Railroad subsidies in the Rockies

• From 1830 to 1900, many state and local governments subsidized railroads by purchasing their bonds or stock, believing (often correctly) that they had to do whatever it took to attract railroads in order to survive.  Depressions in 1837 and 1857 sent most railroads into bankruptcy and left many governments saddled with huge debts as a result of their now-worthless investments.  As a result, the extent to which state and local governments could subsidize or invest in railroads was hotly debated in legislatures and court cases.  At about the time Gibson was decided, courts in several Midwestern states broke ranks and held  that subsidies were not authorized (see § __). 

• Most states, however, upheld governments’ right to subsidize against constitutional challenges.  The issue seldom came up in the Rocky Mountain region:  the desire to attract settlers was strong, railroads were essential to settlement, and as a result, subsidies were popular.  In Gibson, the region’s leading railroad subsidy case, Nevada’s supreme court followed the majority rule:  it held that even though railroads were operated by private corporations, they served a public purpose and, thus, subsidies were permissible.