343.09773098 
 F539a 
 
 Analysis of the traction 
 ordinance 
 
 Fisher, Walter L.
 
 UNIVERSITY OF 
 
 ILLINOIS LIBRARY 
 
 AT URBANA-CHAMPAIGN 
 
 ILLINOIS HISTORY 
 
 AND LINCOLN COLLECTIONS
 
 r - ^ -^a CLASS 
 
 ANALYSIS OF THE TRACTION 
 ORDINANCE 
 
 by 
 
 WALTER L. nSHER 
 
 Special Counsel o\ the United States District Court 
 
 THE I i''?A''y OF THE 
 
 A REPORT J::' '=\ 
 
 to the 
 
 Hon. James H. Wilkerson 
 
 Judge of the United States District Court \ .. 
 
 PRINTED BY THE 
 
 Non-Partlsan Committee on Traction Referendum 
 
 Room 1302 « 33 North La Salle Street » Chicago 
 
 o^^^^£>469
 
 Illinois History and 
 Lincoln Collectigns
 
 
 Xl^^^ 
 
 Chicago, Illinois, June 5, 1930. 
 Hon. James H. Wilkerson, 
 
 United States District Judge, 
 Chicago, Illinois. 
 
 Dear Sir : 
 
 At your request I have participated as your special counsel in the 
 ordinance negotiations between the City of Chicago and representatives 
 of the properties of the Chicago Railways Company, now in the cust^>dy^ 
 of your court, and the representatives of the other Chicago local transporta- 
 tion properties. Under your instructions, I have endeavored to assist in 
 drafting an ordinance that is just and fair to all the parties and that in my 
 judgment can and should be approved by the referendum vote that is essential 
 to its passage. For this purpose I have maintained a position of absolute 
 independence ; and have scrupulously refrained from committing you in 
 any way so that you may continue to be entirely free to hear and consider the 
 suggestions of any party to the litigation in your court whenever the matter 
 comes before you judicially. 
 
 I have particularly refrained from expressing any opinion as to the 
 distribution of the initial securities of the new Company as between the 
 present companies or as between the different classes of securities of the 
 present companies. I have, however, vigorously insisted that any reorganiza- 
 tion plan will have to accord fair treatment to all classes of the existing 
 securities of the Chicago Railways Company, if it is to pass your judical 
 scrutiny in connection with any foreclosure sale of the properties of that com- 
 pany. I desire now simply to report to you my analysis of the new ordinance 
 and my own individual opinion as to its character and effect. 
 
 INTRODUCTORY SUMMAKY 
 
 The basic purpose of this Ordinance is to secure for the City of Chicago 
 and its Metropolitan Area, which is essentially a part of the City, the very 
 best local transportation service that is practically possible at the lowest 
 cost to the public at which it is practically possible to obtain this kind of 
 service. For years transportation experts and engineers who have studied 
 and reported on the Chicago local transportation problem have been in 
 agreement that this result can be obtained only by the establishment of a 
 comprehensive unified local transportation system in which the existing 
 surface and elevated lines will be co-ordinated and developed to meet the 
 ^local transportation needs of the community. This means that radial and 
 crosstown rapid transit lines (elevated and subway) shall be developed as 
 the main arteries with surface street railways and motor buses feeding to 
 and from these rapid transit arteries, and also serving the relatively slower 
 and short distance traffic. The new Ordinance is based upon this funda- 
 mental principle. 
 
 The new Chicago Local Transportation Company, to which the franchise 
 is granted by the new Ordinance,- must' acquire all of the existing street 
 railways and elevated lines. tiSection'. 26, Section 30, paragraph (2)). Uni- 
 versal transfers are to be established between all of these surface and rapid 
 transit lines so that a passenger on either the elevated or the, surface lines
 
 can travel an}- distance in the same general direction for a single fare, pro- 
 vided only that a transfer charge of three cents will be paid for a transfer 
 from the surface to the rapid transit lines. (Sec. 17). The tracks to be con- 
 structed and equipped by the Company in llic initial snl)\vays, to be built and 
 owned by the Citv, are to be operated as parts of the rapid transit lines. 
 (Sec. 9). ' 
 
 The system which is thus unified is to be made comprehensive by the 
 expenditure of $200,000,000 by the new Company within the first ten years 
 lor specified^ elevated and surface extensions, additions and improvements, 
 of which $65,000,000 is to be spent within the first three years (Sec. 3, para- 
 graph A, Exhibit B, Item III). In addition to these specified extensions, the 
 Company must construct or acquire at any time (during the first ten years 
 or thereafter) any other extensions, additions or improvements which the 
 1>ansit Commission may find to be required by public convenience or neces- 
 sity (Sec. 3, paragraph B). 
 
 A new north and south mid-city rapid transit (elevated) line is to be 
 built immediately in South Ashland Avenue (or within 660 feet therefrom) 
 so that passengers who do not wish to go into or pass through the central 
 l)usiness (loop) district need not do so and can connect with all intersecting 
 lines, thus reducing the central congestion of traffic and the concentration 
 of business in the loop. Other crosstown rapid transit lines of this general 
 character are to be developed in the future (Exhibit B, Item I, second para- 
 graph). 
 
 Two initial subways are to be built and owned by the City in which 
 are to be located rapid transit tracks and facilities ecpiipped and operated 
 by the Company (Sec. 9). The Ordinance specifies many important exten- 
 sions, additions and improvements to be constructed concurrently with the 
 construction by the City of these initial subways (Exhibit B, Item I). 
 
 The Ordinance provides for a long list of surface line extensions (by 
 street railway or motor bus) at the rate of at least thirty miles in each year 
 of the ten-year initial construction period (Exhibit B, Item II). The Com- 
 pany is required to provide not less than one thousand additional steel or 
 other metal cars of modern design for the effective operation of the rapid 
 transit lines and not less than one thousand additional cars or motor vehicles 
 of modern design for the effective operation of the surface lines (Exhibit B). 
 
 In order to carry out this extensive program within the first ten years 
 at a cost of at least $200,000,000, the Company must be able to market its 
 securities on terms which the Transit Commission will approve. This means 
 that the Company must have its credit established by the assurance that it 
 will receive a just and reasonable return, and the Ordinance so provides. 
 'J'his is simply a recognition of the law of the State of Illinois and of the 
 United States as established by statutory enactment and the decisions of the 
 courts. Under the law to which the new Ordinance must conform, the 
 financial operations of the Company, as well as the service and rates of fare, 
 will be under the supervision and control of the Illinois Commerce Commis- 
 sion or the Chicago Transit Commission, to be created by the City after this 
 Ordinance goes into effect. 
 
 The Ordinance also expressly provides (Sec. 19) that if in any year the 
 then existing rates produce more than a just and reasonable return to the 
 Company, to be fixed from time to lime by the Transit Commission, the ex- 
 cess will be paid into the City Transit Trust Fund for the use of public 
 property in addition to the three per cent of the gross receipts of the Com-
 
 pany which is to be paid annually into this Fund. (Sec. 20). This Fund, 
 including the present traction fund of more than $60,000,000, is to be used 
 so far as necessary to build the City-owned subways, after collecting as 
 much of the cost as can be levied by special assessment upon the property 
 especially benefited by the subways. After the initial subways are built, the 
 primary purpose of the City Transit Trust Fund is the reduction by amortiza- 
 tion of the capital value of the Company's investment upon which rates are 
 based and the corresponding reduction of the purchase price at which the 
 City or its permittee can take over the properties. 
 
 With this introductory summary, I turn to a closer analysis of the more 
 important provisions of the Ordinance. 
 
