Part 2

Between the 31st day of July of that year, when the commission submitted its first report, and the 14th of February, when it submitted its final report, it issued twelve reports. That which follows gives a summary of the facts developed by the investigation which confirm in every detail the charges made in the Governor's message, besides adding very much to the total amount of confirming testimony. The reason for this confirmation being so complete was that the Governor, almost immediately after his election, employed privately, and at his own expense, an engineer in whose professional training and experience he could place entire confidence, the late Mr. Elkanah Sweet, to make an investigation of the recent canal work, gave him authority to take down any portion of the work to ascertain how far and in what way it was not in conformity with the contract, and gave him also authority to inspect all the canal contracts in the archives of the Canal Board and compare them with his observations. Upon his report the facts presented in the Governor's canal message were based. Mr. Sweet, therefore, was naturally employed by the Governor's commission to make the yet more thorough and elaborate investigation required of them.

The Governor's canal message, with this incontestable confirmation of all its allegations, gave him a national fame, and contributed more than anything he had previously done to make his nomination to the Presidency a political necessity for the Democratic party.

Several previous efforts to investigate frauds in the operation of the State canals had been made by the Legislature, but all had theretofore proved abortive. One reason which contributed largely to prevent the investigation of the Governor's commission sharing the same fate was the exclusion of reporters from the meetings of the board during the examination of witnesses. By this means nothing of its work was given to the public until the testimony was digested into an intelligible report of what had been proved. The testimony was necessarily so largely technical that if given to the press day by day, as received, the public would have soon tired of the subject, and, what was worse, the witnesses would have been tempted to shape their testimony rather to its effects upon the newspaper public than upon the commissioners. The consequence was that when the reports appeared they were read, and their impact upon the public was proportionately prompt, instructive, and penetrating.

_CANAL INVESTIGATING COMMISSION_

FIRST REPORT TO THE GOVERNOR[3]

"_To his Excellency the Governor, and to the Honorable the Legislature of the State of New York_:

"The undersigned commissioners, appointed by the Governor, with the advice and consent of the Senate, under a concurrent resolution of the Legislature adopted on the 31st day of March last, 'to investigate the affairs of the canals of the States, and especially the matters embraced in the special message of the Governor, communicated to the Legislature on the 19th day of March, 1875,' have the honor to submit the following report of the progress of their investigations:

[3] The previous reports of which this is a synopsis were made to the Legislature.

"Your commissioners, assembled at the capitol, qualified and organized on the 12th day of April, 1875. The interval between that time and the opening of the canals, a period of about six weeks, was devoted exclusively to an examination of the most important works in progress, or recently completed in the prism of the canals. When this examination was interrupted by the introduction of water, near the end of May, your commission returned to the capitol and proceeded to supplement and enlarge the area of their information by the examination of witnesses.

"In this work they were unexpectedly embarrassed by a decision of one of the judges of this district, at Special Term, denying to them a power, which they supposed to have been conferred upon them by the legislative authorities, to require the production before them of the books and papers of witnesses. They directed an appeal to be taken from this decision, and it was finally reversed at the General Term, but not until late in the month of November, till when your commission was obliged to contend with all the inconveniences resulting from the privation of such a necessary and indispensable prerogative. The opinion of Justice Learned at the Special Term, and that of Justice James at the General Term, are annexed to this report.

"On the 31st of July the commission submitted their first annual report to the Governor. It relates to a contract for substituting slope and vertical for bench wall between Port Schuyler and the lower Mohawk aqueduct. This report was followed at intervals by eleven others, entitled, respectively, as follows:

"Second report.--H. D. Denison's contract east of the city of Utica.

"Third report.--Hulser's bridge contract.

"Fourth report.--Willard Johnson's lower side cut lock contract at West Troy.

"Fifth report.--Buffalo contracts and legislative awards.

"Sixth report.--Champlain enlargement; Bullard's bend contract.

"Seventh report.--Buffalo contracts and State officers.

"Eighth report.--The Baxter award.

"Ninth report.--Contract of E. W. Williams for building vertical wall at Rome.

"Tenth report.--Flagler & Reilley's pending contract at Fort Plain.

"Eleventh report.--Jordan level contracts.

"Twelfth report.--The auditor's traffic in canal certificates.

"A copy of these several reports, together with the testimony taken before the commission, covering together 2927 pages, are submitted with this report.

