HE UC-NRLF .A5 191 1 GIFT OF 5, Mail Carrying Railways Underpaid A Statement by the Committee on Railway Mail Pay representing 214,275 miles of Railway in the United States, operated by 268 companies, containing facts and figures which prove that Railway Mail Pay does not equal the oper- ating expenses that it makes nec- essary, leaving nothing for return upon the value of the property. THE COMMITTEE ON RAILWAY MAIL PAY J. KRUTTSCHNITT, Chairman Director of Maintenance and Operation, Union and Southern Pacific Systems RALPH PETERS, Vice-Chairman President, Long Island Railroad CHARLES A. WICKERSHAM President and General Manager, Western Railway of Alabama W. W. BALDWIN Vice-President, Chicago, Burlington & Quincy Railroad W. W. ATTERBURY Vice-President, Pennsylvania Railroad GEORGE T. NICHOLSON Vice-President, Atchison, Topeka & Santa Fe Railway E. J. PEARSON First Vice-President, Missouri Pacific Railway E. G. BUCKLAND Vic-President, New York, New Haven & Hartford Railroad C. F. DALY Vice-President, New York Central Lines W. A. WORTHINGTON Assistant Director of Maintenance and Operation, Union and Southern Pacific Systems W. F. ALLEN, Secretary H. T. NEWCOMB, Statistician Mail Carrying Railways Underpaid A STATEMENT By the Committee on Railway .Mail Pay representing 214,275 miles of Railway in the United States, operated by 268 companies, containing facts and figures which prove that RAILWAY MAIL PAY does not equal the operating expenses that it makes necessary, leaving nothing for return upon the value of the property. October, 1912. ,** TABLE OF CONTENTS. Page I. Scope of this Pamphlet 3 II. Railway Mail Pay Is About to be Forced Still Further Below the Level of Just Compensation, Unless Payments are Promptly Read- justed, on Account of the Additional Volume of Mail that will Result from the Inauguration, on January 1, 1913, of the Parcels Post. 3 III. The Postmaster-General's Erroneous Assertion that the Railways were Overpaid "About $9,000,000.00" in the Year 1909, Rests Primarily Upon His Adopting an Unprecedented Theory which Allows Nothing for a Return Upon the Capital Invested in Railway Property 4 IV. The Mail Service Supplied by the Railways Costs Them More in Operating Expenses and Taxes than They Are Paid For It, and Leaves Nothing for Return on the Property 6 V. The Postmaster-General's Apportionment of Space Between the Mail Service and the Other Services Rendered on Passenger Trains Did Not Allow to the Mails the Space which They Actually Require and Use and this Had the Result of Unduly Reducing His Estimates of the Cost to the Railways of the Mail Service 9 VI. The Postmaster-General Ignored Data which He Had Obtained Show- ing Expenditures on Account of the Mails Largely in Excess of the Direct Expenses for that Service which He Reported 11 VII. The Month of November Is Not a Fair Average Month in Any Rail- way Year or One that Is Typical of a Year's Business and Its Use as the Sole Basis of the Postmaster-General's Calculations was So Un- favorable to the Railways as to Deprive tlje Results of Any Value Even If in All Other Respects His Methods were Beyond Criticism 13 VIII. A Commission of Senators and Members of Congress which, Be- tween 1898 and 1901, Most Fully and Carefully Investigated the Sub- ject, Ascertained and Declared that Railway Mail Pay was Not Then Excessive; Since Then there Have Been Many and Extensive Reduc- tions in Pay Accompanied by Substantial Increases in the Cost and Value of the Services Rendered by the Railways 14 IX. The Administration of the Post Office Department Has Not, in the Last Twelve Years, Effected any Reduction in the Annual Total of Its Expenses for Other Purposes than Railway Transportation or in the Proportion of Its Revenues Required for Such Other Expenses, but the Whole Saving Which Has Nearly Eliminated the Annual Deficit of the Department Is Represented by the Reduced Payments, Per Unit of Service, to the Railways 17 X. The Continuous Refusal of the Post Office Department to Order Re- weighings of the Mails Except After the Maximum Interval of Four Years which the Law Allows, the Demands for Station and Terminal Services that Are Rendered Without Any or Without Adequate Compen- sation and the Unjust Discrimination Against Compartment Cars Used as Railway Post Offices Are All Abuses, Seriously Injurious to the Railways, Which Have Grown Up Under the Present System of Pay- ment and Ought at Once to" Be Remedied 18 XI. The Postmaster-General's Proposed Plan of Payment Based Upon Operating Cost and Taxes, to Be Ascertained by the Post Office Depart- ment, Plus Six Per Cent. Is Seriously Wrong in Principle and Would Encourage and Perpetuate Injustice 20 Appendices. A. Extracts from the Postal Laws and Regulations 23 B. Classification of Operating Expenses ... 