1835 Andrew Jackson - Congress Bails Out Washington D.C.

Did you know that in 1836, the Federal Government bailed out its own capital city of Washington? That is right, the Federal government was forced to assume the debt of the District of Columbia when they were unable to pay their debts to the Chesapeake and Ohio Canal. The District of Columbia was officially organized in 1801 by the Organic Act, when Congress placed a 10 square mile of federal territory, including the cities of Washington, Georgetown, and Alexandria, under the exclusive control of Congress. Many residents had expected the federal capital's location to result in higher land prices and the growth of commerce, but instead by the 1830s the towns they were bankrupt and in need of a bailout.  

The real trouble started in 1829 with the commencement of the construction of the Chesapeake and Ohio Canal. The Canal was to follow the Potomac River from the District of Columbia to Cumberland, Maryland. On October 23, 1826 when the engineers submitted the study, the total cost was to be more than $22 million, much more than most supporters had expected. So, new engineers were hired and in 1828 they reported a new construction cost of around $4.5 million. With these new numbers, stockholders were encouraged and formally organized the Chesapeake and Ohio Canal Company. Very quickly, the Canal Company ran into financial difficulties and cost over-runs. They had trouble selling bonds and were forced to rely on loans from local banks. When the already debt-ridden cities of the District of Columbia were unable to make payments on their subscriptions, local authorities appointed the former Secretary of Treasury, Richard Rush to negotiate a loan through the Dutch banking company of Daniel Crommelin & Sons in Amsterdam. A $1.5 million loan was authorized under the authority of an act of Congress of United States, passed on the 24th of May 1828. 

Over the next few years, the Canal company's financial difficulties continued. By 1832, the canal board had to issue calls for payment of almost 60% of the company stock, and when President Jackson forced the removal of the federal deposits from the Second Bank of the United States, the canal company was unable to convert their bonds without taking a serious loss. In late 1834, the Canal directors directed their appeals for additional funds to Congress, but despite a favorable recommendation by the House Committee on Roads and Canals, Congress refused to grant their request of aid. This placed the future of the canal company into the hands of the District Cities and the interested states. Congress was not ready to bail out the canal but had to do something for the already bankrupt District Cities of Washington, Georgetown, and Alexandria. In his 1835 State of the Union Address, President Andrew Jackson called on Congress to act on what he called a "great depression" that had arisen in the District of Columbia. Jackson made no mention of bailing out the Canal but instead urged Congress to consider "such relief or remedies" that are "consistent with the powers of Congress".

"It is my duty to call the particular attention of Congress to the present condition of the District of Columbia. From whatever cause the great depression has arisen which now exists in the pecuniary concerns of this District, it is proper that its situation should be fully understood, and such relief or remedies provided as are consistent with the powers of Congress."

On May 20, 1836 Congress passed a bill to assume the debt of the District cities. The city of Washington owed $459,650, Georgetown $116,795 and Alexandria $115,540. The bill also called for Chesapeake and Ohio Canal stock to be held on deposit in the hands of the Secretary of Treasury for a period of ten years and then to be sold to pay off the debt. Without the aid of Congress, most of the interested states dropped out and the canal board was forced to rely solely on the support of the state of Maryland. In 1835, the Maryland General Assembly passed a bill Canal company with a loan $2,000,000 to complete the canal. 

References

"Seventh Annual Message | The American Presidency Project". Presidency.Ucsb.Edu, 2021, https://www.presidency.ucsb.edu/documents/seventh-annual-message-2.

"An Act To Enlarge Its Powers Of The Several Corporations Of The District Of Columbia, And For Other Purposes". Loc.Gov, 2021, https://www.loc.gov/law/help/statutes-at-large/20th-congress/session-1/c20s1ch87.pdf.

Letter And Accompanying Documents From The Hon. Richard Rush To Joseph Gales, Esq., Mayor Of The City Of Washington; Respecting The Loan Of A Million And A Half Of Dollars, Negotiated By The Former, In Europe, For The Said City And The Towns Of Georgetown And Alexandria, Under The Authority Of An Act Of Congress Of United States, Passed On The 24Th Of May, 1828. 2021, https://lccn.loc.gov/08023049. Accessed 17 Feb 2021.

Unrau, Harlan. Historic Resource Study: Chesapeake & Ohio Canal. 2007, https://www.nps.gov/parkhistory/online_books/choh/unrau_hrs.pdf. Accessed 17 Feb 2021.