Government yet these companies will have been the recipients of the most lavish bounty that any government ever bestowed upon corporations since the world was made. The subsidies in land, the loan of $55,000,000 at 6 per cent. interest not reimbursable until the end of the thirty years, and the rights and franchises that were given to these companies, all made the most magnificent bounty that any government ever bestowed upon such corporations.

But, Mr. President, there are other reasons that should induce Congress to interfere, and one of them, and in my mind a very potent one, is that these companies up to the 1st day of January last had not provided one dollar of a sinking fund to pay their indebtedness to the Government. They had provided some sinking funds for other portions of their indebtedness, some of which was inferior to that of the Government, but not one dollar had they provided as a sinking fund to meet their debt to the Government when that should become due. But instead of doing so, although they were in the receipt of such incomes as no other railroad companies in the United States received, the richest income and the most net earnings that any companies received, instead of providing a sinking fund to meet their indebtedness to the Government when it should mature, they have divided among their own shareholders the great portion of their net earnings, paying in the case of the Union Pacific 8 per cent. per annum on the nominal value of the stock, which makes nearly 12 per cent. on its market value, and in the case of the Central Pacific paying from 8 to 10 per cent. upon the nominal value of the stock. Mr. MCCREERY. How long?

Mr. THURMAN. For years past, thus distributing every year from four to five million dollars-you will find it precisely in the report of the committee-to their shareholders without providing one dollar to meet this vast indebtedness to the Government of the United States. Now, Mr. President, can there be any doubt of our duty to exert our power, if we possess it, to compel these companies to think something of the Government as well as to think of their own pockets, to think something of what is due to the Government as well as to think of the pockets of the shareholders?

I have spoken of the indebtedness to the Government and its immense amount as one reason why Congress should interfere; but other indebtedness, the indebtedness of the companies to others than the Government, must also be taken into consideration when we are determining whether there is a necessity for this legislation; and looking at that we find that the indebtedness of the Union Pacific, other than the indebtedness to the Government, is $51,497,000, and of the Central Pacific $55,457,000, making an aggregate of $116,954,000 which those companies owe besides their indebtedness to the Government, and this exclusive of their floating debt. However, their floating debt is so small that I lay no stress on it. It need not be taken into account. In that respect these two companies are better off than any companies I know of in the Republic.

If I have made it apparent that some legislation is necessary upon this subject, the Senate will be prepared to hear what legislation it is that the Judiciary Committee propose; and to explain that I must take up the bill and go over it in a somewhat tedious manner, and speak of its sections somewhat in their order and trouble the Senate to hear some of them read.

The first section of the bill provides

That the net earnings mentioned in said act of 1862

That is the first act on the subject of these railroads, the charter

of said railroad companies respectively shall be ascertained by deducting from the gross amount of their earnings, respectively, the necessary expenses actually paid within the year in operating the same and keeping the same in a state of repair, and also the sums paid by them, respectively, within the year in discharge of interest on their first-mortgage bonds, whose lien has priority over the lien of the United States, and excluding from consideration all sums owing or paid by said companies respectively for interest upon any other portion of their indebtedness; and the foregoing provision shall be deemed and taken as an amendment of said act of 1864 as well as of said act of 1862. This section shall take effect on the 30th day of June next, and be applicable to all computations of net earnings thereafter; but it shall not affect any right of the United States or of either of said railroad companies existing prior thereto.

That is, prior to the 30th of June next. The reason of this last clause is that a suit is now pending in the Supreme Court of the United States, in which a judicial determination is sought as to what is the meaning of that provision in the charter which provides that the United States shall receive 5 per cent. of the net earnings, and very dissimilar views are taken of the right of the United States under that clause by the law officer of the Government on the one side and by the companies on the other. The law officer of the Government insists that there should be deducted from the gross receipts of the companies nothing but their operating expenses, in order to ascertain the sum upon which the 5 per cent. is payable to the Government; in other words, that "net earnings" in that clause of the charter consist of gross receipts, less operating expenses alone. On the other hand, it is contended by the companies that "net earnings" are only what remains to each company after it has paid all its interest upon its debt which is inferior in lien to that of the United States, as well as that which is superior, and all other expenses of every kind and description; that, after deducting all these from the gross receipts, what remains and would be distributable as dividends to the shareholders is the sum upon which 5 per cent. is to be computed and paid.

That question, so far as the past is concerned, your committee propose to leave for the decision of the Supreme Court without any retroactive legislation that would touch it at all. They propose, therefore, to define "net earnings" simply for the future, and not for the past, and as a fair adjustment between these conflicting claims of the Government on the one side and the companies on the other, they think it would be reasonable, and they so report, that in addition to operating expenses and the amount for keeping the road in repair each company ought also to be allowed to deduct the interest on its first mortgage, which is prior in lien to the lien of the Government, and that then what remains will be the sum 5 per cent. of which shall be payable to the United States as "net earnings" under this provision of the law.