27 C. Receipts from Passenger and Freight Traffic by Months 28 D. How Railway Wages Have Increased 29 E. How Railway Taxes Have Increased 30 F. Letter dated September 11, 1912, from Hon. Jonathan Bourne, Jr., Chairman, Senate Committee on Post Offices and Post Roads 31 G. Reply made thereto by the Committee on Railway Mail Pay 32 I. SCOPE OF THIS PAMPHLET. The Committee on Railway Mail Pay, representing railways whose lines include ninety-two per cent, of the aggregate length of all railway mail routes in the United States, believes that the payments to the rail- ways for the services and facilities furnished by them to the Post Office Department are, and for a long time have been, unjustly low. This pamphlet contains a concise statement of the facts which prove that this belief is warranted and, incidentally, a refutation of the estimates made by the Postmaster-General, and reported to the Congress (House Docu- ment No. 105, Sixty-second Congress, first session), which led him to conclude that the basis of payment could now properly be changed so as to accomplish a present reduction of about twenty per cent. It will be shown that although the insufficient data and the erroneous methods employed by the Postmaster-General resulted in his making estimates of cost to the railways that are far bejow the real cost, his own figures and calculations, when properly analyzed and supplemented, demonstrate that the mail service has not been fairly remunerative to the railways. Before proceeding to this demonstration it should, however, be noted that II. RAILWAY MAIL PAY IS ABOUT TO BE FORCED STILL FURTHER BELOW THE LEVEL OF JUST COMPEN- SATION, UNLESS PAYMENTS ARE PROMPTLY READJUSTED, ON ACCOUNT OF THE ADDITIONAL VOLUME OF MAIL THAT WILL RESULT FROM THE INAUGURATION, ON JANU- ARY 1, 1913, OF THE PARCELS POST. Congress has provided for a vast and incalculable extension of mail traffic by creating a "Parcels Post," to be inaugurated on January 1,. 1913, which, by opening the mails to many articles not previously ac- cepted at the post-offices and by materially reducing the rates on mailed merchandise, is expected enormously to increase the volume of the ship- ments which it covers. The Government seems to have assumed that, under existing contracts, which were made before the meaning of the word "mail" was thus extended, the railways can be compelled, until these contracts expire, to carry this great additional volume of mail traffic WITHOUT ANY COMPENSATION WHATEVER. If the former practice of the Post Office Department is followed, no new con- tracts will be made until after the next quadrennial weighings in each 327588 of the four weighing sections., s,o that the position of the Government amounts to un assertion that the whole added volume of the Parcels Post mails will have to be carried without any compensation by the railways of New England for four years and six months (these railways are in the first weighing section but the weighing for the adjustment to be made on July 1, 1913, has begun and will be completed before the Parcels Post is inaugurated), by those of the second weighing section for three years and six months, by those of the third weighing section for two years and six months, by those of the fourth weighing section for one year and six months, and by those of the first weighing section, not located in New England, for six months. No presentation of the injus- tice of the mail pay received in former years suggests even the approxi- mate extent of the losses which the railways will thus incur in the next four and one-half years, unless readjustments are promptly made on account of the Parcels Post. III. THE POSTMASTER-GENERAL'S ERRONEOUS AS- SERTION THAT THE RAILWAYS WERE OVERPAID "ABOUT $9,000,000.00" IN THE YEAR 1909, RESTS PRIMARILY UPON HIS ADOPTING AN UNPRECEDENTED THEORY WHICH AL- LOWS NOTHING FOR A RETURN UPON THE CAPITAL IN- VESTED IN RAILWAY PROPERTY. The Postmaster-General assumed that the railways would be pro- perly compensated if they received a sum equal to the operating expenses and taxes attributable to the carriage of the mails plus six per cent, of the sum of those expenses and taxes. The calculation by which he ob- tained the sum which he assumed would have been proper compensation for the single month covered by his investigation was as follows: His estimate of operating expenses and taxes on account of mail service (Document No. 105, p. 280) for one month $2,676,503.75 Six per cent, of above 160,590.22 Total, assumed to represent just compensa- tion for one month $2,837,093.97 The railways having been paid, for the month selected, $770,679.16 in excess of the sum resulting from the above calculation, the Post- master-General assumed that this excess over expenses and taxes plus six per cent, constituted excessive profit for that month. He multiplied this assumed excess by twelve to get his estimate of annual excess and stated the result, in round figures, as "about $9,000,000." The mere statement of this method discloses the fact that it makes no allowance for any return upon the fair value of the railway