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Merriman Railwad
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may 20,1897
University of Michigan
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GENERAL LIBRARY
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Presented by
Prof. B.a. Hinsdale
Ang. 13,47
1900
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from Prof. B. a. Hinsdale
REPORT OF THE CONFERENCE COMMITTEE
ON THE
MERRIMAN
RAILROAD TAXATION BILL
TOGETHER WITH
THE MASTERLY SPEECH OF
SENATOR W. G. THOMPSON
ON SAID REPORT, IN ANSWER TO THE SPECIAL MESSAGE OF GOVERNOR PINGREE
In the Michigan State Senate
MAY 20, 1897,
REPORT OF
c
It was a CONFERENCE COMMITTEE s, ieu
و شیر
ON THE
MERRIMAN
RAILROAD TAXATION BILL
TOGETHER WITH THE
SPEECH OF SENATOR MERRIMAN
AND THE
illllllillli
SPEECH OF SENATOR THOMPSON
ON SAID REPORT AND IN ANSWER TO THE SPECIAL MESSAGE OF GOVERNOR PINGREE
IN THE
MICHIGAN STATE SENATE
MAY 20, 1897
LANSING
ROBERT SMITH PRINTING CO., STATE PRINTERS AND BINDERS
1897
1
REPORT
OF
CONFERENCE COMMITTEE
ON THE
MERRIMAN RAILROAD TAXATION BILL
WITH SPEECHES SUPPORTING THE SAME BY SENATORS
MERRIMAN AND THOMPSON.
.
The Committee on Conference of the Senate and House
of Representatives, to whom was referred the matters
of difference between the two houses relative to
i
Senate bill No. 82 (file No. 17), entitled
A bill to amend Sec. 3 of Art. 3 of act No. 198, session
laws of 1873, as amended by act 45, public acts of 1879,
as amended by act 174, public acts of 1891, as amended
by act 129, public acts of 1893, entitled "An act to revise
the laws providing for the incorporation of railroad com-
panies, and to regulate the running and management,
and to fix the duties and liabilities, of all said roads and
other corporations owning or operating any railroad in
this State," approved May 1, 1873, being compiler's Sec.
3360, Howell's annotated statutes of Michigan,
Have had the same under consideration and beg leave
to submit the following recommendations:
1. That in regard to the first amendment made by the
4
REPORT OF COMMITTEE
House, which is as follows: "By striking out of lines 1,
2, 3 and 4 of Sec. 3 the words, 'formed under the provi-
sions of this act or which is now or may hereafter be
brought under the provisions of the general law of this
State for the taxation of railway or railroad corporations,
and every railroad company or other corporation,'” the
committee recommend that in lieu of the words stricken
out by the House amendment, the following words be
inserted: “And union railroad station and depot com-
pany."
2. That in regard to the second amendment made by
the House, which is as follows: "By striking out of
line 13 of Sec. 3 the words three and one-fourth, and
inserting in lieu thereof the word 'four,'” the committee
recommend that the House recede from this amend-
ment.
3. That in regard to the third amendment made by the
House, which is as follows: "By striking out of line 15
of Sec. 3 the word 'four,' and inserting in lieu thereof the
word ‘six,'" the committee recommend that the House
recede from this amendment.
4. In regard to the fourth amendment made by the
House, which is as follows: "By striking out of lines 16
and 17 of Sec. 3 the words 'four and one-half,' and insert-
ing in lieu thereof the word 'ten,” the committee recom-
mend that in lieu of the words stricken out by the House
amendment, the following words be inserted:
"And not exceeding $8,000 per mile, four and one-half
per cent thereof, and upon all such gross income in
excess of $8,000 per mile of the road so operated, five per
cent thereof; that all gross income of union railroad
station and depot coinpanies whose earnings are in excess
of $20,000 per mile shall pay on all such gross incomes in
excess of $20,000 per mile of road so operated, ten per
cent thereof."
Sec. 3 of the bill as agreed to by your Conference com-
mittee reads as follows:
Sec. 3. . Every railroad company, and union railroad
station and depot company, owning or operating any rail-
road situated in whole or in part in this State shall, on
or before the first day of July in each year, pay to the
State Treasurer, on the statement of the Auditer General,
a specific tax upon the property and business of such rail-
ON RAILROAD TAXATION.
5
road corporation operated within the State, which tax
shall be computed in the following manner, viz.: Upon
all such gross income not exceeding two thousand dollars
per mile of road actually operated within this State two
and one-half per cent of such gross income; upon such
gross income in excess of two thousand dollars and not
exceeding four thousand dollars per mile, three and one-
fourth per cent thereof; upon all such gross income in
excess of four thousand dollars and not exceeding six
thousand dollars per mile, four per cent thereof; and
upon all such gross income in excess of six thousand dol-
lars per mile, and not exceeding eight thousand dollars
per mile, four and one-half per cent thereof; and upon
all such gross inconie in excess of eight thousand dollars
per mile of road so operated, five per cent thereof; that
all gross income of union railroad station and depot com-
panies whose earnings are in excess of twenty thousand
dollars per mile shall pay on all such gross incomes in
excess of twenty thousand dollars per mile of road so
operated, ten per cent thereof.
