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United States Pacific Railway Commission,
1887 Report, Volume V, CPRR.

Text of Volume 5 regarding the Central Pacific Railroad.
Courtesy of the University of California, Microsoft Corporation, and the Internet Archive.
[Optical Character Recognition not corrected. Tables omitted below.]

... TESTIMONY TAKEN BY THE UNITED STATES PACIFIC RAILWAY COMMISSION,

APPOINTED UNDER THE ACT OF CONGRESS APPROVED MARCH 3, 1887, ENTITLED "AN ACT AUTHORIZING AN INVESTIGATION OF THE BOOKS, ACCOUNTS, AND METHODS OF RAILROADS WHICH HAVE RECEIVED AID FROM THE UNITED STATES, AND FOR OTHER PURPOSES,"

EGBERT E. PATTISON, OF PENNSYLVANIA, Chairman, E. ELLERY ANDERSON, OF NEW YORK, DAVID T. LITTLER, OF ILLINOIS,
Commissioners.

VOLUME V.

REPORTED BY

CHARLES P. YOUNG, of New York, I SECRETARY AND STENOGRAPHER TO THE COMMISSION.

WASHIKGTOK:
GOVERNMENT PRINTING OFFICE.
1887. P R VOL V 1 2331

pt

TESTIMONY
TAKEN BY
THE UNITED STATES PACIFIC RAILWAY COMMISSION,
AS TO
THE WORKING AND FINANCIAL MANAGEMENT OF THE RAILROAD* THAT HAVE RECEIVED AID FROM THE GOVERNMENT IN BONDS.

OFFICES OF THE CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, CaL, Monday, July 25, 1887.

The Commission reconvened upon the call of the chair, all the Commissioners being present.

EDWARD H. MILLER, JR., being duly sworn and examined, testified as follows :

By Commissioner ANDERSON :

Question. Where do you reside? Answer. In Alameda, Alaineda County.

Q. Do you do business in San Francisco ! A. Yes, sir. Q. How long have you been in business in San Francisco? A. Since 1873.

THE CENTRAL PACIFIC OF CALIFORNIA.

Q. What has been your connection, if any, with the Central Pacific Railway? A. I have been secretary and am a director of the company.

Q. When was your first connection with the company? A. In 1863.

Q. When was your original connection? A. My original connection was as book-keeper, for about one year.

Q. And that was for the Central Pacific of California, as it was then known ? A. Yes, sir.

Q. Where were their headquarters? A. At Sacramento.

Q. Had they any office in San Francisco at that time? A. No regular office. But President Stanford was in San Francisco a great deal of the time. He had an office here.

Q. But the headquarters of the company were at Sacramento? A. At Sacramento.

Q. Please state what your connection has been with the company since 1803 to date *? A. For one year, about, I was book-keeper for the company. Since then I have been secretary continuously.

Q. How many years have you been a director? A. I think the whole time that I was secretary. I think I was elected director at the same time I was elected secretary.

3333

2334 U. S. PACIFIC RAILWAY COMMISSION.

Q. Please state for what companies you have been secretary, indicating at the same time the changes in the corporate title of the railway? A. It has been the Central Pacific Eailroad Company of California, and then a change of title occurred.

Q. That was from 1863 until 1870, was it not ! A. Yes, sir.

THE CONSOLIDATION.

Q. What happened in 1870? A. In 1870 a consolidation with two or three other companies took place.

Q. Will you name them, please 1 A. There were several consolidations, and I cannot name them without reference to books.

Q. Will you name what you can? A. There was the Western Pacific Eailroad Company.

Q. Kunning between what points? A. Between San Jose" and Sacramento. The San Francisco, Oakland and Alameda Kailroad Company, from Alameda, or including the line between San Francisco and Niles. No, I am mistaken ; it was between San Francisco and Oakland and Alameda. It was a branch. It had two lines, one to Alameda and one to Oakland. I will explain them. There was a ferry from San Francisco, both to the Alameda wharf and to the Oakland wharf, and then local trains ran out from Oakland and also from Alameda, which were two different points on the opposite side of the bay.

By the CHAIRMAN :

Q. Have you a map on which you can point those roads out? A. Yes, sir ; I can furnish you one.

THE CENTRAL PACIFIC INCLUDED.

By Commissioner ANDERSON :

Q. What other company was included in this consolidation in 1870? A. I do not remember.

Q. Was the Central Pacific itself included? A. The Central Pacific itself. I am not sure whether the California and Oregon was consolidated at that time or at a previous consolidation. There were three different times when the consolidations were made, and we are getting it in consecutive form.

Q. I understand you remained secretary to the new company, as you had been to the old? A. Yes, sir.

PREVIOUS CONSOLIDATIONS.

Q. How many consolidations were there? A. The consolidations as they appear were several before these roads were consolidated with the Central Pacific of California, Several of them had had previous consolidations with other roads. I cannot give it to you in consecutive form without getting a statement I need for that purpose.

Commissioner ANDERSON. As I understand the method pursued, the several roads, consisting themselves of minor parts, had a species of integration among themselves, and then the whole was integrated into the Central Pacific Railway, about 1870.

The WITNESS. Yes, sir.

Q. And you do not remember how many of these consolidations took place? A. Yes, sir; I can remember how many, but I cannot give you the dates, I can name all the companies that were cousolidateci.

EDWARD H. MILLER, JR. 2335

ARTICLES OF CONSOLIDATION.

Q. Was the process of consolidation always by entering into articles of consolidation? A. I think so ; but as to some of the roads that had been consolidated previous to their coming into the consolidation with the Central Pacific, I do not know how they were consolidated with one another.

Q. Of the records of these consolidations, what have you on hand? A. I have the minutes of the Central Pacific Railroad Company (and possibly of some of the other companies that were consolidated), which show the dates and facts of the consolidation.

Q. Have you the articles of consolidation? A. Yes, sir.

Q. Of the Central Pacific alone, or of some of these others also? A. I think I have of some of the others, but I certainly have those of the consolidation of the Central Pacific.

Q. Will you please produce for our information all the articles of consolidation i A. Yes, sir.

OFFICERS OF THE CENTRAL PACIFIC.

Q. As to the present organization of the Central Pacific, who is the president ? A. Leland Stanford.

Q. He resides here in San Francisco? A. San Francisco.

Q. Please state the other officers by name, or at least the principal officers ? A. Leland Stanford is the president, and C. P. Huntington is first vice-president.

Q. Mr. Huntington residing in New York? A. Residing in New York. Charles Crocker is second vice-president.

Q. Mr. Crocker also residing in New York? A. Residing in New York.

Q. And he is now in Europe? A. Yes, sir.

Q. Do you know when he will return? A. I do not.

Q. Can you ascertain for us? A. I do not know how I can.

Q. Can you tell us where we can have his deposition taken abroad, if desired? A. I do not know where he is in Europe. I can ascertain, probably.

Q. Mr. Charles F. Crocker is his son, is he not? A. Yes, sir. I can ascertain from him, probably.

Q. What other officers are there? A. Charles F. Crocker, third vicepresident.

Q. Is that Colonel Crocker? A. Yes, sir.

Q. Is he residing here? A. Residing in San Francisco.

Q. Who else? A. E. H. Miller, jr., is secretary. Timothy Hopkins is treasurer.

By the CHAIRMAN : Q. Where does he reside? A. In San Francisco.

By Commissioner ANDERSON : Q. Who is your land agent? A. William H. Mills. Q. He is also residing here? A. Yes, sir ; also residing in San Francisco.

RAILROAD COUNSEL.

Q. Who are your present counsel? A. Col. Creed Haymond and Judge Harvey S. Brown.

Q. Does Mr. Haymond reside here in San Francisco? A. Yes; in San Francisco.

2336 U. S. PACIFIC RAILWAY COMMISSION.

Q. Where does Judge Brown reside? A. He resides in Oakland. Judge L. D. McKisick is another.

Q. Residing where?- A. In San Francisco. John Foulds, residing in tSan Francisco.

Q. What counsel have you in New York? A. Charles H. Tweed.

Q. Have you any other counsel elsewhere? A. No other counsel regularly employed.

ITS WASHINGTON COUNSEL.

Q. Have you permanent counsel in Washington now? A. I do not think there is any one in Washington exclusively employed by the company. When I say permanently employed I mean employed exclusively in the business of the company, to give their exclusive attention to the business of the company.

Commissioner ANDERSON. You may give us the name of your Washington occasional counsel, if there be one.

The WITNESS. Henry Beard, I think it is.

Q. Has he succeeded Mr. Sherrill and Judge Franchot? A. No, sir.

Q. In what respect does his employment differ from that of others? A. His employment has been to look after the accounts of the company a great deal and to attend to general business.

Q. That is, the adjustments between this company and the Commissioner of Railroads ? A. The Government ; yes, sir.

THE BOARD OF DIRECTORS.

Q. Of how many members does your board consist? A. Seven.

Q. Will you please give us their names as the board is constituted to-day? A. Leland Stanford, C. P. Huntington, Chas. Crocker, Chas. F. Crocker, W. Y. Huntington, Timothy JHopkins, and E. H. Miller, jr.

Q. W. V. Huutington is what relation to C. P. Huntington? A. Nephew.

Q. Where does he reside? A. San Francisco.

Q. Has your board always consisted of seven? A. I am not sure. I have an impression that at one time it was five, but it was a long time ago. I do not recollect. The report of 1872, I think, will show that it consisted of seven.

Q It has ever since 1872 consisted of seven? Do you remember whether there was any change prior to that? A. I do not remember distinctly, but I am now inclined to think that there was never any change ; that it was always seven.

COURSE OF CONSTRUCTION.

Q. Will you please state the course of construction of this road in point of time?

The WITNESS. From the aided line?

Commissioner ANDERSON. In point of time ; yes, sir. A. I cannot do that without referring to some papers documents.

Q. Will you state which portion was first constructed? A. The line from Sacramento to Ogden was completed May 9, 1869.

Q. But was that from Sacramento to San Jose constructed before the railroad east of Sacramento? A. No, sir.

Q. How far had the railroad east of Sacramento progressed when the line between Sacramento and San Jose was completed? A. To Ogden* The line from Sacramento to Ogden was completed first.

EDWARD H. MILLER, JR. 2337

Q. Before the road from Sacramento to San Jos6? A. Yes, sir.

Q. Was any part of that road which lies southwest of Sacramento completed before the railroad east of Sacramento was completed? A. Yes, sir.

Q. Between what points! A. Between San Jos< and Mies.

Q. Was it after the act of 1862 had been passed I A. Yes, sir.

Q. How many miles is it from Sacramento to Mies?

The WITNESS. Allow me to refer to papers.

The CHAIRMAN. Certainly. Eefer to anything that will give you the information.

Commissioner ANDERSON. You will find it on page 5 of the report of 1872.

The WITNESS. This gives only the total from San Francisco.

By Commissioner ANDERSON :

Q. I will put this map in evidence. Please examine the map nowshown you, and state whether the names of the roads and their lengths are correctly given ?

The CHAIRMAN. You will find here, on this map, the consolidations, with the distances of the different roads given.

The WITNESS. Yes, sir ; it is correct at the time of its date, May, 1878, but there may have been some little changes in the lengths of the lines since, although I do not see how there could be. The Southern Pacific Bail way Company has extended its line since the date of this map.

Q. Your answer merely shows that it is correct at the time? A. Yes, sir.

THE WESTERN PACIFIC.

Q. What is the corporate name of this railway constructed from Sacramento to Mies?

The WITNESS. What is it now?

Commissioner ANDERSON. What was it at the time?

The WITNESS. The Western Pacific Eailroad Company.

Q. Which was built first that portion of the Western Eailroad Company from Mies to San Jos6 or the portion from Niles to San Francisco? A. The portion from Mies to San Jose, is my recollection. It was built before the portion between Mies and Oakland.

Q. Was the portion between Mies and Oakland constructed before the consolidation of 1870? A. Yes, sir.

Q. So that when the consolidation of 1870 took place the Western Pacific Eailway Company was substantially completed from Sacramento to San Jos6 and to Oakland, was it not? A. Yes, sir.

THE SAN FRANCISCO BAY RAILROAD.

Q. What was the name of the company from Oakland to Mies 1 A. The San Francisco Bay Eailroad Company.

Q. That was consolidated into the Western Pacific then, was it not? A. No, sir ; that was consolidated into the Central Pacific.

Q. Was that in 1870 u? Was there more than one consolidation to which the Central Pacific was a party? A. Yes, sir.

COMMENCEMENT OF CONSTRUCTION OF CENTRAL PACIFIC FROM SACRAMENTO.

Q. When was the construction of the Central Pacific from Sacramento commenced! I do not refer to the day of the month, but with reference to the acts of Congress.

2338 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. Do you mean what year!

Commissioner ANDERSON. The first act of Congress was passed in 1862. How soon after that was it that construction was commenced on the Central Pacific east of Sacramento?

The WITNESS. The first actual work done on the construction was January 1, 1863, 1 think.

Q. That was east of Sacramento? A. At Sacramento.

Q. And going east? A. Starting east ; yes, sir.

METHOD OF CONSTRUCTION.

Q. Under whose direction were the first contracts? A. The board of directors.

Q. How was it done, I mean. Was it a large contract for the whole railroad, or was it let out in small sections under specific contractors at first? A. The first contracts I think were in small sections, considering 18 miles to be a small section, and then in subsections or other sections of from 2 to 4 or 5 miles.

CONTRACT OF CHARLES CROCKER & COMPANY.

Q. Who took the first large contract for any portion of the work? A. Charles Crocker & Co.

Q. Is that the same Charles Crocker who is now second vice-presideut? A. Yes, sir.

Q. Was he at the time a director in the company? A. Not at the time he took the contract.

Q. Who were the directors at the time he took the contract? A. I will have to look.

Q. Will your book of minutes show? A. Yes, sir.

Q. Does your company keep a book of contracts? A. No, sir.

Q. What disposition do you make of contracts? A. We file them in the office.

Q. Between what parties was this contract, the Central Pacific and Charles Crocker & Co? A. Yes, sir.

Q. Who were the members of the compauy besides Mr. Crocker? A. I do not know.

ITS TERMS.

Q. Do you remember for how many miles this contract extended? A. I think it covered the first 18 miles from Sacramento.

Q. Do you remember the rate per mile? A. I do not.

Q. Do you remember how frequently that contract was modified? A. I do not remember that it was ever modified ; it possibly was, but I do not remember it.

Q. You remember nothing about the terms of that co n tract, or what do you remember about the terms? A. 1 do not think the contract was specific per mile ; my recollection is that the contract was not specific, so much per mile, but that it was so much in the aggregate for the 18 miles, or else there were specifications which had prices fixed for grading and other work, masonry, bridges, &c. I cannot remember distinctly which it was.

CUSTODY OF THE CONTRACT.

Q. In whose custody was that contract? A. In mine. Q. Has it always remained in your custody? A. No, sir. Q. In whose custody did it pass? A. I do not know.

EDWARD H. MILLER, JR. 2339

Commissioner ANDERSON. If it were in your custody you must have delivered it to some one.

The WITNESS. I did not.

Q. Where did you keep it? A. In a vault, or in the safe, at Sacramento.

Q. When did you last see it? A. That I cannot tell you ; a great many years ago.

Q. More than ten years ago? ^A. I cannot specifically say whether it was more than that, but it was more than seven.

Q. How many copies were there? A. But one that I remember.

Q. Did not the contractors have one? A. Yes, sir ; doubtless they did, but I do not remember.

Q. Were there two copies? A. I do not remember.

Q. Do you remember in whose handwriting it was? A. No, sir.

Q. Do you remember how many pages it covered? A. No, sir.

Q. You do not remember how many pages it covered? A. No, sir.

NOT ENTERED IN FULL ON MINUTES.

By Commissioner LITTLER :

Q. Was the contract entered on the minutes of the company? A. Not in full, I think.

By Commissioner ANDERSON :

Q. Can you give us no further information as to its terms than you have heretofore given? A. Not until I make an examination of the minutes ; there may be something in the minutes.

Commissioner ANDERSON. We will ask you to do so.

CONTRACT MISSING.

By the CHAIRMAN :

Q. Where is the contract now? A. I do not know.

Q. You do not know because you have not examined the safe for a number of years ? A. No ; I do not know because I have examined the safe and I cannot find it.

Q. When did you make the last examination? A. Within a few days.

Q. When did you make an examination prior to that time? A. I had made no special examination for the contract prior to that time.

Q. Within a few days did you make a thorough examination? A. Yes, sir 5 it was called for by the general accountant of the Commission.

NO MEANS OF ASCERTAINING ITS WHEREABOUTS.

By Commissioner ANDERSON :

Q. Has not this contract been called for in four or five litigations within the last four or five years? A. I do not remember that it has, but I have no doubt that it has.

Q. Was it not called for in the Colton suit? A. I do not remember that it was.

Q. Was it called for in the Stewart suit? A. I do not remember.

Q. Was it not called for in the Hopkins's accounting? A. I do not remember.

Q. Do you not remember, as a matter of fact, making several searches for it ? A. I do not remember, as a matter of fact, although I doubtless did.

2340 U. S. PACIFIC EAILWAY COMMISSION.

Q Do you not remember talking with different persons as to this contract and its whereabouts? A. No, sir.

Q. Have you not talked with Governor Stanford as to its whereabouts? A. No, sir.

Q. Have you not talked with Mr. Huntington as to its whereabouts'? A. No, sir.

Q. Have you not talked with Mr. Charles Crocker as to its whereabouts'? A. No, sir.

Q. Had you not, before Mr. Hopkins's death, talked to him as to its whereabouts'? A. No, sir.

Q. And you declare positively and in good faith that you have no means of ascertaining anything as to the disposition made of this paper? A. I do.

Q. Have you any suspicion as to what has been done with it? A. No, sir.

Q. Have you any idea as to what has been done with it I A. I have not.

By Commissioner LITTLER :

Q. Was anybody interested in its destruction? A. I do not know that there was.

PAPERS MISSING OWING TO FREQUENT USE IN SUITS.

By the CHAIRMAN :

Q. Were you in the habit of missing papers from your vault? A. Yes, sir.

Q. Did you miss other papers? A. Yes, sir.

Q. How many other papers? A. A great many.

Q. What kind of papers? A. Papers that were taken in any lawsuit and given to the lawyers given to our lawyers or to the other lawyers. It became of very frequent occurrence that they never caine back.

By Commissioner ANDERSON :

Q. Did you give up such papers as these without taking a receipt for them? A. Yes, sir, I did ; but we do not do it any more.

Q. Who gave up the papers without taking a receipt for them? A. I do not say anybody gave any specific papers up, but I mean those papers that went to court in lawsuits. We became very much annoyed in one case, the Winchester case. The same question was asked me if papers had been missing frequently, and I said "yes." The result of the examination brought out just what I am now saying, that probably they were in court or h,ad been taken to court. A gentleman who was present went to court, and among its files found the very document they were asking for.

Commissioner ANDERSON. Somebody, on behalf of your company, must be in the habit of parting with these papers.

The WITNESS. I myself do that.

Q. You do not mean to say anybody could go in and get them, do you? A. I was myself in the habit of giving them to our lawyers without taking receipts.

Q. Who was the lawyer you gave such papers to? A. Any one of our lawyers.

PERSONS HAVING ACCESS TO VAULTS CONTAINING PAPERS.

Q. Who had access to your vault and safe? A. No one but clerks in our office and myself.

EDWARD H. MILLER, JR. 2341

Q. Had the clerks unlimited access, except under your supervision?

A. They had unlimited access, to go in and out when they chose.

Q. Had they any interest in taking these papers and losing them, or delivering them to any one without your knowledge or without conferring with you?

The WITNESS. Do you mean these contracts?

Commissioner ANDERSON. Yes.

The WITNESS. No, sir ; not that I know of.

Q. Had Governor Stanford access to your vaults? A. I do not think he was ever in them.

Q. Could he go there if he wanted to? A. Certainly ; if he undertook to go there I should never attempt to prevent him.

Q. And the safe was open all day long? A. Yes, sir.

Q. Who were these attorneys to whom you parted with these papers? A. They were the various attorneys of the company for all the time.

COUNSEL EMPLOYED AT TIMES PAPERS WERE MISSED.

Q. Give the names of those who were attorneys at the time you missed the papers ? A. Robert Kobinson. I cannot specify any particular time.

Q. Give the names of all the attorneys, and their residence? A. E.

B. Crocker.

Q. He is dead, is he not? A. Yes, sir. Kobert Eobinson, S. W. Sanderson.

Q. Is he dead? A. Yes, sir. Judge Eamage. His first name I do not remember.

By the CHAIRMAN :

Q. State if he is living, and where? A. I do not know. He was a resident of Sacramento. I think he is dead, but I do not know. I cannot think of all of them.

Commissioner ANDERSON. To limit this set of names, I think you stated you had seen this contract within seven years?

The WITNESS. No, sir.

WHEN CONTRACT WAS LAST SEEN.

Q. When did you last see it? A. I do not remember.

Commissioner ANDERSON. You know you saw it twenty-five years ago?

The WITNESS. Yes, sir.

Q. Can you come down from that date and say when you last saw it? A. It is very difficult to do that. I do not know that I have seen it within fifteen years.

Q. Do you know that you did see it as far back as 1879, before the consolidation ? A. I saw it when it was made.

Q. That was in what year? A. That was in 1863 or 18G4.

Q. Did you not see it frequently after it was made? A. I probably did, during the time of the construction of the 18 miles.

Q. How long did that last? A. A little over a year, I think.

Q. After it was completed do you not know that you frequently saw that contract, with other contracts, in your safe? A. I cannot remember that I did. I will say, doubtless I did but I do not remember having seen it.

2342 U. S. PACIFIC RAILWAY COMMISSION.

Q. Do you remember the fact that the first time you \vere asked to look for it you found it had disappeared? A. I do not remember that fact.

Q. Do you not remember looking for that contract in the Colton case? A. No, sir.

Q. Do you not remember being examined as to this contract and other papers in the Colton case? A. I do not remember that I was examined as to this contract. I was examined, of course, as to papers.

Q. Do you not remember the fact that you were examined at great length in the Colton case? A. Yes, sir.

Q. Who else was examined on behalf of your company in regard to the custody of these papers? A. I do not know that anybody was.

OTHER CONTRACTS.

Q. What was the next contract made after the 18 miles that you have referred to? A. There were contracts made with Cyrus Collins & Bros. ; C. D. Bates & Co., I think ; S. T. Smith ; and, I think, there was another, but I do not remember the name.

Q. These were all small contracts, were they not? A. All small contracts ; yes, sir.

Q. Were these contracts in your custody? A. They were ; yes, sir.

Q. What has become of them $ A. There is one of them I found the other day. [Producing it,]

Q. Where did you find it"? A. I found it in the vault.

Q. Just alone by itself, without companions? A. Without any companions of that nature.

CONTENTS OF THE BOX OF CONTRACTS.

Q. Was it by itself or was it mingled with other papers that it did not pertain to? A. No; it was in the box of contracts, or that which I call a box.

Q. In a box of contracts? A. In a file of contracts.

Q. What other contracts did you find with the Cyrus Collins I A. I do not remember which one I found.

Q. What other contracts did you find with the contract you did find? A. I cannot specify, because I was not looking for any but the contracts for building, but there was quite a package.

Q. Were they construction contracts? A. No, sir.

Q. Were they contracts that belonged to the Central Pacific Company? A. Yes, sir.

Q. Were they of the same date as the one you have found, or were they more recent contracts? A. No ; they were of all dates.

Q. Were some of them as old as the one you discovered? A. I think not. Yes ; about the same date. Contracts for iron, &c.

Q. When did you make this discovery? A. Within the last week, or within the last two weeks.

Q. Did you go over any of those papers yourself personally? A. Yes, sir.

Q. All the papers in that box? A. Yes, sir ; all the papers in that box.

Q. Did you find any other contracts relating to the construction of this road ? A. I did not.

Q. You say you do not remember the name of the contractor as to the contract you found? A. No, sir ; I do not remember which one it was.

EDWARD H. MILLER, JR. 2343

Q. It was one of these small contracts? A. Yes, sir. Q. As to all the others you have no information to give us I A. 1 have not.

TIME NEEDED TO THOROUGHLY EXAMINE THE VAULT.

By the CHAIRMAN :

Q. Have you made such examination of the vault as to swear now that the missing contracts are not in the vault? A. I could not positively swear that, because the vault contains so many papers; but I can swear to the best of my knowledge and belief it is not there.

Q. Will you make such an examination as to be able to swear positively to this Commission that the missing contracts are not in the vault? A. I will if you will give me a year. It will take at least a year to do that.

By Commissioner ANDERSON :

Q. Why "? A. The vault contains an immense number of papers, and we would have to go through every box and every paper to be able to swear it was not there.

The CHAIRMAN. We will give you all the assistance needed by detailing men to aid in going over the contracts, if you will give us access to the vault and to the old contracts.

The WITNESS. I have no objections to that.

Commissioner ANDERSON. I suppose you refer us to the president in answer to that ; but we want to be perfectly satisfied that those papers are thoroughly examined.

The WITNESS. You ask me to swear to something that I cannot swear to. If you ask me to swear that it was not in this room, I could not swear to it.

POSITIVE CROCKER CONTRACT IS NOT IN THE VAULT.

The CHAIRMAN. We want to know that when you swear that the missing contracts are not in the vault you swear with positive information to that effect, having made such an examination as to enable you to do so.

The WITNESS. I have made such an examination that I am willing to state positively that it is not in that vault.

Commissioner ANDERSON. That conclusion may be reached in two ways: one, by having searched the vault, and the other by having information as to where the contracts may be.

The WITNESS. I tell you I have no information.

By Commissioner ANDERSON :

Q. Have you no direct or indirect information I A. No direct or indirect information.

THE NEXT LARGE CONTRACT WITH CROCKER.

Q. What was the next large contract made after these small contracts you have referred to? A. The next contract, I think, was made with Charles Crocker & Co. (calling the sections about a mile each, although they were not exactly a mile), for sections from section 31 east. I do not remember how many miles.

Q. Was it to Camp 24 that it went? A. I am not sure of that. Camp 24 was named, I think? but it is indistinct in my mind,

2344 U. S. PACIFIC RAILWAY COMMISSION.

Q. How many miles was it? A. I cannot remember specifically how many miles, but my impression is to about section 58. That would be about 25 miles. I am not positive about that, however.

Q. When was that contract made? A. I do not remember.

Q, Was the second Crocker contract made after the completion of these small pieces 9 A. I think the second contract was made before they were entirely completed. They went on with the work beyond section 31.

Q. Was this firm of Charles Crocker & Co. the same firm that had taken the prior contract? A. So far as Charles Crocker was concerned it was. As to the company, I do not know.

Q. You do not know anything about that? A. No, sir.

Q. Was there any company? A. Not that I know of. I do not know.

Q. Charles Crocker was the only person you dealt with? A. The only person I know.

WHO COMPOSED THE BOARD OF DIRECTORS.

Q. Who negotiated that contract? A. The board of directors made it. Whether the negotiation was referred previously to any committee or not I do not remember. In some cases it was.

Q. Who composed the board of directors at the time the Crocker contract No. 2 was made? A. I will have to look to ascertain that.

Q. Perhaps you had better look. You can ascertain that in a moment, can you not I A. I can, by going into the office. I can bring the list of directors from the commencement.

Commissioner ANDERSON. We would like to have that. Also bring the contract you found in the vault The Last Rose of Summer.

The WITNESS (after returning). I can state now that the directors were nine instead of five for a certain time, if you care for that.

Q. Will you give their names in 1864, 1865, and 1866? A. In 1864, Leland Stanford, C. P. Huntington, Mark Hopkins, A. P. Stanford, E. H. Miller, jr., Chas. Marsh, arid E. B. Crocker. Those were elected October 8, 1864. If you want those in office during 1864 I will have to go back.

Commissioner ANDERSON. Give us those in office during 1864.

The WITNESS. Elected July 14, 1863: Leland Stanford, C. P. Huntington, Mark Hopkins, A. P. Stanford, James Bailey, T. D. Judah, Chas. Marsh, D. W. Strong, L. A. Booth, and John F. Morse.

E. B. CROCKER.

Q. What relation is E. B. Crocker, who appears in the year 1864, to Chas. Crocker 1 A. Brother.

Q. What were their business relations? A. They had no business relations together. One was a lawyer and one had been a merchant.

Q. Was E. B. Crocker the lawyer 9 A. Yes, sir.

Q. Did not Mr. Chas. Crocker become his assignee subsequently ! A. Yes, sir ; some time subsequently, though.

Q. Did you not know enough of their relations to say whether they had business relations together or not? A I never knew that they had.

Q. You say this second contract was made before the completion of the first con tract? A. I did not say that positively, but I think so.

SECOND CROCKER CONTRACT ALSO MISSING.

Q. Have you looked for that contract No. 2? A. Yes, sir. Q. When did you look for that contract 1 A. The same time I looked for the other one, two weeks ago.

EDWARD H. MILLER, JR. 2345

Q. Have you not also looked for that contract on other occasions? A I presume I have ; I do not remember.

Q. When I asked you a few moments ago whether you had any suspicions as to who had removed these contracts you hesitated. Please tell me, did the name of any person occur to your mind at that time I A. No, sir ; I hesitated simply

Q. (Interposing.) Wait a moment. Did anybody's name present itself to you at that time? A. No, sir.

Q. You thought of no one? A. I did not. I will explain that now.

Commissioner ANDERSON. You may do so now.

The WITNESS. I hesitated for the reason that I thought it was a proper question for me to decline to answer. That was the only cause for hesitation.

By the "CHAIRMAN:

Q. Did you ever talk to anybody about the missing contract? A. A. No, sir ; except to Mr. Richard F. Stevens, your general accountant.

Q. Prior to that time did it occur to you that it was an unbusiness like method to have contracts on so important a matter as the construction of the road missing ! A. No, sir ; I do not think it was.

Q. Did it make any impression on you at all? A. You are getting by inference a statement that I have not made.

STATEMENT AS TO MISSING CONTRACTS.

Q. What is the statement that you have made"? A. The statement I have made is that I found the contracts missing within the last two weeks, and that I do not remember ever having searched for them before.

Q. When you discovered within the last two weeks that the contracts were missing did you discuss the question with anybody then? A. No, sir.

Q. Did you not think it important to report it to your superior officers at that time? A. I did not.

Q. Do I understand you to swear that that was the first indication, two weeks ago, that you had that those contracts were missing? A. I do not swear to anything of the sort. I do swear that I do not remember ever having looked for them before, or ever having known that they were missing.

Q. Why do you hesitate to swear that you had not information prior to two weeks ago that the contracts were missing? A. Because I do not remembeir that I had.

Q. Do you swear that the contracts were not called for in the Colton case? A. I do not. I swear that I do not remember that they were.

DOES NOT BELIEVE THE PAPERS ARE IN THE VAULT.

Q. Then I understand, as you stated before, that you are not prepared to swear now that the contracts are missing? A. I am prepared to swear that I have made an examination and a search for these contracts in the place where they ought to be, or the place where I supposed where they formerly had been, and that I do not find them, and I do not believe that they are in the vault ; that is, the vault in my office.

Q. Are you prepared to swear that the contracts are not in your vault $ A. I believe I have answered that before.

Q. I do not think you have, yes or no. I would ask you to answer that question yes or no. A. You know very well, Mr. Chairman, that

2346 U. S. PACIFIC RAILWAY COMMISSION.

I cannot possibly answer that question yes or no, after the explanation I have previously made to the same question.

The CHAIRMAN. I will repeat my question, and call for an answer. Mr. Stenographer, you will read it to Mr. Miller.

The STENOGRAPHER (reading) : " Then I understand, as you stated before, that you are not prepared to swear now that the contracts are missing? A. I am prepared to swear that I have made an examination and a search for these contracts in the place where they ought to be, or the place where I supposed where they formerly had been, and that I did not find them, and I do not believe they are in my vault; that is, the vault in my office."

The WITNESS. Will you repeat the question?

By Commissioner ANDERSON :

Q. Are you prepared to swear that the contracts are not in your vault? Answer yes or no. A. If I understand that question there is nothing to it except whether I am prepared to swear whether the contracts are in my vault or not. Is that the way it reads?

Q. Are you prepared to swear that the contracts are not in your vault? Answer yes or no? A. No. I suppose I have a right to explain?

The CHAIRMAN. Certainly.

The WITNESS. I am not prepared to swear, because there is such a large mass of papers in my vault that I had not recently gone through all those papers. It would take a long time to do so. But I am prepared to swear that to the best of my knowledge and belief, after having examined thoroughly the place where those contracts should be, if they were in the vault, that I think that I said to the best of my knowledge and beliefthe contract is not in my vault TERMS OF SECOND CONTRACT.

Q. What do you recollect as to the terms of that second contract? A. The best of my recollection is that that contract was made under certain specifications which required payment to the contractor at a specific price for grading per cubic yard, of all natures, rock work, &c., and for masonry and for iron, &c., furnished, to complete the road. ' I dp not mean the rails, but iron work necessary for bridges, &c., at specified prices.

Q. Not including the rails? A. Not including the rails, I think, but it may have included the rails.

HOW PAYABLE.

Q. Do you remember whether the amounts payable under that contract were payable in dollars or in bonds or in stocks? A. My recollection is that it was payable, a portion in cash, a portion in bonds, and another portion in stock.

Q. Can you give the percentages? A. I think it was five-eighths cash and three-eighths in bonds and stock. Of that, however, I am not positive. I do not recollect.

Q. Do you remember whether the percentages were altered from time to time? A. My recollection is that the percentages were not altered.

Q. Will your minutes show? A. I do not know whether the minutes will show or not, but the books of the company will show. The accounts will show.

EDWARD H. MILLER, JR. 2347

Q. That is to say, the entries in the books of account of the company will show? A. The entries in the books of account of the company will show.

METHOD OF KEEPING THE BOOKS.

Q. What distinction did you make in the entry of an issue of bonds on these contracts, or a payment of cash? A. I do not quite comprehend.

Q. Did you debit in one case "cash 77 and in the other case u bonds," or what is the distinction made in your books I A. We opened an account with the contractors, crediting them with the work done and charging them with the bonds and cash and stock when paid.

Q. In what account will the counter-charges be made, showing from whence the bonds came and from whence the cash came and from whence the stock came? A. The contractor being charged with cash, the cash would take credit ; and if with bonds, the bonds would be credited ; and if with stock the stock would be credited.

CHANGES MADE IN CONTRACT.

Q. So that by following the contract down from the inception of that contract to the end, if there were any changes in its terms they will appear in your books? A. Yes, sir 5 but I think I can explain it.

Commissioner ANDERSON. We will take any explanation you can give.

The WITNESS. This is the contract as I remember it. The stock was to be issued at 50 cents on the dollar, and there was a change made in the percentage to 30 cents.

Q. In the percentage of cash or the percentage of stock? A. No, sir ; the percentage of cash remained the same. The percentage of bonds, as I recollect it, remained the same. But as to the percentage of stock, the stock was not paid at par. First it was paid at 50 cents on the dollar and afterwards at 30 cents on the dollar.

Q. Do you remember the aggregate amount of stock, bonds, and cash which this contract called for? A. Eo, sir.

Q. Can that be ascertained from your books? A. Yes, sir.

THE CONTRACT AND FINANCE COMPANY.

Q. What was the next construction contract which this company entered into ? A. As I remember it, the next contract was with a corporation called the Contract and Finance Company.

Q. When was that company organized? A. My recollection of dates, especially of those so long ago, is so poor that I cannot give it. I will explain that I do not remember my own age, without counting back to the year I was born.

Q. Was it organized shortly before taking this contract? A. Yes, sir.

SPECIAL OBJECT OF ITS ORGANIZATION.

Commissioner ANDERSON. It was organized especially for the taking of these contracts. I am quoting from Mr. Huntington.

The WITNESS. That was its business. Undoubtedly it was.

Q. Who were its officers? A. That I cannot say. I knew at the time, but now I do not recollect.

Q. Who were the principal stockholders? A. I do not know.

Q. Who kept the books of the Contract and Finance Company? A, William E. Brown.

P R YOL iv 2

2348 U. S. PACIFIC RAILWAY COMMISSION.

Q. Where is lie? A. He is here.

Q. Is he president of the Southern Pacific Company 1? A. No, sir.

Q. What is his office? A. He is one of the directors of the Southern Pacific Company at present.

Q. Does he reside in San Francisco? A. His office is here in the building.

Q. Is he present now? A. I presume he is.

Q. Can you obtain from him a list of the officers and stockholders of this company at the time it took the contract I refer to? A. I think I can.

Commissioner ANDERSON. We will excuse you for that. We would like to have that list now.

The WITNESS (after returning). Mr. Brown does not recollect. He was secretary himself. He recollects that, and can give the names of two other directors, but whether there were mo re than three he cannot say. He will ascertain, however.

ITS MEMBERS.

Q. Who were the directors he named? A. Wm. E. Brown, T. J. Millikin, and B. K. Crocker.

Q. As a matter of fact, were not Mark Hopkins, Leland Stanford, C. P. Huntington, and Chas. Crocker the holders of substantially all the stock of this Contract and Finance Company? A. Not to my knowledge.

Q. Have you not heard them say so in litigations? A. No; I do not think I have. I presume that to be the fact. But that is my presumption.

Q. Have you not heard them say so 1 A. No, sir ; I never did.

Q. Have you not heard them say that Mr. Millikin, Mr. B. F. Crocker, and Mr. William E. Brown were holders of small portions of the stock for the purpose of qualifying them to act as directors? A. I never heard them say that.

Q. You never heard any one say that? A. I never heard any of them say that.

Q. Have you ever heard anybody say that? A. I could only say for myself. That is my presumption. Nobody knew.

Q. I will read for you from Mr. Huntington's testimony, taken before us, referring to this Finance Company: "The stock of that company was nearly all held by Governor Stanford, Mr. Hopkins, Mr. Crocker, and myself; there were some few stockholders, but I could not say who." Are you satisfied that that statement is correct? A. Yes, sir.

BOOKS OF THE CONTRACT AND FINANCE COMPANY.

Q. Have you ever seen any of the books kept by the Contract and Finance Company ? A. Yes ; I saw them.

Q. What books did you ever see? A. I saw the day-book and ledger, or journal, I suppose; cash-book, day-book, and ledger, probably.

Q. When did you see these books? A. They had an office in the same building with me in Sacramento, and I saw them when I went into their office.

Q. At Sacramento? A. Yes, sir ; I saw them in use by their bookkeeper.

Q. That was while this contract was under way? A. Yes, sir.

Q. Have you never seen them since? A. No, sir.

EDWAKD H. MILLER, JR. 2349

THAT CONTRACT ALSO MISSING.

Q. Where is that contract between the Central Pacific Company and the Contract and Finance Company? A. That is missing.

Q. How many miles did that embrace? A. It embraced a large portion of the road east of the contracts that have been mentioned previously.

Q. When did you last see that contract? A. I do not recollect.

Commissioner ANDERSON. That contract embraces, as you say, a large portion of the construction of the Central Pacific?

The WITNESS. Yes, sir.

Commissioner ANDERSON. It is a contract of great magnitude and importance.

The WITNESS. Yes, sir.

Q. You say you never observed that it was missing until within the last few weeks? A. I do not remember that I ever did.

THE COLTON CASE.

Q. Do you not remember being examined particularly with reference to all the papers of the Contract and Finance Company in the Colton case? A. 1 do not remember.

Q. Do you not remember being asked if those books were in Loudon? A. I do not remember that.

Q. Or if they had been purposely destroyed? A. I could not possibly know that.

Q. I asked you if you remembered being asked that question 1? A. No ; I do not remember being asked that.

Q. By Mr. Hayes? A. No, sir.

Q. You know Mr. Hayes? A. Yes, sir.

Q. You know he asked you a great many questions in the Colton suit three or four years ago? A. Yes, sir.

Q. Do you not know that it was a question of public talk as to the disappearance of the books of this company, at that time? A. I say I do not remember. I do not remember anything about it.

Q. You do not remember that the subject was discussed in San Francisco at all at the time of the trial of the Colton case? A. No, sir.

Q. Will you swear that you and Governor Stanford did not talk this matter over, of the disappearance of these books, during the trial of the Colton case? A. I will swear that I do not remember ever having spoken to him about it, or his having spoken to me about it.

GOVERNOR STANFORD'S DEPOSITION.

Q. Do you not remember Governor Stanford's deposition was taken at great length I A. Yes, sir.

Q. Where was he when his deposition was taken? A. In New York, I think.

Q. When he came back here, did you have no conversation with reference to that subject? A. Not that I remember. Not only that I do not remember, but I do riot think I ever did. I do not believe I ever did.

Q. Was no surprise expressed by any of the officers of the company as to the disappearance of such important papers as this contract? A. Not that I remember.

Q. Was the subject never brought up in the board of directors when you were present? A. No, sir.

2350 U. S. PACIFIC RAILWAY COMMISSION.

Q. Has no fault ever been found with you for having permitted these papers to disappear? A. No, sir.

TERMS OF CONTRACT AND FINANCE COMPANY CONTRACT.

Q. What do you remember about the terms of the contract made with tbe Contract and Finance Company? A. I do not remember the details of it at all.

Commissioner ANDERSON. From Camp 24 to Ogden? That is, substantially, from the boundary of the State to Ogden, through Nevada and Utah.

The WITNESS. Does that say " Camp 24, the boundary of the State"?

Commissioner ANDERSON. It was substantially.

The WITNESS. Then I misstated the miles.

Q. I read to you from Mr. Huntington's testimony. He was asked :

Q. What was the subject of their contract? I want to know between what points ? A. It was Camp 24, if I remember right. I am not certain that I ever saw the contract.

Q. It was the road substantially after leaving the State of California? A. Yes, sir. Camp 24 I think is on the State line. It was a contractor's camp, you know, and it was from that point to the point of junction.

In other words, the whole of this road in the State of Nevada and Territory of Utah. You can tell us nothing as to the terms of that contract? A. No, sir ; only what appears upon the books of the company now.

Q. Do you know whether it was an agreement at so much per mile? A. I believe it was.

Q. Do you know whether the rate per mile was the same throughout the entire length of the road from Camp 24 to Ogdeu, or to Promontory Point? A. I do not recollect that.

Q. Do you know whether the rate per mile was payable in money or in bonds, or whether it was mixed? A. I think it was mixed.

Q. Do you know whether the payment included the Government bonds? A. It did not.

Q. Do you know, as a matter of fact, that none of the Government bonds went to the Contract and Finance Company? A. Yes, sir.

Q. They did not? A. They did not.

GOVERNMENT BONDS SOLD FOR ACCOUNT CENTRAL PACIFIC.

Q. How were the Government bonds disposed of? A. They were sold in New York by Mr. Huntiugton, almost wholly ; possibly a portion may have been paid out directly on contracts for locomotives, engines, iron, &c.

Q. Do you know whether they were sold for account of the Central Pacific Company or on account of tbe Contract and Finance Company? A. They were sold for account of Central Pacific Railroad Company.

Q. Do you remember that the price per mile was about $100,000 in the Contract and Finance Company's contract, payable in stocks and bonds? A. 1 not remember that. I believe that was about the cost, as entered up on the books under that contract.

COST PER MILE, IN SECURITIES AT PAR, $100,000.

Q. Do you mean, when you say "cost," the amount of stocks and bonds issued at par? A. The stocks and bonds paid to them.

Q. Taken at par it would amount to $100,000? A. Yes, sir. The stocks, bonds, and cash, at par, amounted to about that amount.

EDWARD H. MILLER, JR. 235 1

Q. Do you remember that the amount of bonds issued per mile was $64,000?

The WITNESS. I do not think I understand your question. The amount of what bonds?

Commissioner ANDERSON. The amount of bonds issued to the Contract and Finance Company.

The WITNESS. I do not remember that.

CHARACTER OF SECURITIES ISSUED TO CONTRACT COMPANY.

Q. What bonds were issued to the Contract and Finance Company? What character of bonds'? A. The company's first-mortgage bonds, if any.

Q. Are you positive that any bonds were given to them? A. No, I am not positive.

Q. Will your books show? A. Yes, sir.

Q. And you have never examined them for the purpose of ascertaining whether they received any bonds or not? A. I know, but I do not remember. I know perfectly weil if 1 can look at the books.

Q. Do you not know perfectly well that the Contract and Finance Company did get bonds'? A. No, sir; I do not. You are asking positive questions.

Commissioner ANDERSON. No, I do not ask positive questions.

The WITNESS. Possibly I am technical in my answer, but I do not remember it. The books would show very plainly what they did get.

Q. How much of this contract with the Contract and Finance Company is entered in your books of minutes? A. I do not know that any of it is.

THE WESTERN DEVELOPMENT COMPANY.

Q. What other large construction contracts has the Central Pacific made? A. They made a contract for constructing the

Q. (Interposing.) Well, I will follow my own order. Did it make a contract with the Western Development Company? A. I do not think it did.

Q. Was the Western Development Company subsequent in time to the Contract and Finance Company? A. Yes, sir.

WHAT BECAME OF CONTRACT AND FINANCE COMPANY.

Q. What became of the Contract and Finance Company? A. It was disincorporated, I think.

Q. Was it wound up by judicial proceedings? A. Not that I know of*

Q. Where was it last located? A. At San Francisco, I think.

Q. In what building? A. This building.

Q. In what room? A. Room No. 1, on the first floor, at the side entrance.

Q. When did you last see that room occupied by the Contract and Finance Company ? A. By the book-keeper.

Q. When? A. I think in 1874.

JOHN F. MILLER.

Q. Whom did you see there then? A. John F. Miller. Q. Is he a relation of yours ? A. No, sir.

Q. Where does he live? A. He lives somewhere on the Sacramento River, in Sacramento County, I think.

2352 U. S. PACIFIC RAILWAY COMMISSION.

Q. Can you identify it a little better than that? A. No, sir ; I really do not know.

Q. Who knows him here in this office? A. Almost everybody connected with the office.

Q. So that we can find him? Does Mr. Brown know where he can be found? A. I presume he does.

Q. You refer us to him? A. Yes, sir.

By the CHAIRMAN : Q. What is his business now? A. Farmer.

BOOKS AND PAPERS OF THE CONTRACT AND FINANCE COMPANY.

By Commissioner ANDERSON :

Q. Were the books and papers of the Contract and Finance Company in that room when you saw.it in 1874? A. I never saw the books there.

Q. You only saw Mr. Miller there? A. Yes, sir ; I saw him.

Q. He had some books, I presume? A. Well, he was connected with some other company Western Development Company I think ; and whether he had any books of the Contract and Finance Company there, I do not know. I never saw them.

THE WESTERN DEVELOPMENT COMPANY.

By the CHAIRMAN :

Q. Who composed the Western Development Company? A. I do not know.

By Commissioner ANDERSON :

Q. Who was its president I A. That I do not know.

Q. Do you know the names of any of its officers 1 A. F. S. Douty was one of its officers. He was either president or secretary ; I do not know which.

Q. Where is Mr. Douty? A. His office is in this building.

Q. What position does he now hold? A. He is president, I think, of the Pacific Improvement Company, or secretary of it.

CONTRACT FOR ROAD FROM SACRAMENTO TO NILES.

Q. What was the contract with the Western Development Company? A. I do not remember whether the contract for building the Western Pacific Railroad from Sacramento to Niles was with the Pacific Improvement Company or the Western Development Company.

Q. It was with one or the other? A. I think so.

Q. When was that contract made? Was it before the Contract and Finance Company or after? A. I think it was made very soon after the completion of the Central Pacific road to Ogden.

Q. That is, soon after May, 1869? A. Yes, sir.

THAT CONTRACT ALSO MISSING.

Q. Where is that contract? A. It is missing.

Q. Have you looked for that recently? A. I have looked for all of them.

Q. What can you tell us in regard to the terms of that contract? A. My recollection of the terms is very indefinite.

Q. Can you refer us to any entries in your books, or the minutes, that will furnish us with the terms of that contract? A. The entries on the

I

EDWARD H. MILLER, JR. 2353

regular books of the company will show the terms of that contract, but not in detail. I do not think there is anything in the minutes of the company in detail.

Q. How long did the Western Development Company continue to work this contract ?

The WITNESS. In building that road "?

Commissioner ANDERSON. Yes ; from 1869 until when?

The WITNESS. They finished it in about a year.

Q. What became of the company? A. I do not know.

OFFICES OF WESTERN DEVELOPMENT COMPANY IN SACRAMENTO.

Q. Where was their office? A. At that time I do not remember the date of the organization of the Western Development Company, but if I am right, their office must have been in Sacramento.

Q. Why do you say " must have been 9 " Is it because they were all kept together? A. Because there were no offices here.

Q. Is it not also because the whole business of the Central Pacific was at Sacramento at that time? A. Because the Western Development Company, as I understand it, was successor to the Contract and Finance Company, and they held their offices in the same place until we moved from Sacramento to San Francisco, which was in 1873.

Q. Do you know who the stockholders of the Western Development Company were ? A. No, sir.

Q. Do you not know that they were substantially the same persons who were the stockholders of the Contract and Finance Company? A. I do not know ; but I presume they were. That is all I can say.

Q. You presume they were? A. I think they were.

CONSTRUCTION OF CALIFORNIA AND OREGON BRANCH.

Q. What subsequent contract did the Central Pacific make with the Pacific Improvement Company? A. They made a contract I will not say it was the Pacific Improvement Company, because I am not sure ; but they made a contract with one of the three companies for building the California and Oregon Branch road.

Q. It was the Pacific Improvement Company, was it not? A. Practically the successor.

Q. That is, the north part of that road? A. Yes, sir.

Q. From what point; from Bedding to the State line? A. No; Eoseville was the beginning. I think they had a contract for building some portion of the road between Eoseville and Bedding.

Q. Did they not have the contract for building the northerly 200 miles of that road? A. Yes, sir.

THE PACIFIC IMPROVEMENT COMPANY.

Q. Who was the president of the Pacific Improvement Company? A. F. S. Douty, I think.

Q. When was this contract made?

The WITNESS. The contract for building the northerly 200 miles, you are speaking of?

Commissioner ANDERSON. Yes.

The WITNESS. Last year.

Q. Was it not longer ago than that? When was that finished? A. It was just finished.

Q. Last year? A. No, sir.

2354 U. S. PACIFIC RAILWAY COMMISSION.

Q. Finished this year? A. Just finished within a month.

Q. Y/ho are the directors of the Pacific Improvement Company? A. I do not know.

Q. Can you ascertain? A. I presume that I can from Mr. Douty.

Q. Who are the stockholders? A. I do not know that.

Q. Are they not substantially the same persons who were stockholders in the Contract and Finance and the Western Development Companies? A. I think so.

Q. Who keeps their books? A. F. S. Douty.

Commissioner ANDERSON. I think you said he was president.

The WITNESS. He keeps the books also. They are in his charge, in one office.

Q. Where is the office of that company I A. That is in room No. 3, on the first floor of this building.

Q. What other persons are in that room besides Mr. Douty? A. There is Judge Underbill.

Q. What position does he hold? A. He is a lawyer.

Q. Is he the lawyer of the Pacific Improvement Company? A. He does and has done considerable business for the Central Pacific Railroad Company, and now does for the Southern Pacific Company.

ITS CONTRACT PRODUCED.

Q. Where is this contract with the Pacific Improvement Company? A. I think I have it. At any rate it is entered in full on the minutes. Recently I have adopted the plan of entering everything in full on the minutes.

Commissioner ANDERSON. Please see if you can produce the contract.

(The witness produced the contract between the Central Pacific Railroad Company and the Pacific Improvement Company, dated October 11, 1886. It is marked Exhibit No. 2, July 25, 1887," and is as follows :)

CONTRACT BETWEEN THE CENTRAL PACIFIC RAILROAD COMPANY AND THE PACIFIC IMPROVEMENT COMPANY.

This agreement, made and entered into on the eleventh day of October, 1886, between the Central Pacific Railroad Company, party of the first part, the Pacific Improvement Company, party of the second part, and the Southern Pacific Company, party of the third part, witnesseth :

That whereas the Central Pacific Railroad Company is the successor in interest of the California and Oregon Railroad Company, mentioned in the act of Congress of July 25th, 1886, entitled "An act granting lands to aid in the construction of a railroad and telegraph line from the Central Pacific Railroad, in California, to Portland, in Oregon ;" and

Whereas the said Central Pacific Railroad Company has constructed a portion of the line contemplated by said act of Congress, to wit, that portion between Roseville Junction, on the Central Pacific Railroad, and the town of Delta ; and

Whereas about one hundred and four miles of the line between Roseville Junction and the southern boundary line of Oregon, as contemplated in said act of Corigress, has not been constructed ; and

Whereas the Oregon and. California Railroad Company, charged by said act of Congress with the construction of that portion of the said lino of railroad between Portland, in Oregon, and the northern boundary line of California, has been in an embarrassed condition and has been unable to complete its road to said boundary line; and

Whereas until the whole of said line is completed, making a through connection between Portland, in Oregon, and the city of San Francisco, in California, no part of said line can be advantageously or profitably operated, nor the act of Congress in relation thereto be carried into effect according to the spirit and intent thereof, to wit, the construction and maintenance of a continuous railroad between the said cities, which the Government of the United States may use for the transportation of its

EDWA&D H. MILLE&, JK. 2355

property, troops, and munitions of war when necessary, and to aid in the construction of which it has granted quantities of the public lands ; and

Whereas the completion by the said Central Pacific Railroad Company of its own road to the southern boundary line of Oregon without assurance of the completion of that portion of the road from Portland to said boundary line would be a waste of money, the road having to be constructed through a rugged and mountainous country at great expense and without sustaining local traffic ; and

Whereas it is of the greatest importance to the Central Pacific Eailroad Company that it should have an opening into Oregon, both for local traffic and the through business of the two cities, and also to furnish business for its entire line from Ogden:

Now, therefore, for tho purpose of completing its said road, and of securing the completion of the road between the California State line and Portland, Oreg., thus making a through line between said cities of Portland and San Francisco and a connection with the Union Pacific Railroad at Ogden, and in order to secure the business of the northern portion of the State of California and as much as possible of the business of the State of Oregon, and to bring such business to its line from Ogden, and for the purpose and with the intent of carrying into effect the provisions of said act of Congress, the said Central Pacific Railroad Company hereby convenants and agrees with the said Pacific Improvement Company

First. That the said Pacific Improvement Company shall, in a good workmanlike manner, construct, finish, furnish, and complete the railroad and telegraph lino of the said Central Pacific Railroad Company, commencing at a point near the said town of Delta and running thence in a general northerly direction by the most practicable route to a point on the southern boundary line of Oregon, there to connect with the road of the said Oregon and California Company, a distance of 104 miles, as near as may be, together with the rolling-stock, buildings, instruments, and fixtures thereof; that is to say, to construct, finish, and complete all the clearing, grading, excavations, embankments, ditches, drains, masonry, culverts, bridges, trestling, and necessary fencing, and furnish all the ties, timber, rails, all the chairs, fish-plates, spikes, frogs, and switches, lay and complete all the main line of track and all the side-tracks, spur-tracks, and turnouts necessary, usual, and proper for a single-track railroad; also all necessary and proper buildirgs and erections for stations, freight and passenger depots, water-tanks, turn-tables, engine-houses, section-houses, work and repair shops, with all the tools, furniture, and implements necessary and proper therefor; also to furnish and place on said railroad all necessary and proper rolling stock, instruments, and equipments, including locomotives, passenger, box, freight, baggage, platform, dump, and hand cars for the proper and successful working and repairing of said railroad and telegraph line, said rolling-stock to be furnished and delivered as the same may be required by the said Central Pacific Railroad Company, not to. exceed the following quantity and proportion, namely: One locomotive for every eight miles of road constracted under the contract ; one passenger car for every five miles of road ; three box and flat cars for every mile of road, the proportion of each to be determined by the said Central Pacific Railroad Company ; one hand car for every six miles of road ; such number of dump cars as may be required for maintaining the line; said railroad to be constructed and completed to a point at or near the Klamath River within twelve months from the date hereof, and to the southern boundary line of Oregon as soon as the said Oregon and California Railroad is completed to said line.

Second. That the said Pacific Improvement Company shall furnish and pay for all the engineer service necessary or requisite for the location and construction of said railroad and its appurtenances, &uch location and construction to be subject to the approval of the president or chief engineer of said Central Pacific Railroad Company, who may direct such changes to be made as they may deem proper, but the salary of the chief engineer shall be paid by said Central Pacific Railroad Company.

Third. That the said Pacific Improvement Company will pay all the costs, damages, and other expenses incurred in obtaining right of way for the construction of said road, and to that end the Central Pacific Railroad Company agrees that it may use the name of the said company in any legal steps found necessary to be taken in securing such right of way.

Fourth. That the said Pacific Improvement Company will, within a reasonable time and as soon as it can be done to the best advantage, purchase, obtain possession and control of the said Oregon and California Railroad, or that it will, within a reasonable time, purchase the whole of or a majority of the shares of the capital stock of said Oregon and California Railroad Company, and in either event will within a reasonable time complete or cause to be completed the said Oregon and California Railroad to a connection with the Central Pacific Railroad at a point on the boundary line between California and Oregon, and, as the case may be, will enter into, or will cause the said Oregon and California Railroad Company to enter into, a contract perpetual with the said Central Pacific Railroad Company, its successors or assigns, that the said Oregon and California Railroad shall be operated in harmony with the said

2356 U. S. PACIFIC RAILWAY COMMISSION.

Central Pacific Railroad, prorating for services and covenanting therein never to give to any other railroad company any better terms for through traffic and for the interchange of business than it gives to the Central Pacific Railroad Company, its successors or assigns.

Fifth. That the said Pacific Improvement Company shall and will repay to the said Central Pacific Railroad Company, within one hundred and twenty days from the date hereof, all sums of money, with interest thereon at the rate of 6 per cent, per annum, heretofore by the said railroad company expended upon that portion of its aforesaid line of railroad and telegraph line lying north of Delta, and that if said railroad company has not fully paid all the costs and expenses incurred as aforesaid, the said improvement company will assume the whole thereof, and will, upon demand, pay oif and discharge the same ; or that if the said railroad company is compelled to pay the same or any part thereof, then the said improvement company will, within one hundred and twenty days after notice thereof, pay to the said railroad company the full amount of any such payments, with interest at the rate aforesaid.

And the said Southern Pacific Company, lessee of the said Central Pacific Railroad Company, hereby covenants and agrees with the other parties to this contract that, in consideration of the advantages to be derived by it from the bringing of business to the main lines of the Central Pacific Railroad, it will, when said through line is completed, finished, and ready for operation, enter into an agreement in writing with the said Central Pacific Railroad Company whereby it shall lease from said company that portion of said line between Roseville Junction and the State line not now included within its lease, and will increase the consideration of twelve hundred thousand dollars, guaranteed rental mentioned in the existing lease, as much in proportion as 80,000 shares of the capital stock of said Central Pacific road shall bear to the whole amount of capital stock of said company now issued, and will also increase the limit of the maximum rental of thirty-six hundred thousand dollars therein provided for in like-proportion ; and that it will transport and convey, free of charge, over the lines operated by it in California, north of San Francisco, all agents, laborers, and employe's, and all provisions, tools, iron, and other materials, and all other property employed or used, or to be employed or used, in and about the construction of said railroad and telegraph line and their appurtenances by or for said Pacific Improvement Company.

And the said Central Pacific Railroad Company hereby covenants and agrees to and with the said Pacific Improvement Company that, in consideration of the premises and of the faithful performance of the covenants herein contained to be kept, observed, and performed by said Pacific Improvement Company, it will, upon the execution of this agreement, issue and deliver to said company eighty thousand shares of its capital stock, and in addition thereto it will pay to said Pacific Improvement Company four million five hundred thousand dollars in mortgage bonds, as follows : When one-half of the work on said road between Delta and the Oregon line is completed, it will pay and deliver to said Pacific Improvement Company all of its first-mortgage bonds now unissued, part of an issue by it heretofore provided for, to be used toward the construction of its railroad between Roseville Junction and said Oregon line, and that it will pay to said Pacific Improvement Company the balance of said four million five hundred thousand dollars of bonds, in its mortgage bonds, part of an issue by it provided for in an indenture of mortgage by it made to William E. Brown and Frank S. Douty, bearing date October 1, 1886, and that it will make said last-mentioned payment as the work on said road progresses, and as sections of not less than ten miles between Delta and the Oregon State line are completed, and in the proportion which the completed section shall bear to the whole length of the road between the points last aforesaid :

In testimony whereof the parties hereunto have caused these presents to be signed by their respective presidents and secretaries and their corporate seals to be hereunto affixed. Done in triplicate the day and year first herein written.

LELAND STANFORD, President of the Central Pacific Railroad Company.

[SEAL.] E. H. MILLER, JR.,

Secretary of the Central Pacific Eailroad Company.

LELAND STANFORD, President of the Southern Pacific Company.

[SEAL.] E. H. MILLER, JR.,

Secretary of the Southern Pacific Company.

J. H. STROBRIDGE, President of the Pacific Improvement Company.

[SEAL.] F. S. DOUTY,

Secretary of the Pacific Improvement Company.

(Indorsed on back :) Executed copy agreement between Central Pacific, Pacific Improvement Company, and Southern Pacific Company. Pacific Improvement Company to finish construction of California and Oregon Extension. October 11, 1886.

" Exhibit No. 2, July 25, 1887."

EDWARD H. MILLER, JR. 2357

The WITNESS. I can furnish you with the printed copy of that, certified, if you wish it.

By Commissioner ANDERSON :

Q. We were so rejoiced to get hold of a copy of any paper that we thought we would have it copied. Haveyou enumerated all the construction contracts that you recall? A. Yes, sir.

Q. They, then, represent substantially all the contracts under which the aided portion of the Central Pacific was constructed? A. Yes, sir ; more than that.

Commissioner ANDERSON. That is, the Crocker contract, the Contract and Finance Company contract, the Western Development Company contract, and the Pacific Improvement Company contract.

The WITNESS. Yes, sir.

Commissioner LITTLER. As I understand, the contract you found was a subcontract between Crocker and somebody else, who built a few miles of the road.

The WITNESS. No, sir ; you are referring now to one of the original contracts'?

Commissioner LITTLER. Yes.

The WITNESS. I found one of the original contracts for 2 miles.

By Commissioner LITTLER : Q. Where is that? A. I think Mr. Stevens has it. I will send forit.

REPORTS MADE BY STANFORD, HUNTINGTON, HOPKINS, AND CROCKER.

By Commissioner ANDERSON :

Q. Were Mr. Huntington, Governor Stanford, Mr. Crocker, and Mr. Hopkins in the ha,bit of making reports to the company, from time to time, of the transactions effected by them in their respective departments? A. I do not think Mr. Hopkins ever made a report. Yes, sir; he did, too, as treasurer ; yes, sir ; they all did.

Q. Where are those reports? A. I have them, I think.

Q. How frequently were they made? A. Mr. Huntington's were made in the form of a statement of accounts practically monthly.

Q. Have you all of these in your possession? A. Yes, sir.

Q. Will you please produce them at the convenience of the Commission? A. Yes, sir ; I will do so. I beg to say that Mr. Stevens is using them right along, however.

Q. Mr. Stevens has access to them? A. He has as he calls for them.

Q. Do you mean to say^that Mr. Huntington has made monthly reports always? A. Practically, monthly, yes, sir, except for the very first year or two.

Q. In the shape of statements of accounts? A. Since 1865, as statement of accounts, monthly.

Q. What subject did Governor Stanford report on? A. Governor Stanford did not make any report or statement of account. Governor Stanford's habit was, when he was in San Francisco, to draw his checks for anything and everything from his private account at the bank. When at Sacramento he handed me his check book, and from that I made up a statement of account, which I call his report.

Q. Explaining the application of these moneys? A. Yes, sir.

Q. What was the subject of Mr. Crocker's reports? A. I do not remember that Mr. Crocker ever made a report.

Q. What was the subject of Mr. Hopkins's reports? A. The business of the treasurer.

2358 U. S. PACIFIC RAILWAY COMMISSION

PUECHASE OF SAN FRANCISCO AND SACRAMENTO STEAMERS.

Q. Do you recollect the fact that the Central Pacific made a purchase of the steamers plying between San Francisco and Sacramento, I think it was?- A. Yes, sir.

Q. Was that purchase made by a contract? A. No, sir ; I do not think it was.

Q. How was it effected? A. I think the negotiation was carried on by Governor Stanford.

Q. And Mr. Huntington? A. I do not think Mr. Huntington was here at the time, but I presume he knew all about it, and was a part of it, probably, but I do not think there was any written contract.

Q. Do you know how the price was negotiated? A. No, sir ; I do not.

Q. Do you know whether Mr. Stanford and Mr. Huntington were interested in those steamers before the Central Pacific acquired them? A. I have never understood that they were.

OWNED BY THE CALIFORNIA PACIFIC.

Q. Do you know whether they w^ere interested I mean Mr. Huntington and Governor Stanford in the stock of the corporation which owned these steamers'? That was the California Pacific Eailroad Company, I think. A. Yes, sir ; I believe so.

Q. The California Pacific, it was called? A. Yes, sir.

Q. They were stockholders? A. m Yes, sir.

THE MINUTES WILL SHOW THE PRICE PAID.

Q. Do the minutes of this company show how the price to be paid for these steamers was determined?

The WITNESS. The minutes of the Central Pacific?

Commissioner ANDERSON. Yes.

The WITNESS. Is that Mr. Huntington's testimony.

Commissioner ANDERSON. Yes $ Mr. Huntington's testimony.

The WITNESS. The minutes may show that. The minutes possibly show the price that was to be paid ; bat how that price was determined is more than I think is in the minutes.

Q. Could it be determined in any way except by a vote of the directors?

The WITNESS. I beg pardon ; I had an idea that you meant how the actual amount to be paid was determined the negotiations.

Commissioner ANDERSON. That is tf hat I mean. Whether they were to pay $1,000,000 or $2,000,000 or $100,000? A. Yes, sir. I misapprehended the question.

Q. What is your answer? A. Yes, sir. The minutes of the books will show it. The books of the company show the amount they paid.

Q. Do you know who was present and voted as to whether the price should be approved or not? A. !Nb, sir; I do not remember that.

Q. Do you know whether Mr. Huntingtou voted in favor of paying the price? A. I do not remember.

Q. Or whether Governor Stanford did? A. I do not remember. It is easily ascertained.

Q. The minutes will show? A. Yes, sir. That is, if it appears, the minutes would show it.

Q. Do you know the price that was paid? A. No, sir ; I do not remember exactly.

EDWARD H. MILLER, JR. 2359

PURCHASES OF OFFICERS SUBSEQUENTLY RATIFIED BY BOARD.

Q. Do you know whether the officers of the Central Pacific were in the habit of making such purchases without any vote of the board of directors, and of their own motion? A. I think they frequently made purchases to that extent, which were ratified by the board of directors afterward, or assumed to be ratified.

Q. Of properties where they were stockholders in the selling company? A. No.

Commissioner ANDERSON. That is this case.

The WITNESS. Yes, sir ; that is this case ; but I did not gather that from the form of your question. For instance, Mr. Huntington purchases and has purchased from time to time large amounts of iron without any action of the board of directors.

Q. And procured its ratification subsequently? A. No, sir; nevei procured any ratification.

Q. Simply did -the business of his own accord? A. Yes, sir.

Q. To very large amounts? A. Very large amounts.

HUNTINGDON HAD FULL POWERS OF ATTORNEY.

Q. Who would then fix the price at which the iron was to be sold or paid for? A. Mr. Huntiugton, I will add to that, however, that Mr. Huntington had full power of attorney.

Q. From whom? A. From the company.

Q. Approved by the board? A. Yes, sir ; adopted by the board.

By the CHAIRMAN :

Q. Did the company keep a copy of the power of attorney? A. Yes, 'r.

Q. Have you a copy of it? A. It is entered in the minutes. I presume I have a copy. I have the original, I presume. I have no doubt I have. Q. Will you produce the original? A. Yes, sir.

BOOKS KEPT BY THE CENTRAL PACIFIC.

Commissioner ANDERSON. Please describe in general the set of books which are now kept by the Central Pacific Company.

The WITNESS. You only mean the general books, of course ; not the operative detail books.

Commissioner ANDERSON. Yes.

The WITNESS. They are the cash book, in the treasurer's office ; a journal and ledger, in the secretary's office; and the minute book of the company. The stock journal, the transfer book and ledger.

Q. Are they all kept under your supervision? A. Yes, sir.

Q. How many clerks do you employ under you? A. in that immediate department there are seven. They are not employed now by the Central Pacific. There is only one in employ of the Central Pacific.

Q. You have not named all the books, have you? A. I have named

sir.

the general books.

GENERAL AUDITOR'S BOOKS .

Commissioner ANDERSON. I^ow, in regard to the books relating to the operation of the road, the receipts for freight and passengers? The WITNESS. They are kept in the general auditor's office. Q. What is the general auditor's name ? A. E. C. Wright.

2360 U. S. PACIFIC RAILWAY COMMISSION.

Q. Where are his books? A. They are now in room No. 1 of this building.

Q. What books does he keep, describing them generally? A. He keeps a day-book and ledger and distribution book. That is about all the regular books that are kept.

FREIGHT AUDITOR'S BOOKS.

Q. Does he keep all the operating accounts, both the receipts from freight and passengers, and of operating expenses'? A. No, sir.

Q. Who keeps those? A. Those books are kept for the freight department by C. J. Wilder, the freight auditor, and for the passenger department they are kept by A. G. W. McOullough.

Q. Where are these gentlemen? A. They are here in this building.

Q. Take the freight department first. Is C. J. Wilder your freight auditor ? A. Freight auditor.

Q. Does he keep all the accounts of the Central Pacific receipts for freight? A. Yes, sir.

Q. The form of the business, as I now understand it, is that the Central Pacific is leased to the Southern Pacific for the rent of its road, for the actual receipts 1 A. Yes, sir.

Q. That is the amount they pay? A. Well, a guaranty.

Q. Therefore the auditor keeps an account of the business done on the Central Pacific, just as he did before the lease? A. Yes, sir ; they are kept in just the same way.

Q. Does Mr. Wright receive reports from all your freight agents at different stations along your road? A. No, sir.

Q. How does he get his receipts? A. Mr. Wilder receives reports from all the freight agents on the road.

REBATE AND REFUND BOOKS.

Q. Do you know whether Mr. Wilder keeps rebate books or refund books? A. No, sir ; they are not in his charge.

Q. In whose charge is that subject? A. That is kept by the general freight agent.

Q. What is his name? A. His name is Richard Gray.

Q, Is he also in this building? A. Yes, sir.

Q. And has he a book of the description I have mentioned, of refunds or rebates? A. I do not know whether he has such a book or not, because those rebates are paid and go into the general auditor's office, Mr. Wright's office. Mr. Wright mav have that book instead of Mr. Gray.

Q. They are paid on regular vouchers or receipts? A. Yes, sir.

Q. Who has the custody of those vouchers? A. Mr. Wright, the general auditor.

Q. Has Mr. Wright the general control of the whole subject as to whether rebates shall be allowed, and how much? A. He has no control whatever.

Q. Who has control of that subject? A. Mr. Stubbs, the general traffic manager, and Mr. Gray^ the freight agent.

THE DISTRIBUTION BOOK.

Q. Is Mr. Stubbs also in this building? A. Yes, sir. Q. Do you keep a register called the expense-voucher register? A. No -, no register called expense-voucher register, but there may be such

EDWARD H. MILLER, JR. 2361

a book kept in the general freight office. It will appear on the distribution book in the general auditor's office, under the head of " expense account," which I can explain.

Commissioner ANDERSON. Explain it.

The WITNESS. We have a very large book which we call the " distribution book." Every item paid that goes into the account of the auditor is entered under name, with the total amount. Then, if it is an expense, a portion of it, it is entered in the column of expense. If the voucher contains two or three items they are distributed along through the book under the various headings to which they belong. Instead of keeping several books we keep one of that kind.

By Commissioner LITTLER :

Q. Were all those books prescribed by you as secretarv of the company? A. Yes, sir 5 practically.

Q. Are they all made up and approved by you, and under your direction? A. The blank books are. The voucher comes to me as auditor of accounts and I allow it ; then it goes to the general auditor to be entered on his books. When it is so entered it comes to the paymaster to be paid, and the paymaster returns it to the general auditor, so that he can get credit for that amount of money.

REBATES ON VOUCHERS SEPARATE AND DISTINCT.

i

By Commissioner ANDERSON :

Q. Is the refund or rebate made out on a voucher separately by itself and without any necessity for following it in the distribution book? Can we recognize rebates simply from the voucher, or is the account mixed up with other payments ? A. No, sir ; the rebates will appear on a voucher separate and distinct from anything else.

Q. Is there a separate book also? A. No, sir ; I think not. There may be a separate book kept in the general freight office.

Commissioner ANDERSON. We have the names and we will find them. What we desire to see is a statement of the course pursued by this company in allowing rebates or refunds to any of the persons with whom the company has dealt, and we will ask you to produce the book which will most readily give us that information.

The WITNESS. The distribution book will ; you can have it.

RECEIPTS AND PAYMENTS OF POOL CONTRACTS.

Q. In what books do the receipts of the Central Pacific Kail way Company and the payment by it on pool contracts appear? A. They all appear on the auditor's books.

Q. How many pool contracts had this company prior to the act of last April, or, rather, of how many pools was it a member 1

The WITNESS. Just at that time, or altogether? There were various pools from time to time.

Commissioner ANDERSON. Tell us of the various pools.

The WITNESS. I cannot do that. I do not know. There were several, but I cannot give them all.

Q. Have you the pool contracts $ A. No, sir ; I do not think I have all of them. I think some of them are in the general freight office.

Commissioner ANDERSON. Tell me what pool contracts you remem ber.

2362 u. s; PACIFIC RAILWAY COMMISSION.

THE TRANSCONTINENTAL POOL.

The WITNESS. There is one that we call the Gould-Huutington contract.

Commissioner ANDERSON. The Gould-Huntington pool?

The WITNESS. Yes, sir. There was a contract with the Pacific I do not know the name of it the Pacific Coast Steamship Company, I think.

Commissioner ANDERSON. The transcontinental pool?

The WITNESS. Yes, sir ; there is one called the transcontinental pool. But I am not familiar with those pools.

Q. Who is familiar wit-h them? A. The general freight agent and the general traffic manager.

Q. Mr. Wilder? A. No; Mr. Stubbs and Mr. Gray.

Q. Are those pool contracts in your possession? A. I think I have one, or perhaps all. I do not think I have, though.

LAND-ACCOUNT BOOKS.

Q. We will ask you to look for them. Who keeps your land accounts? A. William H. Mills is the land agent.

By Commissioner LITTLER : Q. Does he keep the books? A. They are kept under his charge.

By Commissioner ANDERSON:

Q. Where is his office? A. I forget the number of the room. Q. It is in this building? A. Yes, sir.

Q. Do you know anything of the number of books kept by him, and what books they are? A. Yes, sir.

Q. What books does he keep? A. I cannot give you the details of just what he does keep.

Q. You refer us to him for all the books relating to land? A. Yes, sir.

LAND-GRANT MORTGAGES.

Q. Who is the trustee of your land-grant mortgage?

The WITNESS. At present?

Commissioner ANDERSON. Yes.

A. William E. Brown and J. O? B. Gunu.

Q. Where is Mr. Gunn? A. He is in San Francisco.

Q. How many land-grant mortgages has your company made? A. Two.

Q. Have you copies of those mortgages? A. Yes, sir, We liave printed copies, I think.

Q. Can you furnish us with a complete printed copy of ail the mortgages made by this company? A. Yes, sir. I can have them printed by type- writer. Possibly I may have them all.

Commissioner LITTLER. We supposed.you had them already.

The WITNESS. I think I have, but if I have not I can furnish them.

By the CHAIRMAN :

Q. Have you named all the books kept by the company in the accounting department ? A. No, sir.

AUDITOR OF MOTIVE POWER AND MACHINERY.

By Commissioner ANDERSON :

Q. Please tell what you have omitted? A, There is an auditor of motive power and machinery.

EDWARD H. MILLER, JR. 2363

Q. What is his name? A. His name is C. fl. Foster. Q. He keeps the statistics relating to motive power and machinery $ A. Yes, sir.

By Commissioner LITTLER : Q. Does that department include fuel? A. Yes, sir.

THE TREASURER'S BOOKS.

By Commissioner ANDERSON :

Q. What other books are there, if any? A. I mentioned the treasurer's office. Those books are a part of the general books. They keep simply a cash-book.

Commissioner ANDERSON. You mentioned that at the beginning.

The WITNESS. I think I mentioned that. I do not think of any others; that is, any other general books. Of course the agents at each shop have a set of books kept. They all come here for final collation.

LEASED LINES.

Q. Now in regard to leases : What companies have the Central Pacific Eailroad Company operated under lease 9 A. The Stockton and Copperopolis, the California Pacific, the Northern Railway, the San Pablo and Tulare, the Southern Pacific of California, Southern Pacific of Arizona, Southern Pacific of New Mexico, the Los Angeles and Independence, the Los Angeles and San Diego, and the Amador branch.

Q. Up to what period were those roads leased to the Central Pacific? A. The leases of all except the Stockton and Copperopolis were transferred to the Southern Pacific Company in October, 1886. I may be mistaken as to the month, but it was about that no, they were not transferred, but those leases were canceled.

Q. When? A. In October, 1886.

Q. Have you those leases? A. Yes,sir.

Q. Will you plesse hunt them up and produce them to the Commission? A. Yes, sir ; that is, the leases of the roads that were leased to the Central Pacific.

LEASE OF CENTRAL BY SOUTHERN PACIFIC.

Q. Yes. When was the Central Pacific leased to the Southern Pacific? A. The date of the lease was in February, 1885, to take effect April 1 9 1885.

Q. Will you furnish a copy of that lease 1 A. Yes, sir.

(The lease will be found in the testimony of E. H. Miller, jr., given on August 16, 1887.)

CIRCULAR LETTER OF COMMISSION.

Q. Have you a copy of the circular letter issued by this Commission to this company? A. Yes, sir.

Q. Have you prepared answers to the questions contained in that letter? A. Yes, sir ; I have prepared some. You mean the letter addressed to Governor Stanford?

Commissioner ANDERSON. Yes.

The WITNESS. I have prepared answers to such as Governor Stanford referred to me, but the answers are not complete. They are now in the hands of the type- writers, to be printed.

Q. Have you received another circular letter calling for answers to various other matters? A. I have not got it here, but what you call p R VOL in 3

2364 U. S. PACIFIC RAILWAY COMMISSION.

the circular was a letter addressed by the Commission to President Stanford.

Commissioner LITTLER. I call that a letter directed to the company, and not a circular letter.

The WITNESS. Yes, sir ; that is so.

Q. Was that the one you refer to? A. Yes, sir.

Q. You received another letter? A. Yes. sir.

Q. Have you prepared answers to that? A. I have not, assuming that the letter to Governor Stanford would take the place of the circular. They covered the same ground, as far as I understand it. This is the one I referred to [producing the printed circular letter of the Commission for public circulation]. This is practially a copy of the letter sent to Governor Stanford. The previous one, I think, covered only ten or eleven questions.

CONSTRUCTIVE MILEAGE ACCOUNT.

By the CHAIRMAN :

Q. Have you a constructive mileage account? A. Yes, sir ; your accountants are making it out. We had a constructive mileage account only from 1880 to one or two months in 1883.

MINUTE-BOOKS OF BOARD OF DIRECTORS.

By Commissioner ANDERSON :

Q. Where are your books of minutes of the board of directors? A. They are in my office.

Q. How many books are there? A. I think there are four.

Q. Will you inquire of the president of the company whether there is any objection to our having them moved to the hotel for convenient ex. amination there this afternoon? A. I will.

NO MINUTES KEPT BY EXECUTIVE COMMITTEE.

Q. Are there minutes of the meetings of the executive committee !

By Commissioner LITTLER :

Q. Are they kept in a regular book of minutes? A. No, sir. Q. Have you a different book of minutes of the executive committee?-^-A. No, sir ; the executive committee never kept any minutes.

By the CHAIRMAN :

Q. How did they report to the general board? A. They did not report.

Q. How often did they meet? A. Occasionally.

Q. How occasionally ; once in three or six months? A. I do not know.

PERSONNEL OF EXECUTIVE COMMITTEE.

By Commissioner ANDERSON :

Q. Who composed the executive committee? A. Charles F. Crocker, Timothy Hopkins, and S. T. Gage.

Commissioner ANDERSON. I do not remember Mr. Ga^e as being a director.

The WITNESS. Yes, sir.

EDWARD H. MILLER, JR. 2365

INFORMAL VERBAL REPORTS TO BOARD OF DIRECTORS.

By the CHAIRMAN :

Q. How do the board of directors get information as to the work of the executive committee? A. I am sure 1 do not know that they got any information from the executive committee, except as the individuals of the executive committee at the meeting of the board stated.

Q. Who was chairman of the executive committee? A. I do not think they ever organized.

Q. Were you present at the meeting of the board of directors when any individual of the executive committee reported? A. Only as I state, when they reported verbally.

Q. Did you take down the report as secretary? A. No, sir.

Q. Were you present when any action was ever taken on a report of the executive committee? A. There never was a report made by the executive committee as an executive committee.

METHOD OF ACTING ON SUCH REPORTS.

Q. Ware you present when any action was taken on a report of any individual member of the executive committee? A. Yes, sir.

Q. How did the board act? A. Sometimes they adopted the action proposed by the executive committee, or by the members of the executive committee, to be adopted.

Q. How would the secretary of the board enter it upon the minutes? A. He would enter it as the action of the board of directors.

Q. Would any intimation be given as to the report of an individual member of the executive committee? A. No, sir.

Q. Then if they approved of the course of an individual member of the executive committee, it would take the shape of a resolution of the board of directors, would it? A. No, sir.

Q. How would it appear on the directors' minutes? A. The executive committee would not appear at all. As a member of the board of directors one of them would perhaps offer a resolution that certain things should be done in the board, and it was either adopted or not.

Q. Then where the individual members of the executive committee appear in the meetings of the board of directors as offering a resolution, and the board approved of it, that is the result of the action of an individual member of the executive committee approved by the board? A. No, sir ; I do not understand that they appeared before the board as an executive committee at all, but they appeared before the board as individual members of the board. If they, as members of the board, offered a resolution, and if the board approved it, it is adopted. But as an executive committee they never made any proposition to the board of directors, or offered a resolution to be adopted.

Q. Did the board of directors ever act upon any action of the executive committee? A. I think not; no, sir.

Q. Was there ever any action on the part of the executive committee? A. Not to my knowledge.

OBJECT OF THE EXECUTIVE COMMITTEE.

Q. What was the use of the executive committee? A. I do not know, really.

Q. Had it any purpose? A. Yes, sir 5 I think it had this purpose, that those three were to talk matters up and consult together, and then, if they agreed upon a certain proposition, it would be presented to the

2366 U. S. PACIFIC EAILWAY COMMISSION.

board, not by the committee as an executive committee, but it would be presented* to the board for its action.

Q. Would not that be the result of the executive committee, if they agreed upon it? A. No, sir. They took no action. It was submitted entirely and always to the board of directors for their action.

Q. Was it after consultation by the executive committee? A. I do not know about that.

Q. I understood you to say that after consultation the executive committee, reaching a point of agreement, then had one of the individual members report, and then, if approved by the board of directors, it went upon the minutes. Is that true? A. No, sir ; I did not intend to be understood in that way.

Q. Will you explain? A. You asked me what was the use of the executive committee, and I explained it as well as I could, that they would perhaps get together and consult among themselves on what action, if any, in certain matters ought to be adopted by the company. When they came before the board of directors they did not come at all as an executive committee. They came just as individual members of the board of directors would come, and offered such a resolution. It was done in open board. If it was adopted, all right. It was the action of the board of directors, the executive committee having taken no action whatever on it ; only, as I take it, every resolution offered before the board of directors of any company is always considered by somebody before it is offered.

Q. What I want to know is, after having ascertained the views of a member of the executive committee, and there having appeared on the minutes a resolution with the approval of the board of directors, whether that was the course of the executive committee as approved by the board of directors? A. No, sir ; it was not, in any case.

E. H. MILLEE, JR.

The Commission then adjourned to meet on Tuesday, July 26, 1887, at 10 a. m.

OFFICES OF THE CENTRAL PACIFIC EAILROAD COMPANY,

San Francisco, Cal, Tuesday, July 26, 1887.

The Commission met pursuant to adjournment, all the Commissioners being present.

EDWAKD H. MILLEE, JR., being further examined, testified as follows :

The W JTNESS - I did not give you yesterday, by oversight, the index to the minute books.

The CHAIRMAN. We would like to have that.

The WITNESS. It is a separate book, and I ought to have handed it to you, but I overlooked it.

FURNISHING INFORMATION PREVIOUSLY CALLED FOR.

By Commissioner ANDERSON :

Question. Will you inform us what you have that we called for yesterday? Answer. Ail the articles of consolidation. I have not had time to arrange them, but they are in this pile.

Charles Crocker's whereabouts I do not know anything about.

EDWARD H. MILLER, JR. 2367

I have the list of directors at the time of the Crocker contract. I now furnish a complete list of the directors from the organization to the present time, as you will see. As to the members of Crocker & Co., I answered that yesterday.

Commissioner ANDERSON. You said you did not know.

The WITNESS. I did not know. As to Crocker's contracts, 1 and 2, 1 answered yesterday that they were missing. As to the contract with Collins & Bro., I believe that is here, but I am not certain, I have been in such a hurry to get them up.

As to the contracts with the Contract and Finance Company and the Western Development Company, I answered yesterday that they were missing.

The copy of contract with the Pacific Improvement Company the Commission had yesterday.

Eeports of Messrs. Stanford, Huntington, and Hopkins are not all here; but the reports of Mr. Stanford, so far as I have found them, and of Mr. Huntington up to 1878, are here. Your accountants are using the reports for 1879.

The reports of Mr. Hopkins, as treasurer, are all here, that I can find.

The powers of attorney to C. P. Huntington are here.

The refund book has not come in.

I have here the distribution book and books showing pool payments and receipts, which will appear also upon the distribution book.

All pool agreements and leases are here that I have ever had in my charge.

I believe copies of all mortgages are here.

Q. Including the one of February, 1886 ! A. Including the mortgage of February, 1886.

Commissioner ANDERSON. The mortgage that was given to secure the last $10,000,000 issue. I think that is the date.

The WITNESS. That is the mortgage October, 1886, I think. That is $16,000,000. They are all here, I think.

The minutes the Commission have.

PRODUCTION OF PAPERS.

The withess produced the following papers : Articles of association, of amalgamation, and consolidation between the Western Pacific Railroad Company and the San Francisco Bay Eailroad Company, dated October 28, 1869.

(It was marked Exhibit No. 1, July 26, 1887.")

The resolution agreeing to consolidate between the California and Oregon Eailroad Company and the Yuba Railroad Company, dated December 15, 1869.

(It was marked "Exhibit No. 2, July 26, 1887")

Articles of consolidation between the Central Pacific Railroad Company and the Western Pacific Railroad Company, dated June 22, 1870.

(It was marked "Exhibit No. 3, July 26, 1887.")

Articles of consolidation between the San Francisco and Oakland Railroad Company and the San Francisco and Alaineda Railroad Company, dated June 28, 1870.

(It was marked " Exhibit No. 4, July 26, 1887.")

Articles of consolidation between the Central Pacific Railroad Company, the California and Oregon Railroad Company, the San Francisco, Oakland and Alameda Railroad Company, and the Joaquin Valley Railroad Company, dated August 20, 1870.

(It was marked "Exhibit No. 5, July 26, 1887.")

2368 U. S. PACIFIC RAILWAY COMMISSION.

ORGANIZATION OF CENTRAL PACIFIC.

Commissioner ANDERSON. It appears from the first article of Exhibit 5 of to-day that the four companies mentioned in the last-named articles of consolidation became known by the corporate title of the Central Pacific Railroad Company.

By Commissioner LITTLER :

Q. Was the first corporation, the Central Pacific Railroad Company, organized under the statute of the State of California? A. Yes, sir.

Q. Under a special act? A. I think not.

Q. Was it under the general law? A. I think it was under the general law.

Q. Where is the certificate of incorporation of that company? A. I think I have it.

By Commissioner ANDERSON:

Q. That is filed here in your county clerk's office, and you have a certified eopy^ A. Yes, sir; filed in the office of the secretary of state, I think.

ARTICLES OF INCORPORATION RECORDED IN MINUTE-BOOK.

By Commissioner LITTLER :

Q. Have you not in your minutes the record of the proceedings by which you became a corporation? A. I think the articles of incorporation are in there.

Q. In this first book of minutes? A. I think so. I think they are copied in there, but I am not sure of that. But I have a copy of it if it is not here. [After examination.] No, sir ; I am mistaken.

Commissioner LITTLER. I wish you would furnish the date of the certificate of organization of the Central Pacific Company?

The WITNESS. I can get it now.

MORTGAGE OF JULY 5, 1865.

(The witness also produced a mortgage dated July 5, 1865, of the Central Pacific Railroad Company, of California, to D. O. Mills and William E. Barron, trustees. It was marked " Exhibit No. 6, Julv 26,

1887.")

By Commissioner ANDERSON :

Q. What was the amount of that mortgage of 1865? What was the authorized issue? A. Series A, 3,000 bonds ; series B, 1,000 bonds.

By Commissioner LITTLER :

Q. What is the denomination? A. $1,000 each. Series C, 1,000 bonds. Series D to be of bonds for? 1,000 each, and to include the remainder of said bonds authorized to be issued on said portion of said railroad line.

Q. How long do these bonds run, respectively, and what are they payable in, and how much interest do they pay per annum? A. They were 6 per cent, thirty-year bonds.

Q. Each and all of them? A. Yes, sir.

Q. What are they payable in, principal as well as interest? A. In lawful money of the United States.

EDWARD H. MILLER, JR. 2369

AMOUNT OF BONDS OUTSTANDING.

By Commissioner ANDERSON:

Q. What is the amount now outstanding? A. The report of 1885 will tell. The amount of bonds to be issued was not definitely fixed by the mortgage.

Q. But it was to be equal to the amount of Government bonds? A. Yes, sir.

By Commissioner LITTLER :

Q. Were all the bonds issued that were authorized by that mortgage? A. Yes, sir.

Q, Are they all outstanding? A. No, sir. The amount outstanding of Series A is $2,995,000; of Series B, $1,000,000: of Series C, $1,000,000; of Series D, $1,383,000.

By Commissioner ANDERSON :

Q. Making a total of how much? A. Six million three hundred and seventy-eight thousand dollars.

ANTICIPATED TERMS OF RENEWAL AT MATURITY.

Q. Those mature in 1895? A. They mature at different dates ; they were issued at different dates.

Q. Between what years do they mature? A. Series A matures July 1, 1895 ; Series B, C, and D mature July 1, 1896.

Q. From your knowledge of the financial markets, at what rate of interest can that mortgage be renewed when it matures? A. It depends entirely upon the security.

Q. It is absolutely the first lien on your road, is it not? A. It is now.

Q. Assuming that it so remains, what is your answer? A. I think 3 J ; they would sell at par ; possibly at 3 per cent.

HOW SECURED.

By Commissioner LITTLER:

Q. How many miles of road stand as security for that indebtedness? A. About 125, 1 think.

Commissioner LITTLER. I wish you would give the number of miles.

The WITNESS. It is estimated here at 125 miles ; I cannot give it to you exactly.

(The witness also produced a mortgage of the Central Pacific Bailroad Company of California to D. O. Mills and William E. Barron, trustees, dated January 1, 1867. It was marked " Exhibit No. 7, July 26, lbS7.)

MORTGAGE OF JANUARY 1, 1867.

By Commissioner ANDERSON :

Q. Please tell us the amount of that mortgage, and the rate of interest and other particulars? A. There was, by the mortgage, no special number authorized ; but they were to cover the railroad line lying eastwardly of the eastern boundary line of the State of California, and to the extent and distance that the company might construct the said railroad eastwardly of said eastern boundary liae.

Q. Is the amount per mile specified? A. I do not think it is in dollars and cents. It was to be to an amount equal to, but not exceeding,

2370 U. S. PACIFIC RAILWAY COMMISSION.

the amount of United States bonds which might be issued to said company under and in pursuance of said several acts of Congress heretofore mentioned, and such acts of Congress as might thereafter be enacted.

BONDS ISSUED UNDER IT.

Q. That is sufficient. Please state from the report the amount of bonds issued under that mortgage and the amount outstanding. A. Series E, amount authorized, $4,000,000 ; amount outstanding,$3,997,000 ; due January 1, 1897.

Series F, amount authorized, $4,000,000 ; amount outstanding, $3,999,000 ; due January 1, 1898.

Series G, $4,000,000 authorized; $3,999,000 outstanding ; due January 1, 1898.

Series H, $4,000,000 authorized; amount outstanding, $3,999,000; due January 1, 1898.

Series I, amount authorized, $3,525,000 ; amount outstanding, $3,511,000; due January 3, 1898.

Commissioner ANDERSON. I notice you are giving these figures from the report of 1885?

The WITNESS. Yes, sir.

Q. Has the report of 1886 not yet been printed? A. No, sir; it is in the hands of the printer.

Q. Can you have it very shortly? A. I think we will have it within a few days.

Q. What is the total amount outstanding of these mortgages? A. $19,505,000.

ANTICIPATED TERMS OF RENEWAL AT MATURITY.

Q. Is this mortgage also an absolute first lien on that part of the road east of California and extending to Ogden? A. That is as I understand it.

Q. At what rate could that loan be renewed in 1898, when it matures? A. On the same terms with the other one. Of course the time of the bonds would make a difference.

Q. How do you mean? A. The time for which the bonds were issued. If they were 30-year bonds they would not sell for as much as they would if they were 50 -year bonds.

NO DEFAULT IN PAYMENT OF INTEREST.

By Commissioner LITTLER :

Q. Has there been any default in the payment of the interest on these series of bonds? A. No, sir.

Q. Is the interest all paid to date? A. All that has been presented. There are a few coupons always that do not come in at the time.

By Commissioner ANDERSON :

Q. They sell for about $113, do they not? A. I do not know.

(The witness also produced a trust mortgage, dated January 1, 1868, of the California and Oregon Eailroad Company of California, to David S. Dodge and Eugene Kelley, trustees. It was marked " Exhibit No. 8, July 26, 1887.")

MORTGAGE OF JANUARY 1, 1868.

Q. Please look at this mortgage and state the amount of bonds authorized, the amount issued, the nature of the security, the period when



EDWARD H. MILLER, JR. 2371

due, and the rate of interest? A. This is a mortgage made by the California and Oregon Eailroad Company. The amount authorized under it is $6,000,000. The amount outstanding is $6,000,000. The maturity of the bonds is January 1, 1888. The rate of interest is 6 per cent. It is secured by a first mortgage executed by the California and Oregon Eailroad Company upon the whole of its railroad from the Central Pacific Eailroad in the Sacramento Valley in the State of California to the southern boundary line of the State of Oregon.

