■ »t», \y; m mm 1 ■■ traM wSxm ^/y^U RAILWAY MAIL PAY PRELIMINARY REPORT AND HEARINGS OF THE JOINT COMMITTEE ON POSTAGE- ON SECOND-CLASS MAIL MATTER AND COMPENSATION FOR THE TRANSPORTATION OF MAIL OF THE CONGRESS OF THE UNITED STATES JANUARY 24, 1913, to APRIL 3, 1914 Printed for the use of the Joint Committee WASHINGTON GOVERNMENT PRINTING OFFICE 1314 EAILWAY MAIL PAY PRELIMINARY REPORT AND HEARINGS OF THE , JOINT COMMITTEE ON POSTAGE ON SECOND-CLASS ** 9¥ MAIL MATTER AND COMPENSATION FOR THE TRANSPORTATION OF MAIL OF THE CONGRESS OF THE UNITED STATES JANUARY 24, 1913, to APRIL 3, 1914 Printed for the use of the Joint Committee WASHINGTON GOVERNMENT PRINTING OFFICE 1914 \\k '***- s ^ JOINT COMMITTEE ON POSTAGE ON SECOND-CLASS MAIL MATTER AND COMPENSATION FOR THE TRANSPORTATION OF MAIL. Congress op the United States. Senators : Representatives : JONATHAN BOURNE, Jr., Chairman. JAMES T. LLOYD. HARRY A. RICHARDSON. WILLIAM E. TUTTLE, Jr. JOHN H. BANKHEAD. JOHN W. WEEKS. Robert H. Turner, Secretary. Richard B. Nixon, Disbursing Officer. D. OF ft JUL 15 I9J4 TABLE OF CONTENTS. Page. Preliminary report 3-11 Adams, Guy, manager mail traffic, Union Pacific 1088 Albright, P. R., assistant general manager Atlantic Coast Line R. R 251, 635 Anderson, Alfred W., general manager Charleston & Western Carolina Ry 195 Baldwin, W. W., vice president Chicago, Burlington & Quincy R. R 131, 635, 1088, 1117 Bandel, George E., assistant superintendent division of railwav adjustments, Post Office Department "1088, 1112, 1299, 1498 Baskerville. W. S., general agent mail traffic. Great Northern R. R.. 700-707, 1299, 1319 Blackwell, M. H.. assistant superintendent Railway Mail Service, Omaha, Nebr. 1320 Blomeyer. E. F., vice president and general manager Tennessee, Alabama & Georgia Ry 1235 Blount, W. M., president Birmingham & Southeastern Ry 1241 Bowman. John EL, special accountant New York. New Haven & Hartford R. R. . 277 Bradlev, V. J., general supervisor of mail traffic. Pennsylvania R. R 400, 449, 529, 635, 1088, 1112, 1299, 1319 Brown, John W., president American Electric Railway Co.; president Mary- land & Pennsylvania R, R. Co 171, 1551 Buckland, Edward G., vice president New York. New Haven & Hartford R. R 257, 298 Campbell, F. A., agent transportation department. Norfolk & Western Ry 635, 1088,1111,1299,1319 Coleman, R. B., chairman committee No. 2. Short Line Railroad Association of South Carolina; general manager Georgia, Florida & Alabama R. R. Co. . . 1189 Connolly, J. P., supervisor of mail traffic. Central Railroad of New Jersey 1111, 1299, 1319 Coulter, Hon. R. M., deputy postmaster general of Canada 1523-1524 Crocker, Joseph N., special mail agent, New York Central lines, Grand Cen- tral Terminal 529 Denham, W. B., general manager Ocala Northern Railroad 1224 Drake, John N., secretary Short Line Railroad Association. 635, 1088, 1111, 1299, 1319 Duncan, E. L., manager mail traffic, Chicago & Eastern Illinois Railroad 1088 Eustis, P. S., traffic manager, Chicago, Burlington & Quincy Railroad 635 Fairfield, Herbert L., supervisor mail traffic, Illinois Central Railroad Co 529, 635, 1088, 1111, 1299 Faulkner, ex-Senator Charles J., counsel 1111, 1299 Gaines, S. M., superintendent Railway Mail Service, Fort Worth, Tex. . 1320 et seq. Ham, W. F. , vice president and comptroller Washington Railway & Electric Co . 169 Hamilton, F. C, accountant for Chicago Railways 166 Hardin, George W., vice president East Tennessee & Western North Carolina Railway 1200 et seq. Hitt, Moultrie, secretary General Managers' Association of the Southeast; gen- eral manager of Georgia Railroad 1141, 1178 Hurst, John, assistant comptroller, Pennsylvania lines west of Pittsburgh . . . 449, 529 Kindel, Hon. George J., Member of Congress from Colorado 1391 Lee, Ivy L., executive assistant, Pennsylvania Railroad 635 Lewis, David J., Member of Congress from Maryland 695, 699 Lindsay, J. P., manager mail traffic, Atchison, Topeka & Santa Fe Railway System „ 449, 529, 635, 1088, 1112, 1299 Logan, Robert S., vice president Grand Trunk Railroad 529 Lorenz, M. O., associate statistician, Interstate Commerce Commission 364, 450, 529, 635, 1088, 1112, 1299, 1320 Lyons, Henry S., secretary Boston Elevated Railway Co 140 Mack, H. E., manager mail traffic, Missouri Pacific Railway Co 210, 301, 608, 635, 1088, 1120, 1299, 1403 McBride, C. H., Superintendent Division of Railway Adjustments, Post Office Department 449, 530, 635, 1088, 1112, 1299, 1491 McCahan, J. C, supervisor mail traffic, Baltimore & Ohio R. R 1299, 1364 in IV TABLE OF CONTENTS. Page. McFarland, Frank, superintendent, Railway Mail Service, St. Louis, Mo 1320 Madden, Martin, B., M. C. from Illinois 1174 Maddox, Samuel P., counsel 1112 Mallette, J. E. , representing Union Pacific R. R 635 Neal, J. Henry, general auditor Boston Elevated R. R. Co 141 Nichols, L. T., general manager Carolina & Northwestern R. R 1207 Peabody, James, statistician, Atchison, Topeka & Santa Fe R. R. Co 447, 635, 1142, 1299, 1347 Pelletier, Hon. Louis P., postmaster general of Canada 1519 Peters, Ralph, president Long Island R. R. Co., chairman committee on railway mail pay of the American Railway Association 42, 177, 636, 1088, 1112, 1320 Piper, Alex. B., general freight agent, South Brooklyn R. R 153 Plant, A. H., comptroller of the Southern Ry 628 Postlewaite, E. T., assistant to president Pennsylvania R. R 635 Prentiss, A. N., clerk, Post Office Department... 449,530,635,1088,1112,1299,1320 Prince, B.C., assistant to vice president Seaboard Air Line 1299 Robinson, Bird M., president Tennessee R. R. Co 635 Rowan, A. H., assistant to vice president New York Central Lines 449, 563, 635, 1088, 1111, 1169, 1299, 1319 Safford, W. W., general mail and express agent Seaboard Air Line Co 135, 380, 529, 635, 1088, 1161, 1299, 1319 Scott, S. C, assistant to first vice president Pennsylvania lines west of Pitts- burgh 222, 635, 1088, 1111, 1299, 1319 Searle, C. A., mail traffic manager Rock Island lines 635, 1088, 1111, 1299 Snead, Russell H., manager express traffic Chesapeake & Ohio R. R. Co 380, 529,635,1088,1111,1299,1319 Stewart, John, superintendent and traffic manager Marcellus & Otisco Lake Ry . 190 Stewart, Joseph, Second Assistant Postmaster General.. 3,635,1088,1111,1299,1320 Taylor, Grant W., general superintendent transportation Southern Ry. System 314 Thompson, W. B., counsel 1111,1299,1319 Wade, H. M., agent of mail traffic Erie R. R 243, 1111, 1319 Worthington, W. A., vice president Southern Pacific 325, 1299, 1442 Wishart, Wm. C, statistician New York Central Lines 449, 600, 635, 1088 Lorenz, M. O., report of 849-894 I. General summary of results 849 II. Description of railway mail transportation service 850 III. The present law: Financial results 852 Defects of the present law 854 (1) Failure to consider length of haul 854 (2) Two rates for the same service 854 (3) Frequency of service ignored 855 (4) Otherdefects 856 IV. Discussion of various plans and suggestions presented at the hearings: Cost and space plan 858 Standard unit suggestion 861 Percentage method 863 The plan of Senator John W . Weeks 864 The plan of the Hon. David J. Lewis 865 The Peabody plan 8G6 The Buckland plan 866 The gross-tonnage principle 866 The proposals of the railoads 867 Weight, space, and distance 868 V. The determination of the rate level 876 The commercial principle 878 Cost of service 893 Comparison of mail service and other passenger-train service 893 Conclusion as to the level of rates 894 VI. Miscellaneous notes and comments 894 Postmaster General transmitting a report and tentative draft of legislation relative to railroad mail service and compensation therefor, letter of.. 1051-1062 Post Office Department, a statement on behalf of 989-1035 House Document No. 105 and its findings 987 TABLE OF CONTENTS. V II. Page. The conclusion as to railroad mail pay .' 989 The railroads' claim as to underpayment 989 The department's refutation of claims of underpayment 991 The railroads' premises 991 Mail revenue exceeded in 1910 a reasonable rate on commercial basis, ascertained from data and ratios of Document No. 105 992 Operating revenues, and operating expenses, and charges against income 994 What shall be the gauge of railroad mail pay? — shall it be a strictly commercial rate? 998 (1) The certainty, constancy, and homogeneity of traffic 998 (2) The certainty and regularity of payment 1000 (3) Railroads are not built primarily to carry mails 1000 (4) The protection of mail trains 1000 (5) The prizi ciple of public utility 1001 Cost of service as a g-uide in determining fairness of rate under com- mercial principle 100S Comparison between department's estimate of operating expenses, excluding taxes, chargeable to mail service, and companies' estimate of same chargeable to passenger service 1008 Method of apportioning unassigned expenses between freight and pas- senger services 100$ The charge of space to the mail service 1013 Annual weighings, side and terminal service, and apartment cars. ... 1018 Annual weighings 101$ Side and terminal service 1018 Apartment cars 1019 The law of March 2, 1907, and Postmaster General's Order No. 412, of June 7, 1907 1020 III. The present plan of adjustment of railroad mail pay 1025 The suggested plans of adjusting railroad mail pay 1026 The cost and space basis 1026 The standard unit suggestion 1031 Weight, space, and distance; the Lorenz plan 1032 The percentage method 1033 The plan of Senator John W. Weeks 1033 The plan of Hon. David J. Lewis 1033 The Peabody plan 1034 The Buckland plan 1034 The proposals of the railroads 1034 Exhibit A 1035 Post Office Department, a statement on behalf of the 1247-1298 Railroads, a statement on behalf of the 1063-1088 Turner, R. H., report of 899-964 Introduction 899 Historical sketch (early history) 899 Law of 1873 900 Document No. 105 901 Appointment of joint committee 901 Progress of the work of the joint committee 902 Hearings 902 Special services 903 Postal-service commission ( Wolcott-Loud) 903 Procedure of the present joint committee contrasted with that followed by the Wolcott 905 The present law (weight basis) 906 Rates of present law stated and explained 908 Post Office Department's objections to present law 910 Railroads' bill 911 Annual weighings 932 Side and terminal service 914 Apartment cars 915 Law of 1907 and divisor order No. 412 917 Underpayment to railroads under present law 918 VI TABLE OF CONTENTS. Page. Space basis 918 General remarks 919 Post Office Department's original plan 919 Post Office Department's modified plan 921 (a) Cost 924 (b) Steel cars (effect on speed and hauling resistance) 926 Other bases , 929 Four-unit basis (Lloyd plan) 930 Percentage basis 936 Buckland plan 937 Attitude of the courts with reference to mail transportation 940 Director of posts 942 Weeks's plan 942 The Peabody plan 943 Lewis plan 945 Lorenz plan 953 Electric lines 952 Government ownership of railway post office cars 947 Should the United States Government be given preferential treatment in the matter of mail transportation? 954 (a) Rights of individuals and corporations compared 955 (b) Eminent domain ". 955 (c) Railroads entitled to a reasonable rate 955 (d) Railroads should be regulated 956 Are the railroads underpaid or overpaid? 956 1. Under the present system 956-959 2. Divisor order No. 412 958 3. Railroads' reliance on report of Wolcott-Loud Commission 958 4. Amount of underpayment stated 959 5. Mail per ton-mile rate versus express per ton-mile rate 959 Underpayment, taking document No. 105 itself as a guide 960-962 Conclusion 962 Recommendations 964 A railway mail pay plan stated in the form of a bill and constructed on a space basis 911 "Are our railroads fairly treated," pamphlet entitled 715-719 Brief of committee on railway mail pay 720-736 Canada, railway mail pay in 737-738 Comparison of mail pay for loaded apartment car mile wHb freight earnings per car-mile (equivalent space) 739-742 Comparison of relative rates paid railroads for transportation of express and mail matter 743-758 Costs and profits to the railroad companies in the transportation of mail 759-777 Electric and cable car routes 952 Electric and cable car routes, proposed bill to equalize pay for mail service on . . 778-782 Government owned cars (transportation rates, etc., for) 947 Letter from Hon. Jonathan Bourne, jr., chairman, to the members of the joint committee 847 Memoranda on relative per ton rate received by the railroad companies for the transportation of freight, mail, and express 783-788 New York, New Haven & Hartford Railroad Co.: Would this company be the gainer if relieved from the carriage of United States mail? 789-790 Pennsylvania Railroad system, United States mail service. November, 1909, reduced to one day 's work on ] mile of route 791 .Railwav mail pay, literature submitted bv Mr. J. Kruttschnitt on the subject of " 792-822 Railway mail pay. theory of 827-829 Railway post-office car service on Atlantic Coast Line Railroad 823-826 Short-line railroads in regard to railway mail pay, statements of *.. 830-845 Side service on Rock Island lines, cost of ' 846 KAIL WAY MAIL PAY. To the Joint Committee on Postage on Second-Glass Mail Matter and Compensation for the Transportation of Mail: Gentlemen: The Post Office appropriation act approved August 24, 1912, contained a provision reading as follows : Provided, That a joint committee shall be appointed composed of three mem- bers of the Senate Comrui tee on Post Offices and Post Roads and three members of the House Committee on the Post Office and Post Roads, to be designated by the respective chairmen, to make inquiry into the subject of postage on second-class mail matter and compensation for the transportation of mail and to report at the earliest practicable date, and for this purpose they are au- thorized, by subcommittee or otherwise, to sit during the sessions or recess of Congress, at such times and places as they may deem advisable, to send for persons and papers, to administer oaths, to summon and compel the attend- ance of witnesses, and to employ such clerical, expert, and stenographic assist- ance as shall be necessary ; and to pay the necessary expenses of such inquiry there is hereby appropriated, out of any money in the Treasury not otherwise appropriated, the sum of twenty-five thousand dollars, to be paid out upon the audit and order of the chairman or acting chairman of said commit ee. On August 24, acting under authority of this provision, the Presi- dent of the Senate appointed on this joint committee Senators Jonathan Bourne, jr., of Oregon; Harry A. Richardson, of Dela- ware; and John H. Bankhead, of Alabama. The Speaker of the House of Representatives on the same day appointed on the same committee James T. Lloyd, of Missouri; William E. Tuttle, jr., of New Jersey ; and John W. Weeks, of Massachusetts. 1 On August 26 Congress adjourned sine die and immediately almost all Members of Congress departed for their homes. Owing to the press of legislative business on the last two days of the session, there was no time for the organization of this joint committee and the formulation of a plan of procedure. On August 12, 1911, the Postmaster General transmitted a letter to the Speaker of the House of Representatives submitting "A report giving the results of the inquiry as to the operation, receipts, and expenditures of railroad companies transporting the mails and recom- mending legislation on the subject," said letter and accompanying report being printed as House Document No. 105, Sixty-second Con- gress, first session. In response to representations made to the Senate Committee on Post Offices and Post Roads by the Post Office Department through the Second Assistant Postmaster General I was authorized by the committee to introduce a bill prepared by the Post Office Depart- ment embodying in legislative form the recommendations made in the document above referred to, the purpose being to get before Congress and the country the views of the department relative to 1 After Mar. 3, 1913, Hon. Jonathan Bourne, jr., and Hon. Harry A. Richardson ceased to be Members of the Senate, and Hon. John W. Weeks, a Member of the House of Rep- resentatives, to become a Senator of the United States, but by the Post Office appropria- tion act approved Mar. 4, 1913, the personnel of the committee was continued, with the same authorities, powers, and provisions for expenses as authorized by the act of Aug. 24, 1912, Hon. Jonathan Bourne, jr., and Hon. Harry A. Richardson serving without com- pensation. 3 4 BAIL WAY MAIL PAY. this important subject. I accordingly, on July 26, 1912, introduced S. 7371, a bill to provide the manner of determining the compensa- tion of railroads for the transportation of the mails, in the language following, to wit : Be it enacted ~by the Senate and House of Representatives of the United States of America in Congress assembled, That the Postmaster General shall determine the cost to each railroad company of carrying the mails on its re- spective road or roads, and shall verify and state the result in such form and manner as he shall deem proper. For this purpose he is authorized to credit, assign, and apportion the revenues and expenses of railroad companies so re- ported in such manner as he shall deem fair and equitable and in his judgment necessary to ascertain the cost as near as practicable, a statement of which shall be given the company concerned. If any railroad company shall object to the method of crediting, assigning, and apportioning the revenues and expenses, it may file objection with the Postmaster General within twenty days after such statement is made to the company, and the Postmaster General shall thereupon certify the method and objection, and such papers as in his judgment may be essential to an understanding of the method, to the Interstate Commerce Com- mission, who shall review the finding of the Postmaster General and affirm, modify, or revise the same, and certify the result to the Postmaster General, which action thereon shall be final. The Postmaster General is authorized and directed to readjust the pay to companies operating railroads for the transportation and handling of the mails and furnishing facilities in connection therewith, not less frequently than once in each fiscal year, commencing with July first, nineteen hundred and twelve, at a rate of compensation per annum not exceeding the cost to the railroad com- panies of carrying the mails as ascertained by him, and six per centum of such cost: Provided, That when such ascertained cost and six per centum does not equal twenty-five dollars per mile per annum, he may, in his discretion, allow not exceeding such rate. Railroad companies whose railroads were constructed in whole or in part by a land grant made by Congress on the condition that the mails should be trans- ported over their roads at such price as Congress should by law direct, shall re- ceive not exceeding the cost to them of performing the service. Information shall be furnished and adjustments made as near as practicable by accounting systems or roads, and the cost and the compensation for the term shall be stated for all service covered by each system or road. The routes for a system or road may be stated for administrative purposes in such manner as the Postmaster General may determine. The Postmaster General may order new or additional service during a term for which an adjustment shall have been made or service authorized on any system or road, in any train operated by such system or road over any part of the trackage included in the adjustment or authorization, and without additional compensation therefor during such term. He may order service over new or additional trackage of an adjusted system or road during a term and state the amount performed for the remainder of such term on statistics obtained for the first thirty days of service. Payment therefor may be made at not exceeding the average rate per car-foot mile for the system or road ascertained at the regular adjustment. Entire discontinuance of service over trackage included in the adjustment or thereafter added shall be deducted for at the car-foot mile rate of adjustment or mile rate of authorization. In case the operation of service over trackage included in an adjustment or there- after added is undertaken by another company during the term, the same may be recognized by the Postmaster General, provided the companies in interest shall file with him their joint agreement as to the part of the compensation of the old operating company to be paid the new operating company ; otherwise payment to the company first authorized shall be full payment for all service performed for the term. The Postmaster General may order service over trackage of a railroad com- pany not operating service under an adjustment or authorization after the reg- ular adjustment for the remainder of the term, and pay therefor at not exceed- ing forty-two dollars and seventy-five cents per mile of trackage per annum. Service over property owned or controlled by a terminal company shall be considered service of the roads or systems using such property and not that of the terminal company. Railroad companies carrying the mails shall furnish all necessary facilities for caring for and handling them while in their custody. They shall furnish KAILWAY MAIL PAY. 5 all cars or parts of cars used in the transportation and distribution of the mails, and place them in stations before the departure of trains when required to do so. They shall provide side, terminal, and direct transfer service and all station and depot space and rooms for handling, distribution, and transfer of mails en route, and for offices and rooms for the employees of the postal service engaged in such transportation, when ordered by the Postmaster General. Every railroad company carrying the mails shall carry on any train it operates and without extra charge therefor the persons in charge of the mails, and when on duty and traveling to and from duty, and all duly accredited agents and offiers of the Post Office Department and the postal service, while traveling on official business, upon the exhibition of their credentials. All cars or parts of cars used for the Railway Mail Service shall be of such construction, style, length, and character, and furnished in such manner as shall be required by the Postmaster General; and shall be constructed, fitted up, maintained, heated, lighted, and cleaned by and at the expense of the railroad companies. No payment shall be made for service by any railway post-office car which is not sound in material and construction, and which is not equipped with sanitary drinking-water containers and toilet facilities, nor unless such car is regularly and thoroughly cleaned. No pay for service shall be allowed for the operation of any wooden railway post-office car unless constructed substan- tially in accordance with the most approved plans and specifications of the Post Office Department for such type of cars, nor for any wooden railway post-office car run in any train between adjoining steel or steel underframe cars, or between the engine and steel or steel underframe car adjoining. All additional cars accepted for this service shall be of steel or with steel under- frame if used in a train in which a majority of the cars are of steel or steel underframe. After the first of July, nineteen hundred and sixteen, the Post- master General shall not approve or allow to be used or pay for the use of any railway post-office car not constructed of steel or with steel underframe, if such car is used in a train in which a majority of the cars are of steel or of steel underframe construction. The Postmaster General shall make deductions from the pay of the railroad companies on the basis of the value of the service computed on the car-foot mile basis in all cases where the cars do not comply with the provisions of this Act. The space in cars devoted to the use of the mails, as ascertained during the period fixed by the Postmaster General for the rendition of information by the railroad companies, shall be taken as the basis for computing the car-foot miles devoted to the mail service for the purpose of readjustment, effective from the first of July next following: Provided, That no credit shall be given for space in cars devoted to the distribution of the mails unless such space shall be authorized by the Postmaster General or unless he shall determine that its use is made necessary by a specific authorization. If any railroad company shall fail or refuse to provide cars or apartments in cars for distribution purposes when required by the Postmaster General, or shall fail or refuse to contruct, fit up, maintain, heat, light, and clean such cars and provide such appliances for use in case of accident as may be required by the Postmaster General, it shall be fined such sum as shall, in the discretion of the Postmaster General, be deemed proper. The Postmaster General shall in all cases decide upon what trains and in what manner the mails shall be conveyed. Every railroad company carrying the mails shall carry on any train it operates all mailable matter directed to be carried thereon. If any railroad company shall fail or refuse to transport the mails when required by the Postmaster General upon any train or trains it operates, such company shall be fined such amount as may, in the discretion of the Postmaster General, be deemed proper. The Postmaster General may make deductions from the pay of railroad com- panies carrying the mails under the provisions of this act for reduction in serv- ice or frequency of service where, in his judgment, the importance of the facilities withdrawn or reduced requires it and impose fines upon them for de- linquencies. He may deduct the price of the value of the service in such cases where it is not performed, and not exceeding three times its value if the failure be occasioned by the fault of the railroad company. The Postmaster General is authorized to have such weights of mails and measurements of space taken and to collect such other information by sworn employees of the Post Office Department as he may deem necessary and to have such information stated and verified to him by such employees, under such instructions as he may consider just to the Post Office Department and the railroad companies, to assist in the ascertainment of the space used for 6 RAILWAY MAIL PAY. the transportation and the handling of the mails on railroads, and to employ such special clerical and other assistance as shall be necessary to carry out the provisions of this act, and to rent quarters in Washington, District of Columbia, if necessary, for the clerical force engaged thereon, and to pay for the same out of the appropriation for inland transportation by railroads. The provisions of this act shall apply to service operated by railroad compa- nies partly by railroad and partly by steamboats. The provisions of this act respecting the rate of compensation and the deter- mination thereof shall not apply to mails conveyed under special arrangement in freight trains, for which a rate not exceediug the usual and just freight rates may be paid, in accordance with the classifications and tariffs approved by the Interstate Commerce Commission. It shall be unlawful for any railroad company to refuse to carry the mails at the rates of compensation provided by law when and for the period required by the Postmaster General so to do, and for every such offense it shall be fined not exceeding $5,000. All laws or parts of laws inconsistent herewith are hereby repealed. VIEWS OF RAILROADS REQUESTED. The bill was referred to the Committee on Post Offices and Post Roads on the date of its introduction in the Senate, but owing to the fact that the Post Office appropriation bill was already burdened with many items of new legislation the committee deemed it unwise, as it was impracticable, to undertake to legislate upon a subject of such magnitude in the time intervening between the introduction of the bill and the near approach to the close of the second session of the Sixty-second Congress. It was such consideration as this that led to the authorization and appointment of the joint committee. Recognizing the importance and the magnitude of the task as- signed to the joint committee and desiring as much as possible to ex- pedite its work, I, after the adjournment of Congress and before leaving Washington, addressed a circular letter to the executive offi- cers of all railroads carrying the mails, 795 in number, the purpose being to secure an expression of opinion on the plan recommended by the Post Office Department and embodied in S. 7371. The letter reads as follows: Washington, September 11, 1912. My Dear Sir: I hand you herewith a copy of Senate bill 7371, introduced by me by direction of the Senate Committee on Post Offices and Post Roads, embodying a plan recommended by the Post Office Department for determining the compensation to be paid to railroad companies for transportation of the mails. This general subject has been referred to a joint committee of Congress. The committee has not yet organized and probably will not do so for several weeks; but as a member of that committee and as chairman of the Senate Com- mittee on Post Offices and Post Roads, and under authority of Senate resolution 56, I desire to secure immediately such information as may be available for submission to the committee at its first meeting. I will ask you, therefore, to answer the following questions : (1) Do you deem the present plan of compensation an equitable one as be- tween the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable? (2) Is the underlying principle of the plan embodied in the inclosed bill a proper basis for compensation? If not, wherein is it improper, and why? (3) What, in your opinion, is a desirable plan for compensating railroad com- panies for transporting the mails? I desire an early reply to these inquiries relating to the general plan, and if you are not ready to do so now shall be glad to have you submit later a detailed discussion of this bill and of House Document No. 105, Sixty-second Congress, first session, with which, I assume, you are familiar. Yours, very truly, Jonathan Bourne, Jr., Chairman Senate Committee on Post Offices and Post Roads. RAILWAY MAIL 'PAY. ( REPLY BY COMMITTEE ON RAILWAY MAIL PAY. In a letter dated October 3, Mr. Ralph Peters, acting chairman, committee on railway mail pay, representing 268 railroads operating over 214,275 miles of railroad, responded to the questions propounded in the circular letter referred to as follows : New York, October 3, 1912. Hon. Jonathan Bourne, Jr., Chairman Senate Committee on Post Offices and Post Roads, Washington. D. C. My Dear Sir: The committee on railway mail pay. representing 2G8 roads operating over 214,275 miles of railroad, has been investigating the subject of mail compensation for about three years, or since the Post Office Department, in 1909, sent out a series of questions regarding the space furnished for mails in passenger trains, and the cost to railroad companies of the service which they perform for the Government in the carriage of the mails. Therefore the committee has thought it would be of interest to you to receive from it an answer to the questions propounded by your letter of September 11, 1912, addressed to the officers of railroads throughout the country. A response to House Document No. 105 is now in course of preparation, and will be submitted at an early date. In the meantime, our committee desires to submit the following replies to your inquiries : Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable? Answer. The existing law has never worked to the disadvantage of the Gov- ernment, but has failed to do justice to the railways, by reason of infrequent weighing; absence of pay for nearly 40 per cent of the space occupied as travel- ing post offices ; the performance, without pay, of side and terminal messenger service; and the unjustifiable reduction in pay by the act of Congress dated March 2, 1907, supplemented by Order No. 412 of the Postmaster General, changing the divisor. The present law is based upon correct principles, but should be so amended as to provide — (a) For the repeal of the act of March 2, 1907. Notwithstanding the large increase in every other item connected with the administration of the Post Office Department, the railroads' pay has been singled out as the one element in these operations for concentration of econo- mies. This, too, in the face of the fact that the operating expenses of the rail- roads have been greatly augmented by the requirements of the law with refer- ence to steel equipment, and a general increase in cost characteristic of all business operations. (6) For annual weighings, and a definite and just method for ascertaining daily average weights. Under the quadrennial weighing, all increased weight of mail during the next succeeding four years is carried by the railroads without any compensation whatever, which is manifestly unfair. The railroads must provide car space and facilities for the maximum weight offered at any time, yet they are paid only for the average weight carried. The Postmaster General's order covering the divisor has unfairly reduced this average. This provision is essentially necessary in view of the bill establishing the parcel post, effective January 1, 1913, which will result in taking from the express service traffic for which the railroad companies now receive compensa- tion and transferring it to the mail service; the bill referred to containing no provision for payment to the railroad companies for the increased tonnage to be handled in mail cars, although such provision was made for the star routes and the city wagon service. (c) For pay for apartment cars on some basis that will compensate for the service. That the Postmaster General has himself recognized the justice of such a change is indicated in the following quotation from page 3 of House Document No. 105: "* * * an additional amount may be allowed for railway post- office cars when the space for distribution purposes occupies 40 feet or more of the car length. No additional compensation is allowed for space for distribution 8 KAILWAY MAIL PAT. purposes occupying less than 40 feet of the car length. This distinction is a purely arbitrary one and without any logical reason for its existence." (d) For a fair allowance to the railroads for the side and terminal messenger service which they perform for the Post Office Department, according to the value of this service to the Post Office Department. The necessity for this is also emphasized by the establishment of the parcel post, which will undoubtedly add greatly to the expense of the service. (e) That all rates of pay should be definite and not subject to the discretion of the officers of the Post Office Department. Other inequities exist under the present law, but are due to the administra- tive methods rather than to the law itself. Question 2. Is the underlying principle of the plan embodied in the inclosed bill a proper basis for compensation? If not, wherein is it improper, and why? Answer. The underlying principle of the plan embodied in Senate bill 7371 is not correct. Any plan of compensation based upon operating cost and taxes, plus 6 per cent for profit, is fundamentally wrong, because it makes no allow- ance for return upon the property employed. Furthermore, such plan is not correct because it involves paying the highest rates to the railroad that by reason of physical disabilities or inefficient methods is most expensively operated and the lowest rates to the railroad whose opera- tions are most efficient and whose service is most satisfactory and valuable to the Post Office Department. Under the plan proposed a railroad would be penalized for all the capital expenditures made by it for the purpose of decreas- ing its operating cost, because the more it decreased its operating cost the more it would decrease its mail pay, although by making this improvement in operat- ing cost it would have incurred an additional capital charge upon which it would have to pay dividends or interest. The ascertainment of the cost to a railroad of conducting the mail service is necessarily very largely a matter of judgment and opinion, because a large proportion of the total operating expenses are expenses common to the freight and passenger traffic and can only be approximately apportioned, and there are various formulas existing for such apportionment. It would not be right or proper to intrust to the Post Office Department the discretion of selecting the formulas by which to ascertain these costs because the Post Office Department has an obvious interest at stake, its object always being to reduce the railroad pay to a minimum. The estimated cost of a specific service is not a proper basis for fixing rates for transportation of any commodity. The railroads are entitled to receive a full and fair return for the value of the service performed, and the ascertain- ment of cost of such service is principally of value as a protection against the establishment of confiscatory rates. Question 3. What, in your opinion, is a desirable plan for compensating rail- road companies for transporting the mails? Answer. The existing law has been in effect for nearly 40 years and those who have worked under it are more or less familiar with its operations. If it were amended to correct serious inequities, as suggested in the answer to question 1, and fairly and impartially administered by the Post Office Department, it would be preferable to any untried or theoretical plan that could be proposed. Very respectfully, yours, Committee on Railway Mail Pay, By Ralph Peters, Acti?ig Chairman. To present more fully the points of objection raised in its letter of October 3, the committee on railway mail pay has submitted a pamphlet entitled "Mail Carying Eailways Underpaid," which is m the language following, to wit: Mail Carrying Railways Underpaid. i. scope of this pamphlet. The committee on railway mail pay, representing railways whose lines include 92 per cent of the aggregate length of all railway mail routes in the United States, believes that the payments to the railways for the services and facilities furnished by them to the Post Office Department are, and for a long time have been, unjustly low. This pamphlet contains a concise statement of the facts RAILWAY MAIL PAY. 9 wliicli prove that this belief is warranted and, incidentally, a refutation of the estimates made by the Postmaster General and reported to the Congress (H. Doc. No. 105, 62d Cong., 1st sess.), which led him to conclude that the basis of pay- ment could now properly be changed so as to accomplish a present reduction of about 20 per cent. It will be shown that although the insufficient data and the erroneous methods employed by the Postmaster General resulted in his making estimates of cost to the railways that are far below the real cost, his own figures and calculations, when properly analyzed and supplemented, demonstrate that the mail service has not been fairly remunerative to the railways. Before proceeding to this demonstration it should, however, be noted that — II. RAILWAY MAIL PAY IS ABOUT TO BE FORCED STILL FURTHER BELOW THE LEVEL OF JUST COMPENSATION, UNLESS PAYMENTS ARE PROMPTLY READJUSTED, ON ACCOUNT OF THE ADDITIONAL VOLUME OF MAIL THAT WILL RESULT FROM THE INAUGURATION, ON JANUARY 1, 1013, OF THE PARCEL POST. Congress has provided for a vast and incalculable extension of mail traffic by creating a " parcel post," to be inaugurated on January 1, 1913, which, by opening the mails to many articles not previously accepted at the post offices and by materially reducing the rates on mailed merchandise, is expected enor- mously to increase the volume of the shipments which it covers. The Govern- ment seems to have assumed that under existing contracts, which were made before the meaning of the word " mail " was thus extended, the railways can be compelled, until these contracts expire, to carry this great additional volume of mail traffic without any compensation whatever. If the former practice of the Post Office Department is followed, no new contracts will be made until after the next quadrennial weighings in each of the four weighing sections, so that the position of the Government amounts to an assertion that the whole added volume of the parcel-post mails will have to be carried without any compensa- tion by the railways of New England for four years and six months (these railways are in the first weighing section, but the weighing for the adjustment to be made on July i, 1913, has begun and will be completed before the parcel post is inaugurated), by those of the second weighing section for three years and six months, by those of the third weighing section for two years and six months, by those of the fourth weighing section for one year and six months, and by those of the first weighing section not located in New England for six months. No presentation of the injustice of the mail pay received in former years suggests even the approximate extent of the losses which the railways will thus incur in the next four and one-half years unless readjustments are promptly made on account of the parcel post. III. THE POSTMASTER GENERAL'S ERRONEOUS ASSERTION THAT THE RAILWAYS WERE OVERPAID "ABOUT $9,000,000" IN THE YEAR 1909 RESTS PRIMARILY UPON HIS ADOPTING AN UNPRECEDENTED THEORY WHICH ALLOWS NOTHING FOR A RETURN UPON THE CAPITAL INVESTED IN RAILWAY PROPERTY. The Postmaster General assumed that the railways would be properly com- pensated if they received a sum equal to the operating expenses and taxes attributable to the carriage of the mails plus 6 per cent of the sum of those ex- penses and taxes. The calculation by which he obtained the sum which he assumed would have been proper compensation for the single month covered by his investigation was as follows: His estimate of operating expenses and taxes on account of mail service (Doc. No. 105, p. 280) for 1 month $2,676,503.75 6 per cent of above 1G0, 590. 22 Total, assumed to represent just compensation for 1 month- 2, 837, 093. 97 The railways having been paid, for the , month selected, $770,679.16 in excess of the sum resulting from the above calculation, the Postmaster General as- sumed that this excess over expenses and taxes plus 6 per cent constituted ex- cessive profit for that month. He multiplied this assumed excess by 12 to get his estimate of annual excess and stated the result, in round figures, as "about $9,000,000." The mere statement of this method discloses the fact that it makes no allow- ance for any return upon the fair value of the railway property employed in the service of the public. This omission is, of itself, sufficient wholly to destroy 10 BAILWAY MAIL PAY. the Postmaster General's conclusion. Everyone recognizes that a railway is entitled to at least a reasonable return upon the value of its property devoted to the public service. The Postmaster General ignored this universally accepted principle and adopted a theory which, if applied to the general business of the companies, would render substantially every mile of railway in the United States immediately and hopelessly bankrupt. The recently published report of the Interstate Commerce Commission on the railway statistics of the year that ended with June 30, 1910, contains data by which this statement is easily demonstrated, as follows: Operating expenses of all United States railways for the year__ $1, 822, 630, 433 Taxes of all United States railways for the j^ear 103,795,701 Total 1, 926, 426, 134 6 per cent of above total 115, 585,568 Total gross receipts permitted by Postmaster General's plan 2, 042, 011, 702 But if this plan had been in force the railways would have had, for interest on mortgage bonds, a reasonable surplus as a margin of safety, dividends on stocks, unprofitable but necessary permanent improvements, 1 rents of leased properties, etc., only the 6 per cent, or $115,585,568. This figure may be com- pared with the following among others: Interest obligations (on funded debt only) of all United States railways for the same year $370, 092, 222 Rentals of leased properties all United States railways for the same year 133, 881, 409 Plainly, the Postmaster General's proposal is equivalent to an assertion that the railways would make a fair profit if they were enabled to collect the sum of $115,585,568 in addition to their operating expenses and 'taxes, but the figures given by the Interstate Commerce Commission show that this would be less than one-third of the sum necessary to meet interest charges, which must be paid in order to prevent foreclosures of mortgages, and, if bond interest could be ignored, is much less than the rentals that must be paid if the existing sys- tems are not to be broken up. And, of course, it would allow nothing what- ever for legitimate demands upon income for dividends, permanent improve- ments, or surplus. It is unnecessary to dwell upon the consequences of such a theory of " com- pensation " to railroad credit and to the public interest in efficient transporta- tion service, to say nothing of the consequences to owners of railroad stock and bonds. Such a theory is not a theory of compensation — it is a theory of oppres- sion and of destruction. The fact that the Postmaster General has found it necessary to justify his attack upon the present basis of railway mail pay by a theory so unprecedented and so unwarranted in principle and in law raises a strong presumption against all his opinions and conclusions upon this subject. IV. THE MAIL SERVICE SUPPLIED BY THE RAILWAYS COSTS THEM MORE IN OPERATING EXPENSES AND TAXES THAN THEY ARE PAID FOR IT, AND LEAVES NOTHING FOR RETURN ON THE PROPERTY. It can not be too strongly emphasized that the railway mail pay at present is insufficient to pay even its proper share of operating cost and taxes and does not produce any letnrn upon the property. This will be demonstrated by any fair inquiry., as will now be shown. Reports submitted to the Postmaster General by railways operating 2,411 mail routes, with a total length of 178,710 1 The necessity for providing, out of income, fox- some kinds of improvements is com- monly admitted. The public constantly demands greater comfort and convenience, which can be supplied only by improvements in property and equipment that bring in no addi- tional income. A present example in the mail service itself is the great expense which the railway? are now undergoing in substituting stool mail cars for those formerly in use. The old cars, which thus become a total loss were fully up to the most advanced standards of construction when built, and they could continue for a long time to serve the purposes of the service except for the public demand for stronger cars. RAILWAY MAIL PAY. 11 miles, showed that their gross receipts, per car-foot mile, 3 from services rendered on passenger trains during November. 1909. were as follows: Mills. From mail 3. 23 From other services 4.35 Thus, it appears that the space on passenger trains required for the mails is proportionately less than three-quarters as productive as that devoted to pas- sengers, express, milk, excess baggage, etc. As it is the general belief of railway managers, whose conclusion in this respect has rarely if ever been challenged, that the passenger-train services, as a whole, do not produce revenues sufficient to meet their fair proportion of the operating costs and the necessary return upon invstment, and therefore are not reasonably compensatory, it is evident that the mail service, the pay for which is more than 25 per cent below the average for the other services rendered on the same trains, must bring in much less than reasonable compensation. Certainly railroad revenues as a whole could not be reduced 25 per cent without destroying all return upon the property. If so, it must be true that there can be no compensation in a rate of mail pay that is 25 per cent less than the rate of pay for passenger raffic which, as above shown, is relatively unprofitable. No merely statistical comparison can, however, reveal the whole story, for the railways are required to furnish many incidental facilities and to perform many additional services for the Post Office Department, which render the mail serv- ice exceptionally arduous and costly. These extra services include calling for and delivering mails at a large proportion of the post offices located at railway towns; supplying rooms, with light, heat, and water in railway stations for the use of the mail clerks; placing cars, duly lighted and heated, on station tracks for advance distribution, often many hours before the departure of trains; carrying officers and agents of the Post Office Department as passengers but without compensation to the extent of more than 50,000,000 passenger miles annually (this being, of course, in addition to the railway mail clerks on duty), etc. Extracts from the Postal Laws and Regulations defining and de- manding these services are given in Appendix A. No one can examine this appendix and not be convinced that the mail service is the most exacting among all those rendered by American railways. The fairness of railway mail pay can also be tested by apportioning operating expenses between passenger and freight traffic, and then making a secondary apportionment of the passenger expenses between mail and other kinds of traffic carried on passenger trains. This method involves charging directly to each kind of traffic all expenses pertaining exclusively thereto, and the appor- tionment, on some fair basis, of those expenses which are common to more than one kind of traffic. In accordance with the request of the Postmaster General, the railways estimated the cost of conducting the mail service in the manner just explained and reported the results to the Postmaster General. After first charging to each service the expenses wholly due to it they apportioned the common ex- penses between the passenger and freight services, following (with incon- sequential exceptions) the method most generally employed for that purpose, namely the apportionment of these expenses in the proportions of the revenue train mileage of each service. Having estimated, in this way, the operating expenses attributable to passenger trains, the railways assigned to the mails the portion of this aggregate indicated by the proportion of the total passenger train space required for the mails. Using this method, 186 railways, operating 2.370 mail routes, with a total length of 178,716 miles, ascertained and reported that for November, 1909, the operating expenses (not including taxes) for conducting the mail service were $4,009,184. The Postmaster General states (Doc. No. 105, p. 281) that all the i ail ways represented in the foregoing, and enough others to increase the mileage represented to 194,978 miles, were paid for the same month only $3,607,773.13. It thus appears that the pay was far below the operating expenses, without making any allowance for taxes or for a return upon the fair value of the property employed. While different methods are in use for ascertaining the cost of passenger- train service and the results produced by such methods may show considerable 1 A car-foot mile is a unit equal to moving 1 foot in car length (regardless of width cr height) 1 mile. Thus to move a car 60 feet lonjr 1 mile results in 60 car-foot miles; to Liove the same car 3 miles results in 180 car-foot miles, etc. 12 RAILWAY MAIL PAY. variation, yet the mail pay is so far below reasonable compensation, from the standpoint of the cost of the service and a return upon the value of the prop erty, that no method can be reasonably urged which would not demonstrate the noncompensatory character of the present mail pay. This is illustrated by the method which the Postmaster General himself employed, as the character of that method is such that it necessarily produces the very lowest estimate of cost for the passenger-train service. The Postmaster General by his method of apportionment arrived at a cost of $2,676,503.75 But this must be increased, as will be shown below, on account of his erroneous apportionment of car space (p. 10), by 800,802.00 And also on account of his refusal to assign expenses directly incurred in the mail service (p. 12) 1 401, 126. 00 Total, according to the Postmaster General's method of appor- tioning costs between passenger and freight traffic 3, 878, 431. 75 Thus even the Postmaster General's method of apportioning costs between freight and passenger traffic produces an operating cost in excess of the total pay received by the railways, leaving nothing whatever for return upon the fair value of the property or necessary but nonincome-producing improvements.' There is no allowance in any of these estimates of cost for the large volume ■of free transportation supplied to officers and agents of the Post Office Depart- ment when not in charge of mail, although this amounts to over 50,000,000 passenger miles annually, and, at the low average rate of 2 cents per mile, would cost the Post Office Department more than $1,000,000 per year. Moreover, as will presently be shown (pp. 13-14) all the figures here dis- cussed are for the month of November, a month which, because of the abnor- mally low ratio of passenger traffic to freight traffic, substantially understates the cost of the passenger-train services, when figures derived from it are applied to an entire year. It thus becomes evident that any inquiry which takes into consideration the necessary elements of the situation will demonstrate that railway-mail pay is too low. It is only by ignoring essential elements of the service and of ex- pense and the fundamental element of a return on the value of the property that any argument to the contrary can be constructed. Thus the mail traffic does not pay its operating cost. That traffic is a sub- stantial percentage of the total public service performed by the railroads. It should contribute a substantial proportion to the taxes which the railroads have to pay and to the return on railroad property which its owners are en- titled to receive. Clearly no fair method can be devised which will fail to show that the existing mail pay is far below a fairly compensatory basis. Cer- tainly this condition ought not to be intensified by adding the injustice of still further reductions. On the contrary, the unjust reductions of recent years should be corrected for the future, and the railroads should be relieved from the strikingly unjust methods by which they are at present deprived of any- thing approaching fair compensation. V. THE POSTMASTER GENERAL'S APPORTIONMENT OF SPACE BETWEEN THE MAIL SERVICE AND THE OTHER SERVICES RENDERED ON PASSENGER TRAINS DID NOT ALLOW TO THE MAILS THE SPACE WHICH THEY ACTUALLY REQUIRE AND USE, AND THIS HAD THE RESULT OF UNDULY REDUCING HIS ESTIMATES OF THE COST TO THE RAILWAYS OF THE MAIL SERVICE. Detailed reference will now be made to the methods and controlling effect of the Postmaster General's apportionment of passenger-train space between the mails and the other services rendered on passenger trains. Such an appor- tionment was a necessary step in the calculations reported in Document No. 105. Having obtained certain estimates of the cost of the passenger-train serv- ices considered together by methods producing the lowest results, the next step shown in Document No. 105 was to apportion a part of this cost to the mail service. The accepted method for such an apportionment is to distribute the total cost in proportion to the train space required by each of the respective services. The Postmaster General obtained from the railways statements which i There may be some duplication in this item, but to eliminate it would require an elaborate 6 computation which, in view of the broad margin o -expenses over re^pt* ia wholly superfluous. Whatever duplication exists must be small in comparison with (his margin. RAILWAY MAIL PAY. 13 be might have used in applying this method, and these statements showed that 9.32 per cent of the total space in passenger trains was required by the mails; but instead of using the data showing this fact, he substituted figures of his own which reduced the space credited to the mail service to 7.16 per cent of the total. The total of passenger-train costs which the Postmaster General estimated should be apportioned among passengers, express, and mail, on the basis of space occupied, was $37,074.172. 1 He therefore assigned to the mail service 7.16 per cent of the last-named sum, or $2,654,510.69. If, however, he had used the proportion of space, 9.32 per cent, resulting from the reports he had obtained from the railways, the amount apportioned as cost of the mail service for the month would have been $S00,802 greater. Multiplying this by 12 gives an increase in the estimated annual cost of over $9,600,000. Thus the Postmaster General arrived at his declaration that the railways were getting an excess profit of $9,000,000 by means of two fundamental errors, omitting for the present reference to any other errors. He understated the annual mail expenses and taxes of the railways by at least $9,600,000, and ho ignored entirely the necessary return on the value of railroad property. This examination of his methods shows that the determination of space was of primary and controlling importance and that the changes in space allotment have destroyed the value of his deductions. These changes were due to his refusal to assign to the mail service the working space and temporarily un- occupied space on trains, which were necessary to the mail service, and to his actually assigning much of this space to the passenger service rendered on the same trains. It is scarcely necessary to note that all kinds of traffic require " working space " in addition to the space actually occupied by the traffic itself, and that this is especially true of the mail traffic, or that where there is a preponderating movement of a certain traffic in one direction there must be some empty space on account of that traffic, sometimes called " dead " space, in trains moving in the direction of lighter traffic. Thus passenger cars must have aisles, vestibules, and platforms, and postal cars must have a great deal of space in which to sort the mails while, for mail carried in baggage cars, there must be space in which to reach the pouches and to receive and deliver them through the doors. A through train must also have the full capacity required for the maximum traffic of any kind likely to seek accommodation on any part of its journey, although during much of each trip the actual traffic may be considerably below this limit. The Postmaster General, however, refused to credit the mail service with much of the space thus required by the department, although his figures for the other passenger-train services allowed fully for all such space required by them. In fact, in many cases such space actually required by the mails and so reported by the railways, was taken from the total mail space and, without reason, assigned to the passenger service. These modifications of the data correctly reported, not susceptible of justification upon any sound transportation principle, were carried so far that the tabulations of the Post Office Depart- ment, which are stated for railway mail routes having a total length of 194.977.55 miles 2 show only 926,164,459 "car-foot miles" made in the mail service, although certain railways, included therein and having railway mail routes aggregating only 178,709.96 miles, had correctly reported mail space equivalent to 1,153,110,245 " car-foot miles." Thus, although the department's figures cover 8.3 per cent more mileage, its reductions of space resulted in assigning to this greater mileage about one-quarter (24.5 per cent) less mail space. At the same time the department actually increased the space assigned to the other passenger-train services, its figures showing 12,014,065.506 car-foot miles in these services for 194,977.55 miles of mail routes, which must be com- pared with 11,222,478,739 car-foot miles reported by the railways for 178,709.96 mail-route miles. This treatment of the controlling figures as to space, supplementing the other errors of method and omissions of fact, which have been or will be cited, was amply sufficient to turn a real loss into an apparent profit. 1 This is the sum which was apportioned by the Postmaster General on the basis of train space occupied. He estimated $40,121,294.83 (Doc. No. 105, p. 280) as the total operating expenses and taxes of the passenger-train services for the month. Of this total. $21,093.06 was charged directly to the mails and $3,025:129.77 directly to the other passenger-train services, leaving the sum stated in the text to be apportioned on the space basis. 2 Doc. No. 105, p. 53. 49396—14 2 14 RAILWAY MAIL PAY. VI. THE POSTMASTER GENERAL IGNORED DATA WHICH HE HAD OBTAINED SHOWING EXPENDITURES ON ACCOUNT OF THE MAILS LARGELY IN EXCESS OF THE DIRECT EXPENSES FOR THAT SERVICE WHICH HE REPORTED. As a part of the investigation reported in Document No. 105 the Postmaster General obtained from the railways statements showing the amounts expended by them for the station and terminal services required by his department and the amount of free transportation furnished on his requisition for officers and agents of the postal service when not in charge of mail. These data were not used (Doc. No. 105, p. 6), and, as no adequate allowance was made in any other way for these expenses, the omission unjustly reduced the estimates of the cost to the railways of their postal service. The Postmaster General's explanation of this omission implies that it was partially offset by the assignment as cost of mail service of its proportion, on the space basis, of all the station and terminal expenses of the passenger- train services, but these special mail expenses are disproportionately heavy and the amount so assigned was far too low. The expenses for station and terminal services especially incurred for the mails during November, 1909, and reported to the Postmaster General for 92 per cent of the mileage covered by Document No. 105, aggregated $401,136, as follows : Amount of wages paid to messengers and porters employed ex- clusively in handling mails $79, 980. 84 Portion properly chargeable to mail service, prorated on basis of actual time employed, of wages paid to station employees a part of whose time is employed in handling mails 198, 927. 01 Amount expended for maintenance of horses and wagons and for ferriage, etc., in connection with mail service 5, 640. 98 Rental value, plus average monthly cost of light and heat, of room or rooms set apart for the exclusive use of the mail service 37, 258. 93 Rental value of tracks occupied daily for advance distribution of the mail 47, 029. 12 Average monthly cost of light and heat for postal cars placed daily for advance distribution of mail 18. 400. 57 Interest at the legal rate upon the value of cranes, catchers, and trucks required for mail service 3,895.36 Total * 401, 126. 00 All the foregoing data were reported to the Postmaster General in response to his request, but he made no use of these items, an omission manifestly to the serious disadvantage of the railways and having the effect of unduly reducing his estimates of the cost of the mail service. Similarly, the Postmaster General omitted to use the data he had obtained from the railways showing the volume of free-passenger transportation, already referred to, supplied to the officers and agents of the Post Office Department, and his estimates contain no recognition of the cost of this service, although its extent should be a matter of record in the department, as it is furnished only on its requisition. The space in passenger coaches occupied by these repre- sentatives of the Post Office Department, traveling free, was not assigned to the mail service, but was treated as passenger space. VII. THE MONTH OF NOVEMBER IS NOT A FAIR AVERAGE 1IONT3 IN ANY RAILWAY YEAR OR ONE THAT IS TYPICAL OF A YEAR'S BUSINESS AND ITS LTSE AS THE SOLE BASIS OF THE POSTMASTER GENERAL'S CALCULATIONS WAS SO UNFAVORABLE TO THE RAILWAYS AS TO DEPRIVE THE RESULTS OF ANY VALUE EVEN IF IN ALL OTHER RESPECTS HIS METHODS WERE BEYOND CRITICISM. All the Postmaster General's calculations, reported in Document No. 105, and by him relied upon therein, and elsewhere, to substantiate his attack upon existing railway mail pay, depend solely upon data for the single month of November, in the year 1909. It is obvious, therefore, that the validity of his conclusions, if all the rest of his processes were accurate and his deductions otherwise sound, would depend upon whether November is sufficiently typical of the railway year to be safely used as the sole basis for conclusions applicable 1 This total includes $9,993.19 reported by four companies which gave totals for these items, but did not report the items separately. RAILWAY MAIL PAY. 15 to a whole year. The truth is, however, that November is not a typical or average month and that all of its deviations from the averages of the year are such as greatly to favor the result which the Postmaster General was seeking. It may well be doubted whether the railway year contains any month that can properly be regarded as typical of the whole period, but if it does, the month of November, with 4 Sundays, 2 holidays, and only 24 working days, is certainly not such a month. The Interstate Commerce Commission publishel the monthly aggregates of railway receipts and these official data conclusively prove that November, 1909, was the one month for which the data were most strongly favorable to finding, by the Postmaster General's method, an abnor- mally low apparent cost for the passenger train services and, consequently, for the mail service. It is a month in which substantially winter conditions prevail in a large part of the country and, on this account, one during which much of the ordinary work of maintenance of way and structures must be suspended. Such work occasions a large fraction of the yearly expeuses of all railways and these ex- penses pertain in a relatively large proportion to the passenger services becaure the higher speed of passenger trains results in greater relative wear and tear upon roadbed and structures than that caused by the slower trains of the freight service and the requirements of safety to passengers carried at high speed impose more costly standards of maintenance than would otherwise be neces- sary. Consequently a month in which these maintenance expenses are neces- sarily below the yearly average ean not typify the full annual cost of the passenger train services. Figures showing the facts are contained in Appendix B. It is, of course, understood that the respective expenses of the passenger and freight services must move upward and downward with the fluctuations in the volume of each sort of traffic. No month can furnish a reliable basis for esti- mating the proportion of the total expenses that is caused by the passenger service unless during that month the volume of passenger traffic bears a normal relation to the volume of freight traffic. But in November, 1909, as will ap- pear from official figures for each month in the year contained in Appendix C, passenger traffic, as measured by receipts therefrom, was much below the average month of the year, while' freight traffic was far above the average. The November .receipts from passengers amounted to only 21.5 per cent of total receipts, the lowest relation shown for any month in the year. Of course, under these conditions passenger expenses were curtailed and freight expenses relatively enhanced. Certainly the use of data resulting from these abnormal relations could not possibly produce results fairly typical of a normal period — that is, of a whole year. The results so obtained must have diminished the apparent cost of the passenger-train services below the true cost by just as much as the figures for November were below the average figures of the year. - These considerations fully establish the truth that, if every other feature of Document No. 105 were absolutely beyond criticism, the fact that it rests wholly upon estimates based upon data for the single month of November would render its conclusions illusory, misleading, and seriously prejudicial t» the railways. VIII. A COMMISSION OF SENATOKS AND MEMBERS OF CONGRESS WHICH, BETWEEN 1898 AND 1901, MOST FULLY AND CAREFULLY INVESTIGATED THE SUBJECT ASCER- TAINED AND DECLARED THAT RAILWAY MAIL PAY WAS NOT THEN EXCESSIVE; SINCE THEN THERE HAVE BEEN MANY AND EXTENSIVE REDUCTIONS IN PAY, AC- COMPANIED BY SUBSTANTIAL INCREASES IN THE COST AND VALUE OF THE SERVICES RENDERED BY THE RAILWAYS. The Congressional Joint Commission to Investigate the Postal Service, which reported on January 14, 1901, is authority for the fact that, at that time, rail- way-mail pay was not excessive. Senator William B. Allison, of Iowa ; Senator Edward S. Wolcott, of Colorado ; Senator Thomas S. Martin, of Virginia ; Rep- resentative Eugene F. Loud, of California; Representative W. H. Moody, of Massachusetts; and Representative T. C. Catchings, of Mississippi, six of the eight members of the commission, then united in the following : " Upon a careful consideration of all the evidence and the statements and arguments submitted, and in view of all the services rendered by the rail- ways, we are of the opinion that ' the prices now paid to the railroad compa- nies for the transportation of the mails' are not excessive, and recommend that no reduction thereof be made at this time." (S. Doc. No. 89, pp. 19, 22, 25, 29, 52d Cong., 2d sess.) 16 RAILWAY MAIL PAY. Since the commission reported, the volume of the American mails, the revenue of the American postal service and its demands upon the railways for services and facilities have greatly increased. The costs of supplying railway trans- portation have also greatly increased. The necessary cost of railway property per unit of service has increased, and in consequence the amount required as a reasonable return thereon, on account of higher wages and prices, the higher standards of service demanded and the higher value of the real estate required for extended and necessary terminal plants. Operating expenses have grown by reason of repeated advances in rates of wages paid to employees of every grade and increased prices of materials and supplies. Taxes have increased with the rapidly augmenting exactions of State and local governments and the impo- sition of an entirely new Federal corporation tax. 1 Yet during this period of rapidly advancing railway expenses, and in spite of the fact that at its com- mencement the railway mail pay was not excessive, the rates of payment for railway mail services have been subjected to repeated and drastic decreases accomplished both by legislative action and by administrative orders. These reductions have so much more than offset the rather doubtful advantages which the railways might be assumed to have obtained from the increased volume of mail traffic that in 1912 they find their mail service more unprofitable than ever before. The following table shows the facts : Fiscal year. Total rail- way mail pay. Average railway mail pay per $100 of postal receipts 1901 $38,158,969 43,971,848 49, 758, 071 49,405,311 50,583,123 $34.18 1904 30.62 1907 27.10 1910 22.04 1911 21.26 The foregoing shows that the Post Office Department expended for railway transportation, in 1901, $34.18 in order to earn $100 in gross, and that by 1911 this expenditure had been reduced 37.8 per cent to $21.26. This notable reduction was the consequence (first) of the operation of the law fixing mail pay under which the average payment per unit of service decreases as the volume of mail increases; (second) of the acts of Congress of March 2, 1907, and May 12, 1910; and (third) of administrative changes effected by the Post Office Department which, without decreasing the services required of the railways or enabling those services to be rendered at any lower cost, greatly reduced the payment therefor. Chief among these administrative changes was the Postmaster General's order known as the "divisor" order (No. 412 of June 7, 1907, superseding Order No. 165 of Mar. 2, 1907), radi- cally lowering the basis for calculating the annual payments for transportation. No official estimate of the reduction in the aggregate annual payment produced by the operation of the law fixing the scheme of payment has been made, but from time to time the department has published estimates of the reductions otherwise effected. None of these estimates is now up to date, and to make them comparable with the present volume of mail subs' antial increases would be necessary, but they are given below as representing an amount substantially less than the lowest possible statement of the total present annual reduction. Amount of Cause of reduction : annual reduction. Natural operation of the law No estimate. Acts of Mar. 2, 1907, and May 12, 1910 $2,723,658.90 Withdrawal of pay for special facilities 167, 005. 00 Postmaster General's divisor order 4, 941, 940. 34 Other administrative changes 699, 544. 51 Total (with no allowance for the first item above) 8,532,148.75 1 Data indicating some of the increases in wages and taxes are given in Appendixes D and E. RAILWAY MAIL PAY. 17 No one will contend for a moment that there has been any net reduction in the cost of supplying railway mail services and facilities since 1901, the year in which the report of the Joint Commission to investigate the Postal Service was made. In fact, all changes in railway operating costs, except those due to increased efficiency of organization and management, which can have little, if any, effect in connection with mail traffic, have been in the opposite direction. During the years characterized by these reductions the railways have been called upon continually to improve the character of their postal service and the Post Office Department will not deny that the railways are now rendering better, more frequent, and more expeditious postal service than in 1901, or any intermediate year, and are doing so at greatly increased cost to themselves. In view of these thoroughly substantiated facts the drastic reductions of recent years afford unanswerable proof that railway mail pay is now too low. IX. THE ADMINISTRATION OF THE POST OFFICE DEPARTMENT HAS NOT, IN THE LAST 12 YEARS, EFFECTED ANY REDUCTION IN THE ANNUAL TOTAL OF ITS EX- PENSES FOR OTHER PURPOSES THAN RAILWAY TRANSPORTATION OR IN THE PRO- PORTION OF ITS REVENUES REQUIRED FOR SLCH OTHER EXPENSES, BUT THE WHOLE SAVING WHICH HAS NEARLY ELIMINATED THE ANNUAL DEFICIT OF THE DEPART- MENT IS REPRESENTED BY THE REDUCED PAYMENTS, PER UNIT OF SERVICE, TO THE RAILWAYS. That the recent savings of the postal service have been wholly at the expense of the railways is shown by the following : 1901 1911 Postal gross receipts 8111, 631, 193 8237, 879, 823 Postal expenses, all purposes: Total , 8115,554,921 8238,507,669 Per cent of gross receipts 103.5 < 100.3i Railway mail pay: Total 838,158,969 850,583,123 Per cent of gross receipts 34. 2 21. 3 Postal expenses other than railway mail pay: Total 877,395,952 i 8187,924,546 Per cent of gross receipts 69. 3 j 79. This table shows that in the 10 years from 1901 to 1911 the Post Office Department reduced its operating ratio between its total expenses and its gross receipts from 103.5 per cent to 100.3 per cent, being a reduction of 3.2 points; but it also shows that this improvement was due solely to the fact that the ratio of railway mail pay expenses to gross receipts was reduced from 34.2 per cent to 21.3 per cent, a reduction of 12.9 points, while the ratio of all other expeuses to gross receipts increased from 69.3 per cent to 79 per cent, an in- crease of 9.7 points. Thus the improvement of 3.2 points in the ratio for all expenses was due entirely to the greatly reduced ratio of railway mail pay, the heavy reduction in that respect exceeding by 3.2 points the very substantial increase in the ratio of all other expenses. During the 10 years from 1901 to 1911 the department took up an enormous increase in business at a greatly decreased cost for railway transportation aad at a largely increased cost for other purposes. It cost the department, for purposes other than railway transportation, nearly nine-tenths of $126,248,630 to add that amount to its gross receipts (although for these other purposes it had previously spent less than seven-tenths of its gross receipts), while it re- quired less than one-tenth of the same sum to pay for the added railway transportation that the new business required (although at the beginning of the period railway transportation had cost more than one-third of the gross receipts). This startling comparison fully warrants the conclusion that the power of Congress and the department has been exercised to force upon the railways, by reducing the payments for their services, the burden not only of the effort to eliminate the annual postal deficit but of considerable increases in other forms of postal expenditure. No reference to rural free delivery will serve to explain away the conclusion suggested by this comparison, especially since only a fraction of the cost of that service represents really an additional net outlay. This service has permitted a reduction of one- third in the number of post offices and has been in many cases substituted for star route service and Hie savings thus permitted ought to be credited to it before determining its cost. 18 RAILWAY MAIL PAY. That increases in postal expenditures were necessary between 1901 and 1911 is not denied. The period was one in which steady and extensive increases in the cost of living made necessary considerable increases in the salaries of postal employees and in the cost of postal supplies, precisely as the railways were im- pelled to increase the salaries and wages of their employees and were obliged to pay higher prices for their supplies. In other words, the purchasing power of the American dollar, and of standard money everywhere, greatly decreased and this decrease affected the Post Office Department as it has affected every business undertaking. But the purchasing power of the railway dollar de- creased exactly as that of all other dollars and it was unreasonable and unjust that while this change was in progress the losses which it entailed in the postal service of the Government should be shifted, as it has been shown that they were, to the railways which were, at the same time, suffering far greater losses from the same cause. X. THE CONTINUOUS KEFUSAL OF THE POST OFFICE DEPARTMENT TO ORDER REWEIGH- INGS OF THE MAILS EXCEPT AFTER THE MAXIMUM INTERVAL OF FOUR YEARS, WHICH THE LAW ALLOWS, THE DEMANDS FOR STATION AND TERMINAL SERVICES THAT ARE RENDERED WITHOUT ANY OR WITHOUT ADEQUATE COMPENSATION, AND THE UNJUST DISCRIMINATION AGAINST COMPARTMENT CARS USED AS RAILWAY POST OFFICES ARE ALL ABUSES, SERIOUSLY INJURIOUS TO THE RAILWAYS, WHICH HAVE GROWN UP UNDER THE PRESENT SYSTEM OF PAYMENT AND OUGHT AT ONCE TO BE REMEDIED. In addition to the inadequacies in the rates of pay provided under the present law, which result in payments that do not leave any balance for taxes or return upon property and, indeed, do not even meet operating expenses, there are certain conditions which have grown up in the application of the existing basis of pay that ought to be rectified. This is especially necessary in view of the tendency, herein shown, of the Post Office Department to apply the system so as to reduce its expense for railway transportation, and to look to this item as the chief or sole source of economies. The transportation pay received for each railway route is determined, under the practice of the department, for a period of four years on the basis of the average daily weight carried during a period of about three months' duration prior to the beginning of the period for which it is fixed. Thus, by the terms of the law, the Government upholds the principle that weight should be the basis of payment, but, by an inconsistent practice, denies that principle and creates a condition under which it is practically certain that the weight actually carried will differ materially from the weight paid for. Congress, surely, never intended this result, for the provision of law is, merely, that the mail shall be weighed " not less frequently " than once in four years and clearly implies an intention that it should be weighed whenever a substantial change in volume lias taken place. But the Post Office Department controls, subject to the pro- vision of law, the frequency of the weighings, and naturally seeks those reduc- tions in its expenses which can be effected without loss anywhere except in railway revenues. Consequently, it long ago ceased to order new. weighings, except when compelled to do so by the expiration of the statutory limit. It thus happens that while the railways are paid on the basis of a certain average daily weight they are frequently carrying a much greater weight and with no compensation whatever for the increase in the weight. In other instances the change is in the opposite direction, but with increasing national population and wealth it is obvious that most of these changes must be to the injury of the railways. However, the element of uncertainty thus introduced into each con- tract is unbusinesslike and in fairness to both parties ought to be removed. No railway would make a four years' contract to carry, for a definite sum, the unlimited output of any manufacturing plant, and if it attempted to do so the contract would be void under the interstate-commerce law. The terms of the mail contracts are substantially dictated by the Postmaster General and by Congress, and the latter ought, in justice both to the railways and to the Gov- ernment, to require the former to make annual weighings in order that the scheme of payment provided in the law may be fairly and accurately applied. Railways are required to transfer the mails between their stations and all post offices not more than a quarter of a mile distant from the former and, at the election of the Post Office Department, to make similar transfers at ter- minals. For the former no compensation is accorded, and for the latter the allowances are inadequate. There are numerous instances in which these extra services require expenditures, on the part of the railways concerned, that ex- RAILWAY MAIL PAY. 19 ceed tlie total compensation of the mail routes on which they occur. The extent of these requirements in particular cases is largely subject to the will of the department and this produces unreasonable uncertainties as to what may be demanded during the life of any contract. The basis of payment plainly does not contemplate such service; they are a survival from the period when the mails were carried by stagecoaches, which could readily deviate these dis- tances from their ordinary routes, and it is clear that the Government ought to perform these services itself or reasonably compensate the railways therefor. Much of tbe mail moved by the railways is carried in cars especially equipped as traveling post offices in order that it may be accompanied by postal clerks who perform, on the journey, precisely the labor which they would otherwise perform in local post offices. Cars so used can be but lightly loaded and are costly to supply, to equip, to maintain and to move. Their use has greatly increased the efficiency of the postal service and vastly expedited the handling of the mails. In the infancy of this service Congress provided for additional payments for the full cars so required, but when the practice of requiring por- tions of cars for the same identical purpose was inaugurated no provision for paying for them was made and this condition never has been corrected. Even in Document No. 105, the injustice of this situation is recognized (p. 3) and the Postmaster General asserts that it is a purely arbitrary discrimination and without logical basis. Obviously a reasonable allowance for apartment cars ought to be made. XI. THE POSTMASTER GENERAL'S PROPOSED PLAN OF PAYMENT BASED UPON OPER- ATING COST AND TAXES, TO BE ASCERTAINED BY THE POST OFFICE DEPARTMENT, PLUS 6 PER CENT, IS SERIOUSLY WRONG IN PRINCIPLE AND WOULD ENCOURAGE AND PERPETUATE INJUSTICE. The foregoing discussion makes plain the error and injustice in the Post- master General's proposal to pay the railways for carrying the mail upon the basis of returning to them the operating expenses and taxes, as ascertained by the Post Office Department, attributable to the carriage of the mails, plus G per cent of the sum of these expenses and taxes. The discussion under heading III above demonstrates that the plan leaves out of consideration any allowance for return upon the property and would be de- structive of the universally recognized rights of the railroad companies. Furthermore, such a plan is fundamentally erroneous because it involves pay- ing the highest rates to the railroad that by reason of physical disabilities or inefficient methods is most expensively operated and the lowest rates to the railroad which, by reason of the highest efficiency, operates at the lowest cost. A railroad's superior operating efficiency is frequently due to exceptionally heavy capital expenditures to obtain low grades, two, three, or four main tracks, and to improve in other respects the roadbed and tracks to the end that trains may be hauled at the lowest expense. Such a railroad needs and is entitled to sufficient net earnings to enable it to pay a proper return upon the increased value which is due to such expenditures. But under the Postmaster General's plan a railroad would be penalized for all the capital expenditures made by it for the purpose of decreasing its operating cost, because the more it decreased its operating cost the more it would decrease its mail pay. The ascertainment of the cost to a railroad of conducting mail service is necessarily very largely a matter of judgment and opinion, because a large proportion of the total operating expenses are common to the freight and pas- senger traffic and can only be approximately apportioned. There is room for a very wide discretion in the making of such apportionments. It would not be right or proper to intrust the Post Office Department with the discretion of making such apportionment, because the Post Office Department has an obvious interest at stake, its object always being to reduce the railroad pay to a mini- mum. The last preceding statement is fully justified by the facts disclosed by the foregoing pages, which show how consistently tbe Post Office Department has relied upon reductions in railway mail pay as the ever available source of de- sired curtailments of expenses, and how unsuccessfully the railways have re- sisted this persistent pressure. They show that successive Postmasters General have taken advantage of every legal possibility, such as taking the longest time between mail weighings which the law permits and the strained interpretation of the statute fixing the basis of payment (p. 10), in order to effect reductions in railway mail pay. Consequently, the facts point irresistibly to one conclu- sion, namely, that the Post Office Department is a bureaucratic entity with an I 20 RAILWAY MAIL PAY. interest in the reduction of the amounts paid to the railways that is incompati- ble with an impartial ascertainment of what is fair compensation. This inter- est, coupled with the brief tenure of the responsible officers of the department, must always incline the latter to support insufficient standards of mail pay and prevent their recognizing the ultimate necessity of paying fairly for efficient service. It would, therefore, be clearly inexpedient and strikingly unjust to place railway mail revenues wholly at the mercy of the department by enacting a law which would authorize each Postmaster General to fix railway mail pay on the basis of his own inquiries and opinions in a field in which so much must be left to estimate and approximation as that of the relative or actual cost of the different kinds of railway service. It is conceded that every railway mail contract is between the Government, which is the sovereign, and a citizen, and that the nature and terms of the con- tract are always substantially to be dictated by the former. But this very condition invokes the principle of primary justice, that the sovereign shall take care to exercise its power without oppression. To this end the determination of the terms on which the Post Office Department may have the essential services of the railways ought to be reserved, as at least partially in the past, to the Congress, or if delegated at all, they should be intrusted to some bureau or agency of Government not directly and immediately interested in reducing railway mail pay below a just and reasonable compensation. Appendix A. EXTRACTS FROM THE POSTAL LAWS AND REGULATIONS. Railroad companies, at stations where transfer clerks are employed, will provide suitable and sufficient rooms for handling and storing the mails, and without specific charge therefor. These rooms will be lighted, heated, furnished, supplied with ice water, and kept in order by the railroad company. (Sec. 1186, par. 2.) The specific requirements of the service as to * * * space required * * * at stations, fixtures, furniture, etc., will at all times be determined by the Post Office Department and made known through the General Superintendent of Railway Mail Service. (Sec. 1186, par. 3.) Railroad companies will require their employees who handle the mails to keep a record of all pouches due to be received or dispatched by them, and to check the pouches at the time they are received or dispatched, except that no record need be kept of a single pouch from a train or station to the post office or from the post office to a train or station which, in regular course, is the only pouch in the custody of the company's employees at that point while it is being handled by them. This is not to be construed as relieving railroad companies from having employees on trains keep and properly check a record of all closed pouches handled by them, without exception. (Sec. 1187, par. 1.) In case of failure to receive any pouch due, a shortage slip should be made out, explaining cause of failure, and forwarded in lieu of the missing pouch. Specific instructions in regard to the use of shortage slips will be given by the General Superintendent of Railway Mail Service. (Sec. 1187, par. 2.) Every irregularity in the receipt and dispatch of mail should be reported by the employee to his superintendent promptly, and if a probable loss of or damage to mail is involved, or if the cause of failure to receive a pouch is not known, the report should be made by wire, and the superintendent will notify the divi- sion superintendent of Railway Mail Service without delay. A copy of the employee's report should be attached to and become a part of the permanent pouch record. (Sec. 1187, par. 3.) Train pouch records will be kept on file at the headquarters of division superintendents of railroad companies for at least one year immediately fol- lowing the date the mail covered by them was handled, and shall be accessible there to post-office inspectors and other agents of the Post Office Department. Station pouch records will be kept on file at the station to which they apply for at least one year immediately following the date the mail covered by them was handled, and shall be accessible there to post-office inspectors and other agents of the Post Office Department. ( Sec. 1187, par. 4. ) Railroad companies will require their employees to submit pouch records for examination to post-office inspectors and other duly accredited agents of the Post Office Department upon their request and exhibition of credentials to such employees. (Sec. 1187, par. 5.) Every railroad company is required to take the mails from and deliver them into all terminal post offices, whatever may be the distance between the station RAILWAY MAIL PAY. 21 and post office, except in cities where other provision for such service is made by the Post Office Department. In all cases where the department has not made other provision, the distance between terminal post office and nearest station is computed in and paid for as part of the route. (Sec. 1191, par. 1.) The railroad company must also take the mails from and deliver them into all intermediate post offices and postal stations located not more than 80 rods from the nearest railroad station at which the company has an agent or other representative employed, and the company shall not be relieved of such duty on account of the discontinuance of an agency without 30 days' notice to the department. (Sec. 1191, par. 2.) At connecting points where railroad stations are not over 80 rods apart, a company having mails on its train to be forwarded by the connecting train will be required to transfer such mails and deliver them into the connecting train, or, if the connection is not immediate, to deliver them to the agent of the com- pany to be properly dispatched by the trains of said company. (Sec. 1192.) At places where railroad companies are required to take the mails from and deliver them into post offices or postal stations or to transfer them to connect- ing railroads, the persons employed to perform such service are agents of the companies and not employees of the postal service and need not be sworn; but such persons must be more than 16 years old and of suitable intelligence and character. Postmasters will promptly report any violation of this require- ment. (Sec. 1193.) Where it is desirable to have mails taken from the post office or postal station to train at a terminal point where the terminal service devolves upon the com- pany, in advance of the regular time of closing mails, the company will be lequired to make such advance delivery as becomes necessary by the require- ments of the service. (Sec. 1194.) When a messenger employed by the Post Office Department can not wait for a delayed train without missing other mails, the railroad company will be required to take charge of and dispatch the mails for the delayed train, and will be responsible for the inward mail until delivered to the messenger or other authorized representative of the department. (Sec. 1195.) Whenever the mail on any railroad route arrives at a late hour of the night the railroad company must retain custody thereof by placing the same in a secure and safe room or apartment of the depot or station until the following morning, when it must be delivered at the post office, or to the mail messenger employed by the Post Office Department, at as early an hour as the necessities of the post office may require. (Sec. 1196.) When a train departs from a railroad station in the nighttime later than 9 o'clock, and it is deemed necessary to have the mail dispatched by such train, the division superintendent of Railway Mail Service will, where mail is taken from and delivered into the post office by the railroad company, request the company, or where a mail messenger or carrier is employed by the Post Office Department, will direct him, to take the mail to the railroad station at such time as will best serve the interest of the mail service. Such mail will be taken charge of by the agent or other representative of the railroad company, who will be required to keep it in some secure place until the train arrives, and then see that it is properly dispatched. (Sec. 1197, par. 1.) The division superintendent of Railway Mail Service will give reasonable advance notice to the proper officer of the railroad company, in order that the agent or representatives of the company may be properly instructed. (Sec. 1197, par. 2.) Railroad companies will be expected to place their mail cars at points acces- sible to mail messengers or contractors for wagon service. If cars are not so placed the companies will be required to receive the mails from and deliver them to the messengers or contractors at points accessible to the wagon of the mes- senger or contractor. (Sec. 1198.) A mail train must not pull out and leave mails which are in process of being loaded on the car or which the conductor or trainman has information are be- ing trucked from wagons or some part of the station to the cars. (Sec. 1199.) At all points at which trains do not stop where the Post Office Department deems the exchange of mails necessary, a device for the receipt and delivery of mails satisfactory to the department must be erected and maintained ; and, pending the erection of such device, the speed of trains must be slackened so as to permit the exchange to be made with safety. ( Sec. 1200, par. 1. ) In all cases where the department deems it necessary to the safe exchange of the mails the railroad company will be required to reduce the speed or stop the train. (Sec. 1200, par. 2.) 22 RAILWAY MAIL PAY. When night mails are caught from a crane the railroad company must fur- nish the lantern or light to be attached to the crane and keep the same in proper condition, regularly placed and lighted; but if the company has no agent or employee at such station, the company must furnish the light, and the care and placing of same will devolve upon the department's carrier. (Sec. 1200, par. 3.) The engineer of a train shall give timely notice, by whistle or other signal, of its approach to a mail crane. (Sec. 1200, par. 4.) Railroad companies are required to convey upon any train, without specific charge therefor, all mail bags, post-office blanks, stationery, supplies, and all duly accredited agents of the Post Office Department and post-office inspectors upon the exhibition of their credentials. ( Sec. 1184. ) Appendix B. Classification of operating expenses. [Data from reports of the Interstate Commerce Commission.] Average cost per mile of line. Class. Fiscal year 1910. November, 1909. Monthly average for the other 11 months of the fiscal year. Amount. Monthly average. Amount. Per cent of monthly average for the fiscal year. Amount. Per cent of monthly average for the fiscal year. Maintenance of way and structures $1,562.88 1, 746. 00 220. 61 2, 893. 71 287. 71 $130.24 145.50 18.38 324. 48 23.98 $124. 04 148.44 18.85 327. 78 23.10 95.24 102. 02 102. 56 101. 02 96.33 $130. 80 145. 23 18.34 324. 18 24.06 100.43 99 82 Traffic expenses 99.78 Transportation expenses 99.91 100.33 Total 7,710.91 642. 58 642. 21 99.94 642. 61 100.00 Appendix C. Receipts from passenger and freight traffic, oy months. [Data from reports of the Interstate Commerce Commission.] Passenger receipts of line. per mile Freight receipts per mile of line. Per cent of passenger receipts to receipts from both passengers and freight. Month. Total. Daily average. Per cent of daily average for year. Total. Daily average. Per cent of daily average for year. 1909. July $251. 66 269. 70 254.95 231.80 206.69 211. 55 187.42 171.92 202. 61 203. 84 218.47 233.25 $8.12 8.70 8.50 7.48 6.89 6.82 6.05 6.14 6.54 6.79 7.05 7.78 112. 15 120. 17 117.40 103.31 95.17 94.20 83.56 84.81 90.33 93.78 97.38 107.46 $608. 67 653. 97 704. 51 781.91 752. 69 640.59 618. 06 603. 76 716. 76 658. 93 682. 96 674.97 $19.63 21.10 23.48 25.22 25.09 20.66 19.94 21.56 23.12 21.96 22.03 22.50 88.46 95.09 105. 81 113.65 113.07 93.11 89.86 97.16 104.19 98.96 99.28 101.40 29.25 August 29.20 26.57 October 22.87 21.54 24.83 1910. January 23.27 22.16 March 22.04 23.63 24.24 25.68 220. 32 7.24 100. 00 674. 81 22.19 100.00 24.61 KAIL WAY MAIL PAY. 23 Appendix D. HOW RAILWAY WAGES HAVE INCREASED. In the year 1901 the railways reporting to the Interstate Commerce Commis- sion received, in gross, from operating sources the sum of $1,588,528,037 and expended in wages and salaries the sum of $610,713,701 ; in 1910 the correspond- ing totals were $2,750,667,435 and $1,143,725,306. Computations from these totals show that in 1901 the railways expended in wages and salaries $38.45 out of each $100 of gross operating receipts, while in 1910 the proportion had in- creased to $41.58, a difference of $3.13 in each $100 of gross receipts. This difference does not seem small, but it is hardly realized, except when the calcu- lation is made, that on the basis of the gross receipts of 1910 it would amount, as it does, to an additional expense of $86,095,890.72. It is to be borne in mind that this largely increased payment to labor is in spite of the fact that a part of the increase in wage rates has been offset by higher efficiency in method and facilities. Comparisons of rates of wages, from the annual statistical reports of the Interstate Commerce Commission, follow : Class of employees. General office clerks Station agents Other station men Enginemen Firemen Conductors Other trainmen Machinists Carpenters Other shopmen Section foremen Other trackmen Telegraph operators and dispatchers Employees, account floating equipment All other employees and laborers Average wages per day. 1901 $2. 19 77 78 16 17 00 32 06 75 1.71 1.23 1.98 1.97 1.69 1910 Increase. $2.45 2.14 1.91 4.34 2.57 3.73 2.72 3.03 2.39 2.20 1.99 1.57 2.16 2.10 1.96 Per cent. 11.87 20.90 20.13 14.81 18.98 17.67 36.00 30.60 16.02 25.71 16.37 27.64 9.09 6.60 15.98 Appendix E. HOW RAILWAY TAXES HAVE INCREASED. [Data from reports of the Interstate Commerce Commission.] Year. Amount paid. Average per mile operated. Per cent of net re- ceipts. ■ 1900 $48,332,273 50,944,372 54,465,437 57,849,569 01,696,354 63,474,679 74,785,615 80,312,375 84,555,146 90,529,014 103,795,701 $251. 00 260.50 272. 12 281.76 290. 69 292. 55 336. 36 353. 09 366. 84 384.57 430. 99 8.7 1901 8.6 1902 8.3 1903 8.4 1904 9.0 1905 8 5 1906 8.8 1907 8.9 1908 » 10.7 1909 i r 10.1 1910 1 10.3 1 Not including terminal and switching companies. LIST OF RAILROADS EXPRESSLY INDORSING FOREGOING BRIEF. The following railroads, represented by the officials indicated, have responded to my circular letter of September 11, by referring to and 24 RAILWAY MAIL PAY. giving their indorsement of the response of the committee on rail- way mail pay : Augusta Southern Railroad Co., A. B. Andrews, president. Atchison, Topeka & Santa Fe System, George T. Nicholson, vice president. Atlantic Coast Line Railroad Co., T. M. Emerson, president. Arizona Eastern Railroad Co., Epes Randolph, president. Arkansas, Louisiana & Gulf Railway Co., J. M. Parker, general manager. Bellingham Bay & British Columbia Railroad Co., Mott Sawyer, superin- tendent. Blue Ridge Railway Co., A. B. Andrews, president. Chicago & Alton Railroad Co., B. A. Worthington, president. Coal & Coke Railway Co., A. M. Smith, general manager. Central Vermont Railway Co., G. C. Jones, general manager. Cornwall & Lebanon Railroad Co., A. D. Smith, president and general manager. Chicago & Western Indiana Railroad Co. and The Belt Railway Co., of Chi- cago, J. M. Warner, general manager. Colorado Midland Railway Co., George M. Vallery, president. Central Indiana Railway Co., Joseph Robinson, president. Chicago, Indianapolis & Louisville Railway Co., Fairfax Harrison, president. Carolina, Clinchfield & Ohio Railway, Mark W. Potter, president. Central of Georgia Railway Co., Charles H. Markham, president. Chesapeake & Ohio Railway Co., M. J. Caples, fourth vice president. Denver, Northwestern & Pacific Railway Co., W. A. Beerbower, general super- intendent for receivers. . Delaware & Hudson Co., L. L. Loree, president. Danville & Western Railway Co., A. B. Andrews, president. Delaware & Hudson Co., C. S. Sims, second vice president and general manager. Delta Southern Railway, R. V. Taylor, president. Erie Railroad Co., J. C. Stuart, vice president. Great Northern Railway Co., Carl R. Gray, president. Georgia Northern Railway Co., C. W. Pidcock, president. Georgia Railroad, Thomas K. Scott, general manager. Gulf & Ship Island Railroad Co., W. T. Stewart, vice president and general manager. Georgia & Florida Railway. W. B. Denham, general manager. Hartwell Railway Co., A. B. Andrews, president. Hocking Valley Railway Co., M. S. Connors, general manager. Huntingdon & Broad Top Mountain Railroad & Coal Co., Carl M. Gage, president and general manager. Illinois Central Railroad Co., C. H. Markham, president. Kansas City, Clinton & Springfield Railway Co., E. J. Perry, vice president. Kansas City, Mexico & Orient Railway Co., Neal S. Doran, auditor for re- ceivers. Kansas City Southern Railway Co., J. A. Edson, president. Las Vegas & Tonopah Railroad Co., J. Ross Clark, president. Lehigh & Hudson River Railway Co., Morris Rutherford, vice president and general manager. Lehigh & New England Railroad Co., Rollin H. Wilbur, vice president and general mannger. Lexington Terminal Railroad Co., Thos. K. Scott, vice president. Maine Central Railroad Co., Morris McDonald, vice president and general manager. Macon, Dublin & Savannah Railroad, S. T. Wright, vice president and general manager. Manistee & Grand Rapids Railroad Co., Chas. H. Morey, vice president. Minneapolis, St. Paul & Sault Ste. Marie Railway Co., E. Pennington, presi- dent. Missouri, Kansas & Texas Railway Co., W. A. Durham, assistant general manager. Missouri & North Arkansas Railroad, George L. Sands, receiver. Missouri, Kansas & Texas Railway Co. ; Missouri, Kansas & Texas Railway Co. of Texas; Texas Central Railroad Co.; Wichita Falls Lines; W. A. Webb, general manager. Montana, Wyoming & Southern Railroad Co., M. W. Maguire, general man- ager. RAILWAY MAIL PAY. 25 Mobile & Ohio Railroad Co., R. V. Taylor, vice president and general man- ager. Nashville, Chattanooga & St. Louis Railway, J. W. Thomas, jr., president and general manager. New York, Auburn & Lansing Railroad, H. A. Clarke, general manager for receivers. New York Central Lines, W. C. Brown, president. New York, Chicago & St. Louis Railroad Co., A. W. Johnston, general man- ager. New York, Ontario & Western Railway Co., John B. Kerr, vice president. Norfolk Southern Railroad Co., Morris S. Hawkins, secretary. Northwestern Pacific Railroad Co., A. H. Payson, president. Oregon- Washington Railroad & Navigation Co., J. D. Farrell, president. Pacific Railway & Navigation Co., D. W. Campbell, president. Pennsylvania Railroad Co. ; Philadelphia, Baltimore & Washington Railroad Co. ; Northern Central Railway Co. ; West Jersey & Seashore Railroad Co. ; New York, Philadelphia & Norfolk Railroad Co. ; Cape Charles Railroad Co. ; Baltimore, Chesapeake & Atlantic Railway Co. ; Maryland, Delaware & Virginia Railway Co. ; Pennsylvania Co. ; Pittsburgh, Cincinnati, Chicago & St. Louis Railway Co. ; Vandalia Railroad Co. ; Grand Rapids & Indiana Railway Co. ; Cincinnati, Lebanon & Northern Railway Co.; Waynesburg & Washington Rail- road Co. ; Toledo, Peoria & Western Railway Co. ; E. T. Postlethwaite, assistant to president. Pere Marquette Railroad Co., S. M. Felton, receiver. Ray & Gila Valley Railroad Co., D. C. Jackling, vice president and general manager. Richmond, Fredericksburg & Potomac R. R. Co., Wm. H. White, president. Rock Island Lines, John Sabastian, third vice president. Rutland Railroad Co., Geo. T. Jarvis, general manager. Salem Falls City & Western Railway, D. W. Campbell, president. San Antonio & Aransas Pass Railway Co., J. S. Peter, first vice president and general manager. San Pedro, Los Angeles & Salt Lake Railroad, H. C. Nutt, general manager. Spokane, Portland & Seattle Railway Co., J. H. Young, president. Southern Pacific Railroad Co., William Sproule, president. Southern Railway Co., A. B. Andrews, first vice president. Southern Railway Co., in Mississippi, R. V. Taylor, vice president and general manager. St. Louis, Rocky Mountain & Pacific Railway Co., J. Van Houten, president. Tallulah Falls Railway Co., A. B. Andrews, president. Tonopah & Goldfield Railroad Co., M. B. Cutter, president. Union Pacific Railroad Co., Oregon Short Line Railroad Co., A. L. Mohler, president. Union Point & White Plains Railroad Co., Thomas K. Scott, general manager. Virginia & Carolina Southern Railroad Co., J. P. Russell, general superin- tendent. Virginia & Southwestern Railway Co., E. H. Coapman, vice president and general manager. Wadley Southern Railway Co., William A. Winburn, president. Wheeling & Lake Erie Railroad Co., W. M. Duncan, receiver. Winston-Salem Southbound Railway Co., H. E. Fries, president. Yazoo & Mississippi Valley Railroad Co., C. H. Markham, president. VIEWS OF SHORT-LINE RAILROAD ASSOCIATION. Under date of December 31, 1912, the Short Line Eailroad Asso- ciation, by Mr. John N. Drake, its secretary and treasurer, represent- ing independent short-line mail-carrying railroads, operating in every section of the country, submitted the following letter : Short Line Railroad Association. New York, December 31, 1912. Committee on Post Offices and Post Roads, United States Senate, Washington, D. G. Gentlemen : The Short Line Railroad Association, representing independent short-line mail-carrying railroads, operating in every section of the country, begs to submit for your consideration their plea for fair and equitable treat- 26 KAILWAY MAIL PAY. merit based upon reasonable compensation for the services they render the Government. Their pay now, notwithstanding the increased facilities they have provided and the increased responsibilities they have assumed, with the additional cost incident thereto, is less by 10 per cent than it was prior to the act of July 12, 1876, and 5 per cent additional to that since July, 1878. It has also decreased one-seventh since 1907, when the Post Office Department, in .contravention to law and established custom, changed the divisor from six days to seven. In the early days of railway mail transportation the small quantity of mail carried by the few short-line railroads was in mail bags placed in any con- venient location in the baggage cars. As the labor and expense of hauling this light mail was negligible, no objection was made to its delivery at the post offices located at terminals, nor to observing the obsolete English custom adopted by the Post Office Department, which obtained in the old stagecoach days, of delivering mail at post offices 80 rods or less from the post roads. One mail a day was the limit of the service, and the little packages were easily handled and delivered by an employee of the road, whose pay then was small and who had plenty of time to give the slight service, without interfering with his other duties. In the great developments which have taken place since those bygone days short-line railroads have multiplied a hundredfold, the little mail pouch has grown to an apartment car, the small bundle for delivery to a wagonload. The march of progress and improvement has permeated every branch of the rail- way mail service, and will continue to do so if properly supported by the Gov- ernment. The little mail-carrying roads, however, can not meet growing de- mands handicapped by obsolete customs and unbusinesslike methods. They can not donate in the future, as in the past, their car space, and fit it up at their own expense as a post office, carrying mail messengers to perform post- office duties without being recompensed in some slight degree for the service. In the experimental stage of using apartment-car space in addition to full- car space for post-office purposes our roads readily granted the privilege, under the assumption that the Government when it had demonstrated the feasibility and usefulness of the method they had adopted would unhesitatingly amend the law granting pay for a 40 foot or more car in length to cover those of lesser extent No provision, however, has been made to do this nor has any disposition been displayed on the part of the Government to take such action. From a few apartment cars used as auxiliaries to help out full cars, the growth has been marvelous and unprecedented — 3,800 apartment cars last year against 1,464 full cars. Full cars entitled to receive pay under the law will soon cease to be used except upon the largest railroad systems, if the present policy of the Post Office Department is permitted to continue without suitable regulation by law. In order to accomplish this purpose it is only necessary for the depart- ment to split hairs and order a 35 or a 38, or even a 39 foot car. The short-line railroads are not asking subsidies or special privileges, but they do ask that they be treated with the same consideration and accorded the .same rights granted to other systems of railroads for a like service. They simply want justice and a square, straightforward, honorable business deal. Nothing more nor less. They are entitled by every consideration that gov- erns a business community to receive their proportion of the pay given for the use of any car performing the same character of service they perform, whether the space used is 5 feet or 60 feet. The claim is made that the short-line railroads are now paid for carrying the mails. This is only true as applied to the weight, and is equally true in the same regard to any other system of railroads. The use of the postal car, no matter what its length, is invaluable in contrib- uting to the present requirements of the service in facilitating the prompt de- livery of the mail in the city or in the country, and the car fitted up as a post office and given over exclusively to the use of the mails is an honest charge against the Government and is as much entitled to be paid for as post-office space in a city or town. A provision covering this entirely satisfactory to the short-line railroads is inserted in the amendments to the present law governing railway mail pay as introduced by Representative Talbott in H. R. 4044, and reads as follows: " That the space used for railroad post-office purposes in apartment cars shall be paid for at a pro rata rate of the rate of compensation allowed for postal cars 40 feet in length." In a recent decision given in a United States district court regarding the right of the Post Office Department to enforce its regulations governing the KAILWAY MAIL PAY. 27 use of apartment cars without pay, the court ruled that the road had no redress in the matter while working under the contract made with the depart- ment, but could refuse to renew the contract and discontinue the service. The alternative is here presented of seriously embarrassing the postal service and harshly discommoding the people along the railroad lines by terminating the service or by penalizing the roads for their efficient service if they continue to act as mail carriers. Can and will the Government as a just arbitrator consent to perpetuate a notoriously glaring injustice at the expense of the short-line railroads, or force them to abandon it as an unprofitable service which they are financially unable to maintain? Again, the mail-carrying compensation on the short-line railroads, in ac- cordance with a Post Office Department regulation, is not determined by the distance covered by the train service, but is computed to include the distance over the public highway to the post office depending upon the railroad service for its mail. Some of these post offices are a mile, more or less, from the rail- road stations. It can readily be seen that a highway service, however prim- itive it may be, if used to carry the mail any distance from the railroad sta- tion can not be maintained at the same rate per mile per year that is paid for railroad transportation. A short-line railroad, 10 miles in length, with a post office half a mile dis- tant from its station receives $42.75 per mile per year, or $427.50 for its year's work on the train mileage and $21.37 for the highway service, a total of $448.87. The little stretch of half a mile on the highway, at a very conserva- tive estimate, costs 75 cents a day, or $262.50 per year, thus reducing the rail- way mail pay actually received to $226.37, more than one-half. In no instance is the railway mail service performed by the short-line railroads without their paying a heavy toll out of their meager receipts. The passage of the parcel-post act and its introduction on the short lines January 1, without making any provision whatever for the service, is a pro- ceeding that is open to the most severe criticism. Here we have an entirely new class of mail matter not contemplated nor provided for by contract or agreement thrust upon the roads with little opportunity to prepare for the service and no pay provided to pay for the same. Generous preparations seem to have been made for increased postal employees, wagons, automobiles, addi- tional post-office rooms, etc. ; in short, everybody and everything is taken into account except the railroads, the cornerstone of the entire business combination. The competent, reliable, and safe builder in the common everyday walks of business life shores up and strengthens the weak parts of the superstructure before adding weight upon the foundation. But those in charge of the new and sensitive business recently evolved to undertake a great business venture are now " window dressing " to attract the crowd to their top-heavy structure with- out giving any thought or attention to the foundation. It certainly surpasses belief that any unfair bureau regulation in this or any other postal direction inflicted upon our short-line railroads will be toler- ated by our Representatives in Congress, wben the facts as they exist are brought to light and made plain. In the parcel-post matter an immediate weighing of all parcel-post mail should be ordered on our railroads, and this mail when weighed should be properly classified and paid for in a just and equitable way to all concerned from the beginning of the service, January 1. Further, the unjust discrimination practiced against the short lines in apart- ment-car space, side and terminal deliveries, annual weighings, etc., should be promptly remedied by amending the postal law in conformity with H. R. 4044, introduced by Representative Talbott. Overzealous employees of the Government, like overzealous employees of corporations, unthinkingly bring into disrepute the very interests they are selected to serve under the mistaken idea that the exercise of authority tempo- rarily invested in them is to be used in one direction, forgetting that there are two interests instead of one to take into account, each of which is entitled to equal consideration. To guard against the abuse and misuse of power, as a matter of public duty, our legislators should hesitate in taking the risk of delegating their power and authority as representatives of the people to any department or bureau of the Government. Respectfully, Short Line Railroad Association, By John N. Drake, Secretary and Treasurer. 