USA > North Carolina > History of North Carolina: The Federal Period 1783-1860, Volume II > Part 9
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14 Hoyt, Papers of Archibald DeBow Murphey, II, 49.
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HISTORY OF NORTH CAROLINA
asylums for the deaf and dumb. The state should be divided into townships and academy districts, whose appropriations should be supplemented by aid from a Fund for Public In- struction. Thus was foreshadowed the fundamental organiza- tion of a modern public school system. A singular feature of the report was that only the poor would be educated entire- ly at public expense,-all for a period of three years, and the more promising portion to be advanced through the whole curriculum from primary school to university at public cost, clothing and board included; these in turn would be required to enter the teaching profession and to instruct the poor free of charge. There is a marked similarity between this report and one presented to the Virginia legislature in the same year, which was inspired by Thomas Jefferson. One member of the committee, John M. Walker, submitted a separate report which elaborated the details of the training for the promising poor.
Bills to carry into effect these recommendations were re- jected, and a similar fate met similar bills at sessions imme- diately following. The legislature was committed primarily to internal improvements, and conservatism would not brook expensive experiments for education until additional financial resources could be found. By 1825 the financial opportunity was at hand. In order to aid certain prominent banks, which were being hard pressed by their creditors, and in whose stock the state had invested, the legislature of 1823 ordered the pur- chase of additional bank stock to be paid for with the issue of $100,000 of treasury notes. As the dividends from this new stock were not necessary for the regular expenses of the Government, and as the experiments with internal improve- ments were not promising, stock of the Bank of the Cape Fear (680 shares) and of the Bank of Newbern (330 shares) was appropriated to the cause of education. In addition the in- come from five other sources was also utilized : viz., dividends from the stock held by the state in the Cape Fear Navigation Company, the Roanoke Navigation Company, and the Club Foot and Harlowe's Creek Canal; license taxes paid by the retailers of liquors and auctioneers; the unexpended balances of the Agricultural Fund; the income from the sales of vacant and unappropriated swamp lands; and $21,090 due from the Federal Government for aid in removing the Cherokees. Thus
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was constituted the Literary Fund. Its administration was placed in charge of three trustees, the Governor and the Speakers of the House of Commons and of the Senate. Bills to establish schools immediately were rejected on the ground that the revenue from the fund was insufficient, and efforts to add new sources to the fund, such as lotteries and additional bank stock, were also defeated. The income was therefore reinvested by the trustees, thus creating a large.principal, the interest from which was finally used for educational purposes. This was the distinguishing characteristic of state support of public schools in North Carolina prior to 1860; it was derived from an endowment rather than from direct taxation.
Prior to 1836 the Literary Fund suffered several misfor- tunes. First of these was a temporary loss occasioned by the defalcation of Treasurer Haywood. In November, 1827, the free balance to the credit of the Fund was $28,201.821/2, but an investigation of the treasurer's records-that officer having recently died-showed that all of this except $17.50, which had never been turned over to him, had been lost. How- ever, in 1831, by order of the legislature $28,184.321% with interest was returned to the Fund, the total amount being $29,074.96. Another misfortune was a decline in the dividends from the bank stocks. In 1827 the Fund held as a result of the act of 1825, 359 shares in the Bank of Newbern and 704 shares in the Bank of the Cape Fear, 29 shares in the Bank of Newbern and 34 in the Bank of the Cape Fear having been advanced by the state since 1825. The rate of dividends was at that time 3 per cent semi-annually by the Bank of the Cape Fear and 4 per cent by the Bank of Newbern. Among the first investments by the trustees was the purchase of 78 shares in the State Bank in 1827, the very year in which the dividends dropped from 4 per cent semi-annually to 31% semi-annually. In 1828, although the dividends of all the banks had declined, 204 shares of the State Bank were bought at $90 per share, 50 shares in the Bank of the Cape Fear at $80, and 141 in the Bank of Newbern at $80. The same year the State Bank paid only one dividend of 21% per cent, then yielded one of 3 per cent in 1829, and from 1830 to liquidation only 2 per cent semi- annually. The Bank of the Cape Fear reduced its dividend in 1828 to 2 per cent semi-annually, passed one dividend in
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1829, both in 1830, then paid one of 3 per cent in 1831, and passed all until re-organization in 1835. Tlie Bank of Newbern also dropped to a 2 per cent basis in 1828, passed one dividend in 1829, one in 1830, then paid one of 3 per cent in 1831, and thereafter passed all until liquidation.
