FINANCIAL ADMINISTRATION OF THE RADICAL GOVERNMENT
The joint resolution of July 24, 1866, completed, so far as Congress
was concerned, the restoration of civil government in Tennessee. Her
Senators and Representatives were admitted to their seats, and the
State, to all intents and purposes, was restored to the same position
it had occupied prior to the attempted withdrawal in 1861.
The political basis of the restored government was, as we have pointed
out, the loyal people of the State. They consisted mainly of four
elements, namely, the inhabitants of the small towns and the upland
farms of East Tennessee, and poor whites, or “white trash,” as they
were commonly called, scattered throughout the State, a few “old-line”
Whigs in West and Middle Tennessee, and lastly the negro and the
carpetbagger. This ruling minority was, therefore, neither an
aristocracy of wealth, intelligence, nor social position. It could not
be expected that the management of public affairs by such hands would
be just and conservative. From the beginning it showed a tendency
toward reckless expenditures and an entire disregard of property
rights. Mr. Brownlow, in his first message to the Legislature, advised
a general increase in the salaries of State officials. This advice
came at a time when the finances were at a low ebb, and the whole
industrial and agricultural interests of the community were thoroughly
demoralized. Nevertheless, the Legislature was only too ready to carry
these suggestions of Governor Brownlow into execution. They passed a
bill increasing the salaries of the supreme judges from $2000 to $5000
a year. This was followed by other bills increasing the salaries of
the various State officials. This resulted in an enormous increase in
the current expenditures of the State.
The whole expenses of the State government for the years 1851 to 1861,
inclusive, had been about $6,500,000. The entire expenses during the
Brownlow administration, which lasted only three years and a half,
were $7,301,352. The taxes in 1868 were fourfold greater than in 1861,
yet on the former date, the Comptroller announced in his report to the
Legislature that the State was on the verge of bankruptcy.
But the most troublesome legacy Mr. Brownlow left the people of
Tennessee was an increase in the State debt of $21,647,000.
By an Act of the Legislature in 1852, known as the General Internal
Improvement Law, the Governor had been empowered to issue State bonds
to the amount of $8000 per mile in aid of railroad companies, upon the
following conditions: “1. That the company shall first secure bonafide
subscriptions to its capital stock to an amount sufficient to grade,
bridge, and prepare for the inner rails the whole extent of the main
trunk line proposed to be constructed; 2. That it be shown by the
company to the Governor that the said subscriptions are good and
solvent; 3. That the company shall have graded, bridged, and made
ready to put down the necessary timbers, for the reception of rails,
and fully completed a specified number of miles at either terminus in
a good and substantial manner, with good material for putting the iron
rails and equipments in place, and that the State shall be given a
first-mortgage lien on their property; 4. That the Governor shall be
notified of these facts by the written affidavits of the Chief
Engineers and President of the Company, together with the written
affidavit of a competent engineer appointed by the Governor to examine
the specified section; and shall be furnished with an affidavit of the
President of the Company, and a resolution of a majority of its Board
of Directors for the time being, pledging that the bonds issued to it
shall not be used for any other purpose than that of procuring the
iron rails, chairs, spikes, and equipments, and for putting down the
iron rails on the specified section for which they are issued; and
that the President shall deposit in the office of the Secretary of
State a full and accurate list of all the stockholders, with the sum
subscribed by each and every stockholder.”
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
“_Resolved_, By the General Assembly, that the Governor be
requested to communicate by telegram, or by letter, with the
gentlemen holding securities of the State, mentioned in his
message, and request them to submit, on the earliest day
possible, through him, to the General Assembly any
proposition of adjustment and compromise, which they may
desire.”
As the result of this resolution, a committee of the Legislature and a
committee of the bondholders met and agreed to the following
proposition: “That arrearages of interest to July 1, 1877, be added to
the bonds, and that new ones for sixty per cent. of the total amount
be issued, made to bear interest at six per cent., and to fall due in
thirty years.” It was naturally expected that the Legislature would
ratify the action of its committee. Much to the surprise of every one
concerned, it not only rejected the proposition, but decreased the tax
rate from forty to ten cents per hundred dollars, and thus made the
payment of interest absolutely impossible.
Later in the year the bondholders presented a second proposition, in
which they agreed to a scaling of the debt fifty per cent., but this
was also rejected by the Legislature.
In 1879 a committee was appointed by both Houses of the Legislature to
investigate and report upon the State debt. This committee, after
taking a great amount of evidence, presented an elaborate report.
Acting upon this report the Legislature passed a second bill, March
31st. It provided for the issue of bonds bearing four per cent.
interest to be exchanged for outstanding bonds with the interest
accrued thereon, at the rate of fifty per cent. on the dollar. It was
not to become a law until approved by a vote of the people, and two
thirds of the bondholders. The consent of the bondholders was readily
obtained, but the measure was defeated at the polls.
A settlement of the debt now seemed hopeless. It was the chief issue
in the gubernatorial campaign of 1880. The divisions of the Democratic
party resulted in the election of the Republican candidate, Alvin
Hawkins. The newly elected Legislature was also favorable to the
bondholders. A bill was passed which provided for the funding of the
outstanding debt at par, the new bonds to bear interest at three per
cent., and the coupons to be receivable for taxes. The bill was signed
by the Governor, and went into effect in April. It was regarded
as a great triumph for the bondholders, but their rejoicing
was short-lived. In a test case the courts decided the law
unconstitutional, on the ground that the Legislature could not make a
valid contract in which the coupons should be receivable for taxes for
ninety-nine years. This decision reopened the whole question.
The defeat which the Democrats had suffered in 1880 served to unite
them in 1882. Their candidate, W. B. Bate, was elected Governor. In
his message to the Legislature, Governor Bate marked out a plan for
the settlement of the debt which was finally adopted, by an act passed
March 15, 1883. This act declares: “That the State will pay in full
the bonds held by Mrs. James K. Polk, and all bonds held by
educational, literary, and charitable institutions in the State; that
it will pay in discharge of its just obligations, what is known as the
State debt proper in full, less war interest; and that in compromise
of the remainder of the debt, known as the railroad debt, it will pay
one half of the principal and accrued interest by issuing therefor
bonds of the State bearing interest at the rate of three per cent. per
annum.”