THE PACIFIC RAILWAY DEBTS.
THE PACIFIC RAILWAY DEBTS.
The thirty years' term of the original loan of the United
States to the Pacific Railroad has rolled round, there matured
January 16, 1895, the first installment of bonds issued to the
Central Pacific Railroad Company for the first piece of road
built and accepted under the act; during the years 1896,
'97, '98 and '99, chiefly in 1898, other installments fall due,
aggregating in all $64,623,512.* These six per cent bonds
are a full obligation of the United States, as between the
holders and the maker; there is nothing for the Treasury
to do, but to pay them, or to extend them on acceptable
terms. Since they are security for circulating bank notes
the latter course can easily be followed, at not more than
three nor less than two per cent, at the convenience of the
Treasury, and these need give us no further concern here.
But as between the maker of these subsidy bonds and the
companies who first received them they constitute a debt
nominally due and payable by the latter, or their successors,
together with arrearages of interest also advanced, and only
in part reimbursed by transportation services, or provided by
sinking fund accumulations. The amount of this arrearage
may now be closely approximated, and it is evident that,
dealing with all the debtor companies together, it will fall
not far short of the principal sums, or about $125,000,000 in
all, of which fully $70,000,000 will be for the Central Pacific
and $55,000,000 for the Union. The exact figures at any
given date cannot be stated with precision on account of the
mass of counter-credits for services delayed, disputed or
otherwise in suspense. Indeed, certain judgments for large
aggregate amounts, not subject to application on these debts,
* The repayments by services in the twenty-five years of through operation
equal one-fourth only of the interest disbursements or about one and a half per
cent per annum on the debt.
[684]
Condensed Statement, showing bonds issued in aid of Pacific Railroad Companies and the
amounts reimbursed thereon as certified by the United States Treasurer at
close of business, November 30, 1894..
Union Pacific (Inc. Kansas and Central Branch).
Principal, $35,139,5*2
• Interest paid by United States, 55,829,069
Total disbursed, $90,968,581
Reimbursements:
By transportation services, . . $24,525,032
On
00
C/l
By cash per cent of net earnings,
445,335
24,970,367
Apparent balance of debt, 165,998,214
Deduct Sinking Fund in United States Treasury, ...... 14,311,157
Apparent debt unprovided for, .$51,687,057
Central Pacific (Inc. Western).
$27,855,680
43,505,552
$71,361,232
$7,208,406
658,283
7,866,689
$63,494,543
5,707,205
$57,787,338
The Sioux City and Pacific, 100 miles (leased by the Chicago and Northwestern), $1,600,000 bonds may be
ignored. The Central Branch Company is controlled by stock ownership, but road has been leased to the Missouri
Pacific Company. Forecasting the further interest payments, with deductions for services and sinking funds to
maturity, the balance may be estimated at $55,000,000 for the Union, and $70,000,000 for the Central. The latter
will, however, have sinking funds for prior lien bonds to an amount approximating $15,000,000.
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34 Annals of the American Academy.
are nevertheless withheld as offsets to this accruing claim of
the government.
By the Act of 1862 construed literally these advances were
secured by a '' first mortgage'' (subsequently in 1864 waived)
upon the condition that '' said company shall pay said bonds
at maturity'' and that on a failure or refusal to redeem said
bonds or any part of them, when required to do so, the
United States might take possession of the aided property
for its own use and benefit. There are other complicated
provisions for partial current payments for service and in one-
twentieth of the "net earnings." It is evident that these
cautionary clauses were properly introduced to secure some¬
thing beyond and more important than the return of the
face value of the bonds and interest at a given date, viz., the
early completion of the road through, or, that failing, the
control of the corpus, and if need be, its transfer to other
hands. Although following the formula of indentures to
secure the return of money, the acts and successive amend¬
ments, their titles and the whole scope and purpose was
rather to ensure the doing of certain work without delay,
the creation of the road, its use, enjoyment and prestige
rather than the customary loan of money for hire. A gen¬
eration has passed since the contract was made, but it must
be construed with the lights then before the parties.
This view is borne out by reference to the emergency of the
time and the antecedents in military and postal transportation.
The supply of Rocky Mountain forts, and a scanty overland
mail had cost as much as $7,200,000 a year, while animal
power was employed and while the government was insurer
of the freight. It is fair to assume that the expectation of
the parties was that the government patronage would itself
so expand after completion of the roads, as to cancel the
current interest, $3,900,000 per annum, and that the sub¬
sequent participation in the net earnings, in the course of the
eighteen or twenty years allotted, would be so considerable as
to liquidate the principal sums, or nearly so. That both
[686]
The Pacific Railway Debts. 35
sources failed to do so much is in good part the voluntary-
doing of the government and the misfortune of the com¬
panies. It is difficult to reconcile these facts with the theory
of a right of foreclosure long after completion, merely to
collect a residue of subordinate debt.
