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SENATE Ex. Do ; No. as. 39TH CONGRESS, 2d Ses-vvon. LETTER OF t THE SECRETARY OF WAR COMMUNICATING, In compliance with a resolution of the Senate of the 5th instant^ information as to an order of Lieutenant General Skerman relative to the protection of trains on the overland route, FEBRUARY 9, 1867-—Read, referred to the Committee on Indian Affairs, and ordered to be printed, WAR DEPARTMENT, Washington City, February 8, 1867. SIR : In reply to the Senate's resolution of February 5, directing the Secretary of War to inform the Senate whether any order has been issued by Lieutenant General Sherman relative to the protection of trains on the overland route, so called, I have the honor to send herewith a report of the 7th instant on the subject by General Grant-Very respectfully, sir, your obedient servant, EDWIN M. STANTON, Secretary of War. Hon, L. F, S, FOSTER, President of the Senate. HEADQUARTERS ARMIES OF THE UNITED STATES, Washington^ February 7, 1S67, SIR : 1 have the honor to return herewith Senate resolution of February 5tli, instant, asking "whether any order has been issued by Lieutenant General Sherman in regard to the protection of trains on the overland route, so called, and if so, what,^ referred to me for report. In reply I would respectfully state thut no order of the character mentioned has been received at these headquarters, A copy of the resolution has been referred to Lieutenant General Sherman for report-Very respectfully, your obedient servant, U. S, GRANT, General. Hon, E. M, STA.VFON, tSrcrctary of War. SEXATE. Ex. Doc, No. 2. 45TH CONGRESS, 1st Session. LETTER FROM THE SECRETARY OF THE INTERIOR, COMMUNICATING, In answer to a. Senate resolution of October 22, 1877, a, copif of the report of the Government directors of the Union Pacific Railroad for the year ending June 30, ] 877. . OCTOBER 25, 1877.—Referred, to the Committee on Railroads and ordered to be printed. DEPARTMENT OF THE INTERIOR, OFFICE OF THE SECRETARY, Washington^ D. (7., October 25, 1877. SIR: Pursuant to Senate resolution of the 22d instant, I have the honor to transmit herewith a copy (in print) of the report of the Government directors of the Union Pacific Railroad Company for the year ending 30th of June last. I am, sir, very respectfully, your obedient servant, 0. SGHCRZ, Secretary^ Hon. WILLIAM A. WHEELER, Vice-President, and President of the Senate. Keport of the Government directors of the Union Pacific Railroad for the year ending June 30, 1877. WASHINGTON, D. 0., October 12, 1877. SIR: Three of the Government directors of the Union Pacific Railroad (Brewer, Millard, and Wilsoii) made the regular annual inspection of the road in tlie month of July last. The entire line was passed over and examined by daylight, and found to be in good condition. The Western Division had suffered severely from high water aud wash-outs during the early part of the season of 187G, and the Eastern Division had suffered much from like causes during the spring of the present year. The fall and flow of water on the two divisions had been unprecedented, and it was a gratifying surprise to find them iu so good condition when the inspection wns m;nle. Tue general condition of the road, shops, equipment, &c., was quite satisfactory. The improvements, which the Goverumeut directors have noted and reported from year to year, indicate the steady advance of the road toward thu standard maintained by tu's?t-class roads in the Eastern States. 2 UNION PACIFIC RAILROAD. During the year ending June 30,1877, the company expended for the renewal of rails §504,827.13 ; and in the month of July of present year, $147,244.73 ; total, §652,071.86. Since July 1, 1876, there have been renewed 5,154 tous of steel rails to August 1,1877, and during the month of August 985 tons; or, in all, G,139 tons; and it is expected that an aggregate of 140 miles will be reached for the year 1877 before its close. Steel rails are being placed ou the heavy grades and mountain divisions. From IsC of March last, to August 1, there have been rerolled at Laramie mill 4,942 tons, of iron rails, at a cost of about $15 per ton. On. the lighter grades, bad iron is being replaced with the rerolled rails. For the year ending June 30, ls77, ties have been renewed as follows, viz: Pine, 410,721; hard wood, 89,424, total, 500,145; and the renewal is constantly going on. In the same period of time the company has constructed at its shops : Outfit and boarding cars, 4 ; small baggage-cars, 3 ; box freight-cars, 43 ; total, 48. The company has not a sufficient number of cars of its own to meet the demand for shipment of cattle, but the deficiency is met by the roads leading from Council Bluffs to Chicago sending large numbers of their cars out to points of loading on the Union Pacific Eoad. The company has long needed commodious and safe general offices at Omaha. This want is now being met, and when the work on the building shall have been completed the general offices of the company will be exceedingly well and safely provided for. There had been expended on the general office building at Omaha to August 1, 1877, $13,468.38; amount; additional necessary to complete it, §27,000; total, §40,468.38. The building will be amply provided with fire-proof vaults for the safe-keeping and preservation of .the company's records, books, papers, &c., and will be very complete in all of its appointments. The decision of the Supreme Court of the United States, hereinafter mentioned, having determined that the eastern terminus of the road is ou the Iowa shore of the -Missouri River, and requiring the company to operate its road to said terminus as a continuous line, rendered it necessary for the company to provide a building thereat for the accommodation of its large and growing business, and for the comfort and convenience of the public. The work is under way and rapidly progressing toward completion, and the company has expended on the same to August 31, 1877, §13,208.68; amount required to complete it, §70,000; total, $83,208.68. This work is necessary, and the outlay judicious, as the want of proper accommodations at the terminus of the road has been a constant source of complaint. During the month of August the Missouri River bridge sustained serious damage. A wind-storm of almost unparalleled force carried away bodily, and cast into the river, the two eastern spans of the bridge. Fortunately, neither the abutment nor piers were injured; and the company at once put in a temporary structure for use until a permanent one can be put in place, which will be done without delay. The accent; interrupted business for a time, and occasioned considerable cost to the company. On the 18th of September trains commenced crossing on the temporary structure, and there has been no delay since that time. ^be temporary structure will cost §31,216.78;-amount necessary to replace permanent structure, §50,001); total, $81,216.78. A large expenditure bus been made for the protection of the Missouri River bank on the east side. This was required for the preservation of the eastern approach to the bridge. Tne total amount expended for UNION PACIFIC RAILROAD. 