BANKRUPT RAILWAYS.

Auckland Star, Volume LXIX, Issue 67, 21 March 1938, Page 4

BANKRUPT RAILWAYS.

ANOTHER AMERICAN PROBLEM HIGH TAXES: LOW EARNINGS. The plight of the railroads of the United States has become a pressing national problem. High taxes and wage* and low earning power have forced a demand for an increase in rates. It is claimed that financial rehabilitation of the railroads is now a necessary condition of business recovery. The record of receiverships, trusteeships and reorganisations in recent years gives, striking evidence of the situation. In November, 1<1.17. 96 railroads wore in the hands of receivers or trustees. 3H of them being class 1 railroads operating 70.000 miles of lines. Altogether the 06 companies operate 28.1 per cent oi the total railroad mileage of the United States. 1 his is the largest percentage of mileage ever in the .hands of the Courts at any one time in the history of American railways. Most of it has gone into the hands of receivers or trustees in the last rive years. Seeking an explanation of these conditions, the Guaranty Trust Company of New York states that the great obstacle to successful reorganisation is the lack of present and prospective earning power. This lack of earning power, in turn, is not due primnrly to a reduced demand for railway transportation service, but to a combination oi economic and political factor.-* that have been beyond the control of railway management. Recently the Inter-State Commerce Commission concluded that the necessary improvements in the spread between railway revenues and expenses could be- anticipated within the reasonably near future without an increase of rates.

'"An analysis of the causes of low earning power," the Guaranty Trust Company states, "shows that wajtos and taxes have been important factors tending to narrow the spread between revenues and expenses. Wages have risen approximately 18 per cent, and taxes about 'I~> per cent since May 1, 1033. Even before the increase in wage rates last autumn, the average hourly earnings of railway employees »-toml at the highest figure ever reached. 'faxes paid by the class 1 roads in the first eleven monthe of 1937 represented a higher percentage of gross operating revenues than in any year except 1932 and 1933, when revenues Were abnormally small. Social security taxes alone constitute <1 heavy burden on the basis of the present railway payroll, social security taxes would amount to more than 112.000.000 dollars annually in 1938 and 1939, with further increases in subsequent years. This includes only .payments by the railway companies and not those by employee*?. '"While wag<?ss. taxes and the prices of supplies liave risen, the general rate level has continued to decline, and it is only through their great increase in operating efficiency that the railroads have avoid-d even more unfavourable financial results. "Taxes constitute the one factor in costs over which public authorities have direct control. In this direction, as well as in the matter of rates, Governmental action could go far towards removing the dangers that threaten our railway system. It is only necessary to note that 21 class 1 railroads failed to earn .->.xpenses and taxes in the first eleven months of 1937 to realise that more bankruptcies must inevitably occur unless st?ps are taken to improve the present earning position." The United States railroads are among I the largest customers of other branches of i brsiness. They consume 23 per cent of I the bituminous coal min"d in the country, 19 per cent of the fuel oil. 17 per cent of the iron and steel, and 20 per cent of the timber. Directly and indirectly, they provide employment for millions of workci-s. and they are among the largest taxpayers."