4 Labor... EXHIBIT NO. 67.—Expenditures to June 30, 1915. OPERATION, HYDROELECTRIC SYSTEM, POWER PLANT. Net expenditures... EXHIBIT NO. 68.—Expenditures to June 30, 1915. OPERATION, GENERAL HEADQUARTERS, TELEPHONE LINES. EXHIBIT No. 71.—Expenditures to June 30, 1915. EXHIBIT NO. 72.-Expenditures to June 30, 1915. EXHIBIT NO. 73.-Expenditures to June 30, 1915. EXHIBIT NO. 74.-Expenditures to June 30, 1915. ADMINISTRATION, GENERAL HEADQUARTERS, ENGINEERING DIVISION. EXHIBIT NO. 75.-Expenditures to June 30, 1915. ADMINISTRATION, GENERAL HEADQUARTERS, ACCOUNTING DIVISION, EXHIBIT NO. 76.-Expenditures to June 30, 1915. ADMINISTRATION, GENERAL HEADQUARTERS, PROPERTY DIVISION. APPENDIX IV. REPORT OF THE TREASURER. OFFICE OF THE TREASURER, SIR: I have the honor to transmit the following report for the year ending June 30, 1915: The fiscal year 1914-15 began with a cash balance of insular government general funds amounting to $283,273.23. Included in this amount were $120,000 of municipal bonds, against which a loan of $100,000 had been made. There was also a balance due the insular treasury for loans to the municipalities and school boards of $299,024.26, or a total of cash and evidences of indebtedness convertible into cash of $582,297.49, an amount over $1,000,000 below the balance on hand at the beginning of any of the three fiscal years immediately preceding, and over one-half million dollars below the balance on hand at the beginning of any previous fiscal year since 1906–7. It is true that on July 1, 1914, the insular treasury also owned and held other bonds of borrowing municipalities and school boards to the amount of $839,500. These bonds, however, did not on that date represent so much additional available liquid assets, for the reason that, acting under authority of section 22 of an act approved February 19, 1913, which act authorizes the treasurer to treat any bonds or other evidences of indebtedness of any municipalities or school boards of Porto Rico as cash, they had been deposited temporarily, in place of an equal amount of cash, in some of the trust funds then in the hands of the treasurer. Previous to the beginning of the year arrangements had been nearly completed for the issuance of $2,400,000 additional bonds of The People of Porto Rico, consisting of issues of (a) $400,000 irrigation bonds, $250,000 of which were refunding bonds and the remaining $150,000 were for construction purposes; (b) $1,000,000 public improvement bonds, for the purpose of refunding to the insular treasury amounts spent for certain projects subsequent to July 1, 1913, and for the completion of those and certain other projects not begun at the time the bonds were authorized; and (c) $1,000,000 for refunding to the insular treasury amounts loaned to certain municipalities and school boards. Bids for these bonds were to have been opened in Washington on September 15, last, but due to the outbreak of the European war the financial condition was such that it was believed certain that no bids worthy of consideration would be received, and consequently the requests for bids were recalled the day before they were to have been opened. But it was necessary to make immediate provision in some manner for additional funds for the treasury, a problem which seemed extremely difficult and which promised to be very expensive, if possible of accomplishment at all, especially in the light of the experience of New York City and the State of Tennessee in negotiating loans at about the same time. But with the assistance of the honorable the Secretary of War a way was found whereby a loan was arranged on terms fully as favorable as would have been possible by the sale of bonds under normal financial conditions. The Federal reserve act, which was put into active operation on November 16, 1914, necessitated some transfers of deposits of both United States Government funds and funds of the Philippine government on deposit in the United States. Accordingly, Mr. Garrison offered to deposit, at the usual rate of 3 per cent interest, $800,000 of funds of the Philippine government with the Mechanics & Metals National Bank of New York City, and to accept from the bank as collateral for this deposit bonds of the municipalities and school boards of Porto Rico. This bank then consented to loan to Porto Rico an equal amount, at 4 per cent, on the security of municipal and school-board bonds. In this manner a loan of $800,000 was arranged and the immediate needs of the insular treasury were provided for. On October 12 the irrigation bonds-$400,000 in amount-were sold on an interest basis slightly better than 41 per cent. In December the public-improvement bonds, amounting to $1,000,000, were sold on an interest basis slightly better than 43 per cent, and in January $655,000 of the authorized issue of $1,000,000 municipal and school-board loans refunding bonds were sold on an interest basis slightly better than 43 per cent, and the remaining $345,000 of this issue were withdrawn from sale. With the sale of these bonds one-half of the loan from the Mechanics & Metals National Bank was repaid and the remaining half, secured by municipal and school-board bonds, still remains unpaid. 