and considered them as attempts again to exploit the public for speculative and stock-jobbing purposes. It is this very strong feeling that the municipal administration has shrewdly appealed to and its strength is perhaps indicated by the fact that in the pending municipal campaign the opposition parties are endeavoring to avoid the traction issue by also declaring for a continuance of the five-cent fare.

The unfortunate part of the entire situation is that with traction in an admittedly deplorable condition and growing progressively more incapable of meeting the public needs, the local authorities have followed a drifting policy, have been guided by expediency and not principle, and have offered no real solution. What has been lost sight of is the fact that, even admitting all the alleged misdeeds of the past, transit in a city like New York is absolutely vital to the well-being of the community. It must be put upon a basis where adequate service can and will be provided. If the difficulty lies in the present character of the relationship of the companies to the public and the city, and in existing organization and financing, necessary changes must be made to put the companies in a position where they can meet the public needs. The policy of mere obstruction in the long run must prove disastrous to the city, to the public and to the investors alike.

Municipal ownership is not a new thing in New York but represents a settled policy long in effect and steadily growing in popular favor and importance since its original adoption in 1894. From it flows two results that are setting in train tendencies that even now point rather definitely to certain conclusions. In the first place, the city in 1894 in effect decided to go into the railroad business and has already put into operation two great transit programs the subway expansions of 1900-02 and 1913-with a city investment of over $250,000,000. As a railroad owner the city cannot stand still. It must not only continue to expand its own lines but the logic of events point to its also increasing an already dominant position in the transit field by swallowing private lines. In the second place, the city must take steps to protect its investment under the 1913 contracts and set up a new kind of participation that will insure its receiving a proper return so as to relieve its tax budget and also to provide funds for further subway extensions.

Bad service is, of course, a continual irritant. But back of that there is in the mind of the public the remembrance of past transactions. To appreciate the public point of view and the difficulty that always besets any attempt to consider transit problems on their merits it will be helpful to consider a few of the more notable grounds of controversy.

In the early days there was flagrant corruption in obtaining some of the franchises and the "Jake" Sharp manipulation of the Broadway surface line is the example most often referred to. The Metropolitan Street Railway financing, too, has left bitter memories in its wake.

In 1902 when the subway work was well under way the Interborough Rapid Transit Company, to which Mr. McDonald had assigned the operating rights under Contracts 1 and 2, leased in perpetuity the Manhattan Elevated System under a lease which provided that the lessor should pay the interest on approximately $45,000,000 of the lessor's bonds and pay 7% per annum upon the $60,000,000 of the lessor's capital stock, together with taxes which amount to over $2,000,000 annually. This lease has been the subject of severe public criticism, especially during this period of increased costs when the operation of the combined elevated and subway system was burdened with paying what were in effect 7% dividends to the Manhattan stockholders, while the net receipts from operation were so low as to threaten a receivership at almost any time.

Soon after the building of the first subways came the Interborough-Metropolitan combination. The competition between the Interborough Company's subway and elevated systems and the Metropolitan Street Railway's system reached the point where it was possible for certain financial interests to force a combination. There was, therefore, organized a holding company first known as Interborough-Metropolitan Company, which held practically all the stock of the Interborough Rapid Transit Company and of the Metropolitan Street Railway Company. This was most unfortunate for rapid transit, because, aside from the throttling of competition through combination it largely turned the control of the Interborough properties over to those interested in the street surface lines and thereby prevented the city's operator from

considering the matter of rapid transit development solely from the standpoint of a rapid transit operator.

This also gave ground for public resentment because, without the city having any say in the matter, the city railroad, upon which approximately $50,000,000 of public money had been spent, was made one of the main points in a financial maneuver that was actuated primarily to throttle competition and raise the market value of securities.

During the period from 1890 to 1900 there also took place the consolidation in one form or another of the surface and elevated lines in Brooklyn to form the Brooklyn Rapid Transit System. The scandals connected with the Metropolitan Street Railway combination fortunately were not duplicated, but in some of the companies there undoubtedly was considerable water and the consolidation was attended with a burst of speculation, B. R. T. stock at one time being forced up to around 130.

