CHAPTER IV

THE ADMINISTRATION OF THE TRUST FUNDS

The trust funds of the state are the School Fund, the University Fund, the Normal School Fund, and the Agricultural College Fund. For a short time there was also a Railroad Farm Mortgage Fund. The genesis and nature of each of these funds is explained in the chapter on "The Financial Administration of the State Departments." Such colossal fraud and corruption characterized the administration of the education funds in the early years of the state's history, especially during the regime of the "Forty Thieves," which began in 1850, that the people of Wisconsin are today paying taxes for education that they would have no need of paying, if the trust funds had been honestly and efficiently administered, and if the lands serving as the basis of the funds had been disposed of with a view to promoting the welfare of the state, instead of furthering the private interests of corrupt public officers and land speculators.

The first law providing for the investment of the trust funds required that the school and university land commissioners, who were the secretary of state, state treasurer, and the actorney-general, make loans of all moneys received into the funds to the citizens of Wisconsin, upon real estate security. All moneys arising from the sale of lands in any county were to be set aside and loaned to individual citizens residing in that county. This law appears to be one that might have insured the safety and integrity of the funds, but the administration of it was so lax and corrupt that it worked great losses to the funds for education. The following are the important provisions of the law. In appraising land offered as security for loans, the commissioners were not to include perishable improvements. From the person applying for a loan the commissioners

were each to receive one dollar a day for making the required appraisal. No greater sum than $500 nor a sum less than $100 was to be loaned to any one person. The interest at seven per cent was payable annually in advance. No loan was to be made for a longer time than five years, but it was provided that the payment of the principal might be deferred from year to year even after five years, provided that the interest was paid, but the legislature might at any time change the law so as to require payment at any time after one year from the time when the original five year credit expired. The principal might be paid in whole or in part at any time when interest fell due. The sum loaned was not to exceed one-half of the appraised value of the property offered as security, and the commissioners might reduce the amount loaned on any piece of property whenever they had good cause to believe that the valuation on the property was not in proportion to the prices of similar property being sold in the neighborhood. The expense of recording the mortgage given was to be borne by the borrower. In case of non-payment of interest or of principal when due, the commissioners, after advertising the sale, were to sell at auction and for cash so much of the land as would pay the amount of the principal due, interest due, five per cent damages of the whole amount due, and the cost of advertising and selling. In case no bid sufficiently high was received, the commissioners were to bid the land in for the proper fund, and as soon thereafter as possible to sell the property to the highest bidder for cash or on five years' time. If the mortgaged property in any case was sold for more than the amount due the fund and damages and expenses, the surplus was to be paid over to the mortgagor, his heirs or assigns. This law honestly and efficiently administered would have worked satisfactorily and the integrity of the funds would have been secure.1

As early as 1851 complaints were made that in some instances loans were made from the school fund upon insufficient security. Governor Farwell was unable to ascertain whether these complaints had any basis in fact, but subsequent disclosures proved

1 Revised Statutes, 1849, ch. 24, secs. 64-76, 89, 98.

that they had. The Governor declared against the policy of loaning the school fund to individuals, not only because of the liability to loss in many cases, but also because the policy was partial in its benefits. He advocated that the fund be used for the support of the normal school, in the benefits of which the poor and the needy might participate. Just what his plan was he did not indicate. A typical case illustrating the frauds practiced in the land office was unearthed in 1852. In 1851 there was loaned from the trust funds to G. H. Barstow, brother of the then Secretary of State, the sum of $350. The mortgage given by Barstow was not recorded for ten months. The land mortgaged was assessed at $85 and it was said that it would not have brought $100 at a forced sale. Besides, judgments against Barstow for $75 and $500 took precedence of the mortgage to the school fund. A full investigation was made of this case, and records supported by affidavits show that the above were the facts. 3

The frauds in the land office were fully revealed in 1856.* When at the begining of that year, State Treasurer Edward H. Janssen retired from office he was short in his accounts a sum variously estimated from $40,000 to $75,000, but which proved to be $34,974.* Various credits given to Janssen finally reduced his shortage to $31,318.54. This shortage led to the appointment of a select committee of the legislature to investigate the offices of the state treasurer, of the secretary of state, and the school land office, and to carry the investigation back to the beginning of the state government.

