The Taxpayers' League vs. The Railroads: A Battle for Fair Valuation in Columbia County

RAILROAD ASSESSMENTS Discussed by the Taxpayers' League

COMMITTEE OF COLUMBIA CO. They Say That a Valuation of $40,000 a Mile Would Just and Equitable.

To the Columbia County Tax Payer's League:

We, your committee, to whom was assigned the duty of securing data as to the value of the railways in this county, beg leave to report that the first item we discovered in connection therewith, was that it was a very complicated and difficult task, and that with the very best information obtainable, in the short time allotted to us in which to prepare this report, only approximate valuation could be placed thereon.

However, we have secured some figures, which are undoubtedly correct, and which will serve the purpose of the league in supporting its demand for a higher valuation of the railways for taxation purposes.

We have statistics of railways in the United States, prepared by the interstate commerce commission, published in 1901, and the preliminary report of the commission on the income account of railways, for the year ending June 1st, 1902, the latest published statistics from which we take our figures. These figures are made from the sworn reports of officials of the several railways, and may be accepted as substantially correct.

The tabulation and deduction therefrom by the commission, and are nicely arranged and make very interesting reading.

The Oregon Railway Navigation company has now in operation something over a thousand miles of road, and has a capitalization of $55,242,800, as follows: $20,242,800 of bonds, $11,000,000 of preferred stock, and $24,000,000 of common stock; a little over $50,000 a mile. In making an estimate of the actual value of this capitalization it is necessary to refer to its income and expense account, also current valuations placed on the bonds and stocks in the markets of the world, and where quotations are not available, to estimate their value from the income they produce.

The latest quotations we have been able to secure on O. R. N. bonds was a sale made in January of the present year, at $101, reported in the investment guide of Henry Clews Co., of New York, which shows that at least that part of the capitalization is worth par. We were unable to get any late quotations on any of the stock, either preferred nor common, and must base our estimate of its value on the reported earnings.

We find in the preliminary report of income account of railways for last year, that its net income over expense of operation (which includes maintenance of equipment and way) to be $4,536,202, from which was paid interest on its $11,000,000 of preferred stock, and other items not specified, amounting to $1,045,620, leaving a surplus of $3,050,582. This amount if applied on its common stock would make it net over 12 per cent. interest. So much that none of its surplus was applied to dividends on its common stock. Such a healthy condition of the treasury should give the common stock a substantial value.

If we are to judge by present conditions, the current year will show a substantial advance in the earnings over the last year.

However, any railway system must not be judged by its earning capacity in any one year. Its true value depends not alone on the cost of its physical property, tracks, yards, terminals, buildings, engines, cars, etc., but it also depends on its traffic, competitive and non-competitive, and the extent and vitality of an established transportation business. The Oregon Railroad & Navigation company occupies a peculiarly favorable field: it covers the finest sections of our Inland empire, and its traffic is sure and certain. There is no danger of a decrease in its volume, and a certainty of a healthy and substantial growth for years to come. Its market value, today, can be safely taken as a standard of its true value.

The bonds and stock of this company are largely held by the Oregon Short Line Railway Co., and it in turn is controlled by Union Pacific interests. They seem too closely held and are seldom offered in the markets, hence the dearth of market quotations thereon.

This connection with the Union Pacific really makes it a part of a transcontinental system, and as such it is entitled to be classed as a first class road.

As to the valuations to be placed on the road in this county, it is conceded that the only correct way to arrive at a value is to estimate the value of the road as a whole, and apportion it to each county on a basis of its mileage. We have shown that its earning capacity has been as much as would warrant in placing an estimate of its value on all its bonds and stock of $50,000 per mile, but so many elements enter into a consideration of this question, that it would be unwise to do so, and wishing to be conservative in all these estimates and making all possible deductions from its capital, for stock, and bonds and other property owned outside of the railway, we would name a valuation of $40,000 per mile as being well within its market value, and fully sufficient for the purpose of this league.

As to these valuations for the purpose of taxation, we would quote from an opinion of the supreme court, in the case of the Adams Express Co. vs. Ohio in 165 U.S., in stating the grounds for its decision, the court said:

"Now it is a cardinal rule that should never be forgotten, that whatever part of that system, but having no outlet at terminal points of its own, cannot make as good a showing for its owners as can the O. R. N. Co., but nevertheless, it is one of the Northern Pacific's most profitable feeders.

It comprises 1,027.35 miles of road and is capitalized at $7,845,000, or $47,594 per mile. Its funded debt, (bonds) secured by mortgage on the road, is $4,745,000, or $29,100 per mile upon which interest was paid, in addition to a small sum carried as surplus. No dividends were paid on its stock.

Its stock and bonds are largely, if not entirely held by Northern Pacific people and a careful review of financial journals and reports fails to discover any offerings or sales of either. It is very evident that from its position in competitive territory it is a valuable collateral to the Northern Pacific, and could be made valuable to the O. R. N. Co., so much so that there is no doubt but that the railroad would sell at a figure properly is worth for the purposes of income or sale. It is also worth for the purposes of taxation—the value which property meets in the market the amount for which its stock can be bought and sold, is the real value.

Business men do not pay cash for property in moonshine or dreamland. They buy power to produce income or for purposes of sale. In conclusion, let us say that this is an eminently practical age, that courts must recognize things as they are, and possessing the markets of the world: that no fine spun theories should interfere to enable these large corporations, whose business is carried on through many states, to escape bearing such burden as a fair distribution of the actual value of their property among the states require."

To all of which your committee heartily assents.

In a general way the conditions surrounding the W. & C. R. R'y. are the same as in the case of the O. R. N. Co., except that it has no terminus on tide water. It is, however, controlled by Northern Pacific interests, and is equal to, or in excess of its bonded indebtedness of $29,159 per mile, and will pay a regular dividend on that amount, over and above operating expenses, so that an appraisal of $30,000 per mile is not considered excessive by your committee.

G. M. THOMPSON, A. P. CAHILL, ALEX PRICE.