15 ^-r 
 
 
 — a*sr 
 
 li9 
 
 RAILROAD TAXES 
 IN ILLINOIS 
 
 Remarks by W. W. Baldwin, Vice-President, G. B. & Q. 
 
 R. R. Co., before the State Board of Equalization, 
 
 at Springfield, Tuesday, October 14, 1913. 
 
 Mr. Chairman and Gentlemen : 
 
 I appear here this morning in behalf of the Chicago, 
 Burlington & Quiney Railroad Company, which., I believe, 
 is the largest taxpayer in this State; the Company is 
 now paying in taxes in Illinois about three-quarters of a 
 million dollars annually. 
 
 Some of you who are acting upon this Committee, 
 and others who are members of your Board, are serving 
 in this capacity for the first time, and naturally have not 
 the same knowledge of conditions, nor the same informa- 
 tion, nor the same experience in these tax matters, as 
 men like Mr. Crandon, Mr. Tarbert and others, who, 
 year after year, have been appearing before the Board 
 for the purpose of presenting facts and arguments rela- 
 ting to the taxation of properties which they represent. 
 
 I have often felt that, in many respects, misrepre- 
 sentation cuts more of a figure towards influencing public 
 •opinion in the matter of the taxation of railroads than 
 the truth does. This was particularly impressed upon 
 my mind at the protracted hearings before the Board 
 some seven years ago. The communication just read to 
 you from Attorney-General Lucey, tendering his services 
 ^on behalf of the State, has called back to my mind what 
 sj took place in 1906 in the way of an inquiry by the public 
 ' authorities into the methods of the Board in making rail- 
 road assessments, and whether the railroads are, in fact, 
 paying a fair share of the taxes. His Excellency, now 
 Governor, was in 1906, if I recollect right, the Mayor of
 
 Chicago, and caused to be instituted a strenuous cam- 
 paign for increasing assessments and taxes upon railroad 
 property. This campaign was largely conducted in the 
 Chicago newspapers, and Honorable J. Hamilton Lewis, 
 now United States Senator, who was at that time Cor- 
 poration Counsel for the City, was directed to appear in 
 person before this Board, and employ special counsel. 
 He retained to represent the City before the Board, two 
 eminent lawyers, Judge Fleming and Judge Duffy. 
 These gentlemen for about three months devoted appar- 
 ently almost their entire time to studying the railroad 
 assessment and criticizing the methods of the Board, and 
 demanding large increases in the valuation of the rail- 
 roads. It is my recollection that they filed printed argu- 
 ments, and made oral arguments, and largely occupied 
 the time and attention of the Board from the 2d of Octo- 
 ber to the 21st of December. 
 
 Colonel Lewis, I remember, also appeared in person, 
 and made speeches and filed printed arguments. These 
 disclosed very clearly that Colonel Lewis did not know 
 what the railroad assessment was, nor how it was made. 
 One showing that he made on the subject appeared in 
 his claim, based upon elaborate calculations of capital 
 stock and bonded indebtedness, that the C. B. & Q. prop- 
 erty in the State should be valued for taxation at 
 $52,000,000, when it was in fact at that very time being 
 valued at more than $65,000,000. He also claimed that 
 598 miles of the Burlington Road in this State were 
 entirely escaping taxation, a pure case of misinformation. 
 
 The most effective work in this campaign of 1906, as 
 influencing public opinion, was carried on in the Chicago 
 newspapers, with exaggerated, startling headlines, and 
 tables of figures furnished by Colonel Lewis and his 
 associates. I have some of these before me now. 
 
 The Record-Herald announced in bold type: " Bail- 
 road Property Worth $8,000,000,000 Has Escaped Levy," 
 and the Tribune gave the same figures of enormous loss 
 to the State. The Daily News said that hundreds of mil- 
 lions of dollars in taxes had been lost to Illinois, because 
 the State Board had failed to include in the valuation the
 
 debts of the companies, and had also failed to include the 
 capital stock, as if there could be any property of a rail- 
 road company that was not represented either by its 
 capital stock or its indebtedness. The Chicago Amer- 
 ican, not to be outdone, asserted in the heaviest of heavy 
 type, that the exact figures of railroad property that had 
 escaped taxation were $4,461,418,410, and it repeated 
 with confidence the assertion that 598 miles of the 
 ( !. B. & Q. had been entirely overlooked, forgotten, as it 
 were, and therefore not taxed at all. 
 
 The Board held session after session, at which these 
 things were presented to them. They spread in full upon 
 their official record, where you can find it to-day, the 
 argument of Colonel Lewis to which I refer, while declin- 
 ing to give the same consideration to arguments which 
 were made in reply. 
 
 What did it all amount to? It amounted to nothing, 
 because it was not based upon anything substantial. It 
 was simply a lot of misinformation, and mischievous 
 misinformation at that. 
 
 Every mile of the Burlington Hoad was being prop- 
 erly and regularly assessed and taxed, and not one 
 dollar of railroad property was escaping taxation. 
 
 Such incidents, though ostensibly in the interest of 
 the people, do no good to anybody. They mislead and 
 corrupt public opinion, instead of enlightening it. 
 
 As I said, Colonel Lewis' first memorial was placed 
 before the Board on the 2d of October, and this investiga- 
 tion was a continuous performance from that time until 
 the 21st day of December, when, with only one dissenting 
 vote, the Board passed the following resolution: 
 
 " The Board finds that the real and personal prop- 
 erty of the State has been valued for the purpose of 
 assessment for the year 1906 at not to exceed 70 per cent 
 of its fair cash value.," 
 
 That resolution was passed as a measure of equaliza- 
 tion, the attorneys having questioned the power of the 
 Board in that respect. 
 
