l ÖtS 9 73
2. A
Form C-200
Aaatînaitnn
Members
THE CUM M INS-ESCH ACT
To Members and Others Cooperating:
YOU were asked, when the House Nov. 17 by 115 to 42 struck the rule
of rate-making from the Railway bill, to help transform those 42 into
a majority of the whole House. On Feb. 21, with 400 members vot¬
ing, the Cummins-Esch bill containing a rule of rate-making passed by
250 to 150, or 49 more than a majority, besides 6 paired in favor, or 55
votes to spare.
You were asked to persuade your acquaintances or neighbors in Con«
gress that whatever rule was adopted should authorize consideration of
rates as a whole in adjustments for revenue. The Cummins-Esch Act
authorizes and prescribes this.
You were asked to persuade them that the rule should say in plain
words that necessary expenses and a credit basis for adequate facilities are
to be the legitimate purposes for which rates are to yield sufficient revenue.
The Cummins-Esch does this.
You were asked to persuade them that the Commission should be re¬
quired to estimate the transportation needs of the country and the oper¬
ating and capital outlays requisite for meeting such needs. The Cummins-
Esch Act does this.
You were asked to persuade them that the Commission from time to
time, rather than Congress in a fixed statute, should ascertain and an¬
nounce the income necessary for adequate enlargement of facilities. Under
the Cummins-Esch Act after two years this responsibility rests upon the
Commission.
You were asked, in short, as summarized in our Catechism, to per¬
suade them to "prescribe the systematic and continuous ascertainment of
transportation needs and the capital requirements thereof, periodically
announced," and "definitely assign the duty of permitting revenues pro¬
portioned to the requirements so announced." This the Cummins-Esch
Act does. . 'T3
The 62%% vote in the House was exceeded by a 73% vote in the
Senate, 47 to 17. With the advocates of further government control and
eventual employee management congregated by the hundreds at Wash-
latltuay luattteaa
Bulletin to-
ington threabstvmg Retribution on election day, this was a memorable politi¬
cal achievement. . As a -performance and a harbinger in economics, it stands
high among the.-accomplishments of our republican democracy.
To all who havé contributed to the wisdom and courage of the Sixty-
sixth Congress in {»ringing about this result, their participation is a just
occasion for pride. 'Grateful acknowledgment is hereby made that no
group have rendered more effective cooperation to their leaders than the
members of the Railway Business Association and those who have worked
with them. Your officers give you our cordial thanks and best wishes for
abundant and stable prosperity under the conditions which the Interstate
Commerce Commission, the railway companies and the investing public
will now proceed to establish.
ALBA B. JOHNSON, President.
FAVORABLE OUTLOOK FOR RAILROAD RESTORATION
OPTIMISM over the possibilities under the Cummins-Esch railway
bill, which was passed by the House February 21 and by the Senate
February 23, was expressed by President Alba P>. Johnson, speaking
for the Railway Business Association, in a statement given to the news¬
papers. Mr. Johnson said:
"jT
is a long stride forward—a great event from all points of view. Con¬
gress is about to impose upon the government for the first time respon¬
sibility for the financial results of its regulation.
"The test of the measure will be whether under it the country can re¬
store its shattered transportation system and resume the national develop¬
ment which ten years ago began to slow down and is now worse than at a
standstill. The factor which will determine such restoration and such de¬
velopment is the spirit in which the Interstate Commerce Commission ad¬
ministers the act and in which our railway and investment leaders accept it
and go to work.
FAVORABLE SIGNS
' " J MERE are signs that the present personnel of the Commission is re¬
solved to deserve the high compliment paid to it by Congress in de¬
clining to create another Board. During the House hearings the spokesman
of the Commission declared the desirability of cheering investors up. Re¬
cently the Commission awarded the roads about $30,000,000 a year addi¬
tional mail pay, with restitution for back underpay. Rumor has persisted
that the Commission, anticipating a possible request from the Railroad
Administration for larger revenues, had schedules prepared and stood ready-
to demonstrate to its critics a capacity for forehandedness and prompt
action.
PERSONNEL OF THE COMMISSION
" DRESIDENT WILSON, in whose term will fall the appointment of a
Commissioner to fill the existing vacancy, two to fill places created
by the new bill, and one to succeed Robert W. Wooley, or four out of
eleven, lately indicated his purpose to name strong men by nominating
former Governor Stuart of Virginia, though* unhappily he declined. Great
constructive measures such as the Cummins-Esch bill tend to give Presi-
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dents the impulse to name and the Senate to confirm men of large calibre
and to command their acceptance. Considering that individual enterprise
and therefore perhaps the institution of property is at stake, it would only
be a repetition of history if the newly-constituted Commission were now
built up to emergency strength for its epochal task.
