The Situation in San Francisco

By James D. Phelan

San Francisco has almost used up the $180,000,000 insurance money paid after the fire and earthquake in the work of recovery, and the banks of that city have gone about as far as they deem prudent in loaning funds. Now, Eastern capital is being sought, and, it is intimated, with things settling down on the Pacific Coast, no great difficulty is apprehended in obtaining capital as it is needed. A great deal will be required, but the municipality of San Francisco was peculiarly free of debt at the time of the disaster, and has a large borrowing capacity.

Ex-Mayor James D. Phelan of San Francisco has been in this city, looking over the financial field. He sets forth the political and financial position of his city in detail. Asked whether the work of reconstruction had been as rapid as had been expected he replied:

"During the year since the fire the work of reconstruction has been very extensive and rapid, so much so that it has really given rise to the labor troubles which beset us today. You will recall that San Francisco invited mechanics of all kinds to come to the State and help to rebuild. The insurance companies paid $180,000,000 in losses, and money was abundant among the people and in the banks."

"Was any considerable portion of the money paid for insurance used up by the people for the necessities of life?"

"The people, having been cut off from their income, naturally used part of the insurance money for living expenses during the year, and, perhaps, developed some extravagance of living. Others, more thrifty, saved their money, or used it in the reconstruction of their temporary houses.

"But to return: The large army of laborers that came to San Francisco from the interior of the State and outside the State and the abundance of work for them created an artificial condition, and wages and materials advanced. Now that the emergency period is past, an economic readjustment is going on, which has caused the recent friction. The labor leaders in San Francisco, when money became scarce last month, by reason of the extraordinary demand for rebuilding, asked whether the banks had not conspired with a view to lowering wages and reducing prices. That is always a natural suspicion on the part of laboring men, but I have abundant evidence that the scarcity was due to legitimate causes. As in the case of Baltimore and Chicago, it became plain that Eastern capital would have to be enlisted in the work of reconstruction, and in order to interest Eastern capital normal conditions as to wages and material should be restored as speedily as possible. If there is no money, there is no work, and labor will be the first to suffer, because people temporarily housed are not obliged to build, and they will only build permanently when prices are favorable.


"How much of a 'crisis' is this 'crisis' in San Francisco that we are hearing about nowadays?"

"I consider this 'crisis' so far as the labor question is concerned, on the way to permanent settlement, for the reasons above stated. There are probably 10,000 men on strike engaged in the iron trades, the street railway service, the laundries and the telephone. The most serious thing is the tie-up of the street cars, which are now running with non-union platform men at about half capacity, and the result has been that the retail merchants have dismissed many of their employees and put others on half time because the shoppers do not come downtown owing to the street-car tie-up. When the street cars are again running full capacity the retail concerns will re-employ their people.

"The political crisis presents a very interesting situation; but I may say the crisis has been reached and improvement is immediate and inevitable. Mayor Schmitz' administration has completely collapsed. The Labor Union party controlled every branch of the city government since the last election. That corruption was rampant everybody knew, but the mass of the laboring men were loath to believe that their chosen officials were corrupt and were disposed to blame Abraham Ruef. The confession of Ruef and the eighteen members of the board of supervisors revealed conditions which were astonishing even to those who were more or less familiar with what was going on. There was nothing too large or too small for the rapacity of this administration. In the dragnet not only the officials, but those who had corrupt relations with them have been exposed and indicted. The first scheduled trial was that of Ruef when he saved time by pleading guilty and making his confession before the grand jury. The second trial, that of Schmitz, is now in progress.


"The Supervisors are holding their offices by sufferance because, should they be expelled or resign, the Mayor would fill the vacancies and a serious condition would prevail. The supervisors are doing the will of the Grand Jury and the District Attorney, who are suggesting only necessary and routine business. The budget of the city for the forthcoming fiscal year is the principal work in hand, and the citizens are satisfied that these Supervisors, though self-confessed felons, are giving, under the influences of the Grand Jury and the District Attorney, only what the public demands. In a word, graft is eliminated, and if there was any fear about San Francisco before under the domination of the Schmitz administration it may as well now be allayed; that administration is destroyed, and the government is restored to the hands of those who are serving only the public good, though in a unique and irregular manner."

"Who are the nucleus of the reform movement which is pressing the prosecution?"

"In order to collect legal evidence, a few men determined to employ the best and most available means at hand. Fremont Older, editor of The Bulletin, who had consistently opposed the Schmitz administration, having personal knowledge of its peculations; Rudolph Spreckels, president of the First National Bank; Francis J. Heney, distinguished for the prosecution of the Oregon land frauds, and the conviction of Senator Mitchell, all San Franciscans, met to discuss the situation. I also was a party to the conference. Mr. Heney said he could secure the services of William J. Burns, the celebrated civil-service detective, and William J. Langdon, the District Attorney elected on the labor ticket, had previously declared that he was entirely free from the influence of Ruef, and would simply be guided by his conscience and his duty.


