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UNIVERSITY OF CALIFORNIA

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Vested Wrongs



BY



ROBERT P. PORTER



An address read at the Third Annual
Convention of the League of American
Municipalities, held at Syracuse, New
York, September 19-22, 1899 * <* * +



NEW YORK

Leonard Darbyshire

100 Broadway

1900



Vested Wrongs

By

ROBERT P. PORTER



An address read at the Third Annual
Convention of the League of Ameri-
can Municipalities, held at Syracuse,
New York, September 19-22, 1899.





NEW YORK

Leonard Derbyshire

WO Broadway

1900




VESTED WRONGS

By Robert P. Porter

IT is now nearly twenty-five years ^
ago since I first took up
the fiscal problems relat-
ing to our states, counties
and municipalities, and
twenty years since I was
called upon by the United
States Government to write
a history of the debt of each
state of the Union, and
prepare a report on the
wealth, debt and taxation
of our cities and towns.
The result of those inquir-
ies may be found in Vol-
ume VII. of the Tenth
Census [i88o].f Soon after
the war a craze set in for municipal
improvements, similar to the present
epidemic for owning and operating pub-
lic utilities, and as a result local in-
debtedness and taxes had increased so
rapidly that in many instances the burden
upon the taxpayers became almost un-
bearable, and in some important cities
repudiation was publicly advocated. The
alarm occasioned by the increase of
municipal indebtedness was emphasized
in many of the western states by the
large sums of public money voted to

* An address read at the Third Annual Convention of the
League of American Municipalities, held at Syracuse, N. Y.,
Sept. 19-22, 1899.

fReport on Valuation, Taxation and Public Indebtedness
in the United States, and returned at the Tenth Census (June
1. 1880), ly Robert P. Porter, Special Agent.




aid innumerable private railway schemes,
a majority of which had not come up
to the great expectations of the promot-
ers and had left the unhappy communities
responsible for millions of unpaid bonds.
The history of this period of our state and
local fiscal history should be familiar to ad-
vocates of municipal ownership in the Unit-
ed States. If not they will find much official
data of value and interest in the vol-
ume referred to, which has a prac-
tical bearing- on the question at is-
sue. In seeking a remedy for the evil
of municipal indebtedness which seri-
ously threatened our cities and towns with
bankruptcy during this period, the constitu-
tional limitation of debt was hit upon, and
thus the wisdom of the people put a break
upon municipal madness. In some of
the more flagrant instances, that of Michi-
gan, for example, the people even w 7 ent fur-
ther and declared that the state must not be
"a party to or interested in any work of in-
ternal improvement," so bitter had been
these experiments in a theory of govern-
ment foreign to the sound maxim, that the
country is governed the best which is gov-
erned the least. This action on the part of
the people of that state has saved Detroit
from one of the wildest and probably one
of the most disastrous experiments in muni-
cipal ownership yet recorded. The state
constitutional limitation of debt which
stopped the debt-creating mania during the
seventies and early eighties, will again come
in to hold in check these latter-day move-
ments towards socialism and paternalism,
until practical men in municipal affairs are



enabled to examine fully, not only the many
complex questions involved in municipal
ownership of all public utilities, but to real-
ize the stupendous change which such
an absorption of private enterprise would
bring about in the fundamental princi-
ple of the government of the Republic.
An effort is now on foot, in my opin-
ion fraught with great danger to Am-
erican municipalities, to remove all con-
stitutional and legislative restrictions on
municipal indebtedness when the muni-
cipalities wish to purchase these so-called
revenue-producing properties. Communi-
ties, like individuals, soon forget past ex-
periences, and those who see their wild
schemes checked by the sober judgment ex-
pressed by the people during times of state
and municipal bankruptcy, are apt to urge
the removal of such constitutional barriers.
Should this be done and full swing given to
municipal ownership experiments, the Am-
erican taxpayer will simply invite financial
catastrophies far more sweeping and de-
structive than those referred to in the
Michigan Supreme Court decision. Citi-
zens who believe in sound government
should vigorously oppose all attempts to re-
move the constitutional limitation on state
and municipal indebtedness.*

