THE RETURN ON THE

INVESTMENT IN THE SUBWAY

OF THE

lnterborough Rapid Transit Corripan.y.

of N ew
:';';.,::;.::
York C.tty.'','. .. ::, :) : ')

SUBMIT1ED TO THE

PUBLIC SERVICE COMMISSION

FOR THE FIRST DISTRICT oi:i8E
; '
' '
STATE OF NEW YORK
BY
BION J. :ARNOLD,
Special Consulting Engineer.

REPORT No. 7,
December 31, 1908.
 LETTER OF TRANSMITTAL.

December 31s-t, 1908.

Public Scriice Commissio11, for the First District, State of New Yorll, Tribune Build
ing, City:
GENTLEMEN-I have the honor to transmit herewith my .report upon "The Return
on the Investment/' in the Subway of the Interborough Rapid Transit Company,
thi being Report No. 7. Many of the conclusions reached in this Report result from
analyses already made in my former reports upon "The Signal System/> "The Subway
Car, "The Capacity of the Subway," and "The Traffic of the Subway."
This report discusses the influence on the return upon the investment of the
density of traffic; non-paying branch lines; fixed charges upon structure and equip
ment; depreciation; income and expenses per car mile; non-paying car mil-es; the
necessity for the development of the short hai.,l business; development of maximum
capacity by proper design and the relative effect of each of these elements upon the
practicability of maintaining a Subway system throughout Greater New York upon a
fixed five cent fare basis.
Respectfully submitted,
BION J. ARNOLD, Consulting Engineer.

680862
 5

ThlE RETURN ON THE INVESTMENT

In th Subway of the

INTERBOROUGH
of

NEW YORK CITY.

The fundamental problem of rapid transit in the City of New York, at the present
time, is how to provide additional rapid transportation facilities and maintain the
pre!':ent five cent fare:
In order to determine to what extent additional Subways can be constructed and
operated profitablv either by municipal credit, private capital or a combination of both.
it is imper.ative to study the results of three years' operation of the present Subway.
The object of this report, therefore, is to analyze the various items of .revenue and
expense and to show the relative financial influence on each item of the possible im
provements that can be made on the design and operation of subsurface systems of
transportation.
ANALYSIS OF EARNINGS AND EXPENSES.

Table No. 1 shows a comparative statement of the car miles, the earnings and the
operating expenses for the present Subway for three consecutive fiscal years, the last
one ending June 30th, 1908.
It will be 11oted from this table that during the last three years the revenue from
0

passenger traffic has been increasing from 21.6 cents to 22.77 cents per car mile and
that the revenue from other sources (rent of power, advertising, privileges, etc.) has also
been increasing from .47 cents to .53 cents per car mile, making the gross income per car
mile increase, in these three yea.rs, from 22.08 cents to 23.3 cents pe.r car mile.
On- the other hand, the expense of operating the road has fluctuated from
9.32 cents to 10.45 cents and ba,ck to 10.05 cents per car mile, resulting in the net
earnings -also fluctuating from 12.76 cents to 12.43 cents, and finally, during the last
yearly period shown it reaches 13.25 cents per car mile:
The revenue is derived from three sources:
..
l. From a<1 vert1s111g
.
2. From rent of power, sale of privileges, etc ..
3. From passenger traffic amounting to the five cent fare multiplied by the number
of passengers carried.
The total .revenue from the first two items amounted, during the past year to
2.27% of the revenue from all sources and these items are mcreasmg m relative
 . 8
b-1\faintenance of Equipment including Signal System, Electrical Con
ductors, Rolling St?ck, and Repair Equipment;
c-Maintenance of Power Plant including Power Houses and Sub
stations.
B-Transportation Expenses;
a-Wages of Conductors, Motormen and Guards;
b -Wages of Platform men, Agents, G:ltemen, and Porters;
c-Other Transportation Expenses.
C-Power Expense, 111cluding Labor, Fuel, and Supplies at Power House and
Sub-stations.
D-General Expenses including Damages and Insurance.
2-Interest and Sinking Fund on Permanent Way.
In case of the present Subway, the money supplied by the City for permanent
way bears an annual interest charge of an average of about 4'7o and an
annual sinking fund charge of 1 % making a total annual charge of about
5%.
3-Interest on Investment of Company including Equipment.
This charge wiJI vary from 4% to 6% depending upon financial conditions.
4-D,preciation Reserve.
With the present Subway, no depreciation reserve fund has yet been provided.
5-Taxes.
With the present Subway the taxes are nominal. being only $60,000 per year.
A study of the records of operating expenses as shown by Table 1 can be made
to advantage if each item is examined with the idea of determining how much can be
saved bv taking advantage of e,erv possible eccnomv and also what effect each indi
vidual improvement will have on the total operating cost.
I-Operating Expenses.
A-i\.faintenance Expe;1se.
The table shows that for the year ended June 30th, 1908, the expense ,
for maintenance were as follows:
A-a iviainte1:ance of Way......................... 1.18 cents per car mile
b i\Ia = menancc of Equipment.................... 1.8i cents per car mile
c Maintenance of Power Plant .............., ... .35 cents per car mile
Total Expense for Maintenance ............ 3.40 cents per car mile
This maintenance expense, which increased considerably during the second. year
has been decreased during the past year. indicating that these expenses do not neces
S;trily increase with the age of the Subway.
Careful management will tend to keep the maintenance items down and an invest
ment in an efficient repair equipment would be justified.
 9

