Bion Joseph Arnolds.

Recommendations for proposed merger ordinance for surface and elevated railway properties in the city of Chicago online

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MARCH 6, 1913.















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Chicago, March 6, 1913.
Hon. Eugene Block, Chairman.
Hon. Heney D. Capitain. \
Hon. John A. Richekt. (
Hon. Henky P. Bergen. Members,
Hon. William J. Healy. /

Suh-Committee of Local Transportation Committee,
City Council of Chicago, III.

Gentlemen : — You have honored the Board of Supervising
Engineers, Chicago Traction, by inviting it to appoint a repre-
sentative to assist you in your deliberations regarding the
formulating of a new contract-ordinance, under which the con-
solidation of the present surface and elevated railways of the
city of Chicago shall be effected, and under which it is pro-
posed that the extension of such railways and the construc-
tion of all future passenger subways of the city of Chicago
shall be constructed, and the Board has appointed me, as its
Chairman, to represent it in such deliberations.

In this capacity I have had the pleasure of attending one
meeting of your committee, that of February 21st, at which
time several important points which were proposed for em-
bodiment in the new merger ordinance were discussed, and I
shall, of course, be pleased to continue these discussions with
you at your pleasure, and hope to be of some assistance to

Since this meeting adjourned, subject to the call of your
Chairman, in order to give the Corporation Counsel of the city
time to draft a tentative ordinance for your consideration,
in which he is to embody not only the points especially dis-
cussed at the first meeting, but also, as I understand it, the
desirable features of the present ordinances (known as the
settlement ordinances of 1907, under which the surface hues
of the city are now working), it has occurred to me, since your
committee asked me to draft, for your consideration, certain
clauses of the proposed ordinance, that if your committee
had before it certain other information, and this information
were transmitted by you to the Corporation Counsel for his


consideration during the drafting of the tentative ordinance,
that the ordinance, when presented to you, would probably
be more complete than though we wait for further meetings
of your committee, at which time I would probably bring out
these points, although it is not at all certain that time would
permit my mentioning all of them. For this reason I believe
it my duty as a citizen, and as one who has given much at-
tention to the subject of intramural transportation in many
large cities of the country, to set forth to you now, in writing,
without in any way attempting to commit the Board of Super-
vising Engineers, some of the opinions and conclusions which
I have formed as the result of this experience.

I shall, of course, be pleased to discuss with you, at your
committee sessions, any of the points herein suggested, or
others that may arise in your deliberations, and at such times
can give you my full reasons for such suggestions as I have
made herein.

At the above meeting of your committee, the first question
that was asked by the Corporation Counsel was, whether or
not there should be made, in the new ordinance, provision for
a Board of Supervising Engineers, similar to the Board pro-
vided under the present ordinances, or, if not, what type of
Board should be created, together with the number of mem-
bers thereof.

Inasmuch as I am chairman of the present Board, and It
has been made by some to appear that, in the discussion of
the proposed ordinance at this meeting, I attempted to pro-
ject the present Board into the new ordinance (which a read-
ing of the verbatim report of what took place will completely
disprove), I wish to make my position clear to you, so that
the principles which I hereinafter point out, as seeming nec-
essary to me to be embodied in the new ordinance, shall be
considered on their merits alone, rather than from the biased
viewpoint that some have attempted to create, to the effect
that the members of the present Board, and especially myself,
are attempting to retain their present positions.

At the above meeting it was decided that the members of

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the new Board should devote their entire time to the work
of the Board and, in response to a direct question asking me
to state what I thought the salaries of such Board members
should be, I pointed out that the kind of talent that is em-
ployed upon the present Board could not be secured exclu-
sively without comparatively high compensation, for the rea-
son that the two members representing the companies re-
ceive, in addition to their compensation on the Board, sala-
ries as chief engineers of their respective railroads, while the
member representing the city of Chicago receives additional
salary as Engineer of the Board, so that the Board has the
benefit of a large portion of the time and judgment of these
men for comparatively low pay. So far as my own compen-
sation, which was fixed in the ordinances, is concerned, it will
perhaps be sufficient to state that my income was, for several
years prior to my connection with the Board, and when I
was able to give my entire time to my professional work, over
four times the total compensation which I now receive from
the Board, and that my only reason for retaining a connec-
tion with the Board, for sometime past, has been due to the
fact that I felt a moral obligation to the public and the rail-
way companies represented on the Board, to hold the posi-
tion long enough to be instrumental in firmly establishing the
principles of the ordinances, for it should not be forgotten
that, by the terms of the ordinances, I do not directly repre-
sent either the city or the companies, but act as an arbitrator
between them, and I believe that it was the intention of those
who wrote my name into the ordinances that I would see that
equity was done to both sides, which responsibility I firmly
believe I have faithfully discharged up to date.

