which has been received, and which is one of several protests that
have been received in a general way.
The Milwaukee Railway Co. — of which Mr. Ryan was and is one
of the executive committee of five, and one of the directors, and at a
time, I believe, when he was, and has been throughout the period,
acting in the Government service, either as Assistant Secretary of
War or in connection with the spruce interests. The Milwaukee
Railway for some years past has been planning to build a railroad
through to Graves llarbor on Puget Sound and down the coast from
a point to wliich it has already been extended. Port Angeles, That
has been under consideration for some years, as I imderstand, but
the exact route had not been determined.
And I wiU say that I intend to insert in the record, later on, Mr.
Ryan's letter and telegram and Mr. Howe's letter, and also y^our own
order in the matter; but at this time I am devoting this inquiry
entirely to the raUroad itself, and to the explanation which is made
by Maj. Martin H. Ray, who was the inspector sent out by the War
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AVIATION. 89
T)epartment to make a report upon this railway, and I quote entirely
as I now remember it, but I will give a reference to nis report in
regard to conditions as they existed then and as they exist out there
now.
In the Milwaukee Railway matter he makes this statement, set 5,
inclosure 4, allegation No. 2 ; and the part that I desire to quote will
be brief, and it is not necessary to add anything else at this time
because I am going to insert the whole reply to Mr. Ryan later on.
He says in this allegation of Maj. Howes, No. 2:
That John D. Ryan was director of the Milwaukee; that he was instrumental in
giving costs-plus contracts to Siems-Carey-Kerbaugh Corporation, for building a road
tu;ro88 Washington (Olympia) Peninsula, which tapped holdings of the Lacey interests
and the Milwaukee Land Go.
His finding is [reading]:
Partly true, but of no significance.
Reading further from his finding:
Mr. Kyan was a director of the Milwaukee Railroad as stated. However, for this
werv reason he asked to be relieved from acting in this connection, and was so relieved
until the Milwaukee Railroad was eliminated from the negotiations.
Then he refers to various exhibits. Maj. Ray then quotes from the
record; from Mr. Ryan's statement:
That I was a director of the Milwaukee (Chicago, Milwaukee & St. Paul Railway)
everybody knew, and you will recall when Disque and the Siems-Carey-Kerbaugh
people came on to Washington with a contract which had been n^otiated by Dis(]Ue
and signed by the proper official of the Government in the Spruce Production Division,
which provided that it was to go in effect when a contract was entered into between
the Government and the Chicago, Milwaukee & St. Paul Railway for the building of
â– a certain railway extension to tap areas in which Siems-Carey were to operate, that I
went to you (Secretary Baker) -and stated that as I was a director and member of the
executive committee of the Milwaukee Railway I could not act in any capacity, even
ad\'i8ory, and would have nothing at all to do with it. whereupon you referred the
matter to Mr. Stettinius, and in my presence told him that I could not act and that he
was to negotiate it, which he did. I never even saw the contract for the building of
the railway, which was afterwards made between the War Department and the Siems-
Carey-Carbaugh Co. direct. * * *
That is Mr. Ryan's answer to the charge that you called in Mr.
Stettinius.
And this is a matter I want to bring out, which is also contained
in Mr. Ryan's letter [reading]:
The Railroad Administration did not approve the building of the line by the Mil-
waukee Co., but I understood that the contract was signed either by yourself or
Secretary Crowell.
This is in Mr. Ryan's letter to you replying to the charge of
Maj. Howes.
From that it would appear that the Railroad Administration refused
to grant the Milwaukee Railway Co. the right to make an extension,
which thev wished to make in a place where it would not have had
to climb the Olympic Moimtains, as was done eventually in the case
of the Government road that has been put through over the
mountains.
This coasjb road as surveyed by the Milwaukee would not have
reached any particular producing section, so far as I can understand.
A railway direct to the coast over the Olympic Mountains would
shorten the distance approximately 50 miles, but it would be verv
costly because it would nave to go over the mountains and through
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90 WAB BXPENDITUBES.
tunnels, as it eventually did when it was put through by Goyernment
money.
The Siems-Carey-Kerbaugh Railway or Government railway of 38
miles was built on a direct line over the mountains to within about
15 miles of the coast and shortened the distance by over 50 miles.
It was built on a cost-plus contract by that firm acting for the
Government.