The legal status of this debt is that of a book account,
*
the security for which is, or rather was, a statutory lien on
the aided portions of the road and the corresponding equip¬
ment. Even if recourse to foreclosure could fairly be
claimed, or were sustained by the higher courts, it can
readily be shown to be a barren remedy. As a punishment
aimed at transgressors it would miss the mark and injure
only innocent third parties who are already sufficiently
victims. Except for the decorum and its terror to under¬
lying claims, the second mortgage theory might as well be
abandoned and all thought of proceeding on that line. Of
the three courses open to Congress, but one has any serious
claim to attention. These three courses are:
I. Relinquishment of the debt, except as repaid by current
services.
II. Attempted foreclosure and possession, followed by
transfer to new owners or lessees, or by operation for govern¬
ment account.
III. Extension of the debt at such rate of interest as the
earnings will justify after providing for necessary prior fixed
charges.
First.—Pleas have been made before Congressional com¬
mittees, not without ingenuity, to have these debts waived
and expunged, or rather commuted into a perpetual obliga¬
tion to carry mails, troops and supplies. Had this enter¬
prise failed to pay its way, as was expected, or had its
promoters paid every demand except only profits to the
shareholders, there are many plausible and equitable reasons
why a magnanimous course would be opportune. Nobody,
however, has had the hardihood to formulate such a Bill or
Report. On the other hand, there are more grave reasons
[687]
36 Annals of the American Academy.
why the claim should be treated as a valid debt, to be repaid
to the last dollar. It will never do to set up the Treasury
as a target to be aimed at on the principle of condoning
failures. The Nicaragua Canal Company in some shape
will be the next applicant for Treasury assistance, and no
worse precedent t (for its success) could be devised than to
condone the debt to the Pacific Railroad Companies. It
would be preferable to let it stand though it were indeed a
hopelessly " bad debt."
Second.—Nor is the expediency of resort to foreclosure
any more hopeful. As already stated, the right of the
government to take possession under this statutory mortgage
is not clear. Beyond doubt its right to do so was in full
force until the completion of the roads was a fact or in plain
sight. With the junction of the rails in May, 1869, that
right lapsed forever, except in the improbable contingency
of an abandonment or neglect (and then only to supply the
omission), an event not likely to arrive unless by the com¬
plicity of the government. Of course, it is within the
sovereign power to take forcible possession of this railroad;
subject, however, to the obligation to compensation for
private property taken; but that is a general power not
derivable under its statutory claim. The astute Senators
who framed and supported the Thurman Act of 1878, willing
as they were to tie the hands of the companies, reached the
conclusion that their power over them was not absolute, but
only forbade dividends to the stock until after twenty-five
per cent of the net earnings had been applied to the subsidy
•debt. The Supreme Court, by a bare majority, adjudged
that Congress had the power over the income of the com¬
panies—not by reason of this statutory pledge, nor yet by
virtue of the reservation, in words, of the right "to alter,
amend or repeal," but by the absence of power in one legis¬
lature to bind its successors; which right, be it observed, is
limited where contract or vested rights have intervened to
what is just and reasonable as between the parties. This
[688]
♦
The Pacific Railway Debts.
37
latter is a function for the courts, and not for Congress, to
declare.*
The practical situation is rather complicated than cleared
by the assertion of this right of foreclosure. To begin with,
the prior liens, equal in amount to the face of the subsidy,
must be assumed, and either paid off or extended. Suppose
they were to make common cause with the stockholders and
claim the road itself, or demand their money, they could,
with the same cash, turn round and parallel every essential
portion of aided road, and ally themselves with branches
and terminal lines on which the United States has no lien.
No one knows this advantage better than the directors of
these companies. Quite recently a new Pacific line (the
Great Northern, the fifth on United States territory) has
been completed to Puget Sound at a cost of one-third that of
the original Union-Central line. Furthermore, who are to
be the bidders at a sale, outside of the first mortgage holders
and the government? Much as the managers of railways
quarrel among themselves for a division of freight money,
there is too much esprit du corps among them for any respon¬
sible company to appear as a competitive bidder. It would,
moreover, be in danger of speedy and condign punishment
from the owners of these indispensable branches, feeders,
terminal facilities and tributary ocean steam lines. No one
can afford to own the piece of railroad laid across these dry
deserts and high mountains and which does not also have its
own entrance to either Council Bluffs, Kansas City, Denver
or San Francisco. The nation is bound by honor and contract
to respect the claim of outsiders to the extent of $25,000 per
mile for the eastern portion of the main line, and about
$35,000 per mile for the western portion.
