X. (Vol. II., page 181.) Communication from the Governor, transmitting a Report from the Comptroller in regard to the Sinking Funds. To the Legislature: State of New York, Executive Chamber, I have the honor to transmit herewith a communication from the Comptroller in regard to the sinking funds set apart by the Constitution, and sacredly pledged to pay the interest and redeem the principal of the State debts. I cannot too strongly commend the facts and suggestions contained in this communication to your attention. They concern the proper administration of the financial department of the Government, and the preservation of the good faith of the State toward the public creditors. I have referred to this subject in both my Messages to the Legislature, and more particularly in the one which I had the honor to make to you at the commencement of your present session. In the financial statement presented to me when I was preparing it the aggregate amount of the several sinking funds was set down at $15,594,901 05. On inquiry in what manner these funds had been set apart, as required by the Constitution, I found that nearly two-thirds of the amount existed only on paper, and that the moneys belonging to them had been consumed in defraying the current expenses of the Government, in direct violation of the constitutional requirement and of the plighted faith of the State. The communication of the Comptroller explains the manner in which this failure to fulfil a high constitutional obligation has been caused, and points out the only mode in which the obligation can now be complied with. I do not doubt that it is his duty, under the higher law of the Constitution, to invest all moneys raised by taxation for these funds as rapidly as they come into his hands, instead of expending them to meet legislative appropriations, and to leave the latter unpaid until other means are provided for them. In my first annual Message I assumed that, as sinking funds were, in their nature, a solemn pledge of faith to creditors for the payment of the debts due to them, to borrow money on the credit of those funds for other purposes, to make them the subject of any other pledge, or to make even a temporary use of the moncys or securities of which they consisted, was a clear violation of the pledge originally given. Farther reflection has confirmed my confidence in the correctness of this conclusion. Some years ago there were uninvested moneys belonging to the capital of the general fund debt sinking fund, and these moneys were used to meet current expenditures. Since that time the Legislature has, in repeated instances, authorized the Comptroller to invest surplus moneys belonging to the capital of the sinking funds in taxes thereafter to be collected, and to apply these moneys to meet appropriations made by the same act. An investment in a tax does not convey a very definite conception of the financial measure intended. In plain terms, it is an expenditure of money to be replaced at a future time by taxation. But, in point of fact, when the authority to invest was given to the Comptroller, in the instances referred to, there were no surplus moneys in existence to be invested or expended, and the result has been that the principal of the sinking funds has been invaded and consumed, as already stated. The largest deficiency is in the sinking fund of the bounty debt. This debt was contracted under section 11 of title 7 of the Constitution. The sinking fund to extinguish it was created by chapter 325 of the laws of 1865, and the money provided for it became, by virtue of the section referred to, applicable to the repayment of the debt, and "to no other purpose whatever." Like the sinking funds of the general and canal fund debts, it is inviolable, and can only be invaded and consumed through an infraction of the constitutional requirement. The act, chapter 448 of the laws of 1867, amending that of 1865, requires the Comptroller to invest the proceeds of the annual tax authorized to be levied for this sinking fund, from time to time, as it can be judiciously done, in the bonds authorized to be issued under that act, or in any of the stocks issued by this State or the United States." The requirement of the Constitution setting apart the sinking funds for the payment of the State debts, and the requirement of the law in regard to the bounty debt sinking fund, are in accord, and a failure to make the investment prescribed by the latter would involve a violation of both. I make these suggestions with entire confidence in your earnest desire to take such measures as may be necessary to maintain inviolate the faith of the State, and to relieve the financial department of all embarrassment in meeting public obligations, both of an ordinary and extraordinary character. JOHN A. Dix. State of New York, Comptroller's Office, To his Excellency John A. Dix, Governor: I called the attention of the Legislature, in my annual report, submitted at the beginning of the present session, to the general fund and bounty debts of the State, and the condition of the sinking funds intended for their payment at maturity, for the creation of which provision is made in the Constitution of the State. I deem