Chapter XIV. How Railroads Rule

An early opportunity to take aggressive measures on the subject of railroad taxation presented itself. The county auditors’ board met in Cleveland in May, 1901, for the purpose of making a valuation of steam railroads whose roads ran through Cleveland and Cuyahoga county. I invited Professor E. W. Bemis, an expert on the valuation of public service corporations and the only such expert on the people’s side, to come on from New York where he was then located, and assist us in arriving at the true valuation of these properties. I attended the meeting of the auditors and insisted on being heard.

We had to get at the real tax valuation of the railroads running through Cleveland. Time and again I took Processor Bemis before the auditors. Our desire was to get them to place at least a sixty per cent. valuation upon these properties. As a rule they placed their assessment of railroad properties in exact accordance with the return given them by the auditors and land tax agents of the various railroads who made the returns on their respective properties at fifteen to twenty per cent. of their market value.

I attended a great many of these auditors’ meetings, trying to force them to put up the valuation to something like that which had been placed upon the property of small householders and other people. I frequently asked them to give me just a few minutes of their time, while my experts showed them how inadequately they were adjudging these valuations, and on one occasion went before the court in mandamus proceedings to compel them to give me a hearing.

I remember saying at one time in the discussion over the Cleveland Terminal & Valley Railroad, “I charge this fact, that railroad companies by distributing favors and passes are getting off with paying from about six to seven per cent., to about fifteen per cent. on their properties, while other property owners are taxed on the basis of a sixty per cent. valuation or higher.”

The railroads always had a claim agent or lawyer present at auditors’ meetings to swear in their “valuation.” I often asked the auditors and the representatives of the railroads: “Is there any reason why railroads should be assessed differently from farm and home property?’ but I never got an answer. On one occasion I said, “How do you auditors arrive at a valuation of five thousand five hundred dollars a mile for this railroad property? I claim that instead of being appraised at five thousand five hundred a mile it should be appraised at one hundred and six thousand dollars a mile.”

Auditor William Craig said: “Mr. Johnson, our members were not prepared for this. I think we had better postpone the hearing until to-morrow.”

Then the claim agent for the “Valley Railroad,” remarked: “yes, we should have twenty-four hours, at least.”

“You have had twenty-four years,” I retorted, but they took their twenty-four hours.

In the case of the Cleveland Belt & Terminal Railroad, Colonel Myron T. Herrick, afterward Governor of Ohio, then chairman of the railroad’s board and its receiver, was present when the auditors were about to pass upon the valuation of the road. The road’s written return placed the property at nineteen thousand six hundred and fifty-five dollars. J. E. Taussig, the assistant general manager of the Wheeling & Lake Erie, which owns the Belt Line, in handing over the report, said, “That’s all we have to say.”

Then I spoke up and told the auditors that this road was sold for four hundred thousand dollars. “You will remember, Myron,” I said, turning to Colonel Herrick, “how you and I tried to buy it about five years ago for five hundred thousand dollars, and we thought that was dirt cheap. And it hasn’t depreciated any since then, has it?”

“It isn’t earning anything,” answered Colonel Herrick.

“Well,” I said, ” the law says that property shall be assessed for what it is worth, not for what it is earning, and it is worth just what it will sell for.”

I then called upon one of my assistants who said the he had walked over the entire length of the road, measured the width of the right of way, and ascertained the value of the adjoining property. I then called upon another assistant, an engineer, who testified that he had measured the earth-work of the embankment of the road, and had estimated the worth of trestles, bridges, rails, etc.

“Now then,” I said to the auditors, “we demand of you that you assess this road at sixty per cent. of its actual value. If you assess it at nineteen thousand dollars, as this railroad asks you to do, and as it had been assessed in the past, you are taking money out of the pockets of the people and putting it into the pocket of the railroad, just as much as though you went out on the street with a club and robbed a man.”

At this point Assistant Manager Taussig interrupted to say that my assistant’s figure as to the number of acres was nearly twenty acres too high.

“All right,” I said, “if you acknowledge fifty acres, we’ll stand on that. Honestly, now, do you think nineteen thousand dollars is what this road ought to be returned for?”

“Based on its earnings, yes. You wouldn’t buy anything that wasn’t earning anything, would you?”

“My dear sir, that is the way I have made all my money – buying things that other people didn’t know how to handle.”

“You wouldn’t buy this for what you claim it was sold for, four hundred thousand dollars –?”

“Yes, I will.”

“That’s a bluff.”

“Is it a bluff? I will make a big cash deposit right here and take this road for four hundred thousand dollars.”

“You know this road is in such shape legally that it can’t be sold,” interrupted Colonel Herrick.

“And you wouldn’t sell it for anything like four hundred thousand dollars if that were not the case.”

At this point the railroad’s attorney spoke up:

“All this is nonsense and politics.”

