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 ma.s.s of waste paper, where any thief might have taken it and put it again into circulation. One transaction may be cited as an ill.u.s.tration 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 subst.i.tuted 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 cla.s.ses: (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 subst.i.tution 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 cla.s.s 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

Cla.s.s One $11,667,470 Cla.s.s Two 1,156,000[1630]

Cla.s.s Three 2,573,093 Cla.s.s 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 Cla.s.s 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 const.i.tuted the least questionable part of the debt.

II. On the $1,192,000 railroad debt of Cla.s.s Two the state accepted a clear loss of one-half, and issued $596,000 in bonds, known as Cla.s.s B, to be exchanged at the rate of one for two. These bonds drew interest at 5 per cent.

III. Cla.s.s 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 Cla.s.s 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. Cla.s.s Four was more complicated. (_a_) The state gave $1,000,000 in bonds, Cla.s.s 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 indors.e.m.e.nt 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.

CHAPTER XVIII

RAILROAD LEGISLATION AND FRAUDS

Federal and State Aid to Railroads before the War

For forty years before the Civil War there was a feeling on the part of many thoughtful citizens that the state should extend aid to any enterprise for connecting north and south Alabama. It was an issue in political campaigns; candidates inveighed against the political evils resulting from the unnatural union of the two sections. South Alabama was afraid that the northern section wanted connections with Charleston and the Atlantic seaboard, and not with Mobile and the Gulf; the planters of the Black Belt wanted the mineral region made accessible; the merchants of Mobile wanted all the trade from north Alabama; the Whig counties of south and central Alabama wanted closer connections with the white counties for the purpose of enlightening them and preventing the continual Democratic majorities against the Black Belt at elections.

At first it was proposed to build plank roads and turnpikes between the sections and thus bring about the desired unity. These failed, and then there was a demand for railroads. There were also other reasons for internal improvements. Not only ought the two antagonistic sections to be consolidated, but emigration to the West must be prevented, for thousands of the citizens of the state had gone to Texas during the two decades before the war. There was a general feeling that the state only needed railroads to make it immensely wealthy, and a large "western" element demanded that the state or the Federal government a.s.sist in thus developing the resources of the state and in uniting its people. During the session of 1855-1856, though the governor vetoed thirty-three bills pa.s.sed in aid of railroads, still the legislature voted $500,000 to two roads.

However, conservative sentiment, strict constructionist theories, sectional jealousies, and the knowledge of the sad experience of the state in other public enterprises[1638] operated against state aid to internal improvements, and before the $500,000 bonds were issued the act appropriating them was repealed, thus putting an end to the last attempt at direct state aid before the war.[1639]

In 1850 Senator Douglas of Illinois began the policy of Federal aid to railroads by securing the pa.s.sage of a bill in aid of the Illinois Central Railroad. The Alabama delegation was then opposed to such a measure, but Douglas visited Alabama, conferred with the directors of the Mobile Railroad, and promised to include that road in his bill in return for the support of the Representatives and Senators from Alabama and Mississippi.

The directors then brought influence to bear, and the two state legislatures instructed their congressmen to support the measure, which was pa.s.sed.

Thus began the Federal policy of granting alternate sections of public land along a road to the state for the corporation. Later, the grants were made directly to the corporation. Before 1857, land to the extent of 307,373 acres had been granted to Alabama railroads,[1640] and liberal aid had also been given for improving the river system of the state.[1641] By the act of admission to the Union in 1819, Alabama was ent.i.tled to 5 per cent of the proceeds from the sales of public lands, to be used for internal improvements. Three per cent was to be expended by the legislature, and 2 per cent by Congress. In 1841 Congress relinquished the "two per cent fund" to the state to aid railroads and other public enterprises from "east to west" and from "north to south." The State Bank failed and the "three per cent fund" was lost, but the legislature a.s.sumed it as a debt and issued state bonds to the railroads to the amount of $858,498. The "two per cent fund" was loaned before the war as follows:--

To east and west roads $256,438.85 To north and south roads 202,551.02 Balance 52,246.23 ----------- Total $511,236.10[1642]

In 1850 there were two railroads in the state with a total of 132.5 miles of track, which cost $1,946,209. In 1860, there were eleven roads, 743 miles long, costing $17,591,188.[1643] During the Civil War the roads received much aid from the state and Confederate governments, though during this time only a few miles of track were built and some grading done. At the end of the war all were completely worn out or had been destroyed. The want of railroad communication with the armies and between the various sections of the state caused much suffering among soldiers and civilians, and after the war the people were more than ever anxious to have roads built. For two years the railway companies were busy repairing the old roads, but by 1867 popular opinion demanded new roads.