"Several other reports are in course of preparation. One on the Glen's Fall feeder, a second on the Canal Appraiser's ice awards at Rochester in 187_, and a third on the W. C. Stevens contract assigned to Denison, Belden & Co., for dredging the Albany basin, dated December 31, 1866, will be submitted at an early day.

"Though we have given this investigation our most unremitting and exclusive attention, we not only have not exhausted the subject, but there are many matters falling within the range of our inquiry which we have only been able to touch incidentally. Among these we regret that the subjects of 'ordinary repairs,' the lateral canals, and the present system of appraising canal damages are included.

"As we have been able to examine only a limited portion of the work done on the canals since 1868, of course we have found it impossible to extend our inquiries beyond that year, though we have abundant evidence that the mismanagement of the canals dates from a much earlier period. But the results of our investigation--incomplete as any investigation made in so short a time must necessarily have been--will, we think, suffice to indicate with tolerable distinctness what have been the more mischievous errors in the management of our canals, and some of their more obvious correctives.

"We propose to-day to submit to you such of the conclusions as we have reached, with all the testimony we have taken, reserving for a later day some further recommendations which are under consideration.

"Introductory to such conclusions as we are now prepared to submit to you, it is proper that we first invite your attention to the character of our canal property as an investment, and show precisely how it stands upon the books of the State.

The total revenues from our system of canals at the close of the last fiscal year, including gains resulting from the management of the sinking fund, amounted to $138,507,129.91

Total payments for canal purposes up to same period, including construction 167,003,357.91 -------------- Excess of cost over earnings $28,496,228.00

"This sum of $28,000,000 and upwards represents the premium which the people of this State have paid in taxes during the last fifty-odd years to secure and encourage the use of these waterways for purposes of transportation, the equivalent of an annual subsidy of over $560,000.

The tolls received from all the canals during the fiscal year ending September 30, 1875, amounted to $1,902,990.64

There were expended for repairs and maintenance during the same period $2,247,297.01

Damages during the same period 305,796.68 ---------- 2,553,093.69 ------------ Balance against the State $650,103.05

"If to this be added the interest on the canal debt, the cost of collection, and the difference between miscellaneous expenses and receipts, as set forth in detail in Exhibit B, the loss to the State from the canals during the last fiscal year will be found to amount to the enormous sum of $1,412,470.79.

"The cost of repairs and maintenance is so obviously out of all proportion with the necessities of a system of completed structures like our canals, which have little that is complicated or perishable about them, that we are forced to seek the explanation of it in their administration.

"Our investigation was not long in revealing the fact that the canals have not been managed upon the principles which would govern any man in the administration of his private estate. The interests of the public have been systematically disregarded. The precautions with which the Legislature has attempted to defend this property from peculation and fraud, and secure for it faithful and efficient service, have been deliberately and persistently disregarded; while the responsibility of its agents has been so divided and distributed as to leave the State comparatively remediless and at the mercy of the predatory classes, who have been, if they do not continue to be, a formidable political power.

"The more conspicuous evidences of mismanagement which our investigation has disclosed may be divided into three categories:

"_First_, as to the modes of letting contracts.

"_Second_, as to the modes of measuring and estimating work to the contractors.

"_Third_, as to the facilities for procuring legislative relief.

"_First_, as to the mode of letting the contracts:

"It seems to have been the practice for years to let contracts upon conditions which exclude honest contractors and confine this business, at least as to what are termed 'extraordinary repairs,' almost exclusively to large capitalists. The large deposits required from contractors discouraged bidders with small means, while the encouragement offered to unbalanced bidding, by a neglect to enforce the faithful performance of the provisions of the contract, have a tendency to exclude all who bid fair prices, with the honest intention of giving the State fair work for them. Till since the commencement of this investigation we do not know of a single instance in which any forfeiture of his deposit had been enforced against any contractor; while we believe we do no one any injustice in saying that no contract has been let since 1868 the provisions of which have been properly complied with.

"There has been a corresponding disregard of all the provisions of law regulating the letting of the contracts. The law wisely required a preliminary survey, with maps, specifications, and estimates to be made by the division engineer, approved by the State Engineer and by the Canal Board, before a contract could be let. The purpose of these precautions was to ascertain the amount and probable cost of the work as a means of determining the relative merits of the respective bids, and to serve as a protection against false or erroneous estimates of engineers. These precautions have been almost universally neglected. The result has been that the amount of work and materials required in the actual construction varied so widely from the quantities let that in nearly every instance the person receiving the contract proved in the end to have been the highest instead of the lowest bidder;[4] and we cannot resist the conclusion that these precautions in many instances were neglected with the intent to afford greater facilities for defrauding the State. These evils have been greatly aggravated by the frequent changes of the engineers on the canals and the loss of knowledge as to work done, which the removed engineers carried away with them.