O. That matures next January? A. Yes, sir.

Q. Has any provision been made for the renewal of that $6,000,000 1 A. No, sir $ not that I know of.

ANTICIPATED TERMS OF RENEWAL AT MATURITY.

Q. At what rate, in your judgment, can that loan be renewed, or the amount borrowed on the same security? A. I could not give an opinion on that.

Q. It is the first mortgage on the road, is it not? A. Yes, sir ; there are subsequent mortgages, though.

Q. Assuming that the mortgages Can be extended, is it your judgment that they can be extended at 4 per cent., the security remaining undisturbed and the term being as long as 30 years? A. If they could be; yes, sir.

LAND-GRANT MORTGAGE OF OCTOBER 1, 1870.

(The witness also produced a copy of the mortgage, dated October 1, 1870, by the Central Pacific Eailroad Company to Charles Crocker and Silas W. Sanderson, trustees. It was marked " Exhibit No. 9, July 26, 1887.")

Q. Please look at this mortgage and state the amount of bonds authorized, the amount outstanding, the nature of the security, the rate of interest, and the period when due. A. The amount authorized was $10,000,000; the amount outstanding, $4,630,000, as of December 31, 1885, and the date of maturity, October 1, 1890 ; the rate of interest, 6 per cent. The security is upon the lands granted to the Central Pacific Eailroad Company, and also on the lands granted to the California and Oregon Eailroad Company by the United States Government.

Q. As to the first land-grant mortgage, on which you state there is still remaining due $4,630,000, as of December 31, 1885, do I understand that the proceeds of all lands sold are applicable to the payment of these bonds 1 A. Yes, sir.

Q. Is it your judgment that the amounts due on contracts for lands sold, and the amounts to be collected for lands sold, will provide for the amount of bonds outstanding between now and 1890, and the time of their maturity? A. Not in the form you put the question, I think the lands already sold and the amounts coming from contracts.

Q. I mean will all the resources of the trustees pay those bonds -by the time of their maturity?

The WITNESS. The future sales of land, as well as those already sold?

Commissioner ANDERSON. Yes.

A. I will have to make an estimate of that. It depends altogether upon the future sales. There is not enough now in the hands of the trustees, and amounts due on unpaid contracts, to take up the bonds at maturity.

2372 U. S. PACIFIC RAILWAY COMMISSION.

By Commissioner LITTLER :

Q, Where do these trustees reside? A. Here in San Francisco. The trustees have been changed by death. One of them, Mr. Sanderson, is dead. Charles Crocker has resigned.

By Commissioner ANDERSON :

Q. Who are the present trustees? A. William E. Brown and J. O? B. Gunn.

MORTGAGE OF JANUARY 1, 1872.

(The witness also produced a mortgage, dated January 1, 1872, made by the Central Pacific Railroad Company to Eugene Kelley and Philo C. Calhoun. It was marked " Exhibit No. 10, July 26, 1887.")

Q. Please look at this instrument and state the amount of bonds authorized, the amount outstanding, the rate of interest, the date of maturity, and the security. A. The amount of bonds authorized is $7,200,000 ; the amount outstanding December 31, 1885, was $3,680,<iOO ; it matures January 1, 1892 ; they bear interest at 6 per cent. These bonds are secured or covered by the same security as the bonds of January 1, 1868.

CONFIRMATION BY CENTRAL PACIFC OF MORTGAGE MADE BY CALIFORNIA AND OREGON.

By Commissioner LITTLER :

Q. It is a second mortgage on the same property? A. No, sir; it is not exactly a second mortgage. The first mortgage provides, I think, for a larger issue. This of January 1, 1872, is not exactly a mortgage. It is confirmatory by the Central Pacific Eailroad Company of the mortgage made by the California and Oregon Railroad. Company January 1, 1868. Between the dates of January 1, 1868, and January 1, 1872, the California and Oregon Eailroad Company was consolidated with the Central Pacific Railroad Company. The California and Oregon Railroad having issued $6,000,000 under the mortgage of January 1, 1868, the Central Pacific confirmed that mortgage by an indorsement dated January 1, 1872, and issued under that mortgage of January 1, 1868, so confirmed, the bonds last spoken of as having been issued under the mortgage of January 1, 1872.

BUT ONE ISSUE UNDER MORTGAGE OF 1868.

By Commissioner ANDERSON :

Q, There is but one issue, then, under the mortgage of 1868? A. Yes, sir. The whole issue was under the mortgage of January 1, 1868. The amount heretofore given by me as having been authorized under the mortgage of 1868, said amount having been stated at $6,000,000, was not strictly accurate. By the provisions of the mortgage an issue at $40,000 per mile was authorized. After the consolidation, the Central Pacific having ratified the mortgage of 1868, and the event showing, by the length of the line constructed, that the amount authorized, at the rate of $40,000 per mile, would be about $13,000,000, the total authorized issue under the mortgage of 1868, as ratified in 1872, was $13,200,000, and the amount outstanding under that mortgage, bonds Series A and B, was December 31, 1885, $9,680,000.

ANTICIPATED TERMS OF RENEWAL AT MATURITY.

Q. The security is the California and Oregon Railroad? A. Yes, sir. Q. Do you make the same answer as before in regard to the rate of interest at which that loan could be renewed? A. Yes, sir.

EDWARD H. MILLER, JR. 2373

Q. That you are unable to make an estimate? A. No.

Q. Why? A. I did make an answer, after putting it hypothetically , that there is another mortgage, a greater mortgage, covering that same line ; and consequently, if this was taken up a new mortgage could not be given as a first mortgage.

Q. It could be extended, with the consent of the junior incumbrance, could it not? A. If it could become a first mortgage

Commissioner ANDERSON. It is a first mortgage.

The WITNESS. Yes, sir ; but if the extension should be a first mort gage, having a prior lien to every other claim, it probably could be marketed at about 4 per cent.

BONDS PAID TO PACIFIC IMPROVEMENT COMPANY.

Q. Fas the amount varied since 1885, materially? A. Yes, sir.

Q. How so? A. By an additional issue of bonds, Series B.

Q. Amounting to how much? A. I cannot tell without examining.

Q. So much as to exhaust the amount authorized? A. No, sir 5 not quite.

Q. Are those the bonds that have been paid to the Pacific Improvement Company under their contract? A. Yes, sir.

Q. Were there about $3,000,000? A. No, sir; I think not so much. But it may be. I cannot carry those figures in my mind.

MORTGAGE OF OCTOBER 5, 1885.

(The witness also produced a mortgage, dated the th day of October, 1885, made by the Central Pacific Railroad Company to E. C. Wool worth and S. M. Wilson. It was marked Exhibit No. 11, July 26, 1887.)

Q. Please examine this instrument and state the number of bonds authorized, the amount outstanding, the rate of interest, the period of maturity, and the security. A. This is the second land-grant mortgage, dated October 1, 1885. The amount of bonds authorized under it is $10,000,000; the amount of bonds outstanding, as of December 31, 1883, is $5,000,000 ; it matures October 1, 1915 ; the rate of interest is 6 per cent. The security is of a second mortgage on the land grant, subject to the first mortgage of October 1, 1870. There are no bonds on this mortgage outstanding at the present time.

CANCELED OF RECORD.

Q. The $5,000,000 have been retired? A. They have been retired. There are some other things. If you desire it, I can make a statement.

By Commissioner LITTLER :

Q. Has this mortgage been canceled of record? A. Yes, sir ; but whether the cancellation has been recorded in all the counties in which the mortgage has been recorded, I doubt.

Q. Has it been recorded in any county? A. Yes, sir. The satisfaction is out now, to be recorded in every county where the mortgage had been recorded.

By Commissioner ANDERSON :

Q. The object is to cancel that mortgage, so that it will no longer form a part of the obligations of this company, is it not? A. Yes, sir; it has been done.

2374 U. 8. PACIFIC RAILWAY COMMISSION.

MORTGAGE OF OCTOBER 1, 1880.

(The witness also produced a mortgage made by the Central Pacific Eailroad Company to William E. Brown and Frank S. Douty, trustees, dated October 1, 1880. It was marked Exhibit No. 12, July 26, 1887.)

Q. Please look at this mortgage and state the amount of bonds authorized, the amount outstanding, the rate of interest, the date of maturity, and the security ? A. The amount authorized in the mortgage is $16,000,000; the rate of interest is 6 per cent. ; the amount at present outstanding, I will have to look at the books to ascertain.

Commissioner ANDERSON. We would like to know that.

The WITNESS. The amount outstanding is $7,063,000. The mortgage runs fifty years.

Q. What is the security? A. I can hardly give this without read ing it in full.

SECOND MORTGAGE ON LAND GRANTS.

Q. Will you state generally? A. It is a second mortgage on the lands granted to the company.

Q. These are the branches west of Sacramento City, and the southern branches. Is it a second mortgage on these? A. A second mortgage on the Central Pacific Railroad between Lathrop and Goshen, on the California and Oregon Eailroad line.

Q. A second mortgage on the California and Oregon Eailroad line? A. Yes, sir ; and on the telegraph line of the company.

By Commissioner LITTLER :

Q. Is it a first mortgage on the telegraph line of the company? A. No, sir ; I think not. That is an individual opinion, however, that I am giving. I suppose the first mortage covers the telegraph line. This covers the telegraph line between Oakland Point and the town of Niles, and between the towns of Lathrop and Goshen, and on the line of the California and Oregon Eailroad Branch $ also all the rolling stock.

STEAMERS EMBRACED IN MORTGAGE.

By Commissioner ANDERSON :

Q. A second mortgage? A. Yes, sir ; and the river steamers.

Q. Is it a second mortgage on the steamers, or do you not remember? A. I do not know whether any other mortgage covers the steamers or not. It is upon certain tracts of lands in the county of Alameda, about 500 acres, also.

By Commissioner LITTLER:

Q. How many steamers are embraced in that mortgage? A. There are four ferry steamers and two river steamers.

By Commissioner ANDERSON :

Q. Does that include the big ferry boat? A. There are more than four ferry boats. There are two freight ferry boats that I did not include. There are six ferry boats and the transfer boat.

Q. It includes the big transfer boat? A. Yes, sir; the mortgage also contains a list of miscellaneous land and property, the details of which can be obtained from the mortgage.

PURPOSE TO WHICH BONDS WERE APPLIED.

Q. To what purpose were these $7,000,000 bonds applied, generally? A. $5,000,000 were for taking up $5,000,000 of the previous second

EDWARD H. MILLER, JR. 2375

mortgage bonds. Some of them were paid to the Pacific Improvement Company on its contract. Some further amounts were for retiring some bonds of previous issue.

Q. Is the balance of $8,000,000 or $9,000,000, which is authorized to be issued by this mortgage, covered by the requirements of outstanding contracts, or is it available for the general purposes of the company? A. 1 think there are no contracts that cover it all.

Q. Have you given a complete list of the mortgages? A. I have given all the mortgages of the Central Pacific.

Q. Audits branches?

The WITNESS. Is there a mortgage of the San Joaquin Valley .?

Commissioner ANDERSON. There is no mortgage of any railroad except the Central Pacific and the California and Oregon.

The WITNESS. It is now the Central Pacific, between Lathrop and Goshen.

Commissioner ANDERSON. We want a complete list of the mortgages.

MORTGAGE OF OCTOBER 1, 1870.

(The witness also produced a mortgage made by the Central Pacific Eailroad Company to D. O. Mills and W. C. Ealston, trustees, dated October 1, 1870. The paper is marked " Exhibit No. 13, July 26, 1887.")

Q. Please look at this instrument and state the number of bonds authorized, the number outstanding, the rate of interest, the date of maturity, and the security? A. The amount authorized is $6,080,000 ; the amount outstanding $6,080,000: due October 1,1900; interest, 6 per cent. The security is the railroad line called the u San Joaquin Valley Branch."

Q. Is it a first mortgage on that property? A. Yes, sir.

MORTGAGE OF OCTOBER 26, 1864.

(The witness also produced a mortgage by the Central Pacific Eailroad Company to Edgar Mills and James A. Donahue, trustees, dated the 26th day of October, 1864. It was marked " Exhibit No. 14, July 26, 1887.")

Q. Please look at this instrument and state the number of bonds authorized, the number outstanding, the rate of interest, the date of maturity and the security. A. The number of bonds authorized was $1,500,000 ; the amount outstanding December 31 was $284,000. They matured July 1, 1884. The rate of interest was 7 per cent. It was secured on the railroad line of the company from Sacramento to the eastern boundary line of the State, the fixtures, rolling stock, &c.

EXTENSION OF BONDS BY MR. HUNTINGTON.

Q. Can you explain why those bonds are outstanding at 7 per cent, after maturity ? A. Yes, sir. They were extended by Mr. Huntington, some three or four hundred thousand dollars of them, with the consent of the holders, for three years, I think."

Q. Do you know who the holders are, or the principal portion of them? A. No, sir; I do not know the holders of a single one.

Q. Were they extended with the consent of the Central Pacific Eailroad Company ? A. No, sir ; not by any acts of the board of directors, except Mr. Huntington's act as agent and attorney.

Q. Who would know the holders of those bonds? A. Mr. Huntington, probably,

2376 U. S. PACIFIC RAILWAY COMMISSION.

Q. Who pays the coupons? A. Mr. Huntington arranges for them to be paid by some bank in New York.

Q. Do yoii know whether he himself is the holder of bonds? A. I do not know positively, but I do not believe he is the owner of a single one. I do not understand that he is.

MORTGAGE OF OCTOBER 23, 1865.

(The witness also produced a mortgage of the Western Pacific Railroad Company to George T. M. Davis, dated October 23, 1865. It was marked "Exhibit No. 15, July 26, 1887.")

Q. Please look at this instrument and state the amount of bonds authorized, the amount outstanding, the rate of interest, the time of maturity, and the security. A. There are $111,000 outstanding; there are $111,000 Western Pacific bonds, Series A, reserved by the company to take up or exchange for these $111,000 bonds issued December 1, 1865.

MEANS PROVIDED TO TAKE UP THE $111,000 OUTSTANDING BONDS.

Q. Under the mortgage of what date? A. Under the mortgage of December 1, 1865. It was an old issue, we call it. When the new bonds were issued under another mortgage, they were all taken up from time to time, except this $11 1,000. They become due December 1, 1895, and are drawing 6 percent, interest. The bonds to be exchanged are also drawing 6 per cent, interest, and will be due July 1, 1899.

Q. Do I understand that the bonds to be exchanged under the mortgage of December 1, 1865, are included in the bonds which you have described as outstanding under the mortgage of that date? A. No, sir : under the mortgage of Decemb-. r 1, 1865, the only outstanding bonds are $111,000. Under the mortgage of July 1, 1869, there are $111,000 retained by the company, to be exchanged at any time that the holders of these $111,000 will exchange at par.

Q. My question is whether this amount of $111,000 is included among the bonds issued under the mortgage of October 28, 1809, which you have described as outstanding under that subsequent mortgage? A. No.

Q. As to the bonds which are retained for the purpose of being taken up in exchange on the surrender of the $111,000 issued under the mortgage of 1865 1 ask you whether you describe those subsequent bonds as a part of the outstanding issue of the subsequent mortgage or not. A. No, sir.

Q. Those $111,000 are secured, then, by a mortgage of the Western Pacific company ? A. Yes, sir.

MORTGAGE OF OCTOBER 28, 1869.

(The witness also produced a mortgage made by the Western Pacific Eailroad Company toD. O. Mills and William E. Barrou, dated October 28, 1869. It was marked " Exhibit No. 16, July 26, 1887.")

Q. Please look at this instrument and state the amount of bonds authorized, the amount outstanding, the rate of interest, the date of maturity and the security? A. The amount authorized under that mortgage was $2,735,000 ; the amount outstanding is in two series ; the amount outstanding is $2,624,000 ; it matures July 1, 1899 ; the mortgage covers the line of the Western Pacific Kailroad.

Q. What is the rate of interest? A. The rate of interest is 6 per cent.

EDWAED H. MILLER, JR. 2377

THE SAN FRANCISCO, OAKLAND AND ALAMEDA MORTGAGE.

Q. Have you now completed the list of mortgages? A. These are all the mortgages of the Central Pacific that I can find. There is one mortgage of the San Francisco, Oakland and Alameda line which I do not find.

Q. Can you give the particulars of that mortgage? A. Yes, sir. The amount authorized was $1,500,000; the amount issued was $587,000. It matures July 1, 1890. The interest is at the rate of 8 per cent.

UNPAID TAXES.

Q. Are there any other liens of a nature different from mortgage on the property of the company, such as judgments, mechanics' liens, or special contracts? A. There are no judgments, no mechanics' liens. There is a question about some unpaid taxes.

Q. Is there-a suit pending about them? A. I do not know the status of it.

Q. How much is involved? A. I do not know that.

Q. Does the company deny its liability for the taxes? A. Yes, sir.

By the CHAIRMAN :

Q. What taxes are they? The taxes of the State and counties. Q. For how many years? A. There is a law now that I cannot explain that I do not comprehend.

By Commissioner ANDERSON :

Q. Who can give us the explanation? A. The law department. Q. What attorney shall we call on? You have five or six attorneys.

A. Only one has had anything to do with it. Q. Who is that? A. Colonel Haymond.

Q. Is he now in the city? A. Yes, sir. He is sick. I think Mr. E.

B. Ryan, who has an office in this building, can give that information.

STOCK ISSUED AND UNISSUED.

Q. What is the total authorized issue of stock? A. $100,000,000.

Q. What is the total stock outstanding to date? A. $08,000,000.

Q. Where is the balance, $32,000,000? Is it unissued? A. Unissued.

Q. Is the entire $68,000,000 outstanding? A. No, sir ; there is about $704,000 of it held in trust for the company, not actually sold or issued. I do not like to state it from memory.

Commissioner ANDERSON. The amount, as appears from your report of 1885, if I remember right, is $54,000,000?

The WITNESS. No, sir; it was $59,275,500.

Q. In the 'report of 1884, then, it was $54,000,000. To what purpose was that issue of $5,000,000 applied? A. That is something that I cannot answer.

By the CHAIRMAN :

Q. Who can answer it? A. No living man.

Commissioner ANDERSON. Oh, I can answer it by and by.

The WITNESS. It is impossible. You may find out, to satisfy yourself.

Q. Who was the last dead man that could have answered it? A. There never has been a man living that could answer it ; not for this company or for any other. In 1884 the amount was $59,000,000.

2378 U. S. PACIFIC EAILWAY COMMISSION.

Commissioner ANDERSON. There were $4,000,000 or $5,000,000 in the treasury. The WITNESS. I think you are mistaken.

THE LAST ISSUE TO WHAT APPLIED.

Q. What was the last issue of your stock? A. The last issue was $8,000,000.

Q. What was the date of the issue? A. The latter part of 1886, or the first of 1887.

By Commissioner ANDERSON :

Q. Do you not know to what purpose that was applied? A. Yes, sir.

Q. To what purpose was it applied? A. That was applied in pay-, ment of or on account of the contract of the Pacific Improvement Company.

Q. Was it 80,000 shares of stock? A. Yes, sir.

By the CHAJRMAN :

Q. What was the date of the prior issue? A. I cannot tell you that without getting the information.

Q. Did you ever make application to Congress for authority to issue stock 1 A. No, sir ; not that I am aware of.

GUARANTEE OF BONDS OF BRANCH ROADS.

By Commissioner ANDERSON:

Q. Has the Central Pacific guaranteed the payment of any bonds other than its own bonds'? I mean any bonds issued on any of its branches? A. Yes, sir. Oh, on any of its branches?

Q. What bonds has it guaranteed the interest of, or the principal? A. I think there is a statement in that report, or some report.

Q. Will you find it, please? A. I doubt if it is in the annual reports. It appears in the report made to the railroad commissioner, I think, or the railroad auditor.

Q. In what year? A. In every year. I can ascertain that.

Q. Please make a memorandum, and ascertain the guarantees given by the Central Pacific of the interest or principal of mortgages other than those executed by itself? A. I will have to take time to ascertain that.

The CHAIRMAN. You can give it at any time.

AMOUNT DUE SOUTHERN PACIFIC.

Q. Among other liabilities of this com pany, apart from the capital stock and the funded debt and the Government bonds, I find, in your balance-sheet of 1885, an amount due the Southern Pacific Company of $3,550,574.76. Where can we find the account from which that balance was derived? A. From the books of the company.

Q. I mean, what account? The account between the Central Pacific and the Southern Pacific? A. The account headed the " Southern Pacific Company." The ledger account.

Q. Can you state generally from what subject that indebtedness arises? A. fo, sir ; not without stating the account in full.

Q. It is an account of the transactions and the tra flic between those two companies? A. The transactions between those two companies.

EDWARD H. MILLER, JR. 2379

OUTSTANDING OBLIGATIONS.

By the CHAIRMAN :

Q. What obligations in the shape of notes has the company outstand: ing for borrowed money 9 A. I think they have a note of $2,500 outstanding ; a note to one of its former employe's.

Q. Are there any other obligations of that kind due-bills and notes for borrowed money? A. Except for the Southern Pacific Company, I do not think there is anything else. There are two or three small items, which do not amount in the aggregate to $250,000 now. This is December 31, 1885, 1 understand the chairman to ask now.

Q. I ask of this date. A. December 31, 1885, in the account of the old company, the operations of the old company had not been settled up. They are in process of settlement, month by month, until now of bills payable I think the only note out is $2,500. There may be another one, possibly.

Commissioner ANDERSON. If you will furnish us a more recent balance-sheet than this we will be guided by it.

The WITNESS. I hoped to have the report of 1886 to-day.

Commissioner ANDERSON. Please proceed with the identification of your papers.

LIST OF OFFICERS AND DIRECTORS HUNTINGTON POWERS OF ATTORNEY, ETC.

The WITNESS. The next that I find that was asked for is a list of the officers and directors.

(The witness produced a list of the officers and directors, commencing with those elected April 30, 1861, and ending with those elected April 14, 1887. It was marked "Exhibit No. 17, July 26, 1887.")

Q. What is the next? A. The powers of attorney granted to Mr. Huntington. I think there are some more scattered among these papers.

(The witness produced nineteen powers of attorney from the Central Pacific Railroad Company to C. P. Huntington. They were marked, respectively, Exhibits 18 to 36, both inclusive, July 26, 1887.

The witness produced the original certificates of incorporation or articles of association of the Central Pacific Railway Company, dated June 28, 1861. It was marked " Exhibit No. 37, July 26, 1887.")

The WITNESS. I have here three overcharge and rebate books and one distribution book, as samples.

CONSTRUCTION CONTRACT WITH CYRUS COLLINS & BROTHER.

(The witness also produced the construction contract for sections 19 and 20, between the Central Pacific Railroad Company and Cyrus Collins & Brothers. It was marked " Exhibit No. 38, July 26, 1887.")

By Commissioner ANDERSON :

Q. Is this the general form of contract that was adopted with reference to the different small contracts made at the same time? A. Yes,

sir.

Q. What is the date of that ! A.' It is dated September 26, 1863, at Sacramento.

Q. Do you know whether the first contract with Crocker & Co. was of that same form? A. Yes, sir. P B VOL iv 4:

2380 U. S. PACIFIC RAILWAY COMMISSION.

Q. Do you know whether the second contract with Crocker & Com pany was of that general form I A. It was in this general form ; that is, with that kind of specification attached ; but whether it was written out in detail, as this one is, I do not remember. I think it was.

MODE OF PAYMENT OF CONTRACTS.

Q. Do you know whether the mode of payment, as to whether it was to be money or in bonds or stock, was the same in the Crocker contract? A. This was a part for stock, I think.

Q. What is your answer? A. I do not know, but I can easily ascertain from the payments made, as they appear on the books.

Q. Do you know whether that general form of contract was also used in the dealings between the Central Pacific and the Contract and Finance Company? A. I do not remember whether it was or not.

Q. Did you ever read that Contract and Finance Company contract? A. I suppose I did. I do not remember to have ever read it. I must have read it, so I can say I did.

OTHER LEASES OF CENTRAL PACIFIC.

(The witness also produced twenty-two leases between various rail, road companies and the Central Pacific Company. They were marked respectively, Exhibits 39 to 60, both inclusive, July 26, 1887.)

The WITNESS. All of these leases are now canceled, except one, possibly, the Stockton and Copperopolis. I do not remember whether that was canceled or not.

POOL AGREEMENTS.

(The witness also produced a pooling agreement with the Atlantic and Pacific Company, to take effect October 1, 1884, and to terminate on ninety days' notice, indorsed, " Copy of notice, to terminate February 17, 1886." lib was marked Exhibit No. 61, July 26, 1887."

(The witness also produced a pooling agreement between the Central Pacific, Southern Pacific, and South Pacific Companies, dated December 31, 1879. It was marked " Exhibit No. 62, July 26, 1887.")

By the CHAIRMAN:

Q. They are not all the pools; there are others that you cannot find? A. No, sir; they are not all. There are other pooling agreements, but not in my possession. I produce these as the only ones I found in my vault.

Commissioner ANDERSON. The Huntington pool is the one that I have referred to, at page 527 of volume 1.

The WITNESS. Yes, sir; it is put in 'the minutes.

By Commissioner ANDERSON :

Q. Do you know whether the other pools that you have not found are also entered at length on the minutes? A. No, sir; I do not think they are. 1 did not remember that this one was.

By the CHAIRMAN :

Q. Who made your pool contracts? A. I think Mr. Stubbs, the general traffic agent, usually does.

Q. Would he have a memorandum or knowledge of all the pools entered into by the company? A. Yes, sir.

E. H. MILLER, JR.

The Commission then adjourned to Wednesday, July 27, 1887, at 10 o'clock a. m.

ALFRED A. COHEN. 2381

OFFICES OF THE CENTRAL PACIFIC EAILROAD COMPANY,

San Francisco, Cal., Wednesday, July 27, 1887.

The Commission met pursuant to adjournment, all the Commissioners being present.

ALFEED A. COHEN", being duly sworn and examined, testified as follows :

By Commissioner ANDERSON :

Question. What is your occupation? Answer. I have practiced law for a great many years.

Q. In San Francisco? A. In San Francisco ; yes, sir. Q. Since when? A. From 1857, 1 think, until I was prevented by sickness from continuing my practice.

Q. Where do you now reside? A. I now reside in the city of New York.

PROFESSIONAL EMPLOYMENT BY RAILROAD.

Q. Have you ever held office under the Central Pacific Railroad Company, or any of its branches? A. I have not held any office that I remember ; but I have been retained by them in my profession from time to time.

Q. Are you at present employed as counsel or attorney for the Central Pacific Eailroad Company? A. Not for the Central Pacific Bailroad Company, but I have had some business for the Southern Pacific Company.

Q. Are you the general counsel for the Southern Pacific Company? A. No, sir; though my past relations with them are such as to prevent my accepting any retainer against them.

LITIGATION AGAINST THE CENTRAL PACIFIC.

Q. With what litigation against the Central Pacific Eailroad Company have you been connected in the past? A. 1 brought one or more suits against the Central Pacific Eailroad Company some years ago on behalf of some of the original stockholders, for an accounting.

Q. Will you please give the names of the stockholders?

The WITNESS. Do you wish me to give the names of the plaintiffs?

Commissioner ANDERSON. Yes, sir.

The WITNESS. One was named John E. Eobinsou.

Q. Of San Francisco? Does he live here? A. Yes, sir. Another was Anthony Coolot, of Sacramento. Then there was another man in Sacramento whose name I have forgotten.

Q. Were there others? A. There were others, but I cannot remember their names.

Q. Were there any suits brought by some of the counties of this State? A. Yes, sir ; there were several. I was attorney for the county of San Joaquin in a suit which it brought against the Central Pacific Eailroad Company.

Q. Had you any connection with the suit of Stewart vs. Huntington? A. Yes, sir. On behalf of Evarts, Southmayd & Choate I took the depositions that were taken in California,

THE ROBINSON SUIT.

Q. How far did this Eobinson litigation go? Was it tried? A. It did not eonie to a final trial. It resulted in a compromise.

2382 U. S. PACIFIC RAILWAY COMMISSION.

Q, Was any evidence taken before a master or a referee? A. Yes ; evidence was taken under the provisions of the civil code of this State, which provides for the examination of witnesses previous to trial.

Q. What was the name of that referee? A. 1 think that it was a notary public named E. Y. Joice.

Q. Is that evidence on file with the records of the court, or is it in your possession? A. That I could not tell you.

SAN JOAQUIN COUNTY SUIT.

Q. As to these other suits, how far did they progress?

The WITNESS. Do you have reference to the suit of the county of San Joaquin ?

Commissioner ANDERSON. Yes, sir.

The WITNESS. That resulted in a compromise also.

Q. Was any evidence taken in that suit? A. My impression is that there was not. I did not bring that suit myself. It was brought by other counsel. A demurrer had been filed to the complaint, and the demurrer had been overruled. The defendants had answered. When I was employed, the first thing that I did was to examine the complaint, and upon looking over it I concluded that it was not safe to go to trial upon it. It would be a long and expensive trial ; and I found that there were not the necessary parties to the suit, and I got leave to add the necessary parties. Then the attorneys for the defendants demurred on the part of the new parties, and I in substance confessed the demurrer, wishing to get a chance to amend the complaint. I filed an amended complaint, bringing in all such parties as I thought were necessary parties defendant. I think that a new demurrer was filed, setting up the statute of limitations and other defenses. The lower court sustained the demurrer. I declined to amend, and judgment was rendered against the county. Then we argued it in the supreme court of this State, and there appearing to'be some difference of opinion there, a reargument was ordered. Before the reargument took place, I made a settlement of the case with the defendants.

OBJECT OF SUIT.

Q. What was the general object of the suit brought by the county of San Joaquin against the Central Pacific Railroad Company? A. The county of San Joaquin, under an act of the legislature passed, I think, in 1863, had subscribed for the stock of the Western Pacific Eailroad Company, and had issued its bonds in payment of that stock. The act authorizing the subscription provided that the stock should not be sold unless the sale was ratified by the vote of the people, and it provided further that three fourths of the voters should consent to it. The board of supervisors of San Joaquiu County, without any submission to the people, sold the stock to one Charles McLaughlin. Mr. McLaughlin sold it to the Western Pacific Eailroad Company, I think, or to some of the parties connected with the Western Pacific Company. No payment, if I remember rightly, had been received by the county. Some of its bonds, I think, had been deposited in escrow with a banker of Stockton.

WITNESS'S MEMORY IMPAIRED BY PARALYSIS.

Q. Do you mean that no payment had been made by McLaughlin to the'county? A. I think not. Right here I wish to say, in justice to myself, that I am giving you the benefit of my memory as to things which

ALFRED A. COHEN. 2383

are matters of record, and the record certaiiily would be the best evidence; and, in addition to that, I am unfortunately laboring under the disability which has resulted from an attack of paralysis, which has somewhat impaired my memory and recollection as to details. After that the Western Pacific was consolidated with the Central Pacific. Then, again, the new corporation, known as the Central Pacific Railroad Company, was consolidated with the California and Oregon Railroad Company, the San Joaquin Yalley Railroad Company, and the San Francisco, Oakland and Alameda Railroad Company. The county of San Joaquin, after a change of government, concluded that it was entitled to have its stock, or stock in the consolidated company, and brought a suit to establish its right to this stock, and for an accounting for past earnings ; that was the suit that I took hold of, and which I settled by a compromise.

Q. Between what years did the litigation continue? A. I think that the county of San Joaquin brought its suit in 1877 or 1878. I think that I was employed about 1880. I think that it ran for about two years or more.

RECORD OF SAN JOAQUIN CITY SUIT.

Q. Is the record at the Supreme Court on appeal in print? A/ Yes, sir ; the Supreme Court did not decide the case, and the record, so to speak, was withdrawn.

Q. The record contains the pleadings? A. Yes, sir.

Commissioner ANDERSON. The Commission would like a copy of it, if you have one at your command.

The WITNESS. I do not know that I have it. If I have I will give it to you. I have not paid much attention to these matters during the past few years.

PLEADINGS IN THE ROBINSON CASE.

Q. Was the Robinson case the suit of a stockholder asking; for an accounting of the earnings of the company substantially? A. Yes, sir.

Q. Can you tell us where we can see the pleadings in that case? A. No, sir ; I cannot.

Q. The pleadings are substantially a copy of the same pleadings that were filed in the Brannan case, are they not?- A. Perhaps they same with a few little changes. I perhaps may have varied the complaint somewhat, as no two men ever did draw complaints alike.

Q. Can you tell us who the notary was who took this evidence in the Robinson case? A. I think that it was Mr. Joice. n Q. Residing here? A. Residing in San Francisco.

Q. And you yourself do not know where that evidence now is? A. I could not say" positively. It may have been filed or I may have it at my office. I cannot tell which. It was settled a long time ago.

Q. Will not your register show where the evidence is? A. It may, and I think perhaps it will. Inasmuch as the case did not come to trial, however, I doubt whether the evidence was ever placed on file in the court ; such evidence as was taken was simply in the form of depositions to be used if the parties were not present at the trial.

Q. Was evidence taken in any of these other litigations calling for an accounting ? A. I cannot remember whether we took any evidence in the^San Joaquin case or not; I should very much doubt whether I did, the litigation being s confined to a demurrer, but still I might have done so.

Commissioner ANDERSON. You have mentioned one or two other suits brought by stockholders whose names you do not recall.

2384 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. No, sir ; they were all in one suit.

Q. All in one suit? A. Yes, sir.

Q. Were all of them included in what is known as the " Robinson suit"? A. They were all brought in as stockholders ; the suit was brought by Robinson and others on behalf of themselves, and all others who might choose to come in.

Q. During what years did that litigation continue? A, It did not last very long.

Q. Was it prior to the San Joaquin County suit? A. Oh, yes ; it was some years before that ; I was going to say that it is my impression that the suit was commenced in 1876 ; I do not think that it lasted very long ; I think that it was settled in 1877.

CONTRACT WITH CONTRACT AND FINANCE COMPANY A SUBJECT OF

INQUIRY.

Q. Had you any connection at all with the Colton suit? A. Yes, sir.

Q. On whose behalf did you act in the Golton suit? A. For the defendants.

Q. In the course of any of these litigations was the contract known as the contract of the Central Pacific Railroad Company with the Contract and Finance Company a subject of examination? A. Yes, sir.

Q. Frequently? A. Yes, sir.

Q. Did you ever see that contract itself? A. I am pretty sure that I did not.

Q. Did you ever see a copy of it? A. I think that I never did see it. I never saw the contract or the books.

Q. Were the terms of that contract substantially disclosed, according to your recollection? A. My impression is that at some time or other I had an idea what the terms were, but if I did it was shown on the record. I could not remember now. I think that I tried to find out what they were, but never could find anybody who could tell me. The only man that I perhaps might have got it from is now dead. I do not remember that I ever examined him or that I could ever get him just at the time that I wanted him. This was Mark Hopkins. I always expected to get it from him at some time or other, but I do not remember that I ever got him on the witness stand.

ITS TERMS NOT KNOWN.

Q. Do you know who drew that contract? A. I do not know anything about it.

Q. The conclusion you reached as to its terms, from such evidence as you took, would hardly appear in the record, though it might in the briefs. Can you refer us to any paper which would have or contain such conclusions? A. I will say this from my recollection that I never did know what the terms were. I have hunted for that contract, and have endeavored to gain some information as to its terms as I have for many matters of history. I think that the terms of that construction contract with the Contract and Finance Company, like the name of the man with the iron mask, are fated to go down to posterity without discovery. I tried for years to learn something about that contract, and never could succeed. I had something more than a professional interest in it. I wanted to get it, but never did.

NEVER COULD PRODUCE ANYBODY WHO HAD SEEN IT.

Q. What officers of the company did you examine with reference to it, or with whom did you converse regarding it? A. I think that I ex

ALFRED A. COHEN. 2385

ainined Leland Stanford, C. P. Huntington, Charles Crocker, and E. H. Miller, jr. I sat here yesterday and listened to your examination of Mr. Miller, and it carried me back almost to my boyish days. I have been examining him myself on those subjects ever since I was a young man. Q. Was substantially the statement made then, that the paper was missing or mislaid or could not be found, the same statement that you have heard so many times? A. I never could produce anybody who ever had seen it. I would say that my impression was that I came to the conclusion before I got through that there never was any such paper ; but that it was a verbal contract. I think that that was the conclusion which I came to at that time.

MR. HUNTINGDON'S STATEMENT IN REGARD TO IT.

Commissioner ANDERSON. Mr. Huntingdon's statement on examination in New York was that the terms of the contract called for substantially $64,000 in bonds and about $36,000 in stock per mile.

The WITNESS. Was that in reply to the examination which I took?

Q. It was in reply to the examination which we took in New York. Does that substantially agree with the approximation which you reached, according to your recollection? A. I cannot tell you now. Will you please read those figures again?

Q. Sixty-four thousand dollars in bonds and $36,000 in stock per mile? A. I could not tell you about that.

CONTRACT WITH WESTERN DEVELOPMENT COMPANY A SUBJECT OF

INQUIRY.

Q. Did you have occasion, in the course of your litigations, to make any examination with reference to the contract of the Western Development Company? A. I think that the Western Development Company was formed after my examination in the Robinson case ; and I think that at the time I examined them in that case the Western Development Company could not have done much, if any, business, and yet I might have asked them about it. It would have been better if you had called my attention to the questions which you proposed to put to me, and I would have prepared myself.

Q. The Western Development Company was formed in 1876, was it not? A. This Robinson suit was brought in 1876.

Q. Then your examination did not come down to the time of! the Pacific Improvement Company that was subsequent to the Western Development Company? A. I know nothing about the Pacific Improvement Company except such information as I got in the Col ton case as counsel for the defendants.

SUBJECTS OF INVESTIGATION IN THE ROBINSON SUIT.

Q. Did the subject of the first construction of the California and Oregon road between Rose ville and Bedding enter into any of these suits was that a matter of investigation in the Robinson suit? A. It is impossible for me to say. It might, or it might not ; I think not, though.

Q. What other subjects which are disclosed in the complaint referring to the Brannan complaint as the basis of the Robinson complaint were the subjects of investigation in the Robinson suit as far as your evidence went? A. I started in to try and increase the value of the stock of the plaintiffs in that case. I tried to prove what the road had cost and what it should have cost, expecting to show the profit that had been made in construction. The examination tended to that end.

2386 U. S. PACIFIC RAILWAY COMMISSION.

Q. Was the subject of the ownership of stock in the Contract and Finance Company a matter of investigation in your suit? A. I think that it was ; I am pretty sure that it was.

STOCKHOLDERS OF CENTRAL PACIFIC AND CONTRACT COMPANIES.

Q. And also the votes by which the transactions between the Central Pacific Kailroad Company and the Contract and Finance Company were determined? Those votes must have been the subject of consideration, must they not?

The WITNESS. What votes?

Commissioner ANDERSON. The votes of the board of directors in order to determine whether the persons who voted the contracts were the same persons who were members of the Contract and Finance Company, and received all the benefit of them.

The WITNESS. It seemed to be admitted, I think, that the principal stockholders of the Central Pacific were the principal stockholders of the Contract and Finance Company. I never heard any dispute on that point.

THE AGREEMENT BETWEEN THE COMPANIES.

Q. Did you ascertain by whom the agreement with the Contract and Finance Company was signed on behalf of the Central Pacific Railroad Company?

The WITNESS. You mean for the construction of the road?

Commissioner ANDERSON. Yes.

The WITNESS. No ; I never did. My impression is that there was no such paper.

Q. You do not think that it was in writing at all? A. My impression is that it was a matter of agreement shown on the minutes, or in some similar mariner; but I know that I came to the conclusion from the examination which I made from time to time and from what I personally knew of the way in which the business was done that it was a matter of agreement. I say that is just the impression which it leaves on my mind at this moment. As I have said before, Iwould not rely in a matter in which I was not greatly interested on my memory. There was a time, three years ago, when I had no memory and no speech. My memory was all gone and my speech was all gone. That interferes a great deal with me in my recollection of things that have taken place in a great many years.

Commissioner ANDERSON. You appear to have greatly recovered,

OFFICERS OF CONTRACT AND FINANCE COMPANY.

The WITNESS. I am a great deal better than I ever expected to be.

Q. Did you ever examine any of the officers of the Contract and Finance Company with reference to their accounts I A. I examined Mr. William E. Brown.

Q. He was the president of that company, was he not ! A. He was the secretary, I think, and I examined him.

Q. What other gentlemen were connected with their books? Was Mr. Douty? A. So. Mr. Douty was not connected with the Contract and Finance Company, I think.

Q. Was he connected with the Western Development Company? A. I think that he was with the Western Development Company.

Q. Was Mr. Gunn connected with these matters? A. Mr. Gunu was at that time, I think, not connected with the Contract and Finance

ALFRED A. COHEN. 2387

Company. I think that be was cashier or secretary or something of that kind with the California Pacific Railroad Company.

Q. Are there any other persons connected with the affairs of the Central Pacific Railroad Company or of the Contract and Finance Company besides those whom you have named who, in your judgment, would have any knowledge relating to this paper the contract between the two companies or to the affairs of the Contract and Finance Company in connection with the Central Pacific Railroad Company? A. My recollection is that Mr. Brown had a staff of clerks, two or three of them, and that they constituted pretty much the Contract and Finance Company. I never was brought in contact with anybody else. Mr. Brown appeared to be the manager of the concern the head and the board of directors.

PAPERS, CONTRACTS, AND BOOKS.

Q. Were any of the papers or contracts or books of that company produced on this trial? A. No ; I think not. I do not think that I ever saw a paper connected with the Contract and Finance Company.

Q. What answer was made in regard to the whereabouts of those books and papers? A. I cannot say. Mr. Brown was the active custodian of those papers, and sometime, I think in 1873 or 1874, Mr. Brown went to Europe and he turned over, I think, all the papers and books to his successor, and it is my information and belief that he never had anything to do with that company after that time. I never was able to get his successor on the stand in order to examine him. I tried to subpoena him in various ways, but I never could find him when I wanted him.

Q. What was that gentleman's name? A. John Miller.

Q. Do you know where he resides now? A. I do not.

NEVER COULD BE HAD.

Q. Have you any other information relating to these missing papers of the Contract and Finance Company, and also to its contract with the Central Pacific Railroad Company that you can give us for the purpose of enabling us to attempt to discover the whereabouts of these papers? A. It would be impossible for anybody to have got that information. I had interests to spur me on to get all this information for myself, if anybody could have got it. I never was able to get it, and never could get it. If these books and papers were in existence, I never could get at them.

COUNSEL IN COLTON CASE.

Q. What other counsel in San Francisco have been interested in similar suits, or in any suits that required the production of these papers 1 A. A great many have been interested on the side of the defendants, on the side of the railroad company, but I do not know of anybody particularly who has been interested on the other side.

Q. How about Mr. Hayes? A. He was interested in the Colton case. In the Colton case there were Judge Stanley, Mr. Hayes, and Judge Stoney, and also the late Chief Justice Wallace, a very active man.

Q. Is there anyone who was with him in his office who could give us any information ? A. I am sure that I do not know. I was on the other side of the Colton case.

Q. Those are the only other counsel you think of, then I A. There were a great many counsel in that case. Mr. Delmas was one.

2388 U. S. PACIFIC RAILWAY COMMISSION.

Q. All were gentlemen who would be more or less active in the pursuit of papers ? A. Yes, sir. I think that Mr. Hayes was the principal one. I remember that they applied to us for leave to examine all these records, and they were thrown open to them. They had experts down here for months, examining everything pertaining to the company; nothing was kept back from them.

SUIT BY CHARLES MAIN AND OTHERS.

Q. Since the Colton case, has there been any litigation against the Central Pacific Railroad Company involving any of these questions? A. There was a suit brought by Charles Main and others, with respect to the transactions that took place in the acquiring of the stock of the California Pacific Eailroad Company. I believe that I brought that suit. There was a demurrer interposed to the complaint and I argued the demurrer. I then removed from here to New York and gave it up.

Q. Who took charge of the suit after you left? A. Mr. E. J. Pringle, and there was a very eminent counsel who came from New York to argue it a Mr. L. E. Chittenden.

Q. Have you now stated all the counsel who, in your judgment, would have any knowledge as to these papers? A. I do not know what knowledge they have as to the papers.

Q. Or who have made any effort to find the papers? A. I think that I have. There may be others.

Q. Are there any other persons who may not have been lawyers in these suits who would have any interest in getting at these facts, and who made efforts to find these papers? A. No, sir ; as I say, we had experts from time to time. Those gentlemen all had experts ; and they had just the same chance to go through the records and see what there was.

NO ACCOUNTING REACHED SHOWING PROFITS OF CONSTRUCTION.

. Q. In none of these suits, if I understand you correctly, was any accounting gone through with from which a result could be reached showing whether the large stockholders in the Contract and Finance Company had or had not made large sums of money out of tjie Central Pacific Eailroad Company? A. No ; I do not think that they ever got to that point. In the Epbiuson case, as far as I was concerned, the plaintiffs were offered a price which they were willing to take, and they took it. In the San Joaquin case, I made up my mind that it was better for the county to get what it could. There were so many dubious points of law involved there that I did not like to refuse a good offer. The people up there wanted a new court house, and they thought that they could get money enough out of this suit to build it, and were very glad to make a settlement.

THE LAMBARD AND BRANNAN SUITS.

Commissioner ANDERSON. The Brannan case and the Lambard case were also settled, I believe.

The WITNESS. I had nothing to do with those cases. I believe that I was defendant in both of them ; but I do not think that any papers were ever served upon me.

Q. By reason of your connection with what? A. With the San Francisco, Oakland and Alameda Eailroad Company.

Q. But was not the fact of the adjustment and settlement made in the Lambard and Brannan suits entirely developed and proved in the

ALFRED A. COHEN. 2389

Stewart case, with which you were connected afterwards? A. I was not connected with the Stewart case, except to take the depositions to which I have heretofore referred. When I went to New York, Messrs. Choate and Evarts and Southmayd wished to employ me, but I declined. Mr. Huntingdon then offered to employ me on the side of the defendants, but I declined to do anything in the matter, as my health was such that I could not take up any new business at that time.

SETTLEMENT IN ROBINSON CASE.

Q. What was the nature of the settlement in the Eobinson case? A. They sold the stock and the suit was dismissed.

Q. I mean what were the terms of settlement unless you have some reason for not stating them? A. I have no reason at all. It would be difficult to say what was paid for the stock and what was paid to counsel. There were three counsel in the case on the side of plaintiffs.

Commissioner ANDERSON. I refer more especially to what defendants paid, without any question as to the distribution.

The WITNESS. If I knew how many shares of stock there were I might be able to tell.

Commissioner ANDERSON. I think that there were ten shares.

The WITNESS. There were more than that.

CommissionerANDERSON. There were thirty-two added afterwards.

The WITNESS. I was about to say that there were two very eminent counsel engaged with me in that case. One had been governor of the State, Mr. Haight, and the other was Delos Lake, a prominent judge here for a number of years. They were associated with me in the case, and in the settlement of that case I thought that the idea was to satisfy them so that they would not take up any litigation against the Central Pacific Eailroad Company afterwards. I recollect exactly what I got out of it.

Q. Do you remember what the defendant paid? A. I do not. I did not get anything out of it. I gave the fee to the other counsel in the case. I allowed them to take the fees.

RATE OF SETTLEMENT.

Q. Do you not remember, as matter of fact, that the rate of settlement exceeded $500 per share for the stock? A. I should think so ; yes, sir. Mv impression is that that question was asked .of me in the trial before, Judge Barrett in New York, and I made a memorandum and gave it. Whatever it is you will find it there.

Q. That is in the Stewart case? A. Yes, sir.

Commissioner ANDERSON. The records or books of the defendant will probably show the amount paid?

The WITNESS. 1 do not know.

DATE AND TERMS OF COMPROMISE.

Q. Can you give us approximately the date of the compromise? A. It was in 1877.

Q. In regard to the settlement of the San Joaquin County suit : ' How many shares of stock were involved in that suit ; is San Joaquin the name of a county or the name of a place? A. It is a county. The county issued $250,000 in bonds in payment for 2,500 shares of stock.

Q. What were the terms of that compromise? A. The county got $300,000 for the 2,500 shares of stock, and a portion of the bonds returned, I think. That is my impression.

2390 U. S. PACIFIC RAILWAY COMMISSION.

Commissioner ANDERSON. Please explain a little more definitely. It was alleged that this stock had passed from the county to McLaughlin and had not been paid for.

The WITNESS. Had you not better have the complaint?

Commissioner ANDERSON. I would rather have it; but as you are going away I want to ask you this much. You might suggest something which would be of value to us. I would prefer the record, of course.

The WITNESS. It is stated in the complaint more artificially and will give you all the facts if you can 'get a copy of it. I would rather depend upon the contents of that document than upon my memory at this time.

BASIS OF PAYMENT.

Q. Will you please state whether the amount paid as stated by you $300,000 and a portion of the bonds returned was upon the basis that no consideration had been received by the county, or was it upon the basis that a consideration had been received? A. It was upon the basis that no consideration had been received by the county, no consideration having been received up to that time by the county. The county of San Joaquin got $300,000, excepting that portion which the counsel dextrously appropriated to themselves, and the return of some of the bonds. Mr. Miller knows everything, perhaps, and he can tell you.

Q. Does Mr. Miller kno\? everything? A. Yes, sir; he is the general encyclopedia of California, and I do not want to give any general statement unless indorsed by Miller.

Q. Is Mr. Haight living? A. No, sir ; he is dead.

Q. Who was the other counsel that you mentioned? A. Judge Lake.

Q. Is he living? A. No, sir ; he is dead. I am the only one remaining, and I shall probably be gone before this inquiry is finished.

Q. We will all be gone probably before the Government debt is paid. Can you furnish us with any copies of briefs or papers which you can conveniently find which will give us more accurate information as to these points? A. I shall be delighted to furnish you anything that I have.

Q. Can I call at your office? A. I have no office here. I moved my office to New York. My son has an office here, and may have some of those papers.

Q. Can you give me a note to him so that I can call on him ! A. I will tell him about it.

SATISFACTORY TERMS MADE WITH COUNSEL.

Q. You mentioned a moment ago that the compromises in one or two of these cases were made on such terms as to counsel that they would be satisfied and probably would not undertake similar litigations thereafter. Was that made part of the understanding? A. My impression is that Judge Lake told me that that was the understanding with him in that settlement, that he would take no cases of a similar nature, that he would not take any similar or any case* whatever I do not know how that was. I remember that in that settlement he did not feel himself at liberty to take any litigation against the officers of the Central Pacific Eailroad Company after that time*

ALFRED A. COHEN. 2391

COUNSEL IN THE BRANNAN SUIT.

Q. Do you remember who was counsel in the Brannan suit? Was John B. Felton ? A. John B. Felton started it. Oh, yes ; I remember that. General Butler was also counsel.

Q. Did John B. Felton subsequently enter the service of the company as counsel ? "A. Yes, sir.

Q. And did he remain in the service of the company until he died? A. Yes, sir.

Q. How is it as to Governor Haight 1 A. I believe that he accepted a retainer ; not as a general retainer, but I think he was employed by the company afterwards. Of this, however, I am not sure.

Q. As to yourself, did you feel at liberty to take any cases after the settlement of the Eobinson case? A. Yes, sir; I received no fee in that case.

Q. Have you personally been connected with any such litigations since the San Joaquin case u? A. No.

Q. Did I understand you to say that before you left practice you were engaged in litigations for, and were retained as counsel by the Southern Pacific Company ? A. I had one or two cases for the Southern Pacific Company. No ; I think I had only one case for the Southern Pacific, and that is still pending.

CONSOLIDATION OF SAN FRANCISCO AND OAKLAND WITH SAN FRANCISCO AND ALAMEDA.

Q. Do you recall the facts relating to the consolidation of the San Francisco and Oakland Eailroad Company with the San Francisco and Alameda Eailroad Company! A. Yes; I remember that, I think I signed that as president of one or the other of the roads. Yes ; I owned the majority of the stock in the San Francisco and Oakland road.

Q. What circumstances brought that consolidation about? A. They were roads built to connect with the ferries crossing the bay, and I think that I had sold the stock of both railroad companies; I owned a majority I think in both, if I remember rightly at any rate I owned the majority in the Oakland Company and a large portion in the Alameda Company ; I sold my stock in the Oakland Company to E. B. Crocker and Leland Stanford, and I sold my stock in the Alameda Company to Leland Stanford and Mark Hopkins ; I think I made the trade with them ; they wanted them consolidated into one corporation, and we did it.

Q. Was your sale to these gentlemen made before the consolidation? A. Yes, sir; necessarily so.

Q. The certificates for the stock appear to have remained in your name; how was that? A. My impression is that I sold the Oakland road on a long credit, and I think that I kept the stock as security until the money was paid.

SIGNING OF CONSOLIDATION PAPERS BY WITNESS.

Q. Were these consolidation papers signed by you at their request, you remaining the equitable owner of the stock? A. I remained the legal owner; they had the equitable interest; I think I had the stock, but I do not remember positively whether I had it as collateral to their notes or not; I had their individual paper for the stock, and kept it for a long time.

2392 U. S. PACIFIC RAILWAY COMMISSION.

Q. I call your attention to the fact that the consent to the amalgamation signed by you as stockholder of the San Francisco and Oakland Eailroad Company shows that you were a stockholder to the extent of 5,500 shares, while the consent on behali of the Alameda Company was signed by Leland Stanford on behalf of such amalgamation for 14,9^0 shares. Do I understand that you had actually sold both of these amounts at that time? A. I spoke of selling the Oakland road on credit. The Alameda road was sold for cash, and undoubtedly the stock had been transferred.

Q. Can you explain to us the relative merits of these two corporations, so far as their financial standing was concerned, so as to inform us as to whether the terms of the consolidation were just as between the parties? A. I do not remember what they were.

TERMS OF CONSOLIDATION.

Commissioner ANDERSON. The terms of con solidation were dollar for dollar, and the aggregate capital was made equal to the capital of the two companies, so that each shareholder of the old company held an equivalent amount of stock in the new one.

The WITNESS. The Oakland Railroad had, I think, about two or three miles of track running from Oakland Point to San Antonio, as it was then called the portion that is now run as the local ferry track of the Central Pacific. The Alameda Eailroad had about sixteen or eighteen miles of track, and both had long piers extending out into the bay, and both had ferry-boats of great value. The stock of the Alameda Company appears to be about fifteen thousand shares and the stock of the Oakland Company about six thousand shares. I should think that they had material property to cover about that value at that time, as well as their franchises, which were valuable. I suppose that must have been a fair division at that time.

NO BONDED DEBT AT TIME OF CONSOLIDATION.

Q. Do you remember what their bonded debt was at that time? A. The Alaineda Company had no bonded debt, and the Oakland Company had none. If I remember rightly I do not think that either of them had a bonded debt. After the consolidation a bonded debt was put upon the Oakland Company for the purpose of making improvements and other things. I do not exactly remember the purpose for which it was put on, but I remember that after the consolidation into the San Francisco, Oakland and Alameda Eailroad Company was formed they issued a bonded debt, and I think that I signed the bonds and that I signed the mortgage as president of the new corporation.

DIVIDENDS.

Q. Had either of these corporations paid dividends before the consolidation ? A. Oh, yes. The Oakland Eailroad Company paid dividends for some time. The Alameda Eailroad Company would have paid dividends very shortly. She did not pay dividends as such. The road was built on borrowed money, and she paid interest on her debt, and her earnings were put into construction, extensions of the road, &c. We never paid any dividends as such on the Alameda portion of the road, but a great many dividends were paid on the Oakland portion.

Q. Do you know where the books of that particular branch are to be found? Are they with the Central Pacific Company?- A. I suppose so.



ALFRED A. COHEN. 2393

Q. Were they passed over at the time of the consolidation? A. They should have been.

STATEMENT OF CONSOLIDATIONS.

Q. This consolidated railroad was itself consolidated at a later date with the Central Pacific, was it not? A. Yes, sir. I will give you that statement of consolidation if it is of any service to you. There were several corporations that now enter into the present Central Pacific. In the first place the Central Pacific of California was the first corporation. Then there was the Western Pacific. Then there was a corporation called the Bay Railroad Company. Then there was the San Francisco and Oakland Railroad Company, the San Francisco and Alameda Railroad Company, the California and Oregon Railroad Company, and the San Joaquin Valley Railroad Company.

Q. The first consolidation that took place was with the Yuba Railroad Company, was it not? A. I don't think that went in.

Q. Did it not go in with the California and Oregon? A. Oh, yes ; it did. The first consolidation that took place was between the San Francisco Bay Railroad Company and the Western Pacific Railroad Company, and the consolidated company was called the Western Pacific Railroad Company. Then, in June, 1870, there was a consolidation between the Western Pacific Railroad and the Central Pacific Railroad Company of California, and that was called the Central Pacific Railroad Company. Then there was a consolidation in August of the same year between the California and Oregon Railroad Company and this Yuba Railroad Company.

THE CONSOLIDATION THAT FORMED THE CENTRAL PACIFIC.

Then, in the latter part of August, 1870, there was a consolidation between the Central Pacific Railroad Company, the California and Oregon Railroad Company, the San Joaquin Valley Railroad Company, and the San Francisco, Oakland and Alameda Railroad Company, as then consolidated, and that formed the Central Pacific Railroad Company, and that is the present corporation.

Q. How did it happen that these two latter consolidations occurred so closely together the one being in June and the other in August? Was there a substantial addition to the road, or were there any extensions of the property as it existed in June? A. I do not remember, but I think that it was a question for some time as to whether any consolidation had been legally made. I remember the subject being discussed as a question of law between Judge Sanderson, other counsel, and myself probably Mr. Wilson or Mr. McAllister, or probably both of them as to the powers of the consolidation under our statute at that time. They were a little crude and indefinite and the matter was kept in abeyance some time, and, finally, I remember that it was resolved to make the latter consolidation of August, 1870. I remember that I was starting for New York at the time, and that I staid over to sign the papers. The question came up, and I staid over until the papers were ready for my signature.

Q. Were you interested solely as a stockholder at the time of the latter consolidation? A. I was interested simply as a stockholder in the San Francisco, Oakland and Alameda Railroad "Company. I never have been a stockholder in any of the other companies, except the California Pacific, and I am a stockholder of that company now.

2394 U. S. PACIFIC RAILWAY COMMISSION.

FINANCIAL CONDITION OF CONSOLIDATED ROADS.

Q. As such stockholder, did you yourself make any examination of the financial condition of the various roads which were being thus thrown together, in order to determine whether the terms proposed were fair and just to all the parties ?

The WITNESS. In the latter consolidation?

Commissioner ANDERSON. Yes.

The WITNESS. I only thought at that time of the ability of the people who bought my stock to pay for it. I was looking only at their financial ability. I think I had the stock as security. I have no doubt that I had some opinion on the subject at the time, but what it was I could not now tell you. I was not personally interested.

THE LIENS.

Q. So you did not examine the status of the company, the amount of liens and the financial condition generally, for that purpose? A. The liens were matters of record. Everybody in California knew all about them of course.

ONLY SAN FRANCISCO AND OAKLAND STOCK VALUABLE AT CONSOLIDATION.

Q. Was there a market price for these various stocks at the time of the consolidation 1 A. I do not think that there was a market price for any of the stocks, except that of the San Francisco and Oakland Railroad Company. It had a market price and the stock was bought and sold here, but there never was a market price for the others. They never were worth anything until the road was fully developed. I would not have been willing at the time the Central Pacific road was finished to take a block of the stock as a gift and be liable for the debts as they then existed. It turned out better afterwards.

By Commissioner LITTLER :

Q. Do you mean that none of these stocks were listed on the exchange? A. I mean at the time of the consolidation. At the time these roads were consolidated there was no one who would touch a share of the Central Pacific Kailroad stock if he had to pay anything for it.

NO MARKET VALUE TO CENTRAL PACIFIC STOCK TILL RESUMPTION OF

SPECIE PAYMENT.

By Commissioner ANDERSON :

Q. Still, you made no objection to the substitution of stock in the new Central Pacific Kailroad Company for the stock which you had sold? A. No. My impression was that at the time the stock was surrendered things were different. I sold my stock two years before that time. I think that I surrendered the stock about that time. I never took any new stock and never had any of it issued to me.

Q. Do you include the other stocks, except the Oakland stock, in what you say about the stocks having no market value at that time? A. There never was any market value to the Central Pacific stock, or to any of the other stocks, until after the resumption of specie payments, until after the boom of 1880 and 1881.

Q. How about the Western Pacific Eailroad stock 1 A. That never has had any market value as Western Pacific stock. Of course, when it got to be Central Pacific it was included in that.

ALFRED A. COHEN. 2395

Q. How about the California and Oregon? A. That is Central Pacific also.

Q. Had it any value before the consolidation? A. Oh, no ; it had no market value.

Q. Had the San Joaquin Yalley stock any value? A. No, sir.

THE YUBA ROAD.

Q. What was this Yuba Railroad? A. My impression is that it was a road built by some intelligent gentleman up country to sell to the Central Pacific. It has been a source of amusement for some parties for some years to get up railroad companies and build little roads in order to force the Central Pacific or the Southern Pacific to buy them.

Q. How many miles long is it? A. I do not know. It is a small road, if there is any of it built at all.

Q. Do you know whether the books of these various corporations, showing their financial operations and standing, have all been passed to the Central Pacific Railroad as each consolidation was made? A. They should have been, but I do not know it as a fact, however. The Central Pacific is entitled to all the records of these various companies.

SAN FRANCISCO BAY COMPANY.

Q. What was this San Francisco Bay Company which was amalgamated with the Western Pacific? A. The purpose of forming that was this: Under the act of Congress the Central Pacific Railroad terminated at Sacramento. The Western Pacific road ran from San Francisco to San Jose. Then there was a road from San Jose to San Francisco, and it was supposed that the Central Pacific Railroad would come into San Francisco in that way. It was found necessary to incorporate some 'company to build a road from Niles to Oakland. It was found impracticable to approach San Francisco by way of San Jose, and this road was chartered for the purpose of affording a franchise or means of getting right of way, or condemning right of way from JSTiles to Oakland.

ITS STOCK HAD NO MARKET VALUE.

Q. Was this San Francisco Bay stock commonly bought and sold? A. I do not believe that they ever issued any stock. If they did, I never heard of it. I do not believe that they ever built any road. I think that they merely incorporated. However, I am not certain that they did not build any road, perhaps they did. The stock had no market value. I have forgotten now, but it may be that they built a piece of road between Eiles and Oakland. I think it probable that the Bay Railroad Company may have built a portion, and that it was finished by the Western Pacific, or it may have been the other way ; I am not sure which.

CENTRAL PACIFIC STOCK WORTH MORE AFTER CONSOLIDATION.

Q. Comparing the stock of the Central Pacific Railroad Company as it existed before these consolidations in 1869 and 1870, and the stock of the Central Pacific Railroad Company as it existed in August, 1870, the consolidations being entirely completed, in your judgment was the absorption of these roads a benefit to the Central Pacific, or the reverse? Of course we know your answer will be only an estimate. A. I have always felt that the stock of the Central Pacific Railroad Company, after p R VOL iv 5

2396 U. S. PACIFIC RAILWAY COMMISSION.

the consolidation of August, 1870, was worth a great deal more than it was before.

THE EEASON.

Q. By reason of the completion of the through route and terminal facilities ? A. Not only that, but because of the absorption of these great highways through the State, and their franchises, thus fastening to the Central Pacific so many valuable feeders. And then, again, remember that the Central Pacific Eailroad started with a capital of $8,500,000. As the road progressed, it got more property, and increased its capital stock to $20,000,000. Then when they got into Nevada, before the consolidation with the Western Pacific, they increased the capital stock to $100,000,000. They have taken in all these properties the Bay Railroad, the Western Pacific, the California and Oregon, San Joaquin Valley, the San Francisco, Oakland and Alameda, and all their various rights and franchises, which were of great value, and the stock of the Central Pacific has remained just the same as it was before those properties went in.

AMOUNT OF STOCK ISSUED.

Q. They have issued enough of the $100,000,000 to equal the aggregate of the stock of all the absorbed roads, in addition to their own, have they not? A. The nominal stock of the company has remained the same through all these consolidations.

Commissioner ANDEESON. As I understand it, less than half of it was originally issued.

The WITNESS. It was issued, I believe, only as they wanted it.

Q. The other half,*if subscribed for at par, would have increased the assets of the company to the amount of the issued st&ck. In other words, the real stock of the Central Pacific was but $50,000,000 before the consolidation, though the nominal stock was $100,000,000,

EFFECT OF THE THUEMAN ACT.

The WITNESS. The stock of the Central Pacific Eailroad Company of course would have had a very much greater value to day if it hail been allowed to manage its business as any other corporation has been allowed to manage its affairs. Instead of taking its earnings and improving the value of the road, as it should have done, they have been taken from it under the terms of the Thurman act and by other legislation.

Q. Has not the Central Pacific Company substantially managed its affairs as it thought best for the last fifteen or twenty years'? A. No; I do not think so. Then, in addition to that the Government subsidized other roads that have all the time been setting up opposition to the Central Pacific. The Government has all the time been tying the hands of its debtor and giving aid and comfort to the people fighting it.

By Commissioner LITTLEE :

Q. What roads do you now refer to I A. I refer to the Northern Pacific, to the Atlantic and Pacific and its various branches, and to the advantages which are being given to the Canadian Pacific in order to enable it to compete for the business of this coast. It looks very much like the old system of imprisonment for a debt. If a man owes you money and does not pay it, you put him in jail where he cannot possibly pay it.

ALFRED A. COHEN. 2397

OPPOSITION LINES AIDED BY GOVERNMENT.

By Commissioner ANDERSON :

Q. You mentioned something about the subsidizing of other roads ; what roads do you refer to? A. The Northern Pacific and the Atlantic and Pacific.

Commissioner ANDERSON. But you spoke about the Canadian Pacific.

The WITNESS. I spoke of the facilities given now to the Canadian Pacific to do business and of privileges given to it to bond goods through our territory, and setting them up in opposition to the road that owes the Government so much money. It seems to me that no business man would treat his debtor in that way if he wanted his debts paid.

Q. What are the facilities that you refer to as being given by the Government to the Canadian Pacific? A. The right to run cars in bond to compete with our ports here, the port of San Francisco, for the business which naturally belongs to the Central Pacific Railroad. Heretofore large quantities of tea and silk have been brought to this country by steamers connected with the Central Pacific and Union Pacific companies, and this traffic has formed a very large portion of the business of those companies, Under the new order of things, the Canadian Pacific comes in with its steamers and its line of road and seriously cuts into this business which has heretofore belonged to our own lines, and the Government, by permitting that company to carry its goods in bond through our territory and to points within our territory, assists it in its endeavor to filch this business from the lines which are so largely in debt to the Government of the United States. That is what I mean when I say that the Government gives aid and comfort to the Canadian Pacific.

Q. Are there any other subsidized roads which compete with the Central Pacific than those which you have mentioned? A. No ; I do not remember that there are.

GOVERNMENT TRAFFIC ON OTHER ROADS.

Q. Do you know anything of the amount of the traffic given by the United States Government to other roads in the matter of transporting troops and mails? A. I do not. I know this, however : From my reading and studies on this subject I am very well satisfied that the United States paid for carrying mails and for the movement of troops between 1850 and 1860 a great deal more than it ever allowed the Central Pacific and the Union Pacific from 1869 to the present time.

TRANSPORTATION CHEAPER SINCE COMPLETION OF RAILROADS.

Q. Is it not true that it costs all the citizens of this country a great deal less to move about from place to place at the present time than it did before the railroads were completed? A. Of course ; that is one of the advantages that the Government and people derived from the building of these two roads. Prior to 1869 we had to go to New York by way of the Pacific Mail, which charged us $300 for the passage, and pretty much everything was charged extra. The time consumed in the journey was from twenty-four to twenty-eight days, and the passengers had to take the risk of contracting the Panama fever and the malaria of the tropics, and the numberless ills to which people are subject in crossing such a place as the Isthmus of Panama. We are benefited, of course, by the railroad in this respect ; the travel is not only more comfortable in

2398 U. S. PACIFIC RAILWAY COMMISSION.

every way, but it is cheaper. The rail rate is now less than $100, and the time consumed less than seven days.

Q. Has that circumstance, in your judgment, anything whatever to do with the payment of a debt for which a consideration was given and for which the obligation remains? A. I think that it has a great deal to do with it.

Commissioner ANDERSON. We would be very glad to hear from you in what respect it affects the question.

CONDITION OF COUNTRY PRIOR TO CONSTRUCTION OF ROAD.

The WITNESS. Before going into that question, of course it' becomes necessary to consider the language of the law authorizing the building of these roads, and the condition of the country before and during their construction. Before these roads were built, the country was engaged in a great war for its existence. The credit of the Government was at a low ebb ; materials and supplies of all kinds could be procured only at abnormally high prices. Wages were high and laborers scarce. It cost as much money to build a mile of road then as 3 miles could have been built for five years before or five years afterwards. The credit of the Government was very poor; very little was realized from the sale of the bonds which the Government loaned to these roads. They had to be sold at a big discount to provide money to build the road. In addition to this, the Government was all the time pushing these people to greater exertion and greater diligence, and* I think that all of these things should be considered in any inquiry of this sort. When you estimate the present rate of interest, the amounts realized by these people from the sale of their securities and the cost of materials, you will find that the rate of interest upon this loan by the Government will amount to more than 12 per cent, per annum on the money realized. It seems to me that all these things should be taken into consideration in any report which is made to Congress by you.

GOLD VALUE OF BONDS.

By Commissioner LITTLER :

Q. Can you state what these bonds netted the railroad company in gold? A. I will say this : In gold they did not net on an average for all the bonds given more than 60 per cent. This is according to my recollection and information. I do not believe that the company got 60 per cent, in gold for these bonds. I remember that when they were very hard pushed trying to get money to get over these mountains, I tried to borrow money for them here in San Francisco, putting two bonds in for one, but our capitalists would not lend the money.

Q. Were the contracts for construction payable in gold? A. That I do not know; some of those made in the East were undoubtedly payable in currency ; but all those made on this coast were payable in gold of the latest standard and fineness.

THE ROAD NOT WORTH ITS BONDED DEBT.

By Commissioner ANDERSON:

Q. Do not you know that many of these payments were made in bonds and stock 9 A. if so, they were at a corresponding value.

Q. Made to meet the real value of the articles sold to the company? A. It was just this way, Mr. Anderson. When this Central Pacific Eailroad was finished it was not worth its bonded debt. It is not worth its

ALFRED A. COHEN. 2399

bonded debt to-day. You cannot sell it for its bonded debt. Nobody in the world would take this road mortgaged to the Government and make the money out of it due to the bondholders and the Government. Q. You mean the two first mortgages ? A. I mean the road responsible for the bonds issued under the acts of 1862 and 1864 ; and the way that the Government is treating this company renders the property of less value every day.

DIVIDENDS.

By the CHAIRMAN :

Q. What did the road do with the eighteen millions declared in the shape of dividends to stockholders between 1877 and 1884? A. I do not suppose that the road did anything. I suppose that the directors who owned the stock did something.

Q. What effect would it have had on the Central Pacific Eailroad property if, instead of dividing this $18,000,000 among its stockholders, it had applied it to bettering the condition of its road and extending its earning capacity ? Do you not think that if this had been done the road would have been in better shape to repay its debt to the Government than it is now? A. A great deal of money went into this road besides that which the Government lent. Money was procured from all available sources. The bonds of the company were issued and sold for such sums as were possible. In many markets of the world at that time you could not sell a bond. All this is now changed. The bonds of the Central Pacific Railroad Company are now away above par. You gentlemen are men of the world, of great financial as well as legal experience, and you know perfectly well that you could not organize a railroad and go to any market in the world and sell a bond unless you had some security for the money which you asked. In addition to your bonds, you would have to give a portion of your title deeds or your stock as a bonus ; and this was what the Central Pacific Railroad had to do.

RESULT IF MONEY HAD BEEN APPLIED TO IMPROVEMENT OF ROAD.

Q. If this money declared in dividends to the stockholders had been applied to the improvement of the railroad property, would not the security of the Government have been better to-day than it is? A. Undoubtedly, if all the earnings of the road had been used to redeem its liabilities instead of giving anything to its stockholders, and if this could have been done without any bad effects I might answer your question in the affirmative 5 but you must remember that a great many people hold shares of this stock, people whose money went in to discharge the obligations of the company incurred for tbe construction of its road. At the time this road was finished I do not know but what perhaps I may be telling you gentlemen something you do not wish to hear, but I presume that you are acting in a judicial capacity, and that you would like to hear both sides of the question.

Commissioner ANDERSON. Oh, yes ; we want to know everything.

FINANCIAL CONDITION OF DIRECTORS ON COMPLETION OF ROAD.

The WITNESS. When this road was finished every one of these directors was mortgaged up to all that his credit would carry. Their notes were out everywhere. They were scattered all over this State and in New York, Boston, and Philadelphia, many of them bearing from 12 to 15 per cent, per annum interest. They had to sell stock to redeem their personal obligations incurred for the benefit of this road, stock which they had taken in payment for the building of t he road. At

2400 U. S. PACIFIC RAILWAY COMMISSION.

the time this contract with the Contract and Finance Company was made, there was not a capitalist on the face of the earth that was willing to take hold of it. I have seen Mr. Huntington trudging about in New York trying to get people to lend him money and take an interest in the construction of the road upon the same terms that it was let to the Contract and Finance Company. For months, almost for a year, if not for more, he was traveling at night between Washington and Boston trying to raise money to send to California. They were put to terrible straits to get money to get over these mountains. I have sat here in bank parlors in San Francisco and heard the bankers and capitalists say, "Don't you have anything to do with those men, Stanford, Huntington, and Hopkins ; don't you put any money into their schemes. They are bound to come to grief. Nobody in the world can get that road through." There are two sides to this story, of course. You, Mr. Anderson, with your great legal experience, know that it is very easy to frame an indictment, but I know and you know that there never was a case to which there was not some defense.

ABILITY OF COMPANY TO PAY ITS GOVERNMENT INDEBTEDNESS.

By Commissioner LITTLER :

Q. Have you considered the subject as to the ability of this company to pay its indebtedness to the Government?

The WITNESS. I have no doubt that this company is composed of men who will pay whatever they will undertake to pay, and do whatever they undertake to do, no matter where it comes from. They are good for anything they nndertake. There is no question about that.

Commissioner LITTLER. I am speaking of the corporation, independent of the personal responsibility of these men.

The WITNESS. I will say this, you cannot sell the mortgaged property to-day for the lien that is on it.

PLAN OF SETTLEMENT.

Q. What suggestions have you to give to this Commission, if any, as to the terms upon which the settlement of the indebtedness between this company and the Government can be made? A. The suggestion that I would make to this Commission is the same that I would give to any business firm or corporation who would consult me as to what it should do with a debtor under similar circumstances. I would look at the property in its present condition. I would look at the condition of the property when it came into existence. I would have regard for the physical condition of the country through which it was built, which made necessary its great cost. I would look at the condition of the nation at the time the road was constructed, at the manner in which the people were urging this company to complete the road. I would look at the great advantages which the Government obtained from such completion, and the great convenience which it has been to the people of the United States, and the enormous amount of money which the Government has saved by its construction, and the failure of the Government to keep its part of the contract as outlined in the debates preceding the passage of the act of 1862. Then I would give full and fair consideration to any application which might be made for an extension of the time of payment, and I would give it upon fair and equitable terms. That is what any business man would give to his debtor under like circumstances.

ALFRED A. COHEN. 2401

EARNING CAPACITY OF ROAD VERY MUCH REDUCED.

Q. Have you considered the subject sufficiently to indicate to this Commission the terms of the settlement which ought to be proposed? A. I have not. I am not prepared to make any positive suggestion on that subject. I am speaking on general principles as to what ought to be done under the circumstances.

Q. Have you any intimate knowledge of the earning capacity of this property as it stands to-day? A, No ; but I did have some years ago. I have been out of business for some time, but I know that within the last few years its earning capacity has been very much reduced. I am now speaking of the mortgaged property, and not of the whole Southern Pacific property.

Q. You say that you know that its earning power has been very much reduced ; how do you know this? A. I know this from my knowledge of the affairs of the company, and from my knowledge of the business which is being done by rival lines. I also consider that the illconsidered legislation adopted by Congress towards these two roads, the Central Pacific and the Union Pacific, has been such that they have not had a fair chance to compete with other roads for the business ol the country.

EARNING CAPACITY CONTROLS ITS MARKET VALUE.

Q. In determining the terms which the Government should adopt, would you take into account only the value of the property as it stands to-day in the markets of the world, or would you consider in addition thereto the earning capacity of the property? A. The earning capacity of the property and its ability to maintain those earnings necessarily control the market value.

Q. Is it not true that in railroad circles the value of a property is determined more by its earning capacity than by the amount of money which it may owe f A. Hardly so. The earning capacity of course has reference to the charges that will come upon those earnings. If the earnings are to be absorbed in paying interest on a large bonded indebtedness so as to leave nothing to the stockholders, the road itself will have very little market value, except to its creditors.

ITS NET EARNINGS FOR 1886.

Commissioner LITTLER. The net earnings of this road for 1886, as I remember them, were about nine million of dollars, and the gross earnings were between seventeen and eighteen millions.

Commissioner ANDERSON. Including all the leased lines.

The WITNESS. 1 am speaking of the mortgaged property. I see very well where the mortgaged property will be left if it is separated from the other property which has been acquired and which is at present somewhat free from competition.

Q. Is it not true that at least some of these branch lines have been acquired with moneys earned by the Central Pacific road? A. That is a mere question of calculation which I have not been able to make. I notice that almost every time a new property has been acquired, there has been some lien placed upon it.

Q. Have you any interest in the stock or bonds of the Central Pacific Railroad Company? A. No, sir ; not a cent, and I never did have.

Commissioner LITTLER. You seem to be a competent witness.

2402 U. S. PACIFIC EAILWAY COMMISSION.

The WITNESS. I ain merely giving you my opinion. 1 think that if you gentlemen would come to my views on this subject the Government and the people of the United States would make more out of this road than by any other course which could possibly be adopted.

LOSS OF TRAFFIC CAUSED BY AIDED LINES.

Q. Have you any knowledge of the amount of the decrease of traffic of this company arising from the construction and operation of the competing lines to which you have referred? A. I made some kind of a calculation once, but do not know how true it is. I have talked with some of the people whom I thought to be familiar on the subject, and my impression is, from the best information obtainable, that tlie loss to the Central Pacific and its leased lines caused by the building of the other subsidized roads the Northern Pacific and the Atlantic and Pacific and the loss caused by the construction of the Canadian Pacific, together with the earnings which have been taken from it by the Atchison, Topeka and Santa Fe Company, which, of course, works the subsidized line of the Atlantic and Pacific, will amount to something over thirty millions of dollars, probably nearer forty millions.

By Commissioner ANDERSON:

Q. From what period of time? A. That would be about five years, I think. The business that has been taken away from your debtor by the roads which you have subsidized and by the roads which you have aided in various ways has certainly amounted to somewhere between thirty millions and forty millions of dollars, and to this extent you have impaired the means of your debtor and reduced its ability, so far, to pay its debt.

THE CANADIAN PACIFIC.

By Commissioner LITTLER :

Q. Does this Canadian Pacific Company, through the bonding system which you mention, take a large part of the traffic which would otherwise go to the Central Pacific 1 A. Yes, sir; the very idea of the Canadian Pacific seems to be to take everything that is in sight, and the Government seems to be willing to afford the foreign company every facility and means for doing it.

Q. Is that done under any statute of the United States? A. No ; I do not think it is. I think this is done under a Treasury regulation.

THE NORTHERN PACIFIC.

Q. How does the Northern Pacific connect itself with the business of this region? A. The Central Pacific, before the completion of the Northern Pacific, got all the freight for Oregon and the territory north. Now the Northern Pacific gets all of that business, and in addition to that it has a line of steamers plying between San Francisco and Oregon and takes a large slice of the business which naturally belongs to the Central Pacific line.

By Commissioner ANDERSON :

Q. Is not this carrying the doctrine of taking care of a debtor rather far ? It could hardly be expected that the builders of the Central Pacific Railroad should have a monopoly of the carrying of traffic across the United States. A. That is so. I am merely speaking of things as they exist, and how contrary they are to the anticipations indulged in

ALFRED A. COHEN. 2403

by Senators and members of Congress and by the railroad companies before the construction of the roads.

BENEFICIAL EFFECT OF COMPETITION OF SOUTHERN PACIFIC.

Q. How about the effect of the competition of the Southern Pacific on the Central Pacific traffic I A. Instead of hurting, I think that it has greatly benefited the business of the Central Pacific Kailroad. The Southern Pacific undoubtedly has been the means of saving to California a great deal of its business. It has built a line through Arizona, New Mexico, and Texas, and has opened up these markets to the merchants of California. It has also built a line into Mexico and has given our merchants a chance to compete for the business of that country. But for this, all the business of these Territories and of Mexico would be done by Eastern merchants, and California would get none of the benefits from that traffic. As it is, California supplies the largest portion of the goods consumed in these sections, and all of this business contributes directly or indirectly to the prosperity of the Central Pacific road. The Southern Pacific is the only line by which you can get freight rapidly from San Francisco to New York and from New York to San Francisco. It is the only concern which can make a through rate. You can go to a man in New York and he can tell you exactly what he can do for you and the time within which he can do it,

Q. That is on freight? A. Yes, sir. If you want to ship any freight from New York to San Francisco you have not got to await the convenience of the New York Central, or of any other of those Eastern trunk roads, and you have not got to be bothered and annoyed with the delay which always occurs at Chicago. According to my experience, it used to take a week or ten days to get freight through Chicago. I do not know how it is now.

SOUTHERN PACIFIC PROTECTS CENTRAL FROM COMPETITION WITH

GOULD'S LINES.

Q. What effect has the construction of the Southern Pacific and the establishment of a through line had on the earnings of the Central Pacific? A. I do not think that it has any but a good effect. If the Southern Pacific had not started its road and protected the Central Pacific's through business, this business would have been done by the Texas and Pacific and Mr. Gould's lines.

Q. What do you mean by " protected the Central Pacific "? A. If the Southern Pacific had not been built, and if the Sunset route had not been established, the Central Pacific, of course, would have had a competitor from the south," which would have taken a large share of the business, reduced the rates for traffic, and more or less demoralized the Central and Union Pacific Companies, and business would have been done without profit. With the construction of the Southern Pacific and the building of a road which worked in harmony with the Central Pacific, rates were maintained and the earning capacity of both roads increased. While the Central Pacifi c operated the Southern Pacific under lease it, of course, received the tolls upon business done by the Southern Pacific. The business of the Southern Pacific, under any circumstances, must come over the lines of the Central Pacific, and must pay terminal charges and ferriage to the Central Pacific. If the Southern Pacific road were owned by the Pennsylvania Central, as originally intended by Tom Scott, or if it had been built by the Texas and Pacific people under Mr. Gould, the earnings of the Central Pacific would not have been as great as now.

2404 U. S. PACIFIC RAILWAY COMMISSION.

TERMS OF LEASE OF CENTRAL TO SOUTHERN PACIFIC.

Q. Have you examined the lease of the Central Pacific to the Southern Pacific Company, and are you familiar with its terms'? A. I have not seen it.

Q. Do you know how the rental of $1,200,000 per annum, which the Southern Pacific agreed to pay, was fixed I -A. I did know, but I have forgotten. I do not remember now.

Commissioner ANDERSON. I presume that we can get that from the auditor's office.

The WITNESS. I think that you can get it from the record.

HOSTILE LEGISLATION.

By the CHAIRMAN :

Q. What legislation on the part of Congress interfered with the development of the Central Pacific? A. I think the Thurman bill and all the various little things that have been passed since then ; and not only that, but the general hostility that has been shown by Congress to the Central Pacihc Railroad have very seriously interfered with the development of the Central Pacific Railroad. Although the company has complied with the terms of the various acts of Congress and of the Thurman act, there has been money due by the different Departments to the Central Pacific Railroad Company, and the Secretaries have reported session after session that the amoiint was due, and it has been put into the appropriation bills, but every time some patriot would rise up and have it stricken out. Although these claims have been considered by the Court of Claims, and have been passed upon by the Supreme Court of the United States, the company has been unable to get its money, and there has been a very large amount of hostility shown by somebody towards the management of this road.

PROSPERITY MEASURED BY EARNING POWER.

Q. Would you measure the prosperity of a road by its dividends! A. 1 measure the prosperity of any material property by the amount of its earnings. Of course this would apply as well to a railroad as to a brewery.

Q. Do the dividends of the Central Pacific Railroad Company represent the earnings of the road? A. No well-regulated corporation ought to pay dividends except from earnings.

Q. Do you know whether the dividends of the Central Pacific represent the earnings of the Central Pacific? A. All that I know about it is that at the time they were declaring those dividends, their annual reports, as published in Poor's Manual, and in the " manual" containing the reports of its officers, showed that they earned enough to pay those dividends.

Q. Is it not true that more dividends have been declared since the passage of the Thurman act than at any time prior thereto? A. The Thurman act was passed in 1878 ; I think that the road commenced to pay dividends in 1873 or 1874, and then they stopped fora while. After they resumed, I think they paid up to 1882.

The CHAIRMAN. They paid up to 1884.

Commissioner ANDERSON. I think it was 1883.

The CHAIRMAN. A dividend was declared February 1, 1884.

The WITNESS. It is a mistake to say that they declared any dividend for 1884.

ALFRED A. COtiEN. 2405

The CHAIRMAN. February 1, 1884, a dividend of $1,778,265 was declared.

The WITNESS. That is a mistake. They did not declare any dividends in 1884.

The CHAIRMAN. 1 have it from the reports.

The WITNESS. It must be a mistake, for I think no dividends were declared in 1884.

Commissioner ANDERSON. Look at the report of 1884 and see what it says.

NO DIVIDENDS DECLARED FOR FOUR YEARS.

The WITNESS. It says that a dividend was paid February 1, 1884. That is, paid from the earnings of 1883. I know that they were not earning dividends in 1884.

Q. If that be true, is it a just conclusion that the prosperity of the road, so far as its financial standard is indicated by the payment of dividends, has been interrupted by the passage of the Thurman act? A. This dividend to which you refer me was paid from the earnings of four years ago. The company has declared no dividends for four years, and then you must remember they had income from the non-aided and leased lines.

Q. They declared dividends in 1883, 1882, 1881, and 1880, did they not? A. Yes. But in 1884, 1885, 1886, and 1887 no dividends were declared.

EFFECT OF THURMAN ACT ON EARNING CAPACITY.

Q. I am taking the periods prior to the passage of the Thurman act and subsequent thereto. If the declaration of dividends is an indication of the financial prosperity of the road, can you conclude that the passage of the Thurman act has interfered with the earning capacity of the road? A. I cannot say that I have been sufficiently in the confidence of the directors to enable me to say why the dividends were declared; but it may have been that at the time the stock began to be put upon the market they commenced to pay dividends to help its sales. I am very well satisfied that the property of the road and its earning power, and everything else pertaining to its success, were very much impaired by the legislation contained, in what is known as the u Thurman act." It is a little too voluminous a subject to discuss in answer to one question. But if you will take the traffic reports and the mode of distributing the earnings, and what they paid the Government, and compare it with the distribution of their earnings for years before, you will find my conclusion to be correct.

VALUE OF BONDS OF SOUTHERN PACIFIC.

Q Was not the " Thurman act" a mere preparation for the maturity of the bonds? A. These men had started, as I understand, to make a sinking fund of the bonds of the Southern Pacific Railroad Company of California at ninety cents on the dollar. Those bonds to-day are worth one hundred and fifteen, paying interest right along, and will, no doubt, be worth one hundred and twenty in a little while, and will have to be redeemed at one hundred and twenty, if redeemed before maturity. Instead of allowing them to handle a sinking fund as any other solvent man would be allowed to handle it; instead of allowing them to put in the liens of their own road at a low rate, as they proposed to do, you force them to pay money in, which was taken out of their earnings from time to time, and which was invested in some bonds of the Government which

2406 U. S. PACIFIC RAILWAY COMMISSION.

had to be purchased in the open market at a high premium, so that the money put into the sinking fund is less to-day by three quarters of a million, according to my recollection, than the amount of money paid in. You took the earnings from them, and exhausted three quarters of a million of them in buying your own bonds to create your own sinking fund. I want to call your attention, as business men, and as intelligent men really as a matter of business to the way in which these men have been treated; and to the unintelligent way in which their business has been handled by those having Government control. I know that I would not treat any debtor of mine in that way if I expected him to pay me.

EFFECT OF CONSTRUCTION OF SOUTHERN PACIFIC ON UNION PACIFIC.

Q. What effect had the construction of the Southern Pacific road upon the Union Pacific? A. Well, the Southern Pacific undoubtedly takes some business which might otherwise go by the Union Pacific; or, if not by the Union Pacific, by the Atlantic and Pacific, or by the Texas and Pacific. I wish to state to the Commission, however, that when the Southern Pacific was started, recognizing the fact that these roads were intended to be operated as one, and having due regard to the interests of the Government as a creditor .of the Union Pacific, an offer was made to the Union Pacific people Mr. Dillon and Mr. Gould to let them in on the construction of the Southern Pacific upon equal terms, dollar for dollar, without any bonus, and that they refused. They did not believe that the Southern Pacific could hurt the Union Pacific. I think that you should bear this in mind : If the owners of the Central Pacific had not the control of the Southern Pacific, if the control of the latter road had been in adverse hands, the condition of the Central Pacific would have been very much worse to-day than it is, and the position of the Government would have been a great deal worse. The same is true of the Union Pacific. It has had its share of all the business which the Southern Pacific has thrown into the hands of the Central Pacific.

EFFECT OF CONSOLIDATION OF CENTRAL AND SOUTHERN ON UNION

PACIFIC.

Q. Has not the effect of the union of the Central and Southern Pacific been to divert a large portion of the traffic from the Union Pacific over to the Southern Pacific? A. I have fully explained what I mean in this regard. Some of it has been diverted, but not so much so as would have been the case had the Southern Pacific been in any other hands than those of the managers of the Central Pacific. I am about used up, gentlemen. I have given you all the time I can very well afford this morning.

Commissioner ANDERSON. We will be here thirty days. Will you be back within that time u?

The WITNESS. Oh, yes ; but if you want anything more I will give you any time you want in New York. I shall be in New York the 1st of October. Or, if you want me here to-morrow, I am willing to come. If not, I will read this over and see what I want to correct.

Commissioner ANDERSON. We hope to ask our last question before the 1st of October.

The CHAIRMAN. Can we hear you to-morrow at some hour?

The WITNESS. I can be here to-morrow at 10.30. 1 want to go away Saturday.

ALFEED A. COHEN.

ARTICLES OF CONSOLIDATION. 2407

ABSTRACTS OF VARIOUS ARTICES OF CONSOLIDATION.

Commissioner ANDERSON. Mr. Miller has left with me the different articles of consolidation produced yesterday, from which we will take extracts.

The following are extracts from the various articles of consolidation :

Articles of consolidatian between the Western Pacific Railroad Company and the San Francisco Bay Railroad Company, dated October 28, 1869, containing a recital of the organization and construction of these two railroads, of their conclusion to consolidate.

They contain six articles.

The effect of these articles is to consolidate all the capital stock and all of the property and franchises of the respective corporations into a new corporation, which is declared to be the Western Pacific Railroad Company.

The terms of the consolidation are that the respective stockholders in each of the constituent companies shall hold equivalent amounts of stock in the new corporation.

The stock of the new corporation is fixed at $10,400,000, and the length of the. consolidated road is stated to be about 223 miles.

The new corporation assumes all liabilities of the constituent companies.

The articles of consolidation are signed by Leland Stanford as president and E. H. Miller, jr., as secretary of the Western Pacific Railroad Company, and by Leland Stanford as president and by E. H. Miller, jr., as secretary of the San Francisco Bay Rai Iroad Company.

The consent of iriore than three-fourths in value of the stockholders in the respective companies is annexed and the signatures thereto are as follows :

nance Company, by C. Crocker, president ; C. H. Cuminings.

The stockholders of the San Francisco Bay Railroad Company are as follows : Leland Stanford; C. Crocker; E. B. Crocker, by C. Crocker, attorney in fact ; Mark Hopkins ; C. P. Huntington, by Mark Hopkins, attorney in fact ; E. H. Miller, jr.; Contract and Finance Company, by C. Crocker, president ; Jerome Madden; B. B. Redding ; W. E. Brown, and D. A. Bender.

The articles of consolidation between the California and Oregon Railroad Company and the Tuba Railroad Company bear date the loth day of December, 1869.

The terms of the consolidation are to the effect that the shareholders of each of the constituent companies shall receive a number of shares in the consolidated company equal to the number of shares held by them, respectively^ in the old companies.

The stock of the new corporation is fixed at $15, 000,000, and its term of existence at fifty years.

The new company succeeds to all the property and franchises of the old companies and assumes all of their obligations.

The first board of directors of the new company is declared to consist of the following persons: Lelaud Stanford, -C. P. Huntington, Mark Hopkins, E. B. Crocker, Charles Crocker, E. H. Miller, jr., and A. P. Stanford.

The articles are signed by E. H. Miller, jr., as secretary of the California and Oregon Railroad Company. A corresponding instrument is executed by the Yuba Railroad Company.

Articles of association betiveen the Central Pacific Railroad Company of California and tht Western Pacific Railroad Company bear date June 22, 1870.

The articles contain a recital of the organization, construction, and operation of the constituent roads and of the preceding consolidation between the Western Pacific and the San Francisco Bay Railroad Company, and the articles of consolidation provide, substantially, that the new corporation shall succeed to all the property and franchises of the constituent corporations and shall assume all of their obligations ; that the stockholders in the new corporation shall hold an equivalent amount of stock to that which they held in the constituent companies ; and that the new corporation shall be known as the Central Pacific Railroad, which shall exist for fifty years.

The first board of directors is declared to consist of Leland Stanford, C. P. Huntington, Mark Hopkins, Charles Crocker, E. B. Crocker, E. H. Miller, jr., and A. P. Stanford.

2408 U. S. PACIFIC RAILWAY COMMISSION.

The length of the road is stated to be about 1,000 miles, and its capital stock is fixed at $100,000,000.

The articles are signed by Leland Stanford, president, and E. H. Miller, jr., secretary, for the Central Pacific Railroad Company of California, and by the same parties as president and secretary, respectively, of the Western Pacific Railroad Company.

Annexed to the articles are the consents of more than three-fourths of all the stockholders of the respective companies.

The stockholders of the Central Pacific Railroad of California, whose names are appended to the consent, are as follows : Leland Stanford, Charles Stanford, by Leland Stanford, attorney in fact ; Mark Hopkins, C. P. Huntington, by Mark Hopkins, attorney in fact; C. Crocker, E. B. Crocker, by C. Crocker, attorney in fact ; E. H. Miller, jr., C. L. Scndder, A. P. Stanford, by Leland Stanford, attorney in fact; B. R. Crocker, D. O. Mills & Co., Albert Gallatin, W. R. S. Foye, C. H. Cummings, J. E. Hollister, Julius Wetzlar, J. S. Friend, Friend & Terry, W. E. Terry.

