Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 5, 1898

Mr. Noble to Mr. Sherman.

Chicago, May 20, 1898.

Sir: I have the honor to submit herewith my report on the value of the Ozama River Bridge, in Santo Domingo, and the award of value in favor of Henry W. Thurston.

The following extract from my certificate of appointment sets forth the scope of the duty assigned to me:

* * * In pursuance of an agreement heretofore made between the Government of the United States and the Dominican Government, Mr. Alfred Noble, of Illinois, has been appointed an engineer to survey the Ozama River Bridge at Santo Domingo City, in the Island of Santo Domingo, and to assess and award the value and amount to be paid by the Dominican Government for said bridge and the franchise and concession therefor, in pursuance of the terms of said agreement.

* * * * * * *

John Sherman.

In the performance of this duty I took passage from New York on the steamship New York Wednesday, March 16, and arrived in Santo Domingo City Sunday, March 27. I was received by President Heureaux on the following day, and immediately afterwards proceeded to make a minute survey of the bridge. The claimant was represented during the survey by Mr. John Lyon, who has been in charge of the bridge for the claimant since 1891. I obtained from him such pertinent information concerning the bridge as he could furnish. On Thursday, March 31, having completed the survey, I waited on President Heureaux, and heard his statement of the case for the Dominican Government. I left Santo Domingo City Saturday, April 2, and arrived at New York Wednesday, April 13.

Since returning to the United States I have been obliged to devote a part of my time to the work to the Board of Engineers on Deep Waterways; the remainder has been occupied in an examination of data and the preparation of this report.

The claimant presented for consideration an item for the estimated amount of the tolls which he might have collected in 1891 if he had been permitted to open the bridge to traffic. It does not seem to me that this can be included in the present arbitration.

I have followed strictly the instructions of the Department to award the value of the bridge and franchise December 20, 1895. Under the terms of the agreement between the United States and the Dominican Government the claimant is to be allowed interest on the amount awarded from December 20, 1895, to date of payment. It may be proper to point out that the claimant derived benefit from the bridge by the collection of tolls for a subsequent period of thirteen months and eleven days. The rejected item mentioned in the preceding paragraph may be considered a partial offset to this. A further offset may be found in the claim for tolls from police, military, and postal employees from the opening of the bridge to December 20, 1895, which, however, is expressly excluded from the present arbitration.

Two copies of the report and award are inclosed, one for the Government of the United States, the other for the Government of Santo Domingo.

Very respectfully, etc.,

Alfred Noble.

Report of the Value of the Ozama River Bridge and Franchise, December 20, 1895.

This claim arises directly from the seizure by the government of Santo Domingo City, under an order of the supreme court of the Republic, of a highway bridge, built by a citizen of the United States across the Ozama River within the limits of the city, under a concession from the city government to construct said bridge and collect tolls thereon. For a clear understanding of the claim and of the award herein to be made it is necessary to present a brief description and history of the bridge.

At the bridge site, which is 3,300 feet above the mouth, the river has a width of about 500 feet. During the dry season the current in the river is mostly tidal, but as the tidal range is only about 11½ feet the current at this season is not great. When the tide flows in the water at the bridge is salt. During the wet season the floods are severe, and the river, which flows through a forested country, carries much drift.

Under date of September 13, 1887, a contract, referred to hereinafter as the first concession, was entered into between Nathaniel McKay, of the city of New York, of the first part, and the city of Santo Domingo, of the second part, by which McKay agreed to build a highway and foot bridge across the Ozama River and open it to traffic before June 30, 1888, subject to certain conditions as to extensions of time allowed for building, and also to certain specifications as to character of construction. In return McKay was given exclusive right to collect tolls for crossing the river for the term of thirty years, paying a part of the receipts into the city treasury. No provision was made for any control by the city over the schedule of rates of tolls.

It was required by this contract that there should be an “extension” draw of 51 feet span at the middle of the bridge.

It was expressly stipulated that at the expiration of the term of thirty years the bridge should pass to the municipality and should be received in perfect state for use.

The plan of bridge adopted and finally carried out provided for the draw span as above noted, and also for eight fixed spans of 51 feet each and two spans of 26 feet each, the last-named forming the shore ends of the bridge. Preliminary borings in the bed of the river appeared to indicate the existence of bed rock 30 to 35 feet below the water’s surface; the rock showed above the water surface on both banks within 100 feet of the river.

The shore abutments of the bridge were of rubble masonry covered with a plaster of Portland cement mortar. Each of the piers in the river was formed of two iron columns, about 10 feet square, sunk vertically in the river bed at a distance apart of 18 feet, measured perpendicular to the bridge line. The concession required these columns to be sunk to bed rock. After sinking, the two columns of a pier were connected by a strong iron cross frame above water, supplemented by a lighter bracing extending several feet below water.

The spans next the shore are plate girders, each span having a clear length, measured from the face of the abutment, of 26¼ feet; the eight fixed spans (each 51 feet long) between the shore spans and the draw span are lattice girders.