And when the railroad lies partly within and partly
without this State, prima facie, the gross income of said
company from such road for the purpose of taxation shall
be on the actual earnings of the road in Michigan, com-
puted by adding to the income derived from the business
transacted by said company entirely within this State,
such proportion of the income of said company arising
from interstate business, as the length of the road over
which said interstate business is carried in this State
bears to the entire length of the road over which said
interstate business is carried. The taxes so paid shall be
in lieu of all other taxes upon the properties of such com-
panies, except such real estate as is owned and can be
conveyed by such corporations under the laws of this
State, and not actually occupied in the exercise of its
franchises, and not necessary or in use in the proper
operation of its road, but such real estate so accepted
shall be liable to taxation in the same manner, and for
the same purposes, and to the same extent, and subject
to the same conditions and limitations as to the col-
lection and return of taxes thereon, as is other real estate
in the several townships or municipalities within which
the same may be situated. All acts or parts of acts con-
6
REPORT OF COMMITTEE.
travening the provisions of this section of this act are
hereby repealed.
Your Conference committee, after thorough investiga-
tion and careful consideration of the subject submitted
to them, respectfully recommend the adoption of the
above report, and ask to be discharged from the further
consideration of the subject.
G. W. MERRIMAN,
Chairman.
A. MAITLAND,
H. M. YOUMANS,
G. W. TEEPLE,
JOHN L. PRESTON,
Senate Committee.
F. C. CHAMBERLAIN,
Chairman.
A. J. SAWYER,
WM. D. KELLY,
A. M. FLEISCHHAUER,
House Committee.
>
:
SPEECH OF SENATOR MERRIMAN.
ence re-
Mr. President and Gentlemen of the Senate:
The question now before us is that of concurrence in Confer-
the report of the Conference committees appointed by the
port.
Senate and House as to the differences arising between
the two bodies over the Senate bill increasing the specific
taxation of railroad corporations, a bill which I intro-
duced early in the session, and which passed the Senate,
was amended in the House, and in which amendments
the Senate refused to concur.
As I was made chairman of the joint committees of
Conference, it is my duty to the Senate to give such
information of the merits of the bill as I possess, also of
the conclusions of the committee, that you may under-
stand more fully than is conveyed by our report the
scope of the measure and the results that may be
expected should you concur in our report.
The present statutes impose a specific tax on the prop-
erty and business of the Michigan Central, and all rail-
road companies incorporated under the general law, and
which tax is computed in the following manner, viz.: On
the first two thousand dollars per mile of gross earnings,
two per cent thereof; on above two thousand and not
exceeding four thousand dollars per mile, two and one-
half per cent thereof; on above four thousand and not
exceeding six thousand dollars per mile, three per cent
thereof; on above sis thousand and not exceeding eight
thousand dollars per mile, three and one-half per cent
thereof; on all above eight thousand dollars per mile,
four per cent thereof. The total gross earnings of the
railroads, according to their last reports, was about
twenty-nine millions of dollars; the total taxes paid,
8
SPEECH OF SENATOR MERRIMAN
Amount of
increase of
railway
tax.
seven hundred and forty thousand dollars. Of this
amount, six hundred and sixty-two thousand dollars was
paid as above, and seventy-nine thousand dollars by the
D., G. H. & M., the L. S. & M. S. R’y Co's, and the depot
companies; all of which tax, when collected, is credited to
the primary school and interest fund, and is distributed
among the school districts of the State according to the
number of children of school age.
Assuming the ratio of increase of tax to increased
earnings to be just, and I believe it to be as fair as any
schedule we might suggest, we have endeavored to make
this increase so it would fall equally upon all railroad
companies. The first classification, upon which two per
cent was paid, is raised under this bill to two and one-
half per cent; the second from two and one-half to three
and one-quarter per cent; the third from three to four
per cent; the fourth from three and one-half to four and
one-half per cent, and the fifth from four to five per cent;
an average increase of over twenty-five per cent, which,
if it becomes a law, will place about two hundred thou-
sand dollars annually into our primary school fund, or
an increase of thirty cents per capita for all children of
school age-an amount which will be recognized by every
taxpayer, and which will be taken into account by every
school board in making their annual estimates.
This adjustment of the differences of the two houses
was reached after several meetings, by raising the rate of
the Senate bill on one classification one-half per cent,
and by including in the bill union depot companies, which
changes will produce about thirty thousand dollars.
