The Valuation of Public Service Corporation Property / Transactions of the American Society of Civil Engineers, / vol. LXXII, June, 1911, ASCE 1190

by Henry Earle Riggs

In order to determine the quantities and materials in the permanent way and structures, nine engineer corps were organized, each corp consisting of six men. With this force the center line of the main running track was measured, and the exact distance in each taxing district recorded. Cross-sections of the roadbed were made as often as changes in the natural surface required, and accurate measurements and notes were made of all structures; and, although in many cases the engineers were able to secure the plans of the more important steel structures, the field parties were required to obtain sufficient data to compute the tonnage in case it was impossible to get these plans.

The field parties were also instructed to note the character of the land and improvements adjoining railroad property, and record such other information as was necessary for a comprehensive understanding of the conditions attendant on the construction of a railroad in that locality.

The time allotted for the completion of the work is one year, and although this is a comparatively short period in which to introduce a premium system in field work, it was decided to inaugurate such a system as would be as nearly satisfactory as possible under the conditions. A record of each field force for each day in each month was made on profile paper, using the horizontal lines to represent the number of tracks, and the vertical lines to represent distance. Two horizontal lines were allowed for single track, four for double track, and so on. One mile was allowed for each vertical division of the paper, and, in awarding the premium, there was taken into consideration, not only the extent of territory covered by each field party, but much consideration was given to the field notes, and a cash prize was awarded each month.

The results of the organization and encouragement to the field parties are shown by the very great increase in the amount of work per man of the field parties, which was nearly 300% during the time the parties were in the field.

A great many questions hinging on interstate commerce, and involving Fundamental, State, Federal, and International Law, are embraced in the broad view of the valuation of railroad properties. The movement of rolling stock through various States, and between the United States, Canada, and Mexico, and the determination of the situs and domicile of floating equipment, are subjects which, not only require considerable knowledge of railroad operation, but involve many questions not clearly determined by the Courts.

The subject is of such great importance that steps should be taken to formulate methods of procedure, and, at the Annual Meeting of the Society, the speaker will offer a resolution requesting the appointment of a Special Committee to determine the proper methods to be used in the valuation of public utilities.

J. Martin Schreiber, M. Am. Soc. C. E.—Engineers and those generally interested in the valuation of public service properties are fortunate in having the valuable information embodied in this paper. Although there are some points on which the speaker differs with the author, the following remarks are only offered in order to bring out, from experience, some further phases of the subject, rather than as an attempt to criticize.

A great deal is heard about the exact cost of reproduction, also arguments in reference to the proper allowance for contingencies, probably only involving a small percentage. The speaker questions the propriety of advocating the exact cost figures. The carefully checked cost figures of reliable contractors, with first-class engineering organizations, submitting proposals on the same construction, are often found to vary from 5 to 15% from the total cost. Different organizations will sometimes be the cause of figures varying 5% or more, depending on the efficiency and experience of the corps. A clever purchasing agent will reduce an apparently precise estimate on equipment or supplies as much as 10%; on the other hand, the condition of the market may be such that the actual price paid exceeds the estimate by the same percentage. Engineers who are responsible for estimating on, and the execution of, construction projects generally add more than 10% for contingencies, as it is practically impossible to anticipate them, and a precise estimate is almost certain to fall short. It is unfortunate that it is almost impossible to sustain contingency figures on the witness stand; for that reason, probably, it would be more satisfactory to the lay mind, and to the various courts, boards, etc., which are required to pass on valuations, and do not thoroughly understand the technicalities of the situation, if engineers would drop the contingency item and modify the quantities or the unit prices.

If it is possible to estimate the exact cost of reproduction, certainly considerable variation may be expected from independent sources in computing depreciation and present values. Yet there are reputable engineers who would have one believe (assuming that they know the cost of reproduction) that by a simple field inspection they are able to compute the exact present value.

Some time ago, the speaker heard an expert testify in the interest of a certain city, for tax purposes, with reference to the value of a piece of street-railway track. He first stated the valuation for reproduction, and then the definite present value. The latter was greatly in excess of the actual value. The expert, who was an engineer of considerable standing, on cross-examination, did not know the height of rail from top of head to bottom of groove, either at the joint or any other part in its length; he did not know the exact depth of flange of the car wheels which operated over that track, the headway, or the exact weight of the cars used. He had assumed the condition of the ties, and that the track was ballasted. Finally, he was compelled to admit that his determination of the depreciation, by simply a field inspection, was a very rough approximation. Now, it is not in every case in the past that a corporation attorney, even with engineering assistance, has been able to point out unfair testimony. Many times the speaker has heard incompetent testimony admitted, on the general principle that the witness was an engineer of note, even though his record had been made in other specialities. Too much stress cannot be put on this phase of the subject, and the speaker is glad that the author has mentioned the fact that the personnel of those doing appraisal work should be of the highest order. In the past it is probable that the failure to discriminate properly in accepting incompetent testimony (not to mention prejudiced testimony) was automatic, and this is the most important reason for much of the hostility of officials of public service properties toward all forms of investigation, as the author mentions.