3 this purpose to August 31,1877, is $190,992.14, and the tendency of the river to encroach npon its banks will require constant watchfulness and. a continuous expenditure in greater or less amount. During the present year the Missouri River made a "cut off" just north of the cities of Council Bluffs and Omaha, through which an exceedingly rapid and forceful current was set directly against the west bank of the river, threatening the large general shops of the company. The company has expended §30,000 to avert the present danger, and a subsidence of the water has, for the present, afforded relief; bat a large expenditure will be required to protect and preserve the shops in their present location. The work will need to be substantial and thorough, and will probably cost about $250,000, The city of Omaha and the Omaha Smelting and JRefining Company are both directly interested in averting this danger, and will doubtless provide for the greater part of the necessary outlay. If this should not be done, then the railroad company must elect between paying the entire expense, with the risk of ultimate failure, and a removal of its extensive shops to a more secure locality. In either event the cost to the company must be considerable. It is the purpose of the company to replace the present wooden bridge over the Loupe Fork of the Pkitte Kiver with an iron structure; but the estimate of cost is not yet received. In 1869 the then management of the^company contemplated farming out the express business over the road to Wells, Fargo & Co. This was objected to by the Government directors, and finally, on motion of Mr. "Wilson, (then and now a Government director,) the company resolved to do its own express business. The result of this acfcion has proved most satisfactory. The earnings from that source have been as follows, viz: 1870 ................................................................ ft-281,686 00 1871 .................................................................. 307,751 00 187^ ........................ ..............................I........... 336,333 00 1873 ................................................................. 410,190 00 1874.................................................................. 38^,107 00 187:)................................................................. 444.473 00 1876 --.-„......-......... ............................................ 50^,904 00 Total to January 1, 1877-.........-.--.--- ...................... 2,665,444 00 The expense, loss, and damage account has been exceedingly light— probably in all, to date given, not exceeding $^50,000. In the month of September of the present year a loss fell upon this department of the company's service of some $(i0,000. A band of train-robbers stopped the express-train, robbed the express-car, and carried off about the amount stated of money being- forwiirded east. About $20,000 of the money has been recovered to present date, and every effort is being made to recover the remainder. In making the recovery mentioned, two of the robbers were killed. It would have been well for the company had it pursued the same course with the sleeping cars on the road that it did with the express department. But, instead of doing so, it contracted this interest away at a very early day in its history. The Pullman sleepers were put upon the road under said contract. The terms of the contract; were most favorable to Mr. Pullman. He furnishes the cars, conductors, and porters. The railroad company keeps the cars in repair. The total amount expended by tlie company for repairs under the contract from time the cars were placed on the road to the present time is $11-1,595,21. During- the last year, the amount expended on reconstruction and re- 4 UNION PACIFIC RAILROAD. pairs was ©14,764.33. It would have been far better for the company had it placed its own sleepers on the road, and ran the same to its Own profit. The present management; is anxious to be rid of said contract, and certainly will not renew it, as it is now plain to be seen what a grave mistake was made by entering-into it at all. The contract will ^ expire October 1, 1882. As stated in former reports of the Government directors, the company is operating its own coal-mines. The coal produced during the year was 264,779 tons, at a cost of -^1.29^ per ton on cars. Of the amount produced the company used 183,337 tons, and sold for general use 81,442 tons. The laud granted to the company is mortgaged to secure the payment of the laud-grant bonds, dumber of acres sold, 1,34:1,779.30; amount due company on contracts, $3,049,134.53. Principal received, $3,618,293.71; interest, $442,681.79; total, $3,060,775.50. Acres sold during last year, 67,971.53; average price per acre, $2.92. In view of the grasshopper-scourge which, has afflicted K"ebrasl&a for several years past, the number of acres of land sold by the company during the last year is a gratifying surprise, and now that the scourge seems to have passed away, and immigration is again pouring into the State, the sales in the future must increase rapidly. The amount of land-grant "bonds originally issued was-.----...------ ^10,400,000 00 Amouat outstanding June 30tb, 1877........---.-.---....--..----.-- 7,374,000 00 Amount retired from sales of land. .-.-*..-..--.----.---......-.----- 3,026,000 00 Undoubtedly the land-grant will retire the land-grant bonds, and leave a large surplus over for the extinguishment of other indebtedness of the company. , The number and class of employes of the company is as follows, viz: No. of men. In shops at Oroaha ..-.----,....--...-.......-..-..........-............-.-.. 725 In shops at Grand Island..--...-..-----.-...---...»----...,-.............--.. 15 In shops at North Platte-..-. --.-.-..--..-....-.....--....-...--.......-..... 76 In shops at Sidney .............. ........._.-................................ 15 lu shops at Cheyenne ..----.....--.--.........-.......--.......-.......,.-.. 50 In shops at Laramie --..-.--.....--.-.-.........--...„...................... 100 In shops at Rawlins ..........---.................. .......................... 85 In shops at Green River .---.-...---....------............................... 2a In shops at Evanstou.....----....-......,...--........................._.... 100 In shops at Ogden..... .-....-----..---.--....--...........„................ 15 Engineers .----.----.....,...-.--.....-..........,........................'.'. 160 Section and track men..-.--.......---...-................................... 1,250 All others-.--... -------.....-............................................„; 1^350 Total...........,...............:.........,........................... ^9c9 This statement does not include coal-miners nor men connected with the Laramie Polling-Mill, but only railroad employes proper. In their report of last year, the Government directors criticised the action of the company in rednciug the track-force, and said: "There has been too great reduction of the section-gangs, which should be increased by from one to three men to the g-ang on the greater part of«the line. lu reducing tlie track-force, the company has but followed the policy adopted by most railroad companies since the panic of lti73 and the unfriendly legislation of several of the States. There has beeu a general effort to economize all round, whieb is well enough iu most respects, but in the one indicated is a mistake." The foregoing' atiiteiiieuC shows that the company has heeded this criticism, and phieed .1,250 section and track men on its line of l,03t> miles, or mure than a man to the milt1. UNION PACIFIC RAILROAD. 5 The floating debt of tlie company Jnue 30, 1877, was as follows, viz: Notf-s pilvnblo...--. ................................................... $00?), 71)0 45 Ow^i»-(\r^^................................................... ....... 52,118 16 Shoe nnd Leather National B;ink, Eoatoii.----. --.-.-......-.--- .--- ..... 50, 000 00 Land drp;u'tmei)t, special account..---. -..-.. .....----- ..---...._-. .... 173, ROO 00 Town-lot department, special account..---. ...... ...... ...... .-....---, 29, 000 00 O.F. agent.... ............................................ 