The investment of public funds such as the Literary Fund in securities of declining value would today be regarded as a violation of a trust. However, the banks were quasi-state in- stitutions; they were being hard pressed to meet their obliga- tions to pay in specie, notably by the Second Bank of the United States; and there was naturally a strong feeling that state funds should support state institutions. Fortunately the loss from the money actually invested by the trustees was small, the State Bank and the Bank of Newbern paying at liquidation $38,803, whereas $41,440 had been paid for shares in these institutions by the trustees of the Fund. On the other hand the capital dividends on the stock in these banks appro- priated to the Literary Fund by the legislature were applied to the general expenses of the government .. Yet with such experience in the past, one of the principal investments of the Literary Fund after its re-organization in 1836 was in bank stock. Fortunately the experience with the investment was more satisfactory.
The other sources of revenue presented no specific prob- lems. The sales of vacant lands up to 1836 amounted to $55,133.73; license taxes, $31,371.68; auction tax, $6,513.98; agricultural fund balances, $10,962.82; the Cape Fear Navi- gation Company dividends, $4,484.34; the Roanoke Naviga- tion Company dividends, $2,250.14; premium on exchange of $12,000 United States notes, $1,100; from the United States Government for money advanced for the removal of Chero- kee Indians, $22,000; miscellanies, $6,083.60. These with the bank dividends of $102,341.06 and a correction of $915.96 made a total of $243,162.83. There were expended $239,317.83, all of which except $5.50 was for bank stock, leaving a cash balance of $3,845.09.15
15 Totals have been computed from the reports made by the Treas- urer, the Comptroller, and the Literary Board.
,
CHAPTER VI STATE OF THE FINANCES
TAXATION-REVENUE AND EXPENDITURES-CURRENCY AND BANKING
Undoubtedly an influence which retarded measures for so- cial and economic progress was the state's financial system. The revenue was small, approximately $50,000 in 1800 and $111,000 in 1830. The sources of income were few, and there was deep aversion to any increase of taxation. Governor Swain in 1835 declared "the history of our state legislation during the first half century of our political existence will exhibit little more to posterity than the annual imposition of taxes amounting to less than a hundred thousand dollars, one- half of which constituted the reward of legislative bodies by which they were levied, while the remainder was applied to sustain the train of officers who superintend the machinery of government."
Another factor in the public finances was the policy toward banking. Liberal charters to the banks permitted an excessive issue of bank notes, so causing an inflation of the currency which produced speculation and depression in business. Sub- scription to bank stock by the state made possible the retire- , ment of the post-revolutionary currency, the first form of public debt, and also aided in the foundation of the Fund for Internal Improvements and the Literary Fund. On the whole, the financial policy was characterized by inexperience and in- competence. By 1836 the treasury was facing a serious deficit ; the crisis was saved by the distribution of the federal sur- plus. How deeply interwoven with the social and political structure were financial policies, detailed analysis only can show.
105
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HISTORY OF NORTH CAROLINA
The public revenue was derived from three sources, taxa- tion, dividends from bank stock, and sale of public lands. The taxes in turn were of three kinds, the poll, the land, and those which may be termed miscellaneous. Their history really begins with the later Revolutionary period, when depreciation of the currency forced a resort to taxation. Of all schedules, the poll tax was the most stable; prior to 1818, when it was exceeded by the land tax, it yielded an income larger than any other source of taxation; and in 1825 it again became more productive and remained so until 1850. The rate on the poll was, from 1790 to 1811, 2s ; from 1811 to 1813, 2s 6d; but in 1813, when the rate on land was increased to 12d per 100 acres, the poll on the blacks was increased to 3s. In 1814, when the official change from the state currency to that of the United States was made in the revenue laws, the pole on whites and blacks was equalized, being fixed at 30 cents, while the land tax was 8 cents on the $100 value; but the next year the poll was reduced to 25 cents, the ratio between land and poll of three to one becoming the general custom of the law. In 1817, when the land tax was reduced to 6 cents per $100 value, the poll was likewise reduced to 20 cents, which remained the rate until 1854. In 1806 the age limit was reduced from 60 to 50 years, and in 1822 to 45 years for whites. The constitutional convention of 1835 provided for the equalization of the poll between whites and blacks. In collection of the tax there was much inefficiency; according to the census of 1830 there were more taxable polls than those reported by the treasury for 1836, the revenue of the state losing approximately $8,000 per annum.
