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For almost 140 years, political opponents and commentators have
vilified land grants made to railroads. No one is going to change
anyone's mind after all these years. But, as collectors, maybe you
might like to know what all the shouting was about.
The first large land grants came about with the
Pacific Railroad Act of 1862
As best I can tell, the first major railroad land grants
came about with the 1862 legislation that enabled the transcontinental
railroad. At that time, the Union Pacific and Central Pacific railroads
were granted 400-foot right-of-ways plus ten square miles of land
for every mile of track built.
(Large land grants had been promoted for the Illinois Central back
in the 1850s. And small land grants were offered in Ohio and Wisconsin
in the late 1850s. The earliest land grant bonds in the database
date from 1859. By comparison, while those grants were immensely
helpful, they were small in scope, and nothing like the millions
of acres that were going to be given away for the transcontinental
railroad.)
On the surface, ten square miles seems like a LOT of land for the
government to give away. And it was. But we first need to consider
how that land was parceled. And that the land was NOT contiguous.
So let's back up ever so slightly.
The Township and Range
system of land survey
After Jefferson's administration bought the Northwest Territories
from France, the U.S. instituted a system of land surveying still
used in most of the US today. (The original colonies, parts of Appalachia,
and Texas are notable exceptions.)
Those surveys divided land into square sections of land,
one mile on a side. The sections were then grouped into square townships
of 36 square miles. Within each township, sections are numbered
in a precise and predictable manner from 1 to 36.
(It is beyond the scope of this discussion to explain the system,
but townships are numbered in specific manners, called townships
and ranges. That allows surveyors, taxing agencies, and anyone
with specific knowledge to find a particular section of land within
any state in a matter of minutes.)
Imagine a checkerboard, six squares on a side, with each square
being one mile long and one mile wide. Now imagine that you numbered
the black squares with even numbers (2, 4, 6...) and the red squares
with odd numbers (1, 3, 5...). That is how townships work in real
life. Next, imagine townships lined up edge-to-edge, from the Ohio
River Valley to the Pacific Ocean, and from the Mexican border to
the Canadian border. You now have a rough idea of how the United
States is surveyed.
How do you get "ten square miles of land"
for every mile of track?
The final step in understanding a land grant is to imagine a rail
line snaking across the checkerboard in some twisting manner. If
you draw two similar lines, parallel to the railroad, but ten miles
to the left and ten miles to the right, you have the outline of
a land grant created by the 1862 law.
The railroads were given the odd-numbered sections on each side
of the railroad right-of-way. Therefore, the companies would get
five square miles of land on each side of the track. And, of course,
the federal government would retain most of the rest. (Actually,
one to two square miles of land were granted to the states on the
next day, which formed the basis of financing for the state colleges.)
Additional concessions and requirements
Theoretically, the Union Pacific and the Central Pacific would
sell the land to help pay for the construction of the rail line.
But, obviously, no one wanted to buy any of that land until
after the rail lines were constructed. Moreover, there were severe
problems with Indians. And even more problematically, tremendously
huge areas of land were located in barren and "worthless"
parts of Wyoming, Utah, and Nevada where it was virtually impossible
to grow or ranch anything.
To further help with construction, the companies were loaned 30-year
government bonds that the companies were required to repay with
interest. The government set up a scheme where the companies would
be loaned $16,000 per mile for construction across flat land, $32,000
per mile for hilly terrain, and $48,000 per mile for mountain construction.
But...the railroads could not build any curves sharper than 10
degrees, nor steeper than 116 feet per mile. Additionally, the line
had to be built with American steel which was a serious hardship
for the Central Pacific. Finally, the whole line between Omaha and
Sacramento had to be completed within fourteen years or the land,
and all the track, tunneling, and labor would be forfeited!
Oh, yes. One other thing. The government was only giving the companies
the rights to use the surface of the land. Not the minerals underneath.
Still, the risks were too high.
Rail historians know that both the Central Pacific and the Union
Pacific were controlled by only a handful of stockholders. While
that eventually worked out great for those few people, it was not
for their lack of trying to sell company stock.
The truth is, it was virtually impossible for the companies to
sell any stock except to themselves. As critical as the transcontinental
railroad was to the country, typical investors considered the project
far too risky. They considered problems of construction as insurmountable,
or nearly so. The considered that hostile Indians would never allow
settlement. They never thought the intermountain West would ever
produce anything other than gold and silver. And they considered
the donated land as worthless. Had there been property taxes at
the time, they probably would have considered the land grants as
liabilities.
Another problem was that the government required the companies
to use their railroad and lands as collateral for the government
bond loans. In effect, the government held the first mortgage on
all the transcontinental railroad. And that, in turn, made it impossible
for the railroads to sell any of their own bonds like railroads
elsewhere in the US
The Pacific Railroad Act of 1864
It quickly became apparent that parts of the 1862 law needed reworking.
And because the railroad was so absolutely critical to the United
States, Congress revised the law in the middle of the Civil War.
The Act of 1864 revised several problematic issues, the land grants
among them. The 1864 act enlarged land grants from ten to twenty
miles of alternating sections on either side of the tracks. Next,
it granted full rights to all the minerals underneath all that land.
