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The one great rule of composition is to speak the truth. THOREAU The Texas Observer We will serve no group or party but will hew hard to the truth as we find it and the right as we see it. ‘ndent-Liberal Weekly Newspaper 7c :` C3b < 3\\ 1*. a crosses AT&T e, Vol. 51 .\\ When \(Associate Editor Goodwyn is undertaking a study of the economics of power in Texas. In this article he sketches Austin's and Dr. Bob Montgomery's contest with Southwestern Bell Telephone, a volatil issue in the capital now. Subsequently readers may expect descriptions of the consolidated Bell System, utilities, major oil companies, and natural gas.Ed. AUSTIN The legislature is over, the setting is changed, but the players remain the same: on one side, the genial, powerful lobbyist Ed Clark, veteran telephone lobbyist Ed Gossett, and a bevy of lawyers, accountants, and bankers; on the other, symbols of the public, in this instance the City of Austin and Dr. Robert Montgomery, University of Texas economics professor and long-time student of public utility regulation. The same lineup, give or take a few names, last met when the legislature considered Rep. Bill Kilgarlin's bill to establish a state utilities commission in Texas. After hearing Montgomery and various utility lobbyists, the House state affairs committee sent the Kilgarlin measure to sub-committee, from which nothing was heard the remainder of the session. Now to Austin's city hall came Southwestern Bell to request a rate boost from the only Texas agency empowered to regulate it, the local city council. The councilmen, headed by Austin's liberally-inclined m a y o r, Tom Miller, who has been at this game for a quarter of a century, convened to hear the telephone company's rebuttal testimony. A week earlier, Montgomery had presented the city's case in emphatic tones, terming Bell's profits as "outrageous" and summarizing the company's method of computing depreciation with the statement, "Somebody is using mathematics in a way which I would consider immoral." He had cited a $250,000 variance between the depreciation figure shown the council and the amount reported to the internal revenue. This quarter of a million dollars should have been shown as net income, along with another $260,000 the company derived from its advertising in the yellow pages, but did not show as a local profit, said Montgomery. 'Only Game In Town' Against this backdrop, suave Ed Clark led off for the telephone company with a friendly joke. He said he had been a good friend of Dr. Montgomery for 20 years and had once received from him a book on monopoly and the sulphur industry bearing the inscription, "I know tie game Is crooked, but it's the only one in town and we've got to play it." Describing Montgomery as an able antagonist, Clark said "the professor knows just when to use 'outrageous' and 'immoral' and other terms of endearment. But today," continued Clark, "we're gonna show that our bookkeeping is right, it's sound, to the satisfaction of everybodythe FTC, the FPC, the SEC, and everbody touched it, ex cept Dr. Aontgomery. We're gonna show that. We know we are depreciating according to law without a peer in any business in the world. We have Mr. Whitney Harris, the general solicitor for Southwestern Bell in Texas, Mr. Ed Gossett, the general attorney for Southwestern Bell in Texas, and expert witnesses." Clark and Montgomery dueled lightly about one of the telephone lawyers who had once been Montgomery's student and had admitted malting a "B." Said Montgomery with a twinkle, "Well, I wouldn't expect an 'A' student to work for Southwestern Bell." Clark, laughing, agreed. "Yeah, it's a 'B' job, isn't it?" They got down to business then. Gossett said AT&T stock was owned by 1,600,000 people, many of them women. "It's known as the widow's stock. Nobody in the Bell system has ever made any money. It's against company policy even to invest in other stock. But, regardless, the profit of AT&T is not the point here today. All we're talking about is the Austin telephone company ... This is not an adversary hearing, we're here as citizens, the Austin telephone company. We live in a goldfish bowl, said Gossett, "like Caesar's wife, and we are inspected by. the SEC, the FCC, 47 state commissions, and 1500 towns in Texas. We've given wage DALLAS A Texas Ranger captain, E. J. Banks, took the occasion of his address before a law enforcement conference on school desegregation here to criticize the NAACP, failure to provide Negroes "separate but equal rights" and "pride of race," the U.S. Supreme Court for upsetting previous rulings for segregation, and the Supreme Court again for striking down state communist control laws. \(The Observer in Austin asked Col. Homer Garrison, director of the Texas Department of Public Safety and chief of the Texas Rangers, if Banks was speaking for the Department. Garrison replied: \("He was speaking actually as an instructor before a police school. It was not 'supposed to be an open meeting at all. Actually some people came who were speaking actually his own thoughts he was not speaking for the "I want to make crystal clear that I am dismissing this as a police problem, not as an advocate of either integration or segregation," Captain Banks told from 200 to 300 people gathered for the conference. "We must be neutral. We have chosen leaders to decide what to do. I am willing to back them in their decisions." As the principal speaker at the meeting, Banks also said that testimony taken after the Mansfield and Texarkana demonstrations against desegregation showed the Negro students had not asked the NAACP to file suits for them. Segregation, he said, was adopted by whites to protect themselves after Reconstruction. "Our own hands are not clean. If we really believe in democracy," he said, "we would have seen that the Negro should have had equal but separate rights. If we had acted to help him develop his rights instead of having left him downtrodden and kept him from having pride of race, we would not have some of the demands that are now being made." The Texas Ranger criticized the Supreme Court ruling on desegregation; he said it upset previous rulings upheld since Reconstruction. He remarked against the court's ruling on state subversive laws. The meeting had been called by the Dallas Police Assn., which had predicted about 1,000 would attend. Dallas Police Lt. George Butler, who is president of the association, said, "We are not concerned with anything other than police matters in the desegregation issue ... We have planned no discussions of the pros or cons of segregation or the rights