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If the few corporations that went out of existence and for which complete data were not available were included in the above data, the percentage of corporations showing increased earnings after the preacquisition period would decrease but slightly. Probably, this change would be more than offset by data on earnings for the several other corporations not evaluated by IRS because the portion of tbeir business in the project area was a very small portion of their total activities.

SUMMARY AND CONCLUSIONS

A total of 211 businesses were displaced from the project during the approximate period 1959 through 1960. Over one-half were proprietorships and slightly over one-third were corporations. There were few partnerships. The businesses ranged from small service and retail establishments relying upon neighborhood trade, to service, wholesale, and light manufacturing establishments relying upon metropolitan and outlying areas. Most of the proprietorships were oriented toward neighborhood trade, while most corporations and partnerships relied upon a larger trade area.

Three-fourths of the displaced businesses occupied rented property. This is significant because tenants frequently do not receive any of the compensation paid for real property.

Approximately 40 percent of all displaced businesses discontinued upon being displaced. Approximately 62 percent of the proprietorships discontinued, while only 9 percent of the corporations and 20 percent of the partnerships discontinued. Some 73 out of 84 discontinued businesses were proprietorships, most of which were very small businesses, many having no hired employees or only one or two.

The proprietors that rented the property they occupied were hardest hit by the displacement. Approximately 68 percent discontinued their businesses upon being displaced. Proprietors who owned their property fared only slightly better since 47 percent discontinued their businesses upon being displaced. The small size of most proprietorships is reflected in their earnings prior to displacement. Approximately three-fourths of the 74 proprietorships for which data were available had average earnings before displacement of less than $10,000. Half bad earnings of less than $5,000. By contrast, approximately three-fourths of the corporations had average earnings before displacement of more than $10,000, most being considerably greater than $10,000 and some being in excess of $50,000. Data on earnings of partnerships were too fragmentary to permit meaningful conclusions.

Approximately 60 percent of the proprietorships and approximately 45 percent of the corporations showed decreases in earnings during the year of displacement compared to previous years.

For those businesses experiencing decreases, proprietorships had decreases well in excess of $1,000, with many being greater than $3,000, while most corporations had decreases in excess of $5,000. Although proprietorships typically had smaller dollar decreases, the decreases constituted a greater impact on their previously small earnings and frequently resulted in earnings during the year of displacement well below $3,000.

A comparison was made of earnings before and after the year of displacement for those businesses that were able to relocate. Slightly more than half of the proprietorships that reestablished elsewhere had average earnings after displacement that exceeded their earnings before displacement. However, it is important that of those proprietorships that did reestablish, slightly less than one-half had lower average earnings after displacement than before displacement. By contrast, only one-fourth of the corporations that reestablished showed decreased earnings in the years after displacement as compared to the years before displacement. Three-fourths showed increased earnings.

An evaluation of earnings by proprietors who discontinued their businesses upon being displaced showed only about one-half were able to maintain or increase the level of earnings they experienced before displacement Limited data on corporations that discontinued showed decreased earnings by them in the year of displacement.

An evaluation was made of earnings received by businesses to determine the proportion that experienced a reduction or an increase in earnings since the preacquisition period. The average of preacquisition earnings for each business was compared with the average of earnings for the business during the year of displacement and years after displacement.

Proprietorships did not fare as well as corporations. One-half of the proprietorships showed increased earnings since the preacquisition period, and one-half showed decreased earnings since the preacquisition period. Decreases were common in the group of proprietors that rented real property and in the group that owned the real property they occupied-being slightly greater in the former. Decreases were common also in the group of proprietors that relocated their businesses and in the group that discontinued their businesses. By contrast 79 percent of the corporations that relocated after displacement and for which information was available had increased earnings since the preacquisition period.

Most cf the proprietorships for which there were insufficient data on earnings during and after displacement could not be included in the income evaluations. Usually, these were proprietorships that had less than $5,000 earnings per year before displacement. A high proportion of these discontinued upon being displaced. If complete data were available for these businesses, the income loss exhibited by the proprietorship group undoubtedly would be greater.

The inescapable conclusion is that the small businesses, usually proprietorships, are least able to withstand displacement. If they reestablish, they are the ones that most often experience loss of earnings in their new location. Also, proprietorships are the most likely to be required to discontinue, and their owners are the most likely to experience loss in earnings during and after displacement. However, corporations and partnerships also may be required to terminate operations and experience decreases in earnings.