It will be interesting at this time, and I think we are all especially
interested,, to have the map before us, because it will explain the
situation. [Producing a map of Washington.]
Mr. Secretary, if you have not made an examination, I will say
that the Milwaukee Railway extends out to the west extremity of
Crescent Lake, Clallam County, Wash, [pointing].
Secretary Baker. From where ?
Mr. Frear. From Port Angeles. That is the IVIilwaukee road. The
extension which was included in the contract given to the Siems-
Carey-Kerbaugh Co. is from Crescent Lake to Lake Pleasant, which
is about 38 to 40 miles almost on a direct westerly line to within about
15 miles of the Pacific coast. The scale of measurement of .the map
will show that.
Secretary Baker. The scale here shows about 10 miles to the inch.
Mr. Frear. That would make it about 40 miles long and at an
elevation over the mountains, as I will show you, of about 1,100 feet,
with tunnels, and built on a scale for a permanent railway, ostensibly
for the purpose of striking spruce at tne end of the Une. You wiU
note that from here, where spruce is located, up to Clallam Bay is only
a short distance, but the extension was placed over the mountains
from the Milwaukee terminus, and that of course gives the Milwaukee
Railroad a short cut across to Grays Harbor, where there is compe-
tition with other railwavs.
Secretary Baker. Where is Grays Harbor ?
Mr. Frear. Here it is, down the coast. Here is where other rail-
ways connect, and there is a large lumber business and many mills
at that point.
Secretary Baker. I do not follow you. There is no connection
between this point and Grays Harbor?
Mr. Frear. Not now but soon. The railway was to go around,
not to go over the mountains because of the expense. The under-
standing has been to go around this peninsula to Grays Harbor.
That has been the plan of the Milwaukee roacl, but apparently the
Railway Administration refused to give them the right of extension.
Secretary Baker. In other words, the road built uncler the Siems-
Carey-Kerbaugh contract is a link in the projected Milwaukee road ?
Mr. Frear. Exactly.
Secretary Baker. \Vhich they should accjuire in line ^ith their
projected hue just across to Grays Harbor?
Mr. Frear. That is it exactly; now it is a direct Une.
Secretary Baker. J see.
Mr. Lea. That is the road that they are to sell on the 2d of
Sentember.
Mr. Frear. Yes.
Ml'. Magee. a line of 38 niik^s.
Mr. Frear. Yes.
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AVIATION. 91
Mr. Lea. Have you mentioned that this road is constmctd as a
logging road ?
Mr. Frear. Permit me to carry out my statement.
Mr. Lea. All right.
Mr. Frear. This road built by the Government did not strike any
spruce timber until it reached tne 40-mile limit. In fact no railway
was needed — but that is not a part of the hearing at this time. I
think it will be demonstrated before the hearings are over that a
strong argument made by those who have been engaged in this spruce
production in the West is that there was no necessity for building any
railways, and that the whole proposition could have been handled by
the loggers — but that is not a matter for us to determine at this time.
We also have the Government estimates and statements that have
been submitted in the Ray hearings, as well as from other sources, in
regard to that.
Secretary Baker. It is your plan, undoubtedly, to call Gen.
Disque on this question?
Mr. Frear. Oh, yes.
Now, that is ,the plan of railway that they adopted, and Disque
built railroads whether they were necessary or not, and we can not go
behind the returns at this time in that matter, but we want to know
the facts, and the public wants to know the facts, I take it.
This road did not strike any spruce timber until its terminal was
reached — that is, a distance of 40 miles. Maj. Ray, who investigated
Maj. Howe's charges, says, as to allegation No. 5, which allega-
tion was:
This road, accordiog to Kerbau^h, haa cost about $12,000,000, and taps no spmce
until it travels over & miles, which brings it into the holdings of the Laceys and
the Milwaukee Land Co.
Reading at another point, Maj. Ray says:
The statement that the road taps no spruce until it travels 40 miles is practically
true. This railroad is 39 miles long ana connects the main line ot the Milwaukee
Railroad with a large stand of spruce near Lake Pleasant. No one denies this allefija-
tion, but the decision to build tnis road was carefully considered and arrived at as tne
most feasible method of bringing out 300,000,000 feet of desirable spruce.
He then refers to some exhibits, and says:
Also see Gen. Bisque's testimony; also the testimony of Pacific & Northwest Log-
gers' Association.
