The New York Subway, Its Construction and Equipment. Interborough Rapid Transit Company
(a) The Act was general in terms, applying to all cities in the State having a population of over one million; it was special in effect because New York was the only city having such a population. It did not limit the Rapid Transit Commissioners to the building of a single road, but authorized the laying out of successive roads or extensions.
(b) A Board was created consisting of the Mayor, Comptroller, or other chief financial officer of the city; the president of the Chamber of Commerce of the State of New York, by virtue of his office, and five members named in the Act: William Steinway, Seth Low, John Claflin, Alexander E. Orr, and John H. Starin, men distinguished for their business experience, high integrity, and civic pride. Vacancies in the Board were to be filled by the Board itself, a guaranty of a continued uniform policy.
(c) The Board was to prepare general routes and plans and submit the question of municipal ownership to the electors of the city.
(d) The city was authorized, in the event that the electors decided for city ownership, to issue bonds not to exceed $50,000,000 for the construction of the road or roads and $5,000,000 additional, if necessary, for acquiring property rights for the route. The interest on the bonds was not to exceed 3–½ per cent.
(e) The Commissioners were given the broad power to enter into a contract (in the case of more than one road, successive contracts) on behalf of the city for the construction of the road with the person, firm, or corporation which in the opinion of the Board should be best qualified to carry out the contract, and to determine the amount of the bond to be given by the contractor to secure its performance. The essential features of the contract were, however, prescribed by the Act. The contractor in and by the contract for building the road was to agree to fully equip it at his own expense, and the equipment was to include all power houses. He was also to operate the road, as lessee of the city, for a term not to exceed fifty years, upon terms to be included in the contract for construction, which might include provision for renewals of the lease upon such terms as the Board should from time to time determine. The rental was to be at least equal to the amount of interest on the bonds which the city might issue for construction and one per cent. additional. The one per cent. additional might, in the discretion of the Board, be made contingent in part for the first ten years of the lease upon the earnings of the road. The rental was to be applied by the city to the interest on the bonds and the balance was to be paid into the city's general sinking fund for payment of the city's debt or into a sinking fund for the redemption at maturity of the bonds issued for the construction of the rapid transit road, or roads. In addition to the security which might be required by the Board of the contractor for construction and operation, the Act provided that the city should have a first lien upon the equipment of the road to be furnished by the contractor, and at the termination of the lease the city had the privilege of purchasing such equipment from the contractor.
(f) The city was to furnish the right of way to the contractor free from all claims of abutting property owners. The road was to be the absolute property of the city and to be deemed a part of the public streets and highways. The equipment of the road was to be exempt from taxation.
(g) The Board was authorized to include in the contract for construction provisions in detail for the supervision of the city, through the Board, over the operation of the road under the lease.
One of the most attractive—and, in fact, indispensable features of the scheme—was that the work of construction, instead of being subject to the conflicting control of various departments of the City Government, with their frequent changes in personnel, was under the exclusive supervision and control of the Rapid Transit Board, a conservative and continuous body composed of the two principal officers of the City Government, and five merchants of the very highest standing in the community.
Provided capitalists could be found to undertake such an extensive work under the exacting provisions, the scheme was an admirable one from the taxpayers' point of view. The road would cost the city practically nothing and the obligation of the contractor to equip and operate being combined with the agreement to construct furnished a safeguard against waste of the public funds and insured the prompt completion of the road. The interest of the contractor in the successful operation, after construction, furnished a strong incentive to see that as the construction progressed the details were consistent with successful operation and to suggest and consent to such modifications of the contract plans as might appear necessary from an operating point of view, from time to time. The rental being based upon the cost encouraged low bids, and the lien of the city upon the equipment secured the city against all risk, once the road was in operation.
Immediately after the vote of the electors upon the question of municipal ownership, the Rapid Transit Commissioners adopted routes and plans which they had been studying and perfecting since the failure to find bidders for the franchise under the original Act of 1891. The local authorities approved them, and again the property owners refused their consent, making an application to the Supreme Court necessary. The Court refused its approval upon the ground that the city, owing to a provision of the constitution of the State limiting the city's power to incur debt, would be unable to raise the necessary money. This decision appeared to nullify all the efforts of the public spirited citizens composing the Board of Rapid Transit Commissioners and to practically prohibit further attempts on their part. They persevered, however, and in January, 1897, adopted new general routes and plans. The consolidation of a large territory into the Greater New York, and increased land values, warranted the hope that the city's debt limit would no longer be an objection, especially as the new route changed the line so as to reduce the estimated cost. The demands for rapid transit had become more and more imperative as the years went by, and it was fair to assume that neither the courts nor the municipal authorities would be overzealous to find a narrow construction of the laws. Incidentally, the constitutionality of the rapid transit legislation, in its fundamental features, had been upheld in the Supreme Court in a decision which was affirmed by the highest court of the State a few weeks after the Board had adopted its new plans. The local authorities gave their consent to the new route; the property owners, as on the two previous occasions, refused their consent; the Supreme Court gave its approval in lieu thereof; and the Board was prepared to undertake the preliminaries for letting a contract. These successive steps and the preparation of the terms of the contract all took time; but, finally, on November 15, 1899, a form of contract was adopted and an invitation issued by the Board to contractors to bid for the construction and operation of the railroad. There were two bidders, one of whom was John B. McDonald, whose terms submitted under the invitation were accepted on January 15, 1900; and, for the first time, it seemed as if a beginning might be made in the actual construction of the rapid transit road. The letter of invitation to contractors required that every proposal should be accompanied by a certified check upon a National or State Bank, payable to the order of the Comptroller, for $150,000, and that within ten days after acceptance, or within such further period as might be prescribed by the Board, the contract should be duly executed and delivered. The amount to be paid by the city for the construction was $35,000,000 and an additional sum not to exceed $2,750,000 for terminals, station sites, and other purposes. The construction was to be completed in four years and a half, and the term of the lease from the city to the contractor was fixed at fifty years, with a renewal, at the option of the contractor, for twenty-five years at a rental to be agreed upon by the city, not less than the average rental for the then preceding ten years. The rental for the fifty-year term was fixed at an amount equal to the annual interest upon the bonds issued by the city for construction and 1 per cent. additional, such 1 per cent. during the first ten years to be contingent in part upon the earnings of the road. To secure the performance of the contract by Mr. McDonald the city required him to deposit $1,000,000 in cash as security for construction, to furnish a bond with surety for $5,000,000 as security for construction and equipment, and to furnish another bond of $1,000,000 as continuing security for the performance of the contract. The city in addition to this security had, under the provisions of the Rapid Transit Act, a first lien on the equipment, and it should be mentioned that at the expiration of the lease and renewals (if any) the equipment is to be turned over to the city, pending an agreement or arbitration upon the question of the price to be paid for it by the city. The contract (which covered about 200 printed pages) was minute in detail as to the work to be done,