As to Capital: that the company can show proper value for the securities issued, and, if an increase is made, the sum obtained should be used for the betterment of the property;
As to Rates: the Courts have said that what the company is entitled to ask is a fair return on the value of that which it uses for the public convenience;
As to Taxes: what is the true value of the property of the company, treating it with absolute equality, as compared with that of other taxpayers?
It is to determine what these values are that the Engineer among others has been called on. The literature on the subject is increasing, and there are some decisions of the Courts which help, but there are yet perplexing and intricate questions to be determined; not to be answered by captious criticism and indignant retort, but by an honest effort to arrive at some common ground of fairness to both State and Corporation; for, after all, the Corporation is a part of the State, a great distributor of money, a large taxpayer, its stockholders men of worth and capacity, and there should be no desire to penalize it or interfere with its legitimate prosperity. The Corporation is surely dependent on the State and the good will of the people for its welfare. Mistakes have been made, no doubt, just because this common ground has not been reached, and the writer thinks that it is largely within the province of the Engineer to establish it.
In arriving at either of these values, the chief tangible asset is the value of the physical property. This can be determined with a great degree of accuracy, and though by no means alone representing any of the values, it seems to be indispensable as a basis and starting point. The balance sheets of the Corporation commence with a statement of the cost of road, plant, etc., and must be checked to permit correct deductions from the results of operation shown in them; and, for purposes of taxation, they would seem to be particularly reliable.
The Engineer called on to make such a valuation for whatever purpose should, under like conditions, value each item the same for all, but it does not follow that every item, including the percentages added, should appear in the total valuation for all purposes. There are legitimate charges in valuations made to determine capital which should not appear in one made for assessment for taxes. Unit prices should not change, but the purpose for which the valuation is made should properly be considered in arriving at the final figure.
To or from this valuation, especially if made to determine proper capital, there must be added or subtracted certain values for intangible property, often found by a study of the income account of the Corporation. This makes the official ask: Why make a valuation of the physical property at all if your final result depends on the income? Because it is one item which cannot be manipulated; it does not change materially from year to year; it is not dependent on rates or income; it forms a very large item in the assets of the Corporation; and it is a sound basis on which to stand.
For the purpose of determining the proper amount of securities, the cost of reproduction at present prices would seem to be the value sought; whereas, for taxation purposes, or to determine a proper selling price, the present value is what is required, allowance being made for depreciation. A railroad, for instance, might be considered as an instrument for transporting passengers and freight, and, though the ties are not new, the rails worn, and the locomotives of an old type, they do their work just as safely and expeditiously, and, if no account is to be taken of the cost of maintenance, the road might be considered to be worth as much as if new.
The officials of the Corporation are generally perfectly willing to give any facts or to furnish access to any records they may have, but are not willing to state their opinions as to prices, depreciation, etc. The Engineer is making the valuation, not they; and they reserve the right to criticize, at the proper time, both the results and the conclusions drawn from them. The Engineer should be absolutely fair and just, not using improperly the information obtained, but endeavoring to reach results which appear to be unquestionably correct. He must divest his mind of the innate desire to minimize the consequences of his decision to the Corporation, on the one hand, or to favor the State or his employer, on the other; it may be difficult, but on his ability to do this depends the success or failure of his work.
Considering the subject generally: in making the valuation of the physical property, the organization should consist of one man in charge, and under him a field organization and an office organization. The property, if large, should be divided into convenient districts, with a division engineer and necessary assistants in charge of each. Care should be taken that these assistants are competent men, though they are often hard to obtain for temporary work of this character, and there is not sufficient time in which to weed out and perfect an organization. They should be men of experience on the particular class of work to which they are assigned, and should be tactful and courteous. Stress should be laid on keeping plain, neat notes, not too crowded; on watchful care of the party working in the field, to prevent accidents, and on the necessity of absolute correctness in calculations and figures, in the multitude of which it is surprising how many mistakes will creep in unless special care is taken to check every step thoroughly. The office engineer should be equally competent, and accustomed to systematizing and analyzing, so that the results will be arranged systematically, not only as considered by themselves, but as far as possible according to the classification of the Interstate Commerce Commission, so that, no matter where made, they can be easily compared.