Then Maj. Ray goes on to say:
No one questions the value of this stand of spmce and the desirability of tapping it.
The only question here is, whether or not the judgment of the Grovemment officials
in the actual location of the railroad to reach the spmce were justified.
Incidentally, let me say, considerably over 300,000,000 feet of
spruce, as shown in the Kay hearings, was cut each year by the
loggers from spruce that was accessible to the Columbia and other
waters, and that cut could have been easily doubled, as I understand,
by doubling the capacity of the mills, increasing working hours, and
giving aid to the loggers.
The Siems road, or Government road, connects with the Milwaukee
Railway, and the road was determined by the Milwaukee officials
very largely.
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92 WAR EXPENDITURES.
Allegation No. 3 of Maj. Howe, of the Intelligence Bureau, says:
That Sawyer, formerly chief of en^eers of the Milwaukee Railroad, was made a
major of the Spruce Production Divisioii, and is building the road which joins the
Milwaukee at Joyce, Wash.
And Maj. Ray's finding is:
True, but of no significance.
That is a very frequent finding that he made in this case, it would
seem by Maj. Kay, who was sent out to investigate Maj. Howe's
charges. He goes on to say:
The Government was building a 3S-mile railroad for war purposes. This load was
designed to haul spruce logs from an undeveloped forest to the main line of the Mil-
waukee Railroad. It was necessary, therefore, to coordinate the construction and
operation of this^road with the policy of the Milwaukee Railroad. Maj.. Sawyer was
assigned to this duty. No claim has been made other than that in this telegram,
now denied, that this was not entirely proper and good judgment.
Maj. Ray sajs '' true, ^' but what of it ?
The part fixmg the location of the road follows in allegation No. 5,
and I quote from Mai. Rajr^s statement, and he is quoting from
Disque's statement. Gen. Disque explains how he located the Gov-
ernment railroad, and says:
We had Mr. Roberts, of the Union Pacific, go over that (the decision as to the moat
feasible route), and Mr. Caliber, who laid out the Canadian Pacific, go over it. and
had Maj. Welch (the S. P. D. chief engineer), and I personally have gone over all the
route up there in Clallam County. The Siems-Carey contract to build ttte railroad
was closed in Washington wiUi the provision that the exact route would be determined
by me before they began operations, because in Washington Mr. Byron, president
of the Milwaukee, put a doubt into my mind as to the advisability of going ahead
the way we had planed before we went to Washington, and we left it open and came
out here again and went over those lines and then had a meeting in Seattle, attended
by Mr. Erling, of the Milwaukee, and his chief engineer, Mr. Roberts, chief engines*
of the Union Pacific; Mr. Caliber, who had located the Canadian Pacific; another
man who was superintendent of the Milwaukee, Mr. Carey, and myself.
We spent the evening listening to the different alignments, and then I decided to
build it via Lake Pleasant, and that decision was concurred in by everyone present.
Up to this time it will be noticed that the Milwaukee Bailroad, with
Manager Erling, President Byron, and others, are in consultation with
Gen. Disque in the determination of location, and the chief engineer
of the Milwaukee Railroad, Mr. Sawyer, is made a maior in the
Spruce Production Division and is given charge of the worlc.
A logging road, standard gauge, Duilt in Tillamook County, Oreg.,
October, 1917, cost $4,500 per mile for roadbed and less than $10,000
{)er mile, complete, for standard locomotive road to move the largest
ogs that are grown. I will state that that is according to a statement
made by an officer here in Washington, who can be caUed if necessary'.
1 have some of the details, which show that a contract was made In
the months of March down to October, 1917, with the A. F. Coats
Logging Co., of Tillamook Coimty, Oreg. Tiiis contract was for the
buflding of 2i miles of logging road in Tillamook Coimty. The road
was standard gauge, 40-foot roadbed, including 25 culverts, 1 bridge,
2 bulkheads, one 450 feet long and one 250 feet long, all graded ready
for rails. This road was built as a logging road for permanent use
and for use of standard locomotives.
The cost of the road was $9,900 for 2 J miles, or slightly over $4,243
per mile. The rails were 45 and 55 pound rails, that cost $39 a ton.
Dought of the Northern Pacific. It is estimated that the road coula
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AVIATION. 93
liave been completed at that time — October, 1917— imder $10,000 per
mile, and this was sufficient to move the largest logs that could be
sawed.
