Committee on Railway Mail Pay.

October 3, 1912.

Hon. Jonathan Bourne, Jr.,
Chairman, Senate Committee on Post Offices and Post Roads,
Washington, D. C.

My dear Sir:—

The Committee on Railway Mail Pay, representing 268 roads operating over 214,275 miles of road, has been investigating the subject of mail compensation for about three years, or since the Post Office Department, in 1909, sent out a series of questions regarding the space furnished for mails in passenger trains, and the cost to railroad companies of the service which they perform for the Government in the carriage of the mails. Therefore the Committee has thought it would be of interest to you to receive from it an answer to the questions propounded by your letter of September 11, 1912, addressed to the officers of railroads throughout the country.

A response to House Document No. 105 is now in course of preparation, and will be submitted at an early date. In the meantime, our committee desires to submit the following replies to your inquiries:

Question 1.—Do you deem the present plan of compensation an equitable one as between the Government and the railroads? If not, in what respects and as to what classes of railroads is it inequitable?

Answer.—The existing law has never worked to the disadvantage of the Government, but has failed to do justice to the railways by reason of infrequent weighing; absence of pay for nearly 40 per cent. of the space occupied as travelling post offices; the performance, without pay, of side and terminal messenger service, and the unjustifiable reduction in pay by the Act of Congress dated March 2, 1907, supplemented by Order No. 412 of the Postmaster General, changing the divisor.

The present law is based upon correct principles, but should be so amended as to provide—

(a) For the Repeal of the Act of March 2, 1907.

Notwithstanding the large increase in every other item connected with the administration of the Post Office Department, the railroads' pay has been singled out as the one element in these operations for concentration of economies. This too, in the face of the fact that the operating expenses of the railroads have been greatly augmented by the requirements of the law with reference to steel equipment, and a general increase in cost characteristic of all business operations.

(b) For annual weighings, and a definite and just method for ascertaining daily average weights.

Under the quadrennial weighing all increased weight of mail during the next succeeding four years is carried by the railroads without any compensation whatever, which is manifestly unfair.

The railroads must provide car space and facilities for the maximum weight offered at any time, yet they are paid only for the average weight carried. The Postmaster General's order covering the divisor has unfairly reduced this average.

This provision is essentially necessary in view of the bill establishing the Parcels Post, effective January 1, 1913, which will result in taking from the express service traffic for which the railroad companies now receive compensation and transferring it to the mail service; the bill referred to containing no provision for payment to the railroad companies for the increased tonnage to be handled in mail cars, although such provision was made for the star routes and the city wagon service.

(c) For pay for Apartment Cars on some basis that will compensate for the service.

That the Postmaster General has himself recognized the justice of such a change, is indicated in the following quotation from page 3 of House Document No. 105:—

"* * * an additional amount may be allowed for railway post office cars when the space for distribution purposes occupies 40 feet or more of the car length. No additional compensation is allowed for space for distribution purposes occupying less than 40 feet of the car length. This distinction is a purely arbitrary one and without any logical reason for its existence."

(d) For a fair allowance to the railroads for the side and terminal messenger service which they perform for the Post Office Department, according to the value of this service to the Post Office Department.

The necessity for this is also emphasized by the establishment of the Parcels Post which will undoubtedly add greatly to the expense of the service.

(e) That all rates of pay should be definite and not subject to the discretion of the officers of the Post Office Department.

Other inequities exist under the present law, but are due to the administrative methods rather than to the law itself.

Question 2.—Is the underlying principle of the plan embodied in the enclosed bill a proper basis for compensation? If not, wherein is it improper, and why?

Answer.—The underlying principle of the plan embodied in Senate Bill No. 7371 is not correct. Any plan of compensation based upon operating cost and taxes, plus six per cent. for profit, is fundamentally wrong, because it makes no allowance for return upon the property employed.

Furthermore, such plan is not correct, because it involves paying the highest rates to the railroad that by reason of physical disabilities or inefficient methods is most expensively operated, and the lowest rates to the railroad whose operations are most efficient and whose service is most satisfactory and valuable to the Post Office Department. Under the plan proposed, a railroad would be penalized for all the capital expenditures made by it for the purpose of decreasing its operating cost, because the more it decreased its operating cost the more it would decrease its mail pay, although by making this improvement in operating cost it would have incurred an additional capital charge upon which it would have to pay dividends or interest.

The ascertainment of the cost to a railroad of conducting the mail service is necessarily very largely a matter of judgment and opinion, because a large proportion of the total operating expenses are expenses common to the freight and passenger traffic and can only be approximately apportioned and there are various formulas existing for such apportionment. It would not be right or proper to entrust to the Post Office Department the discretion of selecting the formulas by which to ascertain these costs, because the Post Office Department has an obvious interest at stake, its object always being to reduce the railroad pay to a minimum.

The estimated cost of a specific service is not a proper basis for fixing rates for transportation of any commodity. The railroads are entitled to receive a full and fair return for the value of the service performed, and the ascertainment of cost of such service is principally of value as a protection against the establishment of confiscatory rates.

Question 3.—What, in your opinion, is a desirable plan for compensating railroad companies for transporting the mails?

Answer.—The existing law has been in effect for nearly forty years, and those who have worked under it are more or less familiar with its operations. If it were amended to correct serious inequities, as suggested in the answer to Question 1, and fairly and impartially administered by the Post Office Department, it would be preferable to any untried or theoretical plan that could be proposed.

Very respectfully yours,
COMMITTEE ON RAILWAY MAIL PAY,
By
(Signed) Ralph Peters,
Acting Chairman.