property 4 i employed in the service of the public. This omission is, of itself, suffi- cient wholly to destroy the Postmaster-General's conclusion. Everyone recognizes that a railway is entitled to at least a reasonable return upon the value of its property devoted to the public service. The Postmaster- General ignored this universally accepted principle and adopted a theory which, if applied to the general business of the companies, would render substantially every mile of railway in the United States immediately and hopelessly bankrupt. The recently published report of the Interstate Commerce Commission on the railway statistics of the year that ended with June 30, 1910, contains data by which this statement is easily demonstrated, as follows: Operating expenses of all United States rail- ways, for the year $1,822,630,433 Taxes of all United States railways, for the year 103,795,701 Total $1,926,426,134 Six per cent, of above total 115,585,568 Total gross receipts permitted by Post- master-General's plan $2,042,011,702 But if this plan had been in force, the railways would have had, for interest on mortgage bonds, a reasonable surplus as a margin of safety, dividends on stocks, unprofitable but necessary permanent improve- ments,* rents of leased properties, etc., etc., only the six per cent, or $115,585,568. This figure may be compared with the following, among others : Interest obligations (on funded debt only) of all United States railways, for the same year. . $370,092,222 Rentals of leased properties, all United States railways, for the same year $133,881,409 Plainly, the Postmaster-General's proposal is equivalent to an asser- tion that the railways would make a fair profit if they were enabled to collect the sum of $115,585,568 in addition to their operating expenses and taxes, but the figures given by the Interstate Commerce Commission * The necessity for providing, out of income, for some kinds of improve- ments is commonly admitted. The public constantly demands greater comfort and convenience which can be supplied only by improvements in property and equipment that bring in no additional income. A present example in the mail service, itself, is the great expense which the railways are now undergoing in substituting steel mail cars for those formerly in use. The old cars, which thus become a total loss were fully up to the most advanced standards of con- struction when built and they could continue for a long time to serve the purposes of the service except for the public demand for stronger cars. show that this would be less than one-third of the sum necessary to meet interest charges which must be paid in order to prevent foreclosures of mortgages and, if bond interest could be ignored, is much less than the rentals that must be paid if the existing systems are not to be broken up. And, of course, it would allow nothing whatever for legitimate demands upon income for dividends, permanent improvements or surplus. It is unnecessary to dwell upon the consequences of such a theory of "compensation" to railroad credit and to the public interest in effi- cient transportation service, to say nothing of the consequences to owners of railroad stock and bonds. Such a theory is not a theory of compen- sation it is a theory of oppression and of destruction. The fact that the Postmaster-General has found it necessary to justify his attack upon the present basis of railway mail pay by a theory so unprecedented and so unwarranted in principle and in law, raises a strong presumption against all his opinions and conclusions upon this subject. IV. THE MAIL SERVICE SUPPLIED BY THE RAILWAYS COSTS THEM MORE IN OPERATING EXPENSES AND TAXES THAN THEY ARE PAID FOR IT, AND LEAVES NOTHING FOR RETURN ON THE PROPERTY. It cannot be too strongly emphasized that the railway mail pay at present is insufficient to pay even its proper share of operating cost and taxes and does not produce any return upon the property. This will be demonstrated by any fair inquiry, as will now be shown. Reports submitted to the Postmaster-General by railways operating 2,411 mail routes, with a total length of 178,710 miles, showed that their gross receipts, per car-foot mile*, from services rendered on passenger trains during November, 1909, were as follows: From mail 3.23 mills From other services. ." 