The draw span, as originally designed, was to be a plate girder span of about twice the length of the opening which it was to close. To open it it was to be run on rollers endwise over the adjoining fixed spans. In order that the overhanging end should not topple down when the span was being moved the opposite end was to be heavy enough to act as a counterweight. This made the draw span a heavy one. While it was being erected, with the greater part of its weight resting upon the pier on the west side of the drawspan opening, the pier began to sink into the river bed, showing that the points of the columns had not reached solid bed rock when the piers were built, and showing also that the original borings by which, it was supposed, the surface of bed rock had been located, were worthless.

In consequence of the delusive character of the preliminary borings it became necessary to lengthen the columns for several piers and sink them deeper. It was also necessary to devise a lighter span for the draw opening, in order to reduce the weight on the foundations of the adjacent piers. The new span was constructed in the shops, sent to Santo Domingo, and erected in 1891. It was really a fixed span of peculiar form, the lower chord being higher at the center than at the supports, giving more headroom for tugs and barges. It filled the requirement of reduced weight, but was objected to on the ground that it could not be opened quickly. This span was in place and the bridge was ready for traffic in September, 1891, but the city refused to accept the new span, and demanded one by which the draw opening could be cleared quickly.

In the meantime the contract and concession for the erection of the bridge had been declared void and a second one offered. The second concession was less favorable to the owner in some important respects: First, the city’s proportion of the net proceeds was increased to 25 per cent; second, the term “net proceeds” was defined as “the balance of the toll after deducting the salaries of those employed in the administration and collection” of the revenue, permitting no deduction from gross receipts on account of cost of maintenance and fixed charges before making the division; third, the city council had authority to fix the rates of tolls, or, in the language of the concession, to “control” the revenues; fourth, the city retained the right to demand a new draw span which could “be easily opened when required to allow vessels to pass.” Of these several modifications of the original concession the third was by far the most important. This concession was accepted by Mr. Henry W. Thurston, to whom the title to the bridge had passed from McKay through the New Jersey and Santo Domingo Bridge Company. This acceptance was made effective January 4, 1892.

In conformity with a requirement of the second concession, the owner ordered for the draw span a bascule lift bridge and machinery for operating it. It was manufactured and erected, and about November 1, 1893, final acceptance of the bridge by the city was asked by the owner. Some delay followed, caused by a dispute as to the nature of test the bridge should be subjected to, which was finally adjusted by opening the bridge to traffic during the month of February, 1894, and the bridge sustaining this without injury, it was accepted and the owner began collecting tolls March 1. The tolls during the mouth of February, while the test was being made, were by agreement retained by the city.

The schedule of tolls to be collected by the owner was by the city. Soon after the opening of the bridge free passage was claimed for sundry persons connected with the National Government, such as members of the police force, soldiers, and postal employees. The agent of the owner, unable to collect tolls from these persons, protested to the city government, which declared its want of authority to intervene, and referred the question to the national executive. On the 19th of October, 1894, the city issued a new schedule of tolls, but in this act assumed the authority which it had before repudiated and declared the bridge free to police, military, and postal employees. The owner, however, kept an account of this traffic and has submitted a statement of its amount month by month.

In September, 1894, a loaded lighter, lying some distance above, broke from its moorings and drifted against the bridge, inflicting some damage upon it. It is not pertinent here to follow the details of the ensuing litigation; it resulted in a judgment against the owner of the bridge for the costs of the suit and practically outlawed the structure. This judgment was given December 20, 1895. The owner declining to pay these costs, the revenues of the bridge for the term of two years were sold under order of the supreme court, and the purchaser was put in charge of the collection of tolls February 1, 1897. The owner then presented a claim to the United States Government against the Government of Santo Domingo for the cost of the bridge and interest. This has resulted in an agreement between the United States and the Republic of Santo Domingo for the appraisal of the bridge and its purchase by the latter at the appraised value.

The owner has submitted sundry papers, of which the most important are:

• First. A detailed statement of amounts paid out on acceunt of the bridge from the inception of the enterprise to December 20, 1895.
• Second. A statement of daily receipts from tolls from March 1, 1894, when authorized by the city to begin collections, to January 31, 1897, when dispossessed by the Government of Santo Domingo, a period of two years and eleven months.
• Third. A statement showing amount claimed to be due for passage of Government employees from whom no tolls could be collected.
• Fourth. Estimate of probable receipts from tolls during the life of the franchise.

From the city government of Santo Domingo, through the President of the Republic, a statement has been obtained showing the receipts from tolls by months from March 1, 1894, to January 31, 1897, the expenses of administration and collection which were deducted, the proportion paid to the city treasury, and the proportion retained by the owner. This statement checks closely as to receipts from tolls with the statement furnished by the owner, excepting during the first few months, and the difference during this period is not material.

The problem of determining the value of the Ozama River Bridge and franchise is of the same nature as those which frequently arise when works for supply of water to a city, built and operated by private capital, are to be bought by the city and become public property. The treatment proper for such a problem depends in great degree on the peculiar circumstances of each case, but in general one of two methods is followed.

First method.—The value of the plant is sought without regard to earnings. This may be determined (a) from its actual cost, with allowance for depreciation, or (b) from the estimated cost of a similar plant to replace it.