General Legislation in Aid of Railroads

The provisional legislature, on February 19, 1867, pa.s.sed an act which served as a basis for all later legislation. The governor was authorized to indorse its first mortgage bonds to the extent of $12,000 per mile, when 20 miles of a new road should have been completed, and to continue the indors.e.m.e.nt at that rate as the road was built. No indorsed bonds were to be sold by the road for less than 90 cents on the dollar, and the proceeds were to be used only for construction and equipment. The state was to have two directors, appointed by the governor, on the board of each road receiving state aid.[1644] The Reconstruction Acts of Congress were pa.s.sed a few days later, however, and there was no opportunity for this law to go into effect.

The first Reconstruction legislature[1645] increased the endowment to $16,000 a mile, authorized the indors.e.m.e.nt of bonds in five-mile blocks instead of twenty-mile blocks, as before, and to the roads that proposed to extend outside of the state it promised aid for 20 miles beyond the boundaries of the state.[1646] The next session Governor Smith, in a message to the legislature, stated that the indors.e.m.e.nt law was defective; that he was in favor of lending the credit of the state, but objected to a general statute requiring indors.e.m.e.nt of any road; that there was danger that the roads would depend entirely upon indors.e.m.e.nt and would have no paid-up capital; moreover, taking advantage of the railroad fever, roads would be built where they were not needed; that aid should be given only to those capitalists whose enterprises promised success.

Finally, he advised that the law be repealed and aid be given only in specific cases.[1647]

The legislature responded to the Governor's message by another general law, practically reenacting the former laws. By its provisions proof was required that the five-mile block had been built and that the road-bed, rails, bridges, and cross-ties were in good order, before the first issue of the bonds was made. The company was to show what use was made of the bonds. The indors.e.m.e.nt was to const.i.tute a first lien in favor of the state, and in case of default of interest by the road, the governor was to seize and sell the road if necessary.[1648] A few days later a sweeping measure was pa.s.sed, declaring that all acts and "things done in the state"

for railroad purposes were ratified and made legal.[1649] This was the last general legislation enacted while the railroad boom continued.

Governor Lindsay and the pseudo-Democratic lower house stood out against railroad legislation, and the indorsed roads were in bad condition when the next scalawag governor was elected. Under Governor Lewis, in 1873, an act was pa.s.sed to relieve the state of some of its obligations. Roads ent.i.tled to an indors.e.m.e.nt might take instead a loan of $4,000 per mile in state bonds, and roads already indorsed might exchange indorsed bonds for state bonds at the rate of four for one. But no state bonds were to be given for fraudulent issues of indorsed bonds, and when exchanges were made the road was released from all obligations to the state.[1650] Had the roads accepted this offer, the state would have suffered only a loss of $482,000 in interest each year. However, from this time on the state authorities were busy trying to extricate the state from the bankruptcy caused by indorsing the railroad bonds.