Foreclosure is not only no legal solution ; it is no practical
solution. It is the forerunner of mischief only. In his
volume, giving a compact history of the work and the tribu¬
lations, entitled the "Union Pacific Railway,'' Mr. John P.
* See U. S. Reports on Interest case and Thurman Act.
[689]
38 Annals of thk American Academy.
Davis, though accepting the right of foreclosure without
question, in a concluding chapter as to its future sums up
the equities of the case very fairly and ably, and abundantly
disposes of the expediency of it by showing the multiplied
difficulties, perplexities and expense of an attempt to operate
the 2494 miles of road on which its claims rest. As matters
now stand, it requires, to manage this claim, a set of gov¬
ernment directors, a committee of each House of Congress,
a special bureau with accountants and engineer in the depart¬
ment, and at intervals a special commission to make an
independent report. If the government owned the roads, its
duties would be still more numerous and embarrassing.
One may have much sympathy with the people of Cali¬
fornia—a hundred thousand of whom petition to have the
decision take this course. The evils they so eloquently
portray, however, are those which other parts of the country
share with them, to a greater or less extent. They see other
communities enjoying the benefits of a sharp competition in
rail-carriage, in through freights carried at bare train
expenses, while the burden of fixed charges and adminis¬
tration is left to be sustained by local traffic; that is to say,
a portion of the traffic of railroads (like the business of the
Post-office, which tolerates no competitor) is done at less
than the^service costs; it is deemed better to have it, and
keep the larger force of men and rolling stock employed,
than to lose it. The people of California would like the
government to provide them with this cheap carriage for
their interior freights on the same basis as the overland
business, which they now enjoy to the full, since private
capital is unwilling to do so. The fares and freights in Cali¬
fornia itself are not high nor unreasonable, tried by any
standard. This is the same grievance, cropping up in a
hundred other places, which the Interstate Commerce Com¬
mission was organized to grapple with, but which it can do
but little to alleviate.
The suggestion emanating from the same State that the
[690]
The; Pacific Railway Debts.
39
Attorney-General should bring suit against the original
directors of the railway companies, to recover large sums
wrongfully obtained, is not a fortunate one. As a means of
reimbursing these maturing claims, it is inadequate. This
course was, in fact, tried years ago, as a sequel of the Credit
Mobilier scandal, before the Circuit Court at Hartford, when
the court ruled that it was for the Union Pacific stockholders,
not the government, to move, as they were the parties
wronged, if any. In like manner it is the stockholders of
the Central Pacific (now for the most part in Europe) who
are at liberty to bring suit, if anybody, for restitution of
plunder, under this exceptional California statute made to
curb the dishonesty of mining company officials, but easily
evaded as to all. Will the stockholders do so? No; for the
reason that it would be throwing away good money after
bad; and, besides, they have to fear the possible hostility of
the same men, or their successors, intrenched in power, and
able to injure even if dislodged. It is easy for the essayist,
the lawyer or the legislator, unfamiliar with the mysteries
of Wall street and railroad finance and management, to
make charges, frame bills and indictments, but not so the
practical work of negotiation and redress.
An illustration (one of many drawn from the checkered
history of the Union Pacific Company) may serve to show
how difficult is the situation in this subdued railroad war¬
fare, and how embarrassing at times is the choice of courses,
with the best disposition to follow the ethically right.
While the Union Pacific road was under construction, and J.
Gould and J. Fisk were in full control of the Erie, the latter
made an attempt to 4 4 break into '' the Union Pacific Com¬
pany, the associate supposed to be in the background. Some
years later, after they had been ousted from the Erie, Gould
had acquired the Missouri Pacific, of which the Kansas
Pacific (subsidized) was the natural prolongation toward
Denver and the Pacific. By the Act of Congress the Union
Company was required to operate the main line with the
[691]
40 Annaes of the American Academy.
other eastern branches "as one continuous line." It
claimed that to charge the local rate from the Cheyenne
Junction, midway of its length (which rate was, in many
cases, higher than the rate throughout the entire Union
Pacific line) was a sufficient compliance with the act. Suits
were carried from court to court, but in the meantime the
Kansas road was being starved, its development cramped.
Its stock went down to near zero and the first mortgages to
50. This was Gould's opportunity, which, with character¬
istic nimbleness and secrecy, he improved. He acquired
enough stock of the Union to become a director and all of
the Kansas that he could buy, in open market or privately.