 All this occurred seven years ago. If anything had
 
 been discovered by these investigators, or by anybody 
 else, that was worth discovering; if, as a matter of fact, 
 the capital stock or the indebtedness of railroad com- 
 panies was not being taken into account by the Board in 
 making their assessments of railroad property, would 
 not this outcry have continued? Would these parties 
 not have applied to the courts if a third of the C. B. & Q. 
 mileage was going free of taxation? But that was the 
 last of the agitation, and from that day to this not one 
 of them has, to my knowledge, raised his voice in specific 
 criticism of the assessments that have been made year 
 by year by your predecessors. 
 
 THE ASSESSMENT OF CAPITAL STOCK. 
 
 The Statute which governs you was passed in 1872 — 
 forty-one years ago, and remains substantially un- 
 changed. Its provisions have been construed by the 
 Supreme Court of the State, and of the United States, 
 and particularly in the matter of assessing capital stock, 
 and there is no excuse for misunderstanding them. 
 
 The capital stock of a corporation and the property 
 of a corporation are the same thing — the capital stock 
 represents the property. To assess and tax all the prop- 
 erty of a corporation and then to assess and tax its 
 capital stock also would be double taxation. 
 
 But, while the capital stock and the property are the 
 same thing, it does not follow that the tangible property 
 is all the property of a corporation. In the case of some 
 companies, like a telephone company, for instance, the 
 instruments and wires and poles may be a small part of 
 the property in value. The main value may consist of 
 patents, contracts, franchise grants in city streets, etc. 
 These are property, but they are not tangible; they are 
 intangible; they have value and they are properly sub- 
 ject to taxation as property. They are represented by 
 the capital stock, the same as the tangible property. 
 
 It is to reach this intangible property that the law 
 provides for an assessment upon capital stock, and in 
 order to avoid double taxation, prescribes that the capital 
 stock shall first be valued, and then the tangible property,
 
 i 
 
 and if the former exceeds the latter, then the tangible 
 property assessment shall be deducted from the capital 
 stock assessment, and the balance shall be called capital 
 stock assessment. 
 
 In making a valuation of capital stock, the law, as I 
 understand it, provides for consideration of market quo- 
 tations and actual values of the shares of stock, and the 
 amount and value of the bonds issued by the company 
 as evidence. 
 
 Now this view of the law was, as early as 1873, embod- 
 ied by your Board in the rules which it adopted for its 
 government in the assessment of capital stock, which are 
 to-day in force, and have always been followed, so far 
 as railroad property is concerned. 
 
 DISTINCTION BETWEEN FOREIGN AND DOMESTIC 
 CORPORATIONS. 
 
 In applying their rules during the very first year, the 
 Board encountered a serious practical difficulty. They 
 found that a considerable part of the railroad property 
 in Illinois was owned by foreign corporations whose 
 capital stock they had no power to assess. These roads, 
 of which the Chicago, Milwaukee & St. Paul is a fair 
 illustration, run side by side with domestic roads, such 
 as the Burlington and the North Western — they cost 
 the same to build and equip and operate; they charge 
 the same rates, and earn substantially the same and are 
 to all intents and purposes of equal value. To assess the 
 property of a company organized under your own laws 
 at twice as much as the property of a foreign corporation 
 having the same intrinsic value, and permitted to enter 
 the State by the grace of its laws, simply because a 
 capital stock assessment could not legally be made against 
 the foreign corporation, was a manifest injustice. 
 
 At first, this was, in a measure, obviated by a valua- 
 tion upon the tangible property of the foreign company 
 much higher than the tangible valuation of the domestic 
 roads. This was done for four years. In 1876, the tangi- 
 ble property of the Burlington Road was valued at $5,390 
 per mile, and a capital stock assessment made against it
 
 of $5,400 per mile, while the Milwaukee tangible assess- 
 ment was $9,400 per mile; that is, the property of the 
 two roads was valued at virtually the same, in one case 
 it being called tangible and in the other half tangible and 
 half capital stock. What was the sense of that? It was 
 perfectly evident that this inequality in the tangible 
 assessment as between foreign and domestic companies 
 could not continue indefinitely, and, acting upon the best 
 legal advice obtainable, the Board finally decided in 1877, 
 to thereafter include all elements of value in their 
 "tangible property " assessment. In pursuance of this 
 policy, they adopted the rule set forth in this report of 
 their Eailroad Committee, dated October 2, 1877 : 
 
 To the State Board of Equalization: 
 
 Gentlemen, — Your Committee on Assessment of Railroad 
 Property beg leave to report that they have carefully examined 
 the schedules and statements as furnished by the various rail- 
 road companies, and by the Auditor of Public Accounts, and 
 have endeavored, as far as possible, to assess at a just and equi- 
 table value the property of railroads embraced in said schedules; 
 and in order to equalize the same with the other assessed prop- 
 erty of the State, have made the assessment at 50 per cent of the 
 cash value thereof. 
 
 The Committee find that a fair and equitable assessment of 
 the "tangible property" of the foregoing railroads leaves noth- 
 ing to be assessed as ' ' capital stock. ' ' 
 
 The tabular statement hereto attached shows the result of our 
 
 Respectfully submitted, 
 
 Ed. B. Warner, 
 T. J. Hale, 
 C. C. Campbell, 
 John II. Anthony, 
 Amos Savage, 
 Committee on Assessment of Railroad Property. 
 
 October 2, 1877. 
 Board adjourned. 
 
 THE BOARD METHOD. 
 
 That was thirty-six years ago, and the practice 
 then established has ever since been followed. Valua- 
 tions of railroad property are made substantially the 
 same against foreign and domestic corporations. The 
 capital stock is assessed because every element of value
 
 is considered by the Board. The franchise, or earning 
 power, that is, the ability to employ the property with 
 profit, is taken into consideration, as well as the market 
 quotations, and the actual value of the stocks and bonds. 
 These, and all other elements, are considered by the 
 Board honestly and intelligently, as I understand the 
 matter, whether the details of their examination are laid 
 before an inquiring world or not. 
 
 VALUATION AND EQUALIZATION. 
 
