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Chapter 12: Preparing the Subway Contract

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Rapid Transit in New York City and in the Other Great Cities ยท Chamber of Commerce, 1906

Contract Sent To Corporation Counsel. On July 1, 1897, the duty of preparing the contract for the construction and operation of the proposed railroad was submitted to a sub-committee of the Board. The contract was completed March 31, 1898, and sent to the Corporation Counsel for his approval on April 7, of the same year, as required by the act. No attention was paid to the request of the Board until September of the following year, and in the meantime all work toward the construction of the road was brought to a standstill.

The situation at that time was fully explained in a communication by the board to the Legislature. It was stated that, by the terms of the Greater New York Charter, the enlarged city was compelled to assume all the liabilities of all the counties, towns, villages and public corporations embraced in the consolidation. While the amount of this indebtedness was not known precisely, the Comptroller was of the opinion that it was not less than thirteen and a half million dollars in excess of the ten per cent. of the assessed value of the real estate within the city limits. If such were the case it would be impossible to borrow the money required to construct the road. The Rapid Transit Commission was, therefore, constrained to consider carefully the courses open to the city to obtain the relief so long sought and so urgently needed.

Three Plans Suggested. Three plans were suggested:

1. To wait until the borrowing capacity of the city became so enlarged by a reduction of the debt, or by an increase of assessed valuations of real estate, or by both, as to enable it to borrow the funds necessary.

2. To obtain legislative authority to issue bonds of the county of New York for the construction of the road.

3. To obtain legislative authority to offer a franchise for the construction and operation of the road to private enterprise.

The net funded debt of the city of New York on January 1, 1899, was $244,212,835.97; other items brought the total up to $250,928,950.10. The amount was only $1,924,394 less than ten per cent. of the assessed valuation of the real estate of the city. Upon this basis it was manifestly impossible to borrow the amount needed for the construction of the road.

Valuation of City Property. But a few days later the Tax Commissioners made public the assessed valuations of real estate for purposes of taxation during the year 1899. These showed an increase of $421,512,876; ten per cent. of which, or $42,151,287.60, represented the amount by which the city's debt-incurring capacity had been increased. But there were other demands for money for important city uses.

The Comptroller was of the opinion that if it should be found desirable to build the road by the use of the municipal credit, the contracts for construction should be so drawn as not to call for the issue of bonds in excess of ten millions of dollars in any one year. The Commission recognized the fact that this could be done by dividing the contract into three sections of $1O,000,000 each, one section to be built each year, but considered it their duty to seek an enlargement of their powers so as to permit them to take advantage of the improvement in the city's finances, or to look to other sources for the capital to build the road.

The money could have been raised by issuing bonds of the County of New York, including the Boroughs of Manhattan and the Bronx, as the debt of the county was far below the ten per cent. limit, and as there was nothing in the Constitution prohibiting such a proceeding. Such a course would maintain an essential clause of the act of 1894, namely, municipal ownership with private operation. The road would be an asset of the county. The obligation assumed by the county would not involve the levying of any tax nor impose any burden upon the taxpayers, unless the contractor should default. The Comptroller held the opinion that it would be undesirable to issue such bonds.

To Sell Franchise to Construct and Operate Road. The last possible solution rested in selling a franchise to construct and operate the road, if the statute permitted this to be done. The financial conditions of 1899 were much more favorable to the successful conduct of the enterprise than they were in 1893-4. The pronounced success of the Boston subway served to remove doubts that had existed as to the practicability of such a road, and illustrated the possibility of closely estimating the cost and the probable income. In its appeal to the Legislature the Board says:

"Quite apart from and in addition to the considerations mentioned, is the further consideration that the contemplated rapid transit road, whether built with city money or by private capital, will, at the end of a comparatively short time, become a piece of property whose value it would be difficult to overestimate. It is perfectly safe to say that in the course of fifty years the certain growth of the city's population will so increase the earning capacity of such a road that the value will be far greater than its original cost. The effect of permitting construction by private capital would, therefore, be to surrender to individuals an asset which might be made a valuable addition to the property of the people of the whole city. The former city of New York, in its ownership of markets and docks, exemplified the wisdom of pursuing the plan of municipal ownership. In the surrender of its streets to surface and elevated roads, which are now doing a profitable business on a capitalization far greater than their original cost, it exhibits the results of the opposite course of dealing."

