By Joanne Archer

Draft of a paper submitted for Dr. Edward C. Papenfuse's Public History Course, University of Maryland, Spring Semeseter, 2001

Thomas J. Keating took office as Comptroller of the Treasury January 22,1878, a time of revenue shortfalls for Maryland. The State as a whole was faced by an agrarian depression that contributed to a "loss to the Treasury from failure of accustomed receipts"  Coupled with the falling off of customary revenues was the failure of the B&O Railroad to pay dividends on the Washington Branch and the failure of the Susquehanna and Tide Water Canal Companies to pay the interest due on their mortgage. The lack of sufficient revenue flow into the Treasury led to the borrowing of monies from dedicated funds in order to support the operations of the general Treasury. As a result of this policy, Keating's term as comptroller was not without controversy. His adversaries accused him of financial mismanagement which Keating rebutted, defending the practice of the Treasury as one based on a series of legislation passed since 1864. The Comptroller's office also had to grapple with the payment and maturing of state debt. In fact, Keating had his most lasting influence on the office by initiating the refinancing of the Maryland Defense Loan and thereby reducing the total amount of state debt by $89,605 per year. His tenure also saw a steady increase in state revenue (an increase of  $473,733 by 1883)  and a continuing public discussion of the State's unproductive investments in "works of internal improvement."

According to the 1867 Constitution Article 6, Sections 2 and 3 the duties of the Comptroller were to:

· have general superintendence of the fiscal affairs of the state
· digest and prepare plans for the improvement and management of the revenue and for the support of the public credit
· prepare and report estimates of the revenue and expenditures of the state
· superintend and enforce the prompt collection of all taxes and revenues
· adjust and settle on terms with delinquent collectors and receivers of taxes and state revenue
· preserve all public accounts
· decide on the forms of keeping and staling accounts
· grant all warrants for money to be paid out of the Treasury
· countersign all checks drawn by the Treasurer
· prescribe the formalities of the transfer of stock
· make to the General Assembly full reports of all the proceedings and of the state of Treasury Department
· make arrangements for the payment of the interest of the public debt; and for the purchase thereof, on account of the Sinking Fund.

Although the duties of the Comptroller were demanding it does not appear to have taken up all of Keating's time, as he still maintained his law practice in Centreville. The legislative years were, by necessity, more active but in the off-years the Comptroller's office garnered little attention from the press. Keating's hometown newspaper, the Centreville Record, kept track of when he was in town during his first year in office. An examination of these dates reveals Keating was able to make it home to Centreville on the weekends. For instance, between February and April of 1878 he went to Centreville 5 times. After the adjournment of  the Legislature he was able to return for longer periods, such as in May of 1878 when the paper reported that Keating "left for Annapolis last Tuesday after laboring diligently for a week on behalf of his clients."   The paper also reported that Keating expected to be home the first of every week preceding the session of court.  His family never moved to Annapolis which lends further credence to the idea that the Comptroller position was not a full time job during this period of history.

Upon taking office the most pressing problem Keating confronted was the depleted condition of the treasury. The previous Comptroller, Levin Woolford calculated a loss to the Treasury of upwards of $260,000 for 1877 and blamed the shortfall in the Treasury to three things: 1) the failure of the B&0 Railroad to pay the accustomed dividends on the Washington Branch 2) the failure of the Susquehanna and Tide Water Canal Companies to pay the interest due on the mortgage since the July 1, 1877 and 3) the loss of revenue to the State from licenses to Foreign Insurance Companies, owing to the passage of the Act of 1876, Chapter 248, cutting off two-thirds of the revenue from this traditional source. When Keating entered office the balance in the Treasury was $44,240.98. The total receipts into the Treasury during the fiscal year 1878 were $2,295,263.89 and the total disbursements during the year were $2,489,079.14, thus exceeding receipts by $193,815.25. By April the Treasury was empty due largely to the falling off of receipts from the above mentioned investments. In fact, the treasury was in debt to its Special Funds, having borrowed money in order to meet its obligations. However, when one of the funds needed the money, Keating had to request a loan from the Legislature to replace the borrowed funds. This loan was known as the Treasury Relief Loan for the amount of $500,000 which imposed a 1.5% tax to meet the interest payments.