 TERMINABLE PERMIT 
 
 The grant in this Ordinance is not for a fixed period of years. It is a 
 terminable permit which may be terminated at any time by purchase by the City 
 or by any permittee company designated as a purchaser by the City. The price to 
 be paid by the City is the investment or capital value of the property to the extent 
 that it is not amortized at the time of purchase. (Amortization means the reduc- 
 tion of the capital investment by installment payments as the money is available.) 
 This is also the price to be paid by the permittee if the Company is at any time 
 in default with respect to any of its obligations under the Ordinance and fails 
 to make good its default within a time specified by the Transit Commission or 
 by the judgment or decree of any court of competent jurisdiction. (See Section 
 25, paragraphs A and B.) If the Company carries out its obligations under the 
 Ordinance, a permittee must pay a 10 per cent premium on the City's purchase 
 price if the permittee purchases during the first ten years after the efifective date 
 of the Ordinance, with a reduction of one-tenth of this premium for each year 
 thereafter, so that there will be no premium by the twentieth year. The purpose 
 of this premium is to give the new Company a reasonable period during which 
 it can establish its comprehensive unified system and demonstrate its good faith 
 in carrying out the provisions of the Ordinance without being liable to have its 
 properties taken from it by another company, without the payment of a reasonable 
 premium. 
 
 There is much misunderstanding about the difiference between a fixed-term 
 grant and a terminable permit. There was a time when the five cent street railway 
 fare produced so large a profit to street railway companies that they were willing 
 to accept twenty-year grants and rely upon the presumption that they would secure 
 a renewal of the grant at the end of the twenty years, without any definite pro- 
 tection for the unamortized capital investment at the end of the grant. This is 
 no longer true. Street railway enterprises can no longer be financed upon such 
 assumptions. It is now quite generally recognized that the fixed term grant is 
 unsound in principle and has been demonstrated by experience to be as disad- 
 vantageous to the public as it is to the operating company. 
 
 While there is much talk about fixed-term grants . under which the entire 
 investment may be amortized during the fixed period, no public utility grant for a 
 fixed term of years does in fact ever provide for such complete amortization. To 
 do this would require rates to be higher than the public will or should pay. It 
 would mean that fares must be high enough not only to pay the company a suffi- 
 cient annual return on its investment to make the enterprise financially attractive, 
 but also high enough to pay the principal of the investment by the end of the grant. 
 If any part of the investment is to remain unpaid at the end of the grant, the 
 investor demands to know what protection it is to be given when the term grant 
 ends. Without adequate protection he refuses to invest. If there is any uncer-
 
 tainty about it, he refuses to invest. The company cannot sell its bonds or other 
 securities, especially as the end of the grant approaches. As a result, the company 
 cannot keep up its properties and service or finance the extensions, additions and 
 improvements that are absolutely essential in every growing community, and 
 especially in a great city like Chicago. New capital for these purposes is absolutely 
 necessary every year right up to the end of the grant. 
 
 Our own experience in Chicago with the twenty-year street railway grant 
 is a complete demonstration of the unsoundness of the fixed-term theory. Our 
 street railway franchises expired in 1927, but the necessity for continuing street 
 railway service compels the City to acquiesce in the continued operation of the 
 properties, while greatly needed extensions cannot be built because the companies 
 can no longer sell their securities. New capital cannot be obtained unless all 
 doubt is removed that the unamortized investment will be recognized and pro- 
 tected. Even then it would be extremely difificult for the Company to secure new 
 capital during the closing years of a term grant except upon the most disadvan- 
 tageous terms. These disadvantages will all be reflected in the service and the 
 rates of fare. If the imamortized investment is to be protected at all (as it cer- 
 tainly must be) there is no advantage in a term grant over a terminable permit. 
 There is simply the disadvantage of the uncertainties that arise as to the policy 
 that the City will pursue as the end of a term grant approaches. 
 
 If the entire investment is to be amortized during the life of a term grant, 
 this can be done equally well or better under a terminable permit, because under 
 the latter the period of amortization can be made longer or shorter as circum- 
 stances may make this desirable. The City will always have the right to take 
 over the properties itself or to authorize another company to take them over upon 
 payment of the unamortized investment. 
 
 A grant which can be terminated by amortization or by purchase by the City 
 or its permittee is not a perpetual franchise. Any claim that a terminable permit 
 is a perpetual franchise applies equally to a term grant under which the company 
 has the right to continue operation until its unamortized investment is paid or 
 protected, and this right is absolutely essential to the financial credit and stability 
 of any local transportation company. 
 
 The terminable permit gives the company a much more stable basis of finan- 
 cial credit. It can raise money by selling securities at lower rates of interest or 
 dividend return. Under proper public regulation of these securities and of rates 
 and service (such as is now provided by statute in Illinois) this works to the 
 benefit of the public as well as of the company. The enabling legislation enacted 
 last year authorizes the granting of a terminable permit for local transportation 
 purposes and the new Ordinance is based on this legislation. The representatives 
 of the existing traction companies positively refused to deal with the City on any 
 other basis. 
 
 It is not true that the large capital expenditures for extensions, additions and 
 improvements will so lengthen the period of amortization and so increase the 
 purchase price that it will be impossible for the City or its permittee to acquire 
 the properties. Those who raise this point do not suggest that the extensions 
 and improvements shall not be made. They know too well how much the City 
 needs them. It needs more extensions rather than less. What they want is to 
 eat their cake and keep it too— to eat it without paying for it. 
 
 Of course, whatever the capital investment is, it will have to be protected. 
 If the City could buy the properties today, it would have to raise the additional 
 money for extensions or go without them ; and the purchase of the present prop- 
 erties by the City would be indefensible if the City could not raise the additional
 
 money for at least the extensions and improvements provided by this Ordinance. 
 At present the City cannot raise the money either for the purchase or for the 
 extensions. In the future it may be able to do so — by an increase of its bonding 
 power, through making the full fair value of property the basis of taxation, by 
 removing the limitation of municipal indebtedness from securities issued for and 
 secured solely by revenue-producing utilities, or by hastening the process of 
 amortization. If the public really wishes to hasten the amortization, this can 
 always be done by increasing the rates of fare so as to increase the excess over 
 a just and reasonable return to the Company, which excess by this Ordinance is 
 to be paid into the City Transit Trust Fund. There is, however, no way in which 
 the City can acquire the properties without paying for them — it cannot lift itself 
 by its bootstraps. And always it will be true that if the Company were making 
 grossly excessive profits other companies can be found which will be glad to pur- 
 chase as the City's permittee upon terms that will offer a sufficient inducement for 
 the investment. 
 
 HOME RULE UNDER A LOCAL TRANSIT COMMISSION 
 
 In 1913 the City of Chicago lost its home rule control over street railways 
 and other public utilities by the passage of the statute creating the Illinois Public 
 Utilities Commission which was approved by Governor Edward F. Dunne. By 
 this statute the Commission was given the control over rates and service and over 
 the issuance of bonds, stocks and other securities of all pubHc utilities in Illinois. 
 In 1921 this Commission was superseded by the Illinois Commerce Commission. 
 
 By the enabling legislation passed in 1929 at the instance of the City Council 
 of the City of Chicago it is now provided that if any city having a population of 
 500,000 or more shall pass and there shall become operative and effective an 
 ordinance providing for a comprehensive, unified local transportation system in 
 such city and its metropolitan area, the city may then create a local Transit Com- 
 mission consisting of three members to be appointed by the mayor, by and with 
 the advice and consent of the City Council, which local Transit Commission shall 
 thereafter exercise all the powers over the comprehensive, unified local transpor- 
 tation system, its securities, etc., as are now exercised by the Illinois Commerce 
 Commission. 
 
 It is only after such a system has been established as is provided for in the 
 new Ordinance that the City can create the local Transit Commission. The justi- 
 fication for such a local or home rule commission is that the local transportation 
 conditions in a great metropolitan area like that of Chicago are so different from 
 the conditions existing elsewhere in the State that they require the exclusive 
 attention of a commission especially familiar with these conditions and devoting 
 its energies to this particular subject. 
 