I think that that is a perfectly fair proposition. The inclination of my mind is to believe, especially in view of the eighteenth section of the charter, that the interpretation of the law by the AttorneyGeneral is the correct interpretation; but is a debatable question, a fairly debatable question, whether his interpretation is right or whether it is not. But we place our right to define for the future what shall be net earnings upon the control which Congress has over this charter both by the general principles of constitutional law and by the express right reserved to Congress to alter, amend, or repeal the charter. Upon either one of these grounds it seems to us that we have the right to prescribe what shall be considered net earnings, at

least for the future, and we think that what we do prescribe is perfectly fair and perfectly just.

And here I must remark that the substitute reported by the Judiciary Committee is more favorable in this respect to the companies than was the original bill or than was the bill reported to the Senate by the Judiciary Committee nearly two years ago, and which is precisely the same as Senate bill No. 15 which was last referred to the committee. That bill, reported in July, 1876, and the same bill which was introduced by me and referred to the committee at the last session, did not allow each company to deduct from its gross receipts the interest upon its first mortgage before the computation of 5 per cent. began. We have made the bill more lenient to the companies by allowing that deduction to be made. Nor have we taken any exception to a practice that has been pursued by both these companies-and which every man familiar with railroads and their management will understand perfectly well is to a great extent an evasiona charging to the account of operating expenses very large sums of money used in the reconstruction, the rebuilding of the road. Take, for instance, the Union Pacific. Here are many miles of rails that have been relaid on that road, steel rails substituted for iron rails. Here are many thousands and thousands of ties, new ties, that have been laid in that road. There are many other improvements and repairs of that kind, all of which that company has charged to "operating expenses" and not to the "construction account."

I think it has been generally held that where a State has reserved the right to a certain per centum upon the net earnings of a railroad by way of tax or otherwise, the company has no right to deduct from its gross earnings anything but the cost of ordinary repairs and the operating expenses; that it has not a right to rebuild the road and immensely improve it as by the substitution of steel rails for iron rails and charge that which properly belongs to the construction account to operating expenses. But we have made no point at all about that in this bill. We have said, on the contrary, that they may deduct operating expenses and the cost of repairs, and, if this reconstruction comes fairly within the word "repairs," the company can proceed to repair the road in this way.

I wish, however, further to say that practically the difference would not amount to a very large sum, though it would amount to something, whatever interpretation may be placed upon these words, "net earnings," in the charter, because if you reduce the net earnings to the very lowest sum, as contended for by the companies, you only make it necessary to require the companies to pay a so much larger sum into the sinking fund, if you are to have any sinking fund that is worth the name. The only advantage the Government has in reducing the deductions from the gross earnings in order to obtain the 5 per cent. is that then a larger sum is payable annually to the Government, which it is authorized by the charter to apply immediately to reimburse itself the interest it has paid; and, therefore, it saves interest upon that sum thus paid.

That explains the first section. The second section is:

That the whole amount of compensation which may, from time to time, be due to said several railroad companies respectively for services rendered for the Government shall be retained by the United States, one-half thereof to be presently applied to the liquidation of the interest paid and to be paid by the United States upon the bonds so issued by it as aforesaid, to each of said corporations severally, and the other half thereof to be turned into the sinking fund hereinafter provided, for the uses therein mentioned.

The only change in the existing law that that section makes is

that it turns one-half of the transportation account into the sinking fund; it leaves the other half to be applied precisely as the law now applies it, making not the slightest change in that respect. But it is perfectly obvious that if a sinking fund in the Treasury is to be created this half transportation account ought to be a part of it. It would be absurd that the Government should pay out to the companies the half transportation account, and then demand of the companies to repay it into a sinking fund. The simple way to do it is for the Government to retain that and turn it into the sinking fund. There can be no objection, therefore, I take it, if you are to have a sinking fund at all, to that provision of the bill.

The third, fourth, fifth, seventh, and eighth sections of the bill relate to the sinking fund. The third section which constitutes it is in these words:

That there shall be established in the Treasury of the United States a sinking fund, which shall 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, and the same shall accumulate and be disposed of as herein. after mentioned. And in making such investments

I call the attention of the Senate particularly to this provision, because it may need explanation

And in making such investments the Secretary shall prefer the 5 per cent. bonds of the United States, unless, for good reasons appearing to him, and which he shall report to Congress, he shall at any time deem it advisable to invest in other bonds of the United States.