 You have, gentlemen, two duties, both plainly pre- 
 scribed and enjoined upon you by law — the duty of 
 ascertaining the value of every mile of railroad in this 
 State, and the duty of equalizing that value with the 
 valuations that are made by local assessors generally 
 upon the real and personal property in their assessment 
 districts. One duty is as important as the other. 
 
 You have nothing to do with tax results, that is, with 
 the amount of taxes per mile upon any railroad. 
 
 The Panhandle Road pays $10,448 per mile in taxes 
 in this State every year; the Fort Wayne Road pays 
 $4,523; the Lake Shore pays $6,832 per mile, and the 
 Milwaukee pays $535 per mile. The reason for such dif- 
 ference is easily explained. The property of the Pan- 
 handle Company and the others named, is really terminal 
 property, carrying high valuations, and largely subject 
 to the high tax rates in Cook County, while the Milwaukee 
 Road is largely in the country districts, with some cheap 
 and unprofitable branches. 
 
 The results of taxation depend upon the rates, no 
 less than upon the valuations. I think that the tax rate 
 upon all the property of the C. B. & Q. Road that is 
 located in the Township of Cicero in Cook County, is 
 110 mills, while the rates upon our property in some 
 country districts do not exceed 20 mills. You will appre- 
 ciate the necessity of keeping this in mind when you 
 compare taxes per mile in different States. 
 
 THE PRINCIPLES OF RAILROAD VALUATION. 
 
 Your first duty is to find the value of the railroads ; 
 not the value for ratemaking, with which you have
 
 nothing to do, but the value for taxation, with which you 
 have everything to do. The two purposes are distin t. 
 and are not governed by the same principles. You must 
 have a basis, a principle, a theory, to start from, when 
 you begin to make these valuations; you have got to 
 have something; it is not a matter of guesswork. 
 
 The theories or principles which have been applied 
 in the search for the best answer to the question. "What 
 is a railroad worth ?" are many and various. One theory 
 is that, for taxation purposes, any given railroad ought 
 to be worth what it cost to build it. How can you, as 
 assessors, at this time apply that theory to the railroad 
 property in Illinois? !><> you know what it cost ? Have 
 you a particle of evidence before you to show what any 
 mile of the 12,000 miles in this State actually cost? Sonic 
 miles have undoubtedly eosl over $100,000 to build, and 
 other miles not over $1.">.(ii)0. 
 
 Not very long ago the Burlington Company bought 
 the Jacksonville & St. Lords Road for $9,500 per mile, 
 and you are new valuing the Baxne road for taxation at 
 $26,124 per mile. We do not know what that road cost to 
 build originally, and there are too records, thai I know of, 
 from which to find <>ut. 
 
 What did the Wabash Road in Illinois <-"-t .' It IS in 
 the hands of receivers, because, regardless of what it 
 cost, it could not cam enough to pay the expenses of 
 operating it, and interesl upon it- debts. 
 
 Suppose you paid $1,000 for a good horse, and the 
 horse should fall Bick; what would your sick horse be 
 valued at for tax assessment; would what ho eosl cut 
 any figure in his valuation.' Railroads gel sick and go 
 
 into the custody of the courts and an- sold under the 
 
 hammer, as wa- the case of the Jacksonville cV St. Louis; 
 it was on the bargain-counter, ;i- the Wabash may be one 
 of these days, and many other roads, and what they may 
 
 have cost will have very little to do with the price they 
 bring. 
 
 Another theory sometimes considered, lb not what 
 the railroad cost, originally, hut what it could be built 
 for now — its replacement cost. Sou are necessarily as 
 
 8
 
 much in the dark upon that question as you are upon the 
 cost question. As applied to a road like the Wabash, or 
 the Jacksonville & St. Louis, that principle would iu 
 taxation be a worse guide than the cost theory, because 
 the figures of reproduction now would probably much 
 exceed the original cost figures, while the roads them- 
 selves can not, at present rates, and with their present 
 volume of business, be made to earn, with the best of 
 management, a return upon either basis. 
 
 No physical valuation of the roads has yet been under- 
 taken in Illinois, although that is now in progress, under 
 a law of Congress, and may, in the course of future years, 
 furnish some material for showing the cost of reproduc- 
 tion of the railroads in this State. 
 
 I spoke of the question of value, as determined from 
 earnings. It is sometimes said that railroads should be 
 worth for tax valuation, such a figure as it appears they 
 may be able to earn, regardless of what they cost orig- 
 inally, and regardless of what they could be replaced for 
 at the present time. 
 
 Upon that principle the branch lines of the C. B. & Q. 
 would hardly be taxed at all, because they earn nothing 
 above expenses and taxes, and the same is true of such 
 roads as the Toledo, Peoria & Western and practically 
 all the smaller independent lines, and is largely true at 
 this time, I suppose, of the Wabash, and other roads that 
 are similarly situated financially. But vou value them 
 for taxation, and you tax them. 
 
 This test of value, based upon earnings, or income, 
 can not be applied to vacant land, and is not applied to 
 improved lands, nor to houses occupied for residence, 
 nor to live stock, nor to factories, nor in fact directly to 
 any other class of property. Why shall we make it the 
 sole test of the value of a railroad ? 
 
 I admit that it has value for purposes of comparison. 
 
 For instance, one question you will be asking your- 
 selves is this: Was last year's valuation of the railroads 
 in Illinois high enough, considering what they were 
 earning? 
 
 9
 
 Before you answer that question, you must decide 
 what income is proper to be accepted, as the basis for the 
 estimate; what rate of return is properly to be allowed, 
 considering the nature of railroad property, and other 
 evidence necessary to the application of any theory of 
 valuation based upon the capitalization of net income. 
 
 The State Board in Iowa recently, and after lorg 
 deliberation, adopted a method for determining whether 
 their valuation had been too high or too low for the 
 previous year; they said they would take the net earn- 
 ings, and, subtracting from that figure the taxes, would 
 capitalize the remainder at 7 per cent. Why they named 
 7 per cent as the proper figure is perhaps as well stated 
 as anywhere in the evidence of Governor Cummins, of 
 Iowa, now Senator, who is, I suppose, in the very fore- 
 front of progressiveism : 
 
 GOVERNOR CUMMINS' OPINION AS TO THE PROPER 
 RATE FOR CAPITALIZATION. 
 
