The permanent school fund had in bonds and cash on August 31, 1880, $3,542,126 ; and on August 31, 1914, it had $18,030,326 in bonds and cash, and $47,067,427 of promissory notes of the purchasers of school lands.1 Superficial comparison of these amounts shows a very large growth in the principal of the fund, but as a matter of fact the growth represents the conversion of the land endowment into bonds and cash. There were 24,850,629 acres of unsold school land in 1880, and the amount in 1914 was 1,847,445 acres. The total amount of cash received by the permanent school fund from land sales during the period 1880-1914 was about seventeen million dollars. Owing to the defective administration of the school lands during the larger part of this period, however, the permanent fund received little of the increase in the value of the lands after 1880.

The rapid accrual of the proceeds of the sale of the lands necessitated changes in the law regulating the investment of the permanent school fund. Until 1883 investment was restricted to United States bonds and State of Texas bonds. The pressure of trust funds seeking investment in United States and the state's bonds on the one hand, and on the other hand the activity of the United States and the state during the early eighties to secure their bonds for payment forced the permanent school fund and the other trust funds of the state to pay large premiums on all bonds which they bought. For example, the par value of the bonds purchased in 1881 and 1882 for the educational and asylum funds of the state was $894,836, but on account of premiums the cost was $1,146.260.2 A constitutional amendment was proposed and adopted in 1883 which provided that investment should be in the State of Texas and United States bonds, bonds of counties in this state and in such other securities as the legislature might direct.1 County bonds were the only new investments authorized by the legislature.2 On August 31, 1884, the permanent school fund held $1,602,298 of county bonds; and on August 31, 1915, it held $9,188,575. In 1885 it was enacted that no bonds which bore less than six per cent interest, other than those of the State of Texas or of the United States should be purchased by any trust fund of the state, nor, with the same exception, should more than par be paid for any bond.3

1 The amount of land notes held by the fund in 1880 is not published in any of the state's reports. Table number three of the Report of the Comptroller for 1914 gives as the amount of railroad bonds held by the fund $1,703,317. This figure is a wholly obsolete one; the actual amount, including $100,000 of state penitentiary railroad bonds, was $368,884. Report of State Treasurer, 1914, p. 36.

2 The Galveston News, February 13, 1883.

In 1891 Governor Hogg advocated that the first mortgage bonds of railroads which might thereafter be constructed in the state should be added to the legal list of investments of the permanent school fund.4 This proposal ranked in popular interest next to the proposed creation of a railroad commission.5 It was argued in favor of the proposal (1) that existing provisions relating to investments were not sufficient to prevent a surplus from accumulating in the permanent fund; (2) that investments in county bonds were encouraging a spirit of extravagance in the counties; (3) that needed railroad construction would be fostered, and (4) that previous investments of the fund in railroad securities had been satisfactory.6 In opposition it was stated (1) that the security would be inadequate; (2) that speculative railroad building would be stimulated; and (3) that there were more important objects than railroads which needed to be encouraged.7 Substitute proposals were (1) that loans should be made to the people on real estate security, or (2) that the state should borrow the money at a low rate of interest and apply the proceeds to meeting current expenditures, thereby reducing taxes; or (3) that investments in the securities of towns and villages organized as school districts should be authorized.1

1 Laws of 1883, p. 131. Laws of 1884, p. 1.

2 Laws of 1884, p. 39.

3 Laws of 1885, p. 41.

4 House Journal, 22nd Leg., Reg. Sess., p. 113.

5 The Galveston News, February 1, 1891.

6 Message of Governor Hogg, January 21, 1891; House Journal, 22nd Leg., Reg. Sess., p. 113.

7 See Galveston News, January 28, and February 1, 1891. The News itself seemed to favor Governor Hogg's proposal.

None of the foregoing proposals was adopted, but instead an amendment to the constitution was proposed and adopted in 1891 which authorized the legislature to transfer annually from the permanent school fund to the available school fund not more than one per cent of the permanent school fund, and in 1892 a law was enacted which provided for an annual transfer of one per cent.2 The purpose of this amendment and statute was to help the available school fund in its effort to carry out the constitutional mandate that the public free schools should be maintained each year for a period of not less than six months.3 The law was repealed March 1, 1899, after a total of $1,336,461.68 was transferred. The amounts transferred each year were small in proportion to the size of the available school fund. The small benefit to the available fund of the transfer and the impairment of the principal of the permanent fund by this diversion call for an unfavorable judgment upon the legislation.

In 1893 investment in county bonds bearing not less than five per cent interest was authorized to the permanent fund.4 By 1899 money was accumulating in the fund beyond its ability under the law to invest it. Consequently the bonds of incorporated cities were made legal investments of the fund, and the state board of education was given an option of ten days on all bonds afterwards issued by the counties and incorporated cities of the state.5 The purchase of bonds bearing as low as three per cent interest was authorized, and it was further provided that should a premium be paid an amount equal to the premium should be transferred to the permanent school fund out of the interest on the bonds when received by the available school fund. This provision was designed to prevent an impairment of the principal of the fund similar to what had been done in the early eighties. If bonds were purchased at a discount, the law required that the discount should be turned over to the available school fund when the bonds were paid. In 1901 the bonds of independent school districts were made legal investments, and in 1909 the bonds of common school, road, drainage, irrigation, navigation and levee districts were added to the list.1 On August 31, 1915, the permanent school fund held $6,454,613 of city and school district bonds.

1 See Galveston News, January 28 and February 1, 1891. See letter signed "Progressive Texan" in the News of February 1, 1891.

2 Laws of 1891, p. 195. Laws of 1892, p. 8. This amendment has been called the "Jester Amendment."

3 Message of Governor Hogg, March 14, 1892; House Journal, 22nd Leg., Called Sess., p. 19.

4 Laws of 1893, p. 184.

5 Laws of 1899, pp. 143 and 231. Message of Governor Sayers, January 16, 1903.