THE ACT ESTABLISHING A SINKING-FUND FOR THE PAYMENT OF THE BONDS OF THE CENTRAL PACIFIC AND UNION PACIFIC RAILROAD COMPANIES. A copy of this act is given in the appendix, marked E. Section 1 defines how net earnings shall be ascertained after June 30, 1878. The information upon the forms upon which reports are required to be made to this office will enable it to determine promptly the amount of these net earnings. Section 2 requires that the whole amount of compensation due said companies for services rendered for the government shall be retained by the United States, one-half to be applied (covered into the Treasury) on account of interest paid and to be paid, and the other half to be turned into the sinking-fund (covered into the Treasury on account of said sinking-fund). If this is done, it seems to conflict with the provisions of section four, by which the one-half of the compensation for the sinkingfund is required to be carried to the credit of said fund on the 1st day of February in each year. But it is unreasonable to suppose that the Secretary of the Treasury is to be required to hold these moneys month by month, as they accumulate during the year, without applying them to the use of the said sinking-fund. Section 3 establishes a sinking-fund in the Treasury of the United States, which is to be invested by the Secretary of the Treasury in bonds of the United States, and the semi-annual income thereof shall be in like manner from time to time invested. By this it seems to be enacted, first, that the moneys constituting the sinking-fund shall be covered and remain in the Treasury; that is, shall become part of the Treasurer's general account; and, second, that they are appropriated and 'subject to the warrant of the Secretary of the Treasury for the purpose of investing them in bonds of the United States, which bonds are to be held by the Secretary of the Treasury, stamped so as to show that they belong to said fund. The question as to the premium paid on bonds purchased for the sinking-fund being a charge to said fund or not, is an open one; but in view of the fact that the companies themselves charge the premium they pay on similar investments to their general income account, it is reasonable to consider it a proper charge to the sinkingfund account. It may be a matter for consideration, however, whether it would not be better, more equitable, for the sinking-fund to be invested in the first-mortgage bonds of the companies, inasmuch as they are first to be paid from its accumulation. Section 4 provides that each company shall on the 1st day of February in each year pay into the Treasury, to the credit of said sinkingfund, enough money to make the aggregate of the payments to the government and the payments to the sinking-fund amount to 25 per cent. of the net earnings of each company, ascertained and defined under the law, for the year ending on the 31st day of December next preceding. Section 5 authorizes the Secretary of the Treasury to remit for any current year so much of the money required to be paid into the sinkingfund to make 25 per cent. of net earnings as may be shown, by either of the companies, to have been required to pay interest upon the obligations of the company in respect of which there may exist a lien paramount to that of the United States. Section 6 enacts that no dividends shall be voted, made, or paid at any time when the company is in default as to the sinking-fund, the 5 per cent. of net earnings, or of interest upon any debt the lien of which is paramount to that of the United States, with penalty by fine not exceed ing $10,000 and imprisonment not exceeding one year on every officer, person, or stockholder who shall knowingly vote, declare, make, or pay such dividend. Sections 7 and 8 provide that the sinking-fund and its accumulations shall be held for the protection, security, and benefit of the lawful and just holders of any mortgage debts lawfully paramount to the rights of the United States according to the principles of equity. Section 9 enacts that the indebtednesses of the companies to the United States are a lien upon all their property, estate, rights, and franchises, subject to any lawfully prior and paramount mortgage, lien, or claim thereon, but does not prevent them from disposing of their property in the ordinary and lawful course of current business in good faith and for valuable consideration. Section 10 makes it the duty of the Attorney-General of the United States to enforce, by proper proceeding, all the rights of the United States under this or any other act, and makes it the duty of the court to determine the very right of the matter in any suit without regard to matters of form. Section 11 enacts that a failure to comply with the requirements of any acts of Congress on the part of each of the companies named shall operate as a forfeiture of all their rights, privileges, grants, and franchises derived or obtained from the United States. Section 12 reserves the right to alter, amend, or repeal this and the other acts named, as justice or the public welfare may, in the opinion of Congress, require. The practical operation of the sinking-fund act as to the Union Pacific Railroad Company, for the year ending June 30, 1878, supposing the act to have been operative during that fiscal year, and premising that the compensation for services, as claimed by the company, had been promptly settled by the accounting-officers of the Treasury Department, would have produced the following result: .... One-half of United States passenger earnings retained by United States. Of the $850,000 additional payment to be made by the company, no Total (being 25 per cent, of net earnings)....... REQUIREMENTS FOR SINKING-FUND. One-half of United States transportation as above................ $616,066 93 REQUIREMENTS FOR THE UNITED STATES. One-half of United States transportation as above............... Cash payment on account of 5 per cent. of net earnings as above $616,066 93 106,660 49 722,727 42 AT THE DISPOSAL OF THE COMPANY. Seventy-five per cent. of the net earnings. From this the following payments were made, viz: Interest on land-grant bonds............. Dividends, 6 per cent. on par value of capital stock, Net deficit for the year With the exception of the exact amount to be deducted from "maintenance of way" on account of betterments by steel rails being substituted for iron, and the amount of freight on materials used in new construction-probably not in excess of $10,000-to be deducted from "company freight," the above statement is a correct one. Under the laws in force to June 30, 1878, the settlement of this mat This item was increased over the expenses of the previous year by the cost of re placing two spans carried away by a tornado August 25, 1877, amounting to $61,699.99 ter between the Union Pacific Railroad Company and the United States will be probably as follows, viz: One-half of transportation retained. Five per cent. of ordinary net earnings retained out of the other half of transportation .......... Total amount paid into the Treasury applicable on account of the Remainder of one-half of transportation payable to the company. $616, 066 93 352, 330 17 968, 397 10. 