He was thus on both sides of the trade and informed of the
counsels and plans of both parties. When it became immi¬
nent that the Supreme Court would have to decide in favor
of the Kansas Company, he suggested a consolidation of the
two. The other directors demurred—for obvious reasons—
whereupon he replied in effect: '4 Very well, gentlemen; as
you like; but if you refuse the Missouri and Kansas Com¬
panies will build from Denver to Salt Take and the Central
terminus at Ogden, and then where will you be?" This
alternative would have been a proper and feasible thing to
do. His views prevailed and the result was an exchange
of share for share of stock, the assumption of the bonded
and floating debt of the impoverished partner company,
payment of deferred interest; in all a profit to the shrewd
speculator and his friends of not less than ten millions, and
perhaps nearer twenty.
There would indeed be poetic justice, and also justice of
the law and constitution, if some of these extorted gains
could somehow be recovered for the unfortunate small stock¬
holders, who are the parties really defrauded. The govern¬
ment, as we shall presently see, may recover its entire claim
without allowance for equitable set-off, but how and whence
are the confiding shareholders to get back their money when
a whole century's earnings are to be pledged to others in
[692]
The Pacific Railway Debts.
41
advance of them ? True, the Attorney-General has moved
against the Stanford estate, ostensibly on behalf of this
maturing claim of the government, but it is likely that this
was intended and understood by counsel more to 1' stay
waste'' of the assets than in the hope of securing any part
to the Treasury, and in this way the prosecution is a real
service to the Stanford University, rather than an injury, as
is sometimes alleged. Had all the great fortunes made out
of this government subsidy experiment been disposed of for
objects as worthy, and placed in as enlightened and compe¬
tent hands as this one, Congress and the public might indeed
overlook or condone the irregularity of their acquisition.
There is but one honorable way in which approximate
justice may be done to all parties concerned in this Pacific
Railroad venture, but, alas! it is not free from difficulties.
If, notwithstanding the objections to government ownership,
it is decided to take these defaulting companies' property,
the only fair way is to authorize the Secretary of the Interior
to purchase the stock of both, to be delivered within ninety
days, at say $50 per share, at which rate it would secure
nearly all the $68,000,000 of Central, and $60,000,000 of
Union, at a cost under $64,000,000. This would double its
original investment, but by careful nursing it might prove a
judicious purchase, since it would carry control of four or
five times the original aided mileage. This policy need not
be urged on behalf of the shareholders, but on the ground
of fairness. It is one of the curses of corporate management
that out of it the managing directors can enrich themselves,
while their confiding fellow-shareholders are impoverished..
In this respect the Pacific Company officials have been con¬
spicuous offenders. If the legislative favor is to be invoked
on behalf of anybody besides the local patrons of the road, it
may with equal reason be asked on behalf of defrauded and
comparatively helpless investors in the stock, many of them
women and orphans dependent upon the expected income,
and none the less deserving because living abroad; they
[<>93]
42 Annai^s of the American Academy.
trusted to the honor and dignity of an American enterprise
in which the government itself was chief creditor.
Third.—The government would seem to be shut up to the
third remedy. Compulsory or pursuing legislation is at best
futile; the sovereign authority cannot be resorted to except
as an extraordinary or war power; assignment of the stock¬
holders' rights is hardly practicable, because it is but a first
step in an untried policy looking far beyond the recovery of
the debts. There remains the alternative of mutual accom¬
modation. Valuable as are these lines of railway with their
affiliated connections, in the hands of their owners; the co¬
operation of stockholders is necessary to meet these onerous
claims. The margin between solvency and insolvency is
too narrow to tolerate clashing or forcible measures. The
nation being a large customer of the roads is enabled to get
some current return upon its outlay, the equivalent of a low
rate of interest. By simply withholding the compensation
for transport, it gets, taking a series of years together, a rate
of one and a half per cent on the new debt (or three per cent
on the old); or taking the corporations separately about two
per cent from the eastern and one per cent from the western,
the disparity being caused by the double volume of public
service accruing to the Union Company. An insurrection,
or foreign war, might carry the yield much higher. In view
of the equitable considerations above named, and the fact
that whatever the amounts demanded, and time granted,
the payments must be a tax upon the local traffic, is not
this enough and a fair basis for commutation of interest ?
How about the repayment of the principal ? Some induce¬
ment should be provided for its early liquidation. The ma¬
turity of a fraction of the subsidy bonds does not alter the
moral, nor seriously the legal, status of the parties. It is
the duty of the nation to help the credit of its debtor where
its own claims are not prejudiced thereby. It can grant an
extension of time, a long time, without sacrifice, and as it
can do nothing practicable but that, that should be done
[694]
The Pacific Railway Debts.