Every car operated one mile will entail a corresponding maintenance expense; that
is, the unit cost per car mile of these three items of maintenance is practically inde
pendent of the number .of car miles operated and will not decrease materially 4S the
number of car miles increase.
In this respect these items may be classed with two other items which, for the
same period, were as follows:
B-Wages of Conductors, ).lotorrnen & Guards ...... 1.79cents per car mile
C-Power Supply. . . . . . .. . . . .. . . . . .. . .... .. .. . ... . . . 2.38 cents per car mile
The imit cost per car m:le of both the wages of the trainmen and the expense of
supplying energy to the cars will be practically constant whatever the number of car
miles operated. -Taking these last two items and adding them to the first three items,
we have a charge of 7.Si cer.ts per car mile which cannot be decreased by any
appreciable amount by running more car miles but which can be avoided e11tirely every
time a car can be prevented from r111111i11g a useless mile. The problem therefore, to
reduce the influence of these charges, is to run as few 11011-prodiutive car miles as
possible.
For instance, there are 1.870,000 cars running each vear on the Lenox Avenue
branch which are diverted a distance of .85 mile in order to use the Broadway track
between 103rd Street and 42nd Street. If these cars could be carried down Madison
Avenue from Lenox Avenue ancl West 110th Street to Grand Central Station, a saving
in useless car movement amounting t'O 1,589,50:) car miles would be effected which
at 7.57 cents per car m:le means an annual eonomy of $120,325 .15. This amount added
to the probable net earnings of the cut off itself would probably more rhan justify the
investment of the cut off and in addition decrease the present running time between
The Bronx and the Battery.
There are also fully 1,000,000 useless car miles run every year which result from
the lack of a st'Orage space in lower :\1anhattan for the use of cars which now travel
one way practically empty before or after each rush hour period. In building future
Subways, the need of a .storage space to act as a reservoir for cars used only in serving
the peak load should be carefully considered. Even where a Subway is provided
with enough tracks to." <;arry the same nurnber of cars 'in both directtons, :the investment
in a storage space, say under Battery Park, would be justified, but when an odd track
is to be provided for handling the rush hour traffic, in one direction in the morning
and in the other direction nt night. the cost of the storage tracks would be Jess than
the cost of an additional track the entire length of the road and the saving effected
by the elim1;atio11 o( the l1Seless car miles which will be avoided by storing the cars
during the day will result..in an added economv.
There are useless car miles run at present resulting from the fact that many of
tht. trains have a large number of vacant seats at the e.,:treme mds of the lint. With
the present Subway at least 2,000,000 car miles of en;pty cars are operat ed each year
because it is impracticable -at present to couple up the cars quickly. When a method
 IO

of more quickly making up trains has been perfected it will be possible to add or sub
tract cars to or from a train at intermediate stations and 'thus avoid the useless waste
of power, trainmen's time and equipment involved in carrying many of the full length
trains to the extreme ends of t 1 e branches.
Under present operating .conditions it requires too long a time to make and break
the mechanical, electrical and air connections between the cars. This operation now
requjres from one to two minutes, as all of the coupiings are made by hand. When it
is finally realized that, in order to operate Subways successfully, every economy must
be -carefully developed the advantage of being able to make up and break up .a train
so as to avoid running full length trains out to the extreme ends of the lines will be
appreciated and all 6 the coupling devices will be made automatic so as to reduce to a
minimum the delays at t1e junction stations.
If for no other reason than to allow the greatest flexibility in making up trains of
various lengths at terrn'inal stations, as well as at the junction points of two or more
lines, the principle should be adopted, with future Subways, of providi11 .r; each car wilh
motors.
At the present time, o!lly 60% of the Subway cars are motor cars, the remaining
cars being trailers. Thus, in a 3-car train there are 2 motor cars; in a 5-car train 3
motor cars and in an 8-car train, 5 rnotor cars-but the make up of the trains is thus
confined to 3, S, or 8 cars. With motors on each car, the trains could be made up
equally as well wit1 aiy number of cars and the decided changes in sizes of trains
that now. occur in the rate of car movement where the length of trains is changed
at certain times of the day, could be made more gradual.
. ,
With the present Subway these three sources of useless car miles show a total of
over 4;500,000 car miles a year or about 10% of t 1e total number of car miles operated.
If all these car miles could be cut of( the annual saving at the rate of 7.57 cents
per car mile would amount to $320,000.

