THE SAN FRANCISCO AND SAN JOAQUIN VALLEY RAILWAY

Attempt to Fix Maximum Rates

Properly considered, the construction of the San Francisco and San Joaquin Valley Railway was the complement of the campaign for the encouragement of water competition which the Traffic Association waged between 1891 and 1897. The plans for the subsidizing of clipper ships and for the support of steamship service to and from Panama had from first to last one grave defect—they afforded no means of distributing from San Francisco the products which dealers might succeed in having brought in by sea. That is to say, while the consuming populations of San Francisco, Sacramento, and Stockton might benefit by securing their goods at lower cost because of the activity of water competition, these cities could not extend their markets unless the sum of the through rate from points of origin to terminal city and from terminal city to local point should be made lower than the direct rate from the Mississippi Valley or the Atlantic Coast to the smaller towns in California, Nevada, and New Mexico.

Now the question of local rates differed from that of through rates, in that it dealt with a matter over which the state legislature and the State Railroad Commission appeared to have complete control. In 1892 the Traffic Association accordingly made a serious attempt to persuade the state legislature to undertake direct regulation of railroad rates in California, and to insert a provision for certain maximum rates in the constitution of the state which should affect a considerable reduction in the rates then charged. This attempt failed, for reasons into which it is not necessary to go. There remained another method of influencing local rates, namely, the construction of a competing railroad which should lead from San Francisco Bay to the interior counties of the state, and to this alternative the San Francisco merchants turned in the year 1893. The movement was important, and will be discussed at some length.

First Proposal for Competing Railroad

The proposal that a competing railroad should be built from San Francisco Bay to the interior was not a new one in California in 1893. On the contrary, in February, 1892, President Stetson, of the Traffic Association, told a reporter that no less than nine propositions had been submitted to him as president of the organization, looking to give San Francisco a competing line of railroad. These were successors to still other plans prepared in earlier years. Most of the schemes proposed to Mr. Stetson involved the construction of lines out of San Francisco to a connection with the Santa FÉ, but two or three of them contemplated construction from San Francisco across the Sierra Nevada Mountains to the termini of the Union Pacific or the Rio Grande Western. At the time, President Stetson replied that he was a merchant and had neither the time nor the money to build roads, although he added that San Francisco merchants desired more railroads and would under reasonable conditions and at the proper time furnish substantial encouragement to one or more feasible railway projects.[452]

Soon after this, possibly at the suggestion of Mr. Leeds, steps were taken to investigate the possibilities of a line from San Francisco or Oakland to Stockton and thence eastward through Nevada and Utah to Salt Lake City. In May, 1892, a company was formed under the name of the San Francisco and Great Salt Lake Railroad Company, to build from San Francisco to Stockton, with an initial capital of $2,000,000. This was the moment when the Traffic Association was vigorously pushing its plans for the encouragement of water competition, and when it was beginning the legislative campaign mentioned in a preceding paragraph. Little active support could therefore be expected from the San Francisco shippers, although the executive committee of the Traffic Association authorized Mr. Leeds to give the projectors of the San Francisco and Great Salt Lake the benefit of his advice, and the California League of Progress formally indorsed the enterprise.[453]

The San Francisco and Great Salt Lake conducted extensive surveys and was said to have purchased a tract of land at Martinez for a terminal. The company was overtaken by the panic of 1893, however, before it had secured the financial support which was essential to its success. It suffered also from differences of opinion among its friends with respect to the policies to be pursued. Mr. Leeds insisted that to be a success the new road must have a through connection. Shippers, he said, would not patronize a purely local line when a through line was available, because a competitor with through facilities could afford them service which a local line could not.[454] On the other hand, there were capitalists who expressed willingness to subscribe to the stock of a local system, but who would not put a cent into an overland line,[455] and between the two parties the necessary subscriptions were not obtained. The project was finally withdrawn when the promoters failed to secure certain legislation which they thought necessary to make their plans a success.[456]

Another Project

Following the failure of the San Francisco and Great Salt Lake enterprise, plans for railroad construction in California made no progress for several months. It had now become evident, however, that the state legislature was not disposed to pass a maximum rate enactment, and that any reduction in the level of local rates in California must come either from the good-will of the Southern Pacific or from the construction of competing lines. Under these circumstances, plans for railroad construction were revived, this time under the direct leadership of the Traffic Association of California.

