CHAPTERVIIFINANCIAL ADMINISTRATION OF THE RADICAL GOVERNMENTThejoint 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.”
Thejoint 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.”