9489°- -WAR 1915-VOL 3-19 239 GOVERNMENT INCOME, PAST AND FUTURE. The receipts of general funds for the year 1914-15, apart from money borrowed either on the government's note or bonds, and apart from the repayments applying to the principals of loans to municipalities and school boards, show a falling off from the receipts for the preceding year of more than three-quarters of a million dollars. Half of this decrease is accounted for by the discontinuance of revenues to the insular government from industrial and commercial license taxes, which under the present law go, in toto, to the municipalities, and by the greatly reduced receipts from the municipalities for sanitation; which reduction is compensated by the law, approved March 28, 1914, requiring the municipalities to assume a larger proportion of the expenses of the sanitation service. The other half of this decrease is divided between excise taxes and customs receipts. The record of excise tax receipts indicates a condition affecting the chief source of insular revenues, which is of serious consequence, and, at first thought, somewhat surprising. In the legislative session of 1913 the rates of internal-revenue taxation in nearly all forms were materially increased in the expectation of providing a greatly increased income for education and public roads. But with the enactment of the free-sugar clause in the tariff act of 1913, conditions in Porto Rico were so severely affected that the revenues for that fiscal year were about $1,000,000 below what it was hoped they might be. When, however, almost within 24 hours after the outbreak of the European war the price of raw sugar slightly more than doubled, the first ray of sunshine was seen through the constantly darkening cloud which had hung over the business interests of Porto Rico in general, and the sugar interests in particular, since the tariff act was passed. As a result of this changed condition occurring so early in the fiscal year, it might have been expected that the excise receipts would show a marked increase over the receipts for the preceding year. Such, however, has not been the case, and the correct explanation for this fact is probably as follows: In the year 1912-13 Porto Rico was exceedingly prosperous, but when the period of business depression set in, following very closely upon the advance in taxation rates, not only for the materials subject to excise taxes but also for the licenses for dealing in in those materials, many small dealers failed to renew their licenses. Also the basis of credit has been steadily contracting for the last two years. On the other hand, during the same period, the cost of living, of rice, beans, codfish, potatoes, and flour, the necessities for the laborers and their large families, has very greatly increased; in some instances fully 50 per cent. In addition, the closing law, effective early in this fiscal year, has not been without its effect. Furthermore, the results of the war have been quite injurious to the coffee industry of Porto Rico, and although this industry is far below the sugar industry, measured by the volume of business alone, it affects a considerably larger number of the laborers of the island than are affected by the sugar industry. For all of these reasons there has been not only no increase in excise taxes during the first half of this year compared with the first half of last year, but there has been a very marked decline during five of the last six months of the year compared with the same period of a year before. The total excise tax receipts for the year have been $2,670,909.33, as against $2,843,561.46 for the fiscal year 1913-14. A detailed comparison of insular revenue receipts for the past years will be found in Exhibit No. 19. The customs receipts, which suffered a reduction last year of over $350,000, due almost wholly to the reduced tariff rates, have this year suffered a still further reduction of $325,000, due almost wholly to the effects of the war. Consequently, instead of an income of a million dollars or more, which the government has been receiving from this source for the past few years, the income this year has been $350,753.16. The legislature, with the valuable assistance of the economy commission, accomplished what seemed almost an impossibility in making still further reductions in the budget for the year 1915-16 below the amount appropriated for 1914-15. But the record of government receipts for the year just closed indicates most plainly that unless, in the meantime, general conditions should return to normal and the insular financial conditions