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Additional taxes will be derived from licenses and from the ad valorem tax levied on merchants and manufacturers, as well as dram-shop or beer-house licenses. For more particular and specific information concerning the revenue, I refer you to the report of the State Auditor, and the valuable tables accompanying it. I am ot opinion a portion of the Renewal Revenue bonds can be paid at their maturity, but not all.

STATE INTEREST AND SINKING FUND.

The tax which forms the Interest fund, is one-fifth of one per cent., or 20 cents on the $100 of the assessed value of property, levied on all real estate and other property and effects subject to taxation, and, by the provisions of the Constitution, is to be applied to the payment of the interest on the public debt. The interest on the public debt has been promptly met and paid. The residue of the Interest fund constitutes the Sinking fund, and it is to be applied to the extinguishment of the bonded indebtedness of the State. During the years 1877 and 1878, the sum of $535,000 was paid in the extinguishment of the public debt. The law provides when there is sufficient money in the Sinking fund to purchase one or more bonds of the State, the Fund Commissioners shall call in for payment a like amount of the bonds of the State, (the Hannibal and St. Joe Railroad bonds expected,) but the commissioners shall not purchase or redeem any such bonds at a higher rate than their "face value.” No bonds of this State fell due in 1879, according to the previous reports of the Fund Commissioners, and all description of bonds which the commissioners were authorized to purchase sold in market at a premium of from 4 to 10 per cent. None of the “option,” or 5-20 bonds were redeemable till the 1st of May of last year. Pub. lic notice was given that all which were redeemable at that date, and designated by their numbers and series, would be paid on presentation to the National Bank of Commerce in the City of New York, and that interest would cease on and after that date. This bank had been, by the commissioners, previously selected as the depository and fiscal agent of the State for the payment of the interest, payable in New York, on the bonded debt. Money was, by order of the Fund Commissioners, deposited with said bank for that purpose. As the interest on the bonded indebtedness was due on the 1st of July, in the opinion of the Fund Commissioners, no more money could be spared for the redemption of bonds at that date. Public notice was gived that $40,000 of bonds would be redeemed on 31st of July last, and that interest would cease on and after that date, and another public notice was given that $75,000 of bonds would be redeemed on the 31st of August last, and that interest would cease on and after that date. Funds wherewith to redeem said bonds were placed with the Bank of Commerce at the time the said notices were respectively given. The pay. ment of the interest on the public debt on the 1st of January last, was dependednt on the collection of taxes during the months of November and December. A large amount of the taxes collected in the month of December is not received at the Treasury till some time in the month of January. Yet $102,000 was, in the month of December last, remitted to the National Bank of Commerce of New York City, for the payment of the interest due on the public debt on the first of this month, payable in the City of New York. The interest due for the year 1880 on the bonds held in trust for the Public School fund, amounting to $120,540, was set apart in the Treasury in the month of December last, though none of it will be disbursed till the month of March ; and $3,660, the interest due the first of January last on the bonds held in trust for the Seminary fund, has been paid to the Treasurer of the Board of Curators of the State University. The interest on the certificate of indebtedness of $900,000 is not payable till the first of March, 1881. In the first call of bonds for redemption, there were embraced 22 bonds which belonged to the Seminary fund. It was not intended by the commissioners to redeem any bonds held in trust by the State for any of its funds. This error was not discovered till it was too late to redeem it, except in the call for bonds for redemption on the 31st of December last. The Fund Commissioners, therefore, on the 10th of December last, called in for redeption $167,090 of the bonds of the State, and gave notice that the interest thereon would cease on the after the 31st day of last December. $22,000 of the money necessary for that purpose was on deposit with the National Bank of Commerce of New York City, and on the day the call was made the residue of the money was ordered to be remitted by the Bank of Commerce of St. Louis. Thus, while none of the bonded indebtedness of the State was paid in 1879, for the reasons given, yet in the year 1880, double the amount of bonded indebtedness required to be paid in 1880, was redeemed in that year. In the four years last past, there has been paid out of the Sinking fund, $1,035,000 of the indebtedness of the State-a reduction annually of more than $60,000 of interest, leaving that much more of the Interest fund applicable to the payment of the bonded indebtedness of the State.

The following table shows the receipts, including the balance on hand on the 1st of January, 1879, and the disbursements of the Interest fund for the last two years, showing a balance of $73,629.77 :

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The State holds in trust for the Seminary fund $122,000, and for the School fund $1,958,000, making the sum of $2,080,000, all of which said bonds are 5–20, and may now be redeemed, as five years have elapsed since their issue. The educational funds of the State are principally invested in 5–20 bonds. I cannot recommend any course by which those funds shall be impaired or their revenues be diminished. To reduce the rate of interest or to reinvest (which can only be done by paying a premium,) the amount in any bonds of this State, will seriously impair the revenue of those funds, and I will not believe, till I shall hear it so avowed, that any one considerately desires to impair the school funds or to diminish their income. Of the State bonds proper, outstanding, there are $137,000 which may be redeemed at this time, as the Legislature provided for their redemption after the expiration of twenty years. Until a recent examination, it was believed they were not redeemable till 1883, and were so reported; the residue of that series of bonds are redeemable in 1882 and 1883. And there are $4,000 of bonds of the North Missouri Railroad which will fall due in 1885. No bonds will fall due in this year, and whatever bonds may be redeemed must be called from the " option" bonds.

