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.
[Illustration: Map showing the line of the San Francisco and San
Joaquin Valley Railway, together with portions of the systems of the
Southern Pacific and of the Atchison, Topeka and Santa Fé, 1898.]
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:
I have said that the Santa Fé Railroad was not consulted upon the
organization of the Valley Road. This is strictly true. But it is also
true that shortly after we began work that discussions arose among
ourselves and the public as to a probable connection with that road,
but we were not organized with that object in view. Wherever we have
gone in the San Joaquin Valley the people have asked us when we would
connect with the Santa Fé road....
For a little time we clung to the belief that we could make a traffic
arrangement with the Santa Fé road, and from the day that we saw that
connection with that road was inevitable we worked toward that end. We
worked to keep the Valley Road in its original form, and give original
stockholders a personal interest in the terminus of an overland line.
But we found that our stockholders were not all actuated by the same
sentiment that actuated the directors and trustees.
When we began to negotiate with the Santa Fé people we found that
some of our richest stockholders had sold their stock at 50 cents on
the dollar; and when we talked traffic arrangement with the Santa Fé
people they showed us that in that way the Southern Pacific people
could quietly buy in a control of the stock and could then abrogate
their traffic agreement at the conclusion of the trusteeship in less
than seven years and leave them no better off than they were.
It was only when we saw that there was absolutely no hope of making
the overland connection without a sale of the stock and there was a
possibility, if not a danger, that the Southern Pacific Company might
obtain control of the stock of the road that we decided to talk with
our stockholders and we laid the whole matter before them and told
them not to sell their stock at less than par and then the option was
taken upon the stock and it will undoubtedly be closed.[484]
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.