Mr. WHITE. Yes. Mr. PIRIE. If that is the concensus of opinion, we would have not the slightest bit of fault to find. All we want is equality with corporations. Mr. GARNER. You are not suggesting any rates? Mr. PIRIE. I do not find any fault with rates. Mr. GARNER. You merely want to be put on an equality with every other taxpayer? Mr. PIRIE. That is all; and we want to give you all the money we make, because we know we have to pay for the war. The CHAIRMAN. Say a corporation has got $1,000,000 capital, and a partnership right across the street has got $1,000,000 capital, and has got the same number of partners as the corporation has got stockholders, has the same profits, they compete with each other. You want to be on terms of equality? Mr. PIRIE. That is everything I ask. The CHAIRMAN. You do not want to be favored over them and you do not want them to be favored over you? Mr. PIRIE. We have not got a bit of fault to find, and would just as lief, if you gentlemen think it would not break the income of the country, have the corporations brought up to our basis as to have ourselves brought down to the basis of the corporation, every bit. The CHAIRMAN. The committee will now be pleased to hear Mr. Gadsden. STATEMENT OF MR. PHILIP H. GADSDEN, CHAIRMAN NATIONAL COMMITTEE ON PUBLIC UTILITY CONDITIONS, WASHINGTON, D. C. The CHAIRMAN. Please give your name and address. Mr. GADSDEN. I am chairman of the National Committee on Public Utility Conditions, representing all of the electric railway, electric light and power companies and gas companies in the United States. This committee has been formally and officially organized by the three national public utility associations-the American Electric Railway Association, the National Electric Light Association, and the American Gas Association. Mr. MOORE. Pardon me. Your home is where? Mr. GADSDEN. Charleston, S. C. The CHAIRMAN. Your headquarters are in Washington since the organization of the committee you speak of? Mr. GADSDEN. The committee have an office in the Munsey Building, here in Washington. The other two members of the committee are Mr. E. K. Hall, of New York, and Mr. H. H. Crowell, of Grand Rapids, Mich. We are here, Mr. Chairman and gentlemen, to bring to your attention in the time that is given to us, the picture of the public utility conditions in this country, with a view of urging upon your serious consideration the putting of public utilities in a special class for the purpose of Federal taxation. In other words, to segregate them so that their peculiar problems, the serious conditions under which they are now operating, brought about by conditions over which they have. no control, may have a proper bearing when you come to consider the burdens that should be placed upon them by way of taxation. As a matter of fact, as we all know, railway, gas, and electric companies are now segregated into a special class for every purpose, except that of taxation. They are kept apart in a class for regulation of their revenue, unlike any other class of business in this country. They have no control over the price of their products. The street railway fare is fixed automatically at 5 cents; the price per kilowatt, the price per thousand feet is regulated by commissions or municipal council. So that so far as their revenues, so far as their earning capacity is concerned, they have been, almost since their origin, segregated into a special class. So far as their operating expenses are concerned they are also segregated. The ordinary business man has within his control, to a very large extent, the scope of his operations and his functions. In times of depression, times like these, he has the option of reducing his activities, cutting off here and there, cutting down his expenses of operation to meet increased taxes. So, likewise, the individual, to a certain extent, has it within his power to cut down to some extent, at least, his household, personal, and domestic expenses to meet the demands of the war. On the contrary, the companies that we represent, the class of industry which we represent, not only can not fix their selling price, not only can not adjust their revenues to meet increased operating expenses or increased taxation, but they can not curtail the facilities which they are called upon to render to the public. As a matter of fact, on the contrary, in times like these, when the expenses of their operations have increased enormously, when the cost of coal which they are consuming has gone up from $1 a ton to $3, $4, and $5 a ton, there comes a demand on the part of the public for greatly increased facilities on their part; there comes a demand for additional car facilities; there comes a demand for extraordinary increases of output on our central electric stations and gas plants. No better illustration can be had of the fact that I am now referring to than exists in the gas business. Owing to the shortage and high price of domestic coal and the extreme rigor of the winter, extraordinary demands were made upon the gas companies all through the United States for heating purposes. People who had never used gas before in their lives in the winter for heating resorted to the gas companies to be kept warm, thereby developing upon the gas companies demands for excessive outputs and extraordinary increases in the consumption of coal, yet the gas companies were expected to and did sell their product at a price fixed when the price of coal was normal. Mr. LONGWORTH. Mr. Gadsden, are you familiar with the recent holding of the War Finance Corporation that public utilities are not included in section 1? Mr. GADSDEN. I am painfully familiar with it. Mr. LONGWORTH. I have not been able to find out holding was or what the reasons given for it were. briefly as to that? just what that Will you state holding is, but, Mr. GADSDEN. Mr. Longworth, I know what the as I understand the statements of the War Finance Corporation, it 64059-18-No. 4 was predicated upon the construction of the act placed upon it by their counsel. Mr. LONGWORTH. I will state that it was the intention to include the public utilities Mr. GADSDEN. So I understood. Mr. LONGWORTH (continuing). And it was specifically stated by high authority that they were specifically included in the bill as it passed the House. Just how did they come to reverse that? Mr. GADSDEN. I do not know. It was a very great disappointment to us. I want to come to that a little later when I take up that phase of this question. Mr. LONGWORTH. When you do that let me recall that Secretary McAdoo stated emphatically before the Ways and Means Committee that public utilities were included within the scope of the War Finance Corporation. For instance, I asked him specifically the question whether the street railway hauling a man to a munition factory was not doing war work and therefore specifically included. Mr. GADSDEN. I remember hearing you ask that question during the