Wealth against commonwealth

by Henry Demarest Lloyd

The people of Toledo were thus prevented from getting the pumping facilities ready during the summer of 1892 for the work of the winter. Meanwhile its rival had been secretly pushing pumps for itself to completion, in the hope that it alone would be ready when cold weather came. This would mean a gain to it, at the city's expense, of hundreds of thousands of dollars. Late in August, 1892, the representatives of the city found that two powerful duplex gas pumps had been shipped to the gas-field, and were being put in place by the very opponents who had declared pumps impracticable. Public sentiment became aroused to the need for the immediate purchase of pumps to protect their wells. The city attempted to use its income from the sales of gas to buy pumps. An injunction was applied for and granted. This emergency was finally met by having the gas trustees hand over to the city authorities the accumulated earnings they were forbidden by the court to spend themselves. The city thereupon turned around and invested this money in the gas bonds. In this way the identical money the gas trustees could not use while it remained in their hands was made available to them by passing through the hands of the Sinking Fund Trustees, and coming back to them. Thus the natural-gas trustees were enabled to make a contract in September, 1892, for pumps to assist the flow of gas to the city.

The gas pumps are a patented device. The private companies, wanting all the profit of everything, had had their pumps made at their own factory. The city made its contract directly with the owner of the patents. The result was that the city got its pumps in place in time to save the city pipe line, while its opponents were delayed by the inexperience of their own pump-makers. This was the most critical period in our history. Greed had again defeated itself. Had the opposition gone to the owner of the patents he would have been unable afterwards to take the city's contract and complete it in time, and the effort to make the city line valueless would have succeeded—for the time being, at least. The bonds in question were afterwards held valid by the Supreme Court.

Toledo knew it was building wisely, and every day brought new proof that it had builded better than it knew. Its saving was great, but that was the least of its gains. It escaped tyranny and extortion and other wrongs which fell upon communities in plain sight, which had not the wit and virtue to establish their independence. When the city pipe line was opened in 1891 the city began supplying gas to its citizens at 8 cents a thousand for houses. The private companies were charging 12 cents a thousand, or 50 per cent. more. Profits were such at this charge of 12 cents a thousand feet that in some tracts single wells would repay the cost of the land every four days and two hours, or eighty-nine times a year. Since then the private corporations have raised their rate to 25 cents. The city continued the rates at 8 cents until December, 1892, when the rate was advanced to 15 cents. This advance would have been unnecessary but for the losses arising from the obstructions placed in the way of the city plant.

The people of Toledo got their gas lands, pipe line, and street mains for an outlay of $1,181,743 up to the end of 1891,[547] and $1,294,467 up to the end of 1892. In the canvass before the election in 1889 their opponents declared that $4,000,000 would be required.

Private enterprise cannot find rhetoric strong enough to express its contempt for the inefficiency, costliness, and despotisms of public enterprise. Private enterprise put at $6,000,000—twelve times the amount of the property they reported for taxation—the "capital" stock invested by the two natural-gas companies. The city pipe line was capitalized (bonded) at just what it cost—a little more than a million. The city trustees built a better pipe line than private enterprise had laid. The private line was of cheap iron of 14-feet lengths, while Toledo's was in 24-feet pieces. One of the private lines was laid with rubber joints and in shallow trenches, in many places of not more than plough depth. It leaked at almost every joint; its course could be traced across the fields by the smell of gas and the blighted line of vegetation. There were frequent explosions from the escaping gas; lives and property were much endangered. The city line was laid with lead joints, and had every device that engineering experience could suggest for its success, and was so constructed that it could be cleaned or repaired, and freed from liquids interfering with the flow of gas, without shutting off the supply—features the other pipe had not. The action of the city trustees had to endure the microscopic scrutiny of friend and foe. No one was able to show as to a single acre that the title was defective, or that it could have been bought for less, or to find any taint of a job in the construction of the pipe. A committee of the city council sat and probed for six weeks, but failed to find any evidence whatever to confirm the reported "irregularities."