2,822 42 Laud-grant coupons outstanding......--.. .-.-...---.--..--- ........... 4, 301 06 Slukiiig-fund.....-.-.. ......-.-..-.-..........-----..----...---....--. 11,200 00 Interest ou fractional certificates.----. ..--...---.,.---...--..--.--.---- 04 00 927,S96 09 Less cash assets: Cash...............--..-...---. ....----...„.............. $133,068 36 Gold account....,.......-,-.------...-,-...-.-.----.-----. 47,603 43 ITnion Trust Company, New York..--........ .......... .... 206,185 18 'Union Trnsfc Company, gold account.---...-......-----...-. 102, 681 Q2 Baker &Morrell- -......---..--..-..---...---..--.....-..- 25,000 00 ———————— 516,538 88 Debt over cash assets----..-..------..----........-...........--- 411,357 21 The company hold other assets, which, after eliminating from its statement— Amount from operating department.,.-...-.....----.-..-....-.------ §2,4°6,S58 36 Amount from half transportation from United States.... .----.„.-..... l,9i)l,677 07 1,205 shares of unissued stock.---.,.-------.-.-.--.--..--....-..-.... 88, 314 18 5,000 Omaha, bridge bonds.---.-...----..-----.--.-----...-.----...-.- 5,161 35 Wyoming Coal Company stock....................................... 100,000 00 13,000 first-mortgage bonds held by the company. --.,.......-.--.-..-. 13,455 00 1,000 sinking-fund bonds held by company...............---.......... 935 00 First-mortgage-bond coupons held by company...,....----..-.-,...--- 420 00 4,537,320 96 h t And taking the company's estimate of the value of the remaining assets embraced in the statement, amount to ^3,911,4:4:3.85. These assets consist of stocks and bonds in other railroad companies, telegraph and steamship shares, county bonds issued by counties in Nebraska and Colorado, &c. The railroad stocks and bonds are of companies which the Union. Pacific Company have aided in constructing their roads, in order to bring business to its line mainly, though in some cases, but in no great amount, of companies with which it has no connection. It is deemed proper to eliminate from said statement of assets the ifceuas specified above, because the amount from operating department would be required to meet payments of dividends and interest falling due in July, the amount due from United Slates for half transportation, because it is held to await the determination of the suit now prosecuting by the Government for the recovery of five per cent. of net; earnings, and to discharge such judgment as may be obtained ; the first-mortgage bonds, bridge-bonds, &c., because, if issued, they would be but an addition to the debt of the company ; the shares of the company^ own stock not issued, as the same may fall under the inhibition of the act" of March 3, 1873, and the interest in the Wyoming Coal and Mining Company, because it never should be accounted a distinct asset to be used for the discharge of any indebtedness of the company, and may be entirely destroyed as a distinct property by the result of litigation now pending. But in any event, there is an abundance in the asset-account to extinguish the floating debt, with a remainder over. Upon the subject of the aid extended by the Union Pacific Company to other companies, the Government directors, in their report for 1873, remarked: 6 UNION PACIFIC KAILEOAD. "With regard to the advances which the Union Pacific_Company has roade in aid of the roads mentioned, we can but repeat what we saidm our report of 1872: ^Ve do not question the wisdom of a policy which tends to secure to the trunk-line the business which the said several roads may command. It could not well afford to have said business diverted from it. The policy, however, should be so ordered as not to interfere with whatever present or future claim the Government may have for re-imbursement.' The ability of the company to make the advances referred to show that it could have returned more to the Government than it has, and raises the question of the power of the company to divert its means into channels not authorized by the law.? The total advances made, and the companies aided, appear in the following table and those in last yearns report: Investment in Summit County Eailroad Company: §l:i4,500 bonds; (i22 shares full-paid stock; 2,759 shares assessable stock, and valuable coal-lands. iLStimatecl value and cost, §60,000. Colorado Central Railroad has been aided to the extent of..... --..-... ,?!, bW, 4^7 Sb Credits secured by Union Pacific Kailroad Company-.-...-.-------..--- /6/,li)6 20 Balance,-without interest.--. .----,..---..---.-•----'.-----•--- 843,341 66 The investments in the Utah. Central, Utah Southern, and Utah Northern Companies have not been increased during- the past year, and remain as stated in the report of the Government directors for the year ending June 30,1876. The statement of investments in the Republican Yalley Railroad has not yet been received, and will not be in time to be embraced in this report. The Union Pacific Company's investment in this road is regarded as a safe and remunerative one, as very considerable aid has been secured from the counties into which it has been. constructed, and the country will supply it with a large local business. The Utah Central, Utah Southern, and the Colorado Central are the most important of the roads aided. These, and the Utah Xorthern, are reported quite fully in the reports of the Government directors for the years 1872, 1873, and 1876. The Republican Valley road in Nebraska, and the Summit County road in Utah, involve investments of more recent date. Aid to other roads is in contemplation by the company; one to the Black-Bills region, and one to secure the business of Montana. The Government directors believe that this policy of the company should at all times be held subordinate to its obligations to the United States. When this is assured, the policy may result in public as well as corporate good. It would seem to be definitely settled that national aid in the construction of railroads, by grants of public lands or otherwise, is at an end. Still, there are important regions of our country to be developed by the construction of railroads. If this can be done by corporations whose interest it is to secure the business of those regions, without cudangeriug repayment to the Government in such cases as that of the Union Pacific Company, an important public interest would be subserved. Wherever railroads go, the Indian question is practically settled. From the vastdonuun covered bv tlie Union Pacific Uoad, its connecting lines, and the settlements included by them, Indian troubles have disappeared, ;ind the fOiSt of the Indian service, generally, hay been greatly reduced. The ro;ids above mentioned as held in contemplation by tlic Union Pacilic Company would, if constructed, tend. Strongly to further simplify said ,service and reduce its co^t. If the policy can be earned out without liaz.u-d to tlie el.ikii of tlie Government, it involves possibilities of great moment to the country at large, and of UNION PACIFIC RAILROAD. 