[4] A striking illustration of this may be found in the first report of this commission to the Governor, on the Port Schuyler and lower Mohawk aqueduct contract.

"_Second_, as to the mode of measuring and estimating work to the contractors:

"This responsible duty, involving, as it should, a perfect familiarity with the terms of the contract and with the character of the work in progress, has been devolved, not by law, but in practice, entirely upon assistants who are not sworn; who, but in few instances, have been found to possess a competent knowledge of engineering; and who, in most cases, appear to owe their positions, and therefore to have been in a greater or less degree dependent upon the political favor and influence of the contracting class. It will be hardly a matter of surprise, therefore, that in not more than a single instance that has come under our scrutiny have we found the work faithfully measured, or a single contract closed, under which the contractor has not received more than he was entitled to.

"Under these influences, operating in favor of the contractor and to the prejudice of the State, a system of fraudulent estimates and measurements has become so established that though in direct and flagrant violation of the very language of the contract, it is deliberately defended by those who profit by it, on the ground that it has been sanctioned by long usage. For example: it has been a practice of the engineers to allow the contractor for excavating behind vertical wall, on a slope of one to one, without regard to the necessity for such excavation, and whether the excavation was made or not.

"As nearly all vertical wall is constructed in the winter or early spring, and when the banks are frozen, the cut is usually vertical or nearly so, and any charge for such excavation is a fraud upon the State. The contracts also uniformly provide that the contractor shall be allowed nothing for the filling in of the place supposed to be excavated behind the walls, if such filling is from earth already paid for as excavation, unless he is obliged to draw his material more than 200 feet on the line of the canal. This provision has also come to be treated as obsolete, and the State seems to have been uniformly charged not only for excavation which had not been made, but for filling up the assumed excavation which, had it been made, the State was not bound to pay for. The profits derived in this indirect way through the fraudulent connivance of the agents of the State, has led to an enormous expenditure for works wholly unnecessary, and which to keep in repair must continue to subject the State to a very considerable yearly expense.

"One of the principal expenditures upon the canals since 1868 for extraordinary repairs has been made in the construction of vertical and slope walls which have been, as we think, very unwisely substituted for the old walls, the capacity of the canals before their removal having been ample for all their business.

"Between the 1st of January, 1868, and the 1st of July, 1875, there have been built forty-three and one-third miles, linear measure, of vertical wall, at a total cost, including the removal of bench walls which they displaced, of $1,589,885, the cost per linear foot averaging $6.95.

"These walls, besides costing four or five times as much as the slope walls, are less durable, much more expensive to keep in repair, and possess no substantial advantage except in large towns, the commerce of which requires special facilities for docking. But of the forty-three and one-third miles built since 1868, it cannot be pretended that so many as three were needed to meet such exigencies.

"Without stopping at present to inquire if the business of the canal justified the removal of the old bench walls at all, it is very certain that a good slope wall would have been preferable throughout nine-tenths, at least, of the entire extent upon which vertical wall has been constructed; and, at the rate paid for slope wall during this period, would have resulted in an economy to the State of not less than $1,300,000, or nearly $200,000 a year.

"An important item in the cost of this vertical wall was made up of the fictitious estimates to which we have already alluded. Assuming that the State was uniformly charged with fictitious excavation and embankment along the entire length of this vertical wall--and we have no satisfactory proof that a single rod of it was entitled to be excepted--the loss to the State from this source alone cannot be estimated at less than $230,000.

"We have found all the other more important provisions of these contracts as uniformly disregarded. We have torn down and carefully examined the work under more than forty contracts; and we cannot name one in which the work comes up, even approximately, to the specifications. The contracts define with great precision the size and character of the stone to be used, the mode of their disposition, the thickness and other dimensions of the wall, the character of the cement and sand, the quality of lining, and what else is needed to insure durability and a capacity to resist the shocks from loaded boats to which the walls of canals are constantly subjected. In no one of the forty-odd contracts that we examined did we find the stone either in size or disposition; the dimensions of the wall; the quality of the sand, lime, cement, and gravel, to correspond with the specifications. The consequences to the State are not only that it has been called upon to pay for a higher class of work than it has received, but that it is exposed to a large annual expenditure to keep these ill-constructed and for the most part worthless walls in repair. It has been a not uncommon circumstance for the superintendent to be called upon to repair the earlier work under a vertical wall contract while other portions of the structure were still in progress. To keep this class of walls in repair promises to be one of the principal sources of expense for the future maintenance of our canals.[5]

[5] See statement of Professors Michie and Wheeler, of the United States Military Academy at West Point, on page 12 of first report of this commission to the Governor.

