made up into trains in the congested freight yards adjacent to the freight houses, under the conditions suggested, as soon as cars were loaded, they might then be started for the yard on the outskirts of the city, and right at this point is the reason why the city ought to have a say as to the hours during which this work might be done, and over what streets the cars might be run.

"This would also relieve street congestion, for every car loaded on the tracks at the factories would mean just so much less freight hauled through the streets. To transport a carload of ordinary merchandise would require five or six two-horse wagons, which would take up much more street space than the trolley car, and while in transit the wagons would probably occupy the street three or four times as long. It is this heavy teaming which wears out our streets, and if this teaming was transferred to the trolley rails, this change would be quite a factor in the cost of street maintenance."

In Seattle, where freight-handling has been developed as an important feature of the street railway business, the results have not been altogether good. Referring to this matter in his annual report for the year ending November 30, 1909, Mr. A. L. Valentine, superintendent of the city's department of public utilities, had this to say:

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Considering the interference that the freight service of street railways is beginning to cause in the operation of passenger traffic, the high rates charged, and the unsatisfactory results achieved, as well as the increased risk in travel, one is almost led to believe that if the companies do not see the necessity for better regulation of this traffic, it would be good public policy to impose more stringent regulations upon the freight service, especially on single track lines subject to heavy traffic.

It is perhaps sufficient to suggest the rule that a street railway franchise should not prohibit the use of the tracks by freight cars, but should subject such use to regulation from time to time by the city authorities.

The operation of funeral cars, observation cars and other cars for use on special occasions at special rates should be permitted, subject to municipal regulation.

305. Publicity: prescribed forms of accounting; investigations; reports; filing of documents. -No adequate control over the operations of a street railway company can be exercised by the public authorities without publicity of the company's financial transactions. Substantially the only publicity required in franchise grants up to a few years ago related to gross receipts in connection with the requirement that a certain percentage of such receipts be paid into the

city treasury. Indeed, the intricacies of corporate bookkeep ing were regarded as being so baffling as to render any scheme for compensation based on net earnings wholly impracticable. The city's accountants were not considered equal to the task of unravelling the subtle mysteries of corporation finances and, moreover, publicity of accounts was looked upon as an interference with the prerogatives of a private business. But the elimination of competition and the demonstration in a hundred ways of the public nature of the street railway business have overcome, to a great extent, any popular scruples about the justification for enforced publicity. There is no rational basis upon which the terms of a franchise can be arranged except full knowledge of the financial aspects of the business. The city must know all about construction cost, income, traffic, operating expenses, costs of materials and maintenance, renewals and accident burdens. There is nothing at all in the financial transactions of the company that can properly be concealed from the city's eye.

In order to insure correct and detailed accounting, not only publicity but control is necessary. In states where there are public utility commissions with adequate powers, the active control of street railway accounting should be left to them. In every franchise grant there should be imposed on the company, however, the obligation to keep its books according to standard forms, and the city should reserve the right to take any necessary steps to bring this about in the absence of effective state action.

Just what publicity of accounts implies should be made clear. It is not necessary that the general public should have continuous access to the company's books. It is essential, however, that the city's financial officer, the mayor and the city council should be authorized at any time to examine directly or by properly qualified accountants all the company's books, records and vouchers to the last detail. Moreover, there should be no restriction upon the fulness of the reports that may be made public as a result of such examinations. The right to examine the company's books should also be guaranteed to stockholders and bondholders and to groups of citizens who can show good cause for their proposed action, and can secure a writ from a court of proper jurisdiction with a reasonable guaranty that they will not unnecessarily

interfere with the conduct of the company's regular business while the examination is going on.

The franchise should provide for the making of annual or more frequent reports to the city, showing income, expenditures, assets, capitalization and traffic in detail. If reports to the state are required under general or special laws, the reports to the city should be made out for the same fiscal periods and should follow the same general plan, though greater elaboration and definiteness, if thought desirable, may properly be required. The reports should contain all essential facts necessary to show the status of the business and provide a basis for interest allowances, rate readjustments, purchase of the property, and extension and service requirements.

