franchise through an agreement was considerably modified, so that the financial obligations to the city were reduced; subsequently the validity of this grant again became a subject of litigation,' which ultimately resulted in its abrogation. A new contract, dated October 29, 1912, differed from the agreement of 1909 in two important particulars.2 In the first place, other companies might obtain franchises for the same streets covered by the South Shore Traction Company's contract; and, secondly, the financial return to the city was modified, the company agreeing to pay to the city for the first five years three per cent of its annual receipts, with a minimum of three thousand five hundred dollars per year; for the next five years, five per cent of its annual receipts with a minimum of seven thousand dollars; for the third five years, five per cent with a minimum of twelve thousand dollars; and for the next ten years, five per cent with a minimum of fourteen thousand seven hundred dollars. The car fee for the use of the Queensboro bridge was not changed and remained at five cents for each round trip. For the use of the tracks across the bridge the company was to pay four per cent per annum upon a valuation of thirty thousand dollars per mile of single track used, while the same rate was prescribed upon the cost of construction for the use of the terminal loops. The other provisions remained practically unchanged. This franchise, which was approved by the Public Service Commission on August 9, 1912,3 is typical of the standard form of street railway franchises now granted by the city of New York.

Among the criticisms which have been made regarding the charter may be mentioned, in the first place, the repeal

1 Wilcox, Delos F., Municipal Franchises., vol. ii, pp. 135-136. "Report of Public Service Commission, First District State of New York, 1913, vol. v, pp. 1197-1198.

3 Ibid., 1912, vol. i, pp. 369-370.

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of the Cantor Act. At the time the charter was drafted a brief section was incorporated which in effect nullified that portion of the General Railroad Law requiring street railway franchises to be sold at auction. The supporters of the auction-sale principle asserted that the haste with which the charter was rushed through the legislature prevented a thorough public discussion of the document, and the point was, therefore, overlooked.2 The advocates of competitive sales, while they realized that the provisions of the Cantor Act were far from perfect, vigorously defended the basic principle of the act on the theory that without competition the board of estimate and apportionment would be at a loss to determine the actual value of a new franchise. In the opinion of the supporters of the sales principle, no one is in a better position to know the value of a new franchise than those who apply for it, and it is only when competitors are bidding against one another that any real disclosure is given as to the actual value of the proposed grant.3 Whatever may have been the merit of the Cantor Law, it certainly did not always record the true measure of the monetary worth of the franchise under consideration, as has already been noted in the application of the auction principle to Bronx franchises.

Again, no provision was made in the charter for the reservation to the city of the right to purchase those portions of the railway plant, such as power-houses, car-barns, and their equipment. In the event of municipal ownership it is conceivable that the tracks might be of very little value without these accessories.

1 Section 77, of ch. iii.

2 West, Max, "The Franchises of Greater New York," in Yale Review, 1898, vol. vi, p. 395.

CHAPTER X

GENERAL CONCLUSIONS

FROM the study that has been made certain reasonable conclusions may be deduced:

1. It can scarcely be said that New York city has ever had a scientific franchise policy; rather it has been blindly groping to evolve such a policy. Until the creation of the Greater City, the franchise-granting body, whether common council or state legislature, awarded franchises to those individuals or corporations offering the greatest monetary inducement or exercising the greatest political influence.

2. In making franchise grants, the public was utterly disregarded. Ordinances were rushed through with practically no opportunity for publicity or careful consideration.

3. The executives, both state and municipal, by their veto power made a greater effort to protect the interests of the public than did the legislative bodies.

4. The majority of the grants were given in perpetuity, were exclusive or monopolistic in character, and invariably brought little revenue to the city.

5. The franchise grants or contracts were loosely drawn and the conditions embodied therein were trivial in character; no provision was made for financial regulation.

