"_To his Excellency the Governor, and to the Honorable
the Legislature of the State of New York_:
"The undersigned commissioners, appointed by the Governor, with the
advice and consent of the Senate, under a concurrent resolution
of the Legislature adopted on the 31st day of March last, 'to
investigate the affairs of the canals of the States, and especially
the matters embraced in the special message of the Governor,
communicated to the Legislature on the 19th day of March, 1875,'
have the honor to submit the following report of the progress of
their investigations:
[3] The previous reports of which this is a synopsis were made to
the Legislature.
"Your commissioners, assembled at the capitol, qualified and
organized on the 12th day of April, 1875. The interval between that
time and the opening of the canals, a period of about six weeks,
was devoted exclusively to an examination of the most important
works in progress, or recently completed in the prism of the canals.
When this examination was interrupted by the introduction of water,
near the end of May, your commission returned to the capitol and
proceeded to supplement and enlarge the area of their information by
the examination of witnesses.
"In this work they were unexpectedly embarrassed by a decision of
one of the judges of this district, at Special Term, denying to
them a power, which they supposed to have been conferred upon them
by the legislative authorities, to require the production before
them of the books and papers of witnesses. They directed an appeal
to be taken from this decision, and it was finally reversed at the
General Term, but not until late in the month of November, till when
your commission was obliged to contend with all the inconveniences
resulting from the privation of such a necessary and indispensable
prerogative. The opinion of Justice Learned at the Special Term,
and that of Justice James at the General Term, are annexed to this
report.
"On the 31st of July the commission submitted their first annual
report to the Governor. It relates to a contract for substituting
slope and vertical for bench wall between Port Schuyler and the
lower Mohawk aqueduct. This report was followed at intervals by
eleven others, entitled, respectively, as follows:
"Second report.--H. D. Denison's contract east of the city of Utica.
"Third report.--Hulser's bridge contract.
"Fourth report.--Willard Johnson's lower side cut lock contract at
West Troy.
"Fifth report.--Buffalo contracts and legislative awards.
"Sixth report.--Champlain enlargement; Bullard's bend contract.
"Seventh report.--Buffalo contracts and State officers.
"Eighth report.--The Baxter award.
"Ninth report.--Contract of E. W. Williams for building vertical
wall at Rome.
"Tenth report.--Flagler & Reilley's pending contract at Fort Plain.
"Eleventh report.--Jordan level contracts.
"Twelfth report.--The auditor's traffic in canal certificates.
"A copy of these several reports, together with the testimony taken
before the commission, covering together 2927 pages, are submitted
with this report.
"Several other reports are in course of preparation. One on the
Glen's Fall feeder, a second on the Canal Appraiser's ice awards
at Rochester in 187_, and a third on the W. C. Stevens contract
assigned to Denison, Belden & Co., for dredging the Albany basin,
dated December 31, 1866, will be submitted at an early day.
"Though we have given this investigation our most unremitting and
exclusive attention, we not only have not exhausted the subject, but
there are many matters falling within the range of our inquiry which
we have only been able to touch incidentally. Among these we regret
that the subjects of 'ordinary repairs,' the lateral canals, and the
present system of appraising canal damages are included.
"As we have been able to examine only a limited portion of the work
done on the canals since 1868, of course we have found it impossible
to extend our inquiries beyond that year, though we have abundant
evidence that the mismanagement of the canals dates from a much
earlier period. But the results of our investigation--incomplete
as any investigation made in so short a time must necessarily
have been--will, we think, suffice to indicate with tolerable
distinctness what have been the more mischievous errors in the
management of our canals, and some of their more obvious correctives.
"We propose to-day to submit to you such of the conclusions as we
have reached, with all the testimony we have taken, reserving for a
later day some further recommendations which are under consideration.
"Introductory to such conclusions as we are now prepared to submit
to you, it is proper that we first invite your attention to the
character of our canal property as an investment, and show precisely
how it stands upon the books of the State.