7 almost incalculable advantage to the sections of our Western Territories most directly interested. (See letter of General Crook, at conclusion of this report.) The extension of the Colorado Central Railroad to a junction with the Union Pacific at Hazzard Station, and with trains running directly to and from Cheyenne, is an enterprise of great importance to the latter, and to the people of Colorado. It will place the business of that State in much better position than it has ever been ; for an active competition must result between the Kansas Pacific and Union Pacific Companies for the business of that State, especially the northern portion of it; and harmonious connections between the Union Pacific, the Colorado Central, and the Denver and Rio Orande Companies will secure like advantages to the southern part of the State through the competition which must arise between the roads named andtheAtchison, Topeka and Santa Fe Railroad. The Union Pacific Company has no special running arrangements with the several roads hereinbefore named under which earnings are apportioned. Each company makes its own rates, but the relations existing between them are such as to maintain harmony in. their business connections, and to enforce a healthy competition with. other lines. This must result in great advantage to the people depending on the several lines for transportation to and from points affected by the competition, and tend to develop the resources of the country tributary to the roads. It is now expected that the Colorado Central will be completed to its connection with the Union Pacific, and trains placed upon the entire line, by the 20th of October, 1877. The earnings of the road for the year ending June 30, 1877, show a considerable increase over the preceding year, and largely more than any other year in its history. The gross earnings for the year ending June 30, 1877, were..-.....--. @13,7I9,343 82 For the year ending June 30, 1876.-.-.-.---,..-.---................. 12,113,990 69 Increase for the year 1877 over 1876...... .,......---......-..- 1,605,353 13 ir -' Operating expenses, as claimed by company, for year 1876---...---.-- 5,447,819 27 For 1877 ........ .................................................. 5,403,252 24 Gain for 3877 over 1876..---..-..--.----.----.----..----..--.- 45,567 03 Net earnings for the year 1877......-,..-..------.----. „--.-..---.-- 8,317,091 58 Net earnings for the year 1876..---- -..---..-----------------------.- 6,666,171 42 Increase for 1877 over 1876-.-.......-..----------------..------- 1,650,920 16 This is a surprising result, considering the general depression which has rested upon the business of the country, and fully justifies the opinion expressed in former reports by the Government directors relative to the immense possibilities of this road. The net earnings of the year ending June 30,1877, being ©8,317,091.58, it is readily ascertained what amount is due the Government for the year under the 5-per-centum reservation, as heretofore estimated by the Government; directors. The case is this: Net earnings. -.-...............-.......--.-.--.-.---------......... $B: 317, 091 58 Less interest on first-mortgage bonds, reduced to currency at 6 per cent., about the average for the year.-.-...---..-----...---..----- 1,732,273 20 Net subject to 5 per cent. on above basis .----.-.........-..-.. 6,584,818 38 Five per cent. on this amount..--...............-.--.-,-....-....--. 3^9,240 91 8 UNION PACIFIC RAILROAD. We'understand, however, that the counsel representing the Government in the anifc now in progress for the adjustment ot the.? percent. controversy and for the recovery of the amount due the U nited thereon claim that no reduction should be allowed for interest on first-mortgage bouda. If this claim should be sustained by the court, then there should he added to the above. .-----.----'-----•----•---__ ^sb, bbl dh Making a total duo for the year, under the 5-per-cent. reservation, of-. 415,902 27 The amount estimated by an expert of the Treasury Department as due for the year ending June 30,1876, from the 5 per cent. on net earn-391,565 73 inss is.---------...-.----.-•-•••-•--••-----------•-----"--""" Making, ou above basis, an excess for 1877 over 1876 of..-.--.---.-.-- 24, 336 54 Upon this subject there is a wide difference between the Government and the company, the latter claiming (as the Government directors have stated in two former reports) that, in determining what its net earnings are, it is entitled, to deduct from its gross earnings all payments of interest, and all other payments and liabilities coming within the rule laid down in Saint John vs. -Erie Kailway Company, 22 Wallace, 136. This controversy has been one of great annoyance and vexation, and it is a cause of great congratulation that it is so near an end by judicial determination. Should the Government maintain its claim by a judicial construction of the law concerning the five-per-centum clause of the act of July I, 1862, in harmony with that upon which the Secretary of the Treasury and the counsel conducting the case are insisting, the payment of the resulting judgment is provided for by the terms of the following stipulation entered into between the counsel of the respective parties in the cause, commonly known as the "Transportation case." The stipulation is as follows, viz: " It is hereby stipulated on behalf of the plaintiffs that no judgment against the United States which may be rendered in this cause shall be collected until after final judgment in the suit brought in the circuit court for the district of Massachusetts by the United States against the plaintiffs, under direction of the act of Congress of June 22, 1874, to recover sums claimed to be due as the 5 per cent. of the net earnings of the railroad of the plaintiff's, and in case of a recovery by the United States in this latter suit, the judgment may be offset against any judgment for the plaintiffs in this cause; but nothing herein shall be construed to affect fche right of recovery by either party in either of said suits. "G. BARTLETT, ^JFor the Union Pacific Railroad Company, "JOHX GOFOKTH, ^Assistant Attorney- General." The amount covered by this stipulation, added to fche amounts which have become due to the company from the United States on account of transportation since fche date of the judgment in said suit down to June 30, 1877, is stated to be $1,901,077.07, a sum large enouo-h, ifc is supposed, to pay a judgment to be rendered on the busis of the claim made by the Government, and largely in excess of one sustainin"- the company's position. So that, in any event, the judgment will afc°ouc6 be paid. Section 6 of the act of July 1, 1862, provides that " after the road is completed, until said boiuls and interest are paid, at least rive per centum of the net earnings of the road shall also be annu.illy applied UNION PACIl'TC RAILROAD. 9 to the payment thereof," The date of the completion of the road has been, and still is, a controverted question between the Government and the company. Upon this question the. Government directors expressed their opinion in the annual report for the year 1872. From that report the following paragraph is quoted, viz: kt Here arises an important question : Is the road completed? "We think it is, within a fair and reasonable signification of the term. In our judgment, it has been completed for a period long enough to embrace the two years ending June 30, 1872." The G-overnmenfc directors have never changed from this position. This opinion covers tlie entire period from the connection of the tracks of the Union Pacific liailroad and the Central Pacific Railroad of California in 18(i9, and is followed by the Government in the preparation of its claim in the suit above referred to. The company has always contested tins position of the Government directors; and now that it is maintained by the United States in said suit, the same contest is making therein. The company claims that, because of certain action by Congress in 1809, and subsequent executive action, the date of completion of the road and from which the 5 per cent. of net earnings was to commence running, did not occur until the 1st October, 1874, as determined by a special commission appointed by the President of the United States, (referred to in the report of the Government directors for the year 1874,) if