Business: Arkansas v. Creditors

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$10,000,000 and figured that, after reducing the high automobile license fee, the State would have only $6,500,000 of gasoline and license revenue. So first he defaulted interest on the highway bonds, then got the Legislature to offer holders in exchange new 25-year bonds bearing only 3% interest.

The bondholders did not have to exchange their old bonds for new, but the State would pay no interest on the old bonds. They rushed to Governor Futrell protesting that the State's action was a deliberate breach of contract, since gasoline and license taxes were still adequate to take care of the original bonds they had bought. Said he briefly:

"Arkansas has been oversold through a wrecking crew with the assistance of the bond buyers, despite their knowledge that the State highway issues were excessive. . . ."

Last week goaded by the complaints of bondholders he reiterated: "My position is that all highway obligations viewed from a moral viewpoint are coequal. This is true because all State highways belong to the Commonwealth regardless of the method used to pay for their construction."

Many were financiers' conjectures last week as to what the distinguished bondholders' protective committee could accomplish. If a municipality defaults on its bonds, it can be sued in court and, after a judgment is given, a writ can be obtained compelling the municipality to collect necessary taxes and pay its obligations. But under the U. S. Constitution no private person can sue a State without its consent. In this case however it happens that the States of Pennsylvania, Nevada and Connecticut hold Arkansas highway bonds in various State trust funds, and as States they can sue.

One famed suit of this kind was instituted by Virginia against West Virginia (arising out of the split-off of West Virginia during the Civil War). In 1918 the Supreme Court decided that case in favor of Virginia. West Virginia paid the disputed debt. But no machinery exists for forcing a State to pay.