Immediately after Virginia's adoption of a new state constitution and readmission into the United States in 1870, the first state legislature (a majority of whose members had never held political office before) after extensive lobbying passed the Funding Act of 1871.
This affirmed the state's pre-war debt by issuing bonds at 6% interest for 2/3 of the debt's face value at that same interest rate and promised to pay the remainder after agreement with West Virginia.
Virginia's governor elected at that time, Gilbert Carlton Walker, was a banker in Norfolk and supported affirmation of the pre-war debt.
He had the support of the Conservative Party formed by the Committee of Nine and characterized the issue as a "matter of honor."
Confederate bonds were still worthless, and by this time prewar debt (exchanged after the law) had mostly been bought by out-of-state and even British investors at greatly discounted prices.

In the decades before 1861, the Virginia Board of Public Works had invested in canals, roads, and railroads, by purchasing stock in and/or receiving mortgages on turnpike, toll bridge, canal and rail transportation companies.
By 1861, those $34 million in investments with deferred 6% interest totaled about $46 million.
During the American Civil War, most of the railroads had been used for military purposes by armies on both sides, and had become strategic targets.
Railroad lines were ripped up, terminals burned, bridges blown up and rolling stock destroyed.
Several northwestern counties also seceded from Virginia to remain in the Union as the State of West Virginia.
Much of what little railroad and canal infrastructure remained was in West Virginia.

Virginia needed its infrastructure rebuilt to restore its economic base, especially to get crops and manufactured goods to market.
Accordingly, the Virginia General Assembly allowed reclassification of its first mortgages on existing rail lines to second mortgages, so that the railroads could get money from first mortgages to rebuild.
Executive officials also allowed corporations to self-assess for other tax purposes, which meant corporate taxes were very low.
However, the state still needed money to pay the debt as well as to operate the government and particularly public schools (theoretically possible since the days of Thomas Jefferson but only required by the state constitution since 1870).
The Funding Act also contained a provision allowing coupons to be used at full value to pay taxes, which cut state revenues significantly (as the bonds were usually discounted significantly).
In 1872, the General Assembly reduced the interest rate to 4%, but debt interest still constituted more than half of government expenditures, and the state ran a significant deficit.
By the end of the decade, the state auditor was paying the bond debt, but not debts owed to teachers or to localities which had built public schools.

As much of the prewar debt was held by Northern banks and investors, the issue of debt repayment was complex.
Those who supported a readjustment of the debt, were known as "Readjusters", whereas those in favor of funding the entire debt (plus interest), became known as "Funders".

The Readjuster Party promised to "readjust" the state debt, repeal the poll tax which had suppressed voting by blacks and poor whites, and increase funding for schools and other public facilities.
Public education had been established for the first time under the Reconstruction-era legislature, but schools were underfunded, especially black schools.
In 1878, Readjusters passed a law forbidding bond coupons to be used to pay state taxes, but Conservative John W. Daniel swore that he would rather have all public schools closed rather than divert money from bondholders, and Governor Frederick W.M. Holliday vetoed it.
Harrison Riddleberger's law limiting bond interest to 3% was also vetoed.
Before elections following year the Conservatives passed a law and issued bonds (which still could be used to pay state taxes) with interest rates increasing each year, at 3% for the first ten years, then
Immediately after Virginia's adoption of a new state constitution and readmission into the United States in 1870, the first state legislature (a majority of whose members had never held political office before) after extensive lobbying passed the Funding Act of 1871. This affirmed the state's pre-war debt by issuing bonds at 6% interest for 2/3 of the debt's face value at that same interest rate and promised to pay the remainder after agreement with West Virginia. Virginia's governor elected at that time, Gilbert Carlton Walker, was a banker in Norfolk and supported affirmation of the pre-war debt. He had the support of the Conservative Party formed by the Committee of Nine and characterized the issue as a "matter of honor." Confederate bonds were still worthless, and by this time prewar debt (exchanged after the law) had mostly been bought by out-of-state and even British investors at greatly discounted prices.
In the decades before 1861, the Virginia Board of Public Works had invested in canals, roads, and railroads, by purchasing stock in and/or receiving mortgages on turnpike, toll bridge, canal and rail transportation companies. By 1861, those $34 million in investments with deferred 6% interest totaled about $46 million. During the American Civil War, most of the railroads had been used for military purposes by armies on both sides, and had become strategic targets. Railroad lines were ripped up, terminals burned, bridges blown up and rolling stock destroyed. Several northwestern counties also seceded from Virginia to remain in the Union as the State of West Virginia. Much of what little railroad and canal infrastructure remained was in West Virginia.
Virginia needed its infrastructure rebuilt to restore its economic base, especially to get crops and manufactured goods to market. Accordingly, the Virginia General Assembly allowed reclassification of its first mortgages on existing rail lines to second mortgages, so that the railroads could get money from first mortgages to rebuild. Executive officials also allowed corporations to self-assess for other tax purposes, which meant corporate taxes were very low. However, the state still needed money to pay the debt as well as to operate the government and particularly public schools (theoretically possible since the days of Thomas Jefferson but only required by the state constitution since 1870). The Funding Act also contained a provision allowing coupons to be used at full value to pay taxes, which cut state revenues significantly (as the bonds were usually discounted significantly). In 1872, the General Assembly reduced the interest rate to 4%, but debt interest still constituted more than half of government expenditures, and the state ran a significant deficit. By the end of the decade, the state auditor was paying the bond debt, but not debts owed to teachers or to localities which had built public schools.
As much of the prewar debt was held by Northern banks and investors, the issue of debt repayment was complex. Those who supported a readjustment of the debt, were known as "Readjusters", whereas those in favor of funding the entire debt (plus interest), became known as "Funders".
The Readjuster Party promised to "readjust" the state debt, repeal the poll tax which had suppressed voting by blacks and poor whites, and increase funding for schools and other public facilities. Public education had been established for the first time under the Reconstruction-era legislature, but schools were underfunded, especially black schools. In 1878, Readjusters passed a law forbidding bond coupons to be used to pay state taxes, but Conservative John W. Daniel swore that he would rather have all public schools closed rather than divert money from bondholders, and Governor Frederick W.M. Holliday vetoed it. Harrison Riddleberger's law limiting bond interest to 3% was also vetoed. Before elections following year the Conservatives passed a law and issued bonds (which still could be used to pay state taxes) with interest rates increasing each year, at 3% for the first ten years, then
Readjuster Party