The total revenues from our system of canals at the close
of the last fiscal year, including gains resulting from
the management of the sinking fund, amounted to $138,507,129.91
Total payments for canal purposes up to same period,
including construction 167,003,357.91
--------------
Excess of cost over earnings $28,496,228.00
"This sum of $28,000,000 and upwards represents the premium which
the people of this State have paid in taxes during the last
fifty-odd years to secure and encourage the use of these waterways
for purposes of transportation, the equivalent of an annual subsidy
of over $560,000.
The tolls received from all the canals during the fiscal
year ending September 30, 1875, amounted to $1,902,990.64
There were expended for repairs and maintenance
during the same period $2,247,297.01
Damages during the same period 305,796.68
---------- 2,553,093.69
------------
Balance against the State $650,103.05
"If to this be added the interest on the canal debt, the cost of
collection, and the difference between miscellaneous expenses and
receipts, as set forth in detail in Exhibit B, the loss to the State
from the canals during the last fiscal year will be found to amount
to the enormous sum of $1,412,470.79.
"The cost of repairs and maintenance is so obviously out of all
proportion with the necessities of a system of completed structures
like our canals, which have little that is complicated or perishable
about them, that we are forced to seek the explanation of it in
their administration.
"Our investigation was not long in revealing the fact that the
canals have not been managed upon the principles which would govern
any man in the administration of his private estate. The interests
of the public have been systematically disregarded. The precautions
with which the Legislature has attempted to defend this property
from peculation and fraud, and secure for it faithful and efficient
service, have been deliberately and persistently disregarded; while
the responsibility of its agents has been so divided and distributed
as to leave the State comparatively remediless and at the mercy of
the predatory classes, who have been, if they do not continue to be,
a formidable political power.
"The more conspicuous evidences of mismanagement which our
investigation has disclosed may be divided into three categories:
"_First_, as to the modes of letting contracts.
"_Second_, as to the modes of measuring and estimating work to
the contractors.
"_Third_, as to the facilities for procuring legislative relief.
"_First_, as to the mode of letting the contracts:
"It seems to have been the practice for years to let contracts
upon conditions which exclude honest contractors and confine this
business, at least as to what are termed 'extraordinary repairs,'
almost exclusively to large capitalists. The large deposits required
from contractors discouraged bidders with small means, while the
encouragement offered to unbalanced bidding, by a neglect to enforce
the faithful performance of the provisions of the contract, have
a tendency to exclude all who bid fair prices, with the honest
intention of giving the State fair work for them. Till since the
commencement of this investigation we do not know of a single
instance in which any forfeiture of his deposit had been enforced
against any contractor; while we believe we do no one any injustice
in saying that no contract has been let since 1868 the provisions of
which have been properly complied with.
"There has been a corresponding disregard of all the provisions of
law regulating the letting of the contracts. The law wisely required
a preliminary survey, with maps, specifications, and estimates to
be made by the division engineer, approved by the State Engineer
and by the Canal Board, before a contract could be let. The purpose
of these precautions was to ascertain the amount and probable cost
of the work as a means of determining the relative merits of the
respective bids, and to serve as a protection against false or
erroneous estimates of engineers. These precautions have been almost
universally neglected. The result has been that the amount of work
and materials required in the actual construction varied so widely
from the quantities let that in nearly every instance the person
receiving the contract proved in the end to have been the highest
instead of the lowest bidder;[4] and we cannot resist the conclusion
that these precautions in many instances were neglected with the
intent to afford greater facilities for defrauding the State. These
evils have been greatly aggravated by the frequent changes of the
engineers on the canals and the loss of knowledge as to work done,
which the removed engineers carried away with them.
[4] A striking illustration of this may be found in the first report
of this commission to the Governor, on the Port Schuyler and lower
Mohawk aqueduct contract.
"_Second_, as to the mode of measuring and estimating work to the
contractors:
"This responsible duty, involving, as it should, a perfect
familiarity with the terms of the contract and with the character
of the work in progress, has been devolved, not by law, but in
practice, entirely upon assistants who are not sworn; who, but in
few instances, have been found to possess a competent knowledge of
engineering; and who, in most cases, appear to owe their positions,
and therefore to have been in a greater or less degree dependent
upon the political favor and influence of the contracting class. It
will be hardly a matter of surprise, therefore, that in not more
than a single instance that has come under our scrutiny have we
found the work faithfully measured, or a single contract closed,
under which the contractor has not received more than he was
entitled to.
