Chapter 12. Contract for Construction of First Subway Awarded

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Fifty Years of Rapid Transit · James Blaine Walker

Chapter XII

Contract For $35,000,000 For Construction of First Subway Awarded To Mcdonald.

IT was on June 8, 1894, that the Board of Rapid Transit Railroad Commissioners created by the act of that year held its first meeting. A period of five years and a half, therefore, had been consumed in the preparatory and preliminary work. The actual work necessary could have been done in a year, but pioneer labors always take more time than similar labors after the pathway has been blazed. For none of the delay can the Rapid Transit Commission be blamed; it was due entirely to legal obstacles and municipal tardiness.

But "all's well that ends well", and both the commission and the public forgot the troubles of the past in the joy of starting the final work which was to bring about the beginning of actual construction. But joy was not unconfined by apprehension lest there might be difficulty in finding a contractor with money enough and courage enough to undertake the work. For be it remembered that underground transportation of passengers was then an untried experiment in New York City. True, London had for some years successfully operated a subterranean road, but the conditions there were vastly different from those in New York, and skeptics were many and vociferous. A bit of encouragement came from Boston, where a subway had been completed and was working well. But here again the cry was that conditions were totally dissimilar and that what might succeed in Boston might fail in New York.

There was a difference of opinion even among engineers and men experienced in the transportation business. Among the former there were some who scouted the idea of a subway underneath the heavily traveled streets of New York, with their tall and costly buildings erected on either side of the route. Nothing could prevent such buildings from settling or falling into the cut, it was claimed. Well known railroad men, including Chauncey M. Depew, were doubtful of the success of the railroad even if constructed. Human beings, they declared, liked the open air and would not readily burrow into the ground unless compelled to do so. Mr. Depew said that the great majority of passengers would avoid the underground road if there were any other way of traveling. We now know that such views were mistaken ones, but at the time they were held by many and voiced to such an extent that a respectable minority of the public questioned the practicability of the project.

As was told in the last chapter, several men eminent in the railroad world had been approached by the board and urged to take a, hand in the work, but all without exception refused. None had faith enough in the project or courage enough in pioneer endeavor to make the venture, entailing as it did an expenditure of millions even though the cost of construction should be defrayed by the municipality. But there were two men in New York, who had the qualities demanded by the crisis-one with nerve and immense financial resources, and the other with nerve and the capital of actual experience in underground construction-namely, August Belmont, a banker and John B. McDonald, a contractor. The public had called for volunteers and they responded. And they were not alone, for Andrew Onderdonk, another experienced contractor, also volunteered, but fortune favored McDonald and he, backed by the Belmont money and influence, undertook the work.

Financier and Builder of First Subway. (1) August Belmont; (2) John B. Mcdonald.

Immediately after the court had reduced the amount of the bond to be required of the contractor, the board prepared an invitation to contractors and published it as required by law. It was inserted in six daily newspapers twice a week for three successive weeks, and the date of opening bids was fixed for January 15, 1900.

During the period of advertising the newspapers were filled with speculations as to the possible bidders, and there were not wanting the pessimists who predicted that there would be no bids at all. When the fifteenth of January came, however, two proposals in the form prescribed by the board were received, one from John B. McDonald and the other from Andrew Onderdonk. Mr. McDonald offered to build the whole road for $35,000,000; Onderdonk for $39,300,000. Onderdonk in addition agreed to pay the city five per cent. on the first million dollars of revenue in excess of $5,000,000 a year and two and a half per cent. on each additional million up to a maximum of 15 per cent. Both bidders agreed to the statutory rental, namely interest on the bonds issued by the city for construction and one per cent. additional for a sinking fund.

The board after referring both bids to a committee and in accordance with the recommendations thereof, decided to award the contract to McDonald. The latter promptly made arrangements with August Belmont for the necessary financial backing. After the decision had been made negotiations were entered into with McDonald and with August Belmont and Company, and it was agreed that the latter should organize a new company to enter into a contract with McDonald to promote the work, to furnish the security to be given by him and to finance the undertaking. This company was incorporated later as the Rapid Transit Subway Construction company.

