History and Results of the Michigan Appraisal.
Based on the valuation of 1900, the Board of State Tax Commissioners was enabled to comply with the statute in reporting to the Legislature. New laws were passed, sundry suits were brought, and, finally, the case of the Michigan Central Railroad vs. Perry F. Powers, Auditor-General, and a number of other cases in behalf of other roads, were brought to trial before the United States Court for the Western District of Michigan.
This Michigan Central case was a suit to restrain the collection of taxes based on the new assessment, the railroads claiming that their property was assessed at full value, while general properties of the State were assessed at a considerably lower percentage than full value. This suit was essentially a valuation of the railroad properties as of April, 1902. This work was done along the same line as the former valuation, by a portion of the same staff. The old work was brought down to date, and certain special studies were made, which resulted in a change of right-of-way valuation, as has been related.
In the trial of the case of Michigan Central Railroad vs. Powers, the two valuations were fully testified to by all the men engaged, and the record relative to the appraisal fills several volumes.
Subsequently, in 1906, Professor Cooley was engaged by the Attorney-General, and, re-assembling the staff, brought the work down to date as of April, 1906.
There has been no permanent force engaged on the work in Michigan, and the re-appraisals have only been made as actual necessity demanded.
Market Value of Stocks and Bonds.—During the progress of the appraisal of 1900 an independent force of men was engaged in studying the market values of stocks and bonds of Michigan roads with a view to securing information on every possible line that would aid the appraiser in reaching proper conclusions, or enable him to check his figures. These figures were used only as a check, and no report of the details of this work was submitted.
Error in Published Reports as to Michigan Work.—In several articles descriptive of the Michigan work, one quite serious misstatement of fact has inadvertently been made. The writer is not quite sure how or where the wrong impression originated, but it has been noted in several articles and editorials.
Substantially, all accounts are similar to that of Professor Taylor,[[6]] which is:
"In looking over the notes and results of the work done in Michigan, it was noticed that Mr. Cooley's engineers, car-men and other experts went over the property of each railway company and enumerated and valued the same, and then the railway company generally had its own men perform the same work in order to check up the appraisal made by the State authorities. Thus, this expensive work was unnecessarily duplicated."
Undoubtedly this statement was made in good faith, and has gained currency by not having been corrected, but it is not the fact.
The Chicago and Northwestern Railway took immediate steps to make surveys and secure data, as has been described, and made a complete appraisal, using the Michigan forms. The result of this appraisal was:
| Chicago and Northwestern, present value | $8,551,530 |
| State appraisal, present value | 8,281,090 |
In this case the railroad had no records, and the work was of value to them, not only as a check on the work of the State, but also as giving them complete records of permanent way. It was not done independently of, and after, the State work, but was organized so that the field work of both railroad company and State was done at the same time.
No other complete work of valuation was done by the railroad companies. During the trial of the cases, no contrary or different valuations were set up. No special attack was made on the work, except to select here and there some specific example of a building which was appraised at a higher figure than cost, perhaps half a dozen in all, and to introduce expert evidence, particularly on land and right-of-way values. Aside from the money expended on the litigation, there were no expenditures by the roads in checking up the work. On the contrary, a number of managers, at their own expense, had typewritten copies of the final report as to their own lines made, in order to file in their records.
It is a fact that only one of the seventy-eight roads made a complete appraisal, covering 387.8 miles of main line, and none of the other roads or mileage went to any considerable expense.
The Cost of the Work.—No complete statement of the total cost of the work of valuation in Michigan has ever been issued as a public document. The cost of the work, including salaries of appraiser, engineers, assistants, clerks, all expenses of the Board of Review, all expenses connected with Professor Adams' non-physical appraisal, also all office rent, stationery, supplies, telegraph, telephone, and railroad expenses, printing and binding—in short every dollar chargeable to the Michigan railroad appraisal of 1900—footed up to $70,604.21.
The exact mileage of roads in the State was:
| Main track | 7,082.35 | miles. |
| Second track | 164.83 | " |
| Branches | 730.92 | " |
| Spurs and sidings | 2,904.70 | " |
| _________ | ______ | |
| Total | 10,882.80 | miles. |
| Average cost per main-line mile | $9.97 | |
| " " " total-track " | 6.50 |
The exact figures of cost of the subsequent work of appraisal, or the costs of the litigation, are not available to the writer. In a general way, it may be said that the cost to the State of the railroad tax cases was not far from $75,000, and that the expenses of the second and third appraisals were less than $50,000, so that, to date, the entire cost to the State of Michigan is less than $200,000 for the three appraisals and the litigation growing out of them.
Some information as to details of costs may not be out of place. All employees were paid a salary and required to provide their own subsistence. Salaries ranged from $250 to $500 per month for experienced men, from $125 to $250 for men with only a few years of experience, and from $75 to $125 for assistants and clerks.
All traveling expenses (except hotel and subsistence) were paid, the State issuing mileage books to all employees, and receiving a complete check on the movements of every man through the mileage bureau. The telegraph and long-distance telephone were used almost exclusively in communication between the office and the men in the field, all bills being paid by the State. All expenses of inspection by hand-car, velocipede-car, etc., were paid by the State, except as the roadmasters made trips with the inspectors.
The unvarying policy of the appraiser was to reimburse the companies for all extra expenses incurred on account of the work, and to accept no transportation or favors from any company.
