Valuation of Land 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 most part discuss or consider the question in its bearing on appreciation of land. That question has not come up and been passed upon as a separate and distinctive element in the valuation. § 111. Consolidated Gas Case-Decision of District Judge Hough. In the New York City 80 cent gas case1 the question whether land should be included in a valuation for rate purposes at cost or at present appreciated value was considered at length. The testimony on behalf of the city indicated that the land, the present value of which was $11,985,435, originally cost about $3,539,000, thus showing an appreciation of $8,446,000. Taking the book value of the mains, $7,852,151, and the book value of services, $1,212,071, which amounts were considered a liberal estimate of the cost of constructing the mains and the services, the value allowed by the court for mains and services shows an appreciation of $5,605,962. The appreciation of land, mains and services therefore amounts to $14,051,962. The briefs submitted by the city, the Attorney General and the Public Service Commission contended that in case of lands, mains and services, the original cost rather than the reproduction cost should be taken in the present case, otherwise the company would be permitted to earn interest and profits on an enormous amount of increased value due not to the operations of the company but in the case of the land to the natural growth of the city and in the case of mains and services to the fact that the city at its own expense had built costly pavements over the mains of the company and to the fact also that since the laying of the mains the subsurface had become so crowded with other subsurface structures as to increase the present cost 1 Consolidated Gas Co. v. City of New York, 157 Fed. 849, December 20, 1907. of laying mains. This contention was refuted in the report of the master and in the opinion of Judge Hough of United States Circuit Court. The arguments are best stated by District Judge Hough (at pages 854-856):* As to the realty, the values assigned are those of the time of inquiry; not cost when the land was acquired for the purposes of manufacture, and not the cost to the complainant of so much as it acquired when organized in 1884, as a consolidation of several other gas manufacturing corporations. It is objected that such method of appraisement seeks to' confer upon complainant the legal right of earning a fair return upon land values which represent no original investment by it, does not indicate land especially appropriate for the manufacture of gas, and increases apparent assets without increasing earning power. Analogous questions arise as to plant, mains, services and meters; the reported values whereof are the reproductive cost less depreciation, and not original cost to the complainant or its predecessors. It appears by undisputed evidence that some of these last items of property cost more than new articles of the same kind would have cost at the time of inquiry; that some are of designs not now favored by the scientific and manufacturing world, so that no one now entering upon a similar business would consider it wise to erect such machines or obtain such apparatus. In every instance, however, the value assigned in the report is what it would cost presently to reproduce each item of property, in its present condition, and capable of giving service neither better nor worse than it now does. As to all of the items enumerated, therefore, from real estate to meters, inclusive, the complainant demands a fair return upon the reproductive value thereof, which is the same thing as the present value properly considered. To vary the statement: Complainant's arrangements for manufacturing and distributing gas are reported to be worth the amounts above tabulated if disposed of (in commercial parlance) "as they are." Upon authority, I consider this method of valuation correct. What the court should ascertain is the "fair value of the prop erty being used" (Smyth v. Ames, 169 U. S., at page 546, 18 Sup. Ct., at page 434 [42 L. ed. 819]); the "present" as compared with "original" cost; what complainant "employs for the public convenience" (169 U. S., at page 547, 18 Sup. Ct., at page 434 [42 L. ed. 819]); and it is also the "value of the property at the time it is being used" (San Diego Land Co. v. National City, 174 U. S., at page 757, 19 Sup. Ct., at page 811 [43 L. ed. 1154]). And see, also, Stanislaus Co. v. San Joaquin Co., 192 U. S. 201, 24 Sup. Ct. 241, 48 L. ed. 406. It is impossible to observe this continued use of the present tense in these decisions of the highest court without feeling that the actual or reproductive value at the time of inquiry is the first and most important figure to be ascertained, and these views are amplified by San Diego Land Co. v. Jasper (C. C.), 110 Fed., at page 714, and Cotting v. Kansas City Stock Yards (C. C.), 82 Fed., at page 854, where the subject is more fully discussed. Upon reason, it seems clear that in solving this equation the plus and minus quantities should be equally considered, and appreciation and depreciation treated alike. Nor can I conceive of a case to which this procedure is more appropriate than the one at bar. The complainant by itself and some of its constituent companies has been continuously engaged in the gas business since 1823. A part of the land in question has been employed in that business for more than two generations, during which time the value of land upon Manhattan Island has increased even more rapidly than its population. So likewise the construction expense not only of buildings, but of pipe systems under streets now consisting of continuous sheets of asphalt over granite, has enormously advanced. The value of the investment of any manufacturer in plant, factory, or goods, or all three, is what his possessions would sell for upon a fair transfer from a willing vendor to a willing buyer, and it can make no difference that such value is affected by the efforts of himself or others, by whim or fashion, or (what is really the same thing) by the advance of land values in the opinion of the buying public. It is equally immaterial that such value is affected by difficulties of reproduction. If it be true that a pipe line under the New York of 1907 is worth more than |