that a certain percentage was added to the actual market value of land to cover damages to abutting property owners.9

§ 136. Minnesota Appraisal and Rate Case.

Dwight C. Morgan, engineer in charge of the Minnesota railroad appraisal, holds that on an average the Minnesota railroad companies are required to pay for right of way three times the true value of lands taken. 10 He estimates the total true value of land for right of way and station grounds, but excluding city terminals, at $8,374,125, and allowing for increased cost to the company he estimates the reproduction cost at $21,190,211. The Minnesota Railroad and Warehouse Commission, fo whom Mr. Morgan submitted his report, disagreed with Mr. Morgan in his contention that the reproduction cost should necessarily be taken as the value of railway land. The Commission would go no further than to admit that the company should be allowed the actual cost to it of the land even though such actual cost was in excess of the market value of adjacent land. A company may have purchased its right of way when land was very cheap or the right of way may even have been granted by the government. The Commission argues that it is certainly unjust not only to appraise the right of way at a value based on the present enormously increased value of adjacent land but even to double or treble such value on the theory that if the railroad were now exercising the right of eminent domain it would have to pay this increased price. The Commission says: "It seems to us after a full consideration of this subject

"Method Used by the Railroad Commission of Texas in Valuing Railroad Properties," by R. A. Thompson, Transactions American Society of Civil Engineers, Vol. 52, pp. 328, 361 (1904).

10 Annual report, Minnesota Railroad and Warehouse Commission, 1908, pp. 27-36.

that the term 'cost of reproduction' could never have been used by the courts in a sense which would permit an entirely imaginary and artificial value to be placed upon a property actually owned and in the possession of the railway company." The Commission issued orders based on the above valuations for the reduction of railroad rates. The validity of these orders and of certain acts of the legislature reducing rates was questioned in a proceeding before the United States Circuit Court. Judge Otis, Master in Chancery, in his report of September, 21, 1910, states that witnesses for both parties usually used a multiple of three in appraising the reproduction cost of railway right of way. Circuit Judge Sanborn in approving the report of Judge Otis says: 11

But the evidence in this case is conclusive, nay, we may say it is without conflict, that every railroad company is compelled to pay more than the normal market value of property in sales between private parties for the irregular tracts it needs and acquires for rights of way, yards, and station grounds. The defendants' witness, Mr. Morgan, testified that in his opinion the companies necessarily paid three times the normal value for the lands outside of the terminals in the three cities and 75 per cent. more than the normal value for their terminals within those cities. The master in effect found that the cost of reproduction and the present value of the lands for the terminals in the three great cities, including therein all cost of acquisition, consequential damages, and value for railroad use which he allowed, was only about 30 per cent. more than the normal value of the lands in sales between private parties. He found the value of the lands outside the terminals to be only twice their normal value. Findings of lower values would have been contrary to the great weight of the evidence and without substantial support therein.

11 Shepard v. Northern Pacific Railway Co., 184 Fed. 765, 806, April 8,

§ 137. South Dakota appraisal, 1910.

Engineer Carl C. Witt in his report on the appraisal of the railroads of South Dakota says: 12

It is a well-known fact that the price paid for land to be used for railway purposes on account of damage to the remainder of the property is several times the farm value. After an investigation of the prices paid for right of way by the M. D. & P. R. R. and the C., M. & St. P. Ry. for extensions in this state in 1906 and 1907 and an investigation of the results obtained by investigations made in Minnesota, Wisconsin and other states by various taxing and appraising bodies and also of the sale of public lands in this state and other states for railway purposes, it was determined to use a multiple of 250% throughout the state, both for property for station grounds and right of way, the average outside of towns being somewhat higher and inside of towns somewhat lower.

This question of multiple value for railway property is one that must be handled with great care, particularly in large terminals, and requires a separate investigation for each case to avoid vicious results. Fortunately there are no very large terminals in this state and it is the belief that 250% is a fair average multiple.