 There are legal questions involved that have not been directly passed upon 
 by our Supreme Court, but such precedents as exist are distinctly favorable to 
 the validity of the enabling legislation and it is confidently believed that it will 
 be sustained. If the court should hold that the statute is defective in any respects 
 that can be cured by future legislative action, the State Legislature can enact the 
 necessary remedial statute. Meanwhile, the duty of protecting the public inter- 
 est (.and the Company's interest as well) by the regulation of securities and of 
 rates and service will continue to rest with the Illinois Commerce Commission, 
 subject to judicial review. 
 
 CITY COMPENSATION AND AMORTIZATION 
 
 Under the new Ordinance 3 per cent of the gross receipts is to be paid into 
 a City Transit Trust Fund as compensation for the use of the streets and other
 
 public property. The gross receipts of tlie existing traction companies for the 
 year 1929 were $83,985,242.16, of which 3 per cent would amount to $2,519- 
 557.26. This is slightly less than the 55 per cent of the net receipts for 1929, plus 
 the small amount ($201,475) received from the elevated lines; but this 3 per cent 
 will increase in amount with the increase of population and traffic and with any 
 increase in the rate of fare, while the net receipts may be substantially reduced 
 I)y increased o])erating expenses, such as the employes' pension fimd. Tn addition 
 to the 3 per cent of the gross receipts, any excess over a just and reasonable 
 return to the Company is also to be paid into this City Transit Trust Fund. 
 Owing to the fact that the cash fares paid can never be in fractions of a cent, and 
 may therefore result in much more than a just and reasonable return to the Com- 
 I^any, the excess thus payable into the City Transit Trust Fund may at times be 
 very large. 
 
 The present Traction Fund of $61,250,620.04 is to be turned over to this 
 Fund or utilized in such other manner as the City may provide for the construc- 
 tion of the initial subways. The entire Trust Fund is to be used for this purpose 
 so far as may be necessary, in addition to such special assessments as can be 
 levied upon the property especially benefited by the subway. After the initial 
 subways are constructed, the City may, if it wishes, apply the Fund to future 
 subways or subway extensions and to certain relatively minor purposes specified 
 in the Ordinance. The Company will equip and operate its tracks in any such 
 subways. 
 
 The primary purpose of the City Transit Trust Fund, however, is the 
 amortization of the capital value of the Company, and the corresponding reduc- 
 tion in the purchase price at which the City or its permittee may take over the 
 ]M-operties, and also the corresponding reduction of the investment upon which 
 the just and reasonable return to the Company is based under the law as now 
 declared by the State and federal courts. It is agreed in the Ordinance that the 
 unamortized capital value outstanding at any time shall be taken as the then value 
 of the Company's property in determining the basis for fixing rates of fare and 
 return to the Company. (Sections 18 and 25.) 
 
 Section 25, Paragraph D, provides that "all securities (except common stock 
 and securities maturing within one year from date of issuance) issued by the 
 Company shall be subject to call by the Company at any time upon reasonable 
 notice to the holders thereof for redemption or purchase at a price and upon 
 terms approved by the Transit Commission and to be specified therein." 
 
 Section 21, Paragraph G, provides that "upon the order of the City Council 
 the Trustee shall cause to be cancelled any securities of the Company held by the 
 Trustee in the (City Transit Trust) Fund, and the capital value of the Company 
 shall be reduced by the principal amount or the par or declared value of the secur- 
 ities so cancelled, and the Company shall so certify to the Transit Commission." 
 
 Section 22 provides that "the Company agrees, upon notice from the Trus- 
 tee of the City Transit Trust Fund under the direction of the City Council, to 
 call for purchase on the next succeeding call date such amounts of bonds, deben- 
 tures and/or any preferred stocks as may be specified in any such notice at the 
 ])rices governing the call of such securities. On or prior to the date fixed in 
 such notice for such purchase the Trustee of the City Transit Trust Fund shall 
 deposit with the Company cash equal to the principal amount or the par or de- 
 clared value of the securities so called, plus the premiums thereon, and shall 
 receive from the Company the securities so called." 
 
 Before the establishment of etifective public regulation and when the fares 
 were fixed by the terms of the City ordinances, the exaction of money compensa- 
 tion to the City was justified, even though such money might be used for general
 
 municipal purposes. This was especially true when the five-cent street railway 
 fare produced excessive profits to the company. Now that fares can no longer 
 be thus limited by ordinances, because the regulatory power of the State through 
 its Commission is held to over-ride the City's right to limit fares, and now that 
 the increased cost of labor and materials has made the five-cent fare no longer 
 sufficient to provide the service which is held to be essential to the public wel- 
 fare, the amortization of the investment is the only sound justification for exact- 
 ing compensation from a local transportation company for the use of public 
 property. 
 
 If the Company is efit'ectively limited to a just and reasonable return, the 
 exaction of money compensation to the City (except as to any excess over the 
 just and reasonable return possible even under the best practicable regulation) 
 must be met by making the fares just that much larger than they otherwise need 
 to be. If this compensation is applied to keeping down or reducing the capital 
 value on which fares are based (Sec. 18, Par. B, last sentence), the public, as 
 well as the Company, receives the resulting benefit. Inasmuch as rates or fares 
 can never be regulated so as to produce exactly the just and reasonable return to 
 the Company, it is only fair that any excess be paid into the Trust Fund instead 
 of being distributed in dividends as it otherwise would be by reason of the fact 
 that the law does not give to the Transit Commission any direct control over the 
 disposition of any such excess. 
 
 The New Ordinance contains specific provisions for amortization applicable 
 to special conditions, such as the removal of the elevated loop (Section 10, Para- 
 graph K), the sale of real estate or other property (Section 11), the application 
 of insurance moneys not used to replace the property insured (Section 13) and 
 the application of the Renewal Fund to amortization when property is retired or 
 abandoned and not replaced. (Section 15, Paragraph B.) 
 
 The payment into the City Transit Trust Fund of the 3 per cent of the 
 gross receipts is by paragraph C of Section 21 made junior to operating 
 expenses and the interest and sinking fund requirements on bonds, deben- 
 tures and other evidences of indebtedness, dividends on preferred stocks and 
 sinking fund requirements of preferred stocks issued by the Company for new 
 capital. The purpose of this provision is to establish the financial credit of 
 the Company with respect to these particular classes of securities. Street 
 railway securities as a class are not favorably regarded by the investing pub- 
 lic, and the bankers insist that these provisions are absolutely essential to the 
 financing of the new Company. It is not believed that under the new ordi- 
 nance there will ever be any default with respect to the interest and sinking 
 fund requirements thus specified. If there should be such a default, the com- 
 mon stock, W'hich amounts to approximately $77,000,000 under the plan of 
 reorganization submitted to the City Council at the time of the passage of this 
 ordinance would, of course, receive no dividends. 
 
 The City's interests are further protected by the provision in Paragraph 
 B of Section 26 that an amount at least equal to 25 per cent of the initial 
 capital value shall at all times be represented by securities or such class or 
 classes that the payment of interest or dividends thereon shall be junior to 
 the payment into the City Transit Trust Fund of the 3 per cent of the gross 
 receipts. This 25 per cent must amount to at least $65,000,000. The ordi- 
 nance provides that the 3 per cent shall be cumulative so that any failure to 
 pay it in full in any year will be made up in subsequent years. The amount 
 of the 3 per cent is determined by the gross receipts and without any deduc- 
 tion for operating expenses, interest or sinking fund requirements. It is not 
 believed that there is any doubt about its payment. The ordinance provisions
 
 referred to are intended solely to strengthen the credit of the Company's 
 fixed-income bearing securities, so that the very large amount of new money 
 required can be readily obtained. 
 
