New-York tribune., 1920-02-23
Rail Problems
Made Acute by
Lack of Credit
Two.thirds of Mileage at
Point of Bankruptcy, Out
go Exceeding Income; No
Means of Raising Funds
Investors All Hold Back
Doubt as to Sufficiency of
Expected Rate Increase
Complicates the Situation
BY Stanley rost

From, The Tribune's Washington Bureau
WASHINGTON, Feb. 22.--"The Rail-
way Age" in January published an esti-
mate that it would require the invest
ment of little more than $6,OO0,000,-
600 in. railways in the next three years,
if by that time they were to catch up
on their shortages, make good their de-
terioration and be really adequate to
the needs Of the country. The exact
figures are debatable, but the amount
certainly is large
Commenting on this estimate r. p.
Ripley, one of the country's biggest
railroad executives, who has since died,
remarked: 81 think your estimate Of
$6,000,0 200 900 Is not too much. feel
quite sure that the necessary amount
would be expended if it could be OBJ
tained." Other railway executives de-
clared that it was a waste time to
consider future needs; that the prob
lem was how to meet those of 1920 with
the facilities already at hand. Thus
their judgment conceded on this point:
That there will be practically no means
by which the railroads can borrow
money to increase facilities.
Two-thirds Are Bankrupt
The reasons for this appear when the
actual figures on the present earnings
are studied. During 1919 nearly two
thirds of the railroads of the United
States were unable to meet their fixed
charges-the interest on bonds and
notes, rentals, taxes, etc.-out of their
earnings, to say nothing of paying any
dividends-t is, they are actually
bankrupt.
Here are the figures for the first
eleven months o. 1919, as compiled by
the Bureau OF Railroad Statistics.
Those for the full year are not yet COM
plete, but they will not show any i'm
provement in the situation:
The actual operating income for the
165 principal roads OF the United States
for those eleven months, the excess of
receipts over expenditures, was $780,
677,596.
The STANDARD return" which is the
amount the government has guaranteed
to pay these roads, based on their earn
lngs for the three years from June 3O
1914. to June 30 1917, was 1913, ,120
leaving net deficit of 1921 ,482 ,524.
. the 165 roads only thirty-four
earned their STANDARD return" while
131 contributed TO the deficit
road may continue to do business,
however, even if it does not make a
profit and pay dividends, so long as it
pays its debts and interest thereon.
The American roads are not doing that.
For the eleven months period the fixed
charges for these 100 roads were $685.
1884, 1853, so that there remains "A deficit
for the country as a whole of S60217,-
373. This figure shows how far short
the railroads are on their present earn
| ings of being barely solvent. And of
the 16o roads there were only fifty
eight which were solvent, which earned
enough to meet their fixed charges,
while 1O7 We're, except or the govern
mnt guarantee, actually bankrupt
Worse OFF Than in 1918
Furthermore. the roads will begin
private operation with rather less
ready money, supplies and other Guy
rent assets than they turned over to
the government on January /, 1918
lhe transportation act provides q
fund of 5000, ,00O,0 900 which can be used
to carry the roads through the transi-
ton period, up to one-twenty fourth Of
the total years operating expenses
| This amount would be $l85 600 600, so
that while the railroad administration
has power to increase the amount in
its discretion it has little money with
which to do this, except as some of the
stronger roads are able to get along
with less than their share. These fine,
strong roads must be excepted from
the present discussion, but they are
in the minority.
These things measure the financial
working prospects of the roads, as
whole--a lessened list of current as
sets 5000 100000 in cash and their cur
rent receipts. Out of these must be
met an operating expense that is run
ming behind at the rate of more than
81 100000 day. There may be a slow
| income from the settlement of accounts
with the government, but many items
of this account are in dispute and it IS
| irApo ssible to say just how the balance
stands or how long it will take to get
judgment and settlement on the uucs-
! tions at issue. Unofficial estimates
have been made by members of Con-
gress that another $600,00O,0O would
have to be appropriated to clear the
account, but this seems to be little,
more than guess.
These figures make it clear that from
the day they begin private operation
behind, eating up their operating
capital, using up supplies without re-
placing them getting nearer and
nearer each day to the time when they
will not be able to meet their dailv
expenses and pay wages when due. All
this, of course, is on the assumption
that there is no great change in con-
ditions as they exist to-day.
Financiers Will Not Lend
These three things-the low operat
ing income, the steady decrease in re-
sources and the actual insolvency which
, already eXists-mean when translated
into financial terms that the roads
have no credit, that they cannot bor-
Improvement in the service, increase
| in income, the whole salvation of the
rai'road system from bankruptcy, de-
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