43
willingly and helpfully. This extension need not be as
great as some of the bills before Congress provide, viz., a
fixed period of fifty or a hundred years, all of which is to be
consumed in the process; but ought to be a maximum period
of a hundred years with an inducement to shorten the time.
Mr. Charles Francis Adams, while president of the Union
Pacific Railway Company, not long ago, stated to a com¬
mittee of Congress that he expected to repay the govern¬
ment advances at maturity. He probably did not refer to
the arrears of interest, but to the principal only. In less
than two years his company was pledging all its treasury
assets (a hundred millions face value), as security for a loan
of twenty millions to meet floating debt, and soon after¬
ward passed into the hands of receivers as a bad insolvent.
In finance the optimist, however delightful as a man, is a
great danger to himself and especially to his friends—wit¬
ness the examples of M. de Lesseps, the Barings abroad, and
Messrs. Jay Cooke, Henry Villard and others at home.
The mistake arose in overestimating these treasury assets,
stocks and bonds on tributary lines.
The conduct of the negotiation has passed from the presi¬
dent of the company to a tripartite combination of the gov¬
ernment directors and a reorganization committee of bond¬
holders or the stockholding directors on the one side, with
the two committees of Congress and the Executive on the
side of the government. No final settlement is likely to be
reached before the new Congress convenes, both because of
want of time to thrash out so complicated a question, and
because a majority of each House lacks confidence in the
recommendations of its committee. It will take such a
body a long time to discover for itself the controlling ele¬
ments of this settlement, since it will not give credence to its
own organs, nor to the advocates of the railroad companies.
These elements are:
(a) The efficient maintenance of the road as a military
and commercial route.
[695]
44 Annaes of the American Academy.
(b) The government demands must be drawn from local
traffic, the competitive through traffic yielding little beyond
train expenses.
(c) Some prospect of moderate dividends, in the near
future, should be held out to stockholders; otherwise the
management will be poor and the stock a foot-ball of Wall
street.
([d) The government claim may properly be waived in
favor of the depressed industries along these interior lines,
and in favor of certain desirable permanent improvements
for the general public benefit.
(e) The earning power of the properties cannot be ex¬
pected to improve much in the next thirty years.
It requires no demonstration to prove that large systems
of railroads cannot permanently be operated by receiverships
under the order of courts, nor that the proper custodians of
such property are the owners. A railroad at best is a very
complicated organization, and the situation of these aided
roads is full of special detail and complications. To ensure
efficient repairs and renewals, to secure money, materials and
service at the best rates, there must be something like per¬
manence and self-interest in the management. The govern¬
ment, not less than the minor patrons, is interested in the
safe and certain transmission of mails, troops and supplies
far beyond its interest in the early liquidation of this debt.
The Oregon branch of the Central Pacific is now more
necessary as a military line than is any other, except the
Southern Pacific along the Mexican frontier, and neither of
these roads is likely to be paralleled for a century. Both
portions of the aided lines have become integrate parts of
vast complex systems nearly 10,000 miles in extent, with
their own steamship lines, hotels, coal mines, etc. Dis¬
entanglement has become well-nigh impossible. Joint
ownership is less difficult.
The Union Pacific has for years been estopped from paying
dividends. This has not benefited the United States a
[696]
The Pacific Railway Debts.
45
particle; it was a restraint applied by Congress years too
late. The result might have been foreseen; high rentals^
including guaranteed dividends of branch and tributary
lines, wholesale construction of new lines with guarantees of_
interest, or "constructive mileage" allowances. The profits
have gone to insiders, while the entrapped investors have
remained shorn just the same. The Oregon Short Tine, the
Northern Utah and Montana, the Denver and Gulf are
specimens of the absurd competition with neighbor companies
for territorial control. The receivership will enable the in¬
solvent to relieve himself of the excessive load of some of these
burdensome leases, guarantees and preferences; but others of
them will have to be retained as a charge upon the main
line for many years.
The Reorganization Committee of the crippled Union
Pacific bondholders, in which the government is amply
represented, is reported to favor the very customary device
in such cases of a " blanket mortgage," covering main line
branches, and Treasury assets, of an amount large enough to
cover all outstanding bonded debt, estimated at $140,000,000,
of which it is proposed to allot nearly one-half to the United
States in lieu of its existing claim. The rate of interest on
the latter is to be about two and a half per cent, and on the
other portions of the issue four and five, according to the
priority and merit of their present holdings. If the stock¬
holders deliberately jchoose. thus to advance the lien of the
government to that of co-equality with the other bondholders
and to postpone their hopes of returns for a century, it is an
act of uncalled-for self-sacrifice. No one will complain,
unless the first mortgage holders refuse to accept the security
thus diluted. To carry out such a plan the government
must step in as guarantor that the entire loan shall be taken.
