This bond issue represented in the main only a change in the form of the state debt. Only $200,000, or the par value of that sold to meet current deficiencies in the ordinary revenue, was an addition to the debt; the remainder, or $1,447,000, merely took the place of maturing bonds and of unfunded debt whose origin antedated January 15, 1874. The conversion of the 10 per cent funding bonds saved the state $20,136 on its annual interest charge.

1 As $1,000 were redeemed in 1881-2, the total outstanding until retirement was $1,647,000.

2 House Journal, 16th Leg., Reg. Sess., p. 806.

3 The balance, or $8,103, is not traceable in the reports. Some of it went for commissions on sale, some for express charges. Included in the amount to pay certificates of public debt is $3,000 of bonds transferred in 1882-3. Special accounts were set up on the books of the treasury in the name of the several objects of payment, and later when the claims appear to have all been out, the balances were transferred to the general revenue account. Balances transferred in 1879, 1885, and 1893 amounted to $18,743.70.

In 1879 the opportunity to convert the 10 per cent pension bonds was seized. These were redeemable at the pleasure of the state after July 1, 1879, and provision was made for their redemption by the act of April 21, 1879.1 By this act $2,573,000, 5 per cent, 30 year bonds, and $1,000,000, 4 per cent, 20 year bonds were authorized. It was provided that the proceeds of $200,000 of the bonds should go to supply deficiencies in the current revenues, and that the proceeds of the remainder of the issues should be applied to the payment of the outstanding bonded debt, being applied first to the payment of the pension bonds and certificates for pension bonds. Holders of bonds to be retired were extended the privilege of exchanging them for the new bonds at the latter's market value, but at not less than par; and holders of warrants could fund them in the 4 per cent bonds on the same terms. The 4 per cent bonds were of the denominations of $5 and $10, and the expectation was that the demand for them would come from holders of warrants and small investors. A total $1,117,300 of the 5 per cent, and $4,620 of the 4 per cent bonds were sold or exchanged in 1879 and 1880, and these remained as the amount outstanding.2 $143,700 were exchanged at par for pension bonds held by the special funds, and the remainder of those issued were sold to private investors, realizing a total premium of only $2,545. The proceeds were used to take up pension bonds and certificates to the amount of $l 118,448 and to pay $202,545 of 4 per cent deficiency warrants issued in 1879.1 The addition to the debt by the bond issue was $200,000, which was the amount used to meet deficiencies; the remainder of the issue was for the conversion and the funding of existing debt. The saving in the annual interest effected by the conversion of the 10 per cent pension bonds into 5 per cent bonds was $55,721.70.

1 Comptroller's Report, 1877-8. Message of Governor Hubbard, January 14, 1879. Message of Governor Roberts, January 29, 1879. Laws of 1879, p. 120.

2 The 4's were only a novelty, and those sold were purchased to gratify a fancy. As the 5's were on the market the 4's were not attractive as an investment. It was expected that they would be used to pay the current debts of the state, but the condition of the treasury after May 1, 1879, made this use of them unnecessary. Message of Governor Roberts, January 11, 1881.

In May, 1879, the treasury went on a cash basis and there came an end to the chronic annual deficiencies in the general revenue account. Though special funds were drawn upon and bonds were sold and the proceeds turned over to the general revenue account, each year saw a deficit and the holders of warrants who had not been able.to anticipate the situation by charging higher prices to the state had to bear the loss of the discount.2 Claims accruing between September 1, 1876, and February 29, 1879, on account of inadequate appropriations, which includes $80,000 for teachers' services prior to July 1, 1873, were appropriated for in 1879 to the amount of $540,000, and it was provided that until paid they should draw 4 per cent interest. These, except for teachers' services, were paid in 1879 and 1880.3

Until the amendment to the penal code in 1875 making it a misapplication of public money for any public officer having public money in his keeping to purchase state warrants, public money was used for private speculation by sheriffs and other officers.4 Until 1879 the practice also prevailed at the treasury to pay warrants irrespective of their date and number, but Treasurer Lubbock adopted the rule of payment according to date and number.1

1 Message of Governor Roberts, January 11, 1881. For act authorizing deficiency warrants to draw 4 per cent interest, see Laws of 1879, p. 180.

2 During 1874 warrants were quoted in the market at from 70 to 97 cents on the dollar; in 1875, from 88 to 98 cents; in 1876, from 82 to 97 cents. In February, 1879, they were selling at 92 cents. Galveston News, December 7, 1876, and February 23, 1879.

3 Deficiency warrants were quoted at 85 and 86 in August, 1879; and at 93 and 93 1/2 in December, 1879. Galveston News, August 30, and December 28, 1879.

4 Message of Governor Coke, January 12, 1875. Laws of 1875, p. 11.

The Constitution of 1869 enjoined the establishment of a sinking fund of 2 per cent when any bonded debt was authorized. The only sinking fund established in accordance with this provision was one for the frontier defence bonds of 1870. It was a combined interest and sinking fund, and an amount of taxes was supposed to be turned over to it sufficient to pay annually the interest on the bonds and 2 per cent of the principal. Its receipts were not adequate to meet even all of the interest on the bonds, for that on the bonds held by the Agricultural and Mechanical College went overdue. In 1874 $20,000 of the bonds were redeemed and canceled, but after 1874 the fund was not maintained, and it was closed in 1878 and $5,000 of bonds redeemed with the money then on hand.