Exactly when the Traffic Association took up the idea of promoting a competing railroad in the San Joaquin Valley cannot be stated with confidence. Newspaper reports indicate that the project was discussed at least as early as April, 1893. Whether or not a beginning was made in this month, it appears that by June, 1893, plans had progressed sufficiently to permit the publication of a prospectus, sent out with the approval of San Francisco shippers. This prospectus invited the citizens of San Francisco and of the state of California to subscribe to the capital stock of a railroad which should run from the city of Stockton to the head of the San Joaquin Valley, in Kern County, a distance of about 230 miles. The plan was said to be to secure as much money as possible in the city of San Francisco, and then to ask the people of the valley, from Stockton up, to add thereto a fair quota. Construction was to begin at Stockton instead of at San Francisco, in order to save expense and in reliance upon the effect of water competition on San Francisco Bay—a competition which was expected to maintain a low level of rates between Stockton and its larger neighbor. The cost of a good road from Stockton to Bakersfield was estimated at something less than $20,000 per mile.

Appealing particularly to San Francisco, the promoters of the new enterprise declared that a competing railroad was essential to that city’s prosperity. San Francisco amounted to no more than any other collection of people unless it used its facilities as a seaport. Facilities unused might just as well not exist. It had been a part of the policy of all the transcontinental roads for many years to neutralize this seaport by all the means at their command, including the practice of maintaining excessively high local rates between the sea and the interior. This condition must be remedied. The prospectus also explained that the new line would benefit the producer and the consumer in the interior as well as in the city of San Francisco.[457]

Lack of Financial Support

Once the prospectus was out, the project for a local competing railroad was pushed with all the energy characteristic of Mr. Leeds and the Traffic Association. It received substantial support also from a portion of the San Francisco press. In order to test sentiment, a subcommittee of the executive committee of the Traffic Association started a canvass of the wealthy men of San Francisco, not to secure subscriptions, but to seek general assurances of co-operation. With one exception the citizens interviewed were reported to have promised to take stock in the road, and to have invited the committee to call again. Such an indication of unanimity was considered important.[458] Not only did the moneyed men of San Francisco encourage the enterprise at this time, but the newspapers printed accounts of the interest taken by men of small means. Mechanics and laborers were said to be coming to the offices of the Traffic Association, and offers to subscribe for small amounts of stock, payable in labor, were received.[459] Yet there is some question about the warmth with which the original proposal for a competing line was received. Certainly the minimum amount necessary to be raised in order to make all subscriptions binding was small—$350,000—and the slowness with which this sum was approximated did not indicate enthusiasm.[460] In the valley generally there were indications of interest, such as favorable newspaper notices, offers of rights-of-way for the new company, and resolutions of indorsement by boards of trade, and by meetings of citizens. But here, too, there were few subscriptions, and after the panic of 1893 the Traffic Association recognized that their initial attempt had failed.

Failure of Second Attempt

The second campaign for subscriptions to the stock of the Valley road began about August, 1894, when the executive committee of the Traffic Association decided to renew its search for funds. It was now decided to call the new enterprise the San Francisco, Stockton and San Joaquin Valley Railway Company, and to define its route generally as between San Francisco, or some convenient point on the Bay of San Francisco, via Stockton and Fresno by a convenient and practicable route thereafter to be determined, to some point in Kern County. The minimum subscription was again set at $350,000, and, as in the earlier project, a trust was devised to hold the stock of the company and to preserve its status as an independent carrier.[461]

In October stock subscription books were thrown open to the public and some thousands of dollars of subscriptions received. Mr. Leeds went to Stockton to see what could be done there. In San Francisco, Mr. Van Sicklen, a member of the executive committee, endeavored to reach the business men of the town in a somewhat systematic fashion. Large subscriptions and small were invited, but once more small success was obtained. The members of the executive committee of the Traffic Association were busy men and disinclined to devote much time to personal campaigning, while, even had they done so, the chances of success were not good. The primary defect in the Traffic Association’s campaign lay in the fact that no man in the group of promoters interested in the new enterprise had sufficient prestige so to impress the public imagination as to lead investors to have confidence from the beginning that the projected railroad would be built. The composition of the Traffic Association was admirable for the purpose of encouraging water competition. It was as inadequate to the financing of a large railroad to be conducted without government support as it had been shown to be to the management of a political campaign.

Nor was it unimportant that the organization was asking for a sum which on the face of it was insufficient to accomplish the purposes which were in mind. Nobody pretended that $350,000 would do more than permit of the organization of the San Francisco and San Joaquin Valley Railway. To build the line would cost ten times that sum or more. Indeed, the company was actually capitalized at $6,000,000, a not unreasonable figure under the circumstances. Thus a subscription to a fund of $350,000 merely committed the subscriber to an enterprise which might involve him, if it was to be successful, in an additional large and undetermined expense, on the penalty of losing his original subscription if the additional sums were not forthcoming.