What Toledo will save in one year by the difference between the actual cost at which its people can supply themselves and the price the private companies would have charged, to pay dividends on $6,000,000 of "capital," is only part of the story. The profit of the city enterprise is to be estimated by its competitive effect upon the charge of the private companies. These have been kept down in Toledo much below the average of other towns, where they have been as high as 35 cents a thousand. If the city had not supplied a foot of gas this check on the private companies would make its pipe line still a good investment. The people, when it is in full operation, can pay the cost of the system complete out of the savings of a few years, then pay off the entire city debt, and have a large income left for public buildings, roads, parks. Or by reduction of price they can keep this sum in their pockets, where it will do quite as much for the general welfare as if it had been transferred to the bank accounts of non-residents.

The city, at the end of 1891, had 3299¾ acres of gas land. In March, 1892, forty-five wells were giving over 50,000,000 cubic feet of gas, equal to 3500 tons of anthracite coal. Its income from the sale of gas was at the rate of $20,032 a month in winter, and $10,221 in summer. An investigation made in March, 1892, by a committee appointed by the mayor at the request of the city's gas trustees, showed that an income could be counted on ($180,000) ample to pay all expenses ($128,120), including interest, rentals, and the cost of drilling new wells, and provide a small fund annually ($51,880) for the extinction of the bonded debt. The committee said: "We believe that if the gas plant is properly managed upon prudent business principles and methods, that it can be made a profitable investment for the city and her people; that the class who will derive the greatest benefit is the laboring class, who pay rent or taxes upon their little homes, and to whom the matter of cheap fuel is quite an item in the total amount of annual expenses; and we believe it to be the duty of every good citizen to aid and encourage this class."

These were the results with a charge of 8 cents a thousand. Gas to the amount of $167,899 had been sold up to August 1, 1892. Between November, 1891, and August, 1892, the city earned on the million invested the sum of $150,000, or nearly one-ninth of the cost of the plant, and this at the low price of 8 cents a thousand feet. Unobstructed by its enemies and at the price charged by the private companies, 20 cents a thousand, the city would pay for its entire plant in less than three years.

To discourage the public from going forward with its pipe line the private companies "talked poor." In an interview in the public press the president of the principal company said it had paid but 9 per cent. in dividends in two and a half years. The net earnings were stated to be "about 4 per cent. per annum on the capital," $4,000,000;[548] for the smaller company they were figured out to be at the rate of a fraction less than 1 per cent. a year on its capital of $2,000,000.[549] "We feel sore and hurt about it," said the "direct representative" of the oil combination to the citizens' committee; "we have seen no good return from our money." "It has pretty nearly swamped us," said the president of the company. The citizens of Toledo were shrewd enough to ask themselves how long their antagonists would have been likely to remain in a business which paid only 3 per cent., and was as "hazardous" and "shortlived" as they pictured it to be. Careful estimates made by close students of the question calculated that of the $6,000,000 of paper capital "invested" in the two companies which supplied Toledo and other cities, $1,125,000 was the proportion of actual cash devoted to Toledo. The receipts upon this Toledo investment in the two and three-quarters years between the opening of the business and the date at which, by the contract with the city, the council was to make new rates (June 30, 1890), were, as nearly as can be calculated from the figures of their report, $1,300,000 greater than the expenses of the Toledo business. This is a profit of 115 per cent. In less than three years the total investment had been repaid by the profits, and, in addition, enough to have paid dividends of 5 per cent. a year. This was an estimate, but it was an estimate publicly made from the companies' figures, and by a responsible man. It remained unchallenged at a time when every cranny of fact and fiction was being rummaged for missiles to fling at the people.

When the citizens' committee sought a reduction in price, the companies pointed to the small dividend their stockholders had had. In the face of the fact that they had received but a 3-per-cent. dividend the previous year, no business man, their spokesman said, could ask them to reduce their price. It is for such uses that shrewd men "water" stock. The surface of the capital is broadened, so that even large dividends can cover it only by being spread out very thin. This 3 per cent. a year was on $6,000,000 of dilution, representing a solid, at the most, of only $1,500,000. The balance sheets of the companies showed that the companies had paid small dividends for the additional reason that a large part of their receipts had been reinvested in lands, wells, and extensions of the pipes and plants.