28 RAILWAY MAIL PAY. REPLIES OF RAILROADS. Below are given the replies received from all railroads, arranged in alphabetical order, to the inquiries propounded in my circular letter of September 11, with the exception of those railroads already indicated indorsing without further comment the reply of the committee on railway mail pay : The Ann Arbor Railroad Co. and Steamship Lines, Toledo, Ohio, October 1, 1912. Hon. Jonathan Bourne, Washington, D. 0. Dear Sir : Your letter of September 11, addressed to Mr. S. Hendrie, president of the Manistique & Lake Superior Railroad Co., in regard to Senate bill No. 7371, has been referred by Mr. Hendrie to me for attention. In your letter you ask for an expression of opinion upon the following questions : (1) Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If riot, in what respects and as to what classes of railroads is it inequitable? (2) Is the underlying principle of the plan embodied in the inclosed bill a proper basis for compensation? If not, wherein is it improper, and why? (3) What, in your opinion, is a desirable plan for compensating railroad com- panies for transporting the mails? It is difficult to give offhand an answer to these questions. While the present plan of compensation for mail service may be improved upon, it is certainly a much more equitable one than the one proposed in Senate bill No. 7371. Under the present plan, the mails are weighed once every four years, and the com- pensation fixed by that weighing is the compensation to be paid the railroad companies during the ensuing four years, and no allowance is made for the in- creased service required from year to year, until the quadrennial weighing is made. This plan results in the railroads getting a much lower average rate per year for the service performed than they would receive if the weighing was equalized, or if it was made annually. To illustrate: A rate of pay may be fixed by weighing on railroad A for the period of four years, which we will say will average $200 per mile. Four years from now the weight is again taken, and it is found that the increase in mails carried has raised the rate to $300 per mile. As this increase has, in all probability, been gradaul during the four years, the average rate per mile during the four years Should have been $250, whereas the rate paid has been $200 for the whole four years. This is not fair nor equitable to the railroad companies. In regard to the second question, the principle of the plan embodied in Senate bill 7371 is absolutely wrong and unfair to the railroad companies in. that it places within the absolute control of the Postmaster General the power to fix the rates of compensation which he shall pay to the railroad companies for performing services for the Post Office Department. In other words, the principle is that the purchaser of anything should have the right to say what he shall pay for it. In no other business, whether transportation, commercial, industrial, or professional, is this principle adopted. This plan would permit the Postmaster General to fix the price on any railroad and would give him the power to favor one line as against another, to reduce the price paid for service to an amount less than the actual cost of the service, because he is also to fix the cost. Even if the principle of having the Postmaster General fix the price to be paid by first ascertaining if the cost were equitable, the proposition that the compensation shall be " not exceeding the cost to the railroad companies of carrying the mails as ascertained by him and 6 per cent of such cost added thereto," would be grossly unfair to the railroad companies. The bill reads that " the Postmaster General shall determine the cost to each railroad company of carrying the mails on its route or routes." I assume that this means the actual cost of performing the service and does not include any allowance for use of tracks, trains, stations, and the general plant of the rail- road company. The average cost of operating the railroads and performing the service necessary for the transportation of freight, passengers, mail, and ex- press is about 66 per cent of the gross revenue received. The remaining 34 per cent is required to pay taxes, interest on bonds, and out of the remainder such dividends to the stockholders as the balance may justify. We, therefore, estimate that it requires at least 50 per cent of the cost of performing service KAIL WAY MAIL PAY. 29 to pay fixed charges and a reasonable interest on the cost of the property and equipment used in performing the service. Therefore, the proposed 6 per cent to be added to the cost of performing the service of carrying the mails would not be one-fifth of the interest charge on the property used in perform- ing such service. The Government would, therefore, be receiving at least 25 per cent of the actual cost of performing the service without compensation. The proposed bill also puts in the power of the Postmaster General the plac- ing of fines on the railroad companies for all manner of things, and leaves it absolutely in his power, without any right of appeal, to fine as he pleases. The whole bill is what is called a " jug-handled arrangement " and the Post- master General will hold the handle. In answer to the third question, " What is a desirable plan for compensating railroad companies for transportation of the mails"? I have only one opinion — and that is, that any plan which is fair and equitable and gives a fair consider- ation for the service rendered with such a reasonable amount of profit as is contemplated by law would be a desirable plan. If the Postmaster General and the railroads can not agree on what is fair compensation, then I would suggest a commission of fair-minded and disinterested men to decide what would be fair compensation. Yours, very truly, J. Ramsey, Jr. The Baltimore & Ohio Railroad Co., Baltimore, Md., October 25, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: This will acknowledge receipt of your communication of the 11th ultimo, with respect to the consideration to be given by a joint committee of Congress to the question of compensation to be paid to railroad companies for the transportation of the mails. Replying to the inquiries you submit : Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads? Answer. By the present plan we assume you refer to the practice of paying by weight, plus allowances for cars used in the Railway Postal Service and for special terminal and other minor services. Our view is that this plan of com- pensation can be applied so as to be equitable alike to the Government and to the railroads, and is correct in principle in that it recognizes and compensates for special facilities furnished as well as for the quantity of mail carried. Under the present application of the plan, however, there appear to be nu- merous inequities to the railroads in that : (a) Through the practice of quadrennial weighings the railroad companies are compensated for carrying the mail on the weight ascertained at the be- ginning of a four-year period, and therefore carry the natural growth of mail in a given territory during the succeeding four years without compensation; consequently they are performing a constantly increasing service without re- muneration. (b) In ascertaining the daily average weight of mail it is believed that the present practice, dating from the act of Congress of March 2, 1907, supple- mented by order No. 412 of the Postmaster General changing the divisor, is not equitable, in that the railroads giving the greater measure of service for a given quantity of mail carried receive the lesser compensation. (c) While provision has been made for compensation where full postal cars are used, where compartment cars are used the railroads are called upon to furnish a large amount of car-foot space for Railway Mail Service without compensation therefor. (d) As a rule the provision for terminal service is inadequate, while for "side messenger service" no compensation is provided. With the correction of these details, it is believed that the general provisions of the present law will be found to be equitable alike to the Government and to the railroads. Question 2. Is the underlying principle of the plan embodied in suggested bill 7371 a proper basis for compensation? Answer. We understand that the purport of this bill is to apply a plan of compensation based upon operating costs and taxes apportioned on car-foot space as occupied by the respective classes of passenger-train traffic. A basis of compensation on car-foot space properly apportioned might be equitable, 49396—14 3 30 BAIL WAY MAIL PAY. provided cost accounting could be developed to a point of sufficient accuracy, and provided such accounting recognized and embraced all elements of cost. The plan proposed in Senate bill 7371, however, is not based upon an accepted basis of cost accounting, and is believed to be fundamentally wrong in that it does not recognize and provide a fair return upon the proportion of capital employed in the enterprise — in fact, provide for no return whatever upon capital account. Question 3. What, in your opinion, is a desirable plan for compensating rail- road companies for transporting the mails? Answer. As indicated above, we feel that with certain modifications the plan that has been in operation for a number of years past can be adjusted and operated so as to be fair and equitable to the Government and to the carriers alike. It is recognized, however, that this is a very important subject, bearing on the different classes of service and the different sections of the country in various ways, and therefore the railways' members of the American Railway Associa- tion have appointed a committee on railway mail pay, which for several months has been giving consideration to the subject of mail compensation. We have noted the communication of the acting chairman of this committee, addressed to you under date of October 3, and concur in the position taken by the com- mittee in its response to your inquiries. We feel that this committee will be in position from time to time to give you further full and accurate information on many points bearing on this subject, and to make more valuable suggestions in line with your inquiry than a single railroad could possibly do. Under recent laws additional burdens have been placed upon the railroad companies and particularly in the way of requirements for steel postal cars, and through department orders similar requirements have been made to cover mail apartment cars, these cars being in substitution for cars previously con- structed on plans approved by the postal authorities. We do not criticize the general desire under changed conditions for stronger and better cars in railway postal service, but such changes do require the abandonment of equipment here- tofore considered adequate, and the substitution of new equipment. All of these changes involve increased cost to the railroads and the expenditure of additional capital. Notwithstanding this, and in the face of an increased amount of mail carried, the compensation for railway mail service has been seriously decreased, thus encroaching on the net revenues of the companies, which should be augmented rather than decreased if the railroad credits are to be upheld on a basis to maintain the roads in a position to extend both the amount and character of service necessary to meet the growing public require- ments. We appreciate the evident desire of your committee to determine this question on a basis equitable alike to the Government and to the railways, and I am sure the railways generally will gladly cooperate with your committee in its endeavor to arrive at a conclusion. Very respectfully, D. Willard. Bangor & Aroostook Railroad Co., Bangor, Me., September 25, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : To your inquiries of September 11 I beg to say : (1) I do not deem the result obtained for the Bangor & Aroostook Railroad Co. under " the present plan of compensation " an equitable one. Its operation is, in my opinion, inequitable because Federal procedure is often arbitrary and because the practical and the responsible are too much subordinated to the opposite. (2) In my opinion "the underlying principle" is not "a proper one," in that no one person, however able, or however conscientious, can acquire knowledge of all of the direct and incidental cost which is imposed upon, and which each railroad company imposes upon itself in movng the mails. (Desire to well serve patrons often results in contribution of service which costs many times more than the governmental allowance in return.) Experience has taught that a Federal officer who has been to pains to investigate specific service, and inadequacy of compensation, may resign, or be displaced, before an equitable adjustment is possible. KAILWAY MAIL PAY. 31 (3) My opinion is that a competent representative of the Post Office Depart- ment should join a competent representative of each railroad company in an inspection of the service which is performed on every section of road over which mail is transported, and that the same standards should be applied be- tween Post Office Department and railroads as it is intended to have applied between other purchasers of transportation and the railroads per interstate commerce and other relevant laws. Yours, truly, F. W. Cram, President. Bessemer & Lake Erie Railroad Co., Pittsburgh, Pa., October 14, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I duly received your letter of September 11, with copy of Senate bill No. 7371. asking for replies to certain interrogatories. The committee on railway-mail pay of the American Railway Association has submitted a reply to your letter, a copy of which has been furnished to us, which we fully indorse and agree to the position taken by that committee. We would further state, however, that as far as the Bessemer & Lake Erie Railroad Co. is concerned, the compensation should be on a remunerative basis for the investment in especially fitted cars and facilities' provided, and, in addition, that the railroad should also receive revenue on a more equitable basis for tonnage handled. The fact is that the usual weighing period has been in the spring of the year, when business is lightest, and no consideration is given for the heavier tonnage during the balance of the year, nor are the railroad companies allowed, as they should be, compensation based upon the cost of the service and equip- ment, with a reasonable profit. The bill as presented by you provides that " the Postmaster General shall determine the cost to each railroad company of carrying the mails on its re- spective road or roads, and shall verify and state the result in such form and manner as he shall deem proper." This puts more power in the hands of the Postmaster General than heretofore enjoyed by him, and those who have had experience know that the power has already been exercised to its limit. The further clause that if the railways disagree with the conclusion of the Postmaster General, either as to form, significance, or assignment, the matter shall be referred on appeal to the Interstate Commerce Commission. The Interstate Commerce Commission long ago despaired of applying a rational basis of apportionment of operating expenses as between passenger and freight traffic. We think the burden imposed upon the Interstate Commerce Commis- sion by such appeals would be a source of annoyance not only to the commis- sion but to the railroads, as the determination of the appeal would involve a study of each road's conditions, varying to a great extent from year to year. We have had an experience with the Post Office Department in regard to the matter of compensation and have found that the arbitrary methods pursued by this department are one-sided to the extreme. There is no chance for reach- ing the Postmaster General with an appeal beyond the Second Assistant Post- master General, the latter's stereotyped reply being that the matter has been passed upon by the Postmaster General, and that seems to be the eud of the matter as far as the department is concerned. We took exception to their method of computing compensation for the present four years as against the previous four years, and showed by facts and figures that our compensation was $900 less on the present basis and that we handled on an average for the 90 days' weighing period 5.392 pounds, as against 4,747 pounds, on which the former basis was arrived at. Their method of computation was based on a divisor of seven, used arbitrarily for all roads in our class, yet we handled no mail on Sunday and were entitled to a divisor of six, which would have given us a better revenue and which we were entitled to. This was brushed aside with the statement that "their method of ascertaining the average daily weight has become an established rule and has been applied to all service without exception since the promulgation of the order covering the service of nil States except those embraced in the fourth contract section (Western States), which would be weighing the following spring, and to which it will then be applied.*' That settled the whole proposition as far as the Post Office 32 RAILWAY MAIL PAY. Department was concerned, and there was nothing for us to do but to submit. We submitted, but brought suit against the Government of the United States for what we felt we were entitled to, and the matter is now pending in the Court of Claims (No. 31230). Respectfully, E. H. Utley, General Manager. Bellefonte Central Railroad Co., Philadelphia, October 9, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir : Your polite favor of September 11, concerning Senate bill 7371, was duly received. In replying I shall endeavor to give such available figures as seem to substantiate my views. 1. The present system of fixing mail pay, if amended as proposed in House bill 4044, would be equitable and satisfactory. 2. Senate bill 7371 appears to me to be crude and indifferent to the rights of the railways, as for example : €ost plus 6 per cent. — To the casual observer the cost of service plus 6 per cents seems to be a sufficient compensation. I shall try to show that this is not the case, and that we have just grounds for complaining of the new plan. I am, of course, writing from the standpoint of the short lines, which num- ber in this State alone, according to the report of the Bureau of Railways of Pennsylvania for the year ending June 30, 1911, pages XYII-XX, 132 roads, with a total mileage in the State of 3,040 miles. Operations for the year were as follows: Cross earnings from operation, $12,115,694, or $3,985 per mile; operating expenses, $8,332,971, or 88.7 per cent of the gross'; other expenses, taxes, interest, and renewals, $3,006,650, or 20.5 per cent of the gross ; total dividends paid, $750,978, averaging 1.13 per cent on a stock capital of $21,720 per mile. The average ratio of operating expenses to gross earnings from opera- tion of all the roads in the State is 70.5 per cent, and 70 per cent is the average of all the roads of this country with annual operating revenues of $1,000,000 or more. If we take 70 per cent as a fair estimate of the proper figure, a little thought will show that it will require the operating expenses with 40 per cent of the operating expenses added to equal the average operating revenue earned at present and needed to properly conduct the roads. Evidently, since it took the cost of operation with 40 per cent of the cost added to enable the short lines of Pennsylvania to pay dividends of li per cent upon a reasonable capitalization, the cost plus 6 per cent of the cost is insuffi- cient compensation. Fair and equitable cost. — We anticipate, from House Document 105, that if the Postmaster General be permitted, under the vague provision of this bill, to " determine the cost of carrying the mails in such manner as he shall deem fair and equitable," we should be much worse off than we are at present. Refer- ring to pages 272-273 of Document 105 : The department allowed us at the rate of $3,260.92 car-feet miles per annum ; we claim $8,100 car-feet miles per annum. The department estimated the cost to us at $592.32 per annum ; we claimed a cost of $2,469 per annum. The department estimated our profit at $575.40 per annum; we asserted a loss of $1,521 per annum. The roads complain very generally of the way in which their figures have been employed in the preparation of the document. The calculations seem to be based upon a rule which the department has laid down that 6 linear inches shall be allowed for 100 pounds of mail, 10 inches for 200 pounds, and 5 inches for each 100 pounds over 200 pounds. When a car is filled to the roof with mail matter this may be correct; I do not know ; but it is not correct for a closed-pouch service like ours, where the amount of mail varies from 1 bag to 40 bags, where the larger amount must be provided for, and where this small number can not be compressed into the same proportionate space as if the car was full of mail. I hold, therefore, that the " car-space-used " basis of estimating for a closed- pouch service is inapplicable to conditions, and that neither the amount of the compensation proposed nor the manner of ascertaining it is safe or satisfactory. RAILWAY MAIL PAY. 33 For the year ending June 30, 1912, a careful estimate of the cost to us of conducting the mail service, counting in operating expenses, depreciation, and taxes, is as follows : Cost of service $2,474.46 Mail revenue $1, 167. 67 Less deliveries 220. 00 947. 67 Net loss 1, 526. 79 Deliveries. — We do not consider the cost of deliveries — $220, as above — to be an operating expense. It is not railway service of any sort. We have to let the work to outside parties, and the pay they receive is simply a deduction from our mail pay.. This bill proposes that the roads shall provide side, terminal, and direct transfer service. In my opinion it would be better and cheaper, at such small places as are usually served -by the short lines, if the duty of collecting and delivering the mails were assigned to the local postmasters. They should per- form it with little, if any, increase of compensation. The railway employees can not do it, as they are fully occupied at the times of arrival or departure of trains in selling tickets or handling freight, and for this reason we have to con- tract for the work at the rate of $488 per mile, being paid ourselves at the rail- way rate of $59.85 per mile. House bill 4044 proposes to relieve the railways of side and terminal deliveries. The Senate bill provides that the railways must accept the compensation offered or suffer heavy penalties, confiscatory penalties. I do not suppose that this probably unconstitutional provision will be seriously considered by Congress. 3. As to offering a suggestion for a desirable plan of compensation, I would say that House bill 4044 appears to me to meet the requirements very well. If this can not be accepted, I would renew a suggestion that I made some years ago to the effect that the mail should be weighed for every train and settled for under a tariff proportionate to other tariffs and subject to regulation. I can see no objection to this plan. In House document 105 I find the names of only about 12 of the 132 short lines of this State. Perhaps the short lines did not respond very generally to the request to report upon their mail service. If so, it is to be regretted, as the framers of the bill seem to be unfamiliar with the conditions existing upon the short lines, or have at least not taken them sufficiently into account in draw- ing it up. It seems to me that in this and in all railway legislaion it would be just and conducive to the intended reforms that some classification of the railways should be adopted, either according to their mileage or by their gross earnings, as already prevails in some of our States. The more we study the subject -the more plainly it appears that laws which are applicable to trunk lines and proper in their cases may easily be ruinous to the short lines. Such unintentional and oppressive results ought to be looked out for and avoided wherever possible. With much respect, I remain, Very truly, yours, Robert Frazer, President. Boyne City, Gaylord & Alpena Railroad Co., Boyne City, Mich., October 2, 1912. Jonathan Bourne, Jr., Washinyton, D. O. Dear Sir : Your letter of September 11 to Mr. W. H. White, inclosing Senate bill No. 7371, is received and noted. We do not think your bill would be a desirable one to pass. In the first place, we think you are figuring on a wrong basis to be fair with the railroad com- panies. Second, we think you would get into a very complicated controversy as to the compensation that should be paid to the railroad company. There are .very many different conditions existing over the country and we think you will have to figure out some different plan. On a short road, such as we operate, no 34 RAILWAY MAIL PAY. special equipment is provided for carrying the mails. It is carried along with the express and only requires a small amount of space. We think it is not fair to railroad construction to hold the actual earnings down to a 6-per cent basis. If it were not for the railroads the country would not be what it is, and you people in Washington should be figuring to give them a fair deal rather than to see how close you can figure all the time. Yours, very truly, W. L Martin, Secretary. Boston, Revere Beach & Lynn Railroad, Boston, September 16, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Yours of the 11th instant, inclosing Senate bill 7371, has been received. In reply, I will say that this company carries mail to two small towns adjoin- ing Boston. The amount of compensation is so small that I prefer not to express an opinion in regard to the matter. Yours, very truly, John A. Fenno, Superintendent. Buffalo, Rochester & Pittsburgh Railway Co., Rochester, N. Y., November 1, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : Replying to your letter of September 11. propounding three ques- tions in relation to mail pay : Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads? Answer. We do not deem equitable the plan outlined in Senate bill 7371, but do believe that House bill 4044, introduced by Mr. Talbott on April 11, 1911, is more equitable to both the United States and this railroad. This bill in short provides (a) for a flat rate of $75 per mile per year for carrying mail not to exceed 500 pounds in weight per day; (b) annual weighing, thus giving (c) relief to railroads from delivering mails at points beyond their stations; (d) provides that space in apartment cars used for post-office purposes shall be paid for at a pro rata rate of the rate now paid for cars 40 feet in length. Question 2. Is the underlying principle of the plan embodied in Senate bill 7371 a proper basis for compensation? Answer. The underlying principle of the plan embodied in Senate bill 7371 is not correct. Any plan for compensation based upon operating cost plus 6 per cent as a maximum for profit is fundamentally wrong. Furthermore, it gives to the Postmaster General the power to ascertain by his own method the cost to a railroad of conducting its business, and such arbitrary method, in our opinion, is wholly impracticable and would prove disastrous in most, if not all, lines of trade. Moreover, this bill does not require the Postmaster General to pay to the railroad its cost of conducting mail transportation plus 6 per cent, but such authorized payment describes that such cost (ascertained by him) plus 6 per cent is a maximum beyond which he may not go, and such amount that he shall pay is left wholly to bis discretion. There further appears to be no method of appeal by the railroad other than that matters bearing upon the question of what the Postmaster General shall and does pay may be referred to the commission, but does not give the railroads an opportunity to be heard by that commission, and should the railroad feel that the compensation is not just, may not refuse to handle mail (at a loss) without committing an unlawful act and making itself liable to a fine for so doing. Question 3. What, in your opinion, is a desirable plan for compensating rail- road companies for transportation of mails? Answer. As stated in answer to question No. 1, House bill No. 4044, intro- duced by Mr. Talbott, of Maryland, on April 11, 1911, amending the present law, seems to meet present-day conditions much more satisfactorily in so far as it proposes : Annual weighing of mails, thus giving to the carriers the benefits of the natural increase in weight of mail each year; proper payment for space used in apartment cars assigned to R. P. O. service, based on the pro rata that RAILWAY MAIL PAY. 35 car space used bears to a car 40 feet in length, as is provided for; relief from terminal and side-line delivery ; establishes a minimum of $75 for routes carry- ing less than 500 pounds per day. Bearing in mind that it is the intent of the United States to deal fairly with the carriers, it appears to me that this bill falls into class legislation in so far as the United States would assume the position of a favorite shipper. The under- lying principle of the interstate-commerce law is equality among shippers and to prevent discrimination. The bill as introduced permits of discrimination at the discretion of the Postmaster General, in whom is conferred the right to decide what the rate of compensation to a carrier shall be, and empowers him to arbitrarily order the carrier to perform a service whether it be at a profit or at a loss. Yours, truly, H. E. Huntington, General Passenger Agent. Carolina & Northwestern Railway Co., Chester, S. C, October 8, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : I have been furnished with a copy of reply forwarded by the committe on railway mail pay, and fully indorse the position taken by that committee, with the further expression of views on the subject : Question 3. (A) V/eigh 30 days in each year. (B) Divide by six days (and not penalize the line that gives seven-day service). (C) Pay on present basis for hauling. (D) Either pay a fair passenger rate per mile for post-office clerks and other employees, or relieve the railroads from all personal-injury claims on their account. (E) Relieve lines of terminal or side-line deliveries, else pay for them. (F) In addition tothe rate paid for actual haulage, allow for compensation for all car space exclusively used by the Post Qffice Department. (G) Would further ask you to consider the fact that the rate basis for carrying the mails was established at a time when there were no mail cars, clerks, or carriers, and the railroads carried the mail bags in their baggage cars and dropped them off, as per tags. The weight basis is the correct basis for that service, but when postal clerks were added and post offices on wheels demanded and required to be attended to better than the parlor-car service on the lines on which they run, it goes without fear of contradiction that the roads should have pay for each service separately. And further, there is no justification from any business standpoint in only considering cost of service and not include fixed charges, which must be incurred before the service can be performed. It reminds me of the merchant who pur- chased a fine store, put in a large stock of goods and sold them on basis of cost of clerk hire, without considering the value of the goods or plant. Absurd, you say, and I agree with you, but that is an exact parallel to the basis of pay proposed in bill No. 7371. Yours, very truly, L. T. Nichols, General Manager. Central Railway Co. of Arkansas, PlainvieiD, Ark., September 11, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: We have your favor of the 11th, We do not operate extensively enough to give you an opinion of what you require. As far as we are personally concerned, the present laws are satisfactory to us for handling the mails. If we had a more extensive railway it would probably be different. We trust this information will answer your purpose. We are, Yours, truly, Central Railway Co. of Arkansas, By C. W. Jones, General Manager. 36 RAILWAY MAIL PAY. Charleston & Western Carolina Railway Co., Augusta, Ga., September 25, 1912. Hon. Jonathan Bourne, Jr., Washington, I). C. Dear Sir : Replying to your circular letter of September 11 inviting answers to certain questions concerning the compensation now paid railroads and pro- posed compensation as set forth in Senate bill 7371. Answering your first question : I do not regard the present plan of compen- sation an equitable one as between the Government and the railroad that I represent, for the reason that we are not paid for the apartment cars, while full-length cars are paid for, and, further, because the rate paid is far less than the actual cost as evidenced by certain statistical information which you will find contained in a brief which I submitted to the Committee on the Post Office and Post Roads of the House of Representatives, a copy of which brief I herewith inclose, since which time, by the way, our mail-car mileage has been largely increased, thus reducing our revenues per apartment car-mile to about 5 cents. Second. I do not think that the plan embodied in the proposed Senate bill a proper basis for compensation, but I will not attempt at this time to discuss it. Third. I am rather inclined to believe that the present plan as a basis is probably about as good a one as we will be able to arrive at, with the additional feature that all mail-car space should be paid for and not confine it to full- length cars only, and thus discriminating in favor of the heavy mail routes when as a matter of fact the weaker lines should be protected in every way possible. Further, that the mail should be weighed at least annually or else i hat an adjustment be made following the weighing after four years, based upon an increase for the average time. Yours, very truly, A. W. Anderson, General Manager. Charleston & Western Carolina Railway Co., Augusta, Ga., -December 15, 1910. Hon. John W t . Weeks, Washington, D. C. My Dear Sir : When we were given a hearing by your committee on June 14 last you laid down the proposition, by inference if not in words, that if the railroads of the country handled any business without profit on passenger trains through a voluntary arrangement it was reasonable that we should be required to carry -the United States mails at an unprofitable rate whether we wished to do so or not. It appears, therefore, Mr. Chairman and gentlemen, that we must not only show this committee that the rates paid us for carrying the mails are unprofita- ble, but we must also show why express rates are as low and in some cases possibly lower, and why there can be no comparison between the two, and why, even if so alike as to warrant comparison, the pay should not necessarily be the same. No one thing, possibly, has done more to develop this great country of ours in the past than the liberal treatment given the railroads. It may be true that in some instances high rates have been charged, but it unquestionably is also true that the right to conduct their business in their own w T ay has made possible the construction of many roads that, under conditions existing at this time, would never have been constructed, among others, the railroad I represent; and although some portions of it were completed nearly 40 years ago, and all of it over 25, it has not yet reached a point where it could pay even a low rate of interest to its owners. All earnings in excess of interest on a low bonded indebtedness have been devoted to improving the property in an effort to make ir valuable, not alone to its stockholders but also to the section through which it runs. Some of our rates per ton per mile seem high; others so low as to make it questionable whether profitable. The passenger rates are the same as apply on other lines. What I have said of our line can be said of many others throughout our section. No matter what the conditions are or how many tons per train-mile can be hauled, no railroad could live and charge on all of its business what it earns per ton per mile on its lowest class of traffic. Therefore rates must vary, not 8"?ne because the articles hauled may differ, nor on account of the care that RAILWAY MAIL PAY. 37 must be exercised in the handling of one as compared to the other, but they must differ for still another reason that is recognized as perfectly sound, and that is that one class of traffic can afford to pay a higher rate than another, though similar in many respects; another thing always considered is volume; still another, value. To properly develop a business it has been a well-known practice, and one that I think is beyond criticism, to charge rates that will enable the business to develop. Fast service, safe service, and frequent service are of much more importance to the individual than the mere question of whether he pays a few cents more or less per hundred on freight that he may ship, and nothing is so much deplored from a standpoint of progress and development as the attitude dis- played, not alone by the public, and largely by them through a real misconception of the facts, but by the Government itself, as evidenced by the utterly inade- quate pay fixed by Congress for carrying the mails. I say " fixed " advisedly ; for while we could no doubt sustain in the courts a refusal to perform the service at the rates paid, public sentiment and our wish to do our full duty to our patrons has led us to perform the service at such rates as you fix and under such regulations as the department has laid down. Notwithstanding the fact that we are spending considerably more money in the maintenance and operation of our property than we earned 10 years ago, we are actually being paid a total of less for carrying the mails now than we were paid 10 years ago, though we are handling, of course, more mail and are performing 50 per cent more mail car miles. Please note the following actual figures : Total mail pay, 1900-1901 $23, 489. 73 Total mail pay, 1909-10 22,930.90 Decrease 558.83 or 2.38 percent. Total mail car miles, 1900-1901 252, 748 Total mail car miles, 1909-10 378,177 Increase 125,429 or 49.82 percent. Cents. Rate paid per mail car mile, 1900-1901 9.3 liate paid per mail car mile, 1909-10 6. 1 These figures are exclusive of pouch routes, nor do they take into considera- tion the cost of handling to and from post offices, which, if included, would still further reduce our earnings per car mile. Assuming that there had been no increase in the weight carried and that we were being paid only the increase we were entitled to (if there had been no change in the rates paid us) on account of increased cost of doing business, we would have been paid about 12 cents per mail car mile instead of G.l cents. Deducting alone the cost of handling the mails to and from post offices, which work we Also do. it would reduce our net earnings for the handling of 378.177 mail car miles and the pouch routes to $19,795.06, or to 5.2 cents per mail car mile. TVe have been asked to say what a reasonable compensation would be. To answer this question in a word and without giving my reasons and some facts and figures would, I believe, be unsatisfactory to your committee. I will undertake, therefore, to give you some figures by which you can arrive at what I think should be at least our minimum pay per mail car mile. We have never regarded our passenger business as a profitable one, as you will understand from the following figures : During the past year our passenger service revenue per train-mile was 74.18 cents. Our operating expenses per train-mile amounted to $1.22. Last year our average passenger train revenue per car mile, including Pullman cars, coaches, baggage cars, mail cars, and express cars, was 26.23 cents per mile, and yet our mail, which practically occupies the half of one car, paid us only 6.1 cents per car mile, or less than one-half, approximately, of what the average cor in ous passenger trains earned, and that, too, notwithstanding there was but little, if any, profit from our passenger trains. Our cheapest service is supposed to be our freight-train service. It is cheap- est because of the large volume that can be handled in the most inexpensive way. It is because the facilities and men engaged cost less jiei* dollar earned 38 RAILWAY MAIL PAY. than in the passenger service. It is because the original cost of freight cars, and, as well, the maintenance, is hardly one-tenth the cost of passenger cars, and it is also because we do not have to furnish, in many other respects, the same expensive service that is required by passengers. r am sure it will be admitted by this committee that if the vast majority of our railroads failed to make something on their freight business they would fail to pay expenses, and that if we use our cheapest service as a comparison we go very much further than we ought to go in demonstrating the inade- quate pay allowed us for handling the United States mails. We averaged last year earning 17 cents per car mile for every freight car, whether loaded or empty, handled on our line, and yet we only earned 6.1 cents per mail car mile, not including, mind you, the handling of mail to and from post offices ; nor does this include 72,616 pouch route miles. We have very recently, at the request of the department, put on additional mail-car service that will add 22,536 miles and reduce our revenue per mile still further — from 6.1 cents to 5.7 cents. Please bear in mind that this additional service will have to be performed for some two years longer without one dollar's additional pay. We have also been asked by the department for other mail-car service, which will add 43,800 more miles, without pay, or a total of 66,336 additional miles. This largely increasing our already nonprofitable work re- minds me of the story of the merchant who, when asked how he managed to sell his clothing below cost, as he claimed to do, gave as his explanation that he sold so much of it. Possibly the Post Office Department has this in mind when they add 66,336 more mail car miles to the service we are already performing at a loss. Could anything be less reasonable and more unfair? The space set aside in our apartment cars for mail service averages about 192 square feet per car, while our freight-car average is about 306 square feet per car. We therefore find that had our mail-car service paid the same rate per square foot per mile that our freight-car service paid, we would have earned 10.7 cents per mail car mile, instead of 6.1 cents, or $40,484.94 instead of $22,930.90, our present mail pay. Is this statement of facts alone not sufficient to convince you how inade- quately we are paid? Compare the character of cars, the character of contents, including the Gov- ernment's employee, who is in every sense regarded as a passenger, the fast service, the greater risks, and the extra delivery service at stations with the ordinary freight service, and surely it can not be questioned that the pay al- lowed us is absurdly low. We have been asked in what way our mail pay has been reduced and to what extent. Need I answer the question other than to refer to the fact that our total pay to-day is less than it was 10 years ago, though gross earnings of our road per mile have increased during that time fully 100 per cent, and our mail car miles have increased 50 per cent, and our gross operating expenses during this time have increased practically 100 per cent? If our rates had not been reduced and we had been paid in accord with the increased cost of doing business, not to mention the increased mail car miles, we would get to-day twice as much as we were paid 10 years ago. At the hearing before this committee in June last I called attention to the pay of the rural delivery carrier as compared with the pay given the railroads. The rural carrier is given 12 cents per mile for handling a few pounds of mail. The public furnish the highway that he operates over and maintain it. It is optional with the carrier whether he rides or walks. If the former, it is through no greater necessity than because he prefers the ease rather than the saving of the cost involved in riding. The railroads maintain their own high- way, at a cost to them of, in many cases, one-fifth of their gross earnings They must furnish not only a conveyance for the transportation of the mail, but they must furnish an office on wheels for the use of the Government's mes- senger, whom they must also transport free and must provide him with all of the comforts furnished other passengers. The one is paid 12 cents per mile ; the other, at least our road, is paid 6 cents per mile. There must be some cause for so great a difference. Is it because the Government can not get its work performed by the individual if it paid even as low rates as it pays the railroads for 10, yes, 20, times the service? Surely the fact alone that the Government may force its regulations upon the one, while it must pay the other reasonable rates or else do without the service, is not the reason that we are being paid such unjust rates; rather, it should be a reason why the Government should see that we are properly paid. KAILWAY MAIL PAY. 39 From the questions asked by your committee regarding our arrangement with the express company you seem to have in mind that our express earnings should be used as a basis to govern our mail pay. For the information of the committee I will s'ate that we have a contract with the Southern Express Co. Our contract, I suppose, is very similar to con- tracts in effect between other roads and the Southern Express Co. It provides that we should get (I haven't the exact figures before me) one-half of the express earnings for hauling the express. It also provides that the express company assumes all responsibility for personal injury and loss and damage claims, except charges on such perishable freight as may not move after having been receipted for. The express company must also furnish all employees neces- sary to handle the business where it originates, at its destination, and at trans- fer points en route. The contract also provides for certain responsible services to be performed for the railroad in the way of transporting money from the agencies collected to such points as may be designated ; in fact, the arrangement, in a few words, is that the railroad company agrees simply to haul the business and the express company agrees to perform certain free service and to assume all risks and expenses, the proceeds to be divided between the two. Our experience has been that there was little or no profit in the express business to us, but it is so much a part of the railroad business that we do not feel that we can get away from it. Our express revenues in the past 10 years have varied from as low as $6,843.67 in 1900-1901 to $27,561.75 in 1906-7. I don't believe that the express company, so far as some of the worst years in the past 10 are con- cerned, have made a dollar, any more than we have, out of the business, and I have no doubt but that they would be willing, if they could do so, to go out of the business on our road just as readily as we would be willing to do so. The handling of mail and the handling of express is as different as two propo- sitions can be. In carrying the mails we are performing a service without having the slightest interest in the revenues derived; the other is an arrange- ment in which we participate in the earnings upon an agreed basis that is as much to our advantage as it is to the express company, and worth nothing directly to either. I was asked by a member of this committee in June last why we did not make a better arrangement with the express company and get more out of it. I believe that the facts stated above will answer that question; that is to say. I believe we have made about the best trade we could expect to make, and one certainly as good as the express company would make with us in view of the very low express earnings. Another feature of the agreement with the express company that I failed to mention is that the express company agree not to name a lower charge than would be agreeable to us. Our reason for this must be plain, and that is that we want the express rates maintained at such a standard as not to interfere with our freight business. Certainly, we do not want to encourage business to move by express that could move by freight when we get all of the revenue instead of dividing it with the express company. The theory is that we want only such high-class business as will stand much higher rates to be tendered the express company. If it is of such a character as can stand freight service, we want it to move by freight. A member of your committee at the June hearing — Mr. Lowden, I believe it was — asked me to be prepared to give this committee our line's proportion of the rate from Washington to Augusta, stating that the information would bear on the question under discussion, as it would show what we did when we made a voluntary agreement with the Atlantic Coast Line Railroad upon freight matter under a traffic agreement as compared with the involuntary arrangement with the Government* We are paid for handling the mail between Robbins and Augusta $59.85 per mile per year for 444 pounds of mail matter, and I do not understand that that rate is affected in any way by the distance that the mail has been handled or whether the mail comes from a point on our line or from Washington, D. C. The rate, Washington to Augusta, on first-class freight, is 89 cents per 100 pounds; this rate is divided, up to Richmond 16 cents, and the balance of 73 cents, from Richmond to Augusta, is divided, Atlantic Coast Line, 75.2 per cent, and Charleston & Western Carolina, 24.8 per cent; that is to say. the Atlantic Coast Line, for 430 miles, fifteen-sixteenths of the distance, gets 55 cents, while for 30 miles, one-sixteenth of the distance, we get IS cents. The Coast Line gets 40 EAILWAY MAIL PAY. only three times as much for hauling the business 15 times as far. Certainly this must evidence our getting a fair share of the revenue when we are permitted to exercise our rights. At the hearing in June the chairman of your committee asked me if I meant to suggest that the Government ought to pay more for the mail service per- formed than it cost, or more than the Government got out of it. My reply was : " Most assuredly." Surely the Government does not expect us to haul mail at a loss because their revenue might not cover the cost. We do not share in the profits and, of course, should not suffer the losses. If the Post Office Department would abolish free delivery, they would show a profit of many millions instead of a loss. I believe that this committee will readily admit that the money is made for the Government by the railroad carriers. Suppose for a moment the Govern- ment had to transport its mail entirely through star routes or other like car- riers, can it be doubted that instead of tens of millions deficit it would not be hundreds of millions? If the railroads are making the money for the Post Office Department, how much greater the reason that they should be paid at least a reasonable profit for the service performed? Is it fair, is it legal to require us to work, not only without profit, but at an actual loss? Again referring to express rates and a comparison of mail pay with our ex- press revenues. The rate on cotton from Augusta to New York is 40 cents per 100 pounds. The rate on dry goods is 96 cents per 100, or considerably over twice as much, and yet both are composed entirely of cotton, both are handled in box cars, and both handled on freight trains, and yet no one, so far as I have ever heard, has taken the position that the rates should be the same. Again, if we haul coal as low, in some instances, as 3J mills per ton per mile, is that any possible reason why we should haul dry goods and cotton at the same rate? We earn per mile twice as much on fertilizers as we do on cotton seed, but is that a reason why fertilizers should take the same rate? No; I submit that we are entitled to a reasonable profit for handling the United States mails, no matter what we get out of the arrangement with the express company, and I submit that our arrangement with that company is a reasonable one, even though there is no profit to the railroads. Another difference between the two propositions is that when the express revenues increase from one month to another, we get the benefit of the increase, while no matter what the increased tonnage of our mails may be, nor does it matter how much we may have to in- crease our mail-car miles, our revenues from the mail service do not increase from one mail-weighing period to another; that is, for a period of four years. This, I think, should also be changed. Surely the present regulation can not be defended. For your consideration we submit that no matter what the divisor has been, our revenue has been low, and inasmuch as the rates paid us have been based upon the divisor heretofore used that divisor has become a basis upon which mail pay has been constructed and should not be changed. The tendency of mail rates, like all other rates, has been down, and we insist that with every expense pertaining to railroad operations going up and all rates going down, that it is a serious matter to disturb the very foundation upon which our pay was based and has been regulated for years. We further submit that if the present divisor is retained that our rates per 300 pounds should be materially increased. We further submit that a minimum mail car (or apartment car) rate per mile should be paid of not less than 20 cents, and for the reason that a less rate would not compare favorably with freight earnings per freight-car mile (our lowest rate profitable business), and for the further reason that any less mini- mum would not give us a substantial profit. W T e further submit that we should be paid for office and mail-car space, whether full-length cars or apartment cars. There can hardly be a reason why post offices on wheels should be furnished by the railroads, free of charge, and transported over the roads for the convenience of the department, whether they are 20 feet in length or 40 feet in length. In addition to the foregoing, we submit for your further consideration, an- swers to a number of questions bearing upon the mail-car service performed by us, the pay received, and a comparison with other passenger-train earnings. KAILWAY MAIL PAY. 41 From every point of view that has occurred to us, all figures point, with abso lute conclusiveness, to the claim we make that we are not only badly underpaid, but that we are far from being paid the actual cost of the service performed. All of which is most respectfully submitted. Yours, very truly, A. W. Anderson, General Manager. Chestnut Ridge Railway Co., Palmerton, Pa., September 17, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : I gladly avail myself of your kind request to lay before you any comments which may occur to me in connection with Senate bill 7371. Page 1 and page 2, lines 1 to 12: I heartily commend the curbing of the vast power of the Postmaster General by subjecting his methods to the review of the Interstate Commerce Commission. I feel, however, that railroads should be permitted to raise objection to the results obtained in each case as well as to the method employed. Page 2, line 23, should be amended to read as follows : " He shall allow such rate." Page 2, lines 18 to 24: The scheme contemplated seems to me to require railroads to handle United States mail without compensation. Your proposition is that railroads shall perform this service, shall pay the current cost of doing it out of their own pockets, and at the end of the year shall simply receive back the money which they have actually spent, together with the customary bank interest on same. The railroads only get back the money which they have actually expended, with interest, and get nothing for the service rendered. Page 3, lines 7 to 12 : The Postmaster General should be required to get his information from reports already filed with the Interstate Commerce Commis- sion without imposing additional clerical burdens upon the railroads. Page 3, lines 13 to 25, and page 4, lines 1 to 18 : The power of the Postmaster Oeneral should be subject to the control of the Interstate Commerce Commission in these as in all other matters. Page 7, lines 9 and 10 : The Postmaster General should not be intrusted with the determining of the amount of fines without appeal. Page 9, lines 3 to 7 : To deny to railroad companies the fundamental right of refusing to enter into an unsatisfactoiy contract without providing adequate safeguards in the shape of appeal seems to me to violate the Constitution of the United States and the principles which underly all human rights and laws. Yours, truly, B. F. R. Clark, Auditor. Chicago & Illinois Midland Railway Co., Chicago, October 18, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : Replying to yours of the 11th ultimo, addressed to Mr. J. J. Hart, former vice president of this company, to which is attached a copy of proposed Senate bill No. 7371. We do not consider the present plan of compensation an equitable one as between the Government and this company. Under the present system mail is weighed quadrennially, and the basis of compensation is fixed by the Gov- ernment for that period, based on weight so ascertained, whereas the volume of the mail business is constantly increasing, with the result that under the existing plan the railroad receives no corresponding increase in revenue, which we believe should be conceded by reason of such increase. Under the present system the employee of the railroad company is compelled to carry the mails between the mail car and post offices in towns served by the railroad where the post offices are within SO rods of the railroad's right of way. We are con- strained to the opinion that the service of the carrier should properly terminate at its passenger stations. We do not consider the plan embodied in the proposed bill, which contemplates compensating the railroad companies on basis of actual 42 RAILWAY MAIL PAY. cost of the service, plus 6 per cent, as being remunerative, considering the char- acter of the service performed. Furthermore such basis of compensation would not admit of the setting up of a reserve with which to purchase mail cars in the future, as they could not be purchased of the builders on a 6 per cent basis. We believe that the basis of settlement between the Government and the railroads should be on practically the same lines as is the express business, i. e., at an agreed and remunerative rate per 100 pounds at actual weight, monthly settlement to be effected between the Government and the railroads as at present. Respectfully submitted. H. H. Seaverns, Traffic Manager. Chicago & Lake Superior Railway Co., Cambridge, Wis., September 25, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Referring to your letter of September 11, regarding the new bill about to be placed before the Committee on Post Offices and Post Roads, asking our opinion upon the desirability of said bill, will reply : No. 1. We do not deem the present plan of compensation an equitable one. for the reason that under the present plan the larger roads are receiving larger compensation for the work they are doing in accordance with their mileage, while the smaller roads with short mileage are not getting enough to pay the trouble of handling the mails ; for instance, this road being a trifle less than 4 miles, is carrying for the Government eight mails a day, four each way, for which we receive the nominal sum of $180 per year, which shows on the face of it that it is not enough. No. 2. The plan embodied in bill S. 7371 would not remedy this matter for the smaller lines. Take, for instance, this line, only having the mileage before stated, would not receive proper compensation for services rendered, and there should be a clause to protect the smaller lines in order that they may receive better compensation for their work. No. 3. In our opinion a most desirable plan for compensating railroad com- panies for transportation of mail would be to place a sentence in this bill making the compensation for all roads with a mileage under 5 miles a special rate per mile, which would be enough to cover the expenses of handling the mail services. As before stated, this line is carrying eight mails per day and receiving compensation, carrying these mails to and from the post office to trains. We would be unable to hire a person to carry the mail from the Cambridge depot to the post office for the amount we receive for same, let alone the handling and responsibility of same while en route on trains and delivery of mail at London. I feel if you would look into this matter care- fully you will see that we are right in the above statement. Yours, truly, B. L. Delamater. Chicago & Northwestern Railway Co., Chicago, III., November 25, 1912. Hon. Jonathan Bourne, Washington, D. C. Dear Sir: Answering yours of September 11, 1912, transmitting bill No. 7371, introduced by you, and requesting replies to inquiries relative to the present and proposed plan as a basis for compensation to railroad companies for transportation of the mails, on behalf of the Chicago & North Western and Chicago, St. Paul, Minneapolis & Omaha Railway Co's., we respectfully submit the following answers to your inquiries: First. We deem the present plan of compensation equitable, if modified as follows : (A) Annual weighing of the mails. (B) No reduction in the present rate of pay for transportation. (C) Pay for space provided in apartment postal cars upon the basis of pay for railway post-office cars 40 feet in length, inside measurement. RAILWAY MAIL PAY. 43 (D) Relief from the performance of side and terminal messenger service regardless of distance between the post office and railroad station. (E) Readjustment upon the basis of weight within a reasonable time after the establishment of parcel post. Second. The underlying principal of the plan embodied in Senate bill No. 7371 is not correct for the following reasons : (A) Contrary to all economic principles of business, and the method of which, if applied separately to the different classes of business, would ruin and bankrupt every railroad at once. (B) Objection to granting authority to the Postmaster General to credit, as- sign, and apportion the revenues and expenditures of railroad companies. This accounting should be made in the usual manner adopted in accounting, or as directed by the Interstate Commerce Commission, granting railroad companies right to appeal to the courts. (C) Objection to nonpayment for service over land-grant railroads or parts of railroads covered by land grants, being unfair and unjust. (D) Objection to being required to place railway post-office and apartment postal cars for the purpose of performing advance distribution without an allowance of pay for the time cars are so placed and used. (E) Objection to providing depot space for handling and distribution and transfer of mails en route, except for transfer clerks' quarters and space for use of railway post-office clerks for the purpose of storing their personal and official property between runs without a specific rental therefor. (F) Objection to failure to specifically provide for rate to be paid for space devoted to the distribution of mails in transit in railway post-office and apart- ment postal cars. (G) Objection to deductions for reduction or frequency of service unless ad- ditional pay be allowed for additional service and frequency of service during the period for which the adjustment is made. Third. The present plan with modifications as stated in answer to inquiry No. 1. Respectfully, W. A. Goedon, President. Chicago, Burlington & Qtjincy Railroad Co., Chicago, October 8, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : I am in receipt of your communication of September 11, propound- ing certain inquiries in reference to the present plan of compensation of the railways for handling the mail and requesting an expression of opinion from me as to the plan of Senate bill 7371. I find that the committee on railway mail pay, upon which this company is represented, addressed a communication to you on the 3d instant in reference to the same subject. After carefully reading the letter of this committee, I beg to say that it fully accords with my own opinion in every particular. The unfair administration of the present law gives ground for serious com- plaint and imposes serious losses upon the railroads. I feel certain that if the conditions are fully investigated and considered by your committee it will reach the same conclusion. I have no confidence in the justice of any plan of com- pensation based upon cost plus 6 per cent The underlying principle is wrong, because is penalizes efficiency, as fully stated by the committee. No other rates in the country are so based. In order to ascertain cost many intricate compu- tations based upon numerous arbitrary assumptions will be required, and the results found in Senate document 105 upon this subject indicate that it would be impossible for the railroads to agree with the department upon the methods for determining such cost. I feel that the remedy is to correct the'wrongs that are being worked under the present law rather than to experiment with a wholly new principle as a basis for compensation. I wish to adopt the answer of the committee on railway mail pay as a part of the reply which I submit to your honorable committee in behalf of both the Chicago, Burlington & Quincy Railroad Co. and the Colorado & Southern Rail- way Co. Yours, respectfully, D. Miller, President. 44 RAILWAY MAIL PAY. Chicago, Milwaukee & Puget Sound Railway Co. Chicago, November 5, 1912. Hon. Jonathan Bouene, Jr., Washington, D. C. My Deae Sie : In reply to your circular letter of the 11th ultimo, the follow- ing is respectfully offered for your consideration: (1) The theory of the present plan of compensating railway companies upon the basis of weight carried and special car space and equipment provided is, in my opinion, equitable. In its practical working out the compensation is in- adequate under the Postmaster General's Order No. 412 and the last reduction in the rate. We believe also that we are entitled to compensation for apartment-car space on the basis of a pro rata of the rate allowed for full 40-foot R. P. O. cars. (2) Any legislation under which the Government makes the maximum pay- ment for service rendered the actual cost plus 6 per cent, such cost to be de- termined by the representative of the Government, is not equity, but an arbi- trary exercise of governmental power. It gives the purchaser the exclusive right to fix the price of that which is purchased. (3) Payment on the basis of weight carried and exclusive space furnished at compensatory rates. I understand that the objections to the proposed bill from the standpoint of the carriers, are being formulated in detail and will be presented to you by the committee on railway mail pay, together with their comments upon House Document No. 105, Sixty-second Congress. Yours, very truly, E. D. Sewall, Vice President. Chicago, Milwaukee & St. Paul Railway Co. Chicago, November 18, 1912. Hon. Jonathan Bouene, Jr., Washington, D. C. My Deae Sie : Replying to the questions in your letter, relative to Senate bill 7371: (1) I consider the present plan of compensation as fair as any that could be devised as between the Government and the railroads, although, since the Post- master General's Order No. 412 and the last reduction in the rate, the compen- sation seems inadequate. I also think apartment cars should be paid for at the pro rata rate allowed for full 40-foot R. P. O. cars. (2) I do not think the underlying principle of the plan embodied in bill S. 7371 is a proper basis for compensation for the reason that weight is generally used as a basis of compensation instead of space, although space is considered, to some extent, in the present method; and besides the bill allows too much discretion to the Postmaster General. (3) As stated in answer to question No. 1, I consider the present method a reasonably fair one. I understand that what is known as the committee on railway-mail pay, rep- resenting a number of the roads of the country, is preparing answers to the three questions in your letter, setting forth, in considerable detail, the objec- tions to the proposed change in the method of arriving at compensation to the railroads for carrying the mails, and also stating the objections of the railways to House Document No. 105, Sixty-second Congress. Yours, truly, E. W. McKenna, Vice President. Chicago, Peoeia & St. Louis Railway Co. of Illinois, Springfield, III, September 23, 1912. Hon. Jonathan Bouene, Jr. Washington, D. C. Deae Sie: In replying to your esteemed favor of the 11th instant, in which you ask for suggestions or criticisms in connection with Senate bill 7371, to provide the manner of determining the compensation of railroads -for the trans- portation of mails, the only suggestion or criticism which I can offer at this KAIL WAY MAIL PAY. 45 time is contained in the broad statement that, in my estimation, a great waste of energy and money has been incurred in the preparation of the bill re- ferred to. In my opinion a much more satisfactory bill could have been prepared had those in charge of the work thought to provide one wherein it was provided that the Postmaster General shall have the power to compel any and all rail- roads to handle United States mail in any and all trains and cars and fix the compensation to be paid for the service rendered. Upon the order of the Post- master General all railroads shall furnish free transportation to all employees of the Post Office Department and provide special equipment in which said employees should be privileged to ride, and, finally, that any laws now on the statute books giving to the railroad companies any rights whatever inconsistent with the foregoing should be repealed and the passage of any such laws in the future prohibited. In other words, I think that Senate bill 7371 is as inequitable and unfair to the railroads as any such bill could possibly be. It gives absolute and dicta- torial powers to the Postmaster General and names as the sole arbitrator to be appealed to in case of dispute another department of the Government. So far as the transportation of mails is concerned, the relation the Government bears to the railroad companies is the same as that of the express companies to the railroad companies, and I think the railroad companies, in the handling of United States mails, are entitled to contractural rights. The Constitution of the United States does not contemplate in any manner the idea of placing in the hands of any one man dictatorial powers such as it is proposed to confer upon the Postmaster General in Senate bill 7371. I am, yours, truly, John P. Ramsey, Ghiel Executive Officer. Chicago, Terre Haute & Southeastern Railway Co., Chicago, October 25, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: In reply to your letter of September 11, inclosing a copy of Senate bill 7371: Without giving a detailed discussion of the bill, I shall merely point out to your committee that the proposed plan of this bill applied to all business in this country would wreck the Nation ; or applied to aDy single enterprise — industrial or railway — would destroy that. I have seen a copy of a letter addressed to you by the committee on railway mail pay, dated October 3, and I am in full accord with the position of the committee therein taken. Yours, very truly, M. J. Carpenter, President. Coal & Coke Railway Co., ElUns, W. Va., September 19, 1912. Hon. Jonathan Bourne, Jr., Chairman, Washington, D. C. Dear Sir : Your favor of the 11th instant is received. I am not in a posi- tion just at present to reply fully to your inquiries. I have spent considerable time during the last two years on this subject and I believe the present plan of compensation for railway mail services is entirely unfair to the railroads, and especially so to the smaller roads, such as this one. I believe the underlying principle of the plan embodied in Senate bill 7371, copy of which you inclose, is also unfair. - I am unable at this time, however, to prepare a condensed statement of my reasons and of my suggestions as to what would be fair, but will be very glad to furnish a statement of this sort as soon as we can have the necessary information prepared. Unfortunately this road suffered heavily in the recent floods, and we are at present necessarily spending all our energy to repairing the damage. Very respectfully, A. M. Smith, General Manager. 49390—14 4 46 RAILWAY MAIL PAY. Crosbyton-Southplains Railroad Co., Grosbyton, Tex., September 24, 1912. Hon. Jonathan Bourne, Washington, D. C. Dear Sir: Replying to your circular letter of the 11th instant, with which was inclosed Senate bill 7371. Replying to your first question, I can see no method of fixing compensation for postal service on this line which would be more equitable than the one now in use. To the second question, while it may be possible that the principle of plan embodied in the bill is correct, I do not feel that 6 per cent added to the actual cost of handling the mail is a sufficient remuneration for this class of mail, considering the fact that it requires the highest class of service which we are capable of giving and we are subject to heavy fines for any failure to perform our duty fully and promptly. On a line such as this, with but a single daily train service — handling freight, passengers, mail and express on one train — it would be almost impossible to separate the cost of handling mail from the other classes of service rendered, and the only way which would occur to me to do this would be to fix an arbitrary percentage, which might be correct and would more likely be incorrect. To the third question, I can see no more just plan for fixing compensation than on a pound basis coupled with car-foot basis. Yours, very truly, A. B. Spencer, Assistant General Manager. Cumberland Valley Railroad Co., Chamber sburg, Pa., October 24, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: Your circular letter of September 11 was duly received, and I thank you for the opportunity of explaining the deficiency in the amount allowed by law to the Cumberland Valley Railroad Co. for carrying the mails and for the expensive facilities needed by the Post Office Department in con- nection therewith. The questions you ask as to the effect of the present plan of compensation on railroads generally and the effect of proposed laws such as Senate bill No. 7371 can best be answered by those who have made a general study of the sub- ject. I have read a copy of the response to you from the committee on rail- way-mail pay, representing 268 railroads, and it seems to be a fair and adequate summary of the defects and the suitable remedies. On behalf of the Cumberland Valley Railroad I request your particular atten- tion to the urgent; necessity for a provision of law to pay for mail apartments on some bnsis that will compensate for their service. The railroads get no pay at all for these mail apartments 30 feet or less in length, although these travel- ing post offices perform the same function as full railway post offices and are not at all needed by the railroad company in transporting the mail; also for a provision of law to pay for side and terminal messenger service at its fair value to the Post Office Department. It is further of great importance that a definite arrangement be made, so that when a railroad company considers itself under- paid or subjected to unduly onerous conditions an appeal from the decision of the Postmaster General may be heard by some neutral authority with power to determine finally the justice of the case. I believe that the United States Supreme Court has held that the railroads (other than land-grant roads) are not obliged to carry the mails, and it is there- fore assumed by many that the railroads are free agents, and if they continue to carry the mails it must be because they consider the rates of pay remunerative regardless of their protestations. If they have the theoretical right of refusing the mail service, they can not exercise the right without ignoring the fact that the communities dependent upon them must have communication by letters, etc., and as the law gives the monopoly of first-class mail to the Post Office Depart- ment a refusal by the railroad to accept mail service would cause very great inconvenience and loss to the people. Hence Congress should protect the railroad companies in the performance of this public duty by guaranteeing a fair return both by a positive enactment prescribing adequate and definite rates and RAILWAY MAIL PAY. 47 also by providing for some arbitral tribunal for adjusting differences between the Post Office Department and the railroad company. In the test of November, 1909 (H. Doc. No. 105), the Postmaster General found that the mail pay for the Cumberland Valley Railroad fell short by 23 per cent of covering the operating cost and taxes chargeable to the mail service. Our own calculation at that time showed a shortage of about 35 per cent, and we still believe that our own computation was more correct than that of the Post Office Department. The deficiency in either case is really much greater, because both calculations contain no allowance for fixed charges. The annual pay of the company for all the mail service covering 160 miles of railroad and including double daily, and in one part triple daily, mail apart- ment service occupying 25 or 30 feet of the car, is only a little over $21,000, To obtain a fair return, including 6 per cent dividend, it can readily be esti- mated that the amount should be at least $37,000 per annum, or an increase of $16,000, or about SO per cent. This would require an allowance for a daily round trip of a mail apartment car (in addition to the pay for weight of mail carried) on about the following scale : Per mile per annum. 30-foot apartment $63. 50 25-foot apartment 53.00 20-foot apartment 42.50 It is trusted that your committee will succeed in securing legislation to correct this long-standing injustice. Very truly, yours, M. C. Kennedy, Vice President and General Superintendent. Deering Southwestern Railway, Chicago, September 26, 1912. Hon. Jonathan Bourne, Washington, D. C. Dear Sir : I have your very courteous letter of the 11th instant, together with copy of Senate bill 7371. The service this railway now performs in handling United States mail sim- ply in sack form, without any collection or distribution, warrants me in saying we are reasonably well satisfied with our present compensation. This, however, refers only to this railway. We do not believe the plan proposed by the bill would be a reasonable compensation of the service an ordinary mail-carrying railroad would perform, and should this company at any time undertake the collection and distribution of mail between stations on its various lines — that is, the handling of individual pieces of mail — we should certainly find this bill an additional expense against our operation rather than a matter of income. This writer also has particularly in mind the prospect of handling mail under the parcel-post act, and unless some special provision is made for the parcel post — some special compensation — this company would certainly strenuously object to the basis of compensation proposed in Senate bill No. 7371. Answering your direct questions : 1. The present plan of compensation seems to this writer to be reasonably equitable, and in making this reply he has reference particularly to mail han- dled by this company under the plan now in vogue. 2. The underlying principle in the plan embodied in Senate bill 7371 is not a proper basis for compensation, because it would not begin to compensate a railroad for the service performed. No railroad can afford to handle its traffic for the actual cost of the service plus 6 per cent, because of the underlying obligations in the shape of securities that must be met, as well as taxes etc. 3. This writer lacks sufficient familiarity with the whole mail-carrying problem as practiced on the trunk lines to give any information of value. It is his belief, however, that the United States Mail Department should compen- sate the railroads for the service they perform in a liberal manner, so the service may be extended and of the very best character. Much complaint is being heard in this city and in some other places regarding the inadequate mail facilities. What causes this the writer does not know, but statements are made in the daily press not infrequently that mail is delayed in transit, is delayed in delivery after arrival in Chicago, and certainly a complete study 48 E AIL WAY MAIL PAY. of the whole problem should be made by your honorable committee into its minutest details before passing an act regulating this matter. Regret I am not able to advise you more fully. Believe me, Very truly, yours, F. B. Montgomery, President and General Manager. Delaware, Lackawanna & Western Railroad Co., New York, October 31, 1912. Hon. Jonathan Bourne, Jr. Washington, D. G. My Dear Sir : Your letter of September 11 to our secretary, Mr. A. D. Cham- bers, with accompanying copy of Senate bill No. 7371, being a bill to provide the manner of determining the compensation of railroads for the transportation of the mails, and the several questions you submit, have had careful considera- tion at the hands of our people. Answering your several inquiries in the order in which they are made, I beg, in behalf of this company, to submit the following : (1) The present plan of compensating the railroads for the transportation of United States mails, broadly speaking, is as fair and equitable a one for the railroads generally as could probably be devised. From the Government's standpoint it certainly never has been inequitable, while, on the contrary, so far as the railroads are concerned in the administration of it, much injustice has almost continuously been done ever since it was adopted. In the first place, the infrequent weighing of mails, whereby this is done every four years, has unquestionably resulted in the railroads carrying, dur- ing each period of four years, somewhere between 5 and 10 per cent in weight of the total mails carried without any compensation whatever. Again, the rail- roads have been required to perform services between stations and post offices, also terminals, in the way of delivery of mails, at a considerable expense, for which they have never been paid. Still again, the horizontal reduction in pay made by the act of Congress on March 2, 1907, followed by Order No. 412 of the Postmaster General changing the divisor, has worked serious injustice and loss to the railroad companies. Furthermore, under the regulations of the Post Office Department the rail- roads are required to handle mails on all trains, and there are innumerable instances where this service has been ordered on trains, the nature of same requiring a full extra car to be hauled by these trains in order to provide the space required by the Post Office Department for a comparatively small amount of mail. The railways are also required to furnish, free of rent, at nearly all important terminal points, space for the storage and handling of mails, and heating and lighting of the space furnished, as also other accommodations for postal employees which cost them in the aggregate large sums of money to pro- vide and maintain. The recent reductions in compensation for carrying mails referred to above have been made in the face of large increases in the cost of almost every item entering into the expense of railway maintenance and operation. Railway com- panies, furthermore, are continually assessed with fines for failure to deliver mails on the scheduled time of trains, although the delays in many cases are due to causes wholly beyond the control of the company or its officers. (2) The plan embodied in Senate bill No. 7371 for compensating the railroads for transportation of United States mails is not a proper and just basis for such compensation, and if made effective by law will work gross wrong and injustice to the railroads of the country. The proposition to place solely in the hands of the Postmaster General of the United States the question of determining what the railroads should receive for performing this important service, coupled with the provision in the bill fixing the method to be pursued by that official in determining the amount of compensation to be paid, is, as we believe, with- out precedent in this country and amounts to the Government taking from the railway companies their property, or the use of their property, for the public benefit, without due compensation. The operating cost of performing the serv- ice, arrived at as prescribed by the bill, together with the taxes plus 6 per cent for profit, would not by any means justly reimburse the railways for the serv- BAILWAY MAIL PAY. 49 ice performed for the Post Office Department in the manner that department requires it done through its various administrative orders. It is wholly with- out precedent in this country, we believe, and entirely wrong in prnciple, that a department of the United States Government should be given the power con- templated in this bill to use the facilities of the railroads of the country for its purposes on terms fixed by the officials in that department, the interest of such officials being palpably to make the best showing they can for their department regardless of the effect upon the railways of the country, upon which it must so entirely depend to perform the postal service for the public. The interests of the railways in this matter will not be properly safeguarded by a provision that an appeal from the Postmaster General may be taken to the Interstate Commerce Commission. Not only is that commission now so unduly burdened by the duties imposed upon it by existing laws, as respects the regulation of railway rates and practices, that it can not possibly assume the additional work and responsibilities incident to fixing a just compensation for the transportation of United States mails, but its position is and always has been, since its original appointment, that its duty is to watch over and protect the interests of the public, and not the railroads, in all matters affect- ing rates and rules governing the transportation of passengers and freight. (3) It does not seem to us that any better or more equitable plan for com- pensating the railroad companies for the transportation of United States mails can be adopted than the existing one, which has been in effect for many years and with the operation of which all concerned, both the postal authorities and the railways, are more or less familiar. We believe it might be amended in the manner hereinbefore suggested, which would result in the elimination of some inequities which now exist and whch should, in all fairness to the rail- roads, result in a more impartial adminstration of the law by the postal authori- ties than has been prevalent heretofore. Trusting what I have stated herein may, in some measure at least, commend itself to your careful consideration, I beg to remain, Very truly, yours, W. H. Linsdale, President. Denver & Rio Grande Railroad Co., New York, September 18, 1912. Hon. Jonathan Bourne, Jr., Chairman, Washington, D. C. My Dear Sir : Your letter of the 11th instant and copy of Senate bill 7371, introduced by you on behalf of the Senate Committee on Post Offices and Post Roads, came this morning, and both have been referred to the operating staff in San Francisco — Mr. C. M. Levey, second vice president and general manager, and Mr. Warren Olney, jr., the general attorney. Western Pacific has been favored thus far with but very little United States mail. Yours, sincerely, E. T. Jeffery. Denver, Boulder & Western Railroad Co., Boulder, Colo., September 19, 1912. Hon. Jonathan Bourne, Jr., Chairman, Washington, D. C. Dear Sir: Your esteemed favor of the 11th instant with inclosure as stated is received. As applied to this company the present plan of compensation for transpor- tation of the United States mails, which provides for a minimum rate of $42.75 per mile per annum, is regarded as equitable, except that it is believed that in addition to the compensation now received the Government should remunerate the railroad company for the space devoted to the use of the mails in combi- nation passenger, mail, baggage, and express cars, such compensation to be pro rata to the amount allowed for cars 40 feet in length used exclusively for the handling of the mails, as provided under section 1176 of information rela- tive to transportation of mails by railroads issued by the Second Assistant Post- master General. Respectfully, W. B. Hayes, President. 50 RAILWAY MAIL PAY. East Broad Top Railroad & Coal Co., Orbisonia, Pa., September 16, 1912. Hon. Jonathan Bourne, Jr., Chairman, Washington, D. C. Dear Sir : Your circular letter of September 11. regarding Senate bill 7371. I beg to submit the following answer to your questions : 1. The present plan of mail compensation so far as it relates to service per- formed by this company is equitable. 2. So far as short lines are concerned, operating under conditions similar to ours, the underlying principle of plan embodied in Senate bill 7371 is not equi- table. It leaves railroads practically at the mercy of the Post Office Department. The department is privileged to demand whatever service and equipment it wants and pays whatever it pleases in the way of compensation. No short line can afford to antagonize the department, and to combat their decisions may cost several years' earnings. The idea of not allowing a railroad to judge whether they can afford to handle mail for compensation allowed can not be considered equitable. The authority given the department to order mail-car service, particularly on short lines, may mean more of an outlay for equipment than revenue would amount to in five or six years, to say nothing of the expense of maintenance and continual transportation of a car that may not be needed. 3. This question is virtually answered by No. 1. Present plan is apparently all right for short lines, particularly when no mail-car service is required. The pouch system, which is the one in vogue here, gives satisfaction. Post offices have two mails from each direction every day and compensation is based on weight of mail handled. Yours, truly, Edward C. Hall, General Manager. Farmers' Grain & Shipping Co., (Devils Lake & Northern R. R.), Devils Lake, N. Dak., September 18, 1912. Dear Senator : This will acknowledge receipt of yours of the 11th inclosing copy of Senate bill 7371, and in reply to question No. 1 would say that I do not consider the present plan of compensation for carrying the mails as an equitable one as between the Government and short railroads, such as ours, which is but 66 miles long, mainly for the reason that we do not obtain sufficient compensation under this plan. In answer to your second question, I object to the principle of your bill for the reason that I can not understand why Government service should be per- formed at actual cost any more than any other service, and furthermore for the reason that under the proposed payments for postal service established under this bill we would not get enough revenue to pay the cost of maintenance of the postal car aside from the cost of train service and the delivery of the mails. I have before me a statement from the Post Office Department of the com- pensation we are to receive under this bill, and it shows that we are now re- ceiving 70 per cent more than we would under your bill; at least this is the way the department has figured it. We are now receiving about $10 per trip for supplying, maintaining, and hauling compartment car for a distance of 132 miles, delivering and receiving the mails at 10 different stations, where we have to pay our agents extra for this service, besides the wear and tear on the car, which has to be renewed every few years. From this you will see for yourself that if our compensation is reduced 70 per cent that the Government is forcing us to do something for next to nothing. As it is now we are performing the service at 40 per cent below cost, regardless of the department's figures, and we are doing so for the reason that we wish to accommodate our patrons and not for any profit in the business. Therefore I would seriously object to the last clause, on page 9 of the bill, which penalizes a railroad for refusing to carry the mails for such compensation, for I assure you we would positively refuse to carry this mail for any such compensation, and the Government would find it would cost them $100 per trip when carried by team for the service we are now doing for $10. In reply to your third question I would say that the proper method of com- pensation for such railroads as ours would be for the Government to pay for the space occupied by the postal section of a car or a full postal car at the same KAIL WAY MAIL PAY. 5l average rate of earnings as if occupied by express or passengers, and I fail to see why the Government should have a cheaper rate than anyone else. Under this method we would receive about 40 per cent more than we are now getting, which in our case would about pay the expenses of carrying the mails. Very truly, yours, Jos. M. Kelly, President.. Senator Jonathan Bourne, Washington, D. C. Fort Smith & Western Railroad Co., St. Louis, El Reno & Western Railway Co., Fort Smith, ArTc., September 17, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: In response to your favor of September 11 regarding Senate bill No. 7371, beg to advise that the reply of Mr. W. E. Crane, our vice president, will include the views of this office regarding the subject. Assuring you that the inquiry is highly appreciated, I remain, etc., Yours, very truly, W. M. Bushnell, General Manager. Fort Smith & Western Railroad Co., St. Louis, El Reno & Western Railway Co., St. Louis, Mo., September 18, 1912. Mr. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: With reference to your letter of September 11, inclosing bill S. 7371, 1 inclose herewith a copy of a letter received from Mr. W. M. Bushnell, our general manager, which will give you the views of the Fort Smith & Western Railroad Co. on this question. I trust that it may have your committee's seri- ous consideration. Yours, very truly, W. E. Crane, Vice President. Fort Smith & Western Railroad Co., St. Louis, El Reno & Western Railway Co., Fort Smith, Ark., September 17, 1912. Mr. W. E. Crane, Vice President, St. Louis, Mo. Dear Sir: In response to your favor of September 14 regarding Senate bill 7371. I beg to submit the following in reply to Mr. Jonathan Bourne, jr., inquiries 1, 2, and 3. (1) I do not consider the present plan of compensation equitable, for the reason that the basis is an arbitrary one having no relation whatever to the cost of handling the business or of allowing the carrier a reasonable profit; or, in other words, a reasonable rate of interest on that proportion of the investment which we consider necessary in performing the service. (2) The underlying principle embodied in Senate bill 7371 is defective, for the reason it proposes that the profit for handling the mails shall be 6 per cent of the cost of such service. This railroad has an investment of over $6,000,000, and it costs in round num- bers $600,000 per year to operate it. If the courts were to hold that a reason- able return on the investment was 6 per cent of the cost of operation, its maximum net earnings will then be about $36,000 per annum, equivalent to a fraction over 1 per cent on the total investment. (3) I believe the railroads desire a plan that will cover the cost of handling the mails plus a reasonable rate of interest on such part of the railroad as may be said is required to move the traffic. In a letter written some time ago I reasoned that $750 per mile was in our case a fair value upon which to base at 6 per cent our profit for carrying the mails. This valuation equals less than 2£ per cent of the investment and was 52 RAILWAY MAIL PAY. arrived at by assuming that cost of operation was the proper basis for appor- tioning the cost of the railroad for rate-making purposes on passenger traffic, then subdivided the expense of handling passenger traffic between passenger, mail, and express upon a car-foot basis. I am aware of the difficulty involved in reaching a satisfactory solution of this question, but I feel that the railroad as it stands to-day is just as neces- sary in its entirety for handling the United States mails as it is for any other class of traffic, and feel that the formula for apportioning the investment is fair. I do not believe that the Government or any one, in fact, can with an invest- ment of $750 per mile provide as satisfactory facilities as we do for collecting and distributing the mail over this line. As to House Document No. 105, there is very little criticism to offer, except with respect to that part of the Postmaster General's recommendation that the railroad's profit be based upon 6 per cent of the cost of operation. This propo- sition is wrong from every point of view and should be rejected by the railroads. What the roads should contend for is a return upon their investment. Generally speaking, we agree with the formula adopted by the Postmaster General in ascertaining cost of handling the mails. In our particular instance the Postmaster General's figures show that during the month of November, 1909, the Fort Smith & Western handled the mails at a loss of $177. Had the test been made in May or June of the same year, with the same formula, it would have shown a very much greater loss, and this loss did not include any margin above the actual cost of handling the business. I believe if Congress would go into the matter thoroughly that a method could be found which will more nearly do justice to this road than the one in vogue at present. Yours, truly, W. M. Bushnell, General Manager. Galveston, Houston & Hendeeson Railroad Co., New York, September 16, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I have received your letter of the 11 fh. instant in the matter of the compensation to be paid to railway companies for transportation of the mails. It will give me pleasure to reply to your inquiry a little later. Yours, truly, J. N. Wallace, President. Hoosac Tunnel & Wilmington Railroad Co., Malone, N. Y., September 30, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Sir : Yours of the 11th, inclosing copy of Senate bill 7371, relative to compen- sation to railroads for carrying the mails, and asking my answer to three ques- tions therein propounded, is received. First. To the first question I answer no. It is not fair to short-line rail- roads, whose compensation under the existing methods is wholly inadequate, arbitrary, and inequitable. Second. To the second question I answer no. It attempts to confer on the Postmaster General the power to determine the compensation for the perform- ance of a service by a company, where his interest is, by virtue of his office, to be exerted in behalf of the Government, and he is interested, and should be, in maintaining as low a cost of transportation as he can. It is like proposing that one party to a contract shall have power to dictate its terms and then fining the other party if he does not comply with them. It is against all moral sense of justice and equity, and the method of appeal to the Interstate Commerce Com- mission is not only likewise partial but burdensome and expensive, especially to short-line railroads, that can not afford to keep a corps of lawyers, engineers, statisticians, etc., to appear before the commission; and the commission's em- ployees are partial and have no responsibility except to the Government, and can not know the different conditions that affect different railroads on the sub- ject of cost, and have no interest for the railroad companies. BAILWAY MAIL PAY. 53 Your steel-car clauses may be well enough for trunk lines, but there are hun- dreds of short-line railroads that can not afford or operate steel cars. The bill attempts to confer too drastic and sweeping powers on the Postmaster General, and its constitutionality may well be questioned. In fact, the whole bill seems to be inequitable, drastic, and socialistic. Third. To the third question I answer : There is no reason why the Govern- ment should not pay railroad companies the same price individuals pay for like service. A railroad company, being acquainted with its expenses of operation, can determine at what price per hundred pounds it will transport the mails, furnish cars, etc., and if the Postmaster General is not content with them^ then let him do as any other shipper may — appeal to the commission, State or national, from whose decision an appeal to court should be allowed. Such a method would be more equitable and make it usually a matter of contract, as it should be. We must assume the office of Postmaster General will look after the interests of the Government and the railroad company will look after its own interest, and from that a more equitable situation will result than through the drastic and socialistic methods proposed by this bill. Hoping I have fully answered your inquiry, I am, Very truly, yours, J. P. Kellas. Idaho Southern Railroad Co., Milner, Idaho, November 2, 1912. Jonathan Bourne, Esq., Washington, D. C. Sir: Replying to yours of September 11, relative above numbered bill, in reply to question 1, would say that I consider the present plan is equitable between this company and the Government. I have no figures as to other classes of railroads, and am, therefore, not competent to offer any opinion. Question 2: I consider the underlying principle of the plan embodied in the above bill the proper basis for compensation, so far as this company is con- cerned, but I believe that whenever additional service is asked for compensa- tion should be allowed for same. Question 3 : I know of no more desirable plan than the one proposed, with the exception as noted in reply to question 2. Yours, truly, D. C. MacWatters, Vice President and General Manager. Kahului Railroad Co., Kahului, Eawaii, October 15, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : Your letter to Mr. Joseph P. Cooke, treasurer of the Kahului Rail- road Co., dated September 11, 1912, has been handed us for acknowledgment. We have given careful attention to the copy of Senate bill 7371 introduced by you, and embodying a plan recommended by the Post Office Department for determining the compensation to be paid to railroad companies for the transportation of the mails, and in reply to your questions would say that while we have no complaint to make as to the present plan of compensation which this railroad receives from the Government, we do think that the underlying principle of the plan embodied in the proposed bill is a proper basis for com- pensation. Yours, very truly, Kahului Railroad Company, J. N. S. Williams, Superintendent. Kansas Southwestern Railway Co., Arkansas City, Kans., September 21, 1912. Hon. Jonathan Bourne, Jr., Chairman, Washington, D. C. Dear Sir: Your letter of the 11th inclosing copy of Senate bill 7371, and ask- ing for expression of opinion to three questions. It has been some time since I was familiar with the details of this subject, and in order that I may reply intelligently, it will be necessary to go over previous reports and House House docket No. 105 before making reply. 54 KAILWAY MAIL PAY. If after doing so I feel that I can give you any information, will gladly write you in reply to your interrogations. Yours, truly, E. L. Kingsbury. Keweenaw Central Railroad Co., Duluth, Minn., October 11, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: I beg to acknowledge receipt of your circular letter of the 11th ultimo, inclosing a copy of Senate bill No. 7371, as therein stated. I have carefully considered the proposed bill embodying the plan recommended by the Post Office Department for determining the compensation to be paid to railway companies for transportation of the mails, and, complying with your request, beg leave to answer the questions of your letter as follows : 1. I do not consider the present plan of compensation altogether an equitable one as between the Government and the railroads. It is my understanding that the railroads are now unduly burdened with heavy expense in building and equipping mail cars required to meet the increasing demands and exacting con- ditions imposed by the Post Office Department for safety, etc., and the comfort and convenience of messengers, and that in consequence the railroads' expenses incident to the mail service are increasing out of all proportion to the revenues earned. Also, under the present plan the minimum compensation allowed is too small for newly constructed lines struggling for existence in sparsely settled districts or in territory that is not largely enough populated to bring the mail weights above the minimum. 2. The principle embodied in the proposed bill is not a proper basis for com- pensation, for the reason, among others, that it is absolutely impossible to determine the cost of transportation of any particular class of freight or people. The plan adopted by the Postmaster General and recommended in said bill for arriving at the cost to the railroads of handling the mails would produce an illogical and distorted result. It is impossible to determine with any degree of accuracy the actual cost of the particular service, and the same plan here pro- posed applied to all the business of the railroads would, in my judgment, promptly reduce them to bankruptcy. 3. While the present plan of compensation may now be more nearly equitable to the large lines, it will not be equitable even to them in the near future when steel equipment throughout is demanded by the Post Office Department. Con- sidering, among other things, the efficiency of the service required by the Government and the public, and now furnished by the railroads, the rates of payment should be increased and not reduced, and the minimum should be con- siderably increased. 4. Since the 1st instant the Keweenaw Central Railroad Co. has been carrying 14 pouches a day, and is only receiving for transporting the mails $1,192.02 per annum. If the proposed bill should become the law, and assuming that we were allowed the minimum compensation provided thereby of $25 per mile for the length of our line from Calumet, Mich., to Mandan, Mich. (28.1 miles), we would only receive for this service $702.50 per annum. This company is now operating passenger trains at a loss for the convenience of the few residents of Keweenaw and to enable them to receive regular mail service. Further reduc- tions in the compensation as contemplated by this bill would undoubtedly make it necessary for this company to abandon its passenger service. 5. I desire to protest earnestly against the enactment of any such legislation as proposed, on the grounds that it will be impossible to ascertain the cost of the service as proposed; that the railroads will not be able to carry the mails under it except at a loss ; that such a law will materially handicap new roads and the smaller lines like ours, and especially those serving sparsely populated districts ; and, in general, that the necessary effect of any such legislation wiJl be to impair the present efficiency and high standards of the entire Railway Mail Service of the country and be greatly detrimental to the public and all concerned. Respectfully, T. F. Cole, President. RAILWAY MAIL PAY. 55 Kushequa Route, Mount Jewett, Kinzua & Riterville Railroad, Kushequa Railroad, Mead Run Railroad, Smethport Railroad, Kushequa, Pa., September 23, 1912. Hon. Jonathan Bourne, Jr., United States Senate, Washington, D. G. Dear Sir: Thanking you for your favor of the 11th instant, inclosing copy of Senate bill 7371, I have examined same and wish to reply to your three ques- tions as follows : 1. I do not consider the present plan of compensation an equitable one. It is inequitable in that it practically compensates as liberally those railroads which, passing through thickly settled regions, have abundant earnings and frequent profitable passenger trains, so that they are put to very little expense for transportation of mails ; and those railroads which, passing through sparsely settled regions, perform passenger and mail service at a loss to themselves, but as necessary to the existence of the communities along their lines. It is unfair to require free delivery by the railroad companies to terminal post offices re- gardless of distance. In our case, the delivery from our terminal stations to terminal post offices costs us nearly half as mUfch as the total amount we receive for carrying the mails. 2. The underlying principles which I observe in the proposed bill, i. e., ascer- tainment of costs by Postmaster General with appeal to the Interstate Com- merce Commission and more frequent adjustment of the rate of compensation would be a desirable improvement. The principle of the bill is defective in that it does not indicate the bases upon which the Postmaster General shall compute cost. It is also defective in not providing for compensation for carrying of pouched mails. In the case of our road, for instance, all mails are carried in mail pouches in the baggage compartment of our combination coach, there be- ing no separate car or portion of car devoted exclusively to mail service. I am pleased with that feature of the bill which takes the frequency of train service into consideration. I think that it is a mistake to make so low a minimum rate of compensation as " not exceeding $25 per mile." In the case of short lines of road this would be a great hardship. 3. A desirable plan for compensating for transporting the mails would be power on the part of the Postmaster General, subject to appeal to Interstate Commerce Commission, and in accordance with well defined rules, to ascertain both the cost and the value of the service rendered and base compensation accordingly. Among the rules for the guidance of the Postmaster General one should take into consideration the loss or profit of the train service on which the mails were carried; another, the length of line and cost of delivery of mails at sta- tions and termini ; another the relation between the net weight of mail matter transported and the gross weight inclusive of pouches and cars or parts of cars transported for the purpose of carrying the mails. This latter would form a very practicable method of increasing the compensation in accordance with the needs of railroads passing through sparsely settled districts and yet endeavor- ing to give good service; for in such cases mails might consist of a few letters only to the pouch and many pouches, or of a mail car or mail compartment in a car transported through a long stretch of country which provided very little mail matter. Between large cities, where there is much mail to be transported, the passenger traffic in the trains is apt to be profitable, so that the compensation for carrying the mails is practically surplus profit. And between such cities there is usually one or more competing lines, any one of which could transport practically all the mail at a competing rate if allowed to bid for it. There is a case on our road where the contents of one mail pouch does not average more than one letter per day, and yet the prompt transportation of that one letter is almost vital to the success of the industries on which the busiest community on the line of railroad depends. The letter in question transports the day's remit- tances to bank and arrangements with ,that bank to provide for the day's requirements. I realize that you are a very busy man; but have endeavored to reply as intelligently as possible to the questions in your letter. Yours, respectfully, Elisha K. Kane, President. 56 KAILWAY MAIL PAY. Lake Superior & Ishpeming Railway Co., Munising, Marquette & Southeastern Railway Co., Marquette, Mich., October 12, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: Replying to yours of September 11 relative to Senate bill 7371, introduced by you by direction of the Senate Committee on Post Offices and Post Roads, I have to say that we have been furnished with a copy of the reply forwarded by the committee on railway mail pay and we fully indorse the position taken by that committee. • We believe that the short railroad should receive more than ordinary con- sideration on account of running through a sparsely settled country where the mail carried per mile is much lower than the average and the present rate of remuneration is not too high. Up to July 1, 1911, the Marquette & Southeastern Railway and the Munising Railway were two separate corporations, but were consolidated under the name of the Munising, Marquette & Southeastern on the above, date. Document No. 105 shows the following results: Marquette & Southeastern, gain in mail revenue for one month $134. 01 Munising Railway, loss in mail revenue for one month 124. 87 Net gain, Munising, Marquette & Southeastern Ry 9. 14 And this compilation does not take into account the investment in one extra compartment car which we must keep in reserve for emergencies. As the reply forwarded by the committee on railway mail pay goes into all matters in general, I will not touch on any of the details of a short-line railroad except as above stated, that due consideration should be given to that service as being different from service performed by other railroads. Yours, truly, H. R. Harris, General Manager. Lancaster & Chester Railway Co., Lancaster, 8. G., October 2, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: Replying to your letter of the 11th I am inclosing you a letter that I recently wrote to the Assistant Postmaster General, at Washington, re- garding the compensation allowed the Lancaster & Chester Railroad Co. for hauling mail and mail car. This will fully explain our position. I contend that it is not fair to put short-line railroads on the weighing basis owing to the fact that they are generally run from one important town to another, and when main lines of railroad are running through both of these towns they only get to haul local mail, getting no through mail, while they have to perform all the services required by the Government. The compensation allowed short lines is arbitrary, unjust, and unfair. In my opinion the com- pensation should be allowed on a basis of the service rendered irrespective of the amount hauled, except on main lines. This rule applies as regards rural mail carriers and I can see no reason why short-line railroads should be arbitrarily required to render the service on a basis that is not remunerative. Thanking you for your inquiry, I am, Yours, very truly, Leroy Springs, President September 13, 1912. Hon. Joseph Stewart, Second Assistant Postmaster General, Washington, D. G. Dear Sir : Effective July 1 you changed your method of determining compen- sation for the handling of mail by the Lancaster & Chester Railway Co., which operates between this point and Chester, S. C, and of which I am president. This cuts our remuneration down to about $1,000. It is necessary that we fur- nish a mail car to conform to your rules and regulations and also give free transportation to your mail clerk, and the amount you now propose to pay us EAILWAY MAIL PAY. 57 net only does not allow any rent for the car we supply but pays us scarcely 2 cents a mile for hauling your clerk. I do not think the Government ought to expect a short-line railroad to perform this service without fair remuneration, and I do not believe you realize the imposition on our railroad under the cir- cumstances. Do you realize that you are requiring us to give you regulation service on trains twice each day between here and Chester for a sum less than you pay one of your rural carriers per annum? I do not question that the expense entailed in transporting mail between Lancaster & Chester nets the „ Govern- ment a loss, but the service has to be performed just as in the case of unprofit- able R. F. D. routes, but in your case you have other lines which are profit- able and which counterbalance this loss. In our case our only source of revenue from the Government is in handling this mail, and just because the line is not profitable to the Government is no reason to my mind why you should ask it to be unprofitable to us. If the service were performed by rural carriers it would be at an expense three or four times as great as at present and the service would be from three to five hours later. If we transported through mail between these two points our income would be considerable and enough to pay us for the facilities we supply, but in view of the fact that the trunk lines reach both Chester and Lancaster ahead of our line the only through mail we handle is for intermediate points, which is of little consequence. Under the ruling of the United States Supreme Court we understand it is optional whether we perform this service or not, and unless you can arrange to give us a fair income for the service we are perfoming we must in fairness to ourselves decline to continue handling mail. We therefore respectfully serve notice on you now that from this date until a satisfactory adjustment of this subject is reached we handle all mail of the Lancaster & Chester Railway Co, under protest. It is not the fault of this road that the mail is not of greater volume, and the service we render is just the same as if it were ten times as great, and we could handle ten times as great volume at absolutely no addi- tional expense over our present cost. I trust you understand the spirit in which I have placed this subject before you. We have no desire to be in the least arbitrary, but it is simply an injus- tice to our railroad that we should have to perform a service at a loss which should show a fair income for the trouble and expense we are put to. Our Congressman, Mr. D. E. Finley, who is a member of the Post Office Committee, is familiar with the situatiou, and if you wish further information upon the subject I suggest that you take it up with him. We trust you will handle this with promptness, so that we may have it satis- factorily adjusted at no distant date. Yours, very truly, Leroy Springs, President. Leavenworth & Topeka Railway Co., Emporia, Kans., October 22, 1012. