Under the provisions of this act, there had been issued, prior to the war, bonds amounting to $14,841,000. In the main, the conditions enumerated in the act, were fairly complied with, and the State protected from all loss.
The close of the war left the railroads, like every other industrial interest in the State, in a thoroughly demoralized condition. Upon the first arrival of the Federal troops, they had been seized by the Government and used for military purposes. A great part of the rolling stock had been destroyed, and many of the bridges and buildings burnt.
As soon as the restored government was in working order, the railroad interests turned to the State treasury for relief. This was obtained through the passage of a number of bills, which professed to be based upon the Act of 1852. They were known as Omnibus bills, and under their provisions bonds to the amount of $14,393,000 were issued.
The means resorted to to secure the passage of the Omnibus bills furnished the greatest scandals of the restoration period. They are vividly set forth in the following extract from the Report of the Committee of Investigation appointed by the Legislature of 1879:
“Many corporate presidents, agents, and representatives came to Nashville to attend the sittings of the Legislature. All known influences were used upon the supposed representatives of the people. From the pulpit to the bagnio, recruits were gathered for the assault on the treasury of the State. Fine brandy by the barrel was on hand to fire thirst and muddle the brain, and first-class suits of clothing to capture the vanity or avarice of the gay or needy. Money, the proceeds of the bonds issued by the State, for specific purpose to these men, was here in abundance, and it was used. Take one example: A man came to the State. He was appointed Receiver of two short insolvent railroads at a salary of $5000. He was appointed Commissioner of Registration for Franklin County. He sent his Superintendent to the Legislature of 1867 as a member. That member, in conjunction with a certain Senator, was active in procuring ‘State aid.’ The Commissioner and Receiver let out contracts on his road, and was a silent member. The proof shows that this Receiver, this member, and this Senator formed a conspiracy to defraud the State. About a million dollars of bonds issued under the Act of 1867 went into the hands of the Receiver. Take another: A president of a railroad would sell bonds and apply a portion of the proceeds in corrupt efforts to get more bonds. They got bonds for roads that had never been surveyed and located. One railroad president says that he had great influence with the Governor, that another railroad president wanted bonds and desired his services with said Governor, that he got them, that, in addition to pay directly for his services and influences with the Governor, he was to have control of a portion of the bonds obtained to use as margin in stock speculations in New York. They got 885 bonds in New York. This man of influence with the Governor further says that he and the other president were partners in stock speculation, and used the bonds obtained from the State in these speculations.”
When the Democrats regained control of the State, the settlement of the State debt, which had been so greatly increased by the Brownlow Administration, proved a most perplexing question. It became an apple of political discord, and retarded the industrial and commercial regeneration of the State. It disrupted the Democratic party into three factions. A few of the most prominent leaders desired to see the State’s credit preserved by paying the bonds in full. A still larger number, while recognizing the validity of the bonds, conscientiously believed that the State, on account of the amount of the debt, and the demoralized business conditions resulting from the war, would be unable to meet its just obligations. They therefore favored some agreement with the bondholders, whereby the debt could be scaled without inflicting dishonor upon the State. A third faction was for open repudiation. They contended that the bonds were illegal on two grounds, first, they had been issued in direct violation of the conditions precedent laid down in the Internal Improvement Act of 1852, and its amendments; secondly, the Brownlow Administration, which had issued the bonds, did not represent the State, it was a mere interim of usurpation and revolutionary government. While for purposes of convenience its acts, which affected merely private rights, should not be disturbed, nevertheless it could not pledge the credit of the State.
In 1873 a Funding Act was passed by the Legislature. It provided that all past due coupons and bonds might be funded into new bonds bearing interest at six per cent., redeemable after July 1, 1884, and payable July 1, 1914. Coupons on the new bonds were payable on January and July of each year, beginning with July, 1874. The question as to the validity of the Brownlow bonds was avoided by inserting a provision that only “bonds legally issued should be funded.” But the State officials ignored this provision by funding all the bonds that were presented.
This Funding Act of 1873 proved a failure. The State was unable to meet its interest on the new bonds. A series of bad crops increased the difficulty. The assessment returns for 1874, as compared with those of 1873, exhibited a decrease of $18,556,173.
On January 1, 1877, the arrears of interest amounted to $1,570,646. It now became apparent to the bondholders that they must either effect some compromise with the State, or run the risk of losing the entire debt. They, therefore, entered into personal communications with the Governor, and signified to him their willingness to compromise. Their communications were laid before the Legislature, and it adopted on January 26, 1877, the following resolution:
“Whereas, The General Assembly has with pleasure received, through the message of his Excellency the Governor, the communications of certain gentlemen, holders of bonds of the State, and representatives of holders of bonds, asking for a conference looking to a permanent and equitable adjustment and compromise of the claims held by them against the State; therefore, be it