4.35 mills Thus it appears that the space on passenger trains required for the mails is proportionately less than three-quarters as productive as that devoted to passengers, express, milk, excess baggage, etc., etc. As it is the general belief of railway managers, whose conclusion in this respect has rarely if ever been challenged, that the passenger train services, as a whole, do not produce revenues sufficient to meet their fair proportion of the operating costs and the necessary return upon investment, and * A car-foot mile is a unit equal to moving one foot in car length (re- gardless of width or height) one mile. Thus to move a car sixty feet long one mile results in sixty car-foot miles ; to move the same car three miles results in 180 car-foot miles, etc. 6 therefore are not reasonably compensatory, it is evident that the mail service, the pay for which is more than twenty-five per cent, below the average for the other services rendered on the same trains, must bring in much less than reasonable compensation. Certainly railroad revenues as a whole could not be reduced twenty-five per cent, without destroying all return upon the property. If so, it must be true that there can be no compensation in a rate of mail pay that is twenty-five per cent, less than the rate of pay for passenger traffic which, as above shown, is rela- tively unprofitable. No merely statistical comparison can, however, reveal the whole story for the railways are required to furnish many incidental facilities and to perform many additional services for the Post Office Department, which render the mail service exceptionally arduous and costly. These extra services include calling for and delivering mails at a large propor- tion of the post offices located at railway towns; supplying rooms, with light, heat and water, in railway stations for the use of the mail clerks : placing cars, duly lighted and heated, on station tracks for' advance distribution, often many hours before the departure of trains; carrying officers and agents of the Post Office Department as passengers but with- out compensation to the extent of more than 50,000,000 passenger miles annually (this bsing, of course, in addition to the railway mail clerks on duty), etc., etc. Extracts from the "Postal Laws and Kegulations" defin- ing and demanding these services are given in Appendix A. No one can examine this appendix and not be convinced that the mail service is the most exacting among all those rendered by American railways. The fairness of railway mail pay can also be tested by apportioning operating expenses between passenger and freight traffic, and then mak- ing a secondary apportionment of the passenger expenses between mail and other kinds of traffic carried on passenger trains. This method in- volves charging directly to each kind of traffic all expenses pertaining exclusively thereto, and the apportionment, on some fair basis, of those expenses which are common to more than one kind of traffic. In accordance with the request of the Postmaster-General, the railways estimated the cost of conducting the mail service in the manner just explained and reported the results to the Postmaster-General. After first charging to each service the expenses wholly due to it they appor- tioned the common expenses between the passenger and freight services, following (with inconsequential exceptions) the method most generally employed for that purpose, namely the apportionment of these expenses in the proportions of the revenue train mileage of each service. Having estimated, in this way, the operating expenses attributable to passenger trains, the railways assigned to the mails the portion of this aggregate indicated by the proportion of the total passenger train space required for the mails. Using this method, 186 railways, operating 2,370 mail routes, with a total length of 176,716 miles, ascertained and reported that for November, 1909, the operating expenses (not including taxes), for conducting the mail service were $4,009,184. The Postmaster-Gen- eral states (Document No. 105, page 281), that all the railways repre- sented in the foregoing, and enough others to increase the mileage rep- resented to 194,978 miles, were paid for the same month only $3,607,- 773.13. It thus appears that the pay was far below the operating ex- penses, without making any allowance for taxes or for a return upon the fair value of the property employed. While different methods are in use for ascertaining the cost of passenger train service and the results produced by such methods may show considerable variation, yet the mail pay is so far below reasonable compensation, from the standpoint of the cost of the service and a return upon the value of the property, that no method can be reasonably urged which would not demonstrate the non-compensatory character of the present mail pay. This is illustrated by the method which the Post- master-General himself employed, as the character of that method is such that it necessarily produces the very lowest estimate of cost for the passenger train service. The Postmaster-General, by his method of apportionment arrived at a cost of $2,676,503.75 But this must be increased (as will be shown below, on account of his erroneous appor- tionment of car space (page 10), by 800,802.00 And also on account of his refusal to as- sign expenses directly incurred in the mail service (page 12) 401,126.00* Total, according to the Postmaster- Gen- eral's method of apportioning costs be- tween passenger and freight traffic $3,878,431.75 Thus even the