The findings here, based on evaluations of actual income reported to IRS, are fully consistent with other studies of business displacement. Although they are based upon a small sample, the findings add weight to the studies of displaced businesses and testimony on them taken by the subcommittee.

8

• See the studies listed in footnote 1 and the statements cited in footnote 2 of this appendix.

APPENDIX G

А REPORT ON THE RAILROAD LESSEE PROBLEM

UNCOMPENSATED LOSSES BY OWNERS OF PERMANENT BUILDINGS OR STRUCTURES CONSTRUCTED ON RAILROAD RIGHTS-OF-WAY OR OTHER PRIVATE PROPERTY, BECAUSE OF LEASE PROVISIONS PROVIDING FOR REMOVAL OF THE IMPROVEMENTS ON SHORT NOTICE, OR AT THE EXPIRATION OF THE TERM

This appendix contains information concerning the noncompensable losses which may be suffered by lessees, permittees, and licensees who have entered into agreements with railroads for the right to occupy railroad rights-of-way for indefinite periods of time, and who have constructed valuable structures and improvements thereon.

The data is as follows: 1. Letter dated March 11, 1964, to Mr. Woodrow L. Berge, Deputy

Director of Real Estate, Office, Chief of Engineers, Department of the Army, Washington, D.C., from Mr. Henry H. Krevor, chief counsel, Select Subcommittee on Real Property Acquisition

of the Committee on Public Works, House of Representatives. 2. Questionnaire prepared by the Select Subcommittee on Real

Property Acquisition of the Committee on Public Works, House of Representatives. Letter dated July 17, 1964, to Mr. Henry H. Krevor, chief counsel, Select Subcommittee on Real Property Acquisition, Committee on Public Works, House of Representatives, from Mr. Woodrow Berge, Deputy Director of Real Estate, Office, Chief of Engineers, Department of the Army, Washing

ton, D.C. 3. Department of the Army report on questionnaire relating to im

provements by railroad lessees and permittees for Select Subcommittee on Real Property Acquisition, Committee on Public

Works, House of Representatives. 4. Letter dated March 20, 1964, from Mr. Loney W. Hart, Chief,

Legislative Services Office, Real Estate, Office of the Chief of
Engineers, Department of the Army, Washington, D.C., con-
cerning questionnaire from Select Subcommittee on Real
Property Acquisition, Committee on Public Works, House of

Representatives. 5. Legislation introduced and passed concerning railroad lessees, permittees, and licensees.

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CONGRESS OF THE UNITED STATES,
SELECT SUBCOMMITTEE ON REAL PROPERTY
ACQUISITION OF THE COMMITTEE ON PUBLIC WORKS,

HOUSE OF REPRESENTATIVES,

Washington, D.C., March 11, 1964. Mr. WOODROW L. BERGE, Deputy Director of Real Estate, Office Chief of Engineers, Department of the Army, Washington, D.C.

DEAR MR. BERGE: Further reference is made to our previous discussions concerning noncompensable losses suffered by owners of structures and other improvements constructed on railroad rights-ofway acquired by the United States in connection with public works projects.

As you know, this problem has been the subject of a number of relief acts by Congress over the past few years. In the present Congress the House has passed two bills, H.Ř. 1136 and H.R. 5160, for the relief of lessees and permittees in Milford, Kans., and Red Rock, Iowa, dam and reservoir projects; and the Subcommittee on Flood Control-Rivers and Harbors of the Senate Committee on Public Works has held hearings on S. 931, a bill providing relief for lessees and permittees in the Red Rock, Towa, project,

Testimony during these hearings and others discloses that improvements generally are located on railroad rights-of-way pursuant to leases or agreements for indefinite periods. The leases may be terminated on 30 days' notice by either party, and, generally, they provide for removal of the improvements by or at the cost of the Tessee on termination. Improvements frequently are substantial, and include structures such as grain elevators, oil and gasoline storage facilities, lumber storage facilities, and others.

We understand also that modest homes have been constructed on railroad rights-of-way by retired railroad employees, under similar leases, and the Small Business Administration has on at least one occasion recognized a structure as security for a substantial business loan.

As you know, one of the questions under consideration by this subcommittee is the desirability of general legislation to relieve lessees of such losses.

We are anxious to have as much factual information on this question as possible, and would very much appreciate your furnishing the data requested in the enclosed questionnaire. Would you kindly review the questionnaire and advise us how soon this information can be made available. Sincerely,

HENRY H. KREVOR, Chief Counsel.

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