Chapters on the History of the Southern Pacific

by Stuart Daggett

The general railroad position with respect to the repayment of the subsidy bonds was that the entire debt to the government should be remitted.[559] Failing this, the companies contended that the government should satisfy its claim by taking back a portion of the railroad land grant. If the United States should be indisposed to resume the land grant, then Mr. Stanford suggested that the government should take up all the liens on the Central Pacific Railroad prior to the subsidy bonds, and in lieu of them issue government bonds bearing interest at the rate of 2 per cent. The saving to the company, due to the reduction in the interest rate on first mortgage bonds from 6 to 2 per cent, would enable it to pay off its indebtedness to the government, sufficient time being given and a moderate rate of interest allowed.[560] In case even this settlement were rejected, it was proposed that the government refund the subsidy bonds by a new issue, running 100 or 125 years, and bearing interest at the rate of 2 per cent.[561]

In opposition to the railroad proposals, western shippers, who represented the extreme anti-railroad sentiment, violently objected to a refunding bill of any description. It was the belief of California men that a refunding bill would simply saddle the railroad debt upon the shipping public. For the railroad would make the necessary annual payments for interest and sinking fund from the proceeds of rates, which would necessarily be paid by the shipper. As able a man as John T. Doyle, of San Francisco, maintained, moreover, that refunding was unnecessary, because it would be found that the assets of the Central Pacific would be adequate on foreclosure sale to meet both its first and its second mortgage obligations. In saying this, Mr. Doyle relied upon the ability of the government to hold directors of the Central Pacific personally liable for misappropriation of funds, as well as upon alleged illegalities in the issue of first mortgage bonds, and upon the chance that the courts would consider the San Francisco terminals of the Western Pacific, together with other miscellaneous property, subject to the lien of the government mortgage, although the property was not “bond-aided” in a narrow sense.[562]

Pacific Coast Agitation

As an example of the feeling in the West concerning the policy of refunding, particular reference may be made to expressions of opinion in the city of San Francisco. In May, 1894, a mass meeting of citizens of San Francisco elected a committee of three to proceed to Washington and to oppose the funding of the debt of the Central Pacific Railroad to the United States. In a memorial addressed to the Senate and House of Representatives, and designed to oppose the Huntington scheme of a long-time extension of the subsidy bonds at a low rate of interest, this committee said:

In the name of the people of San Francisco, of California, and of the whole Pacific Coast, we protest against the acceptance by Congress of a plan which will keep more than $77,000,000 of the public’s money from being paid to the United States Treasury, and which will secure in their present wrongful possession of that sum, besides promoting their other selfish and unpatriotic schemes, men who have for thirty years been wrecking a railroad, defrauding the Government, corrupting public morals, plundering and oppressing the people, and violating every principle of business probity, of law, right, justice, and public policy.

Another meeting, held in the Metropolitan Temple, in San Francisco, on June 19, 1894, called on the state conventions of both parties to introduce into their platform resolutions against the funding of the debt of the Central Pacific Railroad Company to the United States at the rate of 2 per cent per annum for one hundred years, at a rate of 4 per cent per annum for fifty years, or at any other percentage, or during any other period. Under the leadership of the eccentric Adolph Sutro, this meeting adopted an arraignment of the Southern Pacific which was almost inarticulate in its denunciation. It was charged that:

This monopoly has spread a black cloud over the surface of the State. It has manœuvred through a large number of corporations, of which the Southern Pacific Company of Kentucky is now the center. It has seduced and drawn into its service many prominent men, whose Americanism and integrity were not equal to their brains. It has antagonized the people, minimized immigration, choked enterprise, and, in this unrelenting attack, has used the supposed representatives of the people in each department of the government, Municipal, State, and National. It has controlled legislation, executive action and the administration of justice. It has discriminated in freights and fares and, at every station on its many thousands of miles of railroad, maintained a Custom House of its own.

This was followed on June 29 by a telegram, signed by Sutro and addressed to Grover Cleveland, advising the President that history would record him as the greatest benefactor of the American people if he would recommend the foreclosure of the mortgages on the Pacific railroads and the purchase of these railroads by the government at foreclosure sale. It was Sutro’s idea that the government should hold the transcontinental lines as a great national highway, and permit all American railroads to run their locomotives and cars over it under payment of tolls to be regulated by the Treasury Department.

During the summer of 1894 the San Francisco Examiner circulated a petition against the Reilly funding bill, to which, by September 20, it was said that 194,663 names had been attached.[563] In January, 1895, both the Colorado and the California legislatures adopted resolutions opposing the refunding. In California there was not a dissenting vote. The same month another mass meeting was held in San Francisco, and in December, 1895, still another one followed, with the result that a committee of fifty was appointed, and a recommendation sent to the national government.