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state constitution limiting the city debt has played in connection
with rapid transit plans. It was felt that it Amendment of Constitution
ought not to be allowed to continue to prevent
the construction from public funds of lines which are self-supporting. Thus for two years, the commission has advocated an amendment which will exempt from the constitutional limitation upon the borrowing capacity of New York City, all bonds issued for rapid transit lines which are self-sustaining. Debts incurred for such purposes are not burdens upon the taxpayers, and there is no reason why the city should not be allowed to acquire revenue-producing property. Further, unless the city has the financial ability to build and equip its own lines, it is not in position to make a fair bargain with private companies. The city would be forced to accept what corporations may offer or do without the needed relief from present intolerable conditions. The city ought not to be limited to such alternatives. This view has just been endorsed by the people of the state at the last election, and the amendment will become effective when the legislature passes an act creating the machinery for determining when an enterprise is self-sustaining.
I have attempted to outline briefly only the most characteristic features of the rapid transit law. A few other provisions may be summarized without discussion. Previously to the enactment by the legislature of our proposed amendments, the commission could not lease a rapid transit line for less than interest upon the bonds issued by the city for construction and equipment and a sinking-fund payment. If no one would pay such a rental, the commission had to operate the line. Now, there is no minimum rental; it may be much less than interest if it is thought necessary or desirable. The privilege of municipal operation remains as another alternative.
In the case of additional tracks on elevated roads and of extensions constructed by a company with its own funds, it was recognized that certain modifications must be made because of the peculiar conditions. In these cases, the system of profit sharing might not work, as it might not be possible to differentiate the receipts from the additional tracks or extensions from the re
ceipts on the old lines. Consequently, the commission may fix a different compensation for a period not to exceed 25 years, and it is to be readjusted every 20 years thereafter. For similar reasons, the duration of the franchise may not exceed that for the existing line, so that all may terminate together.
No contract, franchise or grant may be let until bids have been invited by public advertisement, except in the few cases where only one party would bid if bids were invited. Everything has been done to open up the field and to increase the opportunity for competition where competition is possible. No important action may be taken hastily. Usually public hearings must be held. The approval of the Board of Estimate and Apportionment--the financial body of the city--must be secured upon all important matters.
The Street Railway Situation in Cleveland. .
(November 15, 1909.)
WARREN S. HAYDEN, CLEVELAND.
In 1901 the Cleveland Electric Railway Company was paying dividends of one per cent. quarterly. Its bonds were selling at a 478 per cent. interest basis. The market price of its stock was 81/2. Regular dividends ceased in 1907, and none are paid now. There are no bids for the bonds and the stock that sold at 8112 is quoted now at 48. The property is operated by a receiver appointed by Hon. Robert W. Tayler, Judge of the United States District Court. Here is a fall, whether of the wrong-doer come to justice, or of the victim of malicious attack. In either case this decline from prosperity to adversity is wholly due to Tom L. Johnson, who was elected mayor of Cleveland in April, 1901, and has held that office ever since. About this there is no dispute.
The railway company's position was weak in that many of its franchises were soon to expire. The mayor rallied popular support with his slogan of "three-cent fare and universal transfers", and against the company he adopted the effective policy of granting to others rights on routes where the company's franchises were expiring. The railway company was against the wall of expiring franchises, and upon the company the mayor plied the club of a low fare competitor ready to succeed to its busi
There is no room for controversy about the fact of the mayor's policy. Concerning the wisdom and justice of that policy there are great differences of opinion. Opinions differ also as to the motives for that policy. The record clearly shows that he sought control of the street railway system, but on the one side it is held that he sought control for the city, and on the other that he desired control for his personal advantage. He who inclines to either view can find color in the facts.
The Forest City Railway Company was one of the low-fare competitors procured by the mayor. Under three-cent franchises,
this company built sixteen miles of railway. Its property was leased at six per cent. dividend-rental to the Municipal Traction Company, which was a leasing or holding company. The entire $10,000 of capital stock of the holding company was issued
to the mayor's appointees who were the comForest City
pany's directors. The stock certificates were all Railway
endorsed in blank and held by the board as a whole, so that the board would be self-perpetuating. The stated purpose was that the holding company, without profit to itself and solely in the public interest, operate the lines held under lease, thus coming as near to municipal operation as the law allowed. The Forest City lines were being operated by the holding company in November, 1907, when the mayor achieved his great victory over Hon. Theodore E. Burton.
After election the situation, of course, was very favorable from the administration standpoint for making terms with the railway company. Early in December the mayor and F. H. Goff, plenipotentiaries, respectively, for the city and the railway company, began a series of almost daily public conferences, which in the course of about five months resulted in agreement. The railway company, changed in name to the Cleveland Railway Company, was to adjust suitably its stock issue and substitute fifty-five shares of its stock for each one hundred shares of Cleveland Electric Railway stock and acquire the property of the Forest
City Railway Company by an exchange of Johnson-Goff
stocks, share for share. The railway company Settlements
was to lease to the holding company all its property at six per cent. dividend-rental for fifty years with privilege of another like term. A twenty-five year franchise was to be granted to the Cleveland Railway Company, authorizing a cash fare of five cents and a ticket rate of six for a quarter. This was to enable the railway company to cperate its property at a profit in the event that the holding company defaulted the lease. The intent, of course, was that the holding company test the practicability of operating the street railways of Cleveland at three-cent fare. The arrangement became effective on the 28th day of April, 1908-a day at the time styled "municipal day," and celebrated by free car service throughout the city.
Within two weeks differences between the holding company and its employees resulted in a strike. A few weeks previously a law had taken effect, which provided for referendum of street railway franchise ordinances upon petition of fifteen per cent. of the electors within thirty days after enactment and acceptance. Counsel for the strikers took advantage of this law and, the strikers acting as canvassers, a referendum petition was soon signed by the requisite number of electors. Upon this petition the security grant was submitted to the voters on October 22, 1908. Various organizations joined in a campaign against the grant. The Cleveland Chamber of Commerce, at a general meeting, disapproved it emphatically. Despite the mayor's vigorous campaign for the grant, it was defeated by a majority of 605 on a total vote of 75,893. This, of course, undid the Goff-Jolinson settlement of six months before, and very soon the Central Trust Company, of New York, as trustee of a mortgage, filed a bill in the federal court setting up the insolvency of the holding company and asking the appointment of receivers. After hearing, the court appointed receivers for the holding company on November 12, 1908, and by virtue of the lease the operation of the street railways devolved upon the receivers.
For a time the receivers operated the railway at the rates of fare which were in effect when they were appointed. Soon their reports convinced the court that rates must be increased if charges were to be paid, and the city administration was asked for a short franchise allowing higher and uniform rates. The administration was reluctant to grant this request, and it seemed as difficult to get a temporary franchise as to work out a comprehensive settlement of the whole controversy. After a time the court raised the rates of fare to the limits fixed by the old franchises. However, before making this order, Judge Tayler, in an open letter to the receivers, outlined what has come to be known as the Tayler plan, although he made no claim of authorship. The essential features of the plan are these:
The public owns the streets and is entitled to good service at cost. Cost includes the expense of operation, maintenance and renewals, plus taxes, interest on debts and six per cent. return on fair capitalization. Invested capital is entitled to protection,