Reaching a settlement with the B&O Railroad over arrears was the pivotal concern of the Comptroller's office in the first few months of 1878 and the first step towards restoring revenue to the Treasury. The Railroad had not paid dividends on stock held by the state since April 1, 1875 and had not paid any portion of the 1/5 of gross receipts on the Washington Branch due the State. Public opinion, as displayed in newspapers such as the Maryland Republican and State Capital Advertiser, supported the settlement of the controversy with the Railroad as quickly as possible. It was believed that the State desperately needed some immediate revenue from the Railroad in order to avoid raising taxes and that the already depressed stock of the Railroad would only be depressed further by continued inaction. In essence, this viewpoint held that what was good for the Railroad was good for the state.  However, there was some resistance to a settlement with the B&O, primarily from the representatives of the C&O Canal, including the powerful Mr. Gorman. The Canal claimed that because the State had an interest in the C&O they should display equity by also protecting the interests of the Canal. They felt that the Railroad should be compelled to carry coal, iron, and other freights at tariffs that would allow the Canal to remain competitive as a transportation option. Ultimately a compromise was reached with the Canal, with the B&O agreeing to charge a fixed rate west of Cumberland. The State's agreement with the B&O required the Railroad to pay $100,911.20 to the State in cash by July 1, 1878 and the balance of $366,000.00 to be paid in ten-year bonds at 6% interest. The State, in exchange for not claiming the capitation tax for the period since July 1, 1873, received ½ percent of gross receipts within the State, which was imposed as a permanent tax. There were some who were unhappy about this settlement as the Railroad ultimately paid only about half of what it owed. However, at the time it was more important to get some money into the Treasury, regardless of whether it was the full amount.  As the later history of the B&O Railroad was to prove, the State was fortunate to recover some of its investment.

On top of the failure of certain normally productive investments, such as the B&O Railroad, the State held an interest in a number of unproductive assets, that had either never brought the state revenue or whose payment into the Treasury was erratic. In the 1881 Annual Report Keating listed the following as the State's unproductive assets: bonds and mortgages of the Susquehanna and Tide-water Canals, bonds of the Columbia and Port Deposit Railroad Company, stocks of the Chesapeake and Delaware Canal Company, and of the Bohemia Bridge Company, and of the Baltimore and Fredericktown and of the Baltimore and Yorktown Turnpike Companies, and of the Baltimore and Potomac, and the Annapolis and Elk Ridge Railroad Companies, and the stocks and bonds of the Chesapeake and Ohio Canal Company; amounting in value to $8,645,005. These assets  were considered of some value only because of the control they gave the state over the directory and management of the companies. The Comptroller classed as valueless assets stocks in the following railroad companies: Baltimore and Drum Point, Dorchester and Delaware, Easton Shore, Kent and Queen Anne's, Kent County, Maryland and Delaware, Philadelphia and Baltimore Central, Southern Maryland, Worcester and Somerset, Worcester, Wicomico and Pocomoke, amounting in all to the par value of $390,827.

During Keating's tenure the State began to try to divest itself of some of the assets that failed to provide income to the State. In the 1881 Annual Report, Keating expressed a willingness to sell the Susquehanna and Tidewater Canal, an investment whose failure to pay its' mortgage interest had already hurt the State's finances. The Philadelphia and Reading Railroad Company had held the lease on the Canal for several years and as part of the terms of the lease agreed to pay the interest on the bonds. However, the state did not receive this payment until 1880, a two year delay, when the Board of Public Works passed a motion to petition the State Treasurer to receive from the Railroad a script in the amount of $150,000 with interest coupons attached and a check of $9,000.  Keating surmised that what was valueless to the State might be valuable to the Reading Railroad Company, and perhaps, to the Pennsylvania Railroad Company, and other companies that may be looking after the coal regions of Pennsylvania.

He also advocated searching for interested buyers for the Chesapeake and Ohio Canal Company, citing that there were "rival interests anxious to obtain the control of this canal. Let's see whether and what they are willing to pay the State for it."  The stocks of the Annapolis and Elk Ridge Railroad Company and of the Bohemia Bridge Company were authorized to be sold by the 1880 General Assembly upon the payment of the money, which unfortunately did not materialize during Keating' term. Although at the end of Keating's tenure all of the State's unproductive assets remained on the books he had taken the first steps towards ridding the state of these investments, a process that was to continue into the early years of the twentieth century.

One of Keating's greatest accomplishments was ensuring the financial soundness of the Treasury. The period 1878-1884, despite the State's above mentioned investments, saw both an increase in the cash balance and a reduction of expenditures,. The main revenue during these years came from taxes collected as follows: 10 cents for the School Tax, 5 and ½ cents for the Bounty Tax,  1 and ½ cents for the Treasury Relief Loan, 1 cent for the Hospital Loan, and ¾ cent for the Deaf and Dumb (all taxes applied per $100 of assessed value of property). These taxes were dedicated taxes and as constitutionally mandated could only be spent for the purpose for which they were raised. Thus, the State's primary sources of revenue for operating expenses were stocks held in the Annapolis Water Company, Farmer's National Bank, B&O Railroad, and a mortgage on the Northern Central Railroad. The State also looked to revenue from licenses, taxes on civil commissions, commissions of executors and administrators, collateral inheritances, protests and gross receipts of railroads.

The following chart displays the receipts and disbursements for the years Keating served as Comptroller of the Treasury.
 

