Railroad Appraisal of the State of Texas.
Authority for the Work.—In 1893 the Legislature of Texas enacted what is known as the Stock and Bond Law, which was designed to control and limit the total amount of stocks and bonds that may be issued on any railroad property to the "reasonable value of said railroad property." This law further provides that:
"It shall be the duty of the Railroad Commission to ascertain, and in writing report to the Secretary of State, the value of each railroad in this State including all its franchises, appurtenances and property."
The work of valuation in Texas antedates that in Michigan, and offers some interesting opportunities for comparison of methods under somewhat similar conditions, as far as the existing roads were concerned. The work being in the hands of a permanent commission with very broad powers, it has been possible to secure from recently built roads very full and specific data as to construction, but with these later valuations and with the current work of the department, this paper will not deal.
The Commission of Texas interpreted the law to mean the estimated cost of reproducing or duplicating the properties at the date of valuation, allowing current market prices for all material and fair valuations on all real property.
Method of Physical Appraisal.—The Commission duly appointed engineers to make these valuations. The railroads of the State were unfavorably disposed toward the work, and were inclined to withhold information.
The Texas staff encountered the difficulty due to destruction or loss of construction records, maps, and profiles. They had for their guidance only the profiles, filed under a prior law, and were thus compelled to depend wholly on original field work to secure their data. From a paper by R. A. Thompson, M. Am. Soc. C. E.,[[7]] the following description is taken:
"They [the engineers] with the profiles ... in hand, made a detailed inspection of the railroads on the ground. The quantities of excavation and embankment, where the actual quantities could not be obtained, were estimated approximately from the profiles, using the center heights of the cross-sections. The classification of the materials in excavation was determined by inspection. Where original plans and estimates of cost of the bridges, buildings and structures of all kinds could not be obtained from the records of the railroads, their value was estimated from measurements taken on the ground. The extent and acreage of the right of way, the depot and terminal grounds, were determined by actual measurement, or from maps furnished by railroads, or from city and county tax records.
"After an examination of a railroad had been made by the engineers of the Commission, its valuation was prepared on estimate sheets. Upon sheets marked Estimate Sheet A ... were recorded the values of the right of way and depot grounds, roadbed, track, bridges, structures and way building for each mile, the value of ten miles being recorded on each sheet.... On these sheets space was provided for the units and prices, and columns for carrying out the values for each mile and the totals.
"The value of all rolling stock and equipment, and the value of such properties as were properly applicable and chargeable to the entire railroad, were recorded on a separate estimate sheet, only one sheet being used for a railroad."
It thus appears that the general methods of securing the data and making the field examination were quite similar to those adopted on the Michigan work. The classification of items on the sheets is rather more full than on the Michigan summary sheets, but apparently not so completely in detail as the final compilation of work. In general, however, the physical items included are complete in both cases. The form in which the results are finally put up is radically different.
The following points of variations from the practices of the Michigan appraisal are noted:
(a) The unit prices were current market prices.
(b) The value applied to right of way and real estate used for railway purposes was in accordance with the current market value of other property immediately adjoining, disregarding donations or property acquired at less than value.
(c) No deduction was made on account of depreciation, as it was considered that all structures must be maintained in first-class, serviceable value, and renewed when necessary, and no allowance was made for appreciation of roadbed.
(d) No allowance was made for franchise values of any kind, except track rights in streets.
(e) No allowance was made for contingencies, except as made in prices or quantities.
Their practice was in accord with the Michigan appraisal, in allowing from 5 to 6% to cover legal and engineering expenses and superintendence, and from 5 to 6% to cover interest during construction.
The Result of the Texas Work.—The object sought in Texas was to secure a capitalization in harmony with the actual investment in the physical property; in short, to "squeeze out water."
Of course, all stock and bond issues outstanding in 1894 are still in existence, except as a few roads have been sold out or re-organized. No new issues of stock or bonds may be made on roads in excess of the valuation. Consequently, new roads are limited to issues of bonds not far from $15,000 per mile. The effect is shown by Table 8, from the Railroad Commission's Report.
TABLE 8.—Miles of Railway in Operation in Texas, 1894 to 1908, With Outstanding Stocks and Bonds.
| On June 30th. | Miles of railway in operation. | Stocks outstanding, per mile. | Bonds outstanding, per mile. | Total stock and bonds outstanding, per mile. |
|---|---|---|---|---|
| 1894 | 9,154 | $15,076 | $25,726 | $40,802 |
| 1895 | 9,291 | 14,874 | 25,420 | 40,294 |
| 1896 | 9,437 | 14,647 | 25,302 | 39,949 |
| 1897 | 9,484 | 14,320 | 24,793 | 39,113 |
| 1898 | 9,540 | 14,205 | 24,036 | 38,241 |
| 1899 | 9,702 | 13,997 | 23,562 | 37,559 |
| 1900 | 9,867 | 13,724 | 23,202 | 36,926 |
| 1901 | 10,154 | 12,922 | 22,649 | 35,571 |
| 1902 | 10,617 | 12,388 | 21,779 | 34,167 |
| 1903 | 11,029 | 11,971 | 21,464 | 33,435 |
| 1904 | 11,495 | 32,400 | ||
| 1905 | 11,662 | 33,418 | ||
| 1906 | 12,056 | 32,886 | ||
| 1907 | 12,577 | 32,142 | ||
| 1908 | 12,830 | 32,305 |
| Total reduction, up to 1903, of stock per mile | $3,105 |
| " " " " " " bonds " " | 4,262 |
| Total stock and bonds | $7,367 |
E. L. Corthell, M. Am. Soc. C. E., speaking of results secured by the Texas law, says[[8]]:
"The law, and generally its just operation, has cured many unmitigated and notorious evils. Not only has the public in Texas been benefited, but also the investor in railroad securities from the outside of the State. The people of Texas now have just and uniform rates of transportation, and the investor knows what he is purchasing, and may be reasonably sure of a return on his investment."
Mr. Thompson says[[9]]:
"Another significant fact is that only a short time before the Stock and Bond Law became effective about 39% of the railroads in Texas were in the hands of receivers. To-day there is not a mile, of the 11,300 miles in Texas, in the hands of receivers, and, with a few unimportant exceptions, no railroad has been in the hands of receivers since the law went into effect. The fact is that there has been no piece of legislation, in this or any other State of the Union during the past decade, which has been so fruitful of results and beneficent in its action, alike to the railroads and the people."
[7]. Transactions. Am. Soc. C. E., Vol. LII. p. 328.
[8]. Transactions. Am. Soc. C. E., Vol. LII. p. 346.
[9]. Ibid., p. 364.