"Under these influences, operating in favor of the contractor and
to the prejudice of the State, a system of fraudulent estimates
and measurements has become so established that though in direct
and flagrant violation of the very language of the contract, it is
deliberately defended by those who profit by it, on the ground that
it has been sanctioned by long usage. For example: it has been a
practice of the engineers to allow the contractor for excavating
behind vertical wall, on a slope of one to one, without regard to
the necessity for such excavation, and whether the excavation was
made or not.
"As nearly all vertical wall is constructed in the winter or early
spring, and when the banks are frozen, the cut is usually vertical
or nearly so, and any charge for such excavation is a fraud upon
the State. The contracts also uniformly provide that the contractor
shall be allowed nothing for the filling in of the place supposed to
be excavated behind the walls, if such filling is from earth already
paid for as excavation, unless he is obliged to draw his material
more than 200 feet on the line of the canal. This provision has
also come to be treated as obsolete, and the State seems to have
been uniformly charged not only for excavation which had not been
made, but for filling up the assumed excavation which, had it been
made, the State was not bound to pay for. The profits derived in
this indirect way through the fraudulent connivance of the agents
of the State, has led to an enormous expenditure for works wholly
unnecessary, and which to keep in repair must continue to subject
the State to a very considerable yearly expense.
"One of the principal expenditures upon the canals since 1868
for extraordinary repairs has been made in the construction of
vertical and slope walls which have been, as we think, very unwisely
substituted for the old walls, the capacity of the canals before
their removal having been ample for all their business.
"Between the 1st of January, 1868, and the 1st of July, 1875, there
have been built forty-three and one-third miles, linear measure,
of vertical wall, at a total cost, including the removal of bench
walls which they displaced, of $1,589,885, the cost per linear foot
averaging $6.95.
"These walls, besides costing four or five times as much as the
slope walls, are less durable, much more expensive to keep in
repair, and possess no substantial advantage except in large towns,
the commerce of which requires special facilities for docking.
But of the forty-three and one-third miles built since 1868, it
cannot be pretended that so many as three were needed to meet such
exigencies.
"Without stopping at present to inquire if the business of the canal
justified the removal of the old bench walls at all, it is very
certain that a good slope wall would have been preferable throughout
nine-tenths, at least, of the entire extent upon which vertical wall
has been constructed; and, at the rate paid for slope wall during
this period, would have resulted in an economy to the State of not
less than $1,300,000, or nearly $200,000 a year.
"An important item in the cost of this vertical wall was made up of
the fictitious estimates to which we have already alluded. Assuming
that the State was uniformly charged with fictitious excavation and
embankment along the entire length of this vertical wall--and we
have no satisfactory proof that a single rod of it was entitled to
be excepted--the loss to the State from this source alone cannot be
estimated at less than $230,000.
"We have found all the other more important provisions of these
contracts as uniformly disregarded. We have torn down and carefully
examined the work under more than forty contracts; and we cannot
name one in which the work comes up, even approximately, to the
specifications. The contracts define with great precision the
size and character of the stone to be used, the mode of their
disposition, the thickness and other dimensions of the wall, the
character of the cement and sand, the quality of lining, and what
else is needed to insure durability and a capacity to resist the
shocks from loaded boats to which the walls of canals are constantly
subjected. In no one of the forty-odd contracts that we examined
did we find the stone either in size or disposition; the dimensions
of the wall; the quality of the sand, lime, cement, and gravel, to
correspond with the specifications. The consequences to the State
are not only that it has been called upon to pay for a higher
class of work than it has received, but that it is exposed to a
large annual expenditure to keep these ill-constructed and for the
most part worthless walls in repair. It has been a not uncommon
circumstance for the superintendent to be called upon to repair the
earlier work under a vertical wall contract while other portions of
the structure were still in progress. To keep this class of walls in
repair promises to be one of the principal sources of expense for
the future maintenance of our canals.[5]
[5] See statement of Professors Michie and Wheeler, of the United
States Military Academy at West Point, on page 12 of first report of
this commission to the Governor.
