Scott Bernstein Part 2: It Is All Potentially Reversible

Yesterday we brought you a first listserve post by Scott Bernstein of the Center for Neighborhood Technology in Chicago about some streetcar history. In further thoughts, he discusses how we can get at least some of what we lost back.

I sometimes skip long posts, but this one is certainly worth the time spent reading. All inserted links are my doing in order to try and give greater background and some edits have been made for capital letters and spacing.

Guest Post 2: Scott Bernstein

Here are some further thoughts.

The definitive history of the interurbans is The Electric Interurban Railways in America by George W. Hilton and John F. Due, Stanford U. Press 1960; 463 pages, very thorough analysis and directory of operating companies and maps, indexed; still in reprint but not hard to find a used copy.

It's impossible to fully describe what happened to the street railway systems without some description of the relationship they had to the electric power industry.

The divestiture you and I guess Andy refer to came as a result of the Public Utility Holding Company Act of 1935, aka, PUCHA, which left it to the newly minted SEC to implement via regulation. SEC was created, strictly speaking, to create and implement accounting standards, the lack of which were widely believed to be at the heart of the stock market crash and subsequent Depression. Hilton and Due state this clearly as follows:

"...the SEC interpreted the provisions concerning the elimination of holding-company systems to require that the power companies divest themselves of their electric railway affiliates and dissolve the pyramided holding company structures. As a consequence, the interurbans that were elements in the holding company systems were separated, usually by public sale of the stock...Most interurbans had been abandoned before the act became effective."

Hilton in particular believed that the interurbans represented a flawed interlude in the development of mass transportation, and he quite strongly and almost angrily stated this opinion when Congress revisited the Snell accusations and the GM-NCL case in hearings held April 4-11 1974 (Hearings Before the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, US Senate, 93d Cong. 2d Session on S. 1167, part 4, Ground Transportation industries). In this testimony and subsequent committee discussion, he offers interesting opinions on why certain streetcar systems survived both the early wave of abandonments and the divestiture rulings, and most of these have to do with urban form, density, and the availability of special right of way (note--he's an economic historian, not a physical planner or urban historian).

In the 1960 work, Hilton and Due acknowledge that other means were used to extend the life of these systems-- State and sometimes municipal investment and support, conversion or merger into publicly owned systems, and inter-line cooperation of marketing and fare-media (which probably extended the life of the excellent interurban networks in Ohio and Indiana, among the best in the nation), among other methods. This testimony, in my opinion, actually makes a strong case that abandonment wasn't inevitable, rather, it was result of failure to grasp the networked nature of the tangible (infrastructure networks) and intangible economic networks) that are essential to successful places.

The PUCHA passage bears some further examination.

No small part of the political impetus to pass PUCHA came from enmity between two people--Samuel Insull, founder of the American electric utility industry, former secretary to Thomas Edison and head of the Chicago-based Commonwealth Edison empire and affiliates; and Harold Ickes, confidant to FDR, Secretary of the Interior (where many of today's separate domestic cabinet agencies were formerly housed), and civic leader in Chicago and the North Shore suburb of Winnetka. Simply put, they despised each other; Insull's business model required demonizing the concept of public ownership and Ickes' view requiring that it be embraced.

At the time that PUCHA was being conceived, Insull controlled not only the remainder of the former traction empire controlled by Charles Yerkes (who interestingly went on after having been pushed out of Chicago to help lead the construction of the London Underground) but also much of the midwest electric transmission system, the main midwestern interstate pipeline system and the local natural gas utility, plus Peoples Gas Light & Coke Co. too. Insull wrote the first check to the Commercial Club of Chicago for underwriting what became the Burnham/Bennett Plan of Chicago, but did not play a role in its development or in its subsequent marketing (as far as I could tell, Dennis I know has studied these matters too and may have a different opinion). Insull, while vilified for his monopoly, helped buy much public goodwill in playing both sides of the smoke abatement campaigns in Chicago for decades--electric utilities were powered by very inefficient coal-burning power plants, but so were railroad locomotives. He was able to sell railroad electrification as a civic and public health virtue, and simultaneously to sell natural gas as a "smokeless fuel for a smoke-free town." (To convert from the use of so-called manufactured gas to "natural" gas required tuning, retrofitting and/or conversion of all gas-fired appliances in Chicago, which was amazingly accomplished in 1 year, 1931; also, one of the themes of the 1933 Century of Progress Chicago World's Fair was that it was billed as the first "smokestack free fair.")