The so called Atkinson amendments made by the House
were rejected, as they seemed unjust and discriminating
in this, that while one classification was increased but
twenty-five per cent, others were increased one hundred
and fifty per cent. Had we adopted these amendments,
unfair as they seem, the result would not have been as
astonishing as we were led to suppose; for by careful
computation we find the amount they would produce to
be only about $275,000, the Michigan Central company
not included, as they could not reasonably be expected
to accept a law so discriminating as an amendment to
their charter.
ON RAILROAD TAXATION.
.
9
charters.
1
And right here I desire to impress upon you my belief Special
that some just means should be devised to abrogate these
old special charters, so that all our railroads may be
placed upon the same basis, so far as taxation and super-
vision and other legislation is concerned. No special
privilege should be enjoyed by one corporation that is
not enjoyed by another.
The Governor, in his special message to the Senate,
calls our attention to the “injustice of specific taxation."
I can see little difference in the ultimate result whether
we collect our tax the same as on other property, which
can be increased or decreased by increasing or decreasing
their assessed valuation, or whether it is by our present
system, which may be raised or lowered as justice to
other taxpayers demands, by increasing or decreasing the
rate per cent on gross receipts.
Whether the taxes are too high or too low is a question
for the legislature to decide. The roads are built, and
the interest of the public now is on the rates they charge
and the amount of taxes they pay. There is no reason
why, under the present system, railroads may not be
brought to pay their share of taxes. The value of a rail-
road, the same as other property, is fixed by the amount
of earnings and the profits therefrom, regardless of cost
of construction. In short, the market value depends
upon its past, present and prospective earnings. The
method of distributing the tax collected from railroads in
this State is a wise and commendable one, benefiting
every part of the State. Let the method be what it may,
the tax should be collected by the State.
In fixing the amount of taxes that should be borne by Personal
.
railroads, some consideration should be given to the damages.
extraordinary burdens laid upon their property to which
ordinary property is not subjected, such as personal dam-
ages, for which over a million dollars was paid last year
in this State; gates at crossings; watchmen, and other
legislative requirements which aggregate nearly eight
hundred thousand dollars more. These should in some
degree enter into our calculations in fixing rates of taxa-
tion.
If this special message referred to was given us as a Compari-
history of railroad taxation, it would be valuable; but loupe
figures.
taken as an argument in favor of extreme taxation, and
10
SPEECH OF SENATOR MERRIMAN
as against this measure under consideration, it is so mis-
leading in its comparisons and inaccurate in calculation,
that it is worthless. The part to be regretted is that
30,000 copies of these inaccuracies are being sent broad-
cast over our State, and the people should not be called
upon to foot the bills for sowing so much error. Few
people have the facilities at hand to prove or disprove
the statements contained in this message. Senators,
I ask each of you to study that remarkable document
while you have the facilities here at your command to do
so. Examine the comparisons of per cent of taxes paid
by railroads to that of State taxes; note what it tells us
we would receive if these companies paid under the law
of 1855. It says it would be $3,010,000, but a careful
examination of the law reveals it to be only $1,370,000, a
slight "error" of $1,640,000. It tells us "the people were
led to believe that the Michigan Central Railroad Com-
pany, in coming under the general law” which it did not
"as to taxation, had made a great concession favorable
to the other taxpayers; but that it had operated to
decrease the burdens of that company.” It says, “the
State has been the loser by $45,454 each year for the
four years or nearly $200,000;" but the fact is that the
State is the gainer by the 1893 amendment to their char-
ter by about $11,000 each year. These are but samples,
gentlemen, of the many "errors" contained in this docu-
ment. Again I say, study it.
I believe I appreciate as fully as anyone the burdens
the taxpayers of this State are bearing. I believe I
know something of the hard and difficult problems they
are called upon to solve in meeting their necessary bur-
dens of life. This measure is the first in many years that
a legislature has been asked to support that puts money
into the taxpayers pockets. They have uniformly been
the other way, and I trust, gentlemen, you will give your
votes to assist in this much to lighten their burdens.
I would not ask this if I believed the railroad companies
were bearing their just share of the public burdens, but
I do not. This bill has encountered the solid opposition
of the representatives of these corporations in committee
and lobby, as well as the expressed opposition of one of
The co-ordinate branches of this government.
ON RAILROAD TAXATION.
11
I have, on all occasions, as you know, tried by fair
comparisons to demonstrate the justice of this measure,
and I trust both the representatives of these corporations
on the one side, who desire no increase of taxation, and
on the other the Executive, who deals only in "millions,"
will at least concede the honesty of my purpose in push-
ing this measure to a conclusion.
Gentlemen, again I ask you to stand by the report of
this committee, and if this bill becomes a law, the next
tax collected of the railroad companies will be $950,000,
and with a revival of business equal to the year 1892 it
will reach $1,150,000, a very comfortable sum to dis-
tribute annually among the school districts of our State.