hearing. Mr. STERLING. I think the committee did put it expressly in the bill and the Secretary of the Treasury, as I remember it, gave his assurance that his construction would be that it included them without expressly stating it. The CHAIRMAN. The Senate committee put it in. Mr. LONGWORTH. The Senate committee put the words in. The CHAIRMAN. With the understanding that it included electric light and any other industry that was necessarily contributory to prosecuting the war. Mr. GADSDEN. There are two phases of this public-utility question which always should be carried in your minds-the one I have just been addressing myself to, and that is the question of decreased net revenue; the other is the necessity for some method of financing existing obligations. Without the revenue the second can not be complied with. Therefore, we feel constrained to come before the committee to-day to urge that careful and serious consideration be given by this committee to putting us in a class by ourselves for the purpose of taxation. We are not attempting to suggest any particular rates, but put us where we may be segregated for taxation just as we have been segregated for everything else. So that when you come to that paragraph of your bill you can consider the burdens to be imposed upon this industry in the light of existing conditions. Gentlemen, let me give you in a very succinct way, if I can, just what the situation is: I have here tabulated statements showing the gross revenues of a large number of public utilities-railway, gas, and electric-for the first three months of 1917, as compared with the first three months of 1918. I have another statement giving the same figures for the electric industries alone, and I wish to call your attention to these and include them in my remarks. Here is a statement of the income account of 103 electric railways for the three months ended March 31, 1918, compared with the three months ended March 31, 1917: The total operating revenues in 1917 were $60,456,000-I will only read the round numbers, Mr. Chairman. In 1918 they were $61,734,000, or an increase in gross revenue of $1.278.000, or 2.1 per cent increase in gross. The total operating expenses for three months in 1917 were $39,619,000; for 1918, $43,799,000, an increase in operating expenses of $4,180,000, an increase in percentage of 10.6 per cent. The net operating revenue showed a decrease of $2,900,000, or 13.9 per cent. The taxes showed an increase of 8.7 per cent during this same period. The nonoperating income-that is, revenue derived from other sources than street car fares-showed a falling off of 18.9. The net income for 1917 was $5,527,000; the net income for the same period in 1918 was $2,228,000. Mr. GARNER. Is that all the street railways of the United States? Mr. GADSDEN. No, sir; it is 103. Mr. GARNER. You have selected 103 on which to base these figures? Mr. GADSDEN. We sent them all out, and these are all we got in. I want permission to file a complete statement. Mr. GARNER. That includes all that have been returned? Mr. GADSDEN. That includes all that have been returned indiscriminately. Mr. STERLING. For the first three months? Mr. GADSDEN. For the first three months. The CHAIRMAN. You will furnish a statement covering all the roads? Mr. GADSDEN. We will furnish a complete list. The net income showed the falling off in 1917 was $5,500,000, which in 1918 was $2,228,000, a falling off of $3,298,000, or 59.7 per cent. The CHAIRMAN. In addition to that? Mr. O'SHAUNESSY. That was mostly passenger fares, of course? Mr. O'SHAUNESSY. Would not there be the same number of people carried? Mr. GADSDEN. There were a great many more people carried. Mr. GADSDEN. The gross income increased $1,278,000. We did more business, the net result was 59 per cent less. Mr. MOORE. Would not a great deal of that depend upon the location of the companies? If they were in the interior they may not have done the increased business, but if they were located on the seacoast, around the cities where war munitions are being manufactured, they may have done more business? Mr. GADSDEN. They may have done more business and showed the same result in net. We will furnish you that, if you will just for the moment, for the purpose of this hearing, accept my statement subject to verification. The more business we are doing the more money we are losing, for the reason that we are selling our product at a unit of cost less than cost of production; and therefore the more business you do Mr. MOORE. In what items have there been increases? Mr. GADSDEN. Increased wages, increase in cost of coal, car material that is, electric railways. Our committee sent out a questionnaire in November Mr. STERLING (interposing). In your preparation of those statements, did you compute the taxes paid the year before and the taxes you paid this year? Mr. GADSDEN. Yes; I have the figures. Mr. STERLING. You did not pay the taxes the first three months of this year? Mr. GADSDEN. No; but they are charged up on our books. Mr. STERLING. What is the difference in the amount of taxes? Mr. GADSDEN. The taxes for 1917 were $4,200,000, and for 1918, $4,600,000, an increase of $370,000. Mr. STERLING. That does not account for the increase occasioned by the law passed last year. Mr. GADSDEN. These are all taxes, not only Federal, but increases of all taxes, local, State-all kinds of taxes. (The statement above referred to by Mr. Gadsden is here printed in full as follows:) Income account of 103 electric railways for the three months ended Mar. 31, 1918, compared with the three months ended Mar. 31, 1917. In the latter part of 1917 our committee sent out a questionnaire to some 300 companies-railway, gas, and electric-all through the United States, to get their operating expenses for 1917 as compared with 1916. Those results were filed by us in the shape of a brief with the Treasury Department during the negotiations leading up to the introduction of the War Finance Corporation bill. They were inIcluded in a hearing that we had before the Senate Finance Committee and were available at the time for this committee. Since that time we have sent out another questionnaire covering the first three months of 1917 and 1918, for all companies-gas, electric, and street railways. Those answers are coming in, and we have gotten up to this time results from 252 of those companies. We sent out some 350 and these are the results. Now, gentlemen, this is the composite picture. I gave you heretofore only the electric railways; this is gas, railway, and electric. The gross revenue increased $7,320,000; the operating expenses increased $11,226,000; the gross operating income decreased $3,577,000; the operating ratio increased practically 7 per cent. The operating ratios for these public utilities is continually increasing. Reports from 316 companies with an annual gross revenue in excess of $300,000,000 show operating ratios as follows: In 1915, 61.26 per |