Santa Fe Today (1946)
The Valuation Department
The valuation section of the Santa Fe's engineering department, under the supervision of system valuation engineer, has for its prime responsibility the Santa Fe’s compliance with orders of the Interstate Commerce Commission in connection with Section 19a of the Interstate Commerce Act of March 1, 1913. Section 19a of that act requires all common carriers to render specified reports to the Commission, informing the latter of physical changes in the common carrier properties, including not only the property used in common carrier operations but also other miscellaneous physical property owned by the carrier, the costs associated therewith for additions and retirements, and the yearly changes in price levels and values of railway properties.
The system valuation engineer is assisted in that considerable task by an engineer of inventories and a cost engineer, located at Chicago, and by a valuation engineer and staff located on each of the Santa Fe’s four grand operating divisions, each of whom reports jointly to the grand division chief engineer and to the system valuation engineer.
In matters pertaining to valuation of shop machinery and equipment, the system valuation engineer has close co-operation with the mechanical department through the mechanical valuation engineer at Topeka. In land valuation matters he gets assistance from right of way agents who report to chief engineers on the grand divisions.
The Congress, through the Interstate Commerce Act of March 1, 1913, required the Interstate Commerce Commission to.”--investigate, ascertain, and report, the value of all property owned or used by every common carrier, subject to the provisions of this part, except any street, suburban, or interurban electric railway which is not operated as a part of a general steam railroad system of transportation.”
Development of American railways had been rapid, so rapid that prior to the Commission’s survey, an up-to-date inventory of railway properties, and a determination of their value, was not available. Construction and improvement records not only were meager but were widely scattered. There were no uniform accounting regulations. Changes in railway ownership were frequent.
The Commission's inventory involved the listing and measurement of all bridges, buildings, tracks, telegraph lines, power plants, tunnels and roadway facilities; and the listing of all engines, cars and machinery of all kinds (see mechanical valuation engineer) and an inventory of all existing records, both accounting and historical.
In addition to inventories of the fixed and movable railway properties, there was involved an examination of land records to determine the extent of the railway's ownership or use of land for right of ways and terminals; the determination of costs of railway construction as of the date of the inventory; and all facts with respect to organization, operation and corporate relationships.
The inventory task required ten years. The Santa Fe furnished a pilot and necessary records for each I. C. C. party and facilitated the movement of those government forces over its lines, assisting with the inventory. All Santa Fe property, including roadbed, track, structures and land, was covered.
During the inventory period, the valuation department made a complete check of the Commission's inventory, advising the government forces of omissions and errors. The valuation department also furnished information required under the various I. C. C. orders (such as schedules showing area, date acquired and original cost of all land owned by the carrier), and prepared numerous cost and valuation studies. That assistance amounted substantially to an independent valuation of the property and was of use in pointing out instances where values placed by the I. C. C.'s valuation bureau were considered inadequate.
As a result, a large percentage of Santa Fe claims for increase in value was satisfactorily adjusted in conference with the bureau's district office. Other claims were adjusted at an informal conference held with the bureau of valuation in Washington. A few claims were formally presented to the I. C. C. by the Santa Fe's law department.
To enable the bureau of valuation to perpetuate the value of inventoried railway properties, the carriers were required, under the provisions of I. C. C. Valuation Order No. 3, to report annually all additions and retirements made since inventory date. The valuation engineer does that reporting for the Santa Fe system lines. The Los Angeles, Amarillo, Topeka and Galveston valuation engineers transmit completion and other reports to Chicago for that purpose. Grand division valuation engineers retain copies of completion reports, field closeout notes, and other basic data. Those are filed for reference purposes and are readily accessible to I. C. C. examiners when they call to check order No. 3 returns on each Santa Fe grand division.
Another requirement of the Interstate Commerce Act is that the Commission keep itself informed of current changes in costs and values of railway properties. That has been interpreted to mean that the Commission will collect data currently to show the changes or trends in costs of the construction of railway facilities. Carriers are required to report annually to the Commission the cost of the more important items such as rails, ties, ballast, lumber and other construction materials; also to furnish evidence of labor costs as reflected by contracts for performing different kinds of construction. Joint committees of railway valuation representatives co-operate with the bureau of valuation on suitable trends in the cost of railway construction.
In recent years, the railways have been forced to pay more attention to equitable adjustments of taxes levied by state commissions and other tax authorities. That has required more detailed information regarding the physical property of the railways within each taxing district. In some states, tax laws have been modified to require a great amount of detail, broken down by counties, school district, drainage district and other subdivisions where separate tax rates were needed for local improvements. The work of getting satisfactory adjustments and of furnishing the details required by the modified tax laws has been aided, to a great extent, by the system of records which have been built up by the valuation department.