It is urged in favor of the determination from actual cost that this is the investment on which returns must be paid, and is therefore the only just basis; but in order that this should be equitable the works must have been built skillfully and economically, and must have been of a sufficiently durable character to fulfill their purpose without involving undue expense for maintenance. If the cost of works were augmented by poor design or wasteful construction it could not be held that their value was enhanced thereby, but the real value would be less than cost. The statements of cost should therefore be scrutinized closely, and the amount adopted as the value of the works should exclude those charges which would have been avoided by the exercise of ordinary engineering skill and business management.

In opposition to this basis of estimating present value it is argued that the true value is the cost of duplicating the works under present conditions. This is likely to be less than original cost by reason of the experience gained in the original construction, as well as by recent progress in the art, and the almost constant tendency to lower prices. This argument is used to justify the lowering of rates of toll (where the party granting the franchise has the power) on the ground that the depreciation of value should have been met by higher rates in the earlier years of the franchise. This reasoning has force when applied to the purchase of a franchise which has been enjoyed for a long time and is about to expire, thus leaving the field open to competition; or when, as often occurs, the franchise does not give exclusive rights. In the present case the right is exclusive and the life of the franchise has just begun. This protection is an item of value, and must be so held in an estimate of the present value of the bridge.

Passing for a moment the rights of the owner under the franchise, it is evident, from a consideration of the equity of the case, that the value of the Ozama River Bridge should be based on necessary first cost and not on present cost of duplicating the structure. The only justification for the latter basis is the one already given, viz, that rates should be high enough from the beginning of the franchise to cover the kind of depreciation due to increased knowledge and better methods of construction. It is a complete answer that the owner has had no control over the rates—they have been established solely by the city council and have afforded him no compensation for this depreciation.

For these reasons I hold strongly to the opinion that, if the valuation of the bridge is based on what is here called the first method, it should be on actual necessary cost and not on cost of duplication.

Second method.—The valuation is based on earning capacity. Deductions are made from the gross earnings to cover cost of operating and maintenance and to provide a sinking fund for the repayment of first cost of the works to the owner at the expiration of the franchise when such provision is necessary. The remainder constitutes the true net earnings. This, capitalized at the customary rate for investments of this class, gives the value of the plant and franchise. In determining the amount required in the sinking fund, the amount that can be realized from the sale of the plant at the expiration of the franchise is to be deducted from first cost.

Logically, the second method is the correct one. If its several elements are determinable, it gives the actual amount the owner would receive under the franchise, and hence solves the problem directly and exactly. Unfortunately, many uncertainties may be involved. In the first place, if the business is a growing one, it is difficult to make an estimate of its probable growth. If this can be arrived at satisfactorily, the larger future business may require an extension of plant. Second, the cost of maintenance, which is here taken to include not only ordinary repairs, but also to include renewals when necessary, is often difficult to estimate; and, in the third place, the amount that can be realized by the owner for the plant at the expiration of the franchise is extremely uncertain. In some cases, however, these uncertainties are small and the method becomes peculiarly applicable.

An interesting application of this method was given recently in the acquisition by the United States Government of the locks and dams on the Monongahela River, in the State of Pennsylvania, where all the conditions were unusually favorable for the determination of value by this method. These locks and dams had been built by the Monongahela Navigation Company under a charter granted by the State of Pennsylvania empowering it to establish a slack water navigation and collect tolls from passing boats. This franchise became valuable, the annual net earnings being about 12 per cent of the entire cost of the improvements.

Congress first sought to obtain title to the improvements by condemnation without consideration of the right of the company to collect tolls, but the United States Supreme Court decided that Congress could not deprive the navigation company of its right to compensation for its franchise, and the case was remanded for a new trial. When it again came up in the local court viewers were appointed, by whom the award was made solely on the basis of the capitalization of the net revenue. The cost of the works did not enter as an element in making up the award. This basis of valuation was accepted by both parties, the only dispute being as to rate of capitalization, the company demanding 4 per cent, while the viewers granted 5 per cent. The award was accepted by the company without further litigation. In this case the net revenues used in the valuation were the average of those for the five years immediately preceding the award. The amount awarded was largely in excess of the cost of the improvements.

The conditions of the case just cited were particularly favorable for a determination of value by the second method. The charter of the navigation company was perpetual, its business had continued for a long time and had nearly reached a fixed state, and, finally, the rates of tolls were not subject to regulation by the adverse party in the dispute. The charter being perpetual, the cost investment was permanent, and no sinking fund was required to provide for its payment. For the same reason there could be no salvage on the plant at the expiration of the franchise. The business having existed for a long period, it had become well established and the earnings could be estimated with less than the usual degree of uncertainty.

The case of the Ozama River Bridge differs from this radically. The bridge is to be delivered to the city at the expiration of the concession and a sinking fund must be provided to repay entire cost when the concession expires, the business has not been long in existence and its future growth is more doubtful, and, finally, the rates of toll are subject to control by the adverse party in the dispute. These conditions render the determination of value from net earnings less satisfactory than in the case just cited.