Who else is to advance the money to non-assenting bond¬
holders ? As a dilatory device it may answer, but not as a
settlement. It does not require the prophetic gift to foresee
that this is practically an irredeemable issue. With the first
[697]
46 Annals of the American Academy.
unfavorable year's business there would be a default, and
the settlement would all have to be gone over again, with
the government in a different situation—that of half owner.
Besides, it fixes the payment at the full term of fifty or more
years, there being no provision for the reimbursement for
the Treasury bonds earlier than those in private hands.
Again the government has no right to have its security
improved, except for valuable consideration. The mere
extension of time for payment is not an equivalent; it is
not a forbearance—it is a necessity—of the creditor. Far
better would it be to make some allowance of interest on
principal in consideration of the earliest practicable pay¬
ment consistent with the stability of the roadway and
structures and the liberation of the local customers.
The Central Pacific Company seems to have escaped the
vigilance of Congress, as it was not included in the estoppel
of dividends. Like the Union it paid as high as six per cent
dividends for a few years (this was the period during which
the stock was unloaded on the public), then suspended
altogether, after which it resumed at the rate of two per
cent, until the financial stringency of 1893. Inasmuch as a
third part of its mileage is non-aided, and this the most
profitable in operation, there was no injustice in this, as
moderate contributions were simultaneously made to first
mortgage sinking funds, and the Thurman Act complied
with. For the future, however, it would be well to provide
that neither of these three corporations should be allowed to
divide as profits more than two per cent per annum, either
on their own shares or of any controlled or leased line, on
the existing basis of stock to mileage, and not in any case
unless actually earned, until at least one semi-annual install¬
ment of the government claim had been anticipated, or
unless some equivalent concession had been made to the
non-competitive local shippers and passengers.
None of the bills heretofore reported to Congress contains
any provision for waiving the claim of the government on
[693]
The Pacific Railway Debts. 47
behalf of the settlers and industries tied up to this aided
line and unable to use any other. This is a thing worth
guarding. In like manner, the public claim may be waived,
or rather its acceleration may be waived, in favor of two
important improvements at the California end of the road,
which obviously must remain in abeyance until this settle¬
ment is effected or provided for. One of them is a ten-mile
tunnel under the crest of the Sierra Nevada range, thus
obviating some 2500 feet of elevation, and avoiding nearly
all the snow-galleries and sheds, with their risks, incon¬
venience and expense. The other is a bridge across the
Straits of Carquinez, to replace the ferry transfer. The cost
of these may be roughly estimated at $10,000,000 and
$2,500,000 respectively. There should be no increase of
stock for either.
With the supporting co-operation of Congress the out¬
standing first mortgage bonds of main line and essential
branches may be refunded into new consolidated bonds,
bearing four per cent interest, secured by prior liens on the
whole property. This authority ought to be cheerfully
granted, for without it the companies may not be able to
refund at less than five. Here is a saving, not at the expense
of the government, nor the patrons, nor the stockholders;
it is a sort of relinquishment of interest on the part of
capitalists for increased security and immunity, which all
concerned should willingly accept. To whose benefit should
this saving of two per cent on say $120,000,000 of under¬
lying mortgages inure; to the companies, or to the govern¬
ment ? Unhesitatingly, to neither exclusively, but to both
in common. Here then is a source whence $2,400,000 may
be drawn yearly, and half that much at least can be spared
at once for appliance on the capital of the subsidy debt.
[699]
48
Annals of the American Academy.
Condensed Table, showing the capital, bonded debts, sink¬
ing fundsy of the Union and Central Pacific Railroad
Companies approximately as of recent dates.
Union Pacific Railway Company.
(Including Kansas Pacific, but excluding Central Branch.)
OUTSTANDING.
Capital Stock, main line, 1827 miles 160,691,050
Bonded Debt :
First mortgage, main line (no
sinking fund) $27,229,000
First mortgage, Kansas Pacific
and Denver and Pacific . . 12,209,000
Total having undisputed prior¬
ity over United States lien . $39,438,000
Kansas Pacific, on aided 395, and
non-aided and land grant . . . $11,724,000
Union Pacific collateral trust . . . 11,224,000
Union Pacific sundry earlier trust
bonds 12,033,000
Union Pacific sundry mortgage
bonds on portions 4,559,635
Total liens subordinate to United
States claim $39,54°,635
Total funded debt Union Pacific
roads proper $78,978,635
Deduct:
Sinking funds, estimated . . $5,000,000
Land, cash and funds .... 10,807,357
15,807,357
Bonded debt, exclusive of Uni
ted States subsidy
$63,171,278
United States Aid Bonds :
Principal Union and Kansas
Pacific
$33,539,512
Add interest disbursed to Nov.
