FEBRUARY 13 (calendar day, FEBRUARY 14), 1922.-Ordered to be printed.

1

Mr. CUMMINS, from the Committee on Interstate Commerce, submitted the following

REPORT.

[To accompany S. 539.]

The Committee on Interstate Commerce, to which was referred the bill (S. 539) to further amend the act to regulate commerce, having considered the same, report favorably thereon with the recommendation that the bill do pass without amendment.

In view of the importance of the subject a reference to the existing law and a brief explanation of the object of the bill may be helpful. The act for the valuation of railroad property was passed in 1913, and the Interstate Commerce Commission has been engaged in the performance of the duty imposed upon it by that act ever since. One paragraph of the valuation act is as follows:

Second. Such investigation and report shall state in detail and separately from improvements the original cost of all lands, rights of way, and terminals owned or used for the purposes of a common carrier, and ascertained as of the time of dedication to public use, and the present value of the same, and separately the original and present cost of condemnation and damages or of purchase in excess of such original cost or present value.

This bill proposes to insert in the first paragraph (not quoted) the words "other than land," and from the second paragraph (above quoted) to strike out the words "and separately the original and present cost if condemnation and damages or of purchase in excess of such original cost or present value."

If the bill becomes a law the first paragraph will read as follows: First. In such investigation said commission shall ascertain and report in detail as to each piece of property, other than land, owned or used by said common carrier for its purposes as a common carrier, the original cost to date, the cost of reproduction new, the cost of reproduction less depreciation, and an analysis of the methods by which these several costs are obtained, and the reason for their differences, if any. The commission shall in like manner ascertain and report separately other values, and elements of value, if any, of the property of such common carrier, and an analysis of the methods of valuation employed, and of the reasons or any differences between any such value and each of the foregoing cost values.

And the second paragraph will read as follows:

Second. Such investigation and report shall state in detail and separately from improvements the original cost of all lands, rights of way, and terminals owned or used for the purpose of a common carrier, and ascertained as of the time of dedication to public use, and the present value of the same.

It will be noted that the law, if so amended, will still require the commission to ascertain and report the present value of railroad lands, and in ascertaining that value it may use all lawful methods and include all proper elements. If, however, this amendment prevails, the commission will not be required to ascertain or report separately the excess of cost of present condemnation or of purchase over either original cost or present value.

When the commission completed its first valuation it held that it was impossible to ascertain or report as a separate item what it would cost a railroad company to acquire by condemnation or purchase its existing right of way and lands used for carrier purposes, and therefore that it could not comply with the command of the statute directing it to report excess of cost over present value.

In reaching this conclusion the commission followed what it believed to be the ruling of the Supreme Court of the United States, announced in June, 1913, in the Minnesota rate cases (230 U. S., 352). It applied this construction of the statute to several railroads and among them the Kansas City & Southern Railway Co. That railroad company thereupon brought an action of mandamus against the commission to require it to find and report the excess cost above described. The case finally came to the Supreme Court of the United States, and that court, on March 8, 1920 (United States ex rel. Kansas City Southern Railway v. Interstate Commerce Commission, 252 U. S., 178), rendered a decision reversing the judgment of the court below and ordering the commission to make a finding and report in compliance with the words of the statute. We quote from the opinion:

We are of opinion, however, that, considering the face of the statute and the reasoning of the commission, it results that the conclusion of the commission was erroneous, an error which was exclusively caused by a mistaken conception by the commission of its relation to the subject, resulting in an unconscious disregard on its part of the power of Congress and an unwitting assumption by the commission of authority which it did not possess. And the significance which the commission attributed to the ruling in the Minnesota Rate cases, even upon the assumption that its view of the ruling in those cases was not a mistaken one, but illustrates in a different form the disregard of the power of Congress which we have just pointed out, since, as Congress indisputably had the authority to impose upon the commission the duty in question, it is impossible to conceive how the Minnesota Rate ruling could furnish ground for refusing to carry out the commands of Congress, the cogency of which consideration is none the less manifest though it be borne in mind that the Minnesota Rate cases were decided after the passage of the act in question.

Finally, even if it be further conceded that the subject matter of the valuations in question which the act of Congress expressly directed to be made necessarily opened a wide range of proof and called for the exercise of close scrutiny and of scrupulous analysis in its consideration and application, such assumption, we are of opinion, affords no basis for refusing to enforce the act of Congress, or what is equivalent thereto, of exerting the general power which the act of Congress gave, and at the same time disregarding the essential conditions imposed by Congress upon its exercise.

While the case last cited was still pending the commission recommended the change in the law which this bill proposes and it still holds that attitude toward the matter.

Since the decision of the Supreme Court in the Kansas City Southern Railway case the commission and the Bureau of Valuation have been attempting to comply with it. The testimony in the hearings submitted herewith show without any dispute whatever the manner in which it is making the attempt. The commission first finds what it calls the present value of lands or lots by ascertaining the value of adjacent lands or lots and attaching the same value, area for area, to the railroad lands and lots. It then classifies the railroad property into types and uses a multiplier varying according to the type to ascertain the present cost of acquisition. For instance, take the case of the Kansas City Southern Railway. The commission found the present value of carrier lands to be $2,609,155. By the use of various multipliers it found "the present cost of condemnation and damages in excess of present value of lands to be $2,735,490. That means, in substance, that it used, in the average, a multiplier of two (2).