The Subway Justifies Departure From Settled Policies. "The Rapid Transit Board is, however, of the opinion that the proposed underground railway is a work of such peculiar character, and of such exceptional value to the city, that a departure from the settled policy of recent legislation might be justified."

"It is plain that such justification can only be found in the event of the public credit proving unavailable. That such will be the case is not as yet entirely certain. The Board, therefore, recommend that if power is granted them to sell the franchise to construct the road, such power shall be additional to their present powers and not a substitute for them. In this way the Board will be enabled to take advantage of varying conditions as they may arise in the future. If the city authorities shall see their way clear to keep the debt sufficiently within the constitutional limitation, then the Board will be in position to authorize municipal construction; and, on the other hand, if municipal construction shall prove to be constitutionally impracticable within any reasonable time, the Board may be enabled to arrange for construction by private capital."

"The Board, therefore, ventures to urge that if the Legislature shall determine that it is wise to permit a resort to private capital, the largest measure of authority and discretion compatible with the public interest shall be intrusted to the Board in order that it may frame such a franchise as will certainly attract sufficient private capital and arouse competition. And the Board deems it of special importance, if private enterprise is to be enlisted, that the Board may be authorized, in its discretion, to enter into such a contract with the corporation that shall undertake the work as will exempt it from taxation for some limited period, and will insure it for a period of years, at least, against the possibility of legislative or municipal interference."

Proposition of Metropolitan Company. Before action had been taken upon the bill introduced by the Board to obtain these additional powers, a proposition was received from the Metropolitan Street Railway Company that, if the Board would grant a perpetual franchise to a new corporation to be formed by them, they would build the road and pay the annual sum of 5 per cent. of the gross receipts therefor, "provided that the grantee shall first receive 5 per cent. net upon the cost of construction." While the Board was unanimous in the belief that the benefit of owning the railroad should be preserved to the city, the necessities of the situation imperatively demanded that the construction of a rapid transit system should be obtained in some way. The Board also held the opinion that if it could present as an alternative to the plan of municipal construction "another plan which offered an immediate solution of the difficulty through the medium of a perpetual grant to a private corporation, a clear-cut issue would be presented to the public, and that this would compel the city authorities to come to a decision upon the vital question whether the railroad should be constructed with the city's money and be the city's property, or whether it should be constructed by and belong to a private corporation." In consequence of these considerations, a resolution was adopted "that it is in the public interest that in addition to the powers already possessed by the Board, the Legislature should grant to the Board the power to contract for the construction and operation of the rapid transit railroad by private capital." The introduction of a bill to this effect served to show the intensity of the popular feeling in favor of reserving the ownership of the road by the city. It was made manifest that the public was unalterably against the granting of a perpetual franchise to the Metropolitan Company, or to any other private corporation. The offer of the company was withdrawn.

Mayor Refuses To Accept Amendments Proposed by Board. At the Board meeting of March 11, 1899, it was announced that the Mayor had refused to accept, in behalf of the city, the amendments to the rapid transit acts which had been passed by the Legislature. This was the bill that had been introduced by the Board, but which had been so changed as to seriously interfere with any negotiations the Board might have decided to make with a view to construction of the road by private capital.

In a communication to Mayor Robert A. Van Wyck, under date of May 19, 1899, the Commissioners said:

"The Board begs to repeat that its power to carry out the purpose for which it was created now depends practically, first, upon the permission of the Corporation Counsel to make any contract, and, second, upon the assent of the Board of Estimate to a postponement of the making of other contracts involving large municipal debt until a rapid transit contract, actually made, shall assure the carrying out of that great public measure. The Board, therefore, respectfully asks your Honor, and through you the other municipal authorities, whether in these two respects it may be aided to secure prompt and actual construction of the rapid transit road by the city."

