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Funding Act of 1790
The Funding Act of 1790, the full title of which is An Act making provision for the [payment of the] Debt of the United States, was passed on August 4, 1790, by the United States Congress as part of the Compromise of 1790, to address the issue of funding (debt service, repayment, and retirement) of the domestic debt incurred by the state governments, first as Thirteen Colonies, then as states in rebellion, in independence, in Confederation, and finally as members of a single federal Union. By the Act, the newly-inaugurated federal government under the U.S. Constitution assumed and thereby retired the debts of each of the individual colonies in rebellion and the bonded debts of the States in Confederation, which each state had individually and independently issued on its own "full faith and credit" when each of them was, in effect, an independent nation.
Through the new Department of the Treasury, the U.S. government issued U.S. Treasury Securities backed by the "full faith and credit" of the United States and offered them to the bondholders of the former States' and Confederation's bonded debts at par—that is, at 100% of the state bonds' face value (full assumption) and at rates of interest (and all other terms) that were as specified on the bonds when they were issued by the states and Confederation.
When that was done, "full assumption" of state debts by the federal government had thereby occurred through the issue of federal securities and, for the states of the new Union, the full and complete retirement of their bonded obligations incurred in the Revolution and the Confederation.
With the formation of the new government in 1789 under the recently adopted U.S. Constitution, the settlement of the Revolutionary War debt was a matter of prime importance. As a result, the first House of Representatives directed the first Secretary of the Treasury, Alexander Hamilton, during the presidential administration of George Washington, to draw up a plan for the support of public credit. Consequently, the First Report on the Public Credit was issued on January 9, 1790, which became the foundation for subsequent action taken by Congress for funding and paying the public debt. The Funding Act of 1790 that followed was concerned primarily with funding the domestic debt held by the states.
The Funding Act authorized the federal government to receive certificates of state war-incurred debts and to issue federal securities in exchange. It essentially proposed “a loan to the full amount of the said domestic debt.”
The terms of the loan were that two-thirds of the principal of the debt subscribed should draw the interest of 6% per annum, from January 1, 1791, and the remaining one-third of the principal to receive interest at the same rate (6%) from 1801, with interest “payable quarter yearly”. The debt consisting of arrears of interest should bear an interest of 3% from January 1, 1791.
By the Act, Congress authorized the assumption of a total of $21.5 million of state debts as follows:
Not all of the state quotas were filled and so the total assumed was only $18.3 million. Furthermore, although the Act was limited to one year, it was later extended until the entire debt was subscribed and funded according to the law.
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Funding Act of 1790
The Funding Act of 1790, the full title of which is An Act making provision for the [payment of the] Debt of the United States, was passed on August 4, 1790, by the United States Congress as part of the Compromise of 1790, to address the issue of funding (debt service, repayment, and retirement) of the domestic debt incurred by the state governments, first as Thirteen Colonies, then as states in rebellion, in independence, in Confederation, and finally as members of a single federal Union. By the Act, the newly-inaugurated federal government under the U.S. Constitution assumed and thereby retired the debts of each of the individual colonies in rebellion and the bonded debts of the States in Confederation, which each state had individually and independently issued on its own "full faith and credit" when each of them was, in effect, an independent nation.
Through the new Department of the Treasury, the U.S. government issued U.S. Treasury Securities backed by the "full faith and credit" of the United States and offered them to the bondholders of the former States' and Confederation's bonded debts at par—that is, at 100% of the state bonds' face value (full assumption) and at rates of interest (and all other terms) that were as specified on the bonds when they were issued by the states and Confederation.
When that was done, "full assumption" of state debts by the federal government had thereby occurred through the issue of federal securities and, for the states of the new Union, the full and complete retirement of their bonded obligations incurred in the Revolution and the Confederation.
With the formation of the new government in 1789 under the recently adopted U.S. Constitution, the settlement of the Revolutionary War debt was a matter of prime importance. As a result, the first House of Representatives directed the first Secretary of the Treasury, Alexander Hamilton, during the presidential administration of George Washington, to draw up a plan for the support of public credit. Consequently, the First Report on the Public Credit was issued on January 9, 1790, which became the foundation for subsequent action taken by Congress for funding and paying the public debt. The Funding Act of 1790 that followed was concerned primarily with funding the domestic debt held by the states.
The Funding Act authorized the federal government to receive certificates of state war-incurred debts and to issue federal securities in exchange. It essentially proposed “a loan to the full amount of the said domestic debt.”
The terms of the loan were that two-thirds of the principal of the debt subscribed should draw the interest of 6% per annum, from January 1, 1791, and the remaining one-third of the principal to receive interest at the same rate (6%) from 1801, with interest “payable quarter yearly”. The debt consisting of arrears of interest should bear an interest of 3% from January 1, 1791.
By the Act, Congress authorized the assumption of a total of $21.5 million of state debts as follows:
Not all of the state quotas were filled and so the total assumed was only $18.3 million. Furthermore, although the Act was limited to one year, it was later extended until the entire debt was subscribed and funded according to the law.