TAXATION AND THE PUBLIC DEBT
Taxation during Reconstruction
After the war it was certain that taxation would be higher and expenditure
greater, both on account of the ruin caused by the war that now had to be
repaired, and because several hundred thousand negroes had been added to
the civic population. Before the war the negro was no expense to the state
and county treasuries; his misdemeanors were punished by his master. Yet
neither the ruined court-houses, jails, bridges, roads, etc., nor the
criminal negroes can account for the taxation and expenditure under the
carpet-bag régime. During the three and a half years after the war, under
the provisional governments, most of the burned bridges, court-houses, and
other public buildings had been replaced; and there were relatively few
negroes who were an expense to the carpet-bag government.
After the overthrow of Reconstruction, Governor Houston stated that the
total value of all property in Alabama in 1860 was $725,000,000, and that
in 1875 it was $160,000,000.[1577] In 1866 the assessed valuation was
$123,946,475;[1578] in 1870 it was $156,770,385,[1579] and in 1876, after
ten years of Reconstruction, it was $135,535,792.[1580] Before the war the
taxes were paid on real estate and slaves. In 1860 the taxes were paid
upon slave property assessed at $152,278,000, and upon real estate
assessed at $155,034,000.[1581]
Although there was some property left in 1865, the owners could barely pay
taxes on it. The bank capital was gone, and no one had money that was
receivable for taxes. Consequently, it was impossible to collect general
taxes, and the state government was obliged to place temporary loans and
levy license taxes. No regular taxes were collected during 1865 and 1866.
The first regular tax was levied in 1866, and was collected in time to be
spent by the Reconstruction convention.[1582] For four years after the
surrender the crops were bad, and when called good they were hardly more
than half of the crops of 1860.[1583] However, if no state taxes were paid
by the impoverished farmers, there still remained the heavy Federal tax of
$12.50 to $15 per bale on all cotton produced.
The rate of taxation before the war on real estate and on slaves was
one-fifth of one per cent. After the war the taxes were raised by the
provisional government to one-fourth of one per cent, and license taxes
were added. The reconstructed government at once raised the rate to
three-fourths of one per cent on property of all descriptions,[1584] and
added new license taxes, more than quadrupling the former rate. Under
Lindsay, the Democratic governor in 1871-1872, the rate was lowered to
one-half of one per cent. The assessment of property under Reconstruction
was much more stringent than before. There were only five other states
that paid a tax rate as high as three-fourths of one per cent, and four of
these were southern states.[1585]
Before the war the county tax was usually 60 per cent of the state tax,
never more. The city and town tax was insignificant. After the war the
town and city taxes were greatly increased, the county tax was invariably
as much as the state tax, and many laws were passed authorizing the
counties to levy additional taxes and to issue bonds. The heaviest burdens
were from local taxation, not from state taxes.[1586] In Montgomery
County, the county taxes before the war had never been more than $30,000,
and had been paid by slaveholders and owners of real estate. During
Reconstruction the taxes were never less than $90,000, and every one
except the negroes had to pay on everything that was property. In fact,
the taxes in this county were about quadrupled.[1587] In Marengo County
the taxes before the war were $12,000; after 1868 they were $25,000 to
$30,000, notwithstanding the fact that property had depreciated two-thirds
in value since the war. Land worth formerly $50 to $60 an acre now sold
for $3 to $15.[1588] In Madison County, the state taxes in 1858 were
$23,417.63 (gross); in 1870, $66,745.53 (net). The state land tax in 1858
in the same county was $7,213.10; in 1870, $51,445.30. Madison County
taxes were:--
======================================================
| STATE TAX | COUNTY TAX | TOTAL
-----------|--------------|--------------|------------
In 1859 | $26,633.71 | $13,316.85 | $39,950.56
In 1869 | 65,410.85 | 65,410.85 | 130,821.70
======================================================
The general testimony was that the exemption laws relieved from taxation
nearly all the negroes, except those who paid taxes before the war.[1589]
The following table will show the taxation for 1860 and 1870:--
============================================================
| CENSUS VALUATION | STATE TAX | COUNTY TAX | TOWN TAX
-----|-------------------|-----------|------------|---------
1860 | $432,198,762[1590]| $530,107 | $309,474 | $11,590
1870 | 156,770,387 | 1,477,414 | 1,122,471 | 403,937
============================================================
Administrative Expenses
TABLE OF RECEIPTS AND EXPENDITURES OF THE STATE GOVERNMENT
============================================
YEAR| RECEIPTS | EXPENDITURES
----|-------------------|-------------------
1860| ---- | $530,107.00
1865|$1,626,782.93[1591]| 2,282,355.97[1591]
1866| 62,967.80[1592]| 606,494.39[1593]
1867| 691,048.86 | 819,434.85[1594]
1868| 724,760.56[1595]| 1,066,860.24[1595]