The stockholders of the Western Pacific Railroad Company, whose names appear subscribed to the consent, are as follows : Leland Stanford, Mark Hopkins, C. P. Huntington, by Mark Hopkins, attorney in fact; C. Crocker, E. B. Crocker, by C. Crocker, attorney in fact: E. H. Miller, jr., A. P. Stanford, by Leland Staufordj attorney in fact, and C. H. Cummings.

Articles of association between the San Francisco and Oakland Railroad Company and the San Francisco andAlameda Railroad Company bear date June 28, 1870.

They recite the organization, construction, and operation of the respective roads. The articles are substantially that the new company shall succeed to all the property and franchises, and shall assume all the obligations of the old companies. The stock of the new company is fixed at $2,000,000.

The stockholders of the old companies are declared to be entitled to receive amounts of stock in the new company equal to the amounts held by them in the old companies. Tho name of the new company is declared to be the San Francisco, Oakland and Alameda Railroad Company.

The length of the road of the new company is declared to be about 25 miles.

The articles of association are signed by the boards of directors of the respective companies, and are: Alfred A. Cohen, president; D. O. Mills, W. C. Ralston, F. D. Atherton, and D. P. Barstow, directors of tfce San Francisco and Oakland Railroad Company ; and by F. D. Atherton, John Hewston, jr., E. B. Mastick, and Alfred A. Cohen, as directors of the San Francisco and Ala.meda Railroad Company.

The consents of more than three^fourths of the stockholders are annexed, being for the San Francisco and Oakland Railroad Company: A. A. Cohen, D. O. Mills, W. C. Ralston, F. D. Atherton, D. P. Barstow ; and by the following as stockholders of the San Francisco and Alameda Railroad Company : F. D. Atherton, A. A. Cohen, E. B. Mastick, John Hewstou, jr., and Leland Stanford.

The four parties first named signed for 5 shares 'each, and the last named for 14,985 shares.

Articles of association betioeen the Central Pacific Railroad Company, the California and Oregon Railroad Company, the San Francisco, Oakland and Alemeda Railroad Company and the San Joaquin Valley Railroad Company bear date August 20, 1870.

These articles recite the organization, construction, and operation of the constituent roads and contain articles of association as follows :

The new company is declared to be the Central Pacific Railroad Company.

It succeeds to all tiie property and franchises and assumes all the obligations of the constituent companies.

The board of directors was declared to consist of the following-named persons : Leland Stanford, William E. Brown, Mark Hopkins, C. P. Huntiugton, Charles Crocker, Edward H. Miller, jr., and Charles H. Cummings.

The capital stock is declared to be $100,000,000, and the company is to exist for fifty years. Each stockholder of each of the constituent companies shall have the same number of shares of the capital stock of the new corporation which he holds of the capital stock of the respective companies.

The articles are signed by Leland Stanford, as president, and E. H. Miller, jr., as secretary, of the Central Pacific Railroad; by Leland Stanford, president, and E. H. Miller, jr., secretary, of the California and Oregon Railroad Company ; by Alfred A. Cohen, president, and H. Lacy, secretary, of the San Francisco, Oakland and Alameda Railroad Company ; by Leland Stanford, president, and E. H. Miller, jr., secretary, of the San Joaquin Valley Railroad Company.

The consents of more that three-fourths of the stockholders of the respective companies are attached.

WILLIAM H. MILLS. 2409

The stockholders of the Central Pacific Railroad Company are as follows : Leland Stanford, Mark Hopkins, C. P. Huntington, by Mark Hopkins, attorney in fact ; C. Crocker, E. B. Crocker, by C. Crocker, attorney in fact ; W. E. Brown, E. H. Miller, jr., and C. H. Cummings.

The stockholders of the California and Oregon Railroad Company, whose signatures are attached to the consent, areas follows: Leland Stanford, Mark Hopkins, C. P. Knntington, by Mark Hopkins, attorney in fact ; C. Crocker, E. B. Crocker, by C. Crocker, attorney in factfE. H. Miller, jr., and B. B. Redding.

The stockholders of the San Francisco, Oakland and Alameda Railroad Company whose names are attached to its consent are : Alfred A. Cohen, D. O. Mills, F. D. Atherton, D.P. Barstow, and W. C. Ralston.

The stockholders of the San Joaquin Valley Railroad Company whose names are attached to its consent are: Leland Stanford, Mark Hopkins, C. P. Huntingtou, by Mark Hopkins, attorney in fact ; C. Crocker, E. B. Crocker, by C. Crocker, attorney in fact; E. H. Miller, jr., B. B. Redding, and C. H. Cummings.

OFFICES OF THE CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, CaL, Wednesday, July 27, 3 887.

Afternoon session.

WILLIAM H. MILLS, being duly sworn and examined, testified as follows :

By the CHAIRMAN :

Question. What is your business? Answer. As connected with the road, I am the land agent.

Q. How long have you been connected with the road? A. I was appointed land agent on the 1st day of January, 1883.

Q. What relations did you hold with the road prior to 1883? A. Ko relation with the road as an employe.

DUTIES OF LAND AGENT.

Q. How long were you connected with the road prior to 1883? A. I was not connected with it as an employe' prior to that time, nor in any other way.

Q. Was the date of 1883 your first connection with the road in any capacity ? A. Yes, sir.

Q. What were your duties at that time, and what are they now?

The WITNESS. As laud agent 1?

The CHAIRMAN. As land agent?

The WITNESS. I have general charge and supervision of the lands granted by the Government in aid of the construction of the road.

B. B. REDDING'S ADMINISTRATION.

Q. Who was your predecessor in office? A. Mr. B. B. Eedding.

Q. How long was he connected with the land department? -A. Mr. B. B. Bedding's connection with the land department, I think, dated from the very beginning of the grant. I think it was about 1866. That is only from recollection, of course. I was not in a position to know or to answer that question really anyhow.

Q. Where is Mr. Bedding now? A. Mr. Bedding is dead.

Q. How long has he been dead? A. Mr. Bedding died in the summer of 1882, some time, I think, in June or July of 1882. t

Q. Were you appointed or selected to fill the vacancy caused by his death? A. Yes, sir; there was an interregnum in the office of land

2410 U. S. PACIFIC RAILWAY COMMISSION.

agent from that date until the date of my appointment from the date of his death to the date of my appointment the office being conducted by clerks and a deputy who had been in the office since the beginning of the administration of the office.

Q. What are you paid by the company? A. I am paid a salary.

Q. What is the salary? A. The salary is $7,000 a year.

Q. How many clerks have you? A. Six clerks besides the field agents.

BOOKS OF LAND DEPARTMENT.

Q. What books do you keep?

The WITNESS. Personally, do you mean?

The CHAIRMAN. Yes, sir.

The WITNESS. None whatever.

Q. What books does your department keep impersonally I am speaking, altogether?

The WITNESS. Oh, you are speaking of the department?

The CHAIRMAN. Yes.

The WITNESS. We keep the tract books, which exhibit the lauds granted. We keep all the maps and all the delineations of the land grant. We keep the plots of townships, the accounts of sales and of leases, the accounts of sales of timber lands, of lands where the timber is granted and the land is not granted, which is the case within ten miles of the road if the land is mineral. We keep accounts of all matters and things relating to the land department and to the lands granted. I also keep all accounts between the Government and the railroad company in the way of lists of selections.

Q. Have you named all the books which your department keeps? A. Yes 5 I guess that would include all that is, in categories I have not named the specific books in which the accounts are kept. But we keep all books which are necessary to be kept relating to leases, and all books necessary to be kept relating to sales, and to the balance of the principal due upon lands sold upon credit, and all the tract books which exhibit the lands granted, showing the tracts of lands.

AMOUNT OF LAND PATENTED AND DISPOSED OF. '

Q. How many acres of land has the company patented to date? A. My recollection is that on the line of the Central Pacific Eailroad 1,039,710.59 ; and on the line of the California and Oregon there are, 1 think, 1,340,000 to 1,350,000 acres patented to the company. There are some odd figures besides.

Q. How many acres of patented land has the company disposed of? A. On the Central Pacific there are patented and for sale to-day I am speaking merely from recollection now 345,000 acres ; on the California and Oregon there are about 275,000 acres. My general recollection is that there are patented and for sale in the two grants, in round numbers, 600,000 acres.

Q. And the difference between 600,000 acres and the number of acres patented have been disposed of? A. Would represent the sales ; yes, sir.

AMOUNT APPLIED FOR AND UNPATENTED.

Q. Upon how many acres of land has the company applied for patents for survey ?

The WITNESS. Applied for altogether, do you mean I The CHAIRMAN. Yes, sir.



WILLIAM H, MILLS. 2411

The WITNESS. On the main line?

The CHAIRMAN. On the main line I speak of specially now.

The WITNESS. On the main line the excess of applications over the patents is 622,000 acres and some hundreds. I do not remember the hundreds, I only remember the even thousands. On the California and Oregon line the ex cess of applications over the patents amounts to 400,000 acres, perhaps a little more. I know that the aggregate of applications by the company for patents in excess of the response of the Government is a little over a million of acres.

HOW APPLICATIONS ARE MADE.

Q. How long have the applications been on file in the Department? A. That question cannot be answered, Mr. Chairman, in the manner, perhaps, that you think it can. I will give you the information and then you will see the difficulty of answering the question. Applications are made for patents by listings, that is, a list of selections is made. The company must first select the land, claiming that it was granted. Those lists of selections are examined by the registers and receivers in the land district in which the land is located. That examination results in making what is called a clear list, or clearing the land to the company. When the registers and receivers have decided that the land is clear to the company the company pays the costs of the surveying, selecting, and conveying, as required by law, and the list is forwarded by the register and receiver, it having been properly certified by the surveyor-general of the State that the fees have been paid to the General Land Office at Washington. From these lists clear lists are made in the General Land Office at Washington, and there has scarcely been a list sent from which there has not been some suspensions from the very first, for further examination, which examination has not in all cases been made.

SUSPENSIONS.

Now, when you ask the question, How long have these lists been before the Department at Washington for examination? it is quite probable that from the very earliest selections some suspensions were made for further examination, and that final decision in those cases has not yet been rendered. For* illustration, a list made early in 1882, prior to my administration of the department, comprised 126,000 acres. From that list 65,000 acres were suspended for further examination. That examination has been made in part by special agents of the Land Office at Washington, but patents have not been issued for it yet. Now, as to that list of 65,000 acres the figures of the acreage are on the books, and I speak generally, but that is about the proportion that land has not yet been patented. Therefore, as to that list, we might say that about 65,000 acres had been before the Department since May, 1882. And still behind that list there might be parts of lists of selections upon which the costs of surveying, selecting, and conveying had been paid and to which no response from the Government has been made in the way of patents.

EFFECT OF FAILURE TO MAKE SURVEY.

Q. Does the failure to make the survey retard the company in making the selections ? A. Oh, yes, sir ; very greatly.

Q. Why? A. It is because the application for the land, which is notice from settlers that they wish to settle upon the land and buy it? p B YOL iv 6

2412 U.'S. PACIFIC RAILWAY COMMISSION.

has been acted upon by us and we have directed our attention in all cases to dealing with such tracts as the settlers wish themselves to buy. You will understand that there is a very large quantity of un paten ted land in the possession of settlers who are very anxious to obtain their titles. They cannot borrow money on their holdings, and they cannot proceed with their improvements until they have a title that will an swer for collateral security, and they are very anxious to get titles. Now, to meet the requirements of settlers, we "have always addressed our attention and 1 see from the records of our department that that has been our custom from the first to obtain title to such land as people wish at once to occupy and improve and settle upon. The delay in making surveys, then, if people want to enter upon a particular section of country, is a drawback. People begin to notify us that they want to buy that land, and if that land is unsurveyed, of course we cannot give them a title to it.

METHOD OF MAKING SELECTIONS.

Q. Do you wait until you get a notice from a settler before you attempt to make any selection of the land? A. Oh, no, sir ; the selections have been made generally with a view of meeting and encouraging settlements. The difficulty in obtaining patents from the Government has been, from the first, such that there was no encouragement to urge upon the attention of the Department at Washington lists of selections, since those already before it had not been patented ; and therefore the effort has generally been made in the direction where settlement was proceeding, because to make lists of selections would be to facilitate its improvement. If it was just generally to simply open the country where there was no evidence of settlement, or no desire on the part of anybody to take possession of the land, we would interpose those lists between lists of land where we really desired to get patents ; that is, where the people desired that we should get patents.

POLICY OF COMPANY IN REGARD TO APPLICATIONS.

Q. Is not the effect of such a policy and failure to patent lands, especially in settled counties, to avoid on the part of the company the local taxation in counties?

The WITNESS. You speak now of a motive on the part of the company?

The CHAIRMAN. Of a policy of administration.

The WITNESS. If there had been such a policy in the minds of the directors I would have been notified of that policy. I have never been notified of the policy of withholding the applications. On the contrary, it has been urged upon me continually to get title to all the land we can ; that is, all the land that we can get in before the Department.

Q. Is not the effect, however, to place the tax on the land upon the settler at once, without subjecting the company to the local tax?

TO URGE THE ISSUANCE OF PATENTS.

The WITNESS. You mean, has that been the policy of the company?

The CHAIRMAN. Is not the effect of the policy which the company pursues with reference to the land what I stated?

The WITNESS. The policy of the company has been to urge upon the Government the issuing of patents. That has been its uniform policy. I cannot say what the effect of the policy would be> The effect of tlie

WILLIAM H. MILLS. 2413

policy of the Government in delaying to issue the patents has been to keep the people who occupy the land out of their titles and in a very unsettled and uncertain condition.

Q. Is not the effect of waiting for the settler to make application before the selection of land is made to place the local tax at once upon the settler by giving him the immediate title instead of the company taking the title'?

COMPANY INTERESTED IN TRANSPORTATION SIDE OF ACCOUNT.

A. The effect of taking title where there is a probability of the early use of the land is to accommodate L the settlement; the policy of making a general application wherever applications might be made would be to fill the Department at Washington with applications and lists of selections to the exclusion of lists of selections where the land would be likely to be needed by applicants for actual settlement. That would be the effect of that policy, and that effect would be disastrous upon the settlement of the lands and the opening up of the country immediately along the line of the roads. The company, of course, is very anxious to settle the land in such a way that there would be a large amount of money to the transportation side of the account. Here is an instance where the owner of the land is interested in the progress of the settlement. The land pays the company, perhaps, much better after it is settled than it does by the price of it. The income from a settled piece of land is a continuing source of revenue to the road and they are therefore very desirous of settling the land along the line of the road.

WHEN TAXES ARE DUE ON PATENTED LANDS.

Q. When are the local taxes due upon the lands that are patented? A. The taxes in California attach and become a lien on all property on the first Monday of March of each year. If the patents were issued prior to the first Monday of March in any year, it would be taxable. However, you will understand me that we have also possessory rights that in the State of Nevada possessory rights are taxable, and so they are in California. And it has been held that a possessory right is a taxable entity, as I understand it. I know it is so in Nevada.

LOCAL TAXATION THEREON.

Q. How much has the company paid upon patented lands in local taxation in the several counties through which it passes? A. The taxes of this company are managed and controlled by a tax auditor. I have no charge whatever of the taxation on land. There is a department which has charge of that matter. I have no figures on the subject, none whatever, nor have I any in my department.

Q. What is the name of the gentleman who has charge of that ! A. Mr. E. B. Kyan.

Q. Is he subordinate to you or under your control? A. No, sir; he attends to all tax matters relating to the company, and of course attends to the tax upon lands. And those figures can very readily be obtained at his office.

By Commissioner ANDERSON :

Q. He attends to the tax on the lands? A. Yes, sir; that is the only matter connected with the land over which I have no jurisdiction at all, I have no jurisdiction in that case at all,

2414 U. S. PACIFIC RAILWAY COMMISSION.

By the CHAIRMAN :

Q. Have you any tax accounts whatever connected with the land granted by the Governmet? A. The lists of lands patented to the company and subject to taxation are made up in my department each year and sent to Mr. Ryan's office, and that is the last I know of them.

Q. He can furnish that list to the Commission, with the amount of taxes paid to date? A. Oh, yes, sir ; he keeps all those matters separately.

AMOUNT OF ORIGINAL GRANT TO THE CENTRAL PACIFC.

Q. How many acres of land of the original grant are yet due to the Central Pacific Company? A. The grant to the Central Pacific Company at first, I find in the reports before I administered the department, was theoretical in quantity. It was made up by assuming that there was a grant of 12,800 acres to the mile. There having been a grant of twenty sections to the mile of 640 acres each, the amount would be 12,800 acres per mile. The theoretical acreage was, therefore, determined by multiplying the whole number of miles by 12,800 ac res, because that would be the quantity that would be granted ; but by reason of the sinuosities of the road there are a great many miles which get no land. If we take, for instance, in the vicinity of the mountains, where the road is very crooked, there may be 2 miles of road constructed upon one tier of sections. You are only making progress east and west in your land grant 1 mile to 2 miles of your road. The theoreticalq uantity, according to my recollection, is 9,000,000 acres on the main line.

REDUCED BY GOVERNMENT DELINEATIONS.

Q. That is the total amount? A. Yes, sir; but when the Government delineated the grant by fixing definite exterior limits, plats of which I can furnish you, with the certificate of the General Land Office; that is, the governmental delineation reduces the quantity to something like 7,500,000 acres, and from that there is another deduction to obtain the actual result. Now, we have dealt with the grant in California, and know pretty well just what we will get; that is, we have the materials upon which to form a judgment. Theoretically we obtained the result by multiplying the mileage by 12,800 acres, and it gives 1 ,992,000 acres for California. The Government delineation gives about 1,222,000 acres, while the actual result is 774,000 acres. Now, out of a grant of 1,992,000 acres, theoretically, the company will receive about 774,000 acres of patented land. That deduction arises from the fact that the delineation of the Government does not take into account the crookedness of the road ; it makes the general exterior limits almost straight ; that is, it follows the general course of the road. Within that delineation made by the Government there are about 1,222,000 acres.

By Commissioner ANDERSON :

Q. What would make the second deduction to 774, 000 acres? A. The second deductions are the subtractions from the grant, prior disposal, mineral lands, and the lands generally excepted out of the grant. The land was granted in categories.

By Commissioner LITTLER :

Q. Would you be allowed to go beyond the limits for the purpose of making good that grant? A. No? sir ; not upon the main line.

WILLIAM H. MILLS. 2415

THE CALIFORNIA AND OREGON GRANT.

If you are now referring to the California and Oregon grant, I will say that that was a grant of quantity and not a grant in place. That was a grantof 12,800 acres, to be found within 20 miles each side of the line, and if there was land lost in the odd-numbered sections of the lands granted, indemnifying lists were provided 10 miles on each side of the land granted for the purpose of indemnifying them for the loss in the granted limits. In that case below Redding, from Redding to Roseville, the company never acquired the full amount granted ; that is to say, there was not enough land in the odd-numbered sections both in the granted limits and in the indemnity limits to make the 12,800 acres to the mile, which was the quantity granted in that case. It was an absolute grant of quantity, amounting to 12.800 acres to the mile, but there was not enough undisposed of to satisfy the grant for that distance.

AMOUNT OF LAND DISPOSED OF.

By the CHAIRMAN :

Q. Will you please repeat how many acres of land, estimating to date, on the main line, the company has disposed of? A. The company has received on the main line

The CHAIRMAN. No; I say disposed of sold?

The WITNESS. Well, I can only do that, Governor, by subtracting. The company has received in patents on the main line 1,666,000 acres. There remains patented and unsold on the main line about 345,000 acres. If you will subtract one figure from the other you will see how much has been disposed of. The difference must have been disposed of, of course.

AMOUNT RECEIVED THEREFOR.

Q. How much money has the company received from the land disposed of to that date? A. I could not answer that question without examination ; that is, not anything like accurately. I might approximately.

Q. Will you approximate now, and then subsequently furnish the figures to the Commission? A. Well, there were bonds for $10,000,000, including the interest; there are several elements entering into the question of reduction of the bonded indebtedness. There was the interest account and the sale of stumpage, and there are various things of that sort. What you wish to arrive at, I presume, is what the land sold for.

The CHAIRMAN. I want to know how much money the Central Pacific has received from land disposed of to date on the main line.

The WITNESS. Approximately I should think, altogether from all sources on the main line?

The CHAIRMAN. Yes.

The WITNESS. Well, I would have to venture an opinion on that, because a segregation would have to be made. The fund is all kept as one. I would say $2,000,000.

Q. Will you furnish the Commission with an accurate statement of the sum received from lands disposed of? A. With pleasure. I will furnish the Commission any statistical facts derivable from my books, if the Commission will give me a list of the things which they wish.

VALUE OF LAND REMAINING UNDISPOSED OF.

Q. What do you estimate, as the land agent of the Central Pacific, is the value of the land on the main line undisposed off

2416 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. Patented and unpateuted?

The CHAIRMAN. Yes ; patented, or yet to be taken up. Allowing for the deductions which you have made, what do you, as the lanji agent, estimate to be the value of the land undisposed of along the main line of the Central Pacific?

The WITNESS. That is, the land that can be disposed of, excluding from that computation the money already obtained for the sale of land?

The CHAIRMAN. Yes.

The WITNESS. Well, I should estimate it to be $4,000,000. That estimate is very general. There will remain, after the present deductions, probably six millions of acres, or five and one-half millions of acres, in that grant.

SETTLERS INVITED TO GO UPON UNPATENTED LANDS.

Q. When you make a selection of land at the suggestion of a settler, do you allow him to go upon it at that time? A. Oh, the company invited settlers upon its lands from the very outset. That is, upon the uupatented lands of the company. You will understand that within the limits of the grant every alternate section granted would remain uuoc: cupied if the grant itself would constitute an obstruction to its settlement. To prevent the lands from being a displacement of settlement, the company at once invited settlers upon the unoccupied lands of the company. They invited them to take possession of the lands and cultivate them and live upon them, and they have done so, and they are doing so. There are scarcely any lands granted to the company that are not in the use of somebody to-day, and that have not been free from first.

LEASES OF UNPATENTED LANDS.

Q. Have you made leases with the persons using the lands? A. Only in a very few instances, and within the last eighteen months. Formerly leases were not made at all, except upon patented lands suitable for cultivation. Lands patented to the company and fit for cultivation were leased, but we did not charge the settlers anything for occupying the land.

Q. How many acres of land unpatented and selected by you have you leased as the land agent? A. Three or four hundred thousand acres, perhaps.

INCOME DERIVED THEREFROM.

Q. What income does the company derive from the leased lands selected and yet unpatented? A. Up to two years ago the company had never derived any benefit from leases of that kind. About two years ago I inaugurated a policy, owing to the destruction of the ranges in Nevada ; this was chiefly a matter in Nevada and Utah ; we have leased very little or no land in California. The sheep are very destructive to the pasture, and the cattlemen object very strongly to the lands being occupied by them. We have leased the lands as much as possible to cattle men, preferring that class of stock upon the lands to sheen, because sheep destroy the range. One lease was executed this year of 181,000 acres for $1,200 per annum, and there is a lease executed for 320 sections. These are the two largest leases, and comprise nearly all the land that is under lease. There are 320 sections for $10 a section. That is, $10 for 640 acres. The price is almost nominal ; $1,200 a year for 181,000 acres of land would be a very small rate per acre. A general lease was executed, and the entire territory of Utah embraced in

I

WILLIAM H. MILLS. 2417

it, to one individual, so as to distribute the leases among the people over there. That was about three years ago. 1 think that was perhaps the first lease of that kind that was made.

Q. What expense is the company put to either in taxation or the maintenance of lands selected and unpatented? A. The company is not put to any expense, unless it is necessary to protect the timber from depredations; in that case it is very expensive, 'in California the lands left to the company now are chiefly timber lands.

MAP OF LAND GRANT IN NEVADA.

Q. Did you issue a map concerning grazing land a year or so ago? A. We have issued a map of the whole grant in the State of Nevada ; yes, sir.

Q. What was the character of the map? A. Well, I will exhibit a copy of it here.

Q. Will you produce a copy of it to the Commission? A. Yes, sir.

Q. Did you issue an order in connection with the map? A. No, sir ; I do not remember of any order. I have issued a notice several times, requesting people to rent the lands, to lease the lands, so that they might have possession of them.

Q. Could you produce a copy of the map here now I A. Yes, sir.

(The witness sent for the map.)

COMPANY'S TITLE TO UNPATENTED LANDS RIGHT OF POSSESSION.

Q. How do you get a sufficient title to the land to warrant you in making your leases I

Commissioner LITTLER. That is, as to unpatented lands.

The CHAIRMAN. Unpatented lands.

The WITNESS. The court has decided recently in Utah that the right of possession of unpatented lands is in the company. That question arose in a case between the Promontory Stock Company as plaintiff against Adams and Schilling.

Q. What title does such possession give you? A. It gives us the right of possession ; that is to say, the ground.

The CHAIRMAN. I want to know the effect of such a title.

The WITNESS. Well, the effect of the decision iu that case was to give .judgment tor the restitution of the land. There was a quantity of unpateuted land in the possession of Adams and Schilling. The right to that land was sold to the Promontory Stock Company, and they brought suit for the restitution of the land for the right oi possession ; and the court decided that they had the right of possession. I have the decision of the court up-stairs in that case, and the charge of the judge to the jury, which sets forth the whole story.

Q. Will you produce that? A. Yes, sir 5 I have it printed in a little circular form.

- CONFIRMATION OF SALE TO PROMONTORY STOCK COMPANY.

Q. Do I understand you to say that the court in that case confirmed the sale to the parties? A. It confirmed the right of the company to the possession of the land.

Q. What is the name of the company? A. The Promontory Stock Company, but they were the grantees of the Central Pacific Railroad Company, so that it was a confirmation of the right of possession iu the Central Pacific Railroad Company,

2418 U. S. PACIFIC RAILWAY COMMISSION.

By Commissioner ANDERSON :

Q. And of the right to transfer that possession to the grantee'? A. Yes, sir; and I wish to say in that respect that if patents could be obtained with facility no measure of that sort would ever have been resorted to. But the patented land of the company has been in the possession of everybody without lease for years. We have 214,000 acres patented in the State of Nevada that have been in the free use of the people of that State for a great many years without rent.

TERMS OF LEASES.

By the CHAIRMAN :

Q. How long dp you make your leases? A. The leases are made for one year, with the privilege of sale. That is, they can be renewed from year to year, if the lands are not sold in the mean time. The leases more frequently than otherwise include patented lands. They include a large range of country. If you saw that country as you came over it you will be prepared to understand that it takes a large quantity of it to be useful to a herdsman. It is leased in large ranges ; lands convenient to water.

Q. What is the length of the term of your large that leases you spoke of two or three years? A. One year.

(The map already referred to was here produced.)

DIVISION OF NEVADA LANDS INTO GRAZING RANGES.

The WITNESS. Here is a map of the grant of lands in Nevada. There is a good deal of green on the map.

The CHAIRMAN. I call your attention to the order signed by you dated July 31, 1885, and printed upon this map, of u Lands granted by the United States to the Central Pacific Railroad Company in the State of Nevada." That order states :

Hereafter land belonging to the Central Pacific Railroad Company in Nevada be sold only in grazing ranges. The grant -Las been divided into ranges as set forth below. The ranges will be sold or leased to stockmen on easy terms. The attention of stockmen in Texas and Wyoming is respectfully called to these ranges and the liberal terms upon which they may be secured.

Will- you please state to the Commission why a special description and division of the land was made by the company and by your order into grazing ranges?

THE REASON OF SUCH DIVISION.

The WITNESS. It was because the sale of land immediately contiguous to water destroys the use of the land lying behind that water. If you look upon this map you will see that it is divided into ranges, that is, approximating somewhat the water. There, for instance, is water through that range, and here is some water in this range. The lands granted to the company, if they are ever to find sale, must have the use of water. To begin with, this land will find its highest use for hundreds of years to come in grazing. It is distinctively grazing land. Nearly all the land left now to the company is grazing land or timber land. There is some foot-hill fruit land left. The former practice was to sell land in 160 or 640 acre tracts. Some lands of the company were sold along the margin of streams by 40-acre tracts. The order that you see there, that is, the notice that you see on the map, was that all the land used by a herdsman must be purchased by him. They used these ranges. This whole territory is in free use now except as to the two in

WILLIAM H. MILLS. ' 2419

stances of leases that I spoke of, one of them here in the eastern end of the grant and the other about the middle of the grant, with some minor exceptions, as for instance where a single section has been leased to a herdsman. So the order was given that hereafter the lands would be sold only in ranges, because in that way only can the lands be disposed of. If the water necessary to the profitable use of the range is sold it is the equivalent of conferring upon the purchaser of that water the perpetual use of the land without purchase. This is just what the Government of the United States does all the time.

AREA OF RANGES, AND WHAT THEY ARE GOOD FOR.

Q. Are the numbers from 1 to 28 upon the map descriptive each of range I A. Yes, sir. That is, they are intended to be generally descriptive of a range. The whole grant was divided into ranges from 100,000 acres up, and some of them containing 200,000 acres.

The CHAIRMAN. I observe that the ranges grade from 30,000 acres to 600,000 acres?

The WITNESS. Yes.

Q. Is not the effect of that to virtually or entirely exclude from this territory granted to you by the Government and designated by you as grazing land, all settlers except those who are engaged in the grazing business and able to purchase a range of from 30,000 to 600,000 acres? A. The class you speak of have been excluded since the settlement of the country. They are excluded by the character of the country itself. They are excluded from the fact that the most of that territory is at such an altitude that there is frost every month in the year. The lowest place on that grant is 3,300 feet above the level of the sea, while it rises in some instances to nearly 6,000 feet. The annual rain-fall of the country, including the snow is 2J inches of water. It is therefore an arid country, under a high altitude, with very cold winters. For the most part, in the eastern portion of the grant, the thermometer goes down to 20 and 25 degrees below zero. It is not in any sense of the word an agricultural country.

THE WATER " BODIED UP" UNDER LAW OF NEVADA.

That policy was also forced upon the company for another and a very important reason. The State of Nevada had a grant of the sixteenth and thirty-sixth sections for school purposes. The Government of the United States took that grant back and issued in lieu thereof scrip to the amount of 2,000,000 acres of laud, authorizing the State to dispose of that land as it saw fit. The legislature of the State allows the land to be taken in 40-acre tracts. The purchasers of that land purchased the land lying contiguous to water. The State inaugurated a system which, as they characterize it in that country, " bodied up " the water in such a way as to give its exclusive use to the purchaser of lands lying contiguous to water. That policy, being pursued by the State of Nevada, produced a corresponding policy upon the company, because purchasers of lauds in that State could buy this floating scrip of the State and could body up the water in that way. They " bodied up 77 the even sections within the limits of the railroad grant, and they " bodied it " solid outside of the limits of the railroad grant. It was a plain recognition upon the part of the land authorities of the State of Nevada that the country was distinctively a grazing country. And while agriculture has been prosecuted there, under irrigation, in the lower part of the grant, from the Humboldt House particularly down,

2420 U. S. PACIFIC RAILWAY COMMISSION.

and while there are large quantities of laud in Hurnboldt County which, if capital could be induced to take the water out, might be raised to a very considerable state of productiveness and induce a very considerable agricultural interest, yet there are other portions of the Pacific coast so much more productive that capital is not likely to be attracted that way.

BUT TWO LAEGE SALES MADE IK NEVADA.

Q. How many ranges designated on the map that you have produced have -been disposed of by lease or otherwise? A. There have been but two large ranges sold in the State of Nevada. That is, in any considerable quantity. There was one of 30,000 acres and one of 31,000 acres. Those two are the only sales I recall now there may be others. There htove been two large leases executed in that State.

I wish to say to the Commission that these ranges are not arbitrary by any means. An individual can buy all the land in the township. The announcement there is simply the declaration that the old policy of selling water, that is, selling 160 or 640 acres of land on the water, would not be any longer pursued. It was a declaration that the man must buy a sufficient quantity of land lying back of the water so that he would divide the water (water being indispensable to the use of the laud) into something like fair proportions, so that lands contiguous to water would not be purchased in such a way as that the lands lying behind it would be wholly unsalable. If the compauy was to ever realize anything from its grant, that was the only policy to be pursued. That 600,000 acre range is right there before Mr. Anderson, and comprises very largely the White Plains and Humboldt Desert, and 40 miles of desert, along through that region. We put it in a large tract there because at least 550,000 acres of it has no grass on it.

SEEMING DISCREPANCY WITH REPORT FOR 1882.

Q. Will you please explain to the Commission the difference in your statement, or the seeming difference in your explanation just made, and the report furnished by you in the year 1882?

The WITNESS. 1883.

The CHAIRMAN. Memorandum relating to bond-aided roads. You place the agricultural land in Nevada and Utah at 2,000,000 acres !

The WITNESS. Is that my report of 1883?

Mr. NORRIS. Report dated January 1, 1883, for 1882.

The WITNESS. I wish to state to you in regard to that report that I came into the department, as I have already stated to you, on the 1st of January, 1883. My predecessor had died during the year 1882. This report was derived chiefly from statements made to me by the gentlemen in charge of the office as to quantities of land and things of that kind. Immediately after taking possession of this office I was sent to Washington and New York by the company on other business, and I did not return so as to resume my duties in the land office until the 1st of April. This report was written in June. They notified me that I must make a report for the year 1882 of the office I had administered. That is, taking it up to July, I never had administered any part of the department for that year. You will observe I came into office, I went to Washington, and I resumed business here on the 1st of April, 1883. When I was notified that a report of th at kind was to be made I took the reports of former years that had been made by my predecesaor, called the gentlemen in who had been connected with the depart

WILLIAM H. MILLS, 2421

ment from the first, and taking such general statements as might be derived from their knowledge and recollection and having the general pattern of the reports that theretofore had been made, I made the statements that appear there. Now, following that, you will find that all reports of my department are entirely devoid of any statement concerning the segregation of that land into agricultural, grazing, or timber land.

NO DESCRIPTION OF LAND IN REPORTS.

Q. Did you attempt in your report of the subsequent year, or the year 1885, to make any description of the land?

The WITNESS. My report is before you, is it not?

The CHAIRMAN. I am asking you the question. I ask you to look at the report ibr the year 1885, and say whether you attempted any description of the land.

The WITNESS. It appears not, from this report.

Q. What other report can you produce, at any subsequent period, in which you divide the number of acres of land into agricultural and mineral or otherwise in the lands granted by the Government? A. I have made no other report to the company than such as are published in its annual reports.

VALUE OF UNSOLD LANDS ON MAIN LINE.

Q. I call your attention to the annual report of the Central Pacific Eailroad Company for the year ending December 31, 1885, under the heading of " Assets," and ask you to please explain the item, "Lands unsold estimated value, $24,000,000," with the estimate of value that you have given to the Commission, of $4,000,000. A. That was on the main line, if you please. I made the estimate of $4,000,000 on the main line and did not include the California and Oregon ; that is not in any respect my work.

THE CALIFORNIA AND OREGON GRANT.

By Commissioner ANDERSON :

Q. What is your valuation of the California and Oregon, so that we can gauge the difference between the two estimates? A. The value of the California and Oregon grant is much greater than that on the main line. There are about 1,400,000 acres in suspension, north of Eedding Junction, awaiting adjustment. That is my general estimate. That land is worth perhaps an average of $2 to $2.50 an acre. There are nearly 300,000 acres unsold in the California and Oregon grant. Some of that land is quite valuable, as timber laud, and will become valuable as timber lands come to be demanded. It is worth perhaps $3 an acre now, but the valuation upon these lands I have noticed 1 am speaking now simply of what I have seen of the valuation in these reports is based upon the price that the Government asks for lands within the limits granted to the railroad companies. It is the double minimum which the Government, fixes as the price of lands that alternate with lands granted to a railroad. It is an estimate derived from multiplying the whole number of acres by $2.50, I presume.

VALUE OF AGGREGATE GRANT.

Q. As tested by your judgment of what can ultimately be got for these lands, do I understand that the estimate of $24,000.000 is entirely

2422 U. S. PACIFIC RAILWAY COMMISSION.

inaccurate? A. My judgment is that the estimate of $24,000,000 is too high, having been ascertained by multiplying $2.50 for every acre of land within the grant. The 4,000,000 of acres of land in the^State of Nevada are not salable at $2.50 an acre, and never will be.

By the CHAIRMAN :

Q. How much is the asset of $24,000,000 upon the page before you, depreciated in comparison with the actual value of the same asset " land unsold"? A. Well, 1 presume that the lands remaining to the company might be placed at ten or twelve millions of dollars, fairly $12,500,000, including the lands in Nevada and Utah.

Q. Then the asset of $24,000,000 is just $12,000,000 too much as an asset of the Central Pacific Eailroad Company, of "lands unsold?" A. According to the rules of arithmetic.

ANNUAL REPORTS.

Q. Do you make annual reports? A. Yes, sir.

Q. To whom do you report $ A. To Governor Stanford, as president of the company.

Q. Will you furnish the Commission with a copy of your reports during your term of office and your predecessors 7 term? A. Yes, sir ; if I can find them. I can furnish you my own, I know. There are some other statistical matters that have been referred to here that perhaps ought to be tested by the actual facts. I have stated a great many things from memory.

The CHAIRMAN. In each case I have for the present taken your estimate, and will ask you to produce the actual figures in the form of a statement. I only wanted to get the approximate figures at present. I understand you to say that you have not in your department any tax account I

The WITNESS. No, sir.

GOVERNMENT LAND GRANT THE ONLY ONE.

By Commissioner LITTLER :

Q. Did this company ever acquire additional lands from any other source than the United States Government If A. No, sir.

Commissioner ANDERSON. You mean as a gift. They have purchased land for terminal facilities.

Q. They have had no local land grants within the State? A. No, sir. The sovereignty of the soil over which they pass belongs to the General Government.

Q. You mean their land has been derived from the Government? A. Of course. And the sovereignty of the soil is in the Government in the States and Territories through which the line passes.

Q. I understand ; but in some cases the States have lands, and I did not know but that the State of California had fooled away its grant in that respect to the company. A. No, sir ; the State of California has managed its land grant excellently well, in my judgment.

NO PURCHASES OF MINERAL LAND BY THE COMPANY.

By the CHAIRMAN :

Q. Have you purchased any mineral lands for the company? A. No, sir.

Q. Have any purchases been made, or have any entries upon mineral lands in the names of individuals been made for the use of the com

WILLIAM K. MILLS. 2423

pany? A. Not that I am aware of. Nothing of the kind has ever been done through my department. Mineral lands are not a desirable kind of land to own in this country.

TITLE TO WYOMING COAL LANDS. By Commissioner LITTLER :

Q. How did the Central Pacific acquire title to its coal lands in Wyoming? A. I have no knowledge upon the subject. By purchase, I presume.

Q. To what sources can you refer us for information on that question? A. My judgment would be that Secretary Miller would be good authority in that matter. Will you permit me to exhibit this map to you before you ask me any further questions?

Commissioner ANDERSON. Certainly.

DESCRIPTION OF THE LAND-GRANT MAP.

The WITNESS (referring to the map). There is the land grant in California. All the lands in red have been disposed of by the company. All the lands in green have been disposed of by the Government. These lands [indicating] were Spanish grants. You will see that from Sacramento out, for a considerable distance, there was a very small grant of land obtained. The lands marked yellow are mineral ; that is, they are denominated " mineral" by the United States surveyors-general. All these checks on them have been applied for; that is the cost of selecting and surveying have been paid and the lands are before the Department at Washington to be patented. Lands with a circle around them are unsurveyed, and therefore unavailable in any way. The only part of the grant in the State of California that we have not tried to get title to is a little spot there [indicating], embracing about ten or twelve thousand acres. All these red lands are patented and sold ; the blue lands are patented and for sale. All the lands colored green were disposed of by the Government by homestead or preemption or by prior appropriation, before the rights of the company attached. Lands colored in yellow are mineral lands. All that remains of this grant to be dealt with at all is a small space there [indicating] .

Q. A small place in the northeast? A. "Yes, sir. Now it is from this map that I obtain materials for my statement that the grant in California will yield the company but 774,000 acres, and you can see that we have here the data from which such an estimate- might be safely made. I have made that estimate since the Commission has been in session here the estimate of the number of acres that we can get.

MINERAL LAND.

By the CHAIRMAN :

Q. What effect would a selection of land, leased by you before it was patented, have upon the discovery that it was mineral land and that you were not entitled to it under the law? A. Well, if we had leased a piece of land and we were not entitled to it, I suppose that the party who had paid the lease money would be entitled to recover or entitled to a rebate.

Q. Do you make any conditions upon selected lands, unpatented, for any discovery in the future of minerals? A. No, sir; that is not necessary. We have never leased, that I know of, any land in the mineral regions of California. We have made but very few leases, and those

2424 U. S. PACIFIC BAIL-WAY COMMISSION.

very small, in the State of California. The leases that I spoke of have been in Utah and Nevada. The discovery of minerals has been one of the sources of loss to the company by reason of the tardiness of the Government to give us patents. The company was interested in getting its title as early as possible in consequence of that. Your questions have frequently gone to the general subject of a supposition that the company has avoided taking title to its land to avoid taxation. The one item alone of loss of lands in consequence of the discovery of minerals would have paid all the taxes that ever could have been assessed against the company if the whole grant had been taxable from the start. The decisions of the courts, upon lands patented to the company before valuable mineral deposits are known to exist, are that the mineral passes with the patented land, but if the mineral is discovered prior to the issuing of the patent the land is lost to the company, and that extension of discovery has lost in value more to the company, a great deal more than the taxes would have amounted to.

AVOIDANCE OF TAXATION ON LAND.

Q. As a business proposition, if you could have conveyed your title at once upon the issuance of the patent, would you not, to that extent, have avoided local taxation in the county in which the land was located? A. If I understand the question it amounts to this, that if the land was unpatented and not taxed we would have saved the tax.

The CHAIRMAN. Certainly.

The WITNESS. But if, by reason of failure to take the title, mineral discovery should aifect the land we would lose the land.

The CHAIRMAN. I spoke of lands that you have patented, and not of lands that are the subject of selection.

The WITNESS. Then I beg your pardon.

POLICY IN REGARD TO DISPOSAL OF LAND.

Q. I ask you, as a business proposition, whether it would not have been better from a financial standpoint, in the handling of the lands of the company, to pursue a policy of disposing of the land as quickly as possible after patenting, in order to avoid the local taxation? A. It would as a business proposition. It has been the policy of the company to dispose of its lands as soon as possible. It undertook to repay this mortgage within a given time. It had to raise the money out of the sales of land and it has pursued the policy continually of urging the sale of its land. As a business proposition the land in the possession of a settler is of the highest value to the road, on the transportation side of the account, and there was, therefore, the strongest motive in the mind of the company always in favor of disposing of the land, as against holding it, if the land is not in the possession of any one disposing of it.

FAILURE TO PATENT LANDS DUE TO TARDINESS OF GOVERNMENT.

Q. Have you failed to patent land for the purpose of avoiding local taxation at any point along your line? A. No, sir. Under my administration of the land department I have urged upon the Department at Washington continually the subject of survey. I have urged upon their attention selections. I have written frequently, and personally made complaints to the Commissioner of the General Land Office at Washington, of the tardiness of the Government in making response.

WILLIAM H. MILLS. 2425

The Commissioner of the General Land Office in that interview promised to give it his personal attention. I represented to him the tardiness of the Government in making these examinations. The reports of the Commissioners of the Land Office from 1881 to the present time show conclusively that the Government is many years in arrears with its work. Mr. Sparks reports 16,500,000 acres of selections before his department. He reports that he was able to examine and certify about 100,000 acres in one year. Mr. McFarlane, his predecessor in office, made application to the Secretary of the Interior for one hundred additional clerks and accommodations for them. Mr. Sparks renewed that application when he came into office and approved of the recommendation, or request, of his predecessor, and said that it was necessary. In 1862 Mr. Commissioner McFarlane reported to the Secretary of the Interior that the railroad division was many years in arrears. There is no provision of the law whereby one company shall have a due proportion of the patents that they are able to examine and certify to in a single year, and we do not know what the fate of other companies in this respect is. We have given passes to United States surveyors in order to induce them to take contracts for surveys that the land might be patented.

LAND ENTEIES AND LOCATION OF LANDS.

Q. Can you furnish a statement showing the land entries paid for by the company ,- and the location of the land? A. Yes, sir; the location of the land applied for will be shown on this map, so far as California is concerned. All the land on this map with a blue check on it is applied for, and the fees for the surveying is paid. The costs for the surveying are paid. You see it is taken clear up to this point [indicating], I do not know why that [indicating] was left out. My instructions were to commence at that end and "clean it up," as we call it. That is, take everything right straight on through the grant. You see that that course has been followed here up to this point ; and why that has not been done here I do not Imow. I am disposed to think that it is interdicted mineral, which shuts oif our application.

Q. I understood you to say that you have paid for those entries? A. Yes, sir ; we have paid for those surveys. All the fees for surveying have been paid on those lands.

WITNESS REFERS TO HIS DEPOSITION SUBMITTED WITH GOVERNOR

STANFORD'S EVIDENCE.

Q. What other statistics have you bearing upon that question? A. Well, I will state to the Commission that the questions which you propounded to Governor Stanford, as president of the road, were furnished to me, and I answered to him, and yesterday a notary public appeared at my office with iny answer. I answered in writing, and answered as 'fully and completely as it was in my power to do ; and a notary public appeared and I verified that statement to Governor Stanford. I presume that Governor Stanford will hand it to you in connection with the answers to the questions which you have propounded to him. In that you will find a great many questions fully answered and accurately answered from the books. The statistics concerning the amount for which the lands were sold and the amount and quantity of lands sold, are being made up in my office now.

THE LAND FUND.

Q. What control have you over the land fund I A. None whatever, I pay it to the representative of the trustees of the land mortgage.

2426 U. S. PACIFIC RAILWAY COMMISSION.

Q. How often do you make settlements? A. Every day. At tbe close of business each day I pay to the treasurer of the Central PacitUEailroad Company, who is the treasurer of the trustees of the laudmortgage fund, all money received that day.

Q. Does that end your control over the fund after the day's settlement? A. Yes, sir. It is a trust fund, and it is paid to the trustees, and they have control of it.

Q. Who are the trustees of the land-grant mortgage? A. Mr. W. E. Brown and J. O'B. Gunn.

NO LAND GRANT FROM CALIFORNIA.

By Commissioner ANDERSON:

Q. Mr. Mills, are you positive in your answer that this company has not received land aid from the State of California or from any of the counties'? A. It has not. That is the extent of my knowledge, at least. I have been a citizen of this State for twenty-four years, and I have taken part in the general discussion of these questions. I was editor of a paper for a great many years, and I never heard of it if they ever did. I am only speaking now from the absence, rather than the presence, of knowledge. There may have been some grants of terminal facilities, for instance. There may have been a grant of water front, and some for depot purposes, but not as a subsidy. That is, there is no such thing in my office received as a subsidy.

Q. Who can tell us in regard to that? A. Mr. Gage could assist me in answering that question.

GRANT OF TERMINAL FACILITIES AT MISSION BAY.

Q. Was there no land grant in connection with Mission Bay? A. Yes, sir ; there was land granted for terminal facilities here at Missiou Bay. But what I understood your question to cover was the question of inducement to construct the line. Of couFse this grant at Mission Bay was given after the line was constructed.

WATER FRONT AT SACRAMENTO.

Q. Were there other grants of that character? A. I believe there was some water front granted at Sacramento on condition that they would construct wharves and put lifting works upon them. That was after the road was completed, or after the line was completed.

Q. Are those matters in your department? A. No, sir. My department is confined strictly to the lands granted by the acts of 1862 and 1864, in aid of the construction of the road. These other matters are generally in the hands of the various departments ; for instance, if a shop were located upon the lands it would be in charge of the master mechanic. If they were held for depot purposes they would be in charge of the superintendent of the track department or the superintendent of the right of way. Mr. Curtis would have charge of them. These lands here, I suppose, are in charge of the company generally.

Q. That is the Mission Bay lands? A. Yes, sir. The Mission Bay lands must be in the charge of the directors or their representatives.

NO STATE LAND GRANT BEFORE CONSOLIDATION.

Q. Was there no State land grant to any of the roads which were consolidated together before the general consolidation of the Southern Pa

WILLIAM H. MILLS. 2427

citic? A. No, sir. There were no State lands to be granted. The State had nothing but the sixteenth and thirty-sixth sections, and it lost all the sixteenth and thirty-sixth sections in mineral belts, so that the State itself bad no lai)ds to grant. The State was not possessed of any land, practically, at that time. The swamp lands of the State were very largely disposed of prior to the time that this road was constructed, and it could not have granted those. Congress granted, under the act of 1850, the swamp and overflowed lands to the State of California, but none of those were granted to the railroad by the State. The State extended a credit, though that is a matter outside of anything I am personally cognizant of. It extended a credit, but it was not in the form of a land grant.

CENTRAL PACIFIC vs. L. B. ADAMS.

Judge McKissick calls my attention to an error in my testimony. You gentlemen are lawyers, and I do not know that it is of any importance at all, but you will discover that this was not an action in ejectment. It was the Central Pacific Kailroad Company vs. L. B. Adams.

(The witness here handed to the Commission the- papers in the case referred to, together with the charge of the judge to the jury.)

The WITNESS (continuing). The Promontory Stock Company I sup posed had been a party to the action. There is the charge of the judge to the jury that I referred to.

LESSEES OF LARGE RANGES.

By Commissioner LITTLER :

Q. Who was the lessee of the large ranges that you have spoken of? A. Sparks and Tinnin are the lessees of it. 1). P. Tarpey is the largest lessee in Utah, and George W. Crumm is the lessee of the 181,000 acres that I spoke of. George W. Crumm's address is Battle Mountain and Sparks and Tinnin is Wells, Nev., and D. F. Tarpey's address is Corinne, Utah.

Q. Who is the lessee of the Promontory Stock Company? A. That is sold. That is, the company's rights there are sold.

Q. To whom? A. To the Promontory Stock Company.

Q. Who compose the Promontory Stock Company? A. A gentleman by the name of Buford and another by the name of Taylor and another by the name of Crocker Taylor, Crocker, and Buford.

Q. What is Mr. Crocker's name? A. George Crocker.

Q. Is he the Mr. Crocker connected with the Central Pacific Railroad Company ? A. He is a brother of Col. Fred Crocker.

Q. What connection have the other members of that company with the Central Pacific? A, Mr. Taylor is not connected with them in any way. He was formerly superintendent of public instruction in this city and he is an enterprising gentleman who has been engaged in speculation with them. Mr. Buford's relations with the Central Pacific I have never known. He is a lieutenant in the Navy, and he has no connection with this road that I know of.

WILLIAM H. MILLS.

P R VOL IV 7

2428

IT. S. PACIFIC RAILWAY COMMISSION.

The witness, William H. Mills, subsequently submitted the following statement in connection with his testimony :

Table showing aggregate acres selected by and patented to the Central Pacific Eailroad Company, and the Central Pacific Railroad Company as successor to the California and Oregon Eailroad Company, at the end of each half year, from the earliest date, to January 1, 1887, and during the Jive months thence ensuing, ending June 1, 1887.

...OFFICES OF THE CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, Gal., Wednesday, July 27, 1887.

EDWAKD H. MILLEK, JR., being further examined, testified as follows :

By Commissioner ANDERSON :

Question. Will you produce the books and minutes which ygu. relating to branch roads? Answer. Yes, sir.

EDWARD C. WRIGHT. 2429

By the CHAIRMAN :

Q. And also the minutes of the board of directors of the branch roads?

The WITNESS. That is, the roads that are consolidated with the Central Pacific I

The CHAIRMAN. Yes.

The WITNESS. I can produce such as I can find. We never had them all. Do you want them produced now?

Commissioner ANDERSON. Yes ; so that we can take them up to the hotel with us as soon as we adjourn. . The WITNESS. I can get them all for you in an hour.

E. H. MILLER, JR.

OFFICES OF THE CENTRAL PACIFIC EAILROAD COMPANY,

San Francisco, Cal., Wednesday, July 27, 1887.

EDWARD C. WEIGHT, being duly sworn and examined, testified as follows :

By Commissioner ANDERSON :

Question. What is your position in the Central Pacific Kailroad Company? Answer. General auditor.

DUTIES OF GENERAL AUDITOR.

Q. How long have you been general auditor? A. A year,

Q. One year? A. About a year.

Q. Were you connected with the company before that time? A. Yes, sir ; I was with the company for seventeen years.

Q. State what positions you have held. A. I was assistant general auditor before that, and before that I was a #lerk.

Q. Please state generally what are the duties of the general auditor. A. We receive the daily reports from the ticket auditor and from the freight auditor, in a condensed form, they receiving the reports from agents. We receive also the daily statements of account from agents, which we check against these other auditors' reports.

EARNINGS AND OPERATING EXPENSES.

Q. What you have stated then relates solely to the earnings? A. Earnings and operating expenses. We make up reports of the operating expenses also.

Q. From what sources do you receive the operating expenses I A. From reports received from the different departments, such as the motive power, and machinery department, bridges and building department, and track department.

Q. The two statements you have made, then, will cover the receipts of the road, the earnings of the road, and the expenses of operation? A. Yes, sir.

Q. Now, do any other of the accounts of the road pass through your offices I A. Most all of the accounts representing the earnings and operating expenses go through our office 5 we make up the monthly statements.

CONSTRUCTION ACCOUNTS.

Q. Do charges for construction account pass through your office? A. Yes, sir ; a great many of them.

2430 U. S. PACIFIC RAILWAY COMMISSION.

Q. Do you audit all bills for construction? A. Not all. Some of them go to the secretary's office secretary and comptroller.

Q. Please state what makes the distinction as between items that go to your office and those which go into the secretary's office? A. I know very little about those that go to the secretary. The most of them go through our office. Very seldom once in a while there might be a trifling item of what is known as general expense, for which they send the bill to the secretary's office.

Q. Does it first come to you and you send it to the secretary? A. If it should come to me I would send it to the secretary.

VOUCHERS FOR GENERAL EXPENSE.

Q. Why should you select such a bill for general expense and send it to the secretary instead of auditing it as you would the general run of bills? A. I know they have such an item as general expense. It is a matter of custom more than anything else.

Q. Is it 'because the object for which the money has been expended dotes not appear upon the face of the voucher? A. All the money always appears upon the face of the voucher.

Q. But you have stated that vouchers for general expense sometimes go to the secretary's office ; do you refer to a form of voucher which would disclose exactly what the nature of expense was, and still say that you would send such a voucher as that to the secretary I A. It might be something in the nature of a purchase bill for the particular use of the secretary, that I would know nothing about, and I would send it up there.

Q. Then the test would be that you would send vouchers which you did not feel competent to pass upon yourself, from your own knowledge of the requirements of the road, to the secretary for his judgment? A. Yes, sir.

Q. And after the secretary disposes of them, would they come back to your office? A. A voucher might come back to our office with instructions from the secretary to dispose of it there and charge it to a certain item of operating expenses.

DISTRIBUTION OF ACCOUNTS.

Q. After you have audited a bill for any purpose which you have referred to, do you have anything to do with the distribution of it? A. Yes, sir ; as a rule I direct the distribution.

Q. And you have been engaged in this business either as assistant or as principal for seventeen or eighteen years? A. Oh, no; not so many years. I was in a subordinate position for some of this time in other offices, and knew nothing about the distribution of the accounts.

Q. How long have you been engaged in this business? A. About ten years.

Q. Would you be able to furnish the Commission a statement year by year for the ten years, showing the distribution of the items which went to the construction account, to the equipment account, and to operation? A. The way we dispose of construction items at present is no I could furnish what is charged in bulk to operating expenses ; it would take a long time to do it, though.

CONSTRUCTION BILLS AUDITED BY PACIFIC IMPROVEMENT COMPANY.

Q. To show you what I mean, can you take the construction account of that portion of the California and Oregon that was done under the

EDWARD C. WRIGHT. 2431

contract with the Pacific Improvement Company anil explain the various vouchers for payments made under that contract; as audited by you, so as to show us from time to time how much road was constructed, and how much in the shape of vouchers had been audited and approved by you <?

The WITNESS. You mean work north of Delta?

Commissioner ANDERSON. Yes.

A. I do not even audit those bills now. If a bill comes to me, I send it in to the secretary of the Pacific Improvement Company.

Q. Why do you not audit those bills'? A. Because they are doing the work.

Q. Who are doing the work? A. The Pacific Improvement Company.

Q. But if your company is doing the paying, is it not proper that your department should audit the bill before the payment should be made? A. The payments to the Pacific Improvement Company are not made through our office.

Q. Through what office are the payments made? A. I could not say, unless it is through the secretary's.

Q. Is that not unusual? A. I do not think so.

METHOD OF PAYMENTS AS TO OTHER CONTRACTS.

Q. What other large contracts have been paid through the secretary's office without going through the auditor's office! A. You will understand that all the vouchers that are audited in our office are allowed by the secretary and comptroller.

Q. What is that? A. Most all of them are allowed by the secretary and comptroller.

Q. So I understand. But my question is, what other large contracts have been paid for by the company without being audited from your office? A. The Western Union Telegraph Company's payments are not made through our office, although the showing is in there.

Q. How about the payments made to the Contract and Finance Company? Do you know about those? A. That was before my time, and I do not know how that was managed.

Q. Well, substantially, the bills of the Pacific Improvement Company were audited directly by the secretary or by the board of directors? A. That I could not say. They are not paid through our office.

Q. Do you know what evidence the company receives of the performance of the work, and the justice or the propriety of the bilfin regard to work, done by the Pacific Improvement Company? A. Merely by hearsay. I really do not know, of my own personal knowledge, anything about it.

REPORTS OF EARNINGS OF LEASED LINES.

Q. Do you also receive in your office the reports of the earnings of the leased lines as well as those of the Central Pacific Railroad directly? A. We make up the earnings of those different lines composing the system in our office.

Q. On what basis or with what material do you make up the earnings of the leased lines'? A. We receive detailed statements. Say w^e are distributing freight earnings, we receive a detailed statement from the general freight office, showing the amount in dollars. We distribute that over the line; it passes well, it is distributed right straight over the line which it passes, on the basis of mileage.

2432 U. S. PACIFIC RAILWAY COMMISSION.

Q. So that in making up the earnings then for a given year, you have to make up the earnings of the main line proper to make up the earnings of all the different lines which were leased to the Central Pacific I am speaking now of the period prior to the lease from the Central Pacific to the Southern Pacific and you then distribute the learnings of the interchanged traffic, as you have said, in accordance with mileage so as to credit each road with its proper proportion ! A. Yes.

Q. And in that way you make up a complete statement for the year of the earnings of the main line and of its branches? A. Yes, sir.

CONSTRUCTIVE MILEAGE.

Q. Is it your custom in making distributions of the earnings interchanged between branches and the main line, to determine at times the earnings of branches by the use of the constructive mileage factor? A. No ; we are using the actual mileage, but there should be a large constructive mileage, because these rates on. which these earnings are based give different results. For instance, we will say from a point on the Amador Branch to a point on the Central Pacific; the rate on the Ama^or Branch is two or three times as heavy per mile as the Central Pacific rate, but through some misunderstanding or mistake, we have been using the actual mileage for the whole distance in the division. Of course that gives the Central Pacific a much larger proportion than its local rate would call for, or than it would be justly entitled to.

By the CHAIRMAN :

Q. What constructive mileage rates have you, and on what roads have you those rates now? A. None at all, now.

Q. When did you have them? A. They did give some of these small lines constructive mileage in 1882, I think.

RATES OF CONSTRUCTIVE MILEAGE.

Q. What were the rates? A. The California Pacific, I believe, had 50 per cent.

By Commissioner ANDERSON :

Q. That is 1 J? A. Yes, sir ; 1J ; and the Stockton and Copperopolis had 100 per cent.

Q. That is 2 to 1? A. Yes, sir; and some of these small lines, the Los Angeles and Independence Eailroad, and the Los Angeles and San Diego, had, I think, 50 per cent. each. That is 1J to 1 for constructive mileage and even at those rates they do not get anywheres near their proportion that they are entitled to, as we have since discovered.

Q. Have you named them all? A. I think the Ainador Branch got constructive mileage.

Q. At what rate? -A. I think 50 per cent.

Q. That is 1J to 1? A. I could verify those figures by the record.

Q. I would be obliged to you if you would verify it and give us a statement of your constructive mileage ; on what roads it was allowed and the rates allowed upon them. Why did you stop the allowance of constructive mileage? A. I believe Auditor French objected to it when he was out here.

CONSTRUCTIVE MILEAGE OBJECTED TO BY AUDITOR FRENCH.

Q. What Auditor French? A. The Government auditor of railway accounts. I believe that is his title.

EDWARD C. WRIGHT. 2433

Q. What objection did he make? A. I am speaking from hearsay now. Mr. Miller could give that positively.

Q. Who directed you to stop? A. Mr. Miller.

Q. Since the lease of the Central Pacific to the Southern Pacific, do I understand your work to have altered or changed its form? A. Yery little that I can think of now. The details are improving all the time. Q. What is the difference in the method of ascertaining the net earning of the railroad prior to the lease to the Southern Pacific and subsequent to the lease? A. No difference in the method.

TO WHOM RETURNS ARE MADE.

Q. To whom do the earnings belong since the lease? A. That is a matter that the secretary keeps. We make our returns to him showing the earnings and the operating expenses of each line in the system monthly, and we transfer from our books to the secretary's books the accounts, so far as the earnings and expenses go.

Q. Do you make your returns to him as secretary of the Central Pacific or as secretary of the Southern Pacific? A. Secretary of the Southern Pacific Company.

Q. And before the lease the returns were made to him as secretary of the Central Pacific? A. Yes, sir.

RENTALS.

Q. Does the rent reserved by the lease or to be paid to the Central Pacific by the Southern Pacific pass through your office? A. No, sir ; not now.

Q. You understand that the net earnings of the Central Pacific are now determined by the amount of rent payable to it by the Southern Pacific? A. I understand so.

Q. All your accounts then are kept with the Southern Pacific at present? A. We have a small open account with the Central Pacific ; some small unsettled matters. Our account current with the secretary might not change for months and months, and it might change by a slight charge or credit.

Q. Before the lease to the Southern Pacific, did the rentals that the Central Pacific paid for the different leased lines pass through your office as part of its operating expenses? A. Yes ; most of them did at one time.

REQUEST FOR STATEMENT OF NET EARNINGS.

Q. Can you prepare for the Commission a statement of the actual net earnings of the Central Pacific from 1&80 to the date of the lease to the Southern Pacific, and also a statement of the net earnings by way of rentals since that lease to the present time, so that we can compare the results of one operation with the results of the other? A. Yes, sir; I think that can be done with very lifctle trouble. For how long a period?

Commissioner ANDERSON. From 1880 to the date of the lease and from the date of the lease to the present time, five years before and two years since.

The WITNESS. I think that can be done in a very short time.

EFFECT OF CENTRAL PACIFIC LEASE.

Q. What, in your judgment, is the effect of that lease? Does the Central Pacific receive as much at present under the leases as it did be

2434 U. S. PACIFIC RAILWAY COMMISSION.

fore? A. I have not given that much thought. I really do not know. That question you asked me to make a statement about is a proper one for Mr. Miller to answer.

Commissioner ANDERSON. You can confer with Mr. Miller, but the figures are in your department. He would have to get them from your department?

The WITNESS. Partially.

Q. Can you tell me whether, as to any of the leases which the Central Pacific held prior to April 1, 1885, the rent paid by the Central Pacific exceeded the net earnings derived from the leased roads? A. I could not say without the records.

Commissioner LITTLER. The Central Pacific did not pay any rent. It was the Southern Pacific which paid rent to the Central Pacific.

Commissioner ANDERSON. The Central Pacific held a number of roads under lease prior to 1885.

The CHAIRMAN. What is your answer?

The WITNESS. I could not say without looking at the records.

Q. We would like that information also. In cases where the rent in those leases is fixed on a basis of paying to the road its net earnings simply, then I suppose that the net earnings would actually determine the rent, and that there would be nothing else to pay. That is the arrangement in some of these cases, is it not? A. That is a matter that is arranged entirely in Mr. Miller's office; we have nothing to do with that.

Q. Under these leases where you pay something in addition to net earnings for the use of the roads, would not the bills for the payments so to be made pass through your office? A. I do not think that; they never have.

Q. Are you familiar with these leases? Have you seen them? A. Yes, sir; but it is something that I do not handle.

Q. Can you furnish us with copies of the printed blanks in use in your department ? A. Yes, sir.

LIST OF BOOKS KEPT IN AUDITOR'S OFFICE.

Q. Please do so. .Please state now a list of the books which are under your control and kept in your office. A. We keep a disbursement book, an auditor's ledger and journal, and we have the accounts of two of the outside departments in the office, such as the bridge and building department and track that is, the bridge and building department and the track department. Of course they have a number of detail books in each, in which they keep their records of time and material, from which they compile a report, which is made in the form of a voucher and entered in the auditor's journal and ledger.

Q. Are these all the books which you keep in your office? A. Of course there are a great many small books in the shape of memoranda.

Q. They belong to one of these different classes of books and are the basis from which you post into the general ledger? A. Yes, sir.

Q. Do you keep this book for the distribution of charges?- Yes, sir ; what I call a disbursement book is the book from which we distribute these accounts that I speak of to the different items of operating expenses and foreign roads, and private parties, and to sundry accounts.

METHOD OF AUDITING REBATES.

Q. Are any of the refunds or rebates that are made on freight charges audited in your office? A. Yes, sir; most of them.

EDWARD C. WRIGHT. 2435

Q. Do they simply appear in these same ledgers, or have you a separate book for that? A. They appear in this disbursement book that I speak of.

Q. In what form are such charges audited? A. As a rule they take this course 5 the general freight agent will receive a claim inclosing a bill of lading, an expense bill, and note demanding a refund, or asking it. He will make up the voucher, knowing the details of the tariff and classification. He will have it examined and compared with the waybill, to show that such a shipment actually went over the road, and he will check the way-bill to prevent a future claim being presented on duplicate papers. He will make up this voucher and certify to its being correct. He will name the amount that should be refunded. That voucher will go to a committee on allowance, and then usually it is brought to our office. Sometimes it goes to our office first, and we send it there.

COMMITTEE ON ALLOWANCE.

Q. Who is the committee on allowance? A. Mr. E. H. Miller, Mr. G. L. Lansing, and Mr. S. T. Gage, I believe; other officers sometimes allow vouchers, and they are passed through also.

Commissioner ANDERSON. I am only speaking now of rebate or refund vouchers.

The WITNESS. As a rule, those are the only gentlemen who ever sign those vouchers.

Q. Who determines the rate that is to be allowed? A. The general traffic manager or the general freight agent.

Q. Is that generally done before shipment, or is it sometimes done merely on application after shipments? A. They are the only officers that should answer that question, because the vouchers are certified to by them as being correct when they come to me. *

REBATE VOUCHERS ALLOWED BY THIS COMMITTEE.

Q. Is your duty, then, purely ministerial? A. No, sir; not altogether. There are many vouchers, for the correctness of which I am responsible, before they are registered or audited.

Q. I am only speaking now of rebate vouchers. Have you anything to do with the percentage of allowance, or with the person to whom it shall be made? A. No, sir ; I have never considered that I was responsible for even a bad payment on such vouchers, for I am not conversant with the tariff or classification.

Q. If it received the approval of the general traffic manager, or of this committee, the voucher is thereupon audited by you? A. Yes, sir.

FORM OF PAYMENT TO SHIPPERS.

Q. What is the form of making the payment to the shipper? A. It is recorded in our office, and sent by us to either the paymaster or the treasurer or to an agent for payment.

Q. And there it is receipted for by the person to whom it is paid? A. Yes, sir ; and then he sends it back to us with a report. We keep an account with those officers. We keep an account, for instance, with the paymaster, charging him with all moneys received and crediting him with all payments made.

Q. All these entries, I understand you, are made in your general books, and are not made in a separate book by themselves? A. All

2436 tJ. S. PACIFIC RAILWAY COMMISSION.

overcharge, loss and damage, and rebate vouchers are entered in a separate book, and at end of month transferred in bulk to the auditor's ledger.

EARNINGS DERIVED FROM POOLS.

Q. What reports do you receive of earnings derived from pools? A. The vouchers for payments made to and receipts from pools are all approved in the same manner that I have described as to these others.

Q. Do you have any means of determining the correctness of the report made to you, either by consulting the pool contract or by consulting the report of the traffic done and administered under the pool $ A. Yes, sir 5 I usually read the pool contracts, and generally have had a copy of them. But I have not considered myself responsible for the correctness of these vouchers.

RESPONSIBILITY FOR CORRECTNESS OF POOL VOUCHERS.

Q. Who is responsible for the correctness of the pool vouchers? A. Either the general freight agent or the general traffic manager.

Q. Does the approval of the general freight agent appear on all the pool vouchers which are audited in your office? A, I think every one of them or of the general traffic manager.

Q. That is Mr. Stubbs ! A. Yes, sir.

Q. How many pools do you know of prior to last April? A. Well, the transcontinental pool I presume you would call one.

Commissioner ANDERSON. Yes.

The WITNESS. There were a half dozen or so.

Q. Can you furnish us with the names of them by referring to yeur books? A. I don't think I could.

Q. Do you refer us to Mr. Miller for that $ A. No ; I would refer you to the general traffic manager.

By the CHAIRMAN :

Q. Who is the custodian of those contracts? A. He is familiar with the contracts. Q. Who keeps the contracts? A. I think he does.

By Commissioner ANDERSON : Q. Mr. Stubbs ! A. Yes, sir.

OTHER SOURCES OF REVENUE.

Q. From what other sources do you derive revenue besides from passenger and freight traffic and pool earnings? A. We receive rental earnings.

Q. Are there express companies? A. No ; also from property along the line of the right of way, and from the sale of what they call " old horse."

Q. Old material? A. Yes, sir ; and from telegraph earnings, sleepingcar earnings, and miscellaneous items.

EXPRESS BUSINESS.

Q. How has the express business been managed over your road? A. It comes to us in a condensed form= The freight auditor renders to us reports, on which we make credits to express earnings, and send to our treasurer for collection.

Q. Who does the express business? A. Wells, Fargo & Co., I believe, do all of it.

EDWARD C. WRIGHT. 2437

Q. Have you the possession of the contract between Wells, Fargo & Co. and the Central Pacific Company? A. No, sir ; I have not.

ORIENTAL AND OCCIDENTAL STEAMSHIP COMPANY.

Q. What do you know about the earnings of the Oriental and Occidental Steamship Company? A. I have nothing to do with that company.

Q. Do not the earnings pass through your department? A. No, sir.

Q. Through what department do they pass? A. They have a secretary of their own, I believe. He keeps all the accounts, I think Mr. D. D. Stubbs.

Q. Is that your Mr. Stubbs? A. No sir ; that is another Mr. Stubbs.

Q. I mean through what department of the Central Pacific or the Southern Pacific do payments from that steamship company pass? A. They do not pass through our office. Of course we may have a small bill against that company the same as we do against private individuals, but we do not have anything to do with their business. I do not know what contracts they have. I do not know how the Central Pacific is connected with it.

Q. Is not the Central Pacific a large stockholder in that company? A. Not that I know of. I don't know anything about it.

REQUEST FOR COMPARATIVE STATEMENT OF ORDINARY BUSINESS AND

POOL BALANCES.

Q. Could you furnish us with a statement for the year 1884, showing the passenger earnings derived from pools and the passenger earnings derived from the ordinary business, and a similar statement as to freight for the same year.

The WITNESS. Does this mean net?

Commissioner ANDERSON. No; not net, but just for the gross. So that we can compare the volume of the two businesses.

The WITNESS. Yes, sir ; 1 can furnish that. *

Commissioner ANDERSON. Will you do so for the year 1884?

The WITNESS. When you say " net," I want to know whether you wish all rebates deducted I

Commissioner ANDERSON. I think it would be a fairer test after th# rebates are taken out.

The WITNESS. Sometimes we have six thousand vouchers a month right along, and there are so many miscellaneous vouchers.

The CHAIRMAN. We want to know how much of your business in a year, taking the year 1884 as an example, is ordinary railroad business incident to a railroad, and how much you derive in the same year from pool balances or arrangements or settlements with other roads, as distinguished from ordinary business.

The WITNESS. I understand it.

AMOUNT OF BUSINESS POOLED.

By the CHAIRMAN :

Q. What proportion of the business is pooled and what remains unpooled of freight and passengers, taking the year 1884 as an example? ' A. When I come to think that over, I cannot do it within a reasonable time.

Q. How long would it take you? A. Well, to make a statement covering a year it would take me a month or more.

The CHAIRMAN. That will do, if you will furnish it and forward it to the Commission. How much of your business is in a year's pool?

2438 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. We have not segregated our earnings in past years in such a way that it can be done without a vast amount of work.

HOW POOL ACCOUNTS ARE KEPT.

Q. How do you keep your pool account? A. We charge it right up. If it is a payment we are making on account of pools, we deduct it from the total freight earnings. If it is a receipt on account of the pool, we credit freight earnings.

Q. Taking the amount of pool credits or balances in favor of the company, and contrasting that amount with the ordinary business of the company not forming any part of the pool settlements, what would be then the traffic of the company for 1884?

The WITNESS. That is the question?

The CHAIRMAN. Yes.

The WITNESS. That was before I was handling much of that detail. But my opinion is it would take a vast amount of work to get that information.

By Commissioner ANDERSON :

Q. How many entries of pool balances, either of credit or debit, would you make in the course of a year? You did not settle more than once a month, did you? A. No, sir ; but a year's pooling business covers freight to all our terminals. There is a great deal of other freight coming to the terminals, which is not pool business. In order to answer that question I have got to get down to all this detail at those terminal stations.

Q. Why? If you have the total of your freight business for a year, and you can ascertain from perhaps twenty-five entries that you had received a certain amount of money from the settlement of pool balances during that year, and paid out other items, and then from that derived the exact amount of pool business for the year, you will know that all the rest of the freight business is derived from the other sources. All you have to do to effect that result is to ascertain the amount of pool business so that we can compare it with the total amount of the business.

* The WITNESS. I would like to hear that question asked once more by the stenographer.

(The question was repeated.)

The CHAIRMAN. This will make it easier. Can you give a statement showing the amount of freight earnings derived from pools, and the amount of ordinary business, for the year 1884? Can you give us also a statement showing the amount of passenger earnings derived from pool balances, and the amount derived from ordinary business, for the year 1884?

The WITNESS. I can let you know to-morrow what^we can dp.

Commissioner ANDERSON. You can let us know to-morrow. My explanation was only intended to show you that in taking the pool part of it away the rest of it would answer itself. It seems to me so, though I am not a railroad expert.

The WITNESS. It would be a very easy matter for me to deduct any amount we may have credited to freight earnings on account of pools. That is a very simple matter. But I do not get at the pith of the matter.

Commissioner ANDERSON. What we want to know is whether your pool earnings figure in your business as a much greater quantity than your ordinary business. We want to compare your pool earnings with

EDWARD C. WRIGHT. 2439

your entire earnings. All we need in order to make that comparison is to get your entire earnings, which you have, and the pool earnings, which cannot number many items.

The WITNESS. But for pool business there may be a great deal of business that would be a loss.

COST OF CONSTRUCTION OF CALIFORNIA AND OREGON LINE.

Q. Very probably. We are not finding fault with the pooling, but we want to know the result. Were any branch lines of this road constructed during your administration of the auditor's office? A. A portion of the California and Oregon was.

Q. The portion which you said did not pass through your office ; or did some portion pass through your office? A. Well, the portion north of Delta, before the Pacific Improvement Company took charge of the construction of that part of the line. The details mostly passed through our office.

Q. Can you furnish a statement of the cost of that portion of the California and Oregon which was audited in your office? A. Yes, sir. That is, I can give you a statement of the entire amount which passed through our office, charged to that account.

RESPONSIBILITY FOR ACCURACY OF VOUCHERS.

Q. As to those vouchers, do you consider your office responsible for their accuracy? A. Yes, sir. That is, all that I can think of at this moment.

Q. On what report would you audit a voucher for work done on that portion of the California and Oregon?

The WITNESS. On what report?

Commissioner ANDERSON. On what report, or what representation I A. Well, I received some verbal authority at the time the work was was going on.

Q. Would you receive an engineer's certificate that certain work had been done, or a surveyor's report? A. Oh, yes ; if the track department should do any work in the nature of construction there, they would turn in " time-books," and I would make up a statement and send it to the superintendent of track to certify as to its correctness. Then it would pass through the committee on allowance in the usual way. Then it would be registered and charged to that account.

EXTENT OF CONSTRUCTION DONE DIRECTLY BY CENTRAL PACIFIC.

Q. At what northerly point did the construction done directly by the Central Pacific Company commence? A. 1 think they constructed it all the way from Eoseville Junction ; bat I would not speak positively with regard to it. It was before my time.

Q. Since your time between what points has the construction been completed? A. What I am most familiar with is from Bedding to Delta.

Q. How many miles is that? A. It is about 40 miles.

Q. Have you been over that road? A. Yes, sir ; I have not been to the terminus.

Q. Have you been over the road from Delta to the north boundary of California? A. No, sir; not all the way.

Q. What is the character of the country along the 40 or 60 miles of road that you audited? A. I went over it in the night, and I did not see the country. I could not say much about it.

2440 U. S. PACIFIC KAILWAY COMMISSION.

GROSS RECEIPTS AS DISTINGUISHED FROM GROSS EARNINGS.

Q. Would your office show the gross receipts of the Central Pacific Company, as distinguished from its gross earnings?

The WITNESS. The gross receipts as distinguished from its gross earnings?

Commissioner ANDERSON. Yes ; by gross receipts I include all matters that make up the receipts of the company by reason of the ownership of stock or of different interests.

The WITNESS. No, sir ; my records would not show that.

Q. What records would show that? A. Mr. Miller's records would show that.

REBATES.

Q. Are these rebates that we have spoken of matters of individual arrangement in each case, or have you in your office rebate contracts? A. We have not all the rebate contracts. We get most of them copies of the contracts.

Q. How numerous are they I

The WITNESS. You are speaking of pools, are you, now?

Commissioner ANDERSON. No; I am speaking of rebate allowances to shippers.

The WITNESS. Oh, they are not all under contracts. There are all sorts of rebates.

Q. That was my question, whether they were matters of individual arrangements with shippers or whether there were contracts extending over a fixed period of time. A. Those contracts that you speak of are kept in the general freight office.

Q. You have none in your office? A. No, sir.

Q. You refer us to Mr. Stubbs for that, do you ! A. Mr. Stubbs or Mr. Gray.

ANNUAL ALLOWANCES FOR REBATES, ETC.

Q. Have you a book which shows the total of the allowances for rebates, refunds, returns, or overpayments made up annually? A. Yes, sir ; we have.

Q. Can you give us the gross total of such allowances by the year from the time you commenced? A. Yes, sir.

Q. What year was it that you took charge 1881? A. I can show that many years back.

Commissioner ANDERSON. Show us the full total of allowances for rebates.

Commissioner LITTLER. If he has such a book, he can let us see the book.

The WITNESS. By years, you mean?

By Commissioner LITTLER :

Q. Do I understand that you have a book for rebates containing the several items of rebates during the several years the company has been in operation ? A. It is not kept altogether in one book. I can furnish the amount.

Commissioner ANDERSON. I simply ask for the amount made up by years.

GROSS RECEIPTS OVER GROSS EARNINGS.

By the CHAIRMAN :

Q. What does your department contribute to the gross receipts in making up at the end of the year a statement for the company? A. We

EDWARD C. WRIGHT. 2441

close our showing of freight earnings, passenger earnings, and different items of earnings, also the operating expenses, to the secretary's books monthly ; and then we are through with it, so far as that goes.

Q. But who ascertains the gross earnings as distinguished from the gross receipts ? A. We do.

Q. Then what figures do you use in order to ascertain your gross earnings? A. We take, for instance, our station agent's returns of freight receipts and ticket sales, baggage, &c., and then we may make a refund to a man for an error in overcharging on a ticket, or an error for overcharging on freight ; and we would charge that amount to that item of earnings which should be charged. Of course that reduces it to net freight earnings.

Q. Do you carry into the account your pool balances? A. If we should pay out any money on a freight pool, we would charge that to the freight earnings; and if we received any money on a freight pool, we would credit that to freight earnings.

Q. What else do you carry into the gross sum before you ascertain your gross earnings? A. We have express and telegraph, mail, rental, and sleeping cars and extra baggage. I believe I named passenger and freight, of course ; I believe that is all.

Q. Is the item of gross receipts taken off each year as a separate item? A. We made a monthly showing of gross receipts and operating expenses, and then we show the net.

Q. Is the item of gross receipts for the year taken off as a separate item as distinguished from gross earnings? A. No, sir ; not that I know of. That is made up by the secretary, anyhow. We transfer this to him monthly, you know.

HOW THE GROSS EARNINGS ARE ASCERTAINED.

Q. What do you deduct from the gross receipts to ascertain your gross earnings, before you make your return to the secretary? A, We deduct all these rebates that we have mentioned, from the gross receipts, and we still call that gross earnings, after that ; and then we make up our operating expenses, and deduct that from these gross earnings, and that leaves net earnings.

The CHAIRMAN. I understand that you have your gross receipts and gross earnings, from which you deduct your operating expenses.

The WITNESS. I understand the gross receipts to be the gross earnings.

Commissioner ANDERSON. We differ as to that. We use the phrase " gross earnings " as including everything that the railroad gets from every source, in addition to the earnings from its road. If it happens to be the owner of stock in a gas company in New York, or it gets rent from a house which has nothing to do with the railroad, that we call gross earnings.

The CHAIRMAN. He deducts rebates and refunds and overcharges, and railroad settlements come off.

The WITNESS. Yes. For instance, we sell a ticket from here to New York, and our agent in San Francisco will report all that money as ticket sales, and it goes into our passenger earnings. Now, we afterwards pay out from that to the other roads interested, you see. That still leaves what we call our gross earnings, after we have paid the other roads.

The CHAIRMAN. Yes, I understand you. Now, will you furnish a statement of the gross receipts from 1869 to 1886, or from the date of

2442 U. S. PACIFIC RAILWAY COMMISSION.

opening of your road, as distinguished from gross earnings, year by year?

The WITNESS. It would make no showing at all, the gross receipts. My education in railroad accounts has made the gross receipts the gross earnings, and nothing else.

GROSS RECEIPTS AS DISTINGUISHED FROM GROSS EARNINGS. t

The CHAIRMAN. Yes, as ordftiarily understood. I now speak of gross receipts, which include everything received by the company, out of which you make some deduction, such as rebates, overcharges, terminal settlements, pool settlements, and all other settlements, and then you would ascertain your gross earnings.

The WITNESS. I understand what you mean, but it would be a foolish showing, because we sell a ticket here in San Francisco to New York for $120, say. I don't know what the price is. We call that passenger earnings. I do not call that gross receipts. It does not belong to us. We know it, and know we have got to pay out to Eastern roads most of the money. But you call that gross receipts.

Q. Do you take off the gross receipts every year, to ascertain and make your deductions, in order to know just what you received before you determine your gross earnings? A. We do this monthly.

Q. Will you furnish to the Commission a statement from 1869, or from the opening of the road, to 1886, showing the gross receipts I A. I will do the best I can.

The CHAIRMAN. Very well. That is all you can do. Let us judge of the foolishness of it.

CUSTODY OF CONSTRUCTION ACCOUNTS.

By Commissioner LITTLER :

Q. Who has custody of the books containing an account of the cost of construction of the Central Pacific road? A. I do not know. I never have seen them.

Q. In whose charge ought they properly to be found? A. That was before my time, and I do not know anything about it.

Q. Are you sure they are not in the auditor's office? A. Yes, sir; I know they are not in my office.

Q. Are there any vouchers in your office in respect to the construction of the road? A. Not that I know of.

Q. To what date backward do your vouchers extend? A. They extend away back to the beginning of the road.

THE AUDITOR'S OFFICE AN OPERATING OFFICE.

Q. Then they ought to embrace the cost of construction, ought they not 9 A. Well, no ; that does not follow. Our office is an operating office, and as a rule it might contain only charges to operating expenses.

Q. Then you think your office only includes the vouchers for operating expenses from the time the road was opened ! A. No, sir ; I would not say that. Well, as a rule, yes ; but we do occasionally, as an operating company, finish up work that the construction company has left incomplete, and charge it to that construction company.

Q. Who has charge of the canceled checks on which the money was paid out for the construction of this road I A. I should say the treasurer had. I really never saw them.

EDWARD C. WRIGHT. 2443

Q. The treasurer of the company really ought to have the custody of these books containing the cost of the construction of the road, ought he not? A. That I could not express an opinion about.

Q. Do you know whether any of the books of this company, from its organization to the present time, have been destroyed, by accident or otherwise? A. No, sir ; I do not know anything about it.

REFERRED TO CONSTRUCTION COMPANY FOR THE BOOKS.

Q. To whom can you refer us for the production of these books containing the account of the construction? A. The Construction Company, I should say.

Commissioner LITTLER. Although a construction company may have constructed the road, there must be books in charge of this company containing certain accounts or vouchers upon which the money of the company was paid to the Construction Company for its services under contract.

The WITNESS. I do not think that those accounts would necessarily go through the auditor's office, which is, as a rule, an operating office.

Q. Through what office would they go, and where would these papers be found ? A. I should think the secretary's office would be the proper office. I should think so.

EXISTENCE OF THE COMMITTEE ON ALLOWANCE.

Q. How long has this committee on allowance, I believe you call it, been in existence? A. Ever since I have known anything about these vouchers.

Q. Does it date back. to the time of the construction of the road, and did such a committee pass upon the vouchers for the payment of the cost of construction ?

The WITNESS. I think they did oh, the cost of construction 1

Commissioner LITTLER. Yes.

A. Well, that I could not say. That I do not know anything about.

Q. Recurring to the question of gross receipts as distinguished from gross earnings, as I understand you, in the statement of your accounts, in order to ascertain gross receipts you deduct all rebates, all overcharges, all moneys paid on account of pool contracts, and credit all moneys received from other railroads in the interchange of business, whether collected on freight or on tickets? A. Yes, sir.

Q. What other deductions do you make from your gross receipts before you declare your gross earnings? A. You have named them most all.

EDWAED C. WEIGHT.

REPLIES BY LETTER TO UNANSWERED QUESTIONS.

The following letter was subsequently received from the witness, E. C. Wright, in response to requests for information :

[Southern Pacific Company (Pacific System), office general auditor.]

SAN FRANCISCO, August 9, 1887.

SIR : Please find below the questions propounded to me by your Commission July 27, 1887, with answers to same in regular order :

Question. Give the names of the roads which had constructive mileage when dividing the earnings; the amount of such mileage, and the period during which it was added to the actual mileage.

P R VOL IV 8

2444

U. S. PACIFIC RAILWAY COMMISSION.

Answer. This information has been furnished in full by the president of our company in a statement presented to your Commission July 28, 1887.

Question. From 1880. inclusive to date of lease, and from date of lease to the present time, prepare statements by years, of actual net earnings of Central Paciiic Railroad ; also statement of net earnings by way of rental since date of lease to the present time.

Answer. I would respectfully refer you to the secretary of our company for statements requested above, as some of the records required to make the statements are not kept in this office.

Question. State whether as to any of the leases held by the Central Pacific Railroad, prior to April 1, 1885, tue rent paid by the Central Pacific Railroad exceeded any earnings derived from leased roads.

Answer. Yes, in some instances, because such earnings were made up on a mileage basis which did not give the leased lines their due propprtiou of earnings.

Question. Statement showing cost of that portion of the California and Oregon Railroad which was audited in your office.

Answer. The records of my office show vouchers charged to the California and Oregon construction, and these cover charges for construction north of Redding; but as I transferred monthly the total amount of charges appearing on my books to the books of the secretary, I cannot say that other charges were not made direct on his books to the work, therefore it is impossible for me to give the actual cost of the work between any given points. I would respectfully rsfer you to the secretary for this information.

Question. Statement from 1869, or opening of the road, to 1886, showing gross receipts by years.

Answer. Statement requested is given below :

Statement of gross receipts of Central Pacific Railroad and leased lines from 1864 to 1885,

inclusive.

...

Question. Statement showing amount of freight earnings derived from pools and the amount derived from ordinary business for the year 1884.

Answer. The amount entered to credit of freight earnings in the year 1884, account of pools, is $99,231.28 ; the amount charged to freight earnings in the year 1884, account of pools, is $M),997.37 ; total, $110,766.09. Deduct this latter amount from the gross freight earnings of 1884, or $13,043,034. 27 ; leaves amount derived from ordinary business, $12,932,268.18.

Question. Statement showing amount of passenger earnings derived from pools and the amount derived from ordinary business in 1884.

Answer. The amount entered to credit of passenger earnings in year 1884, account of pools, is $22,850.02; amount charged to passenger earnings in year 1884, account of pools, is $623.47 ; total, $22,226.55. Deduct this latter amount from the gross passenger earnings of 1884, or $7,226,570.94, leaves amount derived from ordinary business $7,204,344.39.

I send you herewith a package containing samples of blanks in use in this office, as per your request.

Very respectfully,

E. C. WRIGHT,

General Auditor. Hon. ROBT. E. PATTISON,

Chairman of United States' Pacific Raihvay Commission,

Palace Hotel, San Francisco, Col.

EMMONS B. RYAN. 2445

OFFICES OF THE CENTRAL PACIFIC EAILROAD COMPANY,

San Francisco, Cal, Wednesday , July 27, 1887.

EMMONS 13. RYAN, being duly sworn and examined, testified as follows :

By the CHAIRMAN :

Question. What position do you hold in the company 1 Answer. I suppose you would call it the tax agent for the Central Pacific.

DUTIES OF TAX AGENT.

Q. What are your duties? A. To see that the taxes are paid on the property ; that it is not sold for taxes, and to protect it.

Q. How long have you been connected with that position? A. About fifteen years, I think ; fourteen or fifteen years.

Q. Who did you succeed? A. No one 5 I commenced when it was very young, and I have kept with it ever since, sir.

Q, What kind of books do you keep? A. Regular assessment rolls.

AMOUNT OF TAXES PAID UPON LANDS.

Q. Will you state to the Commission the amount of taxes paid by you upon the lauds since the institution of your office, or since the grant by the Government to the Central Pacific Company? A. It is between four hundred and four hundred and fifty thousand dollars, or about four hundred and twenty thousand and some odd dollars.

By Commissioner ANDERSON :

Q. For what period? A. That is since the first 18G9 ; somewhere along there.

By the CHAIRMAN :

Q. Do you give the amount accurately or approximately? A. I give it within a few hundred dollars.

Q. Will you furnish to the Commission a statement showing the amount of taxes paid upon the several land grants, by years and by counties? A. Yes, sir ; to a cent. That is, so far as my books show, and they show correctly.

TAX RATES AND AMOUNT OF ACREAGE.

Q. Will you furnish a statement showing the tax rates of the several counties ? A. Yes, sir. They vary each year. That is, in nearly every case they vary each year.

Q. Will you include in the statement also the acreage that the amount of taxes has been paid upon? A.. That I can do also, because that I have in my office.

Q. And will you also include the names of the counties J? A. Yes, sir.

Q. How soon can you give that statement? A. I can give it to you in forty-eight hours. And by the by, can I hazard one little bit of information?

The CHAIRMAN. Yes ; and do not make it a hazard.

The WITNESS. The Central Pacific has paid over six million dollars of taxes on its lands and its other property since I have been connected with it.

Q. What i the other property I A. The roads, the plant, stations, frc.

2446

U. S. PACIFIC RAILWAY COMMISSION.

The CHAIRMAN. Well, we want the land grant. The WITNESS. You shall have it, sir.

E. B. EYAN.

The Commission then adjourned to Thursday, July 28, 1887, at 10 a. m.

The witness, E. B. Ryan, subsequently submitted the following statement in connection with his testimony :

Statement of taxes paid on lands by the Central Pacific Eailroad Company from 1868 to

1886, inclusive.

...To the honorable COMMISSIONERS :

I respectfully state that my books do not tally with vouchers in the office of the secretary of the company for reasons :

(1) Many payments of school, road, and other taxes were paid which do not appeal* on my books.

(2) Many payments appear on my books which do not tally with actual payments, from the fact of tax collectors correcting errors in amounts due ; rebates on errors and from other sources by tax collectors : delinquents paid in the interim between date of publication and sale, and taxes paid by parties purchasing lands during the^iscal year of such payments.

NOTE. The company returns for assessment all lands owned by it on the first Monday in March of each year.

(3) I did not assume the duties of tax agent until 1870^ hence my books show from that year only.

The body of the foregoing is hereby submitted as substantially in its showing. I have the honor to be, your obedient servant,

E. B. RYAN.

OFFICES OF THE CENTRAL PACIFIC EAILROAD COMPANY,

San Francisco, July 28, 1887.

The Commission met pursuant to adjournment, all the Commissioners being present.

The sergeant-at-arms of the Commission having been sent for Mr. William E. Brown, reported that Mr. B rown could not be found . Mr. S. T. Gage, having been requested to learn the whereabouts of Mr. Brown, reported that Mr. Brown had been in the office all day yesterday and at his hotel last evening, but that he had not yet arrived at his office this morning. Mr. Gage further stated that Mr. Brown had been sent for, and, if he could be found, would be on hand as soon as possible.

The CHAIRMAN. We have sent our sergeaut-at-arms out for him. He has been out some time.

Mr. GAGE. He has been sent for by messenger, and Colonel Crocker has also telegraphed for him.

OFFICERS OF CENTRAL PACIFIC FAIL TO APPEAR.

The CHAIRMAN. The Commission has twice requested the presence of Mr. Stanford before it.

Mr. GAGE. Governor Stanford has not known that.

The CHAIRMAN. He has not appeared. The Commission desires to know whether a simple request for the attendance of the officers and employes of the company, made upon some one in authority in the company, will be sufficient. If not, then the Commission will issue subpoenas to the officers and employe's of the company to secure their presence and the production of their books.

2452 U. S. PACIFIC RAILWAY COMMISSION.

EXPLANATION OF MISUNDERSTANDING.

Mr. GAGE. I can assure you, Mr. Chairman, that Governor Stanford has not received any such information. Your bailiff, or whatever he may be, knocked at Governor Stanford's door, a short time ago, an hour ago, probably, while I was in there with Governor Stanford, and in quired for Mr. Brown. I went to Mr. Brown's room, understanding that it was simply an inquiry for him, but he was not in. I came here now for the purpose of saying to the Commission that Governor Stanford, as president of the company, would like to appear before the Commission. He has voluntered to do so, not having received any information that he was wanted. Presuming that you would be in session, he voluntarily instructed me to say to the Commission that he would like to appear before the Commission at 1 o'clock to-day.