The underlying principles of these ordinances may be con-
cretely stated as :

a. One city, one fare, universal transfers.

b. Fair dealing with the Public.

c. Fair dealing with the Corporation.

d. Service equipment and construction without limit
as to the possibilities for good; and

e. Opportunities for evil minimized.


Under the terms of these ordinances the City Council,
while relinquishing none of its legislative powers, is freed
from the duties and burdens of detailed administration of
the property, this being left entirely to the Board of Super-
vising Engineers.

This Board, during its six years of experience in adminis-
tering these ordinances, has been efficient in the expenditure
of something over $80,000,000 for the rehabilitation of the
properties, not only in engineering design and supervision,
but it has also, through the care which it has exercised in the
supervision of accounting matters, seen that the provisions of
the ordinances, so far as the Board has control over them,
have been fully carried out, and with the following results :

There has been placed in the city treasury, as
the city's proportion of the net profits during the six
years the ordinances have been in effect, $10,108,212.00
which, with accrued interest to date, brings the total
as of December 31, 1912 to $10,504,333.90

(See Section 24, page 22 for use of this as an amor-
tization fund.)

There has been placed in the renewal funds of the
companies during the three years since the rehabilita-
tion period ended, up to December 31, 1912 $5,857,484.21

Of this $5,857,484.21 there has been expended in
taking care of depreciation to December 31, 1912 4,415,763.61

Leaving now in cash in the renewal funds $1,441,720.60

In addition to this the companies have received out of earnings. .$36,352,782.66

And out of new money furnished, as 10% construction profit and
5% brokerage provided for under the ordinances 9,429,010.79

Making the total which the companies have received up to
December 31, 1912 $45,781,793.45

During the life of the present ordinances, the companies have received out of
earnings an average of 5.9% upon their investment, and out of new money, as
above, 1.5%, or a total of 7.4%, and the city has received out of earnings 7.03%
of the gross receipts.

The supervision of the entire work has been done by the Board, and its staff,
at an expenditure of less than 1.60% of the cost of the work constructed.

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While the Board believes that it has been efficient in the
above matters, over which it had full authority, it also be-
lieves that it could have been more efficient and more effec-
tive in utilizing, for the benefit of the public, this improved
physical condition of the properties, had it been vested with
the power of initiative and enforcement of operating condi-
tions, which power now lies solely with the City Council and
the city officials.

I hope, therefore, with the above information before you,
that your committee will clearly understand that there is
absolutely no desire on my part to attempt to retain the pres-
ent Board of Supervising Engineers in the new ordinance,
or to in any way advance my own interests in this mat-
ter, and that you will consider my suggestions on their
merits, leaving the personal equation entirely out of the dis-
cussion. If this method can be pursued, with the final re-
sult that an ordinance can be evolved, containing sound su-
pervisory provisions, and under which all of the surface and
elevated passenger railways of Chicago, and such subways
as may be constructed in the future, can be merged, upon a
sound basis, into one comprehensive operating entity, where-
by the citizens of Chicago and the companies will obtain the
full benefits of all of the operating and financial advantages
that can be effected by such a merger and such a system of
operation, thus finally attaining the one-city-one-fare ideal
which I have advocated for over a decade, I shall be entire-
ly content to rest satisfied with having been one of the factors
whereby this result was brought about, even though I have
nothing to do with the carrying out of the terms of such an

By the adoption of the 1907 ordinances, Chicago effected
a settlement of her street railway difficulties, so far as the
surface lines were concerned, upon terms which have attracted
broad attention, and the results have been so satisfactory that
they have been largely copied in settlement ordinances of
other cities. Furthermore, while the practical working of
these ordinances has developed certain minor defects, which

— 5—

should be rectified in any new ordinance, they are, if properly
enforced, fimdamentally so beneficial to the city of Chicago
and its citizens, that great care and consideration should be
given to the subject before they are set aside, and it should
be absolutely certain that any new ordinance gives to the city
of Chicago and its citizens, all of the advantages of the pres-
ent ordinance, and such additional advantages as can be just-
ly required of the railway companies, consistent with the
rate of fare paid, and with suitable protection of the actual
investment legitimately made by these companies in the prop-

On the other hand, there are certain conditions of the
present ordinances which are unjust to the companies, and
any resettlement ordinance should take these into considera-
tion, and not only fairly adjust them, but the terms of the
present ordinances should be improved upon in certain other
respects, so that Chicago may reap the benefit of the advances
made, due to the continued study of the transportation prob-
lem by many minds, since 1907.