30, 1894
55,829,069
[700]
The Pacific Railway Debts.
49
Total principal and interest ad¬
vanced
Less repaid by services and
United States sinking fund,
etc., as per Treasury ledgers
Apparent net debt to the United
States •« •»«•««•••
Total debt net for account of its
own lines . , \ $118,258,341
The bulk of this debt bears six per cent interest, and the average is
near six.
The present fixed charge would seem to be about $8,000,000 for
interest exclusive of rentals, guarantees and sinking fund require¬
ments, $1,250,000 per annum, largely on branch lines and feeders.
Besides the 1827 miles of its own the Union Pacific controls by stocks,
bonds, leases, 5868 miles, on account of which it incurs large obliga¬
tions. Many of these may be scaled down.
Central Pacific Railroad Company.
(Including Western Pacific.)
OUTSTANDING.
Capital Stock, of which $724,500 is held in Treasury in
trust $68,000,000
Bonded Debt:
First mortgage, main line and branches,
1360 miles . . . $45,038,000
Land bonds 2,837,000
Total having undisputed priority over
United States lien $47,875,000
Fines of 1939 (issued since lease of road) . 11,000,000
Total bonded debt Central Pacific road
proper $58,875,000
Deduct : Company sinking funds, exclusive
of land, cash and notes, $500,000 . . , . . 10,698,702
Net balance company bonded debt . . . $48,176,298
[701]
$89,368,581
34,281,518
$55,087,063
50 Annans of the American Academy.
United States Aid Bonds :
Central Pacific and Western Pacific prin¬
cipal 127,885,680
Interest disbursed to 1894 42,669,882
Total principal and interest advanced . . $70,555,562
Less repaid by services, cash and sinking
fund 13,671,558
Apparent net balance, December 31, 1893 . . $56,884,004.
Total net debt for account of its own lines $105,060,302
The Central Pacific Railroad is leased to the Southern Pacific Com¬
pany, which agrees to pay interest and fixed charges. Net earnings
were sufficient to meet charges but not dividends in 1893. For 1894 the
financial condition is not improved.
The original charter conferred the power of consolidation
on these four or five subsidized corporations, after comple¬
tion, and it would have been wise policy to have merged the
two main companies years ago, and thus have saved much
friction between them, and avoided the consequent building of
superfluous lines. The Union Pacific has had the misfortune
of internal dissensions almost from the first, and has not always
been judiciously financiered; its burdens are unduly swollen,
and its field of operations open to assaults of its rivals from
which it suffers continually. The lease of the Central
Pacific to the Southern should be canceled, and the Union
take the place of the Southern. If the stockholders of
both companies would but take the trouble to register their
shares in their own names, and authorize an equitable con¬
solidation, terms could be found and this consummation
promptly reached. The Central Pacific managers (who are
now only small stockholders) have been stubborn for their
own advantage, and have thus far presented a united front.
Perhaps the two cannot be dealt with by legislation on
exactly the same footing, but in some way a sort of coercion
could be put on one or the other, to promote a consolidation
which would benefit the community at large.
[702]
The Pacific Railway Debts.
5i
For the sake of simplicity it would be preferable to have
the amount of new indebtedness, when ascertained, cut up
into one hundred annual (or preferably two hundred semi¬
annual) installments of the principal sum, one of which
shall become payable each six months, together with the
interest on all deferred payments. It is possible, of course,
to add the whole interest at once to the principal and then
divide this into two hundred equal payments; but this only
excites distrust, and nearly the same uniformity of require¬
ments can be reached by a graded rate of interest commenc¬
ing at one and one-half per cent for the first ten years, with
a gradual increase toward six per cent for the last decennium,
with a proviso that, in the event of unlooked-for prosperity,
the remainder may be canceled at any time at the then pre¬
vailing rate. This would create a powerful inducement to
extinguish the government claim at the earliest rather than
at the latest date. The practical working of this plan may
be seen from the subjoined statement, for the two com¬
panies combined (of which about sixty per cent would be
borne by the Union and forty by the Central), whereby, if
the debt were anticipated in the forty-ninth year, the average
rate of interest paid would be 2.2 per cent; if on the seventy-
fourth year, 3.1 per cent; and if allowed to run to maturity,
3.3 per cent.