not entirely repealed by implication by the act of July 2, 1864. Happily this and all other questions relative to the 5-per-cent. clause of the act of July 1,1862, are in process of judicial determination in the suit mentioned; and need not be treated further here. In their reports for the years 1874, 1875, and 1876, the Government directors treated at some length the relations of the United States and the company growing out of the advance by the former to the latter of bonds to aid iu the construction of its road. The total amount of bonds so advanced is $27,230,512.. The duty of the company to re-imburse this amount, with all interest paid and to be paid by the United States, is clear and undisputed. In the reports named the Government directors endeavored to present fully every feature of law and fact spring-ing from the undisputed duty of re-imbursement by the company. It is unnecessary here to retraverse the grounds gone over in those reports. Aside from the consideration of the clear legal duty involved, there are great equities on both sides; but they no more than counterbalance each other, leaving the case still resting on the original legal obligation. As shown in those reports, the Government has received vast remunerative advantages already from the construction of the road, and will, through all the future of the great work, feel in increasing ratio the "beneficial results flowing therefrom. On the other hand, the road has, to the surprise of almost every one, proved itself to be a strong, growing, remunerative property, capable of carrying all its burdens and discharging all its obligations. There ought to be no conflict between the United States and the owners of the road. There is no just reason why there should be. The United States advanced the bonds in the sum named, and has paid and is still paying the interest thereon. Tins isa debt which ought to be paid, but under the decision of the Supreme Court of the United States it will not become due until the maturity of the bonds, thirty years from the date of their issue. To let it run on, accumulating to the end of this time, will be the worst possible policy and ruinous at last. If a just accommodation can be arrived at, for the avoidance of this result, it would be wise for all the parties concerned to avail themselves of it. 10 UNION PACIFIC RAILROAD. The plan suggested by the Government directors in their report for the year 1876 is believed to be a practicable one, which, if adopted, insures absolutely a full return to the Government of every dollar ©fits investment in the road. That plan differs from all others that have been proposed by the company in two important respects: It proposes to retain the one-half transportation and 5 per centum modes of payment now provided for, and a termination of the sinking fund at the maturity of the bonds, and security for the remainder due and unpaid at thafc time, the same to be discharged at the rate of not less than one-tenth per annum. A further consideration of the subject has led the Government directors to the conclusion that the said plan can be modified to some extent without being unduly burdensome to the company in the conduct of its affairs, and shorten the time for the full re-imbursement of the Government. The amount of bonds issued to the company by the United States is.. §27,236,512 00 Interest on the same at 6 per cent. for thirty years.-......--..-.--... 49,026, 000 00 Total at maturity of bonds--.-,....--..----...-.-..----.-.... 76,262,512 00 Presuming that the United States will receive a judgment on the basis of its claim in the pending 5 per cent. suit, and estimating upon like basis 5 per cent. of net earnings from commencement of suit; to June 30, 1877, the Government will receive from that source to said date about............................................... §2,250,000 00 And will have paid to said date by one-half transportation about.----..---.-----..........-.--.----....... 4,273,705 30 .-.--..--...........-............-..„... 6,52:!, 705 30-Or atotalof. Leaving a total remainder of.----..----...--.......--............... 69,738,806 70 Estimating the annual average arising from half transportation and 5 per cent., on the basis claimed by the Government in the pending suit for the remainder of the term at ^1,000,000, we have a total from these sources of.----. ----....-....--.---.....---.,---........-.......... 20,000,000 00 Leaving a balance due the Government at the maturity of the bonds of. 49, 738, 806 70 How can the payment of this large amount be provided for ? It will not be due, under the Jaw as construed by the Supreme Court, until the maturity of the bonds, whi^u there will also be due the first-mortgage bonds, amounting to $27,232,000, or a total of ^77,070,806.70. This is a sum beyond possibility of payment in money without refunding at date of maturity. Aud the additional practical fact exists that the first-mortgage bonds have precedence of the Government lien. The holders of the first-mortgage bonds are amply secured. The Government alone is m danger ot loss. Can this danger be avoided ^ The Government directors think it can be. The establishment of a sinking-fund is a practicable scheme, and opens a way out of this difficulty. A sinking fund, established on the basis of semi-annna.1 payments of §500,000 each, commencing on the 1st of January, 1S7S, compounded at the rate of 6 per cent. per annum for the term of twenty years, or until the maturity of the bonds, would give a total result, to be applied to the payment of the Government claim, of ^40,418,250.86, and le.ive still due the Government @9,320,;'»49.S4. This balance could be discharged either by the plan suggested iu the report of last year, or by the simple operation of the half transport-ation and 5 per cent. of net Ciiriiings, as now provided by law. The adoption of such a plan of adjustment" as is here outlined, by the Government and the company, with1 the approval of Congress, would render tlie payment ot' the prinuiptil and interest: of the bonds advanced by the Government absolutely ci--rt!iui. It would be useless to exact more thun the coiiip.iny u;m perform; and it is not LIU- UNION PACIFIC RAILROAD. 11 ]'usfc to require so much as ifc can comply with without embarrassing its affairs aud depriving the owners of the property of a fair return ill foroi of dividends on the capital invested. It is believed that the company can accept and perform the plan here presented. The net earnings for the year ending June 30, 1877, were......... ......;$B,317,091 58 Annual interest, first-mortgage bonds, is.-.--............... .$1,633,920 Annual interest, sinking-fund. bonds, is--.---...---.-.-.....- 1,146.090 Annual interest, laud-grant bonds, is-.--...-...--..-...---.. 586,180 Anuual interest, bridge-bonds, is..---..---.-.... ............ 182,320 Six per cent. dividend on capital stock, $36,762,300, is........ 2,205,738 Estimated average amount to Government from half transportation aud 5 per cent. of net earnings.-....---..-.-.- 1, 000, 000 —————— 6,754,238 00 Leaving a balance over for contingencies, extraordinary betterments, &c., of........................................................... 1,56-2,853 58 The company's statement of earnings on account of Government earn-ing-s for the year ending JUDO 30, 1877, is as follows, viz: For troops.----. ..................................................... $218,272 67 For mail.............................................................. 709.955 00 For freight........................................................... 402,756 42 Total........................ ................................. 