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had increased the rates as it should have done, the railroads at least would not have inherited that very disagreeable performance; and the guarantee that the Government has to bear now for six months would not have drawn upon the Treasury as it has drawn, and as it must continue to draw.

“I feel that there is a very just complaint against the Railroad Administration in that regard, far beyond any other controversy that it may have with the railroads.

"It was just as much the duty of the Government to return these roads with rates that would sustain them in their operation as it was its duty to return them in as good condition physically as it took them.

And that is a matter that has not been sufficiently understood by the people of the country. And I think when it is fully understood, that very much of the criticism that has fallen upon the railroads since that time will disappear. I have had that in my mind so long that I felt bound to give it expression at this

time."

CHAPTER XV

UPKEEP OF PHYSICAL PROPERTY

W"

ITH his proclamation of December 26, 1917, taking over the railroads the Presi

dent had issued a statement which explained why the step was necessary, and offered certain assurances to the holders of railroad securities. Among these assurances was the promise that he would immediately recommend to Congress the establishment of definite guarantees that the railroad properties should be maintained in as good repair and as complete in equipment as when taken over by the Government. The recommendation was made, and it was adopted by Congress as part of Section 1 of the Federal Control Act. The principle, however, was expressed in general terms. The accounting details were left to be worked out later in the contract to be agreed upon by the Director General and the individual railroad companies. There was much discussion on this point between the legal representatives of the Administration and of the railroad companies, and the upkeep section of the standard contract was rewritten several times before an agreement was finally reached. As finally adopted the contract required the Director General to expend for maintenance such sums as would be requisite in order that the properties might be returned to the

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companies at the end of federal control in substantially as good repair and substantially as complete in equipment as they were on January 1, 1918.

As no inspection or appraisal of condition was made when federal control began it was necessary to adopt some accounting expedient to measure the obligation of the Government and the contract contained the proviso "that the annual expenditures and charges for such purposes during the period of federal control on such property, and the fair distribution thereof over the same, or the payment into funds of an amount equal in the aggregate....to the average expenditures and charges for such purposes. ...during the test period [three years ended June 30, 1917]

... shall be taken as a full compliance with the foregoing covenant....Due allowance shall be made for any difference that may exist between the cost of labor and materials, and between the amount of property taken over,....and for any difference in use .... substantial enough to be considered, so that the result shall be, as nearly as practicable, the same relative amount, character, and durability of physical reparation.

During the year 1918, while the war was in progress, little thought was given to questions of final accounting. The Administration did its best to maintain the properties so that they might function effectively in meeting the demands of war traffic. No limitations as to maintenance expenditures were placed upon the federal managers except those which were caused by shortages in labor and materials. But when the war was over,

when it became evident that the railroads would be returned to private operation by the end of 1919, and when the decline in the volume of traffic coupled with additional increases in wages and higher material costs caused alarming deficits in the early months of 1919, the Director General began to give much personal attention to maintenance expenditures. He impressed upon the regional directors and the federal managers the importance of using care to see that the obligations of the Government were not exceeded, and effective steps were taken, beginning in May, 1919, to restrict maintenance expenditures to a budget allowance authorized for each road by the engineering staff of the central administration.

Early in the year, and before it was known that a budget system for maintenance expenditures would be enforced, the federal managers, following the conventional custom, had laid out their programs for the maintenance season according to their conception of the necessities, and most of them had organized their forces. They were, therefore, greatly disturbed when they received instructions, based on the Director General's telegram of May 27 to regional directors, to limit the June maintenance of way expenditures to an amount which would bear the same ratio to operating revenues that such expenditures on each road during the entire three years of the test period bore to the operating revenues of that period. While it was generally understood that the instructions applying only to June expenditures were intended merely as an emergency brake upon

*

expenditures pending a more deliberate determination of the program for the remainder of the year, and while the drastic restrictions applying to June were quickly canceled, the effect was to slow up the maintenance programs until the budget system could be installed, and to disorganize the maintenance forces.

It was apparent that the Director General feared that the natural desire of the federal managers would be to err on the side of liberality in expenditure so that the properties could be put in good condition prior to their return to private nianagement, and that he took a serious view of his responsibility of protecting the Government against overexpenditure. He believed that it would be better to lean toward the side of underexpenditure and settle in cash at the end of federal control, placing upon the railroad companies the burden of proving undermaintenance, rather than run the risk of going beyond the obligation of the Government and thereby place upon it the burden of proving overexpenditure.

Throughout his entire term of office Director General Hines held to the view and frequently

*""This change in the maintenance of way policy of the Railroad Administration from one of most liberal authority by the individual road to a plan of rigid control of expenditures led to a considerable undercurrent of resentment upon the part of railroad officers, both federal and corporate, although much of the criticism would have been avoided if the statistical data on maintenance had been compiled soon enough to have permitted the formulation of a maintenance program before the inception of the season's work. Coming in June, at the height of the season, this curtailment was particularly unfortunate.” Railway Age, June 2, 1920, vol. 69, p. 58.

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