Postmaster-General's method of apportioning costs between freight and passenger traffic produces an operating cost in excess of the total pay received by the railways, leaving nothing whatever for return upon the fair value of the property or necessary but non-income producing improvements. There is no allowance, in any of these estimates of cost, for the large volume of free transportation supplied to officers and agents of the Post Office Department, when not in charge of mail, although this amounts to * There may be some duplication in this item, but to eliminate it would require an elaborate computation which, in view of the broad margin of ex- penses over receipts, is wholly superfluous. Whatever duplication exists must be small in comparison with this margin. 8 over 50,000,000 passenger miles annually and, at the low average rate of two cents per mile, would cost the Post Office Department more than $1,000,000 per year. Moreover, as will presently be shown (pages 13-14) all the figures here discussed are for the month of November, a month which, because of the abnormally low ratio of passenger traffic to freight traffic, sub- stantially understates the cost of the passenger train services, when fig- ures derived from it are applied to an entire year. It thus becomes evident that any inquiry which takes into consider- ation the necessary elements of the situation will demonstrate that rail- way mail pay is too low. It is only by ignoring essential elements of the service and of expense and the fundamental element of a return on the value of the property that any argument to the contrary can be constructed. Thus the mail traffic does not pay its operating cost. That traffic is a substantial percentage of the total public service performed by the railroads. It should con-tribute a substantial proportion to the taxes which the railroads have to pay and to the return on railroad property which its owners are entitled to receive. Clearly no fair method can be devised which will fail to show that the existing mail pay is far below a fairly compensatory basis. Certainly this condition ought not to be intensified by adding the injustice of still further reductions. On the contrary, the unjust reductions of recent years should be corrected for the future, and the railroads should be relieved from the strikingly unjust methods by which they are at present deprived of anything ap- proaching fair compensation. V. THE POSTMASTER-GENERAL'S APPORTIONMENT 01' SPACE BETWEEN THE MAIL SERVICE AND THE OTHER SERVICES RENDERED ON PASSENGER TRAINS DID NOT ALLOW TO THE MAILS THE SPACE WHICH THEY ACTU- ALLY REQUIRE AND USE AND THIS HAD THE RESULT OF UNDULY REDUCING HIS ESTIMATES OF THE COST TO THE RAILWAYS OF THE MAIL SERVICE. Detailed reference will now be made to the methods and controlling effect of the Postmaster-General's apportionment of passenger train space between the mails and the other services rendered on passenger trains. Such an apportionment was a necessary step in the calculations reported in Document No. 105. Having obtaine I! a o^ S M S-l _. o ^ o 7? I , monthly average fo e th e ye oo* 00 t- ct -T ri 1 n II 1! O ^ r-" r^ ^ I- I- ' . = | ?f ^ I 5 ^ ^= si fi a; ^ S r- c- ^ ^ rt I I | | 27 I* O 1C O t> O5 00 CO t- CD rH CO T* 00 00 (M TH O CD C^ CO TH CO O Oi O 00 O TH 00 rH TH Oi * O 00 00 O5 O5 O5 O CO co CO CO CO l> t^ 8 "3 f 3 &"S 1-3^020 IO W (M TH >* I- IO O rij Oi CO 00 rtj W rH t^ TH OJ CO 00 CO' rH 00 t** C^ C^ TH CO C^ TH rH W (M W d 8 . 8 28 APPENDIX D. . HOW KAILWA Y WAGES HAVE INCREASED. In the year 1901 the railways reporting to the Interstate Com- merce Commission received, in gross from operating sources, the sum of $1,588,526,037.00 and expended in wages and salaries the sum of $610,- 713,701.00; in 1910 the corresponding totals were $2,750,667,435.00 and $1,143,725,306.00. Computations from these totals show that in 1901 the railways expended in wages and salaries $38.45 out of each $100.00 of gross operating receipts, while in 1910 the proportion had increased to $41.58 a difference of $3.13 in each $100.00 of gross receipts. This difference does not seem small but it is hardly realized, except when the calculation is made, that on the basis of the gross receipts of 1910 it would amount, as it does, to an additional expense of $86,095,890.72. It is to be borne in mind that this largely increased payment to labor is in spite of the fact that a part of the increase in wage rates has been offset by higher efficiency in method and facilities. Comparisons of rates of wages, from the annual statistical reports of the Interstate Com- merce Commission, follow: Average wages per day Class of Employees 1901 1910 Increase, percent. General office clerk Station agents . . . s $219 $2.45 2.14 1.91 4.34 2.57 3.73 2.72 3.03 2.39 2.20 1.99 1.57 2.16 2.10 1.96 11.87 20.90 20.13 14.81 18.98 17.67 36.00 30.60 16.02 25.71 16.37 27.64 9.09 6.60 15.98 1.77 Other station men 1.59 Enginemen . . 