*

30, 1863, there was charged against this account $240,885.35, which amount as of September 30 represented the debit balance or overdraft in this account. The cash book and journal show that there is included in those expenditures items aggregating $96,000 which were paid out as per Ordinances Nos. 51 and 52 of 1863. The balance of the amount expended by the city, as per the request of General Schenck, or $152, appears in the entry of December 31, and was, according to the cash book and journal, expended on December 3, 1863. * The exhibits show in fact that under the account "City Defense No. 2", debits are entered beginning in June and ending in December, 1863, and that credits are not entered until October. There should be noted, however, the statement made in the first quoted paragraph of the report that the funds advanced were borrowed from the general funds in the city treasury and that subsequently bonds were issued to cover. This appears to present a different situation than that involved in the two cases to be taken as a basis for the statement of an account, particularly the Indiana case in which evidence was submitted showing that there were no funds in the State treasury and that the issuance of bonds was necessary to raise funds for advances to the Federal Government.

In the case of the city of Baltimore the issuance of the bonds does not appear to have been for the purpose of advancing the funds to the Federal Government, and while the advances made may incidentally have helped to deplete the city treasury to such extent as to make necessary the issuing of bonds to replenish the city treasury, it is doubtful whether the rule in the two cases cited governs. If, notwithstanding the distinction herein pointed out, the rule in the two cases referred to is to be held applicable, the city of Baltimore is entitled to the interest paid on such bonds, that being the only item of expense claimed, and as to which this office is to report under Senate Resolution No. 246. The bonds, it appears, were issued as of September 1, 1863, and redeemed as of September 1, 1893, a period of 30 years, and interest was paid at the rate of 6 percent per annum over that period. Interest on $96,152, the amount recognized by the accounting officers of the Treasury, as having been advanced to the Federal Government at the request of Maj. Gen. R. C. Schenck, June 20, 1863, at 6 percent per annum for a period of 30 years amounts to $173,073.60.

It is noted, however, that the bonds issued and sold by the city of Baltimore in 1863 were sold at a premium varying from 2 to 5 percent, and in accordance with the rule of the two State cases herein taken as a basis for the statement of account, the amounts received as premium on the amount of bonds equaling $96,152 should be charged to the city. The amount of bonds sold in October 1863, was $96,300, and on this amount there was received a total premium of $2,042.25. Taking into consideration the first bonds issued and sold in October up to an amount of $96,152, the premium received is $2,039.29, which should be deducted from the amount shown as due for interest.

A recapitualtion of the two items discussed above is as follows: Interest on bonds to the amount of $96,152 for 30 years, at 6 per cent.

Less premium received upon sale of bonds in that amount..

Balance due the city of Baltimore...
Respectfully,

$173, 073. 60

2, 039. 29 171, 034. 31

J. R. MCCARL,

Comptroller General of the United States.

EXHIBIT B

ESTABLISHED PRECEDENTS UPON WHICH THE COMPTROLLER General Approved THE CLAIM OF THE CITY OF BALTIMORE FOR REFUNDMENT OF INTEREST PAID ON ITS 30-YEAR BOND ISSUE

AUTHORITY OF THE COMPTROLLER GENERAL OF THE UNITED STATES TO

MAKE THE AUDIT

Authority of the Comptroller General of the United States to readjust the claim of the city of Baltimore is contained in Senate Resolution No. 246, adopted on May 28, 1928, reading as follows:

"That the Comptroller General of the United States be, and he is hereby, authorized and directed to readjust the claim of the city of Baltimore for amounts advanced at the request of Maj. Gen. R. C. Schenck, dated June 20, 1863, to aid

the United States in the construction of works of defense, as allowed by the accounting officers of the Treasury and reimbursed pursuant to the Sundry Civil Act approved March 3, 1879 (20 Stat. L. 385), and to allow the city of Baltimore reimbursement for interest paid on its bonds issued to raise amounts advanced to aid the United States, and in so doing the Comptroller General of the United States shall adopt and apply the rule established in the case of the State of New York against the United States (160 U. S. 598; decided Jan. 6, 1896), and the case of the State of Indiana (VIII Decisions of the Comptroller, p. 729, Apr. 14, 1902), and report the amount so ascertained to the Senate for consideration."