1868| 1,788,982.43[1595]| 2,233,781.97[1595]
1869| 686,451.02[1596]| 1,394,960.30
1870| 1,283,586.52 | 1,336,398.85
1871| 1,422,494.67[1597]| 1,640,116.99[1598]
1872| ---- | ----
1873| 2,081,649.39 | 2,237,822.06[1599]
1874| ---- | ----
1875| 725,000.00 | 500,000.00[1600]
1876| 781,800.64 | 682,591.49
1886| 888,724.33 | 818,366.70
============================================
The average yearly cost of state, county, and town administration from
1858 to 1860 was $800,000; from 1868 to 1870, the average cost of the
state administration alone was $1,107,080, the cost of state, county, and
town government being at least $3,000,000.[1601] The provisional state
government disbursed in the year 1866-1867, $676,476.54, of which only
$262,627.47 was spent for state expenses; the remainder was used for
schools.[1602]
The greater expenditure of the Reconstruction government can, in small
part, be explained by the greater number of officials and by the higher
salaries paid.[1603]
SALARIES
======================================================================
| BEFORE THE | DURING
| WAR | RECONSTRUCTION
-----------------------|-----------------|----------------------------
Governor | $2,000.00 | $4,000.00
Governor's clerk | 500.00 | 5,400.00, two
Secretary of State | 1,200.00 | 2,400.00, fees and charges
Treasurer | 1,800.00 | 2,800.00
Departmental clerks | 1,000.00 each | 1,500.00
Supreme Court judge | 3,000.00 | 4,000.00
Circuit judges | 13,500.00 | 36,000.00
Chancellors | 4,500.00 three | 15,000.00
Member of Legislature, | |
_per diem_ | 4.00 | 6.00
Stationery executive | |
departments | 1,200.00 | 12,708.77[1604]
======================================================================
The administration of Lindsay to a great extent had to pay the debts of
the former administration. Expenses were curtailed when possible, and
notwithstanding the fact that the indorsed railroads defaulted in 1871,
the business of the state was conducted much more economically, and there
were fewer and smaller issues of bonds and obligations.[1605] The Senate,
however, had but one Democrat in it, and the House was only doubtfully
Democratic, as the Democratic members were young and inexperienced men or
else discontented scalawags.[1606] Consequently, the tide of corruption
and extravagance was merely checked, not stopped. The capitol expenses of
Smith and of Lindsay for a year make an instructive comparison:--
==========================================================
| GOVERNOR SMITH | GOVERNOR LINDSAY
| 1869-1870 | 1871-1872
-----------------------|----------------|-----------------
Contingent expenses | $47,197.28 | $20,531.84
Stationery, fuel, etc. | 24,310.07 | 8,847.23
Clerical services | 27,883.77 | 21,883.03
Public printing | 80,279.18 | 49,716.43
==========================================================
Other expenses, in so far as they were under the control of Lindsay,
formed a like contrast.[1607] The cost of holding sessions of the
legislature under the provisional government was $83,856.60 in 1865-1866,
and $83,852 in 1866-1867. Under Smith it was about $90,000 per session,
and there were three regular sessions the first year. One session
(1870-1871) under Lindsay cost $95,442.30, and two under Lewis, 1873-1874,
cost $175,661.50 and $166,602.65 respectively.[1608] The cost of keeping
state prisoners for trial was about $50,000 a year. The Reconstruction
legislature cut down expenses by passing a law to liberate criminals of a
grade below that of felon, upon their own recognizance.[1609]
The Democrats complained of the way the reconstructionists spent the
contingent fund of the state. This abuse was never so bad as in other
southern states at the time, but still there was continual stealing on a
small scale. Some examples[1610] may be given: Governor Lewis spent $800
on a short visit to New York and Florida;[1611] the governor's private
secretary received $21,000 for services rendered in distributing the
"political" bacon in 1874;[1612] the treasurer drew $1200 to pay his
expenses to Mobile and New York, though he had no business to attend to in
either place, and travelled on roads over which he had passes; ex-Governor
W. H. Smith, when attorney for the Alabama and Chattanooga Railroad, was
paid $500 by the state for services rendered in connection with his own
road, and the committee was unable to discover the nature of these
services; the secretary of state charged $952 for signing his name to
bonds, though it was his constitutional duty to do so without charge; a
bill of stationery from Benedict of New York cost $7761.58, when the bid
of Joel White of Montgomery on the same order was $4336.54; $50 was
allowed to John A. Bingham (presumably a relative of the treasurer) for
signing enough bonds to purchase a farm for the penitentiary. Such
purchases as these were common: one refrigerator, $65; one looking-glass,
$5; one clothes-brush, $1.50. Very few of the small accounts against the
contingent fund were itemized. In no case were any of them accounted for
by proper vouchers. The private secretary of the governor was in the habit
of approving and allowing accounts against the contingent fund, even going
so far as to approve the governor's own accounts. The Investigating
Committee said that the private secretary seemed to be the acting
governor.[1613]
The Florida commissioners, J. L. Pennington, C. A. Miller, and A. J.
