whom they serve, to wander
contentedlv along without a warning
of a blow?
Have they permitted inadequate de-
and to dream that our nickel fares
would still take care Of requirements
no matter what such requirements
cost? If true. it is, verify, astound-
ing!
Whatever the cause, whomever to
blame. the huge bill actually con-
fronts us and must be met if we ex-
pect to use street cars. We cannot
evade the problem, and an early So
luton is really necessary.
Inc problem certainly involves at
least the four elements above referred
TO, the most debatable of which, in
SO far as probity. justice and equity
nsure. are values and reasonable re-
turn thereon.
The Public Wants Service.
The public wants efficient service,
efnelent cars to ride on oyer efficient
ana safe roadbeds. and the average
PASSENGER will not long object to pay
ing reasonable money for SUCH He
does not object to the extra charge on
a Pullman car; he doesn't expect to
ride IN an aeroplane as cheaply as a
cabman drives him.
He does object to rickety street
n CT h
ously swaying cars, to fiat wheels,
10 gaping pavements, to inadequate
service and to general travelling dis
comforts.
Eliminate these and he will pay
more more Ior his ride Trouble is the
nave paid it if he had been apprized
Of the cost as it happened. He is in
the position of a tenant whose rent
mas. regularly been paid only to find
that at the end Of his lease the land
lord bills him for repairs he knew
nothing of.
He resents it-and reasonably So
out there is the bald necessity of
street car travel for the future and
the situation must be faced.
and collect from him what might be
termed arrears in fares. The railway
company might go broke-there
might be some certain satisfaction in
thdt sort OF punishment to the COM
pany, but it doesn't help the future.
Who Would Run at Old Rates.
Who would run the property at the
old rates? Who would invest his saw
ed it with the present Increased ex-
pense! What bank would lend money
to company who attempted it?
where could we find the money to
rehabilitate the property to, say, IS
per cent efficiency, and, if we found
it. who is going to pay the interest
on that money in addition to the alb
normally high costs? If five-cent fares
will not pay for less than that now.
how Tar would they go for the flu
lure! What kind of a deficit would
snow up after operating for a year?
Wouldn't it be better to scrap the
past, open a new book and get to a
basis that will deal with the present?
Is there a basis for values COM
parable to reconstruction cost?
date property with up-to-date eff
cheney. Recall that depreciation
charges have not reflected the facts.
and that the bill for rehabilitation is
huge. Is 1t wise--is it possible to
costs as valuation for the property?
II there is anything more equitable.
anything that will better stand the
test OF present prices let us have that.
Let Let. us clear up this point and pro-
mat is reasonable return on the
values? Bonds, carrying fixed rates,
are first liens on the property, the
equity in values. represented by
shares are entitled to reasonable
return. It is difficult today to sell this
class OF securities at better than on
Shall we say IN per cent?
An Abstract Example.
If we may be permitted to illustrate
an abstract example, let us suppose a
property. the reconstruction of which
would cost $50,000,000. Outstanding
ponds, tsooGo9oo Carrying .aS per cent
ing 7A per cent dividends
We Will assume that 100000 full
fares will be collected year; that
our income from power, advertising,
etc. which the passenger is not pay
ing Tor. Will amount to $4,000, 900, and
that our operating costs, Including
proper depreciation, will run to Sc
100000. Find the fare that is fieces-
sary to continue the business on this
basis for a year:
~ on $50 oo0; 0oo bonds: 81 800 900
mo on $2OOOO.OO equity values. 500 900
Operating expenses including proper
depreciation ..................... 5000 900
Total MISREPRESENTATION. So, 600 900
Deduct other income not paid by
passengers 8, 600 600
Net to be derived from fares. 50, oOO, 900
Six million dollars, derived from
100000 fares, would mean that an
Scent fare is necessary.
No Sinking Fund.
This does not provide for sinking
funds. nor even for cost Of capital
borrowing for rehabilitation of the
such a property is located in a thirty
ing, growing community it is possibly
safe to say that the number Of fares
will gradually increase Meanwhile
dividends on the equity values would
be less than tx per cent.
Should the revenues increase where
such a rate could be paid without
the physical condition of
the property or the efficiency of the
service it should be paid. If an ex-
cess should be realized that should be
applied to increased facilities-switch-l
backs or crossovers. loops, car con-
ventences and comforts. If still an
excess should be shown, new lines
should be built to care for increased
business. If yet a surplus is shown,
1 or per cent of the value of the
DonOS snouId De devoted to sinking
funds. And If still there appears a
surplus, the rate of fares should be
decreased. This would mean reyi-
of values. perhaps of
rate of income on equity values, or
both.
Service cost would be the final re-
suit and perhaps nothing fairer, no
more equitable a result, could be nro-
posed, where the citizens of a com
munity do in effect, grant to capital
a franchise to operate economically
and for their convenience a public