And be it further enacted that the grants aforesaid are made upon condition that said Company shall pay said bonds at maturity, and shall keep said railroad and telegraph line in repair and use, and shall at all times transmit dispatches over said telegraph line, and transport mail, troops and munitions of war, supplies and public stores upon said railroad for the Government, whenever required to do so by any department thereof, and that the department shall at all times have the preference in the use of the same for all the purposes aforesaid (at fair and reasonable rates of compensation, not to exceed the amounts paid by private parties for the same kind of service), and all compensation for services rendered for the Government shall be applied to the payment of said bonds and interest until the whole amount is fully paid. Said Company may also pay the United States, wholly or in part, in the same or other bonds, treasury notes, or other evidences of debt against the United States, to be allowed at par, and after said road is completed, until said bonds and interest are paid, at least five per-centum of the net earnings of said road shall also be annually applied to the payment hereof.[82]
In 1864 this section was changed by requiring only one-half of the compensation for services rendered to the government to be applied to the payment of bonds issued by the government in aid of construction, but the declaration that the bonds should be paid was not altered. Not only was this true, but the government demanded security for repayment. In 1862 it declared that the issue of said bonds and delivery to the company should ipso facto constitute a first mortgage on the whole line of the railroad and telegraph, together with the rolling stock, fixtures, and property of every kind and description. In 1864 the lien of the United States bonds was subordinated to that of a second mortgage, but the idea of some security was preserved.
Third, the government reserved the right to reduce the rates of fare upon the Central Pacific, as well as upon the other railroads provided for in the Act of 1862, as unreasonable, when net earnings should exceed 10 per cent upon cost, exclusive of the 5 per cent to be paid to the United States.
Fourth and last, an annual report was asked for, which was to set forth earnings, expenses, indebtedness, the amount of stock subscribed, a description of the lines of road surveyed, and the names and residences of the stockholders.
Amounts Granted
It is evident that these demands were very moderate indeed. Under the provisions of the Acts of 1862 and 1864, the Central Pacific and Western Pacific railroads received $27,855,680 in government bonds, and 10,081,945.18 acres in public lands (up to June 30, 1920). From the bonds the companies realized $20,735,000, or $24,092 per mile. From the lands, the Central Pacific received, up to June 30, 1919, the approximate sum of $17,430,000, about equally divided between receipts from sales and receipts from other sources, including leases, stumpage, timber, and miscellaneous. The expenses of the land department may be estimated at $7,000,000, and the net return therefore was $10,000,000. The yield of the bond subsidy not only exceeded the returns from the granted lands, but the subsidy was ten times the aid received from the state and counties put together, and of course many times the contribution of the partners themselves. What was almost as important, the grant of this federal assistance at once raised the company’s credit, so that it could sell its own first mortgage bonds. The sale of company bonds yielded $20,750,000, or a total of $41,485,000, for government and company bonds together, directly attributable to federal aid, and almost immediately available.
From the point of view of serviceability, the land grant referred to in the Pacific Railroad legislation was much less important than the subsidy in bonds. Government lands along the line of the Central Pacific had no value until the road was completed, nor even then until the slow process of settlement had filled up in a measure the territory through which the railroad ran. Nor was the amount of the grant so definite as to make it a satisfactory basis for credit, although land grant bonds were sold in and after 1870. The theoretical grant was twenty sections, of 12,800 acres to the mile. The grant did not, however, follow the sinuosities in the track, so that in the mountain sections it was quite possible for two miles of railroad to be constructed and yet only one mile of land grant to be obtained.
Not only was this true, but the exceptions provided for in the legislation were important. The records show that the saving clauses in the statutes, coupled with the inaccessibility of some of the lands within the nominal grants, and the differences between the actual mileage of the railroad and the mileage upon which land was awarded, reduced the area passing to the railroad by many hundred thousand acres. In California the Central Pacific was entitled to a nominal grant of 1,843,000 acres, at the rate of twenty sections per mile for a mileage of 144 miles. At least 887,000 acres of this amount were known to be lost to the grant as early as 1895, while the final adjustment will scarcely secure for the company more than half the amount originally expected. In Nevada the company’s losses approximated one-ninth and in Utah one-quarter of the nominal grant. The losses on the California and Oregon up to 1897 were 962,703 acres out of a total grant of 3,266,729 acres, but in this case the law permitted the company to select additional lands within “indemnity” limits.
Delays in Transferring Title
How far the government lands failed in providing the Central Pacific with funds with which to build its road, however, can best be understood when attention is paid to the delays incident to the transfer of title. The general procedure in transferring title from the government to the company was as follows: