The Public Bonded Debt
After 1868 it is impossible to ascertain what the public debt of the state was at any given time until 1875, when the first Democratic legislature began to investigate the condition of the finances.
In 1860 the total debt—state bonds and trust funds—was $5,939,654.87 (and the bonded debt was $3,445,000), most of which was due to the failure of the state bank. The payment of the war debt, which amounted to $13,094,732.95, was forbidden by the Fourteenth Amendment. In 1865 the total bonded debt with three years’ unpaid interest was $4,065,410, while the trust funds amounted to $2,910,000. Governor Patton reissued the bonds to the amount of $4,087,800, and the sixteenth section and the university trust funds with unpaid interest raised the total debt, in 1867, to $6,130,910. In July, 1868, when the state went into the hands of the reconstructionists, the total debt was $6,848,400. The provisional government had been increasing the debt because no taxes were collected during 1865 and 1866. Taxes were collected in 1867, but before the end of 1868 the debt amounted to $7,904,398.92, and after that date no one knew, nor did the officials seem to care, exactly how large it was.[1622]
State and county and town bonds were issued in reckless haste by the plunderers, but the reports do not show the amounts issued; no correct records were kept. The acts of the legislature authorized the governor to issue about $5,000,000 state bonds, besides the direct bonds issued to railroads, which amounted to about $4,000,000 not including interest. The counties, besides being authorized to levy heavy additional taxes, were permitted to issue bonds for various purposes.[1623] A number of acts gave the counties general permission to issue bonds, but there are no records accessible of the amounts raised. There were issues of town and county bonds without legislative authorization. This practice is said to have been common, but in the chaotic conditions of the time little attention was paid to such things and no records were kept.
To dispose of its bonds the state had a large number of financial agents in the North and abroad. Some of these made no reports at all; others reported as they pleased. Certain bonds were sold in 1870 by one of the financial agents, and two years later the proceeds had not reached the treasury or been accounted for. In like manner some bond sales were conducted in 1871 and in 1872.[1624] Not only was no record kept of the issues of direct and indorsed bonds, but no records were kept of the payment of interest and of the domestic debts of the state. Some of the financial agents exercised the authority of auditor and treasurer and settled any claim that might be presented to them. Some agents, who paid interest on bonds, returned the cancelled coupons; others did not. In Governor Lewis’s office $20,000 in coupons were found with nothing to show that they had been cancelled. One lot of bonds was received with every coupon attached, yet the interest on these had been paid regularly in New York.[1625]
Provision was made for the retirement of all “state money”; but if the treasury was empty when it came in, it was apt to be reissued without any authority of law. A large sum was returned, but no record was made of it, and it was not destroyed. Later it was discovered among a mass of waste paper, where any thief might have taken it and put it again into circulation. One transaction may be cited as an illustration of the management of the finances: in 1873 the state owed Henry Clews & Company $299,660.20. Governor Lewis gave his notes (twelve in number) as governor, for the amount, and at the same time deposited with Clews as collateral security $650,000 in state bonds. Clews, when he failed, turned over the governor’s notes to the Fourth National Bank of New York, to which he was indebted. He had already disposed of, so the state claimed, the $650,000 in bonds which he held as collateral security; and a year later, according to the Debt Commission, he still made a claim against the state for $235,039.43 as a balance due him. Thus a debt of $299,660.20 had grown in the hands of one of the state agents to $1,184,689.63, besides interest.[1626]
In 1872 it was estimated that the general liabilities of the state, counties, and towns amounted to $52,762,000.[1627] The country was flooded with temporary obligations receivable for public dues, and the tax collectors substituted these for any coin that might come into their hands. There was much speculation in the depreciated currency by the state and county officials. During Lewis’s first year (1873), the state bonds were quoted at 60 per cent, but on November 17, 1873, he reported, “This department has been unable to sell for money any of the state bonds during the present administration.” He raised money for immediate needs by hypothecation of the state securities. Thus came about the remarkable transaction with Clews. The state money went down to 60 per cent, then to 40 per cent before the elections of 1874, and at one time state bonds sold for cash at 20 and 21 cents on the dollar.[1628]
The Financial Settlement
After the overthrow of the Radicals in 1874 taxation was limited, expenditures were curtailed, and the administration undertook to make some arrangement in regard to the public debt. For two years the state had been bankrupt; for nearly four years the railroads aided by the state had been bankrupt; the debt was enormous, but how large no one knew. A commission, consisting of Governor Houston, Levi W. Lawler, and T. B. Bethea, was appointed to ascertain and adjust the public debt.[1629] After advertising in the United States and abroad, the commission found a debt amounting in round numbers to $30,037,563. Some claims were not ascertained; many creditors or claimants not being heard from and many fraudulent bonds not being presented. The debt was divided into four classes: (1) the recognized direct debt, consisting of state bonds (exclusive of bonds issued to railroads), state obligations, state certificates or “Patton money,” unpaid interest and other direct debts of the state,—in all, amounting to $11,677,470; (2) the state bonds issued to railroads under the law providing for the substitution of $4000 state bonds per mile instead of $16,000 per mile in indorsed bonds, which in all amounted to $1,156,000; (3) a class of claims of doubtful character, among them that of Henry Clews & Company, amounting in all to $2,573,093; (4) the indorsed bonds of the state-aided railroads, amounting to $11,597,000 (several millions having been retired), and state bonds loaned to railroads,—which debt, with the unpaid interest on the same, amounting to $3,024,000, was in all $14,641,000.