The Senate will see that the committee propose that this sinking fund shall be invested in bonds of the United States. I do not know that there is any objection to that. But the bill provides that in making the investment the Secretary shall prefer the five percents. Why is that? For this reason: The debt of the United States, the bonds of the United States, bear either 6 per cent., 5 per cent., 44 per cent., or 4 per cent. interest, and if the Secretary is to invest in them he is to choose between these kinds of bonds. But the six percents. are all subject to call now with the exception of the 1881's, and they will be payable three years from this date.

Mr. ALLISON. And also except the bonds issued to these companies by the Government bearing 6 per cent. They are not immediately payable.

Mr. THURMAN. They are not due until 1895. Mr. ALLISON. They are not subject to call. Mr. THURMAN. They are not subject to call. If they were it would be obvious that you might take them. Any investment, therefore, in the six percents is out of the question. They are all subject to call, and the Government certainly does not intend, at least I hope it does not intend, to extend the 6 per cent. loan for twenty-three years when it can borrow as much money as it wants at 44 and possibly at 4 per cent. The six percents are therefore entirely out of the question. The objection to the four-and-one-half percents is that they are too short in time also. They would do very well because, for the reason that I will specify, they would produce an amount of interest equal to that which the company has to pay in the end; but they are too short. The four percents are not sufficient in amount. That leaves but five percents as the great resource of the Secretary of the Treasury for the investment of this sinking-fund. They are long enough. They mature just about the time that the Government loan matures, and the rate of interest is such that, compounded as it is required to be by this bill, the amount of interest that will accrue upon the sinking

fund will be equal to the interest which the company will have to pay at the maturity of the Government loan. The companies have to pay 6 per cent. interest but, mark it, there are no rests. Twentythree years from now they have to pay the accumulated 6 per cent. interest, but there are no rests. If any one will make a computation he will find that money at 5 per cent., compounded semi-annually, as it is here provided it shall be compounded, will produce, in the time we have to consider, a larger sum than 6 per cent. upon the same amount of money not compounded. It is obvious that the amount of accretion on this sinking-fund, that is the interest upon it, ought to be sufficient to meet the interest which the companies will have to pay for the same period of time upon the Government loan.

The 5 per cent. bonds even if purchased at a premium of 10 per cent. will produce that interest, owing to the compounding of interest, as I have stated. The provision of the bill, therefore, in this respect is perfectly fair to the companies and is just to the Government. Section 4 provides:

That there shall be carried to the credit of the said fund, on the 1st day of Feb. ruary in each year, the one-half of the compensation for services herein before named, rendered for the Government by said Central Pacific Railroad CompanyWhich is the first company named in this bill

not applied in liquidation of interest

That I have already spoken about, one-half of the transportation account

and, in addition thereto, the said company shall, on said day in each year, pay into the Treasury, to the credit of said sinking fund, the sum of $1,200,000, or so much thereof as shall be necessary to make the 5 per cent. of the net earnings of its said road payable to the United States under said act of 1862, and the whole sum earned by it as compensation for services rendered for the United States, together with the sum by this section required to be paid, amount in the aggregate to 25 per cent. of the whole net earnings of said railroad company, ascertained and defined as hereinbefore provided, for the year ending on the 31st day of December next preceding. Then there is precisely the same provision in regard to the Union Pacific except that the annual sum to be paid by it, in addition to the 5 per cent. and the half transportation account, is $850,000. The reason for this difference in the sums will be seen by any one who will read the report. If the bill which we report shall become a law the amount which these companies respectively will have to pay to the Government will be substantially the same, about $1,900,000 a year; that is, including what they are bound to pay under the provisions of existing law. The reason why more is required by this bill to be in cash into the sinking fund by the Central Pacific is that the amount of 5 per cent. of the net earnings of that road and its half transportation account are not equal to the 5 per cent. and the half transportation account of the Union Pacific road. The transportation account of the Union Pacific road amounts annually to over $800,000, one-half of which is four hundred and odd thousand dollars; but of the Central Pacific the half transportation is only about one-half of that sum. In other words, the Union Pacific receives for transportation from the Government annually about twice as much as the Central Pacific receives. The consequence is that the amount which the Central Pacific will pay to the Government under the law as it now stands, or as proposed by this bill, as 5 per cent. of net earnings and onehalf of its transportation account will not be as much by about $167,000, or perhaps something more than that, as the amount that the Government will receive from the Union Pacific. That will be seen if the Senate will look at the report. On page 5 of the report the committee, speaking of the Union Pacific, say:

From the foregoing it will be seen that the amount the company will have to pay