Compliments of The Civic Federation OF CHICAGO. PLEASE READ. THE STREET RAILWAYS OF CHICAGO REPORT OF THE CIVIC FEDERATION OF CHICAGO EDITED BY MILO ROY MALTBffi, PH. D. ACCOUNTANT'S REPORT BY EDMUND F. BARD, C. ACCT. REPRINTED FROM MUNICIPAL AFFAIRS, J90J. Copyright 1901, by the Reform Club Committee on City Affairs, New York. Ttie civic Federation 01 cnicaoo, 215-216 FIRST NATIONAL BANK BLDG. LA VERNE W. NOYES, President. JOHN W. ELA, First Vice-president. E. G. HALLE, Second Vice-President. WILLIAM HORACE BROWN, Secretary. ISAAC N. PERRY, Treasurer. EXECUTIVE COMMITTEE. Franklin H. Head Charles G. Dubois Franklin Mac Veagh Sigmund Zeisler E. G. Keith A. M. Barnhart Josiah L. Lombard H. S. Mecartney Wm. A. Giles Hannah G. Solomon Adolph Nathan Wm. R. Harper R. T. Crane Thos. C. Mac Millan Paul O. Stensland E. M. Ashcraft Adolph Moses Robert McMurdy Sarah Hackett Stevenson James W. Morrisson Newton A. Partridge AND THE OFFICERS. STREET RAILWAY FRANCHISE COMMITTEE. Josiah L. Lombard, Chairman William A. Giles Franklin H. Head Edmund J. James John W. Ela * Adolph Nathan James L. Houghteling Edwin Burritt Smith John H. Gray Sigmund Zeisler Newton A. Partridge Zina R. Carter SUB-COMMITTEE ON INVESTIGATION. William A. Giles, Chairman Adolph Nathan Josiah L. Lombard Newton A. Partridge Edwin Burritt Smith John H. Gray M2Q52Q1 CONTENTS. REPORT OF COMMITTEE, - ANALYSIS OF FINANCIAL OPERATIONS, MILO ROY MALTBIE 7 ACCOUNTANT'S REPORT, - EDMUND F. BARD 50 EXHIBIT I. CHICAGO CITY RAILWAY Co., - 50 EXHIBIT II. NORTH CHICAGO CITY RAILWAY Co., - 84 EXHIBIT III. NORTH CHICAGO STREET RAILROAD Co., - 100 EXHIBIT IV. CHICAGO PASSENGER RAILWAY Co., - 114 EXHIBIT V. CHICAGO WEST DIVISION RAILWAY Co., 123 EXHIBIT VI. WEST CHICAGO STREET RAILROAD Co., - -128 FRANCHISE VALUES AND COMPENSATION, 161 STREET RAILWAYS OF CHICAGO. To THE Civic FEDERATION OF CHICAGO: Your committee appointed to conduct an examination of the true financial condition of the Street Railways of Chicago, so far as the same is shown by the books of account and corporate records of the various street railway companies, beg leave to report : Immediately upon their appointment, your committee took up and pressed the negotiations then pending to obtain access to the corporate records and books of account, with the result that Mr. Edmund F. Bard, an expert accountant of this city, was employed to make the examination, the details of which are embodied in his report herewith submitted. The report speaks for itself and bears evidence of the ability and fidelity with which the work was done. This examination could not have been had without the consent and active co-operation of the street railway companies themselves, and full recognition is given to the courtesies extended and the service thus rendered by their officials to your committee, the Civic Federation and the public generally. The question of compensation for franchises must necessarily turn on some plan of profit sharing, for it is only the excess of profit remaining after payment of all proper operating and mainte- nance charges, together with reasonable returns on the investment, which can justly be demanded by the public. The first question is, therefore, what is the amount of actual profit. This preliminary investigation is the one to which your com- mittee has addressed itself. We believe no similar publication of facts has ever been made, for the reason that never before have street railway books been opened to a similar investigation. Among the most important facts involved in the problem under consideration must be the amount of capital invested ; the mode of issuing the stock, bonds and other securities of the companies ; the 6 MUNICIPAL AFFAIRS. mode of charging expenditures and to what extent rebuilding is charged to construction or capital account; the leases or other agreements existing between different companies ; the amount of dividends which have been paid ; the gross and net income ; the cost of property used in operating street railways ; the present value of such property; and others which will readily occur. Obviously, it is only from the books and records of the com- panies that many of these facts can be ascertained at all; and it seems that not all of them have ever been fully ascertained even by the companies themselves, previous to this examination. Your committee had the report of Mr. Bard in hand early in 1899, but it was embarrassed by the extreme desirability of having the report accompanied when published by such summaries, ex- planatory matter, etc., as would render it more easily understood and thus increase its usefulness. Besides, in the opinion of your committee, it is mainly with reference to formulating ordinances relating to the street railways of Chicago, and particularly to re- newals of the ordinances soon to expire by limitation rather than the framing of statutes to be passed by the legislature, that this information is most pertinent and valuable. It is a subject of sincere congratulation that your committee has secured the services of Dr. Milo Roy Maltbie, Editor of MUNICIPAL AFFAIRS, and a well-known writer on municipal and economic subjects, to prepare the accompanying summary. While the particular views expressed by him are his own, we feel sure they will carry added weight for that reason. The committee does not think it desirable, however, at this time to formulate any policy nor to adopt any of the inferences drawn from the facts disclosed. Those facts it deems weighty and important and their present pub- lication timely. This report is submitted in the full confidence that it will aid in the solution and the speedy, just and final settle- ment of a situation not satisfactory at present from any point of view, and one which is intolerable in many of its phases. Respectfully submitted. WILLIAM A. GILES, Chairman; ADOLPH NATHAN, JOSIAH L. LOMBARD, JOHN H. GRAY, NEWTON A. PARTRIDGE. ANALYSIS OF FINANCIAL OPERATIONS BY MILO ROY MALTBIE. The examination of the books of account and records of the principal street railway companies of Chicago made by Mr. Edmund F. Bard is altogether unique. I know of no other instance in the United States where a street railway company voluntarily has opened its books and permitted an expert accountant to examine in detail all its financial operations. For the first time, the inner work- ings of several large companies in a large and important city are brought to view. For the first time, we know exactly what it has cost to construct different kinds of street railways, what allowance has been made for depreciation, what franchises are worth, how they have been capitalized, what methods have been adopted in financing these enterprises, etc. To comprehend the full value and importance of this study, a brief account of the street railway situation in Chicago and of the circumstances under which the examination of the books was per- mitted, is necessary. Early Operations. Street railways were first operated in Chicago in 1859. A period of slow development followed, during which all street cars were operated by animal power, except a few suburban steam dummy lines, with the consequent inadequate service and high operating cost. It was not until 1880 that serious steps were taken to improve the service by the adoption of cable traction. At this time there were three companies operating in three quite distinct parts of the city, viz. : (i) the Chicago City Railway Com- pany on the South Side, that portion of the city lying south of the river and east of the south branch; (2) the North Chicago City Railway Company on the North Side, north of the river and east of the north branch, and (3) the Chicago West Division Railway Com- pany on the West Side, west of the north and south branches. 8 MUNICIPAL AFFAIRS. Each had a monopoly in its area, due partially to the topographical nature of the city and partially to agreement, tacit or otherwise. The river has always rendered communication between the three sections difficult and expensive. The natural course of traffic is to and from the center of the city along radial lines, very few persons wishing to pass between the West and South Sides or the West and North Sides. (See Exhibit I, 9.) The Chicago City Railway Company was the first to adopt cable traction, being forced to do so by the competition of steam roads which paralleled its main lines. The State Street and Cottage Grove Avenue lines were the first converted, beginning about Janu- ary i, 1881. The other companies began to adopt mechanical traction several years later 1886 and 1887. Early in the nineties electricity was introduced and now the horse railroad has almost dis- appeared, and the cable, once so common, is giving way to the trolley. Duration of Franchises. The three roads above named, and others subsequently organ- ized, secured most of their present franchises to use the streets in the seventies or eighties, for periods not exceeding twenty years, the legislative act of 1874 having fixed this as the maximum limit. The most sweeping city ordinance was that of July 30, 1883, which ex- tended all of the existing franchises to use the streets to 1903. Sev- eral other ordinances have since been passed, notably in 1886 and 1887, but almost without exception the periods have so been fixed as to terminate in 1903, 1906, 1907, or thereabouts. In some cases no limit was stated, and the city may terminate these franchises at any time. The only exception to the rule that street railway franchises have been granted for short periods, usually about twenty or twenty-five years, is the "Ninety-Nine-Year" Act passed in 1865. This Act extended the life of the Chicago City Railway Co., the North Chicago City Railway Co. and the Chicago West Division Railway Co. to ninety-nine years, the act of incorporation passed in 1859 having restricted it to twenty-five years. It also attempted apparently to extend the franchises to use the streets already granted to ninety-nine years, but the language is not explicit. It certainly was not intended to include all subsequent grants made by CHICAGO STREET RAILWAYS. 9 the city. Thus, under the interpretation most favorable to the com- panies, there are only a few franchises to use the streets, most fran- chises having been granted since 1865, which could by any possi- bility run on until 1958, and if the courts should strictly construe the Ninety-Nine- Year Act, all would terminate at dates not more re- mote than 1916, most of them about I9O3/ Legislation Attempted. The situation in 1897 was briefly this: Most of the franchises were to expire in ten years or less. The cable roads needed, or soon would need, to be replaced by electric lines. But of course capitalists would not furnish the requisite funds upon such short- term franchises. Furthermore, unless the periods were extended, the price of the securities would soon begin to decline, gradually reaching a very low figure. Also, the political situation seemed favorable to the companies; the council and the legislature were apparently friendly. Bills were introduced into the legislature, currently known as the Humphrey bills, extending for fifty years the franchise rights granted by city ordinances, giving the companies many valuable privileges and requiring in return very little from the companies either in the way of compensation or public control. The corpora- tions at first seemed to have the necessary support to enact the measures, but popular feeling ran so high that it influenced many members of the legislature, and, after a very bitter fight, the bills were voted down by a large majority. The street railway interests then tried a new measure, the Allen bill, which contained some of the most objectionable features of the Humphrey bill, but which was an improvement in other respects. 1 This bill became a law in the summer of 1897. In November, 1898, elections were held for seats in the legislature, and the whole State was so worked up by the prostitution of public interests for the 'The roads have been so unsuccessful in getting statutes or ordinances ex- tending their franchise rights in the streets that they now are attempting to get a judicial interpretation of the Act of 1865, and claim that the 99-year clause applies to all franchise rights. No one else believes this, but it may be that the courts will hold that it applies to all grants previous to 1865, which will leave the roads a few important franchises. *The principal difference between the two bills was that the Humphrey bill itself extended the franchise rights of the companies 50 years; the Allen bill authorized city authorities to do this. 1 MUNICIPAL AFFAIRS. aggrandizement of a few corporations that nearly every man who had supported the Humphrey and Allen bills was either refused a renomination or defeated at the polls. The legislature which met the following winter 1899 repealed the Allen law by a prac- tically unanimous vote before the Chicago companies had derived any benefit therefrom. The city council refused to exercise the power conferred by the Allen law and extend franchises fifty years. Thus, in 1899, the street railroad interests were precisely where they were in 1896, and there was little prospect of getting favors from the legislature or the city council. The public was extremely hostile and suspicious ; the council was no longer controlled by "the gang," and the legislature had been taught a lesson it was not likely soon to forget. Evidently the companies were hard pressed; and only five years remained before the expiration of many of their franchises. All of this experience had taught the companies that the public could no longer be disregarded. Conditions had greatly changed, and the policy of the corporations must change also. The Scope of the Investigation. In June, 1898, after the enactment of the Allen law and after the city council had refused to accede to the demands of the companies for an extension of franchises, the Civic Federation invited Mr. C. T. Yerkes, who controlled the North and West Side companies and who was the spokesman for these companies in the contro- versy, to give an address at a public meeting on the street railway situation. He complied and evinced a strong desire to placate the public and to secure co-operation in formulating and procuring the needed ordinances. Mr. Newton A. Partridge, who was principal spokesman for the Civic Federation, insisted that the city could not be expected to go into a blind pool and approve a plan suggested by the street railway companies when all of the data regarding the operations of the companies were unknown to it. That would be playing with loaded dice. If fair treatment were to be expected, after the public had been so shamefully abused and deceived in the two years just passed, the books of the companies must be opened to examination by an expert. This Mr. Yerkes subsequently consented to do, recognizing the logic of the argument. A committee of the Civic Federation was CHICAGO STREET RAILWAYS. 11 appointed, consisting of Josiah L. Lombard (chairman), Adolph Nathan, Newton A. Partridge, Sigmund Zeisler, William A. Giles, John H. Gray, Paul O. Stensland, Edwin Burritt Smith, Thos. C. MacMillan, E. G. Keith, Franklin MacVeagh, Zina R. Carter, John W. Ela and Wm. K. Ackerman. This committee was reorganized in 1900 with the following members : Josiah L. Lombard (chair- man), William A. Giles, Adolph Nathan, Franklin H. Head, John H. Gray, James L. Houghteling, Newton A. Partridge, Edwin Bur- ritt Smith, Sigmund Zeisler, Edmund J. James, Zina R. Carter and John W. Ela. The sub-committee, which had direct management and supervision of the investigation and which signs this report, consisted of William A. Giles (chairman), Adolph Nathan, Josiah L. Lombard, Newton A. Partridge and John H. Gray. Mr. Yerkes did not speak for the Chicago City Railway Co., as he did not control this road, but when it was found that the other lines were to open their books, the South Side company agreed to do the same. Mr. Edmund F. Bard, a professional ac- countant, immediately began work, and the results of his investiga- tions are Exhibits I. to VI. He had access to the books of account and corporation records of all the important surface roads. Sev- eral of the suburban lines recently constructed are not included, as they have been in operation only a short time. These are relatively unimportant, as their business is small, and the companies treated herein hold the key to the whole situation. Mr. Bard's report cov- ers the Chicago City Railway Co., the North Chicago City Rail- way Co., the North Chicago Street Railroad Co., the Chicago West Division Railway Co., the Chicago Passenger Railway Co. and the West Chicago Street Railroad Co. It ends with December 31, 1897 the last year for which complete data were available when he began his work. To bring the monograph down to date July I, 1901 the facts for the last three years and a half have been gath- ered from the financial papers, principally the Economist. How- ever, few changes have been made since January i, 1898, and they do not materially alter the figures Mr. Bard gives for 1897. Face Value of Liabilities. (Of all the many facts established by this examination, those bearing upon the value of the franchises will be most eagerly sought 12 MUNICIPAL AFFAIRS. for. To compute this value one first finds the market value of all out- standing liabilities, or, in other words, the sum which must be ex- pended in order to gain complete control of the companies. It is evident that this can be done only by purchasing at market value all outstanding stock, bonds and other evidences of indebtedness. From the amount thus expended there must be subtracted the market value of all assets, or the sum which one would receive if all the properties except the franchises were sold. The remainder evidently is the market value of the franchise. The liabilities of the various companies July I, 1901, were as follows : CHICAGO CITY RAILWAY COMPANY Capital stock $18,000,000.00 Miscellaneous obligations 232,488.22 Total $18,232,488.22 CHICAGO UNION TRACTION COMPANY/ Capital stock, preferred $12,000,000.00 Capital stock, common 20,000,000.00 Miscellaneous accounts payable 2,233,165.00 Total $34,233,165.00 NORTH CHICAGO CITY RAILWAY COMPANY. Capital stock $500,000.00 Bonds, 4^2 and 4 per cent 2,997,000.00 Due North Chicago Street R. R. Co 6,172,331.89 Total $9,669,331.89 NORTH CHICAGO STREET RAILROAD COMPANY. Capital stock $7,920,000.00 First mortgage bonds, 5 per cent 4,800,000.00 Bills payable 1,196,200.00 Miscellaneous accounts 9i,395.o8 Total $14,007,595.08 CHICAGO PASSENGER RAILWAY COMPANY. Capital stock $1,340,300.00 Bonds, 5 and 6 per cent 1,734,000.00 Due West Chicago Street Railroad Co 49,158.49 Total $3,123,458.49 x The Chicago Union Traction Co. has not been examined by Mr. Bard, as it was organized after he made his investigation. These items have been taken from the company's report, as published in the Investors' Manual for 1901. The published statement of June 30, 1901, does not give assets or liabilities. The figures given cannot be far from accurate, however. CHICAGO STREET RAILWAYS. 13 CHICAGO WEST DIVISION RAILWAY COMPANY. Capital stock $1,250,000.00 First mortgage bonds 4,070,000.00 Due West Chicago Street Railroad Co 4,869,908.38 Total $i o, 1 89,998.38 WEST CHICAGO STREET RAILROAD COMPANY. Capital stock $13,189,000.00 First mortgage and consolidated bonds, 5 per cei 10,000,000.00 Bills payable, 4 l / 3 per cent, miscellaneous 5,169,252.67 Total $28,358,252.67 A total face value of $117,814,289.73 Market Value of Securities. Proceeding now to find the value of these securities, the first question that arises is, What date shall be taken at which to com- pute their market value ? In this resume I have attempted to make it complete to July i, 1901, which would suggest the selection of that date. But the quotations for one day may not represent the true state of the market. To avoid this error, the Stock Exchange quotations for the first two weeks in July have been used. This period is particularly well suited for the purpose, as the market was normal, showing no marked fluctuations, and as the period was one neither of boom prices nor marked depression. The prices secured by averaging the stock quotations for this period are: Chicago City Railroad Co., 209; Union Traction Co., preferred, 60; common, 19; North Chicago Street Railroad Co., 200; West Chicago Street Railroad Co., 100. The stocks of three companies were not dealt in during July 1-13, but accepting the prices used in the Harlan report, which is considered very conserva- tive, we have: North Chicago City Railway Co., 600; Chicago West Division Railway Co., 650; Chicago Passenger Railway Co., 100. Computing market values at these figures, the liabilities of the Chicago City Railway Co. are worth $37,852,488.22, those of the Chicago Union Traction Co. $13,233,165, in each case accepting the miscellaneous obligations at their face value. In the case of the North Chicago City Railway Co. only 2,499 shares of stock are to be valued, as the purchase of the stock and bonds of the Chicago Union Traction Co. would itself transfer 2,501 shares which this company took over from the North Chicago Street Railroad Co., when it made the agreement of 1899. (See 14 MUNICIPAL AFFAIRS. infra.) These shares, together with the other obligations taken at par, have a market value of $10,668,731.89. The Chicago Union Traction Co. also owns $2,000,000 of stock in the North Chicago Street Railroad Co. The market value of the remaining 59,200 shares would be $11,840,000. Adding the ether liabilities at face value, we have a total of $17,927,595.08. Turning to the West Side roads, the liabilities of the Chicago Passenger Railway Co. amount to $2,393,458.49. Seven thousand three hundred shares of stock are owned by the Chicago Union Traction Co., which would be purchased with the stock and bonds of that company, leaving 6,103 to be valued at $100 per share, or $610,300. The bonds, bearing 5 and 6 per cent, interest, are worth more than par, but their face value has been taken. The Chicago West Division Railway Co. has liabilities yet out- standing valued at $13,001,848.38; 6,251 shares of its stock being owned by the Chicago Union Traction Co., and the bonds being taken at par, although selling at a premium. Of the West Chicago Street Railroad Co.'s stock, $3,200,000 are owned by the Chicago Union Traction Co. This would leave 99,890 shares at $100 per share, or $9,989,000, plus $15,169,252.67 in other liabilities at par value, or a total of $25,158,252.67. MARKET VALUE OF LIABILITIES. Chicago City Railway Co $37,852,488.22 Chicago Union Traction Co 13,233,165.00 North Chicago City Railway Co 10,668,731-89 North Chicago Street Railroad Co I7,927595o8 Chicago Passenger Railway Co 2,393,45849 Chicago West Division Railway Co 13,001,848.38 West Chicago Street Railroad Co 25,158,252.67 Total $I20,235,53973 1 Value of Assets. From this amount one must subtract the present value of all property, real and personal, except the franchise rights in the streets. After careful analyses of the accounts, Mr. Bard computes the total original cost of all property belonging to the six companies, exdu- *This is a very conservative estimate. The bonds have been computed at par, whereas the latest quotations showed a premium in almost every instance. The assumed market values of stocks are below what they have been selling for. But it is better to give the companies the benefit of all reasonable doubts than to retard private enterprise by harsh treatment CHICAGO STREET RAILWAYS. 15 sive of the franchises, upon December 31, 1897, at $41,328,379.72, dis- tributed as follows i 1 Chicago City Railway Co $i 1,603,960.71 North Chicago City Railway Co 4,616,909.47 North Chicago Street Railroad Co 6,060,777.00 Chicago Passenger Railway Co 1,677,411.29 Chicago West Division Railway Co 5,783,713.65 West Chicago Street Railroad Co -. 11,585,607.60 Total $41,328,379.72 In order to bring these calculations up to date, I have incor- porated the changes made since January i, 1898, which are few and quite accurately known. They consist principally in the organiza- tion of a new company the Chicago Union Traction Co. the re- funding of a small amount of indebtedness and the construction of a small amount of electric road. With these changes, which alter but one item and add a new one, I find that upon July i, 1901, the total original cost of all property except the franchises was $44,922,- 011.72, apportioned as follows: Chicago City Railway Co 12,984,460.71 Chicago Union Traction Co ^2,213, 132.00 North Chicago City Railway Co 4,616,909.47 North Chicago Street Railroad Co 6,060,777.00 Chicago Passenger Railway Co 1,677,411.29 Chicago West Division Railway Co 5,783,713.65 West Chicago Street Railroad Co 11,585,607.60 Total $44,922,011.72 But in this suppostitious process of buying all liabilities and of selling all property three cash payments would be made from one company to another, which are not included in the assets above, as Mr. Bard shows that they have nothing to secure them except franchises, so that the assets of two companies would be larger than indicated in these tables. I refer to $6,172,331.89 due the North Chicago Street Railroad Co. by the North Chicago City Rail- way Co.; $49,158.49 due the West Chicago Street Railroad Co. by the Chicago Passenger Railway Co. ; and $4,869,998.38 due the same road by the Chicago West Division Railway Co. These payments would alter the assets somewhat, giving the following results : *In valuing the assets, every piece of property has been included except franchises. Thus the above items include not only the value of the plant and equipment necessary to operate the road, but stocks and bonds owned, accounts receivable, cash on hand, etc. I will return to this point later. 