 In the hearing before the Committee on Interstate Commerce, 
 held on Thursday, May 11, 1905, Governor Cummins was a wit- 
 ness and was asked by Senator Newlands the following question : 
 
 "Now, as to the percentage that should be paid upon the 
 capitalization, what do you think would be a fair percentage to 
 allow?" 
 
 Gov. Cummins: "I think that, understanding and recogniz- 
 ing the uncertainty of revenue, a railway company should be 
 permitted to earn at least seven per cent as conditions are now. 
 Assuming that five per cent, we will say, is a fair interest upon 
 undoubted securities, I believe that in order to guard against the 
 uncertainties of railway operation there should be an opportunity 
 to earn seven per cent. ' ' 
 
 Sen. Doliver : ' ' Do you mean an opportunity to distribute 
 that as a dividend ? ' ' 
 
 Gov. Cummins : " To do anything they like with it. . . . 
 If we had a completed system of railway, and all that remained 
 was to operate the property, I would regard a much less per cent 
 than seven as a fair return upon the investment; but we are in 
 the midst of development. We must invite capital into these 
 enterprises in the future. They are not as certain in their returns 
 as fixed investments and, therefore, we must give the investors 
 an opportunity to make more than they can get out of their 
 money by loaning it on mortgages and on investments of that 
 character. ' ' 
 
 10
 
 If you should ask me what last year's valuation of 
 the railroads of Illinois would figure out to be, in accord- 
 ance with this formula or test, used by the Iowa Board, 
 this would be the result: the printed report of your 
 Railway and Warehouse Commission at page 99, gives 
 the average net earnings of the railroads in this State 
 as $4,079 per mile, and on page 158 states that the taxes 
 paid by the same roads amounted to $7,134,330, or at the 
 rate of $565 per mile. Deducting taxes from net earn- 
 ings leaves $3,514 per mile, which is a return of 7 per 
 cent upon $50,200 per mile. 
 
 The Board last year, as I have shown you, in the 
 resolution which they adopted, equalized their valuation 
 at 70 per cent, and 70 per cent of $50,200 is $35,140, 
 which upon this principle should have been the average 
 valuation per mile of Illinois railroads. But last year's 
 valuation of Illinois railroads was in fact $46,896 per 
 mile, or $11,756 more than could have been found by 
 capitalizing the net earnings, less the taxes, at 7 per 
 cent — that is, the valuation that was made was one-third 
 higher than it should have been, measured by the test 
 that I am now calling to your attention, viz. : that the 
 railroads are worth for taxation purposes what they can 
 earn a fair return upon. 
 
 But there is still another theory upon which some 
 people would value railroads for taxation; they say that 
 a horse or a watch, or a farm, or an automobile, is worth 
 what it will sell for, and why not a railroad? They say 
 there is nothing to a railroad except its capital stock, 
 subject to its bonds, and that the way to value it is to find 
 out what its stock is selling for in the market, and add to 
 that its indebtedness, and there vou are. 
 
 You can not very well accept and act upon any 
 theory that you can not apply to all the roads alike. How 
 can you value the Wabash Road, or the Toledo, Peoria 
 & Western Boad, or the Bock Island Road for that mat- 
 ter, at this time, upon that theory? 
 
 The common stock of the Rock Island Road is quoted 
 at 14 and the preferred stock is quoted at 21. It is a 
 fact that this theory breaks down in practice, because 
 
 11
 
 there is no market for railroads, in the same sense that 
 there is a market for farms, or horses, or automobiles. 
 
 As applied to the property in this State of the Penn- 
 sylvania Road, or the New York Central Lines, it would 
 be worthless, as the slightest reflection will show you, 
 but, like the net income theory, it may furnish a basis for 
 comparison, and for determining whether last year's 
 valuation of railroads was as high as it ought to have 
 been. 
 
 Suppose that you test this stock and bond theory upon 
 one of the best and strongest roads in the State, the 
 Chicago, Burlington »x* Quincy, admitting that it will not 
 work as to valuation of weaker roads. 
 
 The capital stock of the C. B. & Q. is $110,839,0(10, 
 and you have before you our sworn report thai the pro- 
 portionate share of the capital stock in the State of 
 Illinois is $21,089,244. 
 
 You have ool Been a market quotation of C. B. & Q. 
 stock for years; it is practically all represented by what 
 are called Joint Four Per Cenl Bonds, issued on the 
 basis of $2,000 in bonds for each $1,000 of O. B. & Q. 
 stock. These bonds are quoted in the market at about 
 95, upon which basis the Burlington Stock could be said 
 to have a value of L90. II' you compare thai with 127, 
 which is the quotation for the Stock of the North Western, 
 ami with 133 for the Preferred Stock of the St. Paul, or 
 with 21, which is the quotation for Rock Island Preferred, 
 you will see that toy figure of L90 is fictitiously high. 
 
 It is really a bond quotation, and not a Btock quota- 
 tion. Bui even at this figure, the Stock value of the Bur- 
 lington Road in Illinois would he $40,069,563. 
 
 The debt in Illinois, at par, as we report it, is $34,- 
 830,77."); ami par for the debt is also excessive. But, 
 
 adding the two together they amount to $74,900,336, while 
 the tax valuation of our property in Illinois last year, 
 without any equalization whatever, was over $74,000,000; 
 so that upon an equalizing hasis of even 70 per cent, 
 our fair valuation would have been $51,430,000, that is, 
 just about what Colonel Lewis claimed in his memorial 
 that it ought to be. 
 
 12
 
 In other words, if you take this stock and bond 
 theory, and apply it to the G. B. & Q. property in this 
 state, as I have indicated, you will reduce our last year's 
 valuation, that is, our full value, more than $20,000,000. 
 
