Inadequacy of Law
The persistent disputes between the government and the railroad companies over the proper interpretation of the Thurman law made the administration of the statute difficult. The primary defect of the act, however, lay in the fact that the contributions which it compelled the companies to make were too small to provide for the retirement of the subsidy bonds with interest at their maturity. How far the ultimate provision under the law fell short of a proper accumulation may be seen from the table given in the next paragraph, in which the debits and credits on account of the government loan to the Central and Western Pacific railroads are given as of June 30, 1897, six months before the greater part of the subsidy bonds fell due.
According to the Commissioner of Railroads, the account between the United States and the Central Pacific Railroad stood on the 30th of June, 1897, as follows:[551]
Statement on the Government Loan to the Central and Western Pacific Railroads, as of June 30, 1897
| Debits: | |
| Principal of subsidy bonds issued | $27,855,680.00 |
| Interest paid by the United States | 47,954,139.78 |
| ——————— | |
| Total debits | $75,809,819.78 |
| ══════════ | |
| Credits: | |
| Applied to bond and interest account: | |
| Transportation | $7,977,535.66 |
| Cash | 658,283.26 |
| Applied to sinking fund account: | |
| Transportation | 5,027,848.71 |
| Cash | 633,992.48 |
| Proceeds of sinking fund investments | 1,683,127.38 |
| ——————— | |
| Total credits | $15,980,787.49 |
| ══════════ | |
| Balance of debt, June 30, 1897 | $59,829,032.29 |
| Excess of interest paid by the United States over all credits | $31,973,352.29 |
The reasons for the inadequacy of the Thurman law were, first, the failure of the net earnings of the Pacific railroads to increase as rapidly as had been expected, and second, the meager results of the sinking fund accumulations. Net earnings were disappointing because of general business conditions, especially after 1893, and because of competition from other transcontinental railroads. The accumulation of the Central Pacific sinking funds proceeded at a slower rate than had been anticipated, for reasons already given. Up to June 30, 1897, the table shows that the total proceeds of sinking fund investments by the Central Pacific Railroad had amounted to only $1,683,127.28. When it is understood that this was less than a third of the sum which the moneys paid into the sinking fund would have earned if invested promptly and continuously at 6 per cent, the loss which resulted from the purchase of government bonds becomes evident.
After thirty years of contention and nineteen years of operation under the Thurman law, the accumulated reserve for the retirement of the subsidy bonds was less than $16,000,000, of which only $7,300,000 was the result of the Thurman sinking fund. On June 30, 1897, the United States had actually paid out in interest on its bonds issued in aid of the Central Pacific Railroad, $31,000,000 more than had been provided against both the interest and the principal of the debt. Except to the extent of $7,300,000, the problem remained substantially as it had been presented in 1878.