§ 188. Grade separation contributions in appraisal for capitalization.

This subject is discussed in a report by George F. Swain, Engineer in Charge, to the Massachusetts Joint Board on the validation of assets and liabilities of the New York, New Haven and Hartford Railroad. This is a valuation for purposes of capitalization. Mr. Swain says (at page 88):

In the appraisal which has been made, the endeavor has been to ascertain the cost of reproduction new of the existing lines. The existing line, however, includes some elements involved in the elimination of grade crossings which have been partly paid for by the State, and by the cities and towns. In Massachusetts, for instance, 35 per cent of the cost of eliminating grade crossings is paid for by the Commonwealth and the city or town. In this valuation, however, it has not been considered that the Commonwealth or the town has thereby acquired any perpetual or proprietary interest in the property of the railroad, but that its contribution was for the purpose of remunerating the company for the destruction of existing property involved in the charge, and for the cost of protecting traffic during the alterations, as well as for the better accommodations and greater safety afforded to the public. It would have been impossible to adopt any other course, and the one described seems eminently fair. It is not contended, I presume, that where grade crossings are abolished the Commonwealth or the town becomes thereby the owner of any portion of the railroad.

§ 189. Conclusion as to grade separation contributions.

In certain cases of grade separation the contribution of the state and city is not more than sufficient to pay for the necessary structures and reconstruction within the street or highway and outside of the lines of the railroad's

Published in Report of the Massachusetts Joint Commission on the New York, New Haven & Hartford Railroad Company, February 15, 1911, pp. 51-154.

right of way. Where this is true it is entirely proper to allow the company the full value of structures within the lines of its right of way. And in case the company pays the entire expense of grade separation including the cost of street reconstruction, the cost of such street reconstruction should be included in a valuation for rate purposes. It seems just that the company should receive a return on the cost of all the improvements that it has made with its own capital but not upon such as have been made at the expense of the city or state. Otherwise the public is doubly taxed; once to pay the cost of the improvement and again to pay interest and profits on its own investment. The argument that the public's contribution to grade separation may be considered as a contribution not for construction, but as made "for the purpose of remunerating the company for the destruction of existing property involved in the change and for the cost of protecting traffic during the alterations" (see § 188) seems rather fanciful in view of the great advantage of grade separation to the railroad from many points of view and in view also of the state's undoubted legal right to require grade separation at the sole expense of the railroad."

§ 190. Statement of problem of donated property.

The problem as to donated property is well stated in an article on Valuation of Railways in the Railroad Age Gazette of January 29, 1909, page 222:

Conflicting opinions are entertained with respect to the status which should be assigned, in connection with a valuation, to donated property-right of way, station and terminal grounds, government land grants, and the like, to which

On this point see N. Y. & N. E. R. R. Co. v. Bristol, 151 U. S. 556, 14 Sup. Ct. 437, 38 L. ed. 269, February 5, 1894; State ex rel. City of Minneapolis v. St. P., M. and Manitoba R. R. Co., 98 Minn. 380, 108 N. W. 261, affirmed Northern Pacific Ry. Co. v. Minnesota ex rel. Duluth, 208 U. S. 583, 28 Sup. Ct. 341, 24 L. ed. 630, February 24, 1908.

no considerable cost attaches. Is it proper that it should be made a constituent of that value for the use of which the public may be taxed in the interest of the donee? If so, should it be appraised at its full worth in the market, or only at the cost to appropriate it? Is a grant of land, which must be converted into cash and reconverted into transportation property, different in any important particular from a gift of right of way, which enters directly into the transportation plant? Is the case affected by the origin of the gift, whether public or private, or by the consideration that it is devoted to a public use? It may not seem consonant with the principle that cost only should be capitalized, and sentimentally it may not seem fitting that the public should be assessed for the use of that which it has donated to a private corporation to be employed in the public service; but, much as one might incline to the opposite view, it is difficult to escape the conclusion that donated property ranks at its cash equivalent with that purchased or condemned. Upon conveyance of the gift estate title vests in the donee; if there are no qualifications, such title is absolute; and the use of the property, and the right of enjoyment of the profits arising from it, are necessary incidents of ownership.

It may, however, be recalled that this land has been donated to a private company because that company is undertaking to supply a public utility at reasonable rates of charge. Under the circumstances would it seem fair and equitable for the company to so adjust its rates as to produce for itself a fair return not only on its own investment but upon the investment that the public has donated? Would it be unreasonable to assume that these donations were made with the assurance that rates would be fair and equitable under the circumstances and with due regard to the respective contributions and equities of the company and the public?

§191. Contributions by the company.

The inclusion or exclusion of a particular item in a val

uation for rate purposes is not always dependent on whether the company holds the legal title to such property. Public utility companies sometimes invest their funds in structures to which when completed they can claim no title. They may perhaps be said to have donated these structures to the public. A railroad is constructed through a city and is required to separate all grades between the railroad and the public streets. Certain streets will have to be depressed and carried under the railroad and others raised and carried over the railroad. Streets and pavements will have to be reconstructed and in some cases water and gas pipes and sewers relocated. All this expense will be borne by the railroad and yet it will have no title to this property located in the streets. Again take the case of the street and elevated railroads operating over the East River bridges in New York City. The track, equipment and signal system is constructed at the expense of the companies but title to such property vests in the city and the property is operated under an indeterminate permit. Similarly a gas, water or electric company may construct at its own expense service connections to which it can claim no title.

The question comes up also in connection with street paving laid at the expense of a street railway, gas, water or electric company. A gas company that is required to cut through and replace street pavement in order to lay its mains has no title to the pavement thus laid at its expense. A street railway company is usually required to pave between its tracks and eighteen inches on each side thereof. It has usually been held, however, that title to such pavement vests in the city. Yet the justice of including such pavement in a valuation of the railway for rate purposes is seldom seriously questioned.

In the Chicago Street Railway Settlement of 1908, the companies were allowed the present value of street pave

ments occupied by railway tracks. The Traction Valuation Commission stated in its report of 1906, that the Commission had been advised by the city's special counsel that the legal title to the pavement was in the City of Chicago and not in the companies, and that if the companies were entitled to the value of the pavement in the pending negotiations, it must be upon the theory that their rights of occupancy in the various streets are of more value when the right of way is paved than when it remains unpaved. The Commission fixed the present value of the pavements at $4,342,035, but expressed no opinion as to whether the whole or a part of such amount should be included in the value for the purposes of the proposed settlement. The total valuation as finally agreed upon was a compromise and it was not definitely stated what portion of the same was included as compensation for pavements.

In the Cleveland Street Railway Settlement of 1908, representatives of the company and city agreed in allowing $1,721,000 for paving. Mayor Johnson contended that the pavement was in the nature of a tax and had never been included in the assets of the company as assessed for taxation. The company claimed that certain franchises recently granted explicitly provided that if the city or another company bought them or took them over at the end of their franchises the then physical value of the paving should be paid for. The city finally conceded the entire claim of the company relative to paving. When the property of the Cleveland Railway Company was revalued by Judge Tayler in 1909, he allowed the item for pavement as in the 1908 appraisal. Judge Tayler says: 11

10

10 See "Street Railway Settlement in Cleveland," by E. W. Bemis, in Quarterly Journal of Economics, Vol. 22, p. 543, August, 1908.

11 Decision of United States District Judge Robert W. Tayler in the