is limited to twenty (20) years (subject to a renewal upon a revaluation the terms of which cannot be fixed in advance) makes it necessary to increase the annual charges by an amount sufficient to provide for the difference between the original cost of such of the equipment and other property as may be taken over by the city at the expiration of the lease and the probable value at which such property will be appraised at the end of the twenty years.

Another important consideration is the exceptionally broad power conferred by your form of contract upon the public authorities to require from time to time any changes in the construction of the subway and in the equipment and other appliances used therein, as shall to them seem proper. Such a requirement, especially in the case of a subway operated under a lease for only twenty years, creates a serious liability for additional expenditures for which adequate allowance would have to be made under any conservative financial plan.

For the reasons briefly summarized above we have concluded that if we were to build the proposed extensions in conformity with your plans and specifications and the proposed contracts, using the city's credit for the entire cost of construction under the contract (about $64,000,000) and outside investment capital (approximately $24,000,000), in the equipment, etc., and assuming that the new lines received all the traffic which it would be feasible for them to carry under the limitations imposed by traffic conditions in New York, it would not be possible to make net earnings above operating and maintenance expenses, sinking fund payments and taxes, sufficient to provide the interest upon the city's bonds, and five per cent upon the additional capital involved. Indeed a study of the reports of the Interborough Rapid Transit Company on file in your office, will demonstrate that a subway costing twice as much per mile as the existing rapid transit lines, operated under a lease less than half as long, subject to much higher taxation, and operated under a distinctly less liberal contract, would not earn even the rate of interest payable upon the city's bonds.

While for these reasons it is impossible for us to make a bid for the construction and operation of the subways required to complete our present system if they are to be constructed and operated under the proposed plans and specifications and contracts, we recognize that in view of the imperative need for greater rapid transit facilities in New York, a need which is be coming more urgent every year, it is due the city that, as lessees of the existing municipal subway system, we should do whatever is in our power to complete that system and otherwise increase our facilities.

I have, therefore, to advise you that we are prepared to enter into a contract for the construction at actual cost of two extensions of the existing municipal subway, one upon the west side, extending south from Forty-second street to the Battery, the other upon the east side, extending north from Forty-second street into the Bronx, and for the equipment and operation of such extensions, provided the cost of construction can be brought within the city's borrowing capacity, and provided the terms of the contract are such that we may reasonably expect the earnings from these additional subways to be sufficient to cover the interest and sinking fund upon the bonds of the city issued for their cost; a proper annual charge for depreciation in equipment and other property which the city may take over at an appraised value at the end of the twenty years' lease, and interest upon our additional investment for which city bonds would not be issued. In other words, we are willing to complete the existing rapid transit system so that there shall be, as originally planned by your Board, two complete longitudinal lines, one upon the east side and the other upon the west side of the city, without any prospect of profit beyond a fair rate of interest upon the additional investment involved, and obviously without an expectation of such a return, no capital could be secured for additional subway construction.

We shall be very glad to co-operate in carrying out some such plan as is above outlined if the opportunity is offered. Very respectfully yours,

T. P. SHONTS, Chairman of the Executive Committee.

INTERBOROUGH RAPID TRANSIT COMPANY, Nos. 13 to 21 Park Row,
NEW YORK, April 24, 1907.

T. P. SHONTS, Esq., Chairman, Executive Committee:

SIR: In accordance with your instructions, we have examined the contracts, plans and specifications of the new subways, as offered by the Rapid Transit Commission, and beg leave to report our estimate of the cost of construction.

We have estimated the cost of the subways at the smallest sum it is safe, in our judgment, to take the work, in view of the conditions of the contracts and specifications and details of the designs, and without any allowance for profit on construction to your company, as directed by you.

The contract provides that much land for stations and other purposes will be required, the cost of which is to be charged to the railway, but it is not to be included in the bid. Similarly terminal lands are to be acquired and improved, the cost to be ascertained at the conclusion of the work and charged to the railway. In order to give you an approximate idea of what these additional expenses may amount to, so that you may compute the fixed charges, we have made approximate estimates. The equipment has been estimated on figures of actual cost prices and on the basis of five cars for local trains and eight cars for express trains, in order to fit existing subway standards, and not according to a ten car basis, the more expensive requirements of the contracts. We have not included in our estimates, the cost of pipe galleries, as they are distinct from the railway.