or wrongs of the U.S. Supreme Court ruling. That has nothing to do with our jobs at the scenes of desegregation. However much our personal feelings might run the other way, we have to do what the law says. We are sworn to uphold the law." About 40 Negroes were in attendance. They sat with the others on a nonsegregated basis and participated in a coffee break. As an example, he cited a taxicab company purchasing cars for $2,000 a year and depreciating them $500 a year for four years, but discovering at the end of that time that the $2,000 thus set aside would not be enough to buy another cab at the increased price of $3,000. Said Cox: "You would have to use your capital or go into debt to replace that cab. The profits of AT&T have been overstated to stockholdersthe reason is they're using straight line depreciation and not setting aside enough money to replace their property." Harris asked him, "Are you telling the city council that the 'telephone company should use current cost depreciation in computing its profit; and are , you telling them the company should get a fair rate of return of eight per cent?" To both questions, Cox answered "yes." AT&T's Profits The question of what Bell's profit percentage should be occupied much of the afternoon's long testimony. Montgomery had cited Bell's past record of borrowing money to illustrate it could acquire debt capital by paying an average of under four per cent. The company rejected this analysis as "too historical' and said it did not reflect the increased cost of acquiring debt capital in an inflated money market. Cox estimated new issues would cost the Bell system five per cent and that thus a higher profit would be necessary to cover the increased cost. Asserting the cornpany's profit on its equity capital should be ten per cent and its profit on debt capital should cover the latter's five per cent cost, Cox concluded that Bell deserved to make eight per cent as a fair rate of return. Supporting this testimony was Houston Caskie, St. Louis, assistant treasurer of Southwestern Bell. Another major element of the company's rebuttal testimony concerned its accuracy in "separating" local profit from long distance profit. In his opening testimony, Montgomery had cited Bell's financial returns to illustrate his assertion that the company was attributing too much at the expense of its Austin business, and using the depressed Austin return as a basis for requesting a rate increase. Central to this argument was the recent FCC ruling ordering AT&T to cut its long distance rates by $50 million annually. Introduced into the record by Mayor Miller, the reference to the FCC ruling drew the reply from Gossett that it "was the result of socialistic pressure through congressional investigations." This drew laughter from the citizens in the crowded council chamber. Montgomery said the high long distance profits that prompted the FCC decision were the result of the company's policy of putting "too much" of its profit in long distance to the detriment of the local company. The company challenged figures computed by Montgomery that Southwestern Bell had made Deficit Bar Costs $250,000 In Interest James Makes Estimate; State Has Loose Money, But Cannot Spend It AUSTIN The constitutional prohibition against deficit spending has cost the state about a quarter of a million dollars in interest which has been foregone. That's the estimate of State Treasurer Jesse James of how much interest on bank accounts the state has not collected as a result of a complicated system of offsetting special deposits designed to avoid state employees having to pay discounts to get their state salary warrants cashed. In. effect, in order to spare the state employees the loss of discounted warrants, the state has entered into arrangements with banks under which the state it \\ self bears the loss. "We could have probably made, oh, a quarter of a million dollars but we haven't lost anything," James said, reasoning that you haven't lost What you haven't earned, you just haven't earned it. He allowed that the money could have been earned on extra time deposits of state funds in the banks, "but," he said, "you can't do all of this and at the same time ask them to carry you." Here is how it works: Banks receive general revenue warrantsthey honor warrants against the state's general revenue, and then hold the warrants without recompense until the state can pay. The State Treasurer deposits to a bank with general revenue warrants cash up to 95 percent of the amount of the warrants. The bank puts up the warrants as collateral. This cash goes into a special account which the bank cannot apply against the warrants. The state earns no interest on these special deposits. Where does the state get the money for these accounts, if it's so broke? And why not use it directly to pay state salaries, instead of going into debt and losing interest on what amounted to $60 million at one point? The money, James explains, is "just coming through the Treasury Department. We're not keeping any special fund. It's what we call the overall money." He says further that the Treasury has to keep enough money on hand "to operate" so that claims from the state departments can be accommodated at once. Evidently there is a surplus of $50 million, more or less, most of the time. Why doesn't he take that surplus and put it out for interest? the Observer asked James. "It just revolves around," he responded. But, he conceded, "We could have kept a little bit more in time accountsa little bit more in the time accounts." Why not pay the state's debts with, the "overall money" directly? "We can't do it," James said. "We'd have to have a constitutional amendment." *AS, AUGUST 14, 1959 Ranger Scores Court; Not Talking for DPS increases every year for the last 11 years. Our profit in 1957 was only 3.22 per cent and in 1958 only 2.96 per cent. Even if you include directory advertising that just adds one-half of one per cent to the total. As for depreciation, we will have expert witnesses ..." Lawyer Harris had all of his witnesses sworn and called first the President of Austin's Capital National Bank, Howard Cox. In response to Montgomery's charges that Southwestern Bell keeps two sets of books on depreciation, one for rate hearings and one for tax purposes, cox outlined three methods of computation: "appraisal depreciation," or the actual physical deterioration of equipment; "current cost depreciation," or evaluation of property by the amount of money required to replace it at current prices; and "book depreciation ?" or original cost less depreciation, used for tax purposes. Cox described the current cost