378 Firemen .... 2 16 Conductors 3 17 Other trainmen 200 Machinists 232 Carpenters 206 Other shop men 1 75 Section foremen . . . 1.71 Other trackmen 1 3 Telegraph operators Employees, account All other employees and dispatchers 1.98 floating equipment 197 and laborers . . 1.69 29 APPENDIX E. HOW RAILWAY TAXES HAVE INCREASED. (Data from Reports of the Interstate Commerce Commission.) Year Amount paid Average per mile operated Per cent, of net receipts 1900 $48 332,273 $251 00 8.7 1901 50 944,372 260 50 86 1902 54,465 437 272 12 8.3 1903 57,849 569 281.76 84 1904 61,696 354 29069 90 1905 63 474 679 29255 85 1906 74 785 615 33636 88 1907 80 312 375 35309 89 1908 (1) 84 555 146 36684 10 7 1909 (1) 90 529 014 38457 10 1 1910 (1) 103 795 701 43099 10 3 (1) Not including terminal and switching companies. 30 APPENDIX P. UNITED STATES SENATE COMMITTEE ON POST OFFICES AND POST ROADS September 11, 1912. My dear Sir : I hand you herewith a copy of Senate Bill No. 7371, introduced by me by direction of the Senate Committee on Post Offices and Post Roads, embodying a plan recommended by the Post Office Department for determining the compensation to be paid to railroad companies for transportation of the mails. This general subject has been referred to a joint Committee of Congress. The Committee has not yet organized and probably will not do so for several weeks, but as a member of that Committee and as Chairman of the Senate Committee on Post Offices and Post Roads and under authority of Senate Resolution No. 56, I de- sire to secure immediately such information as may be available for submission to the Committee at its first meeting. I will ask you, there- fore, to answer the following questions : (1) Do you deem the present plan of compensation an equitable- one as between the Government and the railroads? If not, in what re- spects and as to what classes of railroads is it inequitable ? (2) Is the underlying principle of the plan embodied in the in- closed bill a proper basis for compensation? If not, wherein is it improper, and why? (3) What, in your opinion, is a desirable plan for compensating railroad companies for transporting the mails? I desire an early reply to these inquiries relating to the general plan^ and, if you are not ready to do so now, shall be glad to have you submit later a detailed discussion of this bill and of House Document No. 105,. 62 d Congress, 1st Session, with which, I assume, you are familiar. Yours very truly, (Sgd.) JONATHAN BOURNE, JE. Chairman Senate Com. on Post Offices and Post Roads.. 31 APPENDIX G. COMMITTEE ON RAILWAY MAIL PAY. October 3, 1912. Hon. Jonathan Bourne., Jr., Chairman, Senate Committee on Post Offices and Post Roads, Washington, D. C. My dear Sir: The Committee on Railway Mail Pay, representing 268 roads operat- ing over 214,275 miles of road, has been investigating the subject of mail compensation for about three years, or since the Post Office Depart- ment, in 1909, sent out a series of questions regarding the space fur- nished for mails in passenger trains, and the cost to railroad companies of the service which they perform for the Government in the carriage of the mails. Therefore the Committee has thought it would be of in- terest to you to receive from it an answer to the questions propounded by your letter of September 11, 1912, addressed to the officers of rail- roads throughout the country. A response to House Document No. 105 is now in course' of prepara- tion, and will be submitted at an early date. In the meantime, our committee desires to submit the following replies to your inquiries : Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable ? Answer. The existing law has never worked to the disadvantage of the Government, but has failed to do justice to the railways by reason of infrequent weighing; absence of pay for nearly 4-0 per cent, of the space occupied as travelling post offices; the performance, without pay, of side and terminal messenger service, and the unjustifiable reduction in pay by the Act of Congress dated March 2, 1907, supplemented by Order No. 412 of the Postmaster General, changing the divisor. The present law is based upon correct principles, but should be so amended as to provide 32 (a) For the Eepeal of the Act of March 2, 1907. Notwithstanding the large increase in every other item con- nected with the administration of the Post Office Department, the railroads' pay has been singled out as the one element in these oper- ations for concentration of economies. This too, in the face of the fact that the operating expenses of the railroads have been greatly augmented by the requirements of the law with reference to >teel equipment, and a general increase in cost characteristic of all business operations. (b) For annual weighings, and a definite and just method for ascertaining daily average weights. Under the quadrennial weighing all increased weight of mail during the next succeeding four years