Taking the digest of the ordinance, as prepared by the
Board of Supervising Engineers, and published in its first
annual report, as a guide, and using the section numbers of
the Chicago City Railway Company's ordinance, I will treat it
section by section as follows, it being understood that where
I use the comment ''Satisfactory" it means that I regard the
section as defining a satisfactory arrangement between the
municipality and the companies, and one under which no dif-
ficulty has arisen in its administration by the Board, but it
should be understood that all my suggestions relating to legal
provisions are subject to the Corporation Counsel's judgment
as to their legality :

Section 1 gives ' ' the consent of the city, ' ' the authority
to the company to occupy the streets set out in the sched-
ule marked ''Exhibit A" and is made "subject to all pro-
visions, conditions, requirements and limitations of the
ordinance. ' '

Section 2 provides for the comprehensive reconstruc-
tion and rehabilitation of the property, in full compliance
with the specifications attached to the ordinance, and
known therein as "Exhibit B."

—6 —

Satisfactory if any rehabilitation work is to be done, and

if so, the new ordinance should specify such rehabilitation


Section 3 provides for the extension of the system
of the company upon streets on which it does not now
operate, as hereinafter ordered or authorized by the City
Council; such extensions being subject to future compli-
ance with the frontage consent laws of the State of Illi-

Satisfactory (with the exception that construction profits
and division of gross receipts referred to in Section 7, and
hereinafter treated by me thereunder), provided a Board of
Supervising Engineers, or body similarly constituted, is cre-
ated by the new ordinance. Whether this section will be sat-
isfactory or not to both sides, if a purely municipal Board,
consisting of five men appointed by the Mayor and approved
by the City Council, as your committee has now decided, de-
pends entirely upon the personnel and method of their ap-
pointment, and will be treated by me hereinafter under Sec-
tion 34.

Section 4 authorizes operation by the overhead electric
trolley, and gives the city the right to order the installa-
tion of the underground trolley system in whole or in part
at any time after three years from the acceptance of the
ordinances, with appropriate provisions as to adequate
return to the company, under the terms of Section 25.

Satisfactory, provided the city is given the additional au-
thority to require any other method of propelling electric cars
which will not require poles, or overhead conductors, in the
streets, such changes, however, being conditioned upon their
financial feasibility, in accordance with the terms of Section
25 of the present ordinance, which stipulates that the com-
pany shall not be required to invest to such an extent that the
return on its investment, over and above its present interest
charge of five per cent allowed by the city, would be reduced
to an inadequate or unreasonably small amount, which "un-
reasonably small amount" should be determined and fixed
in the new ordinance.

Section 5 authorizes the use of the poles of the com-
pany by the city, without compensation.

— 7 —

Satisfactory, although provision in the new ordinance
should be made for the elimination of the poles of the com-
pany, and the attachment of the span wires to the build-
ings adjoining the streets, where such buildings will permit
of such attachment, as is done in Los Angeles and in many
European cities. In this manner the streets could be made
much more sightly, the obstruction to firemen lessened, the
expense of construction reduced, and the capitalization of the
company correspondingly decreased.

Section 6 provides that the companies may be required
at the option of the city to contribute not to exceed $5,000,-
000, within the first five years, to be used for the construc-
tion of a central subway system by the city, to be devoted
in part to the use of the companies as downtown terminal
facilities, and provides for appropriate extensions of this
system in the future at the expense of the companies. It
is provided that this money need not be paid to the city
unless the plans for the subway have been approved by the
Board of Supervising Engineers, upon which the compan-
ies are represented. The use of these subways in part
for cars of the elevated roads is authorized upon appro-
priate terms. There is also appropriate provision that
the company shall not be required to make any future
payments under the subway section that will unreason-
ably increase its total investment under the provisions of
Section 25. It is expressly provided that the subway pro-
visions shall never have the effect of depriving the city
of any right with respect to subways, which it might other-
wise have, or acquire.

Thus the present ordinances provide a method for the
construction of a complete subway system for the city, with
money provided by the companies, but these ordinances do
not provide specific terms for the utilization of the money
accumulated in the city's traction fund, created under these
ordinances, amounting now to about $10,504,333. As the spirit
of the 1907 ordinances was that any money accumulated in
this fund should be utilized for the purchase of the surface
line traction properties, or for their extension, provision
should be made in the new ordinance for the utilization of
the money now in this fund, as well as moneys that accrue
to this or a similar fund in the future. Full terms and con-

— 8 —

ditions sliould be set forth under which the companies or the
city, or both jointly, will provide all the additional money nec-
essary for future extension of the systems — surface, elevated
and subway — as may be deemed necessary from time to time
by the Board of Control hereinafter mentioned.

