trust, and to provide wholesome checks against subsequent dangers. Coming as you do, from the immediate body of the people, knowing their desires and wants, it is expected that your wisdom and patriotism will supply the deficiencies and correct the errors of other branches of the government. No station, therefore, can be more important, than the one you now occupy. In the discharge of your duties, you are bound by the strongest obligations, to endeavor to perpetuate the principles upon which our government has been founded; you are called upon to cherish that ardent attachment for liberty and equal rights, which can alone secure the happiness of the American people; and it is expected that by your precept and example, you will foster a veneration for the institutions of our country.

The officer at the head of the treasury will lay before you the condition of the finances of the state. From his representation, it will be seen that the current receipts into the treasury for the past year, have fallen short of the expenditures of the government, under appropriations by law. The amount of receipts from the first day of January, to the twentieth day of December, eighteen hundred and thirty-eight, was one hundred seventyseven thousand six hundred and sixty-two dollars, twenty cents: the expenditures during the same period, amounted to one hundred eighty-five thousand five hundred and sixty-eight dollars, seventy-six cents, showing an excess of expenditures of seven thousand nine hundred and six dollars, fifty-six cents. This deficiency in the revenue, is deeply to be regretted, and calls for the prompt and efficient interposition of the legislature. You will perceive, from the report of the Auditor General, that the amount of taxes due and unpaid by the different counties, will nearly equal the sum of fifty thousand dollars. This inattention on the part of the officers of many counties, to the solemn requisitions of law, must prostrate the energies of the state government, unless corrected; and I submit to you, whether some additional remedy should not be provided against this gross neglect of duty. The neglect in the assessment and returns of some of the counties must also be remedied by special legislation, at your present session. Sensible that the subject requires the immediate consideration of the legislature, and satisfied that the existing defects in our revenue system demand a prompt correction, I earnestly invoke your attention to the adoption of such measures as will relieve the people of Michigan from the otherwise inevitable consequence, an embarrassed and bankrupt treasury. It is but just, however, to add, that in addition to the deficiencies in collecting the revenue, the heavy charges incident to the operations of a new state, and which have been drawn from the general fund under the sanction of your predecessors, will in some degree offer a justification for the balance against the treasury.

It affords me the highest gratification to renew my congratulations on the successful progress of our works of internal improvement. Each division of the system has been prosecuted with an energy and activity, highly creditable to those to whom they are entrusted. The central road is under contract as far as Jackson, being a distance of seventy-eight miles from Detroit, and locations are now in progress as far as Kalamazoo, one hundred and forty miles from Detroit. By the agreement with the contractor, that portion of this road between Ypsilanti and Ann Arbor, should have been ready for the iron rails, as early as the month of October, but from some cause, is not as yet completed. On the southern road a commendable energy has been evinced. Thirty miles of this road, as far as Adrian, will be ready for laying the iron early in the ensuing spring; it is under contract as far as Hillsdale, and the engineers are completing the final locations on the third division, as far as the village of Branch. The Saginaw and Clinton canals are in active progress; the same may be said of the northern railroad, which has been placed under contract for clearing and grubbing from Port Huron to Lyons. The contracts for the construction of the canal around the falls of the Sault de Ste. Marie have been let, and the work itself will be commenced at an early day. Additional experience but serves to confirm the importance of this last improvement, and it is hoped it may command the consideration of the legislature. For a more parti cular and detailed statement, however, of the condition and progress of our internal improvements, I beg leave to refer you to the report of the commissioners, which will be laid before you without unnecessary delay.

The expenditures in this department, thus far, amount in all to $888,301 03. On the central road, the expenditure has been 8572,789 69; the southern, $216,825 70; the northern, $20,998 69; on the Clinton canal, $34,098 84; the Saginaw, $17,203 99; the Sault de Ste. Marie canal, $1,946 75; and on the different navigable streams, $24,139 64. The central road is the only work which has been completed, so far as to yield an income. The returns of the collector exhibit a flattering statement of receipts, and they augur well for the ultimate success of this road, as a work of public importance. From the month of February, 1838, when the road was opened, to the eighteenth day of December last, the entire receipt of tolls amounted to $81,604 54. The number of passengers who have passed over this road, was twenty-eight thousand seven hundred and fifty one; the amount of merchandize transported, nine millions seven hun. died and ninety-two thousand four hundred and fifteen pounds; and the number of barrels of flour, fifteen thousand and fifty. This amount of receipts, after deducting the expenses of the road, is applicable to the purposes of the sinking fund, and is now in bank.

When it is borne in mind that the receipts as above stated, have accrued on only twenty-eight miles of the road, it is fair to con'clude that, in progress of time, when the entire work is completed, the resources of the state developed, and the enterprize of our increasing population actively employed, it will yield a return of income beyond our most sanguine expectations.

But this flattering exhibition must not lead us to forget the caution and economy with which our expenditures should be made. We have adopted a system of internal improvements which will, for its success, demand the exercise of our most rigid economy. The works we have in contemplation, embrace, in all, a distance of eleven hundred and nine miles, and are to be constructed at an estimated expenditure of seven million seven hundred and ninetyfour thousand four hundred and thirty dollars, exclusive of all cost for cars, locomotives, and other machinery. This estimate, it is feared, will fall short of the actual cost of these works; and with such apprehensions, it will behoove the legislature to guard with scrupulous care the fund assigned to this branch of the government. Examine rigidly the expenditures of the commissioners. Let no complaints pass unheeded. Direct your committees to investigate fully the proceedings of the present and previous boards of commissioners, that it may be distinctly known to the people of Michigan, if there has been any profligate expenditures, or improper use of the public moneys.

