Return of the Railroads to Private Ownership

PROPOSED BILL SUBMITTED BY MR. H. S. JEFFERY.

A BILL FOR GOVERNMENT PARTICIPATION AND REGULATION OF RAILROADS. [Prepared by H. S. Jeffery, Counsellor at Law, 3251, Chestnut Street, Philadelphia. Pa.] NOTE. No attempt has been made to present minor details. The thirteen (13) sections of the bill presents the essential features; details to be worked out by conference and added.

In 1909 Mr. H. S. Jeffery, at the behest of President Taft and in conjunction with Mr George Wickersham, Attorney General of the United States, wrote the locomotive-boller bill, which bill, when fully understood, was passed by Congress without a dissenting vote SECTION 1. Be it enacted by the United States Senate and the House of Repre sentatives in Congress assembled, That a Railroad, known as the United Rail road System, shall be chartered, and is hereby chartered, at a capitalization of Twenty Billion Dollars ($20,000,000,000.00), all common stock, par value of shares $10.00.

SECTION 2. The said United Railroad System shall immediately acquire all the railroads in the United States of America and the District of Columbia engaged in interstate commerce in the following manner: The United Ra road System shall exchange its Treasury stock, par value $10.00, selling at par, for the stock, bonds, and other securities of the railroads acquired, on the basis of "actual worth and value received."

SECTION 3. The United Railroad System shall have a Board of Directors of twenty-one (21) members, who shall direct and manage its affairs in general; the directors to be chosen and elected as follows: A-One-third (7) to be appointed by the President of the United States with the consent and advice of the United States Senate. B-One-third (7) by the stockholders on record ninety (90) days prior to date set for directors' election. C-One-third (7) by the classified employees of the United Railroad System whose names appear on the pay roll and are actually employed. Employees eligible to vote must have been in the railroad's employ ninety (90) days prior to date set for election of directors.

SECTION 4. The Directors of the United Railroad System shall each receive Twenty-five thousand dollars ($25,000.00 yearly, and shall devote their fuil time and energy to said railroad system, severing their connection in any and all official capacity, or capacities, such as officer, director, trustee, agent, ect., in any and all corporaions, associations, organizations, etc., that may interfere with or influence them in the faithful discharge of their duties.

SECTION 5. The United Railroad System shall be divided into General Divisions; not less than twelve (12) or more than twenty-one (21), each Division to be in charge of a General Manager, selected by the said Board of Directors, receiving orders from and reporting directly to them. Each General Maranger of a General Division shall have such assistants and officials to conduct the railroad as in the judgment of the Board of Directors are necessary. Each General Manager of a General Division shall receive a salary of eighteen thousand dollars ($18,000.00) yearly.

SECTION 6. The Interstate Commerce Commission shall discharge all duties and functions as heretofore, except as may be amended by this Act or subse quent Acts of Congress. The Interstate Commerce Commission is hereby rected to fix the several classes of passenger and freight rates on a fair and equitable basis, the rates varying as in the judgment of the Interstate Com merce Commission is justified in the respective districts or territories traversed by the railroad; the rates at all times to be sufficient to insure enough income to permit operation of the railroad on an efficient basis, conducive to ample and good service.

SECTION 7. There shall be created a Board of Railway Wages and Working Conditions to make researches and recommendations to the Board of Directors as to wages, rules, and regulations governing all employees up to, but not in cluding, the General Manager of General Division, and their recommendations when approved by the Board of Directors shall be operative and effective. Said Board of Railway Wages and Working Conditions shall consist of twelve (12) members, one-half selected by the share or stock holders, and one-half by the classified employees, under the same conditions, manner and at the same time that members of the Board of Directors are elected. Their salary shall be Nine thousand dollars ($9,000.00) yearly.

SECTION 8. There shall be appointed by the Board of Directors, a Board of Examination and Adjustment, whose duties will be to examine into and adjust

all differences pertaining to rules, regulations, award, etc., on matter within the scope of authority of the Board of Railway Wages and Working Conditions, between operating officials and employees, said Board of Examination and Adjustment shall equal the number of General Divisions, being an equal number of each, one member of the Board of Examination and Adjustment to be assigned to each General Division. They each shall receive a salary of Seven thousand five hundred dollars ($7,500.00) yearly, and shall report to the Board of Railway Wages and Working Conditions.