:
SPEECH OF SENATOR THOMPSON.
The Merri-
laluro's
duty.
Mr. President and Gentlomen of the Senate:
1 arise in support of the bill reported out by the Con-
man bill. ference committee, which I consider to be a wise and
statesmanlike measure. It is intended to impose upon
the railroads of the State an additional taxation of $206,-
000, and you will perceive that it is so graduated as to
impose lighter taxes upon the poorer roads and heavier
taxes upon those with a greater earning power per mile.
The legis. We have a duty to perform between the people and the
railroads, and it should not matter to us whether this
bill is satisfactory to the railroads or not; nor should it
concern us that the failing political fortunes of the Gov-
ernor require that the roads should be subjected to a still
higher rate of taxation, amounting in most cases to con-
fiscation; nor should we be deterred by the threats of the
Governor that he would keep us here all summer, or
until we pass such bills as he approves of. We should
turn away from his proffers of State patronage, and if he
should carry out his threats not to sign the general ap-
propriation bills of the State unless we legislate accord-
ing to his views, I hope the answer of the legislature
will be impeachment.
For years the Governor, then mayor of Detroit, kept
the city involved in a quarrel with the street railways,
refusing every equitable offer of adjustment, which quar-
rel resulted in an expenditure to the taxpayers of $150,
000 in tedious litigation, the result of which was entire
defeat and discomfiture to the mayor, without accom-
plishing anything for the taxpayers. The mimic warfare
waged in Detroit is now to be transferred to the broader
fields of the State of Michigan, and because the Govern-
!
SPEECH OF SENATOR THOMPSON ON R. R. TAXATION.
13
or's uneasy ambitions require it, the State is to be
involved in heavy litigation with the railroads, with the
consequent great legal expenses to be paid to his favor-
ites in the profession.
I hold in my hand a most extraordinary document, The
Governor's
which purports to be a message from the Governor; but, railroni
to a person familiar with his style, the internal evidence message.
contained in it shows that he never wrote a line of it.
lIowever, he lets it come forth under his name, and so
he may be held accountable for the matter contained
therein. I shall proceed to examine it somewhat in
detail.
I.
increason
The Governor states (page 11), that there is no truth in Have
the claim that railroad earnings have been falling off earnings
of late, and in support of this extraordinary statement,
so much at variance with the facts, as known by every
business man, he cites certain figures from the Railroad
Commissioner's Report. He says that "in 1891 the rail
roads located entirely within and partly within and
partly without this State reported their earnings” at
$95,777,886.57, and that "in 1895 they received" $144,484,-
148.16; and says further: “it will be noticed by refer-
ence to this table that the earnings of these roads for 1895
were more than ten millions more than 1894, more than
thirty-two millions more than 1892, and nearly fifty mil-
lions more than 1891;" and this statement is emphasized
by a marginal note: "$50,000,000.00 increase in railway
earnings in four years."
It is not going beyond strict accuracy to say that this The
statement is a gross and wilful attempt to deceive the attempt to
legislature and the people of the State. Gross, because
so extremely at variance with the facts, and wilful,
because the truth is readily ascertainable and the error
in the statement made is so manifest that it can hardly
be called unintentional.
Everybody knows, of course, that every road operating How he
any
railroad within the State of Michigan makes a report his figures
to the Railroad Commissioner of the earnings and
expenses of its whole system, both within and without
the State of Michigan, as well as a report of the earnings
Governor's
deceive.
14
SPEECH OF SENATOR THOMPSON
He
juggles.
of its lines within the State of Michigan. Now, since
1891, certain large railroad systems, which prior to that
time did not operate any railroad within the State of
Michigan, acquired by purchase or construction a few
miles of road within our borders, and consequently since
1891 have begun making reports to our Railroad Commis-
sioner of the earnings of their whole systems. Conspicu-
ous among these are the Chicago, Milwaukee & St. Paul
Railroad Company, a great system operating 6,000 miles
of railroad, and extending from Chicago through the
states of Illinois, Wisconsin, Iowa, Minnesota, North
Dakota, South Dakota and Missouri, and operating a few
miles in the northern peninsula of Michigan. This sys-
tem has annual earnings in excess of thirty millions of
dollars. Another system is the Cleveland, Cincinnati,
Chicago & St. Louis Railroad Co., commonly called the
Big Four, which operates thirty-three miles of road in
Berrien county, but whose total earnings on its extensive
system through Ohio, Indiana and Illinois is in the neigh-
borhood of fourteen millions annually.
By including such earnings of railroads, which did not
make any reports to our Railroad Commissioner in 1891,
but did in 1895, the Governor gets figures which he
alleges show a great increase in the railroad earnings
during this year. I suppose that if the Pennsylvania
Railroad .Co. should build a branch in from Toledo to
Detroit, as I understand they have sometimes thought of
doing (but which I fear they will not do so long as our
present administration remains in power), and should
report to our Railroad Commissioner the earnings of their
whole system, aggregating, I believe, upwards of $135,
000,000 a year, the Governor would claim that the rail-
roads of Michigan had doubled their business.