263,736 76 Total amount of transportation performed for the government... 1,232, 133 86 The printed reports of the Central Pacific Railroad Company to their stockholders and the written report rendered to this department under the law which has been repealed do not furnish the information necessary to make a similar statement as to that company, and no reports have been made to this office. THE OPERATIONS OF THE BUREAU. On the 1st day of July, 1878, a copy of the act creating this bureau and a copy of the sinking-fund act were forwarded to the presidents of the Union Pacific and Central Pacific Railroad Companies, and request made for compliance with the requirements of the same. Copies of the act creating the bureau were afterward forwarded to the president, receivers, or other proper officers of the remainder of the companies named in the list marked B in the appendix, and request made for compliance with its requirements. At as early a day as possible after preparation and printing of the blank forms adopted upon which reports are required to be made by the companies, a proper supply of each of the forms named in list D of the appendix was forwarded to the business address of the president or chief officer of each company, accompanied by a letter of request suited to each case. Four months only having elapsed since the organization of the bureau, and much time having been taken up by correspondence between the companies and the bureau (many of them having referred the requests of this office to their law officers for consideration and report), the information furnished upon the forms prepared has necessarily been delayed. Some of the companies included in the act make no printed or even written reports to their stockholders, and the reports of other companies which do so are bare of the requisite information, so that at this comparatively early day in the existence of the bureau it is next to impossible to give that exact and complete statement of the affairs of the companies affected which it is ultimately designed to do. The information received directly from the companies is tabulated in the appendix under appropriate heads. The incompleteness of reports renders comment or discussion in regard to the bearing of the information furnished upon the interests of the government out of the question at this time. Much patience and forbearance has been exercised, in the hope that the companies affected would comply with the law without resort being had to the penalties prescribed therein, and that they would realize the fact that a medium of intelligent communication with the government and the people, by which a true statement of their affairs (their adversity or prosperity) could be made, was all that was required in order that they might be treated with fairness and justice by the law-making power. THE RAILROAD COMPANIES TO WHICH SUBSIDY BONDS WERE ISSUED. The Union Pacific Railroad Company has commenced to render the reports called for, but under a reservation by advice of their law officer which cannot be accepted by this office. A copy of the letter of the president of the company containing this reservation is given in Appendix F. The directors have consented to submit the books and records of the company to inspection, which has been partially done in the office of the company at Boston, and some of the information given in this report has been so verified. The questions regarding the constitutionality of the sinking-fund act, the constitutionality of the act creating this bureau, the rate of compensation for carrying the mails, the disposal of their lands in connection with the "Dudymott" decision of this department, the so-called discrimination against the Kansas Pacific Railway Company, the date of the completion of the road, the constitution of "net earnings" in connection with the 5 per cent. thereof payable to the United States, and matters connected with the Credit Mobilier, and the contracts under which the road was built, have been unquestionably, and may be still, the source of much expense and some hardship to the company, not only from the cost of litigation and the locking up of large sums of money to which they may be equitably entitled, but much more so from their general influence upon the valuable property under its control and the uncertainty hanging around it. But, for all this and much more, the company must blame its officers or their predecessors and their own litigious spirit. This company being fully able to comply with the requirements of the law establishing a sinking-fund, and having nothing to conceal in its present management or affairs (its accounts, as now kept being in excellent condition, and its affairs under the management of able officers), would do itself much more justice by acquiescing in all the requirements of law, than it will by interposing litigation at every step; while, on the other hand, the government, in a spirit of equity and fairness, as well as of self-interest, cannot well do anything that shall tend to disrupt or not conserve this great property for the use of the gov ernment, for the great advantages it confers upon the nation, and for the benefit or reward of its enterprising owners. Litigation is waste; practical business settlement of business questions should be the rule. As all of these questions are now pending in the courts, there is no need of a discussion of them here. A special report, however, in regard to the "pro rate" question is in course of preparation. As soon as it was known that the rates for freight between New York and San Francisco had been advanced by the Union and Central Pacific Railroad Companies, communication was had with one of the government directors as to the facts in the case. From information furnished in reply, it appears that the rates were advanced by the freight agents of the companies, acting upon their own idea of what was best for the companies' interests; that the executive committee of the Union Pacific Railroad had not taken any action in regard to it; and that the officers of the companies did not dissent from the action of their agents, although it was done without their express direction. The reason assigned for the advance is, that many shippers send their valuable goods to San Francisco by railroad and their coarse goods by ships around Cape Horn; and that it was found necessary to increase the rates in order to get shippers to make contracts covering all classes of goods at reasonable rates. In many cases, under such contracts, rates have been made lower than the previous tariff. This appears to have been a matter entirely within the discretion of the officers of these companies, and the government cannot |