TO ORGANIZE NATIONAL RESOURCES
"CONGRATULATIONS and a vote of confidence are due the Associa¬
tion of Railway Executives for Chairman Cuyler's manly announce¬
ment that the managers will accept the legislation in good faith and make
the best of it. Difficulty looms in their path. The public may expect im¬
possible speed in returning to pre-war standards. Arrearages of facilities
are appalling. We even lack the cars in which to carry material where¬
with to build more cars. Restoration of discipline and efficiency must be
slow. The country, however, may count upon a tremendous effort by
the managers, and insofar as rehabilitation involves new capital the na¬
tion will look to investment advisors to organize the national resources
and find the means for keeping us a progressive republic, able and fit for
competition in world trade."
WHAT THE NEW LEGISLATION DOES
Ç ONCENTRATING authority and
responsibility upon the Inter¬
state Commerce Commission, the
Cummins-Esch Bill places that body
in this position:
MANDATORY "FAIR RETURN" SUF¬
FICIENT FOR ADEQUATE EN¬
LARGEMENT OF FACILITIES
After two years, during which the
rate of income on the value of the
roads as a whole or in groups must
be 5l/>% free and in the discretion
of the Commission may include an¬
other l/2% ear-marked for improve¬
ments, the Commission is from
time to time to "determine and
make public" what rate of income is
a "fair return." By "income" is
meant not the rate on the par value
of bonds or stocks paid to security
holders, but the income from rail¬
way operation after payment of
operating expenses and taxes. It is
that part of earnings which is avail¬
able for "interest," "stock and debt
discount extinguished," "appropri¬
ations for investment in physical
property," "sinking and other re¬
serve funds," "miscellaneous appro¬
priations," "dividends," and surplus.
Computation of Rate
Such rate is to be computed, not
on the par value or any value of the
securities, but on the value of the
property held for and used in the
service of transportation. The Com¬
mission has authority to deter¬
mine such value, giving "due con¬
sideration to all elements of value
recognized by the law of the land,"
and "to the property investment
account of the carriers" ($18,423,-
235,159 in 1917) "only that consid¬
eration which under such law it is
entitled to in establishing values for
rate-making purposes and when
the federal valuation now going on
is completed for any road it is to
be used.
The Sy2% or 6% income is not
for each road, but for all the roads
as a whole, or if the Commission
. forms groups, for all the roads in a
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group, so that as heretofore some
roads will earn more and some less
than the 5%% or 6% income, which
will be the average.
In 1915-17 this income averaged
5.2% on the statistical "property in¬
vestment account." Another way of
saying this is that half the income
was earned by roads earning 5.2%
or more and half by roads earning
less than 5.2%. By raising rates so
that the average is 6%, an increase
will be made in the income of all
roads which in 1915-17 earned less
than 6%. Some which had no in¬
come, or had deficits, will have a
fraction of 1%, those which had a
fraction of 1% may have 1% plus
a fraction, and so on. Whatever in¬
crease is obtained by a road former¬
ly earning less than 6% and now to
earn more than formerly up to 6%,
it can keep; its gross gain in in¬
come is net gain.
The effect upon roads which in
1915-17 had an income of 6% or bet¬
ter is set forth below in stating the
excess income provision. It may
here be said, however, that the ex¬
cess income provision, contrary to
persistent public interpretation,
GIVES no part of the excess to
roads that earn no excess. It mere¬
ly sets up a fund from which roads
can borrow upon showing of ability
to repay, and with which the Com¬
mission may buy facilities for lease
to roads on a 6% rental.
The Mandate
Congress makes its instruction to
the Commission mandatory. The
Commission "shall" initiate or es¬
tablish such rates that the roads as
a whole or by groups "will" earn a
net railway operating income equal,
as nearly as may be to "a fair re¬
turn" upon the value of the railway
property ; it "shall from time to time
determine and make public" what
constitutes a "fair return" and "shall"
give "due" consideration among
other things "to the transportation
needs of the country and the neces¬
sity ... .of enlarging such facili¬
ties in order to provide the people
of the United States with adequate
transportation. "
New Powers
For effective performance of this
mandatory duty the Commission ac¬
quires power to fix minimum as
well as maximum rates (to order
rates raised) and its rate orders
must be obeyed, "the law of any
State or the decision or order of any
State authority to the contrary not¬
withstanding."
For expedition of rate litiga¬
tion and fairness to carriers, the
period of suspension of rate ad¬
vances filed by them is reduced from
a possible eleven months as enacted
in 1910 to a maximum of five months
—120 days plus a 30-day extension.