Nonetheless, Ickes and others were able to paint Insull as the prototypical villain at a time when heads needed to roll, and was convicted of securities fraud (reversed in 1934 but he spent his remaining years a broken man). To be fair, Ickes presided over much of his era's "recovery" investments through the Public Works Administration, and on the transportation side, the majority of the PWA's investments were in highways not in regional mass transit systems (an important exception was PWA investment in Chicago's subway, but Ickes refused to support building east-west tunnels for Chicago's streetcar lines, an action that bears further examination).

The divestiture and subsequent efforts to keep these systems viable, both the urban and interurban street railways, took a number of bizarre turns. In Chicago alone, a simple listing of the changes in policy, court rulings on bankruptcy proceedings and re-organizational changes along with maps runs over 400 pages (Weber, Outline History of Chicago Traction 1936, and it gets even more complex after that). The influences that needed juggling were truly vast, not half-vast; Frank Gruber's point about the iconic importance of the nickel fare posted yesterday is a good example, there were similar examples almost everywhere.

PUCHA seemed to be passed without regard for the potential urban damage that divestiture would likely cause. Around 1920, a federal commission on the future of electric railways failed to come to any firm recommendations for future federal interest, and as far as I can tell, that was the last time that a serious national examination of this essentially urban form of mass transportation occurred. But it was made clear at those hearings, in industry publications, in discussions held at various local governmental trade associations, that these private corporations were playing an essential public service (sound familiar?) role.

By divesting, public transportation lost a more or less guaranteed source of revenue for capital investment, whether it was made directly, through rate-basing of these costs, or indirectly, by using the backstop credit facilities of their holding companies.

And this occurred at more or less the same time that the fascination with modern road building and the idea of "limited ways" (later "superhighways" and "limited access highways") was taking hold (in the 1920s, Insull similarly promoted "super" transmission lines and pipelines).

Perhaps someone on the list can comment on this, but in reviewing the Burnham/Bennett Plan, and associated documents from the resulting Chicago Plan Commission, the transportation focus, outside of the central area, was on inter-city travel, not on internal circulation or accessibility. (this is also the point expressed in the late Paul Barrett's excellent The Automobile and Urban Transit: The Formation of Urban Policy in Chicago-1983) I suspect this was largely the case in city planning in the era that followed. In framing the issue in this way, and leaving it to the private sector to sink or swim w/ regard to mass transportation, a powerful force for decentralization emerged. Similarly, Burnham and contemporaries did not grasp the notion of the networked city, and in re-reading, that era's fascination with the promise of regional highway networks and what promised to be a viable airline industry evokes Henry Ford's comment that "we shall solve the problems of the city by leaving it."

So why go over all this?

Because it is all potentially reversible.

And because it is essential that we figure out how to make it so.

As we've discussed on this list, only by switching from liquid fuels to non-motorized and electric transportation can we meet any of our energy independence or climate goals.

And only by reducing dependence on individual vehicles to a greater reliance on mass transportation can we transition to a nation of great cities and regions.

Here are some tools to think about in framing methods of getting there--

1. Local electric distribution utilities never lost the legal right to power electric transportation; all 50 states have a common method of enabling electric distribution utility financing of all or part of the necessary systems, which is a rate filing to help finance these systems. This offers opportunities for cities, transit operators, developers, metropolitan planning organizations and states to build new kinds of financing mechanisms to more systematically support local and regional surface transportation infrastructure. A similar case can be made for local governments and special service districts (which own and operate almost all of the nation's airports outside of NJ, MD, Alaska and HI) to partner with the electric utility industry to support the infrastructure necessary for inter-city high speed rail.

2. Deregulation of the electric utility industry has been a mixed bag, but in over a dozen states a fait accompli. So in a sense this is an opening to partner with contemporary holding companies too. These companies need to re-certify their "market-based" rate making authority every three years with the Federal Energy Regulatory Commission, another opening for the new administration to address potential urban consequences of energy and climate policies.

3. PUCHA was repealed in the 2005 Energy Policy Act ( one outcome has been at least 100 municipalization efforts, 20 successful, most recently Winter Park Fl, but the repeal also opens up the potential for other kinds of ownership too)

4. A national debate on the future shape and location and purposes of the electrical grid has started and needs an urban voice, no less than does the analogous debate about transportation infrastructure.

5. A push by leaders in the public accounting profession and in the investment community for more transparency in State and municipal accounting led to the creation of the Government Accounting Standards Board in 1984, and their rules on accounting for infrastructure investment, aka Statement 34, implemented from 1999 to present, lay a first-time basis for disclosure of the life-cycle costs associated with different types and patterns of major capital investments. More recently, a push for better state and local disclosure in the waning days of the Bush administration, has been taken up in the Senate and House Banking committees. This is a real opportunity to show well how the hidden assets of cities and urban places perform.