Mr. Lea. What is that report?
Mr. Frear. That is a statement made to me by an officer in this
tsitv and is the estimate of the man who had the contract and actually
did build this railroad.
Mr. Lea. I do not think they could grade a railroad as cheaply as
lie states. I think it impossible.
Mr. Fbeab. That is what he said, and I can bring him as a witness
if necessary. That is $9,900 for a 40-foot railroad roadbed in Tilla-
mook County, Oreg.
Now, this Government raUroad that we are considering reached an
elevation ^oing over the moimtains of 1,100 feet from a point of 350
feet elevation, and it is a very abrupt rise and returns to an elevation
of less than 400 feet near the coast — a very unusuiJ chmb, going
right over and through the mountains at that point [indicating on
map]. I am now showing you an elevation map that is included in
the book on spruce production. It gives the elevation for every mile
of this Government railway built for logging spruce.
Two tunnels were built along this new 38-mile railroad, according
to the description contained in the spruce book.
In his findmg as to the charges filed by Maj. Howes, of the Intelli-
fince Bureau of the War Department, that this road, according to
erbaugh, has cost about $12,000,000 and taps no spruce untu it
travels 40 miles, which brings it into the holding of Lace^ and the
Milwaukee Land Co., Maj. Kay says that this is substantially true,
but of no significance. He continues:
This statement of cost, according to Lieut. Kerrigan, is based upon a statement
made by Mr. Kerbaugh to a manager of the Washington Hotel, Seattle. The road
actually cost about $3,800,000. The same contractor, however, spent at least
^,500,000 more in other Government operations in the same county. Had the work
gone on, they probably would have spent more than $25,000,000. However, the
statement has no significance.
That is, no significance to him. Here is a raUroad that up to the
present time has cost at least $100,000 a mile for the 38 miles built,
lor a logging road, that was planned in a meeting at which Mr.
Earling, manager, the Milwaukee's president, and others were pres-
ent, bmlt by the chief engineer of tne Milwaukee road, Mr. Sawyer,
who was made a major for the purpose. If that be true, it costs this
railway, built by the Government, ten times as much as a logging
road that could be built if it were necessary, which is very doubtful.
To dimb the mountains, of course, was an expensive task. The road
has been built as a modern, up-to-date road that can be turned over
to the Milwaukee alone, of all railways. It would be of no special
value to any individual, because it is useful only for the purpose of
bringing out timber or logs, excepting to some railway company that
wants to use it for permanent purposes in connection witn its own
system, and that is the finding of Maj. Ray.
Secretary Bakeb. I gather, Mr. Frear, from what you have been
saying that you feel there is a possibihty that the selection of this
road and the location of this road and the form of construction that
was adopted looked to the Milwaukee as the ultimate purchaser of
the road when the Government was through with it ?
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94 WAB EXFENDIT UKES.
Mr. Freab. I want to present the matter a little further and see if
that is not the only construction that can be placed upon it.
Secretary Baker. This road has been advertised for sale on the 2d
of September, and I think something ought to be done there to insure
that the Government shall get the value of the property if. the Mil-
waukee does buy it, or that no original covenant is allowed to be
carried out by the sacrifice of this property to the Milwaukee road.
Mr. Frear. That is a thought that I nad m mind, to show that the
Government was paying a price so excessive, so far beyond any ordi-
nary necessity, for this road, that it certainly calls for an investiga-
tion beyond what Maj. Ray carried on.
Secretary Baker. That may well be, but does not this seem true ?
If the Government was buildmg a road and the road was to be very
useful to the United States it would be very much better to biuld a
road which would ultimately be sold for tne extension of a trans-
continental route than to build a road which would have to be
scrapped when we got through with it ?
Mr. Frear. That would be the construction if yom* judraient is
that a $100,000 road would be the kind of road to put uiere for
logging pm-poses.
^cretary Baker. I am not expressing a judgment on that question.
Mr. Frear. The (question is simple enough. It was proper to build
a road identical with the roads we were building elsewhere for the
transportation of spruce. You would not build that kind of a road,
honestly accepting as a standard roads that were built at other points
for logging purposes. They are simply small roads, logging roads,
for the piu'pose of bringing out the spruce.