16 MUNICIPAL AFFAIRS. ORIGINAL COST VALUE OF FINAL ASSETS JULY I, IQOI. Chicago City Railway Co $12,984,460.71 Chicago Union Traction Co. 1 2,213,132.00 North Chicago City Railway Co 4,616,909.47 North Chicago Street Railroad Co 12,233,108.89 Chicago Passenger Railway Co 1,677,411.29 Chicago West Division Railway Co 5*783,713.65 West Chicago Street Railroad Co 16,504,764.47 Total $56,013,500.48 But these computations allow nothing for depreciation since "original costs" were expended. Of course, the books show nothing as to what this depreciation would be, and it is possible only to make a rough estimate. This I have done, always keeping well within conservative bounds. The estimated present market value of all prop- erty, exclusive of franchises, is $34,750,000, or $45,841,488.76 if one include the amounts due from company to company. 2 Amounts includ'g Inter- Company Obligations. Chicago City Railway Co $9,800,000 $9,800,000.00 Chicago Union Traction Co 2,000,000 2,000,000.00 North Chicago City Railway Co 2,300,000 2,300,000.00 North Chicago Street Railroad 5,250,000 11,422,331.89 Chicago Passenger Railway Co 1,300,000 \ 1,300,000.00 Chicago West Division Railway Co 4,000,000 4,000,000.00 West Chicago Street Railroad Co 10,100,000 15,019,156.87 Total $34,750,000 $45,841,488.76 Value of Franchises. Deducting these amounts from the value of the liabilities as computed above, we have : Value of liabilities, July I, 1901 $120,235,539.73 Original cost value of assets, as corrected 56,013,500.48 Value of franchises, upon basis of original cost. $64,222,039.25 Value of liabilities, July I, 1901 $120,235,539.73 Estimated present value of assets 45,841,488.76 Value of franchise r . / $74,394,050.97 'This figure is for July I, 1900. 'Attention is called to the fact that I am here speaking of "assets," not "plant" nor "productive assets," but all assets, whether they have or have not any value at present CHICAGO STREET RAILWAYS. 17 This amount represents the minimum value, for at every point the companies have been given the benefit of the doubt. The de- preciation since time of construction has been estimated at a very low figure. The stock, bonds, accounts receivable, etc., have been estimated at their face value, although, in many instances, their real value is almost nothing, for they produce little income and are secured by property of little value. Further, the value of the fran- chises to the city is much greater than $75,000,000, for the market value of the stocks is undoubtedly influenced by the probable early termination of the franchises. If perpetual grants were given, mar- ket values would go up, and also franchise values, as a result. Market Value a Fair Basis. The above method of computing the value of franchises has so often been criticised that it may not be out of place briefly to state why it is believed to be fair and equitable, and why it has been adopted here. The question, What is the value of street railway properties? is precisely analagous to the question which confronts the assessor when trying to value real estate, or the business man when at- tempting to find the worth of any piece of property. Each goes to those who are most familiar with such properties, and wisely so. Then why should we not go to the Stock Exchange, where securities are dealt in by those most competent to judge, and accept the opinion of such experts as shown by actual sales? The rejoinder that only a small number of shares are sold in a brief period, and that if all the stock were dumped upon the market, prices would be much lower, has no weight. The same would be true of everything. If all the corn were to be dumped upon the Board of Trade at once prices would go to pieces. But that does not cause the dealer to conclude that the "going price" is too high and that he had better "sell short." Far from it; instead, he will almost invariably assert that the present value is as correctly esti- mated by the market quotations as it is possible to fix it. The small amount of stock sold at current prices indicates that the holders con- sider it worth more than is bid, rather than that the bids are too high. 18 MUNICIPAL AFFAIRS. Corporation lawyers sometimes plead that taking the market value capitalizes good will, skill and ability. The same excuse might be offered by the old settler who, believing real estate in a certain locality will increase in price, secures all of it he can; and when his predictions are justified, argues that his land ought not be assessed at its present value, for by so doing a burden is imposed upon his foresight and skill. Again, it would be equally true that where poor management is shown, lack of ability has influenced market values, and that they are lower than they should be and would be ordinarily. It does not seem that such an unusual amount of skill and foresight has been used in the management of the Chi- cago companies as to call for reduction in the market values to bring the quotations down to the normal level, or to such as the average railway manager would produce. If I am not mistaken, it would be easily possible to secure a considerable number of men, any one of whom could manage the street railways of Chicago as efficiently as they have been managed. It is only when a brilliant manager gives to the securities a higher value than they would have under the average manager that a reduction from the market price ought to be made. This is certainly not the condition of af- fairs in Chicago at present. Meaning of "Original Cost/' The methods of valuing the assets will also withstand criticism, and to make perfectly clear what is fact and what is estimate, two sets of figures have been given: (i) original cost; (2) estimated present value, allowance having been made for depreciation. In working out the figures for "original cost value of assets," Mr. Bard first obtained an exact and complete inventory of all property, not including the franchise, but mileage and kind of track, equipment, rolling stock, real estate, buildings, supplies, stocks and bonds owned, accounts receivable, etc. He then proceeded to ascertain from the books the "original cost" of these various items, viz., the cost when originally purchased. This amount is obviously not what the property would bring at public or private sale, for most of the items have depreciated, and one land may have, probably has in every case, appreciated. And if there are stocks and bonds, it is very seldom that their face value is their market value. It should be emphasized, however, CHICAGO STREET RAILWAYS. 19 that the amount above given as the original cost is more than fair to the companies, for all in all the depreciation is considerably greater than the increase in values. The market value is much less than the "original cost" value. If, when the franchises expire, the city should pay the "original cost" value as above computed, the companies would be very generously treated, even more generously than they in justice can expect. This is especially true in view of the fact that the companies have always paid large dividends. How to Obtain Present Value. In order to obtain the present value of the franchises, it is necessary, therefore, to estimate the extent to which the various properties have depreciated. Now depreciation arises principally from two sources: (i) Wear due to use, (2) introduction of new inventions which make necessary the renewal of machinery and plant before they are worn out. Depreciation due to wear may be, and often is, provided for by charges for "repairs and maintenance" paid out of earnings. To capitalize such expenses, either directly by charging them to "con- struction account," or indirectly, by failing to keep the system in good condition, depending upon stock or bond issues to replace worn-out plant, is bad financiering. Wages might be capitalized with equal propriety. The proper way is to keep the plant and equipment fully repaired, and to pay the expense out of earnings. When this is done, no depreciation is chargeable for wear. 1 The kind of depreciation which is most generally disregarded is that due to the substitution of new inventions for old and less de- sirable processes. For example, the old horse railroads were still capable of giving fairly good service, as horse roads go, when con- verted into cable or electric traction; but it was impossible longer to continue animal power. The conversion involved considerable loss a loss almost equivalent to the original cost of the road, as- suming that the road was in good repair. Now this depreciation should have been guarded against and a fund created (equal to the cost of the old track and equipment) so that part of the expense of constructing the new road would have been paid without issuing *It may be urged that it is impossible to keep a road in as good condition as in the beginning. Quite true. But it is possible to produce the same result by accumulating a sinking fund or depreciation account from payments from earnings. 20 MUNICIPAL AFFAIRS. new stock or bonds, or the old stock and bonds retired. The amount of this fund should always equal, as nearly as possible, the value of the plant and equipment displaced. In other words, the capital stock, bonds and other liabilities, less sinking funds, reserve funds, depreciation funds, etc., should always be equivalent to the market value of the properties, excluding the franchise. Of course, it is impossible to keep them exactly equal, as no one can forecast just when new inventions will revolutionize existing systems, but there should always be some near approximation. And the amount placed each year to the credit of a depreciation account should be paid from earnings, just as much as expenditures for coal or oil. Depreciation Not Written Off fay Companies. With these rules as a standard, let us examine the operations of the companies to see how far the principles have been applied. Comparing the face value of the liabilities outstanding upon July I, 1901 amounting to $117,814,289.73 with the "original cost value of the assets," placed at $56,013,500.48, there is an ex- cess of $61,800,789.25. This shows that even allowing for no depre- ciation since the present plants were constructed, there are nearly $62,000,000 which should have been written off long ago. Taking the estimated present market value of the assets $45,841,488.76 a very conservative estimate, the depreciation which has not been provided for amounts to $71,972,800.97 at least. 1 In other words, there is "water" to the amount of $72,000,000 in the liabilities of the companies. When the operations of the companies are examined in detail, which will be done immediately, one will see how this result was brought about. Expenditures for repairs and maintenance have been paid out of earnings, but these have seldom, if ever, been of sufficient amount to keep the plant in as good condition as when built. Further, no depreciation fund has been accumulated to write off old capital when the new plant was purchased; but, instead, stocks and bonds have been issued to provide the new funds, and *It may be well again to call attention to the fact that this sum does not represent the estimated value of the plant and equipment of the street railroads el&ne, but includes securities held by a few of the companies, cash on hand, bills receivable, etc. Further, the total depreciation upon plant, not including real estate, would be much greater, for from the depreciation of the plant one has to subtract the appreciation of land to get at the net depreciation of the assets. CHICAGO STREET RAILWAYS. 21 the old stocks and bonds, incurred for worn-out and antiquated plant, have been retained as part of the liabilities. Thus the present systems are made to earn dividends not only upon existing 1 capital, but upon the "original cost" of scrap iron and refuse. In a few instances stock and bond dividends have been declared without any attempt to cover up the watering process. Ordinarily in business such a process would be disastrous, re- tarding progress and ending in bankruptcy, but in the case of municipal monopolies it is different. The street railway business is not a competitive business. Competition has been eliminated in Chicago between the surface lines. Franchises are very valuable, and the watering of stock by failing to write off depreciation has been counterbalanced by the increasing value of the franchises, so that the companies pay interest upon bonds and still make a rea- sonable profit upon the stock, which really includes at least $72,000,- ooo of water. It is interesting to note that this amount of water is almost equal to the value of the franchises as estimated above, which shows that the companies have virtually capitalized the franchises. From one point of view, it matters little whether liabilities are $50,000,000 or $500,000,000. What do the stockholders care whether they get 10 per cent, on $50,000,000 or I per cent, on $500,- 000,000. The net profit is $5,000,000 in each case. But there are serious objections to stock watering. In the first place, there will come a time when readjustment is necessary, when the water must be squeezed out. This is apt to discredit a company and make in- vestors suspicious of its securities. In the second place, the adop- tion of new processes is retarded, because the capital nominally invested is already so large as to make the negotiation of new issues difficult. In the third place, it throws dust in the eyes of the public, for they do not know how much capital is actually invested, and are inclined to assume that the securities represent the true amount. Thus companies paying 5 per cent, are often left to themselves, and others paying 20 per cent, are discussed and investigated, when, as an actual fact, the former are paying the larger rate of profit upon the true amount of capital invested. This is a principal reason why companies operating franchises have almost invariably so increased their capital stock as to bring the dividends down to the average 22 MUNICIPAL AFFAIRS. rate in other lines of business. 1 Then, in the fourth place, if the securities greatly exceed the value of the plant, the company is in a position to compromise, to give the city something, without in reality relinquishing much. And if dividends are near the going rate in other lines, the cry "confiscation" may be raised whenever the public attempts to make the company give compensation for franchise rights. Rate of Profit, Having found the value of the plant and the amount of water in the securities, we are now able to compute the rate of profit upon the amount of capital actually invested. The gross earnings of the Chicago Union Traction Co. the lessee of the five roads upon the North and West sides for the year ending June 30, 1901, were $7,289,139. Other receipts, ex- clusive of the income from stocks of other street railway corpora- tions in Chicago, amounted to $107,355, making a total of $7,396,- 494. The expenses amounted to $4,335,155, leaving a profit of $3,- 061,339. The Chicago City Railway Co. received, during 1900, $5,543,180, expended $3,655,002, and had a profit of $1,888,178. The total gross earnings of both companies were, therefore, $12,- 939,674, and the profits $4,949,517. What now is the capital value upon which to compute the rate of profit? In the preceding pages, the "original cost value of the assets" was found to be $56,013,500.48, and the estimated present value $45,841,488.76. But neither amount is the capital which is producing the profit of $4,949,517. Four of the companies include among their assets stocks and bonds of other companies, accounts and bills receivable, inter-company obligations, deposits, etc., which produce very little income and have little value. These items aggre- gate some $22,000,000, which, subtracted from the "original cost value," would give the following: Cost Estimated market value of plant value of plant Companies. alone, July I, 1901. alone, July i, 1901. Chicago City Railway Co $12,415,604.37 $9,800,000 Chicago Union Traction Co 927,895.00 900,000 North Chicago City Railway Co 4,616,909.47 2,300,000 1 In 1897 at the annual meeting of the stockholders Mr. Yerkes suggested the reduction of dividends on the North Chicago Street Railroad capital stock as a matter of policy to one-half the rate of 12 per cent, per annum then paid by the simple expedient of "doubling the stock." CHICAGO STREET RAILWAYS. 23 North Chicago Street Railroad Co 1,805,388.65 . 1,400,000 Chicago Passenger Railway Co 1,677,411.29 i 1,300,000 Chicago West Division Railway Co 5,783,713.65 4,000,000 West Chicago Street Railroad Co 6,383,147.34 4,900,000 Total $33,610,069.77 $24,600,000 Eliminating the small income which these stocks, bonds, etc., produced $30,266 from the gross income as given above, the net income is $4,919,251. This is a profit of 14.6 per cent, upon the original cost value of the plant or of the productive assets, or 20 per cent, upon the estimated present market value of the plant or of the productive assets. Upon a capitalization of $33,600,000, it follows that the com- panies could pay the city 12 per cent, of gross income, lay aside 4 per cent, for depreciation in excess of the ordinary charges for re- pairs and maintenance, and still pay 6 per cent, dividends. Upon a capitalization of $24,600,000, which still is probably in excess of the market value of the plant, the companies could pay the city almost 20 per cent, of gross income, lay aside a depreciation fund of 4 per cent, and pay 6 per cent, dividends. Or, upon a capitaliza- tion of $24,600,000, the companies could lower fares to 4 cents and still accumulate a depreciation fund of 4 per cent, a year and pay dividends amounting to 6 per cent. This computation is upon the basis of present traffic, but if fares were lowered to 4 cents, the traffic would increase considerably, and thus enable the companies either to still further lower fares or pay larger dividends. Present Compensation for Franchises. Either one of these alternatives could be adopted if the capitali- zation approximated the market value of the plant, and this also in addition to the following payments made to the city in I90O. 1 Car licenses $61,440.24 Personal property tax 210,955.36 Maintenance of bridges 3,000.00 Percentage of receipts 1,647.56 Mileage compensation 81 1.67 Extensions of electric light 30,000.00 Maintenance of electric lighting 10,000.00 $317,854-83 *Real estate taxes are excluded because this property is assessed by the local town assessors and there are no statistics to show what is the total amount. If given, it could not be construed as compensation for franchises, as its value is determined irrespective of franchise rights. These figures have been furnished by the City Controller's office, to which I am greatly indebted. 24 MUNICIPAL AFFAIRS. In addition the companies are required to pave a portion of the streets, but there is no record of the amount actually expended. These payments are in a sense compensation for the franchises granted ; and if there were no such payments to be made, the market values of the securities would be more than at present. But as they were paid out of gross earnings before market values were fixed, the city evidently receives nothing for $75,000,000 in franchises now be- ing operated by the street railway companies. In other words, pri- vate corporations are using $75,000,000 of capital for which they pay not one cent of compensation. Evidently some readjustment of conditions is greatly needed. Let us now examine each of the seven companies somewhat in detail. History of the Chicago City Railway Co. * Street railways were first operated in Chicago in 1859 about the same time that they were introduced in other cities and im- mediately checked the growing business of the omnibus lines. Upon February 14, 1859, a special act of the legislature incorpor- ated two companies, namely, the Chicago City Railway Co. and the North Chicago City Railway Co. The former took over franchises previously granted to private persons, and soon had constructed lines in the south and west divisions of the city. The latter were sold to the West Division Railway Co. in 1863, and since that time the Chicago City Railway Co. has confined its operations to the South Side that portion of the city south and east of the Chicago River. Horse traction was almost universal until 1881, only three miles out of the forty-five being operated by steam upon January 1st of that year. Cable power was introduced the year following and in a few years a large proportion of the road had been con- verted. It is advisable, therefore, to strike a balance at the close of 1880 and ascertain what had been the financial results up to that date. Upon December 31, 1880, there were 45.679 miles of horse rail- road (the figures for mileage are always given in this study in terms of single track I mile double track being equivalent to 2 miles single track); $1,319,062.91 had been paid out for "Construe- CHICAGO STREET RAILWAYS. 25 tion," namely, roadbed, track and street paving, or $28,854.89 per mile. Nothing had been credited to this account for depreciation, and this amount represented not only original cost, but changes and reconstruction as well. From the data given in the books of the company, showing the cost of part of the road and of the paving, Mr. Bard has estimated (and his figures seem to be over, rather than under, the actual cost) that the original cost of the roadbed existing on December 31, 1880, was $772,596.08, or $16,913.59 per mile. (See Exhibit I, Sec. i.) The total assets and liabilities of the company upon that date were (Exhibit I, Sec. i) : ASSETS. Roadbed $772,596.08 Real estate 234,423.63 Buildings 202,472.75 Personal property 473,442.29 Bills receivable 2,606.00 Cash 3976.4i $1,689,517.16 LIABILITIES. Capital stock $1,500,000.00 Bills and accounts payable 152,093.67 Drivers' deposits 16,977.90 1,669,071.57 Surplus December 31, 1880 $20,445.59 According to the books the surplus was $676,092.43, but no allowance had been made for depreciation, which represents the difference between the two figures. Since 1881 the conversion to cable and electric traction has con- tinued, until at present only 5 out of the 182 miles owned and oper- ated by the Chicago City Railway Co. are horse road, 35 miles are cable and 142 miles electric. (See Exhibit I, Sec. 8.) The total cost value of all property existing December 31, 1897, and the outstanding obligations are as follows (See Exhibit I, Sect. 6) : ASSETS. Cable road $2,606,280.24 Electric road 3,142,425.17 Horse road 105,741.43 Leased road 170,000.00 Illinois Cenral Railroad construction 60,590.92 $6,085,037.76 Rolling stock 1,521,931.60 Real estate 1,993,362.50 26 MUNICIPAL AFFAIRS. Machinery 1,208,853.21 Miscellaneous property 225,919.30 Stock, bonds, accounts receivable 28,768.20 Cash on hand 540,088.14 Total $11,603,96071 LIABILITIES. Capital stock $12,000,000.00 Bonds 4,619,500.00 Accounts payable 232,488.22 $16,851,988.22 DEFICIT $5,248,027.51 Since December 31, 1897, only a few changes have been made in the debit and credit sides of the ledger, and the conditions upon July i, 1901, can be stated with very close approximation. During 1899 and 1900 $1,500,000 in stock were added to the liabilities, and upon July i, 1901, $4,500,000 more were issued, making the total capital stock $18,000,000. The proceeds of the last issue, together with $119,500 from the treasury, went to retire the bonds then due. Assuming that the remainder produced by these stock sales $1,380,500 was spent in increasing the value of the assets (an as- sumption perfectly fair to the company), we have for the original cost value of the assets upon July i, 1901, $12,984,460.71, and for the liabilities $18,232,488.22. This would leave an excess of liabil- ities over assets a deficit of $5,248,027.51.* This is the sum which is properly chargeable to depreciation and which should have gradually been written off by the company. If account be taken of depreciation since construction (for the road- bed is not as good as when built and cable traction is going out of use and other systems must be adopted before long), the deprecia- tion would be considerably increased. The original cost of the present assets was nearly $13,000,000, but they could not be sold for more than $9,800,000 at the very most, and probably for not more than $8,500,000. Adopting the maximum figure, the deficit would be over $8,400,000. In other words, the market value of the assets is sufficient to pay about $9,800,000 to the stockholders, who nominally should receive $18,000,000. Of course the franchises are further security, and if they should not be terminated for four 'Of course the minor items have changed since December 31, 1897, but the re- ports of the company do not show to what extent, and as they would not affect the figures materially, I have taken them as in 1897. CHICAGO STREET RAILWAYS. 