The Washington herald., 1921-08-25
Charges Administration
Badly Deceived on
Situation.
HARDING MISLED
ABOUT OBLIGATION"
Roads Already Owe U. s.
$1,444,O0O,OOO He
Asserts.

posed to extend to them an add
tional $500. 100000. according tc
william G. McAdoo.
This statement was ms de in a let,
ter from the former Secretary Of
the Treasury and Director General
of Railroads to Senator A. o Stan.
ley Dem.), of Kentucky. member
Of the committee investigating the
railroad situation. who read 1t or
the floor of the Senate.
McAdoo declared that the break
down of the railroads in the lattel
part of 1917 forced the government
to take control OF them Januar,
1. 1918. in order to save the war"
List OF Charges.
He charges. briefly, that:
The s500.0O0, 900 to be loaned
the railroads constitutes add.
ed investment OF the taxpayers
money" an added liability" and
an added tax burden"
The government will have to
accept as collateral for this
securities which in many in
stances may not be adequate to
protect the government"
President Harding must have
been misled into making tie
statement that the United
States is morally and legally
bound to fund" the railroads
debt to the Treasury.
Democratic members of the com
mittee had sought u have Meade,
summoned as a witness, but wer,
blocked by the Republicans. Stan
ley then asked him to outline hi
views of the situation in a letter
which follows. in full:
MY Dear Senator:
Replying to. your letter of tn,
17th instant.
In order to understand the pro
posals OF the President in his mes
sage Of July 26 on the railroad
problem, IL Is necessary to keep IL
mind certain fundamental facts.
~Breke Down. in Islz. f.
"The breakdown Of the railroad.
In the latter part OF 1917 forced th,
government to take control of then
January ]. 1918. in order to save tn,
war. Immediate consideration hat
to be given to the important prob
lem OF providing for the customar,
additions and betterments,' includ.
ing motive power and equipment,
which the carriers had been obliged
to furnish each year during private
operation.
These necessitated large and un,
usual expenditures which had to b.
provided for by the railroads them
selves. Notwithstanding the fac
that the government was tempo.
rarily operating the properties.
Under private control the rail.
roads procured the money for thest
purposes by:
"(a) Setting aside a part of theil
net earnings. IL sufficient for tn,
purpose. or,
"(b) Appropriating a part Of theii
net earnings and selling bonds o,
new capital stock or both for the
remainder. or.
(c) Selling bonds or capital stock
or both, for the entire amount.
The usual practice was to resor,
in large measure to the sale O,
bonds (short-term obligations in,
cluded) to raise the new money.
The United States was under n
obligation whatever to advanc,
money for such capital expendi
lures. In fact, the Federal contro
act. approved March. 81, 1918. ex
pressly required that in ever,
agreement between the Unite,
States and the railroads II shoult
be stipulated that the United State,
may. by deductions from the JUS
compensation (rental to be paid >th,
railroads) or by other means anC
charges, be reimbursed for the cos
of any additions. repairs. renewal.
and betterments to such propert,
(railroad property not Justl,
chargeable to the United States.
Best Profits I'm History,
Tn pursuance Of this act the di
rector general entered into agree
ments (known as the standard con
tracO with various railroads pro
viding for annual rental or compen
sation to the carriers equal to tn,
average Of the net earnings of tn,
three best years of their history
namely, from July l.. 1914. to Jun,
30. 1917. These rentals aggregated
for all properties under Fedora
control approximately s940, ,ooo, 90,
per annum.
I'm these contracts (section y. f
was expressly agreed that tn,
United States should have the righ
to deduct from such rentals al
amounts required to reimburse tn,
United States for the cost of addi
tions and 'etterments made 70 tn,
property of the company not justl,
chargeable to the United States. un.
less such matters are financed o,
otherwise taken care Of by the com.
pany to the satisfaction of the di.
rector general The director gen.
eral agreed, however. not to deduc,
for additions and bettepments ir
such a way as to prevent the rail.
roads from paying the fixed charge.
they had heretofore regularl,
paid
After sufficient allowance 10,
such fixed charges the director gen.
eral was free to deduct each year
from the rentals due the railroad,
the amounts advanced for add.
tions and betterments,' even IL suct
deductions should compel the rail.
roads to reduce IT defer dividend.
on capital stock. unless, of course
the railroads financed such ,addi.
tions and betterments' to his salts.
faction. 80
ITO Relieve Fears,
In order. however. to relieve
railroad stockholders of. apprehen.
sion as to how this power would bt
exercised, the director general con,
sented to the following provision
(section IA standard contract):
The power to deduct the amour,
due by, the company for the cost OF
additions and betterments not justly
-~srINuED on PAGE ZEN.