§ 138. Justification of use of multiples.

In justification of including percentages or multiples to cover all items entering into cost of reproduction of right of way, Henry Earle Riggs in a paper before the American Society of Civil Engineers, January 4, 1911,

12 Report of Carl C. Witt, Engineer to the Board of Railroad Commissioners of the State of South Dakota, containing the report of the appraisal of the railroad properties in the State with comments by the Board, dated November 15, 1910. (In Twenty-first annual report of the Board of Railroad Commissioners, 1910, p. 31.)

13 "Valuation of Public Service Corporation Property," by Henry Earle Riggs, in Proceedings American Society of Civil Engineers, November, 1910, pp. 1369, 1428.

In building a new railroad, engineers prepare their estimates of cost, including grading, rail and fastenings, ties, bridges, and, among other items, right of way. Their clients provide funds to build the line, and furnish, among other items, cash for the right of way. The right-of-way account in no wise differs from that of any other item of physical cost. The right of way, with all its hold-ups, items for damages, court costs, legal expenses, bills for personal services and expenses in securing it, abstracts and recording of deeds, is just as much an element of physical cost as the rails. The cost of acquiring the right of way is as proper an element as charges for inspecting the rails, freight charges on them, the loading and unloading, or any other charges that enter into the cost of rails delivered to the track-laying contractor.

R. A. Thompson in discussion of the above paper by Mr. Riggs, criticises the use of large multiples as follows: 14

The writer's experience as appraising engineer for more than 10 years with the Texas Railroad Commission, and for the past 2 years as a construction engineer-having built about 160 miles of railroad in Oklahoma and Texas confirms his belief that, in the absence of actual figures of cost, right of way and other railroad real estate should be appraised at but little in excess of the market value of abutting property. The practice of the Texas Commission has been to add from 25 to 50 per cent. The conditions under which railroads were built in Michigan, Wisconsin, Iowa, and Minnesota cannot have been radically different from those in the Southern and Western States. In Texas it has been a rare instance when a railroad has had to purchase all of its right of way. Also, contiguous lands have greatly increased in value since the advent of the railroads. It would appear highly illogical to advocate that these increased values should be multiplied by 3-or even 12-and used as a basis for taxing the railroads on the one hand, or tax

14

Proceedings American Society of Civil Engineers, January, 1911,

p. 128.

ing the public on the other, by permitting indebtedness to be issued against it, the interest on which the latter must pay. The railroad recently constructed by the writer traversed fertile and thickly populated areas, already quite well served with transportation facilities. Only a small fraction of the necessary real estate was purchased by the railroad company, and only in a few cases of such purchase did it pay largely in excess of the market value of the land-and these were where the road interfered with houses and other farm improvements. In cities and towns, land was acquired at practically its fair market value. For rural property, the ratios used by Professor Taylor in the Wisconsin appraisal appear to be quite fair, but in cities they are too high-especially for the Southwest. The Minnesota ratios appear to be unreasonably high.

§ 139. New York Appellate Division rejects use of multiples in tax case, 1911.

People ex rel. New York, Ontario & Western Railway Company v. Shaw, 143 App. Div. (N. Y.) 811, 128 N. Y. Supp. 177, decided March 8, 1911, is a case involving the assessment of railroad right of way in a New York tax district. Reproduction cost was accepted as the measure of value for the purposes of this case. In valuing the land the court rejected the proposed allowance for abstracts and condemnation proceedings and for a valuation of the land at three times the value of adjacent lands. Judge Kellogg in delivering the opinion of the court says (at page 814):

The court disallowed the $1,000 item for procuring abstracts and for condemnation proceedings, etc., upon the ground that it was speculative, and that there is no proof that condemnation proceedings would be necessary. It does not appear from how many owners the different parcels of land were taken, and there is no real basis upon which this item may be computed. . . . The decision of the court upon the merits is satisfactory until we approach the item of $15,000 for land, which