Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-16
OPERATIONS Of i. S.
CARRIERS TRACED
Doubtful Public Sevice Seen
in Loans and Guaran-
teed Earnings.
IY-THE RAILROADS FINANCES
BY FREDERIC ]. HASKIN.

III AAtASDNAeAO "s aAHA''HNb-fs
When President Wilson took over the
railroads as a war measure on New
Year day. 1918, The United States
Government entered upon active par
ticipation in transportation by land
for the second time. In 1864 Congress
had authorized bond issues TO aid
private companies In constructing roads
for the iron horse across the great
plains. the mountains and on to the
Pacific, for the purpose Of opening UP
the West. A total Of $64,600,o00 in
Federal aid was extended. Save for
q trifling modicum. entangled in techni-
calities, this has been repaid.
On that occasion no hand was taken
u operation; only In financial assist
ance, save. of course. thai Government
troops helped repel Indian attacks on
the track-layers But when, in the
bitter Winter of l9i7-18, the railroads
became. congested with the flow of
troops, munitions of war and food for
the armies and the allies, the Govern
rnent took the carriers over bodily and
proceeded to operate them. How this
was done Is a thrilling chapter Of
World War history.
Federal control terminated on March
/, 1920. Operation of trains under
Government management ceased, but
the control period had left heritage
Of tangled finances which presented q
colossal problem.
Under the Federal control act, and
under the transportation act of 1920.
there were various payments and
counterpayments provided for. The two
principal items related to the advances
made to railroads and to payments on
account of guaranteed earnings. The
war found the railroads in q period of
ID II ~&k
demand for funds to finance the Liberty
Loans, the Government dominating the
money market with Its patriotic appeal
to the peopl5 to buy bonds. Private
companies, such as railroads could
not borrow save at high rates Of
interest. The Government raised the
wages Of the railroad workers. The
carriers found dificulty In meeting
both current operating expenses and
maturing obligations.
Liberal Government loans to the rail-
roads were made to meet this situation.
In 1921 the Government held bonds
and other obligations of the railroads
IN the huge sum of $500, 438, $50 as Sc
curity for these loans.
GUARANTEES to Railroads. z
Congress had provided that the car
fiers should be guaranteed q certain
return on their capital. This was COM
puted in accordance with an involved
formula providing for various offsets
here and allowances there. The Inter-
state Commerce Commission estimated
that. for the period Of railroad control.
the sum total of such guarantees which
the Treasury would have to remit to the
carriers was $536. 000, 900. Railroad
rates had been raised all along the
line, in some instances as much as
100 per cent. and it had been hoped
that the higher rates would bring in
enough to pay the wage increase and
the standard return as well. but when
Mr.. Mellon came to the Treasury
balance of sos. 550,0 900 still was due
from the Government to the carriers
on account of these guarantees. It
was a part of Mr.. Melons task to re-si
tire this indebtedness. s
The railroads are at once the sinews
and the arteries of the national conn.
fnerce To understand the extraordinary
task. some sort Of rough picture of the
railroad situation in the United States
must oe drawn. During the haste OF
the war the equipment had been used
IT'D ruthlessly. Repairs to locomotives
and cars were far In arrears. In the
boom years Immediately following the
war. the car loadings were heavy and
car congestion was a frequent trouble.
Then came the defiation period Of
1920-21. Money became tight and in-
terest rates rose to practically prohihi-
tive levels. The market for railroad
bonds was slack. Several roads went
into receiverships. It was an unhappy
time for the entire Nation, and the OBJ
liration OF railroad finance was no
light burden to be borne by the
Treasury In addition to its many other
problems.
Happily, Mr.. Melons tax theories
Ives INy fHaFy
bearing fruit in reduced taxes and In
creased revenues. Also his policy OF
debt retirement was in full swing, and
money began to how with greater free
dom. He began to pay OF the guaran-
teed sums due the railroads. retiring
millions of this indebtedness; each year.
All the time, 1t must be remembered,
the Treasury was collecting per cent
interest on the funds 1t had advanced
20 the roads on the other account. BY
1925, the hold-over guarantees Of more
than 500 600 900 had been paid on BY
the Treasury with the exception OF
some relatively small amounts con-
eerning which there was disagreement.
Two.Edsed Public Service.
II was during this period that Mr.
Mellon not only served the Nation well
as its financial guardian and fiduciary,
bit he also served the railroad COM
nanies equally well. No railroad Is in
the complete sense privately owned
It is owned privately as compared with
Government ownership, but large num-
bers OF the public. through stock and
bond holdings, participate in the own
ership. Some railroad companies have
as extensive financial responsibilities as
some governments. SO. in measure;
Mr.. Mellon was performing q two-eoseo
public service when he assisted the
carriers In taking advantage OF the I'M
proved money situation.
As times grew better, and the cotin-
try reached q more sound economic
level interest rates dropped. When
the rates. at which the public would
absorb railroad bond offerings began
dropping below the 6 per cent fgure
which the railroads were paying on
the loans from the Treasury, Mr.. Mel
lon aided the companies by permitting
them to shift their Indebtedness and
enjoy cheaper money. Bonds were solo
in the public market at 5la and
per cent and the proceeds used TO pay
off the debt to the Government.
Thus. the Government was reim-
bursed in full for the money u mao
advanced, increasing the Treasury sur
ulus. while the railroad companies
were enabled TO save the difference In
interest
This process is still going on. The
sums involved we're so huge that the
shift could not quickly be made with
out disturbances to the market. 1t If
a notable fact, however, that durinl
eight wears no Iess than S34e.e54,67l
of these railroad loans was collected
and turned back into the Treasury
and with interest. Only $3.50. 4S4,07t
remained to be repaid at the time Of
the last casting no OF the account
Two-thirds of the money advanced ha!
Il In fha