As compared with conditions in 1920, the passenger revenue of 1927 declined 24.2 per cent, the number of passengers declined 32.8 per cent, and the number of passenger-miles declined 28.2 per cent. These declines are striking, but in considering their significance from the standpoint of railroad finance, it should be considered that the development of the automobile industry has helped to swell the freight revenue. The freight revenue of Class I railways in 1927 was greater than it was in 1920, but on account of rate changes, a more satisfactory comparison is on the basis of ton-miles. The tonmiles of Class I railways were 410.3 billions in 1920, 443.7 billions in 1926, and 428.7 billions in 1927. This comparison understates the real growth in freight business because 1920 was an abnormally high peak. A study of ton-miles and passenger-miles over a longer period reveals that whereas passenger-miles show a decided falling away from the pre-war trend, the freight ton-miles show a sustained growth, the traffic of the war period being regarded as abnormal and temporary. Operating expenses were curtailed to the extent of $95,158,915 in 1927, or 2.04 per cent, as compared with those of 1926. The ratio of operating expenses to revenues increased from 73.15 in 1926 to 74.54 in 1927. For the first eight months of 1928, the expenses were reduced $122,909,120, as compared with those of the same period in 1927, the operating ratio having been 74.54 in this period in 1928, as compared with 75.46 in 1927. The composition of operating expenses shows but little variation in recent years: Per cent of total operating expenses, Class I steam railways The ratio of maintenance expenses to operating revenues also has shown but little variation in this period, having been 33.9 in 1925, 33.7 in 1926, 34.0 in 1927, and 33.8 in the first eight months of 1928, as compared with 34.5 in the same period in 1927. Taxes, which were $12,812,606 less in 1927 than in 1926, again show a decline in 1928, having been $2,397,535 less in the first eight months of 1928 as compared with the same period in 1927. The total rail way tax accruals of 1927 were $376,110,250, of which $84,591,269 was payable to the Federal Government. The chart below shows the monthly fluctuations in revenues, expenses, and net railway operating income (after taxes), from January, 1923, to August, 1928, inclusive. In 1927 the steam railways of all classes had a net railway operating income of $1,077,841,658 available for interest, leased road rentals, and miscellaneous deductions, dividends, or surplus. This was $151,178,530 less than for 1926. For the first eight months of 1928 the net railway operating income of Class I railways shows an increase of 1.30 per cent over the corresponding figure for 1927. The net income of all steam railways after fixed charges in 1927 was $741,923,916, a decline of $141,497,879 from the income of 1926. The ratio of net income to capital stock declined from 9.43 per cent RAILWAY OPERATING REVENUES, EXPENSES, AND NET RAILWAY OPERATING INCOME, in 1926 to 7.78 in 1927. The per cent of stock in the dividend paying class was 69.12 in 1926 and 70.25 in 1927. The amount of dividends declared, including intercorporate dividends, was $567,280,717 in 1927, which sum was 5.95 per cent of all stock actually outstanding. The average rate declared on dividend yielding stock was 8.47 per cent. Other data regarding the results of railway operations will be found in Appendix C, and also in the chapters relating to the "Bureau of service" and the "Bureau of statistics." RAILWAY-MAIL PAY The general reexamination of mail pay rates mentioned in our last report was completed and a decision made July 10, 1928, Railway Mail Pay, 144 I. C. C. 675. We found the rates to be not fair and reasonable and established higher rates. Increased compensation was prescribed for services rendered from the dates applications were filed by the carriers, or where not filed, from July 24, 1925, the date of our order of reexamination, to the date the increased rates became effective. This was in accordance with the principle announced in Railway Mail Pay, 104 I. C. C. 521. Claims made by the New York Central Railroad Co., as lessee of the Boston & Albany Railroad, and by the Nevada County Narrow Gauge Railroad Co. for increased compensation for services rendered prior to the date of our decision in the latter case were upheld by the United States Court of Claims, 65 Ct. Claims 155, 65 Ct. Claims 327. The findings of that court are now before the United States Supreme Court upon writs of certiorari granted upon petition of the United States. We have completed hearings upon the application of the Denver & Salt Lake Railway Co. for reexamination of the rates of mail pay and upon the application of the Postmaster General for reexamination of rates upon certain short lines in intermountain and Pacific coast territory. These cases will be submitted for decision after oral argument has been had. BOARDS OF REFEREES These boards, created to hear and determine cases brought under the provisions of section 3 of the Federal control act, have been constituted from our staff of employees. Thirteen cases are pending awaiting disposition of proceedings in certain test cases in the courts and the convenience of the parties. Fifteen cases were dismissed, of which all but one were without prejudice to the claimants. No boards were appointed during the year. SCOPE OF JURISDICTION OVER ELECTRIC RAILWAYS In our annual reports to the Congress for various years since the enactment of the amendments of 1920, we have recommended that section 20a, relating to the issuance of securities, be so amended as to apply to electric railway companies engaged in the general transportation of