OPERAT1NG EXPENSES.
There are some items of operating expenses which vary i11'l.'crsc/y as the number
of car miles. These, in the present Subway, are as follows
Bb-Wages of Platform men, Agents, Gatemen,
Porters, etc. ..., ....: ..................... .84 cents per car mile .
Be-Other Transportation Expenses...... ...... . .. .. . .95 cents per car mile.
C -General Expenses ......... .................... .69 cents per car milc.

Total.- ........ ............. .................2.48 cents .per car mile.

With a given Subway the greater the numer of car miles operated the less will
be the expenses per car mile for t1ese t1ree .items. For instance, wit1 the present
 11

Subway, if twice as many car miles could be operated the total expense represented by
these items would remain about the- same and the u11it 'Cost of these items per car
mile would be only about one half what it is at present. The.se three items will show
the results of efficient management to a considerable degree-but the best way to re
duce their importance relative to the total operating expens is to operate as many
car miles as can be used to advantage.
The actual operating expenses per ca! mile are t rns divided into two classes of
expenses. The first class consists of those items which remain practically the same
irrespective of the number of car miles operated . That is, the cost of maintenance,
train l]len, and power which are the items in the first class and which in the case of t1 e
present Subway amounts to a total of 7.57 cents per car mil cannot be reduced to
any great extent by runnitlg more .cars. The second class consist of those items of
operating expense which are general and which therefore become less pe_r, car mile as
soon as more car miles are run. I the case of. the preseht Subway, this second class
of items which consist of station charges and general expenses amounts to 2.48 cents
per car 'mile.
The total of the two classes thus amounts to (7.57 + 2.48) or Ip.OS cents per car
mile. Little can be done in the futur_e operation of the present Subway or in the
de?ign of future Subways lo cut down materially the cost per car mile of the items of
the first c1ass. Efficient management an<l the design of a Subway which will allow
the running of a greater number of trains upon each track will cut down the cost per
car mile of the items of the second class-but this J_)art of the expense is proportion
ately small.

AKALYSts 01 THF. FrxEo CHARGES.

The annual c1arges are as follows

Interest on the Cost of Permanent Way.
Sinking Fu.nd on Investment in Permanent Way.
Interest on the Investment in Equipment.
Depreciation on Equipment.
Taxes.
All of these items can be reduced by keeping down the original cost of con
struction.

Limiting t1e Investment in Permanent W,ay.

Under Ne_w York City conditions, a Subway costs, approximately, three times as
much to build as tjle present elevated roads, and it should handle considerably more
'traffic than an elev-ated road of corresponding length. It should therefore be apparent
that Subways should be constructed only where there will be sufficient density of
tr-affic to justify such an expensive type of construction.
 I2

The approximate costs of one mile of swgle track-exclusive of eqllipment, power

plants cmd electrical conductor, for different kinds of construction in the :vicinity of
New York City are as follows-
=============================..:
Cost per Mile of Single Track.
From Low to High

Surface Railwav (for overhead trolley) ..... ,.,................ $20,000 $30,000

Add for Asphalt paving or.,.. ,............................ $12,000
Granite Dlock 1,aving.... ,. ,,,, ....,. , ................... $20,000
Cost of surface road......... ,,,,, ... , ......... ,, ...... , $32,000 to $.50,000
Cost of Conduit road, including same allowances for paving, ....., , $80,000 to $120,000
Elevated Railroad ............. : .............................. $200,000 to $300,000
Subwav . , ... ,....,..... , .. , . , , . , ..... , ...... ,,,, , , , . , , ,. ,. $600,000 to : $900,000
Tunnel under River.... , ............ , .. , ... , ........... ,....... $1,200,000 to $1,800,000

