CONDITION OF THE SINKING-FUND ACCOUNTS. Appendix 8 of this report gives a detailed statement showing the condition of the sinking-funds of the Union and Central Pacific Companies, respectively, held by the Treasurer of the United States under the act of Congress approved May 7, 1878, from which it will be seen that on June 30, 1883, these funds amounted to $4,036,713.45; the Central Pacific having to its credit $2,404,015.86, and the Union Pacific $1,632,697.59. Investments have been made by the Secretary of the Treasury as fol lows: On June 30, 1883, the amounts remaining in the United States Treas ury, uninvested, were as follows: Credit of the Central Pacific.. Total $844,652 13 858, 532 16 1,703, 184 29 That the sinking-fund has not accomplished the result anticipated is quite evident, and may be regarded as practically a failure for want of suitable investment. The last investment for the Union Pacific was made April 6, 1881, at which time a premium as high as 35 per centum was paid, but the company repeatedly protested against such high rates of premium. Reference to the foregoing table will show that the sum of $650,100 has been invested at a cost of $124,065.43, or an average premium of nearly 20 per centum. On June 30, 1882, the amount in the sinking-fund uninvested was $407,441.99, and on June 30, 1883, it had increased to $858,532.16. This is a manifest hardship to the company, as the amount should be drawing a fair rate of interest, and correspondingly diminishes the available fund in the hands of the Government. The last investment for the Central Pacific was made November 27, 1882, the sum of $541,800 having been invested, at a premium of 2 per centum, in the funded loan of 1881 continued at 34 per centum. The sum of $1,379,800 has been invested for this company at a cost of $179,563.73. On June 30, 1883, the amount in the sinking-fund uninvested was $844,652.13. Section 3 of the act of May 7, 1878, provides that the "sinking-fund shall be invested by the Secretary of the Treasury in bonds of the United States," and directs that preference be given the 5 per cent. bonds, but it evidently was not foreseen that the 6, 5, and 4 per cent. bonds might be called in or extended at a lower rate of interest. In my report for 1882, page 12, for reasons there more fully stated, it was recommended That section 3 of the act of May 7, 1878, be so amended as to authorize the Secretary of the Treasury to invest the sinking-funds in the first mortgage bonds of the companies, or such bonds as have been issued to them by the United States, or in other good and sufficient securities, and to convert the bonds now held by the Treasurer of the United States in said sinking-funds into money at the market rates, and reinvest the same in like securities. This recommendation is respectfully renewed, but it is suggested that if the present sinking-fund method is to be continued, it would be a more simple and equitable plan to have all amounts paid by the companies covered into the Treasury and credited with a certain rate of interest per annum, say 3 per cent., thus avoiding all questions of investments, premiums, &c. FUNDING THE DEBT. I again urgently commend to the consideration of Congress the propriety of commuting the present sinking-fund method of payment of the debts of the subsidized railroads to one of fixed obligations having the same lien, and of fixed amounts, and payable at fixed periods. It is of the first importance that the method adopted should be certain in its operation and result, and have due regard to the security of the Government and the rights of the companies. Although I have discussed this subject at some length in my last report, it is one of such great importance that I deem it proper to restate the argument with additional suggestions: Should the present sinking-fund method be continued, we may venture upon an approximation of its results, as follows: CENTRAL PACIFIC RAILROAD. Principal sum of bonds advanced Thirty years' interest, at 6 per cent.. Total..... Deduct transportation, &c., approximately, in round numbers, first fifteen years.... Deduct transportation, &c., approximately, in round numbers, last fifteen years, at present rates By accumulation of sinking-fund for the next fifteen years, estimated at $500,000 per annum, together with amount already in sinking-fund, at 3 per cent. per annum.. Balance due United States at maturity of bonds.... Principal of bonds advanced UNION PACIFIC RAILWAY. Thirty years' interest, at 6 per cent.. Total.. Deduct transportation, &c., approximately, in round numbers, for first fifteen years... $27,855, 680 00 50, 140, 224 00 77,995, 904 00 $6,000,000 13,500,000 12,500,000 32, 000, 000 00 45,995, 904 00 $27, 236, 512 00 49, 025, 721 60 76, 262, 233 60 $12,000,000 16,500,000 Deduct transportation, &c., approximately, in round num- Balance due United States at maturity of bonds.... 51, 000, 000 00 25, 262, 233 60 It is manifest that when the bonds mature, at the close of the present century, the present sinking fund will not be sufficient to meet them, and if left to be dealt with then as a mere book account, with the risk of possible diminution of income from the rapidly increasing competition which they must surely encounter, adjustment may then be more difficult and embarrassing than now. |