 I claim that you should equalize upon a basis of 50 per 
 cent, instead of 70, and I will give you my reasons, but, 
 if I have not fairly considered, and fairly discussed, these 
 various theeories of the valuation of railroads, it is up 
 to some one to show wherein I have misstated either a 
 figure or a principle. 
 
 C. B. & Q. BRANCHES IN ILLINOIS. 
 
 In these figures for the C. B. & Q. Road I have treated 
 the line in this state as an entirety, for the stock and the 
 bonds cover all the property. 
 
 But there is another side to the question, which it is 
 only fair that you should take into consideration, and 
 that is this : 
 
 About one-half of the C. B. & Q. Railroad in Illinois is 
 not productive property. I hold in my hand an official 
 statement showing the entire operating revenue and the 
 expense of 800 miles of our branch lines in this State, 
 which is open to your careful inspection. This statement 
 shows that the net earnings of those roads for the year 
 ending June 30, 1913 — a good year — a prosperous year 
 — were $575 per mile, which is just about the taxes per 
 mile paid on the same roads — a little less, I think, than 
 the taxes. That is, half the road in this State, in good 
 times, is earning just about enough to pay operating 
 expenses and taxes, and at that we are better off than 
 many others. 
 
 What makes the value of the C. B. & Q. I It is the 
 through business; the train loads of grain from Neb- 
 raska and Minnesota, and the train loads of live stock 
 from the far west; and the train loads of passengers 
 between Chicago and Denver, and between Chicago and 
 St. Paul, and between St. Louis and the West; it is not 
 the business between stations in Illinois. 
 
 Answer me this question: What do you regard as 
 your duty in the taxation of a railroad that does not pay 
 
 13
 
 operating expenses'? That road is a public highway. 
 The State fixes its passenger rates at 2 cents per mile, 
 when, considering the train service required, and other 
 expenditures, it ought to be permitted to charge 4 cents. 
 The State prescribes what it can charge for carrying 
 freight, and it may not be long before the State will be 
 prescribing what wages that company shall pay to its 
 employees. 
 
 You can shut up your store, if it does not pay, and 
 move away, or go into some other business ; you can close 
 your bank, if it does not pay. But a railroad can not move 
 away, and it can not discontinue its trains. It is in effect 
 a public agency, owned by private capital, but compelled 
 to do business upon terms fixed by the State, but without 
 the guaranty of one dollar of return upon the investment. 
 
 This class of poor railroads in your State are per- 
 forming a public service without pay. Why should you 
 tax such railroads at all, any more than you tax a school 
 house or a church? 
 
 But some one may say that if the Board can not safely 
 adopt the cost theory, nor the replacement-value theory, 
 nor the capitalization of net earnings less taxes, nor the 
 selling value, or stock and bond theory, do you mean that 
 there is no sound theory or principle that can be relied 
 upon! I do not mean anything of the sort. Instead of 
 relying upon any one of these methods to the exclusion 
 of the others, I would rely upon them all. 
 
 I would not fail to make a valuation of a railroad 
 because its stock sells for little or nothing in the market, 
 nor omit another road from taxation because I could not 
 find out what it cost. Its income, its sale value, what 
 another road like it could be built for, and what it prob- 
 ably cost originally, are all of them fair and legitimate 
 and, it seems to me, necessary elements that should be 
 taken into consideration in the valuation of every rail- 
 road. 
 
 What I insist upon and have tried to make plain is 
 this: that by the use and application of these tests, all 
 of them, or any of them, it appears that the present tax 
 assessment of the C. B. & Q. Railroad and the total 
 
 14
 
 assessment of all the roads in this State, in comparison 
 with the assessment of other property, is now higher than 
 the facts will justify, and that none of these tests, hon- 
 estly applied, will show that last year's valuations should 
 be raised. 
 
 TAXES AND DIVIDENDS. 
 
 Are the taxes upon Illinois railroads, based upon the 
 valuations that were made last year bv your Board, as 
 high as they should be ? Do you happen to know how the 
 taxes paid in Illinois by the railroads compare with the 
 dividends they paid to their stockholders ? 
 
 The property owned by all the companies operating 
 railroads in this State is valued, I believe, at more than 
 $600,000,000 — full value. I hold in my hand a table 
 which I asked to have prepared, showing every mile of 
 each Illinois road, and the dividends they pay per mile, 
 and therefore the dividends paid in this State, based upon 
 the mileage in this State. 
 
 That statement shows that on all the railroads in Illi- 
 nois that paid any dividends, the aggregate sum was 
 $7,124,144, while the taxes paid by railroads amounted 
 to $7,134,330. That is, the State charged them more for 
 the privilege of doing business than the total amount 
 received in dividends by the owners of the property. 
 
 Chicago is now urgently asking that a certain num- 
 ber of railroads, of which the Burlington is one, shall 
 invest $30,000,000 in a new Union Station. 
 
 The people of Aurora would like to have the C. B. & 
 Q. invest a million dollars in a new station, and in track 
 elevation, and other improvements in that city. 
 
 If taxation goes on increasing at the rapid rate which 
 has characterized the past few years, what encourage- 
 ment is there for further investment in Illinois railroad 
 properties 1 
 
 THE SIDE-TRACK VALUATIONS. 
 
 Here is a statement from our engineering department 
 of the cost of a mile of side track, using 75-pound rails 
 and white oak ties : 
 
 15
 
 Office of Engineer, Illinois District: 
 
 Estimate of cost of one mile of side track, using S. H. 75- 
 pound rail and white oak ties : 
 
 113.1 tons S. H. 75-pound rail, $20.51 $2,320 
 
 377 pairs S. H. 75-pound angle bars, $0.60 226 
 
 2,262 %-inch bolts, $3.350 76 
 
 2,640 White oak ties, $0.61 . 1,610 
 
 30 kegs spikes, $3.64 109 
 
 1,515 cubic yards ballast, $0.25 379 
 
 1 mile track laying and surfacing 750 
 
 $5,470 
 Add 10 per cent for engineering and contingencie s . 547 
 
 $6,017 
 Your Board last year — the much-criticized and much- 
 abused State Board — valued these side tracks at $12,000 
 per mile, or twice what it costs us to build them. This 
 very seriously and unjustly added to our last year's val- 
 uation. We had 845 miles of side track, which, at $6,000 
 per mile, would be $5,070,000, while the same tracks were 
 valued by the Board at $9,982,000 — or nearly double the 
 valuation that was right or just. 
 