Fiscal Year	Receipts	Disbursements
1878	*$2,295,263.89	$2,489,079.14
1879 (off-year)	**2,126,326.37	1,774,283.26
1880	2,007,686.77	2,050,869.40
1881 (off-year)	1,996,641.08	1,757,469.15
1882	1,924,481.47	2,038,173.13
1883 (off-year)	2,097,376.88	1,753,699.99

*includes $262,500.00 from the sale of Treasury Relief Bonds and 183,580 from the proceeds of the sale of Maryland state loan and premium **includes 268,750.00 from the sale of Treasury Relief Bonds

Expenditures were obviously higher in legislative years, however these years also saw a greater decrease in expenditures than the off years.

Keating's tenure was a time of legislative retrenchment. The pension laws were repealed in 1878 saving the Treasury $30,000 a year. The salaries of the tobacco inspectors and their employees were reduced and the office of the Supervisor of Tobacco Warehouses abolished after April of 1880. Also in 1880 the bounty laws were repealed and the salaries of the Adjutant General and the of the entire fisheries force were reduced (1880). In 1882, legislative expenses were greatly curtailed. The State's other expenditures were generally fixed with little fluctuation from year to year. The prime expenditures of the state were for salaries, public schools, the Deaf and Dumb Asylum, the House of Correction, the Oyster Fund, and the Hospital. However, the largest single disbursement was for the interest on the public debt. In 1883, the interest paid on the debt was $674,601.99

During Keating's time in office there was a regular and steady improvement in the revenues. The receipts from 1883, derived from the ordinary sources of revenue, amounted to $2,097,376.88. When Keating took office in 1878, the sum realized from the same sources was $1,623,643.23, showing an increase of $473,733.65. The increases came in part from the register of wills-collateral inheritance and commission tax, railroads-gross receipts tax, insurance companies-licenses and premiums, excess of officers fees, clerks of court-licenses, and erratic payments form investments. However, these sources tended to fluctuate from year to year. A more substantial reason for the increase was Keating's focus on the prompt collection of taxes by the tax collectors. In 1878, the amount of money unpaid into the Treasury by the tax collectors was for all years was $1,150,406.45  by 1883 the amount still in the hands of the collectors was $855,344.00. During Keating's period of service there was an increase of the assessable property of corporations accomplished mainly through the office of the Tax Commissioner. Throughout his term Keating advocated equal taxation of every property owner. It was common practice for corporations to go untaxed because although they might own real estate in Maryland, all the owners lived outside the state and thus could not be taxed. Keating also advocated revising the tax collection system by making the state tax collection independent of county/municipal tax; giving larger districts to each collector; making collectors subject to removal at will by the Comptroller; and imposing a fine on tardy tax payers.

The Constitution, Art. 3, Sec. 34, declares that "no debt shall be contracted by the General Assembly, unless such debt shall be authorized by a law providing for the collection of an annual tax or taxes sufficient to pay the interest on such debt as it falls due, and also to discharge the principal thereof within fifteen years from the time of contracting the same; and the taxes laid for this purpose shall not be repealed or applied to any other object, until the said debt and the interest thereon shall be fully discharged."  Keating chafed against this constitutional restriction which essentially left no funds for the operation of the General Treasury. In every annual report issued while he was in office, Keating pointed out what he felt to be the impracticality of this type of system. With insufficient funds to meet its debts the institution was forced to borrow from the special funds in order to make loan payments, and thereby retain the State's credit. For instance, in Keating's first year in office the annual report shows the Treasury was in debt to the following special funds: Oyster fund: $247,667.38; Public School fund: $217, 140.75; Bounty tax: $83,757.74 . Yet, borrowing from these funds, he felt, was the only way to keep the government operating.

However, this practice became the most controversial issue of Keating's tenure. In 1881, the year of an election, Governor Hamilton accused Comptroller Keating and Treasurer Compton of mismanagement of the State's finances. His allegations revolved around the sinking funds for the payment of the State's debt and charged that the officials had "been derelict of duty in that they have violated the State's obligations to maintain sinking funds for payment of the State debts as they mature."  He charged the men with using the sinking fund to pay other State obligations and asked what had happened to the $5,649,656 that should have been in the fund. Keating and Compton in their defense pointed to the Act of 1864, Chpt. 285 that canceled $4,495,106 of bonds in the sinking fund. The Act of 1872, Chpt. 276 canceled the remnant of the bonds. Essentially the entire fund was expended years before either official took office. Keating further laid out the following table to illustrate what has become of the loan taxes since 1868.
 

