The attention of the Legislature was earnestly invoked by my predecessor, to the large excess of County, Municipal and other local taxes, over the taxes for State purposes. That disproportion has been, in some measure, corrected by the prudent Legislation of the last session; but it is worth your consideration whether some further Legislation may not be usefully directed to the same end.

The Report of the Commissioners of the Sinking Fund is not yet completed, but will soon be laid before you. It will contain full information in relation to their proceedings under the act of April 8, 1856, authorizing a new loan, for the payment of the debt of $2,423,359 79, payable at the pleasure of the State after the 15th inst. Proposals for this new loan, fixed by the Commissioners at $2,400,000, were invited by advertisement in the leading journals of Europe and America, and, on the 1st of October, 1856, it was awarded to the highest bidder for the whole a mount, at a premium of three and a half per cent. All the Bonds of the old loan which have been presented for payment, have been promptly redeemed; and the debt payable after 1856 will soon be entirely extinguished.

The experience of the State, in this transaction, however, indicates the danger of relying upon new loans for the payment of maturing debts. It was confidently anticipated that this loan would command a premium of at least nine or ten per cent.; while the premium actually realized was only three and a half. It is not difficult to conceive of a state of the money market in which the Bonds of the State could not be negotiated at par. In such case a resort to a new loan would be attended with great pecuniary loss.

32-FUB. DO0. Part I.

It is the part of wisdom to guard against the occurrence of such an exigency, and I therefore suggest the expediency of providing, by seasonable and suitable legislation, for the debt of six millions four hundred and thirteen thousand three hundred and twenty-five dollars, which will be payable after 1880. To raise the whole amount by taxation during the four years which will intervene before it can be paid, would impose too serious burdens upon the people. I recommend, therefore, the sale of such stocks and other property of the State as can be disposed of for its real value, and the appropriation of the proceeds of the sale, together with the proceeds of such a rate upon the grand list as will produce the needed sum, to the payment of at least one half the debt; distributing the remainder over so many of the following years as will bring its payment within the reach of moderate taxation. As every bond is payable at the pleasure of the State after 1860, the right to do this seems unquestionable.

The condition of the Sinking Fund demands your attention. The Constitution provides that no tax shall be levied except in pursuance of law, and that every law imposing a tax, shall state, distinctly, the object of the same, to which only it shall be applied. The same instrument provides for the creation of a Sinking Fund, sufficient to pay the accruing interest on the State Debt, and to reduce the principal, annually, by a sum not less than one hundred thousand dollars, increased by six per cent. compounded annually. The act of March 14, 1853, designated the revenues which should constitute the Sinking Fund, and required the Auditor of State to set apart, annually, as a specific fund for the payment of the principal of the debt, one hundred thousand dollars, in 1853, and in each subsequent year, the same sum, increased by compounding annually at six per cent. The act of May 1, 1854, directed the levy of one and a quarter mills on each dollar of the grand list of that year, to be applied to the payment of interest on the debt; and a further levy of one mill on the grand list of 1855, for the same purpose.

Under these constitutional and legislative provisions, the Sinking Fund was created and organized; but the revenues appropriated to it, have not been kept distinct from other moneys in the Treasury, or reserved from other applications. The act of May 1, 1854, provided for the transfer, in a contingency then apprehended, of the sum of $130,000 from the Sinking Fund to the General Revenue; and the act of April 11, 1856, authorized similar transfers, to the amount of $554,809 32. Under this last act transfers have been made to the General Revenue and to the

Canal Fund, to the amount of $160,000. The natural consequence of this legislation, and this practice, has been the absorption of the Sinking Fund balances in the general expenditures. Thus, according to the Report of the late Auditor, there was, on the 15th November, 1855, an apparent balance, to the credit of the Sinking Fund, of $537,499 06. But it must be observed that this balance constituted part of the general balance of $703,370 08, said, by the Auditor, to be "awaiting legislative appropriation" to the discharge of "temporary outstanding liabilities," and "to the necessary expenditures" of 1855-6. I have already shown that the payment of the debts of 1854-5, incurred for current expenses, more than absorbed all that was available of this reported balance. In like manner the present Auditor reports a general balance, to the credit of the Sinking Fund, on the 15th November, 1856, of $481,749 06; while the same officer reports the total gencral balance, on that day, including the Sinking Fund balance, as $579,517 59, of which only the sum of $350,950 63 was then available; and this sum constituted the only fund for the payment of current demands of every description upon the Treasury.