The CHAIRMAN. The Commission will hear Mr. Stanford to-day at 2 o'clock at Parlor A, Palace Hotel.

Mr. GAGKE. I will so report to him.

OFFICES OF THE CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, July 28 7 1887.

JOHN H. WALSH, being duly sworn and examined, testified as follows :

By the CHAIRMAN :

Question. Have you served a subpoena on William E. Brown? Answer. I have not, sir. <

FAILURE TO SUBPCENA W. E. BROWN.

Q. Where did you go to find him? A. I went to room 200, Palace Hntel. I inquired also at the office of the hotel.

Q. What information did you get as to his whereabouts? A. The.y told me he was not in the room, and they did not know where he was this morning.

Q. Where else did you go to find him? A. I went into a room adjoining, room 42, in this building.

Q. Is that his office? A. I was told that it was.

Q. Was any one there? A. Yes, sir.

Q. What answer did you receive *? A. They said Mr. Brown was not about to-day.

READINESS OF GOVERNOR STANFORD TO APPEAR.

Mr. GAGE. Mr. Chairman, Governor Stanford will take pleasure in meeting the Commission at two o'clock to-day at the place designated parlor A, Palace Hotel.

The CHAIRMAN. We shall be glad to see him.

OFFICES OF THE CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, July 28, 1887. E. H. MILLER, JR., being further examined, testified as follows:

The WITNESS. Before entering into any further answers, if agreeable, I would like to make some explanation of uiy testimony given a few days since.

Commissioner ANDERSON t Certainly, you may do so.

E. H. MILLER, JR. 2453

ESTIMATES OF ENGINEER.

The WITNESS. I think that there was a call the other day relating to the examination of a contract, but if not, I would like to offer it. I have found the estimates of the engineers as to the quantities of the several contracts, with the prices put in by myself, which I desire to offer.

By Commissioner ANDERSON :

Question. Please state to what contracts they relate? Is it indorsed here on the back? Answer. I do not think it is. This bundle [indicating a package] contains estimates for section 1 to section 54. This second bundle contains engineer's estimates from section 55 to section 92, and this third bundle contains engineer's estimates from section 93 to section 141.

Q. Please explain exactly what the papers are which you present? A. I can only explain in general terms. They contain copies made by myself of the estimates returned by the chief engineer of the company of the quantities of work performed on the various sections from 1 to 141.

MEANING OF "SECTION."

Q. What is a section? Is it of any definite length? A. As I understand it, it is not absolutely defined, but practically it is for 1 mile. Sometimes there is a change made, as I understand, in the length of a section on account of the character of the work to be done, and sometimes a particular section may be a mile and a quarter and the next one perhaps may be three-quarters of a mile, but on the average they represent 1 mile. There is a specimen copy of one [handing document to Commissioner Anderson]. In addition to that there is a statement made up by myself of the quantities as appears upon that statement made by the engineer, the price as I ascertained it under the contract, carried out for each subdivision of the work, making a total amount of the estimate to the various dates, with the prices given.

Commissioner ANDERSON. After you have completed your explanation of one of these estimates I will ask you some questions about it, in order to complete the matter.

The WITNESS. That is a sample of the estimates and prices as tiled in my office.

Q. In whose handwriting are those estimates? A. In mine, those two, and, I think, every one of them.

Q. When did you copy them? A. I copied them at the time of the dates, certainly within ten days.

Q. Who was the engineer? A. S. S. Montague.

Q. Is he now-living $ A. He is not. In this connection, with reference to Mr. Montague, as I have mentioned his name, I wish to say that no better man has ever lived. He was competent, honest, and faithful.

EXPLANATION OF ESTIMATES.

Q. In the original paper prepared by him were the prices entered and the amounts carried out, as well as the quantity of work? A. No, sir.

Q. Then the original contained simply the first column of quantities and you entered the factors of price and the amount '? A. Excuse me.

2454 U. S. PACIFIC RAILWAY COMMISSION.

That is a copy a precise copy of an estimate furnished to ine by the engineers.

Q. Then the engineer did enter the price and carry out the amount? A. No, sir ; I beg your pardon. I am mistaken in that. The engineer did not return the prices, although it appears to be done on this copy that I have made.

Q. As I understand it you took his estimate of quantities and in the next column entered the factors of price and in the third column carried out the amount in dollars? A. Yes, sir.

HOW THE PRICES WERE ASCERTAINED.

Q. From what source did you ascertain the price! A. From the contracts or from the orders of the board of directors, as they appeared on the minutes of the company.

Q. In the marginal computations you took the total estimate which, as I understand you, includes the total estimate of all the work done to date, deducted preceding estimates, and then you obtain a sum which you divide into two parts, making the " five-eighths cash " and the other " three-eighths stock." Please state from what source you derive these fractions? A. Either from the contract itself, if it was a contract, and, it it was not a contract, I took it from the orders of the board of directors, making the price the same as appears on the minutes of the board.

HOW THE CONTRACTORS WERE PAID.

Q. And these amounts due to the contractors, whoever they were, were paid in this manner? A. They were not paid ; they were credited upon my ledger to the contractor.

Q. And ultimately paid? A. And ultimately paid, certainly.

Q. Does your ledger contain two accounts, to one of which you credited the cash payment and the other the stock payments? A. It shows plainly on the face of the ledger exactly what is shown there, that he was entitled to receive on this estimate a certain amount in cash and a certain other amount in stock.

Q. I ask you whether those amounts, the stock amount and the cash amount, were entered in separate accounts, or whether they were all merged in one account? A. There certainly would be one account for the cash and one for the stock account, but not a separate account with the contractor.

Q. Then the contractor, on this statement which I hold in my hand, would be credited with $204,439.79? A. Yes; but he would be credited $127,774.87, payable to him in cash, and with $76,664.92 payable to him in stock.

Q. Those two entries would be made as separate credits? A. Yes, sir.

Q. They would not be merged into one figure"? A. No; the entry would appear on the face of the ledger as separate items under the same heading.

Q. And when you came to balance that account you would figure up how much stock was payable to that account and how much cash was payable to that account, and you would balance the account by entering the required amounts in stock and in cash? A. When it was received or paid to the contractors entries would be made in the manner you suggest, or in the manner in which your question indicates.

E. H. MILLER, JR. 2455

CONTRACT WITH CROCKER & CO.

Q. What I want to know positively is whether, when estimating what was paid on this contract with Crocker & Co., we may take all your entries of cash and all your entries of stock, as appearing in these estimates or as appearing on the face of your ledger, and conclude that the consideration received by Crocker & Co. was the sum total of the cash and the sum total of the stock ? A. Yes, sir.

Q. Will you please state to what contract these estimates refer, as far as you can? A. Yes, sir ; they referred in general or in detail to all the contracts between sections 1 and 141 ; the various contractors between those sections. For all of these sections, of course, there were various contractors.

LOCATION OF SECTIONS.

Q. Give us the geographical location of those sections. Do they com mence at the city of Sacramento? A. Section No. 1 commenced at the city of Sacramento and section 141 ended approximately 141 miles east of Sacramento, varying perhaps three quarters of a mile.

Q. How near the State line would that be? A. At the State line, practically.

CONTRACT AND FINANCE COMPANY.

Q. That carries us to a point where the transactions with the Contract and Finance Company commence? A. Yes.

Q. And embraces all the minor contracts and the two contracts with Crocker & Co. ? A. Yes, sir ; I think there are three contracts, however, with Crocker & Co.

Q. In whose handwriting are the monthly estimates? A. The monthly estimates of quantities are in the handwriting of some clerk in the engineer's department, and the monthly estimates of prices and amounts are in my own handwriting. From the estimates of quantities of work done and the estimates of amounts payable, there is no difficulty in ascertaining all of the terms of the contracts applicable to the sections between 1 and 141.

I wish to state to the Commission that these papers were not in the vault in my office, but in an outside room, in some pigeon-hole, and 1 found them yesterday while making a thorough overhauling of all my papers.

HOW CONTRACTS WERE MADE.

Q. What other papers do you desire to produce besides these estimates? A. As I remember, 1 was asked under what arrangements contracts were let and the circumstances in connection therewith. I find on looking over the reports of Governor Stanford that reports were made by committees at various times upon these matters. I have three reports of a committee of which, I believe, Governor Stanford was one, and in another case I was another. One is a report of a committee upon the question of making a contract for the construction and grading of the railroad. It is dated May l), 1865. The report of another committee upon letting a contract, dated June 6, 18G5, is also here. Also the report of the president and the acting chief engineer, dated January 5, 1867, upon the progress of construction, submitted to the board of directors January 14, 1867, and ordered on file. With the permission of the Commission, I would like to read these reports.

Commissioner ANDERSON. We will probably put them in our report and we will read them this afternoon.

2456 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. I would prefer to read them now if there is no objection. The CHAIRMAN. It is not necessary to read them now.

REPORT FOR 1886.

The WITNESS. In my statement the other day as to the funded debt of the .company I was very careful to state that my figures .wer.e given as of the date December 31, 1885. I have before me a proof of the report of the company up to December 31, 1886.

Commissioner LITTLER. Bead that.

The WITNESS. It is composed of tables. I will read it, and I would like afterwards to submit our report containing them. This is our proof, and it has nut been corrected; it will go back to the printer today for correction.

Q. When are you going to let us have the proof of your report for 1886? A. There is the proof copy that came a few days ago and now goes back for correction. There are a great many corrections in the proof.

Commissioner ANDERSON. We ought to get it in a day or two 'I

The WITNESS. Yes, sir.

Commissioner ANDERSON. We will get your report, then, in a day or two, and it is not necessary, therefore, to read that statement at the present time.

STATEMENT AS TO GUARANTEES.

The WITNESS. My testimony should be corrected relative to those accounts, though I was careful to state that the figures I gave were those of December 1, 1885. With regard to the statement as to guarantees which I was asked to get out as to the bonds guaranteed by the Central Pacific, I now submit it. It is a statement showing the bonds of leased lines guaranteed by the Central Pacific. It is made in tabular form, showing the name of the road, miles of road, character of loan, amount of bonds guaranteed, date of maturity of bonds, interest payable, &c, California Pacific, second mortgage, 6 per cent., $1,600,000, due January 1, 1891, interest payable in January and July.

By the CHAIRMAN :

Q. What is the date of the guarantee? A. It bears date at the time the lease was made. Q. What was the date? A. I do not know.

By Commissioner ANDERSON :

Q. Cannot you tell us the year? A. Not from memory.

The CHAIRMAN. It is very important that we should have the date of the guarantee.

The WITNESS. There is no difficulty in ascertaining it from the papers in your possession.

Commissioner ANDERSON. There is no doubt about that, but we have many things to ascertain, and we would like to have you get the information for us.

The CHAIRMAN. Suppose you keep that paper and amend it by adding the date of that guarantee.

The WITNESS. If you choose, I will pass that for the present.

Commissioner ANDERSON. The date of the guarantee is essential.

OBJECT OF INCREASED ISSUE OF STOCK.

The WITNESS. It is possible that there may be a correction necessary in my testimony given the other day. 1 misapprehended one of the

E. H. MILLER, JR. 2457

questions, as reported by the reporters a question put by Mr. Anderson in relation to the purpose for which the $5,000,000 were issued. Although that question is in the report, I do not remember it at all. The question that I do recollect was, what was done with the $68,000,000. My answer fits both cases, because the $5,000,000 of bonds having been sold for cash, that cash was deposited in various banks and disposed of in sundry ways. It was impossible to tell exactly to what various purposes the proceeds of the sale of those $5,000,000 were applied. They went into the general fund, and were used for the general expenses of the company.

Commissioner ANDERSON. The question was, what the $5,000,000 of stock which was issued (raising the amount of stock from $54,000,000 to $59,000,000) was. It was not bonds.

The WITNESS. I should have said stock; not bonds. It was impossible for any man to tell to what particular purpose that money was applied, unless it was kept entirely and distinctly by itself. The moneys came in and went into the general fund, and they were applied to the general purposes of the company, and it is impossible for me or for any man to say to what particular purpose this particular money was applied.

DID PROCEEDS GO TO PAY DIVIDENDS?

By the CHAIRMAN :

Q. Would you have used it to pay dividends? A. If we paid any dividends after that, unless this cash had been kept right sraight along separated from all other cash, probably it would have gone towards the payment of dividends. 1 want to explain that. The actual and definite proceeds, the individual money received from that $5,000,000 of stock, were not segregated from the other moneys of the company, but went into the general fund, and if the company was entitled to pay dividends if it had the right and authority to pay dividends some of that actual money may have been used in paying them.

WHEN AND WHY THE STOCK WAS INCREASED.

Commissioner ANDERSON. The stock was increased in 1880, and is entered in the reports of the company as held in trust for the company. It seems subsequently to have been sold, and my question is, when was that stock sold, and what became of the money"?

The WITNESS. The annual reports will show that. They will show the increase in the stock issued. I do not remember the year.

Commissioner ANDERSON. You will find it $54,000,000 in 1881, 1882, and, I think, 1883. From your general report we cannot tell just when this issue was made without tracing it up. This stock was sold from time to time as occasion offered, and the cash entered in the miscellaneous cash assets of the company. You mean to say that it is impossible to say that the dollars received from this stock went to any special purpose, as I understand you.

The WITNESS. Precisely.

FLOATING DEBT.

Commissioner ANDERSON. But in taking the balance sheets of the company and tracing from the year when the capital stock account was increased $5,000,000, and tracing the increase on the other side of the account, the construction account, or the equipment account, or any other of the accounts which appear on that side, you may mean to say that

2458 U. S. PACIFIC RAILWAY COMMISSION.

the increase in the stock, together with the increase of the items the bonds on that side have gone into the other moneys which appear to have increased on the other side of the account.

The WITNESS. Yes, and I can add to that, generally, that the sale of that stock was made for the purpose of getting money to pay off the floating debt ; but whether that particular money received was used for that purpose or not, I cannot say. I submit now a number of reports, which I have found in my office. I have handed you all the papers, except Leland Stanford's reports. I have here seven reports of Leland Stanford.

REPORTS OF OFFICERS.

(The witness here produced seven reports of Lelaud Stanford, president, as follows : A report dated July 13, 1865, to the stockholders at their annual meeting. A report dated December 28, 1865, reporting as to proceeds from sales of California Central Eailroad rolling stock, &c. Three reports dated September 1, 1867. A report dated December 26, 1867. A report dated July 13, 1869, to the stockholders of the Central Pacific Eailroad Company of California, at their annual meeting.

The witness also produced fifteen reports of Treasurer Mark Hopkins.

The witness also produced reports of C. P. Huntington, as follows : Two reports lor 1863. Two reports for 1864. Thirteen reports for 1866. Ten reports for 1867. Nine reports for 1868. Three reports, without the date being noted on the back.)

Commissioner ANDERSON. That completes your papers, Mr. Miller, does it?

The WITNESS. Yes, sir ; I will say, however, that they are not all the reports of Mr. Huntington. Your accountants are using the reports of 1869 and subsequent to that time. They have been taken out of the files, and have been segregated from those papers.

REQUEST FOR HISTORY OF CONSTRUCTION OF ROAD.

Commissioner ANDERSON. Could you place before the Commission in tabular form (you may take a reasonable time to prepare it) a statement giving us, substantially, the history of the construction of this road, starting with section 1 and coming down to the completion in May, 1869, showing the cost of construction, the amount of cash, of stock, and of bonds issued under the Crocker contract, the amounts under the Contract and Finance Company's contracts and under the Western Development Company's contracts, if that company had a contract during those years? My information is that the entire construction up to May, 1869, covered miscellaneous contracts the Crocker & Co. contracts with the Contract and Finance Company and what we would like to know is how much it appears from your books this construction cost in cash, bonds, and stock, to whom the same were issued, and to what sections or miles of construction such payments were respectively applicable, as they appear from the estimates of the engineers, in connection with the issue of stock and bonds or payments in cash. In other words, can you give us the story of the construction of this road from its inception to its junction with the Union Pacific? I do not ask for the production of all the books, showing each individual payment, but so that we can generalize. You may take a number of sections together and take the contracts together, and say that the Crocker contract commenced at such and such a section, at such n date, and was completed so many months or years afterwards, at such a section, and that the entire consideration issued under that contract was so much in

E. II. MILLER, JR. 2450

money, so much ill stock, and so much in bonds, if bonds were used. Then we would like to have the same thing, made out in the same way, applied to the contracts of the Contract and Finance Company.

The WITNESS. Do you ask if I can give you these facts?

Commissioner ANDERSON. Yes.

TIME REQUIRED TO PREPARE THE STATEMENT.

The WITNESS. I can do so, but it will take some time.

Commissioner ANDERSON. How long will it take you to prepare that information ?

The WITNESS. Two or three days ; that is, I will not do it personally, but I will have to have it done by my clerks.

Commissioner ANDERSON. You can have all the time necessary.

The WITNESS. It will take two or three days, but I will have it ready for you within that time. I think, however, that your accountants are getting this information in detail. So far as I have seen what they are doing, I think that they will have full details of each contract with the date of each payment.

The CHAIRMAN. I should like to ascertain who can tell us the story of the construction of this road. ,

The WITNESS. I can tell that story without any difficulty.

The CHAIRMAN. I want it regularly and consecutively, whether on the witness stand or by memorandum. It is indifferent to me whether you write it out, or take the stand and tell it orally.

The WITNESS. I will write it out, and, if you desire, make an affidavit to it.

The CHAIRMAN. As far as I am concerned, I would like to get the facts. It is immaterial in what shape they come so long as we get them.

Commissioner ANDERSON. I move that Mr. Miller be requested to prepare the statement indicated to him, and, when it is ready, that he lay it before us.

The motion was agreed to.

VOUCHERS.

Commissioner LITTLER. Can you accompany that statement with the vouchers backing it up?

The WITNESS. I can.

Commissioner ANDERSON. We want first to get a plain statement of when this road was built and how much they paid for it, and then the detailed statement of vouchers or anything explanatory that can follow. You have nothing to add respecting the other contracts such as that with the Contract and Finance Company?

The WITNESS. No, sir ; only to say that I cannot possibly see any important connection which those contracts have, whether lost or present. You have, I think, every detail of those contracts among these that I have submitted this morning.

Commissioner ANDERSON. In these estimates of sections Nos. 1 to 141?

The WITNESS. Yes, sir.

Commissioner ANDERSON. There are other things that we want to see. We want to see the books of the Contract and Finance Company. We want to know how much it cost that company to build this road, as well as what the Central Pacific Company paid for it.

SUBPCENAS UNNECESSARY.

The CHAIRMAN. Is it necessary to serve you with a subpoena to be iere and testify before this Commission? P R VOL IV 9

2460 U. S. PACIFIC RAILWAY COMMISSION.

The WITNESS. No, sir ; it is not necessary to subpoena ine, or any other person connected with the company.

The CHAIRMAN. Will it be necessary to serve a subpoena for the production of the books 9

The WITNESS. No, sir. Every book that I have you can have without a subpoena.

The CHAIRMAN. Then you will see that they are produced without subpoenas 1

The WITNESS. Yes, sir.

E. H. MILLER, JR.

Afternoon session.

PARLOR A, PALACE HOTEL, San Francisco, Cal, Thursday, July 28, 1887.

The Commission met as above, all the Commissioners being present, the chair announcing that, until otherwise ordered, the sessions of the Commission would be held at that place.

The CHAIRMAN. Mr. Leland Stanford is present, and I suppose we had better proceed with his examination.

Mr. STANFORD. I received the Commission's printed circular containing some fifty-eight interrogatories, and I have carefully prepared an answer to each interrogatory. I had expected to be ready whenever the Commissioners should arrive in San Francisco, but there was some of the information that I could not obtain in time. If you will allow me I will read this.

The CHAIRMAN. Do you make this a portion of your testimony?

Mr. STANFORD. I have made an affidavit as to the truth of the facts stated in it, to the best of my knowledge.

The CHAIRMAN. At the bottom of this paper?

Mr. STANFORD. The affidavit is at the bottom of another paper, but this is a general statement preliminary to the answers that I have prepared to the interrogatories. I presume you will remember that you sent me a printed communication containing a number of interrogatories, requesting me to prepare answers, which I have done.

The CHAIRMAN. Before going on with it I will swear you.

LELAND STANFORD, being duly sworn and examined, testified as follows :

The WITNESS. Your communication dated New York, May 12, 1887, requesting me to answer the interrogatories contained therein, was duly received, has been carefully considered by me, and I submit herewith my replies thereto :

I did not have personally the information necessary to answer some of the interrogatories, and, agreeably to your request, referred them to those persons who possessed such knowledge. Their reports, verified by their affidavits, are attached as exhibits to, and are made part of, my answers to your communication.

CONGRESS TO CONSIDER THE EQUITIES.

The creation of this Commission charged by Congress with the duty of examining "into the workings and financial management of all rail

LELAND STANFORD. 2461

roads that have received aid in bonds from the Government," was an honest and candid admission by Congress that there were equities existing in favor of the railroads in question, which should be inquired Into, and to the full benefit of which they are entitled. I know that such equities do exist in favor of the roads I represent, and I am pleased that an opportunity has at length been offered us by Congress to present them in such form as to insure their full and impartial consideration both by it and by the people at large.

EXAMINATION POSSIBLE ONLY BY CONSENT OF COMPANY.

It will be readily admitted that the examination contemplated by the act, and with the making of which examination you have been charged, could not be held without the consent of this company whose affairs it was thus desired to examine.

The Central Pacific Railroad Company was organized on the 27th day of June, 1861, under the laws of the State of California, and has ever since been, and now is, carrying on and transacting its business under and in accordance with the laws of this State. In this particular its relations and obligations to the Government are entirely different from those of the companies which were created by and under Federal statutes. Congress has a control over such corporations, even to the extent, perhaps, of taking away their charters ; but as to the Central Pacific, even though all the laws of Congress relating thereto, and under which its relations to the National Government are defined, were repealed, it would still exist as a legal corporation, and continue to do business as such under and in accordance with the laws of the State relating to railroad corporations. After diligent search I have been unable to find anything in that contract which authorizes any investigation of this kind to be made.

Hence, as I have before said, it will be readily admitted that the examination contemplated by the act of Congress cannot take place without the assent of the company itself.

COMPANY CONSENTS TO EXAMINATION.

Notwithstanding all this, however, we meet you most cheerfully in this matter. We shall furnish you a full and detailed answer to each and every one of the fifty-eight propositions and interrogatories contained in the communications hereinbefore mentioned.

AID FOR CONSTRUCTION OF ROAD URGED BY ALL.

The construction of the Pacific Eailroad to unite the Atlantic States with the States and Territories of the Pacific was the leading topic of public discussion from the termination of the Mexican war, until the road was finally completed in May, 1869. This subject occupied the attention of political conventions in neat- ly every State of the Union, and Congress was overwhelmed with petitions and memorials urging the extension of Government aid to the enterprise. Public sentiment compelled the national conventions of both political parties to declare in favor of the construction of the road, as a military and commercial necessity.

EARLY SURVEYS AND ROUTES.

Prior to 1860, surveys and examinations were made by the War Department, of various routes across the continent. The Southern route

2462 U. S. PACIFIC RAILWAY COMMISSION.

on the thirty-second parallel was regarded as the only one upon which it was practicable to construct a trans-continental railroad. It was understood that the Northern and Central routes were impassable in winter on account of the deep snows in that region, and besides, the mountains themselves were represented as imposing insurmountable barriers to the construction of a railroad. Pending the discussion of the question, the civil war closed the Southern route and rendered it impossible for the United States to avail itself of the advantages supposed to exist on the thirty-second parallel. The Government had no option; if a road was built, either the northern or central route must be adopted. The war made it clear to every citizen that a road connecting the Pacific with the Atlantic was a political necessity. The discussions which had already taken place with respect to the several routes across the continent had impressed the financial world with the impracticability of constructing a railroad on the central line.

ACT OF 1862.

Congress, however, resolved that a road must be built, and to that end, in 1862, passed an act in aid of its construction. The act provided for the organization of the Union Pacific Railroad Company to construct the road from the Missouri River to the eastern line of California, and authorized the Central Pacific Eailroad Company to construct the balance of the road through that State.

BUSINESS FROM COMSTOCK LODE.

At the time of the organization of the Central Pacific in 1861, the great Comstock Lode in Nevada was being rapidly developed, and a vast amount of freight was being carried over the mountains by teams. It was for the purpose of doing this business for which there was no competition, except teams over the mountains, that the projectors of the Central Pacific Eailroad 'organized that company. They would not have attempted to scale the Sierra Nevada Mountains with a railroad against other competition.

GOVERNMENT TRANSPORTATION PRIOR TO ROAD EIGHT MILLIONS A

YEAR.

On the line of the road across the continent for a term of years prior to the passage of the act for the construction of the Pacific Eailroad, the annual expenditures of the Government for the transportation of supplies for the military and Indian service and carrying United States mail had exceeded $8,000,000. This annual expenditure was assumed as a basis for the compensation which would be paid to the railroad for the service it would be called upon to perform for the Government. It was understood that the Government service would be largely increased by the construction of the road, and it was assumed that the compensation would never be less. The act provided for both bonds and lands to aid in the construction of the road. The bonds were to draw 6 per cent., and to become due thirty years after the date of their issue. It was also provided that the road should perform all Government service required, and that the compensation therefor should be credited upon the principal and interest of the bonds, and that the Company should also pay to the Government 5 per cent, of its net earnings to apply on the bonds.

LELAND STANFORD. 2463

UNITED STATES TRANSPORTATION CHARGES AND FIVE PER CENT. OF NET EARNINGS TO PAY THE DEBT.

It was estimated that the eight millions per annum which it had previously cost the Government to transport supplies and carry the mail would-be paid to the company for much better service, and that such payment, together with the 5 per cent., would liquidate all the obligations of the company to the Government before the maturity of the bonds. This would have been the case if the Government had not reduced the compensation of the Pacific Railroad for transportation ot supplies and mail service to a mere nominal amount. The Government, in fact, required the Pacific Railroad to perform mail service at a rate not exceeding the usual allowance made to railroads passing through the populous States of the East, making no allowance for the fact that in the region where the road was constructed there was no competition, very little local business, and the fact that the Government had been relieved from the slow and inadequate service formerly performed by teams and pack animals.

ACT OF 1862 NOT .ADEQUATE.

The Union Pacific Railroad was unable to enlist capital to. undertake the construction of the road under the provisions of the act of 1862. The public mind was so thoroughly impressed with the difficulties of the construction of a railroad on the Central line that it could obtain no money for that purpose. In addition to this, the war had destroyed public confidence and added largely to the difficulties of the enterprise. The Central Pacific was also unable to avail itself of the provisions of the act. It was, however, a State corporation, and. continued to struggle to construct a road over the Sierra Nevada Mountains. Some aid was extended by the State of California by the guarantee of interest on a million and a half in bonds, and bonds of several of the counties of the State, all of which have been fully reimbursed, except the city and county of San Francisco, which compromised its subscription of $600,000 to the stock of the company by paying $400,000 in the bonds of the city after a long litigation.

ACT OF 1864.

With the private means of the corporation and the aid above mentioned, it commenced the work of construction in 1863, and continued it until the road was completed in 1869. In 1864 Congress became satisfied that the road could not be built on the terms and conditions provided in the act of 1862, and passed a supplementary act containing important modifications, viz: It doubled the amount of the land grant; it provided that the company might execute a first mortgage on the road for an amount equal to the Government bonds ; and it confined the payments required from the company to one-half the compensation due from the Government, and the 5 per cent, of net earnings named in the original act. It reserved a lien upon the road for the performance of these obligations.

REASONS FOR MODIFIED TERMS.

The argument in favor of these modifications was that the road was a political necessity and must be built at whatever cost ; and it was contended that one-half of the compensation due from the Government

2464 U. S. PACIFIC RAILWAY COMMISSION.

for services, together with 5 per cent, of the net earnings, would pay the bonds before maturity. This would have been the case, if upon the construction of the road the compensation had not been reduced below what was previously paid. The time limited by Congress for the construction of the road extended to July, 1876, but a universal desire was expressed by Congress and the country for an earlier date.

RAILROAD OVER SIERRA NEVADAS DECLARED IMPOSSIBLE.

As before remarked, the Central Pacific was compelled to build over the Sierra Nevada Mountains, which had been pronounced impassable for a railroad, not only by the public at large, but by many engineers. This alone would have made the negotiation of its securities difficult ; but added to this there was much local opposition.

ANTAGONISM OF OTHER INTERESTS.

The construction of the railroad antagonized the Telegraph Company, the Sitka Ice Company, the California Steam Navigation Company, the Pacific Mail Steamship Company, the various toll road companies, the contractors for the Government, the Sacramento Valley Railroad Company, Wells, Fargo & Co., and all the various transportation interests, because its construction would interfere with or practically destroy their respective business organizations. These interests largely influenced the public press of the Pacific coast, and made combinations to destroy the credit of the company and prove to the world that its undertaking was a fraud and a farce which must necessarily culminate in failure. Under these circumstances the road across the Sierra Nevada Mountains was* constructed, and the will and energy manifested by the company attracted the attention of Congress and induced a change in the law.

CENTRAL PACIFIC AUTHORIZED TO BUILD EASTWARD FROM CALIFORNIA.

It will be borne in mind that the original act conferred on the Central Pacific the right to build to the east line of the State of California. In 1866 that limitation was removed, and it was provided that both the Union and Central Pacific Eailroad Companies might continue to build until a connection was made by a continuous line of railroad. At that time the Central Pacific Company was surmounting the difficulties on the Sierra Nevada Mountains which had hitherto been regarded as obstacles which could not be overcome, while the Union Pacific Company had scarcely made a commencement. The road of the latter company was then constructed but a few miles west of the Missouri River, al though it had a level plain for more than 500 miles west of Omaha.

ROAD COMPLETED MAY, 1869; SEVEN YEARS BEFORE TIME FIXED.

This act was passed to hasten the completion of the road, and it accomplished the purpose desired. The last spike was driven in May, 1869, seven years before the expiration of the time limited in the original act. The companies very justly regarded this act as an indication by Congress that a speedy construction of the road was demanded. To meet this demand both companies made great sacrifices.

LELAND STANFORD. 2465

EXTRA COST BY EARLY COMPLETION.

The loss sustained by the Central Pacific in thus complying with the manifest design of Congress for the speedy completion of the road was very great. The company did not wait for a completion of a continuous line to convey materials and supplies for the construction of the road; on the contrary, by means of teams and pack mules, transported supplies for hundreds of miles in advance of completed construction. It even conveyed railroad iron, locomotives, and other materials by teams in winter, over the deep snows on the Sierra Nevada Mountains, where little but tunnel work could be done in that season of the year, for the construction of the road beyond, and built many miles of road before a connection was made therewith.

ADDITIONAL LOSS TO COMPANY BY EARLY COMPLETION.

I desire to call the attention of the Commission to some of the sacrifices made by the company in hurrying the work to its early completion. The bonds issued by the United States to the company were, on account of the war, disposed of at a discount of over $7,000,000. This discount, with the interest on the same until the maturity of the bonds, will amount in ronnd numbers to $20,000,000. There was also a like discount suffered on the first mortgage bonds issued by the company, whereas if the full time allowed by Congress had been occupied in the construction of the road, these bonds could have been sold at par. At the time the road was constructed the prices of labor and materials in California, Nevada, and Utah were enormously inflated, not only on account of the war prices which then prevailed and the war risks which were incurred in transporting material from the East by sea, but also by reason of the great mining excitement which prevailed in Nevada and California and absorbed nearly all the available white labor. It will be shown by the testimony of engineers who had charge of the construction of the road and other competent witnesses, that the cost of construction exceeded 50 per cent, more than it would have been if the company had delayed its final completion until July, 1876.

PUBLIC BENEFITS REALIZED THROUGH CONSTRUCTION OF PACIFIC

RAILROAD.

The Pacific Eailroad has accomplished all the good, both local and national, that was predicted by its most enthusiastic supporters. It has demonstrated the possibility of the construction of a transcontinental road ; it has proved to the financial world that the great interior abounds in resources ; it has made it possible for the construction of other transcontinental roads, with numerous branches and feeders ; it has shown how the national domain can be utilized; it has encouraged the development of the natural resources of California, and shown that its products of fruits and wines can be transported to the Atlantic, States by rail. It was the first enterprise anywhere in the world which made possible the habitation of regions of country far remote from navigable waters, and has added untold millions of wealth to the nation. It has performed the public service so faithfully and expeditiously as almost to annihilate the distance between the Pacific and the Atlantic, and bring the whole country into close and intimate political, social, and commercial relations. It has performed the Government service in transportation of mails, materials, and supplies, to the complete satisfaction of all Government officers having charge of such business.

2466 U. S. PACIFIC RAILWAY COMMISSION.

INJURY TO COMPANY BY UNJUST LAWS.

While the company has been spending all its energies in furnishing to the Government and the people every possible facility at the lowest possible rate for transportation, Congress has at times, through a misapprehension of the facts, appeared exacting and unjust. The act of 1878, known as the u Thurman act," has been injurious to the company. While it was admitted that there was nothing due from the company except one-half of its compensation for Government service and 5 per cent, of its net earnings, until the maturity of the bonds, Congress provided for a sinking fund ; it placed the management of that fund in the hands of the Secretary of the Treasury. The sums required under this act have been paid into the fund since 1878 and have been invested in Government bonds issued for the construction of the Pacific railroads, at a cost for premium of 34 per cent. These bonds, as we have already seen, were originally disposed of by this company at a discount, causing a loss on the principal alone of $7,000,000.

INVESTMENT OF SINKING FUND BY UNITED STATES.

The company is charged interest on these bonds at the rate of 6 per cent, on their par value. The Secretary has invested the money which the company has paid under the Thurman act in these bonds, paying an average premium therefor of 34 per cent. There has been paid in by the company to the sinking fund $3,168,600.50, the loss on which in interest and premium up to the present time is $1 ; 612,966.72. In fact, there is less money in the sinking fund to-day than the amount paid in by the company by over half a million dollars.

BENEFITS TO BE CONSIDERED.

It was supposed when the company accepted the terms of the acts and entered into the contracts with the Government that the United States would take into consideration the circumstances under which the road was constructed, the difficulties encountered in its construction, and the great benefits accruing to the Government'by its increased facilities in mail service and transportation, and allow it a like compensation to that formerly paid for the service when performed by teams and pack animals. This company, instead of receiving four millions per annum, which would have been its reasonable proportion according to the former rates of compensation, has, in fact, received not more than one-eighth of that amount.

NO COMPETING LINES ANTICIPATED.

I also desire to call your attention to the fact that at the time of the construction of the Pacific Eailroad no competing roads were anticipated. It was expected that the Pacific road, for which the Government issued its bonds, would be the only transcontinental road until its debt to the Government was fully liquidated. But soon after the company entered into the contract with the United States for the construction of the road, other parallel and competing roads were aided by extensive land grants made to them by the United States. The land grant to the Northern Pacific was many times in extent and value more than the land grant of the Union and Central companies. The Atlantic and Pacific, Texas and Pacific, and Atchison and Topeka are all compet

LELAND STANFORD. 2467

ing roads to the Union and Central, and have all been aided by extensive land grants made by the Government since the commencement of the construction of the Central Pacific.

LOSS CAUSED BY COMPETING AIDED LINES.

There was certainly no competition available to the Government with the Pacific Railroad from the time of its completion until 1881, when the Atchison, Topeka and Santa Fe united with the Southern Pacific at Deming, N. Mex. During all that period the Government? was saved the full amount of the difference between what was paid by the former mode of transportation and the actual amount paid after the completion of the Pacific Railroad. This amounts to many millions of dollars, as shown by the public reports. The local business for Utah and Nevada is exceedingly small, as will appear from answers to your questions which I shall hereafter make. The Central Pacific, outside of its local business in California, mainly relies upon through business. This has been diminished by the competing lines aided by the Government by at least $17,000,000, as will be shown by the facts and figures hereafter presented in answer to the proper interrogatories.

THE EQUITIES CONSIDERED BY CONGRESS.

The act of Congress, however, under which, your Commission is organized, recognizes the equities of the company and provides for an examination of all the circumstances attending the construction of the road, such as : what was the cost of Government transportation and mail service on the line of the road prior to its construction ; how much more expensive was it to construct the road at the time than it would have been five years earlier or fire years later; what discount was the company forced to make in disposing of its bonds ; what loss has the company sustained by competing lines subsidized by the Government. This is the first opportunity the company has had to present in official form these equitable considerations.

THE DEBT OF THE GOVERNMENT IN EXCESS OF THAT OF THE COMPANY.

I feel confident that when your Commission shall have concluded its labors it will appear that upon an equitable adjustment between the United States and the Central Pacific Company the company will owe nothing to the Government, but, on the contrary, the Government will be largely in debt to the company.

PRINCIPAL CLAIMS AGAINST THE UNITED STATES.

I will recapitulate the principal claims of the company against the Government, which are :

(1) The loss and interest thereon which the company sustained by being forced to sell the bonds received by it from the Government at a discount :

Loss $7,120,073.55

Interest to maturity 12,816,132.39

Total . 19,936,205.94

(2) The amount which the Government saved in its transportation on the Central and Union Pacific line between the completion of the road in May, 1869, and time when it might have been completed under the contract, i. e., July 1, 1876, $47,763,178. This coini>any's proportion, say 46 per cent - 21,971,062.00

2468 U. S. PACIFIC RAILWAY COMMISSION.

(3) The amount which the Government now owes the company upon transportation, the legality of which claim has been sustained by the Court of Claims and also the Supreme Court of the United States. This

amount is $1,853,323.15

(4) The amount of loss which the Company has directly sustained by reason of the refusal of the Government to grant the company patents

for its lands as rapidly as called for, say 500, 000. 00

(5) The loss by the Sinking Fund investments in United States Treasury ,. 1,612,966.72

(6) Loss by diversion of business from Central and Union Pacific to other subsidized roads, $37, 000, 000. Central Pacific's proportion of

which, 46 per cent is, say 17,000,000.00

Total 62,873,557.81

I will now proceed to answer the questions submitted by you in their order.

By the CHAIRMAN :

Question. Have you those answers in writing? Answer. Yes, sir.

Q. Do you desire to read them? A. Yes, sir ; but I suppose you may sometimes desire to ask me questions as you go along. A little explanation may occasionally be necessary, and it may save the Commission's time.

Commissioner ANDERSON. I think the witness had better get through all he desires to state and then we can ask him such questions as we may desire.

The CHAIRMAN. We propose to take you up from the beginning, on the examination, as to this road.

The WITNESS. I will be at your service as to anything you want.

The CHAIRMAN. And you can submit your papers.

The WITNESS. I do not believe there are any questions that you will ask me but what will be cheerfully answered to the best of my ability. We have never before had an opportunity to place the history of this road before the public. This is the first time. There have been more misrepresentations and more falsehoods told about this company than one would ever conceive, unless one was familiar with its history.

THE BONDS WENT INTO THE CONSTRUCTION OF ROAD.

All of the $27,000,000 of bonds (none of which I ever saw) and every one of our first-mortgage bonds went into the construction of the road. I signed all of them and sent all of them East to be sold, and have never seen one of them until this day. Yet they made us out as having made a profit of some hundreds of millions of dollars or more. That story was circulated all over the country. We only had twentyseven millions from the Government at the beginning, and those sold at a discount of $7,000,000. And, by the way, those bonds are the only ones that the Government ever parted with at par. All the rest, as you know, were at a discount in gold, but these we are charged for at par. While our credit was pretty good when the Government made the contract with us, and we had great faith in the bonds, yet they came to us at a time when we sold them, I think, at 40 cents in gold.

REASONS FOR RAPID CONSTRUCTION.

I do not know that I have explained to you all the reasons for this rapid construction of our road, but there was more work performed on the first 150 miles of the Central Pacific than would suffice to grade a line of road from that point to Chicago, and that fact is very easily sue

LELAND STANFORD. 2469

ceptible of substantial demonstration. We worked a much larger force of men. For three years we worked more than double the force of men on those mountains that we worked afterwards when we went 500 miles in ten months (less 10 days). That rate of speed on the other portion of the road would have carried us to Chicago. We worked with more than double the force of men, and were aided on an average by five hundred kegs of powder a day. I will tell you of a conversation that occurred when we first went over the line, before there was a trail.

AT THE SUMMIT.

W T hen we were prospecting we got up about Donner Lake and had got to the summit and looked down at the lake, 1,200 feet below us, and looked up at the cliffs 2,000 feet above us, we meditated on the scene not only for its beauty, but also for its practical relations to a railroad, and we came to the conclusion that if a ship could start from San Francisco and sail around Cape Horn and get in back there we could not afford to build a road and meet that competition ; or if a ship could sail from any Atlantic port around Cape Horn and get in there, we could not afford to build the road and meet that competition. But we knew that they could not, and the only competition, therefore, that we were likely to have or could expect to meet,* was that of the ox-team and the mule-team, and as the laws of the State of California allowed 15 cents a ton per mile, we concluded we could build it.

COMPELLED TO HASTEN CONSTRUCTION TO MEET UNION PACIFIC.

When Congress passed the bill which provided for the Union Pacific Company to build west towards us, to form a connection, and allowing us to build east towards them, we were compelled then to meet that road out towards Salt Lake, or else we would have nothing but this terrific mountain to operate and we would be entirely at the mercy of the Union Pacific in bringing supplies from the East to Nevada. We were compelled, therefore, to push our road through with all the speed in our power to have anything of value. Although in passing the summit we had done the greatest amount of our work, and had climbed up an elevation of 7,000 feet in 103 miles (the most of which was done in about 80 miles), yet we made every sacrifice for speed. We economized our means as far as possible, but we never hesitated at anything that would give speed. Yoil must excuse me for branching off a little in this way, but it is a part of the history of the construction of the road and of the influences which led to its construction, which may not be generally known. Now the first question you asked me is as follows :

DUTY OF COMMISSION.

" Question 1. That the duty of said Commission shall be to examine into the working and financial management of all the railroads that have received aid from the Government in bonds."

Answer 1. This interrogatory, being simply a recital of the duties of the Commission, does not seem to require any answer from me.

The CHAIRMAN. Are you going to give us this manuscript?

Governor STANFORD. Yes, sir. I might ask the privilege of editing it a little, because we have been hurried very much, and there are some typographical and other little errors that have crept in.

The CHAIRMAN. There is no objection to that.

2470 IT. S. PACIFIC RAILWAY COMMISSION.

HAVE COMPANIES COMPLIED WITH ALL OBLIGATIONS!

u Question 2. To ascertain whether they have observed all the obligations imposed upon them by the laws of the United States under which they have received such aid, or which have been since passed in reference thereto, and complied with all other obligations to the United States."

THE CENTRAL PACIFIC HAS FULLY COMPLIED WITH THE LAWS.

Answer 2. The Central Pacific Railroad Company has always promptly observed all the obligations imposed upon it by the laws of the United States under which it received its aid in bonds, or which have since been passed in reference thereto, and has also promptly complied with all other obligations to the United States.

I have never heard, either from Congress or any other official source, that the Central Pacific Railroad Company was not promptly discharging, as they accrued, each and every one of the obligations imposed upon it by Congress. If there had been such complaints I should certainly have heard of them.

I was chosen president of the Central Pacific Railroad Company at its organization, and have' held the position ever since. It has always been the earnest desire and purpose of the company to meet and discharge, and it has promptly met and discharged, as they accrued, all the obligations imposed upon it by the laws of the United States ; such has ever been and still is the policy of the company. I deem it unnecessary to say more upon this point, but direct your attention to, and ask your careful consideration of, the following extracts from the reports of the Attorney-General and the Commissioners of Railroads; also to the affidavit of Mr. E. H. Miller, jr., the secretary of the company, hereto attached, marked " Exhibit 1," and made part hereof.

STATEMENT OF ATTORNEY-GENERAL AS TO FULL COMPLIANCE.

The Attorney -General, in his report to the Senate of the United States, at the first session of the Forty-eighth Congress, said : " First. The Central Pacific Railroad Company has fully and promptly complied with the requirements of said act," meaning the act of Congress generally known as the Thurman act. (Ex. Doc. No. 121, p. 2.)

Again, at the same session, in answer to further inquiry, the AttorneyGeneral said:

In further reply to the inquiries of the Senate, I have the honor to state that I ani informed by the Secretary of the Interior that the Central Pacific Company has met and paid the demands of the Commissioner of Railroads, reserving all rights. (Ex. Doc. No. 124, p. 3.)

STATEMENT IN 1882 OF UNITED STATES COMMISSIONER OF RAILROADS.

W. H. Armstrong, United States Commissioner of Railroads, in his report for 1882, says :

Able and expert accountants of this office have investigated and reported upon the business, financial condition, and proportion of net earnings due the Government for the past year. The results are shown in detail under the proper headings hereafter. Free access has been accorded to the books and accounts of the several subsidized roads whenever requested. Detailed statements of the earnings and expenses, finan

JLELAND STANFORD. 2471

cial condition, and physical characteristics of the various laiid-graut railroads have been compiled from examination and returns made, and are submitted herewith. As a rule, the accounts of the road are kept in a thoroughly comprehensive and businesslike manner. Reports to this office are not always made as promptly as required, but the desire is expressed by the dilferent companies to fully and promptly comply with the lawful demands of the Bureau. (Report 1882, p. 5.)

Again he says :

Under the act of May 7, 1878, the book-keeper of this office checked the books and accounts of the company (the Central Pacific Railroad Company) in San Francisco with a view to the ascertainment of 25 per cent, of the net earnings for the year ending December 31, 1881. Twenty-live per cent, of the net earnings of the subsidized portion of the road was found to amount to $1,038,935.24. The transportation for the Government during the year amounts to $959,785.33, leaving a balance due the United States of $79,149.91. Statement was rendered and payment demanded October 20, 1882. A check for the amount was sent to the Treasurer of the United States by the vice-president of the company October 23, 1882. The company has therefore paid to the Government all its accrued indebtedness to date. (Ibid., p. 26.)

STATEMENT IN 1883 OF COMMISSIONER OF RAILROADS.

In his report for the following year, 1833, Railroad Commissioner Armstrong says :

In accordance with the act of May 7, 1878, the books and accounts of this company (Central Pacific Railroad Company) were checked by the book-keepers of this Bureau in San Francisco, Cal., with a view to the ascertainment of 25 per centum of the net earnings of that portion of the road (800.66 miles) subsidized with the bonds of the United States for the year ending December 31, 1S82. The amount, found due was $792,920.24, against which the company had performed transportation services on aided and non-aided lines, all of which had been retained by the Government, amounting to $1,051,862.46, leaving a balance due the company that year of $258,942.22. The Central Pacific Railroad Company has paid promptly all balances found to be due to the United States, after statements have been rendered by this office. (U. S. Com. of R. R. Report 1883, p. 42.)

STATEMENT OF SAME OFFICIAL IN 1884.

In his report for 1884 Commissioner Armstrong says :

The property and accounts of the several railroads have been examined, the companies (Pacific railroads) having freely accorded all proper facilities for the inspection of their properties and the examination of their books. (U. S. Com. of R., 1884, p. 3.)

STATEMENT IN 1885.

General Joseph E. Johnston, United States Commissioner of Bailroads, in his report for 1885, says :

The lease (to the Southern Pacific company) has not affected the obligations of the Central Pacific Railroad Company to the United States, of course. The accounts of the company were examined in San Francisco. The property of thecom pany was also examined and found to be in good condition ; its principal work-shops at Sacramento are thoroughly equipped, and capable of making all the engines and cars required by the whole system. The surface of the road is excellent, the ditches ample, and the road-bod well raised and bridges sound.- (Rep. 1885, p. 17.)

Again, in the same report, the Commissioner says :

The accounts of the companies under the supervision of this office have been carefully examined, especially those of tho companies that were aided with the bonds of the United States. Their officers readily furnished all necessary facilities. The property inspected, including railroads, rolling-stock, and work-shops, was in good working order. * * * The portion of this road (Central Pacific) between West Oakland and Roseville Junction, 159 miles, was found to be in the usual good condition so characteristic of this company's railroads. (Rep. 1885, pp. 3 and 42.)

2472 U. S. PACIFIC RAILWAY COMMISSION.

STATEMENT OF THEOPHILUS FRENCH.

Theophilus French, United States Auditor of .Railroad Accounts, in bis report for 1879, says :

This company (Central Pacific Railroad Company) lias rendered such reports ae li.ive been required, and submitted its books and accounts to examination. * * * The engineer's report shows in considerable detail the condition of the property covered by the lien of the United States. * * The equipment on the road is in good condition and ample. The ferry service between Oakland and San

Francisco * * * is to be commended. The passenger service on this road is unexceptiouably good. (Auditor's Report, 1879, pp. 34-7.)

The above extracts from reports made by the persons selected by Congress from time to time and authorized to examine the books of the company show that it has always faithfully and promptly complied with the laws passed by Congress, and has, as I before said, promptly discharged all its obligations to the Government.

In this connection I direct your attention to the fact that the amount found due the company for the year ending December 21, 1882, as reported by the Commissioner, namely, $258,942.22, has not yet been paid.

DO BOOKS SHOW NET EARNINGS OF AIDED ROADS.

u Question 3. And whether their books are and have been so kept as to show the net earnings of the aided roads, and what said books actually show in regard thereto, arid what have been in fact said earnings."

Answer 3. This interrogatory contains three independent propositions :

(a) Have the books been so kept and are they now so kept as to show the net earnings of the aided roads? (b) What do said books actually show in regard thereto*? (c) What have been, in fact, said net earnings I To avoid confusion, I shall answer each proposition separately :

CENTRAL PACIFIC RAILROAD BOOKS SO KEPT AS TO SHOW NET EARNINGS OF AIDED ROADS.

(a) The books of the Central Pacific Railroad Company have been and are so kept as to show the net earnings of the aided roads.

The original acts of Congress passed in 18G2 and 1804, respectively, make no provision for the examination by any officer of the books of the companies therein referred to. After the roads were constructed and commenced business difficulties and controversies arose between the companies and the representatives of the United States in the matter of the settlement of the " net earnings," which, of course, had to be determined before the amount due the Government could be ascertained.

OFFICE OF AUDITOR OF RAILROAD ACCOUNTS CREATED IN 1878.

Congress, recognizing this defect in the acts of 1862, 1864, and 1878, by a special act (June 19, 1878) created the office of Auditor of Railroad Accounts, which act took effect on July 1, 1878. The designation of this office was by the act of March 3, 1881, changed to United States Commissioner of Railroads, being a change in title only, the duties and powers remaining the same. The first auditor of Railroad Accounts appointed under the act of 1878 visited the office of the Central Pacific Railway Company in San Francisco in 4879 and made a thorough ex

LELAND STANFORD. 2473

animation of tbe accounts and books and vouchers of the company from the date of its organization down to the date of his examination. He was given every facility for examination of the books, &c., and upon his report the amount then claimed to be due from the company was promptly paid, and the amounts found due in all subsequent examinations by the Auditor and Commissioner have also been promptly paid.

SUGGESTIONS ADOPTED.

He also made some suggestions in his report that the books of the company had not been so kept as to show readily the earnings of the aided and non-aided roads. The company at the beginning of the next fiscal year Janury 1, 1880 changed its system of book-keeping at considerable expense of time and money, to meet his suggestions. Ever since then the books have been and are now so kept as to show the u net earnings," according to his requirements.

NET EARNINGS SHOWN.

(&) The books actually show the u net earnings " from the completion of the road to the last settlement reported by the Eailroad Commissioner of the United States, dated December 31, 1886.

(c) Such earnings amount to $59,276,387.54, from the completion of the road to December 31, 1886.

Now, if you will observe, under the Thurman bill we paid in one million and thirty-eight thousand dollars. That was in 1881, which was the first time that we had a competing line of road, and you will see that we never were able to pay as much in afterwards. At that time, in 1881, the Atchison, Topeka and Santa Fe Eailroad Company made a connection with the Southern Pacific at Deming, and of course opened a competing line of the road.

Question 4 relates to constructive mileage. I think I can give you a little explanation here that will make you easily understand this constructive mileage. In the operation of the transcontinental line of roads there has always been constructive mileage allowed to the Central Pacific because of its difficulties in operating. To illustrate (and you will see how fair that is), in going up the Sierra Nevada Mountains a train of 45 cacs, say, which any engine can haul over the level plain from Sacramento, has to be broken into five divisions of 9 cars to each division, which, of course, requires five engines to get to the summit, and, when there, one engine goes on and four engines return, making an engine service of 9 miles for each 1 mile of actual engine service. Each one of these engines burns more fuel, although coming back empty, than one engine would burn hauling that whole load on a level plain. You will see, therefore, that a road of that kind is fairly entitled to constructive mileage. In our own case, as between our main road and most of the little roads, I do not think there has been constructive mileage in more than a few cases, and then the road has been very small.

By Commissioner LITTLER :

Q. Is this constructive mileage awarded your road by the Uuion Pacific? A. I do not remember whether they have allowed it or not, but the eastern roads allow it, and I think that they allow the Union Pacific constructive mileage also. I believe they put us on an equal basis.

NET EARNINGS FROM BEGINNING TO JULY 1, 1878.

The following statement shows the earnings, expenses, and net earnings of the aided road, as ascertaj-uecl by the United States Auditor of

2474

U. S. PACIFIC RAILWAY COMMISSION.

Eailroad Accounts, for each year from the completion of the road to the commencement of the operation of the Thurrnaii act, July 1, 1878. It covers a period of eight years and about 8 months. The average annual amount of net earnings for this period was $4,327,000, 5 per cent, of which was paid into the United States Treasury under the contract acts of 1862 and 1864.

Earnings and expenses of Central Pacific Eailroad Company, aided line (860.66 miles), from November 6, 1869, to June 30, 1878.

[As ascertained by the TJ. S. Commissioners of Railroads.]

...

NET EARNINGS JULY 1, 1878, TO DECEMBER 31, 1886.

The following statement shows the annual net earnings as ascertained by the United States Commissioners of Railroads from July 1,1878,the commencement of operation of the Thurmau act,, to December. 3.1,, 1886.

LELAND STANFORD.

2475

In order to show the requirements which are actually payable before payments can be made into the sinking fund in the United States Treasury, the sums paid into the sinking fund of the company in the company's treasury according to the terms of the first mortgages, which are prior in lien to the United States bonds, is deducted from the net earnings. The balance shown is the extreme annual amount which can be paid by the company on its debt to the Government, as it is the entire net earnings of all the road included in the Government's lien after deducting the requirements of the prior lien.

NET EARNINGS REDUCED BY COMPETING LINES.

It will be noticed that the net earnings prior to 1882 amounted to about $4,000,000 per annum. In 1882 there was a decrease of $1,000,000. This is the year in which competition commenced with other transcontinental lines which were aided in their construction by United States land grants. This decrease continued as new land-grant lines were completed till 1884 and 1885, for each of which years the net earnings amounted to about $860,000, and the available balance to about $740,000. The net earnings of the aided line hereafter cannot be prudently calculated to exceed this annual amount of $740,000, as the overland business will continue to be divided, and the aided road is chiefly in Nevada and Utah, where there is very little local traffic.

The temporary slight improvement shown for the year 1886 is chiefly owing to an unusually small amount of betterments, additions, and repairs charged in that year. Were these items of the usual amount the increase of earnings which was made at cut rates would have been accompanied by an equal or greater increase of expenses.

The annual accruing interest on the United States bonds issued to the Central Pacific is $1,671,340.80. The net earnings of $740,000 lacks $930,000 a year of meeting the accruing interest, even if every available dollar should be taken for that purpose.

Earnings and expenses of Central Pacific Railroad Company, aided line (860.66 miles), from July 1, 1878, to December 31, 1886.

[As ascertained under the requirements of the Thurman act.]

...CONSTRUCTIVE MILEAGE ALLOWANCES.

u Question 4. Or whether there has been a diversion of earnings of aided roads to less productive branches, through constructive mileage allowances, or average mileage allowances between aided and non-aided roads, or otherwise."

Answer 4. There has been no diversion of earnings of aided roads to less productive branches through constructive mileage allowances, or average mileage allowances between aided and non-aided roads, or otherwise, except in the instances noted elsewhere and during the period between January, 1880^ and February, 1883, inclusive.

ALLOWANCES MADE BY CENTRAL PACIFIC RAILROAD COMPANY HAVE BENEFITED AIDED ROAD.

Such allowance was in accordance with the usual custom throughout the United States and was in every instance to the benefit of the aided road. Its continuance, however, was a frequent source of criticism by those not familiar with the details of railway operation and the surrounding necessities controlling rates. Experience proved that the amounts involved were not large. To promote complete harmony, therefore, with the Government and the officers appointed by it to enforce the acts affecting the Pacific railroads, constructive mileage allowances were discontinued and have not since been used.

AVERAGE MILEAGE ALLOWANCES FAVORED AIDED ROAD.

Average mileage allowances were made in ascertaining the net earnings of the aided line by the United States auditor from November 6,

LELAND STANFORD.

2477

1869, to December 31, 1879, inclusive, but such allowances did not effect a diversion of earnings from the aided line. The rules prescribed by the United States auditor allowed only the mileage between Ogden and San Francisco in prorating through earnings, over 95 per cent, of which was by this means given to the aided line. The local earnings were then prorated to all lines oj>erated on the average mileage basis. These rules, under which the net earnings of the aided line were ascertained for the above period, favored the aided at the expense of the non-aided road, the earnings from local business being greater per mile of road in California, where the non-aided roads are located, than in the sparsely settled territory in Nevada and Utah, thro ngh which the aided line alone runs.

Equal mileage has always been made on mail earnings, the rate on mails being fixed by the Post-Office Department on an equal mileage basis.

CONSTRUCTIVE MILEAGE AS ALLOWED FAVORED THE AIDED ROAD.

Constructive mileage was allowed in the division of earnings to the several roads to certain less productive branches between January 1, 1880, and February 28, 1883. The constructive mileage allowed was not sufficient to give such branches their proper proportion of the earnings from traffic interchanged between them and the main line. On less productive branches higher rates always prevail, other things being equal, than on more productive branches. This is chiefly because the volume of traffic is much less, or because the expense of operation is greater. In either case the cost of the service per ton per mile or per passenger per mile is greater. In dividing the earnings from joint traffic with the main line then the less productive line may fairly demand more than its mileage proportion of the amount. The common practice throughout the country in similar cases is for the unproductive line to demand its local rate as its proportion of through earnings. Were the several roads operated in connection with the Central Pacific managed by different companies, the unproductive branch lines would demand and receive a division of earnings on traffic interchanged greater than they did receive by the constructive mileage allowance. There was, therefore, no diversion of earnings from the aided line by such allowances, but, on the contrary, the aided line received in the division a larger proportion of the earnings from joint traffic than it was justly entitled to. This fact appears from the following statement in detail of the allowances made.

ILLUSTRATIONS OF CONSTRUCTIVE MILEAGE ALLOWANCES.

AMADOR BRANCH RAILROAD.

Constructive mileage of 100 per cent, allowed from January, 1880, to February, 1883, inclusive. The principal joint traffic with this branch is between San Francisco and lone.

...



2478 U. S. PACIFIC RAILWAY COMMISSION.

For each dollar then received on joint business between Sun Francisco and lone the aided line would receive on an equal mileage basis 27.1 cents and on the constructive mileage basis 23.1 cents. It should have received but 18.3 cents, which is its percentage of the combined local rates, as follows :

The average freight rates on classes 1 to 5, inclusive, are

...On each dollar of this joint business the amount allowed by the constructive mileage basis thus resulted in giving the aided line 4.8 per cent, more than it was fairly entitled to.

LOS ANGELES AND INDEPENDENCE RAILROAD.

This road received constructive mileage of 100 per cent, from January 1, 1880, to February 28, 1883. This is a branch road running from Los Angeles to Santa Monica, and interchanged no business which affected the earnings of the aided line.

LOS ANGELES AND SAN DIEGO RAILROAD.

This road received constructive mileage of 100 per cent, from January 1, 1880, to February 28, 1883. This is also a branch running oat of Los Angeles, and interchanged no traffic with the aided line.

SAN PABLO AND TULARE RAILROAD.

Line from Tracy to Martinez, 47 miles. Constructive mileage of 50 per cent, was allowed for the year 1880. Practically the only portion of the aided line affected by this allowance was that between Tracy and Lathrop, a distance of 11 miles, for the traffic between San Francisco and points on the Southern Pacific Kailroad. The traffic between San Francisco and Los Angeles fairly represents the average of this business. The total distance is 482 miles. The aided line proportion of the traffic is thus but 2^ per cent. The Southern Pacific and Texas Kailroad distance is 47 miles, being 9,96 per cent, of the total mileage. The constructive mileage allowance is thus chargeable almost wholly to the remaining 87.79 per cent, of the distance, which is a non-aided ancl leased road. Though this road has a short haul, it has no terminal expenses, as it formed part of the through Southern Pacific line shortly after its construction. Constructive mileage was allowed only for one year.

SOUTHERN PACIFIC RAILROAD.

Constructive mileage of 50 per cent, was allowed on this line as it was built southward from Goshen, from January 1, 1880, to February 28, 1883. The extension of this line was at first in an undeveloped country with but little business. From Goshen southward the road was difficult to construct and expensive to operate. It crosses the mountains where there are short curves and heavy grades, and to gain the summit at Tehachapi Pass the line doubles on itself, forming the well known "Loop," since celebrated as an engineering feat. After crossing the Mojave Desert, the road, to reach the valley of Los Angeles, passes through the San Fernando tunnel of over a mile in length. Practically all the joint traffic with this route affecting the aided line

LELAND STANFORD.

2479

was that from San Francisco. This traffic north of Goshen is carried over level grades easy of construction and operation and on lines having a larger traffic and lower average rates than the line south of Goshen. The cost per mile on the latter line being much greater, a higher charge per mile was just and reasonable, and would doubtless have been demanded had the road been operated by a separate company. The effect of the constructive mileage allowance on the line may be shown by the traffic between San Francisco and Los Angeles. This formed the greater portion of the joint business at the time the constructive mileage was allowed, and fairly illustrates the result for the whole.



...

For each dollar, then, received on joint business, the aided line would receive on an equal mileage basis 2.3 cents, and on the constructivemileage basis 1.8 cents ; while on the basis of the combined local rates, which would be used where the roads operated by different companies, the aided line would receive .but 1.1 cents. By the constructive-mileage allowance, therefore, the aided line has received more than its proper and just proportion of these through earnings. This is shown by comparing the following proportions based on combined local freight rates, with those given above based on the constructive-mileage allowance:

Combined local freight charges between San Francisco and Los Angeles. ...

It will be seen by comparison with the statement showing constructive-mileage percentages above, that the Stockton and Copperopolis Railroad was allowed in the division of this traffic thirty-six per cent., while it should have received on the basis of the local percentages 40.} per cent. Had this road been operated independently, therefore, it would have received fully 4.J per cent, more from earnings of joint traffic than it was given by the highest constructive-mileage allowance.

AIDED ROAD HAS RECEIVED MORE THAN FAIR PROPORTION OF EARNINGS.

The aided line received by the constructive-mileage allowance 12.4 per cent, on the division of such joint rates, while it should have received on the proper basis of combined local rates but 11.9 per cent. It will be seen from the foregoing that wherever constructive-mileage allowances have been made by this company, such allowances have not constituted a diversion of earnings from the aided line, but, on the other hand, the aided line has, notwithstanding such allowances, received more than its fair proportion in the division of joint earnings.

A DOUBLE ALLOWANCE TO NEVADA ROADS.

I would say further that we allowed small connecting roads over in Nevada twice as much for the same distance, or even more than that, in comparison with what we charged ourselves. They were mere branch lines to feed us, and whatever they brought us was so much gained. They could not afford to carry the short distance, with their limited business, for the same rates that we could afford to haul over the main trunk line for a long distance. I suppose that you will understand in this connection that the through rate might well be proportionately less per mile than the local, and if a small company demands its local it gets a much larger division, and that is often done.

ALLOWANCE OF CONSTRUCTIVE MILEAGE OPTIONAL WITH EASTERN

ROADS.

I give elsewhere a detail of the different lines of road connected with the main line which we control. You will notice, gentlemen, that in

LELAND STANFORD.

2481

the matter of the allowance to us of constructive mileage by the Eastern roads it was entirely optional with those roads. As we could not send freight any other way it was only their sense of justice that made them allow it to us.

IS CONSTRUCTIVE MILEAGE FAIR AND USUAL 1?

" Question 5. And also whether such system of constructive mileage allowance is fair and usual, and, in practical operation, has resulted adversely or otherwise to the aided roads and the interest of the United States.' 7

ALLOWANCES HAVE RESULTED FAVORABLY TO UNITED STATES.

Answer 5. Such constructive mileage allowances are fair and usual and in practical operation have resulted favorably to the aided roads and the interest of the United States.

It is customary and fair to allow constructive mileage to less productive roads which are not branches, but form part of through routes. Such roads are less productive because they have but a small amount of traffic, or are expensive to operate, or both. In either case the cost of the service per ton per mile or per passenger per mile is greater on such roads, and this increase in cost is the basis of the constructive mileage allowance. Constructive mileage should always be allowed. It depends upon such circumstances as grades, curves, amount of business, length of roads, &c. The character of the business is also to be considered, for instance, as to whether it is a coarse grade of freight or costly merchandise that is hauled. Climatic influence should also go to determine a fair mileage rate. A rate that is sufficient on one road might be entirely insufficient for another. The allowances made, according to rules prescribed by the United States Auditor of Railroad Accounts, worked adversely to the non-aided and leased roads. The aided road received thereby a greater amount of net earnings than was properly its due, as more fully appears from accompanying statements.

ILLUSTRATIONS OF USUAL CUSTOM AS TO CONSTRUCTIVE MILEAGE.

The following cases, taken at random, of rates in force with connecting lines which are not operated or controlled by this company, will serve to illustrate the usual custom :

Northern California Railroad and Central Pacific Kail-road.

...The less productive branch road in this case receives in the division of the through rate an amount equal to about 50 per cent, constructive mileage.

AIDED LINES ALLOWED CONSTRUCTIVE MILEAGE BY OTHER ROADS.

NEW YORK TO SAN FRANCISCO.

A further illustration, which in the present connection is more striking and suggestive than with the branch lines, is the allowance made to the Central Pacific and Union Pacific by the roads east of the Missouri River on transcontinental traffic. The Central and Union Pacific lines having less traffic per mile of road, and in the case of the Central Pacific particularly, an expensive road to maintain and operate across the Sierra Nevada Mountains, the average cost of service per ton per mile is greater than with their connections east of Omaha.

A higher rate per mile is therefore considered fair and has always been allowed in the division of through rates. The through passenger rates from New York to San Francisco which were in force during the

LELAND STANFORD.

2483

time constructive mileage allowances were made to branch lines by the Central Pacific, the proportions allowed each line, and the proportions each would have received had no constructive mileage allowance been made to the Central and Union Pacific line are shown by the following table :

Through rates and divisions, 1880, between New York and San Francisco. KATES AND DIVISIONS AS ALLOWED.

...

It will be noticed that in the unlimited rate the Pacific roads were allowed 5.22 cents per mile, while the roads between New York and Chicago received but 2.55, the former in this case receiving over 100 per cent, per mile more than the latter.

The mileage of the route is: East of Missouri River, 1,402 miles; west, 1,916 miles. Applying the constructive mileage system to the sum of the rates for the several classes shows that the Central and Union Pacific received a constructive mileage allowance of over 85 per cent.

PROFIT TO AIDED

ROADS BY SYSTEM OF CONSTRUCTIVE MILEAGE ALLOWANCES.

This through traffic was very large and comprised a considerable portion of the income of the aided line. The constructive mileage allowance was also for a long haul the whole length of the road. The difference therefore to the Central Pacific whether it did or did not receive 'the constructive mileage allowance was of the greatest importance, and the practice has added to the earnings of the aided line amounts aggregating millions of dollars^

HAVE EARNINGS BEEN DIVERTED TO WRONGFUL OR IMPROPER PURPOSES?

* Question G. Or whether there has been a diversion of earnings of aided roads to wrongful or improper purposes, and if so, to what extent."

2484 tr. s. PACIFIC RAILWAY COMMISSION.

EARNINGS USED EXCLUSIVELY FOR BENEFIT OF CENTRAL PACIFIC

RAILROAD COMPANY.

Answer 6. In answer to interrogatory No. 6, I have to say : That the earnings of the company have been expended and applied exclusively to the benefit of the company. No portion of them, has been applied in construction of any other road. The company is willing and desirous of making a full and complete statement to the Commission of all matters in which the Government can possibly have any concern. I assume that it is unnecessary to go into statements of matters affecting the interests of the company in which the Government has not and cannot have any possible interest.

In determining the amount of the net earnings of the company, in which only the Government is interested, the company do not propose to make any charge or claim that would diminish or affect the amount of such net earnings, for which it will not furnish entirely satisfactory documentary evidence. All items of expenditure for which such satisfactory evidence shall not be furnished shall be charged against the company exclusively. I will merely add, however, that the disposition made of these earnings of the company, in which the Government has no interest, has met with the approval of the board of directors of the company and its stockholders, on repeated occasions.

The aided line does not run into San Francisco, but from Sacramento to San Jose. In violation of the.principles of interstate law, the Government gives the Canadian Pacific the right to bond goods here and take them from San Francisco around up through Canada to Chicago, thereby carrying them for nearly 5,000 miles, for the same or a less rate than we carry them across the continent, which is a violation of the interstate commerce principle. The Government does that for the benefit of the Canadian Pacific road. I will hardly say it is done for that purpose, but that is what is done, and that is the effect which it has.

DISCRIMINATION IN RATES AGrAINST AIDED ROADS.

" Question 7. Whether there is a discrimination of rates in favor of unaided against aided roads."

NO DISCRIMINATION EXCEPT THAT MADE BY THE UNITED STATES.

Answer 7. There is no discrimination of rates in favor of unaided as against aided roads, except that made by the Post-Office Department.

The rates for transportation of United States mails are fixed by the Post-Office Department in accordance with the general laws upon the subject. The basis of the rate is the average daily number of pounds carried over the whole route. The overland Central Pacific route .is from Ogden to San Francisco via the aided road to Sacramento, and thence to San Francisco via Benecia over unaided roads. The aided line does not run into San Francisco ; the business must go over unaided lines. The generalv business follows the line designated by the Government between Sacramento and San Francisco, which is the shortest possible line 87 miles by one route and 137 by the other. The weight of mails in either case would be the same, and the rate per mile would be the same. The shorter route, therefore, carries the mails for about one-third less than the longer route. This is in effect a discrimination in, favor of the unaided against the aided road. Not only has the Post-Office Department thus discriminated against our line, but it and

LELAND STANFORD. 2485

the War Department and other Departments of the Government have given preference to other transcontinental lines that have not been aided in bonds, thus diverting traffic that the Central Pacific could have done. Upon this subject the United States Auditor of Eailway Accounts says :

Government has taken away business across the State of Nevada, and has also given transportation to the Northern Pacific, the Southern Pacific, the Atchison, Topeka and Santa F6, the Atlantic and Pacific, and the Canadian Pacific, all rival roads, and is paying them full rates, when they could get it done for less rates by the aided Central Pacific.

This matter, with its embarrassing results to the company, will be found more fully set forth in answer to interrogatory No. 54.

IS ANY MONEY DUE TO UNITED STATES FOB ERRONEOUS ACCOUNTS 1

u Question 8. Whether any, and if so, how much, money is due and owing to the United States on account of mistaken or erroneous accounts, reports, or settlements made by said roads."

MONEY IS DUE TO COMPANY FROM UNITED STATES.

Answer 8. No money is due and owing to the United States on account of mistaken or erroneous accounts, reports, or settlements made by our road. On the contrary, there is a balance due the Central Pacific for transportation services on non-aided and leased lines of $1,853,323.15, which is withheld in the face of a unanimous decision by the Court of Claims in our favor, confirmed by the Supreme Court of the United States.

ANNUAL SETTLEMENTS BY UNITED STATES COMMISSIONER".

Settlements have been annually made by the Central Pacific Eailroad Company with the authorized officers of the Government for the amounts due the Government under the several acts of Congres. All amounts involved in such settlements have been promptly paid by the company when due. Payments were in every case made for the amounts as claimed by the United States Commissioner of Eailroads, though they were not always believed to be justly due. The items of new construction and new equipment were not currently allowed by the Commissioner, and payments were made for the requirements as stated by him. The courts, however, in 1885, decided these items to be proper deductions in ascertaining the net earnings. (See Eep. U. S. Com. E. E. 1885, p. 7.) The erroneous accounts were restated by the Commissioner in his report for 186G, page 35.

The Central Pacific Eailroad Company has overpaid the United States on account of these mistaken and erroneous accounts the sum of $321,152.72. This sum is still held by the Government, and is due the company in cash, though repeated demands have been made for it by the company.

TRAFFIC DIVERTED TO NON- AIDED ROADS.

" Question 9. Whether any traffic or business which could or should be done on the aided lines of said companies has been diverted to the line of any other company or to unaided lines."

Answer 9. This question will be fully answered under interrogatory No. 54. Such discrimination and diversion is made only by the Gov

2486 U. S. PACIFIC RAILWAY COMMISSION.

eminent. I refer also to report of General Manager A. 1ST. Towne, herewith submitted, and marked " Exhibit 2," also report of General Superintendent J. A. Fillmore, marked " Exhibit 3."

DEDUCTIONS FROM GROSS EARNINGS BY REBATES, POOLS, ETC.

" Question 10. And what amounts have been deducted from the gross earnings of any of said railroad companies by their general freight and passenger agents or auditors, by way of rebate, percentage of business done, constructive mileage, monthly or other payments on any pooling or rate arrangement, contract, or agreement."

SUCH ARRANGEMENTS HAVE ADDEp TO EARNINGS OF AIDED ROAD.

Answer 10. There have been rebates and pooling arrangements, there sometimes being a balance against us and sometimes a balance in our favor. Rebates were made for the purpose of securing business, and pooling arrangements for maintaining rates, and these always favored the aided road.

The question of differentials, pools, &c., is more fully treated in support of the answer to interrogatory !No. 39. See the report of J. C. Stubbs, general traffic manager, verified by his oath, marked " Exhibit 7," and referred to in the answer to that interrogatory, from which it will appear that whatever has been done in this direction is fully justified by the results.

ASSETS OF COMPANIES.

" Question 11. And also inquire into, ascertain, and report as to the kind, character, and amount of the assets of said companies."

ASSETS OF CENTRAL PACIFIC RAILROAD COMPANY.

Answer 11. In reply to your interrogatory No. 11, 1 respectfully submit the following statement, prepared by Mr. E. H. Miller, jr., the secretary of the company :

Assets, July 1, 1887.

Railroad and telegraph lines as follows, between

Milea.

San Jose* and Niles 17. 54

Niles and Brighton 103. 83

Sacramento and near Ogden 737.50

Total aided road . . 858. 87

Sacramento and Ogden (non-aided) .95

Niles and Oakland Wharf 26.51

Oakland and Alameda, local lines (including 7.72 miles double track) . . 17. 31

Lathrop and Goshen 146. 08

Roseville and Coles . . 295. 30

Total non-aided road 486. 15

Total miles of road 1,345.02

Also right of way, sidings, turn-outs, switches, turn-tables, depots, stations and other buildings, round-houses, shops, and machinery, tools, safes, furniture, wharves, slips, engines, cars, and other equipment property and appurtenances belonging on the foregoing railroad and telegraph lines.

LELAND STANFORD. 2487

Steamers and barges as follows :

Ferry steamers of the San Francisco Bay : Alameda, Amador, Capitol, El Capitau, Julia, Oakland, Piedmont, Transit, and Thoroughfare.

Sacramento Eiver steamers : Apache and Modoc ; barges, Ace of Spades and Yolo.

Stocks and bonds of other companies owned, cost $1,074,360.07. Sinking fund of the company in the treasury of the company, consisting of railroad bonds of the par value of $10,356,000, cost $9,601,617.50.

Sinking fund of the company in the United States Treasury June 1, 1887, bonds of the par value of $2,557,000, and cash, $39,137.32 ; cost of bonds and cash, $3,168,600.50 ; cost for interest lost on investments, $1,040,503.54; total cost in excess of par value of bonds, $1,612,966.72.

Land contracts, deferred payments on time sales, $1 ,142,084.86. Cash on hand, $13,768.49.

Undivided half of sixty acres in Mission Bay, San Francisco ; 500 acres of water front in Oakland, Cal. ; about 140 acres of water front Sacramento.

Land granted by the United States to the Central Pacific Eailroad Company, of California, and to the California and Oregon Railroad Company, less amount sold therefrom and lost from mineral lands, prior claims, &c.

APPRAISEMENT OF COMPANY'S PROPERTY. .

Any valuation which may be placed on the assets of the company must, at best, be an estimate. I understand that the commission have delegated the duty of making an appraisement of the value of the railroad and other property of the company to a board of engineers, which makes it unnecessary for any such estimate to be made in this place.

Much of the information I have given in answer to thi question is contained in our annual report, but it is given a little more in detail here.

Commissioner ANDERSON. You understand that the report does not profess to give the value of the property $

The WITNESS. It gives only estimated values.

Commissioner ANDERSON. For instance, take the construction account, which represents $130,000,000 or $140,000,000. It does not even pretend to give the actual value of the assets.

The WITNESS. No. That represents the cash and stock used. The stock, of course, stands on the books as if at par, but in reality it was not worth much of anything.

Commissioner ANDERSON. The question here is with reference to ascertaining the actual value of your assets, in order to determine the value of the United States lien.

The WITNESS. Most of these things are given at what they cost. During the time that we were constructing the road, I remember that we paid $65,000 for two engines. That is the highest we ever paid. Of course, there is no such value to them now. . We could put them on the road now for probably $13,500.

Commissioner ANDERSON. We have had a special officer, Colonel Morgan, making an examination, and I presume his report will contain an answer to that question, which we can rely on.

Commissioner LITTLER. His name is Eichard T. Morgan, jr.

The WITNESS. Our road is well equipped, and everything, I think, is in good order.

2488 U. S. PACIFIC RAILWAY COMMISSION.

ASSETS SUBJECT TO UNITED STATES LIENS.

" Question 12. And what assets of each company are now subject to the lien of the Government and the value thereof! "

Answer 12. The assets of the company now subject to the lien of the Government, are as follows :

ASSETS SUBJECT TO UNITED STATES LIEN. Aided line assets, July I, 1887.

Railroad and telegraph lines between

Miles.

San Jose" and Niles 17.54

Niles and Brighton 103.83

Sacramento and Ogden 737.50

Total operated road 858.87

Also the right of way, sidings, turn-outs, switches, turn-tables, depots, station and other buildings, round-houses, shops, machinery, tools, safes, furniture, engines, cars and other equipment, property and appurtenances belonging to the foregoing railroad and telegraph lines.

As to the value of the different items of property referred to in this statement, I am personally unable to give it. I understand the Commission has appointed experts to make appraisement of it, and therefore this omission will be thus supplied.

The CHAIRMAN. You do not refer there to the question of how far the lien of the Government extends over the property and to what property it attaches.

The WITNESS. The assets of the company subject to the lien of the Government are as I have read. Now, the lien, like the first mortgage bonds, is on the road from Ogden to San Jos6 ; but by our laws of consolidation the entire property of all the companies consolidated becomes liable for the debts of the institution, just as a man's property is liable for his debts over and above the mortgaged property. The mortgage, first, is a lien upon so much, but all his property is liable. So all the unaided lines of our road, as well as the aided, are liable for the general liabilities of the company, but there is no lien upon them to the Government.

The CHAIRMAN. The whole property, however, is subject to execu tion?

The WITNESS. Oh, yes, sir.

DIVIDENDS PAID.

" Question 13. And also whether any dividends have been unlawfully declared by the directors or paid to the stockholders of said company ; and if so, to what extent."

NO DIVIDENDS UNLAWFULLY DECLARED BY THE CENTRAL PACIFIC

RAILROAD COMPANY.

Answer 13. No dividends have been unlawfully declared by the directors or paid to the stockholders of the Central Pacific Eailroad Company.

Section 6 of the act of Congress of May 7, 1878 (the Thurman act), provides that no dividends shall be voted, made, or paid at any time when the company shall be in default in the payment of either of the

LELAND STANFORD. 2489

sums required to be paid into tlie sinking fund, or in the payment of the 5 per centum of the net earnings, or interest on any debt the lien of which or of the debt on which it may accrue is paramount to that of the United States.

The Central Pacific Eailroad Company has not at any time been in default in respect of the payment of any of the sums required under the provisions of the act above quoted.

The Central Pacific Kailroad Company, as heretofore stated, was organized under the laws of this State, and is now carrying on its business in accordance with the provisions thereof. Section 309 of the Civil Code of California prohibits railroad corporations from making dividends, except from the surplus profits arising from the business thereof. As required by this section all dividends have been made from the net earnings. The road has been in operation for over twenty-three years for more or less of its extent.

AVERAGE DIVIDENDS 2.65 PER CENT.

The total sum of these dividends amounts to 61 percent. The amounts paid therefore equal the annual rate of 2.65 per cent., and but for the completion of the Government-aided competing lines, and but for the Government's failure to pay to the company the money for transportation as determined by the Supreme Court of the United States, the company would still be paying the dividends. For the information of the Commission, and the evidence of the fact that the dividends declared by the company were not illegal, we submit herewith, and ask your consideration of a report by Mr. E. H. Miller, jr., secretary of the company, marked Exhibit 4, and made a part hereof.

By Commissioner ANDERSON :

DIVIDENDS PAID OUT OF NET EARNINGS.

Q. Does your report contain a statement of the net earnings actually applicable to the years in which dividends were declared? A. No, sir ; I think not. We carried net earnings along for a good while, and when we commenced declaring dividends it was with the supposition that we would be able to continue. For a time the road earned a good deal more than a 6 per cent, dividend annually, over and above the necessary expenses. But the opening of competing business and the immense falling off of the business in Nevada, a great falling off and the gradual interference with our business in Wyoming, Montana, and Idaho have made a change. We used to have business in Wyoming, not very much, but still some, and a good deal in Montana and Idaho, but the opening and pushing out of other roads spoiled all that business for us. It was a very profitable business, as we were able to fix our own rates, free of competition. Then came the opening up of these competing lines, and our business fell off very much, although the general business of the country was increasing. The prices paid to us were very much reduced. As a result, from 1884 we have been not able to earn any dividends. We have always earned something over expenses. We have always kept up the Thurman fund and made something over expenses. Under the lease of the Central Pacific to the Southern Pacific Company it is guaranteed $1,200,000 a year, net, over and above all expenses and the interest account and the sinking fund under the Thurman act,

2490 U. S. PACIFIC RAILWAY COMMISSION.

Q. I understand all that, but my question was whether the actual earnings of the road between 1872, the time of your first dividend, and your last dividend, declared in February, 1884/will show that the dividends paid were earned $ A. Yes, sir ; the dividends were all earned ; not in that time, however. We had quite an accumulation of net on hand when we commenced the dividends, but all the dividends were paid out of net earnings.

By the CHAIRMAN :

Q. Did you ever borrow money with which to pay a dividend? A. We never borrowed a dollar to pay a dividend.

DIVIDENDS.

" Question 14. And whether the amount thereof may not be recovered from the directors unlawfully declaring the same or persons who unlawfully receive the same."

Answer 14. I beg to state that as there have never been dividends wrongfully or unlawfully declared by the company there remains nothing liable to recovery.

HAVE TRUST FUNDS BEEN DIVERTED*?

u Question 15. Whether the proceeds of any trust funds or lands loaned, advanced, or granted have been diverted from their lawful uses."

NO FUNDS DIVERTED.

Answer 15. No proceeds of any trust funds or lands loaned, advanced, or granted have been diverted from their lawful uses. The only trust fund that the company has ever had in its treasury has been the sinking fund. This fund now amounts to about $9,000*000. In addition to this we have paid $1,216,000 of what was known as the State aid loan. The convertible loan also aggregated $1,500,000. The trust funds have been invested in sinking funds at interest in the company's treasury for the final redemption of bonds of the company. That fund, of course, did reduce the general indebtedness of the Central Pacific Railroad Company. It is not all for the aided line, but it is some for that line and some for the others. There are sinking funds for all of the companies which are now part of the Central Pacific, and they are growing very rapidly.

SINKING FUNDS.

By Commissioner ANDERSON :

Q. The sinking fund does not apply to the United States bonds at all I A. No, sir ; it goes to the first-mortgage bonds the bonds that are a prior lien to that of the Government.

Q. It goes to all your mortgages, as I understand it? A. Yes ; each mortgage has its own sinking fund. They are all, of course, in the hands of the Central Pacific Kailroad Company. These companies have been consolidated, and the Central Pacific has assumed these liabilities.

THE LAW OF CALIFORNIA REGARDING SINKING FUNDS.

Q. Will you tell me what the requirement of the law of California is in regard to permitted investments in sinking funds? A, That the money shall be loaned.

LELAND STANFORD. 2491

Q. Is there no limitation? A. I think there is none.

Mr. BERGIN. There is no limitation.

Commissioner ANDERSON. Can they loan it to anybody?

Mr. BERGIN. It is in the discretion of the board of directors of the corporation. The law does require of railroad companies organized under its provisions, that at the time of the creation of a liability by the company secured by a bond and mortgage, it shall also provide a sinking fund for the ultimate liquidation of the liability, but as to the manner of investing the fund, that is left to the discretion of the board of directors.

DUTIES OF TRUSTEES AS TO INVESTMENT OF A SINKING- FUND.

Commissioner ANDERSON. May I ask whether there has been any decision upholding, for instance, a loan of money in a sinking fund by a corporation to itself ?

Mr. BERGIN. No, sir ; the question of the manner of investment has never yet been judicially passed upon by the courts.

Q. In your opinion, would the trustees of a sinking fund amounting to many millions of dollars be justified in taking a note of the corporation itself and then putting it back in the general assets? A. The general trustees ; not the company. The company itself is not necessarily the trustee, or not the trustee at all.

Q. I am asking you whether the trustees would be justified under the laws of California in putting the money which they hold in the sinking fund into the vaults of the corporation itself for its general purposes and taking as its evidence of the sinking-fund moneys the note of the corporation? A. That might be under some circumstances. I do not know now. My attention has not been called lately to the duties of trustees, but I think under our laws that a trustee may do with it as any good business man might do. I do not think there is any restraint beyond that, is there, Mr. Bergin?

Mr. BERGIN. No, sir.

EXCHANGE OF BONDS.

Q. The point of my question is this : Have you not in fact surrendered over three million dollars of first-mortgage bonds of the Southern Pacific belonging to your sinking fund and accepted in lieu thereof the bonds of the Central Pacific issued under its second or third mortgage made in October, 1886? A. I do not know how much we have done. The trustees have often exchanged bonds at a premium for bonds which, to our knowledge, were just as good as the bonds in the fund, but which, not having an established market price, would have commanded less, and so far would have been a benefit or profit to the sinking fund.

Q. What are those bonds quoted at, the bonds under the mortgage of October, 1886? A. I do not think they are quoted on the market. They sell here. We have been offered for them par in this market. I think that we could sell large quantities of them here at par. They are 6 per cent, bonds and they are secured by a second mortgage on the road. The mortgage is on the unaided portion of the company's property and is not a lien upon the aided portions.

HAVE STOCKS OR BONDS BEEN UNLAWFULLY ISSUED?

" Question 16. Whether any new stock or bonds have been issued, or any guarantees or pledges made contrary to, or without authority of law."

P R VOL iv 11

2492 U. S. PACIFIC RAILWAY COMMISSION.

NO ISSUES OB PLEDGES BY CENTRAL PACIFIC CONTRARY TO LAW.

Answer 16. No new stocks or bonds have been issued, or any guarantees or pledges made contrary to, or without authority of the law.

The WITNESS. Stock has been issued to aid in the construction and secure a through line to Oregon. The valuable properties of the Central Pacific to-day are the unaided lines.

By the CHAIRMAN :

Q. Have you not made guarantees of bonds of other roads since the passage of the act of Congress of 1873? A. I cannot call to mind that the Central Pacific has made any. I do not think it has. If Mr. Miller were here he could tell. I do not think the Central Pacific has ever guaranteed any bonds.

GUARANTEE OF BONDS OF CALIFORNIA PACIFIC.

Q. How is it about the California Pacific bonds? A. The California Pacific is a short line of road between here and Sacramento, and it was a competing line to our 137 miles, and in the process of time it passed into and under our control. We bought stock in the road. After operating it for a time we saw that it could not pay the interest on the bonded indebtedness. The road did not do well. It was washed out, and was unable to meet its requirements. Upon the Central Pacific agreeing to guarantee the interest, the bonded indebtedness was veiy much reduced, and a lower rate of interest was accepted. I cannot give you the exact amount, but the interest on the remaining bonds was reduced so as to make it much more easy to handle.

Q. What was the date of the guarantee ; what was the year? A. I cannot give you the year, but it was some years ago.

DIRECTORS AND EMPLOYES' INTEREST IN OTHER COMPANIES.

" Question 17. Whether any of the directors, officers, or employe's of said companies, respectively, have been, or are now, directly or indirectly interested, and to what amount or extent, in any other railroad, steamship, telegraph, express, mining, construction, or other business, company, or corporation, and with which any agreements, undertakings, or leases have been made or entered into."

INTEREST OWNED IN OTHER COMPANIES BY PRESIDENT STANFORD.

Answer 17. I may state that I have been and am interested in the following-named companies, and to the extent set opposite the respective name of each company. I know that some of the other directors of the company have been interested in some of these companies 5 and I believe, but do not know, that they are interested in all of them, the extent of their interest in which I am not prepared to state, as there is no joint ownership of the stock. As to the absolute correctness of the list that I am about to read, I am not prepared to say, because it was only furnished just as I was coming away, and I have not been over it, but I presume that it is correct, inasmuch as it has been furnished by the secretary.

1. California Pacific Eailroad. I have 24,755 shares of stock in this company.

LELAND STANFORD. 2493

2. Southern Pacific of California. I bad 70,936 shares of stock in this company until December 8, 1884, when I transferred it to the Southern Pacific Company in exchange for 42,561.6 shares of its stock.

3. Southern Pacific of Arizona. I had 49,987 shares of stock in this company until December 8, 1884, when T transferred it to the Southern Pacific Company in exchange for 29,992.2 shares of its stock.

4. Southern Pacific of New Mexico. I had 16,722 shares of stock in this company until December 8, 1884, when I transferred it to the South t ern Pacific Company in exchange for 10,033.2 shares of its stock.

5. Southern Pacific of Kentucky. I have 150,233.3 shares of stock in this company.

6^ Stockton and Copperopolis Eailroad Company. I have 586 shares of stock in this company.

7. Berkeley Branch Eailroad. I have 231 shares of stock in this company.

8. Amador Branch Eailroad. I have 1,560 shares of stock in this company.

9. Los Angeles and San Diego Eailroad. I have 370 shares of stock in this company.

10. California and Oregon Eailroad. I had stock in this company, and took Central Pacific stock for it when it was consolidated with that company. Do not remember the number of shares.

11. San Joaquin Valley Eailroad. Same answer as No. 10.

12. San Francisco, Oakland and Alameda. Same answer as No. 10.

13. Western Pacific Eailroad. Same answer as No. 10,

14. Contract and Finance Company. I had 12,500 shares of stock in this<company when it was disincorporated in 1874.

15. Wells, Fargo and Company. I have 86 shares of stock in this company. Have had a larger number of shares, but do not remember how many.

16. Occidental and Oriental Steamship Company. I have 9,995 shares of stock in this company.

17. Western Development Company. I have 10,000 shares of stock in this company.

18. Pacific Improvement Company. I have 12,500 shares of stock in this company.

19. lone Coal and Iron Company. I have 8,000 shares of stock in this company.

20. Eocky Mountain Coal and Iron Company. I have 1,817 shares of stock in this company.

21. Carbon Hill Coal Company. I have no stock in this company, but have an interest in it through my holding of Pacific Improvement stock, to which company this mine belongs.

LOANS TO OTHER COMPANIES.

" Question 18. What amounts of money or credit have been or are now loaned by any of said companies to any person or corporation? >

MONEY LOANED BY CENTRAL PACIFIC RAILROAD COMPANY.

Answer 18. The amount loaned any company, corporation, or individual by the Central Pacific Eailroad Company, being the amount owing to the company June 30, 1887, is as follows :

Stockton and Copperopolis Railroad Company $115, 653. 80

U. H. Giddings, New York , ,.. 93.13

2494 U. S. PACIFIC RAILWAY COMMISSION.

B. E. Smith : $100,000.00

T. J. Edmondson : 8,000.00

J. H. Flagg 2,000.00

J. W. Young 35,16f\34

Coos Bay Coal Company 4,048.30

Total : 264,960.62

This statement gives only the present amount. The amounts in detail from the organization would be very voluminous. The accountants of the Commission are uow examining the books of the company ; if any statement in detail of amounts which have been loaned is desired, they will doubtless make it.

LOANS FROM OTHERS.

" Question 19. What amounts of money or credit have been or now are borrowed by any of said companies, giving names of lenders and the purposes for which said sums have been and now are required."

MONEY BORROWED BY CENTRAL PACIFIC RAILROAD.

Answer 19. The amounts of money or credit borrowed by the Central Pacific Eailroad Company, being amount owing by the company June 30, 1887, is as follows :

C. J.Torbert, note $2,500.00

Southern Pacific Company balance of account 793, 293. 88

Company's operating ledger balance of account 5, 630. 87

Trustees land grant mortgage 1, 508, 549. 26

Land suspense account being payments made on lands sold, not yet conveyed 6,754.80

Total 2,316,719.81

This gives only the present amount ; the amounts in detail from the organization would be very voluminous. The accountants of the Commission are examining the books of the company ; if any statement in detail of amounts which have been borrowed is desired, they will doubtless make it up.

PAYMENTS WITHOUT SUFFICIENT VOUCHERS.

" Question 20. What amounts of money or other valuable consideration, such as stocks, bonds, passes, and so forth, have been expended or paid out by said companies, whether for lawful or unlawful purposes, but for which sufficient and detailed vouchers have not been given or filed with the records of said companies T 7

PAYMENTS APPROVED BY DIRECTORS AND STOCKHOLDERS.

Answer 20. In answer to interrogatory No. 20 I have to say that the company in its settlement with the Government proposes to claim nothing as expenses in determining the amount of net earnings in which the Government has an interest for which the company does not furnish full and satisfactory vouchers. It is entirely immaterial to the Government and the Government can have no interest in knowing what amount of money may have been expended for which the vouchers on file are not sufficient in detail or otherwise. I wouldj however, remark

LELAND STANFORD. 2495

that all items of expenditure for which detailed vouchers are not on file have from time to time been approved by the directors and stockholders of the company.

INFLUENCING LEGISLATION.

" Question 21. And further, to inquire and report whether said companies, or either of them, or their officers or agents, have paid any money or other valuable consideration, or done any other act or thing for the purpose of influencing legislation."

Answer 21. In answer to interrogatory No. 21, I have to say in behalf of the Central Pacific Eailroad Company that no deduction will be made from that portion of the net earnings belonging to the United States on account of any expenditure for which detailed and satisfactory vouchers are not furnished. We will account to the Government as if no such expenditures had been made.