Amt. of State debt, Sept. 30th, 1868	$11,712,190.45
Amt. of State Loans, issued since Sept. 30th, 1868	$3,572,532.00
Amt. of interest paid on the public debt since Sept. 30th, 1868	$9,027,635 24
Total	$24,312,357 69

 

Amt. of State debt Sept, 30th, 1881	$11,257,560 69
Amt. paid on account of public debt since Sept. 30th, 1868	$13,054,797 00
Amt. of State securities used and applied to the payment of the public debt since Sept. 30th, 1868	$1,579,935 30
Total	$11,474,861 79

 

Amt. of loan-taxes collected from the time the loans, on account of which these taxes are imposed, were  created to Sept. 30th, 1831	$5,582,367 43
Amt. of the public debt paid out of the general resources of the Treasury, since Sept. 30th, 1868	$5,892,494 27

Keating clearly illustrated with this table that the loan-taxes were simply insufficient to meet the obligations of the debt. Since 1868 every time a loan had been created a tax had been dedicated to its payment; in each instance, however, the annual tax imposed was not much than of the annual interest upon the loan. For instance, the Maryland Defense Loan created in 1868 for the payment of bounties imposed a tax of 5 cents per one hundred dollars. Between 1864 and 1867 the amount dispersed was $4,196,864.25.  The entire amount of bounty tax collected from January 1864 to September 30th, 1880 was $4,057,040.96. The entire amount disbursed during the same period for interest on the "Defense Loans," was $2,443,724.26. Clearly, the tax levied could not pay both the claims and the interest on the loan. Moreover, since no direct tax was levied for the support of the government of the State the taxes had been required and used to meet the appropriations and demands for the support of the State government.  Keating claimed that the gradual rather than the rapid extinction of the public debt was the best policy, and further stated that if loans were issued and redeemed within a fixed period, they could be funded at lower rate of interest and whenever there were surplus funds available the debt could be liquidated. The redemption of a debt before maturity is often at a high premium and would have required a high rate of taxation. The Maryland Republican and State Capital Advertiser chimed in its support stating that "the fluctuations in value of State, city, and internal improvement stocks and bonds are so great that investments in them for purposes of a sinking fund are absolutely impracticable except at great waste of public resources"  Keating claimed that debt holders felt secured by the securities held against the debt by State (works of internal improvement) and that to redeem early at high premiums was folly. In fact, in 1880 the Treasury officers created a sinking for the Treasury Relief Loan. Accordingly, $43,883.06 were expended for the fund. The cost of this investment in premiums was $3,518.90, showing that "the system devised by the Constitution, for the redemption of a loan when created, to be a rather expensive luxury, that could only be afforded when there was abundant money in the Treasury."

Keating acquitted himself of the charges levied against the Treasury by Hamilton, in both the eyes of the public and the politicians. The Special Committee of the House of Delegate which investigated the charges exonerated the Treasury officials from any mismanagement.  The Democratic party stood firmly behind him, nominating him for a  third term without opposition. His nomination and subsequent election were taken as an endorsement of the running of the Treasury and it was widely held that Hamilton's accusations were primarily political in nature.

One of the lasting impacts Keating had on the practices of the Comptroller's office was the practice of refinancing the state debt at lower rates of interest. The Maryland Defense Loan of 1868 fell due in 1883 for the amount of $3,326,750.66. In 1879 the credit to this tax was $145,628.73. The balance of the tax, $613,953.78, and millions more had gone for bounties. The Treasury was unable to meet the payment and asked for a new loan to be authorized at a lower interest rate. The Act of 1882, Chpt. 289 authorized a new $3,000,000 "Defense Redemption Loan" at 3.65 percent interest, redeemable in fifteen  years. This action reduced the balance on the loan by $89,605.03 per year.   The policy of exchanging or redeeming loans was an effective way to lower the State's debt and this practice was followed by subsequent comptrollers who issued new loans in 1886, 1888, and 1890. Furthermore, the approval of these loans endorsed Keating's practice of reserving the State's securities rather than liquidating the debt too quickly.

Keating left office in January of 1884 with the full support of his party and the public and with the hope of becoming the next U.S. Senator from Maryland. He had proven himself to be an efficient and able administrator of the State finances, who understood and complied with the constitutional responsibilities and duties of his office. He survived a particularly bitter campaign in 1881 and convinced most of the state of the correctness of his financial management. His service as Comptroller focused greater attention on the issue of dedicated taxes and debt financing and repayment. The biggest disappointment Keating probably suffered was the that he was unable to obtain official sanction on the borrowing of money from special funds, a practice he felt to be not only necessary but one that made the best use of State funds. However, he did bring to light the delicate line the state walked in its policy of keeping taxes low. It was Keating's hope that taxes could eventually be eliminated by the continuous refunding of state debt and although, this did not come to pass, he did show the State an effective way of lowering the amount of interest paid on the debt. The Cecil Democrat wrote on his renomination in 1881 "In all the history of the office…there has never been a time when the finances of the State were in an healthy a condition as now or had a more promising future."  Thomas J. Keating could ask for no better endorsement of his service to the state of Maryland.