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: Yours of September 11, inclosing copy of Senate bill 7371. As the Leavenworth & Topeka Railway Co. is being operated by the Atchison, Topeka & Santa Fe Railroad Co. I take it that Vice President George T. Nichol- son's letter of October 17 to you on the subject will give you the information called for in your letter of September 11. Yours, truly, C. T. McLellan, President. Lorama Railroad Co., Pennsboro, TV. Va., September 1.',, 1912. Hon. Jonathan Bourne, Washington, D. C. My Dear Sir : I beg to acknowledge receipt of copy of your Senate bill 7371, which you were so kind to send me. To be frank with you, I must say that I would be very sorry to see this bill become a law. It would work a great hardship on all small roads to com- pel them to perform a task at a loss of money. This being in violation of the spirit of the Constitution the courts would relieve, but the expense of defense would work loss anyway. 58 KAIL WAY MAIL PAY. We have operated 9 miles of narrow-guage road for years over which the United States mail >s carried for a very significant sum, if one did not care what he said. We carry it for $40.28 per month. We pay $5 per month for delivery to post office, which leaves us $35.28 per month, to say nothing of the fines and reductions. In the last three years we have extended this road 5 miles to town of Pullman, and we refused to carry the mail over this part of road because of the poor pay. The Government offered us $20.83 per month and we would have to pay $15 per month to make delivery from depot to post office, which would leave $5.83. We refused and did and do not carry over this part of road. We would get, if we carried mail, clear $41.11 per month for carrying mail four times a day 14 miles, while a rural carrier gets $75 per month for carrying once a day on a mule. The small roads should be excepted from your bill. I believe you will, be- cause in your effort to benefit the Nation you would not confiscate any citizen's property. Would you? Truly, yours, M. K. Duty, President Lorama Railroad Go. Louisville & Nashville Railroad Co., Louisville, Ky., December 30, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: Your favor of September 11, 1912, relative to the compensa- tion to be paid to railroad companies for transportation of the mails, in which you made certain inquiries in regard to the present plan and the plan recom- mended by the Post Office Department, was duly received. Inasmuch as the committee on railway mail pay, representing 214,275 miles of railway in the United States, operated by 268 companies, prepared and sub- mitted a comprehensive statement containing facts and figures going to show that the present compensation does not equal the operating expenses incident to the transportation of the mails, and, therefore, leaves nothing for return upon the value of the property employed, I concluded that it would be best to subscribe to the statements of the committee and not inflict a lengthy inde- pendent argument upon you. I heartily indorse the statement of the committee as set forth in the pam- phlet entitled, " Mail Carrying Railways Underpaid," believing it to be an absolutely accurate presentation of the fact that the present system is grossly unfair to the railroads. It has occurred to me, however, that you might be interested in the facts and figures concerning specific cases on this company's lines where the existing laws or the Post Office Department's methods of applying them result in in- equity. I therefore inclose herewith memoranda as follows : 1. Cost of handling mail to and from post offices at various points. 2. Mail compeusation earned by mail apartments July 1, 1902, to June 30, 1912. 3. The effect of quadrennial mail weighings and adjustments of mail pay as compared with annual adjustments. The compensation of the Louisville & Nashville Railroad Co. was last fixed for the quadrennial period commencing July 1, 1912. The tonnage of mail mat- ter will be enormously increased on the 1st proximo when the parcel post will be inaugurated. The weight will gradually increase as the parcel post grows in favor, as will undoubtedly be the case. It follows, therefore, that unless Congress comes to our relief we will be called upon to perform a very great and valuable service for a period of three and one-half years without any compensation. Under conditions such as have existed heretofore the quadren- nial basis is manifestly inequitable, because the measurement of the compen- sation wholly disregards the normal annual increase which is inevitable, but under the burden of the parcel post this inequity will be greatly multiplied. The result of the recent weighing on the Louisville & Nashville Railroad for 54 of our 59 mail routes was as follows: Pay per annum June 30, 1912 $759,943.22 Pay per annum July 1, 1912 801, 626. 71 Increase per annum 41, 683. 49 E AIL WAY MAIL PAY. 59 Based upon the reasonable assumption that the increase in the amount of mail handled was fairly regular during the last four years, annual weighings and readjustments of pay would have resulted in our receiving one-fourth of the increased rate now shown, or $10,420.87, for three years; another one-fourth for two years, and another one fourth for one year, making a total of $62,525.22 ; but, under the quadrennial arrangement, we carried the increased amount of mail up to June 30, 1912, without receiving 1 cent additional compensation. You can readily appreciate what an injustice will be imposed upoD the Louis- ville & Nashville Railroad Co. during the next three and one-half years if it is not allowed adequate additional compensation for the large volume of par- cel post matter. If the above should suggest any inquiries I shall be pleased to answer the same. Yours, truly, M. H. Smith, Jr., President. Memorandum as to Cost of Handling Mail to and from Post Offices at various points. At Pensacola, Fla., the distance between the station and post office, 0.73 of a mile, is included in and paid for as a part of two routes, because it is a termi- nal of those routes. On route No. 123003, Pensacola and Flomaton, the amount of compensation is $92.87 per annum, being at the rate of $127.22 per mile for 0.73 mile. On route No. 123015, Pensacola and River Junction, the amount of compensation for the service between the station and post office at Pensacola is $82.88 per annum, being at the rate of $113.54 per mile for 0.73 mile. The total of these two amounts is $175.75. As the amount of mail is quite large and there are quite a number of trains to be met, for some of which two trips have to be made, bringing advance mail and final dispatch from the post office, it is necessary to have first-class wagon service. This work is let by tender, and we are now paying $75 per month, or $900 per annum, for the service, so that we actually lose $724.25 on that part of the mail routes. At Columbia, Tenn., on route No. 127017, Columbia and Sheffield, we receive for the terminal service between the station and the post office $44.12, being at the rate of $73.53 per mile for 0.6 mile. It costs us $120 per year to have the service performed. At Frankfort, Ky., on route No. 129050, we receive $22.44 per annum for the terminal service, being at the rate of $64.12 per mile for 0.35 mile. The service costs us $96. At Gallatin, Tenn., on route No. 127026, we receive for terminal service $20.33 per annum, being at the rate of $52.15 per mile for 0.39 mile. It costs us $180 to have the service performed. At McLeansboro, 111., on route No. 135078, we receive for the terminal service $20.94, being $42.75 per mile for 0.49 mile. The service costs us $84 per annum. At this point a condition prevails which looks ridiculous, but is not uncommon under the postal regulations. While this company is responsible for the han- dling of mail between the post office and trains on route No. 135078, the Post Office Department has to pay for the handling of the mail to and from the trains on route No. 135032, East St. Louis and Bvansville, because McLeans- boro is an intermediate point on that route, aud the post office is located more than 80 rods from the station. The fact that the Government employs the mail messenger at that point enables us to make contract with the same man at a comparatively small figure; but, even at this, the service costs us more than four times the amount received. Among the junction points where similar conditions prevail are Frankfort, Columbia, and Gallatin, shown in preceding paragraphs. At Scottsville, Ky., on route No. 127026, we receive for the terminal service $23.46 per annum, and it costs us $144. At Adairville, Ky., on route No. 129014, we receive for the terminal service $31.60, and it costs us $96. Paris, Ky., is an intermediate point on routes 129002 and 129015; but as the distance between the station and post office is slightly less than 80 rods, we are responsible for the handling of the mail to and from the post office. As the mail is heavy and there are a great many trips, wagon service has to be provided, and the smallest amount for which we could get a contractor to undertake this work was $480 per annum. Of course we get no compensation directly for this service, rs the side distance to the post office is not included in the length of the 60 EAILWAY MAIL PAY. route. If the post office was about 70 yards farther away, this service would have to be provided for by the Post Office Department, and we would not suffer any reduction in revenue, but would save the $480 per annum. Other instances might be given, but the above ought to be sufficient to empha- size the arguments that the performance of terminal and side-messenger service is not a reasonable requirement, and that if the carriers are required to perform such service it should be paid for at rates much higher than is paid for trans- portation on trains. Memorandum Illustrating the Effect of Quadrennial Mail Weighings and Adjustments of Mail Pay, as Compared With Annual Adjustments. Complete figures are not at present available showing the results of the mail weighing this year on the larger portion of the Louisville & Nashville sys- tem, and the Post Office Department has succeeded, by economical methods in connection with mail-bag equipment and in other ways, in holding down the amount of mail, so that it seems unlikely that any very great increase will be shown over the figures of 1908. The adjustment effective July 1, 1908, under which we have been working up to June 30, 1912, showed a net increase on the routes weighed of $12,618.70 per annum, as compared with the rates in effect prior to that time. This was a very small percentage of increase as compared with increases shown in previous quadrennial periods, because the department had already commenced to apply its economical methods, and, by the Postmaster General's order No. 412, chang- ing the divisor from six to seven days per week in arriving at the average weight carried, had succeeded in reducing the compensation about one-seventh. It is only reasonable to assume that the increase in the amount of mail which justified the increase in pay of $12,618.70 per annum, took place gradually during the four years intervening between the weighing in 1904 and the weighing in 1908, or, say, about one-quarter of the increase in each year, so that, if we had had annual weighings and adjustments instead of quadrennial, the increase in pay at the beginning of the second year — July 1, 1905 — would have been $3,- 154.67, which we would have received for three years. At the beginning of the third year — July 1, 1906 — there would have been a further increase of $3,154.67, which we would have received for two years, and at the beginning of the fourth year — July 1, 1907 — a further increase of $3,154.67 for that year. In other words, we would have received $18,928.05 for carrying an increased amount of mail each year, but which, under the quadrennial weighing system, we actually carried for nothing. Memorandum Showing Mail Compensation Earned by Mail Apartments, July 1, 1908, to June 30, 1912. All the following statements with reference to the amount of compensation credited to particular trains are based directly on statistics furnished by the Post Office Department and may be easily verified. They refer throughout to the quadrennial contract period of 1908-1912, because similar figures are not yet available for the adjustment which is now being made, effective July 1, 1912. Route 12900J/, Cincinnati and Nashville. — Train 10, Bowling Green to Louis- ville. On September 12, 1904, the Railway Mail Service people called for a mail apartment for this run not less than 16 feet long. The results of the mail weighing of 1908 showed that train No. 10 carried only 0.41 per cent (0.41 of 1 per cent) of the total weight carried over the route, which made the com- pensation $1.81 per trip. There is no postal clerk service in this car south- bound on No. 9, but a small amount of mail is handled by our baggage-master. However, this amount of mail was so small that in the percentage sheets fur- nished by the Post Office Department it was disregarded entirely, and no com- pensation whatever credited to train No. 9. Therefore we have for some years been handling what is practically one-third of a car, fitted up as a traveling post office, with mail and the postal clerk, from Bowling Green to Louisville for 1£ cents per mile run, or less than the fare of the clerk would amount to. and so much less than one-third of the average cost of maintaining and hauling the car in a passenger train that such a comparison is ridiculous. As we have to handle the apartment southbound without any compensation, we really only get about three-fourths of a cent per mile for the service. RAILWAY MAIL PAY. 61 Route J 29008, Memphis Junction and MempMs. — Train 109, between Bowling Green and Clarksville, carries only 0.63 per cent of the total mail on the route, which makes the compensation for that train only $1.25 per trip. The cor- responding figures for train 110 are 0.41 per cent of the total weight ; compensa- tion, 81 cents per trip. We handle a mail apartment 18 feet 6£ inches long, with equipment, mail, and one of two postal clerks, at an average rate of 1.74 cents per mile for the round trip. For train 107, from Paris to Memphis, the corresponding figures are 0.67 per cent of total weight; compensation, $1.33 per trip. Train 108, Memphis to Paris, 0.87 per cent of total weight; compensation, $1.72 per trip. The mail apartment is 11 feet long, and the average pay for round trip is 1.17 cents per mile. Train 106, Memphis to Milan, handles only 0.25 per cent of the total mail on route, which makes the compensation only 58 cents per trip, or 6 mills per mile. There is no postal clerk service in this apartment southbound. Route 127006, Nashville and Montgomery. — Train No. 5, Decatur to Bir- mingham, carries 0.37 per cent of total weight; pay per trip, SO cents. Train No. 6, Birmingham to Decatur, carries 0.78 per cent of total weight; pay per trip, $1.70. The pay for the 12 foot 8 inch apartment for the round trip is 1.45 cents per mile run. Route 129059 and route 129031. — Trains 69, 70, 41, and 46, making round trip between Bvansville, Earlington, and Providence, a total of 148.76 miles, earned only $1.68, or 1.13 cents per mile run, or less than half fare of the postal clerk when traveling on duty. It should be noted that this postal-clerk service has recently been discontinued. Numerous other instances might be given in detail where the total mail com- pensation earned by small mail apartments figured out less per mile run than the fare of the clerk or clerks traveling in such apartments. In addition to carrying the clerks while on duty we have to carry them as passengers to and from their homes without compensation and have to assume full responsibility for any injuries received while on our trains. Linea Ferrea del Oeste, San Juan, P. R., September 23, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: In reply to your letter of September 11, I beg to state that your mail is carried over this route by a ferryboat and a train. No other company runs its trains over our tracks and only one crossing is made, near Bayamon, with the tracks of the American Railroad. The post offices are located nearer to the railroad, station than to any other point on the track. In regard to your three questions, I beg to answer them as follows: 1. I think the plan of compensation is equitable, though considering the small amount of mail carried in this country, 6 per cent profit on the expenses is com- paratively small. 2. I think the underlying principle of the plan is on proper basis for com- pensation. I, however, believe that as far as fines for lack of equipment is con- cerned, the Postmaster General should not be as strict as with railroads in the States, where purchasing facilities are at hand. Very respectfully, yours, R. Valdes. Long Island Railroad Co., Neio York, November 15, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Senator: The Long Island Railroad is a good illustration of under- payment for carrying the United States mails, and I will, therefore, submit some of the facts as briefly as possible with the purpose of helping your com- mittee to understand why the existing laws are inadequate to do justice and of suggesting the direction in which remedial measures should be applied. The Post Office Department, in Document No. 105, states that in November, 1909, the company's revenues for carrying the mails were about 28 per cent below the mere cost of operation and taxes, and if the Post Office Department had extended its estimate to include fixed charges, it could have conceded a loss to the rail- road of over 80 per cent. The company's calculation on the same data revealed a greater loss, about 200 per cent., or about $85,000 a year. 49396—14 5 62 KAILWAY MAIL PAY. EXTENT AND CHARACTER OF MAIL SERVICE. Long Island, as you know, is a section of New York State, extending from New York City to Montauk Point, about 125 miles long, 15 to 22 miles wide, and has a population of over 2,000,000 people. The Long Island Railroad is practically the only transportation agency and, therefore, carries all of the United States mails for the entire section. The mail service oh the Long Island Railroad includes the following : Number of mail routes 12 Total length of mail routes miles__ 344 Post offices supplied 188 Railway post-office trains daily 38 Total mail trains daily 254 Total of average weights of mail daily pounds— 16, 028 Annual pay received in 1911 $43, 949 In addition to the transportation of the mail on over 250 trains daily, it will be noticed that the company furnishes railway post offices in mail apartments (15 to 30 feet in length) on 38 trains daily. It also provides extensive space in the Long Island City terminal for post-office work, without rent, carries the mail between the trains and the post offices at many stations, carries a large number of railway postal clerks and postal officials free, and performs other incidental services. We are required to furnish a special electric baggage car to move the mails between Long Island City and the publishing house of Doubleday, Page & Co., at Garden City, a distance of 20 miles. This movement amounts to several thousand pounds a day, but the railroad company receives absolutely nothing for performing this service, because it was inaugurated after the weighing of 1909. HIGH QUALITY OF THE SERVICE IGNORED. If we divide the annual mail pay ($43,949) by 365 days and then again by 344 miles, we find that the company receives about 35 cents a day per mile of road for carrying an average daily weight of mail of 16,000 pounds, or 8 tons. If all of the 12 mail routes were in one straight line, 344 miles in length, and if the daily weight (8 tons) were carried on one train, compactly loaded like freight, the rate of pay would be moderately remunerative if the work was merely the transportation of the load and did not include the other services described above. Further, if the company operated only one train a day each way and the Post Office Department refrained from calling for extra car space for railway post offices, thus permitting the whole mail to be consolidated within one car or less, the pay of the company under the present law would be the same as at present. The very life and efficiency of the postal service depends upon expedition, in which frequency of transmission is a very large factor; yet the 254 daily mail trains (varying on the different routes from 5 trains daily to 74 trains daily) obtain no particular recognition in the law. The frequency of service is, how- ever, a substantial factor in the cost of doing the work, because the load to be carried is divided into retail lots with consequent increase of expense. The present terminal of mail-car runs is Long Island City, which involves wagon service via Thirty-fourth Street Ferry, with greatly increased cost and delay. With the completion of the new post office at the Pennsylvania Station in New York City, this company can extend its mail routes direct to the post office, making that the terminal for all mail-car routes, greatly expediting the move- ment and eliminating the cost of wagon service. But we must be paid for this service on a proper basis instead of the miserable sum of $600 offered by the Post Office Department for a high-class service of 10 steel mail apartment cars per day through the East River tunnels to the $50,000,000 station in the heart of New York, where it costs us for electricity, wages, and ordinary expense over $2 for every car moved into and out of the terminal, without adding for rent and taxes. We should have at least $15,000 per annum for making the new post office the terminal of the Long Island mail service, in addition to pay for handling mail via new electric routes at the usual rates for service of that kind. This matter is one now under discussion with the Post Office Department. The local officials of the department recognize the great benefits which the depart- ment will secure through the operation to the Pennsylvania terminal, and agree RAILWAY MAIL PAY. 63 that the railroad company must be paid for it; but the regulations of the de- partment are so narrow and unfair that it seems impossible for us to get to- gether. The public suffers through such conditions, and the department is unable to take advantage of the new facilities. MAXIMUM FACILITIES FOR MINIMUM PAY. The geographical situation of Long Island with the Long Island Sound on the north and the Atlantic Ocean on the east and south, accounts for the fact that the heavy load of mail starts from the western terminal at New York City and rapidly diminishes as it travels eastward to the vanishing point. Similarly, going westward there is naturally only a moderate accumulation of mail until trains near the metropolitan district. Therefore, the facilities, and especially car space, must be reserved and set aside for the maximum load of the heaviest season, while the law prescribes payment for the average weight carried. The average is a very lean average; first, because of the geographical conditions noted above ; second, because the Post Office Department selects a period for weighing believed to be below the normal for this road ; third, because since 1907 the Post Office Department includes Sundays in the computation, although very little service is required or performed on our line on Sundays, instead of con- fining the test period to working days, as stated in the law ; and fourth, because the average weight when determined is kept stationary for four years, regardless of any increased business accumulating in the meantime. RAILWAY POST OFFICES SORTING MAIL EN ROUTE. It surprises one after he takes up the study of the subject of the transporta* tion of mails to discover that the transportation has been superseded in rela- tive importance by the traveling post offices carried over the road several times daily, in which railway postal clerks open the mails and do a general post-office business. It was suggested above that the entire daily lead of 8 tons could be economically transported in half of one car on one train so far as the weight is concerned. In contrast with this please note the fact that the Post Office Department uses 38 railway post offices daily on our line, in which the car space devoted to the mails aggregate about 800 linear feet, or the equivalent of 13 full cars 60 feet in length. The law of 1873 prescribes a rate of pay for a certain average daily weight on the condition that the mails are carried with " due frequency and speed," and that suitable and sufficient room, fixtures, and furniture in a car or any apartment properly lighted and warmed shall be provided for route agents to accompany and distribute ths. mails. Since then the distribution en route has greatly increased, and there is no limitation restricting the Postmaster General as to frequency of service or the size and number of apartments. The car space for railway post offices can easily be recognized as the main factor at present on our lines, while the weight of mail transported is an uncertain and inadequate measure upon which the pay is based, but holding a very inferior relation to the car space demanded by the Post Office Department or provided by the railroad company. THE PAY RELATIVELY LESS FROM YEAR TO YEAR. During the past 15 years the wealth and commerce of the country and all business activities have increased to a remarkable extent. The same can be said of all branches of the Long Island Railroad business except the mail pay. In 1S97 the annual rate of mail pay was $40,982.40, and in 1911 it was $43,949, an increase of less than 8 per cent in 14 years. In the same period the other items of Long Island Eailroad business increased as follows : Per cent. Earnings from passenger service i 209 Earnings from freight service 178 Earnings from express service 201 Operating expenses 219 Taxes 235 Fixed charges 210 It is not necessary to comment on this obvious disparity, except to say that we estimate that the apartment-car space devoted to railway post-office pur- poses increased about 100 per cent during this period, while the mail pay was raised only 8 per cent. It can be conservatively claimed that the accumulated shortage in our mail pay for the period of 14 years was over a million dollars. 64 KAILWAY MAIL PAY. CONCLUSION. The remedial amendments to the present laws suggested in the response to you from the committee on railway mail pay are indorsed by our own experi- ence and study. Pay for mail-apartment cars is the principal need for the Long Island Railroad, if the other provisions of the laws remained unchanged. An allowance for the side messenger service and terminal messenger service performed by the company would be only equitable. Annual weighings of mails with annual radjustments of pay are vitally important for many rail- roads, and are indispensable to all now that the parcel post is about to be established. If the deficit in our mail pay as compared with operating cost and taxes as ascertained in November, 1909, be expanded to include an allowance for fixed charges, the resulting figures would be $95,765.75. If this deficit were to be equalized by an allowance of pay for mail apartments, the rate would need to be based on 8 mills per car-foot mile. Therefore, the annual rate per mile of route for a round trip daily of mail-apartment cars, in addition to the pay for weight of mails carried, would be approximately : For 30-foot mail apart- ment, $87.60 per mile per per year; for 25-foot mail apartment, $73 per mile per year ; for 20-foot mail apartment, $58.40 per mile per year ; for 15-foot mail apartment, $43.80 per mile per year. The General Government in the maintenance of the Post Office Department is performing a social and commercial service for the public; so also the rail- roads in carrying passengers and freight are performing a very essential and important social and commercial service. The establishment of the parcel post emphasizes the commercial aspect of the postal service. The traffic should render a fair return to those engaged in the service whether as postmasters, clerks, letter carrirs, or as railroads. Viewing the national postal system as a whole, the railroads constitute not only the framework of connection for the whole structure, but in addition provide and operate the motive power for intercommunication between all of its parts. Its importance should be duly recognized and its work should be fairly compensated. Very truly, yours, Ralph Peters, President. Louisiana Railway & Navigation Co., Shreveport, La., September 19, 1912. Mr. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : I have your letter of September 11 and copy of Senate bill 7371, embodying apian for determining the compensation to be paid to railroad com- panies for transportation of mails. The roads that are the least able to comply with the present governmental requirements are those who draw the minimum amount of compensation, and whose cost for handling per 100 pounds is far greater than those drawing maxi- mum pay. Under this bill the minimum amount of payment is reduced from $42.50 per mile per annum to $25, which will be a great hardship to the roads who need a proper compensation in the sparsely settled sections of the country that they are developing largely at their own expense. Local conditions can not well be taken into consideration in fixing the compensation under this arrangement. The Postmaster General will of necessity adopt certain rules which he will pursue in determining the cost of handling. In the adoption of these rules, local conditions will be ignored; in other words, those most able to handle cheaply would probably be overcompensated, whereas in using this method those to whom the expense is greatest will be underpaid. It is true, oppor- tunity is afforded to appeal the apportionment to the Interstate Commerce Commission, but they, like the Postmaster General's department, will also be guided of necessity by certain rules and standards. In our own case, for example, this line of 350 miles was entirely built by one man, he furnishing the entire capital for the project ; no outside investors have been called upon to help bear the burden, and beginning about 14 years ago, many millions of dollars have been inves'ed up to the present time. The results of this has been that a country all the way from west Louisiana to New Orleans has had its value increased several hundred per cent. Each individual along the line is worth considerably more because of his investment; the great convenience to this population, who previously depended upon the irregular RAILWAY MAIL PAY. 65 steamboat service or the mail coach for their mails, is worth thousands of dollars to them through the handling of the mails along this line, and yet in all this time the investor of the millions tied up in this road has received no benefit whatever in the way of interest on his investment. In computing the cost under the rules of the Postmaster General, the proba- bilities are that only cost of transportation or operating service would be con- sidered, and yet it seems but fair that the proportional amount of loss through operating for years for the convenience of the public at large should be borne by the public. In other words, in conditions of this kind a 6 per cent added to the actual transportation or operating costs would not be fair compensation. For many years, owing to the thinly settled condition of the country, the weight of mails carried did not, under the old law, justify the payment of more than the minimum mileage, and had this bill been in effect during that time the proprietor's loss would have been increased to the extent of the difference between the minimum in the present bill and that of the one now in effect. The bill seems to authorize the Postmaster General to carry mails on any train- freight or passenger— and to allow the ordering of mail service on freight trains after compensation has been fixed without additional payment. We are now hampered in our operations to some extent by carrying mails on freight trains, and the public always free to expect and demand the best of service from a railroad company, even though privately owned, make no distinction nor no allowance for the failure of such company to provide their requirements with any profit to itself. This bill gives authority to the Post- master General to fine the roads for failure to perform the service — even as high as three times the value of such service. Local conditions would have a great bearing on this phase of the matter. Under the old law, while roads were being fined for delayed trains this com- pany, with its new line operating in seasons of extreme rainfall, was held up to the same standard that was expected and required of the Pennsylvania or the New York Central, even to such an extent that in some cases, out of a quarterly payment of $2,300, as much as $700 was deducted on this account. The requirement under certain conditions with certain roads, at certain times, is unreasonable, and such roads would be far better off if they were not handling the mails at all. In addition to this, in the near future a road such as ours, even yet before it begins to be a profitable investment for its builder, will be required to supply a new set of equipment under the Government rules. This equipment will be of no benefit whatever to the railroad except for han- dling the mail, and if proper compensation is not received would be simply an added loss. The Government, through its power to do so, is imposing upon the builder of this line, as the 6 per cent added to operating costs would not by any means, even though all costs should be included, justify the outlay of many thousands of dollars in order to provide a certain class of equipment. It therefore seems to me that the minimum compensation should not be re- duced ; that some provision should be made for extra compensation to new and nonprofitable roads, and that local conditions should be considered in fixing compensation and a higher rate of cost per mile allowed to those roads han- dling a small tonnage of mail than is allowed in the case of the larger lines. Yours, truly, H. B. Helm, Second Vice President. Milner & North Side Railroad Co., Milner, Idaho, November 2, 1912, Jonathan Bourne, Esq., Washington, D. G. Sir: Replying to yours of September 11, relative to Senate bill 7371, in reply to — Question 1. Would say that I consider the present plan is equitable between this company and the Government. I have no figures as to other classes of railroads, and am, therefore, not competent to offer any opinion. Question 2. I consider the underlying principle of the plan embodied in the above bill the proper basis for compensation, so far as this company is con- cerned; but I believe that, whenever additional service is asked for, compensa- tion should be allowed for same. Question 3. I know of no more desirable plan than the one proposed, with the exception as noted in reply to question 2. Yours, truly, D. C. MacWatters, Vice President and General Manager. 66 RAILWAY MAIL PAY. Maryland & Pennsylvania Railroad Co., Baltimore, Aid., October 16, 1912. Hon. Jonathan Bourne, Washington, D. C. Dear Sir: In your circular letter of September 11 last you propound three questions which I will endeavor to answer concisely. Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads, etc.? Answer. The present plan we deem inequitable : (a) The present rate of $75 per mile per annum for 500 pounds is only about 5 cents per 100 pounds per mile, for which the railroad not only trans- ports the mail but, in addition, a passenger on an apartment specially fitted up for that purpose — a miniature post office — and which can be used for no other purpose. Especially can this be said of short lines on which the department pays nothing for the office on wheels which it requires. (6) It is difficult to appreciate the equity of the department's paying for a whole cor where such is used and declining to pay anything for a portion of a car fitted up in exactly the same manner. (c) The service is burdened with deliveries which, on some routes, consume a large portion, if not all, of the compensation received by the railroad. Question 2. Is the underlying principle of the plan embodied in Senate bill 7371 a proper basis for compensation, etc.? Answer. The plan for compensation embodied in this bill is to allow the rail- roads an amount " not exceeding the cost to the railroads of carrying the mail, as ascertained by the Postmaster General, and 6 per cent of such cost." This appears to be a new method of conducting business, and one which would prove disastrous in most, if not all, lines of trade. A contractor who furnishes no money and assumes no risk usually receives more than 6 per cent on cost for supervision alone. Solvent railroads require at least 30 or 40 per cent of their gross revenue to keep them afloat and pay a reasonable return on their capital. This repre<- sents not 6 per cent but 50 to 60 per cent of their expenses or cost of earning their money. Moreover the bill does not require the Postmaster General to pay to tKe railroad the cost plus 6 per cent. This is a maximum beyond which he may not go, and what he shall pay within this is left wholly to bis discretion. You will kindly note that what is sometimes called an appeal to the Interstate Commerce Commission has no bearing upon the question of what the Postmaster General shall pay within this maximum of cost plus 6 per cent. For that procedure if an appeal at all is only upon his method of ascertaining the cost so that even should the commission decide against him he accepts its findings as to the cost, yet still with full discretion as to the compensation, within the maximum, which he will offer a railroad. And when he has made the offer the railroad, under the last provision of the bill, is bound to accept it or commit an unlawful act and make itself liable to a fine of $5,000. Now does the bill provide for an appeal to the Interstate Commerce Commis- sion? The bill does not use the term appeal. Nor in sketching the proceeding does it describe an appeal. The objection of a railroad is to be filed not with the commission but with the Postmaster General, who " shall certify the method and objection, and such other papers as in his judgment may be essential to an understanding of the method, to the Interstate Commerce Commission." This seems to be only a reference, not an appeal. There is no provision here for an appeal nor a day in court for the railroad. Without further pursuit in detail the underlying principle may be characterized as one obnoxious to our fundamental conception of justice, in that it proposes to confer upon one contracting party full power in his discretion to impose upon the other contracting party terms which he is bound to accept, thus depriving him of his lawful contractual right. Question 3. What is a desirable plan for compensating railroad companies for transporting the mails? Answer. To ascertain on the average what the space required would be worth to the railroad if occupied by passengers or express matter. The department requires a certain space fitted up, supplied, and attended to in a prescribed manner for its exclusive use. By all rules of trade it should pay for the space appropriated, whether filled or not. Now, for a few words in general. This bill falls into the class of interstate legislation, yet it is in direct contravention of the spirit of and the principle EAILWAY MAIL PAY. 67 underlying that legislation. The underlying principle of the interstate com- merce law is absolute equality among shippers. But under this bill the United States would assume the position of a favored shipper, entitled to a lower rate not only, but a rate of its own making in the discretion of its representative. It goes without saying that the United States intends to do what is right. It is becoming, therefore, that a fair and adequate rate be found and established by statute. Should this be done there will be no kick on the part of the rail- roads. Allow me to hand you herewith a copy of a communication addressed to the Speaker of the House of Representatives by Mr. Frank Sullivan Smith, president of the Short Line Railroad Association, which goes into more detail than I have thought necessary to answer your questions. I also inclose copy of bill 4044, introduced by Mr. Talbott on April 11, 1911, into the House of Representatives, which is supposed to be satisfactory to the railroads. Respectfully, yours, Jno. Wilson Beown, President. You will kindly understand the above is also the answer of the Maryland Electric Railways Co. J. W. B Has justice fled from Washington, And left a naked skeleton, 'fhat we should take this bill to be Remotest kin to equity ? Short Line Railroad Association, New York, February 29, 1912. The Speaker of the House of Representatives, Washington, D. C. Dear Sir: In view of the admission made by the Postmaster General in his annual report for the fiscal year ending June 30, 1911, that the statistics ob- tained during the course of the investigation he had caused to be made in regard to railway mail transportation, as contained in his report and the recommenda- tions submitted to you, designated as House Document No. 105, disclosed the fact that certain railroad lines " were actually carrying the mails at a loss," the Short Line Railroad Association, whose roads have not only been underpaid and in many instances have not been paid at all for the services they rendered the Government, was encouraged to believe that House Document No. 105 would recommend changes in the law, along the lines of those advocated by the association, or a reasonable and fair substitute therefor. Being thus led to believe, the association, with considerable difficulty, secured a copy of House Document No. 105, and after examining the statistics gathered and compiled according to the computations and methods adopted by the Post Office Depart- ment, eagerly read the recommendations made by the Postmaster General to adequately compensate the railroads, many of which showed according to the computations made in the report a loss from the mail service, from $16,000, $9,000, $5,000, $2,000, $1,000, $500 down to $100 and less for a period of one month. The recommendations briefly are : First. That the present method of compensation to railways for mail car- riage, having no sound basis either in cost of operation or value of service, be abandoned. Second. That there be substituted for the present method a method for com- pensation, based upon the cost of the service with a profit of 6 per cent to the railways. Third. That such cost of operation be determined by annual reports to be required by the Postmaster General from the railways upon a method of determination to be determined by the Postmaster General and foreshadowed to some extent in character by the reports required from railways in the inves- tigation of the subject of this report. Fourth. That if the railways disagree with the conclusion of the Postmaster General, either as to form, significance, or conclusions, the matter shall be referred on appeal to the Interstate Commerce Commission. Fifth. That it shall be unlawful for any railroad company to refuse to carry the mails at the rate of compensation provided by law when (and) for the period required by the Postmaster General s*> to do, and for every such offense it shall be fined not e^™»wunrc $5,000. 68 KAILWAY MAIL PAY. In considering the practical workings and effect of these recommendations in their bearing upon the service and the pay proposed to be accorded railroads in general and short lines in particular the services of one of the most capable and efficient auditors connected with one of the association short line railroads were invoked to analyze the recommendations. This analysis, upon review by the association, is fully concurred in and is herewith presented : "As to nebulous basis for the present method of compensation: It may be granted at once that the present basis of compensation is not scientific, having no tangible relationship either as to the cost of operation or the value of service. This unhappy state of affairs is true of every method of rate making, either for freight or passenger transportation or any other service for which railways assess charge upon the public. It is also true probably of the tangible charges for every exercise of human activity. There is no scientific reason why a clothing merchant should exact a profit of 50 per cent for his merchandise as against a profit of 20 per cent by a grocer. " Rates for passenger transportation and freight transportation charged by railways doubtless took their origin from the rates charged for like service prior to and up to the time when rail transportation was introduced. It is not probable that they had any consistent relationship with the cost of transporta- tion — although some relationship to the value of service as determined by economic factors. The rates that prevailed prior to the introduction of rail transportation had really less relationship to cost of transportation, but prob- ably were somewhat more affected by the value of service, than the original rail rates. It is true probably that the rates of transportation, both prior to and after the introduction of rail transportation, were affected to some degree by costs, because excessive profits would invite a degree of competition which could be introduced at moderate capital expenditures, at least prior to the introduction of rail transportation. " Transportation of mails before the introduction of rail transportation was effected along stage and water routes and on horseback, sometimes incidental to the established passenger and freight routes and sometimes the existence of the mail route occasioned the establishment of the passenger and freight routes. The compensation for mail carriage when along established stage routes was in the character of additional pay to the existing business of transportation. In no cases, or at least in few cases, did either the carrier of the mails or the Government contribute to the means of carrying, in the way of roads or bridges, which costs were largely borne by the local governments. In this a radical departure was introduced when mail carriage was undertaken by the railways, the investors in railways then paying the entire cost of providing the channels for carriage. " In the process of time many influences have intervened to disturb whatever relationship originally existed between the cost of service and the rates charged therefor. The competition of other methods of transportation has largely af- fected rates between definite terminals. These disturbances have affected in- terior rates. Community competition and the competition of great industrial establishments have further affected rates. " Where a given instrumentality affords several characters of facilities we must adopt some basis for apportioning the cost of the instrumentality among the several objects accomplished. "As rates for passenger and freight transportation by railways were probably originally based upon the rates previously existing on other methods of trans- portation, it is probable that the rates of mail transportation by railways were originally based somewhat upon the compensation required to secure mail transportation by the facilities existing prior to the introduction of railways. It is improbable that the present minimum rate of $42.75 per mile of route was arbitrarily evolved from the inner consciousnesss of a postal authority or a negotiation between the postal authorities and the railways. It doubtless bore some relationship to previously existing rates and ultimately to the cost of transportation of mails or to compensation therefor by more primitive methods of transportation. A hundred-mile route under this basis would pay $4,275 per year. The average minimum weight on these routes could not possibly be carried by any other method than rail transportation overland at anything like this cost, without taking into account either the cost of highways or advantages in time. "As to the proposition to substitute a method of compensation based upon the cost of handling the business with 6 per cent profit : " Years ago the Interstate Commerce Commission formulated an effort to ascertain the relative cost of operations as between passenger and freight EAILWAY MAIL PAY. 69 traffic. After some years this effort was abandoned by the Interstate Com- merce Commission. Railroads individually for their own information have, however, persisted in efforts of this character for the obvious advantages to be gained by such knowledge. The matter has again and again been studied with reference to the subject of the determination of reasonable rates for pas- senger and freight transportation respectively. A very small portion of the operating expenses of railways is inherently applicable either to passenger or freight traffic. The great bulk of railway operating expenses are not inherently capable of apportionment, and if this be true, how much less capable of appor- tionment are the original investments, particularly as to rights of way, roadway, and structures. It therefore follows that in respect of the great bulk of rail- way operating expenses, including taxes, and of the burdens incident to original or capital investment, any effort to apportion these burdens as between passen- ger and freight traffic must be upon more or less arbitrary bases. As to these arbitrary bases there must be adopted by the individual roads some theory of apportionment and these bases must differ in a profound and logical study, not only with each individual road but with each operating division of every large system. " It must be kept in mind that prior to any apportionment of expenses against mail transportation there must first be made an apportionment of costs as be- tween freight traffic and passenger 4raffic. " It being apparent that any apportionment of operating expenses between passenger and freight traffic involves the assignment of a very large proportion of such operating expenses upon arbitrary bases, such bases must have ra- tional or logical relationship to the conditions of each road, and only a very close familiarity with the conditions can equip anyone to determine these bases. The determination of the relative expenses of freight and passenger transpor- tation can only be made by each separate road.' Where this apportionment is made for a special purpose the results will largely depend upon the parties making the apportionment. Therefore, a rate of compensation determined upon the additiion of a fixed per cent of profit to the cost of the service will result in rates of compensation varying largely according to the officer making the apportionment. It may be argued that the postal department will have the right of review as to this apportionment. When it is considered .how many railroads will be charged with the making of this apportionment and how many reports will require review by the Post Office Department, and how relatively incompetent the forces of the post office will be to make this review by their necessarily imperfect knowledge of conditions prevailing on individual roads, the seriousness of the task is apparent. " The Postmaster General suggests that the compensation for mail trans- portation shall be based upon the ascertained cost plus a profit of 6 per cent. A careful study of the document he submits of the results of the departmental investigation indicates that in ascertaining the cost he has recognized but two factors, namely, those elements of cost usually designated as operating ex- penses and taxes. I can not find that he has taken into account any element of capital investment or the necessary burdens incident thereto. These bur- dens must be borne by traffic, and if it is proper to apportion operating ex- penses against mail transportation it would necessarily follow that capital burden must also be apportioned against mail transportation. " The basis of the Postmaster General's conjecture that a profit of 6 per cent upon the mere cost of mail transportation would be compensatory to the rail- roads is not indicated in his reports. "As a matter of fact, a railroad whose gross earnings bear any less per cent to its operating expenses than 100 to 70 per cent is in a bad way; that is to say, a railroad company on its entire traffic must realize a gross earning of substantially 43 per cent over its operating expenses to afford a fair return to its investors. " In the apportionment of passenger operating expenses as between passen- ger traffic, express traffic, and mail traffic, the Postmaster General in his re- port has used the car-foot mileage assigned to each traffic as a basis of appor- tionment. As applied to the closed-pouch service, the linear space apportioned to mail traffic was on the basis stipulated by the department; that is to say, the railroads were directed to allow 6 linear inches full width of car for the first 200 pounds or less of average daily weight of mail carried and 3 linear inches for each additional 100 pounds. " The department, however, states in the report that they followed the follow- ing rule: For weights of 100 pounds or less. 6 linear inches; for weights above 70 RAILWAY MAIL PAY. 100 pounds and not exceeding 200 pounds, 10 linear inches ; for each additional 100 pounds, 5 linear inches. " The result of this basis is that if a combined passenger, baggage, and ex- press car were used to carry mail in closed pouches, the car being 50 feet in length and the mail weighing an average of 200 pounds less than two one- hundredths of the cost of operating the car would be charged to mail service ; that is to say, no matter how much unused space there might be in the balance of the car, but, two one-hundred ths of the car expense could be charged to mail, leaving ninety-eight one-hundredths of the car to be apportioned against pas- senger and express service. It can readily be seen that this method of appor- tioning the cost of the mail service applied to short-line railroads carrying only pouch mail would place them in the class to receive as he proposes $25 per mile per year, if the ascertained cost and 6 per cent does not equal that amount. " In addition to the large burdens put upon the railroads by existing govern- mental commissions in exactions of reports of operation, the Postmaster Gen- eral proposes that all railroads shall hereafter be required to make a report to the Postmaster General annually of the operations of the railroad, with such an apportionment of the operation expenses as shall enable a determination of the operation expenses applicable to a very small percentage of its traffic. Because of the inherent difficulties of this ^apportionment it may be assumed that the reports required would be of a very complex character and both diffi- cult and expensive to prepare. " The Postmaster General proposes that a different period of the year shall be selected for this report than the period at which the annual reports to other governmental agencies are made, thus inflicting upon the railroads the impossi- bility of using the data already prepared, for the purpose of making these reports so far as it might be possible. " He also proposes to impose upon the railroads certain methods of appor- tionment, which, in the words of the committee on railway-mail pay of the American Railway Association, are never accepted by anyone with practical experience in railway accounting or operation and condemned by the courts in at least two important cases.' The imposition of such methods will prevent the railroads from using the data which for their own practical purposes they have compiled for the purpose of ascertaining the relative costs of conducting passenger and freight operations, which, if applicable to one road would be entirely inapplicable to another and of no practical value to the railways. " The Postmaster General then proposes that if the railways disagree with the conclusion of the Postmaster General upon the reports rendered, the mat- ter shall be referred on appeal to the Interstate Commerce Commission. " It may be mentioned at the outset that the Interstate Commerce Commis- sion long ago despaired of applying a rational basis of apportionment of oper- ating expenses as between passenger and freight traffic. " If the Interstate Commerce Commission did not recognize the methods des- ignated by the Postmaster General, endless confusion would result from such appeal. Moreover, it may be assumed that in proportion to the burden im- posed upon the Interstate Commerce Commission by such appeals the present burden upon that commission would become insignificant, particularly as differ- ing conditions would render any basis inapplicable to any considerable number of roads, and the determination of the appeal would involve the study of each road's conditions, varying to some extent from year to year. " The situation is presented of a controversy in which judge and plaintiff are one, to be appealed to an instrumentality substantially identical in interest to the plaintiff and lower court; that is to say, the railways have to accept and transport the mail traffic. The compensation to be paid is to be based upon an arbitrary percentage of the cost of the traffic, much inferior to the compensation ordinarily obtained for its general traffic in proportion to its cost ; the method of determining its cost shall be stipulated by Government and appeal must be made to the Government." According to the statement made by the Postmaster General in House Docu- ment No. 105, data was received from 2,778 out of 3.309 authorized mail routes. The monthly loss from the mail service on these routes as given in Table 7 is $75,733.07, a total for 12 months of $908,796.84. The loss given is based upon a computation where the interest on the capital is omitted and a large percentage of dead space in mail cars, which can not be used as passenger space, is trans- ferred to the passenger service. BAIL WAY MAIL PAY. 71 If the department concedes a loss of nearly a million dollars a year, based upon false and misleading methods of computation adopted by it in arriving at its conclusions, the actual loss incurred must therefore remain problematical. However, enough has been shown to bear out the statement of the Postmaster General that if an adjustment of railway-mail pay is lodged in his hands that he will still further reduce the amount to be paid the railroads $9,000,000 a year. This amount seems conservative when we consider his method of arriv- ing at the cost of the service and the percentage of profit he is willing to grant based upon his figures giving the cost. At the present time short-line railroads, making free side and terminal mail deliveries and furnishing apartment-car space for nothing, are contributing to the post-office fund more than $5,000,000 a year. Yours, respectfully, Short Line Railroad Association, By Frank Sullivan Smith, President. TALBOTT BILL. [H. R. 4044.] In the House of Representatives. April 11, 1911. Mr. Talbott of Maryland introduced the following bill ; which was referred to. the Committee on the Post Office and Post Roads and ordered to be printed. A BILL To amend existing laws and equalize pay for mail service on railroad lines. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That that part of the act of March third, eighteen hundred and seventy-three, as it appears in section four thousand and two of the Revised Statutes and as it has been modified by subsequent legislation, be, and the same is hereby, amended to read as follows, namely: " The Postmaster General is authorized and directed to readjust the com- pensation to be paid from and after July first, nineteen hundred and eleven, for the transportation of mails on railroad routes upon the conditions and at the rates hereinafter mentioned: " First. That the mails shall be conveyed with due frequency and speed ; and that sufficient and suitable room, fixtures, and furniture in a car or apart- ment properly lighted and warmed shall be provided for railway postal clerks to accompany and distribute the mails. " Second. That the pay per mile per annum shall be at the following rates, namely: On routes carrying their whole length an average weight of mail per day of not more than five hundred pounds, seventy-five dollars; one thousand pounds, eighty-five dollars and fifty cents ; one thousand five hundred pounds, one hundred and six dollars and eighty-seven cents ; two thousand pounds, one hundred and twenty-eight dollars and twenty-five cents; three thousand five hundred pounds, one hundred and forty-nine dollars and sixty-two cents; fjye thousand pounds, one hundred and seventy-one dollars; and on routes carrying their whole length an average weight of mails per day of upward of five thousand pounds by making the following changes in the rates per mile per annum for the transportation of mail on such routes in effect on June thirtieth, nineteen hundred and seven, and hereafter the rates on such routes shall be as follows: On routes carrying their whole length an average weight of mail per day of more than five thousand pounds and less than forty-eight thousand pounds, the rate shall be five per centum less than the rates on June thirtieth, nineteen hundred and seven, on all weight carried in excess of five thousand pounds; and on routes carrying their whole length an average weight of mail per day of more than forty-eight thousand pounds the rate shall be five per centum less than the rates on June thirtieth, nineteen hundred and seven ; on all weight carried in excess of five thousand pounds up to forty-eight thousand pounds, and for each additional two thousand pounds in excess of forty-eight thousand pounds, the rate shall be nineteen dollars and twenty-four cents upon all roads other than land-grant roads, and upon all land-grant roads the rate shall be fifteen dollars and thirty-nine cents for each two thousand pounds carried in excess of said forty-eight thousand pounds; the average daily weight to be ascertained in every case by the actual weighing of the mails 72 RAILWAY MAIL PAY. on all of the railroad mail routes at the same time for thirty-five successive days, commencing on such date, to be designated by the Postmaster General, as is fair and just to the Government and to the carriers, and not less frequently than once in each year, and the result to be stated and verified in such form and manner as the Postmaster General may direct, and that the Postmaster General is hereby authorized and directed to require a railroad mail carrier to provide for the carriage of the mails between its trains and a post office or postal station only where such post office or postal station is located in a railroad depot or station of such carrier." _ Sec. 2. That section four thousand and four of the Revised Statutes, as modi- fied by the act of March second, nineteen hundred and seven, making appro- priations for the service of the Post Office Department for the fiscal year end- ing June thirtieth, nineteen hundred and ten, and for other purposes, be, and is hereby, amended by adding thereto the following, namely : "And the Postmaster General is hereby authorized and directed to allow for space used for railway post-office purposes in apartment cars at pro rata of the rate of compensation allowed for postal cars forty feet in length." Missouri & Louisiana Railroad Co., Kansas City, Mo., September 20, 1912. Mr. Jonathan Bourne, Jr. Dear Sir: Your letter of the 17th, to which is attached a copy of Senate bill 7371, to provide the maimer of determining the compensation of railroads for the transportation of the mails. We are not entirely familiar with the gen- eral proposition as it would naturally affect the more important trunk lines of the country, but as to smaller lines like ours, operating but 10 miles of main fine over which the mail is transported, we have to suggest that the compensa- tion is not reasonable. We provide on our line in this State two trains each way per day, except that we do not operate on Sundays. We are allowed an annual compensation of $449.28. This for transporting the mail and in addition caring for the handling of pouches to and from post offices at Bevier, Keota, and Ardmore, Mo. At the least calculation it costs us $5 per month at each of these towns to have the mail carried to and from the post offices, or a total of $180 per year to be deducted from the allowance made us by the Government, leaving us but $269.28 for the service of transportation. It does appeal to us that with the smaller lines a greater allowance per mile should be made. The same rate of pay per mile as applied to the larger lines yields, perhaps, a fair revenue for the service furnished, but for the smaller lines it does not, all of which we sub- mit for your kind consideration. Yours, truly, Jno. A. Sargent. Missouri, Oklahoma & Gulf Railway Co., Muskogee, Okla., November 1, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : Replying to yours of September 11, I submit the following memo- randa for your consideration: (1) The present plan of compensation for railway mail pay is inequitable to the short-line railroads, for the reason that large railroads are paid a rental charge for all cars 40 feet in length, while small roads are paid no rental what- soever. Many of the short-line railroads are paid on the basis of the minimum of $42.75 per mile, and have not had a weighing of the mail on their line for several years, while on the large lines the mail is weighed annually and the pay adjusted accordingly. The present plan is also unscientific, because it has no tangible basis and has no relation to the cost of the service. (2) I do not consider the present plan as outlined in bill S. 7371 a proper basis for arriving at the compensation for several reasons. First, the railroads are allowed only 6 per cent over the cost of transporting the mails, which cost includes operating expenses and taxes. Now railroads are heavily bonded and pay a large interest charge on their bonded indebtedness, and are forced to earn at least 30 per cent of their gross revenues in order to pay this interest; that is, their expenses should not exceed 70 per cent of their gross earnings. Then there are other charges and expenses to be met that are not included in KAILWAY MAIL PAY. 73 their operating expenses, such as rents, discounts, and additions and better- ments to their existing property, which are necessary to meet competition, or for the proper conduct of their business. As before stated, in order to pay their interest and their other charges, and to give their investors a fair return, it is necessary that they earn at least 30 per cent of their gross revenues, and if freight traffic, passenger traffic, etc., is expected to carry this burden, why should not the mail traffic also earn 30 per cent of its gross revenue instead of 6 per eent? Second, this bill seems to be based on the recommendations of the Post- master General contained in House Document No. 105. The Postmaster General in arriving at his cost of carrying the mail distributes the car space as follows: For weights of 100 pounds or less, 6 linear inches; weights above 100 pounds and not more than 200 pounds, 10 linear inches; and for each additional 100 pounds, 5 linear inches. On this basis, on this line, which carries about 800 pounds of mail per mile per day, there would be about 40 linear inches of the car assigned to the mail traffic or one-fifteenth of the space, while as a matter of fact there are 15 feet of each 50-foot car devoted to the mail, or about one-third of the space, and it can readily be seen that under the Postmaster General's plan, the mail would not receive its proper proportion of the expense. Third, under this bill it will be necessary for each railway to make reports to the Postmaster General in order that he may determine the cost of carrying the mail. Now, in order to arrive at such cost, it is first necessary that the expenses of a railroad be divided into freight expenses and passenger expenses. Only a small percentage of a railway's expenses is directly assignable to either freight or passenger traffic; the large majority is chargeable to both freight and passenger traffic and can not definitely be segregated ; however, most railways endeavor to make such a separation of their expenses, and in order to do so they employ various arbitrary bases for the segregation ; these bases being determined by the actual physical conditions on the railway itself. It does not appear, therefore, that the Postmaster General or his corps of assistants are competent to pass on the reports of the various railways throughout the country, they being ignorant of the local conditions and the methods employed in separating the expenses and the reasons therefor. House Document No. 105 provides that the railways' reports to the Postmaster General shall be made at different times and for different periods from those now made to the various Government commis- sions. This appears unreasonable, and will put an unnecessary hardship on the railways by depriving them of the use of the statistics and figures already prepared. (3) As the various railways are themselves in the best position to determine the cost to them of handling the mail, it would seem that they should also be in the most advantageous position to name the compensation. Therefore, it seems to me that they should be allowed to file tariffs with the Interstate Com- merce Commission governing the rates for transportation of the mails the same as for the transportation of freight and passengers. Of course these rates would be subject to attack by the Postmaster General just the same as the rates for freight and passenger traffic are open to the criticism of the public. Yours, truly, Wm. Kenefick, President. Missouei Pacific Railway Co., St. Louis, Ikon Mountain, & Southern Railway Co.. St. Louis, Mo., November 22, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I have to acknowledge receipt of your letter of September 11, 1912, inclosing a copy of Senate bill 7371, and requesting views upon three specific inquiries on the subject of railway mail pay, which, with answers thereto, are contained in a memorandum attached. The real issue is whether the railroads are overpaid or underpaid for mail transportation. The railroads have been protesting since 1907, particularly, that they were underpaid, and that reductions of about $S,000,000 per annum, made in that year, were unjust to them, and that some form of adjustment should be made. The Senate Post Office Committee Report No. 955, Sixty-second Congress, second session, July 23, 1912, page 25, which accompanied the Post Office ap- 74 RAILWAY MAIL PAY. propriation bill, stated that " the committee is of the opinion * * * that the rates are excessively high." This view, presumptively, is founded upon the report of the Postmaster Gen- eral, Document No. 105, wherein he purports to show that the railroads are overpaid $9,000,000 per annum, which might be saved by enactment of a bill proposed by him, and introduced by your committee, as S. 7371. There is no proof in his report that the railroads are overpaid; on the con- trary, even superficial analysis explodes any such theory, because the methods employed in making his deductions are fatally in error and fortunately easily demonstrated. His first serious error is in overlooking the right of railroad property or capital to earnings, which is a recognized primary and constitutional factor in all rate cases. This property is, of course, of enormous value, as follows (1910, I. C. C. Report) : Represented by funded debt $10,303,474,858 Stock 8, 113, 657, 380 Total 18, 417, 132. 238 This represents the plant, which, of course, must exist to enable the rail- roads to perform mail and other transportation services. It is almost too apparent to allude to the effect of such a policy. If applied generally to rail- road or any business, it would, of course, bankrupt and destroy them. His second serious error consists in arbitrarily and erroneously cutting out millions of car-foot miles used directly or incidentally in performing mail serv- ice, as reported to him by the railroads in the reports he used and changed to the extent of approximately 28 per cent. As the proportion of car-foot miles is the essential and material factor in his calculations, his erroneous action in not only cutting out such mail car-foot miles but changing the same instead to passenger car-foot miles, is fatal to any theory that the railroads are over- paid. His third serious error is in dismissing without any consideration, either as to costs or compensation, the extensive and valuable service rendered by the railroads in performing what is commonly known as " messenger service," and which is the carrying of mails between the railroad stations and the post offices, where the latter are within one-quarter mile of the station. This is not a natural function of the railroad company, because it does not handle pas- sengers, baggage, freight, or express beyond its station property, but is an extra service which the railroads perform and saves the Post Office Department from employing 30.000 to 40,000 contract messengers, and which saving former Postmaster General Meyer reported to the Senate committee, amounted to $4,393,000 per annum. A service of so great value is ignored in treating rail- way mail pay generally and in the calculations made in Document No. 105. It is obvious that the railroads are not overpaid, as that document indicates, and no foundation exists for such opinions which may be based thereon. On the contrary, the reports which the Post Office Department required of the rail- roads demonstrated that they were very greatly underpaid for mail service. Perhaps best illustrated by figures which the Postmaster General does not ap- pear to bave submitted in his report, namely, that mail space earned only $3.23 per thousand car-foot miles, whereas the passenger space earned $4.42 per thousand car-foot miles. This indicates underpayment to the railroads of over $16,000,000 per annum, according to figures compiled by the committee on rail- way mail pay. Unfortunately and prejudicially to their interests and justice, there has al- ways seemed to exist a feeling that the railroads were paid excessively for carrying the mail. Such views have not been founded upon any competent in- quiry, but upon mere assertion. It has been no uncommon thing to notice newspaper items asserting it, and having the effect of creating public sentiment in that direction when there has been nothing substantial in the way of official evidence to support such assertions. The annual amount of railway mail pay has only seemed large and attracted attention because it represented the largest single item in the Post Office appro- priation bill, and without full consideration of the immensity of the service ren- dered by the railroads receiving it, not only in the transportation throughout the year on all the railroads, and practically on all of the train service of the KAILWAY MAIL PAY. 75 country, but in hauling post offices in addition on this mileage for the distri- bution of the mail while it was in transit and for the performance of other incidental services. The Government collected in 1910, $224,128,637.12 in postage, yet for the above service by the railroads only paid $49,405,311.27, while on the other hand it paid over $170,000,000 for the function of collection and delivery of that mail and the administration of the postal service. In other words, the railroads re- ceived about 22 cents out of the dollar the Government collected in postage for the transportation of the entire mail, whereas the Government used about 78 cents for collection, delivery, and administration. In the past 10 years the amount paid the railroads in proportion to postal revenue has been very steadily decreasing from 34 to 22 cents per dollar, while the collection, delivery, and administration cost during the same time has in- creased from 66 to 78 cents per dollar. There is nothing in these facts to sup- port any theory of overpay to railroads. In reality railway mail pay instead of representing a large proportion of railroad revenue is, indeed, very .small. In 1910 it only amounted to 1.78 per cent of gross revenue, while the roads had to depend upon freight, passenger, and express business for 98.22 per cent of revenue. The railway mail pay does not even equal one-half of the taxes alone which the railroads pay. The only thorough inquiry, previously made on the subject of railway mail pay, was by the commission of 1898, which, after two years' study and volu- minous testimony, reported as follows: " Upon a careful consideration of all the evidence and the statements and arguments submitted and in view of all the services rendered by the railways, we are of the opinion that ' the prices now paid to the railroad companies for the transportation of the mails ' are not excessive, and recommend that no reduction thereof be made at this time." (S. Doc. No. 89, pp. 19, 22, 25, 29, 52d Cong., 2d sess.) It demonstrated then that there was no foundation for the sentiment of overpay that existed, based upon mere assertion, and which culminated in the appointment of the commission. Nothwithstanding, a further agitation of the subject arose in 1907, with disastrous and, as we believe, decidedly unjust results to the railroads. Congress had the subject before it, and by act approved March 2, 1907, re- duced the railway mail pay $2,723,000 per annum, cutting the pay on weights and full postal cars. No sooner, however, was this done — in fact on the day the act was signed by the Executive — the Postmaster General issued order No. 165, commonly known as the " divisor order," which cut the railway mail pay $4,941,000 per annum more than Congress, by its own action at that time, re- garded as justifiable. The railroads have been protesting this double method of reduction from two sources was decidedly unjust and far beyond the wishes and action of Congress at that time. Instead of a reduction of $2,723,000 per annum designed by Congress, an actual reduction of $7,664,000 has been made. Included in the reductions made by Congress was a cut in the pay of full postal cars, which, at that time, were of wooden construction. Since then not only has Congress required the recon- struction of the wooden cars to standards, but at the last session provided for their retirement and replacement by all-steel equipment and without any pro- vision whatever for compensation to the railroads. Certainly the higher class of equipment required and the expense of substituting it for wooden cars, which must be abandoned, form a sufficient businesslike basis for a restoration of the rates that were in effect prior to the cut of 1907. It is hoped the commission, of which you are chairman, will recommend a restitution to the railroads of these reductions in the form of an annual weigh- ing, pay for mail-apartment car space, and compensation for messenger service. The fairness of such action is especially emphasized at this time by the in- auguration of the parcel post on January 1, next, which, apparently, will in- crease the volume of mail and for which no provision in the way of compen- sation has been made to railways, although such provision has been made to increase the pay of rural carriers, star-route carriers, and messenger service. The principal* service in connection with parcel post will be that performed by railroad companies in its transportation over the immense mileage of the country, and the justice of an equitable method of pay will, no doubt, appeal readily to every Member of Congress, as it can not be expected that it will be 76 RAILWAY MAIL PAY. transported by the railroads for nothing while the Government is collecting a revenue thereon, and considering that the railroads, at the present time, are being compensated for its transportation as express. The Post Office Department, as a result of the complaints of the unjust re- ductions in 1907, called upon the railroads for information and statistics on forms which it had sent out. The railroads, with the object of assisting in collection of the data correctly and promptly, designated a committee on rail- way mail pay to assist and to study the results. The committee, on behalf of the roads, has answered the three inquiries con- tained in your letter, in which views I fully concur. For convenience there is attached a copy of the questions and answers thereto, submitted by the committee. Yours, very truly, E. J. Pearson, First Vice President. Nevada Copper Belt Railroad Co., Salt Lake City, Utah, November 11, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir : The writer does not believe the present plan of compensation for carrying mails is equitable in the following respects : If he is not mistaken, all roads are paid alike for the service without regard to conditions. In some cases the cost of handling the mail is greatly in excess of what it is in others and should be paid for accordingly. A road having a long haul can certainly carry the mail at a less price per mile than one having a short haul. If a flat rate is allowed in all cases it should be sufficient so as not to work a hardship upon the small, weak roads. The writer understands that the present compensation is not sufficient in a great many instances to pay the expense incurred in handling mail. I would also suggest that the railroad company ought not to have to deliver the mail beyond its stations, but that it should be carried by the postmaster from the station to the post office. The writer also understands that where the mail is carried in apartment cars where part of the space is used for express and baggage, that the mail matter does not pay for its proportion of the dead space in the car, but throws an undue burden upon the express, baggage, and passenger service. Would it not be better to allow each of the mail-carrying roads to fix its own tariff the same as it does in carrying other freight or express, and let it be subject to revision by the Interstate Commerce Commission? It seems to us, however, that the present law, supplemented by H. R. 4044, would be a just and equitable basis for compensation. We understand that there have been several hearings in Washington on this bill, and that those Members of the House who were present were convinced of the justice and equity of its provisions. I do not believe that it is right to make the Postmaster General a judge of what the compensation should be, in view of the fact that it is to his interest to make as. good a showing as possible in his department, so that assuming that he is ever so honest and capable, he is not in as good a position to judge fairly as an entirely disinterested person or board. We understand that Senate bill 7371 was based upon the Postmaster Gen- eral's report in House Document No. 105, and that according to his recom- mendations the pay of the railroad for carrying mail is to be cost plus 6 per cent, and that in arriving at the cost he only takes into consideration operating ex- penses and taxes. This certainly is not just, but would amount almost to confiscation. If it is going to be fixed on a percentage basis, the cost of the mail should certainly bear its proportion of all of the expenses. If we take only part of them into account we may leave out enough to entirely wipe out the profit and more. The mail service should be made to carry its proportion of overhead charges, interest on capital, upkeep of the road, and all other ex- penses that are necessary in operating a reasonably well-operated road. Any- thing less than this imposes a burden upon a small road, which it can not afford to carry, and the Government has no right to impose any such burden. Yours, very truly, W. C. Orem, President Nevada Copper Belt Railroad Co. KAILWAY MAIL PAY. 77 Nevada County Narrow Gauge Railroad Co., Grass Valley, Cal, November 7, 1912. Hon. Jonathan Bourne, Washington, D. G. Dear Sir • Yours of September 11 at hand and contents carefully noted, and in answer, considering the effect on this road, beg leave to answer as follows to question No. 1: ., , , ._ ., - The present plan of compensation is not an equitable one to the railroads unless the extra weight of the mail carried during the biennial election contest for Representatives, and the four-year contest for President, and the franking privilege then used be taken into consideration and the roads compensated therefor Weight, value, and time being the chief factors in making all rates, why not continue the present plan until a better one is found? The Post Office Department is not now paying us an exorbitant figure for the mail service, the ascertained weight being carried by us 52,200 pounds per annum, carried on seven trains, for which we receive an annual compensation of $2,021, from which we are required to pay $180 for the transfer of the mail to and from the terminus at Nevada City and the post office, and about a like amount in the time of our employees at Colfax for a like service there, so that the mail nets us about $1,700 per annum, or a little over 30 cents per 100 pounds. The express company pays us an average of 34 cents per 100 pounds on their business, and that company provides a messenger on the trains and one at each end to give and receive packages and check the same, while our employees are required to do that service for the mail. Can't the post office pay as much? Our average first-class freight rate is 20 cents per 100 pounds. Our passen- ger rate is 1\ cents per mile, and he takes himself on and off the train and pays us at the rate of about $1 per 100 pounds for carrying him the same distance we carry the mail for 30 cents, and as the tables submitted by the report of the Second Assistant Postmaster General are based on passenger service, we fail to see any justice in the proposed reduced rates. Question 2. The principle of the plan may be all right, but the terms proposed are most certainly unjust for the following reasons : It proposes to place the compensation for carrying the mail at $25 or less per mile of road per annum. The Postmaster General may order new or additional service during a term without increase of compensation, but may decrease compensation for any re- duction in service. Are not these beautiful and just provisions for the Govern- ment, but where does the carrier get off? This will cut our revenue to $550 or less per annum from our present return of $1,700, and this in the face of the fact that with the first of the year a parcel-post service will be inaugurated, which will no doubt cut heavily into the express business and thus diminish our revenue from that source. It will add the loss of the express business to the postal business, and the carrier will be required to transport it as mail matter, thus our return of between $4,000 and $5,000 per annum from the express will be cut possibly one-half, and as I understand from the bill we would have to accept not more than $550 for all this, and whatever new business the cheap postal service will create under a penalty of $5,000 for refusal. Another provision of 'the bill requires the railroads to carry all accredited agents and officers of the Post Office Department, when in the exercise of their duties, free of charge. Why should we be required to do this? We have to place a post-office stamp on every piece of mail matter we send out, whether on Government require- ments or on our private business. The Government did not build or help build this road, the stock and bondholders built it entirely, and all contracts we have with other corporations requiring free transportation, it becomes reciprocal, and we are compensated thereby. Why not the Government do likewise or cut this provision out entirely? Our road cost about $700,000 to build. Our returns, as shown by our reports made to the Interstate Commerce Commission, to which you are respectfully referred, showed our road made a net revenue last year of $24,544, being 3£ per cent on the investment. For 23 years this road paid no dividends. By strict economy it is now paying a 4 per cent dividend to its stockholders from its earnings. I trust you will give the foregoing careful consideration and view the situa- tion from the carrier's point of view as well as the Government's. 49396—14-= 6 78 E AIL WAY MAIL PAY. If a change of plan is necessary or desirable, I suggest you consider H. R. 4044, prepared by the Short Line Railroad Association, as furnishing a plan more equable to all concerned, but to the provisions of the Senate bill 7371, rec- ommended by you, we earnestly protest, as the returns from it would be totally inadequate, and the penalty very harsh and entirely uncalled for. Respectfully. Superintendent and Treasurer. New Park & Fawn Grove Railroad, New Park, Pa., September 19, 1912. Mr. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : Replying to your letter of the 11th instant, regarding plan of com- pensation for service of carrying the mails, beg to say in answer to questions 1 and 2 that I am not in position, with the limited knowledge I have, to answer these; would say that, as far as our line is concerned, we are satisfied with the present compensation, but would not be satisfied with any less. Regarding question 3 I have no plan that I could offer you. Hoping this will be satisfactory, I am, Yours, respectfully, John H. Anbebson, President. New River, Holston & Western Railroad Co., Narrows, Giles County, Va., October 26, 1912. Mr. Jonathan Bourne, Jr., Washington, D. G. Dear Sir : We note your recent communication regarding Senate bill 7371, and thank you very much for calling our attention to same. We are only a 20-mile road and naturally think the present compensation for carrying the mails small enough. Yours, very truly, F. E. Bastian, Manager. New York, New Haven & Hartford Railroad Co., New Haven, Gonn., September 20, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. My Dear Sir: Your letters to President Mellen, asking for comments upon S. 7371, have been duly received. I note that the bill is substantially that recommended by the Postmaster General in House Document No. 105. I hope to have an opportunity of making specific criticisms of it before your committee at some of the hearings to be held, I assume, between now and the opening of Congress. For the present I shall offer the following general criticisms : The business of carrying mail for the United States Government should be established upon a similar basis to that of carrying commodities for other shippers. Neither the rate nor the cost of performing the service should be determined in the first instance by the Postmaster General. The Interstate Commerce Commission should be charged with that duty, upon representations made by the Post Office Department on the one hand and by the railroad com- pany on the other, with full authority on the part of the Interstate Commerce Commission to verify, by investigation or otherwise, all statements and reports made by each party. The Interstate Commerce Commission and not the Postmaster General should be authorized and directed to readjust the pay after the investigation afore- said. When that has been fixed and the service prescribed, the Postmaster General and the railroads should each be held strictly to the performance of the contract. Additional service required by the Post Office Department should be anticipated by the commission and the rate fixed for it. Failure to perform the service prescribed in the contract should meet with a penalty anticipated and prescribed by the Interstate Commerce Commission. It is not fair nor reasonable to permit the Postmaster General to order new or additional service during the term the adjustment shall have been made without giving additional compensation therefor during such term ; nor, on the other hand, is it fair that RAILWAY MAIL PAY. 79 service prescribed by contract, abandoned because the same has become unneces- sary, should entitle the railroads so abandoning the service to as much pay as they had previously received. It is proper to embrace in the contract transportation of those engaged in the actual work of sorting the mails and to provide compensation for their carriage as a part consideration for the contract. The Post Office Department ought not to ask free transportation, which it is the policy of the Government to forbid to other shippers. Much more should this apply to post-office inspectors and their accredited agents, who are traveling on the regular trains of the railroad. They should be required to pay their fare the same as any other passenger and charge the same as part of their expense account to the department. I have no criticism to make of the specifications for R. P. O. and apartment cars used for Railway Mail Service. Undoubtedly they should be of such con- struction as should fit them for the service and should be first class and sani- tary in every respect ; but the cost of constructing and maintaining them should be reckoned in as a part of the compensation to be paid to the railroad companies and any change in existing specifications should be reflected in the adjustment of compensation. I think also that there should be taken into consideration the class of trains upon which the mail is carried. Upon certain of our trains which make very fast time and which are limited in equipment an additional R. P. O. car would require a slowing of the schedule. On other trains a schedule can easily be made with one or even more additional R. P. O. cars. It is a question, in frequent service such as we give, running, for instance, substan- tially 14 trains each way per day between Boston and New York, whether it is essential that mail should be sent on our limited trains and so arrive in Boston or New York half an hour or, at most, an hour before a slower train. If the department insists upon sending mail upon these fast trains, they should be prepared to pay for it and for the motive-power equipment necessary to make the time. In other words, my criticism generally of the bill is that it pur- ports to make a contract between the Post Office Department and the railroads and then leaves it in the power of the Postmaster General to modify the terms of that contract in his discretion without providing any additional compensation or in fact giving the railroads reasonable notice of the proposed changes. As I have said, I will criticize this bill more in detail before your committee if you will give me an opportunity to appear before you between now and the 1st of December. Very truly, yours. E. G. Buckland, Vice President. Norfolk & Western Railway Co., Roanoke, Va., October 11, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. My Dear Sir : I have received your letter of the 11th ultimo inclosing me a copy of Senate bill 7371, embodying a plan recommended by the Post Office Department for determining the compensation to be paid to railroad companies for the transportation of the mails. You are aware that this matter is of so much importance to the railway com- panies of this country that they have appointed a special committee on railway mail pay, which committee has been considering from time to time the various phases which this matter has assumed. Of course, the special consideration of your letter has been referred to this committee, and I am in receipt of a copy of the committee's communication to you of the 3d instant. W T hile I indorse what this committee has transmitted to you, representing as it does almost the entire railway mileage of the country, yet I feel that it is proper for me to state two general objections to the bill which you submit and which would seem to me to be fatal to the bill so far as it is intended to provide fair and equitable treatment to the railroads of the country. First. The bill provides that the Postmaster General shall apportion the revenues and expenses of the railway companies in such manner as to him shall be deemed fair and equitable in order that he may determine the cost to each railroad company of carrying the mails on its road. You, of course, are aware that this imposes upon the Postmaster General a task which has not yet been successfully performed by anyone. Although for a number of years many of the best minds of the country have studied the problem, no conclusions have yet been reached which would justifv the formu- 80 RAILWAY MAIL PAY. lation of rules establishing any uniform units upon which cost of the particular business can be predicated. This bill does not provide for any representation by the railway companies in the investigations which are intended to bring about a conclusion as to what it does cost the particular company to carry the mails, and the only appeal that is permitted is to the Interstate Commerce Commission, whose decision shall be based upon such papers as the Postmaster General shall furnish to the commission and which, in his judgment, are deemed essential to an under- standing of the method adopted by him in fixing the compensation. If the railway companies have any rights which the law shall respect, it would seem to me that in so important a matter involving so vast an amount of money the railway companies would be entitled to the opportunity to present their views somewhere or somehow before a disinterested tribunal. All of us must recognize that a zealous Postmaster General is properly inter- ested in reducing the cost of service in his department, and I take it that in approaching the subject from that viewpoint he would necessarily be disposed to minimize the cost to the railway companies of performing the mail service. Second. The second objection to the bill that seems to me to be fatal is the fact that on its face the bill contemplates the partial confiscation of the property of the railroads of the country to the extent to which their instrumentalities are used in the service of the Government in carrying its mails. The only compensation to be accorded to the railways under the bill is to reimburse to them the cost of the service as ascertained by the Postmaster General, to which cost is added 6 per cent of such cost. I -am sure that a moment's reflection would satisfy any experienced mind that in the event all of the business of the railway companies was done on this basis, bankruptcy of all the roads would result. It does not seem to me that the Government should by law undertake to force upon the railway companies a schedule of charges which could not be carried into effect in connection with all the business; and the imposition of the scheme, if carried on successfully, would simply mean that the shippers of the country would pay for the service performed for the Government, and it does not seem to me that the Govern- ment can properly put itself in such a position. This is not its policy with regard to any other service performed for the Government, and I fail to see any just reason why a discrimination in this respect should be imposed upon the railway companies. The proposed act seems to contemplate the doing of the mail service on '* force account," which is a familiar form of service in the simpler contracts for labor and material, but I call your attention to the fact that even in those contracts the compensation in the ordinary transactions varies from 10 to 25 per cent on the actual cost of labor and material, the variation being based upon the complexity of the machines and instrumentalities incident to the con- struction of the work and the risks involved. It must certainly appear to the fair-minded person that the instrumentalities used by the railway companies in performing this governmental service are of a high degree of complexity and involve no little risk. Very truly, L. E. Johnson, President. Pacific & Idaho Northern Railway Co., New Meadows, Idaho, October 9, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Senator Bourne : In reply to your communication of September 11, relative to Senate bill 7371, embodying a plan recommended by the Post Office Department for determining the compensation to be paid to rail- road companies for transportation of the United States mails, I beg to state that I see but little fairness or merit in the bill in question. In my judg- ment, confirmed, I believe, by the admitted facts, there has at all times been a great hardship worked upon the smaller lines of railroad, at least in the adjust- ment of compensation for space assigned in our rolling stock for the exclusive use of the Railway Mail Service. If there is to be a fixed rate, applying alike to all mail-carrying roads, the present law, if amended in conformity with House bill 4044, prepared by the Short Line Railroad Association, would seem, in my judgment, to be equitable to all concerned. I believe that the practice of weighing mail at intervals of four years works a great hardship upon roads in the West in districts which are developing, as RAILWAY MAIL PAY. 81 is ours, very rapidly. As a Western man you will appreciate that the volume of mail may ofttimes multiply several times in four years, which places a pioneer railroad in the position of carrying for the Government a weight far in excess of that upon which its compensation is based. The underlying principle of the plan embodied in Senate bill 7371 seems to me to be arbitrary and unjust as a basis of compensation. A discussion of this feature involves the bread question as to the factors to be considered in determining the cost of carrying mail. I understand that the honorable Postmaster General recognizes only two factors in computing the cost ; that is, operating expenses and taxes ; audi take it these two items are the only ones considered by him in making his reports to Congress in railway-mail pay Document No. 105. The element of capital and es- sential burdens incident to the upkeep of the road do not appear to be consid- ered. In addition the Postmaster General is given the power to compute the mail compensation on the car-foot miles devoted to the mail service. This would com- pel a large percentage of the smaller railroads to charge at least 95 per cent of the cost of operating the car against the passenger and express service, re^ lieving the mail service from paying its proper proportion of the dead space, and this notwithstanding that the dead space for which the Railway Mail Service is directly responsible may not be utilized in any way by the railway company for other than Railway Mail Service purposes. As a matter of fact and of equity, I will state to you that so far as compensation is concerned and dismissing en- tirely for the time being the questions of public policy and of facilitating the mail service in the interest of the communities which we serve, I should be most happy as a cold-blooded business proposition to dispense entirely with carrying the United States mail upon the basis of compensation which we now receive. That being true, it can readily be seen that I could not consistently acquiesce in a measure that contemplates a reduction of nearly one-half in that compensa- tion. It seems to me peculiarly arbitrary, unjust, and unreasonable to stipulate " that it shall be unlawful for any railroad company to refuse to carry the maila at the rate of compensation provided by law, when and for the period required by the Postmaster General so to do." The fine of $5,000 for refusal is also un- reasonable, unjust, and unfair. To conclude, if the postal rates now in effect can not be amended to conform with House bill 4044, then it would seem to me to be fair and reasonable and in the interest of all concerned to repeal the existing laws governing the com- pensation to railroads for the carrying of mail and to place the entire matter of compensation for such service in the hands of the Interstate Commerce Com- mission. There is another feature involved which is worthy of consideration and which should appeal to the sense of fairness of any Western Representative or Sen- ator ; that is, that conditions differ very widely as between railroads in different parts of this country, and that what might be fair and equitable as applied to a railroad in a densely populated district, might, and probably would be, dis- tinctly unfair and unreasonable as applied to a pioneer railroad in the growing West. You will doubtless agree with me that whatever views we may hold upon various questions involved in the treatment of public-utilities corporations or common carriers, the fact remains that new railroads and extensions of lines already existing are absolutely essential in order that the Western States, now iu the throes of development, shall achieve their fullest destiny. In the case of transcontinental railroads, you will appreciate that the through traffic in which they participate is an important item in revenue. In the case of local or feeder lines, they are dependent exclusively upon the development of their local dis- trict for their revenue, and the basis of compensation by the Government for any service rendered to it should be so adjusted in the best interest of the people at large so as not to discourage the investment of capital, which has the world as its field of operation in additional railroad construction in the thinly settled West. Yours, very truly, E. M. Heigho. Paul Smith's Electeic Light & Power & Railroad Co., Paul Smiths, N. Y., September 16, 1912. Mr. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: Replying to your letter of the 11th instant, inclosing Senate bill 7371, we feel that $42.75 per mile of trackage per annum for hauling mail is 82 KAIL WAY MAIL PAY. fair to both the Government and the railroad company, considering the space occupied and the weight carried. Very truly, yours, Paul Smith's Electric Light & Power & Railroad Co. [Atlantic City Railroad, Catasauqua & Fogelsville Railroad, Gettysburg & Harrisburg Railway, Northeast Pennsylvania Railroad, Perkiomen Railroad, Philadelphia & Chester Valley Railroad, Philadelphia & Reading Railway, Philadelphia, Newtown & New York Railroad, fickering Valley Railroad, Reading & Columbia Railroad, Rupert & Bloomsburg Railroad, Stony Creek Railroad, the "Williams Valley Railroad.] PHILADELPHIA & READING RY. Office of Vice President, Reading Terminal, Philadelphia, October 15, 1912. Mr. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Referring to your letters of September 11, addressed to President Baer to each of the above companies, inclosing copy of Senate bill 7371, introduced by you by the direction of the Senate Committee on Post Offices and Post Roads, embodying a plan recommended by the Post Office Department for determining the compensation to be paid to railroad companies for the transportation of mails, and requesting replies to inquiries bearing on the present plan, and that introduced in your bill. The subject of mail-transportation costs and revenues has been a familiar matter since the preparation of data for the Post Office Department in 1909, and I have before mea copy of a letter dated October 3, addressed to you by the committee on railway mail pay in reply to your inquiries, in advance of a response now in course of prepara- tion by the committee on House Document No. 105. This communication fairly sets forth our views in regard to compensation for the carriage of mails, and we indorse the expressions contained therein. We would further ask your attention to the dis- play of the above companies under transportation of mail, on pages 276 and 277 in Document No. 105, which shows a loss from mail services for the month of November, 1909, of $3,652.81. This loss is against a total monthly revenue from mail'service during that period of $11,797.66, and while this shows a large percentage of loss, we feel that the basis under which the car-foot miles were arbitrarily developed by the Post Office Department in preparing these statistics of cost does not equitably state our posi- tion in cost, of carrying mail. Briefly, the plan followed by the Post Office Department in producing the car-foot miles in mail service of 3,270,478, as shown in Document No. 105, shows that they made an arbitrary assignment of space in apartment cars on basis of space reported by Railway Mail Service as being necessary for that train, and in closed-pouch serv- ice an arbitrary assignment of space was made based on weight, which was produced on an average fixed weight for each mail pouch and sack. The figures submitted by this company in its reports were 5,226,386 car-foot miles, and were on a basis of space in apartment cars, and space in closed-pouch service in baggage and combination cars, and the space used by each mail, baggage, and express in apartment, plus the proportion of dead space each bears to the total of the space occupied. We feel it is necessary to provide carrying facilities in the several branches of the passenger service both as to space in car apartment to properly care for and expedite the handling of the several classes of matter, and in the seating capacity of coaches to care for the traveling public, and that each of the several classes of matter take care of its proper proportion of dead or unused space. This arbitrary assignment of space by the Post Office Department resulted in the reduction of 1,955,908 car-foot miles, or 37.42 per cent. The above is respectfully submitted for your consideration. I am, yours truly, Theodore Voorhees, Vice President, President Williams Valley R. R. The Pittsburgh, Lisbon & Western Railroad Co. Lisbon, Ohio, September 21, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I beg to acknowledge the receipt of yours of the 11th instant, ■submitting copy of Senate bill No. 7371. This bill I have read. I am now unable to state whether it would afford the relief that seems to be due to the short-line railroads. KAIL WAY MAIL PAY. 83 This company carries United States mail over 25 miles of road on four trains each day, and received therefor $1,566.52 per annum, less fines. This makes practically $5 per day. The space required in the car is about 64 square feet. For this space, carrying the mail and the clerk, the company received about 5 cents per mile. I am advised that operations of many other short lines show about the same results. It seems to me that every one must concede that this compensation is clearly inadequate for the service rendered. Out of the compensation received the railroad company is required to pay about $10 per month for delivering mails from railroad stations to post offices. I trust that some plan may be arrived at which will confer upon the Post- master General authority to put the short-line railroads on a more equitable basis, Yours, truly, N. B. Billingsley, President. Raritan River Railroad Co., Jersey City, N. J., September 19, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Replying to your circular letter of September 11, instant, beg to advise that this railroad handles a very small amount of mail matter between South Amboy, N. J. — our junction point with the New York & Long Branch Railroad — and Parlin, N. J. (There are no intermediate post offices on oui line between these two points. ) The distance is 4 miles, and we receive, at the present time, $15.67 monthly for this service. Owing to the insignificant amount of this traffic, we do not feel that we are in a position to express an opinion as to an equitable method to be pursued in compensating railroad companies for carrying mail matter. Very truly, yours, Wm. G. Bumsted. President. Roaring Fork Railroad Co., Blackwood, Va., September 14, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. My Dear Sir : We have your letter of September 17, inclosing copy of Senate bill 7371, indorsed by you, embodying a plan for determining the compensation to be paid to railroad companies for the transportation of the mails. In reply to the first question, we do not believe that the present plan is an equitable one, for the reason that the small roads do not receive adequate compensation and the larger systems are very much overpaid. 2. We believe bill 7371 is very proper, and we have no comments to make on it. 3. It is a very hard matter to determine on a desirable plan for compen- sating railroad companies for transportation of the mails. I believe that this question could be submitted to an impartial board, who would secure all necessary data, and then could determine a fair and just compensation. Yours, very truly, Roaring Fork Railroad Co., By C. J. Cutting, General Manager. Seaboard Airline Railway, Norfolk, Va., October 21, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I beg to submit the following replies to interrogatories contained in your circular letter dated September 11, addressed to the president of this company : 1. TLe basis of the present plan of compensation is fair in principle, but tbe law has been supplemented by so many regulations and administrative require- ments that it does not provide fair compensation to railroads generally, as shown by data compiled by the committee on railway mail pay in answer to Document No. 105, Sixty-second Congress, first session. 84 RAILWAY MAIL PAY. 2. The underlying principle of the plan embodied in Senate bill 7371 is not, in my opinion, a proper basis for compensation. No rate is or ever has been based upon cost of operation. Such a plan presents many varying and not readily determinable conditions which would give rise to almost insurmount- able difficulties. It would place a premium upon inefficiency and a very great accounting burden upon the railroads. It does not provide for any return whatever upon investment, which return is absolutely necessary to the preserva- tion of corporate existence. The operating expenses and taxes of the railroads for the year ended June 30, 1910 (see Interstate Commerce Commission report), amounted to $1,920,- 665,026 ; 6 per cent of that amount is $115,239,922, whereas for interest, rentals, etc., for the same period $560,905,952 was required. It will therefore readily appear that the plan advocated by the Postmaster General and proposed in Senate bill 7371, if applied to all the business of the railroads, would produce only 20.55 per cent of the amount necessary to keep them out of the hands of receivers. It is scarcely conceivable that Congress would wish to fix a rate for the transportation of mail on railroads which would make the mail service a tax upon every other service rendered by them. The collection and preparation of the data contained in Document No. 105 re- quired nearly two years' time. We may fairly presume each annual adjust- ment under the plan proposed would not require less time, would be influenced more or less by administrative policy, give rise to more or less contention, and must, of necessity, place the railroads in a position where they would never be able to tell what they are to receive for the service they perform, while Congress would be called upon to appropriate money on a speculative basis. The practically unlimited authority which it is proposed in the bill to confer upon the Postmaster General as to the determination of cost and administration are as objectionable as the principle involved. These objections are well set forth in an article over your signature in the August number of the Review of Reviews. 