By the CHAIRMAN :

Q. Do you omit entirely the question of legislation ! A. I have given my answer to that question.

CONSOLIDATION OF UNION PACIFIC RAILWAY.

" Question 22. And to investigate and report all the facts relating to an alleged consolidation of the Union Pacific Eailroad Company, the Kansas Pacific Eailroad Company, and the Denver Pacific and Telegraph Company, into an alleged corporation known as the Union Pacific Eailway Company. Said investigation shall include the alleged sale of the stock of the Kansas Pacific Eailroad Company to the Union Pacific Eailroad Company, and all the circumstances and particulars pertaining to the said alleged sale."

Answer 22. This interrogatory relates to other corporations and requires no answer from me.

ASSETS AND OTHER ENTERPRISES.

" Question 23. And whether any of the Pacific railroad corporations which obtained bonds from the United States to aid in the construction of their railroads have expended any of their money or other assets in the construction, or to aid in the construction of other railroads, or invested of their moneys or other assets in the stocks or bonds of any manufacturing, mining, or commercial companies or corporations, or of other railroad corporations."

Answer 23. The Central Pacific Eailroad Company has expended no money or assets in the construction or to aid in the construction of other railroads. It never had any interest in other roads except in the way of lease, or by consolidation. The company has invested a very limited amount of money in bonds and stocks of other corporations, the extent and character of which will be shown in my answer to the next question.

EXTENT OF INVESTED ASSETS.

u Question 24, And if any such expenditures or investments have been made, the extent and character thereof made by each of said corporations shall be inquired into." ...

SETTLEMENTS WITH FISK & HATCH.

Fisk & Hatch, bankers of New York, acted as financial agents of the company, and at the time of their failure in 1874 gave their notes, amounting to $830,665.46, in settlement of account, with bonds of Chesapeake and Ohio Railroad, amounting to $1,457,000, as security. Fisk & Hatch suspended payment again iu 1884, and in settlement for amount

LELAND STANFORD. 2497

of notes and interest the Central Pacific Eailroad Company took Chesapeake and Ohio securities, as above shown, June 26, 1884. The 1,344 bonds were exchanged January 28, 1887, for 16,800 shares of stock of the Newport News and Mississippi Valley Eailroad Company.

By Commissioner LITTLER:

Q. What is the total amount? A. One million seven hundred and eighty-eight thousand nine hundred and forty-two dollars. The principal amount of that comes through the failure of Fisk & Hatch. On their failure, some years ago, they were indebted to our company. They were pur financial agents at New York, and they gave us their note with the balance of securities. Then they failed again, and again we settled with them, and took what they had. Among other things we took these securities, and that Fisk & Hatch transaction makes the larger portion of this amount.

Q. Do you mean to say that you acquired all the securities mentioned on that paper in that way? A. No, sir ; but we so acquired the principal portion of them.

COOS BAY COAL COMPANY.

We became interested in the Coos Bay Coal Companies because we were largely at the mercy of the coal dealers, and had to pay extraordinary prices. For instance, we paid as high as $8 per ton for local coal which can now be bought for $4.50 per ton. In order to be independent we got this mine, and by so doing have been able to bring down the prices of outside coal. In this way we have secured a very large saving to the company.

We used to be very much at the mercy of the coal dealers at times. We buy coal in England, Australia, and in the British possessions.

INTEREST IN AUXILIARY ROADS.

" Question 25. And also the present interests of any of said corporations in the railroads auxiliary to their respective railroads."

Answer 25. The Central Pacific Eailroad Company has no present interest in the railroads auxiliary to its lines, and never has had except through consolidations and leases, like the San Joaquin Valley, the California and Oregon, and the Oakland and Alameda connections, &c., which constitute the most valuable portions of the Company's property. The roads consolidated with the Central Pacific Eailroad Company and those that have been leased by it are shown at length in the following statement :

THE CENTRAL PACIFIC RAILROAD COMPANY.

CONSOLIDATIONS.

California and Oregon Railroad Company and Marysville Railroad Company, January 16, 1868. Name, California and Oregon Railroad Company.

California and Oregon Railroad Company and Yuba Railroad Company, December 18, 1869. Name, California and Oregon Railroad Company.

The San Francisco aiid Alameda Railroad Company, and the San Francisco, Stockton and Alameda Railroad Company, October 15, 1868. Name, The San Francisco and Alameda Railroad Company.

The Western Pacific Railroad Company and San Francisco Bay Railroad Company, November 2, 1859. Name, The Western Pacific Railroad Company.

The Central Pacific Railroad Company of California and The Western Pacific Railroad Company, June 23, 1870. Name, Central Pacific Railroad Company.

2498 U. S. PACIFIC RAILWAY COMMISSION.

The San Francisco and Oakland Railroad Company and The San Francisco ami Aiameda Railroad Company, June 29, 1870. Name, San Francisco, Oakland and Alameda Railroad Company.

Central Pacific Railroad Company, The California and Oregon Railroad Company, The San Francisco, Oakland and Aiameda Railroad Company, and The San Joaquin Valley Railroad Company, August 22, 1870. Name, Central Pacific Railroad Company the present name of the company under the above consolidations.

LEASES.

Roads once leased by the Central Pacific Railroad Company now leased by the Southern Pacific Company : Berkeley Branch Railroad. Northern Railway. Stockton and Copperopolis Railroad. San Pablo and Tulare Railroad. Amador Branch Railroad. California Pacific Railroad. Southern Pacific Railroad (of California). Southern Pacific Railroad (of Arizona). Southern Pacific Railroad (of New Mexico). Los Angeles and San Diego Railroad. Los Angeles and Independence Railroad.

NAMES OF STOCKHOLDERS.

" Question 26. And said Commission shall also ascertain and report the names of all the stockholders in each of said companies from its organization to the date of the investigation herein provided for, as they appear upon the books of said companies at the date of its annual meeting in each year, and the amount of stock held by each."

Answer 26. In reply to this interrogatory I would say the accountants appointed by the Commission have in their possession the books of the company containing this information and are preparing the statement called for.

WHAT STOCKHOLDERS PAID FOR STOCK.

" Question 27. What consideration, if any, was paid by each stockholder to said company for his stock, and when and in what property such payment was made."

Answer 27. In answer to this question, the statement of Mr. E. H. Miller, jr., secretary of the company, marked " Exhibit 5," is submitted hereto, and made a part hereof, showing the consideration paid the company by each stockholder receiving stock, and when an I in what property such payment was made. The dates of payment given in the subjoined list are the dates when the amounts subscribed were fully paid up. When the stock was transferred or forfeited, the date of the last payment of the person holding the stock is given.

DATE WHEN EACH STOCKHOLDER BECAME SUCH.

" Question 28. The date when each stockholder so appearing on the books became such."

Answer 28. This question has been fully answered in the answer to interrogatory No. 27.

By Commissioner ANDERSON :

Q. Does Mr. Miller's report represent that the stock has all been paid for' in full? A. I think that all the stock has been paid for in full. At the beginning there was stock where the payments were not made in

LELAND STANFORD. 2499

full. We levied assessments and some of those assessments were never paid.

Q. I mean does Mr. Miller's report show stock issued to construction companies directly and consider that as a payment in full? A. I presume so. I have never looked over the report.

Q. Have you his report here? A. Yes, sir.

Q. And that is submitted with your paper? A. Yes ; and I presume that will show all that. The greater part of the stock was issued for construction purposes. We managed to obtain a subscription for ten shares here in San Francisco after our books had been open for some weeks and that was all. Money at that time was here worth from two to two and a half per cent, per month, and outside of ourselves there was hardly anybody who had faith in the ultimate success of the enterprise. They did not care to invest their money, which was worth two to two and a half per cent, in an enterprise in which they had no confidence and where, of course, there could be no returns until its completion.

STOCK HELD IN TRUST.

a Question 29. And whether stock is now held or has heretofore been held in the name of any person in trust for the benefit of any other, and the names of all such persons."

Answer 29. In answer to this interrogatory I will state that I am unable to say what stock has been held in trust, but the books being in the possession of, and under examination by, accountants appointed by the Commission, their report will undoubtedly contain the desired information.

TOTAL AMOUNT OF STOCK.

" Question 30. The* total amount of stock in each company J 9 Answer 30. The total amount of stock in the Central Pacific Railroad Company is $100,000,000, of which $68,000,000 has been issued. This includes the Western Pacific as well as all other railroads consolidated with the Central Pacific. An analysis and distribution byroads of the capital stock will be found under question No. 27.

Q. You have skipped interrogatory 28. A. That has been answered in answer to No. 27. You will remember what that answer is. I will state that we were organized under the laws of this State to build our railroad to the State line. At that time the estimate was $8,500,000, probable cost, and the stock was made out accordingly. There is a law in our State, however, which provides that we cannot issue bonds to a greater amount than the capital stock of the company. We found, as we proceeded, that it would cost more than $8,500,000 to build over the mountains, and that the Government aid and the first-mortgage bonds would amount to a great deal more. We therefore increased the capital stock to twenty millions which would be about the estimated cost. After that, when Congress passed a law allowing us to build east until we should meet the Union Pacific, we again increased the capital stock, not knowing where .we would meet that road. We then made it a hundred millions. That accounts for the increase of capital stock from time to time.

By Commissioner LITTLER :

Q. In that connection let me ask you where is the residue of that stock? A. It has never been issued. When we got through, nobody wanted that stock 5 but it was wonderful how the country developed,

2500

U. S. PACIFIC RAILWAY COMMISSION.

for a time, especially in Nevada. If the promises of those early years had been continued we would have had a great property over there.

INCREASE OF STOCK.

" Question 31. Ancl the dates and amount of any increase of such stock, and the reason for such increase."

Answer 31. The organization of the Central Pacific of California provided for $8,500,000 of stock. It was soon ascertained that the road would cost more than that. Then upon the estimated cost the capital was increased to twenty millions, the principal reason being that under the laws of California the bonded indebtedness could not exceed the capital stock. Afterwards, by the act of Congress of July 3, 1866, it was provided that the Central Pacific might build eastward until it should meet the Union Pacific, and not knowing where that might be, the capital stock was again increased to one hundred millions.

SALARIES OVER $5,000.

" Question 32. And the amount of the annual salaries or compensa tion that are now, or at any prior time have been paid to any officer or employe" of said company, when such salary or compensation amounts to $5,000 or more per annum."

Answer 32. In reply to this interrogatory, I submit a tabulated statement of annual salaries amounting to $5,000 or more, paid by the Central Pacific Railroad Company since its organization to any officer or employe, and all bonuses or donations which have been given or paid to any such person.

The tabulated statement of annual salaries contains only the names of those employed and giving all of their time to the company. Those persons who have been employed by the comparft, giving their services only from time to time as they may be called upon by the company, are not included. Upon the consummation of the lease of the Central Pacific to the Southern Pacific Company, the services of the most of the employe's were transferred to the Southern Pacific Company.

Statement of annual salaries amounting to $5,000 or more paid by Central Pacific Eailroad Company since its organization, to any officer or employe, and all bonuses or donations which have been given or paid to any such, person.

...

* $10,000 allowance for extra services Nov. 13, 1886. t Extra allowance.

+$2, 355. 52 donation to Mrs. Corning services, August 1. 1878, to November 16, 1878. $1, 000 allowance to Mrs. Corning for one and one-half months' salary after decease.

As to this list I can say that the salaries of the principal directors and officers were fixed at an early day at $10,000 apiece and continued until this time or until the lease to the Southern Pacific. Since that time the principal officers have had no salaries. There are others whose salaries in some cases amount to a much larger sum. The principal counsel, Judge Silas W. Sanderson, now deceased, received as high as $24,000. The next one to that is Mr. Towne, the general manager, who received $25,000. I think those are all. In some cases some of our employes who had bad luck may have received something, or, in case of

2502 ti. S. PACIFIC RAILWAY COMMISSION.

their death, contributions may have been made to their widows and families.

" Question 33. And the names of the persons now receiving or who have heretofore received such salaries or compensation."

Answer 33. This interrogatory will be found fully answered in reply to the preceding question.

BONUSES AND DONATIONS.

" Question 34. And all the bonuses or donations which may have been given or paid to any such person."

Answer 34. $o bonuses or donations have been given or paid to any person except such as are stated in answer to question No. 32.

LEGAL EXPENSES.

" Question 35. And all payments made under the head of legal expenses, to whom made, and the amount paid to each, and for what specific services such payments were made."

Answer 35. The expert of the Commission, Mr. Stevens, has been given the books of the company, and he will prepare an answer to this interrogatory.

CONDITION OF COUNTRY AT COMMENCEMENT OF ROAD.

Now, as to question 36, it is a very broad question. When we commenced building our road there was but one white man between the Truckee and Bear Eivers, and he was a man that ventured to conduct a cattle ranch up there on the mountains. There was scarcely any settlement from the Missouri Kiver to Utah except in Salt Lake City. It was a wilderness. All that country has been developed since. The railroad was not across Iowa until the Union Pacific commenced, and they did not commence until two years after we did on this side.

By Commissioner LITTLER : Q. Do you undertake to answer that question? A. Yes. I answer it, but its scope was so great that we could hardly embrace it. That question is :

INTERESTS OF COMMUNITIES.

" Question 36. Said Commission shall also inquire in to and report upon the relations of said railroads to the interests of the communities through which they pass."

TESTIMONY OF PROMINENT CITIZENS.

Answer 36. The relations of the Central Pacific Eailroad to the communities through which it passes is most intimate and important ; one is indispensable to the other. As to these relations, I give the following testimony of prominent citizens of this State upon this subject, which is instructive and valuable :

VIEWS OF F. F. STROTHER.

City and County Auditor F. F. Strother, who came to San Francisco in 18G4, and has been prominent in legal and political circles ever since, says:

I am generally considered an anti-railroad man, and so I am in the general acceptance of the term. I mean by this that I give the railroad no praise or credit to which

LELAND STANFORD. 2503

they care not plainly entitled. While this is true I can but agree with the great majority of the leading business men of the city that the remarkable era of prosperity which dawned on California and the Pacific Coast in 1869 was the direct result of the completion of the trans-continental railroad, known as the Central and Union Pacific. My knowledge of the benefits and advantages which have followed to the western country in general, and to California in particular, has been obtained more from a close observation of the growth and development going on everywhere around me than from actual commercial experience. The fact is, that but for the indomitable energy of the projectors of this great railroad enterprise, the condition of California would be pretty much the same to-day as it was in the sixties, for the final and successful consummation of this gigantic undertaking, operated as an incentive to other railroad builders and the other trans-continental lines are the result. I firmly believe that if the Union and Central Pacific people had failed or given up this work they had in hand, this State, to-day, would be without eastern railroad connection and our men of commerce and trade would still be shipping hides, wool, tallow, and wheat (the only commodities which was then possible for them to handle) to New York via Cape Horn with clipper ships.

ADVANTAGE TO CALIFORNIA.

The development of the State which set in immediately after the connection of the two roads was phenomenal. The people then saw for the first time that there was something else to California besides wool, hides, and wheat. Here was a market for their fruits and wines, and what was then an almost unknown industry *began to expand until to-day it leads all others on the coast. Then came prosperity, commercial and otherwise, and who can say where it will end. Branch lines of road, "feeders" I think they are called, have been built from end to end of the State, developing agricultural, viticultural and mining interests in localities where before they could not be carried on profitably. And all this, we may say, is the result of the enterprise of the pioneer railroad builders ; it is the legitimate child of their courageous labors.

VIEWS OF JOHN H. WISE.

John H. Wise, one of San Francisco's principal business men, and who has been identified with h^r leading commercial interests for over thirty years, has this to say regarding the actual benefits which have resulted from the construction of the Union Pacific and Central Pacific Railroads :

The building of these roads has benefited this city, the State, and the whole coast to an almost incalculable extent. When the scheme of putting through to this coast a line of railroad to connect us with the East was first broached, it was regarded by the great majority of our leading commercial men, myself included, to be next to impossible ; that is, it was an enterprise of such gigantic proportions, with such seemingly insurmountable barriers in its way, that we had little hope of its successful consummation. The primitive surveys of the engineers clearly showed that success in carrying out the scheme demanded not only an outlay of a sum so vast as to at once dampen the hopes of the projectors, but a degree of skill, perseverance, and pluck as well, which had never been applied to a similar enterprise in this or any other country. The lively desire of the people of this coast, however, to bring about a more desirable condition of things as regarded our commercial facilities led us to hope almost against fate. Our commercial situation prior to the completion of these roads was unpromising and altogether unsatisfactory. Our only facility for handling freights to and from England, Germany, and eastern American ports was the clipper line of ships, and about the only articles of merchandise we could export were whe^t, wool, hides, aud tallow. Of course the shipping of any kind of fruit by a route which it required, under the most favorable conditions, six months to traverse, was altogether out of the question. The growing of fruits on the Pacific coast for any other purpose than home consumption was, therefore, never thought of. The vast area of excellent fruit and vineyard lands remained uncultivated, and the country remained undeveloped, with no hope of improvement.

REVOLUTIONARY EFFECT OF RAILROAD CONNECTION.

The railroad connection, when it was finally made, brought about a revolution. The clipper ships were abandoned, and the volume of business began increasing at a )0<momenal rate; emigrants began to pour in, towns began to grow and new ones to

2504 U. S. PACIFIC RAILWAY COMMISSION.

spring up, ranchers began cultivating the soil and planting vineyards, and for the first time markets were established in Chicago and New York for California fruits. A new era set in, and from that time dates the rapid development of the Pacific coast. I consider that the best stroke of business done by San Franciscans (and San Francisco was then pretty much all there was to California) was when they gave their mite of encouragement and aid toward the construction of this line of railroad. This mite was small indeed, almost inappreciable in fact, because, as I have said, there was so little faith in the ability of the builders to successfully surmount the many and great impediments in their way, and complete the work. Had there been a greater outlook for the enterprise, I do not doubt but that substantial aid would have been given.

VIEWS OF MAYOR POND.

Mayor Pond gives the following impression of his views regarding the development of the Pacific coast and the cause thereof:

I consider the connection of the Union and Central Pacific Railroads, which first gave California a through line to the East, as having been the prime factor in bringing about the rapid development of the country and the subsequent prosperity this coast now enjoys. Prior to that time, you know, California, while her reputation as a section of unlimited possibilities bad spread far and wide, was regarded almost as a foreign country. Immigration into the State had been limited, the whole volume of it being confined to the influx of the adventurous mining horde attracted by the gold fever of '49, and the 50's. These early pioneers were looked upon as explorers of a far-away and next to inaccessible country, and it was in those days considered that a man had seen a great deal of the world who had returned to his Eastern home in safety from a trip to California.

REVOLUTIONARY EFFECT OF RAILROAD CONNECTION.

Our commercial facilities were equally as bad, our dealings being confined to less than half a dozen articles of merchandise, because of the time required to reach marketing points. The effect of the final railroad completion was an instantaneous and complete revolution of everything. I cannot say that the immediate effect on the city of San Francisco was beneficial, though some hold that it was. Previously, you know, we had the handling of every article of merchandise destined to coast points. San Francisco and California had been synonymous terms with the railroad company. However, a new modus operandi was instituted, and freight and passengers were delivered directly to their respective destinations, leaving San Francisco to survive on her own merits. What little we lost in the way of transient patronage, however, was made up a thousand fold by the State and coast at large.

The truth is, the railroad builders made it possible for the outside points throughout the coast to enjoy the benefits of their own. advantageous conditions of soil and climate without dividing up the profit with San Francisco.

" How much substantial encouragement did the railroad builders receive from the people of the coast?" the mayor was asked.

None at all ; that is, none that I have heard of. You see we did not have much faith in the enterprise, and while we hoped for its success, it was generally a case of hands off, as far as contributions of money were concerned. My idea is [said the mayor in conclusion] that but for the perseverance of those who had this gigantic scheme in hand California and the Pacific coast would to-day be just about where they were fifteen years ago.

VIEWS OF WILLIAM T. COLEMAN.

Willliam T, Coleman, the organized head and front of San Francisco commercial business, one of the earliest pioneers who has been identified with the growth and development of the commerce of the city, State, and coast since 1849, voices the sentiments already expressed by the leading men of the city, that the construction of tfce Union Pacific and Central Pacific Eailroads was the cause of which the general prosperity of the coast is the direct effect.

When you ask me [said he to a gentleman in his office on July 9j to some of the benefits wh,ich have flown from the final completion oi i.Ve hrst

LELAND STANFORD. 2505

railroad line between the East and the West, I can only point you to the evidence of the unequaled prosperity of the Pacific coast, and tell you that all this is comprised in the benefits brought about by the building of that railroad line. Before, we had next to nothing ; now we have well-nigh everything that can be desired.

The project was a mammoth one, requiring an outlay of hundreds of millions of dollars. The capital controlled by the projectors was known to be comparatively insignificant, and no one could see how the enterprise could possibly succeed. We failed to calculate, however, on their capital of perseverance and pluck, and this it was that built the road.

LITTLE AID RECEIVED FROM THE PEOPLE.

" How much assistance did the road receive from the people? "

Next to none at all. That is, the contribution was so slight, and it was manipulated in such a way that costly litigation ensued, and it proved more of a shackle on the hands of the railroad builders than anything else. Some people call me an antirailroad man, and perhaps I am partially deserving of the name, but while I am ready to plead guilty to having scored the railroad in general at ditfereut times when they seemed to merit it, I have generally been inclined to make an exception of the Union and Central Pacific, which roads are, to my mind, richly entitled to much more than they have ever received from the Government or the public.

VIEWS OF SENATOR L. J. ROSE.

Senator L. J. Bose, of Los Angeles, was at the Palace Hotel on Sunday, July 17. In conversation with a reporter regarding the development of tbe southern section of the State he said :

The railroads have made Southern California what it is to-day. Before the completion of the through line formed by the joining of the Union and Central Pacific roads the southern half of California, which is now famous the world over as the most favored quarter in America in point of climate and soil conditions, was no more nor less than a barren sheep pasture. In truth it hardly rose to the dignity of a pasture at all, for the whole country was almost as destitute of vegetation as a desert. There were no vineyards, no orchards, no agriculture nothing. The only industries which any effort was made to prosecute were cattle and sheep raising, with here and there a sort of experiment in the way of growing cereals, mostly for home consumption. True, this last-nained industry grew to some proportions after the institution of the clipper-ship line, by means of which wheat was sent to foreign and Eastern ports via Cape Horn ; but the leading industries of to-day were not dreamed of, inasmuch as San Francisco was the only market known to us. Wine-making and fruitraising for other than local consumption were out of the question entirely.

INDUSTRIAL REVOLUTION PRODUCED.

Our redemption came in 1869, when the railroad people completed that gigantic and wonderful work the actual laying of a line of steel over, under, and through the granite Rockies, giving California a direct rail connection with the East. I say our redemption came then ; so it did. The effect was marvelous and immediate. There was an industrial revolution. We beheld ourselves in a day, as it were, surrounded by possibilities which made us a new and different people, in a new and completely changed land. That day fortune smiled upon us, and the unequaled prosperity which teems on every hand to-day is the result. The desert indeed " blossomed as the rose ; " where there had been barren and neglected wastes there sprang up orchards and vineyards as if by the hand of magic. Cattle and sheep ranges were transformed into fertile and productive farms and ranches. Hamlets sprang into villages, villages into towns, towns into cities. Life and activity took the place of indolence and sloth. Our reputation began to spread, and a different and better class of people began to settle among us. Our growth and development have been phenomenal during our life of thirty years ; for wo consider that we were born on the day the through railroad was completed. And to-day there is no more prosperous section on the face of the globe. Who can doubt that the railroads brought us all this prosperity which extends throughout the Pacific coast? And who can say that the dauntless projectors of tbo great enterprise which first gave HS communication with the world are not entitled to all praise and all support?

INCREASE OF WEALTH CAUSED BY RAILROAD.

In connection with this subject there is one feature of the relation of the community through which it passes that I feel should not be over

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U. S. PACIFIC RAILWAY COMMISSION.

looked. I refer to the wealth- creating power of railroads. The potency of its influence has nowhere been better shown than in California.

INCREASE OF TAXABLE PROPERTY.

In 1870 the tax-roll of Los Angeles County showed the aggregate taxable property to be less than seven millions of dollars. In 1883 the tax roll of that county was twenty-seven millions and one-half, an increase in twelve years of nearly 300 per cent., and the figures show that the larger per cent, of this increase should be credited to the past five years during which that county has had railroad facilities.

The same gratifying result is obtained by a comparison of the taxrolls of other counties in this State, as will be shown by the following tabulation from the report of the State controller :

...

The increase from 1863 to 1870 was much less than the increase from 1870 to 1883. The taxable property of these eight counties in 1860 aggregated but thirteen and one-half millions of dollars, or nearly fourteen millions less than the taxable property in Los Angeles County to-day. The aggregate taxable property of these counties in 1870 amounted to less than thirty-one and one-half millions, while the present aggregate value of the taxable property in the same counties foots up $114, (506,905, an increase of about 270 per cent. These counties hav.e gained since 1870, $83,329,014, the increase being nearly three times the amount of the taxable property in 1870. Taking the counties composing the San Joaquin Valley, and I find that prior to the construction of the railroad most of the land was used for sheep-grazing and was practically of no value, whereas at the present time it is worth at least $125,000,000, so" that there has been an increase of at least a hundred million dollars in the value of the property in the San Joaquin Valley alone by the construction of the road.

Now, I would like to show you the effect which transportation has had upon this country. At that time the clipper ships were charging $17 per ton and upward for freight from here to Liverpool. The year that the Southern Pacific was completed it immediately dropped to $10 a ton, and I think it has never been above that point since. On the contrary, it has generally been a little below. That year we raised in this State about 1,000,000 tons of wheat for export, and the saving to the farmers in freight alone was the difference between $10 and $17 a ton. For first-class passage the Pacific Mail Steamship Company was charging $300 by way of the Isthmus. When the road was completed it immediately dropped and came down to a reasonable figure.

TAXES.

" Question 37. To all questions concerning the payment of taxes, especially upon lands granted by Congress."

LELAND STANFORD. 2507 NO TAXES DUE ON LANDS.

Answer 37. There are no taxes due to the United States or upon lands granted by Congress.

Upon the subject of taxation I desire to submit the following statement from Mr. E. B. Ryan, our tax agent :

CENTRAL PACIFIC RAILROAD TAXES.

STATEMENT OF E. B. RYAN. The Central Pacific Railroad Company of California was incorporated June 28, 1861. The Western Pacific Railroad was incorporated December 13, 1862. These two companies were consolidated June 23, 1870, under the name of the Central Pacific Railroad Company. From the date of their respective incorporations, and after their consolidation down to the year 1880, the Central Pacific Railroad Company paid as taxes in the State of California the sum of $1,936,666.49. The same Company paid in taxes in the same time in the State of Nevada the sum of $1,316,587.26, and in the Territory of Utah the sum of $130,984.88, making a total of $3,384,238.63. Prior to 1880 the county assessors assessed railroad property the same as property of individuals in their respective counties and boards of supervisors constituted boards of equalization for their respective counties. During this time there had never been any litigation, refusal, or delay in regard to tax matters, except in isolated cases where prejudice or mistake had through the action of the assessor or the county board of equalization raised the assessment in some county or counties out of all proportion to the assessment for valuation in other counties through which the railroad passed, and in one instance where several of the counties, instead of assessing the railroad at its cash value, as required by law, took into account its collections and the uses to which it was put thereby, fictitiously increasing the valuation. In all cases, however, where the payment of taxes was resisted both the Central and Western Pacific Railroad Companies, after judgment was rendered in their favor, paid the usual and just amount of taxes due from them.

HISTORY OF THE TAX LITIGATION.

The question of taxation is this State has been one of peculiar condition for several years past, involving a controversy between the transportation companies and the revenue department of the State government, and for the full understanding of the question by the Commission it will be necessary to review the origin, history, and present condition of this controversy at some length. The old constitution under which this cornpany was organized provided, section 13 of article 11, that all taxation shall be equal and ubiform throughout the State. "All property in this State shall be taxed in proportion to its value, to be ascertained as directed by law ; but assessors and collectors of town, county, and State taxes shall be elected by the qualified electors of the district, county, or town in which the property taxed for State, county, or town purposes is situated."

EQUALITY OF OLD CONSTITUTION.

Equality and uniformity are the controlling principles to this section of the old constitution, and the laws passed by the legislature under the wise and judicious limitations therein contained were equal and uniform in their operation upon all persons and property in the State, including the property of railroads operated in more than one county. The property of railroads operated in more than one county of the State was assessed by the same assessor that assessed all other property in his assessment district. The taxes thereon were equalized by the same board and collected by the same collector that equalized and collected the taxes on all other property situated within the jurisdiction of such board and collector. Under this fair and uniform law there never was any difficulty between the railroad company and the people upon the subject of taxation, except in one or two isolated cases, due to purely local causes.

ASSESSMENTS TO RAILROADS PROMPTLY PAID WHEN ASSESSED AS

OTHER PROPERTY.

Prior to that time, as already said, the Central Pacific RailroaM Company and the lines operated by it paid fully and promptly, without protest or contest, all taxes as assessed ; assessments then being made upon railroads in the same way as upon all other private property. I say private property, because if railroad property is not private property it is not subject to taxation.

P R YOL IV- 12

2508 U. S. PACIFIC KAILWAY COMMISSION.

TAX PROVISION OF NEW CONSTITUTION.

In 1879 a new constitution was adopted in California, under which was created a State board of equalization. In this new constitution the framers omitted the principles of equality and uniformity which form the basis of all taxation under the old instrument, and* inserted in lieu thereof the following :

''All property in the State shall be taxed in proportion to its value, to be ascertained as provided by law." (Sec. 1, Art. XIII, Cons.)

Section 4 of the same article among other things provides :

" A mortgage, deed of trust, contract, or other obligation by which a debt is secured shall, for the purposes of assessment and taxation, be deemed and treated as an interest in the property affected thereby ; except as to railroads and other quasi-public corporations, in case of debts so secured, the value of the property affected by such mortgage, deed of trust, contract or obligation, less the value of such security, shall be assessed and taxed to the owner thereof in the county, city, or district in which the property affected thereby is situated."

INEQUALITY OF NEW CONSTITUTION.

In other words, the owners of all kinds of property in this State except railroads and other quasi-public corporations have to pay only upon the value of their interest therein after deducting .therefrom the value of the mortgages, &c., if any thereon, whereas the owners of railroad property have to pay taxes upon the full value thereof and are not allowed to make any deductions for the value of the mortgages, &.c., thereon. By the same instrument, sec. 9, county boards of equalization were created with power to correct and equalize the entire assessment roll, to increase or lower it, or any assessment contained therein, so as to equalize the assessment of the property contained in said assessment-roll and make it uniform to the true value in money of the property so assessed ; this board being a tribunal to which an appeal could be taken from the judgment and decision of the assessors. It was intended not only as a check against incompetency and dishonesty on the part of the assessor, but also, to give every property-owner his day in court, if ho suffered in any way by the action or determination of the assessors. This beneficial and just provision of the constitution applies only to the owners of property as assessed by the county assessor, and does not apply to nor affect the owners of railroads operated in more than one county of the State. The owners of such property, if they have been ever assessed or wronged in any other manner in the assessment of property, have no board or officer to whom they can appeal or before whom they may appear to have their assessments equalized or their wrongs righted. The remedy provided % for every other propertyowner in the State is denied to them.

A SEPARATE SYSTEM OF ASSESSMENT FOR RAILROADS.

the new constitution, by section 10 of article 13, makes provision for an independent and separate system of assessment for railroads operated in more than one county in the State. They are assessed, not by the assessor, who assesses all other property, including railroads operated in one county, but by the State board of equalization. The operation of this law is discriminative against railroads operated in more counties than one, being burdensome and unjust and unequal. It is self-executing; it enables the board to assess the property at any place, at any time at which it in its pleasure may elect to meet without any notice given of any kind to any person to be affected by its action, and without an opportunity to be heard after its action ; and its decision is declared to be final. The board may assess those at $100,000 per mile, or it may assess them at $1 per mile. Its action being final and conclusive, neither the railroad companies on one hand, even if power is excercised to confiscation, nor the people on the other hand, if the board should assess the property at $1 per mile, could obtain relief.

ASSESSED MORE THAN ELSEWHERE IN UNITED STATES.

In the exercise of this power, the first State board of equalization made an assessment of railroad property. The valuations placed by this board upon a single-track railroad running chiefly through the thinly settled counties, many of which roads had never earned or paid a dividend, was more than double that placed upon any railroad of similar character within the United States. The locomotives of these roads, some of which had been in service nearly a quarter of a century, were assessed at 80 per

LELAND STANFORD. 2509

cent, more than new locomotives of the same pattern could be purchased for and placed upon the road, and this, too, in face of the fact that the value of the standard locomotive was certain and easy of ascertainment.

EFFORTS TO GET JUDGMENT ON THE MERITS OF THE CASE.

In the proceedings which have been had to determine the validity of this special system of taxation, in no case has the company for a moment endeavored to delay a final judgment. To determine this question as early as 1881 an action was commenced in the circuit court of the United States, in which the whole matter at issue between the companies and the State could be finally determined. The State took a technical objection to the jurisdiction of the court, and the case went off upon that ground and without reference to its merits. In 1882 the companies commenced proceedings in the superior court of San Francisco, on the equity side, to determine the question at issue, and tendered into court, without prejudice, CO per cent, of the tax claimed, and offered to litigate the balance.

TECHNICAL .OBJECTIONS BY STATE.

Again the State interposed technical objections, refused to receive part payment or let the question be heard upon the merits. The State then commenced suit to recover taxes. Those cases were taken to the Federal courts, which courts alone could finally determine the question at issue, and ari agreed case known as the'*' San Mateo Case" was made up between the State and the company.

SAN MATEO TEST CASE.

This case was taken to the Supreme Court, advanced in the calendar, argued, and submitted for decision. In the meantime an election had occurred and a change in the State administration. It was asserted by the press and many able lawyers that the case was not a fair one. This was pressed upon the Supreme Court of the United States, and that tribunal directed that enough cases should be tried upon their merits to present all the questions, and that when such cases were brought up they would advance them in the calendar and hear them at once. This fact was publicly announced by the court at the commencement of the circuit court, last August, 18d6. In pursuance of that announcement six cases were tried, but one of which has yet been appealed. The case was taken up and a motion made to advance it. The court refused.

PENDING: LITIGATION CO PER CENT. TENDERED.

It will be borne in mind that the companies, although denying their legal liability, tendered, on account, 60 per cent, of the amount claimed, which would make the tax very much greater than that ever levied upon any such property in the United States. The State board of equalization in 1882 reduced the assessments upon railroad property, Cleaving it yet largely in excess of that levied upon such property in any other State in the Union.

STATE BOARD ADMITS OVER- ASSESSMENT.

It was stated by the chairman of the board, at the time of this reduction, that the assessment of 1880 had been made in advance of the assessment of other property, and at a time when the board believed it had the full power to raise individual assessments up to the standard of value which they fixed upon railroad property, and they intended to do so, but owing to a decision of the supreme court of the State that power was deniad them, and that the railroad property was left standing at its full value, while other property in the State had not been assessed at more than 44 per cent. This was a concession by the very tribunal to which the framers of the constitution had encrusted the power of valuation that the valuations of 1880 and 1881 were wrong.

FULL AMOUNT OF TAXES OFFERED TO STATE.

In view of the fact that the finances of the different counties had been disarranged by the non-payment of those taxes in October, 1883, the railroad companies proposed to the governor of the State to pay the taxes, although they still believed them to be too high, for the three years upon the basis of the assesmont of 1882. This proposal

2510 U. S. PACIFIC RAILWAY COMMISSION.

was refused by the governor in November, not upon the ground that it was not just, but upon the ground that he had no power to accept it. In the meantime the State authorities had the Spring Valley Water Company and the San Francisco Gas Company settled upon the basis of the tax as assessed, 'without interest or attorney's fees, although as against one or both companies the State had prevailed in litigation. The Southern Pacific Eailroad Company made similar propositions to settle, which were rejected. Against this adjustment with the water and gas companies, which was a final one, and beyond which no power can go, no cry of unfairness was raised by any one ; and from that hour to this, so far as I am advised, no one has questioned the propriety or justice of the settlement, although it is conceded that the property of the water company will sell in open market for 100 per cent, more than the assessment, while it is doubtful if the railroad company would bring in the market within 10 or 15 per cent, of the assessment.

STATEMENT ADVOCATED BY SAN FRANCISCO CHRONICLE.

After the refusal of the Governor to adjust matters with the railroad company, and after the settlement was made with the water company and the gas company on the 12th and 13th of November, the San Francisco Chronicle, in an article commenting on the railroad's proposition, took the ground that the governor had done right, but maintained -that a fair settlement of the whole matter would be for the companies to pay the taxes "flat," as the water and gas companies had done. That paper claimed, with a great deal of force, that to satisfy the people that it was dealing fairly, and only wanted the principle decided, the railroad company could afford to pay the difference, which, taken in connection with the local tax levied upon ferry steamers, workshops, stations, houses, &c., on the Central Pacific main trunk line, amounts to $351 per mile, a tax beyond the power of any single track railroad to pay.

STATE CONTROLLER REFUSED TO RECEIVE MONEY ON ACCOUNT.

Notwithstanding this, long before that tax became delinquent, the companies tendered to the State controller, who had been made the tax collector, 60 per cent, of the amount, with a stipulation in writing that the receipt by the controller of that sum should not affect any local rights of the State or counties to proceed for the balance. The controller refused to receive the money, and commenced suit against the company for the whole amount. The company has tendered the 60 per cent, of the amount claimed in open court without prejudice to any right to recover the balance, and by reason of the moral obligations resting upon it, offered to pay into the State and county treasuries nearly two million dollars in money.

TAXES PAID 1SS1-'S6 AFTER JUDGMENT DECLARING IT VOID.

The Central Pacific Railroad Company for the years 1880, 1881, 1882, 1883, 1884, 1885, and 1886, in the State of California, paid for State, county, and municipal taxes $1,408,299.91. The greater part of this sum was in litigation and was voluntarily paid by the company after judgment had been rendered declaring the tax void. The Supreme Court of the United States, when these cases came up before it, in each case affirmed the decision *of the circuit court in favor of the company and against the legality of the tax.

TAXES PAID, OVER SIX MILLIONS.

The Central Pacific has paid in taxes in the

State of California $3,355,095.75

State of Nevada 2,411,227.60

Territory of Utah 264,316.38

Total 6,030,639.73

CENTRAL PACIFIC PAID MORE THAN ANY OTHER ROAD IN THE UNITED

STATES.

It is my firm belief, and I think the facts herewith submitted will substantiate the statement, that since 1880 the Central Pacific Railroad Company has paid more taxes tban any other company in the United States upon the same number of miles of road.

In substantiation of this I submit the following table, which shows the facts regarding taxes in those States from which I have been able to gather the necessary data. The inequality of the railroad tax in California and Nevada, compared with the re

LELAND STANFORD.

2511

maiuing States, is suggested by the ratio shown in tho last two columns between the taxes per miles of railroad and the population :

Assessments of railroads in the following States.

...

VOLUNTARY PAYMENT OE TAXES.

By the CHAIRMAN :

The sum of $3,000,000 estimated there for payment of taxes was not paid upon land granted by Congress? A. No ; that was but a small portion of the railroad property. There is one thing to which I desire to call the particular attention of the Commission with regard to these facts; and that is, that after judgment had been rendered in our favor, and where there was no legal liability, we paid over a million dollars in taxes. We have always paid our taxes. Even after judgment in

our favor we paid a fair amount.

O By Commissioner LITTLER :

Q. Who determined that question of fairness? A. Where there was no legal liability we paid as we had been accustomed to pay, and even then we paid a great deal more than any other railroad in the United States.. I think that our assessment was over three times as much per mile as the "New York Central assessment. I do not believe there is another example like it to be found anywhere, of a company, after a decision in its favor, paying over a million dollars voluntarily. I only allude to it here particularly to show that we have been willing to pay fair taxes.

DELAYS IN PATENTS FOE LANDS.

" Question 38. And the delay of said companies in taking out patents for such lands."

Answer 38. We have never been derelict in taking out patents for such lands. We have not received our patents properly, and at the present time there are applications for over one million acres of land pending before the United States Land Department.

2518 U. S. PACIFIC RAILWAY COMMISSION.

INJURY TO COMPANY BY INABILITY TO GET PATENTS.

It has been charged that we do not take out patents because we do not want to pay taxes thereon, but this is not so. We could never get out patents fast enough and have suffered in consequence. The inability of the company to obtain patents promptly upon application has caused us great loss, not merely in the sales of lauds, but more particularly in the business that would have arisen in their occupancy, as will be more fully shown in the report of Mr. W. H. Mills, land agent of the company, hereto attached and made part hereof, marked " Exhibit No. 6."

RATES AND CHARGES.

" Question 39. The rates of fare and freight charged, discriminations, differentials, pools, and other devices."

LOW RATES ON CENTRAL PACIFIC, CONSIDERING THE CIRCUMSTANCES.

Answer 39. Taking into account all the elements which have to be considered in determining the rates at which passengers and freight can be moved, such as amount of business done, the cost of doing it, c., the cheapest railroading in the world is done on the Central Pacific. Taking the business between the State lines of Nevada as an instance, the local business is almost nothing. It would not maintain the running expenses. The maintenance of that portion of the road is from the business that originates outside of those boundaries and passes through - } and through freight is materially affected, both in volume and rates, by competing lines of road subsidized by the Government.

For a more detailed answer I refer to the exhibit made by Mr. J. C. Stubbs, the traffic manager of the road, marked " Exhibit No. 7," attached hereto and made a part hereof.

FACILITIES FURNISHED, AND EFFECT ON COMMUNITIES OF SETTLEMENT FOR DEBT.

"Question 40. And the facilities and accommodations furnished to the patrons of such roac(& ; and their report shall embrace a consideration of the interests and "fights of said communities as affected by whatever plan of settlement or payment of the existing debt may be proposed."

FACILITIES FIRST CLASS.

Answer 40. The facilities and accommodations furnished to 'patrons of these roads are first class. There is a sufficiency of passenger and freight trains for the accommodation and convenience of the traffic. The speed and frequency of these trains are ample. The rolling stock is up to the standard and excellent in its quality and condition. Stations, station-houses, warehouse facilities, and sidings are provided at all necessary points. The character of the service generally will compare favorable with the most thoroughly equipped and best served in the country.

SETTLEMENT PROPOSED SHOULD NOT BURDEN COUNTRY ALONG LINE,

In any scheme of extension or adjustment that may be made between the Government and the company, the Government should not forget

LELAND STANFORD. 2519

the policy in which the measure had its origin, that is, the public interest. Travel and transportation should not be so burdened as to cripple the road, jeopardize its efficiency, and retard the development of the country.

The Commission then adjourned to Friday, July 29, 1887, at 10 a. m.

PALACE HOTEL, SAN FRANCISCO, CAL.,

Friday, July 29, 1887.

LELAND STAKFOKD, being further examined, testified as follows: The WITNESS. The next question in your circular was :

EXTENSION OF TIME FOR PAYMENT.

" Question 41. Said Commissioners shall also consider and report whether the interests of the United States require any extension of the time for performance of the obligations to the United States of said companies, or any of them, and the facts and circumstances upon which said opinion is based.' 7

SECURITY HELD BY UNITED STATES.

" Question 42. Including the security held by the United States for the performance of such obligations, and the value thereof."

SUCH A SCHEME FOR EXTENSION AS SHALL NOT AFFECT THE SERVICE.

a Question 45. And if, in their opinion, such extension shall be required by the interests of the United States, they shall submit a scheme for such extension which shall secure to the United States full payment of all debts due them from said companies, with a reasonable rate of interest in such time as the Commissioners shall propose, having due regard to the financial ability of said companies and the proper conduct of their business in such manner as shall afford efficient service to the public."

THE EQUITIES CONSIDERED.

Answer. Questions 41, 42, and 45 relate to the policy that shall be adopted with reference to the payment by the company of the debt due the Government, and therefore I shall consider them together. I have heretofore stated that the appointment of this Commission by Congress, and the authority and instructions given to it to ascertain what the company had lost upon the one hand, and what the Government had gained upon the other, by the construction of the road, was a candid admission on the part of Congress that this company had equities which Congress desired to adjust and allow. We believe that Congress was not actuated by any mere idle curiosity in creating this Commission to examine into and report concerning the foregoing matters. We have therefore shown among other things :

LOSS ON SALE OF GOVERNMENT BONDS.

(1) That the company had to sell the Government bonds at a discount, and thereby sustained a loss of $7,120,073.55 ; and interest on this loss to maturity, $12,816,132.59.

2520 U. S. PACIFIC RAILWAY COMMISSION.

AMOUNT SAVED TO GOVERNMENT ON TRANSPORTATION.

(2) That the Government saved $47,763,178 in transportation between the time when the line was completed and the time when it might have been completed according to the contract, this company's proportion of which was, say, 40 per cent, or $21,971,062.

AMOUNT DUE BY GOVERNMENT.

(3) That the Government now owes the company $1,853,323.15 for transportation on unaided roads, the justness and legality of which claim has been decided by the Supreme Court of the United States.

1 wish to say here that this matter was brought before Congress at various times ; that the Departments both the Postal Department and the War Department sent down word that they needed so much money to meet these expenses ; but Congress did not make appropriations.

By Commissioner ANDERSON :

Q. Can you refer us to the case in which the figure you have given was declared to be the figure that you were entitled to receive, $1,853,323,15? A. There is no dispute as to the amount. It arose on these non-aided roads. The question was whether it should belong to the sinking funds as the earnings of the aided road.

Commissioner ANDERSON. I am speaking more especially as to the accuracy of the figures to which you refer, because the difference as to the rate to be charged for different kinds of transportation, which was the subject of litigation for many years, and the difference as to the amounts ultimately awarded by the court and the amounts claimed by the company is very important; so that if you can refer us to the decision, we would like to see it.

The WITNESS. There is no dispute as to the amount between the Departments and the companies. The whole question with the Departments was whether or not we were entitled to take the earnings, and the Court of Claims decided unanimously that we were entitled to take them, and on appeal to the Supreme Court of the United States that court unanimously decided the same way.

Commissioner ANDERSON. That is the case to which we want you to refer.

The WITNESS. I will give you the reference.

By Commissioner LITTLER:

Q. Is there any dispute between this company and the Government as to other sums of money? A. Not as to that particular sum now.

Q. Have you any controversy with the Government now? A. There are some sums of a long time ago, concerning which I spoke yesterday, that have never been settled. They have not been allowed. I think that they would amount to three hundred thousand and odd dollars.

INTEREST LOST BY COMPANY.

(1) The amount of interest the company has lost upon the money which it would have received from the sale of its lands, if the Land Office of the Government had issued patents as fast as called for by the company. This amount can be approximately determined.

LOSS ON ACCOUNT OF SINKING-FUND PROVISION.

(5) That the company has lost $1,612,966.72 in being forced to pay into a sinking fund established by Congress large amounts of money for

LELAND STANFORD. 2521

which it not only has not received any interest, but the company has not so much money now as it paid therein by. over $500,000. In other words, it has not only lost the interest on this money by reason of mismanagement of the fund, but has even lost a portion of the principal, and at the same time has been compelled to pay 6 per cent, per annum on this very amount so lost to it by reason of the purchase of the bonds placed in the sinking fund at a premium.

DIVERSION OF BUSINESS.

(6) The diversion of business to other lines, of which this company's proportion amounts to about $17,000,000.

AMOUNT OF EQUITIES EXCEED AMOUNT DUE GOVERNMENT.

There can be no question in the mind of any candid person but what this company is entitled to have the foregoing specified equities allowed by the Government. If they are allowed, then all questions relative to the extension of time in which to pay the debt becomes immaterial, because the amount of these equities exceed very largely the amount of debt now due from the company to the Government. If, on the other hand, the Government is not willing to allow these claims, it will be exceedingly difficult to determine the conditions which should be imposed upon the company concerning the payment of the indebtedness. The ability of the company to pay must always be determined by the amount of business it does. This depends largely upon conditions changing from day to day, and over which the company has no control. As we have hereinbefore stated, the net earnings from local business of the State of Nevada amounts to nothing, and if the departments of the Government having control of Government transportation divert from this road and give to foreign and competing roads the business which this road is fairly entitled to, ifc is impossible to tell when the company can meet its obligations. About the only thing that can be done at this time will be to fix the rate of interest which the Government should charge. This should not be in any case more than the Government would have to pay for the use of the money, to wit, any more than 2 per cent, per annum.

There should be taken into consideration the amounts saved the Government in transportation, that is, based upon the business before the completion of the railroad. Since the completion of the road the efficiency of the service has been increased beyond comparison, of whicb we make no estimate. Probably thousands of millions of values were created by the construction of the road in the development of the country and making it suitable for homes. That and other benefits to the United States were anticipated at the passage of the law, and I believe in no single instance have the people or the Government been disappointed. If the Government does not allow the company the compensation for services contemplated by Congress at the time of the passage of the bill, and if they are not to be allowed for the diversion of business consequent upon the Government subsidizing competing roads, then the ability of the company to pay is manifestly unequal to the burden imposed.

LIQUIDATION OF DEBT ANTICIPATED BY PAYMENTS WHICH HAVE BEEN MADE UNDER ORIGINAL LAWS.

I deem it, however, proper to suggest to the Commission that it was originally contemplated by Congress that the liabilities of the company

2522 U. S. PACIFIC RAILWAY COMMISSION.

were to be discharged by the compensation to be made by the Government to it for the services it might be called upon to perform for the Government, and the 5 per cent, of its net earnings reserved by law. The lien was only intended to secure such performance. In other words, it was contemplated that the services of the company, together with the

5 per cent., would liquidate its liabilities to the Government.

i

PROPERTY NOT SUBJECT TO UNITED STATES LIEN.

" Question 43. And the value of the property of such companies, and either of them, not included in such security V

Answer 43. The Government lien only covers the Central Pacific from Ogden to Sacramento, and the Western Pacific from Sacramento to San Jose. No other property of the company is covered by the Government lien. As to the value of the property of the company not so covered by the Government lien, I am unable to estimate, but am informed that the engineers appointed by the Commission are making an estimate of all the property of the company, which will include ttiis information.

A statement of these assets is given in the foregoing reply to interrogatories 11 and 12.

FURTHER SECURITY FOR UNITED STATES.

" Question 44. And what further security is it expedient that said companies shall be required to give?"

UNITED STATES HAS NO RIGHT TO CHANGE ITS CONTRACT.

Answer 44. In answer to question 44, I respectfully submit that the Government has no right to change its contract with the company and demand other security than that fixed in the original acts of Congress of 1862 and 1864. Nor is it expedient for the Government to ask further security. On the contrary, the best security that the Government can have will be a fair consideration of the equities we have already enumerated, and a fair and liberal settlement with the company upon the basis originally contemplated by Congress, to the end that the company may be able to discharge all its obligations and be able to assist in the development of the country and promote the general interests of the people. It should be borne in mind that the burden upon the company other than its obligations to the Government were vastly increased by the rapid completion of the road, both on account of the ruinous discount suffered in selling its first mortgage bonds, and the high price of material and great disadvantages under which the road was constructed in a country where a large portion of the transportation was necessary by teams, it being impossible to advance the constructed line of road on account of snow blockades in the Sierra Nevada Mountains, and the unequal character of the country through which the road passed necessitated transportation of supplies and of men frequently hundreds of miles.

DIFFICULTIES IN CROSSING- THE MOUNTAINS.

The difficulties which we experienced in crossing those mountains can hardly be appreciated. We worked along in the heavy snow, and our supplies and material for the men and the horses had to be packed to them. We had to shovel snow, and in some places to pick it with

LELAND STANFORD. 2523

a pick for 75 feet deep in order to get to a place on which to put our embankments. Snow fell there one winter 63 feet in depth since we have been operating. Not that you would find that in a measurement by taking the falls of twenty-four hours and adding them together, but you would find drifts and places where 63 feet of snow was pressed down, perhaps, into not more than 18 feet, but packed as hard as ice, and requiring the pick and powder to make a passage. Then, in building the road out over that desert from Truckee to the Humboldt, for 40 miles, we had to haul water for our men and horses to drink, and we had to go some distance up to Humboldt before we struck water which was even fit to be used. We sent over three thousand men and four hundred horses in advance of our building lines to work up in the canons of the Humboldt those three canons there and all their food and supplies had to be hauled there. The springs were all a good ways from the road. Now we can get along very well, because water is brought there from springs, but at that time we had even to hunt for water. We laid the track of a little over 500 miles in five days less than ten months, and we laid a little over 10 miles in one day. There were a great many curves and a great many unforeseen difficulties which had to be surmounted.

A RACE WITH THE UNION PACIFIC.

By Commissioner LITTLER :

Q. There was a race between you and the Union Pacific, was there not, governor ? A. Well, yes. When we were working on the mountains our work was so tremendous that they thought we could not get over the mountains by two years as early as we did, and they were going to meet us at the end of the eastern side of the mountains. Of course our road would not be worth anything in that case. It was a difficult road to operate, and they could bring goods from the east and would be cutting off all our business over there. So we were forced to make the most extraordinary efforts in order to get out to Salt Lake and have something to say with regard to the future business and the supplies that might go into Nevada. After we got over the mountains we swarmed men along that mountain side, and we went over there faster than any one believed could be possible, aiding the men with a liberal use of powder. AVe hauled the iron for 40 miles over the mountains and built down on the Truckee in the winter season 40 miles of road, and hauled iron and engines and everything over, besides all our supplies. I paid 13 cents a pound for freight from the Summit out to Salt Lake City. Then we had to haul it out on the line of the road and then we paid 2 cents more. We accomplished 180 miles there with such help as we could get. Hay was worth $100 a ton, and oats, I think, about fourteen or fifteen cents a pound. Everything was up in price; 'and thos^ little teams over there would not haul much more than a wheel-barrow full of dirt.

Commissioner LITTLER. The first time I was at Leadville hay was worth there $180 a ton.

The WITNESS. I sold one potato for $2.50.

COMMISSIONERS TO REPORT BY DECEMBER 1, 1887?

" Question 46. And the said Commission shall report in full in regard to all such matters aforesaid, and in regard to any other matters which may be ascertained or come to their knowledge in regard to said p R VOL iv 13

2524 U. S. PACIFIC RAILWAY COMMISSION.

companies respectively', on or before December 1, 1887, to the President of the United States, who shall forward said report to Congress, with such recommendations or comments as he may see fit to make in the premises."

Answer 4( This question, relating as it does entirely to the duties of the Commission, does not require any answer from me.

COST OF UNITED STATES TRANSPORTATION PRIOR TO ROAD.

u Question 47. The Commission shall also ascertain the average cost per annum of Government transportation in the region now traversed by the Pacific railroads between the year 1850 and the completion of said roads."

UNITED STATES TRANSPORTATION $8,000,000 A YEAR.

Answer 47. The average cost to the Government per annum for transportation in the region now traversed by the Pacific railroads, between the year 1850 and the completion of the road, was over $8,000,000. This does not include the cost of maintenance of Government forts and military encampments and a large number of troops necessary to protect the border against the hostile Indians, which disappeared with the advent of the railroad. Nor does it include the expense incident to the carrying of the mails, munitions of war, and other matters required in the region beyond the line of the road, as in northern Montana, Dakota, Washington Territory, and other points now reached by railroads. The difference in the character of the service and other matters of interest will be found more fully set forth in the reply to question 52, which has, in a measure, to be treated in connection with this question.

SAVINO TO UNITED STATES TO 1886 $139,347,741.

The saving to the United States by the Central-Union line, in the item of transportation, has amounted to January 1, 1886, to the sum of $139,347,741.

COST OF UNITED STATES TRANSPORTATION SINCE COMPLETION. ONE-TENTH OF FORMER COST.

" Question 48. And also the average cost per annum since such completion."

Answer 48. As shown by the books of this company and the records of the Government, it appears that the average cost per annum for Government transportation over said roads is about one-tenth of the amount formerly paid, with a very superior service, all of which will be found set forth in detail in the answer to question 52.

ADDITIONAL FACILITIES FURNISHED BY ROADS.

" Question 49. And what additional facilities have been furnished to the Government and the people by said roads."

COST IN *TIME AND MONEY OF FORMER METHODS OF TRANSPORTATION.

Answer 49. It is difficult to definitely state or to specifically point out oach additional facility which lias been furnished to the Gove rumen t and



LELAND STANFORD. 2525

the people 'by the railroads. It is a matter of history that before the construction of the Central Pacific Bailroad, all transportation between San Francisco and New York was done by water. The local transportation was done either by water or by wagons. The average time between New York and San Francisco was about six mouths by sailing vessel and from 30 to 40 days by steamer. The cost of transportation by any method in use, before the completion of the road, was very much more expensive in the direct charge than charges have ever been since the completion of the road. The absence of a railroad to connect with the Atlantic States of the American Union with the Pacific effected a loss to the people of the whole country, in time, in property, and in money, which each year equaled the annual expense of the Federal Government a loss that in two years would, according to the figures of Eepreseutative James A. McDougall, cover the cost of a completed railroad to the Pacific. This was a tax upon the industry and enterprise of the people of every State of the Union. The old system of transportation was marked by two great features of disadvantage; one of them was prejudicial to the merchant, in that he was required to possess a larger command of capital, in order to have a sufficient quantity of stock on hand for his operations, while he waited for the long-coming ship to arrive, whose cargo also called for money to purchase. The other operated to the detriment of consumers, inasmuch as opportunities were afforded to persons having a ready command of money to buy up the whole stock of a necessary commodity existing in the market, for the purpose of creating a monopoly therein, and demanding a higher price therefor. Before the establishment of railway facilities, this was repeatedly accomplished with perfect safety to the speculator.

Two-thirds of the territory of the United States lies west of the Mississippi Eiver, the greater portion of which at the time of the commencement of this road was wilderness. It has been opened up into settlements, into homes and general development. The values are not to be measured by hundreds of millions.

DISCOUNT ON UNITED STATES BONDS.

" Question 50. Also to inquire what discount the Pacific Bailroad and its several branches were forced to make in disposing of the bonds guaranteed by the Government to obtain the gold coin which was the currency of the country through which the greater part of said roads pass."

COST OF ROAD PAID IN GOLD.

Answer 50. The Central and Western Pacific Railroads were compelled to pay gold coin during the progress of construction for all wages, supplies, fuel, materials, and contracts which were payable on the Pacific Coast, the gold always having been the currency of this region.

CURRENCY BONDS ISSUED BY UNITED STATES.

The bonds issued by the United States to aid the construction of the Pacific railroads were made payable thirty years from date with interest at 6 per cent., payable semi-annual ly, the principal and interest made payable in lawful money. This during the time of the construction of the road and for some years afterwards was United States currency. From these facts the bonds have always been known as " Currency Sixes," and they were the only bonds issued by the Government which could not be redeemed by it, at its option, at any time before maturity thereof. I have been informed, and 1 believe it to be true, that these

2526 U. S. PACIFIC RAILWAY COMMISSION.

are the only bonds which the Government issued during the civil war upon which they did not sustain a discount. We direct your attention especially to the irredeemable character of the bonds, because, as we will hereinafter show, the company, on account of this character of bonds, has sustained a very great loss in being compelled to pay into the sinking fund a large sum of money from which it has received no interest whatever, and at the same time is compelled to pay interest on these outstanding bonds.

CENTRAL PACIFIC CHARGED WITH TWENTY MILLIONS FOR WHICH

IT RECEIVED NOTHING.

During the time the company was constructing its road, and at a time when it was experiencing the greatest difficulty in getting the money to meet its obligations, the Government securities were very much depreciated because of the existence of the civil war. For example, the company was compelled to dispose of the bonds issued to it by the Government at a loss of $7,120,073.55. The company is paying 6 per cent, on the bonds issued by the Government, so that at the maturity of the bonds the company will have to pay in round numbers $20,000,000, for which it never received one farthing. This is one item which must be taken into consideration in estimating the cost of the road, and one which is rarely recognized. Again, the company in selling its own first mortgage bonds was compelled, by reason of the impaired value of the Government securities, to sell its own bonds at about the same rate that it got for the Government bonds.

DEPRECIATED GOVERNMENT SECURITIES.

Commissioner ANDERSON. I do not understand your statement about the depreciation due to the war, especially in connection with this loss of $7,000,000.

The WITNESS. There was a time when the Government securities were down to 40 ; but at the completion of the road the Government credit had been restored and its bonds were a little above par

Commissioner ANDERSON (interrupting). I do not understand your statement that the bonds were depreciated by the war. I do not understand that any bonds were issued to the Central Pacific and Western Pacific Companies until two years after the close of the civil war.

The WITNESS. Yes ; there were some issued in 1863.

Commissioner ANDERSON. But you got no bonds from the Government.

The WITNESS. Oh, yes; we got the bonds; we got those bonds. I do not know what time exactly, but it was during the war.

Commissioner ANDERSON. It was in 1866 when the first bonds were issued.

The WITNESS. In 1866 !

Commissioner ANDERSON. Yes, sir.

The WITNESS. I think that you are mistaken.

Commissioner ANDERSON. We have got the United States reports. The WITNESS. There is no chance for a dispute as to what year these bonds were issued. We got the bonds, I know ; and they were sold in the market at the time, and we sold them for all that they were worth ill the market.

Commissioner ANDERSON. I was only referring to your statement that they were depreciated by reason of the war.

The CHAIRMAN. The war was virtually over when you commenced, was it not?

LELAND STANFORD. 2527

SUPPLIES HAD TO BE ORDERED A YEAR IN ADVANCE.

The WITNESS. Not with us entirely. Our supplies had to be ordered fully a year in advance of their use. Supplies and materials required in the construction of the road had to be purchased at least a year before we needed them. We commenced the grading of the work, and work was going on in 1863, and at that time our orders were out in the East for everything that we required for a long time ahead, so that we could continue our work with as little interruption as possible.

Commissioner ANDERSON. I am talking abo'it the depreciation in the bonds, and not about the commencement of the road.

The WITNESS. We sold those bonds at that depreciation. We had until 1876, by the contract, to complete the road. Had we waited for the expiration of the contract time before finishing the road, instead of building it seven years earlier than that time, we would not have had to suffer this loss. Had we waited, we would have had the advantage of the bonds at par, together with the premium at which they were selling, and as our own first mortgage bonds were depending very largely upon the assistance which the Government gave, they would have been above par also. By this rapid construction and completion of the road before the time required by the act of Congress, the depreciation was not merely on the Government bonds, but upon our own first mortgage bonds, so that what we were forced to lose in the sale of the two classes of bonds made a depreciation of $7,000,000 on each class, and the interest on them from that time until maturity amounts to about $40,000,000, which we will have to pay at maturity more than we would have had to pay otherwise had we realized par.

BONDS ISSUED.

The bonds issued to the Central and Western Pacific Eailroads were, at their par value, as follows :

Central Pacific $25,885,120

Western Pacific 1,970,560

Total currency bonds 27, 855, 680

These bonds were issued as sections of the constructed road were accepted by the President of the United States, and so bore different dates from the years 1865 to 1869, inclusive, with the exception of a small number dated in 1870. During all this period the currency was greatly depreciated, sometimes selling as low as 42.66 cents on the dollar in January, 1865, to 83.68 cents on the dollar in December, 1869.

AVERAGE AMOUNT RECEIVED FOR EACH B?)ND, $744.44.

In order to get the coin to pay for their construction, labor, and supplies the Central and Western Pacific Companies were forced to dispose of the currency bonds received from the Government at an average rate for gold of 1.34J. The amount received by the company for each bond of $1,000 was therefore $744.44. For the $27,855,680 in United States bonds these companies received $20,735,606.45. The discount they were forced to make was thus $7,120,073.55. Interest is charged the companies on the full amount to the maturity of the bonds. The interest on the $7,120,073,55 discount which the companies were forced to make is for thirty years, at 6 per cent., $12,816,132.39.

2528

U. S. PACIFIC RAILWAY COMMISSION.

LOSS FROM DISCOUNT, $19,936,205.

The total principal and interest for discount lost by the companies is therefore $19,936,205.94.

The following table shows, the amounts and dates of the currency bonds issued to these companies, and the market value of currency at the current average premium on gold :

Statement showing dnie* and anwunls of United States bonds, issued to Central and Western Pacific Railroad Ctnnfmnun (kti me tt nxcurrrncy sixes}, with value of same in United States gold at current average w/es of premium for United Stales currency.

...

LELAND STANFORD. 2529

BONDS BOUGHT FOB SINKING FUND.

Under the provisions of the act of May 7, 1878, the company has been forced to pay for these same bonds for the sinking fund in the United States Treasury a premium of about 35 per cent. It has thus suffered a loss in premium on the redemption of the bonds of an equal rate to the loss in discount on their issue. The sinking fund of the Central Pacific Railroad Company in the United States Treasury on June 1, 1887, contained $2,548,000 United States Pacific Eailroad bonds (currency sixes) and $9,000 Central Pacific Railroad first-mortgage bonds ; total, $2,557,000.

PREMIUM AVERAGED 34.21 PER CENT.

To secure these bonds the Secretary of the Treasury, under the provisions of the acts of May 7, 1878, and March 3, 1887, has paid a premium averaging 34.21 per cent., or for each bond of $1,000 he has paid $1,342.10. As these bonds must be held in the fund till the maturity of the debt, when they will be redeemed by the Government at par, the premium paid is wholly lost.

LOSS RESULTING FROM PREMIUMS AND DISCOUNTS.

The resulting loss on account of premiums and discount for this $2,548,000 in the sinking fund is as follows :

Received by Central Pacific Railroad Company in coin for $2,548,000 United States currency bonds, at $744.40 per $1,000 $1, 896, 731. 20

Paid by Secretary of Treasury in coin belonging to Central Pacific Railroad Company for $2,548,000 United States currency bonds, at $1,342.10 , 3,419,670.80

Cost of $2,543,000 bonds in excess of amount received by Central Pacific Railroad Company v 1,522,939.60

The foregoing facts may be summarized as follows : For each currency bond of $1,000 issued the company received in coin $744.40

And is required to pay :

For principal for those in sinking fund $1, 342. 10

For interest on all for 30 years at 6 per cent., 180 per cent 1, 800. 00

3, 142. 10

Thus for $1,000 received in coin from the United States bonds the Central Pacific Railroad Company is charged with 4,220.76

LOSS ON BONDS AND INTEREST BY EARLY COMPLETION OF ROAD,

FORTY MILLIONS.

As before stated the road was completed seven years before the expiration of the term limited by Congress. If the company had taken advantage of the time allowed by Congress for the completion of the road, they could not only have sold the Government bonds at par, but could also have disposed of their own first-mortgage bonds at their face value, which would have been a net gain, over and above what was actually received, of 87,120,073.55, the interest on which for thirty years would have been $12,816,132.39, which would make an aggregate saving on the Government bonds and the bonds issued by the company, principal and interest, in round numbers, of about $40,000,000. The sacrifice was made to comply with the urgent demands of the United States

2530 U. S. PACIFIC RAILWAY COMMISSION.

and people generally, for the early completion of tlie road, with the general understanding that the Government would make due allowance for the extra exertion put forth by the company.

RELATIVE PURCHASING POWER OF GOLD AND BONDS.

By Commissioner ANDERSON :

Q. Allow me to ask : Do you claim the purchasing power of your gold was any less than the purchasing power of your bonds?

The WITNESS. Dollar for dollar!

Commissioner ANDERSON. No, not dollar for dollar. Would the gold buy any more or less labor than the bonds would have bought?

The WITNESS. The gold would buy more labor than the bonds, because the bonds were not par in gold.

Q. Were not the twenty millions in gold worth just as much as the bonds were to the same amount? A. No, sir; twenty millions in gold were worth as much as twenty-five or twenty-seven millions in Government bonds. If the bonds had been worth par when we received them we would have received $27,000,000 for them ; whereas we received only twenty millions. It was with our company as it was with the Government all through the war. The Government sold its bonds at a low rate. At one time they ran as low as 40 cents, I think. I remember that there was a time when it took $3 in greenbacks to buy $1 in gold.

Q. What is the first date of the issue of bonds in the table? A. May 12, 1865.

CONSTRUCTION DONE BY CONTRACT AND FINANCE COMPANY.

Q. What company was referred to where you used the word "company"; was it the Central Pacific Railroad Company, or the Contract and Finance Companv ? A. I have been speaking always of the Central Pacific Railroad Company.

Q. Do I not understand that all this construction was done by the Contract and Finance Company? A. Yes, sir. But the Central Pacific Eailroad Company had an interest. The expenses of that contract were a necessary part of the burden of the Central Pacific.

Q. But were not those prices fixed when the contract was entered into in 1867 ?

The WITNESS. What prices?

Commissioner ANDERSON. The prices to be paid per mile for the construction of the road.

The WITNESS. Yes, sir.

Q. So that these alterations referred to in your statement and tables would not affect these prices, would they? The contract with the Contract and Finance Company was made in 1807, and I presume that the value of your securities was considered when this contract was fixed at a specific sum per mile. If that was so, the circumstance alluded to does not affect the Central Pacific. The additional cost of labor and the cost of transportation by teams and the other circumstances could only have affected the profits of the Contract and Finance Company and could not have affected the Central Pacific Eailroad Company. A. Oh, yes; because these circumstances were all well known, and were fully considered at the time the contract was made.

Q. How could you have known all these things which happened afterwards? A. Currency did not reach par, or at least these bonds did

LELAND STANFORD. 2531

not until about the time of (or after) the completion of the road. We received some bonds after the completion of the road and sold them some time afterwards, and those bonds, I think, were above par.

Q. I am speaking of the specialties of that work, the use of teams for sending out supplies in order to have the work done, and the other expenses which you have enumerated. What I want to know is, how they would affect the price to the Central Pacific if that price had been already determined? A. We took the prices into consideration at the time these contracts were made.

Q. In 1867? A. Yes, sir.

Commissioner ANDERSON. But these things occurred in 1868 and 1869.

The WITNESS. What time was that contract made?

Commissioner ANDERSON. October, 1867, according to the miuutes of the company.

SACRIFICE OF BONDS ISSUED ON MOUNTAIN PORTION.

The WITNESS. It was based on the condition of things then. The great sacrifice was on the mountains. We received the largest amount from the Government for the line over the mountains, and we were allowed under the law to issue our own bonds a hundred miles in advance of completion. All those bonds were issued at that time and disposed of at a sacrifice. The sacrifice on these bonds was on the then existing prices.

Q. Was the mountain work done under the Crocker contract or under the Contract and Finance Company's contract? A. A portion of the work was done under the Crocker contract and a portion was done under the Contract and Finance contract.

COST OF CONSTRUCTION.

" Question 51. Also to ascertain the comparative cost of construction of said roads as compared to what they would have cost with the prices of labor and commodities prevailing five years preceding or five years subsequent to the completion of said roads. 77

Answer 51. Absolute accuracy of statement as to the cost of completing the road as early as 1869, as compared with what would have been the cost if it had been completed five years later, cannot perhaps be made ; but by comparing prices of labor and material at the time the road was completed with the prevailing prices seven years later (the time allowed for completion), and taking into consideration the obstacles encountered and sacrifices made for rapid construction, an approximation can be made.

THE CENTRAL PACIFIC COST MORE THAN DOUBLE BY EARLY COMPLETION.

It is safe to say that the road cost more than double what it would have cost if the company had taken the time allowed by the acts of Congress for its completion, by reason of the difference in price of labor and material, added to the sacrifices made by the company to hurry the completion of the road. All supplies had to be purchased in the East nearly a year in advance of the time when they would be needed, in order to get them here when required. The company also, by reason of the great demand that was made upon them by the Government and the people, sent parties ahead 3f the construction train, in order that

2532 U. S. PACIFIC RAILWAY COMMISSION.

the road might be in course of construction in several different places at the same period of time. Of course, in all these cases where parties were organized and sent out in advance of the construction trains, everything used by them in the construction of the road or in supply ing food and clothing for the men and food for the teams had to be hauled in wagons, sometimes as far as 350 miles or more, at a very great expense to the company. In many instances the company even had to build the wagon-roads before their teams could reach their destination, and in some cases they were compelled to haul water for the men and teams over 40 miles.

For the actual cost of the road, as compared to what it would have been had the road been constructed five years earlier or five years later, I would refer you to the reports of L. M. Clement, assistant engineer j William Hood, chief engineer ; J. H. Strobridge, superintendent of construction; and Arthur Brown, superintendent of bridges and buildings, numbered, respectively, Exhibits 8, 9, 10, and 11.

BEFORE COMPLETION OF ROAD PACIFIC MAIL STOCK WORTH $330.

The WITNESS. Here I will say something that may be of interest. Before this road was completed the Pacific Mail stock was selling for $330 a share. After the completion of the road it went down rapidly, and reached as Iowa figure, I think, as $30. They, therefore, had some reason to oppose us and throw in our way all the obstacles that they could.

Commissioner ANDERSON. Perhaps that company will put in some claim against the Government for compensation because of the loss in flicted by your competition.

The WITNESS. Perhaps so ; but I am inclined to think that the Government would not feel disposed to recognize any such claim.

By the CHAIRMAN :

Q. Are these gentlemen you have just named in San Francisco I A. They are either here or off attending to their business ; but any of them can be had at any time.

BENEFIT TO UNITED STATES BY EARLY COMPLETION OF ROAD.

" Question 52. Also to inquire whether or not the Pacific Railroad was completed in less time than was allowed by law, and, if so, how much less time, and if the United States was benefited thereby."

ROAD COMPLETED SEVEN YEARS BEFORE TIME FIXED.

Answer 52. The act required that the road should be completed July 1, 1876 ; the road was in fact completed May 9, 1869, more than seven years in advance of the time allowed by law. In thus hastening its completion its cost largely exceeded what it would have been if it had not been constructed so rapidly, and by this completion the Government has been largely benefited.

THE GOVERNMENT BENEFITED FORTY-SEVEN MILLION.

Before the expiration of the time allowed for the construction of the Central and Union Pacific roads by contract the Government had been directly benefited to the extent of more than $47,000,000 saved upon freights, mails, and transportation of troops alone.

LELAND STANFORD. 2533

PAYMENTS TINDER ORIGINAL ACTS TO LIQUIDATE DEBT AND INTEREST.

At the time CoDgress made the loan to aid in the construction of the roads every one expected that the transportation furnished by the Government to the road would much more than pay the interest on the bonds and probably furnish a sinking fund sufficient to extinguish the debt at maturity. This conclusion was reached by taking the cost to the Government of transportation at the time the loans were made as the basis of computation. Since the railroads were constructed the amount of Government transportation has very largely exceeded the calculations of the promoters of the enterprise, but the service has been performed at so greatly reduced cost, that the receipts from this source have fallen far below what it was expected they would be. This has been disappointing to us, but a great gain to the Government. ,

TESTIMONY OF UNITED STATES COMMISSIONER OF RAILROADS.

Aside from what the Government saved directly in the cost of transportation of mails, supplies, and troops, it has also saved an enormous amount indirectly in various ways, as will be seen by reference to the report of the United States Commissioner of Eailroads for 1883, an extract from which I herewith submit. The Commissioner, at page 16 of said report, says :

The construction of these roads has been pronounced by the Supreme Court of the United States to have been a national necessity so urgent as to admit of no delay, and confessedly involving the integrity of the Union. The energy with which they were built is well illustrated in the fact that they were completed in seven years less time than the limit established by law, and at a time when the currency bonds issued to the companies realized an average of only about 75 per cent, in gold. And they must be repaid at par. It was doubtless expected that the compensation for Government transportation would equal the current interest ; that it has not, has been a disappointmeiit as well to the companies as to the Government, but had the charges for transportation continued at the rate prior to their construction it would greatly have exceeded the interest. The Government has the advantage, and is entitled to it, of the reduced expenses of transportation which has resulted from their construction, and in this view the saving to the Government has greatly exceeded the current interest it has paid. It is also fairly to be considered that the national purposes have all been more than realized in the increased sales of public lands, the extension of civilization, the suppression of Indian wars and the consequent great diminution, of expenses, the establishment of States, and the strengthening of the ties which have bound the States of the Pacific coast indissolubly to the Union.

PUBLIC BENEFITS.

But the benefits to the public are even greater than those to the Government. When we began to build the railroad the merchants of San Francisco had absolute control over the other merchants of this coast, and they could, and frequently did, combine to arbitrarily increase the price of provisions and all other articles of commerce. Sometimes they would advance the price of a single article 100 per cent, in a single day. They kept a record of all in-bound vessels with their cargoes, and whenever they found that there was a limited supply of any given commodity in the market, they went out and bought up all in the market and all in transitu, and no further supplies could be furnished until orders from here could be filled in the Bast, which would take fully six months.

TRADE MONOPOLIES PRIOR TO ROAD.

In the mean time these men who had secured all there was of the article on which they wished to create a monopoly fixed on it their own

2534 U. S. PACIFIC RAILWAY COMMISSION.

price. It was DO uncommon thing to have a necessary of life advance 100 per cent, in a day. The construction of the railroad prevented all this, and is so far a direct benefit to the consumer. Again, under the old system, when all merchandise had to be brought in ships around Cape Horn, every merchant, every importer, every business man, and every jobber, had to carry at least six months' stock in his store and an equal amount afloat, involving in the transaction of his business a very large capital, idle for the most of the time, the interest on which became a burden on the people. Now, one or two months 7 stock is sufficient, and a man can do as much business with $50,000 capital as he could under the old condition of things with half a million. The carrying trade then was largely in the han'ds of foreigners, and a large per centage of the moneys paid for freight was sent to Europe. S nee the construction of these roads over 65 per cent, of the money received by us has been paid out in California and adjacent regions in operating and other expenses, and a large proportion of the balance not required to be sent abroad to pay the interest upon the bonds has been invested here in developing the resources of the State and in making it productive. The railroad company ha } paid out along the line of its road in this State in wages alone more than $100,000,000, most of which would have gone out of the country if the road had not been constructed.

The benefit to the Government by the early completion of the line is more fully shown by the report of E. H. Miller, jr., secretary of this company, upon the subject, which report is attached hereto, marked Exhibit No. 11J. The report, in reply to other questions, also shows the saving in transportation charges by the construction of the road, as well as other information collateral to this general subject, all of which is compiled from official documents.

SAVING TO UNITED STATES IN TRANSPORTATION IN SEVEN YEARS, FORTY-SEVEN MILLIONS.

By reference to this report it will be seen that the United States has saved in transportation charges alone by the completion of the Central Union Pacific line

To June 30, 1876 $47,763,178.00

To December 31, 1885 139,347,741.25

At the same rate, continued to the maturity of the bonds, the Government will have saved 259,040,430.00

That was not such a very bad investment upon the part of the Government after all.

ANTAGONISTIC LEGISLATION.

" Question 53. Also to inquire if either of the Pacific Railroad Companies has been embarrassed audits earning capacity impaired by antagonistic local or State legislation "P

Answer 53. The Central Pacific Railroad Company has been embarrassed and its earning capacity impaired by antagonistic local and State legislation. While we were trying to make financial negotiations, one claim that we made was based upon the fact that the State of California allowed us 15 cents a ton per mile. Another was that the United States laws allowed us to charge any rate we pleased up to 10 per cent, dividends, then only interfering in case our rates were extortionate. When the agitation against rates commenced we had only 31 miles of road built, and efforts were made in the legislature to pass bills materially affecting our rates. This damaged us before the public. It not

LELAND STANFORD. 2535

only indicated that we might have to reduce our rates, but made the future very uncertain.

CENTRAL PACIFIC ANTAGONIZED FROM THE FIRST.

From the very first we were strongly antagonized. Congress required that we should build a telegraph line as well as a railroad. The consequence was that we encountered the antagonism of the existing telegraph companies. We were to build a railroad to San Francisco, consequently we encountered the antagonism of the Steam Navigation Company and clipper-ship owners. We were to build a railroad across the mountains, and so antagonized the Pacific Mail Steamship Company and the Sacramento Valley Railway Company, which operated a railroad from Sacramento eastward about 40 miles. Upon the construction of the road their stock sustained a serious injury. A line across the continent was also antagonized by the stage companies and express companies. The pony-express line and the toll roads, all of which had to give way before it, also opposed us. It also seriously affected contractors for the Government at the various posts and Indian agencies, and antagonized many other interests of wealth, power, and influence.

POLITICAL OPPOSITION BY CONFLICTING INTERESTS.

All these interests combined and influenced the press and politicians, and antagonized us in the money centers of the East, Germany, France, and England, with a view of injuring our credit and preventing the fruition of our hopes. As there was a feeling extant not only in Europe, but in this country as well, that the effort to cross the Sierra Nevada Mountains by a practical railroad would prove a failure, these influences did injure us to a very great extent. Even the Sitka Ice Company, which was charging the people of San Francisco 5 cents a pound for ice, antagonized us from a selfish motive, as we saved the people in this direction alone, $600,000 a year. The Overland Stage Company, which received from the Government .of the United States $1,800,000 per annum for carrying the mail, brought their influence to bear against us. All these interests combined to influence legislative bodies against us to injure our credit, and, as the journals of all the legislatures would indicate, anuoyed and hampered us in every possible manner.

CONTINUED HOSTILE LEGISLATION PROPOSED.

Hostile legislation has been proposed at every session of the legislature since the commencement of the road. It has asSuined various forms and often of so serious a character that if successful it would have been impossible to operate the road under its restrictions.

CALIFORNIA RAILROAD COMMISSION UNDER NEW CONSTITUTION.

By the CHAIRMAN :

Q. Has any actual, local or general, hostile or antagonistic legislation been enacted? A.. All those bills we were able to defeat. Every one of them helped to defeat itself. They were generally gotten up in malignity and by men who did not understand the subject, and wherever we could get such bills before a committee composed of fair-minded men, to whom we could explain the true nature and the necessary effect of such legislation, the bills helped to defeat themselves. Finally, how

2536 U. S. PACIFIC RAILWAY COMMISSION.

ever, there was a new constitution adopted by the people of this State, which created a board of railroad commissioners with absolute powers, executive, judicial, and legislative, and without appeal. If they were so inclined they could make rates that would practically confiscate the property of the company, under this constitution, and we could not help ourselves. Our redress, of course, would be to go to the Supreme Court of the United States for a final decision of the question in the event of any such action by this board. My idea is that the whole thing is unconstitutional, inasmuch as it vests those three powers in one body, and it would not be sustained by the United States courts if the subject ever goes before them. We have not cared, however, to raise the question, but have got along the best that we could. At the same time this new constitution has interfered a good deal with the company. It will not allow us to charge less, for instance, to Los Angeles, which is a competitive point, than to intermediate non-competitive points. The result is that we cannot make a rate from here to Los Angeles which will compete successfully with the coast steamers and along the rivers. This legislation, under the new constitution, interferes with the companies in a good many ways, but the commissioneis have not done all the damage that is in their power.

HOSTILE SENTIMENT DURING GRANGER EXCITEMENT.

Q. What was the general character of the hostile legislation introduced? A. It was generally in the shape of bills "providing for the reduction of freights and fares. I think that every one of the bills, if carried into effect, would have rendered us unable to operate the roads.

Q. Was there a general sentiment in the State in favor of such bills? A. The noisy and demagogic element was very strong at one tim^, and influenced others. The feeling engendered by these men existed very largely in the State at one time, and made the people think that we were actually overcharging them for fares and freights, but gradually we haye been able to explain, until to-day I think that the feeling iii the State is as good towards us as could be expected, we doing business with so many people. The general public has a good deal of confidence in this State, and I think that we have been able to satisfy them that we are doing and have always done all in our power to develop its resources. It was only for a little time that the interests adverse to us were able to swing things their own way. At about that time you will remember that there was a general howl all over the country against railroads. It was during the time of the Granger excitement, which you will remember existed so generally in your own country.

AVERAGE FREIGHT LOWER THAN IN 1878 AND 1879.

By Commissioner ANDERSON :

Q. How does your average rate per ton per mile compare to-day with the rate in 1878 and 1879? A. It is very much less. We are now doing a class of business which requires lower rates. While we were allowed 15 cents per ton per mile by the law, I think that there was scarcely 1 per cent, of our business which was done at that rate, and that rate was charged only upon very high-class goods in very small quantities. For instance, we might charge that for short haul from the end of Oakland wharf into Oakland, a distance, say, of 3 miles, and 45 cents per ton, which is the highest we could charge, did not pay lor the handling. We alsp charged high rates on some costly articles, and upon certain classes

LELAND STANFORD. 2537

of machinery, for instance, which were carried to Nevada in the early days. Some of this machinery was large and heavy, and one piece would frequently occupy a whole car. In some instances we had to build cars especially for such machine^, and perhaps they woald be required only occasionally. On such shipments we charged 15 cents a ton per mile, and even this would not pay, chiefly from the fact that we had such little use for such a car. It was only at such times and under such circumstances that we charged the maximum rate of 15 cents per ton per mile.

REDUCTION OF NEVADA AND UTAH THROUGH FREIGHTS.

Q. The rates, then, have been largely reduced? A. Yes, sir; I think that our last report will show it. The serious thing to us was the reduction in the through freights that passed through Nevada and Utah. As you came across that country you saw that there was no local business there. There is not a station business in that country which amounts to enough to sustain business. We depended upon the business originating in California and east of Salt Lake, which passed to and through Nevada and Utah, and when these other lines of railroads not only cut down the rates, but divided the business with us, the rates went so low and the business fell off so much that it has not paid. The value of that road was from the through, business and the good rates which it could command. There being no competition, such prices were fixed as were remunerative, and which were fair as between the shipper and the carrier.

EXTREME LEGISLATION DEFEATING ITSELF.

By the CHAIRMAN:

Q. I understand you, then, to say that at no time has there been any hostile local or State legislation? A. Excepting the State constitution. There have been many efforts at hostile legislation made. For instance, the law taxing our railroad. You saw yesterday a statement showing the extraordinary burden placed upon us in that way. All other very obnoxious propositions, however, were defeated.

Q. Were these bills largely supported in the legislature? A. Yes ; at one time there was a legislature very largely elected because of its hostility to the railroad, and on that account we paid no particular attention to it. I made up my mind that in a legislature forty men would be fair, and out of the forty there will be always twenty men who would be reasonable and just, and these twenty men would be able to defeat extreme legislation. If the legislation had not been so very extreme it is very likely that they would have passed some of it ; but the extreme measures proposed defeated themselves.

THE ANTI-RAILROAD SENTIMENT.

Q. Did the members elected to the legislature largely represent the prevailing sentiment of the people throughout the State at that time? A. I am not sure of that. The anti-railroad sentiment was very noisy and very clamorous. I remember that at the elections a wellknown railroad man and a friend of the railroad ran away ahead of his ticket. I know a man who was a candidate for controller who was known as the bosom friend of the railroad, and who believed in railroads, and he ran ahead of his entire ticket. And in the senate, the railroad men, as they used to be called, were, as a rule, a good class of

2538 U. S. PACIFIC RAILWAY COMMISSION.

men and they were the strongest. My impression is that the anti-railroad sentiment of the State which appeared to have existed at one time syas more on the surface than otherwise.

THE SO-CALLED u DUTCH FLAT SWINDLE."

Q. What year was that? A. I cannot tell the date. I am not very good at remembering dates. It was a good while ago; I think about 1870 or 1872. During the early days we had a great deal of antagonism from the various interests opposed to this road. At one time we found it necessary, in order to carry on our work with the greatest speed and economy, to build a wagon road over the mountains, beginning at a place called Dutch Flat, and our opponents represented that we were building this railroad for the benefit of the wagon road, and the whole thing was called the " Dutch Flat Swindle," because the wagon road commenced at Dutch Flat. The local business at that time was very good. It was in the midst of the excitement in Nevada, the great mining excitement of that State, and a vast amount of machinery and supplies was constantly going forward, and the earnings from that source cut a very important figure in our earnings.

INJURY BY COMPETING AIDED ALINES.

" Question 54. Also to inquire if the United States, since the Union and Central Pacific Railroad Companies accepted the terms proposed by Congress for the construction of the Pacific railroads, has granted aid in lands for building competing parallel railroads to said Pacific railroads, and, if so, how many such roads, and to what extent such competing lines have impaired the earning capacity of the Pacific railroads."

EARNINGS OF PACIFIC RAILROADS IMPAIRED BY UNITED STATES AID TO OTHER LINES $37,000,000.

Answer 54. Congress has granted aid in lands for building competing parallel roads to the Pacific railroads. The number of which and the extent to which such competing lines have impaired the earning capacity of said Pacific railroads is hereinafter fully set out in the statement of J. C. Stubbs, general traffic manager, annexed hereto, marked u Exhibit 12," and made part hereof; the actual business diverted being upwards of $37,000,000.

SERVICE OF NON-AIDED ROADS REMAINING UNPAID.

" Question 55. Also to inquire if the United States have contracts with branch roads controlled by either of said Pacific roads for carrying United States mails, and, if so, what service has been performed by them, and what money, if any, has been paid for such service, and what remains

due and unpaid."

i

PAYMENT ON LEASED LINES WITHHELD BY UNITED STATES.

Answer 55. The United States Government had contracts with branch roads controlled by the Central Pacific railroads for carrying United States mail. The Central Pacific Railroad Company controlled by lease a number of branch lines prior to April 1, 1885, from which date the lines were leased to the Southern Pacific Company. Mails were carried by these

LELAND STANFORD. 2539

lines for the United States under the rules and orders of the Post-Office Department. No payments have been made for such service since 1883, at which time but partial payments were made. The payments were withheld prior to April 1, 1885, because the Central Pacific Railroad Company leased the lines, and they have been withheld since that date because the Central Pacific Railroad Company had formerly leased the lines.

CASH DUE UNDER SUPREME COURT DECISION $1,853,323.15.

The United States Supreme Court has decided that compensation for transportation on non-aided and leased lines was payable to the company in cash. From and including the year 1882 to the present time there has been annually a balance due the non-aided lines for transportation services performed. The amount thus due from the Government in cash in excess of all requirements of law to December 31, 1886, is $1,853,323.15. The service that has been performed, the amount of money which has been paid for such service, and what remains unpaid are fully shown by the reports of Mr. E. H. Miller, jr., secretary of the company, hereto attached, marked " Exhibit 13," and made part hereof.

By Commissioner ANDERSON :

Q. Does that report contain any statement from the office of the Commissioner of Eailroads, or from the United States Treasury Department, showing any agreement on that figure? A. Yes, sir; Mr. Miller's report gives such a reference. Each of these statements you will find sustained by the reports of the United States officers, and by the reports of the Kailroad Commissioners.

EMBARRASSMENT TO COMPANIES BY UNITED STATES NOT PAYING

AMOUNTS DUE.

" Question 56. And if the United States, by failing to pay for such mail services, has embarrassed said railroad companies, or either of them, in paying their indebtedness to the United States."

PRESENT ANNUAL INJURY ON THIS ACCOUNT, $560,000.

Answer 56. The United States, by failing to pay for such mail service and other transportation, has caused an expenditure to the Central Pacific Kailroad Company of amounts equal to interest on the sums retained at the rate of 6 per cent, per annum ; that being the rate of interest paid during the period on floating debt of the company, which debt would have been decreased by the payment of the sums clue from the United States. The annual interest on this balance due the roads in question to December 31, 1886, of $1,853,323.15, at 6 percent, is $111,199.39. This is the present annual injury to the roads by the Government on account of the item of transportation charges unpaid. The current charges also, in excess of the requirements, amount, as shown by the foregoing statement, to about $450,000 a year. This amount with the interest on the balance makes the accruing annual sum of $560 000 due for transportation on non-aided lines and remaining unpaid.

HAVE ROADS COMPLIED WITH THE LAWS?

" Question 57. Also to inquire if the several Pacific railroad companies have complied with the provisions of 'An act to alter and amend p R VOL iv 14

2540 U. S. PACIFIC RAILWAY COMMISSION.

the act entitled "An act to aid in the construction of a railroad and telegraph line from the Missouri Kiver to the Pacific Ocean, and to secure to the Government the use of the same for postal, military, and other purposes," approved July 1, 1862, and also to alter and amend the act of Congress, approved July 2, 1864, in amendment of said first-named act,' commonly known as the 4 Thurman act,' and, if not, in what particulars they have failed to comply."

CENTRAL PACIFIC HAS FULLY COMPLIED WITH THE ACTS.

Answer 57. The Central Pacific Eailroad Company has complied with all the acts enumerated in this interrogatory in letter and in spirit, to the satisfaction of the officers heretofore appointed under the several acts of Congress to examine into the affairs of this company. The first examination was made in 1879, and included everything from the completion of the road up to the date of that examination. Since that time annual examinations have been made and reported upon. In every case the report shows that the company has complied with all the obligations imposed upon it by Congress. All this fully appears in detail in my answer to interrogatory No. 2.

WHAT CAN BE PAID WITHOUT INJURY TO COUNTRY ALONGr THE

LINES.

" Question 58. Also to inquire what sums the Pacific railroads and their branches can severally pay annually on account their indebtedness to the United States without imposing such burdens upon the people, and practically upon the localities through which the roads pass, as to retard the development of the country."

INJURY TO NEVADA AND UTAH BY DEMANDING EARLY PAYMENT.

Answer 58. It has been shown in answer to interrogatory No. 3 (c), that the present net earnings of the aided lines, over which the Government lien extends, after paying the current charges which are prior in lien to -that of the United States, amount to about $740,000 per annum. The annual accruing interest on the United States bonds is $1,671,340.80. The whole amount of net earnings therefore lacks $930,000 of meeting the accruing interest, even if every available dollar were used for that purpose. The net earnings of the aided road are alone available for the payment of the debt to the Government. Thus the available funds can only be increased by increasing these earnings. This can only be done by increasing the rates through Nevada and Utah, and so fixing the burden of the debt upon the communities through which the road runs. To whatever extent this means should be employed, it would retard the development of the country and impose a burden upon a comparatively few people along its line, for benefits which have been shared by the country at large and particularly by the several Departments of the Government. The local rates would wholly have to stand such a charge ; as, on account of competition of other 'trans-continental lines which were also aided in their construction by United States land grants, through rates cannot be raised. The earning from local traffic for the aided line during the month of May, 1886,* was

Freight $161,310.08

Passenger - 87,366. 10

Total ,-...- -- . 248,676,18

LELAND STANFORD. 2541

This month is a fair average for the year, and would give an annual amount of $2,984,000. A considerable amount of these earnings is from traffic, the rates on which are controlled by competition, although it is local. This is the case with most of that over the aided line in California. In case the rates should be raised then to pay the Government bonds, the burden would fall almost entirely on the communities in Nevada and Utah.

INCREASE OF LOCAL RATES REQUIRED.

To pay the balance of $930,000 necessary to meet the accruing interest on the United States bonds, without making any provision whatever for the principal, would require an increase in local rates in Nevada and Utah of over 33 per cent.

The foregoing statements, together with the exhibits herewith presented in connection therewith, substantiate the averment made on pages 20 and 21 hereof, that an equitable adjustment of the accounts bet ween this company and the United States would allow the company's claims against the Government to the amount of $62,873,557.81. All of which is respectfully submitted.