27 or five years the profits of the company would be sufficient to pay dollar for dollar, if devoted exclusively to wiping out the deficit or writing off the depreciation. The history of the stock and bond issue shows how very re- munerative the street railway industry upon the South Side has been. In 1881 the capital stock was $1,500,000, which has grad- ually been increased to $18,000,000. All of this stock, except pos- sibly $250,000, which was issued as dividends, has been sold to stockholders at par. Without exception, it could have been sold at a premium immediately after issue, which means that a large bonus has been given to the stockholders each time. Including the regu- lar annual dividends of 10 per cent, in 1882 and 12 per cent, each year since, the extra dividends in stock, bonds and cash, and the premiums upon the stock and bond issues, we have total dividends of $37,602,187.50 paid between January i, 1882, and January I, 1898, or an average of 44.63 per cent, per annum for sixteen years. (Exhibit I, Sec. 7.) Since January i, 1898, $6,000,000 in stock has been issued at par, $1,000,000 in July, 1899, $500,000 in August, 1900, and $4,500,000 July i, 1901. The market price of the stock after the first issue was 277, after the second 242, and after the third 209. The bonus upon the 1899 issue was, therefore, $1,770,000; upon the 1900 issue, $710,000, and upon the 1901 issue, $4,905,000. The percentages for the respective years, upon the basis of stock outstanding when sales were made, were 14 3-4, 5 6-13 and 36 1-3 respectively. Adding the regular quarterly dividends for these years 12 per cent, per annum the total dividends would be 26 3-4 per cent., 17 6-13 per cent, and 48 1-3 per cent., respectively, an average of nearly 31 per cent, for the last three years. It is to be remembered, however, that the stock contains at least $8,400,000 of water ; the present value of the productive assets the real capital being not more than $9,800,000. The net earnings for 1900 were $r,888,ooo, which, upon a capitalization of $9,800,000, would yield dividends of over 19.2 per cent. Thus, the Chicago City Railway Co. could give the city 20 per cent, of its gross earn- ings and still pay 8 per cent, dividends upon the actual capital in- vested. Or, it could pay the city 16 per cent, of gross earnings, lay aside 4 per cent, for depreciation and still pay 6 per cent, dividends. Or, it could reduce fares to 4 cents on the basis of the present traffic 28 MUNICIPAL AFFAIRS. and still pay 8 per cent, dividends upon the actual capital invested. Or, it could sell 6 tickets for 25 cents and lay aside 4 per cent, for depreciation and 6 per cent, for dividends. The increase in traffic which would follow this reduction of fares would probably render a still further reduction possible. North Side North Chicago City Railway Co. The first company to operate a street railroad upon the North Side the North Chicago City Railway Co. was incorporated Feb- ruary 14, 1859, as seen above. The great fire of 1871 practically destroyed all of its property, but reconstruction was at once begun, and by May 24, 1886, there were in operation 44.774 miles of track horse traction; $2,054,277.65 had been expended for construc- tion, real estate, buildings, rolling stock, etc. Yet the capital stock was only $500,000. Of the bonds outstanding $1,247,000 at least $750,000 had been issued to stockholders as dividends ; and of the remaining $497,000 a considerable portion had probably been issued in a similar way. Thus, even assuming that the stock had fully been paid in, it is evident that the road had been built princi- pally out of profits. (Exhibit II, Sec. 2.) The original cost value of the plant upon May 24, 1886, ex- clusive of the franchise, is shown by the trial balance to be (Ex- hibit II, Sec. 2) : 1. Real estate $245,188.37 2. Personal property, inventoried at 482,739.66 3. Buildings 418,024.84 4. Construction 908,324.78 Total $2,054,277.65 Allowing for appreciation and depreciation, the plant was not worth more than $1,500,000 and perhaps could not have been sold for more than $1,250,000. The market value of the stock was about $500 per share and the franchises were worth at least $2,100,- ooo, and probably nearer $2,500,000. Such was the financial condition of the North Chicago City Railway Co. upon May 24, 1886, when an agreement was entered into with the North Chicago Street Railroad Co., which had been incorporated six days previous, and which was controlled by Messrs, CHICAGO STREET RAILWAYS. 29 Yerkes, Widener, Elkins and their associates. 1 In brief, this con- tract provided for the leasing of the property and franchises owned by the North Chicago City Railway Co. for a term of 999 years, in return for which the North Chicago Street Railroad Co. agreed to pay the interest on all bonds and mortgages of the lessor outstand- ing and to be created, and a quarterly payment of $37,500. The lessee further agreed to construct a cable road on North Clark street, the actual cost of which was to be borne by the lessor, pay- ment being secured by a mortgage bearing interest at 6 per cent, per annum, payable semi-annually. Additional lines and improve- ments were to be constructed as mutually agreed, to be paid for as above or by bonds secured by a mortgage, at the option of the lessee. A concluding clause provided that when the North Clark Street cable road should be completed, the lessee should pay to the lessor company $500,000 in cash or in capital stock at the option of the former company a sum just equivalent to the capital stock of the North Chicago City Railway Co. (Exhibit II, Sec. I.) These terms were apparently very favorable to the old company, as the quarterly payments were equivalent to a 30 per cent, annual dividend, payable quarterly, upon the total capital stock. Doubt- less the company also considered the $500,000 bonus as an addi- tional compensation equivalent at least to 6 per cent, annual divi- dend, and in case the North Chicago Street Railroad Co. should be prosperous, equivalent to a 10 or 12 per cent, annual dividend, or more, making a total of 40 per cent, or more upon the actual capi- tal stock of the old company. Comparing the cash quarterly payments, the interest on the bonds and the bonus with the probable market value of the plant, one finds the price paid equivalent to at least 16 per cent., and pos- sibly 18 per cent., on the maximum estimate of $1,500,000, or i&J per cent., and possibly 21 per cent., upon $1,250,000. This was a very liberal sum, but probably not more than the value of the fran- chises warranted. One wonders at first glance why the old company should desire to lease its property even upon such favorable terms when it was "Care must be taken to distinguish between the North Chicago City Railway Co. (N. C. C. R. Co.) and the lessee company, the North Chciago Street Railroad Company (N. C. S. R. R. Co.). 30 MUNICIPAL AFFAIRS. in such good financial condition, and why the new company should be willing to pay such a high price for the properties even though it were not more than the market would warrant. The preamble to the agreement furnishes only a partial explanation. It states that the old company considered a change in the motive power wise and necessary. But apparently it did not have the courage to make the experiment. This the new company was willing to do, and upon terms that appeared to be very favorable to the old com- pany. The operations of the lessee under the agreement will show how it evaded the strict letter of the contract and how it burdened the minority stockholders with a very large debt. Possibly the North Chicago Street Railroad Co. had prearranged this course of action. On May 24, 1886 (the date of the agreement between the two companies), the lessee the North Chicago Street Railroad Co. made a contract with the United States Construction Co. to build the North Clark street cable line. Under this agreement, which was very loosely drawn, and other agreements made in 1886 and 1887, the United States Construction Co. completed work for which it received $4,500,000 in capital stock in the new road, $998,000 in 4j per cent, bonds of the old company and $710,908.39 in cash from the new road, a total of $6,208,908.39. The cost to the Construc- tion Company, according to the very liberal estimates of Mr. Bard, could not have exceeded $3,141,741.32. (Exhibit II, Sees. 4 and 5.) Thus, if the securities were selling at par there would be a profit to the United States Construction Co. of $3,067,167.07. But the amount is still larger, for almost immediately the stock went to a premium, and since 1892 has been worth over $200 per share. This large profit was charged against the North Chicago City Railway Co. in apparent violation of the contract which required the North Chicago Street Railroad Co. to keep an exact account of the cost and to debit the lessor that amount only. It may be claimed that the cost was $6,200,000, as that was the sum paid the United States Construction Co. by the lessee. But the contract was merely a subterfuge, as the United States Construction Co. originally owned 49,990 of the 50,000 shares of the capital stock first issued, and the same men controlled both companies. (Ex- hibit III, Sec. 3.) CHICAGO STREET RAILWAYS. 31 The improvements paid for by the North Chicago Street Rail- road Co., without the intermediation of the Construction Company, amounted to $1,634,421.54, to which should be added $79,001.96 of floating debt assumed by the lessee, making the total expenditures of the lessee for the account of the lessor $7,922,331.89. The lessor company has paid $1,750,000 in bonds, leaving a balance still due the lessee on December 31, 1897, of $6,172,331.89. (Exhibit II, Sec. s.) The original cost value of the assets existing December 31, 1897, were as follows : 73.329 miles single track road $3,184,280.14 Real estate 245,188.37 Buildings 1,187,440.96 Personal property, per inventory 489,489.66 Total $S,io6,399.i3 The outstanding liabilities upon the same date were : Capital Stock $500,000.00 First mortgage 6 per cent, bonds 500,000.00 Consolidated 4^ per cent, mortgage bonds 2,497,000.00 Due N. Chi. St. R. R. Co. for expenditures for betterments 6,172,331.89 Total $9,669,331-89 showing an excess of $4,562,932.76 over the original cost value of existing plant. But as the cost value is only $2,109,399.13 in ex- cess of the outstanding bonds, which are a first lien upon the prop- erty, there remain $4,062,932.76 of the claim of the lessee and nothing but the franchise to secure it and the claims of the stock- holders. (Exhibit II, Sec. 8.) Indeed, the company is in a much worse condition than these figures indicate, for in taking the cost value of the assets at $5,106,- 399.13, no allowance was made for depreciation, which would be a very considerable sum on every item except the real estate. It is very much doubted whether the market value of the assets, ex- clusive of the franchise, is sufficient to liquidate the outstanding bonds. North Side North Chicago Street R. R. Co. The financial condition of the North Chicago Street Railroad Co. is considerably better than that of the road just treated. Be- tween May 24, 1886, and December 31, 1897, it had expended on its own account $6,874,589.08, of which $4,255,388.35 represent invest- ments in stocks and bonds of other companies, accounts and bills 32 MUNICIPAL AFFAIRS. receivable and other assets which are not used directly in the oper- ation of the road, leaving a total expenditure for plant of $2,619- 200.73. (Exhibit III, Sec. 4.) The cost value of the plant as it existed on December 31, 1897 (excluding again the stocks, bonds, etc.), was $1,805,388.65, showing a depreciation of $813,812.08. (Exhibit II, Sec. 5.) The original cost of all the property as it existed December 31, 1897, was $6,060,777, to which should be added $2,109,399.13 the excess of the estimated original cost of the North Chicago City Raliway Co. properties over outstanding obligations, which the North Chicago Street Railroad Co. might claim as a part payment of the amount due it, making the total assets $8,170,176.13. (Ex- hibit III, Sec. 5.) There are outstanding liabilities amounting to $7,407,597.08, leaving $762,581.05. This book value and the value of the franchise constitute the security of the $6,600,000 of capital stock. Here again no allowance has been made for depreciation upon existing plant, which would be considerable, and if allowed for, would cause liabilities to exceed assets considerably. (Exhibit III, Sec. 6.) Notwithstanding the lack of real property as security, the stocks of the two companies have always been valuable. From 1886 to December 31, 1892, the company paid dividends, including stock dividends and bonuses as well as regular dividends, averaging 6.86 per cent, upon the capital stock. From 1893 to 1897 they averaged 25.24 per cent, per year. The total amount of extra dividends in the shape of stocks and bonds amounted to $3,548,000, the regular dividends to $5,764,253.50, a total of $9,312,253.50. To this amount should be added 30 per cent, on the $249,900, the outstand- ing stock of the North Chicago City Railway Co., or a total, up to December 31, 1897, of $822,670. The aggregate profit of the stockholders of both companies was, therefore, $10,134,923.50 from May 24, 1886, to December 31, 1897 not a very bad showing for roads whose property, exclusive of franchise rights, would not sell for a sufficient amount to meet outstanding obligations. (Exhibit III, Sec. 7.) Since 1897 no changes have been made in the assets and liabili- ties of the North Side lines. In 1899 they were leased to the Chi- cago Union Traction Co., but this will be treated of later. CHICAGO STREET RAILWAYS. 33 To complete the history of the North Side roads it only remains to show the relations of the North Chicago City Railway Co., the North Ch'icago Street Railroad Co. and the United States Construc- tion Co. A majority of the stock of the first company (2,501 shares) was purchased by the North Chicago Street Railroad Co. in 1886. This company in turn was controlled by the United States Construction Co., which would not produce its books for exa mina- tion; but if current report and financial papers are to be believed, the Construction Company was controlled by Messrs. Yerkes, Widener, Elkins and their associates. Thus, as far as the majority interest of the lessor is concerned, any financial deal between the two companies would simply be taking money from one pocket and putting it in another. But not so as to the minority interest the stockholders who did not also hold stock in the United States Con- struction Co. ; they would be burdened with a heavy debt, and such was possibly the purpose of the lessee or its backer, the United States Construction Co. The agreement of May 24, 1886, was plain, but as the Construction Company virtually controlled the majority of stock in the company being manipulated, it would have been difficult, even if the minority stockholders desired, to know what was going on and to remedy it. Indeed, the issuing of the stock of the lessee before the United States Construction Co. had a title to it in order that the latter company might speculate in it before it was paid for, is characteristic of the way in which the North Side companies have been manipulated in the interest of a few individuals. West Side Chicago Passenger Railway Co. The first street railway built upon the West Side was constructed by the Chicago City Railway Co., which transferred its lines to the Chicago West Division Railway Co. in 1863. But the present re- lations of the various companies can most easily be understood if one begins with the fourth company organized, viz., the Chicago Passenger Railway Co. This company was incorporated Febru- ary 12, 1883, and in 1888, when an agreement was made with the West Chicago Street Railroad Co., it owned 29.79 rniles of horse railroad. Its capital stock was $1,000,000 (10,000 shares) and the outstanding bonds amounted to $400,000. (Exhibit IV, Sec. I.) The first agreement between the Chicago Passenger Railway 34 MUNICIPAL AFFAIRS. Co. and the West Chicago Street Railroad Co., under date of No- vember 1 6, 1888, stipulated, among other things, that the former should convert the horse road into a cable line for certain specified distances upon Desplaines, Washington and Franklin streets. The two companies were to use this line jointly, and as a consideration the lessee was to pay the entire cost of construction and 5 per cent, per annum of the amount which should be paid by the Chicago Passenger Railway Co. in rebuilding and repaving the Washington street tunnel. The same company was also to provide for the trac- tion of the cars of the Chicago Passenger Railway Co. through the tunnel and around the loop into the central portion of the city ; the amount charged therefor to be a reasonable sum as later agreed upon. The duration of the contract was fifty years. (Exhibit IV, Sec. i.) This agreement was not satisfactory and upon March 15, 1889, just four months later, it was so amended as to require the lessor to issue 6 per cent, bonds to fund its floating indebtedness, to pay for improvements contracted for (probably referring to the obliga- tions incurred under the preceding agreement), and to pay for any construction work under the present agreement, except the cable road provided for above. All of these bonds were to be guaranteed by the lessee, which thereafter was to receive the gross receipts and to pay all operating expenses. As remuneration, this com- pany was to pay the lessor $25,000 semi-annually, being 5 per cent, per annum on the outstanding stock. The other provisions were so modified as to release the Chicago Passenger Railway Co. from paying for traction of its cars and the West Chicago Street Rail- road Co. from paying the 5 per cent, rental. Upon April 12, 1897, the lease was extended, making the full term sixty-five years, expir- ing March 14, 1954. (Exhibit IV, Sec. I.) The similarity between this operating agreement and the one made in 1886 between the North Side companies suggests that both were conceived by the same brain. Such, indeed, was the fact, for the West Chicago Street Railroad Co. was dominated by the same men who controlled the United States Construction Co. and the North Chicago Street Railroad Co. A further similarity is to be seen in the fact that a majority of the stock of the lessor was owned by the lessee at the time the agreements of 1888 and 1889 were con- CHICAGO STREET RAILWAYS. 35 summated. Thus the minority stockholders were the ones prin- cipally affected, as in the case of the North Side company. The operations under these agreements cannot be definitely stated, as the books of the company are inaccessible. But the fol- lowing estimates are sufficiently accurate for all practical purposes. Since 1889 4-4 miles of horse railroad have been constructed at a cost of $104,737.66, making the original cost of the 34.19 miles of horse railroad $814,504.67. Upon December 31, 1897, there re- mained 2.38 miles, which cost $56,705.12, leaving $757,799.55 to represent depreciation due to. conversion of the road into cable and electric traction. (Exhibit V, Sec. 4.) The original cost value of the assets existing December 31, 1897, was as follows (Exhibit IV, Sec. 4) : 2.836 miles single track cable $273,547.60 0.314 miles single track cable 43,715-51 2.38 miles single track horse railroad 56,705.12 28.585 miles single track electric railroad 542,240.07 Real estate and buildings 761,202.99 Total $1,677,411.29 The outstanding liabilities upon the same date were (Exhibit IV, Sec. 5): First mortgage 6 per cent, bonds $400,000.00 Consolidated 5 per cent, bonds 1,334,000.00 Capital stock 1,340,300.00 Due W. Chi. St. R. R. Co 49,158-49 Total $3,123,458.49 Upon the face of these figures liabilities exceed assets to the extent of $1,446.047.20. It is quite likely that a re-appraisement of the real estate would reduce this deficit considerably, perhaps to $500,000. (Exhibit IV, Sec. 5.) But as no allowance has been made for depreciation, the original cost value being given above, the present value of all assets does not exceed $1,300,000, allowing for appreciation of real estate, and probably is less. West Side West Division Railway Co. Returning now to the West Division Railway Co., the books show that it was incorporated February 21, 1861. About 1863 it purchased the West Side lines of the Chicago City Railway Co. and their extensions to the business center of the city, paying about 36 MUNICIPAL AFFAIRS. $200,000, according to current report. Upon October 20, 1887, the date of the agreement with the West Chicago Street Railroad Co., the West Division Railway Co. owned 98.45 miles of horse road. The construction cost was $1,935,131.52, or $19,655.98 per mile. This comparatively low figure was due principally to the practice of paying for extensions and betterments out of surplus earnings, and to the small amount of paving and poor character. Only 14 out of a total of 98.45 miles of track were paved, and those mostly with cheap macadam. Upon October 20, 1887, the original cost of all assets, including 7,300 shares of Chicago Passenger Rail- way Co. capital stock, was $5,468,071.17. The total outstanding liabilities amounted to $4,816,511.06, showing a surplus of $651,- 560.1 1. (Exhibit V, Sec. 2.) Computing the value of the securities at market rates, the value of the physical property at $3,700,000 and the miscellaneous ac- counts at their face value, one finds that the franchise was worth at least $5,800,000, and possibly over $6,ooo,ooo. 1 The West Chicago Street Railroad Co. was incorporated July 19, 1887, and upon the following November n, when a lease of the Chicago West Division Railway was proposed and approved, 99,497 of the 100,000 shares of stock were voted by C. T. Yerkes. At that time Messrs. Widener, Elkins and Kemble apparently owned 6,251 of 12,500 shares of stock of the Chicago West Division Railway Co., one share more than one-half of the entire number. Thus the lease was virtually made by Mr. Yerkes upon one side and Messrs. Widener, Elkins and Kemble upon the other, although nominally the lessee was the Chicago West Division Railway Co. (Exhibit VI, Sec. i.) The language of the agreement was somewhat vague and in- volved, but in the light of subsequent operations, its provisions are quite clear. In substance it dealt with three matters: (i) The *It is difficult to select the proper price at which to estimate the stock. During 1886 the quotations ranged about $400 per share bid and $425 asked. In May, 1887, they had risen to $475 bid and $600 asked. The net earnings for ten months preceding the signing of the agreement were at the rate of 35 per cent, per annum upon the capital stock, which would give a market value of $700 per share upon a 5 per cent, basis, or $650 conservatively estimated. The above franchise value has been computed upon a $475 basis; but, assuming that the stock would bring $650 per share, the franchises would be worth $8,000,000 instead of $5,800,000. (See Exhibit VI., Section 6.) CHICAGO STREET RAILWAYS. 37 construction of a cable road; (2) the lease of the entire property of the Chicago West Division Railway Co. to the West Chicago Street Railroad Co.; (3) the transfer of the 6,251 shares owned by Messrs. Widener, Elkins and Kemble. As to the first, it was stipu- lated that the lessee should build not less than 17 miles of cable road, and for the purpose of an accounting, should keep an accurate account of the cost of all permanent improvements. As regards the second, the franchises and property of lessee, including the 7,300 shares of the Chicago Passenger Railway Co., were to be leased to the West Chicago Street Railroad Co. for 999 years, in return for which the lessee was to pay the lessor company 35 per cent, per annum upon the capital stock, or $109,375 quarterly, 1 and assume the outstanding bonded debt of the old company, amounting in all to $4,070,000.* As compensation for the transference of the 6,251 shares of stock and the negotiation of the lease, Messrs. Elkins, Widener and Kemble were to receive $4,100,000 in 5 per cent. 40- year bonds of the lessor and $6,000,000 in cash or capital stock at the option of the lessee. (Exhibit VI, Sees. 1-5.) Upon its face, the agreement seems to be very fair to all par- ties concerned, except possibly the lessee. Messrs. Elkins, Wid- ener and Kemble certainly had no cause for complaint, as they received $10,100,000 in securities, worth more than par, for nego- tiating the lease and for 6,251 shares of stock which could not have cost them more than $4,375,700 ($700 per share), and probably con- siderably less, even if they did not secure an option, which they could have done early in 1887 at very little expense. Five million dollars for negotiating the lease is a very remunerative compensa- tion, and it is not easily explicable why Mr. Yerkes should have agreed to such an enormous and apparently uncalled for expense, unless he expected to recoup his losses by subsequent operations, or had an exaggerated idea of the value of the West Side properties, and could not secure control without accepting these rather hard terms. Probably there is some truth in each of these suppositions, 'This would be equivalent to an annual payment of 17 per cent, upon the maximum estimated value of the plant, exclusive of the franchise. 'One may wonder at the apparent inconsistency between amount of the bonded debt given here and upon page above. The additional amount here given $1,052,000 was issued during the transferrence of the property in order to fund debt and settle accounts. 