The Alabama and Chattanooga Railroad

The Alabama and Chattanooga Railroad was the first of the roads to apply for aid under the indors.e.m.e.nt law, and was in the worst condition. The story of this road is the story of all, only of greater length and more disgraceful. The Alabama and Chattanooga Railroad Company was made up of two older corporations, which, pa.s.sing into the hands of Boston financiers, united in order to secure the spoils from the state. Before the union the officials had secured special legislation for one of the old roads, the Wills Valley. The sharpers who were engineering the scheme had agents at Montgomery when the Reconstruction legislature met, and these were instrumental in having the indors.e.m.e.nt raised from $12,000 to $16,000 a mile. The second corporation was the Northeast and Southwest Alabama Railroad.[1651] The proposed road would be 295 miles long, and when completed would be ent.i.tled to $4,720,000 from the state in indorsed bonds. The law was explicit in regard to indorsation, but Governor Smith, notwithstanding his opposition to the principle of the law, was criminally careless, if no worse, in the way he administered it. The first 20 miles were not built as required by law, but were purchased from the old Northeast and Southwest Alabama Railroad. Moreover, the road was never properly equipped, and the 20 miles from Chattanooga, on which indors.e.m.e.nt amounting to $320,000 was secured, were only rented from another corporation (which was already indorsed to the amount of $8000 per mile by the state of Georgia), and the rent was paid from the proceeds of the indorsed bonds, which by law should have been applied only to construction and equipment. Nor was the rented road equipped.[1652]

The indorsed bonds of the road to November 15, 1869, amounted to $1,800,000,[1653] and Auditor Reynolds reported in 1870 that the indors.e.m.e.nt to September 30, 1870, was $3,840,000 on 240 miles.[1654]

These figures should have been correct, but they were not. In fact, 240 miles had been roughly finished, but the indors.e.m.e.nt was far above the legal limit. On December 5, 1870, a few days before he retired from office, Smith reported to the legislature that he had indorsed the Alabama and Chattanooga road for $4,000,000 for 250 miles.[1655] The facts, as afterwards disclosed, were that only 240 miles were completed, and of these only 154 were in Alabama. Yet he had issued bonds to the amount of $4,720,000, covering not only the whole 295 miles of the proposed road, but also including $580,000 in excess of what the law allowed to the completed road, which with equipment was worth only $4,018,388. So here were $1,300,000 in bonds which were clearly fraudulent. There was no further indors.e.m.e.nt of this road.[1656]

As if the enormous issue of indorsed bonds was not enough for the Stantons of Boston, who were in control of the corporation, a second descent of railroad promoters was made on the legislature in 1869-1870, and $2,000,000 in direct state bonds were obtained for the Alabama and Chattanooga Railroad. Indors.e.m.e.nt was not enough for them. The act stated that the bonds were to be issued from time to time as needed for use in construction within the state, and in return the railroad lands were to be mortgaged to the state.[1657] In order to secure the pa.s.sage of this act, the most shameful bribery was resorted to by the agents of the railroad and of the New York capitalists who were financing the Stantons. One of the Stantons came to Montgomery, also an agent from the banking house of Henry Clews & Company, and agents from other houses interested in the Stanton scheme. The Stantons themselves had no money except what they received from the state. On February 4, 1870, the bill failed in the House; but on February 5 a reconsideration was moved and the bill was referred back to the committee with directions "to report within fifteen minutes." The report was favorable, and the members having seen the light, the bill was pa.s.sed by a vote of 62 to 27.[1658] From the first, specific charges of bribery had been made against those who, within three days, had changed from active opposition to support of the measure.[1659] A year later the House had a majority of young and inexperienced Democrats, and they ordered an investigation. The Senate, with one solitary exception, was still Radical. The investigation brought to light many unpleasant facts relating to the methods employed in securing the pa.s.sage of the $2,000,000 appropriation and other railroad bills. Jerre Haralson, a negro member, told his experience. Jerre was opposing the grant and posing as a Democrat because he had not been sufficiently remembered on previous occasions when the spoils were divided. Hearing that something was to be divided, he went to Stanton's room, where, he said, there were many members. Caraway, the negro member from Mobile, told Haralson that he (Caraway) would not vote for the grant for less than $500. Stanton had four rooms at the Exchange Hotel, to which, at his invitation, all the purchasable members went. Stanton would take the members, one at a time, into the hall, after which that member would leave. Haralson, to his sorrow, was not called into the hall, but the next day he heard from the other negro members that money was to be had, so he called again. Stanton then accused Haralson of being a Democrat, but Haralson replied that he had left that party, and after receiving a "loan" of $50, he went home.[1660]