Walker, who were appointed to negotiate for the cession to Alabama of West
Florida, spent $10,500, of which Walker, the Democratic member, spent
$516, and Miller and Pennington spent the remainder, "according to the
best judgment and discretion" of themselves. They claimed that part of it
was used to entertain the Florida commissioners, and part to influence the
elections in West Florida.[1614]
The governor was accused of transferring appropriations. In one case, he
drew out of the treasury $484,346.76, ostensibly to pay the interest on
the public debt, and used it for other purposes. A committee appointed to
investigate was able to trace all of it except $75,196.56, which sum could
not be accounted for. The accounts were carelessly kept. The auditor,
treasurer, and governor never seemed to know within a million or two of
dollars what the public debt was. The reports for the period from 1868 to
1875 do not show the actual condition of the finances, and the Debt
Commission in 1875 was unable to get accurate information from the state
records, but had to advertise for information from the creditors and
debtors of the state.[1615]
Effect on Property Values
The misrule of the Radicals in Alabama resulted in a general shrinkage in
values after 1867, especially in the Black Belt, where financial and
economic chaos reigned supreme, and where the carpet-bagger flourished
supported by the negro votes. Recuperation was impossible until the rule
of the alien was overthrown. This was done in some of the white counties
in 1870. At that date land values were still 60 per cent below those of
1860, and the numbers of live stock 40 per cent below. This was due
largely to the condition of the Black Belt counties under the control of
the Radicals.[1616]
Thousands of landowners were unable to pay the taxes assessed, and their
farms were sold by the state. The _Independent Monitor_, on March 8, 1870,
advertised the sale of 1284 different lots of land (none less than forty
acres) in Tuscaloosa County, and the next week 2548 more were advertised
for sale, all to pay taxes. Often, it was complained, the tax assessor
failed to notify the people to "give in" their taxes, and thus caused them
trouble. In some cases, where costs and fines were added to the original
taxes, it amounted to confiscation. In 1871, F. S. Lyon exhibited before
the Ku Klux Committee a copy of the _Southern Republican_ containing
twenty-one and a half columns of advertised sales of land lying in the
rich counties of Marengo, Greene, Perry, and Choctaw.[1617] One Radical
declared that he wanted the taxes raised so high that the large
landholders would be compelled to sell their lands, so that he, and others
like him, could buy.[1618] Property sold for taxes could be redeemed only
by paying double the amount of the taxes plus the costs. A tax sale deed
was conclusive evidence of legal sale, and was not a subject for the
decision of a court.[1619]
There were hundreds of mortgage sales in every county of the state during
the Reconstruction period. At these sales everything from land to
household furniture was sold. The court-house squares on sale days were
favorite gathering places for the negroes, who came to look on, and a
traveller, in 1874, states that in the immense crowds of negroes at the
sales there were some who had come a distance of sixty miles.[1620] Each
winter, from 1869 to 1875, there was an exodus of people to Texas and to
South America, driven from their homes by mortgages, taxes, the condition
of labor, and corrupt government. Landowners sold their lands for what
they would bring and went to the West, where there were no negroes, no
scalawags, and no carpet-baggers.[1621]
Most of the farmers and tenants of that period were unable to send their
children to school and pay tuition. The reconstructed school system failed
almost at the beginning. Consequently, tens of thousands of children grew
up ignorant of schools, most of them the children of parents who had had
some education. Hence the special provision for them in the constitution
of 1901. The first Democratic legislature restricted taxation to
three-fifths of one per cent and local taxation to one-half of one per
cent. The rates were lowered gradually, until in the early nineties the
rate was only two-fifths of one per cent. Since that time, the rate has
again increased until in 1899 the state tax was again three-fourths of one
per cent, the increase being used for Confederate pensions and for
schools.
But in addition to the expenditure of the sums raised by extraordinary
taxation, the Reconstruction administration greatly increased the bonded
debt of the state and by mortgaging the future left a heavy burden upon
the people that has as yet been but slightly lessened.
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.
SUMMARY OF DEBT
Class One $11,667,470
Class Two 1,156,000[1630]
Class Three 2,573,093
Class Four 14,641,000
-----------
Total $30,037,563[1631]
The interest on this debt at the legal rate of 8 per cent would be over
$2,000,000, more than twice the total yearly income of the state. The
commission and the legislature declared that in the present condition of
the finances the state could not pay the interest, that it would be
several years before the state could pay any interest at all. Moreover, it
could not recognize as valid many items in the great debt. After
conference with the representatives of the more innocent creditors, the
debt was thus adjusted:--
I. (_a_) The state proposed for the next few years to confine its
attention to paying domestic claims and to retiring state obligations.