LELAND STANFORD,

President. STATE OF CALIFORNIA,

City and County of San Francisco, ss :

Leland Stanford, being duly sworn, deposes and says, that the facts stated in the foregoing answers to the 58 interrogatories propounded to him by the United States Pacific Bail way Commissioners are true, to the best of his knowledge and belief.

LELAND STANFOED.

Subscribed and sworn to before me this 28th day of Julj-, A. D. 1887.

E. B. RYAN, Notary Public in and for said City and County of

San Francisco, State of California.

EXHIBIT No. 1. Affidavit of E. H. Miller, jr., secretary, that the Central Pacific Railroad Company has complied with all obligations of the laws.

E. H. Miller, jr., being duly sworn, deposes and says :

I am a citizen of the United States and of the State of California, over twenty-one years of age, and am competent to testify in this matter.

On the '29th day of September, 1863, I was elected secretary of the Central Pacific Railroad Company, and ever since then have been and now am the duly appointed and .acting secretary of said company; that as snch secretary I have had charge of and have kept, and now have charge of and keep, all the books, of account, papers, and vouchers pertaining to its business; that as such secretary I have had occasion to and have examined all the laws of the United States heretofore passed with reference to aiding said company with bonds ; that as such secretary I have had occasion to and familiarized myself with the obligations of such laws, so far as they relate to the Central Pacific Railroad Company, and the company has promptly observed all such obligations to the best of my knowledge and belief.

E. H. MILLEE, JR.

Subscribed and sworn to before me this 26th day of July, A. D. 1887, [SEAL.] E. B. RYAN,

Notary Public in and for the City and County of San Francisco, Cal,

2542 U. S. PACIFIC RAILWAY COMMISSION.

EXHIBIT No. 2. Statement of A. N. Towne, general manager, relative to diversion ofbusi ness to non-aided lines.

SAN FRANCISCO, July 5, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Co. :

DEAR SIR : In obedience to your instructions, I beg eave to report with respect to the question (No. 9) asked by the Pacific Railroad Commission, created by the act of Congress approved March 3, 1887 : " Whether any traffic or business which could or should be done on the aided lines of said company has been diverted to the lines of any other company or to non-aided lines," as follows:

. DIVERSIONS TO THE LINES OF OTHER COMPANIES.

(1) Through traffic. It is a matter of public knowledge that there are now several transcontinental lines. It is unnecessary to name them. All except the original Central and Union Pacific line have been completed since 1880. Each of those constructed since 18SO has diverted more or less traffic from the original Union and Central Pacific line. The aggregate of these diversions is equal to more than 50 per cent, of the total through freight and passenger traffic for the five years and nine mouths ending with December 31, 1886, the period which has elapsed since the opening of the first line competing with the Central and Union Pacific line for through traffic.

The responsibility for the construction of these opposing lines rests, in my judgment, with the Government of the United States. It follows that the United States Government is the instrumentality through which said diversions of through traffic from the Union and Central Pacific roads to the other later-built transcontinental lines was accomplished.

A part of each of said other lines received large grants of land from the United States Government, the grant being in each case, 1 believe, double the grant of lands made to the Union and Central Pacific companies. It was the Government grant of land which induced the building of these roads at least it, if not the sole cause of their construction, was the inducement which facilitated their construction and caused their early completion. In each case the building of these roads has been in advance of the settlement of the country through which they run. In nearly every case the country has been settled since the completion of the road, in the main through the advertising agencies of the railroad managers whose motives were not only to develop traffic but to sell their lands. There has been no time when the original line made by the Union and Central Pacific roads could not and would not have provided facilities for and amply accommodated all the through traffic carried by the other lines; hence, the conclusion is inevitable that the United States Government, by granting large land subsidies in aid of roads which have been built, and which, since their completion, have competed for and taken a larger share of the through traffic from the Central and Union Pacific line, is directly responsible for the diversion of said traffic and the consequent loss in earnings to the Central Pacific Company and the Union Pacific Company. This loss would have been very much greater, but fortunately the Southern Pacific Railroad Conipauy, organized in 1865 under the laws of California to build a railroad from San Francisco to San Diego, thence east to the boundary of the California State line, there to connect with railroads to be built to the Mississippi River, passed in 1870 under the control of the men who controlled the Central Pacific. The control of the Southern Pacific by the Central Pacific ownera delayed the extensions of the former road, and after its extensions were made to connections with lines building westward from the Mississippi River, secured co-operation and harmony in working the traffic which was common to both the Central Pacific and Southern Pacific lines that would have been impossible under separate control, and which was of great advantage to the original or Central Pacific line.

There can be little questioning, in the minds of practical railroad men, of the proposition, that had the railroads following the 32d and 35th parallel routes, respectively, been wholly constructed and operated by men who wer.e not interested in the Central Pacific line, the diversion of traffic to those lines would not only have been more rapid and greater in degree, but that the revenue of the Central Pacific and Union Pacific line would have been diminished in much greater ratio.

The extent of the damage to the Central and Union Pacific line by diversion of traffic to these other through trans-continental lines will be shown approximately by the general traffic manager in answer to the Commission's inquiry No. 54.

(2j Local traffic. The traffic between San Francisco and other bay points, on the one hand, and the cities of Stockton, Sacremerito, and Marysville, Cal., respectively, is shared by other carriers. This, however, scarcely comes under the bead of a diversion from the Central Pacific aided lines. The other carriers sharing this traffic are, (a) vessels navigating the bays, Sacramento River, San Joaquin River, and Feather River, respectively routes which were open and employed before the Gen'

LELAttD STANFORD. 2543

tral Pacific line was built; (&) the California Pacific road, which was completed and in operation before the western division of the Central Pacific. Therefore, whatever amount of this business has been done via the western division of the Central Pacific is, in fact, a diversion from the other carriers named.

DIVERSIONS TO NON-AIDED LINES.

While the roads to which the diversions treated under this heading have been mad j were built and are owned by other companies than the Central Pacific, yet as they are controlled by those who have also controlled and managed the Central Pacific, I presume they illustrate the diversions to non-aided lines referred to in the Commission's interrogatory.

Traffic to and from points south of Lathrop interchanged with San Francisco and Oakland has, since the completion of the San Pablo and Tulare road, Tracy to Oakland via Martinez, been carried over that road instead of being carried via Niles and Livermore. The road from Tracy to Oakland, via Martinez, is 11 miles longer than the road from Tracy to Oakland via Livermore, but the former is a practically level road, its maximum grade being 10 feet to the mile, over which an ordinary engine can draw 50 cars, loaded with from 10 to 12 tons each, while the latter crosses the Contra Costa Range with a maximum grade of over 52 feet to the mile, which would require three engines to haul the same train. The longer line does not lose appreciably, if at all, in the matter of time when compared with the Livermore line, while it gains greatly in the matter of cost of operating.

Traffic on the western division of the Central Pacific east of Lathrop, to and from San Francisco and Oakland, has also been diverted from the "aided" line between Tracy and Niles in like manner and for the same reason as the traffic to and from points south of Lathrop.

Traffic interchanged by points east of Sacramento and north of Roseville Junction, with San Francisco and Oakland, has been diverted at Sacramento from the " aided" line, between Sacramento and Niles, to the California Pacific and Northern Railway, a non-aided line. The reasons for this diversion are

(1) Public convenience. The passenger train time between San Francisco and Sacramento, via the California Pacific line, is four hours against six hours via the Central Pacific, Stockton, and Livermore route. The public demands and is entitled to the best service we can give. We should be unable to justify sending passengers or even freight over the long and heavy line via Stockton against the shorter, easier, and much more attractive line via Beuicia. Especially is this true of the through or trans-continental traffic, which is taken in competition with other trans-continental lines. The weight of this consideration with those whom the company serves is well illustrated by the fact that the United States Government chooses the short line for the transportation of its mails in consideration of (a) public convenience, (&) and the fact that it pays for the transportation of mails by the mile. By so doing it expedites the mails and saves money, secures the beat service at the least expense to the Government.

(2) Economy in operating. The line from Sacramento to Oakland wharf, via Stockton and Niles, is 136 miles, and crosses, as I have before explained, the Contra Costa Range at a maximum grade of over 52 feet to the mile, while the California Pacific line via Benicia makes but 86 miles between Sacramento and Oakland wharf, and is practically a level line. If we were to equate the two lines that is to say, reduce the grades and curves of both lines to their equivalent in straight level lines, we would find the Stockton route to be more than double the length of the Benicia line. There is fully that difference in the cost of handling the traffic over the two routes, in view of which it would have been inexcusable to use the longer and more expensive route.

The Government did not assume the responsibility of constructing the Central Pacific road. It contributed thereto by a grant of land and a loan of credit, but its motives were selfish. It was not moved by a desire to benefit or enrich the promoters of these enterprises. The result, as will doubtless be shown before the Commission, has amply justified the wisdom of Congress in granting the aid. No government; or individual ever made a better investment, or, if I may be allowed the expression, ever engaged in a more successful venture, even if it transpires that neither the principal nor the interest of the loan is ever repaid. Neither did the Government assume the responsibility of operating the road when it was completed. It was left in the control and management of its owners, and we must assume that this was the purpose of Congress. We may also fairly assume that Congress expected the road to Ue managed by practical business men upon established business principles, of itself a valuable promise, affording the best guaranty that sooner or later the company would be able to discharge its obligations to the Government. These shareholders found themselves engaged with the problem of making a support for nearly a thousand miles of road through a sparsely settled territory, which, for the most part at the time,

2544 U. S. PACIFIC RAILWAY COMMISSION.

was regarded as incapable of producing anything in tlio way of traffic which a carrier could move with profit. It was a link in a trans-continental line connecting the Atlantic and Pacific coasts. California was the cbief State on the Pacific coast, having a population in 1870, of but little over 560,000. It was known only as a mining State. Its agricultural resources were not only undeveloped but unknown, even undreamed of by the most sanguine. The chief value of the road was its value to the Government as a military road, as a strategic line, but the government assumed no responsibility for its management, provided no guaranty of earnings, no means of support. The owners of the road were left to their own resources and devices to develop traffic, and to make a support for it. The occasion called for the greatest skill and sagacity, untiring industry, and the utmost economy on the part of the owners and the agents they employed to assist in conducting the affairs of the company. The Government, which 1 here put in the place of the public, certainly understood this. It cannot be that at the time there was any warrant for interfering with the management of the road, or any thought of questioning the propriety of anything which the managers of the road might or should legally do in pursuit of the interest of the rail road company. Its interest was to secure the maximum of traffic and to move it at the minimum of cost. It is not to be supposed that the circumstances I have described ever (until after the passage of the Thnrman act) suggested to the managers of the road, to its patrons, to Government officials, or to Representatives in Congress, that the question whether the company should or should not be restrained from adopting any method of conducting its traffic or any measure of economy in operating the road, or any device to conserve, increase, or promote its traffic, should turn upon the point whether or not it affected the earnings of a particu lar " aided" or "non-aided" portion of the road, so long as the method, measure, or device was lawful, and had for its object the welfare of the company. On the contrary, it is fair to assume that these circumstances not only warranted but required the employment of every measure of economy, every lawful device to defeat or meet competition, every means to increase the traffic and enlarge the revenue of the company, regardless of special considerations for a part of its road, whether "aided" or " non-aided," so long as the communities on every portion of the road were afforded reasonable service at a fair price.

Were we to examine into the ultimate cause which led to the acquirement or building of the "non-aided" lines to which traffic may be said to have been diverted, it will be found in every case to have had for its object the strengthening and protection of the Central Pacific line. They are all feeders of the main line. They occupy territory which sooner or later would have been seized by other railroad companies. They have developed the resources of that Territory and made it tributary to the main line of the Central Pacific. I venture to say that in each case the gain to the Central Pacific Company from contributions of traffic, the reduction of competition, the saving in cost of handling traffic by the acquirement of these " non-aided " competitive and tributary lines has more than equaled their cost. As a single example, take the California Pacific road. Suppose it had continued under separate and independent control from the Central Pacific, what its extensions might and would have been to the damage of the Central Pacific iii its most productive territory is scarcely a matter of conjecture. It certainly would have been extended through the Sacramento Valley, and probably would have been constructed east and formed another through line. The control of the California Pacific was necessary to the Central Pacific. Having it, a reasonable regard for the public interest, as well as economy in conducting the traffic, compelled the Central Pacific managers to handle the traffic in the manner I have described. I need only suggest these considerations. They have doubtless been thought of and debated in your own mind to far greater length than in mine or than I would be authorized to treat them in this communication. Very respectfully,

A. N. TOWNE.

SAN FRANCISCO, July 8, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Co.:

DEAR SIR : In addition to what I said in my letter of the 5th relative to the diversion of business and the difficulty in operating the aided line between San Francisco and Sacramento as compared with the level and shorter line by the non-aided roads, I desire to call your attention to another important factor entering into the question, showing still further reasons why the company will not be able to meet its obligations t& the Government at maturity, or even for many years to come.

Of the H55 miles (in round numbers) of the aided line between San Jose" and the point of junction with the Union Pacific, 5 miles west of Ogden, 586 miles, or 67 per cent., is located in Nevada and Utah, through a section almost wholly devoid of the first element of prosperity in a country, namely, agricultural. All this vast region offers little inducement to the farmer in fa/st, the country through which the

LELAND STANFORD.

2545

toad passes is a vast area of unoccupied land, and the settlements along the road are small and unimportant, with few exceptions. I find in looking over the earnings for that portion of the line within the State of Nevada for the month of August, 1878 (which month showed the largest earnings of any month th;tt year), it shows the entire receipts from both freighc and passengers collected from our patrons for the pro rata proportion of the road operated within that State to have been as follows :

Freight forwarded from points in Nevada $48, 620. 64

Freight received at points in Nevada 74, 715. 06

Passengers both ways 27,974.00

Total 151,309.70

On the other hand, for this same month the taxes and amounts actually paid out to our own men, residents of that State, amounted to $63,347.97 ; and we may add to this amount the cost of all such as rails, fastenings, timber, lumber and material for shops, fuel, &c., used in that State, which are not included in the above figure, together with proportion of interest, salaries, and other expenses; and we would find out that the amount so paid out was greater than the proportionate amount of earnings received from all traffic within the boundaries of that State.

There being no timber and but little cultivation, this vast territory may be classed as grazing and mineral lands, and the contributions to the road in the way of traffic are small and of far less value now than in the past, as will be seen by the following comparative statement of freight traffic to and from points in Nevada during the years 1876 and 1886 : ...Which shows for the "out" freight a gain in charges of 15 per cent, over 1876, and for " in " freight it shows a loss in charges in 1886, as against 1876, of over 63 per cent. On the total "in" and "out" it shows a loss in 1886, as compared with 1876, of $1,669,109.30, or about 50 per cent.

The live-stock shipments are light, for the reason that the cattle-men drive much of their stock north through a good grazing country to shipping points for the East by the Union Pacific and Northern Pacific roads. And the great mining industries of Nevada, which once contributed a large and remunerative traffic to the road, now give us but a very limited amount.

From the Nevada State line westward, 138 miles, the road is constructed over the Sierra Nevada range of mountains, reaching an elevation of nearly 7,000 feet, where the traffic is light and the expense of operating very heavy. And since it is proper to judge all things by a standard of comparison, I may perhaps be permitted to point out a few of the difficulties incident to constructing and operating tho Central Pacific road over this mountainous and sparsely-settled section as compared with the roads of the Eastern and Northwestern States ; the latter were easily built, having straight lines, running through level and populous sections, many of them over inexhaustible beds of coal, with grades so favorable that eighty cars and upwards can be taken with safety in a train, while on the other hand, on the mountain section of tho Central Pacific above mentioned, six cars is the limit for a train with a ten-wheel engine, with 18 by 24-inch cylinders, more than six cars requiring a second engine, and more than twelve or thirteen a third engine, or the train must be divided ; this is on the portion of the road where we have to overcome an elevation of nearly 7,000 feet.

In passing, and in this connection, I will add that the nature of the country through which this road runs between San Francisco and Ogden is such that there is nearly 15,000 feet of ascending and nearly 11,000 of descending grades ; making a total of about 26,000 feet. The total curvature is 45,000 degrees, equal to 125 complete circles, or to a 52-degree curve for the whole distance, thus necessitating a material increase of locomotive power.

Again referring to that portion of the line between the Nevada State boundary and Sacramento, I should not fail to remind you of the large and unavoidable ex

2546 U. S. PACIFIC RAILWAY COMMISSION.

pense in the construction and maintenance of snow sheds and galleries, in extent nearly forty miles, made necessary as a protection against the storms of the winter months in that region ; then there is great cost in the maintenance and operation of the enormous snow plows, with a large force of men to work them, which force in the summer season has to be kept on water trains, fully equipped, to extinguish fires in the sheds and galleries. This is an expense that no other railroad in this country, or perhaps in the world, is subjected to.

All this is necessary to keep the line open for the movement of the traffic promptly and satisfactorily ; and further, it is all-important that the line be ever kept open in order to meet the wants of the Government, as provided in the act requiring us to be prepared at all times to transport the mails, troops, munitions of war, supplies, and public stores whenever required to do so by any department of the Government, as they are to have preference in the use of the roa"d in all cases and under all circumstances.

The line from Sacramento to San Jose" is, in round n-umbers, 140 lineal miles ; between Sacramento and San Joaquin River, 68 miles, the country is good, and devoted to agriculture and horticulture, the soil is productive and the traffic profitable to the road, although at Sacramento and Stockton we have active competition from the rivers, which makes traffic to and from those cities less desirable and profitable than we could wish.

From the San Joaquin River over the inner coast range of mountains to Livermore, 31 miles, is a section which pays little tribute to the road, but from Livermore to San Jose" the line runs through a fine productive section of agriculture and horticulture, although that portion of it between Niles and San Jose", 17 miles, is subject to active competition from the South Pacific Coast Railroad, which not only divides up the traffic, but compels this company to take the remainder at very low rates. Further competition from this source is, however, happily now avoided by the acquisition of that company's property by the Southern Pacific Company.

In conclusion, I will add that notwithstanding the light traffic, the facilities and accommodations furnished our patrons are in all respects first class. Yours, truly,

A. N. TOWNE.

EXHIBIT No. 3. Statement of J. A. Fillmore, general superintendent, relative to cost of

operating mountain divisions.

SAN FRANCISCO, July 25, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Company :

DEAR SIR: As requested in yours of even date, I submit the following relative to the difficulties of and the difference in cost of operating the mountain division of the Central Pacific Railroad as compared with a road of ordinary grade :

(1) The engine service alone is nine times greater. For example, one engine can take a train of forty -five cars in the valley from Sacramento to Rocklin, from which point it requires fi,ve engines of the same class 1o take the same train over the mountain division. On the return these engines, not being required to pull the trains, are virtually "dead-headed," with the exception of one.

(2) The total cost of engine service per mile was much greater. Using the same fuel, wood, at the same price per cord, the cost per mile on the 'mountain division is 33f ^, cents ; on a road of ordinary grade, 23$$, cents, an increase of 42^ per cent.

(3) On account of the increased number of trains over the mountain division (five trains being required to do the work of one in the valley) there is a corresponding increase of expenses in the way of stations, telegraph operators, track- walkers, watchmen, wood-pilers, &c.

(4) The cost of keeping the mountain division open in heavy weather, especially during the winter months, is something beyond comparison with any other division or with any other road. I had charge of that division, as division superintendent, during the winter of 1873-4. The total fail of snow that winter was 63 feet. At times it was necessary to run five snow-plows, and nine engines were required to each plow, to insure against blockade. In addition to this we had to employ between four and five hundred shovelers during the storms, and most of them were required between tho storms to shovel back the snow preparatory to another storm. During that winter, and indeed during every winter when we are troubled with snow in the mountains, all freight trains are put on sidings outside the snow-belt, their engines are placed on the snow-plows, and we only attempt to run passenger trains. We have had as many as thirteen engines on one passenger train of six cars. On that portion of the mountain division where the snow sheds are located, we have expended for repairs of the sheds in the nine years from 1878 to 1886, inclusive, $384,274.23, an

LELAND STANFORD.

2547

average of $42,697.23 per year. This is for ordinary repairs, and doesn't include betterments. In addition to the above expenses on repairs of the snow sheds, in order to guard against fire, we have three fire trains under steam day and night, ready to move at a moment's notice when an alarm of fire in the sheds is turned in. As a further precaution against fire, the sheds are watered twice a week for a distance of about 36 miles,

(5) We have over the Central Pacific Railroad one through express train each way per day, and during the summer months, for about six months of the year, for about two-thirds of the time, these trains are run in two sections, being too long and too heavy to be run as one solid train. Over the same road there is an average of three through freight trains per day each way ; this is about the same daily number that have been run during my entire connection with the road, which began in 1871. It is only within the last few years, however, that second sections during the summer months have become of almost daily occurrence.

(6) Relative to where the business comes from that would maintain a road from the State of California through Nevada and Utah, will say : East-bound through freight originates in California, nearly all of it, and mostly west of the Sierra Nevada Mountains. Nearly all west-bound through freight originates east and south of Ogden, Utah.

Yours, &c.,

J. A. FILLMORE, General Superintendent. STATE OF CALIFORNIA,

City and County of San Francisco, 88 :

J. A. Fillmore, being first duly sworn, saith : That he has read the foregoing statement ; that the matter and things therein stated are true of his knowledge and belief, except as to those matters stated on his information and belief, and as to those he believes it to be true.

J. A. FILLMORE.

Subscribed and sworn to before me this 26th day of July, A. D. 1387. [SEAL.] E. B. RYAN,

Notary Public in and for said City and County.

EXHIBIT No. 4. Statement of E. H. Miller, jr., secretary, relative to dividends paid. ...

E. H. MILLER, JR.,

Secretary. STATE OF CALIFORNIA,

City and County of San Francisco, 88 :

E. H. Miller, jr., being first duly sworn, saith : That he has read the forgoing statement consisting of the pages next preceding, marked " Exhibit No. 4," and knows the contents thereof; that the facts therein stated are true except as to those matters stated on his information or belief, and as to those he believes it to be truf.

E. H. MILLER, JR.

Subscribed and sworn to before me this 26th day of July, A. D. 1887. [SEAL.] E. B. RYAN,

Notary Public in and for the City and County of San Francisco, State of California.

EXHIBIT No. 5. Statement of the consideration paid the company by each stockholder receiving stock, and when and in ivhat property such payment was made.*

[The dates of payment herein given are the dates when amount subscribed was fully paid up. "When stock was transferred or forfeited, the date of last payment by party holding stock is given.]

...

E. H. MILLER, JR., Secretary. STATE OF CALIFORNIA,

City and County of San Francisco, ss : 4

E. H. Miller, jr., being first duly sworn, saith that lie has read the foregoing statement, consisting of the pages next preceding, marked " Exhibit No. 5," and knows the contents thereof; that the facts therein stated arc true except as to those matters stated on his information or belief, and as to those ho believes it to be true.

E. H. MILLER, JR.

Subscribed and sworn to before ine this 26th day of July, A. D. 1887.

E. B. RYAN, [SEAL OF NOTARY.] Notary Public in and for said City and County.

EXHIBIT No. 6. Relative to lands of Central Pacific Railroad Company, l)ij William H.

Mills, land agent.*

OFFICE LAND DEPARTMENT, CENTRAL PACIFIC RAILROAD COMPANY,

San Francisco, June 20, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Company :

MY DEAR SIR: Answering the inquiries transmitted by you to this department of the Board of Commissioners to examine into the affairs of the Central Pacific Railroad Company, and touching the land grant to said railroad company, I have to respectfully report to you as follows: That the act of 1862 granted to the company for the purpose of aiding in the construction of a railroad and telegraph line:

" Every alternate section of public land designated by odd numbers to the amount of five sections per mile on each side of the said road on the line thereof, au.d within

* See answer to question No. 38.

LELAND STANFORD. 2559

the limits of ten miles on each side of said road, not already sold, reserved or otherwise disposed of by the United States, and to which a homestead or pre-emption claim may not have attached at the time the line of said road is definitely fixed."

The act further excepted from the operation of the grant all mineral lands, but where the same contained timber the timber thereon was granted. The provision relating to this subject is found in section 3 of the act approved July 1, 1862. By the passage of the act of 1864, entitled "An act to amend an act entitled: 'An act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, &c.,'" the third section of the act of 1862, above summarized and quoted, was amended by striking out the word "five" where it occurs and inserting in lieu thereof the word "ten," and by striking out the word " ten" where it occurs in the original section and inserting in lieu thereof the word "twenty."

Thus amended, the granting acts gave land in odd-numbered sections to the amount of twenty sections per mile on each side of the line of road.

The act approved July, 1864, amended and modified the mineral reservation by declaring that the term ' mineral land," wherever the same occurs in the act, should not be construed to include coal and iron land. These provisions are found in section 4 of the act of 1864. The rights of the company under the grants of 1862 and 1864 attached to the land granted coincident with the time of the definite location of the road, and the filing of the map of definite location with the Secretary of the Interior. It should be observed that the date of the filing of the map of definite location of th.e road identifies the land granted, and initiates the definite rights of the company, suspending the operation of -the homestead and pre-emption Jaws of the United States; but that.the right of the company to select lands by lists of selections for the purpose of obtaining record title to the land by way of patents issued by the Government of the United States, accrued only at the date of the acceptance by the President of the United States of the road or section of the road when completed, to wit, November, 1874.

The provision of law above referred to is found in section 4 of the act of 1862, which reads:

" Whenever the said company shall have completed 40 consecutive miles of said railroad and telegraph line, ready for the service contemplated by this act, the President of the United States shall appoint three commissioners to examine the same and report to him in relation thereto ; and if it shall appear to him that 40 consecutive miles of said railroad and telegraph line have been completed and equipped in all respects as required by this act, then upon the certificate of said commissioners to that effect, patents shall issue conveying the right and title to said lands to the company on each side of said road as far as the same is completed."

The right, then, of the company to select the laud granted accrued on the date when the commissioners referred to in the law filed their certificate of acceptance by the President with fche Interior Department of the Government. The date of the acceptance of the first 50 miles eastward from Sacramento is September 8, 1864, and the road between Promontory and Ogden was accepted by the President July 15, 1869, and the whole finally accepted in November, 1874.

It will be observed that the right of the company to select lands for the purpose of receiving record evidence of title by way of patents from the Government did not accrue prior to the dates above referred to, that it was a right which could not tte exercised until the lands were surveyed and the plottings of surveys properly executed and filed in the local land offices of the United States, after first having been approved by the surveyors-general of the respective States and Territories through which the line runs. In addition to this, by rule of the Department, no selections are permitted until ninety days have expired after the date of filing and approval of the township plats by the surveyor-general. At the time the right of the company to ask for patents accrued by the acceptance of the various sections of the road by the President of the United States, but a very small proportion of tho lauds within the granted limits w r ero surveyed and a still smaller proportion properly platted and the plats filed in the offices of the surveyors-general. An examination of the official plats reveals the fact that between the dates of the surveys and the dates of their final approval by the surveyors-general there is frequently a period of two or more years.

The act of 1864 added five alternate odd-numb; red sections on each side of the road, and attached a new and important condition precedent to acquirement of record title. Section 12 of the act of 1864 provides :

" That before any land granted by this act shall be conveyed to any company or party entitled thereto under this act there shall first be paid into the Treasury of the United States the cost of surveying, selecting, and conveying the same by the said company or party in interest, as the title shall be required by the said company."

By this provision a new condition was imposed not found in the act of 1862, to wit, that requiring the company to pay the costs of surveying, selecting, and conveying the land. This new condition entailed a large additional expenditure of money by the cost of the items mentioned ; but it, at the same time, defined the right of the company as to when sucli costs should be paid, In unequivocal language it declared

2560 U. S. PACIFIC RAILWAY COMMISSION.

that the costs of surveying, selecting, and conveying the land should he paid by the company as the title should be required by it, thus vesting in the company the right of election as to when these fees should bo paid and the record title obtained. The early occupancy and settlement of the region through which the railroad passed was obviously consistent with the highest interests of the company, that the Congress of the United States evidently depended upon this most obvious interest alone for the early disposition of the land. The subsequent action of the company proves that in entertaining this opinion the Congress of the United States was not mistaken. From the very outset the company inaugurated the policy of taking title to the lauds as rapidl3 r as such record evidence of title could be obtained from the Government, and even before the completion of the first section of 50 miles eastward from Sacramento, and in anticipation of its early completion, yourself as president of the Central Pacific Railroad Company, addressed a letter to Hon. John P. Usher, Secretary of the Interior, dated Sacramento, Cal., February 19, 1864, from which, as plainly showing forth the disposition of the company under this head, the following quotation is made :

AN URGENT LETTER.

" We expect to have 31 miles of railroad from Sacramento to Newcastle Gap completed and in running order about the 1st of April next, and it would be a great aid to the enterprise if the survey of 10 miles on each side of the road were completed immediately thereafter, as contemplated by the act of Congress."

Herein you urge upon the attention of the honorable Secretary the importance to the company of an early completion of the surveys of the lands granted to it. The records of the Land Office will show that upon the date at which your letter was written but six townships lying within the limits of the grant and opposite the 31 miles of road subject of your letter were surveyed, and of these six townships, embracing only about 70,000 acres of land prima facie granted to the company, there was but ii small portion not accepted out of the grant by the operation of the homestead and pre-emption rights,reservations of mineral lands and land granted to the State as swamp and overflowed. Indeed, at the date of the grant itself approximately but 104,000 acres of the grant made to the road in California were surveyed, while the grant lying within the boundaries of the State of California was approximately 1,500,000 acres. It was presumably evident to your mind, as the chief executive officer of the company, that your company would exercise its right to select the land at the earliest possible moment, and your letter to the honorable Secretary of the Interior, even before the completion of the first section, urging the completion of the surveys is indisputable evidence of the very earliest disposition of your company in the premises. Whatever may have been the motive, however, in influencing the enactment of the provision above referred to, it is unequivocally provided in the terms of the granting act that the time of payment of the costs of surveying, selecting, and conveying the land should be a condition precedent to the receipt of record title and that the time of such payment and the formation of lists of selections should be left to tbjo election of the company, or, to repeat the language of the act, should be paid, u as the company should require the title.'' In seeking for an interpretation of these words there is no ambiguity of language which leaves doubt as to their meaning. The cost of surveying, selecting, and conveying the land, and the issue of patents to follow the payment 6f such costs and selections were not made referable to or dependent upon the exigencies of State, county, or municipal government, but was relegated solely to the company itself. Notwithstanding, however, the absence of all legal requirements as to the time when the company should apply for and receive title to the lands granted, it from the first inaugurated the policy of paying the costs required by law of acquiring at the earliest practicable moment record evidence of title, and of promoting by every means in its power the settlement of the country through which its roads passed. As already indicated, the right of the company to" acquire title did not mature until the various sections of the road had been examined and reported upon by the commissioners appointed by the President of the United States, and the road accepted by the President in pursuance of the recommendation contained in the report of such commissioners. The date at which the road was finally accepted is indicated by a letter from the Department of the Interior to the Commissioner of the General LandOffice, dated Washington, November 3, 1869, in which the honorable Secretary informs the commissioners that the road has been accepted. Early in the year 1869 the Department of the Interior ordered an absolute suspension of the issuance of patents, as the following letter will show :

DEPARTMENT OF THE INTERIOR, Washington, D. C.. March 22, 18G9.

SIR : You will withhold all action toward the issue of patents of lands to the Central Pacific Railroad Company of California and the Western Pacific Railroad Company until further advice from this Department.

Very respectfully, your obedient servant, J. D. COX,

IIo. JOSEPH S. WILSON,

Commissioner of the General Land Office,

LELAND STANFORD. 2561

This suspension of patents placed an absolute embargo upon transactions under that head, an embargo which was not removed until March 26, 1870, a period of one year and four days. However, on the 3d day of November, the honorable Secretary of the Interior addressed the following letter to Hon. Joseph S. Wilson, Commissioner of the General Land Office :

DEPARTMENT OF THE INTERIOR,

Washington, D. C., November 3, 1869.

SIR : The Commission to examine the Union Pacific and Central Pacific Railroads having reported, and its report being accepted and made the basis of adjustment of the accounts between the United States and said railroad companies, you are herebyauthorized to commence the patenting of such lands to the said companies under grants made by Congress, as follows : In addition to the bonds retained by the United States as security for the completion of said roads in the matters reported deficient or not up to the standard by the said Commission, one-half of the lands ready for patenting to the Unjon Pacific will have patents suspended until further direction from this Department. The other half may bo patented to said company as fast as surveys and other preliminaries are completed that is to say, beginning at Omaha and running westward Sections 1, 5, 9, &e., will be patented, there being no valid claim found, and sections 3, 7, &c., will be withheld until further directions as above stated. Patents to the Central Pacific Railroad may, in like manner, issue, beginning at Sacramento and working eastward. It is my desire that the work be so systematized that it may be pushed forward as rapidly as possible. Very respectfully, your obedient servant,

J. D. COX,

Secretary. Hon. JOSEPH S. WILSON,

Commissioner of the General Land Office.

Under the instructions contained in the foregoing, lists of selections were made. Some of these failed to observe the instructions of the Secretary of the Interior to omit one-half of the land in any township from, the list of selections made. These lists having reached the Department of the Interior, the honorable Secretary, J. D. Cox, under date of March 8, 1870, in a letter addressed to the honorable Commissioner of the General Land Office, says :

" Under date of the 3d of November last you were directed to prepare for patenting one-half of the lands inuring to said company, namely : Sections 1, 5, 9, &c., and sections 3, 7, &c., should be withheld. I find that the lands thus to be withheld are in this list ; therefore return the list, that a new one may be prepared, omitting those sections that are to be withheld from patenting."

Mr. Beard, attorney for the company at Washington, urged the issue of patents for the list, which embraced 116,000 acres, and in a letter addressed to Hon. Joseph S. Wilson, used the following language :

" In view of the fact that there has been patented heretofore to the company only 144,686 acres out of 1,700,000 acres, the surveys of odd-numbered sections along the 130 miles of road in California, in five years, this course appears to be but just."

Herein your attorney at Washington on the 26th day of March, 1870, was forced to plead the small number of acres listed and patented in the Central Pacific grant as an argument in favor of the issue of further patents.

It is plain from this plea of your attorney that there existed a strong desire on the part of the Government to withhold patents from the company, and an equally strong desire on the part of the company to urge the patenting of its lands as rapidly as that process could be achieved.

Certified copies of all the letters above set forth from the Interior Department at Washington are in possession of the land department of your company, to be exhibited when called for.

The road was, however, not finally accepted until late in the year 1874. The commissioners appointed to make the final examination were Eugene L. Sullivan, Calvin Brown, and J. W. Dwyer, and the report of these commissioners is dated Ogden, Utah, November 2, 1874. This report was certified by C. Delano, Secretary of the Interior, to the President, under date of the 12th of November, 1874 ; and at that date it may be said that the road was finally accepted. The time, then, at which the right to receive patents for lauds granted may be placed approximately at January 1, 1875, at which date the company had applied for 304,196.38 acres, and had received patents for 271,165.85 acres.

At the very outset the adjustment of the grant to the Central Pacific Railroad was beset with difficulties and embarrassments unknown to the eastern division of the line connecting the Missouri River with the Pacific Ocean. The lands were not granted in specific sections. The sections could be identified only after the map of definite location of the line had been filed with the Secretary of the Interior. The limits of the grant could not then be delineated, Lauds in tlie odd-uuwbereci sections

2562

U. S. PACIFIC RAILWAY COMMISSION.

within such limits were granted by categories only. Lands in certain other categories or relation with respect of the title of the Government were excepted, and among the latter mineral land was mentioned as an exception. The line of road from Sacramento eastward intersects at right angles the great mineral belt on the western flanks of the Sierra Nevada Mountains, and rules of practice in the General Land Office had to be established whereby the mineral or non-mineral character of the land could be ascertained. Decisions of questions of this character necessarily involve delay. The granting act did not specifically establish any court vested with power to hear and determine questions growing out of the physical facts by which lands granted or lands excepted out of the grant were to be identified. The act was turned over to the Executive Department of the Government for executive and ministerial administration, and the rules of practice by which determination was to be reached as to whether specific lands were granted or excepted were established by the Interior Department of the Government.

LISTS OF SELECTIONS FILED.

The first list of selections, completed May 19, 1865, and officially known as list No. 1, Marysville, embracing the listing of 55,259 acres. The first patent to the company granted in pursuance of this list of selections is dated January 4, 1866, and covered but 45,510 acres of lands listed in the original list, thus suspending for future examination 9,784 acres. This first list of selections, in the amount of 55,259 acres was, therefore, before the General Laud Office at Washington eight months before any patents were issued. At the close of the year 1865 there was therefore due the company upon lists of selections of unpatented land the amount of 55,259 acres. The second list of selections is dated August 27, 1866, and embraced 41,804 acres. It is officially known as list No. 2, Marysville; and the third list, embracing 36,059 acres, known as list No. 3, Marysville, is dated November 0, 1866, and the receipt of patents to lands selected by this list is dated June 22, 1867, a period of seven months after the date of the listing. In each instance of lists of selections some of the land claimed by the company was suspended for further examination, an examination which, I regret to say, has not been made up to the present time.

Accompanying this letter to you will be found a tabulated statement.

This table shows the dates at which the listings were completed, and the date at which the patents in pursuance of such lists were received, and from it may be derived a full and complete exhibit of the status of the account between the Government and the company at any particular date. The tabulated summary of this statement is here introduced. This statement exhibits the total amount of acres for which the company had made application, and which applications were before the department at the end of each year the number of acres patented in pursuance of such lists of selections and the balance of acres listed and unpatented at the end of each year, from the end of the year 1865 to June 1, 1887. This table shows the smallest number of acres listed and unpatented before the General Laud Office for examination to be at the end of the year 1^75, and that they aggregated 17,131.97 acres, and also shows the largest balance of land listed and unpatented to be on the 1st day of June., 1887, and that they aggregate 622,612.54 acres. The tabular statement is subjoined, and its careful analysis is respectfully urged upon your thoughtful attention: ...

LELAND STANFORD. ' 2563

DUE DILIGENCE TO SECURE PATENTS.

Your attention is respectfully called to the very significant fact that at the end of the year 1869, the date at which the road was completed, the company had made list application for 278,532 acres, all of which was made prior to the completion of the road itself, and that the Government had responded by issuing patents for but 144,386 acres, leaving a balance of acres listed and unpatented of 134,145. Thus, at the date of the completion of the road, the company was a petitioner for 134,145 acres of land in excess of the response of the Government to its petitions by way of patent. Your attention is further called to the fact that at the end of the year 1876, the approximate date at which under the act the company was to have completed the road, it had made application for 721,658 acres, to which the Government had responded by issuing patents for but 528,854, leaving a balance of acres listed and unpateuted of 192,804. Following the table down to the close of the year 1883, a most significant exhibit should not escape your attention. At the close of that year the company had applied from the date of the first listing in 1865 to the last listing completed in 1883, for 887,728 acres. From the acres so listed the Government had patented to the company 780,879 acres, leaving a balance of acres listed and unpatented of 106,848 acres. From the close of the year 1883 to the 1st of June of the current year the company has made application for 774,595 acres, an amount nearly equal in the three years and six months under observation to the gross amount of lands applied for in the twelve years preceding that period. The policy of increased activity in the application for patents was inaugurated in the hope that a corresponding activity in the examination of lists would be manifested by the Government. This, unfortunately, has not been the case, as the table herein above clearly exhibits. The only effect has been to increase disproportionately the figures in the column headed "Balance of acres listed and uupatented." Of the 887,728 acres in the aggregate listed at the close of the year 1883, but 106,808 acres remained nnpateuted ; that is to say, about 13 per cent, of the acres presented to the Land Department at Washington in the lists of selections remained unpatented, while, on the other hand, of the 1,662,323 in the aggregate listed on July 1, 1887, 622,612 acres remained unpateuted, the unpatented land bearing the percentage relation to the whole number of acres selected of about 38 per cent. Thus the percentage of the balance of acres listed and unpatented has increased since the close of the year 1883 from 13 per cent, to 38 per cent. The significance of this exhibit, as plainly tending to discourage the activity of the company in making lists of selections, will not escape the attention of any candid mind. The simple exhibit of facts themselves forces upon the company the conclusion that increased activity in the way of making lists of selections of lands for which patent is asked has not been met by a corresponding activity on the part of the Government in responding to the petitions of the company, but, on the contrary, has served only to increase disproportionately the balance of acres listed and unpatented. Your attention is called to the fact that the aggregate fees paid on account of lands selected by the company amount to $95,468. Of this sum 38 per cent., or a sum in excess of $37,000, was paid upon the lands for which patent is still withheld. The balance in favor of the company at the close of the business of 1883, which had been paid upon the lands selected and unpatented, was but slightly in excess of $6,000. Increased activity in meeting the requirements of the granting act, by paying the costs of surveying, selecting, and conveying the land, has therefore resulted in the payment into the Treasury of the United States of a large sum of money, of the use of which the company is deprived, and which, by reason of the failure" of the Government to respond with patents, lies useless in its Treasury. These facts present only discouraging features well calculated to deter the company from the policy of increased activity in the way of making lists of selection of the land granted.

The exhibit also shows clearly that from the date of the inauguration of the relations between the Government and the company under this head there has been no time at which the company has not had on deposit with the Treasury of the United States a considerable sura of money on account of the payment of the cost of surveying, selecting, and conveying the lands ; that at all times from the date of the first list of selections to June 1, 1887, the Government itself has been the party delinquent, and that lists of selections upon which the fees had been paid largely in excess of the response of the Government by way of patents have been at all times and at all dates since the first list of selections was completed before the Land Department of the Government for examination.

THE GOVERNMENT FAILS TO SURVEY THE LAND.

Notwithstanding the requirement that the company shall pay the costs of surveys, the right to determine when such surveys may be made is vested by law in the Government of the United States. During the past two years the rates allowed by the Commissioner of the General Land Office for surveying have been so low as to almost

2564 U. S. PACIFIC RAILWAY COMMISSION.

wholly arrest the progress of surveys within the limits of the grant. As fully illustrating the disposition of the existing administration in the premises, it may be hero related that during the year 1886 the surveyor-general for the State of Nevada advertised for bids for surveys relating to three hundred and forty-five townships of land wholly within the limits of the grant to your company in that State. These three hundred and forty-five townships, embracing about one-half the area of the lauds granted to your company in the State of Nevada, are still unsurveyed. Specifications for these surveys and the amount which would be allowed as fees for the surveys were advertised, and the bids were to have been opened, according to the advertisement, on the 1st day of November in that year. Upon the date at which these bids were to bo opened not one bid had been received. Ttie proposals had been rejected in their entirety by the surveyors. A like result has attended the offers of the Government for the completion of the surveys of land in California, and on the 1st of July, 1886, the surveyor-general of California returned to the Treasury of the United States the entire amount of the appropriation which had been made by Congress for the completion of the surveys of laud in this State, notifying the Commissioner of the General Land Office at the same time that no responsible surveyor would enter into a contract for the completion of the surveys ; that the rate of compensation ottered by the honorable Commissioner of the General Land Office was entirely too low. In the Territory of Utah the efforts of the Commissioner to secure the completion of the surveys have been attended with a larger share of success, but there still remains in that Territory within the limits of your grant a very large area of unsurveyed land, while of the lands surveyed in that Territory within the limits of the grant, more than half of the surveys have been completed since the year 1880. According to the statements furnished by the honorable commission appointed to investigate the affairs of your road under this head, there was granted an aggregate of 8,000,000 of acres of land to your road. A very small proportion of this area was surveyed prior to 1860. Between the years 1870 and 1880 surveys were prosecuted very tardily. From 1880 to 1883 an increased activity in the surveys was observable, but even at the present date about one-half of the lauds granted are still uusurveyed, but owing to the policy inaugurated and persisted in by the present honorable Commissioner of the General Land Office, surveying for the past two years has been almost wholly suspended.

DISCOURAGING AND UNREASONABLE REQUIREMENTS.

In addition to all the discouragements herein set forth, within the past three months, and in the exercise of his discretion, the honorable Commissioner of the General Land Office has departed from all the precedents established by his predecessors in offi e, and has attached to the requirements for disapproving the mineral character of land onerous and, to my mind, unreasonable rules of practice. These new rules are made applicable to the lists of selections which have been before the Department for more than two years. Among these rules may be mentioned that of requiring non-mineral affidavits as to land returned and denominated by the United States surveyors as agricultural. Heretofore such return by the surveyor was ac<cepted as prima facie evidence of the agricultural character of the land. Under the existing regulations of the Land Department, which regulations have been announced only within the past three months, and made to relate to lists of selections which have been before the Department for more than two years, it is now required that an affidavit shall be made as relates to each 40 acres of laud embraced within such list of selections by an individual "who has frequently passed over " each subdivision of 40 acres, and is therefore competent to testify that there are no mineral indications found upon the 40-acre tract subject of the affidavit ; that the affidavit shall be made separately and specifically as relates to each particular 40 acres, and that a single affidavit embracing a number of these small Governmental subdivisions will not be competent ; and that the individual who makes the affidavit shall be specifically authorized in each particular case to make such affidavit. This requirement is made to relate to large areas of grazing land in the State of Nevada and the Territory of Utah, notoriously free from all mineral indication. It is well known to you that large areas of lands, fit only for grazing purposes, in the State of Nevada and the Territory of Utah, are located in very sparsely settled regions, and that it will be most difficult, if not wholly impossible, to find individuals who have frequently passed over each particular and separate 40-acre tract embraced within the limit of your grant, and who therefore possess the necessary knowledge to qualify them to make the required affidavits in this behalf.

OBSTRUCTIVE MEASURES.

As to land interdicted as mineral by the field-notes of the United States surveyors, new, onerous, and to my mind, unreasonable requirements, are made in the recently adopted rules of pr&ctice, Under the rules of practice obtaining in 1865 and up to

LELAND STANFORD. 2565

the 1st of March, 1887, disproof as to the mineral character of land interdicted as mineral could he initiated upon lands unselected. This was obviously a reasonable rule. The lists of selections must first he submitted to the registers and receivers of the local land offices of the district wherein the lands are located. Upon lists so presented registers and receivers must first hear and determine upon all questions relating to the mineral character of the land before they can certify that it is agricultural in character, and therefore clear of the company, and subject to the terms of the grant. The practice has uniformly been to initiate proceedings prior to selections to disprove the mineral character of the land, which proof has been submitted under the rules established by the Interior Department itself for registers and receivers, and under the direction of these officers with re*spect to advertising the hearings of such testimony in disproof. Upon the testimony so presented, registers and receivers have determined the mineral or agricultural character of the land in question. The agricultural character of the land being established, it became subject to selection by the company, and land so selected could be certified as clear to the company by the registers and receivers of the district land office to the Commissioner of the General Land Office. In pursuance of this rule of practice, which was established by the Interior Department, and which had been maintained by all the Secretaries of the Interior until within the past few mouths, disproof as to the mineral character of the land was taken as relates to a large area of acreage. The proceeding is in the very nature of things costly, and after this cost had been borne by the company, &c., so much of the land as had been decided by the registers and receivers of the district land offices to be agricultural had been selected, the Commissioner of the General Land Office dismissed all the proceedings with reference to the non-mineral character of the land, not because of any allegation of irregularity of proceedings under the rules of practice which have obtained for the last twenty years, but upon the technical plea" that the grant to the company does not of itself establish such right in the company with respect of lauds selected as would entitle it to inaugurate proceedings in disproof, but that its rights to the laud must first be inaugurated by a, selection, and that disproof as to the mineral must follow and not preclude such selection. The order of the honorable Commissioner does not raise any question as to the adequacy of the proofs submitted. It simply declares that the proof, however adequate, was taken prior to the selection, and forces upon the company the expensive duty of reopening the proceedings in disproof, which are objected to not because of inadequacy, but solely on account of having been taken prior to selection.

By this ruling lists of selections long since completed were relegated to a condition of very indefinite delay as to the issue of patents. The extent to which the requirernent relating to affidavits of non-mineral indication on each forty-acre tract of agricultural land within the limit of your grant will delay the future operations of the company in obtaining record title to its lands will readily be perceived. It should he remembered that at the date of the passage of the act the territory to be intersected by the line of road between the Missouri River and tide-water at the city of Sacramento was, with the exception of a small portion at the western terminus near the Missouri River, almost entirely uninhabited. The presumption was most natural that the construction of the road would be conducive to the settlement of this \ast territory. At the date of the grant less than 5 per cent, of the lands granted were surveyed. No applications for patents could be made with respect to lands unurveyed, and while one-half of the costs of the survey within the limits of the grant were chargeable to the company, the other half of the costs would have to be borne by the Government itself. The grant to the entire line from the Missouri River to the Pacific Ocean embraced approximately 20,000,000 acres of laud, being at the date of the grant an unsurveyed and unappropriated portion of the national domain. The administrative task of surveying the lands was Avith the Government itself, a task which, after the lapse of a quarter of a century from the date of the granting act, is now only partially accomplished. The hearing and determination of evidence arising out of questions as to whether lands applied for were granted or excepted out of the grant added materially to. the embarrassment of producing record evidence of title as rapidly as would meet the requirements of the company. As already noted, this embarrassment was further complicated by the exception of mineral land from the operations of the grant. There has never, therefore, been a time in the history of this transaction when the Government was able to meet the requirements of the company promptly by the issue of patents as rapidly as asked for.

GOVERNMENT UNABLE TO MEET THE DEMANDS OF THE COMPANY.

The Government has never been at any time, and it is not now, in a position to patent more than a small proportion of the land granted. The payment of the costs of surveying, selecting, and conveying, being a condition precedent to the issue of patents, would involve a largo expenditure on the part of the company upon each list of

2566 U. S. PACIFIC RAILWAY COMMISSION.

selections made. In the aggregate a very large sum of the company's money is now tied up by these payments, and in view of the tardiness of the governmental response to the demands of the company for patents, a delinquency which is clearly set forth in the accompanying documents, there is nothing to encourage, but rather everything to discourage, activity under this head. During every period of the administration of the land department of the company it has been apparent that the augmentation of lists of selections retarded rather than promoted the issuing of patents, and the completion of these lists and their presentation to the General Land Office at Washington involved a large expenditure of the company's money, which, while the company was deprived of its use, remained idle and usejess in the Government Treasury.

The task of completing the surveys of the vast area of uusurveyed land, and the cost of making such surveys, which must be borne by the Government itself, were all difficulties which confronted the Government, and to which is referable the policy of vesting the company with the right to make demand for patent only as prompted by its own requirements, or the progress of settlement and consequent occupation and absorption of the lands granted. The provision of the granting act herein referred to was clearly suggested to the Congressional mind in the interest of the Government itself, and exactly supplemented the rights, conveniences, and interests of both the grantor and the grantee. In practice, however, it has conserved the interests of the Government more than those of the company. In all cases the delay in the issue of patents to the company has been a loss to the company's treasury. It has retarded the growth and development of the country tributary to the line of transportation constructed, and it has subjected the settler upon lands granted to the railroad company to inconvenience and loss arising out of delayin receiving title to his land. It has delayed the payment of money to the company for the purchase of such lands, and, beyond all this, it has been the occasion of much loss by reason of the extension of the discovery of mineral within the granted limits. This latter feature deserves more than passing notice. Under the decisions of the Supreme Court, lands patented to the company, and not known to be mineral at the time of the issuance of patents,* pass the mineral with the title conveyed, while the discovery of valuable mineral deposits in the lands prior to the issue of patents excepts the land in which such mineral is discovered from the operation of the grant. Within a large section of the granted limits search for valuable mineral deposits has been arduous and constant. Mineral discoveries, therefore, have been constantly extending, and as they are extended, they operate to except out of the grant large quantities of valuable land which would have been patented by reason of the absence of mineral indications and mineral discoveries at the time application was made. Ascertainment of the quantity of land thus listed to the company would be a very tedious task. Approximations, however, have been made, and the result of such approximations justify the statement that at least 200,000 acres of land have been lost to the company in this way.

GOVERNMENTAL POLICY.

The policy of the Government with respect of the disposition of the even-numbered sections within the granted limits has been very injurious to the interests of your company. As soon as the granting act was passed the price fixed upon the evennumbered sections within the granted limits was raised to double minimum valuation, thus discouraging the operation of the pre-emption laws within the granted limits. The effect of the land policy of the Government as compared with the land policy of the railroad company is clearly shown by the fact that in townships of land where patents could be obtained, and where settlement has been made, settlement was begun and prosecuted upon railroad land alone. Recently prepared statistics concerning the disposition of the Government and railroad lands within the better settled portions of the grant show that more than twice the quantity of railroad land is being cultivated by actual settlers than of Government land within the same boundaries. Your company has addressed itself assiduously to the task of inducing settlement upon its lands, and by a liberal policy, embracing in its features low prices, long extensions of credit at low rates of interest, has largely accomplished its great mission of extending settlement and civilization along its line of road. On tho contrary, the policy of the Government relating to the disposition of its lands, interspersed with the lands granted, has been rigid and many of its requirements not adapted to the development of the country. The unwisdom of its policy is particularly noticeable in the grazing areas of the great uplifted plateau lying between the Rocky and Sierra Nevada ranges of mountains. The limitations of acquiring only 160 acres to each actual settler, applicable only to such agricultural land as by reason of fertility makes that quantity suited to the industry of a single occupant, is not applicable to grazing lands. The general result of this has already been stated. Settlement has been chiefly upon lands granted to the railroad,

LELAND STANFORD. 25G7

A SUMMARY OF POINTS.

To summarize briefly the points herein presented, it has been clearly shown :

(1) That by the terms of the granting act itself the cost of surveying, selecting, and conveying the land was made a condition precedent to the issue of patents, and that such cost was to be paid only as a title was required by the grantee.

(2) That the company has used due diligence in the payment of the costs of surveying, selecting, and conveying the lands, and that its diligence in this regard has resulted in a demand largely in excess of the response of the Government at every period in the history of this transaction.

(3) That all the apparent delay in the issue of record title to the lands granted to the Central Pacific Kailroad Company is chargeable to the tardiness of the Government and not to the company.

(4) That the Government has at no time been in a position to grant patents conveying the title to large granted areas by reason of the absence of surveys and the unavoidable delays in determining questions of law and fact as to whether lands applied for were granted or excepted out of the grant.

(5) That the company has been subjected to great pecuniary loss growing out of the payment of costs of surveys and other attendant fees upon large lists of lands for which no patents have been granted and the loss of the use of moneys which would have been paid by the purchasers of lands had the response of the Government been commensurate with the legitimate demands of the company.

(6) That arbitrary and obstructive rules of practice have recently been devised, nullifying the efforts of the company to facilitate the completion of lists of selections and unnecessarily complicating the perfecting of such lists, whereby even greater tardiness in the response of the Government to the demands of the company than has heretofore been exhibited- may be expected.

(7) That the delinquency of the Government and its tardiness in responding to the requirements of the company have at all times acted as discouragements to applications for patents ; and

Generally. The exhibits presented prove conclusively that the grantee has been a party observant of all the duties made incumbent upon it by the terms of the grant itself, and that there has been no delinquency in contravention of the true intent and meaning of the granting act, except such as is chargeable to the grantor.

GENERAL LAND OFFICE HOPELESSLY IN ARREARS WITH WORK.

This statement would be incomplete without some consideration being given to the subject as to whether the Land Department of the Government is in position to examine the claims presented, and pass upon them with greater promptness than it has manifested in the past. The railroad division of the General Land Office is charged with the adjustment of the grants for railroads, wagon roads, and canals, and with the adjudication of claims of settlers and others within the limits of the grant. Under date of October 11, 1882, Hon. N. S. McFarland, Commissioner of the General Land Office, reported to Hon. Henry M. Teller, Secretary of the Interior, for the fiscal year ending June 30, 1882, that t*he work of the railroad division of his department was several years in arrears. As illustrating the difficulties with which that division is beset, it may be noted in the same report that Mr. McFarland declares that during the year 1882, 5,564 cases were presented for adjustment in the way of claims of settlers and others within the limits of the grants to railroads, and of this large number but 617 cases had received attention. Three thousand nine hundred and forty-seven, therefore, constituted the accumulation of the year. In the same report Commissioner McFarland submits a supplemental estimate in which he asks for 100 additional clerks and sufficient additional room for their accommodation.

Each successive administration has called attention to the delinquency of the various divisions of the Land Department. The present honorable Commissioner, W. A. J. Sparks, repeats the suggestions of his predecessor, Commissioner McFarland, and urges upon the attention of the Secretary of the Interior the importance of authorizing additional clerical force in the department. The volume of business in tho railroad division, and the relative capacity of the division to pass upon the lists of selections presented, and the inadequacy of the force at hand of the Commissioner of the General Land Office, are most clearly illustrated in the following exhibit :

In 1882 lists of selections presented to the railroad division for patent by the landgrant railroads to the United States aggregated 1,958,392 acres. In 1883 the amount had risen to 3,070,453 acres. In 1884 the lists of selections had accumulated and aggregated in that year 11,861,608 acres. In 1885 the accumulation of business represented 14,273,057 ;wres. In 1886 the acres before the department awaiting its action worn 16,571,299. Thus, in five years, the number of acres before the department awaiting its action had risen from 2,000,000 to over 16,000,000. The foregoing state

2568 IT. S. PACIFIC RAILWAY COMMISSION.

ments are derived from the official reports over the signatures of the Commissioners themselves.

As more fully illustrating the extent of this incapacity of the department to examine and certify for patents lands before it for examination, the significance of the following statement will be apparent :

The railroad division of the General Land Office in 1881 examined 949,446 acres, and certified that quantity for patents. In 1882 it examined and certified for patents 176,406 acres ; in 1883, 477,740 acres; in 1884, 647, 162 acres; in 1885, 1,153,950 ; in 1886, 100,823 acres. The business transacted from June 30, 1885, to June 30, 1886, was the only full year under the administration of Commissioner Sparks ; with 16,570,299 acres before the railroad division under his administration awaiting examination and determination by the division, it was able to examine and certify for patents b,\t 100,000 acres. For the six years reported, to wit, from June 30, 1881, to June 30, 1686, there were examined and certified for patents 3,505,527 acres, being an average of 584.254 acres per annum, or, in round numbers, a half million acres per annum. If, therefore, no further lists of selections are presented to the department, and the average amount of business can be transacted in the railroad division in the future as in the past, as shown by the above exhibit, it will require thirty-two years to complete the examination of the land already selected by lists of selections now before the department for examination.

ONE HUNDRED AND SIXTY YEARS.

If, however, the volume of business transacted by the railroad division in the year 1886, the only full year under the existing administration, is to betaken as a criterion of the capacity of that department for the examination of the selections before it, one hundred and sixty years will be required to examine the selections now made and submitted. The capacity of the department under the existing administration having been tested by a full year of administrative effort, and found to be equal to the task of examining and certifying 100,000 acres per annum, the lists of selections now before the department from the Central Pacific Railroad alone will require six years in their examination should the department devote itself entirely to the business submitted by your company to the exclusion of all other lists. There is, of course, not the slight? est reason to hope that the business of your company will receive this exclusive attention, and receipt of patents for lands now applied "for is, therefore, relegated to the indefinite future. In the mean time settlers and occupants who have in good faith taken possession of the lands granted to your company and established homes thereon are clamorous for title. This delay with titles serves to obstruct and hinder the settlement and occupancy of the company's lands, and the result consequent is a loss oa the transportation side of the account" The granting of patents upon the selections now before the department would place your company in a position to make lists of selections covering 1,000,000 acres within the next year and the sale of lands along the line of your road would augment the business of the line in the most signal manner.

THE USELESSNESS OF FURTHER SELECTIONS.

In view of the condition of things as reported by the Commissioner of the General Land Office, and of the further view of the manner in which lists of selections have been treated by the Government, the uselessness of making further lists of selections, and of devoting further sums of money to that purpose until the lists now before the Interior Department are disposed of, is altogether apparent. It is not the province of this report to you, nor within the purview of answers to the questions propounded, to suggest remedies for this state of things. It is, however, plain to the most casual glance that the Land Department of the Government is most hopelessly in arrears with its business, and to such an, extent as to make it entirely beyond its power to extricate itself from existing complications. The department charged with the adjustment of these land grants and the ultimate final adjudication is vastly inadequate. The remedy is self-suggestive. Subsidiary departments in each State and Territory wherein these land grants are located should be vested with the power of hearing and of final determination of these cases. Their position on the ground would connect their knowledge more immediately with the nature of the question in controversy, and enable them to reach final determination with greater facility, and also to reacli an adjudication of the various cases more nearly in accordance with the equities involved. With 16,500,000 acres before the department at Washington for examination, and the tested capacity to hear and determine as to but 100,000 acres per annum, it may be said with reason that the progress of the adjudication is practically arrested. If it is ever to be proceeded with in a manner consistent with the rights and interests of both the grantor and grantee, it is now plainly apparent ttat at least one hundred times the force at the command of the Commissioner of the General Laud Office will be necessary to meet the requirements under this h ead. It is unreason*

LELAND STANFORD. 2569

able, if not wholly absurd, to suppose, in view of the existing tate of things, that a single department of the Government, controlled and directed by a single head, can hear and determine within a reasonable time the vast number of cases submitted for its attention. In his report to the Secretary of the Interior, Commissioner Sparks declares that the number of contested cases awaiting final action at the close of the fiscal year was 6,331. Of these 1,227 had received some attention, but not final action, and 5,104 had received no attention and no action whatever. Of the exparte cases before the department there remained for final action at the close of business 4,540, and of these 923 had received some attention, leaving 3,617 exparte cases which had not been reached for examination.

CASES BEFORE THE DEPARTMENT.

At the close of the year, therefore, there were 8,721 cases before the department which had received no attention whatever. At the close of the business of the administration preceding the present one, viz, June 30, 1882, the aggregate of cases which had not been reached for examination was 3,947. In a period of four years, therefore, there has been an increase of 4,477 cases which had not been reached for examination, proving clearly that the arrears of the department under this head are constantly augmenting instead of diminishing. With the lapse of each fiscal year the reports of the Commissioner show that under every head the department is becoming more hopelessly and inextricably in arrears with its business.

In view of these facts the land department of the company is confronted with hopeless and discouraging circumstances that call loudly for remedial legislation at the hands of the national Congress.

RECENT AMENDMENTS TO THE LAW.

Frequent reference has been made in this report to section 21 of the act of 1864, which declared that before any land granted by the act should be conveyed, there should first be paid into the Treasury of the United States the cost of surveying, selecting, &c., as the title should be" required by the company. In the foregoing, it has been clearly set forth that, notwithstanding the right was vested in the company to pay the cost of surveys, and to make lists of selections, as the title should be required by it, yet the company has at all times importuned the Government for the issue of patents. Your attention is now called to the fact that, by an act approved July 10, 1886, entitled "An" act to provide for taxation of railroad land grants and for other purposes," section 21 of the act of 1864 was amended. The amendment is found in section 4 of- the act of July 10, 1886, and reads as follows :

" SEC. 4. That section 21, chapter 216, approved July 2, 1864, is hereby amended so that the cost of surveying, selecting, and conveying therein required to be paid, shall become due and payable on demand therefor made by the Secretary of the Interior, as provided in section 2 of this act."

Notwithstanding the act last above quoted was approved July 10, 1886, no demand has been made on the company by the Secretary of the Interior, and until such.demuml is made the company cannot be delinquent or in default with respect of the payment of costs of surveying, selecting, and conveying, or the making of lists of selections.

CONCLUSION THE LAND-GRANT MORTGAGE.

In conclusion, permit me to call your attention to the strictures that have been made upon the mortgage or trust deed, executed by the company on the 1st day of October, 1870, upon the lands granted in aid of the construction of the line. It has been contended that the mortgage was placed upon the land in evasion of a provision found in section 3 of the act of 1862. That provision reads as follows :

" And all such lands so granted by this section, which shall not be sold or disposed of by the said company within three years after the entire road shall have been completed, shall be subject to settlement and pre-emption like other lands at a price not exceeding $1.25 per acre, to bo paid to said company."

The trust deed, however, was decided by the Supreme Court of the United States to be a disposition of the land within the meaning of the grant.

But even if the trust deed above alluded to had not been executed the proceeds of the land grant would have passed to the company under the operation of this clause of section 3, which, in effect, would have established in the company a perpetual right to receive the proceeds of the sale of the laud. The lands would thus have reverted to the public domain, and the proceeds of their sale would have been payable to the company. As Government laud they would necessarily have been exempt from taxation by States, counties, and municipalities, but the proceeds of their sale would have been the property of the company. The execution of the trust deed, therefore,

2570 IT. S. PACIFIC RAILWAY COMMISSION.

operated to create taxable property. Criticisms which have been made upon the execution of the trust deed have generally proceeded upon the theory that if such trust deed had not been executed, the lands "would have reverted to the Government absolutely, and the rights of the company therein would have ceased and determined. The erroneous nature of this view is clearly shown by the words of the granting act.

WM. H. MILLS. STATE OF CALIFORNIA,

City and County of San Francisco, ss :

William H. Mills, being first-duly sworn, saith that he has read the foregoing statement consisting of pages next preceding, marked " Exhibit No. 6," and knows the contents thereof; that the facts therein stated are true, except as to those matters stated on his information or belief, and as to those he believes it to be true.

WM. H. MILLS.

Subscribed and sworn to before me this 26th day of July, A. D. 1887. [SEAL.] E. B. EYAN,

Notary Public in and for the City and County of San Francisco, State of California.

EXHIBIT No. 7. Statement of J. C.Stubbs, general traffic manager, relative to differentials, pools, #c. *

The rates of charge for freights and fares are just and reasonable. When considered in respect of circumstances and conditions affecting profit and loss, they afford the cheapest transportation service in the country. Among the circumstances and conditions affecting profit and loss are the physical characteristics of the road, such as the gradients and curvatures, which very largely determine the cost of building and also the cost of operating the road, and the volume of business which determines the earning power of the road. These, and other, if not equally important, certainly very important, circumstances and conditions, together with the rates of charge on the Central Pacific line when compared with similar circumstances and conditions of rates of charge on other railroad lines in the country, will inevitably lead to the conclusion that there is no cheaper transportation service in the United States.

RATES CHARGED.

The fare between San Jose" and Sacramento (128 miles), where there is practically no competition, is at the rate of 2.6 cents per mile, and between intermediate stations for short distances at the rate of 4 cents per mile.

The freight charges for this line range from ! cents on the lowest class, to 3f cents per ton per mile on the highest class.

This line crosses the Contra Costa range of mountains, rising from 88 to 740 feet above th.e sea-level in 25 miles, and has for 38 miles an average grade of 52.8 feet to the mile.

During the year 1885 the total number of passengers taken up and laid down, either or both, on this line was at the rate of 2,410 per mile.

The freight taken up and laid down, either or both, on this line during the year 1885, was at the rate of 3,197 tons per mile.

The rate of charge for fares between Sacramento and California State line (140 miles) is 5 cents per mile. The rates of charge for freights range from 1 cents on lumber, to 14 cents per ton per mile on the highest class.

PHYSICAL LOCATION OF ROAD AND TRAFFIC DONE.

The number of passengers taken up and laid down, either or both, on this line, during the year 1885, was at the rate of 534 per mile. The number of tons of freight taken up and laid down, either or both, on this line during the year 1885, was at the rate of 1,070 per mile. On this section the road crosses the Sierra Nevada Mountains, rising from 30 feet to over 7,000 feet above the sea-level. In a distance of 87 miles (between Eoseville and Summit) the rise is over 6,800 feet, the average grade being over 80 feet to the mile, the maximum being 116 feet. Over 55 per cent, of the distance is curved line and about 40 miles of it is protected by snow sheds.

Between California-Nevada State line and Ogden (603 miles) the rate of fare locally for single trips is 7 cents per mile, and for round trips 5 cents per mile. The freight charges range from less than seven-tenths of a cent per ton per mile on lumber to 15 cents per ton per mile on the highest class of merchandise. ;

* See answer to question No. 10 and question No. 39.

LELAND STANFORD. 2571

For about 499 miles this line is through the comparatively desert and sparsely pop* ulated State of Nevada, which contains 112,090 square miles of territory, and had about 62,000 inhabitants in 1880, which declined to 58,000 in 1885, being about one inhabitant to each two square miles. This area is nearly equal to that of New York and the New England States (115,307 square miles), which in 1885 contained a population of 9,744,385, or an average of 109 inhabitants to each two square miles a population 169 times greater than that of the State of Nevada.

The road through Eastern Nevada is heavy, having frequent grades, ranging from 52 to 79 feet to the mile.

In 1885, the number of passengers taken up and laid down, either or both, within the State of Nevada, was at the rate of 77 to the mile ; and the number of tons of freight was 237 to the mile j from which it will be seen that the local travel on that line would not suffice to pay ordinary train expenses of one train per day. Except on extraordinary occasions, one train per day each way amply accommodates all the passenger travel, both through and local.

COMPARISON OF PASSENGER RATES WITH THOSE OF OTHER ROADS.

The fare bet ween San Francisco and Sacramento (140 miles, 110 miles of which belongs to the bond-aided line) is $3. Compare this with the rate between New York and Philadelphia (90 miles) which is $2.50 ; or with the rates between Chicago and Union Grove, on the Chicago and Northwestern Railway, a distance of 128 miles, which is $3.83, or at the rate of 3 cents a mile ; or the fare between Chicago and Kewanee, on the Chicago, Burlington and Quincy Railroad, 131 miles, which is $3.93, or at the rate of 3 cents per mile ; or with the fare between Chicago and Wyanet, on the Chicago, Rock Island and Pacific Railway, 129 miles, which is $3.74, or at the rate of 2.9 cents a mile ; or with the fare between Chicago and Mount Carroll, on the Chicago, Milwaukee and Saint Paul Railway, 128 miles, which is $3.83, or at the rate of 3 cents a mile ; or with the fare between Chicago and Columbia, on the Pittsburg, Fort Wayne and Chicago Railway, 120 miles; 'or between Chicago and Sturges, on the Lake Shore and Michigan Southern road, 132 miles ; or between Chicago and Mattowa, on the Michigan Central road, 1,9 miles, which was $3.90, $3.90, and $3.65, respectively, or at the rate of 3 cents per mile.

As I have said, volume of traffic is one of the most important factors in the earning power of a road, and necessarily is a determining factor in the rate of charge. I have no means of determining the volume of traffic of the Eastern roads nametl above in comparison with the Central Pacific line, but from various statistical authority principally the United States census report of 1880, cyclopedias, and standard geographies I have collated the following information which bears directly on the question:

The line of the Chicago, Milwaukee and Saint Paul Railway, above referred to, runs through the counties of Cook, Du Page, Kane, De Kalb, Ogle, and Carroll, in Illinois.

The Chicago and Northwestern road runs through the counties of Cook, Du Page, Kane, De Kalb, Lee, and Whiteside.

The Chicago, Burlington and Quincy road runs through the counties of Cook, Du Page, Kendall, La Salle, and Bureau.

The Chicago, Rock Island and Pacific Railway runs through the counties of Cook, Will, Grundy, La Sallo, and Bureau.

Of ilio counties through which the first-named (Chicago, Milwaukee and Saint Paul Railway) runs, the population is 210 per square mile; 88.49 per cent, of the total area is improved land ; the value of the products in 1879 was $4,661.44 per square mile ; the value of manufactures in 1880 was $74,436.70 per square milo.

The tion ucts $66,779.37 per square mile.

Of the counties through which the Chicago, Burlington and Quincy runs, the population is 210 per square mile; 87.82 per cent, of the land is improved; the value of products in 1879 was $4,479.78 per square mile ; the value of manufactures in 1880 was $73,928.49 per square mile.

Of the counties through which the Chicago, Rock Island and Pacific runs, the population is 188 per square mile; 88.19 per cent. of the laud is improved; the value of products in 1879 was $4,309.54 per square mile ; the value of manufactures in 1880 was $66,053.96 per square mile.

The line between San Jose* and Sacramento, Cal., runs through the counties of Alameda, San Joaquin, Santa Clara, and Sacramento. The population per square mile is 34; percentage of improved lands, 50.19 percent.; value of products in 1879, V2,473.33; value of manufactures in 1860, $3,376.35 per square mile.

P R YOL 16

2572 u. s. PACIFIC RAILWAY COMMISSION.

* The Central Pacific line, between Sacramento and State line, runs through ibe counties of Nevada, Placer, and Sacramento. The population to the square mile is 20; the percentage of improved lands, 20.25 per cent.; value of products, $993.13 ; manufactures, $1,517.30.

The line of the Central Pacific road through Nevada runs through the counties of Washoe, Storey, Churchill, Hnmboldt, Lander, Eureka, and Elko, having a population of -0% P er square mile; -j 1 ^ of 1 per cent, of the land is improved ; the value of products in 1879 was $32.56 ; and the value of manufactures in 1880 was $32.43.

The fare from San Josd to Reno (281 miles), or from San Francisco to Reno (294 miles), is $12.05. The fare between New York and Washington (236 miles) is $6.50. The latter line is practically level, running between the metropolis and the capital of the United States, through Philadelphia and Baltimore, the tracks crowded with trains, and the trains crowded with passengers.

THROUGH RATES REGULATED BY COMPETITION.

The through rates of fare for business between California and points in the Eastern States are regulated by competition.

For unlimited first-class travel the rate is 3 cents per mile ; for limited first-class 2| cents per mile, and for third-class or emigrant If cents per mile.

The rate for first-class travel over the great lines between Chicago and Council Bluffs is 2| cents per mile; between Chicago and Pittsburg, 2f cents per mile; between Chicago and Buffalo, 2.59 cents per mile; between Chicago and New York, 2 cents per mile. ,

.The rates between San Jos6 and Ogdeii, over the whole line, range from 1 cents on the lowest class of freight (merchandise) to 5-fc cents per ton per mile on first-class, while we have taken coke from Oakland to Ogden at one-half cent per ton per mile.

The legal maximum rates for California and Nevada are 10 cents per mile for passengers, and 15 cents per ton per mile for freight. Probably less than I per cent, of the entire traffic has been carried at the maximum rate.

The through rates for freight between California and the Eastern States are governed by competition, and at present vary from day to day.

RATES IN CALIFORNIA APPROVED BY STATE BOARD.

Our freight and passenger charges in the State of California have been approved and published by the California State board of railroad commissioners. In the State of Nevada they are published and posted according to law. For interstate traffic they have been duly published and posted in accordance with the requirements of the interstate commerce act. They are by these means given a wider publicity, and are so reasonable that it is seldom that complaints are made. As an evidence of this, I beg leave to call your attention to the fact that in 1876 the legislature of California enacted a law under which a board of railroad comrnissiocers was appointed by the Governor. This commission was popularly regarded as representing the anti-railroad sentiment of the State. In their first report to the legislature, dated December 1, 1877, the commissioners say :

" In October, 1876, we issued a circular which was addressed to many hundred citizens in various parts of the State whom we deemed likely to be able to furnish us with information or suggestions of value in connection with the subject of railroad transportation. A copy of it is as follows :

" BOARD OF RAILROAD COMMISSIONERS APPROVE THE MANAGEMENT.

" 'SACRAMENTO, October, 1876.

" 'Among the principal objects proposed by the legislature in creating the board of transportation commissioners is the compilation of facts and statistics connected with the building and operation of railroads in this State, and also the investigation of their management, especially as it affects the interest of their patrons.

'It is believed that an impartial investigation of this subject will result in substantial advantage to all concerned, and to this end this board desires to receive information and suggestions and statements from all who are interested.

" As your position has probably led you to give more than usual attention to the subject, there may be matters to which, in your opinion, the attention of the board should be called ; in which event it is requested that you will communicate them to this board in writing.

" ' By order of the board.

(Signed) < WALTER M. PHILLIPS,

" Secretary.'

LELAND STANFORD. 2573

" This was transmitted to supervisors, county officers, members and ex-members of the legislature, judges, prominent merchants, storekeepers, editors, hotel keepers, patrons of husbandry, &c., and it led to some valuable communications, although not to contributions of public opinion or information on the subject as full or as extensive as we might have reasonably looked for.

" We have deemed it our duty to visit and inspect, so far as such inspection can be made in transitu, every part of every railroad in the State, in order to acquaint ourselves so far as possible with the circumstances, local connections, situation, and conditions of the various roads.

" Without entering into unnecessary detail on this subject, we observed that generally the railroads of the State are in good order and their management wise and economical, and conducted with a view to the public convenience."

The communication addressed (as ab'ove stated bv the railroad commissioners) to citizens of all classes and occupations, whose position was presumed to have led them to give more than usual attention to the subject, was a bid for complaints, and resulted in a report, by a certainly not friendly commission, that, as quoted above, generally the railroads of California were in good order, their management wise and economical, and conducted with a view to the public convenience.

Since the date of said report the State of California has had several diiferent boards of railroad commissioners to which complaints regarding the charges of this company have been rare. In nearly every case they have proved to have been without foundation or based on a misrepresentation of facts, and no case has failed of a satisfactory adjustment.

CENTRAL PACIFIC INTEREST IN POOLS.

With respect to pools : The traffic over the line between San Jose" and Ogden, or any part of it, is not, and has not been since April 5, 1887, subject to any pooling contract. Previous to April 5th it was concerned with the Union Pacific and Denver and Rio Grande Companies in a pool of Utah traffic, the object of which was to secure uniform, reasonable, and stable rates of charge for freight to and from the Territory of Utah ; conditions so necessary to successful trade as to be of equal value to both the public and the carrier. The balances received and paid under that pool were very small.

For several years previous to February, 1886, this line was also concerned with others in a pooling contract which covered through rates between points east of 97th meridian in the United States and the Pacific coast. The association of roads concerned in this pool was termed the Trans-continental Association. The object of this association was to make and maintain reasonable rates of transportation, afford mutual protection to the interest of the associated roads, and to fairly distribute the revenue from traffic which was naturally the subject of competition between them. The pool was very beneficial to the Central Pacific line. It was discontinued December^!, 1885, with the expectation of renewing it, but the parties could not agree upon the terms, so that on or about February 18, 1886, tho Trans-continental Association was dissolved.

The result was a " war in rates" that was very destructive to revenue. Had the trans-continental pool be.en maintained during 1H86 and the same amount of tonnage carried at the rate per ton per mile earned by the associated roads in 1885, the earnings of the Central Pacific line from freight subject to that pool during 188G would have been increased by over a million dollars. It is only fair to say, however, in this connection, that doubtless the very low rates that obtained in 1886 diverted traffic from the water lines which would not have been carried by rail at the rates in force in 1885, and it also doubtless moved other tonnage which would not have moved at the rates of 1885. Nevertheless a continuation of tho trans-continental pool on both freight and passengers would have benefited the Central Pacific line in a very large sum.

PACIFIC MAIL AGREEMENTS.

For many years the Central Pacific line, in connection with the Union Pacific Railway, was concerned in a contract with the Pacific Mail Steamship Company, whereiimtor a certain amount of space in the vessels of said steamship company was purchased by tho railroad companies for a given sum, which varied from time to time as the contract was amended. Under the last contract the amount of space was 1,200 tons each way per month, and the sum paid was at tho rate of $95,000 per month. This space was filled by such freight as could bo obtained for California at rates made and controlled by the railroad companies. The arrangement was of the nature of a joint purse arrangement, simply for the purpose of regulating the competition between tho steamship company and the railroad lines. It was beneficial to both by securing stability and uniformity in rates, and was of great value to the public as

2574 U. S. PACIFIC EAILWAY COMMISSION.

well as to the carriers. Upou the organization of the Trans-continental Association the roads joined in that organization assumed the obligations of the said contract with the Pacific Mail Steamship Company. In March, 1886, this contract was terminated by reason of the disorganization of the Trans-continental Association, since which time there has been unrestrained competition between the steamship company and the railroads, greatly to the detriment of both.

POOLS ARE PRODUCTIVE OF REASONABLE RATES AND BENEFICIAL.

The beneficial eifects of pooling contracts to the Central Pacific interest is demonstrable by our experience and records.

No contracts to pool the earnings from traffic to which your companies have been parties since my connection withtthem have permitted the charging of unreasonable rates. On the other hand, they effected the minimum of discrimination, secured stability and uniformity in rates, and were of mutual benefit to the public and the carrier.

I take it that a reasonable rate is one which will, without diminution of the profits to the carrier, permit and encourage the largest increase and development of traffic ; that it would be unreasonable on the part of any carrier to impose a charge for its service which would obstruct or dimmish remunerative traffic ; that it would be equally unreasonable to require a carrier to increase its traffic at the expense or diminution of profits. In other words, the law of supply and demand governs the carrying trade as it rules all other commerce, and a reasonable rate is what a writer on ''"The Natural Laws of Business " terms a " normal " rate, which he defines as "that point above which demand falls off so rapidly that profits diminish, and below which even a great increase of business would lessen them." The problem of railroad management is to make the nearest approximation to this " normal" rate. In my judgment this has been the constant aim and effort of the officers of your companies. Rates have constantly tended downwards, and that tendency will inevitably continue.

The pooling contracts referred to have not prevented nor interrupted the downward tendency of rates. They have simply regulated it by preventing a reckless competition which would have destroyed all profits. These pooling contracts have not destroyed competition. When they were in force each carrier party thereto continued in the field its soliciting and advertising agencies as active and earnest in the pursuit of business as though it had no guarantee of revenue from the pool. Each party had its own clientage, and was as jealous of the interests of that clientage as the shippers themselves could be. All tariffs required unanimous consent, and all rates and rules were uniform. The fact that these pools did not hinder the operation of the law of supply and demand on the traffic; did not destroy the competition between the carriers, and did not diminish the traffic, is sufficient proof that they did not permit the charging of unreasonable rates.

Again : It is seldom, if ever, that two or more carriers competing for the same traffic are equal in respect to physical characteristics of the line, terminal facilities, connections, or those features which determine preferences upon the part of the traveling or shipping public upon all the traffic pooled, and therefore their respective taking power differs. Those carriers having few advantages to offer in these respects cannot compete with others possessing numerous advantages upon equal terms ; hence their rates must be lower. The better lines will not suffer the loss of business by permitting lower rates to be made by others, except there is a mutual agreement fixing the relations of the rates by the various routes. The result is the see-saw process, the working of one line against the other by the shipper, which causes not only constantly varying rates by the different lines but also different rates to different individuals. The pooling contract produces uniformity in the rates by all lines or fixes the degree of difference in the rates by the several lines, and by so doing effectually prevents the discrimination between individuals which invariably results from independent action. This uniformity and unanimity of action in making tariffs prevents frequent changes and requires changes, when made, to be duly considered and simultaneously published and applied by all the carriers. It also requires a reasonable notice to the public, as each carrier, jealous of the interests of its own patrons, insists upon time and opportunity to acquaint its patrons with said changes, thus securing a stability in rates which shippers as a rule regard as of the greatest value.

" DISCRIMINATIONS " AND " DIFFERENTIALS."

" Differential" rates as commonly used by practical railroad men, are not and have not been in use on your line.

The general passenger agent and general freight agent, who are charged with tho details of the passenger and freight business, respectively, report that there are no unjust discriminations in the fares and freight charges of this company. I presume

LELAND STANFORD. 2575

it is understood that in transportation business discriminations areas necessary as in all other business; that is to say, different rates of charge are made for different chisscs of passengers, and for different classes and different quantities of freight. The rates of charge on the valley portions of the road are lower than on the mountain portion. The charges upon lines through comparatively thickly settled districts are lower than those made through sparsely settled and desert territory. Such discriminations, I believe, are recognized as necessary, legitimate, and judicious. Where competition is encountered, rates necessary to meet that competition are made. Where this competition is with water carriers, the charge is often lower for a longer than for a shorter and immediate service, but in no case is a lower charge made for a longer than for a shorter haul included in the longer except where competition- compels it. There are not and have not been any discriminations in fares or freight charges having for their object or effect the prosperity of one locality or community against another locality or community, or the promotion of the interests of one person or any number of persons against the interests of any other person or persons.

In this connection I beg leave to quote further from the report dated December 1, 1877, of the railroad commissioners to the legislature of California, namely :

" Some few complaints of inequality or unfairness of charges and of lack of proper attention to the public convenience in the classification of goods and the charges for freight have reached us. These have, in all cases, been first referred to the companies concerned for remedy or explanation, and, in every instance, so far, the complaints have been responded to as promptly as if we possessed legal authority to command their answer or enforce redress. Some of the complaints made to us proved to be w ithout foundation or made on a misapprehension of facts. In others, reasons for the course pursued have been adduced, not before known to the parties complaining."

DISCRIMINATION BETWEEN INDIVIDUALS.

1 ' No instance of the occurrence of this abuse has been brought to our notice. There are rumors of its existence, and it is even said that the sufferers by it fear to complain lest they be punished by further and ruinous discrimination. Whilst it is possible that there may be some foundation for these suggestions, it is also probable that the instances, if they exist, are of rare occurrence, and in most, if not in all, cases explainable by circumstances unknown to or insufficiently considered by the parties who have felt aggrieved."

Upon the subject of inflexible railroad rates the railroad commissioner of Michigan says (Report, 1883) :

It is certain that no rates can be made of universal application to all roads alike without working the grossest hardship and injustice. The consideration of cost of doing the business enters largely into the question of rates, while the condition of the road bed, gradients, and character of lino generally have so much influence in determining that cos't on each individual road, that it is not at all certain that the interests of the public and the corporations will not best be promoted by leaving the great principle of supply and demand to regulate the price of railroad transportation the same as it does that* of the commodities carried. If left to regulate itself as does the question of rates on the high seas, only restricted by such reasonable limitations to maximum charges as are incident to the fact that a railroad is a public use, and the company that operates it in its corporate capacity derives its franchises upon such conditions as the legislature may impose, I have no doubt that railroad tariffs would soon become as uniform and rates as low throughout the country as the cost of building and operating, coupled with the amount of tonnage to bo carried would justify commensurate with a fair return upon the capital invested ia the road.

So far as the productive industries in this State are concerned it can in truth bo said that as between production and transportation there is little, if any, friction, and that but for the fact of the question being a potent factor in politics we should hear no complaint from the consumers who after all pay all the freight charges on what is consumed.

STATE OF CALIFORNIA,

City and County of San Francisco, 88 :

J. C. Stubbs, being first duly sworn, saith that ho has read the foregoing statement consisting of the pages next preceding, marked Exhibit No. 7, and knows the contents thereof; that the facts therein stated are true, except as to those matters stated on his information or belief, and as to those ho believes it to be true.

J. C. STUBBS.

Subscribed and sworn to before me this 26th day of July, A. D. 1887. [SEAL.] E. B. RYAN,

Notary Public in and for eaid City and County.

2576 U. S. PACIFIC RAILWAY COMMISSION.

EXHIBIT No. 8. Statement of L. M. Clement, civil engineer, relative to cost of construction.*

SAN FRANCISCO, July 21, 1887. HOD.LELAND STANFORD,

President Central Pacific Railroad Company :

DEAR SIR : At the beginning of the construction, the company, knowing the political and commercial necessities demanding the rapid completion of the railroad, determined that nothing which was in their power to prevent should for a single day arrest its progress.

With this determination in view all energies were bent, fully realizing the physical obstacles and financial difficulties to be overcome.

The financial difficulties were not lessened by the opinions circulated to the effect that the obstacles were insurmountable ; that the railroads then constructed in Europe were as bagatelles compared with the difficulties to be met in constructing the Central Pacific Railroad, and failure was clearly written on the rocky sides of the canons and the\>old granite walls of the Sierra Nevada Mountains.

Not only was it impossible to construct a railroad across the Sierras via Dormer Pass, but owing to the great depth of snow, some years reaching an aggregate fall of nearly 50 feet, would be impracticable to operate, and if built must be closed to traffic in the winter months, which would have been the case had not the road been protected at great cost by snow sheds.

Against these utterances from men of railroad experience the company had to battle in financial circles, forcing them to show that they were not attempting an impossibility, though always realizing the great difficulties.

As soon as the company went into the American market for rail, for they were shut out from the other markets of the world by their charter, the prices raised 80 per cent., from $41.75 to $76.87 per ton, nearly three (3) times the price of steel rails two years ago.

It must not be forgotten in discussing these questions that the Central Pacific Railroad was begun a quarter of a century ago and has been completed over eighteen (18) years. We should consider the state of affairs, circumstances, and conditions then existing. The average price of American iron rail during the building of the road (no steel rail was then made and think none till the last year of its construction) was $91.70 per ton at the rolling mills.

This rail had to be transported to San Francisco via Cape Horn or the Isthmus of Panama, and lightered for transportation to Sacramento, Cal., the initial point of the Central Pacific Railroad.

Shipments via the Isthmus, as late as the year 18(58, cost for transportation alone on rail, $51.97 per ton, the rail costing, delivered at Sacramento, $143.67, not including charges for transfer from ships at San Francisco to the lighter, nor for transportation up the Sacramento River. Delays and losses of ships and IJieir cargo of railroad material via Cape Horn and unforeseen emergencies made it necessary to frequently use the Isthmus route, that there should be no detention in the progress of the railroad eastward.

During construction, by reason of high war risks, transportation rates advanced 275 per cent, per ton.

Via the Isthmus, for freight alone, there was paid as high as $8,100 for one locomotive.

On a shipment by the latter route of eighteen locomotives the transportation charges were $84,466.80, or $4.692.50 each.

For two engines, twenty-two years ago, there was paid $70,752 in the currency of the United States. This was an extreme case, but the power was absolutely necessary to supply materials needed for construction ; without these engines there would be delay.

The first ten engines purchased by the Central Pacific Railroad Company cost upwards of $191,000 ; the second ten upwards of $215,000.

The demand for power after the first 25 miles of road were constructed was great was great, as then were met the high mountain gradients.

The freight via Cape Horn to San Francisco only, on the first locomotive purchased by the company, was $2,282.25.

Not only was all the material for railroad construction commanding high prices, labor also shared in the advance in prices. California's laborers were mainly miners, accustomed to work in placer mines or not, as it suited them. Mining was more to their liking than the discipline of railroad work. They were indifferent, independent, and their labor high-priced, and to these difficulties the excitement of the .great Comstock lode was upon us, where any able-bodied man commanded $4 or more per diem.

* See answer to question No. 51.

LELAND STANFORD. 2577

Labor sufficient for the rapid construction of the Central Pacific Railroad was not then on the coast, and the labor as it existed could not be depended upon the first mining excitement meant a complete stampede of every man, and a consequent abandonment of all work. This labor question as well as others were serious ones. Each day brought up propositions which must be solved without delay ; the construction must advance.

As the snow line was reached the snow increased in depth toward the summit, from a few inches to over 15 eet on a level, from actual measurements. The ground was kept bare forthe graders by shoveling, upwards of one-half of the labor and, after storms, the entire grading force being expended in removing snow. Not only was it necessary to remove the snow to permit excavation, but the space to be occupied by the embankments was cleared and kept clear of snow, otherwise the melting of the snow under the broad bases of the high embankments would have caused serious settlements, which, on ascending gradients already of 105 or 116 feet per mile, would in cases increase the gradient beyond the tractive power of the engine. There was a limit to this snow shoveling as the altitude increased, and this limit was reached when it required an army of men to clear away and keep clear after each storm, for a small gang of laborers. As we neared the summit of the Sierras winter was again upon us, granite tunnels to bore, deep rock cuttings to make, and retaining walls to construct.

Rock cutting could not be carried on under snow drifts varying in depth from 20 to 100 feet. It was decided, no matter what the cost, that the remaining tunnels should be bored during the winter. To reach the faces of the tunnels the snow drifts were tunneled and through these snow tunnels all rock was removed. Retaining walls in the canons were built in domes excavated in the snow the wall stones raised or lowered to their places into the dome through a shaft in the snow.

All the force, numbering thousands, could not be worked in the tunnels and on the retaining walls. The surplus men with their tools, luggage, &c., were hauled beyond the summit, skipping the line now covered with deep snow, and active work begun in the canons of the Truckee River.

That no delay, even here, should result from the unfinished gap, 20 miles of rails with their fastenings, a locomotive, and cars sufficient for working, were, by oxen and horses, hauled over the summit and down into the canon of the Truckee River.

It was deemed important to reduce some of the work in the lower mountains crossed by the railroad in Utah, so that when the track reached those points there should be no delay. About one car-load of tools and material was wagoned from Wadsworth to the Promontory Mountains, at a cost of $5,400. Everything was expensive ; barley and oats ranged from, $200 to $280 per ton; hay $120. All other supplies in Utah in the same ratio. Along the Humboldt River much of the line was constructed during the winter. Earthy material that could ordinarily be excavated by the pick and shovel was frozen to such a depth as to require blasting. This frozen material made expensive embankments, requiring constant attention when the frost was leaving it, to maintain the roadway in a condition for the transportation of material to the front. As early as it was possible, in the beginning of the following year, to again attack the work in the heavy snow-belt region, the forces were returned to the granite cliffs and canons. This army of men shoveled off the snow to gain time ; miles of the line were thus made ready for the drill and powder $67,500 worth of powder in a single month being used, a sum sufficient to construct and equip 8 miles of ordinary railroad at the present day. During the winter months there was constant danger from avalanches, and many laborers lost their lives. Where it was possible to reach the threatening combs of great masses of compact snow leaning over, the granite bluffs they were removed by powder. To reach the overhanging snow required courage and determination, and the call for volunteers for this daring undertaking was always answered. When the forces were concentrated the progress in the solid granite ledges was slow but certain. The track was kept close up to the grading forces and never lagged when it was possible to provide track material, power, or rolling stock, either by steamships or sailing vessels.

For many days, owing to the hardness of the rock in the vicinity of Cisco, it seemed impossible to drill into it a sufficient depth for blasting purposes; shot after shot fired as if from a cannon. Perseverance alone conquered. That was before the powerful explosives were invented and many other improvements made for railroad construction purposes in the last twenty years. The company at the summit of the Sierras, Doniier Pass, manufactured nitro-giycerino, but it was too dangerous for general use. Transportation of material, tools, &c., was then an important factor in construction; there were then no such powerful engines as of the present day, which could haul two of the then most powerful ones and their loads ; no cars to carry 50,000 pounds of load.

All material for construction excepting timber, the greater portion of which came from the Sierra Nevadas and some from the coast counties of California and from Oregon, inus,t come from tfte Atlantic States, via. tlio Isthmus or Cape Horn to

2578 U. S. PACIFIC RAILWAY COMMISSION.

Francisco, there lightered for ascending the Sacramento River to Sacramento, and thence hauled over the Central Pacific so far as completed, and when needed wagoned beyond the end of the track. The trains returned empty no return loads ; there was not one inhabitant to 10 miles between the last crossing of the Truckeo River and Bear River in Utah.

With the exception of a few cords of stunted pine and juniper trees, all the fuel was 'hauled from the Sierra Nevada Mountains. Not a coal bed on the line of the Central was then known, and the only one yet discovered is a poor quality of brown lignite.

Water was scarce after leaving the Truckee and Humboldt Rivers, and during the entire construction was hauled for steam and general use of the grading forces.

