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"The master also ascertained the total expense incurred by the carrier within the State. This expense was first divided between freight and passenger business. Those items of cost which were directly incurred in each sort of business, and not common to both, were directly assigned; and such items were found to cover about 60 per cent of all expenses. The remaining items, those of common expense, were divided between the freight and passenger business upon the relation, as to most of them, of revenue trainmiles, and as to the others, of revenue engine-miles."

Without reproducing the details of the computation, it is sufficient to say that in the Northern Pacific case, passenger revenue was earned at an expense relatively 36% greater than freight revenue. In the Great Northern case passenger revenue was earned at an expense relatively 41% greater than freight revenue. In the Minneapolis & St. Louis case passenger revenue was earned at an expense relatively 14.1% greater than freight revenue. For the purpose of applying the principle of analysis, we have selected the transactions in freight and passenger revenue for the year 1913 as being typical and not far removed from the present date. For this year the passenger service train revenue was $21,470,593.84 out of total operating revenues of $71,926,230.39. The passenger service train revenue thus constitutes 29.8% of the total revenue. If the passenger revenue in the Minnesota Rate Cases was earned at relatively from 14 to 40 per cent higher than freight revenue, it must be fair to say that the Michigan passenger revenue is earned at an expense relatively ten per cent greater than freight revenue is earned. A solution of an equation of this character would show that the total expenses for the year 1913 should be divided between passenger service train revenue and freight revenue on the basis of 32 per cent and 68 per cent.

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Net result of passenger operations less taxes... $1,989,922 71

For the purpose of testing the net return on investment, we will compute it on bonded debt assigned to Michigan. The total increase in road and equipment investment from 1913 to 1914 was $5,489,068.00. This deducted from bonded debt for Michigan in 1914 gives the result $246,073,712.00 which is taken as bonded debt for 1913. This in turn is divided on the basis of revenue, 29.8% being assigned to passenger busi

ness, or $73,329,966.00. To pay a return of 6% on this amount will require $4,399,797.96. In the department of the business to which it has been applied it has yielded a net return of $1,989,922.71, or 2.71%; that is, a sum $2,409,875.25 less than a return of six per cent on the bonded debt, which in the computation made is apportioned to the passenger business in Michigan.

The question arises, what will an increase in passenger rates of one-half cent per mile add to passenger revenue? The average revenue per passenger per mile was 1.922 cents. An increase of one-half cent per mile is an increase of one-fourth of the rate for the year 1913, which being applied to the average rate for that year gives .48 cents net per mile provided it were a raise of one-half cent on all the roads operating in the State. In fact there are still many three cent roads in the State, and when competitive conditions are considered, it is concluded a fair estimate to make the net average increase not more than .35 cents per mile. The total passenger miles taken at 910,000,000 at this increased rate will yield an additional revenue of $3,185,000.00. Practically the effect of the raise in rate proposed will not produce this amount of revenue, because the interstate roads are already charging the higher rate for interstate traffic.

Dated this third day of March, 1915.

Respectfully submitted,

MICHIGAN RAILROAD COMMISSION,
LAWTON T. HEMANS,

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Column 19 shows the total number of days worked by the various classes of employes on the respective railroads in the state for the year indicated. Those items marked with a "+" do not include the employes of the C. M. & St. P. Ry., which was not reported in shape to be included. Those items marked with the character "x" have been arrived at by proportioning the returns for the respective years for the G. R. & I. Ry. and W. & M. R. R., which were reported entire line for those years. In the year 1909 two or three very small roads did not report. The omissions are not enough to appreciably affect the table.

Column 20 shows the expenditures in the State of Michigan yearly for all classes of employes except general officers.

Column 21 shows the average daily compensation for the respective years of the employes of railroads in the State of Michigan. General officers are not included in the total.

Column 22 shows the ratio of compensation of employes yearly to the total operating revenue. This column can be used in connection with Column 11 to show the ratio of total operating expenses less compensation of employes to total operating revenue.

These columns have been computed with care, and notwithstanding the small discrepancies mentioned, are a very close statement of the days employed and total expenditures of the railways for employes for the years mentioned.

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Column 16-Taxes, Michigan-shows for the respective years the taxes paid by railroads to the State of Michigan alone for those years. In the case of railroads wholly within the State of Michigan, it does not include the entire taxes, such as United States Income Tax and taxes of that nature. It includes only the actual tax accruals to the State of Michigan.

Column 17-Ratio of Taxes to Operating Revenue-have been computed on the basis of operating revenue as mentioned in note following column 14.

Column 18-Ratio of Taxes to Investment-have been computed in only one or two instances. It was the purpose to show these, but lack of time has prevented our preparing them. They are computed on this basis for the purpose of deducting from ratio shown in column 3, and therefore showing the net result per cent on investment, Michigan, after taxes are paid.

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Column 1 shows the total road and equipment investments of railroads in the State as shown by the roads in their reports. In case interstate roads have no reported Michigan proportion it has been apportioned on a reasonable basis. Items so apportioned are the Cincinnati Northern, Duluth, South Shore & Atlantic, Lake Shore & Michigan Southern, Michigan Central, Detroit River Tunnel, Pere Marquette and Wabash.

Column 2 is shown here for the reason that it has been deducted from the value for those years, the result shown in column 1. By this closer comparative ratios could be derived for column 3. The reason for this is that the expense accounts for those years showed "rents of tracks, yards and terminals" which was expended for rents of the property shown in column 2.

Column 3-Ratio Net Results-(Column 13) to Investment-is the same "per cent of investment." Its purpose is to show the comparative ratios.

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