cars of large capacities could transport a large amount of tonnage with less cars than a train consisting of cars of small capacity.
Reproduction Cost and Relative Investment
These factors seemed to be based upon valuations made by the Interstate Commerce Commission. Mr. Burpee, witness for the plaintiffs, stated that reproduction cost is not necessarily important, other than to determine whether the value based on earnings is consistent with the investment. The percentage of relative investment is claimed to reflect the difference involved in an investment on one part of the system as distinguished from another. Either of these factors would seem to give some weight to the terminal properties within New Jersey. But either factor used alone could not have much utility as the reproduction cost or investment in a property is no indication of its value. Dr. Badger, witness for plaintiffs, was of the opinion that a 25 per cent. weight accorded to the relative investment factor would be sufficient.
The obvious objection to any cost factor is that it assumes an equality of value in each dollar of investment, or that an investment of $1,000,000 in one state is as valuable as a similar investment in another state.
The percentage of this factor attributable to New Jersey is used in the case of the Central Railroad of New Jersey, because this company is the only plaintiff which maintains separate accounting of its New Jersey operations. Gross earnings are of value to a road only in proportion as they produce net receipts. It may be criticized because it does not take into account the differences in operating expenses on different portions of the system, and because it is difficult to apportion properly the earnings derived from interstate commerce.
The above discussion has been confined to separate analyses of the various allocation factors used in the plaintiffs' calculations. The court is not unmindful of the fact that the defects in a particular factor when used alone will be neutralized or diluted when arranged with other factors. On the other hand, the defects may be accentuated in combination with other factors. It, therefore, becomes necessary to consider what has been said of these factors when combined and arranged together in various combinations. It will be unnecessary to go beyond the testimony of Mr. Burpee and Dr. Badger, witnesses for the plaintiffs, to discern the weakness of the method.
It appears that no combination of factors can be used universally. Conditions in one state or one railroad may demand the use of combinations different from those used in other railroads and states. Mr. Burpee stated that the best that could be hoped for was a reasonable approximation. Both these witnesses agree that system valuations as well as the selection of formulae or allocation factors is a matter of judgment. Even experts will disagree in their judgment, and as a matter of fact Dr. Badger and Mr. Burpee used different factors, and, of course, obtained different results. The following table indicates the amounts reached in some of the railroads under consideration, and that the differences are by no means nominal:
1934 1935 1936
(value) (value) (value)
Lehigh Valley RR.
Burpee $22,000,000 $22,000,000 $22,000,000
Badger 20,000,000 20,000,000 21,000,000
By other formulae 16,234,110 14,503,450 16,189,450
Burpee $47,000,000 $46,000,000 $47,000,000
Badger 45,000,000 43,000,000 40,000,000
By other formulae 33,563,280 27,654,220 26,396,510
Burpee $ 9,000,000 $ 9,000,000 $1,000,000
Badger 8,370,000 11,040,000 11,280,000
By other formulae 9,484,670 8,468,380 8,942,370
Central of N.J.
Burpee $70,000,000 $65,000,000 $58,000,000
Badger 52,000,000 48,000,000 49,000,000
By other formulae 59,709,780 52,835,820 52,444,060
Burpee $21,000,000 $25,000,000 $27,000,000
Badger 24,500,000 26,620,000 29,040,000
By other formulae 26,075,830 25,065,280 26,632,330
© 1992-2004 VersusLaw Inc.