"Mr. Spreckels, speaking for himself and for all those who might sympathize with the cause, said he would guarantee $100,000 for expenses. They probably raised $40,000 only of that by voluntary contributions, which were not solicited. Mr. Spreckels is a man of about 36 years of age, who has the confidence of the community, and is regarded as a man who is inspired by the highest sense of duty and who, once having determined his course, as in this case, would never turn back. He has personally attended all court proceedings and has spent more than half his time in the District Attorney's office giving his consideration to the work. His reputation for uncompromising integrity and perseverance has been a tremendous moral force. No malefactor would receive quarter from him and the knowledge of that, I believe, caused Ruef's complete breakdown.

"The popular impression of Ruef was that his knowledge of the law and his wily methods would, together with the influence people for whom he employed his pernicious talents, save him from punishment, and he blandly stated that whatever money he received, if any, was for professional services and that the only relation between him and public service corporations was that of attorney and client.

"The inspiration of the movement against Ruef was entirely patriotic and public spirited without malice. Heney declared in a public speech in November 1905, in opposing the election of Schmitz, that he had sufficient evidence, provided he could secure a grand jury that would listen to him, to convict Ruef of felony. Heney was at once brought before the grand jury that was sitting at the instance of Ruef, and knowing its doubtful character and not having his legal evidence in shape, he declined to testify, when Ruef publicly denounced and derided him. Heney bided his time, gathered legal evidence and, when another grand jury was impaneled, was ready to make good his statement. The grand jury happened to be of a high class, and, unterrified by Ruef, did its whole duty. The rest of the story is known."


"What about these accusations made by Calhoun against the prosecutors?"

"I have seen two accusations. One was that Mr. Spreckels and myself and others organized a street railway corporation before the fire, and that our object now is to destroy his property in order to profit by it. The other is that Mr. Spreckels has some political purpose to serve. Both of these accusations are unqualifiedly false so far as they import malice or ascribe motive.

"Patrick Calhoun is an exploiter of street railway franchises. He has operated in Cleveland and in Pittsburgh, and came to San Francisco as a stranger to consolidate the street railways there some years ago, and was hospitably received. He capitalized his properties at about $80,000,000, and they could be duplicated for less than $20,000,000. His friends were largely interested in the common stock, and the profits of the traffic were enormous. Not satisfied, however, shortly before the fire he undertook to substitute the overhead trolley for the cable system.

"Mr. Spreckels, who owned property on the streets affected, in common with other citizens, objected to the danger and disfigurement of the trolley, and asked him to give the city's business streets the electric conduit, such as is operated on Broadway here and in Washington and other places, and as in Washington, he could use the trolley in the suburbs by shifting from one system to the other at a certain point. He went, however, rough shod and negotiated with the corrupt administration and had the matter arranged before the fire occurred. With a knowledge of that we organized a street railway company, with $14,500,000 capital, $450,000 paid up, as required by law, and were prepared to ask for a franchise on other streets for the electric conduit system. The fire occurred the day after incorporation and nothing has been done further because the work of reconstruction has claimed all our time and our capital for the time being. He now states that on this account Mr. Spreckels has prosecuted him. As a matter of fact, the persecution was directed against the corrupt administration, and in the dragnet Calhoun has been the principal victim, having paid $200,000 to Ruef, Schmitz and the Supervisors, according to the undoubted facts as developed by the confessions and the tracing of the money. But Mr. Calhoun was not the only party involved. Gentlemen of local and much higher reputation than he also have fallen victims in the telephone, gas and Parkside Railway developments.


"As to the political motive ascribed, there is no truth in it, because Mr. Spreckels has never been in politics, and has no taste for politics, and he and Heney have specifically disavowed any political purpose, and have declared that under no circumstances would they profit politically by the investigations. John D. Spreckels, a brother of Rudolph Spreckels, and proprietor of the San Francisco Call, has political aspirations, but it is common knowledge in San Francisco that there is and has been for more than ten years a complete estrangement between these brothers, although the Call is supporting the graft prosecution as a public benefit. Mr. John D. Spreckels, on account of ill-health, has retired from public life.

"Those who know Rudolph Spreckels, as I do, can say without hesitation that his conduct in this matter has been irreproachable, and that he has been actuated by the purest motives as a citizen who loves justice and hates iniquity, and who wants to do his part in protecting San Francisco against its despoilers. He is man of San Francisco, and has extensive property interests there.