RULE ESTABLISHED BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF THE STATE OF NEW YORK, JANUARY 6, 1896

During the Civil War, the State of New York had issued bonds to raise funds to equip troops afterwards employed in suppressing the insurrection against the United States in 1861-65, and had paid out interest on said bonds, for which interest the State sought reimbursement.

Application for the reimbursement of the interest so paid by the State of New York had been rejected by the Accounting Officers of the Treasury, and the State filed suit in the United States Court of Claims therefor, and recovered judgment thereon

The United States appealed the judgment so rendered, to the Supreme Court of the United States, which on January 6, 1896, (160 U. S. 598), awarded judgment to the State of New York for the full amount of the interest sued upon by the State.

In referring to the interest thus adjudged to be reimbursed to the State of New York, the Supreme Court of the United States said:

At page 621: "So that the only inquiry is whether, within the fair meaning of the latter act, the words, 'costs, charges, and expenses properly incurred', included interest paid by the State of New York on moneys borrowed for the purpose of raising, subsisting, and supplying troops to be employed in suppressing the rebellion. We have no hesitation in answering this question in the affirmative. * * * Such interest, when paid, became a principal sum, as between the States and the United States, that is, became a part of the aggregate sum properly paid by the State for the United States. It is as if the United States had itself borrowed the money, through the agency of the State. * * *""

RULE ESTABLISHED BY THE COMPTROLLER OF THE TREASURY IN THE CLAIM OF THE STATE OF INDIANA, APRIL 14, 1902

The rule established by the Comptroller of the Treasury in construing the decision of the Supreme Court of the United States in the case of the State of New York, supra, as applicable to the claim of the State of Indiana, was directed to the question of terminating the running of interest on long-term bonds issued for the same purpose as those issued by the State of New York. The question there involved was whether the Comptroller of the Treasury should stop allowance of interest on the principal sum from the date same was reimbursed to Indiana, or allow interest to continue to run for the life of the bonds. On this question, the Comptroller of the Treasury, Tracewell, in construing the intent of the decision of the Supreme Court of the United States in the New York case, held: (VIII Decisions of the Comptroller, pp. 714-730).

At page 722: "As I understand this decision it announces the doctrine, in language that cannot be misunderstood-*

* *

"That interest paid by States in procuring means with which to raise and equip troops is not considered as interest, but as part of the costs, charges, and expenses properly incurred in raising and equipping troops. * *""

*

At page 727: "It seems perfectly clear to me that to reimburse the State of Indiana on account of its expenditures because of this bond sale that it will be necessary for the United States to repay to it every dollar it legitimately expended on account of principal and interest, together with all expenses in the negotiation of their sale. *

At page 729: "Stopping the interest accruing on bonds which neither the State nor the United States could have paid without the consent of the bondholder at the time a partial payment was made to the State necessarily to reimburse it for moneys which it had actually expended and which it was obligated

to repay to its bonded creditors strikes me as a most remarkable proposition, no more remarkable, however, then unjust. * * *""

Accordingly, the State of Indiana was paid the sum of $514,684.02, being interest paid out during the full life of the bonds. (See VIII Comp. Dec. at p. 730.)

RULE ESTABLISHED BY THE COMPTROLLER OF THE TREASURY IN THE CLAIMS OF THE STATE OF MAINE, FEBRUARY 4, 1903, AND THE STATE OF RHODE ISLAND, FEBRUARY 25, 1903

The foregoing decision of the Comptroller of the Treasury in the Indiana claim, was confirmed by him in the claim of the State of Maine, decided February 4, 1903 (9th Comp. dec. 393), and in the claim of the State of Rhode Island, decided February 25, 1903 (9th Comp. dec. 428), the Comptroller further holding that the money paid out for interest, "not being interest, the rules governing interest and interest rests and stops on partial payments do not apply" (supra, at p. 394).

ACTION BY CONGRESS FOLLOWING RULE ESTABLISHED BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF THE STATE OF NEW YORK, AND BY THE COMPTROLLER OF THE TREASURY IN THE CLAIMS OF THE STATES OF INDIANA, MAINE, AND RHODE ISLAND

Following the decision of the Supreme Court of the United States in the case of the State of New York, supra, and of the rulings of the Comptroller of the Treasury in the claims of the States of Indiana, Maine, and Rhode Island, Congress by various acts, provided for the reopening of the disallowed claims of the various loyal States, by inserting remedial provisions in deficiency appropriation acts, authorizing the resettlement and allowance of said claims. Under such authority of Congress, the accounting officers reopened and allowed the claims of approximately 20 loyal States, covering interest payments on bonds issued to provide funds for aiding the United States in the national defense during the Civil War; and as result, disbursed to said States an aggregate sum largely in excess of 10 millions of dollars.