INDEBTEDNESS OF THE STATE.

Not including the $3,000,000 of bonds of the State loaned to the Hannibal and St. Joseph Railroad Company, on which that company has promptly paid the interest, the bonded indebtedness of the State on the 1st of January of this year was $16,259,000. This amount does not include a few bonds which are past due and have been outstanding for several years. Money was placed in New York for the redemption of those bonds, at the time they severally fell due, and from the date the money was so placed by the Fund Commissioners, they have been regarded as paid. The State holds in trust for the Public School fund and for the Seminary fund $3,031,000, which bonds have been defaced 80 as to destroy their negotiability, in accordance with a law of the last Legislature. This leaves in circulation only $13,228,000 of State bords, and the annual interest is only $975,540. This does not include the temporary loan of $250,000 which will fall due next June.

THE MASTIN DEFICIT.

The State Treasurer, in January, 1879, reported a balance of the money in the Treasury was " deposited and held” as follows: National Bank of State .

$3,045 25 The Mastin Bank...

286,187 80 Reid and Chrisman

5,000 00 Clinton county bonds in vault...

49,000 00 The deposits and investments of the moneys herein stated were made without the consent of the Attorney-General and the Governor, and whatever security the Treasurer may have had was not submitted to the Attorney-General nor to the Governor, to learn whether or not it was satisfactory. In brief, the deposits of said moneys were made entirely on the responsibility of the Treasurer, and without the advice or consent of any State officer empowered to pass on that question. In the month of May, 1879, there was paid to Col. Gates $5,321.59, on account of a dividend due to him from the Mastin Bank. In October, 1879, the sum of $5,000, deposited with Reid and Chrisman, and the $19,000 of Clinton county bonds, disappear from the Treasurer's statement. If those bonds belonged to the State, then the money received on the two semi annual coupons of each bond, should have been paid into the Treasury. In December, 1879, the Mastin Bank deficit is diminished $33,634.01, and in the Treasurer's annual report, made to me in January, 1880, for the year 1879, it is stated he has realized the last named sum from his official bondsmen, for which he has "assigned to them a like amount of my (his) claim against the Mastin Bank.” Another reduction of the Mastin Bank deficit took place in June, 1880, of $20,000, said to have been received from one of the sureties upon the bond given by the Mastin Bank to Col. Gates for the safe keeping and return of his deposits, and paid in consideration that this bondsman shall be held to no further liability on that account. In the month of July last, the further sum of $43,709.55 was deducted from said deficit, which was received from the assignee of said bank as a dividend on a claim allowed in favor of Col. Gates against it. From time to time, the amount of money deposited with the National Bank of the State of Missouri was diminished, until in September last, it entirely disappeared from the Treasurer's report. There is now the sum of $183,522.65, as claimed by Col. Gates, held by the Mastin Bank. Promises have been made to me that this sum should be paid before the meeting of the Legislature, but those promises have not yet been redeemed. No settlement was approved by the Legislature of the Treasurer for the first two years of his term of office, nor was a settlement of his accounts made at the time of giving his new bond. The laws did not permit nor authorize a suit to be brought against Col. Gates and his bondsmen; and the first time a suit can be brought on his official bond will be when he shall fail to deliver to his successor the funds which have been entrusted to his care and safe keeping. If there shall be no deficit—if all the money with which he stands charged shall be legally accounted for or paid to his successor-then no suit can be maintained. But if, on the contrary, he does not lawfully account for all the money which came to his hands, and pay to his successor the balance, (if any there shall be), he and his bondsmen will be liable on his bond for the deficiency. But it is claimed the State has priority of payment over all other creditors in cases of insolvency, and that this principle of law is applicable to the case of the Mastin Bank. That the State, by express statutory enactment, has priority of payment over all demands-except funeral expenses and expenses of last sickness in case of the estates of deceased personsand also priority of payment of taxes assessed on real estate, is true. But does this priority of payment extend to any other cases ? Good reasons exist to cause such a statutory provision to be made, but the enactment of a law of that import cannot have a retroactive effect. If the State can assert and maintain priority of payment in the case of the Gates deposit in the Mastin Bank, and cause all persons to whom the assignee in good faith has paid the dividends in the same manner as they have been paid to Col. Gates, then must all who have received dividends from the assignee of said bank be called upon and made to refund the payments already made to them, or sufficient to pay the deficit. And if priority of payment to the State exists in this case, and can be enforced, then the sureties of Col. Gates, who have already paid more than $30,000 for him, can assert this principle for their benefit. And if the sureties of Col. Gates shall now pay into the Treasury the $183,522.65, now held by the Mastin Bank, those

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