38 MUNICIPAL AFFAIRS. but $10,100,000 for stocks having a face value of $625,100 is an enormously high price; $1,615 for a share of stock whose face value is $100, and worth in the market not more than $700, is an unusual offer, and most men would sell at a much smaller profit. And when a majority of the stock had been secured in the open market, any sort of a contract could have been made between the two com- panies, for Mr. Yerkes would then control both companies. How- ever, Mr. Yerkes probably depended upon subsequent operations to offset the large sum paid by his company, and we shall see that he did not miscalculate. The lessor certainly received all its properties were worth. Its bonds were all guaranteed, and later obligations of the lessee were substituted for them relieving it of all liability in this direc- tion. Thus the stockholders were to receive 35 per cent, dividends clear. This was their full market value and indeed somewhat more, if we take into consideration the fact that most of the franchises expire in 1903 and 1905, and practically all of them, if the 99-year act of 1865 should not be upheld by the courts. The only offset is the cable road which the agreement pro- vided for and seemed to stipulate should be paid for by the lessor at cost. But the agreement was never fully carried out, the amount charged was excessive and although the bonds are guaran- teed and the interest paid by the lessee, a debt has been incurred which was much larger than anticipated and which must be settled when the agreement is terminated. This was one way in which Mr. Yerkes expected to get even, for he was a stockholder in the United States Construction Co., which did the work and received the unusually high price. This agreement will be given further on, when the operations of the lessee are fully treated. The books of the West Chicago Street Railroad Co. contain no detailed account of the 17 miles of cable road to be constructed. They merely show that on November 17, 1887, a contract with the United States Construction Co. was authorized for a road upon cer- tain streets, for which $4,000,000 in cash or stock, at the option of the railroad company, was to be paid. Under this contract 17.47 miles were built, but just how much of it was chargeable to the lessor it is impossible to say. (Exhibit VI, Sec. 2.) CHICAGO STREET RAILWAYS. 39 The financial condition of the company upon December 31, 1897, is shown by the following summaries. Of the original road and the extensions there existed upon that date (Exhibit V, Sec. 5) : 6.26 miles single track horse road $123,046.43 68.68 miles single track electric 825,163.04 68.68 miles paving, relaid 4U,495-93 11.655 miles single track cable road (actual) 1,124,188.06 .321 miles single track cable road (actual) 44,690.05 13.404 miles single track cable road (estimated) 1,292,888.56 Real estate on Oct. 20, 1887 449>iS8-73 Buildings on Oct. 20, 1887 927,984.00 Western Ave. power house 520,455.65 Halsted St. car house alterations 11,803.70 New building, Clybourn place 52,839.50 Total $5,783,713.65 The outstanding liabilities were as follows: Capital stock $1,250,000.00 First mortgage bonds 4,070,000.00 Due West Chi. St. R. R. Co 4,869,998.38 Total $10,189,998.38 showing a deficit of $4,406,284.73, $1,858,738.60 of which was due to the substitution of cable and electric traction for the old horse railroad, and the remainder $2,547,501.13 represents the loss by the transfer of the operating plant to the lessee and the amount, which the United States Construction Co. overcharged the lessee for construction work and which overcharge this company debited to the account of lessor, contrary to the agreement of 1887. The actual deficit is much larger than that shown by the books. The present worth of the plant is not more than $4,000,000. This would swell the deficit to $6,200,000. In other words, the physical property would about wipe out the bonds, and the stockholders would have nothing but the agreement with the lessee to fall back upon. As long as this remains unimpaired they have no fault to find, for their 35 per cent, dividends are being declared regularly. But in case the contract should be terminated for any reason, they would be face to face with a large debt, nearly $5,000,000, and only a few franchises with which to pay it. If most of these should be terminated in 1903 and 1905, little could be realized from this source, certainly not enough to pay the debts and reimburse the stockholders. 40 MUNICIPAL AFFAIRS. West Side West Chicago Street R. R. Co* The West Chicago Street Railroad Co. was incorporated July 19, 1887, an d almost immediately leased the franchises and prop- erty belonging to the two existing lines upon the West Side, as stated in the preceding pages. Its capital stock was $10,000,000, of which $9,949,700 was voted upon by Mr. Yerkes as late as Novem- ber n, 1887. (Exhibit VI, Sec. 3.) Among the first operations of the company, after the lease of 1887 with the Chicago West Division Railway Co. had been ap- proved, was the making of a contract with the United States Con- struction Co., controlled by Messrs. Yerkes, Elkins, Widener and their associates, for a cable line, which is set forth above. The methods by which the debt of $4,000,000 was paid become impor- tant at this point, as they reveal the way in which the capital stock was finally issued. According to the books, $4,000,000 in cash was paid to the United States Construction Co., which deposited $4,000,000 in capi- tal stock of the railroad company with Mr. George E. Newlin as trustee, with the understanding that it should be paid back as the work was completed. The last payment of stock was made Octo- ber 22, 1890. Other entries state that the United States Construc- tion Co. subscribed for $4,000,000 in capital stock of the West Chicago Street Railroad Co. and paid for it in cash. This was un- doubtedly a mere subterfuge. Four million dollars in capital stock was paid for the cable road, and not in cash, as represented. Mr. Bard has gone fully into this, and his reasons for accepting this conclusion and disbelieving the book entries are given in Exhibit VI, Sections 2 and 3. The remaining $6,000,000 of the stock was issued in the fol- lowing way: According to the contract with the Chicago West Division Railway Co., $6,000,000 in cash or stock was to be paid Messrs. Widener, Elkins and Kemble for negotiating the lease. The books state, also, that these three persons subscribed for $6,000,000 capital stock of the new company, and paid for it in cash. The money was immediately repaid to them, $5,000,000 on account of the lease and $1,000,000 in advance as part payment for the 6,251 shares of the Chicago West Division Railway Co. stock. For some time a special account, "Leasehold," stood upon CHICAGO STREET RAILWAYS. 41 the pages of the ledger with a debit balance of $5,000,000. Later, $4,000,000 was transferred from general "Construction" account and a new account opened with a debit of $9,000,000, and it still existed December 31, 1897. Of this sum not more than $4,000,000 of stock was actually issued for cash or property, and the payment of $4,000,000 for 17.47 miles of cable road is an unusually high price. Some allowance might be made, if the stock were at a dis- count or seemed likely to sell below par when issued. But there is sligh probability that this factor had much influence. The very first Stock Exchange quotations, those of June 14, 1889, were above par. And, indeed, most of the stock, and possibly all of it, was issued before the 6,251 shares were delivered or the cable road constructed; so that the persons holding it could have sounded the market before obligations to any considerable amount had been assumed by them. (Exhibit VI, Sec. 4.) How shall we class the $1,000,000 which the books state were given in part payment for the stock to be transferred? Is it "water" or a legitimate capital expenditure? This raises the ques- tion, How much was paid for the 6,251 shares of the stock, $4,100,- ooo in bonds or $4,100,000 in bonds and $1,000,000 in stock? Ac- cording to the earning power of the Chicago West Division Rail- way Co. for ten months preceding the leasing of the road, the dividends would be 35 per cent, per annum. The stock would, therefore, have a market value of about $700 per share. Six thou- sand two hundred and fifty-one shares would represent a market value of $4,375,700. If $5,100,000 were paid at the rate of $815.86 per share, the company would have paid more than the market value, which seems very unlikely. Again, the Stock Exchange quotations seem to indicate that the average value of the stock ac the time the negotiations were closed, about June, 1887, was about $650 per share. This would give a total value to 6,251 shares of about $4,100,000. Further, the plans of financing the North and the West Side roads were similar in every other respect, which would strongly lead one to believe that the similarity continued throughout. Messrs. Elkins, Widener and Kemble could well afiord to transfer the stock without making a profit upon the transaction at once, when they received $6,000,000 of stock for negotiating the lease. But very likely they made a profit on the 42 MUNICIPAL AFFAIRS. stock transaction, which would lessen still more the probability of $1,000,000 in stock being part payment for the 6,251 shares. Thus, one is forced to the conclusion that at least $6,000,000 out of the $10,000,000 original capital stock was "water," and if one goes back of the contract with the United States Construction Co., which is probably an excuse for violating the agreement between the Chicago West Division Railway Co. and the West Chicago Street Railroad Co., about $8,000,000 is "water." (Exhibit VI, Sees. 6 and 7.) From the date of organization to December 31, 1897, the West Chicago Street Railroad Co. expended $29,615,628.13. The cost value of the property existing upon the latter date was $16,- 317,139.34, leaving a depreciation of $13,298,488.79. Total Cost value assets, expenditures. Dec. 31, 1897. Depreciation. Chicago Passenger Railway $1,156,749.52 $859,503.18 $297,246.34 Chicago West Div. Railway 14,969,998.38 3,872,028.56 11,097,969.82 West Chicago Street Railroad... 13,488,880.23 11,585,607.60 1,903,272.63 Total $29,615,628.13 $16,317,139-34 $13,298,488.79 Analyzing the depreciation of the companies, one finds that of the $297,246.34 belonging to the Chicago Passenger Railway Co., $104,737.66 was due to the removal of 4.396 miles of new horse road and the construction of a trolley road in its place. The remainder, $192,508.68, is the difference between the contract price and the estimated cost of 2.836 miles of cable road built by the United States Construction Co. (Exhibit VI, Sec. 8.) Perhaps a few words justifying this procedure will not be out of place here, as the plan has generally been followed of estimating the actual cost when the amount charged by the United States Construction Co. has seemed to be exorbitant in comparison with other lines built by other companies. The United States Construc- tion Co. was controlled by Messrs. Elkins, Widener, Yerkes and their associates. These same parties, either directly through the United States Construction Co., which often held stock in the companies with which it made contracts, or indirectly by owning stock in these companies personally, controlled a majority of the stock of the railroad companies. This enabled them to make any sort of an agreement. To assume that a contract made under such conditions would necessarily be fair to all parties and repre- CHICAGO STREET RAILWAYS. 43 sent what would be agreed upon by two entirely disconnected par- ties, requires too implicit confidence in human nature. Thus, when we find that the price agreed upon is very much more than the cost of similar work done by other companies, even allowing for fair contractor's profits, it is doing no injustice and, indeed, it is neces- sary, if one is to get at the worth of the plant, to estimate the original cost of the present plant at what other companies would have performed the service. This is what Mr. Bard has done, and in accepting his figures, I approve his methods. The depreciation set opposite the Chicago West Division Rail- way Co. $11,097,969.82 is distributed among the following items: Difference between contract price and estimated cost of the 13.404 miles of cable road built by the United States Construction Co., $915,067.26; 1.96 miles of horse road converted into trolley road, $46,698.51; miscellaneous expenditures, $36,- 204.05; price paid for negotiating lease, $5,000,000; cost of 6,251 shares of Chicago Passenger Railway Co. stock, which have no physical property as security, $5,100,000; total, $11,097,969. The depreciation of the West Chicago Street Railroad Co. amounted to $1,903,272.63, apportioned as follows : The difference in contract price and estimated cost of the 1.23 miles of single track cable road built by the United States Construction Co., $85,069.91 ; 50.32 miles single track horse road converted into trolley road, original cost $1,132,178.36, deduct for street pavement relaid $261,- 781.75 $870,396.61; depreciation in equipment, $286,192.11; mis- cellaneous items charged to construction account, $661,614; total, $1,903,272.63. Including the property transferred under the agreements be- tween the companies, the final settlement as to the 6,251 shares of stock in the Chicago Passenger Railway Co. and the cash on hand December 31, 1897, the above summary would be changed to read (Exhibit VI, Sec. 9) : Book value assets. Cost value. Appreciation. Chicago Passenger Railway... $49,158.40 $1,677,411.29 $1,628,252.80 Chicago West Div. Railway 4,869,998.38 5,783,713-65 913,715-27 Depreciation. West Chicago Street Railroad. 24,158,908.70 11,585,607.60 12,573,301.10 Total $29,078,065.57 $19,046,732.54 $10,031,333.03 44 MUNICIPAL AFFAIRS. The cost value of the assets of the two lessor companies are apparently in excess of the book value, according to the last sum- mary, but this is because the first column shows the liabilities of these companies to the West Chicago Street Railroad Co. only, whereas, if the remaining liabilities are considered, the result would be as follows (Exhibit VI, Sec. 9): Cost Total liabilities, value properties. Deficit. Chicago Passenger R'way Co. . $3,123,458.49 $1,677,411.29 $1,446,047,20 Chicago West Div. Railway... 10,189,998.38 5,783,713.65 4,406,284.73 West Chicago Street Railroad. 28,358,252.67 11,585,607,60 16,772,645.07 Totals $41,671,709.54 $19,046,732.54 $22,624,977.00 When the outstanding liabilities are analyzed still further, one finds that in each case the cost of the property is less than the bonds and floating debt, as shown by the following: Bonds and Cost Floating debt. value of property. Deficit. Chicago Passenger R'way Co. . $1,783,158.49 $1,677,411.29 $105,747.20 Chicago West Div. Railway... 8,939,998.38 5,783,713.65 3,156,284.73 West Chicago Street Railroad. 15,169,252.67 13,299,321.2s 1 1,869,931.42 Totals $25,892,409.54 $20,760,446.19 $5,131,963.35 Adding the bonds outstanding, the total deficit would be : Total deficit. Chicago Passenger Railway Co $1,446,047.20 Chicago West Division Railway 4,406,284.73 West Chicago Street Railroad 15,058,931.42 Total $20,911,263.35 As a matter of fact, the companies are in a still worse condition than this. The status of the first two companies has been given above. The West Chicago Street Railroad Co. alone remains to be dealt with. According to the above tables, this company has assets, the cost of which was $11,585,607.50. But, as every one knows, the present market value of the plant is considerably less than the original cost. The depreciation is certainly not less than $1,500,000 and probably more. In other words, the plant, securi- ties and accounts receivable would perhaps wipe out the bonds 'The cost value of property in this table is $1,713,713.65 more than in the preceding tables, which is due to this fact: The cost value of the C. W. D. R. is $5,783,713.65, or $1,713,713.65 more than the bonds outstanding, to pay which the property has been mortgaged. Thus this amount should be transferred to the credit of W. C. S. R. R. Co., whose claim it would be used to liquidate, making it* assets $13,299,321.25, instead of $11,585,607.60. CHICAGO STREET RAILWAYS. 45 and miscellaneous indebtedness, leaving the stock and the certifi- cates of indebtedness to be reimbursed, if at all, out of the fran- chise rights, which are far from being ample security in case the franchises should be terminated by the action of the courts, the city council or the legislature. Chicago Union Traction Co* Since the date at which Mr. Bard's investigation ends, Decem- ber 31, 1897, there have been several operations of considerable importance. Another company has been formed and new leases made between it and the North Chicago Street Railroad Co., and the West Chicago Street Railroad Co., thus bringing under one management all the important lines upon the North and West sides of the city. It also controls, through an operating agreement, the Chicago Consolidated Traction Co., which has a large number of suburban lines. This company was the Chicago Union Traction Co., organized May 24, 1899, and composed of New York, Philadelphia and Chicago capitalists. Its first act was to purchase Mr. Yerkes' hold- ings in the two companies, amounting to 32,000 shares of stock of the West Chicago Street Railroad Co. out of a total of 131,890, and 20,000 shares of the North Chicago Street Railroad Co. of a total of 79,200 outstanding. It also leased, June i, 1899, from these two companies all their property and franchises, including the stocks in other companies which they had acquired in 1886, 1887, 1888 and subsequent years. Thus the new company controls the North Chicago City Railway Co., the Chicago Passenger Railway Co. and the Chicago West Division Railway Co., as it owns a majority of the stock, although it does not own a major portion of the stock of the North Chicago Street Railroad Co. and the West Chicago Street Railroad Co. In return the Chicago Union Traction Co. agreed to assume all the obligations of the lessor companies, to guarantee their bonds, to pay all sums called for by the preceding agreements between the companies, to pay the North Chicago Street Railroad Co. $237,600 each quarter equivalent to a 12 per cent, annual dividend upon the capital stock of the company and to pay the West Chicago Street Railroad Co. $197,835 per quarter equivalent to 6 per cent.' a year upon the capital stock these being the rates of dividends 46 MUNICIPAL AFFAIRS. which the companies were paying at that time. To secure the lessor companies, $10,000,000 in cash or securities were to be de- posited with the Illinois Trust and Savings Bank as trustee, and $3,200,000 in stock of the West Chicago Street Railroad Co. and $2,000,000 in stock of the North Chicago Street Railroad Co. have been deposited. The market value of these securities was about $7,200,000 upon July i, 1901. The operating agreement with the Chicago Consolidated Trac- tion Co. concerns us little, as the lines operated by this company have not been examined. The outstanding capital stock of the company is $12,000,000 preferred, 5 per cent, cumulative, and $20,000,000 common. It has issued no bonds, but under the agreement guarantees the bonds of the lessor companies amounting to $25,770,000 for the North Side and West Side companies and $6,750,000 for the Chicago Con- solidated Traction Co., total $32,527,000. The original cost value of the assets July i, 1900, were: 1 ASSETS. Constructon $116,688 Reconstruction 216,026 Real estate 158,922 Equipment 268,760 Stocks and bonds 382,344 Coupon deposits 143,470 Miscellaneous 538,947 Accounts receivable 257,941 Cash 130,034 $2,213,132 LIABILITIES. Capital stock $32,000,000 Bills and accounts payable 931,954 Employees' deposits 61,588 Coupons 164,170 Accrued liabilities 1,032,637 Miscellaneous 42,816 $34,233,165 There was in 1900, therefore, a deficit of $32,020,033. That is, by the formation of the new company, $32,000,000 have been added to the capitalization of the street railroad companies above 'The last report of the company does not contain a statement of assets and liabilities, so it has been necessary to adopt the statement given in the Investors' Manual, which is the company's report for year ending June 30, 1900. CHICAGO STREET RAILWAYS. 47 any increase in the physical property. It is true, the company owned stocks in various companies amounting to a par value of $6,805,200, or a market value of $13,493,750. But as these com- panies do not have assets (exclusive of the franchises) of sufficient value to meet their outstanding obligations, it is quite correct to exclude them from the assets and to say there is a deficit of $32,000,000. In other words, the assets equal the liabilities, ex- cluding the capital stock, leaving as security for the stockholders only the franchises which the company has leased from the other companies. And yet the company paid the lessor companies, as per agreement, and made a profit for its own stockholders of 3 3-4 per cent, during 1899-1900. But after July, 1900, no dividends were paid until July i, 1901, which seems to indicate that the franchises have been overcapitalized, and that the limit had been reached in the attempt to so water the capital stock and bonds as to bring the rate of profit down to the market rate 5 or 6 per cent. However, the increasing value of the franchises caused by increasing popula- tion will doubtless enable the company soon to pay a fair dividend. The overcapitalization of the franchise is only temporary. Coming now to the question as to what the companies could do if the water were squeezed out of their capitalization and the liabilities were equal to the market value of their properties, we find that the Chicago Union Traction Co. made net earnings during 1900-1901 of $3,031,073, not including dividends on stocks owned or leased, interests on deposits and premiums. Upon a capitaliza- tion of $14,800,000 the estimated present market value of the operating plant and equipment this would yield a dividend of over 20 per cent, annually. The company could pay the city over 25 per cent, of the gross earnings and still declare 8 per cent, dividends annually. Or, it could pay the city over 21 per cent, of gross earn- ings, lay aside a depreciation fund of 4 per cent, annually and pay 6 per cent, dividends. Or, it could reduce fares to 4 cents, upon the basis of present traffic, lay aside a sinking fund of 4 per cent, annually, and divide profits amounting to 6 per cent. Or, it could sell seven tickets for 25 cents and pay 8 per cent, dividends. In each case the increase in traffic resulting from a lowering of fares would make still further reductions possible. 48 MUNICIPAL AFFAIRS. Conclusion. Although the financial operations of these seven companies have been outlined but briefly, their results are quite evident. The franchises given away by State Legislature and City Coun- cil were at first only fairly remunerative, but with the growth of the city, the rapidly increasing density of population, they became more and more valuable. The temptation to capitalize them was too strong, and when conversion to cable and electric traction became necessary the opportunity was found by which to accomplish this end. It did not originate then, for by failing to write off capitali- zation as the plant depreciated, the same result was being attained before. But this method did not water the stock and bonds fast enough. In the eighties and nineties new hands took hold and by shrewd manipulations soon capitalized the franchises for all they were worth. But by 1899 the franchises had again outstripped depreciation, and recourse was had to new leases and a new com- pany. The final result is that of the present outstanding liabilities, amounting nearly to $118,000,000, at least $72,000,000 is "water," and if one were to wipe out the assets which produce practically no income and are of little value, this amount would approach $90,- 000,000. Of the total liabilities, $74,200,000 represents capital stock and $43,800,000 bonds and miscellaneous obligations. Thus all of the stock and part of the bonds are "water." The franchise values for which the companies pay the city nothing amount nearly to $75,000,000 a sum almost equal to the watered capital which shows how closely the companies have esti- mated the capital to be issued upon the franchises. It is not surprising, therefore, to learn that the companies have been' paying large dividends, even upon watered capital. For ex- ample, the Chicago City Railway Co. has paid upon an average over 42 per cent, annual dividends for the last nineteen years. The North Chicago City Railway Co. has paid 30 per cent, since 1886; the North Chicago Street Railroad Co. nearly 15 per cent, for fourteen years. Some claim might in justice be made for large dividends in recent years, or an excuse offered for an excess of liabilities over assets, if the roads had been constructed before traffic was sufficient CHICAGO STREET RAILWAYS. 49 to pay fair dividends, or if they had met with heavy losses due to no fault of their own. But such has not been the case. The roads have almost always paid fair and recently enormous dividends. One line did lose its property in the fire of 1871, but that was over a generation ago and the profits were so large both before and after the fire that there has been ample opportunity to recoup all losses. The large profits which the companies are paying show that they can afford to pay the city a generous compensation either in the form of cash payments or lower fares. Further, the fact that the companies are using franchises worth millions and are paying nothing for $75,000,000 in franchises, leads to the conclusion that the companies ought to pay considerable. If the "water" were squeezed out they could pay 20 per cent, of gross income to the city and still declare 6 per cent, dividends, while accumulating a depreciation fund of 4 per cent, annually. Or, fares could be low- ered to 4 cents, and 6 per cent, dividends and 4 per cent, deprecia- tion set aside. Such a policy would enable fares to be still further lowered, as the traffic will increase and a depreciation fund of 4 per cent, will keep down fixed charges or increase capital value with- out increasing outstanding liabilities. Whatever course may be adopted, it is certain that the time has passed when private cor- porations can expect to use the city's property without paying for it. And property worth $75,000,000 is no longer to be had for the asking. The problem is: What return is fair to the city and to the companies? Neither can afford to be too grasping. The welfare of each depends upon an equitable solution. ACCOUNTANT'S REPORT. EXHIBITS I TO VI. BY EDMUND F. BARD. EXHIBIT I. CHICAGO CITY RAILWAY CO. Sec. J. Financial Operations before Introduction of Cable Traction. This company was incorporated February 14, 1859, by special act of the Illinois Legislature, and immediately succeeded to cer- tain rights granted to sundry other persons by the city council of Chicago August 16, 1858, for the construction and operation of street railroads in the city of Chicago, work upon which had al- ready commenced November I, 1858. By April 25, 1859, little over one mile of single track road on State St. from Randolph St. to 1 2th St. was in operation. Two months later, the road was ex- tended to 22d St., the southern limits of the city at that time. The rails of this road were spiked to the planks of the corduroy road then existing in State St. The equipment consisted of four cars and 25 horses. Fourteen years later the mileage had increased to 23 miles sin- gle track and the equipment to 75 cars and 600 horses. Seven years later the mileage was 45.679 miles single track and the equip- ment 292 cars and 1,468 horses. Of the 45.679 miles of single track road existing January i, 1 88 1, three miles, on Cottage Grove Ave. from Oakwood Boule- vard to 55th St. and thence on 55th St. to Lake Ave., was steam dummy road. Incidentally it mav be said that "the cost per day of feeding each horse was 22.6 cents ; grooming, 8.9 cents ; for other help, in- cluding foremen, nurses, watchmen and watermen, 8.6 cents; of tools, blankets and medicine, .01 cent; of bedding, 4 mills, and of shoeing, 4.2 cents, a total of 46 cents." CHICAGO STREET RAILWAYS. 