*As the advocates of municipal ownership are so fond
of quoting English examples they are referred to the
statistics showing the increase in local rates in England
and Wales from 1891-2 to 1896-7. In 1891-2 the local rates
in England and Wales amounted, roughly, to 28 1-2 mil-
lion pounds; in 1896-7 they amounted to 371-2 millions,
an increase of about 31 per cent. This was, of course,
accompanied by an increase in rateable value, and taking
this into consideration, the rate in the pound, calculated
on the Poor Rate valuation, rose from 35. 7 i-jd. to 45.
6d., an increase of about 23 per cent. The increase in

5



Before those who are responsible for the
administration of these great trusts commit
themselves to the expenditure of millions,
nay hundreds of millions, of the people's
money, in these daring experiments, it be-
hooves them to acquaint themselves with all
the facts. They must study with the utmost
care and impartiality the results of muni-
cipal ownership in England. The official
reports in relation to the operation of gas
works show no special advantage in favor
of municipally owned plants. These fig-
ures are accessible and in convenient form.
They must do precisely the same in relation



rateable value had taken place entirely in urban dis-
tricts. There had, indeed, been a fall in the rateable
value of rural districts. The total rates for the Metropoli-
tan area had risen within the period under consideration
from 53. to 53. pd. in the pound; in Municipal county
boroughs from is. 3d. to is. 8d. ; in county boroughs
(urban sanitary), from 2s. 6d. to 25. nd. ; and in rural
District Councils from is. jd. to 33. Purely urban rates
were responsible for 62 per cent of the increase. Those
outside London contributed the largest proportion of the
increase, but it must be remembered that the number
of urban districts had increased.

In an editorial on this subject a London newspaper
says :

" 'Local indebtedness is mounting up' is a phrase that
is often used in connection with proposals in the domain
of municipal enterprise. Figures compiled by Mr. Beck-
ett, who read a paper on the subject at the Health Con-
gress at Blackpool, give us a clear idea of what this
growing indebtedness amounts to, both for the individual
ratepayer and in the bulk. In 1875 the local debt per
head was only 3 173. 2d., in 1894 it had risen to 7 gs.
2d. per head, or 93 per cent, over 1875 ; and, of course,
it is more now. This indebtedness per head has grown
much more rapidly than rateable value. In 1875 this was
4 igs. id. per head; in .1895 only 5 73. 2d., which is
less than in 1884. The disproportion between the increase
of local indebtedness and rateable value may well cause,
as Burdett says, an 'uneasy feeling.' The aggregate
amount of local indebtedness looks more serious. In
1874-75 it was 92,820,100, in 1895-96 243,209,862. More
than one-half of the debts, said Mr. Beckett, is due to
the aggressiveness of the local administrator as trader.
Whether we are paying too much for our 'municipal
whistles' or not is a question local ratepayers must de-
cide for themselves."



to British tramways. On this side of the
problem perhaps I can speak with some de-
gree of authority, as I have made a careful
study of the facts both at home and abroad.*
A brief reference will be made hereafter to
the results of these inquiries in relation to
the municipalization of street railways in
England, where we must go for the sum
total of experience up to date. For the
moment we may profitably examine some
recent statements of those who are in the
front rank of this movement toward the
municipalization of public utilities. Here,
for example, is the venerable and venerated
Dr. Lyman Abbott declaring that "the
soorfer our cities own the lines of railroads,
the better both for the convenience of the
people and the purity of our municipal gov-
ernments." Similar assertions have been
made by advocates of municipal ownership,
but assiduous search for the statistics, the
facts, if there be any, upon which these as-
sertions are supposed to be based, have
failed to materialize. As I shall hereafter
show, Dr. Abbott, when asked to come and
give reasons and facts for his assertions be-
fore the New York State Committee on
Street Railways, failed to appear. Without
facts to sustain these assumptions, the posi-
tion of such gentlemen as Dr. Abbott is
peculiarly illogical and unbusinesslike. The
administrators of our municipalities have
been too incompetent and too corrupt to



*" Municipal Ownership and Operation of Street Rail-
ways in England," by Robert P. Porter. Report of the
special committee to investigate the relation between
cities and towns and street railway companies, Boston, Feb.,
1898