 CAPITAL VALUE AND CITY PURCHASE PRICE 
 
 Before the new Company can accept the new ordinance, it must acquire 
 all of the properties and rights of the existing street and elevated railroads. 
 The total, or aggregate value of these properties is agreed to be, as of the 
 31st day of August, 1929, the sum of Two Hundred Sixty Million, Four Hun- 
 dred Forty-two Thousands, Sixty-three Dollars and Eighty-two Cents ($260,- 
 442,063.82), with appropriate adjustment of this value by actual capital addi- 
 tions and deductions to the date of actual acquisition. The Company is given 
 the right to purchase these properties, subject to certain existing mortgages 
 or liens of the Rapid Transit Company set out in ExhilMt D and in the 
 event that it exercises this option the initial purchase price and the initial 
 securities to be issued by the Company shall be reduced by the amount of 
 these outstanding mortgages and liens. The reason for these provisions is 
 that there is no effective method by which the Chicago Rapid Transit Com- 
 pany can remove these mortgages or liens except at an unjustifiable cost to 
 the Company. They will therefore be allowed, to run until maturity, when 
 they will be replaced by other securities of the new Company, subject to the 
 provisions of the ordinance. 
 
 The valuation of $260,442,063.82 was arrived at by adding to the purchase 
 price or capital value of the properties of the Surface Lines under the pro- 
 visions of the ordinances of 1907, the present value of the Rapid Transit sys- 
 tem (elevated lines) as appraised at the request of the City Council Commit- 
 tee on Local Transportation by the well-known consulting engineer, Joshua 
 D'Esposito, Colonel A. A. Sprague, and Mr. George Woodrufif, president of 
 the National Bank of the Republic. This appraisal was confined to the phys- 
 ical properties ; nothing was included for franchise rights or other intangibles. 
 
 Unjustifiable attacks have been made upon the valuation of the Surface 
 Lines. In 1907 there was a great difference of opinion as to the then value 
 of the existing street railway properties. By agreement of the companies on 
 the one hand and of Mayor Edward F. Dunne and the City Council Com- 
 mittee on Local Transportation on the other hand, Bion J. Arnold, the emi- 
 nent Chicago engineer, Mortimer E. Cooley, Dean of the Engineering School 
 of the University of Michigan, and A. B. DuPont, traction expert for Mayor 
 Tom L. Johnson of Cleveland, made an investigation and report which re- 
 sulted in a compromise valuation of $50,000,000. The companies claimed a 
 much greater valuation, but accepted the compromise as an essential part of 
 the ordinances of 1907, and in consideration of the provisions inserted in 
 those ordinances for their benefit. Mayor Dunne publicly announced his 
 belief that the valuation of $50,000,000 was a real victory for the City. 
 
 It was part of the agreement expressed in the ordinances that the com- 
 panies were to be protected in this valuation, and to the $50,000,000 was to 
 l)e added all future capital expenditures as certified by the Board of Super- 
 vising Engineers with an allowance of 10 per cent, and an additional 5 per 
 cent to cover discounts or commissions on the securities which the com- 
 panies had to sell to raise the necessary money. This 5 per cent was based 
 upon a careful investigation made by Hon. Lawrence E. McGann, then City 
 Comptroller, as to the costs of such financing if conducted by the City. As a 
 matter of fact, it has actually cost the companies 6.266 per cent for discounts 
 lorl commissions on new money since 1907, The companies were allowed 
 
 10
 
 $4,096,377.34 for brokerage and discount; and it cost them $5,133,433.75; so 
 that they have certainly derived no profit from this allowance. They have 
 had the benefit of the 10 per cent ; but this was an essential part of the com- 
 promise agreements of 1907 and was definitely intended as an inducement for 
 the companies to procure and expend all moneys required for the rehabilita- 
 tion and improvement of the properties. For the entire period since 1907 
 it has amounted to $8,868,869.28. During the same period the City has 
 received $47,089,810.10 as its 55 per cent of the net receipts, and the annual 
 earnings of the companies have been only an average of 6.19 per cent on their 
 capital account. The reproduction cost (less depreciation) of the Surface 
 Lines at the present prices of labor and material would exceed their present 
 capital value, and the Public Utilities Commission of Illinois held in 1920 
 that the properties of the .Surface Lines had a value substantially in excess of 
 the capital account or purchase price of the properties. 
 
 In 1924 the City appointed a commission composed of William Barclay 
 Parsons of New York, Major R. F. Kelker, Jr.. and William J. Hagenah to 
 value the properties of the Surface Lines. This committee unanimously 
 reported that the value of these properties was in excess of the City's pur- 
 chase price, which then amounted to approximately $160,000,000. and a 
 majoritv of the commission reported a value of the properties at that time in 
 excess of $200,000,000. or approximately $40,000,000 in excess of the City's 
 purchase price. 
 
 The ]\Ialtbie report of 1925. to which so much weight is given by the 
 critics of the Surface Lines valuation or purchase price, contains many as- 
 sumptions and estimates to which the companies do not agree and which are 
 certainly open to question. Maltbie included neither the 10 per cent nor the 
 5 per cent provided by the 1907 ordinances. He allowed nothing for the 
 expenditures actually made by the companies on the City tunnels ($2,566,491), 
 on the ground that the title to these tunnels was in the City. He omitted all 
 relocating of elevated railroad columns and relocating and reconstructing 
 street railway tracks on account of street widenings or other improvements 
 ($1,401,743), all street grading and all obsolete cars or other properties. 
 Nevertheless, Mr. Maltbie found and reported that the commercial value of 
 the property was then $140,000,000 and that: 
 
 "The reproduction cost new as of October 31, 1924. of the 
 property of the Surface Line companies (excluding that not owned) 
 less depreciation accrued to January 31, 1924, was $130,237,672. 
 Neither figure includes the balance in the renewals and depreciation 
 reserve funds as of October 31. 1924. of $14,716,506.74." 
 
 The companies' report that since January 31. 1924, there have been addi- 
 tional capital expenditures of $2,424,984. not including $10,296,645 spent for 
 new equipment and extensions out of the special fund created for that pur- 
 pose by order of the Illinois Commerce Commission, of which Maltbie 
 allowed only $4,337,142.91. It will thus be seen that the whole controversy 
 as to the value allowed in the new ordinance for the Surface Lines ($164,- 
 721,434.52 as of August 31, 1929) is unwarranted and in any event relates to 
 an amount so small in comparison with the larger issues involved as to be 
 practically negligible. 
 
 It is true that in the $50,000,000 was included certain allowances for ordi- 
 nance grants (so-called franchises) which had not expired in 1907. It is 
 equally true, however, that these rights were allowed far less than their 
 real value. The original ordinance for street railways in the City of Chicago, 
 
 11
 
 and many of the subsequent ordinances, expressly provided that the right of 
 operation should continue until the properties were purchased by the City. 
 In 1907 the lower court had sustained the validity of the special street railway 
 (Mueller) certificates which the City proposed to issue to raise funds to pur- 
 chase the properties, and the \-aluation of the unexpired franchises in 1907 
 was based on the assumption that the operating- rights could be terminated 
 and the properties accpiired by the City in approximately eighteen months. 
 The Su])rc'nK' Court of Illinois, however, reversed the decision of the lower 
 court, and held that the Mueller certificates could not be lawfully issued 
 because they A\'(»uld constitute in<lebtedness of the City in excess of the con- 
 stitutional debt limit. There has been no time from 1907 to the present time 
 when the City of Chicago could have purchased these properties ; so that the 
 right of the companies to operate them would today be in full force and effect 
 if it were not for the settlement made in 1907. Kcjually conclusive answers 
 can be given to the charge that the $50,000,000 contained any other exces- 
 sive allowances. 
 