No Action By City Authorities. No answer was received from the Mayor, nor was any action taken by either the Board of Estimate and Apportionment or the Corporation Counsel. The subject was again gone over in a communication to the Board of Estimate and Apportionment in July. The attention of that Board was called to the fact that the debt-incurring power of the city was not less than $40,000,000, a sum amply sufficient to build the rapid transit road; that no contract could be made until the Corporation Counsel acted; that the rapid transit debt of the city could not be technically created until after a contract had been executed; and that until such debt had been created or authorized, other debts might be incurred which would effectually prevent the construction of the road and thus defeat the will of the city as represented by vote of the people. No answer was received to this communication.

It was not until September 20, 1899, eighteen months later, that a letter was received by the Rapid Transit Commission from the Corporation Counsel. He withheld approval of the draft contract "for the reason that, while the approval of the Corporation Counsel was technically merely an approval as to form, it has always been the practice of this Department in such a case not to approve as to form a contract which could not legally be made." He stated that the city was now in a position to undertake the work, and suggested changes in the form.

Corporation Counsel Approves Contract. A revised draft of the contract was approved by the Corporation Counsel October 11, 1899. The amount of the bond ($14,000,000) was reduced by the Appellate Division of the Supreme Court. The decision rendered on November 10 said:

Bond Reduced By Court. "The Corporation Counsel, on behalf of the city of New York, having joined with the Rapid Transit Commissioners in this application, and the municipal authorities as well as the Rapid Transit Commissioners having represented that in their opinion a bond of $5,000,000 will, in view of the form of the contract and the conditions under which the rapid transit road is now to be constructed, amply protect the city, the Rapid Transit Commissioners are relieved from the stipulation which they gave as a condition upon the confirmation of the report of the Commissioners in approving of the construction of this proposed railway to the extent that a bond of $5,000,000 will be a compliance with the stipulation."

Terms of Contract. The terms of the contract were, in brief, as follows:

The contractor agrees to construct and equip the railroad upon the routes and in accordance with the general plans of the Commission; to put it in operation; and to use, maintain, and operate it under a lease from the city for the term of 50 years.

The city agrees to pay $35,000,000 in case the whole of the road is constructed, and other specified sums in case it should determine to construct less than the whole. The city grants to the contractor the right to construct and operate the road "free of all right, claim, or other interference, whether by injunction, suit for damages, or otherwise on the part of any abutting owner or other person."

All the exposed parts of the structure are to be designed, constructed and maintained with a view to the beauty of their appearance as well as to their efficiency, and the work is to be done in substantial manner and in accordance with the specifications embodied in the contract. The contractor is to make all necessary readjustment of pipes, subways, or other sub-surface structures; he must attend to the support, including underpinning wherever necessary, of all buildings, monuments and elevated and surface railways; and the re-construction of street pavements and surfaces. These are declared to be essential parts of the construction of the railway. The contractor must provide a complete equipment for the railroad, including not only cars, but also all engines, electric wires. conduits, power houses, and lighting, signalling, and ventilating apparatus.

Rights of Commission. The Board reserves the right during the progress of the work to amplify the plans, to add explanatory specifications, and to furnish additional specifications and drawings. It also reserves the right to require additional work to be done, on paying the reasonable value thereof to the contractor, or to require work to be omitted, in which case a reasonable deduction from the contract price is to be made. The contract provides for the thorough inspection by the Board of all materials and work from the beginning of their manufacture or preparation, and all work and materials are subject to the direction and approval of the Chief Engineer of the Board. In case of any dispute as to the obligation of the contractor, the determination of the engineer is to be so far binding that the contractor must, without delay, obey his requirements, leaving open the question as to his right to receive compensation for additional work. In case of dispute as to the value of extra work, an appeal may be taken from the decision of the engineer, either by the Board or the contractor, to a board of arbitration to be composed as provided in detail in the contract.