"Municipal Ownership at Home and Abroad," by
Robert P. Porter, 100 Broadway, New York.



make fair and just bargains with private en-
terprise to carry on works of public utility.
What is the proposed remedy? That hav-
ing sold or leased these rights to do quasi-
public business at a public loss, the same in-
competent and corrupt officials or their suc-
cessors shall now buy them back again at
an excessive valuation, as in the case of De-
triot and manage such trusts for the con-
venience of the public and in the interests
of municipal purity. And this in the face
of Professor Bemis's declaration that a
large portion of the force employed on the
Philadelphia municipal gas plant was made
up of ward-heelers, faithful only in their al-
legiance to a political boss. He frankly tells
us :

"The works under public operation would have
shown better results than were obtained had it
not been for the spoils system, general ineffi-
ciency and unprogressiveness."

The position of these eloquent phrase-
makers must strike practical administrators
as grotesque. The practical man knows that
cities, like individuals, have made both good
and bad bargains with private corporations.
That where one of these bargains has been
corrupt, a score, nay fifty or a hundred, have
been square and honest. They know that
oftener than not the cities in the first in-
stance have been as glad to secure the im-
provement, whether a new water-works, ad-
ditional and improved gas plants or electri-
cal street railways, as the capitalist has been
to invest his money. They know full well
that in many cases capital has been coaxed
into the enterprises. Indeed, I know per-
sonally of the case of a bankrupt street rail-
s



way in a western college town in which the
present operators the people who fur-
nished the equipment attribute the bank-
ruptcy wholly to the eloquence of certain
college professors, who per-
suaded the original pro-
moters to lay the line up to
the University settlement in
advance of public necessity.
I have no doubt some of
these very gentlemen are
lecturing on the iniquities
of "capitalistic aggrega-
tions " and kindling the fires
of "a new application of
ethical principles " for effec-
tual vengeance for such folly.
These theoretical gentlemen,
who talk so glibly and
eloquently on municipal
ownership in the abstract,
and conveniently fail to
appear when a New York
or Massachusetts commission
are considering the concrete sides of the
question, have little conception of the
real obstacles which prevent practical ad-
ministrators from rushing headlong into
these municipal experiments. The value of
the lines of railroads which Dr. Abbott
thinks we should at once own will in 1900
be in the neighborhood of sixteen hundred
millions of dollars ($1,600,000,000); add to
this another one thousand million of dollars
($1,000,000,000) for municipal gasworks,
and we have a total of two thousand six
hundred million of dollars ($2,600,000,000).
If state constitutional barriers could be
.thrown down to accomplish this, the muni-




cipal indebtedness of the country would be
more than quadrupled, or increased from
eight hundred million dollars ($800,000,-
ooo) to three thousand four hundred mil-
lions of dollars ($3,400,000,000), which is
simply a preposterous proposition. The
fact is, not one of these able general-
izers in municipal ownership could
present a practically worked out scheme
for the acquisition and management of
a water-works, a gas plant or an electric
street railway. I mean a proposition
that would be accepted in the financial
world and stand the test of the courts. The
Rev. Dr. Washington Gladden, of Colum-
bus, Ohio, forcibly expresses a sentiment,
which a fair-minded writer in that ably-ed-
ited newspaper, the Brooklyn Eagle, says
"has run like wildfire through the West and
has reached the East." Dr. Gladden
says :

''There is one class of capitalistic aggregations,
based on monopoly, against which popular in-
dignation is likely to be kindled even sooner than
against the so-called trusts. I refer to those
which are founded on municipal franchises. Most
of the companies owning these franchises have is-
sued capital far in excess of their actual invest-
ment, have disposed of the stock thus issued and
are charging enough for the services rendered the
public to pay the dividends on all this watered
stock. If they were content with a fair return
on what the plant has actually cost them, the
price of the service could be greatly reduced. A
fair return on their actual investment nobody
grudges them, but the privilege of taxing the
community to pay dividends on two or three times
as much money as they have invested is going to
be questioned one of these days. When the reck-
or.ing day comes to our monopolies some sharp
inquisition may be made into the fundamental
equities of many of these institutions. Vested



rights will be respected, I have no doubt; but
vested wrongs may be called to account. It is
probable that some new legal maxims will be
framed and enforced and that our jurisprudence
will be enlarged and invigorated by a new ap-
plication of ethical principles. Whether corpora-
tions in any sense private will long be permitted
to manage public utilities may be doubted; but
if they do they will certainly be required to gov-
ern their conduct by a strict regard for the pub-
lic welfare."