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| Example of land grant ownership in a "checkerboard"
pattern. This shows a portion of the original Union Pacific
land grant, just north of Laramie, Wyoming. It is quite typical
of other railroad land grants. The small squares are one-square
mile "sections." The rail line appears slightly off-center,
because the modern track alignment was improved over the original.
By the time this map was made in the late 1970s, almost all
the surface had been sold to ranchers. The red color showed
that the company only owned mineral rights. Since that time,
most of the mineral rights have also been sold. |
While the land grants ultimately became quite important by the
dawn of the 20th century, we must still remember the perception
of that land in the 1860s was not very good. With the exception
of land near Omaha, Sacramento, and Ogden, the land grants held
very little value.
More important was the fact that the 1864 act was changed to allow
the companies to sell bonds in amounts equal to the government loans.
In effect, this moved the government from its first mortgage position.
Given the risky nature of the railroads, the most important provision
of the new act was one that allowed the companies to collect government
loans much more quickly. Previously, the companies could only collect
government bonds after each 40-mile section of road was fully completed
and inspected. The new law said they could collect twice as fast.
And, in mountainous terrain, the companies could collect two-thirds
of their loans after the grading had been finished. (At the time,
the Central Pacific was spending well over $100,000 per mile on
the grading alone!)
The ultimate value of the land grants
Let's not get confused about the "value" of the land
grants. Over time, parts of most of the land grants became
immensely valuable. As western Nebraska was settled, and as the
Sierras were developed, both the UP and the CP benefited enormously
from selling their land grants. And the Union Pacific benefited
dramatically from the huge coal reserves it acquired in Wyoming.
Until dieselization in the mid-1950s, it mined large tonnages of
coal for use in its own steam engines.
That is not to say that the Northern Pacific, the Southern Pacific,
and the Santa Fe did not also benefit from their own subsequent
land grants. While some of those companies may disagree, I suggest
that many of their greatest rewards did not actually appear until
the energy boom of the 1980s. But still, if you adjust those windfall
profits back in time a hundred years or so, the real value of
the land grants was not all that great except in very special locations.
So how to get money for the land grants before
they were worth anything?
Obviously, the US government planned for the railroads to raise
money by selling their land grants. And don't forget that as the
railroads sold their land grants, the intermixed federal land became
equally valuable.
In good farming, ranching, and timbering country, it was easy to
sell sections from land grants. But out in the middle of deserts,
or out in the middle of the upper Great Plains, selling land was
hard. So hard that substantial amounts of land from those original
land grants remain unsold today.
To get money from their lands, railroads turned instead to borrowing.
Their rail lines were already mortgaged. Why not mortgage their
land grants?
Thus originated the "land grant" bonds that collectors
see today. The idea was to borrow money and to secure the loans
with the land grants as collateral.
Currently, there are 46 distinct varieties of land grant bonds
known, spread among 26 companies. If you are interested in collecting
such bonds, check out these companies. While most of these companies
operated west of the Mississippi, note how many land grant bonds
are known from Florida companies.
| ATL-744 |
Atlantic & Pacific Railroad Co Central Division |
| AUG-720 |
Augusta Tallahassee & Gulf Railroad Co |
| CAI-353 |
Cairo & Fulton Rail Road Co of Arkansas |
| CHI-440 |
Chicago Milwaukee & St Paul Railway Co |
| CHI-547 |
Chicago Portage & Superior Railway Co |
| CIN-655 |
Cincinnati Portsmouth & Ohio Rail Road Co |
| FLI-430 |
The Flint & Pere Marquette Railway Co |
| FLI-431 |
(The) Flint & Pere Marquette Railway Co |
| FLO-410 |
(The) Florida Central & Peninsular Railroad Co |
| HOU-924 |
The Houston & Texas Central Railway Co Waco &
North Western Division |
| KAN-855 |
Kansas & Gulf Short Line Railroad Co |
| LAK-769 |
Lake Superior Ship Canal Railroad & Iron Co |
| NEW-321 |
New Orleans Baton Rouge & Vicksburg Rail Road
Co |
| NEW-385 |
New Orleans Pacific Railway Co |
| NOR-787 |
(The) Northern Pacific Railroad Co |
| NOR-790 |
Northern Pacific Railway Co |
| OHI-925 |
The Ohio Valley Rail Road Co |
| ORE-412 |
Oregon Pacific Railroad Co |
| PEN-891 |
Pensacola & Atlantic Railroad Co |
| SIL-650 |
The Silver Springs Ocala & Gulf Railroad Co |
| STC-933 |
St Croix & Lake Superior Rail Road Co |
| STJ-519 |
St Joseph & Denver City Rail Road Co |
| STL-435 |
St Louis Iron Mountain & Southern Railway Co |
| TEX-804 |
The Texas & St Louis Railway Co in Texas |
| UNI-286a |
Union Pacific Railroad Co |
For a deeper understanding...
To
understand more about the origin of the land grant system within
the backdrop of the transcontinental railroad, please read
Stephen Ambrose's excellent book:
Nothing Like it in the World: The men who built the transcontinental
railroad, 1863-1869.
This is a wonderfully written book that I recommend to anyone interested
in this fascinating period of American history, even if your specialty
lies elsewhere. The perspective is insightful, and the book is so
exciting that you will find it hard to put down.
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