SPECIAL REPORT OF COMMISSIONER REA.

To Hon. H. H. MARKHAM, Governor of California:

In view of the fact that for the past eight years I have been a member of the State Board of Railroad Commissioners, having been twice elected to that position by the people of my district, which in area comprises the larger half of the State of California, and which contains within its boundaries the greatest producing sections and most important cities of the interior of the State, I have deemed it proper to present to the Governor of California, and to its people, my views upon the past eight years' service of the Railroad Commission, and the problems which the succeeding Board will be called upon to confront, if not to solve.

It is unnecessary for me at this time or place to rehearse the practical accomplishments of the past two Commissions. Any citizen who will take the trouble to examine the freight and fare schedules in existence in 1886, and to compare them with those at present in effect throughout the State, will find that the Commissions of that period have been of constant and practical utility, and have left a record of effective service, which succeeding bodies will find it difficult to surpass. During the past eight years the record will show that the Railroad Commission has received a large number of complaints of discriminations between shippers, and of inequalities in freight and fare schedules with reference to both places and products. These complaints have been heard, and in almost every instance determined in favor of the complainants, and the needed relief obtained, either by the order of the Board, or by the concession of the railroad companies, when the matter was officially brought to their attention.

What is known in California as The Railroad Problem "" was in a fair way toward solution when the term of the present Board began, and would doubtless soon have been solved had the commercial conditions of California remained constant, and had that competition which obtained a foothold at each extremity of the State been enabled to penetrate its interior, operate upon its great producing valleys, and reach San Francisco itself. That competition has not so done is due in some degree, at least, to the agitation of the railroad question during the past four years; to the hostility to great corporate interests and enterprises which such agitation always engenders in the public mind, and to the consequent distaste which all capital in common develops toward extending its investments into latitudes which are unfriendly to the capital already invested there.

For this mutual feeling of distrust the wholesale merchants of San Francisco and their organization, known as the Traffic Association, have been largely responsible. The birth and growth of the Traffic Association of San Francisco was in the main due to the effect upon the wholesale trade of that city, due to the establishment of "terminals" in various parts of the interior, which enabled the interior mer

chant to deal directly with the East, relieved him of his metropolitan intermediary, and freed him from the clutches of the San Francisco wholesaler. The consequent falling off of trade through San Francisco suggested to its merchants the formation of a combination among themselves strong enough, in either its friendship or its enmity, to compel the adoption of a policy on the part of the Southern Pacific Company which would favor the San Francisco merchant, and restore to his wholesale house that domination of the interior trade of California which was his in former days.

As a representative of the merchants and producers of the interior, I have always been opposed to the plans and purposes and methods of the Traffic Association; to their effort to use the Railroad Commission to attain their selfish ends, and later to their base attempt to destroy what they were not able to misuse.

The initial effort of the Traffic Association was put forth in 1891 in the suggestions of its manager, Mr. Leeds, that it was the duty of the Commission to fix arbitrarily a freight schedule based upon the rates existent in other and dissimilar communities, and to compel the adoption of such a schedule by the railroads, without a hearing or an opportunity to determine their fairness or their effect. The Commission refused to take this position, or to attempt the exercise of a power so clearly in violation of their oath and duty, but did declare and repeat their readiness to entertain and to impartially adjudge any issue as to the equity of existing schedules that might be framed before them by the usual and proper process of a complaint and hearing. The Traffic Association declined to make such a complaint, or to frame such an issue, although urged by the Commission, and by myself in particular, so to do.

When the "Shively complaint" was filed by an interior merchant, whose integrity of purpose and good faith cannot be questioned, and when, by its ample allegations, an opportunity was given for every alleged discrimination and inequality of rates to be inquired into and adjusted, the concealed purposes of the Traffic Association manifested themselves in open hostility, both to the complainant and the Commission. Notwithstanding this opposition on the part of a body of men who, with honest and open purposes, might have aided materially in this public investigation into the equity of freights and fares in and for the whole State of California, the inquiry proceeded, and in its outcome has produced good effect, not only in a material equalization of rates, but also in the adoption of the Western Classification throughout the State. In the midst of this investigation, and for a purpose which has never yet been explained, the State Legislature which convened in 1893 undertook to court-martial the Railroad Commission, and in one of those blind moods which sometimes affect men thrown together by the chances of politics, proposed to bow-string our Board without the formality of a hearing. In a letter to the Legislature I demanded an opportunity to be heard, and uttered the prophecy that the attempt to deal with the railroad problem, directly or through the medium of an attack upon the Commission, would, as for its only result, "either demonstrate the ignorance or expose the venality" of the members of the Legislature who made the attempt. How far the result has verified the prediction let the acts of the Legislature of 1893 determine.