should show a greater improvement than seems probable, even under normal conditions, the legislature, at its next session, will be obliged to do one of three things: Either reduce the present basis of expenditure for education, or increase the present rate of taxation, or arrange a new basis for the distribution between the municipalities and the insular government of the proceeds from the present rate of property taxes. At present the municipalities receive 90 per cent of all the regular property taxes. Of this amount, 25 per cent is devoted to the schools, 8 per cent to municipal roads, and the balance is available for the general municipal expenditures. There are a few municipalities, with small areas and populations, which contain large sugar properties and which have more income than they need, and one or two have more than they really know what to do with. But the great majority of the 74 municipalities of the island find it extremely difficult to confine their yearly expenditures to their yearly receipts. When the deplorable condition of most of the municipal roads is considered, together with the equally deplorable meagerness of facilities for taking care of their sick poor and for providing such other essentials as constitute the very fundamentals of good municipal governments, the question persistently arises as to whether some improvement might not be made in the present system of municipal financing and government. In this connection, Mr. Vernor H. Petre, who for two years prior to December last, served as chief of the bureau of municipal finance, of this department, before leaving the island prepared a very exhaustive report, the gist of which is the recommendation of a commission form of government for Porto Rican municipalities. This report, I believe, will be given careful consideration by the legislature at its next session, and may result in some change from the present system, which will prove mutually advantageous both to the municipal and insular governments. ESTIMATE OF RECEIPTS FOR THE COMING YEAR. While the estimate of $3,765,000 as the probable amount of cash receipts of insular revenues for the year 1914-15, furnished by this department upon request of the auditor, under date of July 7, 1914, and included as a part of his Exhibit No. 30 in last year's report, proves to have been very close to the actual receipts of $3,763,363.99, it is quite likely that the present estimate of the revenues for the coming year may not be as close. Basing my calculations, however, on the records for the year just closed and especially for the last half of that year, and on the assumption that the general conditions for the coming year will be affected by the European war in about the same degree as at present, and assuming also that no change in the excise tax rates will be made effective during the year, it would appear that the following may be taken as a conservative estimate of the insular revenue cash receipts for the year ending June 30, 1916: It will be noted that the estimate of the total excise taxes is only $50,000 below the actual receipts for the preceding year. It seems probable, however, that the receipts from those sources which have hitherto been included under this heading will decrease by more than twice that amount. But in future the court fees in civil cases in the district and municipal courts of the island will constitute a part of the excise taxes, in accordance with an act of the legislature approved March 11, 1915, which act both increased the rates of those fees and provided that they shall henceforth be paid in internal-revenue stamps. It is estimated that the receipts from this source for the coming year will be about $60,000. DEPARTMENTAL REORGANIZATION. One of the changes in this department, effected by the new budget, was the consolidation on June 30 of the bureau of the paymaster with the bureau of accounts. As a result, both the positions of paymaster and assistant paymaster were abolished; the chief of the bureau of accounts was made paymaster and was assigned the three clerks formerly in the paymaster's bureau to assist him in this new work. Another change, more far-reaching in its effects, was the legislative abolition, on recommendation of this office, of 15 of the 66 collectors' offices throughout the island. The duties of a collector are threefold: To collect property taxes, which are due semiannually; to sell licenses, which are renewable quarterly, and to supply such internalrevenue stamps as are needed locally. The offices abolished were, of course, those of least importance, and it is believed that the property taxes of those municipalities may be paid during the two 60-day periods allowed each year for their payment, in adjoining municipalities without serious inconvenience to the property owners. Representatives from adjoining collectors' offices will be sent, just prior to the begin |