In the above tabular statement the cost between Jacksonville and Tampa is for eleven months only, as the service did not begin with the fiscal year. To maintain this service for the entire year the appropriation should be increased $4,987.53, making a total of $295,987.53, which will be required to maintain the present facilities during the next fiscal year. I recommend the continuance of this appropriation for the next fiscal year, as it enables the Department to secure important facilities in mail transportation not otherwise attainable.

The readjustment of the rates of pay to all railroad companies in States and Territories in which the contract term expired June 30, 1886, and also in other States on new routes and extensions upon which pay had not heretofore been fixed, are set out in detail in the Table H of annual report. The regular readjustment from July 1 last, occurred in the States of Arkansas, Louisiana, Texas, Kansas, Colorado, Nebraska, California, and Oregon, the Indian Territory, and the Territories of Arizona, New Mexico, Washington, Idaho, Montana, Wyoming, Dakota, and Utah. These readjustments have all been completed, and appear in Table H. It is said to be the first instance in the history of the service, under the present law, that all of the regular quadrennial readjustments have been completed in time to appear in the forthcoming annual report, as heretofore the publication of quite a number of adjustments, which were not completed in time, had to be delayed for the report of the succeeding year. The net increase in the above section, in consequence of the readjustment, is $404,672, or 12.91 per cent. In the report of last year this increase was estimated at 12 per cent.

In closing this part of my report I desire to call attention to the importance of the work, performed in the Division of Railway Mail Adjustments. It calculates and adjusts the pay of all the railroad service, involving the largest single item of expenditure of the Department. The work demands constant revision, which often, as in the cases of payments for apartment cars and land-grant roads hereinafter referred to, leads to important results.

MAIL EQUIPMENTS.

Appended hereto is a tabular statement (O) of the number, description, prices, and cost of all mail-bags, mail-catchers, &c., purchased and put into service during the years ended June 30, 1886, and a tabular statement (P) of all mail locks and keys purchased for the service during the same period; also a tabular statement (N) of all contracts for mail equipments in operation on the 30th of June, 1886.

The total cost of mail-bags and mail-catchers, with their appurtenances and repairs, during the year, was $268,138.36, the appropriation being $275,000.

The number of mail-bags of every description put into service during the year was 212,362. Of these 28,350 were locked mail-bags of various kinds and sizes, used for letters and registered mail-matter, and 184,012 were tied mail-bags of various kinds and sizes used chiefly for printed and fourth-class matter.

The total quantity of mail-bags of all kinds purchased during the year, amounted to an increase of 20.9 per cent. compared with the quantity (175,640) purchased during the preceding year. This increase was rendered necessary to take the place of mail-bags worn out and become unsound, both in the domestic and foreign mail service (the increase in the latter service being 26,400 bags, and in the former service 10,322), and to supply the demands of a continually growing service, attended with increased bulk and frequency of mails throughout the country.

The amount expended for mail-catchers was $2,328.

The amount expended for mail locks and keys during the year ended 30th June last, was $19,995, the appropriation being $20,000.

The appropriation of $275,000 for "mail-bags and mail-catchers," and $23,000 for "mail locks and keys," will, it is estimated, be neces sary to provide for the expense which will be required by the service, for those objects, for the fiscal year ended June 30, 1888.

The increased expense of $3,000 over last year for mail locks and keys is anticipated on account of the rapid extension of the through regis tered mail system, which will require for its regularity, expedition, and security increased quantities of the registered or detective mail-locks now used, which are necessarily very much more costly than mail-locks for other purposes.

As authorized by the first section of the act of Congress making appropriation for the service of the Post-Office Department for the fiscal year ended June 30, 1886, approved March 3, 1885, the sum of $500 was paid to A. V. Lunger for the assignment of his patent, No. 209820, dated November 12, 1878, for a clamp for mail-bag cranes, the same having been paid out of the appropriation for mail-bags and mail-catch

ers.

STOCK IN SERVICE.

The total number of mail locks and keys in the service on the 30th of June, 1886:

Number of mail-bags in service on the 30th June, 1886, estimated from the average periods of their duration, and the quantity of new mail-bags put into service during such periods.

The gross amount of fines and deductions from postal contractors and
others during the year ended June 30, 1886, was.....
The amount of remissions on deductions on account of satis-

... $252, 532 75

$16,971 13
4,971 72

Making total remissions of fines and deductions of......

21,942 85

Leaving the net amount of fines and deductions on account of railroad, star, and steamboat service for the fiscal year ended June 30, 1886, of.. 230,589 90 To this are to be added fines imposed and deductions made from the pay of railway mail service employès for failures,

of

And from mail messengers..

$3,872 11
2,316 12

6,188 23

Making total net deductions and fines for the fiscal year ended June 30, 1886, of

236, 778 13

Leaving net amount of deductions and fines for the fiscal year ended June 30, 1866, of.............

$258, 720 98

21, 942 85

236,778 13

DISCONTINUANCE OF PAY FOR APARTMENT-CAR SERVICE.

Soon after assuming the duties of Second Assistant Postmaster-General my attention was called to the fact that the Department was then allowing pay to certain railroads for apartment cars-that is, postal cars less than 40 feet in length-in addition to the compensation prescribed by law for weight of mails carried by them.

An examination of sections 4002, 4003, and 4004, Revised Statutes, led me to the conclusion that such additional allowances were not warranted by law. The question was presented for your consideration, and was, by your direction, submitted to the Assistant Attorney-General for this Department. This officer, in an elaborate opinion, in which he fully reviewed the history of the above sections of the Revised Statutes, held that these allowances for such apartment-car service could not be lawfully made.