Mobilization of Resources
Improvements of the class charged
to capital account, may, as stated
above, in the dicretion of the Com¬
mission, be made in the first two
years from a J4% income ear¬
marked for that purpose. In the
Senate Bill this )4% was to be for
non - revenue - producing improve¬
ments (monumental stationst elimi¬
nation of grade crossings, etc.), and
was not to be capitalized or used as
a basis for increased rates by car¬
riers whose income exceeds 5l/2%
upon the value of their properties.
The conferees' bill makes no refer¬
ence to the non-revenue-producing
feature or to capitalizing expendi¬
tures made with the )^%. It mere¬
ly authorizes the Commission in the
first two years to add to the 5>4%
l/2% "to make provision in whole or
in part for improvements, better¬
ments or equipment, which, accord-
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ing to the accounting system pre¬
scribed by the Commission, are
chargeable to capital account." Un¬
der this the 5^2% may be expended
as the carrier elects, but the
must go into improvements, issue
of securities being under federal
regulation, and after two years it
will be for the Commission to deter¬
mine not only the total rate which
is a "fair return," but the part of it,
if any, which must go into improve¬
ments and w.hether or not it is to be
capitalized.
Consolidations
Elimination of weak roads is to
be fostered through consolidations
voluntary but consistent with a plan
promulgated at the beginning by
the Commission. The Senate pro¬
posal for not less than 20 nor more
than 35 systems is thus displaced by
leaving full discretion to the Com¬
mission as to the number. (Maps
made public through the Nation's
Business, magazine of the Chamber
of Commerce of the United States,
by John E. Oldham, a Boston in¬
vestment banker, show 14 systems.)
Competition is to be preserved as
fully as possible, and wherever prac¬
ticable existing channels of com¬
merce maintained. Subject to this,
the several systems are to be so ar¬
ranged that the cost of transporta¬
tion as between competitive systems
and as related to the values of the
properties will be the same, so far
as practicable, so that these systems
can employ uniform rates in the
movement of competitive traffic and
under efficient management earn
substantially the same rate of re¬
turn. ,
Joint Use and Pooling
Fullest use of existing terminals,
trackage and equipment is aimed at
by permitting carriers to share or
the Commission to require them to
share such facilities, with such pool¬
ing of revenues as may be adjudged
correct by the Commission. Short
routing may be prescribed by the
Commission and also the divisions
of through rates among the several
carriers parties to through routes.
Excess Income
Above 6% on the value of its rail¬
way property each road is to keep
half and pay half to the Commis¬
sion. Expressed in legal verbiage,
Congress would declare lawful the
"fair return" as determined by the
Commission, but permit the roads
as its agents to collect more than
that and retain half of such excess.
The bill sets forth :
"Inasmuch as it is impossible
(without regulation and control in
the interest of the commerce of the
United States as a whole) to estab¬
lish uniform rates upon competitive
traffic which will adequately sustain
all the carriers which are engaged in
such traffic and which are indispen¬
sable to the communities to which
they render the service of transpor¬
tation, without enabling some of
such carriers to receive a net rail¬
way operating income substantially
and unreasonably in excess of a fair
return upon the value of their rail¬
way property held for and used in
the service of transportation, it is
hereby declared that any carrier
which receives such an income so
in excess of a fair return, shall hold
such part of the excess, as herein¬
after prescribed, as trustee for, and
pay it to, the United States."
The bill, although giving the Com¬
mission authority to change the
rate of the "fair return" from time
to time after the first two years,
fixes permanently at 6% the line
above which income will be re¬
garded as excess.
Carrier Half of the Excess
The carrier half is to go into a
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Company contingent fund for inter¬
est, dividends or rent for leased
roads in years when operating in¬
come is below 6%, but such fund
need not be built up or kept up be¬
yond 5% of the value of the prop¬
erty, and where the carriers' half
of the excess income is more than
enough to maintain such 5% reserve
the carrier may use the margin "for
any lawful purpose."
Government Half of Excess
The half of the excess income
which the carriers as trustees are to
pay to the United States is to form
a revolving fund to be known as the
general railroad contingent fund, ad¬
ministered by the Commission. Two
purposes of this fund are prescribed :
hirst—carriers may borrow from
it to meet expenditures for capital
account or to refund maturing capi¬
tal securities. The Commission in
order to grant a carrier's application
for a loan must be satisfied that such
a loan "is necessary to enable the
applicant properly to meet the trans¬
portation needs of the public, and
that the prospective earning power
of the applicant and the character
and value of the security offered are
such as to furnish reasonable assur¬
ance of the applicant's ability to re¬
pay;" the rate to be at 6%.