3. In their answer to Document No. 105 the railroads have shown that com- pensation for mail transportation is not remunerative as compared with other elements of passenger- train revenue. They have frequently demonstrated in passenger-rate cases that earnings from . passenger service are not excessive. Our conclusion, therefore, is that reductions in pay for the transportation of mails on railroads by acts of Congress and by Executive orders have not been justified by the evidence presented ; that the rates provided by the law of 1873 (R. S. 4002) should be restored; that pay for railway post-office cars, as pro- vided in Revised Statutes, 4004, should be restored ; and that pro rata space pay should be allowed for mail apartments in cars. The law should be definite and specific in terms, limiting service to rail distance and relieving railroads of burdensome regulations and requirements at present enforced by fines and deductions, which are not incident to any other class of transportation. Very truly, yours, Chas. R. Capps, Vice President. Siekka Railway Co. of California, Jamestown, Gal., October 16, 1912. Hon. Jonathan Botjkne, Jr., Washington, D. G. Dear Sir: Referring to your letter of September 11, addressed to Mr. T. S. Bullock, requesting views of this company as to the merits of Senate bill 7371 as applying to railway mail pay. I am in receipt of a copy of the letter addressed to you under date of Octo- ber 3 by the committee on railway mail pay, and same embodies the views of this company in the main. There are one or two points in which I would go farther than the stand taken by the committee. Clause D, question 1. — In the committee's reply they desire a fair allowance to the railroads for the side and terminal messenger service which they per- form for the Post Office Department. In my opinion the railroads should be relieved of this service altogether. It is not a question of railway transporta- tion in the general sense. Carriers do not perform this or a like service for other patrons of the road, and I see no good reason why the Government should not make other arrangements for this service. EAILWAY MAIL PAY. 85 Paragraph E, question 1. — The committee say, " That all rates of pay should be definite and not subject to the discretion of the officers of the Post Office Department." On this point I would particularly specify that no penalties should be exacted from the carriers on account of delays or failures to handle the mails except in cases where such delayed mail may be diverted over other routes. I see no reason for penalizing a carrier simply for the reason they are a few hours late or did not move the mail on a specific train when the service is performed later. The mail is transported by the railroad lines. The persons receiving the mail are not allowed anything by the Government for the delay, and it is only an arbitrary reduction going to the credit of the Government and does not in that sense correspond with other railway transportation. Yours, very truly, S. H. Smith. South Georgia Railway Co., Quitman, Ga., October 7, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: Replying to your letter of recent date in reference to the cost of handling the mails via our line. I will say that the pay is entirely inadequate and but for the interest of the people along our line M^e would not consider the expense of equipment and cost of handling at the price we receive. To inconvenience the people from whom we get our living would, of course, react upon us and for that reason we continue the hardship. I would respectfully call your attention to detailed answers to your questions made by Mr. Ralph Peters, acting chairman of committee on railway mail pay of various lines, which I think fully covers most all phases of this matter and I fully indorse what he says in answer to your questions. Yours, truly, J. W. Oglesby, President. South Georgia Railway Co., Quitman, Ga., October 14, 1912. Hon. Jonathan Bourne, Jr., Washington, D. G. Dear Sir: As a supplement to my previous letter in reference to mail com- pensation. We have been reduced $50 per month in compensation for handling mail over our 77 miles of road under the last weighing period. They claim that we are handling less mail, than we handled four years ago. while our territory is con- stantly growing and we can show by every postmaster along the line that he is handling more mail to-day than he has ever handled. I will be glad to have the committee investigate the rather peculiar condi- tions that exist at the present. Yours, very truly, J. W. Oglesby, President. St. Louis Southwestern Railway Co., St. Louis, November 29, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I have to acknowledge receipt of your letter of September 11, 1912, inclosing a copy of Senate bill 7371, and requesting views upon three specific inquiries on the subject of railway mail pay, which, with answers thereto, are contained in a memorandum attached. The real issue is whether the railroads are overpaid or underpaid for mail trans- portation. The railroads have been protesting, since 1907 particularly, that they were underpaid, and that reductions of about $8,000,000 per annum made in that year were unjust to them, and that some form of adjustment should be made. The Senate Post Office Committee Report No. 955, Sixty-second Congress, second session, July 23, 1912, page 25, which accompanied the Post Office appropriation bill, stated that ' ' the committee is of the opinion * * * that the rates are excessively high." This view, presumptively, is founded upon the report of the Postmaster General, Document No. 105, wherein he purports to show that the railroads are overpaid 86 RAILWAY MAIL PAY. $9,000,000 per annum, which might be saved by enactment of a bill proposed by him and introduced by your committee as Senate bill 7371. There is no proof in his report that the railroads are overpaid; on the contrary, even superficial analysis explodes any such theory, because the methods employed in making his deductions are fatally in error and fortunately easily demonstrated. His first serious error is in overlooking the right of railroad property or capital to earnings, which is a recognized primary and constitutional factor in all rate cases. This property is, of course, of enormous value, as follows (I. C. C. Report, 1910): Represented by funded debt $10, 303, 474, 858 Stock 8,113,657,380 Total 18, 417, 132, 238 This represents the plant, which, of course, must exist to enable the railroads to perform mail and other transportation services. It is almost too apparent to allude to the effect of such a policy. If applied generally to railroad or any business it would, of course, bankrupt and destroy them. His second serious error consists in arbitrarily and erroneously cutting out millions of car-foot miles used directly or incidentally in performing mail service, as reported to him by the railroads in the reports he used and changed to the extent of approxi- mately 28 per cent. As the proportion of car-foot miles is the essential and material factor in his calculations, his erroneous action in not only cutting out such mail car- foot miles but changing the same instead to passenger car-foot miles is fatal to any theory that the railroads are overpaid. His third serious error is in dismissing without any consideration, either as to costs or compensation, the extensive and valuable service rendered by the railroads in per- forming what is commonly known as "messenger service," and which is the carrying of mails between the railroad stations and the post offices where the latter are within one-quarter mile of the station. This is not a natural function of the railroad company, because it does not handle passengers, baggage, freight, or express beyond its station property, but is an extra service which the railroads perform, and saves the Post Office Department from emnloying 30,000 to 40.000 contract messengers, and which saving former Postmaster General Meyer reported to the Senate committee amounted to $4,393,000 per annum. A service of so great value is ignored in treating railway mail pay generally and in the calculations made in Document No. 105. It is obvious that the railroads are not overpaid, as that document indicates, and no foundation exists for such opinions which may be based thereon. On the contrary, the reports which the Post Office Department required of the railroads demonstrated that they were very greatly underpaid for mail service — perhaps best illustrated by figures which the Postmaster General does not appear to have submitted in his report, namely: That mail space earned only $3.23 per thousand car-foot miles, whereas the passenger space earned $4.42 per thousand car-foot miles. This indicates underpay- ment to the railroads of over $16,000,000 per annum, according to figures compiled by the committee on railway mail pay. Unfortunately and prejudicially to their interests and justice there has always seemed to exist a feeling that the railroads were paid excessively for carrying the mail. Such views have not been founded upon any competent inquiry but upon mere assertion. It has been no uncommon thing to notice newspaper items asserting it and having the effect of creating public sentiment in that direction when there has been nothing substantial in the way of official evidence to support such assertion. The annual amount of railway mail pay has only seemed large and attracted atten- tion, because it represented the largest single item in the Post Office appropriation bill, and without full consideration of the immensity of the service rendered by the railroads receiving it, not only in the transportation throughout the year on all the railroads, and practically on all of the train service of the country, but in hauling post offices in addition on this mileage, for the distribution of the mail while it was in transit, and for the performance of other incidental services. The Government collected, in 1910, $224,128,637.12 in postage, yet for the above service by the railroads only paid $49,405,311.27, while on the other hand, it paid over $170,000,000 for the function of collection and delivery of that mail and the administration of the postal service. In other words, the railroads received about 22 cents out of the dollar the Government collected in postage for the transportation of the entire mail, whereas, the Government used about 78 cents for collection, delivery, and administration. In the past 10 years, the amount paid the railroads in proportion to postal revenue has been very steadily decreasing from 34 to 22 cents per dollar, while the collection, delivery, and administration cost during the same time has increased from 66 to 78 cents per dollar. There is nothing in these facts to support any theory of over- RAILWAY MAIL PAY. 87 pay to railroads. In reality, railway mail pay, in stead of representing a large pro- portion of railroad revenue, is indeed very small. In 1910 it only amounted to 1.78 per cent of gross revenue, while the roads had to depend upon freight, passenger, and express business for 98.22 per cent of revenue. The railway mail pay does not even equal one-half of the taxes alone which the railroads pay. The only thorough inquiry previously made on the subject of railway mail pay- was by the commission of 1898, which, after two years' study, and voluminous testi- mony, reported as follows: "Upon a careful consideration of all the evidence and the statements and argu- ments submitted, and in view of all the services rendered by the railways, we are of the opinion that ' the prices now paid to the railroad companies for the transportation of the mails' are not excessive and recommend that no reduction thereof be made at this time." (52d Cong., 2d sess., S. Doc No. 89, pp. 19, 22, 25, 29.) It demonstrated then that there was no foundation for the sentiment of overpay that existed, based upon mere assertion, and which culminated in the appointment of the commission. Notwithstanding, a further agitation of the subject arose in 1907, with disastrous, and, as we believe, decidedly unjust results to the railroads. Congress had the subject before it, and by act approved March 2, 1907, reduced the railway moil pay $2,723,000 per annum, cutting the pay on weights and full postal cars. No sooner, however, was this done, in fact on the day the act was signed by the Executive, the Postmaster General issued Order 165. commonly known as the "divisor order," which cut the railway mail pay $4,941,000 per annum more than Congress, by its own action at that time, regarded as justifiable. The railroads have been protesting this double method of reduction from two sources was decidedly unjust and far beyond the wishes and action of Congress at that time. Instead of a reduction of $2,723,000 per annum, designed by Congress, an actual reduction of $7,664,000 has been made. Included in the reductions made by Congress was a cut in the pay of full postal cars, which at that time were of wooden construc- tion. Since then not only has Congress required the reconstruction of the wooden cars to standards, but at the last session provided for their retirement and replacement by all steel equipment, and without any provision whateA'er for compensation to the rail- roads — certainly the higher class of equipment required — and the expense of substi- tuting it for wooden cars, which must be abandoned, for a sufficient businesslike basis for a restoration of the rates that were in effect prior to the cut of 1907. It is hoped the commission, of which you are chairman, will recommend a restitution to the railroads of these reductions in "the form of an annual weighing, pay for mail apartment car space, and compensation for messenger service. The fairness of such action is especially emphasized at this time, by the inauguration of the paicel post on January 1 next, which apparently will increase the volume of mail, and for which no provision in the way of compensation has been made to railways, although such provision has been made to increase the pay of rural carriers, star-route carriers, and messenger service. The principal service in connection with parcel post will be that performed by rail- road companies in its transportation over the immense mileage of the country, and the justice of an equitable method of pay will, no doubt, appeal readily to every Member of Congress, as it can not be expected that it will be transported by the railroads for noth- ing while the Government is collecting a revenue thereon, and considering that the railroads at the present time are being compensated for its transportation as express. The Post Office Department, as a result of the complaints of the unjust reductions in 1907, called upon the railroads for information and statistics on forms which it had sent out. The railroads, with the object of assisting in collection of the data, correctly and promptly designated a committee on railway mail pay to assist and to study the results. The committee, on behalf of the roads, has answered the three inquiries contained in your letter, in which A r iews I fully concur. For convenience, there is attached a copy of the questions and answers thereto submitted by the committee. Yours, very truly, F. H. Britton, President and General Manager. Susquehanna, Bloomsburg & Berwick Railroad Co., ' Watsontown, Pa., October 12, 1912. Mr. Jonathan Bourne, Jr., Washington^ D. C. Dear Sir: Referring to your recent letter, accompanied with Senate bill 7371, upon the subject of determining compensation to be paid railroad companies for the transportation of United States mail. 88 RAILWAY MAIL PAY. We have read over the bill carefully and also your letter upon the subject. It recalls to us a former communication addressed to Mr. Joseph Stewart, Second Assistant Postmaster General, Post Office Department, Washington, D. C, dated January 12, 1910. This letter was accompanied with statements in detail, showing the cost to this company for carrying United States mail. m I may say that our mail route is short, viz, 22.7 miles. Our passenger train con- sists of one compartment car for mail and baggage and one passenger coach. The baggage end of the compartment car is used daily for baggage, express, and local freight. The mail compartment is used exclusively for United States mail and a mail clerk. At the time the above-mentioned letter was written to Mr. Stewart it was upon his re- quest that we furnish the information covering one month's period, viz, from midnight, October 31, to midnight, November 30, 1909. Conditions at the present time do not vary much from that date. This estimate was worked out upon a per square foot of floor space basis, covering the distance mails were carried, and includes all items which we consider properly chargeable to the mail portion of- our business. These figures show that it cost this company for the month of November, 1909, $182.10 for the mail-carrying portion of our business. We received from the Government for this service $97.93. It will be noticed, therefore, that this service is being handled by our company at a loss of nearly $100 per month, figured upon the exclusive use of the the floor space necessary to handle the mail. We believe this estimate to be not far from correct, and if this is true there is no doubt we are much underpaid for the mail service on our line. Conditions, no doubt, vary considerably upon different lines and a rate for com- pensation that might suit here may not fit the conditions elsewhere. From lack of better information I would hesitate about expressing an opinion as to fixing upon a uniform rate to cover all cases, and we therefore believe it proper to confine our views to conditions and facts on our line as we find them. Our opinion is that we should receive for the mail service on our line actual cost, as already worked out, plus 25 per cent — or in other words $227.62 per month for the service, as it is now performed on mail route 110166 on our line. For the above reasons we wish to reply to your inquiries as follows: (1) Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable? Answer. No, sir. (2) Is the underlying principle of the plan embodied in the inclosed bill a proper basis for compensation? If not, wherein is it improper, and why? Answer. I hardly think so, for reasons explained in the accompanying letter. (3) What in your opinion is a desirable plan for compensating railroad companies for transporting the mails? Answer. Owing to the variations in the character of the service between long and short lines, I believe a fair basis upon which to adjust rates for carrying the United States mail to be as we have previously worked it out, viz, ascertain as nearly as possi- ble the actual cost, to which should be added a fair remuneration for the railroad com- pany, and we do not believe 25 per cent of the cost to be out of the way. We make this suggestion for the reason that all materials, repair work, renewals, etc., we purchase carry with them profits of approximately 25 per cent above the actual cost of producing such articles. For your information I beg to inclose herewith copy of our letter, dated January 12, 1910, addressed to Mr. Joseph Stewart, Assistant Postmaster General, and statement of cost of handling mail route upon our line No. 110166, made up on Post Office De- partment form 2603. I wish to call attention to a point mentioned in this letter which we discovered after sending it, viz, the last 14 words in the letter on the last two lines should have been omitted, and the letter ended with the word "MiUville." We included in our estimate (copy attached) 7 per cent of the general office and clerks' expenses as applied to mail service. This, however, does not alter the figures in estimate. Yours, truly, S. B. Haupt, President and General Manager. I Form 2603.J Name of system reporting: Susquehanna, Bloomsburg & Berwick Railroad Co. Railroad mail route covered by the system, 110166. Train mileage of passenger traffic (covering all passenger and baggage, express, and mail service), 4,576. Car mileage of all passenger equipment (including all cars, passenger and baggage, express, and mail), 9,152. EAILWAY MAIL PAY. 89 Total revenue received from passenger traffic (not including man and express) $1, 067. 64 Total revenue from express service 36. 12 Total revenue from mail service 97. 93 Total operating expenses (including passenger, mail, express, and freight). 9, 656. 04 Total passenger operating expenses, covering all passenger and baggage, express, and mail service 1, 279. 10 Assignable expenses. Fuel for locomotives 246. 75 Repairs to passenger cars 20. 00 Locomotive repairs, one-seventh of total 88. 15 Oil, tallow, and waste, one-fifth of total 7. 17 Fuel for coaches, estimated. Heated by locomotive and included in locomotive consumption 25. 00 Taxes on gross receipts 8. 54 Wages of enginemen, conductor, baggageman, and watchman 316. 00 Man carrying mail at Watsontown 5. 00 716. 61 Proportion of nonassignable expenses. 5 per cent on value of passenger equipment, $10,795.37 44. 98 Proportion of — Maintenance of roadway, 7 per cent 216. 50 Superintendence, 7 per cent 7. 70 Station agent, 7 per cent 29. 97 General office, 7 per cent 24. 50 General office clerks, 7 per cent 12. 95 General expenses, 7 per cent : 8. 24 Stationery and printing, estimated 2. 50 Water rent, one-fifth of total ' 9. 95 Interest on mortgage, 6J per cent 189. 60 Taxes on capital stock, 6 J per cent 15. 60 582. 49 Watsontown, Pa., January 12, 1910. Joseph Stewart, Esq., Second Assistant Postmaster General, Post Office Department, Washington, P>. C. Dear Sir: Your favor of November 22, accompanied with inclosures, including blank forms, letters of instruction, etc., relating to receipts and expenditures of rail- roads for carrying United States mail, came duly to hand. We have recently closed our figures showing general operating expenses and gross receipts for the month of November, so that we are now able to work up such data as we hope may be satisfactory for the information you desire. We find it difficult to separate the cost of carrying the mails from the total cost of oper- ating the passenger train absolutely. Our regular passenger train is made up of one coach and one combination car. Seventeen feet of the combination car is used for United States mail purposes, includ- ing mail clerk. It may be proper to calculate on the use of 12 feet of the combination car only, that being the length specified as being absolutely necessary by the post- office authorities. The reason we use 17 feet is because the car came to us that way and we did not wish to alter the partition. While we have endeavored to give the information in full as called for in your blanks, we desire to add some additional information throwing light upon the sub- ject from another standpoint. The total floor space of our passenger train, including one coach and one combination car, is 806 square feet. Of this, 110 square feet are used exclusively for United States mail purposes. The total cost of operating our passenger train for the month of November, 1909, was $1,279.10, as you will note in statement. This makes the cost per square foot $1.59. Figuring upon this basis we would find the cost of handling the United States mails for the month of November as follows: 110 square feet used in mail compartment car at $1.59 per square foot $174. 90 Messenger for carrying mail at Watsontown, $5 per montn 5. 00 90 KAIL WAY MAIL PAY. Time of agents, Ottawa, Strawberry Ridge, and Millville, occupied in han- dling mails $2. 10 This would make the total cost for handling the mails for the month of November $182.10. For this service our company receives from the Government $97.93 per month. The above figures do not include anything for the hauling of the mail clerk four times daily between Watsontown and Millville or the time given to the service by the management and general office clerks. Yours, truly, S. B. Haupt, General Manager. United Verde & Pacific Railway Co., Jerome, Ariz., September 20, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: In reply to your letter of September 11, relative to S. 7371, I beg to state that in my opinion this bill is grossly unfair and would work a very considerable hardship on railroads. The question is undoubtedly a very complicated one and should, I believe, involve equations other than the mere cost of transportation plus a 6 per cent profit thereon. Under the regulations of this bill no account seems to be taken of the cost of equipment and other facilities, nor the revenue haul displaced by mail and mail equipment unless, of course, these phases would be taken into consid- eration by the Post Office Department in determining cost of handling mail. A railroad company should not be expected to sell its transporation, even to the Government, at a loss, nor at anything but a reasonable and just profit. In deter- mining such profit not only the cost of the actual equipment used in the Railway Mail Service, together with the operating expense should be used, but that proportion of cost of motive power, track, and other facilities which mail equipment bears to all other equipment, should be capitalized and the resulting figure computed in the expense of operating mail. While these matters may be taken into consideration under the terms of the inclosed bill I do not deem these terms sufficiently explicit, and in order definitely to provide for such consideration I believe the bili should so state in plain and unmistakable language. I believe also that short line railroads should be allowed a higher minimum than $25 per mile per year; especially should such allowance be made on mountain roads, where only limited tonnage can be handled and where operating and maintenance expenses are very high. Not only should cubic space of mail actually handled be considered, but cubic space required for possible necessities should be taken into consideration, and a fair and reasonable return made accordingly. Rates based on average operating costs and figured accordingly on a mileage basis are inherently wrong. Every rate made should be based on individual character- istics with, of course, sufficient leeway to meet competition and other local conditions. Mail contracts should be given little consideration. Yours, truly, Will L. Clark, Second Vice President. Virginia-Carolina Railway Co., Abingdon, Va., September 14, 1912. Senator Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Your circular letter 11th, asking opinion on bill 7371. I have read the bill, but it is so drastic and autocratic that it is almost lese majestie to criticize it. The first difficulty is to find the actual cost of carrying the mail. The greatest experts in the world have never been able to properly figure the cost of transportation Especially difficult will it be to find the actual cost of moving under the special requirements of standard metal cars, depot space, room for post-office employees, etc., required in addition to the actual transportation. The movement over the larger lines could, no doubt, be discussed by the managers of those lines much more ably than I could after extended study. Ours is a short line, and the compensation received by such line is entirely inadequate. I do not doubt but that very many of the short lines, like ourselves, would rather be without the mail than to have to handle it as at present. In the first place the arbitrary rate is unremunerative and in the second place the requirement of short lines to deliver the mail pouches to the various post offices along the line within the limit of 40 rods for intermediate points and to terminal points, whatever the distance. RAILWAY MAIL PAY. 91 It seems to us that, in all justice, the compensation to such short lines should bo increased, and they should be relieved from this burden of delivering to the post offices. Yours, truly, W. E. Mingea, President and General Manager. Virginian Railway Co., Norfolk, Va., October 24, 1912. Hon Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: I beg to present for your consideration the following reply to the inquiries made in your letter of September 11, 1912, viz: Question 1. Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable? Answer. The present plan of compensation is not fair to the railroads. (1) On account of the great length of time elapsing between weighing periods. There should be at least annual instead of quadrennial weighing, and there should also be a definite and fan method for ascertaining the daily average weights. Under the present four-year period of weighing, the railroads carry a certain quantity of mail a great portion of the time without any compensation. As a case in point: The weighing of the mails on the Virginian Railway took place before the road was fully connected up and in operation. On short portions of the line only was there any train service. The company protested against the unfair- ness of rating its pay from the Government for four years in the future upon weighings made upon detached portions of the road. No attention was paid to our protests, and the injustice has been continued. (2) On account of insufficient compensation, or allowance, for the maximum space demanded by the Government for postal-car accommodations; that is to say, pay is not allowed for all the space demanded. The recently enacted parcel-post law will mean greater injustice to the railroads under the present method of compensation for the average weight carried, instead of pay for the maximum space demanded. (3) On account of requiring the railroads to perform unusual service without any pay therefor; we refer to side and terminal messenger service. The railroad is cer- tainly entitled to proper compensation for work of this kind performed for the Post Office Department. The establishment of the parcel post will add to the burden. (4) On account of the use of a wrong divisor, the latter having been changed unjustly. (5) Laws have been enacted requiring steel postal car equipment, resulting in increased operating expenses for the railroads, while at the same time the compensation for carrying the mail has been reduced. This is not fair nor reasonable. Question 2. Is the underlying principle of the plan embodied in the inclosed bill a proper basis for compensation? _ If not, wherein is it improper, and why? Answer. The underlying principle of the plan outlined in Senate bill No. 7371 is not correct. A plan based upon operating cost and taxes, with 6 per cent added, can not be considered right, there being no allowance for the property employed. It would penalize the railroads which have the higher physical condition and which give the most efficient and valuable service to the Post Office Department. Question 3. What, in your opinion, is a desirable plan for compensating railroad com- panies for transporting the mails? Answer. Amend the existing law in a way that would correct serious inequalities now existing, some of which have been mentioned in our answer to question 1, and then place upon the same a fair interpretation in its administration on the part of the postal authorities. Very respectfully, yours, Raymond Du Puy. Wabash, Chester & Western Railroad, Chester, III, September 14, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. Dear Sir: Your favor 11th with copy of Senate bill 7371 received and noted. Any legislation proposed by Mr. Hitchcock for payment to railroads for carrying mail can safely be condemned without reading. He is notoriously unfair and un- reasonable. The treatment the small roads have received by the Post Office Department for many years has been a disgrace and stamps the officials in charge as not only unfair and unreasonable but absolutely dishonest. 92 E AIL WAY MAIL PAY. For the treatment this company has received I refer you to the testimony taken by the House Committee on Post Offices and Post Roads, of Sixty-first Congress (I think it was). As for requiring such roads as this to provide steel cars is absurd. This road does not make operating expenses and taxes. It has to be content with second- hand equipment, discarded by other companies. It can not afford new wood cars, let alone steel cars, of the Government specifications. Seventy-five dollars per mile is the minimum such roads should be allowed, and even that would barely pay cost of the service rendered. They should also be exempt from delivering mail to post offices at terminals and at stations. No other freight is delivered to patrons, and this is a discrimination that should be unlawful. Yours, respectfully, C. B. Cole, President. Chester, III., October 9, 1912. Hon. Jonathan Bourne, Washington, D. C. Dear Senator: I am in receipt of a copy of letter written you by the committee on railway mail pay of the American Railway Association, which I heartily indorse, referring to the proposed bill for regulation of railway mail pay. While this answer refers in a general way to the objections of the railroads in general, it does not put the case as strong as it should be on the part of the short lines. They should have special consideration, which I trust will be fully brought out in the hearings I assume will be held sometime this next winter. Yours, respectfully, C. B. Cole, President. Wabash Railroad, Chicago, September 17, 1912. Hon. Jonathan Bourne, Chairman Senate Committee on Post Offices and Post Roads, Washington, D. C. My Dear Sir: Your letter of September 11, inclosing copy of Senate bill 7371, embodying a plan recommended by the Post Office Department for determining compensation to be paid to railway companies for transportation of mails, has come duly to hand. The receivers desire to aid to the extent of their ability in the general discussion of this question ; in fact, we have worked up a good deal of data along this line and have supplied it to a joint committee under whose jurisdiction has been placed the responsibility of supplying full information to your honorable body. I do not understand that you have any objections to our presenting the data in this manner. Yours, very truly, F. A. Delano, Receiver. White Deer & Loganton Railway Co., Sunbury, Pa., September 13, 1912. Hon. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: Replying to your letter of the 11th, we are operating a narrow-gauge railroad of 25 miles from White Deer, Pa., to Loganton, Pa., and owing to our limited experience do not feel that we can give a full answer to your questions. We wish to suggest that for small roads like ours, operating in sparsely settled terri- tory where traffic is not heavy, the maximum provision, on page 2 of Senate bill 7371, of $25 per mile would be a hardship, and we beg to ask that you consider the matter of some adjustment of compensation for service furnished such as by our line that will authorize a compensation such as would enable the roads to maintain the service, and think page 4, $42.50 per mile, would be a minimum in such cases. Yours, truly, Charles Steele, General Manager. Yosemite Valley Railroad Co., Merced, Cal., September 23, 1912. Senator Jonathan Bourne, Jr., Washington, D. C. Dear Sir: I have your letter of September 11, addressed to our president, Mr. F. G. Drum, which has been referred to us for reply. (1) I do not deem the present plan of compensation equitable for all roads and under all conditions. In our own case our road was built through practically virgin country and of course the mail carried was very light, but we have developed the business and RAILWAY MAIL PAY. 93 it is rapidly increasing each year and some arrangement should be made on roads of this character where more frequent weighing and adjustment could be had. Furthermore, our business is greatest during certain months in the year and at the time that the mail is weighed does not cover any of the months in which our business is greatest, consequently we do not receive proper compensation for the mail we carry. (2) The underlying principle of the plan embodied in the bill is correct, but should be elastic enough to meet special cases and conditions such as nearly all small roads and new roads have to contend with. Yours, truly, 0. W. Lehmer. Yreka Railroad Co., Yreka, Siskiyou County, CaL, November S, 1912. Mr. Jonathan Bourne, Jr., Washington, D. C. My Dear Sir: I have your kind favor of September 11, 1912, with reference to proposed Senate bill 7371, as regards compensation of railroad companies for handling the mails. I beg leave to address a few remarks to you as regards our views in the mat- ter, which, of course, cover our particular case, as we are situated quite differently than the larger roads and, perhaps, some of the smaller roads. We feel that the pres- ent compensation for the services performed is wholly inadequate, and in the event of establishing a $25 per mile maximum revenue, as provided in this bill, such a rate would be confiscatory on our part. I do not quite understand just how the matter of mileage is arrived at on this pro- posed basis. Presume, however, it would be based on the round-trip mileage on this road, account service rendered both ways. In this event, our mileage being 7.50, we could not claim over 15 miles for the double service, which would amount to a maximum of $325 for the year's service. Yreka is a terminal post office, and we are compelled to transport the mail from our depot to the post office, approximately one-half mile distant. The mail transported by team includes the Yreka mail, as well as the mail for 19 tributary post offices which goes through that office. This mail approximates 14,000 to 16,000 pounds monthly, and, taking into consid- eration the mail delivered from the post office to the depot here in Yreka, we are called upon to handle approximately 20,000 pounds of mail by wagon each month, besides deliveries three times daily at Montague post office and handling at Yreka and Mon- tague stations and transporting over our line, 7.50 miles each way three times daily. For this service we are allowed $46.21 monthly, not deducting any fines the postal department may feel disposed to impose upon us. Mr. H. Schock, who has been in the dray business here ever since the road was first established, has transported the mails between the depot and the Yreka post office by handcarts and team. This has been for the past 25 years. For this service he was started off with a monthly compensation by this company of $10, and at the present time is being paid only $12.50 per month. On account of the great increase of all mail during the past few years, additional labor is involved, and Mr. Schock is becoming very much dis- satisfied with the present arrangement, as he states it does not pay him for the time of man and team it takes to do the work. This, of course, you realize includes Sundays as well as other days, and he oftentimes has a full load of mail, account Sunday being one of the heaviest days. While his compensation has been extremely small con- sidering the service rendered, he realizes we are not in a position to help him much at our present compensation, and his desire to help us out in the past has caused him to handle the mail at a much less figure than we could possibly obtain from any other party. Mr. Schock feels quite discouraged under present conditions and is considering quite strongly of throwing up the proposition unless he can get somewhere near a reasonable compensation for the service. He feels that he should be paid a mini- mum of $30 monthly for this service, and we consider this a very fair and reasonable demand. Should we be compelled to pay this amount for this service without increased allowance from the postal department for this company, we would practi- cally be giving the service for slightly more than 50 cents per day — a mere pittance. I do not believe my predecessor has ever brought this matter up with the depart* ment, as I feel quite certain that they could readily see that the compensation is wholly inadequate. It was my intention to take the matter up with them in the near future, and, receiving your letter, I concluded to place the matter before you as I have. I feel for this service we should be allowed $75 per month, which would enable us to pay Mr. Schock $30 for his services, which is, indeed, a very reasonable charge. This amount would leave us a fair compensation for services performed, which^ on the present basis or the one proposed, would be entirely too small for the services 49396—14 7 94 RAILWAY MAIL PAY. rendered. I am giving you conditions as they now exist here and feel that some relief should be afforded us. At the present time we are receiving slightly more than $1 per day for our services in this matter. While I realize that your communication was not directed to us for the purpose of procuring a statement of our personal grievances in this mail matter, I have taken the liberty to put our case before you in such a manner that you may know our posi- tion in connection therewith. If there is any further information desired or sugges- tions you would like to make, I will be pleased to hear from you further. Yours, very truly, F. A. Reiser, Superintendent and Manager. DATA ASKED FROM INTERSTATE COMMERCE COMMISSION. In order to still further aid the joint committee in the inquiry with which it is charged and to secure the most competent judgment that might be had in regard thereto, I addressed the following letter to Hon. C. A. Prouty, chairman Interstate Commerce Commission: January 3, 1913. Hon. C. A. Prouty, Chairman Interstate Commerce Commission, Washington, D. C. My Dear Sir: Under the provisions of an item in the Post Office appropriation act of recent session of Congress the Senate and House of Representatives have appointed a joint committee to make inquiry into the subject of compensation for the transporta- tion of mail. This committee has not yet organized, but as a member of said joint committee and as chairman of the Senate Committee on Post Offices and Post Roads, and under authority of Senate resolution 56, I earnestly desire that the most com- petent judgment may be had in reference to the subject matter of the inquiry. In order, therefore, to aid the joint committee in the inquiry about to be under- taken, I shall be pleased if your commission will have an analysis made showing the relative returns to the railroad companies for the different classes of traffic they handle, namely, passenger, freight, express, and mail, approximating as nearly as possible the expense to the railroads for handling such respective classes of traffic as compared with the earnings received by the railroads from such traffic. In connection with the foregoing inquiry, attention is called to the fact that the Government for the fiscal year ending June 30, 1912, appropriated for the railway post-office car service $5,010,000, of which $4,426,144.16 was expended in that service, leaving an unexpended balance as of June 30, 1912, of $583,855.54. Since there is an impression prevalent throughout the country that the Government would do better by owning and operating its own postal cars, I beg to inquire whether you can and will prepare a statement showing what, if any, saving to the Government could be effected by governmental ownership and operation of postal cars, taking into consideration cost and upkeep of same, covering maintenance, cleaning, duplicating, and allowance for depreciation. If it is possible to comply with the above request, I shall be pleased to have you advise me when the information will be available for the use of the joint committee. Yours, very truly, Jonathan Bourne, Jr. To this letter I received the following responses : Interstate Commerce Commission, Washington, January 4, 1913. Hon. Jonathan Bourne, Jr., United States Senate, Washington, D. C. My Dear Sir: Replying to yours of January 3, 1913, in reference to inquiry into relative cost of handling mail, express, and passengers, permit me to say that I will lay your letter before my associates and write you further not later than Wednesday of next week. I do not think we have any figures from which any accurate informa- tion of the kind for which you asked can be obtained, certainly not any comprehen- sive information. This subject has been gone into in one or two cases as applied to individual railroads or localities. Very truly, yours, C. A. Prouty, Chairman. RAILWAY MAIL PAY. 95 Interstate Commerce Commission, Washington, January 7, 1913. Hon. Jonathan Bourne, Jr., United States Senator, Washington, D. C. My Dear Sir: Further replying to your letter of January 3, 1913, in reference to cost of handling mail matter in comparison with other passenger-train service. Having laid the matter before my associates, I am instructed to say: First. The commission now has no figures from which the information asked for by you could be compiled. In one or two cases this matter has been incidentally gone into, but in so fragmentary and unsatisfactory a manner that we could not, upon the strength of what was there developed, express an opinion. Second. The commission has no knowledge and no means of knowing the expense of maintaining and operating postal cars. Some time ago we sent to Congress some information as to the relative cost of maintaining steel and wood cars. Third. The commission could, by means of an investigation to be instituted by it, probably give you information on both these points, certainly on the first point, which would be reliable, but such a proceeding would require several months, possibly a year, and would be somewhat expensive. Awaiting your suggestion, I am, very truly, yours, C. A. Prouty, Chairman, ORGANIZATION OF COMMITTEE. As I have already indicated, the Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail did not organize immediately after the appointments were made, for the reason that the members went home on their summer vacations. Organization was delayed after the reconvening of Con- gress in December by the absence of several of the members. On January 6, 1913, I called the members together, at which time there were present: Senators: Jonathan Bourne, jr., John H. Bankhead. Representa- tives: J. T. Lloyd, W. E. Tut tie, jr. On motion of Mr. Lloyd the joint committee elected Senator Jon- athan Bourne, jr., as chairman. On motion of Mr. Lloyd the chairman was authorized to appoint a secretary and to employ such clerical, expert, stenographic, and other assistance as he deems necessary. The chairman announced the appointment of Mr. Robert H. Turner as secretary of the joint com- mittee. On suggestion of the chairman, Mr. Richard B. Nixon was appointed to act as disbursing officer of the joint committee. DEPARTMENT MODIFIES ITS PLAN. In order that I might bring out the points of difference and a pos- sible satisfactory adjustment thereof between the parties interested, viz, the Post Office Department and the railroad companies, I ar- ranged for a conference of individuals representing the conflicting interests. This conference was held in my committee room on Mon- day, December 30, 1912, prior to the organization of the committee, Hon. Joseph Stewart, Second Assistant Postmaster General, appear- ing as the representative of the Post Office Department, and Mr. Ralph Peters, president of the Long Island Railroad Co. and acting chairman of the committee on railway mail pay, Mr. W. A. Worth- ington, assistant director of maintenance and operation, Union and Southern Pacific Systems, and Mr. V. G. Bradley, general supervisor 96 RAILWAY MAIL PAY. of mail traffic, Pennsylvania Railroad Co., appearing as the repre- sentatives of the railroads. At this conference it was suggested by Mr. Stewart that the Post Office Department was willing to make certain concessions to the railroad companies by modifying in cer- tain particulars the position taken by it in House Document No. 105, and as expressed in S. 7371, heretofore referred to. Influenced by this suggestion, I, as chairman of the joint committee, addressed the following letter to the Postmaster General : January 6, 1913. Hon. Frank H. Hitchcock, Postmaster General, Washington, D. C. My Dear General: Referring to telephonic conversation had with you several days ago, in which you stated that the department was willing to make certain con- cessions to the railroad companies in the matter of railway mail pay by modifying the Eosition taken by it in House Document No. 105 and as expressed in the pending bill, .7371: As I understand it, while approving in general the plan outlined in House Document No. 105, you are now prepared to recommend certain modifications of that plan in these particulars, to wit: First. That the Interstate Commerce Commission instead of the Postmaster General be authorized to make the primary separation between passenger and freight business. Second. That in the matter of car space the railroad companies be credited with the maximum space in both directions. Third. That in addition to a compensation of 6 per cent of the operating expenses the railroad companies, after an apportionment, be credited with a reasonable percentage of the capital employed in and relating to the Railway Mail Service. The joint committee organized this morning and is anxious to have you indicate in writing at the earliest possible date your recommendations modifying the plan as outlined in House Document No. 105, with your reasons therefor. As prompt a response as the nature of this request will permit is desired. Yours, very truly, Jonathan Bourne, Jr., Chairman Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail. To this letter I received the following response: Post Office Department, Office of the Postmaster General, Washington, D. C, January 9, 1913. Hon. Jonathan Bourne, Jr., Chairman Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail. My Dear Mr. Chairman: Referring to your letter of the 6th instant, regarding certain proposed modifications of the general plan outlined in House Document No. 105 for readjusting railroad mail pay, I have the honor to state that I am willing to recommend the following in connection therewith: First. That the Interstate Commerce Commission, instead of the Postmaster General, be authorized to make the separation of operating expenses between passenger and freight services. Second. That in computing the car-foot miles the mail service shall be charged in both directions for a line of railway post-office cars with the maximum space authorized in either direction. Third. That in addition to the operating expenses and taxes apportionable to the mail service and 6 per cent thereof, companies may be allowed such additional amounts, if any be necessary, as shall render the whole a proper proportion of a fair and reasonable return on the value of the property necessarily employed in connection with the mail service. Such modification of the phraseology of the proposed law as may be necessary to effect these changes will be prepared as early as practicable. Yours, very truly, Frank H. Hitchcock, Postmaster General. BAIL WAY MAIL PAY. 97 department's REPLY TO RAILROADS. On November 30, 1912, I submitted to the Post Office Department all answers received from the railroad companies to my circular letter of September 1 1 and asked that the Second Assistant Postmaster General, on behalf of the department, furnish the committee his views in reply thereto. Under date of January 17, 1913, the Postmaster Gen- eral addressed a letter to me as chairman of your joint committee sub- mitting, on behalf of the Post Office Department, a memorandum prepared by the Second Assistant Postmaster General. Although dated January 17, 1913, this letter was not sent to me by the Post- master General until noon, January 22. This letter and memorandum read as follows : Post Office Department, Office of the Postmaster General, Washington, B.C., January 17, 1918. Hon. Jonathan Bourne, Jr., Chairman Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail, Congress of the United States. My Dear Mr. Chairman: I hand you herewith, a memorandum prepared by the Second Assistant Postmaster General on behalf of the Post Office Department in reply to a statement entitled "Mail Carrying Railways Underpaid," prepared by the committee on railway mail pay, representing certain railway companies carrying the mails, and submitted to the Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail, and received by the department from you informally with request for a reply. Yours, very truly, Frank H. Hitchcock, Postmaster General. Memorandum on Behalf of the Post Office Department in Reply to a State- ment Entitled "Mail-Carrying Railways Underpaid." Post Office Department, Second Assistant Postmaster General, Washington, January 17, 1913. The pamphlet Mail-Carrying Railways Underpaid, a statement prepared by the committee on railway mail pay representing the larger number of the railway com- panies in the United States carrying the mails and submitted to the Joint Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mails, and received by the department from chairman thereof with request for a reply, has been carefully examined and the statements analyzed. _ A reply will be made in this memorandum to the arguments advanced and attention will be called to the important erroneous statements found in the claims of the pamphlet. The purpose of the pamphlet is stated to be to show that the department's estimate of cost to the railroads for carrying the mails is far below the real cost and that the department's figures and calculations when analyzed and supplemented demonstrate that the mail service has not been fairly remunerative to the railroads. The state- ments advanced to support these propositions are specifically set forth in the pam- phlet, but are preceded by a general claim in the following language: "Railway mail pay is about to be forced still further below the level of just com- pensation, unless payments are promptly readjusted, on account of the additional volume of mail that will result from the inauguration, on January 1, 1913, of the parcel post" (p. 3). With regard to this, the department grants the contention of the railroads that they should receive additional compensation for the increased weight of mails they will be required to carry under the operation of the parcel post. The Postmaster General has recommended to Congress that in the event that the legislation proposed in Document No. 105 be not passed he be authorized to weigh the mails on all railroad routes in the fall of 1913 for a period of not less than 30 successive working days and to readjust compensation on the routes from the date of commence- 98 KAIL WAY MAIL PAY. ment of such weighing. Recommendation has also been made for the additional amount of appropriation necessary. It is proposed that the readjustments of compen- sation, if the authority be granted, shall continue until the commencement of the next regular contract term in each section, subsequent weighings and readjustments to con- form to the present practice of weighing each section once in four years. It is believed that the plan recommended is an equitable one and eminently fair to the railroads. It has been suggested that by a weighing in the fall and an adjustment from the date of the commencement of the weighing period, the companies will receive no compensation for parcel post mails carried from January 1, 1913, to the weighing period. The fact should not be overlooked that, on account of the impracticability of weighing the parcel-post mails separately and adjusting therefor alone, the com- panies will receive compensation for the increase in other mails for periods of six months, one year, one and one-half years, two and one-half years, and three and one-half years, according to the section, which they would otherwise not receive until the regular contract term began in each section. In other words, in the New England States, in the first section, the railroads would receive the additional compensation accruing from one year's increase in the other mails for nearly the entire four-year period; in the remainder of the first section they would receive compensation for six months' increase for nearly the same period; in the second section they would receive compensation for one and one-half years' increase in the mails for nearly three years; in the third section they would receive pay for two and one-half years' increase in other mails for nearly two years; and in the fourth section they would receive the pay for three and one-half years' increase in the other mails for nearly a year. It is thought that these additional amounts received will compensate for the failure to receive com- pensation for the parcel-post mails carried from January 1, 1913, to the date of such readjustment. The first statement in the pamphlet in support of the propositions advanced is as follows: "The Postmaster General's erroneous assertion that the railways were overpaid 'about $9,000,000' in the year 1909 rests primarily upon his adopting an unprece- dented theory which allows nothing for a return upon the capital invested in railway property" (p. 4). In support of this the pamphlet advances an argument based upon a consideration of the entire operating expenses of all of the United States railways for a year, plus the taxes and 6 per cent upon the total, as compared with the total interest of the obligations on the funded debt of all of the United States railways for one year, plus rentals of leased properties for the same period, and shows that a return equal to the oper- ating expenses, taxes, and 6 per cent would be insufficient to meet the interest obligations and rentals for the entire railroad service. The logic of the argument is that (1) the operating revenues should always be sufficient to meet operating expenses, taxes, interest on all funded debt, and rentals of leased properties, and that (2) the perform- ance of mail service by the railroad companies for the United States shall be considered upon the same basis as their performance of service for the public. The department is not in a position to venture an opinion as to how far the question of interest on funded debt should enter into the consideration of rates, but it may be said that there are no authorities which have been found that propose the ascertainment of a rate purely upon this. In this connection the case of Buell v. Chicago, Milwaukee & St. Paul Railway Co., heard before the Railroad Commission of Wisconsin, will shed much light. It is said on page 160 of the report as follows: "Under normal conditions the owners of a railroad are entitled to a fair return upon a fair valuation of their property. This statement raises two questions: First, What is a fair rate of interest in such cases? and, second, What constitutes a fair valuation of the property involved? Both of these questions are so closely related to other ques- tions and involve so many problems about which there is more or less dispute that any full or adequate discussion of each can not be entered upon here. At the same time it is necessary to call attention to a few facts which are more intimately connected with these questions. "It has been quite generally held that a fair rate of interest is a rate which, other things being equal, corresponds to the current market rates on money. This is a position with which it is not easy to take issue, for it is quite clear that whatever rate money brings in the market is a safe index to what it is generally worth for investment purposes. It may also be said, and with a great deal of force, that a fair rate of interest for any particular road is the rate of income which its securities bring on their market value. The market rate includes the ordinary risks as it is usually considerably RAILWAY MAIL PAY. 99 higher than the rate which is obtained on Government and other securities where substantially no risks at all are involved . "What constitutes a fair valuation of the plant? Is it the original cost of construc- tion, the amount at which it is capitalized, the cost of reconstruction new, or the cost of reproduction up to its existing condition? The original cost of construction is an item that can not generally be ascertained except for relatively new roads. Most of the roads were built by construction companies whose records are not in existence, and then turned over to some other company at a different value than the original cost. Many of the roads are undergoing constant improvements; in fact, some of them have been almost entirely rebuilt since the time of their first construction. The original cost, as well as the amount that has been expended upon the plant to any given date, exclusive of the maintenance, are items that for these and other reasons can not be obtained, and which would probably be of little value if they could be had. "The capitalization of the roads, or the bonds and stocks issued by them, in most cases falls short of being a fair index of a reasonable valuation. The main reason for this is found in the manner in which these securities are issued. The railroads are often both constructed and equipped by the proceeds obtained from the sales of its bonds, while the stock is often thrown in as a bonus. Again, bonds and stocks are often issued for other purposes than construction. Many roads, for instance, issue securities for the purpose of acquiring an interest in other roads, or in other property than that which can properly be considered as a part of their respective plants. At times the securities are sold at a discount and the bonds alone may often amount to more than the entire cost of the road. For these and other reasons the capitalization is subject to great variations. In some cases it may greatly exceed the amount actually invested, or what might be a fair valuation of the property.- In other cases, again, it may correspond quite closely to the true value of the plant, or it may even amount to less than this value. From these facts it seems clear that the bonds and stocks which are outstanding may not represent what the roads are reasonably worth, and the amount upon which they are entitled to a fair return. "The cost of reproduction has been suggested aa the valuation that might be fair to all concerned. This cost includes the value of the right of way, yards, and terminals at two and one-half times the prices of adjacent real estate, or at some other price ratio. It also includes the cost of buildings and structures of all kinds, new, if con- structed at current prices of material and labor. It further includes the labor and material at current rates for the construction of the road and its equipments, together with engineering, superintendence, legal expenses, cost of organization, cost of material on hand, freight charges on the material used, etc. In short, it includes every item of expense which would be involved in building the road to-day, including the interest on the investment during the construction period." In States where public utilities commissions have jurisdiction over public service corporations other than steam railways practically a like rule of valuation in con- nection with rate making is observed. New York may be cited as an example. W. H. Lyon, in his work on "Capitalization — A Book on Corporation Finance," states, on page 242, in connection therewith, as follows: "valuation of physical property. "Information about the method of valuing a corporation's physical property as a basis for rate making comes from two cases. Experts of the commission made an appraisal of all the property of the Bronx Gas & Electric Co. This included cost to reproduce and depreciation. The commission undertook similar appraisal work on the Kings County Electric Light & Power Co. It makes such appraisals either in connection with bond or rate cases or in anticipation of reorganization applications. The significance of a consideration of cost to reproduce and depreciation will be clear after a study of the methods of valuation the Wisconsin commission employs. "valuation op property other than physical. "In prescribing uniform accounts the commission orders that franchise accounts shall be charged only with the amount actually paid to the State for the right, exclusive of taxes. Furthermore, the corporation must amortize this amount during the life of the grant. It must similarly charge all other intangible assets at their actual money cost alone, and must amortize this amount during the life of the asset." The second question, namely, as to whether the same rule as to rate of return for service performed shall apply for the United States as for the public, is one which is worthy of mature consideration and may be submitted to the congressional commis- sion for determination. 100 RAILWAY MAIL PAY. In specific defense of the theory respecting the basis for rate upon which Document No. 105 was prepared and submitted to Congress it is only necessary to refer to the act of Congress under which the same was done. The act of March 3', 1879, chapter 180, section 6 (20 Stats. L., 355), provides as follows: "The Postmaster General shall request all railroad companies transporting the mails to furnish, under seal, such data relating to the operating, receipts, and expenditures of such roads as may, in his judgment, be deemed necessary to enable him to ascertain the cost of mail transportation and the proper compensation to be paid for the same; and he shall, in his annual report to Congress, make such recommendations, founded on the information obtained under this section, as shall in his opinion be just and equitable." It will be seen from the above that the statutes require the ascertainment of the cost of transportation and the proper compensation to be paid for the same. Upon the further question of capitalization or basis of valuation the department had no information. In order to thoroughly meet and consider this feature of the question consideration has been given to it since the preparation of Document No. 105, and the Postmaster General has signified his willingness to recommend that, in addition to the operating expenses and taxes apportionable to the mail service and 6 per cent thereof, companies may be allowed such additional amounts, if any may be necessary, as shall render the whole a proper proportion of a fair and reasonable rate on the value of the property necessarily employed in connection with the mail service. II. The second statement in the pamphlet in support of the propositions advanced is as follows: "The mail service supplied by the railways costs them more in operating expenses and taxes than they are paid for it, and leaves nothing for return on the property " (p. 6). In elaboration of this statement several positions are taken. The first is that the passenger-train services as a whole do not produce revenue sufficient to meet their lair proportion of the operating cost and the necessary return upon investment and that the mail service, being only a part of the passenger service and producing a less rate of gross revenue per car-foot mile is therefore unprofitable. In support of their con- tention the pamphlet alleges substantially (1) that it is the general belief of railway managers that the passenger revenues are insufficient to meet these items, and (2) that the rate of gross receipts per car-foot mile received for the mail service is 3.23 mills and for other services 4.35 mills. With respect to the first the department has no information which would warrant a conclusion, and as to the second it is to be observed that the rates given by the pam- phlet are rates computed by the railroad committee on railway-mail pay based entirely upon the companies' statistics as to car space and mail service performed unchecked and uncorrected by the department, which results in the ascertainment of a larger per cent of car-foot miles to the mail service than is justified by the corrected data. The department's figures show revenue from mail service of 4.14 mills per car-foot mile and for revenue from other services 4.16 mills per car-foot mile. From these figures it will be readily observed that the discrepancy between the mail and other services comprising the passenger services alleged by the pamphlet does not exist to the extent claimed. Furthermore, the pamphlet in this connection raises the interesting question which the railroad committee on railway mail pay does not touch upon, namely, how the question may be affected by the fact that their operating revenues for all passenger services (of which the mail is only a small par.t) do not pay operating expenses, taxes, and a fair return on the investment, and apparently are not expected by the companies to do so. The second position taken is that no merely statistical comparison can reveal the whole story, for the railways are required to furnish many incidental facilities and to perform many additional services for the Post Office Department which render the mail service exceptionally arduous and costly. In support of this the pamphlet sets forth the requirements of the postal regulations and the practice of the department regarding the receipt and delivery of mails en route, supplying of rooms, etc. In reply to this it may be said that with respect to the passenger service, as well, the railroad companies furnish very elaborate and extensive facilities for the accomoda- tion, convenience, and safety of persons who patronize their passenger service. It should not be overlooked, however, that whatever facilities may be furnished by the railroad companies for the mail service will, under the plan proposed by the Post Office Department, be paid for upon the basis proposed. RAILWAY MAIL PAY. 101 In this connection, on page 7 of the pamphlet there is a statement which seems to be fully in line with the purpose of the inquiry, reported in Document No. 105. This statement is as follows: "The fairness of railway-mail pay can also be tested by apportioning operating expenses between passenger and freight traffic, and then making a secondary appor- tionment of the passenger expenses between mail and other kinds of traffic carried on passenger trains. This method involves charging directly to each kind of traffic all expenses pertaining exclusively thereto, and the apportionment, on some fair basis, of those expenses which are common to more than one kind of traffic." This is the method which was substantially followed by the department. However, the pamphlet states that the railway companies arrived at the conclusion by this method — that the operating expenses, not including taxes, for conducting the mail service, were $4,009,184, as against the department's figures for substantially like mileage, $2,676,503.75. It is to be observed from the statements of the pamphlet that in obtaining this result the railroads used the revenue train mileage for apportioning common expenditures for passenger and freight services, which, in the opinion of the authority consulted by the department, is not the best basis for such division in all cases, and used the percentage of car-foot miles made in the mail service for apportion- ing to the mail the passenger operating expenses, which was too high, because obtained by using the unchecked and uncorrected data before referred to. With respect to the use of revenue train mileage for the purpose named, the Wisconsin commission, in the case above cited, state as follows: "The revenue train-mile is the unit of work done in hauling trains between ter- minals, and it is the most direct unit of cost. That is, the passenger revenue train mileage is the most direct unit of those expenses which depend upon the same, and the freight revenue train mileage is the most direct unit of those expenses which depend upon this mileage. This is an important distinction, for the passenger-train mileage differs materially in cost as well as in many other respects from the freight- train mileage. * * * They evidently assume that passenger and freight train mileage stand for substantially the same thing and that this is the proper unit of all expenses. Even a superficial analysis of the facts will show that this is not the case. " With respect to other statements subject to criticism set forth under this heading in the pamphlet, a discussion will be found under subsequent headings where they are more specifically referred to. III. The third statement in the pamphlet in support of the propositions advanced is as follows: "The Postmaster General's apportionment of space between the mail service and the other services rendered on passenger trains did not allow to the mails the space which they actually require and use and this had the result of unduly reducing his estimates of the cost to the railways of the mail service" (p. 9). The rules adopted by the department in checking the reports of the railroad com- panies of space necessary for the mail service differed from the ideas of the railroad companies as to the proper amount of the space to be charged, but it is believed that the department's rules were equitable and adhered closely to the actual conditions obtaining on the various trains. In order that there may be no doubt as to these rules they are here set forth in full: "closed-pouch space. "The following basis for the estimate of the space in baggage cars devoted to mail service for closed pouches during the month of November, 1909, in connection with the railroad companies' reports, will be observed: "For 100 pounds or less, allow 6 linear inches; "For weights above 100 pounds and not exceeding 200 pounds, allow 10 linear inches; "For weights above 200 pounds, allow 5 linear iiches for each additional 100 pounds. "The weight will be ascertained by multiplying the maximum number of pouches and sacks reported by the company as carried at any one time by the average weight of pouches and sacks as shown by the report of the General Superintendent, Pvailway Mail Service, upon the actual weighing for 10 days of closed pouches on express trains, namely, 20 pounds." APARTMENT CAR SPACE. "Where the railroad reports cars longer than those authorized by the department, enter the authorized length in column 11, Form 2601, and enter the excess space in an additional column to be headed 'Linear feet of the cars — dead space,' and its car-foot mileage to be computed and entered in another additional column headed 'Car-foot mileage — dead space . ' " 102 RAILWAY MAIL PAY. RAILWAY POST OFFICE OAR SPACE. "Where the railroad company reports cars longer than those authorized by the department, the cases may be one of the following three characters: "Full line authorized with maximum pay. — Where the space reported is greater than that authorized by the department, enter the authorized length in column 9, Form 2601, and the excess space in an additional column marked 'Linear feet of cars — dead space ' and compute the car-foot mileage on the dead space and enter it in another additional column, marked 'Car-foot mileage — dead space.' " Agreement lines. — These cases are where the department authorizes a full line of cars (as, for instance, a 60-foot line), and the company operates such sized cars in both directions, but the department pays a rate equal to half the rate for a full line of the maximum length, plus one-half the rate for a full line of minimum length (as, for instance, pay equal to half a 60-foot plus half of a 50-foot or 40-foot line). In this case enter the length of the line, as authorized, in column 11, Form 2601. "Half lines. — These are cases where the authorizations are for specific half lines (as, for instance, half line of 60-fcot cars in one direction and half a line of 40-foot cars in the opposite direction). It is usual for the company to operate the maximum length of car in both directions. If, therefore, the company reports greater length than that authorized, enter the authorized length in column 11 and the surplus space reported, if any, in another column (additional), marked 'Linear feet of cars — deadhead space' and compute the car-foot mileage upon the deadhead space and enter it in another additional column headed 'Car-foot mileage — deadhead space.' " "If a railway post-office car is reported deadhead and its running is necessary for the maintenance of the authorized car service, the space should be entered in the column 'Linear feet of cars — deadhead space' and its car-foot mileage computed and entered in the column 'Car-foot mileage — deadhead space.' "Milk car operated in passenger train. — Where a milk car is operated in a passenger train the car space should be treated as passenger car space. "Railway post-office cars run beyond the points between which such service is duly authorized and paid for. — Where a company reports the operation of a full railway post-office car beyond the points between which the line is duly authorized, give credit in column 11 for the length of space necessary for apartment car service, if any be necessary, for the extra distance for which the car is so operated and enter the surplus space in the column 'Linear feet of cars — dead space' and carry the car-foot mileage for each to their appropriate columns. If no space is needed for apartment car service over the extra distance run, enter the entire space reported for such dis- tance in the column 'Linear feet of cars — dead space' and carry out its car-foot milpnge." The space ascertained to be "Deadhead space" under the foregoing rules was charged to the mail service, and formed part of the car-foot mileage percentage for that service. The assertion is made that "the Postmaster General obtained from the railways statements which he might have used in applying this method (the apportionment), ..and these statements showed that 9.32 per cent of the total space in passenger trains was required by the mails, but, instead of using the data showing this fact, he sub- stituted figures of his own which reduced the space credited to the mail service to 7.16 per cent of the total." The statement that the Postmaster General used figures of his own is incorrect. The figures used by the department were those furnished by the railroad companies, after being checked and carefully scrutinized under the •rules hereinbefore set forth. The utmost care was exercised in verifying the reports of the companies, and in case any change was made in the figures there was ample authority therefor. The railroad companies, generally, reported the space used by the mails at the maximum of operating conditions, whether warranted by the needs of the mail service or not. An examination of the instructions of the various companies to their employees in regard to reporting closed-pouch space indicates that no matter what the size of the baggage car utilized, the mail service, even if the mail was very light in weight and quantity, was charged with unused space in the baggage car proportional to the amount carried. The rule of the department to allow 6 linear inches across the entire car for 100 pounds of mail or less was based upon measurements and tests made by officials of the department and represented 18 linear inches by 36 inches upon one side of the car the full height of the car. This space is ample for 100 pounds of mail. The pamphlet further makes specific statements regarding the operating necessity for providing for the maximum traffic, although during much of the trip the actual traffic may be considerably below this limit, and states that the Postmaster General refused to credit the mail service with much of the space thus required by the depart- RAILWAY MAIL PAY. 103 ment. This statement is incorrect, as will be fully perceived by an examination of the rules hereinbefore stated regarding the charges against the mail service for rail- way post-office car service. From these rules it will be noted that excess space was charged to dead space (that is, space which was afterwards charged to the passenger, not mail, service) only in cases where the company operated cars of greater length than authorized by the department, and also where the companies operated for their own purposes authorized lines beyond the points between which such lines were duly authorized to be run, and that in other cases, as, for instance, agreement lines and half lines, the excess space was charged to deadhead space and finally accounted for as a charge to the mail service. IV. The fourth statement in the pamphlet in support of the propositions advanced is as follows: "The Postmaster General ignored data which he had obtained showing expendi- tures on account of the mails largely in excess of the direct expenses for that service which he reported" (p. 11). In support of this the pamphlet contains the statement that the Postmaster General obtained from the railroad companies statements showing the amounts expended by them for station and terminal services required by the department, etc., which were not used, and that no adequate allowance was made in any other way for such unused items. It sets forth specifically an itemized statement of all items reported, aggre- gating $401,136. This statement contains two material allegations: (1) That no adequate allowance was made in any other way for the items that were not specifically^ used by the de- partment, and (2) that the total of all items which should be considered under this heading is as above stated. These will be considered separately and it will be con- venient to consider the second first. An examination of the items set forth on page 12 of the pamphlet immediately discloses the fact that they contain two specifications and the greater part of a third which are improperly included as operating expenses, namely, rental value, plus average monthly cost of light and heat, of room or rooms set apart for the exclusive use of the mail service, $37,258.93 (the part of this item improperly included is the rental value); rental value of tracks occupied daily for advance distribution of the mail, $47,029.12; and interest at the legal rate upon the value of cranes, catchers, and trucks required for mail service, $3,895.36. The total of these is $88,183.41. The part of this which represents the cost of light and heat of room or rooms set apart for mail service is not shown. Neither is it possible to apportion to the amount the proper proportion of the $9,993.19 stated in the footnote on page 12 of the pamphlet as having been reported by four companies which gave totals for these items but did not report the items separately. _ Therefore, the true amount representing operating expenses for station service, etc., is made up of the other items stated, namely, amount of wages paid to messengers and porters employed exclusively in handling mails, $79,980.84; portion properly chargeable to mail service, prorated, etc., $198,927.01; amount expended for maintenance of horses and wagons, etc., $5,640.98; and average monthly cost of light and heat for postal cars placed daily for advance distribu- tion of mail, $18,400.57; making a total of $302,949.40. This would be augmented by the unseparated amount for cost of lighting and heating rooms and the due proportion of the $9,993.19 above referred to. It will be observed from this that the statement in the pamphlet as to the amount which should have been accounted for is over $88,000 too much (not accounting for the undetermined items above referred to). Furthermore, the items making up the total of $302,949.40 had not been checked by the department, and it is to be remem- bered that they rest wholly upon the statements of the companies. That the largest item among them, namely, $198,927.01, the portion said to be properly chargeable to mail service, prorated on the basis of actual time employed, is largely in excess of a proper charge is shown by the following facts: Notwithstanding the statement made in the pamphlet that this item is the portion properly chargeable to mail service, "pro- rated on the basis of actual time 1 employed, of wages paid to station employees a part of whose time is employed in handling mails," the instructions given by the railroad committee on railway-mail pay (the committee which prepared the pamphlet under consideration) to the companies they represented contain the following with reference to this item : "In computing the pay of station employees and time consumed in handling mails 30 minutes should be allowed for each train exchanging mails, and, in addition, the \ Italics are department's; 104 RAILWAY MAIL PAY. mail time should be charged with its proper proportion of idle time of agent or em- ployee handling mails; same proportion to be added in transfer trips to other stations." In the light of this instruction the department, in fairness to the Government, could have made no specific use of the item under consideration. Furthermore, the item contained on page 12 of the pamphlet, "Amount of wages paid to messengers and porters employed exclusively in handling mails, $79,980.84," appears also to be evidently excessive in the light of the instructions given by the railroad committee representing the companies and who prepared the pamphlet, as follows: "Where solely on account of handling the mails an additional person has been employed, his whole pay should be shown in column 3, even though after employment he may perform some other work incidentally." This instruction is directly contrary to the theory otherwise insisted upon by the companies that the mail service should bear its proportion of expenses, inasmuch as it charges to the mail service the entire amount paid for the employment of exclusive porters, even though they performed duties for the passenger service. As to the first part of the statement, to the effect that in the data furnished for messengers, porters, and station service which were not specifically used by the department, there was no adequate allowance made in any other way, this will now be examined. It will appear evident that no items for these expenditures could be used specifi- cally unless the individual accounts including such direct expenditures were also segregated and reported separately to the department in order that when the appor- tionment of expenditures on the car-foot mile basis should be made the department should not participate in a double charge for the same service. Therefore the depart- ment assigned to the mail service such expenses for these items as were reported by the companies in this manner; that is, where not only the direct expenditures were reported, but also the expenditures for the accounts including such direct expendi- tures were also reported separately from other expenditures for like accounts. In this manner $21,993.06 was reported by the companies and directly assigned to the mail service, as shown in Table 7, Document No. 105, and the totals of the accounts including them were eliminated from the totals for station service for the respective systems. Having thus disposed of the direct expenditures which could be used in this manner and ascertained the sum of such like expenses unaffected by the already assigned direct expenditures, this sum was apportioned to the mail service on the basis of the car-foot miles performed in that service. The total of the amount directly assigned, as above stated, and the amounts apportioned upon the car-foot mile basis for all roads reporting, was $167,813.39. It will be recognized that any other method of handling the items would have resulted in a double charge to the Government, because if the amounts reported by the companies directly expended on account of the mail service had been charged to that service, and then the accounts affected included in the total amounts apportioned, it is readily seen that the mails would be charged twice for the same service performed by the companies. This would have been the result had the department followed the plan suggested by the railroad com- mittee, as set forth in the pamphlet, even though the amounts named could have been verified or corrected. Regarding the claim that the cost of personal transportation furnished the Post Office Department was not allowed for, it may be said that after a careful consideration of this matter it was decided in view of the inability to satisfactorily verify the data of this character reported by the companies and the fact that similar data regarding the passenger service was lacking, the data could not be made use of for the purpose of the inquiry. V. The fifth statement in the pamphlet in support of the propositions advanced is as follows: "The month of November is not a fair average month in any railway year or one that is typical of a year's business, and its use as the sole basis of the Postmaster General's calculation was so unfavorable to the railways as to deprive the results of any value even if in all other respects his methods were beyond criticism" (p. 13). To support this the railway committee assert that November is not a typical or average month, that all its deviations from the averages of the year are such as to greatly favor a finding disadvantageous to the companies, and specifically mention that the maintenance of way and structures expenditures for the month of November, 1909, were lower than the average for the year, and that the traffic on passenger trains was lighter and the freight traffic heavier during that month than for the average of the year. From this the committee conclude that the proportion of operating ex- penses assigned to the passenger service was lower than the average for a month in the RAILWAY MAIL PAY. 105 year and that, therefore, the part of such expenditures assigned to the mail service was lower than the average for a month of the year. At the time the preparations were completed for securing the statistics from the railroad companies, the month of November, 1909, appeared to be the first available month which would probably produce the fairest result, and it was accordingly ac- cepted. As to whether the result was as alleged by the railroad committee will de- pend upon consideration of rmore factors than have been set forth by that committee in the pamphlet under consideration, and these additional facts do not appear to sup- port the conclusion of the pamphlet. If it is true that during the month of Novem- ber the passenger traffic was reduced below the average for the year, it is fair to con- clude that there was a corresponding reduction in the operation of purely passenger trains. This would appear to be substantiated by a comparison of statistics of the Interstate Commerce Commission with the department's statistics for November, 1909, as to car and train mileage; that is to say, the Interstate Commerce Commission report shows the average monthly^car miles for 1910 to be 249,847,541 for all roads. The department's statistics for November, 1909, show the car miles for the roads reporting (practically all the large systems) as 219,733,424. Again, the Interstate Commerce Commission report shows the average monthly train mileage for 1910 as 45,751,250, and the department's statistics for November, 1909, show the train mileage for the roads reporting as 42,896,628. From this it must be concluded that the car miles and train miles of passenger service performed by the railroad companies in the month of November, 1909, were below the monthly average for a year, and therefore the car- foot miles for the passenger service for November would be less than the average of the year. If this was true the effect of it was to increase above the average the rate of percentage of car-foot miles in the passenger services devoted to the mail service, because the actual space devoted to the mail service in passenger trains is compara- tively constant and would not be reduced during the month of November, but on the other hand would inevitably be increased during that month. Consequently, if the total car-foot miles for all the passenger services were below the average and the mail car-foot miles were the average or above the same, thus resulting in a larger ratio for the mail service in the participation in the expenditures for the passen- ger services, it can not be maintained that the selection of November was disadvanta- geous to the railroad companies unless the apparent disadvantage to the mail service be overbalanced by other factors having a contrary effect. That the volume of the mails for November was actually above the average is shown by statistics. The postal reve- nues from 50 of the largest post offices for the fiscal year ended June 30, 1910, by months, indicated that the month of November exceeded all other months in the year in postal receipts except the months of March and December. The receipts for Novem- ber were 8.48 per cent of the total for the year, or 0.15 of 1 per cent above the average. Statistics compiled in the department as to the weights of second-class matter (which comprise the large percentage of the mails), by months, show that November is fourth among the months in the quantity handled. Figures secured from a number of large offices for a period of five years show the monthly average weight to have been 29,609,438 pounds, and the November weight 30,064,002 pounds, or 454,644 pounds more than the average. Inasmuch as the space used for the mail service aside from the specific authorizations of space in cars increases as the weight increases, it follows that more than the average space and car-foot miles are necessary for mail service in November, and therefore, even if the passenger car-foot miles were not below the average, and thus increase the ratio of the mail car-foot miles, this increase in weight of mails in November would result in a greater participation of the mails in the pas- senger operating expenses than in the average month. VI. Tne sixth statement in the pamphlet in support of the propositions advanced is as follows: "A commission of Senators and Members of Congress which, between 1898 and 1901, most fully and carefully investigated the subject, ascertained and declared that rail- way mail pay was not then excessive; since then there have been many and extensive reductions in pay accompanied by substantial increases in the cost and value of the services rendered by the railways" (p. 14). Under this heading the statement in the pamphlet refers to the fact that a congres- sional joint commission reported in 1901 that the prices then paid to railroad companies for the transportation of the mails were not excessive, and sets forth the further facts that since 1901 the ratio of railroad mail pay to the gross postal receipts per annum has decreased, and that certain reductions have been made by statutes and administrative order and changes which have lowered the mail income per unit of weight. 106 RAILWAY MAIL PAY. The findings of the joint commission referred to must be considered, if at all at this time, in connection with the findings of Document No. 105, based upon a line of in- quiry quite different from that pursued previously. The finding of the commission made no discrimination with respect to the services performed by the different sys- tems or roads, while the inquiry upon which Document No. 105 is based disclosed for the first time that the present system of adjustments resulted in an ununiform measure of compensation to the several companies, the result in some cases being a loss and in other cases a gain over cost of operation. There appears to be even less relevancy to the question to be found in the ratio between total railroad mail pay and the gross postal receipts of the department. The inferential argument in the statistics presented appears to be that there is a necessary relation between the compensation paid railroad companies for carrying the mails and the gross receipts of the postal establishment, and, further, that the railroad companies have some right to receive a proportional increase in compensation for carrying the mails if the gross revenues of the department increase. Neither of these propositions is true. The sources of revenue to the postal establishment are various and are not necessarily connected with the expenditure for transportation on rail- roads. It is true that the expenditure for transportation on the railroads increases as the weights of the mails increase, but the rate of increase in such pay is not neces- sarily the same as the rate of increase in postage. Furthermore, there are sources of revenue which are entirely disassociated from the functions involving transportation. With respect to the items of reduction enumerated on page 16 of the pamphlet it may be said that one at least is not susceptible of verification, and as to all of them they appear to be immaterial except as a part of the argument to show that if the finding of the commission in 1901 was true it is with greater force true to-day. This may be passed with no further comment than what has been made above. VII. The seventh statement in the pamphlet in support of the propositions advanced is as follows: "The administration of the Post Office Department has not, in the last 12 years, effected any reduction in the annual total of its expenses for other purposes than railway transportation or in the proportion of its revenues required for such other expenses. But the whole saving which has nearly eliminated the annual deficit of the department is represented by the reduced payments, per unit of service, to the railways" (p. 17). To support this proposition the pamphlet sets forth certain statistics of gross receipts and total expenditures compared with total expenses for railroad mail service and for other purposes separately for the years 1901 and 1911. The fallacy of this line of argument, so far as a comparison between receipts of the postal establishment and expenditures for railroad mail service is concerned, has been fully shown under preceding subdivisions. Any argument based upon comparison of gross expenditures with the expenditure for railroad mail service or any other one item is equally fal- lacious. If the subject matter remains the same year after year, or if in 1911 it was substantially the same as it was in 1901, its conditions are sure to vary, as, for instance, Congress increases from time to time the compensation paid post-office clerks, railway post-office clerks, assistant postmasters, etc., so that the increase in expenditures never necessarily represents a true gauge for measuring the increase in the business of the postal establishment. It is evident that nothing can be proved by an argument of this character. VIII. The eighth statement in the pamphlet in support of the propositions advanced is as follows: "The continuous refusal of the Post Office Department to order reweighings of the mails except after the maximum interval of four years which the law allows, the de- mands for station and terminal services that are rendered without any or without adequate compensation and the unjust discrimination against compartment cars used as railway post offices are all abuses, seriously injurious to the railways, which have grown up under the present system of payment and ought at once to be reme- died" (p. 18). The statements in the pamphlet under this heading are substantially (1) that Con- gress in providing that the mails shall be weighed not less frequently than once in every four years intended that they.should be weighed whenever a substantial change in volume had taken place; (2) that the present basis of payment plainly does not contemplate the performance of side service by the companies between stations and E AIL WAY MAIL PAY. 107 post offices as required by the department; and (3) that Congress provided for addi- tional payment for full railway post-office cars, but when the practice of requiring portions of cars for the same service was inaugurated no provision for payment there* for was made. With respect to the periods of adjustment following weighings it may be said that the railroad contract service developed in connection with the contract service for carrying the mails otherwise — that is, on star routes and on steamboat routes — the con- tract period for which has uniformly been four years. Formal written contracts; where they could be obtained, were entered into with the railroad companies for four-year periods corresponding with the periods of service on star routes in the same contract sections prior to 1873. By the law of 1873 the basis of paying for railroad mail service was entirely changed, and that statute prescribed the present plan based upon the average daily weight of mails carried over the whole length of the route, such average daily weights to be ascertained by a weighing of the mails not less fre- quently than once in every four years. Following the passage of the law of 1873 the department inaugurated its mail weighings for readjustments on the quadrennial plan, or not less frequently than once in every four years, which general plan has been adhered to ever since. It is understood, however, that re weighings were ordered from time to time when conditions upon routes radically changed during the quad- rennial term, but the quadrennial term remained as first inaugurated . With respect to the second contention, namely, as to the performance of side service^ the railroad committee is clearly wrong so far as the original intention of the statute forming the present basis is concerned. ^ The requirement made of railroad companies to perform the service is of long standing and in some form appears to antedate the passage of the act of 1873, which is the basic law for the present plan of readjustments, and continued thereafter without interruption, and with only variations in the manner of the requirement, to the present day. As to whether or not Congress had it in con- templation when the law of 1873 was passed has been considered by the courts and decided in the affirmative. In the case of the Jacksonville, Pensacola & Mobile Rail- road Co. v. The United States, decided by the Court of Claims in 1886 (21 C. Cls., 155), the company attempted to recover specific compensation for performing this character of service. This claim was denied by the court, which, in deciding the case, said as follows: " For a long period of time, extending back to the first establishment of the lailroad mail service, it has been the practice to include the. delivery of the mails within 80 rods of railway stations as part of the railroad route, and that has been promulgated in- all advertisements for proposals and in the official regulations published by authority, as shown by Finding XI. A requirement to that effect was inserted in the claimant's written contract (see first of the numbered articles at the end thereof, in contract set out in Finding II), and was no doubt in all written contracts. " Such a well-established practice, in our opinion, must have been considered by Congress in fixing the maximum compensation, and by the Postmaster General iii making his orders allowing the full amount of the maximum, and therefore the pay for such service must be held to be included in the general compensation fixed for the routes." This decision of the Court of Claims was affirmed by the Supreme Court in 118 United States, 626. With respect to the third contention, regarding payment for apartment cars, it would be inferred from the language used in the pamphlet that when Congress pro* vided specific additional compensation for full railway post-office cars there was no apartment-car service in existence and that the requirement to operate apartment cars was made afterwards and with no additional compensation, of which complaint is made in the pamphlet. The facts are that apartment-car service existed long before full railway post-office car service, and the Postmaster General was authorized by the act of 1872 (17 Stat. L., 309) to compensate railroad companies who furnish railway post-office cars by allowing such additional compensation beyond that allowed for the service as he might see fit, not exceeding, however, 50 per cent of such rates. It was not until the law of 1873 that Congress afterwards authorized specific additional pay- ment to the transportation pay for full railway r5ost-office cars. This statute, however, repealed the act of 1872 and left the Postmaster General without authority to make specific payment for apartment cars. As to the question whether, under a proper system of readjustment which shall be entirely just and fair to both the Government and the railroad companies, the latter should not be fully compensated for the service they perform from year to year, aa well as the special services between stations and post offices and for the furnishing of apartment cars, there is no difference of opinion between the railroad companies and the department, and the plan as a basis for readjustment which has been suggested in Document No. 105 makes full provision for these features. 108 EAILWAY MAIL PAY. IX. The ninth statement in the pamphlet in support of the propositions advanced ia as follows: "The Postmaster General's proposed plan of payment based upon operating cost and taxes, to be ascertained by the Post Office Department, plus 6 per cent, is seriously wrong in principle and would encourage and perpetuate injustice" (p. 20). The statements contained in the pamphlet in support of this proposition are sub- stantially (1) that the operating expenses and taxes plus 6 per cent of the sum of these expenses and taxes constitute an insufficient basis for remuneration for the service, (2) that the basis of cost would be unfair to the economically conducted road as against the road otherwise conducted, and (3) that the Post Office Depart- ment should not be given the power of apportioning the operating expenditures between the freight and passenger services. The first objection has been fully answered hereinbefore. With respect to the second objection, it may be said that it hardly appears to be of great force, in view of the concession of the department that the basis for com- pensation should take into consideration not only cost and taxes but, in addition, railroads may be allowed such additional amounts, if any be necessary, as shall render the whole a proper proportion of a fair and reasonable return on the value of the prop- erty necessarily employed in connection with the mail service. With reference to the third objection, the Postmaster General has signified his willingness to recommend as a part of the plan of readjustment proposed that the Interstate Commerce Commission, instead of the Postmaster General, shall be author- ized to make the separation of operation expenses between the passenger and freight services. CONCERNING THE SPECIFIC REPLY OF THE RAILROAD COMMITTEE ON RAILWAY MAIL PAY TO THE CHAIRMAN OF THE SENATE COMMITTEE ON POST OFFICES AND POST ROADS. The foregoing relates to the main body of the document prepared and submitted by the railroad committee. Appended to the document, however, and marked "Appen- dix G," is set forth a letter addressed to the chairman Senate Committee on Post Offices and Post Roads, and signed by "committee on railway mail pay," etc., in which specific replies are made to. certain inquiries submitted by the chairman. The sub- stance of the replies appears to be that the companies represented by the railroad com- mittee prefer the present plan of adjusting pay, with certain modifications, namely, annual weighings, relief from performance of side service, and payment for apart- ment car service. No specific reply from the department is needed to the statements and contentions set forth in this letter other than are submitted above in reply to the general body of the pamphlet. However, it should be further stated that the railroad committee on railway mail pay has entirely failed to notice a fact of fundamental importance shown in Document No. 105, namely, that under the present system of paying for railroad mail service the compensation that can be allowed under the law to some railroad com- panies is inadequate, and probably less than the cost of performing the service. This feature of the results of Document No. 105 is, as we understand, undisputed by the railroad committee on railway mail pay . It is therefore difficult to understand how any system for compensating the railroad companies for carrying the mails can be considered the most desirable if it does not fully compensate each railroad company for the service rendered the Post Office Department. The present plan does not do this, whilst the plan proposed by the Postmaster General in Document No. 105 seeks to do it. Joseph Stewart, Second Assistant Postmaster General. PLAN AS MODIFIED BY DEPARTMENT. On January 24, 1913, I received a letter from the Postmaster General, dated January 20, 1913, submitting draft of a proposed bill incorporating his modified views regarding the general plan for readjusting railway mail pay. RAILWAY MAIL PAY. 109 This letter and draft read as follows: Post Office Department, Office of the Postmaster General, Washington, D. C, January 20, 1913. Hon. Jonathan Bourne, Jr., Chairman Committee on Postage on Second-Class Mail Matter and Compensation for the Transportation of Mail, Congress of the United States. My Dear Mr. Chairman: Referring to your letter of the 6th instant, regarding certain proposed modifications of the general plan outlined in House Document No. 105 for readjusting mail pay, and to my reply of the 9th instant, in which I recom- mended certain legislation in connection therewith and stated that such modifica- tions of the phraseology of the proposed law as were found necessary to effect the changes recommended would be prepared as early as practicable, I have the honor to submit herewith an amended draft of the proposed legislation. Yours, very truly, Frank H. Hitchcock, Postmaster General. Tentative Draft of Proposed Law for Regulation of Railway Mail Pay. The Postmaster General is authorized and directed to require companies operating railroads by steam, electricity, or other motive power, carrying the mails to furnish, under oath and seal, not less frequently than once in each fiscal year, such information relating to the service, operation, receipts, and expenditures, and such other infor- mation of such roads for a period of not less than thirty days, to be designated by him, as may in his judgment be deemed necessary to enable him to ascertain the cost to the companies of carrying the mails on their respective roads and the proper com- pensation to be paid for that service. He shall require all such companies to submit such information not later than March first, nineteen hundred and fourteen, and in each fiscal year thereafter, at such times and for such periods as he shall prescribe. - It shall be the duty of such railroad companies to furnish such information, and if any railroad company fails or refuses to do so when required its compensation for service rendered thereafter until such company shall comply and an adjustment is made by the Postmaster General shall be forfeited to the United States and shall be withheld as liquidated damages. If any officer, agent, or employee of a railroad company shall knowingly furnish any information required under the provisions of this act that is false and fraudulent he shall be fined not more than twenty thousand dollars and imprisoned not more than five years. Trie Postmaster General shall determine the cost to each railroad company of carry- ing the mails on its respective road or roads, and shall verify and state the result in such form and manner as he shall deem proper. For this purpose he shall transmit the information furnished by the railroad companies relating to the operating expendi- tures to the Interstate Commerce Commission, who shall credit, assign and apportion such operating expenditures to the passenger and freight services, and report the result as to the passenger service to the Postmaster General. The Postmaster General is authorized to credit, assign, and apportion the passenger operating expenses as reported to him by the Interstate Commerce Commission, and the taxes in such manner as will determine the proportion thereof chargeable to the mail sendee, a statement of which shall be given the company concerned. If any railroad company shall object to the method of crediting, assigning, and apportioning the passenger operating expenses and taxes to the mail service, it may file objection with the Postmaster General within twenty days after such statement is made to the company, and the Postmaster General shall thereupon certify the method and objection and such papers as in in his judgment may be essential to an understanding of the method, to the Interstate Commerce Commission, who shall review the finding of the Postmaster General and affirm, modify, or revise the same, and certify the result to the Postmaster General, which action thereon shall be final. The Postmaster General is authorized and directed to readjust the pay to companies operating railroads for the transportation and handling of the mails and furnishing facilities in connection therewith, not less frequently then once in each fiscal year, com- mencing with July first, nineteen hundred and fourteen, at a rate of compensation per annum equal to the cost to the railroad companies of carrying the mails as ascertained by him, and six per centum of such cost; in addition, companies may be allowed such additional amounts, if any be necessary, as shall render the whole a proper proportion of a fair and reasonable return on the value of the property necessarily employed in 49396—14 8 110 KAILWAY MAIL PAY. connection with the mail service: Provided^ That when such sum does not equal $25 per mile per annum, he may, in his discretion, allow not exceeding such rate. Railroad companies whose railroads were constructed in whole or in part by a land grant made by Congress, on the condition that the mails should be transported over their roads at such price as Congress should by law direct, shall receive not exceeding the cost to them of performing the service. Information shall be furnished and adjustments made as nearly as practicable by accounting systems or roads, and the cost and the compensation for the term shall be stated for all service covered by each system or road. The routes for a system or road may be stated for administrative purposes in such manner as the Postmaster General may determine. The Postmaster General may order new or additional service during a term for which an adjustment shall have been made or service authorized on any system or road in any train operated by such system or road over any part of the trackage included in the adjustment or authorization, and without additional compensation therefor during such term. He may order service over new or additional trackage of an adjusted system or road during a term and state the amount performed for the remainder of such term on sta- tistics obtained for the first thirty days of service. Payment therefor may be made at not exceeding the average rate per car-foot mile for the system or road ascertained at the regular adjustment. Entire discontinuance of service over trackage included in the adjustment or thereafter added shall be deducted for at the car-foot mile rate of adjustment or mile rate of authorization. In case the operation of service over trackage included in an adjustment or thereafter added is undertaken by another company during the term, the same may be recognized by the Postmaster General, provided the companies in interest shall file with him their joint agreement as to the part of the compensation of the old operating company to be paid the new operating company; otherwise payment to the company first authorized shall be full payment for all service performed for the term. The Postmaster General may order service over trackage of a railroad company not operating service under an adjustment or authorization after the regular adjustment for the remainder of the term, and pay therefor at not exceeding $42.75 per mile of trackage per annum. Service over property owned or controlled by a terminal company shall be con- sidered service of the roads or systems using such property and not that of the terminal company. Railroad companies carrying the mails shall furnish all necessary facilities for car- ing for and handling them while in their custody. They shall furnish all cars or parts of cars used in the transportation and distribution of the mails, and place them in stations before the departure of trains when required to do so. They shall provide side, terminal, and direct transfer service and all station and depot space and rooms for handling, distribution, and transfer of mails en route, and for offices and rooms for the employees of the postal service engaged in such transportation when ordered by the Postmaster General. Every railroad company carrying the mails shall carry on any train it operates and without extra charge therefor the persons in charge of the mails, and when on duty and traveling to and from duty, all duly accredited agents and officers of the Post Office Department and the postal service, while traveling on official business, upon the exhibition of their credentials. _ All cars or parts of cars used for the Railway Mail Service shall be of such construc- tion, style, length, and character, and furnished in such manner as shall be required by the Postmaster General, and shall be constructed, fitted up, maintained, heated, lighted, and cleaned by and at the expense of the railroad companies. No payment shall be made for service by any railway post office car which is not sound in material and construction, and which is not equipped with sanitary drinking-water containers and toilet facilities, nor unless such car is regularly and thoroughly cleaned. No pay for service shall be allowed for the operation of any wooden railway post office car unless constructed substantially in accordance with the most approved plans and speci- fications of the Post Office Department for such type of cars, nor for any wooden railway post office car run in any train between adjoining steel or steel underframe cars, or between the engine and steel or steel underframe car adjoining. After the first of July, nineteen hundred and seventeen, the Postmaster General shall not approve or allow to be used or pay for any full railway post office car not constructed of steel or steel underframe or equally indestructible material, and not less than twenty-five per centum of the railway post office cars of a railroad company not conforming to this provision shall be replaced with cars constructed of steel annually after June, nineteen hundred and thirteen; and all cars accepted for this service and contracted for by the railroad companies after the passage of this act shall be constructed of steel. The RAILWAY MAIL PAY. Ill Postmaster General shall made deductions from the pay of the railroad companies on the basis of the value of the service computed on the car-foot mile basis in all cases where the cars do not comply with the provisions of this act. The space in cars devoted to the use of the mails, as ascertained during the period fixed by the Postmaster General for the rendition of information by the railroad com- panies, shall be taken as the basis for computing the car-foot miles devoted to the mail service for the purpose of readjustment, effective from the 1st of July next following: Provided, That no credit shall be given for space in cars devoted to the distribution of the mails unless such space shall be authorized by the Postmaster General or unless he shall determine that its use is made necessary by a specific authorization. In computing the car-foot miles, the mail service shall be charged in both directions for a line of railway post-office cars with the maximum space authorized in either direction. If any railroad company shall fail or refuse to provide cars or apartments in cars for distribution purposes when required by the Postmaster General, or shall fail or refuse to construct, fit up, maintain, heat, light, and clean such cars and provide such appli- ances for use in case of accident as may be required by the Postmaster General, it shall be fined such sum as shall, in the discretion of the Postmaster General, be deemed proper. The Postmaster General shall in all cases decide upon what trains and in what manner the mails shall be conveyed. Every railroad company carrying the mails shall carry on any train it operates all mailable matter directed to be carried thereon. If any railroad company shall fail or refuse to transport the mails when required by the Postmaster General upon any train or trains it operates, such company shall be fined such amount as may, in the discretion of the Postmaster General, be deemed proper. The Postmaster General may make deductions from the pay of railroad companies carrying the mails under the provisions of this act for reduction in service or frequency of service where, in his judgment, the importance of the facilities withdrawn or reduced requires it, and impose fines upon them for delinquencies. He may deduct the price of the value of the service in such cases where it is not performed, and not exceeding three times its value if the failure be occasioned by the fault of the railroad company. The Postmaster General is authorized to have such weights of mails and measure- ments of space taken and to collect such other information by sworn employees of the Post Office Department as he may deem necessary and to have such information stated and verified to him by such employees, under such instructions as he may consider just to the Post Office Department and the railroad companies, to assist in the ascertain- ment of the space used for the transportation and the handling of the mails on rail- roads, and to employ such special clerical and other assistance as shall be necessary to carry out the provisions of this act, and to rent quarters in Washington, District of Columbia, if necessary, for the clerical force engaged thereon, and to pay for the same out of the appropriation for inland transportation by railroads. The provisions of this act shall apply to service operated by railroad companies partly by railroad and partly by steamboats. The provisions of this act respecting the rate of compensation and the determina- tion thereof shall not apply to mails conveyed urider special arrangement in freight trains, for which a rate not exceediug the usual and just freight rates may be paid, in accordance with the classifications and tariffs approved by the Interstate Commerce Commission. It shall be unlawful for any railroad company to refuse to carry the mails at the rates of compensation provided by law when and for the period required by the Postmaster General so to do, and for every such offense it shall be fined not exceeding $5,000. All laws or parts of laws inconsistent herewith are hereby repealed. By the adoption of the course above outlined and the consequent securement of the information herewith submitted, we now have before us the respective viewpoints of the Post Office Department, through its admmistrative representatives, and the transportation companies with whom the Government has mail contracts. The attitude of the department having just been made known, no time has been lost by the failure of the committee to organize sooner. We are now able to proceed as a committee in the study of one of the problems submitted to us in that provision of the act of August 24, 1912, constituting the committee. Respectfully, yours, Jonathan Bourne, Jr., Chairman. ! ■ --; . ^mm. m -: RAILWAY MAIL PAY HEARING BEFORE THE JOINT COMMITTEE ON POSTAGE ON SECOND-CLASS MAIL MATTER AND COMPENSA- TION FOR THE TRANSPORTATION OF MAILS JANUARY 28 to APRIL 3, 1914 RAILWAY MAIL PAY. TUESDAY, JANUARY 28, 1913. Committee on Second-Class Mail Matter, Washington, D. 0. The joint committee met at 3 o'clock p. m. Present: Senator Jonathan Bourne, jr. (chairman), Senator John H. Bankhead, Representative James T. Lloyd, and Representative William E. Tuttle, jr. TESTIMONY OF MR. JOSEPH STEWART, SECOND ASSISTANT POSTMASTER GENERAL. The Chairman. General Stewart, it will be necessary for you to be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Will you please state your age, residence, official position in the Government, and the length of time you have been in the Government employ? Mr. Stewart. My name is Joseph Stewart. I am Second Assistant Postmaster General. I am 53 years old. I have been in the Govern- ment service about 25 years altogether. The Chairman. Have you been in the Post Office service all of that time? Mr. Stewart. Most of the time. The Chairman. Will you explain, General, for the information of the committee, the initiation of the inquiry resulting in the report known as Document No. 105, which the committee has before it, and give a history of the reasons leading up to that document and briefly a description of what it purports to contain? Mr. Stewart. I think it was in the year 1907, while Mr. Cortelyou was Postmaster General, the question came up on inquiry as to what action had been taken by the Post Office Department in compliance with the act of March 3, 1879, which reads as follows: The Postmaster General shall request all railroad companies transporting the mails to furnish, under seal, such data relating to the operating, receipts, and expenditures of such roads as may, in his judgment, be deemed necessary to enable him to ascer- tain the cost of mail transportation and the proper compensation to be paid for the same; and he shall, in his annual report to Congress, make such recommendations, founded on the information obtained under this section, as shall, in his opinion, be just and equitable. The transportation of the mails is assigned by the Postmaster General to the jurisdiction of the Second Assistant Postmaster Gen- eral, and therefore it was incumbent on the Second Assistant Post- master General to advise Mr. Cortelyou upon that question. He was advised that soon after the passage of that statute of 1879 an 4 RAILWAY MAIL PAY. effort had been made to secure the information required, but that these reports of the companies were so meager and unsatisfactory that they were practically worthless for any purposes such as those required by the statute. I think it was the general opinion that at the time the railroad companies did not have their accounts in such shape as to enable them to make the reports which the department needed for the purpose. It was also stated that it had been believed by the department that the spirit of the law of 1879 had been sub- stantially complied with by the several postal commissions, depart- mental and congressional, that had taken up the matter in the meantime and reported from time to time. The Chairman. That is, from the date of the passage of the law up until 1907 ? Mr. Stewart. Yes. But that if the Postmaster General desired an inquiry made along the lines of that statute, it was believed that the railroad companies at that time had their accounts in such form as would enable them to respond to the necessary inquiries, and that if he desired an effort made it would be undertaken. He indicated his desire that it should be made; consequently the then Second Assistant Postmaster General directed that the inquiries be prepared. The Chairman. Who was Second Assistant Postmaster General at that time ? Mr. Stewart. Hon. W. S. Shallenberger. I had immediate charge of the matter under Mr. Shallenberger, and it fell to my lot to attempt to prepare the necessary forms and inquiries. I afterwards became superintendent of railway adjustments, in whose division the matter would naturally rest, under the direction of the Second Assistant Postmaster General. With the assistance of others in the department I prepared forms and instructions which were intended to bring out from the railroad companies the necessary information with respect to the operation of passenger- train service, the amount of car space devoted to the several classes of service which are known as passenger services, that is, passenger service proper, express service, and mail service, and designed further to bring out the operating expenses as prescribed by the schedule of the Interstate Commerce Commission — I think one hundred and sixteen items for the larger systems. You will observe that the inquiry was started along the line of space as a gauge for ascertaining cost. The Chairman. Did you start your inquiry with the impression that the substitution of space for weight was desirable, or was your recommendation of that substitution based upon the results of your inquiry? Mr. Stewart. The inquiry was not started with any specific idea that space would be substituted for weight, but space was adopted as apparently the only gauge by which we could measure the cost of the service. I endeavored to avail nryself of every possible source of information as to the practicability of the plan and as to whether it would elicit information which would bring about the result desired, that is, the ascertainment of cost. In the early stages of preparation I took my plans and instructions to the Interstate Commerce Commission, and consulted with their statistician, Prof. Adams. Prof. Adams very kindly went over the whole matter with me for a number of days, advised me upon them, and expressed opinions as to what ones were practicable and what were not prac- KAIL WAY MAIL PAY. 5 ticable, and, as a result of that conference, I made changes in those that I had prepared. In order to cooperate with the railroad com- panies, or rather to have them cooperate with us to the fullest extent, the Second Assistant Postmaster General invited the representatives of the railroad companies, practically all the large systems and repre- sentative systems otherwise, to meet with me and other officers of the department to go over our forms and discuss with us their practicability. The Chairman. Was this in 1907 or 1908 » Mr. Stewart. No; this was some time after 1907. The Chairman. Probably in the year 1908 ? Mr. Stewart. Yes; 1908. The task of preparing these forms and instructions and determining their practicability was a large and difficult one because we were practically in a new field pursuing a new line of inquiry and in a new way. In the meantime the Postmaster General changed and Postmaster General Meyer, who succeeded Mr. Cortelyou, directed that the inquiry be continued. The railroad companies met with us and we had a number of conferences going over the forms and instructions. They suggested features that they thought were practicable and indicated others which they thought impracticable, and, so far as those were concerned, we deferred to their judgment. The Chairman. As specialists ? Mr. Stewart. Yes, sir. We did not desire to ask anything which was impossible or impracticable of accomplishment, but at the same time we desired to bring out all the information which we thought was necessary to comply with the statute. The result of those con- ferences was the final completion of the forms. Thereafter the tables and letters of instruction set forth in Document No. 105 were prepared. The Chairman. With practical concurrence, so far as you know, on the part of the railroad representatives as to the forms adopted for the purpose of obtaining the information ? Mr. Stewart. Yes. I do not recall any material objections that we had from the railroad companies. It then became a question of getting them out at the earliest practicable moment and receiving the returns. The month of November, 1909, I believe, was the earliest practicable time at that period for securing statistics, and accordingly these forms and instructions were sent out to all the railroad companies to return us the information requested for that month. The Chairman. The selection of that month being for what reason ? Mr. Stewart. We thought it was a fair average for the year. Congress, at our request, granted us $10,000 to defray the expenses of the tabulation of these returns. We organized a special force of as expert people as the Civil Service Commission could supply us under the supervision of a trained departmental force for re- ceiving and checking up the returns and making the computations necessary. Later we asked for $10,000 additional, which was granted, to complete the statistics. Before the work was finished the present Postmaster General, Mr. Hitchcock, came into office and authorized the continuance of the work and its completion, and it has been under his administration that the main part of the work in connection with the preparation of Document No. 105 has been done in the department. 