it a matter of so grave importance to the proper administration of the financial department of the Government, and the present and future credit of the State, as to justify me in alluding to the subject more in detail in this special communication to you. The general fund debt now outstanding amounted on the first day of January, 1874, to $3,988,526 40, payable as follows: The bounty debt at the same date amounted to $20,815,000, payable April 7, 1877. The general fund and bounty debt amounted in the aggregate to $24,803,526 40. Provision was made for the creation of a sinking fund for the payment of the general fund debt in the second section of the seventh article of the State Constitution, which provides that "the principal and interest of the said sinking fund shall be sacredly applied to the payment of said debt." The whole amount required to take up and cancel said general fund debt has been contributed and paid into the treasury under said section and article of the Constitution, but the moneys so contributed for the establishment of this sinking fund have been diverted from their legitimate purpose, and expended in payment of appropriations made by the Legislature, nominally in anticipation of taxes from year to year, and the same cannot be invested until such taxes are paid into the treasury. The bounty debt was created to meet certain expenses of this State, incurred in the suppression of the late rebellion, in pursuance of chapter 325 of the laws of 1865, under the authority contained in the eleventh section of the seventh article of the Constitution of the State, which is in the following words: "In addition to the above limited power to contract debts, the State may contract debts to repel invasion, suppress insurrection, or defend the State in war, but the money arising from the contracting of such debts shall be applied to the purposes for which it is raised or to repay such debts, and to no other purpose whatever." There has been assessed and should have been paid into the Of which amount $2,220,200 were invested during the year 1873 Leaving a balance to be invested when the same is received into the treasury from taxes assessed and not yet paid, as of January 1, 1874, of................. Add to this the amount due the general fund debt sinking fund already paid into the treasury and expended in anticipation of the taxes as above stated... Making the total amount due to these sinking funds and not yet invested of $9,790,072 24 2,772,444 09 $7,017,628 15 3,988,526 40 $11,006,154 55 Although this large amount stands as a deficiency in these sinking funds, it is largely made up of unpaid taxes, as will appear below. The appropriations made by the Legislature had so far excecded the revenues of the State from year to year, and so far trespassed upon the moneys which should have been invested in these sinking funds, that a tax of three and one-half mills on the dollar of the assessed valuation of the property of the State, amounting to over seven millions of dollars, was authorized by the Legislature of 1872 to meet the deficiency then found to exist in the treasury. Four millions seven hundred thousand dollars thereof were for the general fund deficiency, and two millions six hundred thousand dollars for deficiency in the canal fund. The latter sum has been paid over by the Comptroller to the canal department in full. Four millions six hundred thousand dollars of said three and one-half mill tax yet remain uncollected, principally from the counties of New York, Kings, Westchester, Schuyler, Wayne, and Ontario, and when paid will be placed to the credit of said sinking funds, to wit...... There is yet unpaid of the general tax for the same year.... There has been anticipated and used in payment of appropriations for the new Capitol, asylums, etc., of the tax authorized in 1873... $4,600,000 00 1,500,000 00 1,500,000 00 Cash in bank (December 31, 1873). 1,900,000 00 Deficiency yet existing in the treasury which must be made good by taxation..... 1,500,000 00 Making a total of $11,000,000 00 This large sum of eleven millions of dollars should have been raised, paid into the treasury, and invested in the bonds of the United States or the State of New York, for the sinking funds, as required by the Constitution, and the laws under which such debts were authorized to be created, but a large portion of it has been diverted and used to pay extraordinary appropriations made by the Legislature, and a still larger portion is provided for in the deficiency tax and other taxes which will not be collected and reach the treasury within a year from the present time. In addition to the amount already authorized, as above stated, there will be contributed to the bounty debt sinking fund, from the two mill tax, levied annually for four years, 1873 to 1876, both inclusive, a sum which will be ample to provide for the redemption of the debt at maturity, if no farther inroads are made upon these funds; but it should be borne in mind that the proceeds of the tax levy of 1876 will not reach the treasury, under existing laws, until after April 7, 1877, when the bounty debt matures. Provision should, therefore, be made in advance to meet this contingency. |