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Chapter XII.

The Railroad Regulation Issue.

Recent Increase in Freight Tariff Had Brought About a Condition Which Required Action - Senate Divided Into Supporters of an Effective and Supporters of an Ineffective Measure - Manipulation by Which Measures Were Placed in Hands of a Machine-Controlled Committee.

Some one has very well said that the real test of a Legislature is its action on railroad measures. The Legislature of 1909, if estimated by this standard would not appear to advantage. But to condemn the Legislature of 1909 for its failure to give the State an effective railroad regulation law, is to condemn every Legislature that has sat in California since the present State Constitution went into effect thirty years ago. The Constitution empowers the Legislature to pass effective railroad regulation measures, but up to the session of 1909, the machine, or system, or organization - one name is as fragrant as another - had prevented the passage, if we exclude the ineffective Act of 1880, of any railroad regulation law at all. The machine has ever moved against the interests of the people and in the interest of its dominating factor and at the same time its chief beneficiary, the Southern Pacific Railroad Company. It has so manipulated the nomination and election of Railroad Commissioners as to keep in that office men utterly dominated by railroad influences.

With weak and corrupt men as Railroad Commissioners, and machine-dominated Legislatures which have neglected to pass laws which would have made the Commission effective, or even provide funds for the Commission to carry on its work, even had the Commissioners been so inclined, California has been left helpless to oppose any extortion which the railroad might see fit to exact. The system of charging all that the traffic will bear has governed utterly. For this the Southern Pacific Company can thank, and the People of California condemn, the machine.

The cost to the people has been enormous. It was pretty conclusively shown at the Legislative investigation into the cause of recent advance of freight rates, that upwards of $10,000,000[62] a year has in this one instance been added to the freight charges exacted from the people of the Pacific Coast. The added burden falls upon the Pacific Coast manufacturer, merchant, farmer, fruit grower, consumer. All from the highest to the lowest help pay the tribute. Thirty years is a long period, and the arm of the railroad tribute-taker far-reaching. The vast sums which, unrestricted, the Southern Pacific has been able to exact run into enormous totals. From a dollar and cent standpoint, it has paid the Southern Pacific Company to control the machine.

But the railroad's absolute domination of the State could not continue forever without protest that would eventually force a hearing. This protest came toward the close of 1908. The increase in freight rates made just before the Legislature of 1909 convened emphasized the necessity for the enactment of a law that should galvanize the Railroad Commission into activity; ensure the enforcement of constitutional provisions for the protection of the public against dominant transportation companies; in a word, provide effective railroad regulation.

Governor Gillett in his biennial message to the Legislature, and Attorney General Webb in his biennial report gave expression to this aroused public sentiment.

General Webb, after reviewing railroad conditions in California, on page 13 of his report says: "It is thus apparent that the shippers of the State are practically helpless."

"I believe," continues the Attorney General, "that this review of the situation will show the imperative necessity of prompt legislation on this subject, and under the Constitution of this State, the Legislature has ample authority to enact the required legislation."

Governor Gillett, in his biennial message, takes practically the same stand as does Attorney General Webb.

"Our State," says the Governor on page 12 of his message, "has not kept pace with the majority of the States of the Union in the enactment of laws regulating railroads in their business as common carriers."

"I can virtually promise you," said General Webb at a meeting of the Senate Committee on Corporations, held on the evening of January 25th, "that in the event of this (the Stetson Railroad Regulation bill) becoming a law, and the Railroad Commission refusing or neglecting to act under its provisions, the Governor will call the Legislature together in extraordinary session for their impeachment."[63]

There was no question of the aroused public sentiment in favor of the passage of a railroad regulation measure. Even before the Legislature convened it became evident that some sort of a measure would have to be passed; even the railroad lobby saw that. The Legislature accordingly divided on the question. As the fight was carried on in the Senate - the Assembly in the rush of the closing hours of the session merely putting its "O. K." on what the Senate had done - the division in the Senate alone will be considered. The division in that body was:

(1) The minority, made up of the out and out machine Republicans and Democrats, who were prepared to pass a measure which under the name railroad regulation would leave the railroads practically independent of effective State supervision.