Time. The contractor must begin work within 30 days after the execution of the contract, and complete the entire road within 41 years. If not completed within that time, the city is to deduct from the amount due the contractor 2 per cent. a month until the balances are finally due. In case the contractor shall be delayed by injunction, or by strike, or by any interference of public authority, and cannot make up for the delay so occasioned by quicker work, then the date for completion may be extended by the amount of time of such delay, provided written notice of the delay is given in each case by the contractor to the Board.

Terminals and Stations. The contract provides that the city itself shall purchase the real estate for the terminals by condemnation or otherwise, and the contractor is to construct them and receive the cost of such construction, with a profit of 1O per cent. But it is provided that the total amount to be paid by the city for the terminals shall in no case exceed $1,750,000. This amount is to be in addition to the $35,000,000 paid for the cost of construction. It is also provided that the city shall, if necessary, acquire lands for stations and other purposes of the railroad in an amount not exceeding $1,000,000, and that, if the necessary real estate should cost more than that sum, such excess is to be borne by the contractor.

Payments. The payments to the contractor are to be made monthly upon written requisitions, accompanied by a certificate of the engineer showing the proportion of the whole work actually done. The Board is authorized to fix the amount due at such sum as it may itself determine to be the proper actual relative value of such work and materials, and the amount so certified is to be forthwith paid by the city to the contractor. In case the contractor should be dissatisfied with the determination of the Board, an appeal may be taken to the board of arbitration. When two-thirds of the work in value has been finished, the contractor must begin to provide the equipment, and to have such equipment ready for use three months in advance of the completion of the road.

Contractor to Provide Equipment. It is provided that "The railroad is to be constructed for actual use and operation as an intra-urban railroad of the highest class, adapted to the necessities of the people of the city of New York... The contractor shall construct, complete, and fully equip the railroad in the best manner and according to the best rules and usages of railroad construction, so that the railroad shall be thoroughly fitted for safe, continuous, immediate, and full operation.... In the event of any doubt as to the meaning of any portion or portions of the specifications or contract drawings, or of the text of the contract, the same shall be interpreted as calling for the best construction, both as to materials and workmanship, capable of being supplied or applied under the then existing local conditions."

Contractor to Make Good Any Damages to Buildings, Etc. The contractor agrees that the work shall be done without fault or negligence on his part, and that it shall not involve any damage to the foundation walls or other parts of adjacent buildings or structures, and he agrees, at his own expense, to make good any damage which shall be done in the course of construction. He further agrees, during the performance of the work, to maintain safely the traffic on all streets, to take all necessary precautions to place proper safeguards for the prevention of accidents, and to exhibit at night suitable lights.

Contractor to Lease Road For Fifty Years. The city leases to the contractor the whole railroad for fifty years from the time of completion. The contractor agrees to pay' as rental a sum equal to the interest payable by the city upon the bonds issued by it to provide means for construction, and also one per cent. upon the whole amount of such bonds, except that for the first five years the payment is not to be made unless the contractor's profits amount to five per cent. a year-- and for the next five years the payment is to be only one-half of one per cent., unless the contractor's profits amount to five per cent. a year. The contractor covenants to operate the road according to the highest standards of railway practice. Local trains are to run at an average speed, stops included, of not less than 14 miles an hour; and express trains at an average speed, including stops, of not less than 30 miles an hour. Between one and five o'clock in the morning trains are to be run, stopping at all stations, at intervals of not more than 15 minutes.

City Not Liable For Accidents. The contractor agrees to save the city harmless from all accidents, and to keep the road and equipment in thorough repair, so that at all times and at the termination of the lease the road shall be in thoroughly good and solid condition, and fully equipped for use. Stations and cars are to be kept lighted and heated so that passengers may conveniently read. The waiting rooms are to be kept clean and comfortable; proper seating capacity is to be provided and good drinking water, as also sufficient and suitable water closets, which are to be kept in a thoroughly sanitary condition. All tunnels, stations, and cars are to be thoroughly ventilated with pure air, and all tunnels are to be thoroughly lighted at all times, so as to permit the tracks, walls and roofs to be clearly visible for inspection.

