The Seattle post-intelligencer. [volume] (Seattle, Wash. Terr. [Wash.]) 1888-1914, 1895-10-09

amount Of capital hss actually been IN
vested IN the Southern Pacific company.
This Ia a question which very few have
been able TO answer Pcors manaal
shows that the Southern Pacific COM
pany's properties in California are bond
81 far an average OF about $1,000 per
mile and these bonds bear from TO
per cent. interest This Indebtedness. IL
il believed by a great many, represents
considerably more than the actual cost
Of the properties.
II has been quite commonly thought
since the Southern Pacific was built that
the construction price, as paid In bonds
10 the Pacific Improvement Company and
other construction companies IN which
the principal Southern Pacific stockholm
-ers were interested, was very much in
excess OF what would have been the act
ual cost in cash had the work been done
honestly and economically. In fact. IT is
generally believed that the stock Of the
railroad company as il Is now held By
the various stockholders really repre-
sents little or no actual investment.
The question. then. upon which the
court must make a decision Is as TO
whether railroad In establishing its
rates OF charges. which are supposed to
give a fair return upon the capital in
vested. can consider the capital TO be
what Is represented by the outstanding
stock and bonds or whether II must be
the actual money cost OF the lines when
constructed. In other words. must a
4E~a
has been largely swollen through the in
tricate methods of modern railroad hnan-
ciering or is a reasonable charge only
that which would mean a fair return up
on the actual dollars and cents that were
paid out to build the road?
II the actual cost OF the Southern Pa
ciic were used as a basis upon which to
make a schedule OF rates and those rates
were enforced, IL is not probable that the
revenues would be enough to pay the in
terest upon its total bonded Indebtedness.
10 say nothing OF dividends upon it's stock.
The bonds issued for construction were
paid over In huge blocks TO the construc-
ton companies. which in turn passed them
over to bEessrs. Huntington, Stanford.
Croker and Hopkins. and they either held
them or disposed of them TO various bond
buyers in different parts of the world.
a reasonable fairness would seem to die
tate that railroad should charge only
what is q good profit on the amount re-
quired TO build the road. The Southern
Pacihc's bonded Indebtedness alone rep
resents much more than the actual cost
OF the road. Will the court say the road
has right 10 insist upon profit sufficient
10 pay the interest on these obligations.
together with fair dividends on the stock,
or VIII II hold that the bonds represent a
fictitious cost and that the stock is largely
water? VIII 1t allow for interest and
profits on money that was never actually
invested. or viii IT ignore all the swap
ping. dealing and dickering by which the
apparent investment has been made so
large, and allow only those charges which
will give a fair return on the actual
amount of hard cash put I'm?
These are very momentous questions for
the Southern Pacific and their settlement
will have an important bearing on the flu
ture Of the road, especially If the courts
should settle upon rates of charges that
would not permit of paying the interest
on the bonds so layishly passed around
when the road was built. That the rates
viii be reduced TO some extent seems to be
generally believed and one factor in the
case will be the building of the San Joa-
quin Valley railroad through what has
been one OF the best of the Southern Pa
cifc's freight producing territories. 1t is
estimated economical methods of business
will permit Of this new line being built and
equipped at an average cost of $4,000 per
mile. one half OF which VIII probably he
represented by stock and one-half by
bonds. Earning $500 per mile over operat-
ing expenses would allow for . per GENT. in
terest on the bonds and per cent. divi-
dend on the stock Taking the Southern
Pacifc's average bonded indebtedness in
the san Joaquin valley at SIS. coo per mile.
the road must earn $3.50 per mile over OPP
Grating expenses to pay per cent. interest
on the bonds without allowing a cent for
dividends on the stock. II the new rail-
road can make good financial showing
under the schedule Of reduced rates. ii is
not probable that the old schedule viii be
restored in order that Mr. Huntington
may pay interest and dividends on securi-
ties which are popularity supposed to be
largely water. Under the circum-
/ stances it would seem a rather difficult
task 20 prove that "a - per cent. rcduc-
/ ton is "a virtual Condscsuon of property.
I whatever the result. II is probable the
/ public may be slightly enlightened as 90
the methods by which the Southern Pa
/ cinc was built. and that in itself Will be
source OF great satisfaction 80 many in
/ quisitive people on The Pacific Coast.
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