The San Francisco call. [volume] (San Francisco [Calif.]) 1895-1913, 1896-02-08
Impossible Then as It Is Now
to Pay the Railroads
Indebtedness.
INSTRUMENTATION OF FUNDS.
Gist of the Congressional Committees
Report on the Pacific and
Aided Roads.


but it was also OF some import few years
ago.
AT that time Congress appointed an in
vestigatlng committee to look into the af-
fairs OF the Central Pacific and other
roads aided in their construction by the
Government, and after an exhaustive hear-s
ing OF all the testimony that the rail-
road people had regarding the validity of
their right to get an extension of time in
which to make good their Indebtedness,
Robert Z. Pattison, chairman of the Con-
gressional committee, presented detailed
report of the investigation, the closing
sentence of which, backed up by the COM
mittee's deductions from the evidence
placed before it, speaks volumes. This is
what it says:
At present prices of railroad construction it
Is evident that from the properties themselves
the Government cannot recover within $685.
000, 600 of the present value of the indebted
ness owing TO it by the bond-aided companies
Any extension of the time for payment would
be useless and would expose to further risk
end depreciation the present inadequate Sc
curity for the debt.
ROBERT E. PATTrsoN, Commissioner.
Washington, December l, 1887.
This was nearly ten years ago, and
Chairman Pattison foresaw then what
would be the issue in years to come. In
his report is another prophetic paragraph:
The beginning of proceedi ngs at this time to
cause the forfeiture of the charters of these
companies because of their violations of law
and failure to keep their contracts with the
Government is only to anticipate by a few
years the result which will be inevitable when
the bonds mature in 1S95-97. To wait until
then to institute legal proceedings would not
avert the result. but would further jeopardize
the interests OF the Government and increase
hn nj tt.0T flakf n1,,
borne in mind that it is fact admitted by
every officer of these roads who testified before
the commission and overwhelmingly proved
by the evidence submitted, that the payment
of the debt at maturity in 1S95-97 can under
no circumstances be expected.
AS an explanation to the President of
the United States, substantiating his de-
ductions, Chairman Pattison stated:
Had the Pacific roads been built and man.
aged upon honest methods, had the Govern
ment loan been properly applied, these COM
panies, regarded as a whole, could have de-
clared dividends at the rate of per cent per
annum for eighteen years, from date of actual
completion to the present time, upon all the
moneys that they would have been required to
pay in to complete and equip the roads; they
would have owned 2495 miles of roads free
from all debt and worth 1924, 100000, upon
an original outlay of less than $35, 400 3Sl "A;
three OF them, the Union Pacific, Central Pa
citic and Central branch, could have repaid
every cent of the principal and interest adj
have reduced their charges to shippers to the
extent of over $l4o. 100000, or nearly So ,00O,-
600 per year.
For 81 the stockholders would have realized
81 on IN dividends in eighteen years and 81 IL
In land sales. The property would have been
Tree from debt and for every dollar that they
had invested the stockholders would have had
in property over 81; so that in eighteen years
each dollar would have yielded So 49,
But they chose dishonest methods. At the
outset they divided $172, 347 lis of fictitious
CAPITAL. thew QlSSlDate0 Sl0T 600 O00
which should have been applied to the pay
ment of the principal ana interest ofthe Gov
extent of over $40. 600 900, or nearly So ,0OO,-
600 year, to pay for the imitation of the capt.
tai OF these companies and for the vicious prac-
tees that crept into their management.
The Central Pacific should have been built
for 5000, 203 rs OF stock subscription which
should have been paid in conformity with the
act of Congress; all debts could have been
wiped out, Including the Government. debt.
principal and interest; the stock would have
paid regular dividends at the rate of 6 per cent
per annum; and for the outlay OF SIC ,609,-
2O3 rs the company would to-day own q rail-
road worth at least 100000 900 and unsold
lands worth $l2 5O0, 900, equaling an appreci-
alton OF over 200 per cent in eighteen years
while shippers would have been benefited by a
reduction of over $54, 10000 in cost of trans
portation.
In reviewing the payments made for i'm
proper purposes by the Central Pacific the
Pattison report explains:
In the accounts of the Central Pacific Rail-
road Company the diversions of earnings
amounted to many millions of dollars through
contracts made by Messrs. Stanford, Hunting
ton, Hopkins and Croker, with themselves
for eons,rgcti9n leases s repairs, etc They
cost OF S27, ZIG, 931 OF. On account OF that
construction, in addition to little cash pay
ment. they. issued bonds to themselves to the
amount of $33, 1872 900, and stock to the
amount of $49, 005, 500, making total issue
OF S62. 727 800, OF which $52,539,554 repre-
sented imitation.
took leases ON their own lines for the Central
Pacific for 80, 400, 1923 81 per annum, which
was at the rate of nearly 13 per cent.
Fifteen months ago three of these directors
contracted with themselves to build an extern
sion of the California and Oregon division of
the Central Pacific from Delta to the boundary
line of Oregon, distance OF 103 miles. In
payment they issued stock to the amount of
SO 900 900, and bonds to the amount of ST.
800 900, the market value of the stocks and
bonds at the time being Sc. SAC, 900. The actual
cost of the construction was SIS, sos 500, SO
that they personally profted by their own
votes by that single transaction to the extent
of 81 1884, 301. Mark Hopkins is dead, but his
interest is still maintained Tor his estate and
heirs.
In following up the dealings of these direc-
tors with, the Central Pacific Railroad Com
pany and, its adjunct companies 1t is found
that Messrs. Stanford, Huntington. Hopkins
and Croker received over $142, 900 900 in
cash and securities through the Contract and
Finance Company, the Western DEVELOPMENT
Company, the Pacific Improvement Company
aud dividends of the Central Pacific. Railroad
Company. In addition to this sum OF $142, O00,-
600 they also made large profits in the opera
tions of fifteen or more other companies, which
were directly or remotely sapping the reve-
| nnes OF the Central Paeiic Company,
The total payments by the Central Pacific on
account of rentals amounted TO $29, 3d.
1878 40.
ACCOUNTS AND VOUCHERS OF THE AIDED COM
PANIEs.
The same company also expended $4,S1S,-
355 81, of which the managers declined to give
any explanation or TO permit others to explain.
As the resources of the company have been
diminished 10 the extent of these expendf-
lures and as the road itself will yield suffi-
Gent to satisfy the Government claim, IL is
apparent that the United States are eventually
the losers by those disbursements, most of
which, as shown by the Huntington letters,
were applied to corrupt public men and infln-
ence legislation.
The balance-sheet of the Central Pacific for
1885 should have shown q deficit of over
$i4 000, 900 in the profit and loss account, but
| by emitting from the debit side the accumu-
! lated interest which the Government had ad-