The land tax was two-fold, a rate levied on 100 acres of farm property and a rate on town lots equivalent to that on 300 acres of farm land. In place of the unit of 100 acres the $100 valuation was substituted in 1814. Two characteristics of the economic conditions were illustrated by the land tax. First was the general aversion to taxation; reduction from 8 cents to 6 cents per $100 of valuation in 1817 was made because large dividends were expected from bank stock. The second characteristic was the decline in the valua- tion of landed property. According to an assessment made
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by the Federal Government in 1815, the lands of the state were valued at $53,521,513, but a state valuation made in 1833 amounted to $42,916,633, a decline of over $10,000,000, yet the acreage in the two years showed an increase of nearly 1,250,000 acres. One cause of the decline was undoubtedly the inefficiency of the assessment law; another was the gen- eral economic depression that pervaded the state.
In addition to the rates on poll and land were the miscel- laneous taxes ; they included licenses (such as carriage wheels, stores, billiard tables, peddlers, gates, shows and curiosities, brokers, and negro traders), imposts, and taxes on bank stock. On this class the licenses were the most peculiar. The store tax, from its origin in 1804 to 1809, was 50s on each store; from 1809 to 1820 a distinction was made between wholesale and retail houses, the former being taxed more than twice the amount of the latter; but in 1820 the tax on retail merchants was limited to those "who shall sell goods, wares and mer- chandise, not the growth and manufacture of this state." Like- wise the peddler's tax was limited in 1810 to those who sold goods not grown or manufactured in North Carolina. These distinctions were evidently infractions of the Federal Con- stitution, but distinction between the products of North Caro- lina and those of other states remained in the revenue system down to 1860.
There were other anomalies in the miscellaneous taxes. One was the impost, a license of 50s levied from 1804 to 1810 on all who imported and sold goods not subject to the revenue laws of the United States. Another was a tax of 2s 6d on each saw or row of teeth used in each cotton gin, the revenue being applied to the payment for the patent rights on the cotton gin held by Miller and Whitney. Still another peculiar tax was that on carriage wheels, levied from 1784 to 1793. The tax on the stock of the banks of Newbern and Cape Fear held by individuals was the most reliable of the miscellaneous taxes, for it increased with each issue of stock by the banks. The average annual amount realized from all miscellaneous taxes from 1810 to 1834 was $8,958.
In 1808 the revenue was increased by dividends from bank stock held by the state. Prior to 1819 the entire dividends
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from the state stock were devoted to the redemption of paper money and to general expenditures, but in 1819 and 1825 a large part of the bank dividends were diverted to the Fund for Internal Improvements and to the Literary Fund. Then fol- lowed a period of decline in dividends, noted in the previous chapter. The entire amount of bank dividends appropriated to general expenses from 1808 to 1834 inclusive was $588,- 274.92, or $22,625.75 per annum.
Finally, the sale of public lands was also a source of rev- enue, but the proceeds were appropriated to the Fund for In- ternal Improvements and to the Literary Fund.
Classified statements of the annual revenue derived from each source are not obtainable except for a few years prior to 1828. But the percentage of the revenue from each source for 1805, 1812, 1818, 1825, and 1830 may be taken as typical; for 1805 was a year prior to the charter of the banks, 1812 marks the beginning of the inflation of the currency, 1818 is typical of the high dividends from the banks, while 1825 and 1830 illustrate the years of depression.
Year
Total Revenue
Land Tax
Per Cent of Total
Poll Tax
Per Cent of Total
Miscellaneous Taxes
Per Cent of Total
Bank Divi- dends
Per Cent of Total
1805] £26,026.1.10| £7,039.1.14 1812 £33,155.0.2
1818 $137,712.34
£7,681.0.7 $35,528.16 26.111.95 24,547.57
27 28 25
|£11,043.9.10| £15,103.7.2 $32,027.64 26.665.42 27,923.06
40 47
£7,943.19.16
133 24.31
£2,500
.7
...