Those records also enable the valuation department to furnish, currently and readily, annual statements of costs and values of the Santa Fe's physical property, necessary for the property tax adjustments and for insurance schedules, depreciation schedules on road and equipment, and for accounting and income tax purposes.
The valuation department also furnishes numerous statements of quantities, costs and appraisals of land and improvements involved in leases, purchases, sales, mergers, lawsuits, traffic agreements and retirements, abandonments and other matters.
The recording of property changes on individual facility records--track, bridges, buildings, signal and telegraph, grade crossings, protection work, and right of way fence--provides a record of the I. C. C. inventory and of all changes made since valuation date. Main track is recorded by individual miles and side tracks are recorded by individual tracks and station location. Buildings are recorded by individual structures at each station. Bridges and grade crossings are recorded by individual facilities and mile post location. Protection work and right of way fence is recorded by individual miles. Signal and telegraph work is recorded by valuation sections with charts from which the units and cost for any specified location readily can be obtained.
Those records are used continuously in the furnishing of retirements (out of service) and have greatly facilitated and reduced the cost of that work. They have also proven of value in connection with rate hearings, joint facility contracts, and all other work where investment cost or estimated value of the company's property at any specified location or within any specified limits is required.
When land values are required for short term leases, the valuation engineer usually is in a position to furnish them from office records. With long term leases, special field investigations often are necessary before accurate values can be furnished. The valuation department furnishes values for establishing rental rates on structures or portions of structures leased by the Santa Fe to outside parties, and values for proposed sale of structures no longer required for Santa Fe purposes.
Special work of the valuation department includes requests from other Santa Fe departments for value, cost, statistical information or historical data required for specified purposes. Records are maintained of important construction contracts, and abstracts are furnished as desired for cost trend studies. Schedules of land changes are furnished for correcting chief engineer's maps. Joint facility information is furnished general manager, auditor and many others.
Records maintained in the system valuation office enable that office readily to furnish a statement showing by accounts the I. C. C. reproduction cost new, as reported in the I. C. C. Engineering and Land Reports as of valuation date, plus net additions and betterments to any date desired, for the system as a whole, or for property located in any of the states traversed by the Santa Fe. When a detailed reporting is required, such as under the ad valorem form of taxation in California, the required information is prepared from map and facility records on file in the district valuation offices.
Reporting to the State Board of Equalization under the ad valorem form of taxation requires the preparation of land identification maps for each county showing all land in which the Santa Fe has ownership or which is wholly used by them, each parcel outlined in red and assigned a parcel number; and the preparation of tangible property lists for each county, segregating the property to code areas. A code area is the designation given to any portion of the county that is subject to the same combination of tax rates, and are assigned code numbers by the State Board of Equalization; and the preparation of summary statements showing the cost by accounts of the property in the state as a whole, and the cost per mile of road and track accounts for the various classes of track, which summary statements are used by the State Board of Equalization in placing an assessed value on the property located in each county.
Effective January 1, 1942, the I. C. C. instructed all Class I railways to establish depreciation accounting as a basis for current charges to operating expenses for the loss on roadway property furnishing transportation service. That order necessitated a determination of the original cost (effective date of the order), for each class of property having a different service life expectancy, and the determination of the rate at which each class of property would become obsolete or unserviceable. The system of records kept by the valuation forces made it possible to develop, with a minimum of expense, the information needed for compliance with the depreciation order. The records enable the Santa Fe to keep depreciation schedules on a current basis and to make future adjustments in the rates of depreciation in line with changing conditions.
The valuation department prepared schedules of property and costs of facilities involved where Santa Fe lands, buildings or tracks are rented to industries or to other railways. The rent charges must be compensatory. Accurate knowledge of the property involved, its cost, condition and value for the purpose intended, must be available. The valuation engineer, with authoritative records and necessary experience, determines those facts. Similar situations arise when the Santa Fe desires to buy property from another railway or from individuals;. or the Santa Fe has purchased or is purchasing properties from other railways. That applies also to sales of land or facilities to others.
Whenever the Santa Fe desires to merge some of its separately owned properties under the ownership of another company, it must obtain the approval of the I. C. C. The application for such permit must be accompanied by considerable information, including schedules of the property involved and its original cost to date as established by the bureau of accounts of the I. C. C. Similar procedures are necessary to obtain permission to abandon a section of the Santa Fe for which there is no further public need.
Valuation records usually form the basis on which valuation engineers reach satisfactory agreements in connection with joint facility arrangements or trackage agreements between the Santa Fe and other railways. The making of such agreements, or their renewal, regularly require schedules of the property involved, its cost, physical condition and present value.
Railway accounting for many years has been rather closely supervised by the I. C. C. In the perpetuation of investment in road and equipment, all changes involving additions, improvements, and retirements are reflected in the investment in road and equipment accounts. In connection with retirements, the cost of property abandoned or replaced in former days was often not known. Before Federal valuation, such retirements in many instances had to be estimated, requiring in some cases field investigations or inventories, and estimates of original costs that were expensive to make, drawn out and often inaccurate. All retirements are now determined from valuation records for both accounting and valuation purposes--more readily than under the old system prior to valuation.