These figures, which, as before stated, do not include the cost of car equipment,
power station equipment, or transmission system, for the reason that such investment
depends upon the car miles operate, indicate that to operate an elevated passenger
road and keep the fixed charges per car mile for permanent way within reasonable limits
the passenger traffic should be about 3 times that which would justify a surface conduit
system. To support a Subway, the travel should be about 3 times the minimum travel
that would justify the building of an elevated road; and to maintain a tunnel, the
length of haul must either be very short or the passenger movement throllgh it must be
of great magnitude. DL;e allowance must always be made .for possibilities of develop
ment-but when the promise of a reasonably early growth in traffic does not exist the
more expensiv-e forms of permanent wav cannot be justified from a strictly commer
cial point of view.
The extension of the Subway type of construction into outlying districts which
for some years after the Subway is built will not pay interest on the investment is
an annual burden and the present S11bwav 1s senouslv handicapped by such a burden.
Subways are eminently adapted for main line traffic but not for branch lines. Feeder
lines to the Subways should consist of elevated roads or of lines located in open
cuts-fed in turn by surface lin-t!s. In order to get a proper return on the large invest
ment. required for Subway construction, the tracks of the Subway must be used to
their maximum efficiency, particularly during rush hours. To get three times as many
cars over one track in a Subway as are now run on one track of an elevated structure,
ineans lor.g trams at frequent intervals. If 7-car trains on 2-minute headway (21!)
cars per hour) are found possible on one elevated road, then 10-car trains on 1-minute
headway (600 cars per hour) must bt" provided for in the Subway to put the earnmg
power cf the Subway method of transportation on the same basis as that of the present
Elevated system.
In general, then, a S"l>way should l>e built to take tire place of three elevated li11,cs
n11d the 011tl:yi11g districts caii 1101 l>e relied 11po11 to support a Sllbway until the traffic:
 13

,qhich Migi11a.trs 111 the district addrd t() the trafnc which passes through the districl
is suflicie11t to j11slif_v three dcrnte d linrs of the presc11! type.

lNTF.REST ON THE CosT OF PrnMANENT WAY.

There are difficulties in the wnv of determini1g, just at the present time, the exact
charge to be made per car mile for interest on the cost cf the permanent way of the
present Subwav. All of the charges against this account have not been adjusted; parts
of the Subway have not been in operaticn for a complete year, while other parts, such
as the Brooklyn branch, have been design<:-d and built to provide for future exten
sions, and, . therefore, represent a comparatively larger investment than would b.:?
i nstinecl by present traffic. Safer conclusions can be drawn by considering a Subway
similar to the present Subway, but ending at the Battery, thus eliminating the expensive
tubes under the East River and the complicated system of tracks-at the Brooklyn end.
The cost of constructing the prmanent way of a Subway equal in mileage to the
present Subway tracks in the Boroughs of Manhattan and The Bronx may be taken at
$50,000,000. 111 addition to this investment, it would be necessary to equip the Subway
with rolling stock and repair equipment, power house, substation, signal system, and
electrical distributing systems, and the cost of. this "equipment" would add $25,000,00J
to the investment.
The performance of the present Subwav shows that 50,000,000 car miles can be
operated to advantage in that part of the Subway on the Manhattan side of the East
River tunnels, that is, one car :11ile per year may be expected for each dollar invested
in permanent way, and two car miles per year for each dollar invested in "equipment."
In other words, the total investment in a Subway sim_ilar to the present Subway, not
including the Brooklyn tunnels and extension, may be taken at $75,000,000 for both
permanent way and equipment. A Subway of the present design could operate about
50,000,000 car miles. per year ;.1pon that part of its road which could be built and
equipped for $75,000,000, so that the total investment would be approximately $1.50
+or each car mile per annum.
Upon a large part of the cost of the permanent way the present operating com
pany is paying interest at the rate of 4% per year, which is at the rate of 4 cents per
car mile for interest charges 011 the cost of permanent' way onlv. If the construction
funds had been provided by a private company the interest cost per ear mile would
probably not have bee,; less than 5 or 6 cents. If all of the money furnished by the
City for the permanent way could have been secured at 3o/o, the cost per car mile
for this ierest would be 3.5 cents. To reduce to a min:mum the effect of this interest
charge per car mile the rate of interest must be low, the initial c-nst of futw'e Subways
must be made lrss, or the 1111111ber of car milts which nrn be operated ov.e,r a givn
per111a11e11t way must be co11siderablv increased. This item of annual interest charge
upon the permanent wa y offers more opportunities for improving the financial stand
ing of a Subway system than any other item so far discussed.
 14

For instance, with the present Subway, fully_ 30% of the investment is in branch
lines \\'hich are operated at a loss. If these branches could be eliminated, or if the
first cost of these unprofitable branches could be charged proportionately, by special
assessment, directly upon the property benffited by them, then this interest charge on
permanent way would be reduced by 30% or from 4 cents to 2.8 cents per car mile,
thus effecting a saving of 1.2 cents per car mile.
If, instead of adopting the Subway type o f construction for a large part of these
branch lines, an elevated road is built, then the cost per car mile for permanent way
will.be reduced in the proportion that the saving in first cost bears to the total cost.
If, further, future Subways could be built with a much greater carrying capacity
in prpportion to the amount invested in permanent way as suggested in Report No. 4
on "The Capacity of the Subway'' then this unit charge of 4 cents per car mile for
interest on permanent way can be reduced to less than 3 cents per car mile without
any change in the rate cf interest carried by the pesent Subway.