$26,726.54 14,151.75 44,896.00
16.8
41
19.5 $43,430 21,412 13,840|
31.5 24.2 12.
1825 1830
88,341.62 111,106.09
29
22
23 30 25
The expenditures, like the revenue, were meager. From 1800 to 1812 the average amount was $67,469.16 per annum. This included the redemption of certificates, which was cov- ered by the receipts from land sales. In 1813 the expenditures rose to $115,796.76, and from 1813 to 1835 inclusive the aver- age annual expenditure amounted to $131,571.77. Among the causes of this increase was the War of 1812; another was sub- scriptions to stock of the banks and various navigation com- panies, and still another was the redemption of treasury notes which had been issued in 1817 and 1818. In 1829 and in each year until 1836, excepting 1833 and 1834, expenditures were greater than the receipts, as the following table illustrates :
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HISTORY OF NORTH CAROLINA
Year
Balances of Previous Year
Receipts
Total Available
Expenditures
Balance
1829 1.830 1831 1832 1833 1834 1835
$93.343.54 74,014.12 69,750.84 33.023.29 7,924.73 57,877.24 68.433.41
$101,821.32 111,106.09 95,733.40 94,500.42
$195,165.12 185,120.21 165,484.24 127,523.42
188,819.97 202,127.28 150,109.56
196,744.70% 260,004.52 218,542.97
$121,151.10 115,369.37 132,023.29 119.598.68 138,867.46 191,571.11 171,686.30
$74,014.1.2 69,750.81 33.023.29 7,924.73 57,877.24 68,433.41 46,856.30
The immediate causes of this deficiency were the redemp- tion of the treasury notes issued in 1823, the building of the state capitol, and a decline in revenue due to the suspension of bank dividends. But a deeper cause of the crisis was the instability of the regular revenue, especially the lack of in- crease in the land tax, which showed a small but steady decline after 1820, and also the failure to get full returns from the poll tax. Thus the revenue did not show a normal expansion to meet the increased expenditures. In 1833 and 1834 the strain was relieved by stock dividends from the Bank of Newbern and the State Bank, but in 1836 a subscription for $375,000 to the new Bank of the State of North Carolina fell due and the treasury faced bankruptcy. In this crisis relief was found in the surplus revenue distributed among the states by the Fed- eral Government.
In the administration of the revenue there were disorder, inefficiency, and corruption. At the close of the Revolution the debts and arrears due from revenue officials amounted to £10,890.8.11 in currency and £10,056.8.0 in certificates ; by 1793 this had increased to £43,310.12.3 currency and £42,441 certifi- cates. Moreover, as indicated above, a vast amount of prop- erty was not listed for taxation, and a large number of polls paid no poll tax. In addition there was a loose method of accounting which opened the way for misappropriation of funds. A review in detail of the rules regarding administra- tion of the revenue shows how imperative was the need of reform and how late it came.
First of all, the methods of assessing and collecting the revenue were unsatisfactory. For listing the property the county court was responsible. It appointed assessors, con- sisting of justices of the peace, who made an inventory of the taxable property based on a sworn statement of the property
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owners. The lists were returned to the clerk of the county court, who sent one copy to the comptroller and another to the tax collector. The collector, appointed by the county court, paid the revenue to the sheriff, also an appointee of the county court, who forwarded it to the state treasurer. Such a method of levying and collecting the taxes had several grave defects. One was that the local revenue officers were ap- pointed by the county courts, whose members were appointed by the governor on the recommendation of the members of the legislature for the county. Thus the local officers were not elected by the people and were not held responsible to them. In each county there was an official ring, the members of which were inclined to act in the interest of each other rather than that of the state. By way of illustration, the clerks of the county courts often failed to take the bonds of the collectors, which the law required to be equal to twice the amount of the taxes to be collected. The sheriffs, who in 1791 became the sole collectors, were notoriously corrupt. Although under special bonds of £2,000 for the collection of the taxes, many of them failed to settle their accounts with the treasurer and, when suits were brought against them, judgment secured, and their property attached and offered for sale, the reports re- turned by the officials were, "Not sold for want of bidders." The clerks of the court also did not always send the comp- troller lists of the assessed property, and, strangest of all, the delinquent officials often appealed to the legislature and se- cured a dismissal of the suits against them pending in the courts. Evidently there was a lack of sense of public duty in the official class.