Final Success

We have now seen that two attempts to secure support for a new independent railroad in the San Joaquin Valley failed between June, 1893, and the end of 1894. The third stage in the progress of the Valley road began with a meeting called by the Traffic Association on January 22, 1895, for the purpose of interesting the realty owners of San Francisco in the construction of a railroad. By this time the Traffic Association’s second campaign for subscriptions had failed as definitely as had its first. Only about one-half of the desired sum of $350,000 was on hand. No more could be secured from the merchants of the city. There was little enthusiasm in San Francisco, and in the interior, cities like Fresno were becoming impatient and were turning to the south instead of to San Francisco for relief from the burden of high rates.[462]

It was at this point and under these conditions that the management of the enterprise passed to new men and that a complete reorganization of its affairs occurred. In the main this change in control and in the policies of the projected Valley railroad was due to the energy of one man. Claus Spreckels, of San Francisco, the leading sugar refiner of the Pacific Coast, was not a member of the Traffic Association, and was not pledged to the support of the San Francisco and San Joaquin Valley Railway. He was, however, one of the speakers at the January meeting, and when the formal proceedings were over he came forward with an offer to subscribe $50,000 provided that the minimum amount to be raised were increased from $350,000 to $3,000,000 or to $5,000,000. On Spreckel’s motion, moreover, the chairman was authorized to appoint a committee of twelve from among the property owners of the city to solicit subscriptions from holders of real estate. After the adoption of this motion the meeting adjourned.

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The subscriptions in definite amounts received on Tuesday, January 22, 1895, did not much exceed $20,000. The committee of twelve met, however, on January 24 and Claus Spreckels was elected chairman. Soon after this, larger pledges began to appear. Spreckels himself now subscribed $500,000, or ten times his initial offer, and at his instance, John D. and Adolph Spreckels, his sons, subscribed $100,000 apiece. From this one family, therefore, came twice the sum which the Traffic Association had tried in vain to raise from all of San Francisco. The whole complexion of the business changed as a result of this beginning. By January 30 over $1,200,000 was pledged. Subscriptions through February 2 amounted to $1,536,500, and on February 8 the $2,000,000 mark was reached. This so encouraged the committee that it immediately resolved that the sum of $4,000,000 should and must be obtained from the city of San Francisco, and that with the aid of the interior the competing line could be constructed on a cash basis. To this end every effort was to be turned.[463]

It is very evident that the substantial wealth of the Spreckels group and the reputation for success which Claus Spreckels enjoyed, made a powerful impression both in San Francisco and in the San Joaquin Valley. The proposed railroad enterprise was the same as before, but the leadership was different. At the same time the amount of money necessary to be raised in the first instance was increased from $350,000 to $2,000,000.[464] Large sums are sometimes easier to secure than small, for reasons both sentimental and practical, and it proved so in this case. Claus Spreckels said himself that he had never made a failure in his life, while with $2,000,000 in hand it seemed so unnecessary for anyone to fail that people hastened to share in the anticipated success.

Campaign for Stock Subscriptions

As we look back upon the circumstances attending the construction of the San Francisco and San Joaquin Valley Railway, it is evident that after January, 1895, its managers played their cards with considerable shrewdness. Regarded as a direct profit-making enterprise, the ability of the new company to earn dividends was questionable. It was all very well to dwell upon the fertility of the San Joaquin Valley, and to point out the large proportion of the revenues of the Southern Pacific derived from this source.[465] Doubtless these conditions would count in the long run. Yet the fact remained that the new road was entering a not too highly developed territory already served by a through line of large capacity. It was expected to reduce rates, and was likely to be compelled to reduce them; and it was to do this while it was in the course of developing its own organization and establishing business relations with a new clientÈle. Huntington said that he thought there was room in California for both the Southern Pacific and the new line. It required, he said, only a space of thirteen feet from the center of one track to the center of another, and there was lots of room in California. The projectors of the new road would have no trouble in finding room.[466] But this remark was not meant to convey comfort to subscribers to the stock of the San Francisco and San Joaquin Valley Railway, and probably did not do so.

What, then, were the conditions of success for the new road? They were: first, such a popular support as would minimize the cost of construction and maximize its business; and second, such an alliance with some other large railroad system as would give stability and permanency to its traffic relations. If the new company possessed these advantages it would probably be able to live and to render a useful service in distributing products brought to California and to San Francisco by sea; without them it was not likely to survive.