(2) The majority, which stood for the passage of an effective law.

The minority had the best captains in the Senate and was backed by the machine lobby made up principally of Southern Pacific attorneys.

The majority was poor in generals. But it had the backing of the shippers of - the State, who sent able counsel to Sacramento to present the shippers' side.

And in the end the machine minority wore out and defeated the majority. A comparatively effective railroad regulation bill was rejected and an ineffective measure passed.

Three railroad regulation measures were introduced in the Senate, their authors being Campbell, Stetson, and Wright.

The Campbell bill had much to commend it, but was rejected without much consideration by either side. Campbell was not in the program of either railroad or shippers. But before the session was over Campbell had made himself felt. He had, too, introduced a Constitutional Amendment for the correction of railroad abuses, which was to figure later on, but his bill was scarcely considered. The attorney for the shippers, in speaking before the Senate Committee on Corporations, confessed that he had not read the Campbell bill.

The attorney for the Southern Pacific Company, however, attempted to split the anti-machine forces by praising the Campbell bill, and setting the anti-machine Senators to disputing over the relative merits of the Campbell and Stetson bills. But nothing came of this graceful little coup. Campbell and his followers were too sensible to be caught by any such trickery. They gave their loyal support to the Stetson bill, and the Campbell bill was allowed to die in the Senate Judiciary Committee. This narrowed the fight down to the Stetson bill and the Wright bill.

The Stetson bill had been prepared in the office of Attorney General Webb, and at the instigation of Governor Gillett. As originally introduced it contained certain defects, which were afterwards corrected, but such Senators as Cutten, Caminetti, Black, Campbell, Miller, Cartwright, Bell and Thompson, admitted that the measure could be made the basis of as effective a law as could be prepared under the present constitutional provisions for the regulation of transportation companies.

The original measure was particularly weak in the section providing for demurrage charges. This was finally corrected by the passage of a separate reciprocal demurrage bill, which had been introduced by Miller. Another weakness in the Stetson bill as originally introduced was that the Railroad Commission was made a sort of barrier between the Courts and those who had grievances against the transportation companies. This objection was corrected by amendments.

Numerous other amendments adopted from time to time made the Stetson bill probably as effective as a California railroad regulation law can be made, under the Constitutional provision which places extraordinary powers in the hands of the State Board of Railroad Commissioners.

Just where the Wright bill originated nobody seems to know for certainty. But Senator Wright introduced it. Senator Wright was well selected for the job. For two years he had been groomed as the reformer who would introduce the State-saving Direct Primary Bill. So a railroad regulation measure introduced by Senator Wright might at least be calculated to bear the stamp of respectability.

Like the Stetson bill, the Wright bill was based on the constitutional provisions which make the State Board of Railroad Commissioners the center of railroad regulation in California. And here the parallel ends.

Comparison of the two measures is not at all to the advantage of the Wright bill.

The Stetson bill provided fine and imprisonment as penalty for infringement of its provisions; the Wright bill provided fine only.

The Stetson bill had a definite anti-pass provision; the Wright bill as originally introduced had no such provision.

The Stetson bill authorized not only the Attorney-General, but the District Attorney of any county of the State to proceed to enforce its provisions; the Wright bill granted the Attorney-General alone such authority.

The Stetson bill required the Railroad Commissioners to meet at least once in every two weeks; the Wright bill provided that such meetings should be held monthly.

The Stetson bill gave the Railroad Commissioners authority to make physical valuation of railroad properties; the Wright bill contained no such provision.

The Stetson bill recognized all discriminations to be unjust; the Wright bill provided that no interference should be instituted unless the discriminations complained of were shown to be unjust.

And finally, the Stetson bill provided that the State Board of Railroad Commissioners should have power to fix absolute rates, thus insuring stability of rate schedules, while the Wright bill provided that the Commissioners should fix maximum rates only, thus permitting the famous "fluidity" of schedules advocated by machine lobby and Southern Pacific attorneys.