1,330,984 09 Of this amount the Government is entitled to retain one-half for itsre-im- bursement, under existing law-....---............................ $665,492 04 Amount of 5 per cent. of net earnings for the year, as hereinbefore estimated.------.---- ............................................... 329,240 91 994,732 95 This is within a fraction of the foregoing estimate of the yearly average for the next tweuty years. But the account, as charged up for transportation of the mail, rests npou a basis not agreed to by the Government, and the accounting officers of the Treasury will doubtless reduce the amount charged to an allowance considerably below the claim. of the company. A full statement of the controversy between the Government and the company is given in the report of the Government directors for the year 1876. If, from any cause, the estimated average aforesaid should be exceeded, the result will be advantageous to the Government, as it will more speedily receive its re-imbursemeut. The increase in the business, both for the Government and the general public, which will as certainly come in the future as it lias iu the past, will surely maintain the average stated. If no definite plan for a permanent and final adjustment of the relations existing between the Government and company, relative to the full reimbursement of the former on account of the subsidy bonds issued tothelatterbe adopted, then the Government directors would respectfully suggest that Congress be recommended to passan act authorizing the Secretary of the Treasury to receive from the company, from time to time, such sums as it may elect to pay into his hands, for the establishment of a sinking fund for theextinguishmentof the liability of the company to the Government on account of said bonds. It is believed that the company would at once, upon the determination of the 5 per cent. suit, avail itself of such a provision of law and commence payments under it for the purpose named. Such a plan would be a great improvement on the present want of one, and would he preferable to the establishment of a voluntary sinking fund, with its funds remaining in the hands of the company and subject to its control. The company is still beset with litigation growing out of some of the transactions of its earlier history. One of the most important suits 12 UNION PACIFIC RAILROAD. now pending: is that of Thomas Wardell vs. The Union Pacific'Railroad Company and others, in the circuit court of the United States for the district of Nebraska. This case is based upon a, contract made between. the Union Pacific Company and Cyrus 0. Godfrey and Thomas War-dell, July 16, 1868, relative" to the coal lauds of the company, the supplying-of the company with fuel, the transportation of coal, &c,, and became the basis of the organization of the Wyoming Codi and Mining Company. This subject WAS fully reported on in the reports of the Government; directors for the .years 1872, 1873, 1874, and 1875. The G-overnment directors have resisted this contract from the time it first came to their knowledge in 18G9. Their reasons therefor are stated at length and in detail in their report for 1872. Nothing- effective came of this resistance until 1874,. when the present management entered upon. the control of the affairs of the company. The action then taken is thus given in the report of the Government directors for that year, viz: "The Union Pac fio Kailroad Company has taken possession of all the coal-mines heretofore in the possession of the 'Wyoming Coal and Mining Company, and is now working them as its own property. This has caused a resort to legal proceedings against the company by Thomas Wardell, which, if properly and earnestly resisted by the railroad company, will, in our judgment, result in the defeat of Warden's pretensions, and in the auulment of the so-called contract under which the Wyoming Coal and Mining Company long held possession of the vastly-valuable coal-lands of the Union Pacific corporation. The contract is copied at length in the report of the Government directors for 1872, and the legal proceeding's above referred to were brought to the attention of the Secretary of the Interior by special communication in September last, in which was inclosed a copy of Mr. Warden's bill of complaint, with the suggestion that the subject be brought to the attention of the Attorney-General, with a view to having instructions given to the United States attorney for the district of Nebraska to give his attention to the case." As hereinbefore shown, the company produced for its own consumption, for the year ending June 30, 1877, 183,337 tons of coal, at a cost of $1.29^- per ton, or an aggregate cost of $227,473.41. The price which the company would pay under the contract for coal for that year would be $4 per ton, or an aggregate for the year of $733,348, making a difference in the fuel-account (which of course would be charged to operating-expenses) of $505,875 for a single year. This, if enforced by a decree of the United States courts, would make a difference in the 5-per-cent. account of the Government on net earnings of §25,293.75. The contract extends over a term of fifteen years, and the price per ton is scaled from )S6 to $3; and although the consumption of coal by the company in former years was not as great as in the last year, it will be greater in the future. Taking this fact and the average price per ton under the contract, it is safe to say that the difference per year for the full term •would be as great as that of last year. This would give for the full term a, difference of $7,588,125, and, if this be allowed as a deduction in determining the 5-per-cent. return to the Government, it would make a difference in that account of $379,40U.25. The contract was an inexcusable iniquity from tlie beginning', and it is greatly to be cd that the pending case may rid the company of it forever. The company is making a, determined resistance to the, atiirmaiico of tlie contract. The case was argued and submitted at a special term of the circuit court in J line last, and a decision is expected in November; but whatever it may then be, it is not probable that tlie case will be liiiiilly determined short of a review on appeal by the Supreme Court of the United States. UNION PACIFIC RAILROAD. 13 T\vo other cases, growing out of old construction-contracts, are pending: in tlie supreme court of Illinois on appeal. These are the cases ot Miller cf a!. vs. The Union Pacinv JRailroad Company, in each of which the amount claimed is §100,000. cases were instituted in the circuit court of Winnebago Comity, Illinois. In one of these cases a judgment was recovered for §100,000, and in the other for ®G-1,000. These cases have some very peculiar features, which, as they are still pending in the appellate court, it is better not to discuss in this report. A reversal of these cases is confidently expected, and it' this expectation is realized, it must result in the absolute defeat of the claims. / These cases, growing out of construction, involve the 5-per-cent. account to the extent of $7,200, but it is confidently expected that they will be defeated. In the three foregoing cases, one of the undersigned (Mr. Wilson) is retained by the company as special counsel. Other litigation is pending in Massachusetts, in which ifc is expected that about all of the controversies remaining over (rom the complications growing out of constructiou will be finally determined and put at rest. During the year covered by this report, the company continued its policy of paying quarterly dividends of 2 per cent., making 8 per cent. per annum. In the report for 1876, this subject was referred to in the following language, viz: " The