As the period when the greater part of the subsidy bonds were to mature approached, committee reports upon the Pacific railway debts multiplied. On the 28th of January, the Committee on Pacific Railroads submitted a long discussion through Senator Brice, of Ohio. The committee was opposed to government operation and pessimistic about the results of a foreclosure sale. It recommended that the subsidy bonds be refunded for such a period and at such a rate of interest as should enable the companies, under ordinary circumstances and business conditions, to meet the current interest and a portion of the principal of the debt each year.
Powers Bill
On April 25, 1896, Mr. Powers, of Vermont, in behalf of the House Committee on Pacific Railroads, presented a bill and a report to accompany it. The House committee now definitely proposed that the Pacific railroad companies issue, and that the government accept, bonds equal in amount to the whole balance due the United States, and bearing interest at 2 per cent, payable semiannually. These bonds were to be secured by second mortgages, which were to embrace not only the subsidized parts of the Pacific railroads, but also all the other railroads, terminals, lands, and equipments belonging to the companies, to which the lien of the government did not then extend. It was provided that the companies should make annual payments on account of the principal of the bonds—smaller payments during the earlier, and larger payments during the later years—in such fashion that the debt would be repaid in about eighty-five years.
In addition to providing the government with the additional security which came from extending the lien of its second mortgage bonds, the Powers bill required, as one of the terms of the settlement, that the lease of the Central Pacific Railroad to the Southern Pacific Company should be so modified as to require, first, that the Southern Pacific Company guarantee the full payment of the obligations imposed upon the Central Pacific by the new legislation so long as it should remain lessee of the property; and second, that if the Southern Pacific Company should consent to the termination of the lease before the maturity of all instalments payable under the act, it should in that event guarantee the payment by the Central Pacific of all required payments. In case of any abrogation or termination of the lease, the principal of all bonds issued under the act was, at the option of the President of the United States, immediately to mature.[556]
The Powers bill was debated in the House of Representatives from January 7 to January 11, 1897. It was supported by the friends of the railroad companies, doubtless because of the long period over which the railroad debt was to be extended and the low rates of interest on the refunding bonds. It was opposed by anti-railroad men, and by those who thought the bargain a bad one for the government from a business point of view, and it was finally defeated because Congress was unwilling to extend the government loan at 2 per cent for eighty-five years until more convinced of the necessity of compromise.[557]
Additional Schemes
Four days after the submission of the Powers report and its accompanying bill, a report was presented to the Senate by Mr. Gear, of Iowa, which recommended the passage of a substantially identical statute.[558] Nothing was done with this report, nor with a suggestion which Mr. Gear made in January that the whole matter be referred to a commission to be appointed for the purpose.
The submission of the Gear report brings the account of the negotiations for the settlement of the Pacific railroads’ indebtedness down to the spring of 1897. Four Congressional committees had reported up to this time. Of these, two had recommended that the subsidy bonds be refunded at the rate of 3 per cent for fifty years, and two that they be refunded at the rate of 2 per cent for seventy-five years or more. All four had proposed an improvement of the government’s security by extending the government lien to cover the non-aided portions of the Pacific railroads, and in addition to this the Reilly bill had provided that the government should secure a first lien upon the railroad property in question by paying off the underlying bonds.
It would be possible to lengthen the list of suggestions for the repayment of the subsidy bonds which were made during the eighties and the nineties, by including schemes elaborated by other persons than members of Congress and presented in other ways than through formal reports of Congressional committees to the legislature. This will not be done to any great extent because of limitations of time and space. While, however, the greater part of outside comment upon various pending refunding bills must be omitted, it is important to remember that the discussion outside of Congress, especially during the nineties, was quite as active as that within, and that it was conducted with great bitterness of feeling and freedom of expression. Indeed, the extreme contentions on either side are quite inadequately set forth in the Congressional debates.
Railroad Proposals