for if guilty, their punishment could come only through the courts, inasmuch as they were out of office. The ordinary machinery of the law was set in motion by the Attorney-General with the purpose of securing the punishment of any delinquent. In almost any other case, in view of the zeal with which the Attorney-General was carrying on these prosecutions, I should not have deemed it necessary to take any extraordinary action. But the charges were so grave and had been given such widespread publicity that I felt warranted in asking the assistance of the Legislature to enable me to take steps that would guarantee beyond all possibility of doubt the prosecution and punishment of any criminal who could be discovered by rigorous and searching investigation.

Accordingly, I appointed Mr. Austen G. Fox and Mr. Wallace Macfarlane of New York, well-known members of the Bar, of opposite political faith to the accused, and the latter United States District Attorney in New York under President Cleveland, to assist the Attorney-General in the institution and prosecution of such criminal proceedings as should be warranted by the testimony taken by the Investigating Commission and the reports made thereupon to my predecessor. The Legislature appropriated $20,000 to pay the expenses of the investigation. After working for several months, counsel reported to me that, in their opinion, on the evidence obtainable by them, criminal prosecutions were inadvisable and impracticable. In the absence of evidence of fraudulent collusion between the State officers and the contractors, counsel concluded that the numerous instances of apparently unjustifiable favoritism to contractors, and of improvident agreements, reported by the Commission,

could not be said to be of a criminal character, though they did subject the State to a large pecuniary loss, and apparently showed grave delinquency on the part of those charged with the execution of the work. The delinquency shown justified public indignation; but it did not afford ground for criminal prosecution.

The special counsel stated at length their reasons for their conclusions, and the report is herewith transmitted to you.

There is probably no lawyer of high standing in the State who, after studying the report of counsel in this case and the testimony taken by the Investigating Commission, would disagree with them as to the impracticability of a successful prosecution. Under such circumstances the one remedy was a thorough change in the methods and management. This change has been made.

RESULTS

The new Superintendent has managed the canals with the care and skill which would be expected in a private business enterprise. It is unnecessary to say that the highest standard of integrity has been demanded. There has been no toleration whatever of inefficiency, and no retention of any man who filled a needless position or who filled unworthily a necessary position. The season of 1899 was one of unusual activity on the canals; but the good effect of the new Superintendent's administration was made strikingly evident when, at the close of the fiscal year on October 1st, the accounts were made up. For the last eight months of the fiscal year ending October 1, 1899, although more business was done, the canals were run at a cost of about $450,000 as against

about $590,000 for the same eight months of the preceding year, a net saving of nearly $140,000, or about twenty-five per cent. No work has been entered upon or permitted for any cause whatsoever save the needs of the canals. No man has been appointed save when it appeared that there was actual need of his services and that he could ably and honestly perform the duties of the place sought. No man who did his duty well has been jeopardized in his position; and no man known to have failed in his duty has been retained. In short, the canals have been managed with an eye single to the public good.

THE CANAL BOARD

Under chapter 544, Laws of 1899, providing for the termination of certain of the outstanding contracts aggregating upwards of four million dollars, contractors representing contracts aggregating upwards of $2,350,000 made application to the Canal Board for their termination. Before "finding and determining what amounts were properly due," a committee of the Canal Board consisting of the Comptroller, the Attorney-General, the State Engineer and the Superintendent of Public Works was appointed to examine and report upon the status of the contracts for the termination of which application had been made. The conditions surrounding every contract were carefully examined. Reference was made to the report of the Canal Investigating Commission, to the report of the Engineers to the Commission and to the original testimony upon which the report of the Investigating Commission was based; also to the reports of Messrs. Fox and Macfarlane, and Mr. Shove. The contracts, specifi

cations and agreements for extra work were carefully scrutinized and all the attending circumstances were considered as they actually existed.

TAXATION

The whole problem of taxation is now, as it has been at almost all times and in almost all places, one of extreme difficulty. It has become more and more evident in recent years that existing methods of taxation, which worked well enough in a simpler state of society, are not adequate to secure justice when applied to the conditions of our complex and highly specialized modern industrial development. At present the real estate owner is certainly bearing an excessive proportion of the tax burden. Men who have made a special study of the theory of taxation and men who have had long experience in its practical application are alike in conflict among themselves as to the best general system. Absolute equality, absolute justice in matters of taxation will probably never be realized; but we can approximate it much more closely than at present. The last Legislature most wisely appointed a committee to consider the feasibility of a thorough and far-reaching change in our tax laws; and there is good reason to believe that their forthcoming report will present a scheme which will receive the support of substantially all classes of taxpayers, and which will be of such a character as to commend itself to the most careful consideration of your body upon broad lines.

The law must not only be correct in the abstract; it must work well in the concrete. Experience shows that certain classes or symbols of property which in theory ought to be taxed cannot under the present practice be

reached. Some kinds of taxes are so fertile in tempting to perjury and sharp dealing that they amount to taxes on honesty the last quality on which we should impose a needless burden. Moreover, where the conditions and complexity of life vary widely as between different communities, the desirability and possibility of certain taxes may seem or be so different that it is hard to devise a common system that will work. If possible the State tax should be levied on classes of property, and in a manner, which will render it collectible with entire fairness in all sections of the community, as for instance the corporation or collateral inheritance tax is now collected. So far as possible we should divorce the State and municipal taxes, so as to render unnecessary the annual equalization of values between the several counties which has proved so fertile a source of friction between the city and the country.

There is a constant influx into New York State of capital ofttimes previously incorporated under the laws of other States, and an increasing number of men of means from other parts of the country, non-residents of New York, come into this State to sojourn and to conduct. and be at the head of various business enterprises which are drawn to New York as the financial center of the whole country. This calls for legislation which shall provide, in a broad and fair spirit, for taxing foreign capital. in this State, whether in corporate or individual form, exactly as we tax domestic capital doing business along the same lines.

I call your attention to the fact that the great burden of taxation is local not State. In the large cities the heavy local charges are mainly due to the action of the