 It is j)robably correct in theory that all intangible values included in the 
 $50,000,000 should have been amortized during the past twenty years, but 
 in 1907 no one advocated or suggested that this be done. On the contrary, 
 the City administration was insistent upon the payment of money compensa- 
 tion to the City to provide a special traction fund for the purchase of the 
 properties by the City. This fund could have been used in whole or in part 
 for amortization. It would have wiped out not only the intangible values 
 allowed in 1907 but practically the entire $50,000,000. The traction fund 
 could be used today for amortization, but it would not be available for sub- 
 w^ays. We would then have to look to the new Company to furnish the 
 money for subways, and it would be entitled to a just and reasonable return 
 upon its investment. 
 
 By express provision in the ordinances of 1907 the rights of the surface 
 companies to operate in the streets terminated in 1927, but by the compelling 
 force of public necessity they have continued to operate and will continue to 
 operate until the purchase price fixed by the ordinances of 1907 has been paid. 
 
 The City cannot now finance either the purchase of the present lines or 
 the construction of a new system. If the new Chicago Local Transportation 
 Company may be regarded as the City's Permittee, it must pay the purchase 
 price fixed under the ordinances of 1907. The fact that it will pay this price 
 by an exchange of securities rather than in money, in no way works to the 
 disadvantage of the City or the public. The new ordinance, therefore, ac- 
 cepts this value for the Snrface Lines in the initial capital value of the new 
 Company and adds to this the appraised value of the Rapid Transit system 
 (the elevated lines). 
 
 To this initial capital value is to be added in the future only the actual 
 expenditures in money for additions to plant and property, as approved from 
 time to time by the Transit Commission, together with such amounts as the 
 Company may supply wnth the approval of the Commission for w^orking 
 capital. (Sec. 18, par. B.) If the Company's securities are sold at a dis- 
 count in order to raise these moneys that is the Company's loss, just as it will 
 be its gain if it can sell its securities at a premium. Under this ordinance 
 the capital value or 'City's purchase price is fixed by adding to the initial 
 capital value only the actual cost of extensions, additions and betterments 
 (and working capital). In the event of purchase by the City or its Permittee
 
 the working capital as well as the properties constituting the system will be 
 acquired by the purchaser. (Sec. 25.) 
 
 SUBWAYS 
 
 Considerable explanation has already been given of the Ordinance pro- 
 visions respecting subways. The necessity for a certain amount of central 
 subway construction is recognized. 
 
 There is to be a four-track north and south subway on State Street 
 from a junction with the present elevated lines at Chicago Avenue to a 
 junction with the present elevated lines near Sixteenth Street (Exhibit C, 
 Item I). This will immediately relieve the elevated loop and enable it to 
 be utilized for rapid transit facilities primarily serving the west side. An 
 additional initial subway primarily serving the west side (which includes 
 northwest and southwest) is to be constructed by the City within the ten- 
 year initial construction period (Exhibit C, Item II). It will be located in 
 Dearborn Street, with branches to the northwest in or near Milwaukee 
 Avenue and Grand Avenue, and to the southwest in or near Blue Island 
 Avenue and Harrison Street. The location of this subway may be changed 
 at the option of the City by substituting Ohio Street for Grand Avenue, 
 and/or by substituting Clark Street for Dearborn Street, and/or by sub- 
 stituting Polk Street for Harrison Street. There are to be subways con- 
 necting these subways (Exhibit 6, Item III). In order that passengers may 
 transfer from one subway to another and between the elevated structures 
 and subways conveniently and without either transfer slips or additional 
 fare, six pedestrian tunnels or passagewavs are to be constructed (Exhibit 6, 
 Item IV). 
 
 It seems clear that the initial subways provided for in the new Ordinance 
 are imperatively needed to accommodate the traveling public which desires 
 to pass to or through the central business district. Those who think that 
 the whole theory of a central business district is unsound must nevertheless 
 face the realities. Our City has been developed in this way, and large num- 
 bers of our people must travel to and from the business district for employ- 
 ment, for business and for pleasure. What we should avoid is the unneces- 
 sary increase of such travel and the unnecessary congestion that results from 
 it. This is precisely what the new Ordinance undertakes to do by the con- 
 struction and operation of new rapid transit lines (such as the mid-city line) 
 so that those who wish to travel between points outside the central business 
 district can do so quickly and conveniently, without passing through the 
 central business district. 
 
 There can be no just criticism of the use of the present Traction Fund 
 or of the City Transit Trust Fund under the new Ordinance for constructing 
 subways for the benefit of the car rider from whom the money really comes. 
 ]f the Company built the subways the car rider would have to pay a just and 
 reasonable return on the Company's investment in the subways. If the 
 Company were required to pay as rental for the City-owned subways more 
 than the 3 per cent of the gross receipts, this rental would necessarily be 
 reflected in the rates of fare. There seems to be no justification for requiring 
 the car rider to pay indirectly for the use of his own money. 
 
 The new Ordinance ])r()vides that upon its acceptance by the Company 
 the City shall 
 
 "proceed to construct or accjuire such subways with all due diligence 
 consistent with its ability to meet the cost thereof out of new funds 
 raised by such special assessments as the City may deem necessary 
 
 13
 
 or proper and/or out of the City Transit Trust Fund * * * It is 
 understood, however, that nothing- in this Ordinance contained shall 
 be deemed to impose any obligation upon the City to raise funds to 
 meet such cost or any part thereof by general taxation." 
 
 1 he subways may and will include provision for other purposes than local 
 transportation. Appropriate provision can and will be made for municipal 
 and other public utilities. If the existing tunnels under the Chicago River 
 are to be utilized as parts of the subways, they may be so used without cost 
 to the City, to which the Company will convey all its rights. The Company 
 is to lay its tracks in the subways and equip and operate them as parts of its 
 system. It must also maintain and repair all parts of the subways used by 
 it. (Sec. 9. par. E.) A special assessment ordinance for subway construc- 
 tion is now in course of preparation and will be presented for passage 
 promptly after the acceptance of the pending Ordinance. The subway pro- 
 gram will be pushed to completion with all due diligence, following the 
 approval of the new traction Ordinance on the referendum vote. 
 
 EXTENSIONS, ADDITIONS AND IMPROVEMENTS 
 
 The general supervision of service, including extensions, additions and 
 improvements of the comprehensive, unified local transportation system, is 
 vested by the statutes of Illinois in the Illinois Commerce Commission and 
 that control will pass to the Chicago Transit Commission when such a 
 commission is created by the City after the new Ordinance becomes effective. 
 The enabling act authorizing a terminable permit expressly provides, how- 
 ever, that — : 
 
 "In addition to the provisions as to purchase by the municipality 
 or its permittee, a terminable permit may contain any other terms 
 and conditions (including but not limited to reasonable provisions 
 for specified extensions, and additions to lines and facilities, the 
 retirement of investment by amortization or otherwise, or for com- 
 pensation for the use of public property, computed either by some 
 - proportion of the receipts from the operation of the property of the 
 grantee, or otherwise) not contrary to or inconsistent with this act 
 or with the lawful exercise of the power of the State to regulate 
 public utilities; and any court of competent jurisdiction shall have 
 power to enforce the provisions of this paragraph by means of in- 
 junction, mandamus, or other appropriate proceeding." 
 