Government directors have not approved the dividend policy of the company. They have held that the amounts heretofore claimed as due to the Government on re-imbursement account, under the several provisions of law establishing and regulating the same, should be regularly paid before the declaration of dividends."" This position is here re-affirmed. In the reports of 1872, 1873, 187-1, 1875, and 1876 the Government directors called attention to the importance of a more thorough localization of the general business management of the road. Without repeating what was said on this subject in said several reports, a full re-affirmance of the same is here made. The improvements which have, iu this regard, followed the several visits of the president and other members of the board of directors to the line of the road under the present management, have confirmed the undersigned in their position. The constant presence of complete power on the line of the road would greatly promote the interests ot all concerned. Iu their report for 1875, the Government directors called the attention of the Secretary of the Interior to the great and growing importance of the grazing interests of the plains; they said : "The herds on the plains of the Platte are constantly increasing, while the aggregate number of cattle is becoming fabulous. The plains we",t of Kearuey Junction will soon become one of the chief sources from which the eastern markets will be supplied with beef-cattle. These plains furnish unsurpassed grazing-range, and the lands belonging to the Government and to the company ought to he placed under some well devised system of pasturage, from which profit could be secured to both. We would respectfully call the attention of the Government and the company to this exceedingly important subject, hoping that some system may be devised whereby the growth of cattle may be fostered and the lauds made immediately remunerative." Persons engaged in raising cattle upon the plains feel the great importance of this subject, and the expression from them is very strongly in favor of some organized system which shall give greater security and permanency to tlie business. A very intelligent gentleman, engaged in raising cattle, in a letter upon this subject, says: "I wish to call your attention to a matter of growing importance to the stock-interests of 14 UNION PACIFIC RAILROAD. this section. 'Under existing laws, one man can only attain title to one section of land in a body within the Pacific Railroad limits, i. e., a man can purchase a full section from the railroad company, but it is surrounded on all sides by Government laud, which is only open to homesteads and pre-emptions. It has been fully demonstrated that lands west of the one hundredth meridian are only fit for grazing purposes, and can only be utilized as grazing-lands when held in large tracts or ranges. The quantity of land required to support an animal by grazing alone is so great, that'it would be impossible to purchase the lands at the Government price, or at any price that would look reasonable. The result is, that no lands are sold, and the stock-raisers occupy the lands without any legal rights, while the Government and the railroad company get DO compensation. /One evil that grows out ol' this system is, that the stock-grower, having no defensible right to his range, does nothing toward improving or fencing it. His buildings and corrals are of the most temporary nature, and he is prepared at any time to move his herds wherever belter ranges or less crowded pastures offer. "Another evil arising from this system is, that during the winter cattle drift before the storms, and herds, getting together in large numbers, suffer for want of grass ; and in providing for this contingency it is necessary to keep a much more limited number of cattle on the range than could be supported if the cattle could be kept separated by fences. (t I think the following plan would entirely counteract all the evils mentioned, and would make a return to Government and railroad company from lands that otherwise will always remain unsold and valueless. The Government and railroad company jointly lease to responsible stock-growers all lands lying west of the one hundredth meridian of longitude in blocks of, say, from 50 to 500 square miles, at such au annual rental, and for such term of years, and with such other restrictions as will best protect the interest of the Government and railroad company, and will give the stock-raiser such a right to his range as will protect him from encroachment, and warrant him in fencing his range, besides making permanent iu vestments in corrals aud rauche buildings. The arguments in favor of some such plan as this are so many, and the objections KO few, that it seems to me only necessary to have it presented to Congress in proper form to insure its adoption. The enormous increase of the cattle-interest ou the western plains, and the present chaotic state of the grazing system demand that some intelligent action should be taken at once." The suggestions here made are important, and the subject to which they relate should receive attention, and the Government directors would advise that it be brought to the attention of Congress, with a view to the adoption of some plan. whereby the stock-raising-interests of the western plains may be permanently and economically organized. The present laud laws are wholly inadequate to reach the end. They are framed to meet the requirements of agriculture and mining, and they should uow be so adjusted as to meet the uew demands of the grazing-interests. There is no good reason, why the grazing-lauds of the Government and of the railroad company should not yield a revenue to each. Stock-raising on the plains is one of the mosti profitable pursuits on the continent, iy well able to pay reasonably for the u^e of the lauds, and is understood to be quite willing so to do. The shipments of beef-cattle from the line of the Union Pacific Railroad, for the year 1877, to August 1, were as follows: Number of cars. -Number of cattle 823 16,410 UNION PACIFIC RAILROAD. 15 From information gathered during' their la.te progress over the line, the undersigned are of opinion that 75,000 head of beef-cattle will be shipped from the line of the road this year. The interruption to shipment by the accident to the Missouri Elver bridge may reduce this number, but certainly not materially. An important market for the beef of the plains is developing in England and Scotland, and will doubtless soon appear on the continent of Europe. The shipment of slaughtered animals and live stock to those countries is a new enterprise, but its growth is rapid. In 1876 the exports of slaughtered animals were $1,855,191. lu 1877, to July, the figures swelled to $4,902,850 for slaughtered animals, and over $522,000 for live stock, or a total for the period named of §5,581,850, being an increase for one-half of 1877 over 1876 of §3,629,659. It requires no argument to prove that this class of exports is destined soon to become an important factor in our foreign trade; Europe will throw open its doors to our cheap meats when they can now be placed in her markets as fresh as from her own stalls and fields. The source of supply for this cheap meat will be largely and mainly the region traversed by or tributary to the Union Pacific Railroad. Much of the great sections of Texas and the Indian Territory, from whence now come vast supplies of live stock, will iu time be devoted to agriculture. This cannot be the case on the grazing-pldins of the West. Hence the greater importance of the suggestion made relative to the adoption of some system for the better organization of the grazing-regions of the west. This consideration, added to the fact that in effecting the former result a new source of public revenue. may be established, gives the subject double interest, and would seem to amply justify the suggestion already made, that the matter be brought to the attention of Congress. Doubtless the company would readily co-operate in any well-considered scheme for effecting this result. It is provided in the thirteenth section of the act of July 2, 1864, that " the Government directors shall, from time to time, report to the Secretary of the Interior, in answer to any inquiries he may make of them touching' the condition, management, and progress of the work, and shall communicate to the Secretary of the Interior at any time such information as should be in the. possession of the Department. They shall, as often as may be necessary to a full knowledge of the condition of the line, visit all portions of the road, whether built or surveyed.