Not One Cent To Tribute

Julian H. Hickok

[Reprinted from The Commonwealth, September 1928]

Has the spirit died which prompted the slogan: "Millions for defense, not one cent for tribute?" Was this the protest of only one or a few had vision above the others who failed to take up the challenge or was it the expression of a whole race of free men which has since fallen to the lowly position of preferring to follow the lines of least resistance, pay tribute rather than fight for a principle, to resort to mere opportunism?

The present attempt in the City of Philadelphia to settle the long standing controversy as to how best to get rid of the underlying companies, of the original franchises under which the Philadelphia Rapid Transit Company is now operating, seems to be based upon the policy of "buying off the pirates."

At the recent valuation hearing before the Public Service Commission the only question under consideration was as to how much should be paid. City Solicitor Ashton asked that the property of the underlying transit companies be appraised at $136,000,000 and Francis B. Bracken, counsel for the Philadelphia Traction Company, according to the Evening Ledger, insisted that the appraisal should be $151,509,100. These figures were arrived at by computing the principal sum which at a given rate of interest would yield a return equal to the rental paid by the P.R.T. under its lease, the lower figure at seven per cent and the higher at five and one-half per cent.

Although these figures indicate a discrepancy of at least $1,187,000 as to the amount paid annually by the P.R.T. to the underlying companies, the lower one of $8,333,000, based upon the Traction company's estimate, sufficient to indicate that the car riders of Philadelphia are paying in millions.

In the P.R.T. "Service Talks" of August 31st, Mr. Mitten is quoted as saying: "Back in 1911, when Mitten Management took over this property we inherited from the previous management a lot of cars, carhouses, tracks and other equipment, all of which were pretty well worn out. Since 1911 we have had to replace practically all of this equipment." It hardly seems necessary to point out that it is not for the legitimate investment in "cars, carhouses, tracks and other equipment" that the P.K.T. is paying from eight to ten million dollars annually. It must be born in mind that these large sums are paid as rent for the use of the city streets and that this rent is not going into the city treasury, where it belongs, but into the pockets of private citizens.

The Public Service Commission granted an increase in fare to the P.R.T. in recognition that the City had made an agreement with the P.R.T. allowing them a return of seven per cent on investment. The error was made in allowing the rentals paid to the underlying companies to appear as an expense before allowing a profit. This allows a payment of af least two profits for the one service, one to the underlying companies for permitting the P.R.T. to use the city and the other to the P.R.T. for performing the service required under the terms of the franchises.

The present controversy over the valuation of the franchises does not touch at the basic principle involved in the complaint against the rate of fare. The buying back of the franchises at any price would create a fixed charge in perpetuity against transportation or the taxpayers instead of for the remainder of the durations of the franchises, which is long enough.

For many years the holders of stock in the underlying companies have been receiving enormous rentals for no service at all. Is the city compelled to continue making gifts for no value received? There is no moral nor legal obligation to continue an annual donation to the privileged holders of the original franchises.

The city has no legal recourse to prevent Mitten Management from paying these rents as long as transportation is provided in accordance with the terms of the franchises. It is not necessary, however, for the city to agree to an increase in fare to allow for these payments over and above the seven per cent agreed upon as fair return for investments.

The solution of the difficulty, if it can be considered a difficulty, is to persuade the Public Service Commission that the rentals paid to the underlying companies are actually part of the profits of the transportation system. The rentals are not legitimately an expense against the system and should not be charged as such. Upon this premise it would be possible to reduce the rate of fare and still allow a fair return upon investment in transportation equipment.

The value of the franchises depends upon the potential profits determined by the leniency of the city toward the holders of them. In the market they are worth whatever the city is ready to concede. The sky is the limit. It is evident, however, as an example in simple arithmetic that they would have no value at all if the rentals paid on them now were paid to the city or to the car riders in reduced fares.