6 RAILWAY MAIL PAY. The Chairman. The two appropriations of $10,000 each were expended in the compilation and tabulation of the information sub- mitted by the railroads to you in answer to the forms submitted by you to them? Mr. Stewart. The larger part of them. We did not expend the whole amount. The Chairman. How much was expended ? Mr. Stewart. The exact amount expended was $19,423.20. These forms required the return from the railroad companies of quite exact information with reference to their train operations and the amount of space for these three classes of service devoted to each respectively in the passenger trains operated. We checked up all those reports very carefully with their official time-tables to see that they were correct so far as train operation was concerned. Then we checked up the amount of space devoted to the mail service as reported by the railroad companies with our official records, allowing as a charge against the mail service the space occupied by closed-pouch, apartment-car, and for all railway post-office car service, as set forth on pages 101 and 102 of this document " Railway Mail Pay." The railroad companies furnished us also very complete returns with reference to their operat- ing expenses under the several items prescribed by the Interstate Com- merce Commission. The details of these and the manner in which they were used in making an apportionment of expenditures between the freight and passenger services and then apportioning the passenger service to the passenger, express, and mail services are fully set forth in Document No. 105. The purpose of the inquiry, you will observe, was to comply with the statute of 1879 to ascertain the cost of the service and to afford a basis for recommendation to Congress as pro- vided by law. This ascertainment, therefore, of Document No. 105 is an ascertainment of the cost to the railroad companies of carrying the mail based upon the service performed and a fair and equitable apportionment of the operating expenses chargeable to the mail service. The Chairman. Was there a commission formed in the depart- ment for the purpose of making this study? If so, at what time; and of whom did that commission consist? Mr. Stewart. After the work of compiling the statistics and mak- ing the computations had been done, as shown in the main body of the report, Document No. 105, the Postmaster General on November 4, 1910, appointed a committee to consider the results of the infor- mation secured and to report to him thereupon with such recom- mendations regarding railway mail pay and railway post office car pay as might be deemed proper. That committee, consisting of the Second Assistant Postmaster General; R. S. Sharp, Chief Inspector; Theodore Ingalls, General Superintendent Railway Mail Service; G. F. Stone, Assistant General Superintendent Railway Mail Service; C. B. Keen, post office inspector in charge; and C. H. McBride, Superin- tendent of the Division of Railway Adjustments. They made a report to the Postmaster General under date of July 25, 1911, and that report is set forth in Document No. 105. The Chairman. You were the chairman of the committee? Mr. Stewart. I was chairman of the committee. The Chairman. That report was submitted to the Postmaster General July 25, 1911. I see your letter to the Postmaster General here in Document No. 105, dated July 24, 1911. RAILWAY MAIL TAY. 7 Mr. Stewart. The submission of the results of the inquiry to the Postmaster General, and the report of the committee, was done practically at the same time. The Chairman. That was July 24, 1911 ? Mr. Stewart. Yes, sir. The Chairman. And the Postmaster General submitted that infor- mation to the Speaker of the House on August 12, 1911 ? Mr. Stewart. Yes, sir; that is right. The Chairman. In next to the last paragraph of your report to the Postmaster General, as expressed in your letter of July 24, 1911, you say, "The result indicates that the companies represented in the computation would receive annually, under such method of pay- ment, about $9,000,000 less than at present." Do you mean to imply from that statement that, in your opinion, based upon the information received and the deductions made by you in your study of this question, the railroads have been overpaid $9,000,000 annually for the transportation of mail ? Mr. Stewart. No ; there is no purpose to make a statement of that kind. The statement which you have read is a statement which is made solely upon the basis of the statistics furnished and the ascer- tainment made upon those statistics, namely, that having consid- ered the data and considered the computations made by the depart- ment, the cost of the service upon that basis $9,000,000 less than the amount which was being paid to the railroads for the transpor- tation charge. The Chairman. That is, by the substitution of your plan of space for weight and an allowance of 6 per cent profit on the annual cost of hauling the mail, the Government would pay $9,000,000 less than they pay under the present system ? Is that it ? Mr. Stewart. Yes, sir; that is it. Furthermore, it should be borne in mind that I made no recommendation that the railway mail pay should be adjusted upon the ascertainment of Document No. 105. Those statistics were the first statistics ever attempted in an exhaust- ive manner along those lines. The results were the first results ever worked out by the department, and I think by anyone else upon such basis. While I think they are approximately correct, it was not a result upon which I was willing to recommend the readjustment of pav. If a plan such as we suggested to the Postmaster General and which he sent to Congress should be adopted The Chairman. Which plan do you refer to? We have two plans before us. Mr. Stewart. The plan recommended by the Postmaster General on the adjustment on the basis of space, on the ascertainment of cost, etc. The Chairman. You mean the bill that was introduced at the last session ? Mr. Stewart. Yes; or its modification — either one. If either one were adopted, or, we will say, if the modification were adopted, the department would proceed to make this ascertainment in the best possible manner, mainly along the general and broad lines indicated in Document No. 105. The Chairman. Would there not be a vast difference in the esti- mated saving, or, if you please, the amount paid the railroads as between the enactment of the original bill as suggested by the depart- 8 RAILWAY MAIL PAY. ment and the supplemental bill as recently suggested, modifying somewhat the terms, especially the one of allowing a percentage on capital employed in the service rendered instead of the sole allow- ance being 6 per cent on the cost of the operation? Mr. Stewart. There would be a difference in two respects. The first one is with reference to the amount of space which would be credited to the railroad companies, or rather charged against the mail service. There would be some more car space charged to the mail service, I think, in the case of apartment cars in cases where the railroad companies might be entitled to a larger credit than they received for space in cars on the return movement. Such credit in regard to full car lines was substantially given as indicated on pages 101 and 102 of the document " Kailway Mail Pay. " The second point of difference would be in this: The Postmaster General has stated that in addition to the operating expenses and taxes apportionable to the mail service, and 6 per cent thereof, com- panies should be allowed such additional amounts, if any be necessary, as shall render the whole a proper proportion of a fair and reasonable return on the value of the property necessarily employed in connec- tion with the mail service. In the preparation of Document No. 105 we did not have before us information which would have led to a safe conclusion in regard to that item. If the railroad companies are to be allowed credit for what would be a fair return on the value of the property employed in performing the service it would increase the amount considerably. The Chairman. Have you any idea as to what the increase would be ? Mr. Stewart. I have no definite idea, because of the difficulty of arriving at a physical valuation of the property employed. The Chairman. Have you an impression? In other words, what change would the last suggested bill, printed on page 109 of this blue pamphlet, make on the $9,000,000 estimated difference in payment to the railroads, as indicated in Document No. 105 ? How much, if any, would it decrease that $9,000,000 difference in pay? Mr. Stewart. Stating from a general impression of the subject — and that is all I have — I should say that it would eliminate the $9,000,000, that is, if a fair return were allowed the railroad compa- nies upon a fair valuation of the property employed in performing the mail service in addition to the cost of performing it and 6 per cent. The aggregate amount paid the railroad companies now is probably not in excess of what that aggregate amount would be. The Chairman. So that, in the adoption of the suggested plan of substitution of space for weight, an allowance of a fair amount on the capital with no duplication of credit, such as the 6 per cent, the actual operating expenses for handling the mail, there would be no reduction, in your opinion, of the gross amount now paid under the present system to the railroads ? Mr. Stewart. That is my judgment on the best information I have. The Chairman. As I understood, in 1907, when you started on this study at the request of the then Postmaster General, Mr. Cortelyou, your impression was that it was desirable to subsitute space for weight. How did you get that impression as to the desirability of space rather than weight before making any study of the problem ? RAILWAY MAIL PAY. 9 Mr. Stewart. You misunderstood me. I did not start in the inquiry with the idea of substituting space for weight as a basis for paying the railroads. I took space as the only gauge for determining the cost; that seems to be the only gauge for ascertaining the cost of the mail service. Here you have the total cost of all the passen- ger service, and you have certain elements which represent approxi- mately the service performed for each of the three classes that con- stitute the passenger service — that is, you have your passenger cars, you have your express cars, and you have the mail cars. The Chairman. Then your goal was the determination of the actual cost of operation on the part of the railroads and then the develop- ment of a fair plan for compensation to the railroads for that activity ? Mr. Stewart. Yes ; that was it. The Chairman. Why did the department modify its views pre- sented in document 105, and expressed in the suggested bill, which was introduced in Congress, in order to get a concrete plan before the country and the parties in interest — the Government and the trans- portation companies — which modifications are shown by the draft of a bill recently received by the commission from the department, giving certain modifications, especially the one of an allowance of a reasonable compensation on capital charges ? Mr. Stewart. Because, Senator, upon a further and more careful consideration of the subject we were convinced that the railroad companies were entitled to consideration for this additional element. We are not prepared to say what that should be. It is a very diffi- cult question, and it involves the physical valuation or ascertainment of capitalization and then the ascertainment of a fair proportion of that devoted to the mail service, and, furthermore, after you ascer- tain that, a determination of what rate per cent return thereon is due the companies for performing a public function for the United States. It is a difficult question, but we believe that that is an element which should enter into compensation to some extent, and having come to that conclusion, we submitted this amendment to our original plan. The Chairman. Why did the department modify its views as shown by its suggested substitution of the Interstate Commerce Commission for the Postmaster General to make the separation of operating expenses between passenger and freight service ? Mr. Stewart. Because after the submission of our plan to Con- gress it was pointed out that the plan devolved upon the Postmaster General or the Post Office Department the necessity for making a separation of the operating expenses between the passenger and the freight service in order to get a basis for a further separation for the mail service. That is a necessary step in the procedure, but it is a step in which the Post Office Department is not primarily inter- ested, and, furthermore, it has been represented — and I think very properly by the railroad companies^-that the Post Office Depart- ment, not being primarily interested in that, should not have the great power of making such separation, which separation might become the basis for the fixing of rates for other classes of service in which we are not interested at all; as, for instance, freight and passenger service. Furthermore, the Post Office Department has no interest in making this separation except to obtain a basis for 10 RAILWAY MAIL PAY. our further separation to the mail service, and, taking it from these points of view, we suggested that this separation should devolve upon some independent tribunal; as, for instance, the Interstate Commerce Commission, and I have made that suggestion and modified the original plan of the proposed law. The Chairman. If I understand, should Congress see fit to enact legislation as presented by your modified plan it is your opinion that the net result in dollars to the Government would be practi- cally the same, or possibly we would pay the transportation com- panies even more than they are now paid under the present method, 90 per cent of the mail transportation being paid for according to weight and 10 per cent according to space, as represented in the R. P. O. cars. Am I correct in that statement? Mr. Stewart. That is substantially correct. The Chairman. Now, what would be the benefit that the people of the United States would receive? Would the efficiency of the service be improved by congressional adoption of the modified suggested plan coming from the department? Mr. Stewart. In the first place, the plan would settle the question as to the correctness of the rates. You would then have rates based upon an ascertainment which could not be disputed and which every- body would have to concede were correct rates, so far as adequacy or inadequacy is concerned. You would put an end to the controversy that has been going on for many years as to whether or not the Gov- ernment is paying too much for railroad transportation. The further advantage in the plan is that it pays every railroad company for the performance of the service which the department receives from it. Under the present plan, as has been shown by the results of Document No. 105, it is conceded that some roads are inadequately paid. Furthermore, the plan, if it is practicable, seems to be scientific in its basis; you ascertain the cost of the service and then you pay that cost plus a fair return on the value of the property employed. That seems to be reasonable and seems to commend itself to the mind. The Chairman. Has the cost of the transportation service been satisfactorily ascertained ? Mr. Stewart. Prior to the issuance of this document or including this? The Chairman. Including that. Has the cost of the service been ascertained in a satisfactory manner ? In other words, has a method of determination as to segregation of the different costs to all parties in interest been satisfactorily determined and adopted ? Mr. Stewart. No; it has not been. Really, I think the only ascer- tainment of cost that has ever been made, that I know of, is Document No. 105. There have been other inquiries as to the adequacy of railroad rates, but, as I understand it, there has been no actual ascertainment of the cost by any commission. Now, so far as Document No. 105 is concerned, the method employed by the department in making an ap- portionment of expenditures and in computing car foot miles is more or less disputed by the railroad companies interested. The Chairman. That is the point I wanted to bring out. As I understand, the railroads claim from the information submitted to you that they receive from the mail 3.23 mills per car-foot mile; they receive from other service 4.35 mills per car-foot mile. Now, on the RAILWAY MAIL PAY. 11 same information submitted by them you draw the deduction that the railroads receive for revenue from mail service 4.14 mills per car-foot mile and a revenue from other service of 4.16 mills per car- fo.ot mile. It would seem as though you were a long way apart in the deductions that you draw from the same figures, and it would look to me as though it would at least be difficult for you to get to- gether in a satisfactory determination of a yardstick, if you please, by which to measure the amount to be paid by the Government to the transportation companies. Mr. Stewart. That would be entirely true, Senator, with the first effort, as, for instance, is shown in document 105, but the plan which we have suggested includes this, that where the railroad companies dispute any method employed they have the right of appeal to the Interstate Commerce Commission. That question, then, would go before the Interstate Commerce Commission and would be settled, so that, after one or two ascertainments of cost practically all the questions involved would be settled by precedent, and after that there would be very little ground for dispute between the department and the railroad companies. The question as to how much space should be allowed the companies where the companies run larger cars than those which are authorized by the department — and they claim in all cases that they should have credit for the entire length of the car — would be settled once for all after an appeal had gone to the Interstate Commerce Commission and both sides had their hearing. If the Interstate Commerce Commission decided that the companies were right in their contention with respect to that,, the department, of course, would acquiesce; it would have no recourse otherwise and would have no interest to do anything else but acquiesce with the ruling. On the other hand, if the commission decided the depart- ment's plan was right no doubt the companies would acquiesce with just as much grace. The Chairman. You think the Interstate Commerce Commission could determine that ? Mr. Stewart. I think so. The Chairman. Under date of January 3, 1913, I addressed a letter to the chairman of the Interstate Commerce Commission, in which letter I asked, among other things, the following: In order, therefore, to aid the joint committee in the inquiry about to be undertaken, I shall be pleased if your commission will have an analysis made showing the relative returns to the railroad companies for the different classes of traffic they handle; namely, passenger, freight, express, and mail, approximating as nearly as possible the expense to the railroads for handling such respective classes of traffic as compared with the earnings received by the railroads from such traffic. Then followed the inquiry in reference to the R. P. O. cars. Under date of January 7 Mr. Prouty, chairman of the commission, replied as follows: Further replying to your letter of January 3u, 1913, in reference to cost of handling mail matter in comparison with other passenger-train service. Having laid the matter before my associates, I am instructed to say: First. The commission now has no figures from which the information asked for by you could be compiled. In one or two cases this matter has been incidentally gone mto, but in so fragmentary and unsatisfactory a manner that we could not, upon the strength of what was there developed, experess an opinion. Second. The commission has no knowledge and no means of knowing the expense of maintaining postal cars. Some time ago we sent to Congress some information as to the relative cost of maintaining steel and wood cars. 12 RAILWAY MAIL PAY. Third. The commission could by means of an investigation to be instituted by it probably give you information on both these points, certainly on the first point which would be reliable, but such a proceeding would require several months, possibly a year and would be somewhat expensive. So that practically all there would be at the present time would be the result of your several years' study, as presented in Document 105. That is true, is it not ? Mr. Stewart. Yes. But so far as the relevancy of what you have said is concerned, what I was proposing you should bear in mind was that that reply of the commission is made upon their present informa- tion, and an appeal under this proposed law to the Interstate Com- merce Commission would send up all of our ascertained facts upon those points, and the commission would not be without the means of deciding. I can realize how they must necessarily answer as they did at this time, but the questions which we would submit to them on an appeal from the railroad companies would be with reference, for instance, to a specific case, as to how much space should be charged the mail service under specific conditions, naming all the facts and circumstances and data submitted by the railroad companies and checked by us and which would be certified to the commission. They would have it all before them. The Chairman. Then you think the commission could determine whether the yardstick that you take, namely, that the railroads receive 4.14 mills per car-foot mile for the postal service and 4.16 mills per car-foot mile for other service is correct, or whether the railroads' conclusions as quoted above are correct ? Mr. Stewart. Yes, sir; because we would certify all the facts to them, having ascertained them, and they would determine whether our methods were the right ones or whether the railroads' methods were the right ones; but most of those appeals would go up on specific questions, such as the one I mentioned — what charge should be made against the mail service for running a 60-foot car in both directions where we authorize only 50 feet of space in it; should the company receive credit for the entire length of the car because they have to run it as an operating proposition in connection with the mail service which we authorize, or should they receive credit for only the 50 feet which we authorize and in connection with which they have to run 10 feet more ? That is the kind of question that would go before the commission. The Chairman. Let me see if I understand your position. You recommend the enactment of the suggested legislation, not with the expectation of saving the Government anything in dollars paid to the railroads as compared with what is now paid under the present system, but purely for the reason that, hi your opinion, it is more scientific, will be more equitable, and less provocative of irritation or dispute between the governmental representatives and the trans- portation companies. Does that sum it up ? Mr. Stewart. Yes. The Chairman. Are there any other features ? Mr. Stewart. One strong feature in regard to the proposition is this, which I mention incidentally: That it guarantees a proper return to every railroad company for the service they perform. The Chairman. That is covered in the question of the more equi- table payment to the transportation companies? KAILWAY MAIL PAY. 13 Mr. Stewart. Yes; it is not free from difficulties, however, as we have informally discussed. The Chairman. Would it be more expensive in administration ? Mr. Stewart. I do not think it would be. We have now our field force thoroughly organized; they are competent and sufficient to re- port upon the question of space that would be adequate. You must remember that, while we pay only for car space now about one-tenth of the total charge, practically the whole question of cars pace, which covers a very large per cent of the mail service, is a matter now of ascertainment, report, and authorization. That is to say, we ascertain now and practically authorize the space in apartment cars for which we pay no specific charge. We pay a specific charge for the regu- lar railway post office cars. So that our field force now is sufficiently organized to make the proper reports on what space is necessary. The additional space which we do not now report upon and spe- cifically authorize would be the space for the closed-pouch service, and that would have to be ascertained by a weighing of the mails at the period specified in the act. The Chairman. Representing less than 10 per cent of the mail? Mr. Stewart. Yes. The Chairman. On the substitution of space for weight would you not have to keep an account of every car ? Mr. Stewart. We would make an authorization of space of what would be required in every line of cars, whether full cars or apartment cars. The Chairman. Would you not, under that plan, have to keep a separate account on each authorization ? Mr. Stewart. No. The authorization would be made and record kept on our books. When the statistics were taken and reported by the companies they would be checked up with our authorizations. The Chairman. But in your opinion, under the proposed system and the present system of weights, there is no opportunity for any padding of mails or cheating the Government or anything of that kind? Mr. Stewart. No, sir; I think not. The Chairman. And there is no irritation now, because when it has been found that mistakes have been made, they are adjusted satisfactorily by the department? Mr. Stewart. Yes. The Chairman. So that you have to-day, under the present method, the least possible degree of irritation ? Mr. Stewart. Yes. I think that can be fairly said, especially where you have two bases of pay, as we now have, both weight and space. The Chairman. It is your judgment that by the substitution of space for weight you eliminate weight entirely, except on pouch matter, representing 10 per cent of the mail ? Mr. Stewart. Yes. The Chairman. So you would just reverse your present position. Under the existing condition of ascertainment by weight, approxi- mately 90 per cent of the mail pay is ascertained by weight ? Mr. Stewart. Yes. 'I*he Chairman. And 10 per cent ascertained on space represented hv the R. P. O. car? 49396—14 9 14 EAILWAY MAIL PAY. Mr. Stewart. Yes. The Chairman. And now you propose to reverse that and have 90 per cent represented by space and 10 per cent by weight; that is, the pouch mail ? Mr. Stewart. That is substantially correct. The Chairman. So you substantially have the two systems which you have to-day, but transfer the percentages ? Mr. Stewart. There would not be two systems in this sense : That we simply weigh closed-pouch mail to ascertain a proper space charge. The Chairman. You determine the proper charge for the space used on the weight itself ? Mr. Stewart. Yes, sir; the weight of the closed-pouch mail during that period. The Chairman. It would cost the Government less by the adoption of your method, substituting space for weight, than the present sys- tem of quadrennial weighing? Mr. Stewart. The adoption of the method of space for weight would be a saving. The Chairman. Would be a saving of what ? Mr. Stewart. That is very difficult to say accurately. I think at one time we made some estimate, but I do not recall the result. I do know that the result was less than the cost of weighing. The Chairman. The cost of weighing for the four years was prac- tically $1,600,000? Mr. Stewart. Yes. Of course, in addition to the work in the field we would perhaps have to have an additional force employed during the 30 days of the statistical period. The Chairman. That would be required every year under the sup- plemental plan submitted by the department ? Mr. Stewart. Yes. But it would not be very expensive because our present force would be almost ample. In addition to that, when the reports came in to the department we would have to have the means for handling them, checking them up, and for making compu- tations. In this respect there would be considerable expense. We now have a division called the Railway Adjustment Division, whose work is devoted to the adjustment under the present plan. The work of that division could be adapted very largely to the new work, but it would require an additional iorce. The Chairman. Y®u have made no estimate as to what the cost would be ? Mr. Stewart. No. The Chairman. Have you any idea that you think would be of value on that ? Mr. Stewart. Yes. You can get an idea from what we did on Document 105. It cost us $20,000 to complete that work. The Chairman. But that was compilation and tabulation ? Mr. Stewart. Yes, sir. The Chairman. Under this other method you have to get your ascertainment. The railroads are not going to give you that infor- mation, but you have to get it yourselves through your own organi- zation, as to what the space is, as to what amount you will need and what amount you authorize, and it seems to me it would cost you more than the mere compilation and tabulation ? RAILWAY MAIL PAY. 15 Mr. Stewart. No. The information is required to be furnished by the railroad companies. You will notice the first paragraph of the proposed statute but it would be checked by the Department as far as practicable. The Chairman. Are you going to let the railroads determine what space you will take ? Mr. Stewart. No. We authorize that from time to time. We set the standard of what we need. The railroad companies furnish us the information as to the operation of their trains and the space devoted to these three classes of service during those 30 days. The work that I referred to in the department would be the work of checking up those returns with our authorizations, just as we did in preparing Document 105, so as to verify their report of service per- formed. The Chairman. But you would have a number of activities under this plan that are not represented in Document 105. In the first place, you would have to get the information as to the space you require. In the second place, you would have to notify the rail- roads what space you authorize and then get information as to the space that you use, and you would have to keep an account with each activity, it seems to me, which you do not have to do under the weight yardstick. Mr. Stewart. We do not have to do that with reference merely to weight now, but we do with reference to full post-office railroad cars. We do not with reference to apartment cars. The Chairman. You do not on the storage cars ? Mr. Stewart. No, sir. Mr. Lloyd. Under this section do you not have to make an ascer- tainment on the apartment cars ? Mr. Stewart. Yes, sir. Mr. Lloyd. What would you do on the blue- tag mails ? Mr. Stewart. The blue-tag mails would be handled just as they are now, on fast freight trains. Mr. Lloyd. You make no suggestion of chargmg with reference to that? Mr. Stewart. No, sir. In regard to that we recommend that they be continued; that the Postmaster General be authorized to con- tinue those shipments at reasonable freight rates on fast freight trains. Mr. Lloyd. I want to ask what your objection is to the ascertain- ment that is made by the railroad companies ? As I understand it they take the net investment in road and equipment which is given by the Interstate Commerce Commission in the statistics of railways in the United States in the last ascertainment that was made in 1910 as $14,387,816,099. Then the railroad company takes that as a basis and uses the percentage that is received in revenue from the mails as compared with other sources of revenue, which is 1.78 per cent, according to that authority, and make a computation which shows that the capitalization which would be authorized to be charged against the mails would be about $250,000,000. Then, on that basis of $250,000,000 they take 6 per cent, which would be about $15,000,000. Now, that is the statement which they make, and they claim that ought to be charged up to expenses and be paid by the Government. What is your objection to that statement? 16 RAILWAY MAD. PAY. Mr. Stewart. My criticism of the statement would be in these particulars. The $14,000,000,000 is assumed to represent the proper capitalization of the road. Is it the bonded indebtedness ? Mr. Lloyd. The statement is given by the Interstate Commerce Commission under the head of "Assets." "Net investment in road and equipment." Then it has other items "Book value, system of securities permanently held, other permanent investments, working assets and accrued interest not due, sinking and redemption fund, all other deferred debit items." These amount to nearly $7,000,000,000, these other items making the total assets of the railroad companies a little over $21,000,000,000. Then in the liabilities they charge stock a little over $8,000,000, mortgaged, bonded, and secured debt a little over $10,000,000 working liabilities, accrued liabilities not due $1,000,000,000, deferred credit items $161,000,000, property surplus $331,000,000, profit and loss $1,039,000,000. Those are the two sides of the account. Mr. Stewart. If the $14,000,000,000 represented substantially the final valuation of the property, there would be no criticism against that item as such. The 1.78 per cent which they charge to the mail service is subject to this criticism: That it is ascertained on the basis of mail revenue, which seems to me to beg the question in this respect, that it employs as a basis for apportionment the item in controversy, namely, compensation paid the companies. Mr. Lloyd. Is not the assumption equally good as against the other items of revenue ? Here is the freight revenue, the passenger revenue, the mail revenue, the express revenue, and the different items. The total revenues received for that year were $2,750,670,435. This makes a total of 100 per cent, of which amount of receipts the mail was 1.78 per cent. Mr. Stewart. Yes. Its correctness would further depend also upon whether there was a necessary connection between the revenues and the facilities which are furnished by the railroad companies through which those revenues are derived. One of the largest questions, to my mind, in dealing with the physical value of property is the deter- mination of what facilities the railroad companies employ which are used in connection with the mail service sufficiently to constitute a charge against it. Mr. Lloyd. What expense used in strictly passenger service is not found in mail service? Mr. Stewart. Take, for instance, the great station at New York. The Pennsylvania Railroad Co. is one of the best examples. There is a station costing nearly $100,000,000, the larger part of which might be admitted by everybody to be a passenger facility, in which the mails are not interested at all. They have provided us with sp^ndid mail facilities, and yet only a small part of the cost of the entire service should be charged to the mail service. The same is true of the Union Station at Washington. There is a magnificent edifice largely devoted to passenger service with facilities of every kind, elaborate, in fact, to take care of the passengers. The mail service is not directly or even indirectly interested in any of that. They furnish us, however, all the facilities we need for the mail service. Mr. Lloyd. Take the other side, what is there that is furnished the mail service that is not furnished in passenger facilities ? RAILWAY MAIL PAY. 17 Mr. Stewart. These special services which these gentlemen have mentioned informally. Mr. Lloyd. We are not supposed to know that they said anything informally. Mr. Stewart. Well, the fast mail trains, for instance. The Chairman. Representing how much, in dollars ? Mr. Stewart. I could not tell you that because really the railroad companies furnish us this fast mail service without any additional specific compensation. The Chairman. But it is an additional expense to them? Mr. Stewart. An additional expense, but at the same time it is an additional advantage to them, because they thereby attract to them- selves large weights which they otherwise would not get, as a ruie. It is not a one-sided proposition at all. They furnish a magnificent service, but they get some return in these respects for furnishing it. Mr. Lloyd. Is there anything eke in the facilities they must furnish that is not furnished the passenger service ? Mr. Stewart. They furnish side service between the station and the post office. Where the distance is 80 rods or less and they have an agent or representative they are required to carry the mails between the station and the post office. They also perform terminal service; that is, they carry the mails between the station at the end of the route and the post office in cases where the department does not provide otherwise. The Chairman. What does the side service represent, in your opinion ? Mr. Stewart. Something over $4,000,000 a year, if the depart- ment was compelled to provide it. Senator Bankhead. Why should the railroad companies be re- quired to deliver the mails between the station and the post office % Mr. Stewart. The railroad service grew up as a contract service in connection with the old star route service, and under the old stage or star route contracts the stage had to deliver the mails into every post office along the route. The contracts were made with railroad companies first right along with the star routes; they were handled by the same people in the department; the same clerks handled both classes of service. When the law of 1873 was passed the same general requirements which had applied to all contract service were simply continued in operation, and when the question came up in court years afterwards, upon a suit to recover for payment for this side service, the Court of Claims held that Congress took that service into consideration when they established the rates of 1873. Therefore, we have practically a duty to continue that requirement. Senator Bankhead. Is there anything in the law that would indi- cate that Congress did take that into consideration when they estab- lished the rates % Mr. Stewart. Only the history of the matter. Senator Bankhead. Then you continue it because it is ancient % Mr. Stewart. Not only because it is ancient but because the court has said that Congress must have had that in view when they fixed the rates. 18 EAILWAY MAIL PAY. The Chairman. I do not think the department has any alternative, under the existing law. Senator Bankhead. I would like to pursue that a little later on. Mr. Stewart. I have not finished all I was going to say about the question asked by Mr. Lloyd. If we assume that the 1.78 per cent of this $14,000,000,000, based upon the proportion of the mail reve- nue to the whole revenue, is a proper segregation to the mail service, then it becomes a further question as to whether the United States should pay 6 per cent upon it. Mr. Lloyd. If they paid 6 per cent it would be about $15,000,000, but suppose they paid 4 per cent? That would be $10,000,000. Mr. Stewart. If you say 6 per cent, that is virtually putting the United States on the same basis as a passenger or a shipper of freight, and it raises this very interesting question as to whether the relations between the United States and the railroad companies carrying the mails for the Untied States are the same with respect to compensa- tion that they are between the passenger or the shipper of freight and the railroads. Mr. Lloyd. Is not this true : If you consider that phase of it, that either the mail ought to be carried at its cost by the railroads as a gratuity, or the railroad company ought to have the same compen- sation as an individual would pay for the same kind of service ? Mr. Stewart. Well, that is a question. Mr. Lloyd. Is not that really the question ? Mr. Stewart. Yes. Mr. Lloyd. If there is a patriotic influence that must assert itself by the railroads, ought it not to prompt them to do this service without compensation, just simply at cost; but if no patriotic con- sideration is to be observed, then would it not be right for the rail- road companies to be paid just the same as an individual would pay if the Government were an individual ? Mr. Stewart. I do not know whether you could push that con- sideration of patriotism as far as you suggest ; that is, that they should perform services only at cost. On the other hand, the Supreme Court has recently held that a railroad company in carrying the mails is performing a governmental function and they are not in the same relation to the Government that they are to the ordinary individual. Mr. Lloyd. That is due to the fact that the Government requires them to do some things that an individual could not require. For instance, you require them to carry the mail on the fastest trains and you make the specifications by which they shall be governed in carrying the mails. You designate the kind of car and you desig- nate everything connected with the equipment, while the individual shipper could not make that kind of a designation. The designation to the individual shipper must necessarily come, and does come, from the railroad companies. Mr. Stewart. In other words, you construe that dictum to mean this: That the obligations a railroad company owes to the United States are different in their essentials than in its obligations it owes to the passengers? Mr. Lloyd. The obligation is greater because we make it so by law. Mr. Stewart. I see your point. KAIL WAY MAIL PAY. 19 Tiie Chairman. And the requirements are greater. Mr. Lloyd. If they carry the mail at all they have to carry it as the Government directs them. Mr. Stewart. Yes, sir. That is what is held by the court. Mr. Lloyd. While on the other hand the individual is not placed on the same basis at all. The railroad companies say to him, "We will carry this for so much money." He takes it or not, as he pleases. Mr. Stewart. The individual goes to the railroad company as going to a common carrier? Mr. Lloyd. That is right; and the railroad company dictates the terms. The United States goes to the railroad company and the Government dictates the terms. Mr. Stewart. That is the main distinction, although in the case of the common carrier, of course, the rates must be reasonable. Mr. Lloyd. Certainly. Yes. Mr. Tuttle. Has it not always been the policy of the Government to pay a profit to these railroads, or have they not contemplated that the railroads were earning a profit in carrying the mails ? Mr. Stewart. Oh, yes, sir. Mr. Tuttle. They have never estimated that the mails were car- ried at cost and never expected them to be ? Mr. Stewart. No, sir. Mr. Tuttle. And they never subsidized the railroads by paying them more than they were entitled to ? Mr. Stewart. In some cases they have been subsidized somewhat, as, for instance, in what was called the special-facility trains from New York to New Orleans. In that case there was an appropriation carried for a number of years for a fast through mail train from New York to New Orleans. Then there was a train from Kansas City to Newton, Kans., carried for a few years at a special rate of compensa- tion provided by Congress in addition to the ordinary compensation. Mr. Lloyd. Those were discontinued some years ago ? Mr. Stewart. Those were discontinued some years ago; yes. The Chairman. General, as I understand your position in reference to special mail trains and the expense to the railroads incident to putting them on, while there is no direct compensation to the rail- roads for that extra cost to them for the improved facility, there is an indirect compensation to them because of the increased business that they get incident to the adoption of that improved facility. Is that right? Mr. Stewart. Yes, sir. Senator Bankhead. What amount of penalty does the Post Office Department receive annually from what is known as a failure to deliver the mail on schedule time ? Haven't you a penalty attached for that failure ? Mr. Stewart. No, sir; not at this time. Senator Bankhead. You used to have ? Mr. Stewart. We used to have, by special direction of Congress, and that was carried, I think, for two years, and we assessed fines against the railroad company for failure to keep their schedule time. Senator Bankhead. I know that was in practice at one time not very long ago. Mr. Stewart. Yes. But that was discontinued for this reason — that all the fines we would assess for this purpose did not accomplish 20 KAILWAY MAIL PAY. anything in the way of improving their schedules. It simply caused irritation, and took the money of the road instead of allowing it to go toward improved service. Senator Bankhead. I supposed the same rule was in vogue now. Mr. Stewart. No. Upon our representation to Congress of those facts Congress dropped that out of the appropriation bill. Senator Bankhead. You spoke awhile ago of subsidizing trains from New York to New Orleans. You finally decided you did not want them any more because it was an additional expense to them, and the additional pay they received would not justify them in the schedules they were required to make, and in the end all the addi- tional pay they received was taken in fines, because they failed to make a schedule, and I think the Post Office Department made the schedules for them and said when they should leave and when they should arrive at a certain destination ? Mr. Stewart. Yes, in order to make connections we would have to do that. In the case of a train like that, if they did not make their schedule we would fine them. Senator Bankhead. Yes. That is what I had in mind. Mr. Lloyd. Let me sum up. If the $14,000,000,000 can be taken as a correct estimate of the capitalization of the railroads and 1.78 per cent can properly be taken as the share that goes to the railway mail pay, and 6 per cent on that capitalization be taken as a fair com- pensation on account of capital, then is it not true that the railroad companies ought to receive $15,000,000 annually more than they now receive. Mr. Stewart. That is true, granting those premises. Mr. Lloyd. Yes. Granting those premises. Mr. Stewart. That would be reduced by the subtraction of the $9,000,000, so that it would be an aggregate increase of the difference between $9,000,000 and $15,000,000 ? Mr. Lloyd. Yes. But I mean, your original asttement was, if you took the $9,000,000 into account it would add $15,000,000 to the other side, and taking the $9,000,000 would leave $8,000,000 that might, under the present system, be received by the railroads that ought not be received % Mr. Stewart. That is correct. The Chairman. In a report of Mr. Wm. F. Vilas, Postmaster Gen- eral, in the year 1887, in the discussion of R. P. O. cars, the following appears : It is within bounds to affirm that all these might be to-day purchased or their dupli- cates manufactured for $1,600,000; add for cleaning, etc., as above, at $720 per year each for 342 in use, $246,240, the total is reached of but $1,846,240. Yet simply for the use of these cars for the last year, including cleaning, etc., the department was under the annual rate of charge by the existing system of $1,881,580, and the estimate deemed necessary to submit in prudent provision for the coming fiscal year, on the eame basis, is $2,000,000. [Reference to special instances in the annexed table of the longer lines discovers greater disparity than the average. In illustration, $59,037.75 is annually paid on one line for the use of four cars that might be built and fully equipped in the best modern style for less than $17,500; and this in addition to the full- weight pay for transporta- tion, amounting in the case mentioned to $504,573.69. Instead, then, of appropriating $2,000,000 to rent the use of these cars for the coming year why should not the appropriation be of a smaller sum to buy them and of another, say, $250,000 for their keeping, the two together not aggregating the proposed rent? The department will thereafter gain at least $1,500,000 per year while sustaining the cost of casualties. RAILWAY MAIL PAY. 21 If Mr. Vilas was sound in his inferential recommendation made in 1887, why is it that the department has taken no action on the line of the recommendation as set forth in the quotation from the report just read ? Mr. Stewart. I do not want to criticize or say anything in the way of criticism of so great an authority as Postmaster General Vilas, nor can I say specifically why the department has not taken definite action to change the law with respect to car pay. The Chairman. The department could not change the law, but the department could make suggestions and recommendations as it has done in document 105. Mr. Stewart. That is what I meant to say, Senator. However, I presume the fact that the views expressed by Postmaster General Vilas have never been largely held by the departmental officers would account for the reason that there was no recommendation to change the laws in that respect. The fallacy of the statement of Mr. Vilas, it seems to me, lies in this: That there is no account taken of the cost of operating the cars. The payment that we make to the railroad companies for cars may soon equal their cost, but there is nothing to be argued from that as to the adequacy or the inadequacy of that pay, because that leaves out of consideration entirely the cost of operat- ing or hauling the cars. The Chairman. How many R. P. O. cars are now used by the railroads ? Mr. Stewart. On June 30, 1912, there were 1,388 in use and in re- serve. In connection with this question, Mr. Chairman, I would like to submit as a part of my reply the letter of Postmaster General Hitchcock to Hon. John W. Weeks, chairman of the Committee on Post Offices and Post Roads, House of Representatives, dated March 2, 1910, in specific reply to the question raised by Postmaster General Vilas in the report to which you have referred. Office of the Postmaster General, Washington, B.C., March 2, 1910. Hon. John W. Weeks, Chairman Committee on Post Offices and Post Roads, House of Representatives. My Dear Sir: In response to your inquiry made of the Second Assistant Postmaster General in regard to the cost of maintaining and operating railway post-office cars and its relation to the compensation received by railroad companies for the same and your reference to the speech delivered by Senator Vilas on the subject in the United States Senate February 13, 1895, I have the honor to advise you as follows: The department has not at this time sufficient information upon this point to give from its own records a reliable estimate. As you are aware, we have recently asked railroad companies to submit answers to inquiries with reference to the cost of operating the mail service, and it is believed that when these shall have been received we will be in a position to furnish such information. Inasmuch, however, as it may be of importance to you to have estimates made from time to time by others and such incom- plete information as we have at present, I submit the following: The cost of operating a railway post-office car has been variously estimated (but not officially by the department) as from 15 to 30 cents a car- mile. The average run per day of such a car is about 300 miles. Estimating the cost at 18 cents a car-mile, the total cost of operating such car for one year would be $19,710. The specific items which constitute this total cost are not definitely known to the department. However, as to the cost of lighting, cleaning, repairs, etc., the General Superintendent of Railway Mail Service furnished the following estimates before the commission to investigate the postal service in 1899, viz: Lighting, $276; heating, $365; cleaning, water, ice, oil, etc., $365; repairs, $350; proportion of original cost of car (estimating the life of a car at 15 years and the original cost at $6,000), $400; total, $1,756. Recent inquiry gives the following as the approximate cost of maintaining a car at the present time: Lighting (electric), $444; heating, $150; cleaning, $360; 22 KAILWAY MAIL PAY. repairs, $300; oil and brasses, $120; interest on cost of car (at $7,500), $300; annual de- terioration (estimating the life of a car at 20 years), $375; total, $2,049. These figures give the cost of a car built according to the department's standard specifications. The cost of modern steel cars being built by some of the railroad companies is from $14,000 to $15,000. The compensation received by a railroad company for operating a car and carrying the mails in it would be approximately as follows : The pay for a 60-foot car at $40 a track mile per annum for a track mileage of 150 miles would be $6,000. The average load of a 60-foot car, according to statistics obtained recently, is 2.83 tons. The rate per ton of an average daily weight of 50,000 pounds carried over the route is $25.06. At this rate the company would receive $10,637.97 per annum for the average load of mail hauled in the car. This sum added to the specific rate for the railway post-office car ($6,000) makes the total pay for the car and its average load $16,637.97 per annum. Senator Vilas's argument was based upon the theory that the rates fixed for rail- road transportation alone, based on the weights of the mails carried, are adequate compensation for all services rendered, including the operation of railway post-office cars, and that therefore the railroad companies would be required to operate postal cars owned by the Post Office Department for the compensation allowed by law for the weight of mails alone, including apartment-car space and facilities. Such theory is not justified by the facts, as will appear from the following: A careful perusal of the debates in both Houses of Congress which led to the enact- ment of the present law fixing the rate of pay for railroad transportation of the mails and for railway post-office cars clearly indicates that the additional compensation for railway post-office cars was intended to cover the additional expense imposed upon the railroad companies for building, maintaining, and hauling such cars. The com- panies at that time insisted that these cars, which were practically traveling post offices, did not carry a remunerative load, and that therefore the amount of pay, based on weight, did not compensate them for their operation. This led to the spe- cific appropriation for railway post-office cars. In this connection it should be borne in mind that the purpose of the railway post-office car is to furnish ample space and facilities for the handling and distribution of mails en route. Therefore the space required is much greater than would be required for merely hauling the same weight of mails. In regard to any proposal for Government ownership of postal cars, other facts as well as the above should be given consideration. Such cars must be overhauled, cleaned, and inspected daily. It would be necessary to either arrange with the railway companies for this service or for the department to employ its own inspectors, repair men, and car cleaners at a large number of places throughout the country, which would probably be more expensive than the cost to the railway companies in that respect at present. It would hardly be feasible to establish a Government repair shop. There- fore the department would be compelled to use the shops of the several railway com- panies throughout the country. Without the closest supervision and attention of the Government's inspectors it could scarcely be expected that our cars would receive the same consideration in railroad shops as those owned by the railway companies. These shops are frequently congested, and it is probable that the railroad work would be given the preference. Yours, very truly, Frank H. Hitchcock, Postmaster General. The Chairman. What is the average cost of the R. P. O. cars ? Mr. Stewart. I do not know. The companies are now building steel cars and the cost of a steel car is very much greater than the cost of a wooden car. I think the steel car might be built for about $12,000. Under the present law, Mr. Chairman, all the cars which shall be used in the service, excepting those which are now of steel and steel unclerframe, must be replaced by steel cars before the 30th of June, 1917. The Chairman. At the rate of 25 per cent a year ? Mr. Stewart. Twenty-five per cent a year, beginning with the fiscal year 1914. The Chairman. Is it true, according to your knowledge, that under a determination of the Interstate Commerce Commission the Govern- ment now pays to thb railroad companies 25 cents a mile for hauling the car of the Bureau of Fisheries ? RAILWAY MAIL PAY. 23 Mr. Stewart. I have no personal knowledge of that. I have been informed that it is correct. The Chairman. Is the mileage that the R. P. O. cars are hauled easily ascertainable ? Have you that information in your office so that it could be easily determined without any great expense to the Government ? Mr. Stewart. Not very readily. We are not required to keep those statistics because we pay per mile of routes per annum. It would require checking up the official schedules. The Chairman. Do you know whether the railroads have such information ? Mr. Stewart. I do not know whether they have. The Chairman. Could you readily prepare and submit to the commission a statement showing the number of R. P. O. cars, esti- mated average cost, estimated cost of cleaning, operating, maintain- ing, and then a statement as to the cost of transportation; that is, the amount that would have to be paid to the railroads for hauling same, providing the Government owned them ? In other words, could you present a statement from the dollar standpoint demonstrating the advisability of the Government's owning and operating the R. P. O. cars or continuing the present system of rental, or would that be difficult and expensive of ascertainment ? Mr. Stewart. It would be difficult for the reason that we have not the statistics which would enable us to reach a determination of cost for those particular cars. We could give you the miles of service a year; we could compile that, but we have not the data to make an estimate as to the cost of operation. The Chairman. How long would it take to compile and tabulate data showing the mileage per year, and the cost to the Government on a basis of 25 cents a mile for the 60 or 65 foot cars? That as I understand is thejength of the car owned by the Bureau of Fisheries ? Mr. Stewart. I think a few da}^s. The mileage of full railway post-office cars of all sizes made in the performance of service during the fiscal year of 1912 was 126,798,405. The cost at 25 cents a car mile would be S31 ; 699,601.25. The Chairman. In any of } 7 our studies of computation have you ever determined the number of postal employees which the railroad companies carry without any additional compensation than the com- pensation rendered to them in the payment of railway mail service, supposed to cover the cost of the employees as passengers ? Thereupon (at 4.45 o'clock p. m.) the committee took a recess until 8 o'clock p. m. AFTER RECESS. The joint commission reconvened at 8 o'clock p. m., according to adjournment. Present: Senator Jonathan Bourne, jr. (chairman), Representative John W. Weeks, and Representative William E. Tuttle, jr. TESTIMONY OF MR. JOSEPH STEWART— Continued. Mr. Stewart. The railroad companies carry, without specific com- pensation other than that paid for the transportation of mails, the 24 RAILWAY MAIL PAY. railway postal clerks who are engaged in the distribution of the mails en route. In my annual report for 1911 it is stated that during that fiscal year there were a total of 1,657 lines of all kinds manned by 15,575 clerks, representing the working force of the lines. In addition to these men there are also mentioned 30 officials and 130 chief clerks who would travel when necessary. The transfer clerks who are also mentioned would, as a rule, not travel on the trains. In addition to these persons the railroad companies carry under the same conditions the post-office inspectors when traveling on official business for the department, and also the officers of the Post Office Department when traveling on official business and under the orders of the Postmaster General. The Chairman. Have you any idea what the average miles traveled would be for these 16,000 governmental employees who practically travel free, except so far as the railway-mail pay is supposed to com- pensate the railroads for the passenger service rendered to the governmental employees ? Mr. Stewart. No; I have not. The Chairman. Is that easily ascertained ? Mr. Stewart. Not easily. Mr. Lloyd. Do you know how many miles are traveled ? Mr. Stewart. I think we know how many car miles are traveled by the lines in the performance of service, but how many clerks are on those lines I do not know that I could tell you, nor what the aver- age number cf clerks per line would be, with any certainly. The Chairman. Have you ever made an estimate in the depart- ment as to what proportion of the railway-mail pay was in lieu of passenger pay for governmental employees ? Mr. Stewart. No; I never have, but in compiling the statistics furnished us by the railroad companies in connection with the other data, which forms the basis for document 105, the railroads made statements with reference to persons in the Government service carried during that period. I think we have some statistics on that point, but we did not use them, because we had no adequate means of checking the data, and we had no information with respect to the passenger service for the same period. The Chairman. Do you think that information would be of value to the commission in the study it now has before it ? Mr. Stewart. If it were reliable and could be depended upon it would be useful. The Chairman. You would not doubt the correctness of your own figures and your own deductions ? Mr. Stewart. No; but these are not our own. They were re- ported and we had no means of checking them. The Chairman. You know the number of employees you have in the postal service ? Mr. Stewart. Yes, sir. The Chairman. You know the number that travel on cars. It is ascertainable from the mileage or the per diem that is paid these employees ? Mr /Stewart. We could take statistics for a short period upon which we could make an estimate. The .Chairman. On the doctrine of averages ? Mr. Stewart. Yes. EAILWAY MAIL PAY. 25 The Chairman. And it is easily ascertainable what the passenger rate per mile is over the United States ? Mr. Stewart. Yes. The Chairman. And a computation could then be readily made ? Mr. Stewart. Yes. Th^ Chairman. Would not that be a factor entering into this study. Mr. Stewart. It would be worth considering. But it should be borne in mind that the Government pays what you might call a rental for the car in which they travel and the department has always insisted that in paying for the rental of that car we have the right to put anything in it we please. Consequently the very interesting ques- tion is raised as to whether the railroad companies are entitled to a fare from these men, or any part of a fare from them or from the Gov- ernment representing them. The Chairman. Would it not have a bearing on the segregation of revenues and cost in the passenger traffic of the transportation com- panies and the apportionment of the percentage from both stand- points, on the railway mail ? Mr. Stewart. It might, if the whole matter were reduced to a question of space. The Chairman. That is what you suggest, is it not ? Mr. Stewart. Yes. The Chairman. So it would have a bearing on your suggestion ? Mr. Stewart. And yet, if we are going to go to the space basis, you must bear in mind that the amount of mail carried in the space is not material. The Chairman. In the calculations on which you base your space determination, do you figure any space occupied by the Government employees in the cars themselves ? Mr. Stewart. Only so far as it is necessary to handle the mails. Of course that is taken into consideration to some extent. The Chairman. Do all the employees ride in the postal cars ? Mr. Stewart. Not always; they do when they are on duty distrib- uting the mails. Under some conditions they are allowed to ride in the coach, but as a rule they ride in the cars. When they are dis- tributing mails they are always in the cars. The Chairman. From a governmental and an administrative standpoint, do you think it would be better to have whatever method of pay was determined upon cover the employees as well as the actual mail or to make a segregation ? Mr. Stewart. I would have the rate of pay cover all the service furnished without a segregation. The Chairman. It would minimize the possibility of dispute and irritation ? Mr. Stewart. Very much. Mr. Lloyd. Have you any method of determining or have you attempted to determine how much mail clerks and postal employees use the passenger coaches and Pullman cars ? Mr. Stewart. I think we could give you approximate figures on that. I think the occasions on which they use the coaches are very rare. Mr. Lloyd. Have you ever used or recommended a different kind of a card or any kind of a statement by the railroad company to indicate that the person was a postal employee traveling in a coach ? 26 HAIL WAY MAIL PAY. Mr. Stewart. Yes, sir. Mr. Lloyd. Have you had any returns from that ? Mr. Stewart. You mean for the purpose of getting statistics ? Mr. Lloyd. Yes. Mr. Stewart. No; I think not. What I supposed you meant was whether we recognized the right of the railway company to have issued a special card to the employees which would entitle them to ride in a coach. Mr. Lloyd. Yes; that is what I meant. Have you ever suggested the requiring of two kinds of cards, one which the railway-mail clerks would carry who work in a car and one which would be presented by the railway-mail clerks when they were not working in a car but rode in the passenger coaches ? Mr. Stewart. I think on some lines that is in operation now, although I am not entirely advised on that. The commission of the clerk, of course, entitles him to ride in a car always, and I think there are some lines that require us to issue a special card to be presented when they ride in a coach. Mr. Lloyd. Have you made any investigation to ascertain whether the complaint that is sometimes made that clerks take advantage of this car privilege to ride in coaches when they are not engaged in the business of the Government is well founded? Mr. Stewart. I have heard very, very few complaints of that kind. I do not think there is any abuse of that now. We are very strict ourselves and of course the Interstate Commerce Commission for- bids it and everybody understands that is a violation of law and I think there would be very little disposition to take any chance on it. Mr. Lloyd. Could you put in the record something of a compari- son as to the travel on business and travel in the mail cars ? Mr. Stewart. I will see what I can do along that line. I would like the record to show that we regard this travel in the coach as on duty — that is, they are traveling under the orders of the depart- ment. The department regards a postal clerk as being on duty when he is traveling to or from his home in connection with his work on a line — that is to say, when he leaves his home to take up his run at the head of the route, he is regarded as being on duty and traveling under the orders of the department. Likewise, when he finishes his tour of duty and returns to his home, using the rail- road, he is regarded as being on duty and being under the orders of the department. Mr. Lloyd. You have never made a sufficient investigation to ascertain what the railroad companies would receive if every employee in the postal department was required to pay a 2-cent fare, have you ? Mr. Stewart. Not outside of this data which I referred to as having been submitted by the companies during the month of November, 1909. I think we made an estimate on that. Mr. Lloyd. But you do not now remember what the amount was? Mr. Stewart. No. I can supply the record with that if it is avail- able. RAILWAY MAIL PAY. 27 The data reported by the companies as to the personal transportation of the Post Office Department employees for the month of November, 1909, was tabulated, and the result shows as follows: Miles traveled by departmental officials, inspectors, and railway postal clerks not actually in charge of the mails miles. . 4, 882, 545. 14 Value of same $97,650.89 Miles traveled by departmental employees actually in charge of the mails miles.. 6,915,448.80 Value of same $138,308.97 The department undertook to check the data reported by the companies in so far as it embraced the travel of officials and employees not actually in charge of mails for the same month, but as the information as regards railway postal clerks was secured in the summer of 1910 it is believed that it is not accurate in so far as they are concerned. The total of the miles traveled by officials and clerks for the month was 3,948,188.41. Mr. Lloyd. I would like to get that in the record, because I think that question is very material. Mr. Stewart. I will look up our figures on that. Mr. Tuttle. The privilege of using the passenger coaches has been withdrawn from a lot of clerks recently, has it not, by reason of those employed in the terminal offices ? Mr. Stewart. Yes, sir. That matter came about in this way: The practice has long been, in assigning railway postal clerks to posi- tions in transfer offices and also in the offices of the superintendent at their several headquarters, to appoint them to a line. Under the old law there was no other way of appointing a clerk, he had to be appointed to some railway post-office line and he was generally appointed to a line which ran into his station. That gave him the right of transportation to his home under the general practice of the department. He might live in the suburbs a short distance and the railroads would carry him in to and carry him out from his place of duty. Under the reclassification act, the law requires us to appoint these men to the offices, either a transfer office or to the division superintendent's office. We do not now appoint them to a line, so that, by reason of that change and the change in the department's practice, the appointment of these men to such offices no longer entitles them to transportation. Mr. Tuttle. That affects a large number of clerks ? Mr. Stewart. It affects a good many clerks who are in the division headquarters and also in the transfer offices in the large cities. Mr. Tuttle. You could not give an estimate of the number ? Mr. Stewart. I can place it in the record. There are about 1,500 clerks detailed to office duty as transfer clerks and as clerks in terminal post offices. Consequently, with the beginning of January of this year, all those commissions were withdrawn. We could not ask the railroad companies to carry these men any longer. The Chairman. In your study, as presented in Document 105, rec- ommending the substitution of space for weight, do you make any credit or allowance for these sixteen thousand and odd employees carried ? Mr. Stewart. Not specifically. The Chairman. Well, how do you allow for space in your compu- tation when your specific statement is to the effect that by the adop- tion of the plan suggested the pay to the railroads would be $9,000,000 less than the present pay ? Mr. Stewart. In that estimate no consideration was given to the item of the carriage of the Government employees specifically. If it 28 RAILWAY MAIL PAY. could be said to be included, it would be covered on the basis of space, the same as the transportation of the mails. The Chairman. What space did you allot in your computation to an individual ? Mr. Stewart. The space that was necessary for the working of mail in a postal car. We allowed the full space in working cars; the authorized space for the distribution of the mails. That space covers not only the mails that are in a car, but the clerk who works the mails, so that in that case it seems to me that the space for the clerk is allowed in the same manner that the space for the mails is allowed. The Chairman. I agree that it is immaterial whether it is mail or clerks that occupies the space, from your viewpoint, but I simply wanted to know whether that entered into your calculations in your conclusions and recommendations ? Mr. Stewart. No; it did not, specifically. The Chairman. Then, I do not see how you are justified in making the statement that there is a $9,000,000 difference in cost if, in your calculations on which that statement is based, you do not figure the space occupied by the individual. Mr. Stewart. Well, I think you misunderstood my last answer. I do estimate his value as occupying space, but not as a passenger — not his value as a mere passenger, aside from the other considerations. Mr. Lloyd. Is it the law that the postal employees shall be carried by the railroad companies, or is it regulation ? Mr. Stewart. It is the law that the companies shall carry the mails and the persons in charge of them. Mr. Lloyd. Is an inspector in charge of the mails ? Mr. Stewart. I am speaking now of the railway postal clerks. The inspector travels under a regulation of the department. Mr. Lloyd. That is what I was getting at. The clerk travels under the law and the postal employee other than the clerk under regulation ? Mr. Stewart. Travels by virtue of the authority of a regulation and the order of the Postmaster General. Mr. Lloyd. Did you, during the afternoon, give all the reasons that you think might be presented in favor of the space basis in the cor- roboration of Document No. 105 ? Mr. Stewart. I think I did, substantially. They are, very briefly, that the space basis seems to present a definite and scientific gauge of measuring the service and paying for the service rendered and received. It furnishes a means of definitely settling the question of the adequacy of the rates paid and putting an end to the endless controversy that is going on and always will go on, in my judgment, to the annoyance of the department, Congress, and the railroad com- panies themselves. It furnishes a sure means of properly and equitably distributing the railway mail pay so that every company will be properly paid for the service it renders and no company will furnish a service for less than the cost of carrying the mails. Those are the general points I have in mind. I notice since I was speaking this afternoon my attention has been called to a memorandum which I made in 1907 when the matter came up in the department. This memorandum is addressed to the Second Assistant Postmaster General, signed by myself as superintendent of the Division of Rail- way Adjustments, and contains excerpts from the reports of previous RAILWAY MAIL PAY. 29 commissions who have studied the question and all of whom have reported in favor of a space basis, and one recommends the basis for pay the same as it is recommended in document 105, a fact of which I was not consciously aware. That is, they believed the pay to the railroads should be the cost of the service and a fair per cent of that cost. They did not take into consideration this question of capitalization at all and I do not notice that any of these commis- sions have taken that into consideration. The Chaikmax. Would you like to put that into the record ? Mr. Stewaet. I think for the information of the commission I should like to append these excerpts as an exhibit; not that the department indorses everything in them, but I think it is valuable information. These commissions to whom I referred have analyzed the subject quite carefully, and they give many reasons for the space basis. (These excerpts are printed at the end of Mr. Stewart's testimony.) The Chairman. Will you be kind enough to state what, in your judgment, are the obstacles or reasonable objections that may be urged to the space basis ? Mr. Stewart. The principal obstacles that occur to me now, since the submission of document 105, and since our concession that it would be proper to consider capitalization in some form to some ex- tent, are the physical valuation of the property; the ascertainment of the reasonable part of the capitalization which should be consid- ered as associated with the mail service which should form the basis upon which to compute a fair return; and the ascertainment of what is a fair return, considering the fact that the railroads are performing a service for the Government and that they do receive intangible benefits from being in that relationship. Other obstacles are the administrative difficulties which would arise in the ascertain- ment of space, the authorization of it, the careful supervision and checking up to see that too much space was not authorized, and, of course, to do entire justice to the railroad companies. It can be depended upon that the railroad companies will look after their interest very sharply, of course, and the departmental officers would have to be faithful and careful and look after the interests of the Government. There of course will be continual controversy, but not to such an extent that the controversies can not be determined properly, I think, and I should say that honest, courageous, and fair officers of the department would not find those difficulties insuperable. I think in a general way those are the difficulties. Mr. Tttttle. Are the railroads compelled to accept the compensa- tion fixed by Congress, by law, and by department regulations ? Mr. Stewart. The courts have decided, wherever controversies have come before them involving the question of pay, that the relations between the railroad companies, other than the land-grant companies, and the United States, are relations of contract only. I think they have decided that mainly only because contract cases have been submitted to them. However, those are the decisions that are now on the books, and the effect of that is simply this: That a railroad company is not obliged to carry the mails unless it contracts to do so, but the courts have gone still further and said if they do carry the mails they are obliged to carry them on the terms named by the Post Office Department. The terms must not be in 49396—14 10 30 EAILWAY MAIL PAY. contravention of law, but the Postmaster General can make lower rates than the maximum provided by the law. Mr. Tuttle. Would the Government be justified in asking the railroads to carry the mails at cost, or at a loss ? Mr. Stewart. I do not think it would be justified in asking them to carry them at a loss, nor at cost. We have conceded that the other elements should be taken into consideration. The Chairman. Have you any question in your mind as to the constitutional right of Congress to compel the railroads to carry the mails, providing the rates are not confiscatory ? Mr. Stewart. Yes; stated just as you have given it. For instance, I do not think that Congress has the right to compel the railroads to perform a service if the railroads do not choose to do it, but I think Congress has ample power under the Constitution to regulate and establish post offices and post roads, and to provide for the carriage of mail on any railroad. The Chairman. At rates provided by Congress, provided those rates are not confiscatory? Mr. Stewart. Yes. But as to the right to compel a nonaided or nonland-grant railroad to perform a specific act, I doubt that. Congress has already made all railroads post roads. We make them post routes when we authorize the carriage of the mails over them. Congress has exercised Federal jurisdiction over the railroads, and it can provide for the carriage of mails on them by the agents, officers, or employees of the United States independently of the railroad companies, but I do not think it has the power to compel a railroad company to specifically perform mail service. However, if a rail- road has received a grant of lands or other rights from the Federal Government on condition that it shall carry the mails, a refusal to carry would in my opinion, lead to action to compel performance. The Chairman. How did you determine 6 per cent profit in your Document 105 as a fair profit on the cost of the activity of the rail- road? Mr. Stewart. That was suggested and adopted by the Post- master General as representing the usual fair return on investment. The Chairman. And yet, as I remember the testimony you have submitted, you thought one of the problems for determination and difficulty would be the arrival at what would be a fair compensa- tion for the capital charge. Why should one be more difficult of determination than the other? I do not mean that I concur indi- vidually as to whether 6 per cent would be the right basis if the plan was adopted or not, but I was trying to get your line of mental pro- cedure in coming to that conclusion and why the difficulty would present itself in one case and not in the other. Mr. Stewart. There would seem to be a distinction between the two cases. If a man lays out $100,000 in actual expenditure, he is certainly entitled to the current rate of interest; but if you are con- sidering the furnishing of a facility, as, for instance, a part of the capitalization of the road, you must take into consideration all the other conditions of the employment and relationship in estimating what rate of per cent should be allowed; for instance, it is quite an advantage to a railroad company to carry the United States mail. That is an intangible asset of great advantage. RAILWAY MAIL PAY. 31 The Chairman. Does not that apply to the cost of the activity as well as to the capital cost ? Mr. Stewart. I hardly think so. The Chairman. You would make a distinction ? Mr. Stewart. Yes; they are entitled to get their cost back — surely, with a fair rate of interest on that. The Chairman. Your explanation that you just gave applies with equal force to the capital charge as well as to the cost charge. Your original bill allowed 6 per cent on the cost of the operation itself. Mr. Stewart. Well, I make that distinction between the actual cost and the consideration of the capital charge. The Chairman. We are very much obliged, Mr. Stewart. [Extract from the "Minority report of the special commission on railroad mail transportation." 45th Cong., 1st sess., S. Misc. Doc. No. 14. Dec. 14, 1877. THE BASIS OP COMPENSATION. The weight of mail is ascertained by weighing it for 30 days in succession, and the daily average is used as the basis for calculating the compensation for the next four years. The weigher appointed by the Post Office Department weighs the mails at the beginning of the route; at each station he deducts and adds the weights of the mails delivered and received, and at the end of the trip forwards the weights to the department, where the average weight for the whole trip is calculated. This method is not only difficult, expensive, and complicated, but sometimes unjust, as the season selected for the weighing may be when the mails are the lightest or when they are the heaviest. Moreover, the mails are frequently changed from one route to another, and as the mail increases about 8 per cent a year, an average of 16 per cent more is carried than is paid for. The railroad is required to furnish maximum accommodation and is only paid for average weight, while the mails are invariably much heavier one way than the other, except upon the route between Boston and Washington. The outward bound mail from New York west is nearly seven times heavier than the return mail. This is caused by the additional weight of daily and weekly newspapers, periodicals, and merchandise sent from the eastern cities to all parts of the country. On many local roads the mail matter filling a car at starting will be almost all delivered before reaching the terminus, and will leave on the return trip with a light mail, gradually increasing to the starting place. If the mails were carried in bulk, and the railroad companies were required to furnish space for maxi- mum weight the whole trip, the average weight is not a fair basis upon which to estimate the compensation. The evidence annexed to this report proves that the mails are rarely carried in bulk; that one-quarter of the space occupied in the postal car would be sufficient for the same mail if carried in bulk; and therefore when the railroad companies are required to furnish and run a distributing office, space becomes essential to the department, and should be paid for. Weight is the proper basis for charges on freight trains, for each train usually carries one way as much freight and as many cars as the engine can draw. The weight of the paying and dead load are about equal; therefore, the average weight carried the train- mile and the expense being ascertained, the charges are based upon weight. Space is the proper basis for charges in passenger trains. Every passenger train could carry twice as many passengers as there are seats, and nearly five times the average actually carried. The paying load has therefore little relation to the dead weight. Therefore, the average number of passengers per train-mile, the length of the train, and the expense being ascertained, the charges should be based upon the linear feet occupied. If the mail was carried in bulk it would be necessary to ascertain the value of the space occupied by a given weight before the cost of carrying it could be determined; but when space is required for distributing as well as for carrying the mail, the cost can be fairly determined only by reference to the space required. On the Pennsylvania Railroad, where the mail in a single train will frequently weigh as much as the passengers and baggage, the mail could be carried in one car, while the passengers and baggage would require at least six cars; if the expenses were apportioned according to weight, the mail would pay as much as the passengers; if according to space, one-sixth as much as the passengers. 32 EAILWAY MAIL PAY. The railroad companies require, for the safety of their passengers, that the maximum weight for a car shall be determined by them. The department required that no more space shall be used than is necessary for working the mail. The tables furnished by the department, following page 171 of the first part of the report of evidence, show that on some routes more space is used than is required. On one route, 28,952 linear feet per mile per annum are in use, while the same table shows that only 15,024 feet are necessary. On another route in the same State 46,637 feet are in use, where only 31,300 are necessary. On another, 32,082 feet are in use, and only 11,268 necessary. The same table also shows that on other routes more space is required than is in use. On the route from Cincinnati to Indianapolis and Terre Haute 56,027 are now in use, where 81,380 are required. The space required on the same route is sometimes reduced, and again greatly increased, by transferring mails from one route to another; where a quick and fine distribution is made five or six clerks are required, while on another route one clerk would work the same amount of mail. It is therefore impos- sible to prescribe by law how much space should be allowed for a given weight of mail. The proper basis of compensation was considered by the Select Committee of the Senate on Transportation. In June, 1874, they recommended it to be based on space, the space required to be determined by the average weight of the mail. The basis for determining the cost of railway mail service has never been determined either by the cost or the value of the service rendered, and no equitable or satisfactory adjustment of the differences between the department and the railroads can be made until the cost of the service is ascertained upon principles regarded as just and equitable. We therefore recommend that space should be taken as the basis of compensation, the amount of space required to be regulated by the Postmaster General from time to time. RECAPITULATION. The principal duty of the commission was to decide the basis of compensation for the transportation of the mails by railroads and the compensation. On the transfer of the mails to the railroads, in 1837, they received the same com- pensation that has been paid to stagecoaches. The routes were classified according to the importance of the service, and the rates then established remained unchanged for over 30 years. The railroads were at first greatly overpaid, but by the increase of the mails in weight and bulk, and the space required by route agents on the trunk- lines the cost was increased until, about 1867, the trunk roads were as much under- paid as they were formerly overpaid. At their request the mails were weighed, a readjustment of the compensation was made in 1873, which increased the compen- sation to many roads. When the mail was carried in bulk, a gross sum for a given weight of mail carried each mile of road was a proper method for compensation. When a traveling post office was introduced, and the mail distributed in transit, another method was re- quired, but no change was made. The increase of the space used for the mail service on some of the roads has been very rapid. On one, where, in 1868. 32 feet a day was sufficient, ten times as many are now required. Since the introduction of postal cars there has never existed perfect harmony between the railroads and the department. The readjustment in 1873 would have satisfied the roads temporarily if the distribu- tion of newspapers in the postal cars had not commenced at that time, requiring a large amount of additional space, so that their compensation for each linear foot used was scarcely increased. The commission have endeavored to ascertain the cost of a linear foot of space per passenger- train-mile. They have obtained returns from representative roads of each section of the country, transacting three-quarters of all the railroad business of the country, and from these returns the commission have calculated the cost of an average passenger train per mile. These returns show that there are other elements affecting the cost more important than speed. They recommend that the basis for determining the compensation shall be space ; that the railroads shall receive the mails at the stations, transport, and deliver them at stations, and for this service shall be paid the cost and a fair profit thereon. ^ That to give a fair compensation 13 per cent should be deducted for station and other expenses, and to the remainder 45 per cent should be added to the expenses for profit. These sums will yield on the average 6.2 mills per linear foot, or nearly the same com- pensation, according to the cost of service, that the railroads receive from the remaining business on the passenger trains. That the Postmaster General shall from time to time ascertain the cost on the plan recommended, and what percentage should be added to give a fair profit. If any road EAILWAY MAIL PAY. 33 is overpaid, the Postmaster General shall refer the question to a tribunal to be ap- pointed, and any railroad may apply to the same tribunal if aggrieved by any act of the Postmaster General. Such tribunal shall have power to adjust the compensation in such cases and to award payment out of the appropriations annually made by Congress for the trans- portation of the mails. That the Postmaster General shall determine what space is required for a given amount of mail matter. The commission were required to report such rates of compensation as will enable the department to perform the postal service for the best interest of the public. This, they believe, can not be done by reducing appropriations and making the department self-sustaining, as has been proposed. Cheap postage in 1851 reduced the cost to the public, and greatly increased the volume of correspondence, while, at the same time, it reduced the revenue and increased the expenditures of the department. When the department was self-sustaining, a pound of mail matter, transported on an average 120 miles, cost 56.6 cents while the cost to the public was $1.17. Now it costs the de- department 16J cents to transport a pound on an average of 813 miles and the public 24 cents. Then the cost of transportation and office expenses was 93.6 cents per pound; now 29.4 cents. The fast mails which were in operation 10 months from September, 1875, proved to be of great value, not only to the terminal cities and the places on the line of the roads, but also to cities beyond the two termini. It makes little difference to the correspondent at Chicago or St. Louis whether he receives his letters at 8 or 10 o'clock in the morning, but by the same delay the connections of the mail for the Western States will be delayed from 12 to 24 hours. The establishment of limited mail trains between the East and the West is therefore recommended, with an extension and increase in the efficiency of the Railway Mail Service. Two- thirds of the letters and newspapers pass through postal cars, and are there distributed by the railway mail clerk. The introduction of postal cars and every improvement in and extension of the postal mail service is the result of cheap^ postage. For the present the expense of the department is increased by the additional facilities offered, and by the carriage of most pieces of the second and third class at less than cost, the volume of correspond- ence is increased. In this way "the best interests of the public " can be maintained, and when the whole country becomes as populous as New England, New York, and Pennsylvania the department will become once more self-sustaining. Some examination has been made in regard to the carriage of the mails on inland waters and the ocean and also of the star service. Data has been collected in regard to the river and the ocean service. Considerable thought has been given to the star service, and inquiries made of many different parties, but on account of the magnitude of the interests involved and the want of time to thoroughly consider the subject, they are unable to say when any report will be made. The whole contract system has come frequently before Congress and the department; many abuses have been corrected, to be followed by others worse, if anything, than the first. Large discretionary power is left to the Postmaster General and his subordinates, and although the department is at present wisely and economically administered and is a safe custodian of the funds placed in its charge, it is believed some plan should be devised for the reorganization of the star service and rules and regulations for its management established by Congress. RULES AND REGULATIONS. The following rules and regulations are recommended for the transportation of the mails on railroad routes: 1. That the basis for determining the compensation to railroads for transportation of the mails shall be space used, limited by the average weight of mails carried over the roads. 2. That the Postmaster General shall, from time to time, decide what space is required for the transportation of the average weight of mail upon any railroad route. 3. That the compensation for a car, or part of a car, used for the Railway Mail Service shall be a fixed sum for each linear foot used. Where the mails are carried in baggage cars, the linear feet of space actually occupied shall be paid for: Provided, however, That in no case shall less than 10 linear feet be paid for on any route; but this compensation shall cover the use of the car for a double daily service, where not more than 10 linear feet a day are required. 34 EAILWAY MAIL PAY. 4. That the Postmaster General shall, once in every four years, or oftener, ascertain the average cost of running a linear foot of passenger train on the plan herein recom- mended and what percentage should be added thereto to give a fair profit to the railroads. Until the cost shall be ascertained by the Postmaster General the com- pensation for each linear foot of car used for railway mail purposes running between terminals at a speed of — Mills. 23 miles per hour and under shall be 5. 82 24 miles per hour shall be 5. 87 25 miles per hour shall be 5. 92 26 miles per hour shall be 5. 97 27 miles per hour shall be 6.07 28 miles per hour shall be 6. 17 29 miles per hour shall be : 6. 27 30 miles per hour shall be 6. 37 31 miles per hour shall be 6. 52 32 miles per hour shall be 6. 67 33 miles per hour shall be .- 6. 82 34 miles per hour shall be 6. 97 35 miles per hour shall be 7. 12 5. That no postal car shall be loaded with more than 15,000 pounds of mail if ob- jected to by the carrying company. 6. That the department shall deliver the mails to the railroads and receive them at the stations or pay the railroads a reasonable compensation for such service. The railroads shall transport the mails and deliver them to connecting roads when required by the department: Provided, hoivever, That when the mails are carried in baggage cars they shall be in charge of the railroad company until delivered to the connecting roads, or to such persons as may be duly authorized by the department to receive them. 7. That the railroad companies performing the mail service shall be paid in the same manner as are all other creditors of the Government. 8. That the same compensation shall include the transportation of superintendents and officers of the Railway Mail Service, special agents of the department, and all railway mail employees, while engaged in their official duty or going to or returning from it. 9. That all cars used for the Railway Mail Service shall be of such style, length, and character and furnished in such manner as shall be required by the Postmaster General, and shall be fitted up, maintained, heated, and lighted by the railroad company. 10. That in all cases where there shall be any disagreement between the Postmaster General and the railroad company, in relation to the transportation of the mails, either party may have the matter referred to a commission to be appointed as Congress may determine. Said commission shall have the power to adjust the compensation of the railroad cases so referred and to award payment thereof out of the appropriations annually made for the transportation of the mails; and such awards shall be binding for the term of four years, unless the service shall be increased or diminished during said period. 11. That the Postmaster General shall deduct from the pay of the railroad com- panies for every failure to deliver a mail within its schedule time not less than the price of the trip, and where the trip is not performed not less than the price of two trips, and not exceeding, in either case, the price of three trips: Provided, however, That if the failure is caused by a connecting road, then only the connecting road shall be fined. And where such failure is caused by unavoidable casualty the Postmaster General may remit the fine. And he may make deductions and impose fines for other delinquencies. 12. That the Postmaster General shall have the power to decide upon what trains the mail shall be carried, and shall have power to direct the running of limited or special mail trains; and in such cases to prescribe when the trains shall start and arrive, and what connection they shall make. 13. That railway-mail employees be divided into five classes, with compensation varying with the amount of work required and length of time in the service. RAILWAY MAIL PAY. 35 {Extract from the "Report of the committee appointed to devise a more complete system of gauging the rates of pay for carrying the mails on railroad routes," Dec. 3, 1883.] THE BASIS OF COMPENSATION. Taking up the subject in the order indicated in the letter put forth by the com- mittee, we come first to the basis on which the rate of compensation should be deter- mined. The changed conditions of the service compel a different basis on which to estimate the rate of pay. The present system is cumbrous, and is gauged chiefly by the weight of the mails, which is not the only element to be considered. Since weight no longer enters as the chief factor in the determination of the require- ments of the service — space being the chief thing— weight becomes a modifying element only as it helps to determine what space will be required, fixing a definite limit to the amount of space to be used and paid for on all roads. The problem is therefore to determine approximately the amount of space required in every instance, and the value of it, applying to this required space the rate allowed, as deduced from some average space value, modified by the allowance for the rate of speed at which the mails are conveyed. Whilst the reasonableness of shifting the basis from weight to space is apparent, still a word of explanation may be necessary as to the part that weight is to play in the new scheme proposed by the committee. WEIGHT GAUGE. While it is proposed to pay for space, yet the amount of space and consequent expenditure on any railroad must be restricted by some method which in its operation will lie outside of the discretion of executive officers. Without some such restrictive gauge there would be no limit to the expenditures for transportation by railroads, save such as might be fixed at the will of an officer of the Post Office Department. Under such a condition of affairs it is evident that space itself would be an arbitrary basis of compensation, unsafe both for the railroads and for the Post Office Depart- ment. The gauge prescribed by the committee, resting upon the weight* of mails, modified by the room necessary in which to assort and distribute the same, and the speed with which they are conveyed, removes all possibility of improper or arbitrary allowances in determining the space and pay on any particular railroad. SPACE VALUE. It is evident that any scheme which bases pay on the amount of space used, esti- mating by linear feet, ought in fixing the rate per linear foot to be supported by some facts and figures showing the approximate value of car space in linear feet. The committee found some difficulty in obtaining information as accurate and widely distributed as they desired, but beg to present herewith tables showing the earnings per train -mile on almost all the railroads in the United States; also showing, as gathered from official reports of the roads and from the reports of the railroad commissioners of the several States, so far as they could be obtained, the yield per car-mile on all passenger traffic, including express, extra baggage, and mails. These tables will be found to furnish the data from which to estimate approximately the value of car space per linear foot per mile run. One statement shows the average yield per car per mile in six important^ States, as deduced from the commissioners' reports, to be 26.6 cents. This statement, in- volving a car service of over 600,000,000 miles, is full of significance in this connection. In the State of Pennsylvania there are 30 roads earning less than 26 cents per car- mile, and there are 20 roads earning more than 26 cents per car-mile. In the State of Michigan there are 9 roads earning less than 26 cents per car-mile, and 13 roads earning more than 26 cents per car-mile. In Ohio there are 38 roads earning less than 26 cents per car-mile, and 9 roads earning more than 26 cents per car-mile. In Massa- chusetts there are 10 roads earning less than 26 cents per car-mile, and 12 roads earning more than 26 cents per car-mile. On comparing statistics gathered from every quarter it will be found that the range of receipts from the running of passenger trains is between a minimum of 50 cents and a maximum of $3 per train-mile. An examination of the tables submitted will also reveal the fact that the wide difference apparently between the earnings per train-mile on the several roads prac- tically disappears when the receipts per car-mile are compared. And for this reason, that where the earnings per passenger-train mile are shown to reach toward the maximum, there the number of cars run in each train is correspondingly great, thus 36 RAILWAY MAIL PAY. bringing down the average earnings per car per mile run to nearly the same point in- dicated for each car on trains where the number of cars in each train is at the minimum, and the receipts per train-mile correspondingly small. The smaller earnings per train-mile will thus be seeen to correspond to the fewer cars in each train, the higher rate of earnings following an increase in the number of the cars. Thus it will be evident that the range of the earnings from the passenger cars per mile run must be between much narrower limits. The most careful estimates have been made, covering a wide field of statistics, applying to every railroad in the United States. As a result of this study of the whole field the committee are convinced that the average yield per passenger car (as ascer- tained by such a multiplicity of methods, each confirmatory of the other) can not be very far from 26 cents per car per mile run, the great majority of railroads yielding under 26 cents per car per mile. This careful analysis of the returns of all the railroads in the United States points to the conclusion that as the average yield per car per mile is about 26 cents, if the roads receive 5 mills per linear foot per mile run, or at the rate of 25 cents for a 50-foot car, at the ordinary speed of 20 miles per hour, they will be getting a rate corresponding closely to the returns from all passenger traffic combined, which on the face of it would seem to be both just and reasonable. And the committee feel constrained to make this further qualification, that the regularity and frequency of the service, the free- dom of the railroads from liability, the certainty of the compensation, the exemption of the carrier from those expenses ordinarily attending passenger traffic, all combine to strengthen the conviction in the minds of the committee that the rate herein rec- ommended is both just and reasonable. In the annexed correspondence will be found letters from the leading car builders showing that the minimum length of passenger cars is 45 feet, the maximum 54 feet; the sleeping and drawing-room cars reaching from 60 to 70. The express and baggage cars are built from 40 to 50 feet in length. The committee have ascertained that six of the principal States in which complete official returns are available show on passenger trains a car mileage of 646,348,821 miles, representing 180 companies, of which 41 com- panies performed 508,000,000 miles of the car service, or one-fifth of the companies doing four-fifths of the service, showing that the greater part of the service is performed on the great lines on which the longer cars are used. Upon this data the committee have accepted 50 feet as being a fair average of the length of the cars of all description on passenger trains. SPEED. On the general question of speed as a modifying element in making up the rate of pay, the committee would say that there has been no attempt to determine the rate of increase in cost to the railroads because of increased speed, since this is practically impossible. Yet it is absolutely certain that an increase of speed must be at an increase of cost to the road. By a well-known law in mechanics the increase in the amount of energy required, and the wear and tear resulting, is not directly proportional to the rate of increase in speed, but multiplies rapidly as the speed arises. This renders any nice adjustment on the score of speed very difficult. The chief thing to be taken into consideration in connection with speed is the greatly enhanced value of the service to the public. If one mail is carried 15 miles per hour and another mail is carried at the rate of 35 miles per hour, there ought to be a difference in the rate of pay, both because of the difference in the cost of the service to the roads, as well as the difference in the value of the service to the public. If the higher rates of speed were run only for the postal service, it would be desir- able to fix an exact rate, closely graduating pay to speed. But the demands of travel and competitions of traffic compel these higher rates of speed apart from the postal service. While not attempting, therefore, to closely estimate the value of speed in the service, the committee felt that any just and reasonable rate must include speed as a factor, and they further believe that the result of their recommendations, if they shall be adopted, will be to gradually inprove the service, the value of which as a whole depends to so great a degree upon the regularity and speed of each particular road. In fixing upon the amount to be allowed for different rates, as set forth fully in the final recommendations of the committee, they have been guided by several consider- ations, such as the previous experience of the department, the opinions of those speaking for the railroads, the testimony of experts, and the prompt recognition on the part of press and public of every attempt hitherto made to increase the value of the postal service through increased facilities. RAILWAY MAIL PAY. 37 It was deemed best that no notice be taken of speed as a factor modifying the rate of pay under 20 miles per hour, since all service under this rate of speed, however valuable it might be in itself, could not lay claim to special value on account of its speed. The committee would add one-tenth of a mill to the ordinary rate of 5 mills per linear foot per mile run on all railway post-office service for each 2 miles increase in speed between 20 and 30 miles per hour; and above 30 miles per hour one-tenth of a mill for each additional mile. This increase is not to apply to closed or pouch mails;. and speed in every case is to be estimated by the running time between terminals. SPECIAL TRAINS. The letter herewith submitted from the British post office explains one method of enhancing the value of the postal service, which in some of its phases might be appli- cable to the railway service in the United States. By act of Parliament the postmaster general of Great Britain has power to call upon any railway company to carry mails by trains run at such hours as he may direct, and at a speed not exceeding the speed of the company's first-class passenger trains, the stopping places and the duration of the stoppages being also under his control. For services of this class, where the hours of departure and arrival, places of stoppage and speed, are placed under the control of the postmaster general, high rates of payment are almost inevitable. The mails now going out of the great cities are of such volume and weight that it might be desirable to arrange for a similar service upon our lines between the great centers, where the postal facilities should be of the highest order. The weight at this time is so great as to make it a cumbersome element in the composition of passenger trains, and yet is hardly sufficient to warrant the payment for trains run exclusively for its transportation. The day is not far distant when such trains will be fully justified and actually necessary. At present the practicable thing is for the postal service, in connection with other items of transportation, to contribute its share in maintaining trains approaching as nearly as possible the same character of service. THE LAW OF COMPETITION. Since the railway postal service by the very nature of it is debarred from those- advantageous rates of which it might avail itself if competition were possible, it would seem but fair and natural that the laws which obtain in competition should also hold here, at least in part. One well-known authority on transportation, writing of governmental regulation of. railroad tariffs, says in reply to the question whether a railroad shall carry its freight and passengers for the same that other lines charge, or not carry them at all — "All that has to be known by the railroad manager to answer this question is the minimum cost at which the service can be performed. If the obtainable rate exceeds cost, no matter how little, it becomes his interest to accept the terms offered." * The application of this well-known principle in the operation of railroads, so far as the mails are concerned, would be, not to argue, in the absence of competition, that the mails should be carried as if under competition, at the smallest margin above cost, or at the minimum of profit, but rather to argue that the scheme of the committee should not be open to fatal objection simply because it did not reach the maximum of profit on comparison with other items of passenger traffic; in other words, as the Government could not, in justice, demand the railroads to carry the mails at rates so low as to be practically unremunerative, so neither could the railroads fairly demand the highest possible rate of compensation. The rate recommended by the committee would seem to be both just and reasonable, inasmuch as it is a mean between these extremes of an unremunerative and an extrava- gant rate of compensation. SIDE SERVICE. The committee think that the universal objection of the railroad companies to carrying the mails between stations and post offices is well grounded. The whole system is a relic of stagecoach methods, and justice to the roads, as well as perfection in the mail service, requires that the duty of the railroads with respect to the mails should cease on their delivery to some responsible person at the railway station. 