MESSAGE.

Gentlemen of the Senate and House of Representatives:

In performance of the duty imposed upon the Governor by the Constitution of Tennessee, "from time to time to give the General Assembly information of the state of the Government, and recommend for their consideration such methods as he shall judge expedient," I have the honor to transmit the following message:

FINANCES OF THE STATE.

The biennial reports of the Comptroller and Treasurer, exhaustive and critical, show in detail the receipts and expenditures for the two years ending. December 19, 1886. From these reports it will be seen that the receipts for the two years, from all sources, aggregate the sum of $3,226,768.36, including the item of $645,214.83, cash balance on hand December 20, 1884. The disbursements during the same time aggregate $3,291,300.98, showing an excess of disbursements over receipts of $64,532.62. The balance of $645,214.83, that was in the treasury on December 20, 1884, included $139,473.80 of new issue Bank of Tennessee certificates and old issue Bank of Tennessee money, which showed the balance at that time to amount to only $505,741.03 in actual available funds. The actual receipts for the past two years exceed those of the preceding two years by the sum of $481,990.35, exclusive of the balance on hand at the beginning of each period. The disbursements of the latter period exceed those of the former by $1,590,161.87, or at the rate of $795,080.93 a year.

These additional expenses for the past two years are due to the payment of interest on the State debt, amounting to $1,041,

461.00 for the two years named; the cancellation of Tennessee money amounting to $586,000, and the large appropriations for hospitals for the insane in East and West Tennessee, and for schools for the deaf and dumb and blind (beyond current expenses of the same), Legislative expenses of the extraordinary session, Capitol repairs, etc., aggregating over $250,000.

The incoming revenues for the biennial period, together with the balance that was on hand December 20, 1884, were sufficient to meet all expenses up to October 1, 1886, notwithstanding the very large amount of back interest due after July, 1883, on bonds presented for funding. On October 1, however, the Funding Board, under authority of the Act of June 9, 1885, chapter 3, of the extraordinary session, made an arrangement with the First, Fourth, and Commercial National Banks, all of Nashville, by which the State was permitted to overcheck for such sums as might be needed, the State agreeing to pay interest at the rate of 6 per cent. on the amounts overchecked, and the same arrangement will enable the State to overcheck for such amount as may be necessary to meet the January interest on the State debt, and the same will stand as a charge against the State, bearing interest at the rate of 6 per cent. until the incoming revenue, especially the large bulk of revenue for the year 1886, due after February 1, 1887, shall pay and discharge it.

But for the large extraordinary appropriations by the General Assembly, there would now be a large balance in the treasury, and this balance would have been still many thousands of dollars greater but for the large and previously unexpected amount of Torbett issue and Treasurer's certificates for the same, issued in lieu of money, which flowed back in taxes.

In the remarks appended to the Treasurer's report it is shown that in the $3,291,300.98 of disbursements for the past two years are included many items of extraordinary expense that need not necessarily be incurred in future years, the chief of which are the following: Legislative expense, extra session, $20,671.35; Court of Referees, $17,508.25; East Tennessee Hospital for the Insane, $105,068.71; Tennessee money and certificates canceled

and expense of same, $588,410.92; McMinnville & Manchester Railroad, $10,386.95; Code of Tennessee, $29,009.25, and Mineral Home Railroad bonds redeemed, $15,513.68, all aggregating $786,569.12.

There seems, therefore, to be no doubt that the present rate of taxation is sufficient to meet all the necessary expenses of the State, including all interest on the debt, and accumulate every year a large sum for the extinguishment of the principal of the debt especially when the obligations growing out of the Torbett issue shall have been settled, the last one-fifth portion of which will be taken up in the year 1887, except the postnotes, which will amount to $64,101.00 annually for the years 1887, 1888 and 1889.

It will be seen, by reference to the report of the Comptroller, that the amount of warrants outstanding on December 20, 1884, was the sum of $115.964.83; that there were issued from December 20, 1884, to December 19, 1886, inclusive, warrants to the amount of $3,285,482,28; and that the amount outstanding on December 19, 1886, was $110,146.13.

REVENUE AND THE BONDED INDEBTEDNESS.