Thousands of dollars without result were expended in well boring ; tunnels were bored into the mountains east of Wadsworthto develop small springs, and when water was found it was carefully protected and conveyed in some cases over 8 miles in pipes to the line of the road.

There was not a tree that would make a board on over 500 miles of the route, no satisfactory quality of building stone. The country afforded nothing entering into the construction of the superstructure of a railroad which could be made available. The maximum haul for ties was 600 miles, and of rails and other material and supplies, the entire length of the Central Pacific Railroad, or 740 miles.

Cars were transported on ship, in pieces, to San Francisco, and lightered for Sacramento, and there put together.

California had no means for manufacturing for railroads. Only fourteen years prior to the beginning of the construction of this railroad was any considerable emigration directed to this coast, either by wagon, requiring as many months as now days from the Missouri River, by sailing vessels via Cape Horn, a long and tedious voyage of months, or by steamship. Twenty-two days was a quick trip. It was a country new, and only known as a mining region. A quarter of a century has made great changes. Once the possibility of constructing a railroad across the mountain ranges and deserts proven and emigration started west, capital was less timid of the probable future of railroad enterprises, and means were furnished for constructing other transcontinental roads. By the aid of machinery, powerful explosives, and experience, railroads can now be constructed at comparatively light cost.

It is probable that had the road been constructed during the five years preceding it would not have cost more than 66 per cent, of what it actually did cost.

The principal elements material, transportation, and labor were very much cheaper. Rails averaged 51 per cent, less; transportation 63 percent, less. Every element, excepting labor, was a large percentage less.

If constructed five years subsequent, it would have cost about 75 per cent, of the actual cost. Had the whole time allowed for construction of the Central Pacific Railroad been used, it is not an easy problem to determine for how much less the road could have been built.

Advantage of the markets could then have been taken; contractors would have been willing to undertake the work if a reasonable time for completion were allowed, so that they would not be required to perform any of the work during the winter mo.nths where mercury freezes and in deep snows; in fact, all the advantages of seven additional years.

Respectfully, yours,

LEWIS M. CLEMENT.

STATE OF CALIFORNIA,

City and County of San Francisco, 88 :

L. M. Clement, being first duly sworn, saith : That he has read the foregoing statement, consisting of the pages next preceding, marked "Exhibit No. 8," and knows the contents thereof; that the facts therein stated are true, except as to those matters stated on his information or belief, and as to those he believes it to be true.

LEWIS M. CLEMENT.

Subscribed and sworn to before me, this 26th day of July, A. D. 1887. [SEAL. E. B. RYAN,

Notary Public in and for the City and County of San Francisco, State of California.

LELAND STANFORD. 2579

EXHIBIT No. 9. Statement of Wm.Hood, chief engineer, relative to cost of construction.*

SAN FRANCISCO, CAL., July 23, 1887. lion. LELAND STANFORD,

President Central Pacific Hailroad Company :

SIR: Referring to yonr letter of recent date in regard to the Central Pacific Railroad:

I was an assistant engineer on the road during the greater part of its construction, and have been chief engineer since October 10, 1883, and ain familiar with its construction and subsequent operation.

The entire road was completed in May, 1869, or about seven years sooner than was required to comply with the act of Congress under which it was built.

This early completion of the railroad was accomplished only in the face of obstacles of the most formidable nature and such as were perhaps unprecedented in railroad construction. The Sierra Nevadas have a snowfall on the higher portions aud a rainfall nearer their basis such as would seem incredible to those not acquainted with the facts; and these climatic features were enough to have caused the suspension of the work each winter had attention been paid to cheapness of construction or to any considerations except the completion of the road in the least possible time and in the most substantial manner practicable with the available materials. Below the snow line in the winter of 1865 and 1866 the roads were practically impassible for wagons ; aud the large construction force was supplied mostly by pack trains, employing large numbers of animals to transport supplies of all kinds to the required points on the work.

The winter of L866 and 1867 and the winter of 1867 and 1S68 were long remembered as having had a snowfall heavier than has since been known on the mountains, and it was during these seasons that the railroad was built above the snow belt and over the summit. The annual snowfall was about 40 feet, which gave as much as 18 feet of snow on a level near the summit of the railroad pass, and as late as March, 1867, the average level depth of snow in Summit Valley was between 15 and 16 feet. These depths of snow, with the frequent storms, made any work except in tunnels impracticable during the winters in the region of the summit, and it was decided to send the force not engaged on tunnel work to build railroad in advance in Truckee River Canon, where the less depth of snow rendered grading work possible. The supplying of this force in the Truckee Canon, by means of sleds over the summit through deep snows and blinding storms, was exceedingly expensive, as was also the transportation by the same means of track material for 40 miles of road so built in Truckee Canon aud 3 locomotives and 40 cars. In this way, by working tunnel force in winter and moving back the remainder to do the outside work in summer, the sumrait worfc was finished, an incidental expense being the moving of from 10 to 12 feet of packed show from the sites of the cuts and banks before grading could begin in the spring. When the road over the summit to Truckee was done, the rapid progress across the deserts began.

About 3,000 men were sent a distance of 300 miles in advance of the track to Palisade Canon, and supplied by teams over the deserts, the haul without water being as much as 40 miles in places, and the remaining force Drought up the work in advance of the track. Ties were hauled from the Sierra Nevadas hundreds of miles into the deserts. Rails for the rapid progress were brought by sail around Cape Horn, and when any delay was possible through non-arrival of ships, track material was sent at heavy expense by the quicker route via the Isthmus of Panama and steamers. In the winter of 1868 and 1869 the weather was most severe, and the earth was often frozen so deeply that it was blasted and handled as if rock, at considerable expense.

During the entire construction of this railroad all supplies were very high-priced. Rails were nearly three times as expensive as they were a few years afterwards, and freights via Cape Horn were high ; and after reaching San Francisco all track material had to be rehaudled and sent up the river to Sacramento before it could be loaded on the cars for the front. Tne same was true of all the rolling stock. With all these causes of extra expense to increase cost of buildiug the road, it is my opinion that with more time spent in building, with entirely legitimate reduction of force in winter and in general with ordinary speed of construction, the entire road could have been built for fully 75 per cent, less than its actual cost ; but in that case it would not have been open for traffic for a long time after its actual date of completion.

The road was finished to Newcastle at less speed than afterward ruled. From Newcastle to Wadsworth was built between February, 1865, and July, 1868, with a

force averaging fully 11,000 men and more than three years' time was required for this 157 miles. From Wadsworth to Ogden was built between July, 1868, and May, 1869, with a force avera^ " only to build this 555 mi

1869, with aforce averaging 5,000 men, and between nine and ten months were required >5 miles. The work of buildiug from Wadsworth to Ogden is about

* See answer to question No. 51.

2580 U. S. PACIFIC RAILWAY COMMISSION.

comparable 011 an average to tliat from Ogden to Omaha ; and the work of building the Central Pacific Railroad from Newcastle to Wads worth, only 157 miles, would have easily built the entire road far east of Omaha, had this 157 miles been of the same average cost as the road from Wadsworth to Omaha. Respectfully submitted.

WILLIAM HOOD.

STATE OF CALIFORNIA,

City and County of San Francisco, 88 :

William Hood, being duly sworn, says he has read the foregoing statement ; that the matters and things are true of his own knowledge except as to matters on his information and belief, and as to those he believes them to be true.

WM. HOOD.

Subscribed and sworn to before me this 25th day of July, A. D. 1887. [SEAL.l E. B. RYAN,

Notary Public in and for said City and County.

EXHIBIT No. 10. Statement of J. H. Strobridge, superintendent of construction, relative

to the cost of construction.*

SAN FRANCISCO, CAL., July 23, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Company :

SIR : Referring to your letter of recent date, in regard to the construction of the Central Pacific Railroad, I was superintendent of construction during the building of the road. The work was pushed with the utmost vigor ; all the men were hired that could be found, and no eifort or expense was spared to complete the road as quickly as possible. Inthiswayit was finished and in operation from Sacramento, Cal., to Ogdeii, Utah, about seven years sooner than was required by act of Congress. During construction very high prices were paid for powder and all tools and supplies used on the work, and nothing was spared that would hasten its completion, and the work was pushed regardless of the season. The winter of 1865 and I860 was a very wet one, making the roads on the clay soils of the foot-hills nearly impassable for vehicles. Large numbers of pack animals had to be brought into use, and on them were carried nearly all supplies, even hay and grain, over steep mountain trails, to the construction camps. As illustrating the irnpassability of the roads, the stage running from end of track to Virginia City was stuck in the mud and left standing in the street at Gold Run for six weeks, the passengers being carried in the meantime by saddle train from the railroad at Colfax to Dutch Flat. The building of the railroad during thin time was prosecuted with energy but at much greater cost than would have been the case in the dry season. During the winter of 1866 and 1867 and the following winter of 1867 and 1868 there were unusually heavy snowfalls in the upper Sierra Nevadas, where the road was then under construction. The tunnels were got under way with as large a force as could be used on them, and the remainder of the force was sent to the Truckee Canon on the east slope of the Sierras, where the snowfall was not so great as to entirely prevent grading during the winter, the total force being about 13,500 men at this time. The snows were so deep that it was impossible to keep the tunnel approaches clear, and we were compelled to make tunnels through the snow from the dump to the tunnel entrances. Snow tunnels were also required to get into camp. In many instances our camps were carried away by snowslides, and men were buried and many of them were not found until the snow melted the next summer. In the spring of each year the men were taken back from the Truckee into the mountains and an average depth of 10 or 12 feet of snow was cleared away before grading could be commenced.

The total snowfall of the season was about 40 feet, and the depth of hard, settled snow in midwinter was 18 feet on a level in Summit Valley and Donner Pass, over which we hauled on sleds track material for 40 miles of railroad, 3 locomotives, and 40 cars from Cisco to Donner Lake, where all was reloaded on wagons and hauled over miry roads to Truckee, a total distance of 28 miles, at enormous cost. In this way the road was forced to the east slope of the Sierra Nevadas. In crossing the deserts eastward from the Truckee River, water for men and animals was hauled at times 40 miles. It was necessary to have the heavy work in Palisade Canon done in advance of the main force, and 3,000 men with 4oO horses and carts were sent to that point, a distance of 300 miles, in advance of the track. Hay, grain, and all supplies for the

* See answer to question No, 51,

LELAND STANFORD. 2581

men and horses had to be hauled by teams over the deserts for that great distance, there being no supplies to bo obtained on the entire route. The winter of 1808 and 1809 was one of severe cold. The construction was in progress in the upper Humboldt Valley, where the ground was often frozen to a depth of 2 and 3 feet, and material required blasting and treatment like rock, which could have been cheaply moved in a more favorable time. The entire cost of the railroad, had it been built with less speed and as such railroads are usually constructed, would have been fully 70 per cent. less than its actual cost, as it was built with rapidity of construction, and without regard to any outlay that could hasten its completion. The railroad from Newcastle on the west slope of the Sierras to Wadsworth at the beginning of the Nevada deserts, 157 miles, was built between February, 1865, and July, 1868, more than three years, with a force averaging 11, COO men.

The railroad from Wadsworth to Ogden, about 555 miles, was built between Julj r , 1868, and May, 1869, about ten months, with a force averaging 5,000 men. If the country between Newcastle and Wadsworth had been of the same average difficulty as that between Wadsworth and Ogden and between Ogden and Omaha, the labor that was out upon the Central Pacific Railroad would have built it to a point far to the eastward of Omaha in the same time, the work from the east slope of the Sierra No'vadas to Ogden being more than an average of that from Ogden to Omaha. Very respectfully,

J. H. STROBRIDGE.

STATE OF CALIFORNIA,

City and County of San Francisco, ss :

J. H. Strobridge, being duly sworn, says he has read the foregoing statement ; that the matters and things therein stated are true of his own knowledge, except as to matters on his information and belief, and as to those he believes them to be true.

J. H. STROBRIDGE.

Subscribed and sworn to before me this 25th day of July, A. D. 1887. [SEAL.] E. B. RYAN,

Notary Public in and for said City and County.

EXHIBIT No. 11. Statement of Arthur Brown, superintendent of bridges and buildings, relative to cost of construction.*

WEST OAKLAND, CAL., July 25, 1887. Hon. LELAND STANFORD,

President Central Pacific Railroad Company :

DEAR SIR : In reply to your letter of the 23d inst., I herewith submit a brief outline of the construction of the snow sheds over the Sierra Nevada Mountains, on the line of the Central Pacific Railroad, as well as the conditions which made them a necessity.

As superintendent of bridges and buildings the work of constructing those sheds was assigned to myself. The excessive snow belt where the road crosses the Sierra Nevada Mountains, extends from a point near Blue Canon, on the western slope, to Cold Stream Canon on the east, a distance of about 40 miles, having its maximum depth near the summit. The snowfall for the season has been known from actual measurement to be nearly 50 feet.

In the fall of 1866 the road was opened to Cisco. The experience in keeping the road open through the following winter led to the construction of the snow sheds. Although every known appliance was used to keep the road clear from snow that winter, including the largest and best snow plows then known, it was found impossible to keep it open over half the time, and that mostly by the means of men and shovels, which required an army of men on hand all the time at great expense.

It became evident from our experience then that the snow problem had become serious, and it was decided, after various discussions on the subject by the directors of the company, that the only positive means of protecting the road was by snow sheds and galleries, although the expense of building a shed nearly 40 miles in length was almost appalling and unprecedented in railroad construction, yet there seemed to be no alternative but build the sheds. I was therefore instructed to make preparations and plans for such sheds as was deemed best, from our limited experience at that time.

In the summer of 1867 we built some experimental sheds, which we had to modify considerably. The snow-shed building in the spring of 1868 was commenced in ear *See answer to question No. 51.

2582 U. S. PACIFIC RAILWAY COMMISSION.

nest. Owing to the short season in which the work had to bo done (less than live months) it was decided to cover all the cuts and the points where the roads crossed the great avalanches beyond the summit, with the idea that the high embankments on the road could be kept clear of snow.

As the road was then rapidly progressing up the valley of the Humboldt it became a matter of the most vital importance that the sheds should be so far finished that the supplies and building materials for construction ahead should not bo interrupted, as the -connection was to be made in the spring of 1869. We therefore had to gather men from all quarters and pay high wages carpenters $4 per day, and suitable laborers about $2.50 to $3. We employed about '2,500 men, with six trains with locomotives distributing material.

The expense was considerably increased by the fact that we had to keep the road clear for the traffic, which was great, owing to the large amount of building material forwarded to the front, and to avoid accident, which consumed about 30 per cent, of the time, consequently increasing the cost in that proportion, besides, we had, by commencing early in the spring, to shovel from 6 to 8 feet of snow before we could put in foundations foi 4 sheds.

In the fall we continued until the snow stopped us entirely, although we had been shoveling snow for nearly two months. The expense from the amount of snow that had to be shoveled, spring and fall, and the difficulty of getting men at reasonable wages to remain on the work owing to snow, bad weather, &c., added very much to the cost. As there were not enough saw-mills to supply the necessary material, we had to resort to round and hewn timber, which had to be got from the woods and brought to the track at a great expense, as suitable men for that purpose were very scarce.

The galleries are built along the side of the mountains, where the slope of the roof conforms with that of the mountain, so' the snow can pass over easily. Some of thoso galleries run back on the slope of the mountain several hundred feet from the center line of the road. In other places massive masonry walls were built across ravines to prevent the snow from striking the sheds at right angles. The snow sheds and galleries were finished in the fall of 1869. In them was used 65,000,000 feet, B. M., of timber, and 900 tons of bolts and spikes, &c. The total length of sheds and galleries when finished was about 37 miles, at a cost of over $2,000,000.

For several years the loss from fires was considerable, as several miles were burned down and had TO be rebuilt, and at the present time water trains are constantly kept on hand for sprinkling down the sheds twice a week, thus preventing their destruction by fire. A number of the tunnels through the same mountains had to be timbered at a great expense, as most of it had to be got out in the winter time, and, as it was impossible to keep the roads open, we had to employ men and bring timber to the tunnels on hand sleds.

I am quite familiar with the extraordinary exertions put forth in all departments of this work, as I was constantly on the ground during all this construction, and especially the almost superhuman effort put forth by Mr. J. H. Strobridge. superintendent of construction, in keeping the men at work on the rock work and tunnels, and shoveling snow at great depth during the fall and winter, and contending against mud and snow in getting supplies to the ground at great expense.

I consider, from my experience, that if time could have been spared to take advantage of the proper seasons, it could probably be duplicated now for less than 40 per cent, of its original cost. Very respectfully,

ARTHUR BROWN, Supt. B. and B. Dcpt.

STATE OF CALIFORNIA,

City and County of San Francisco, ss :

Arthur Brown, being first duly sworn, deposes and saith : That he has read the foregoing statement, and knows the contents thereof ; that the same is true, except as to matters there in stated on his information or belief, and as to those he believes it to be true.

ARTHUR BROWN.

Subscribed and sworn to before me this 26th day of July, A. D. 1887.

[SEAL OF NOTARY.] E. B. RYAN,

Notary Public in and for said City and County.

LELANB STANFORD. 2583

EXHIBIT No. 11. Statement showing from official records the saving to the United Statesin transportation of mails, troops, munitions of war, supplies, <fc., by the construction of the Central Union Pacific Railroad.*

(By E. H. Miller, jr., secretary. )

The act of Congress authorizing an investigation of the books, accounts, and methods of railroads which have received aid from the United States (in bonds), and for other purposes, approved March 3, 1887, requires, among other information, the following :

The average cost per annum of Government transportation in the region now traversed by the Pacific railroads between the year 1850 and the completion of said roads, and also the average cost per annum since such completion, and what additional facilities have been furnished to the Government and the people by said roads.

Also, to inquire whether or not the Pacific Railroad was completed in less time than was allowed by .the law, and, if so, how much less time, and if the United States was benefited thereby.

It is for the purpose of furnishing this information that the figures and facts stated in the following pages have been collated. All the statements made are taken from official sources, and reference in each case is made to the authority. Inquiry is made :

(1) As to the rates and cost of Government transportation prior to the construction of the railroad, the rates and cost of service after its completion, and the difference, being the saving in transportation charges resulting from the operation of the road to the present time. This inquiry includes a comparison of the facilities furnished the Government and the people before and after the construction of the road, and furnishes the figures upon which the statements made in the subsequent inquiries are based.

(2) As to the benefit to the Government resulting from the construction of the road in less time than was allowed by the law.

(3) Inquiry is made as to the debt and interest at maturity of the bonds, less the amounts applied as a credit thereon by transportation services and cash payments under the existing laws, and the saving by the United States in transportation services to the same time.

A comparison of the charges for transportation prior and subsequent to the construction of the road can best be obtained by separating the subject of inquiry into the headings of freight transportation, including supplies, munitions of war, &c., passengers and troops, and transportation of United States mails, summarizing these headings in conclusion.

UNITED STATES FREIGHT.

The greatest item of saving to the Government was in Army transportation. The cost of this at former rates' was an item in the expense of the Army causing frequent comment ; and one of the chief causes which led the Government to grant the loan of subsidy bonds was that this expenditure might be reduced. In arriving at a comparison between these charges before and after the completion of the road, it has been lound that more accurate results can be attained by considering separately the charges on freight from these on passengers and troops. The following Trefers to freight traffic:

ARMY TRANSPORTATION PRIOR TO RAILROAD.

Prior to the construction of the road supplies for the posts on the plains and in the mountains were regularly carried by wagons. Contracts for this service were made by routes, and abstracts of these contracts have been stated from time to time in the reports of the Quartermaster-General. Most of the data for the following rates is taken from these reports. The Army first seems to have availed itself of the road in 18o7. From that time the services rendered by the road became greater year by year as the line was constructed from each end ; and as the roads were extended the wagon routes were shortened and finally abandoned. A general idea of the former condition of affairs, the routes and rates, may be gained from the following references:

WAR DEPARTMENT REPORTS AS TO RATES.

The Quartermaster-General of the Army, in his report to the Secretary of War for 1867, says:

" The Department has, during the fiscal year, for the first time been able to avail itself of the Union Pacific Railroad in forwarding its supplies to posts on the plains west of the Missouri River. At the close of the fiscal year the Omaha Branch of this

* This exhibit refers to questions Nos. 47, 48, 49, and 52.

2584 U. S. PACIFIC RAILWAY COMMISSION.

road transported the military store* as far as Fort Sedgwick, the branch from Kansas City as far as Fort Harker, thus saving in the former case 398 miles, in the latter 215 miles, of wagon transportation. After inviting, by public advertisement, proposals for the transportation of military stores by wagon transportation on the Western frontier, the usual annual contracts were awarded as follows : April 4, on route No. 1, from the Omaha Branch of the Union Pacific Railroad and certain other named points to posts and depots in Nebraska, west of longitude 102; in Montana, south of latitude 46; in Dakota, west of longitude 104 ; in Idaho, south of latitude 44 and east of longitude 114 ; and in the Territories of Utah and Colorado, north of latitude 40, to Wells, Fargo & Co., at the following rates: From April 1 to August 81, 1807, inclusive, at $1.64 per 100 pounds per 100 miles; from September 1 to December 31,

1867. inclusive, at $1.99 per 100 pounds per 100 miles; and from January 1 to March 31, 1868, inclusive, at $2.50 per 100 pounds per 100 miles." (Report Secretary of War, 18b7-'68, vol.1, p. 533.)

Again, Quartermaster- General Dana, in his report dated October 10, 1868, of the rates paid for transportation on tho plains, says :

" The field for the operation of wagon transportation lies almost exclusively beyond the Mississippi River. Supplies are conveyed to various posts on the plains by this means in connection with the Pacific railroads. The principal routes are as follows, and contracts for the transportation of supplies, &c., on these routes, entered into for the year ending March 31, 1869, are now in force:

11 Route No. 1. From Fort D. A. Russell, D. T., or such other posts as may be determined upon during the year, on the Omaha Branch of the Union Pacific Railroad west of Fort D. A. Russell, or at Fort Laramie, D. T., to posts in the State of Nebraska, Territories of Montana and Idaho, that part of the Territory of Dakota west of the Missouri River and the northern part of Colorado.

" The contractors on this route are Samuel Black, Richard Kitchen and William A. Martin, all of the city of Leavenworth, Kansas, composing the firm of Black, Kitchen & Martin. The following are the rates per 100 pounds per 100 miles, viz : For April,

1868, $1.90; May, 1868, $1.75 ; June, July, and August, 1868, $1.60; for September and October, 1868, $1.75; for November, 1868, $1.90; for December, 1868, $2; for January and February, 1869, $2.50; and for March, 1869, $3; and, on an average, are for the. entire year the same as for the year previous." (Report Secretary of War, 1868, part 1, p. 829.)

The next year the Quartermaster-General reports :

" The completion of the Pacific railroads has diminished the quantity and cost of wagon and stage transportation, some of the important posts and depots being upon the line of railroad. The posts north and south are supplied by wagon routes extending into the wilderness. Tho extension of the Pacific Railroad has occupied the route No. 1, which has been supplied for many years by wagon transports, aud 110 contract has been made on this route for the year ending March 31, 1870." (Report Secretary of War, 1869-70, vol. 1, p. 213.)

HIGH FREIGHT RATES. PRIOR TO RAILROAD.

These statements show the rates in force from the commencement of the Pacific Railroad to its completion on the wagon route which was replaced by the railroad. The highest rate given is $3 per 100 pounds per 100 miles, equal to 60 cents per ton per mile ; and the 'lowest rate is $1.60 per 100 pounds per 100 miles, or 32 cents per ton per mile, the difference in the rate depending chieliy on the difference in the seasons, the lowest rates being in the summer and the highest in the winter or early spring. The rates stated are about those in force for year after year just prior to the completion of the road on the plains between the Missouri River and the Rocky Mountains. But west of the Rocky Mountains, between the Great Salt Lake and the Pacific Ocean, a greater cost was required for the service.

HIGHER RATES WEST OF SALT LAKE.

Of the rates on this Pacific coast teaming it is difficult to get any fair estimate, as the transportation was chiefly performed by Government teams. QuartermasterGeneral Meigs (Report Secretary of War, 1866-'67, p. 58), in October, 1866, says:

" There are some very costly routes in the military Division of the Pacific west of the Rocky Mountains and in Arizona, by which supplies are transported from the Pacific coast. Most of this work is done by United States trains, and its actual cost is not reported. The expenses of the troops on that coast, in consequence of the difficulty and cost of transportation, are very heavy."

LOWEST RATE TAKEN FOR THESE CALCULATIONS.

If then, in making an estimate of the saving to the Government in transportation by the construction of the Pacific railroads, we take as an average for the rate for

LELAND STANFORD.

2585

inerly paid by the United States the lowest of those given, we shall certainly err, if at all, on the side of the Government. The actual average must of course be somewhat higher than the lowest rate; but, on the other hand, it is to be remembered that the greater amount of transportation was performed at the summer or low rates, and a comparatively small amount at the higher or winter and spring rates. We will use then, as au average wagon rate, the lowest named above, $1.60 per 100 pounds per ICO miles, or 32 cents per ton per mile.

The wagon rates on routes remaining in operation on either side of the Pacific Railroad after its completion were reduced somewhat, compared to the wagon rates in force formerly, but that reduction was the result doubtless of the settlement and increased security of the country from Indian depredations consequent upon the construction of the railroad. This reduction is an additional saving in money to the Government by the construction of the road, which is not shown in the following calculation, as it is not possible to make an estimate of its amount which would be satisfactory.

The average rate of freight charged the Government by the Pacific railroads has not been ascertained for each of the years under consideration, but the average rate charged on all freight carried, including Government and commercial, is shown in the following table:

FREIGHT RATES ON CENTRAL AND UNION PACIFIC RAILROADS.

Average rate per ton per mile charged on all freight transported the several years shoivn.

...

RATES CHARGED UNITED STATES.

By the Pacific railroad act of 1862 it is provided (sec. 6) that the railroad companies shall at all times, whenever required to do so, transport mails, troops, munitions of war, supplies, and public stores for the Government " at fair and reasonable rates of compensation, not to exceed the rates paid by private parties for the same kind of service." (12 Stat., 489.) From this it would seem that the average rate charged by the Pacific railroads on all traffic would be a fair one to apply as an average on the traffic for the United States. This view seems also to be corroborated by the QuartermasterGeneral of the Army. In his report to the Secretary of War, dated September 30, 1884 (Rep. Sec'y of War, 1884-'85, p. 444), he states, in reply to charges, that lower rates for army transportation on railroads might be secured by special contracts, instead of accepting the regular rates ; that a thorough investigation of the subjectmatter had been made, and the result shown was that, " as a matter of fact, the Quartermaster's Department secures as low, if not lower, rates of transportation than tiny other shipper, and as an evidence thereof attention is invited to the comparatively small expenditure of money involved in the large movements incident to the exchanges of stations of regiments hereinafter referred to." An important consideration, however, prevents our accepting the average rate on all traffic as an average rate on United States traffic, namely, the different character of the freight. On wagon transportation there is but one rate on all classes of freight, so that is the average for all. But with railroads different classes take different rates, and the average is reduced by the large shipments in car-loads of commodities carried at the lowest rates, as, for instance, lumber, coal, grain, &c. The Government freight has not as large a proportion of these low classes as is the case with commercial freight. As a result, the average rate on the Government freight is somewhat higher than the average for all. For a portion of the period under review we have actual figures for Government rates, which prove to be in accord with the above expectation. The Union Pacific Railroad Company, for the three years from 1872 to 1874 inclusive, has figured out the exact rates charged on the transportation of Government freight. This shows the average rate per ton per mile to be : For 1872, 3.G8 cents ; for 1873, 3.20 cents; for 1874, 3.13 cents. (Annual Reports, Union Pacific R. R., 1873-74.) These

2586

U. S. PACIFIC RAILWAY COMMISSION.

show the average for the Government freight to be .371 per cent, in excess of the average on all traffic of the railroad. Applying this percentage throughout the period shown, we have finally a very close approximation to the average rate for Government freight for each year.

The application of the foregoing data gives the result shown in the following tables:

Stalement showing charges to United States Government for transportation of freight, and the cost of the same service at rates paid before the construction of the railroads. ...It will be noticed that the tables include the years from 1870 to 1885, inclusive. The line was opened through May 10, 186y, and prior to this date, as extensions were made

LELAND STANFORD. 2587

from the Missouri and Sacramento Rivers towards the center of the continent, the Government availed itself of such extensions and profited by their use. To bring the statement down to date, the year 1886 should also be added to the table. The proper statistics, however, for the periods prior to 1870 and for 1886 are not now at band, so that for that time the statements fail to express the benefit to the Government. There was a considerable amount saved by the use of the roads as they were extended from point to point, and a further amount for the use of the line after its completion thus omitted from the table. This should be taken into consideration in any mental estimate which may be made of the case. With the exception of these omissions, the tables show the following result :

Saving to United States in freight charges.

Transportation charges on Central Union Pacific line for United States

supplies, munitions of war, &c. , to January 1, 1886 $5, 740, 753

Same service would have cost at rates prior to railroad 61, 161, 307

Saving to Government in transportation charges on freight for period 55, 420, 554

SAVING ESTIMATED BY UNITED STATES ENGINEER.

The result arrived at from the foregoing review of the items in detail receives complete corroboration in sn estimate made by probably the most thoroughly informed of official authorities, and by profession and experience perhaps one of the best fitted to form an intelligent and impartial opinion on the subject. By instructions from General Sherman, a history of the Pacific railroads, in their relation to the Army, was prepared by Col. O. M. Poe, U. S. Engineers, and printed in the last report made by General Sherman as General of the Army. (Report 1883, p. 213 et seq.)

After a careful consideration of the question of a saving to the United States in the Army transportation by the construction of the railroads, Colonel Poe concludes as follows :

" Taking the route from Fort Leavenworth to Fort Union for example, the average cost by wagon per 100 pounds per 100 miles for the sixteen years from 1855 to 1870, both inclusive, was $1.77, whilst by rail it is now less than a tenth of that amount. This represents the relative cost of wagon and railway transportation, bearing in mind that any variation is always such as to show more strongly the advantage of railway transportation. In some cases transportation by wagon is twenty times more costly than by railway."

It will be noticed that the charges for freight transportation to the United States by the railroads shown in the above table is about 9| per cent, of the cost at the rates formerly paid. This is the result shown from the carefully detailed figures. Colonel Poe's estimate, after a thorough review of the subject, but without going into the same summary of details, is that the relative cost of the railway and wagon transportation is as one to ten. The uniformity of these results is additional evidence of the fairness of the foregoing conclusions, if any further evidence than the facts already presented were needed.

UNITED STATES TROOPS AND PASSENGERS.

The cost to the United States for the transportation of troops before the completion of the Pacific Railroad, compared with the cost after completion, is more difficult to ascertain than in the case of freight. Before the road was built troops were in a few cases carried by stages, but commonly were marched, a journey which is now accomplished in a few days then requiring as many months. The cost of marching troops in this way through a country with few inhabitants save hostile Indians, and with no supplies obtainable save those brought from long dis ances, must of necessity have been very great. Some idea of the differences between the old order of affairs and the new may be gained from the following facts :

COST OF MILITARY TRANSPORTATION PRIOR TO RAILROAD.

Quartermaster-General Meigs, in his report dated November 8, 1865 (Report Secretary of War, 1865-'66, Vol. I, p. 113), commenting on the cost of transportation over the plains, shows that a bushel of corn cost $2.79 at Fort Riley, $9.44 at Fort Union, $5.03 at Fort Kearney, $9.26 at Fort Laramie, $10.05 at Denver, and $17 at Salt Lake City.

He then states that the cost of transportation for military stores westward across the plains by contract during the fiscal year ending June 30. 1865, amounted to $6,388,856.37.

P R VOL IV 17

2588 U. S. PACIFIC RAILWAY COMMISSION.

" This expenditure [the Quartermaster-General continues] would be reduced by the opening of railroads by a sum which would aid materially in paying interest upon the cost of their construction."

At the same time the cost of transportation of a pound of corn, hay, clothing, subsistence, lumber, or any other necessary of the troops from the base of supply at Fort Leavenworth was as follows : To Fort Riley, per p'ound, 2AQ cents; to Fort Union, per pound, 14.35 cents; to Fort Kearney, per pound, 6.44 cents ; to Fort Laramie, per pound, 14.10 cents; to Denver, Colo., per pound, 15.43 cents ; to Salt Lake City, per pound, 27.84 cents. (Ibid., p. 113.)

Supplies in those days had to be carried with the troops ; they could not be obtained' on the line of march. The maintenance of marching bodies of men was thus greatly increased as they continued westward. The settlement and development of the West, consequent upon the completion of the railroad, gradually enabled the Army to purchase its supplies near at hand at a cost in which transportation bore

The troops maintained on the plains were mostly cavalry, as this arm of the service was much better adapted for following bands of marauding Indians and moving from place to place in the protection of immigrant trains and isolated settlements. The cost of forage for the horses was thus a necessary part of the expense of the transportation of the troops. The Quartermaster-General, in his report for 1866 (p. 302), states on this subject that, " The supply of the posts on the plains with forage has always imposed a heavy financial burden upon this department. The Missouri River has for years marked the limit of the cereal-producing region of the West, and grain transported from that point when it reached the garrisons stationed near the Rocky Mountains had reached an enormous price ; the cost of foraging one horse equaled the cost of feeding a dozen animals in the States."

UNITED STATES WAGON TRAINS.

It has appeared above that the regular movement of supplies between posts was affected by contractors. But all the transportation was not done by contract. It was necessary for the Army to maintain a large number of trains, with their accompanying wagons, mules and horses, teamsters, blacksmiths, and mechanics. The Quartermaster-General tells us that tf trains must be kept up at the principal posts to meet emergencies and to accompany marching bodies of troops." (Report 1866, p. 57. ) The expense of these wagon trains"forms a part of the cost of transportation of troops as performed before they were transported by railroad. The construction of the railroad canceled this item of expense for the territory covered by it.

SAVING IN SUPPLIES FOR THE ARMY.

Another item of economy to the United States in the cost of supplies for troops, caused by the building of the Pacific Railroad, is mentioned by the Commissary- General of Subsistence in his report for 1867. ( Report Secretary of War, 1867-'68, Vol. I, p. 576.) Before the era of railroad transportation the supplies for military posts on the plains had to be carried in the summer months, when the roads were to be depended on ; and a supply sufficient for all possible wants for the coming year was laid in at that time. Many of the supplies were of a nature that deteriorated or were destroyed altogether by storage for so long a time, and much was stored in many cases in excess of what was found to be the subsequent need, and was therefore wasted, as it could not be kept for another season. In 1867 the Commissary-General says: tf The completed sections of the Pacific railroads already afford such facilities for reaching several of the occupied posts as to make it unnecessary to place and keep thereat such large quantities of stores as were requisite when they could be supplied only by train of wagons dispatched at special seasons."

GENERAL GRANT'S VIEWS.

The expense of maintaining troops on the plains and the great cost of their transportation was a subject of constant comment by officers of the Army. Every effort was made and every plan tried to reduce the expense within reasonable limits. But until the advent of the locomotive all efforts were of little effect. General Grant, Acting Secretary of War in 1867, says :

u During the last summer and summer before I caused inspections to be made of the various routes of travel and supply through the territory between the Missouri River and the Pacific coast, The cost of maintaining troops in that section was so enor

LELAND STANFORD.

2589

nions that I desired if possible to reduce it. This I have been enabled to do to some extent from the information obtained by these inspections; but for the present the military establishment between the lines designated must be maintained at a great cost per man. The completion of the railroads to the Pacific will materially reduce this cost, as well as the number of men to be kept there. The completion of these roads will also go far toward a permanent settlement of our Indian difficulties. There is good reason to hope that negotiations now going on with the hostile tribes of Indians will result, if not in permanent peace, at least a suspension of hostilities until the railroads are pushed through that portion of the Indian territory where they are giving the most trouble." (Rep. Secy, of War, 1867-'68, Vol. I, p. 3.)

RELATIVE SAVING IN TRANSPORTING TROOPS GREATER THAN WITH FREIGHT.

From the foregoing facts it is clear that the cost to the United States in the movement of troops by marching or by stages, before the construction of the railroad, bore a greater proportion to the cost of their transportation after its construction than the transportation of freight before the railroad bore to its cost afterwards. Probably a greater part of the expense of marching troops in former times was the cost of carrying forage and rations. But in addition to the transportation of these supplies there was the original cost of the supplies, or that part of them consumed during the excess of time taken to march troops over the time taken to move them by rail; and there was also 1he whole pay and expense of maintaining them for the same excess of time. The average movement by rail may be taken at about 20 miles an hour, or say 500 miles a day. Troops would not march for many consecutive days at a greater average rate than 20 miles a day, or about 500 miles a month. But suppose they doubled this rate and marched 40 miles a day, the ratio of time would be still 500 to 40, or over twelve to one. The saving to the Government in favor of the railroad as compared to wagons has been shown above to be as about one to ten.* 1

Thus the saving in passenger transportation by the construction of the railroad, considered in any light, is in as great or greater ratio than in the case of freight. Applying then, as an estimate, the same proportion of cost for the movement of troops as we have shown existed in the transportation of freight, the result is as appears in the following table.

Statement shoiving charges to United States Government for transportation of troops and passengers, and the cost of same service at rates paid before the construction of the railroads.

...



The result shown is that the United States has saved in the transportation of passengers and troops by the construction of the Pacific Railroad, up to the end of 1885, the sum of $44,562,914 forty-four and a half million dollars.

*General Sherman says: ''These roads enable us to send soldiers to threatened points at the rato of 500 miles a day, tlms overcoming the space in one day which used to require a full month of painful marching." (Report 1883, p. 46.)

2590 U. S. PACIFIC EAILWAY COMMISSION.

FREIGHT AND PASSENGERS.

The foregoing statements show the saving to the Government in transportation charges by the construction of the Pacific Railroad, from the commencement to January 1, 1886, to be in round sums :

On freight $55,500,000

On troops and passengers 44,500,000

Total freight and passengers 100,000,000

In these statements it has been assumed that an equal amount of traffic would have been carried by wagons, or troops to an equal number would have been marched, had not the railroad been built. The basis of the calculation is the service which has been performed by the railroad since its completion, and the charge for this service is compared with what the same service would have cost at former rates. It is uot, however, a fair assumption that the same service has since been rendered for the Army as would have been necessary had not the road been built. The transportation formerly necessary was much greater since the construction of the road.

ENDING OF INDIAN WARS.

The Indian wars have been practically ended, thus precluding the necessity of the frequent movement of troops on the plains from place to place to protect the scattered settlements and follow marauding bands of hostile Indians. As the Indians have fled into the British possessions on the north and into Mexico on the south, or have been placed on reservations, the military posts have been abandoned and the troops have been concentrated at general points, from which they can be rapidly sent to any place required. Their supplies, which formerly were hauled long distances in teams, are now procured near at hand at a price in which transportation forms, at most, an unimportant factor.

INDIAN WARS FORMER COST.

The movement of troops and the teaming of supplies and munitions of war have thus been greatly lessened by the building of the road, and the actual saving in this respect would be more closely shown by deducting from the amounts formerly paid for services on the plains the amount subse'quently charged by the railroad. The amounts formerly paid varied greatly, as Indians were hostile or friendly at many or few points, and the actual cost for the country contiguous to the Pacific Railroad is not now wholly obtainable, the cost covering not only teaming done by contract, but by Government trains and tho movement of marching troops. An idea of the former cost of this service is given in the report of the Pacific Railroad Committee of the Senate, dated February 19, 1869, in which it is stated that the Indian wars for the past thirty-seven years have cost the nation 20,000 lives and $750,000,000, or about $20,000,000 a year. In the years 1864 and 1865 the Quartermaster's Department spent $28, 574,228 for military services against the Indians. (40 Congress, 3d session, Senate Rep. Com., 219.)

The cost of transportation of military stores westward across the plains, paid to contractors alone, was over $6,000,000 annually. This amount stated for tho year ending June 30, 1865, amounted to $3,388,856.37. (Report Secy. War, 1S85-'G6, Vol. I, p. 113.) Using this last amount as the annual cost for freight transportation which the Government would have been reqislred to pay from 1869 to 1885, had not the railroad been built

The sum for the sixteen years would have been $102,221,702

The charges made for fre'ight transportation by the railroad for the same period amounted to 5, 740, 753

Showing a saving of 96,480,949

Compared with saving shown by foregoing table of 55, 4^0, 554

$100,000,000 A YEAR SAVED ON FREIGHT AND TROOPS.

From these considerations it will be seen that the result of the foregoing tables, showing a saving to the Government in freight and passenger transportation charges by the Pacific Railroad to January 1. 1886, of $100,000,000, as great as the amount may seem, fails to fully state the actual sum. It certainly represents less than the amount saved in any point of view from which the subject may be considered ; but it is preferably used in these pages to prevent any charge of exaggeration, which the least of these sums would be likely to suggest to one not familiar with the facts.

LELAND STANFORD. 2591

UNITED STATES MAILS.

All of the following facts as to the weights and ratQS of mails are taken from the annual reports of the Postmaster-General for the several years :

The rates paid just before the completion of the railroad are shown in the report for 1868 (pp. 7 and 8). The Department advertised March 9, 1868, inviting proposals for conveying the mails from October, 1868, to June 30, 1870 : " On Route No. 16635, from Cheyenne, Dak., or that point on the Union Pacific Railroad, to which the mails might be conveyed when this service should go into operation, to Virginia City, Nev., 1,095 miles and back, daily, the trip to be performed in nine days each way in summer and twelve days in winter." Five bids on this route were received in response to the advertisement. The lowest was accepted, but soon failed. The others then successively failed or refused to undertake the service. Finally, the PostmasterGeneral, with the Second Assistant Postmaster-General, repaired to New York City, and consulted with Senators Morgan and Cole, Horace Greeley, Isaac Sherman, Postmaster Kelly, and other leading citizens, and under their advice accepted a proposition of Wells, Fargo & Co. to carry the mail between the termini of the Union Pacific and the Central Pacific Railroads daily for the term of one year, at the rate of $1,750,000 annually, subject to a reduction pro rata for every section of 50 miles of railroad completed and reported to the Department ready to carry the mails. In his report for 1869 (p. 9) the Postmaster-General makes the following statement concerning the operation of this agreement :

" The contract of agreement entered into on the 21st of October, 1868, between the Post-Office Department and Messrs. Wells, Fargo & Co., for the transportation of the United States mails between the western terminus of the Union Pacific Railroad and the eastern terminus of the Central Pacific, for the term of one year from October 1, 1868, or until the two railroads should meet, at the rate of $1,750, 000 per annum, subject to reduction pro rata for every section of 50 miles of railroad completed and reported to the Department ready to carry the mails, expired on the 9th of May, 1869, the railroad having eifected a junction, and reported ready to carry mails through on the 10th. When the contract was entered into, it was estimated that the junction would not be formed before the 31st of July, it being supposed that the severity ot the weather would compel a suspension of work on the railroads during the months of January, February, and March; and it was further estimated that the cost of the mail service under Wells, Fargo &. Co.'s contract would amount to $670,144. The weather proving unusually mild, however, and the progress of the roads being uninterrupted, their completion was accelerated nearly three months, and hence the cost of the service under the contract with W'ells, Fargo & Co. was reduced $214,339.36 below the estimate. 7 *

FORMER AVERAGE WEIGHT OF MAILS.

From this we get the contract rate formerly paid for mail transportation. This rate was for the mails which were then carried. The weight of these is stated by the Postmaster-General in a communication to the House of Representatives, in answer to a resolution of inquiry of that body (quoted in Report Government Directors U. P. R. R., 1875), who says:

" The average amount of mail matter conveyed in the mails overland before the completion of the railroads was less than 1,000 pounds daily."

From these facts we have the following : Annual amount paid for carrying mails before the completion of the railroads, $1,750,000; distance carried, 1,095 miles; average daily weight, 1,000 pounds; rate, $1,598.17 per mile per annum. After the completion of the railroads the mails were largely increased in weight, and the service was equally improved in " certainty, celerity, and security." By substituting a railway postal car with all conveniences for agents in charge, and appliances for the distribution of mails en route, in place of the stage-coach formerly used, the accommodations were increased in value in excess of the increase of the weight of the mails.

WEIGHT INCREASED TWENTY TIMES.

Each of these items is allowed to be a fair consideration for the increase of pay by the laws and the rules of the Post-Office Department. But as the stage service cannot be compared with the railroad service as to certainty, celerity, and security or accommodation, I will not attempt to place a moneyed price on the difference of values. Weight is the principal basis of the law fixing the compensation to railroads for carrying the mails, and the weights carried by rail are more than twenty times greater than those which were carried by stage. But as it may with truth be said that had no railroad been built, an equal amount of mail matter would not have been sent, and, if sent, would not have been carried by stage, as it would require several large stages daily each way to haul the matter, we also omit from our estimate any allowance for the difference in the weights.

The rates, weights, and amounts allowed by the Postmaster-General since the construction of the railroad are shown in the following table :

...

LELAND STANFORD. 2593

SAVING IN MAIL TRANSPORTATION, $40,000,000.

The table shows that the amount allowed the railroad by the Postmaster- General for carrying the mails from July 1, 1869, to December 31, 1885 a period of sixteen and a half years was $10,606,507.22. This was for carrying the average daily weight at the commencement of the period of about 5,000 pounds, which at the close of the period had increased to about 30,000 pounds. The stage rate, we have seen, was $1,598.17 per mile. This for the 1,895 miles of aided road, and for the sixteen and a half years, would amount to the sum of $49,970,780.47. The diiference representing the amount saved by the Government in the transportation charges on United States mails is $39,364,273.25.

IMPROVEMENT IN THE SERVICE.

An idea of the improvement in the service and a suggestion as to its value to the Government and to the people may be gained from the following remarks relating to the subject, made by the Postmaster-General at the end of the old regime and the beginning of the new. In his report for 1867 (p. 8) the Postmaster-General says :

" No changes have been made in the overland California mail since the last annual report, at which time the Department was having daily service from the ends of the railroad by both the Smoky Hill and Platte routes as far as Denver, where the lines united and formed a single daily route via Salt Lake City and Virginia City to the Central Pacific Railroad connection. During the spring and summer months the complaints as to the manner in which the service was being perfotmed, and the great delay in the arrival of mail from the East at Denver and Salt Lake, were more numerous and pressing than at any time since the present route has been in operation. It was charged that the Indian troubles complained of by the contractor, and given by his agents as an excuse for non-performance of service, were a pretense, and that there was no reason why the mails should hot be conveyed regularly and within schedule time. The official reports, however, of General Sherman and other officers of the Army, referred by the Secretary of War to this Department, prove conclusively that the most serious troubles did exist on the plains, and that there was no safety for either passengers or mails except under ample military escort, which could not be furnished daily. A special agent of the Department lately sent over the route for the express purpose of reporting as to the manner in which the service had been performed during the summer, and also as to its present condition, has, under date November 4, 1867, made his report, which is accompanied by the affidavits of the postmasters at the principal offices on the route, and also by statements of several officers commanding military stations on the line. The burden of this proof is summed up as well, perhaps, in the affidavit of the postmaster at Denver as in other papers submitted. He says : ' On that portion of the route from Denver to Omaha City, or terminus of railroad, Indian troubles of a serious nature commenced as early as February 16, and notwithstanding the contractor, supported by the military, put forth every eifort in his power to clear the road and keep it open, no mail was received at this office over that route from February 23 to March 2. During the month of March our registers show eighteen failures. From June 8 to September 1 regular trips were made on alternate days, and from that to the present we have had daily service. I am reliably informed that the delay was in many instances caused by loss of stock driven off by hostile Indians at points where it was impossible to replace it without prolonged delay. This was more especially the case on the route from Denver to Salt Lake City. Late in the winter the Union Pacific Railroad was blockaded by snow, followed soon by high water, which caused another delay of three weeks and the diversion of the mail from the Platte to the Smoky Hill line.

" 'From the best information I can obtain the cause of all the detentions and irregularities complained of were unavoidable on the part of the contractor, and of such a character as to have precluded the possibility of any man or set of men making regular trips over the route unless securely guarded by an armed force of considerable magnitude.'

" From papers submitted by the contractor to the inspection division it would appear that from April 1 to August 15, 1867, the Indians robbed him of three hundred and fifty head of stage stock, burning twelve of his stage stations with large amounts of grain and hay, destroyed three coaches and express wagons, severely wounded several of his passengers, and killed outright thirteen of his most reliable employe's.."

In contrast to this state of affairs, we find the condition of the service the first "year after the Pacific Railroad was opened for through traffic, stated by the PostmasterGeneral in his report for 1870, as follows (p. 12) :

" The through-mail tables herewith submitted make a favorable exhibit as to the average speed and regularity with which the mails have been conveyed over the line, 3,307 miles long, between New York and San Francisco, during the year ending with the month of September, 1870. * * * The average time going west was one hun

2594

U. S. PACIFIC RAILWAY COMMISSION.

dred and seventy-five hours fifty-two minutes, or seven days seven hours and fiftytwo minutes; going east, one hundred and seventy-two hours forty-four minutes, or seven days four hours and forty-four minutes. The records from which these tables are compiled show that generally three mails a clay are dispatched from New York for San Francisco, one in the morning and two in the afternoon ; the average schedule time of the afternoon mails being nearly seven days, and of the morning mails nearly seven and a half days, a single train a day being run west of the Missouri River, the departure of which is arranged to connect with the train making the latest afternoon departure from New York. From San Francisco but a single mail a day is dispatched for New York, of which the average schedule time, allowing for the intermission of Sunday service east of the Missouri River, is about seven days three and a half hours, only one hour and fourteen minutes less than the time actually attained."

Although the value of this improved condition of affairs is not stated in money in the foregoing comparison of rates and amounts, it should be borne in mind in connection therewith. And it strengthens the force of the argument made by the figures that the construction of this line has saved the United States in the transportation of mails during the sixteen and a half years ending December 31, 1885, over $39,000,000.

SUMMARY FREIGHT, TROOPS, AND MAILS.

A summary of the foregoing shows the following result to January, 1866 .



...A saving in the expense of the Government of nearly one hundred and forty millions up to the end of 1885 in the item of transportation seems enormous to one not accustomed to deal with accounts of Government expenditure. ret it no doubt falls short of expressing the actual saving in this time; for many it e ms (of which some have been noticed) cannot be satisfactory valued in money, and have been entirely omitted from the calculations. A single Indian war has cost more than the whole amount of bonds issued to the Pacific railroads. The Pacific Railroad Committee of the Senate, in a report dated February 19, 1869, make the following statement on this subject:

u What is the cost of our Indian wars as compared with the cost of the Pacific railways, which will speedily end the Indian wars? A compilation from the official records of the Government shows that these wars for the last 37 years have cost the nation 20,000 lives and more than $750,000,000. In the years 1864 and 1865 the Quartermaster's Department spent $28, 374, 228 lor military service against the Indians. * * .The chairman of the House Committee on Indian Affairs estimated recently that the present current expenses of our warfare with the Indians was $1,000,000 a week $144,000 a day." (40th Congress, 3d Session, Senate Rep. Com., 219.)

VIEWS OF GENERAL SHERMAN.

The effect of the Pacific railroads in ending the Indian wars is thus commented upon by General Sherman in his last report as General of the Army : (Report 1883, p. 5. et seq. )

" I now regard the Indians as substantially eliminated from the problem of the Army. There may be spasmodic and temporary alarms, but such Indian wars as have hitherto disturbed the public peace and tranquillity are not probable. The Army has been a large factor in producing this result, but it is not the only one. Immigration and the occupation, by industrious farmers and miners, of lands vacated by the aborigines have been largely instrumental to that end ; but the railroad (the italics are the General's), which used to follow in the rear, now goes forward with the picket line in the great battle of civilization with barbarism, and has become the greater cause. I have in former reports for the past fifteen years treated of this matter, and now on the eve of withdrawing from active participation in public affairs, I beg to emphasize much which I have spoken and written heretofore. The recent completion of the last of the four great transcontinental lines of railway has settled forever the Indian question,

LELAND STANFORD. 2595

the army question, aud many others which have heretofore troubled the country. * * * I regard the building of these roads as the most important event of modern times, and believe that they account fully for the peace and good order which now prevail throughout onr country. * * * A vast domain, equal to two-thirds of the whole surface of the United States, has thus been made accessible to the immigrant, and, in a military sense, our troops maybe assembled at strategic points and sent promptly to the places of disturbance, checkin bcdisorders in the bud."

The saving to the Government in mere money, which directly resulted from the aid granted for the construction of the Central Union Pacific Railroad up to January 1, 1886, may then be fairly stated as $139,347,741, nearly $140,000,000. Such is the return received by the Government in the item of transportation. As an offset to this are the bonds issued by the United States with interest accrued thereon, less the amount of such interest which has been repaid by transportation charges withheld in the Treasury Department and cash paid under the law. Tho statement and balance of this account to December 31, 1885, is shown as follows :

...

SAVING BY UNITED STATES THREE TIMES THE CASH VALUE OF THE DEBT AND

INTEREST.

This balance will not be payable till the maturity of the bonds at the average date of, say, January 1, 1898. The present cash value of this sum, calculated at 6 per cent, interest, payable semi-annually the same rate as borne by the bonds is $42,647,795. The 'saving in money to the Government in transportation charges to the same date amounts to $139,347,741. 25.

COMPLETION OF THE RAILROAD IN LESS TIME THAN ALLOWED BY THE LAW.

The last spike was driven in the Pacific Railroad at Promontory Point on May 10, 1869. From that date the Union and Central Pacific companies, forming a through line between the Missouri River and the navigable waters of the Sacramento River in California, have been in continuous use and operation for the transportation of passengers, freight, and mails. By section 17 of the act of Congress of July 1, 1862 (12 U. S. Stat., 489), the railroad companies were required to complete the line, ready for use in a reasonable time, and it was provided that if it were not so completed by the 1st day of July, 1876, their properties should be forfeited to the United States, upon which Congress might pass any act to insure their speedy completion.

The through line of railroad was thus actually opened for traffic over seven years before the limit of time allowed by the law.

*U. S. Com. R. R. Rep., 1885, p. 1. \Ibid. \IUd., Rep., 1886, p. 6. Annual Re. port U. P. Ry., 1885, p. 78. || Rep. C. P. R. R., 1885, p. 4.

2596

U. S. PACIFIC RAILWAY COMMISSION.

COST OF ROAD INCREASED BY EARLY COMPLETION.

Everything necessary to the construction of a railroad ; capital, labor, and materials, cost the companies much more on account of this early completion of the road, than they would have cost had the companies consumed the full time allowed. But the Government and the people were benefited by all the direct and incidental advantages connected with railroads as compared with the slower and more expensive methods of transportation. To the public the saving in transportation has been many times what it was to the Government ; and it has given to them all the material benefits implied by the use of half the continent for seven years.

The direct saving in money to the Government is easily abstracted from the foregoing statements. In addition to this there was a benefit probably to an equal or greater amount by the ending of Indian wars and the abandonment of many military posts which the former frequent hostilities made necessary.

The amount saved to the Government by the use of the road for these seven years ending June 30, 1876, is, as shown by the following tables, as follows :

Seven years t) June 30, 1876.

...

21, 619, 648 Balance of debt, due at maturity of bonds in 1898 76, 781, 840

The cash value of this debt on June 30, 1876, discounted at the same rate of interest borne by the bonds, was $21,522,^74.

The amount saved by the Government for that period was, as above, $47,763,178.

So that in transportation charges alone the Government benefited by the use of the road for seven years for which time it was finished before the limit allowed by the law, the amount of $26,240,904 in excess of the cash value of the debt and interest to that date.

DEBT AND INTEREST AT MATURITY COMPARED WITH SAVING IN TRANSPORTATION

CHARGES TO SAME DATE.

The United States Commissioner of Eailroads, in his report for 1883 (p. 13), estimates the balance to become due on the debt of Central Union Pacific line ab maturity as $71,000,000. Subsequent experience has shown that the balance will be greater than this sum, as since the commissioner's estimate several competing transcontinental roads have been completed, thus reducing the net earnings of the original line, and reducing also thereby the amounts of the annual payments to the Government on account of the debt. In the following estimate the annual payments from 1886 to 1897 are based upon the requirements ascertained under the law since 1883.

* Public debt statement, June 30, 1876.

LELAND STANFORD.

2597

ESTIMATE OF DEBT AND INTEREST AT MATURITY.

Bonds, Central Union Pacific line $55,092,192

Interest, 30 years at 6 per cent 99, 165,945

Total, bonds and interest 154,258,137

PAYMENTS ON DEBT BY COMPANIES.

Central Western Pacific :

Transportation charges and cash to January 1, 1886* ... $9, 251, 974 Payments 1886 to 1897, estimated on average rate 18831886, $478,000 per annumt 5,736,000

Union Pacific Railroad :

Credits to January 1, 1886* 17,496,793

Pavments 1886 to 1897, estimated on average rate of 1883 1885, $1,448,000$ 17,376,000

14,987,974

34,872,793

Total payments 49,860,767

Balance on debt at maturity 104,397,370

As an offset to this balance the saving in transportation charges may be cited, as that is a direct pecuniary benefit to the Government. The foregoing statements show this saving up to January, 1886, to have been $139,347,741. Assuming this saving to continue to the maturity of the debt at the same annual rate as it has been in the past, the result would be as follows :

SAVING TO GOVERNMENT IN TRANSPORTATION CHARGES TO MATURITY OF THE DEBT.

...

Balance on debt estimated to be due at maturity as above $104 , 397, 370

Saving to Government in transportation charges to same time 259, 040, 430

Surplus saved 154, 643, 060

The total debt stated above, with interest at maturity, without any deductions for payments by the companies, amounts to

Principal of bonds $55,092,192

Interest at 6 per cent 99, 165, 945

Total 154,258,137

Deducting this amount from the sum saved above leaves $104,782,293 as the amount of benefit which would have been realized by the Government in excess of the whole amount of bonds and interest had they been a donation instead of a loan at interest. At the time the granting acts were passed it was frequently stated in Congress that in case the loan could never be directly repaid the saving to the Government in transportation charges would more than equal the bonds and interest, and thus directly offset the debt. The foregoing statements show that those predictions have been more than realized.

* Annual Report of the Central Pacific Railroad, 1885, p. 4.

t Report of the United States Commissioner of Railroads, 1886, p. 35.

tSee preceding statement of January 1, 1886.

^Report of the United States Commissioner of Railroads, 1886, p. 35.

2598 U. S. PACIFIC RAILWAY COMMISSION.

STATE OF CALIFORNIA,

City and County of San Francisco, ss :

E. H. Miller, jr., being first duly sworn, saith : That he has read the foregoing statement consisting of the pages next preceding, marked "Exhibit No. 1H," and knows the contents thereof; that the facts therein stated are true, except as to those matters stated on his information or belief, and as to those he believes it to be true.

E. H. MILLER, JR.

Subscribed and. sworn to before me this 26th day of July, A. D. 1887. [SEAL.] E. B. RYAN,

Notary Public in and for tlie City and County of San Francisco,

State of California.

EXHIBIT No. 12. Relative to competing roads aided by Congress, by J. C. Stubbs, general

traffic manager.*

There are now eight trans-continental railroad lines in addition to the original Union and Central Pacific line that is to say, there are eight other lines, each of which competes in whole or in part with the original Union and Central Pacific line for the traffic interchanged between the Pacific coast and the territory of the United States and Canadas east of the Rocky Mountains. They are as follows :

(1) The original Union and Central Pacific line, opened for through traffic in May, 1889.

(2) The thirty-second parallel route, or Atchison, Topeka and Santa F6 and Southern Pacific line, via Deming, opened in March, 1881.

(3) The thirty-second parallel route, or Southern Pacific and Texas and Pacific line, via El Paso, Tex., opened in January, 1882.

(4) The thirty-second parallel route, or Galveston, Harrisburg and San Antonio Railway and Southern Pacific, via El Paso, Tex., opened in February, 1883.

(5) The Burlington and Missouri River Railroad and Denver and Rio Grande in connection with Central Pacific, opened in May, 1883.

(6) The Northern Pacific Railroad, opened in September, 1883.

(7) The Atlantic and Pacific in connection with the Southern Pacific, opened in October, 1883.

(H) The Oregon Short Line, the date of whose opening for business I am unable to give.

(9) The Canadian Pacific, opened for business in July or August, 1886.

All of these roads, except the Canadian Pacific, are in United States territory.

In the report of the United States Commissioner of Railroads for 1884, pages 226 and 227, will be found a list of grants made by the United States in aid of the construction of railroads, which gives the date of the act of Congress making the grants, &c. By reference to the list it will be found that at least a portion of each of the trans-continental lines above described, except the Canadian Pacific (which was heavily subsidized in land and money by the Dominion Government), was aided by the United States Government, and, I am informed (not having searched the matter myself), that in each of said cases there was a larger grant of land made than that to the Union and Central Pacific line; that the grant to the latter line was for 12,800 acres per mile, less mineral lands and lands for which there were prior claims, while the grants to the other lines were usually at the rate of 12,800 acres per mile in the States and 25,6CO acres per mile in the Territories. It is supposed that the lands granted to the Texas and Pacific, Atlantic and Pacific, Atchison, Topeka and Santa F<6, and Northern Pacific Companies caused their construction. Certainly no one will deny that they hastened their completion. Without the land grants the roads would not have been built, and without these roads the traffic which has been carried by them in competition with the Central and Union Pacific line would have gone over the Central and Union Pacific lines, and contributed by so much to the earnings of the Central and Union Pacific Companies.

To illustrate the extent to which the earning capacity of the Central and Union Pacific Companies has been impaired by the completion of these roads, I have caused to be prepared and beg to hand you herewith the following exhibits :

* See answer to question No. 54.

LELAND STANFOKD.

2599

EXHIBIT A. Comparative statement showing freight tonnage and charges on through traffic and percentage of same done by each route for periods as noted.

...LELAND STANFOED. 2601

Exhibit A is a showing of the freight tonnage and charges on through traffic by each route from January 1, 1874, to December 31, 1886, divided into periods, these being marked by the dates of the completion of the several opposing lines.

For example :

From January 1, 1874, to March 31, 1881, there was but one line between the Missouri Eiver and California, namely, the Union and Central Pacific. April 1, 1881, the Atchison, Topeka and Santa Fe road was connected with the Southern Pacific at Deming, thus opening a new line the first new line to compete with the original Central and Union Pacific line.

The date of the opening of this new line for business, namely, April 1, 1881, begins a new period, which ends with the opening of the third line.

In January, 1882, the Texas and Pacific and Galveston, Harrisburg and San Antonio roads were connected with the Southern Pacific at El Paso, making, for the period from January 1, 1882, to January 31, 1883, four routes.

The Galveston, Harrisburg and San Antonio Railway, in connection with the Southern Pacific at El Paso, did very little business previous to February 1, 1883, when it opened for business for New York City. Hence, a new period is begun, dating from February 1, 1883, and running to May 31, 1883, during which there were still but four lines, though during the last period the Galveston, Harrisburg and San Antonio line had been greatly strengthened as compared with the first preceding period.

In May, 1883, the Denver and Rio Grande and Burlington and Missouri River line was connected with the Central Pacific at Ogden, making five lines for the period from June 1, 18&3, to September 30, 1883, at which time the Atlantic and Pacific was connected with the Southern Pacific, making six lines.

You will notice by Exhibit A that for the period from January 1, 1874, to March 31, 1881, there being but the one line (the Union and Central Pacific), the percentage of trafiic carried by this line is represented by 100 per cent. ; that this percentage is reduced in the second period to 94.54 per cent, in tonnage and 94.50 per cent, in earnings; in the third period, to 69.23 per cent, in tonnage and 72.37 per cent, in earnings; in the fourth period, to 57.77 per cent, in tonnage and 57.45 per cent, in earn

conclusively that with the opening of each new line there was an additional loss in tonnage and in earnings from through traffic to the Union and Central Pacific line. The conclusion is inevitable that this loss was occasioned by the diversion of traffic to the new lines. The difference between 100 per cent, and the percentages shown for the period succeeding March 31, 1881, represented the loss to the Central and Union Pacific line, the sole cause of which was the opening of new lines.

Exhibit B is the same as Exhibit A, with the exception that the entire tonnage via the Central Pacific and Denver and Eio Grande and Burlington and Missouri River line, and the Central Pacific proportion of charges west of Ogden for the same line, are thrown in the first column under the head of Central and Union Pacific line.

It was necessary in making these statements to show "line" earnings. It would have been impossible from any records we have to show the earnings of the individual roads in each line except by going back to the original billing, which would have required so much time and labor, that a report to be based upon information so obtained could not have been reached in time for the next session of Congress.

The Denver and Rio Grande and Burlington and Missouri River roads made a line by connection with the Central Pacific, just as the Union Pacific connected with the Central Pacific ; hence the completion of the Denver and Rio Grande and Burlington road only affected the Union Pacific road.

In Exhibit B the charges of the Denver and Rio Grande and Burlington and Missouri River line east of Ogden are shown separate from the charges of the Central Pacific, and will represent the loss to the Union Pacific by the diversion of traffic caused by the opening of that line.

2602

U. S. PACIFIC KAILWAY COMMISSION.

EXHIBIT B. Comparative statement showing freight tonnage and charges on through traffic by each route for periods as noted; also percentage of said traffic done by each route(charges east of Ogden, via Denver and Rio Grande, shown separately).

[The tonnage and charges for Central Pacific via Denver and Rio Grande are included in Central and

Union Pacific lines.]

...The total loss (5 years 9 months) to Central and Union Pacific line = $24,383,080.83, or an annual loss Of $4,240,535.88.

Of which the Central Pacific proportion is 46 per cent. = $11,216,217.18, or an annual loss of $1,950,646.50.

Of which the Union Pacific proportion is 54 per cent. = $13,166,863.65, or an annual loss of $2, 289,889.38.

Exhibit C shows the tonnage and charges of all the lines compared with the tonnage and charges as given on Exhibit B for the Central and Union Pacific line, and the difference in tons and dollars ; that is to say, according to Exhibit C the loss in tonnage to the Central and Union Pacific line, by the diversion to other lines, from April 1, 1881, to December 31, 1886, was 1,055,079 tons and $24, 383, 080.

Exhibit C also shows the charges and tonnage of each of the several periods reduced to an annual basis ; that is, if for each of the several periods the tons carried and charges made had been at the same rate for twelve months, it shows what the annual tonnage, charges, and loss would have been.

For example : take the second period, from April 1, to December 31, 1881, being nine months. The tons carried during that nine mouths via all lines were 219,892 tons, which at the same rate for twelve months would be 293,189 tons. The charges or earnings for the nine months by all lines were $6, 522, 319, and for twelve months at the same rate would have been $9,696,426. The tonnage and charges of the Central and Union Pacific line for the nine months, at the same rate, would have been 277,172 tons and $8,218,272. The actual loss for the period to the Central and Union Pacific line is represented by 12,012 tons, on which the charges were $358,615. For twelve months, at the same rate, the loss would have been 16,016 and $478,153.

Exhibit C also totals the several periods beginning April 1, 1881, and ending December 31, 1886 (five years nine months), with the following result :

Total tonnage and charges via all lines 2,267,389 tons and $53,811,807.

The tonnage and charges via the Central and Union Pacific for the same period were 1,212,310 tons and $29,428,726.

The loss in tonnage and charges to the Central and Union Pacific line, being the difference between the tonnage and charges via all lines and the tonnage and charges via the Central and Union Pacific line, as shown above, were 1,055,079 tons and charges $24,383,060, which,rsduced to an annual basis, shows the loss for this period at the annual rate of 183,492 tons and $4,240,535.

Exhibit C also shows the average annual rate per ton charged for freight. Dur ing the first period, when there was but one line (Union and Central Pacific line), from January 1, 1874, to March 31, 1881, you will note that the average annual rate per ton was $32.88. By following down through, the several subsequent periods you will notice a gradual reduction in the annual rate per ton until in 1886 the rate was reduced to $14.77 per ton. Some of this difference in rate was chargeable to the opening of competing lines ; in other words, take, for example, the year 1886 ; while it is not reasonable to suppose that at the annual average rate which obtained in 1885 ($25.32 per ton) the same tonnage would have been moved as was moved in 1886 at a lower average rate ($14.77 per ton), yet it is true that the tonnage would have been moved at a higher rate than the average earning during 1886. It is impossible to say what would be the maximum rate at which the same tonnage would have moved.

It is a matter of public knowledge that during a portion of that year (1886) rates were unnecessarily low. I should estimate that an average rate of $20 per ton, being a reduction of a little more than twenty per cent, from the average rate prevailing from October 1, 1884, to December 31, 1885, would have given all needed stimulus to the movement of traffic, and the difference between $14.77 and $20 $5.23 per tonwould be a reasonable estimate oftUe effect of unreasonable competition between

2606

U. S. PACIFIC RAILWAY COMMISSION.

the railroads, which would fall below rather than above the real measure of the influence of that competition. Accordingly 311,064 tons extended at a rate of $5.23 per ton would represent a further loss to the Central and Union Pacific line by reason of the diversion of traffic to other lines and the competition inaugurated by said other lines of $1,626,864.

For all the competitive periods shown on Exhibit C the charges are extended at the annual average rate. The effect of the competition of the other lines was something more in each period than the mere diversion of traffic. It reduced rates ; that is to say, had the other lines not been built, not only the entire traffic would have been carried by the Union and Central Pacific lines, but it would have been carried at higher rates. Hence the earnings upon the total traffic, if carried by the Union and Central Pacific line without the competition of the other lines, would have been greater than the earnings made by all the lines from the same traffic, so that the real loss in freight earnings resulting from the building of other lines, if the exact facts could be ascertained, would prove to be much more than $24, 383, 080, as shown on Exhibit C.

Exhibits A, B, and C relate only to freight traffic ; I also inclose herewith Exhibits D and E.

Exhibit D shows the number of through passengers carried by each route, and the earnings accruing therefrom west of Ogden, Mojave, Deming, and El Paso, the termini of the Southern Pacific system.

Ogden is the terminus of the Central Pacific road.

Mojave is the point of junction of the Atlantic and Pacific with the Southern Pacific.

Deming is the junction of the Atchison, Topeka and Santa F6 Railroad with the Southern Pacific.

El Paso is the junction point of the Southern Pacific, Texas and Pacific, and Galveston, Harrisburg and San Antonio Railroads, respectively.

Exhibit D and the other passenger statements shovr the earnings west of these respective termini.

In the case of passengers, our records do not show the earnings of the connecting lines as in the case of freight.

EXHIBIT D. Comparative statement allowing number of passengers carried by each route on through traffic, and the earnings accruing west of Ogden, Mojave, Deming, and El Paso , for periods as noted, also percentage of earnings by each route.

[The earnings via Northern Pacific, 0. E. & N. Co. and Oregon Short Line as shown are 46 per cent

of the through via those routes.]

...

NOTE. From April 1, 1881, to December 31, 1886 (five years nine months), during which time other lines competed with the Central and Union Pacific line, the Central Pacific road suffered a total loss of revenue amounting to $5,864,664.29, or 39.33 per cent, of the total through passenger traffic. Assuming this loss based on 46 per cent, of total through, the Union Pacific has sustained a proportionate loss of $6,884,605.90, making total loss for Central Pacific and Union Pacific line of $12,749,270.19. Reducing this to an annual basis, the loss annually to the Central Pacific is $1,019,942.04, and to the Union Pacific $1,197,323.26, or a total for the through line of $2,217,265.30.

Exhibit E is the same for passengers as Exhibit C for freight.

Both of the exhibits relating to the passenger traffic in the matter of division into periods are the same as the exhibits for freight.

Exhibit D will show the number of through passengers forwarded by the original Union and Central Pacific line from January 1, 1874, to March 31, 1881, amounting to 556,833, from which the Central Pacific earned $15,630,611, which represented 100 per cent.

For the period (from April 1, 1881, to December 31, 1881) this percentage was reduced to 77.25 per cent.

For the third period (January 1, 1882, to January 31, 1883) it was reduced to 63.32 per cent.

For the fourth period (February 1, 1883, to May 31, 1883) it was reduced to 53.78 per cent.

For the fifth period (June 1, 1883, to September 30, 1883) the reduction was only to 61,10 per cent, j that is to say, the opening of the Denver and Rio Grande and Bur

2610

U. S. PACIFIC RAILWAY COMMISSION.

lington and Missouri River line contributed temporarily something to the earning power of the Central Pacific, probably owing to the scenic attractions which the new route would offer.

But in the sixth period (October 1, 1883, to September, 1884) the percentage fell off to 42.43 per cent.

For the seventh period (October 1, 1884, to December 31, 1885) it was reduced to 41.25 per cent.

For the last period (January 1, 1886, to December 31, 1886) it was reduced to 38.51 per cent.

As in the case of freight, it will be observed with respect to passengers that the opening of each new line, with the single exception of the short period immediately succeeding the opening of the Denver and Rio Grande road, the Central Pacific line suffered a loss ; and that loss resulted from no other cause than the opening of these new lines.

Exhibit E shows the number of passengers carried by all routes and the Central Pacific charges therein, with the loss in charges to the Central Pacific by diversion to other routes for each period reduced to an annual basis..

The total loss to the Central Pacific by diversion for the period from April 1, 1881, to December 31, 1886 (five years nine months), is shown to be 277,629 passengers and $5,864,664, or an average annual rate of 48,276 passengers and $1,019,942.

It will be observed also that the average rate on passengers for each period shows a less percentage of reduction than in the case of freight, though in the year 1886 the average rate fell to $12.75, against an average rate of $27.59 during the first period, from January 1. 1874, to March 31, 1881.

From October 1, 1884, to December 31, 1885, the average annual rate by all routes was $21.60, and the number of passengers carried was at the rate of 121,644 per annum, as against a rate of $12.75 for the year 1886 and 180,210 passengers.

The large reduction in rate was incident to the war in rates which followed the dissolution of the transcontinental pool. It was not compensated by increased traffic, as all the rail lines earned less from the increased traffic than they earned the year previous on a less amount of traffic. The conclusion necessarily follows that while Exhibit E shows a loss for the year 1886 to the Central Pacific by diversion of 77,268 passengers and $972,672, it does not show the entire loss resulting to the Central Pacific by reason of the competition of the other lines. The same number of passengers could have been moved by the Central Pacific at a higher average rata than was earned by all lines.

As has been explained, the passenger exhibits show only the earnings west of the eastern termini of the Southern Pacific and Central Pacific Railroads, and show for the entire period from April 1, 1861, to December 31, 1886, a total loss in revenue to the Central Pacific road of $5,864,664, or 39.33 per cent, of the total through passenger traffic.

In my judgment, it is fair to assume that the loss of the Central Pacific represents 46 per cent, of the loss to the Central and Union Pacific line, that being not only the Central Pacific road's proportion of mileage, but also its percentage of the Central and Union Pacific " line " rates. This is a very close approximation of what an inquiry for the purpose of ascertaining the exact loss would show. It is rather under than over tjie loss. If we assume that the loss to the Central Pacific road is 46 per cent, of the loss of the Central and Union Pacific line, we have a loss in revenue to the Union Pacific and Central Pacific line of $12,749,270.19. Reducing this list to an annual basis, the loss of revenue annually for the line would be $2,217,265. This estimate will govern Exhibit F, which combines the showings made by Exhibit C and Exhibit E for freight and passengers respectively.

EXHIBIT F. Recapitulation of Exhibits E and C, showing combination of passenger and freight traffic lost to the Central and Onion Pacific line for the period April 1, 1881, to December 31, 18rf6 ; assuming that the results shown in Exhibit E (passenger) represent 46 per cent, of the through line earnings, the remaining 54 per cent, is added, showing total loss to Central and Union Pacific line, as below.



...

The total loss on passengers and freight (five years nine months) to Central and Union Pacific line, $37,132,351.02, or an annual loss of $6,457,801.18.

Of which the Central Pacific's proportion is 46 per cent. = $17,080,881.47, or an annual loss of $2,970,588.54.

Of which the Union Pacific's proportion is 54 per cent. = $20,051,469.55, or an annual loss of $3,487,212.64.

Exhibit? is a recapitulation of Exhibit E and Exhibit C, and shows that the total earnings for the entire period from April 1, 1831, to December 31, 1886 (five years, 9 months), of all routes from through freight and passengers were $86,226,945.97 ; that the earnings of the Central and Union Pacific line, ascertained as above explained, for the same period were $49,094,594.95. The loss resulting to the Central and Union Pacific line by diversion of traffic to other lines being the difference between the above amounts was 137,132,351.02, or 43 per cent, of the total business. This reduced to an annual basis shows an annual loss to the Central and Union Pacific line (since April 1, 1881, the date of the opening of the first competing line), $6,457,801.18, 46 per cent, of which, or $2,970,588.54, represents the loss of the Central Pacific Company.

There can be no question that the traffic carried by all routes during this period could have been carried by the Union and Central Pacific lines. I do not think there can be any doubt that had there been but one line, and that line had offered the same rates (and these comparisons are based upon the rates actually charged), the same amount of traffic would have been carried, and the earnings from it would have been covered into the treasuries of the Central and Union Pacific Companies. Not only is this true, but the same amount of traffic could have been carried, and doubtless would have been carried, at an average rate of charge something higher than was actually obtained, so that while the average annual loss to the Central and Union Pacific line is shown by these statements to have been less than $6,500,000, I believe that the actual damage to the Union and Central Pacific line, caused by the building of the other lines, is not less than $7,000,000 per annum, or a total loss of over $40,000,000 for the period between April 1, 1881, and December 31, 1886, 46 per cent, of which represents the loss to the Central Pacific Railroad Company.

The facts and figures set forth in the inclosed exhibits are derived from our own records ; first, being abstracts made from impression copies of the original way bills covering the freight carried, and from the original tickets collected from the passengers ; and, second, for the Oregon Short Line and Northern Pacific roads, which are not connections of either the Central or Southern Pacific, from the records of the Transcontinental Association for the period from October 1, 1883, to January 1, 1886, and for the year 1886, from the records of the Northern Pacific and Uuion Pacific Companies respectively.

In giving the dates of the opening of the several lines, I have not been governed by the historical dates, but by the dates of the first billing or ticketing of through business done by those lines. Respectfully submitted.

J. C. STUBBS. STATE OF CALIFORNIA,

City and County of San Francisco, ss :

J. C. Stubbs, being first duly sworn, saith : That he has read the foregoing state inent consisting of the pages next preceding marked " Exhibit No. 12," and knows the contents thereof; that the facts therein stated are true except as to those matters stated on his information or belief, and as to those he believes it to be true.

J. C. STUBBS.

Subscribed and sworn to before me this 26th day of July, A. D. 1887.

[SEAL.] E.B.RYAN,

Notary Public in and for said City and County.

2612 tr. S.PACIFIC RAILWAY COMMISSION.

EXHIBIT No. 13. Statement of E. H. Miller, jr., secretary, relative to amounts due from the United States for transportation on non-aided roads.*

The Central Pacific Railroad Company controlled by lease a number of branch lines prior to April 1, 1885, from which date the lines were leased to the Southern Pacific Company. Mails were carried by these lines for the United States under the rules and orders of the Post-Office Department. No payments have been made for such service since 1883, at which time but partial payments were made. The payments were withheld prior-to April I, 1885, because the Central Pacific Railroad Company leased the lines, and they have been withheld since that date because the Central Pacific Railroad Company had formerly leased the lines.

The United States Supreme Court decidedjin U. S. vs. C. P. R. R. Co., October term, 1885, that compensation for transportation on non-aided and leased lines was due the company in cash. (See U. S. Com. R. Rs., 1886, p. 27. )

To show the amount of this service for which payments have been withheld, statements are submitted herewith as follows :

(A.) Mail transportation from January 1, 1882, to March 31, 1885, showing amounts as allowed by Post-Office Department, $1,814,384.96, of which non-aided and leased lines' proportion is $806,923.27 ; cash paid is $300,623.46 ; balance due and unpaid, $501,299.81.

AMOUNT DUE FOR MAIL SERVICE IN CASH.

(B.) Mail transportation from April 1, 1885, to December 31, 1886, showing amounts as allowed by Post-Office Department, $989,037.54, of which non-aided and leased lines' proportion is $459,244.97, all of which latter sum remains due and unpaid.

The total amount thus remaining due and unpaid for transportation of mails to December 31, 1886, on such non-aided and leased roads, is $960,544.78.

The transportation charges on non-aided lines were applied in settlement of the annual requirements of the company under the provisions of the Thurman act. After such applications there remained a balance due the Government on December 31, 1881, of $79,149.91. This balance was paid by the company in cash October 23, 1882, thus settling the accounts to the end of 1881. Of this the U. S. Commissioner of Railroads, in his report for 1882 (p. 26), says:

" Under the act of May 7, 1878, the book-keeper of this office checked the books and accounts of the company in San Francisco, with a view to the ascertainment of 25 per cmt. of the net earnings' for the year ending December 31, 1881. Twenty-five per cent, of the net earnings of the subsidized portion of the road was found to amount to 81,038,935.24. The transportation for the Government during the year amounts to $359,785.33, leaving a balance due the United States of $79,149.91. Statement was rendered and payment demanded October 20, 1882. A check for the amount was sent to the Treasurer of the United States by the vice-president of the company, October 23, 1882. The company has therefore paid to the Government all of its accrued indebtedness to date.'"'

CASH DUE FOR ALL TRANSPORTATION SERVICE.

From and including the year 1882 to the present time there has been annually a balance due the non-aided lines for transportation services performed. The amount thus due from the Government in cash, in excess of all requirements of the law, 1o December 31, 1886, is $1,853.323.15. This appears from statement C herewith, the further details of which appear in the annual reports of U. S. Commissioner of Railroads for the several years named.

The United States, by failing to pay for such mail service and other transportation, has caused an expenditure to the Central Pacific Railroad Company of amounts equal to interest on the sums retained at the rate of 6 per cent, per annum, that being the rate of interest paid during the period on floating debt of the company, which debt would have been decreased by the payment of the sums due from the United States.

The annual interest on this balance due the roads in cash to December 31, -1886, of $1,853.323.15, at 6 per cent., is $111,199.39. This is the present annual injury to the roads by the Government on account of the item of transportation charges unpaid. Tbe current charges also, in excess of the requirements, amount, as shown by the foregoing statement, to about $450,000 a year. This amount with the interest on the balance make the accruing annual sum of $560,000 due for transportation on nonaided lines and remaining unpaid.

* See answer to question No. 55.

LELAND STANFORD.

...

STATE OP CALIFORNIA,

City and County of San Francisco, ss :

E. H. Miller, jr., being duly sworn, sayske has read the foregoing statement ; that the matters and things therein stated are true of his own knowledge, except as to matters stated on his information and belief, and as to those he believes it to be true.

E. H. MILLER, JR.

Subscribed and sworn to before me this 20th day of July, 1887.

[SEAL.] E. B. RYAN,

Notary Public in and for said City and County.

By the CHAIRMAN:

Q. Have you any further statements to submit to the Commission? A. No, sir.

Q. Do you desire to say anything further in connection with the statements already submitted? A. No, except to explain them, if the Commission desires.

WILLINGNESS TO GIVE INFORMATION.

Q. Are you ready to have your oral examination proceeded with? A. Yes, sir ; now or at any time. I would suggest, however, that it might be better to postpone it for a day or two. I suppose that there are a great many witnesses whom you wisb to examine, and if I am left to the last there are some things which may develop in the course of these examinations which I may be able to explain.

Commissioner ANDERSON. We will call you again. We shall be here thirty days yet, and I have no doubt that we will nearly bother the life out of you before we get through.

The WITNESS. It may ; but this thing is not new to us by any means.

Commissioner ANDERSON. I believe that. The Union Pacific people say the same thing.

The WITNESS. We have had investigating committees after us all the time since we began crawling up the mountains. We used to have

2616 U. S. PACIFIC KAIL WAY -COMMISSION.

annual sessions of the legislature, and there was scarcely one of them but what we had to appear and defend ourselves against attack. We used to appear before these legislative investigating committees regularly and stand a general investigation of our affairs.

By Commissioner ANDERSON :

Q. Shall we proceed with you this morning? A. Unless it is your order of business I should like to be excused. I have some considerable work to do, and I am not feeling very well to-day.

Commissioner ANDERSON. We have no other witnesses. We excused Mr. Brown because we expected that your examination would require several days. If you can do so just as well as not we would prefer to ask you a few questions now. When you get fatigued, if you will let us know, we can stop.

EARLY BUSINESS CONNECTIONS.

Q. When did you first come to California? A. In 1852.

Q. At that time San Francisco was just beginning to be a city of any importance, was it not? A. It was a pretty small place at that time. I think that when we commenced to build this road it had a population not exceeding 60,000.

Q. What business did you follow here from 1852 to 1860? A. Merchandising.

Q. Were you alone, or did you have a partner? A. A portion of the time I had a partner and a portion of the time I was alone.

Q. Who were your early partners? A. First, I had a partner by the name of Smith, and my brothers had an interest with me. They had a certain interest with me as a firm. I afterwards did business alone, and used that firm name. Then I had a gentleman by the name of Meeker in partnership with me.

PUBLIC LIFE.

Q. When did you enter public life? A. I can hardly say. I took part in the formation of the Eepublican party.

Q. Please state what public offices you have held. A. I held office once as justice of the peace. I was elected to that office up in the mountains. The only other office that I have held is that of governor of this State. From all that I can learn, I believe that I made a pretty good justice of the peace.

Q. When were you elected governor of the State? A. In 1861.

Q. Did you serve more than one term? A. I served one term only.

Q. How many years is the term? A. It was then two years.

Q. What other public offices have you ever filled? A. None other.

Q. Are you not a Senator of the United States? A. Oh, yes; I did not think of that.

Q. When were you elected Senator of the United States? A. Two years ago last winter.

Q. When did you enter upon the discharge of your duties? A. I entered upon the discharge of my duties at Washington at the time that Mr. Cleveland was inaugurated President.

FIRST ACQUAINTANCE WITH CROCKER, HUNTINGDON, AND HOPKINS.

Q. When did you first form the acquaintance of Mr. Charles Crocker? A. I am not certain, but I think that I formed liis acquaintance about 1854,

LELAND STANFORD. 2617

Q. Here in San Francisco? A. No, sir ; in Sacramento.

Q. What business was he in at that time? A. He was merchandising.

Q. Was he engaged in the same line of business that you were engaged in? A. No, sir.

Q. Was he alone or had he a partner? I believe that the firm name was Charles Crocker & Co. A. I think that he had a partner, but I am not certain.

Q. Do you know who his partners were at any time between 1854 and 18C2? A. No, sir ; I do not know. If he had a partner I think that it was a gentleman who lived in New York. I think that there was some one in New York who had an interest with him in the firm.

Q. When did you become acquainted with Mr. Huntington? A. In 1852.

Q. What was his business? A. He was in the hardware business in Sacramento.

Q. When did you become acquainted with Mark Hopkins? A. About the same time.

Q. Also at Sacramento? A. Yes, sir.

Q. What was Mr. Hopkius's business? A. He had a general grocery and provision store.

INCEPTION OF CENTRAL PACIFIC RAILROAD ENTERPRISE.

Q. Do you recall the circumstances under which the scheme of the Central Pacific Railroad was first developed? I mean when the bill first passed the legislature of California, and the time when the first idea of the road was developed. A. I will tell you the whole history, if I can take time to refresh my memory, because I was a part of it at the beginning. If you desire, however, I will now give you a brief sketch.

ORIGINAL SURVEY MADE BY T. D. JUDAH.

Q. I wish that you would give us a brief sketch now, and at some future time you can give us the complete history. A. In 1860 there was a gentleman by the name of T. D. Judah, who was afterwards chief engineer of the company, who had made surveys over the mountains with reference to the building of a line of railroad connecting the Atlantic and the Pacific. At first I had no personal acquaintance with him. The first time that my attention was called to the question of the construction of a railroad was by a gentleman by the name of James Bailey, who was afterwards the secretary of the company. Mr. Bailey came down to see me, told me of his acquaintance with Mr. Judah, and informed me that Mr. Judah had discovered in the mountains a pass over which a railroad could be built, and gave me such further information on the subject as he possessed, and desired that I should see Mr. Judah. I told him that I should be glad to see Mr. Judah, but did not know that we would care to do anything in the matter. I told him, however, that I would talk with Mr. Huntington and others about it. We fell into conversation upon the subject, and the result was that we agreed to have a meeting, and did have it the same evening at my house. We then fully considered the subject, and discussed the matter one way and another. We afterwards met again, when Mr. Hopkins joined us, and the result of that was that we concluded that we would make the acquaintance of Mr. Judah. Neither of us was acquainted with him, and we invited him to meet us and make our acquaintance,

2618 U. S. PACIFIC RAILWAY COMMISSION.

He then came down with Mr. Bailey and we had a conversation. We discussed the question thoroughly in all its bearings, and the more we talked of it the better we liked it. Mr. Crocker then came in, together with some other citizens, and between Crocker, Huntington, Hopkins, Judah, Bailey, and myself we raised some money towards making explorations which we thought necessary before forming a company. We awaited the result of those explorations and the reports made by Mr. Judah before we concluded to form a company, which we did in 1861.

COMPANY FORMED AND ROUTE SELECTED.

We had routes surveyed over the mountains according to my recollection there were five of them and finally determined which was the best one as to the passes and grades. We took the one which had the shortest snow line. At that point the ascent is very irregular. We had 7,000 feet of ascent almost in 83 miles. After reaching the summit the descent was at the rate of 90 feet to the mile. Outside of this, down the Truckee, there were a number of short grades and low summits, and a number of plateaus to cross. Altogether the route which we selected was the most practicable, according to our ideas. Although the snow falls as deep and even deeper on this line than it would have fallen on other lines that could have been selected, yet this deep snow line extends but a very short distance. We finished our explorations and then looked over the country to see what business there would be for a railroad line. At that time the business of Nevada was very promising, and we had an idea, like everybody else on this side, that most of the mountains in Nevada were filled with mineral wealth.

PROSPECTIVE BUSINESS FROM SILVER MINES.

Q. The Comstock lode was then being developed, was it not? A. Yes, sir ; they were all making developments at that time and most of them were very rich. The mines, however, did not have the depth which the Comstock lode had. I speak now of the mines outside of those upon the Comstock lode proper. I remember that while we were making our explorations, we came to the summit, and at Donner Pass we looked down on Donner Lake, 1,200 feet below us, and then looked up at the drifts above us 2,000 feet, and I must confess that it looked very formidable. We there and then discussed the question of the paying qualities of the enterprise, and we came to this conclusion : That if there was a way by which a vessel could start from San Francisco or from New York, and sail around Cape Horn, in behind those mountains, we could not afford to compete ; or if a vessel could start from any of the Atlantic ports and come there around Cape Horn, we could not compete. If this could not be done, however, and if we had only the ox and mule teams to compete with, we saw that we could obtain such a rate for carrying freight and passengers that we could afford to build the road with the prospect of further developments in Nevada.

GOVERNMENT AID.

Q. Was not your attention almost immediately turned to the subject of obtaining aid from the Government? A. I do not think it was at that time, but it was very soon afterwards. We drafted the bill in our office which, I think, became the foundation of the act of Congress. Mr. Judah and Mr. Bailey went to Washington to look after it. Mr. Judah went before the railroad commission and the committees of Congress,

LELAND STANFORD. 2619

and bad his maps with him to explain everything. He did a great deal towards the passage of that bill, because he understood the subject better than any other man at that time. He understood the country and the routes, and what was needed generally.

METHODS EMPLOYED IN OBTAINING IT.

Q. It appears from your minutes with reference to this visit of Mr. Judah to Washington, that a resolution was passed authorizing the issue of not to exceed $100,000 in full paid stock to be used by Mr. Judah as agent for the company, in such manner as he might deem advisable, in compensating agents and assistants who might perform service in promoting the interests of the company, and. in furtherance of the objects of his mission. Do you remember that circumstance ? A. Yes, sir ; I know that we gave him stock to be used to pay his expenses there, and to secure such aids as he might need. He used but little of that stock, however not very much of it. I do not remember how much he did use, but it may be that the reports will show. I think, however, that he brought back most of it.

Q. He was by profession an engineer, was he not? A. Yes, sir.

Q. Who else accompanied him to Washington on behalf of the company? A. Mr. James Bailey. He was the first secretary of the company.

Q. Had you at this time any acquaintance with J. 0. Stone, of Leavenworth, who was then present in Washington? A. No, sir $ I did not go on to Washington myself.

PASSAGE OF BILL BY CONGRESS.

Q. Proceed with your narrative. You were stating the inception of the enterprise, and the ideas that you had about getting over the mountains, and the object of Mr. Judah's trip to Washington? A. Mr. Judah remained in Washington some little time, and I do not know but what Mr. Huntington was there with him, but I think not, however, at that session. The bill was finally passed. After the passage of the bill Mr. Judah came back here and went to San Francisco in the hope that stock might be placed with the capitalists here in order to get money to build the road. Except a subscription for one lot of ten shares, we were not able to interest anybody in this city. The only thing we were able to obtain was that one ten-share subscription. There was some local feeling at Sacramento and some little stock was taken up there. This failure compelled us to ask aid from the counties, particularly the county of Placer, through which the road was to be constructed, and it gave a subscription of $200,000 towards the stock, giving the company its bonds for the same.

STOCK SUBSCRIPTIONS.

By the CHAIRMAN :

Q. Did you open books for the subscription of stock here? A. Yes, sir.

Q. And also at Sacramento? A. Yes, sir. And we went around soliciting subscriptions but found it impossible to get them. At that times everything here was high, and money was readily worth from 2 to 2 per cent, per mouth. All the objections to taking stock might be crystallized into this one, that money was bringing from 2 to 2 J per cent, P R VOL iv 19

2620 U. S. PACIFIC RAILWAY COMMISSION.

I

per month, arid capitalists could not afford to put it into an enterprise which they considered at best as of doubtful character, where the return would be only after the completion of the road. We were therefore compelled to rely upon our own resources. We obtained $200,000 subscriptions to stock from Placer County; $300,000, I think, from Sacramento County, and $000,000 were to have been subscribed by San Fran cisco, but the influential men and other influences here were such that we could not obtain this last subscription, and after considerable litigation the city gave us $400,000 of their bonds and did not take any oi our stock. It was the best that we could do, but it hurt the enterprise very much. One of the principal things which operated against our securing stock subscriptions was the fact of the existence of a personal liability which attached to stock under the laws of this State. We were forced to use our own individual credit to its fullest extent for the purchase of supplies, at one time to the extent of $600,000. We went on, however, and built the first 31 miles of road entirely from our own means. We had not then obtained any county or State, aid. The State paid the interest on a million and a half of our own bonds, we paying the principal. We built 31 miles of the road, but we were not able until we got this county aid to go further.

LOCAL CONTRACTORS.

By Commissioner ANDERSON :

Q. What 31 miles was this? A. The first 31 miles east of Sacramento.

Q. The first 31 sections'? A. Yes, sir.

Q. By what company was that built? A. By the Central .Pacific liailroad Company, without any outside aid.

Q. Was it built by 4ocal contractors who took certain small subdi visions? A. Yes, sir. We thought that was the most practicable way of building the road at that time.