In the application of either method to the Ozama River Bridge case it is required to determine necessary first cost; in the first method this is required to ascertain present value; in the second method, to determine amount of annual payment into the sinking fund. The necessary cost, therefore, will first he sought.

estimation of value from cost.

The claimant submits a detailed statement of expenditures from the inception of the enterprise to December 20, 1895, amounting to $66,540.34. The bridge was accepted by the city March 1, 1894, and the collection of tolls by the claimant commenced on that day. Expenses incurred after that date should not be charged to construction, but to maintenance. Excluding the items which thus appear chargeable to maintenance, the cost, as per claimant’s statement, is $64,388.71.

This statement of cost is only partially supported by vouchers. My investigation, however, convinces me that it is substantially correct, but it must be examined to ascertain whether it embraces items that should be excluded from an equitable determination of value as improper or unwise expenditures.

The only expenditures which from their nature may appear of questionable propriety are the payments to H. C. C. Astwood for obtaining the concession, securing the final acceptance of the bridge, etc. These payments amounted to $2,440. When the concession was obtained Astwood was the United States consul at Santo Domingo City. There may be question whether the representative of the United States could properly engage in this enterprise, but in my opinion this does not affect the validity of the owner’s claim for repayment. The cost incurred in obtaining a concession is in its nature a legitimate item of expense, and the same may be said in regard to the employment of a representative to secure its final acceptance. As to the amount that may be thus expended, the presumption must be that the owner employed the most effective assistance and on the most reasonable terms practicable. If the amount paid were clearly excessive, for the service rendered, the presumption would be overcome and the propriety of including it in the valuation of the bridge would be in question. It does not appear to me that this is the case, and it is therefore included in the valuation.

Passing to the consideration of expenditures unwise from a business point of view, it seems to me that all expenditures connected with the first draw span should be excluded from the valuation for the following reasons:

The first concession (under which this draw was built) contained the following clause:

“Second. The columns” (of the pier) * * * “must be placed over solid stones or coral on the bottom and under the mud of the river.”

The awkward phraseology of this specification is probably due to the translator; but the meaning is clear that the columns composing the pier were to be sunk to bed rock. When the draw span was put in place the supporting pier was unable to sustain it, but settled several feet into the bed of the river; this was due solely to the fact that the columns had not been sunk to bed rock. A new and lighter span had to be provided for the sole and only reason that the foundations would not support the weight of the first one.

The owner having undertaken to sink the columns to bed rock, he should have ascertained in advance of construction the depth to bed rock at the site of each of the piers. The necessity for this is so well recognized by engineers, and in fact is so obvious to anyone, that failure to do so carries with it responsibility for the sesults. It is true the owner had so-called borings made, and items for their cost appear in the claimant’s statement. He may have supposed and probably believed that the position of rock surface was determined by them, but he was responsible for the inefficient work of his agents and can not justly charge resulting expenditures to anyone else.

The last paragraph of the fourth clause of the first concession reads as follows:

“The whole of the construction of the bridge must be done in accordance to the plan which is annexed to this agreement.” * * *

It is understood that the draw span was shown on this plan and its design thus accepted by the city. It is contended, therefore, that the concessionee was not responsible for its failure. This contention does not seem to me valid; the failure was not in the span but in its supports; the necessity for replacing it was because the columns had not been sunk to bed rock as required by the second clause of the concession. If they had been sunk as required by this clause there is no reason to doubt that the draw would have answered its purpose.

The fact that a general plan of the bridge was referred to and approved in the fourth clause of the concession did not relieve the concessionee from the specific obligation of the second clause to sink the columns to bed rock. There is no evidence that the plan referred to in the fourth clause indicated in any way the position of bed rock there is no evidence than any borings had been made previous to the date of the concession, but there is indirect evidence to the contrary in the appearance in the statement of cost under subsequent dates of various items relating to borings. If a rock surface had been shown on the original plans and had been guaranteed by the city, the concessionee might have been entitled to compensation for material and labor involved in sinking piers through the greater depth afterwards found required, but would have had no equitable right to other relief from the obligation to reach bed rock.

The seventh clause of the first concession contains the following provision:

“On the arrival of the materials for the construction of the bridge in the city of San Domingo, the contractor must commence immediately the erection, under the inspection of an engineer whom the municipality will be authorized to name, and whose duty it will be to ascertain if the bridge is erected according to plans and specifications.”

It is understood that the inspector was not appointed on the arrival of the materials at Santo Domingo nor until acceptance of the bridge was asked. But if he had been appointed at the time provided, his powers were strictly limited and he had no authority to relieve the concessionee from any of the obligations of the concession. The neglect of the city to appoint him or his neglect to object to the construction of the piers would not relieve the concessionee of his obligation to sink the columns to bed rock.

Therefore I exclude the estimated amount of the expenditures for the first draw from the valuation. It is impossible to state exactly the amount of these expenditures from the data furnished. Basing my conclusion on a careful computation of the weight of the structure and such other data as are available and using my best judgment, I make a deduction of $6,500 on account of this draw. I also deduct the expenditure reported prior to May, 1891, for borings which were worthless; these amounted to $105.