51 In 1 88 1 cable power, as a means of transportation, was intro- duced, and by January 27, 1882, the first section of 9.033 miles sin- gle track cable road built in Chicago was in successful operation. Its effect in reducing the operating expenses of the company was immediate, the cost of operating a car per mile being 11.2 cents, whereas by horse power it was 25.6 cents, and by steam dummy 19.8 cents. The gross receipts per cable car per mile were 23.7 cents, showing the ratio of operating expenses for the new motive power 47.3 per cent. By May 23, 1883, 17.898 miles single track cable road was in operation, and by November 21, 1887, a total of 33.585 miles sin- gle track had been built. By the end of 1893, 30.261 miles single track road of that char- acter were built, of which 9.114 miles were new extensions of road and the remainder old horse road converted into trolley road. No further work of this description was done till 1895, when steps were taken to convert the remaining horse road of the company into electric road, and by December 31, 1897, only 5.074 miles single track horse road remained. Prior to December 31, 1880, no actual disbursements had been made on account of the first section of cable road subsequently built on State St. north of 39th St., with possibly the exception of $23,998.36 expended on the building at State and 2ist Sts. during 1880, which building subsequently became the power house of the section of cable road referred to. Up to December 31, 1880, the books of the company show $i,- 318,062.91 paid out for "Construction;" that is, road-bed, track and street paving. According to this, each mile of single track horse road then existing cost $28,854.89. There is nothing in the books to show any credit to this account for depreciation, and, considering the many changes that occurred in the roadbed from the inception of the company to the date first referred to, all of which are part of the early history of street trans- portation in Chicago, there is reason for assuming that the con- struction account of the company on December 31, 1880, repre- sented not only the first cost of all original road, but all changes and reconstruction thereof thereafter. There being no special reason for disposing of this question ac- curately, no examination of the books has been made further back 52 MUNICIPAL AFFAIRS. than 1 88 1, except to show the actual cost of road built during the five years immediately preceding the introduction of the cable sys- tem. For example, in 1877-8, a double track road was built on Indiana Ave. between 39th St. and 5ist St., and thence on 5ist St. east to Grand Boulevard, a distance of 3.375 miles single track, at a cost of $44,026.14, or $13,044.80 per mile of single track. Dur- ing the same period a line was constructed on Halsted St. from O'Neill St. south to the Union Stock Yards, a distance of 4.028 miles single track, at a cost of $53,488.59, or $13,279.20 per mile of single track. Prior to the introduction of the cable system, it was the excep- tion rather than the rule to pave the streets between the rails in constructing the road, nor has it ever been the custom of the com- pany to do so in extending its road into outlying territory. As late as November 'i 8, 1888, an official statement of the company shows that 23.14 miles of single track, or 13 per cent, of the present mileage, was paved with "dirt," in other words, not paved at all. On January I, 1883, only ij miles of road on Clark St. and i mile on Halsted St., aside from the cable roads on State St. and Wabash and Cottage Grove avenues north of 39th St. were paved with stone. Such pavement as existed prior to December 31, 1880, consisted of cheap macadam costing about fifty cents per square yard, or $2,346.67 per mile of single track laid. This was the character of pavement laid in 1877-8 in the construction of 1.663 miles single track road on Wentworth avenue from Archer avenue to 29th street, the cost of which section of road, including paving, was $25,531.72, or $15,352.81 per mile single track. No extensions of road were made in 1879, but the following year the sum of $37,216.43 was expended on Clark St. in paving the street and laying new rails. From all I can learn of the particulars of this expenditure, it seems to have been for granite paving for 2.347 miles single track north of I2th street and new 63-lb. rails for the entire line, indicating that the cost that year per mile single track for granite was $2.13 per square yard, and for 482 tons of 63-lb. rails at $29 per ton, $13,978, or $3,215.55 per mile single track. The first section of road built on the South Side was on State St. from Randolph St. to I2th St., and was opened for traffic in 1859. It consisted of a single track road with turnouts. Instead CHICAGO STREET RAILWAYS. 53 of being laid on stringers and cross-ties, the rails were spiked to the planks of the corduroy road then constituting the only paving the street possessed. Subsequently a double track was laid and the street between the rails paved with granite, as far south as I2th St. This was the condition of the road on December 31, 1880, ex- cept that the rails had been extended south to 41 st St. Estimating the cost of granite paving at $9,901.34 per mile single track, the same as on Clark St., and the cost of the re- mainder of the road-bed, including rails, at $13,044.80 per mile single track, the same as on Indiana avenue, the total cost of a mile of single track horse road would be $22,946.80, including granite paving, which is about $6,500 more than the same road would cost at the present time. Assuming that the only lines of road possessing no pavement of any character except "dirt" were those already referred to on Halsted St. and Indiana Ave., the following estimate of the cost value of 45.679 miles single track road existing on December 31, 1880, is over rather than under the actual cost, viz. : Miles Single Track. Paving. Total Cost 11.515 Granite $264,224.80 26.761 Macadam 410,856.55 7.403 Dirt , 97,514.73 45.679 Total $772,596.08 The difference between this total and the balance already stated as standing to the debit of "Construction" account on December 31, 1880, to wit., $545,466.83, represents depreciation. The financial condition of the company on the same date was as follows: ASSETS. Roadbed $772,596.08 Real estate 234,423.63 Buildings 202,472.75 Horses, 1,441 151,061.28 Stable property 10,323.85 Stationary engines 11,864.60 Harness 13,307-21 Office furniture and fixtures 4,070.20 Cars 92 open, at $725.00 $66,700.00 64 2i-feet, closed, at 836.58 53,541.12 78 i6-feet, closed, at 800.00 62,400.00 63 i4-feet, closed, at 750.00 47,250.00 Miscellaneous equipments 23,749.02 253,640.14 54 MUNICIPAL AFFAIRS. Bills receivable 2,606.00 Cash 3,976.41 Shop and track tools 12,732,59 Storehouse supplies 16,442.42 Total $1,689,517.16 LIABILITIES. Capital stock $1,500,000.00 Bills payable 105,000.00 Accounts payable 47,093.67 Drivers' deposits 16,977.90 1,669,071.57 'Surplus, December 31, 1880 $20,445.59 Sec. 2. Cost of First Cable Road. It does not appear that any attempt has ever been made by any of the companies to charge off the large sum representing depre- ciation on account of the radical changes from horse road to cable road between 1881 and 1889, and from horse road to electric road between 1892 and 1897, and there is very little statistical informa- tion of value for this purpose on file in the accounting departments of the roads, and apparently no effort has been made to compile it.' The absence of data of this character has necessitated a tedious and laborious search of the records covering a business period ag- gregating 40 years for all the companies examined, for the purpose of ascertaining and preparing the necessary information for this re- port. As regards the $545,466.83 chargeable to depreciation on De- cember 31, 1880, already referred to, it is suggested that perhaps a part of it represents an expenditure of some character in connection with buying out or otherwise disposing of the old opposition omni- bus lines, the competition from which threatened insolvency to all concerned at one time prior to the introduction of the cable system. ^According to the books of the company the surplus was $676,092.43 on the date mentioned, but, as already shown, the difference between the totals represents de- preciation, or, strictly speaking, the sum which, if credit to "Construction account," in other words, marked off to depreciation, would correctly represent the cost value of all the property that had ceased to exist or possess any further utility to the company in conducting its business, or for any other purpose. a lt is difficult with any degree of certainty to ascribe reason for the omission of the companies in this respect, but there is, of course, the supposition that any adjustment in the accounts that will convert an apparent surplus into a large deficit would be discountenanced by the stockholders as well as the management, and the average accounting officer has not the temerity to make the adjustment on his own responsibility. CHICAGO STREET RAILWAYS. 55 As stated at the outset, no particular effort has been made to ascertain accurately the precise nature of the depreciation, since my examination of the records of the Chicago City Railway Company commences practically at January i, 1881, on which date is re- corded the first disbursement on account of the first section of cable road built in Chicago, viz. : that on State St. north of 39th St. Two years later, or in January, 1883, the final entry of cost is made in the books. 1 In constructing the line on State street, it was necessary to tear up and destroy 8.597 miles horse road then existing, and on Wabash and Cottage Grove avenues and on 22d St. from State St. to Cot- tage Grove Ave. 8.837 miles of additional single track horse road, making a total of 17.434 miles single track horse road destroyed, the original cost of which is still carried on the books to represent an asset, and thus constitute part of the present surplus of the com- pany. In addition to the horse road converted into cable road on State street north of 39th street, 500 feet of brand new cable road was built on State street from 300 feet north to 200 feet south of 39th street, 1,350 feet on Wabash avenue from Madison street to Lake street, and 450 feet on Lake street from State street to Wabash avenue, a total of 0.436 miles single track entirely new road, mak- ing the total mileage of the first State street cable line 9.033 miles single track. There was also built 150 feet of single track new cable road on Cottage Grove Ave. south of 39th street, making a total mileage of the Wabash and Cottage Grove Ave. line 8.865 miles single track. From the records I find the general character of the road de- scribed as follows : dates do not fairly indicate the time consumed in the construction of the road, as may be inferred from the official report of the president of the road to the stockholders at their meeting in January, 1882, wherein it is stated that "work on the State street cable road commenced June 27, 1881, but was delayed by sewerage improvements made by the city till about the middle of August. By the middle of December, 1881, nine miles of single track were constructed." At the stockholders' meeting the following year, he stated that "cars com- menced running January 28, 1882, between 21 st St. and Madison St., and a few days after that to 3Qth St. and also around the eight blocks north of Madison St., commonly known as the loop." The first payment for labor on account of the Wabash and Cottage Grove Avenue cable lines noirth of 3Qth St. was in February, 1882, and the last i May, 1883. 56 MUNICIPAL AFFAIRS. "The track is supported by heavy yokes made of 4x4 T-iron placed four feet apart and the slot is formed by parallel bars of Z-shaped iron iron weighing 600 Ibs. to the yard the whole iron frame-work thoroughly braced and bolted is sur- rounded by a heavy and substantial body of concrete, made with the best English Portland cement." Ex-President Holmes furnishes the following further descrip- tion: "The construction consists of an underground tube, through which the cable, supported by grooved pulleys, passes in constant motion, etc. The tube is provided with sewer connections for drainage and an open slot on the top, through which passes a grappling device etc. The metal used for lining the grip performs 2,000 miles of service, when it requires renewal, etc. More power is required during a snowstorm, but in ordinary conditions the operation of 20% miles of cable in Chicago has required 477 horse power, of which 389 was used in moving the machinery and cables and 88 to move the 240 cars." In the construction of the 9.033 miles single track section on State street the following material was used: Iron Ibs. 8,000,000 Bolts 250,000 Wagon loads of gravel, sand, stone, etc 50,000 Cement j English bbls. 13,000 { American 12,000 Cords rubble stone 350 Brick 214,000 The cost in detail was : 1,002 tons steel rails, 63 Ibs. to yd., at $27.41 $27,465.77 11,015 iron yokes, at $9.14 each 100,669.38 300,000 feet lumber, at $18.53 per M 5,559-38 Castings, hardware, etc 223,697.44 Cement, gravel, sand, rubble, grading, labor, etc 153,941.23 Teaming and freight 7,149-59 Total $518,482.79 Strictly speaking, this was the total cost of the 9.033 miles sin- gle track belonging tothe State street line. The total cost of the 8.865 miles single track line on Wabash avenue and Cottage Grove avenue was $696,857.46. The cost per mile on State street was $57,398.74, and on Wabash and Cottage Grove avenues $78,856.79, an increase of 33.49 per cent. The details of the cost of the latter line were not scrutinized as closely as those for the State St. line, but apparently the per cent, of increase was practically uniform in all particulars. This may be inferred from the following comparison of material used in the con- struction : CHICAGO STREET RAILWAYS. 57 t State St. > t Wabash Ave. ^ Material. 9.033 miles. Per mile. 8.865 miles. Per mile. Iron Ibs. 8,000,000 885,000 9,000,000 1,016,000 Bolts 250,000 29,000 275,000 31,000 Wagon loads of gravel, etc 50,000 5,500 60,000 7,000 English cement 13,000 1,400 15,000 1,700 American cement 12,000 1,300 2,000 230 Cords rubble 350 40 550 62 Brick 214,000 23,700 230,000 26,000 The cost of granite paving, which is not included in the above total, was for the State street line, 42,395 square yards at $2.51, $106,402.91; Wabash and Cottage Grove avenues, 41,475 square yards at $3.59 per square yard, $149,125.11, an increase of 43 per cent. Adding the cost of street paving to the previous totals, we have the following: Sections. Total cost. Cost per mile. State Street $624,885.70 $69,178.09 Wabash and Cottage Grove Ave 845,982.57 95,731.98 17.898 miles single track $1,470,868.27 $82,180.60 Only one power house, with its necessary appurtenances and machinery, was constructed to operate the two sections of cable road described, the cost of which was as follows : 2ist St. power house, engine foundations and smokestack $52,214.35 Engines and boilers, 4 automatic cut-off engines of 250 h. p. each, 4 steam boilers aggregating 1,000 h. p 55,153.03 Cable machinery 38,633.27 Total $146,000.65 To this should be added expenditures on the power house building in 1880. 23,098.36 Total cost of power plant $169,999.01 This does not include the cost of land on which the power house stands. The total cost of the entire system was $1,640,867.28, or at the rate of $91,678.81 per mile of single track. The total cost, according to the books, of the State street road- bed and conduit was $910,034.41, instead of $624,885.70, as stated above, an excess og $285,148.71 ; and the cost of the other roadbed and conduit $858,634.24, instead of $845,982.57, as stated above, an excess of $12,651.67. This is due to the following items, which I find included in the cost on the books : 58 MUNICIPAL AFFAIRS. Printing, stationery, telegrams and expenses of that character $2,484.98 Patents 16,333.00 Legal expenses 2,894.05 License fees 3,000.00 Interest on bonds 3,735-57 Cable (only part of the cost) 7,022.76 C. B. Holmes, State St. line $249,678.35 Wabash Ave. line 12,651.67 262,330.02 Total $297,800.38 None of these disbursements have any immediate connection with the cost of the roadbed proper, although legitimate charges to "Construction" account, with possibly the exception of the sum paid or charged to C. B. Holmes, about which nothing seems to be known, as the details are not on record. It appears that the building of the first section of cable road "was accomplished in the face of opposition and uncertainty which would have staggered men of less energy and pluck," and that "a large and powerful element among the citizens of Chicago was openly opposed to the change. Some of the newspapers ridiculed and attacked the company in every way possible." This is the testimony of Mr. Holmes himself, and it suggests at once that possibly some of the money charged to his account above may have gone to quiet this opposition in a measure. Such expenses are not always inseparable from street railroad construc- tion, especially new extensions ; in fact, this report shows large pay- ments of this nature by all the companies examined, and for changes of a less radical character than the one mentioned above. It would therefore be remarkable if no such expense was incurred in connection with the introduction of the first cable road into Chi- cago, and as there is no other item or division of the total expense into which such disbursements could be covered except the $262,- 330.02 above referred to, it is not improbable that they are there. There is nothing, however, on record either to prove or disprove it. There were other unusual expenses, but of a different character, incurred in the construction of the first sections of cable road on State street, which were not repeated in subsequent extensions of the system, all of which, allowing for difference in structure, would seem to show that a fair estimate of the cost of such sections of cable road as were subsequently built on the North and West Side CHICAGO STREET RAILWAYS. 59 roads, the actual cost of which is not shown by the books of the companies, can not greatly exceed the cost of the first two sections of road built on the South Side. 1 Sec. 3. Cost of Cable Roads Compared. All of these circumstances, together with the fact that the con- struction of the section of cable road referred to was essentially ex- perimental, necessarily involved exceptional expenditures not dupli- cated in sections of cable road subsequently built, the cost of which, compared with that of the first section, brings out clearly the ex- cessive cost of the first two sections built on the South Side. On the other hand, in using this cost as a basis for estimating the cost of the first sections of cable road built on the North and West Sides, allowance must be made for any differences in physical structure of the roads. In lieu of the construction accounts, access to which, as elsewhere explained in this report, has been denied me, I have made diligent efforts to obtain copies of the specifications under which all of the different roads were built, for the purpose of comparison, but without success. The brief description of the South Side cable system already given, together with the actual cost, as shown by the books of the Chicago City Railway Company, will afford an approximate basis for estimating the cost of the North and West Side systems; at least, the difference in cost may be approximated by comparing the above mentioned description with that given of the North and West Side systems in the semi-official publication entitled "A History of the Yerkes System of Street Railways in the City of Chicago," to-wit : "San Francisco was the first city to make a successful trial of this plan of transportation. Chicago was next to adopt the cable for her South Side railway. *For example complaints are uniformly made in the case of each company of encountering beds of quicksand and the pipes of the water, gas and sewer systems, and that in some instances these systems had to be entirely rebuilt at the expense of the companies. In addition, on the South Side the claim is especially made that "for a mile and a half south of I2th street, on State street, an average fill of three feet was necessary and the balance of the way from one to two feet of excavation was necessary to secure the proper grade." In the annual report to the stockholders in January, 1882, it is stated that "as nearly as can be computed, there has been expended on the street and in machinery, foundations and buildings fully $150,000 for the benefit of other lines, that is, the sum might have been saved had the company no expectation of ever operating any other lines than State street." The difficulty of obtaining granite blocks is also referred to as follows: "To get sufficient paving blocks it was necessary to purchase from two quarries in Wisconsin, one in Maine, three in Massachusetts, one in Mary- land, one in Virginia and three in New York." 60 MUNICIPAL AFFAIRS. Then came Philadelphia. When the North Chicago system was under considera- tion by Philadelphia capitalists, it was natural that they should pattern rather closely after the most approved methods of cable railway construction in existence. In general it may be said that the North and West Chicago cable railway is the Philadelphia system with improvements added. The Philadelphia conduit consists of a tube of sheet iron 1-8 inch thick and 4 feet 5^2 inches in length, bent into a particular shape. The tube is supported by, and bolted to, iron yokes placed 4 feet 6 inches apart between centers. The yokes rest on beds of concrete about 6 inches deep, and there is a concrete filling around the tubes between the yokes. To the yokes are bolted the slots and rails which are of steel and peculiar cross section. The slot is bolted to the shoulder of the yoke. Each rail and slot is 31 feet in length. At every 31 feet 6 inches there is a single manhole, one side of which is similar to one-half of a yoke, the other side being of special design. Within the manhole, 5 inches below the conduit proper, and cm each side of the manhole, there is a projecting shelf upon which are bolted two channel bars. These channel bars are placed on one flange with the flange extending away from the center line of the conduit, and run parallel to this line. Upon these are bolted the pulley and its attachments, over which runs the cable. At every square there is a double manhole or 'grip hatch/ so called, which extends on both sides of the conduit proper, and is essentially a single manhole on each side of the center line of the conduit. These manholes lie between the track and the slot. The ends of the manholes take the places of two yokes, supporting the tubes. To these yokes are bolted the sides and bottom sheet-iron plates thus forming a hollow square enclosure. Each hole is furnished with a lifting door large enough to allow the passage of one man. "Running the entire length of the line, and below the conduit, is a nine-inch terra cotta pipe for drainage. This pipe connects with the sewer at the foot of the grades." The most noticeable difference between the two systems, as shown by the respective descriptions, is that the concrete conduit of the North and West Chicago roads is lined with sheet iron -J inch thick, whereas this lining is entirely absent from the concrete con- duit of the South Side road, in the construction of which a wooden frame was used about which the concrete was packed and the frame afterward withdrawn, while the iron lining in the former case was intended not only to be a fixture, but at the same time to serve the purpose of a frame or mold about which to pack the cement. Another noticeable difference is the absence of any wood or lumber in structure of the North and West Chicago roads, whereas 300,000 feet of lumber was used in the construction of the 9.033 miles single track road constituting the first section of cable road built on the South Side. All of this wood was removed, however, in 1887, having been used for stringers under the rails. At the same time, new steel rails, weighing 70 pounds to the yard, were laid, the entire cost of reconstruction being $53,642.65, CHICAGO STREET RAILWAYS. 