The four things which stand out prominently in the history of the public debt since 1880 are the reduction in the amount of the debt, the refunding operations, the acquirement of the bonded debt by the school and other special funds, and frequent deficiencies in the general revenue resulting in harassing floating debts.

The bonded debt, exclusive of "the debt of doubtful validity" held by the school and university funds, was reduced from $5,029,98O in 1880 to $3,976,200 in 1915, making a reduction of $1,053,720. If "the debt of doubtful validity" be included, the reduction for the period amounted to $1,892,066. The payments made in 1881, 1882 and 1883 amounted to $1,680,244. The so-called debt of doubtful validity consisted of the five per cent bonds issued to the school and university funds under authority of the act of November 12. 1866, the six per cent bonds issued to the school fund in 1865, and a comptroller's certificate of indebtedness issued to the university fund in 1865. All of these obligations were validated in respect to both principal and accrued interest and were ordered paid by the act of February 23, 1883.1 The principal and accrued interest of these old debts amounted to $738,346. $688,054 of the amount was paid in 1883. but on account of insufficient means the remainder was not paid until 1885. Payments of the public debt which have been made since 1885 were $243,000 in 1892, $2,700 in 1893, $2,585 in 1899, $45 in 1900, $11,900 in 1910, and $1,300 in 1911 - a total since 1885 of $261,530. The debt paid during these years was that held mainly by individuals and not that held by the trust funds of the treasury.

In 1909, as a result of the penalty of $1,718,009 paid to the state by the Waters-Pierce Oil Company, the legislature ap-propriated $1,068,900 to pay the state debt maturing in 1909. This debt consisted of the 5% thirty year bonds issued in 1879, and the trust funds held $933,500 of the amount. The appropriation was vetoed, however. The reasons for the veto given by the governor were, first, that the method of debt payment required by the constitution (art. 3, sec. 48) was through the accumulation of a two per cent sinking fund; and, second, that granting constitutionality, payment as contemplated would lay in one year a too heavy burden of taxation upon the people.1 The constitution not only does not enjoin the method of payment by a sinking fund, but the history of debt payment subsequent to 1876 does not support the first ground for the veto. The large payments made in the early eighties were mainly out of the proceeds of land sales under the "Fifty Cents Law," and out of the general revenue fund.2 A sinking fund was provided for in 1879, to which there was transferred from the general revenue fund $100,000 in 1880, $150,000 in 1881, and $100,000 in 1882, or a total of $350,000, out of which disbursements were made through 1883 of $346,639.73.3 Contrasted with this amount paid through the agency of a sinking fund are $740,589.90 paid out of the proceeds from land sales under the act of July 14, 1879, $192,664.62 out of the general revenue in 1881, and $852,424.79 out of the general revenue in 1882. The total payments on the funded debt out of the sinking fund, the land sales act, and the general revenue amounted during the three years 1881-1883 to $2,132,379. The difference between this amount and $1,680,244. which was the amount of debt paid, is $452,135, and this difference represents premiums and commissions paid by the state.

1 Laws of 1883, p. 15.

The debt paid in the early eighties was the 6% and 7% bonds maturing in 1892, 1904, 1909, and 1910. All of these bonds commanded a very high premium in the market. The 7% bonds due in 1904 were bought at a premium of $40 on the $100; the 7's redeemable at the pleasure of the state in 1890 brought a premium of $30 and $31; the 6's due in 1892 brought a premium of $25; and the 5's due in 1909 were bought at a premium of $14 and $15.1 In spite of the high premium paid, the gain to the state through interest saved was considerable.2 At the same time the premiums were more than they should have been. Their height was due partly to the attractiveness to private investors of the interest rates which the bonds bore, but more especially to the unnecessary competition between the state to secure the bonds for payment and the school fund and the counties to secure the bonds as investments. Until 1884 the permanent school fund was restricted by the constitution in its investments to United States and State of Texas bonds only, and the large amount of proceeds accruing to the fund from sales of land at a time when both the Federal and the state governments were engaged in debt reduction worked a hardship upon the fund and made the cost of debt payment uselessly dear to the state.3 In 1883 a constitutional amendment was adopted which permitted the investment of the permanent school fund in county bonds, and this permission became statute law in 1884.4

1 Laws of 1909, p. 536.

2 Laws of 1881, p. 51.

3 In the Report of the Comptroller, 1879-1880, the general revenue gives $200,000 as the amount transferred to the sinking fund, but the latter fund gives only $100,000 as the amount received. The latter figure appears to be the correct one.

The trust, or special, funds in the treasury, consisting of the permanent school fund, the permanent university fund, the Agricultural and Mechanical College fund, and the several asylum funds, have come to hold since 1880 the entire bonded debt of the state. In 1880, 34.45% was held by them; in 1890, 71%; in 1900, 81.99%; and in 1911, 100%.

The policy of the state's trust funds to hold the bonded debt has made possible the refunding of the state debt on practically a three per cent basis. In 1891 $201,000 of the 7% "frontier defense" bonds of 1870 held by individuals were refunded into 5% bonds; in 1893 $486,500 of the 6's and 7's maturing in 1890 and 1891 and held by the trust funds were refunded into 4% and % bonds; in 1903 $288,000 of 7's held by the trust funds were refunded into 3's; in 1905 $1,647,000 of 6's held by the trust funds were refunded into 3's, and in 1910 $1,353,-700 5's and 7's held by the trust funds were refunded into 3's. In 1880 43.4% of the debt bore 7% interest; 34.2%, 6%; 22.2%, 5%; and only one-ninth of one per cent bore as low as 4% interest. In 1912 82.7% bore 3% interest; 8.4'% bore 4%; and 8.8% bore 5% interest. The annual interest charge has as a result of debt payment and refunding decreased from $312,389 in 1880 to $129,691 in 1915.

1 House Journal, 17th Leg., Called Sess., p. 112. The Commercial and Financial Chronicle, vol. 34, p. 379, and vols. 32-39 passim.

2 In the case of the 7's which were not payable until 1904, the interest on a one hundred dollar bond from 1882 was $154, and the $40 premium deducted leaves a net gain of $114.

3 The Galveston News, April 10, 1881; April 6, 12, June 27, July 1, November 19, and December 14, 1882. Report of the Comptroller, 1881-1882, and 1884. Message of Governor Roberts, January 10, 1883. House Journal, 18th Leg., p. 10.

4 Laws of 1883, p. 131. Laws of 1884, p. 38.