The contest between the supporters of the Wright and the supporters of the Stetson bill, finally narrowed down to the question of providing for absolute or maximum rates.

The provision for the maximum rate in Senator Wright's bill, authorized the railroad regulating Commission to fix the highest charge which a railroad may exact from a shipper. This is called the maximum rate. The transportation company is authorized to lower the rate at will, but it cannot charge a rate beyond the maximum as fixed by the Commission. This leaves the railroads to fix a sliding schedule of rates, so long as they do not exceed the maximum. It gives the railroads the advantage of that "fluidity" of schedules, which railroad attorneys insist is necessary for railroad prosperity.

The maximum rate is provided in the Interstate Commerce Act, but the Interstate Commerce Commissioners, finding it impracticable, have for years been clamoring for Congress to authorize the fixing of absolute rates. The cry of the Interstate Commerce Commission has been taken up by the shipping interests, and from one end of the country to the other there is growing demand that authority be placed somewhere to make railroad rates, when fixed by a regulating Commission, absolute.

The absolute rate, or the fixed rate as it is better called, which was provided in the Stetson bill, can neither be lowered nor raised by the railroads. Once fixed by the regulating Commission, it must remain until the Commission grants permission for its change. The railroads cannot lower it any more than they can raise it.

The advantages of the absolute rate are many. In the first place, where the absolute rate is established, there can be no discrimination, because the rate is known, it can neither be raised nor lowered, and the railroads have no opportunity to favor one shipper at the expense of another.

In the second place, the shipper is guaranteed a stability of rate schedules which is deemed necessary for settled business conditions. The merchant, for example, includes transportation charges in the cost price of the goods in which he deals. But if the transportation charges on the same class of goods are subject to frequent change, the merchant can never tell when his competitor is to be given the advantage of a sudden lowering in freight rates. This uncertainty unsettles business. The merchant holds that transportation rates should be just as stable as tariff rates. On this account, the merchant advocates fixed rates and stability of schedules as against maximum rates and constantly shifting schedules.

The supporters of the Stetson bill, then, backed the shipping and merchant classes; while the supporters of the Wright bill backed the contentions of the transportation companies.

The Campbell and the Stetson bills had been originally referred to the Senate Judiciary Committee, while the Wright bill had been referred to the Senate Committee on Corporations. For the first few weeks of the session, no particular note had been taken of the Wright bill, attention being centered on the amendment of the Stetson bill.

Things were going swimmingly with the Stetson bill, when the machine lobby awoke to the fact that something was wrong in the Senate. There was at least some indication that the Senate would pass an effective railroad regulation measure.

And then, before the advocates of the Stetson measure could tell exactly what was happening, the railroad regulation measures were taken from the Judiciary Committee and placed in the hands of the Committee on Corporations.

A glance at the personnel of the two Committees at least suggests why this was done.

The members of the Judiciary Committee were Willis, Wolfe, Wright, McCartney, Savage, Boynton, Anthony, Burnett, Cutten, Estudillo, Martinelli, Roseberry, Stetson, Thompson, Curtin, Cartwright, Caminetti, Miller, Campbell.

The nine Senators whose names are printed in Italics, when the issue came to vote on the floor of the Senate, voted against the Stetson bill and for the Wright bill; nine of the ten whose names are printed in ordinary letters voted for the Stetson bill and against the Wright bill. The tenth, Roseberry, was absent, but when he found that the vote had been taken, stated that had he been present he would have voted for the Stetson bill and against the Wright bill.

Furthermore, Estudillo, who finally voted for the Wright bill, did not approve the measure and voted for it because he feared the absolute rate feature of the Stetson bill to be unconstitutional.

Thus at the time the Stetson and the Campbell bills were taken from the Judiciary Committee, the Committee was regarded as standing:

For the Wright bill - 8.

Against the Wright bill - 11.

For the Stetson bill - 11.