It was in order to increase their popular support, and not alone for the sake of the money involved, that the promoters of the San Francisco and San Joaquin Valley Railway early began a campaign for small subscriptions. Claus Spreckels took pains to say that while large subscriptions were all right and desirable, it would be the $20,000, $10,000, and $5,000 stockholders who would control the property and its policy.[467] In February, after the first arrangements had been made for reaching the larger business interests of the city, attention was paid to the offering of facilities for subscription to all classes of investors in San Francisco. Districts were mapped out and assigned to canvassers.[468] The following month the San Francisco Examiner, which had taken a prominent part in the fight from the first, began to print subscription blanks in its daily issues. Arrangements were made by which persons might subscribe for fractions of shares by joining with their neighbors in share clubs. The Examiner offered a gold watch to the first person forming such a club, and when there was doubt as to priority, compromised by giving two watches. The formation of the first colored club was given special mention, as was the decision of a colored club in San Francisco to make one paid-up share in the San Francisco and San Joaquin Valley Railway a tug-of-war prize to be competed for at its annual games. The winning team was to constitute a share club, and was to choose a trustee from among its members.[469]

Appeal to Local Patriotism

While devices such as these were perfectly ineffective as a means for raising large sums of money, they did give the new road valuable advertising, and helped to predispose the whole community in its favor. For the same reasons that actuated the promoters in their attempt to gain the support of investors of small means, the San Francisco committee also made appeals to the public which rested upon moral and patriotic as well as upon financial grounds. Without going into this aspect of the matter at length, it may be said that there has probably never been a commercial enterprise launched on the Pacific Coast so advertised, and praised, and predicted about as was the project of the San Joaquin Valley Railway. Participation in the movement became a test of local patriotism. The railroad took the aspect not merely of a business expedient, to be considered solely from the point of view of monetary gain, but it also became an expression of the hopes of expansion entertained by a generation of business men, strengthened by the accumulated antagonism of years between the Southern Pacific Railroad and the shipping public.

Nor was this feature of the campaign confined to San Francisco alone. The main interest from first to last was of course in San Francisco. Yet the valley towns also showed sympathy with the new development, rising at times to excitement as construction became imminent, and questions of route had to be determined. Here, it is true, there was more business and less sentiment. “What is the new road going to do for Oakland?” a man asked John D. Spreckels one day in the Palace Hotel. “It is too early to put that question,” replied Mr. Spreckels, “as it could only be answered by some theorist. The question is, What will Oakland do for the new road?”[470]

In spite of occasional skepticism, and here and there active opposition, the San Joaquin Valley received the new enterprise cordially. Among the Valley towns from which assurances of support were received may be mentioned Stockton, San JosÉ, Fresno, Madera, Modesto, Hanford, Merced, Visalia, Selma, and Bakersfield. Oakland also, though not properly in the Valley, manifested considerable interest in the work. Generally speaking, the directors of the San Francisco and San Joaquin Valley Railway asked local committees to select what in their judgment was the best route over which the railroad could pass. They then asked them to give rights-of-way, depot grounds, and terminal facilities, and to subscribe to all the stock that they could afford. It was announced that the railroad was being built on a business basis, and that it would go through the best country and where the greatest inducements were offered.[471]

This did not seem unreasonable to the local communities, and the company’s requests were generally complied with. The principal reason for raising money under such an arrangement was to pay local property owners whose lands were taken for railroad purposes. There were no money subsidies, and no land grants except to the extent sufficient for the company’s actual needs. Yet, of course, even so relatively moderate a provision of local aid materially reduced the cost of construction which the railroad company had to meet.

Purchase of Road by Santa FÉ

Articles of association of the San Francisco and San Joaquin Valley Railway Company were filed at Sacramento in February, 1895, and construction was begun at Stockton late in the same year. By the end of December, 26.1 miles had been built, carrying the railroad to the Stanislaus River. During 1896 the track reached Fresno, and in 1897 Bakersfield was attained. On June 30, 1898, the company reported a total mileage of 278.91 miles, including a branch to Visalia. It had at that time an authorized capital stock of $6,000,000, of which $2,464,480 was issued and paid in, a funded debt of $2,671,000, and current liabilities of $110,928. The bonds outstanding were mortgage securities bearing 5 per cent interest and maturing in 1940. In 1897 the company reported gross earnings of $209,133 (of which $178,494 were from freight), and operating expenses of $153,102, on an average operated mileage of 123.44 miles. For the year ending June 30, 1898, the earnings were $411,179 and the operating expenses $282,326, on a mileage, however, which was considerably greater. These were the only years for which statistics are available, for the company was purchased by the Santa FÉ in December, 1898.