In view of these things I think it my duty to recommend the levy of a sufficient rate upon the grand list to restore to the Sinking Fund the sums which have been transferred from it, or in any way diverted to other uses, and to increase it to the full extent of the constitutional requirement. And I also recommend such legislation as will ensure the future reservation of the entire fund from every use except that of paying the interest and principal of the Public Debt, and the safe investment of that part specially applicable to the reduction of the principal, until wanted for that purpose.

The chief sources of our Public Income are the Grand Levy; Charter Taxes of Banks; Proceeds of Public Works; Collections of Surplus Revenue loaned to Counties; Sales of School and Ministerial Lands held in Trust; Sales of Lands granted to the State in aid of Improvements, and otherwise acquired; Dividends of Stocks; Convict Labor; Payments by the General Government on account of the Three per cent. Fund; and Licenses and Auction Duties.

Some of these sources of revenue are nearly exhausted; others were never productive; and the receipts from others are in the nature of loans rather than of income.

Only about forty thousand acres of land in Chio yet remain the property of the General Government. Very Ele more can be expected therefore from the State's three per cent. proportion of their skin. Xt mach land belonging to the State remains unsold. The amount of Surplus Revenue unpaid by Counties, is reduced to $306.343 77. The pro ceeds of convict labor are absorbed in the support of the Pealesing, and avail nothing to the General Revenue. And the proceeds of the School and Ministerial Lands, as they accrue, become part of the Irreducible Debt, upon which the State is bound to pay six per cent intrest to the use for which they were granted.

These facts admonish us that for the expenses of the State Government, of the Public Institutions, and for the payment of the State Debt, our main reliance must hereafter be upon the contributions of the people, in the form of Taxes. They require us to husband every remaining resource, and demand the strictest economy in every department of expenditure.

No means exist of ascertaining the quantity of lands remaining unsold, whether belonging to the State, or held in trust. I recommend the provision of such means.

I suggest, also, the expediency of such legislation as will expedite and ensure the reimbursement to the State of the unpaid balances of Surplus Revenue, yet remaining with the Counties.

When Ohio came into the Union, she relinquished the right to tax the lands of the United States within her limits, in consideration, among other things, that not less than three per cent. of the proceeds of all sales, past or future, should be paid to the State, to be applied in laying out roads. This is the origin of what is known as the Three per cent. Fund. The General Government has only accounted for the State's proportion of lands sold since the compact, and sold for money. In my judgment, the spirit, if not the letter of the compact, entitles the State to the same proportion of the sum which would have been produced by the sale, at not less than the minimum rate of a dollar and a quarter an acre, of all lands granted for Military services, or granted or reserved to Individuals, Companies, and Corporations, for their own use and benefit. The quantity of such lands, according to the Commissioner's statement, herewith transmitted, is 10,642,540 acres. A large sum, therefore, if my view of the matter is correct, is due to the State from the General Government, and it is worthy of your consideration whether some measures

should not be adopted to secure the recognition and payment of this claim. Its equity is the more apparent, when it is considered that of all the land States, Ohio has been the least liberally dealt with by the Federal Government. Every other of these States has received much larger grants of land in aid of public improvements than Ohio. Nearly every other, instead of three per cent. of the proceeds of sales, has received five. Minnesota and all the new Territories, instead of one section in each Township for the use of schools, have received two. Ohio does not complain of this liberality to other States and Territories. By her Senators and Representatives she has sanctioned it. She only demands justice for herself.

After your adjournment in April last, I received from the late State Librarian a very interesting report upon the boundary between Ohio and Pennsylvania, made under an appointment by my predecessor, in pursuance of a resolution of a former General Assembly. I now lay the Report before you. It will be found to embody much valuable information concerning our Eastern boundary, which is a continuation from the Ohio to Lake Erie, of a due North line, drawn from the Western termination of Mason's and Dixon's Line between Pennsylvania and Virginia. It will be for the Legislature to determine what compensation, if any, shall be made to the late State Librarian for this special service.

The Report of the Board of Public Works will advise you fully in respect to the management of the important public concerns committed to their charge. The unusual drouth of the past season has greatly hindered the navigation of the Canals, in consequence of which the gross revenues have been reduced from $468,831 93 in 1854-5, to $427,813 09 in 1855-6. Much the greater portion of this diminution appears in the receipts of the Miami and Erie Canal, the reasons of which are fully stated by the Board. The nett result for 1855-6 is as follows:

Nett Receipts as returned to the Auditor of

State....

$388,463 92

$401,498 00

75,833 56

$225,664 44

$62,799 48