1 Vide Albert Fink's pamphlet on "Cost of Railroad Transportation, Railroad Accounts, and Govern- mental Regulation of Railroad Tariffs." 38 KAIL WAY MAIL PAY. What provision shall be made for this service so as to relieve the railroads of it is a matter of detail for the department, not within the purview of this committee. We therefore unanimously recommend that this side service, which is no part of the legitimate work of the railroads, is prejudicial to the dignity and best interests of the service, leaving the mails frequently for an interval in the hands of trainmen whose first duty is elsewhere, abridging the facilities of the public, be no longer demanded of the railroads, unless specific compensation be given to them for performing it, although in the judgment of the committee this would not be the most economical method of supplying this service. The committee beg to submit herewith such statistical tables and statements pre- pared and used by them in reaching their conclusions as bear directly upon the text of the report, together with the correspondence in full. > A statement in detail of the cost and service on railroad routes is not given in this report for the reason that these items are given in full in the annual report of the Post- master General. RECOMMENDATIONS. The committee would, in conclusion, respectfully recommend as follows: (1) That the compensation to the railroads for carrying the mails shall be deter- mined upon the basis of the space used and the frequency and speed with which the mails are conveyed. (2) That the space factor shall be determined by the Postmaster General, in view of the needs of the service, modified by the weight and frequency of the mails; that the speed factor shall be determined by the schedules of the various railroads, in connec- tion with the official reports of the Railway Mail Service. (3) That the pay for all mail transportation shall hereafter be at a fixed rate per linear foot of car per mile run. This rate to cover the entire cost of the service, furniture, and fixtures in the car, transportation of postal clerks, etc. (4) That the Postmaster General may at any time order an increase or a reduction in the amount of space to be paid for if after a weighing it be found that there has been a sufficient increase or diminution in the amount of mails transported on any railroad to require the same. (5) The closed or pouch mails, now carried in express or baggage car, without postal clerks accompanying them, requiring no space for distribution en route, shall be paid for on the following basis, viz : The aggregate weight of the closed or pouch mails carried on any road on all trains for 24 hours shall be made the basis of pay, and this aggregate weight reduced to an equivalent in linear feet of car space in the following proportions: Two hundred pounds of mail or less shall be rated as the equivalent of 6 linear inches, to be paid for at the rate of 5 mills per linear foot per mile run. Five hundred pounds of mail shall be rated as 1 linear foot, and for each additional 500 pounds 1 linear foot of car space shall be allowed, with the proviso that the pay for transportation of mails upon any railroad route for six round trips per week shall not be less than $35 per mile per annum. (6) That the side service be discontinued. (7) That the pay for railway post offices, at a speed of 20 or less miles per hour between termini, be 5 mills per linear foot, inside measurement, of car space per mile run, and for each increase of speed amounting to 2 miles per hour up to and including 30 miles per hour, one-tenth of a mill; i. e., 22 miles per hour, 5.1 mills; 24 miles per hour, 5.2 mills; 26 miles per hour, 5.3 mills; 28 miles per hour, 5.4 mills; 30 miles per hour, 5.5 mills; and for each additional mile per hour, one-tenth of a mill. And it is further recommended that in the adjustment of space by linear feet for railway post offices a daily average of 500 pounds of mail or less shall be entitled to pay for space not to exceed 13 feet. From 500 to 1,000 pounds, space not to exceed 15 feet. From 1,000 to 2,000 pounds, space not to exceed 25 feet. From 2,000 to 4,000 pounds, space not to exceed 40 feet. And we recommend that no change in the allotment of space shall be made until the average weight reaches 6,000 pounds. For 6,000 pounds, 50 feet; for 8,000 pounds, 60 feet — the weight to be ascertained by a weighing of not less than 30 consecutive days; and no additional space shall be paid for unless it is found to be necessary. In all railway post offices the load should not exceed double the greatest weight specified for the respective lengths, and for any gross weight carried on two or more trains daily the space may be subdivided upon the gradients of space for lower weights, as the nature of the service may require, with the further provision that the Postmaster General may increase the compensation upon any railroad route not to exceed 50 per EAILWAY MAIL PAY. 39 cent per annum for special mail trains performing service upon schedules fixed by him. In all these estimates the minimum car width should be fixed at 8 feet 6 inches, inside, measurement. Respectfully submitted. Rich'd A. Elmer, W. B. Thompson, Isaac C. Slater, Committee. [Extract from the report of the joint commission to investigate the postal service, 1901, 56th Cong., 2d sess., H. R. Rept. No. 2284.J SPACE AS THE BASIS OF COMPENSATION. The commission has heard much testimony and suggestion as to whether the ad- justment of the compensation by weight (excluding for the moment railway post- office car compensation) is the fairest method. Many of those who have appeared before the commission strenuously contended that "space" occupied would be a very much better gauge by which to fix the compensation; that by this standard the service rendered would be more accurately ascertained and a schedule of rates fixed which would be fairer, to the railroads on the one hand and to the Government on the other, than is possible under the present system of adjusting the rates according to weight. (Printed testimony, Pt. I, pp. 217, 245, 252., 349, 403, 404, 496, 498, 530, 560, 607, 644, 672; Pt. II, pp. 27, 148, 160, 411.) The commission, while recognizing that the question of "space" must be con- sidered as having strong influence upon the question of the reasonableness of the present railway-mail pay, feels unwilling to recommend it as the controlling stand- ard by which the rates of compensation for the transportation of the mails shall be fixed, because of the impossibility, with the evidence before the commission, of applying the "space" basis of payment to the carriage of the mails. Others have contended that "space" and "speed" combined should be made the basis cf compensation, and others still that the basis of compensation should be "services rendered," so that the many services and facilities which are now furnished by the railroads incidentally and without pay should receive their due proportion of compensation. Some idea of the value and amount of these incidental services may be obtained from a single item appearing in the testimony of the Second Assistant Postmaster General (printed testimony, Pt. I, p. 401), where it is shown that out of 27,000 sta- tions supplied by messenger sendee 7,000 of them are supplied by the Post Office Department at a cost of between $1,000,000 and $1,100,000 per annum, leaving the other 20,000 stations to be supplied by and at the expense of the railroads. Attention is called especially to this item because it is so frequently referred to by witnesses, and also because the Post Office Department, through the reports of its chief officials, has so repeatedly disapproved of requiring the railroads to perform this service and recommended that they be relieved therefrom. (See also printed testimony, Pt. I, pp. 357, 399, 401, 611, 612.) * * * * # * * RAILWAY POST-OFFICE CARS. Until a comparatively short time prior to 1873 the distribution of the mails in transit was unknown. Prior to the late sixties the railroads simply transported the mails, which were delivered at the post offices and there distributed. Accordingly, "weight," as the basis of compensation, was at the time of its adoption and long there- after entirely adequate. For a few years, however, prior to 1873 the distribution of the mails in transit had been practiced to a sufficient extent to satisfy the Post Office Department and Con- gress that it was a desirable innovation and a branch of the postal service that should be very much enlarged; but it was recognized that if the railroads were not only to transport the mail itself but also to supply, equip, and haul post offices for the distribu- tion of the mails the compensation upon weight basis that had obtained up to that time was not entirely adequate and just, and therefore the law of 1873, as already indi- cated, contained a provision allowing additional compensation for railway post-office cars. At first these cars were mostly not exceeding 40 or 45 feet in length and of light construction similar to baggage and express cars. From the policy of the department, however, of constantly demanding better and better facilities from the railroads and the introduction of every improvement that could be discovered, it has come to pass that to-day the railroad post-office cars, with 40 EAILWAY MAIL PAY. the exception of a few obsolete ones that are being discontinued as rapidly as prac- ticable, are elaborate structures, weighing between 90,000 and 100,000 pounds (printed testimony, Pt. I, pp. 566 ; 601, 652); built as strongly and fitted up, so far as suitable to the purpose for which it is intended, as expensively as the best Pullman and parlor cars, costing from $5,200 to $6,500 (printed testimony, Pt. I, pp. 312, 370, 380, 674; Pt. II, pp. 72, 87); maintained at a cost of $2,000 per year (printed testimony, Pt. I, pp. 312, 370, 374, 602, 608-609); traveling on an average of 100,000 miles per annum (printed testimony, Pt. I, pp. 107, 242, 311, 370); provided with the very best appli- ances for light, heat, water, and other comforts and conveniences; placed in position for the use of the postal authorities from two and a half to seven hours before the departure of the train upon which they are to be hauled (printed testimony, Pt. I, pp. 611-612), and owing to the small space allowed in them for the actual transporta- tion of the- mails, accompanied on the denser lines by storage cars for which no addi- tional compensation is paid by the Government (printed testimony, Pt. I, pp. 275, 612) and that on the less dense lines the larger bulk of mails is carried in the baggage cars without additional compensation for the car. These cars are constructed and fitted up by the railroads in accordance with plans and specifications furnished by the department, and the amount of mail transported therein is determined exclusively by the postal authorities. From these two facts it results that the railroad must haul 100,000 pounds of car when the weight of the mail actually carried therein is only 3,500 to 5,000 pounds — often very much less and occasionally somewhat more. (Printed testimony, Pt. I, pp. 87, 317, 319; Pt. II, p. 79.) Taking in view all these facts, as disclosed by the testimony filed herewith, we are of opinion that the "prices paid * * * as compensation for the postal car serv- ice" are not excessive, and recommend that no reduction be made therein so long as the methods, conditions, and requirements of the postal service continue the same as at present. We are confirmed in this conclusion by the testimony bearing upon the question as to whether or not it is advisable for the Government to construct, maintain, and own the railway post-office cars. Without commenting at large upon the testimony intro- duced upon this subject, it suffices for the purposes of this report to say that, so far as the testimony discloses, it is highly improbable that the present compensation to the railroads for railway post-office cars exceeds in amount what the Government would have to pay under the new arrangements, and, furthermore, the expense to the Gov- ernment for the construction and maintenance of its own railway post-office cars would be very considerable, and the Post Office Department would be under the necessity of materially enlarging its present force and the scope of its operations. We do not, however, think that the evidence now before us is sufficient to warrant us in making any recommendation as to Government ownership of the railway post- office cars. The main report was signed by Hon. Edward O. Wolcott, chairman, and Hon. W. B. Allison. Hon. Thomas S. Martin concurred in the report with the exception of that which refers to "Special facilities." Hon. E. F. Loud concurred in the report so far as it relates to pay upon space. The subject of space as a basis he reports upon separately as follows: Space, in my opinion, should be the basis of pay, and I reach this conclusion from the fact, which must be apparent to everyone who has made a careful study of this question, that space is the principal and therefore should be the controlling factor. The testimony shows that the average weight of mail carried compared with the carrying capacity of the space used is as 1 to 20 and over, which of course renders the ratio of unknown factors or uncertainties to known factors or certainties as 1 to 20 and over. The carrying capacity of a given amount of space is easily ascertainable, and when obtained it would seem to be not a difficult task to find the carrying capacity of similar space either upon freight or passenger trains or both; or, to express myself in another way, on the basis of weight the unknown factors are as 20 to 1, while on the basis of space the known and unknown would seem to balance and the result more nearly scientific and mathematically more accurate. It may be urged, and it is the testimony of some, that under the space basis the tendency would be unduly to increase the space, hence increase the rate of pay beyond what would be fair and just. To admit this would, to my mind, be a conclusion that our executive officials are incompetent or corrupt and almost a conclusion that our form of government is a failure. Experience has taught me that our officials are honest, careful, and painstaking and competent. I believe that a larger degree of personal responsibility placed upon the officials would result in a more efficient and RAILWAY MAIL PAY. 41 economical administration, especially of this branch of our governmental affairs, which is a business branch wholly. And if this basis be adopted, Congress then as now would hold the purse strings and could appropriate for only so much space as it saw fit, after a careful investigation of the recommendations of the department and in their opinion the demands of the service required. Under the present system railway post-office cars, which I denominate space, are so small a factor of consideration in the total of mail pay that there is not the incentive to curtail space that there would naturally be where space was the whole or at least the controlling factor. Under the present system, especially on the light routes using railway post-office cars, each increasing pound of weight means increased com- pensation. On the basis of space no increase in compensation would result from any increase of weight until at least the maximum carrying capacity of the car had been reached. Or, to express it another way, it would require substantially the same space to distribute 4,000 pounds as 8,000 pounds of mail. It would remove the expen- sive and aggravating system of weighing which is now had upon each system once in four years. It would simplify the now complex mail system so that the average mind could comprehend the subject. There will be urged as one of the objections to this system that some of our service is pouch service and the space to be occupied is difficult of measurement. That is true, but payment for such service could easily be made upon the basis of average num- ber carried for a period of 30 days to fix the rate for 1 year. The law compelling railroad companies to deliver mail within the limit of 80 rods of station should be repealed, and the transportation of mails should be the simple question of transportation upon railroads. There is not sufficient testimony before the commission, in my opinion, to recom- mend what rate should be paid for given space, but the lack of such testimony results from the fact that the system of space payment was regarded generally by the com- mission as impracticable, and a proper investigation in that direction was not pursued. The report of Hon. W. H. Moody, in so far as it may relate to space, is as follows: Applying to these facts the fundamental law of transportation, that the cost per unit of transportation decreases as the density of the traffic increases, Mr. Adams declares that they indicate that there should have been decidedly greater fall of mail than in passenger or freight rates. He is led at once to the inquiry whether the rates upon the routes where there is the greatest concentration of mail are not excessive. The rule of transportation invoked is based upon the assumption that the increase of traffic permits the introduction of increased economy, notably the economy which results in so loading cars that the ratio of dead weight to paying freight is decreased. Yet this economy is precisely what our method of transporting mail denies to the railroads. Instead of permitting the mail cars, whether apartment or full postal cars, to be loaded to their full capacity, the Government demands that the cars shall be lightly loaded so that there may be ample space for sorting and distribution of mail en route. In other words, instead of a freight car, we exact a traveling post office. The modern GO-foot postal car weight from 80,000 to 100,000 pounds. It is clear that if but 2 tons of mail are carried upon it all the economies which result from density of traffic upon the route are lost. This is true, although the extra pay for running the postal car is about equal to the pay for a ton of mail. Mr. Adams recognizes clearly the effect of these facts working against the normal operation of the fundamental law of transportation under consideration. He is apparently of the opinion that if the facts are as they are claimed to be, namely, that on an average but 2 tons of mail are loaded on a postal car, and apartment cars are loaded in like proportion, the pay ought not to be reduced. Nevertheless, with this concession, he recommends a reduction of pay on the dense routes by extend- ing the principle of the existing law, so that all routes carrying in excess of 5,000 pounds per day shall be subjected to a progressive reduction of from 1 to 12 per cent. This would effect a saving of something over a million dollars per annum. It has been suggested that there is an inconsistency between the opinion and the recom- mendation. I am anxious not to misrepresent Mr. Adams's views and conscious that I may do so. But as I understand them there is no inconsistency. He makes the recommendation in spite of the opinion, because he is unwilling to accept without further inquiry the hypothesis in respect to the loading of cars which has been pressed upon us. He is also unwilling to accept without further inquiry the present method of loading as a finality. In both these respects I agree with him, and join in his opinion, so many times expressed, that further investigation is demanded. We all agree that the loading of the cars is the "principal question," to use Mr. Adams's expression. It is the one point of agreement between the representatives of the railroads, the post-office officials, 42 RAILWAY MAIL PAY. the members of the commission, and its expert. Yet it is the one question upon which there is no evidence beyond mere assertion. As a result of our deliberations over the voluminous evidence, I have arrived at the following conclusions: (1) The railway mail pay is not grossly excessive. (2) If the mail is loaded in the proportion of paying freight to dead weight, which is claimed, then it is not excessive at all. (3) There is an uncertainty as to the proportion of paying freight to dead weight, which should be removed by investigation. (4) An effort should be made to modify existing methods so that savings may be made without injustice to the carrier. These are some facts which tend to show that an effort to modify existing methods of transportation deserves a more minute consideration than a commission constituted as this can profitably give. Hon. T. C. Catchings concurred in Mr. Moody's report so far as the above is con- cerned. Hon. William H. Fleming made a separate report, but does not specifically dis- cuss space as a basis of compensation excepting in his general treatment of the subject of railway post-office car pay. STATEMENT OF MR. RALPH PETERS. The Chairman. Mr. Peters, it will be necessary for you to be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Will you kindly state your age, residence, and occupation ? Mr. Peters. Age, 59; residence, Garden City, N. Y.; occupation, president of the Long Island Railroad Co. The Chairman. Will you kindly explain for the information of the committee the official position that you occupy in reference to the association which you gentlemen represent in appearing before the committee this evening? Mr. Peters. I am also chairman of the committee on railway mail pay, which was appointed to collate information and look after the matter of the question of railway mail pay. At an informal meeting before one of the regular meetings of the American Railway Association in Chicago, the representatives of the railroads got to- gether and a statement was made in regard to the investigation that was taking place as to the cost of the handling of mails, and it was thought wise to appoint this committee. The Chairman. They represent practically what mileage ? Mr. Peters. There are 214,275 miles of road operated by 268 companies^ represented by the committee. The Chairman. What is the total railroad mileage, in round numbers, in the United States ? Mr. Peters. About 250,000 miles, or a little under that. The appointment of this committee resulted from the general dissatis- faction on the part of the railroads following the reductions in pay made in 1907, under the act of Congress making a general reduction in the rate of pay. At the same time a change in the divisor was made, making a double reduction. At that time the department had initiated the inquiry into the general subject of mail pay. Blanks had been sent out calling for elaborate data, and some railroad representatives who had heard of it and noted from the reports of the Postmaster General that an investigation was to take place, requested that they be given an opportunity to confer about it. KAILWAY MAIL PAY. 43 These representatives developed the fact that the data required could not be furnished in the manner proposed with any degree of accuracy and would be valueless, and on their advice the blanks were changed and the instructions changed and different blanks were sent out. That practically concurs with what General Stewart stated. That occurred in 1907, 1908, and the early part of 1909, prior to the time I was connected with the committee. The Chairman. You are familiar with the attitude of the depart- ment in the two suggested bills that have been submitted to the committee here, are you not ? Mr. Peters. With the first one; yes. I have only glanced over the second one and have not had time to study it to the extent that I should say I was familiar with it. I am familiar with the general scope of the bill. The Chairman. Assuming, for the sake of information before the committee, that the committee advocates the substitution of space for weight as the method of determination of railway mail pay and its apportionment among the different railroads of the country, will you kindly state for the information of the committee your views rel- ative to that suggested change and the views of the organizations that you officially represent here before the committee ? Mr. Peters. As General Stewart stated, the space basis for the pay- ment for the mails is not new. There were bills introduced in Con- gress in 1874 and 1876 by Senator Mitchell and Representative Stone providing for a system of pay on the basis of space. The Hubbard Commission, in 1878, likewise reported on the space basis and recom- mended it, but to be in proportion to the weight. The Elmer, Thomp- son, and Slater Commission, in 1883, recommended a space basis, but the space to be regulated by a gauge of weight or weight gauge. I believe the Wolcott and Loud committee, in 1901, reported on a space basis, but made no recommendation in regard to it. What we object to chiefly in the proposed bills is the plan to pay for the mails on the basis of cost and not so much space, space being used merely as a meas- ure for apportioning the cost between the different elements on the passenger trains. The Chairman. You think space would be just as good a yardstick as weight ? Mr. Peters. No; space is a useful measure for determining the relative distribution of service on passenger trains between the passenger, the express, and the mail traffic. By this measure of service a fairly reasonable comparison of the cost of a passenger train and its distribution between the passenger, the express, and the mail can be made, but for purposes of comparison only. This measure, however, does not represent all the service that is per- formed in completing the transportation for which each class of service pays. The passenger loads and unloads himself, but expen- sive station buildings, ticket offices, platforms, and other conven- iences and safeguards must be furnished for the passenger before the expense of movement on the train begins. In the case of express, other service has to be performed, but it is done by the express companies, except that the terminal tracks and stations are provided for the express traffic, separate as a rule from the great passenger terminals and ticket offices required for the passenger. 44 KAILWAY MAIL PAY. In the case of the mail, the distributing post offices must be fur- nished several hours in advance of their departure at the terminal stations for the mails to be worked. At junction and terminal points labor must be furnished for transferring the mails; at local stations messenger service must be provided for taking the mails to and from the post offices; mail cranes or catchers must be furnished and the mails placed upon same for the exchanges. In the case of special mail trains special schedules must be made for the departure of trains at hours that will best suit the forwarding of mails that have been gathered up in the great cities during the afternoon and evening. Track facilities, signals, and all other safe- guards must be provided to give these special mail trains quick and safe movement in preference over all other classes of traffic. Kesponsi- bility for the safety of the postal clerks and free transportation for inspectors and officers of the department can not be accurately meas- ured by space. In the case of special R. P. O. cars, or moving post offices, type of construction must conform to the requirements of the department by a special act of Congress providing special features and facilities for the safe and prompt assortment or distribution of the mails en route. All of these are points of service which can not be measured by space. In the same way we can consider the forwarding of single pouches or lock pouches on intermediate trains, constituting frequency of service, as another special feature that can not be measured by space, and yet is not fully covered by the measure of weight. On certain given trains the space can be, with reasonable accuracy, dis- tributed between the three kinds of service, but in the majority of cases the space fluctuates and varies with every train. This fluctua- tion makes it unsafe to adopt space as a measure for fixing the pay. Constant friction will arise over the disputes as regarding the space furnished, or the space used, or the space allotted for each train. Where such conditions exist there will be the possibility of manipulating the space, either in favor of or against the railroads or the Government, as the case may be. Granting that these difficulties might be overcome by some fixed rules of measurement, the rate of pay for the space must be made large enough to cover all the special facilities furnished outside of the train service proper. This rate for the space can not be based on cost, as it would result in practically 795 rates of pay for the 795 railroads with which the department now has contracts, making discriminations and varia- tions in the pay for a service that is universal, under universal regu- lations and conditions, making more opportunities for manipulation and unfair dealings between the department and the railroads. These varying rates would make it still more difficult for Congress to supervise with any degree of accuracy the expenditures for railway mail pay, and, above all, would make most difficult the preparation of the estimates for the appropriations necessary to cover the service. The fixed rate paid per annum for each mile of road, for the average weight carried per mile, with special compensation for the special facilities furnished, has for more than 40 years proven to be a fairly safe method of pay. Improve this by providing for an annual weigh- ing and providing payment for the apartment cars furnished as travel- ing post offices, as well as pay for the full R. P. O. cars, with relief RAILWAY MAIL PAY. 45 from the station messenger service, or proper payment therefor, will provide the safest and more nearly accurate basis for ascertaining the value as well as the measure of service. If space were adopted as the measure of service, the value being determined in some arbi- trary way, the cost of accurately measuring and checking up the space for 30 days each year would probably equal the cost of weighing and checking up the weights for the same length of time each year. It certainly would be necessary to take the weight of a large portion of mail in order to properly measure the space and to adjust the differ- ences in regard to the space furnished. It will certainly be necessary to check and measure the space provided at least once a year. It would not be fair to the Government nor to the railroads to put such power in the hands of any executive officer as the arbitrary allot- ment, in advance, of the space to be used on each train in each mail route during each year, thus determining in advance the amount he will pay for the fluctuating service. No fair comparison can be made with rates for other service on a basis of pay that is fixed by cost on the space measure. The Chairman. In practical railroad operations do the railroads in any case use space as a measure of service? Mr. Peters. I do not know of any. The Chairman. Is weight a measure? Mr. Peters. Weight is the measure, and yet in the classification by which the rates are fixed for different classes of freight the bulky articles are given a different rate or a different class, so that space may be said to be considered in articles of that kind. Carloads of buggies knocked down and crated would take a lower rate than a carload of buggies that were all set up on wheels or not altogether taken apart. The Chairman. But even where your space is the measure, weight is the determining factor as to the space used, is it not ? Mr. Peters. Yes, as to the space used. The Chairman. That is universal, is it, in transportation? Mr. Peters. That is universal, to the best of my knowledge and belief. I am not an expert on freight tariffs or classification. The Chairman. Do you concur in General Stewart's opinion, as expressed, that the substitution of space for weight as the measure of service rendered is more scientific ? Mr. Peters. I do not, for the reason of the objection I have just stated. The Chairman. And is not in use in any transportation, so far as you are aware? Mr. Peters. I do not know of any case, so far as I am aware. The Chairman. Where are the possibilities for favoritism or injustice by the substitution of space for weight, according to your mmd? Mr. Peters. Employees of the department will be zealous in making a record and without the knowledge or any information on the part of heads of departments, will endeavor to economize in the space. They will endeavor to report that only so much space can be used, or that so much space is necessary. There will be differences of opinion between the railroad officers reporting the ■space and those of the department. As I take it, in this case, the department through 49396—14 11 46 KAIL WAY MAIL PAY. its representatives is to assign that space themselves without confer- ence or consultation with the railroads. The Chairman. Necessarily the department's representative would have to determine what amount of space would be required, would he not ? Mr. Peters. That would depend on the amount of mail that was given for each run. That varies. There are days when we would have every foot of space and more taken up. There would be other days when there would not be 20 per cent of the load. Sunday, for instance, is a light mail day, and Monday; while Fridays and Satur- days are very heavy days. We have to provide extra space and extra facilities. The Chairman. Do you not have to do that under the present modus operandi ? Mr. Peters. We do now. The Chairman. So that the same objection would lie. But it is absolutely necessary, is it not, in the movement of the mails ? Mr. Peters. It is necessary in the movement of the mails to take care of them. I think the chief objection lies in the fact that you make a different rate of pay for each railroad, depending on its cost. The two or three railroads lying alongside of each other would have varying rates of pay, yet each road is entitled to have just as much compensation as any other for carrying the mails for the Gov- ernment. If one road is so fortunate, by its careful construction or careful management, or its good location, as to show a low cost of operation, it has to carry the mail at a very much lower rate than another road in the same territory that has a higher cost because of its bad location or its poor management. Each road is performing practically the same universal service and is entitled to the same gen- eral basis of pay. The Chairman. The present method is general, is it ? Mr. Peters. The present method, as I understand it, is general. I think sometimes, in parallel routes or competing routes, there are adjustments made by the department that the longer route takes the same pay as the shorter route. The Chairman. But in practice, you have a universal rate ? Mr. Peters. We have a universal rate in practice. The Chairman. And it is your contention that under the substitu- tion of space for weight it will be absolutely necessary to have a sep- arate rate for each one of the 795 railroads ? Mr. Peters. On the basis recommended by the department. The Chairman. Do the modified views of the department, as pre- sented in the bill suggested by the department to the committee, in which an allowance would be made on capital charges, modify your views at all in reference to your position to the substitution of space for weight, or is your opposition a fundamental one that the measure of space is impracticable and unfair ? Mr. Peters. Practically all of the members of our committee have opposed the space basis. They are all confident that it will make more difficulty and trouble than they have ever had before. The hardest part of Document 105 has been removed by the explanations of General Stewart. What we resented in that document and what made us feel so bitterly opposed to it was the fact that we were represented to the public as being overpaid for a service RAILWAY MAIL PAY. 47 where the compensation has been constantly reduced and more and more work placed upon the railroads. There has been nothing but reductions in pay for a number of years past, and we welcomed this investigation when it was started as presenting an opportunity to show that we were not overpaid. Consequently when the document came out with the statement that we were over- paid $9,000,000 it was very uncomfortable and very disappointing to everyone, although we knew positively that we were not overpaid. The difference as we make it by the allotment of space as used and not as allotted by the department from the records taken in 1909 makes a difference in favor of the railroads of something like $9,600,000 a year. The difference in the method of accounting would make a difference of approximately $5,000,000, although I have not those figures here, as we eliminated them from our final pamphlet for the reason that we did not want to go into too deep a discussion of the methods of cost assignment while the Interstate Commerce Commis- sion was investigating the question, but in a rough estimate it amounted to $ 5,000,000. Interest at 4 per cent on 1.78 per cent of the net capital investment of all the railroads would amount to $10,209,000. These fig- ures added together would show a difference in our favor of $24,809,000 per annum. Deduct from that the excess as assumed by the depart- ment in Document No. 105, $9,000,000; that would leave a net amount of $15,809,000 which we feel the railroads are actually underpaid to-day. The Chairman. You mean under the present system? Mr. Peters. Under the present system of four years weighing and no allowance for the apartment cars and no allowance for the very heavy station work and terminal work that we have to perform. That is the case to-day when we have taken on the parcel post with- out any provision whatever being made for giving us additional compensation. The Chairman. How could a provision be made before a determi- nation was reached as to what additional compensation you are entitled to % Mr. Peters. It might have been cared for by a provision for the annual weighing until you had reached a final determination of the question, and also with compensation for the apartment car. The Chairman. What has the parcel-post extension or the in- crease in your activity in fourth-class mail matter to do with pay on apartment cars, for which I understand your contention is you are underpaid, or not paid at all, as traveling post offices % Mr. Peters. There is a greater demand for apartment cars to-day than there was before. The Chairman. It is an accentuation ? Mr. Peters. An accentuation of the case, because they are required just as much, or even greater, for the parcels in the local territory as before. The Chairman. Let me ask you in that connection, if you had a special weighing early in the fall to determine what increased business was brought upon the transportation companies by the enlargement of the fourth-class mail matter through increase in weight limit and decrease in cost, would not that remedy the matter ? Mr. Peters. Only partly so. We would be carrying the parcels, or the increased weight, from the 1st of January until that time of 48 RAILWAY MAIL PAY. weighing, unless you do as we have suggested — adjust back from the 1st of July on the weights ascertained in October. You can give us a reasonable compensation for this increased weight adjusted from the 1st of July, with another weighing each following year, until you have finally settled the matter. I believe, after your final study of the question, that you will have a weighing over the entire country every year for about 30 or 35 days. I do not think the cost will exceed the cost of the long quadrennial weighing in each of the four weighing sections. I do not believe, after you have adjusted the matter of bringing all the roads to a change each year, that the annual increase will be very much more than the increase that now takes place as the result of bringing up the roads in each section every four years. I would like very much, if possible, to enter in the record merely as an exhibit a copy of our preliminary report on the inves- tigation of railway mail pay which gives that table showing the rela- tive revenue per 1,000 foot-miles. The Chairman. We will be very glad to have it inserted. Exhibit A. Preliminary Report op the Investigation and Recommendations op the Committee on Railway Mail Pay. historical. January 6, 1911. To the railways: The history of the handling of mail by railroads may be briefly summarized as follows: On July 7, 1838, Congress enacted the first law regulating the pay for carrying mail on railroads. This law provided that the pay should not exceed 25 per cent more than similar service would cost in stage coaches. Sy The Government was slow to make general use of the limited mileage of the times, and, as late as 1842, only 3,091 miles of the 4,026 miles of railroad in existence were utilized for mail service. By an act of March 3, 1845, the rates for mail pay were divided into three classes, paying, respectively, $300, $100, and $50 per mile per annum, and these rates, as fixed by the act of 1845, continued in effect until June 30, 1873. The developments leading up to the present high stage of efficiency in the Railway Mail Service are in the following order: The single pouch, with the carrier stopping at each post office to permit the .post- master to remove mail addressed to his station, and to deposit mail to be dispatched. The distributing post office, where central offices were established for accumulating the mail from surrounding stations, sorting, and classifying it for other distributing centers for final distribution. While this method served for many years, the delays incident to the distribution and the cost of the service resulted in an investigation being instituted in 1853, looking to some improvement in method. It was about this time the "distributing office on wheels," or the railway post-office car, was first suggested. Traveling agents. — In 1857 agents were dispatched with the mail to attend to its transfer from one route to another. This practice proved successful and resulted in a large reduction in the number of distributing offices. Distributing on trains. — Prior to 1862 no attempt had been made to distribute through mail en route. The postmaster at a large distributing and transfer point, desiring to distribute the mail in advance of its arrival at his station, sent clerks out on the line a short distance, who sorted the mail in an ordinary baggage or box car, performing the service previously performed after the arrival of the pouches at the distributing station. Later the railroad provided suitable accommodations in its cars and the service was made regular. From this small beginning grew the extensive Railway Mail Service as it is known to-day. Establishment of a graded schedule for transporting mails and post-office cars. — By the act of March 3, 1873, Congress fixed a schedule of mail pay based on weight, together with additional rates, based on space, for the movement of specially equipped cars KAILWAY MAIL PAY. 49 used for the distribution of mail en route. This same act provided for the weighing of mails as a basis of payment, weighings to be not less frequent than once in each four years. The Post Office Department has chosen to direct that the weighing shall be done every four years, thus adopting the maximum time allowed by law. REDUCTIONS IN PAY. The schedule adopted by the act of March 3, 1873, has not been changed since, except to reduce the pay as follows: (1) The act of July 12, 1876, reduced the rate of pay 10 per cent. (2) The act of June 17, 1878, made a further reduction of 5 per cent. (3) The act of March 2, 1907, further reduced the pay 5 per cent on all routes moving more than 5,000 pounds and not exceeding 48,000 pounds per day, and 10 per cent on all weights above 48,000 pounds per day. and also reduced the pay for space in railway post-office cars 16 per cent. These acts, together with the regulations of the Post Office Department, govern the payment for the service rendered by the railroads at the present time. Schedule of rates for mail transportation by railroads. The maximum compensation for general railroad mail service and for service over and-grant railroads is shown in the following table: 1 Pay per mile per annum. Intermediate weight war- Rates allow- ranting allow- ance of $1 per mile under the law of 1873 and the cus- tom of the de- partment, sub- ject to acts of Average weight of mails per day carried over Rates allow- able to land- whole length of route. Rates allow- able under grant rail- able under acts of July roads under act of Mar. 3, 1873. 12, 1876. and June 17, 1878. acts of July 12, 1876, and June 17, 187S. July 12, 1876, and June 17,. 1878. Pounds. 200 pounds $50.00 $42. 75 #34. 20 200 to 500 pounds 12 75.00 G4. 12 500 to 1,000 pounds 20 1,000 pounds 100.00 85.50 C8.40 1,000 to 1,500 pounds 20 1,500 pounds 125.00 106. 87 85.50 1,500 to 2,000 pounds 20 2,000 pounds 150. 00 128.25 102. 60 2,000 to 3,500 pounds 60 3,500 pounds 175.00 149. 62 119. 70 3,500 to 5,000 pounds GO 5,000 pounds 200. 00 171.00 136. 80 In excess of 5,000 pounds by act of Mar. 2, 1907, and act of May 12, 1910. See note. 2 1 From information issued by the Second Assistant Postmaster General, 1909. 2 Note. — For weight in excess of 5,000 pounds and less than 48,000 pounds the following rates: For each, 2,000 pounds §25 less 10 per cent and 5 per cent and 5 per cent, or $20.30, and for each additional 80 pounds $1 less 10 per cent and 5 per cent and 5 per cent, or $0.81, for nonland-grant routes: and on land- grant roads for each additional 2,000 pounds $25 less 10 per cent and 20 per cent and 5 per cent and 5 per cent, or $16.24; and for each additional 80 pounds $1 less 10 per cent and 20 per cent and 5 per cent and 5 per cent, or $0.04. On routes carrying more than 48,000 pounds: For the first 5,000 pounds at same rate as stated abr.vo, namely, $171; for the next 43,000 pounds the same rate as above provided, namely, $436. 17; for each addi- tional 2,000 pounds at the rate of $19.24, and for each additional 103.96 pounds $1: and on land-grant roads for the first 5,000 pounds the same rate as stated above, namely, $136.80, for the next 43,000 pounds the same rate as above provided, namely, $348.94; and for each additional 2,000 pounds at the rate of $15.39, and for each addtional 129.95 pounds $1. 50 KAIL WAY MAIL PAY. Railway post office car pay. Cars 40 feet in length Cars 45 feet in length Cars 50 feet in length Cars 55 feet or more in length Prior to July 1, 1907. $25.00 30.00 40.00 50.00 Subsequent to July 1, 1907. $25 per mile per annum. $27.50 per mile per annum. $32.50 per mile per annum. $40 per mile per annum. No pro rata compensation authorized for cars which are less than 40 feet in length. A full understanding of the pay schedules included in the act of 1873 is of vital importance in any consideration of the subject of mail pay, since the item of railway post office car pay recognized for the first time the factor of space as well as weight in determining the value of the service. Although this schedule has been in opera- tion for 37 years, during which period the service has been extended to cover prac- tically the entire railroad mileage of the country, nothing has been done to make this recognition adequate either by extending the payment to apartment cars or other- wise. THE CORTELYOU ORDER. In addition to the reductions caused by the several acts above mentioned, the Post Office Department, under date of March 2, 1907, issued Order No. 165, reading as follows: "That when the weight of mail is taken on railroad routes the whole number of days the mails are weighed shall be used as a divisor for obtaining the average weight per day." This order was superseded by Order No. 412, under date of June 7, 1907, reading as follows: "That when the weight of mail is taken on railroad routes the whole number of days included in the weighing period shall be used as a divisor for obtaining the aver- age weight per day." This arbitrary "change of divisor" further reduced the pay about 12 per cent. OTHER FACTS AND COMPARISONS. The department has also secured, through the cooperation of the railroads, many concessions under which the same service is given for less money or better and more expensive service for the same money. Starting as a mere incident, the handling of mails by the railroads has developed into a vast business. The improvement of the service, by the adoption of train sched- ules, which greatly expedite the mails, by the construction of stronger and more expensive railway post office cars, containing greatly enlarged facilities for assortment and distribution in transit, and equipped with modern lighting and heating arrange- ments, and the application of various improved devices for gathering and dispatching mails, etc., have been the result of the cooperation of the railroads with the Post Office Department. In return for this cooperation, the rate of compensation has been reduced approximately 33 per cent during the period of development, and at the present time the railroads are burdened with a business for which they are inade- quately compensated. In 1907 the railroads received $49,757,960 for the transportation of the mails, and, as a result of the reductions adopted in 1907, the pay for 1908 was $48,155,378, a de- crease of $1,602,582, notwithstanding the fact that the increased volume of the mails for 1908, as shown by the department's report, produced an increased revenue for 1908, over 1907, of $7,893,658. The report of the Postmaster General shows that the revenue of the department (and consequently the volume of mail handled) in 1910 increased $40,543,652 over that of 1907, and during the same period the increased cost of handling by the Post Office Department was $39,737,936, divided as follows: Salaries of post-office clerks increased over $11, 000, 000 Rural delivery service increased over 10, 000, 000 City delivery service increased over 8, 000, 000 Railway postal clerks increased over 4, 000, 000 Postmasters' salaries increased about 3, 000, 000 Miscellaneous increased about 3, 700, 000 KAILWAY MAIL PAY. 51 But not one cent of increase in payments to the railroads for the hauling and fur- nishing cars for the distribution of the vast increase in amount of mail carried, viz, over 22 per cent, and producing, as stated, over forty millions of revenue; in fact, the railroads were actually paid $352,760 less in 1910 than in 1907. Further analysis of the Postmaster General's report shows that in the last 10 years there was an increase of postal revenue of over 118 per cent, or $121,774,078. The proportion, however, of expenditures for railway mail pay in 1900 was 34 per cent, but was only 21 per cent in 1910, a decrease of 13 per cent. A feature not generally known or recognized is that the mere delivery of mail in cities and by rural carriers costs more than the entire transportation of mails by rail- roads, as shown by the following figures taken from the report of the Postmaster Gen- eral (p. 42) for the year ended June 30, 1910: Transportation of mail on railroads $44, 654, 515. 97 Railway postal car service 4, 686, 122. 27 Total pay to railroads 49, 340, 638. 24 Rural delivery 36, 844, 968. 61 City delivery 31, 683, 639. 42 Total for delivery 68, 528, 608. 03 Excess cost of delivery 19, 187, 969. 79 ORGANIZATION OF COMMITTEE ON RAILWAY MAIL PAY. The general dissatisfaction on the part of the railroads following the reductions in pay made in 1907 resulted in the Post Office Department initiating an inquiry into the general subject of railway mail. This inquiry was started in March, 1907, and blanks, calling for elaborate data, were prepared by the department and conferences with the railroads' representatives developed the fact that the data required could not be furnished with any degree of accuracy and would prove valueless to the department. After further consideration the inquiry was resumed by the department, and on September 28, 1909, other blanks were sent to certain railroads, requesting informa- tion covering certain routes. The data requested covered the service performed during November, 1909, on the basis of space occupied by the mails in cars of the railroad companies; the receipts and expenditures in detail; comparative statements of station expenses incurred on account of mail and express service, and the number and cost of the railway post office cars and apartment cars. For the purpose of securing uniformity in the basis of compilation, and to prevent misunderstanding relative to the method to be used, the committee on railway mail pay, representing 282 railroads, with 208,526 miles of line (see Exhibit A), was appointed October 12, 1909. After the committee was formed it called upon the Postmaster General to explain its object and to offer its cooperation with the department in securing the necessary information, and, among other things, suggested to the department that all railroads, instead of a few, be requested to furnish information for all mail routes, which sug- gestion was accepted. The committee on railway mail pay has carefully checked the information gathered for the Post Office Department, and from this and other information has compiled statistics which show that the railroads are carrying the mails for the Government on a lower basis of revenue per car foot-mile of space on passenger trains than is received for performing either passenger or express service. COMPARATIVE STATEMENTS. The final results of the tabulation and compilation of the statistics for the month of November, 1909, in condensed form, are as-follows: Summary of replies to Post Office Department's forms; 187 roads, 2,411 routes, 178,709.96 miles operated 52 RAILWAY MAIL PAY. Car foot-miles Percentage Revenue Percentage Average revemie per car foot-mile. . Average revenue per 1,000 foot-mile Ratio of foot-mile revenue Mail. 1,153,110,245 9. 32 $3, 721, 796! 04 7.08 $0. 003228 $3.23 100% Passenger. 9,902,370,150 80. 01 $43,738,722.85 83.26 $0.004417 $4.42 137% Express. 1,320,108,589 10.67 $5,075,221.53 9.66 $0.003855 $3.86 119% Total. 12,375,588,984 100. 00 $52, 535, 740. 42 100. 00 $0. 004245 $4.25 DEDUCTIONS FROM STATISTICS. This table represents 77 per cent of the railway mileage of the country, and shows that, on the space basis suggested by the Post Office Department, and for an equal space, or the same number of car foot-miles, for each class of service, the railroads are receiving from express companies 19 per cent more ($8,485,695 per annum) for carrying express matter than the Government pays them for carrying the mails, while the trans- portation of express is a much inferior and less expensive service; it also shows that railroads receive 37 per cent more ($16,524,744 per annum) for carrying passengers than the Government is paying them for carrying the mails. In other words, the railroads receive for carrying the mails, on the space basis selected by the Department only 84 per cent of what they receive for an equal amount of space used for express, and only 73 per cent of what they receive from passenger service on the same basis of space. Passenger service paid at the rate of 4.24 mills per car foot-mile. The average receipts for everything carried on passenger trains, except mails, are at the rate of 4.35 mills per car foot-mile. If the Government were to pay for the handling of mail on passenger trains the average rate of 4.35 mills per car foot-mile it would in the month of November, 1909, have paid over $5,000,000, instead of $3,721,796, or $60,000,000 per annum, instead of $44,660,000 to the roads reporting as above. The inadequacy of railway mail pay illustrated by the foregoing statement is based upon train transportation service alone, but the railroads are required to do more than this, viz, to carry the mail between post office and stations at about six-sevenths of the offices adjacent to railway stations, rendering an extra service, which is not a proper transportation function, which, as estimated by a Postmaster General, would cost the Post Office Department $4,393,000 annually if the Government employed contractors to do this work. The statistics here presented, on the basis adopted by the Post Office Department, showing the relative space occupied by mail and express, the revenue car foot-miles, etc., fully answer all criticism made in regard to the receipts for hauling express as compared with the receipts for hauling mail. On the car foot-mile basis, the railroads receive more from express than from the mails, and there is absolutely no similarity between the two kinds of traffic except that they are both hauled on passenger trains. The statements showing the car foot-mile revenue from express embrace only the railroad companies' receipts from the transportation of the express, and do not include the portion of revenue accruing to the express companies (except in the case of one or two railroads operating their own express service), and still the revenue per car foot- mile of express space pays more than the mail. OTHER BURDENS PLACED ON THE RAILROADS. There are many details of service in connection with the handling of the mails for which the railroad companies feel that they are not adequately compensated, among which may be stated briefly the following : All postal clerks when on duty in railway post-office cars and mail apartment cars are carried free in accordance with the law, which reads as follows: "Every railway company carrying the mail shall carry on any train which may run over its road, and without extra charge therefor, all mailable matter directed to be carried, thereon, with the person in charge of same." In addition, however, the postal clerks are transported free between the ends of their runs and their homes on the line of the railroad and the commissions which are issued by the Post Office Department to officers and special agents of the department, post- office inspectors, officers of the Railway Mail Service, etc., are honored transportation by the railroads; and this transportation, outside of the requirements of the law, amounts to over $1,000,000 per annum. As it has been frequently decided that they have the same status as passengers, the railroads are therefore under legal obligation to these post-office employees in case RAILWAY MAIL PAY. 53 of accident in the operation or management of their trains, and they receive no com- pensation whatever as an offset against this liability. The express companies assume such liability for their employees. Under the laws an allowance is made at a low rate for the handling of about 1,400 railway post-office cars, which are equipped with conveniences for assorting and handling the mails. There are, besides these cars, about 3,800 mail apartment cars with apartments similarly fitted with conveniences for the assorting and handling of mails for which absolutely no payment is made to the railroads further than the allowance for the weight of mail actually carried. The railroads therefore receive no more for a ton of mail carried in a specially arranged apartment occupying one -half of a car than they do when a similar amount of mail is loaded in a small space in one end of a regular baggage car. No allowance is made for frequency of service by railroads. A railroad carrying a ton of mail on one train receives exactly the same compensation as a road which dis- tributes a ton of mail by a considerable number of trains. No allowance is made for speed, the rate paid for mail being the same whether it is 10 or 20 hours in transit between given points. The railroads are also from time to time required to introduce new and expensive devices for exchanging mails at local stations and to reconstruct' their railway post- office cars. Under the system of weighing mail once in four years, as previously mentioned, and which weighing constitutes the basis of payment for the following four years, the railroads receive absolutely no pay whatever for the increased wi ight per year through- out the four-year period. With an estimated increase of 6 per cent per year, the railroads are carrying this increased weight of mail at their own expense, thus fur- nishing to the Government nearly $3,000,000 worth of service per annum without compensation. In order to provide some measure of relief, legislation should be enacted for the payment for apartment cars at the rate now applying to full railway post-office cars. The Post Office Department in selecting the space basis in its requests for informa- tion from the railroads has disclosed the fact that the space furnished for carrying and handling the mails is of as great importance as the actual weight of mail, and should be given consideration in the adjustment of the railway mail pay. While 90 per cent of the pay to the railways is for the weight of mail and only 10 per cent is for space, the actual necessities of the postal service, as met by the railway post-office cars and apartment cars, with the station service, including tracks, drive- ways, and other conveniences, place a burden upon the railroads very much greater than the actual cost of transporting the actual weight of mail carried. It has been estimated that about 85 per cent of the mails is now being carried in railway post office cars, or apartment cars; and in as much as the average weight carried in a full railway post office car is less than 6,000 pounds, it is obvious that the space furnished is used for the assorting and not for the mere transportation of mail matter. A case aptly illustrating this point has been noted where 58 railway post-office and storage cars (42 railway post office cars and 16 storage cars) are handled daily between two large and important cities, and carry only 192 tons of mail matter, an .average of 3.4 tons per car, yet the necessities of the department and the postal service demand this excessive space. The payment for this service on a weight basis can not possibly be compensatory. On the other hand, the Government would not be able to give the public its present service without such space for distributing the mails in transit. Weight is not the only thing to be considered; space must also be taken into account. The railroads should be relieved of the expense of handling mail between stations and post offices on short line routes. The mails should be weighed annually and the pay should be adjusted annually by the Postmaster General, who now has full authority to do so. REPORT OF THE WOLCOTT COMMISSION. The question of compensation to the railroads for carrying the mails has been under review before Congress at different times during the past 12 years. The sub- ject was exhaustively investigated by a joint commission of the Senate and House of Representatives in 1898 and 1899, which reached the following conclusions after full consideration and taking of a mass of testimony on all sides of the question: "Upon a careful consideration of all evidence and the statements and arguments submitted, and in view of all the services rendered by the railroads, we are of the opinion that the prices now paid to the railroad companies for the transportation of 54 KAIL WAY MAIL PAY. the mails are not excessive, and recommend that no reduction thereof be made at this time." (See Rept. 2284, House of Representatives, 56th Cong., 2d sees.) This commission also concluded as to the pay for railway post-office cars: "Taking in view all these facts as disclosed by the testimony filed herewith, we are of the opinion that the prices paid as compensation for the postal-car service are not excessive, and recommend that no reduction be made therein so long as the methods, conditions, and requirements of the postal service continue the same as at present." Notwithstanding these recommendations, great injustice has since been done the railroads by the many reductions made, both by acts of Congress and by the action of the department, without hearing or investigation and notwithstanding the very prompt cooperation of the railroads in extending the facilities of the service. RECOMMENDATIONS. The committee therefore urgently recommend and request: (1) That authority be given the Postmaster General to allow compensation for apart- ment cars. (2) That relief be given for performing messenger service between the railroad sta- tions and the post offices on short-line routes. (3) That adjustment be made annually of the weight of mail carried per day and payments made accordingly. Respectfully submitted. The committee on railway mail pay, J. Kruttschnitt, chairman, director of maintenance and operation, Union and Southern Pacific systems; Ralph Peters, vice chairman, president and general manager Long Island Railroad; Charles A. Wickersham. president and general man- ager, Western Railway of Alabama; W. W. Baldwin, vice president, Chicago, Burlington & Quincy Railroad; Frank Barr, vice president and general manager, Boston & Maine Railroad; W. W. Atterbury, fifth vice president, Pennsylvania Railroad; C. E. Schaff, vice presi- dent, New York Central lines; C. R. Gray, senior vice president, St. Louis & San Francisco Railroad. [Exhibit A.] List of railroads supporting the committee on railway mail pay. Mileage. Alabama Great Southern R. R 309 Arizona Eastern R. R 347 Arkansas Central R. R 42 Arkansas, Louisiana & Gulf Ry 62 Atchison, Topeka & Santa Fe Ry 5, 564 Atchison, Topeka & Santa Fe Ry . — Coast lines 1, 974 Grand Canyon Ry. Atlantic Coast Line R. R 4, 554 Charleston & Western Carolina Ry. Conway Coast & Western R. R. Baltimore & Ohio R. R 3,450 Baltimore & Ohio Southwestern R. R 985 Bangor & Aroostook R. R 628 Bellefonte Central R. R 27 Bessemer & Lake Erie R. R 209 Boston & Albany R. R 392 Boston & Maine R. R 2, 294 Buffalo, Rochester & Pittsburgh Ry 573 Carolina & Northwestern Ry 134 Carolina, Clinchfield & Ohio Ry 249 Cedar Rapids & Iowa City Ry 28 Central Indiana Ry 127 Central of Georgia Ry 1, 916 Central R. R. of New Jersey. 598 Central R. R. of Pennsylvania ^ 31 Central Vermont Ry 586 Chesapeake & Ohio Ry 1, 703 Chesapeake & Ohio Ry. of Indiana 285 RAILWAY MAIL PAY. 55 Mileage. Chester, Perryville & Ste. Genevieve Ry 99 Cape Girardeau & Chester R. R. Cape Girardeau & Thebes Bridge Terminal R. R. Saline Valley R. R. Chicago & Alton R. R 981 Chicago & Eastern Illinois R. R 966 Chicago & North Western Ry 7, 942 Pierre, Rapid City & Northwestern Ry. Wyoming & Northwestern Ry. Chicago & Western Indiana R. R 50 Belt Ry. of Chicago. Chicago, Burlington & Quincy R. R 8, 966 Chicago Great Western R. R 1, 496 Chicago, Indiana & Southern R. R 459 Indiana Harbor Belt R. R. Chicago, Indianapolis & Louisville Ry 578 Chicago, Milwaukee & St, Paul Ry . 7, 481 Chicago, Peoria & St. Louis Rv. of Illinois 235 Chicago, Rock Island & Gulf Ry 471 Chicago, Rock Island & Pacific Ry ; 7, 549 Cincinnati & Muskingum Valley R. R 149 Cincinnati, Hamilton & Dayton Ry. 1, 036 Cincinnati, New Orleans & Texas Pacific Ry 358 Harriman & Northeastern R. R. Cincinnati Northern R. R 205 Cleveland, Akron & Columbus Ry 194 Cleveland, Cincinnati, Chicago & St. Louis Ry 1, 848 Coal & Coke Ry 198 Colorado Midland Ry 338 Copper Range R. R 125 Cornwall & Lebanon R. R. 26 Cumberland & Pennsvlvania R. R 53 Cumberland Valley EL. R 162 Delaware & Hudson Co 780 Delaware, Lackawanna & Western R. R 957 Denver & Rio Grande R. R 2,778 Rio Grande Southern R. R. Denver, Northwestern & Pacific Ry 214 Duluth & Iron Range R. R 169 Duluth, Missabe & Northern Ry 298 Durham & Southern Ry 61 Eastern Ry. of New Mexico 559 Southern Kansas Ry. of Texas. El Paso & Southwestern system 843 Erie R. R 2, 400 Bath & Hammondsport R. R. New Jersey & New York R. R. New York, Susquehanna & Western R. R. Evansville & Terre Haute R. R 310 Evansville & Indianapolis R. R. Farmers Grain & Shipping Co.'s R. R 66 Fitzgerald, Ocilla & Broxton R. R 40 Flint River & Northeastern R. R 25 Florida Central R. R 48 Florida East Coast Ry 583 Fort Smith & Western R. R 259 St. Louis, El Reno & Western Ry. Fort Worth & Denver City Ry 710 Wichita Valley Ry. Galveston, Houston & Henderson R. R 50 Georgia & Florida Ry 297 Georgia R. R 303 Georgia Northern Ry . of Georgia 68 Georgia Southern & Florida Ry 395 Grand Rapids & Indiana Ry 588 Grand Trunk Ry 1, 159 Great Northern Ry 7,274 56 RAILWAY MAIL PAY. Mileage. Greenwich & Johnsonville Ry 31 Gulf & Ship Island R. R 307 Gulf, Colorado & Santa Fe Ry 1, 518 Hocking Valley Ry 342 Huntington & Broad Top Mountain R. R 71 Illinois Central R. R 6, 142 Indianapolis Southern R. R. Yazoo & Mississippi Valley R. R. International & Great Northern R. R 1, 106 Iowa Central Ry 583 Albia & Centerville Ry. Jamestown, Chautauqua & Lake Erie Ry 39 Kanawha & Michigan Ry 158 Kansas City, Clinton & Springfield Ry 155 Kansas City, Mexico & Orient Ry 510 Kansas City, Mexico & Orient Ry. of Texas. Kansas City Southern Ry 865 Arkansas Western Ry. Texarkana & Fort Smith Ry. Kansas Southwestern Ry ! . 61 Lake Shore & Michigan Southern Ry '. 2, 643 Dunkirk, Allegheny Valley & Pittsburgh R. R. Fort Wayne, Cincinnati & Louisville R. R. Lake Erie & Western R. R. Lake Erie, Alliance & Wheeling R. R. Northern Ohio Ry. Laramie, Hahns Peak & Pacific Ry 55 Las Vegas & Tonopah R. R 197 Lehigh & Hudson River Ry 99 Lehigh & New England R. R 135 Lehigh Valley R. R 1,385 Lexington & Eastern Ry 94 Long Island R. R 392 Louisville & Nashville R. R 4,590 Macon, Dublin & Savannah R. R 92 Maine Central R. R 932 Manistee & Grand Rapids R. R 72 Michigan Central R. R . 1,792 Minneapolis & St. Louis R. R.. 1,027 Minneapolis, Red Lake & Manitoba Ry 34 Minneapolis, St. Paul & Saulte Ste. Marie Ry 3,765 Mississippi Central R. R 164 Missouri & North Arkansas R. R 335 Missouri, Kansas & Texas Ry 2,852 Missouri, Kansas & Texas Ry. of Texas. Missouri Pacific Ry 7,236 St. Louis, Iron Mountain & Southern Ry. Mobile & Ohio R. R 1,206 Southern Railway in Mississippi. Montana, Wyoming & Southern R. R 31 Montour R. R 18 Pittsburgh & Moon Run R. R. Morgantown & Kingwood R. R 48 Munising Ry 160 Lake Superior & Ishpeming Ry. Marquette & Southeastern Ry. Muscatine North & South Ry 42 Nashville, Chattanooga & St. Louis Ry 1,230 Rome R. R. Western & Atlantic R. R. Natchez, Columbia & Mobile R. R 29 New Orleans & Northeastern R. R .' 509 Alabama & Vicksburg Ry . Vicksburg, Shreveport & Pacific Ry. New Orleans Great Northern R. R 233 New Orleans, Mobile & Chicago R. R 404 RAILWAY MAIL PAY 57 Mileage. New Orleans, Texas & Mexico R. R 305 Beaumont, Sour Lake & Western Ry. Orange & Northwestern R. R. New York & Ottawa Ry 128 New York, Auburn & Lansing R. R 35 New York & Hudson River R. R 3, 295 Fulton Chain Ry. Little Falls & Dolgeville R. R. Raquette Lake Ry. St. Lawrence & Adirondack Rv. Wallkill Valley R. R. West Shore R. R. New York, Chicago & St. Louis R. R 523 New York, Ontario & Western Ry 493 Norfolk & Western Ry 1, 951 Norfolk Southern R. R 602 Northampton & Bath R. R 7 Northern Pacific Ry 5, 698 Minnesota & International Ry. Northwestern Pacific R. R 408 Oregon Electric Ry 69 Oregon, Washington R. R. & Navigation Co 1, 561 Oregon Short Line R. R 1, 595 Otsego & Herkimer R. R .' 67 Pacific & Idaho Northern Ry 76 Pennsylvania Lines West of Pittsburgh 2, 756 Pennsylvania Co. Pitts.,* Cin., Chicago & St. Louis Ry. Pennsylvania R. R * 5, 316 Northern Central Ry. Phila., Bait. & Washington R. R. West Jersey & Seashore R. R. Peoria & Eastern Rv 338 Pere Marquette R. R 2, 328 Philadelphia & Reading Ry 1 490 Atlantic City R. R. Gettysburg & Harrisburg Ry. Perkiomen R. R. Phila., Newton & New York R. R. Stony Creek R. R. Williams Valley R. R. Pittsburgh & Lake Erie R. R 191 Pittsburgh. Shawmut & Northern R. R 240 Prescott & Northwestern R. R 105 Quincy, Omaha & Kansas City R. R 309 Iowa & St. Louis Ry. Richmond, Fredericksburg & Potomac R. R 120 Washington Southern Ry. Rutland R. R 415 St. Joseph & Grand Island Ry 268 St. Louis & Hannibal Ry 104 St. Louis & San Francisco R. R 5, 080 Fort Worth & Rio Grande Ry. Paris & Great Northern R. R. St. Louis, San Francisco & Texas Ry. St. Louis, Brownsville & Mexico Ry 456 St. Louis, Rocky Mountain & Pacific Ry 106 St. Louis Southwestern Ry .' 1, 415 Eastern Texas R. R. Paragould Southeastern Ry. Pine Bluff Arkansas River Ry. St. Louis Southwestern Ry. of Texas. San Antonio & Aransas Pass Ry 724 San Pedro, Los Angeles & Salt Lake R. R 983 Sante Fe, Prescott & Phoenix Ry 364 Seaboard Air Line Ry 3, 028 58 BAIL WAY MAIL PAY. Mileage. Sierra Ry. of California 76 Somerset Ry 94 Southern Indiana Ry 320 Chicago Southern Ry. Southern Pacific Co 6, 240 Sunset R. R. Sunset Western Ry. Southern Ry 7, 235 Augusta Southern R. R. Knoxville & Augusta R. R. Knoxville & Bristol Ry. Northern Alabama Ry. Tennessee & Carolina Southern Ry. South Georgia-West Coast Ry 77 Spokane & Inland Empire R. R 184 Spokane, Portland & Seattle Ry 516 Astoria & Columbia River R. R. Staten Island Rapid Transit Ry 29 Sunset Central Lines 3, 384 Galveston, Harrisburg & San Antonio Ry. Houston & Shreveport R. R. Houston & Texas Central R. R. Houston, East & West Texas Ry. Iberia & Vermillion R. R. Louisiana Western R. R. Morgan's Louisiana & Texas R. R. Texas & New Orleans R. R. Tennessee Central R. R 294 Texas & Pacific Ry ] , 885 Toledo & Ohio Central Ry 482 Zanesville & Western Ry. Toledo, Peoria & Western Ry 248 Toledo, St. Louis & Western R. R 451 Tonopah & Goldfield R. R 107 Trinity & Brazos Valley Ry 459 Ulster & Delaware R. R 129 Union Pacific R. R 3, 473 Vandalia R. R 827 Virginia & Southwestern Ry 242 Virginian Ry 474 Wabash, Chester & Western R. R 65 Wabash R. R 2, 515 Wadley Southern Ry 90 Washington County R. R 139 Western Alleghany R. R 44 Western Maryland Ry 576 George's Creek & Cumberland R. R. Western Ry . of Alabama 225 Atlanta & West Point R. R. Wheeling & Lake Erie R. R 543 Wabash Pittsburgh Terminal Ry. West Side Belt R. R. Williamsport & North Branch R. R 56 Eagles Mere R. R. Wisconsin Northern R. R 43 Total (282 roads) 208, 526 Mr. Peters. You already have our published pamphlet on the railways being underpaid, and that is in the record. I have here now our principal brief, that goes more into detail in the discussion of all these matters. I wouM like also to add this as a matter of record. The Chairman. We will be very glad to put it in the record. RAILWAY MAIL pay. 59 Exhibit B. An Examination and Analysis of the Postmaster General'j Proposals Con- cerning Railway Mail Pay, Prepared Under the Supervision of the Com- mittee on Railway Mail Pay, by H. T. Newcomb, Statistician. COMMITTEE ON RAILWAY MAIL PAY. November, 1909. J. Kruttschnitt (chairman), vice president and director of maintenance and opera- tion, Union and Southern Pacific Systems. Lucius Tuttle, president Boston & Maine Railroad. Ralph Peters, president and general manager, Long Island Railroad. C. A. Wickersham, president and general manager, Atlanta & West Point Railroad and Western Railway of Alabama. W. W. Baldwin, vice president, Chicago, Burlington & Quincy Railroad. W. F. Allen, secretary. December, 1912. Ralph Peters (chairman), president, Long Island Railroad. C. A. Wickersham, president and general manager, Atlanta & West Point Railroad and Western Railway of Alabama. W. W. Baldwin, vice president, Chicago, Burlington & Quincy Railroad. W. W. Atterbury, vice president, Pennsylvania Railroad. Geo. T. Nicholson, vice president, Atchison, Topeka & Santa Fe Railway. E. J. Pearson, first vice president, Missouri Pacific Railway. E. G. Buckland, vice president, New York, New Haven & Hartford Railroad. C. F. Daly, vice president, New York Central Lines. W. A. Worthington, assistant director of maintenance and operation, Union and Southern Pacific Systems. W. F. Allen, secretary. Subcommittee of mail experts. E. T. Postlethwaite, assistant to president, Pennsylvania Railroad. S. C, Scott, assistant to the first vice president, Pennsylvania Lines West of Pitts- burgh. A. H. Rowan, assistant to the vice president, traffic department, Aew York Central Lines. H. P. Thrall, mail traffic manager, Union Pacific Railroad. J. P. Lindsay, manager mail traffic, Santa Fe System. H. E. Mack, manager mail traffic, Missouri Pacific Railway. V. J. Bradley, general supervisor mail traffic, Pennsylvania Railroad. W. W. Safford, general mail and express agent. Seaboard Air Line Railway H. M. Wade, supervisor of mails, Erie Railroad. THE MODIFIED EDITION OF DOCUMENT NO. 105. There are now extant two editions of Document No. 105. All the figures in the pam- phlet to which these pages are annexed are from the first and all references are to the same edition. The second or modified edition, published since this pamphlet was put in type, changes many of the figures in the original edition, but contains no ref- erence to the fact that it is a second edition or any intimation that any of the data have been modified. It is known, however, that the modifications were made necessary by attention which had been directed to numerous and serious errors in the first edition . The appearance and paging of both editions are identical, and the only way to dis- tinguish one from the other, except by comparing the figures, is to note that on the unnumbered page opposite the table of contents the first edition contains the seal of the Government Printing Office, while in the second edition the corresponding space is occupied by a copy of the resolution of the House of Representatives of March 26, 1912, authorizing the printing of 2,000 copies for the use of the House Committee on the Post Office and Post Roads. In order to avoid confusion, on account of the dissimilar figures in these publications which bear the same title and an appearance of identity, it is necessary to call atten- tion to some of the more important changes and to their effect upon the calculations in the annexed pamphlet. 60 KAILWAY MAIL PAY. As fully demonstrated in this pamphlet, the controlling figure in the Postmaster General's calculations is that representing the percentage of the total car-foot mileage of passenger trains which he credited to the mail service. In the first edition this was stated as 7.16 per cent (Doc. No. 105, p. 59); in the same place in the modified edition 7.18 per cent appears. Other changes on page 59 of Document No. 105 are as follows: Service. Mail Express ng( Total Car-foot mileage. First edition. Second edition. Increase 926,164,458.83 1,379,315,759.65 10,634,749,746.71 12,940,229,965.19 932,371,285.37 1,379,396,873.05 10,676,112,464.36 12,987,880,622.78 6,206,826.54 81,113.40 41,362,717.65 47,650,657.59 Examining the details of the table the totals of which were changed as above in- dicated (Table 3, pp. 38-59) it is found that the changes relate to but two systems and that the addition of 6,206,826.54 to car-foot mileage made in the mail service is the sum of 500,749.20 car-foot miles added to the Atchison, Topeka & Santa Fe System (Doc. No. 105, p. 39) and of 5,706,077.34 miles added to the Pennsylvania System (Doc. No. 105, pp. 51-53). The latter item includes additions to the car-foot mileage of four of the lines of the system, as follows: Pennsylvania Co., 1,075,046.85; Philadelphia, Baltimore & Washington, 58,512.60; Pittsburgh, Cincinnati, Chicago & St. Louis, 3,170,586.08; Vandalia, 1,401,931.81. The following changes, among others, appear in the totals of Table 7 (Doc. No. 105, pp. 280-281). Expenses for November, 1909. First, edition. Second edition. rncrcase. $7,198,452.91 2, 676, 503. 75 $7,206,270.16 2,682,797.92 $7,817.25 6, 291. 17 The further scrutiny of this table (Doc. No. 105, pp. 272-281) shows that the addition in taxes was to the amount stated for the Louisville & Nashville Railroad (p. 274) and that the changes in the expenses assigned to the mail service included the effect of this addition and of the changes in the car-foot mileage of the Atchison, Topeka & Santa Fe (p. 272) and of the various companies of the Pennsylvania System (p. 276). Whoever wishes to check all the changes made by the new edition will be able to do so by referring to the pages indicated below: Changes affecting— Pages (both editions). Atchison, Topeka & Santa Fe Louisville & Nashville Pp.rmsylvarn'a C,n. . . . , 38, 39, 60, 177, 263, 272, 273. 274, 275. 50, 51, 63, 191, 260, 261, 276, 277. Pennsylvania R. R Philadelphia, Baltimore & Washington 191, 259, 276, 277. 52, 53, 63, 191, 259, 276, 277. Pittsburgh, Cincinnati, Chicago & St. Louis 52, 53, 63, 191, 193, 261, 276, 277. Vandalia 52, 53, 63, 193, 263, 276, 277. Totals and averages 58, 59, 65, 196, 197, 266, 267, 269, 270, 280, 281. The fact that the important changes which have thus necessitated a revision of document No. 105 relate to only three systems suggests that an equally careful check- ing of the data reported for all other systems would require still more numerous and radical modifications in the Postmaster General's figures. This is especially evident when it is understood that the changes so far made have been in recognition of errors brought to the attention of the Post Office Department by the railways directly affected. Few railways have attempted the arduous task of examining the long and complicated computations of the department in order to detect specific errors. As already noted, the figures and quotations from Document No. 105 in this pamphlet are from the first edition. Some changes would be necessary in order to substitute the KAILWAY MAIL PAY. 61 figures of the new edition, and the result would not be wholly satisfactory, as both editions are in circulation, and, there being no plainly distinguishing mark on either, whoever uses a copy of either is likely to regard it as the authoritative and definitive issue. The following table indicates the more important changes that would be nec- essary to base the annexed pamphlet upon the second, instead of the first, edition of Document No. 105: Page. Line (if in text). Column (if in table). Instead of— To agree with the second edi- tion of Docu- ment No. 105, there should be— 9 10,13 13-14 14,19 3 6 $2,676,503.75 $2,837,093.98 21.36 $2,676,503.75 14.99 10, 634, 749, 747 1,379,315,759 926, 164, 459 12,940,229,965 82.18 10.66 7.16 732,379,597 59,207,170 564,640,981 6.89 4.29 $4. 36 226,945,786 24.50 54,544 7,074 4,750 66,368 866 313 1,703 2,882 1.59 4.42 35.85 4.34 550,727,960 14,966,609 565,694,569 17,494,235 35,261,514 681,670,711 15, 789, 764 20,223,120 46,011,932 47.44 3G. 45 6.32 80. 79 2.20 82. 99 11.84 5.17 210,320,652 21.28 23,288,845.22 24,054,604.27 10,908,799.55 778,197,633.71 5,458,291.78 8,328,919.73 3,918,612.45 210,326,652.31 18.99 25. 72 26.43 21.28 $97,186.52 5.17 $62,380.54 $2,673,503.75 $3,878,431.75 $2,676,503.75 $1,189,705.92 $2,682,797.92 $2,843,765.80 21.18 9 9 20 $2,682,797.92 14.95 20 29 2 2 2 2 3 3 3 6 6 6 7 7 8 9 2 2 2 2 4 4 4 4 5 5 5 5 3 3 3 3 3 3 6 6 6 9 9 9 9 9 10,676,112,464 1,379,396,873 932,371,285 12,987,880,622 82.20 29 29 29 29 29 10.62 29 7.18 29 773, 742, 314 29 59, 238, 284 29 612,291,638 29 7.25 29 4.30 29 $4.71 29 220, 738, 960 23.67 29 30 54, 755 7,075 4,782 30 30 30 66, 612 655 30 312 1,671 30 2,638 1.20 30 4.41 8,21 34.94 30 3.96 585,923,233 15,317,133 601,240,367 17,994,984 35, 762, 263 717,717,258 15, 289, 015 19,722,367 31 31 31 31 9,965,385 45.94 31 35.55 31 . 1.37 81.64 31 2.13 ' 83.77 31 11.25 4.98 32 12 13 204,079,088 20.71 32A 3 3 3 3 4 4 4 4 5 5 5 5 24,363,892.07 27,225,190.35 32 A 12,310,731.36 32 A 783.845,198.45 32 A 4,383,244.93 5,158,333.65 32A 2, 516, 680. 64 204,679,087.57 32A 15. 25 15.93 32 A 16.97 20.71 36 24,33 29,30,31 36 33 19 $93,614.87 4.98 36 $65,952.19 $2, 682, 797. 92 38 $3,887,725.92 $2,682,797.02 47 $1,192,503.67 49396— 14- -12 62 RAILWAY MAIL PAY. Pape. Line (if in text). Column (if in table). Instead of— To agree w ith the second edi- tion of Docu- ment No. 105, there should be— 47 19 19 20 $3, 866, 209. 67 $258,430.54 $3,101,238.48 7.16 $7. 16 .70 $5,812,277.49 430,941,968.10 364,033,119.64 795,578,087.74 84. 01 $4,008,643.06 $3,875,301.59 $267, 528. 46 47 47 $3,210,341.52 7.18 80 2 2 80 16,25,27 8 8 ' $7.18 81 .78 81 •2 2 2 $5,905,232.16 431,210,071.03 304,370,259.04 795,580,930.07 84.50 83 83 83 83 11,16 17 83... $4,003,431.49 An Examination and Analysis of the Postmaster General's Proposals Con- cerning Railway Mail Pay. introduction. Tins examination and analysis of the recommendation and argument concerning railway-mail pay made by the Postmaster General and printed as Document No. 105 of the Sixty-second Congress, first session, deals with a proposal to reduce the annual revenues of the railways by the sum of $9,000,000, which (capitalized at 5 per cent) would equal a reduction of $180,000,000 in the value of their property. This reduc- tion the Postmaster General proposes to accomplish by a diminution of mail pay without any compensatory reduction in the services and facilities demanded by the Post Office Department, and in a manner not enabling railway economies in any degree offsetting the loss of gross receipts. The extent and nature of this proposed reduction and the exceedingly large num- ber of errors and omissions in Document No. 105 to which it will be necessary to call attention are deemed fully to warrant the length of the paper. Especial attention is invited to the following errors which, among others, are found in Document No. 105: First. All the Postmaster General's calculations and conclusions rest upon data tor the single month of November, 1909, a month in which passenger traffic and ex- penses were relatively very light and freight traffic and expenses were relatively very heavy. (See pp. 43-50.) Second. The Postmaster General wholly ignored the necessity (industrial as well as constitutional) of a reasonable return upon railway investments, equitably pro- portioned to the fair value of railway property, and that this is an inevitable part of the cost of railway transportation, confining his attention to operating expenses and taxes, which make up only a part of the real cost. (See pp. 35-43.) Third. The Postmaster General apportioned joint expenses between the passenger and freight services in accordance with a method that does not give the full, real cost of the passenger-train services. (See pp. 33-35.) Fourth. The Postmaster General ignored important services and facilities rendered and supplied by the railways, such as station facilities and terminal services and the transportation of postal employees not accompanying the mails, and ignored the actual and direct expenditures of the railways for these purposes. (See pp. 9-18.) Fifth. The Postmaster General misconceived the nature of working space and temporarily unused space in cars carrying mail and not only refused to regard such space as required by the postal service, but actually added it to the passenger space. (See pp. 19-33.) All the foregoing errors and many others demonstrated and discussed in the follow- ing pages had the effect, separately and cumulatively, of making the Postmaster General's estimates of the cost to the railways of the mail services and facilities they supply too low. RAILWAY MAIL PAY. 63 I. THE POSTMASTER GENERAL'S RECOMMENDATION BRIEFLY STATED. The Postmaster General's letter to the Speaker of the House of Representatives, printed under date of August 12, 1911, but not received by the representative of any affected railway until December 8, 1911, with the accompanying reports and tabula- tions contained in House Document No. 105 of the first session of the Sixty-second Congress, comprises: First. A recommendation for a revision of the basis of payment for the railway facilities and* services required in connection with the postal service, and, Second. A series of reports and tabulations apparently intended to illustrate the results which would follow the application of the revised basis of payment that is recommended. The system of railway mail pay which the Postmaster General thus seeks to have substituted for that now in force may, perhaps, be best stated by means of quotations from the " tentative draft of proposed law for regulation of railway mail pay " which appears on the fourth and fifth pages of Document No. 105. Thus stated, it is pro- First. (As to railways the construction of which was not aided by congressional grants of land). "The Postmaster General is authorized and directed to readjust the pay to companies operating railroads for the transportation and handling of the mails and furnishing facilities in connection therewith, not less frequently than once in each fiscal year, * - * at a rate of compensation per annum not exceeding the cost to the railroad companies of carrying the mails as ascertained by him, and 6 per cent of such cost: Provided, That when such ascertained cost and 6 per cent does not equal $25 per mile per annum, he may, in his discretion, allow not exceeding such rate," and, Second. (As to land-grant railways.) "Railroad companies whose railroads were constructed in whole or in part by a land grant made by Congress, on the condition that the mails should be transported over their roads at such price as Congress should by law direct, shall receive not exceeding the cost to them of performing the service." The "tentative draft" contains no definition of the manner in which the cost of carrying the mails would be or could be ascertained nor as to the elements of cost to be considered. Much less does it contain any language suggesting the exclusion from consideration of any element of cost. As, upon any_ fair and reasonable basis of ascer- tainment, the cost of the postal facilities and services supplied by the railways ex- ceeds the sums now paid therefor by the Government they could have no very prac- tical objection to the proposed system if it would, in fact, although abandoning the proper and customary standards of compensation, increase their mail revenues to an amount really in excess of the actual cost. But it is necessary to interpret the Post- master General's recommendations in the light of the whole report in which they are contained and especially in the light of the following claims which he makes : First. That the investigation reported in Document No. 105 discloses the real cost to the railways of carrying the mails, and, Second. That the enactment of his recommendations would effect a reduction of $9,000,000 from present railway-mail pay. In his annual report to Congress, dated December 1, 1911, the Postmaster General said, concerning this document: "During the year the department completed the investigation begun early in the administration with the object of determining- what it costs the railways to perform this service, and the report of the inquiry was submitted to Congress on the 12th of August last. The statistics obtained during the course of the investigation disclosed for the first time the cost of carrying mail in comparison with the revenue derived by the railways from this service. * * * If Congress gives the recommendation of the department in this regard its favorable consideration and authorizes a rt adjustment of railway-mail pay in the manner suggested, it is believed that the resulting saving to the Government will amount annually to about $9,000,000." (Annual Report of the Postmaster General, H. Doc. No. 559, 62d Cong., 2d sess., pp. 19-20.) Those portions of Document No. 105 which consist of reports and investigatious apparently intended to illustrate the results that would follow the adoption of the new basis of payment exclude from consideration, as will more fully appear herein- after, all services and facilities except the service of transportation on trains and the facility of space in cars occupied while such movement is in actual progress and all elements of cost save those of operation and taxes; that is to say, they exclude all the primary costs incident to securing the capital necessary to create the property operated. Therefore, the Postmaster General's recommendation, if it is not to be regarded as wholly inconsistent with the argument that he submits in its support, which is unthink- able, is to be held and considered to be a recommendation to reduce railway-mail pay 64 RAILWAY MAIL PAY. below the cost of the facilities and services supplied by ignoring some services and fac ilitic s and making payment equal the sum of a part of the elements of cost (that is to say, the sum of operating and taxation costs, but not including interest cost) of transportation s rvices and train facilities. The Postmaster General calls this proposed reduction a "readjustment of railway mail pay on the basis of cost with 6 per cent profit" (Doc. 105, p. 3) and estimates, as has been seen, that the resultant diminution of mail pay would amount to approxi- mately 19,000,000 annually (Doc. 105, p. 3). As the aggregate sum^paid for the facilities supplied by the railways during the fiscal year 1911 was $5*0,099, 537. 02, 1 it is evident that the proposed reduction amounts to about 18 per cent of the gross revenue which the railways now derive from this source. The detailed figures of Document No. 105, however, indicate that it would be higher. They show (pp. 280, 281) that during the month of November of the year 1909, the railways included received 13,607,773.13 for the postal facilities and services they supplied, while, for the same period, the Postmaster General estimates that the train space they furnished cost them, in operating expenses and taxes alone, $2,676,503.75. As he does not propose to make a return for any other items of cost and proposes to add only 6 per cent to the total of these items, it is evident that if his "readjustment" had been in effect they would have received 106 per cent of $2,676,503.75, or $2,837,093.98. The last-named sum is 21.36 per cent less than $3,607,773.13, the sum these railways were paid, and this percentage, of course, approximates the reduction. In this calculation no allowance is made for the fact that some railways, that is, land-grant roads, would be denied the additional 6 per cent, so that the actual reduction would be somewhat more than 21.36 per cent. This brief statement discloses the fact that the Postmaster General's recommenda- tion really rests upon certain almost obviously incorrect and misleading conclusions which are, in part, as follows: First. He erroneously assumes that the train space occupied by the mails is a fair measure of the services and facilities supplied by the railways, whereas, in fact, they perform important terminal and delivery services, supply a vast aggregate of personal transportation, furnish extraordinary station facilities, and supply many and costly additional services and facilities of which he takes no account. Second. He erroneously assumes that expenses in the operation of a railway and taxes exacted from it constitute all the cost of the services it renders, thus overlook- ing and ignoring the fact that property has to exist before it can be operated and that its existence is evidence of the investment of capital, a reasonable return on which is a necessary and legitimate element of the cost of transportation, and that this element in the case of railways amounts to a very considerable fraction of the total cost. The foregoing misconceptions of fact are fundamental in character and importance and their destructive effect upon the argument of Document No. 105 will be further discussed herein. Attention is directed to them at this stage merely because any statement of the Postmaster General's plan which failed to note that it rests upon these basic inaccuracies would be seriously incomplete. It should also be noted at the outset that the second of these misconceptions leads to a rejection of that essential principle of fair treatment of the railway carriers of mail proclaimed by the Joint Commission to Investigate the Postal Service, which reported in 1901, in part, as follows: "We are of opinion that the true basis for payment to railroads for mail trans- portation should be such sums as will afford the railroads a fair compensation for the services rendered." (Fifty-sixth Cong., S. Doc. No. 89, p. 9.) And the Joint Postal Commission continued: "It seems to the commission that not only justice and good conscience, but also the efficiency of the postal service and the best interests of the country demand that the railway mail pay shall be so clearly fair and reasonable that while, on the one 1 The sum reported by the Postmaster General (Postmaster General's Annual Report for 1911, H. Doc. No. 559, 62d Cong., p. 49), as the cost of "transportation of domestic mail by railroads," is $50,583,122.96, but not all of this sum was paid to railways. The sum so paid was actually $483,585.94 less. The cost, as reported, includes the cost of the quadrennial weighing of the mails in one of the four weighing sections. of tabulating the results of this weighing, and perhaps other expenditures. The railways actually received only $50,099,537.02. This fact was stated by the honorable Second Assistant Postmaster General in a letter dated on June 7, 1912, addressed to H. T. Newcomb, statistician to the Committee on Railway Mail Pay, which letter is as follows: "In reply to your letter of the 22d ultimo, asking for further information relative to the amount actually paid to the railroad companies during the fiscal year ended June 30, 1911, I have to advise you that out of the total of $50,583,122.96 there was expended a total of $483,585.94 for pur- poses other than railroad transportation." The average annual cost of weighing the mails for the purpose of readjusting railway mail pay t stated in Document No. 105 (p. 15) as $400,000. At least this sum should, therefore, be deducted from the reported annual cost of railroad services, previous to 1911, in order to ascertain the annual aggregates actually received by the railways. EAILWAY MAIL PAY. 65 hand, the Government shall receive a full quid pro quo for its expenditures and the Public Treasury be not subjected to an improper drain upon its funds, yet, on the other hand, the Railway Mail Service shall bear its due proportion of the expensea incurred by the railroads in the maintenance of their organization and business as well as in the operations of their mail trains. "The transaction between the Government and the railroads should be, and in the opinion of the commission is, a relation of contract; but it is a contract between the sovereign and a subject as to which the latter has practically no choice but to accept the terms formulated and demanded by the former; and therefore it is incumbent upon the sovereign to see that it takes no undue advantage of the subject, nor imposes upon it an unrighteous burden, nor 'drives a hard bargain' with it." (Ibid., p. 10.) It is submitted that these extracts but express considerations that are obviously and fundamentally correct and that must prevail wherever justice is respected and maintained. But there can be no just compensation when a reasonable return upon invested capital is refused and the Postmaster General has confessedly considered none of the expenses necessarily incurred in order to procure capital, but only those of operation and for taxes. II. DETAILED ANALYSIS OF THE POSTMASTER GENERAL' S REPORT. Although the argument for a reduction in railway mail pay made by the Postmaster General (62d Cong., H. Doc. No. 105) is addressed to the Speaker "of the House of Representatives under date as of August 12, 1911, and the congressional order for printing was entered on August 15, 1911, the Postmaster General caused its publica- tion to be suspended, for the purpose, as it is stated, of making repeated changes and corrections, and it was not until December 8, 1911, that the committee on railway mail pay, or any of the railways which would be affected by the adoption of the recommendations of the report, were able to obtain copies or were advised of its con- tents. Soon after obtaining copies of the report, with the accompanying documents and tabular statements, and having given consideration to the whole document, the committee, by Mr. Kruttschnitt, its chairman, on December 20, 1911, addressed a letter to the Speaker, which was, in full, as follows: il To the honorable the Speaker of the House of Representatives, Washington, D. C: "My Dear Sir: Your attention is respectfully invited to the recently published letter from the Postmaster General to the Speaker of the House of Representatives (H.Doc. No. 105), submitting a report of his inquiry as to the operations, receipts, and expenditures of the raiiroad companies transporting the mails, and recommend- ing legislation concerning their compensation therefor. "This report has been so recently made public that there has not been sufficient time for its detailed examination and analysis, but such scrutiny as has already been possible, discloses that the data submitted are incomplete, the figures distorted, the presentation unfair, and the conclusions illogical and unwarranted. Among other things i it is grossly unjust to the railroads in that: "1. Data submitted by the railroads at the request of the Post Office Department, which are essential to a complete understanding of the subject, have been withheld and suppressed. "2. The Postmaster General has arbitrarily transferred to the passenger service much of the so-called 'dead' space in mail cars, although this space could not be utilized as passenger space, thus improperly increasing the apparent car-foot miles of passenger service, and correspondingly decreasing the car-foot miles of mail service. "3. The Postmaster General has apportioned expenses incurred for the joint pur- poses of the passenger and freight services between these services in accordance with a method never accepted by any one with practical experience in railway accounting or operation, and condemned by the courts in at least two important cases. In one of these cases the opinion of the court states that ' It was conceded that the method could be made to produce any desired result. ' "4. The Postmaster General has wholly overlooked the fact that a large part of the cost incurred by the railways in carrying the' mails, consists of interest on the capital they employ. By ignoring all capital expenses, confining his attention to mere operating costs, and proposing to return to the railways only the amount of these oper- ating costs, plus 6 per cent, he urges a method which, if applied generally to all their business, would render every railroad at once bankrupt. "In consideration of the foregoing and other errors and omissions in the report, we respectfully ask, for the railroad companies, a suspension of judgment and action until they have had time to present a complete and satisfactory analysis of the report, 65 RAILWAY MAIL PAY. and of all material and relevant facts. Preparation of such a presentation has been undertaken and we request that, when completed, we be given an opportunity to place our conclusions before Congress in a suitable manner. Very respectfully, yours, "The Committee on Kail way Mail Pay, "By J. Kruttschnitt, Chairman." The next purpose of this report will be to present detailed and convincing evidence of each and every assertion in the foregoing letter, and they will be taken up in order. First. Data submitted by the railroads at the request of the Post Office Department which are essential to a complete understanding of the subject, have been withheld and suppressed. (a) station and terminal expenses directly incurred on account or mail. That the facilities and services supplied by the railways in connection with the postal service go far beyond the ordinary incidents of transportation is general ly understood, but the fact is substantially ignored in the Postmaster General's report. Some of these extraordinary services, being in the nature of terminal and station services, are covered by the following extracts from the Postal Laws and Regulations: Railroad companies, at stations where transfer clerks are employed, will provide suitable and sufficient rooms for handling and storing the mails, and without specific charge therefor. These rooms will be lighted, heated, furnished, supplied with ice water, and kept in order by the railroad company. (Sec. 1186, second paragraph.) The specific requirements of the service as to * * * space required * * * at stations, fixtures, furniture, etc., will at all times be determined by the Post Office Department and made known through the General Superintendent of Railway Mail Service. (Sec. 1186, third paragraph.) Railroad companies will require their employees who handle the mails to keep a record of all pouches due to be received or dispatched by them, and to check the pouches at the time they are received or dispatched, except that no record need be kept of a single pouch from a train or station to the post office or from the post office to a train or station which, in regular course, is the only pouch in the custody of the company's employees at that point while it is being handled by them. This is not to be construed as relieving railroad companies from having employees on trains keep and properly check a record of all closed pouches handled by them, without excep- tion. (Sec. 1187, first paragraph.) In case of failure to receive any pouch due, a shortage slip should be made out, explaining cause of failure, and forwarded in lieu of the missing pouch. Specific instructions in regard to the use of shortage slips will be given by the general superin- tendent of Railway Mail Service. (Sec. 1187, second paragraph.) Every irregularity in the receipt and dispatch of mail should be reported by the employee to his superintendent promptly, and if a probable loss of or damage to mail is involved, or if the cause of failure to receive a pouch is not known, the report should be made by wire, and the superintendent will notify the division superintendent of Railway Mail Service without delay. A copy of the employee's report should be attached to and become a part of the permanent pouch record. (Sec. 1187, third paragraph.) Train pouch records will be kept on file at the headquarters of division superin- tendents of railroad companies for at least one year immediately following the date the mail covered by them was handled, and shall be accessible there to post-office inspectors and other agents of the Post Office Department. Station pouch records will be kept on file at the station to which they apply for at least one year immediately following the date the mail covered by them was handled, and shall be accessible there to post-office inspectors and other agents of the Post Office Department. (Sec. 1187, fourth paragraph.) Railroad companies will require their employees to submit pouch records for exam- ination to post-office inspectors and other duly accredited agents of the Post Office Department upon their request and exhibition of credentials to such employees. (Sec. 1187, fifth paragraph.) Every railroad company is required to take the mails from and deliver them into all terminal post offices, whatever may be the distance between the station and post office, except in cities where other provision for such service is made by the Post Office Department. In all cases where the Department has not made other provision, the distance between terminal post office and nearest station is computed in and paid for as part of the route. (Sec. 1191, first paragraph.) The railroad company must also take the mails from and deliver them into all inter- mediate post offices and postal stationsl ocated not more than 80 rods from the nearest RAILWAY MAIL PAY. 67 railroad station at which the company has an agent or other representative employed, and the company shall not be relieved of such duty on account of the discontinuance of an agency without 30 days' notice to the department. (Sec. 1191, second paragraph.) At connecting points where railroad stations are not over 80 rods apart a company having mails on its train to be forwarded by the connecting train will be required to transfer such mails and deliver them into the connecting train, or, if the connection is not immediate, to deliver them to the agent of the company to be properly dis- patched by the trains of said company. (Sec. 1192.) At places where railroad companies are required to take the mails from and deliver them into post offices or postal stations or to transfer them to connecting railroads the persons employed to perform such service are agents of the company and not employees of the postal service, and need not be sworn; but such persons must be more than 16 years old and of suitable intelligence and character. Postmasters will promptly re- port any violation of this requirement. (Sec. 1193.) Where it is desirable to have mails taken from the post office or postal station to train at a terminal point where terminal service devolves upon the company, in advance of the regular time of closing the mails, the company will be required to make such advance delivery as becomes necessary by the requirements of the service. (Sec. 1194.) When a messenger employed by the Post Office Department can not wait for a de- layed train without missing other mails, the railroad company will be required to take charge of and dispatch the mails for the delayed trains, and will be responsible for the inward mail until delivered to the messenger or other authorized representa- tive of the department. (Sec. 1195.) Whenever the mail on any railroad route arrives at a late hour of the night the rail- road company must retain custody thereof by placing the same in a secure and safe room or apartment of the depot or station until the following morning, when it must be delivered to the post office or to the mail messenger employed by the Post Office Department at as early an hour as the necessities of the post office may require. (Sec. 1196.) When a train departs from a railroad station in the nighttime later than 9 o'clock, and it is deemed necessary to have the mail dispatched by such train, the division superintendent of Railway Mail Service will, where mail is taken from and delivered into the post office by the railroad company, request the company, or where a mail messenger or carrier is employed by the Post Office Department will direct him, to take the mail to the railroad station at such time as will best serve the interest of the mail service. Such mail will be taken charge of by the agent or other representative of the railroad company, who will be required to keep it in some secure place until the train arrives, and then see that it is properly dispatched. (Sec. 1197, first para- graph.) The division superintendent of Railway Mail Service will give reasonable advance notice to the proper officer of the railroad company, in order that the agent or repre- sentatives of the company may be properly instructed. (Sec. 1197, second paragraph.) Railroad companies will be expected to place their mail cars at points accessible to mail messengers or contractors for wagon service. If cars are not so placed the companies will be required to receive the mails from and deliver them to the messengers or contractors at points accessible to the wagon of the messenger or con- tractor. (Sec. 1198.) A mail train must not pull out and leave mails which are in process of being loaded on the car or which the conductor or trainman has information are being trucked from wagons or some part of the station to the cars. (Sec. 1199.) At all points at which trains do not stop where the Post Office Department deems the exchange of mails necessary a device for the receipt and delivery of mails satis- factory to the department must be erected and maintained; and pending the erection of such device the speed of trains must be slackened so as to permit the exchange to be made with safety. (Sec. 1200, first paragraph.) In all cases where the department deems it necessary to the safe exchange of the mails the railroad company will be required to reduce the speed or stop the train. (Sec. 1200, second paragraph.) When night mails are caught from a crane the railroad company must furnish the lantern or light to be attached to the crane and keep the same in proper condition, regularly placed and lighted; but if the company has no agent or employee at such station, the company must furnish the light, and the care and placing of same will devolve upon the department's carrier. (Sec. 1200, third paragraph.) The engineer of a train shall give timely notice, by whistle or other signal, of its approach to a mail crane. (Sec. 1200, fourth paragraph.) The foregoing extracts, all the requirements of which are enforced by fines and deductions, disclose the fact that many extraordinary and exaetins: services, involving 68 BAIL WAY MAIL PAY. . responsibility and expense, are required of railway mail carriers in addition to the mere transportation of the mails. To transfer mail from stations to post offices railways are obliged to employ messengers and to supply vehicles; to furnish rooms for "hand- ling and storing the mails," they are obliged to enlarge their stations and to encroach upon space needed for yard purposes, and other extraordinary services obviously entail considerable expenditures, as well as interference with the orderly routine of the other business of the carrying companies. There are also certain requirements of the department which are not to be found in the regulations, although no railway feels at liberty to oppose or disregard them, such as the common demand that postal cars be placed for advance distribution and supplied with heat and light while so used. The existence of important elements of cost of this character was not overlooked by the Postmaster General at the time the investigation which culminated in his report was begun. On the contrary, one of the original set of blanks on which the railways were asked to report (Form 2602, see copy reprinted at pages 28 and 29 of H. Doc. No. 105) was so entitled as to indicate that it was intended to show the cost of supplying "Station service" and "Station and terminal facilities" in connection with the mail. Among other things, this form called for the following facts, to be reported separately as to each station, which were ignored and excluded in the Postmaster General's estimates of the cost of rendering the" service required by the Post Office Department: 1. Amount of wages paid to messengers and porters employed exclusively in han- dling mails. 2. Portion properly chargeable to mail service, prorated on basis of actual time employed, of wages paid to station employees a part of whose time is employed in handling mails. 