OBSTACLES TO BE OVERCOME.

By the CHAIRMAN :

Q. During what year was this? A. I think that it was in 1863. We kept on building and doing what we were able to do until our means were substantially exhausted. The principal drain at that time was in the purchase of iron. We wanted to have on hand sufficient iron to build fifty miles of road. We had considerable litigation to procure right of way. In fact, we obtained hardly any without litigation. Parties opposed to the construction of the road interfered with us, and we had a great deal of trouble and considerable litigation. Finally the courts decided in our favor, the counties gave us their bonds, and the State paid the interest on a million and a half of our own bonds. That was all that we had until we got aid from the Government.

CONTRACT WITH CHARLES CROCKER AND COMPANY.

By Commissioner ANDERSON : Q. Please go back to the construction of the road. After several contractors had proceeded with portions of the work, and you concluded t hat it was best to make a change, what change did you make in the form of construction? A. We then made a contract with Charles Crocker, in the name of Charles Crocker & Company, He had no part

LELAND STANFORD. 2621

ner, but the contract was made out in the name of Crocker & Company for the reason that we had hopes that he would be able to get capitalists interested with him. This was found to be impossible, however, as every one regarded the enterprise as of too doubtful a character to risk money in it. It was the general impression that it would be a doubtful struggle at best, with the chances all against us.

Q. For how long was this matter discussed between all of you as to the advisability of changing the method which you had pursued, and instead of letting the work to smaller contractors giving it out in large contracts? A. It came up almost immediately.

OBJECTIONS TO SMALL CONTRACTS.

By Commissioner LITTLER :

Q. Immediately after the small contractors began 1 A. Yes, sir. Labor was very scarce, and we pushed them very hard. We wanted the work done as nearly as possible in consecutive order. We wanted it done first at the point nearest the starting point, so that as each section was completed we could utilize our capital to the greatest extent possible. We often found, however, that the contractor the farthest off would finish his work first. The others would be slow, and there was constant trouble from this source. Considerable trouble also resulted from the fact that labor, especially white labor, was very scarce. Most of the men working on the road were merely working for a stake, and when they got that they would go off to the mines, and we could not hold them, except in rare instances, more than a very little while. We could not get the necessary white men, and then we had to take Chinaman.

By Commissioner ANDERSON :

Q. Had Mr. Crocker done any work of this character before that time? A. I think not.

ADVANTAGES OF CONTRACT WITH CROCKER.

Q. What were the advantages known to you of selecting him as contractor to do that work? A. He joined us in the enterprise. He was a man of a great deal of energy and force of character, and nobody else hardly would touch the enterprise at all. We were left substantially alone. Six or seven men who started with us left us to get through the best that we could. After that it became practically an individual enterprise. Then we made this contract, in the hope that we would be able to get others in with us. I think that we made the contract for a certain number of miles, which Mr. Crocker finished, and that

he then continued on working without any regular contract.

CROCKER'S RESIGNATION AS DIRECTOR.

Q. I would like to know something about the contract first. Do you remember the fact that Charles Crocker resigned his office as director of your company on the 24th day of December, 1862? A. I remember the fact that he resigned, but I do not remember the date.

Q. Do you not connect that resignation with the fact that this contract was about to be awarded to him? A. I do not remember that fact, but very likely that was so. This contract, as I say, was awarded to Mr. Crocker in order that he might get capital interested with him in the matter. It had got to be a sort of individual enterprise, because

2622 U. S. PACIFIC RAILWAY COMMISSION.

nobody else would take hold, and it became a question with us how to get on. We saw that we must control things, control the men and control the work, if we were to succeed at all. I made great efforts, and so did all of us, to get capitalists to take an interest in this contract with Mr. Crocker, but we were unable to do so. This personal liability clause in our law had a great deal to do with it. We not only tried to get capitalists interested with iis, but we were very anxious that they should come in, even if we had to give them all the assets of the company. Our failure in this matter led us to form the Contract and Finance Company.

Q. That was formed some time later, some three years later, was it not? A. Yes, sir.

REASON FOR HIS RESIGNATION.

Q. Mr. Crocker's proposal for construction under his contract appears from your minutes to have been considered and awarded by your board on the 26th of December, 1862, two days after his resignation. Without intending to criticise that resignation, is it not perfectly apparent and well known to all of you that he resigned because the voting for that contract or the awarding of that contract while he was a director might raise questions as to its legality? A. That may have been so.

Q. Was it not so, according to your best judgment? A. I do not know but that it was.

Q. Mr. Crocker resigned on the 24th and his proposal was acted on on the 26th. Would that not seem to indicate that the reason that I have suggested for his resignation is the correct one I A. That may have been the case. I have stated the objections to the making of small contracts, and in making a contract with Mr. Crocker it was done with the idea that we knew that he would work with us, that he was deeply interested with us, and that he would be at all times under our control. We wanted his whole time devoted to the construction of the road. We thought that he could do better service as a contractor than as a director, and there may have been some question as to his occupying both positions. How far those influences went at that time, however, I do not now remember, but it was a part of our general scheme to build the road, and we knew that we had to rely upon ourselves. Mr. Crocker went on with the contract, and kept on struggling with the rest of us until our means were pretty well exhausted.

TERMS OF HIS CONTRACT.

Q. Now pass to his contract : Can you tell us what the terms of his contract were? A. No, sir : not without examination. I know, however, that we gave him so much a yard for material I think in cash, and so much in stock. The stock at this time was not considered as of much, if any, value. We did not attach much importance tt it. Long before we got over the mountains it was not a financial problem. It was a question of whether it was possible to construct the road.

Q. What I want to get at is, what is your recollection as to the terms of the Crocker contract ; was payment to be made on the engineer's statements of the quantity of work to be done, and not at so much per mile? A. That is my recollection. We made estimates of prices for the different classes of work, but those prices I do not remember. I think that our books, if you have them, will show just what those contracts were,

LELAND STANFORD. 2623

THE STOCK OF LITTLE VALUE.

Q. The minutes do not show the terms of the contract. Your books show only large payments to Mr. Crocker during the years 1863> 1864, and 1865, and the estimates produced yesterday by Mr. Miller show, as preliminary to making the payments to Mr. Crocker, that schedules of estimates of quantity and estimates of amounts were made out, stating so many yards of excavation, so many feet of grading, so many ties delivered, so much wrought iron, so much cast iron, the whole being computed by the month, and then payments were made to Charles Crocker & Co. at the rate of five-eights of the amount due in money and threeeighths of the amount due in stock. Does that statement refresh your recollection as to the nature of the (Crocker contract? A. Iknow that the contract was for specific prices, to be paid by the yard, and so much was to be paid in cash, and so much was to be paid in stock. The stock was not considered as amounting to very much value, but still we had an idea that the stock of the company might be an inducement to capitalists to come in with Mr. Crocker, and if the enterprise was successful they would have the benefit of it. None came iri, however ; but we still continued on in the hope that at some time or another either this stock or some other inducements could be given by which we could obtain the necessary financial assistance to complete the road. As I have said before, this became substantially an individual enterprise. The whole weight rested upon us. We could not get anybody with us, and it seemed, long before we got over the mountains, that something had to be done or we would not be able to make it a success. The best thing that we could do was, first, the making of this contract with Crocker & Co., hoping for the best, and then the contract with the Contract and Finance Company.

CHRONOLOGICAL HISTORY OF CONSTRUCTION.

Q. When did you make the contract with the Contract and Finance Company? A. That was made after the contracts with Crocker & Co.

Q. Before I ask any further questions in that respect I would like to get an intelligent and chronological history of the construction of the road from year to year. I would like the history of the building of of the road, section by section. How many miles did the Crocker contracts embrace before the contract was made with the Contract and Finance Company? A. I think that this contract took us up to a place called Dutch Flat, 60 miles from Sacramento, about 30 miles from New Castle. Mr. Crocker then continued on building the road. I do not know now whether there was any regular contract for this additional construction or not, but I do not think that there was. I do not think that we ever gave him a contract beyond Dutch Flat, because, as I say, we were all oping to get some Eastern contractors and capitalists to come out and take an interest in the work. We did not succeed in this, so Mr. Crocker kept on doing the work. I do not know about the prices, whether they were changed or not. I do not think that we cared, so long as we got the work done. We kept building all the time, so far as we could obtain money to go on with the work. We pushed it as fast as our means would permit, and in order to do this it was necessary that we should keep substantially the control of the whole thing in our hands. I do not know whether there was ever any new contract, either verbal or written. I do not think that there was. I think that it was merely a general understanding.

2624 D. S. PACIFIC RAILWAY COMMISSION.

EXTENT OF WORK DONE BY CROCKER.

Q. Assuming that there was not, or that they were mere modifications of this original contract, up to what point did the Crocker work extend, and where did the Contract and Finance Company begin? A. The Crocker work continued merely to the State line, I think, before the work of the Contract and Finance Company began. By this time, I will say further, our means were very limited. Under the act of Congress we had mortgaged the road and issued bonds 100 miles in advance of construction, and they were all consumed, together with the county aid and all the aid that we received, and it was doubtful if we could possibly go on. Then I thought, and talked it over with the rest of my associates, that if we made a contract and put in a sufficient amount of the stock so that the con tractors could have substantially what there was in it, we might induce Eastern men to come in, and possibly some of our own people. I tried to get some of the largest capitalists in this State to come in with us at that time, but it was the same old story.

THE CONTRACT AND FINANCE COMPANY A FINANCIAL NECESSITY.

They were afraid to take any chances in what they considered a doubtful enterprise, when they could lend their money out on good security at high rates of interest. All the way through it was a question of capital whether we would succeed or not. And we determined to let contracts in the way in which they were let, thinking that in that way we might get rid of this scare of the individual liability of stockholders under the California law. We thought that by forming the Contract and Finance Company, and agreeing to give it the stock of the company, that company might be able to interest capital. Of course this was practically giving the contractors all the assets of the company, but it was better for us to do that than to fail.

FAILURE TO INTEREST CAPITALISTS.

Mr. Huntington in Kew York tried to get capital interested, and I tried here. At one time I had a good deal of hope that I might succeed here by forming a syndicate of our wealthiest men and offering them these inducements. We failed in all these endeavors, as we had failed in all the previous ones. We finally managed to get through, but when we did finish the work to Ogden our entire means were exhausted. The Government bonds were all gone. I never saw one of these Government bonds. Our first-mortgage bonds were exhausted. The aid received from the counties had been used up. The money raised from the bonds on which the State had guaranteed the interest had gone into the road, and, to cap all, the company was considerably in debt.

ROAD COMPLETED TO STATE LINE.

Q. To come back to Mr. Crocker's work, I understand you to say, then, that the construction actually effected, paid under those contracts, extended from Sacramento City to the State line. Is that correct? A. Not by virtue of the contract, but because we continued the work for the reason that there was no one else to do it.

Q. flow many miles was this east of Sacramento 141? A. About that ; I think, though, that it was about 137.

LELAND STANFORD. 2625

Q. Can you give ine the exact location where your State line is, with reference to Donner Lake Pass or the town of Truckee? A. It is some ways down from Truckee.

Q. After you pass the village? A. Yes, sir.

Q. Was it not known as " Camp No. 24 " at that time? A. I cannot say as to that.

Q. At what period was it that you reached this point on the State line? A. I do not remember exactly.

Q. Take it this way. How long was it before the contract was made with the Contract and Finance Company *? A. I think that it was in the winter of 1866 and 1867. I know that in 1868 we were at the Summit. We built over the desert during the season of 1868 the winter of 18C8->69.

COST OF CONSTRUCTION.

Q. What is your recollection as to the cost of the first portion of the road ? What is your recollection as to the total amount paid under the Crocker contracts for the work done by him from the thirty-first section to the one hundred and forty first section? A. I cannot remember now. I cannot tell you in dollars and cents 5 but I know that he had all the money that we could put our hands on at that time, as well as the proceeds realized from the sale of our own bonds for one hundred miles in advance of our construction, part of it at the rate of $40,000 a mile, and the rest at the rate of $32,000 a mile. The Government, I think, gave us bonds on the basis of two-thirds of the completed amount of work, at the rate of $48,000 a mile. All that was gone, and everything that we had from the county and State had gone in at that time. The bonds given us by the city and county of San Francisco bore interest at the rate of 7 per cent, per annum. Money here at that time was very high, and I think that all we realized from the sale of those bonds was at the rate of 73 cents on the dollar. The million and a half of our own bonds, upon which the State had guaranteed the interest, produced us but about $1,000,000 in cash. From the Sacramento County bonds we realized but 65 cents on the dollar, and from the Placer County bonds but 70 cents.

Q. Your statement is that all that the company had received, all of its assets, except what had been paid to the small contractors for the construction of the first thirty-one sections of the road, were used up in paying for work done under the Crocker contract and the extension of the Crocker contract? A. I think so. I may be in error a little, but that is substantially the case. At that time I know that I was looking after the finances here, and what I have given you is my recollection.

NECESSITY FOR COMPANY TO CONTROL CONTRACTORS.

Q. Do you remember the fact that Mr. Crocker first proposed, among a number of other contractors, for a comparatively small section of work between Sacramento and the California Central, and that it was subsequently to that date that he made his larger contract? A. Yes, sir; subsequent to that. When we first commenced, we thought of letting contracts to bidders before much work was done, but it soon became apparent to us that we could not handle them and be successful in building the road in that way. We saw that we must have them under our own control, or practically so. We saw that we must have contractors whom we could control, who could do the work when we had the money to pay, and who would push it and be willing to make any

2626 U. S. PACIFIC EAILWAY COMMISSION.

kind of sacrifice that we might call upon them to make. We looked at the work ourselves, and whenever there was a chance to push it by any sacrifice, we did not hesitate. We used our money with the greatest economy in every respect, except in the matter of speed, and theft we never hesitated to make a sacrifice. The road could not have been built under any other circumstances, and we could not have done anything in the matter, except by pushing it as rapidly as possible, still exercising in everything the closest economy.

Q. Our object is to ascertain approximately, without disputing your proposition, the terms upon which it was constructed. A. There is no reason for concealing anything about this, or about anything else in connection with the company. 1 take it that this committee is here to see what is fair and right between the Government and the company, and what is right all around. I am glad to give you all the information in my power. We had great difficulties to overcome, and the only wonder is that we ever did overcome them.

AMOUNT PAID TO CROCKER & CO.

Q. We find from the books of the company that the payments to Crocker & Co. in 1865 amounted to $3,236,710.35; in 1866, $8,290,790.11; and in 1867, $9,930,282.19. The payments that I have enumerated all appear to have been made for the construction of the road from section 31 to section 141, both inclusive, one hundred and ten sections in all. It would therefore appear that between $21,000,000 and $22,000,000 were paid in the form in which the payments were made, five-eighths in cash and three-eighths in stock, to Mr. Crocker for his work to the State line. If this is correct It would seem that for the construction of the road between sections 31 and 141 Mr. Crocker received at the rate of over $200,000 a mile. Is that the way you understand the work to have been done and the payments to have been made, assuming these figures to be correct? A. I do not know about the figures. We did not give him money any faster than he needed it, because we had great difficulty in obtaining money at that time.

Q. Who can give an idea about this I A. I am coming to it.

MAGNITUDE OF THE WORK.

Q. Please describe the start at section 31 and extending to section 141, each of the sections being substantially equivalent to 1 mile, and give us the character of the country over which this line passes. Give the names of the towns, the names of the rivers, and tell us all you can about the general character of the country. Give us a description of the plain first, and then you can tell us about the mountains. A. I was going to give you an idea about that work. We worked on that mountain from ten to fifteen thousand men most of the time, and then were oftentimes aided by five hundred kegs of powder a day. After we passed the mountains we worked about half that number of men. We were four years crawling up the mountains, and three of those years we drew upon all the forces that we could get. After we passed the mountains we built 500 miles of road in five days less than ten months.

Q. That is not under the Crocker contract. What I want to know is all about the Crocker contract and the work done under it. We can take up this other work afterwards. A. What I wanted to give yon was an idea of the magnitude of the work.

LELAND STANFORD. 2627

Q. What I want to know first of all is the history of these first one hundred and forty-one sections. A. If you will let me go on I will give you something by which you can judge of the magnitude of that work.

GEOGRAPHY OF THE COUNTRY.

Commissioner ANDERSON. If you will describe the geography of the country, and give the names of the towns, rivers, &c., as you go on, it would be much more intelligent to me. If you say, for instance, section 31 commenced east of such and such a place and passed over such and such a river, going such and such a way, I could follow you more intelligently.

The WITNESS. The maps of our engineers will show all of these details; although they will give you the names of a great many places well known at the time the road was constructed, but which have since disappeared.

Q. The rivers are there, are they not? A. The rivers are there ; yes, sir. The contract with Crocker, I think, commenced at New Castle, 31 miles east of Sacramento. It was for a limited number of miles. My impression was that it was for 20 miles. It may have been only to Colfax, 51 or 52 miles. I am not positive about that. After terminating this contract, however, Mr. Crocker continued on with the work. I do not think that we put the terms in writing, but still we may have done so. At any rate I am not certain about it, and I do not see that it is of any great importance. We were doing whatever we thought necessary to complete that road, and we" went on and did the work, and pushed it on as fast as possible with the means at our command. We never had any surplus money.

Commissioner ANDERSON. Mr. Crocker seems to have had some surplus money at some time or other in the course of his life.

DIFFICULTIES IN CROSSING THE SIERRA NEVADAS.

The WITNESS. I will give you something which will give you an idea of the extent of the work and of its magnitude if you will let me. We worked from ten to fifteen thousand men on that mountain, and after we passed the mountain, with less than half the force, we built 500 miles in five days less than ten months and met the Union Pacific Bailroad line at Promontory. The work on the Sierra Nevada Mountains was exceedingly difficult, and was far more than the average of the work from there to Chicago. The same rate of speed which we were able to exhibit after we left the mountains with only half the men would, if we had been able to have carried it out during all the time that we were building, have carried us to Chicago. There never was any portion of the work on either road so difficult as that which we had in climbing the Sierra Nevada Mountains.

Q. Which side of Truckee? A. Partly beyond Truckee, say, for the first 150 miles beyond the summit, carrying us beyond the State line. It took more work upon our part to get us across these mountains than would have sufficed to build a single track road from the other side of the Sierra Nevadas to Chicago.

PREVIOUS INVESTIGATIONS.

By Commissioner LITTLER :

Q. Is not this work well described and well stated on your side of the case in the report of >our superintendent of construction, which is

2628 TJ, S. PACIFIC RAILWAY* COMMISSION.

made an exhibit to your affidavit? A. Yes, sir. This is twenty-six years ago, during which time I have led a very busy life. From time to time the papers have discussed all these questions, and they have been all through these things. Legislative committees and the courts have fully investigated all these matters, and numerous reports have been made from time to time. I suppose that in one place and another an immense quantity of matter can be found that would throw light on this subject, but I cannot place my hand on it.

BASIS OF RAISING MONEY TO PAY CONTRACTOR.

By Commissioner ANDERSON:

Q. It appears from these figures, which I have read, that there was paid to Mr. Crocker for the work done by him, part of which was in money and part in stock, at the rate of $210,000 for each mile of road constructed, and our inquiry is directed to the question whether the issues of stock and the sales of bonds made for the purpose of raising that money were not upon such a basis as to have contributed, in the ultimate result, very largely to the present crippled condition of the Central Pacific Eailroad Company? A. No, sir; it has not.

Commissioner ANDERSON. And on that point we would like any information that you can give us.

The WITNESS. The stock was not considered as valuable at the time, and it did not turn out to be of any valuable assistance in the building of tiie road. If it had any value at all it was wholly prospective. We could not sell it and we could not hypothecate it. All the money that we could get from any and every source went into the road.

Q. You mean it went into the Crocker contract? A. It went into the construction of the road. Mr. Crocker did not have any profits from it.

WHO CONTROLLED THE ENTERPRISE.

Commissioner ANDERSON. Excuse me ; but you are passing over the whole question that we are so anxious to get light upon. If that expression, "Crocker did not get any profit out of it," is based upon fact we will pass to the next section.

The WITNESS. We substantially controlled the whole of that work. We knew all the work that we could do and all the money that we had to push it through.

Q. Whom do you mean by "we," yourself and Crocker? A. I mean the five men who devoted themselves to it from the beginning to the end. We all worked on the best that we could, and did all we could to accomplish the result.

Q. There were yourself, Mr. Crocker, Mr. Mark Hopkins, Mr. Huntington, and who else? A. E. B. Crocker.

Q. A brother of Charles Crocker? A. Yes, sir. Mr. Judah died early and Mr. Bailey retired.

Q. And E. B. Crocker is dead now? A. Yes, sir.

Q. Was his interest substantially the same as that of Charles Crocker ; did they work together? A. No, sir. Charles Crocker was contractor; but we all felt that we should fill our parts the best that we knew how towards securing the construction of that road, and we did so.

Q. You say that you were all working together. Do I understand you that you all contributed your time, attention, and credit, and gave your best energies to the successful completion of these Crocker contracts? -A, Yes, sir j that is substantially it.

LELAND STANFORD. 2629

WHO WOULD HAVE GOT THE PROFITS.

Q. Do I also understand that you were equally interested in any of the profits, or were to share any of the losses that might arise under that contract 1 A. No, sir ; not at that time.

Q. If there had been profits would they have gone to Mr. Crocker? A. If there had been profits we would have let them go to him, as is ordinarily the case in contracts, and Mr. Crocker would have enjoyed them. We had to make great sacrifices, however, in order to make time, and this cut off whatever profits he might otherwise have made. Sometimes it was a question how far we could get money to keep things going, and how to regulate expenses so as to be able to pay them.

RELATIONS OF CONTRACTORS WITH RAILROAD COMPANY.

Q. State on what you based your belief or conviction that you appear to have that when Mr. Crocker had finished the one hundred and fortyfirst section there was nothing left of the $22,000,000 in money and stock which he had received ? A. Because the money passed through our own hands, and the relations of Mr. Crocker and the Contract and Finance Company with the railroad company was such that we knew all the time about their expenses and their wants. We met their wants, but did not go any further. The contract, at the time it was let to Mr. Crocker, would not have been taken by anybody else. If there had been a regular contract let to a regular contractor whom we could not have absolutely controlled, we would have had more or less trouble. We could not have afforded to have let him go on as contractors ordinarily go on with work, because of the difficulty which we experienced in getting money. If we could have let him go on in this way, as other contractors do work, he would have had a right to enjoy all the profits that he could make; but we had to have control over him in order to be able to do anything at all; and as he was interested with us in the construction of the road, and as we were all working together for the common end, we could of course do as we pleased with him.

INDIVIDUAL KNOWLEDGE OF EXPENSES.

Q. Did that control which you exercised over Mr. Crocker give you such a knowledge of his doings as to enable you to tell when he ought to have money, or did you take his word for it every time *? A. We knew what he wanted and what he needed. We had reports of the work that was being done, and we knew the work that was to be done. We knew what it was costing, and we knew every dollar that was required to carry it on.

Q. Those reports made to you must have, been entered somewhere upon your books, and ought to show the amounts paid to the different contractors who did the work, ought they not? A. I suppose so.

Q. You would not be liable to take his word for it whenever he needed money, would you? He would not come to you and say, " I want more money to do more work," or " I want $5,000,000 to go on, as I have spent all I had "? A. Each one of us on the spot had his individual knowledge as to the other's department, and we kept trace of it all the time. We hardly slept, but did the best we could to get along, and I may say now that I sometimes wonder that we ever did get through at all.

2630 U. S. PACIFIC RAILWAY COMMISSION.

DISAPPEARANCE OF CONTRACTOR'S BOOKS.

Q. Who kept Charles Crocker's books? A. I think William E Brown. Perhaps not at the beginning, but very soon afterwards, before the enterprise became of very great magnitude, William E. Brown was in charge.

Q. Have you ever seen those books since this contract was finished in 1867 ? A. 1 dp not know. I never have been over his books, but I have seen books in his office lying open on his desk.

Q. Do you know whether they have been exhibited in any of the various litigations in which these matters have been discussed! A. Not to my knowledge.

Q. Do you know whether they are available to this Commission now? A. I do not think that they are. I do not know where they are, nor what became of them, but they have disappeared.

Q. They have disappeared? A. Yes, sir.

Q. Do you know whether this has been the subject of litigation and investigation, as have been the books of the Contract and Finance Company, which have been described as missing? A. Yes, sir.

Q. And they have not been produced? A. No, sir.

INTEREST OF COMMUNITY AS TO CAUSE OF CENTRAL PACIFIC'S

WEAKNESS.

Commissioner ANDERSON. I may as well say here that the subject, as we understand it, assumes about this shape : The community is largely interested in this matter, and it seems to be the general belief that the present weak condition of the Central Pacific Railroad Company is due to the fact that the contract with Crocker & Co., and the contract with the Contract and Finance Company, and the contracts with the Western Development Company, and the contracts with the Pacific Improvement Company have drained the company of its resources ; that certain individuals have procured to be issued to themselves enormous quantities of stock and bonds of this company, and have paid dividends on the stock, and have made the interest charge on the bonds exceedingly heavy, and that the origin of its difficulties lies there entirely, and nowhere else. The Commission desires to afford a full opportunity to have answers made in reference to that matter. To those subjects to which you have been so fully devoting your time (and in the report you handled them with great dexterity and ability), the community has had its attention called so often that it is familiar with them 5 but the subject of this issue of stock and bonds has always remained concealed, and all proceedings brought to throw light upon it have been met with the assertion that the books and the contracts have disappeared.

THE STOCK VALUELESS WHEN ISSUED.

The WITNESS. I thank you for your frankness. This opportunity is what we want, and what we have desired for some time. We have nothing in our transactions to conceal, and we are ready and willing that the whole history shall be fully understood. The stock was substantially valueless. It had no value at the time it was issued, and it had no value when the road was completed. Of course it afterwards became valuable. Of the very few people who subscribed for stock at the beginning, most all got out, and this included most of those who had taken a little stock to help us along. Afterwards it went down, and 1 myself bought, as an accommodation to a stockholder, 2,300

LELAND STANFORD. 263!

shares of it at 10 cents on the dollar, full paid stock. Finally, it was not sold at all, as nobody would have it. In making these contracts we did not count the stock even among ourselves as of any special value, but we put it in in the hope that somebody or other, some capitalists, would be willing to take an interest with us, and there would be the property as security.

MEANS EXHAUSTED UPON COMPLETION OF ROAD.

When the road was completed to Ogden, all of our money and all of our means were exhausted. You will understand that our road was mortgaged for 100 miles in advance of construction, and we had used up all of this money crossing the mountains. We had graded the road to Promontory, some 63 miles, I think, and there met the Union Pacific. In the settlement, the Union Pacific took the entire aid from the Government for these G3 miles, which made a considerable inroad in the amount received from the Government by the Central Pacific. Everything was used up. The Contract and Finance Company itself was somewhat in debt, and I think our books will show by this I mean the Western Development Company books that when the Contract and Finance Company went out of existence there was a great deal of property which it was supposed by the general public to have, which really had no existence. About that time there was a great deal of talk about the Credit Mobilier matter of the Union Paific.

DISSOLUTION OF CONTRACT AND FINANCE COMPANY.

The people began to talk about the Contract and Finance Company; and when we, after a while, got through, we concluded to let that company go. Its affairs were wound up, and under our laws here it was dissolved. The indebtedness of the Contract and Finance Company was assumed by Mr. Huntington, Mr. Crocker, Mr. Hopkins, and myself, according to my recollection, and its affairs were wound up.

DIVIDENDS.

Commissioner ANDERSON. I will say here that the assertion is made that the Contract and Finance Company was in the condition which you mentioned because, before presenting its petition to the court, it had divided up enormous dividends of stock and bonds to the four gentlemen you named.

The WITNESS. My impression is that the only dividends made were of stock ; but Mr. Brown, when you come to him, will be able to tell you specifically about that.

MONEY PAID TO CROCKER.

By the CHAIRMAN :

Q. Of what department did you have charge during the Crocker con tract? A. I was president of the company, and had the general management of its affairs on this side. I looked particularly after the financial department until we were able to obtain aid from the Government. I had to look after a great deal of the financial business of the company, especially that which was transacted here.

Q. Was the sum of $22,000,000, or the different amounts named to you as having been paid to him from 1864 to 1867, paid to Mr. Crocker on his individual contract ? A, As to the amount I cannot say, but

2632 U. S. PACIFIC KAILWAY COMMISSION.

of course Mr. Crocker received the money, whatever was paid for that work from the end of the 31 miles until the Contract and Finance Company took hold of the construction. But as to the amounts I cannot say anything. I only know this, that I was helping to raise money all the time, and it was hard work to get it.

STOCK SUBSCRIPTIONS.

I will say further about this stock: The stock subscriptions by individuals were very small. At last we had some trouble about this Contract and Finance Company, and got into the courts. We finally bought up the stock, so that there was none of the stock owned by the original shareholders in the market that we know of, and they have not any interest in the railroad because of that stock. The present stockholders in the concern have no interest or concern at all in any business or contracts prior to that date.

ACCOUNT BOOKS OF CHARLES CROCKER & CO.

By Commissioner ANDERSON :

Q. Before leaving the Crocker contracts can you refer us to any one else besides William E. Brown and Charles Crocker who would "have knowledge of the contents of the books of account of that firm, and who can lay before us the figures showing what profits, if any, were made out of that construction, so that we can reach an intelligent judgment on that subject? A. No ; I do not think that I can. I think that Mr. Brown had a clerk or two with him ; but he kept the books, and he would know. Mr. Crocker did not pay much more attention to the books and to the accounts than the rest of us. He was supervising construction, and spent most of the time at the front. He was a very active man, and personally supervised the work of construction.

Q. Did he have any assistant? A. Yes, sir ; his first assistant was Mr. Strobridge.

Q. Is he living? A. Yes, sir.

Q. Please give us his name in full. A. J. H. Strobridge.

Q. Please give us his address. Is he living in San Francisco? A. He lives across the bay, in Oakland.

Q. How can he be reached? A. He may be reached at almost any time upon a .day's notice.

Q. Did he make the subcontracts that Mr. Crocker made? A. No, sir.

Q. Was he employed by Mr. Crocker? A. Yes, sir.

Q. Did he have the employment of any men? A. Yes, sir ; under Mr. Crocker he had the entire supervision of the work of construction.

Q. Did the Crocker contract include rails? Did he furnish the rails? A. 1 think that the contract included everything.

MATERIALS PURCHASED IN NAME OF CENTRAL PACIFIC.

Q. Where goods, materials, rails, &c., were purchased in the East to be used in" these Crocker contracts, were they purchased in his name or in the name of the Central Pacific? A. I think they were purchased in the name of the Central Pacific and charged by the Central Pacific to Crocker & Co,

LELAND STANFORD. 2633

Q. The Central Pacific bought the rails aud charged them to the Crocker contract? A. Yes, sir; I think that was the way.

PRICE OF BAILS AND ENGINES.

Q. Do you remember the price of rails at that time? A. They varied, I think, from $70 to $80 a ton, and I believe at one time we paid as high as $136 per ton.

Q. Does that mean iron or steel rails'? A. Iron; that was before the days of steel. Everything was high. I think that we paid $65,000 or $67,000 for two engines.

Commissioner LITTLER. Your engineer says that you paid $143.67 at one time per ton for rails delivered at Sacramento.

The WITNESS. Yes, sir; that was for a portion.

Q. Was it at that time very difficult to get rails? A. Yes, sir. Does that statement give the amount of rails that we bought at that time 1?

COST OF TRANSPORTATION VIA PANAMA.

Commissioner LITTLER. Eb, sir ; he says that shipments by way of the Isthmus of Panama were made as late as 1868, and that the rails alone cost $51.98 per ton ; and that with freight added the rails cost, delivered at Sacramento, $143.67, not including the charges for transfer from the ships at San Francisco to the schooners, or for transportation up the Sacramento Eiver to the city of Sacramento.

The WITNESS. I remember that we had 10,000 tons of rails come by way of the Isthmus, and I think that my impression is that they charged us about $60 a ton for the freight. I know that we had quite a number of engines come by way of the Isthmus, and it cost us something like $3,000 an engine for freight by way of the Pacific Mail.

By Commissioner ANDERSON. I show you one of your estimates to make up the amount coining due under this contract. Please explain it. [Hands witness the document referred to.]

EXPLANATION OF ESTIMATES.

Q. Does the first column show the quality of work done for which payment was to be made, the second column the price, and the third column the figures? A. I only know by what I see here ; but 1 presume that it is correct. I have no reason to think otherwise.

Commissioner ANDERSON. I call your attention to the fact that the items for work do not seem to include the rails.

The WITNESS. This seems not to include them.

Q. Does your memory serve you as to whether they were included in the contract or not? A. I think that they were included in the contract, but that would be a different charge. These are estimates made by the engineers at the beginning of that contract. It was very carefully considered, and received as much attention as any other matter which came before the company, because when Mr. Crocker made the contract he, of course, hoped that he would make some money out of it ; and if we had been able to push matters, he would have gone on in that way, and would have made some money; but circumstances required us to make all kinds of sacrifices for speed. At one time we had to pick out and dig out snow to the depth of 75 feet to make an embankment. At times the snow was very deep all along the mountains, and it was difficult to get provisions aud materials to the front. At times the stage could not run, owing to the depth of the mud. The horses would mire in the mud, and

2634 U. S. PACIFIC RAILWAY COMMISSION.

then we had to pack the goods to the front at great expense and with a great deal of trouble. The snow fell during the winters that we were on the mountain to an average depth of from 37 to 38 feet. Heavier falls have taken place since, but we have been better prepared to meet them. In the spring that snow would pack down to about from 14 to 16 feet, and would be very hard. We worked through this snow at enormous expense and trouble, and no contractor would have been able to stand on his contract.

WHY THE COMPANY CONTROLLED SUPERVISION OF WORK.

9

Q. Are you speaking of the Crocker contract? A. Yes, sir. We therefore practically took control of the supervision of affairs, and did all that we could to take care of the interests of the company ; but we forced the road along at any sacrifice, without any reference to the irfterests of the contractor.

By Commissioner LITTLER:

Q. And without any reference to the obligations of the contract? A. Yes, sir. We wanted the work done, and as Mr. Crocker was jointly interested with us in the success of the enterprise, his interests as a contractor were considered by us as secondary to the completion of the road.

Q. Do you mean to say that by your conduct you practically annulled the Crocker contract and ran the work yourselves? A. Pretty largely, though not entirely; perhaps legally not. But we had to have that work done, and we insisted upon it that every sacrifice should be made. For instance, we wasted a great deal of dirt, which the contractor ordinarily would put in the fills ; but to do this would have delayed the progress of the work.

By Commissioner ANDERSON :

Q. Did you have any trouble with Mr. Crocker about this? A. No, sir.

Q. Did he make any objections? A. No, sir.

Q. Did Mr. Crocker furnish any part of the equipment or the rollingstock under his contract? A. I think that everything went in under that contract.

Q. You notice that by your reports you did business as fast as your road was completed, do you not 1 A. Yes, sir.

GROSS EARNINGS FROM COMPLETED PORTION.

Commissioner ANDERSON. So that your gross earning reported for the years 1864, 1865, 1866, 1867, and 1868 reached up to quite large figures, the gross earnings of 1868 being over $2,000,000, those for 18(59 being over $5,000,000, those of 1870 being $7,000,000, and those of 1871 being $9,000,000. I merely refer to the fact that from 1862 to 1867, under the Crocker contract, your gross earnings amounted to quite a considerable sum. The rate at which the road was operated appears to have been under 35 per cent., and the credit to the income account, that is, the actual surplus after deducting all expenses chargeable to the income, appears to have amounted to over $1,000,000.

The WITNESS. About the book-keeping part I do not know. I do not know that I ever looked over a page of the books since the history of the road commenced.

LELAND STAlfFORD. 2635

FINANCIAL RESULTS FROM CROCKER'S CONTRACT.

Q. Have you ever been over any statement showing the result of this contract with Mr. Crocker, so as to see whether he did or did not make any money out of it? A. No, sir ; I never did. All the money that he received on that contract went into construction. Of course the stock was net. I never went over the matter myself, but still I had sufficient knowledge of things, and I knew that at that time every dollar of income from every source went into the construction of the road. In the first place, I had largely to do with negotiating the money for him, and our relations were such that I knew what his wants were. He talked it over with Mr. Hopkins, who was treasurer of the company, and myself, and we furnished what was needed, but we did not furnish any more. It was hard enough to get that.

THE STOCK A NET PROFIT.

Q. You used the expression a few moments ago that the stock was net ; was it your understanding that the money which he received was sufficient to pay the expense to which he was put, and that when he finished the Crocker contract and completed the road up to that one hundred and forty-first section he had all the stock remaining substantially net? A. I think so.

Q. Was there ever anything done whatsoever between Mr. Crocker, Mr. Huntington, Mr. Hopkins, and yourself as to the money received by Mr. Crocker under the Crocker contracts $ A. No further than what our books show.

Q. I mean, was there anything done looking to an accounting among yourselves as partners'? A. Not at that time; no, sir.

Q. You say that you were not partners at all as to those sections? A. No, sir ; we were not partners in those contracts.

Q. You had no interest in his profits? A. No interest at all at that time.

Q. You were not to be held for any portion of his losses, if he made any? A. No, sir.

Q. At any time have you had any right to inquire from Mr. Crocker whether he made any money or not out of his contract, or to ask him to account for the moneys received by him for the construction of sections 31 to 141? A.. We had no right to do it, other than that we were all engaged in the enterprise, and if money was taken out and wasted, or anything of that kind done, we would have stopped it. This work was in such shape that we could have stepped in at any time, if we were not satisfied, and could have taken it out of Mr. Crocker's hands.

NO EXPECTATION OF PROFITS.

At that time, in our own minds, we had given up all hope of realizing anything from the stock of the company. The profit to us as investors in the railroad had passed away. We had given up all hopes of that. It was then simply a question whether we could overcome the difficulties which beset us, and succeed in building the railroad. How to build it was the thing that engaged our attention, and we were willing to give our best efforts towards building the road with the greatest expedition possible ; and if we had found that Mr. Crocker was making a great deal of money out of it we would have said to him, ^ No ; it cannot be 5 we cannot afford to give you a large profit in money,? R VOL IY 20

2636 U. S. PACIFIC RAILWAY COMMISSION.

because we cannot spare it;'? and whatever bis contract might have been, we would have stopped it. I had enough knowledge of his affairs to know just how much money he needed and what he was doing with it. I was perfectly familiar with the whole thing, as also were the others. We were all in the enterprise together. We all started in at the same time, and at the beginning we started with the idea of taking what stock we could afford to take, and if others desired to come in and subscribe for the balance they could do so, even to the taking of the control of the road.

Q. As far as Mr. Crocker's individual profits out of the construction of that portion of the road to which I have referred, from section 31 to section 141, are concerned, neither you nor Mr. Huntington, nor Mr. Hopkins, ever received from Mr. Crocker an accounting or a division of the profits 9 A. No, sir.

Q. Is that your positive statement? A. Yes, sir 5 I do not think that we left him with any money over.

Q. I am asking about an accounting. A. We never had any accounting.

NOT ENTITLED TO SHARE IN PROFITS OF CROCKER CONTRACT.

Q. I will ask you if you were entitled to receive any of the profits from the Crocker contracts or liable to pay any proportion of the losses? A. No, sir; if he had made a large profit, there was nothing to prevent his legally appropriating it to his own use, and if he had made large losses, there was no obligation upon our part to assist him, except the general fellowship which comes from association in large enterprises like that. If he had made losses he might have appealed to us to assist him, and he might have done so with good grace, as we had practically assumed control of the work. We demanded that the work be crowded, without any reference whatever to whether it was advantageous to the contractor or not.

Q*. To confine myself to your connection with the Crocker contract, I understand you to state positively that you have riot participated in any of the profits, if any were made out of the Crocker contracts, for the work that was done between sections 31 and 141 of this road? A. Yes, sir ; that is my positive statement.

PRICE AT WHICH STOCK SHOULD BE TAKEN.

Q. Do you remember that the stock originally was to be taken at 50 cents on the dollar in the settlement with Mr. Crocker? A. I remember that we made an estimate of this stock at that time, but whether that is the exact figure or not I do not remember now.

Q. Do you not remember that from time to time there were modifications made which reduced this figure to 30 cents on the dollar 9 It would be counted as 30 cents on the dollar in your settlement. It is on your minutes, if you have forgotten it. A. I know that there was an estimate made on the stock under the C. Crocker & Co. contracts when they were made ; but I do not think there was afterwards.

INCEPTION OF CONTRACT AND FINANCE COMPANY.

Q. We will now come down to the Contract and Finance Company. By whom was that invented or engineered? A. I think that that originated with me.

Commissioner ANDERSON. Mr, Huntington claims it,

LELAND STANFORD. 2637

The WITNESS. He was not here when it originated. When it was made I think that he was at the East; but of this fact I have not a positive recollection. At any rate I have no doubt that we must have talked it over some time when we were together, and I know that when we made it we did it with the approval of all the principal men interested.

ORIGINAL STOCKHOLDERS.

< ^. Who were the stockholders in that company at its inception?

A. At first we made that contract in the hope of inducing capitalists to eome in and take a part. Our finances were very low, and we organized this company, putting in some men who took a small amount of the capital stock. I'do not know whether Charles Crocker did or not, but I know that I often tried here to get others to come in and take that stock, but could not succeed. We did not succeed in any quarter, and finally gave it up. Then I think that each of us subscribed for a fifth, or about a fifth Mr. Hopkins, Mr. Huntington, Mr. Crocker, Mr. E.

B. Crocker, and myself. I think that Mr. Hopkins subscribed for Mr. Huntington, but I may be mistaken about that. I do not think that Mr. Huntington was here to subscribe for the stock, and I think that the business was done for him by Mr. Hopkins. In that way each of us became interested to the extent of about a fifth. There may have been a few shares left, I presume, in the names of the original organizers of the company.

CAPITAL STOCK.

Q. How much was the total capital stock? A. Five million dollars.

Q. Was it divided into 50,000 shares? A. Yes, sir.

Q. And did you not have 12,500 shares, the same number that you had in the Western Development Company and in the Pacific Improvement Company? A. I believe not. No ; I could not have had more than a fifth. I am sure I took a fifth. The two Crockers each had a fifth, and Mr. Huntington and Mr. Hopkins each had a fifth, and I had a fifth.

AMOUNT HELD BY THE CROCKERS.

Q. Do you think that the two Crockers each took a fifth; was it not a fourth between them? A. I think that I ought to know; but still I am not sure. It is rather an impression that my previous answer is correct. I cannot say that I ever saw the stock-book or the subscriptions.

Commissioner ANDERSON. I will read you Mr. Huntington's answer to this question. He says :

The stock of that company was nearly all held by Governor Stanford, Mr. Hopkins, Mr. Crocker (meaning Charles Crocker), and myself. There were some few small stockholders, but I could not say who. Mr. Hopkins asked me what we would do, and I wrote back that he could "take as little as he could, and as much as he must," and not any more/

Q. What is the name of that company? A. The Contract and Finance Company.

Q. Is not that substantially your recollection also ! It is a mere question whether the two Crockers were one interest or were separate interests. A. I think that they held their interests separately in all of their undertakings. I think that Mr. Huntiugton is mistaken. As to taking some stock, I think that this was because our idea was, when we took the stock ourselves, that we might get capitalists interested with us, and get them to come in and take a portion of it.

2638 U. S. PACIFIC RAILWAY COMMISSION.

OTHER STOCKHOLDERS.

Q. Who were these small stockholders? A. I think B. R. Crocker (no relative of these Crockers), Mr. Milliken, a merchant in Sacramento at that time. There may have been one or two more.

Q. Did William E. Brown have any of it? A. I do not think he did. Yes ; I think he must have had. I think that he was one of the organizers, and must, of course,' have had some stock.

Commissioner LITTLER. In your testimony yesterday, in an exhibit giving the interest you had in divers companies, you stated that in the Contract and Finance Company you had 12,500 shares of stock when it was disincorporated in 1874.

The WITNESS. Yes, sit; that is so, probably, because Judge Crocker sold out his interest in everything, and we bought it.

Q. That is E. B. Crocker ! A. Yes, sir.

Q. How soon after the formation of the company? A. We had completed the road.

Q. You five gentlemen, as I understand it, owned all the stock? A. Yes, sir; substantially. And before the company was disincorporated I think we owned every share.

HOW THEY OBTAINED THE STOCK.

Q. With regard to these small stockholders, were their small holdings given to them in order to qualify them to act as directors and officers of the company? A. They all subscribed for their stock.

Q. Was that stock given to them in order to qualify them to act as directors and officers of the company? A. 1 have no recollection about that. I think that they subscribed for the stock themselves, but about the payments I have no knowledge or recollection at all.

Q. Have they not been examined in various litigations in which the Central Pacific Railroad Company, the Contract and Finance Company, and yourselves have been interested, and have they not testified that they held their stock to qualify them to act as directors under the law? A. I think that they have been examined, but I cannot say what they testified to.

Q. Did not these questions come up in the Colton suit and in the Branuan suit? A. I think not. However, I was not here when the Colton suit was tried and am not familiar with what was done.

CROCKER PRESIDENT OF CONTRACT AND FINANCE COMPANY.

Q. Who was the first president of the Contract and Finance Company? A. I do not know whether I was the president before Mr. Crocker became president or not.

Q. Did Charles Crocker become the president? A. Yes, sir - } he was the permanent president.

Q. When did he become president? A. He became -president very soon after the organization of the company; but whether he was president at the time of the organization or not I do not know.

Q. Was he president at the time that the contract was made between the Central Pacific Railroad Company and the Contract and Finance Company, which was in October, 1867? A. I do not know but that the contract was made with the organizers of the company; but still, it may have been otherwise. Mr. Crocker became president very soon, and the work done under the contract was done while he was president of the company.

LELAND STANFORD. 2639

Q. The arrangement was, substantially, that he should direct operations in the matter of construction, and on behalf of your construction company, was it not? A. I do not know what the others thought, but I thought so myself. I did not anticipate that any one would come in and take stock unless we could find large capitalists who would take the property as it was, and build the road, and, if successful, have all the benefits to be derived from it.

SCOPE AND OBJECT OF THE COMPANY.

Q. What was the general scope and object intended by getting up this Contract and Finance Company? A. To aid in the construction of the road. It had ceased to be on our part a financial problem, and had become an individual question with each of us how we would get through. The absorbing question was how to build the road. It was a great struggle. It was a great enterprise, if I do say so myself. We were the features of it. We commenced work on this side two years earlier than the Union Pacific commenced work on the other side. We had this great mountain to overcome at the outset, and it was a great struggle, to which we gave the best energies and endeavors of our lives. The building of the road was the great question, and its construction was far above all pecuniary considerations.

Q. How soon after the formation of that company did it make a proposition to the Central Pacific Railroad Company for the construction of the remainder of its railroad? A. AS to the date I cannot tell you, but it was substantially right along about that time.

Q. It appears from your minutes that the proposal was made in October, 1867. At that time who was employed in the office of that company in addition to William E. Brown? A. I do not remember the names of the clerks. I think that he had one or two clerks.

THE HEADQUARTERS OF THE COMPANY.

Q. And where was the office of the Contract and Finance Company? A. At Sacramento, in the same building then occupied by the railroad company.

Q. Did you yourself see the books of the Contract and Finance Company from time to time? A. Only as they may have been lying on the desks. I did not have occasion to go into that room, and I did not examine the books at all.

Q. Had you no personal connection with that company at all, except as a stockholder? A. That was all, except as I came in contact with Mr. Crocker or Mr. Brown. They would sometimes come to me and tell me they wanted some money.

Q. What efforts were made to sell the stock of the Contract and Finance Company?

The WITNESS. Do you mean down here?

Commissioner ANDERSON. Anywhere?

The WITNESS. At the beginning?

Commissioner ANDERSON. Yes, sir.

PLAN FOR DISPOSING OF STOCK.

The WITNESS. We opened an office here, and kept it open some time, and advertised for subscriptions to the stock of the Central Pacific Eailroad Company. We thought that if we brought those books to San Francisco the wealthy men here would gobble up all the stock, so we

2640 U. S. PACIFIC RAILWAY COMMISSION.

opened them a week in advance in Sacramento in order to give our people at Sacramento the people of means at that place a chance to take stock in what we supposed would have been a good thi ng, and what would have been a good thing if we had not been delay ed. It would have been advantageous for the people here if they had taken stock and enabled us to push the road along to a speedy completion. A few people in Sacramento took small amounts. It was not taken by many individuals. There was no money in California at that time for permanent investments in enterprises of this nature, as it was worth too much for current business. We came down here, opened our office, and laid out our books. We sat there patiently waiting all day, but nobody came, except one man, a Frenchman I think it was, who came in and subscribed for ten shares. That is all that was taken here.

Q. Has this reference to the stock of the Contract and Finance Company'? A. No, sir; I thought that your former question referred to the stock of the Central Pacific Kailroad Company. We kept our books down here for some time I do not know how long but no one ever came in to take stock. That threw somewhat of a damper upon us. We were then thrown upon our own resources, and did the best we could. We did not open the books of the Contract and Finance Company in order to get subscriptions to the stock, because it would have been of no use. I went around, however, to such men as D. O. Mills, W. C. Ralston, Haggin & Tevis, Edward Barron, Michael Keese, Mr. Mayne, and to everybody who I thought might possibly be induced to take an interest, but could not succeed at all.

By Commissioner LITTLER:

Q. You mean that you were soliciting these gentlemen to take stock in the Contract and Finance Company? A. Yes, sir ; I wanted them to take stock in that company in order that we might get funds to push construction.

By Commissioner ANDERSON :

Q. Was this before the contract was made in October, 1867, or was it both before and after that date? A. It was both before and after. , I did everything that I could to try and get capitalists in with us.

CUSTODY OF BOOKS.

Q. In regard to the books of the Contract and Finance Company, when did you last see them? A. I have no distinct recollection as to the time when I last saw them. I suppose that the time when I last saw them was the time that I was last in the office of that company.

Q. In whose custody were they then? A. I think that Mr. Brown was still there.

Q. Mr. .Brown has stated that he passed them over to Mr. John Miller. Do you know Mr. John Miller $ A. Yes, sir $ he succeeded Mr. Brown. I have no recollection at all of the books, but as I frequently passed the door of his office going to my own, which was directly opposite, I have no doubt that I have seen the books hundreds of times lying on his desk, but I never examined them, and any recollection that I have as to the last time that I saw them would simply be as having seen them lying on the desk.

A CALL FOR THE BOOKS.

Commissioner ANDERSON. I will say again, as I said in regard to the Crocker contract, that a great deal of interest has bee n manifested by

LELAND STANFORD. 2641

the community in this matter. The assertion has been made that large amounts of stock and bonds have been issued to the Contract and Finance Company, and these issues have been at such a rate as to absolutely cripple the power of the Central Pacific Kailroad Company to pay the debt due to the Government; and that assertion, taken in connection with the fact that the contract and books of the Contract and Finance Company have never been accessible, and that no satisfactory explanation of their disappearance has ever been given, has led this Commission to take a great deal of interest in the matter, and to move it to do what it can to solve the mystery. Therefore, on behalf of the Commission, I would invite you to give any explanation that you can as to the whereabouts of the books, and also to produce John Miller, who appears to be the last person in whose custody the books were.

SUITS AGAINST THE COMPANY.

The WITNESS. As to the books, I can give no information. After the construction of the road several suits were brought against us, which I thought were pure blackmail. At that time all sorts of stories and statements were being circulated about us. Exaggerated stories as to the great wealth we had acquired were floating everywhere. Complaints were made, principally by envious and malicious persons, that we had robbed the company. We were represented as having made $100,000,000 alone out of the $27,000,000 loaned to us by the Government. I think that one complaint was made that we had made $300,000,000 out of this road, and it went all over the country. All this helped to make the history of the road. The supposition was that we were all millionaires, when in fact we were all poor, with nothing but this stock, which at that time was without value, but which, of course, afterwards became very valuable. The money that we made out of this stock came to us simply because nobody would have the stock at the time that we were so anxious to sell it. However, there is nobody interested in that but ourselves, except out of mere curiosity, because we became the owners by purchase of all of this little trifling stock which was in the hands of the original subscribers. The present owners of the stock in this Central Pacific Eailroad Company, not having bought any of the original stock outside of ourselves, are not interested in that question at all. Besides ourselves, I do not know anybody who has the least interest in this matter. The Government itself is not interested.

WHY THE CAPITAL STOCK WAS INCREASED.

Q. Why not? It is alleged that the corporation issued an unlimited number of bonds, secured by a first mortgage upon its road, and burdened itself with heavy interest obligations, the Government having a second lien upon the same property, which can be satisfied only after the first mortgage has been paid though I do not allege this to be the fact. Would it not be clear that the Government would be interested in knowing that you did not misapply -the proceeds of the first bonds which you obtained from it? A. Yes, sir; I was not speaking about the bonds, or the assets of the company aside from the stock. The only reason that we had for increasing the capital stock was because the law required that we should not issue bonds in excess of the capital stock. A large issue of bonds would exceed the then capital stock, and this compelled us to increase the latter from the small amount with

2642 U. S. PACIFIC RAILWAY COMMISSION.

which we started. The original capital stock of our road was $8,500,000. The present capital stock is $100,000,000. So far as our ownership was concerned, or so far as the value of the road was concerned, the eight and a half millions of stock was as good for all purposes as though the stock had been a hundred million.

DIVIDENDS.

Commissioner ANDERSON. Except when you paid dividends, and the dividends on fifty-four millions would be a trifle more exhaustive than the dividends on the smaller amount.

The WITNESS. Not necessarily so. The dividend would be the same in either case. The difference would only be upon the percentage on the shares. If there had been but a hundred shares of course the percentage upon each share would be very much greater, but in any event it could not absorb any more than the amount of money upon hand. The amount of money to be divided would not depend upon the number of shares.

Q. Have you given us all the information that you can as to the whereabouts of those books? A. Yes, sir.

MR. JOHN MILLER.

Q. You have not answered whether you can produce Mr. John Miller. Can you do so? A. I do not know much about Mr. Miller. He is a man with whom we had some considerable trouble. The last that I heard of him was several years ago, and at that time he was living at some point on the Sacramento Eiver. Whether he is living there now or not I do not know. I suppose, however, that you can ascertain that without much difficulty.

Q. Have you yourself any books which will contain any records or entries which will shed any light on the transaction between the Contract and Finance Company and the Central Pacific Railroad Company? A. None whatever.

WITNESS'S TRANSACTIONS WITH CONTRACT COMPANY.

Q. Have you any books that will shed any light on your own transactions with the Contract and Finance Company as a stockholder? A. I do not think that any of the books which I have will give any such information. I think that all the business of the Contract and Finance Company was kept in the books of that company.

Q. Eegarding the dividends of stock that were made by that company, were any certificates passed over to you, or any certificates given to you, and, if so, was the record kept only in those books?

The WITNESS. Certificates of what?

STOCKS AND BONDS.

Q. Of stock. Were certificates of stock in the Central Pacific Bailroad Company delivered by the Contract and Finance Company to the stockholders in that company ? A. Yes, sir.

Q. You are positive that no bonds were delivered or divided I A. Yes, sir ; I do not think that there was any such division.

Q. Are you positive that no money was divided? A. I am positive that no money was divided.

LELAND STANFORD. 2643

Q. Was a statement of the division of the stock prepared and issued to the stockholders at the time that it was made? A. I do not know that it was.

Q. It must have been, must it not. in order to show how much stock you were each entitled to? A. We had an evening up some time after the work was done, and at that time the individual stock which we all owned was put in. I bad bought some stock, Mr. Huntington had bought some stock, and I presume that Mr. Crocker had bought some. We dumped it all into the Contract and Finance Company, and afterwards. I think, divided it by five.

Q. Are you sure that it was not divided by four? A. Yes, sir; I am sure.

VALUE OF STOCKS.

Q. When that was done was a statement of the different transactions which made up the ultimate result prepared and delivered to you, to Mr. Hopkins, to Mr. Crocker, and to Mr. Huntington? Would you not naturally have been curious to know how many shares of stock you were going to get? A. Not very.

Q. When was this? A. After the road was completed. We did not know at that time whether this stock would ever be worth anything or not.

Q. The company paid dividends in 1872, did it not? A. I do not think that it was as early as 1872.

Commissioner ANDERSON. Your reports show that dividends were paid in 1873, so that the stock at that time must have had some value.

DEVELOPMENT OF THE COUNTRY.

The WITNESS. We developed the business of the country as we proceeded. Whatever is of value, so far as the Central Pacific is concerned, we created by the construction of the road. The development of business along the line of the road was rapid. I do not think that the through business increased so rapidly as the local business. After business has become settled upon certain routes it is difficult to divert it, and it takes some time to do so. Gradually, however, we kept diverting it from the Pacific Mail and the Isthmus of Panama, and from the clippers which came around Cape Horn, and it grew to be a very promising business and kept constantly improving. Everything looked bright until the competing lines of road were built in 1881, and then they began to interfere with us. Besides this, there was a great falling off of business in Nevada. This falling off was very great during the last two years, but at that time the business of Nevada was lively.

CENTRAL PACIFIC STOCK OWNED BY CONTRACT COMPANY.

Q. In 1870 your gross earnings were $7,000,000 and the net earnings were over three million. In 1871 the gross earnings were over nine million and the net earnings over five million. I ask you whether it is possible, if this Contract and Finance Company had on hand a large number of shares of the Central Pacific Railroad Company, which company was making such earnings as that, you were not interested in looking over the books and papers to see how many shares of stock you were going to receive in the railroad company? A. I knew very soon about that.

2644 U. S. PACIFIC RAILWAY COMMISSION

Q. How did you know how many shares of stock you were entitled to receive? A. I knew that I was entitled to receive one-fifth of whatever that company had, and I knew how many shares of stock had been issued to it.

Q. Were not these shares of stock issued from time to time as the work progressed ? A, That may be; but 1 knew about what the aggregate of the shares was.

Q. Did you keep that in your head? A. Yes, sir.

Q. Do you know what the aggregate of the shares was that were issued to the Contract and Finance Company, of which you were to receive a fifth? A. No ; I do not remember now. We consolidated a good many lines of railroad from time to time, and we never increased the capital stock. In consolidating these lines of railroad the stock of those roads was added to that issued to the Contract and Finance Company, but I cannot give you the exact details. The books, however, will show that.

Q. What books? A. The books of the Central Pacific Eailroad Company.

Q. Will the books show the gross amount issued? A. Yes, sir.

WAS THE CONTRACT VERBAL OR WRITTEN?

Q. Did you ever see the contract between the Contract and Finance Company and the Central Pacific Eailroad Company? A. I think that I signed it.

Q. Are you quite positive that it was in writing and not a verbal contract ? Mr. Cohen in his testimony advised us that his conclusion was that there had never existed any such contract in writing. That is your recollection? A. I cannot remember the actual fact of having signed it, but I have no doubt upon the subject.

Q. Do you think that you did sign it? A. Yes, I think so.

Q. Do you remember having seen it, or to have read it, so as to have a present recollection about it so as to enable you to say whether it was in writing or not? A. I cannot say that I ever saw it, positively, but I have no doubt on the subject.

Q. And you have no doubt that you read it? A. Yes 5 I have no doubt whatever. I know that I helped them to discuss it all the way through.

TERMS OF CONTRACT.

Q. It was a very important contract, was it not? A. It was a very important contract. And we put in all this stock in order to get outsiders to take an interest in it.

Q. And it embraced what property? It embraced what portion of the road? A. From the State line as far as we could go ; I think some 500 or 600 miles.

Q. Do you remember its terms at all? Did it embrace grading? A. If you will look at our books, you will see what it did cover, and it will tell you a good deal better than 1 can.

THE CONTRACT MISSINO.

Q. Do you know your secretary says that the contract is missing? A. So he told me yesterday, or the day before, 1 believje.

Q. How long before had he told you 1 A. I did not know before that it had been missing.

LELAND STANFORD. 2645

Q. Did lie not tell you that it was missing before this matter came up? A. No, sir 5 I supposed that the contract would be found on the files of the office. I had no reason to think otherwise. I do not think that I ever heard the subject mooted before.

Q. Do you know that it was missing as long ago as 1876? A. No ; I have no recollection of that. If I did know it at the time I have forgotten it.

Q. Were you not examined as a witness by Mr. Cohen in the suit of John K. .Robinson against the Central Pacific Railroad Company for an accounting? A. Yes, sir.

Q. And did you not state in your deposition in that suit that that contract was missing? A. It is possible that I did ; but if so I have forgotten it I

BOOKS AND PAPERS OF CENTRAL PACIFIC.

Q. Is it not a matter of common notoriety in San Francisco and throughout this State, and I might say throughout the United States, that this contract and all the books and papers of the Contract and Finance Company, and the papers of the railroad company in connection with the Contract and Finance Company, have been missing and cannot be found? A. I know that the books were missing, but I never was informed that any of, the contracts were missing. I do not see, however, that it makes very much difference, so far as the contracts are concerned, because the books will show their terms. I mean the books of the Central Pacific Company. You might pick out the terms from the books, and I think that from them you can get all the information upon this point that you desire.

EXTRACT FROM HUNTINGDON'S TESTIMONY.

Q. From your memory, can you give us any information as to its terms, as to the price per mile to be paid? I will call your attention to what Mr. Huntiugton says about it. In answer to the question, " Can you state substantially what the terms were? " he says :

It was a contract to take the bonds and stock, I should say, of the company and build the road a certain amount of stock, but not the whole stock. The capital stock was $100,000,000. It was to take a certain amount of stock and bonds to build the road.

Q. Do you remember the rate per mile, computing the bonds and stock at par? A. No ; I could tell you pretty nearly ; I do not think it was over $100,000 per mile. I think something about that.

Q. Do you remember the relative proportions of bonds and stock? A. The Government bonds and the company's bonds about $64,000 was what the bonds were.

Q. Sixty-four thousand dollars in bonds and the balance in stock? A. That is just it.

CONTRACTOR TO HAVE ALL THE ASSETS.

What is your recollection? A. My impressions are I thought that we would meet the Union Pacific at Salt Lake City. In makingthe contract the contractor was to have all the assets of the company, that is, in the way of bonds, &c., and in estimating the amount of stock to be put in we put in an amount that would be sufficiently large to warrant us to mortgage the road and issue our own first mortgage bonds, and the contractor was to receive those bonds. That was the basis of the amount of stock that was put into the contract.

Q. When you say all the assets of the company you mean substantially all the proceeds of the bonds and the proceeds of any other loan,

2646 U. S. PACIFIC RAILWAY COMMISSION.

or tiie proceeds of county aid, or any and every other asset of that character that you could control? A. Yes, sir ; but there was no county aid left ; that was all exhausted.

Q. Did you intend any portion of the net earnings of the road to go into the construction account?

The WITNESS. Do you mean earnings made prior to that time?

Commissioner ANDERSON. Yes 5 and those that were being made.

A. I do not know what the understanding was about that.

AN "EXHAUSTIVE CONTRACT."

Q. Then it was substantially that the builders of the road under the contract should take all the bonds of whatever character there were, as you have stated, and the amount of stock to authorize you to issue those bonds, under your own first mortgage? A. Yes, sir.

Q. The idea was to give the men who built the road all the property of the company? A. Yes, sir; and if there was anything in it the builders of the road would get the benefit.

Q. It was what has been called on some of the branches of the Union Pacific, for instance, an exhaustive contract, which took all the paper assets of the road for building it? A. Yes. We did not count the stock as of any particular value, except as giving us control at that time. Even after we got through, we would have gladly sold it at 10 cents on the dollar.

Q. What stock? A. Central Pacific stock.

Q. When you got through where? A. When we got through to Ogden.

VALUE OF RAILROAD STOCK AT COMPLETION.

Q. In May, 1869? A. Yes, sir. When we got there we would have been glad to have sold for 10 cents on the dollar. At the same time we could have bought the Union Pacific stock at the same rate. At any rate, we could have bought a block large enough to have gained control of that road.

Q. How soon afterwards did you change your mind? A. About as soon as I made up my mind that we could not sell it. We had to stay in and work it out. When the road was completed we were all tired and exhausted, and would have been glad to sell out for almost anything.

Q. You had very different ideas in 1870, did you not? A. We had hopes in 1870.

EXCESSIVE PRICES PAID FOR STOCK TO SETTLE SUITS.

Q. Did you not pay as high as $400 per share for the old stock early in 1870 ? A. No, sir ; not for the stock, but to settle suits.

Q. At any rate, your idea as to the value of the property must have undergone a very rapid and material change after the completion of the road, must it not? A. Yes. After the completion of the road for a time we did not get any through freight business. I do not like to say much about the other lines, but the road connecting with us was managed a little differently from ours, and the people controlling it had different ideas from those which we entertained. It was some time before we got prices fixed at a figure where we could induce people to avail themselves of the advantages offered by the railroad.

LELAND STANFORD. 2647

Q. Do you mean that your prices were higher than theirs, or that theirs were higher than yours? A. Theirs were higher than ours. We have never been in harmony with the Eastern lines in the matter of passenger rates. I have always thought that lower rates would be better for us. We had the idea that every passenger we could induce to come here would be a patron of the road.

PALACE HOTEL, San Francisco, July 29, 1887. Afternoon session.

LELAND STANFORD, being further examined, testified as follows :

REPORT ON LINE EAST OF NEW CASTLE.

By Commissioner ANDERSON :

Question. In connection with your statement in regard to the Crocker contract, I will read from the minutes of the proceedings of the directors of the Central Pacific the following abstracts, subject to correction, of course: On the 1st day of May, 1805,. it appears from your minutes that a committee, consisting of Lelaud Stanford, Mark Hopkins, and E. H. Miller, jr., was appointed to examine into and report upon the question of letting a contract for the construction of a railroad and telegraph line east of New Castle. On the 9th of May, 1865, the committee appointed at the last meeting relative to the construction of the line east of New Castle submitted a report, which was filed, and the committee was directed to ascertain and report as soon as practicable on what terms and to whom a contract might be let in accordance with the report of the committee just filed.

That report we have not been furnished with. Do you recollect the fact that such a report was made? Answer. I do not.

Commissioner ANDERSON. If it can be found we would be pleased to see it.

DIFFICULTY OF THE WORK.

The WITNESS. If Mr. Miller were here he could tell you, I think, about those papers, or almost any papers you desire. I have a general recollection of the matter ; that is, it was a matter of discussion and consideration with us for some considerable time how we were going to be able to really avail ourselves of all that we had, or should have, to pay for the construction of the road, and we came to the conclusion that we had to do it by having one contract. We were not nearly as much impressed then with the importance of having the contract in one hand as we were as the work proceeded. We learned better later on the magnitude of the thing, and we learned also, when we came to regard the construction, of the immense sacrifice that we had to make for the sake of speed. Then it became, very early, a question of whether or not we could get over the mountains. We had to work during the winters on mountain work, three of which winters were the heaviest known in the history of the State. There was one winter only that I know of when more snow fell on the mountain than fell there for the three winters, in succession, while we were conducting our work,

2648 U. S. PACIFIC KAILWAY COMMISSION.

TERMS OP THE CROCKER CONTRACT.

Q. On the 6th of June, 1865, a committee, appointed to ascertain and report on what terms and to whom a contract could be let, submitted a report, which was adopted and ordered on file. That makes two reports we would like to have. At the same meeting it was resolved and ordered that

Charles Crocker & Co. be allowed and paid for all work done and material furnished, or which may hereafter be done or furnished, until the further order of the board of directors, in the construction of the railroad of the company from section 48 eastward, and in accordance with the terms, conditions, and stipulations set forth in the contract of said Charles Crocker & Co., dated September 19, 1863, except so far as the same may be modified or changed by this order, at the following rates and prices, and in accordance with the following classifications, payments to be made according to monthly estimates, five-eighths in gold coin and the remaining threeeighths in the stock of the company, at the rate of $2 of capital stock for each $1 of said three-eighths of said estimate, with the privilege of paying said three-eighths in gold coin in lien of said stock, at the election of said company, to be made at the time of such payment.

THREE-EIGHTHS IN CASH OR STOCK AT THIRTY CENTS.

Now I read from your minutes of May 2, 1866, a communication from Charles Crocker & C., reading as follows:

We find it impossible to sell the stock which we have received upon our contract with the company for the construction of its railroad for more than 30 cents on the dollar, and cannot realize 50 cents therefor, the price at which the same Tyas received under the contract ; and we find ourselves unable to prosecute the work with the diligence and rapidity required by the company under the present management. We therefore request that your company pay us cash instead of stock, or, otherwise, that the stock be paid us at the rate of 30 cents instead of 50 cents on the dollar, as at present.

On motion,

Jtesolved, That the three-eighths now payable in cash or stock, at the election of said company, be paid in cash, provided there bo cash in the treasury to pay the same; otherwise that the same be paid in the capital stock of the company at the rate of 30 cents on the dollar.

PUTTING STOCK INTO THE CONTRACT AND FINANCE COMPANY.

Those are all the minutes that I find relating to the Crocker contract. Now, in addition to the questions I have asked you in regard to the receipt of any profits or dividends by you from the firm of Crocker & Co., I would ask you whether you ever received any stock from Crocker & Co. on account of the stock issued to Crocker under any contract for the construction of the road? A. I put a portion of that stock into the Contract and Finance Company. After the road was completed whatever any of us had we put into the Contract and Finance Company, because our interests in that regard were about the same, and we divided it up then, I think, so that each of us had about one-fifth. That is, we put everything in there, and then we had each of us one-fifth of the Contract and Finance Company's stock. When this contract was let to Mr. Crocker we did not know very well what this work was going to cost. We made a price, because it seemed necessary to make a price, and we thought that maybe others would come in and take a part of that contract, but we did not expect Mr. Crocker to make or to lose money. It was an instrument by which the work was to be accomplished. We knew that if we wanted at any time to reform that contract, or do anything that seemed to be to the interest of the company, Mr. Crocker would, not object. We went on in that manner all the way through to

LELAND STANFORD. 2649

the completion of the road, working hard for its completion and using such instrumentalities as seemed to be necessary.

CROCKER DID THE SAME.

Q. Do I understand that Charles Crocker passed over to the Contract and Finance Company any stock which he had on hand and which resulted from his own contract prior to the contract with the Contract and Finance Company I A. I think that was the way it was done. I know I had full-paid stock, on some of which I had paid par, and some I had bought at lower rates, and I know Mr. Huntington had, and I think Mr. Crocker and Mr. Hopkins had. I know we put it all into that institution. We had all worked for a common purpose, and although we never were partners, every man from the beginning owned his own interest in his own right, whatever it was ; yet we had worked together for a common purpose and as one body of men. It was our harmony in that respect, I think, that enabled us to get through our work at all. I know this, we had no money left over; all the Government bonds and the first mortgage bonds were gone and the money had gone into the road.

THE PLACER COUNTY BONDS.

Q. While on that point please state what other aid you received. I understand that from Placer County you received a certain amount. A. I will give you substantially within a few thousand dollars of the exact amounts realized. We sold the Placer bonds for 70 cents, I think, and realized $140,000.

Q. There were $200,000 of them at par?- A. Yes; and we sold the Sacramento County bonds for about 65 cents. There were 300 of those. And we sold 400 'bonds of San Francisco. The highest, I think, we ever sold them for was 73 cents, but many of them we sold at 70 cents.

INTEREST ON CERTAIN BONDS PAID BY STATE.

Q. Was there not an act passed by the legislature making you a donation of $10,000 per milel A. No, sir; the only aid we received was in the first original act, by which they agreed to give us something, but that was changed. And we were authorized to issue a special mortgage for $1,500,000, on which the State paid the interest. Those bonds were sold and we realized about $1,000,000; a little more than that, but less than $1,100,000. We received a little over $1,000,000 for those bonds, and those have been paid off since.

Q. They were paid by whom? A. Paid by the company.

Q. So that what the State has done has been to pay the interest on them until you paid the principal? A. Yes ; the State was to pay the interest on those bonds and the company realized a little over $1,000,000 for their bonds.

Q. Did the company repay the State any of the interest? A. No; that was a donation. Then we used our own individual credit so far as it would go, and I know particularly over in the East that we used our own individual credit to the extent of $600,000, and I know we made it work along so that we could payjup to New Castle. And we worked to Colfax, 50 miles. We finished the road to New Castle, 31 miles, and had iron enough on hand for 50 miles, to Colfax,

2650 U. S. PACIFIC RAILWAY COMMISSION.

AMOUNT OF STOCK PASSED OVER BY CROCKER TO CONTRACT AND

FINANCE COMPANY.

Q. Have you any idea of the amount of stock which was passed over by Charles Crocker to the Contract and Finance Company, resulting from his contracts prior to the contract with the Contract and Finance Company? A. No ; I cannot tell. If Mr. Miller were here, I think he could tell you how much stock there was when the road was finished, and he can tell you 'from the various consolidations how much stock came into the company from that direction.

Q. Do you understand that Crocker & Co. substantially passed over all of the stock which they received? A. I think all of it went into the Contract and Finance Company.

Q. If your books show that the gross payments to him were $22,000,000 of which twice three-eighths was in stock before the reduction to 30 cents, that would give him about $14,000,000 in stock? A. As to the amount I cannot say. I think the stock all stood in his name until after the completion of the road, but I may be mistaken about that.

THE CONTRACT WITH THAT COMPANY.

Q. Now, passing to the Contract and Finance Company, I read from the minutes of December 3, 1867 :

President Stanford reported that he had made arrangements for a contract with the Contract and Finance Company for the construction and equipment of the railroad and, telegraph line of this company, lying on the eastern boundary line of California, and presented a draft of such contract. The same having been read and considered, the following resolution and order was unanimously adopted, to wit :

Resolved and ordered, That this company hereby consents and agrees with the Contract and Finance Company to the terms, stipulations, and conditions of articles of agreement submitted by the president of this board, and the president and secretary are hereby authorized and directed to execute the said contract.

The directors present and voting on that proposition being Leland Stanford, E. B. Crocker, Mark Hopkins, and E. H. Miller, jr.

Do you recollect the fact of reporting such a contract? A. Well, I know I must have done it. I have no doubt about it, but I cannot call to mind the actual fact.

DIFFICULTIES OF CONSTRUCTION EASTWARD.

Q. Will you describe the construction as it proceeded eastward from the State line under the Contract and Finance Company's contract?

The WITNESS. Well, you mean how we worked it?

Q. I mean the character of the country you went through. A. The general character of the country, so far as grading was concerned, was not difficult. You came through the Truckee Canon and you could see what it was there. I think that is about as heavy as the work done on the Ogden and Weber Canons on the Union Pacific. The greatest difficulty was in the desert country, the long stretch of desert over which we had but limited transportation for water and supplies. We sent out men ahead, I think it was three thousand men and four hundred horses, with their wagons and such things as that, into the canon of the Humboldt. There were three canons there, and that was very heavy work. We had to send those horses and those men, with all their equipments, 300 miles in advance of the completed line to work there. I went over to Salt Lake that season and had made arrangements there, and graded substantially 160 miles from Ogden this way with what labor I could pick up aud with the supplies over there. Our

LELAND STANFORD. 2651

supplies either came from California east, or to the end of the Union Pacific, starting in the spring nearly 500 miles away, and the supplies were hauled all that long distance. From Salt Lake I think that we used to pay $12 to $15 a day for teams that did very little work. Oats were 12 to 14 cents a pound, and I do not know but what more than that. And hay then was $100 a ton, and then it had all to be hauled.

EXORBITANT PRICES FOR SUPPLIES.

Q. Was that 12 or 14 cents a bushel? A. No ; a pound. They did not deal in bushels over there. We dealt in pounds. And everything then had to be freighted to the front. I paid 13 cents a pound for freight hauled from the Sierra Nevadas over to Salt Lake, and then had to haul it from there up on to the line of the road, and it cost me 2 or 3 cents a pound, I think. Corn was hauled all the way from Iowa and other States there up to the end of the Union Pacific Kailroad, and then was teamed through several hundred miles into Salt Lake Valley.

TIME COVERED BY CONTRACT OF CONTRACT AND FINANCE COMPANY.

Q. How long were you in effecting this construction ; when did you begin? A. We commenced our real active work in 1863.

Q. I mean the Contract and Finance Company. You commenced in 1867 with that company, did you not, according to the resolution I have read to you? A. I can tell you how we went on with the work better than I can about those dates. We passed the summit in 1868, and we had worked down on the Truckee in the canons, and by the next spring, in May, we were out to Promontory and had the work all done, ready for the track, from there to Ogden. At Promontory there was very heavy work, and it held us for some time.

Q. Eighteen months, then, would cover the whole construction under what was done by the Contract and Finance Company? A. I should think it would.

POLICY OF COMPANY IN REGARD TO STOCK.

Q. Now, as to the terms of that contract, can you give us any information at all? A. I can tell you rather the policy of the company. In the first place about the stock. We did not value that ; that is, in our estimation of values it cut no figure. But we meant to get enough stock out so that we could have our own first mortgage bonds and the Government bonds, and we could not do that unless the stock was made equal in amount. So we estimated about what the stock would be and what the incumbrances upon the road would be, and made the stock in the contract accordingly.

Q. Do you remember at what figure the stock was to be taken in payment? A. No; I do not think we figured that. I think we said : "We will take the bonds; we will put into this thing the bonds." Everything else, I believe, had been used up. That is, the first-mortgage bonds, or what was left of them.

REAL OBJECT IN THE INSSUANCE OF STOCK.

Q. You had enough stock to make the bonds legal? A. Yes. And that was the real object of the issuance of the stock at that time. We did ot count the stock for much when the road was -through, except as a P R VOL iv 21

2652 U. S. PACIFIC RAILWAY COMMISSION.

means to control it. We had devoted ourselves to this work with an intensity which few people understood. It was to us everything. Our fame and reputation were connected with its success, and we wanted to make it a success. That was the chief value to us in the stock, for the purpose of control at that time ; but in a short time thereafter the road began to develop business all along its line, and in 1871 it began to show a good future ; but even then we had doiie much work over here in California. I mean the Contract and Finance Company had done it. We had built the road and had, I think, negotiated for the Alameda and Oakland Railroad, and had done a great deal of worn that had proved valuable, but Judge Crocker's health failed him and Mr. Charles Crocker was apprehensive ; so they both sold their stock to Mr. Huntington, Mr. Hopkins, and myself, and that sale carried all their interest in other enterprises. The 'sale was made for 13 cents on the dollar. That was the estimate of the value then in 1871, or 1872, though the sale carried greater values with it than were in those companies, because all these local enterprises have been profitable ones. If you go over and notice some of the business done on the local roads you will see that every one of them has been a success.

METHOD OF PAYMENT.

Q. Now to go back to this contract. Have you any recollection of a payment per mile, of which a certain proportion was to be in gold?

The WITNESS. To the Contract and Finance Company?

Commissioner ANDERSON. Yes.

A. I do not remember. It may be that we made it in gold, thinking of about what we were to receive from the bonds what would be realized but I have the impression that we made it for bonds and stock.

Q. Our accountant reports that the entries in your books indicate that the terms of the contract were to construct and equip the road for $80,000 per mile east of tbe State boundary, payable half in gold and halt in the capital stock of the railroad company. Do those figures refresh your memory at all ? A. 1 think that must have been upon the calculation of what we were going to be able to get out of the bonds and the stock so as to make an amount such as to justify the mortgages.

WEIGHT OF RAILS.

Q. Do you remember whether the weight of the rails was specified in the contract ? A. No. I do not. I know the rails were 56 pounds. That was our standard.

Q. How much would that make it per ton per mile, 56 pounds 1 A. With side tracks it takes about a hundred tons.

Q. Is it not the customary rule to divide the number of pounds per yard by 7, and multiply the result by 11, in order to obtain the number of tons per mile ! A. I do not know as to that. That was not our rule. Practice satisfied us that about a hundred tons to the mile was about what is required, to include good side tracks, switches, &c.

Q. The entries in your books indicate that the weight of the rail was about 68 tons per mile, which, by the application of this rule, would agree with your statement of 56 pounds per yard. The entries also indicate that the contract required 5,200 pounds of spikes per mile. Do you recollect any provision relating to that? A. No 5 I do not. I supposed those specifications were gotten up by the chief engineer. I know that we estimated the number of engines and the number of cars that would be needed.

LELAND STANFORD. 2653

NUMBER OF LOCOMOTIVES.

Q. Do you remember how the number of locomotives to be provided was fixed, whether it related to number of miles? A. Yes, sir ; I think it did.

Commissioner ANDERSON. The entries in your book indicate that there was to be one locomotive for each 5 miles.

The WITNESS. I presume that is correct. Of course it is correct if it is from the books. My recollection is that there was one engine to so many miles.

Q. The entries indicate one engine for each 5 miles, one passenger car for each 20 miles, one box car for each mile, two flat cars for each mile, and one hand car for each G miles, Are you satisfied that those figures are substantially correct? A. I presume they are. I have no doubt that those were made upon the estimate of what the road would need.

THEIR COST.

Q. Do you remember whether the contract provided how much the locomotives should cost, or what grade of locomotives they were to be? A. I think very likely we specified the size of the locomotives. I know, at any rate, that was taken into consideration at different times as we were building the road, as to what locomotive was most economical.

Q. Do you remember whether all the equipment called for in this contract was, in fact, furnished to the Central Pacific? A. I think so. I think we needed it all, and I think we had to provide more.

Q. Do you remember what the locomotives purchased at this period cost? A. No. I remember those two that I mentioned, because of their very great cost. They cost us more than any others on the road. Those were either $63,000 or $65,000 for the two. They could probably be put on the road to-day for $6,500 apiece. Sometimes, at the beginning, we were very much troubled. On one or more occasions the Government, desiring engines, took from us the engines that we had ordered.

Q. That must have occurred before the end of the war? A. Yes ; it was in the early part of the w ar. Of course they were not many, but we did not have many, and it was to us quite an annoyance, because we needed them very much.

Q. Were the engines that you referred to as costing $63,000 for the two bought under the Contract and Finance Company's contract? A. I am not sure about that ; I think the highest prices were before that.

LENGTH OF LINE FROM EASTERN BOUNDARYOF STATE.

Q. What was the total length from the eastern boundary of the State to the termination of the work done under this contract I A. I ought to know exactly to a mile, and did know for many years, but I prefer to refer you to the books.

Q. It was about 600 miles 1 A. Yes.

By Commissioner LITTLER :

Q. It was to Ogden, was it not? A. Yes. Now, along the line of that road (as I think I stated to you before), when we started in, there was only one white man between there and Bear River, Utah. There were some off in the mining districts to .the south.

2654 U. S. PACIFIC RAILWAY COMMISSION.

AOGrREOATE NUMBER OF LOCOMOTIVES AT COMPLETION OF ROAD.

Q. Can you tell us how many locomotives had been provided for this company when the work was all completed? A. No ; I could not tell you how many.

Q. I hand you a list of the locomotives which appear to have been bought during that year. Please look at the figures and see whether they accord with your recollection. A. (After examining.) These are for the Contract and Finance Company.

Q. During the period they were constructing, the locomotives must have been bought by them. Those are the prices which your accounts show were paid for engines during the years 1867, 1868, and 1869. Are the figures about right ? A. I notice here that two were bought at $36,000 ; they must be the two that I referred to, but that item has probably the freight added.

Q. That list contains substantially the prices, as you remember them, for locomotives at that period? A. Yes, sir ; they seem to me to be correct, about as my mind would indicate.

MANNER OF PAYMENTS UNDER THE CONTRACTS.

Q. Do you remember anything about the manner in which payments were made under this contract? A. Yes; we paid the money when they had to have it. We did the best we could.

Q. But what proof did you require from them that they were entitled to receive the money, and as to the amount which they were entitled to receive? A. Well, I suppose those payments were made upon the estimates of the engineers.

Q. The reports of the engineers stating the actual construction of the road? A. Stating the actual progress of the work ; yes. We apportioned it according to the number of miles and the comparative difficulty we thought they had to encounter in accomplishing their work.

AMOUNTS PAID CONTRACT AND FINANCE COMPANY FOR THE 600

MILES.

Q. Have you any recollection of the figures and the amounts paid to the Contract and Finance Company for all the work done by it on the 600 miles? A. No ; I have not ; that is, I mean I have no present recollection. I have not thought of the subject for a long time. I have no doubt that at the time it was fresh I knew about it.

Q. Have you any recollection of the amount of stock that was transferred or issued to the Contract and Finance Company in payment for this work? A. It seems to me that it was about twenty millions, but I would not be sure of that. It is rather an impression than anything else.

Q. That would be in addition to the stock that was transferred by Crocker & Co. to the Contract and Finance Company? A. Yes ; that does not account for all the stock.

CONSOLIDATED LINES.

Commissioner ANDERSON. There were consolidations, I know, to a large amount.

The WITNESS. Yes ; and the lines consolidated are the best portion of the Central Pacific Eailroad to day. Those lines are really its strength. I refer to the line of the road running up the San Joaquin Valley 150

LELAND STANFORD. 2655

miles and the California and Oregon road, running up the Sacramento Valley, and this Oakland and Alameda property over here, say up as far as Mies. By that I mean the Oakland lines, moles, and wharves, and all the surroundings there.

DISSOLUTION OF CONTRACT AND FINANCE COMPANY.

i

Q. I understood you to say that the Contract and Finance Company was subsequently dissolved? A. Yes.

Q. What lawyer conducted those proceedings for you? A. I do not know which one of the lawyers had it most particularly in charge. We have several in our office and it was done by our office lawyers.

Q. Before what court were the proceedings? A. Before the county court at Sacramento.

Q. Do you know where the papers are on file? A. I suppose they are on file at the county clerk's office in Sacramento County.

Q. Did you verify them? A. I do not know. I may have done so.

Q. Did you see them before they were presented to the court? A. I do not remember. I see so many papers and I sign so many as a matter of course, that I have hardly any recollection of any particular one unless my attention is called especially to it.

Commissioner ANDERSON. Cannot some one of the counsel of the company, or some one present, inform us who conducted those proceedings?

Mr. BERGIN. I think it is not at all improbable that Mr. Eobinson attended to the matter. He at that time was the active counsel of the company.

Q. What Mr. Eobinson? A. Mr. Eobert Eobiuson.

Q. Is he living? A. He is living, I believe, or was living when last I heard of him, but he has not been in active business for several years. He has not been in condition to do business.

Q. Where does he reside? A. Here in San Francisco.

DIVISION OF ITS STOCK.

Q. Do you remember whether these proceedings in court contained an account of the company's operations for the purpose of showing how it stood at that time, so as to enable the court to make a proper order of distribution? A. No ; I have no positive knowledge. It was all in the hands of our attorneys, but I have no doubt I signed whatever 'papers were necessary, if I was called upon to sign any, although I have no distinct recollection of signing them. My recollection is that the stockholders had to assume certain liabilities before the company could be dissolved.

Q. Do you remember that before the institution of the proceedings to dissolve the Contract and Finance Company the larger portion of its assets were divided up among the stockholders? A. There have been divisions of stock. I do not know that the stockholders ever divided any money, but there have been divisions of stock of these roads that we built. We built these roads and issued a certain amount of stock, and out of those assets we managed to complete them. The profits, however, were always in the stock.

WITNESS' SHARE OF CENTRAL PACIEIC STOCK OVER THIRTEEN

MILLIONS.

Q. What is your recollection of the amount of stock of the Central Pacific Company which you received from the Contract and Finance

2656 tr. s. PACIFIC RAILWAY COMMISSION.

Company by way of dividend? A. I do not remember how much stock. I do not think that there was ever a dividend of stock of the Contract and Finance Company for some considerable time after that road was completed and other stock added to it; but I think that my share of stock eventually of the Central Pacific Railroad Company, after the consolidation, was something over thirteen millions, and I believe that each of the other gentlemen had substantially the same. Q. In stock? A. In stock.

HOW STOCK WAS ACQUIRED.

Q. Was all of that received through the Contract and Finance Company? A. I think there was stock subscribed and paid in at different times to the amount of $65,000 each. Then we each bought stock at different times. Whether the 650 shares were thrown into the Contract and Finance Company in the end I do not remember, but everything else that we had bought we put in there. Then at some time afterward I do not remember when there was a division of the Central Pacific Eailroad Company's stock, which included, I think, stock that had been issued for the various consolidations, and I know there was something over thirteen million apiece.

Q. That would be 130,000 shares to each? A. Yes.

Q. That would be substantially all the stock that there was at that time? A. I think at that time we had bought substantially all except a few shares of stock, and almost all of it has since been acquired.

BUYING UP OUTSIDE STOCK.

Q. Four times thirteen million would be fifty- two million. I think your reports show that up to the year 1879, the total stock outstanding was not over fifty-four million. A. Then I had something over thirteen million ; I do not remember the exact amount. I bought up, and continued to buy up, other stock, and paid for it. Most of the outside stockholders had taken stock originally to help the enterprise along, and if afterward any of them wanted to part with their stock, when we were able to spare the money we, as individuals, gave them par for their stock voluntarily, because there was not much chance for them to dispose of it otherwise, and they had helped the road along to the extent to which they had paid in their money.

WHEN IT WAS PUT ON THE MARKET.

Q. After the division made by the Contract and Finance Company, and the issue of this stock to yourself and your associates, how long was it before the stock was put on the market and became an object of customary purchase and sale? A. I cannot tell the year, but perhaps you will remember better than I, at the time when there was a good deal of a boom in stocks.

Commissioner ANDERSON. I am not familiar with stock booms. I regret to say that I never got into them. Perhaps I can learn something by staying here a little while.

The WITNESS. I think it must have been about 1880 or 1881.

FIYE MILLIONS SOLD TO A NEW YORK SYNDICATE.

Q. You began paying dividends in 1873. How long after that was it before the stock began to be bought and sold*? A. We could not get it

LELAND STANFORD. 2657

on the market until, I think, about 1880 or 1881. I think it was 1880. Then we sold, I think, five millions to a syndicate in New York and they put it on the market. They were better manipulators than we were. They put that stock on the market and after that time it had a regular quotable value. I do not think it ever got below 60 cents on that market for several years, though we could not sell much of it. After that I believe it went down as low as 26. 1 think that was the lowest.

WITNESS PRESENT INTEREST $3,200,000.

Q. What is your present interest in the Central Pacific Company? A. I do not know how it stands on the books, because my stock was sent east and was pufc in shape there to be transferred. I do not care much generally about telling my private business, but in this case I have no particular objection. I think I have about equal in value to thirty-two thousand, which would make $3,200,000.

Q. Thirty-two thousand shares of stock? A. I think that would be about thirty-two thousand. I remember it rather according to its par value than otherwise.

Q. And that is your present interest which you own in your own right? A. Yes.

DATE OF DISSOLUTION OF CONTRACT AND FINANCE COMPANY.

Q. In what year was this dissolution of the Contract and Finance

' Company If If you do not remember the date yourself I will take it from

any one else present. I wish to get the date so that we may know where

to look for the record. A. Almost any of our people around the office

could tell you, but my impression is that that occurred about 1874.

Q. You gave us the name of the court in Sacramento, did you not, in which the proceedings took place? A. Yes. I think the court was known at one time as the county court. I believe now it is called the superior court.

Q. And the records are with the clerk of that court? A. Yes.

NOTES GIVEN IN PAYMENT OF ITS STOCK.

Q. In relation to this matter I find the following memorandum in your minutes under date of September 2, 1873 :

Resolved, That the secretary be directed to receive from the Contract and Finance Company the notes of Lelaud Stanford, Mark Hopkins, and C. P. Huutingtou, amounting to $5,700,000, and indorsed by said Contract and Finance Company, in settlement of its indebtedness to this company, and credit the amount of the same to the account of said Contract and Finance Company.

Can you explain that transaction or to what it refers? ' A. I could rot tell you now. I have forgotten. I think when we subscribed to that stock of the Contract and Finance Company we gave our notes as a basis of credit for the Contract and Finance Company. The Contract and Finance Company used its credit a great deal at that time. But I cannot tell you exactly now to what that quotation refers. I do not know when this thing has come to me before and I do not like to undertake to tell you unless I can be exact. I think Mr. Miller probably would be able to recall it.

Q. Then 1 wilt put the question to you in this form : Did the four gentlemen who subscribed for the stock of the Contract and Finance Company ever pay for that stock in any other way except by loaning to it the credit of their notes ? A. That was the way according to my

2658 IT. S. PACIFIC EAILWAY COMMISSION

recollection now. I do not fairly remember, but it is my impression that each of us gave our notes for that stock to the Contract and Finance Company.

NO CASH PAYMENTS.

Q. And is it your impression that these notes were returned to the Central Pacific Railroad Company, and through that company to you, in this way? A. Well, I am notable to call that to mind.

Q. Are you able to say whether you ever paid auy money for your stock in the Contract and Finance Company? A. Not in cash ; 1 think not.

THE WESTERN DEVELOPMENT COMPANY.

Q. What was the Western Development Company? A. That was a company similar to the Contract and Finance Company, formed afterward.

Q. Who were the stockholders of that company? A. 1 presume about the same. We took in with us about that time, I believe, another gentleman, and he may have had an interest in that, but whether we took him in after it was formed I am not certain.

Q. Mr. Colton, you mean? A. Yes. Whether he was in at the organization I do not remember.

Q. It was organized after the other company was dissolved, do I understand you to say, or about that time 1? A. About that time.

Q. Do you know whether the same explanation which you have made as to the manner in which you acquired stock in the Contract and Finance Company, by loaning the credit of your name, without cash paymerit, also applies to Mr. Hopkins, to Mr. Huntiugton, and to Mr. Crocker? A. I presume what was done in the one case was done in the other, but I have been trying to recall about those notes and the circumstances connected with them, and I do not wish to say positively anything about them on my present dull recollection of how it was.

Commissioner ANDERSON. That can be as you desire ; and if you desire to correct your testimony about it at any time hereafter the opportunity will be given you.

The WITNESS. I think if I could see Mr. W. E. Brown and confer with him, he probably could tell me the circumstances under which many of these things were done and that would bring them to my recollection.

WITNESS'S SHARE OF THE STOCK.

Q. What was the capital stock of the Western Development Company? A. I do not know. It may have been five and it may have been ten millions.

Q. Do you remember what your interest was ; what proportion substantially you held, whether one-fourth or one-fifth of the whole? A. My impressions are that at that time it was one-fourth, and that afterward we gave Coltou an interest in it. I think we agreed to sell him one-ninth, letting each of the others keep two-ninths.

WHAT WORK THE WESTERN DEVELOPMENT COMPANT DID

Q. What construction or extension did the Western Development Company do for the Central Pacific? A. I do not think the Wesjtern Development Company ever did anything for the Central Pacific other than repairs and various things of that kind ; I do not think that it ever had any contracts.

LELAND STANFORD. 2659

Q. Their relations were with what company? A. With the Southern Pacific Company principally, and I think with some of these local roads also.

WHO CONSTRUCTED THE CALIFORNIA AND OREGON, AND WHEN.

Q. By whom was the California