 In accordance with this statute, the new Ordinance requires that the 
 Company shall provide and expend within the first ten years the sum of 
 $200,000,000 for extensions, additions and improvements which are "speci- 
 fied"' in Exhibit B. These include both elevated and surface extensions. 
 bt)th of which are specifically set out in this exhibit. At least thirty miles 
 of surface line extensions are to be provided each year, and 300 miles of 
 such extensions are specifically listed. Half of these are to be street rail- 
 ways and half are to be motor vehicles. The possibility of motor vehicles 
 or trackless trolley lines supplanting street railways on fixed tracks is thus recog- 
 nized. The best expert opinion now favors a combination of the two. Cer- 
 tainly the condition of our streets will have to be vastly improved before the 
 public will accept the trackless vehicle as a complete substitute for street 
 railway cars throughout the City as a whole. Under the new ordinance 
 there will be opportunity to profit by practical experience in the future devel- 
 opment of a comprehensive unified system. The rapid transit lines in sub- 
 ways and on elevated structures on private rights-of-way free from the con- 
 
 14
 
 gestion of public streets will in any event form the essential frame work 
 and skeleton of any adequate system of local transportation for Chicago and 
 its metropolitan area. The construction of the extensions specified in Ex- 
 hibit B is to proceed concurrently with the construction of the City-owned 
 subways and Exhibit B contains the important provision that the extensions, 
 additions and improvements 
 
 "respectively shall be constructed or acquired by the Company by 
 the time of the completion of the particular subway upon which the 
 principal and eiTective operation of such extensions, additions and 
 improvements respectively is to be dependent." 
 
 This provision is being wilfully misrepresented. It recognizes the un- 
 deniable fact that the initial subways are an integral and essential part of 
 the comprehensive unified system. The capacity of the elevated loop has 
 already been reached. When the universal transfer between elevated and 
 surface lines is put into effect, it can work satisfactorily only if additional 
 downtown terminal facilities are provided, as well as the mid-city and 
 other crosstown rapid transit lines. Surely the critics would not propose 
 that the downtown streets shall be occupied by more elevated railroad 
 structures. The overwhelmingly prevalent opinion is that we should get rid 
 of the elevated loop rather than add to it, and the new Ordinance provides 
 for doing this just as soon as, in the development of the comprehensive sys- 
 tem, public convenience and necessity no longer requires it to be maintained. 
 The Ordinance recognizes in the provision above quoted that certain of the 
 specified extensions, additions and improvements will be justified only as 
 a,nd when the initial subways are completed. To build them before this 
 would be a senseless waste of money. Illustrations will be found in the 
 provisions for additional third and fourth tracks on the elevated lines, which 
 will be required when the subways are built but cannot be effectively used 
 before this. The principle is to be applied only where the facts require it. 
 
 The Ordinance, therefore, provides that the building of the extensions, 
 additions and improvements shall proceed concurrently with the building 
 of the subways, and that they shall be ready for operation whenever the 
 particular subway upon which their principal and effective operation depends 
 is completed. This may be much sooner than ten years ; so that instead of 
 relieving the Company of its obligations to construct or acquire the specific 
 additions and improvements listed in Exhibit B within the first ten years, 
 this provision of the Ordinance shortens the time allowed to the Company 
 for the particular extensions, additions and improvements, which are directly 
 related to and dependent upon the construction of the subways. 
 
 At least $65,000,000 is to be provided and expended by the Company 
 for extensions, etc., during the first three years after the acceptance of the 
 Ordinance, and during this three years all excess of corporate income over 
 and above the corporate income of the Company for the twelve months 
 ending January 31, 1930 ($14,286,535.42) plus the interest, dividend and 
 sinking fund requirements on securities issued and sold by the Company for 
 new capital during said three-year period, with the approval of the Transit 
 Commission, are to be paid into a special fund to be used for additions to 
 plant and property, and without any increase in the capital value of the 
 Comj/any. (Sec. 19.) This recognizes the statutory control of the Transit 
 Commission over fares, but effectively provides that any increase of fares 
 during the first three years shall inure to the benefit of the City. This money 
 must, however, be used for additions to plant and property of the Company, 
 although no return to the Company will be allowed on it. 
 
 15
 
 In order that there may be an adequate incentive for the Company to comply 
 with its obligations with respect to the specified extensions, additions and improve- 
 ments, the Ordinance provides that if the Company sliall be in default with 
 respect to these obligations, the dividends which otherwise might be available for 
 the common stock or other securities (aggregating at least $65,000,000) shall be 
 used to make good the default of the Company and without any addition to the 
 capital value of the Company. (Sec. 19, last paragraph.) The initial capitaliza- 
 tion of the new Company, proposed by the bankers and approved by the repre- 
 sentatives of the com])anies, provides for $77,295,145 of common stock, but if 
 we take only the $65,000,000 minimum allowed by the Ordinance and assume that 
 6 ]-)er cent on this amount would be the return that these security-holders might 
 rcasoiial)ly expect so long as there is no default, this would mean a permanent 
 loss to them at the rate of at least $3,900,000 a year so long as such default con- 
 tinued. If the common stock amounted to $77,000,000, the penalty would be at 
 the rate of more than $4,500,000 a year. As the common stock will control the 
 Company, it will really be responsible for any default and it may be relied upon 
 to see that no avoidable default occurs. 
 
 The obligations of the Company with respect to extensions, additions and 
 improvements are by no means limited to the specified extensions, additions and 
 improvements set out in Exhibit B. If there are any other extensions required 
 to furnish adequate service to the public, it is expressly provided in Section 3, 
 Paragraph B, that 
 
 "The Company shall construct or acquire any such further additions, 
 extensions and improvements as the City Council may authorize or direct 
 and wdiich the Transit Commission, after hearing, shall find to be required 
 by public convenience and necessity and shall by order direct to be con- 
 structed or acquired, under and subject to the requirements of this Ordi- 
 nance. The City, pursuant to ordinance passed by the City Council, may 
 at any time apply to the Transit Commission for such an order." 
 
 Compliance with the frontage consent laws is required by the Ordinance. 
 
 ^ RATES OF FARE 
 
 By Section 17 of the Ordinance the rates of fare which are now in eflfect 
 shall continue (subject to the universal transfer provisions), with only such 
 changes, if any, as may hereafter be made from time to time under the control 
 of the Transit Commission in the exercise of its statutory powers and the per- 
 formance of its statutory duties in the regulation of rates of fare. This is the 
 full length to which the City can go in a local transportation ordinance. The 
 creation of the Illinois Public Utilities Commission in 1913 took away from the 
 City of Chicago its home rule power with respect to rates of fare. Under the 
 provisions of the terminable permit act the Ordinance contains terms and condi- 
 tions under which any increase of fares during the first three years will operate 
 to the advantage of the City through the payment into a trust fund for "making 
 effective the program of initial construction and betterments prescribed by this 
 Ordinance and Exhibit B hereto" of all excess of corporate income in each year 
 of said three-year period over the corporate income of the present companies for 
 the year ending January 31, 1930, plus the interest and sinking fund requirements 
 of any bonds, debentures and other evidences of indebtedness, and the dividend 
 and sinking fund requirements, if any, of any preferred stocks (which securities 
 have been issued and sold by the Company for new capital during said three-year 
 period with the approval of the Transit Commission), and for the expenditures 
 made out of this trust fund no additions shall be made to the capital value of the 
 Company (Sec. 19). This provision efifectively removes for the first three years 
 
 16
 
 any incentive for the Company to apply to the Commission for an increase of 
 fares for the sake of increasing the Company's profits. At the same time it recog- 
 nizes the possibiHty of an increase of fares during the first three years in the 
 extremely improbable event that an increase would be necessary to assure the 
 payment of interest and sinking fund or dividend requirements on the bonds or 
 preferred stocks issued for new money. If this practically negligible contingency 
 did occur, an increase would be justified and indeed would be inevitable under 
 any ordinance that the City could pass. The Transit Commission would order 
 the increase on the ground that public convenience and necessity required the 
 extensions, additions or improvements for which new money would have to be 
 raised. While the contingency is remote, the interests of the public as well as 
 of the Company would require such action. Service is the first consideration ; 
 and no ordinance can override the statutory law. 
 