The report covering the year 1891 is for 13,223 miles of
road, of which 7,305 are Michigan and 6,918 in other
states, but belonging to the companies that report to our
Railroad Commissioner. In that year the roads earned
on their Michigan mileage $36,517,389.41, and on their
outside mileage $59,260,497.16. In 1895, however, by rea-
son of the facts stated above, their reports cover a mile-
age of 22,501 miles, of which the Michigan mileage is
7,609, and the outside mileage is 14,992, or more than
double the amount reported in 1891. In this last year,
4
i
ON RAILROAD TAXATION.
15
the earnings on Michigan business were $29,211,014.48,
and on the business done on the 14,992 miles outside
the state, $115,273,133.68.
The statements in the message are the more inexcus-
able since the Railroad Commissioner's report contains
in plain sight the correct figures of the earnings of the
railroads in Michigan.
The figures in the Governor's message are taken from
the Railroad Commissioner's Report for 1896, page
lxxviii, which page contains a table of statistics cover-
ing earnings of railroads both within and without the
State of Michigan. If he had turned over the page
(page 76) lie would have found the figures for the Michi-
gan business for the year 1895. The figures for prior
years are to be found as follows:
For 1894, see Railroad Commissioner's Report, 1895,
Diges 21 and 56.
For 1893, see Railroad Commissioner's Report, 1894,
pages 50 and 51.
For 1892, see Railroad Commissioner's Report, 1893,
pages 17 and 46.
For 1891, see Railroad Commissioner's Report, 1892,
pages 470 and 471.
The earnings, both gross and per mile, for each of these Yearly
years are as follows:
varnings
1891, Gross earnings, $36,517,389.41 Gross earnings per mile, $5,005.08
, ,
1892
38,377,426.59
5,156.27
1893
36,319,655.33
4,789.49
1894
29,537,475.71
3,901.71
1895
29,211,014.48
3,835.17
66
66
It will thus be seen that instead of an increase of fifty
millions between 1891 and 1895, the fact is that the earn-
ings of the railroads have fallen off over seven millions,
and from the statement of the earnings contained in the
newspapers a few days ago for the year 1896, and pur-
porting to be put forth by the Railroad Commissioner,
the earnings for the year 1896 show a still further falling
off.
When we consider that the great part of the expenses
of operating a railroad are fixed and remain substan-
tially the same whether the road is doing a large or small
business, the figures above showing a falling off in the
16
SPEECH OF SENATOR THOMPSON
earnings per mile will indicate that the margin between
gross earnings and net earnings must have been very
seriously encroached upon during this disastrous year.
Since by far the greater part of a railroad's disburse-
ments go to the payment of labor, or the purchase of
materials produced by labor, we can see that to force
upon them greater economy of operation means a reduc-
tion of the number of employés or of their wages, and this
means less safety in operation.
II.
The
Michigan
Coutral.
The Governor follows his statement about the increase
of wilroad earnings by an attempt to show that the
Michigan Central Railroad Co. earns $3,500,000. This
he gets at by taking the gross earnings, $13,651,420.61,
and subtracting therefrom the operating expenses and
taxes, aggregating $10,183,231.31, and calling the differ-
ence, $3,468,189.30, net profits. If this be the profits of
the road, it is strange that the stockholders have not dis-
covered it, and are willing to part with the stock at the
market quotation, ninety-five cents on the dollar.
Now, it is well known that the Michigan Central Rail-
road Co., which itself owns less than 300 miles of rail-
load, operates by lease or otherwise something over 1,600
miles of road, of which 500 miles are outside of Michigan,
and from this net income must be deducted the amounts
paid in one way or another as rentals of these leased lines
and the interest paid on money borrowed.
These rentals, aggregating over two millions of dollars,
are made up as follows: Interest paid on the funded
debt of leased lines, $407,800; rentals of leased lines and
Canada Southern interest, $i,331,401.28; Canada South-
ern proportion of net earnings, $304,715.21; an aggregate
amount of payments to make out of the earnings of the
Michigan Central of $2,046,916.28. The interest on the
funded debt of the Michigan Central is $660,000 addi-
tional, so that, deducing these payments, the net earn-
ings of the Michigari Central are only $761,272.81.
If a farmer leases a neighbor's farm and makes there-
from certain earnings, he would certainly not expect to
call these net profits until he had deducted from them the
ON RAILROAD TAXATION.
17
rent he was to pay the neighbor for the use of the farm.