The knowledge of the materials at the pier sites gained in this expensive way by loading the pier with finished bridge material for which there was no further use would have cost about $1,500 if obtained by suitable borings. It is just to allow this amount in offset to the deductions just made. The net deduction is $5,105.

A charge for interest on investment during the period of construction is in its nature a proper one. The cost statement submitted by the owner contains such a charge, but it appears to be for the full amount of the investment for nearly the full period. This seems to me erroneous. The interest allowance is for actual use of capital, and it is not probable that it was furnished very much in advance of expenditure. Some allowance of time must be made between the raising of funds and their expenditure, and it will be equitable to allow interest from the beginning of each year for the expenditures made in that year. It is believed, however, that the interest allowance is fairly subject to deduction on account of the time wasted on the first draw span, which, it is held, ought not to have been built. The value of the bridge can not be considered enhanced by errors committed in construction that were clearly avoidable. Interest allowance on cost of construction ought to cease March 1, 1894, when the owner began collecting tolls, the presumption being that receipts will take care of all fixed charges, including accruing interest on investment.

According to the owner’s cost statement the annual expenditures were as follows:

In 1887.	$650.65
Interest at 6 per cent, January 1, 1888, to March 1, 1894—six years two months		$240.65
In 1888	19,296.42
Interest at 6 per cent, January 1, 1889, to March 1, 1894—five years two months		5,981.89
In 1889	7,697.64
Interest at 6 per cent, January 1, 1890, to March 1, 1894—four years two months		1,923.41
In 1890	2,018.88
Interest at 6 per cent, January 1, 1891, to March 1, 1894—three years two months		383.58
In 1891	10,192.95
Interest at 6 per cent, January 1, 1891, to March 1, 1894—three years two months		1,936.65
In 1892	8,035.88
Interest at 6 per cent, January 1, 1892, to March 1, 1894—two years two months		1,044.68
In 1893	9,450.67
Interest at 6 per cent, January 1, 1893, to March 1, 1894—one year two months		661.55
In 1894	1,940.87
Interest at 6 per cent—two months		19.41
Total interest allowance		12,191.84

A charge of 10 per cent on cost is made by the owner on account of his services, supervising construction, for office rent, clerk hire, etc. This is a legitimate item in estimating the value of the bridge, and is allowed, less a deduction of $492.75 for items of this nature which have been carried into the accounts and already taken up in the statement of net cost. The amount of this is determined as follows:

Expended, account of bridge, to March 1, 1894, including unpaid accounts at that date		$64,388.71
Net deductions on account of first draw		5,105.00
Necessary cost of bridge March 1, 1894, exclusive of interest account		59,283.71
10 per cent allowed for superintendence	$5,928.37
Less amount already taken into account	492.75	5,435.62
		64,719.33
Adding interest allowance		12,191.84
Valuation of bridge March 1, 1894 (to be corrected by deduction on account of depreciation since erection)		76,911.17

The depreciation of the structure must now be estimated and deducted.

The cost statement shows a purchase of plank in 1895 sufficient for the estimated annual maintenance of the floor; also paint for the ironwork. The only item to be taken up under this head is the maintenance of the metal work; the estimated cost of maintaining the metal work of the bridge, as will appear farther on, is $500 per year. The greater part of the material, except the draw, had been in place about six years; the draw, two years. Taking the mean at five years, the allowance for depreciation would be $2,500, which is to be deducted from the valuation given above of $76,911.17, which gives value of bridge December 20, 1895, as determined from cost of construction, $74,411.17.

estimation of value from net revenue.

According to the terms of the concession, the bridge will become the property of the city at the expiration of the franchise, and is to be delivered to the city “in perfect condition of service.” Nothing can be realized by the claimant at the expiration of the franchise for the value of the structure. The gross receipts will consist solely of tolls. He collects these at rates “controlled” by the city, pays the expenses of the collectors, and then retains 75 per cent of the balance, paying 25 per cent to the city. From his proportion of 75 per cent he has to pay, further, the cost of maintaining the structure in condition for service and provide a sinking fund. It is necessary, therefore, to estimate the gross receipts during the life of the franchise, cost of collecting tolls, cost of repairs and renewals to maintain the bridge in condition for traffic and for delivery to the city at the expiration of the franchise, and annual payment into sinking fund to repay cost of structure at expiration of franchise.

The balance remaining after making these deductions, and after payment to the city of its proportion of the revenue, is the sole remuneration under the terms of the concession.

The actual receipts for thirty-five months covering the period when tolls were collected by the owner are shown in the following table, which gives the amounts as reported by the owner and the amounts as reported by the city. The amounts are in silver.

Receipts from tolls across Ozama River bridge.