 UNIVERSAL TRANSFERS 
 
 The new Ordinance provides for the most universal system of transfers of 
 which I have any knowledge. It is to the interests of everybody that people who 
 wish to ride long distances shall use the rapid transit lines. This relieves the 
 surface lines from the congestion that now arises from the fact that rapid transit 
 lines compel so many passengers to walk long distances to take the elevated trains 
 or to reach their destinations from the elevated stations or to pay two or even 
 three full fares if they use both surface and elevated lines. The use of both 
 these lines for a single fare removes these difficulties and throws the long-haul 
 traffic on the rapid transit lines where it can be handled more quickly and at a 
 lower cost per passenger mile. The surface lines are left to handle the relatively 
 shorter and slower service with greater comfort to the public. The result is 
 advantageous both to the public and the Company. It can be accomplished only 
 by a comprehensive unified system such as is provided by the new Ordinance. 
 
 Under the Ordinance not only are there universal free transfers on the 
 elevated lines and on the surface lines, but any person who takes passage and pays 
 his fare on the elevated lines will receive a free transfer to the surface lines, on 
 which he can continue to transfer without charge so long as he continues his ride 
 in the same general direction. (Sec. 17, paragraph B). 
 
 A person who takes passage and pays his fare on the surface lines can 
 transfer to the rapid transit lines on payment of a three (3) cent transfer charge, 
 so that his total fare will equal the fare he would have paid if he had first taken 
 passage on the rapid transit lines. He can then transfer to the surface lines with- 
 out additional fare. The subway lines are a part of the rapid transit system for 
 all purposes, including fares and transfers. (Sec. 9, par. D.) Ample provision 
 is made for the convenient transfer of passengers — between subways (Exhibit C, 
 Item IV) — between subways and elevated lines (Exhibit C, Item IV)- — and 
 between rapid transit lines and surface lines (Sec. 8), for which purpose the 
 points of transfer shall include all points at which such transfers can conveniently 
 and appropriately be made (Sec. 17, par. B). These matters are all under the 
 control of the Transit Commission, which must also approve the rules and regu- 
 lations to prevent the abuse of transfers. (Sec. 17, par. C). 
 
 MAINTENANCE, REPAIRS, RENEWALS AND DEPRECIATION, INCLUDING OBSOLESCENCE 
 
 Section 15, Paragraph A, requires the Company to maintain the transit sys- 
 tem in first-class operating condition and to expend from time to time whatever 
 sum or sums for maintenance, repairs and renewals may be necessary to that end. 
 Seven per cent of the gross receipts are to be paid into a renewal and depreciation 
 fund monthly, and this percentage is to be increased or decreasd by the Transit 
 Commission as it may deem appropriate. The fund is to cover not only renewals 
 
 17
 
 and depreciation but also obsolescence. Tbe Transit Commission is also given 
 power by statute to require any or all public utilities to keep such accounts as will 
 adequately reflect depreciation, obsolescence and progress of the art. All the 
 accounts of the Company must be kept under a system of uniform accounting 
 ])rescribed by the Transit Commission, and the Ordinance (Section 10, Paragraph 
 J) requires the Comi)any to "conform to such standards as may be adopted or 
 prescribed from time to time by the Transit Commission as necessary and proper 
 for the safety, convenience and comfort of the public, and the Company shall take 
 such reasonable and practicable measures as may be approved or ordered by the 
 Transit Commission for the elimination or reduction of noise in the operation of 
 the transit system or any part thereof." 
 
 AMORTIZATION OF INTANGIBLES 
 
 The new Ordinance provides for the effective amortization of any intangibles 
 included in the valuation of the existing properties. By the provision of Section 
 18 the new Company is required to file with and secure the approval of the 
 Illinois Commerce Commission of schedules or inventories of all these properties 
 .setting forth the various items of the physical properties "by appropriate classifi- 
 cation in conformity with any uniform system of public utility accounts as pre- 
 .scribed by said Commission and in detail sufficient for effectively carrying out the 
 provisions of this Ordinance with the cost or value to the Company of the items 
 respectively as so detailed, which in the aggregate shall equal the said sum of Two 
 Hundred Sixty Million, Four Hundred Forty-two Thousand, Sixty-three Dollars 
 and Eighty-two Cents ($260,442,063.82), with appropriate adjustments by said 
 Commission to said date of acquisition." These schedules or inventories are to 
 be conclusively held and taken as showing the original cost of the various items 
 of said properties for the purposes of this Ordinance. Due to the increased cost 
 of labor and materials, the present values of the physical properties can be thus 
 inventoried so as to exclude all intangible values, and as these properties are 
 renewed in the future under the provisions applicable to the Renewal and Depre- 
 ciation Fund (Section 15) only the additional cost, if any, of the properties 
 which will replace the physical properties listed in the inventory will be added 
 to Capital Value, from which all intangibles will thus be automatically excluded. 
 
 employes' pensions 
 
 One of the many progressive provisions of the new Ordinance is Section 14, 
 under which a service annuity system is to be established by agreement with the 
 employes and with the approval of the Transit Commission. The Transit Com- 
 mission may by its own order provide for such a system if an agreement between 
 the Company and its employes is not consummated within twenty-four months. 
 Pending the establishment of such a system, the Company is authorized to make 
 suitable provision for old employes who are no longer able to work and are in 
 need of assistance. The wording of this Section was agreed upon by representa- 
 tives of the employes and of the new Company. The Ordinance provides that the 
 new Company shall also establish reasonable life and/or health insurance for its 
 employes. 
 
 paving, removal of snow, ETC. 
 
 In the days of horse cars the requirement that a street railway company 
 should pave its right-of-way was justified on the ground that this was a direct 
 benefit to the company. It is difficult to justify this requirement today. Never- 
 theless, this has become so thoroughly recognized a feature of street railway 
 operation in Chicago that the new Ordinance continues the requirements — allow- 
 ing the cost of new pavement to be added to capital value, but leaving the cost of 
 repavement and repairs to be charged to such accounts as the Transit Commission 
 
 18
 
 by order shall determine. The Ordinance also provides that the Company shall 
 remove snow from its right-of-way and (a new provision) that, to the extent 
 that it is practicable to do so, it will push back the snow so as to provide a traffic 
 lane on each side of its tracks. (Section 12, Paragraph B.) The Company does 
 not have to pay for street cleaning. 
 
 REMOVAL OF THE ELEVATED LOOP 
 
 The new Ordinance does not require the removal of the elevated loop struc- 
 ture, but it does contemplate and provide for its removal in the future, whenever 
 by the substitution of additional subways or other facilities or the development of 
 the transit system as a whole the Transit Commission shall, after a hearing, find 
 that the elevated loop structure or any portion thereof is no longer required by 
 public convenience and necessity. It seems clear that the elevated loop cannot be 
 removed until these conditions exist. 
 
 SURFACE LINES TERMINALS 
 
 One of the most difficult problems connected with the operation of the sur- 
 face lines is the handling of its cars at terminals so as to avoid objectionable 
 parking of street cars or buses on the public streets. For the necessary accom- 
 modation of employes and other requirements of operation the cars must fre- 
 quently remain for an appreciable time at the terminals. Where these terminals 
 are located with reasonable permanence, private property can be acquired on 
 which the cars can stand during such periods. Where the location of the terminal 
 is likely to be changed through extensions or otherwise, or where the adjoining 
 private property is very expensive by reason of buildings or land values, this 
 method may not be reasonably available. It is urged that in such instances it 
 may be practicable to provide for loops or switchbacks on adjacent streets or 
 alleys. Paragraph L of Section 10 of the new Ordinance requires reasonable and 
 practicable measures to be taken under order of the Transit Commission to take 
 care of these terminal conditions. 
 
 OPERATING CONTRACTS PRESENT AND FUTURE 
 
 There are two classes of operating contracts or agreements necessarily dealt 
 with by the new Ordinance. The first class comprises the operating agreements 
 of the elevated companies already entered into with the approval of the Illinois 
 Commerce Commission. The new Company must take over the properties of the 
 existing companies, subject to these operating agreements. There is no way by 
 which the operating agreements can be terminated without the consent of the 
 other parties to the agreements. The statute creating the Illinois Commerce Com- 
 mission expressly provides, however, that 
 
 "Anything in this act to the contrary notwithstanding, the Com- 
 mission may at any time, upon notice to the public utility affected, and 
 after opportunity to be heard, as provided in the case of complaints, 
 rescind, alter or amend any rule, regulation, order or decision made 
 by it." 
 
