When Quincy Faced Bankruptcy

  Yet in the early 1880s Quincy’s public debt– incurred before the Civil War to bring in the railroad lines — threatened the city’s solvency. Mississippi River pole barges and steamships had first transported goods to and from Quincy, but by the 1840s railroads had displaced river commerce and Illinois communities competed to attract rail lines. 

 Governmental subsidies for railroads revived an earlier national debate over funding for public works. In 1824, Henry Clay of Kentucky, Speaker of the House of Representatives, had urged Congress to implement an “American System,” with federal appropriations for roads and other “internal improvements.” Andrew Jackson opposed Clay’s policies, fearing national control of local affairs and disproportionate allocation of resources among the states.

       They differed on the federal government’s authority under the United States Constitution to fund internal improvements. Jackson, a strict constructionist who also wanted to limit federal spending, found no explicit constitutional provision allowing Congress to appropriate money for projects located entirely within one state. 

  President Jackson vetoed legislation in 1830, which would fund the Lexington/Maysville, Kentucky turnpike, located entirely in Clay’s home state. Clay had argued that Article 1, section 8 of the Constitution explicitly authorized the federal government to regulate interstate commerce and viewed such intrastate projects as integral to the national transportation system.

  Within Illinois, the internal improvements controversy fostered arguments over the relationship between government and private enterprise. If railroads received public subsidies—money or land grants for tracks and right-of-way—what corresponding obligations did the companies have? Before the Civil War, the federal government transferred extensive land to the Illinois Central in eastern and southern parts of the state, stipulating that the railroad would provide free transportation for federal employees and property. That obligation became important during the war and lasted through World War II.  

  Between 1835 and 1837 Illinois issued $18 million in bonds for both railroads and a canal from Lake Michigan to the Illinois River, a project interrupted by the financial Panic of 1837. When some state legislators urged “repudiation” of the canal bonds, Gov. Thomas Ford, to preserve the state’s creditworthiness with eastern banks, insisted on paying full principal and interest.

 Dissatisfaction over public debt, in part, led to the Illinois’s second state constitution in 1848, which barred the state from incurring aggregate debt beyond $50,000. Cities, however, with voter referenda approval, could incur debt and, in 1849, Quincy subscribed $100,000 in Northern Cross Railroad Company stock, payable in municipal bonds, followed by a second $100,000 subscription. Northern Cross president and Quincy lawyer Nehemiah Bushnell (partner of Orville Hickman Browning) guided construction of a line between Quincy and Galesburg, which extended to Chicago by 1856. 

  The city of Quincy, with voter approval, had incurred a $500,000 indebtedness to the Northern Cross and two other railroads by 1860 and, after the Civil War, subscribed an additional $600,000 to railroads. Residents and town leaders viewed continued expansion of Illinois railroads as crucial to the community’s prosperity.

  However, the debt presented a dilemma for Quincy and its residents. Municipal bonds memorialized the city’s financial obligations to pay interest and principal to the bondholders, and the Illinois Supreme Court held in 1860 that the 1848 state constitution permitted cities and counties to use their bonding power to support railroad development. Ultimately, though, Quincy’s debt would be paid by tax levies on property owners. Whatever the community might anticipate through uncertain economic benefits from the railroad commerce, definite countervailing obligations for debt payment remained. 

  In 1869, city voters approved a $500,000 bond offering for the new Quincy, Missouri and Pacific Railroad line from a Missouri location opposite Quincy to an obscure location in southeastern Nebraska, a venture which included Quincy’s founder, John Wood, as an investor. Because that vote lacked proper state legislative approval, thereby invalidating any bonds under the new, proposed Illinois Constitution of 1870, Orville Browning intervened at the constitutional convention and secured a clause retroactively approving the Quincy enterprise.  

  Between 1868 and 1872, Quincy consolidated its municipal debt of $1,390,000 (including federal court judgments), but the public mood changed. Isaac N. Morris, property owner and taxpayer, sued the city in 1876, and Adams County Circuit Judge Joseph Sibley enjoined the mayor and city council from paying a $250,000 installment on the Quincy, Missouri and Pacific bonds. On appeal the Illinois Supreme Court reversed, approving Browning’s exception clause and holding that the “corporate authorities of the city of Quincy had the power to make the subscription without a vote of the people of the city….”

  In 1881, Quincy’s debt peaked at $1,922,631, and Mayor J.K. Webster’s decision to default on some bonds resulted in litigation which added $88, 807 to municipal debt. To restore the city’s credit, the Illinois legislature authorized Quincy to raise property taxes from $1.03 per hundred dollars of assessed valuation to $1.93, an action which, together with a more austere budget, ended the crisis. 

      By one estimate, Quincy’s 1880’s debt, at a time when cities could not declare bankruptcy, would be about $60 million in today’s money. Federal law since 1988 permits states and local governments to seek bankruptcy protection, with the largest case being the $4 billion bond default by Jefferson County, Alabama in 2011.

Sources:

Brown, Thomas J., “The Age of Ambition in Quincy, Illinois.” Journal of the Illinois State 

Historical Society, Vol. 75, No. 4 (Winter,1982), pp. 242-262.

Court Case: Johnson v. Stark County., 24 Ill. 75 (1860).

Court Case: Quincy M. & P.R. Co. v. Morris, 84 Ill. 410 (1877).

Pease, Theodore Calvin, The Frontier State 1818—1848, Centennial History of Illinois (Chicago: 

1922).

Remini, Robert V., Henry Clay: Statesman for the Union (New York: 1991).

Sutton, Robert M., “The Origins of American Land-Grant Railroad Rates.” The Business History 

Review, Vol. 40, No. 1 (Spring, 1966), pp. 66-76.