Commenting on this, the Brooklyn Eagle
writer says :

"In this statement made by Dr. Gladden is the
principal charge in the indictment which the ad-
vocates of Municipal Ownership have brought
against corporations owning surface railroads,
gas, electric light and telephone plants. You
will find the same charge made by Professor Be-
mis in his book on "Municipal Monopolies"; the
same charge is being made from pulpits and the
chairs of college professors all over the country.
With the truth or falsity of this charge the writer
has no concern in the writing of these letters; for
he is dealing with facts, as they have been found.
Yet one may be permitted to say, without being
open to the charge of bias, that this charge has,
so far, not been answered."

This sweeping and general and unsup-
ported charge has, in my opinion, not been
answered specifically, in the first place
because there is no specific charge to
answer. Professor Bemis himself seems
to be in despair in relation, to gas
statistics for comparative purposes, and
yet for years he has made a specialty
of this branch of the subject. He
has given us a bewildering assortment of
statistics, and led us into the labyrinthine
mains of gas statistics until we supposed
the subject exhausted and municipal owner-

TI



ship in gasworks a mathematically demon-
strated success. And now he says :

"It is indeed difficult to gather statistics of any
value upon electric and gas lighting. The bias
of the investigator, the secretiveness of the pri-
vate companies, the poor bookkeeping of many of
the public companies and the fact that the con-
duct of a public plant, especially one united with
a water plant, does not require the keeping of ac-
counts in the way most conclusive to compari-
sons with other companies, account for the well-
grounded, distrust of most lighting statistics."

Here we have the unscrupulous secret-
iveness of the private companies, that was to
be expected from Professor Bemis ; but
what are we to think of the "poor book-
keeping of the public companies"? I have
recently examined some excellent official
statistical exhibits relating to the principal
gasworks of England, and find them cap-
able of comprehension by the ordinary
mind. The cost of management and of
product to the consumer is clearly set forth
municipal gasworks on the one side and
private gasworks on the other and the re-
sult by no means favors municipal owner-
ship. Yet the so-called "spoils system"
does not prevail in England. The Gas and
Electric Light Commission of Massachu-
setts have recently published a very com-
prehensive volume of gas and electric light
statistics,* in which similar comparisons are
made between municipally owned light
plants and privately operated plants, to the
detriment of the former. The public seem



* Annual Report of the Board of Gas and Electric Light
Commissioners of the Commonwealth of Massachusetts,
January, 1899.

12



to pay higher for the municipal than for the
private company gas.

It is to be hoped that Professor Bemis's
announcement, that there is a "well-ground-
ed distrust of most lighting-
statistics," is not due to the
fact that the figures published
do not point his way. Certain-
ly the English official returns
and those trom the last Massa-
chusetts report do not support
his theories, while many of his
other comparisons have been
seriously questioned by those
who speak with expert author-
ity. Take, for example, the
Philadelphia case, which has
been quite roughly handled by
Professor Bemis, and yet it has
turned out an admirable ar-
rangement for the municipal-
ity. An arrangement, by the
way, which some of the cities
owning their gasworks would
be wise to follow.

In pursuance of its contract, the United
Gas Improvement Company has spent in
betterments on the Philadelphia gas plant,
from December i, 1897, to June I, 1899,
$4,049,541.72. It turned into the city treas-
ury for old gas bills collected, being bills
for gas supplied by the city prior to the date
of the lease, $707,340.09. It has paid into
the city treasury the amount of the inven-
tory of materials on hand at the date of the
lease being coal, lime, etc., $187,678.73.
It has paid into the city treasury 10 per
cent on all collections from the date of the





