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terest as it becomes due, on the stock issued and to be issued for the construction of the Chenango canal, it will increase the debt, in ten years—the shortest period at which any aid can be expected from the Erie and Champlain Canal Fund-one million thirtyone thousand nine hundred and ninety-five dollars.
Although the canal may be finished and in operation in 1837, it is not supposed that the revenues from it will afford any aid in paying interest on the debt. On the contrary, if the expenditures for repairs, and the receipts for tolls, are to be tested by the operations of the Chemung and Crooked Lake canals, the tolls will come very far short of keeping the canal in repair.
It is vitally important to the credit of the State, and essential to the success of the canal system itself, that certain and ample means should be provided to pay the interest upon all the stock issued, quarter yearly, as it becomes due. Whenever the credit of the people is used, it should be surrounded by such ample guards as to leave not the shadow of doubt as to its preservation. It is worthy of remark, that the House of Assembly, in 1817, when the act was passed authorizing a loan to commence the Erie canal; after setting apart the auction and salt duties, steam-boat tax, and a tax of the lands on each side of the canal for twenty-five miles, as a special fund to provide for the interest on the money borrowed; were so cautious about using the credit of the people, that the bill actually passed the House of Assembly, without any authority to pledge the faith of the State for the payment of the loan. The Senate, under a belief that a pledge of the faith of the State would aid essentially in making the loans, and being confident that the revenues provided by the bill, would meet all demands upon the fund, inserted the provision which binds the State for the ultimate redemption of the stock.
As an additional guard to the public credit, the act which was passed in 1821, giving authority to the Commissioners of the Canal Fund to borrow two millions of dollars, contained the following proviso, viz: “that it shall not be lawful for the Commissioners of the Canal Fund, to make loans under this act, beyond such amount as, for the payment of the interest thereof, the Canal Fund, at the tiine, shall be deemed ample and sufficient.” In 1823, the same proviso was attached to an act authorizing a loan of $1,300,000; and in 1824, it was inserted in the act for a million loan. It is
much to be regretted that the excellent precedents established from 1817 to 1824, have not been more closely imitated since.
The auxiliary funds provided to pay the interest on the money borrowed for the construction of the Erie and Champlain canals, have produced, in the aggregate, a greater sum than has been paid for interest on all the loans made on the credit of the fund from 1817 to the present time. The total amount paid for interest has been $5,046,478.88. The sum paid to the Canal Fund from the auction and salt duties alone, has been $5,395,539.45. Excess $349,060.57.
Notwithstanding the pledge of these ample sources of revenue, and the faith of the State, the first effort of the Commissioners of the Canal Fund to obtain a loan of $200,000, in June, 1817, was unsuccessful. The only offer received for a six per cent stock, irredeemable in twenty years, was from an individual in NewYork, at two per cent below par. Subsequently this loan was taken by one of the Albany banks at par, with a stipulation that the Canal Fund moneys should be deposited in said bank. In 1833, the Commissioners paid a premium of nine per cent for the privilege of redeeming this same stock, when it had only four years to run. This was the sis per cent stock reimbursable in 1837.
On the 23d of September, 1822, a loan was made on a six per cent stock, reimbursable in 1845, at a premium of 7 and 71 per cent. During the month of September, 1835, the Commissioners purchased this stock at a premium of 22 per cent, this being the market price.
After making every allowance for changes in the money market, it must be admitted that the credit and high character given to the canal stocks of this State, are mainly to be ascribed to the judicious system of finance adopted by the act of 1817: And the character thus established, has enabled the State to borrow money on highly favorable terms, for the construction of the lateral canals, without making any specific provision for the payment of the current interest, or (in some cases,) the ultimate redemption of the principal. And in order to preserve the good name of the State from dishonor, it has been necessary, by laws passed subsequent to those authorizing the loans for the several canals, to charge the deficiencies in their revenues, upon the General Fund.
It ought in justice, however, to be stated, that if a small share of the auction and salt duties, which for nineteen years, have been pouring their rich revenues into the Erie and Champlain Canal Fund, could have been appropriated to the lateral canals, they would not necessarily have been a burden on the treasury.
In order to place this matter in its proper light, and to show what the condition of the Erie and Champlain Canal Fund would have been, unaided by any auxiliary funds, a calculation has been made, in which the auxiliary funds are excluded from the calculation, and it is assumed that money was borrowed at an interest of five per cent, compounded annually, instead of using the auction and salt duties.