At the time the Dual Subway Contracts were entered into there was, of course, no thought that shortly more than a year later a world war would break out. The prospective burden upon the city in carrying its investment was serious enough under normal conditions, but the effect of increased costs due to the war has completely altered the situation. The city has not yet received interest and amortization charges on its new investment. Even with preferential rights the contract No. 3 company deficit now amounts to over $25,000,000 and the Contract No. 4 company deficit, to over $10,000,000. The extent of the city's burden is indicated by the fact that in its annual budget it is now including an amount approximating $10,000,000 to meet interest and sinking fund deficits on the rapid transit account. Having in view the large cumulative company deficits (and under Contract No. 3 the deficits are cumulative at compound interest), which must be wiped out before the city receives its fixed charges, it is probable that if the contracts are permitted to continue as at present the city will never receive any return under them. This not only subjects the tax budget to this enormous drain but also operates as a bar to needed further subway expansion because, until it is in receipt of sufficient current funds to carry the annual charges on this investment, the city cannot exempt equivalent amounts from the debt limit and use them for new work.

The declaration of large dividends by the Interborough Company and its attitude in respect to changes in its contracts with the city had had an important effect in preventing a readjustment. The 1913 estimates indicated a number of lean years, due to putting the new lines in operation and the attendant heavy interest burden. Then came the World War and the consequent certainty of inflation. These factors should have dictated extreme prudence and the husbanding of resources. In spite of this, however, the Interborough Company declared dividends of 20% in 1915, 1916 and 1917, and 17% in 1918. When it felt the full effect of its interest burdens and war costs it applied to the city authorities for a modification of the subway contracts so as to provide for an increased rate of fare. The company, however, was averse to any other change in the city's interest. This had a most far-reaching effect on the working out of a solution of the transit problem. The public not unnaturally, in view of the fact that the company had so recently been declaring such unusually large dividends, was suspicious of its good faith and antagonized by the attitude of demanding something and conceding nothing.

In December, 1918, important companies of the Brooklyn Rapid Transit System went into the hands of a receiver, to be followed soon. after by the New York Railways Company operating most of the surface lines in the Borough of Manhattan. The Interborough Company has only avoided a receivership with extreme difficulty. The efforts of the companies to secure increased rates of fare were bitterly fought in the legislature and the courts. The disintegration of the big B. R. T. and the New York Railways systems began and was continued by sluffing off through the receiverships of important lines. Service became progressively worse and public resentment increasingly bitter. This condition continued for over three years before a real effort was made constructively to meet the situation.

Early in this year's session of the legislature Governor Miller, in a special message, directly faced the issue and recommended the delegation and concentration of all the powers the legislature could grant to a commission to be composed of three members. This precipitated one of the bitterest political fights in years and the legislation was vigorously attacked on the ground that it violated the principles of home-rule for municipalities and was a

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fare-grab." Of course, the bill did not raise any rate of fare but merely empowered the new commission to raise a rate if necessary and the home-rule argument largely lost its force because of the utter failure of the local authorities to attempt any constructive measures of relief.

The legislation (Chapter 134 of the Laws of 1921 as amended), however, bears upon its face proof of the endeavor to reach down and remove the underlying difficulties and causes of antagonism. It provides for the commission preparing a plan of readjustment that will accomplish as nearly as may be the following three main purposes:

(1) The combination, rehabilitation, improvement and extension of existing railroads so that service thereon may be increased and improved to the fullest extent possible.

(2) The receipt as soon as practicable by the city of sufficient returns from the operation of the railroads so that the corporate stock or bonds issued by the city for the construction of rapid transit railroads may be exempted in computing the debt incurring power of the city under the constitution of the state, and

(3) The assuring to the people of the city the continued operation of the railroads at the present or lowest possible fares consistent with the just valuations of the railroads and their safe and economical operation.

To carry out such a plan of readjustment the commission is vested with the broadest powers to vary rates (including the power to vary rates fixed in municipal consents and contracts), to revise existing contracts and to make new ones and to value and acquire railroad properties for and in the name of the city. Provision is made for submitting the plan and contracts to the local Board of Estimate and Apportionment but if that board finally refuses to approve, the ultimate power to carry the plan into effect is vested in the commission.

In a public letter dated February 11, 1921, Governor Miller, in describing the purposes of the legislation recommended by him, outlined a possible plan of readjustment, as follows:

(1) The value of the physical property used in the public service, without reference to present capitalization, should be determined. The data for such valuation of many of the lines must already be in the possession of the present commission. It should not take long to make a valuation of the others.

(2) Eliminate all outstanding inter-company leases.

(3) Retire outstanding securities, except such underlying liens as cannot readily be retired, for which provision looking to eventual payment must be made.

(4) Vest in the city title to all lines not already owned by the city, free and clear of all incumbrances, except such underlying liens.