SPECIAL ACT OF CONGRESS EMANATING FROM THE SENATE COMMITTEE ON THE JUDICIARY IN 1929, MAKING INTEREST REIMBURSEMENT ΤΟ THE STATE OF NEVADA, IN THE SUM OF $595,076.53

The most recent remedial legislation of the character now sought by the city of Baltimore, to come before the Senate, was a measure for the relief of the State of Nevada. In Senate Report No. 1706, Seventieth Congress, second session, Mr. Waterman from the Committee on the Judiciary favorably reported Senate bill 5717, directed to the payment of the sum of $595,076.53 to the State of Nevada, comprising interest payments covering a period from February 10, 1865, to December 31, 1928-63 years-on bonds issued by the State to provide funds for raising troops during the Civil War, as reported by the Comptroller General under Senate Resolution 295 (S. Doc. No. 210, 70th Cong., 2d sess.). Senate bill 5717 passed the Senate and went to the Committee on the Judiciary of the House of Representatives, where hearings were held before a subcommittee on February 22, 1929, presided over by Mr. Christopherson. (See printed committee hearings, serial 6, pt. 2).

The Committee on the Judiciary of the House of Representatives favorably reported S. 5717 (see H. Rept. 2781, 70th Cong., 2d sess.), and S. 5717 passed the House, and became the act of March 4, 1929 (45 Stat. L., p. 2378), under which the State of Nevada was paid the sum of $595,076.53, covering interest disbursements on its long-term bonds.

CONCLUSIONS

This doctrine, as laid down by the Supreme Court of the United States, as adopted by the Comptroller of the Treasury in his decisions on the claims of Indiana, Maine, and Rhode Island, and as followed by the accounting officers in reopening, readjusting, and settling the claims of the other loyal States as to reimbursement of interest, is the same doctrine that has been followed by the Comptroller General of the United States in reopening and readjusting the claim of the city of Baltimore.

EXHIBIT C

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, February 6, 1935.

Hon. MILLARD E. TYDINGS,

United States Senate.

MY DEAR SENATOR: Your letter dated January 19, 1935, receipt of which was acknowledged January 22, 1935, is as follows:

"Referring to the claim of the city of Baltimore (S. 672) pending in Congress for reimbursement in the sum of $171,034.31:

"This claim is predicated on the amount of $96,152 advanced to the United States in 1863, at the urgent request of Maj. Gen. R. C. Schenck, U. S. A., to aid him in constructing works of national defense. The amount of $96,152 so advanced was reimbursed to the city in the Sundry Civil Act of March 3, 1879, but, because the city had borrowed said $96,152 at interest, said amount of $96,152 does not constitute a full reimbursement.

"The city had raised said $96,152 on its 6-percent 30-year bonds, issued in 1863, and maturing in 1893, at the end of which period the city had paid out a total of $173,073.60 by way of interest.

"I understand that the history of this claim while pending in your office between May 1928, and May 3, 1930, is as follows:

"Pursuant to Senate Resolution 246, adopted May 26, 1928, a copy of which is hereto attached, you were directed to audit this claim in a manner indicated therein.

"I find that you audited the claim of the city in the sum of $173,073.60 (from which amount you deducted $2,039.29 premium which the city had received on the sale of the bonds), and computed the net amount due the city to be $171,034,31, as reimbursable interest, and on May 3, 1930, you certified said amount to the Senate as due the city.

