Year: 1878




mittee of the Senate for compelling the
Pacific railroads to make some provision for
the payment of their large Indebtedness to
the government is one of the important
measures OF the session. By the act of 1862
the government bound itself to issue bonds
nt the rate OF sixteen thousand dollars per
mile on the completion of each forty miles
OF the Pacific railroads, which bonds were to
run thirty years from their date, the inter-
est, at six per cent. to be paid SEMI
annually by the Treasury. This temporary
subsidy was in addition to the enormous
grants Of land to the Pacific Railroad COM
pnnies. AS means of reimbursing itself
for the large loan of its credit the gov
ernment retained lien on the property OF
Had this original relation between the gov
eminent and the Pacific roads been main
tanned there would have been no danger of
ultimate loss to the government, because on
the expiration nf the thirty years the gov
ernment could take possessionsof the prop
erty Of the roads. whose value would exceed
| the amount of the bonds ISSUED to them.
|
a stand. and the government in 1864 con-
sented that the companies should issue
bonds of its own secured by first mort
| gage on the property thereby putting
the government claims on the basis OF
| IA second mortgage. The government
thereby exposed itself to the danger Of
| losing the whole amount Of the bonds it
had issued.


Most unwarily, Congress made no pro-
vision for the payment by the Pacific roads
Of the accrung interest on the bonds.
Congress enacted that the government
should pay that interest semi-annually to
! the holders Of the bonds, but failed to
protect itself by requiring the roads to
reimburse it for these payments of inter-
est out Of their current earnings. The
consequence is that the whole prn-
cipal of the bonds and the whole
accumulnti IN of thirty years interest ARE
not demandable by the government until
the end Of the thirty years Perhaps there
was never more signal example OF improv-
ident legislation. The right thing to have
been done was to have required the roads
to reimburse the interest regularly out Of
their current earnings and to make annual
contributions to sinking fund for the ex-
tinction of the debt at the end OF the thirty
years.


Congress having neglected to protect the
government by such business-like provis-
ions there have arisen difficult and embar-
rassing questions as to the proper method
Of saving the government from loss Of the
vast sums it has advanced to those roads.
At the end of the thirty years the roads will
owe the government the enormous sum Of
one hundred and fifty million dollars, or
thereabouts. 1t is quite possible that the
roads will be so managed, or so mismanaged,
that when this enormous debt falls due
their property will not suffice to pay half of
it after dischargng the first mortgage
! bonds. Controlled by the Vaccinations
of schemers these roads may be put into
such condition toward the end Of the
thirty years that they will sell for but
little more than the amount Of the first
mortgage bonds. If the managers of the
roads should contrive to have them in de-
fault, and should cause them to be sold to
satisfy the first mortgage, they could easily
organize pool Tor buying the property for
n sum little exceeding the amount of the
first mortgage, leaving no means of dis
charging the colossal debt then due to the
government. 1t is the imperative duty of
Congress to protect the government against
so enormous II loss by compelling the COM
panies to set asi lie part of their current
earnings to meet their ultimate obligation,
and preventing dexterous railroad schemers
from leaving the government in the lurch
when the subsidy bonds mature.


The bill of the Judiciary Committee of
the Senate seems we'll adapted to this i'm
portant and necessary object. 1t settles in
the rst place the disputed question as to
the rule by which the net earnings of the
roads are to be computed leaving it no
longer to the eyasive caprice of the direc-
tors. The bill prescribes that there shall
be deducted from gross earnings, first the
repairs and running expenses, and then the
interest due on the first mortgage bonds,
and that the remainder, without any further
de luc,ion, shall be considered as the net
earnings. Out of the net earnings thus COM
puted twenty-five per cent is to go to tho
government each year for the liquidation OF
interest and the establishment of a sinking
fund. II in any year the other seventy i've
per cent Of net earnings is found insufficient
for meeting current claims having priority
OF those Of the United States, the Secretary
OF the Treasury is authorized to remit tenn
porarily as much as may be necessary of the
twenty-five per cent of net earnings re-
quired to be paid annually to the United
States but whenever this is done the roads
are forbidden to declare or to pay any
| dividends until all the arrears due to the
government by the general provisions of the