Connected with the internal improvements of the state, there is a subject, to which I beg leave to call your impartial consideration. Under the act of March 21st, 1837, the Governor of the state was authorized to negotiate a loan of five millions of dollars. This duty has been fulfilled, and I now submit to the legislature the details of that negotiation.

Immediately on the enactment of the law authorizing this loan, its exclusive negotiation was placed in the hands of a competent agent in the city of New York, it being impracticable for the Executive of the state to devote personally to the undertaking, that attention which its magnitude required. Although confidently assured at this time, that a negotiation would be closed, at an early day, yet in consequence of the embarrassed state of the money market, and the difficulty attending the sale of American stocks abroad, the expectations of the agent were left unrealized. It is but just, however, to say, that this assurance of the agent was based upon advices from Europe, received through the bankinghouse to whom the foreign negotiation was entrusted. As an earnest that the loan would be concluded, the agent agreed to advance to the state, on his own account, one hundred and fifty thousand dollars. This amount was received, and contrary to my expectations or instructions, through bills drawn on London, on account of the Michigan state stock. The subsequent recep

tion in London of the amended law, authorizing the loan, induced the contracting parties to break off the negotiation, which would have been successful, had not the amended, as well as the original law been defective. This failure in the foreign negotiation, compelled the reimbursement of the sum received through the medium of the European bankers.

To satisfy the legislature that this stock has been introduced. into the European market under the most favorable auspices, it is but necessary to state, that it was entrusted to the hands, and received the personal attention of a member of the house of Prime, Ward and King, of the city of New York. Mr. King thus reports the result of his attempted negotiation in London :-" The bonds were received in London in December, 1837. Preparatory negotiations had been entered into there, with a prospect of success, in the anticipation that the amendatory act of Michigan would have been clear and explicit as to making principal and interest, both in sterling money, payable in London. Said amendatory act, as also the original act, relating to these bonds, nowhere expressly and directly, nor in any way but by inference, authorized or permitted the payment of the principal abroad, although it was explicit as to the payment of interest. But it directly limited the rate at which payment of either or both should be made in London-at par, or $4 44-100 per £1 sterling, although it requires, that any premium or gain of exchange upon the negotiation should be accounted for to the state of Michigan. Thus, although the state might receive the proceeds of the bonds in sterling abroad, at a premium of ten per cent, yet it would only refund the money and pay the interest at par-in other words, to receive $4 88-100 per £ sterling, but to pay back 84 44-100 per £ sterling. It was then thought practicable to negotiate for bonds in dollars, principal and interest payable in New York, but the uncertainty as to rates of exchange, rendered any probable price in London insufficient to cover limits. An effort was then made to obtain authority to draw for a given amount, upon leaving the bonds in London, if that should suit the state of Michigan; but no such authority, except after sales made, could be obtained. The rate in London for a Michigan loan of six per cent, interest and principal payable in New York, would probably be $95 40-100, without allowance for commission and charges." Thus much of the report of Mr. King is submitted to you, in justice to all the parties concerned, and that the embarrassments attending the negotiation of this loan may be fully understood.

In the mean time, however, under the apprehension that the delays in the foreign negotiation might leave the board of internal improvement without the adequate funds necessary for the prosecution of the public works under their charge, five hundred

thousand dollars of state bonds was sold to a gentleman of this city at a premium of six per cent, payable in the current funds of our own banks. On this sale to Mr. Newberry, two hundred thousand dollars was paid, the remaining three hundred thousand dollars of bonds was returned to the state authorities, in consequence of the inability of the holder to meet his payments, or to negotiate his stock, either in American or European markets. Previous to this sale, a proposition was made to the Detroit city banks, but they declined entering into any negotiations.

For the further purpose of showing the embarrassments and difficulties attending moneyed operations during the period the Michigan loan has been in market, I beg leave to state, that on the seventh day of May last, a written contract for the entire loan, at par, was entered into with a gentleman of the city of New York, whose financial relations justified the conclusion that he could command the ability to meet his engagement. Eighty thousand dollars on this contract was paid, but it was subsequently cancelled, from the inability of the contractor to meet his additional payments.

Under these embarrassments, and amidst the continued increase of state securities in both the American and European markets, I closed a contract in May last, with the Morris canal and banking company, for five millions of state stock, including that issued to the Ypsilanti and Tecumseh, and Allegan and Marshall railroad companies. A copy of this contract, together with other papers relating to the subject, accompany this communication, and to which I beg leave to refer you.

The desire and expectation of all the parties to this contract was, that the state of Michigan should realize the par value of her bonds. By the terms of the contract, the sale was considered absolute, although the agreement itself, is shaped as an agency. The feature in the contract was urged from the fact, that as Michigan stock, introduced into the market through other sources, had sold as low as ninety-three or ninety-five cents on the dollar, the Morris canal and banking company were apprehensive, that in the first disposition of this loan, they should be compelled to sell below the par value of the bonds. They were unwilling to encounter this risk, and as the law forbade a direct sale at a less rate than par, provision was made for a commission under an agency, the company guaranteeing to the state the different instalments, whether funds were realized on a sale of the bonds or not. Under this negotiation, one million three hundred thousand dollars has been paid into the state treasury. For the first year the notes of the Morris canal and banking company were to have been received in payment, and to be disbursed by the state, but from considerations connected with our currency at home, drafts at ninety days were subsequently substituted, as appears by the