61 of which sum $34,378.62 represented the cost of taking up and re- laying the track and $19,264.03, or 45.44 cents per square yard, the cost of relaying the granite pavement. By this change in the structure of the South Side road the physical characters of the two cable systems are brought closer to- gether and afford a better basis for estimating the unknown cost of one by comparison with the known cost of the other. Sec. 4. Construction Expenses in Detail. The cost of the cables used in operating the first two sections of 17.893 miles single track road on the South Side was $27,779.44, or at the rate of 26 cents per foot. * For the first two sections of cable road built on the South Side there were constructed 102 grip-cars at a cost of $102,845.55, or an average of $1,008.29 each, fifty of which were for use on the Wabash and Cottage Grove avenue line and the remainder on the State street line. a The same number of grips were also made at a total cost of $12,465.22, or $122.21 each, and for use on the two roads in the same proportion. There was apparently no increase in the number of passenger cars during 1881 ; at least, no increase was occasioned by the open- ing of the cable line on State street in January of the following year, but by the end of 1882 "fifty new large and handsome passen- ger cars, at a cost of $73,771.00, or $1,475.42 each," were added to the rolling stock of the company. On May 21, 1887, an extension of the cable road on State street, from 39th street to 63d street, was completed and in operation, and on November 21, 1887, an extension of the cable road on Cottage Grove avenue, from 39th street to 67th street, and on 55th street from Cottage Grove avenue to Lake avenue, including a loop at Jackson Park, was also completed and in operation. The construction of the State street extension involved the tear- ing up and destruction of 0.256 mile single track horse road built prior to December 31, 1880, and 5.744 miles single track new horse were Swedes steel cables, the tensile strength of which is 78,000 Ibs., as against 54,000 Ibs., for iron cable at 23 cents, per foot. "The cost of the grip-cars differed materially, the first one built costing $777.16, the second, $973; the next forty, $687.15, and the remainder at. a figure which brought the average of the entire lot up to $1,008.29, as before stated. 62 MUNICIPAL AFFAIRS. road built subsequent to that date and contemporaneous with the introduction of the first section of cable road on State street, making a total of six miles single track new cable road built at the cost of $330,040.82, including granite paving, or at the rate of $55,006.80 per mile single track. The extension on Cottage Grove avenue and 55th street neces- sitated the tearing up of 3.125 miles single track horse road built prior to December 31, 1880, and 0.126 mile single track horse road built subsequent to that date. It also involved the construction of three miles single track, entire new track, or the conversion of the single track line on Cottage Grove avenue from 39th street to 55th street, from Cottage Grove avenue to Lake avenue, into a double track road, and three miles single track entirely new road on Cot- tage Grove avenue south of 55th street to 67th street, and 0.436 mile single track entirely new road for the loop at Jackson Park, making altogether 9.687 miles single track new cable road exten- sion, at a cost of $575,408.63, including granite paving, or at the rate of $59,400.09 per mile single track. Partly in anticipation of the opening of the extension on State street, and partly owing to the growing traffic on the line north of 39th street, it became necessary to install two new 500 horse power engines and two new 500 horse power boilers at the power house at 2 ist street and State street, and to transfer the four original smaller ones for the use of the extension south of 39th street. The cost of installing the new engines was $44,139.17 and boilers $20,292.44. There was also expended on the 2ist street power house $11,488.56. Subsequently two more 500 horse power engines were installed at the 2ist street power house at an additional cost of $11,000. By these changes the 17.898 miles of road north of 39th street were operated by four engines, aggregating 2,000 horse power, or in horse power per mile, and the six miles of road south of 39th street by four engines, aggregating 1,000 horse power, or 167 horse power per mile. The entire cost of the six miles single track extension south of 39th street was $494,210, including power house, engines, boilers, cable machinery, granite paving, etc., or at the rate of $82,368.33 per mile single track, and the corresponding cost of the Hyde Park extension (9.687 miles single track) was $842,038.11, or at the rate CHICAGO STREET RAILWAYS. . 63 of $86,924.54 per mile single track. For this section of road a power house with aJJ. necessary machinery was erected on Cottage Grove avenue and 55th street, including three 500 horse power boilers and two engines of 1,000 horse power capacity each. During 1890 the cable line on Cottage Grove avenue was still further extended south from 67th street to 211 feet south of 7ist street, an additional 1.08 miles single track to the system at a cost of $64,152.10, and the same year additional engines were installed in the 55th street power house at an expense of $26,500. New im- provements were also made to the cable machinery at the 2ist street power house, at a cost of about $40,226.80. In 1892 the new downtown loop was built for the Wabash ave- nue line, which had heretofore been using the same loop as the State street line. The new loop was built on Wabash and Michigan avenues, from Madison to Randolph streets, and on Madison and Randolph streets from Wabash avenue to Michigan avenue, thus adding 0.501 mile single track to the Wabash avenue cable line. The cost of this loop was $58,465.97. In the construction of that part from Randolph street to Madi- son street on Wabash avenue, it became necessary to move the existing cable track between these points, then forming part of the joint loop on State, Lake and Madison streets and Wabash avenue, from the center of Wabash avenue to the west side of the center line, in order to make room for the new track, thus increasing the amount of road to be built to 0.667 mn99 shares C. T. Yerkes 2 shares Hiram Crawford 2 shares Andrew Crawford 2 shares Win. D. Meeker 2 shares W. L. Elkins 2 shares Total 50,000 shares This stock was paid for entirely by the United States Con- struction Company, as follows: On October 15, 1886, the board of directors passed the following resolution: WHEREAS, the United States Construction Company has made a demand for a payment of $1,500,000 on account of the contract made between these two com- panies on the 24th of May, 1886 ; therefore be it RESOLVED, That the said payment is hereby ordered and made payable on the 25th day of October, 1886. On October 25, 1886, or the date mentioned, construction ac- count is debited $1,500,000 and the above-named subscribers cred- ited with having paid the same aggregate amount, or 30 per cent, of their subscriptions. On January 10, 1887, another payment to kthe United States Construction Company is authorized, amounting to $1,000,000, and on January 12, 1887, another credit amounting to 20 per cent, is given on the above subscriptions. On April n, 1887, another payment of $1,250,000 is ordered made to the United States Construction Company, and, on the same day, 25 per cent, of the stock subscription is credited to the subscribers. In the meantime, the United States Construction Company had undertaken a new contract for $750,000, that of January 12, 1887, 104 MUNICIPAL AFFAIRS. fully explained elsewhere, and on August 23, 1887, received the first payment thereon on account, the funds with which to make the payment being the proceeds of three notes negotiated as fol- lows: August 15, 1887, Commercial Natonal Bank $250,000 August 23, 1887, Illinois Trust & Savings Bank 150,000 August 23, 1887, C. T. Yerkes 100,000 Total $500,000 On November 18, 1887, another payment of $500,000 was or- dered made to the United States Construction Company on ac- count of the original cable contract of May 24, 1886, and on No- vember 21, 1887, the last two payments, aggregating $1,000,000, were credited on the above subscriptions, completing all except $250,000 due the United States Construction Company, which last amount was paid February 27, 1888, by a final resolution of the board of directors authorizing the payment of a like sum to the Construction company in final settlement of the contract of May 24, 1886. It will be noticed that prior to January 12, 1887, only 30% had been paid on account of the capital stock and that half of the total amount due remained to be paid after that date; nevertheless it would seem that the stock had already been delivered to the United States Construction Company, for, on January 12, 1887, when the second payment ($1,000,000) is credited to the United States Con- struction Company on account of its subscription, making a total of $2,500,000, a dividend of 2,\ per cent, on $3,000,000, or $75,000, was paid to George D. Widener, Treasurer of the United States Construction Company. Considering that only $1,500,000 had been with the company from October 25, 1886, to the date of the dividend, or January 12, 1887, 2 months and 17 days, the dividend was actually at the rate of 24 per cent, per annum on the sum paid in. The dividend referred to was the first one declared by the North Chicago Street Railroad Company and amounted in the ag- gregate to $125,000, or 2\ per cent, on the entire capital stock of the company. Another dividend of 2,\ per cent, was declared June 22, 1887, and one of 3 per cent., or $150,000, was declared Decem- ber 22, 1887, all before the capital stock was fully paid for, and, presumably, before any of it had been delivered to the subscribers. CHICAGO STREET RAILWAYS. 105 Particular attention is called to the fact that it was not until June 15, 1888, that there was any distribution of the $500,000 in stock of the new company among the stockholders of the old com- pany, and such may have been the case; nevertheless, I find that the first dividend paid by the new company, that of January, 1887, was distributed as follows: Being 2& Dividends. per cent, on Jan. u, 1887, C. L. Hutchinson $500.00 $20,000 an. 12, 1887, Geo. D. Widener, Treas. U. S. Con. Co 75,000.00 3,000,000 . an. 14, 1887, Chas. H. Ferry, Trustee 37-50 1,500 . an. 14, 1887, C. A. Spring, Jr 50.00 2,000 .an. 15, 1887, Chas. B. King 150.00 6,000 an. 15, 1887, Andrew Nelson 1 20.00 4,800 . an. 15, 1887, Geo. E. Adams 170.00 6,800 an. 15, 1887, Adele F. Adams 67.50 2,700 an. 15, 1887, Nancey S. Foster 250.00 10,000 an. 15, 1887, Julia F. Porter 125.00 5,ooo an. 15, 1887, S. M. James . ; 250.00 10,000 an. 15, 1887, T. S. Phillips 125.00 5,ooo an. 15, 1887, Mary H. Jones 125.00 5,ooo an. 15, 1887, Wm. N. Phillips 125.00 5,ooo an. 15, 1887, Mrs. Annie G. Moore 125.00 5,ooe an. 17, 1887, Eliza V. Rumsey 5-00 200 an. 17, 1887, M. F. Blair, Chauncy J. Blair, Cyrus H. Adams, Trustees 252.50 10,000 ', an. 18, 1887, Lorenzo G. Woodhouse 62.50 2,500 . an. 20, 1887, I. N. Maynard 90.00 3,600 an. 22, 1887, Mrs. R. McM. Gillespie 215.00 12,600 an. 25, 1887, Mrs. Sarah Morris 37-50 1,508 an. 26, 1887, Edward Waller 112.5* 4,500 an. 27, 1887, Chas. T. Yerkes 80.00 3,200 Jan. 27, 1887, Hiram Crawford Jan. 27, 1887, Robt. Macfeely Feb. i, 1887, E. M. Mayo 12.50 137.50 125.00 500 5,5oo 5,000 Feb. i, 1887, Clara C. Hollis 62.50 2,500 Feb. 5, 1887, P. A. B. Widener 190.00 7,600 Feb. 5, 1887, W. L. Elkins 192.50 7,700 Feb. 5, 1887, Geo. D. Widener, Treas 1,230.00 49,200 Feb, 25, 1887, W. R. Willing 77.50 3,100 Mch. 12, 1887, J. J. Mitchell, Pres 250.00 10,000 Mch. 15, 1887, S. B. Cobb 50.00 2,000 Mch. 19, 1887, Thos. Howard 250.00 10,000 Mch. 23, 1887, Chas. H. Ferry 17.50 700 Mch, 23, 1887, Mary A. W. Ferry 30.00 1,200 Apr. 15, 1887, Robt. Glendeni-ng Apr. 30, 1887, P. A. B. Widener 125.00 2,085.00 5,000 83,400 Apr. 30, 1887, W. L. Elkins 2,085.00 83,400 Apr. 30, 1887, C. T. Yerkes 2,082.50 03,300 May 2, 1887, U. S. Construction Co 37,500.00 1,500,000 May 27, 1887, Mary A. W. Ferry, Trustee 25.00 1,000 . ulv i, 1887, W. C. Goudy S-oo 200 , uly I, 1887, Jno. Doe 217.50 8,700 . uly i, 1887, Clara F. Bass 67.50 2,700 , r uly I, 1887, L. M. Ferry 7.50 300 Totals $125,000.00 $5,000,000 106 MUNICIPAL AFFAIRS. As before stated, there is no record that any of the capital stock was distributed among the stockholders of the old company until June 15, 1888, and it may be merely a coincidence that 22 out of the 46 names in the above list were stockholders in the old com- pany, and held just one-half the number of shares in the old com- pany that they are credited with above ; nevertheless, the fact that these names appear at all among the stockholders of the new com- pany and receiving dividends before the stock was fully paid for, and all payments being made credited to other persons, would in- dicate, at least, that the stock had been issued prematurely, and was being trafficked in before the United States Construction Com- pany had a clear paid-up title to it. The issue of the stock to the United States Construction Com- pany before being earned by the North Chicago Street Railroad may likewise have a very important bearing in deciding the ques- tion as to whether or not the same thing was done on the West Chicago Street Railroad Company, as may be inferred from a con- sideration of that subject elsewhere in this report. Sec. 4. Total Expenditures. The total expenditures of this company from May 24, 1886, to December 31, 1897, outside of operating expenses, were $16,797,- 520.97, divided as follows: For betterments on account North Chicago City Ry. Co $7,922,331.89 For 2,501 shares of stock North Chicago City Ry. Co 1,500,600.00 Bonus paid to shareholders North Chicago City Ry. Co 500,000.00 Total on account of North Chicago City Ry. Co $9,922,931.89 Balance on its own account 6,874,589.08 Total $16,797,520.97 The details of its expenditures on its own account are as follows : 10.713 miles S. T. new horse road at $22,478.26 $240.809.60 10.713 miles S. T. new horse road converted into elec- tric road at 14,428.15 154,567.67 12.014 miles S. T. new electric road at 20,311.13 244,017.92 Buildings 448,463.77 Land 199,958.20 Equipment 836,651.65 Car machinery (on hand Dec. 31, 1897) 13,021.19 Grip car tools, " 1,068.87 Stationary registers, 12,590.84 CHICAGO STREET RAILWAYS. 107 Horses, 9,820.02 Supplies, 32,920.81 Bonds, 1,399,650.00 Stocks, 10,500.00 Bills receivable, 1,897,400.00 Accounts receivable, 221,520.61 Cash and cash items, 554,225.16 Suspense, 22,092.58 Railway expenses to Dec. 31, 1897 250,099.41 Miscellaneous items charged into construction account : Car Heaters 8,373.78 Building repairs 758.44 Car repairs 3,800.00 Wagon for Fire Apparatus 160.00 Gas and Water Rent 531.28 Water Pipe 67.79 Patent Cases 875.00 Love Traction Co 7,656.27 Discount on Bonds 35.315.00 Frontage 10,679.35 City Inspection 1,338.75 Hose Bridge and Lift 456.10 Garfield Barn fire , 8,036.63 Contributions 2,000.00 Chicago Times 144.00 Printing 29.81 Legal Expenses 2,257.06 Electric light 52.80 Gas pipe line 4,260.93 Wells Street improvements 1,980.76 Horse depreciation 80,000.00 Corn depreciation 6,437.03 Loan to Garden City Construction Co 150,000.00 325,210.78 Total $6,874,589.08 The details of the disbursements for buildings were as follows : Hpbbie St. electric power house, at Hawthorne Ave. and Hobbie St.... $377,480.80 High Ridge car house, at N. Clark St., near Homan Ave 6,363.38 Halsted St. car barn, at Lincoln Ave., near Halsted St 16,351.68 La Salle Ave. station 7,857.59 Graceland Ave. car house 28,675.87 Sheffield Ave. machine shops 6,041.60 Lincoln and Sheffield Ave. waiting room 5,692.85 Total $448,46377 The pieces of land purchased by the company between May 24, 1886, and December 31, 1897, were (i) site of Hobbie Street power house, (2) site of Halsted Street barn, (3) site of machine shop on Sheffield Avenue north of Fullerton Avenue. These pieces are represented by the item, "Land, $199,958.20," in the above schedule. The company has purchased other pieces of land, but the sum paid in each case is carried in the cash balance of $554,- 225.16 as a cash item on hand December 31, 1897. The pieces 108 MUNICIPAL AFFAIRS. referred to are: Site High Ridge car house; one lot, Larrabee Street; site Graceland Avenue car house, Graceland and South- port ; 386 and 390 Dearborn Avenue ; Belleplaine and Lincoln Ave- nues ; loop, Sheffield and Lincoln avenues. In converting the 10.713 miles single track horse road into electric road, the old street pavement then down, being practically new, was relaid. The original cost value of this pavement was $63,024.36 and is incorporated into the total cost value of the ex- isting 22.727 miles single track electric road now owned by the N. C. S. R. R. Co. The detailed cost of this section of road (22.727 miles) is as follows : Overhead and underground electrical construction $170,435.81 Paving 133,702.51 Rails, 85 Ibs 95,323-63 Miscellaneous material and labor 62,148.00 Per Mile. $7,499-31 5,882.98 4,194.29 2,734-55 Totals $461,609.95 $20,311.13 The distribution of the cost of paving was as follows: Granite, 18,956.36 Sq. yards, at $2.00 $37,912.72 Wood, 55,386.44 Sq. yards, at i.oo 55,386.44 Cobble, 32,322.52 Sq. yards, at 1.25 40,403.35 Totals. ..106,665.32 $133,702.51 Sec. 5. Original Cost of Present Assets. The cost value of the property owned by the North Chicago Street Railroad Company and existing on December 31, 1897, was as follows: 22.727 miles S. T. electric road, at $20,311.13 Real estate Buildings Equipment : 182 Box cars, at $900 $163,800 39 Box cars, at 700 27,300 4 Box cars, at 500 2,000 222 Open cars, at 725 80,475 64 Open cars, at 500 32,000 73 Grip cars, at 650 47,450 141 Box motor cars, at 1,000 141,000 130 Open motor cars, at 825 107,250 3 Mail motor cars, at 900 2,700 16 Sweepers, at 300 4,800 11 Snow plows, at 400 4,400 12 Salters, at 200 2,400 6 Sprinklers, at 250 1,500 29 Other vehicles, at 300 8,700 $461,609.95 199.958.20 448,463.77 625,775.00 CHICAGO STREET RAILWAYS. 109 Car machinery 13,021.19 Grip car tools 1,068.87 Stationary registers 12,590.84 Horses 9,820.02 Storehouse supplies 32,920.81 Wagon for fire apparatus 160.00 Due from Garden City Construction Co 150,000.00 Cash and cash items 554,225.16 Bonds : N. Chi. City Ry. tf/2 per cent $110,000 N. Chi. St. R. R. 5 per cent 10,000 N. Chi. St. R. R. debentures 532,900 Chi. Passenger Ry. Co 714,000 First Regiment 2,000 Dubuque Building 4,750 Times-Herald 25,000 Garfield Building 1,000 1,399,650.00 Stocks : Ferris Wheel $10,000 N. Chi. St. R. R 500 10,500.00 Bills Receivable: W. P. Nixon, 12/19/91 6,300 J. J. West, 2/14/89 16,000 Chas. Henrotin, 4/9/92 40,000 Ed. Koch, 10/29/92 15,000 Electric Park Am. Co., 5/7/96 50,000 Columbian Const'n Co., 3/9/97 50,000 J. R. Bickerdike, 7/29/97 10,000 West Chi. St. R. R., 8/31/97 25,000 n/io/97 100,000 12/10/97 10,000 12/10/97 10,000 12/10/97 15,000 11/15/97. 50,000 West Chi. St R. R. Tunnel Co 1,500,000 1,897,400.00 Accounts receivable 221,520.61 Suspense 22,092.58 Total $6,o6o,777.o interest 210,500 maintenance 3,000 Fixed charges $651,000 Receipts, 1888 $2,846,395.74 Expenses, 1888 2,890,302.05 Deficit $43,906.31 Cash on hand January I, 1888 $185,373.71 Less deficit 43,906.31 Balance on hand January i, 1889 $141,467.40 This report, however, does not indicate the true condition of the company, nor agree with the books of the company, which show that the gross receipts and operating expenses of the com- pany were as follows: Gross receipts $2,835,002.35 Operating expenses 1,846,337.23 Net from operation $988,665.12 Deduct interest and rentals 651,994.40 Net earnings $336,670.72 Out of these earnings dividends had been paid at regular inter- vals during the year as follows: April 28, 1888, i\ per cent.; July 26, 1888, i per cent.; November 5, 1888, ij per cent.; and at the meeting .of the directors on February n, 1889, a further dividend of ij per cent, was paid, thereby establishing the stock as a 5 per cent, per annum dividend paying security as early as April 28, 1888. Considering that the construction contract provided that work on the cable system should commence within 30 days of the grant- ing of permission by the City of Chicago, and that such permission was not issued till March 30, 1888, or accepted by the company till April 2, 1888, it is very evident that the stock had an estab- lished par value, if not higher, before a dollar of it was disposed of for the purpose of providing funds for the construction of the cable system. CHICAGO STREET RAILWAYS. 143 Sec. 8. Capital Expenditures, 1887-1897. The total expenditures of this company other than operating expenses, that is, the sum expended in the purchase of property, construction and reconstruction of roads, buildings, etc., from date of organization down to December 31, 1897, were $29,615,628.13, distributed as follows: Chicago Passenger Railway $1,156,749.52 Chicago West Division Railway 14,969,998.38 West Chicago Street Railroad 13,488,880.23 Total .$29,615,628.13 The following schedules show the details for each of the roads named : CHICAGO PASSENGER RAILWAY. 2.836 miles single track horse road, converted into cable road by the U. S. Construction Company ; contract price per mile, $164,723.65 . . . $466,056.28 0.314 mile single track new cable road, at $139,221.37 43,715-51 4.306 miles S. T. new horse road, at $23,825.68 104,737.66 2.01 miles S. T. horse road converted into trolley road, at $24,204.17. .. . 48,650.39 26.575 miles horse road, S. T., converted into trolley, at $18,573.46 493,589.68 Total .$1,156,749-52 CHICAGO WEST DIVISION RAILWAY COMPANY 13.404 miles single track horse road converted into cable road by U. S. Construction Company, at $164,723.65 $2,207,955.82 11.655 miles single track new cable road, built by West Chicago Street Railroad Company, at $96,455.43 1,124,188.06 0.321 mile single track new cable road, at $139,221.37 44,690.05 1.96 miles single track new horse road 46,698.51 68.68 miles single track new horse road converted into trolley road, at $11,985.48 825,163.04 Western avenue electric power house 520,455.65 Halsted street car house improvements 11,803.70 New building, Clybourn Place 52,839.50 Miscellaneous items 36,204.05 Total expenditures for betterments $4,869,998.38 Add payments to Widener, Elkins & Kemble For controlling interest in the stock of the Chicago West Division Railway Company 5,100,000.00 For securing lease of the Chicago West Division Railway Company. 5,000,000.00 Total $14,969,998.38 WEST CHICAGO STREET RAILROAD. 1.23 miles single cable road, built by U. S. Construction Company; con- tract price, $164,723.65 per mile $203,710.09 Three power houses and machinery, built by U. S. Construction Co 998,277.81 155 grip cars, built by U. S. Construction Company 124,000.00 144 MUNICIPAL AFFAIRS. 50.32 miles single track horse road, built by West Chicago Street Rail- road Company, at $22,409.57 1,132,178.36 25.97 miles single track new trolley road, built by West Chicago Street Railroad Company, at $18,573.46 482,352.76 50.32 miles single track horse road converted into trolley road, at $11,- 985-48 601,109,45 Miscelleaneous items charged to construction account Taylor street bridge $100,000.00 Taylor street viaduct 7,654,55 Halsted and Kedzie street viaducts 2,427.88 Ogden avenue viaduct 7,861.90 Milwaukee avenue viaduct 1,000.00 Steel rails and asphalt for Madison street 52,376.18 Franchise petitions 207,321.37 Interest and dist. on bonds 282,972.12 661,614.00 Equipment Horse cars $29,030.00 Grip cars, trailers, etc 962,956.01 Electrical equipment 764,956.10 1,756,942.11 Machinery Blue Island avenue power house $173,240.47 Van Buren street power house 116,627.53 Desplaines street power house 72,971.69 Washington street power house improvements 54,685.68 Miscellaneous 53>455-65 470,981.02 Electrical ronduits, Western avenue 79,112.64 Miscellaneous property in use Car heaters $32,944.56 Registers 43,638.95 Storehouse supplies 9,058.63 Horses 29,902.50 Telephone and signal system 3,483.80 Car shop stock 21,108.27 Cables 112,285.39 Punches 69.70 Gripmen's tools 182.54 Hay 142.94 252,817.28 Advance to feeder lines and connections Cicero & Proviso Street Railway Company $159,510.10 Ogden Street Railway Company 398,662.42 Lake Street Elevated Railroad Company 20,077.15 Chicago & Jefferson Urban Transit Company 7,911. 23 Suburban Railroad Company 18,139.31 North Chicago Street Railroad Company 46,586.65 North Chicago Electric Railway Company 15,250.76 Chicago Electric Transit Company 931-22 West Chicago Street Railroad Tunnel Company 118,236.45 785,305.29 Accounts receivable Naugle, Holcomb & Co $856.07 City of Chicago 2,595.25 Suspense 8,980.75 Sinking fund 31,000.00 Central Trust Company of New York, to redeem cer- tificates of Ind. . : 840,304-44 CHICAGO STREET RAILWAYS. 145 Central Trust Company of New York to redeem coupons 129,000.00 Bank of America, New York, to redeem coupons 2,850.00 Track depression 12,244.48 1,027,920.99 Bills receivable 86,969.98 Stocks and bonds West Chicago Street Railroad Debentures $3,211,000.00 Chicago & Jefferson Urban transit bonds 54,000.00 West Chicago Railroad Consols 15,000.00 West Chicago Railroad stocks 22,264.00 3,302,264.00 Real estate and buildings Prior to introduction of trolley system For cable roads $644,084.59 For horse roads 173,681.77 $817,766.36 Less charge to Chicago Western Division Railroad Company $64,643.20 $753,123.16 Since introduction of trolley system $670,963.48 Miscellaneous improvements 96,557.98 Special assessments 2,679.83 $ i,523,324-4S Total $13,488,880.23 Of the property represented by the above expenditures there existed December 31, 1897, the following items at their original cost value : CHICAGO PASSENGER RAILWAY. 