Funding Act of 1790

The United States Funding Act of 1790, the full title of which is "An Act making provision for the [payment of the] Debt of the United States", was passed on August 4, 1790 by the United States Congress as part of the Compromise of 1790, to address the issue of funding (i.e., debt service, repayment and retirement) of the domestic debt incurred by the Colonies; the States in rebellion; in independence; in Confederation, and subsequently the States' comprising and within, a single, sovereign, Federal Union. By the Act the newly-inaugurated federal government under the US Constitution assumed (and thereby retired), the debts of each of the individual Colonies' in rebellion and the bonded debts of the States in Confederation — debts that each state had individually and independently issued, on its own "full faith and credit", when each of them were in effect, an independent nation.

The United States government then (through its also newly created Department of the Treasury), issued U.S. Treasury Securities (backed by the "full faith and credit" of the United States of America) offering these securities to the bondholders of the former States' and Confederation's bonded debts, at par. That is, at 100% of their face value (full assumption); and at rates of interest (and all other terms) that were as specified on the bonds when they were issued by the states and Confederation. When this was done, it resulted in the "full assumption" of state debts by the federal government through the issue of federal securities. And for the states of the new union, the full and complete retirement of their bonded obligations incurred in the Revolution, and the Confederation.

With the formation of the new government in 1789 and under the recently adopted US Constitution, the settlement of the Revolutionary War debt was a matter of prime importance. As a result, the first House of Representatives directed the first secretary of the treasury, Alexander Hamilton, during the presidential administration of George Washington, to draw up a plan for the support of public credit. Consequently, the First Report on the Public Credit was issued on January 9, 1790, which became the foundation for subsequent action taken by Congress for funding and paying the public debt. The Funding Act of 1790 that followed was concerned primarily with funding the domestic debt held by the states.

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