Second—a carrier may lease from
the Commission "equipment and fa¬
cilities" purchased for that purpose
if the Commission is satisfied of the
carrier's present and prospective
ability to pay the rental, which is to
be at least 6% on the value, plus
depreciation. "The Commission may
from time to time purchase, contract
for the construction, repair and re¬
placement of and sell equipment and
facilities, and enter into and carry
out contracts and other obligations
in connection therewith, to the ex¬
tent that moneys included in the
general railroad contingent fund are
available therefor, and in so far as
necessary to enable it to secure and
supply equipment and facilities to
carriers whose applications therefor
are approved under the provisions of
this section, and to maintain and dis¬
pose of such equipment and facili¬
ties."
BETTERMENTS AND EXTENSIONS
EXTENSION of line or construc¬
tion of a new line requires the
Commission's certificate of public
convenience and necessity. The
Commission may authorize or re¬
quire a carrier "to provide itself
with safe and adequate facilities" if
the expense "will not impair the
ability of the carrier to perform its
duty to the public." Regulation of
security issues is to be exclusively
by the Interstate Commerce Com¬
mission.
ORGANIZATION OF THE COMMIS¬
SION
p" LEVEN instead of nine mem¬
bers will comprise the Commis¬
sion. Their salaries are raised from
$10,000 to $12,000, and that of the
Secretary from $6,000 to $7,500.
The present power to form divisions,
each acting with the authority of the
Commission, is modified so that each
such division instead of containing
not less than five will contain not
less than three.
SAFETY DEVICES
A UTOMATIC train-stops or train
control devices or other safety
devices may be required to be in¬
stalled by order of the Commission
issued at least two years before the
date set for fulfillment.
INTERLOCKING DIRECTORS
Z""1 LAYTON Act requirements re-
lating to interlocking directors
and substantial interest between car-
6
riers and supply concerns are again
postponed until Jan. 1, 1921. Such
extension does not apply to a cor¬
poration organized after Jan. 12,
1918.
TRANSITION PROVISIONS
npHE Director General's revolving
fund is continued and $200,000,-
000 added to it for use in winding up
accounts between the government and
carriers.
The standard return due carriers
under government control continues
for six months from March 1.
Rates are not to be reduced prior
to Sept. 1, 1920.
Carriers' debt owed to the govern¬
ment is refunded for 10 years at 6%,
amounts due the carriers by the gov¬
ernment offsetting either capital or
non-capital debt of the carriers as in
each instance the President may de¬
termine.
A fund of $300,000,000 is appro¬
priated from which the government
may in the transition period make
carriers 6% loans running not to ex¬
ceed five years.
LABOR PROVISIONS
J^ÜTY is imposed upon carriers
and their employees "to exert
every reasonable efifort and adopt
every available means to avoid any
interruption to the operation of any
carrier growing out of any dispute
between the carrier and the em¬
ployees or subordinate officials there¬
of." . Disputes "shall be considered,
and, if possible, decided in confer¬
ence between representatives desig¬
nated and authorized so to confer"
by the parties, and in case of dis¬
agreement "shall be referred by the
parties" to a federal Railroad Labor
Board.
Parties to disputes "mar" by
agreement establish boards of labor
adjustment. If they do, such boards
may be called into action upon ap¬
plication either by the chief officers
of a carrier or employees' organiza¬
tion, or by 100 unorganized em¬
ployees, or by the Board itself, or
by the federal Board, and "shall . . .
receive for hearing, and as soon as
practicable and with due diligence
decide."
The federal Railroad Labor Board,
which is to hear appeals, is to have
nine members, all appointed by the
President and confirmed by the Sen¬
ate : three from six named by the
employees and subordinate officials,
three from six named by the man¬
agement, and three representing the
public. Terms are to be three years.
Salaries are to be $10,000. A secre¬
tary is to have $5,000. This Board
may suspend anv decision arrived at
without appeal to it if "of the opin¬
ion that the decision involves such
an increase in wages or salaries as
will be likely to necessitate a sub¬
stantial readjustment of the rates of
any carrier," and affirm or modify.
A decision of the Labor Board shall
require the concurrence of 5 out of
9, of whom at least one shall be in
the public group. Decisions will be
entered upon the records of the
Roard and copies, with statement of
fact, communicated to the parties,
the President, the Adjustment
Board, and the Commission, and
"given further publicity in such
manner as the Labor Board may de¬
termine."
Decisions of the Labor Board are
required to e=tabli-h wages and con¬
ditions which in the opinion of the
Roard are "just and reasonable."
and in determining this the Board
shall consider the -raV nf wages
paid for similar kinds of work in
other industries • the relation be¬
tween wages and the eost of living;
the hazard- of the employment : the
training and skill required : the de-
7
gree of responsibility ; the character
and regularity of the employment;
and inequalities of increases in
wages pr of treatment, the result of
previous wage orders or adjust¬
ments.
Wages and salaries are not to be
reduced prior to Sept. 1, 1920.
FRANK W. NOXON, Secretary.
30 Church Street,
New York.
Feb. 24, 1920.
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