^ As far as the presentGoverumenfc directors are ad vised, (and one of them has been in continuous service since 18G9,) there has never been but one inquiry made under this provision of law, nor in pursuance of any other, nor on any account whatever. In 1871, au active controversy arose concerning the eastern terminus of the road. The then Secretary of the Interior addressed a communication to the Government directors, requesting them to examine the question involved in said controversy, and to report to him their opinion as to where the law fixed the eastern terminus of the road. The Government directors, after considering the question, reported that the terminus was on the Iowa shore of the Missouri River, This, of course, included the bridge across said river, and its approaches, and made them a part of the main line to be operated as a continuous part thereof. This opinion was followed by the accounting-officers of the Government, so far as United States transportation was concerned; but no action was taken to enforce it as to the rights of the general public. Private parties instituted Union Pacific Railroad Company v. Uallet at., (1 Otto, 343,) in which case, after persistent resistance by the company, the Supreme Court of the United States took the same view that had been reported by the Government directors, ^Q UNION PACIFIC RAILROAD. aud held "that the legal terminus of the railroad is fixed by law on the ^wn qhoraof the river, and that the bridge is a part of the railroiu^ t^re can^n.doSat the company is under obligation to operate ^druQthe^oe?oad, including the bridge, as one connected andcon. tinuous line " The road is now so operated, and commodious buildings, Scourle of erection on the east side of the river for the accommodation of the business, as hereinbefore stated. 1,1, All or part of the Government directors have made afc least annual visitations of the entire line of the road. They have made annual reports to the Secretary of the interior, in which they have endeavored to o-ive full expositions of the road, its condition, of improvements needed and of improvements made, of the things possible to be realized from it, of the policies of the company, of controverted questions both as to accounts and management of the property of the company, of disagreements as to the construction of the laws governing the relations and determining the rights of the Government and the company. Indeed, it may safely be stated that not a question of controversy between the Government and company has escaped mention in one or more of the reports. The reports from 1871 down to and including the one for 1876, and excluding the present one, reduced to print in the ordinary executive-document form, would cover nearly or quite one hundred and fifty pages. They are filled with information in general and in detail, derived, in great part, from personal contact with the subjects treated of, and made with a purpose to have them as exact as such, documents can be made. The tiling of these reports has been, practically, their endt ID many instances important recommendations have been made- with a view to the better management of the property , its business and affairs-They have rested with the reports. These statements are not made in the spirit of complaint. The fault has arisen mainly, no doubt, from the defective character of the law. The law requires certain reports to be made by the company to the Government, but has provided no means for the utilization of the reports -when made, and the same detect exists as to the reports of the Government directors. If the present relations existing betweeD the Government and the company are to continue, some remedy should be devised for the defect mentioned. All matters relating to the connection nf the Government with all of the railroad companies that have received United States bonds in aid of the construction of their respective roads ought to be organized in a special bureau in the Interior Department, in charge of a competent and responsible head. The Government directors are aware that the present Secretary of the Interior has considered this definite subject, and probably has arrived at, or doubtless will arrive at, a wise conclusion in general and in detail, and here the subject may be safely left the Government directors can but express satisfaction with ttie tact that special thought is now given to this important subject. wil^ ^''^"^^ are ve^ ^-rcat' far "^ so than many others. ^he^-er'Le^ accorded specia1 ^P^-^on since the foundatiou of »TAiIES F. W1LSOX. "1 ^ T ^ h 1 -T- / -9 V /.-_ ———L __ _ __ .____» • F-KAXCiS B. liREWEK. J. II. M1LLAKD. JOHN C. S. HAR^ISOX. DANIEL GUADW1CK.Bou. GAEL SCUUEZ, Secretary of the Interior, UNION PACIFIC RAILROAD. 17 Copy of a letter of General George Crook. llKADQrARTERS DEPARTMENT OF TE;E PLATTE COMMANDING GENERAL'S OFFICE, OmaJia, Sebr.^ October 9,1877. SIR : Referring to your communication of the 8th instant, stating that the managers of the Union Pacific Railroad propose building two branches from the main line, the initial of one east of Sherman, Wyo. with its objective point at or near BosemaD, MoDfc., the other to start at or near Rawlings, Wyo., and join eastern branch at its terminus in Montana.; the eastern branch passing through the Black Hills, and the western through the Wind River country. You request my opinion on the points explained in the following answers. They will have a most salutary and positive effect in settling our Indian troubles, thereby saving large expenditures of public funds. They will invite to and open up for settlement most valuable farming and grazing lauds; aid in the discovery of new mining sections, and promote the development of valuable mineral resources already discovered. They will save the public treasury vast amounts in economy in transportation of military'supplies, troops, and mails. From. my personal knowledge of the country through which the proposed lines will pass, I regard the project as eminently -practicable and more easily accomplished than many of the works of similar character now in successful operation in the country west of the Mississippi. I have confined my reply to the questions embraced in your letter, bufc under the head of gain,&c., I would say generally that I know of no proposed enterprise more important to the vast country they will open up, uor any that -will be of more positive and enduring good to the whole country. They will, -when completed, be of national importance and benefit. I have the honor to be, very respectfully, your obedient servant, GEORGE CROOK, Brigadier-General V. 8. A. Hon. J. H. MILLARD, Government Director Union PacSjic Railroad, Omaha, Nebr. S. Ex. 2-——2 0