It was also agreed that the Rapid Transit Commission should apply to the Appellate Division for a further modification of the requirements as to bonds; first to annul the provision as to the construction bond requiring sureties to qualify in double the amount of the liability and to reduce the minimum amount to be taken by each surety from $500,000 to $250,000; second that McDonald should furnish the continuing bond in amount of $1,000.000, with sureties qualifying in double that amount and at the same time deposit with the Controller securities of the value of $1,000,000, which ultimately were to be substituted for the bond for that amount; third, that the Rapid Transit Subway Construction company become surety on McDonald's bond for $4,000,000; fourth, that McDonald deposit $1,000,000 in cash as required by the contract and assign to the city his beneficial interest in the bonds to be required of sub-contractors; fifth, that McDonald cause an additional $1,000,000 to be deposited by January 1, 1901, to be held as additional security for the sureties on the construction bond.

The Appellate Division promptly approved this plan when it was presented, and the board, after approving the various bonds, executed the contract on February 21, 1900, the various deposits of cash and securities being made on the same day.

This contract, now known as Contract No. 1, provided both for construction of the road and its proper equipment and operation under a lease to run for fifty years and to be renewable for twenty-five years on readjustment of the rental. McDonald was both contractor and lessee, but the city through the board was to exercise constant supervision over construction, even to the inspection and approval of materials and work. The contractor was bound to begin construction within thirty days after the execution of the contract and to complete the entire road within four years and a half.

While the city agreed to pay McDonald $35,000,000 for the work, it was obligated also to purchase the real estate required for terminals and stations. The contractor was required to construct such terminals as work aside from that covered by the $35,000,000, and was to be paid therefor cost plus ten per cent. up to a limit of $1,750,000; the city also was to provide land necessary for stations to the extent of $1,000,000, but if the needed property cost more than such amount the excess should be paid by the contractor.

Cars and other equipment were to be provided by the contractor at his own expense, but were to be purchased by the city at the end of the lease at a price to be agreed upon or if not agreed upon to be fixed by arbitration. When the construction work was two-thirds finished the contractor was to begin supplying the equipment, which was to be delivered complete three months before the completion of the road or any part of it ready for operation.

For the lease the contractor bound himself to pay to the city as rental each year an amount equal to the interest paid by the city on its bonds issued for construction, plus one per cent. a year for a sinking fund to retire such bonds at maturity, except that, if the profits from operation fell short of five per cent., payment of the sinking fund for five years would be suspended and reduced to one half of one per cent. for the next five years provided the profits continued to fall below five per cent.

Motive power, it was specified, should be either electricity or compressed air, but if in future any method of generating or transmitting power superior to electricity and involving no injury to the purity of the air in the tunnels or cars shall become practicable, the contractor should have the right to adopt such method, if approved by the board, on two months' notice.

Such in brief were the terms of the contract which gave New York city her first subway. It was an epoch in municipal history, for it embodied the right of the people to build and if need be operate their own transportation lines. In spite of precedent, in spite of prejudice and in spite of the opposition of private interests engaged in transportation, not however without a severe struggle, the people had asserted and maintained this right, and the rapid transit contract of 1900 exercised it for the first time and thereby sealed the doom of private exploitation of city franchises. Credit for the achievement is due to the long line of public spirited men who championed public ownership from the early days of the 1870's, but in the end chiefly to the broad-minded members of the Orr Rapid Transit Commission, who with exceptional courage and a perseverance that knew no flagging kept hammering away at legal and political obstacles until the goal was gained.

