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 funds were supplied by Huntington, Thomas H. Hubbard and their associates, but the source of the money was not publicly known at the time of construction. The work of building trestles and making rock cuts was extensive and costly. For example, Chehalem Creek was spanned by a 700-foot trestle; Blair Creek by a 1000-foot trestle; Rock Creek by an 1800-foot trestle and Tualatin River by a 180-foot trestle. Deep rock cuts were made at Elk Rock, Oswego and Chehalem Gap. The chief engineer was H. Hawgood.

Construction of the route had suspended in 1881, at the time of the Villard lease and was resumed in January, 1886, by the new company. The track was finished to Elk Rock, near Oswego, in the following December. This progress was signalized December 11, 1886, by an excursion of Portland citizens to Dallas. The first train arrived in South Portland, November 26, 1887. The first train started from Jefferson Street, Portland (public levee), July 23, 1888.

The narrow gauge system gravitated to the Southern Pacific in the years 1885-90. In that period the Southern Pacific absorbed the Oregon and California Railroad. The Southern Pacific entered into negotiation in 1887 with the stockholders and bondholders of the Oregon and California and succeeded in adding the railroad properties of that company to its extensive domains and of connecting them with its California lines. Southern Pacific acquisition of the narrow gauge by steady steps was a natural sequence and became obvious in 1887, when Huntington's ownership of the Portland–Dundee line was no longer concealed, and his negotiations with the Scotch owners of the other branches of the system were tending to a focus. In May, 1887, control was announced of the Portland and Willamette Valley Railway by the Pacific Improvement Company, the principal stockholders of which, C. P. Huntington, Leland Stanford, Charles Crocker,