(_b_) New bonds were issued to the amount of $7,000,000, to be exchanged
for outstanding state bonds sold by the state to _bona fide_ purchasers.
These bonds, known as Class A, were to draw interest for five years at 2
per cent, for the next five years at 3 per cent, at 4 per cent for the
next ten years, and thereafter at 5 per cent. These bonds were issued to
the most innocent creditors and constituted the least questionable part of
the debt.
II. On the $1,192,000 railroad debt of Class Two the state accepted a
clear loss of one-half, and issued $596,000 in bonds, known as Class B, to
be exchanged at the rate of one for two. These bonds drew interest at 5
per cent.
III. Class Three was the worst of all, and none of the items were at the
time recognized, though the commissioners were authorized to take $310,000
of Class A bonds and distribute the amount among the innocent holders of
the $650,000 bonds sold by Henry Clews when held by him as collateral. The
other Clews claims were emphatically repudiated as fraudulent.
IV. Class Four was more complicated. (_a_) The state gave $1,000,000 in
bonds, Class C, drawing interest at 2 per cent for five years and at 4 per
cent thereafter, to the holders of the Alabama and Chattanooga first
mortgage indorsed bonds. The state was then relieved of further
responsibility. (_b_) To the holders of the $2,000,000 state bonds issued
to the Alabama and Chattanooga road, and which the commissioners were
inclined to consider fraudulent, the state transferred its lien on the
property of the Alabama and Chattanooga road, provided the bonds be
returned to the governor.
The claims of the holders of the indorsed bonds of five other railroads
were left for future settlement. They were declared fraudulent, and the
state finally declined to recognize them. The Montgomery and Eufaula road
had a loan of $300,000 in state bonds and an indorsement of $960,000. The
road was sold for $2,129,000, and the state was secured against further
loss.[1632]
This act of settlement caused the issue of $8,596,000 in bonds. There were
besides several millions more in bonds, state obligations, claims, etc.
The Commission reported that the innocent holders of the bonds were very
reasonable in their demands.[1633] Henry Clews declined to give the
Commission any information in regard to his agency for the state, but the
Commission declared that he had in his possession, or had transferred
improperly, coupons on which interest had been paid, and which he had not
surrendered to the state. They recommended a fresh repudiation of any
claim founded on Clews' securities.[1634] The Commission also discovered
that Josiah Morris & Company of Montgomery had possession of $650,000 in
state bonds which they refused to release without legal proceedings.[1635]
There is not available sufficient evidence on which to base an account of
the history of town and county debts. Some towns, unable to pay, gave up
their charters; others still pay interest on the carpet-bag debt. For
years in several counties the income was not large enough to pay the
interest on its Reconstruction debt.
After the arrangement of state obligations, the state debt soon rose to
par and above. The Democratic administration was economical even to
stinginess. Salaries were everywhere reduced 25 per cent, the pay of the
members of the legislature from $6 to $4 per day, and mileage from 40
cents to 10 cents.[1636] The people of the state even complained of too
much economy. It was said that a "deadhead" could not borrow a sheet of
writing paper in the capitol, nor in a county court-house.
There was not an honest white person who lived in the state during
Reconstruction, nor a man, woman, or child, descended from such a person,
who did not then suffer or does not still suffer from the direct results
of the carpet-bag financiering. Homes were sold or mortgaged; schools were
closed, and children grew up in ignorance; the taxes for nearly twenty
years were used to pay interest on the debt then piled up. Not until 1899
was there a one-mill school tax (until then the interest paid on the
Reconstruction debt was larger than the school fund), and not until 1891
was the state able to care for the disabled Confederate soldiers. The debt
has been slightly decreased by the retirement of state obligations, but
the bonded debt remains the same. In 1902 it was $9,357,600, on which an
annual interest of $448,680 was paid,[1637] about one-fourth of the total
income of the state.
The corrupt financiering in itself was not, by any means, the worst part
of Reconstruction. It was only a phase of the general misgovernment.
Though the whites were conservative and economical during the period of
the provisional government and did not spend money or pledge credit
recklessly, yet when the carpet-baggers began to loot the treasury, the
people were not at first alarmed. Many were in sympathy with any honest
scheme to aid internal improvements. Their Confederate experience made
them accustomed to the appropriations of large sums--in paper.
Though from the first there were several newspapers that denounced the
financial measures of the reconstructionists and warned purchasers against
buying the bonds issued under doubtful authority, still it was only the
thinking men who understood from the beginning the danger of financial
wreck. When the railroads became bankrupt, the people began to understand,
and when the state failed two years later to meet its obligations, they
had learned thoroughly the condition of affairs. Extraordinary taxation
had helped to teach them.