lease to July i, 1899, $467,628.41. It must
be remembered that the company is not
paying for a franchise, but is paying rent for
the very valuable gas-making property of
the city, upon which it is also bound by the
terms of the lease to expend these large
sums of money in betterments. Cities that
are tempted to follow the lead of Governor
Pingree and Mayor Jones into municipal
ownership of "public utilities" will do well
to wait until there are more abundant ma-
terials for a comparison of the results in a
great city of municipal and of private gas
production and distribution. Fortunately
for Philadelphia, the company making this
contract with the municipality consisted of
men of the highest integrity and at the same
time represented the highest grade of ex-
perience in the manufacture of gas. They
can furnish a better commodity for less
money than any municipal plant, and hence,
while they make a reasonable and fair prof-
it themselves, they serve the community far
better than it has ever been served before.
If Philadelphia would take precisely the
same course with its water-works the public
would be better served and millions saved
to the taxpayers.

As a rule, these college and pulpit
charges are vague and only supported here
and there by stray facts, largely culled from
inflammatory newspapers. The charges
made by Dr. Gladden and by Professor
P>emis may be, and probably are, true in
some particular instances where private
capital and peculiar conditions have enabled
private corporations to drive good bargains
with the administrators of public corpora-

14



tions. In a majority of such cases, how-
ever, it will be found that the -'vested
wrong" has become so by reason of unex-
pected growth or prosperity of the com-
munity, and not because the contract when
made was at that time against public wel-
fare. The only remedy in such cases is
more care in the future on the part of muni-
cipal administrators. Reasonable leases
should be made, instead of franchises in per-
petuity. Our present municipal adminis-
trators are more awake to this. In New
York the new state constitution limits such
franchises to twenty-five years. This is a
practical way to prevent the perpetual fran-
chises. And yet if these gentlemen will
take the trouble to study the history of
some of the worst of these "vested wrongs,"
they will find that many of the most profit-
able of them went begging for years. That
the communities looked upon the promot-
ers as public utility cranks, instead of pub-
lic utility thieves. That the original enthu-
siastic owners were buffeted from pillar to
post in their endeavor to find capitalists wil-
ling to risk their money to operate them,
and that the present "deplorable condition
of affairs" is as much due to the persistent
and stubborn growth and prosperity of
these American cities as to the inherent dis-
honesty and wickedness of the "capitalistic
aggregations" which incite the righteous
indignation and wrath of these public spir-
ited gentlemen.

So far as my own personal inquiries in
relation to municipalization of street rail-
ways indicate anything they clearly point
out that the glowing accounts we have had

15



of such experiments by returned American
travelers from the other side are valueless
when submitted to practical American tests.
Not only are the statements of success and
profits greatly exaggerated, but municipal
ownership has not made anything like the
headway in the United Kingdom which
many would have us believe. Indeed, there
is much misapprehension in the United
States on this subject. Some accounts would
seem to indicate that England has munici-
palized such undertakings as water, gas,
electric lighting, and street railways to a
much greater extent than' the facts warrant.
In reality, if an absolutely accurate compari-
son could be made between the United
Kingdom and the United States, it is doubt-
ful which of the two countries would lead in
this respect. I refer, of course, to public
service, with profit-earning possibilities.
For example, should we consider the four
important branches of service the supply
of water, gas, electric light, and street rail-
ways together, it would be safe to say that
honors in favor of the municipalization of
these undertakings would be about equally
divided in the two countries.

To those without practical experience in
handling such vast undertakings, and who
therefore cannot possibly realize the ob-
stacles in the way of turning over such stu-
pendous enterprises as these, requiring, as
they do, so much expert knowledge, to of-
ficials in no way specially trained, munici-
palization is no doubt a fascinating idea.
Hence we find many writers at home taking
it up with avidity, and as a result the litera-
ture on the subject during the last decade
16



has increased far more rapidly than the ex-
periments themselves. A few instances of
municipal ownership have been made to do
duty for so many books, essays, lectures,
and articles that the practical man of affairs
is beginning to inquire for additional partic-
ulars. Exaggerated and enthusiastically
written accounts of the municipal millen-
nium of Glasgow and Birmingham no long-
er arrest his attention ; while the sudden
change in public sentiment in 1894 in favor
of a halt in the startling experiments inau-


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