If a merchant did not deduct from his profits his rent,
or the interest he had to pay on borrowed money, his
profits would doubtless seem a good deal higher than
they really are, and yet the Governor has the audacity to
ask the legislature, in estimating what the profits of a
railroad company are, to disregard common sense and
not count rentals or interest on borrowed money as an
item of expense.
III.
The Governor goes on with a statement of the results The Lake
of the operation of the Lake Shore & Michigan Southern Michigan
Railroad with the design, I suppose, of leading the people southern.
to believe that there is a great fund here from which the
State might draw large sums of money in taxation. As
a matter of fact, however, the Railroad Commissioner's
Report shows that only a small part of the earnings of
this system are made in Michigan. Its main line does not
touch Michigan, and, while its mileage here is consider-
able, this consists largely in branches which little more
than pay the expenses.
As a matter of fact, it will be seen by the Railroad Com-
missioner's Report for 1896, on pages 281 and 282, that
the earnings of this railroad company in Michigan were
$2,223,731.75, while their operating expenses during the
same time were $2,024,982.58, leaving the sum of $198,-
749.17, out of which to pay rentals and interest on bor.
rowed money properly appertaining to the 407 miles of
road operated by this company in Michigan.
The message contains some statements in regard to cer- Railroads
tain railroads being exempt from taxation. As to this, from
I have only to say that the legislature in 1891, for the taxation.
purpose of encouraging the building of railroads in the
northern part of the State, where the railroad facilities
seemed insufficient, offered ten years' exemption from
taxation to roads thereafter built northerly of the 44th
parallel, unless their gross earnings should equal $4,000
3
18
SPEECH OF SENATOR THOMPSON
a mile. Relying upon the good faith of the State, six
railroads have been constructed which come under the
terms of this act. These six railroads operate 316 miles
of road, and their gross earnings are $641,000, or about
$2,000 a mile. It is well known that the expense of
operating a railroad is in excess of this amount, the aver-
age for the State being $3,150 per mile, and certainly no
facts appear which would suggest that the State should
break faith with these companies.
V.
Railroad
taxes.
The message contains a good deal about the percentage
of taxes that the railroads pay, and the suggestion is
made that they only pay about one-tenth of what they
ought to pay. Inasmuch as in the year 1895 the railroads
of this State earned only $29,211,011.48, and their oper-
ating expenses were $23,981,053.55, leaving their net earn-
ings $5,229,760.93, it is rather difficult to see where the
railroads could get $7,500,000, which the Governor sug.
gests they ought to pay. As I have said, their net earn-
ings were a little over $5,000,000, out of which they had
to pay in many cases rentals for cars and locomotives
that they had to lease because too poor to buy them, and
interest on borrowed money, the interest aggregating
Earnings upwards of $10,000,000 a year. The general condition
roads fall. of the railroads of the State can be seen from the fact
ing off. that their earnings over operating expenses are uot half
enough to pay the interest on their debts. The actual
condition, too, has been rapidly growing worse, as will
be seen from the actual figures showing the earnings for
1891 and 1895 of a few railroads fairly representative of
all the roads subsisting on Michigan business and I
would call attention to the fact that these seven roads
had a mileage in 1891 of 3,268, and in 1895 of 3,273, an
increase of only five miles, which certainly suggests that
their business had not been so profitable as to encourage
them to build more miles of railroad).
ON RAILROAD TAXATION.
19
Roads.
Gross earnings
in 1891.
$3,866,669
1,757,552
Gross earnings
in 1895.
$3,005,458
1,563,353
Chicago & Grand Trunk....
Chicago & West Michigan...
(Omit “North Michigan" road,
not built in 1891.)
Detroit, Grand Haven & Mil-
waukee
Detroit, Lansing & Northern.
Flint & Pere Marquette..
Grand Rapids & Indiana...
Duluth, South Shore & Atlan-
tic
1,200,998
1,254,099
2,544,758
2,624,617
1,013,320
1,149,654
2,134,936
2,235,226
2,148,387
1,807,111
$15,397,080
$13,909,058
This is a falling off of nearly a million and a half. The
gross earnings of the Michigan Central system during the
same years fell off from $15,162,960 to $13,651,420, or
about an equal amount.
VI.
1
.
In figuring out the percentage that railroads pay upon The value
the value of their property the Governor is guilty of a rallroads.
very sly piece of misstatement. The reports of the rail-
road Commissioner are required to state the total cost of
the railroad property owned by the various companies.
Now the improvements and betterments which the rail. Cost is not
roads are continually making and which are continually cash value.
wearing out and needing renewal are added each year
to the cost of the plant, so that the aggregate cost or
amount that the railroads have spent for their lines, roll-
ing stock, etc., amount in almost every case to a sum far
in excess of the value of the plant at any particular time.
