52 VALUATION, DEPRECIATION AND THE RATE-BASE
Am. Soc. C. E. Committee, Interest and Taxes. — Referring to
interest and taxes the Committee says:
“ Interest upon the capital invested in the plant up to the
time when it is first operated and begins to have earning capacity
is an unavoidable expense.
“ Under the most favorable conditions it is necessary to raise
the money required for the construction of the work months in
advance of its expenditure and in many cases the whole amount
must be raised before beginning the work in order to insure
against a suspension of operations with the large loss neces-
sarily incident thereto.
“ The rate allowed for interest during the construction should
be the prevailing rate at the time of the valuation, having re-
gard, however, to the variations in rate in different localities
and the character of the property. The rate of interest on
money required for the original plant will generally be larger
than on that required for extensions and betterments as the
corporation naturally has a stronger financial standing after it
possesses a successful operating plant.
“ The amount to be allowed for taxes during construction must
be determined largely on the basis of local tax rates and other
local conditions and in this case, as in others relating to over-
head charges, the original plant and subsequent additions should
be treated separately.”
Overhead in Railroad Construction. — While as in the case of
other items of cost the records of expenditures may be the best
guide when overhead charges of an operating property are to be
determined, they are not always to be accepted without ques-
tion; the appraiser must know whether they are reasonable or
not. It is for this reason that such data as above presented are
of interest to the appraiser. Following this matter further it
may be noted that in valuing the railroads of the State of Wash-
ington Mr. H. P. Gillette ascertained from their records of cost
that their overhead costs were as shown in the following table:
