The record-union., 1896-05-09

Central Pacific Railroad
Company of CALIFORNIA. 2o,ooo,IO
Western Pacific Railroad
Company. any......................... 1,970,56O
SCI 1896, 1872
The subsidy bonds were subordinate
| in lien to the first mortgage bonds or the
companies above referred to, as pro-
vfded in section 10 OF the Act of 1864
| PROVISIONS FOR REPAYMENT OF
SUBSIDY BONDS.
I Onder acts of 1862 and 1861
| Congress has from time to time pre-
scribed the provision to be made by
| the various companies which received
these subsidy bonds for the repayment
| to the United States, at the maturity
| thereof, of the amounts paid by the
United States for interest and princi-
pal Of such bonds. The Acts Of Con-
gress which prescribed the provision to
be made by the companies for the re-
payment of such bonds and the interest
thereon have all been fully complied
with by the companies.
It was believed by Congress that the
provision SO prescribed to be made
would suffice to discharge the subsidy
bonds and interest thereon at maturity.
AS a matter of fact they have not suf-
feed for this purpose. The insufticiency
Of the Congressional provision in that
regard has not resulted from any fail
ure or omission Of any of the companies
| tc fully carry out the provisions of the
various Acts of Congress upon this SUBJ
iect but has resulted from two causes
First, the great reduction in rates of
| transportation which has reduced, far
beyond the original anticipation, the
amount of compensation which the
companies were entitled to receive from
the United States for Government
transportation; and. second, the re-
duced, and, until a very recent date
| the constantly diminishing rate of in
terest upon the Government bonds in
which the Thurman sinking fund was
originally required to be invested.
The Acts Of 1862 and 1864 provided
for the application to the payment OF
| the subsidy bonds Of one-half of the
compensation for services rendered for
the Government by the respective COM
panies, and per cent Of the net earn
irgs of the respective roads, and it was
expected that the one half of the COM
pensation for said services rendered for
the Government would equal or exceed
the current interest upon the subsidy
bonds, and that the reserved 5 per cent.
of net earnings would suffice for the re-
payment of the principal of the debt at
maturity.
Mr.. Campbell, the Chairman of the
House committee, in reporting the Pa
cific Railroad Act to Congress, April
s, 1862, refers expressly to the fact
that it was estimated that the aggre-
gate annual interest would be So, S92, :,
080, and to the fact that the army and
navy and transportation and postal
service to the Pacific had cost the Gov
ernment annually S7.357, ,7S1. One
half Of this compensation for services
to the Government would have very
nearly paid the whole annual interest
account; but, Notwithstanding the vast
increase in the Government transporta-
tion to the Pacific Coast, the rates of
compensation at which the companies
were paid for the services which they
rendered the Government were reduced
| so low that the companies, instead OF
receiving an amount double or even
equal to the annual interest on the sub
| sidy bonds, found themselves debtors
annually to the Government in the in
| terest account in large amounts.
The United States Railroad Commits
| sioner, in his report for 1888 page 16),
| says:
'It was doubtless expected that the
compensation for Government transpor-
tation would equal the current interest;
| that It has not, has been a disappoint-
| ment as well to the companies as to the
/ Government but had the charges for
( Transportation continued at the rate
prior to their construction, 1t would
| greatly have exceeded the interest.
| 1.-THE Government has the advantage,
and is entitled to it, Of the reduced ex-
penses Of transportation which has re-
suited from their construction, and in
| this view the saving to the Government
| has greatly exceeded the current in
| terest it has paid
| Onder the Thurman Act.)
| Prior to 1873 this insufficiency of ths
provision which Congress had made in
| the Acts Of 1862 and 1864 became OBJ
vious. Congress then took the matter
under consideration again, with a view
! to prescribing in the light of altered
circumstances the provision which the
| companies should thereafter make for
| the retirement of the Government debt.
For this purpose the Thurman Act was
passed This provided for the reserva-
| ton Of the whole instead of half of
| the compensation for Government
| transportation over the roads, and that
the amounts reserved in the bond and
interest account $50 called, and the fur
ther amount specified in the Act to be
l inf0 ho ciylx f1,n6
should at least equal % per cent. Of the
net earnings of the properties.
| The Thurman Act, prescribing, in tn.
| light Of the situation existing in 1878;
the provision which should be made for
the retirement of the debts of the COM
panies, was expected by the trainers of
| that Act to create a fund sufficient for
| the retirement of the debt at maturity
but this expectation was based upon the
assumption that the sinking fundlcould
| be invested in United States per cent.
| bonds, to be purchased at not over 10
per cent premium, and would there
| fore, at compound interest, yield 6 per
cent interest on it's face value. Sena:
| tor Thurman said:
'The ) per cent. bonds even If pur-
chased at a premium of 10 per cent,
| will produce that interest (6 per cent.
per annum), owing to the compounding
of interest as 1 have stated. The pro-
vision of the bill therefore in this re-
spect is perfectly fair to the companies
and is just TO the Government
The provisions Of the law above re-
ferred to embracing the requirements
which have been imposed by Congress
upon these companies in provision for
IL fvII I<J1 Aexl,-