Another evil of the local administration was the small recompense for the work required. In the early days the collectors were paid at the discretion of the county courts; later they were entitled to a commission of 3 per cent and the sheriffs to 1 and 2 per cent; after the sheriffs assumed the entire duty of collection, their commission was in- creased to 6 per cent. According to Treasurer Haywood, the better class of citizens would not work for such small com- pensation.
As a means of protecting the state from dishonest officials,
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citizens who had become involved in their accounts were in 1793 made ineligible for membership in the legislature, and special collectors of arrears were appointed to settle the ac- counts of delinquent officials. A considerable sum was realized by the latter measure, how much cannot be ascertained. The most efficient means of ending the corruption and inefficiency in the local administration was the law of 1806 which pro- hibited the reelection of a sheriff unless he showed receipt in full for the taxes collected by him; in the same year the clerks of the county courts were made subject to a fine of $500 for failing to report the assessment lists to the comptroller.
Another evil of the local administration was the imperfect assessment of property. Each property holder gave in the amount of his property under oath and valuation was made by the assessors, but in case of over-valuation appeal might be made to the county court; by a law of 1814 the assessors were allowed to summon a jury of two free-holders to make a new assessment if the land was under-valued by the owners; and in 1819 a Board of Appeals of three was appointed by the court of pleas and quarter sessions to hear complaints and to revise the assessment. In 1819, also, the assessors were required to have a copy of the Federal Assessment List of 1815; and assessment in the future should not be less than that. But in spite of this requirement the valuation of property in 1833 showed a decline in values since 1815.
Inefficiency was not confined to local administration. The management of the finances by the officials of the state govern- ment was marked by poor accounting, carelessness, and in- competency, which finally bore fruit in defalcation. The state financial officers were the treasurer and the comptroller, elect- ed by the legislature. Their duties and relations to each other were poorly defined. The treasurer, who received the revenue from the sheriffs, made an annual report to the legislature, and his accounts were formally examined by a committee on finance. But his report was not a balance-sheet; usually it was a business letter, giving the amount of the balance of the pre- vious year, the amount of the income, the expenditure, and the balance at the close of the fiscal year. For a detailed statement of expenditures and income reference had to be
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HISTORY OF NORTH CAROLINA
made to the comptroller. His oversight of the income was due to the fact that he received from the county court the tax lists of the counties and so informed the treasurer of the amount due from the sheriffs ; moreover each sheriff or reve- nue officer was required to secure two receipts from the treas- urer and to file one with the comptroller. Thus the comp- troller kept check on the income of the state and the expend- itures were likewise audited, for no draft or warrant could be paid by the treasurer until certified by the comptroller, except warrants for salaries of the members of the legislature and the judiciary. However not until 1814 was the comptroller required to make a printed annual report of the transactions of his office to the legislature.
There were three defects in this method of public account- ing. First of all, the comptroller did not have oversight of the actual money in the treasury; he did not know where the cash was deposited, whether in bank or safety vault. It is a matter of interest that a large sum of money was kept in a trunk in the treasurer's office long after banks were organized, for the purpose of meeting the incidental expenses of the government. Second, the auditing by the comptroller did not include all the funds of the state. He had no supervision over the appropriated revenue, consisting of the Fund for Internal Improvements and the Literary Fund. These were cared for and reported on by the treasurer alone. Third, the method of bonding the treasurer was not adequate. By a law of 1784 the bond was fixed at £100,000, to be given before the treasurer entered office and to be approved by the governor and the council of state. But in 1801 the law was changed, so that the bond was to be given thirty days after the election of the treasurer and its amount was to be equal to the balance in the treasury plus the expected income of the approaching year. In 1819 the approval of the governor's council was with- drawn. There was also no provision to compel the bonding of the treasurer, nor was there any penalty on him for failing to give security. For the year 1826-1827 no bond had been given by the treasurer.
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