SECTION. 9. The earnings of the United Railroad System (less operating expenses) shall be divided as follows:

The first four (4) per cent to the share or stockholders, which dividend of four (4) per cent is hereby guaranteed by the Government of the United States of America; all above said four (4) per cent to be divided equally among the classified employees of record, share or stockholders of record, and the Govern ment of the United States of America.

SECTION. 10. Improvements and extensions of all kinds as are essential and necessary and as authorized by the Board of Directors, shall be paid out of the funds of the United Railroad System; where funds are not available for such purposes then the Government of the United States of America may loan the United Railroad System such amounts as may be required at four (4) per cent interest. The total amount that the Government of the United States may loan by this Act shall not at any time exceed One billion dollars ($1,000,000,000), and any and all such loans shall be a first lien or mortgage on all the assets of the United Railroad System.

SECTION 11. The Wage Orders issued by the Director General of the United States Railroad Administration, known as General Order No. 27, and all Supplements, Decisions, Amendments, Interpretations and Addendums thereto, and all agreements entered into by and between the Director General of the United States Railroad Administration with organizations of classified employees are hereby perpetuated, except as may be modified by mutual agreement by and between employees' organizations and the Board of Directors of the United Railroad System.

SECTION 12. There shall be created a Court of Claims composed of five (5) members, appointed by the President by the advice and consent of the Senate, who shall hear and adjust any claims relating to transfer and exchange of stocks, bonds, and securities of railroads acquired by this Act, for treasury stock of the United Railroad System. The salary of the members of the Court of Claims shall be Ten thousand dollars ($10,000.00) yearly, which Court of Claims shall pass out of existence when all matters of transfer and claims in this respect have been completed.

SECTION 13. The Board of Directors, Board of Railway Wages and Working Conditions, and the Court of Claims shall have their headquarters in the City of Washington, District of Columbia. The Directors and members of the Board of Railway Wages and Working Conditions shall be elected for a period of four (4) years, and the first election shall be held within four months from the passage of this act.

IMPORTANT FEATURES OF THE JEFFRY RAILROAD BILL NOT FOUND IN ANY OF THE MANY OTHER BILLS.

1-Does not advocate Government ownership of the railroads now or any time in the future, but continues private ownership and operation merely changing from State corporations to Federal corporation-one parent railroad with grand divisions in place of many small railroads, now more or less affiliated through leases, etc.

2-The stockholders and employees to jointly elect a Board of Railroad Wages and Working Conditions. This feature means that the actual owners of the railroads and the employees create means of settling the question of wages, working conditions, etc., on the merits (not technicalities) involved. Takes this important matter out of the hands of unscrupulous persons who rather have trouble and discontent than to take a few hours' time to reason out differences, etc.

3-Places no limitation on dividends to shareholders, guarantees shareholders 4%, and they to receive of the earnings above said 4%; also, employees to share in earnings above 4%, thereby making it possible to increase their yearly earnings through their saving of time and materials. The brain matter of

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two million railroad employees properly brought into action will increase pro duction and railroad efficiency 100% or more; result in work being more quickly and better done-maximum results at minimum expense, saving and earning muillons of dollars now otherwise lost; and will stop quibbling and disputes over minor matters--in short, a Unit Plan Co-operation for Results.

4-The Government (representing the shippers, public, etc.) will thru the Interstate Commerce Commission regulate passenger and freight rates; will hold the balance of power in the Board of Directors; will share in the dividends above the first 4% earned, and may loan for specific purposes up to a given maximum at 4% interest (Government funds are frequently deposited and loaned for less) Government funds to the railroad. This means co-operation be tween the Government and the railroad to promote good service and develop the United States as a whole. The Government, however, as will be seen, does not subsidize the railroad-merely cooperates and participates. It saves the public --the third party--from being a sufferer as in the past through strikes, stock schemes, bankruptcy of railroads, ete.

PROPOSED BILLS SUBMITTED BY MR. E. J. RICH.

