It is extremely difficult to treat this as a physical element. It is impossible to reduce it to terms of dollars and cents by any usual or customary methods. It is impossible to separate it from any one of half a dozen other items that may be brought up. It opens the door to endless speculation as to what might or might not take place under somewhat different conditions. For these reasons, it was treated in the Michigan appraisal as a non-physical element of value and dismissed from all consideration in the physical appraisal. This was clearly proper, and the subject is only referred to here for the purpose of making clear that it was fully studied and a definite conclusion reached.
Adaptation.—In the sense that this term is used by Mr. Williams and Mr. Morgan, the appreciation or solidification of roadbed was considered in the Michigan work, but given no place in the appraisal. This is a very proper item to consider, but it would appear to be better to include it directly with the roadbed item in the physical appraisal as appreciation or solidification. There can be no reasonable objection to adding to the contract prices for grading, ballasting, etc., a reasonable amount to cover, not so much the seasoning and settling of the new roadbed, as the actual money disbursed in work on this new roadbed during the first 3 or 4 years of operation in order to bring it up to the proper operating condition. A very considerable part of the money spent on "maintenance of track" for the first few years after a new line is built is in reality deferred construction cost.
(h) Apportionment of Values.—The apportionment of values of locomotives, cars, miscellaneous equipment, shops, and those other parts of the cost which are not susceptible of separation from the operation of the property as a whole, is an interesting and at times a perplexing problem. While the Courts have viewed as equitable the distribution of values between territorial units when made on a track-mileage basis, it is hardly likely that a Court would look with favor on an appraiser appointed by Michigan giving any consideration to values of bridges, track, or buildings in Ohio. Thus far, every State appraiser has concerned himself only with the fixed physical property in his own State, together with his proportionate share of the floating property. The methods that may be considered are track-mileage, car-mileage, locomotive-mileage, and train-mileage.
The method finally used must be such as will give the fairest result for the property under consideration. In some cases one or more of these methods will give a fair value, while in other cases the same system would be most unjust.
(i) Terminals.—There is no one feature of the entire problem so big with possibilities, and so far from solution, as that of terminal property values and their proper assignment. The property must be considered as an operating unit. Its value must be made up of the values of the parts or elements plus an added value that comes from the operation of the whole. The problem would be simplified if what were sought were the value of a certain railroad, but, as it has been presented up to this time, the problem is: what is the value of that part of this railroad in Michigan? or Wisconsin? or Minnesota? A fairly satisfactory solution of many of the value questions has been obtained, but nothing in the way of a solution of the terminal question. A road owns 300 miles of line in Michigan and 7 miles in Ohio. That 7 miles includes its largest terminal; its principal connections are there; it has a fine property, and is in the capacity of landlord to several other roads. What part of that terminal value, if any, is assignable to the State of Michigan? Decidedly, it would not be proper to appraise the entire property as a unit and assign to Ohio only the proportion that 7 miles bears to the whole length; it is equally unfair to appraise it as a Michigan property down to the State line, and add nothing to the value by reason of the terminal.
The influence on the value of the property, of the ownership of terminals in such cities as Chicago, New York, Jersey City, Hoboken, Pittsburg, Detroit, St. Louis, Kansas City, and other large centers of population is tremendous, yet a very large part of the railroad mileage entering those cities belongs to roads which have their largest mileage outside the State in which the terminal is located.
There can be no doubt that the influence of a large terminal affects in a measure the value of every mile of line owned by the company; that this influence is greatest on the principal and direct lines, and less as more remote parts of the system are reached. As yet, no plan has been suggested for determining what this value is or for apportioning it.
The final solution in Michigan was to treat terminal properties within the State exactly as other property was treated, and to assume that, if there was any value assignable to Michigan by reason of outside terminals, it would appear as a non-physical value through the earnings.
When all the phases of this question are considered—the enormous land values, the value due to possession of deep-water terminals, the effect on the business of the entire property by reason of the ownership of such properties as those, for instance, in New York City, Jersey City, and Hoboken—it is evident that no appraisal which has yet been made has established any rule of valuation which may be considered proper for terminals.
It is to be hoped that the work now in progress in New Jersey may be so well supported by the State that it will be possible for the appraisal board to make an exhaustive study of this subject and reach definite conclusions as to the real extent, manner of computation, and proper method of distribution of these values.