3. Amount expended for maintenance of horses and wagons and for ferriage, and so forth, in connection with mail service. 4. Rental value, plus average monthly cost of light and heat, of room or rooms set apart for the exclusive use of the mail service. 5. Rental value of tracks occupied daily for advance distribution of the mail. 6. Average monthly cost of light and heat for postal cars placed daily for advance distribution of mail. 7. Interest at the legal rate upon the value of cranes, catchers, and trucks required for mail service. 8. Total of the previously enumerated items of cost of rendering mail service. Over the propriety of including every one of these items as elements in the cost of mail service, controversy is impossible. The Postmaster General recognized this fact by asking for data under all these heads, statements of all these facts were ren- dered by the railways in compliance with his request and the expenditure so reported were substantial in their amounts, but it seems subsequently to have been decided that the suppression of these data was not inconsistent with a purpose to present an accurate and truthful statement of the expenses directly incurred by the railways in serving the Post Office Department and all recognition of these expenses was denied in the tabulation of the data collected. There is not a figure derived from or rep- resenting these data in all of the 270 pages of tabulated statistics of the report. In the 18 pages of textual matter there is neither a total nor a conclusion based upon them. The summary statement signed by Second Assistant Postmaster General Stewart does, however, contain the following: "The data reported by the companies on Form 2602 as to expenditures for station service and station and terminal facilities furnished were carefully considered, and in view of the fact that it was found impossible to ascertain the totals of the accounts from which the amounts directly charged on this form should be deducted, and of the fact that such data were found to be unreliable in many instances, and of the further fact that it was determined that the mail service should participate in all of the station expenses upon a basis of car-foot miles, it was decided not to make use of such informa- tion in connection with the cost ascertainment." (H. Doc. No. 105, p. 6.) The foregoing states, in effect, that the Post Office Department preferred arbitrarily to assume that station expenses for mail bear the same relation to total station expenses that the car-foot mileage made in mail service bears to the total car-foot mileage of passenger trains, rather than to accept data which it had collected that showed a different result. The well-founded claim of the railways, a claim that no one acquainted with the methods and exactions of the postal service will dispute, is precisely to the contrary. Station service and facilities required for mail are greatly in excess of those which have been allowed for by the arbitrary method adopted by the Post- master General. The facts that the totals of the accounts from which these items were deducted were unknown to the department is attributable solely to the fact that it did not ask to have these facts reported, they could readily have been obtained by means of a supplementary inquiry as other facts were obtained, and the omission of the officers conducting the inquiry to ask for information certainly ought not to be RAILWAY MAIL PAY. 69 regarded as a sufficient reason for their failure to tabulate the facts they did obtain. -The further suggestion that some of these data were "found to be unreliable," is without specification and it is unjust to the railways which at considerable expense to themselves, supplied the figures asked for. The original reports in the possession of the committee on railway mail pay make it possible, in part, to remedy this omission of the Postmaster General and to that end the data in these reports have been most carefully and accurately tabulated. The committee, dependent upon the voluntary cooperation of numerous tailway officers located in many and widely separated cities, was naturally unable to obtain copies of all the reports sent to the Postmaster General and its results are, therefore, neces- sarily and obviously incomplete. The following aggregates are submitted with the observation that they disclose portions only of the expenditures under these heads which were incurred by the railways on account of the mails. The reports available to the committee on railway-mail pay show that the railways complying with its request for copies expended the following sums and reported them to the Post Office Department on its Form No. 2602: Item. Amount of wages paid to messengers and porters employed exclusively in handling mails Portion properly chargeable to mail service, prorated on basis of actual time employed, of wages paid to station employees a part of whose time is employed in handling mails Amount expended for maintenance of horses and wagons and for ferriage, etc., in connection with mail service Rental value, plus average monthly cost of light and heat, of room or rooms set apart for the exclusive use of the mail service Rental value cf tracks occupied daily for advance distribution of the mail Average monthly cost of light and heat for postal cars placed daily for advance distribution of mail Interest at the legal rate upon the value of cranes, catchers, and trucks required for mail service. Total / i 401, 120. 00 Amount. $79, 980. 84 198,927.01 5,040.98 37, 258. 93 47,029.12 18, 400. 5? 3,895.36 1 This total includes S9.993.19 reported by four companies which gave totals for these items, but did not report the items separately. The Postmaster General reported the mail expenses of the railways included in Document No. 105, for the month of November, 1909, as $2,676,503.75. It appears, therefore, that the omitted expenditures of these railways, for the seven items just enumerated, which constitute only a part of the items, he arbitrarily omitted from his tabulations, was not less than $401,126 during that month, or 14.99 per cent of the total he reported. As this total of $401,126 covers less than 92 per cent of the mail-route mileage represented in Document No. 105, it is evident that the true percentage of omission is still higher. (b) PERSONAL TRANSPORTATION. The law enacted by Congress requires railways carrying mails to carry the persons in charge thereof without any additional compensation, but by a regulation, which the department assumes to have the force of law, the requirement has been extended to cover personal transportation for officers, agents, and representatives of the postal serv- ice, whether in charge of mails or otherwise. "Railroad companies are required to convey upon any train, without specific charge therefor, all mail bags, post-office blanks, stationery, supplies, and all duly accredited agents of the Post Office Department and post-office inspectors upon the exhibition of their credentials." (Postal Laws and Regulations, sec. 1184.) > As this personal transportation bears no definite relation to the volume of mail car- ried on any particular route, and, whether paid for in any sense or otherwise, its amount neither increases nor diminishes the expenses of the Post Office Department. As it is, to the persons receiving it, actually free transportation, it is not surprising that liberal use of these privileges is made. This travel is particularly extensive oncer- tain routes on which the through travel of the representatives and agents of the depart- ment is naturally in some degree concentrated, and on such routes it loses all relation or proportion to the volume of mail carried or to the amount of mail pay. Further, the department demands for postal employees, in both quantity and quality, free trans- portation far beyond that accorded to railway employees, and the former, although carried free, are in the same class, as regards responsibility for accidental injuries, as are paying passengers, a class involving much greater pecuniary liability than that to either railway or express employees. 70 RAILWAY MAIL PAY. In the case of express employees the principal liability is assumed by the express companies as a part of their contracts with the railways. That, in many instances, this privilege of free transportation is so enforced as to deprive the railways of fares, both for through travel and for suburban transportation to which they are justly en- titled, is beyond denial. That the burden of supplying this extensive volume of personal transportation is an important element in the cost of rendering the services for which the railways are paid was fully admitted by the Postmaster General when he addressed his inquiries to the railways. Form 2602 (see H. Doc. No. 105, p. 28) requested the following facts as to each railway : 1. Number of miles traveled by department officials, inspectors, etc., and railway postal clerks not actually in charge of mails. 2. Value of above, at passenger rates not exceeding 2 cents a mile. These questions were answered by the railways and the data asked for are in the possession of the Post Office Department, but the report contains no evidence of that fact; no use has been made of these data; they have not been compiled, aggregated, or compared for the information of Congress; whatever light they would throw upon the activities of the postal service or the conditions under which it is aided by the railways has been withheld. The only allusion to this information in the report is as follows: "The information concerning the personal transportation of railway postal clerks and agents of the department when in charge of the mails and when not actually in charge of the mails * * * was not used. It was found impracticable to satisfac- torily and fully verify it. However, no similar information was given regarding travel of officials and employees of the passenger service, and it is believed that the omission of these items with respect to the three classes of service has not materially affected the results, because there was no specific expenditure for the personal trans- portation involved and the mail service participated in the apportioned expenses of the passenger service on the car-foot mile basis." (H. Doc. No. 105, p. 6.) These figures emanated from sources identical with those from which came all the data used by the department and possesses precisely equal reliability. The depart- ment has had no more opportunity to check; the other figures than it has to check these. Moreover, the suggestion that this omission is immaterial because the expenses of the passenger service have been apportioned on a car-foot mile basis is self-contradictory, as the apportionment which was made rests upon considering only the space actually occupied by mail as chargeable to mail service and charges all other space, including that occupied by_ officers and agents of the Post Office Department traveling without charge under this requirement, to the other services rendered by passenger trains. Surely, if the cost of mail service is to be determined by the space which it requires and, in addition to space occupied by mail pouches and postal clerks the department also demands and receives space in passenger coaches, dining cars, and Pullman sleepers and parlor cars for its officers and agents who pay no passenger fares, space which otherwise might be occupied by paying passengers, this space ought to be con- sidered as a part of the space chargeable to the mail service. The Postmaster General has suppressed the figures as to this travel, although before they were collected he obviously believed it to be an element of importance and arranged to ascertain the facts. With no intention to reflect discredit upon the purposes of the department it is asserted that it was, in fact, unfair to suppress these facts, that it would have been unfair not to add the space occupied in travel of this sort to the space occupied by the mails, but that the report is even more unfair than this, in that it not merely fails to include this space in the estimates of car-foot miles made in the mail service, it not merely ignores this travel, but it has actually added the space required for such travel to the space occupied by paying passengers. In this manner the free transportation accorded to the agents of the mail service has become a means of reducing the estimates of the cost of carrying the mails. In other words, this method leads to the absurd result that the larger the volume of free travel demanded by the agents of the Post Office Department and the more space required by them, the higher would be the pro- portion of the total passenger train space which would be assigned to passenger service and hence the smaller the portion of the total train cost which would be apportioned to the mails. The annual value of this personal transportation not required by law, but demanded by the department, exceeds $1,000,000. (c) RELATIVE RECEIPTS PROM PASSENGER, EXPRESS, AND MAIL TRAFFIC. Although the passenger train services are not proportionately profitable, any just comparison of the receipts of the railways from mail traffic with the returns from any other passenger train traffic which they carry will show that the mail service falls farther below the level of reasonable remuneration than any other among the services rendered on such trains. In order to make clear the fact that such a showing would be the natural consequence of a comparison made upon the basis chosen by the Postmaster KAILWAY MAIL PAY. 71 General, that of relative car-foot mileage, the committee on railway mail pay has care- fully tabulated data reported to the department in response to his requests, having been supplied for that purpose by many railways with duplicate copies of the reports, with the results shown by the table on page 20. The totals and averages on page 20 have been derived from a painstaking and accu- rate tabulation of returns made by 187 railways, operating 2,411 mail routes and 178,709.96 miles of line, to the Post Office Department in compliance with its request and on the forms by its officers prepared. They doubtless epitomize the results which would appear from a complete tabulation of all the data received by the department. That information as to the relative returns resulting from the different services sup- plied by the railways is essential to sound judgment as to the reasonableness of charges is elementary and fundamental and it is respectfully submitted that Congress, in con- nection with any report concerning railway mail pay is entitled to all the pertinent information in the possession of the officer or department making the report. These omitted facts were in the possession of the Post Office Department, it had been con- sidered worth while to collect them, but again facts of primary significance were with- held. These suppressed data were collected on the Postmaster General's inquiry blank designated^ as Form 2G04, which is printed on page 30 of House Document No. 105. No explanation of the reasons for this withholding of available, relevant, and important facts is to be found anywhere in the report. Second. The Postmaster General has arbitrarily transferred to the passenger service much of the so-called "dead" space in mail. cars, although this space could not be utilized as passenger space, thus improperly increasing the apparent car-foot miles of passenger service, and correspondingly decreasing the car-foot miles of mail service. (a) car-foot mileage defined. As will more fully appear later in this report (see p. 32 et seq.) the Postmaster General has made the relative " car-foot mileage" devoted, respectively, to passengers, to express, and to mail, the basis of apportioning operating cost and taxes, and has also used the same data as a means of comparing both the present gross receipts and his estimates as to net receipts from these different services. Before setting forth the manner in which his methods have unjustly diminished the assignment of space to the mails and correspondingly increased the assignment to passengers, it is desirable to explain clearly the meaning of a "car-foot" and a "car-foot mile," as those units are used in the report. Measuring the inside length of a car from end to end and stating the length in feet gives the number of "car-feet" for that car. Ascertaining the car-feet of each car in a train and aggregating them produces a total which is the number of car- feet for the train. In other words, each linear foot of space available for traffic or for the handling or service of traffic in a car or train is a "car-foot. " A car-foot combined with motive power and moved a mile becomes a "car-foot mile;" multiply the num- ber of car-feet in a train by a number equal to the number of miles traversed by the train and the product thus obtained measures the movement in terms of car-foot miles. Space is ordinarily measured in square feet, and it should be understood that the car- foot differs from a square foot in a car in that while the latter consists of 144 square inches the former is a linear foot measured clear across the car and, therefore, assuming the inside width of the car to be 9 feet, would contain 9 square feet, or 1,296 square inches. It should also be clearly understood that the concept of the "car-foot," as used by the Postmaster General and in this report, is confined exclusively to those portions of the car or train which are required for the occupation or accommodation of traffic while the train is in motion and excludes engine and tender lengths as well as vestibule and platform space. Another fundamental characteristic of this method of admeasurement is that it includes aislo space in passenger coaches, sleepers, and parlor cars, as well as smoking rooms, lavatories, toilet rooms, dining cars, and club and lounging cars or compartments. Item. Mail. Express. Car-foot miles Per cent of total Receipts Per cent of total Average receipts per car-foot mile, mills Average receipts per 1,000 car-foot miles. Per cent of average receipts per car-foot mile to average from mail 1,153,110,245 9 32 S3, 721, 796^ 04 3.228 S3. 23 100 1,320,108,589 10.67 85,075,221.53 9.66 3.855 S3. 86 119 Passenger. 9,902,370,150 70.01 $43,738,722.85 83. 20 4.417 $4.42 137 Total. 12,375,588,984 100. 00 $52,535,740.42 100.00 4.245 $4.25 132 72 KAIL WAY MAIL PAY. b) "dead space" defined. The term "dead space" as used by the Postmaster General, is seriously misleading.. An analysis of the transportation conditions which are involved readily discloses the fact that the space which he so designates belongs invariably to one of two classes. It is either (a) working space required for the accommodation of the persons or traffic actually in process of transportation, or (6) unused space necessarily provided in order to accommodate persons or traffic which may presently seek transportation and in such case must be cared.for. The aisles of a passenger car, used for the ingress and egress of passengers, the lavatories, the smoking rooms, all dining-car space, etc., con- stitute working space, but this space is not properly designated as "dead" space unless that term is understood to express neither absence of utility nor of productivity. Such space is an absolute necessity of the service. Trains in suburban passenger service leave the cities which they serve with the seats nearly all filled, unused space accumulates as, at each successive station, more passengers debark than are taken up; but this unused space is a necessity of the service and its cost ought unquestion- ably to be met by the receipts from this branch of the service. All such space is "dead space," as the term has been applied by the Postmaster General, but it is not in any sense useless or unnecessary space, much less is it space~ which can be provided without cost to the railways or that ought to go unrecompensed by their revenues. The obstacle to clear thinking involved in this misleading nomenclature having been removed, it is pertinent to observe that, using the term in the sense in which it is used in Document No. 105, "dead space," as well as "dead weight," is a universal incident of transpoitation upon almost any scale and by almost any means. The laborer with his wheelbarrow carries his load in but one direction; the weight of his wheelbarrow is "dead weight," the space occupied by the load during one-half of his round trip is "dead space "during the other half. The milk wagon making its morning rounds accumulates "dead space" as it distributes its "paying load." The grain- carrying trans-Atlantic steamers, being unable usually to obtain westbound cargoes equal in bulk to the fooelstuffs which they cany eastward, have much "d<~ad space" on their westward trips. Railway traffic affords no exception to the general rule. Although the genius of rate-making officers has for more than a generation been largely devoted to efforts to develop equality of loading in different directions, there is no considerable route over which the empty-car movement and the partially loaded car movement are not matters of continuing concern. More than this, it is not uncommon to have seasonal variations in volume of traffic so that a heavy empty- car movement in one direction is unavoidable at one season although during the balance of the year there is an equally heavy movement of unloaded cars in the reverse direction. "Dead space" is also of importance where, for any reason, the load is wholly or partially distributed while the train or car is en route, as, for example, in local less-than-car-lot movement of freight and, as already noted, in suburban passenger service. In the mail service so-called "dead space" of both varieties is unavoidable and important in its extent and cost. Closed mail pouches may occupy but a small amount of floor space in the end of a baggage car, but this is only a fraction of the space that must be provided in their service. In order that pouches may be taken on and put off at each mail station there must be "working space" in the car, aisles leading to the doors must be kept free and open, and no impediment to prompt and efficient handling can be permitted. Rarely, if ever, on any route is the volume of mail equal in both directions, and the delivery of mail at intermediate stations is seldom equaled by the mail taken up at the same stations. There are many^ cases in which larger postal cars, or apartment cars, or more storage cars are required in one direction than in the other. Obviously these cars must be returned or the service could not be maintained; it is equally obvious that the "dead space" in baggage cars carrying closed pouches of mail must equal the difference between the loading with mail at any particular time or point en route and the maximum quantity of mail at any time or point. Such temporarily unused space is palpably necessary. (C) RELATION OP "DEAD SPACE " TO COST OP ANY SERVICE. It is perfectly plain that if a car of part of a car must be returned empty or if it must be carried during any part of its necessary movement empty, the paying load which it has in the other direction or during the balance of the journey ought to bear the expenses of the empty movement. The justice of this principle is self-evident — it requires neither elaboration nor discussion. As a consequence of the foregoing there are, in practice, two < ways in which it would be reasonable to treat the dead space in passenger-train service if it should be considered practicable to ascertain the total cost of such service and to apportion that total among passengers, express, and mail RAILWAY MAIL PAY 73 in proportion to the space required. No criticism of the treatment of "dead space" would have been made herein had the Postmaster General adopted either of the following plans: First. Added the "dead space" incident to each branch of service to the paying space of that service, or, Second. Ignored "dead space" made in all services and made the apportionment on the basis of paying space only. (d) what the postmaster general did. The Postmaster General adopted neither of the foregoing plans. On the contrary, he unjustly deducted from the mail service much of the dead space necessarily inci- dent to that service and added it to the space attributed to the passenger traffic, although before the addition was made passenger space had included all the dead space actually incident to the transportation of persons. He insisted on the assignment to passengers of "working space" necessary for the mails in baggage cars, although if such space were taken away they could not be handled, he refused to regard as mail space reserve space where larger cars or compartments than were presently asked for by the de- partment were supplied, although the extra space was indispensable in the working of the mails, and he transferred to the passenger service unused space when the maximum mail movement in one direction exceeded that in the other or such maxi- mum was not reached during the period covered by his investigation. It may be noted, parenthetically, that even in the reports rendered by the railways the space occupied by officers, agents, and representatives of the Post Office Depart- ment not in charge of mails, who are furnished with transportation as an incident of the carnage of the mails and without any other compensation therefor, had been included in the space apportioned to passenger travel — plainly it ought to be considered as space assigned to mail service. Express space was made to include all "dead space" incident thereto, so that the mail service alone was singled out for exceptional treat- ment and in such a way as seriously to understate the demands which it makes upon passenger-train service and greatly to reduce the portion of the cost of such train service assigned to the mails. These modifications of the data correctly reported, not sus- ceptible of justification upon any sound transportation principle, were carried so far in the tabulations of the Post Office Department that its results, which are stated for railway routes having a total length of 194,977.55 miles (Doc. No. 105, p. 58), show a smaller car-foot mileage made in the mail service than was actually reported by the railways concerned for routes having a length of 178,709.96 miles. The table on page "25 compares the department's total figures for 194,977.55 route miles with the totals of reports which it received covering 178,709.96 route miles. As the difference between the route miles covered by the department's aggregate and by those of the routes whose reports were made available to the committee on railway mail pay amounts to 8.34 per cent of the former it would appear that the excess of the department's figures of car-foot miles ought, in every case, roughly to approximate the same percentage. But the foregoing shows that while the figures of the department as to car-foot miles made in the passenger and express service are able to support this test of their accuracy the same test demonstrates the inaccuracy of the department's figures as to car-foot miles made in the mail service. This may be shown in another way. Post Office Depart- Reported by rail- Differences. ment, 194.977.55 route miles. 1 ways, 178,709.96 route miles. Excess of depart- 1 Excess of railway's ment's figures. figures. Car-foot miles. Per cent of total. Car-foot miles. Per cent of total. Car-foot miles. Per cent of depart- ment's figures. Car-foot miles. Per cent of depart- ment's figures. Passengers. . Express. 10,634,749,747 1,379,315,759 926,164,459 82.18 10.66 7.16 9,902,370,150 1,320,108,589 1,153,110,245 80. 01 10.67 9.32 732,379,597 59,207.170 6.89 4.29 Mail 226.945,786 24.50 Total.. 12,940,229,965 100.00 12.375,588,984 100.00 564,640,981 4.36 ______ Doc No. 105, pp. 58-59. 74 RAILWAY MAIL PAY. In the following table the average number of car-foot miles per mile of mail routes for each service, as reported by the Post Office Department, is compared with the averages resulting from the data reported to the department by the railways. Service. Average number of car-foot miles per mail route mile. Re- ported by Post Office Depart- ment. Calcu- lated from reports of rail- ways. Excess of aver- ages from rail- way reports. Car- foot miles. Per cent of depart- ment's figures. Passenger., Express... Mail Total 54,544 7,074 4,750 55,410 7,387 6,453 806 313 1,703 1.59 4.42 35.85 66,368 ),250 2,882 4.34 The foregoing shows that the extensive modifications of the data showing car-foot miles made in the mail service, reported by the railways, have resulted in an average for that service, per mile of the mail routes covered, that must be increased by 35.85 per cent to equal the real average discoverable from the reports rendered by railways constituting 92.66 per cent of the mileage covered by the department's report. This percentage of difference is more than eight times the percentage resulting from compar- ing the department's figures for the express service with those compiled by the com- mittee on railway mail pay and more than twenty-two times the difference as to the passenger service. It is no doubt true that the omissions in the figures available to the committee on railway mail pay are principally those representing mail routes having a volume of traffic, in all services, more or less below the averages resulting from its tabulations, but while this is freely admitted it is plain that the omitted routes could not so greatly offset the average for the mail service as to overcome even a major fraction of the enormous difference of 35.85 per cent in the average of car-foot mileage for mail service. The omissions may, however, and probably do, account for the divergencies as to the other services. The manner in which the data reported by particular roads were modified in the Post Office Department, in order to obtain the results presented in the last two of the foregoing tables is illustrated by the compari- sons on page 27 between the figures reported to the department by the Atchison, Topeka & Santa Fe Railway system and those presented in document No. 105 (pp. 38-39, 60) as representing the same system. These comparisons show that the department, without giving any explanation for its action, reduced the renorts of car-foot mileage of the Atchison, Topeka & Santa Fe Railway made in the mail service 36.45 per cent, while making no material change in the data for the other services. RAILWAY MAIL PAY. t O Car-loot miles. Per cent of As reported by the company. As stated by Post Office Department. total space. Item. Amount. Increase. Decrease. As re- ported by the com- pany. As stated by Post Office Amount. Per cent. Amount. Per cent. De- part- ment. Passenger service: Space utilized 550, 727, 960 14, 966, 609 80.79 Dead space 2.20 Total 592, 065, 162 565, 694, 569 26,370,593 4.45 81.36 82.99 Express service space . . Mail service: Postal cars space . . . Apartment cars 80, 132, 841 33, 283, 999 16,227,758 5, 190, 173 782, 710 80,714,628 17,494,235 16,315,089 1,390,237 61, 953 581,787 0.73 11.01 4.58 2.23 .71 .11 11.84 15, 789, 764 "3,799,936 710, 757 47.44 "73.2f 92.08 2.57 87,331 .54 2.39 Closed pouch space . . Storage space .20 .01 Total 55, 484, 640 35,261,514 20,223,126 36. 45 7. 63 5.17 Grand total 727, 682, 643 / 681, 670, 711 46,011,932 6. 32 1 00. 00 100.00 Other changes by the Post Office Department in the car-foot mileage made in the mail service, reported in response to its request, are disclosed by the following table: Name. Atlantic Coast Line Baltimore & Ohio Bessemer & Lake Erie Boston & Maine Central of Georgia Central R. R. of New Jersey Central Vermont Chicago & Northwestern : Chicago, Burlington & Quincy Chicago, Milwaukee & St. Paul Chicago, Rock Island & Gulf Chicago, Rock Island & Pacific Cleveland, Cincinnati, Chicago & St. Louis Colorado Midland Delaware & Hudson Co Delaware, Lackawanna & Western Denver & Rio Grande El Paso & Southwestern Erie Fort Worth & Denver City Georgia, Southern & Florida Grand Rapids & Indiana Grand Trunk Great Northern Illinois Central International & Great Northern Lake Erie & Western Lake Shore & Michigan Southern Lehigh Valley Long Island Louisville & Nashville Maine Central Michigan Central Minneapolis, St. Paul & Sault Ste. Marie.. Car-foot miles made in mail service, including dead space. As reported by company. 16,800, 33, 134, 424, 14,820, 6, 030, 2,162, 2,265, 38, 620, 62, 246, 46,326, 1,218, 38,651, 21,9.50, 387, 3,833, 4,731, 5,836, 2,886, 11,447, 1,778, 2,032, 2,708, 5,772, 43, 456, 37, 537, 4, 601 , 2, 457, 43,477, 5,713, 1,210, 20,770, 5,081, 8,586, 12,484, 427. 66 016. 00 741.00 915. 00 349. 00 350. 00 184.00 970. 80 130. 00 237. 00 058. 00 162. 00 549. 00 863. 00 87G. 00 725. 00 923. 00 634. 40 692. 00 744. 42 509. 00 457. 00 050. 71 991.00 425. 00 135.00 460. 00 263.00 /5S0. 00 724. 00 314.00 903. 00 016. 00 886,00 As reported by Postmaster General. 13, 659, 25,391, 300, 11,371, 5, 245, 1,530, 1,907, 32, 249, 50, 760, 35,471, 1,098, 30,188, 17,610, 294, 2,270, 4,387, 4,710, 1,5-54, 10,333, 1.644, 1,277, 2,272. 4,82], 30,889, 25,683, 3,694, 1,465, 40,868, 4,054, 953, 18,191, 4,472, 7,176, 9,286, Deducted by Postmaster General. Amount. 616. 79 705. 45 775. 09 921.93 036. 62 359.74 204. 00 574. 98 723.99 925. 00 873. 96 296. 09 438. 37 482. 91 541.27 502. 00 380. 45 584.86 747.00 222. 00 000. 56 776. 53 869.70 628. 00 865. 00 491 . 90 023. 42 448.16 625.25 315.87 222. 62 248. 00 420. 36 840.71 I 3,140,810.87 7,742,310.55 123,965.91 3,448,993.07 785,312.38 631,990.26 357,980.00 6,371,395.82 11,485,406.01 10,854,312.00 119,184.04 8,462,865.91 4,340,110.63 93,380.09 1,563,334.73 344,223.00 1,126,542.55 1,032,049.54 1,113,945.00 134,522.42 755,508.44 435,680.47 950,181.01 12,567,363.00 ll,853,5f0 00 906,643.10 992,436.58 2, 608, SI 4. 84 1,658,954.75 257,408.13 2,579,091.38 609,655.00 1,409,595.64 3,198,045.29 Per cent. 18.69 23.37 29.19 23.27 13.02 29.23 15.80 16.50 18.45 23.43 9.78 21.90 19.77 24.08 40.78 7.28 19.30 35.75 9.73 7.56 37.17 Jfi.09 1 fi. 46 2b. 92 31.58 19.70 40.38 6.00 29.04 21.26 12.42 12.00 16.42 25. 62 76 EAILWAY MAIL PAY. Name. Missouri Pacific Nashville, Chattanooga & St. Louis New York Central & Hudson River New York, Chicago & St. Louis New York, Ontario & Western Norfolk & Western Northern Central Northern Pacific Oregon Railroad & Navigation Oregon Short Line Pennsylvania Co Pennsylvania Railroad Peoria" & Eastern Philadelphia & Reading and allied lines. . . Philadelphia, Baltimore & Washington Pittsburgh & Lake Erie Pittsburgh, Cincinnati, Chicago & St. Louis St. Louis, Iron Mountain & Southern St. Louis Southwestern San Antonio & Aransas Pass San Pedro, Los Angeles & Salt Lake Seaboard Air Line Southern Southern Pacific » Texas & Pacific Toledo, Peoria & Western Union Pacific Vandalia Virginian Wabash West Jersey & Seashore Wheeling & Lake Erie Wichita Valley 1 Total. Car-foot miles made in mail service, including dead space. As reported by company. 21,395, 8,160, 54,095, 893, 1,087, 8, 707, 2,894, 29,073, 8,411, 11,588, 28,747, 57,819, 1,814, 5,226, 8,336, 765, 32,383, 15,109, 2,041, 1,286, 2,962, 12,914, 37,191, 39,376, 7,429, 1,139, 37,228, 14. 827, 544, 21,132, 1,132, 811, 550, 240. 00 447.69 823. 00 792. 00 251. 00 177. 30 693. 00 240. 40 872. 60 199.00 137. 00 519. 00 670.00 386. 04 728. 00 207. 00 524. 00 450.00 895. 00 542.00 260. 00 121.00 602. 00 418. 00 705. 00 212. 00 978. 00 412.00 599. 00 209.00 387. 00 313. 00 015. 00 5,524,286.02 As reported by Postmaster General. 16,887, 6,105, 49,076, 837, 982, 7,291, 2, 606, 19,814, 5,636, 7,635, 23,288, 46,974, 1,381, 3,270, 7,439, 674, 24,054, 12,382, 1,611, 1,155, 1,878, 10,403, 28,983, 31,010, 6,271, 527, 23, 458, 10, 908, 430, 16,232, 693, 577, 324, 104. 88 558. 37 804. 00 040.38 820. 94 608. 89 273. 64 226. 98 912.25 493. 00 845.22 972. 68 441.10 478. 16 833. 23 064. 79 604. 27 363. 83 046. 90 679. 86 241. 20 436. 76 910. 68 229. 97 189. 34 598. 44 659. 00 799. 55 671. 19 004. 31 987. 04 055. 62 988. 66 778,197,633.71 Deducted by Postmaster General. Amount. 4,508,135.12 2,054,889.32 5,019,019.00 56,751.62 104,430.06 1,415,568.41 288,419.36 9,259,013.42 2,774,960.35 3,952,706.00 5,458,291.78 10,844,546.32 433,228.90 1,955,907.88 896,894.77 91,142.21 8,328,919.73 2,727,086.17 430,848.10 130,862.14 1,084,018.80 2,510,684.24 8,207,691.32 8,366,188.03 1,158,515.66 611,613.56 13,770,319.00 3,918,612.45 113. 927. 81 4,900,204.69 438,399.96 234,257.38 225,026.34 210,326,652.31 Percent 21.07 25.18 9.28 6.35 9.60 16.26 9.96 31.85 32.99 34.11 18.99 1-8.76 23.87 37.42 10.76 11.91 25.72 18.05 21.10 10.17 36.59 19.44 22.07 21.25 15.59 53.69 36.99 26.43 20.92 ■23.19 38.71 28.87 40.91 21.28 Nowhere in the Postmaster General's report is there any explanation of the rea- sons for these very extensive changes in the basic data utilized in his calculations, nor indeed, is there any intimation that any modifications of importance were made. There is no. admission that any changes at all, arbitrary or otherwise, were made save in the bare statement on page 6 that discrepancies and inaccuracies were cor- rected. It is submitted that this acknowledgment is utterly inadequate recogni- tion of changes which, as shown by the statement above, covering only the roads named, aggregate 210,326,652 car foot-miles, or an average of 21.28 per cent. Appar- ently it was thought to be proper that Congress should be left to understand that, barring minor and relatively unimportant corrections, the data reported had been obtained from the railways and were, therefore, presumably accepted by them as truthful statements of facts. Nothing could be more contrary to the real situation. As has been seen, the statements made by the railways were radically reduced in nearly every instance; the carriers ass rt and are prepared to sustain the essential accuracy of their reports. The units of the department's calculations are necessary if its results are to be satisfactorily checked and corrected and the Postmaster Gen- eral should be required to transmit the original data to Congress and thus to afford an opportunity to trace in detail the changes which he has felt authorized to make and for t r sting the validity of these changes and of the resulting averages and aggre- gates. By no other means can the true figure s be established with certainty nor can the railways otherwise be accorded a fair opportunity to demonstrate the complete accuracy of their original recurns. It can be demonstrated that scrutiny of these original data and computations would disclose numerous and serious clerical errors and omissions by the department, resulting in a further unjust reduction in the train space credited to the mails. Such errors have since been conceded by the depart- ment in the case of individual roads, the aggregate of the conceded corrections in the case of one system being about ] 9,000,000 car foot-miles, and these concessions by the department go far to discredit the entire value of Document No. 105. EAILWAY MAIL PAY. 77 (e) further proof of arbitrary treatment of space. The absence of any uniform or rational relation between the car foot-mileage for mail service reported in Document No. 105 and the services demanded by and sup- plied to the Post Office Department is made fully apparent by an examination of the figures given for some of the smaller routes and comparing them with the services rendered on those routes. The table on page 30, prepared from the Postmaster Gen- eral's Table 8A (Doc. No. 105, pp. 282-283), supplemented, as to the figures of one column only, by reference to the annual reports of the Second Assistant Postmaster General for the years 1908 to 1911, inclusive, amply demonstrates the truth of this statement. Route number. Length, in miles. Aver- age daily- weight, in pounds. Num- ber of single trips during Novem- ber, 1909. Pound miles during Novem- ber, 1909. Service miles during Novem- ber, 1909. Car-foot miles during Novem- ber, 1909. Pound miles per car- foot miles. Service miles per car- foot miles. 139072 15.23 6.41 20.30 9.62 17.39 9.01 20.38 29.64 8.08 42.40 16.46 26.73 13.15 10.36 10.84 36.03 61.29 50.68 23.22 39.81 19.77 20.09 21.19 7.66 9.66 6.09 12.00 17.11 36.14 35.37 20.09 5.26 12.62 6.28 3.58 11.02 23.60 148 94 52 74 113 65 126 82 14 98 78 37 94 205 175 152 85 53 93 130 42 67 133 169 208 128 177 96 136 192 54 148 26 88 140 112 120 50 60 60 100 50 100 100 60 100 105 100 75 50 150 100 104 5a 73 60 60 50 75 100 100 150 118 60 50 50 60 50 170 50 110 100 100 58 62,621 18,076 31,668 21,356 58,952 17,569 77,036 72,914 3,394 124, 656 38, 516 29,670 37,083 63,714 56,910 164,297 156,289 80,581 64,784 155,259 24,910 40,381 84,548 38,836 60,278 23,386 63,720 49,277 147,451 203,731 32,546 23,354 9,844 16,579 15,036 37,027 84,960 762 385 1,218 962 870 901 2,038 1,778 808 4,452 1,646 2,005 658 1,554 1,084 3,747 3,064 3,700 1,393 2,389 988 1,057 2,119 766 1,449 719 720 856 1,807 2,122 1,004 894 631 691 358 1,102 1,369 1,134.90 194. 06 1,010.94 488. 80 750.98 449.28 1,759.20 1,593.60 416. 00 2,280.44 832. 00 1,176.07 604.24 780.00 749. 80 2,830.89 2, 632. 76 2,319.52 1,142.42 4,867.20 783.36 786. 50 1,544.00 819. 85 805. 19 725.34 380.70 582. 40 3,246.48 1,810.19 726. 18 443.70 327. 00 514.60 179.56 540.80 1,013.40 55 93 31 44 79 39 44 46 8 55 46 25 61 82 76 58 59 35 57 32 32 51 55 47 75 32 167 85 45 113 45 53 30 32 84 68 84 0.67 168021 1.98 168023 1.20 118051 1.97 114057 1.16 110093 2.01 126041 1.16 149050 1.12 110224 1.94 139091 1.95 114072 1.98 107010 1.70 118075 1.09 121028 1.99 107165 1.45 176115 1.32 137030 1.16 137128 1.60 147028 1.22 147039 .49 114068 1.26 126038 1.92 107182 1.37 107054 .93 120034 1.80 116077 .99 169019 1.89 110197 1.47 176064 .56 168020 1.17 127048 1.38 114030 2.01 114071 1.93 120052 1.34 1.99 116021 2.04 1.35 Note.— Columns 2, 3, and 7 are from Document No. 105, Table 8A; column 4 is based on annual reports of the Second Assistant Postmaster General for 1908-1911; column 5=2X3X30 days; column 6=column 2X4; column 8= column 5 -h 7; column 9= column 6-=- 7. The foregoing table includes every route having closed-pouch service only and for which the data contained in the second, third, and seventh columns are given, rep- resented in Table 8 A of the report. The figures in the second, third, and seventh columns are taken from that report, and those in the fourth are based upon facts shown in successive annual reports of the Second Assistant Postmaster General. The figures in the fifth column, headed "Pound miles during November, 1909," are the product of those in the second and third columns multiplied by 30; those in the sixth column, headed "Service miles during November, 1909," are the product of those in the second and fourth columns; those in the eighth are quotients of those in the fifth divided by those in the seventh; and those in the ninth are quotients of those in the sixth divided by the same divisors. The wide range in the relations disclosed by the figures in the last two columns of this table points plainly to the unreliability 49396—14- -13 78 KAIL WAY MAIL PAY. of the method adopted in assigning car-foot miles, and it is clear that if such incon- sistent results are found as to these smaller routes divergencies from the facts at least equal in proportions must vitiate the more elaborate and difficult calculations neces- sary in connection with the more important mail routes. It is startling, therefore, to find that the Postmaster General has assigned a car-foot mile to every 8 pound miles in one instance (route No. 110224), while in another the proportion is one car-foot mile to 167 pound miles (route No. 169,019). Equally surprising is the variation in the relation between service miles and car-foot miles, the range shown by the table being from 0.49 service miles (route No. 147039) per car-foot mile to 2.04 (route No. 116021). A particularly strange contrast appears in the Postmaster General's Table 8A be- tween route 176064, operated between Plumas Junction and Clio, Cal., by the Sierra Valleys Railway, and the route immediately following in the table, which is 168020, operated by the Arizona & Colorado Railroad, of the Southern Pacific Co.'s system, between Cochise and Gleason, Ariz. These routes are 36.14 and 35.37 miles in length, respectively, thus showing a difference in length of only three-quarters of a mile, or 2.13 per cent. Both routes have closed-pouch service only. Both are now paid at the minimum per mile rate, the difference in length giving a difference in annual compensation of $32.92. Reference to page 256 of the Annual Report of the Post Office Department for the year 1910 shows that on route 176064 the service is six times per week in both directions, while page 238 of the same report shows that on route 168020 the service is seven times per week. The average daily weight of mails given in Document No. 105 for these routes is 136 and 192 pounds, respectively. Here, then, are two routes that present no wide or marked difference of any sort; they carry about the same distance very similar quantities of mail, in the same manner, and with little difference in frequency of service. It would be reasonable to suppose that the car-foot mileage assigned to these routes would not vary more than these controlling conditions of service, but such is not the case. The route carrying only 136 pounds of mail daily (176064) has been assigned 3,246.48 car-foot miles, and the route carrying 192 pounds has been assigned only 1,810.19 car-foot miles. Thus an excess of 79.34 per cent in the car-foot miles assigned to route 176064 over those assigned to route 168020 rests upon no more substantial basis than 16.67 per cent more frequent service and 2.13 per cent greater length of haul and is, despite an excess of average daily weight, on the latter route of 41.18 per cent. Curiously enough, the vagaries of the methods followed by the department provide an offset for this assign- ment of 80 per cent more car-foot miles to one route than to the other, and Table 8A further shows that the Postmaster General estimates the cost incurred in its mail service of the route which, he says, made 3,246.48 car-foot miles as $15.25 and that of the route which made 1,810.19 car-foot miles as $20.71. These figures give an average car-foot mile cost of 11.441 mills for the Arizona & Colorado, which is a part of a great system, as compared with an average of 4.69 mills for the Sierra Valleys Railway, a difference of 243.94 per cent of the smaller average. The following statement demonstrates still more vividly the inequalities resulting from the application of the Postmaster General's method of assigning space: Route No. Length in miles. Average daily weight, 1909. Car-foot miles made in closed pouch service. 1 Number of trains per day. Number of car-foot miles reported •i by railway. 107,074 110,024 12.64 12.25 291 989 2,679 2,521 10 10 4,790 6,734 Reported in Document No. 105. These two routes have only closed pouch service and are about the same length* have the same number of trains carrying mail and similar conditions in every way, except No. 110,024 carries about three and one-half times as much mail as 107,074 nevertheless the Postmaster General credits 107,074 with 158 car-foot miles in excess of the number credited to No. 110,024. Such inconsistencies as these counteract any superficial plausibility that the report might otherwise possess and destroy all confidence in the accuracy of its conclusions as to space or cost of service. EAILWAY MAIL PAY. 79 (f) the effect of these arbitrary methods. Under the methods applied by the Postmaster General, and by reason of the recom- mendation which he bases upon these figures, the facts as to relative space devoted, respectively, to passengers, express, and mail become of the first importance. They are the facts which control the estimates of cost, and, therefore, the recommendation as to compensation. By arbitrarily reducing the car-foot mileage made in the mail service of any company the Postmaster General reduced the estimate of cost of carry- ing the mail for that company because by his method cost is largely a deri\ r ative of car- foot miles, and he also reduced his proposal as to its compensation, for he asks to be authorized to base payment upon his alleged costs. Using the data as to the Atchison, Topeka & Santa Fe system, in the table on page 27, it is possible to ascertain just how much the changes affected the results claimed by the Postmaster General as represent- ing the mail operations of that system . Turning, first, to pages 272 and 273 of the report it appears that in his table 7 the Postmaster General reports the "operating expenses and taxes chargeable to passenger traffic" of the Atchison, Topeka & Santa Fe as 11,964,620.10, that no part of this was directly charged to mail, and that $97,186,52 was apportioned to mail. A simple arithmetical calculation supplies the omitted element in this statement and discloses the fact that $84,803.47 of the $1,964,620.10 was directly charged to passengers and express and that the balance, $1,879,816.63, was apportioned on the car-foot mileage basis. As the department had allowed only 5.17 per cent of passenger-train space to the mails it assigned only 5.17 per cent of this total expense to the mails. But the com- pany reported 7.63 per cent of its passenger-train space as devoted to mail and not 5.17 per cent, the figure used by the Postmaster General. If the latter had used the company's figure the cost apportioned to mail by his method would have been $143,430.01 instead of $97,186.52, as stated in Table 7. The revenue from mail of this system is given in the same table as $159,567.06, so that if the department had used the accurate figures reported by the company it would have found a moderate surplus over operating cost and taxes of but $16,137.05 instead of the surplus of $62,380.54, which it claimed to find. And this result would have been inevitable, except for the arbitrary changes in the data as to space, in spite of the fact that the reported operating cost of the whole passenger-train service is very much too low. What is true as to the effect of these changes with respect to the Atchison, Topeka & Santa Fe's figures is true as to substantially every company included in the report. (g) conclusion necessary from these facts. The inevitable conclusion from these necessarily destructive criticisms drawn from the figures of the report and the public records of the postal service is that all the elaborate tables prepared in the Post Office Department, so far as they purport to show car-foot mileage made in the mail service, are based upon radical modifica- tions of the data reported at its request and upon arbitrary and undisclosed estimates, with the result that they throw no light whatever upon the real or relative extent or cost of the services and facilities supplied by the railways. On the contrary, they destroy the value of every calculation in which they are an element, and as they enter into the most fundamental computations which document No. 105 contains they deprive the whole report of whatever value it might otherwise possess. Until these data are carefully checked and fully corrected and the modifications which these corrections would entail extended to the figures that are dependent upon or result from the use of car-foot mileage the use of document No. 105 as a basis or guide in the formulation of legislation would be unfair, unwise, and indefensible. Third. The Postmaster General has apportioned expenses incurred for the joint purposes of the passenger and freight services between these services in accordance with a method never accepted by anyone with practical experience in railway account- ing or operation. The fairness of railway mail pay can be tested by apportioning operating expenses between passenger and freight traffic, and then making a secondary apportionment of the passenger expenses between mail and other kinds of traffic carried on passenger trains. This method involves charging directly to each kind of traffic all expenses pertaining exclusively thereto and the apportionment on some fair basis of those expenses which are common to more than one kind of traffic. In accordance with the request of the Postmaster General the railways estimated the cost of conducting the mail service in the manner just explained and reported the results to the Postmaster General. After first charging to each service the ex- 80 KAIL WAY MAIL PAY. penses wholly due to it they apportioned the common expenses between the passen- ger and freight services, following (with inconsequential exceptions) the method most generally employed for that purpose, namely, the apportionment of these expenses in the proportions of the revenue train mileage of each service. Having estimated in this way the operating expenses attributable to passenger trains the railways assigned to the mails the portion of this aggregate indicated by the proportion of the total passenger-train space required for the mails. Using this method 186 railways, oper- ating 2,370 mail routes, with a total length of 176,716 miles, ascertained and reported that for November, 1909, the operating expenses (not including taxes) for conducting the mail service were $4,009,184. The Postmaster General states (Doc. 105, p. 281) that all the railways represented in the foregoing, and enough others to increase the mileage represented to 194,978 miles, were paid for the same month only $3,607,773.13. It thus appears that the pay was far below the operating expenses, without making any allowance for taxes or for a return upon the fair value of the property employed. While different methods are in use for ascertaining the cost of passenger-train service and the results produced by such methods may show considerable variation, yet the mail pay is so far below reasonable compensation, from the standpoint of the cost of the service and a return upon the value of the property, that no method can be reason- ably urged which would not demonstrate the noncompensatory character of the present mail pay. This is illustrated by the method which the Postmaster General himself employed, as the character of that method is such that it necessarily produces the very lowest estimate of cost for the passenger-train service. The Postmaster General, by his method of apportionment, arrived at a cost of $2, 676, 503. 75 But this must be increased on account of his erroneous apportionment of car space by 800, 802. 00 And also on account of his refusal to assign expenses directly incurred in the mail service (p. 15) 1 401, 126. 00 Total, according to the Postmaster General's method of apportioning costs between passenger and freight traffic 3, 878, 431. 75 Thus even the Postmaster General's method of apportioning costs between freight and passenger traffic produces an operating cost in excess return upon the fair value of the property or necessary but nonincome of the total pay received by the railroads, leaving nothing whatever for producing improvements. There is no allowance in any of these estimates of cost for the large volume of free transportation supplied to officers and agents of the Post Office Department when not in charge of mail, although this amounts to over 50,000,000 passenger miles annually, and at the low average rate of 2 cents per mile would cost the Post Office Department more than $1,000,000 per year. Fourth. The Postmaster General has wholly overlooked the fact that a large part of the costs incurred by the railways in carrying the mails consists of interest on the capital they employ. By ignoring all capital expenses, confining his attention to mere operating costs, and proposing to return to the railways only the amount of these operating costs, plus 6 per cent, he urges a method which, if applied generally to all their business, would render every railroad at once bankrupt. (a) postmaster general admits that some items op expense were omitted. Attention has already been called herein to the admissions in Document No. 105 that neither the expenditures on account of station services and terminal facilities (see pp. 9-16) nor the cost of personal transportation furnished without special charge therefor to the officers and agents of the postal service (see pp. 16-18) were Included in its estimates of cost. Attention has also been directed to the specific admission that only two kinds of cost were considered, which admission was made in the following words: "It is shown that, upon this basis of calculation, the information furnished and the assignment of operating expenses and taxes (the factors of expense considered), the performance of mail service at the present rates is profitable to many companies and unprofitable to others * * *." (Doc. No. 105, p. 14.) 1 There may be some duplication in this item, but to eliminate it would require an elaborate computa- tion, which in view of the broad margin of expenses over receipts, is wholly superfluous. Whatever duplication exists must be small in comparison with this margin. KAILWAY MAIL PAY. 81 (b) the postmaster general ignores the fact after his admission. Yet after this admission the report, curiously and inconsistently enough, proceeds to assert that the figures show the relation between actual cost to the railways and their present mail pay. The sentence last above quoted continues, in the very next words, as follows: "But that the net result shows that the Government is paying more for the service than it costs the railroad companies to perform it; furthermore, that this excess over cost and 6 per cent profit is about $9,000,000 a year; that in cases where rail- road companies are carrying the mails at a profit the per cent of profit over the cost of performing the service varies in almost every instance, ranging frorn a low to a high rate, and that in cases where railroad companies are carrying the mails at a loss the per cent of loss compared with the cost of performing the service varies in the same manner." (Doc. No. 105, pp. 14-15.) Referring, over his own signature, to the foregoing, the Postmaster General says: "The committee estimates that through a readjustment of railway mail pay on the basis of cost with 6 per cent profit a saving to the Government could be made of about $9,000,000." (Doc. No. 105, p. 3.) And in his annual report to the President, dated December 1, 1911: ^ "The statistics obtained during the course of the investigation disclosed for the first time the cost of carrying mail in comparison with the revenue derived by the railways from this service. * * * If Congress gives the recommendation of the department in this regard its favorable consideration and authorizes a readjustment of railway mail pay in the manner suggested, it is believed that the resulting saving to the Govern- ment will amount annually to about $9,000,000." (Annual Report of the Postmaster General for the fiscal year 1911, pp. 19-20.) The Second Assistant Postmaster General makes substantially the same statement, but in words which point definitely to a source which discloses the incomplete nature of the estimates of alleged cost. He says: "A computation has been made, based on Table 7, of the amount of revenue the companies or systems reporting would receive if their compensation for mail service were based on the cost of carrying the mails and 6 per cent of such cost. The results indicate that the companies represented in the computation would receive annually under such method of payment about $9,000,000 less than at present." (Doc. No. 105, p. 7.) Turning to Table 7 (Doc. No. 105, pp. 272-281) there is no difficulty in verifying the facts already stated as to the factors of cost included and as to those ignored. The truth is disclosed by the table headings. Thus, as to the Abbottsford & Northeastern Railroad, the first company shown, the table headings and the entries under them, on page 272, are as follows: Table heading. Entry. Total operating expenses (passenger and freight) 11,522.10 Taxes 90.49 Total operating expenses and taxes 1,612.59 Total operating expenses and taxes chargeable to passenger traffic 268. 19 Passenger traffic, operating expenses, and taxes chargeable to mail service: Apportioned 5.20 Total 5.20 It will, of course, be noted that the items of expenses shown in the foregoing are those of operation and taxation only. All other expenses are absolutely ignored. Yet the next page shows that this obviously incomplete item of $5.20 was compared with the company's mail pay receipts for the month, $54.25, and the whole excess, $49.05, shown as "gain from mail service." That the company had any other ex- penses than those enumerated is wholly ignored. And the same is true as to every other company and as to the whole of the Postmaster General's report. (c) THE FACTORS IN COST OF PRODUCTION. The science of political economy may be almost said to begin with the classification of the factors of production under the three heads of labor, land, and capital, and the explicit recognition that each of these factors entails a distinct element of cost of production. Thus labor receives wages, which constitute an element of cost of production; land receives rent, which is another element; and capital receives interest, which is a third element. The term "interest" as thus used is the exact equivalent, in economic nomenclature, of the term "reasonable return on investment," as used 82 BAIL WAY MAIL PAY. in ordinary parlance to denote the cost directly and properly occasioned by the use of capital. Where a Government is supported in whole or in part by taxes on pro- duction the sums so paid may not improperly be treated as an additional element in cost of production and, under modern conditions, in which the whole process of pro- duction is rarely under unified control, the cost of materials is also in the nature of an item of such cost, at least from the point of view of any separate enterprise or estab- lishment. Every one of these items of cost must be satisfied or there is loss; until they are all fully met there can be no such thing as profit. Railways have capitalized the rents of their rights of way and other land holdings, and it is sufficient therefore to speak of the cost of production of the services they supply as including only the four elements of (a) reasonable return on investment or interest, (6) wages, (c) cost of mate- rials, and (d) taxes. Operating expenses include wages and cost of materials (i. e., fuel, rails for replacement, etc.). So the Postmaster General has actually included three of the four factors and excluded the other; that is to say, he has ignored the rec- ognized right of investors to a fair return upon the fair value of the property necessarily employed to render the services. To speak of "6 per cent profit," as the Postmaster General has (Doc. No. 105, p. 3), when there has been no allowance for any return to investors, an essential and inevita- ble part of the cost of production, is a gross and misleading misuse of terms that have definite and established meanings. Railways are much less able to ignore the rights of investors to proper and regular returns than some other undertakings, because, with very few exceptions, their entire property holdings are pledged by mortgages given to secure interest payments. To be unable to pay interest therefore spells bank- ruptcy. From the point of view of the traveling and shipping public a reasonable recognition of the right of the owners of railway property to receive returns upon their investments reasonably proportioned to its fair value is equally important. The rapidly growing industries of the United States continually require the services of more and better railway facilities and their urgent demands can be met only by the annual addition of very large sums to the capital invested in American railways. This needed capital can not be obtained unless the promise of reasonable returns thereon is supported by evidence that capital already invested, under competent management, is able to earn fair returns. If Congress should now adopt the attitude of the Postmaster General, as developed in Document No. 105, and ignore all capital expenses in fixing rates of payment for the mail facilities and services supplied by the railways, it would be notice to all potential investors in railway property that the policy of the Federal Government had been so formulated as to deny their right to reasonable compensation for the use of their capital. (d) railway investors are constitutionally protected in the right to reasonable returns. The Postmaster General appears to have overlooked the fact that the Constitution of the United States protects the owners of railway property against such a congres- sional confiscation of the right to use their property as he proposes. In recommending a plan of payment which excludes any return whatever upon the value of the property used in rendering the services required by the Post Office Department he has proposed a plan that would be absolutely repugnant to the following well-known provisions contained in Article V of the amendments: "No person shall * * * be deprived of * * * property, without due process of law; nor shall private property be taken for public use, without just compensation." It is not proposed or in any way necessary to enter upon an elaborate constitu- tional argument, for everyone knows that the foregoing and the similar prohibition contained in the fourteenth amendment have repeatedly been applied to prevent action similar in character, albeit much less drastic, to that now proposed by the Postmaster General. One citation, and that from a decision of the Supreme Court of the United States, will suffice: "The corporation may not be required to use its property for the benefit of the public without receiving just compensation for the services rendered by it. * * * "We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanc- tion must be the fair value of the property being used by it for the convenience of the public. * * * What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience." (Smyth v. Ames, 169 U. S., 466, 546-547; 42 L. Ed., 819, 849.) In the case from which the foregoing is quoted the Supreme Court affirmed a decision preventing the enforcement of a schedule of maximum rates enacted by the RATT.WAY MAIL PAY. 83 Legislature of Nebraska as to two companies (among others) with regard to which the court had found that they would have earned, in the years under consideration, more than their operating expenses, because, as said in the opinion: "The receipts or gains, above operating expenses, would have been too small to affect the general conclusion that the act, if enforced, would have deprived each of the railroad companies involved in these suits of the just compensation secured to them by the Constitution." (Smyth v. Ames, 169 U. S., 466, 547; 42 L. Ed., 819, 849.) Although the fourteenth amendment in particular has repeatedly been invoked to prevent the enforcement of rates prescribed under legislative authority which the courts have held would amount to a confiscation of the use of railway property by depriving its owners of a return on its fair value, that is to say, of interest, no legis- lature has ever yet acknowledged an intention to fix rates so low as to have that result. Until the Postmaster General made the recommendation embodied in Document No. 105 no public officer had ever avowed a purpose to refuse to any railway carrier a fair return on the fair value of any property used to render any service, no legislature had ever enacted a law which it admitted would have that effect, no State or national railroad commission had ever claimed that power exists to ignore the right of property to a reasonable return, and, therefore, no court has ever yet been required to pass upon the validity of law-made rates in the light of a frank admission that they would do no more than provide for operating expenses and taxes, leaving nothing, or substantially nothing, to the owners of the property. That such a contention will ever be made in any court is beyond belief. (e) amounts of expenses ignored by the postmaster general. The Interstate Commerce Commission has just published the report of its statistician for the year which ended with June 30, 1910, from which it appears (p. 70) that the gross receipts of the railways, amounting to $3,005,112,836 (this sum includes operating revenues, $2,750,667,435; net revenue from outside operations, $2,225,455; and other income, $252,219,946, and thus obviously represents duplications in such instances as the payment of rent for leased railway out of operating revenues when all or part of the amount so paid becomes, in turn, "other income" through receipt of interest or dividends on securities of the leased lines held by the lessee. These duplications are unavoidable, however, if on the expense side are properly to be set up such inter- corporate payments as those of rentals of leased railways) during that year were dis- posed of as shown by the table on page 41. Omitting all expenses, included in the foregoing table, that are not absolutely necessary to avoid bankruptcies and the disruption of operating systems, the expenses shown in the table at the top of page 42, in addition to those allowed for by the Post- master General, at the very least, must be provided for out of earnings; Item. Amount. Per cent of total. Per cent of total of oper- ating expenses and taxes. Operating expenses $1, 822. 630, 433 198,034,593 133,881,409 27, 625, 077 28, 811, 031 2, 933, 067 1,466,897 i 349. 092, 709 13, 207, 243 5,355,416 5,480,239 1283,411,828 55,061,675 2, 640, 893 175,480.326 60.65 3.26 4.45 .92 .96 .10 .05 11.62 .44 .18 .18 9.43 1.83 .09 5.84 94.90 5.10 6.97 Taxes Deductions from gross corporate receipts: Rents for lease of other roads Hire of equipment, debit balances Paid for use of joint facilities 1.50 15 Miscellaneous rents Loss on account of separately operated properties 08 Interest on funded debt 18 17 Other interest .69 .28 Sinking and redemption funds chargeable to income Other deductions .28 14.76 2.87 13 Dividends Appropriations for additions and betterments and for new lines" and extensions Appropriations for reserves Credit to profit and loss 9 14 Total 3,005,112,836 100.00 156.46 i These items do not include payments made under these heads by leased lines, as such payments are made out of the proceeds of the item entitled " Rents for lease of other roads." 84 KAILWAY MAIL PAY. Omitted expenses. Item. Amount. Per cent ofexpenses considered by Post- master General. Rents for lease of other roads $133,881,409 27,625,077 28,811,031 2,933,067 349,092,709 13,207,243 5,355,416 6.97 Hire of equipment, debit balance 1.44 Payments for joint facilities 1.50 Miscellaneous rents .15 Interest on funded debt , 18.17 Other interest .69 pinlring and redemption funds .28 Total 560,905,952 29.20 The Postmaster General's plan, however, if applied to all railway traffic, would allow the railways to receive for the services they render only the amount of their operating expenses and taxes; that is, 11,920,665,026, plus 6 per cent of that amount, which is $115,239,922. Thus, instead of the $560,905,952 absolutely necessary, as has been seen, to maintain their systems and keep them out of the hands of receivers they would have only $115,239,922, or 20.55 per Cent, about one-fifth of the necessary amount. Of course, every reasonable person realizes also that the item of "dividends," as well as most of the other items in the table next but one above, is a necessary item and must be met if the railways are to be fairly treated — if they are to be protected in their constitutional right to receive just compensation for their services and if they are to be enabled to render proper and adequate services as common carriers. The fact that the Postmaster General's plan could not be generally applied without destructive effect should deprive it of any support whatever. There is nothing in the character of the mail traffic which suggests that it ought to be treated exceptionally or carried for so low a figure as to require rates on other transportation to be kept at a higher level in order to prevent the insolvency of the carriers. Such treatment would make the mail service a tax on every other service rendered by the railways. (f) even on the basis of the unfairly low estimates of operating costs made by the postmaster general, allowance for the omitted expenses would make the mail pay higher than it is now. The following figures are deduced from 105, pages 280-281: Railway mail pay for November, 1909 Operating expenses and taxes, same month. those contained in Table 7, Document No. $3, 607, 773. 13 2, 676, 503. 75 By reference to page 41 of this statement, it will be seen that the gross receipts of all railways for the year ended June 30, 1910, as reported by the Interstate Commerce Commission were 3, 005, 112, 836. 00 Deducting therefrom — Operating expenses and taxes $1, 920, 665. 026. 00 Appropriations to additions and betterments and for new lines and extensions 55, 061, 675. 00 Credit to profit and loss 175, 480, 326. 00 — 2, 151, 207, 027. 00 There remains 853, 905, 809. 00 Equals 44.45 per cent, which must be provided for before a proper return on invest- ment shall have been secured. If you add to the operating expenses and taxes, as shown by the Postmaster Gen- eral, $2,676,503.75, for November, 1909, 44.45 per cent, or $1,189,705.92, it will give a total of $3,866,209.67, or $258,436.54 (equivalent to $3,101,238.48 per annum), more than document No. 105 shows was paid for mail service in November, 1909, and consequently, even on the basis of the unfairly low estimates of operating costs made by the Postmaster General, an allowance for the omitted expenses, which must be met would make the railway mail pay higher than it is at present. KAILWAY MAIL PAY. 85 Fifth. In confining his investigation to the month of November, the Postmaster General selected a month that is not a fair average or typical portion of the year but, in connection with the methods he employed, greatly reduced the apparent cost of the passenger train services, resulting from his calculations. There can be no contradiction of the assertion that, if in every other respect the basis of railway pay proposed by the Postmaster General were reasonable and fair, the validity of his calculations would depend upon whether the period selected for his investigation could be considered fairly typical of an entire year. All his computations are based upon data obtained by him which represent only the single month of November in the year 1909. If that month was a reasonably typical month, particularly with respect to passenger train traffic and expenses calculations based upon these data would be entitled to all the weight which the methods of computation employed would warrant. But, however accurate these calculations and methods, the results could rise no higher than their source, and the most perfect system of computation most accurately applied would be wholly vitiated if the basic data can not be regarded as fairly typical and rep- resentative. If the month of November varies from the whole period of the year from which it was selected, and particularly of the differences are such as unfairly to dimin- ish the apparent cost of the passenger train services, results based only on date for that month must be inconclusive and worthless. Now, this is precisely the case. It may fairly be questioned whether the year contains any single month that could be properly denominated an average, typical, or representative month, but if there is such a month it is certainly not the month of November. The Interstate Commerce Commission has published the receipts and expenditures of the railways of the United States for each month of the fiscal year that ended with June 30, 1910, and includes the month of November, 1909, and these data conclusively prove that that month was very far from a representative one and that the seasonal and other variations to which it was subject were such as to render the results of any calculations based upon it exceedingly unfair to the passenger train services. 1 The figures in the second and fifth columns of the table on page 45 are from that bulletin, the figures in the other columns have been derived from them. Gross operating receipts per mile of line. Per cent of passenger receipts to receipts from both passengers and freight. Passengers. Freight. Total. Daily average. Per cent of daily average for year. Total. Daily average. Per cent of daily average for year. 1909, July $251. 66 269. 70 254. 95 231.80 206.69 211.55 187. 42 171.92 202. 61 203. 84 218. 47 233. 25 $8.12 8.70 8.50 7.48 6.89 6.82 6.05 6.14 6.54 6.79 7.05 7.78 112.15 120.17 117.40 103.31 95.17 94.20 83.56 84.81 90.33 93.78 97.38 107.46 $608. 67 653. 97 704. 51 781.91 752. 69 640.59 618. 06 603. 76 716. 76 658. 93 682. 96 674. 97 $19. 63 21.10 23.48 25.22 25.09 20.66 19.94 21.56 23.12 21.96 22.03 22.50 88.46 95.00 105.81 113.65 113.07 93.11 89.86 97.16 104.19 98.26 99.28 101. 40 29.25 1909, August.. 29. 20 1909, September 1909, October 26.57 22.87 1909, November 1909, December 1910, January 21.54 24.83 23.27 1910, February 1910, March 22.16 22.04 1910, April 23.63 1910, May 24.24 1910, June 25.68 Total 2 2,643.86 7.24 100. 00 2 8,097.78 22.19 100.00 24.61 1 Interstate Commerce Commission, Bureau of Statistics and Accounts, Bulletin of Revenues and Expenses of Steam Roads in the United States, compiled from monthly reports covering the years ending June 30, 1910 and 1909. * The totals stated differ very slightly from those stated by the commission, as they are the exact sums of the averages given, while the commission's totals include also small unclassified receipts. 86 EAILWAY MAIL PAT. Gross Receipts per mile per day Per Cent Deviation From Average JULY190Q AUG.I909 SEPT 1909 OCT 1909 NOV 1909 DE C.I909! JAN. 1910 FEB. 1910 MAR. 1910 APRILI9I0 MAY 1910 JUNEI9I0 ABOVE AVERAGE BELOW AVERAGE 1 12 16 za 1 Passenger | I] Freight EAILWAY MAIL PAY. 87 The most accurate comparisons permitted by the data on page 45 are those between the per diem averages in the third and sixth columns, as such comparisons are not affected by the varying numbers of days in the different months. These compari- sons show that the average gross receipts per mile of line from the passenger service during the month of November, 1909, amounted to but 95.17 per cent of the daily average for the year, while the average gross receipts from freight service amounted to 113.07 per cent of the daily average for the year. In the whole year there were but four months that showed smaller gross receipts from passengers than the month selected by the Postmaster General, while there was but one month in the entire year which showed as high receipts from freight service. More conclusive still is the fact, shown by the last column in the table, that of all the months in the year the percentage of gross passenger receipts to receipts from both passengers and freight was absolutely the lowest in November. In that month the passenger service earned, in gross, but $21.54 in each $100 of receipts from both the passenger and freight services, while the average for the year was $24.61, and in one month it was as high as $29.25. It is perfectly obvious that if any direct charges to the different services are warranted the amounts of the accounts so chargeable must fluctuate, if not in exact proportion to the respective volume of traffic in the passenger and freight services, at least with some relation to such volume. And it is undeniable that the fluctuations in average gross receipts per mile of line roughly measure fluctuations in volume of traffic . Hence it is plain that in selecting the month of November, and making it the exclusive basis of all his calculations and estimates, the Postmaster General shows, unwittingly, it is believed, the one month in the year that, if the balance of his case were sound, would appear to sustain the largest possible reduction in railway mail pay and that is actually the most unfavorable to the railways. He assigned directly $34.40 in each $100 of operating expenses, and every^ apportionment so made to the passenger- train services was diminished by the selection of a month in which freight movement is much heavier and passenger movement much lower than the average for an entire year, he assigned $36 in each $100 of operating expenses in the proportions of the accounts he had charged directly and thus extended the error to these nnlocated or joint expenses; he assigned $13.60 in each $100 in proportion to locomotive mileage and $9.80 in each $100 in proportion to revenue train mileage, and as these apportion- ments were made on the basis of a month in which passenger traffic was very light and freight traffic very heavy these apportionments also were unduly to the disad- vantage of the passenger- train services. And these apportionments account for 93.80 per cent, or $93.80 in each $100 of all operating expenses. In the wide range of climatic conditions in the United States it happens that the month of November is, throughout a large section and as to many railways, a month in which substantially winter conditions prevail and characterized by much more than the average difficulty of operation. Under such conditions it becomes necessary to suspend certain repairs, renewals, and replacements, which entail expenditures chargeable to the operating accounts while the cost of moving trains is enhanced. The results of these facts are shown by the table on page 48. Fiscal year 1910. Class. Average per mile of line. Average per mile of line per day. Per cent of total. No- vember. Other eleven months. Total. No- vem- ber. Other eleven months. Total. No- vem- ber. Other eleven months. Total. Maintenance of way and structures $124. 04 148. 48 18.85 327. 78 23.10 $1,438.84 1,597.56 201. 76 3,565.93 264. 61 $1,562.88 1,746.00 220. 61 3, 893. 71 287. 71 $4.13 4.95 .63 10. 93 .77 $4.30 4.77 .60 10.64 .79 $4.28 4.78 .61 10. 67 .79 19.31 23.11 2.94 51.04 3.60 20.36 22.60 2.85 50.45 3.74 20.27 Maintenance of equipment. Traffic expenses 22.64 2.86 Transportation expenses . . . General expenses 50.50 3.73 Total 642. 21 7, 068. 70 7, 710. 91 21.41 21.10 21.13 100.00 100. 00 100.00 88 RAILWAY MAIL PAY. Operating Expenses per mile of line per day Transportation Expense Maintenance of Equipment Maintenance of Way and Structure General Expense Traffic Expense \ H NOVEMBER 1 1 OTHER II MONTHS RAILWAY MAIL PAY. 89 The figures in the table on page 48 fully corroborate the conclusions inevitably to be drawn from the one next preceding. Thus it appears that while the average daily operating expenses of November are, in the aggregate, a little higher than those of the balance of the year, their distribution among the various accounts is very different from the average distribution. The maintenance of way and structures expenses, which do not fluctuate with traffic fluctuations, averaged but $4.13 per mile of line per day during the period selected by the Postmaster General, while during the balance of the year these expenses averaged $4.30 per mile per day. But expenses for other purposes averaged $17.28 per mile per day during the former period and only $16.80 during the latter. These differences result from the fact that the severe weather conditions of November render necessary the suspension of much of the ordinary maintenance work upon roadbed and structures and, at the same time, tend to enhance the operating expenses that do fluctuate with the volume of traffic. Consequently, as all the traffic fluctuations that find expression in November tend to diminish the total expense apportioned, by the Postmaster General's method, to the passenger-train services, the fact that the expenses that do vary with traffic are relatively heavier in the month he selected had a further and strong tendency to reduce the apparent cost of the passenger- train services resulting from his computations. It follows, as surely as the night fol- lows the day, that, if every other feature of Document No. 105 were utterly beyond criticism, the fact that it rests wholly upon the single month of November would render its results illusory, misleading, and grossly unjust to the railways. III. Recent Reductions in Railway-Mail Pay. A. PRELIMINARY SURVEY AND COMPARISONS. No consideration of the reduction proposed in Document No. 105 would be adequate which did not make appropriate allowance for the fact that during the period of advancing railway expenses subsequent to June 30, 1907, the mail revenues of the railways have been subjected to repeated and drastic decreases brought about by legislative action and by administrative orders. The volume of the American mails, the revenue of the American postal service, and its demands upon the railways for services and facilities are constantly increasing. The costs of supplying railway transportation are also increasing. Capital costs (interest) have increased through the higher standards of service demanded and the higher value of real estate required for extended and necessary terminal plants, labor costs have grown by means of repeated advances in the rates of wages paid to employees in every grade, other operating expenses have increased as prices of materials and supplies have mounted upward, taxes have increased with the growing exactions of State and local governments which have been rapidly augmenting their expenditures and forcing an increasing share of the total burden upon railway carriers and by the creation of an entirely new Federal corporation tax. But the aggregate railway-mail pay has remained substantially stationary for several years and has not at any recent aate advanced in proportion to the increased facilities and services required, the increased profit on the use of these facilities and services made by the Post Office Department or the increased expense to the railways. The pay per unit of service rendered has been greatly reduced. The table on page 52 shows some of these facts. 90 KAILWAY MAIL PAY. Postal re- ceipts. 1 Postal expenditures. Fiscal year. All purposes. 2 Railway mail pay. 3 Other expenses.' Amount. Per $100 of re- ceipts. Amount. Per $100 of re- ceipts. Amount. Per $100 of re- ceipts. 1901 $111,631,193 121,848,047 134,224,443 143, 582, 624 152,826,585 167,932,782 183, 585, 005 191, 478, 663 203, 562, 383 224, 128, 657 237,879,823 $115,554,921 124, 785, 697 138,784,487 152,362,116 167,399,169 178,449,778 190,238,288 208,351,886 221,004,102 229,977,224 238,507,669 $103. 51 102. 41 103. 40 106. 11 109. 54 106. 26 103. 62 108. 81 108. 57 102. 61 100. 26 $38,158,969 39,518,817 41,377,184 43,971,848 45,040,564 46, 953, 439 49,758,071 48, 458, 255 49,869,375 49,405,311 50,583,123 $34. 18 32.43 30.83 30.62 29.47 27.96 27.10 25.31 24.50 22.04 21.26 $77,395,952 85,266,880 97, 407, 303 108,390,268 122,358,605 131,496,339 140,480,217 159,893,631 171,134,727 180,571,913 187,924,546 $69.33 69.98 1902 1903 72.57 1904 75.49 1905 80.07 1906 78.30 1907 76.52 1908 83.50 1909 84.07 1910 80.57 1911 79.00 1 Postmaster General's Annual Report for 1911 (H. Doc. No. 559, 62d Cong., p. 47). a The amounts given are those reported by the Postmaster General (Annual Report for 1911, H. Doc. 559, 62d Cong., pp. 48-49) except that for the year 1911 the total expenditures are stated as shown by the later and corrected figures reported by the Committee on the Post Office and Post Roads of the House of Represent- atives (H. Rept. No. 388, 62d Cong, 2d sess., p. 2), but they are too low. The report of the Commission on Second Class Mail Matter, consisting of Hon. Charles E. Hughes, Associate Justice of the Supreme Court of the United States; Dr. A. Lawrence Lowell, President of Harvard University; and Mr. Harry A.Wheeler, President of the Association of Commerce of Chicago (published in the document already cited, which also contains the Postmaster General's Annual Report for 1911); shows that the accounting methods of the Post Office Department are misleading in that they exclude actual expenses of the postal service that are considerable in the aggregate. Figures given in the commission's report (p. 77) show that for the fiscal year 1908 the expenses (given in this table as $208,351,886) do not include the following: "Amount expended under legislative act for the Post Office Department, $1,622,564.24; amount appropriated under legislative act for the office of the Auditor of the Post Office Department, $824,870; amount expended under legislative act for the office of the Assistant Attorney General for the Post Office Department, $5,000; transportation accounts certified to the Secretary of the Treasury for credit of aided Pacific roads not charged to postal revenues, $70!, 099.69"; total, $3,203,533.93. The item on account of bond-aided roads has ceased to exist (Postmaster General's Annual Report for 1911, p. 49), but the other omissions still impair the accuracy of of the accounts. Assuming that these other items were the same in 1911 as in 1908, it follows that the actual cost of the postal service in the later year was $240,960,103 instead of $238,507,669, and that instead of a surplus of $219,118.12 in postal receipts over expenditures (Annual Report of the Postmaster General for 1911, p. 15) there was actually a deficit of $3,080,280. The statements of cost of the postal service supplied by the Post- master General are also defective, in that they contain no allowance for rental of buildings owned by the Federal Government and occupied by the department, as post offices or otherwise, or for interest or depre- ciation on any capital or property owned and utilized in the postal service. See also House Report No. 388, Sixty-second Congress, second session, being a report of the Committee on tbe Post Office and Post Roads of the House of Representatives, which shows that items chargeable to the fiscal year 1911, but audited after its close, more than offset the small surplus claimed by the Postmaster General and leave an actual deficit of $627,845.94 for that year— this, exclusive of the omitted items to which attention was directed by the Commission on Second Class Mail Matter. s These figures represent cost of railway transportation but are approximately 1 per cent too high. They are not changed, as the exact data necessary are not available. See footnote on page 5 (page 64 of these Hearings). KAIL WAY MAIL PAY. 91 Postal. Receipts and Expenditures MILLIONS' OF DOLLARS 40 60 80 100 IgO 140 (60 180 giOO 210 340 I907J 1908 [Postal Receipts Festal. Expenditures Railway mnl pay Da LL OTHER EXPENSED 92 RAILWAY MAIL PAY. Reduced to percentages, the figures in the table on page 52 show the following increases for the last 10, 5, and 2 years, respectively: Item. Ten Five years, 1901 to 1911. years, 1906 to 1911. 113. 09 41.65 106. 40 32.56 142.81 33. 66 7.73 42.91 Two years, 1909 to 1911. Postal receipts, per cent increase Postal expenditures: All purposes, per cent increase Railway mail pay, per cent increase All other expenditures, per cent increase 16.86 7.92 1.43 9.81 These percentages disclose what has happened too plainly to admit of much com- ment. It appears that for either the 10 or 5 year periods just closed the postal expenses exclusive of railway mail pay have grown much more rapidly than postal business, as fairly measured by receipts, while railway mail pay increased during the longer period less than one-fourth as fast as other expenses, and during the 5-year period less than one-fifth as fast. The 2-year period covered by the percentages in the last column covers the administration of the present Postmaster General, and although during that period the enormous increase in postal business (amounting to $34,317,440 in revenue, or nearly one-third as much as the entire postal receipts of the year 1901) has outstripped the growth of expenditures and the real postal deficit has been greatly reduced, expenses other than for railway facilities have increased 9.81 per cent, while railway mail pay has grown but 1.43 per cent, or about one-seventh as rapidly as other expenditures and about one-twelfth as rapidly as postal receipts. 1 The averages in the table under discussion are even more significant than the aggre- gates. They show that between 1901 and 1911 the cost of the postal service, reported by the Postmaster General, per $100 of receipts therefrom, declined from $103.51 to $100.26, while the cost for railway mail pay declined from $34.18 to $21.26, and that for other purposes increased from $69.33 to $79. That is to say, the net decrease of $3.25 per $100 of revenue is the difference between a saving in railway mail pay of $12.92 and an increase in other expenses of $9.67. In other words, not only is the whole reduction in postal expenses attributable to the reductions in railway mail pay, but an additional reduction in this item has been absorbed by increases in other items. Effective illustrations of the relation of railway mail pay to other postal expenses are found in the table on page 55, which shows the annual increment of revenue for each year of the last decade and the cost per $100 at which it has been earned, the cost of railway mail pay and the expenses for other purposes being stated separately. The table on page 55 shows that while the additional cost of earning the portion of total postal revenue added since 1901 has been, for railway facilities, $9.84 per $100 of receipts, the cost for other purposes has been $87.55 per $100 of added receipts. Thus the revenue added since 1901, which exceeds the entire revenue for that year, has cost, for railway mail pay, but 28.79 per cent of the average of 1901; it has cost, for other purposes, 126.28 per cent of the average at the beginning of the period. These figures give additional emphasis to the conclusion that much more than the entire decrease in postal expenses has been taken from the revenues of the railways which transport the mails. The fact that the yearly averages show that each yearly incre- ment of postal business has been taken up at a cost, for railway facilities, lower than the average cost therefor in 1901, while in 6 of the 10 years the cost for other pur- Eoses has exceeded the average of 1901, in one year being more than three and one- alf times that average, is most significant. These data again demonstrate the truth of the assertion that for a decade at least reductions in railway mail pay have consti- tuted the solitary source of savings in postal expenditures. 1 It may, of course, be suggested that the fact that nearly the whole recent saving in expense appears to be in railway mail pay is attributable to the increase in the cost of rural free delivery, but this explanation would be inaccurate. The cost of rural free delivery reported by the Postmaster General for the fiscal year 1909 was -135,586,780; for 1910, $37,073,733; and for 1911, $37,145,757. These figures give a percentage increase for the two years of the present administration of 4.38 ? which is much lower than the percentage increase of all expenses other than railway mail pay. Excluding the reported cost of rural free delivery and the payments for railway facilities, the increase in all other postal expenditures was from $135,547,947 in 1909 to $150,778,789 in 1911, or 11.24 per cent. Expenditures for rural free delivery are not, however, wholly for an additional service, as might superficially be conceived. In part they represent the substitution of a new method of delivery for delivery through the post offices, which has permitted a decrease in the number of post offices, and therefore the expenses which would have been necessary to maintain the abandoned offices should be deducted from the apparent cost of rural free delivery before calculating its real cost. At the close of the fiscal year 1901 there were 76,945 post offices in the United States; at the corresponding date in 1906 there were 65,600; in 1909, 60,144; and in 1911, 59,237. The number of fourth-class post offices in 1901 was 72,479; in 1906, 59,690; in 1909, 52,944; and in 1911, 51,260. Erom 1901 to 1911 the reduction in the number of post offices of all classes amounted to 23.01 per cent and that in fourth-class post offices to 29.28 per cent. RAILWAY MAIL PAY. 93 OS'S'© OOMH' t~ Ohio ' > 10-* Oi -fio •as ■e P )coiot^-"*^ ^i-J S^oo 00 t^ -^ CO 10 CM O ■<*< CO CO ,-H t^ CO CN 00 CO CO t^OOCO 1-1 0^00 ^~o6ViNf<" 1-? lO lO © CD 1— < O ^H ; CO 00 10 © © 00 w^ ' r-r^TiN'r-rr-reir i-r i-( IT3 ,-H © t~- lO CNJ t- O CO ( «3 MHOtDHm-^NCOl IH CNi-H co©©co©©oocoo'i-ri-roo > cro(roo' i-l 00 CO i-H © iH , cu cdcdcdcucucucucucucu "73 >-» H» H» Hj l-s Hj Hs h-s l-» Kj H» ^ 73 OOOOOOOOOO 2 CO +J +J +J +J +J +J +J +J -u +J 03 1 Hg§V§§NggO jj w Oi Oi OS OS OS OS Oi 05 OS Oi .H .3 gt-sl-sl-jl-sl-sl-sl-jHst-sl^, £ is'S So 03 &£S P4 — . *-" cu 3| a a**- £ M °& .a p « S-g *-i 08 Pi «©i-i Q O M ffifeio TftO 03 go «►, «~ fl 0*^ -grC O S 03 3 p.sl §5£« cu +» +^ ct) ^fc oggS fie cu cu cu 3 co •» 10 CO >OCO CO Ox i S3 iH » O) O I HPJHIOOIOININN! HCH(vJMHOM!D(Oi ITt<00T-jUOt-Ht^00O3t^ t CO M ■* ■* lO lO lO «5 © •<* -tfi irj io io id ' icooe^i-HCNcocococ^coco CO-*l05C3C'3 00'*Tt<-O»O<©CO i-HTtllOCNlO'tl00^-tC0O5t-~ •<^eN"3t^0 0^»o^ooo(OlSHcoO' , * co^o6^<^cN v eq v cp v rH~orTtrco s io »0 C- O^ Oi C- OS Oi Ci G> OS OS yb KAIL WAY MAIL PAY. That the relatively slow expansion of mail receipts shown by these tables is the result of reductions in the rates of pay and not of a slower rate of growth of mail busi- ness is apparent from the following: 1901 1911 Increase (per cent). Freight, tons carried 1 mile: Number * 147, 077, 136, 040 1,895 17,353,588,444 224 2 7,424,390,329 96 255,016,910,451 2,767 32, 338, 496, 329 351 3 16,900,552,138 161 73.39 Per capita of population 46.02 Passengers carried 1 mile: Number 1 86.35 56.70 Mail: P PP Pieces handled 127. 64 67.71 i Interstate Commerce Commission, Twenty-third Annual (1910) Report on the Statistics of Railways, p. 58. 2 Annual Report of the Postmaster General for the fiscal year 1910, p. 47. s Statistics published by the Third Assistant Postmaster General. Figures showing the volume of express business in 1901 and 1911 are not available, but as the amounts paid to the railways for the facilities with which they furnish the express companies are proportioned to the receipts of the latter it may be con- cluded that the growth in the railways' revenues from express at least roughly meas- ures the growth of this traffic. The last foregoing table shows that of the three services included, the business of the mails has grown with far the greatest rapidity, yet by the other tables it has been shown that the railways' revenues from mail have increased most slowly. Various elements have combined to produce this decline in the mail pay of the railways, but in this statement reference will be made only to the more important reductions that have taken place within the past five years. These are: First. The natural operation of the law of 1873 by which the basis of mail pay is fixed. Second. The action of the Post Office Department in stimulating competition for mail where its power to divert part of the movement from any route or routes could be exercised for that purpose. Third. The statutory reductions provided for in the appropriation act of March 2, 1907. Fourth. The reduction accomplished by including Sundays in the divisor used to establish the average daily weight of the mails, in accordance with the executive order known as Postmaster General's Order No. 412 of June 7, 1907. Fifth. The withdrawal of all payments for special facilities, and, Sixth. The withdrawal from the mails of stamped envelopes, postal cards, mail bags, and postal equipment. (b) reductions due to natural operation op the law or 1873. Pay for the services and facilities supplied by railways is now fixed by the law of March 3, 1873 (17 Stat., 558), subject to the deductions provided for by the acts of July 12, 1876 (19 Stat., 78); June 17, 1878 (20 Stat., 140): March 2, 1907 (34 Stat., 1212); and May 12, 1910 (36 Stat., 362). The act of 1876 effected a reduction to 90 per cent of the sums that would have been paid under the unmodified statute of 1873, and the act of 1878 made a further reduction of 5 per cent. The reduction effected by the act of 1907, as modified by that of 1910, will be discussed in a subsequent paragraph. The constant reduction due to the normal operation of the law from 1873 to 1898 was shown as one of the results of the investigations undertaken for the Joint Postal Com- mission by Prof .Henry C. Adams. The figures show in ton-miles rate in the following table are from his report. 1 Fifty-sixth Cong., Sen. Doc. No. 89, pt. 2, p. 253. RAILWAY MAIL PAY. 97 Railway mail pay per ton per mile. Year. Railway mail pay per ton per mile. Year. Railway mail pay per ton per mile. Year. In cents. Per cent of rate in 1873. In cents. Per cent of rate in 1873. In cents. Per cent of rate in 1873. 1873 26,420 23, 732 23,866 23,979 23,960 23, 167 21,522 20,598 18,969 100 90 90 91 91 88 81 78 72 1882... 1883... 1884... 1885... 1886... 1887... 1888... 1889... 1890... 17,886 17, 828 17,670 17,182 16,487 16,567 16,268 15, 656 14,968 68 67 67 65 62 63 62 59 57 1891... 1892... 1893... 1894... 1895... 1896... 1897... 1898... 14,787 14,453 13,973 13,323 13, 109 12,964 12,665 12,567 56 1874 55 1875 53 1876 50 1877 50 1878 49 1879 48 1880 48 1881 Considerably less than one-third of the reduction of 52 per cent shown in the fore- going table is to be attributed to the statutory changes of 1876 and 1878, the entire balance is attributable to the natural operation of the law. From 1879 to 1898, 19 years, during which there were no changes in the law, the average rate per ton per mile declined from 21.522 cents to 12.567 cents or 41.61 per cent. This diminishing effect of the law of 1873 upon the rates of railway mail pay is due to the fact that it fixes the rates on a sliding scale by which they automatically decrease as the volume of the mail increases and so, on every route, constantly approach toward the statutory minimum. The Post Office Department has unfortunately failed to continue the tabulations showing the rates paid per ton per mile for railway mail facilities, begun by the Joint Postal Commission, and it may still be said, as was said by Prof. Adams in 1900: "The Post Office Department has been at considerable expense and trouble to determine the aggregate tonnage of mail matter, but has never thought it of advan- tage to compute the ton mileage of mail carried. This is a little strange, because not only is ton mileage the only true measure of traffic, but it is the unit of traffic made the basis of compensation under the law of 1873." (Prof. Henry C. Adams, Report to the Joint Postal Commission, 56th Cong., S. Doc. No. 89, pt. 2, p. 208.) Although statistics measuring the reduction since 1898 due to this automatic action of the law fixing railway mail pay do not exist, there can be no intelligent denial of the fact that the law still operates and will continue, as long as it stands unrepealed, to operate in this way. Had there been no other changes its operation would un- doubtedly have produced a material reduction in the average rate of payment per ton per mile from 1898 to the present time and such a reduction has actually taken place and is a part of the notable decline already evidenced herein. (C) EFFECT OF COMPETITION STIMULATED BY POST OFFICE DEPARTMENT. Although the rates of pay fixed by the present law are in many instances far below the level of just compensation and there are few, if any, separate routes on which they are fully remunerative, the method of calculation provided in the statute so operates that wherever a railway mail route exists and carries any mail it becomes desirable for the railway operating it, from the point of view of its mail revenue, to secure for that route the greatest possible volume of mail. During recent years the Post Office Department has seized upon the potential advantage springing from this condition and has pressed it vigorously and effectively in its negotiations with the railways. The existence and nature of this advantage were concisely stated by Post- master General von Meyer in his annual report for the year 1907, as follows: "Where through mails are concerned, the department often has the choice of com- peting routes. A competing route may be shorter than another, it may be more economical by reason of being a land-grant route, or it may perform important ter- minal or transfer functions which must otherwise be provided for by the department. * * * Where the department has the opportunity of dispatching mails by com- peting routes, one of which is shorter or otherwise less expensive than the other, it appears to be but just to the Government, when such mails are allowed to remain with the longer or more expensive route, to reduce the compensation paid therefor by the amount which the Government would save if the mails in question were dis- patched by the shorter or less expensive route. 98 KAIL WAY MAIL PAY. "Accordingly the policy has been inaugurated of effecting such a saving in cases of this character arising at the beginning of a contract term, and has been applied in some prominent instances in the readjustments in the third contract section. " (Post- master General's Annual Report for 1907, p. 24.) This policy, to which no exception is here taken, has been continued and the extent in which it has been effective, up to the present time, in reducing railway mail pay may be traced, at least in part, in the successive annual reports of the department. The annual reports of the Second Assistant Postmaster General for 1908, 1909, 1910, and 1911 contain figures which show that the reduction in annual railway mail pay accomplished by this means amounts, at present, to not less than $174, 544. 51. * It is not probable that this policy of the department will be abandoned or that its possi* bilities have been wholly exhausted. (d) reductions made by the act op march 2, 1907. The postal appropriation act of March 2, 1907, provided for a reduction, beginning with Julv 1, 1907, of 5 per cent in the pay for all railway routes on which the average daily weight ascertained at the weighing period was over 5,000 and not to exceed 48,000 pounds and on the excess over 5,000 pounds up to 48,000 pounds on routes having more than 48,000 pounds average daily weight. For the excess over 48,000 pounds the act provided that land-grant roads should be paid at the rate of $17.10 per mile for each 2,000 pounds of such excess and other roads at the rate of $19.24 per mile. By a subsequent act (approved May 12, 1910, 36 Stat. 362), the rate of $17.10 for land- grant roads, was further reduced, the reduction to take effect on July 1, 1910, to $15.39 for each 2,000 pounds in excess of 48,000 pounds. The rates thus specified are 90 per cent of those previously in force and hence the reduction on this portion of the weight carried on the heavy routes was at the rate of 10 per cent. The act of March 2, 1907, also reduced the rates of payment per mile per annum for postal cars 45 feet long or longer (cars or compartments less than 40 feet long are not paid for) as follows: Length of car. Former rate. Reduced rate. Reduc- tion (per cent). 45 feet $30. 00 40.00 50.00 $27.50 32.50 40.00 8.33 50 feet 18.75 55 feet or longer 20.00 The Post Office Department has stated the annual amount of these reductions, not including the change made by the amendment of May 12, 1910, affecting the land- grant routes, and on the basis of the weighings of the years 1904-1907, inclusive, as follows: [Annual Report of the Second Assistant Postmaster General for 1907, p. 140; same for 1908, p. 154.] Weighing section. Reduction in pay com- puted on weight of mails. Reduction in pay for postal cars. Total reduc- tion. First $547,909.01 70,192.45 759,145.88 363,247.29 $239,670.49 85,196.86 442,755.76 168,350.98 $787,579.50 155,389.31 1,201,901.64 531,598.27 Second Third Fourth Total 1,740,494.63 935,974.09 2,676,468.72 Doubtless the foregoing figures are smaller, as to each section and as to the aggre- gate, than those which would represent the effect of the same law calculated upon the weighings of the years 1908-1911 and representing the rates of payment now in force, but the Post Office Department has either failed to make these calculations 1 For all the information on this subject that has been made public see the Annual Reports of the Second Assistant Postmaster General as follows: 1907, p. 143; 1908, p. 156; 1909, p. 141; 1910, p. 131; 1911 (pamphlet print), pp. 9-11. RAILWAY MAIL PAY. 99 or has seen fit not to make their results public. It has stated, however, that the amendment of May 12, 1910, to the act of March 2, 1907, when applied to the weigh- ings in force on July 1, 1910, when it became effective, resulted in a further reduc- tion of $47, 190. 18. x Adding the last-named sum to the,total of $1,740,494.63, repre- senting the reduction in transportation pay, as distinguished from pay for railway post office cars shown in the table, gives $1,787,684.81, which, in the absence of later and more complete information, and with the observation that it is unquestionably too low, must be accepted as the nearest approximation of the actual reduction in transportation pay alone effected by the act of March 2, 1907, as amended on May 12, 1910, which has the sanction of officially published figures. Railway mail pay for transportation in 1911 was fixed, subject to certain deductions, at the annual rate of $46,172,472.93. The reduction of $1,787,684.81, now under consideration, amounted, therefore, to 3.87 per cent of the annual rate of pay computed on average daily weight of the mails. The annual rate of pay_ for postal cars at the close of the fiscal year 1911 was $4,737,788.75 and on this basis the department's statement of the reduction in postal-car pay, $935,974.09, amounts to 19.76 per cent. (e) reduction by administrative order. It is well known that the reduction imposed by the act of March 2, 1907, was adopted as a substitute for the reduction which would have resulted had Congress, by its statutory enactment, required the whole number of days of the weighing period (including Sundays), instead of the number of week days or "working days " in that period, to be used as the divisor in determining the average daily weight fixing the basis of payment for each railway route. Both proposals were submitted to Congress, both were fully considered, and throughout this consideration they were regarded as alternatives; it was never by any one contemplated or suggested that more than one of them should be adopted. After full consideration Congress adopted the former alternative and rejected the latter. Notwithstanding this decision of Congress, the Postmaster General then in office, on the very day that the alternative reduction received the signature of the President — that is to say, on March 2, 1907 — but not until the legislative act had passed beyond the control of Congress, entered an order, known as " Order No. 165," which read as follows: "That when the weight of mail is taken on railroad routes the whole number of days the mails are weighed shall be used as a divisor for obtaining the average weight per day." Three months later, another Postmaster General having come into office, the fore- going was rescinded and the following substituted : "That when the weight of mail is taken on railroad routes the whole number of days included in the weighing period shall be used as a divisor for obtaining the average weight per day." Explaining his action in substituting order No. 412 for order No. 165, Postmaster General Meyer said of the earlier order: "Its enforcement according to its terms would have worked an injustice to those mail routes which afford the most efficient service; that is to say, those lines which carry the mails seven days in every week should receive less compensation for trans- porting the same amount of mail than would those which give a service of only six days in each week. In order to correct this defect, I issued order No. 412, dated June 7, 1907, * * * " (Postmaster General's Annual Report for 1907, p. 28.) The difference between order No. 165 and order No. 412 is that the former would have reduced the mail pay of those routes only which had seven-day service, while the latter reduces the pay of all routes whether they have service seven days per week, or six days, or a still smaller number of days each week. It is a little difficult to com- prehend how an injustice to some routes arising from a reduction in their pay could be remedied by reducing the pay on some other routes, and the difficulty is enhanced when it is realized that in many cases both seven-day and six-day (or less) routes are operated by the same railways and the pay for facilities on those of both classes goes in effect into the same pocket. This is not the place in which to discuss the propriety, the legality, or the wisdom of the change effected in 1907 by Executive order, but attention may properly be di- rected at this time to the indisputable fact that had Congress been advised of the pur- pose of the Postmaster General to issue an order increasing the number of days taken as the divisor, the statutory reductions of March 2, 1907, would not have been adopted. But reversing the declared purpose of Congress, the administrative order changing the divisor was issued and has been enforced, and this report is concerned with it no » Annual Report of the Second Assistant Postmaster General for 1910, p. 131. 100 KAILWAY MAIL PAY. further at present than to ascertain, as nearly as may be, how much it has reduced the mail revenues of the railways. The following official estimates are from the Annual Report of the Second Assistant Postmaster General for the year 1910: Weighing section. Date order No. 412 be- came effect- ive. Reduction in annual rate of pay. First July l, 1909 July 1, 1908 July 1, 1907 July 1, 1910 11, 100, 951. 44 434, 730. 82 Second Third 1, 787, 378. 10 Fourth 1, 618, 879. 98 Total 4,941,940.34 There has been a later weighing than that represented above in one section, the third, and it is probable that, as the normal increase in weights from weighing to weighing tends to increase the amount representing any such change, the figures as to that section are, at present, somewhat too low, but data for their correction are not available. Thus both, instead of one, of these heavy reductions were made, and instead of the congressional determination to reduce the railway pay only $2,723,658.90, as com- pared with $4,941,940.34, had the effect of combining both and reducing the pay $7,665,599.24 or nearly three times the amount which Congress determined was an adequate reduction, or based upon the total of transportation and railway post-office car pay for 1911, $50,099,537.02, 15.30 per cent. (f) withdrawal of payments for special facilities. From a date soon after the 10 per cent statutory reduction in the rates of mail pay effected by the act of July 12, 1876 (19 Stat., 78), the Post Office Department, under authority obtained from Congress, instituted a system of special additional payments for extra or expedited train service upon railway routes on which the statutory pay- ments would have been insufficient to secure the quality of service regarded as desirable by the Postmaster General. By the year 1901 the number of routes to which extra Eayments of this character were accorded, as well as the annual sum so expended, ad been considerably reduced and on July 1, 1907, the last of these allowances was discontinued. The additional facilities and expedited services obtained in considera- tion of these payments have not, however, been withdrawn or diminished. The an- nual rates of payment of this character for the fiscal years 1901 to 1907, inclusive, were as follows: Fiscal year — Annual rate of pay for special rail- way facilities. 1901 $195,682.50 1902 195, 636. 25 1903 167, 175. 00 1904 167,175.00 1905 , 167,175.00 1906 167,005.00 1907 167,005.00 The rate for 1907 will be accepted, for the purposes of this report, as measuring the present reduction due to the cessation of these payments. (q) withdrawal of envelopes, postal cards, and mail equipment from madls. Congress has, by legislation on successive appropriation acts, provided the Post- master General with funds for the payment of freight or express charges on postal cards, stamped envelopes, newspaper wrappers, empty mail bags, furniture, equip- ment, and other mail supplies for the postal service, except postage stamps, and has directed the withdrawal of such articles from the mails, wherever practicable, dur- ing and after the weighing period. This withdrawal has, of course, decreased the RAILWAY MAIL PAY. 101 weight at the successive weighing periods and, therefore, diminished the pay for mail transportation. It was completed for the whole country with the weighing in 1910 in the fourth weighing section. 1 Unlike all the other reductions herein referred to, this one does involve a reduction in service as_ well as in payments. The Second Assistant Postmaster General has stated that it is impossible accurately to estimate the reduction in railway-mail pay due to these withdrawals, 2 and for the purposes of this brief there will be substituted for such an estimate the sum which the department has asked to have appropriated to pay, during the fiscal year 1913, freight and expressage on the articles so withdrawn. This sum is $525, 000, 3 and to use it is to place the reduction at the lowest conceivable minimum. (h) forwarding periodicals by freight. Incidentally mention may be made of the recent action of the Postmaster General in withdrawing certain periodicals from the mails and substituting freight service for that formerly given on passenger trains. 4 This action has resulted in a large reduction in gross revenue to the railways with little or no opportunity for reduction in the cost of their operations. (i) SUMMARY OF RECENT REDUCTIONS. This report has now reached the point at which a summary of the recent reductions should be presented. No attempt has been made or will be made to estimate in dollars and cents the effect of the natural decrease of the rate per ton per mile for the services rendered which, as has been shown, must result from the normal opera- tion of the system of payment inaugurated by the law of 1873. Approximations of the effect of the other changes, all of them doubtless too low, have been given and are repeated, as follows: Cause of reduction. Natural operation of law of 1873 Competition stimulated by Post Office Department Act of Mar. 2, 1907, and amendment of May 12, 1910 Postmaster General's divisor order Withdrawal of pay for special facilities Withdrawal of mail supplies from mails Total (with no allowance for the first item above) . Amount of reduction. No estimate. 