According to the comptroller's report for 1915 the permanent school fund had on hand August 31, 1915, $1,703,317 of railroad bonds. Of these $1,603,317 were purchased under the act of 1856 and $100,000 were state penitentiary railroad bonds. The actual amount of the bonds purchased under the act of 1856 which were in good standing was $263,533.2 The railroads which had borrowed of the school fund under the act of 1856, with the exception of the Houston Tap and Brazoria which was sold under foreclosure proceedings by the state in 1871, made payments of interest and sinking fund in accordance with the act of August 13, 1870. The Houston and Texas Central acting for the Washington County Railroad stopped payments to the school fund on the debt of the Washington County Railroad on November 1, 1879, claiming that the debt to the fund was paid.

The contention of the Houston and Texas Central was that the state warrants which had been received by the state for the interest and sinking fund obligations of the Washington County Railroad were valid tender and that the amount of the payments in such tender added to the payments since 1870, together with payments at other times, constituted a full discharge of the debt.3

1 Laws of 1901, p. 312. Laws of 1909, p. 216. In 1910 Galveston County Causeway bonds were admitted to the list of legal investments. Special Laws of 1910, pp. 53, and 161. Rev. Civil Stats., 1911, art. 2736.

2 Report of the Comptroller, 1915, p. 18. The amount given in table three of this report should be changed to fit the facts. See also Report of the State Treasurer, 1914, p. 36.

3 Message of Governor Roberts on the Special School Fund Loaned to Railroad Companies, January 11, 1881. Report of the Comptroller, 1891, p. XIX.

The state did not contest the refusal of the railroad to make further payments. In 1883, however, when the state made provision for the payment of the bonds which had been executed to the school fund under the act of November 15, 1864, it was enacted that the interest and sinking fund payments on the amounts paid in warrants by the railroads in 1864 and charged as principal in 1870, which payments the railroads were making under protest, should thereafter constitute a part of the revenue of the state.1 The amount paid over by the available school fund during the ten years 1885-1894 was $90,957.46. The Houston and Texas Central and the Galveston, Harrisburg and San Antonio railroads made payments up to November 1, 1893, of the interest and sinking fund on their own debts to the school funds, but they stopped payments at that date and claimed that their debts to the fund were fully paid. This claim was based, like that in behalf of the Washington County Railroad, upon the validity of the payments in state warrants in 1864 and 1865. The state brought suit to compel further payments, and the district and the supreme courts of the state found in favor of the state. The state courts held that the payments in treasury warrants in 1864 and 1865 were null and void. But the Supreme Court of the United States reversed the decision and held that the payments in state warrants were valid.2 The Southern Pacific (the old Texas and Pacific) and the Texas and New Orleans were the only roads indebted to the school fund which were not involved in this decision. The Southern Pacific completed payment on its debt in 1898, and the railroad bonds held by the permanent school fund were accordingly reduced $150,000 in amount. The Texas and New Orleans was the only road on August 31, 1915, which was indebted to the permanent fund under the act of 1856, and this was to the amount of $263,533.3

The policy of investment for the permanent school fund since the Civil War has been to restrict the investments to public securities, and this has been a wise policy. The success, with one exception, of the investments in railroad bonds under the act of 1856 does not ensure the success of similar investments today. The old investments were made before the days of overcapitalization abuses, and though railroad capitalization is regulated in Texas today, this regulation has not prevented roads built subject to the law from getting into serious financial difficulties. The restrictions imposed upon the issue of public bonds and the broadness of their security make them the safest investments for trust funds.

1 Laws of 1883, p. 15.

2 H. & T. C. R. R. v. Texas, 177 U. S., 66-103 (1899). Report of the Comptroller, 1898, p. XI, and 1902, p. 5.

3 The reports of the comptroller, however, contain tables of the obsolete indebtdness of the Galveston, Harrisburg and San Antonio, the Houston and Texas Central, and the Washington County railroad companies. See Report of the Comptroller, 1915, pp. 19-20.

In 1883 the state "debt of doubtful validity" held by the permanent school fund was validated and ordered paid with accrued interest of $111,414.45.1 The 6% bonds to the amount of $320,-367.13 which had been held by the school fund since May 13, 1865, were paid with accrued interest in 1883; but the principal of the $82,168.82 5% bonds; which had been carried by the fund since 1868, were not paid until 1885, though the accrued interest on them was paid in 1883.

In addition to the state permanent school fund there are county permanent school funds which are based on the land grants made to the counties for educational purposes. The sale of the lands and the investment of the proceeds have been vested in the county commissioners' courts, subject, however, to a modicum of state regulation. On August 31, 1914, the several county permanent school funds amounted as follows:2

The income of the county funds in 1914 was $545,816.

1 Laws of 1883, p. 15.

2 MSS. Report of the Superintendent of Public Instruction, 1913-1914. No statistical report of the superintendent of public instruction was published for 1913-1914. For a brief account of the legislation to 1890 relating to county school lands see Sayles, op. cit., pp. 411-417.