 What was the excuse given? It was to help Chicago 
 out, and other cities which contain the bulk of the side 
 tracks. Did that indicate that the Board was overly 
 friendly to railroads? We protest that any such valua- 
 tion as $12,000 per mile for side tracks is unreasonable. 
 
 EQUALIZATION. 
 
 As I have said, the duty to equalize is as plain and 
 imperative under the law as the duty to valuate. It is a 
 duty which no Board that has existed in forty years has 
 entirely evaded; every Board has sought to apply some 
 percentage in the performance of this duty. 
 
 No principle is more thoroughly established in the 
 courts than this duty of equalization, so that, if your 
 Board should refuse to comply with its requirements, we 
 are not entirely helpless. The courts are still open. 
 
 This feature is so important, and affects the valua- 
 tions so fundamentally that you will have to let me read 
 to you some extracts from the decisions of the Supreme 
 Court of Illinois, among them one known as the leading 
 case on the subject, and reported in 44 Illinois, page 229 : 
 
 16
 
 The court says : 
 
 The great central and dominant idea, in the constitution is 
 uniformity of taxation ; and no power exists or should exist in 
 any authority to go counter to this command of the fundamental 
 law. 
 
 The question before this court is this : ' ' Can a railroad com- 
 pany, by any action of the authorities, be required to pay more 
 than its fair share of taxes, as compared with those paid by 
 individuals? Does the power exist anywhere to destroy the 
 cardinal principle of uniformity of taxation insisted upon by 
 the constitution ? If the officers neglect to act up to the require- 
 ments of the law, is that any reason why A should pay 40 per cent 
 more taxes, in proportion to the value, than B ? " 
 
 The rule adopted by the assessors has grown into a custom, 
 and has been tacitly sanctioned for a long course of years, and it 
 is now too late to challenge it, namely, that property is assessed 
 at one-third of its actual value. Would not the sense of justice 
 of every man be outraged by allowing this or any other depre- 
 ciation to one class of people and demanding of another a higher 
 tax on a similar article of the same actual value? The proposi- 
 tion can not commend itself to the favor of any just man and 
 can receive no countenance in the court of justice. 
 
 It is an admitted fact that the property of no one owner in 
 the county has been taxed at its real value, and that the percent- 
 age added by the authorities to the valuation of the property 
 of appellees imposed upon them a greater proportionate burden 
 than the law requires them to bear. We are of this opinion, and 
 therefore consider the action of the board an injustice and in 
 direct opposition to the constitution. The great feature of uni- 
 formity has been disregarded by the board and appellees vic- 
 timized. 
 
 Similar decisions in many courts authorize and require 
 the State Board to take cognizance of the prevailing ratio 
 of assessment to actual value as practiced by the asses- 
 sors regarding other property and to take such ratio as 
 their guide in assessing railroad property. 
 
 JUDGE TAFT'S OPINION (1898). 
 
 The railroad complains that the undervaluation of real and 
 personal property is intentional and systematic throughout the 
 State, and in accordance with a recognized custom ; if compared 
 with the assessment at full value of railroad property, it makes 
 a system of taxation which imposes an unjust share of the cost 
 of government, in violation of the Constitution of Tennessee, 
 which enjoins uniformity of taxation, according to value, on all 
 property. This makes a case where taxpayers owning one kind 
 
 17
 
 of property are taxed at a higher rate than the owners of similar 
 property. This is a flagrant violation of the Constitution for- 
 l-idding discrimination in taxation between different species of 
 property. 
 
 Any method of assessing one class of property can not be said 
 to be constitutional without having regard to that pursued with 
 other species; for the essence of the Constitution is uniformity, 
 and uniformity can not be made to exist without due regard to 
 the methods of assessing all classes of property. 
 
 Judge Taft referred to the decision of the Supreme Court 
 of the I'nitcd States in Cummins vs. Bank, 101 U. S., page 153, 
 in which an injunction was granted on the ground that equity 
 will relieve a property owner from the unequal burden placed 
 on him on more than one-third of the assessment against his 
 property, although his property had only been taxed at its true 
 value, and Justice Miller said: "Whatever may be the cause, 
 when it is recognized as a source of manifest injustice to a large 
 class of property, around which the Constitution of the State 
 has thrown the protection of uniformity of taxation and equality 
 of burden, the rule must be held void and the injury must be 
 remedied. 
 
 Judge Taft referred also to the case of the C. B. & < c >. R. R. 
 Co. vs. Board of Commissioners, of Atchison Co., 54 Kansas, 
 781, where the general property was assessed a1 25 per cent of 
 the true value, while railroad property was assessed full value. 
 The Constitution of Kansas required uniformity and equality 
 in taxation, and the Legislature provided thai all property should 
 be assessed a1 its true value. The Supreme Court of Kansas said: 
 '•This unequal valuation was not the result of an accidental 
 omission of property Erom the assessment list, or an accidental 
 
 valuation of property at more or less than its true value. The 
 
 state Board of Railroad Assessors valued the railroad property 
 
 in Atchison County, for taxation, at its true value; but the city 
 
 and township of that comity i d all the other prop- 
 
 erty of the county at 25 per cenl of its true value. Tims, by 
 concerted action, the statute of the State was flagrantly disre- 
 garded. . . . There has been gross discrimination in the taxa- 
 tion of the railroad property. The law has not been observed. 
 The taxes complained of are not equal and uniform." 
 
 The foregoing are extracts Prom the opinion of Judge 
 Taft, afterward President Taft. in the case of Taylor vs. 
 Louisville, reported in ss rVderal Reporter, page 350. 
 
