As fierce as the harbor fight had been in the 1890s, the Southern Pacific was even more determined to scale down its huge debt to the federal government. The company’s earlier incarnation, the Central Pacific Railroad, had received about $27 million in federal subsidies to cover initial construction of the Far Western link of the first transcontinental railroad. The subsidies took the form of 30-year bonds payable in 1899 at 6 percent interest, which amounted to an additional $50 million. A federal law enacted in 1878 required the railroad to establish a sinking fund drawn from profits in order to repay the loan, but the Central Pacific ignored the measure.
In 1896, with the repayment date approaching, Huntington conceived a plan to reduce vastly the amount owed. Members of Congress doing his bidding crafted a Funding Bill that would have extended the repayment period by 99 years at an interest rate of 0.5 percent. Huntington justified the debt dodging bill by recounting the material benefits that the railroad had brought to the nation, adding that repayment of the original obligation at that time would bankrupt the Southern Pacific.
Given the economic depression of the 1890s and the farmer-based hatred of the railroads, the measure provoked a public outcry. San Francisco Mayor Adolph Sutro, elected on a People’s Party ticket in 1894, led his city’s opposition. William Randolph Hearst collected 200,000 signatures on petitions denouncing the Funding Bill and his Examiner commissioned Ambrose Bierce to write venomous commentaries on Huntington and his proposed measure. Also, Hearst unleashed cartoonist Homer Davenport to skewer the railroad at every opportunity.
The California legislature, in a rare display of defiance against the Southern Pacific, passed a resolution urging the federal government to collect the money owed and, moreover, to assume ownership of the railroad if the debt were not repaid in full. Congress voted down the Funding Bill in January 1897. So thrilled was California’s governor, James H. Budd, that he declared January 16 a public holiday in celebration of the vote outcome. To the surprise of few, the Southern Pacific repaid its entire bonded debt to the federal government by 1909 - and did not go out of business in the process.
World History
