If the position of the Burlington is sound and is a precise expression of what our courts will hold to be the law, then as we are told there is certainly the danger that we may never expect railroad rates to be lower than they are at present. On the contrary, there is the unwelcome promise made in this case that they will continuously advance. In the face of such an economic philosophy if stable and equitable rates are to be maintained, the suggestion has been made that it would be wise for the Government to protect its people by taking to itself these properties at present value rather than await the day, perhaps 30 or 50 years hence, when they will have multiplied in value ten or twenty fold. Any new money put into the property, whether derived from the sale of securities or from surplus, which might have been appropriated to dividends, represents new value-an addition to the property-and on this addition the stockholders interested are entitled to a reasonable return if that can be had for an additional service given, but it is not equitable that because the directors of a corporation see fit to distribute to the stockholders less than the amount which the company earns and may be appropriated to dividends, the shippers who made this large dividend and surplus possible shall be increasingly taxed in geometrical progression to make return upon it. New improvements should bring new revenue. The risk of the stockholders in investing their money in these improvements is the same risk that they took when they invested their original funds in the original property. San Diego Land & Town Co. v. National City, 74 Fed. Rep. 87 [decided May 4, 1896]. . . ... We now turn for a moment to consider the added value of railroad property by reason of the increase in the value of the lands held as terminals in cities and rights of way. Out of the difference between the original investment of $258,000,000 and the estimated present value of $530,000,000 it has been estimated that the increase in land values amounts to approximately $150,000,000. We may agree with the contention of the Burlington that it is no concern of ours as to whether these lands were obtained by private or public donation in whole or in part, but a larger question of public concern is involved-the legal right of a carrier to continuously increase rates because of the growth of the community which gives this added value to the land over which the railroad runs. It is unquestionable that Kansas would not enjoy the population that she has or the prosperity that is hers without the presence of the railroads, and those men of prophetic vision who projected those roads and invested their capital therein are not to be denied a share in the wealth which they have so largely helped to create. But as these lands increase in value with the growth of the communities which they serve should not this larger share coming to the railroad arise out of the operation of that property and the increase in its traffic rather than by the imposition of a new burden of tolls upon those who use their road? This question is not of paramount importance in this case, but, it is urged, may become one of supreme moment if the carriers insist upon a right to increase rates in proportion to increasing land values. In a very real sense these added land values do not come to the railroad as a railroad, but as an investor in land which has been dedicated to a public use; and, being so dedicated, it may be strongly urged that the increment added thereto from year to year by communal growth should not necessitate an imposition of additional rate burdens upon the public. . . . Whatever the true economic or legal view may be as to the right of a carrier to consider the increase in value of its land as a part of the value upon which it is entitled to a reasonable return, such increase in value does not of itself establish the right of a carrier to increase rates upon a given service. Certainly if the Supreme Court may decline to lay down the absolute rule. that "in every case failure to produce some profit to those who have invested their money in the building of a road is conclusive that the tariff is unjust and unreasonable, Reagan v. Farmers' Loan & Trust Co., 154 U. S. 412, it is a conservative statement of the law to hold that a railroad may not increase the rates upon a number of commodities solely because its real estate has risen in value. The trend of the highest judicial opinion would indicate that we should accept neither the cost of reproduction, upon which the Burlington's estimate of value is made, nor the capitalization which the Santa Fé accepts as approximate value, nor the prices of stocks and bonds in the market, nor yet the original investment alone, as the test of present value for purposes of rate regulation. Perhaps the nearest approximation to the fair standard is that of bona fide investment-the sacrifice made by the owners of the property-considering as part of the investment any shortage of return that there may be in the early years of the enterprise. Upon this, taking the life history of the road through a number of years, its promoters are entitled to a reasonable return. This, however, manifestly is limited; for a return should not be given upon wastefulness, mismanagement, or poor judgment, and always there is present the present the restriction that no more than a reasonable rate shall be charged. § 109. Connecticut Public Utilities Commission rejects actual cost in favor of reproduction cost, 1912. In re fare charged by the Connecticut Company between Manchester and Hartford, decided March 7, 1912, the Connecticut Public Utilities Commisssion rejects the claim of the applicant that fair value for rate purposes should be based on actual cost rather than on cost-of-reproduction-less-depreciation. The actual cost was estimated at $325,000 while the present cost-ofreproduction-less-depreciation was fixed by the Commission at $900,000. The Commission says: We do not think that the original cost of construction, whatever that may have been, the price paid for the line by the Connecticut Company, whether exorbitant or otherwise, or any inflated value for the issue of stocks or bonds are proper standards to determine the value of the plant and equipment for which the company is entitled to receive a fair income, but that the cost of reproduction at the present time in this particular case is a more accurate standard and the one which the Commission has followed in determining such value. " CHAPTER VI Valuation of Land 1. Treatment of Appreciation in Land Value § 110. Trend of decisions and practice. 111. Consolidated Gas Case-Decision of District Judge Hough. 112. Consolidated Gas Case-United States Supreme Court. 113. Wisconsin Railroad Commission. 114. Committee of National Association of Railway Commissioners, 1910. 115. South Dakota Railroad Commission, 1910. 116. St. Louis Public Service Commission, 1911. 117. Minnesota Railroad Rate Case, 1911. 118. Interstate Commerce Commission-Problem discussed but not decided. 119. Allowance of no return or a reduced rate of return on land. 120. Reduced return allowed on terminals-Minnesota Supreme Court, 1897. 121. Appreciation should be set off against depreciation. 122. Appreciation treated as income. 123. Appreciation treated as income for purposes of United States corporation tax. 124. Income method considered. 125. Actual cost v. present value. 2. Cost of Reproduction of Railroad Right of Way § 134. Reproduction cost same as present estimated condemnation cost. 135. Multiples used in various state appraisals. 136. Minnesota Appraisal and Rate Case. 137. South Dakota appraisal, 1910. 138. Justification of use of multiples. 139. New York Appellate Division rejects use of multiples in tax case, 1911. 3. Cost of Reproduction of Terminal Land § 140. State railroad appraisals. 141. Minnesota Appraisal and Rate Case. 142. Minnesota Rate Case-Availability for rate purposes enhances value. § 143. Wisconsin Railroad Commission on availability for special use. 144. Value of adjacent land increased by presence of terminal. 145. Reproduction cost of land as affected by cost of hypothetical buildings. 4. Methods of Appraising Land § 146. Sales method defined. 147. Sales method discussed. 148. Sales method rejected in Minnesota Rate Case. 1. TREATMENT OF APPRECIATION IN LAND VALUE § 110. Trend of decisions and practice. In the valuations of railroads and other public utilities that have been actually used as a basis for rate making or public purchase, no case has been found in which land has not been taken at its present value rather than at its original cost to the company. This is true of the general railroad appraisals for tax purposes in Michigan and Wisconsin and the railway appraisals for rate purposes in Minnesota and Washington, the valuation of street railways for purchase and rates in Chicago and Cleveland, various valuations of waterworks for municipal purchase or rate regulation and the valuations of the Wisconsin Railroad Commission for rate regulation and public purchase. There are a few decisions that hold that fair value for rate purposes should be based largely on actual cost (see above, §§ 102-105) and under this theory land will of course be taken at original cost rather than present appreciated value. The weight of authority, however, points strongly to "present value" as the proper basis (see above, §72) and "present value" has often been taken as practically equivalent to cost-of-reproduction-less-depreciation. Under the latter theory land would naturally be included at its present market value unless good reason should appear for different treatment. But the decided cases that favor either actual cost or present value do not for the |