How can the payment of this large amount be provided for? It will not be due, under the law as construed by the Supreme Court, until the maturity of the bonds, when 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. And 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 in danger of 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-annual payments of $500,000 each, commencing on the 1st of January, 1878, 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 $40,418,256.86, and leave still due the government $9,320,549.84. This balance could be discharged either by the plan suggested in the report of last year, or by the simple operation of the half transportation and 5 per cent. of net earnings, as now provided by law. The adoption of such a plan of adjustment as is here outlined, by the government and the company, with the approval of Congress, would render the payment of the principal and interest of the bonds advanced by the government absolutely certain. It would be useless to exact more than the company can perform; and it is not unjust to require so much as it can comply with without embarrassing its affairs and depriving the owners of the property of a fair return in form 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.. Annual interest, sinking-fund bonds, is.. $8,317, 091 58 $1,633, 920 586, 180 182, 320 Annual interest, bridge-bonds, is. Six per cent. dividend on capital stock, $36,762,300, is... Estimated average amount to government from half transportation and 5 per cent. of net earnings.... 2,205, 738 Leaving a balance over for contingencies, extraordinary betterments, &c., of 1,562,853 58 The company's statement of earnings on account of government earnings for the year ending June 30, 1877, is as follows, viz: For troops. $218,272 67 For mail. For freight.. Total....... Of this amount the government is entitled to retain one-half for its re-imbursement, under existing law.... 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 twenty years. But the account, as charged up for transportation of the mail, rests upon a basis not agreed to by the gov ernment, 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 reimbursement. The increase in the business, both for the government and the general public, which will as certainly come in the future as it has in the past, will surely maintain the average stated. If no definite plan for a permanent and final adjustment of the rela tions existing between the government and company relative to the full reimbursement of the former on account of the subsidy-bonds issued to the latter be adopted, then the government directors would respectfully suggest that Congress be recommended to pass an 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 the extinguishment of 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 be 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 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 O. Godfrey and Thomas Wardell, July 16, 1868, relative to the coal-lands of the company, the sup plying of the company with fuel, the transportation of coal, &c., and became the basis of the organization of the Wyoming Coal and Mining Company. This subject was fully reported on in the reports of the gov ernment directors for the years 1872, 1873, 1874, and 1875. The government directors have resisted this contract from the time it first came to their knowledge in 1869. 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 Pacific Railroad 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 Wardell's preten sions and in the annulment of the so-called contract under which the Wyoming Coal and Mining Company long held possession of the vastlyvaluable 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 proceedings 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. Wardell'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 herein before 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 operatingexpenses) 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 $6 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 $379,406.25. The contract was an inexcusable iniquity from the beginning, and it is greatly to be desired that the pending case may rid the company of it forever. The company is mak ing a determined resistance to the affirmance of the contract. The case was argued and submitted at a special term of the circuit court in June last, and a decision is expected in November; but whatever it may then be, it is not probable that the case will be finally determined short of a review on appeal by the Supreme Court of the United States. Two other cases, growing out of old construction-contracts, are pending in the supreme court of Illinois on appeal. These are the cases of Miller et al. vs. The Union Pacific Railroad Company, in each of which the amount claimed is $100,000. These cases were instituted in the circuit court of Winnebago County, Illinois. In one of these cases a judg ment was recovered for $100,000, and in the other for $64,000. 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 if 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 de feated. 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 it is expected that about all of the controversies remaining over from the complications growing out of construction 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 reimbursement 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 reaffirmed. In the reports of 1872, 1873, 1874, 1875, and 1876, the government directors called attention to the importance of a more thorough localiza tion of the general business management of the road. Without repeating what was said on this subject in said several reports, a full reaffirmance of the same is here made. The improvements which have, in 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 of all concerned. In 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 aid: "The herds on the plains of the Platte are constantly increasing, while the aggregate number of cattle is becoming fabulous. The plains west of Kearney 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 be 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 exceed. ingly important subject, hoping that some system may be devised whereby the growth of cattle may be fostered and the lands 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 the 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 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 land, 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 no compensation. One evil that grows out of 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 better ranges or less crowded pastures offer. "Another evil arising from this system is, that during the winter cat. tle 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. "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 an an nual 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 investments in corrals and ranch buildings. The arguments in favor of some such plan as this are so many, and the objections so 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 on 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 land-laws are wholly inadequate to reach the end. They are framed to meet the requirements of agriculture and mining, and they should now be so adjusted as to meet the new demands of the grazing-interests. There is no good reason why the grazing-lands of the government and of the railroad company should not yield a revenue to each. Stock-raising on the plains is one of the most profitable pursuits on the continent, is well able to pay reasonably for the use of the lands, 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 From information gathered during their late 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 River 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. In 1877, to July, the figures swelled to $4,962,850 for slaughtered animals, and over $522,000 for live stock, or a total for the period named of $5,584,850, 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 in time te devoted to agriculture. This cannot be the case on the grazing-plains of the West. Hence the greater importance of the suggest on made relative to the adoption of some system for the better or ganization 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 |