It is obvious from a statement issued at the time the last valuations were published, and which will be found on page 51 of the hearing of May 12, 1921, that it is pursuing an impossible theory of valuation. We quote a single paragraph from the statement:

It is evident that the figure reported can be only an estimate, since the amount which would actually be paid would depend to a considerable extent upon circumstances and conditions which can not be definitely described. If a community is eager for the construction of a railroad the right of way can be obtained at a much lower figure than as though the building of the road is opposed by that community. So, too, the attitude of the carrier might exercise a considerable influence upon the amount of money expended in the acquisition of its lands. It is also apparent that if the railroad did not exist the present value of lands adjoining and adjacent to the railroad would not exist. The management of one railroad might deem it for its advantage to pay liberally, thus cultivating the good graces of the community, while another might deem it better business to force many cases into court, thereby obtaining a better price where purchases were made. In our estimate no allowance whatever is made for anything of this character. We necessarily assume average conditions of all kinds and we further assume that all lands are paid for.

It is the opinion of the committee that it is not only an indefensible expenditure of public money to do the work required of the commission by that part of the statute which the bill seeks to eliminate, but the result of the work when done will be valueless and mischievous. It may be that the commission is not employing sound principles in ascertaining what the statute calls the present value of lands. If it is not, the mistake will be unfortunate, but may hereafter be corrected. It can not be corrected, however, by the insistence that the commission shall do what is absolutely impossible; namely, to ascertain what it would cost any given railroad company to acquire its present right of way or lands at the present time. In order to do this it must be first assumed that the railroad has not been constructed and is not in operation, for it would be outrageously unjust to find a value largely contributed by the existence of the railroad and then multiply that value by 2, 3, or 4, because a right-of-way strip would cost more per acre than the adjacent farm is worth per acre.

Second. It must be assumed that the company proposing to build the railroad would be compelled to buy or condemn its lands or lots constituting its right of way. An assumption of that character can not safely be made. A considerable proportion of the right of way now being used by railroad companies was either donated or conveyed

for a small consideration. Who can say that this would not happen. again if the railroads were destroyed? No matter what path may be pursued in the effort to comply with the part of the statute sought to be eliminated it leads into the field of pure conjecture.

In the Minnesota Rate cases (230 U. S., 352-450), where the very thing was done by the State commission which the Interstate Commerce Commission is now trying to do, the Supreme Court characterized the proceeding so impressively that the committee will conclude this report with extracts from that opinion:

These are the results of the endeavor to apply the cost-of-reproduction method in determining the value of the right of way. It is at once apparent that so far as the estimate rests upon a supposed compulsory feature of the acquisition, it can not be sustained. It is said that the company would be compelled to pay more than what is the normal market value of property in transactions between private parties; that it would lack the freedom they enjoy, and in view of its needs it would have to give a higher price. It is also said that this price would be in excess of the present market value of contiguous or similarly situated property. It might well be asked, who shall describe the conditions that would exist, or the exigencies of the hypothetical owners of the property, on the assumption that the railroads were removed? * (pp. 450-451).

Moreover, it is manifest that an attempt to estimate what would be the actual cost of acquiring the right of way, if the railroad were not there, is to indulge in mere speculation. The railroad has long been established; to it have been linked the activities of agriculture, industry, and trade. Communities have long been dependent upon its service, and their growth and development have been conditioned upon the facilities it has provided. The uses of property in the communities which it serves are to a large degree determined by it. The values of property along its line largely depend upon its existence. It is an integral part of the communal life. The assumption of its nonexistence, and at the same time that the values that rest upon it remain unchanged, is impossible and can not be entertained. The conditions of ownership of the property and the amounts which would have to be paid in acquiring the right of way, supposing the railroad to be removed, are wholly beyond reach of any process of rational determination. The cost-of-reproduction method is of service in ascertaining the present value of the plant, when it is reasonably applied and when the cost of reproducing the property may be ascertained with a proper degree of certainty. But it does not justify the acceptance of results which depend upon mere conjecture (p. 452).

O

SENATE.

67TH CONGRESS,

2d Session.

{ No. 497.

REPORT

ADDITIONAL DISTRICT JUDGES FOR CERTAIN COURTS OF THE UNITED STATES.

FEBRUARY 15, 1922.-Ordered to be printed.

Mr. CUMMINS, from the Committee on the Judiciary, submitted the

following

REPORT.

[To accompany H. R. 9103.]

The Committee on the Judiciary, to which was referred the bill (H. R. 9103) for the appointment of additional district judges for certain courts of the United States, to provide for annual conferences of certain judges of United States courts, to authorize the designation, assignment, and appointment of judges outside their districts, and for other purposes, having considered the same, report it back to the Senate with an amendment, and recommend that the bill as amended do pass.

Amend the bill by striking out all after the enacting clause and insert in lieu thereof the following:

That the President be, and he is hereby, authorized to appoint, by and with the advice and consent of the Senate, the following number of district judges for the United States district courts in the districts specified in addition to those now authorized by law:

For the district of Massachusetts, two; for the eastern district of New York, one; for the southern district of New York, two; for the eastern district of Pennsylvania, one; for the western district of Pennsylvania, one; for the northern district of Texas, one; for the eastern district of Michigan, one; for the northern district of Ohio, one; for the northern district of Illinois, one; for the district of Minnesota, one; for the eastern district of Missouri, one; for the eastern district of Oklahoma, one; for the district of Montana, one; for the northern district of California, one; for the southern district of California, one; for the district of Arizona, one; and for the northern district of Georgia,

one.

Whenever a vacancy shall occur in the office of any district judge appointed pursuant to this act the same shall not be filled unless the Congress shall so provide.

SEC. 2. That it shall be the duty of the Chief Justice of the United States, or, in case of his disability, of one of the other justices of the Supreme Court in order of their seniority, as soon as may be after the passage of this act, and annually thereafter, to summon to a conference on the last Monday in