The circumstance that the San Francisco and San Joaquin Valley Railway was purchased by the Atchison, Topeka and Santa FÉ only a few months after the company had completed its road to Bakersfield, served as a dramatic illustration of the fact that alliance with some larger railroad system was considered by its promoters to be essential to the road’s success. There is no question but that this sale of the system came as a shock and a disappointment to many persons whose enthusiasm had been aroused by the proposal to build an independent railroad for the service of shippers in San Francisco and in the San Joaquin Valley. The high hopes of San Francisco merchants could scarcely be satisfied by anything short of a system permanently under the control of the commercial interests of that city. When the San Francisco press declared that San Francisco was preparing to reach out for the trade of all the western part of the American continent, and when the Spreckels committee declared that the new road was to be a people’s road, owned by the people, and operated in the interests of the people,[472] the implication clearly was that the ownership of the property was to remain in the hands of the original subscribers to the stock or in the hands of other persons of like character. Nor was the argument that the construction of the San Francisco and San Joaquin Valley Railway would prevent the diversion of eastern freight from San Francisco to distributing centers of the South,[473] easily to be reconciled with the sale of the railroad to a company which, like the Santa FÉ, had a terminus in Los Angeles.

Spreckels Interests

There were, on the other hand, indications from the beginning that the Spreckels group did not intend to commit itself to the permanent management of a railroad system, but that they regarded connection with, and perhaps amalgamation between, the San Francisco and San Joaquin Valley and the Atchison, Topeka and Santa FÉ as the natural culmination of the former road’s career. Like Stanford, Mark Hopkins, Huntington, and Crocker, Claus Spreckels, his sons, and the persons most intimately associated with them were not originally railroad men, and were not, when they began railroad construction, particularly interested in the railroad business as a business. They were therefore to be tempted to continue railroad management only by a chance for extraordinary profits—a chance which the San Francisco and San Joaquin Valley Railway did not offer. Looking at the matter from a business standpoint, it is not unreasonable to suppose that they saw that the best opportunity for withdrawing their capital from the valley speculation lay in negotiations with the Santa FÉ. Of course this is surmise, and perhaps is mainly plausible as a late interpretation of happenings which we know took place, but it has a certain reasonableness in view of all the facts.

The concrete evidence that combination between the San Francisco and San Joaquin Valley and the Atchison, Topeka and Santa FÉ was looked upon as a possibility from the first, is to be found in the provisions of the trust agreement entered into by subscribers to the San Francisco and San Joaquin Valley Railway stock, and in the negotiations between that railroad and the city of San Francisco and the state government of California, over what was known as the China Basin lease.

Trust Agreement

Soon after the promoters of the San Francisco and San Joaquin Valley Railway had successfully organized their corporation, subscribers to the stock of the company were asked to enter into a certain trust agreement or pooling plan designed primarily to prevent the railroad from falling into the hands of the Southern Pacific. Briefly summarized, this plan contemplated the transfer of the stock of the company to seven (later nine) trustees. Individual stockholders so transferring their holdings were to receive trust certificates clothing them with the powers and privileges usual in such cases. The trustees on their part were to administer the railway for a period of ten years unless three-quarters of the certificate holders should request an earlier termination of the trust, or unless all of the subscribers should die.

This administration was, however, subject to restrictions, of which two deserve special notice. In the first place, the trustees undertook to operate the railroad, when completed, on such a basis that the rates and fares charged should be the lowest rates and fares which would yield enough earnings to meet costs of operation, interest, and sinking fund requirements, and to pay a dividend not exceeding 6 per cent upon capital stock paid in. This clause was evidently intended to reassure shippers who had been or might become interested in the new railroad. But besides this, the trustees agreed that they would not knowingly vote said stock “for the benefit or in the interest of any person or corporation or interest hostile to the interest of, or in business competition with the San Francisco and San Joaquin Valley Railway Company, or of or to or in favor of any party or parties or company or companies owning or controlling any parallel line of road to the detriment and injury of the corporation hereinbefore mentioned.”[474]

To this clause there was later added another of the same import, to the effect that the San Francisco and San Joaquin Valley Railway should not be leased to, or consolidated with, any company which might own, control, manage, or operate any of the roads then existing in the San Joaquin Valley, and that neither the trustees nor their successors should have any power as stockholders to assent to any such consolidation or lease, or in any way to put the San Francisco and San Joaquin Valley Railway under the same management as that of any other railroad then existing in the San Joaquin Valley.[475]

In so carefully worded a document as the trust agreement here under consideration, the prohibition of combination with competing railroads or with railroads then existing in the San Joaquin Valley had the force of an affirmative permission to the trustees to consolidate their property with that belonging to any company not in the prohibited class. As a practical matter this meant consolidation with the Santa FÉ and with that railroad only, for the reason that there was no other system with which combination would have been significant. The trust agreement was approved at a meeting of stockholders held on April 5, 1895,[476] and by the middle of the following month holders of more than three-fourths of the stock had given written assent to the trust conditions.