2.836 miles single track cable road built by United States Construction Company; contract price, $164,723.65 per mile; estimated price, $96,455-43 Per mile $273,547.60 0.314 mile single track cable at $139,221.37 43,715-51 2.01 miles single track trolley at $24,204.17 48,650.39 26.575 miles single track trolley at $18,573.46 493,589.68 Total $859>503-i8 Showing a depreciation of $297,246.34 as follows : 4.396 miles new horse road torn up and trolley road built in its place ; original cost of horse road, 4.396 miles, at $23.825.68, total $104,737.66, and $192,508.68 difference between contract price and estimated cost of 2.836 miles cable road built by U. S. Construction Co. CHICAGO WEST DIVISION RAILWAY. 13.404 miles single track cable road built by U. S. Construction Com- pany; contract price, $164,723.65 per mile; estimated, $96,455.43 per mile $1,292,888.56 11.655 miles single track cable road built by West Chicago Street Rail- road Company ; actual cost per mile, $96,455.43 1,124,188.06 0.321 mile single track cable road built by West Chicago Street Rail- road Company ; actual cost at $139,221.37 44,690.05 146 MUNICIPAL AFFAIRS. 68.68 miles single track trolley road converted from horse road ; actual cost of converting, $11,985.48 825,163.04 Western avenue power house, building $155,535-55 Western avenue power house, machinery 364,920.10 520*455-65 Halsted street car house improvements 11,80370 New building, Clybourn Place 52,839.50 Total $3,872,028.56 Showing a depreciation of $11,097,969.82 as follows: Difference in contract price and estimated cost of the 13.404 miles cable road built by the U. S. Construction Company $915,067.26 1.96 miles single track horse road converted into trolley road; original cost of horse road, $23,825.68 per mile 46,698.51 Miscellaneous expenditures covered by the above values 36,204.05 Price paid Widener, Elkins & Kemble for 6,251 shares of Chicago West Division Railway Company stock; omitted as an asset for reasons that will appear later 5,100,000.00 Price paid Widener, Elkins & Kemble for negotiating the lease of the Chicago West Division Railway Company to the West Chicago Street Railroad Company 5,000,000.00 Total $11,097,969.82 WEST CHICAGO STREET RAILROAD. 1.23 miles single track cable road built by U. S. Construction Com- pany; contract price, $164,723.65 per mile; estimated price per mile, $96,45543 $i 18,640.18 25.97 miles single track new trolley road, complete, including street paving, at $18,573.46 482,352.76 50.32 miles single track trolley road converted from horse road ; actual cost of converting same, $11,985.48 per mile. Total, $601,109.45. 50.32 miles of street pavement relaid, originally part of 50.32 miles single track horse road torn up and replaced with trolley road. Total square yards, 236,168, divided as follows: 19,712 square yards Granite at $2.00 $39,424.00 23,607 square yards Cobble at 1.25 29,508.75 192,849 square yards Wood at i.oo 192,849.00 236,168 Total $261,781.75 Add cost of converting above 601,109.45 50.32 miles single track trolley, complete, at $17,148.08 862,891.20 Equipment on hand December 31, 1897 364 box cars at $900 $327,600 421 open cars at $725 305,225 258 grip cars at $650 167,700 401 box motor cars at $1,000 401,000 415 open motor cars at $825 342,375 i trolley party car, $1,200 1,200 5 mail cars at $000 ' 4,5OO 36 sweepers at $300 10,800 49 snow plows at $400 19,600 35 salters at $200 7,ooo CHICAGO STREET RAILWAYS. 147 7 sprinklers at $250 1,750 60 other vehicles at $100 6,000 1.594750-00 (The details of the remaining items, as well as the totals, are the same as in the schedule of expenditures given on a preceding page, nothing being marked from the original.) Machinery $470,981.02 Electric conduits, Western avenue 79,112.64 Three power houses and machinery built by U. S. Construction Com- pany (see estimate) 998,277.81 Miscellaneous property in use 252,817.28 Due from feeder lines and connections 785,305.29 Accounts receivable 1,027,920.99 Bills receivable 86,969.98 Stocks and bonds 3,302,264.00 Miscellaneous real estate and buildings 1,523,324.45 Total $11,585,607.60 Total expended, West Chicago Street Railroad Company $13,488,880.23 Total cost value of property existing December 31, 1897 11,585,607.60 Depreciation $1,903,272.63 Following are the details of the depreciation: Difference in contract price and estimated cost of the 1.23 miles single track cable road built by the U. S. Construction Company $85,069.91 50.32 miles single track horse road converted into trolley road ; original cost, $1,132,178.36. Deduct for street pavement relaid. .$261,781.75 870,396161 Depreciation in equipment 286,192,1 1 Miscellaneous items charged to construction account 661,614.00 Total $1,903,272,63 SUMMARY. Total expendi- Cost value assets tures. December 31, 1897. Depreciation. Chicago Passenger Railway $1,156,749.52 $859>503-i8 $297,246.34 Chicago West Division Railway. 14,969,998.38 3,872,028.56 11,097,969.82 West Chicago Street Railroad.. 13,488,880.23 11,585,607.60 1,903,272.63 Totals $29,615,628.13 $i6,3i7,i39-34 $13,298488.79 Sec. 9. Financial Condition, J897. The lease of March 15, 1889, with the Chicago Passenger Ry. stipulated that the 2.836 miles horse road of that company con- verted into cable road was to be paid for by the West Chicago St. R. R. Co. The contract price paid the U. S. Construction Com- pany for converting the road was $164,723.65 per mile, or $466,- 056.28, and this amount should be transferred in the above sum- mary from the Chicago Passenger Ry. account to that of the West 148 MUNICIPAL AFFAIRS. Chicago St. R. R., leaving the cost value $273,547.60 to stand, as it is, in the second column, since the improvement accrues to the first named company. The $5,100,000 representing the 6,251 shares of the Chicago West Division Ry. Co. and the $5,000,000 paid for negotiating the lease of that company should likewise be transferred in the sum- mary from the Chicago West Division Ry. account to that of the West Chicago St. R. R. There should also be taken into account the settlement by arbitration May 9, 1896, between the Chicago Passenger Ry. Co. and its lessee, by the terms of which the former company wa* charged with $250,000 as its proportion of the Western Ave. elec- tric power house, and the fact that that company actually paid to the lessee company $891,534.75, part of which was on account of the award mentioned, although the improvement was actually to the property of the Chicago West Division Ry. Co. With the changes noted a new summary would be as follows : SUMMARY NO. 2. Expenditures. Cost value assets. Appreciation. Chicago Passenger Railway $49,158.49 $859,503.18 $810,344.69 Depreciation. Chicago West Division Railway 4,869,098.38 3,872,028.56 097,969.82 West Chicago Street Railroad.. 23,804,936.51 11,585,607.60 12,219,328.91 Total $28,724,093-38 $16,317,139.34 $12,406,954-04 It will be remembered that at the time of the lease of the balance in the hands of the West Chicago St. R. R. Co. on Decem- ber 31, 1897, the sum will represent the total book-value of the assets of that company on the date mentioned. If to the total of the first column is added the $353,972.19 cash Chicago Passenger Ry. there was turned over to the West Chi. St , R. R. Co. real estate and buildings representing a cost value of $661,202.99, and subsequently another piece of property costing $100,000, making a total of $761,202.99, representing real estate and buildings, still in the possession of the lessee company Decem- ber 31, 1897. There was also transferred 29.79 miles single track horse road, representing a cost value of $709,767.01, of which 2.38 miles only, representing a cost value of $56,705.12, remained on December 3i. l8 97- CHICAGO STREET RAILWAYS. 149 There was also 98.45 miles single track horse road of the Chi- cago West Division Ry. transferred at the date of the lease of that road by the West Chicago St. R. R. Co., of which 6.26 miles, repre- senting a cost value of $123,046.43, remained in existence Decem- ber 31, 1897. The real estate and buildings of the Chicago West Division Ry. Co. existing at the date of the lease, and still in the possession of the West Chicago St. R. R. Co. on December 31, 1897, repre- sented a cost value of $449,158.73 and $927,984 respectively. In the subsequent conversion of part of the old horse road into trolley road, 7.97 miles of granite pavement, 16.603 miles wood and 44.107 miles of cobble pavement, representing an aggregate cost value of $411,495.93, was relaid and now forms part of the present trolley road. If these items were incorporated into the above summary they would produce the following result, viz: SUMMARY NO. 3. Book value assets. Cost value. Depreciation. Chicago Passenger Railway $49,158.49 $1,677,411.29 $1,628,252.80 Chicago West Division Railway. 4,869,098.38 6,783,713.65 9*3,715.27 West Chicago Street Railroad. . 24,158,908.70 11,585,607.60 12,573,301.10 Totals $29,078,065.57 $19,046,732.54 $10,031,333.03 The cost value of the assets of the two lessor companies are apparently in excess of the book value, according to the last sum- mary, but this is because the first column shows the liabilities of these companies to the West Chicago St. R. R. Co. only, whereas, if the remaining liabilities are considered, the result would be as follows : SUMMARY NO. 4. Total Cost value of Liabilities. Properties. Deficit. Chicago Passenger Railway.... $3,123,458.49 $1,677,411.29 $1,446,047.20 Chicago West Division Railway. 10,189,908.38 5,783,713.65 4,406,284.73 West Chicago Street Railroad.. 28,358,252.67 11,585,607.60 16,772,645.07 Totals $41,671,709.54 $19,046,732.54 $22,624,977.00 The liabilities in detail are as follows: Chi. Pass. hi. W. Div. W. Chi. St. Ry. Co. Ry. Co. R. R. Co. Capital stock $1,340,300.00 $1,250,000.00 $13,189,000.00 First mortgage bonds 400,000.00 4,070,000.00 3,069,000x0 Cosol mortgage bonds 1,334,000.00 6,031,00000 150 MUNICIPAL AFFAIRS. Certificates of Ind. : June i, 1891 $2,000.00 December i, 1891 3,000.00 December i, 1894 3,937,000.00 Due W. Chicago St. Railroad. . 49,158.49 4,869,998.38 Miscellaneous 1,227,252.67 Totals $3,123,458.49 $10,189,998.38 $28,358,252.67 It will be noticed that the bonded indebtedness of the Chicago Passenger Ry. Co. and of the West Chicago Street R. R. Co. is greater than the value of the property mortgaged to secure its pay- ment, and that while the cost value of the property of the Chicago West Division Ry. Co. is $1,713,713.65 in excess of the bonded indebtedness of that company, this excess falls $3,156,284.73 short of being sufficient to liquidate the claim of the West Chicago St. R. R. Co. for $4,869,998.38 expended for betterments to the prop- erty of the Chicago West Division Ry. Co. It will also be noticed that the assets of neither of the three roads are sufficient to pay their bonded and floating indebtedness and leave any residue for the redemption of the capital stock, as will be seen by the following statement : Bonds and float- Cost value of ing debt. property. Deficit. Chicago Passenger Ry. Co $1,783,158.49 $1,677,411.29 $105,747.20 Chicago West Division Railway 8,939,998.38 6,783,713.65 3,156,284.73 West Chicago Street Railroad. . 15,169,252.67 13,299,321.25 1,869,931.42 Totals $25,892,409.54 $20,760,446.19 $5,131,963.35 Add to this the capital stock and we have the total deficit as follows : Deficit as above. Capital stock. Total deficit. Chicago Passenger Ry. Co $105,747.20 $1,340,300.00 $1,446,047.20 Chicago West Division Railway. 3,156,284.73 1,250,000.00 4,406,284.73 West Chicago Street Railroad. . 1,869,931.42 13,189,000.00 15,058,931.42 Totals $5,131,963.35 $15,779,300.00 $20,911,263.35 Sec. JO. Cost of Cable Construction. As already fully explained on a preceding page, it has been necessary to estimate the detailed cost of the original cable system, built under contract by the U. S. Construction Co., in order to com- plete the foregoing summary, and as the cost thus incorporated is not conclusive, and at best only approximates the actual cost, it ma^ not be out of place to submit for consideration at this time the following facts upon which the estimate in detail is based : CHICAGO STREET RAILWAYS. 151 The lease of October 20, 1887, provided for the construction of "at least 17 miles" of fully equipped and operative cable road, with all the necessary power houses, machinery and equipment. The books of the West Chicago St. R. R. Co. show that $4,000,000 was paid to the U. S. Construction Co. for the system complete, and the payment is represented in the books by the single entry of that amount to the debit of construction account. No details are given in the books, nor have I been able to find on file any schedule of any character from which to make up a list of the property trans- ferred and its cost value, either in detail or bulk. 1 At the same time, such estimates as have been incorporated into this report are approximately correct, and, therefore, do not detract materially from the value of the report itself. In one sense these estimates are preferable to the records themselves, as the singular fact is presented of Mr. Yerkes dis- puting the official records of his own company. In other words, the records show that $4,000,000 was paid to the U. S. Construc- tion Co. for the original West Side cable system, whereas Mr. Yerkes states that the actual cost was $7,800,000. Where authori- ties disagree in this manner, estimates are not only permissible but necessary. From the records of the engineers' department, I learn that the U. S. Construction Co. built 17.47 miles single track cable road, and from other sources I find that three power houses, with neces- sary machinery, were also built by that company. Finally, if it is assumed that all the grip cars now in use on the Madison St. and Milwaukee Ave. cable system, or a like number, were originally built by the U. S. Construction Co., practically all the construction work done by that company will be covered. Subsequently, and without the intermediation of any construc- tion company, the West Chicago St. R. R. Co. built the Blue Island Ave., Halsted and Van Buren St. cable system, the detailed 1 The absence of any such record does not necessarily imply any irregularity in the accounts of the West Chicago Street Railroad Company, as such details, under the circumstances, would naturally be found only in the books of the U. S. Con- struction Company, but, as access to these books has been denied, or rather their whereabouts stated to be unknown, and as the information which they contain is absolutely essential to a correct and perfect understanding of the situation, no option is presented but to supply any deficiency in figures with well considered esti- mates, or else abandon any attempt to arrive at a satisfactory conclusion altogether. 152 MUNICIPAL AFFAIRS. cost of which is clearly set forth in the books of account of that company. A comparison of the mileage of the two systems referred to shows that 40 per cent, of the total cable lines on the West Side compose the Blue Island Ave., Halsted and Van Buren St. system. This system is operated by two power houses, the cost of which, including machinery, was $665,484.94. Assuming that the same ratio of power to mileage is required on the section built by the U. S. Construction Co. as on the section built by the West Chicago St. R. R. Co. itself, and that a corre- sponding ratio obtains in the relative cost of the power plants, the cost of the three power houses and machinery built by the U. S. Construction Co. would be approximately $998,277.81, exclusive of the land, which, under the contract, was to be provided by the R. R. Co. There is good reason to believe that this is a high estimate and that the actual cost was much less, as a brief description of the several power houses will show. In the Washington street power house are "two simple, non-condensing engines, 36x60 inches, 1,000 horse power each," to quote from a semi-official publication of the company. One of these engines is held in reserve, while the other operates the Washington street tunnel and State street loop cable. In the Milwaukee avenue power house are two Corliss engines, 36x72, 1,000 horse power each. Two 20 feet diameter fly wheels, weighing 75,000 pounds eack. One of the engines is held in reserve, as in the Washington street power house. In the Rockwell street power house are two engines, 1,400 horse power each. The same publication referred to above speaks of these three power houses as fol- lows : "The three power houses mentioned above, having been built at the same time, are very similar in design ; the one at Rockwell street is almost an exact dupli- cate of the Milwaukee avenue plant." In another place this publication refers to the Blue Island avenue power plant, calling particular attention to the fact that "the part of the building where the machinery is located is 116x100 feet," and that "the site was an extremely difficult one on which to erect a heavy building. Quick-sand was encountered and the exca- vations for the foundations had to be extended 40 feet below the surface of the street Eight hundred thousand brick, laid in Portland cement, were used in the engine foundations alone. The station is one of the most complete cable plants eTer built, and embodies all the improvements that had been made in the other Chicago cable power houses, as well as those of San Francisco, Philadelphia, etc,** Three cables "are operated from this power house by "two Allis engines, 40x72 inches each, being rated at 1,800 horse power under steam pressure of 100 pounds. The fly wheels are 24 feet in diameter and weigh 100,000 pounds each." The Van Buren street power house is rated second to the Blue Island avenue power house by the same publication, having two Allis engines 30x60 inches each, CHICAGO STREET RAILWAYS. 153 1,300 feorse power, fly wheels weighing 100,000 pounds each and measuring 20 feet in diameter. It is more than probable that the cost of the last two power houses, viz: $665,484.94, equalled the cost of the other three; the estimate of $998,277.81, however, is consistent with the mileage operated, and does no injustice to the company in an effort to estab- lish the first cost of the original cable plant, since the accounts giv- ing the actual cost are not produced. The electric plant for the Washington St. tunnel is situated in the Washington St. power house and included in the estimated cost of that structure. No material improvements were made to the tunnel proper by the U. S. Construction Co., beyond the paving and laying of the cable track, all of which cost is included in the cost of the general mileage of 17.47 miles single track cable built by the Construction Co. The actual reconstruction of the tunnel was done in 1892 and 1893, and cost $28,752.96, which was paid for by the Chicago Passenger Ry. Co. independent of the original con- struction contract of November 17, 1887. There remains only to estimate the equipment furnished by the U. S. Construction Co. to complete the expenditures made by that company under the construction contract. Of the 258 grip cars now owned by the West Chicago St. R. R. Co., 40 per cent, are doubtless required for the Blue Island Ave. and Van Buren St. system, leaving 155 for the Madison St. and Milwaukee Ave. lines. The cost of grip cars on the Chicago City Ry. Co. in 1882, was $836.58 each, and in 1888 $819.71 each. Assuming the cost in 1890 to have been $800, and that all the grip cars now operated by the Madison St. and Milwaukee Ave. systems, or a like number, were built by the U. S. Construction Co., the cost of 155 would be $124,000. It is fair to assume that no passenger cars were furnished by the U. S. Construction Co., as I find a charge on the books of the company of $174,188.92 for that purpose; $16,539.20 in 1888, $49,- 976.71 in 1889, and $107,673.01 in 1890, which, on an average of $731 for open cars and $1,055 for closed cars, would provide 200 new cars, in addition to the 793 cars received from the Chicago West Division Ry. Co. In 1891, $57,789.77 was paid out for new cars, and in 1892 $345,630.60, all independent of any cars that may have been furnished by the U. S. Construction Co. 154 MUNICIPAL AFFAIRS. Comparing the mileage and traffic of the company to-day and its 1,865 cars with the mileage and traffic in 1890, the 993 cars ac- counted for above were amply sufficient to operate the road at that time. Deducting the estimated cost of the power house and machin- ery and equipment ($1,122,277.81) from the total $4,000,000 paid under the contract, leaves $2,877,722.19 to cover the cost of the 17.47 miles single track cable road built, which would be at the rate of $164,723.65 per mile. That this is greatly in excess of the cost actually incurred by the U. S. Construction Co. may be in- ferred from several facts that are clearly established by the records of the several companies. (1) The actual cost of the 17.898 miles of cable road on the South Side, north of 39th St., including the down-town loop, was $1,470,868.27, or at the rate of $82,180.60 per mile. (2) Six miles of single track cable road extension subse- quently built on State St. south of 39th St. cost $330,042.82, or at the rate of $55,006.80 per mile, and 9.687 miles single track cable extension south on Cottage Grove Ave. cost $575,408.63, or $59,- 400.09 per mile. (3) The actual cost of the 11.655 miles single track cable road constituting the Blue Island Ave., Halsted and Van Buren St. line, including the Adams St. loop, was $1,124,188.06, or at the rate of $96,455.43 per mile, according to the books of the West Chicago St. R. R. Co. (4) The State St. loop extension of the West Chicago St. R. R. Co. cost $88,405.56, or at the rate of $139,221.37 per mile, and the cost of the 0.667 mile single track cable road built by the Chicago City Ry. Co. in the construction of its new loop on Mich- igan Ave. was $57,025.71, or at the rate of $85,495.82 per mile. (5) The contract price for the construction of th* 4.459 miles single track cable road on Clybourne Ave. from the terrnius near Fullerton Ave. to Division St., and on Division St. to the junction with the cable line on Wells St., at that point, including an under- ground conduit from that point continuing on Division St. to North Clark St., and thence South, connecting with the power house on North Clark St., was $500,000. Making no allowance for the 4,000 lineal feet of cable conduit, but apportioning the entire sum to the CHICAGO STREET RAILWAYS. 165 4.459 miles single track cable road, makes the average cost per mile $112,132.77. This contract was taken by the U. S. Construc- tion Co. If a comparison of the cost of the different sections of cable road referred to above does not prove conclusively that the actual cost of the 17.47 miles single track cable road built by the U. S. Construction Co. for the West Chicago St. R. R. Co. was less than $164,723.65 per mile, the contract price, it at least shows that the cost was not $6,677,722.19, or $382,240 per mile single track, which would be the rate per mile if $7,800,000 was the actual cost of the system, according to Mr. Yerkes. To show more clearly the extreme improbability that $382,240 was the actual cost per mile, it is only necessary to call attention to the fact that at that rate one average mile of cable road on the West Side cost $52,197.18 more than the six miles of cable road on State St. South of 39th St.; more than six times as much per mile as the cable road on Cottage Grove Ave. south of 39th St. ; nearly five times as much per mile as the first experimental section of cable road built in Chicago, with all the subsequent expenditures for changes and improvements to bring it up to its present degree of efficiency ; more than four times as much per mile as a road of a precisely similar character built according to the same specifica- tions by the West Chicago St. R. R. Co. itself; $100,000 per mile more than the State St. loop extension built by the* same company ; and nearly five times as much per mile as the Michigan Ave. loop extension of the Wabash Ave. line, both of which extensions, be- cause of their location in the business district, where the sewer, gas and water pipe obstructions are the greatest, show a cost of con- struction much greater than in outlying sections of the city ; finally, $82,000 per mile more than the contract price with the same Con- struction Company for the construction of the entire cable system on the North Side, including all power houses and machinery, the construction of the Wells St. and Clark St. bridges, and the recon- struction of the Dearborn St. bridge and La Salle St. tunnel, etc., etc. 1 1 Reference might also be made to the following answer of the West Chicago Street Railroad Company to an inquiry of the Civic Federation as to the cost per mile of their cable road, to-wit: "Estimated cost per mile of track (cable), includ- ing rails, conduits, pulleys, vaults, and necessary machinery for operating the same, $75,000 single track." 