“Politics?” I answered. “Of course it is politics. It is the kind of politics with which all the people of Cleveland -Democrats and Republicans – are in sympathy. They want to see these railroads pay their just share of the taxes, and they look to me, as the mayor of all the people, to do my utmost to see that it is done. That’s what we are here for, sir; we present figures and facts, and we challenge you to review them. You don’t try. You can’t. You run away. You say you only ask that you be assessed as other railroads are assessed; that you have precedent in your favor. Yes, you have precedent and you have the votes; you have the county auditors; and you have the auditor of this county.”

It was also at this meeting that I called upon Auditor Craig for some definite information about the bonds of this road, and he replied, “That was before my time.”

“I expected that answer,” I said. “That is what they all say. I have been here often, and I have seen roads assessed at fifteen to twenty per cent. of their value. I understand that the auditor of this county believes that railways should be assessed the same as farm lands, which is at sixty per cent. of their value. I want to know what the auditor will do, and what his method of assessment will be.”

The auditor answered: “I don’t know that I can tell that, or that I would care to.”

“Your answer is satisfactory. I am going to prove that you auditors simply guess. You don’t know whether or not you are buying a gold brick.”

In regard to the hearing before the auditors about the Nickel Plate road, I protested every inch of the way. When their attorney, who was present as the representative of the road, returned the value upon which the Nickel Plate road was to be taxed, I took their return and showed where the report was dishonest. It listed twenty-six first class passenger locomotives in fair condition at one thousand and five hundred and fifty-five dollars apiece; sixty-six first-class freight locomotive in fair condition at two thousand five hundred and nine dollars apiece. I charged that that was not fifteen per cent. of their real value.

“Here,” I said, “are six thousand box cars at one hundred and forty dollars apiece. We all know one hundred and forty dollars would not pay for half a truck under one end of one of these cars. Now I ask you again to call on this company to appear before you and explain.”

“Now, gentlemen,” I went on, ” the market value of bonds and stocks of the Nickel Plate company is about forty million dollars. As about forty-six per cent. of the road is in Ohio, it has over seventeen million dollars worth of property in this State. The law says you shall assess property at its full value in money and that included railroads, but as you have adopted a rule to assess property at only sixty per cent. of its value, I ask you to apply that rule in this case. I you apply this rule of sixty per cent., the Nickel Plate road will pay on about ten million dollars instead of three million dollars in Ohio as it had been doing and wants to continue to do.”

Then Auditor Craig called the other auditors into executive session and the attorney, who seemed to know how the vote would go, said: “Now we will see.”

I answered,” Oh, you’ve got the votes of this board of auditors all right, but you haven’t got the last say. We will put this matter up to the State board of railroad equalization at Columbus, and if it does not do the right thing we will put it up to the courts. And if we don’t get a square deal there, we will put it up to the voters of Ohio. The People will take this matter up finally and then the railroad will be brought to time.”

So thoroughly under the control of the railroads was this board of auditors that the railroad’s return was accepted. The result of all this demonstration was that the auditors raised the valuation of the road over what it was the year before less than one per cent.!

I put detectives on the trail of the auditors to find out exactly what relations they held with the railroad companies, but knowing they were watched, they did nothing more criminal than dine with the railroad’s representative and ride on passes. Frequently I tried to get them to let me address them, but they always voted me down. I got out a mandamus for force them to put railroad officials on the stand and make them swear under oath to the actual valuation which they returned in their tax lists.

When I asked for information, half a dozen auditors remarked, “Oh, pay no attention to him!”

I began to laugh and just then the sheriff arrived with the writ of mandamus and served it on the auditor.

“Get on to the grandstand play of this accidental mayor,” shouted an auditor named Sissler. “Let’s see what he’s got.”

After he saw what I had, he announced, “I guess we’ve got to stop.”

“That’s the first chance I’ve had,” I said.

“Yes, and it’s all you will get,” said Sissler. “We’re sick and tired of this —- nonsense.”

“So am I. What don’t you stop it?” I answered.

After this long session with these men I said to them:

“Gentlemen, you have succeeded in keeping the railroad taxes just where they were. You have but dammed up the courses that will eventually sweep over you. The time will come what you will be sorry.”

I carried this question to the people in two very aggressive State campaigns and always into the State conventions of the Democratic party. I showed the methods by which the railroads controlled county auditors. Railroad land agents were very active in nominating conventions before elections; and after election, in addition to giving auditors and their friends passes it was no uncommon thing for them to take auditors and their families to the seashore for the summer. These abuses were so evident and met with such universal condemnation when I called attention to them that a great many auditors fell into line, promised to be “good” and stood on our platform. It was noticeable, however, that we rarely found a majority of our fiends on any auditors’ board.

We appealed for a public hearing to the State board of equalization, composed of the Governor and several other State officers, which board had power to equalize the returns of the county auditors.

I took Professor Bemis and Attorney Newton D. Baker with me to Columbus to participate in this hearing.

This board tried to hide behind the statute. It claimed that it could do nothing in the way of raising the assessment on the railroads, saying that the country auditors levied the assessment and that all that the State board was for was to handle matters of “equalization.”

“Well,” said Mr. Baker, “suppose that the county auditors for some reason failed to return a road at all. What then?”