The Governor states on page 5 of his message that the
total cost of railroad property in the State, as returned by
the companies and verified by the affidavit of their offi-
cers, was $301,003,148.44, and then a few lines after calls
this 301 millions “sucorn valuation of their property
returned by the companies.” This $301,000,000 is not a
sworn valuation at all and does not purport to be such,
and the fact that it is grossly in excess of the real valua-
----
20
SPEECH OF SENATOR THOMPSON
Anes.
ample.
tion of the property of the railroads in the State can
readily be seen when you take a few individual cases.
The Chicago & Grand Trunk Railroad, for instance,
runs through a very fertile part of the State, passing
many good sized towns and being able to attract quite a
volume of through business. The total cost of this road
has been $19,501,706.46, and yet during the year 1895 its
earnings were $3,005,458.04, its operating expenses
$2,837,685.38, leaving the earnings $167,772.66, out of
which to pay rentals for cars, locomotives, etc., which it
was too poor to buy, aggregating $133,303.47, leaving the
sum of $34,169.19 with which to meet interest charges,
$737,868.48.
During the year 1894 the earnings of the road over oper-
ating expenses were only $85,302.01, or $60,000 less than
the amount necessary to pay for rentals that year, which
were $145,000 and upwards. In these two years the road
not only earned no dividends, but did not earn enough to
pay operating expenses and rentals for rolling stock, etc.,
etc., necessary to enable it to do any business at all. Now
if this road were to be appraised by impartial appraisers
would its cash valuation be put at any figure even
remotely approaching its actual cost? It is obvious it
would not, and yet it is by assuming and mendaciously
stating that the figures returned as the cost of the rail-
roads of the State are their sucorn valuations" that the
Governor gets at his figures of the proper appraisal of
railroad property. The facts stated in regard to the
Chicago & Grand Trunk are by no means exceptional.
Take the following roads, which are scattered over the
bankrupt. State and which are wholly or mostly within the borders
of the State: the Chicago & West Michigan; Detroit,
Lansing & Northern; Detroit, Grand Haven & Milwau-
kee; Duluth, South Shore & Atlantic; Flint & Pere Mar-
quette; Grand Rapids & Indiana; Toledo, Ann Arbor &
North Michigan; there is not one of them which, during
the year 1895, earned the rentals and interest on borrowed
money that it was bound to pay. In fact, the deficit,
including the Chicago & Grand Trunk, was upwards of
$2,000,000.
The only roads in the State paying any dividends are
railroads. two little roads in the copper country having a combined
mileage of 54 miles; the Pontiac, Oxford & Port Austin,
The
railroads
.
Dividend
ON RAILROAD TAXATION.
21
which was bought by its present owners at a foreclosure
sale for a very small price and which has 110 outstand-
ing bonds, the investment being represented entirely by
stock; the Chicago, Milwaukee & St. Paul; Chicago &
Northwestern, and the Cleveland, Cincinnati, Chicago &
St. Louis (Big Four), which have only a few miles in the
State and which certainly do not earn their dividends
from the Michigan business; the Lake Shore & Michigan
Southern, which does not earn enough on its Michigan
business to pay the interest on the bonds probably
chargeable to its lines here; and the Michigan Central.
And yet the freight rates charged in Michigan are the lowest
lowest of any.
freight
The average rate per ton per mile for the whole
United States, including the low rates made on the long
transcontinental hauls, is 83-100 cents per ton per mile.
In Michigan the rate is 76-100 cents per ton per mile.
Compare this with the rates in other states:
rates.
0
Michigan
Iowa
Illinois
Massachusetts
Minnesota
Missouri
Kansas
Connecticut
.70 cents
1.07
1.23
1.28
1.08
1.07
1.33
1.42
+
Let me illustrate what this means in another way. If Results if
Michigan railroads could charge the same freight rates railroads
on the average as in these other states, their increased charged
earnings would be over $10,000,000. The increased earn-other
railroads.
ings of the Michigan Central Railroad alone would, if it
could charge the rates prevailing in most of the states,
pay the entire amount collected by those states in taxes
from their railroads. This will be seen from the follow-
ing statement:
:
22
SPEECH OF SENATOR THOMPSON
1
YEAR 1895.
State.
Total
amonnt of
taxes paid
by railroad
companies
in 1893.
dverage rate per ton
per mile.-Cents.
Per cent of Michigan
rate.
Freight Michigan
earnings of Central
Michigan freight
roads earnings in
in Michigan, Michigan,
$18,686,413 $4,767,598.
Increase Increase
at rate
at rate
named. named.
Amount of
increase
left to M. C.
R. R. Co.
after paying
total rail-
road taxes of
states
named.
Michigan
Iowa
Missouri
Minnesota..
Ohio.
Illinois. -
Massachusetts
Kansas.
Connecticut.