The fair inference from the terms of the trust agreement is that the promoters looked upon the union of the San Francisco and San Joaquin Railway and the Atchison, Topeka and Santa FÉ as a proper and likely outcome of the construction of the former road. This same conclusion is strengthened by consideration of the China Basin lease, concerning which a few words may be said.

The China Basin Lease

The China Basin lease related to a tract of land on the water-front between the foot of Third Street and the foot of Fourth Street in San Francisco. The San Francisco and San Joaquin Valley Railway needed a terminus in San Francisco even before it entered upon construction west of Stockton, because it wished to encourage the shipment of freight from San Francisco up the Sacramento River to the head of its rail line at Stockton. It also looked forward to the day when it should have a railroad of its own to Oakland or to some other point on San Francisco Bay, possibly to the city of San Francisco itself.

According to the precedent set in the southern counties, the San Francisco and San Joaquin Valley should have applied to the city and county of San Francisco for terminal privileges. The piece of property which it desired, however, consisted of certain mud flats at China Basin, control over which had been specifically vested in the State Board of Harbor Commissioners by a law passed in 1878.[477] Not only were the flats in question thus removed from the control of the city, but the State Board of Harbor Commissioners itself had apparently no authority to conclude binding leases of this area covering a substantial period of time, although it did have power to grant temporary permits for the use of water-front property. Before any progress could be made, therefore, it was necessary to apply to the state legislature in order that the powers of the harbor commissioners might be enlarged, after which negotiations could be continued with the commissioners direct.

As a first step toward obtaining a lease of the China Basin tract, Claus Spreckels went to Sacramento in March, 1895, accompanied by other directors of the San Francisco and San Joaquin Valley Railway. With characteristic emphasis he declared to members of the legislature that if the promoters of the new enterprise did not get the mud flats they might as well give up the road.[478] No senator, he said, who voted against his bill could dare to face his constituents again. Senators who voted against the proposed amendment to the law voted to take the bread out of the mouth of the workingman’s child. They voted to keep the unemployed out of work, and they voted for their own damnation.[479]

Necessary Legislation Enacted

There was little opposition in the assembly to giving the Spreckels group what it wanted. Principally the discussion was as to whether it was better to clothe the harbor commissioners in general terms with the power to lease water-front property,[480] or whether the board should be authorized only to lease a described parcel to a specified group of persons.[481] The fear was expressed in the course of the debate lest the tract desired by the San Francisco and San Joaquin Valley Railway might be leased to a corporation controlled by the Southern Pacific, and that other parcels might go the same way. On the other hand, it was pointed out that a provision for a lease to specified parties might prove unconstitutional as an example of special legislation.

In the end the “Gleaves” bill with the so-called “Powers” amendment passed the assembly by a vote of 60 to 9, and the senate by a narrower margin of 21 to 17. In its final form it authorized the State Board of Harbor Commissioners to lease any land belonging to the state which was required for terminal purposes, at a maximum rental of $1,000 a year. No land was to be leased for a longer period than fifty years, not more than 50 acres was to be leased to any one railroad, and no lease was to be assignable without the written consent of the commissioners. As a still further protection, it was provided that the beneficiary of the lease must be a railroad company. Such a company, moreover, must be incorporated within the state of California, and it might not be a corporation which, at the date of the passage of the act, had any terminal facilities in the city and county of San Francisco.[482]

Terms of Lease

Armed with the legislative sanction, Mr. Spreckels undertook negotiations with the Board of Harbor Commissioners and with Mayor Sutro, of San Francisco, and Governor Budd, which lasted from the middle of March, 1895, to the second week in July. In its main outlines the lease finally agreed upon offered to the San Francisco and San Joaquin Valley Railway Company the use of a defined area of 24¼ acres more or less located near the foot of Fourth Street, San Francisco, and bounded upon the water side by the sea-wall and thoroughfare established by the legislature of 1878. In return for this considerable grant, the lessee agreed to reclaim the lands granted from the tide, to place tracks, warehouses, and freight sheds upon them; to pay a nominal rental of $1,000 a year; and in addition, to commence within six months, and to construct and have in operation within ten years, not less than 50 miles in continuous railroad in addition to the mileage already constructed in 1895, one end of which was to be at some point on the Bay of San Francisco south of an east and west line drawn through Point Pinole.