SINKING FUNP FOR Tl{E INVESTMENT IN PERMANENT WAY.

What has been aid in regard to the interest charges o.n permanent way applie,
equally well to th annual si11king hmd charge on this same investment. The arrange
ment with the City by which most of the money for permanent way of the present Subway
was raised provides for a sinking fund of 1 % per annum on that part of the invest
ment. On a basis of 50,000,000 car miles with an investment of $50,000,000 this sinking
fund of 1 % per annum amounts to 1 cent per car mile. Thus with the present Subway
the ii11.'eslmc1it 1n Per111a11e11t way is approximately at the rate of one dollar invested iu
initial cost to produce the capacity 11ecessar:y to operate 011c car mile per year; i. e., a
$50,000,000 investment in permanent way may permit the operation of approximately
50,000,000 car miles per year. In futi.tre Subways, it is not unreasonable to expect
that 2 car miles should be operated for every dollar expended for permanent way and
thus the sinking fund charge be reduced to 0.5 cent per car mile.

INTEREST ON !NVESn'IENT lN EQl1IPMENT.

The investme1it for the equipment of a Subway similar to the present Subway in
:\!anhattan and the Bronx may be taken at approximately $25,000,000. As this money
was not raised by means of the City's credit the interest charge may be taken at 6% per
annum, as this is about as low as monc:-y usually costs a private. corporation after paying
brokerage a11d other expenses incidental to securing it. On the basis of 50,000,000 car
miles, this interest charge upon equipment amounts to 3 cents per car mile.
This interest charge is upon the cost of the power plant, substations, electrical
distribution systems, signal system, rolling stock and the repair quipment. The origi
nal cost of all of this equipment increases directly as the car miles increase; that is,
the unit cost per car mile will be practically the same irrespective of the number of
-car miles. operated, provided that the distribution of load throughout the day is rela
tively the same in all cases.
 15

The most effective way of reducing the importance of this charge for int<!rest on
the equipment the.refore must be by red1,cing the rate of inlerest. If the money for the
first cost of the eq11ip111c11t had been raised on municipal bonds, or in any other way,
at the same rate (i.e. 4%) * as the money invested in permanent way, then the unit cost
would be reduced from 3 cents to 2 cents per car mile, a saving of 1 cent per car mile.
This method of financing the cost of the equipment would therefore result in a con
siclerable reduction in the annual charges.

DEPRECIATION.

In the accounting system used with the present Subway, the item of depreciation
upon equipment is not recognized. In my opinion, this policy or perhaps lack of policy
is a serious mistake, as it is certain that if all of the surplus earnings are disbursed
each year in the form of dividends and no allowance 1s made for depreciation; there
will come a time when renewals must' be made either at tlie expense of the stock
holders or at a sacrifice of the service, which. can and should be maintained for future
patrons of the sub'way system.
Just how much the allowance for depreciation should be cannot be determined
without a careful study of the conditions in each particular case. An investigation
will, no doubt, reveal the fact that there are parts of the structure and perhaps also
of the equipment which_ can be maintained up to full working value- and upon which .the
reserve for depreciation may be neglected-but this same study will also show that
there are other parts which are depreciating in such a way as to require an annual re
serve to provide for eventual renewals.
For instance the wooden cars should be rembved from the Subway but apparent!\
n.o way of fina1cing this loss has i)een adopted. These cars were the best cars that
could be secured at the time the Subway was des:gned, but shcrtly after they were built
metal cars-were developed. Of about 850 cars in the Subway 500 are of this wooden
or composite type . The original ost of these composite car bodies was $3,350. each
and new meta'! bodies to replace them will cost about $5,500. each . The difference
between the cost of new .metal cars and the original cost new of the composite cars

should be charged to capital account but the difference between the original cost of
the composite car and' its scrap value as it leaves the Subway should be coflsidered
Joss and .be offset by a depreciation reserve.
In the course of time the same procedure would make it possible to replace the
signal systt:m ;. the braking equipment and parts or all of the power plant, as these
various pts of the equipment become obsolete on account of the. advance in the
art. If an anm1al appropriation is not taken out of the surplus each year for depre-
The money in the present Subway was raised at different times and in differenf amounts. by
means of bonds carrying interest rates rangi_ng from 3% to 4!,1%, but averaging about 3%,, In
order to be conservative, 4% has b:en assumed in this analysis as a rate which would undo:.ibtedly
secure money upon municipal credit, and 6% as a rate which \\'Ould secure money upon the bonds of
a private company, these rates covering the totai cost including brokerage for securing money for
construction purposes.
 16