Following is the proposed bill, numbered one. submitted by Mr. E. J. Rich:

AN ACT To provide for the raising of money for railroad improvements, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That when used in this act the term "railroad corporation" means a railroad corporation engaged in interstate commerce whose railway operating revenue, as defined by the Interstate Commerce Commission, during the calendar year preceding the date of its applica tion for Government guaranty, as hereinafter provided, was more than $5,000,000, as determined by the accounts filed with the Interstate Commerce Commission; the term "commission" means the Interstate Commerce Commission; the term “secretary" means the Secretary of the Treasury,

SEC. 2. Whenever a railroad corporation is unable to issue its stock at par or to sell its bonds upon a reasonable basis, as hereinafter defined, for the pur pose of raising money to pay for additions and betterments to the existing plant, it may apply to the Secretary for the guaranty of the United States of America of the principal and interest of bonds to be issued and the Secretary, in the name of the United States of America, shall guarantee such principal and interest, provided the following conditions are complied with:

(1) That the commission shall certify that the improvements, for which the money is to be thus raised, are necessary in order to provide reasonable trans portation facilities for the public, and that the amount of bonds to be issued is not more than is necessary, at par, to meet the authorized expenditure.

(2) That the Secretary shall determine that the corporation can not issue its stock at par nor sell its bonds on a reasonable basis. The reasonable basis within the meaning of this section shall be such a basis as will impose an interest charge of not more than 6 per cent per annum upon the net amount of money to be received by the corporation from the sale of debenture bonds or of such bonds as it has the right to issue under any existing mortgage or may issue under a new mortgage.

(3) That the Secretary shall determine that the financial conditions of the country are such that it is not an unfavorable time for the sale of said bonds, and that said sale would not prejudice the Government in any of its financial operations.

(4) That the term of the bonds, which shall not exceed 30 years, and the rate of interest, which shall not exceed 5 per cent, and other conditions, shall be fixed by the Secretary. In fixing the rate of interest the Secretary shall fix it at such a rate as in his judgment will make it possible to sell the bonds at not less than par.

(5) That the Secretary shall determine the manner of selling the bonds, and, as far as practicable, shall prescribe that the bonds shall be sold in towns and cities which are located upon the line of the railroad. He may determine that the bonds be offered for public sale at a price fixed by him, or that they be

offered for competitive bidding, in a block, or otherwise, or that they be sold to bankers or others without competitive bidding at a price to be determined by him.

(6) That the railroad corporation shall establish a sinking fund which will be sufficient in amount at the maturity of the bonds to retire them, the terms and conditions of the sinking-fund agreement to be approved by the Secretary. SEC. 3. Whenever the net income of a railroad corporation, as the term is defined by the commission at the date this act takes effect, after deducting therefrom the regular dividends on all classes of preferred stock, shall exceed 9 per cent per annum on the common stock, the railroad corporation shall pay into the Treasury of the United States one-half of its net income as defined above after the deduction of the regular dividends upon all classes of preferred stock, said payment to be made within 60 days after the end of each calendar year, the first payment to be made within 60 days after the end of the calendar year 1920 and to be based upon the earning of said year.

A railroad corporation which has no common stock may deduct 9 per cent per annum upon the total amount of its preferred stock before any payment is made into the Treasury of the United States.

A railroad corporation shall be entitled to retain, before making any such payment into the Treasury of the United States net profits equivalent to 6 per cent upon the valuation of its railroad, provided said valuation has been finally determined by the commission or by the courts. If said valuation has not been finally determined the payment shall be made in the manner prescribed in this section, and if upon a final valuation it shall be determined that an overpayment has been made the amount thereof with interest at the rate of 4 per cent per annum shall be refunded by the Treasurer of the United States upon certificate of the commission setting forth the valuation and the amount of said overpayment.

SEC. 4. That said payments from excess earnings shall be kept by the Treasurer of the United States in a fund to be known as the railroad guaranty fund and may be invested by him to such extent as he may determine in any bonds issued or guaranteed by the United States of America.

SEC. 5. That whenever the commission shall certify that a railroad corporation whose bonds have been guaranteed under the provisions of this act has not earned sufficient to pay its fixed charges and operating expenses during the preceding calendar year, and shall certify to the amount of said deficit, the Secretary shall pay over to said railroad out of the railroad guaranty fund the amount of deficit so certified, provided the said railroad corporation shall enter into an agreement that it will pay over to the Treasurer of the United States to the account of the railroad guaranty fund annually onehalf of its net income, until the amount of the advances from said fund have been repaid with interest at the rate of 5 per cent per annum.