The paper marked I, gives the results from year to year of this calculation, by which it appears that if the Erie and Champlain canals, with their peculiar advantages of location, had been left to their own resources, there would have been a debt against them on the 30th of September, 1835, of more than ten millions of dollars.
If such would have been the result of commencing the Erie and Champlain canals without auxiliary funds to pay the accruing interest on the loans, what can be hoped from the slender revenues of the lateral canals, unaided by a tax, or auxiliary resources of any kind? With the exception of the Oswego, and Cayuga and Seneca canals, there is no probability of obtaining from the lateral canals which are constructed or to be constructed, any aid from tolls towards paying interest on the money borrowed to construct them. The condition of these canals, and of the treasury, is such as to render it expedient to provide by a legislative act, that whenever money is needed to pay interest on the stock issued for these canals, the Comptroller shall give notice to the boards of supervisors of the several counties, whose duty it shall be to raise and pay into the treasury, the sums apportioned to their counties respectively. And if new loans are authorized, the insertion of a similar provision in each act for borrowing money, is indispensable to the wholesome action of the financial operations of the State.
There is no question of policy of more vital importance to the whole people of this State, than the preservation of a sound financial system.
It is a fatal error to suppose that a State can long prosper by a course of measures in relation to its moneyed operatinne which would nrove ruinous to an individual.
If money is to be borrowed, to be expended upon works which promise no return to pay interest or principal on the loan, a sum sufficient to pay the interest at least, should be provided by a direct tax. If the object of the expenditure is a proper one, there is no reason to suppose that an intelligent people will disapprove
of it; and if the object is of such a character that the tax payers would find fault with being taxed for the interest, how much stronger would be their reasons for condemning the policy of using their credit for the loan of the principal.
It is known to every tax payer in the State, that money is required for the support of the government; and also that if money is expended by the government in making roads, canals and other improvements, it must be borrowed on the faith of the State; and that to preserve this faith, the interest at least must be promptly paid. It would be an impeachment of the intelligence and correct business principles of the people of this State, to suppose that they would not readily assent to the reasonableness of a tax to pay the interest on all debts contracted by the State. They might, indeed, inquire what had become of the revenues and capital of the General Fund? And they might be answered, by pointing their attention to the School Fund, with its productive and unproductive capital of two millions: To the literature Fund, with a productive capital of $265,000: To the Erie and Champlain canals, now nearly free from debt, and yielding from tolls alone, a nett revenue of nearly a million of dollars annually; and to the fact, that for ten years there has been no State tax, and no means of paying the ordinary expenses of the government, without using the capital of the General Fund for the purpose.
With a knowledge that the necessity of a tax has been produced by expenditures which have exalted the character of the State abroad, and added millions to the wealth of its citizens at home; and that it has become indispensable to replenish the treasury in order to save it from embarrassment and enable the State to preserve its high credit, and move onward in its elevated careercan it be supposed that a people, the great mass of whom are frugal, industrious and intelligent, and who measure their outgoes by their incomes, will condemn their agents for applying these salutary principles in the administration of the financial affairs of the government, by calling for a tax when the current demands upon the treasury require it?
In the history of the financial transactions of this State, there are innumerable precedents for taxation from the first establishment of the government; but there is not a solitary precedent for borrowing money and accumulating a State debt, to meet the ordinary demands upon the General Fund.
In the annual report from this office in 1834, a brief history was given of the numerous and heavy taxes which, from time to time, had been levied by their representatives and paid by the peo ple, and the result of which had been to preserve unincumbered, the public lands and other sources of revenue, from which the present generation has derived such signal advantages.
A State tax was authorized at the first legislative session under the old Constitution in 1778: Also, in 1779, 1780, 1783, 1784, 1786, 1787 and 1788. The tax laws, up to this time, provided for raising a specific sum; and the quota required from each county, was stated in the law. In 1787, for instance, the act declared that there should be raised by tax, the sum of 50,000 pounds, and the quotas of the several counties were declared to be as follows, viz:
5,500 2,400 5,000 3,400 2,500 3,400 4,500 4,500 2,300 1,300 1,600
In 1799, a mill tax was levied, out of the proceeds of which 850,000 was apportioned to common schools. This tax brought into the treasury $90,718.19, from which the sum of $49,622.50 was paid to the county treasurers for the use of schools in the respective counties.