"I understand that in making your audit you took into account the fact that, in 1879, Congress had reimbursed the city in the sum of $96,152, but that, because of the precedents hereinafter cited, you did not stop your computation of reimbursable interest at 1879, but that you continued your computation to 1893, in which year the city ceased to pay interest. That you were governed in doing this by the rule laid down January 6, 1896, by the Supreme Court of the United States in the case of the State of New York v. U. S. (160 U. S. 598). Also because of the rule thereafter adopted by the Accounting Officers of the Treasury in a like case of the States of Indiana, Maine, and Rhode Island, and in all of which cases there are published decisions of the Comptroller of the Treasury. That said decisions were followed by the Accounting Officers of the Treasury in the cases of about 16 other loyal States, the claims of all of said States having been reopened and reaudited under relief acts of Congress, predicated upon the rule laid down by the Supreme Court of the United States, in the above-cited case of the State of New York, said claims having been paid in various deficiency bills in an amount aggregating approximately $8,000,000 or $10,000,000, as reimbursable interest.

Kindly let me know if I am correct in this assumption, also, if, instead of being directed to audit the claim of the city on the above basis, you had been directed to audit the claim upon the commercial rule of partial payments (sometimes called the 'Maryland rule'), and under which rule the payment in 1879 by the United States to the city of $96,152 would have first been applied to the interest which had accrued up to 1879 and the balance of said payment would have been applied toward reducing the principal sum of $96,152; how much more your audit would have shown due by the Government to the city in 1930 and

now.

"I make the above requests in order to show that your recent audit of the city's claim for reimbursable interest is in strict conformity with audits of like claims of the loyal States, pursuant to the rule laid down by the Supreme Court of the United States in the case of the State of New York v. U. S., and as applied by the accounting officers of the Treasury to settlements made with all the other loyal States who, with funds borrowed at interest, aided the Government in the national defense during the Civil War; and that, therefore, reimbursable interest is due the city, not simply from the years 1863 to 1879, but to the year 1893, this latter year being the year in which the city ceased to pay interest on the borrowed sum of $96,152 it had advanced to the United States."

The basis of the audit of the involved claim of the city of Baltimore was the same as the basis which has been employed in auditing claims of States under the act of July 27, 1861 (12 Stat. 276), as interpreted and applied by the Supreme

Court of the United States in the case of the State of New York v. The United States, decided January 6, 1896 (160 U. S. 598). The principal debt ($96,152) having been paid by the United States to the city of Baltimore on March 8, 1879, the audit by this office touched only the question of interest. As reported to the Senate under date of May 3, 1930, there was found due the city of Baltimore the sum of $171,034.31, which result was reached by computing interest at the rate of 6 percent per annum on the principal debt for a period of 30 years, from September 1, 1863 (the date of issuance of the involved bonds), to September 1, 1893 (the date of redemption of the bonds), and deducting therefrom the sum of $2,039.29, the premium received upon sale of the bonds.

If, instead of directing the audit of the involved claim to be made on the above basis, the Senate had directed that it be made in accordance with the commercial rule of partial payments, the result would have been different, as indicated by the following computation on the latter basis:

Principal debt__.

Interest at 6 percent from Sept. 1, 1863, to Mar. 8, 1879 (date of payment by the United States)..

$96, 152, 00

89, 532. 00

Interest on $89,532 at 6 percent from Mar. 8, 1879, to Mar. 3, 1930 (date of report to the Senate).......

274, 818. 63

Total due May 3, 1930--

364, 350. 63

Calculation of interest to February 1, 1935, under this commercial rule of partial payments would bring the total due on the latter date to the sum of $389,822.33.

It is hoped that the information contained in this letter will be sufficient for the purpose of your inquiry. If not, and you will advise me, effort will be made to furnish you such additional information as may be possible, if available to or obtainable by this office.

Sincerely yours,

J. R. McCARL, Comptroller General of the United States.

EXHIBIT D

A LIST OF THE 19 STATES WHICH HAVE BEEN REIMBURSED $10,285,759.47 FOR INTEREST PAID ON BORROWED MONEY ADVANCED TO THE GOVERNMENT IN THE NATIONAL DEFENSE DURING THE CIVIL WAR

The following is a list of the 19 States which, after having been refunded the principal they had advanced to aid the United States in the national defense during the Civil War, and which principal was borrowed at interest, have since been reimbused $10,285,759.47 for the interest paid on the borrowed money so advanced.

The deficiency act of Feb. 14, 1902 (32 Stat. 32), provided ap

propriations as follows:

Maine..

The deficiency act of July 1, 1902 (32 Stat. 586), provided ap

propriations as follows:

Indiana__

Iowa..

Michigan

Ohio...

Illinois.

Vermont