Month.	Receipts as reported by claimant per month.	Receipts as reported by city per month.
1894.
March	$784.55	$560.00
April	734.80	514.60
May	700.60	676.60
June	726.05	726.10
July	777.25	777.25
August	761.10	761.10
September	683.75	683.75
October	672.80	676.80
November	774.55	785.65
December	806.00	806.00
Total	7,421.45	6,968.25
1895.
January	824.00	824.75
February	797.95	797.95
March	853.15	853.15
April	811.45	866.70
May	880.50	880.40
June	806.30	806.30
July	806.10	806.10
August	802.80	803.25
September	777.45	777.60
October	799 90	791.90
November	692.70	692.85
December	797.10	801.45
Total	9,649.40	9,702.40
1896.
January	841.85	841.85
February	781.95	782.30
March	887.30	887.30
April	790.10	790.10
May	830.20	805.20
June	814.30	789.30
July	835.50	810.50
August	807.85	782.85
September	735.65	710.65
October	774.10	899.10
November	755.15	755.15
December	806.95	806.95
Total	9,660.90	9,661.25
1897.
January	879.35	879.35
Grand Total	27,611.10	27,211.25

Comparing these returns, it will he observed that, excepting for the first two months, the statements are in substantial accord, and the total difference between the two is immaterial.

This does not represent the entire traffic over the bridge, because, as already stated, the city at first permitted and afterward required free passage for police, military, and postal employees of the Government, claiming the right to require this under the ninth clause of the concession, which reads as follows:

“The council to have the right of appointing a fiscal agent to inspect the revenues of the bridge, and even to control them.” * * *

The owner immediately protested against this action, but had no remedy.

While it may be that the clause referred to gave to the city authority to adjust rates of tolls to an equitable basis, it could give no right to deprive the owner of compensation for the use of the bridge. An account of this traffic was kept by the owner, and the amounts reported should be added to the gross receipts for the purpose of estimating the value of the earnings of the bridge. With this addition the gross earnings, in silver, would be as shown in the next table:

Gross earnings, Ozama Bridge, being collections plus amounts due for passage of police, etc., in silver.

Month.	Tools Collected.	Gross earnings, including amounts added on account of passage of police, military, and postal employees.
1894.
March	$784.55	$904.80
April	734.80	889.20
May	700.60	806.60
June	726.05	851.05
July	777.25	908.25
August	761.10	872.45
September	683.75	803.50
October	672.80	792.95
November	774.55	871.65
December	806.00	809.00
1895.
January	824.00	915.10
February	797.95	899.30
March	853.15	946.14
April	811.45	921.10
May	880.50	972.65
June	806.30	893.30
July	806.10	933.10
August	802.80	888.95
September	777.45	877.25
October	799 90	839.52
November	692.70	732.32
December	797.10	832.45
1896.
January	841.85	932.45
February	781.95	874.00
March	887.30	996.05
April	790.10	848.40
May	830.20	881.45
June	814.30	988.80
July	835.50	904.65
August	807.85	889.75
September	735.65	819.85
October	774.10	833.70
November	755.15	826.95
December	806.95	882.35
1897.
January	879.35	968.95
Total	27,611.10	30,707.98

On the basis of the gross earnings, determined as in the preceding table, the owner has submitted an estimate of the revenues which would accrue during the life of the franchise, resulting in a calculated increase of $460.80 (silver) per year for each year of the franchise. This calculation of increase seems to me faulty in method. That this is the case will be evident from the fact that it gives as much weight in determining the law of increase or decrease to the last two months’ receipts as to the sum of all the others. The defect of the method may be apparent from a hypothetical case; suppose a series of successive months’ earnings were as follows: $1, 000, $900, $800, $700, $600, $500, $400, $300, $700, $600.

The method would show increasing revenue, while a mere inspection is sufficient to show that it must be decreasing.

For the determination of the law of change of a series of quantities mathematicians employ the principle of least squares. This has been applied in the present case, and the results will be explained briefly. The subject is too abstruse for extended discussion here.

Referring to the accompanying blue print,¹ the earnings by months are platted as shown, the point marked a, for instance, representing the earnings for the twenty-first month (November, 1895). Applying the method of least squares, the heavy lino A–B was found to represent the probable rate of change of the earnings for the thirty-five months more nearly than any other straight line. It indicated a small yearly increase, amounting to $67.91. It was also found that the earnings for the thirty-five months could be represented by a curve with a less probable error than by any straight line. C–D is such a curve. It appears to indicate that the earnings reached a maximum in about twenty-three months and that a slight decrease followed, which, however, had an increasing rate, and if the curve were prolonged the indicated earnings would become zero long before the expiration of the franchise. Such a result can not be correct, and shows that the method is inapplicable for this purpose. Indeed, this result was to be expected. It is always unsafe to carry the application of a purely mathmetical deduction like this very far beyond the limits of the data on which it is based. In this case the business has not continued long enough to permit the determination of a law of increase by any mathematical process.

It seems to me better to consider the matter from an entirely different point of view. This bridge affords the only means of public transit across the river between Santo Domingo City, having a population of 15,000 to 20,000, and the rich but mostly undeveloped district on the opposite side. This traffic at the established rates of tolls amounted in 1895 and 1896 to about $10,600 per year in silver, or at the average rate of exchange to $5,300 per year in gold. The increase of traffic, if any, must depend mainly upon the growth of the city, the development of the adjacent territory, and the financial condition of the country.

