Budget woes part of state’s history: Big plans, big bills a problem even 175 years ago Big plans, big bills a problem even 175 years ago

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Years of free spending, poor planning, and inept leadership left Illinois in financial ruin, with meager revenue, a mountainous debt and no clear solution.

Think that sounds like today? It was actually the case in Illinois 175 years ago, when the state was reeling from failures in internal improvements, state banking and a void in leadership.

Whether the crisis of the early 1840s was worse than today’s mess is a matter of debate. But apparently in Illinois, the more things change, the more they stay the same.

National and state banking was a leading political issue in the 1820s and 1830s, and Illinois gave it a try soon after achieving statehood in 1818. Three years later, the General Assembly created a state bank that, incredibly, had few regulations and no capital.

State bank officers and directors were named every other year, ensuring political management, and the sum of $300,000 was to be distributed on notes of 2 percent on a first-come, first-served basis. A borrower could receive a loan of $100 – a tidy sum in those days — with no security. One disbelieving historian declared the purpose as “almost philanthropic.”

The bank was a failure. New bills were cut in half to make change, and under new laws, creditors could only accept the state bank’s money.

By 1825, the bank notes were worth a third of their face value. To compensate, the salaries of state officials and employees were tripled, causing a deeper mess. The bank was liquidated in 1830.

But the state never learned, and Illinois jumped in again five years later and created a Second State Bank of Illinois. Once again, this venture was unregulated by the state and mainly controlled by private speculators.

The Panic of 1837 dealt another devastating blow and a separate venture, the Bank of Illinois at Shawneetown, which had re-opened in 1834, was also failing. Still, the Shawneetown bank managed to construct a magnificent columned building in 1841 before closing the next year.

As banking crumbled, the state was also obsessed with internal improvements, a comprehensive plan to build canals, roads and railroads. A top project was the Illinois-and-Michigan Canal, designed to link the Illinois River with Lake Michigan. A half million dollars was borrowed and construction ceremoniously began on July 4, 1836.

Work on the canal was labor-intensive over marshy ground and transportation of supplies was a daunting issue. The Panic of 1837 hammered contracts and future payments on lots sold along the canal and cost overruns set in. The canal eventually hit $13.2 million in costs and was not completed until 1848.

Another internal improvements measure was a system of state-controlled railroads. Though Gov. Joseph Duncan was reticent, the public was energized and the legislature, which included the likes of Abraham Lincoln and Stephen A. Douglas, was equally enthusiastic.

On Feb. 27, 1837, the assembly voted to pass “an act to establish and maintain a general system of internal improvements.” The sum of $10.2 million was appropriated, of which $9.35 million was allotted to railroads.

Few pieces of legislation in state history have had such a devastating effect. Though railroads were clearly needed and other states had similar plans, Illinois lacked the engineering, money, labor and supplies to meet the challenge.

At least seven rail lines to cover 1,300 miles were part of the appropriation, including two main east-west rail corridors. The southern corridor never got off the ground, while the other, the Northern Cross, did little better.

Work began at Meredosia on the Illinois River in the spring of 1838, but the first train did not reach Springfield, a mere 59 miles away, until Nov. 14, 1842. Riders on that inaugural train later recalled the slow, bumpy ride over poorly laid rails.

The well-worn locomotive was replaced by mules in 1844 and the line was sold at auction in 1847 for $21,100 — 40 times less than its original cost.

Almost all work on the rail system had ended by 1840 and values of state bonds were fading fast. In all, the state was saddled with a staggering debt of some $15.2 million – an astronomical sum of money at the time.

Historian Robert P. Howard wrote in 1988 that Illinois “couldn’t afford to buy postage stamps.” He described the era as, simply, a “fiasco.”

Fortunately, Gov. Thomas Ford, elected in 1842, managed to clean up the mess. He worked out a compromise with the failed banks that wiped out $2.3 million in debt, sold off lands from the failure of the railroad effort, and borrowed $1.6 million on favorable terms to complete the canal.

Ford also levied a permanent tax that, while unpopular, proved key to overcoming the debt. Because of his fiscal management, some consider Ford one of the best chief executives in state history.

Tom Emery is a freelance writer and historical researcher from Carlinville. He can be reached at 217-710-8392 or ilcivilwar@yahoo.com.