In accordance with this opinion, orders were made discontinuing these payments in future. The sums paid to railroad companies on this account amounted to $80,161.73 annually, and from July 1, 1873, the date when the existing law prescribing the compensation for railroad companies went into effect, up to the date of the discontinuance, the aggregate amount paid was $979,959.67. By their discontinuance a reduction has been effected in the annual rate of expenditure for railway post-office cars of $80,161.73. This action taken by the Department led to remonstrance and complaint on the part of some railroads which had been the recipients of this illegal compensation, but a majority of the companies affected by the discontinuance acquiesced in the decision of the Department when it was made known to them that such allowances were unlawful, and, with a single exception have continued to furnish the necessary apartment-car space without specific compensation therefor, as all railroad companies are required to do by section 4002, Revised Statutes. A full and complete tabular statement, showing the amount of the allowances, the railroad companies to which they were paid, and the annual and aggregate amounts, has been prepared, and a copy of this statement, together with my letter to you, and the opinion of the Assistant Attorney-General, is herewith appended.

ADJUSTMENT OF PAY OF LAND-GRANT RAILROADS.

The thirteenth section of the act of July 12, 1876 (19 Statutes at Large, page 82) provides

That all railroad companies whose railroad was constructed in whole or in part by a land grant made by Congress, on the condition that the mails should be transported over their road at such price as Congress should by law direct, shall receive only eighty per cent. of the compensation authorized by this act.

The grants of lands made to a number of important roads, such as the Union Pacific, Central Pacific, Texas Pacific, Sioux City and Pacific, Oregon and California, Burlington and Missouri River (in Nebraska), and others, did not contain the above condition, and consequently the deductions required by the above section of the statute does not and cannot be made to apply to them.

With a view of ascertaining whether any of the railroads subject to this condition in the matter of transportation, ou account of grants of lands, had been omitted from the list of land-grant railroads kept in this Department, an investigation was recently made, and it resulted in the disclosure of the fact that a number of railroads subject to the above condition on account of the grants of lands to them by Congress had been omitted and that these roads had been paid the full rates allowed by law for transportation of mails instead of only eighty per cent. On the discovery of this fact orders were made directing the deductions from the compensation of such roads, to the amounts thus overpaid them covering the entire period from July 1, 1876, or from the time the service was established, to the close of the past fiscal year; also directing that these deductions be made from the payments of these railroads in future. The total deductions amounted to $69,647.91 for the abovenamed period, besides which there was effected a reduction in the annual rate of expenditure in future for railway mail transportation of $12,176.07.

A tabulated statement hereto appended shows the roads and the amounts deducted.

DEDUCTIONS FROM LAND-GRANT ROADS.

The total amount deducted per annum from pay of land-grant roads, as required by the thirteenth section of the act of July 12, 1876, is $396,080.54.

PROPOSED CHANGE IN THE METHOD OF COMPENSATING RAILWAY COMPANIES FOR MAIL SERVICE.

In my last annual report I referred to the fact that I was then, at your suggestion, engaged in the investigation of railway transportation, with the view of ascertaining if some method of compensation therefor could be devised more equitable and economical than the present method. In

prosecuting this inquiry I had the valuable assistance of Mr. W. E. Parsons and of Mr. A. B. Hurt, the superintendent of railway mail adjustments, and the results are embodied in the report which I have the honor herewith to submit.

During the fifty years which have elapsed since the establishment of mail service upon railroads the question of the proper basis of adjusting their compensation has been the subject of anxious consideration on the part of the Department and of frequent action by Congress.

The first piece of legislation on this subject, the act of 1838, adopted a method which was convenient and ready to hand, namely, the then existing basis of payment for mail transportation on post-routes, and by a short cut declared each and every railroad route a post-route, and directed the Postmaster-General to cause the mail to be transported thereon, not paying therefor more than 25 per cent. above what similar transportation would cost in post-coaches. The amount of this pay was, by the act of 1839, limited to $300 per mile. By the act of 1845 the Postmaster-General was directed to arrange the railroad routes into three classes, according to the size of the mails, the speed with which they are conveyed, the importance of the service, and limiting the maximum amount of pay for the first class to $300 per mile, for the second class to $100 per mile, and for the third class to $50 per mile. This left to the Postmaster General, as will be seen, a very large discretion in the matter of adjusting compensation, as it made him, in arranging the three classes of the railroads, the judge of the size, the weight of the mails, and the importance of the service.

In the then condition of the railroad service this was probably as judicious an arrangement as could be devised. While providing the maximum of pay for the three classes, it had the merit of enabling the Postmaster General to graduate the pay according to the service, and to take into consideration all the factors that enter into the problem of railway mail transportation in fixing the compensation of any partic ular road.

In 1873 Congress passed the act which still regulates the compensation of railroads, modified by the acts of 1876 and 1878, authorizing the deductions of 10 and 5 per cent., respectively, from the pay of the companies.

These three acts were coincident with three marked stages in the growth and development of the railroad mail service.

In 1864 the system of distributing the mails in transit through the agency of railway post-office cars had been established. It is not going too far to say that the introduction of this system has wrought a complete revolution in the whole Railway Mail Service.

The method of payment established by the act of 1873 is obnoxious to the objection that it establishes two standards of valuation, one for weight and one for space, and the necessity for its revision soon became apparant. The object desired and to be sought for is one uniform and simple measure of value for the entire service performed. It is conceded alike by the Department, the general agreement of sentiment among the officers of railroad companies, and by all those who have made this matter the subject of study and investigation.

The Senate Committee on Transportation of 1874, the special commission appointed by the President under the act of 1876, known as the Hubbard Commission, and the commission of 1883, composed of officers of this Department, all concur in recommending space as the basis of pay. This general consensus of opinion in favor of fixing space alone as the basis of compensation, instead of the double system now existing of pay