To construct a four-track railway northerly from a connection with the present subway near Forty-first street and Park avenue via Lexington avenue to the Harlem river, and thence a two-track railway to One Hundred and Fiftysixth street, in the Bronx, and a four-track railway southerly from a connection with the present subway near Fortysecond street and Broadway, via Seventh avenue and West Broadway to the Battery, in accordance with the contracts, plans and specifications of the Rapid Transit Commission, will cost.

Easements.

Terminals.

Interest during construction.

$50,200,000 00

2,500,000 00

1,300,000 00

4,000,000 00

$64,000,000 00

24,000,000 00

Total.

$88,000,000 00

Respectfully yours,

WM. BARCLAY PARSONS,

Equipment...

JOHN B. McDONALD,

S. L. F. DEYO,

LEWIS L. STILLWELL,
GEO. H. PEGRAM.

In view of this action by the Interborough Rapid Transit Company the counsel of the Board was instructed to prepare a comparative statement showing the relative advantages and disadvantages of the present subway contracts held by the Interborough Company, and of the contracts for the Seventh and Eighth avenue and Lexington avenue rapid transit railroads offered for bid. Pursuant to this request a report from counsel was received on May 2 as follows:

No. 32 NASSAU STREET, NEW YORK, May 2, 1907 ALEXANDER E. ORR, ESQ., President, Board of Rapid Transit Commissioners: DEAR SIR:-At the last meeting of the Commission I was requested to prepare a statement showing the difference between the proposed contracts for

the Lexington avenue and Seventh and Eighth avenue routes and the contracts for the subways now constructed or constructing, in respect to the several points mentioned in the letter of Mr. Shonts, dated April 24, 1907.

Mr. Shonts states in substance that after very careful studies by the engineers and officers of the Interborough Company, they have been forced to conclude that the building of the proposed four-track double-deck Lexington avenue subway north of Forty-second street and the four-track west side subway south of Forty-second street and the operation of those lines in connection with the existing subway under the burdens imposed by the proposed contracts and the existing law are financial impossibilities. The cost of construction, as it appears from his letter, and the estimates of his engineers, would amount to $56,200,000, which is much greater per mile than the cost of building the existing rapid transit lines.

"This increase in cost," he says, “is due partly to the requirements of the present law, the increase in the price of materials and labor and the fact that about fourteen miles (single track) of the existing line is on an elevated structure, while all the new lines are underground; but the increase in cost is chiefly due to onerous provisions (not required by the existing law) of the new contract and of the new plans and specifications."

I will take up the points which Mr. Shonts criticises in the new contract and the new plans and specifications in the same order in which he states them.

First.

He states there is unnecessary increase of cost for construction.

There is no explanation contained in the letter as to the changes which Mr. Shonts has in mind. They doubtless relate principally to changes in the specifications relative to the mode in which excavation is to be carried on. Under the contract of February 21, 1900, for the Manhattan-Bronx railway, which is the one that Mr. Shonts probably has in mind, the contractor was permitted to conduct his work by open excavation throughout the whole route with the exception of Park avenue and the Central Park.

In the present contract, as specifically required by the language of the route and general plans, the work is to be prosecuted by excavation under cover or by tunneling unless the Board shall expressly permit open excavation. There is no doubt that this method of construction (which is practically that pursued in lower Broadway under the contract of July 21, 1902) is more expensive, especially where rock is met with near the surface.

Second.

Adding the cost of all easements to the cost of the subway.

What is meant by this is that the proposed form of contract provides that, in calculating the rent to be paid by the operating company to the city, the cost of all easements acquired is to be added to the cost of construction, and the interest paid by the city upon bonds issued for these purposes, plus one per cent., is to be the rent. This is substantially what was done in the case of the Manhattan-Brooklyn contract, where the rent is to be the interest plus one per cent on bonds issued for construction, together with interest on bonds issued to acquire easements for right of way.

In the case of the portions of railroad which the Interborough Company considered building, the easements for right of way would cost some considerable amount of money.

On Lexington avenue a right of way through private property would have to be acquired at the southeast corner of Forty-second street and Fourth avenue; at the northwest corner of Forty-second street and Lexington avenue: between the northeast corner of Lexington avenue and One Hundred and Twenty-ninth street and the Harlem river; on the Bronx side of the Harlem river, between the river and the corner of Third avenue and One Hundred and Thirty-fifth street; and finally between the northeast corner of Morris avenue and One Hundred and Forty-eighth street and a point in One Hundred and Forty-ninth street, between Morris avenue and Courtlandt avenue.

On