The improvement of the leased property and the undertaking of new construction were obviously the real considerations for the lease. For the rest the terms of the lease carried out the spirit of the Gleaves Act by providing that the lease should terminate and all rights under it should cease if the demised premises, or the lessee corporation, should ever, by or through any corporate act of the latter, become, during the period of the lease, subject directly or indirectly to the control or dominion of any person, company, or corporation having railway terminal facilities on the Bay of San Francisco. Likewise the lease was to terminate if the party of the second part (the railway) should enter into any combination, arrangement, pool, trust, or agreement with any railroad corporation, or individual, having railroad terminal facilities upon, or adjacent to, the water-front of the city of San Francisco, for the purpose of preventing or limiting competition in the business of carrying freight or passengers. This wording permitted merger or agreement between the San Francisco and San Joaquin Valley Railway and the Atchison, Topeka and Santa FÉ Railway Company, but not between the former company and the Southern Pacific, and was quite evidently intended to have this effect. In accordance with the terms of the Gleaves Act, the lease was made non-assignable.[483]

Reasons for Consolidation

A very interesting statement issued in October, 1898, by a vice-president of the Valley road, Robert Watts, explains the development of the relations between the Santa FÉ and the San Francisco and San Joaquin Valley Railway with what appears to have been considerable frankness. This statement is valuable enough to be quoted at length:

This statement of Mr. Watts bears out the conclusion at which we had already arrived, namely, that the promoters of the Valley road appreciated from the first that they must connect their enterprise with some larger system in order to be permanently successful. At the same time the prominent mention of the Santa FÉ Railroad in the statement, a railroad system which had neither rails in the San Joaquin Valley nor termini on San Francisco Bay, suggests why the promoters were willing to accept the restrictions imposed by the trust agreement of 1895 and by the China Basin lease.

Transfer of Control

In the fall of 1898, the directors of the San Francisco and San Joaquin Valley Railway requested the holders of trust certificates to deposit these certificates with the Union Trust Company of San Francisco, and to give an option for the purchase of them at par, valid for a period of three months. The prospective purchaser was not named, but the Santa FÉ was understood to be the party interested. Certificate holders responded very generally to the request. Apprehensions were expressed by a number of shippers at this time, and also by some of the San Francisco newspapers, that the deposit of certificates under the conditions required meant an end of railroad competition in the San Joaquin Valley.[485] The plan was nevertheless considered by the trustees of the San Francisco and San Joaquin Valley Railway and was approved by them, Mr. Ripley giving written and verbal assurances in behalf of the Santa FÉ that the Valley road would be continued as a competing line.[486] In due course the option was taken up and the expected transfer of control to the Santa FÉ occurred.

It may be observed, to conclude this part of the story, that when the Santa FÉ began negotiations with the managers of the Valley road in April, 1898, its operated mileage ran from Chicago west to Mojave, Los Angeles, and San Diego (National City). It had no route over the Tehachapi Pass between Mojave and Bakersfield, and thus no way of reaching the San Joaquin Valley save by traffic arrangement with the Southern Pacific. The purchase of the San Francisco and San Joaquin Railway gave to the Santa FÉ control over a system of 279 miles, stretching from Stockton to Bakersfield, with a branch from Fresno through Visalia and Tulare, and an extension from Stockton to Point Richmond which, while not completed, was under way, and funds for the construction of which were in hand. Actual construction of the Stockton-Point Richmond line had begun in April, 1898. The work was continued by the Santa FÉ, and the road was opened for freight and passengers, respectively, in May and July, 1900. There was talk also of building across the 68-mile gap between Mojave and Bakersfield. Eventually, however, an amicable arrangement with the Southern Pacific was concluded in this territory under which the use of the Southern Pacific line across the mountains was thrown open to both companies. This finally admitted the Santa FÉ to northern California.

Reduction of Grain Shipment Rates

Did the building of the San Francisco and San Joaquin Valley Railway justify itself? From the financial point of view the answer is clearly in the negative. To say nothing of the energy spent in its development, investors in the stock of the railroad received no dividends. They therefore lost the use of the capital which they contributed for a period of three years. The principal of their investment they did, indeed, recover, but the interest upon it was gone. On the other hand, the enterprise was never regarded as likely to be a money-making affair in the narrow sense, and the financial point of view was not the chief one to be regarded. The real benefit expected from the construction of the Valley road was that which would come from a reduction in transportation charges between San Francisco and points in the San Joaquin Valley, and the success of the project was therefore to be measured primarily by the cuts in railroad rates for which it might be held responsible. We may consider the problem a moment from this point of view.