TABLE 7.—Grand Summary of Railroad Appraisal of 1900 as to Seventy-eight Incorporated Railroads.
Physical Appraisal.
| Item No. | Subject. | Cost of reproduction. | Present value. | |
|---|---|---|---|---|
| 1 | Engineering, 4% on items 2 to 25, inclusive, and on item 33 | $5,386,772 | $5,386,772 | |
| 2 | Right of way and station grounds | 27,745,313 | 27,745,313 | |
| 3 | Real estate | 863,337 | 863,337 | |
| 4 | Grading | 21,699,995 | 21,693,024 | |
| 5 | Tunnels | 1,148,070 | 1,093,445 | |
| 6 | Bridges, trestles, and culverts | 8,027,119 | 6,337,819 | |
| 7 | Ties (cross- and switch-ties) | 11,139,924 | 6,148,748 | |
| 8 | Rails | 28,703,012 | 21,865,994 | |
| 9 | Track fastenings | 3,845,030 | 2,987,982 | |
| 10 | Frogs, switches, and crossings | 1,469,781 | 1,040,120 | |
| 11 | Ballast | 3,723,558 | 3,723,558 | |
| 12 | Track laying and surfacing | 6,555,638 | 6,400,972 | |
| 13 | Fencing | 2,763,595 | 1,627,790 | |
| 14 | Crossings, cattle guards, and signs | 607,542 | 428,474 | |
| 15 | Interlocking and signal apparatus | 501,883 | 448,686 | |
| 16 | Telegraph (30) telephones | 258,985 | 134,797 | |
| 17 | Station buildings and fixtures | 4,108,736 | 3,111,103 | |
| 18 | Shops, round-houses, and turn-tables | 2,157,228 | 1,467,569 | |
| 19 | Shop machinery and tools | 1,107,910 | 882,634 | |
| 20 | Water stations | 725,670 | 522,135 | |
| 21 | Fuel stations | 303,289 | 201,461 | |
| 22 | Grain elevators | 1,336,794 | 1,609,043 | |
| 23 | Warehouses | 258,646 | 183,910 | |
| 24 | Docks and wharfs | 5,531,919 | 3,831,934 | |
| 25 | Miscellaneous structures | 1,234,345 | 856,253 | |
| 26 | Locomotives | 9,021,517 | 5,092,053 | |
| 27 | Passenger equipment | 3,197,473 | 2,277,271 | |
| 28 | Freight equipment | 19,734,240 | 13,690,587 | |
| 29 | Miscellaneous equipment | 702,940 | 423,689 | |
| 31 | Ferries and steamships | 1,725,000 | 1,095,500 | |
| 32 | Electric plants | 93,061 | 89,898 | |
| 33 | Terminals. Included in Items 1 to 32 | |||
| 34 | Legal expenses, 0.5% on items 2 to 25, inclusive, and on item 33 | 673,349 | 673,349 | |
| 35 | Interest, 3% on items 1 to 34, inclusive | 5,290,549 | 5,290,549 | |
| 36 | Miscellaneous expenses | Organization, 1.5% on items 1 to 34, inclusive | 2,645,277 | 2,645,277 |
| Contingencies, 10% on items 1 to 34, inclusive | 18,428,759 | 15,127,110 | ||
| Total Cost of Construction and Equipment. | $202,716,262 | $166,398,156 | ||
| 37 | Stores and supplies | 1,474,829 | 1,474,829 | |
| Average per main-line mile | 28,263 | 23,495 | ||
| " " total-track mile | 18,627 | 15,290 | ||
| Total Value of Non-Physical Element (H. C. Adams) | 35,814,043 | |||
The Result of the Michigan Work.—Any undertaking must be judged by its results. The Attorney-General's report for 1906, on pages [21] and [23], states:
"These cases are among the most important in the history of the State. They constitute the last step in subjecting railroad property in Michigan to taxation on the same basis and at the same rate as other property is taxed, and secure practical uniformity and equality of taxation between railroad and other property.
"As a result of these cases the various railroad corporations paid in taxes $4,787,478.15, and as penalty thereon $1,158,321.18, a total amount of $5,945,799.43 for the years 1902, 1903 and 1904. The 1905 tax being paid soon after the decision of the Supreme Court, nothing was paid under the former law (specific tax on earnings) and, of course, there was no penalty on the 1905 taxes as they were paid before May 1, 1906."
In short, the roads are paying to the State of Michigan an average of $1,595,826.05 more per year than they paid under the old law, and to date the State has received about $10,750,000 more from taxes than it would have received under the old specific tax law.
Railroad development in Michigan has received no appreciable check, and notwithstanding a 2-cent fare and the bearing of an equal burden of taxation, the properties are maintained, and improvements, double-tracking and betterment of general standards fully keep pace with similar work in other States.
Of course, it must be recognized that other forces besides the appraisal helped to bring this about. The appraisal of 1900 furnished the information. Public opinion compelled the passage of the needed laws, and the magnificent legal work of Attorneys-General Blair and Bird, Congressman Townsend, and Judge Knappen, and their associates, loyally supported by Professors Cooley and Adams and the appraisal staff, were all factors in securing the decision of the Supreme Court of the United States.
[5]. Bulletin 21, U. S. Bureau of the Census, p. 78.
[6]. Bulletin 21, U. S. Bureau of the Census.