Western Texas took a vital interest in the construction of the road, which caused strong resentment to be expressed against the legislature and the governor, and the old talk of dividing the state to be revived.3 Consideration of the interests of the western section and of the railway company led finally to a settlement of the controversy whereby the company received twenty sections of land per mile of road and exemption from all state, county, city, and other taxes for a period of twenty-five years.4

The possession of a vast public domain thus enabled the state to escape a public debt in aid of internal improvements which would have proved very burdensome at this time in its financial history. To guard against a debt of this character in the future the Constitution of 1876 forbade the legislature "to give or to lend, or to authorize the giving or lending, of the credit of the state in aid of, or to, any person, association or corporation, whether municipal or other; or to pledge the credit of the state in any measure whatsoever, for the payment of the liabilities, present or prospective, of any individual, association of individuals, municipal or other corporation whatsoever."5 The Constitution of 1869 did not contain such a prohibition, nor did it put any limit on the debt creating power of the legislature, except that it should provide adequate means for the payment of current interest and a 2 per cent sinking fund.1 The Constitution of 1876, however, did not enjoin any sinking fund, but it limited the debt which might be created at any time to supply casual deficiencies in the revenue to $200,000, and confined the creation of debt to this purpose and to repel invasion, suppress insurrection, defend the state in time of war, and pay pre-existing debt.2

1 House Journal, 14th Leg., Second Sess., pp. 380, 406, 407, 415, 422, 436.

2 Ibid., p. 487. The reasons given for the veto were (1) that if the intention of the bill was to use the proceeds of the state bond purchases by the railroad company to pay the interest on the subsidy bonds, the bill required a two-thirds majority; (2) that the payment annually of 2 per cent of the gross earnings was a mere pittance as compared with the interest on the bonds; (3) that the people were over-taxed; and (4) that the original act was unconstitutional.

3 San Antonio Daily Herald, March 3, 6, and 8, 1875. The governor was bitterly assailed as a "time server" and as being entitled to the "ineffable scorn and loathing of the people of Western Texas."

4 Senate Journal, 14th Leg., Second Sess., p. 503. Special Laws, 1875, p. 69. The International Railroad became later the International and Great Northern.

5 Art. 3, sec. 50.

The maturino- of bonds in 1876 and 1877, the desirability of replacing bonds bearing 10 per cent interest with bonds bearing lower interest, the existence of floating claims of long standing, and the persistent recurrence of deficiencies in the ordinary revenues, made necessary some debt legislation in 1876. The act of July 6, 1876, authorized the issue of $1,675,000, 6 per cent gold bonds, payable thirty years from July 1, 1876. It was provided that $800,000 should be coupon bonds, $875,000 registered, and that none should be sold below par.3

The disposition of the proceeds of the issue was stipulated in the act. The holder of any of the claims for the payment of which the act provided was authorized to exchange them for bonds at the current market value of the bonds, but at not less than par. In order to aid the floating of this issue, the legislature authorized first the sale of the United States bonds held by the permanent school fund and the investment of the proceeds in state bonds, and, second, the investment of certain funds of the Agricultural and Mechanical College in state bonds. The legislature required the investment of the proceeds of the sale of university lands in the bonds.4

1 Art. 12, sec. 23.

2 Art. 3, sec. 49.

3 Laws of 1876, p. 40. This legislation was recommended by Governor Coke in his message of April 19, 1876, and the bill was reported by the house finance committee, May 30, 1876; Galveston News, May 31, and July 1, 1876.

4 Laws of 1875, pp. 38, 44, 216, 283. A minority of the house finance committee dissented against the bill to sell the United States bonds on the ground that it consulted only the exigency of the state treasury; Galveston News, July 4, 1876. The sale was a fortunate one,however, for they were sold at a premium of $81,741, which premium would have been lost because the bonds were called for payment by the United States Treasury on December 1, 1876.

By August 31, 1880, $1,647,000 of the 6 per cent bonds had been issued, and this remained the total amount except for $1,-000 added in 1881-2.1 The bonds were sold as follows: $500,000 to the American Exchange National Bank of New York at 102 1/2; the balance, or $1,147,000, to the special funds, the permanent school fund taking $945,000, the university land sales fund, $167,000, and the Agricultural and Mechanical College fund, $35,000. The special funds paid par for all bonds purchased, except that the university fund paid for 45 and the permanent school fund for one at the rate of 102 1/2. The total realized on the $1,647,000 was $1,660,650, or a premium of $13,650.2 The proceeds of sale were disposed of as follows: $100,000 in 1876 and $101,125 in 1877 to the general revenue fund to meet ordinary deficiencies; $19,999.92 in payment of 10 per cent warrants issued prior to January 28, 1861; $59,797.84 in payment of certificates of debt issued by the auditorial boards of 1866 and 1871; $45,280 in payment of interest on state bonds held by the Agricultural and Mechanical College; $42,721.29 in payment of warrants outstanding on the general revenue fund; $376,223 in payment of warrants drawn in favor of school teachers for services prior to July 1, 1873; $279,000 in payment of 10 per cent revenue deficiency bonds due July 1, 1876; $125,-000 in payment of the 6 per cent Throckmorton bonds due January 1, 1877; $503,400 in payment of the 10 per cent funding bonds of 1873 and 1874, retirable at pleasure on and after January 1, 1877. The total of the proceeds thus disposed of was $1,652,547.3