ciation purposes, it will be impossible to keep the equipment up to the highest standard
without charging renewals to capital account.
There are a number of electrical traction properties which have set a very com
mendable precedent by crediting a certain amount of their income annually to a
depreciation reserve account. among them being The United Railways Company of
St. Louis, Mo., The Milwaukee Light, Heat & Power Company of Milwaukee, Wis.,
as well as
all the surface railway companies in Chicago which are now operati;,g under
the rccentlv granted ordinances under which the city and the companies are jointly
interested in the net profits of the company.
While this question of depreciation in connection with the present Subway is
evidently being 1eglected, it is essential that the item of depreciation should be con
sidered in analyzing the possibilities of a fair return on the investment. I assume that
the accounting system for the future opera-tion of Subways will conform to the ac
counting system adopted by your Conimission and as this systero includes a deprecia
tion acconnt, I feel warranted in recognizing this charge in this analysis.

RECAPITULATION OF Poss1DLE SAvINcs.

We are now in a position to reach some conclusions regarding the design of

future Subways b\ reviewing the rntire problem of making a sub-surface system of
transportation pay a fair return un the investment even with the fare limited to the
uniform amount of five ce1its per passenger.
In the following recapitulation tire cost of operating. the present Subway is first
shown in each case, the figures of operating expenses being taken from the record
of the year ending June 30th, 1908.
The extreme theoretical reduction in cost that can reasonably be expected is
shown in the second column and the final column is intended to indicate the lowest
probable practical limit of cost that can be attained in the operation of future
Subways under the most favorable conditions. All figures are given in the unit of
cc11fs par ca, milt.

CO.MPARATlVE 0PEH:\T.rNG EXPENSES.

Cost in cents per car mile.

-----,..A.:..-::---.
Present Possible Future
Subway Saving Subway

Maintenance of Way ............, , , , ............ , .... , , ....... , 1.18 .18 1.00

The reduction is due to the possibility of operating more
cars than is done at present over each trac.
t1aintenance of Equipment .............. , ...... , . , ........ , , . l.ls7 27 1.60
The saving shown may be accomplished by providing the most
economical repair shop equipment.
Maintenance of Power Planr ........., ...... ,, ............... .35 10 .25
Very little saving is to be expected except that due to run
ning more cars or providing slightly less reserve machinery than
has been thought best with the present Subway.
 17

Cost in cents per car mile.

Present Possible Future
Subwa y Saving Subway

Wages of Trainmen ....... ,,..., ,...,., ,.,.,. ,,, ,,,., l', 79 .04 1.75
The only reduction that can be expected in this item will
be due to efficiency in the management of the men and tra ins, and
not in the reduction of the cost of labor. Every car mile
operated will re quire its quota of trainmen.
\Vages of Sta tion men .........,......, ., ..,.,,,, , , ,, , , , ,., , .84 .34 .so
All station expenses per car mile will become less as the
volume of traffic increases.
Other Transporta tion Expenses...,................ , ........... .95 .40 . 55
This item also diminislus as the number of car miles in
creases, although the reduction ca'nnot be expected in the same
o
t s i nc r i a
r !
Pow: e; .. :.. - .":' ....' .... ,..., ............ 2 .38 20 2 .18
Every car moved one mile will require approximately the
same amount of power, unles s the aver age speed is reduced.
Some slight economy may be expected with increase in load.
General Expenses ....................... , . , . , .......... ,,.., ... .69 25 .4
This item will become smaller as the car miles. increase, as
the total e xpenses are divided among a larger number of car
miles.
Tot al Operating Expenses.., ................,.., ..,,, 1 0.05 1. 78 8.27
The total probable saving in operating expenses is less than
2 cents per car mile. and the lowest limit to which these ex
penses can be. reduced is 8.27 cents per car mile. A s the fullest
limit of economy cannot be expected with every item in any one
case, it is. probable that 9 cents per car mile represents the
lowe st 'practicable operating cost, in the present state of the art.

COMPARATIVE FIXED CHARGES.

Subway
Similar to Possible Future
Present Saving. ,Subway
Subway

Costs in Cents per Car l.Iile.

