The San Francisco call. [volume] (San Francisco [Calif.]) 1895-1913, 1896-02-07
replied emphatically there was no diff.

S III ob COuSlQerdJlOn, CIllIk, HS
continued, "would naturally be the value
OF the property. The cost of construction
OF railroad does not by any means always
represent its value, when such road has
been for years in existence, for its capacity
TO earn money has increased every year
since its construction; and, too, think it
is possible for the Government to pursue
some of the directors for the recovery OF
diverted funds"
AT this juncture a member of the COM
mlttee inquired as to the validity of the
first mortgage bonds of the Central and
Union Pacific railroads, and Secretary Smith
declared it his opinion that such question
would not hold, as the Government had
several times recognized their validity.
although under the sinking fund act we
have charged up the bonds paid off against
it. this is a matter of bookkeeping merely,
and therefore it is no question in my mind
but that the first mortgage bondholders
could. If obliged, claim this sinking fund
as against the Government. But this mat
ter is immaterial. inasmuch as the roads
are worth great deal more than the first
mortgage bonds"
The Secretary showed from his last an
nual report that for the past ten years the
net earnings of the Pacific roads had been
$S, ,534 600, including, as expenditures, the
amounts paid into the sinking fund.
"Then your position. Secretary Smith,
is that inasmuch as the first and second
mortgages are the same in amount, and as
the roads have been paying per cent on
the first mortgage, they could pay per
cent on the entire debt?'' was asked.
=; :;
"ln other words" suggested Faris, a
member of the committee, "you contend
that in the funding proposition the roads
would be able to pay per cent interest
without increased earnings?"
''Yes, they could pay one million dol
lars per annum and yet leave handsome
profit to the purchaser"
He continued: "I am emphat1cally op-
posed to Government ownership, but this
threat of Government ownership should
not be allowed to prevent that purchase
and resale"
Judge Patterson of Tennessee asked !:
els it your idea for the Government to
foreclose and then issue per cent bonds
for the entire lien?'
"Yes."
"But would it not be better to sell the
bonds to reorgsnized companies2"
"If the Government provided for fore
closure sale it would not be hard, think,
to find an organization to buy this prop
erty, agreeing to issue its own bonds
guaranteed by the Government for its total
Indebtedness as a mortgage upon the prop
erty, in payment for it, and at the same
time pay into the treasury a fair amount
each year, not as a sinking fund but to the
redemption of the bonds"
''But under your plan what would you
do with the lease of the Central to the
Southern Pacific Railroad ?''
II would break it, " said the Secretary
positively. tThat lease was made by a
company which is now insolvent."
Kyle of Mississippi inquired, Have you
seen and examined the so-calied Reilly
bill9'
Eyes, and do not think it good plan"
said Secretary Smith. "I have never and
do not now believe in extending the Pa
cific roads debit
Upon the insistence of Kyle that he
(SmithJ could learn much by careful peru
| sal of the Reilly bill. the Secretary de-
clared that the friends of the refunding
proposition hoped that each fresh com
plication would tend to discourage Con-
gress, so that to get rid of this trouble
some matter they would be willing to
sacrifice part of the debt due the Govern
ment, and that the more muddled affairs
became the greater the sacrifice will be.
81 think the Government" he said.
"should authorize some one to act for it,
and provide that if the parties did not
| carry out their contracts authority should
be given to protect this property and meet
| the first mortgage bonds"
Faris said: "a statement has been made
before this committee that the receipts of
one OF these companies decreased $42, 900.
They declare they are poyerty-stricken 1t
seems foolish for Us to trife longer with
meaningless propositions. Would it not
be better to act upon Secretary Smiths
suggestions?"
Secretary Smith concluded his state
ment by declaring that it was offensive to
him to see this Govern ment property cut
out OF San Francisco. "For the past ten
years these roads (main lines) have aver
aged So, 3,089, 600 net profits, after paving 8
per cent interest annually on the first
mortgage bonds and Government bonds
and interest. They also paid tolls on the
bridge, and I think the bridge belongs to
| u.s."
Secretary Smith estim ated that bridge
OF that kind ought to cost about two mil
lions and half
This is widely at variance with Central
Pacific Attorney Tweed's estimate. The
House committee will probably take re-
cess for two weeks.
Mr.. Huntington appears before the Sem
ate corlmittee next Saturday.