The country is one of great natural resources and capable of supporting a dense population, but the people are not enterprising in a business way. Want of foreign capital, frequent revolutions, and other conditions have prevented the development of these great resources; for the last twelve years, however, the Government has been able to maintain itself against all enemies and destruction of property as an incident of revolution has practically ceased. Foreign capital has been invested to a considerable extent, and with stable government and wise administration the development of the country would be rapid. No such growth as that of the United States can be expected, but it is impossible to doubt that the development of the island in the present age of the rapid advance of civilization all over the world must be very considerable within the life of this franchise.

It is impossible to make a definite estimate of the future increase in traffic that will not be questioned; the best that can be done is to name a rate that in view of all the conditions and prospects seems judicious; it seems to me that it would be conservative and fair to take it at $200 (silver) per year, which is about 2 per cent of the earnings during the first year the bridge was opened; taking the mean per year while tolls were collected by t lie owner there results $L0,500 (nearly), which may be taken as the adjusted earnings for the second year. Applying to this the assumed annual difference of $200 and the following table results:

First Year	$10,300	Seventeenth year	$13,500
Second Year	10,500	Eighteenth Year	13,700
Third year.	10,700	Ninteenth year	13,900
Fourth Year	10,900	Twentieth Year	14,100
Fifth Year	11,100	Twenty-first year	14,300
Sixth year	11,300	Twenty-second year	14,500
Seventh year	11,500	Twenty-third year	14,700
Eighth year	11,700	Twenty-fourth year	14,900
Ninth Year	11,900	Twenty-fifth year	15,100
Tenth Year	12,100	Twenty-sixth year	15,300
Eleventh year	12,300	Twenty-seventh year	15,500
Twelfth year	12,500	Twenty-eighth year	15,700
Thirteenth year	12,700	Twenty-ninth year	15,900
Fourteenth year	12,900	Thirtieth year	16,100
Fifteenth Year	13,100
Sixteenth Year	13,300	Total silver	396,000

This gives the total earnings of the bridge during the thirty years of its franchise as	$396,000
Less earnings for first month (January, 1894) turned over to city by agreement, say	850
Total	395,150
From which deduct earnings from March 1, 1894, to December 20, 1895	18,730
Estimated earnings from December 20, 1895, to expiration of franchise, a period of twenty-eight years one month eleven days	376,420
Mean estimated gross earnings per year:
Silver	13,389
Gold	6,695

Cost of collecting tolls.—This is shown in the statement of revenues furnished by the city as amounting in thirty-five months to $4,053.14; per month, silver, $115.80; per month, gold, $57.90, or $700 per year, gold, nearly.

Cost of repairs and renewals.—In making an estimate of the cost of repairs and renewals, careful consideration must be taken of the situation of the bridge, its character as regards solidity and durability, and of its present condition as affording pertinent evidence.

It has been stated on a preceding page that during the dry season the tide brings salt water to the bridge. This affects the columns injuriously, but in my examination I found less injury than I had expected. The portion of the columns between high and low tide where the greatest deterioration would he anticipated was in every case covered closely with barnacles; when these were scraped off the metal beneath was found comparatively clean. It was rough and pitted to some extent, but not to a dangerous extent, although the columns have been in place more than eight years.

From my observations here and elsewhere, as well as from the best information I can obtain, I am of the opinion that the effect of salt sea air near the seashore is as great as that of sea water. Metal work can be protected against it by frequent and thorough cleaning and painting, but a great deal of injury may be sustained in a short time if this is neglected. It is probable that the Ozama River bridge will require a complete coat of paint every second year, and considerable scraping and partial painting in the alternate year. This will cost about $250 per year, gold.

Aside from the columns, the parts of the bridge showing considerable weakening from rust are the lower portions of the cross frames in the piers which are only one or two feet above high tide. Many of the material connection plates in the trusses are nearly destroyed, these small pieces showing much greater injury than any other parts of the bridge. Some of the light floor stringers show a little injury. The entire bridge needs cleaning and painting and also some renewals. It is in a condition where depreciation will be very rapid unless the needed work is done at once.

The annual cost of renewals to metal work must be estimated according to one’s best judgment. They have been insignificant hitherto, but will be greater as the bridge becomes older. In my opinion they will cost about $500 per year, gold, and this sum is set apart in the estimate.

The piers have settled considerably, particularly the downstream columns. In one pier the downstream column is about 8 inches lower than the upstream column. It is to be presumed that originally they were at the same level; differences of 2 or 3 inches are common.

It follows from this that the bridge does not rank as regards the solidity of its foundations, and the strain imposed on the piers by large quantities of drift collected against it would be severe. The cost of a structure having sufficient solidity to be absolutely safe against contingencies of this kind would be so much as to be prohibitive on account of the deep mud in the river bed. I believe, however, that the bridge will not be in great danger from this cause if cared for intelligently and constantly.

Timber decays rapidly in this warm climate and the plank floor will need replacing about every third year. Lumber for this purpose is now imported from the United States. It is said there is good pine on the island, but it is not now available for lack of steam transportation. The cost of renewing the floor will be about $400 per year, gold.

Incidental to the repairs and renewals it will be necessary that a bridge engineer visit the bridge about once each year and determine by thorough examination what repairs and renewals are needed: this will cost for transportation and services at least $400 per year, gold.