The investigation of the Railroad Commission was a travesty upon

justice. The life of the Commission was preserved by the votes of the open friends of the railroad, not because the Southern Pacific Company loved the Commission, but because it feared to intrust its fortunes to the uncertain qualities of intelligence and honesty which distinguish Legislatures like that of 1893. The point of this remark is doubly emphasized by the fact that at the same time the Legislature was engaged in investigating the Railroad Commission, it was also occupied in the passage of the Reassessment bill, which, in two forms, was before them. They defeated the Carpenter bill, and with singular consistency, but doubtful sense, enacted the Seawell bill, and it became a law. The effect of this infamous measure is now too well known to the people of California. By its terms the State has lost more than half a million of dollars which would have come into its treasury, or that of its counties and cities, under the Carpenter bill.

The Seawell reassessment law constitutes the ample and complete. vindication of the Railroad Commission against the assault and aspersions of the Legislature of 1893. It demonstrates the ignorance or exposes the venality of those who voted for its passage, and voted also to impeach the Railroad Commission.

There is no escape from this alternative of unworth, except by the confession of its truth in the conjunctive by those members of the Legislature who supported both measures. It will be a flimsy subterfuge to say that the responsibility for the effect of the Seawell law rests upon the State Board of Equalization and not upon the Legislature, for the reason that the plain language of the statute permitted no other honest construction than that the Board of Equalization has placed upon it, and the final verdict of our State history will affix the infamy of that piece of legislation where it properly belongs, upon the State Legislature of 1893.

The personnel and the politics of the Board of Railroad Commissioners will each be changed on the first Monday of January of the coming year. An entirely new body of men will occupy the places of its present members, the majority of which will be dominated, so far as regard for the sanctity of their sworn official duty will permit, by the policy of the Democratic party as expressed in its party platform for the present year. That platform pledges the dominant members of the Railroad Commission to an average reduction of 25 per cent in the freight rates of the railroads of California. With a confidence born of experience, I venture the prediction that the incoming Railroad Commission will not be able to redeem that pledge within the lines of their constitutional duty and the limitations of their oath of office.

It is a fact easy of ascertainment that, as to the smaller railroads of California, such a reduction in revenues would mean ruin; and that as to the Southern Pacific Company, with its obligations to pay the interest upon the enormous bonded indebtedness of its leased lines, a reduction of 25 per cent in its gross income would speedily cast it and its dependent roads into the hands of a receiver. The responsibility for such a disaster to the commercial systems of California I am satisfied no Railroad Commission will ever dare to assume.

The result will be that the incoming Railroad Commission will find itself in much the same position as that occupied by its predecessors for the past eight years.

It will formulate rules of procedure, hear complaints of shippers, grant

relief in individual cases as they may arise, revise schedules with a view to the correction of the inequalities and discriminations as they come to the surface in the course of transportation and trade. It will occupy a position of increasing delicacy between the large corporate interests of the railroad companies on the one hand, and the large local interests of the merchants of San Francisco, represented in the Traffic Association, upon the other. If, between these two great and equally selfish energies, the Railroad Commission shall take that impartial attitude which its duty to itself, and especially to the whole State of California, demands, its members will be beset by politicians, carped at by paid critics, denounced by demagogues, and charged with all the crimes in the catalogue of official misdeeds. And as a compensation for all this, in addition to their own consciousness of rectitude, they may possibly, before their official term expires, possess the high merit of having failed to find favor in the eyes of a Legislature like that of 1893.

Respectfully submitted.

JAS. W. REA,

Railroad Commissioner for the Third District of California.