Section 7 relates to the city's authority to supervise
rehabilitation work and extensions to the companies' sys-
tems through the Board of Supervising Engineers, and
provides that the Board shall certify to the actual cash
expenditures of the company and add to the amounts so
certified 10 per cent for construction profit and 5 per cent
for brokerage, the former amount being intended to com-
pensate the companies for carrying on the construction
work of the properties, which was of a type such as the
companies were especially qualified and organized to un-
dertake, as it was mainly the construction and reconstruc-
tion of tracks, sub-stations and overhead and underground
transmission lines ; the 5 per cent was to compensate them
for the cost of securing the money utilized in the recon-
struction and extension work.

Satisfactory, provided the conditions of the present ordi-
nance, so far as supervision is concerned, continue to prevail.
Inasmuch as the rehabilitation work contemplated by the pres-
ent ordinances has practically been completed, and the rehab-
ilitation periods have elapsed, the work of extending the trac-
tion system of the city in the future will be mainly that of
altering the elevated railway structure and the construction
of subways, a type of work which the companies are not par-
ticularly qualified to do and which will probably have to be
awarded by contract, in sections, to individuals or companies
possessing the necessary plants and organization for carry-
ing on such work, there is no longer necessity, in the new
ordinance, to provide for paying a construction profit of 10
per cent to the company receiving the merger ordinance, as
this profit would then be included in the contractor's prices
on subway construction, there being no such contractor's
profit (except on buildings where the Board decided that the
work could be done cheaper by subcontractors) included
in the work of rehabilitation done by the companies
under the 1907 ordinances, except that which was paid

— 9 —

to the companies direct under the above provision, so that
construction profits would not be duplicated, as would be
the case if the new company were allowed this construction
profit on subway and elevated construction.

It might be well to state here, however, that a considerable
portion of this 10 per cent construction profit has had to be
expended by the companies as brokerage charges, in addition
to the 5 per cent for brokerage allowed them under the ordi-
nances, to enable them to secure the money — now about $80,-
000,000 — which has been spent in rehabilitation work. Fur-
thermore, as the rehabilitation period has elapsed there is
no necessity for making an arbitrary division of the gross
receipts into 70 per cent to operation and 30 per cent to the
companies, as specified in this section. Should the exact lan-
guage of paragraphs two and three of this section be utilized
in the new ordinance, there should be inserted after the word
''company" in the sixth line from the top of paragraph two
the following words ' ' out of additional capital funds provided
by it," and after the word "company" in the fourth line of
the third paragraph, the words ''out of such additional cap-
ital funds," these additions being necessary to make the pres-
ent ordinances clear, in accordance with the interpretation of
them by the Board of Supervising Engineers, as concurred
in by the Attorneys of the city and the companies.

Section 8 requires the removal of tracks upon which
the company ceases to operate.


Section 9 provides for the proper accounting for the
sale of any of the property included in the appraisal in-
ventory which fixed the price adopted in the ordinances,
or thereafter acquired, where the value or cost has been
added to capital account and is included in the amount
which the city must pay in the event of purchase. It re-
quires the approval of the Board of Supervising Engi-
neers for any such sale and the credit of the prices re-
ceived to capital account or its deposit in the reserve funds
for renewals.

Satisfactory, provided there is added at the end of the
section after the word "depreciation" the following sentence:
"In case of the sale of abandoned property that is not


renewed, the proceeds from said sale shall be retained by said

company and deducted from its capital account."

Section 10 contains a number of regulations for the
improvement of service, subject, of course, to the express
reservations of Section 16, that the Company shall at all
times maintain the system and its equipment in whatever
condition ''may be necessary or appropriate to give to
the public first-class street railway service in all respects"
and of Section 35, that "the enumeration herein of special
requirements and specific regulations shall not be taken
or held to imply the relinquishment by the said city of
its power to make other requirements and regulations;
and the said city hereby expressly reserves the right to
make all regulations which may be necessary to secure
in the most ample manner the safety, welfare and accom-
modation of the public," etc.

Satisfactory, with the exception that this section contains
more or less detail relating to type and style of cars, all of
which should be left to the Board of Supervising Engineers,
or whatever Board of Control is finally agreed upon in a
new ordinance, and that the last paragraph of this section
should be changed so as to permit the running of more than
single unit cars at such times and under such conditions as
the Board of Control may, from time to time, prescribe. This
latter provision would permit the relief of the surface line
congestion at times, and also the running of surface line cars
and elevated cars in trains through subways, but care should
be taken to see that no authority is given authorizing the
running of trains consisting of more than two surface line

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Online LibraryBion Joseph ArnoldsRecommendations for proposed merger ordinance for surface and elevated railway properties in the city of Chicago → online text (page 1 of 4)