The first column shows the results that can be obtained by
operating 50,000.000 car miles in a Subway in which the perma
nent way cost $50,000,000 and the equipment $25, 000,000, which
is approximately the ratio with the present Subway,
Interest on Permanent \Vay .....,. , ....................... 4 2 2
This item can be limited by keeping down the investment
and by operating the tracks up to their fullest limit of cap a city
during rush hours.
Sinking Fund for Perm a nent \Vay ..,...,..,....... ......... 0.5 0 .5
This item can be reduced in the same proportion as the pre
vions one. The 1 % determined upon as the rate for sinking fund
with the .Qresent Subway is not any too large.
Interes t on Equipment .................... , ..............., .. 3 \ 2
Ily reducing the rat of interest from 6%, to 4%, a consider
able saving can be effected. If the policy of providing funds for
the equipment by means of the City credit could be followed the
saving in interest per car mile would go far toward providing an
adequate depreciation reserve for the replacement of this equip
ment.
Total for Fixed Charges...................................... , . 8 3.5 4.5
It will be seen that the possibilities for saving arc nearly
twice as great with the fixed charge accounts as with the operat
ing expen,c items. .
Total Cost. Including Iloth Operating Expen ses and Fixed Charges .. 18.05 5.28 12. 77
The sum total of all the possible economies amounts to 5. 28
cents per car mile, or 30% of the total average cost of oper
ating each car mile in a Subway similar to the present Subway.
As the lowest limit can only be secured by strict economy in
investment and in operation, which in some cases might reduce
the quality of the service supplied, it will be better to assume
a medium figure of between 14 and 15 cents per car mile as
the low pra cticable limit which can eventuall )' be expected with
future Subways. With the present Subway it will be difficult
to introduce sufficient economies to reduce the tot a l cost per car
mile to less than 17.5 cents.
 RECAPITULATION OF ESTIMATES FOR FUTURE OPERATIONS.

Sub\Vay
Similar to Future
Present Subway.
Subway.

Cost in Cents per

Income per Car Mile- Car lile.
From passenger operation only ..................... :................. 23 18
From advertising, sale of power, etc .................................... l

Total gross income per car mile ........................ , ...... 24 19

-- --
Operating Expenses ..... , ........ ,... , ........................... , , . 10 9
.Ket Earnings ............. , ,............................. , ...... ,... , , , 14 10
Fixed Charges ................. , ... , , , ... , .. , ............. ,...... . 7.5 s.s
Surplus to be applied to dividends and depreciation ..... ,........... , ... ,:. 6.5 4.5
Depreciation at the rate of 3% per year on.3ctual inves tment in equipment ... . J.S
Surplus for profit., ..... ,., ....... , ................ , ............... , , , . 6.5 3

From the foregoing analysis it will be seen that in order to pay a profit of 6.5
cents per car mile from the operation of a Subway similar to the present Subway, it
is 11ccessary f<r crowd the passengers in tltc cars so that the average income from pas
srngt>r 1c.;cm1c amo\mt!:> to 23 c.:t:nts per car mile. :furthermore, in order to maintain
this profit of 6.5 cents per car mile, which in the case of the present Subway is now
all disbursed as dividends, the item of depreciation on the equipment must be entirely
neglected.
The second column showi that if changes are made in the methods of financing,
constructing and operating Subways it is possible to design and build future sub.
ways that will furnish adequate service or a 5 cent fare and at the same time take care
of depreciation and intrest on the investment. That the service can be adequate is
indicated by th fact that the income Per car mile from passenger 1cvc1111e 011/y need
not be more than 18 cents, instead of 23 cents as .required under present conditions.
In order to produce this result the following economies must be secured:
Saving Per
Car Mile.
l. Reduce the investment required for permanent way by ra1smg by spe
cial assessment on the property benefited the first cost of all branch
Jines. The saving per car mile would approximate ............... . 1 cent.
J Increase the earning' capacity of each dollar invested in permanent wc1y
by designing the stntions on the main line on the reservoir principle,
so that 60 trains an hour can run over each main line track.
Practicable saving per car mile ................... ................ 1 cent.
3 Effect economies in operation and maintenance and reduce relative im-
portance of general expenses. by operating more cars with same
organization charges. Saving per car mile .................. ..... . 1 cent.
 19

Saving Per
Car Mile.
4. Raise the money for the first cost of the equipment on a basis of 4%
instead of 6%, either by using t:1e City's credit or otherwise. Sav-
ing per car mile .................................................. 1 cent.
5. If all the investment for both the permanent way and the equipment
could be secured solely upon the City's credit, the "profit" made by
the operators over and above interest charges could be justly
reduced, as the operators would then assume no financial risk. \Vith
the present Subway which pays nominal taxes amounting to about
$60,000 per year about 1 cents of every 5 cent fare goes toward
"profit." If the City furnished the money for the equipment as well
as for the permanent way, then this profit could be reduced from the
present rate of about 6.5 cents per car, mile, as shown in the above
table, to not more than 3 cents per car mile. At this rate the profit
to the operators would amount to $1,500,000 per year on the basis
of so;ooo,000 car miles. Thus .the saving per car mile to the Subway
svstem by this arrangement would amount to at least ....; .......... .3.5 cents.

