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MAJORITY REPORT

OF THE

COMMITTEE ON CORPORATIONS

IN RELATION TO

FARES AND FREIGHTS ON RAILROADS.

D. W. GELWICKS.........STATE PRINTER.

Mr. PRESIDENT: The majority of the Committee on Corporations, to whom was referred Senate Bills Nos. 357 and 298, relating to fares and freights on railroads in this State, and particularly to fares and freights on the Cevtral Pacific Railroad, bave duly considered the same-after examining numerous witnesses on the subject and bearing reports—and would respectfully report said bills back to the Senate with a substitute, and recommend the adoption of the substitute.

The substituie makes a material reduction in the present rates of fare and freight, in the aggregate, but discriminates so that this reduction shall not be so great on roads constructed at great expense and costly in operation over the bigher elevations of the mountains.

The Committee have been induced to recommend the adoption of the substitute, for the following reasons :

The present limit of the rates of ten cents per mile for passengers and fifteen cents per ton per mile for freigbt, was established by law as far back as eighteen hundred and fifty-four; but, as yet, no railroad company in this State has paid a dividend to its stockholders. This may be accounted for by the sparseness of our population, and consequently limited amount of freight-a large amount of business being requisite to make railroads profitable.

Until after there has been a large increase in the population of this State, it is not probable that a reduction of fares and freights would have the effect of increasiug tbe amount of business on railroads. At the present time, the reduction contemplated by the bills referred to the Committce would greatly diminish the receipts of nearly all the railroads, and render it unprofitable to operate many of them. If a serious reduction, as proposed by these bills, were to be made, many projected roads could not be built, as capitalists would not loan their money without the assurance of profit in their investment.

As regards the Central Pacific Railroad, the examination of witnesses before the Committee showed that it is necessarily built with bigb grades and numerous sharp curves in surmounting the Sierra Nevadas, attain. ing an elevation of seven thousand and forty-two feet in one hundred and five miles; that it requires a heavy expenditure to operate this road

and in keeping it in repair, as also in keeping the track clear of snow in i Winter; that over eighty of one hundred and five miles require from

four to five times the motive power to haul the same trains tbat is required on valley roads, thus increasing the cost of transportation in the same ratio.

It was in evidence before the Committee that this company is making every effort to construct its road to Salt Lake in advance of the time that the Union Pacific Road will reach the same point. Your Committee believe that success in this effort is of very great importance to the interests of the people of this State, as the trade of the interior of the continent will thus be brought to California. To be enabled to accomplish this work the company depends largely upon the sale of their own first mortgage bonds, and upon their capital stock. The price obtained therefor, as well as the rapidity of the sale of these bonds, are consequent upon the showing the company are able to make of the net earn. ings of the completed portion of the road. The reduction of rates proposed by these bills would greatly diminish these earnings and seriously affect the sale of their bonds and stock, and thus render it impossible for the company to compete with the Union Pacific Road in securing the business of the interior of the continent for California.

It is generally conceded that moro railroads are required to develop the industries of this State, and numerous railroads are being projected and some are in course of construction. It is certain that the rates now allowed by law bave not induced the investment of too much capital in these enterprises. We believe it would be bad policy for the Legislature to do any act, the tendency of which would be to prevent the construction of projected roads, or retard those now being built.

Where railroads have been constructed and are in operation, a reduction of rates would certainly benefit the people of the counties through which these roads pass; but it is the duty of the Legislature to regard the interests of the wbole State in passing upon the question of a radi. cal reduction of rates. We should not sacrifice the good faith and best interests of the State at large merely to cheapen railroad facilities to a few who are already well provided for, while other parts of the State are destitute of them.

The Central Pacific Company, since its organization, has been author. ized by Congress to build a portion of the great national railroad from the Missouri River to the Pacific Ocean, and it has thus become a national corporation, subject to and governed by the national laws. There is no doubt that the rates of the company are subject to the regu. lations of Congress-a power specially retained by Congress in the Pacific Railroad Acts. It is an important question whether this right to regulate the fares of this company bas not passed from the State to the National Government. It is quite certain it cannot be in both.

However this may be, there is another question of great importancethat is, whether we have a right, under our State Constitution, to discriminate against a particular corporation. The present law regulating railroad rates is an essential part of the general Railroad Law, passed in accordance with that clause in our Constitution which declares that “corporations may be formed under general laws, but shall not be created by special Act, except for municipal purposes.” Several of the bills

" referred to the Committee are clearly special Acts, limited in effect to a single corporation. If such laws accord with this constitutional provision, then such laws could be followed by others; and thus our railroad corporations, instead of being founded on one general law regulating

their powers. rights, duties and liabilities, would be governed by special Acts diverse in their character. There can be no doubt that this would be, if not subversive, at least clearly evasive of this important constitutional provision.

This clause of the Constitution was evidently adopted to prevent a great evil which existed in other States. When corporations derived their powers from special laws, difficult and expensive to procure, they became a kind of monopoly in the hands of the powerful and wealthy classes, who generally obtained by them special privileges, often burdensome upon the public. The main object of this clause was to overthrow this system, and to leave the creation of corporations, like partnerships, open to all who desired to participate in their enjoyment, subject to general regulations applicable to all alike.

Railroads have long heen and still are one of the great wants of this State, yet but few have been constructed, and many of those projected or in the course of construction are struggling under great difficulties in their attempts to obtain the means with which to build. If. in addition to sparseness of population and necessarily small amount of transportation, is to be added the fear that the Legislature stands ready to reduce the rates so soon as there is a probability of profit on the capital invested in these enterprises, the door will be effectually closed against capital seeking this source of employment.

Under these circumstances, and until our system of railroads is built up and our roads declare dividends approaching those made by other corporations in this State, we regard it as bad policy to interfere radically with the present legally established rates.

We are confident that the reduction proposed by the bills referred to the Committee, before a single railroad has made any dividend to its stockholders, would result disastrously to our railroad interests. If the reduction sought for should be made, several of our railroads now in operation could not meet the necessary expenditures for operating their roads, for repairs and for interest on their indebtedness, and many others projected could not secure the means for construction.

The substitute bill reported by tbe Committee is the result of the examination of numerous witnesses of large experience in railroad enterprises, of men of capital who have invested in these works, and of others wbo await the action of the Legislature before investing in proposed roads. While it reduces the present rates, this reduction is not so great as to drive away capital or impair the credit of roads now being constructed. It proposes a direct benefit to the people of the counties through wbich constructed roads now pass; but, at the same time, this reduction is not so great as to prevent the construction of projected roads in other parts of the State. If passed as reported, it will be a benefit to the people without material injury to the railroad companies. All of which is respectfully submitted.

PRATT
For Majority of Committee.

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