is carried by the railroads without any compensation whatever, which is manifestly unfair. The railroads must provide car space and facilities for the max- imum weight offered at any time, yet they are paid only for the average weight carried. The Postmaster General's order covering the divisor has unfairly reduced this average. This provision is essentially necessary in view of the bill estab- lishing the Parcels Post, effective January 1, 1913, which will re- sult in taking from the express service traffic for which the railroad companies now receive compensation and transferring it to the mail service ; the bill referred to containing no provision for payment to the railroad companies for the increased tonnage to be handled in mail cars, although such provision was made for the star routes and the city wagon service. (c) For pay for Apartment Cars on some basis that will com- pensate for the service. That the Postmaster General has himself recognized the justice of such a change, is indicated in the following quotation from page 3 of House Document No. 105 : "* * * an additional amount may be allowed for railway post office cars when the space for distribution purposes occupies 40 feet or more of the car length. No additional compensation is allowed for space for distribution purposes occupying less than 40 feet of the car length. This distinction is a purely arbitrary one and without any logical reason for its existence." (d) For a fair allowance to the railroads for the side and terminal messenger service which they perform for the Post Office Department, according to the value of this service to the Post Office Department. The necessity for this is also emphasized by the establishment of the Parcels Post which will undoubtedly add greatly to the ex- pense of the service. (e) That all rates of pay should be definite and not subject to the discretion of the officers of the Post Office Department. Other inequities exist under the present law, but are due to the administrative methods rather than to the law itself. Question 2. Is the underlying principle of the plan embodied in the enclosed bill a proper basis for compensation ? If not, wherein is it improper, and why? Answer. The underlying principle of the plan embodied in Senate Bill No. 7371 is not correct. Any plan of compensation based upon operating cost and taxes, plus six per cent, for profit, is fundamentally wrong, because it makes no allowance for return upon the property employed. Furthermore, such plan is not correct, because it involves paying the highest rates to the railroad that by reason of physical disabilities or inefficient methods is most expensively operated, and the lowest rates to the railroad whose operations are most efficient and whose service is most satisfactory and valuable to the Post Office Department. Under the plan proposed, a railroad would be penalized for all the capital ex- penditures made by it for the purpose of decreasing its operating cost, because the more it decreased its operating cost the more it would de- crease its mail pay, although by making this improvement in operating cost it would have incurred an additional capital charge upon which it would have to pay dividends or interest. The ascertainment of the cost to a railroad of conducting the mail service is necessarily very largely a matter of judgment and opinion, because a large proportion of the total operating expenses are expenses common to the freight and passenger traffic and can only be approxi- mately apportioned and there are various formulas existing for such apportionment. It would not be right or proper to entrust to the Post Office Department the discretion of selecting the formulas by which to ascertain these costs, because the Post Office Department has an obvious interest at stake, its object always being to reduce the railroad pay to a minimum. 34 The estimated cost of a specific service is not a proper basis for fixing rates for transportation of any commodity. The railroads are entitled to receive a full and fair return for the value of the service performed, and the ascertainment of cost of such service is principally of value as a protection against the establishment of confiscatory rates. Question 3. What, in your opinion, is a desirable plan for compen- sating railroad companies for transporting the mails? Answer. The existing law has been in effect for nearly forty years. and those who have worked under it are more or less familiar with its operations. If it were amended to correct serious inequities, as sug- gested in the answer to Question 1, and fairly and impartially admin- istered by the Post Office Department, it would be preferable to any untried or theoretical plan that could be proposed. Very respectfully yours, COMMITTEE 0^ RAILWAY MAIL PAY, (Signed) RALPH PETERS, Acting Chairman. 35 , ' . A . OVERDUE. Gaylord Bros. Makers Syracuse, N. Y. PAT. JAN. 21 ,1908 UNIVERSITY OF CALIFORNIA LIBRARY