The first reduction in rates which may be attributed to the Valley road occurred in June, 1896, when the new railroad published a schedule of charges on wheat and on burlap bags to Stockton from stations upon its line south of the last-named city. This schedule showed substantial reductions. On September 15, 1895, the Southern Pacific rate from Ripon, a town 20 miles distant from Stockton, to Stockton was 95 cents per ton of 2,000 pounds. The Valley road in 1896 filed a rate of 80 cents a ton from Escalon, 21 miles distant from Stockton upon its own line. The Southern Pacific rate for the 29 miles from Modesto to Stockton was $1.35 a ton. From Empire, the nearest station to Modesto upon the San Francisco and San Joaquin Valley, the new railroad put in a rate of $1.10. The rate from Merced was $1.85 over the Southern Pacific; it was now made $1.70 by the Valley road. In addition to these reductions in the rates to Stockton, the new company afforded shippers a sensible relief by abolishing the switching charge of 15 cents per ton which the Southern Pacific had been accustomed to demand on grain handled at that point.[487]

As the Valley road extended itself to the south and added new stations at which it was prepared to receive business, the policy of rate-cutting was continued. In September, 1896, a wheat rate of $2.15 per ton was established from Fresno to Stockton, 20 cents less than the Southern Pacific charge.[488] By 1898 the line had reached Bakersfield, and grain rates were put in from towns between Hanford and that city which were from 10 to 15 cents per ton less than the rates which the Southern Pacific was accustomed to exact.[489] All the rates quoted were met by the Southern Pacific; moreover, word was sent to Mr. Moss, traffic manager of the San Francisco and San Joaquin Valley, that the Southern Pacific would continue to meet reductions as fast as they were made.

Merchandise Tariff

The first merchandise tariff to be established by the new line was somewhat slower in appearing than the tariff on grain, because the formulation of it was a more complicated matter. Nevertheless, such a tariff was filed with the State Railroad Commission on August 22, 1896. The new merchandise rates were based upon the Western classification, and were believed to represent reductions of from 10 to 50 per cent as compared with Southern Pacific rates before the competition of the Valley road had become effective. In the new schedule the first-class rate from Stockton to Merced was 31 cents per hundred pounds, or approximately .9 cents per ton per mile. On class five, the highest carload class, the rate was $4 per ton, or .6 cents per ton per mile.[490] As in the case of the grain rates, the publication of new merchandise schedules continued as the Valley road proceeded south. Thus when the company reached Bakersfield it put in a first-class rate of 83 cents per hundred pounds, a cut of 19 cents under the Southern Pacific tariff, with rates on other classes reduced to correspond.[491]

In addition to grain and merchandise rates, the Valley road also quoted commodity rates. The rate on flour from Merced to San Francisco was set at $2.75 per ton, and that on potatoes and on lime at $1.85 per ton, as compared with rates of $4.20 and $3.10 over Southern Pacific lines.[492] Likewise passengers were carried from Stockton to Fresno and to intermediate points at a flat rate of 3 cents per mile. Later, the fare from San Francisco to Hanford was reduced from $7.30 to $4.65, that to Visalia from $7.40 to $5,[493] and that to Bakersfield from $9.10 to $6.90.[494]

Relative Position of San Francisco Improved

It should be added that the adjustment both of grain and of merchandise rates was such as to improve the relative position of San Francisco as compared with other cities, as well as to reduce directly the freight bills which she had to pay. Generally speaking, the grain rates between points in the San Joaquin Valley and San Francisco were made 50 cents per ton higher than the rates to Stockton. This in itself represented a reduction of 50 cents under the Southern Pacific rates, inasmuch as the Southern Pacific had been accustomed to quote a rate to San Francisco which was $1 per ton higher than the rate to Stockton, in order to encourage shipments to Port Costa. The Southern Pacific rate to Port Costa, exceeded its rate to Stockton by only 50 cents, and was less than the Southern Pacific grain rate to San Francisco by the same amount.[495]

The differentials in the case of merchandise southbound varied. On first-class the rate from San Francisco to valley points was 5 cents per hundred pounds higher than the rate from Stockton. On second-class the differential was 3 cents, and on third and fourth classes it was 2 cents per hundred pounds. Groceries and supplies for country stores generally fell in classes two, three, and four. These figures compared with Southern Pacific differentials of 5 cents on classes one and two, and 4 cents on classes three and four.[496] Here again the relative position of San Francisco was improved, not unnaturally to the satisfaction of dealers in that city.

It is clear from the facts set forth in the last few pages that the San Francisco and San Joaquin Valley Railway accomplished a considerable reduction in rates, at least for a time, in the San Joaquin Valley. When we bear in mind that this was the principal purpose for which the road was built, and when we recall that after all its promoters escaped without considerable financial sacrifice, it is hard to avoid the conclusion that the enterprise was justified, and may be considered to have been worth what it cost. The company did not fulfil the hopes of its projectors; it failed to maintain its independence, and only for a few years served as an aggressive competitor of the system which San Francisco business men so cordially disliked. But it did do something to relieve the mercantile community, at no great expense to the persons who invested in it, or to the city which promoted it, and so, in a modest way the railroad may be considered a success.