It would not be difficult to frame a much-needed section or
two in amendment of the pending bills which should secure
these salutary ends: (1) To enhance the borrowing power
of the debtors; (2) to provide for an anticipation of the
subsidy debt in advance of the prior liens; (3) to promote a
consolidation, and at the same time dispense with the cum¬
bersome supervision of directors, bureau and commission;
(4) to shield the local traffic from undue oppression; (5) to
encourage the construction of certain great permanent struc¬
tures, and to insure the maintenance of a superior roadway;
(6) to prohibit payment of dividends by lessor or lessee
companies without the consent of the Secretary of the
[703]
52 Annals of the American Academy.
Interior, or in excess of two per centum per annum, so long
as one-half of the obligations delivered to the United States,
together with the interest accrued thereon, remain unre¬
deemed.
Statement showing the operation of an annual payment of
one per cent of a debt of $125,000,000, with a progressive
rate of interest on deferred payments, so as to require
approximately uniform semi-annual installments ; and also
afford an inducement to the debtor to cancel at the earliest
practicable date.
Rate of Interest.
Total
Outstanding
Decennium,
Per cent.
Year.
Interest.
Annually.
Principal.
1st to
IOth
I
1st
$1,250,000
$2,500,000
$125,000,000
nth to
20th
^Yz
Iith
1,737,000
2,987,000
112,500,000
2ISt to
30th
2
2 ISt
2,000,000
3,250,000
109,000,000
31st to
40th
3ISt
2,187,500
3,437,500
87,500,000
41st to
50th
3
41st
2,250,000
3,500,000
75,000,000
51st to
60th
3/2
5ISt
2,187,500
3,437,500
62,500,000
61st to
70th
4
61 st
2,000,000
3,250,000
50,000,000
w
8-
r+
O
80th
aY
7lSt
1,687,500
2,937,500
37,500,000
81 st to
90th
5
81st
1,250,000
2,500,000
25,000,000
91st to 100th
6
91st
750,000
2,000,000
12,500,000
The amount of interest and the total annual requirements for the
intervening years would be less by sums varying between $12,$00 in
the second year to $75,000 in the ninety-first year, and are readily
ascertainable.
Richard T. Colburn.
Elizabeth, N. J.
[704]
The following papers, which are of particular interest to
Students of Railway Problems,
have appeared in the Annals and been reprinted in
SEPARATE EDITIONS :
Reasonable Railway Rates.
By h. T. Newcqmb, Interstate Commerce Commission.
Price, 25 cents.
Peaceable Boycotting.
By C. a. reed, Esq., Boston. Price, 25 cents.
Relation of Taxation to Monopolies.
By Dr. Emory R. Johnson, "University of Pennsylvania.
Price, 25 cents.
Pacific Railway Debts.
By R. T. colburn, Esq., Elizabeth, N. J. Price, 25 cents.
Railroad Passenger Tariffs in Austria.
By Miss J. J. wetherell, Philadelphia. Price, 15 cents.
Railroad Passenger Fares in Hungary.
By Miss J. J. wetherell. Price, 25 cents.
COMPLETE LIST ON APPLICATION.
American Academy oe Political and Social Science,
Station B, Philadelphia.
Inland Waterways,
Their Relation to Transportation,
BY
EMORY R. JOHNSON, Ph. D.,
Instructor In Commerce and Transportation, in the Wharton School of Finance and Economy,
University of Pennsylvania.
164 Pages, Octavo.
Price, $1.00, bound in paper; $2.00, bound in leather, cloth sides.
Sent postpaid, on receipt of price.
T{eview of Reviews, New York :
" Dr. Johnson is a specialist upon the general subject of transpor¬
tation. . . . The monograph is especially timely."
The Week, Toronto:
"We do not remember having seen a more concise and compre¬
hensive statement of the argument for inland navigation than is
found within the pages of this treatise."
(Marine T^ecord, Cleveland:
" A most valuable addition to the literature on transportation is
Dr. Emory R. Johnson's monograph on i Inland Waterways.' . . .
This monograph deserves careful study, not only by every one inter¬
ested in transportation, but also by all persons who would realize
what opportunities there are awaiting us, if we will only seize them,
to develop far beyond any point we have yet attained, our domestic
commerce, and as a natural sequence, our manufacturing, mining
and agricultural interests."
Journal, Wilmington, Del.:
"Every patriotic citizen ought to carefully read Dr. Johnson's
excellent monograph."
address :
American Academy of Poeiticae and Sociae -Science,
Station B, Phieadeephia.
Jf3~See next page for Table of Contents.