Against the Stetson bill - 8.

It was certainly not in the interest of the Stetson bill that the measure was taken from the Judiciary Committee and sent to the Committee on Corporations.

A glance at the personnel of the Committee on Corporations reveals a significant state of affairs. The Committee consisted of the following Senators: Bates, Welch, Wright, McCartney, Burnett, Bills, Walker, Roseberry, Finn, Miller, Kennedy.

When the test came on the floor of the Senate, the nine of the eleven Senators whose names are printed in italics voted for the Wright bill and against the Stetson bill. The two members whose names are printed in ordinary letters, voted for the Stetson bill, and against the Wright bill.

The line-up of the Committee on Corporations, when the measures were taken from the Judiciary Committee and sent to the Committee on Corporations, was then:

For the Wright Bill - 9.

Against the Wright Bill - 2.

For the Stetson Bill - 2.

Against the Stetson Bill - 9.

The change was certainly not made in the interest of the Stetson bill.

The incident stirred up Campbell and other anti-machine Senators to the fighting pitch. An arrangement was made, however, by which the measures were to be sent back to the Judiciary Committee after the Committee on Corporations got through with them that the Judiciary Committee might pass upon their constitutionality. The arrangement had two effects - it silenced the unquieting protest of the anti-machine Senators, and it delayed consideration of the bills. But, as the sequel showed, the arrangement did not help the Stetson bill in the least.

[62] The testimony was that of George J. Bradley, traffic manager of the Merchants' and Manufacturers' Traffic Association of Sacramento. It was as follows:

It is estimated on conservative figures that the increase in eastbound California products, or Pacific Coast products, I should correctly say, which is composed of canned fruits, canned vegetables and canned salmon, of which there are several million cases, go from the North Pacific coast through either San Francisco or through the North Pacific coast, the minimum being forty thousand pounds to the car, and the increase being ten cents per hundred pounds, means forty dollars a car increase. Now, taking the number of cars of all those products that are shipped, it amounted to about - and leather and other products - it amounted to about four million dollars eastbound. Now, when the question of westbound comes out, of course, it is practically impossible for any man to say just exactly what that increase will mean in dollars and cents, and the only way, therefore, to arrive at it is to take the percentage of proportion now in their westbound tariff, which is composed of about between eight hundred and a thousand items. They have raised the rates from 10 to 25 cents on over two hundred articles, all of which move in quantities; in other words, the process by which the tariff has been amended has been that in every instance where there was a commodity moving in quantities the rate has been advanced; wherever there was no movement and they wished to encourage a movement, they reduced the rate. Now, you take the five transcontinental lines that operate on the Pacific Coast, namely, the Northern Pacific and the Great Northern on the north and the Canadian Pacific; the Southern Pacific and the Santa Fe and the San Pedro and Los Angeles on the south, give you six trunk lines operating on the Pacific Coast. If you will take their gross earnings, which amount to over four hundred millions, segregate that by allowing fifty per cent of that to passenger service, which is a very conservative estimate, because the passenger service does not amount to that, leaves two hundred million dollars of gross freight earnings. Take five per cent of that for terminal business, and business is based on terminal rates from the coast, plus the local back, because the rate, of course, is felt everywhere, the rates to the interior points are made on the terminal rate, plus the local back. Take five per cent of that and their increase in every instance has been 10 per cent, and in some cases 16 2/3 and 20 per cent; but take a very liberal conservative estimate and put it at five per cent and you have ten million dollars; now, split that in two and take two and a half per cent of it and you have got five millions of dollars. Now, that and your four million dollars on eastbound freight and you have nine millions of dollars increase in freight rates, and I believe that that is a conservative estimate. I don't see how you could get at it any closer, because every man, it doesn't make any difference where he is, every man that buys pays that ten to twenty per cent increase.

[63] Senator Caminetti on February 12 introduced a concurrent resolution calling for the removal of the present Board of Railroad Commissioners from office. The Committee on Corporations reported adversely, and on March 15th the resolution was finally rejected.

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