The above statement shows the relative value of the possible economies in design
and operation that may be realized in connection with future Subways. The sum total
of all the savings ,amounts to 7.5 cents per car mile, but as it may not be practicableto
secure the full measure of economy indicated as possible in each case, the total saving
may be taken at 6.5 cents per car mile. As a "contra" charge, it must be remembered
that a depreciation reserve fond should be provided for which at least 1.5 cents a car
mile must be :allowed, thus reducing the net saving to 5 cents per car mile; that is,
assuming that the above economies are effected, future Subways may be maintained
with a gross a.,eragc income per car mile from all sources of 19 cents, instead of 24
cents, as at present, on the assumption that no taxes are paid in either case.
J f future Subways are taxed upon the same basis as the present Subway, which,
when reduced to a car mile basis amounts to 0.12 of a cent per car mile, future Subways
would have t-0 earn 19.12 cents per car mile, instead of 19 cents, as above stated, but if
they weretaxed upon the same basis as the present elevated lines of the City of New
York are taxed, which, when reduced to car mile basis, is about 3 cents* pe.r car mile,
future Subways would have to earn 22 cents per car mile instead of 19 cents, as above
stated.
The above analysis means that had the difficulties of Subway construction and
operation been as well understood at the time that the present Subway was constructed
as they are today and the economies above suggested been then embodied, it could
have rendered more satisfactory. service with its present revenue, and furter that if
the above suggested economies are embodied in the construction of future Subways.
Including Franchise Tax which has not been paid.
 20

such Subw.ays may be constructed into somewhat less desirable territory than that
occupied by the present Subway and made self-sustaining on a fixed five cent fare.
Furthermore, it is feasibl.E:, ven if all of the above economies are not realized, to con
struct, operate and maintain Subways in certain localities within the congsted districts
of the City of New York and operate them upon a five cent fare,-but if to thse short
haul Subways is added the burden of a long haul into sparsely settled territory, such
Subways as a w.hole will not be sufficiently attractive to induce private capital to
construct nd operate them unless a fare somewhat higher than the present five cent
fare is allowed for the long haul passengers for at least a period of years, or until such
time as the local traffic builds up throughout the entire length of the Subway.
In. other words, it seems to me that as a .general proposition, these short haul
Subways cannot be divorced from the Jong haul feature and that consequently with the
1ctum upon the i11vcstme11t now required by Pri11ate capital there is 110w 110 field in New
York Cit)' for the co11st11,ctvo1i of a comprehmsive svstem of Subways entirely 1.tith
Prhatc capital 1mless the fare for the lo11g haul passenger is something more thaii the
presrnt five cciit fare.
If it were possible to establish a fare greater than five cents for the long haul
passenger, the solution to the problem would be simple from a railroad standpoint
although complicated and disadvantageous to the pul>lic, but since the five cent fare
is now the legal fare, t/re 1cal problem is how to get S1tbwoys a11d maintain this ffr,.c
cent fare.
In the solution -0f this problem certain methods which have been discussed in this
report seem open to me and they are briefly summarized in the following:

CONCLUSIONS.

1st: Raise all the money for the construction and equipment of such portions of
future Subways as can be shown to be profitable upon the City's credit and at the lowest
possible rate ,of interest.
2nd: For such portions of the system as are clearly unprofitable, let the territory,
the value of which is enhanced by the construction of the Subways, bear t.he burden of
the initial cost.
3rd: Eliminate taxes as is now done with the present Subway.
4th: Extend the refunding period for the retirement of the cost of Subways over
as Jong a period as practicable.
5th: Design the express stations of fhe main stems of such Subways upon the
reservoir principle so as to secure maximum capacity with minimum investment.
6th: Lay Ollt a comprehensive system of transportation and begin the construction
of Subways at the centre of the congested district and extend outward in order to get
the benefit of the short haul profits before assuming too much of the long haut burden,
and in connection with the short haul business investigate carefully the possibilities
of moving platforms for the local tracks.
 21

7th: Take advantage of specific cases where railroad companies desiring to secure
terminals, the indirect value of which to them is great, may be willing to contribute
largely to the cost of building portions of a comprehensive Subway system.
8th: Lease the operating privileges, under proper public supervision, to an oper
ating company upon the basis of an agreed compensation per car mile,-the number
of car miles to be operated, which is the measure of service, to be determined by
dividing the income from the traffic by the total cost of operating a car mile, the income
to be sufficient to provide for operating expenses, including maintenance, fixed charges
and depreciation, and leave sufficient margin to sufficiently compensate the operating
company so as to secure the highest class of skill and efficiency in operation.