Secretary Baker. I am without any knowledge of the physical
facts out* there, but this seems to me to be true. If you conceae the
propriety of building a road into that section you havQ a c^uestion of
sound judgment to be honestly exercised as to whether it is better
to build a cheap railroad, which will have to be scrapped when you
get through, or build a different style of railroad whicn could be sold
to a prospective and apparently waiting customer at a fair price.
Mr. Frear. Let me suggest two points in which you may be in
error, Mr. Secretary, where we may have a difference of opinion.
There would be no scrapping of a logging road that would be put in
to tap 3,000,000,000 feet of timber, of which about 10 per cent is
spruce, because other timber outside of spruce could be reached and
logged. Any company could buy that railroad, imdoubtedly, and
make use of it
Secretary Baker. And use it purely as a logging road ?
Mr. Frear. And use it purely as a logging road. But there is
only one road in existence that can use it for its transcontinental
route, and that is the Milwaukee Road.
Secretary Baker. Obviously you have a case in which very sound
judgment was required to bo exercised. Whether it was or not I do
not know.
Mr. Frear. I wish to go a little further with this, if I may. The
Milwaukee Road will eventually tap 3,000,000,000 feet of timber in
the neighborhood of its new terminal, which, of course, would ^ake
the Milwaukee Road and Milwaukee Land Co.*s timber of largely
increased value. If it is the only purchaser of a $100,000-a-mifo
road, of com^e the Milwaukee can put its o\vn price on it and get
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AVIATION. 95
it down to the competitive figures that would be bid by a small
logger. That is the only competition that we have to look for. In
other awards the Milwaukee is sure to get it, imless it pretends to
stand back or deals through third parties.
The Milwaukee mileage value throughout its entire system in 1917,
according to the Milwaukee jearly statement furnished me by the
Interstate Commerce Commission, was $60,870 a mile. That in-
cludes aU of its system, its tunnels; it includes all of its rights of way
in all the States from Chicago west clear to Seattle. It includes, 1
understand, acquiring of its expensive terminals and buying of
equipment, some of which was very expensive, and then reaches a
little over $60,000 a mile. Here is a road built by the Government
for logging, with practically no equipment, which cost $3,800,000 for
38 nmes of road that was built according to Ray's own finding.
And, as stated by Maj. Ray in response to allegation No. 10:
No one denies that the opening up of this new lumber territory will eventually
bring more buflineBB to the railroad. Further, the natural buyer for the Clallam
County Railroad in question is the Milwaukee Railroad. The buyer of this property
will undoubtedly buy it at 50 per cent or less of the cost to the Government, due to
high cost of materials and labor during the war.
That is the situation, and probably it will not bring 20 per cent of
its real cost, and it is evident beyond question, so far as can be ascer-
tained, that the Milwaukee Railroad is the sole beneficiary of this
Government railroad as it has been constructed. In the &st place
we face this proposition at the outset before we make any investiga-
tion, apparently authoritative information has reached the spruce
production division as well as the committee in one form or another,
that it was unnecessary to build any railroads, that loggers could
have provided the timber and were fully equipped to do it with the
47 mills they had.
Secretary Baker. That, of course, is a separate question.
Mr. Frear.. That is a separate question; that was a matter of
policy.
The responsible Government oflicers determined that the railroad
should be built. They built it with the aid of Manager Earling's
judgment and the Milwaukee Road's president and by Mr. Sawyer,
who was the Milwaukee railway^s chief engineer. It was built at a
cost substantially ten times what a railroad was built fqr by private
parties in 1917, which of course was during the war period.
Secretary Baker. But in another place and imder entirely different
physical conditions.
Mr. Fbeab. Tillamook is, of course, nearer the coast, and, as I
pointed out, Clallam Bay would have been a very convenient point
to have reached if spruce had been a consideration. There may be
other things brought in, which I do not care to discuss at this time,
showing \raere this road was given assistance and equipment to put
it through at that particular place, not to reach spruce until they had
gotten to the destination 40 miles away, as they state here. It is a
matter for inquiry at least before any disposition of the road should
be made. Of course it is water over the wheel; it has passed; con-
tracts have been made, the road has been built; payments have been
made, I assume, and now the question is what the Government can
get out of it. Possibly we can not get anything out of it except what
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96 WAB EXPENDITUKES.
the MUwaukee Railroad is willing to give, but that is the situation