and that they themselves were not therefore in possession of a statement of the original cost; others that these accounts were outside the State; others that their properties had been acquired through judicial sale and that the accounts had not been turned over to them.

In view of these difficulties encountered in getting statements of cost from the roads, two alternatives were open to the Commission. One was to accept the outstanding capitalization as representing the reasonable value, the other was to make a valuation. The latter was chosen, and the valuation was made on the principle of cost of reproduction. The difference between the valuation and the capitalization was in every case considerable. Inasmuch as extensions may now be additionally bonded, one obvious method of reducing that difference no longer is available. In the future, besides the ways already mentioned, excision at refunding must be looked to as one way and increase in the Commission's valuation as another. The valuations of the older roads were completed by the end of 1895, and, while there have been requests for revaluations, the Commission has refused to allow them. Requests for revaluation have come also from roads built since the law went into effect, but these also have been refused. None of these requests went so far as to be given official hearings at which data and arguments would be adduced: they were disposed of in the ordinary course of correspondence. If the roads believed that they had a good case, it is difficult to understand why they did not press for a hearing. It would not be surprising if, when refunding is considered, the matter of revaluation should be made an issue.

One way of defeating the purpose of the Stock and Bond Law has been found, according to the Commission's report for 1906, in the issue of "income bonds." As well as can be ascertained, what is referred to as "income bonds" is really floating debt. The Commission now asks that it be given jurisdiction over the issue of interest-bearing evidences of debt that are not secured by liens upon physical property. The report of the Commission for 1906 states that the

amount of bonds and receivers' certificates which have been approved since the passage of the Stock and Bond Law is $38,256,566. The purposes for which these issues were made—that is, whether for new construction, for refunding, or for increased valuations-are not enumerated; but, so far as can be ascertained, the entire amount has been for new construction.

The following table shows the growth in mileage and the reduction in the average amount of stocks and bonds per mile since the enactment of the law:

As previously suggested, the decrease in the average thus given is due to new construction whose capitalization was subject to the provisions of the law.

Current liabilities or floating debt do not come within the law. The increase of this class is a significant item, because it shows in a measure how the pressure of the law upon the roads has been temporarily relieved. The amount outstanding on June 30, 1896, was $30,351,240; that on June 30, 1906, was $76,536,656. Over one-half of this latter amount is chargeable to four roads, and of this half nearly one-half is chargeable to one road.

1 The mileage used is that of main line, branches, and spurs. It is not the same as main mileage. The difference is not material for the purpose of showing the decrease in the average indebtedness.

2 The amounts for 1905 and 1906 do not include the of indebtedness" of the Gulf, Colorado & Santa Fé. the Commission under the item "Other indebtedness."

$16,305,291 "certificates These are classified by

The older roads, which are in the main parts of systems and controlled by corporations domiciled outside the State, have by far the larger share of the total floating debt, and this has an ominous significance. The tendency is towards an increase of the amount, and, as the Commission's policy is to refuse to allow a funding of the indebtedness of this character, the older roads must rely upon increased earnings or a change of the Commission's policy to save them from grave financial difficulties.

In the case of these roads, which are already excessively capitalized, the position of the Commission is-logically under the law-that, where current liabilities are incurred for permanent improvements, the increased valuation of the property resulting from the improvements will be recognized, but that not until there is an approximation of total valuation to outstanding capitalization will an addition to bonded indebtedness be authorized. Insomuch as the margin between the Commission's valuations and the roads' capitalization is very wide, that body has evidently felt safe in refusing to believe that improvements and other factors have caused an appreciation in value sufficient to wipe out the unfavorable margin and to entitle the companies to the boon of funding.

The situation as to newer construction is not so troublesome. The margin between the valuation by the Commission and outstanding capitalization being small, any floating indebtedness which may be construed to have resulted in an increase in the valuation of the property will, it is to be expected, not be refused funding.

What now has been the effect of the Stock and Bond Law upon railroad construction? A satisfactory answer is not easily given. It is impossible to say what would have been the increase in mileage if no such law had been passed, and it is difficult to gauge in its bearing upon the question the significance of the increase of practically 3,000 miles in the mileage since the law went into effect. It can be said with a reasonable degree of certainty that the law as it has been administered has afforded no encouragement to rail

road building for large speculative gains. However, a consideration of the question of the alleged timidity of capital to enter the field of railroad investment in Texas on account of this law requires that attention be directed probably less to the stock and bond feature than to other features of the Texas law regulating railroads.

Important, tho perhaps not so much as the question as to new construction, is that of the effect of the law upon improvements and betterments. Does the law encourage the repair of depreciation, the substitution of heavy steel rails for lighter ones, the replacement of wooden bridges with steel ones, the reduction of grades, the abolition of curves, the ballasting of road-bed, better stations, etc.? Improvement of rolling stock has been provided for in the act of April 23, 1907; but other improvements are left subject to the original legislation.

The amount expended for permanent improvements in the year ending June 30, 1906, is stated to have been $2,174,161. For a railroad mileage aggregating that of Texas, this is a paltry sum. The seat of the trouble appears to lie in the income account. Of fifty-five roads reporting for the year ending June 30, 1906, there are seventeen which report a deficit of income for that year. Only five of the seventeen are charged, however, with expenditures for permanent improvements. Twenty-three of the fifty-five roads report a deficit as existing on June 30, 1906, and of these, six made permanent improvements. The deficit is pronounced in the case of several of the older roads.

The position of the older roads is thus, as regards improvements, a decidedly difficult one under the law. With interest charges and taxes consuming most of income, there is no large amount left for improvements, and none can be made without creating a deficit. As has been already explained, since their valuation by the Commission is much below their capitalization, they cannot, until this margin is wiped out, expect to have expenditures of this character funded. If the object of the Stock and Bond Law is to be realized, however, the construction of the law in this respect

cannot well be different. Rates might be raised so that income would be increased, and since only seven of the fiftyfive roads reporting for the year ending June 30, 1906, paid any dividends, it is a question if the roads could not, with a fair degree of confidence, take the matter of an increase in rates to the courts if competitive conditions would permit them to make an increase.

The position of the newer roads as regards improvements is better. They have no penalty of trouble to pay for overcapitalization.

E. T. MILLER.