The impartial historian would be false to his duty if he neglected to credit August Belmont with the important work he did in assuring the construction of the first subway. He had the broad and penetrating vision which other financiers of that day lacked. He saw the dawning of the day of public ownership, he realized the need of additional rapid transit facilities and he felt that unless some one came to the assistance of the city in this emergency not only would rapid transit relief be delayed but the cause of public ownership would be set back and the existing monopoly of urban transportation would be perpetuated. Mr. Belmont for years had been interested in the subject. 'He had been in the promotion and organization of the Brooklyn elevated railroads, and the limitations of such agencies in crowded streets had impressed him strongly with the desirability of underground railroads. (So when John B. McDonald bid for and obtained the rapid transit contract in January 1900, Belmont was ready to lend a willing ear to his request for financial assistance. Mr. Belmont himself in June, 1914, gave his own view of the situation. The conversation took place in his private office. Mr. Belmont talked for an hour or more, and his expressions in substance were as follows:

"With all due respect to McDonald, Freedman and others, the subway would not have been built if I had not taken hold of the work. McDonald had a contract with the city, but he could not get the money to finance the work. He had verbal assurances from surety companies that he could get the necessary help when he needed it, but after he got the contract this help was not forthcoming.

"Andrew Freedman brought McDonald to me first. I had been interested in rapid transit for many years -- was in the Kings County elevated, and I believed that with electric traction an underground road would pay. I went over the matter with McDonald, and he showed me figures from other contractors, agreeing to build the subway for a price well within the amount he was to get from the city. I then took hold of it and agreed to find the money necessary to carry out the contract.

"McDonald under his contract had to deposit $150,000 with the Controller. I helped him to make that payment. Just how much I paid I do not now remember. Then there was another payment of $1,000,000. I paid that, knowing that I had no legal security to protect me. It was necessary to get an assignment from McDonald, and pending the transfer of the lease and the formation of an operating company, all I had to secure me was a paper signed by McDonald -- I think it was filed with the Controller -- to pay over to me his receipts from the city; and during that time he collected every dollar from the city and turned it over to me. Had he not done so I would have had great difficulty in establishing legally my right to the money.

"Of course, I relied on McDonald's integrity, but if anything had happened to him I would have been in a dangerous position. My lawyers told me I was taking a great risk. Mr. Shepard, then of counsel for the Rapid Transit Commission, and my own lawyer tried to work out a plan which would absolutely protect me, but it could not be done. Finally I told them I would take the risk, and I did. If I had not, the subway would not have been built -- at least not at that time. The result justified my action, and everything came out all right in the end, but I confess I was uneasy for a time.

"Then the matter of getting an operating company caused me considerable annoyance. McDonald had agreed to assign the operating lease to a company to be formed by me, but it was necessary to get a charter for such a company from the Legislature. At that time the old street car interests were all powerful with the Legislature, and when I tried to get a charter I found the door closed. Apparently nothing I could do was able to get that charter through the Legislature. Finally, after trying in every possible way to get action, I resolved to go straight to a man who was all powerful, or at least most influential with the powers that were, and I did. I went to that man, told him just what I was trying to do, what the project meant for New York and how certain influences were trying to prevent me from carrying it out. He promised his help and gave it, and a short time later we got our charter."

This description so well fitted the late Senator Thomas C. Platt, at that time known as the "boss" of the Republican party in New York state, that Mr. Belmont was asked if the man he referred to was Senator Platt.

"I will not say who it was", Mr. Belmont replied,

"as it is immaterial now. But meanwhile I had tried other means. When I found that it would be difficult if not impossible to get a charter from the Legislature, I looked about to see if I could get one ready-made. Every street car company with an operating franchise was owned or controlled by the old traction interests, but after a search I found a little company up in the Bronx which had a perfectly valid charter to operate a street railroad. That was the City Island railroad. It wasn't much of a road, but I bought it and fully intended to operate the subway under its franchise if I couldn't get one of my own."