156 MUNICIPAL AFFAIRS. Of the entire 17.47 miles single track cable road built by the U. S. Construction Co. only 1.23 miles were West Chicago St. R. R. Co. mileage, the balance being 2.836 miles Chicago Passenger Ry. Co. and 13.404 miles Chicago West Division Ry. Co. Sec. U. Construction Charges in Detail. The total charges to construction account between October 20, 1887, and December 31, 1894, or prior to the introduction of the trolley system, aggregated $7,002,390.87, divided as follows: 17.47 miles single track original cable system, including buildings, ma- chinery, equipment, etc., built by U. S. Construction Company, $4,000,000, divided as follows : 13.404 miles Chicago West Division Railway Company $2,207,955.82 2.836 miles Chicago Passenger Railway Company 466,056.26 1.230 miles West Chicago Street Railroad Company 203,710.09 17.470 miles. Total at $164,723.65 $2,877,722.19 Three power houses and machinery 998,277.81 155 grip cars 124,000.00 Total $4,000,000.00 As already explained the agreement of March 15, 1889, with the Chicago Passenger Ry. Co. stipulates that the cost of convert- ing the 2.836 miles old horse track of the Chicago Passenger Ry. Co. into cable road was to be paid by the West Chicago St. R. R. Co., so that of the total $4,000,000 paid to the U. S. Construction Co. under the original cable contract $1,792,044.18 was chargeable to the West Chicago St. R. R. Co. and $2,207,955.82 to the Chicago West Division Ry. Co. Taken in connection with their answer to a more general inquiry as to the cost of all building and equipping of new lines and extension, to-wit : "It is impossible to give statement as asked for itemized, as the construction and equipping of new lines has been charged to the general construction account," would seem to indicate that the officials of the West Chicago Street Railroad Company have apparently no clearly defined idea themselves as to the actual cost value of their property, or at least have not yet fully determined upon a uniform answer to all inquiries. Their estimate of $75,000 per mile for cable road, while more reasonable than the contract price of $164,723.65 or the price indirectly stated by Mr. Yerkes, $382,240, is unreliable and of no more value than their estimate of the average cost of trolley road, to-wit: "Estimated cost per mile of track (electric), including rail construc- tion, bonding, poles, and all necessary wiring, together with a complete feeder system and necessary underground electric conduits, $50,000 single track," as the books themselves show that the cost to construct the latter kind of road is less than half their estimate. Elsewhere in this report reasons are fully set forth why the actual cost per mile single track of the Blue Island avenue and Halsted street and Van Buren street lines, to-wit: $96,455.43, should be accepted as a safe estimate of the cost of the Madison street and Milwaukee avenue cable lines, and that amount has been adopted as the approximate cost per mile of the cable road, built by the U. S. Construction Company, in preparing the final schedule of the cost value of the existing property of the company. CHICAGO STREET RAILWAYS. 157 Subsequently 0.635 m ^ e single track cable road was built at a cost of $88,405.56, or at the rate of $139,221.27 per mile, and 11.655 miles single track at a cost of $1,124,188.06, or at the rate of $96,455.43 per mile, and charged as follows: 0.314 mile Chicago Passenger Railway Company ................. %43,7^5-S^ 0.321 mile Chicago West Division Railway Company ............. 44,690.05 11.655 miles Chicago West Division Railway Company ............ 1,124,188.06 Total .......................................................... $1,212,593.62 56.676 miles single track horse road was also built as follows: 4.396 miles Chicago Passenger Railway Company ................ $104,737.66 1.96 miles Chicago West Division Railway Company ............ 46,698.51 50.32 miles West Chicago Street Railroad Company .............. 1,132,178.36 Total ...................................................... $1,283,614.53 During the same period there was also charged into construc- tion account, as already stated, the following items : Taylor street bridge ............................................. $100,000.00 Taylor street viaduct ............................................ 7,654.55 Halsted and Kedzie street viaducts ............................... 2,427.88 Ogden avenue ................................................... 7,861.90 Madison street new steel rails and asphalt ........................ 52,376.18 Franchise petitions .............................................. 207,321.37 Interest and discount on bonds ................................... 128,540.84 Total ..................................... ...... . .......... $506,182.72 To recapitulate, the $7,002,390.87 charged to construction ac- count between October 20, 1887, and December 31, 1894, as stated above in detail, was on the following accounts : Chicago Passenger Railway Company ............................ $148,453.17 Chicago West Division Railway Company ........................ 3,423,532.44 West Chicago Street Railroad Company .......................... 3,430,405.26 Total ...................................................... $7,002,390.87 Subsequently there was charged to construction account $2,- 605,296.60 on account of the construction of 173.555 miles single track electric roads, including the conversion of old horse roads into electric roads, as follows: 2.01 miles Chicago Passenger Railway Company at $24,204.17. . . $48,650.00 26.575 miles Chicago Passenger Railway Company at $18,573.46... 493,589.00 28.585 miles total Chicago Passenger Railway ..................... $542,240.00 25.970 miles West Chicago Street Railroad Company at $18,573.46 (estimated) .......................................... 482,352.00 54-555 miles total new electric road .............................. $1,024,592.00 119.00 miles single track horse road converted into electric road at $11,985.48 per mile, $1,426.272.49, divided as follows: 158 MUNICIPAL AFFAIRS. 68.68 miles Chicago West Division Railway Company $825,163.04 50.32 miles West Chicago Street Railroad Company 601,109.45 119. miles. Total $1,426,272.49 Into the same account was also charged $154,431.28 for inter- est and discount on bonds. Following is a summary of the total charges to construction account down to December 31, 1897: Account Chicago Passenger Railway Company $690,693.24 Account Chicago West Division Railway Company 4,248,695.48 Account West Chicago Street Railroad Company 4,668,298.75 Total $9,607,687.47 It will be noticed that of the total expenditures to Decembei 31, 1897, it has been necessary to estimate only the cost of 25.97 miles of new trolley road built for the Chicago West Division Ry. Co. The basis for this estimate is the rate per mile for road of a precisely similar character built in the same year for the Chicago Passenger Ry. Co. and made the subject of arbitration, as fully set forth elsewhere in this report. Deducting the amount named in this report of the arbitrators as chargeable to the Chicago Passenger Ry., to-wit: $542,240.07, and the amount estimated above for the 25.970 miles of road chargeable to the Chicago West Division Ry. Co., also the item of $154,431.28 for interest on bonds, leaves a balance of $1,426.272.49 out of the total $2,605,296.60, to cover the cost of converting 1 19 miles of horse road into trolley, which would be at the rate of $n,- 985.48 per mile. As this rate is approximately the cost per mile of similar roads on the North and South side lines, exclusive of paving, it is assumed that in the conversion of the 1 19 miles of horse road mentioned the old pavement already down was allowed to remain, and thus its original cost value became incorporated into the total cost value of the complete trolley road of the present day, and showing the cost of the West Side trolley road as follows: 2.01 miles single track at $24,204.17 $48,650.39 26.575 miles single track at 18,573.46 493.589-68 68.68 miles single track at 18,006.10 1,236,658.97 25.97 miles single track at 18,573.46 482,352.76 50.32 miles single track at 17,148.08 862,891.20 173-555 miles, average at $18,000.88 $3,124,143.00 CHICAGO STREET RAILWAYS. 159 Sec. \2 Mileage of West Side Lines. Chicago Passenger Railway Miles, S. T. Horse road at date of lease, November 16, 1888 29.79 New horse road built by West Chicago Street Railroad Company for account of Chicago Passenger Railway Company since lease, Novem- ber 16, 1888 4.40 Chicago West Division Railway Horse road at date of lease, October 20, 1887 98.45 New horse road built by West Chicago Street Railroad Company for ac- count of Chicago West Division Railway since lease, October 20, 1887. 1.96 West Chicago Street Railroad- New horse road, built since lease, October 20, 1887 50.32 New cable road 1.23 New electric road 25.97 Total 212.12 Since the lease of October 20, 1887, tne following changes have been made in the character of the roads included in the above mileage, viz: Chicago Passenger Railway Miles, S. T. Original horse road 29.79 Converted into cable road 3.15 Converted into electric road 24.185 Transferred to Chicago City Railway, Madison to Washington streets on Michigan avenue 0.075 Horse road still remaining 2.38 Chicago West Division Railway- Original horse road 98.45 Converted to cable roads 25.38 Converted to electric roads 66.72 Transferred to Chicago City Railway, to State on Lake (450 ft.) Horse road still remaining 6.26 West Chicago Street Railroad Company New horse road, built since the lease of October 20, 1887 and afterward converted into electric road 50.32 New horse road built for account of West Division Railway since lease, October 20, 1887, afterward converted into electric road 1.96 New horse road built for account of Chicago Passenger Railway since lease, October 20, 1887, afterward converted into electric road 4.40 Add new cable road built 1.23 Add new electric road built 25.97 Total 406.190 If from the above totals is deducted the 860 feet of single track road trans- ferred to the Chicago City Railway and to the remainder is added 457 feet of double track or 914 feet of single track road acquired from the North Chicago Street Railroad and already referred to in the exhibit as forming part of the exist- ing mileage of the West Chicago Street Railroad the remainder will be 1,120,044.2 feet, or 212.13 miles, single track, distributed as follows : This, however, includes many items that must be deducted in order to arrive at the value of visible assets, or property necessary to the operation of the roads. The distinction must be recognized between the value of the assets as used to determine the basis of capitalization and the items relating solely to construction and equipment, which alone indicate the investment in creating the property. Among the former are found the following: North Chicago Company. Cash $554,225.16 Due from Garden City Construction Co 150,000.00 Various bonds i,39Q,65o.oo Stocks 10,500.00 Bills receivable: West Chicago Street R. R. Tunnel Co 1,500,000.00 Other bills receivable 397,300.00 Accounts receivable 221,520,61 Suspense 22,092.58 $4,255,288.35 West Chicago Company. Due from feeder lines and connections $785,305.29 Accounts receivable 1,027,920.90 Bills receivable . 86,962.98 Stocks and bonds 3,302,264.00 $5,202,460.26 Chicago City Railway Company. Auditorium stock, estimated value $2,500.00 Chicago Exhibition Company bonds , 10,000.00 Accounts receivable 16,268.20 Cash on hand and in bank 540,088.14 $568,856.34 Total of all roads $10,026,604.95 This sum deducted from the $41,328,379.72. of existing assets as shown above leaves $31,301,774.77 as the cost value of the tangible property constituting the plants of the three systems December 31, 1897. The West Chicago Street Railroad Tunnel Company property is not included, as the tunnel is leased to the West Chicago Company, which guaranteed any deficiency between the rents received and the interest on the bonds or other debts of the tunnel company. The statement for operations for 1898 given out by the Chicago City Railway company shows gross earnings of $4,832,806, operating expenses $2,926.490; net earnings, $1,906,316. After deducting the cash, stocks, bonds and accounts receivable from the existing assets of the company, there remained on December 31, 1897, $11,035,104.37 as the cost value of the physical assets. The net earnings for 1898 amount to 17.26 per cent, on this sum. The statement of the North Chicago Street Railroad company for 1898 showed gross receipts, $3,015,323; operating expenses, $1,390,681; net earnings, $1,624,642. The total tangible property of the two com- panies composing the north side system, after deducting securities, accounts, cash, etc., is shown by the report to be $6,422,398.12. The net earnings for 1898 are 25 per cent, on this sum. The statement of the West Chicago Street Railroad Company for 1898 showed gross receipts $4,031,903, operating expenses $2,017,946, net earnings $2,013,957, which is i8.il per cent, on the $11,113,679 of tangible assets at cost value of the three companies composing the west side system December 31, 1897, securities, accounts, etc. being deducted. The total net earnings from operation (not income) of the three systems for 1898 were $5,544,915, or 17.7 per cent, on the $31,301,774.77 actual cost value of the combined, properties. Items Which Are Eliminated. In trying to arrive at the increase in cost value of physical assets in roads and equipments, made since December 31, 1897, no account is taken of the items of track renewal, equipment, repairs, etc., as it is clear that these expenditures must have replaced such parts of the properties listed in the report as had worn out or otherwise become useless. But from the statement of the City Railway Company Janu- ary I, 1901, it appears that it had increased its electric mileage since December 31, 1897, by the addition of about thirty-one miles of trolley, which at the price computed by Mr. Bard represented an outlay oi about $650,000, and it is learned that the company also expended $65,000 for land, the site of a proposed new power house. Together these add $715,000 to the assets of the company. The showing of the Union Traction Company in 1900 charges $116,688 to construction account, and $158,922 to real estate; in its statement for the year ending June 30, 1901, there appears $110,927.94 charged to construction and $147,410.19 to real estate and buildings, a total of $533,948 added to the tangible assets during the two years' life of the Union Traction Company. The combined expenditures of this character by both companies since the Civic Federation investigation ended amount to $1,548,948 and swell the total of the cost value of the tangible assets of the west, the north and the south side systems to $32,850,722. exchange the first two weeks of July. It is conceded by well-informed authorities that this is a fair method of computation, as prices of securities during that time were at a moderate level, being neither unusually high nor under specially depressing influences. Securities' Market Value. The market value of outstanding securities of the Chicago City Railway company, Union Traction company and underlying com- panies is as follows: West Chicago Street Railroad Co. (at par) $ 9,989,000 Chicago West Division Railway Co. ( at 650) 4,061,850 Chicago Passenger Railway Co. (at par) 610,300 North Chicago Street Railroad Co. ( at 200) '. . 1 1,840,000 North Chicago City Railway Co. (at 600) 1,499,400 Union Traction Co., pf d. ( at 60) 7,200,000 Union Traction Co., com. (at 19) 3,800,000 Chicago City Railway Co. (at 209 ) 37,620,000 Bonds assumed by Union Traction Co., being various issues of underlying companies 25,777,000 Market value of all outstanding securities $102,^97,550 Cost and inventory value of tangible assets 32,850,722 Franchises (market value) $ 69,546,828 (This method of determining franchise values is in accordance with state laws, and has been approved by the courts.) Bondi Listed at Par. The bonds are put in at par, although some of them recently have scored quotations considerable better, the North Chicago City railway 4^s being at 108 on July 3, and the North Chicago Street railroad 55 at 104}^ the same date. On July 8-12 West Chicago Street Railroad consols 55 were at 103. The different issues of bonds bear interest at from 4*4 to 6 per cent, except $500,000 North Chicago City railway, which are 4 per cent. As explained elsewhere the Chicago City Rail- way company now has no bonds out. If it should be contended, as is frequently the case, that the actual value of securities cannot be determined by market quotations on rela- tively a few shares or that the stock exchange is not a fair criterion for fixing values, .it may be pointed out that in not a few instances heavy private sales, involving transfer of control, have been made at above 'change quotations of the time. This was the case when in 1886-87 Mr. Yerkes and his associates bought controlling interests in the Chicago West Division Railway company and the North Chicago City Railway company. According to the agreed value placed upon the 32,000 shares o West Chicago and 20,000 shares of North Chicago stock which the Union Traction company bought of Mr. Yerkes and deposited with the Illinois Trust and Savings Bank, it must have been so in that memorable deal in 1899. The stocks are all paying dividends, as before stated, on a 5 and 6 per cent basis, except the shares of the Union Traction company. That company began paying the 5 per cent on its preferred shares; but passed the dividend for the last half of its last fiscal year and has not resumed. And in any event these issues figure only $11,000,000 of the enormous sum total of $102,397,550. Union Traction Gross Receipts. According to the statement of the Union Traction company for the year ending June 30, 1901, gross receipts from operation, advertis- ing and rents, but not including income from stocks and bonds, were $7,366,227; operating expenses, $3,942,194; net earnings, $3,424,033; gross earnings of the City Railway, as per its last statement, December 31, 1900, $5,543,180; operating expenses, $3,655,002; net earnings, $1,888,178, atotal of $5,302,211, which is 16.14 per cent on the $32,850,- 722 of tangible assets at cost value, or at the value carried on the books of the companies, including such additions as have been made since December 31, 1897, when the Civic federation examination ended. The annual interest charges on the bonds appearing in the market value of securities is $1,244.595. After payment of these there remains of the net earnings, $4,057,616, or 5.28 percent on the $76,620,550 mar- ket value of stocks. With these figures in view, showing cost and inventory value of tangible assets necessary to the operation of the roads, gross receipts from operation, rental and advertising, the net earnings above operat ing expenses and market value of all the securities outstanding, what would appear to be reasonable remuneration to the public or the city, or both, for the continued enjoyment by the present companies of franchises? A little experimental figuring may be helpful in determining this problem. As there are many different opinions as to the methods of remuneration, as well as to the amount, it will be well to see what the results would be according to different plans. Capitalization and Market Value, Of the market value of outstanding securities the Chicago City Railway company represents $37,620,000, the Union Traction company $64,57755 while of the total value of tangible assets the former shows $11,750,000, the latter $21,100,722. The capitalization, however, is another thing. The City Railway company has $18,000,000 of capital stock, against its $11,750,000 of tangible assets; the Union Traction company has $49,394,100 capital stock outstanding and $25,777,000 bonds (assumed), a total of $75,171,100, against its $21,100,722 of tangi- ble assets. It should be noted, also, in this connection, that the per- centage of net earnings on value of tangible assets is practically the same with both companies, being about 16.17 P er cent f r the City Rail- way company and 16.5 per cent for the Traction company. The fol- lowing percentages are obtained by treating all of the properties as a single system. Deductions from Earnings. Gross earnings of the City Railway company and Union Traction company are $12,909,407. If remuneration were 10 per cent of gross receipts the municipality would get $1,290,940, and $11,618,467 would remain with the companies. Interest on bonds, $1,244,595, and operat- ing expenses, $7,597,196, deducted leave $2,776,676, or 8.45 per cent on the $32,850,722 of existing tangible assets. It is 3 6 per cent on the market value of all the outstanding capital stock, $76,620,550. The value of the franchise, as indicated by the market value of the securi- ties, is $69.546,828. The net earnings are equal to an average dividend upon the whole market value of outstanding securities of 5.18 percent. That percentage on the franchise value amounts to $3,602,525. In other words, this is the proportion of the net earnings that must be credited to franchises. Ten per cent on gross earnings is but little more than one-third of this amount, and it would be difficult to discern in such terms any injustice to the corporations. In 1900 the City railway carried 110,843,202 passengers and the Union Traction company carried during its fiscal year ending June 30, 1900, 149,521,755, a total for both of 260,364,957. In its last report the Traction company makes no statement of passengers carried, but acknowledges a considerable falling off on the north side owing to the new elevated road competition. The City Railway, however, re- ports considerable gain the first half of the current year, and it may fairly be assumed that the total will not fall below 260,000,000 for 1901. Those who believe that the public and not the city government should have the full benefit of remuneration to be required, and favor re- duced fares, may figure it out in this wise: Receipts and Operating Expenses* At a straight 3-cent fare present traffic as quoted above would yield a gross revenue of $7,800,000. In the last statements of the companies there are incomes from advertising and rentals amounting all told to $113,947, and assuming they are the same now they swell the gross earnings to $7,914,974. Operating expenses amount to $7,597,196, according to the statements, and interest on outstanding bonds $1,244,595, a total of $8,841,791, or $926,871 more than gross earnings. While it may be taken into consideration that a 3-cent fare would result in an increase of traffic, it must also be borne in mind that the territory covered by these companies is very large in proportion to the population, resulting in a higher percentage of operating expenses than in more compact cities. The tendency of growth, too, is con- stantly toward a further extension of suburbs in all directions rather than the rapid covering of vacant lots within more easy distances of the business center. It is frequently suggested that a 3-cent fare during the rush hours morning and evening, and commutation tickets at the rate of six for 25 cents, twelve for 50 cents, and twenty-five for $i, and a more lib- eral transfer system, with a 5~cent fare otherwise would be the least concession that the public is entitled to, irrespective of such percent- age of gross earnings as the city may demand. This, it is suggested, would probably average at about a 4-cent fare for the whole traffic. Whether or not this is correct it is impossible to determine from the data at hand; probably it is not far wrong. Figured on the business indicated above an average 4-cent fare would amount to $10,400,000. Add income from rentals and adver- tising, $113,947, and there would be total gross earnings of $10,513,947. Deduct operating expenses, $7,597,196, and $2,916,751 remains equal to about 9 per cent on the $32,850,772 of tangible assets or $1,672,156 over the interest of $1,244,995 on tne outstanding bonds added to the operating expenses. This is equal to a dividend of 5.09 per cent on the cost and inventory value of the existing tangible assets. It is the equivalent of over 2 per cent on the $76,620,550 market value of the outstanding stocks, and 2.48 per cent on the face value, $67,394,100, of the same, including the $32,000,000 irrigation of the Union Traction Company. Bonds Represent Five^Sixths. When it is remembered that the cost value of the existing tang- ible assets (including paving) necessary to and used in the operation of the roads and we wish to emphasize the fact that this is the key to the whole matter is only $7,000,000 more than the outstanding bonds; in other words, that the bonds represent nearly five-sixths of the original cost of the properties, the last proposition does not appear impossible. If, however, the city should demand in addition a percentage of gross earnings and if there should be imposed on the companies in- creased obligations in the way of paving, street cleaning and sprink- ling and removal of snow, the complexion of the above exhibit would be changed. Five per cent on gross earnings as computed at an aver- age 4-cent fare would give the city annually $525,697. Adding opera- ting expenses and deducting leaves of earnings $2,391,054, equal to 7.27 per cent on cost value of tangible assets. After deducting oper- ating expenses, the 5 per cent of gross earnings and interest on bonds, there would be left $1,146,459, equivalent to a dividend of 3.5 per cent on the value of tangible assets. Could Offer Lower Fares. The main thing to note is that on the traffic handled under present faulty conditions inadequate car equipment and antiquated motive power on their principal lines the companies could make concessions to the public equal to a reduction to an average 4-cent fare, pay oper- ating expenses and pay into the city treasury 5 per cent of their gross earnings and have left an equivalent of 7.27 per cent on cost value of their tangible assets; or do this and also provide for the interest of from 4 to 6 per cent on outstanding bonds and have left a sum equal to 3.5 per cent on the cost value of their existing tangible assets. It is not indulging in speculation to say that the increase of business that must accrue from service improved to a state of efficiency in keeping with the demands of the situation, and from the 60,000 to 80,000 annual increase of population, would materially increase the percentage. VC 25055 THE UNIVERSITY OF CALIFORNIA UBRARY