“We couldn’t do a thing,” answered the chairman.

“Suppose that they return a road for a valuation so low as to be ridiculous, and on its face not one hundredth part of what it should be taxed. What then?”

“We would not be able to do anything,” protested the chairman. “The statute says we shall equalize the values as returned by the county auditors.”

The total taxes to be paid by a railroad are divided among the several counties according to the railroad mileage therein. This often gives an agricultural county more taxes than a county in which there is a city where the railroad’s valuable terminals are located.

“Whether the plan of assessing railroad property by the mile is constitutional,” I said, “is a matter that the lawyers will have to decide. Certainly no man will say that it is just. It’s true that it benefits the rural counties in that it gives them money they are not entitled to – money that rightfully belongs to the counties in which are located the large cities. It was by that species of argument and powerful lobbies that the railroads secured the enactment of the law establishing this system. I am not here to attack that statute because it benefits the rural counties, but to complain because the boards of county auditors have failed in the performance of their sworn duties, and thereby robbed not only the counties in which are located the large cities but those in which our rural brethren live as well.”

“Perhaps the auditors did not know any better,” suggested Attorney General Sheets.

“Perhaps they didn’t,” I replied, “but those who met at Cleveland could not offer such an excuse. We told them better, and we didn’t ask them to take our word for it, either. We asked them to call in the railroad officials and demand their books and see for themselves, and we ask this board to do the same. We do not ask you to accept our statements alone. We have pointed out the facts and have told you how you can find them for yourselves. I think the boards of county auditors combined are very much like other public bodies. Some of the men are honest, some are fools and some are rascals. I do not know of a public body that is constituted otherwise, from the Senate of the United States down.

“Now suppose this board,” I said, turning to Mr. Sheets, “refuses to equalize these appraisements by assessing all the roads at sixty per cent. of their true value in money, what remedy have the people? None. If you do not do your duty there is no higher body to which the people can appeal. But that is not true of the railroads. If you exceed your powers by the fraction of an inch, the railroads will at once appeal to the courts and have it corrected. The supreme court will undo any illegal act that you may do, but it will not do any legal act which you should have done. I do not know what you will do, but I do know that there will come a time when the people will find a way of making the great steam railroads and other corporations carry their just share of the burden of taxation.

“The big corporations get all the benefits of the present method of assessment. How? By influencing auditors, by influencing legislators, but influencing courts and by influencing elections. Let us take off the mask and be frank with each other. I say that no auditor or other official who has a railroad pass in his pocket or who accepts other favors from these corporations is a fit man to say how much of the tax they shall pay. Some men may be above these influences, but among those who compose the boards that have to do with the question of taxation in Ohio, I doubt if there are many. Why, gentlemen, this business of extending favors to public officials has even gone so far as to reach your august body. Two of you accepted the invitation of a certain railroad official to take a long trip in a private car to California. I hope it did not influence you.”

The board turned a deaf ear to our pleadings. Our next appeal was to the supreme court whither we were followed by the excited attorneys for the railroads. We petitioned the court for a writ of mandamus compelling the board of railroad equalization to review the entire case and appraise the railroads at a fair valuation. If the supreme court had decided in our favor the State board would have had to reassemble and add about two hundred and seventy million dollars to the valuation of steam railway property in Ohio. Such an addition would have increased the tax receipts in Ohio from steam railway property along about four million dollars.

Our petition was denied. The supreme court referred us to the legislature. The railroad lawyers followed us and here again, with the assistance of the railroad lobby, they blocked our every move.

The increase in the tax rate which resulted from all this effort was so slight that if we had accomplished nothing but that, we might well have felt that it had not been worth while to try. The agitation then started, however, had been going on ever since and will continue, I am confident, until the things we started out to do have been fully consummated.

Some definite progress has been made for the county auditors’ tax boards have been abolished and in their stead there is a State tax board which fixes the valuation of steam railroad property including franchise values. Two cents a mile is now the legal rate of fare on Ohio railroads, and it is significant that the railroads did not even attempt to have the law declared unconstitutional. The pass is prohibited by law and State and local officials no longer ride free – at least not openly.

I have gone into detail about this matter of railroad taxation simply because it shows clearly how farcical, how unjust the whole scheme of taxation is as applied in this country to-day. The very officers you elect – the auditors, attorneys-general, and so on – refuse to obey even the letter of the law, refuse to do their duty by you, with the consequence that these men you put in office simply put that much more burden on your pocketbook. If, for instance, these railroads had not been able to corrupt these officials of the State and had been compelled to pay their just and due taxes to the State and Cleveland had received her share of this tax money lawfully due her it would have lightened the indebtedness of every citizen in Cleveland: public works of all kinds could have gone forward without any financial setbacks, city and citizen alike would have felt the benefits. But no. The railroads lied, the auditors winked, the people were cheated and the money stayed where it could do the least good and the most harm – in the pockets of Privilege. And this sort of thing is going on every day of your life in your own cities, out through the counties of your own States, in the shadow of your State houses and under the dome of the national capitol.