Mr. Belmont was asked what led him to go into the rapid transit project. He replied:

"I lived on Long Island for many years. As I have said I was interested in the Kings County elevated, and I realized that the elevated roads, while they had served a most useful purpose, must be superseded or supplemented by fast, electric underground roads. And by the way, that Brooklyn extension of the first subway was my idea. I always believed in it. You know what I mean: the original contract, Contract No. 1, ended at the City Hall. The extension down Broadway and under the river to Brooklyn was built under a separate contract. Mr. Bryan, then president of the Interborough company, and others of our people were opposed to it. But I believed in it and insisted that we should bid for it and bid low enough to get it.

"Well, after Contract No. 1 was signed, giving us a lease for fifty years, the Citizens' Union got busy and there was a great agitation for a shorter lease for the Brooklyn extension, Contract No. 2. They wanted it cut down to twenty-five years. I remember very well the hearing on the subject before the Rapid Transit Commission. There were present Mr. Orr, the chairman, Mr. Grout, the Controller, and you will recall the other members. Grout luckily made the suggestion that the new lease be made for thirty-five years. I recall that Mr. Baldwin, president of the Long Island railroad, was sitting beside me. When Grout made that suggestion I saw instantly what a good thing it would be for us to have two leases expiring at different times -- but that's been changed now by the Dual System contracts -- so I leaned over to Baldwin and said: 'That suits me. Now, I'm going to get up and oppose it, and if I do they'll adopt it.' I did. I made a speech opposing the thirty-five year lease and pointing out how much better it would be for the city to have both leases expire at the same time. What I said had the effect I expected, and they adopted the thirty-five year lease.

"The result justified my expectations. The Brooklyn extension has been a most profitable one. And now they're talking a good deal about the Dual System contracts -- how much better they are than the old contracts, especially as to the preferential payments. Why, that idea came from Brooklyn. It was the only way the Brooklyn company could get out of a bad situation and insure a continuation of its present profits. When Shonts, president of the Interborough company, found out that the city was willing to give it to the Brooklyn company, he said 'if it's good enough for them it's good enough for us', and forthwith put it in his proposition. That's how we got the preferential payment."

On the witness stand in a lawsuit (Venner vs. Belmont et al.) later in the year 1914 Mr. Belmont repeated the statement made in the above as to the influential man to whom he appealed for help to get his charter from the Legislature. When asked the name of this man he at first refused to give it, but on direction of the court finally answered the question. He then said it was William C. Whitney, who at the time was one of the principal owners of the Metropolitan Street Railway system, which operated the surface car lines in Manhattan.

Belmont's partner in the subway enterprise, John B. McDonald, was a man almost as well known in the contracting field as was Mr. Belmont in finance. Of powerful frame and much shrewd ability, he was well fitted for the arduous life of the contractor and had unusual success before he came to New York. He built the Baltimore & Ohio Railroad tunnels at Baltimore, a celebrated piece of work for those days, and it was his experience there gained in underground construction that led him to become a bidder for New York's first subway.

On March 24, 1900, ground was broken in front of the City Hall for the new subway, although actual construction lagged for several months while the Rapid Transit Commission was recruiting its engineering staff and the contractor was planning his work, subletting it in sections and organizing his own force. Working drawings also had to be made by the commission's engineers, and this took some time, so that it was well on in the year before construction was fairly under way.

Under the supervision of McDonald the work was done by the Rapid Transit Subway Construction company, organized by Belmont for the purpose. This concern was capitalized for $6,000,000, all of which was issued in common stock, to which Belmont and those he interested in the project subscribed. Among the latter was Cornelius Vanderbilt, son of the "Commodore" of the same name and one of the officers of the New York Central Railroad. Others included General James Jourdan, of Brooklyn, Adrian Iselin, William A. Read, Gardiner M. Lane and George W. Young. Its first officers were: President, August Belmont; treasurer, Walter G. Oakman; secretary, Frederick Evans.