$741,408 0.76
1,337,453 | 1.07
1,186,807 1.072
850, 109 1.08
2,219,497 1.12
4,145,202 1.231
3,527,820 1.28
2,187,030 | 1.33
786,518 1.427
140
141
142
147
162
168
175
187
$7,474,568
7,661,429
7,848,293
8,782,614
11,585,576
12,616,761
13,014,800
16,350,611
$1,907,039
1,954,715
2,002,391
2,254,974
2,955,910
2,939,035
3,565,699
4,171,649
$549,586
767,907
1,152,282
35,576
1,378,668
3,385,130
Water
compe-
tition.
But the difficulty under which the Michigan railroads
labor is that they have to meet water competition almost
everywhere.
The Governor talks about the great products of Michi-
gan, but omits to mention that by far the greater part of
these products of the forests and the mines are trans-
ported by water, while Indiana, with which he compares
Michigan, is practically an inland state. It is a great
blessing to Michigan that it is nearly an island, and that
almost every part of the State is benefited by cheap water
transportation, but we should not forget that this fact
makes the railroad problem of Michigan different from
that of almost any other state, and may well lead us to
refrain from imposing unjust burdens on our railroads
already so handicapped by natural conditions.
VII.
.
Taxation
in Ohio.
There is a good deal in the Governor's message about
railway taxes in Ohio and Indiana. Without making
further investigation I am unable to comment very fully
on this, but considering the gross inaccuracies of the rest
of the message, it is fair to say that probably what he
says about railroad taxation in Ohio and Indiana .is
entirely untrue. I would call attention, however, to the
ON RAILROAD TAXATION.
23
in Indiana.
fact that it appears from the Railroad Commissioner's
Report that the gross earnings of the roads in Ohio per
mile are about double what they are in Michigan, and as
the operating expenses per mile do not increase propor-
tionately anything like the gross earnings, it is probable
that their net earnings are many times greater than the
net earnings of the Michigan roads.
The State of Indiana is traversed in every direction by Taxation
great trunk lines, among which there occur to me the
names of our own roads, the Michigan Central, Lake
Shore, and Grand Trunk; and also the great Pennsyl-
vania road, operating its Pittsburg, Fort Wayne & Chi-
cago trunk line, and the Pan Handle trunk line; also the
Vandalia line; the Nickel Plate; Baltimore & Ohio, and
the Chicago connection of the Erie; the Wabash; the
Louisville; the Albany & Chicago, and in fact all the great
trunk lines from Chicago east and southeast, and from
St. Louis east. There are very few local lines in Indiana,
and it is a mileage composed largely of trunk lines, and
yet the total valuation of all the railroad property in the
state is given in the Railroad Commissioner's Report at
only $155,000,000. While Michigan has a few more miles
of railroad than Indiana, it is not probable that its rail-
road systems could be fairly appraised at anything like
this figure. As the Railroad Commissioner well says in
his last report, page 5, "The cash valuation of a railroad
is fixed by the amount of its earnings continued for a
term of years regardless of the cost of construction. In
short, the market value of a railroad depends upon its
past, present and prospective earnings."
I have meant to say little about the conclusions which Facts an-
the Governor draws in his message from the alleged clusion
facts that he states therein, but it seems to me that, if mislead-
the statements of fact are shown to be grossly inaccurate
and misleading, the conclusions drawn therefrom will fall
to the ground.
However, I denounce the message of the Governor as a The Gov-
fraud and a delusion, calculated and intended to deceive
the legislature and the people of Michigan; quite as a fraud.
much so as the report of his Agricultural Municipal Bu-
reau last fall, in which to show a profit on the Pingree
Potato Patch, potatoes were figured at 55 cents a bushel,
when they could be bought anywhere for 15 to 20 cents a
1
4
!
:
ernor's
message
24
SPEECH OF SENATOR THOMPSON.
The
Governor
in—what?
bushel. I have resided in the State of Michigan a qual-
ter of a century, and during that time I have known more
or less intimately the long line of Governors who have
presided over this State, and, however much they may
have differed in their attainments and abilities, not one
of them would ever have appended his official signature
to a public document so wilfully misleading. Of course
we who know the Governor are not surprised at his put-
ting his name to any statements, however grossly untrue,
which he thinks may awaken public clamor and advance
his political fortunes. But many of the people of the
State, having been accustomed to a different kind of a
Chief Executive, can hardly realize that it is possible that
our present Governor sets no bounds to his statements
but the credulity of his admirers, and is as shameless in
his utterances as he is extravagant in his ambitions.
The igno- However painful the task may be to hold up the
Michigan. ignominy of Michigan to public gaze, it is the duty of each
one of us to expose the falseness of each mendacious
emanation of the Executive office, even though it claim
the sanctity of a State paper.
I have too great faith in the intelligence and integrity
of the people of the State of Michigan to believe that blus-
ter and pretense can win, and, in view of the intelligent
and careful treatment the Senate has given to this ques-
tion of railroad taxation, when we go before them I have
1:0 doubt as to the result.
neve
1