 The City therefore could not, if it wished, deprive itself or any of its citi- 
 zens from applying to the Commission for the modification or recision of the 
 now outstanding orders of the Commission approving the existing operating 
 agreements. There are certain advantages to the City in having the interurban 
 roads use the Company's facilities rather than acquire independent rights-of-way 
 for themselves. The new Ordinance authorizes the Company to permit the use 
 of its tracks and facilities in the subways by any company now having the right 
 
 19
 
 to operate over the tracks of the existing companies under the existing operating 
 agreements, 
 
 "subject, however, to the provisions of this Ordinance and the condition 
 that such use shall not interfere with the passenger service of the Com- 
 pany, and subject to whatever rights the City may have with respect to 
 any such lease, operating contract or agreement." (Sec. 9, Par. D.) 
 
 The second class of operating contracts or agreements are those which may 
 be made in the future, and all such operating agreements must be approved by 
 the Transit Commission and must not interfere with the passenger service of the 
 new Company. 
 
 The better utilization for local transportation purposes of the existing rights- 
 of-way of steam or electric railways in Chicago and its Metropolitan Area has long 
 been advocated. Section 3 of the new Ordinance expressly authorizes the new 
 Company to make operating agreements or leases for this purpose, with the 
 approval of the Transit Commission. 
 
 POLICEMEN, FIREMEN, HEALTH OFFICERS AND LETTER CARRIERS 
 
 Paragraph (d) of Section 17 provides that "When in full uniform, employes 
 of the Company, city policemen, city firemen and employes of the Health 
 Department may ride free" and that letter carriers, when in full uniform, may also 
 ride free provided the Post Office Department continues to pay compensation at 
 the rate which it now pays with proportionate increase or decrease in such com- 
 pensation for any increase or decrease in the total number of letter carriers 
 employed in the City of Chicago. 
 
 city's remedies 
 
 The Illinois statute which authorizes the making of a terminable permit 
 expressly provides that any court of competent jurisdiction shall have power 
 to enforce the provisions of a terminable permit ordinance by means of 
 injunction, mandamus or other appropriate proceeding. Paragraph A of Sec- 
 tion 28 of the Ordinance contains similar provisions. The act creating the 
 Illinois Commerce Commission and the act authorizing- the Chicago Transit 
 Commission confer on these Commissions respectively the fullest powers 
 to enforce their orders, and not only is each day under which a failure to 
 comply with the order made a separate ofTense, but "every person who either 
 individually or acting as an ofificer, agent or employe of a public utility * * * 
 fails to observe, obey or comply with any order, decision, rule, regulation or 
 requirement, or any part or portion thereof, of the Commission, * * * is guilty 
 of a misdemeanor, and shall upon conviction be punished by a fine not 
 exceeding $1,000, or by imprisonment in a county jail not exceeding one year, 
 or by both such fine and imprisonment." 
 
 In addition to these highly efifective remedies, the Ordinance makes it to 
 the financial interest of the Company to comply with its provisions, by pro- 
 viding in Section 19 that if the Company is in default with respect to the 
 specific extensions, additions and improvements to which it has agreed, the 
 money otherwise payable as dividends on its common stock shall be used to 
 make good the Company's default without any addition to its capital value 
 and by releasing the City's permittee from the payment of any premium 
 upon the City's purchase price whenever the Company has been held to be in 
 default in the performance of any of its ordinance obligations and such 
 default is not made good within the time fixed by the Transit Commission 
 or any court of competent jurisdiction. (Sec. 25, Par. B.) 
 
 20
 
 CONCLUSION 
 
 The foregoing is intended to analyze and explain all the more important 
 provisions of the new Ordinance. No doubt it has failed to anticipate and 
 answer all the questions that may arise in the minds of sincere people 
 who cannot reasonably be expected to understand the exact significance of 
 particular provisions in an ordinance dealing with such a complicated and 
 difficult problem. No analysis can be expected to anticipate and answer the 
 attacks of objectors who wilfully misunderstand and misstate the provisions 
 of the Ordinance. Such questions and attacks can only be answered as they 
 arise. 
 
 The Ordinance is not perfect. No such ordinance ever is or can be. 
 It is not always written as I would have written it if I had been entirely free 
 to express my own views in my own language. There were conflicting views 
 that had to be mutually adjusted. 
 
 While this Ordinance was in preparation and under consideration by the 
 Local Transportation Committee constructive criticism and suggestion was 
 not only invited but earnestly solicited. Printed copies of the Ordinance 
 were made available to all who had any interest in the matter. Every criti- 
 cism or suggestion was given careful consideration and as a result a consid- 
 erable number of changes were made in the Ordinance. A few of these 
 changes related to matters of substance, while others were merely changes of 
 language to remove the doubts of some who agreed with the purpose of pro- 
 visions which they thought might well be made clearer. It is too much to 
 hope that some defects may not be discovered, and admittedly the Ordinance 
 contains certain compromises that were essential to any agreement. 
 
 Unless all past experience fails, it is certain that there will now arise the 
 critics who had no constructive suggestions to oiTer before the Ordinance was 
 passed and whose present purpose is either self-seeking or merely destruc- 
 tive. Let them be heard, but let no one be persuaded by their attacks until 
 full opportunity is given to consider the answers. It will be particularly 
 interesting to learn whether they have any practicable alternatives to offer. 
 
 No workable alternative for tiie new Ordinance has been proposed. Mr. 
 Lisman seems to have faded out of the picture and is no longer represented 
 by his former attorney, who now represents a paper corporation whose back- 
 ers he refuses to disclose. Toward the very end of the consideration of the 
 new Ordinance by the Local Transportation Committee, he presented a draft 
 of an ordinance which was simply a license to fish in troubled waters. It was 
 a permit to speculate on the chances of getting control of some one or more 
 of the existing companies without the slightest discoverable prospects of 
 success even in doing this, and with a certainty of making confusion worse 
 confounded through the practically insuperable obstacles to working out in 
 this way any constructive program for a unified or comprehensive system. 
 The proposal is not entitled to further consideration. 
 
 The only thing left is the suggestion that all negotiations for an ordi- 
 nance be abandoned or that the new Ordinance be defeated at the referen- 
 dum election, which for all practical purposes will have the same result 
 The slightest reflection will show that this is no alternative at all. The 
 result would simply be chaos. The Rapid Transit Company would, of course, 
 continue to operate as it does at present, inasmuch as its rights do not expire 
 for a number of years, but there would be no extensions or improvements 
 and no co-ordination with the surface lines. Any attempt to establish trans- 
 fers by order of the Illinois Commerce Commission would be vigorously 
 
 21
 
 resisted and protracted litigation would follow. Public necessity would 
 compel the continued operation of the surface lines either under temporary 
 permits as at present or without any permit at all. All the surface properties 
 would be sold under foreclosure decrees, probably to reorganization com- 
 mittees. It is difficult to see how any extensions or improvements could be 
 made, as the capital investment would not he protected. Neither the com- 
 panies nor the public could make any plans for future development. Indeed, 
 such a policy is simply unthinkable from the point of view of any of the 
 public or private interests involved. 
 
 I make no claim to infallibility ; but for whatever it may be worth and in 
 the light of the information now available, I express my own personal judg- 
 ment when I say that I believe this Ordinance is essentially sound and just 
 and is the best for both the companies and the public that could be obtained 
 under the existing conditions. 
 
 Respectfully yours, 
 
 Walter L. Fisher. 
 
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 UNIVERSfTY OF ILLINOIS-URBANA 
 
 3 0112 072584391