During the year 1900 the board devoted considerable time to making needed modifications of the plans and contract, as well as the route. The route was changed so as to run the west side line from Fort George to Kingsbridge by way of Naegle Avenue, Amsterdam Avenue and Kingsbridge Road instead of by the route first approved. The contract was changed so as to permit of the construction of local stations 450 feet long, and the loop at City Hall was reduced so as to run entirely between the City Hall and the Post Office instead of passing completely around the latter. Cornelius Vanderbilt is credited with the invention of the loop idea.

The subject of an extension of the proposed subway to Brooklyn engaged the attention of the Rapid Transit Commission as soon as the contract with McDonald for the Manhattan and Bronx lines was executed. Immediately thereafter the board instructed its chief engineer to investigate and report upon the cost of such an extension, to run from City Hall south to South Ferry and thence by tunnel under the East River to Brooklyn. Property owners, as before stated, had petitioned for the extension down Broadway.

In the meantime the board sought to have its powers as to Greater New York clearly defined. Both the rapid transit act of 1894 and the vote of the people on municipal ownership antedated the consolidation of New York, Brooklyn and the other neighboring communities into the larger city. It was a question whether an act authorizing the construction of a rapid transit road in the old city, comprising only Manhattan and the Bronx, applied to the consolidated city embracing as well Brooklyn, Queens and Richmond. So the Legislature was asked to pass and did enact an amendment to the law, extending the powers of the board to all parts of the Greater City. This act became effective April 23, 1900.

Early in the same year a large and important delegation from Kings County appeared before the board to urge the construction of a Brooklyn extension. During the month of May several public hearings were held on the subject. The question of the best route to be followed was discussed, and two lines were proposed. One was an extension of the Manhattan line from Broadway to Whitehall street, thence under the East River to Joralemon street, Brooklyn, and up Joralemon street, Fulton street and Flatbush Avenue to Atlantic Avenue. The other followed the same route in Manhattan but entered Brooklyn by way of Hamilton Avenue and ran thence towards South Brooklyn and Bay Ridge. Study of this situation occupied the rest of the year.

Another important problem which engaged the attention of the board during the last three months of 1900 was the possibility of making a physical connection at the Grand Central station in Forty-second street between the new rapid transit road and the tracks of the New York Central and New Haven steam railroad lines. It was believed that the public would be better served if the trains of the rapid transit road could operate over those tracks northward into the suburban communities reached by the two railroads. Acting under the instructions of the board, its president, Mr. Orr, and its chief engineer, Mr. Parsons, took up the question with Mr. W. K. Vanderbilt, Mr. Callaway, then president, and Mr. Wilgus, then chief engineer of the New York Central. The Central authorities insisted that, if a connection were made, the rapid transit road must not at any point be on Grand Central station property. This condition was regarded by the board as prohibitory, and after considerable correspondence Mr. Callaway refused to yield, stating that their plans were "when an electric or air motor can be had to run our trains any considerable distance, to tunnel underneath the depot and use the space there for our own suburban service." Many years later the idea thus suggested by Mr. Callaway was carried out.

The decision to omit pipe galleries also was reached in the latter part of the year 1900. Construction of such galleries was actually commenced on the Elm street route, but both the contractor and the Departments of Sewers and Water Supply of the City objected to them, and the board, on McDonald's agreement to stand the cost of abandoning the work, agreed to its indefinite suspension. The pipe gallery as an adjunct to subways was revived in later years, and some contracts including them were awarded, but every time the city departments objected and eventually the matter was dropped.

The year 1900 also saw the passage of an amendment to the rapid transit act, proposed by the board, which enlarged its powers in respect of the condemnation of land. Under the original act the city was limited to the condemnation of the right or easement for the passage of the rapid transit line. By this amendment the city was given power to condemn the fee of property so that, if it became necessary to tear down buildings, the board could take the title to the property, remove the buildings and later sell the property subject to the easement for the subway.

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