Motive Power to Be Electric or Compressed Air. The motive power is to be electricity or compressed air; but it is provided that if, in the future development of the railroad art, any method of generating or transmitting power superior to electricity, and involving no injury to the purity of the atmosphere in the tunnels or cars, shall be discovered to be practicable, then the contractor shall have the right to adopt such method, if approved by the Board, on two months' notice. The contractor must provide rolling stock of the best character known at the time, and the Board reserves the right to make good any neglect on this point of which the contractor may be guilty. The rolling stock is to be adequate to the requirements of the traveling public, and a schedule is to be filed every six months showing in detail all the equipment owned by the contractor.

Fare. The contractor is to charge for a single fare not more than 5 cents; but it is provided that he "may provide additional conveniences for such passengers as shall desire the same upon not to exceed one car upon each train, and may collect from each passenger in such car a reasonable charge for such additional convenience furnished by him, provided that the amount to be charged therefor and the character of such additional conveniences shall, from time to time, be subject to the approval of the Board."

Renewal of Lease. At the option of the contractor a new lease of the road is to be granted to him for a period of 25 years from the expiration of the lease provided for in the contract. This lease is to be in the same general form, but the rent is to be an amount to be agreed upon, not less than the average amount of the annual rental for the last ten years of the lease. In case of failure to agree upon the rental, it is to be determined, subject to such minimum, by arbitration.

At the final termination of the lease the city is to buy the equipment at a price to be fixed by agreement or arbitration; but at the termination of the lease, even though the price has not been determined on, the equipment is to be turned over to the city for use, subject to the future adjustment of the amount to be paid.

Bonds of Contractor. For the construction of tie road the contractor must deposit with the Comptroller the sum of $1,000,000 cash. In case of any default on the part of the contractor, and in case the city shall, by reason of such default, incur any expense, the amount of such expense shall be taken from the above sum. Should such a condition arise, the contractor must, within ten days of notice from the Comptroller, restore the deposit to the original amount. For the full and complete performance of the contract, and the construction and operation of the road, a continuing bond of $5,000,000 is required.

In May, 1899, Morris K. Jesup was elected president of the Chamber of Commerce, and thus succeeded Alexander E. Orr as an ex-officio member of the Board. At the first meeting of the Board held thereafter John Claflin resigned as a member, and Mr. Orr was immediately re-elected as his successor. At the same meeting Lewis L. Delafield, secretary of the Board, resigned, and shortly after Bion L. Burrows, the present secretary, was appointed.

The organization adopted by the Board for its engineering staff consisted of a chief engineer, William Barclay Parsons; a deputy chief engineer, Geo. S. Rice; six division engineers, five general inspectors, a private secretary, an auditor, and a photographer.

Obstacles in Path of Commission. The foregoing fails to convey even a faint conception of the discouraging delays that continually beset all efforts of the Rapid Transit Commission to accomplish the object for which it was created. No sooner was one obstacle surmounted than another, perhaps more formidable, was presented. This constant changing of the aspect of the 'question made necessary repeated revisions and alterations of the plans, all of which took time. Although there was an imperative demand for rapid transit by the people, who had by a large majority of their votes sanctioned municipal ownership, the city authorities and the courts were indisposed to promote the purpose. Neither the Manhattan nor the Metropolitan Company seemed at all anxious to provide increased facilities, unless such facilities could he given upon its own terms. It would seem as if the former company had become convinced that no scheme of rapid transit could be carried to successful completion without its assistance, and that if the plans of the Commission could be delayed long enough to thoroughly dishearten the Commission and the people, it would have the opportunity of providing rapid transit according to its own plans and desires.

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