"Nor is this system of fictitious estimates confined to vertical
wall. Since 1868 fifty-three and two-thirds miles of slope wall
have been built. By the terms of the contracts these walls should
have had an average thickness of at least fifteen inches, measured
perpendicularly to the slope. None of the stone composing it should
have been less than twelve inches in length at right angles to the
face, and the rear of the wall was to rest on a base of clean, hard
gravel nine inches thick. The engineers have uniformly estimated
these walls at the specified thickness of fifteen inches, while
in point of fact we have not found on any of our canals a single
stretch of slope wall, constructed since 1868, that would average
over ten inches. Of course, the stones are usually smaller than the
minimum size required by the specifications, and we did not find a
single specimen of the clean, hard gravel lining required by the
contract; so that the State has been made to pay, throughout the
whole forty-three and two-thirds miles of slope wall, for one-third
more of constructed wall than it has received--full prices for a
very inferior quality of stone--and for lining the whole work,
though not a single yard of the required quality appears to have
been ever furnished.
"To confirm our own judgments, and to be sure that we were not
applying an erroneous standard to the work done in the prism of the
canals, we invited Professors Peter S. Michie and J. B. Wheeler, of
the United States Military Academy at West Point, to go over a large
proportion of what we had already visited and to give us the benefit
of their judgment about it. Their report is annexed, and will be
found to accord in all substantial particulars with the opinions
we have felt it our duty to express in our previous report to his
Excellency the Governor, and in this communication, in reference
to all the contract work on the canals that has fallen under our
observation.
"_Third_, as to the facilities afforded by the Legislature to
contractors for procuring legislative relief:
"These facilities appear to have been grossly and corruptly abused
under the discretionary power conferred upon the Canal Board by
the Legislature. Numbers of contracts have been cancelled when
such portions of the work as were let on terms profitable to the
contractor had been executed, while those portions of the work
that were let upon terms more advantageous to the State were left
unexecuted. In such cases it not unfrequently happened that this
remaining work was let to the same parties, under a new contract, at
much higher rates. When the Canal Board was found to turn a deaf ear
to such appeals, these applications for relief would be addressed
directly to the Legislature, where the fear of doing injustice, and
the want of the time and familiarity with the subject necessary for
investigating its details, often permitted the allowance of awards
conceived in fraud and without a single legal or equitable merit.
"An illustration of this class of abuses will be found in the fifth
and seventh reports of this commission to the Governor. For one of
them--the case of the award for the relief of John Hand--George D.
Lord, a member of the Assembly which made the award, is now under
indictment, it appearing that the claim made in his behalf was
altogether fraudulent and the alleged proofs fictitious. Another
award was also made to George D. Lord of $119,000 for alleged losses
under contracts with the State for work in Buffalo harbor. This
was, to all appearances, as much greater an abuse of legislative
credulity, as the amount exceeded that which was realized under
the award to John Hand. The limited technical knowledge of canal
administration possessed by a large majority of State legislators,
and the claims of other important business upon their attention,
make it impossible for them to properly scrutinize appeals of this
character, which are usually pressed by designing men, perfectly
familiar with all the resources for deception which our complicated
canal system afforded, prior to the constitutional amendment of 1874.
"In view of the systematic infidelity of the agents of the State
which this investigation has disclosed, is it surprising that the
expenditures for extraordinary repairs alone on our canals have
amounted, since 1867, to $8,444,827.24, or to nearly as much as the
whole of our canal debt, less the sinking fund, which on the 30th
of September, 1875, was $8,638,314.49? Of these expenditures for
extraordinary repairs it is our belief that fully seventy per cent.
have been inconsiderate, unwise, and unprofitable to the State.[6]
[6] Cost of extraordinary repairs made since the year 1867,
including the year 1875:
Erie and Champlain $6,602,858 60
Oswego 583,555 22
Cayuga and Seneca 163,480 76
Chemung 220,328 34
Crooked Lake 74,145 93
Chenango 255,073 77
Black River 120,410 22
Genesee Valley 369,478 20
Oneida Lake 50,063 60
Baldwinsville 5,432 70
-------------
Total $8,444,827 34
"The facts which have been brought to light in the course of this
investigation have constrained us already to recommend rigorous
proceedings to be taken against the following parties:
"First.--Against Denison, Belden & Co. for the recovery of large
sums of money which they appear to have received unlawfully under
their contracts for work between Port Schuyler and the lower Mohawk
aqueduct, and for work east of the city of Utica, both on the Erie
Canal. The claims of the State against these parties are fully set
forth in the first and second reports of this commission to the
Governor, and suits are in progress.