SEC. 6. That the commission shall permit rates to be established by railroad corporations so that over a period of three years the average annual surplus over and above the payments provided for in the preceding section shall not be less than $25,000,000. If in the judgment of the commission the rates initiated by the railroad corporations are insufficient to yield said surplus, the commission shall prescribe such rates as it may deem necessary to yield said surplus, and it may determine the articles of traffic upon which rates shall be increased, and the railroads upon which the increased rates shall be applied, but it shall not prescribe an increase in passenger rates in order to comply with the requirements of this section.

SEC. 8. That the sum of $50,000,000 is hereby appropriated as an advance to railroad guaranty fund, said sum to be repaid within five years with interest at the rate of 5 per cent per annum.

Following is the proposed bill No. 2 submitted by Mr. E. J. Rich: AN ACT To provide for the raising of money for railroad improvement, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That when used in this act the term "railroad corporation" means a railroad corporation engaged in interstate commerce whose railway-operating revenue, as defined by the Interstate Commerce Commission, during the calendar year preceding the date of its application for the right to issue bonds, as hereinafter provided. was more than $5,000,000, as determined by the accounts filed with the Interstate Commerce

Commission; the term "commission" means the Interstate Commerce Commission; the term "Secretary" means the Secretary of the Treasury.

SEC. 2. Whenever a railroad corporation is unable to issue its stock at par or to sell its bonds upon a reasonable basis, as hereinafter defined, for the purpose of raising money to pay for additions and betterments to the existing plant, it may file a petition with the commission for the right to issue bonds and to receive from the Federal railroad fund, as hereinafter defined, sums of money sufficient to meet any deficit after the payment of fixed charges and operating expenses, and the commission shall grant the right to issue said bonds and to participate in the Federal railroad fund to the extent herein set forth upon the following terms and conditions:

(1) That the commission shall certify that the improvements for which the money is to be thus raised are necessary in order to provide reasonable transportation facilities for the public, and that the amount of bonds to be issued is not more than is necessary at par to meet the authorized expenditures.

(3) That the term of the bonds, which shall not exceed 50 years, and the rate of interest, which shall not exceed 6 per cent per annum, and other conditions shall be fixed by the Secretary. In fixing the rate of interest the Secretary shall fix it at such a rate as in his judgment will make it possible to sell bonds at not less than par.

(4) That the Secretary shall determine the manner of selling the bonds, and. as far as practicable, shall prescribe that the bonds shall be sold in towns and cities which are located upon the line of the railroad. He may determine that the bonds be offered for public sale at a price fixed by him, or that they be offered for competitive bidding, in a block or otherwise, or that they be sold to bankers or others, without competitive bidding, at a price to be determined by him.

(5) That the railroad corporation shall establish a sinking fund which will be sufficient in amount at the maturity of the bonds to retire them, the terms and conditions of the sinking-fund agreement to be approved by the Secretary. (6) That the railroad corporation shall enter into an agreement with the commission that it will pay to the Treasurer of the United States to the count of the Federal railroad fund, wherever it has earned a net income #nnually, applicable to dividends, and within 60 days of the close of the calendar year, one-half of said net income applicable to dividends, until the amount of the advances from said fund have been repaid, with interest at the rate of 5

per cent per annum.

SEC. 3. Whenever the net income of a railroad corporation, as the term i defined by the commission at the date of this act takes effect, after deducting therefrom the regular dividends on all classes of preferred stock, shall exceed 9 per cent per annum on the common stock, the railroad corporation shall pa into the Treasury of the United States one-half of its net income as defined above after the deduction of the regular dividends upon all classes of pre ferred stock, said payment to be made within 60 days after the end of each calendar year, the first payment to be made within 60 days after the end of

the calendar year 1920 and to be based upon the earnings of said year.

A railroad corporation which has no common stock may deduct 9 per

per annum upon the total amount of its preferred stock before any payment

is made into the Treasury of the United States.

A railroad corporation shall be entitled to retain, before making any

payment into the Treasury of the United States, net profits equivalent to 6 per cent per annum upon the valuation of its railroad, provided said valuation

has been finally determined by the commission or by the courts. If said

uation has not been finally determined, the payment shall be made in the manner prescribed in this section, and if upon final valuation it shall be de

termined that an overpayment has been made, the amount of said overpay

ment

with interest at the rate of 4 per cent per annum shall be refunded by the Treasurer of the United States out of the Federal railroad fund upon certifiIcate of the commission setting forth the valuation and the amount of said

overpayment.

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