The work in Wisconsin and Minnesota was done in co-operation with the railroad companies, who prepared (generally, but not in every case) their own inventories on forms adopted by the appraiser. In Michigan, all this information was secured by the appraiser. There can certainly be no valid objection to the use of information compiled by the companies, whose familiarity with their own records and property would enable them to supply lists which under all ordinary conditions would be more complete and up-to-date than if made up by men having no special knowledge of the property.
The chief difficulty encountered in making an inventory from recorded data lies in the fact that very few sets of records are corrected to date, and many additions and erasures will of necessity have to be made in the field.
In making a field inspection, it is of great assistance to be able to refer to maps of large yards, to profiles, to standard plans, and to drawings of the principal structures, so that the investigation of office records should include a careful examination of the maps of principal terminals, with a view to securing such as will simplify the field inspection. The investigation should be extended to cover a study, not only of the engineering office data, but also statistical data to be derived from the records of the auditor, superintendent, and superintendent of motive power, and should cover earnings, operating expenses, car and locomotive mileage, and such other data as will facilitate the distribution of such elements of value as are not localized, together with such other statistics as will furnish a thorough knowledge of the property and its operations.
It has been claimed by the appraiser in Washington—and the view is also held by the Commissioner of Railroads in Nebraska—that original cost is essential, in view of the Supreme Court's decision, particularly in Smyth vs. Ames. The writer cannot accept the correctness of this position. It would appear that the language of the Court should be construed to mean that original cost, where ascertainable, is a proper matter to take into account, along with many other things; but it can hardly be considered mandatory.
In the case of a property only recently built, in which the records are complete and the engineering and construction files are available, it may not be specially difficult to determine cost, but in the case of any of the large railway systems of the United States, which are made up of the consolidation of many different roads, some of them built many years ago, some of them having gone through many changes of management, reorganization, and earlier consolidation, it is practically impossible to secure either the old financial books or the old construction records, and without these complete records it would appear to be an utter impossibility to secure the primary cost. Primary cost is but the first step. The work of building up, by securing the amount of additions and betterments that have been made from year to year, is one of appalling magnitude and of utter uncertainty and conjecture. Keeping in mind that, prior to July 1st, 1907, the railroad companies of the country did not have a system of uniform accounting, and that additions to property were charged to operating expenses to the extent of hundreds of millions of dollars; that policies were different on different roads, and under different managements of the same road, and that the accounting methods were determined by the policy of the road or management; and the further fact that the distribution of ordinary railroad accounts may be extremely reliable on one road and abounding with errors on another; it will be seen that any attempt to depend on the auditor's office for anything approximating a complete statement of cost would lead into a maze of figures which would be confusing, unreliable, and incapable of proof.
Therefore, it is the writer's conclusion that, beyond such figures on recent construction, or records of cost of such special structures as are matters of particular record, it is not advisable to attempt to secure complete data as to the cost to date of a railroad. In the Michigan appraisal, original cost was secured in the case of many structures, notably the Port Huron Tunnel, and it is by no means argued that original cost should not be considered, or investigated, but it is held that such an undertaking as to secure, from the financial books of the company, an accurate or reliable statement of construction cost, plus additions and betterments, less property destroyed, of the Michigan Central Railroad, for example, would be absolutely an impossibility, particularly if the work was to be undertaken, as in the Washington appraisal, by men who were utter strangers to the property. The admission of the appraiser of Washington, that, except for a few gaps, the information was complete, is fatal, as the gaps must needs be filled by estimates, and it would appear to be better to depend on estimated figures throughout than to use what purported to be actual costs on part and estimates on the remainder.
If original cost is essential, it is hard to get away from accepting the book values of the companies, as these, objectionable as they may be, from the viewpoint of the public, are just as apt to be as near the actual truth as any statement made up by strangers from an examination of old records covering many years of operation.
II.—The Field Inspection.
The field inspection, to be of the greatest value, should be made by civil or mechanical engineers of long experience, preferably by men who have had charge of their respective departments on railroads of considerable extent, or of properties similar to that under investigation. The writer is of the opinion that in this particular phase of the work, the practice adopted in the Michigan appraisal was considerably in advance of more recent valuations. Each particular structure or piece of equipment should be examined and its condition noted; special features should be fully described and careful record made of everything that would tend to affect the value. The argument has been often made that the fixing of a percentage of depreciation by a man in the field is purely arbitrary and amounts to nothing but a guess. In the computing office it is often necessary to check the field figure of depreciation by the use of tables of fixed annual depreciation, but it must be borne in mind that mortality tables of any form are based on a system of averages. The actual depreciation on rail, for instance, varies greatly; the conditions of traffic, curvature, gradient, rolling stock, and various local conditions tend to shorten or lengthen the life, so that the personal opinion of an experienced man on the ground is likely to be much more nearly correct than the arbitrary application of a rule of averages.
The writer has inspected station buildings more than 50 years old, and their condition and adaptability for the service required of them would give them a very high percentage; he is also familiar with buildings less than 10 years old, which, by reason of changed traffic conditions and consequent shifting of business, have become obsolete and have been permitted to depreciate so rapidly that any table average would give too high a result.