8174,544.51 2,723,658.90 4,941,940.34 167,005.00 525,000.00 8,532,148.75 Therefore, with no allowance for the natural downward tendency due to the slid- ing scale of payment so wisely provided for in 1873, the mail pay of the railways in 1911 was at least 38,532,148.75 less than it would have been under the laws and prac- tices in vogue prior to 1907. Compared with . transportation pay of $46,172,472.93, this reduction amounts to 18.48 per cent, and on the basis of $50,099,537.02, the sum which includes both the transportation pay and railway post office car pay of 1911, it amounts to 17.03 per cent. A method of estimating the contribution of the railways to the reduction of the postal deficit which is at once more simple and more comprehensive and more ade- quate is by ascertaining what the railway mail pay of 1911 would have been had it continued to absorb, as it did in 1901 — that is but 10 years earlier — $34.18 per $100 of postal receipts (see table on p. 52). Postal receipts in 1901 aggregated $237,879,823, and, as already shown, even with the enormous increase in business of the decade 1901-1911, expenses for other purposes than railway mail pay increased proportion- ately faster than receipts, so that in 1911 these expenses consumed $79 for each $100 of receipts, as against but $69.33 in 1901. Fortunately for the Post Office Department, railway mail pay moved in the opposite direction. Had it merely remained station- ary in its relation to receipts, the mail pay of 1911 would have been $81,307,323, or $30,724,200 more than it actually was. -The postal deficit never amounted to more than twenty-one or twenty-two millions, and the Post Office Department never admit- ted as much as eighteen millions. i Annual Report of the Second Assistant Postmaster General for 1910, p. 145. * Annual Report for 1910, p. 130. s Annual Report of the Second Assistant Postmaster General for 1911, p. 6. * This change is described by the Postmaster General in his Report for 1911 (H. Doc. No. 559, 62d Cong., p. 19) and, more fully, by the Second Assistant Postmaster General on pp. 21 to 23 of his Annual Report for the same year. 102 KAIL WAY MAIL PAY. The table next to follow merits more than ordinary attention. It serves, at once to illustrate with marked clearness, first, the reductions in railway mail pay, exclusive of payments on account of postal cars, due to (a) the change in the divisor and (b) the statutory reductions of March 2, 1907, and May 12, 1910, and, second, the reduc- tions which, without any changes in the law or in the method of its application, result from the progressively decreasing sliding scale of payment. This natural downward movement is illustrated both with reference to the old divisor and rates and with regard to the rates and the divisor now in force. In considering the table it is neces- sary to remember that the principle of adjustment crystallized in the law of 1873 has never been modified although the rates have been several times reduced, the application of the sliding scale of payment has been extended, and the method of applying the law has been changed so as to produce a further reduction . This principle of progressive reduction with augmented volume of service was applied at the outset, and is still applied, by means of naming a series of specific rates for a series of specific services, each successive rate showing a lower average per unit of service than the rate named for the next lower volume of service that is specified. After the maximum service so specified is attained the law further specifies a still lower rate to be applied to each additional 2,000 pounds in the average weight carried daily over the entire route. It is obvious that under this plan increasing service produces a progressive lowering of the average rate and that the limit of this downward movement is fixed by the rate applied to the final increment. Originally this final rate was applied to each 2,000 pounds in excess of 5,000 pounds of average daily weight but since July 1, 1907, under the law of March 2, of that year, a further reduction has been applied to the excess over 48,000 pounds of daily weight. Beginning in 1876 (act of July 12, 1876), routes or parts of routes, the construction of which was aided by congressional grants of land, have received but 80 per cent of the amounts paid for the same services when rendered by other routes. Prior to July 1, 1907, the rate for each 2,000 pounds in excess of 5,000 pounds was $21.37 per mile per annum, or 6.827 cents per ton per mile for other than land-grant routes and $17.10 per mile per annum or 5.463 cents per ton per mile for land-grant routes. The present rates on the excess over 5,000 pounds, up to a total of 48,000 pounds, are 5 per cent lower; that is to say, $20.30 per mile per annum or 5.562 cents per ton per mile for other than land-grant routes or $16.24 per mile per annum or 4.451 per ton per mile for land-grant routes. Beyond 48,000 pounds the act of March 2, 1907, now in force, provides rates of $19.24 per mile per annum or 5.271 cents per ton per mile for each increment of 2,000 pounds for other than land-grant routes and, as modified by the amendment of May 12, 1910, $15.39 per mile per annum or 4.216 cents per ton per mile for land-grant routes. In calculating the averages per ton per mile stated in this paragraph proper allowance has been made for the fact that under the Postmaster General's Order No. 412, the divisor order, a route has annually to carry an average of 365 tons per mile of its length to obtain an average daily weight of 2,000 pounds while prior to 1907 the same average daily weight represented an aver- age annual service of 313 tons per mile of route. The reduction thus applied to the excess over 48,000 pounds average daily weight, as indicated by these average rates per ton per mile, amounts to 22.79 per cent for other than land-grant routes and to 22.83 per cent for land-grant routes. BAILWAY MAIL PAY. 103 -SMS*: 33 *- fe o .2 'H ® g o+3 pq fl ;ji0 3|(»0!0(SfflHNnOHiOT|iOOONOOiOO(N'*NtOHOOHH'<)(01tB S2«3COiOO*(M(NOOtOrfOONOOOONTPOOOOOO(NrtiOTjiTtiOiON(MOC<5^ to O O^O^CX)OCOCOOcdo6o0^o6oOo6oOo6osC3^Co'c0^tf5^U3^cd^^lOcdcb't^ ££' lO CO 00 "3 b- 00 CO i-H O O CO ■* OS OS 0C •* OS OS CO 00 lO 00 i tot^co'O'^O'^coooioooMOr-itDo^iOrtmosoiaii IM>000»t0c005!0H0>00NWC!NOMOM00^NINi I CO 00 O i-l ■ CO CscocococOrHoasosr-coco COCOCOCOCOCOCOo«oioio»o-*-*^t5 •8>>8 £3" lOTjHCOCOi-IOSOS00iMCO'*COCO« C£J0SI>U3OrH06cJc4cdr-!l>T]HC M(NHO05Q0NNN(0!0lOlOU;iC; ) IC Tj< CO lO t ,Q ICO CD CO t- t^ I T3 >> lO®NNNNM< ^^Tti^usioiocococol 2j s- 3 i if 5 l! 5H1 2Q NP ' OOSl ' )N C100)tONNMO)iOiOOOO!MNN(ONOOOtONM10 NNM>C'*HHf1INiOiOHNOOOOHO)NfqMOOSi©fflTl(HOO')'NrOtON ]*^^'*>0c0C0C0C0t^t^0000000S0SOO'-li-HCNl(NC0C0-*'<*i--' UJINlOOOlONiJ'OlOi u500ti«5NMOi lO^HOSt^ £3 COCOCOCO'*»0"5COCO CN^t^oSi O0 OS ~* "* -t^ t> §d§3'E~ d C3 O rd *-> d^S cS^os "3 o pis-: ;ooosi-hcm oo co Tt< ■* ■«*< -^cocoooos aoon, ICNCNCN1CN CM CNCN CV| Tt< OS ■* 00 OS XOOH iO"3"0 0) ■*? tH OS ( OOONffl (OtOiOiQiO CC iO CM OS 00 irj iO iC Tji rj< OCOHHN OS OS CO OS O00HON OSb-COTjl b- IQ IO Tt< tJ? CO CO CO CO ^ ^1 ^1 Tjl ^1 ■* ^1 ^ ^ OOH -tfl OS Tt* 00 "oo oo os goo iO OS ■* ioio OOONffl OS 00 b- cd co id id id tDHHI t^co cm i COiOCO. id to id id id i 00 0000 00 b- b- b- lO ^t* "^ ^ ^* OOSNN HOJOON OSOOOsiO ,_, Tt< -tf b- ^r iO CO CO OS O cOcOcOCOTti ^iHfflNN ----- — — CO lOCN OOS CO CO CO CO iO 1 CO coco- ' CO O CO ( IO IO IO IO IO CO CO CO CN COiOiO iO id id id >d lOCOi-HOCM tOHOScC* CM CO COCO cd o os oo 00 I s - I*- t- b- b- CO CO CO CO iO IO iO IO IO IO IO IO »o CO 00 IO 00 ■*r-HOOS t*0 ■"* MNHOO O OS OS < oooor^ivt^ t>b^b^b^b^ i>cdcd< d d 03 O !§= ICN CNCN COCOCO' ig 3J?3 3150100 CO b- OS COlOi-f COOO id •* id ■* •<*< ~ (-50 - - i-H t»< b- O Tji b-O' i-Tr-Ti-roircNr cn~co" , co~co*' 2§s 53 jcooio <* os -* os o O CO b- O CO CO CO CO ^ "^ ■f iO b-C I -* b^ o co'dsMO cd cm' 06 1 WOO b-'^Ob-'T Ob-CN< 'CO00O3 i-llOOSCNCO OCOb-r T-TT-Tr-TcN'or CO^CO^Co"" .232 d mS OR 3>>S 'CM ■* b- ■ CN COO ICN OSi-H NNNNN b-CNb-CN cd co 1-! 06 c© cdi-Ho6cd b- O CO IO 00 H^OO COOOCNCOO lOOSCOb- T-TrH~CsrCNrCO cdVo~-* , Tjr ico-* osb-ososco b-r-toseo^-i woinh I CO i-l rtHO^H b-00Oi-CT -frtlb-OO CO O CO b- O iO OS CO CM CN CM CO 1^ ■* IO > >1-I00 IOI IO COb-OS rH I IO C_ ■IM CO O •"* O0CN cO i-Ti^cm""^^ cd'co^ir"' ' IO OS IO CO 1 'OWN i-l IO ( ^b-O-* b-i-H-^OOC CN b- CO 00 CO OS -^ OS < I b- OS CO CO IHH001O O^fOSCOb- CNCOOO (MIO00CMIO OS CM CO OS b- CM b- CO 00 CO OS 1*1 OS i-rcsreNTco~co~ TjrTjrid , id' 'as ■a.s tin ^ d j, *> 6 53 2^>; Seal's' i-l b- CO OS b-iO -^CM OOOrHlJ • COCO-^CO HOltDWO b- Tj< y-i iOOOH 1 * b-OJOO-^O lOi-lb- OOi-HCM b-i CMOO^tK Ttl(Mi-l< ;9 ) i-H Tji N O ^OOCNI COCO-*' OOOO. ■ ooo< 'NOO! >^oo< 00000 OOOO OOOOO OOOO OOOOO OOOO 5=9 00000 oo< 10 O iO O iO O iO ( 1-ICMCMCOCO "*■*! A o.-d o 9 §3 9.2 2 CM IO O IO IO 1O1-I lOb^OtM" lONONM CO "* CO i—l OS ■* CO IT CM lOCOi-HOS CO T»< CM O IO i-TcM'cd'co' ■^id N co*"bTbr b-lO IO >o cm' b^ cm' lOOiOOiO b-O CM 10 b- 1* CO 1-1 OS b- o 10 o 10 OCN iO b- CO ■* CM O b- 00 1-110 OS BAILWAY MAIL PAY. 105 An important consequence of this scheme of payment is that of itself it should enable the Post Office Department to show a decreasing ratio of expenses to receipts resulting from the progressive expansion in the volume of the mails. Postage rates have not been diminished as postal business has increased, and hence the average receipts of the postal service per unit of business have remained constant, while the plan of payment for railway transportation, as has been seen, provides a steadily de- creasing expense per unit for the element of cost represented by railway facilities and services. An understanding of the manner in which the rates are applied is also necessary to a complete comprehension of the table. Thus the minimum rates nominally applica- ble to an average daily weight of 200 pounds are in practice applied whenever the average is 211 pounds or less, because no account is taken of an increment of weight that would not have been sufficient before the reductions of 1876 and 1878 to warrant an additional payment of $1. At present this minimum rate (for other than land- grant routes) is $42.75, and the additional sum of 85.5 cents is paid for each 12 pounds above 200 pounds of average daily weight up to 500 pounds, when another rate is applied, but nothing is paid for any fraction of 12 pounds. Under this system the rate for 211 pounds average daily weight is $42.75, while for 212 pounds it is $43.60. In the same manner the 500 pounds rate is extended to apply to 519 pounds, the 1,000 pounds rate to 1,019 pounds, the 1,500 pounds rate to 1,519 pounds, the 2,000 pounds rate to 2,059 pounds, the 3,500 pounds rate to 3,559 pounds, the 5,000 pounds rate to 5,079 pounds, the 48,000 pounds rate to 48,103.95 pounds. It is this plan of applying the rates which produces the notable fluctuations in the percentages of reductions as disclosed in the upper half of the last column. The headings in the table referred to indicate the significance of the figures it con- tains, but they deserve all the emphasis that can be given. Each horizontal line in the table represents the results accruing, or that formerly would have accrued, to a railway route for an actual service measured, so far as these postal services can be measured in terms of weight and distance, by the figure at the extreme left of that line in the first column. Thus, the last fine represents an annual service equivalent to carrying 86,075 tons over each mile of a particular route. Prior to' July 1, 1907, the effective date of Postmaster General's Order No. 412, this volume of service would have resulted in stating the average daily weight on which payment is calculated as 550,000 pounds; now it gives an average daily weight one-seventh less, or 471,429 pounds. This change in the method of applying the statute alone and had there been no other change adverse to the railways affected would have reduced the pay of a route having this volume of service no less than $839.61 for each mile of its length. But there have been additional reductions, so that it appears that if this volume of mail is now carried on other than a land-grant route the annual pay per mile is $4,679.81, or $1,315.45 less than $5,995.26, which would have been the rate prior to July 1, 1907. This is a reduction of 21.94 per cent, as stated in the last column at the right of this line. Similarly, if the route were a land-grant route its pay would have been $4,796.20 per mile prior to July 1, 1907, and now would be $3,743.03 per mile, also a reduction of 21. 94 per cent. Prior to July 1, 1907, the pay of this route, if not a land-grant route, would have been at the rate of 6.965 cents per ton per mile; it would now be at the rate of 5.437 cents per ton per mile. The corresponding ton-mile rates for land- grant routes are 5.572 cents and 4.349 cents, respectively. 106 RAILWAY MAIL PAY. NUMOCP OF TONS CARRIFD ONE MJLF. PER MILE OF ROUTE 3/.3 53.CZ/ 38.499 4693 626 78£5 8/.2Z4 959 94682 £ -0955 I2SZ /4Q85 • 156.5 l 59346 /86C2S / 95.625 234.75 Z37.G5 Z75875 2775 3/3 3222 075.85 46950 547.75 556.895 6-25 649788 7Q25 794864 ©S 741 9 939. »0953 *Z5Z /4085 /565 Z347.9 3130.' 39/23 4695. 34775 626a 70423 7S;28./£ 7825 878278 f/7375 /S65Q / 95625 *tf47vS 3/300 39/S5 46 ©50. J4775 62600. 704X5. 7SRJ50. 860753 Average rate per ton per mile in cents wAm RAILWAY MAIL PAY. 107 These average ton-mile rates deserve especial attention. Considering the fifth column from the right, which contains the standard rates now in force, it shows that for the lowest weight stated the rate is considerably over $1 per ton per mile and that the subsequent decrease in the average is very rapid until it approaches the lower end of the column when, although the decrease continues, the rate of decrease is more moderate. Of course, the highest rates are in recognition of the character and cost of service on routes having very small quantities of mail and represent a small aggregate of railway mail pay and a relatively meager portion of the total paid to the railways for mail services and facilities. The average daily weight tends on all routes, or at least on nearly all routes, to become greater as an incident to the development of the country, its growth in population, industry, and wealth, and the progressive increase in the utilization of postal facilities. Hence, in the normal course, every route tends to pass from a class having higher pay per ton mile to a class having lower pay and to continue downward, each route thus constantly approaching the minimum, although the rate of approach varies greatly with different routes. Commenting upon this fact in his report to the joint postal commission in 1900, Prof. Henry C. Adams as- signed it as ground for the assertion that " the law of 1873 is drawn in harmony with the fundamental law of transportation" which, he declared, is that "a reduction in rates is a normal result of an extension of traffic" and, he said, "justifies a relatively more rapid reduction in the rate per ton per mile for a route whose traffic increases, let us say, from 50 pounds to 1,000 pounds daily, than for a route whose traffic increases from 5,000 pounds to 10,000, or 50,000 to 100,000 pounds." * The percentages of reduction in the last column of the table are very significant. Those corresponding to annual service of less than to 939 tons per average mile of route represent reductions effected by means of Order No. 412, only, for below this volume of service the statutory change of 1907 had no effect. The curious fluctuations in the percentages of the reductions so produced, ranging from 3.85 per cent to 10 per cent, and the highest percentage representing a smaller volume of service than the lowest percentage, indicate the complicated nature of the change, apparently so simple, brought about by that order. Beyond 939 tons the percentages progress steadily until they reach the maximum, 21.94 per cent, in the last line, which rep- resents the heaviest mail movement. The figures in the last foregoing table are general in their significance. The table which follows shows precisely what has happened to particular routes, taking for illustrative purposes, those routes, with a few exceptions, on which mail was weighed in the years 1910 or 1911 and having, under the present mode of calculation, an average daily weight in excess of 20,000 pounds. All routes of this class are included except a few having lap service or in which other extraordinary conditions might have been thought to impair the value of the comparisons. i .Fifty-sixth Cong., Doc. No. 89, pt. 2, pp. 204-205. 108 RAILWAY MAIL PAY. 6 duc- tion per cent. -o p>>a n bee Jul rsa ice. & >** S < |o& M 5* NOOlOlOfflCOHONO HCOH 00 CO -* H ■* tH rf< O CO i-H lO i-l OS "* O "* MOiHHNNNNMO lONN MCONNN^^fflSICOCvlNINMOOai P i-i 04 04 04' 04 04 04 04 ■*' 04' 04' 04 o4c^cococococococo-^-*co-*-*coco O K ^ S- f^ 00 ^H »0 OOCO-* 00 t-^ CN CO »0 00 "* lO 00 tjh O CO CN a> t~ CO !oo4©05i-H**coeo coot)'-! i>i>o>'*coc5r>o6oico'-5'-HOo4oiT" . 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Mr. Peters. You will find some very valuable information in that brief. Our committee, in closing that brief, as a final word urges : That in justice to the great interests which it represents, in justice to millions of railway employees whose arduous and responsible services are not overpaid, in jus- tice to hundreds of thousands of depositors in savings banks and owners of policies of insurance and frugal investors everywhere, in justice to millions of workers in thou- sands of industrial enterprises whose prosperity depends upon services which only solvent railways can suitably render, that if any doubt remains as to the propriety of the relief herein recommended, an effort be made to have the voluminous data in the posession of the Postmaster General laid before Congress, to the end that the facts herein set forth may be fully substantiated. The Chairman. You want that in the record in addition to what we already have ? Mr. Peters. Yes; that is in addition. The Chairman. Could you furnish for the information of the com- mission your data and your method of deduction on which you make your statement on page 11 that the car-foot mile return from mail is 3.21 mills and from other service 4.35 mills. Mr. Peters. That is set forth here in our preliminary report. (Exhibit A.) The Chairman. All the data and information on which you draw that deduction is not contained in this preliminary report ? Mr. Peters. No; it was taken from the reports that went to the Post Office Department. The Chairman. Have you copies of those ? Mr. Peters. Only part of them. They are with the department, and I have no doubt most of that information was tabulated and could readily be worked out. You asked for some information as to the relative pay received by the railroads for the transportation and hauling of express matter as compared with hauling and transporta- tion of the mail per ton-mile. I had that worked out by Mr. Bradley, and I would like to read his letter, which was addressed to me. I have not addressed it to you, but I can do so. ton-mile rate for express and united states mail. The Pennsylvania Railroad Co., General Office, Broad Street Station, Philadelphia, January 25, 1913. Mr. Ralph Peters, Chairman Committee on Railway Mail Pay, Pennsylvania Station, New York, N. Y. Dear Sir: At our recent interview in Washington, Senator Bourne requested l statement showing the pay received by the railroad companies per ton-mile for the transportation of express matter as compared with the rate per ton-mile for the trans- portation of the United States mail in connection, with my verbal statement that the two rates were not materially different. I have assembled some facts and references in regard to the matter aud submit them herewith: Express traffic, ton-mile rate. — The First Annual Report of the Interstate Commerce Commission on the Statistics of Express Companies for the year ending June 30, 1909, contains a table on page 19 which shows that the average tonnage revenue per pound received by the railroad companies from the express companies is 0.74 cents, or about three-fourths of a cent. This rate per pound is equivalent to>$14.80 per ton carried the average distance. It is only necessary to divide this by the average haul of ex- press matter to get the rate per ton-mile. In the Interstate Commerce Commission's report, opinion 1987, In re Express Rates, Practices, Accounts and Revenues, page 429, third paragraph, it is stated, "the average distance which a package of any size is now hauled by the express company is about 200 miles." Dividing $14.80 by 200 we obtain the rate of 7.4 cents per ton-mile. The Bureau of Railway Economics in its study of the parcel post quoted the results of calculations as 7.7, and 7.5 cents per ton-mile, but I do not RAILWAY MAIL PAY. 123 know what data they used. However, all three rates quoted above, 7.4, 7.7, and 7.5 cents per ton-mile are not materially different. United States mail, rate per ton-mile— I am informed that the Post Office Depart- ment reported to the Hughes Commission for the Investigation of Second Class Post- age Rates that the ton-mileage of the mails carried on the railroads as of July 1, 1908, was 489,150,814 ton-miles. The average rate of expenditure for the transportation of the mails on railways on that date, as given in the report of the Post Office Depart- ment, was §44,718,948.26, or 9.1 cents per ton-mile. About the same time Mr. Kruttschnitt had the mail ton-mileage on railways computed for use in his pamphlet on railway mail pay and published the figures as 484,683,135 ton-miles as of June 30, 1908. The annual rate for railway mail transportation on June 30 was $44,722,985.47, thus giving a rate of 9.22 cents per ton-mile. These rates per ton-mile for mail can be computed as of June 30, 1912, by using the ratios of the year 1907 in relation to the weight of paid second-class mail matter which is published by the department in the annual report. Observing that the ton-mileage of all the mails carried by the railroads on July 1, 1908, was 489,150,814 and that the weight of paid second-class matter for the year ended June 30, 1908, was 347,432 tons, it is evident that the ratio was 1,408 ton-miles for all mail and equipment to each ton of second-class matter mailed. Applying this ratio to the weight of paid second-class matter for the fiscal year 1912, which was 469,957 tons, we obtain a ton-mileage for all mail and equipment of 661,000,000 ton- miles. Dividing this last amount into the railroad pay for the transportation of the mails which on June 30, 1912, was at the rate of §46,336,293.86, we arrive at a rate of 7.01 cents per ton-mile. Further, if the ton-mileage had been based upon a simultaneous weighing in 1912 of the mails all over the United States instead of upon four sectional weighings in portions of the country from 1909 to 1912, inclusive, the ton-mileage would naturally be higher and the rate per ton-mile lower than the figures just quoted. During the last investigation of railway mail pay by a joint commission of Congress in 1900, Prof. Adams shows (vol. 2, p. 253) that the rate per ton-mile for mail transpor- tation on railroads declined from 20.195 cents in the year 1880 to 11.254 cents in 1898. The above illustrations show that the reduction has continued in accordance with the automatic downward scale prescribed in the law. The legal rate of pay to a railroad carrying above 5,000 pounds average daily weight is $20.30 per ton per mile per year, or 5.561 cents per ton-mile. After the weight becomes 48,000 pounds the ton rate per mile' per year for additional weights is $19.24, which is equivalent to 5.271 cents per ton-mile. The automatic reduction in the scale of rates as prescribed in the existing law brings the current rate constantly toward these minima accordingly as the tonnage increases. Assembling for close comparison the rates alluded to above, we have the following: Transportation rate per ton-mile. United States mails for the year — Cents. 1880 20. 1 1898 11. 2 1908 9. 1 1912 7 United States mails, legal minimum 5. 27 Express traffic, 1909 7. 4 Congressman Lewis frequently quotes the rate paid the railroads for transporting the mails as 13.2 cents per ton-mile excluding the weight of equipment, and matches this against the rate for express traffic of 7.4 cents per ton-mile, which he says also excludes the weight of the equipment. Possibly he does not understand that in the case of the mails the term "equipment" means the pouches and sacks which inclose the mail in transit and which not only protect the mail against abrasion and from exposure to the weather, but also (and most important) preserve the identity of the separations and sortations that have been made at a heavy cost for expert clerical labor of post-office clerks and railway postal clerks. The mail bags are, therefore, a necessary and com- ponent part of the mail traffic, just as are the postage stamps on the letters or the strings that tie up the package of letters or any other auxiliaries that might be considered as "equipment." The mail bags compose about 35 per cent of the total weight of mail traffic carried by the railroads according to estimates of the Second Assistant Postmaster General, but are an essential and indispensable part of the weight to be transported. In the express traffic the situation is entirely different. The equipment may be said to consist of only a few trunks and safes, which are used to inclose very small packages and valuable packages. Those who are familiar with the express traffic 124 KAIL WAY MAIL PAY. estimate that the relative weight of these trunks and safes to the total tonnage of express matter transported would be much less than 1 per cent. Consequently, the comparisons above made are in substantial conformity with the weights carried by the railroad companies, both for mail and express, while the method used by Congressman Lewis reaches a result by excluding a large item neces- sarily associated with the mail service and matching it with a similar item in the express service which does not exist in anything like the same proportion. Mr. Lloyd. Does not that mean this, that in a matter of the mail the pouch is to be returned as an empty. In the matter of express, that which incloses the thing transported is not returned, if it is in a box or a crate, but it is retained by the individual. It is true that he has paid for it in transit but the Government has also paid for the mail sacks in transit, but it has to pay for the transit back because it is empty equipment ? Mr. Peters. That is right. Mr. Stewart. You must not overlook the fact that we are sending the empties back by freight. Mr. Lloyd. I understand, but I think the distinction Mr. Bradley is undertaking to make is the fact that with the express you do not return the case in which the goods are shipped, while in the case of the mail you do return the sack in which it is fox'warded. Mr. Stewart. I assumed that you estimated that the mails increased in the same ratio between 1908 and 1912 ? Mr. Bradley. I tested that by reference to the ratios in previous years, and while I haven't that in there it was thoroughly depend- able. I think if the postal car is added it would add not quite 1 cent; I think about eight-tenths or nine-tenths of a cent. Mr. Stewart. I think you would find it a little more than that. For instance, our figures for 1908 were made on both bases, and my recollection is that adding the postal-car pay brought it up to nearly 11 cents — 10 and some fraction of a cent. Mr. Bradley. I do not think it would be as much as that. Mr. Peters. I attached to that letter of Mr. Bradley's a chart showing the rate per ton per mile in cents showing automatically how it goes down with the increased weight. On the small roads with 300 pounds it is about $1.50 per ton-mile, and it goes down to around 7 cents per ton-mile on the very heavy weights. That is fully set forth in our principal brief. The last paragraph of the letter is as follows: The data quoted above would be serviceable, I think, in enabling the Interstate Commerce Commission in conjunction with the Post Office Department to certify to the approximate rate per ton-mile obtained by the railroad from express or mail traffic transported. Yours, truly, V. J. Bradley. Mr. Stewart. I would like to call attention to the further fact that the figures for 1912 include the cheap rate for freight shipments. Mr. Peters. That was merely to reach a basis for a calculation. The Chairman. You were present before we took a recess when an extract was read from Postmaster General Vilas's report of 1887 in reference to the R. P. O. cars, and I requested you to present a statement so that the committee might have such information as would have a bearing upon that particular subject. Would you be able to prepare such a statement and file it with the committee in order that we might insert it in the record by to morrow morning ? RAILWAY MAIL PAY. 125* Mr. Bradley. I think we can have it for you by to-morrow morning. I will do my best to have that. Thereupon, at 10.05 o'clock p. m., the commission adjourned until II o'clock a. m. Wednesday, January 29, 1913. WEDNESDAY, JANUARY 29, 1913. Joint Committee on Second-Class Mail Matter, Washington, D. C. The joint committee met, pursuant to adjournment, at 11 o'clock a. m. Present: Senator Jonathan Bourne, jr. (chairman), Senator Harry A. Richardson, Senator John A. Bankhead, Representative James W. Lloyd, Representative William E. Tuttle, jr., and Representative John W. Weeks. STATEMENT OF MR. RALPH PETERS— Continued. The Chairman. Mr. Peters, yesterday we requested that as soon as practicable you prepare a statement to file with the commission in reference to your comments on the extracts read and included in the hearing from ex-Postmaster General Vilas's report of 1887. How soon do you think you will be able to have that statement prepared and submitted to the committee ? Mr. Peters. It will take at least two weeks. The Chairman. That will be satisfactory to the members of the commission, I take it. Now, to sum up your views, and, as I under- stand, not only your own but the views of your associates, represent- ing practically 214,000 out of 250,000 miles of railway in the United States, you are greatly opposed to the enactment of either of the bills suggested by the department, the effect of which would be to sub- stitute space for weight as the basis of the service rendered, are you not? Mr. Peters. Our committee is practically united on that. The position of the railways in regard to the space basis is united. The New England roads were willing to take a space basis, or some basis that would give them full compensation for the service performed, so that they would get back a little more than a dollar for every dollar that they spent in the service. They felt that their loss was $1 ,000,000 a year, and they were unable to figure out on the weight and space combined, or the space alone, how they would get that full return, but they wanted to consider those points. The authorities in the rail- roads who have studied this question most carefully for the past 30 years all agree that weight must be the gauge and space merely an incidental. Mr. Weeks. Do you think the position taken by the New England railroads from their standpoint is sound? Mr. Peters. I think they are sound in wanting to be fully com- pensated. The question is how to get that, and that is the case with all of us. We only want what is fairly compensatory for the service 49396—14 16 126 RAILWAY MAIL PAY. rendered and the weight may not always bring it. The difficulty seems to be in this point that it is a universal service under universal conditions, alike everywhere. Every contractor must be paid as fairly as every other. You can not make a different rate for each different road in the country, as is proposed under this space basis, out of cost rates. Mr. Weeks. Will you point out how the conditions which relate to the New England road differ from those of other roads ? Mr. Peters. Relating to our own roads ? Mr. Weeks. Yes. Mr. Peters. Or to the small roads ? Mr. Weeks. Yes. Mr. Peters. The very large roads have a concentrated or heavy load of mail and may get a fairly reasonable compensation for the volume that they have and the ability to carry the mail in con- centrated quantities. A road like the Long Island, with 250 trains carrying more or less mail every day, has its energies so scattered that it is hard to fix any basis that will fairly compensate it. The New England roads are very much like the Long Island, or like the West Jersey & Seashore, or your other roads in dense population where you have frequency of service. It is very doubtful if the space basis could be fixed or arranged so as to give them the complete compensation there, but you have to take the country as a whole in this and take the railroads as a whole to fix a basis that can not be manipulated and left entirely in one man's power. Mr. Weeks. Would it be possible in a segregated section like Long Island or New England to have a separate arrangement or different arrangement from that which obtains in other parts of the country? The Long Island Railroad is the only railroad on Long Island, is it not ? Mr. Peters. Yes; barring a few rapid transit trolley lines, but our case can probably be cared for under the rate for electric railroads, or at least portions of it can be. Mr. Weeks. That can be done in New England, in your opinion? Mr. Peters. As they electrify their railroads they can to a certain extent; but I do not think it could cover all the rates. The difficulty is when you get to making different rates for each section, you have more complications in the matter, and you have to legislate for each particular section in establishing rates for those sections, and they have to be carefully worked out. I know we have not studied that point. We feel that we should not be absolutely in the power of a Government officer. Under the space basis law, as is proposed, the Government officer allots the space, he makes the regulations, and those regulations are most burdensome, and they are the instrumentalities that make so much difficulty in all relations with the Government in the handling of the mails. He makes a regulation as to the carriage of his postal clerks to and from their homes, and for the free trans- portation of the postal inspectors and he makes various regulations, as shown in our testimony, which we have submitted. Under the space basis he will fix the space and then he will fix the rate at which that space is to be paid for, as based on cost. The power is taken from Congress, the railroads have no recourse except an appeal, indi- rectly to the Commission through the Postmaster General. The thought in our minds is that it should not be the province of the do- RAILWAY MAIL PAY. 127 partment to force a maximum service for a minimum pay, but get the best service for the Government in the handling of the mails at a reasonably fair compensation to its contractors. Our committee have offered its services to this commission to go into the very bottom of this thing, to study it in all its light, and if we can get something better than the weight and space basis, to do it, but from our experience in the past 40 years, and from the experi- ence of all those who have studied the matter, we feel that the weight and snace basis with relief from the side service, together with annual weighing and pay for the apartment cars is the best and fairest basis. President McCrea, of the Pennsylvania Railroad, made a very thorough study of this matter and appeared before one of the commissions some 16 years ago. His conclusion then was that the weight, with additional compensation for the space, like a post-office car, would be the proper basis. In talking to him a short time ago he said he had seen no reason to change his views. Mr. Krutschnitt, who appeared before the commission about 10 years ago, reached the same con- clusion. All of the gentlemen who are associated with me have been either in the Government employ or the railroad employ for the last 20 years in connection with the handling of the mails, and they all have the same view. Mr. Lloyd. Your objection to the space basis is not so much directed to that as a means of determining compensation as it is to the administrative methods by which the amount of space is deter- mined. In other words, you do not wish to place yourselves in the position that the Government itself will absolutely control the amount of your compensation. Mr. Peters. Not only that, but we object to being loaded down with double the amount of service in a limited space. There is the whole object of this bill. Mr. Lloyd. Suppose that the -law was so fixed as to protect you from the department's regulations and at the same time furnish you with reasonable compensation. You would not then object to the space basis, would you ? Mr. Peters. I think we certainly would object to it because we can see no possible way of having our revenues grow with the growth of the business. Mr. Lloyd. Under the space system would not your compensation grow with your business ? Mr. Peters. Very, very slowly. Mr. Lloyd. You would get twice as much for carrying two cars as you would for carrying one ? Mr. Peters. Perhaps. Mr. Lloyd. And ^ve times as much for carrying &Ye cars as you would for carrying one ? At the present time you do not get that, under the weight basis ? Mr. Peters. But if you concentrate your loads into your cars and reduce your space Mr. Lloyd. No. Here is the problem I am trying to disabuse you of. If the objectionable features of the space basis were removed and you were assured of fair treatment, then you would not object to the space basis, would you ? The thing, as I understand it, with all your views, is that you fear you are not going to be fairly treated by the Government; that the Government is going to require too little space 128 RAILWAY MAIL PAY. for the accomplishment of that which must be done. In other words, they are going to compress the business into too small a space, thereby saving expense to the Government and causing you just as much trouble if they did not press it into so small a space. Mr. Peters. "\\ e handle all other business, except the passenger business, on a weight basis. Everything that the Government sends through the mail or parcel post is on a weight basis. Mr. Lloyd. I appreciate that, but, on the other hand, that is not an answer to the space basis, because the mail is a different proposi- tion from anything else. You would not want to say that freight should be carried exactly like a letter ? Mr. Peters. No; we do not say that. We do say that the weight is the gauge of the service; that we must be compensated for the weight we haul. We are hauling the weight in addition to hauling the space. Mr. Lloyd. After all, Mr. Peters, it is not the weight of the mail for which you really receive compensation, for you furnish a great big car and you only have two or three tons in a great big car, which would have the capacity otherwise of carrying possibly 20 tons, and you have onl} r two or three tons of mail. Mr. Peters. But we have a storage car alongside of it with the other 20 tons. Mr. Lloyd. That is a separate car ? Mr. Peters. That is a separate car, but they rim together, so that the mail is sorted from one car to the other and handled. Mr. Lloyd. That is true only on trunk-line railroads. Mr. Peters. On trunk-line roads. That is true on the heavy mail routes, and the storage cars will increase as the parcel-post business increases, the same way that the apartment cars are increasing. The Chairman. Ten-elevenths of your compensation now comes purely from your weight and one- tenth from R. P. O. cars ? Mr. Peters. Yes; practically so. Mr. Lloyd. And the more the storage cars carry the more benefit it is to you, looking at it from the standpoint of the railroad com- panies ? Mr. Peters. If they are loaded, yes; but we count the weight in those cars. It is the weight that goes with them. Mr. Lloyd. No. You get paid now for the weight, but if you got the same pay on the space basis Mr. Peters. We do not see how you can put a space factor there that you can rely upon, like you can on weight, that will fully protect the railroads in that matter. Mr. Lloyd. There would not be any trouble in determining that on a full car. The trouble in determining that is in the apartment car, is it not ? Mr. Peters. It is not only in the apartment car and the full R. P. O. car, but also in the storage car and likewise in the ordinary baggage or combined car, for closed pouches. Mr. Lloyd. The objection that you urge does not apply to the storage car, nor to the full R. P. O. car, does it ? It only applies to the apartment car and the car in which you carry small pouch mail ? Mr. Peters. It applies to all of those. That is right. We have felt mat a joint inspection should be made by the commission and repre- sentatives of the department and of the railroads going to some main- EAILWAY MAIL PAY. 129 line roads and to some branch-line roads, and to some main-terminal post offices, so that you may see exactly what service is performed by the railroads. In St. Louis I think there are from 60 to 65 porters employed specially to meet these mail trains to make the transfer from one road to the connection. In Kansas City I think there are 85. In Chicago there are from 60 to 65 in one station alone. There is this immense force employed for handling these mails from the cars on one line to the connecting lines. There is that same sort of condi- tion at every one of the trunk-line junction points, and there is a large force at intermediate points. We have a main transfer station just out of Brooklyn and New York called Jamaica, where all of our trains from three terminals concentrate and then disseminate at that point. We employ a force there in handling the mails from one train to another — some 250 trains a day. Records are kept of those mail pouches. There are all sorts of services being performed by the rail- roads that only a personal inspection of the commission, with those who are able to point out these things, will determine. The Chairman. As I sum up your views, as represented in corre- spondence, conferences, and in the hearings, the desideratum from your viewpoint is the* adoption of a plan that will be universal. Mr. Peters. I think it has to be. It is a universal service. The Chairman. Your contention is that space could not be made universal but under the substitution of space for weight it would be necessary to have separate contracts with the 795 railroads with whom the Government now has mail contracts ? Mr. Peters. Separate rates of pay. The Chairman. Separate rates of pav. That is fundamental. It is also fundamental that no transportation company has yet evolved a yardstick that will remain the same in its measuring capacity, that will be applicable to all the railroads, always, as the measure of the service rendered, that fundamentally all rates of railroads are based primarily on the weight measure of the service rendered. Mr. Peters. Right. The Chairman. Your second objection is, as I glean it, you feel that you would be left to the personal equation of the individual who happened to be Postmaster General at the time, as to the determina- tion of the space used. Mr. Peters. Yes. The Chairman. Which you believe is eliminated by using weight primarily as the measure of the service rendered. Your third objection is that the Government, in dollars, would make no saving by the substitution of space for weight, but on the contrary, under the figures you have presented and in accordance with the last bill suggested by the Postmaster General, you would, on a 4 per cent basis, probably receive $10,000,000 more compensa- tion than was worked out by the department in its original bill. In other words, that the $9,000,000 apparent saving, with a 4 per cent interest on the capital invested, would result in the Government paying a million dollars more than they now pay under the existing conditions ? Mr. Peters. Yes. The Chairman. On a 6 per cent basis that the Government would pay $6,000,000 more than they now pay. You feel that under the existing system there are certain injustices done the transportation 130 RAILWAY MAIL PAY. companies, first, that you should be relieved of the burden of the side service, which, as I understand under your calculations, would rep- resent four million and odd dollars ? Mr. Peters. A little more than $4,000,000. The Chairman. Second, that you should have compensation for all space in the apartment cars. Mr. Peters. Where there are postal clerks. The Chairman. Where postal clerks are carried, which would rep- resent an additional compensation to you over what you now receive of practically four and one-half million dollars ? Mr. Peters. Yes. The Chairman. Third, that you are entitled to annual weighing for the reason that now, under the quadrennial weighing, you get no compensation for any increased weight or service rendered for a period of four years % Mr. Peters. That is correct. The Chairman. That, according to your calculations, it is your opinion that you are thus deprived of a compensation which, from your viewpoint, you are entitled to of how many millions annually ? Mr. Peters. I have no exact figures on that. There have been estimates varying from one and a half millions a year to four million and a half. It might be between two and three millions. I do not know whether Mr. McBride or Mr. Stewart ever figured that point. The Chairman. That you are entitled to a special weighing, in view of the enlargement of the fourth-class mail matter going into operation the 1st of last January, in order that you may get compensation for the increased business incident to that increased activity on the part of the Government ? Mr. Peters. That is right; and that an adjustment under those new weights should be made at the beginning of the fiscal year July 1, 1913, and that we should have a weighing each year thereafter until this matter is finally adjusted. The Chairman. That practically covers it, does it? Mr. Peters. The position of the railroads; yes. You have stated it so clearly that I have nothing more to say, Mr. Chairman. Mr. Weeks. I want to refer to the suggestion I made yesterday and ask Mr. Peters why he and those associated with him do not draw a bill embodying their visws and reasons for each item in the bill, so that we may have that before us ? Mr. Peters. We have drawn four or five, which went to the waste- basket; all coming back to the conclusion that the present basis of weight and coupled with the extra compensation for the space [like the post-office car] was the only reliable accurate gauge for the service. We would be glad to try that again and see if we can not draw one. Mr. Weeks. How do you expect us to do it if you can not ? Mr. Peters. That is just the point; but, we say, let the principle of the present law stand. Everybody who has investigated this question, and every commission tHat has gone through it, says that you get nearer to making a fair basis of pay under the present law, provided you will give the relief that we ask for — for an annual weighing, pay for the apartment post office, and relief from this terminal and messenger service. The Chairman. I thank you, on behalf of the committee, for pre- senting your views to us. KAIL WAY MAIL PAY. 131 STATEMENT OF MR. W. W. BALDWIN. The Chairman. Mr. Baldwin, it will be necessary that you be sworn. Thereupon the witness was duly sworn by the ch airman. The Chairman. Kindly state your age, residence, and occupation. Mr. Baldwin. I am 67 years of age. I live in Burlington, Iowa, and I am vice president of the Burlington road. The Chairman. How long have you been in the railroad service? Mr. Baldwin. Since 1879, for the Burlington Co. The Chairman. You are connected with these gentlemen who have been before this committee in reference to the readjustment of railway mail pay, and your roads with which you are identified are in the association of which Mr. Peters is the cnairman, representing some 214,000 out of 250,000 miles of railroad in the United States, are you ? Mr. Baldwin. Yes, sir. The Chairman. You concur in the views expressed by Mr. Peters in reference to the attitude of the railroads in that association, do you? Mr. Baldwin. I do; and I especially concur in the statement or the summary brought out as just expressed by yourself. The Chairman. Has any bill of recent date been introduced in Cougress representing the railroad views, in the adoption of which, in your opinion, justice would be done the transportation companies of this country? Mr. Baldwin. I think for several years the railroads have felt that they were very unjustly treated by the operation of the divisor and the reductions that have taken place in the rates of pay in recent years, partly on account of that and partly on account of the regulations of the department. They have been very much impressed with the complaints which have been made by the short-line roads, specifically, and they have felt that some sort of reimbursement of their loss should be made. They have cooperated with the short-line roads in the presentation of what is called the Talbott bill as furnishing a sub- stantial measure of relief to the New England roads, and roads like the Long Island Co., and the short-line roads. They have believed under the present conditions that that is probably as much in the way of relief as they could get, and that it would go far toward doing justice, especially to the short-line roads and to such roads as the Long Island and the New England roads, with a measure of justice to the roads that carry the bulk of the mails, also, because we have a great many branch roads upon which there is apartment-car service which would be affected by it. The Chairman. Particularly the allowance for apartment cars; that would be a relief? Mr. Baldwin. There is an element of great injustice of paying the railroads upon the weight that they carried four years ago. There ought to be an annual weighing. Those" two things would be sub- stantial measures of justice which they are entitled to. It seems to us, particularly in view of the fact that probably based upon the investigations of the Post Office Department and the concessions which the department itself has just made, it would appear that the 132 RAILWAY MAIL PAY. roads are underpaid quite as much as they would be reimbursed by the operation 01 the Talbott bill. The Chairman. Instead of " concession/' I would say "modi- fication." Mr. Baldwin. I will use the word "modification." The Chairman. I would use that word, because the department can not do other than simply submit its views. It can not legislate. Mr. Baldwin. No. The Chairman. Do you concur, according to your experience in railroading, with the statement that, so far as you are aware, no transportation company has ever used space as the basic principle on which your rate charges are founded as the measure of the service rendered ? Mr. Baldwin. So far as I know. The Chairman. In the systems with which you are identified and have been connected, weight is the basic measure? Mr. Baldwin. It is. The Chairman. And all your calculations are based upon that ? Mr. Baldwin. Except for passengers. The express companies charge on a basis of weight ana we receive our compensation for car- rying express matter through them. Mr. Weeks. If the time of weighing the mail were modified so that the mails were weighed every year, do you think it would be fair for the railroads to pay three-fourths of the expense — that is, leaving it so that the expense which the Government would pay would not be any greater than it is now? Mr. Baldwin. Well, I have no authority to represent the roads in a matter of that importance. Our impression, Mr. Weeks, has been that the weighing every year, for 35 days, properly organized, will cost very little more than weighing quadrennially for 105 days. I think the railroads ought to be willing, speaking for myself, to share in any increased expense. The Chairman. You certainly would be willing to pay $300,000 for the privilege of getting from one million and a half to four millions a year, I should think ? Mr. Baldwin. That is undoubtedly good financing. Mr. Weeks. Do the trunk lines make large profits from the trans- portation of mails ? Mr. Baldwin. They do not. Mr. Weeks. Do you know any railroad that makes a large profit? Mr. Baldwin. In the carriage of the mails ? Mr. Weeks. Yes. Mr. Baldwin. I do not, as compared with any other business that they perform. Mr. Weeks. Do you know any railroad that makes a larger profit in carrying the mails that it makes in carrying express ? Mr. Baldwin. I do not. Mr. Weeks. Do you think there are such ? Mr. Baldwin. There are a good many railroads in the country and I would not want to say that there is no road that has only a small amount of express and a larger amount of mail. That question of volume would affect the question of the total returns. Mr. Weeks. I do not mean volume, but I mean per ton per mile. KAILWAY MAIL PAY. 133 Mr. Baldwin. I can not say that I do know of any such road. That is the only way I would be able to answer that. Senator Bankhead. You said just now that you got compensation for carrying the express, from the express companies. Mr. Baldwin. Yes, sir. Senator Bankhead. Now, if it should turn out that the parcel post is going to reduce the receipts of the express companies mate- rially, as everybody supposes it will, it will reduce your revenues to that extent ? Mr. Baldwin. It will to the extent of 57 per cent. Senator Bankhead. At the same time it will increase your burden by putting more weight into the mail service ? Mr. Baldwin. That is true. Senator Bankhead. And for that increased weight in the mail service you get no pay, unless there is an annual weighing or unless there is a weighing at the latter part of this year ? Mr. Baldwin. We get no pay until there is a weighing. Senator Bankhead. And therefore you contend they are cutting you at both ends ? Mr. Baldwin. They certainly are, in that respect. The Chairman. Will you elucidate a little more on the 57 per cent proposition which you just stated ? Mr. Baldwin. All I meant was that the express companies pay us 57 per cent of their earnings from the business which they transmit over our roads. Senator Bankhead. They pay that for hauling their cars ? Mr. Baldwin. That is our compensation for conducting that business. The Chairman. Is it possible to evolve any system in rate making in the transportation business that will be absolutely equitable to all lines, trunk and short lines as well 1 In other words, will not the trunk lines always have the advantage of doing a wholesale business as against a retail business performed by the short or branch lines ? Mr. Baldwin. In the case of the mails where concentration takes place, you will recall that the rate goes down tremendously; it goes down to where it is not more than one- twentieth of the rate on the very small routes. Another thing, where the greatest concentration of the mails occur, you have special train service, special fast mail trains, which are very expensive, and that element comes in and has to be considered in determining not only the value of the service to the Government, but the expense of the service to the company that performs it. The Chairman. Is this not true: That under your existing rates as your volume of business increases your revenue per pound de- creases, but your net revenue as a whole increases on the activity of the service rendered ? Mr. Baldwin. It depends on how^ much it costs to perform the business. In the case of the Great Northern they recently put on a special service to the Pacific coast. That is an unusually expensive service on account of the peculiar condition of snow on the mountains, etc., and the deductions that are made on account of delays and all that. To show that they get adequately compensated because of the increase in weight is something that has to be studied pretty carefullv. 134 RAILWAY MAIL PAY. The Chairman. -If there are three railroads running to a com- petitive point, say, for instance, "A," "B," and "C," if "A" chooses to put on extra service in order to get the contract, believing that the possession of the contract is an advantage in its competition with ' l B " and "C," is there any reason why the Government should pay the cost of a loss that "A" makes in his transaction? Mr. Baldwin. I should say not, if such a condition exists any- where. Mr. Weeks. How many competitive lines are there running solid mail trains between Chicago and San Francisco ? Mr. Baldwin. We run two trains weekly from Chicago to Omaha. Just what the mail service is on the Union Pacific or the Santa Fe I do not know. Mr. Weeks. For instance, between Chicago and Omaha, how much competition is there in solid trains ? Mr. Baldwin. In solid trains we have what is called the fast-mail service from Chicago to Omaha on the Burlington. Just what serv- ice is put on by the Illinois Central and by the Great Western, the Rock Island, and the Northwestern, and the Milwaukee, I arn not prepared to state- Mr. Weeks. Could that service be segregated from the other mail service if the department asked for bids to conduct the service as it would a star-route service — that is, as a result of competition? Mr. Baldwin. I would not be able to answer that question. I do not know. I know that if the mail as now concentrated upon the fast-mail route from Chicago to Omaha was divided up among all the roads there would be no fast-mail service, because there would not be enough of it to justify it. Mr. Weeks. I do not mean to divide it up, but I mean one road conduct all the service under conditions that would be imposed by the department, only do that as a result of bids for two or three years ? Mr. Baldwin. That is purely a theoretical question which Iwould not be able to answer. Mr. Weeks. It has not been considered by anyone ? Mr. Baldwin. It has never been considered by us. Mr. Weeks. Would it be possible, in your opinion, to do that to the advantage of the Government and perhaps to the advantage of the railroads, too ? Mr. Baldwin. My opinion upon that subject would be purely theo- retical and of no value. Mr. Weeks. Would not that leave the rest of the service which the Burlington road, for instance, performs similar to the service per- formed by any railroad — that is, a short-line railroad ? Mr. Baldwin. You mean if we lost the fast mail ? Mr. Weeks. Yes. Mr. Baldwin. I presume it would. Mr. Weeks. It is an entirely distinct service from the rest of the service which you perform ? Mr. Baldwin. It is, and a very expensive service in many ways. Mr. Weeks. If the cost were arrived at, as a result of competition, would that be unfair ? Mr. Baldwin. I do not see how my answer to a question of that kind would be of any consequence. KAIL WAY MAIL PAY. 135 Mr. Weeks. The reason I am asking the question is because it seems to me the greatest difficulty to be met with in this whole mat- ter is preparing a general proposition which will not do injustice to somebody or pay somebody more than they should be paid. The service is so dissimilar in different sections of the country and even on the same road. Mr. Baldwin. Mr. Scott had some figures here yesterday with regard to earnings between Chicago and St. Louis upon their con- centrated service which I thought were quite impressive. They were not put into the record. We are entirely willing to have that question investigated as to whether or not we are being paid too much or too little for the service that we are rendering. I mean by the company as a whole on its route from Chicago to Omaha. Mr. Weeks. Do you run a solid train beyond Omaha? Mr. Baldwin. No, sir. Mr. Weeks. Who takes the mail at Omaha now? Mr. Baldwin. The Union Pacific. Mr. Weeks. Mr. Chairman, I would suggest that those figures which Mr. Scott had yesterday which have been referred to several times be put in the record in some form as relating to the detailed cost of service on the roads with which he is familiar. The Chairman. I think that is a most excellent suggestion. Mr. Scott, will you prepare a statement and file it with the committee ? Mr. Scott. I will do that, Mr. Chairman. Mr. Baldwin. In answer to Mr. Weeks's question as to whether we would submit a bill, I will answer that we will be very glad to submit such a bill. The Chairman. How soon, in your opinion, could such a bill be prepared and submitted to the committee ? Mr. Baldwin. We will say within two weeks' time. The Chairman. I wish you would kindly do so. Mr. Weeks. I want to suggest that these gentlemen consider that proposition which I have been inquiring about, the possibility of segregating through-train service from the rest of the mail service as a question of compensation. I do not know whether it is possible — I have never given it any serious consideration — but it seems to me to be a distinct service, in a way, that might be handled in a different way from the way the rest of the service throughout the country is handled, and it would possibly make it easier getting together a bill which would apply to all kinds of roads and all forms of service other than that. There may be something in it, but I would like for you gentlemen to consider that. The Chairman. Mr. Baldwin, I want to thank you very much on behalf of the committee for giving us your views on this matter. STATEMENT OF WILLIAM WALTER SAFFORD. The Chairman. Mr. Safford, it will be necessary that you be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Will you kindly state your full name, residence, occupation, and official position ? Mr. Safford. William Walter Safford, general mail and express agent, Seaboard Air Line Railway, Norfolk, Va. 136 E AIL WAY MAIL PAY. The Chairman. Have you any further information to offer to the committee bearing on the subject we have under discussion other than that presented in the letter of Mr. Capps, vice president of your road, under date of October 1, 1912, addressed to me? Mr. Safford. The matter that I was interested in particularly was the suggestion that the rates be based upon cost, ana if you will refer to our letter, paragraph 2, at the top of page 84 in this docu- ment Railway-mail pay, you will see that we object to that plan in our letter. In that connection I might say, gentlemen, that the cost is only incidental in rate making. It never has been used to my knowledge, except in cases where rates have been attacked. In connection with the present express rate case now under considera- tion by the Interstate Commerce Commission, we were called upon a very short time ago, and in a hurried way, to make computations showing the comparative cost and revenue of the service, with expense segregated to the express service, for the year 1912. This call was made by a committee of railroad and express officials hav- ing the matter in charge, and they suggested four methods of appor- tionment of unassigned — and some people think unassignable — expense. The first was the Buell method, which is also known as the Wisconsin method, and which was used in modified form by the Postmaster General. The Chairman. In document 105 ? Mr. Safford. In document 105; yes, sir. The second was the method used by the Postmaster General. The third was the method proposed by the express companies and the fourth was a selective method by the company which it might think best suited to its own conditions. The Chairman. All the railroads having any interest in express companies were asked to perform the same service in these different computations that your company was ? Mr. Safford. I presume so. I have no knowledge as to that, except as to my own company. The Chairman. What was the result of your computations ? Mr. Safford. These figures are not actual, they are simply com- parative; that is to say, they are actual as to individual calculations, but they are not actual as to the relative mail revenue at this time, because I did not have any car-foot-mile figures for the year 1912, but for the purpose of illustration the calculations are just as accurate as though they represented actual figures because the same elements were used. The Chairman. You take hypothetical figures and they are the same in all of your computations ? Mr. Safford. Every one of them, and to be exact about it, I took the car-foot miles made in mail service which we reported to the Post Office Department for November, 1909, and I took the car-foot miles as ascertained by the Post Office Department at the same time and applied them to our revenue for the year 1912. The computa- tion will produce the same relative results as to these different methods of apportionment. I found from that that the variations ran from a profit to us of $48,117.78 under the Buell method, as under- stood and used by our accounting department, to a loss of $289,147.84 on the basis of apportionment prescribed by the express companies. I deduce from that result that when you undertake to adjust any KAIL WAY MAIL PAY. 137 matter of this kind on a basis of cost, it makes just as much difference what method of apportionment for unassigned expenses you use as almost any other factor that would be employed in the case. For instance, if you start out to accomplish a given result, you can adopt a method of apportionment that will most nearly bring about the result you started for. The Chairman. You mean the result most favorable to you ? Mr. Safford. The result most favorable to the end in view. Yes, sir. There is no generally accepted method of apportionment at the present time. I think there is a committee of accounting officers working to that end now, probably in connection with the Interstate Commerce Commission officers, but as yet no definite, ascertained, and accepted method has been arrived at. The Chairman. There is no universal method that has yet been evolved % Mr. S afford. No. By permission, Mr. Peters asked a question of Mr. Safford as fol- lows : Mr. Peters. Has not the revenue train mileage been used by all the railroads throughout the country generally in comparing their their expenses? Mr. Safford. It has been and it is generally accepted by railroads as the best and most acceptable method, but it is not accepted by accounting officers as an absolute proposition, and it is in question now as between the methods used by the Postmaster General and the methods used by the railroads in order to have a uniform method and to present uniform figures to the Postmaster General, so that there might not be a great many different opinions about this thing. The railroads already, in making their segregation of expenses, use the revenue train-mile basis in their assignment of expenses to pas- senger-train service, and that has been most frequently used and perhaps is the best because it represents more nearly the use of the property. The Chairman. In the request received from these gentlemen rep- resenting certain railroads and express companies to make these computations, did the request contain an outline of the four compu- tations to be made, or were the selections made by you ? Mr. Safford. They contained an outline of the form to be used in each method designated. The Chairman. Designating specifically the four methods ? Mr. Safford. Yes, sir; and explaining and describing them. The Chairman. And the limitations on the same figures on the results obtained were from a gain of $48,000 on one side to a loss of two hundred and eighty-nine thousand and odd dollars on the other. Those were the limits ? Mr. Safford. Yes, sir. Mr. Lloyd. Can you give the four right together ? The Chairman. Will you leave with the committee this table of computations which you made, in order that we may insert it in the record ? Mr. Safford. Yes, sir; with the understanding that it is an ex- hibit and not an actual situation. 138 KAILWAY MAIL PAY. SEABOARD AIR LINE RAILWAY. Comparative cost and revenue for mail service for the year 1912 by various methods of apportionment. Cost of mail service, Buell method, on basis of car-foot miles reported by company $515, 185. 44 Revenue for mail service 467, 522. 26 Loss, Buell method 47, 663. 18 Cost of mail service, Buell method, on basis of car-foot miles as stated by department 419, 404. 48 Revenue 467, 522. 26 Gain, Buell method, on basis of car-foot miles stated by department 48, 117. 78 Cost of mail service, Postmaster General's method, on basis of car-foot miles reported by company 598, 015. 61 Revenue 467, 522. 26 Loss 130, 493. 35 Cost of mail service, Postmaster General's method, on basis of car-foot miles stated by department 486, 835. 24 Revenue 467, 522. 26 Loss 19, 302. 98 Cost, express company method, on basis of car-foot miles reported by company 756, 670. 10 Revenue 467, 522. 26 Loss 289, 147. 84 Cost, express company method, on basis of car-foot miles stated by department 615,993.40 Revenue 467, 522. 26 Loss 148, 47L 14 Cost, Seaboard Air Line method, on basis of car-foot miles reported by company 638, 079. 81 Revenue 467, 522. 26 Loss 170, 557. 55 Cost, Seaboard Air Line method, on basis of car-foot miles stated by department 519, 450. 89 Revenue 467, 522. 26 Loss 51, 928. 63 The Chairman. I think your explanation is in the record that the figures were hypothetical, but your deductions are illustrative of the expert, given certain figures, of arriving at the same deduction by different individuals, except where one general plan of computation is in vogue. Is that right ? Mr. S afford. That is right. By permission, Mr. Peters asked a question of Mr. Safford, as follows : Mr. Peters. Is it not a fact that the railway accounting officers' association is now cooperating with the representatives of the Inter- RAILWAY MAIL PAY. 139 state Commerce Commission in endeavoring to work out a uniform method of assigning cost ? Mr. Safford. I stated that in my testimony, Mr. Peters. Mr. Peters. They are engaged in that now ? Mr. Safford. Yes, sir. I stated that in my testimony. Mr. Lloyd. In your judgment, which of these four methods is the most equitable method? I am not asking you as a railroad man, but I am asking you now which is the most equitable method, as if affects the country at large ? Mr. Safford. Well, the most equitable method to my mind is th revenue train -mile method. Mr. Lloyd. Why ? Mr. Safford. Because that more nearly represents the use of all the elements that enter into these unassignable expenses. Mr. Lloyd. What is the objection to the department's method ? Mr. Safford. Well, it has a good many elements of direct charge in it — items that have not necessarily any relation to each other, as I understand. Mr. Lloyd. Can you mention some of those charges ? Mr. Safford. Not from memory; no, sir. I furthermore want to state that I am not an expert accountant. I am deducing these things from figures that I get from expert accountants and I would not like to go into the question of railroad accounting, because there are men so very much more competent to do that than I. Mr. Lloyd. I am very anxious that you people who object to the department's method of accounting shall show the objections to that method and show why some other method is better. Mr. Safford. That I think would be best ascertained from the expert accountants who handle these figures. Mr. Lloyd. Then for the commission to get the information it ought to have, it should have these expert accountants ? Mr. Safford. I tliink so, sir. I think they are more competent than anyone else to give }^ou that. We rely upon them and I think they should be the people for the commission to rely upon. Mr. Lloyd. Then you would not wish to criticize, if I may use that expression without offense, the method of the department? Mr. Safford. No, sir. I am not sufficiently statistical to do that. I will say this for the department. The modification of the Buell system which they used in part was favorable to the railroads. They seem to have been trying to get at something fair from their point of view. The Chairman. By "favorable," you mean fair to the railroads? Mr. Safford. Yes, sir. I do not mean to suggest any favoritism, but I mean to say the results were more equitable to the railroad than they would have been if the Buell system had been used pure and simple, as understood by our accounting department. The Chairman. The Buell system- is a system well known, is it, in the accounting world in this country, at least ? Mr. Safford. I do not think it was ever used except in the Wis- consin rate case. The Chairman. It originated, did it, in Wisconsin ? Mr. Safford. I think it did. The Chairman. But it is something that is well known now in the railroad world distinctively as the Buell system ? 140 KAIL WAY MAIL PAY. Mr. Safford. I presume it is well known now since this commis- sion has taken it up as one of the bases for arriving at the information they wanted. The Chairman. I want to thank you very much, Mr. Safford, for your views. Thereupon, at 12.45 o'clock p. m., the hearing adjourned until Friday, February 7, 1913, at 11 o'clock a. m. FRIDAY, FEBRUARY 7, 1913. Joint Committee on Second-Class Mail Matter. Washington, D. C. The hearing was resumed, according to adjournment, at 11 o'clock a. m. Present: Senator Jonathan Bourne, jr. (chairman), Representative James T. Lloyd, Representative William E. Tuttle, jr., and Repre- sentative John W. Weeks. STATEMENT OF MR. HENRY S. LYONS. The Chairman. Mr. Lyons, it will be necessary for you to be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Kindly state your name, age, residence, and occu- pation ? Mr. Lyons. Henry S. Lyons, secretary of the Boston Elevated Railway Co., Boston, Mass. The Chairman. How long have you been connected with the Boston Elevated Electric Railway Co. ? Mr. Lyons. I have been secretary for about three years. The Chairman. You appear before the committee this morning, as a number of other gentlemen do, representing the electric lines of New England and of the West ? ; Mr. Lyons. Yes; and of New York State. A committee appointed by the American Electric Railway Association will appear before this committee. The Chairman. Does that association represent practically the bulk of the electric lines in the country? Mr. Lyons. It does. The Chairman. All of them ? Mr. Lyons. Practically all of them; yes. The Chairman. You are familiar with the bill suggested by the Postmaster General proposing the substitution of space for weight as the determining factor in arriving at compensation for transporta- tion of the mails ? Mr. Lyons. I am not. We have some gentlemen here who are familiar with it. The Chairman. Will you give the committee your views relative to railway mail pay ? Mr. Lyons. I prefer to have that given to the committee by those gentlemen who have been appointed as a committee of the associa- tion. They are familiar with that subject. The Chairman. Will you give me the name of the first gentleman ? BAIL WAY MAIL PAY. 141 Mr. Lyons. The first gentleman who will furnish you with infor- mation will be Mr. J. H. Neal. The Chairman. Have you any information, or viewpoints that you are able to submit to the committee which would be of benefit in our study of this question ? Mr. Lyons. I have not. We have gentlemen here with us who are experts on the subject under investigation and I do not wish to take up their time. STATEMENT OF MR. J. HENRY NEAL. The Chairman. Mr. Neal, it will be necessary for you to be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Will you please state your name, age, residence, and occupation? Mr. Neal. J. Henry Neal; residence, Boston; age 40; I am general auditor of the Boston Elevated Railway Co. The Chairman. How long have you been connected with the Boston Elevated Railway Co. ? Mr. Neal. About 25 years. The Chairman. How long have you been auditor ? Mr. Neal. Nearly five years. Mr. Lloyd. Do you represent any railways, except the elevated railways of Boston ? Mr. Neal. Yes; I am chairman of the committee appointed by the American Electric Railway Association to take this matter up with this committee. Mr. Lloyd. What kind of railways does that committee include ? Mr. Neal. It includes electric railways operated in cities and also interurban lines. Mr. Lloyd. Whether they are elevated, subway, or surface ? Mr. Neal. Yes, sir. The Boston road in itself is composed of elevated, subway, and surface combined. Mr. Lloyd. Does it carry mail in the subway ? Mr. Neal. Not that I am aware of. I think we usually run the mail cars on the surface lines, but we may, if we please, run them in the subway. The Chairman. You are familiar, are you, with the bill prepared and suggested to Congress by the Post Office Department substitut- ing space for weight as the basis of compensation for the service rendered, in the adjustment of railway mail pay ? Mr. Neal. No; because thus far the compensation which we have received has been on a different basis. We have been paid 1 cent per linear foot for each car mile that a car ran. That is to say, if a car was 15 feet 6 inches long we would be paid at the rate of 1 cent per foot for each linear foot the car was long for every mile it ran. We also have the pouch service, for Which we are paid so much per mile. The Chairman. Then, what is the purpose of he request of you gentlemen, representing the electric lines of the United States, for a hearing before the committee ? Mr. Neal. Mr. Chairman, we have been operating on our road cars which we call 16-foot box cars, but which measure a little less 49396—14 17 142 BAIL WAY MAIL PAY. than 16 feet on the inside and we have been receiving 15.58 cents per car-mile for the work that we have been doing for the Government. The Chairman. That is on the basis of 1 cent per linear foot per mile? Mr. Neal. Yes, sir. For years it has been well known, I think, to various committees and to various postmasters, and certainly to all the railways, that this rate of compensation was absolutely inade- quate, and for years the railways have been pointing it out in various ways, but up to the present time they have not been able to do so so that they have been able to get any increased compensation. It may be that the matter has not been presented sufficiently in detail, but it is a very easy matter for us to show, without any question whatsoever, that this is causing a loss to my road alone of $18,000 a year. The Chairman. The $18,000 loss you claim your road suffers from the present rate is what per cent of the total amount of compensa- tion that you receive from the Government for mail service ? Mr. Neal. On ihis particular kind of service it is a matter of about 50 per cent. The Chairman. Answer my question, kindly. What is the total amount you receive in compensation from the Government for this particular line of service on which you say you can demonstrate that you make an $18,000 loss? Mr. Neal. Substantially $30,000 to $35,000 a year. The Chairman. And you can demonstrate that you lose $18,000. Are you obliged to carry this mail ? Mr. Neal. No, sir; we are not. The Chairman. Why do you assume a burden by which, according to your own statement, you can demonstrate an $18,000 loss out of $35,000 gross receipts? Mr. Neal. Speaking for the American Electric Railway Associa- tion, their executive committee made this statement: It may be asked why the electric roads undertook to perform the service at rates which were not remunerative. The answer is: First. Many roads undertook to carry United States mail at unremunerative rates with the mistaken idea that it would help them in cases of labor trouble to keep their cars running. Second. Operating expenses formerly were less than they are at present, but the carriers have continued from year to year in the hope that the Government would recognize the value of the services rendered and increase the rates to an equitable basis. The electric carriers now realize that the business is unprofitable and unde- sirable at the present rates, and ask that the Government equalize the existing rates paid for the different classes of mail transportation so that the electric lines can con- sistently obtain a reasonable proportion of the business on a fairly remunerative That was their vote. As far as my own road is concerned (the Boston Elevated), our feeling has been that we, without doubt, would be able, eventually, to get an increased appropriation. We have taken the matter up year after year, hoping it would be granted, and we have felt that it would perhaps be inflicting some hardship to withdraw the service, and we hoped that whatever it was that inter- posed between existing conditions and our getting proper compensa- tion, would be overcome, but I think it has now reached a point where we should not be asked to carry the burden any further, a burden as great as this. RAILWAY MAIL PAY. 143 Mr. Lloyd. Have any of your number examined, and are they able to speak on the pending bill, the Post Office bill, or the pending recommendation of the Post Office Department with reference to pay? Mr. Neal. The only bill we supposed we had any interest in was the one which limited the compensation to 1 cent. The Chairman. That is before the Post Office Committee. That is not before this general committee. Mr. Lloyd. The general committee are investigating railway mail pay. If we find that we can put the steam and electric railroads on the same basis of pay, that would make simplicity in payment which might be useful to you and useful to the Government as well. We supposed that you had examined the particular bill. At the present time the steam railroads are paid by weight. Now the proposition of the Government is that the railroads should be paid by space, and we are especially considering the question as to whether we shall substitute the space basis for a weight basis. You have the space basis ? Mr. Neal. Yes; substantially a space basis. Mr. Lloyd. If you take the figures that are proposed in the pending bill, you might find the substantial relief that you are claiming, and it seems to me that you would do well to carefully examine that subject before you leave here and put yourelves in position of saying whether this bill would be beneficial to you or whether it would be practicable for you, and urge what objections you may want to urge against the proposed space basis system. This committee now has to investigate the whole subject. We are not wedded to anything, but our purpose is to investigate and find out if something better can not be done than that which is now done, some better system which might be adopted than the present one. Mr. Neal. I think the practice of the past would show that if the compensation were increased to 1J cents, instead of 1 cent, that you would meet the conditions, so far as the street railroads themselves are concerned. Mr. Lloyd. That is not the question which we have under consid- eration and that would only answer this question, that it would pro- vide you a sufficient compensation under the present system. The question we are investigating is to find out whether some other sys- tem of accounting could not be adopted, a uniform system so far as the steam railways and the electric railways are both concerned. We have one system for the steam railways and one for the electric at the present time. Why should we have one for each of the different kinds of railways ? Mr. Neal. That phase of the question would require some further study on our part, without a doubt. The Chairman. You have a prepared statement, have you ? Mr. Neal. Yes, sir. The Chairman. Do you care to make any remarks elaborating the statement you have ? We would be glad to file your statement and insert it in the record. Mr. Neal. I might say at the present I think it would be almost impossible to compare the carrying of mails in city service with steam railroad practice. 144 RAILWAY MAIL PAY. The Chairman. For what reason ? Mr. Neal. Because the difference between train operation and individual car operation is so great and there are no precedents, that I know of, that I could base any statements on to permit me to make a comparison that we would dare to stand on to make a contract. On the other hand, this practice of paying according to the length of a car which has been in use for years and years, gives a greater com- pensation for a long car and a lesser compensation for a short one, and involves, in that way, the payment by space. As a matter of practice it is shown that if we had received 50 per cent more com- pensation, it would have been just to the company, therefore it seems to me that we are in position to state to your committee that there is a basis for payment for the city service which would be satis- factory and which is perhaps the best all around. The Chairman . Then, as I understand, you are perfectly satisfied with space being the determining factor as to the compensation for the service rendered, but you are dissatisfied with the rate that you receive for the space? Mr. Neal. Yes, with one modification: That we would add, if we were paid a cent and a half per linear foot, that we should be granted not less than 30,000 miles for a car. The Chairman. Regardless of the mileage you actually travel? Mr. Neal. Yes, sir. Because if the Government says that we must set aside a certain number of cars, the fixed charges, the crews, and other incidentals are putting the roads to a considerable expense. Our road last year averaged something like 25,000 miles per car. The Chairman. Let me ask you, in that connection, in your con- sideration of the advisability of the extension of any of your electric lines, do you take into consideration the returns you are to receive from the Government for the carriage of the mail ? Mr. Neal. Only indirectly. The Chairman. How indirectly, if under the present rate you are assuming a loss of 50 per cent on the return ? Mr. Neal. If I understood your question correctly, it is that if we are contemplating an extension into one of our suburbs, would we, in figuring the possible revenue on it, include anything for mail cars ? The Chairman. Would mail pay be one of the factors, from the financial standpoint, determining the advisability of going to the expense of making that extension ? Mr. Neal. Yes and no. Yes, if there were post offices in that neighborhood, and no, if it appeared to be away from any post-office district or any place where we could handle the mail. The Chairman. Then the mail pay is really a by-product in electric line operation? Mr. Neal. Yes, sir. The Chairman. Whatever you get is just so much found? Mr. Neal. Well, no; I should not say that, because electric rail- way operations to-day involve the carrying of mail, newspapers, passengers, and express. The Chairman. But you would not extend any electric lines for the purpose of carrying the mail under the mail contracts at the present rate of 1 cent per linear foot per mile. That would not be any consideration in your calculations as to the advisability of the extension. BAILWAY MAIL PAY. 145 Mr. Neal. When we calculate an extension we take the probable gross revenue into consideration and, of course, in that way, it would affect it. Mr. Weeks. That is not especially a practical question as applied to Massachusetts, because in that State railroad extension is hedged around by so many obligations that most people do not want to put money into extensions, and we are not making them. The Chairman. The point, of course, is well taken, but what I want to draw out is that no railway extensions are made on account of mail contracts — that the mail contracts is a by-product, if you please. It is not that I am personally or individually putting myself in a position or attitude of saying that the transportation companies are not entitled to compensation for the service rendered, but it is simply that I want to get this viewpoint in the record. Mr. Lloyd. I do not believe I understand Mr. Neal. If you are going to extend a road and pass two or three little post offices, you would figure what you would probably receive from passenger receipts, you would figure what you would probably receive from trolley freight service, you would figure what you would receive from the mails and from the express, would you not ? Mr. Neal. Yes; we would try to calculate the revenue from all sources. Mr. Lloyd. Then, did you not answer incorrectly a while ago when you said "No" in reply to the question of the chairman? Mr. Neal. I said, " Yes and no," because, unless I knew that there were post offices on a particular extension, I could not tell. Mr. Lloyd. You would know. Mr. Neal. If the extension was in a district where there were no post offices, then I say no. It may be either one way- or the other, but as a matter of fact, we would include all the other incidentals that go with the street railway service. Mr. Lloyd. If you are going to have to do something you are going to figure on that ? You take the receipts that will come from it and you will figure off on the other side the expense on account of it ? Mr. Neal. The matter is so small in proportion to the whole that it would be very difficult to use the mail as a calculation on extension. For instance, with our gross revenue — as it probably will be this year — of sixteen and one-half million of dollars, the money which we will receive from the Government for carrying the mails will probably be about $36,000, and the percentage is so small it would not be noted one way or the other. Mr. Lloyd. That corroborates fully the statement of the chairman that it is an inconsequential matter either way '? Mr. Neal. No; it is an inconsequential percentage, but this $15,000 a year is not an inconsequential matter. The Chairman. Inconsequential as a determining factor as to the advisability of the expenditure. That is the point I wanted to make. Mr. Weeks. As a matter of fact', how long has it been since the Boston Elevated Railway has extended its mileage even a mile ? Mr. Neal. We are all the time making little alterations involving slight changes, but it has been about three years since we made any extension, other than the Cambridge subwa}^, which was authorized prior to that time, and the East Cambridge viaduct. 146 RAILWAY MAIL PAY. The Chairman. In your statement, in which you think you demon- strate that you are carrying mail at a loss of 50 per cent, have you a clear presentation as to what your apportionment of expense is ? Mr. Neal. Yes, sir. I have divided it up into many parts, show- ing exactly what it costs us for each subdivision; for instance, the investment in a car, maintenance of the car, the wages of the men who operate it, the cost of the power, and various elements that go to make up this cost. The Chairman. And of your total operating expenses what per- centage do you charge to the carriage of mail ? Mr. Neal. We charge to the carriage of mail ? , The Chairman. Have you worked it down to a percentage, or a fractional part of a certain per cent ? Mr. Neal. No. We keep accounts on a basis similar to that pre- scribed by the Interstate Commerce Commission, which requires cost of power to be kept in one account, track repairs in another account, etc. In this statement we have taken parts of accounts that apply to mail cars. Mr. Weeks. Does it take the same amount of power to operate a mail car as it does a passenger car ? Mr. Neal. No; I do not think it does. Mr. Weeks. You do not figure the same? Mr. Neal. I took the actual power the mail cars were using. We had a meter put on the cars and found they were using 16 kilowatts. Mr. Weeks. And how much does a passenger car take? Mr. Neal. According to their speed and size. They vary from 56 kilowatts down to, say, 24. Mr. Weeks. How about the cost of the equipment? Do you put in the actual cost, the average cost of all kinds of cars ? Mr. Neal. If I were granted time enough I could explain just how I made up this statement, so you can understand each item. Mr. Tuttle. Is this mail carried in special cars ? Mr. Neal. Yes, sir. We carry mail in pouches besides, but the point of issue at present is that we are operating independent cars at a loss of 50 per cent. Mr. Tuttle. Is the mail which is in pouches carried on passenger cars? Mr. Neal. Yes, sir. The Chairman. What do you figure your net compensation on that? Mr. Neal. I do not remember, Mr. Chairman. The gentlemen from the other roads have that, but I have not from my road, because I was confining myself to this particular case. Would it be taking too much of your time if I should explain the items, provided I go over them rapidly ? Mr. Tuttle. Is this system similar to the systems in other large cities, like Chicago, New York, and others? Mr. Neal. It is generally applicable. The other cities would vary in different items of expense, according to the real estate and various differences in cost of labor and one thing and another, but in the main this would be representative. The Chairman. Go ahead with your statement. The statement is as follows : RAILWAY MAIL PAY. 147 Statement giving estimated cost of operation of present type of United States mail cars on system of the Boston Elevated Ry. Co. Type and number of cars now used, nine 16-foot box. 1 Mileage operated year ending June 30, 1912, 225,695 miles. Cents per car-mile. A. Car investment, taxes, interest, depreciation, and insurance 1. 338 B. Car-house storage, taxes, interest, depreciation, and insurance . 187 C. Power station, taxes, interest, depreciation, and insurance 1. 229 D. Power transmission, taxes, interest, depreciation, and insurance. . . . 198 E. Track investment 2. 441 F. Cost of power used 1. 350 G. Wages on car crews 8. 422 H. Maintenance of car bodies . 482 I. Maintenance of car trucks . 200 J. Cost of maintenance of track 1. 500 K. Wages of other transportation and car service employees and other expenses 1. 680 L. Maintenance of line equipment, buildings, and electric equipment of cars 1.320 M. General expenses 2. 790 Total 23.137 Pay for 16-foot box car (15 feet 11 inches inside) 15. 58 A. Car investment: Original car body $500. 00 Rebuilding car body 640. 13 Heaters without wiring 23. 00 Harrison racks 25. 00 Wire guards. 28. 12 Fire extinguishers 14. 50 Electric equipment and equipping 117. 96 K-2 controllers 168. 00 G 58 motors (2 at $455) 910. 00 Peckham truck ." 220. 00 Vestibuling , 167. 75 Investment per car 2, 814. 46 For nine cars 25, 330. 14 Taxes and insurance, $9.25 per $1,000 (assuming capital be com- posed of one-half stock and one-half bonds) 234. 30 Interest, at 5 per cent (the average amount paid on W. E. and B. E. capital is 5.09 per cent) 1, 266. 51 Depreciation, 6 per cent 1, 519. 81 3, 020. 62 Investment charges per mile (on mileage operated year ending June 30, 1912), 1.338 cents. B. Car house investment: • Length of car from bunter to bunter, 25 feet; 300 square feet required for housing, at $1.75 for land and buildings 525. 00 For nine cars 4, 725. 00 Taxes and insurance, at $9.25 per 1,000 (as above) 43. 71 Interest, 5 per cent 236. 25 Depreciation, 3 per cent 141. 75 Per car mile (on mileage operated year ending June 30, 1912), 0. 187 cent. i Not including one 25-foot box. 421. 71 148 RAILWAY MAIL PAY. C. Power investment. Power station investment, 16 kilowatts per car, at $175 per kilowatt $2, 800. 00 For nine cars 25, 200. 00 Building (30 per cent), $7,560; interest at 5 per cent 378. 00 Building (30 per cent) ; depreciation 3 per cent 226. 80 Equipment (70 per cent), $17,640; interest, 5 per cent 882. 00 Depreciation of equipment 1, 058. 40 Taxes and insurance, $9.25 per $1,000 (as above) 233. 10 2, 778. 30 Per mile (on mileage operated year ending June 30, 1912), 1.229 cents. D. Power transmission lines: 16 kilowatts per car, at $45 per kilowatt — For 1 car 720. 00 For 9 cars 6, 480. 00 Interest, 5 per cent 324. 00 Depreciation, 1 per cent 64. 80 Taxes, $8.98 per 1,000 (assuming our capital to be composed of one-half stock and one-half bonds) 58. 19 446. 99 Per car-mile (on mileage year ending June 30, 1912), 0.198 cent. E. Track investment: Charges taken at the average cost per mile for the entire sur- face system — Investment 9, 300, 000. 00 Car mileage 45, 427, 857. 00 Interest, at 5 per cent 465, 000. 00 Depreciation, 6 per cent ♦. 558, 000. 00 Taxes, $9.25 86,025.00 1, 109, 025. 00 Per car-mile (on mileage year ending June 30, 1912), 2.441 cents. F. Cost of power used: Cost of power taken, at 0.0075 kilowatt hour. Car uses 1.8 kilowatt hours per mile. Cost per mile, 1.350 cents. G. Wages of car crews: Year ending June 30, 1912 . # 18,032.29 Add for effect of 9-hour law (figures which are not yet ob- tainable) 1,000.00 19,032.29 Mail-car mileage, 225,695 miles. Cost oer car mile, 8.422 cents. H. Cost of maintenance of mail-car bodies: 33 months, ending June 30, 1912 2, 244. 35 Add proportion of cost of painting to be done later 750. 00 2, 994. 35 Average cost for 1 year 1, 088. 88 Cost per car mile, 0.482 cent. I. Maintenance of car trucks, including wheels and axles, brake shoes, etc., taken at the average cost of 4 years for the type of trucks used Cents. on mail cars, per car-mile 0. 2 J. Cost of maintenance of tracks per car-mile, estimated by Mr. Hile. . 1. 500 KAILWAY MAIL PAY. 149 Wages of other transportation and car service employees and ex- penses (taken at the average cost per car-mile for about 46,000,000 car miles on the entire surface system) : Superintendence of transportation, including division clerks, Cents. starters, street inspectors, etc 0. 55 Switchmen .12 Lamps, lubricants, waste, etc .15 Car-house employees and expenses. .53 Wrecking expenses .01 Miscellaneous car-service expenses .07 Labor, cleaning, and sanding track .15 Oil, grease, sand, etc .01 Snow expenses .09 1.68 Maintenance of line equipment, building and electrical equipment of cars (taken at the average cost per car-mile for about 46,000,000 car-miles on the entire surface system) : Maintenance of line equipment .34 Maintenance of buildings .22 Maintenance of electrical equipment of cars .60 Superintendence of equipment .16 1.32 M. General expenses (taken at the average cost per car-mile for about 46,000,000 miles on the entire surface system, and about 8,600,000 miles on the entire elevated system): Salaries, office, and general expenses .53 Law expenses .23 Pensions and gratuities .04 Miscellaneous expenses .39 Injuries and damages 1 . 43 Stationery and printing .16 Rent of tracks, terminals .01 2.79 Mr. Neal. In trying to find out what the service costs, I first looked to see how many cars we had, and I found we had 10, one of which was a 25-foot box car, as we call it. The other 9 cars were 16- foot cars; so in order to make this statement plain I eliminated the 25-foot box car. For the nine 16-foot box cars I found the invest- ment to be $2,814.46 per car. These figures I can show on the books of the Boston Elevated Railway Co. They are the orignal and abso- lute figures. The 9 cars made an investment of $25,330.14. In fig- uring the taxes I did not put on the full tax rate on the whole $25,000, because bonds are not taxable ; and I assumed, because we have half of our capital in bonds and half in stock, that it was only fair to apply one-half of the tax rate, so I put down $9.25. Then, the interest is figured at 5 per cent. The Boston Elevated and the West End Street Railway Co.'s have been very fortunate in thsir financing, and the basis on which they are financed stands at 5.09 per cent. That is all we pay to our stockholders and bondholders. I do not think you can find many other roads that can afford to do business on that basis. We are not asking for profit, but only ask that we get this particular rate of interest, because that is what we are paying our stockholders and bondholders. That interest was $1,266.51, as indicated here. Then, I ^k. the item of depreciation at 6 per cent, and that is assum- ing on those cars a life of 16§ years. We will grant, if you please, that the bodies of those cars will last longer than that; but, of course, as 150 RAILWAY MAIL PAY. you know, the motors will not last as long. There are very few motors m operation to-day that will last more than 10 years. Some parts of the cars may last only 8 or 10 years, so the average 16§ years for the total life, we believe to be perfectly fair. That shows on the car investment interest, taxes, and depreciation, 1.338 cents per mile. The question of housing a car comes up next. The car-house investment on our road costs us per car, $525; that is, for a car requiring the number of square feet that these do. The Chairman. On your car-mile basis, on your estimate of June 30, 1912, those 9 cars traveled an aggregate of 225,695 miles? Mr. Neal. Yes; a person carefully analyzing this statement might challenge the fact that I included both land and buildings when I put on a depreciation of 3 per cent, but I was well aware of the fact that the land was included. I might have put on a slightly different per cent on the building alone. I know exactly how much the land cost, on the average, and this 3 per cent applied to the value of both the land and buildings together gives us the proper rate of depreciation to apply to buildings alone. The Chairman. Do you allow for depreciation of the land in the depreciation of the building ? Mr. Neal. I have reviewed our figures for many years and find that depreciation on the buildings happens to equal about 3 per cent on the value of land and buildings taken together. I found that that was the easier way to get at it, and that makes an item of 0.187 cent per car mile. With regard to the power investment, as I have said, we measured the amount of power these cars were using and we found that to be 16 kilowatts per car mile. That requires an investment in power stations of 16 kilowatts per car. Our power station investments have cost us from $187 up to $227 per kilowatt; and in order to be perfectly con- servative, recognizing the fact that some of our stations are not right up to date, we have taken the figure of $175, which is less than the very latest power station we built — a big turbine power station in South Boston, which has just been constructed by Stone & Wester. We have taken the taxes and the depreciation on power stations on the same basis as I have mentioned. The power transmission lines are the overhead feeders and the underground feeders and we have allowed, per car, $45 per kilowatt, which is a conventional figure used by most railroad men in estimating the cost of power. For the track investment we have taken the total number of car-miles run on the whole system last year, all the surface miles. We took the value of the track at $9,300,000 and we figured the interest at 5 per cent. We took the depreciation at 6 per cent and the taxes at one-half the State rate, again assuming that one half was bought with bonds and the other half of it stock. So far as the depreciation of the track is concerned, I know from actually checking up our accounts that all of the track which we have taken up for the last 10 years has averaged 12.4 years; that is, the life of the track has been 12.4 years. Yet, I am assuming a life of 16§ years, on the theory that the track which we have been putting in within the last 10 years will last still longer. In other words, every figure is as conservative as we know how to make it, and yet it shows this loss of over $15,000 a year. KAILWAY MAIL PAY. 151 On the cost of the power used, we have taken the cost of the power at 0.0075 cent per kilowatt, and that will stand by comparison with any other electric-light or power rate in the country where used for similar purposes. The cost of wages of car crews is absolute. We have crews set aside for this purpose and we know positively what wages we pay. It cost us, last year, 8.422 cents per mile. The cost of maintenance of mail-car bodies I have taken the absolute amount we have spent in 33 months and have allowed $750 for painting which is about to be done. That shows 0.482 cent per car-mile. The cost of the maintenance of the car trucks we simply took from our regular account. The cost of maintenance of tracks per car-mile we estimated, for the reason that we felt that it was not right to charge as much for the maintenance of tracks where these mail cars are so light and so small as we would have to charge for an ordinary passenger car. We have some very heavy passenger cars in Boston, as well as light ones. The Chairman. What do you charge for the heavy passenger cars ? Mr. Neal. Last year the cost of maintenance of track was a little over 2 cents and we took three-fourths of that as being a fair amount for the lighter car. On the matter of miscellaneous transportation, car-service em- ployees and expenses, I have enumerated there the items which are put in. It goes without saying the cars use lamps, lubricants, waste; they have the use of switchmen, car-house employees in shifting cars, cleaning them, greasing, sanding tracks and removal of snow, and I have shown just exactly what it is per car-mile. Taking all of those items in a group, they amount to 1.68 cents per car-mile. We distribute the expense according to the number of miles that each car ran; that is, we ran 46,000,000 service miles last year. The Chairman. The total? Mr. Neal. Yes. The Chairman. Then your percentage is worked down on 225,695 — forty-six millionth of that amount ? Mr. Neal. Yes. Of course, they may use more or less switchmen, but we have taken this as the average, which is the best that can be found. With regard to our general expenses, salaries, stationery, printing, and miscellaneous expenses, we put them at 2.79 cents. The Chairman. Why do you allow that — on the same system ? Mr. Neal. Yes. That shows a cost to us of 23.137 cents per car mile and we are receiving 15.58. If these figures were compared with those of the Postmaster General there would be apparently a slight difference because I have thrown out the 25-foot box car. The Chairman. His figures would be more in your favor than those figures, according to your own judgment ? Mr. Neal. It depends on how he -figured them. It would make very little difference, but for the 25-foot car they are allowing us 20 cents per mile, because it is a large car and if that mileage is added to this other mileage it would appear we were getting 16.1 cents per car mile, whereas, as a matter of fact, we are not for cars of the standard size. 152 KAIL WAY MAIL PAY. The Chairman. As I understand, under the law applicable to lines of your nature, there is a maximum of 1 cent per linear foot per car miie ? Mr. Neal. Yes, sir. The Chairman. Do you receive the maximum all the way through ? Mr. Neal. We do not on the 25-foot car, but we do on those others. The Chairman. On the nine 16-foot cars? Mr. Neal. Yes. The Chairman. Under the plan under which the electric lines are operating space is the determinate factor as to the measure of the service rendered ? Mr. Neal. Yes; it is. The Chairman. Have you any suggestions to make for the infor- mation of the committee as to how that measure could be improved ? I am not speaking of the rate, but I am speaking of the yard stick, as you might say. Mr. Neal. I would not suppose offhand that the factor of weight would be the base in this case for the reason that a car may be half filled, and it is expensive business running cars in a large city, and where the distances are short it makes a very marked difference in the compensation. For instance, you might cut down compensation one-half on all the evening mail, or any light mails, because the mails only weigh half as much, whereas the company would be put to sub- stantially the same expense whether the car was filled or half filled. While I have not studied that phase of the question, I should say for such service you ought to pay by space. Mr. Lloyd. Do you understand the present system of compensa- tion by weight for carrying the mail on steam railroads ? Mr. Neal. I do not; no, sir, Mr. Lloyd. It is a complex S3^stem unless you know something about it. Mr. Neal. Well, I do not, but I do know you can substantially measure the space of a street railroad car by taking its length, for the reason that the gauges are pretty nearly alike in most cities; there may be some narrow-gauge roads I do not know anything about, but you do not find them in the big city service we are talking about. Therefore, if you pay for the length of a car for every mile it runs you have a reasonable basis on which to make the payment, and that it is possible to determine a fair rate is indicated by this paper, as I have analyzed the different elements that enter into it. The Chairman. What percentage of your total mail business is handled by these full cars the nine 16-foot cars and the one 25-foot car? Mr. Neal. I think that was a question that came up a few minutes ago. The actual mileage, or amount that we should have received from the Government, if accounts for the year had been adjusted, should be $36,312.53 for car service and $536.34 for pouch service. The Chairman. About 1| per cent for your pouch service, or a little less than 2 per cent ? Mr. Neal. Yes. The Chairman. How do you determine the compensation you receive on your pouch service ? Mr. Neal. We have so far taken what has been given to us. There is another matter that the American Electric Railway Association KAILWAY MAIL PAY. 153 had already taken up before the Committee on Post Offices and Post Roads, when they had the hearings back in May sometime. That matter, however, is not the one which they are trying to bring up to-day. The Chairman. You say you take what is given you by the depart- ment. Do you know how the department determines what they shall give you for your pouch service ? Mr. Neal. No. But I know that the American Electric Railway Association states the present rate to be, for 2,000 miles or less, $150 per annum, for closed-pouch service; for more than 2,000 miles and not more than 3,500 miles, $175 per annum; for 3,500 and up to 5,000 miles, $200. The Chairman. The point I want to bring out is whether the compensation you do receive is determined by weight or by space ? Mr. Neal. They do not seem to base it on either. It seems to be according to mileage and does not say anything about the size of the pouch or the space it occupies, or how much it weighs. The Chairman. Is that all you have to present to the committee, Mr. Neal ? Mr. Neal. I think that is all; yes, sir. The Chairman. We thank you very much for your views. STATEMENT OF ALEXANDER R. PIPER. The Chairman. Mr. Piper, it will be necessary for you to be sworn. Thereupon the witness was duly sworn by the chairman. The Chairman. Will you kindly state your name, residence, and occupation ? Mr. Piper. Alexander R. Piper, general freight agent of the South Brooklyn Railroad, in charge of mail of the Brooklyn Heights Rail- road Co. My age is 47; residence 7522 Second Avenue, Brooklyn. The Chairman. How long have you been connected with the Brooklyn Railroad ? Mr. Piper. Nine years, sir. The Chairman. In your present official capacity? Mr. Piper. Five years. The Chairman. Are you also a member of the association of the electric lines ? Mr. Piper. I am a member of the American Railway Association. The Chairman. Representing practically all of the electric and elevated lines of the United States? Mr. Piper. Yes, sir; city and interurban. The Chairman. Have you an official position with that association or committee ? Has it made an organization ? Mr. Piper. I am a member of the committee on compensation for the carrying of the United States maij. The Chairman. For this association? Mr. Piper. Yes, sir. The Chairman. Will you favor the committee with such views as you have to suggest relative to that service ? Mr. Piper. The Brooklyn Rapid Transit System has for a number of years been carrying both pouch mail and operating independent mail cars. 154 KAIL WAY MAIL PAY. The Chairman. How many independent mail cars ? Mr. Piper. Eleven independent mail cars. The Chairman. Their length ? Mr. Piper. There are two sizes — 15^ feet and 19.58 feet. That is the inside- dimension of the cars. The Chairman. What do you get for the 15i~foot cars per car- mile ? Mr. Piper. Fifteen and one-half cents per car-mile. The Chairman. What for the other ? Mr. Piper. Nineteen and fifty-eight one-hundredths cents per car- mile. The Chairman. You get a maximum in both cases allowed under the law ? Mr. Piper. Yes. I believe Mr. Neal did not state, under the Post Office Regulations, in connection with the appropriation, they can not pay for over 20 feet on an independent car. That is the reason whv he is operating a 25-foot car and is paid only at the rate of 20 feet. The Chairman. Are there any other cases you know of in the elec- tric service where they operate over a 20-foot car ? Mr. Piper. I know of one case in Philadelphia of a new car that has just been built at the request of the Post Office Department. That is 25 feet in size. The Chairman. And all the compensation they can receive is for a 20-foot car ? Mr. Piper. Twenty cents per car-mile; yes, sir. The Chairman. And this car was built at the request of the Post- master General, was it ? Mr. Piper. Yes, sir. The Chairman. Will you kindly continue ? Mr. Piper. To explain the pouch service, which was asked Mr. Neal; that is based upon the shipment over a route, regardless of the number of pouches or the weight of the pouches. It is simply a number of pouches placed upon the front of a passenger car. The shipments may be from a railroad station or from a main post office to a number of substations along this line. There may be a number of throw-ofTs and take-ons in that route, but the compensation is based only upon the total run from one end of the route to the other; i. e., between the- post offices at the ends of the line. The Chairman. Is the measure an assumed average weight for the pouch, if loaded, and that taken as the determining factor on the number of pouches ? Mr. Piper. No, sir. The number of pouches or the weight of the pouch is not taken into consideration at all. It is simply 3 cents per mile for the distance traveled between the post offices. The Chairman. Regardless of the number of pouches carried? Mr. Piper. Yes, sir. The Chairman. It is just a lump sum? Mr. Piper. Yes, sir. The Chairman. Determined how? On the average of business? Mr. Piper. I do not know how that was originally determined. We have some cases in which we will receive one pouch to carry the entire distance and in other cases we will have from 14 to 15 pouches to carry. KAILWAY MAIL PAY. 155 Mr. Lloyd. You receive the same for carrying one pouch as you do for carrying 15? Mr. Piper. Absolutely. Mr. Tuttle. What is the average? Mr. Piper. From five to six. That will depend a good deal on the route and the number of substations on the route. Mr. Tuttle. You never have more than you can throw on the front platform of a car ? Mr. Piper. We had an instance a short time ago in which the sub- station attempted to put 14 pouches on the front of the car and the motor man refused to receive them. He was notified that he would have to receive them, and he said he would not because he could not operate his car with that amount of mail. He stopped and held the car until an inspector came, but he was told by the inspector he had to take what was given him, regardless of the number of pouches, and he took them. On the strength of that we discontinued the carrying of pouch mail. Yesterday was the last day we carried pouch mail, and we gave the Post Office Department 60 days' notice. The Chairman. The 60 days expired yesterday? Mr. Piper. Yes, sir. The Chairman. How was this 3 cents per car-mile determined ? Have you any knowledge of that ? Mr. Piper. No, sir; I do not know. The Chairman. You were simply notified that that allowance woul d be granted you by the Government ? Mr. Piper. Yes, sir. Mr. Tuttle. Is that a special compensation for your line? Mr. Piper. No, sir. I tnink you will find in the bill authorizing the compensation for mail an allowance of 3 cents per mile. Then there is, I think, $25,000 extra allowed in the appropriation to pay for extra service at the rate of 4 cents per mile, where the amount of service is very great and the number of throw-off s very great. Mr. Weeks. Your charter, I suppose, authorizes you to carry pas- sengers, freight, mail, and express ? Mr. Piper. Yes, sir. Mr. Weeks. Do you think under that charter you can refuse to carry mail ? Mr. Piper. Our attorneys believe so. I do not believe I am com- petent to speak on that. Mr. Weeks. Do you think you could refuse to carry a passenger? Mr. Piper. No, sir. Mr. Lloyd. Could you refuse to carry freight ? * Mr. Piper. We never have. I doubt if we could refuse to carry it, as we are under the Interstate Commerce Commission. Mr. Lloyd. Why could you not refuse to carry passengers and not refuse to carry freight and refuse to carry mail ? Mr. Piper. We decline to carry it -at the compensation given us. Mr. Lloyd. Could you not decline to carry a passenger at the compensation ? Mr. Piper. I do not think so, because the compensation is duly fixed by the public-service commission. Mr. Lloyd. Suppose the public-service commission would fix a rate that you would say was not compensatory. Do you think you could refuse to carry passengers ? 156 RAILWAY MAIL PAY. Mr. Piper. No, sir. Mr. Lloyd. Why did you refuse to carry mail if it is not com- pensatory ? Mr. Piper. The only reason is because the principal business of these trolley lines is the carriage of passengers and any interference with that should be avoided as far as possible. Mr. Lloyd. Anything that interferes with the Government ought to be avoided, as far as possible, ought it not ? Mr. Piper. I agree with you thoroughly on that. Mr. Lloyd. Then you think that private individuals have rights that the Government has not ? Mr. Piper. I think that the primary duty of the trolley service is to accommodate the public they are carrying. Mr. Lloyd. If the public is benefited by the carriage of mails, can you refuse that ? Mr. Piper. I believe, if I may not answer directly yes or no Mr. Lloyd. I should not press you on that because you say you have acted under advice of counsel and you are simply giving your own opinion. Mr. Piper. It would simply be my own opinion. Mr. Tuttle. Did the Government contest your right to carry this mail? Mr. Piper. No, sir; they merely asked for additional time until they could make the proper wagon or automobile arrangements for the service. Mr. Tuttle. They did not claim they could compel you to carry the mail ? Mr. Piper. No, sir. By permission Mr. Neal asked a question as follows : Mr. Neal. Did not your contract specify you had a right to terminate the carrying of the mail upon the giving of certain notice, and is not that the basis on which you discontinued it ? Mr. Pd?er. That is the basis on which we discontinued it. We entered into a contract for that matter. The Chairman. Suppose the Government should to-morrow