"San Francisco lost $500,000,000 worth of property and recovered $180,000,000 of insurance. Heretofore it has been financially independent. Its savings banks were always able to finance its building, and its commercial banks, to a great extent, its enterprises. The savings banks had aggregate deposits of $160,000,000. They have loaned most of their available funds for the rebuilding of the city, and have made commitments for permanent reconstruction. It is now necessary for the first time to ask Eastern capital to help in the work of rebuilding the metropolis of California. Only a year and a half ago the banks vied with one another in loaning money on inside business properties at rates rarely exceeding 4 1/2 per cent. The cheapness of money kept Eastern capital way, but now rates are 5 and 5 1/2 per cent, with money scarce. I know of my own knowledge of applications having been made to Eastern institutions aggregating about $4,000,000, which have been granted, but San Francisco will require $150,000,000 within the next three years.


"It should be borne in mind that business has not been destroyed, but simply unhoused. The great resources of the State are not only intact, but are being developed with surprising rapidity. The Western Pacific Railroad Company will have constructed its road from Salt Lake to San Francisco by September, 1908, and the money for its construction has been underwritten. It has about 80 per cent of its grading work already done. The Water Power Company is just developing 300,000 horsepower by harnessing mountain streams, a horsepower that exceeds all that is now being used from Niagara. The oil production of the State, which makes a cheap fuel in general use, has reached tremendous proportions. The mining, horticultural and agricultural interests have never been in better condition. The commerce of the Pacific is growing year by year, and the clearings of San Francisco banks and the customs receipts have been undiminished since the fire. The city is there with its great harbor and the State with its matchless resources, so all we ask of the East is capital with which to provide speedily the proper housing of the business of the pace, now in temporary and inadequate quarters, paying insurance rates as high as 10 per cent on valuable stocks, which are practically prohibitive.


"The city has plans, and is now about to invite the purchase of $4,000,000 of bonds for the auxiliary water supply drawing upon the bay by pumping stations and fire tugs, so it will be absolutely secure against fire. The earthquake did no damage whatsoever to steel buildings or to well-constructed brick buildings, and those only of poor construction and built on improper foundations received any material injury. The evidence of this is in the payment of insurance for out of $225,000,000 of insurance $180,000,000 has been paid, and the balance is due from defaulting foreign companies, now being sued in the courts of Germany and Austria. The English companies that defaulted in part have been sued in California, and judgments recovered. They cannot show any material earthquake damage, and all companies are now doing business in California and promise great reductions in rates as soon as the auxiliary fire service is installed, which will be done within a year. The city only had $5,000,000 of bonded debt outstanding or debt of any kind, and it has a capacity of borrowing 15 per cent under the law of its assessed value. The assessed value made last July was $375,000,000, against $500,000,000 of the previous July, and this year the assessor has added $25,000,000 to the roll for new improvements making the total assessment $400,000,000, and giving us a borrowing capacity of $60,000,000. Under the charter the tax rate is limited to 1 per cent of the assessment roll except for park maintenance and interest on sinking fund and bond indebtedness.

"So financially, the city is in a most excellent condition to rehabilitate itself. As Mr. Spreckels said in a public statement, that, whereas Eastern capital might be timid with a corrupt administration and a supine people, now that the people have demonstrated their fitness to overthrow a corrupt government and establish a clean one, confidence, which is the basis of credit, should be the portion of San Francisco. The city of San Francisco is one of national importance, serving the great uses of commerce on the Pacific Ocean, centrally located, and its welfare should enlist the support as well as the sympathies of the country, now that it is suffering from a great disaster. Its loyal people are standing by it, and will restore it for the great uses for which it was apparently designed by nature.


"In this connection I would like to acknowledge the splendid response which was made by the charitable people of the country in answer to the call of real disaster, when 200,000 people were homeless and without food. That money has been wisely used in temporarily housing, clothing and feeding the dependent population. Today the relief corporation is supporting 900 people, while 16,000 are living in the temporary buildings on the public squares. The great relief fund which aggregated about $9,000,000, bridged over the critical period in the history of the city and helped in no small measure to restore the confidence of the people in themselves and in their city. They felt that they were not without friends throughout the country who regarded them as fellow-citizens and gave to them not so much in the spirit of charity as in the spirit of brotherhood.

"It is an old proverb that 'Calamity is nature's true touch-stone,' and perhaps this disaster will be the making of a new San Francisco, greater and better than the old. The pioneers had nothing on which to build, whereas the men of today have an assured, approved and tried foundation in the established commerce and business of the port of San Francisco."

New York Evening Post
June 1, 1907
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