The property valuation in the State, which is our main source of revenue, has been, since our interstate strife, as variable as have been the modes of getting at it. Hence, no accurate and well-defined estimate was placed upon it during this period. The assessments during this time, which may be said to have been almost purely arbitrary, have, in amount, gone to the two extremes, from ten to sixty cents per annum on the one hundred dollars, the amount depending upon the question as to whether interest on the debt was to be paid or not. In keeping with this, it seems that tax assessments, as a barometer, would rise. or fall as the pressure of the politico-financial atmosphere would indicate; and this pressure was increased or diminished, not so much by the demands of the occasion, as by the peculiar local, personal, or political sympathies of the individuals composing each General Assembly, as to the legality and amount of our

bonded indebtedness, and the best mode of its settlement. This source of irregularity and irritation, however, having been removed, the way is now clear by which we can, with some degree of certainty, arrive at the amount required to carry on the State Government, meet all just obligations without delay, and consider without passion or prejudice, the best mode of placing in the coffers of the State this necessary amount.

The Forty-third General Assembly that passed the act which established the terms and indicated the mode of settling the bonded indebtedness of Tennessee, coincident therewith passed a revenue bill assessing taxable property with four mills on the dollar, one-fourth of which to be devoted to common school purposes, and the remaining three mills on the dollar set apart, with the revenue from other sources, to meet the current expenses of the State Government, including, as a part thereof, the current interest upon our bonded indebtedness, and also the back, or past-due coupon interest, falling due after July 1, 1883, on all State bonds to be funded under the Act of 1883.

About five-sixths of the bonds liable to be funded under said Act of 1883, have been funded with all back inrerest thereon. Hence it is no problem, but a simple sum of easy solution, as to how much, proximately, will be required to meet semi-annually this current interest on the amount thus funded. To this may be added the amount of interest on that which will probably be funded. This latter cannot now be known with certainty, but a wise policy would suggest that the State be prepared to meet the interest on the whole amount, upon the assumption that all of it will be funded.

This same Act (March 15, 1883), created a Funding Board composed of the Comptroller, Treasurer and Governor (with the right to employ a clerk), to whom, as a Board, was assigned the responsible and arduous duty of carrying into effect and executing, as fully as possible, this delicate trust. The result shows that this Board has been successful beyond the most sanguine expectations. Finding at this time (July 1, 1883), according to the books in the Comptroller's office, a bonded indebtedness of the State of $28,786,066.39, including bonds and interest to July 1, 1883, which bonds had been issued under va

rious legislative enactments, beginning in 1833, and for different purposes. A large number of these bonds had undergone, more than once, the process of funding, thus rendering the task of tracing each bond to its original, as required by the act, the more tedious and difficult. Of these bonds, since the last official report made to the Legislature (in 1885), this Board has received and converted for the holders and their agents $14,312,400, under the terms of this Act (March 15, 1883), into new funded, or "settlement" bonds; and previously, between July 1, 1883 (when the law took effect), and January, 1885 (when the report was made), has received and funded in like manner $8,063,000, making the total thus funded, as estimated in dollars and cents, $22,375,400.

These $22,375,400 of outstanding bonds have thus, under this Act of 1883, been funded according to the legal classification, as directed by the Act, into new bonds, payable in thirty years, and bearing interest at the rate of six, five, and three per cent., with coupons attached, payable semi-annually. These $22,375,400 bonds, excepting a comparatively small number which bore five and five and one-fourth per cent., called for six per cent. per annum; and the interest due to July 1, 1883, on each of these bonds was added to and put in the new bonds as principal, the interest constituting a very large part of that which made up the new bond (in most instances from one-third to one-half of the amount of the bond), it being an average of $475.87 interest on each six per cent. bond, and the five and five and a quarter per cent. bonds in proportion, except those which had been funded under the Act of 1882, and the interest upon which was disposed of under the terms of that Act. Of these bonds classed as three per cent. there have been thus retired, including interest, $20,956,000; of those classed as six per cent. there have been retired $973,000; and of those classed as five per cent., $446,400, making the total amount of bonds retired, as shown above, $22,375,400. These bonds, by substitution, yielded $10,478,000 of three per cent. bonds, $729,800 of the sixes, and $357,100 of the fives, making a total of the new, or "settlement" bonds issued, of $11,564,900, on which the total annual interest-payable semi-annually-in three, five and six per cent., according to the class of bonds, is $375,983.