Street railways often sustain more or less secret relations with each other or with other public utilities. Sometimes by secret contracts with nominally independent concerns, which, however, are controlled by the same persons who control the street railway, excessive costs of materials or power are carried on the books. Copies of all contracts and agreements made by the street railway company, whether with its employees or with other companies or individuals, should be filed in a public office. All agreements for leasing, joint operation, trackage rights, power supply, or other matters affecting operation under the company's franchise should be subject to approval by the proper city authority.

306. Capitalization and valuation of property. The direct control of capitalization is usually considered to be a state rather than a local function. Very few municipal franchises contain provisions for the control of street railway stocks and bonds. Even the Chicago and the Cleveland settlement ordinances do not attack this problem directly. They limit capitalization only by establishing a valuation of the property at which it may be purchased at any time and upon which the company is allowed a fixed rate of return prior to purchase. The Cleveland franchise also provides that new capital stock shall not be issued below par and new bonds shall not be sold below par without the city's consent.

The par value of street railway stocks and bonds should not represent more than the actual original investment in the property plus new capital expended for additions and betterments. This is the maximum. There should be no

capitalization of franchises except to the amount originally paid to the city in lump sums for the grants. It is proper that interest on investment during construction and legitimate promotion and organization expenses should be included. in construction costs. There should be no allowance for good will or the development of the business, as it is a monopoly service that is involved. The franchise should be drafted with a view to reversing the natural tendency of public utility companies to expand their capitalization. If the controlling motive is to be the rendering of the best possible. service at the lowest practicable cost instead of the exploitation of a public service for the greatest possible private gains, every reasonable measure must be taken to reduce fixed charges. It is the view of some people that the public is not vitally interested in the amount of stocks and bonds. issued by a public service company. They say that the public's only concern lies in the valuation of the property and the determination of the amount of investment upon which the company is to be allowed interest out of earnings. In a certain sense, this is true. Yet the analogy between the stocks and bonds of a public service corporation and the bonds of the city itself is so close that the same principles should apply to both. The par value of capitalization should in the first place be as nearly as possible the same as the amount of the investment, and the market value of the stocks and bonds should not thereafter be permitted to get far away from the par value. A franchise may appropriately stipulate that a street railway company's stocks and bonds shall not be issued for less than par value, and that the proceeds shall be used only for legitimate construction and betterment expenditures. All street railway bonds should be sold subject to redemption on any interest day at a stipulated premium. It should be provided that bonds outstanding when the property is taken over by the city or the city's licensee shall either remain a lien against the property until due or be transferred to the proceeds of the sale, at the option of the purchaser of the street railway system. Under usual conditions it is desirable that the proportion of capitalization to be issued in the form of bonds should be limited to onehalf or at the most, two-thirds of the total. Any regulation of the comparative amount of stocks and bonds to be issued.

is made less important, however, by the establishment of a fixed valuation of the property and the strict regulation of the uses to be made of earnings so as to make stocks and bonds almost equally certain to bring a fixed return.

As a means for controlling capitalization and advising investors as to the security of street railway stocks and bonds, there is much to be said in favor of fixing the purchase price of the property in the franchise itself, provision being made for additions to the price from time to time on account of extensions and betterments. In renewal franchises, where in most cases no satisfactory figures of original investment can be made up, a special valuation will have to be made, which may be based upon cost of reproduction less depreciation. If under the particular circumstances of any individual case it is deemed necessary to include any values of unexpired franchises or any costs of obsolete equipment, or any other item that would not properly enter into conservative capitalization in the case of new construction, it is imperative that provision be made for writing off all these extra items out of earnings within a reasonably short period. The dead capital should be eliminated and the water should be squeezed out, absolutely all of it.

307. Disposition of earnings: operating expenses, accidents, insurance, maintenance and depreciation. It is the risk of a public utility enterprise that it assumes the imperative obligation to render good service whether it is being operated at a profit or not. This risk is softened in a good street railway franchise by a provision for elasticity of rates. The laborer is worthy of his hire, but he must work first, and get his pay afterwards. No control of a public utility is adequate unless it includes the control of the disposition of earnings. Obviously, earnings should be devoted, first, to the payment of necessary operating expenses, which include many things. There are the cost of power; the wages paid to conductors, motormen and laborers; the salaries of the administrative force; office expenses; legal expenses; the cost of materials and supplies, and all the other things that enter into the necessary expenses of rendering continuous, high-grade service, after the plant has once been constructed. There are certain special items properly included in operating expenses, such as insurance and damage claims, which are