Collecting these items, the annual expense of repairs and renewals is estimated as follows:

Repairing metal work	$500
Cleaning and painting	250
Renewing floor (one-third each year)	400
Annual inspection	400
Total	1,550

Annual payment into sinking fund.—These payments, placed at compound interest, must furnish, at the expiration of the franchise, a fund equal to the original investment. The original investment will be considered identical with the valuation December 20, 1895, already given.

The sinking fund would probably be accumulated in the United States, where 4 per cent is a fair interest rate. At this rate the annual payment into the sinking fund would be $1,479.25.

The net earnings can now he calculated:

Gross earnings, average	$6,695.00
Deduct cost of collecting tolls	700.00
		$5,995.00
City’s proportion, 25 per cent		1,498.75
Owner’s proportion, 75 per cent		4,496.25
Deduct cost of maintenance (repairs and renewals)	1,550.00
Deduct payment into sinking fund	1,479.25
		3,029.25
Net earnings		1,467.00

Capitalization of net earnings.—In the Eastern part of the United States the usual rate of capitalization for investments of this class is 5 per cent; in the Western States, 6 per cent. It should be higher in Santo Domingo, where the prevailing rate of interest on short-time loans is about twice as great as in the United States. Taking it at only 7 per cent, which is certainly not too high, the capitalization becomes $1,467 ÷ 0.07 = $20,957.14, which represents the value in gold of the bridge and franchise December 20, 1895, calculated from net earnings on the assumed data. From this it would appear that the franchise is not of value. The investment, instead of realizing 7 per cent or more, will realize only 2 per cent.

It would appear that the city, in exercising its power to fix rates, has established a schedule that is too low. It has the power to raise the rates, and if this were done it would probably result in an increase of revenues. Unless an increase in net revenue can be realized, the investment is unprofitable and the valuation is not increased by considering the franchise as an element.

That this is an unsatisfactory way of calculating the value of the bridge will be apparent on a slight examination of the data on which it is based. The principal uncertainty is in the estimate of gross earnings; it is an attempt to predict the growth of business, and the result, under any known conditions or in any country, the United States or Great Britain for example, would be extremely questionable. If the Republic of San Domingo should again be the scene of frequent revolutions, as was the case before the Government came into the hands of its present strong executive, the earnings might become much less than at present and the property itself would be in great danger. On the other hand, if the revenue anticipated by the owner should be realized, the capitalization would be greater than stated above by $14,071, making a total of $35,028. This amount is less than half of the actual cost of the bridge, and it follows that, even if the owner’s estimate of earnings were correct, the bridge would be an unprofitable enterprise without a revision of the schedule of tolls. If the receipts from tolls could be increased 56 per cent above the amount assumed for this valuation, the net revenue would be equal to 7 per cent on the investment and it would be fairly profitable. The great change in estimated value resulting from a comparatively moderate change in earnings is very noticeable and strongly discredits this method of estimating value in cases like the present.

The reserved right of the city to regulate the tolls or to “control” the revenue, as it is expressed in the concession, is extremely important in connection with the valuation. Its purpose is to prevent the imposition of a schedule of tolls which would return excessive profits to the owner of the bridge. If the schedule should prove to be too high from this point of view the rates would undoubtedly be reduced. On the other hand, if the schedule should prove too low, the owner would demand a new schedule imposing higher rates; whatever the change, it would be, if equitable, for the purpose of securing to the owner a fair return on the investment and no more. If, then, the “control” of the revenues means an adjustment of rates to return a fair profit on the investment, it is useless circumlocution to base a valuation on earnings instead of the investment to which the earnings will be adjusted. The “control” of the revenues as expressed in the concession can have no other equitable meaning.

I hold, therefore, that the valuation of the bridge is not increased above its actual cost by the concession and franchise; that the method of valuation from net revenue is inapplicable in this case, and I base the following award on the actual cost of the bridge, deducting those expenditures which were clearly unwise and also deducting for the natural depreciation of the structure up to December 20, 1895. An allowance for interest on invested capital during construction and an allowance for expenses and personal services of the owner during the same period are included.

Award for the Ozama River Bridge and Franchise.

I, the undersigned, engineer appointed under and in pursuance of an agreement heretofore made between the Government of the United States and the Dominican Government to survey the Ozama River bridge at Santo Domingo City and to assess and award the value and amount to be paid by the Dominican Government for the said bridge and the franchise and concession therefor in pursuance of the terms of said agreement, do now make this my final award, as follows:

I award that the Dominican Government shall pay to the Government of the United States the sum of $74,411.17 in gold, with interest at 6 per cent from December 20, 1895, in full satisfaction of the claim of Henry W. Thurston for the said bridge and the franchise and concession therefor.

This award is made without prejudice to any right the said Henry W. Thurston may have to payment for the passage across the bridge prior to December 20, 1895, of persons belonging to the police, military, or postal service of the city or the Republic of Santo Domingo, consideration thereof being expressly excluded from this arbitration by the terms of said agreement.

Alfred Noble.

Chicago, Ill., May 20, 1898.

1. Not printed.