World War II created extensive work in negotiating settlements with the United States government for Santa Fe properties taken under the War Emergency Act for the construction and expansion of shipyards, housing projects, ordnance depots, army camps, naval bases and training fields. Much of that activity was handled by the Santa Fe's engineering department. The grand division valuation engineers furnished the cost and estimated value of the property involved and met with the government valuation representatives for the purpose of reaching an agreement on the value of property taken.
Details of the work of the grand division valuation engineers include the review of the accounting involved in several thousand engineering estimates each year for work on improvement programs for annual budgets. This review is made jointly with other forces in the engineering department who make a check of the engineering features in these estimates. Not only must the structural features of the proposed work be on a sound engineering basis, but the division of the costs between operating expenses and capital costs must be estimated in accordance with the accounting rules of the Interstate Commerce Commission.
When the work proposed by these estimates is done and the charges are recorded in the accounts, completion reports must be prepared for each and every project. The audit office furnishes a record of the costs charged to the work and a copy of all the accounting documents to the valuation engineer. The foremen on the work prepare reports of the materials and labor used and the field engineers prepare field close-out notes showing the structures or facilities constructed or retired on the projects. The field notes are also used by chief engineers to correct maps and other engineering records.
These reports and notes go to the valuation engineers to be checked against each other and compared with the accounting documents. With the data thus accumulated the valuation engineer's staff prepares the completion reports. Any discrepancies in the accounting performed, or inconsistencies between the materials used or the labor performed and the costs charged to the work, have to be reconciled and adjusted. On the completion reports the valuation engineers list the units to be reported as required by Valuation Order No. 3 and the costs applicable thereto, for work charged to investment. For important buildings the cubage (cubical content) must be given, and for signal and telegraph work the installations are reported in terms of adjustment units, a term peculiar to that kind of work, the determination of which requires cooperation with the signal and communications departments. For land the reports must show grantor, grantee, deed reference, area, map and parcel reference and the cost. For retirements of property, except for retirements made in betterment work, the valuation engineers furnish details of units and costs for the preliminary budget estimates and also for the completion reports.
Some valuation tasks require many months of detailed investigation and computation with a sizable force of engineers and computers involved. Applications for certicates of public convenience and necessity on proposed line extensions require field surveys and the preparation of costs, values, historical facts and other data, which the valuation department assists in preparing. Cost schedules, construction dates and classifications of road property for depreciation purposes are necessary when subsidiary lines are merged with the Santa Fe.
The construction of joint terminal facilities, depots, yards, tracks and other necessary facilities, embodies a great deal of detailed investigation and preparation. When the Santa Fe participates in such endeavors, the valuation department assists in the very considerable task of ascertaining the Santa Fe's overall position in the matter in relation to costs, land values, condemnations and other factors.
Valuation department records embrace countless historical facts. Almost daily someone desires to know when a particular Santa Fe development took place, why it took place and details in relation thereto. That same request may concern the date a bridge was constructed, a track, a branch line, or the development of a terminal. Questions frequently arise as to why the Santa Fe built through a certain community and why it built near and not through other communities. Those questions are logical and the valuation department usually can supply definite answers.
Santa Fe history is replete with interesting facts and Santa Fe executives and departmental heads, also the press and public, often desire to know when certain incidents took place and the details behind them. The broad operations of the Santa Fe and its near eighty years of operation, embracing as it does the development of much of the Southwest and the growth of national commerce on its present grand scale, involves many details not commonly known.
Many of the valuation department's assembled historical facts are in bound volumes, known as "splinters" of Santa Fe history. There is scarcely any Santa Fe development or construction of any scope, the details and facts concerning which are not included in the valuation department historical archives. If it were not for the interest displayed in Santa Fe history by members of the valuation department, much of that valuable information would have gone unrecorded.
The system valuation engineer participates in conferences of the bureau of valuation, Interstate Commerce Commission, at Washington. Those conferences, held several times yearly, concern valuation proceedings, development of prices, valuation trends, depreciation rates and bases, and related matters. The system valuation engineer is a member of committees within the Association of American Railroads.
These committees deal with valuation matters other than prices or valuation trends. The western group of railroads has an organization of cost data subcommittees serving under the direction of a general engineering committee. The system valuation engineer is a member of the engineering committee and serves on several of the subcommittees. These subcommittees assemble and analyze cost data and reach conclusions as to changes in prices or trends in costs of railroad construction work. They have annual conferences with the bureau of valuation, Interstate Commerce Committee, at Washington, resulting in joint committee reports which are distributed to all railroads for general reference.
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