freight. Experience in the administration of the act, as well as changes in the conditions affecting electric railway companies, seem to require that consideration be given to the general subject of the application of various sections of the statute to those companies. At present, the general provisions of the act apply to electric as well as to steam railway companies, with certain exceptions. Thus, the provisions of paragraphs (18) to (21) of section 1, relating to construction or abandoment of lines, are not applicable to— street, suburban, or interurban electric railways, which are not operated as a part or parts of a general steam railroad system of transportation. Section 15a, which provides the general rate scheme of the transportation act, 1920, including recapture of excess income, specifically excludes from its application— (1) street or suburban electric railways unless operated as a part of a general steam railroad system of transportation. (2) interurban electric railways unless operated as a part of a general steam railroad system of transportation or engaged in the general transportation of freight. The authority given us under section 20a to regulate the issuance of securities or assumption of obligations by carriers specifically excepts a street, suburban, or interurban electric railway which is not operated as a part of a general steam railroad system of transportation. In the construction of these exclusion clauses great difficulty has been experienced, particularly in determining the roads properly classifiable as interurban electric railways. Practically all of the interurban electric lines of the country are engaged to a greater or less extent in the transportation of freight. Ordinarily these lines have a preponderance of passenger traffic, but the large diversion of such traffic to highways through the increasing use of automobiles has led these carriers to endeavor to recoup these losses through increased participation in freight traffic. Certain electric railway lines for many years have engaged largely in freight transportation, their business being substantially the same as that of steam railroads, the only material difference being in motive power. Where the functions of an electric line are substantially the same as those of an ordinary steam railroad the public interest would seem to justify the exercise of our jurisdiction in the matters of securities, construction or abandonment, regulation of rates, recapture of excess earnings, and consolidation with other carriers or acquisition of control of one carrier by another, to the same extent as in the case of steam railroads. However, the greatly varying circumstances of electric lines indicate the necessity of individual treatment. It is recommended that, instead of attempting to define the classes of electric lines that are exempt from our jurisdiction under the several provisions in question, a general exemption of all electric lines be substituted, excepting such lines as interchange standard freight equipment with steam railroad lines and participate in through interstate freight rates with such lines. Provision should also be made for the exemption of particular electric railway companies falling within the excepted class, such exemption to be made upon application of any such electric railway company and if it is able to show to our satisfaction, after notice and opportunity to be heard, that it is not affected with an important national interest so far as the provisions in question are concerned. STANDARD TIME-ZONE INVESTIGATION In our fifteenth supplemental report in this proceeding, 140 I. C. C. 679, we authorized the operation of the portion of the Seaboard Air Line Railway from the Georgia-Florida State line to, but not incluăing, Bainbridge, Ga., under standard eastern time on condition that the schedules and bulletins for the use of the public be published in terms of central time. This line was formerly the Georgia, Florida & Alabama Railway. In the sixteenth supplemental report, 142 I. C. C. 279, we consolidated in one report and order all our previous orders and amendments thereof so far as they define the limits of the time zone boundaries. The appendix to that report contains a complete restatement of the definition of the boundaries of the various time zones of the continental United States in effect on May 19, 1928. RECOMMENDATIONS For the reasons stated in this report and in former reports we recommend 1. That section 1 of the interstate commerce act be amended to provide for the punishment of any person offering or giving to an employee of a carrier subject to the act any money or thing of value with intent to influence his action or decision with respect to car service, and to provide also for the punishment of the guilty employee. 2. That subject to appropriate exceptions the use of steel or steel underframe cars in passenger-train service be required, and the use in passenger trains of wooden cars between or in front of steel or steel underframe cars be prohibited. 3. That paragraphs (2) to (6), inclusive, of section 5 of the interstate commerce act be amended (a) by omitting therefrom the existing requirement that we adopt and publish a complete plan of consolidation; (b) by making unlawful any consolidation or acquisition of the control of one carrier by another in any manner whatsoever, except with our specific approval and authorization; (c) by giving us broad powers upon application and after hearing to approve or disapprove such consolidations, acquisitions of control, mergers, or unifications in any appropriate manner; (d) by giving us specific authority to disapprove a consolidation or acquisition upon the ground that it does not include a carrier or all or any part of its |