First, the Minnesota and Pacific Railroad Company, for building a main line from Stillwater through St. Anthony to Breckenridge and a “branch” from St. Anthony to St. Vincent.
Second, the Transit Railroad Company, to build from Winona by way of St. Peter to the Big Sioux River north of 45 degrees north latitude.
Third, the Root River and Southern Minnesota Railroad Company, for two lines; one from La Crescent to a junction with the Transit at Rochester; the other from St. Paul and St. Anthony via Minneapolis, up the Minnesota River, to Mankato and on to the mouth of the Big Sioux.
Fourth, the Minneapolis and Cedar Valley Railroad Company, for a line from Minneapolis by way of Mendota and Faribault to a point on the south line of the state, west of range 13.
The lands were to inure to the companies in installments of 120 sections, upon the completion of twenty-mile stretches of road for the running of regular trains. The constitutional amendment of April 15, 1858, had for a particular object the enabling of the companies to get each its first twenty miles built and receive its 120 sections (76,800 acres). The sale or hypothecation of this land would build an additional stretch, and so on. To make it the easier for the companies so to build, the amendment provided that when any ten-mile stretch should have been graded and made ready for ties and track, the company should receive $100,000 in the seven per cent. special Minnesota state railroad bonds authorized; and, when any ten-mile stretch so graded should be complete with rails and rolling stock, an additional like sum in bonds. Now these bonds were by no means a bonus; they were to be a “loan of credit,” according to the favorite phrase of the day. The companies on receiving them were obligated to pay the interest as it should accrue, and to redeem the principal when due. The most rigorous provisions were made in the amendment itself to secure these liquidations. The companies were required to pledge the net earnings of their several lines, to convey to the state by deed of trust the first 240 acres of land earned by construction, and to transfer to the state an amount of their own company bonds equal to that of the special state bonds delivered. These company bonds were to be secured by mortgages on all the properties and franchises of the companies. Human ingenuity, it was fancied, could exact no sounder guarantees. While the legislature was still in session in the midsummer of 1858, the companies let their contracts, and the dirt began to fly in a manner very cheering to citizens living along the surveyed lines, who boarded the hands and furnished forage, timber, and other supplies.
But there was trouble with the finances from the start. On August 4 Governor Sibley gave warning (why should it have been needed?) to the companies that he should hold them to a strict compliance with the obligations they had assumed. In particular he demanded that when they came to exchange their company bonds for the special state bonds they must secure to the state a prior lien on their properties and franchises. The companies balked at this, and by their attorneys applied to the supreme court of the state for a mandamus requiring the governor to issue them bonds without such priority. To obtain a construction of the law Governor Sibley waived objection to being governed by the court in a matter within his own official discretion. The mandamus issued. The text of the amendment of April 15 showed no requirement of priority, and the legislative journals show that efforts to inject such requirement had been vain. The state railroad bonds, issued to the companies as they severally completed their ten-mile stretches of grading, when placed upon the market did not go off like hot cakes. In form they were bonds of Minnesota acknowledging to owe and promising to pay dollars, signed, countersigned, and sealed like other bonds. The faith and credit of the state were pledged in the constitutional amendment to the payment of the interest and redemption of the principal. But the people understood that all this was mere form; the railroad companies, not the state, were to pay. The newspapers industriously circulated this idea. Sixty-seven members of the legislature who had voted for the issue of the bonds signed a published declaration that none of them would ever vote for a tax to pay them. When offered in the New York market they were not wanted, unless by speculative operators at a figure warranting risk. Governor Sibley’s personal representations in Wall Street did not increase confidence. He attributed his failure to factious interference of citizens and Republican newspapers.
Construction was resumed with the season of 1859 by contractors willing and able to take bonds in pay, but by midsummer this plan ceased to work. One firm in July was obliged to put up $30,000 to raise $8000 in cash. Railroad building ceased, and Minnesota sat in ashes. The surprise and exasperation of the people can easily be imagined. The companies had not followed the course expected of them to complete and put in operation successive ten-mile stretches, but preferred to push the grading for many such stretches and postpone track-laying and other work of completion. This aroused a suspicion that they did not intend to complete any sections, but to secure their $10,000 per mile, a sum far in excess of the actual cost, and quit. This suspicion was intensified by rumors that the grading had been confined to discontinuous earthwork alone, on the level prairie where it could be cheaply done. These rumors had but slight foundation, but they were accepted as true and to this day there are those who believe them. When the legislature of 1860 met (there was no session in 1859), Governor Sibley in his retiring message informed that body that the four companies had graded 239.36 miles, and had received 2275 one thousand-dollar special state bonds in exchange for an equal amount of company bonds.
The legislature of 1858 has enough to answer for in proposing to the people the consummate folly of offering to sell bonds which they never meant to pay. Of the final act of their session (August 12) it cannot be charitably recorded that it was one of mere folly. As the end of their labors drew nigh in the dog days, it became known that there would be a residue of some $10,000 of money appropriated by Congress for territorial expenses. It seemed a pity not to keep that money in Minnesota. After a variety of proposals consuming much time had failed to receive concurrence, the two houses agreed to a compromise by which $6000 was appropriated for stationery and $3500 for postage, the members to share equally. Governor Sibley was obliged to give his official sanction to this division, because it was impossible in the last hour of the session to veto the general appropriation bill in which these items had place, but he took occasion to say that he gave a most reluctant consent to the grab.
The banking act passed by the legislature of 1858, on July 26, provided for the issue of circulating notes secured by deposits of public stocks of the United States, or of any state, up to ninety per cent. of the average value of such stock for six months in the New York market. On one of the last days of the session an amending act was passed injecting into the proper section of the bank act the words “or the State of Minnesota at their current value.” The intended operation of the clause was that bank-notes might be issued on the security of the special railroad bonds. To obtain a favorable rating by the state auditor a clique of operators traded among themselves in the bonds, in New York city, until they felt warranted in submitting affidavits that their value as ascertained in that market was ninety-five cents on the dollar. The auditor of the state thereupon issued some $600,000 in notes to fifteen banks depositing the special railroad bonds. On January 1, 1861, he was obliged to report that seven of them had failed, and that he had sold their bonds. In one case he got seventy cents; in six others, prices ranging from thirty-five cents down to sixteen and a quarter cents.