The school land commissioners during the administration immediately preceding 1856 were E. H. Janssen, State Treasurer, A. T. Gray, Secretary of State, and George B. Smith, AttorneyGeneral. Daniel M. Seaver, Deputy Treasurer, was acting commissioner during Janssen's absence, which was considerable.

2 Governor's Message, 1851.

3 Argus, Feb. 25, 1852.

* In 1855 numerous persons complained that they could not get their claims on the State Treasury satisfied, and it was said in the legislature that the postmaster at Madison had given notice that after a certain day he would cease to give the state credit for postage stamps.

Milwaukee Sentinel, Feb. 16, 1856.

William A. Barstow was Governor. Barstow and his ring are known in Wisconsin history as "The Forty Thieves." The disclosures of fraud in the land office lead one to believe that they deserved this title.

The legislative investigation showed the grossest frauds in connection with the sale of state lands and the administration of the trust funds. Testimony given before the committee, and evidence in the records of the school land office reveal a constant violation of the law prohibiting the commissioners and their clerks from buying state lands. It was the practice of persons in the commissioners' office to mark certain lands "sold" or "reserved for sale" thus giving themselves or their friends time to examine the lands. Entries in lead pencil showed that certain lands were reserved for certain persons. One entry read "To be kept for William A. Barstow." William A. Barstow was the Governor of the State. The law required the sale of land at auction. More light was thrown upon the shameful way in which the land office was administered by the testimony of a clerk who swore that while in March, 1855, the bill to restrict the amount of land to be sold to one person was pending, he by the direction of one of his superiors marked certain unsold lands "sold to Daniel Howell." Daniel Howell swore before the committee that he had never had any interest in the lands entered in his name. In some cases lands were actually stolen by those in the land office. In one case, W. H. Besley, chief clerk in the land office, using the name of Daniel Howell, came into possession of a whole section, which had already been sold on time and on the balance of the purchase price of which one James Ludington was paying interest. Besley secured a patent to the land, which was section 16, town 13, range 22, and he admitted before the committee that he paid nothing for it. From beginning to end this nefarious business was contrary to law. In the first place, the law required that application for the purchase of any piece of land be filed with the secretary of state. Besley had entered this land at one shilling an acre; it had already been sold for twelve shillings an acre; besides, the law fixed a minimum price of $1.25 an acre.

The whole business of the office was conducted in a grossly

careless and negligent manner and without regard to law. The law in order to prevent the issue of land certificates before the payment of the sums required by law to be paid provided that such certificates should be countersigned by the secretary of state. This provision was disregarded. It was customary for that officer, the attorney-general, and the treasurer, the land commissioners, to sign certificates in blank, which thus signed were left lying about in the office where everyone had access to them. It was the practice to deliver certificates to certain persons upon their promising to pay the Treasurer the amounts required, but no trouble was ever taken to see whether they kept their promise. Consequently, there were issued a large number of certificates upon which nothing was ever paid. This was true of many certificates issued in the names of Daniel Howell, William Chappell, and E. H. Gleason, in which certificates persons in the office had an interest. The practice of signing certificates in blank dated back to July, 1854, when the land office was separated from the Treasurer's office. These fraudulently obtained certificates were in many if not in all cases sold to bona-fide purchasers, who perhaps had no knowledge of the fraud connected with them. The traceable loss to the education funds because of these particular frauds amounted to $16,245.94. It might be explained that land certificates were receipts for the amount required to be paid down on land and for interest on the balance to the following January. Title to land sold on credit remained in the state until payment in full was made. Another loss ascertainable to the extent of $23,678.77 arose from either the non-payment of penalties or their non-entry on the books. The law provided that persons who failed to pay interest on a loan or on money owed for school lands within the time fixed by statute should forfeit to the state five per cent of the amount due. Some cases were discovered in which the penalty had been paid, but the Treasurer's books showed no corresponding entry. The total loss to the trust funds through this and other frauds there is no means of determining.

It has already been pointed out that the clerks in the land office entered lands for themselves. One clerk, Byrne by name,