"Second.--George D. Lord has been indicted by a grand jury of Erie
County, upon the facts disclosed by this commission, for bribery in
procuring an act of the Legislature for the relief of one John Hand.
The history of this case will be found in the fifth report of this
commission to the Governor.
"Third.--Thaddeus C. Davis, late member of the Board of Canal
Appraisers, has also been indicted for a conspiracy to cheat the
State. The circumstances which made him amenable to the criminal
courts are set forth in the fifth, seventh, and eighth reports of
this commission to the Governor.
"A civil suit has also been instituted against Davis to recover
moneys fraudulently obtained from the State by himself in
conjunction with George D. Lord.
"Fourth.--Indictments have also been found upon the testimony
furnished by the commission against the following other high
officials: Alexander Barkley, ex-canal commissioner; John Kelly,
late superintendent of section No. 12 of the Erie Canal; J.
Frederick Behn, division engineer of the western section; and D.
Clinton Welch, ex-superintendent of section No. 12.
"Fifth.--Upon testimony furnished by this commission, the
commissioners of the canal fund made a requisition upon the Governor
for the removal of Francis S. Thayer, late Auditor of the Canal
Department, and on the twenty-eighth day of December last Mr. Thayer
was suspended upon charges of unlawfully trafficking in canal
certificates and violating his duty as auditor 'in respect to the
public moneys in his charge and subject to his draft.' The charges
preferred by the commission upon which the commissioners of the
canal fund and the Governor acted, together with their proceedings
thereon, respectively, are hereunto annexed.[7] The testimony by
which these charges were established will be found in volume three
of the accompanying testimony, at pages 1140, 2070, 2156, 2162,
2180, 2215, 2226, 2239, 2256, 2305, 2347, 2379, 2381, 2382, 2383,
2385, 2389, 2407, 2414, 2417, 2420, 2422, 2426, 2445, 2460, 2461,
2534, 2560, 2585, 2587.
[7] See Exhibits D, E, F.
"The following sums in cash, or evidences of indebtedness, obtained
from the State through fraud, have already been reclaimed by and
restored through the commission to the treasury:
Canal Commissioner's certificates of indebtedness, issued on account
of the second John Hand award:
No. 179, dated Feb. 10, 1875 $2,500 00
No. 181, " " " 9,355 00
No. 182, " " " 4,000 00
No. 183, " " " 1,000 00
No. 185, " " " 2,000 00
[Nos. 179, 181, 182, and 185 were returned by Lewis J. Bennett;
No. 183 was returned by Wm. H. Bowman, Esq.]
Returned in cash by Lewis J. Bennett,
on account of the first John Hand award 3,199 50
Cash returned by Ellis Webster and Son, on
account of money received on false vouchers 582 68
----------- ----------
_Forward_ $22,637 18
_Carried forward_ $22,637 18
Plenary authority conferred upon the Commission
by the parties interested, to cancel the Canal
Commissioner's certificates of Feb. 10th, 1875,
issued on account of the second John Hand
award, delivered as a gift by Lewis H. Bennett
to Thad. C. Davis, then Canal Appraiser;
by Davis given to ex-Canal Commissioner
Alexander Barkley, who claims to have mailed
it to Lewis H. Bennett, though it appears
from the evidence before us that, if mailed,
it never reached him 2,000 00
--------- 2,000 00
Canal Commissioner's certificate, No. 184, issued
Feb. 10th, 1875, under the second John Hand
award, to Lewis J. Bennett, for $16,000, by
him delivered under an agreement to the agent
of Geo. D. Lord, and rendered void through
testimony elicited by the Commission 16,000 00
--------- 16,000 00
$40,637 18
Accrued interest to February 14, 1876 2,259 21
__________