is threatened by the effect of very recent decisions rendered by the Court of Appeals in test actions brought and successfully maintained by corporations to obtain a construction favorable to them of the corporation tax laws, which decisions not only reduce current receipts by large sums to be credited as refunds of taxes, but establish new rules for future assessments at variance with the practice of the State in the past. Particular reference is made to the definition of "capital employed within this State" as laid down in the case of the Fort George Realty Company (179 N. Y., 49), and the construction placed upon the law imposing a tax upon premiums received by life insurance companies contained in the case of the Provident Savings Life Assurance Society (179 N. Y., 227).

It was impossible to forsee these decisions which are a great disappointment and surprise to the State authorities. While it is impossible to make an exact estimate of the shrinkage in revenue and of the amount of the refunds required that will result from this cause, the Comptroller estimates the loss at approximately $1,750,000.00 He further estimates that there will be a shrinkage in the receipts from the transfer tax of $1,000,000.00, based on the shrinkage of the first two months of the present fiscal year as compared with the first two months of the last fiscal year.

The extraordinary expenses of the present year will necessarily be large. Appropriations to meet the payment of judgments and other claims against the State must be made. We are confronted with a condition which is calculated to cause us to consider with utmost care the problem of adjusting receipts to expenditures. It seems unwise at this time to increase the burdens of taxation. The only alternative is the lowering of expenditures. It is obvious that while, if appropriations are sufficiently conservative, the surplus in the State Treasury is

sufficient to carry us through another year without increased taxation, a crisis is at hand and provision should be made to avert it.

APPROPRIATIONS AND TAXATION

Under our system of government the National and State Legislatures do not make up single budgets of appropriations, but many special appropriation acts are passed without much regard for the sum total thereof or for the relation it bears to the estimated revenue of the State. The finance committees of the two houses act to some extent as the responsible agencies of the Legislature to keep expenditures within the limits of the revenues of the State. I recommend that so far as possible the appropriations for the session be treated as a single act, that the amount thereof be kept close to the estimated indirect revenues for the ensuing year, and that they should not exceed $22,000,000.00. This will call for serious reductions in certain directions without corresponding increases except where the same are imperatively demanded. I am aware that while economy in the abstract is universally commended, the application of the principle to particular instances is surrounded with difficulties, and I urge upon all interests a patriotic and unselfish consideration of the problem.

TAX LEGISLATION

The tax on the surplus and undivided profits of savings banks appears in its practical operation to be a tax upon the depositors, and is, therefore, contrary to the long-established policy of the State to exempt from taxation the savings of those who make use of these banks. The amount of the tax is charged against the current earnings of the bank and is not taken from the surplus, and it is claimed that the bank is, therefore, unable to pay the same rates of interest to depositors

as it would if the tax were not imposed. A reduction of the interest on these accounts is a hardship to those affected thereby, and I recommend the repeal of this tax. The receipts from this source for the past fiscal year were $720,000.00, and the revenue thus lost must be made up; but at the same time justice seems to demand that this tax be abolished and that some more equitable method of raising the amount be resorted to.

I also recommend that the law be amended so as to meet the criticisms made by the Court in the tax cases above referred to, in order to secure to the State the revenue which it will otherwise lose if these decisions are allowed to control.

CENSUS

The Constitution of the State (Article III., Section 4) provides that an enumeration of the inhabitants of the State shall be taken, under the direction of the Secretary of the State, in the months of May and June, 1905. Since 1875 no complete census has been taken by the State, although in the years 1855, 1865 and 1875 the census was taken in a complete and thorough manner. The enumeration of 1892 was simply a count of the inhabitants of the State for the purpose of redistricting the State for the election of senators and members of assembly.

The value of a complete census is undoubtedly great, but such a census would cost at least $600,000.00, while a mere enumeration could be had for about $250,000.00. Considering the extensive work that is done by the Federal Government at the present time in taking the census under the permanent Census Bureau, whereby comprehensive statistics as to matters of public interest are collected and compiled, I am of the opinion that the State should conduct the enumeration at this

time at the lowest possible cost consistent with accuracy and thoroughness. I recommend that proper legislation be immediately adopted in order that the Secretary of State may be ready to begin active operations in the field at the earliest date possible.

INSANE AND CHARITIES

The management of the State Hospitals for the Insane, fourteen in number, with a total number of patients on October 1, 1904, of 25,019, was completely centralized by legislation of 1902, abolishing the boards of managers of the various hospitals and leaving with the Commission in Lunacy complete jurisdiction, both as to financial control and internal administration. The advantages of centralized control of the financial operations of the hospitals are evident. It is of the utmost importance, however, that this great system of hospitals, involving the expenditure of so large a sum of money annually and the care of so many thousands of peculiarly unfortunate and defenseless persons, should rest upon a broad basis of public interest and public confidence, and should retain the co-operation of philanthropic citizens throughout the State. In my opinion this can best be secured by leaving the control of all financial matters, as at present, in the hands of the Commission, and by providing for each hospital a board of managers, in general charge, through the superintendent, of the internal affairs of the hospital.

The present overcrowding of the State Hospitals, the large increase in the number of the insane each year, and the expiration next September- of the lease of the buildings now occupied by 1,200 patients at the Long Island State Hospital at Flatbush, make it imperative to take action during the coming session for a material enlargement of State Hospital accommodations. This can probably best be met, in part, by

additional accommodations in existing hospitals, and in part by the establishment of a new State Hospital. In increasing the accommodations in existing institutions the importance of providing for each State Hospital a building especially adapted to the treatment of acute insanity should always be borne in mind.

It is not the duty of the State to maintain in the State Hospitals for the Insane, at the expense of the State, any insane person who has property or who has relatives legally chargeable with his support who are able, in whole or in part, to pay therefor. While the attorneys for the various State Hospitals have in many cases been able to collect the charges for support of inmates from the persons and property liable therefor, no effective check is placed upon the commitment as dependent insane of those who are not properly State charges. The rapid growth in the population of the insane hospitals since the adoption of the State Care Act is not entirely due to the increase in insanity in the State, but may to some extent be attributed to the practice of commitment of senile or feebleminded relatives to the State institutions at the instance of those who are properly chargeable with their support. I recommend that before any insane person is permanently received as a State charge, the question be judicially investigated and determined whether such person is a pauper without relatives chargeable with his support and able to contribute thereto. The crowded condition of the State Hospitals would, in my judgment, be relieved if they were maintained strictly as institutions for the pauper or dependent insane. Mild cases of insanity in a purely technical sense, due to old age or other cause, where there is no more need for State treatment than in other cases of illness, should so far as possible be excluded from the State Hospitals and the patients cared for in the