 It will not be denied by anybody that under the Con- 
 stitution of Illinois, which requires equality and uniform- 
 ity in taxation, it Is your duty to equalize the full value 
 per mil*' that you believe any railroad to be worth, upon 
 
 18
 
 any theory that you may adopt, with the ratio of assess- 
 ment to full value that prevails in the assessment of the 
 general property. What is that ratio, or proportion, 
 between the valuations for tax assessments and the mar- 
 ket, or selling, value of the general property? 
 
 That is a question of fact, and no one will ask you to 
 take anything as a fact that is not supported by evidence. 
 Whose duty was it to procure and to lay before you sat- 
 isfactory evidence on this important point? It was not 
 the duty of the railroad companies; it was the duty of 
 the State. Why did not some of our State officials, 
 instead of denouncing you on the stump, before you had 
 even organized, or had a chance to perform an official act, 
 procure for you some evidence to guide you in this 
 matter ? 
 
 The Railway Tax Men's Association, through Mr. 
 Crandon, its President, has secured this evidence at its 
 own expense. A circular letter was sent to the county 
 clerk of every county in the State, asking him to prepare 
 a statement showing actual transfers of farm land and 
 city land in his county during the past year, giving town- 
 ship, description of land, name of seller and buyer, actual 
 consideration paid in money; and opposite to this, the 
 full valuation of the same land by the assessor, for taxa- 
 tion. I have here now, upon the table before me, these 
 returns from more than half of the counties in the State. 
 They are in your own districts, and your own counties, 
 and they are here for your examination and criticism. 
 Scattered, as they are, all over the State, and prepared, 
 as they necessarily were, without the possibility of the 
 officials of one county knowing what any other county 
 would show, their complete corroboration of one another 
 amounts to a positive conviction of their reliability. If 
 that is not good evidence, where will you get good evi- 
 dence '! 
 
 Here is a clipping from the Peoria Star, commenting 
 upon an editorial from the Lewistown Record, showing 
 the fair and impartial way in which this information was 
 sought for, and was secured, from your own county offi- 
 cials, and certified to under their seal. This editorial 
 says : 
 
 19
 
 The county clerk was requested to look over the records and 
 secure information on twenty pieces of farm lands and twenty 
 town lots that had recently changed hands. Blanks were sup- 
 plied for lands and another for lots. On the blank appears the 
 name of the township in which the property is located, the name 
 of purchaser, the date of the transfer, the actual consideration 
 as appears in the instrument and the full value of the land as it 
 was assessed. In the last column is a space where is shown what 
 per cent the assessed value is of the sale value. 
 
 In getting this information the clerk used only such prop- 
 erty as appeared to have been sold for cash and where no trade 
 entered into the deal. The same was true of town lots. In order 
 to get a general average the land records were searched and lands 
 selected from various townships. On the twenty pieces of farm 
 lands it was found what the consideration was in the sale and 
 on the same lands the tax books were consulted to learn what the 
 land was assessed at by the assessors. On the twenty pieces of 
 farm lands it was found that the assessed value was between 41 
 and 42 per cent of the sale value as shown in the consideration 
 in the deeds. On lots the per cent increases, showing the lots 
 were assessed between 53 and 54 per cent of what the real con- 
 sideration was as shown in the deeds. To arrive at these figures 
 the average was taken on all the lands and all of the lots. 
 
 These returns, from all over the State, show that, tak- 
 ing every county in the State, the average full valuation 
 of farm lands for taxation is to-day less than 43 per cent 
 of their cash selling value and salable value, and, there- 
 fore of their actual market value, and of city lots and 
 lands it is less than 55 per cent. 
 
 But the real estate is only half of the property in this 
 State. It has long been the opinion and the best judg- 
 ment of students and all those best qualified, that in a 
 State like Illinois, with great cities, a commercial and 
 manufacturing State, with enormous banking resources, 
 the personal property as a whole equals, if it does not 
 exceed, the land in actual or commercial value. 
 
 But what about the assessment of personal property? 
 It is my recollection that while the land assessment aggre- 
 gates about $1,650,000,000, the entire personal property 
 assessment in the State is only $471,000,000 — that is, 
 about one-fourth of the land assessment. 
 
 I have already talked too long to go into details of the 
 assessment of personal property, but I believe that it is 
 not seriously claimed that, taking it as a whole, the full 
 
 20
 
 valuation of personalty for taxation is 25 per cent of i t - 
 market or commercial value. 
 
 These facts of the under-assessment, and the omission 
 from assessment, are not the result of accidental omis- 
 sions, or accidental valuations; they are intentional and 
 systematic, and are the result of the recognized and uni- 
 versal custom among assessors in this State. In the per- 
 formance of your duty you can not ignore them. 
 
 We have placed the evidence before you. If railroad 
 property is to receive the equal protection of the law, then 
 it is your duty, as the only tribunal having authority to 
 make an assessment of railroad property, to give to this 
 class of property, for the tax valuation, the same per 
 cent, as near as you reasonably can, of full value, that 
 you believe prevails in the valuation of other property. 
 
 I am sometimes asked whether 1 regard this well- 
 understood practice among assessors as good for the 
 State, and if not, why the power of assessment should not 
 be taken from them, and placed in the hands of a small, 
 compact, select Commission, to be appointed by the Gov- 
 ernor, and, incidentally, that your tribunal, the State 
 Board of Equalization, shall be abolished. 
 
 This practice of organized under-valuation does result 
 in a discrimination as between counties, regarding tli" 
 State tax, but that is an insignificant part of the total 
 taxes. The greater part of the taxes collected are for 
 purely local purposes — school taxes, road taxes, county 
 taxes ; and in cities, taxes for police and fire protection, 
 and the like. As to all these taxes, it is a matter of purely 
 local concern, in which the State, as such, is not interested, 
 and in which no other county or community is interested. 
 