"Nor is this system of fictitious estimates confined to vertical wall. Since 1868 fifty-three and two-thirds miles of slope wall have been built. By the terms of the contracts these walls should have had an average thickness of at least fifteen inches, measured perpendicularly to the slope. None of the stone composing it should have been less than twelve inches in length at right angles to the face, and the rear of the wall was to rest on a base of clean, hard gravel nine inches thick. The engineers have uniformly estimated these walls at the specified thickness of fifteen inches, while in point of fact we have not found on any of our canals a single stretch of slope wall, constructed since 1868, that would average over ten inches. Of course, the stones are usually smaller than the minimum size required by the specifications, and we did not find a single specimen of the clean, hard gravel lining required by the contract; so that the State has been made to pay, throughout the whole forty-three and two-thirds miles of slope wall, for one-third more of constructed wall than it has received--full prices for a very inferior quality of stone--and for lining the whole work, though not a single yard of the required quality appears to have been ever furnished.

"To confirm our own judgments, and to be sure that we were not applying an erroneous standard to the work done in the prism of the canals, we invited Professors Peter S. Michie and J. B. Wheeler, of the United States Military Academy at West Point, to go over a large proportion of what we had already visited and to give us the benefit of their judgment about it. Their report is annexed, and will be found to accord in all substantial particulars with the opinions we have felt it our duty to express in our previous report to his Excellency the Governor, and in this communication, in reference to all the contract work on the canals that has fallen under our observation.

"_Third_, as to the facilities afforded by the Legislature to contractors for procuring legislative relief:

"These facilities appear to have been grossly and corruptly abused under the discretionary power conferred upon the Canal Board by the Legislature. Numbers of contracts have been cancelled when such portions of the work as were let on terms profitable to the contractor had been executed, while those portions of the work that were let upon terms more advantageous to the State were left unexecuted. In such cases it not unfrequently happened that this remaining work was let to the same parties, under a new contract, at much higher rates. When the Canal Board was found to turn a deaf ear to such appeals, these applications for relief would be addressed directly to the Legislature, where the fear of doing injustice, and the want of the time and familiarity with the subject necessary for investigating its details, often permitted the allowance of awards conceived in fraud and without a single legal or equitable merit.

"An illustration of this class of abuses will be found in the fifth and seventh reports of this commission to the Governor. For one of them--the case of the award for the relief of John Hand--George D. Lord, a member of the Assembly which made the award, is now under indictment, it appearing that the claim made in his behalf was altogether fraudulent and the alleged proofs fictitious. Another award was also made to George D. Lord of $119,000 for alleged losses under contracts with the State for work in Buffalo harbor. This was, to all appearances, as much greater an abuse of legislative credulity, as the amount exceeded that which was realized under the award to John Hand. The limited technical knowledge of canal administration possessed by a large majority of State legislators, and the claims of other important business upon their attention, make it impossible for them to properly scrutinize appeals of this character, which are usually pressed by designing men, perfectly familiar with all the resources for deception which our complicated canal system afforded, prior to the constitutional amendment of 1874.

"In view of the systematic infidelity of the agents of the State which this investigation has disclosed, is it surprising that the expenditures for extraordinary repairs alone on our canals have amounted, since 1867, to $8,444,827.24, or to nearly as much as the whole of our canal debt, less the sinking fund, which on the 30th of September, 1875, was $8,638,314.49? Of these expenditures for extraordinary repairs it is our belief that fully seventy per cent. have been inconsiderate, unwise, and unprofitable to the State.[6]

[6] Cost of extraordinary repairs made since the year 1867, including the year 1875:

Erie and Champlain $6,602,858 60 Oswego 583,555 22 Cayuga and Seneca 163,480 76 Chemung 220,328 34 Crooked Lake 74,145 93 Chenango 255,073 77 Black River 120,410 22 Genesee Valley 369,478 20 Oneida Lake 50,063 60 Baldwinsville 5,432 70 ------------- Total $8,444,827 34