6. Consolidation of the independent lines was accompanied by over-capitalization, high rentals, and stockjobbing.

These observations force us to conclude that today, with the awakened interest in public affairs, the city should formulate a definite and comprehensive program with respect not only to its street-railway franchises but also to other public

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utilities. The time has come when the city can no longer

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1 In this connection it is interesting to note the recommendations made by the Committee on Franchises of the National Municipal League at its Detroit meeting, November 22, 1917:

“1. That every state remove the handicaps from municipal ownership by clearing away legal and financial obstacles, so far as they are now embedded in constitutional and statutory law.

“2. That every state provide expert administrative agencies for the regulation and control of public utilities. These agencies should have full jurisdiction over interurban services and over local services where the local authorities are unwilling or unable to exercise local control. They should have limited jurisdiction wherever the local authorities are in a position to exercise the full normal functions of municipal government, and should even have jurisdiction with respect to accounting and reports in the case of utilities owned and operated by municipalities.

3. That every city where public utilities are operated primarily as local services definitely recognize these services as public functions and set in motion at once the financial machinery necessary to bring about the municipalization of public utility investments at the earliest practicable moment.

4. That every such city, pending the municipalization of its utilities, recognize the necessity of giving security to public utility investments and to a fair rate of return thereon, and to that end assume as a municipal burden the ultimate financial risks of public utility enterprises and insist upon receiving the benefits naturally accruing from this policy in the form of a lowered cost of capital.

“5. That every city definitely adopt the policy of securing public utility service to the consumers either at cost, or at fixed rates not in excess of cost with subsidies from taxation whenever needed for the maintenance of the service at the rates fixed.

"6. That every large city provide itself with expert administrative agencies for the continuous study of local public utility problems; for the adjustment of complaints as to service; for the preparation and criticism of public utility contracts and ordinances; for the formulation of standards of public utility service; and for adequate representation of itself and its citizens in proceedings before the state commission or other tribunals affecting the capital stock and bond issues, the intercompany agreements, the accounting methods, the reports, the valuations, the rates, and the practices of public service corporations operating in whole or in part within the city's limits." See Wilcox, Delos F., "Recent Developments in the Public Utility Field Affecting Franchise Policies and Municipal Ownership," National Municipal Review, March 1918, vol. vii, pp. 157-158.

afford to pursue a policy the outstanding characteristics of which are looseness and inefficiency. It should take a courageous attitude and map out a policy which will insure to the people of today and tomorrow adequate and efficient transit service, which is one of the mainsprings of our industrial system. In the adoption of such a policy there are certain important problems which should be considered. One of these, the solution of which is of vital importance to the city, is the matter of street-railway extensions. Private utility corporations usually are reluctant to extend their lines unless the additional construction promises to net a substantial profit.1 In the past, threatened or real competition furnished a motive for building certain extensions; 2 but the street-railway business of New York city is no longer competitive, and is not likely to be so in the future. Further

1 A recent case, New York and Queens Gas Company v. McCall, 245 U. S., 345, is typical. In this case the Public Service Commission ordered the Gas Company to extend its mains to meet the reasonable needs of a growing community about a mile and half distant from the end of the company's mains, but within the limits of New York city. The company maintained that in proportion to the expenditure required a sufficient financial return would not be obtained. The company appealed from the order of the Commission and the case finally went to the United States Supreme Court on the ground that the order of the Commission was illegal and void in that it deprived the company of property without due process of law and denied equal protection of the laws in violation of the Fourteenth Amendment. The order of the Public Service Commission was upheld. For comments on this case see 2 Cornell Law Review, 126; 31 Harvard Law Review, 644; 27 Yale Law Journal, 705.

2 For instance, the keen rivalry between the Metropolitan Street Railway Company and the Third Avenue Railroad Company for possession of the Kingsbridge extension.

3 In a sense, however, the automobile and the jitney may be looked upon as competitors. As to the importance of this competition see Delos F. Wilcox, "Problem of Reconstruction with Respect to Urban Transportation," in National Municipal Review, January, 1919, vol. viii, p. 38.