 If the people, for their own protection, prefer to adopt 
 a system of low valuations and high rates, rather than 
 high valuations and low rates, whose business is it except 
 their own ? 
 
 I say, for their own protection, because I am entirely 
 persuaded that it is a most efficient method for preventing 
 excessive taxation, as the people of Illinois will realize 
 if they abandon the control of their taxes to a centralized 
 
 21
 
 bureau, such as a certain worthy class of reformers is 
 demanding. 
 
 Let me read to you one or two things from some recent 
 editorials in Wisconsin newspapers, showing what is 
 going on there. I think I will just incorporate them in my 
 remarks : 
 
 A STATE'S BANKRUPTCY. 
 
 We are told that the enormous increase in the assessed valua- 
 tion of property in this State does not imply higher taxes. But 
 wait! Let not the matter be argued, says the Madison Demo- 
 crat. Taxes will and must be higher and the way is paved by 
 the enormous increase which the tax commission has announced. 
 This increase amounts to about $159,000,000 over the assessment 
 of a year ago. It is true that the rate has no bearing upon the 
 assessed valuation or vice versa, yet we are to have a huge 
 increase in taxes just the same. An annual expenditure for the 
 new two years in State government of some $18,000,000 must be 
 met by taxation. It does not make any difference whether it 
 comes partially from corporation licenses or not. That is taxa- 
 tion, and the people pay the whole bill. 
 
 State Treasurer Henry Johnson is a public official not given 
 to playing politics. During the legislative session he sounded a 
 serious warning to his brethren that they were running wild 
 with appropriations and making no adequate provision for meet- 
 ing them, and again latterly he has frankly proclaimed the prac- 
 tical bankruptcy of the State which must prevail from about 
 November until March. The fact of the matter is, despite expert 
 fallacies to the contrary, taxes in Wisconsin are ascending at a 
 fearful rate and concurrent with a reform which largely is rep- 
 resented by a multiplicity of commissions which do nothing so 
 certainly as add to the complexity and cost of government. — 
 Beloit Free Press. 
 
 WISCONSIN'S TAX BURDEN. 
 
 In his weekly syndicate letter to the interior newspapers, 
 Ellis B. Usher calls attention to the fact that the appropriations 
 voted by the Legislature of Wisconsin, which has recently 
 adjourned, amounted to $36,298,030, while those of the Illinois 
 Legislature totaled $36,870,000. To get the full force of this com- 
 parison it is necessary to compare the populations of the two 
 States — Illinois, according to the last census, 5,638,591 ; Wis- 
 consin, according to the last census, 2,333,860. Wisconsin, with 
 about a million less than half the population of Illinois, is under- 
 taking to spend as much as Illinois spends. The money spent 
 by the States must be raised by taxation. Wisconsin necessarily 
 is a competitor with Illinois. How can she better herself by 
 putting a taxation handicap upon her citizens ? 
 
 22
 
 Like the Illinois appropriations, those of Wisconsin are for 
 two years, which means that the expenditures authorized by the 
 last Wisconsin Legislature are to proceed at the rate of eighteen 
 million per annum, or a million and ;i half a mouth. Yesterday 
 there was in these columns a reference to the declaration of State 
 Treasurer Johnson that at the rate of present expenditures of 
 State moneys in Wisconsin, which he computed at a million a 
 month, there will be nothing left in the treasury by the middle 
 of October. Think of the embarrassment that will occur later, 
 when the full burden of the. new appropriations must be borne. 
 And if the treasury at that time fails to meet the strain, think 
 of what will happen to Wisconsin's financial credit. 
 
 Mr. Usher figures out the per capita tax necessary here to meet 
 the expenditures authorized by existing laws and finds that it is 
 $7.50, while the Illinois expenditures will require a levy of only 
 $3.27 per capita. The Wisconsin expenditures will average not 
 the million a month which is worrying State Treasurer Johnson, 
 but half as much again. They must be met, however much tax- 
 payers would like to avoid them. 
 
 Wisconsin's tax burden is growing desperate. — Evening Wis- 
 consin. 
 
 It may be there is some citizen and taxpayer of Illi- 
 nois who would prefer to pay taxes at the rate of $7.50 
 per capita, as the Wisconsin man is taxed, rather than at 
 the rate of $3.27, as he is himself now taxed. Such a 
 citizen might favor a Permanent Tax Commission, with a 
 large increase in property valuations, but he probably 
 does not own very much of anything. 
 
 The wholesale omissions of personal property from 
 the assessment rolls are bad. They are largely in cities, 
 and consist chiefly of moneys and credits, bonds and 
 stocks of corporations and manufactured products in 
 factories, and merchandise in stores. 
 
 They embrace nearly everything that can be hid. If I 
 were framing a law I would reach this class of property 
 with a moderate State income tax with a very small 
 exemption, and so framed as not to touch farms or rail- 
 roads or any other class of property where it might result 
 in double taxation. 
 
 In saying these things I am going a little outside of the 
 matter in hand, to answer some questions that have been 
 asked me along this line. It is not for railroad repre- 
 sentatives to suggest what methods the people of this 
 
 23
 
 3 0112 062003428 
 
 State shall adopt for taxing their own property, but as 
 long as property is the basis of taxation, and as long as 
 your Constitution remains as it is, then it is the legal and 
 moral right of the owners of railroad property to be 
 assessed by methods which insure to them substantial 
 equality with the other property in the imposition of tax 
 burdens. 
 
 We shall not, in my opinion, be accorded such equality, 
 if you apply to our valuation, for equalization purposes, 
 a percentage of more than 50 per cent. 
 
 All that we ask is fair treatment. The valuation of the 
 railroads should not be guessed at, but should be found 
 and determined upon such equitable rules for ascertain- 
 ing value as your united judgment may approve, and that 
 you may find applicable to this particular class of prop- 
 erty. Then, you must equalize it with other property. 
 More than this, we do not expect: less protection than 
 this it would be poor policy for you, representatives 
 of a fair-minded people, to extend to this important 
 industry. 
 
 24